Hexpol Aktie

Welcome to the HEXPOL Q2 presentation. [Operator Instructions]

Now I will hand the conference over to the Deputy CEO and CFO, Peter Rosen. Please go ahead.

Thank you, everyone, and thank you for listening into our Q2 presentation. For today, I'll take you through the overall business performance in the quarter, then go into each business area in a little bit more detail. I'll take you through the financials, and then we summarize and wrap up with a Q&A session.

But let's start on group level. As you've seen, it's a quarter where we delivered strong organic sales growth. But when we look at the overall picture of the markets where we operate, there is not much change since the beginning of the year. Generally speaking, we still see fairly high levels of uncertainty and a wait-and-see mentality with a lot of customers and in the markets.

From a geographical point of view, it's also similar to the beginning of the year with higher uncertainty in North America compared to Europe that is somewhat more stable compared to last year. The uncertainty that we felt in the beginning of the year has, to a certain extent, intensified during the second quarter following on the Middle East situation, not least with the impact on volatile raw material prices, and I will come back to this in a little bit more detail later on.

That being said, when we look at our own performance during the quarter, we see improvements in both of our largest business area, Rubber Compounding and Thermoplastic Compounding, while Engineered Products delivers a stable result. Our focus on maintaining and increasing our market share has been successful here in the quarter, and we see volume growth to our largest end customer segments, such as wire and cable, general industry and building and construction. Volume to the automotive end customer segment saw some growth on group level.

So all in all, we delivered 8% organic growth, mainly driven by higher volumes. And it's especially positive to see double-digit organic growth of 12% with Thermoplastic Compounding, which is a clear growth area for us.

During the quarter, we have also had to deal with increasing raw material prices, which we compensated for through price increases in both Europe and North America. So when we look at the overall Q2 performance, despite some continued negative FX effects, we delivered SEK 5.3 billion in sales, which is up 6% compared to the same period last year and improved adjusted EBIT at SEK 772 million, and consequently also higher adjusted EPS in the quarter.

If we then go into the business areas, and we start with Rubber Compounding, on the markets where we operate, total volumes are still at historically low levels affected by the generally lower customer demand that we see. We also see the captive volumes being at higher levels, although we believe these volumes have peaked.

When we look at our own performance in this area, we see that the work regarding protecting and also improving market share has been successful. And we've also been able to retain some captive volumes, not least in North America. And this has resulted in higher volumes for our larger end customer segments such as general industry, wire and cable, building and construction. Automotive volumes are stable in the quarter for Rubber Compounding.

The situation in the Middle East has created imbalances in the supply chain and also volatile raw material prices. This has certainly been a challenge during the last few months, but the HEXPOL has -- organization has handled these challenges very well and managed both supply of raw materials and implemented price increases when needed. So all in all, we achieved 7% organic growth in the quarter, and this is mainly driven by higher volumes.

If we go into and look at Thermoplastic Compounding, delivered a very strong quarter. During the quarter, we see positive ramp-up effects from previously won projects as well as volumes from new projects being started. And some of these projects are driven by end customers requiring higher levels of recycled content in products that we can deliver, which is positive for us.

As with Rubber Compounding, Thermoplastic Compounding has been impacted by the Middle East situation when it comes to availability of raw materials and fluctuating raw material prices. Subsequently, price increases have been implemented also for Thermoplastic Compounding to compensate for higher raw material prices. And as I mentioned before, we delivered high organic growth of 12% in the quarter, and this is also mostly driven by higher volumes.

And if we then look at Engineered Products, we saw somewhat lower sales in the quarter, and this is primarily related to a couple of specific customers in Sweden. Last year, we saw record level sales and demand has been somewhat lower here in the first half of the year, but we do not see any major changes in the underlying market. And we still deliver high profitability in the quarter. I will come back to this in more detail later on.

If we then go over and look at the financial overview for the quarter, we delivered sales of SEK 5.3 billion with an adjusted EBIT of just above SEK 770 million with a margin of 14.6%. The reason why we use adjusted EBIT stems from that we report the costs associated with the termination of the previous CEO as nonrecurring items. The cash flow in the quarter is somewhat below EBIT, but still solid at about SEK 680 million. We do see some negative impact from the Middle East situation on inventory levels, and I will come back to this in a little bit more detail later on. Net debt-to-EBITDA ratio at the end of the quarter at 1.17 and below what we had last year in the second quarter.

And if we then look at how this compares to Q2 last year, sales are up 6%, partly offset by negative FX effects. And in fixed currency rates, sales are up 9%. And despite about SEK 20 million in negative FX effects, EBIT increased to SEK 772 million. EBIT margin for the quarter at 14.6%, which is down 50 basis points compared to last year, and this is affected by the relative increase in OpEx driven by increased IT investments, but also cost for more people resources needed to support growth going forward.

Looking at sales in a little bit more detail for the group. As mentioned, fixed currency sales are up 9%, out of which 8% is organic growth. While acquisitions, which is Kabkom, add another 1% in the quarter. And the organic sales increase is primarily driven by higher volumes.

From a geographical perspective, North America showed 3% growth, but in fixed currency, the growth was 7%, while Europe delivered 10% growth or 11% in fixed currency. Asia was in line with last year levels.

If we take a look at the development of EBIT. So despite the somewhat SEK 21 million in negative FX effect, adjusted EBIT increased to SEK 772 million. So at fixed rates, the increase was 5% in EBIT. If we then look at the drivers impacting EBIT compared to last year, the main driver is obviously the higher sales while the gross margin was on the same level as last year. And as I mentioned, we see an increase in OpEx, and this is primarily driven by higher IT-related costs and investments in people resources to drive growth.

If we then go into a little bit more detail for the 3 business areas, starting with Rubber Compounding, it delivered sales of SEK 3.6 billion in the quarter, up 5% compared to last year or at fixed currency rate, the growth was 8%, of which organic growth was 7%. The high organic growth is driven by the higher volumes and acquiring Kabkom adds 1% in sales in the quarter. The higher volumes are seen both in North America and in Europe. And from an end customer perspective, we see growth with wire and cable, building and construction and general industry and automotive sales were stable in the quarter. EBIT is negatively impacted by negative FX effects of SEK 20 million or 3%, but came in at SEK 546 million with a margin of 15.2% in the quarter.

We then move over to Thermoplastic, delivered sales of SEK 1.3 billion in the quarter, up 9% compared to last year or at fixed rates, the growth was 12%, all of which is organic growth. Main part of this volume is driven by -- it's volume driven, but there are also some positive price/mix effects in here. As with Rubber Compounding, the organic sales development was positively affected by volumes, higher volumes to most end customer segments, not least building and construction and general industry, but also automotive and medical saw growth. The drivers of the growth are increased volumes on existing business, but also ramp-up of projects that were agreed with customers before this quarter and now start to deliver volumes during the quarter.

Following on the higher sales, we saw a strong improvement in EBIT that increased 40% to SEK 155 million. And at the same time, we saw strong improvement in the EBIT margin, which increased 280 basis points to 11.9% in the quarter.

And then if we take a look at Engineered Products, we saw sales of SEK 386 million here in the quarter, which is below last year, SEK 402 million. And the decrease is primarily driven by somewhat lower demand from a couple of customers in Sweden. But as I mentioned before, this should be seen in light of record sales in the same period last year. A lower EBIT follow on the lower sales, but still high margins in line with last year, above 18%.

If we then leave the P&L and look at working capital, it is slightly higher than same period last year. This is driven by higher inventory, and this is what I referred to in the beginning. This is affected by the situation in the Middle East. In some cases, we've increased our inventory levels to ensure that we have access to the material that we need to produce. Also the higher raw material prices impact negatively. Depending on how the situation evolves going forward when it comes to raw material prices, we view this as temporary as we turn our inventory quite quickly during the year. There is no change in any underlying payment terms to customers and/or suppliers.

If we then look at the cash flow, we delivered a solid cash flow of below SEK 700 million, where depreciation and investments are balanced while the working capital is, as I mentioned, affected negatively by the inventory in the quarter. And then to finalize the financial view, we closed the quarter with a net debt of SEK 3.8 billion and a net debt-to-EBITDA ratio of 1.17, below last year. And all in all, we continue here at the end of second quarter to stand with a very strong financial position.

And then if I can summarize the second quarter, it's a very strong quarter with high organic growth of 8%. The growth we see with both of our largest business areas. In the quarter, we worked intensively to protect and grow our market shares, and we have also been able to win some captive volumes that has contributed to this growth. At the same time, it is a quarter impacted by the Middle East, which has resulted in supply challenges and higher raw materials. I think we've handled these challenges very well. We've been able to secure raw materials needed for us and we've implemented price increases when necessary. So all in all, when we summarize the second quarter, we delivered high sales and higher results, which we are quite proud of.

And with that, I thank you for listening, and I hand over to Q&A.

[Operator Instructions] The next question comes from Henric Hintze from ABG Sundal Collier.

Peter, this is Henric. Yes. So first, I was just wondering a bit about the sequential/price mix improvement you talked about. Is that sort of would you say a durable customer/product mix change? Or is there anything about the sort of raw material price swings driving this?

Henric, when we talk about the sequential price/mix improvement, it's primarily price increases that have been implemented. There is some positive mix, but it's primarily price.

Yes. And I mean, specifically in thermoplastics, where the margin was up quite a bit. How come that differed from rubber?

Three -- well, two things that are similar and third one, which is a little bit more Thermoplastic specific. We've implemented price increases in Thermoplastics as well to compensate for the raw material price increases. We have a little bit of positive mix effects, but also since we have seen higher volumes, they also cover more of the indirect fixed cost in production. So you also get some leverage when volumes go up.

Okay. And on that, maybe we saw OpEx come up quite a bit here. And you mentioned some things driving that. But would you say this is sort of the new base level? Or is it coming up more from here?

I don't see that we will increase much from this level, but we do have the increase, which is, as I mentioned, is primarily IT and staffing. But yes, I don't expect that we will increase from here.

Okay. And then just finally, how come automotive volumes are flat in rubber, but up in thermoplastics?

No specific reason more than when we see thermoplastic, they have initiated more new products related to product launches. And those product -- I mean, automotive car models being launched where we've had higher volumes in the thermoplastic and that has had a bigger impact on Thermoplastic Compounding than Rubber Compounding.

The next question comes from Jakob Marken from SEB.

Peter, just a follow-up on the OpEx part. Can you provide some more detail. Is there any specific segments, geographies, business areas that you are investing in or seeing something special that we -- that the OpEx growth is related to?

Yes and no. When we look at investment in people resources to facilitate growth, we have that across the business, I would say. Then some of those resources may differ from market or company or geography depending on their needs, but it's primarily salespeople and R&D resources. And when it comes to IT, we see a general uptick where we need to do. And then over time, that will be changed from a geographic point of view. Currently, it's more in the North America, and then we will see that coming down and see more investments in other areas.

Okay. That's helpful. And then just a question on the M&A side. It seems like the rhetoric in the report is rather similar to Q1. But have you seen any shift in the sort of M&A market or parties are willing to sell or anything on the M&A market that you can update us on?

I would say that the M&A market is quite similar to what we saw in the first quarter. And then we have discussions ongoing that we are intensifying.

The next question comes from Agnieszka Vilela from Nordea.

Peter, maybe starting with pricing. Could you help us and tell us how much did you increase prices year-on-year? Or what the impact was year-on-year in Q2? And given the volatility in the material prices, what should we expect in the coming quarters?

Thank you, Agnieszka. If I take your second question first, the simple answer is we are uncertain. During the second quarter, we saw raw material prices coming up. The forecast is that raw material prices should come down some going forward. But I have to admit, it changes almost daily on the exact development of the raw material prices depending on what happens in the Middle East. But the general forecast, and I can't say when it happens, is that raw material prices should come down. But difficult to answer, whether it happens tomorrow or a month from now, it depends on how it develops in the Middle East.

Then if I take your first question regarding how much price increases have been implemented, I would say they are in the mid -- low mid single-digit growth.

Yes. Perfect. But just maybe a follow-up on the kind of outlook for your pricing into Q3, isn't there a lag that means that you already kind of know what you are implementing for Q3? And if so, is this kind of pricing element improving?

I mean when we go to customers with price changes, that is when we know a little bit more how raw material prices will develop. So we cannot and we will not go with daily fluctuations. So we will need to see a little bit more, have a little bit more time to see how raw material prices develop and then we will implement changes. So there is always a certain lag, if you call it that. We will need to see how raw material prices develop before we can go with the price changes.

Understood. And then maybe on volumes for the group, in general, I mean, it was the second quarter with volume growth for you sequentially or consecutive. What momentum do you see so far in Q3? Will this growth even accelerate? And then maybe a kind of follow-up to that. You've seen some captive volumes returning to your business. Can you tell us what upside do you see to your sales if these captive volumes return to more normalized level?

Yes. We don't give forecast or guidance on future performance. So I will shy away from commenting on Q3. When it comes to captive volumes, it's very much a question of if we can get customers to produce for them and deliver both service and quality time at a price, then we should be able to continue or grow captive volumes. But it's still a bit early days. So we will wait and see and come back to it in Q3 when we know how we perform.

And can you tell us how much of a kind of headwind it was for you in the, say, past 2, 3 years for your growth?

Sorry, I didn't hear you.

Yes. If you could tell us how much kind of a headwind the more in-sourcing by customers was for your growth in the past 2, 3 years?

Depends on when you have the starting point, but it has been significant, let's put it that way.

