Status Update

Mar 31, 2020

Press Release

Ladies and gentlemen, welcome to the Telepari Conference Call. Today, I am pleased to present Peter Nielsen, CEO Ulf Verihun, CFO and Christophe Krogriam, Vice President, Investor Relations. For the first Christophe Hoeghgen, please begin your meeting. Yes. Good afternoon, everyone, and welcome to this brief update on the coronavirus's impact on Teleborg. During the Q1 of 2020, with me today, I have CEO, Kieth Nielsen and CFO, whose 3rd vote. I trust that you all have had the opportunity to read our press release, which was published today at 11 CT which also includes a Q and A attachment. Before we start, let me just give some information on today's call. The purpose of this call is to shed some light on the current situation As well as looking back on the development in the Q1, we will limit this update to the Q1, I, we will not release any financial guidance on the Q2 and onwards. It is also our ambition to include the guidance for the Q2 in our upcoming quarterly report, which is due out on the 23rd April. In this dynamic situation, 12 bol will not do any more updates on the performance in the Q1 besides this update call until we release our Q1 report. Now following CEO, Peter Nielsen's remarks, there will be an opportunity to pose some questions to both Peter and Olf. And we kindly ask you to refrain from asking forward looking financial guidance questions. With that said, I welcome Peter to adjust the development in the current quarter. Peter? Thank you, Christophe. Now Thanks all of you for joining this call, which we decided to do simply to try to be transparent and open about the situation which we are currently in. Trust all of you is well aware of these turbulent times that we have had here over the last month or so. And of course, the situation is changing daily. Of course, we have been continuously tracking the development and continuously also Following the Trelleborg very decentralized model, of course, we have been managers on all levels adjusting and changing their setups. And we have, of course, implemented measures all across all our units In order to address this new situation, we are extensively be using all kind of measures like layoffs, worse, shortened working hours, temporary closing of some facilities, aided due to governmental laws or instructions. And also, of course, in some circumstances, some situations, we have also closed factories due to that our customers has been closing their factories. We, of course, also in this kind of Turbulent time, of course, increased our focus on cash flow and thereby, of course, working heavily on the working capital and also been addressing all CapEx that's being discussed. I mean, this is something also unique situation For all the parts of Treleborgs, so a lot of actions ongoing, having daily calls every morning, update calls on what is going on, both country wise and also, let's say, organizational and structural wise through our business areas. So this is a kind of a very active period for us. But nevertheless, We decided to give you this call and give you an opportunity to ask questions. And we should, of course, as usual, Try to be as open and frank about our questions as we potentially can. But as Josef mentioned, we're living in a quite volatile environment, and it's difficult really to give any guidance ahead. And that's why we don't really want to give any guidance ahead at the moment since we are simply changing our view here daily and implementing actions in accordance with our daily updates. Also in this, since we have received a lot of questions, we are also clarifying our financial situation In terms of what kind of financing we have in place and what the overall covenants are for this financing, happy to discuss this further and explain a bit more. I mean, this shouldn't really be news. It's been in our annual report, but nevertheless, happy to clarify Any kind of outstanding questions in relation to this? So this is really, I think, I end here and then opening up for Q and A. So please go ahead and shoot questions. Thank you. Our first question comes from the line of Klas Pedersen from Citi. Please go ahead. Your line is open. Yes. Hi, Pieter Knollf, Claus from Citi. First of all, thanks for the transparency and the call. It's Good to see. The first question on Industrial Solutions versus Sealing. You talked about a significant downturn in Industrial Solutions towards the end of the quarter versus Sealing Solutions negatively impacted by weaker demand towards the end of the quarter. So that, to me, feels like industrial solutions much worse than failing so far at least. Yes, that's an indication, and this is not forward looking. This is towards the end of the quarter. If we reflect back to the financial crisis, to me, that fee is made before Industrial Solutions, down 30% plus, maybe 40% in March And maybe down 5% to 10% for Sealing. So just to get a feeling, Peter, for what's going on at the quarter exit? Yes, we don't explain it because the difference in business, and that