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

Welcome to the Trelleborg conference call. [Operator Instructions]. Now, I will hand the conference over to the President and CEO, Peter Nilsson. Please go ahead.

Thank you, and welcome to all of you for this call, as we have given a name Group update. We're going to use the slides, which is on our homepage as usually when we have our quarterly calls or other updates. So please refer to that one. First page here called Group update. Turning to Page 2, which is a very nice picture of me speaking at the moment. So quickly, and also on the call here to say, I'm going to also be supported by Linda. We're then going to provide an update on this new business area that we're launching, and also supporting on the call, if there is any questions, also Fredrik Nilsson, our Group CFO; and Christofer Sjögren, Head of Investor Relations. But then turning to Page 3. This is a picture that we used on our Capital Markets Day here mid last year. And this is really, for us, what we're telling today is a natural evolution of the route that we told about here in May last year. We are moving towards an even better Trelleborg with a better growth profile, making us more profitable and also less cyclical, and this once again is a natural step in this direction. Turning to Page 4. Our current organization up until here end of March is still 2 business areas: Trelleborg Industrial Solutions, where we also guided I refer back once again to the Capital Markets Day, where we still on Industrial Solutions, we have the overall, let's say, overall -- our message here is climbing the value ladder and that is still the message in for Sealing Solutions, scale up and accelerate, where we're then going to, as I said, split Sealing Solutions or spin-off. The medical business of Sealing Solutions are going to get back to that. And turning to Page 5 and just commenting on Sealing Solutions. I mean, Peter Hahn has been managing this in a very good way for 7 years. Peter is getting older as all of us. And this is, of course, a part of a long-term planned succession plan in Jürgen Bosch stepping in. Turning to Page 6. Jürgen has been heading, let's say, the biggest geographical region for us, Europe, Industrial Europe in a very good way for several years. And on top of that, it's also had a task to manage our Global Aerospace business. So, very well introduced into the business in all aspects. And you should see this transition, there is no real change in direction, continued increased focus on this what we call fast-growing market segment, what we call speedboats in Trelleborg, I'll get back and comment on that as well. And this is once again a natural succession into the new organization being then launched fully at April 1. Peter will remain in Trelleborg, and support in this transition and also get involved in some group projects, which we are running in parallel to the business areas. So, this Jürgen is not on the call today, but of course, several of you have been exposed to him, you have met him. He was participating our Capital Marketing here in May, and of course, he will also show up in various presentations as '24 develops. Moving to Page 7, only to confirm, I mean, this is still scale up and accelerate. We believe we have a great platform in Sealing Solutions. And this by continue to focus and continue to grow in the areas where we are targeting. And Page 8, I mean, you know that we're running this speedboat concept. And this is kind of here we listing some of the major speedboats within Sealing Solutions still very much on the agenda and still very much up and running. And here I think you noticed also that, we recently also did a move here in the semiconductor area, with this acquisition in Korea, and of course, we're targeting new both organic efforts, but also inorganic efforts in order to further facilitate this movement of Sealing Solutions into more fast-growing market segments. So no change in direction, but the new head running it Jürgen taking on, and I'm feel very happy to give Jürgen this opportunity to get on and continue to develop Sealing Solutions in a great way. Turning to Page 9. Other press release was announced to send out this morning, we are spinning off, and establishing a new business area, which we're going to call Trelleborg Medical Solutions, it's going to be headed by Linda. Linda is today already in a way heading Global Healthcare & Medical within Sealing Solutions, and of course been also been very much involved for instance now in the recent Baron acquisition, so Linda is very well aware of the opportunities we have in this area. Linda on top of that is also at the moment heading Industrial America, but that's of course you're going to let go of that and we're going to have that reporting directly into Jürgen going forward. And we see this as a reinforcement of the Trelleborg's commitment to grow in Healthcare & MedTech. We have been focusing in this area for several years, but with these Baron acquisitions, and also the new platform that is offering us in Asia-Pacific, and also let's say this new also announced investment that they're going to do in Costa Rica, to also to grow in that one and this is for us a natural step to [ Audio Gap ] Sorry, Page 10 should be we're moving to Page 10. So this is Trelleborg Medical Solutions is going to be the name new business area as of April 2024, and also I want to say here, we will not in this call give you any figures on the split exact split and performer figures for these new business areas you have to be understand, some of you are eager or several of you are eager to get those figures, but we're going to, you have to be patient on that, and we're going to send out new information on there before end of March. So, no figures on this call, besides let's say overall figures. Turning to Page 6 -- sorry, sorry -- turning to Page 11. Linda, several of you has met Linda as well. She has also been participating on Capital Market Day mid of last year. She has been with us for several years. Turning to Page 12, further introduction of Linda. So Linda, as I said before, has been heading Industrial Americas actually since 2016 for us. And she also took on this global role of Healthcare & Medical from 2019. American Citizen, education, you can read on the slide, Bachelor of Science in Business Administration from Ramapo College in New Jersey and also an MBA from Penn State. And also recently been recognized as in several dimensions for her good management skills and the progress being made on this. So with this one, I want to hand over to Linda to guide you through the strategy, and give you an introduction on Trelleborg Medical Solutions. So I think turn to Page 13, and then Linda, Please go ahead.