Yes. And then the last for me on thermoplastics. I noticed that you had very strong growth in Europe and at least reported numbers, plus 20% year-on-year. Anything out of ordinary driving it? Or it's just the fact that they are performing very well right now?

Performing very well, and it's related to when customer-specific projects are started and start to generate volume as well.

The next question comes from Carl Deijenberg from Carnegie.

Peter, could I ask first, I was maybe a little bit surprised on the statement on Slide 3. I mean I appreciate the comments on the sequential price improvement. But why are not prices higher year-on-year? I think you're stating here that they're on a similar level. Yes, what are the dynamics behind that? I thought it was definitely going to be higher year-on-year as well.

No. If we go back 1 year, at the end of first quarter last year, we started to see raw material prices and subsequently, sales prices going down as well. In second quarter of last year, that's where we had a fairly big impact on lower sales prices. And those sales prices we had for the rest of last year as well. And when we see where we stand today and we see the price increases that have been implemented, we've basically come back to where we were a year ago. There is some mix effect in it as well. But when we look at prices, that's what we've seen.

Okay, okay. And could I ask also, I mean, I guess the volume development that you're talking about is quite surprisingly positive here. And when I read the wording, I mean the markets that you are sourcing that is performing well like wire and cables and so forth, I think you had a similar communication in the last couple of quarters.

So is there anything specifically driving this change here in Q2? Do you see any competition suffering more from the situation in the Middle East? Or is it just a general uptick in those overall end markets?

I think it's a combination of a couple of things. When we look at general industry and wire and cable in the segments where we have products, we've seen increased demand. But we -- it's our view that we have also been able to take market share in some of these segments with existing customers, also been able to add a little bit to that. So we've seen increase in those segments.

Okay. And those market share gains, is that due to your supply chain and purchasing organization and so forth being more, let's say, proactive or what we want to call it, relative competition? Is that the main explanation as you see it?

I would say depending a little bit where we look, but I think even more customer focus has given some of this volume. And we also know that in some cases, we've had -- some of this volume is because also some competitors have difficulty in managing raw materials and deliveries and supplies.

And in the scenario where, let's say, prices would come down again or, let's say, normalize, would you believe that these market share gains are structural? Or would it even out again then in your view?

I don't see a direct correlation with the prices and market shares. But if raw material prices go down, then we will need to adjust pricing to customers. So that would change with raw material prices. The volumes that we have and the market share is something that, of course, we will work very focused on maintaining or if possible, improve.

Okay, very well. And then maybe just finally also, I know that you're not guiding on price contribution. But if you take the sort of run rate now first couple of weeks here in Q3, what would the price contribution would be on a year-on-year basis without giving any forecast what the remainder of Q4 is going to be, but what kind of year-on-year run rate are we talking about here?

That's almost impossible for me to answer, especially since we see that the -- currently, the forecast on raw material prices is down. So any number I will come with will probably change within a week or 2 weeks. So I will refrain from -- I will pass on that one.

The next question comes from Johan Dahl from Danske Bank.

Yes. Just on that growth you recorded in thermoplastics, Peter, you talked about sort of new projects, new customer orders there. I was just wondering, is that sort of an incremental add to your sort of recurring business in the coming 12-month period? Or would you say rather that there's a fair bit of volatility in those projects sort of how it falls out each and every quarter? Or is it more of a recurring net additions to the thermoplastics operations?

I would say the projects themselves are recurring in the sense that if we take a new car or a project with a production of a car, if we get approved and awarded part of that project, then we should be able to see volumes throughout that project. So that project in itself should be fairly stable. Then, of course, it depends very much on do we have other projects that run out or end or can we add new projects that will add incremental volume on top.

So I think to answer your question, Johan, no, the projects themselves should deliver the volumes that they do currently. But then it's up to us, of course, to add new projects and ensure that older ones are replaced by better projects.

All right. All right. And just finally, if you could just reiterate, Peter. If we talk about the sort of how price mix has impacted your profitability year-over-year, it's been quite negative in the past here. You talked about weak U.S., weak automotive, et cetera. And now perhaps you don't really see that negative shift there, perhaps a bit on the opposite. Clearly, you highlight thermoplastics as being a positive driver for product mix. But is there anything else? I mean you're still sort of more bullish on Europe versus North America and auto seems fairly flattish year-over-year? Any color you can add to that mix change?

Yes. I'll take the easy ones first. Automotive is fairly flat if we look at it from a total perspective. And then we have a little growth on the thermoplastic side. But automotive as -- the total industry is fairly flat here in the quarter, and we expect it also for the full year. But we do see growth in some of the other areas, such as wire and cable and also general industry, we see some improvement if we're talking from an end customer perspective.

From a geographical perspective, we still think that the U.S. is more uncertain than Europe. There is still the question of affordability and that impact on demand, not least on automotive, but it has also some other impact in other industries. While Europe, which has its challenges as well, is still more stable than North America when it comes from general demand.

[Operator Instructions] The next question comes from Mats Liss from Kepler Cheuvreux.

Well, coming back to organic sales there, and I guess you mentioned that you have increased inventory somewhat to secure deliveries and so on. Do you see a similar pattern among customers there? And maybe also if they try to avoid price increases? Well, have you seen any impact of that in your organic sales improvement?

To a certain extent, I think in the beginning of the quarter, if we go back to April and partly May, we did see some customers where we think they order a little bit more than they normally did -- do. But our products don't lend themselves to prebuying that much since, for example, rubber probably has a shelf life of 3, 4 weeks, then it needs to be turned into components. So even though we did see a little bit of it in the beginning of the quarter, when we look at the quarter as a total, we don't think that there is much effect of prebuying.

Okay. Great. And secondly, on thermoplastic there, well, you mentioned this market share gains you have succeeded in and on the back of customer projects. Could you say something about the second half there, short term, if you see similar trends benefiting you?

Sorry, in the second half of?

Yes, this year or maybe longer term also. But if you have sort of a good position in customer-related projects that sort of boosted you in the first half there or in the second quarter?

Yes. And that said, I mean, our view is that we have a good position, but regarding volumes that will materialize in the second half of the year, I will pass on that because then I will get close to guidance, and we don't do that. So currently, we're delivering on the projects that we have. We feel comfortable with the share that we have. And then we will just need to continue to work on this focus going forward.

And finally, just on Rubber Compounding there. I mean you mentioned that increased overhead costs there have affected your margin negatively. Could you shed some more color on that one?

Yes. As I mentioned, we've invested in more people resources, not least on the sales side, also on the R&D side, where we've made some changes and centralized some R&D, for example, here in Europe. And then we invest more in IT, both to replace existing systems, but also invest in more efficient systems going forward. So it's a combination of those things.

Great. And finally, I mean, you mentioned you have, well, pretty good financial position now and the M&A opportunities. Could you say something about those? I know you are in the changeover process there of management also and CEO. Do that affect your sort of -- how trigger-happy you are to make acquisitions?

If I take your last question first, no, that will not impact, not more than we are very focused on actually on delivering M&A. So there will be no pause or let up in our -- in us doing M&A because of this. So we continue to work as focused on this and even more so than we have done before. We're really keen on doing this.

The next question comes from Agnieszka Vilela from Nordea.

I have a follow-up on thermoplastics and profitability for that division with expansion of almost 3 percentage points year-on-year in the quarter. I note though that comparisons, I think, were a bit easier given that Q2 last year was down on margins. But still, like could you tell us like should we expect a similar kind of improvement in profitability in the coming quarters if volumes hold up or improve? If you see this positive mix effect still, what to expect in the coming quarters?

Difficult to say. But I think the current profitability level where we are now is -- makes sense. That's where we can be in the short term. Then, of course, we have said that the strategic direction of growth in thermoplastic is to move up in the, what we call, the product pyramid. But that move where we move into more profitable segments is something that we will need M&A to drive -- to be a large driver of. So we need to do more M&A in thermoplastic in order to move it up further in the product pyramid.

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

Thank you, everyone, for listening in for our Q2 report. Thank you, and I wish you a very nice week. Take care.

Welcome to the HEXPOL Q1 presentation [Operator Instructions] Now I will hand the conference over to the CEO, Klas Dahlberg; and CFO, Peter Rosen. Please go ahead.

Thank you, operator, and good afternoon to you all. Thank you for joining this call, and a warm welcome to the HEXPOL Q1 presentation. If you please turn to Page 2. At our Capital Markets Day in November last year, we presented our strategy for HEXPOL up to 2030. I will get back to with a few words about the strategy at the end of this presentation, but one of the clear goals we presented was to grow in thermoplastic compounding.

We have singled out that business area and created a separate business area called Thermoplastic Compounding. By that, we now have 3 business areas. It's Rubber Compounding, Thermoplastic Compounding and Engineered Products like before. As you always see, we have made some changes to our presentation to align with that new setup. I will start with the group performance and then move over to talk about the performance of each business area.

After my part, Peter will take you through the financials, and then I will make a summary of the presentation. And then we are, of course, happy to answer any of your questions. If you please turn to Page 3. During the quarter, we have kept up the momentum with an offensive approach despite market headwinds. The general market situation is still challenging, and we focus on our customers and defend our market share in a very competitive environment. In-house or so-called captive compounding, as we used to call it, it tends to increase in these market situations.

As a result of that, the captive volumes are still on a high level. But what we do believe is that these volumes have peaked by now. In North America, we see continued economic uncertainty, which has a negative impact on the overall customer demand, whereas the European market shows more stability. The situation in the Middle East, of course, impact our supply chain in all regions. The financial impact in this quarter, though, was limited, but it will be more visible going forward. But I will come back to this later in this presentation.

Looking at volume and sales prices, it's very pleasing to see that we have managed to increase our total volume in the first quarter. This is a clear proof that our strategy to keep our position in the market, protecting our market share has been successful. We have seen higher volumes to customer in many of our main segments like building and construction, wire and cable, industrial as well as automotive, though the average sales price was lower versus last year. We received recurring questions about the impact of any potential future higher prices for raw materials. The answer is clear. We will, in line with our business model, compensate for increased product costs going forward.

In the first quarter, we reached sales of close to SEK 4.8 billion. That was affected negatively by FX of some SEK 526 million. We saw positive effects from higher volumes and acquired Kabkom in Turkey, but that was offset by negative price/mix effect. We will explain more about that later. The EBIT margin came in at 14.7% with an EBIT of SEK 700 (sic) [ 701 ] million with a negative FX effect of some SEK 74 million. Earnings per share in the first quarter was SEK 1.47.

If you please turn to Page 4. I will now walk you through and summarize the quarter in each of the 3 business areas, starting with Rubber Compounding. First of all, this business area represents 69% of our total sales in the quarter or SEK 3.3 billion. The total volume -- market volume for Rubber Compounding are still on a relatively low level due to lower customer demand. As mentioned, captive volumes are still on a high level, but has slightly peaked. We have strong customer focus, securing our market share, and it's pleasing that we have managed to win captive conversion opportunities in North America, which is in line with our strategy.

What this means is that customers choose to outsource all or part of their in-house compounding to HEXPOL. We see growing volumes to building and construction, wire and cable, industrial as well as automotive end customer segments, both in Europe, but also in North America. The volume increase has a positive impact on organic sales, but the positive impact is offset by product and price mix. Coming back to the situation in the Middle East with the closing of the Strait of Hormuz is impacting our supply chain in all regions, but especially in Europe.

If you look at the map of the region, you can see several of our suppliers' facilities are actually in this specific area. This means that we see the impact both on the production itself and on transport. North America is affected to a lesser extent than Europe. And the reason for that is that they source to a large extent domestically and except for some additives that are being imported from Asia. As said, for Europe, a large part of oils used in rubber compounds and also base polymers are sourced from the Middle East. And as HEXPOL, I believe we have an advantage in our size negotiating with certain suppliers.

We also have very skilled chemists who can assist in finding alternative raw materials and suppliers faster than many of our smaller competitors. This has, in reality, already proven to be a clear competitive advantage for us. We follow the development very closely, and we take active decisions every day to mitigate the effects. As a result of the higher material prices, increased energy and transport costs, we will increase our prices towards our customers going forward. The financial effect of that is not to be seen in this quarter, however.

If we then turn to Page 5. Thermoplastic Compounding, there, we see that, that is -- represents some 23% of our total sales in the quarter, equivalent to SEK 1.1 billion. In line with our strategy presented at the Capital Markets Day end of last year, thermoplastic compounding is where we anticipate to grow. But we have to bear in mind that already with SEK 4.6 billion turnover in 2025, we are not starting from scratch. We have a good foundation to build from, and we have exceptional knowledge in the field that we can now utilize on this growth journey.

We talked just as in the overall strategy about both organic and acquired growth in this field. The combination and focus within this area is central to us. The total market for thermoplastic, we should remember, is 10x the size of rubber and our ambition to move up in the product pyramid. There we find the more advanced products called Engineered Polymers with higher profitability. Initiatives are ongoing to strengthen the organization in sales, in purchasing, but also in operations.

In the quarter, we saw growing volumes to building and construction, automotive, medical, but also to general industry end customer segments. The higher volumes had a positive impact on organic sales. If we turn to Page 6, Engineered Products. This business area represents some 8% of our total sales in the quarter or SEK 362 million. In the quarter, we saw lower demand, primarily in Sweden for wheels and gaskets. Bearing in mind, though, that the comparison from Q1 last year was on a very high level. And I also wanted to highlight that margins in Engineered Products is still on a very healthy level of 17.7%. If you please turn to Page 7. And now it's time for me to hand over to you, Peter, for the financial overview. Please go ahead.

