Trelleborg AB (publ) ($TRELB)

Well, good afternoon, everyone, and welcome to the summary call we do each quarter just before we enter our silent period. And you all know the purpose of this call is to make sure 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 who 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. And you also all know that as the quarter ends later next week, you should also be aware that I'm not privy to the full quarter developments. And while I've seen the performance in January and February, the full March numbers will not be available until a week into the new quarter. Obviously, in today's call, I cannot go into in fine details in all subsegments. So I will, as per usual, paint with broad strokes and save the detail for when we report our results on the 23rd of April. So let's begin, as we always start this call, and that is our guidance for Q1, which we said in our Q4 report. And in late January in connection with our Q4 report, we said that we expected the demand trends for our products and solutions to be more or less developed sideways in Q1. And as a reminder, the group organic growth in Q4 was plus 1%. And that number was dampened by the pushbacks of the project orders in Industrial Solutions. So despite all the world events that are happening around us, we stand by this guidance. And moving on to the business areas, we'll start with Industrial Solutions. In Q4, Industrial Solutions had an organic sales decline of 3% with a margin of 16.5%. And the decline we said was all related to project delivery pushbacks due to customers working at full capacity. In Q1, we still see that the project sales are not really picking up from Q1 and the trend is similar, i.e., everything but the project sales are doing pretty good, but hampered by these pushbacks. Now if I should just mention some highlights among the segments I've seen so far, I can say that aerospace is doing very, very well. Automotive for this business area is actually doing okay. And then we have very solid development for our water infrastructure, which is, by the way, a new business unit in Industrial. It's been carved out and stands on its own legs in Industrial Solutions. So we'll talk more about water infrastructure in the coming quarters. Again, the decline is then coming from project sales within gas in commercial construction or infrastructure construction, which is down and that is very much due to what I mentioned already, i.e., our customers are working flat out and cannot take -- accept more deliveries from us until they have pushed out their own sales through the factories. That goes also for port and marine projects. So all in all, I can say that some of these projects are quite profitable. And since we have a little bit of a worst mix here, I expect the sales -- the organic sales to be similar to what we saw in Q1, which was negative 3%, but could be slightly better. I don't know yet. But that's my feeling now. And the margin will probably come down due to the sales mix, i.e., we have some high-margin project sales, which we expected to deliver in Q1, but it looks as if it's going to be pushed back. I cannot, at this point, say exactly when we will deliver these pushback projects, but it will take place this year at least. So it shouldn't have any impact on the year as a whole. It's just variations between the quarters, if you will. I should also mention that we have a really good book-to-bill in the quarter so far in Industrial Solutions, which then goes to show that it's not the underlying markets that are deteriorating. On the contrary, we are on very solid ground here.

So if anyone has any particular questions that I may be able to answer, please raise your hand, and I'll see if there's any questions on industrial. Yes, Vivek.

My question is just around the growth dynamics. You highlighted we still got these pushbacks impacting you. The comp is slightly easier in the quarter. You have about 2 percentage points easier comp. And so just thinking about that, you're saying that the book-to-bill is developing well. But in terms of your underlying deliveries, I mean, is the underlying level of deliveries slightly weaker in Q1, just given that you have the easier comp?

Look, I mean, the comp is not always related to the project sales, of course, it's the full business area. So I couldn't really say anything about that at this point. But if you read between the lines, I said, we had a negative 3% in Q4. And I expect similar, but I also alluded to the fact it could be slightly better. It's still negative, but we're talking about small numbers here from that for that point of view.

It might just wasn't clear. Do you mind just explaining the margin expectations just for the quarter? Is it sort of a negative mix from the LNG projects and, therefore, potentially lower margins in the quarter?

