Status Update

Dec 4, 2019

Hello, and welcome to Tel Aviv Press Conference. Throughout the call, all participants will be in a listen only mode and afterwards, there will be a question and answer session. Just to remind you, this conference call is being recorded. Today, I am pleased to present CEO, Peter Nielsen and CFO, Ulf Bayhul. Please go ahead with your meeting. Thank you. Peter speaking. And as already indicated, Ulf is also joining me on the call here and ready to take on some questions or improve the presentation. We have as you know, we have announced this morning that within Trelleborg we are strengthening our focus on some selected Two segments and in line with that also doing the reorganization, which then entails Going from 5 to 3 business areas and then also announcing a new unit. But in order to do this more in a more structured way, I propose that we use the presentation, which has been on our Website for a few hours, so that is what we're going to refer to and then of course at the end of the session opening up for Q and A as usual. Starting then With the second slide, current organization of Tralborg, as you're well aware, this is the 5 business areas that we'll be running and will be running Up until end of the year also where you see the speed of sales. And then moving then to Page number 3. And as I already indicated And as all of you have read in our press release, we are now changing the setup. And from January 1, We will go from 5 to 3 business areas, then with Trelleborg Industrial Solutions, which are specializing in polymer based niche applications and infrastructure projects, Trailblogg Sealing Solutions specializing in polymer based sealing solutions and then Trailblogg Wheel Systems focusing on off Highway and tires for off highway vehicles. And in line with this then, coated systems and offshore construction will discontinue And we'll no longer be business areas in Intralabor. And on top of this, we will also from Then Frohm, I'll get back to that later and explain more in detail. But some businesses from Industrial Solutions, from Motro Construction, from Character Systems and a very small Part of Wheel Systems will be transferred into a new reporting segment, which we're going to call businesses under development, Get back and comment more on that later as well. So if you move down to Page 4, you will see the new organization and also with rolling 12 Figures on those businesses, as I said, that was roughly 12 figures on those businesses now as we move into 2020. Also and also, I should comment here also, let's say, as an enclosure to the press release, of Of course, you have also seen restated figures more in detail for those of you more interested in the details and seeing the development a few years back. So that is really leave it from there. Moving on to Page 5. As we do this, we have also we'll do an impairment of capital employed And with the SEK 3,200,000,000, which is then impacting solely or let's say, going solely on the businesses that have been transferred on To these businesses under development. And also, yes, we received a question and maybe you should have been clear on that already, but just to Clarified. So then the remaining capital employed for those businesses will be some SEK 3,000,000,000, but then onethree of that roughly is working capital and twothree then more Tangible assets. So the write down is more or less solely related to goodwill, But that is also more details on this will be provided as we report end of the year. Also in this, there will also be There are some organizational changes related to this, some redundancies and some other extra costs. We're then going to be what we, Let's say estimate to be in the range of SEK 50,000,000 where this will be kind of distributed between 2019 2020. And we don't know If it how much of this is going to be 2019 and how much is going to be 2020, and we're going to be updating you on this as soon as we have more clarity on this one. Moving on to Page 6. We have already covered Most of this, as you say, Coat 2 Systems discontinued Ochsner Construction, discontinued Teleborg Industrial Solutions going forward We'll then, let's say, contain current operations, of course, less than the selected modular components operations Sweden, Estonia, Czech Republic and a small unit also in Mexico. And that is something which we're going to Talk a bit more about later and also moving then into Industrial Solutions from Trelleborg Kauter Systems is then in the Kauter Fabrics Operations And also moving from offshore construction to operations related to Marine Solutions and infrastructure projects. So basically, 2 businesses going out of Industrial Solutions and 2 businesses going into Industrial Solutions. Sealy Solutions not affected and Wheel Systems very marginally affected as we transferring a bicycle tire operation, which Just then being kind of integrated the run together with these molded products that we Do in Czech Republic and we're now moving that back into this old unit, which then is known before as the Rubenas business. Moving on then to Page 7. Business under development and going forward will then consist of printing blankets from Kotu Systems, oil and gas operations from offshore construction, as I said, a Swedish and Estonian operation from other components of Kjellberg Industrial Solutions and then also from Industrial Solutions, also moving out these modular components and technical rubber products In Czech Republic and also as I already said before, also the bicycle tires operations, wheel systems, which is currently, Let's say, running