Thank you, Klas. If I can ask you to turn to Page 8, just looking at the snapshot of the first quarter. We delivered sales of SEK 4.8 billion in the quarter with an EBIT of just above SEK 700 million and giving a margin of 14.7%. The operating cash flow, although always relatively weak in the first quarter came in at SEK 235 million, which is up 25% compared to the same period last year despite the lower EBIT that we saw in the quarter.

And also, and I will come back to this, the net debt-to-EBITDA ratio stands at about 0.88 and is somewhat higher than the same period last year, and this is due to the acquisition of Kabkom and the acquisition of the minority share of almaak after first quarter last year. If I can then ask you to turn to Page 9, looking at the financial highlights and look how this compares to first quarter last year, sales are down 11% to the SEK 4.8 million, of which negative FX effects make up 10%.

The other part is the net effect of organic sales development and the acquisitions that we've done, and I'll come back to this one in a little bit more detail later on. EBIT stands at -- drops SEK 130 million or 16% compared to same quarter last year. And of this decrease, half is relative to negative FX effects in the range of plus SEK 7 million. EBIT margin stands at 14.7% and is down less than EBIT at a negative 90 bps. And we will come back to the drivers of the EBIT decrease here later on.

If I can ask you to turn to Page 10. We'll take a look at the sales development in the quarter. And we see that the decrease of 11% in sales is driven by negative FX effects of 10%. In addition to this, we see organic sales are down somewhat at 3%, while the acquisition of Kabkom adds 2% in sales in the quarter. The organic sales development is positively affected by higher volumes, but this is offset by negative price/mix effects. The volumes are up low single digits, while the negative price/mix effect is in the mid-single-digit range.

From a geographical perspective, the American business showed 18% lower sales, out of which some 13% are negative FX effects, while Europe is on the same level as last year despite some negative FX effects related to the euro. Asia, although also affected by FX, had a relatively weak quarter in the first quarter of the year. If I can ask you to turn to Page 11, we look at the drivers of EBIT. Of the total decrease of 16% in EBIT, a little bit more than half comes from negative FX effects, more specifically SEK 74 million or 9%. If we then look at the remaining drivers impacted EBIT in the quarter compared to last year, all of the impact comes from the lower sales value that we saw in the quarter.

The gross margin in percentage is on the same level as last year and OpEx in absolute terms are also on the same level as last year. The lower sales value is affected by 2 things. One on the positive side is the higher volumes mentioned, and this is offset by negative price/mix effects. The negative price/mix effects primarily comes from volumes produced and sold that have a lower sales value in absolute terms.

If I can then ask you to turn to Page 12, we'll start to go through the 3 business areas. We're starting with Rubber Compounding. Rubber Compounding delivered sales of SEK 3.3 billion in the quarter, down 11% compared to last year. And of this decrease, 10% are negative FX effects. Acquired Kabkom adds 2% in sales, while organic sales are down 3%. The lower organic sales are seen in North America, while Europe showed sales on a similar level as last year.

From an end customer perspective, the higher volumes are seen with most end customer segments, not least the largest segments, wire and cable, building construction, industrial and automotive. EBIT is negatively impacted by negative FX effects of SEK 60 million or 10%, somewhat lower sales and gross margin, and it came in at SEK 520 million with a margin of 15.8% in the quarter.

If we then turn to Page 13, looking at Thermoplastic Compounding, as Klas mentioned, this is now reported separately. We delivered sales of SEK 1.1 billion in the quarter, which is down 10% compared to last year. And out of this decrease, 9% are related to negative currency effects. The organic sales development was positively affected by higher volumes to most end customer segments, not least building construction and general industry, but also to automotive and medical. The higher volumes were, however, offset by negative price/mix effects, resulting in a net negative 1% organic sales development. The lower EBIT is fully explained by negative FX effect of SEK 13 million, and the EBIT margin is on the same level as we saw last year.

If I can then ask you to turn to Page 14, looking at Engineered Products. We delivered sales of SEK 362 million in the quarter compared to SEK 429 million last year. The decrease is driven by negative FX effects and lower organic sales, making up about half each of the decrease. The lower organic sales are primarily seen in Sweden affected by lower demand. But as Klas mentioned, the lower demand should be seen in relation to Q1 last year being a record high quarter where many customers were delivering on high order stocks. The lower EBIT followed on the lower sales, but still very strong margins in line with last year levels.

If I can ask you to turn to Page 15, looking at working capital. As always, in the first quarter of the year, working capital is up after very strong Q4, but we continue to manage working capital efficiently. Kabkom adds working capital, but apart from this, there are no major changes to underlying payment terms or inventory buildup. If I can ask you to turn to Page 16, looking at the cash flow for the quarter. We delivered a solid cash flow of SEK 235 million, where depreciation and investments are balanced, while as always, in the first quarter, working capital is up, affected by the very strong closing that we saw during end of '25. Although first quarter is always weak from a cash flow point of view, cash conversion of EBIT during the last 12 months remains high at 107%.

And if I can ask you to turn to Page 17, looking at net debt. We have a net debt at the end of the quarter of SEK 2.9 billion and a net debt-to-EBITDA ratio of 0.88. This is somewhat higher than what we had last year, and this is mainly driven by the acquisition of the minority share of almaak as well as the acquisition of Kabkom during second quarter last year. So all in all, we continue to stand with a very strong financial position here after first quarter. And with that, I hand over to Klas. Thank you.

Thank you, Peter. So before summarizing, ladies and gentlemen, I would like to recap what we said 6 months ago at our Capital Markets Day. The strategic priorities are set and the organization is committed to deliver on these 3 pillars, as you can see in this picture, sorry. We are increasing our sales capacity, and we are also increasing the efficiency by engaging the sales force in what we call cross-selling. We have an advantage that we can offer our customers a broad product portfolio in thermoplastics.

Our newly inaugurated R&D center in Italy for rubber compounding is another example of us investing in innovative product solutions. We see an increased activity level within M&A, and I feel confident about our possibilities and capabilities to continue to grow the business in this area over time. However, the anxious and uncertain world leads to longer and more unpredictable processes. We are engaged in several active discussions. But as you all know, M&A is very much about timing. We continuously review our manufacturing footprint. So far, we have actively chosen to maintain our flexibility and having factories close to our customers since that is a competitive advantage for us.

If you please turn to Page 19. Just to give you a picture of what HEXPOL thermoplastic compounding is today, we have 13 different manufacturing sites, 6 in the U.S. and 6 in Europe and 1 in China. We are 800 employees serving some 2,400 customers with sales of nearly SEK 4.6 billion in 2025. The customer segments are, to some extent, different to rubber compounding, but automotive is 31%, household is 16% and medical is 7%. And medical is one area we anticipate to grow in. We also have products for toys, sports and leisure, which is some 8%.

If you please turn to Page 20. I would like to point out that we are aiming at product segments higher up in this product pyramid. We often get the question about profitability in thermoplastics. Moving up in the pyramid, mainly with so-called engineered polymers, we find more advanced products with a higher profitability.

If you please turn to Page 21. The new financial targets have been set, and we are targeting an average EPS growth of 10%, and that is an important measure going forward. We were clear at the Capital Markets Day about that we will see a softer development short term due to the overall market situation, but we are totally dedicated to this target over time. At the AGM this afternoon, our Annual General Meeting, the Board will propose a new long-term incentive program for an extended group of key managers within the HEXPOL Group, and that is based on our EPS growth the coming 3 years.

If you please turn to Page 22, I will summarize the quarter. So overall, we saw higher volumes and meaning that we were defending our market position. We could see growing volumes in our main segments in most geographies. That has a positive impact on organic sales, but that was, as explained during the call, offset by negative price and mix effects. Captive volumes still on a high level, but we believe they have likely peaked. We have secured our market share, and we are winning captive conversion opportunities in North America, which is very positive.

The closure of the Strait of Hormuz creates imbalance in the supply chain, but we handle that efficiently by our best-in-class purchasing, innovation and engineering capabilities. And the financial impact in Q1 has been very limited. And going forward, we still have a clear focus on the 2030 agenda. So by that, we conclude the presentation of the first quarter, and we open up for your questions.

[Operator Instructions] The next question comes from Henric Hintze Hints from ABG Sundal Collier.

This is Henric Hintze at ABG. So I wanted to first ask about automotive. You stated that volumes grew in the quarter. Was that the first quarter of growth in a while there? And if so, why do you think that the mix effect was still negative here in the quarter, considering you've previously sort of explained the negative mix effect with automotive volumes still being down? And is the mix effect that we still have here something structural or temporary?

Okay. Henric. So when it comes to the automotive growth, we are speaking about low single digit, but still if we look at the forecast from S&P for 2026, it seems like the overall production of light vehicles would be pretty stable, let's say. So we don't anticipate a big growth in that segment. But still, we had some growth, I said.

And Henric, Peter here. I can add a little bit to your question regarding mix. What we see in the quarter is a combination of customer mix as we have different earnings profiles for different customers. So that's an impact and also to a lesser extent, some product mix. That product mix can be within the end customer segment, but it can also be between the end customer segment, and we saw that in this quarter.

Okay. But do you think that is a temporary effect then this mix effect?

Yes, that's -- I don't think it's a structural change. It's depending more on, I would say, primarily which customers take more or less volumes in the quarter.

Okay. Very good. And maybe one more question from me. You mentioned that you've taken some new customers in North America and are taking over their internal compounding operations. Can you give us any indication on how large these new customers are?

Well, it's -- as you know, we never speak about volumes. But I must say, just to elaborate a little bit on that, that there is an opportunity when our customers look at renewing their equipment or maybe even the whole plant, that's when we have a discussion with them about them outsourcing this. We speak about usually bigger vertical integrated customers. And given the size of some of them, it's -- even though it's very vague, but it's quite interesting volumes for us to get that in-house with us.

The next question comes from Agnieszka Vilela from Nordea.

I have a couple of questions. Maybe a follow-up on the captive conversion in the U.S. Can you tell us something about the profitability profile for that business that you're taking in?

Well, it's -- I would say that volume is not deviating very much from similar volumes in the same, let's say, segments.

Perfect. And then also, Klas, I think you wrote in the CEO word about North America improving towards the end of the quarter. Can you tell us what's behind it? And also if there is risk for any prebuy by your customers now given that we will see some price inflation?

No, you're right that we did see a good finishing of the quarter. But like you say, I mean, it's much too early to speak about the trend there, but it's very positive that, that is the case. And given the situation we're in now, it could be, let's say, a prebuy effect. This we don't know. Bearing in mind, though, when we speak about rubber compounding, this is something you need to -- you can't put that on the shelf. Of course, our customers can produce their products and put that on the shelf. But...

Fair enough. And then last one really. Can you remind us how the input price inflation really impacts your operations? When will you see higher costs? And is there a lag between getting the compensation? And also will you get -- do you expect or do you have ambition to get 100% compensation for higher costs?

Yes, thank you for asking. So these -- the increases came very fast, I could say, but we are also very fast in adjusting that. And we have to get compensated to 100%. So that's what we're aiming for, both starting actually already from last month with the price increases.

And if I can add, I would say, during first quarter, we didn't see any major movements on the raw material. So that will come second quarter and onwards. And when it comes to timing and effect, as Klas mentioned, some price increases have already been issued. There is always a little bit of a time lag. But when it's these kind of movements, we are quite quick to go with price adjustments. So it will definitely be implemented here during the second quarter.

The next question comes from Johan Dahl from Danske Bank.

Just 2 questions. Firstly, on the -- I think, Peter, you talked about the mid-single-digit decline price/mix on the rubber compounding side. To what extent is that sort of discretionary decisions taken in HEXPOL to sort of defend market share, which you talk about in the reports you've done successfully. And to what extent is it just the different customers, different types of products? Just curious to see that dynamic in the first quarter.

Yes. Thank you, Peter here. There is a certain element of discretionary pricing to protect or take market share with some customers. But if we talk about the price mix effect in the quarter, it's primarily the mix effect. So we talk about customer mix or product mix. That is absolutely the majority of the impact that we see in the first quarter and to a much lesser extent, what you would call discretionary pricing.

All right. And on the -- back to the raw materials, just to sort of -- we're hearing significant volatility, obviously. Would you say that your visibility when it comes to how you lined up the procurement here in the second quarter, are we talking sort of mid-single-digits effect on top line for HEXPOL? Or is it even up to double digits? What can you say there?

So Klas here, Johan, that when we see raw material, we can see even higher than mid-single digit for sure. And it's also I would say, a matter of securing availability also for us. So it's not -- it's a price matter, but it's also making sure we get the material. And just one example, oils, 1/3 of a rubber compound we use oil and one refinery in Qatar was actually bombed in the beginning of the war where we were supplied by oil.

So we had to very fast find an alternative solution. But again, I find there, our organization is very much on their toes to find alternatives. So it's price and it's significant because it's raw material, it's transport and indirect also energy. So -- but I think we managed quite well to compensate for this. I think this is, in a sense, if you understand me, our home ground to handle this with our business model.

Got you. But just hypothetically, if we talk about sort of double-digit price inflations on your products, when you sort of look at how you plan your production setup, what would you say the elasticity is among your clients for that type of price change?

That's extremely hard to answer, Johan. But of course -- and just speculating, of course, there is a limit to everything because our customer also needs to, how do you say, compensate. So if -- should this be very long term, it will have an impact, I guess, on the overall demand. But the customers usually understand, to be honest, the increases. It's very transparent also the pricing of raw materials. So it's usually accepted by our customers.