is maybe also some general guidance for all of you. I mean, the businesses which is more those 2 kind of distributors, dealers is the one that's been, let's say, hit the most here at the end of the quarter. Since we have some businesses Within Seating Solutions sorry, within Industrial Solutions, we take exposed to this like rubber sheeting, like Industrial houses and some other areas. I mean, they have been hard hit on the dealers and distributors being much more careful, while we have more line feed in a way where we kind of feed straight onto the assembly lines like that sealing solutions, that is, let's say, less hit by this. But I mean, I don't really want to it's difficult at the moment, Claus. I understand that you're looking for guidance, but I don't really want to give Any further kind of figure guidance than we give here is simply that still Industrial Solutions is a little bit further down than what we see in Seating Solutions. With all that said and done, also like everybody else has been stated, order books actually looks quite good, but they don't really believe in order So that is the challenge for us at the moment. Yes. No, that's very clear. Obviously, sealing can, of course, weaken ahead. My second one is, okay, I'm not going to ask like guidance, but I still want to hear Your comment on automotive, Peter, and Aerospace, 2 end markets that will really nosedive. You have the Brake Shins business, which more like aftermarket in the motor business. So what is your total autos exposure that is purely linked to car production right now? Or do you see the aftermarket type business taking hit as well on less utilization of the fleet? And then Aerospace during the Q4, you were still Pretty optimistic versus the 737 MAX shutdown. So obviously, it's a very, very different picture now. Have you seen any impact in Aero as well? I mean, just Through the quarter, no guidance through the quarter? No. The challenge here, I mean, also in order to be fully transparent, the order book still looks good for Aerospace, like that. And the order book still looks relatively okay for the automotive. As you know, the general automotive is that you're working with these 8 week schedules. And the 8 schedules is kind of a legal commitment, if you may say, from the automotive suppliers. So we are, of course, discussing individually with them in order to what to deliver and not to deliver. So I mean, the major drop, it's not like it's a full stop when this has happened. But of course, we expect it to go down dramatically here if you look for the full Q2. But the major drop here at the end of the quarter is substantial, but it's not like it's a full stop with automotive. And with that said and done, I mean, our automotive exposure directly to OE is slightly less than 10%. I don't really 88% or something like that of our total sales, but that is not a full stop. So don't put that because there are still these 8 week commitments and then, of course, individual discussions whether to supply or keep it. And we the different OEs is acting in a different way in this respect, to be honest. And that is where we have individual discussions with each of them. As for Aerospace, it's also kind of a slower stop also there. So we expect kind of not in a major impact for that in Q1, but the major impact we will also there happen in Q2. So Okay. Also there, it's not really so that the guidance is relatively okay in Q1, even though we have seen the last year, March, where there is some downturn. But that was said and done. On our Aerospace, I think if you go back to last year, we had some kind of extraordinary growth in that. So of course, year on year, it's going to be down. But in year, the run rate compared So let's say last quarter is not really that much down. Yes. My third and final one is on staff and The situation, could you say anything about how many employees are now under short term working, how many temps have left the group? I appreciate it's difficult to talk about layoffs, But from other countries, yes. I mean, let's put it like thousands of people is on short term week, and we have given no And we have salary cuts. I mean, that's happening all over the place. I mean, we have cut our salaries at the head office, and we have So all of that is already happening. And but to give numbers, it's like thousands of people is impacted by this and already been for a few weeks. So that is not kind of something we have been waiting and doing. That is kind of we do weekly updates. And In Sweden, of course, you have official figures. And I think we as of yesterday, it was some 600 people 600, 700 people in Sweden Well, that's in our among our employees who have given the same notice on short working weeks. So that is thousands of people impacted across the group. But I mean, once again, it's a daily and also depending because the legislation and the systems are different in different areas. In some areas, you can apply for short working weeks, but then you cannot give notice. In other areas, you can go short working weeks and