in the same unit as the other operations in Czech Republic, we could also be transferred into this. And these Operations will be managed independently and focused and then report to our CFO, Ulf Berghold for this period. The intention of this and moving to Page A, I mean, it is, of course, to more intensify the The strategic review of these businesses, these 4 independent businesses and their primary focus is to improve profitability with multiple of measures within the 12 to 24 months. And we will have to see, as I say, significant improvements of these businesses, it We remain in Treleborg long term. And of course, during this period, we will also continuously evaluate other options such as Integration in full or part into the business areas, also opening up joint ventures in order to improve the positions And also, consider divestment that we could also be interested in, let's say, joining up with others where we might not Be the majority owner going forward. So basically, all options are open, and this is something that will be concluded Within the maximum 24 months and beyond 24 months, we will have clarity on this and then we Should have a better operations as part of Tralibold or they will not be part of Tralibold anymore. Page 9 then also a comment from basically related to the board when we announced this and to avoid any kind of uncertainty, We see this kind of write down of SEK 3,200,000,000 not really Impacting our financial capacity. And there also, we want to have clarity as the board already here, Very early, of course, already here indicate that we believe if all levels everything we know also today, There will be a proposed to the annual meeting will be a proposal to have a dividend of SEK 4.75 then for when this is coming up here in April next year. So this is really the going through this presentation and with this leaving for questions. Please go ahead. Our first question is from Klas Bergel from Citi. Yes. Hi, Peter and Olaf. It's Klas from Citi. So a couple of questions, please. First, on the margin in those businesses now under development, down from High single digit in 2017 to now negative 1% last 12 months. Could you please help us speak for a bit about the peak and the low points Of printing blankets offshore and the rest, I'll start there. Yes. We don't want to have Give you full clarity on that, unfortunately, Claus. We would like to keep this a little bit. But in general, we can say, of course, we have been commenting Before, we've been losing margin on this business in Czech Republic, and that has been going down. And at the same time, we've been suffering from market, Let's say, market downturns in offshore. I should say the printing blanket is not really big change during this period. So the negative is coming here from this What we internally before called Bohemia and now going forward going to call Ravenna and from the offshore operation, while the other parts Has not really changed. With that said and done, I mean, one of the reasons for initiating this now is, of course, that we see Improvement possibility, especially in the offshore areas. We indicated before, we have a strong order intake, and we expect that to improve From here onwards and at the same time, as you know, in the Bohemia team, for those of you who've been following us for some time, or now the Rubenor That we've been investing in this investment is kind of coming up to an end also. So we kind of expect improvements in both of these areas. But I don't really want to elaborate any more details on the margins at this stage. Okay. My second one is on potential dyssynergies. So if these businesses Do not manage to improve the margins and should you divest these assets? Obviously, the synergies used to be on the purchasing side, On the polymers, are these easy carve outs should this happen? So that's my second one. Yes. I mean, if you let's say, general comment on that is, Because I mean, yes, Trello Park will still remain as being one of the biggest, let's say, purchases within Technical rubber, industrial rubber. So for us, it's not a limitation. It's more like this business, of course, they will Potentially, if suffer for some dis synergies in that aspect, and there is some carve outs. I mean, they've been part of Trelleborg. Some of these operations have been part of Trelleborg for very long term, And that's also why we need some time to do carve out. There is some in certain areas, some, let's say, common customer contracts, Tax of the customers and where we sell together, and that needs to be kind of sorted. But we do not expect This to be a major issue in any way, honestly, because also even though I mean talk about the printing blankets, talk about the offshore, we are Already, I mean, with this business, we are global leader in those segments. So even though the segments, as we decided to put them aside In this development unit, but they are, let's say, global leader in those segments. So I don't see that as being It's not been if I look into Ulf, it's not been really a major thing for us or major consideration when looking into this. Okay. That's good. My third and final one and a quick one is on for you, Ulf, on depreciation and CapEx and ROCE. Suppose Steve's right, Anuralf, that this changed the depreciation profile of the group. And linked to that is obviously CapEx and ROCE, How asset heavy are these assets? You've been very helpful with the pro form a margin improvement. But an update on depreciation CapEx in ROCE would be most helpful. Mostly, the write down, as Peter said, mostly then will impact On the intangible assets. So