Release Date: July 18, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Trelleborg AB (FRA:TLLB, Financial) achieved organic growth and improved margins, with EBITA reaching SEK 1.6 billion, the highest to date.
- The company completed two acquisitions in the quarter, strengthening its position in semiconductor manufacturing and pipe rehabilitation.
- Automotive sales continue to grow, particularly strong in Asia, contributing positively to the overall performance.
- The company reported a solid cash flow of SEK 1.2 billion, maintaining a strong cash conversion rate of 88%.
- Trelleborg AB (FRA:TLLB) has made significant progress in sustainability, with substantial improvements in CO2 emissions and increased use of renewable and fossil-free electricity.
Negative Points
- Sales in Europe declined by 1%, impacted by lower project sales, contrasting with growth in Asia and the Americas.
- Industrial solutions experienced slightly negative organic sales, with residential construction and industrial segments remaining weak.
- Medical solutions saw a decrease in EBITA despite sales growth, due to ongoing investments and added costs in the new business area.
- The company faces continued challenges in residential construction and some industrial segments, impacting overall performance.
- Geopolitical uncertainties remain a concern, potentially affecting future business operations and market conditions.
Q & A Highlights
Q: My first one is on the guidance, which is sequential and you're saying somewhat higher. Should we translate this into somewhat higher year-over-year as well, i.e., around 2% to 3%? And could you help us, Peter, where you see the bigger improvement quarter on quarter?
A: Yes, when we talk about the guide, we don't want to guide on individual organic growth. We guide on it getting better, which means it’s getting a little better in Q3 compared to Q2 on a year-over-year basis. We still see aerospace, oil and gas, LNG, and automotive holding up well. We also see an end of destocking in the medical area and some industrial segments. Overall, we feel confident in guiding for slightly higher demand in Q3 compared to Q2.
Q: Then my second one is on TMS and the big improvement during June. Is there a complete entity destock or do you think that can continue into the third quarter? And also on Barron's, which has now finalized, are you confident that you can reach a 20% margin through the second half, including Barron's?
A: The destocking is still volatile. We were a little surprised by the uptick in June, but we feel confident that the destocking will be less than a year ago. Regarding Barron's, we are confident that we can reach around 20% margin once it is fully integrated. We have been building the organization in medical solutions to integrate Barron's, and we are carrying a few extra costs in the quarter to be ready for this.
Q: I wanted to come back to the medical business. The destocking, I guess you now are under the impression that this has been finalized. How should we frame that heading into next quarter and the second half of this year?
A: It’s difficult to guide precisely as it depends on individual call-offs from customers. We feel that the majority of customers are now moving into growth rates again, but some are still destocking. Overall, we believe it will get better than Q2, but we cannot say exactly by how much.
Q: Switching gears to your aerospace business, how have you been impacted by the Airbus and Boeing situation, and how do you expect that to impact you going forward?
A: We still have a solid growth story in aerospace with 10% plus organic growth. The order books at Airbus and Boeing are very strong despite their challenges. Our sales growth is more limited by what customers can absorb rather than demand. Overall, the demand looks very good in the medium to long term.
Q: On Sealing Solutions, with 5% organic growth in the quarter but margins coming down due to growth investments, what kind of growth do we need to see for these investments to be absorbed?
A: We are about to turn the corner. We are seeing some volume segments still depressed, but we are driving an improved mix in Sealing Solutions. We have kept some manufacturing capacity to be ready for growth, and we are starting to see benefits from MRP sales. We are confident in achieving long-term targets as volumes return.
Q: On the gross margin, it was at 37%, up by almost three percentage points year on year. Can you explain what’s driving the profitability improvement despite limited organic growth?
A: It’s a combination of organic growth and a good mix. We are growing in segments with good profitability. It’s the result of long-term operational improvements starting to pay off.
Q: On automotive industry, you still see quite good growth, but car production seems to be slowing down. What’s driving the growth specifically for you in that segment?
A: We have a good aftermarket for our braking business and new projects in sensors and automated devices. We are also gaining market share in Industrial Solutions, particularly in India. We have been surprised by the continued call-offs in this segment, but it looks good for the next quarter.
Q: Will you be helping us with the numbers for Barron later on, maybe providing historical quarterly developments for them?
A: We will not be disclosing individual numbers for Barron as it is being integrated. You will see the full integrated profitability for medical solutions.
Q: Can you describe why the performance in the later part of the quarter for medical solutions improved quite a bit?
A: We had a few customers that ordered more than expected. It’s difficult to highlight specific areas, but we noted that some customers are now running out of stock and starting to buy again. This is not happening with all customers, but overall, we see an end to the inventory reductions.
Q: On margin development for Industrial Solutions, is there something structural driving the margin improvement?
A: We had an extraordinary order for the Panama Canal last year, which benefited margins. This year, we don’t have that, so it will be challenging to meet last year’s margins. However, we are working towards it and expect some improvement going forward.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
