Trelleborg AB (publ) (TRELB) Earnings Call Transcript & Summary

Hi, everybody, and welcome to the presentation of our Quarterly 3 Report for 2022. As usual, when we Trelleborg are presenting the results, I will kick off giving some overall headlines and also comment individually on our business areas. And then, Fredrik, our Group CFO, will take over and guide you through the financials. And then I'll do the summing up and then Fredrik and myself is then opening up for Q&A at the end of this session. Normal agenda starting off with some general highlights followed once again by business area comments, financials by Fredrik, then some summary, and also especially, then some comments on the outlook for the running quarter and then finishing off with the Q&A session. Highlights, we have a very strong quarter in more or less, if not all aspects. Sales is record high for an individual quarter, of course, benefiting from currency, but nevertheless, reported figures are the highest sales figure ever for Trelleborg in an individual quarter. Organic sales, very strong 15%, then as I already commented also supported by the weak Swedish krona and also some benefits from M&A that has been done in the last year. EBIT up more than sales by 34%, and then touching almost SEK 1.3 billion for continuing operations, which then corresponds to let's say a margin of 17% highest ever, both highest ever quarterly EBIT and also highest ever margin for the third quarter. So very good financial performance and get back also coming from excellent performance in both business areas. Still running some efficiency programs, so we're also accounting for some items affecting comparability SEK 68 million, which is fully in line with our overall guidance. Cash flow little bit short of SEK 1 billion, still impacted by somewhat higher inventory. We have a few hundred millions Swedish kronas too high inventory, Fredrik will comment on that, which we expect to improve in the next few quarters, and of course, also impacted by the very strong sales growth in the account receivables going up, but I mean, because of normal development in terms of percentage, no weakening. But once again, where we are a little bit disappointed, a little behind planning is for the inventory, which is obvious. We have been short of some raw materials and we've been buying a little bit more to safeguard the manufacturing, because it is now flattening out a little bit, we do expect that to improve in the next few quarters. Also happy to have concluded 2 acquisitions, 2 strategic acquisitions, we can say both of them very strategic and very synergistic, one bigger, Minnesota Rubber & Plastics which we'll get back and comment more on that individually, but also a smaller one with bases in Germany, MG Silikon, which is then reinforcing us in some smaller segments for aerospace and also adding capabilities as well as kind of pure capacity in some of the segments, aiming at aerospace, where we are still pushed by a very high demand and with some challenges in keeping up the supply. Also a smaller acquisition also strategic by different dimension was concluded here in early, let's say Q4, which is a company called IST, which is basically supplementing our business for pipe sealing for sewage pipe sealing and then focusing especially on the aftermarket for that segment. So this is kind of the highlights for the quarter. Sales developing nicely all over, overall, let's say, as I said a good 15% organically. As you can see from the figures coming primarily from very strong Americas and also for us a very strong Asia, even though Asia is still being impacted by negatives coming from China, well-known, but all over Rest of Asia performing very well, and also in this is other markets also, which is kind of Australia, which is also for us good in both some small mining applications and also some -- actually some oil and gas sales also coming in, especially to Australia. But overall -- and then Europe somewhat weaker, well-known and then commented by everybody. So what we see now continued very strong Americas, continued strong Asia, of course, with a little bit question mark in the China development that we see that more as a potential upside and potential downside. We don't really see China getting any worse. Of course, we don't know exactly how the COVID -- potential COVID closures or COVID continued lockdowns related to COVID will impact us. But as we see it, we do believe that we're going to see a slight improvement from here on onwards, although once again with some uncertainty. Europe is the weak area and that is the area where we see some weakening. We don't see it kind of all over Europe at the moment, I mean, honestly more or less all segments, as you see also when we later on comment on the business area. So all segments actually developing nice in the quarter, but the construction segment in Europe and also some -- we have some smaller business linked to consumer spending like the seals for electrical bikes and stuff like that, but that's kind of neglectable in the total frame of things, but nevertheless, these are segments where we see kind of also a major downturn this we call linked to discretionary spending by consumers. Although, this is once again, I don't want to highlight that being a big area of Trelleborg, it's a very minor area, but that is one area where we do see a weakening. Overall, nevertheless, very good performance, very solid development, of course, also this is a mix of pricing and volumes by seal volumes is up in the quarter and we do expect it to continue to be up, although may be not on this space as we have seen in quarter 3. Business areas, Industrial Solutions, strong growth and margin improvement. As you know, we've been saying cleansing is maybe the wrong word, but we have reinforced and we improved the portfolio of Industrial Solutions and have been continuing how to push in all areas of Industrial Solutions and we continue to see benefits from this being more forward leaning, I mean, backward leaning, where we've been, if you go a few years back, we'll be more kind of fixing things and improving things now with more to push sales and make sure that we are kind of developing in all dimensions, and it means that basically all market segments is developing favorably once again, this Construction segment little bit negative, but more or less everything or everything else you can say is developing nicely. We have some very strong vibe in aerospace, where we have some small medical business here benefiting. We also see the oil and gas business, which is still a part of these developing very nicely. So all in all, very nice development, we also see favorably on all geographical markets as I've already commented here we have some benefits in Asia and Australia are coming from this project business, which continues to be very strong. Tunnel seal intake, harbor construction intake and also some mining intake, oil and gas intake is very good for the markets kind of especially for the markets outside of Americas and Europe. We see some slowdown, European construction already commented on that, that's basically only negative that we firmly see in the quarter. Cost increases so far has been hitting us as everybody else. There are very strong inflationary pressure basically in raw materials in Energy, in labor so -- but we have been able to offset these, of course, by back pricing, we've been very active in the pricing, we have very solid positions, have strong market position, strong pricing power and we've been executing on that very rapidly and successfully. And, of course, on top of that also pushing efficiency as the volume comes in, we have also been able to offset some of the inflation by the higher volumes. So all in all, excellent quarter in basically all parts of Industrial Solutions. We don't see any true weakening of this, but nevertheless, we do see what is happening around us, when we see the macroeconomics and that's why we are a little bit more careful looking forward, when we look at the market. But we are entering Q4 with record high order books and we are still growing the order book in the quarter, although with not -- so order intake and maybe that we comment also, we take the full Trelleborg order intake, we'll continue to be higher than sales in the quarters, we're still building order book on the totality. Sealing Solutions, organic sales, a solid 13% as well. Double-digit growth in most geographies. Sales here also basically in all areas developing nice, industrials, automotive picked up fairly nicely in the quarter compared to before, probably with some easening of these component shortages, which has been, let's say, stopping the automotive