Good day and welcome to the presentation Troax Group AB Quarter Three Report 2022 call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Thomas Widstrand. Please go ahead, sir. Thank you very much. Thank you everyone for listening in, and as usual, I'll do a bit of a presentation on the Q3 development for Troax Group, and eventually then you will have the possibility to put questions, and I will do as usual my best to answer them. As normal, for those who have listened in before, I will follow then a little bit the presentation structure that we have in what we call the reporting, which you can find at our webpage under Investor Relations. Under that, you will have then reporting, and obviously, this is Q3 reporting, so you will find it under there. If you don't find it or you don't have access to a webpage, it's not a big problem because I will still comment on the main issues. As usual, I'll start with a short introduction of Troax Group. We are, as you know then, safe and sound on solid ground. We are working mainly within three different segments within the safety business. The first and the biggest one for us is called machine guarding, which is approximately 60% of our turnover. For those of you who are looking into the webpage, you will find then that the picture we have that which exemplifies the machine guarding shows then a long production line where a number of robots are doing different welding or different operations, which potentially could be hazardous for people working in the same area. Obviously then, this is what we do. We help the customer with safety installation, regardless if it is perimeter guarding or if it is guarding, then connected directly with the machine. The second segment that we are reporting are what we call warehouse partitioning, which is some 30% of our turnover. As you see from the enclosed picture, it's a typical warehouse where people are not going so much around, but they are traveling with fork lift trucks. What we are doing then to help customer increase safety here is everything from preventing things which are on the shelves to fall down. We are also helping them to install the shelves itself. We do that through our company in Natom that we bought two years ago. We're also putting up different perimeter solutions and dividing then possible dangerous areas towards people working in this area. The last one, which is called property protection, approximately 10% of our turnover is then what we call storage solutions. It's perhaps not safety from a dangerous point of view or from a personnel dangerous point of view. It's more of obviously for storage. So everything what you and I have got then in luggage or bicycles or whatever we want to store, we normally then put in some sort of cage which are then in the cellar. So could also be in the attic. Something which we call the automated warehouse, which actually is a hybrid between machine guarding and warehouse partitioning. Where we have seen then that in the last couple years, we have had a substantial growth in demand for more automated warehouse. We created then a special product package for this kind of installation, which, as the name implies, is much more automated than the normal warehouse. As you can see from this picture in to the right, you also see then typical guarding then to prevent things from falling down. This is much more than developed in order to prevent people from being hurt because a number of pallets, regardless if they are filling up on the cabinets or if you take it up to be dispatched then to customers or distribution centers, we try then to help the customers to put up the safety solutions for this in order then to prevent that no one should be injured if something should fall or a machine will go broke and go a bit non-operating mode, the stupid way, et cetera. Now, I think as that is worth one or two sentences regarding automated warehouse in general, because we've had an extremely good organic growth in 2020 and 2021 with this, driven by the continued demand for e-commerce solutions, where a number of international, either integrators or big international end customers are then investing in rather huge installations, I would say. Now, what we saw last year, 2021, was that this kind of turnover had increased to approximately 20% of our turnover. As we have explained before, a number of these big customers over-invested and during this pandemic period. Now we're in 2022, and it is expected to go into 2023 as well, diminishing the number of new orders, waiting, and that the continued positive trend of the automated warehouse will put them into a situation that when the over-investments done several years ago would be absorbed, and with the continuing demand from the market. We are agreeing to this analysis, so we think also that there will be a good market coming in again to us with new orders, but probably not until at the earliest towards the end of 2023. This, let's say, segment, which we are officially not reporting, but as a hybrid between, as I said, machine guarding and warehouse, will probably go down from some 20% last year to a substantially lower level this year. This is the major effect then, or the reason why then I will say that the order intake is on a lower level than compared to last year when we compare the Q3. Come to the figures in a second. The brief is the next figure. I think we jumped that because I think you all are aware of the substantial increase we had on sales and orders in 2021. This is now history. We're working with 2022. So I jump to the next page, which shows then the historical development. As you know, we are a growth company. We are the biggest one in our niche market of indoor perimeter protection. You could call it mesh panel solutions. We are 2.5 to maybe 3x bigger than number two players. We are in a number of countries, obviously, and we are over time growing with, in this case, this example says 12%. We are normally saying that we are growing over a business cycle with some 8%-10% per year. Based on that, we have a market which is growing with perhaps half of that size. We normally take market share over a business cycle, regardless if it is tougher times or even, let's say, more positive times. Going to the next one, showing financial targets. On the sales