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.