industry. We still feel that there is kind of pent-up demand for some automotive applications. We do expect that also to continue to improve from here onwards. Healthcare & Medical were just 2 of the areas, which we are focusing especially in Facility Solutions, Healthcare, Medical, Aerospace continued very strongly. We talk about several 10s of percent of growth in order intake. So that is very let's say satisfying that we see benefits of this extra effort in these 2 areas. EBIT highest level to date in the quarter, very nice development. You could comment on the drop-through, on the sales being. But here also we have some LTA, there's still some pricing impact coming in later. But nevertheless, all in all is good. We also have to note, I mean, although quarter 3 last year was a record high EBIT level, it's also very tough comparison for the seasonality point of view. So we are very satisfied with the margin in the quarter, although it's a drop down from a year ago. But once again, if we do compare with the margin a year ago, that was a very tough comparison. We also -- we have some M&A coming in here. We have some minor impact from integration costs from that. And also we are actually building up resources especially in the healthcare & medical and in aerospace, which is kind of impacting us in the quarter from a cost perspective, but we're getting good returns from that, that order intake is growing. So that is kind of a very wise decision actually to do it, even though it's kind of an immediate cost up compared to a year ago. So all in all, very solid performance Sealing Solutions, good order intake also, here we should also, which we have more -- can also comment order intake continuous on a good level here in October as well and we don't really see any weakening. There is this kind of geographical differences where we see Americas is stronger, Asia is stronger, and Europe is somewhat weaker, but nevertheless, on a total frame of things, there is no really any meaningful change if we look at these first weeks of October. So very solid business and it continue to be solid going forward. And then Minnesota Rubber & Plastics, on this one, we could actually -- news of today, where we have all approvals is in place now. So we do expect this to close in the next -- yes, next few days actually. We need to arrange -- to have money to be sent to U.S. and to get that done and get it into the bank accounts before we actually do the closing, but there is nothing stopping us from closing this now in the next few days. So that's going to be -- as we look at it today, it will be in our books for the, let's say, final months of the year. This is something that we already commented. This is really a step change for Sealing Solutions, we have had a very, very strong let's say position in Europe. But with this, we also get a similar position in North America. It's a widening of our general footprint, we're touching a lot of customers and we're going to have a lot of opportunities for cross-selling in both directions. We have a kind of a wider offering in Sealing Solutions than they have in Minnesota, but they also are very strong especially in -- actually is very strong in some rubber segments where we are little bit weaker. And so that is a good -- very good supplementary acquisition, which is also in the middle of the core offering of Sealing Solutions. I mean, we are really knowing most of the applications, we know most of the customers, but we're getting a stronger footprint in all of these areas. We call it sailing in known waters and is highly synergistic especially on the sales perspective, but also in some cost dimensions. And especially, we say 3 major segments is getting reinforced, medical and healthcare. Food and beverage is also an area where Minnesota has been very strong, but you need a lot of certificates, you need a lot of approvals to get, let's say, accepted in several of these applications and that is where Minnesota has the kind of honestly a wider offering that we have within Sealing Solutions. So this is kind of spot on acquisition for us, and now of course we understand that the valuation is a little bit high -- on the high side, but also we have highly synergistic and once again it's really reinforcing us in a strategic way in multiple of dimensions. So that's going to be in Trelleborg here in the next few days hopefully, and then we will let's say move on to start with the integration to make sure that we get the synergies extracted as soon as possible. Trelleborg Wheel Systems, of course, still part of Trelleborg. Reported as assets held for sale. And on this one, I can also say that the process for the divestiture is ongoing exactly as planned. We do expect this to be closed by end of the year plus-minus. It could be depending on we do it before the Christmas or after Christmas, it could be a month here and there. But nevertheless, there is no obstacles and everything is kind of running according to plan. So nothing changed in this perspective and nothing changed compared to what we have commented before. Looking as Wheel Systems since we're still getting the money for this into our books. Although not within continuing operations, developing very nicely, strong organic sales driven by, of course, substantial price increases and we see basically growth, continued growth in all tire categories as we call it. And in most geographical markets. There is one very strong market and that's Americas, all over both North and South America developing very nicely for us. Where we see, let's say a downturn is the aftermarket for agri in Europe, which we see the farmers is being more careful and we see it as an impact from the Russia-Ukraine war, although the OE market in Europe still holding up very well. But honestly, there is some carefulness and this business is also kind of a double dip, if you say, because we have end market being little bit careful, but we also have then the distributors being little bit careful. So that is why this -- impact from this is noticeable. Here is also a major impact from raw materials and energy. As you know here is kind of a little bit delayed impact on some since we're running with a formula towards the regional equipment manufacturers. So the full impact from the price increases is not yet in this quarter. We're going to see some continued benefits from price increases kicking into this quarter. But nevertheless, all in all, we are happy that we were able to basically report, the same margin as a year ago, although a few 10s of percentage points down. But nevertheless in the same level, although this has been heavily impacted by both raw materials, energy and freight costs. And so we are happy with the performance and well managed by the management of Wheel Systems in this somewhat difficult circumstances as they are kind of preparing to be divested, but still run and still very focused and still developing very, very nicely, and let's say contributing with nice profits also for us as long as we are remaining the owners of it. Also some comments on sustainability, somewhat new slides for us just to show, this of course now Group, this is including Wheel Systems, but including Wheel Systems, we see continued notably improvements and this is kind of both in absolute consumption of CO2, but also from CO2 in relation to sales is going down, but of course this picture is going to dramatically change when we are exiting Wheel Systems and we're going to get back to you that, we're going to be dramatically better in all these KPIs when we kind of exclude Wheel Systems from this. But nevertheless, as long as we're owners of Wheel Systems, we're going to continue to work on improving the Wheel Systems' footprint as well as the rest of the Group. In the other KPI parent relate is that we are working heavily is kind of increase renewable of fossil free electricity in relation to total electricity. That is also being improved, although, we were somewhat smaller steps, but also this is going to be improved substantially when we kind of exclude Wheel Systems some areas, since Wheel Systems is manufacturing is exposed to some geographies where it's very difficult to buy renewable electricity. So some countries where they are operating there is actually no availability of these kind of more green energy. But nevertheless, good development and increasing focus on this and we're going to get back to you with a more comprehensive update on sustainability in the next few months. So this is what I want to say and I've leave to Fredrik to comment a little bit about the financials before I get back and comment again and give you a overall summary and comment on the running quarter. So please, Fredrik.

