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

Good afternoon, everyone, and welcome to this summary call we do each quarter just before we enter our silent period. And the purpose of this call is to make sure that you are all aware of what we have communicated throughout the quarter, especially trends we see in our organic sales. And for those of you that have called in before, you know the premise. In this call, I will not give out any news or figures that we have not previously communicated at conferences and seminars and other events throughout the period. As the quarter ends later today, you should also be aware that I'm not privy to the full quarter developments. And while I haven't seen the performance in April and May, the June numbers will not be available for another week or so. And obviously, I cannot go into the fine details in all our subsegments today. So I will, as usually, paint with broad strokes and I will save the details for when we report our results on the 17th of July. So let's begin, as we always start this call, and that is our guidance for Q2, which we gave in our Q1 report in April. So in April, we said that we expected the demand trends for our products and solutions to be more or less -- to more or less develop sideways in Q2. As a reminder, we had an organic growth in Q1, which was plus 1%. Due to the trade turmoil introduced by tariffs, we also said that this guidance was very much fraught with uncertainty. Subsequent developments in the Middle East, for instance, and its impact on oil prices only added to this uncertainty. And as we have communicated, demand in April started slower due to the hesitance from our customers, but also due to the negative Easter impact, where the Easter holidays took place in Q2 this year as opposed to the previous year. So May was also somewhat subdued in general terms, but the signals I get from the organization is that demand in June has started to recover, which, of course, is positive looking forward. So where we will end up for the full quarter depends on how much catch-up we can do in the later part of the quarter. So moving on to the business areas, and we'll start as usual with Industrial Solutions. In Industrial Solutions, we have seen a mixed bag in the quarter. General industry has continued to be subdued as expected and segments such as, well, manufacturing and machine tools, renewable energy, rail and of course, automotive, surprising no one, is also under slight pressure. On the other hand, segments such as water infrastructure, marine solutions and polymer solutions to mining equipment have balanced out the negative development in the quarter. Whether or not we can achieve the small organic growth of 2% we saw in Q1, that remains to be seen, but it comes down to the June performance. But the segment trends are similar to what we witnessed in the preceding quarter. In terms of profitability margins, my best assessment is that we will not see any major changes from a year ago despite negative production volumes. And as you know, we have been quite busy with M&A during the past year, and this will, of course, contribute to sales. In this business area, we have done 5 bolt-ons since a year ago. So I think I will move on to Medical Solutions. So this is our smallest and newest business area. The starting point here would be the 5% organic growth we saw in Q1. And in this business area, we also -- we have also seen a mixed development, where the medical device markets in Europe continue to develop favorably. But the opposite is true when it comes to the American market for medical devices. The smaller but fast-growing biopharma market is also doing well. All in all, we hope to achieve some organic growth also in Q2 coming from price rather than volumes. Baron Group, the acquisition we did in July a year ago, has not yet been transferred into organic growth, and Baron is performing in line with previous quarters. So in terms of profitability margins, we have stated that we do not expect any major deviations from the preceding quarter. So I think I'll stop there, and I'll entertain any questions you have on the 2 first business areas before we move on to Sealing Solutions. If you have any questions on Industrial Solutions or Medical Solutions, I will try to answer it to the best of my knowledge so far. So raise your hand in the -- use the raise your hand symbol and I will see if there's any questions so far. Okay. So crystal clear, apparently. Then finally, in Sealing Solutions, we have seen similar trends in Q2 as we saw in Q1 when we had a flat organic development. Most subsegments have been on the same level as in the first quarter and all the real change we have talked about in the quarter -- in Q2 is, of course, the automotive sector, which has been under pressure. As I mentioned before, we are catching up in June, but whether or not it will be enough to reach the organic level we saw in Q1 remains to be seen. We are, of course, working hard to keep the margin at the same level as in Q1 when we achieved 20% despite having the headwind of negative production volumes. So I can also mention that the trend we saw from a geographical sales split very much is similar in Q2 as we saw in Q1, which is Asia is still doing well for us, whereas it's more subdued in Europe and especially in North America for the off-the-road segments. Now to summarize, on the group level, we have said that we expect a similar organic growth in Q2 as the plus 1 we achieved in Q1. We were below that in April and May. We have said that, but June seems to improve that number. And the jury is still out whether we can go all the way to the level we saw in Q1. In terms of margins, we have communicated that there will be no big changes on the group level from what you saw in the preceding quarter.

So any questions on Sealing Solutions or the group performance. Please raise your hand, and I'll see if there's any has raised here. Yes, Karl, please.

Just a question here if the margin comments you provide here on Sealing, if this also takes into account what seems to be have been historically at least a benefit in seasonality Q2 versus Q1 in terms of profitability.

No. I mean, historically, there has been somewhat better margins in Q2 versus Q1 historically. But we also see the Easter impact in this year compared to a year ago. So you have to take that into account also. So my comments is that there will be no major changes if any when it comes to the margin in Q2 versus Q1, that's my best guesstimate. But as I have clarified many times, I haven't seen the June numbers. So I will not be able to give you any more details on that.

Understood. And I have a follow-up on one of your customer segments being aerospace, anything worth highlighting here.

No. I'd say we've been -- again, we've seen better numbers in the latter part of the quarter than we've seen in the beginning of the quarter. Let's put it this way. But all these fine details, I will have to come back to in connection with the Q2 report. Any more questions? So let's summarize again. It seems that -- yes, Vivek, I see you have a question.

Just a quick follow-up question around how you're seeing order intake and demand trend within the fluid power part of Sealing Solutions. Have you seen any green shoots there through the quarter?

Yes. Well, it seems -- but this is hearsay, Vivek, in the sense that I don't see the June numbers yet. I won't get those until a week from now. But it seems like it started slower and has improved also there in the quarter. Whether or not it's enough to call it a green shoot for something sustainable in Q3 and onwards. I cannot say at this point. But I think there are hope, when I look at Eurozone PMIs and so forth that we have bottomed out in Q2. This is, of course, remains to be seen. But I'm somewhat optimistic about better performance in the second half of the year. And as you know, Vivek, we have spoken many times about for us to achieve the margin target, we need higher normalized production volumes. So that's what we are hoping for in the second half of the year. Yes. Any more questions? So we look to be quite okay with our guidance, even though there was a lot of uncertainty in the outlook when we reported our Q1 report. We said that we expected similar development, and it seems to be when we summarized this quarter to be quite similar to what we saw in Q1. Whether or not it will be exactly the same in terms of margin and volumes or organic growth, we cannot say now, but it will not be far off from what you already saw in Q1. So I think that's all from me today, and I'm looking forward to talk to you with much more details once we have published our report. And until then, I wish you all a very relaxing summer. Thank you very much.