Sure. Thank you, Peter. And I want to thank Peter as well for the confidence that he has in me to lead this new business area called Trelleborg Medical Solutions. So the new business area here will be partnering with our customers to bring life-changing technologies using our expertise in polymer-based solutions, as well as the ability for us to partner with our customers to deliver full medical devices with them by us taking over parts of their value chain. We certainly see this, the medical industry, as having steady growth, consistently growing 5% or more, and the industry also innovates and provides products that contribute to a better patient outcome, and we see the ability here to increase the market size through those innovations. Combined with an aging global population and rapid growth in Asia and a desire for less invasive and smaller products, it really does make the market attractive for us to participate in. Can we go to the next slide, Slide 14. As you'll see here, this is inclusive of the acquisition of Baron Rubber. We've been able to grow this business area, certainly through organic growth as well as acquisition. And the addition here, now makes it that we amass SEK 3.6 million in sales with over 2,000 employees, 14 manufacturing plants, 4 innovation centers, which is quite sizable that we've been able to grow this way. As we look at our new segmentation for the business area, we'll see that we'll start talking a little bit more about medical device solutions and BioPharma solutions. You can change to the next Slide 15. So our segments, our 2 business segments within this business area, medical device solutions that makes up 90% of our sales. We will still see that, we'll sell into this market seals and precision components, but we'll also have medical disposables and medical implantables. And the medical disposable areas, to give you an idea of those types of applications, those would include things like diabetes, glucose monitoring, also cartridges for diagnostics for testing of different blood makeups in hospitals and doctor's offices. So these are types of things that would ultimately get thrown away. So we'll see repeat business continuously for this on an annuity basis. And then we're also working on medical implantables. And here in these particular market segments, these would include things related to cardiology, such as pacemaker leads and other cardiology type of applications, as well as going into things like breast implants, which we do for reconstructive surgery for those patients who suffer from breast cancer. In terms of BioPharma solutions business, which makes up 10% of our business today. Again, we'll continue to sell seals and precision components, but we'll also be working within the single-use systems and bio-reactors. And here we'll be making systems that pharmaceutical companies will use to make novel drugs that will service the market there. We can move on to the next slide, Slide 16. So what we do within our medical solutions business area is we do end-to-end development with our customers. So we have the capability of helping our customers with their product design, product hubs ups, prototyping, going all the way to clinical trial and regulatory advice that we can provide to our customers to create that full device assembly. We sterilize it, package it, and then obviously get it off to global production in a finished pack way. So we can help our customers as much as or as little as, they would like us to through the whole value chain. We can move to the next slide, please, Slide 17, yes. So here its get -- this gives you a picture of the type of customers, that we are currently working with today, serving the top 75 global customers around the world. Slide 18, please. So our advantages in the market really have positioned us well for growth, for our end-to-end development partnership with our customers, to the fact that we're the most global Liquid Silicone Rubber solutions provider today in the market. And we have state-of-the-art manufacturing and cleanroom capabilities along with global engineering to partner with our customers, with a comprehensive portfolio that takes us beyond Liquid Silicone Rubber into other types of capabilities, which we'll go over in just a minute. I really feel that, this gives us an advantage to the market and allows us to have a competitive edge. And that'll lead us to the next slide, on Slide 19 to talk about our ambition for this business area to get to SEK 5 billion -- I'm sorry, in some, sometime here in the near future. Moving on to Slide 20. This is about how we're going to do it. And part of it is exposure to higher growth segments, as well as growing our capability not only in the polymer area but outside of polymers. And then increasing our