Yes, a little bit -- I expect a little bit lower margins, and that is something we have said throughout the quarter at seminars and conferences also. So we mentioned it also at the conference we attended last week in London. So a little bit lower margin. But again, this will then be all related to some high-margin project pushbacks. And this is for -- just to make clear, this is just for this business area. Any further questions on Industrial? Okay. I'll move on then to Medical Solutions. And in Q4, i.e., in January, we said that -- we saw that Medical Solutions had an organic sales of very solid 5%, had a record margin of 21.9%. And in Q1 so far, these are some of the trends that we have noted. The Medical Device North America, i.e., the largest business unit is still -- is growing slightly, but still sees softer demand compared to Medical Device in Europe, which is smaller, but is growing at a very nice clip currently. And then we have the small -- the smallest third part of this business area, which is the Life Science segment and that explains about some 15% of the business area, and that is enjoying very strong growth currently. So I would say that this solid growth of 5% we have in Q4, the development we've seen so far is very similar to what we saw in Q4, i.e., I would expect the growth to be similar in Q1 as compared to Q4. However, I also have explained many times that we are focusing on a relatively few number of customers in the MedTech and Life Science segments, i.e., we are focusing on the 70 largest customers. And if we compare that with Sealing Solutions, which has more than 10,000 customers, then, of course, there are variations between the quarters. But the underlying growth we've said for this business area should be around 5% plus and that is what we expect for this quarter as well. Now in terms of margin, I believe there will be slightly lower than the record high 21.9% we saw in Q4. That was abnormally high, to be honest, I believe at this stage. We have also some factory openings that we are ramping up during the course of this year. For instance, we opened up -- inaugurated Costa Rica in December, so the ramp-up will take place during 2026. Not a major impact on the margin, but on balance, it's a little bit dampening. Now still good track or clip in terms of growth for this business area. And we have -- as we've said many, many times, we have quite big ambitions with Medical Solutions, i.e., we want to keep the margin above 20% and we want to grow this at a clip of more than 5%. And we are on course to achieve that also in this quarter. So any quick questions on Medical. And again, I cannot go into more details really until we release the report. This is just a summary of what we've said so far this quarter. Any Medical Solutions, questions, raise your hand if you have it. Okay. Doesn't appear to be any questions on Medical Solutions. Hopefully, everything is clear. So I move on to our largest business area, which is Sealing Solutions. And in Sealing Solutions in Q4, it had an organic growth of 5% with a margin of 20.2%. And what I've seen so far in Q1 is that the Industrial segment is improving a little bit. And that is -- if I break it down on the regions, I do see that it's growing basically organically in all 3 major regions. In EMEA, though, this small growth we see in EMEA is driven by price increases rather than volume. Volume looks to be flattish. And in Industrial APAC, organic is actually growing due to higher sales volumes. So we see a real pickup there. Now in Industrial Americas, it's actually on a positive trend here with -- due to price increases and slightly higher volume also. So from the Industrial segment, yes, it looks good. The automotive segment, our second largest explaining about 28% of the business area. That is weaker, and this is due to the weak -- especially the weak aftermarket sales for damping, which we've been talking a lot about. We are producing those in Kalmar in Sweden. And then we -- it's one of the very few products we actually ship across the Atlantic or to Asia. And due to the tariffs, we've lost some business there. So it's the same story as in the previous quarter. And this is a high-margin product. So of course, that has a little bit of an impact on the margin due to its being down. Is it worse than in Q4? No, it's probably a little bit better, but it's still negative. And then we come down to the aerospace segment, and we see very strong sales in aerospace and both organically, but we have also made some acquisitions here. We have done some price increases, and we see higher sales volumes across all segments. And this then boils down to for the business area that we see an organic sales growth similar to Q4 when it was 5%. And we also see due to the mix with a very strong aerospace segment, slightly higher margins in Q1 compared to Q4. Also here, I should mention that the book-to-bill is strong. Now any questions on Sealing Solutions. Please raise your hand if you have any. Well, good. So let me then summarize on the group level. Yes, from an order book perspective, we continue to grow the order book. The book-to-bill is good. We have a strong base going into 2026. What's happening in the war in Iran and the situation Hormuz, we don't really see any direct impact on us. But it could very likely dampen customers' order pattern if the war is dragged out. So of course, we are not immune to the situation, but we don't see any real impact -- direct impact on us. As you hopefully know, we are very local to local, which means we also source locally. And I would say, from a group perspective, our local sourcing is probably out there at 85%, 90% of everything we source comes from our local markets. If we summarize what I've said about the business areas, I believe you will find an organic sales development in Q1, which is very similar to Q4. I also believe that we will have slightly lower margins due to the project sales pushbacks that we achieved in Q1. So that's the overall view. And of course, I haven't seen the latest situation or the last 2 weeks now in March and the coming week in March. So there could be some variations on what I've seen -- to what I've said today compared to what we will see in a couple of weeks' time when I get the final numbers. But I hopefully have given you enough feedback so that we can do your calculations correctly. So any -- last chance now to ask any questions. We have an AGM coming up, by the way. We do expect the AGM to approve of continued buybacks and to the tune of what we've said before. Okay. We have some questions here. Vivek again.