[Operator Instructions] The next question comes from Agnieszka Vilela from Nordea.

I have one follow-up, and this is on the merger and acquisitions landscape. So the last acquisition you made, it was 1 year ago and the impact on your growth is fading now. So can you just tell us what you see right now when you look at the potential targets? And if the Middle East crisis changed the outlook for making a potential deal to any direction?

All right. This is Klas again. So as you rightly say, our last acquisition was Kabkom in Turkey and by the way, contributing very positive to the overall result of HEXPOL. But as I stated, we have a much higher activity right now when it comes to M&A, and we have very interesting targets also in our pipeline, and we have discussions ongoing. But you also know that in due time, we will, of course, when we close a deal, we will inform about that.

And before that has happened, we cannot say much more. But our feeling or not only feeling, it's the fact that we see a higher activity right now. The Middle East conflict has not so far had an impact, but coming back again, should this be long term, then it has an impact, I guess, on the result of the companies we are looking at, and that could influence the willingness to sell at this point, but we haven't seen that yet.

The next question comes from Mats Liss from Kepler Cheuvreux.

First, coming back to automotive there. And if you just could remind me there how the content you offer well, is impacted by the changeover to electric vehicle cars, if you have -- if there is any substantial difference there, please?

So this is Klas again. So when it comes to the content, in general terms, a battery electric vehicle has actually a higher content of both rubber and thermoplastic. But -- so that's a fact. And one reason for that is everything that has to do with battery casing, but it also is a fact that you need much more insulation in a battery electric vehicle.

So -- and therefore, you need more weatherstrip, more vibration, what you say, anti-vibration parts in a battery electric vehicle. Usually, they use natural rubber for that. So that's -- that's positive, if I may say so, for us. When it comes to thermoplastics, it's often used in the interior of the car. So that has -- there is no big difference between combustion engine and a battery electric vehicle.

And just adding to it, electrification when it comes to cars and in general society is positive for us because it drives the end customer segment, wire and cable because the energy needs to be transported from source to where it will be consumed. So that goes for charging stations for the automotive as well.

Okay. And also about the raw material impact, is it about the same sort of impact between the 3 business areas? Or if there's any of them affected more?

No. Peter, I would say it's, generally speaking, a very similar impact regardless whether it's rubber and thermoplastic or engineered. Only difference is engineered uses a little bit less of the compound, of course, in rubber and thermoplastic, but the increase is similar across the 3 segments.

But also from a geographical point of view that right now, we feel that in North America, they have more domestically sourced raw material. So at this point, they are affected to a lesser extent, I would say.

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

I just want to thank you all for participating. As I said, we have a clear focus on the 2030 agenda, and that's what we work on going forward. And also thank you, of course, for your questions, and I wish you all the best. Thank you.

Welcome to the HEXPOL Q4 2025 presentation. [Operator Instructions] Now I will hand the conference over to the CEO, Klas Dahlberg; and CFO, Peter Rosen. Please go ahead.

Thank you, operator, and good afternoon, everyone. Thank you for joining this call, and a warm welcome to the HEXPOL Q4 presentation. This is Klas Dahlberg speaking, and I'm here together with our CFO, Peter Rosen.

If you please turn to Page 2. I will start with a business update, and Peter will take you through the financials, and I will then summarize the quarter. And after that, we're happy to answer your questions.

If you please turn to Page 4. I will start by going through the Q4 demand and sales. If we look at the quarter, we managed to increase the volumes, both in Europe and in North America. We maintained our strong market position, especially in compounding in a very competitive market situation. To do so, we are investing in our sales force to pave the way to be able to grow organically.

Building and Construction, Wire & Cable and also medical showed increased demand and compensated for relatively soft automotive market. Automotive was affected by holiday closings at our customers, the same pattern we saw at the end of last year.

In general, sales was negatively impacted by FX and a weaker mix. But we have actively chosen to gain and protect volumes staying close to our customers during Q4. Part of the volume we gained is so-called tolling. That means that our customers, mainly tire manufacturers, supply the material, and we mix their material. This gives us a positive margin contribution, but the total sales value of that is lower. The European -- and this is not a new business in anyway. It happens regularly.

The European market is relatively stable despite uncertainty, whereas North America continues to be soft. But we are beginning to see signs that in-sourcing or as we say, captive conversion is stabilizing both in Europe and in North America.

If we look at Q4 performance in the quarter, we delivered sales of some SEK 4.25 billion, which is a decrease of 9%. That was mainly driven by a negative FX effect of some 9% or SEK 436 million. The acquired companies, Piedmont and Kabkom added some 3% in sales, and that was offset by a lower organic sales of some 3%. We'll come back to that later in the presentation. Compounding Europe showed rather stable organic sales.

We reached an EBIT of SEK 508 million and a margin of 12%, and that was impacted negatively by FX of some SEK 61 million and an unfavorable mix. The operating cash flow continued on a very good level. We reached more than SEK 1 billion in the quarter. And that is a result of -- we are constantly working on lowering our working capital.

The HEXPOL Board proposes an ordinary dividend of SEK 4.20 per share, which is the same level as last year. As a background, I can say we have a very strong balance sheet, allowing us to do that. And we have also the full support from the Board when it comes to our strategic agenda going forward that I will come back to.

When we look at sustainability, it's still a focus area for us. In 2021, we set a target to reduce the carbon footprint from our own energy consumption by 75% at the end of 2025 compared to the level of 2018, '19. We have been very focused on both reducing the overall energy consumption, but also using green electricity. Through these efforts, we managed to reach 80% reduction in total. And we are now working on setting new sustainability targets that we will launch during Q1 this year.

If you please turn to Page 5. Looking at the different business areas, starting with compounding. During the quarter, we managed to increase the volumes, both in Europe and in North America. Sales of SEK 3.9 billion was impacted negatively by FX of 9%, but also by the mix. In general, we saw a softer demand in North American market, mainly driven by economic uncertainty, whereas the European market was more stable. We saw increased demand in building and construction, Wire & Cable and also in medical. And automotive was in line with last year. Raw material prices were relatively stable. The lower operating margin was affected by unfavorable mix and also OpEx in relation to sales. We come back to that or Peter will come back to that.

With our new leadership in the U.S., Rubber Compounding Americas is taking the next steps, capturing and growing the business with a high degree of customer focus. And we are making progress now in gaining new customers, contracts for captive conversion, which is in line with our strategy.

If I switch over to Engineered Products, sales reached some SEK 340 million. There, we also had a negative FX impact of 8%. And if we adjust for that, sales was in line with last year. EBIT increased compared to last year and reached more than 20%, which is very positive.

If you please turn to Page 6. M&A is an important focus area in our strategic agenda for 2030. And we have the financial resources to accelerate acquisitions. The uncertainty in the market has, however, impacted the M&A activity level, but we start to see an increased activity even though it's from a relatively low level. We showed this slide that you see now during our Capital Markets Day in November. And I just want to reassure you, we have a very well-defined process for acquisitions, and we also have an extensive short list of interesting companies for the group.

If you please turn to Page 7. Even though we have been experiencing uncertainty in the market for some time now, we believe that this will change. Our strategic plan for 2030 was presented in November, and the plan is set and the direction for the coming 5 years, and that is what we are actively working on right now. As mentioned, we can already see positive signs when it comes to captive conversion in North America, and we are investing in a new R&D center located in Italy and where we gather expertise in our compounding organization.

I have also already mentioned signs of increased activity in M&A. We are investing in automizing our rubber compounding, starting with one plant at the end of the year, which will give us much higher productivity. Saying that, we are, of course, following the development in our different markets very closely.

With our toolbox, we know we are able to adopt our footprint if that would be necessary. Right now, however, ladies and gentlemen, we have actively decided to capture new business and to keep our current volumes and even increase them. And as you know, Q4 is a bit special in the sense that we have the early closings of our customers during December. And if we look into Q1, without giving any future outlook since we don't do that. But normally, Q1 is a more normal quarter, if I may say so, where we don't have these shutdowns, and we expect a different outcome also when it comes to the margin. If you turn to Page 8, it's time for the financial update, and Peter will start with the sales development, I believe, in Q4.

Thank you, Klas. If I can ask you to turn to Page 9, looking at the sales development in the quarter. As Klas mentioned and you've seen, we delivered sales of SEK 4.3 billion in the quarter, which is down 9% compared to the same period last year. At the same time, in this quarter, we had a negative impact from currency effects of the same 9%. And at the same time, we saw organic sales development with a negative 3%, offset by the acquisitions of Kabkom and Piedmont that added 3%. Included in the negative sales development in the organic sales development, we saw higher volumes with low single-digit increase compared to last year, but this was offset by negative price mix effects of mid-single digit, and I will come back to this later in the presentation.

From a geographical perspective, Europe showed a small decrease in reported currency, but in local currency, Europe showed a small growth as did Asia. Americas showed a bigger drop compared to last year, the large part explained by the negative FX effects, but also in local currency, sales were somewhat below last year levels in the quarter.

If I can ask you to turn to Page 10, just taking a look at the financial overview for the quarter. We delivered an EBIT of SEK 508 million versus an adjusted EBIT last year of SEK 631 million. Half of this decrease when it comes to EBIT is explained by negative FX effects. And I just want to make a comment here. We're going to use the term adjusted EBIT throughout the presentation, but this is related to last year only. We do not have any onetime adjustments here in 2025. So it's only in 2024.

EBIT in the quarter came in at 12%, which is below what we did the same period last year. Main reason for this is somewhat less profitable mix and OpEx in relation to the lower sales that we had in the quarter. At the same time, we delivered a very strong cash flow of SEK 1 billion in the quarter, which is double the EBIT for the same time period.

If we can ask you to turn to Page 11, just taking a quick look at the financial highlights for the quarter. Looking at the development compared to the same quarter last year, we see that sales came in at SEK 4.3 billion with an EBIT of SEK 508 million below last year. And at the same time, we saw an EBIT margin at 11%.

And if I can then ask you to turn to Page 12, looking at the drivers of that EBIT development. Of the total decrease in EBIT of SEK 123 million, SEK 61 million of that is related to negative FX effects. Removing those and looking at the underlying drivers, the main driver of the lower EBIT is the lower sales volume. The gross margin percentage is on the same level as last year. The lower sales value is affected by 2 things.

On the positive, we have somewhat higher volume, which is in the range of low single-digit impact. This is offset by negative price/mix effects in the range of mid-single-digit impact. The negative price/mix effect primarily comes from volumes produced and sold that have a lower sales value in absolute terms. The lower sales value and subsequently lower gross margin in absolute terms follow through to the lower absolute gross margin. There is also a third smaller item affected the gross margin percentage, but this one affects positively.

Sometimes we are asked by customers to produce on their behalf and where they give us the raw materials to produce. We then produce but on the charge for our work and margin. This gives a low sales value but high gross margin percentage. And we did see some of this volume in this quarter. However, this is not volume that we can plan for as it is of ad hoc nature. And last year, we basically didn't have any of these volumes. So it's something that we've had this quarter, Q4, but not last year.

Our OpEx increased some compared to last year, mainly driven by acquisitions and salary costs and also some more IT costs since we're implementing a new ERP system in the U.S.

If I can ask you to turn to Page 13, taking a look at HEXPOL Compounding. For the quarter, we delivered sales of SEK 3.9 billion, which is below what we did the same period last year. The decrease in sales corresponds to the negative FX effect of 9% that we saw. We recently acquired Kabkom and also Piedmont, added some 3% in sales, while organic sales are down 3%. The lower organic sales from a geographical point of view are seen in North America, while Europe showed sales on a similar level as last year.

And from an end customer perspective, the higher volumes are seen with building and construction, wire and cable, but also, for example, medical. Automotive volumes are on the same level as we saw last year.

EBIT for the segment came in at SEK 439 million with a margin of 11.2%. And the decrease in EBIT is driven by the negative price/mix effect and its impact on the sales value.

If I can ask you to turn to Page 14, taking a look at Engineered Products. Adjusting for the negative FX effects in the quarter, sales were in line with last year levels. But at the same time, operating profit came in at SEK 69 million with a very good EBIT margin of above 20%. Both EBIT and margin is well above last year levels.

If I can then ask you to turn to Page 15, taking a look at the working capital. We continue to manage working capital efficiently. Despite adding Piedmont and Kabkom in this year, working capital came in below 8% of sales. And as before, there is no change in underlying payment terms regardless of whether it's customers or suppliers.

If I can then ask you to turn to Page 16, looking at the operative cash flow in the quarter. As mentioned before, we delivered a very strong cash flow of SEK 1 billion, primarily driven by efficient management of working capital, which is down more than SEK 500 million, while keeping depreciation and investments balanced.

And then if I can ask you to turn to Page 17. Looking at the net debt, it stands at SEK 3.1 billion, SEK 3.2 billion at the end of the year with a net debt-to-EBITDA ratio of 0.9. It's somewhat higher than last year and this is driven by the acquisition of the minority share of almaak as well as the acquisition of Kabkom during this year.

So all in all, when we close 2025, we continue to stand with a very strong financial position. And with that being said, I hand over to Klas to summarize the quarter.

Thank you very much, Peter. If we look at the volumes, we could see an increase in the quarter. And as I said, that was, let's say, a deliberate move from us to protect the volumes in our different markets. We believe we will benefit from that when the markets are coming back. Europe showed a stable sales compared to last year.