growth, we don't have a real KPI, which is we are externally saying we are going to have as a target. We are of course saying then, like I tried to say just a second ago, that if the market is growing with some 6%-7% over a business cycle, we should clearly be on top of this. On paper, this quarter or year to date looks quite okay. We have been growing organically with 16% but t here's a big but here. The main part of this is actually the price increases that we have implemented during last year and especially during this year. If you just look at the volumes, it's not a big change compared with last year. Having said this, you have to remember then that there were a huge increase of volumes last year, so we are comparing with the cumulative figures of 2021, which was a substantial increase compared with the year before. M&A, just a small one. We made as you, if you remember, a small acquisition this year in Spain and it's not developing bad at all. Of course, if you compare with the total figure of Troax, it has so far a rather small impact on the top line. Coming to profitability, we are roughly on 18% for cumulative and it was just slightly better in the Q3. We have a target of 20%, l ast year we were actually above that, which some of you might remember. Getting actually a bit tired of explaining this, because it's going on for a little bit longer time than what we perhaps anticipated from the beginning. We have two main reasons for this. One is that when we implement then price increases, which is based on then that the steel price, which is a primarily raw material for us. It's increasing, especially after Ukrainian war started. It takes number of two, three months until we see it's coming into our own result account. Now during the Q3, we actually see that coming in at least towards the end of the quarter. That's starting to get rather positive, even if from an accounting point of view, you don't see it a lot for the whole of the Q3. The main part is actually still the delay in steel price reduction, which actually is going down since sometime this summer. You should maybe expect a little bit quicker implementation in the results for us since we obviously are using a lot of steel every month. When you look at the conclusion, it is so that we, during the period when there were rather tough times with steel and you didn't even know if you're going to get the steel and to what kind of price, we bought a lot of steel to secure deliveries to customers for a longer period of time, which means that also during the Q3, we've actually consumed a lot of the steel which was purchased earlier for a higher price than what you actually can buy for today. In hindsight, you might say that that was perhaps not the best solution. I would say that if this situation would come up again, we will do exactly the same because we think it's quite important obviously to keep our customers happy and don't want our customers to suffer for not being able to deliver because we have not ordered enough steel. That's the main reason, n ow, having said this steel that we bought at very high prices is primarily now consumed. There are none of these tons still there, but step by step during the Q4, this will improve, even if the full effect will only be visible, I will say, during next year. It's going in the right way. We see that even if, of course, you cannot say that what we know today will be true tomorrow because we have seen that especially during this year that there is a lot of turbulence both with the steel prices and freight costs and, you know, other things as well. Right now, of course, energy is coming up as something which is increasing substantially. It's yet to be seen how that will have an influence then going forward. Going to the next issue, capital structure. I would say that we are in a very good stable situation. We are far below than what is possible for us to have in relation if you compare the net debt to the result level of our EBITDA. In other words, we have quite good opportunities to continue to buy companies. The problem is only to find the right companies and are not so many around that actually we are interested in. If and when the opportunity comes up, then of course we have the opportunity as I said now to continue to invest in acquisitions. Dividend we don't need to talk about right now, i t's something for next year. Some sort of summary which I already touched upon, but I would say that the Q3 continued with good activity, except mainly in the automated warehouse field. Excluding then the automated warehouse, we show a similar level as the strong Q3 2021, which means then that I would say that the other customer segments or regions are actually developing quite well. We could see some improvement also in automotive, not in orders but in activity level. We reported last quarter that there was certain increase then of activity asking for quotes for new projects and this is continuing in Q3, which is positive. As I already said, on the other hand, we expect to continue weak demand for automated warehouse and this will continue into 2023, without giving you an exact date when this will be changed. In orders and sales, these are positively influenced by a net effect or at least an indicative net effect on price increases that we have done to our customers based on then the huge increase of steel. We estimate that to be approximately 17%. When you want to then analyze the volume effect, obviously you have to deduct the price effect in order to get then a reasonable figure to compare then with last year's figure. Already said then that the steel price continued or started to go down from the summer period. As I said, we have now during the Q3 consumed also what was still remaining from the higher priced steel that we had in stock. Let's see then as to how quick the improvement can go in quarter four and also in the beginning of next year. We think it's a reasonable EBIT result and margin in Q3, especially seen in the light of the turbulent situation in the quarter. Of course, as long as we are below the target we are not really happy. I still think that, seeing the circumstances it's at least what we call acceptable. We have a relatively good utilization on manufacturing units, but they are lower than in last year because