Thank you, Peter. Looking into the organic sales in the quarter, we were up 15% and total growth in the quarter was 28%. We have a little bit of support of M&A of 2% and then currency added another 11% to the sales. Looking at year-to-date, we have an organic growth of 13% and reported 24%. Looking into the sales trends, we have now 7 quarters that has been on par or above our growth target for the Group. So as you can see here, there is a strong trend over the last 2 years. Looking at the sales development, as Peter mentioned, we have a record high sales in the third quarter, and you can see also there is a good upward trend. Looking at EBIT, strong EBIT, the best third quarter ever. So we are up 34%, and the EBIT amounted to SEK 1.278 billion. We have good growth in both Industrial Solution and Sealing Solutions supported by the strong sales growth and also the price adjustments implemented during the quarter. Looking at the growth of the EBIT margin, we were up from 16.3% to 17%. So also a nice development in the quarter. Looking at year-to-date, you can also see there is a really nice increase of EBIT and we also continue to improve the margin year-to-date. Looking at the more long-term trend, you will see that we have a rolling 12 months EBIT of SEK 4.755 billion with a margin of 17%. So actually you can see here up 25% a year ago. Looking into the profit and loss statement, looking into some more details, you have items affecting comparability of SEK 68 million that is entirely related to restructuring costs. If we continue a little bit down to in the financial -- in the income statement, looking into the financial income and expense, you can see there is a quite large increase of SEK 34 million to SEK 69 million in the quarter. It's linked to that we have in higher debt due to that we have bought back our own shares. We're also seeing higher interest rates and that's also being a little bit of non-recurring items linked to the acquisition that we have recently made. And then there is also more technical thing here, because now we are looking into continuing operations where we have had got an income -- interest income from discontinued operations that has now been less. That is why you see an increase for our -- in the financial income and expenses in the quarter. On the total Group, that has been eliminated, so no net impact on the Group, it's just -- it's a split between continued and discontinued. Looking further down into the income statement, looking at the taxes, we have 24% tax rate in the quarter, which is actually slightly better than we have as communicated as the guidance where we have said 26% for the continuing operations and 25% for the total Group. And earnings per share continued to grow nicely as well, up 38% in the quarter. Looking then at the earnings per share, you're going to see 49% up, and if you look at continued operations excluding items affecting comparability plus 38% in the quarter. And then if we look at 9 months, it's 40% and if we look at only continuing operations, it's up 30%. Looking at the cash flow, slightly less than a year ago, with an operating cash flow of SEK 928 million, strong, continued improvements from EBITDA, and then as Peter mentioned, we have a slightly less cash flow from working capital and mainly related to that, we are a little bit high on the inventory side. So there is a couple of hundred millions that we are now working to try to reduce the inventory. I will say, it will not be out by the end of the year, but we are working into during the first quarter of next year. Looking at CapEx, more or less in line with last year and fully in line with earlier communicated guidance. Looking at the cash flow conversion, 63% in the quarter, it's just reflecting the higher business activity we have with higher sales that drives a little bit more working capital. Looking at net debt and the gearing. We have net debt divided by the equity of 33%, slightly up, but when we need to have in mind that we have bought back own shares for SEK 1.2 billion in the quarter, so that has of course an impact on our net debt over equity. And then of course also impacted net debt over EBITDA slightly, so at SEK 1.5 billion when we are ending the third quarter. Looking at return on capital employed, continue to improve, of course, there's a slightly more capital employed in the quarter, but that has been well offset by the higher earnings generation. Looking at some guidance for the full year, CapEx SEK 1.4 billion, exactly the same as we guided at the end of the second quarter, so no change, restructuring cost SEK 300 million for the full year, also unchanged, amortization of SEK 300 million for the full year is also unchanged, but of course as Peter said, with Minnesota coming in, that will increase for the last 2 months during 2022. An underlying tax rate 25% for the Group also unchanged and it will be 26% for continuing operations. So completely unchanged, excluding any acquisitions. So by that, I would like to hand back the microphone to you, Peter.

