Trelleborg AB (publ)

Welcome to the Trelleborg Q2 2024 report presentation. For the first part of the presentation, participants will be in listen-only mode. During the questions and answers session, participants are able to ask questions by dialing pound key 5 on their telephone keypad. Now I will hand the conference over to CEO Peter Nilsson and CFO Frederick Nilsson. Please go ahead.

Thank you and welcome to all of you to this interim call for Trelleborg covering quarter two, 2024. We will refer to the slides on our homepage as usual and use them as a guidance throughout the call and as usual I'm going to kick off, Peter. and give you some overall highlights and then supported by Fredrik Nilsson our CFO we're going to guide you through the financials and then I'm going to sum up with some comments on the running quarter and then of course at the end also as usual opening up for a Q&A session so once again back to this slide presented on home page and turning that to page two agenda slide starting off with some highlights and some comments on our business areas. Then Fredrik will guide us through some comments on the financial and then finishing off with a summary and some comments on the running quarter and then opening up the Q&A. Turning to page three, heading for a report, organic growth and improved margin. We are back to a positive territory, although slim, but nevertheless a positive territory in terms of organic growth in this quarter. And we also continue to deliver and improve margin year on year. So that is, let's say, the heading for the report. And more in detail, I mean, sales, 8.7 billion, basically in line with last year. We also have some discontinued operations that went away from this, which is then explaining this difference between the organic positive and the flat sales. M&A, which I also said, and what we're delegating as a discontinued operation, we sold off some check operations a year ago, and that is then impacting the overall sales results. Currency, not impacting sales in this quarter, a change from before. EBITDA, just shy of 1.6 billion, corresponding to a margin of 18.4. This 1.6 billion is actually the highest EBITDA today. We have delivered a slightly higher margin in individual quarters before, but nevertheless, in terms of operations performance, definitely one of the best quarters ever for Trelleborg in this structure. Items affecting comparability in line with our guidance, and Fredrik will get back on that, a little bit north of 100 million in the quarter. Cash flow, 1.2 billion. slightly lower compared to a very good quarter year ago. Fredrik will comment on that as well. This is a normal, let's say, development for us and the cash conversion on rolling 12 is still on a solid 18%. We also noticed satisfaction that we have completed two acquisitions in a quarter M&E group in Korea, which is then strengthening us in terms of seals for semiconductor manufacturing. And then also BP Tech Group, a Finnish company, which is also supplementing our presence in terms of rehabilitation of pipes. We also, as of yesterday, we are now the full owner of Baron Group. This was an acquisition, important one for us, get back and comment on that, important for us to strengthen our position within our medical activity, medical business area. Finalized yesterday and we are now eagerly integrating this into our operations. Once again, I will comment a little bit more on that later. Turning to page four, organic sales per geography. As you see, Asia growing by 4%, North and South America also by 3%, and Europe down by minus 1%. I mean, this is a little bit distorted. As you see, Asia, solid. North and South America benefiting from high project sales, and Europe impacted by a little bit lower project sales. So the underlying performance is more flattish if you compare to between Europe and North America. But nevertheless, this is the actual reported figures in the quarter. Turning then to page five, agenda slide again and commenting on the business areas. Quickly turning to page six and then commenting on industrial solutions, organic sales, slightly negative, supported and positive with a percentage point from M&A. Not much change compared to before. Residential construction in the industrial segments continue to be on the weaker side and industrial solutions sales in industrial solutions then supported by strong what we call project sales, especially linked to LNG and also some renewables will be then successfully been able to sell especially for some special solutions for offshore windmills, which was a good delivery for us in the quarter. Automotive sales continue to grow and we know that Asia is especially strong. All in all, I mean, well managed business and I mean, on the basis of this slightly negative Sales development, we still managed to deliver, let's say, a slim uptick in EBITDA, which is then creating an uptick 0.4%, but nevertheless 0.4 percentage points up on margin. Continued solid development in industrial solutions. And we also note now, as already commented on with satisfaction, that we're also able to deliver a good bolt-on acquisition for us once again on the pipe rehabilitation business turning to page seven on medical solutions back to organic growth i mean you say we were a little bit positively surprised here at the end of the quarter especially the north american market picked up and we were able to actually sell more than we kind of anticipated in the beginning of the quarter and we also note overall this in their inventory inventory adjustment that has been hurting us a little bit for quite a few quarters now we see finally that that is easing off we have to be careful with the term conclusions on this but this is actually this is what we see in the figures at the moment um we also know although this is sales up we still are down a little bit today this is still let's say in a creation mode of the new BA. We have been adding some costs into that structure and we also continue to invest in specific segments where we see long-term both growth and good profit possibilities. And then of course, big thing actually in this quarter happened after the quarter when we kind of finalized the Baron acquisition. So turning to page eight, some comments on that. Baron is a major stepping stone for us here to create a fully global business. I mean, we now can say that we are probably the most global, we are the most global company in terms of this segment would be a focusing basically on liquid silicone for medical applications. And with this acquisition of Baron, we will get the access to a very good manufacturing facilities in Asia and Australia. and this is something now we're looking forward to to continue to develop and creating a structure within this medical area will benefit for long term in this ride towards let's say 500 million euros of sales and a margin in line with what we guided 20% so we believe we are in a good good track on on that development and we are getting these the different let's say pieces in place now in order to to push further in that direction so then turning to page nine a little comment on ceiling solutions and back to organic growth the same heading as for for the medical solid organic growth in the quarter also benefiting from from M&A also let's say supporting us with a couple of potential points in the quarter We still note, although, that sales in the yellow industry is still declining in most markets, slightly better in Asia, flattish in Asia, where we see the overall yellow industry segment still being challenged, and linking a little bit to off-highway construction equipment, those kind of products, is still hurting us a little bit. But although we do see the light in the tunnel in that segment as well, um deliveries automotive industry increased in all regions i mean we are benefiting from good growth in in our focus segments in automotive and it's basically happening all across the world for ceiling solutions and on top of that also very strong continuous strong development in the aerospace with good order intake and good deliveries overall ebta is improving but not in line with sales and we continue been guided for here we continue to invest in in some market segments where we believe we can do better and we create a better footprint for us for the long-term benefits we continue to invest we continue to to build a better business long term in order to get to our long-term targets both in terms of growth and and profit and as part of that also we also with satisfaction um finalize this acquisition of M&A Group in Korea in the quarter, which is creating a new base for us, especially targeting the semiconductor manufacturing, which is an area we do believe in having good prospects for us going forward. Turning to page 10, some comments on sustainability. CO2 emissions continue to develop very nicely. We are, as you can see here, year on year, a substantial improvement. Turning to page 11, then you can see also, let's say, one of the major drivers for this is actually that we are increasing substantially the share of renewable and positive free electricity as part of electricity consumption. So overall, a very good development in this area. Back to page 12, agenda, financials, and then handing over to Fredrik to guide us through on page 13 and onwards.