In North America, the demand was somewhat lower and I guess we see it's affected by a high uncertainty related to not the least the U.S. trade policy. Engineered Products was stable with a very good profitability. We managed to reach and actually go above the set target when it comes to our carbon footprint. And we continue to focus on our strategic agenda for 2030. And I think those 3 pillars is very essential for us, about organic growth, M&A, but also operational excellence or efficiency. And despite the fact that we have been experienced uncertainty in the market for some time, we believe that this will change gradually, as I said before. And therefore, the plan we have set, the strategic plan for 2030 is essential for our -- for growing the company.

And I also mentioned, we see -- starting to see progress, and that will contribute to our overall performance. And I want to emphasize again that we are, of course, following the development in our different markets. And we showed also in '24 that if necessary, we will adjust our footprint, but we believe we have a competitive edge. If we are able to be flexible when it comes to increased volumes and also if that would come short term, let's say.

So by that, we conclude the presentation of the fourth quarter, and we open up for your questions, ladies and gentlemen.

[Operator Instructions] The next question comes from Henric Hintze from ABG Sundal Collier.

This is Henric Hintze, ABG. So this quarter, except for the FX headwinds, seems very similar to last Q4. So I'm just wondering, so far in January, have you seen automotive [results] reopen as expected, like we saw last year? And would it therefore be reasonable to assume that the margin weakness here is sort of isolated to Q4 like it was in the previous fourth quarter?

Henric, thank you for the question, Klas here. So the pattern we see right now is actually very similar to last year. So it's typical that they lower their, let's say, stock in December and then we get the push effect in January, and that is the same pattern we saw last year.

Yes. Okay. Very good. And then another question for me. You mentioned that volumes are up and that automotive is in line with last year, but organic growth was still negative due to mix. So what mix effects drove this except for the negative effect from automotive, which shouldn't have affected if it's -- if automotive was in line with last year?

Henric, Peter here. The mix effect is driven basically by 2 things. One, there is a relative shift from automotive into some of the other end customer segments. And as we've said before automotive is a very good customer segment for us. And generally speaking, it's also a high-value products going into automotive. So that has a little bit negative impact on the mix moving over to other end customer segments, but also within end customer segments, there's somewhat negative mix effect in the sense that we are also taking volume with lower sales value. So it's a combination, a little bit between the end customer segments and within end customer segments to protect the customer...

Yes. So when it comes to these volumes with end customer segments, is that for competitive reasons, then you mean that you've had to take lower prices or...

It's more primarily actually taking other volumes than lowering prices, but taking volumes that -- we've taken just to protect the relationships and the market positions.

I think it's important to emphasize, Henric, that I mean, we never in general, lower prices, let's say. It's a very strategic decision to keep, let's say, certain customers or keep certain volumes with a certain customer. So that's what we're aiming for.

The next question comes from Johan Dahl from Danske Bank.

On that same topic, talking about sort of defending share within those customer segments. How much would you say are you willing to commit to defending that? I mean if you look on the volumes that you've taken in Q4 and looking into next year, sort of how flexible are you likely to be on the pricing to sort of defend or possibly increase market share?

Johan, Peter here. I think 2 aspects to the answer that question. One, Q4 is always a very special quarter in the sense it becomes very, very short. And this year, we saw even more extended customer shutdowns in December compared to last year. So it became very short and quite competitive quarter. And that was one of the reasons that we decided to take volumes to protect customer positions and market positions.

How that translates in going forward, as Klas said, that's a strategic decision. It does not mean automatically that we will continue to do that when we have more normal quarters with more normal volumes and customer patterns.

All right. Got you. Just to clarify, these tolling volumes, which we accepted this quarter 4, but not last year, if I understood you correctly. Is that included in the references you make to organic volume performance for the group year-over-year, which you say is slightly positive?

Again, 2 aspects to your question. First of all, it's actually, it's more on the customer side, if they ask us to take these volumes, then we are very often happy to do that. So it's not that we accept or not. It's more if the customers have the need, and we are most often most willing to do that and support them.

Second part of that question, is it included in the volume? Yes, it's included in the volume number. But it doesn't have a very large impact on the volume increase in itself. It just has a more impact on the gross margin percentage explanation because fairly, small volumes in relation to the totality, but it has an outside positive impact on the gross margin percentage.

All right. On the OpEx cost increase, you talked about strengthening sales efforts, et cetera. Again, on that question, how do you aim to invest in that in sort of in the coming years? How much money are you committing to that to drive volumes better? I mean we're seeing signs of inflating at the moment, but looking into next year.

So it's very different, of course, where we are in Europe or in North America. But for us, it's essential to be present in the market. And we have done, for instance, one investment in a key account in Europe to be able to follow some of the bigger players. But I don't have a number for you, Johan, but we see that as very crucial for the business, of course, to have a strong sales force.

And if I can add, Johan, it's not going to change the OpEx picture of the company. It's targeted and staffing.

Okay. Final question. You talk about wire and cable, construction and medical being sort of positive compared to the average in the group. Is that positive for your mix neutral or slightly negative.

Peter here again. If we look at it from an outside point of view, it's probably balanced. So I wouldn't say automatically that, that means a shift in the mix effect. It's more related to, okay, within those segments, how do we move which volumes do we take?

So that comes back to...

The next question comes from Andres Castanos-Mollor from Berenberg.

Just about any actions that you may be taking to -- regarding the strength of the Swedish krona. Do you plan to maybe diversify your funding and maybe start borrowing in dollars, maybe this increases your appetite to acquire businesses in Europe rather than the U.S.A. Yes, any thoughts about actions on that regard. And if you think this is a phenomenon that could continue over the long term.

Andres, it's Peter here. When it comes to the SEK, U.S. dollar, Euro development, I think that I'll leave that to politicians and somebody else. However, that being said, when we look at our currency exposure that we have, it's primarily translational FX effect. So very few transactional FX effects. Since we buy, produce, and sell in local currency. So the effect that we have is primarily translational FX effects.

And when we look at the way our funding is structured, it's primarily in SEK. And then we have local -- certain local funding as well. So of course, we monitor it, but it hasn't triggered with us yet any change in it, but we are looking at it and monitor if we should have funding in other currencies as well. But at the moment, we are comfortable with the way we have our funding structure.

[Operator Instructions] The next question comes from Gustav Berneblad from Nordea.

It's Gustav from Nordea. I thought maybe just to build on these tolling volumes that you comment on are coming more at [ad hoc]. I mean is there a risk that this is a structural change we are witnessing here in the market and that the -- that we should have a look at the longer-term gross margin, maybe we should expect it to come down or anything there?

Gustav, this is Klas. I would say not at all. The background for the tolling volumes is usually when some of the bigger, let's say, tire manufacturers, if they have a change in production, if they build a new plant, for instance, or if they do maintenance on their equipment. That's when they ask us usually to do the tolling. And given the situation we are in right now, it fits quite well as Peter also explained to take on that volume.

But that is -- that would not, let's say, change our structure or anything. It's just something -- gives us coverage for our cost in our plans. So for us, it's -- I would say it's a win-win situation.

And if I may add, historically, we've had these volumes come and go. Not driven by us, but driven by customer needs. It's just that in Q4, it became more visible because from a sales volume perspective, it's a short quarter.

That's very clear. And then maybe just to build here on your comment on seeing this pattern that we saw last year of a catch-up in January from automotive. Is there anything -- I mean, when you look at it, is there anything that speaks against the better mix here in Q1?

We're not going to give a forecast. But as Klas said before, the normal pattern is weak margins in gross margins in Q4, driven by a short period low volumes. And typically, we see volumes come back in January because the orders that didn't put through in December, they typically come in January. And so far, that's the pattern we see this year, same as we saw last year.

Okay. That's very clear. And then just sorry, one more here. When you look at your the competitive landscape and so forth. I mean are you seeing among smaller players, I guess, any signs of bankruptcies or similar or...

Simple answer is, no. We don't. They are still there. They seem to prioritize volumes ahead of profitability, but they are still there.

Okay. So it sounds like you are really experiencing price pressure in the market or...

Some of the competitors, they've been doing this for more extended -- much more extended than this quarter. But since you asked specifically about the smaller competitors, they are still there.

Okay. But you don't interpret it as or see that price increase or price pressure in the market has increased here in the last quarter or....

I mean we've seen certain price pressure throughout the year, and we've spoken about that during the other quarters as well. What makes Q4 more special is that it's a very short quarter. So then if you need to -- want the volume, then it becomes even more competitive because of the calendar effect in the sense that customers are closing down.

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

So I just want to thank you all for participating, and wish you all the best and see you after Q1. Thank you so much.

Good afternoon, and a warm welcome to HEXPOL's Capital Markets Day in 2025. My name is [ Rod Alven, ] and I will be your moderator for today.

Today, the company's management will provide an update about the strategic direction of HEXPOL, the operational performance as well as the new financial targets communicated earlier today. We will present in-depth insights into the business segments, the market characteristics and future growth opportunities.

This is today's agenda. The first speaker out is CEO, Klas Dahlberg, talking about the next phase of growth and value creation. Then Magnus Berglund will walk you through the M&A strategy. And then we will do an in-depth presentation about the business segments. And first out is Ralph Wolkener, Carsten Ruter and Ken Bloom, who will present the rubber compound section. After the break, Jan Wikstrom will walk you through the thermoplastic compounding and engineered products. And the last but not least speaker is the Deputy CEO and CFO, Peter Rosen.

There will be a fireside chat and a short Q&A session after the first CEO presentation and a longer Q&A session that wraps up today, opening up for questions both from the room as well as online. [Operator Instructions] Finally, a closing remarks from CEO, Klas Dahlberg, who summarizes today, and the CMD will end at the latest 5:00 p.m. CET.

The full program will be recorded and an on-demand version available on our website tomorrow, where you can use the same URL link as today.

So without further ado, please, Mr. Klas Dahlberg, you will start to talk about the next phase of growth and value creation. So welcome on stage.

Thank you, Rodney. The one and only, it was not me calling him, by the way, earlier on.

So did you know that the size of the global polymer market is around 220 million metric tonnes, corresponding to a value of USD 800 billion. And 1/3 of that is compounded polymers, and that's where we play. So this afternoon is about how we will capture a bigger part of that market. I'm here together with our group management team. And as you can see, they're all excited to present their respective areas. After today, you will know more about how we intend to grow organically. Ken will show you one example of what's happening in the U.S. when it comes to the rapid growth of data centers and what that means to our business. We will also speak about our accelerated M&A agenda, and it will be Magnus presenting that. We have one important subject when it comes to our focus on efficiency, and that's related to production, and how we can optimize production within rubber compounding. And it will be Carsten speaking about what we call Mixing 5.0. So you will learn more about what that means. You know this morning, we communicated our new financial targets and earnings per share will be an important measure for us going forward.

By that said, ladies and gentlemen, fasten your seatbelts and also from my side, a warm welcome to the HEXPOL Capital Markets Day. When it comes to growing, that is not new to HEXPOL. We have shown growth since we were established back in 2008. We were listed on the Stockholm Stock Exchange. At that time, we were some SEK 3 billion. And last year, we ended with some SEK 20 billion. And during this period, we acquired more than 45 companies. And these 45 companies are today the base for our further growth. And you can also see that we have paid a dividend totally of more than SEK 12 billion in this -- during this time. With that said, I believe we have a very strong foundation to grow further. And we have 52 companies around the world. And we have more than 5,000 employees also, skilled employees, fantastic people. I had the privilege of meeting many of them when I visited the company since I started last year in July.

We are, as you know, a very decentralized organization. So we have our head office in Malmo and often that sign on the -- our building shows HEXPOL, but that's a very lean organization. And that's something we decided it should stay that way because we should perform our business where our customer is. And that is -- speaks for a decentralized organization. And that also gives an ownership and, let's say, respect to the business being out there. You can also see we reached an EBIT last year of SEK 3 billion. So from a financial point of view, and Peter, you will speak more about that at the end, we feel we have a very solid foundation, like I said. Our mission is clear. We engineer high-quality polymer solutions, which improve customers' applications every day and everywhere because it's important, as I said, that we are close to our customers with short lead times. That's one of our, let's say, secrets in our recipe, if I may call it that.

So speaking about high quality, I think everything starts and ends with quality. What we do has to be very high quality. We deliver into the automotive industry. We deliver into medical. So that's what our customers expect from us. And we are a solution provider. So it's not only about the material, it's also the solution that we bring to our customers connected to this -- the products we deliver. Our vision is to be the preferred solutions provider for sustainable polymer applications, sorry. And saying that, what we do, we think long term. So the plans we will share with you today, that's not a quarterly report. That's what we will do the coming 5 years. That is the plan we are showing you.

Our purpose is, we have this saying, we create a material difference. That means that we take pride in what we do. It's important for us to be the market leader in the segments that we serve. We challenge ourselves every day to discover new opportunities and to drive sustainable growth. And creating a material difference also matters when it comes to attract and retain talent in the company.

Do you know what this is? This is what we do. We engineer high-quality polymer solutions. And I thought I'd just give this a short picture of what do we actually do because sometimes I have a feeling that no one knows that really. So we have a compound at the end, as you can see. So we produce a highly engineered compound to enhance performance for different applications. And to do that, we use one or more polymers to the very left. And then we add certain additives to get different properties. One could be, for instance, flame resistance, UV resistance and then we add fillers. And in some instances, we also add color. And color, I understood, is science in itself, how you get the right color to the right product. But anyway, combining this gives us a compound, and that's what we're selling. We deliver that in different forms, very often as pellets. When it comes to rubber, it could be like strips, so-called strips or slabs, and you can see that out in the exhibition also. This sounds very easy, doesn't it? I mean you mix this and thing is done. But I would like to compare that with the restaurant. In a restaurant, you can buy ingredients, you cook it, and you serve a certain dish. But the thing is if you want to earn a star or 2 or even 3 Michelin stars, that's a different ball game because that means that you have to have the best ingredients, you have to know your recipe very well, you have to cook it exactly the right way. And then also, it's not enough to only serve a good meal, it's also about how you treat your customer when you enter the restaurant and so on. And that's why I think HEXPOL earned the #1 position in Europe and in North America because we know that business, and that's what we do. Now it was longer than I anticipated.