Yes, thank you. So summing up, a very strong quarter for us. Best ever sales in the quarter and also best EBIT and best margin in the third quarter. Strong organic sales supported also currency and some smaller add-ons also coming from M&A in the quarter. Cash flow, few 100 millions weaker than we kind of were -- expecting is the wrong word, but it should have been done due to the fact that we have a little bit higher inventory than kind of business is motivating, but that's just a decision that we have made to make sure that we can manufacture. Acquisitions kicking in Minnesota in the next few days being closed, and then also I didn't comment on the Silikon, MG Silikon is a smaller one, but that's also we expect that to close within the quarter, it's going to take a few more weeks or months before that is fully closed and we also signed an acquisition kind of a strategic acquisition adding for especially for Pipe Seals, for sewage pipes and that kind of applications. So all in all, a very good quarter. Looking forward, we are guiding slightly lower than the third quarter. Honestly, if we look solely at the kind of excel sheets and looked at the order books, it doesn't really indicate this. We see really a firm weakness or a notable weakness only in the construction-related businesses. The rest of the business performing very nice and we have also some businesses, which is performing very nice, aerospace, medical and health care, oil and gas, which is the, let's say benefiting a lot and then actually pushing up. But nevertheless, of course, we don't know what to expect us to be outside of this kind of uncertainty we see in the macroeconomic environment and we do our believing. We are preparing for a slight downturn although once again we are very solid order books and we are entering into the quarter with the highest ever order book. But nevertheless, we have to be a little more cautious going forward and we need to kind of start to be prepared to adjust at least, because we do expect it to turn down, although, once again, we don't see it in the figures. So this is a judgment from us on what we see going forward and not really what we see in the figures as we kind of exiting the third quarter, because we do expect to see a geopolitical situation and the higher inflation and the kind of rising interest rates and all of it that it will really impact the economy, because this is kind of the purpose of this and we do expect that to happen. But nevertheless, we are very happy with the performance. We are entering into an exciting time for Trelleborg as we have Minnesota coming in. I mean, one of our biggest acquisitions ever, which is then kind of in a multiple of ways reinforcing Sealing Solutions and exciting times to get it integrated and making sure that we get, let's say, the benefits that we do expect from this acquisition. On top of that, of course, also we're entering into the final phases of this kind of restructuring of the Group. We didn't comment that much in Printing Solutions. We are also expecting Printing Solutions here to get all approvals here in the next few weeks, if I may say. So we are very firm that that's going to be closed here well before year-end and then we have the let's say, the bigger one Wheel Systems where kind of everything is running according to plan, but we still need to get the approval here -- full approval here, hopefully before year end, but it could also slide into the first months -- month or months of 2023. But I mean now, once again no obstacles is simply a complicated process with a lot of approvals needed before we can fully close the deal. So once again very solid quarter. We do expect also Q4 to be a very solid quarter for us. But nevertheless, we do expect kind of the order intake to continue to be a little bit shorter quarter-on-quarter. So that is kind of the guidance for Trelleborg. So with that, opening up for Q&A. We have some in the room here, I don't know if you're starting in the room and then move on to the conference call.

Erik Golrang from SEB. I have 3 questions. First one on the pace of inflation, could you say anything about the cost inflation progression year-on-year? I guess, that's easy way to think about it as we exit the third quarter and into Q4. Is it still coming up? Is it flattening out or is it even coming down a bit here in the early parts of Q4 from a year-on-year perspective?