basically, then it's a limited impact on amortization. And then on return on capital employed, it's then slightly, of course, an uptick, but it's we were talking about 0.5% somewhere But it's a minor uptick. Okay. Thank you very much. But then I think it's also important that when We will run this business, and we will do what is necessary then to improve the business. And also from a CapEx point of view, we are not kind of The downgrading that they will not get any CapEx. They will get the CapEx. If it is a good cause and it's a good case business case, then we will, of course, then Support with the necessary CapEx. Okay. Thank you. Thanks. And our next question is from Douglas Lindahl from Kepler Cheuvreux. Hi, Peter. Hi, Ulf. One question from me. I was curious about the business has included in the business under development, Which to me seems to be something in between a regular business area and sort of an asset put for sale. Peter, you mentioned there in the press release that we need to see a significant margin improvement over the next twelve 4 to 24 months for these businesses under development to be kept within Trello board. Can you be a little bit more specific on what this really means? And also, if, for example, the oil and gas business becomes significantly more profitable, which could potentially could happen here with a strong order intake, Will you keep it within this reporting, I. E. Under the business under development? Or will this become sort of a own business area? Or will you include it in the Industrial Solutions? Can you talk a little Yes. And I mean, there is a little bit we have not decided really. I mean, we are going for this and to improve it significantly, and we're not putting Some border lines, this is something that we need to look into. But of course, again, we don't need to go into 2 digits to be able to be interesting for us To keep, but even with 2 digits, we need to feel comfortable that this is a kind of long term viable business. So I don't really want to put them in a kind of threshold for what we need to achieve. But I mean, we will be very Careful to kind of change the direction of this. I mean, this is something that we are Definitely, it needs to be completely different setup and a lot more stability than we had before in order to be interesting for us going forward. And So that is really I mean, it's difficult to put up some kind of firm thresholds in this respect. This is something we need to look at the options and we need to see what can be achieved. What we say here, we are going to initiate, let's say, on all these businesses and look at the options. But of course, it's not really if we sell anything, it's definitely not a fire sale in any way. This is something that we would like to make sure that we get The maximum value out in all aspects. I don't know, Ulp, if you want to elaborate on that. No, no, no, no. I think it's as Peter said, this is not a fire if we would be then Coming after that, that is not a fire sale. We have the business and we will improve the business and we have and then the management, they are dedicated then to take on this And I mean, just to highlight that as well, I mean, we are, as we believe at least now, we're all kind of very low In historical perspective, both in offshore and this Czech business, and we expect both of them to improve from here because we have been investing, we have been preparing and now we see an Especially in the oil and gas activity and we do also getting to the end of this kind of investment program we're running in Czech Republic to improve that operation. So that is something which is we expect it to improve and then it's how much it's improved and at what pace that we have to look at. Okay. So just on that double digit, I assume that would be sort of a sustainable double digit rather than just hitting Yes, yes, of course, of course, yes. Okay. Thanks, Peter. Thanks, Ove. Thank you. And our next question is from Erik Paulsson from Pareto Securities. Hi, there. It's Erik. Regarding the oil and gas operations of Option Construction and the decision to put This under the distance under development, is this something to do with ESG? I mean, you keep the one related to marine hoses for handling oil and gas, Right, in Industrial Solutions. But how come you put this one here and when we see this better momentum in that business area? I mean, because we will have oil and gas exposure in various areas. We have that in Sealing Solutions as well. We have it in Several, let's say, several parts of the new Industrial Solutions. So it's not really linked solely to DSD. This is kind of one business focusing on the subsea We will decide. Well, we are global market leaders where we need to really see an improvement in order to keep it. So it's not really any We don't see the other we don't see, let's say, oil and gas as a total. We still believe in LNG transfer and stuff like that. So it's really a little bit On this specific segment, Subsea segment, where we need to see an improvement and more stability. So I don't really know how to comment on it further, Eric. It's not really a decision to exit oil and gas fully. It's more that we have identified this business within oil and gas Being in need of more stability and improvement. Understood. And my final one is regarding the new Structure with 3 business areas. You write here in the presentation that it will be effective from 1st January. But I think you're right in the press release that we will see it in the Q4 report So when will this be effective actually? Basically, it's We will gradually work into