But anyway, this you have seen many times, our business model. And I would say it's proven to be a very solid basis for driving profitable growth. We have leading expertise that develop specific solutions together with our customers. I mentioned that our business is local, and I think that's also key. We have to be very close to our customers to shorten lead times. Our operation is flexible and also efficient. And the products we do are made on customer orders. And that means also that we have a very low working capital, as you will see later on. Welcome. We don't hear that you're coming.

So we have a strong and long customer relations. And that's also important. I spoke about these recipes. So sometimes and many times, we own the recipes that our customers use. And then that creates a certain barrier also to enter into this market. And speaking about the market, it's still fragmented. So there is room for us to do further acquisitions. When it comes to driving sustainability, we continue with that, and we have set ambitious targets, both for our own CO2 footprint. And the target we have set is to reduce that by 75% by the end of this year compared to 2018 and '19, and we are very close of reaching that. But that's not enough. We also look at our products, of course, and we have a portfolio of green products that use bio-based materials, but also recycled raw materials. And you will hear more about that from the different business areas.

As a result of our new strategy, we're also working on new sustainability targets, and we will present them during Q1 in next year, 2026. These are the financial objectives until now, and you know them, it's sales growth above 10%, and operating margin above 17% and an equity asset ratio of above 30%. And when you look at this picture, I must say, on the one hand, I think we show a resilience given the market situations that our customers are in, that is also affecting our business, let's say. But I want to be clear about one thing. If you look at the sales growth, we can see that, that has not been positive in the recent years. And that is something that we want to change with this strategy that we present to you today.

Let us switch focus and look ahead. So what will we do during this 5-year period? HEXPOL NXT was actually the theme. We gathered all our 90 top managers in the group, and we met all in Malmo, the second capital or maybe third of Sweden, I don't know. It's a nice place. So we shared all our plans. And I must say that seeing the 90 managers and when we met, and when we left, there was somehow, yes, we're going to do this. And I felt that very confident leaving that conference that we want to do this journey now together. And I think that's a good basis. There are several megatrends supporting us and fueling growth, both in rubber compounding, I should say, but also within thermoplastics. And just to mention a few of them, you will hear more about them later on, but electrification is still very high on our agenda. We have spoken about electric vehicles, what that means for us. But we also see now the trend for electrical grids being renewed, not the least in the U.S. And that's also partly connected to the data centers, how you provide them with power, but it's also connected to sustainable power like wind and solar, you need to connect them to the grid. So there is a huge potential for us when it comes to wire and cable. Then just to mention another one, material replacement that lightweightening is an issue when it comes to automotive and aerospace. And there, we can find solutions to replace, for instance, metal with different compounds.

We have put quite a lot of effort into analyzing the total market, and that's where I got the figures I told you about from the beginning, the 320 million metric tonnes. And I don't know if that says very much, but it's, I would say, a lot. But the vast majority of that 70% goes directly into product. So it's a polymer that is not being compounded with any filler or anything. It just goes into product. But still, 1/3 of that, as I said, is being compounded. And then that leaves us with some USD 240 billion that could actually be a market for HEXPOL. But with that said, also here, we see a big part of that is so-called commodity polymers. And that they are being used in, for instance, packaging material. And that's the base of this triangle. That's not where we want to play because there it's more about volume and not so much about profitability. So we want to move up in this triangle to get higher margins, I would say. And engineered polymers and high-performance polymers together represent some USD 75 billion. So that's quite a market for us.

I think this slide, ladies and gentlemen, is quite important because it gives you an idea about our next phase of growth and value creation. And let me just give you some highlights. We want to increase our activities when it comes to growing organically. Saying that, we target profitable segments with structural growth. So we will also increase our sales capacity in certain areas. We will also invest into research and development to focus on new products that could give us possible business ahead. We have been doing more development than research until now. The last point, captive conversion, I am not sure if you're familiar with that, what it means, we will get a good explanation of that, but that's when our customers have in-house compounding, and we see an opportunity also to grab the part of that business. The middle part is about our raised M&A agenda. And here, we will, of course, protect and strengthen our market leadership that I mentioned in rubber compounding, but there are still possibilities for acquisitions within rubber compounding, both in Europe but also in the U.S. Then when it comes to thermoplastics, that's where we are aiming to build a broader base. So that's where we will put a lot of focus when it comes to M&A. I haven't mentioned Engineered Products, but we see also there certain segments where we believe we can do acquisitions, especially within wheels.

Last but not least, we have done a market study when it comes to Asia, focusing on India and China. And there is a big part of the market I mentioned before, is actually in Asia. And it's also a very -- it's a region also where the business is growing quite strongly. But we are still looking into what segments should we actually enter in that part of the world. So that will not be -- you will not get any details on that in this presentation. As I said, we have set new financial targets and objectives that better supports the next phase of the growth going forward. And as I said, our ambition is to consolidate this thermoplastic market using our strong financial cash flow generation. And the target EPS, we believe, as I said, is more relevant for us going forward. So we want to have a CAGR of more than 10% in this time period, '26 to 2030. The net debt-to-EBITDA ratio will -- should stay below 2.5. You will later on see that we have actually been below 1 more or less, Peter will show that. So this means we are aiming for more M&A. The dividend policy, we believe, will continue to be attractive around 40% to 60%. And then last but not least, the operational metrics is, of course, also going forward, important for our operations to stay within 14% to 16% EBIT margin and to have above 10% revenue growth.

Just to summarize then and starting from the base. So we believe we have a very solid foundation to do this growth journey now. We have a very proven business model. I think also that what I said about being decentralized is something that gives a local ownership that gives strength to our business. We have clear strategic priorities. You will hear that from each business area about organic growth, M&A, but also operational excellence. And the new financial targets I just spoke about, we want to maintain #1 or #2 leadership in the segments where we play. And again, the operational metrics is still very valid, and it's also part of our bonus system for each one out there. So we are not letting them go, if I call it that.

All right. I see a watch here blinking red, so I better stop now. So by that, Rodney, if you please.

Thank you, Klas. Yes, we will start with a fireside chat, and then we will open up for Q&A.

So Klas, I mean, today, you have launched quite ambitious financial targets. You're looking at about 10% EPS growth for the coming 5-year period. If you compare that with the previous 10-year period, it's less than 5%, so it's more than twice as high. Would you say that it's the raised M&A agenda that will be the most important differentiator now going forward?

Just saying that I think, as I said in the beginning, many of our customers are right now in a tough market situation. That is, of course, also having an influence on our growth opportunities. But we will put more focus on organic growth, as I said, to expand the customer base, to work on R&D and so on. But we will have a more ambitious M&A agenda also. So that will be a vital part. We have also proposed an incentive, or we will propose an incentive scheme to the AGM, where these parameters in our new targets will play a vital role.

So -- but given the current macro situation, is it fair to assume that the 10% CAGR, I mean, you will start a bit slower and then speed up a bit later on?

Well, again, given the situation we are in right now, this will not be from -- it will take a while before this speeds up. But then I come back to what I said that we are speaking about a 5-year period now for this growth. So short term, we just released our Q3 report. You know the situation, we have gone through that. But for -- in this period, I believe we can do that.

You previously had a target of above 17% margin over a business cycle. And now you're talking about an operational metric of 14% to 16%. So it seems like you're lowering the margin ambition. What's the rationale behind that?

Well, first of all, I think that earnings per share, I believe, is a better measure for us going forward. And in a sense, we have not lowered the ambition, but it's -- I think it's more credible to say that with the growth ambition we have, we have to invest in that. I spoke about R&D, I spoke about sales and so on. So that means that, that will be the new spend we aim for, which is still, I would say, quite attractive being at 14% to 16%.

And as you discussed before, I mean, you have a situation where we have operated in a challenging macro environment. The customers have a tough situation. But can you give us some kind of flavor of when do you expect macro to improve and stabilize? And what's your assumption over this strategic period about the macro?

So again, as I said, many of our customers are experiencing a tough period right now, but we expect the macro to gradually improve. And I think over this period we speak about, we expect a normal business cycle.

You talked about -- you have a quite ambitious M&A agenda. And then you also plan to have a quite attractive and high payout ratio of 40% to 60%. When we then look at your balance sheet, the net debt-to-EBITDA ratio below 2.5, would you say that you are prepared to go above that level if you find a very attractive M&A opportunity?

So I think you know for us it's important to have a strong balance sheet, and we see that it gives us a certain freedom to maneuver. And I think also at the level of 2.5, we are still on a -- we remain very strong when it comes to these parameters. We would be prepared to go above that level if we find the right target because we believe we can come down again quite fast given the cash flow generation we are able to generate.

Then you also mentioned Asia as an interesting market. I know that you're already active in parts of Asia right now, but it seems also there that you have raised your ambition. So when it comes to Asia, is that part of your strategic plan for '26 to '30? And is that included in your financial target setting that you will be active in Asia.

No. So we have to remember when we speak about Asia, we are already present in Asia. We have factories in China. We have factories in Sri Lanka. And that is maybe a result that we have followed our Western customers into that region to serve them, also being close to them in that region. What we are looking into is to have a more local to local business in Asia. And as I said, we have conducted a market study, and we are positive to Asia. But for us, it's essential that we find the right segments. I spoke about this triangle before, but that also goes for this region, of course. We have to have -- find profitable business there, which we believe is there actually.

So they are included in your target setting basically?

Yes, yes.

And then the business segment where you're clearly stepping up the ambition is within the thermoplastic compounding in the TTP market and especially within M&A. And besides, you showed it's a very, very large market, some $260 billion. So what has caused you to pay more attention to that segment?

I think learning from our previous journey, I showed you we went from $3 billion to $20 billion. And the basis of that growth was actually within the rubber compounding. And we are convinced that entering into the thermoplastic compounding, we could do a similar journey. But with the rubber compounding as a base.

But it seems also, and we will have a look at that a bit later on, thermoplastics have lower margin, and it's also buying more cash than in the other areas. So if this continues, why would you say that this is attractive for shareholders? How can you create shareholder value?

So I think we're able to implement our business model also into that segment. And as I said also, we are -- our ambition is not to grow in the base in the commodity. We want to grow with the engineered and the high performance -- in the high-performance segment. And when it comes to -- the one difference, I would say, between rubber and thermoplastic is that the stock situation is different. So sometimes in thermoplastic, we often use recycled material, and that is often bought in batches, giving us higher stock levels when it comes to raw material. But again, we believe with our -- how should I say, we could steer that more, we believe, with our business model.

Thank you, Klas. So we will open up now for Q&A. And you who are in the room, please raise your hand and wait for a microphone. And then please also state your name and organization. And we're also, of course, open for questions online. So I think you are number one there. So please wait for the microphone and then state your name and organization.

State your name and number.

[indiscernible]. So we were actually among the ones who got HEXPOL when it was listed in 2008. We don't have that big ownership these days. But the target then was to grow 7% to 10% and have an EBIT margin of 8% to 10%. And not a lot was mentioned about M&A, and it happened to be a very successful execution track record. What gives me reason to believe that these targets are realistic now when they are higher, I mean, it's all about execution. Why would you start delivering better than the last 3, 4 years?

I think you will get a very good picture of that when you listen to my fellow colleagues also what we will actually do within the different business areas. But maybe one difference would then be that we actually believe very much that M&A will drive -- continue to drive growth, although we will also focus on organic growth and as I said, operational excellence. And also, I think we have learned during this time. So the companies we acquire, they also bring us knowledge. We have very knowledgeable people, entrepreneurs in these companies. So they also -- yes, our knowledge base grows over time.

Johan Dahl, Danske Bank. Two very brief questions, Klas. And you were bound to get these questions when setting targets in terms of earnings per share. But does the press release this morning -- does it imply any sort of changed view from the company or the Board from -- with regards to share repurchases?

As I said, we will stick to the -- let's say, we will not do the share purchase. That's not directly on our agenda. We will have the dividend policy that we feel is still attractive. And we must remember also to do the journey we are talking about over these 5 years. We need to invest in that, of course, also.

Very clear. And just secondly on what sort of -- looking at this 5-year plan, what sort of incremental investments or CapEx or sort of what are you pushing in to achieve these targets? Is that included in the margin target, or how should we view it?

Yes, it is. But you will get some hints about what it means going forward.

Johan Sjöberg from Kepler Cheuvreux. Looking at your 10% growth rates then in sort of your underlying -- the metrics, how much should we think is M&A, and how much should come from organic growth?

So I will say that a big part will come from M&A and the organic growth will still play a role, but maybe that will be single low digit in the organic growth, if we look at the group as a total.

And if you look at the thermoplastic business today, how big a share of total sales is it today? And given your ambitions by the end of 2030, just to get a feeling for how...

You will get those figures from Peter later on. So we will try to be, I was going to say, as transparent as we can. But since we are now also dividing it into 3 business areas, I think you will get a better visibility.

I think we have a question here. Yes?