capacity in our footprint on a global basis, and all of this we can do through accelerated growth through acquisitions. If we can move to the next slide, Slide 21. So when we look at the medical solutions and the niche markets that we want to cover and the medical device solutions. Here, we're looking at diabetes as being one of the key areas for us to see this growth, greater growth than the 5%. And in the BioPharma solutions, here we're looking at single-use systems and the fact that we can integrate these systems and produce a full system for pharmaceutical companies to be able to produce their novel drugs. We can go to the next slide, Slide 22. So growing our share of customer wallet has also been something that we've been looking to do. As we provide silicone solutions and components, we also provide plastic components to our customers, and we have a small Swiss machining in metals. This allows us to take these various components and put them together in an integrated medical solution, so we can provide a full medical device. Based off our customer specification and understanding that our customers are actually marketing the medical device, but we have the capabilities to help them produce the entire device, within 1 roof and consolidate their supply chain. We move to Slide 23. How do we do this? We do this by co-developing with our customers. We have an innovation center in Minneapolis, where we're able to work with the design of our customers. We're able to produce prototype tooling, mold it there at the innovation center, and look at different iterations for our customers. It really helps us stand out, and it is a differentiator for us. We'll go to Slide 23 -- I'm sorry, Slide 24. We've invested in our capacity. We're seeing now that we have an expansion going on in our multi facility where we're building a floor that's going to be dedicated to the BioPharma market, and that will be opening in 2024. Through the acquisition of a Baron Group, we've expanded our footprint into Asia, both in China and Australia. And we've announced that we've signed that deal in February of 2024. And of course, that's pending closure in the next coming months. And then lastly, we've also announced the new site in Costa Rica. This new site will be about 100,000 square -- I'm sorry, 10,000 square meters. It will be opening in second quarter of 2025. So we're excited about this expansion and the ability for us to provide products to our customers in a more cost effective manner. Can move to Slide 25? So how does Baron fit in with us? Well, it's an excellent fit. First off, it comes with a good customer base that is new for Trelleborg, and not wanting to mention the customers at the moment, but certainly quite interesting for us, 4 manufacturing facilities, over 1,000 employees. They are a world leader in capabilities in complex LSR and silicon technology. They also have an extensive tool room and tooling capabilities to make sure that they can provide good products to their customers, and of course, complementary capabilities in engineering plastics and rubber. So this is a nice fit and allows us to really set-up for growth on a global basis. Moving to the next slide, Slide 26. Now, when you start to see the Baron acquisition, you can see that that brought us into Asia, but you can see by our footprint. We have an extensive footprint across the Americas with several innovation and tooling centers in the U.S., but now in Asia as well with the acquisition of Baron, manufacturing globally, and of course, sales globally. So it's an exciting time to see our local presence, but yet global capabilities. Moving on to Slide 27. So we will continue to grow through acquisition and our acquisition strategy, here targeting high growth or -- acquisitions that have high organic growth, of course, complementary technologies, and then looking to accelerate in APAC and Europe, as those areas are certainly of interest to us, and expanding our platform in North America to different adjacencies that would make sense for us to bring into the fold. So still a strong acquisition strategy ahead. Please move to Slide 28. So of course, this is our summary slide, one of the fast-growing markets that we're going after. We are a global leader in critical applications as we do implantables. And of course, there's critical applications in the non-implantables, as well in terms of the disposables. We're accelerating growth through attractive niches, and becoming an integrated medical solutions provider to provide a full device for our customers and consolidate that supply chain for them and using our M&A strategy as a catalyst for growth. And so that's what I have for today. And from here, I'd like to have a switch to Slide 29 and turn it back over to Peter. Thank you very much.

