Good day and welcome to the HEXPOL fourth quarter 2022 earnings conference call. All participants will be in listen only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Peter Rosén, CFO. Please go ahead. Thank you. Welcome everybody to the presentation of the results for the fourth quarter of 2022. Presenting today will be Georg Brunstam, our CEO, and myself as CFO of the company. The agenda for today is to first give you a business update, then go through how we continue to execute our business model, including sustainability, then go through the financials and focus areas for the rest of 2023, and we will finish with a Q&A session. With that, I hand over to Georg who will take you through the first parts of the agenda. Yes. Hi, good afternoon. I'm happy to say that we ended 2022 with another strong quarter. In fact, our best quarter four ever. We ended the year, and the year is the best year ever for the HEXPOL Group. We also had in the fourth quarter a sequential margin improvement, which is good. We had good sales in all regions and product segments. However, the October and November were strong and December was strong. The last few weeks, we saw some destocking and some effects of extreme weather in the U.S. All in all, a strong quarter, also on sales. We continued to execute well on our strong business model, and price and cost increases were passed on. As you can see, the margin improved sequentially. We delivered a record EBIT of SEK 811 adjusted versus SEK 628 adjusted from last year or the previous year. It's still a bit turbulent. We see continued turbulence and difficult environment, but however, we have seen that for a while, and we deliberate that environment as well. We saw some good improvements in automotive, but it varies in customers and regions. We saw the same thing as we've seen before, an uncertainty primarily in building and construction in Europe. We continue to see global supply issues, and we continue to see some price increases on raw materials and high energy prices. Our M&A journey is continuing, there's a strong sustainability focus on that M&A journey. We closed the McCann acquisition in the quarter, first of December. Earlier this year or last year, I should say, we closed the Almaak acquisition. Very much in line with our M&A strategy, we are continuing to acquire highly specialized thermoplastic compounders with sustainability footprint. Going forward, we see continued global challenges and high inflation and interest rates, as you all know. We see continued supply chain issues, mainly less on semiconductors, but more on other components. We see some raw material issues for ourselves as well. We see our strong customer focus and geographical proximity as good. We are as early as before on our toes, and we are flexible and ready to meet the forecasted increase of light vehicle production. If I look at the different segments on next page 5, our business area compounding have very much the same comments as we have on group. On engineered products, we had a very strong quarter, driven by good demand for energy saving products. A very strong EBIT in the engineered products. We have continued strong focus on sustainability and our target of 75% reduction of CO2 emissions. We are in good progress to meet that. We continuously announce and introduce new compounds with bio-based and recycled materials. On the M&A, we see maybe going forward some more opportunities given the environment. We have close to two acquisitions during 2022, and during 2021, we closed another two. Good acquisitions, two of them in thermoplastic compounding with sustainability footprint and one with wire and cable footprint, and another more consolidating through Unica in Spain. If I turn to page 6, I trust you have seen this one before. We have a strong culture in our company, and we do create a material difference for all our customers. We have a good culture in the company, and we have a stable organization with very competent and experienced people. That is really good in this challenging environment. On page 7, you can see the very strong business model which we are executing on all the time. The highlights there is, of course, our pricing power and also our stickiness, our product stickiness because it's highly technical products. Another thing is, of course, that we do produce on customer orders, and we do develop customer recipes. If I go to the next page and show the high level objective on the carbon footprint reduction. There you can see that is one of the cornerstones in the high level objectives. The other one is to further develop our portfolio of green products, and particularly with based on recycled raw materials. On the next page 9, you can see the very strong and good development on our CO2 emissions. We're working focused on this and we are on track to meet our very ambitious target of 75% reduction by 2025. Thank you. I'll leave it to Peter. Yeah. Thank you, Georg. If we then turn to page 10, and we look at the sales development during the quarter and see where it comes from. As Georg mentioned, we had a strong growth of 35% compared to the same quarter last year, with good sales in all markets, in all product areas. If we look where it comes from, we can see that we delivered 10% organic growth. Acquisitions added another 8%, and that is primarily Almaak. McCann to a lesser