Trelleborg AB

STO:TREL B

Earnings Call Transcript 2022-Q4

[Operator]

Welcome to Trelleborg Q4 Presentation 2023. [Operator Instructions] Now I will hand the conference over to the speakers, CEO, Peter Nilsson; and CFO, Fredrik Nilsson. Please go ahead.

[Peter Nilsson, Chief Executive Officer]

Welcome to all of you to this call where we are going to present our year end closing figures and then with particular focus on the Q4 performance. And as usual, I am going to kick off giving some overall intro and then also some comments on the business areas and then hand over to Fredrik to guide you through the more financial part of the report and then we are finishing off with some, let’s say, headlines on the running quarter and then also finishing off of course with the Q&A session. So as usual also, we are going use a slide deck which has been in our webpage for some time. We are going to use that slide deck to guide you through this presentation. So I am going to refer to that one.

Starting with that on the first page, Trelleborg Interim Report for Q4 October-December 2022 and then turning to Page 2, agenda, which I already introduced. Starting with some highlights, talk about the business areas, Fredrik go through the financials and then do a summary with some comments also on the outlook for the running quarter and then finishing off with the Q&A.

So quickly then moving Page #3. Heading, record year closed with a strong quarter. We are finishing off in a good way. Very good quarter for us, sales ending up at all-time high, quarterly sales at little bit north of SEK8 billion for continuing operations of course, that is something also that you are aware that this is kind of excluding Wheel Systems. I am going to comment a little bit about that specifically. But looking at continuing operations, we have a very strong increase of some 35%, organic then at 15%, currency still a big beneficiary adding 12% and then also M&A, which is then primarily driven to 2 months of Minnesota Rubber & Plastics, which we are also going to comment a little bit more specific about.

EBIT growing with the same as the sales ending up at little bit north of SEK1.2 billion, which is then corresponding to a margin which is 15.3%, which is kind of equal to 15.4% we had a year ago. So, same margin in the quarter and already comment then this is the highest quarterly sales ever and also highest EBIT for Q4. Still some items affecting comparability ending up in the quarter as SEK115 million, which is well within the guidance we have for this for the full year, also finishing off the year with a very strong cash flow. I mean, we are happy of course with the overall performance, but kind of particularly on the cash flow with ending up very strong, which is in total then pushing us to have better operating cash flow for the full year than last year. So, very strong cash flow in the quarter. We also note I trust all of you know that we also in the quarter have had Minnesota Rubber & Plastics in the figures for 2 months consolidated from October 27. I am going to comment a little bit more about that also later on. There are also two minor acquisitions consolidated in quarter, MG Silikon, which is then adding some aerospace capabilities for the TSS and some other industrial applications and then also for IST, which is focusing on the aftermarket for pipe repair, pipe seals, which is also consolidated, but not really impacting the figures that much.

Turning on Page 4, commenting on the organic sales. Fairly equal organic growth all over all three regions. Europe growing by 13%, Asia and other markets by 14% even though of course like everybody else, China has been some kind of subdued even though we managed it fairly well I must say, but overall Asia doing good. Americas then slightly stronger than Europe and Asia, but overall, as I already started on, as an average here we talk about 15% organic which is fairly equal all across the regions.

Moving to Page 5, agenda slide and moving quickly over to comments on the business areas on Page 6, then talking about Industrial Solutions. We have heading strong sales and EBIT growth, which is actually the same heading as we have on this slide that we have on Sealing Solutions. A fairly good development all over, organic sales plus 18%, very strong in the quarter. We have particularly strong sales in Europe and North America and then we see solid development in Asia. So, overall good development in all geographic regions, continue to see, which we already commented in the last quarter, a slowdown in European residential construction which is hitting Industrial Solutions and also little bit slowdown also in order intake into the infrastructure part of it. But there we are not really reading in lower overall demand. It’s more that we have very strong order book in that area and that is always a bit bumpy, but nevertheless, it’s a bit slower order intake also in that area in the quarter.

EBIT and margin well managed here also. As everybody else I guess we are hit here by also inflation in a multiple of aspects, but that’s been managed in good way and we managed then to grow EBIT in line with sales or slightly better, which is then putting the margin to 0.2 percentage points higher than last year. So well managed in the quarter and especially then managing these higher costs which is then fully offset by pricing and efficiency. Acquisition of IST being added here, very short in the quarter, but that is something we are going to see more benefits from going forward.

