Trelleborg AB (publ)

Welcome to the Trelleborg Q3 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 call where we're going to discuss and present our Q3 results for 2024. Speaking, Peter Nilsson, President CNO, and also on the call, you will also have Fredrik Nilsson, our group CFO, and potentially, depending on the questions, Kristoffer Sjögren is also here. join in our head of investor relations if there is any question heading his way. So with that we start and turning now which is already on I see the agendas where we have our usual agenda for our quarterly call starting with some general highlights, some comments individually on our three business areas. Then Fredrik gonna join us in the call and guide you through the financials and then we summing up as usual also with the summary on the quarter again and then some comments on the running quarter and then finish off the call with the Q&A session. So turning to page three heading of our report is I think mixed performance. I'll get back and comment a little bit more about that for what you actually mean by that. Overall Sales is flat in line with last year, impacted with steel, which we think is kind of a strength, still organic sales, positive. And we also know with satisfaction that we also have M&A assisting us. And then, of course, we have currency this quarter moving in the wrong way, of course, impacting both sales, but as well impacting the EBITDA in the quarter with some translation differences on the currency. EBITDA is ending up. at 14.64, let's say a slight downtick compared to a year ago. Basically, a downtick fully explained by the currency, but of course also with the underlying business. This then goes up, resulting in a margin of 70.3, which is a slight down to a year ago. But nevertheless, we are satisfied with quarter. We feel that we've been able to manage this quarter flattish development in a good way. I mean, we are still exposed to inflationary environment and we've been able to compensate fully for that. And at the same time, of course, we are also still building a lot in Trelleborg. We are still investing heavily and we are still investing in order to position Trelleborg even better for the future. We've been able to absorb that. And also commenting on EBITDA, Fredrik will probably get back and comment on that as well. We also note that we have kind of quite high because central cost in this quarter related to continued high M&A activity. We also continue to improve the group long term. We have some items affecting comparability of 73 million in the quarter. Cash flow, strong cash flow, although down from a year ago, but last year was very good. We are still managing the cash in a good way. We are still releasing working capital. And also behind this is also a high capex level. I mean, we have several new factories coming up in new growth areas with both for us, both growth areas as well as good kind of cost environments. So that is also impacted the cash flows overall. Also, we are satisfied with the cash flow. We also know the satisfaction in the quarter. We've been able to to close the deal with Baron Group, which is then substantially improving our position within our medical business, both with regards to exposure to, let's say, various medical subsegments, but also geographically expanding us. And now we feel that we created a very good good base for continued good organic growth in this area and also of course continue to scouting for Bolton acquisitions to even strengthen that but in the development of our medical business Barron's group is a very good add-on for us. We also know that we had a smaller supplementary acquisition made in the US which is then strengthening it in the south of the US distribution of distribution company selling seals and solutions for for sealing with the focus on south it is alabama based which means also covering luciana and texas in a very good way so that is a good geographical add-on for us in in north america for the ceiling business so this is really the overall heading so turning to the page next page page four About organic sales, here you see we have some mix. We have kind of a flattish development, if I'm saying Europe. Slight downturn in North America related primarily, we will be commenting later on, primarily related to what we call our fluid power business, our business in North America related to construction, equipment, agriculture, and machinery, where we saw a dip in the quarter. And then Asia and the rest of the world performing very well with a strong growth. So in total, they're ending up at 1%. But this is a mixed performance, and we believe that this North American drop is more inventory-related. It's not kind of a full reflection of the underlying demand. It's more an impact we have in the quarter on some underproduction for some of the key industries in the U.S. in the quarter. And then turning to page five, agenda slide again, and quickly then turning to page six to discuss about the business areas, starting on page six with some common industrial solutions, organic growth, heading organic growth despite tougher markets. We note here also organic sales is up by two, M&A also adding another percentage point. Mixed demand, we start with the negatives, we still have a muted demand in the construction related businesses here. Mixed demand in the pure industrial segments, which is mixed, a little bit difficult really to get to a very firm conclusion on exactly what is happening. It's mixed in industries, it's mixed a little bit throughout geographies. Overall, then, we have a good demand. We're selling to LNG and oil and gas, and major infrastructure projects is continuing very well in the quarter, and that is kind of beneficial for us in the quarter. And EBITDA and margin is lower compared to a year ago, but that is really mainly related to tough comps. For those of you following us, you know that a year ago, we had an extraordinary