We see the inflation of raw materials flattening out. We do not -- we'd expect some overrun into kind of Q4 coming from earlier bought materials and rolling in what we bought before coming in, but we don't expect it to continue up. And we do see some kind of downward indications on some raw materials here when we started to buy in Q1 next year. So as we do expect the raw material -- in general, of course, there is some exceptions, but in totality, we do expect kind of a softening on the inflation, not in this running quarter, but we do expect a softening of that from raw materials coming in, in the beginning of next year.

And if you bring in labor and energy and everything else?

Energy is the same. Energy is kind of also as you move and you learn a little bit, but they're also hedging is running out and you need to kind of be exposed to little bit higher energy costs. But as we said today, we don't see it getting any worsening in a way there either is some hedging contracts going out, which you need to adjust for, which is kind of financially potentially impacting us, but not really buying new electricity. We don't see it really going up at the moment, of course, it's a volatile environment, but we don't see it. The labor -- I mean we have been impacted by labor inflation quite a lot in Americas already, Asia as well. Although the inflationary pressure from labor in Asia is much lower than what we see for Americas and Europe. We do expect Europe to be more challenging going forward, and we do expect that to impact us, but on the same time, we are well prepared for it and we are not kind of overly concerned about it. I mean we will continue to adjust, and we also have. I mean this inflationary pressure that we have in the running quarter, we already have price increases let's say implemented and accept that will kind of benefit us. So for Q4, we don't see in totality, that the mix of price increases and inflation to hit us, that's probably going to be a positive for Q4 for us. But then going into Q1 and Q2 next year then for labor is the uncertainty and we don't know exactly what's going to happen on that. But we are -- once again, we are preparing for a higher inflationary pressure coming from labor and once again we are not really concerned about it to be honest.

Okay. Second question, you were surprised -- you were quite relaxed about China saying that, if anything you'd expect improvement here. Is that based on anything else and just recent commentary from state officials that they might be opening up a bit more? Is there anything company specific in that or...

We are not been that much exposed. I mean the major close downs has been in the Shanghai area, Nanjing, Guangzhou and all of that and a little bit in the South. I mean, we are not really exposed to that area. So we have been running fairly okay, I mean, we are Shandong Province, where we have, let's say, more in -- Qingdao is a big area for us and also Wuxi has been fine, Wuxi, Suzhou, let's say which is 2 hours outside of Shanghai, that has been okay. So we have not really been that much impacted, of course, some of our customers in China has been impacted. And we do not expect it to be speculation a little bit, but I do not expect that kind of close down to widen into the smaller cities where we are more. Shanghai is challenging, but honestly, and also a little bit in the South in Guangzhou and that areas, but we are not kind of that much. We have been impacted a little bit on Shanghai. We have 2 factories in the Shanghai area, which has been impacted, but not that much. So we don't expect it to get worse. But -- and if anything, it will probably get better, but I mean, I'm not sure that it's going to get better, but we don't see any kind of major risk of a worsening from a Trelleborg perspective.

And then final question, you said the process to close the divestment of Wheel Systems is progressing according to plan, but I guess the fact that we have the printing blankets process, which has been quite delayed compared to original expectations means that there is some reason to be concerned. So why is the Printing blanket process? Why is that the exception? I mean, what is it that's been progress slower in that one? And why shouldn't that happening in the Wheel Systems?

No, no. I mean speculation is governments and they have their let's say internal processes, which we cannot really control. I mean, we have been, let's say frustrated on the printing, because honestly we talk about 2 small countries, which has not been kind of approving this. So that has been kind of delaying us for 3...

3, 4 months, and also what is good those country that is delaying us with printing blankets, we don't need to file for Wheel Systems.

Because we had a higher market, I mean for Printing Solutions, we have a fairly high market share in some smaller countries and that has been kind of then addressed there, and that has been through a process in that one. We don't have the same kind of exposure in Wheel Systems. That is more the bigger filings if you say totally EU, total Americas. And we don't really see the small countries having an impact on the Wheel Systems activities. So in that respect, it's an easier process for Wheel Systems is more of the data needed for the Wheel Systems, just kind of bigger, because it's a bigger number of dollars and a big number of tires and a little bit more segments, a little bit to have -- let's say the filing is more complicated, but it's not for us mainly jurisdictions as we had to do for the printing and that is probably the explanation, but of course, there is some uncertainty in it, we don't know. But we don't see any obstacles, we don't see any kind of problems. There is always some questions coming back, but I mean it's nothing strange and original plan was to close it by year end. We didn't expect it to be quicker than that. So it's a kind of running according to the plan with our legal guys who has been through this before, they gave this guidance and we are still keeping that guidance. So we don't see any -- we could, I mean the Christmas is as I say, some governments they go on Holiday Christmas. So we are kind of trying to squeeze it in before Christmas, but I mean, it could be that I don't want to work through Christmas, because there is also official filing date in some jurisdictions that they need to respond within 30 days and whether this 30 days is running through Christmas or running before Christmas that is a challenge. So that is why we see now that it could potentially be pushed into January, February next year in order for them not to conclude it just before Christmas. So that is the way we look at it.

