Interim report January-March 2023

A good start to the year

“The Group had a good start to the year and presented its best operating profit to date for a quarter. Net sales increased 23 percent, with organic growth contributing 7 percent, acquisitions 9 percent and positive currency movements 7 percent. EBIT, excluding items affecting comparability, increased 15 percent and the operating margin was 16.2 percent (17.3). Operating cash flow improved significantly compared with the preceding year.

The general cost inflation was well balanced using price adjustments and efficiency improvements. The somewhat lower operating margin was mainly attributable to the acquisition and ongoing integration of Minnesota Rubber & Plastic, which was not part of the Group during the corresponding period of the preceding year. This integration is continuing and the work to achieve synergies from this major acquisition will yield gradually higher profitability over the next few years.

Trelleborg Industrial Solutions reported healthy organic sales growth. Project transactions in LNG-related and marine solutions grew considerably, at the same time as deliveries to the automotive and aerospace industries noted strong growth. Sales to the train industry were favorable compared with the preceding year. Demand from the construction industry was weaker, mainly driven by a declining market in Europe. A subdued market was also noted in certain industrial market segments.

Trelleborg Sealing Solutions reported a significant increase in sales, with a generally healthy organic trend supplemented by acquisitions. Organic sales grew in Europe, but particularly in North and South America. Sales in Asia were lower, driven by temporary weaker demand in China. Sales to healthcare & medical and the aerospace industry increased considerably, at the same time as sales to general industry declined somewhat. Deliveries to the automotive industry increased, with healthy growth particularly in Europe.

Organic sales in Trelleborg Wheel Systems were unchanged compared with the preceding year, with a positive trend in North America and weaker sales in Europe. During the quarter, all of the relevant authorities approved the sale of the business area to Yokohama Rubber. The transaction is expected to be finalized in the first half of 2023.

Compared with the preceding year’s strong growth, it is clear that we are now entering a more normalized growth phase. We have already seen more subdued demand from the construction industry and some industrial market segments. Proactive adaptation of the parts of the Group affected by lower demand has already commenced.

At the same time, the Group continues to increase its exposure to market segments and geographies that are still displaying strong growth, such as the aerospace industry, healthcare & medical and electrification, as well as in specific areas of Asia.

Trelleborg has never been in a better operational state, which, in combination with the strongest balance sheet of modern time, means that we stand well equipped to address opportunities and challenges in all their forms. Also, we will shortly receive the purchase considerations from the previously announced divestments, meaning that the Group will have a net cash position. Our strong balance sheet thus allows for the continued repurchase of shares, at the same time as we will invest in both organic capacity-increasing initiatives and acquisitions in selected fast-growing niches. Our general assessment in the current situation is that demand in the second quarter will be in line with or somewhat lower than in the first quarter,” says Peter Nilsson, President and CEO.

First quarter 2023 – continuing operations

• Net sales for the quarter increased 23 percent to SEK 8,711 M (7,095). Sales were the highest to date for a quarter. Organic sales increased 7 percent compared with the preceding year, while acquisitions increased sales by 9 percent and currency by 7 percent.

• EBIT, excluding items affecting comparability, increased 15 percent to SEK 1,411 M (1,230). The EBIT margin was 16.2 percent (17.3). Earnings were the best to date for a quarter.

• Operating cash flow amounted to SEK 549 M (328), an increase of 67 percent. The cash conversion ratio for the most recent 12-month period amounted to 75 percent (76).

• Items affecting comparability for the quarter totaled SEK -49 M (-25) and pertained to restructuring costs.

• EBIT, including items affecting comparability, amounted to SEK 1,362 M (1,205) for the quarter.

• Earnings per share, excluding items affecting comparability, amounted to SEK 3.66 (3.25), up 13 percent. For the Group as a whole, including discontinuing operations, earnings per share were SEK 5.33 (4.81), up 11 percent.

• An agreement was signed in March 2022 to divest the Trelleborg Wheel Systems business area to Yokohama Rubber. It is reported as discontinuing operations in the financial statements. In March 2023, all of the relevant authorities had approved the divestment. A few formalities remain, and the transaction is expected to be finalized in the first half of 2023, according to previous communication.

• The key figures in this report relate to continuing operations, unless otherwise stated.

Market outlook for 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. For further information, refer to page 11.

Market outlook from the interim report published on January 27, 2023, relating to the first quarter of 2023
Demand is expected to be lower than in the fourth quarter of 2022, 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.