project deliveries for the Panama Canal, which is then, let's say, we benefited at a loss in that time. We don't have the same orders this year. So we feel that 15% EBITDA in this quarter is actually quite good. Also, those of you who are following us know that industrial solutions is the area which is still a little bit more exposed to Europe and therefore also a little bit more exposed to the kind of vacation period in the quarter so this was once again a little bit extraordinary good a year ago but overall we are satisfied with the development in industrial solution solutions business turning to page seven and the medical business has already commented is a new platform being created in the quarter a strong benefit from from the the acquisition of baron Well, we see it's been consolidated here for mid-July. And of course, it's going to be a first full quarter here in the running quarter. Underlying organic sales is kind of flattish, which we see as somewhat positive in a way. You know that we and other, let's say, component suppliers have been impacted by this, let's say, focus on inventory, which is happening among our customers. And we do... It's a little bit... still, let's say, in some sub-segments, there's still an issue, but we see we are getting out of that area, of that kind of situation, step by step, but we cannot say that it's going to be the end of it, but nevertheless, we feel that the opposition is good, and we are getting good, let's say, momentum going forward, once again, especially related to the integration of Baron. Baron is also assisting us with both their underlying performance as well as some immediate synergies which is then improving both EBIT A and the margin and we are in the quarter getting close to this 20% which we feel is a good level going forward. We have the integration has been good and we are basically no issues that has been Well managed by the business and also the new colleagues coming in has also been doing that in a very positive way. Also to note, which is kind of hurting the cost in the quarter, we have several, let's say, new projects ongoing here. We have, let's say, a new factory coming up in Costa Rica. We are expanding one of our major facilities in the US. We are also developing a new factory or sub factory, you can say, in Malta. So there are several investments ongoing in our medical solutions area in order to make sure that we are really utilizing this global footprint that we are developing and making sure that we can take care of the customers wherever they are in the world. So good development in medical solutions, and we are excited to continue our journey here with our medical solutions business. Turning to page eight, let's say stable performance in tougher markets. I mean, you have already noted that I commented a little bit on the down in general industry in Europe and North America, Asia, is up considerably in certain areas, a bounce back from previous declines. We also note that automotive industry is still doing good in the quarter. We have been commenting on a few quarters now that we feel automotive has somewhat been overperforming and we are still watching it looking good short term, I should say. But I mean, there are still Still some noise in the background and we cannot continue in a way to overproduce cars. And that is something that we need to watch. And we are watching it and we are addressing it and we are preparing for a slightly more downturn in this industry. We know it continued very strong sales to aerospace. Good underlying market. I mean, for those of you following aerospace is aware that there's a multi-year full order book. I mean, some people talk about 10-year full order book. Let's see. But nevertheless, the order book is solid. And let's say the actual sales is more impacted by some logistic challenges in the industry, which is related to basically all the industry. I mean, I think it's well aware what Boeing is discussing in the US. And then we have, let's say, Airbus in the rest of the world also discussing. But the underlying demanding is strong. We continue to grow our market share. We continue to expand our offering. And so we feel aerospace is looking very bright for a long time. All this is a mixed picture that we have here. I mean, EBITDA is unchanged, which we think is a strength that we are able to deliver same margin as last year, even though we have this kind of mixed performance all over. Also, this continue to scout for Bolton acquisitions, not a major add-on in the totality, but it's a very important add-on with CRC once again for the south of US. So that is the kind of acquisitions we like is very limited risk and immediate, let's say, add-on and we can immediately expand their offering and we can immediately get access to customers that we didn't have before. So this is the kind of acquisitions we like. Leaving that, turning to page nine, some comments on sustainability. We continue to improve in the CO2 and it's getting down to levels now, which is fairly low. But of course, we continue to improve. We are now low in CO2 emissions overall. And that is something also that we are, once again, continue to address and we will continue to focus on this and improve further. And then turning to page 10 and looking at the share of renewable and fossil free electricity, we are also here up to 87%. And of course, we are talking the maximum here, but also here we're getting, let's say, to a level where we cannot improve that much anymore. We have some legislation there in certain countries you cannot really buy. renewable electricity anymore yet and that is something of course we're working on but also here we expect it to improve but once again I mean we cannot kind of continue to improve in the same pace as we have for the last few years here. Turning to page 11 agenda slide again financials and leaving them to Fredrik and yeah page 12 Fredrik please go ahead. Thank you Peter.