this one. As it is announced today, and it's not being public internally, then, of course, we will gradually move into this. But we will then, In order to have a better transparency then to for the external world, we will then do the quarter report and annual report to reflect the new organization. Our next question is from Hampus Enghlao from Handelsbanken. Thank you very much. I have a more broader question on I mean, acquisition is a very much included part of your growth strategy. And this write down, a lot of goodwill, if I just look at it on a really top down approach, it seems like You're writing down about 4 or 5 years of acquisitions here. And my question is related to how has this affected your acquisition strategy going forward? Yes. I mean, that's a valid question. And of course, we've been looking at ourselves here. I mean, the Major things here is, of course, oil and gas market going down. I mean, when we made this acquisition some 10 years ago, And the view was probably different on this industry. And then we were running this business very good for a few years, And we probably got our money back, if we let's say, look, from a cash perspective. And now this market is down and now we have to kind of make this Write down in a very much a down cycle for oil and gas. So I don't really it's a cyclical thing and That is one. Where we have not so I'm not really too concerned about that acquisition where we have to look at. And where we are being Having, let's say, unexpected problems, if I may say, is this Czech operations was part of CGS. As you know before, we are very happy with the tire Acquisition and this tire operation related to CGS, but this has been a Major failure so far, I mean, to be very, very frank and open about this. But this is the major disappointment in this. So I mean, we are not really this is the individual cases that I want to say. This is individual cases related to oil and gas, like cyclicality and then with It's obvious, let's say, operational problems and in the gas. So I cannot really I don't think it's Correct to kind of say that because all the other acquisitions has been is not in this group. The major thing here is once again it is Check operations and then oil and gas, which is then doing this write down in a way in a very much So that is really I don't know Hampus, if that is enough for you. Yes. It's having some more flavor. And on this business under development, I guess that there will be in this type of situation, you will, of course, be approached By a lot of potential buyers, given that there is a trade off here between spending even more time on building up and making these business areas more profitable and also divesting them. If you I mean, I know that you also have a pipeline with like 200 companies that is on a potential acquisition list. And could you maybe elaborate a little bit on how you see the trade off here? I mean, if you would have an Easy solutions to this by finding a buyer, would that be a preferred choice Given that you can spend that money both internally and on potential acquisition on these 2 other companies. Of course, we're always looking For easy buyers who pay a lot of money, I mean, that is really what we want to suggest if you sell something. But I mean, what I say, it's always, The, let's say, balanced decision, of course, if we end up in that selling it, then, of course, it's always a balanced DP, let's say, correct buyer and Valuation, what are the efforts to get the higher value? Of course, we did our own work on this, and we know about some of the structural alternatives. It might not be solely, let's say, selling business. It could also be combinations where we can join together with somebody. So there is And of course, we know these businesses. We have held them for quite some time. And of course, we know what the strategic options are. And by announcing this, of Of course, it will be obvious that we will be more open to discuss these kind of questions. But once again, it's really On the operations and the major part of this is, I mean, printing blanket is performing quite okay, even though we have kind of a structural challenge Long term, while then oil and gas and this Czech operations is actually in the same improvement cycle. So we will focus on the operations and then At the same time and make sure that we get the best, let's say, financial performance out of them and at the same time look into these various options. I cannot really say. We are not going to discount it away. We have, let's say, value expectations, and we know what we want for it in order to go down that route. Fair enough. Thank you. And our next question is from Olof Siedron from ABG. It's Olof from ABG. A couple from me. The business under development, you said you will still allocate CapEx to them and so forth. Will you Is the first priority to make these businesses improve, I. E. Will you allocate Maybe or speed up restructuring of these businesses to improve them? But we have we will have a dedicated business plan for each Individual business. And if that of course, we will not and if that entails that we need to do some CapEx, we will do that. But in In some areas, if you take printing, they have an ERP system and then we will not continue that further on. So I would stay there. So, but each business will have a dedicated business plan and then we will support what is necessary as long as it Brings value improvement. I mean, we will run it as we will be more okay, maybe a little bit more short sighted in certain areas until We decide long term, as Ul said, with ERP systems and