Thanks, Linda. And of course, you're going to meet Linda also there so you're following us, going to meet Linda here as we developed throughout '24. But this, once again, as I started, we feel we are building a better Trelleborg and we see that this area that we are now, this new business area we are creating, is fitting very well with all of these kind of keywords. It's a better growth profile. We have good underlying growth in this segment. We have the possibilities to increase our share of volume with the customers. We are -- we feel the most complete supplier in this area both in terms of having global presence, but also in terms of offering and on top of that, we continue also to see interesting M&A opportunities in this area. It's exciting to speed it off, and to make sure that Linda and her great team is fully focusing on this in order to capture all the possibilities we have in this area. It's also a step, of course, towards a more profitable Trelleborg. We are still investing, as you know, we are investing in this area still in order to grow it. We've been commenting that before, that this has been and it will continue to be one of the areas where we're going to invest, to build a more quick growing and more profitable Trelleborg. And also, I think all of you fully understand that we also see this as a less cyclical industry. Although, I mean, as you know, now very, very short term, I mean, there is some inventory adjustments ongoing, which we commented on last quarterly call here. But we feel that, the order intake is great and we are going to build a great business here in Medical, which is then if you move to the next page, Page 30, which is then a very good supplementary to the other, where we have now Industrial Solutions once again climbing the value-added ladder. No change in direction for Sealing Solutions. We see scale up and accelerate. We are running at a good profitability level. We are integrating Minnesota further in accordance with earlier communication, and it's really continued focus on the speedboat areas, which we have identified, and now we're adding the third leg for Trelleborg by once again creating this new business here at Trelleborg Medical Solutions, where the tagline is going to be a platform for profitable growth. Once again, we feel that this is going to be very interesting going forward for us, growth in both with a good underlying market, the possibilities to increase the share of all over the customers. And on top of that, also adding -- adding interesting acquisition possibilities. It means also from a next page, Page 31. So also just to highlight 3 separate units. We're going to run it as always in Trelleborg with highly decentralized responsibility. So the guys who is developing this going forward is in Linda, who we met today, Jürgen, who some of you has met and you're going to meet and then we continue with the great development Industrial Solutions headed by Jean-Paul. So this is the organization here from April 1 in Trelleborg. So then turning to Page 32, and opening up for questions. So Please go ahead.