I had a question about the broader impact of the Middle East situation, thinking about raw materials, oils and so on. Oil is an input into polymers and so the potential cost impact there. Also, when we try and do screens around different companies' energy usage, I guess, the energy intensity of your production maybe towards a higher end of some of the [ cap goods ] companies. So I was just wondering if you might be able to give us some thoughts around what potential cost scenarios we can work with? Any -- what sort of lead times do you have before we can get price increases through? How should we think about those as gross and net impacts?

Yes. So I can divulge that our energy cost is around EUR 50 million, which is quite limited. So I'm not really sure if it's much bigger than anyone else. On the contrary, it's actually lower according to what I've seen. And so it's very manageable. Yes, of course, it's not good if the prices go up very much. But as you know, Vivek, our very strong positions in these small niches where we operate and the fact that we don't have any list prices that are revised every 6 months, we -- as soon as we see prices go up, inflation go up on raw materials, then we pick up the phone and call our customers. And very, very often, if not always, we are able to push that increase on to our customers. So that is why we don't see any major impact from the energy cost. Then, of course, transportation and so forth, yes, shipping, et cetera. But I think considering that we are local for local, we don't ship much on ships from one continent to the next. I think we are relatively unharmed by the much higher cost. Then, of course, you have cost for trucks, for diesel and fuel and so forth. And that is something that we are pushing on to our customers. So yes, that's what I mean by not having seen much impact from the situation so far. We are more wary about how it will affect the mood of our customers, i.e., indirect impact going forward if this war is dragged out. So minimal impact so far, but yes, we are wary, it could impact our customers' order pattern going forward. You had some additional question also, I believe. Yes, you mentioned the oil -- synthetic rubbers and so forth are oil derivatives, but this is raw material increases. We -- the amount we purchase of synthetic rubber is quite limited in relation to our total COGS. So it's actually less than -- we have so many different prices to watch, hundreds of different materials that we buy in, chemicals, textiles, metals and so forth. And I wouldn't say that the synthetic rubber stands out in terms of -- in weight of our total cost, if you will, for COGS. So yes, we have not lost sleep over this situation because we know from experience that we are able to push on higher raw material prices on to our customers. Now some of you know, we've said it many, many years that we actually prefer when raw materials go up because we are priced at a very high level, premium price compared to competition, which means that the competition when the raw mats go up, they are forced from a percentage point of view to raise their prices more than we do. So very often, we benefit from rising raw material prices. And it also gives us more of a good motive to raise our own prices. I hope that's a way. Agnieszka?

So maybe I didn't catch you on Sealing Solutions, if you can repeat what you expect in terms of organic growth in Q1? Will it be at, if you think, similar level in Q4 or is there any reason that it shouldn't be as good?

No. We expect similar. So I could say, actually, just to summarize again that we -- from Industrial Solutions, we expect similar growth, i.e., negative, but perhaps slightly better, but I still don't know because deliveries of projects. It was negative 3%, we expect similar, could be slightly better. In Medical, we had 5% in Q4 organic and we expect the same in Q1. In Sealing Solutions, we grew organically by 5%, and we expect similar in Q1, which then gives us this overall guidance of having a similar development for the group in Q1 as we had in Q4.

Correct. And then also on Sealing with that growth -- organic growth that you do see and expect now, why shouldn't we expect a bit maybe better conversion on margins and improvement in margins?

Well, I did say that we expect the margins to improve a little bit in Q1. Ope, your hand is raised.

I think Vivek kind of covered my question, but just to check, any price increases you saw in the quarter, does that kind of relate to any inflation you're already seeing? Or that was just...

Yes. I mean that is, of course, to cover for some inflation we've seen in some energy prices in some raw materials. So we are covering ourselves. And perhaps then some in a few business units. But I cannot really give any more clues on that. We'll have to wait until the 23rd of April. Yes. Vivek, you still have your hand up.

Apologies.

Okay. All right. Then I'll try to sum this up. Of course, I will be much more available and discuss much deeper once we have reported, and I just want to give you some flavor of what we have communicated at conferences and seminars. And I thank you all for your attention, and have a great weekend. Thank you.