Carl Deijenberg here with DNB Carnegie. I just had a question also on acquisitions. I mean, in the past, it's been fairly easy to follow what you pay for acquisitions on the rubber compounding side. And now you're displaying this ambition of moving forward more towards the thermoplastic side. And just curious sort of price tag differences, acquisition process, is that a material difference relative to what you come from in the heritage or -- yes?

I wouldn't say that because -- but there are, as you know, so much influencing, the price of a company that could be geographical. It's the type of products they have and so on and so forth. But I think you will also get quite a good insight on how we view M&A, and how we value that, so to say.

We have a question online about Asia. Two questions actually. First one, when it comes to looking at expanding into Asia, you gave some brief indications before. What would be your key priorities?

Well, again, wherever we enter, we always have to make sure that we have profitable business, of course. So that would be one key entering. Then growth is what this strategy is aiming for. So that also plays a role. But we have to, again, play in the right segments.

Another question online. Can you please elaborate on how you will increase the organic growth when the market is tough like it is right now?

I think when the market is tough, and that's what I showed you also -- with the current financial targets, let's say, that when our customers suffer, we see that in our figures too. But that does not mean that we are not active in the market, of course. So we will still continue, as I said, to invest into sales, for instance. We have to be even closer to our customers. We have to give them even better service. So it's not a time to hide. We have to do everything we can given the market situation. And we are doing that too. And you will see, as I said, examples of that also.

Do we have any more questions from the room? Yes, please?

Joen Sundmark, SEB. So given that you lower your margin target, do you sort of expect to take more volumes within your existing business, or is it rather that you expect to do margin dilutive acquisitions to sort of boost the sales growth as well?

Yes. If I may answer bluntly, this is not about lowering prices or anything, but this is more to enable us to grow, and to grow, we want to invest. So yes.

And in terms of acquisitions, where do you see the margin levels out there if you look at Asia, for instance?

So normally, in acquisitions, when we acquire a company, they might be at the level that we can actually bring up getting them into our group, we can usually improve the margins. I mean that's usually how it works.

And to quantify sort of on a rough basis, how much do you sort of expect to utilize in terms of synergies there, and how much do you expect to bring up the margins just generally?

I don't think I have a figure on that. Could we -- no.

So any more final question here from the room? Yes, please.

Gustav Berneblad from Nordea. I thought maybe if you could just expand a little bit more about what you said about the captive conversion, and what that basically means? Are you aiming to grab that market share from your customers or what specifically?

No. Maybe the captive conversion, as you know, some of the big players, they do their own compounding in-house, so to say. And depending on the, let's say, the current market situation, when there is a strong demand, they tend to outsource. And when the demand is lower, they tend to bring it in-house. But there is also, how should I say, a moment when they might be -- when they are investing into new equipment. And that's where we see a possibility for HEXPOL to step in. And instead of doing that investment, we can do the compounding for them. But you will actually hear the whole story about that. But because that is an important -- how should I say, an important leverage for us to handle captive conversion. But you will hear -- you will get more insights on that, too. We have just started, come on.

So this concludes this Q&A session. Thank you so much, Klaus.

Thank you.

So now it's time for Magnus Berglund, Senior Vice President, Strategy and M&A.

Thank you very much, Rodney. Good afternoon. Great to see you all today. Out of the 52 companies we have today, we have acquired 45 since 2010. And I will tell you today what we plan to do for over the next 5 years.

So why do we believe in M&A? Klas just told you that we plan to grow plus plus 10% per year in markets that don't grow that much. So the way to do that is to do M&A. And we operate in quite fragmented markets. That means that we have a lot of opportunity to find bolt-on acquisitions and also other opportunities. We have -- still have geographical white spots also in our core Rubber business. We can buy more scale to get efficiencies. We can buy into more products to get a larger product portfolio. And we can also buy into new technologies. And I will come back to all this later in the presentation.

So the first phase in HEXPOL's history, we went from SEK 3 billion to SEK 20 billion. You saw that in Klas presentation as well. And we believe the second phase will be even more exciting. So let's start to make a short recap what we've done previously because I think that's important to understand where we come from, and what we can actually do. So in 2008, when we IPO-ed, we had a strong regional business in North America with four sites. We had two in the U.S., one in Canada, one in Mexico. We made the first bold move in 2010 when we actually acquired the largest competitor, Excel Polymers. And with that acquisition, we transformed the market position in one shot. We got the full product portfolio. We got scale, and we also got efficiency in our plants. After that, we made a lot of bolt-on acquisitions. You can see that we added 10 sites to that footprint. That was partly to buy scale, but also to take out capacity from the market. And then in 2019, we managed to buy the second largest competitor in the U.S. Preferred Compounding, and that actually got us the fantastic market position we have today in the U.S. So that's a very successful roll-up story that we did on the rubber side.

And also, if you add all these sites together, you can see that with the starting number of sites plus the acquisitions, we went from 27 sites to 13. So we did quite aggressive consolidation as well. And that has created the efficiency we have today.

If you look at Europe, we basically started with the same type of footprint. We had four sites, a strong regional business, heavily automotive focused. We didn't have the possibility to do the same kind of big bang acquisitions that we did in the U.S. So we did a number of midsized bolt-on acquisitions. But basically, that resulted in the same thing. We got the full product portfolio. We got scale, we got efficiency. And by that, we took the #1 market position also in Europe. We did some consolidation also in Europe, but not as aggressive as we did in the U.S.

So why do we believe in -- or actually, how does the process look like when it comes to M&A in HEXPOL. We actually operate quite differently to many other strategic buyers and that gives us a lot of opportunity. We act more like a private equity fund when it comes to the process. We are very quick and that also means that we get invited to processes where other strategics generally cannot participate because it takes too much time. And that actually goes all the way from the HEXPOL Board to group management to the transaction teams that we do things very quickly. Another big benefit for us is that we acquire companies in segments that we actually know, so we talk the language of the buyers. And that's very important, especially for family type of businesses when we come in. They generally don't like bankers, sorry about that. But we have big benefits from actually -- coming from the distance. We also have a very good visibility of what's out there in terms of targets. It's a big pool of potential targets. About that said, we find something new basically every week. And that also means you can understand how big this pool of companies is. It's a very fragmented market.

A little bit how we source target. We consistently talk to a number of family owners, private equity firms, financial sponsors that we generally have relations with for many years. And then at some point, they decide to sell. It could be generation shift, could be something else to trigger up that sale. But we work very long term when it comes to those coming processes. We also have a number of consultants working for us. We have that in Europe, also in the U.S. for us to see the short lists of companies. And that's not the normal type of consultants. We have formal executives from the business that knows a lot of people, and that will open such doors for us to get into those companies. And we also have an internal team of people that scout for us when it comes to opportunities.

When it comes to integration, we also think that's very important to do that quickly. And we have done very hot integrations and very light touch ones as well. And that truly depends on what type of company you are buying. But the most important thing is that you are well prepared before you close the transaction. So that's one thing we spend a lot of time on. You need to have your plan done before you close the transaction.

People is very important for us. Company culture is everything. So we always try to make sure that key people are with us before we close the transaction. If we cannot do that, that is day one exercise. We always make sure that key people stay with us.

Another important thing for us when it comes to integration is key suppliers and key customers. We always try to touch all the key ones the first week and that takes away a lot of uncertainty in an acquisition. If you can get those relations quickly, that's a very good thing. You can also see that we have plans for processes for governance, for organizational changes, but maybe more important, that's when it comes to synergies. We have a quite fortunate situation where when we buy companies, we usually put them side by side with HEXPOL, especially on the raw material side. And what's quite amazing is that we almost always find better things in the companies we buy lower prices, better terms or other benefits. So we always take the best from each side and implement that in HEXPOL. So I mean that can have a lot of leverage if you find a better price in a small company that we could take into HEXPOL. We have the same view on people as well. We were quite tough on that. If we find better people in an acquisition, we take that person.

So with that, I'd like to share a short case study with you. And this is actually Preferred Compounding that we talked about initially. So this was the number two competitor to HEXPOL in the U.S. back in 2019. It was private equity owned, and they try to do a similar roll-up story that HEXPOL has done, but on a smaller scale. So the transaction was quite sensitive because these were the two largest competitors in the same market. So we got a chance to participate in this process if we can do it within two weeks. And for a strategic buyer that's [indiscernible] unheard of that usually takes months and months. So what we did is that we pull together launch team of consultants and advisers and in many cases they draft whatever they worked on to help us out and because of the relations we have from previous acquistions. We did the same thing on the internal side. It took a lot of people out for day-to-day business to work on this, especially on the business due diligence, but also on the integration. So we have these two large teams that worked day and night for a couple of weeks. The deal was also this type of clean kept walkaway type of thing, so we got no warranties whatsoever.

So that meant that we had to make a full due diligence for 6 sites in 2 countries. So that was a very challenging exercise. So how did it go down? We actually missed the targets with 2 days. But financially, this turned out great. It was one of the best acquisitions we have made. And the final comment on this one might be that Ken Bloom that you will listen to in a little bit. He was actually CEO of Preferred Compounding when we acquired them. So that's also a testament that we take good people from the companies we buy.

So how do we select targets. We are strategic buyers. We don't go for good deals. We buy things that fits with HEXPOL and that has a strategic intent. And that does not mean that we don't act on things that comes in from the side. We do that all the time. But it has to fit to the model we work with. And secondly, we only buy good companies with good financial performance because we believe that we are good at making good companies better. We are not that good at turnaround cases, and especially not start-ups. We believe that to other people, and then we can move in at a later stage by the company. We talk about people, company culture is very important for us. If that does not feel right, we will not buy the company. Of course, we do the same financial modeling as all other buyers. We usually have some -- a few more levers than the other players. And that means that we have a bigger chance to win the auction processes as well.

And what do we specifically look for them? We have a lot of geographical white spots to take a couple of examples. We have a very strong TPE business in Europe, but we are basically nonexistent in the U.S. so we can fill that gap. We can do a lot on the thermoplastic side. There, we are niche players, so we can buy basically anything everywhere on the therapastic side. And we have some opportunities in Asia as well that Klas told you about. On the consolidation side, size is very important for HEXPOL. The more size you have with that efficiencies you have. So we'll continue to consolidate the rubber side, maybe not the big ones, but what we'll find some more there. But for sure, on the thermoplastic side. And we have possibilities to buy a better product portfolio as well to get the broader offering.

So let's look towards the future. Klas showed this picture as well. I don't think you mentioned the value of the market. It's an $800 billion market, the total market. And the compounding side and share of that is about 1/3. And I just want to have a look at the rubber share of that about 5%. So what we do now is that we focus more on the thermoplastic side, which is more than 90% of that gigantic market. So let's dig deeper into the thermoplastic side. We feel this one with a little bit more information than you saw previously. But generally, it works the way that the commodities section at the bottom, that's large volume, lower margin business. The middle section, the engineering polymers segment, that's higher-margin business that requires R&D, technical support, a much more complicated type of business. And the high performance polymer side at the very top that's more super materials that replaces metal, goes into aerospace, medical applications.

And today, we actually have 2 businesses at the upper lower segment. We have rate that produces polypropylene in the U.S., and we have [indiscernible] that produces a [indiscernible] to powders in the U.S. We have 2 companies in the middle segment. That's almaak in Germany and Piedmont in the U.S. And there are actually good reasons to have companies in all these segments to be able to offer a full portfolio of products to support the customers. And you can also see the -- what we did try to visualize on the left is that today, we can only serve a very small part of this market because we don't have the product and we don't have the geographical coverage. So what we will do is that we'll buy more products in several geographies to be able to serve a bigger part of this big market. So that's really the story behind this M&A journey that will have a bigger portfolio in more places.

So if we turn back to the whole group, where you will see acquisitions in the coming years. You will see more rubber acquisitions, maybe not the big ones, but we have some possibilities both in the U.S. and Europe. You will see a lot of acquisitions on the thermoplastic MTP side to build product portfolio to big build scale. And as Klas said as well, we are starting to look at the engineered products side as well because that has always been a good business, but we have not really had any focus on finding acquisitions there. So we will do that as well.

So let's zoom in on the thermoplastic side, which is the key growth area for us. And you might recall this picture from the start. We believe that we are basically in the same phase as we were in rubber 15 years ago. We have a strong niche business today. It is heavily automotive focused on specialty thermoplastics side. But we need to build the portfolio wider, and we need to be in more and more places. And we have actually come to the size right now that means that when we make more acquisitions, we're going to start to see more synergy as well on purchasing, R&D, cross-selling SG&A. So it's actually a very good starting point for us to build on this business.

I mean if you look at size for this specific business. We have a $75 billion pool to choose from. So we actually only have to take a couple of percent of this market to multiply this business. And there are many, many potential acquisition targets out there. Looking at size, sweet spot for us might be between $10 million and $50 million EBITDA. We can go lower, we can go bigger depending on what we find. But we have traditionally tried to stay in a little bit smaller size acquisitions to take out risk. But we are quite opportunistic when it comes to that.

So with that, to sum this up, a couple of things I would like you to bring back from today is that we do have a plan for our M&A journey. We know how to do M&A. We've done a lot before. And we have a very strong pipeline that we have built over many years. So this is nothing we start now. It's a multiyear exercise. We have a very strong balance sheet, so we can actually fund this growth, and Peter will talk more about that later on. And we also believe that what we are trying to do now in thermoplastic is very much the same thing as we did in rubber up until now. So it's a process that we know how to do and it actually works.

So with that, we will continue with a deep dive into the businesses. So I would like to welcome the Presidents of the Rubber Compounding Europe and Asia, Ralph Wolkener and Carsten Rüter.