part since they were included the first of December. Then, we had some positive FX effects. In total, we have a 35% increase compared to the same quarter last year. If we look at the markets, we see that they all show good sales growth around the 35%. Part of the European growth is driven by the acquisition of Almaak. Nevertheless, strong growth in all areas. If we turn to page 12 to look at the financial overview. We can see that for a fourth quarter, we delivered a record adjusted operating profit of SEK 811 million, which is well above last year. The margin came in at 14.8%, which is below what we did last year, negatively affected by the challenges that we've seen related to raw material shortages and price increases, but also partly the acquisitions that are with a lower margin than the HEXPOL average. Still, the margin shows sequential improvement compared to Q3 this year. Equity asset ratio remains high at 58%, and the return on capital employed is at high 19.2%. In the quarter, we delivered a very strong operating cash flow of about SEK 1.4 billion, which is almost twice what we did last year. We will come back to the drivers of this later in the presentation. If I can then ask you to turn to page 13 and just look at the development in a different fashion. We see this 35% increase to SEK 5.5 billion, while the adjusted operating profit came in at SEK 811, an increase of almost 30% compared to the same period last year. At the same time, we saw that the operating margin came down some to 14.8%. This is driven by the price increases we've done for raw material and late deals for the energy surcharges that we passed on to customers, but also the acquisition. I think it's worth mentioning again, even though we've done so several times before, that the lower margin is logical when taking into account the mechanics of our price increases. When we pass on price increases, we mainly pass on the absolute increase, not the relative or the percentage increases, which means that everything else being equal, this will have a mathematical negative impact on the margin, but not on the profit in absolute terms, which we've also demonstrated this quarter as well as the other ones during this year. If we turn to page 14 and look at the operating profit drivers, we see that the increase mainly comes from the higher sales in the quarter. The higher sales are partly offset by somewhat lower gross margin and higher OpEx. The OpEx is up compared to last year, driven primarily by negative FX effects, inflation, but also acquisition costs that we had this quarter related to McCann. Compared to the previous quarters this year, the increase is primarily driven by the acquisition cost that we had for McCann here in the fourth quarter. If I can ask you to turn to page 15, look at the compounded segment. They delivered sales of SEK 5.1 billion in the quarter, which is an increase of 36% compared to Q4 last year. Here the increase is driven 11% by organic growth, and the acquisition of Almaak and McCann adds another 8%. We saw sales improve in most customer segments and all product areas. Operating profit came in at SEK 737 million, which is well above last year, where we saw that the higher sales were offset by somewhat lower margin. If I can ask you to turn to page 16, I will take a look at engineered products, where we see that the sales increased with 18% compared to last year, with an overall strong performance across the various product areas within the segment. Operating profit came in at high SEK 74 million, which is 76% above last year, driven by the higher sales, but we also have some positive FX effects in the quarter related to the development in Sri Lanka. If I can ask you to turn to page 17, we can look at the working capital. I saw a big improvement in the fourth quarter, to large part driven by the lower inventory levels. As mentioned both last year and earlier this year, we took the decision to increase inventory due to supply issues on certain raw materials. Since we now can see more steady supply of specific raw materials, not all, but most or some, we can also lower the inventory levels for those raw materials. As we turn our inventory quickly during the year, the effects also come quickly on working capital, which you can see. When it comes to underlying payment terms from suppliers and to customers, they have not changed. They are the same that we've seen for quite a long time. Very positive working capital development, very much in line with what we've said before and the decisions that we've taken to lower the inventory. A point to be made that the absolute working capital is up around SEK 350 million related to the acquisitions of Almaak and McCann compared to Q4 last year. If we turn to page 18 and look at the cash flow, we see that as a consequence of the improved working capital, we also see a very strong cash flow in the quarter. We delivered about SEK 1.2 billion in operative cash flow, which is almost twice of what we did last year in the same quarter. The investment levels is somewhat high in the quarter, this is driven by CapEx related to recently acquired Almaak, but also McCann. A very, very strong cash flow in the quarter. That, if I may ask you to turn to page 19, take a look at the net debt. We see that it increases somewhat compared to last year as does the net debt to EBITDA