Then moving to Page 7 and talk about Sealing Solutions, same heading as on Industrial Solutions, strong sales and EBIT growth. Organic sales up by 12% and of course M&A, especially Minnesota Rubber & Plastics, then adding sales in the quarter also fairly even from a geographical point, good growth in all major geographies and the major here is basically saying that China was little bit subdued, but that was compensated by good growth in other parts of Asia. We also note that especially sales to healthcare and medical and aerospace increased significantly, which is kind of a strong growth in sales and also strong order intake in these two segments.

We also note little bit slight change in the quarter related to automotive, which has also we say have developed favorably, but we also see a pickup from some well-known issues earlier in the year. Solid demand in industrial in the quarter even though we note also with a much smaller dimension than if we look at the residential construction, but we see a little slowdown in industrial which we are reading maybe not, let’s say, that much down in underlying demand, but we do believe there is some let’s say inventory reductions hitting us and that’s also going to hit us a little bit going into Q1.

So, the underlying demand is still seen as fairly solid in most segments, but once again we see a little bit slowdown in the kind of demand for this running quarter and potentially also for Q4 and also for Q1, which we once again reading a little bit to be some inventory adjustments. EBIT growing slightly lower than the sales, but nevertheless good and we also note that the margin, which has already being commented as well, is somewhat impacted by the integration of MRP which is coming in then with a high PPA and also with a let’s say notch lower margin than overall Sealing Solutions. So that is kind of pushing down the margin.

So if you look kind of outside of MRP, the underlying margin of Sealing Solutions was basically spot on compared to a year ago. We also note with satisfaction even though MRP is the biggest one, but also MG Silikon is a nice bolt-on acquisition for us, which is kind of strengthening some aerospace niches and also creating opportunities to leverage. The technology we are adding by acquiring MG Silikon is also something that we are going to benefit from in other parts of the world and Europe as MG Silikon has been primarily focused on Europe before. So overall a very solid quarter for Sealing Solutions, but of course can be influenced by the integration of Minnesota Rubber & Plastics.

And with that topic, move to Page 8, a few comments on Minnesota Rubber & Plastics as I already commented. If we move to Page 8, coming here, Minnesota Rubber & Plastics, as I already said, consolidated from October 27 and we also note although minor, but we have here in the first 2 months, we have some extra acquisition integration costs in the quarter, which we estimate in the range of $1 million roughly, SEK10 million which is kind of extraordinary costs in the quarter hitting the underlying performance. We also more or less completed now the PPA allocation and we can now give a figure for that. So it’s roughly or we estimate it to be SEK225 million for full year ‘23, which means the running rate for these 2 months that they had in Q4 is SEK37 million. And then also, which I already commented, is Sealing Solutions kind of excluding MRP was spot on to Q4 a year ago.

We also see here already now in the early integration we see, we have committed substantial synergies by integrating Rubber & Plastics and this is being confirmed here in the first few months of full ownership. Of course, we are going to take some time to get it fully into the books, but definitely we are not changing our view on this and we still believe firmly that this is going to be delivered in the next 2 to 3 years. So very happy for owning Minnesota Rubber & Plastics and we are eagerly looking forward to integrate this into Sealing Solutions in a good way.

Moving over to Page 9 and talking then about Trelleborg Wheel Systems and as I already mentioned in the beginning, of course that is reported as assets held-for-sale, but we still own it. And if we then move to Page 10 to take the performance of Wheel Systems, very strong development in the quarter on the back of good demand and good, let’s say, price capitalization, organic sales up by 10% and especially we are kind of benefiting compared to the market that we have more exposure to the original equipment, which is then growing in basically all tire categories and most geographical markets. Also here most means that China is little bit impacted by the China situation, but for the rest of the world we see growing, we note also with satisfaction that North America is developing very nicely for us and that, let’s say, noticeable softening is in the aftermarket especially for agricultural tires, but also material handling tires. And that is something also which is in a way always happening when you people are starting to believe in lower raw material pricing and all of that and they start to speculate and they are not buying kind of in line with underlying demand since they are focusing on lowering the inventory and then try to buy the tires little bit later at lower prices. Nevertheless, well managed in total and we are also with satisfaction here growing the margin from 10% a year ago up to 12.6%, so good performance in Trelleborg Wheel Systems in Q4.