So let's then move to page 12 and looking at the sales development. Organic sales up 1% with organic growth in all three business areas. Industrial solution reported organic growth by 2%, while both medical solution and TSS, the ceiling solution, grew by 1%. Report of net sales on par with last year at 8,442,000,000. As just mentioned, organic sales increased by 1%. Structural changes added 2 in the quarter, while currency effects were negative by 3%. Moving on to page 13, showing historical sales growth in constant FX. And here you can see that the third quarter was below on our sales target, but back to growth. Moving on to page 14. showing the quarterly sales on the rolling 12 months for continuing operations. Here you can see that the sales in the quarter reached 8 billion 442 million, and at the rolling 12 the sales amounted to 33.8 billion SEK. Moving on to page 15, looking at EBITDA and margin, which was slightly down in the quarter. And if we start with the EBITDA excluding items affecting comparability, it declined by 2% to 1,464,000. As Peter mentioned, we have a strong profit growth in medical solutions, while we saw a minor decline in ceiling solution, and then down 8% in industrial solution. And as Peter also pointed out, we have some extraordinary sales last year. Also commenting on the central costs, If you're looking on the sequential development, we are pretty much in line what you saw in Q1 and Q2 with our third quarter, but the third quarter last year was exceptionally low. In the result for the quarter, there was also a negative translation difference of 47 million compared to the corresponding quarter last year, and margin 17.3 compared to 7.6 last year. Moving on, page 16, looking at the EBITDA and EBITDA margin on rolling 12. We have an EBITDA on the rolling 12 of 5,977,000,000 with a margin of 17.7%. And EBITDA has increased with 1% during the last 12 months. Moving on to page 17, the profit and loss statement and some more details on the income statement. We have items of 15 comparability in the quarter of 73 million, which is entirely related to restructuring costs for adjusting our cost base. Financial net reached 128 million in the quarter versus 44 last year. I would like to highlight that last year we were sitting with a net cash position and we had interest income of 73 million. And now, of course, when we are back to a net debt position, we don't have the corresponding income in this quarter. We also have some interest costs of 23 million in the quarter related to long-term earnouts. which is then handled according to IFRS 9 with no cash impact, but it's reported as an interest expense on those liabilities. Tax rate for the quarter amounted to 25%, which is fully aligned with our underlying tax rate. Moving on, page 18, earnings per share. And if you look at them exclude items of comparability, it's amounted to 3.78 versus 4.19. And it's down 10% mainly due to the higher financial net. And for the group as a whole, earnings per share was 3.54 in the quarter. Moving on to page 19, the cash flow. Operating cash flow for the quarter amounted to 1,422,000,000. We have a Stable EBITDA year over year. Cash flow for working capital was positive in the quarter, as you can see, 88 million, but was even more positive last year with 320. So continued good work with our working capital. CapEx in line with communicated guidelines of around 400 million per quarter. And leasing is now back to normal level in Q3 this year. Last year was impacted by a long-term lease related to one of our Greenfield projects. Moving on, page 20, cash flow conversion, still on a good level, 85% on the rolling 12-month basis, and we should have in mind that we continue to have a higher CapEx level.

If we then continue to the next page, looking at the

Gearing and leverage development, we have now a net debt at the end of the quarter of 5,381,000,000, including the liabilities related to the earnouts. We have done share buybacks of 756,000,000 during the quarter. We have paid for the Baron acquisition. So the debt equity ratio was 13% when we left the quarter. And net debt in relation to EBITDA was 0.8.

In other words, our balance sheet remains strong. Moving on to page 22, return on capital employed.

Dropped a little bit and now is ending at 12.3 on a rolling 12-month basis. The capital employed increased during quarter due to the acquisition and our continued high pace on greenfield investments. Finally, some guidance for the full year of 2024. CapEx 1.7 billion, a minor increase from 1.6 to 1.7. It's more timing that we have a good pace of our ongoing greenfield investments. Restructuring costs, we expect to be the same as earlier guidance, 300 million. Amortization returnables also unchanged from 500 and underlying tax rate of 25%. By that, I would like to hand back the microphone to you, Peter.