ratio, which now stands at 0.75. However, this is temporarily driven by the dividend, including the extra dividend that we did earlier this year and the acquisitions of Almaak and McCann during the year. All in all, we continue to stand with a very strong financial position here after the fourth quarter. With that, I hand over to Georg. Thanks, Peter. If I just summarize then, our best year ever, and also a strong end to that with our best quarter four ever. Quarter four is normally slightly below the other quarters. All in all, a very strong year and we are very confident going forward that we can handle the current global challenges. We have proven that we have price power and we are including the energy costs and other inflation costs as well in that. I'm sure you have noted the sequential margin improvement in quarter four. We have a strong sustainability focus, as you know, and an ambitious target of 75% reduction of our CO2 emissions. We are strongly pushing ahead to achieve that target, and I'm confident we will do it. The M&A agenda is strong and, as we communicated in our strategy, we are acquiring in specialized engineered thermoplastic compounders with a recycling footprint. Finally, we are on our toes. We are flexible and ready to meet the forecasted increase in the light vehicle production. We turn page to 21 and to 22. Of course, the priority going forward is to continue to handle health and safety for our employees and to manage the volatility and demand because we do see some uncertainties in 2023. We will also manage the current challenges in supply chains and raw material prices as we have done before. We will continue to execute on our strong business model. Maybe even some more opportunities in M&A, we will continue to focus on that. As I said, we are flexible and we are on our toes. With that, we hand over for Q&A. We will now begin the question and answer session. To ask a question, you may press star then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. Once again, that was star then one to ask a question. At this time, we will pause momentarily to assemble our roster. Our first question comes from Gustav Österberg of Carnegie. Please go ahead. Thank you, operator. Good afternoon, everyone. My first question is on the gross margin improvement, sequentially. I mean, can you elaborate a little bit more on what's driving that? Are we seeing, you know, less effect from increasing raw material prices year-on-year? I know that the gross margin is flat. Could you elaborate on what's driving that better profitability? Hi, Gustav. Georg here. I think you are spot on. I mean, the raw material increases are not so strong as that before. They are only in some special segments now. I think you're spot on. Thank you very much. Just a question there on its comment and that the last two weeks in the quarter was a little bit weaker, but I also think that usually you tend to see some closures over Christmas, et cetera. I mean, is this something out of the ordinary or how should we read that comment? It is normally like that. Maybe it was a little bit stronger this year with the weather conditions in America and some inventory adjustments by customer like we did. Many people did inventory reductions end of the year. It's a normal, it's a normal pattern, maybe slightly stronger this year. Okay, perfect. Then, and then just a follow-up here on, I mean, you see a big working capital release in the quarter and a great cash flow from operations and, but you still sort of have a somewhat higher working capital than you usually have. I mean, how should we think about the working capital levels going forward? Are there some reasons to expect the elevated levels compared to history due to the supply chain situation, or should we expect the sort of normalization towards historical levels? Both actually. If we look at, as long as we can see that we can have a steady supply of raw materials, then we will also lower our inventory levels as we did in, here in the last quarter of this year. We need to see a steady supply of raw materials, so we are certain we can deliver to our customers. As long as we see that, then we will lower, continue to do, lower inventory levels. If we will reach, you know, the optimal historical levels, that is too early to say because it depends very much on the environment around us and uncertainties around supply chains. Perfect. Thank you. Then the final question is on, I mean, leverage is still quite low despite the two acquisitions last year and the extra dividend. I think we're at somewhere around 0.7. I mean, if we have some inventory releases here as well, cash flow looks set to be quite strong. I mean, what's your priority here for 2023 then? I mean, we are continuing very, or should I say, focused on the strategy we have established, and we are executing on that. It's including, of course, executing on our strong business model and also an M&A part of it. Maybe there might be more M&A opportunities in the environment going forward, where maybe it's more difficult to find buyers, and then we are certainly a buyer with our strategy in place. Okay, perfect. That was all the questions from my side. Thank you very much. No, thank you. The next question comes from Douglas Lindahl of DNB Markets. Please go ahead. Hello. Georg, Peter, thanks for taking my questions. I wanted to