[Operator Instructions] The next question comes from Erik Golrang from SEB.

I'll start with 3 questions. First, just to make sure I understand the business. This is only contract manufacturing, right? You don't sell anything under your own brand?

Yes. Mainly contract manufacturing -- that probably could be something that we're selling our own brand for the aftermarket, but that's limited. The vast majority is contract manufacturing.

Very good. And then if you could say a bit more, so you highlight some of the specific segments in focus, but what -- what are the key sub-segments here? Is there any area that's more important than others for you? And then a very specific questions, if there's any contract here for products containing GLP-1 type solutions such as Novus, Wegovy? And then the final question on that SEK 5 billion sales target, you didn't set a time line on that. You said that you're looking to do M&A. Is that included in that ambition? You said 5% growth for the market. I guess, you expect to grow faster than that organically. So what's the underlying organic growth trajectory you're looking for in this business?

Now any specific sub-segments. I know Linda, do you want to add something else? We highlighted diabetes. Do we want to highlight any other specific sub-segments that -- is this state Linda? Do you want to comment on that?

Yes. So we do see good growth in the cardiovascular area as well, as well as ocular. So those are 3 areas. And of course, there's always women and men's health that we participate heavily in.

Fairly spread exposure in a way, Erik, I mean, you can say on that one. And especially on this GLP-1 on this, I don't think -- I mean, we don't have anything really specific on that. We have, of course, linked to diabetes in a way, which is kind of linked to that. But otherwise, I don't -- cannot highlight anything specific. Can you, Linda?

No, no.

I don't know whether that's enough, Erik. What was the third follow-up question you had? Sorry.

Last question was on the SEK 5 billion sales target. I mean, if you include M&A in that and it's within a couple of years and the industry is growing 5%, you don't expect it to grow that fast organically. So what's been the organic growth rate for the past 3, 4, 5 years? And what's the target here?

We're going to provide more details on that, as I said before here -- before end of March. But I mean, we are -- as a Group target, we have more than 5%. And I mean, -- and this should be growing quicker than that. Let's put it like that. We don't want to put up any kind of specific higher target. We will keep it at about 5%. And we are confident it's going to be running at about 5% organic. And it is this SEK 5 billion is including acquisitions. But in this area, we have to -- as in many of other Trelleborg segments, this Baron acquisition is actually a big one in this area. So we don't expect to do similar size acquisitions. But we are working on acquisitions, but several of them being smaller and adding specific competencies or specific kind of market sub-segments in these areas. So I mean, we keep this. I mean, for the time being, this is the overall target, organic growth model 5% and sales to become over SEK 5 billion. I mean that is really what we say as the target, but you know also you've been following us for some time. I mean, this might not be the end game, but at least it's a game or for time being to get to this level. And when we get to this level, we have to yes, consider what the next level should be.

The next question comes from Agnieszka Vilela from Nordea.

Perfect. I have a few questions. So starting with the growth, I think you mentioned in the press release that you expect the Healthcare & Medical business to grow by 5%. But I think also that your latest CMD, you talked about 8% growth for the market. Is there any reason for some lower ambitions there?

We would say more than 5%, and yes, of course, more than 5% includes 8% as well. But we don't really want to, at the moment, give any kind of firmer indication with the target is definitely about 5%. And then we keep it in that way for the time being.

Okay. Perfect. And maybe also looking at the kind of suppliers and customer's composition in the industry, what kind of pricing dynamics do you see? Do you have pricing power? Or is the market quite competitive?

All markets are kind of competitive, but this is a market which is very similar to the rest of Trelleborg. You get specified in, and then you're selling a lot towards certificates and approvals and stuff like that. It's not that easy to switch. We are in the vast number of contracts we have. We are the sole suppliers. Of course, in that way, we should have good pricing power to compensate ourselves for kind of the inflationary pressure and not being pushed to give back too much, if the inflation goes down. And then, of course, it's always a negotiation. And what we are -- what I think Linda described here, we feel that we have a better offering than most other companies in this arena. I mean, we feel now with the Baron acquisition or when the Baron acquisition comes on board, I mean, we have the best global presence in this and also we have, let's say, much wider capabilities than most of our competitors. And that's the kind of capability development is continuing. I think Linda, let's say, highlighted possibilities to further develop our range and to further make a complete offering. And so we feel that we have a very good market position and that we have something very nice to offer to the customers, especially to those top customers, top customers in this segment, which is more and more going for globalization, like in a lot of other segments. I think this industry has been little bit more local than several other industries, but it is moving in an international way, and having multiple manufacturing sites, and that is a trend that we feel is benefiting us a lot. So we feel the overall position is very good, and it's going to be even better. So of course, with that good position, good offering, good support with the customers should also come, let's say, a good competitive position. So we feel that we are in a very nice position, and we're going to work hard to improve this position even further.