Great. And then we move on to page 24, agenda slide again. And then quickly turning off to the summary and outlook and turning to page 25. We feel this quarter, we said mixed performance, a little bit not fully in line in all aspects. But I say, generally in line with our expectations going into quarter, but still some impact here during the quarter once again especially related to the to the kind of machinery construction equipment and agriculture where we have some down in the quarter which we also noted by the way are some comments on that I mean I trust you also noted that some of the key players in these industries have let's say openly told that they're under producing which was a little bit Not a surprise, but it was kind of unexpected that I made this drop a few of them. So we do expect that to be a temporary impact and it's going to be better. It's going to be pulling us a little bit into Q4. But overall, we don't see that being kind of a negative long term. Overall, solid performance. I mean, we are also looking behind these figures. We are in trouble. We are investing more than ever. We have several new plants coming up and several initiatives pushing. We continue to focus on our speedboats. We feel that we're moving forward in several of the speedboats areas. We are improving our position in aerospace. We are now with the Baron acquisition, medical growing, which we have not noted before. We are also happy with the integration of the acquisition we did in Korea earlier here, which is then reinforcing our position in semiconductors. our position in LNG is strong. And also here we notice, I mean, once again, this relatively small acquisition CRC in Alabama, but that is in a way we want the business to move also more into solution selling, getting close to the customer and expanding our offering and our exposure in terms of solution selling and more, let's say, value added activities. So overall, and on top of that, we also see Asia growing with Baron. We continue to invest in Asia. We have factories coming up in Vietnam. We're expanding our footprint in China. We're also investing in India. So we see that also in these aspects, we're moving forward, continue to work with M&A. We have some continued activity in that area, and we do expect something more. but with the primary focus there being on Bolton. So overall, a good quarter. But in the quarter, of course, volume is challenged in a few areas, but we feel that we are managing this in a good way and we're balancing the cost focus with continued efforts to improve Trelleborg long-term. And we are in total, in the quarter, building a better and stronger Trelleborg. Turning to page 26, outlook, we decided to change the guidance a little bit to slightly lower. No drama in this, and we're talking kind of individual percentage points here. So we don't see this as being any kind of dramatic change, but as always, we want to be transparent, we want to be open in the way we look at it, and we do see that the sequentially getting down a little bit the majority of this downtick is once again related to this what we already mentioned a little bit machinery sales or sales for us the machinery as those of you following us know one of our biggest segments especially within ceiling solutions is what we call fluid power which goes into different kind of hydraulic and pneumatic equipment and that area is where we really see the downtick we also do see and believe that now we're going down really to the details but nevertheless we see that the Christmas this year probably going to impact the business somewhat and we are a little bit concerned that it's going to be let's say slightly earlier stops on a few of our customers and that is also something that we have been kind of taking into our let's say evaluation when we say this so we don't want to Elevate this to anything big, but nevertheless, as always, we want to be transparent and we believe that it's going to be down with one or two percentage points. That is really what the guidance is supposed to be indicating. So this is the comments on this. I expect some questions on that. So then turning to page 27, agenda, and then quickly to page 28 and opening up for questions and answers.

So please, please go ahead.

If you wish to ask a question, please dial pound key five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key six on your telephone keypad. The next question comes from Eric Gorang from SEB. Please go ahead.

Thank you. Three questions.

First one on your growth in Asia, if you could provide a bit more color on the dynamics behind that, what specifically is supporting it. And then secondly, on all these investment projects you're doing now, how speculative are they in nature? How sort of good visibility do you have on load initially as you wrap those up? And then secondly, if you can remind us how you think about normalized capex to sales for the business.

