Trelleborg

Another strong quarter

“The Group continued to perform well during the second quarter of the year and recognized strong sales, earnings and cash flow. Net sales increased year-on-year by 18 percent, with organic growth contributing 3 percent, acquisitions 9 percent and positive exchange rate effects 6 percent. EBITA, excluding items affecting comparability, increased 14 percent and the corresponding margin amounted to 17.9 percent (18.7). This was the highest EBITA to date for a single quarter. Inflation continued to affect us during the period, but was effectively offset by price increases and efficiency improvements.

It was a particularly eventful quarter. We concluded the sales of the tire and printing blanket operations at the beginning of May and the proceeds from these divestments mean that the Group can now recognize a positive net cash balance. The capital gain after tax amounted to approximately SEK 6.1 billion.

As a consequence of these significant Group changes, new financial targets and new sustainability targets were presented during the quarter. To summarize, the new targets entail higher ambitions, which are described in more detail in this interim report.

Our strong balance sheet enables continued share buybacks, at the same time as we are investing in focused organic initiatives and acquisitions in selected niches. During the period, we decided, for example, to invest in a new manufacturing facility for sealing solutions in India and a new manufacturing facility in Vietnam, primarily focused on marine solutions. In addition, we finalized the acquisition of a US operation specialized in sealing solutions for the aerospace industry, as well as the acquisition of an operation focusing on automotive boots for the fast-growing Indian light vehicles market.

Trelleborg Industrial Solutions reported increased organic sales in all geographic regions, with most market segments contributing to growth. Particularly strong sales were noted for LNG-related and marine solutions, as well as for the aerospace industry. However, deliveries of sealing solutions for residential construction continued to develop negatively and we also noticed a slowdown in some industrial segments, partly impacted by inventory adjustments among customers.

Organic sales for Trelleborg Sealing Solutions developed positively, although the pace was somewhat calmer than in the most recent quarters. Sales to healthcare & medical performed well, while deliveries to the aerospace industry remained highly favorable. However, even in this business area, we noted a certain decrease in sales to general industry in several geographic regions, driven by somewhat lower demand accentuated by destocking among our customers. Within the business area, considerable investments in the organization were made during the quarter to meet the anticipated demand within a number of rapidly expanding market segments.

There is significant uncertainty regarding market performance in the second half of the year. While our order book is solid, we can see a slight slowdown in order intake compared with previous quarters. Meanwhile, we are highly confident in our ability to address market fluctuations. Due to our favorable market positions and financial position, Trelleborg now stands stronger than ever before. For the third quarter, our overall assessment is that demand will be somewhat lower than in the second quarter of the year,” says Peter Nilsson, President and CEO.

Second quarter 2023 – continuing operations

• Net sales for the quarter increased 18 percent to SEK 8,696 M (7,351). Organic sales increased 3 percent compared with the preceding year, while acquisitions increased sales by 9 percent and currency by 6 percent.
• EBITA, excluding items affecting comparability, increased 14 percent to SEK 1,563 M (1,376). Earnings were the best to date for a quarter. The EBITA margin was 17.9 percent (18.7).
• Operating cash flow amounted to SEK 1,585 M (798), an increase of 99 percent. The cash conversion ratio for the most recent 12-month period amounted to 88 percent (69).
• Items affecting comparability for the quarter totaled SEK -194 M (-33) and pertained to restructuring costs.
• EBITA, including items affecting comparability, amounted to SEK 1,368 M (1,343) for the quarter.
• The Group’s tire and printing blanket operations were divested to Yokohama Rubber and Continental, respectively, on May 2, 2023. The total capital gain amounts to SEK 6,189 M before tax and SEK 6,052 M after tax and is recognized under discontinuing operations in the income statement. For further information, refer to pages 9 and 20.
• As a result of the divestments, the Group reported a net cash position of SEK 1,881 M (-10,959) at the end of the quarter.
• Earnings per share for continuing operations, excluding items affecting comparability, amounted to SEK 4.71 (3.63), up 30 percent. For the Group as a whole, including discontinuing operations, earnings per share were SEK 27.67 (5.68), primarily impacted by the capital gain from the divestments of the Group’s tire and printing blanket operations.
• The key figures in this report relate to continuing operations, unless otherwise stated. From this quarter, EBITA has replaced EBIT as an operational performance metric.

Market outlook for the third quarter of 2023
Demand is expected to be somewhat lower than in the second quarter of 2023, adjusted for seasonal variations. The geopolitical situation entails a heightened degree of uncertainty. For further information, refer to page 11.

Market outlook from the interim report published on April 27, 2023, relating to the second quarter of 2023
Demand is expected to be in line with or somewhat lower than in the first quarter of 2023, adjusted for seasonal variations. The geopolitical situation entails a heightened degree of uncertainty.

This is a translation of the company’s Interim Report in Swedish.