Turning to Page 11 and some brief comments then on sustainability, this is kind of something that we now put on report and we are working on and we note good development in those areas. This is of course new KPIs and I trust you are aware that I mean they have always been a little bit higher in Q4 than Q3 due to the seasonality since we are mainly exposed to the Northern Hemisphere, then of course this colder climate is adding some CO2 in the quarter. But we look on a year-over-year performance, it has been a very good development for Trelleborg in the year and overall last year, it’s always down by some 10% year-on-year for the full year.

So turning then to Page 12, which is one of the biggest drivers for this and that is the share of kind of renewable and fossil-free electricity in relation to total electricity, which you see here that also in Q4 have had a very strong growth. And this is something we continue to focus on and something we continue to believe or fully trust that we are going to continue to see improvements in this area as we move on. So, good development also in this main sustainability related KPIs.

Turning to Page 13, agenda slide again and financials, then handing over to Fredrik to comment on this. Please, Fredrik.

[Fredrik Nilsson, Chief Financial Officer]

Thank you, Peter. Let’s then move to Page 14 and looking at the sales development. Organic sales increased by 15% in the quarter with organic growth in both business areas. Looking at the reported net sales increased by 35%, we have 8% growth from acquisition during the quarter, while currency added 12%. And then if we look at year-to-date, sales were up 27% with an organic growth at 14%.

If we then move to Page 15 and looking at the historical organic growth, we can see that the fourth quarter was another good quarter with organic growth and as you can also see in the graph, we are now being on or above our sales growth target for the last eight quarters. Looking at Page 16 showing the quarter sales on rolling 12 months for continuing operations, sales in the quarter amounted to SEK8.1 billion, which was an all-time high for continuing operations.

Moving on to Page 17, we had a record high EBIT and EBIT margin for fourth quarter, EBIT in the quarter increased by 34% to SEK1.2 billion with a strong profit growth in both Industrial Solutions and Sealing Solutions. In the result, there was also positive FX effect from translation of foreign subsidiaries of SEK75 million compared to the corresponding quarter last year. EBIT margin for continuing operations, excluding items affecting comparability, reached 15.3% compared to 15.4% for the corresponding quarter last year. In both Industrial Solutions and Sealing Solutions, there was a good sales growth supported by price adjustments to offset the higher costs.

If we then move on to Page 18 and looking at EBIT and EBIT margin on rolling 12 months, we can see that EBIT continued to increase while the margin was flat in the quarter. If you look at full year EBIT of SEK5.066 billion with a margin of 16.8%, which was a very good improvement compared to prior year.

Going to Page 19, profit and loss statement. Looking at some more details into income statement, we had some items affecting comparability in the quarter SEK115 million and that was entirely related to restructuring costs. Continue down in the P&L, the financial net increased from SEK34 million to SEK74 million in the quarter. This was mainly related to higher interest cost linked to the acquisition of Minnesota Rubber & Plastics. The acquisition is then financed with a short-term loan that of course will be repaid as soon as we receive the proceeds from the Wheel divestment. We have also continued to buy back shares in the quarter. And finally, we are seeing increased interest rate. The tax rate in the quarter amounted to 27%. I would just like to re-emphasize that the underlying tax rate and the guidance we have for continuing operations still is 26% for the full year. And then if we look for the net profit for discontinuing operation we see a good, as Peter mentioned, good improvement for Wheel Systems, but there is also support from this IFRS 5 where we stopped the depreciation due to its assets held for sale, which was impacted by SEK167 million in the quarter.

Moving on to Page 20, earnings per share. For continuing operation, excluding items affecting comparability, earnings per share was up 49% from SEK2.28 to SEK3.40 in the quarter. And if we look at the total group, earnings per share increased by 68%.

If we’re then moving on to Page 21 and looking at the cash flow. We have a strong cash flow in the quarter reaching SEK1.678 billion. Cash flow was positively impacted by the higher earnings generations and then also very efficient working capital management in the quarter. And then finally, this was slightly offset by little bit higher investment, which was in line with expectation.