last year we had extremely high utilization because of this high order intake from... Especially in automated warehouse which obviously has some sort of negative effect with recovery of fixed cost if it's a bit lower. I've already commented on the gross margin. Regarding customers, we have in good cooperation I would say increased prices and... As we write here, we see some effect of that, during this quarter. Good sales levels in the Nordic region and new markets, especially Simrlum, albeit slightly lower. Working capital is on expected level. Inventory is still high due to high security levels but started to go down. A few comments then on what I think some of you are interested in with our more recent acquisitions. This time actually Natom Logistic in Poland, at this quarter been negatively influenced by the lower activity from the automated warehouse customers. Up until the Q3, I think that Natom has done a very good job and we've been very happy with the development. We are still, so to speak, happy with development totally. In the Q3, we could see a negative trend then based on the lack of orders from these kind of customers. The other one we did, the smaller one in Spain, and as I said, continued to develop well. Some longer lead times on some components, but generally speaking, are developing quite well. After the closure of the quarter, we did another small acquisition called Svenska Cykelrum, who had products, or actually solutions done for bicycle storage, mainly, I would say for the Nordic area, at least short-term. That's something which will have, I think, a positive influence over the Nordic development in the coming years. It's a good complement then to what we already are offering, especially then on the property protection side. I think the financials we have already gone through, so I don't need to go through that. It's very clear and that the order intake is lower, mainly because of the automated warehouse reduction already commented. Sales is higher than last year. We are primarily then enjoying steel and the last projects that came in last year from the automated warehouse. In the Q4 and Q1 next year, we don't have a big backlog or a big order book for these kind of customers. Gross margin, I already commented. They are too low mainly because of what I already said with the steel price and the consumption of the higher inventory. Which means then that there's a good potential for us to come back to the previous level in the coming quarters. Operating margin lower partly because of a little bit lower demand in automated warehouse and this kind of steel price development that I already explained. I think those are the biggest comments for this last three months. Going to the regional development, which is the next page, I just want to have a few comments then on, especially on the order side. You can see here that in continental Europe, which also have a number of important customers within automated warehouse I would say has been a bit weak. We don't see for the other type of customers there is a weakening of the demand, but you and I we read the newspapers, and you don't know what's going to happen in the coming quarters. If you trust on the newspapers, you might see something negative in the coming quarters, but this is just speculation. Up until the Q3 this year, we've seen a rather stable development in Europe as well as in the Nordic region, even if the automated warehouse then has done a bit negative, both on continental Europe and U.K. In North America, it has had a more substantial impact. You can see it's a 23% decrease, which is rather substantial. In the U.S., I don't think there are many projects at all going through right now with new projects, at least, with automated warehouse. Totally, we are 9% down on last year, and on top of that, of course, you have the price effect. Sales is a bit better. You have 9% higher. As I said before, we have invoiced on a few of the remaining projects in automated warehouse, which was taken during the end of last year. Going to some conclusion, I will repeat a few of the conclusions or the summaries I had before. We continue to receive, as we see it, some really important orders so in all segments. Mainly this was pretty strong, I would say, within machine guarding. As I said now several times, that the orders for automated warehouse were weak. We note that requests for quotes are increasing from the automotive sector, not yet giving a lot of orders, but it's still a good sign for the quarters to come. We think that is a continued reasonable development in result. However, I've said now also several times, the margin is or has been at least under pressure because the pricing effect to our customers have not gone through because we have seen that during Q3 step by step that has been increased. Still it's the effect then of these steel price which were consumed now, which were bought for a higher price. Investments are going on according to plan. In Natom we are investing in the new plant that we have bought, and it's very good actually. Already mentioned the acquisition of Claitec and the Svenska Cykelrum done now in October. In total, we think that we have an excellent base for continued growth and continued development. Despite, of course, we have to still show you and others that the margin needs to be improved compared to the Q3. Going to some factors which has a positive effect on the growth, I would say that those are still remaining. I will just mention two of them which are, according to my opinion, the most important. One is the continued increased industrial automation. This has been ongoing for a number of years, and we think it will continue to grow and especially now after I think the COVID. I think a lot of people have realized and that maybe you have to have manufacturing closer to home, which is not negative for us. Then you have the growth in e-commerce, which now has some sort of pause phase or slow phase during 2022 and 2023. I'm convinced that this will continue to take off in a positive way from maybe end of 2023 or beginning of 2024 and going forward. We're quite positive over that more long-term. If you're interested, I can just a little bit round off here before we come to questions. On the production units which is next page, we