Olof Larshammar, Danske Bank. 3 questions from my side. Firstly, if you could elaborate a bit more on the outlook 15% in organic growth in Q3. It seems like the order book is still very strong in terms of service for Q4. Should one expect let's say 5% down from the 15% level, or could you give some indication?

We expect a softening. But I mean I think we want to keep it like that. All of this uncertainty. I mean, once again, if you look at the pure order book and orders for deliveries in Q4, it should in a way continue on the same pace, but we do expect some -- although, I mean, we shouldn't say, we have not any notable delays, we have no cancellations in the order book, but of course we are uncertain, we see an increasing kind of uncertainty in the market. But once again, if we solely look at the order book and what is due for delivery in Q4, it should be on a similar level. But we do not expect that to happen, we do expect a softening, we do expect some customers to be careful by year end, we do expect an increasing focus on cash flow. We are not the only ones with a few 100 millions lower on cash flow. We do expect an increased focus on cash flow in a lot of industrial companies. So we do expect some of these orders to be pushed into the next quarter. It's a judgment, we cannot really -- we have to trust our experience, we have to trust what we have seen before. But once again, if we look solely at a normal environment, the sales, I mean it's, I understand you want the guidance, but I mean, we need to accept, there is uncertainty, people are getting more cautious, and we do expect an increased cash flow focus by year end, we do expect some orders to be pushed into next quarter. But it's not yet in the books.

And the second question, I think you did an acquisition in 2019 focusing on products for LNG terminals, If I remember correctly, and you didn't touch upon -- you talked about oil and gas, which was very strong, but could you?

Sometimes you're lucky. I mean, I must say that this acquisition of course turned out tremendously good. And that is, I mean, that is -- for those of you who doesn't know that is kind of focus on special houses for transfer of liquid natural gas. And of course, these new import terminals coming up, they need a lot of this. So we are fully booked in that business and we're now looking how to expand capacity. I mean delivery times is too long. And it's more a matter of getting -- making sure that we get good pricing actually then you are customers who those listening. But I mean it's more to make sure that you get good pricing instead of really getting orders, because order is on strong, strong push on that one.

How fast can you ramp up sales? I think it was SEK 200 million, SEK 300 million when you bought later...

Yes. And I mean, we expect it to grow significantly. But I don't really want to -- I mean it's not going to be billions for sure not, but I mean we talk about a few 100 millions extra on that one, with a good margin. But of course, we say also the lead time on that is not next month. So that's -- and we took a one, 2 years in the front. There is a few projects, which is kind of very speedy, but the bulk of that is going to happen in the next year or so. It's not that going to, let's say, turning to sales here in the next quarter, it's actually that we are at the moment getting orders and we are, yes, making sure that we get good orders.

And last question regarding balance buybacks acquisition, you are going to send some money to U.S. and you will receive some money for Wheel Systems. How are you thinking about M&A or buybacks going forward?

I mean, we would like to continue to grow Trelleborg. So our thinking here is, of course, to continue to do M&As. We have also said that this share buybacks will be a multi-year program. So that from a technical point of view, we will need an approval by the AGM next year to be able to continue after April 2023. But there is an ambition to continue to share buyback, but as you said, also I mean if you take all into consideration the Printing proceeds in, the Wheels proceeds in, and then you have the Minnesota money out, then we will be close to debt free when you pull that altogether.

So it's exciting times in that. We still have, let's say, plenty of acquisitions on our, let's say target list. And I mean this environment now we see a little bit expected to be tougher environment that is of course opening up for interesting opportunities. So we have to wait and see here. There's still some areas probably aware that the cash is drying up in some areas. It is a growth-oriented companies, which is kind of not delivering good cash flow, they are getting more challenging to get funding and we do expect also general carefulness. So interesting opportunities will emerge. And then this is more a matter of whether we are accepting the valuations or not, but we feel that we're in a very good position here as we kind of conclude this. As Fredrik said, we got up with no debt here beginning of next year. And then of course, we will try to use that continue with the share buybacks and continue to scout for acquisitions. And we do not see ourselves, let's say needing a debt-free balance sheet. So I mean, if we are not successful, then we need to find other ways of making sure our shareholders gets benefits from this extra money that is going to be on the balance sheet or extra capacity in the balance sheet. So we do expect exciting times in that dimension as well. Any questions from the call?

[Operator Instructions] The first question comes from the line of Klas Bergelind from Citi.

Peter and Fredrik, Class SAP, quite an echo. But -- so a question on the margins, so on the integration cost in sealing, what was the impact here? It looks like a low number, but just wanted to confirm? And then in other Industrial Solutions and the solid margin here, it seems like price increases come through here in a bigger way in September, but was there any impact from mix like we've seen before from certain product sales with a high margin moving through the P&L? I'll start there.