stuff. But if we see CapEx as improving the operations or we see even if we see smaller acquisitions With improving, we will not disregard that fully. But of course, long term, we need to see that the profitability improve or That the value of the business, let's say, increases if we are to do it. Of course, it's a little bit shorter view than we have on other business. So of course, we will be a little bit more careful on the CapEx. Of course, we will be more looking at the cost side. But that is kind of Given for us, it's a given one if we go into this kind of strategic review phase. All right. Makes sense. And then Just talking about the sort of the printing blankets and also the offshore business. You mentioned that They have strong market shares, which we of course knew already. But do you think that Could have or make it more difficult for you to see structural solutions for these businesses out there? Or do you think it doesn't matter? No, of course, there is some limitations on some obstacles. We cannot really combine with everybody, and But that is something that's the way it is. I mean, if you have this 30%, 40% global market share, then of course, you have some limitations in that respect. But we don't see that as a major obstacle because I mean also in that case consolidating with somebody having similar market share might not be The best way of creating value is probably more looking into combinations with somebody having adjacent product or supplementary products If we are looking into some kind of strategic combination. So correct in that, Olaf. I mean, it's not a given one. In the printing blankets market, I mean, there are 3, 4 global players and it's not maybe we can combine with 1 or 2 of them, but not really with all of them. So of course, there is some limitations in that respect in order to create a good business case in combined. Then also from a legal point of view, I think it's not really that smart limiting. It's more from a customer point of view, which will be, as I say, reluctant To buy because I mean, they're still relatively small businesses on a global scale. All right. Thank you very much. And our next question is from Agnieszka Vilela from Nordea. Thank you. Just coming back to the carving out of the business under development operations on the potential synergies that you have today. Can you just confirm that you don't foresee any significant dis synergies with the core Trello board? No, no. From a purchasing, no. Then there might be some customer call. By the way, that is solvable. It's more a transition period where we need to Maybe sign 2 different supply contracts, so we need to create new customer. But I see that more as an operational thing and not really The synergy in that respect in certain areas you can also see positive synergies if you, let's say, allow more freedom to some So we don't consider that as being a negative impact in this change. And when it comes to production, is it separated today? Or will you need to do The carve outs where they do some they're using some of our facilities in China and India and stuff like that. But I mean, it's also not really And there is some supply of rubber compounds and stuff like that where we now need to look at supply contracts and stuff like that. But I mean, it's not really any once again, there is some Smaller issues, but we don't see that as any kind of major challenge in any way. And it might be too early, but would you consider setting kind of new financial targets for the We are always considering, let's say, what to do with our targets. But I mean, if you are ready to discuss that, we will Do that, of course. I mean, we expect here to yes, to discuss this more, but I don't think the timing is now for that. Yes. Okay. And then as I understand, you have no plans to kind of split the remaining operations into 3 Separate companies, we will keep it together. That would be the core of Teleborg. Yes. I mean, that is the way we see it. We are now let's say, we're getting 3 Bigger units, but still the synergies exist and we still feel that the rationale on keeping them together is still very much valid. So that is they don't see it Like that, it's more to get more clarity and get more focus and make sure that we continue to Get all the synergies we have by having these combined. Perfect. And then lastly, I'll just try it. We have both you and Ulf on the line here. And a comment on the current trading. You guided for flat demand in Q4. Maybe you could just keep us updated? Yes. And then no change there. We We'll see, let's say, industrial demand being a little bit uncertain. We still see, let's say, oil and gas and infrastructure construction improving. We see aerospace continuing in a good way. Automotive, as we also had expected, a slow bounce back or flattening it out. So I think, I mean, everything is kind of in line, fully in line with what We guided for exiting Q3. Perfect. Thank you. And our next question is from Mats Tonjbjornsen from SEB. Mats, can you hear us? My question has been answered. Thank you. Okay. No more questions then, I guess. No further questions. Okay. Then thanks to all of you. And of course, I mean, Paul was available, myself, Wolf and For the least, Christophe also available for any potential follow-up questions. And so please get in contact us if you find something else or you have some other questions I do want to ask, don't hesitate to make contact. And I mean, otherwise, I mean, unless we meet in the next few days wishing you a good end of the year and then Speak to you again early next year. Take care and best regards. Bye bye.