have not done any major things right now except, and if you go to the right side of it, we show there Poland, which is the Natom acquisition. We have substantially now increased the sales capacity during this year. We have much better possibilities right now to continue growth, especially on the shelf side, which are an important product segment, especially good when selling into these international customers with an automated warehouse. On the Troax Group, we are working, as you know, with different brands, and we have added now Claitec, which perhaps will from a brand point of view not have a major impact, but nevertheless it has had a good development so far, and we look forward to continuing to develop solutions based on the technology that we have acquired from Claitec. Safe as tomorrow since 1955, as you know, we are the original. For the safe tomorrow, we continue to work on environmental issues. The main issue for us is still to increase on the recycled steel, what we purchase from the steel mills. All other things that we can do our own is that they have a minor impact compared to the increased possibility with recycled steel. We're also starting now to show the CO2 consumption per main articles for customers. If they are interested, they can see them if they buy a certain type of product, what the CO2 consumption is. It doesn't change our own consumption perhaps of CO2, but nevertheless it gives the customer then a better decision model for what they want to order. On the safety center, we continue to do tests and to develop our R&D. As I think I said before, we have now opened a bit new doors and actually you can see here we have the Troax Power Door. We all trying also to automate the sliding doors that the customers are using in production and warehouses, and it's been very well received. We think that that opens even further possibilities of course going forward. We are certified by TÜV Rheinland, so the customers of course know that we are not the only one who are saying that we are doing checks and coming up with a quality level which is according to the specification. We also have done some external to prove that which is I think okay. With this I'd like to round off saying we still continue to protect people, property and processes. With this I'd like to hand over then to the operator to invite them for some questions. Thank you, sir. A reminder to the participants, if you would like to ask a question, please signal by pressing star one on your telephone keypad. If you are using a speaker phone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, press star one to ask a question. We pause for just a moment to allow everyone the opportunity to signal for question. We will take the first question from Peter Testa from One Investments. Your line is open. Please go ahead. Hi. No, thank you for the answers. I have a question, sorry. I was looking for three please. Firstly, just to understand your comments around price, and how we should think about it going forward in the context of steel prices, which are, you know. Mm-hmm. At this point below the end of 2021. If you could give some sort of sense please, as to how you think you consider price going forward, in new orders and new opportunities. It's a very good question. I have to be a bit careful, however, how I comment this because there are people listening to this call which might influence them based on what I say. I can just say then that we have, as I tried to say before in good cooperation with our customers, increased already pricing to compensate for the steel price increase. We have seen that at least is starting in a good way to come through in our result account. To answer your question, how does it look going forward? It is obviously done so that some customers will require then a lower price. We think then that there are so many things which have increased in costing. We will be rather cautious going forward by further reducing the price. Of course, in some cases, we are doing this because otherwise we will be out of the price tunnel, which, we and the competitors are setting in practice. In other words, you can translate it into say that there will be some reduction of pricing going forward based on that the steel price is going down or has been going down. We have no intention so to speak of letting all of this disappear because there are a number of other things which are increasing among others energy, which we also need to one way or another to control and to compensate us for. Okay. Thank you. The second question was just on costs. Yourselves, you've been thinking about your own inflation, what sort of inflation you think you're facing. Mm-hmm. Yep. Going forward. Yeah. Maybe also when thinking about the units, I think, you know, U.S. and Poland in particular are more focused on automated warehouse, whether you have flexibility within that to manage, you know- Yeah. Utilization the way you have on that slide that you showed in the presentation. Good question. We will obviously try as much as possible to reduce them, at least the variable cost going forward, in order to follow the possible order trend until then the automated warehouse will get started again. We will have them running regardless if it is one year or whenever it is. We will try as good as possible to compensate on the variable costs. Talking about the fixed costs like depreciation, the sales cost, we will not do any major changes there because it is so that we put in a lot of effort into hiring good salespeople and also to educate them in what we're doing. We have no intention of taking them out because when we then start again, it will cost us a lot of work to get new good people and to train them. To try to answer your question, on the variable cost side, I think we can rather good compensate for this, especially on the manufacturing side. The fixed cost apart from depreciation, if I call on the sales, especially the sales cost, we don't have the intention of doing any dramatic decreases short-term. There will be, in that case, if we cannot compensate this on other products, which there are clear possibilities that we can, we can do, we will have a reduction then of the operating model. Okay. On the automotive opportunity that's building up, I was wondering if you could