notice. In certain legislations, you don't have to give notice. You simply ask people to go home. So that is a little bit a lot difference on the various countries. So we are running a daily update country by country and also then in parallel there by level because in country level, you need coordination in accordance with the local legislation and rules. It's kind of a matrix that we're running in that respect. Thank you, Peter. Our next question comes The line of Erik Golrang from SEB. I have Two questions. You write in the Q and A material that the earnings trend has been relatively stable. And the question is for what period and stable compared to what? Is it an absolute number compared to Year ago, last quarter margin compared to a year ago last quarter? Yes. We are mainly I mean January, February, as we said, was in line both in terms of margin and absolute earnings, if you may say. But then, of course, we've been dropping a little bit in March. So but March is also sales down. So we expect kind of a margin drop year on year, but it's not really relatively stable, and that is what we're seeing. It's not kind of a drama. But when we refer to it, of course, I mean, they referenced this previous year. Okay. Thank you. And then the second quarter is on this strike that you've seen in industrial. What did it concern? And how much of an issue was that in terms of earnings and sales? In Turkey, it was about the salary. High inflation in Turkey, and it was really a salary discussion. While in France, it was more a general Right. That's great. That's some problems. So there are kind of independent reasons for those. It was simply that this was hitting one of the areas Hard since we couldn't really ship or sell for a week or so. Okay. Then the last question, similar organic decline in wheel as you saw in Q4. Was there Much less. So we realized that the production announcement from the OEs have come very late in the quarter, but you didn't see sort of an impact on the aftermarket and so on towards The last part of Q1 there? Limited, very limited. So there were simply the last 2 weeks or something of that where we saw the AE impact. But and then also to note, just compare quarter on quarter. Of course, in this quarter, as we indicate that after the full year call, I mean, we are being manufacturing basically in line with the sales. So I mean, we don't have under production in this quarter. Okay. Thank you. Our next question comes from the line of Agnesha Villela from Nordea. I have a couple of questions. Starting with your current Production capacity, can you tell us how much it is closed as of today? I don't know. I'll not check the last hour, what I say, because this is kind of really a daily activity. But I mean, in total, I should say, Vast majority of our factories is up and running. We have some factories with which are high absenteeism and there are some Hi. Yes, a lot of people being away on sick leave and all of that. But in total, I mean, we have not been With very, very few exceptions, we have been able to supply what the customer is asking for. So our concern is not really the kind of production capacity at the moment is more to support our customers. And for the time being, we are supporting. But that is daily. I mean, we had a regulation in Italy a week ago where we were allowed to keep open. But now in Italy, the unions are pushing for a closure, And so that is being discussed on how to solve it. And these kind of discussions we have in a more I think In total, I think we have at the moment something between 5 or 10 factories closed, where a few of them is actually our own decision and a few of them is by authorities. So it's and it's changing daily, Andieska. I mean, it's really difficult to see because it's also the Challenge is not only the legislations. We have also in several countries also now with unions is pushing. And I mean in most places, we have implemented very good measures, and we are kind of well ahead of the kind of asked for measures and asked for in CRTFs to protect our workers. And so we have very strong support from our local unions, but sometimes the central unions is kind of pushing in a different direction, and that is kind of a negotiation that we are managing in a lot of locations at the moment. Understand. Have you seen any supply chain issues for your guys? Not really in and out. I mean, I cannot really we don't really have any incoming material problems anywhere. We have had for a few days in Italy before it was sorted out when it was actually closing the border and all of that, what is needed in terms of documentation. But that was not really a big issue. And outgoing has also been fine. Outgoing, the freight expenses have been going up, but we have never really missed an kind of delivery due to the fact that we couldn't find trucks, so we couldn't find any ways of moving products. So of course, it's happening. But I mean, in most cases, when it's actually a problem, we have been able to find mutually acceptable solutions our customers. So with that said and