start off by actually following up on one of the previous questions there on the December number. You said that the impact from weather and the inventory reductions was a bit more impactful this year than typically. Maybe a better way of understanding the underlying models, if you could maybe give a comment on what you've seen so far in January, if possible, so we get an underlying view of the modern environment. That's a good question, Douglas. Of course, we do not, we do not supply forecast for the coming quarter. We've never done, and we are not doing here either. I guess the best way to describe it is that we saw the ending of December as normal, however a bit stronger, as I said, on the inventory reductions and the- Mm-hmm. -impact of weather conditions. I mean, that- Okay. That was the north. It's a normal ending, however a little bit stronger. Yeah. Okay. Maybe that shouldn't be exaggerated then, that comment, from your report on the end of December. No, it is exactly what we are saying. Yeah, okay. Understood. Coming back to the pricing, you mentioned that some prices are still up, but I mean, does that stand for your raw material pricing in total? Sort of what will be the price impact now for your organic sales heading into this year, assuming that prices are unchanged from where they stand right now? I think- You're not obviously giving us a number, more indicatively. Yeah, no, I understand the question and I'm sure you understand it's not so easy because it's very short notice, with the price increases from our suppliers. The. Mm-hmm. These big increases, they are gone. There are some for very special materials, and there are even some decreases on some materials. It's a calmer development going forward. Okay. Net prices are still up in total? It's difficult to judge if that would be the case, but it's more on specialties which have lower volumes where the prices are up. Okay. Understood. A final one on... We talked about it, your inventory levels, and also the raw material shortage having a negative impact on profitability. You did seem to see somewhat optimistic on keeping a slightly lower inventory levels, which means that you are possibly more optimistic on raw materials. When should that sort of come as a positive on your profitability, would you say? Okay. When you... I'm not sure. Maybe I will- I'm getting final- No, sorry. Maybe I'll do it. Yeah. Basically what you've been talking about the raw material shortage having a negative impact on profitability now. Yeah. At the same time, you're saying that you're happy to keep somewhat lower inventory levels because you seem to be. Oh, yeah. Seeing a bit more supportive, supply for raw materials. Yeah. Yeah. Yeah. That sort of points that the profitability issues should linger off at some point. When would you sort of generally say that impact should be felt over the P&L? I understand your question now. I think we saw some effects already before. Okay. When we improved our margin as well. I mean, the challenges were always there, but not as severe as they were before. Mm-hmm. Okay. The challenges are there maybe year-over-year, but not so much sequentially. Is that fair? Yeah. I mean, we still have challenges, but they are. That's the reason we took down the inventory as well, that we saw that we were able to do. That is, of course, helping also the flow in product that have less issue. Okay. Yeah. Thank you so much then. Sorry for the confusing and difficult question. No. Thank you. No problem. Mm-hmm. The next question comes from Karl Bokvist of ABG Sundal Collier. Please go ahead. Thank you, good afternoon, gentlemen. I guess it falls on me to ask this question. I thought it would be asked before, 10% organic growth. Any kind of comments you can give on volume versus price here? Yes, we can. It's a flattish quarter for us. Understood. Then just kind of, you talked about it also now during the call a bit, but the kind of timeline on profitability improvements within your acquired businesses, can you shed some light on where you currently are and, when you foresee kind of the business plan to be completed, if we call it that? Yes, we can comment on that. We have good improvements on the acquisitions from 2021, VICOM and Unica. There's a good trend of improvement there. They were quite a bit below the group average, but they are narrowing the gap in a good way. We are happy with that. With the McCann and Almaak, I mean, we are working on it and it's a little bit too early to comment on that. Understood. just you mentioned the European construction on one side, you mentioned automotive on the other. Are there any other demand areas you see developing in a particularly good way still or the opposite? No, I think it's, it is rather similar to the previous quarter. Maybe the energy side is improving a bit. I see. Okay. Thank you. That was essentially it. Maybe my final one would be just on the kind of pipeline that you currently have. Are you still looking towards the thermoplastic segment, or do you feel that there are acquisition opportunities more towards the kind of, if we call it, typical or standard rubber compounding segment? There are possibilities and good possibilities in actually all the segments. We are having the six segments we defined in our portfolio strategy. We see good opportunities in all of them. Understood. Thank