Trelleborg eyeing growth after portfolio revamp

TRELLEBORG, Sweden — Trelleborg A.B. is eyeing growth through mergers and acquisitions and investment in "high potential" segments following the completion of a series of divestments that have revamped the firm's structure.

Through M&As, increasing global footprint and "speedboat accelerating" of growth in certain segments, Trelleborg expects annual revenue to increase by 5% to 8%, Chief Financial Officer Fredrik Nilsson said during the firm's annual Capital Market Day presentation.

At the same time, the Trelleborg-based polymer engineering firm aims to raise it pre-tax operating margin (EBIT) to over 16% "in the near term," Mr. Nilsson said.

"We have a strong list of [acquisition] prospects which we now like to turn into pipeline, and we are also allocating more resources internally to drive the M&A agenda," the CFO said, noting the firm has identified 200 acquisition prospects.

Other targets Trelleborg is pursuing include: annual capital expenditures at 3.5% to 5% of annual sales and a net debt/EBITDA leverage of less than two times.

In addition, the group's board has called an extraordinary general meeting for Dec. 28 to discuss a share-repurchase program to "adapt the group's capital structure" and deliver "shareholder value."

The goal is to repurchase shares valued at roughly $225 million to $335 million per year.

Trelleborg President and CEO Peter Nilsson said during the event that the company continues to focus on the "good positions" offered by its three main segments: sealing solutions, industrial solutions and wheel systems.

In addition, Trelleborg aims to expand its presence in "speedboat areas" such as healthcare, medical, aerospace, green aviation, semiconductor business, e-mobility and sensor technology, he said.

"We have had M&A ambitions but we have not been able to execute, but we feel we have good prospects and are able to execute some M&As," the CEO noted.

"The conditions are better than ever, both operationally and thanks to trends such as increased electrification, digitization, and industrial automation," he added.

Elaborating on post-restructuring standing of Trelleborg businesses, Peter Nilsson said Trelleborg Wheel Systems' efforts to build a "very efficient and good platform" over the past few years is now "ready for take-off.

"We have, this year, been exposed to heavy increases of raw materials, …" he said. "The way the pricing works here is a bit delayed but we think we will see solid improvement in this area quite soon."

Trelleborg claims the Wheels Systems business is among the global leaders in tires and/or wheels in the agricultural and materials-handling sectors while being a niche player in construction and motorcycle tires.

The unit is on target to report $1.4 billion in sales this year with a 12.2% earnings ratio. The longer term goal is raise that ratio to 15%, Peter Nilsson said.

According to the company's third quarter earnings report, the tire and wheel business unit accounts for 29% of Trelleborg's overall sales.

In North America, where Trelleborg has two tire plants in operation, the strategy calls for increasing output and cost efficiency steadily. The company presented strong growth prospects for the production of higher-horsepower farm tractors in North America through 2024 to support its own outlook.

North America represents 18% of Trelleborg Wheel's global sales.

The firm's sealing solutions segment is working "like clockwork, running very well and is well balanced.

"The target here is to scale up and accelerate," he said, adding that Trelleborg had no plans to change the structure of the segment.

The industrial solutions unit was the unit most impacted by the portfolio changes and had "now become a better business."

"What we have in the Industrial solutions is only good businesses," he went on to say, adding that new opportunities to enhance the unit had been identified through the restructuring.

"Here, we are what we call climbing the value ladder, which is to say that there is still room to add value," he added.

Divestments made over the past 18 months or so represent roughly $360 million in sales, the company said, and resulted in a company with three business units: Industrial; Sealing Solutions; and Wheel Systems.

On the environmental front, Trelleborg said its long-term vision is to achieve "net zero" CO2 emissions by 2035, in part by increasing its use of bio-based and recycled raw materials and developing new polymer formulations.