Thank you. Growth in Asia is basically all over. We are growing. I mean, some of the areas which is extraordinary is the LNG growth and we also have some infrastructure growth there where we are kind of expanding our presence and at the same time, how should I put it, the focus on quality in certain areas. We also have some sizable projects for offshore windmills in the quarter where we do some special sealing solution for the construction of offshore windmills. So there is some project sales which is impacting us, but we do expect that part of it to continue because we are growing our presence and we are getting better in getting specified and getting into this kind of projects. And besides that, we have had, especially in China, for kind of machinery construction, it's been fairly depressed. I've been a lot focused on on inventory there, on financing as well aware, and that has been kind of a strong, surprisingly strong bounce back on that, to be honest. But there, we see that we're continuing at least for the next few quarters, good order intake and solid position. But of course, it is a slight bit, slight extras on these project sales. Also, not small, but it's growing quickly, so semiconductor presence, as there is several good incentives in Asia. I struggled really to find anything which is bad in Asia for the time being for us. India is also bounce back mode and that is also growing and then so that is also connected to the speculative investments of what you call it. It's not really the way we see it. We are lacking capacity in China at the moment but we don't expand in China so we're building up a little bit in Vietnam. to be able to balance that. India, we have outgrown the facilities with a normal kind of organic capex. If we talk to Morocco, investment that is following also with aerospace establishment already orders for the Morocco sales. Costa Rica is another one that is also supporting the Americas in a way and making sure that we can globalize a few more customers. So all in all, we don't, we feel that we have solid grounds for most of this. And then we don't expect that new investments to be any kind of loss makers. We do expect them to bring profitability basically as soon as they are up and running. So we are not kind of doing this and wishing for the best in a way we, we, we all, all of them is, uh, based on a solid business case and, and with the solid also strategic rationale behind them. And you will have more of those. I mean, we continue to focus. We are still feeling actually in certain areas, especially of Asia, we, we, we need to increase our presence further. So, so, I mean, without, we probably looking a little bit more to India expansion. We also need to, uh, probably look at some expanded presence in Southeast Asia. So hopefully, if everything goes, of course, it's linked to customer commitments and stuff like that. But we do have more activities going in this direction. But then on the CapEx level, maybe, Fredrik, you can CapEx guidance or whatever you want to call it going forward.

Yeah, you asked, Erik, about the underlying normalized CapEx to sales. And I will say... That should be in the range three and a half to four in that range when we are past this peak. That will be high also next year. And then we should start to see it sliding downwards. And that is based, of course, on earlier communicated investments in new greenfields. So hopefully a little bit lower than we are seeing this year, but then it should start to slide down.

It will be lower in 2025 and 2024, but we don't know exactly how much it will go down. And then we'll continue down further in 2026. So that is the way we look at it.

Okay. Thank you.

The next question comes from Forbes Goldman from Pareto Securities. Please go ahead.

Great, thank you. One question on the Minnesota acquisition and how the state of that integration is going so far and how you see the trajectory of the TSS margin getting back to the 23% target. Thanks.

No, the MRP now has been, we have owned it for some time and we actually kind of done the next step in integration now. We are kind of separating the business a little bit. Some of it is going into medical and some of it is going into TSS. We still feel that this is a very good strategic acquisition for us. It's improving the position. It's going to drive up the profitability in North America, but also drive up the organic sales. we have some headwinds in some construction related businesses related to this but we also have some tailwinds in other parts of the business of course it's not always go exactly as planned but we have something doing better than planned and something slightly worse overall still developing in line with our expectations and our kind of guidance that is going to improve over time still stands fully and great and

On M&A, it's clear that you have ramped up your acquisition pace in recent times. Is there anything particular that you're seeing really driving that and what can we expect going forward from you?

We continue since long time to work on acquisitions and this is, let's say by nature for us, a little bit bumpy. We know our targets, we know what we want to buy, but all of that is not kind of available So you need to wait for the right timing. It's a little bumpy at the moment. We have high activity level. We have several kind of M&A projects pending. But don't misunderstand that. It's not at all on the level of Barron or the level of Minnesota. And here we're talking, let's say, tens of millions of euros. And that is the kind of the level you will see. But still, there is a number of those. And we hopefully... You never know until you have it in the box. But nevertheless, we see a positive move and we have several activities ongoing with decent valuations also, I should say. I mean, we still don't see, if I may say, the private equity guys really outfighting there. I think most of them in kind of still a selling mode. So we don't really see them being as active as they were a few years ago. And of course, we want to use this opportunity to be able to try to conclude and get to closing on the deals that we are discussing. Once again, don't misunderstand us here. This is going to be nice bolt-ons. It's going to be improving, let's say, already existing positions. We are not looking to further expand beyond where we are today.

All right. Thank you.

The next question comes from Hampus Engelhau from Handelsbanken. Please go ahead.

Thank you very much. Two questions from me. First, thank you very much for the more transparency on the guidance. And it's a follow-up on that. Is the reduced outlook on a geographical basis more related than to North America when you're talking inventory reductions at hydraulic manufacturers? And then second question is on pricing, Peter, if you could maybe Talk a bit about what price contribution you had during the quarter and also what type of discussions you have on price going forward. Thanks.