done, we can expect because now we're running only for a few weeks of problems and kind of we expect That to be a problem going forward. But at the moment, we don't really see it coming anywhere, to be honest. So we have a few cases in Sri Lanka where the port was closed for a few days and but that is we have in Italy now coming up a little bit potential But I mean, once again, it's not really been unsolvable problems up until now at least. Yes. Perfect. And then some questions on the balance sheet. You have some loans that are maturing in 2020, in 2021 of about EUR 4,000,000,000 according to your annual report. What is your assessment of the credit markets for you right now? And would you consider drawing down on the RCF that you have Just to roll the launch? Sure. Basically, it's that we have the RCF is a backup on the short So short monies, I'd say. And if we will have a problem with the short term money, then we will, of course, then utilize the RCF. But so far, we have not utilized the big RCF, and we have increased the liquidity. So we have good liquidity, And we have the strategy in place, I'd say, that we have long term facilities that will have backing up the short term facilities. And otherwise, on the cash flow, obviously, you have now postponed part of the dividend. But you also mentioned that you could consider some CapEx cuts now in the current situation. Can you just elaborate on that? I don't know what you referred to. I mean, we are cutting CapEx, and the dividend is the decision for the AGM. So that is something where the proposal is as it is. But of course, from a CapEx point of view, we are very strict on CapEx going forward. So we only allow more or less Critical CapEx that's going through the system. At the moment, yes. At the moment. And what's the maintenance CapEx? Yes. But what's the maintenance CapEx that you have, if you could remind us about that? What we normally say is that we have the underlying That is about SEK 1,100,000,000 in depreciation, which they normally would be allowed into spend. On top of that, then we individually, we approve strategic CapEx, but even that SEK 1,100,000,000 is then cut. So we only do right now, we only do what is necessary for not harming the business on short term. I mean, I Agnieszka, we cannot give I mean, we are in the middle of we've been working on this now for a few weeks, and we have given instructions to minimize the CapEx, and we are not really To full scope, at the moment, able to give you new guidance for the full year CapEx is simply that we're going to be Our next question comes from the line of Hampus Engello from Hampus Weikamp. Please go ahead. Your line is open. Thank you very much. Two questions from me. I mean, we've seen a lot of announced production stops So around 25 March among OEMs and many of your customers. With the I'm sure you have gone through this By company and by customer, would it be possible for you to maybe shed some light on the proportion of your customer base that have actually announced production starts ranging from 2 to 4 weeks coming into Q2. Second question is on the oil and gas, of course, Given that the main job was in oil price, how have that changed how you operate your Business under development, I'll speak, of course, of the offshore business. Yes. I mean, as well production stops, it is fairly small sized production stops, which has been decided at the moment. Of course, we have the automotive, but at less than 10%. We have a recent announcement by several of the What we need equipment for agriculture and then, of course, following down the line. We are but at the moment, we are not impacted by that, and we are watching it daily. But as you say, it's basically only the 2nd part of March where this has been an impact for us and difficult samples to give any kind of guidance of how much It is at the moment. It is once again a daily change, and you are agreeing on various special arrangements to do it. So I don't I cannot really give you a percentage of that. I mean, the only thing where it's heavily impacting us at the moment is automotive and then going forward also agri OE. That is probably the biggest two areas. But beyond that, we have not seen a lot of impact For kind of smaller factories in France or smaller customers in Spain or Italy, which I think is the 3 countries which is mostly affected kind of outside of automotive. And the second question, oil and gas. Oil and Gas, we still, as we say, we have a good order book, and we have not yet at least seen any kind of major not any major, not any kind of stopping on these running projects. I mean, as you know, we're moving into this quarter with a fairly sizable kind of organic growth compared to a year ago. And we are not the only thing, of course, where we have been Site jobs, I mean, so part of our offshore activities, site installations and all of that, and that's being stopped. And we are watching. There's still a lot of pending projects in the market, and we have not really seen a stop of that yet. But of course, we're expecting that