Thank you, Peter. Let's start with sales development. Organic sales up 1% in the quarter. Looking at the business areas, as Peter mentioned, industrial solution declined 1%, while medical solution reported growth by 2%, and ceiling solution up 5%. Reporting net sales, was on par with last year. Organic sales, as I said, up 1%, but structural changes reduced the sales by 1%, and currency was net unchanged. Moving on to page 14, showing the historical sales growth. And as you can see, the second quarter was below on our sales target. That is 8%, but the positive here is that we are back to organic growth. Moving on, page 15, showing the quarterly sales on a rolling 12 months for continuing operations. As I said, sales 8.7 billion in the quarter and at the rolling 12 month basis at 33.8 billion. Moving on to page 16 and looking at the EBITDA development and also the margin development, we have an EBITDA in the quarter of 1,599,000,000, which was an increase by two percentage. And as Peter also said, it's the best ever for a single quarter. We saw profit growth for both our two largest business areas, industrial solution and ceiling solution, and a minor decrease for medical solution. In the result, there was a minor translation difference of 18 million in the quarter. Looking at the margin, Good improvement up from 18% up to 18.4%. And this is despite that we initially have some acquisitions with lower margins and we also continue to invest in the organization in some fast-growing market segments. Looking at page 17, the rolling 12 months EBITDA actually amount exactly to 6 billion with a margin of 17.7%. And as you can see in the chart, the EBIT growth over the last 12 months has been 4%. Moving on to page 18, going into some more details in the income statement. We have items affecting comparability in the quarter of 111 million, which is entirely related to restructuring costs for adjusting our cost base. Looking into the financial net, you can see minus 63 in the quarter versus 140 last year. And I would like to highlight here that last year, including the financial one-off income of 218 million, which was attributable to some interest rate swaps that we closed when we divested the tire operations. Tax rate for the quarter amounted to 24%, which is slightly below our underlying tax rate of 25%. Moving on to page 19, earnings per share. If we look at earnings per share excluding items affecting comparability, it's 449 in the quarter versus 471 in Q2 last year. But again, The impact we have here also from the closing of the interest rate swap had an impact of 173 million after tax, which translated into earnings per share is 0.68 in the Q2 numbers for 2023. Adjusted for that, we have an EPS improvement of 11% year over year. And then if you're looking at the group including the digested business, then you can see that we have a 4.14 versus 21.67. And the reason here is, of course, we have a huge impact on the discontinued operations last year, also including the capital gains related to the divestments of the tire and the printing blanket business. Moving on to page 20 and cash flow. And as you can see here, we have a cash flow of 1 billion, 190 million in the quarter. And we have a positive impact from EBITDA of 59 million in the quarter. And then you can see that we have somewhat higher working capital in the quarter. And that was related that we have seen some increased demand in certain segments, which has tied up a little bit more inventory to secure supply to our customers. And then also a little bit higher capex, which is in line with our previous guidance. That is that we have ongoing greenfield projects that are going on in 2024 as well as it did in 2023. Moving on, looking at the cash conversion. It's actually unchanged compared to a year ago. We have a good cash conversion of 88%. And that is despite that we are seeing a higher CapEx level. Moving on. To page 22, looking at the gearing and leverage development. We are now actually back to net debt position end of the quarter of 1,981,000,000. We have during this quarter, I would like to highlight, bought back shares of 937,000,000. And we have also paid out the dividend of 1,617,000,000. So the debt equity ratio was 5%. And net debt in relation to EBITDA was 0.3. So our balance sheet remains very strong. Looking at page 23, return on capital employed, 12.7% in the quarter. And our capital employed was impacted by acquisition with initial lower returns. Moving on to the guidelines for the full year. CapEx, 1.6 billion unchanged. Restructure and cost, 300 million. A small increase of 50 million from the last quarter. So we're now going for 300 million. Amortization of intangible assets, 500 million. This is excluding the baron acquisition. And we need to come back with more information when we have them calculated. Underlying tax rate, 25%. And by that, I would like to hand back the microphone to Peter.