Moving on to Page 22 to cash flow conversion. Over the last 12 months we have a cash conversion of 74% and that just reflects the higher business activities which has required some additional working capital during 2022.

Moving on to Page 23, gearing and leverage development. You can see an increase here up to 56%, which is entirely related to the acquisition of Minnesota Rubber & Plastics. Net debt was of course also impacted with our share buyback, which amounted to SEK384 million during the fourth quarter. And net debt in relation to EBITDA reached 2.4 by the end of the year.

Moving on to Page 24, return on capital employed. You can see it’s reached 15.9% in the fourth quarter. And the capital employed increased due to the acquisitions, little bit higher working capital due to the higher sales, FX rates does also have an impact; but that was well offset by increased profitability up to the fourth quarter.

And then I will finish off on Page 25 with some financial guidelines for 2023 and this is continuing operations. CapEx of around SEK1.5 billion, restructuring cost estimated to be around SEK250 million, amortization of intangible assets SEK500 million and then underlying tax rate of 26%.

By that, I would like to hand back the microphone to Peter.

[Peter Nilsson, Chief Executive Officer]

Yes. Great. And then moving to Page 26, agenda. Moving over to summary and some comments on the outlook for the running quarter, Page 27. Record year in many aspects for us. Good sales at little bit north of SEK8 billion, which is a strong increase of 35% which is then both organic sales primary driver, but also currency and then also some M&A; that once again primarily coming from Minnesota Rubber & Plastics. EBIT growing with the same roughly coming up with the margin as we had a year ago and this means that the highest quarterly fourth quarter sales and EBIT to-date for us. Items affecting comparability in line with guidance and a very strong cash flow in the quarter, which is then of course benefiting us with getting our balance sheet even stronger.

And then already commented also Minnesota, important acquisition for us which is kind of changing a little bit game plan for Sealing Solutions, which is making us as strong in North America or in Americas as we are in Europe already with our sealing operations and on top of that also creating some further strengths in specific industrial initiatives. So a very nice acquisition for us, which is highly synergistic which is now we are working hard to get the synergies into the P&L. Also two smaller bolt-on acquisitions, both of them strategic and reinforcing us in interesting areas, but still bolt-on kind of acquisitions.

Moving on to Page 28 with comments on the outlook. We changed the outlook a little bit. Demand is expected to be lower. We are running with a very high organic sales so we don’t believe organic sales to be the same in running quarter. So there is no drama in this and we see the only kind of area where we see, let’s say, a firm underlying demand going down is still in the residential construction, but we also note that there is little bit small downtick also in industrial sales which we are reading not really linked to the underlying demand, but to more inventory focus and more cash flow focus from some of our customers, which is kind of lowering the sales here in the first few months of this year.

But also to say that we see also continued very strong development both in aerospace, healthcare and medical, but also now automotive also benefits during the running quarter. It’s a mixed bag. But overall we believe it’s going to be lower sales, lower demand in this running quarter. And then of course with this small add-on, we still live in a very uncertain world and of course there is this geopolitical situation in few dimensions, which needs to be also considered.

So with that, leaving this and moving over to Page 29 and then quickly to Page 30. And maybe before opening up on Q&A, a few comments on the divestment here, we didn’t comment that on Wheel Systems. This is running according to plan and we believe that the Wheel Systems divestiture will be executed in the next few months. We are waiting only for a few final approvals from a few jurisdictions in terms of getting the acquisition, lets say, approved. We still firmly believe that there is no issues in this. It’s more a matter of timing and capacity for some of the authorities looking at this. We do have approval already in place for the raised amount of the approvals needed, but we’re still waiting for a few minor – not minor I shouldn’t say, we are waiting for a few approvals from a few authorities. But once again no change in our view on this.

So with these final comments, we are opening up for a Q&A session and invite everybody who wants to address questions to ask. So please go ahead.

[Operator]

Thank you. [Operator Instructions] The next question comes from Klas Bergelind from Citi. Please go ahead.

[Klas Bergelind, Citi]

Thank you. Hi, [indiscernible] Klas at Citi. So, first on the outlook of lower demand into the first quarter, I get this to slight growth organically year-over-year and I’m curious if you could help us with the price/mix within that, if you think this is still high single digit 8% to 10% into the first quarter? Yes, we get a sense for the volume development now into the first, whether this is trending down perhaps negative 5%. And if you could comment on how much this is? I think you alluded to destocking in the construction end of your end markets relative to any softness on the industrial side effects from earlier pre-ordering etcetera? I’ll stop there.