and we are kind of adjusting our cost base and then looking into what to do to adjust. But I mean, for what we can see at the moment, it's not going to be a major impact, at least for the 1 or 2 quarters. So that is kind of beyond that, that we're going to see from oil and gas. And I mean, overall plan for this business under is still the same. Of course, we are it's not improving the situation for oil and gas, what is happening now. But I mean, our plan now. So of course, we're looking now into more wintering. While as you say, also the other big part of business under development, Printing Solutions is probably the business which has been least impacted actually with this corona since you're printing more newspapers and you're printing more, and it's been deemed as a kind of a critical business by most governments. So they are still supported, and they are Actually doing very well, all considered. Thank you. Our next question comes from the line of Claus Perjelin from Citi. Please go ahead. Your line is open. Yes. Thanks for taking the follow ups. Just a few ones. So one for you, Ulf, on net working capital. How should we Think about this in a downturn. Do you feel that you were overstocked going into this in certain segments? Inventories to sales have come down last 2 years, but still want to ask. And then on receivables, some companies in this space use factoring, which can create some unusual year end swings. To what extent do you outsource the collection? We don't have any on our country, but we don't have any factoring. And we have as we also mentioned in Q4 on the wheels, We then did one of the hits on the P and L was that we took down the stock. So overall, we still have some trimming to do on the inventory, but it's not a major one. So the major one was then to trim down wheels in quarter 4. And part of the actions that we're doing that, we have a special focus on not building stock or kind of trading a future problem. And also then we have a special view on overdue receivables. We don't want to end up with future problems. And people understand all the business areas, the 3 business areas also the bud, they have clearly understood the message that cash is king and also they have a focus on working capital. As in general, Claus, I can only comment. I mean, this is high on the agenda. It's been high on the agenda for some time, and we feel we have good control of the working capital. I mean, the overdue is on a relatively low level in all comparisons. And of course, we expect that we need to watch it a bit further than usual, but we have been watching it quite good, and we have been managing it quite good. So we have a fairly limited problems in the accounts receivables at the moment. Of course, we expect it to increase, and we need to watch it going forward. And also, like Ulf comment inventory levels, we have been working on inventory for quite some time, and we don't feel that we have any kind of excessive inventory. Then, of course, it's always a challenge. If the business goes down, we need to also underproduced, but that is something also that we are prepared to do. We don't really want to save the EBIT by overproducing. We're going to adjust our production levels in accordance with the demand we see in the market. So and we feel that going into this quarter, We are, let's say, running at a good level with good control. Yes, of course. No, I know you will under produce in a downturn. I was more Thinking outside of wheels, you've done a really good job on wheels. But yes, it seems to be okay outside as well. On just oil and gas, can you give us a feeling for how much Because it's difficult for us to break it out completely, how much have we recovered from the trough, Peter? I guess that's our starting point thinking about how much we fall back to. Okay. Guidance again, I'm not saying that, but are we asking 30% to 40% from the trough or? Yes, I would say even more, I guess, from the trough. So if you so we are I don't really I don't have a figure. I don't know, Christophe is on the line as well. I don't know, Christophe, if you want to comment on that. You might have a better. Well, it's a very tough question to answer because as you know, our structure of that Unit has changed a lot also. We have downsized. So I would say We are away from the troughs and away from somewhere in the middle of between trough and the peak, I would say. Okay. Thank you. Okay. Next questions. Our next question comes from the line of Malte Schulz from Commerzbank. Please go ahead. Your line is open. Hi, good afternoon. Thanks for taking my question. First of all, maybe on your hedging and also do you have Because you now require a lot less input materials as well, I assume, if you downsize your production, do you incur some hedging losses on some commodities which have form, but you don't regain these advantages as by cheaper procurement? And the second question would be a little bit you touched already on your transport costs, but can you quantify maybe a little bit over Past 2 weeks by how much your