About geography, the first hit here was mainly North America. We do expect Europe also to be a little bit hit by this. Especially you, Hampus, you're following those guys and you see that they still have kind of solid order books, but the order intake is a little bit down. and i don't know they're probably we read it as there is stronger focus on cash flow and stronger focus on inventory levels underlying this demand still relatively solid but we know that some of the bigger players in this industry they have openly communicated that they are under producing and that was already always you have to look back and look at yourself and see why didn't we understand that because now we will look back in the comments from several of those. We saw that they commented on that already at the end of last quarter that they're going to underproduce. But then it was running with a good pace, actually, in the beginning. But then when the vacation period came, they were kind of pulling back and extending the breaks, extending that a little bit. And then that kind of seeped through the industry. And then we do see that in North America already in the quarter. We do expect it to soften a little bit in North America in Q4. But then we expect it to be slightly more impacted by that in Europe. But once again, it's a little bit, it's challenging to be honest, because it's not really the underlying demand, it's more the production planning of some of the key contributors in this industry. So that is really trying to be fully transparent, but I mean, they are not fully transparent to us and we need to judge it in the best way we can. But that was kind of a little bit, if there was a slight, negative in the quarter, this was kind of the negative what we saw. I don't know if that is enough for you, Hampus, on that one. On the pricing, I mean, we still have positive pricing, of course, year on year. Still have some price increases kicking in. It's not at all at the same pace as before. But we still see there is room for some price adjustments upwards. We don't really want to share exactly the the the percentages here but but for sure the volumes was negative year on year so so let's say what brought us into organic growth was was the price component thank you the next question comes from agnieszka vilela from nordia please go ahead

Perfect, thank you for taking my question. So I just wanted to start and ask about aerospace. You said that the impact from the strikes in the quarter has been quite limited for you so far, but we have seen some peers actually talking about this factor affecting their orders and sales. So a question here, do you expect a slowdown in the aero business in Q4 because of that?

First, we don't see really a downturn in orders, to be honest, and it's more the call-offs in a way. So they still want to make sure that they get the products. It's still underlying in the industry. It's still kind of a lack of manufacturing capacity. So, of course, I don't know. So both of these key kind of companies in the industry, they are still placing orders and they still want us to... to be ready for an uptick. And then, of course, we see this more as a very temporary impact. We don't know. I don't know. I saw the flash this morning that they declined this offer in Boeing again. I think they accepted the salary, as I understood, but now there was some pension things also on the table. So I think Boeing is eagerly trying to solve this but also that one we must be aware it's not all of Boeing so that is the Boeing facility in Seattle and there are some other Boeing facilities still running and pushing of course they're not going to be able to change dramatically over time but this kind of lack of overall capacity industry is for time being also utilized in other plants of Boeing to be open about that. but we do expect that to be solved. So it's not, we do expect an impact, but it's difficult really to, we don't expect the impact to be major if you're sitting here today. And then of course, still on the European side or EBO side, I mean, they're still pushing. I mean, it's challenging times, but we do expect it only to be one or two quarters. So we don't see that as being an impact for long term. Orders are still growing. I mean, that is the, so the order book is still growing. But the call-offs for the next few months is potentially down.

All right, understood. And then you mentioned, Peter, that you expect that Christmas will impact the business with likely earlier stops at a few of your customers. Have you got these indications from the customers directly, or is it your thinking about how it will fall out?

We see it. I mean, the Christmas, the way it's placed this year, is probably going to be some I don't know if you looked internally, it's only two or three vacation days and then you get two weeks off. So, of course, I mean, I believe that's going to be impacting the European business. And we know Christmas is not that much impact in North America or Asia, probably not at all. But the European, it ought to be, it has to be some kind of impact on, let's say, the running of the factories due to this. And difficult to estimate, but definitely on the negative side more than on the positive side.

Understood. And then my last question is to Fredrik. We have seen somewhat elevated central cost in the quarter. What level should we expect going forward?

I mean, we're pretty much, sequentially, if you look at Q1, Q2, we are pretty much in line with the two previous quarter. But as you said, there's a significant increase compared to Q3 last year. But we have a high M&A activity level going on. And that is, of course, adding some extra cost there. So I think you should be looking at the current, some kind of average over this year. I think that will be the run rate going forward, Agnieszka.