give some sort of sense as to kind of the breadth and character of those orders. You know, what you think it will take to convert them from the customer side? What sort of decisions need to happen? Yeah. We've been waiting a long time for the automotive segment to increase because with all what's going on here, with the transfer of platforms to electrical platforms, et cetera, et cetera, we thought that this would have started actually earlier this year or maybe even into last year. We have seen a positive development already last year in United States, and this year we might see at least on the request for quotes now coming in Europe, not so much the Far East yet. We have good, let's say good hopes at least that this might take off then a little bit in 2023. I think to try to answer your question, it is so then that we are quite strong with automotive even obviously there are other competitors. When they do projects which they now finally seem to get starting, I think we have a fair chance of taking, you know, our part of what we think we should get from these kind of projects. I think maybe we have underestimated and also the lead time between they start to think about then to invest until they get the manufacturing line ordered, because it's only then when they start normally to look into the kind of solutions that we are providing. It looks this time that the lead times in reality is longer than what it's been historically. Maybe this is something to try to answer your question, also to give you the full flavor. Otherwise we're quite positive over that sooner or later this will take off better than what it has been doing in the last couple of years. Those are very helpful answers. Thank you. You're welcome. More questions? We will take the next one from Gustav Österberg, Carnegie Investment Bank. Your line is open. Hi, Gustav. Thank you. Good afternoon, Thomas. Just a follow-up from me. I know you talked about. Mm-hmm. Sort of the performance of the order intake ex automated warehouses. I mean, you seem to be quite comfortable still with the order levels that you see outside of that segment. You talked a little bit about automotive, but can you provide some flavor of how you think about the cyclicality of those orders. Mm. With regard to sort of a general business outlook? Yeah. If there will be now with a lot of newspapers or experts are saying there will be some reduction in general mood, obviously, we are going to get hit by that also. Otherwise, up until the end of September, we didn't see any lowering of activity except on this automated warehouse. So we've seen from small companies to big customers, they still have a lot of projects which are ongoing and probably ongoing into the first part of next year. To say something about, you know, the summer of next year or so is pretty difficult right now. We can't really comment that. I will say that for the coming three to six months, we see a market which is pretty stable if nothing new is coming up. Again, with the exception of automated warehouse, which you can more or less forget then for the coming six months. Whether or not there will be, you know, a further reduction of activity in quarter four, it's difficult to say. Based on the information we have up until the end of September, it was quite stable. Not growing, must be stressed but on the other hand, the Q3 last year, which we are comparing with, was very strong. You have to remember when you compare with this quarter, then, that when I say that it looks stable, it's rather a positive comment so far. Well understood. I have a follow-up on that question. I mean, you're seeing some companies talking about nearshoring trends, where you move production back to Europe. Yeah. The U.S. Mm. With more, you know, either factories being built or remanufacturing of existing supply lines to allow for more automation. Is that something that you're seeing currently or having discussions with clients about at least? Yeah, we hear a lot of customers talking about it, and we might have seen one or two examples of it being not practically executed, but at least being decided. These are things which normally take a little bit longer time. I wouldn't say that you have seen a lot of it in Q3. I'm pretty certain you're not going to see a lot of it in the coming quarters. If you look at it more, you know, in the years to come, this is a clearly positive trend which we will enjoy. I would say both especially in Europe and in North America. All right. Thank you very much. Those were all questions from my side. Thanks, Gustav. Yes? Next one from Johan Skoglund, DNB Markets. Your line is open. Please go ahead. Yes. Thank you for the presentation and answers so far. Concerning inventory, since you've secured the stock turning down, would you please be able to provide some more color on how this could look going forward? For example, if you are posting orders from suppliers separately to bring inventories down quickly? Or would you say that this is more of a gradual decrease going ahead? You are talking about inventory, right? Yes. Yes. I lost you a little bit. Yes. Yeah, we'll talk about a gradual decrease because we won't come back to the previous level of inventory because I think those days are over when, you know, you could use just in time and have this security that still things were working. We were and we are still, at the end of September on a too high level on inventory level. Step by step, this will go down, not as I said, to what it was before the Ukrainian problem started, but maybe somewhere in between. Let's see. It will certainly go down from today's level. Thank you. We have no more participants queuing for questions, sir. You can take the floor. Okay. Thank you very much. Appreciate your questions. Some are very new and some are, let's say, more common. Let's just say that I'm very grateful for your interest in us, and we are seriously, of course, looking forward to meet you again, I think mid of February when we're going to report on the Q4. I guess that one of the key issues then will of course be the gross margin again. Let's see how we can handle it until then. Thank you very much and take care. Talk to you in February. Bye-bye. That concludes today's event. Thank you for your participation. You may now disconnect.