transport cost has on average maybe increased? And do you also face any late delivery payment? And my final question, but if you might be able to shed some more light on your current liquidity. You said it's quite strong, but can you also provide us with a number how much of liquidity you had available as of yesterday? On the raw material hedging, we don't generally, we don't do raw material hedging, and we don't really have any long term commitments on that one. So we feel we are very flexible, and we feel that we are in a good position now to I trust all of you now, oil prices are going down at the same time, demand going down. So we have a very, let's say, volatile development along the raw materials. And I think we are in a good position benefit from this. Of course, the problem is that we will manufacture less, but that is something that we are working on. So we don't feel any problems. That on the transport cost, is kind of neglectable. I think that the crisis here on the transport cost was more actually in the 1st 1 or 2 weeks of this, but it's been Naturalized in the last few in your last week or so, the transport cost is actually going down again. So that is because new setups is being arranged. Then also in the beginning, it was a lot about importexport and these closed borders, how to manage it, what papers do you need, what is their routine to go through a closed border, all of that. And most of that has now been settled and established kind of the structure around that. So this, I see it, okay, we're probably going to pay a little bit more for the transports, but it's not really a noticeable cost for us at the moment. Seafreight is getting actually cheaper. So there is a benefit in that. So there is a little bit balance, but not any major thing. What we said, liquidity, I mean, we don't really want to give a figure We want to comment on that. That's more we feel that it's Yes, for now and for the future, we don't see a liquidity problem approaching unless the default bank system falls into pieces. But I mean, then of course, it's something else. So we don't really see us from a balance sheet perspective, have any kind of liquidity problems? We are ready for tough scenarios in that respect. Martin, what was the final? Maybe I missed the question here. Yes, but maybe if you allow one more. Have you been already approached by some clients to delay payments or to or by some suppliers that you helps them a little bit over the as you're a more stronger financial company, that you help them a little bit with either paying Earlier or receiving payments later? Nothing like that at the moment. It might come, and then we need to have, let's say, pragmatic discussion and decide whether we want to support or not. But at the moment, it's really not on the table. And we have not seen any kind of slide on overviews or anything so far. We are monitoring it closely, of course, but we have not been given any indication basically from anywhere that there is kind of a major shift. There's also always customers' difficulty paying, but it's not really any more problems at the moment than it was 6 months ago. So we don't really see any change in that at the moment. But of course, we are prepared for it, and we are watching it much closer than we We have been watching it close, but it's getting even closer watched now and now at the moment. But once again, so far, no issues identified. Okay. Thanks. Our next question is a follow-up question from Agnieszka Villela from Nordea. Please go ahead. Your line is open. Thank you. Just a follow-up on Erik's question about the earnings trend that you see. You said that you referred to year on year kind of thinking here. Looking sequentially, Q1 margin is usually, say, 2 to 3 percentage points stronger than in Q4. And Q4 this year or last year was affected by the weakness in wheel to a large extent. So do you still expect basically that The margin will improve from Q4 in Q1 and quite substantially despite the things that are happening right now. Now you're trying, Agnieszka. So it's really no, no, I mean, we are I understand it's challenging for you, but it's also a trust you need also to respect. It's also not that easy for us. So this is what we can guide And we don't really want to give you any further guidance on that. I'm sorry. Okay. But stable earnings, you mean quite stable than year on year? Quite stable in terms of margin compared to year over year. I mean, that is really of course, it's getting a little bit here, but it's not really a major hit that you could in worst case scenarios. All right. Thank you. There are no further questions registered. I'll hand back Okay. Thank you very much. And let me wrap up this call by thank you all for calling in. We at Trello Board wish you all to stay safe. And let me remind you once again that we are now entering our silent period. So Travel Board will not do any more updates on the performance in the Q1 until we release our Q1 report on the 23rd April, and we'll talk to you then in a few weeks' time. Thank you very much. Bye.