It's on a high level, but we're talking 10 million crowns or something, so it's not really a major... But it's slightly on the high side.

Perfect.

Thank you for the clarification. The next question comes from Timothy Lee from Barclays.

Please go ahead.

Hi, thanks for taking my question. I have one question on the medical solutions business. So I think last quarter we used to talk about demand start to improve a little bit since the later part of the quarter. but it turned out in the third quarter, the organic sales growth in the third quarter is 1% is even slightly below the 2% in the second quarter. So can you elaborate a bit more about the situation right now and how do you see the, like the order trending or the demand trending into the fourth quarter? That would be super helpful, thank you.

Yeah, we don't expect, I mean, The medical industry is a bit different. We still have some kind of COVID impact, if I may say, even though COVID is a few years behind us now, but we still have some overordering in a few segments, which is still impacting us. The comps on that one is still impacting us in a way in this quarter. We do expect that to go away, and then the comps will be slightly easier if I may say going forward and still I mean we say we're learning it sounds strange but it's still a little bit bumpy I don't want to complain about our customers but sometimes it seems that they don't really have fully fully control of their it's a bit bumpy order intake in that one and that is something also which is very difficult for us to judge exactly what's going to happen in individual months or individual quarters we still know that overall we move our position is going forward and probably you need to see this over a little bit longer time than individual quarters because it is a little bit bumpy. It's a few bigger customers and they, depending on how much focus they have on cash flow and what they're doing, it's impacting us as well. But overall, we are positive on this industry and we do expect it to show good organic growth over time, but it's still going to continue to be impacted by individual quarters. I mean, because it's to always try to be as transparent as possible. I mean, it is a little bit tricky to judge for individual quarters, because once again, they are bumpy in the orders, a few of the bigger customers here. So this is, I think some of you is following other medical businesses and you see the same there. So that is the, unfortunately, the way it is here, Timothy. That is, I cannot say anymore. And that is why also the guidance is a little bit, tough for individual quarters. But once again, overall, it's a positive growth story for us and I guess for the industry as well.

Understood. That's a whole And another question would be also on the medical solutions, about the margin. So we have a very good margin development into the quarter, 19.4% after the consolidation of the parent group. So it is already close to your target of 20%. So is that something that we can see in the next quarter, going to the above 20% level? And what do you see the segment margin, you know, be a reasonable level that we can assume for 2025.

Yeah, no, down to detailed guidance. But I mean, I still believe that we are still things to do in medical. We are also here building the organization. We are, as I already commented, we are investing in a few more factories. So we have some extra costs in the business area. And we still, as you say, still performing close to 20. We do expect that the medium term long term this will be a kind of a contributor to the group margin if I may say contributed to the overall margin target but I mean that is nothing that we actually we want to of course continue to do as good as we can but we are not let's say doing anything here to optimize it short term we are still building this area we are still as I said investing we are still growing and With all of that investments coming into the organization, we are still close to the 20s. So, of course, we are aiming to continue to improve. But, I mean, once again, it's not a short-term focus. And here we want to deliver a good margin with good underlying growth. And if we want to get good growth, we also need to invest in the organization. We need to invest in new facilities. But we are happy with the development and we are confident that we're going to continue to improve. But once again, that improvement is not really targeting Q4 of 2024. That is something we want to build long-term and something that we want to create a stable long-term contributor to Trelleborg, both in terms of margin and in terms of growth.

Very clear. Thank you very much. The next question comes from Klaas Berglind from Citi.

Please go ahead.

Hi, Peter and Frederik, Klaas at Citi. My first one is on automotive. It's a very weak end market at the moment, but we're operating, obviously, in niches with very strong market positions. Deliveries are up in Europe and Asia, which is interesting given the way we each demand there. We've obviously seen it before where you outperform production, but this quarter in particular, Was this a particularly easy comp? I'm trying to understand what's going on in automotive, Peter. Obviously, great to see, but it's just extraordinary. Thank you.