[Technical Difficulty]

[Operator]

Klas Bergelind, Citi. Your line is now unmuted. Please go ahead.

[Peter Nilsson, Chief Executive Officer]

Hello.

[Christofer Sjögren, Vice President, Investor Relations]

We’re having some technical issues with the speakers. They will be back soon.

[Operator]

[Operator Instructions]

[Peter Nilsson, Chief Executive Officer]

Hello. We are back now. I don’t know what happened. Klas, can you hear?

[Operator]

The next question comes from Klas Bergelind from Citi. Please go ahead.

[Klas Bergelind, Citi]

Alright. Let’s give it a go again. Can you hear me?

[Peter Nilsson, Chief Executive Officer]

Yes. Can you hear us now, Klas?

[Klas Bergelind, Citi]

Yes, now we can hear you finally. Sorry for that.

[Peter Nilsson, Chief Executive Officer]

No. it’s alright. I do take the blame for it. [indiscernible].

[Klas Bergelind, Citi]

Exactly. I heard from clients, that they couldn’t hear you either. So it wasn’t only me. And thank you. First on the – maybe you heard me then, so just to keep it short, the price/mix relative to the volume here into the first quarter. I’ll start there.

[Peter Nilsson, Chief Executive Officer]

And I’ll say the vast majority – I mean we expect the volumes to be relatively flat in Q1. Might be a slight positive, but we talk low single-digit volume growth. So that is kind of what we believe at the moment.

[Klas Bergelind, Citi]

But does that include the pricing? So obviously pricing, you have a carryover.

[Peter Nilsson, Chief Executive Officer]

Then pricing comes on top of that.

[Klas Bergelind, Citi]

Got it. Okay. So organic can be higher than the low single-digit class. Okay. And my second one is then thinking about the backlog and how this expands through the year. Coming back on potential pre-ordering, we’ve seen several companies in the sector missing expectations on orders following early pre-ordering ahead of price increases. It seems sort of high single digit including pricing. What are you seeing on incoming orders, Peter, and how long does your backlog extend when you look at the current lead times?

[Peter Nilsson, Chief Executive Officer]

Honestly, to be very open about this. This is a bit tricky to evaluate at the moment. I mean, what we see the order intake kind of short-term orders is still very solid. What we are a little bit missing is the long-term orders, which we had; a year ago we had kind of 6 to 9 months pre-ordering and we don’t have that anymore. So that is why we look at the order book, it’s actually on a year-on-year basis still higher than a year ago the order book. But what we are kind of missing is the long-term orders which we had a year ago and that was kind of more, as you say, pre-ordering, early ordering and that is why we see kind of the short-term demand. In the demand we don’t estimate or believe that to be down, but people are little bit more careful buying just to put stock to feel safe. But still it’s early days and this is something, which has kind of changed in the last 30 days in a way. So that is something where we still have to wait and see really how it develops because we are not kind of concerned about the start of ‘23 really, but of course there is still some uncertainty if we look beyond the first few quarters. A year ago we had a longer order book if you understand what I mean, but in the short-term orders, there is not really any big change. Was that okay?

[Klas Bergelind, Citi]

That’s clear. Yes. I understand that it’s very tricky to know. I just wanted to make sure I got that right.

[Peter Nilsson, Chief Executive Officer]

We read that some of our customers, especially in the industrial area, is becoming more careful on pre-ordering and they are kind of lowering their inventory somewhat.

[Klas Bergelind, Citi]

Yes. My very final one is on the cost inflation. I’m trying to think about the gap here versus pricing and yet again a solid drop-through and you still have a lot of cost running through the P&L, pricing is still solid. When you think about the cost development now into the first quarter, what areas do you think can start to improve? We know component costs, i.e., value-adds are still high, but you’re thinking of energy whether that will help you already in the first quarter? I mean ex-Wheel Systems, you’re not that intense on energy but still and then if any raw mats can also help you support? You could see little more margin expansion if you could hold on to the pricing there.