Perfect. And my last question is about the capacity that you are adding organically with the -- factory and the other factory. Can you quantify how much of the production capacity are you adding? And also do they already today see kind of customer cover for that volume?

We -- I mean, we don't really want to give any hints on that. Yes. But as you know, we're building factories. We're doing that because we're running out of capacity. So we think this is kind of definitely growth areas. But I mean, we -- it is individual for the different factories. But I mean, it's go down to the details there and discuss. But of course, we are adding capacity, and this is going to be part of the both globalization and also a part of this supporting the overall organic growth. I mean, we have been growing quite nicely in this business, and we are kind of running out of capacity in a few areas. And then it's natural maybe to -- also to balance it a little bit by adding factories in the new locations. You also say in this industry since you are -- in most cases, we are the sole source and we are the sole supplier is also kind of opportunity internal, let's say, double supply in a way. So that is a lot of cases they request you to manufacture in several -- in different factories in order to make sure that you can continue to supply, if something happens. So this is also a part of this. I mean, moving into Europe for BioPharma or going to Costa Rica. Part of that is actually to balance existing customers. So it's not really -- so in that -- I mean, this new investment is based on existing customers that we can say, it's existing volume, existing customers. So it's not kind of any speculation on new customers and new orders coming in. So it's -- we feel confident that this new capacity is going to be used in a nice and clever way.

The next question comes from Olof Cederholm from ABG Sundal Collier.

A very interesting presentation. I have a couple of questions or discussion on market shares. It sounds a little bit like it's -- it's a fragmented market. You're making a big acquisition now that's not going to happen again most likely. At the same time, you say that in some segments, you are the sole supplier of product. So can you talk a little bit about maybe your market shares now and how we should think about you as you grow? And how -- what that can have, what impact that can have on your profitability?

Well, I mean, the sole supplier, usually when they develop a solution, the only develop is one, but it means that we are not at all, not the sole supplier to have both or Medtronic or anybody like that, they have a multiple of suppliers. It's more that we are usually a sole supplier for one, like a, specific application of specific solution. And generally, they are not in this industry kind of qualifying to suppliers since it comes with certificates and approvals and stuff like that. So that's what I meant with kind of sole suppliers, but we have plenty of opportunities to grow with existing customers. And also to grow by, as we said, increasing the share of wallet because I mean you still -- we feel in this industry, there are still kind of too many suppliers, and they are buying too many components and they're putting it together. Then of course, it's always a balancing act. We don't want to be selling hours and assembly hours and stuff like that. So that is something where we are very focused on being able to provide value for the customers by developing a better solution for them. So that is always, so we see there are plenty of opportunities, both to move into kind of new application at the existing customers and have plenty of opportunities to grow the share of wallet on existing customers by expanding. So it's really difficult to give you the kind of market share. But we can say that by in Liquid Silicone with these, now following the Baron acquisition, we can say with that technology will be going to be globally #1. But there are still a lot of possibilities also to grow in that area. So there's a lot of small supplier, a lot of -- I shouldn't say no, no, no, unprofessional is the wrong word, but there's a lot of competitors, we can say for us, which is very dependent on 1 customers and very dependent on a few solutions. And that is where we also see derisking in this industry that I cannot be -- remain dependent on as an individual suppliers with 1 small factory. So that is also where we see a possibility. So we see growth opportunities in a multiple of ways. But to start to talk about market share and all of that is a little bit, a lot dependent on how you define the market. You understand what I mean Olof? So that is we see we can grow in a lot of areas.

Understood. Very good.

There are no more questions at this time, so I hand the conference back to the speakers for closing comments.

Great. Thanks to all of you for the interest and as already highlighted, we will get back on this and provide some figures here before end of March. Well in advance before the -- the end of the quarter. And also, if you have any follow-up questions on this, Christofer is available, I'm available, Fredrik available if you have any follow-up questions, and then also you will get the opportunity to meet Linda here in the next 2 quarters, one way or another. So take care and meet and speak to you soon. Thank you.

Thank you.