Yeah, I mean, I think we're surprised, but we continue to do good, as you say. And we have two segments, especially with this driving. We are a special kind of ceiling solution for the drive chain, which is growing and it's expanding. uh we are kind of supplying seals uh if put it like that if you have more than one engine in the car then our sales is increasing and on top of that we're increasing the market share so that's a good development and also on top of that we also in our brake anti-vibration business is also doing good so so we are For sure, outgrowing the market and primarily then related to that we continue to grow market share. So that is kind of the driver of that. And then we have, these are the two main drivers on this one. And we still have, let's say, possibilities to continue to grow the market share. We haven't also, we're not talking too much about it, but we have expanding, especially for these special seals we call boots business. We've been investing in Morocco. We've been investing in Japan. We're expanding in China. We're also, as I say, reinforcing our presence in North America. So that is something which is benefiting. And also that business a few years ago, we made an acquisition in India, which is now also benefiting us globally. So that is kind of more, how should I put it, Claes, operational development. I shouldn't take the credit for that because other colleagues in the Trelleborg do it very good. But it's really skilled management and they are developing new products and they are kind of improving the market share. So that is the way that is explained. But also, I mean, you heard me say before, I'm a little bit surprised about that we continue to do good in that area. But these guys continue to... to other enterprises, but continues to be good. So that is, I guess, the explanation we can give.

Okay, thank you. Well, it's great. My second one is in the midst of the sort of gloomy outlook, obviously, you're talking about the shutdowns maybe in December on the machinery, hydraulic side, et cetera. But I'm trying to see if there is any green shoots at all, maybe residential construction. You say that this is still weak in teeth. Are you seeing any green shoots towards the end of the quarter linked to interest rates?

Overall construction, if you say window construction, which is big for us, we have been very depressed. I mean, there we see a sequential small growth. I mean, then we have sub-segments there that we're looking at. We're talking about window construction. That is a little bit up. sequentially, but it's still a lot down compared to where it were a few years ago. We have this facade sky rises a little bit slow, where we also have a lot of sealing exposure, which is more engineered seals and more project sales that is still a little bit depressed. And we still feel that on this kind of more construction equipment, agriculture, there's still a good underlying demand. So we... Honestly, we struggle a little bit to see what is happening. We read it more as tactical changes in inventory. So this is definitely not a very gloomy long-term picture. It might be a little bit gloomy for the next two quarters or something like that, where they are focusing more on inventory and cash flow. But we still feel that... I mean, also in this industry, it's still... very good for Trelleborg in a way, that they are upping the capacity, the capabilities, the properties of the equipment going up, more power, quicker movements, less friction, less energy consumption. So we feel that this industry is still very attractive for us. So we feel that it's kind of moving in the right direction. But then, unfortunately or fortunately, they're still, let's say, a little bit focused on cash flow and a little bit too high inventory. And of course, it's been impacted also with interest rates. These guys... farmers and smaller construction companies that could probably have to borrow the money. And we do expect that to get better as the interest rates go down a little bit. So we are not concerned about it. We are adapting. And you see also it's not really impacting our margin. Of course, we want growth. Life is a lot easier if you're growing. But nevertheless, we're managing it and we are staying close to the business, good operators in our business, Frederick and myself, I mean, they are adjusting themselves. And that is also what we see in the quarter. I mean, we feel that we're managing this a little bit muted development in a few areas in a good way.

Super quick final one. If the clarification on TMS and Barron's, if we take sort of a medium term view, when we get back to the 5% growth targets, And the synergies are all in and the old business is starting to perform. Is this a sort of old TSS kind of margin business of 23% combined? I'm not talking about the next couple of quarters. I'm talking a bit more medium term.

Yeah, no, we do expect it to be north of 20%. And we don't really want to give a guidance exactly what we do expect there. But we still feel that this is an investment where we want to invest. We want to add. This is a long-term investment. long-term growth area for Trelleborg and we will kind of not stop investing. So we're probably always going to stay a little bit ahead of the curve that we have a little bit more investments than needed exactly in this individual quarter. So that is really what we want to say. We continue to invest in it. We continue to add costs in order to create the growth. And then, of course, the growth, we would like it to happen with the margin, which is, let's say, well aligned with our group targets.

Thank you.

As a reminder, if you wish to ask a question, please dial pound key five on your telephone keypad. There are no more questions at this time, so I hand the conference back to the speakers for any closing comments. Please go ahead.

Thanks to all of you for listening in on this. As usual, I'm available, Fredrik is available, Kristoffer is available for any potential follow-up questions. Otherwise, keep in touch and hope to see you soon, all of you. Take care and