[Peter Nilsson, Chief Executive Officer]

The energy actually, as you’re aware, is not really a big thing for us. It’s very small figures, honestly, for us outside of Wheel Systems and we are – okay, we are monitoring it, but it’s not really a big issue for us. So where we are working more is the raw materials where we see indications that the raw materials is going down, but it’s going to take a few months before it’s really coming into the accounts. We are also slightly high on inventory. Even though we have good cash flow in the quarter, we still have a – lets’ say, few tens of millions of euros that we want to lower our inventory and so we have also bought up a little bit raw materials to be safe. So I think it’s going to make these kind of lower inventory takes a little bit longer to get through the P&L, but we do see deflation overall in term of raw materials. We have still some raw material supply from Europe especially where they still are high on energy cost and they try to push that through to us. So that is a discussion we have. But if you see raw material supply outside of Europe, we already see a clear tendency that that is going down. But it’s still difficult really to read how much it will go down, but it will not continue up. And then of course we have the salary inflation that we are watching carefully. I mean, it’s already kind of been hitting us in North America and in Asia and then of course Europe where there is some uncertainty here in the next few months, exactly what’s going to happen on that one. So that is an area where we need to watch, but I mean it’s not for us not as important as the raw material inflation. So we think that overall balance here is actually in a way maybe not for the very first few months of ‘23. But I mean if you look a little bit further into ‘23, we believe that we are going to see a positive mix from this kind of deflation in raw material even though we have a push up on some labor costs and salary inflation. So, that is the way we look at it.

[Klas Bergelind, Citi]

Perfect. Thank you.

[Operator]

The next question comes from Erik Golrang from SEB. Please go ahead.

[Erik Golrang, SEB]

Thank you. A couple of follow-ups on the discussion on pricing here. Wheel Systems is obviously a business where you need to cut prices if raw materials comes down a bit. But what about the industrial and sealing now, do you think you will be able to hold on to all the increases you have done or any chance you would have to follow to the extent the costs start to come down materially at some point during the year? And then the second question, I appreciate the comments on demand trends here and in general industry. If you could perhaps give a bit more color to the specific segment where you see a bit more of this sort of destocking inventory, cash flow focus and also from a regional perspective what you are experiencing? Thank you.

[Peter Nilsson, Chief Executive Officer]

On the – let’s say the price capitalization, I mean generally excluding Wheel Systems as you already said, Erik, then we have – we are expecting – the switching costs are high. So, we believe that we will hold on to the raw material potential let’s say deflation in a fairly good way and then of course that needs to be balanced also with new orders. It’s always a discussion with the customers so that’s going to be individual cases. So, we might give something back, but we will only give back if that is a benefit for us. If we don’t have a benefit, we don’t feel that we need to give back. So, we firmly believe that we are in a good position generally in this situation. Going up raw material, going down raw material, we believe that we will be able to manage that in a good way both ways. And the second question, sorry, I am little bit short…

[Erik Golrang, SEB]

Segments and regional.

[Peter Nilsson, Chief Executive Officer]

Regional, if we talk regions, then corporate demand. I mean U.S. fairly strong even though it’s some weakening and maybe not as strong as it was earlier, but it is still let’s say strong demand overall. Europe is of course soft with uncertainties. And Asia is actually quite good with the exception of China, but we are actually quite positive on China here. Now of course we have Chinese New Year, we have this COVID. But our kind of reading of the situation in China is that we at the moment believe that the second part of China actually going to be very strong. We see there is a good underlying demand and then whether that’s benefit and it’s not going to see anything in Q1. I mean that’s going to be a very soft Q1 in China both related to COVID and Chinese New Year and probably a combination thereof. And then going into Q2, we expect it to improve in China and then exactly how much is kicking in Q2 or Q3, Q4. But we expect China to be strong if you look at the full year 2023. So, generally positive in Asia, generally relatively positive in North America and then Europe is the kind of little bit question mark on overall kind of inflationary impact. So, that is the way we look at it. And looking at the segments, industrial segments then of course there is a lot of sub-segments. But if you can say some sub-segments where we see a weakening or destocking is something which is related to more consumer. We have a market in Trelleborg where we have coffee machines and electrical bikes and showers, let’s say high-end shower heads and stuff like that in very specific segments. This is more kind of segments, which is more consumer oriented, and there we see destocking taking place and people are becoming little more careful on that one. And then the overall big market for us in this area is more what we call fluid power, which is hydraulic and pneumatics, which is lot of construction equipment and hand tools and these kind of stuff. And that’s also where we see destocking and that is where we see the underlying demand is actually quite good. I mean as you know the construction equipment, original equipment makers of that is still holding up fairly well. Mining is holding up fairly well. So, we don’t really see the underlying segments there struggling at the moment. But that is also where we see destocking from some of our customers and that is something we are closely watching carefully, but once again. So, this is I think what we can comment. I don’t know if Fredrik want to add anything or if you have a follow-up question on that, Erik, I will try to be...