Let me say it is basically all over. There is no mix kind of explanations on this. This is more solid development all over. As we know, we have a let's say a bit mix of businesses, but we are satisfied with the development of everything. If one which just kind of improving more in the quarter is probably automotive related businesses which is picking up in volume, but that is kind of a small part of Industrial Solutions. But that is kind of the only area where we see notable improvement. Otherwise, it's kind of an improvement all over. It's coming from pricing, coming from the higher volumes going through the factories and that is kind of very solid. No, no trick development. It's simply that is a good managed and well executed. So I cannot say -- pinpoint any specifics in that. On the integration costs on this, probably integration cost is a smaller explanation than the adding of resources. I mean, we have been building especially medical and healthcare, now as we also preparing for the integration of Minnesota. We have been building, let's say, an organization which is able to cope with the substantially bigger medical and healthcare exposure than we had before. So that is kind of majority of these what we comment on added resources as for medical and healthcare and that is kind of a bigger explanation. But although, I mean, I will also say, the margin in Sealing Solutions a year ago was actually a record high for quarter 3. So even if adding back these let's say integration cost and extra resources, we will get -- probably get close to the margin a year ago, but we will not beat the margin a year ago. So we're not talking a lot about them any kind of major differences in this. I don't know whether that is enough, Klas.

Yes. No, it's all good. Just a follow-up then on price cost. You're hiking prices again here into the fall. And I guess this is linked to upcoming wage inflation, which is good. But I was wondering assuming on the energy side, we've seen some sharp downward moves here on prices last couple of days. What is the lag effect from when any inflation impacts the P&L? You talked about hedges here, I just want to understand it better. Maybe you could start to be positive against the higher pricing next couple of quarters?

I mean, we don't have huge hedges. So I will say you will get -- if the prices will go down, I would say will go down a little bit more long-term, of course, you will see that quite quickly. I mean what could we talk about 25% that is hedged not more.

And I mean, we are not generally working with hedging on this. I think the comments was more related that we have some competitors, which is hedging and maybe not as active as we are on the price increases, because they're actually a little bit delayed since they kind of forget about the hedge in a way if I may say. So that is more of a challenge to do that. So also once again, Energy is a small cost for us in totality. We are not concerned about that, I mean, it's a Wheel Systems so honestly, so Wheel Systems where we have energy exposure, but in the Industrial Solutions and in Sealing Solutions, our energy exposure is very limited and we don't really see that as a major thing for us to be honest. I mean, we're talking about annual swings of EUR10 million or whatever. So it's not really anything which is neglectable in a way for us, excluding Wheel Systems is kind of neglectable in comparison to the raw materials, so that is not really...

I know it's really...

Okay, I understand is high on agenda for the investors, is high on the agenda for some of you, analysts, but for us, operationally it's not -- honestly, not a big thing.

No, I know it's lower, it's mainly TWS. My very quick final one is under construction exposure in keys. Remind me how big it's that today in the quarter? And also what kind of volume declines did we see sort of quarter end here? Is it 10%, 15% down when you look at orders or is it more? Just so we get a feeling for it.

Our construction exposure is mixed. I mean, what we have the, let's say, the more infrastructure, big construction and that is still growing. What we -- I'll comment on the construction exposure is mainly linked to the windows and house construction all of that is particularly in Europe, but where we do see downside. But I mean you talked about I don't know, less than 10% of exposure I guess in Industrial Solutions and that is down by a few 10s of percent. I mean that is what we're talking, so is noticeably down, but we also know that this is also a little bit going from very high inventories in that areas, wooden windows and stuff like that. We know that have been keeping very high inventory. So we still want to wait out a little B2C, what is really the underlying demand in that one. But in the quarter there was let's say a noticeable shortening of orders for these kind of application, you talk about per se, if you talk about wooden windows, you talk about some PVC windows, some aluminum windows and some modular housing. I mean this is the areas where we see a downturn, but we don't see a downturn general in construction, because we still see an uptick in the kind of infrastructure construction part of it. So that was more of us to try to find an area where we did see a change, and we see a negative change. But once again for the totality, it's not really a major impact. There could be impacts to let's say the organic growth in total for Industrial Solutions, but a few percentage points. That is what we talked about.

The next question comes from Hampus Engellau from Handelsbanken.

2 questions from me. Would it be possible for you guys to may be make some comments on pricing? How much was price of the 15% organic growth? And the next question is a very nitty-gritty crunching question, but still I'll ask it and that's, if that is looking at third quarter 2022 and adjusting for FX and also the price increases that you have been implemented and compare that with third quarter 2019. How much are volumes up? I'm just trying to get a feeling for how you guys are running in industrial cycle, may be gross what kind of potential drop we could be facing by looking at the next year development in general industries? Those are my 2 questions.

It varies on, of course, on the price and volume. But if you say Sealing and Industrial Solutions together, how far for?

Yes, between 1/3 and a half, I think is the price.

Yes, depending on the business and then probably a little bit higher on Wheels Systems. Wheels Systems probably 2/3s pricing and 1/3 volume, I mean that's a slightly higher. on the other one. But I mean, okay, yes, between 40% and 50% if you say is probably volume and then let's say the remaining is pricing on the organic growth. And then the second one was a complicated question, Hampus...