you. The next question comes from Johan Dahl of Danske Bank. Please go ahead. Yes, thanks, and good afternoon. Most questions have been answered. Just on that volume issue again, if we assume sort of flattish organic volumes, would you say that the... I mean, if when we looked at IHS forecast for vehicle production, I think it was up mid-single digits for Q4 when we looked at it. Did your deliveries to light vehicles grow in line with that? Would you say that it was much weaker than that? No, I think it was 2.3% or 2.9% for light vehicle in Q4 globally. For sure, we see that growth for us as well. But we have some offsets from building and construction, of course. Right. Right. Interesting. Secondly, also on the sort of bio-based and recycled, I guess there's a lot of brilliant initiatives from your customers to on the automotive side to sort of lead this development. What would you say the roadmap, if you look on it on a bit longer term perspective coming years? How swiftly can this shift occur to bio-based and recycled? I think the bio-based, it takes long to recycle. It can go faster in non, what we call non-dynamic applications. When an application is dynamic, it takes a long time because then there are so much testing involved. If it's, if it's more an interior product or anything like that, then the shift can go quicker. How fast? That's what we are asking the OEMs all the time. All right. Just finally, can you say... We were on this topic earlier, when will sort of the raw material price inflation start rolling over? Is that a second half 2023 issue or sort of already in the first half? I appreciate it's difficult to say, you know, not knowing where raw mat's going, but at current levels. I really don't know. I mean, we have one month advance warning. Right. Thanks a lot. The next question comes from Andres Castanos-Mollor of Berenberg. Please go ahead. Hello. Good afternoon, gentlemen. I'm trying to understand if lower inventories have contributed to improved margins, and if this is the case, if this could be recorded in the future. If the lower inventory has impacted profitability, in the quarter? Yeah. No. No. All right. Thank you very much. The reduction in inventory has neutral impact on profitability. All right. Understood. I wanted to interpret the 10% organic growth, which so far during the year you've been delivering a 20% rate more or less. I wonder, If we are still seeing quarter-on-quarter price increases at this stage? Was the question whether we see sequential price increases? Yeah. Are we seeing those? I mean, it has come down, of course. The raw material increases has come down, including our price increases, of course. Understood. Everything is also very mix-oriented. Understood. All right. Understood. Thank you for this. Congratulations. A very strong quarter in terms of operations, I believe, better margins and very good level of cost generation. Thank you very much. Well, thank you. The next question comes from Julia Lifvendahl of SEB. Please go ahead. Hello. Thank you. Would you say that the price volume split is similar in your both end segments, in both, compounding and engineered products, or are there any differences there? It is difficult to measure volume on the engineered products, because it's a very different type of product. When we look at the pricing side, it's, it has a similar development in the two segments. It seems that the engineered products really contributed to the margin positively. I'm interested in if there is some other dynamic within the compounding product when it comes to price increases. Or maybe. No. Do you think we will see, like, a catch-up effect later on if there are longer lead times on the compounding side? No, it's absolutely not. The longer lead time on compounding side, it's the opposite. On engineered products, I mean, we had good volumes, we had good demand. You can see that top line was strong as well. Okay. A follow-up on the recycled business. Can you provide how much of your revenue is represented by recycled materials right now? If that has had positive impact from Almaak or if you're also developing recycled material within your traditional business? We do develop in our traditional business as well. Then we will supply that figure within short. Last year it was 1% of all our group turnover. We have acquired Almaak, which is 75%-80% of all the recycling content. McCann has also recently acquired. That will add up, and we will have a business in recycling. It's about 10% now. Is that what you're saying? It was in 2021. We will supply the figures of 2022 in a while. Then Almaak is pushing these figures further up and then McCann also. Julia, just to. There's somebody who has a lot of people around them. Just to make it clear, when we talk about 10%, it's of the material used, not how much we sell of recycled products. That is something that we will need to come back to, the share of sales. Okay, great. Thank you. That's all for me. If you would like to ask a question, please press star then one. This concludes our question and answer session. I would like to turn the conference back over to management for any closing remarks. Thank you very much for attending the call and for your questions. We wish you a very nice weekend when you get there. Thank you. Thanks all. Take care. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.