[Erik Golrang, SEB]

No, that’s fine. Much appreciated. I have one question for Fredrik though. On the SEK1.5 billion in CapEx for this year, is that somewhere where you expect continuing operations to be in relative to sales or is it higher or lower? What kind of – what precedence does that CapEx guidance set for the next couple of years?

[Fredrik Nilsson, Chief Financial Officer]

No, it’s higher, because there will be some additional CapEx in 2023 linked to Minnesota Rubber & Plastics. And then we also in our internal plans have some further expansion in Asia. So, that has…

[Peter Nilsson, Chief Executive Officer]

As you say, we are not really commenting in detail, but we have a few plans and new investments especially aiming at Asia to expand our capacity in Asia. I mean we are outgrowing our facilities in Asia and we need to expand the basic capacity. We have not yet announced it. But in the estimates we have put in we can say two, three new factories in Asia. And that is kind of extraordinary investment simply to upgrade the presence especially in Asia.

[Erik Golrang, SEB]

Okay. Thank you.

[Operator]

The next question comes from Karl Bokvist from ABG. Please go ahead.

[Karl Bokvist, ABG]

Thank you. Good morning. Two questions, the first one on Minnesota and the SEK250 million in synergies, just to reiterate that’s just the cost synergies that you are talking about here and not the kind of total potential synergy benefits from revenue, etcetera? And number two, the timeline of these synergies, when do you think they will start to actually have an impact if already in 2023?

[Peter Nilsson, Chief Executive Officer]

The majority of the synergy is actually linked to sales, so that is a misunderstanding and that is where we see strong synergies in the way that we are cross-selling. That Minnesota is very well represented in some of the kind of fully blue chip American customers where we are not that well represented. But we combining the offering of Trelleborg and Minnesota, we have a much wider offering. And previously we used the example of having kind of Akka or it can be in Europe where we sell some 1,000 products to them while there in the U.S. we only sell 300 at the moment together with Minnesota. So, we see substantial kind of cross-selling opportunities in that. And also especially Minnesota has been very focused on the North America. And they are very strong in certain segments especially let’s say potable water, drinking water and also very good in some food and beverage applications. And by kind of utilizing their skills in this, we believe that we can also globalize that offering in a completely different way. And the third kind of big sales synergy is actually following the American customers abroad where by having this very strong footprint and presence with them in North America, we are also going to cross-sell to them in Asia. I mean Minnesota has not really had a good presence in Europe or Asia while now together with Trelleborg, they will get let’s say more. As we always say when you have local presence, global reach what they have been doing. So, we firmly believe and of course very strong kind of actions already being implemented on that one. But that’s going to take some time, so that is why we said 2 years or 3 years. While on the cost side of course we had some cost synergies as well, we have not given that, but there is also substantial cost synergies and these cost synergies is kind of already starting to be seen in the figures and that is something that’s going to be implemented fairly soon. So, that is I mean – so the cost side of it is going to be fairly quick on that one even though we have not yet done the reorganization internally and done some cost savings here in some management levels and staff. But we are still waiting for announcing of some further synergistic kind of actions in terms of cutting the cost. So, that is the way. I mean we also want to again try to be fully transparent on this one and that is the way we look at it with Minnesota.

[Karl Bokvist, ABG]

Understood. Quick follow-up just on the comment you made on the orders there and the pre-ordering tendency before. Could you give some kind of guidance of the duration of your backlog now? I understand the differences between sealing and industrial. But are we talking kind of like normal time from order to delivery now in sealing for example?