I'll ask you then a much easier way. On comparable -- on fully comparable levels, when would you say volumes for continuing operations are compared to 2019 third quarter?

Then it is up this way by 5%, 10%. I would -- looking at Christofer as well who has been…

Again, we are up, but I can't give you the exact number.

No, we'll have to get back on that one, because we don't have it here in front of us. I don't want to guess, but I guess it's -- I mean my wild guess is between 5% and 10%. But I have to get back and confirm that one.

The next question comes from Karl Bokvist from ABG.

My question relates to more of the acquisition processes. Let's start with Minnesota. If I understood you correctly, you, we should hope for this to be closed and to contribute at least one month in Q4. But just on the financials from Minnesota, is it possible to -- for you to disclose any more information about the company now when you look through it more in closer detail?

We will do that. I mean, we still don't own it, so we have not kind of getting all full insights, but of course we're going to, as soon as possible we're going to give you some more input on the -- about PPA effects and underlying profitability, underlying growth and all of that. So that will be provided, yes, before year end. Let's put it like that. Before year end, you will get, let's say, a comprehensive update on that and we will explain a lot more about that one. But we still are competitors, we need to know that. I mean we are still not kind of been allowed to look at exactly everything. Of course, we have our ideas and we have our views, but once again, you probably have to allow us a few weeks or a month or so before we kind of can provide full insight into that. But it will be done before year end. So you could -- you who want to let's say give a good guidance for '23, you will get full information on that well before year end.

Understood. And the second one was just on the progress on Wheel Systems, as far as you can share that information, what is left to be handled in the process from your side or Yokohama side before this can be closed?

When you file this, you generally is a little bit different, different jurisdictions. But I mean the bigger jurisdictions you need to hand in a preliminary filing and then they are asking questions on that one, so they fully understand all the facts in this. They might not fully understand the way we have split the market. They might not fully understand the way we explained market shares, volume or pricing or so that there is always some complementary questions on that. So the preliminary filing is in, and we are waiting for feedback. I see some questions on this one and clarifications on this, but before they kind of go ahead and do the final review in a way. But we do expect when the kind of this application is fully accepted then we don't -- we expect a month or something to kind of -- for them to conclude the process and we are still once again, the preliminary filing is done, we don't know if there's going to be more. We do expect some more questions, but we don't know really the volume of these questions or understanding. I mean, I shouldn't either blame these guys looking at it, but it's also a little bit that you get into experienced guys or non-experienced guys and that is kind of where you cannot control it and that is why our legal assistance -- our legal assistance and Yokohama legal assistance, we need to make sure that we put it in the right format and right explanations in order to these guys who is kind of doing this formal reviews actually. I mean, no complaints, but of course this is kind of a part of the governments and authorities, which is -- there is some turnover among people and you need to be a little bit lucky ending up with the right guy administrating your request. I mean, this is down to these kind of details, but we don't expect, there is no questions that we cannot reply on, there is no questions really outstanding, there is nothing strange. It's simply that they want to get it into their format and they need to accept it, that this is the correct format. And that is the process which is ongoing at the moment, and that is a process we don't know how many times the Board will be, let's say, sent across the table. So that is kind of the process that we're in. So we are not kind of delaying anything and we are not kind of expecting any problems, but it's more that you need to get these formal processes in place, and I mean also saw some governments is understaffed, if I may say in this dimension and that is something we cannot really control. It's frustrating in some areas, but that's the way it is.

No, that's understandable. My just a quick follow-up is just on, for the process or for the time when Wheel Systems is still part of your operations, I guess that the earnings and cash flows will be attributable to you?

For sure, yes.

Thank you. As there are no more questions, this concludes our Question-and-Answer Session. I would like to turn the conference back to the speakers for any closing remarks.

Thank you, and thanks again all of you for interest in Trelleborg. I mean we are delivering a very solid quarter, and we're looking also favorably on the future. We believe Trelleborg is in a better shape than ever in a way. Exciting times ahead for us as we are concluding first Printing Solutions and then selling Printing Solution, adding Minnesota and then also selling let's say Wheel Systems, which is creating a lot of opportunity for us going forward. And we're entering into this period with a record high order book although, we note the dark clouds on the horizons and we are somewhat careful on the way we look at it at the moment. We are preparing for a slight softening. But once again, if you look solely at our figures, I mean they are showing continued, let's say, performance on a similar levels, but once again, we are not neglecting the dark clouds, and we are preparing for a little bit challenging environment especially in Europe, very solid development in Americas and we do expect, if anything, a slight -- continued slight improvement in Asia. So Europe is the concern and that is what we need to watch very carefully. But nevertheless, record high quarter for us in more loss all aspects. And I mean we are looking forward getting back to you and telling more about Minnesota, telling more about the Printing, telling more about Wheels Systems. And then when this is behind us, we're hopefully going to show you also a decent or very good Q4. So that's the focus for us at the moment. And once again, thanks for listening in. Any follow-up questions, of course, I'm available, Fredrik is available, and Christofer is also available if you need any further clarifications, or have any other information that you want to share or want to be -- if you want to be informed about anything that we have not mentioned in the call. So thanks again and see you later.