[Peter Nilsson, Chief Executive Officer]

We are still tight in some areas, but we still have a good loading. And of course we have – once again, we have a bigger order book in total going into Q1 this year than we had a year ago. But we had very strong orders a year ago. But that once again was more longer term orders. So, we have a good visibility both in sealing solutions and industrial solutions at least for the next three months and then potentially a bit beyond that as well. And still even though I say that it’s kind of getting a bit easier and these component problems for us at least for raw materials and stuff like that, that has been going away, but they still do exist in a few areas. So, it’s not like the kind of back to – I don’t know what normal is, but it’s not back to where we were a few years ago. So, we are still suffering from lack of capacity and lack of raw materials in few areas. But it’s definitely getting a lot softer compared to kind of six months back if you put it like that. But it’s still not kind of fully out of the woods in that respect, but is getting better. And I think the way we read it at least, that is also why the customers is little bit more reluctant to put pre-orders because they see that our delivery times is going down and they don’t need to order six months in advance anymore. And of course beyond that, it’s also like ourselves of course, we are also kind of believing that the raw material is going to go down and then of course we want to wait a little bit and order as late as possible. So, it’s also some – it’s not only about kind of availability of components and products, it’s also a matter of kind of tactical actions in order to try to get slightly lower pricing going forward if you order a little bit later. So, that is the way we read it and the way we look at it.

[Karl Bokvist, ABG]

Understood. Thank you.

[Operator]

The next question comes from Hampus Engellau from Handelsbanken. Please go ahead.

[Hampus Engellau, Handelsbanken]

Thank you very much. My question is more related to Minnesota. Would it be possible for you guys to add some more flavor on the performance in Minnesota during the quarter like organic growth, sales and also EBIT margin during the quarter? And if you have some more visibility on the PPA just to have a sense for how the underlying performance is in sealing? That’s my only question. Thanks.

[Peter Nilsson, Chief Executive Officer]

Yes. I mean two months in and the first month was kind of messy, if I may say, Hampus. So, of course, it was a bad month in November, but also burdened by a lot of one-off costs and some cutoff costs and all of that. So, we cannot see really – let’s say really our November performance as a normal month. And then comes December will be this Christmas and also got – but if we look at performance in Minnesota alone compared to a year ago, in Minnesota independent is kind of roughly the same with the exception of that they are having problems in China, because China for them has been a bigger problem for Minnesota than it’s been for Trelleborg. But overall, how should I say, we don’t really want to give any details here because we are still working through it and of course we will get more flavor on this. But of course from an EBIT point of view, they are fairly low due to that they have a very high PPA. So, of course I mean here we are looking at they are a few percentage points lower than overall sealing solutions, which was the case as we let’s say made acquisition. I don’t really – I don’t know, Fredrik, if you want to add anything on this one or, Christofer, if you want to let’s say put some more flavor on this one.

[Fredrik Nilsson, Chief Financial Officer]

No, I think it’s more if you are look at sealing solutions excluding MRP, the margin was flat compared to Q4 in 2021 and then you have the dilute impact in the quarter.

[Hampus Engellau, Handelsbanken]

Thanks very much.

[Operator]

There are no more questions at this time. So, I hand the conference back to the speakers for any closing comments.

[Peter Nilsson, Chief Executive Officer]

Okay. Thanks all of you for listening in on this call when we talked about our Q4 performance. We are of course excited here in Trelleborg leaving a good quarter, but also with a lot of actions also going to happen here in next few months as we close Wheel Systems and of course we are going to get money and we are basically going to be debt free. I mean that is the money we are going to get for this is more than we have in net debt at the moment, so that is of course creating possibilities for us going forward, which of course looking at now and try to use that. We make sure that we use that wisely in a way. Of course, we are still tracking potential acquisitions, but we are only going to do good acquisitions of course. And if we cannot find it, then of course we need to find other ways of creating benefits for our shareholders. So, that’s going to be a few exciting – it’s going to be an exciting year for Trelleborg because we are kind of into this stage where we have going to change the setting completely and open up new opportunities for us. So, we are eagerly looking forward to keep contact with you and getting back. If you don’t hear, then of course we are going to get back at least after Q1. So, do take care. And if any follow-up questions then of course I am available, Fredrik is available and especially Christofer is available to support you in any way he can or we can. So, do take care and keep in touch. Thank you.