Thank you very much, Magnus. Great to have the opportunity to present to you how we will further expand our market leadership through innovative developments in technology and operational excellence. My name is Ralph Wolkener. I'm originally from Belgium. My educational background is in economics, and I've been with the company now since 29 years, and I'm adding together with Carsten, the business area, Rubber Compounding Europe and Asia.

Yes. Good afternoon, ladies and gentlemen. My name is Carsten Rüter. I have a technical background. I have a degree rubber and plastics. I'm more than 28 years in the company and located in the head office in Aachen Germany.

To start, I would like to share some facts with you about the business area. Export Rubber Compounding Europe and Asia, has actually 18 production sites. 14 in Europe, 2 in Turkey and 2 in China. We employ approximately 1,300 people, and we supply to around 1,500 customers. Our business model is based on developing tailor-made solutions for our customers, which results in an actual database of more than 12,000 recipes. The pie chart is showing you the market segments we serve. And here, you can see that the biggest one is automotive with 42%, followed by industrial with 24%, building and construction with 10% and Wire & Cable with 9%. And we are currently, by far, #1 in Europe.

What are typical applications our compounds are used for. In the automotive industry, we are covering with our product portfolio more or less the whole spectrum of rubber applications in the vehicle. It goes from rubber, it goes from Windows seals to trunks seals, door seals to engine applications like hydraulic hoses or cooling hoses and antiabortion applications like air springs or exhaust marking systems. For the building and construction side, the biggest segment for us is window and facade sealing systems. And here, for example, [indiscernible] is a well-known player in that market. And I invite you to have a look at the exhibition area where we have exposed window frame and where our colleague [indiscernible], would be more than happy to explain you the functionality of the rubber profile in a window.

For the industrial side, we are supplying, for example, into the white goods industry, dishwashers, washing machines or railway industry, railway pads or, for example, door seats for railway cars. In water management, we are mainly supplying into wastewater management applications, and there our compounds are used for production of all rings for concrete pipes or PVC pipes, for example, and for the Wire & Cable industry. Here, we are producing compounds mainly for the low and medium voltage applications as well as flame retardant applications. Also here, I invite you to have a look at the exhibition area where we have exposed some cables and we're also -- [indiscernible] would be more than happy to explain you the functionality of a rubber in cable.

As mentioned earlier, we hold a leading position in Europe, which we consider as a mature market. Nevertheless, we believe that we are well positioned to be a key player in the transformation process. Some of our key segments are undergoing, which should result in new opportunities for us. Asia, the Asian influence on the global economy will continue to grow, making it for us also important to gain further market shares in Asia, respectively, China. What are the market characteristics and the drivers we are facing. We are operating in a fragmented market with a lot of local regional midsized family-owned businesses as competitors. That's why a decentralized, but coordinated organization is so important to us. Speaking customers' language reacting quickly to and flexible to customer requests and adapting to local market dynamics is key. And that in combination with the power of the group, means, for example, in purchasing or in development is giving us a very strong market position.

Unfortunately, there is still a large proportion of in-house mixing capacities available in the market, which is not accessible to us and sometimes even acting as a competitor on the open market in case of overcapacities. For the Wire & Cable, investments in infrastructure, renewable energy and transmission will drive the demand for Wire & Cable compounds. Strict legislation in Europe under reach sustainability and safety targets are seen as a chance and should put us in a favorable position due to our size and the resources we have compared to smaller or midsized player who will have greater difficulties to deal with it. For the automotive industry, e-mobility and autonomous driving are the mega trends, opening new opportunities for rub applications. What I mean by that, I will explain in the next slide. But for sure, China is actually leading this transformation towards new electrical vehicles.

How do we assess now the situation of our main market segments. For the automotive industry, we believe that it is -- it will be flattish, and we will not see the number of produced cars in Europe growing in the coming years. That said, the drivers in that segment are transitioned to e-mobility, as mentioned before, changing of existing automotive landscape means there are new players and OEMs entering the market, and they are mainly coming from Asia. Therefore, our priority will be to establish a strong and close relationship with these new players and OEMs, how do we want to do that by strengthening the organization. We are, for example, actually in the process to hire key account manager as well as a product manager to build a bridge between the OEMs, the Tier 1s and us in order to have the full picture of the strategies and the market dynamics.

Due to the transformation process, the automotive industry is undergoing, we will see new and changing requirements. Noise reduction, weight reduction, different temperature requirements will result in new developments and materials. That's why we decided to invest in a complete new R&D center fully equipped which should enable us to supply the solutions the customers are looking for. For the Wire & Cable segment, this is for sure a growing area. The drivers here are the higher share of renewable energy production will require infrastructure upgrades and the further digitalization. The fact that we can be the one-stop shop option for our customers as we are covering with our portfolio, the full spectrum from silicon to rubber to thermoplastic and that on a global scale is a clear differentiator.

For the building and construction side, we see first signs of recovery. And here, the drivers are investment and in infrastructure and housing will continue. And we believe that at a certain point of time, government fundings will come in order to stimulate the market. As well, we see a growing demand in sustainable solutions as well as alternative building materials. And here, we have already first successes with own developed sustainable compounds, which were approved by different OEMs. Unfortunately, the OEMs are not really accepting higher on costs. And that is, in general, the situation for the building and construction industry. It's a highly competitive market where price is king. That's why we developed a new mixing concept, what we call Mixing 5.0, and that's why we installed the devulcanization line. Both investments should help us to meet these challenges and to find the solutions for getting the right products into the market.

Carsten will elaborate further on these 2 investments in his presentation, and I would like to thank you from my side for your attention. Thank you very much.

Yes, ladies and gentlemen, after you now having an overview of who we are and what business environment we are in. I would like to give you a little bit more insights about our strategic priorities going further. Klas mentioned it, Ralph mentioned it, we are a clear #1 leader in the Rubber Compounding market in Europe, and all our priorities are set to protect and further strengthen the #1 position in that market. This will be the enabler for the long-term success and will make us supplying strong cash flow into the group on a continuous base.

So the ambitions are set, but what are the details, what are the priorities? You recognize here on that slide, the 3 pillars, what Klas has shown before. And the first and very strong focus we have is on organic growth. The current business environment we are currently in makes it even more important that we are notified as industry leader. We need to be the first choice when it comes to innovative products, when it comes to world-class service and quality and cost competitive solutions. Only then we will be able to defend our position and further strengthening our position in the future. Besides the established markets like automotive, building and construction, industrial applications, we will focus even more on the Wire & Cable, electrification and infrastructure developments. Besides the organic growth ambitions, we have -- we also have a defined M&A agenda.

And here, we will focus also on the growth segments like Wire & Cable electrification infrastructure. But we're also not afraid of going into our traditional markets if we see geographical or intellectual property gaps. And of course, additionally, we also look continuously into China and see if there are new opportunities coming up there. Besides the growth ambitions organic and by M&A, we put a very, very strong focus on the operational excellence. For us, it is important to be best-in-class when it comes to purchasing, innovation, process and engineering or sales and marketing. This is absolutely important to have the drivers in our hands to be able to deliver the best performance to cost ratio on a long term. We also will further focus our efforts in the R&D. And here, we have 2 key elements. One is we have the existing and proven solutions. We would like to further improve and standardize between all our different sites.

And the second part is that we want to work on innovations, develop new materials, which are needed in the future. It is for automotive changes. It is for sustainability changes. It is in the Wire & Cable market. We want to develop their product, we push into the market. For that, we have recently established a central R&D department in one of our facilities in Italy. That we have, I would say, state-of-the-art equipment installed, analytical test equipment, rubber testing equipment and very soon will also have pilot plant possibilities. And that, together with well-experienced stuff in the research and development work in Italy. On top, we focus a lot on automation, on digitalization, data mining. We have recently started a couple of projects using artificial intelligence.

And for that, we have established over the last 2 years, I would say, a team of young engineers and our office in Aachen. They take exactly care of these projects here. They drive process innovation, but they also support and implement the solutions at the site. So it's very important that we provide also a certain service to our businesses as we cannot have the expert globally worldwide in all the facilities. Besides sorry, besides the operational excellence, we are working on projects. And I brought you 2 projects here, showing you a little bit as a showcase what we are working on. One is out of the area of process intelligence and engineering. And the other one is a good example out of our day-to-day R&D work. So the first project I would like to show you and Klas mentioned that already, is a new rubber mixing concept, which we name under Mixing 5.0.

What is the motivation or what was the motivation to develop this new concept? I mean we want to grow our business. And you have heard about the business environment we are in, which is flattish growth highly competitive, fragmented and so on. So if we want to grow in these businesses, we need to be the best cost provider in that industry. And besides the raw material costs, what makes the majority of our product costing, we can work on the manufacturing or the production cost. And that is, I would say, that was the starting point of our project Mixing 5.0, where we put all our internal resources, engineers, people from process development R&D people, sales and marketing, because we also need to understand the market approach for these new products. We put them together with all our long-lasting and very good, I would say, providers of equipment in that industry. So the concept is ready, and we have a substantial investment in front of us here. Besides the state-of-the-art equipment, and automated processes, we will put also a lot of intelligence in there. So AI will also find its field into the new rubber mixing concept, Mixing 5.0. With this new concept, we strongly believe that we will outperform the industry standard by far.

So when can you expect this. The concept is ready, the specification of that mixing line is almost done. And if we do not experience any delivery delays for equipment, et cetera, we expect to be with the start-up operation in spring 2027. So this was the example of the Mixing 5.0. And besides that, as promised, I brought you another example out of the world of R&D. And here, we have developed a new product portfolio called HEXGREEN. It is a sustainable rubber compound -- S.o what were the market drivers for this development? I mean we have continuously strengthening EU regulations. We have the, I would say, target to further reduce our greenhouse gas emissions. And of course, the entire industry is driving towards a circular economy. So the solution we put in place, we had a project together with a leading OEM in window and glazing manufacturing. We have our direct customer, a Tier 1 for rubber profile extrusion in that project and our R&D engineers. And there, we developed a sustainable rubber compound with a 28% sustainable material content, but still giving the same performance as virgin materials. And this is also very important to mention here these rubber compounds still need to fulfill a technical specification, and they still have a performance specification what is underlying the later use in the field.

The technical approval has been achieved. So we are -- we can get green lights on all the different specifications in that industry. And the only small I would say, challenge we have in front of us is a slight cost premium for these sustainable rubber compound solution. Everybody in that industry want sustainable solution, but nobody really wants to pay an extra cost. This is a challenge we have, but we also have a solution in the back pocket, as Ralph mentioned before, we have installed and invested into a deorganization line in one of our facilities in Czech Republic, where we will be able to recycle, reorganize and reuse rubber scraps from post industrial waste or from post-consumer waste in the future as well, and put that into the sustainable compounds. By this, we take 1 level out of the supply chain, and we are very, very close to be ready for a cost-neutral offering into the market. So this is another good example of showing our high level of capability and the development is not only designed for the building and construction as we had in the showcase, but it will find its application and many other industries as well. Automotive, industrial applications are only a few to mention here.

By this, I would like to close our session about Rubber Compounding in Europe and Asia, but not before I give you a quick summary on all that. Now our strategy is well set to further strengthen our position as industry leader. And we will be recognized as innovative and competent partner to our customers also in the future. The organic growth will be supported by a strong continuous improvement process as well as long-term partnerships. We have a defined M&A agenda in our growth segments, but also in our traditional markets, and we see sustainability as an opportunity and not as a threat.

With this, I would like to thank you for your attention and introduce the next speaker, which is Ken Bloom, President of Rubber Compounding Americas.

Good afternoon, everybody, either everybody here, and hello to everybody online. I'm excited to be here today to discuss over compounding North America. I recently rejoined the company, and I've been in the rubber compounding industry about 20 years. So this is what 20 years does. When you're in the Rubber Compounding industries are all your young guys, be careful. As Magnus mentioned, prior to joining HEXPOL, I was CEO for Preferred Compounding and was acquired by HEXPOL in 2019. So glad to be back. HEXPOL is the market leader in compounding in North America with broad geographic reach, world-class plants, top technical talent and a real history of strong price management, consistent margins and strong cash flow.

A little talk about the profile of HEXPOL in North America. Again, we are the #1 compounder in the North American region. We have 13 plants, 10 of those are in North America, strategically located near the key manufacturing hubs for rubber part manufacturing. We also have 3 facilities in Mexico, in Central Mexico, which, again, is the strongest area for harbor parts manufacturing in the Mexico region. As Klas mentioned earlier, we are local to our customers. It is really important that we're within a close service radius of our customers. We can manage their service needs quickly, provide technical support and it's a key competitive advantage of being successful in the rubber compounding industry in North America. We service over 1,200 customers in the region across a very diverse set of markets. Our key segments are automotive, Wire & Cable and building products. But we also service another 12 segments none of which are more than about 8% of our overall volume. And it's similar products to what they produce in Europe, and you'll see some of those in the showcase out outside at the break.

We have about 1,500 dedicated and talented employees in North America. Average experience a little over 8 years. So in combination, we have about 12,000 years of experience in the North American rubber market, which is a real competitive advantage in the region. As I mentioned, a very diverse customer base. If there's an engineered part in North America made of rubber, we most likely have a solution in our database to make that part and be able to supply it to our customers to fill their application. We have a broad portfolio of products, so 12,000 different products that we produced, either historically or currently producing for customers. These formulas, as Klas mentioned earlier, are very highly engineered. So we picked specific ingredients. We put them together in a very specific and controlled mixing process to get the particular specifications that, that customer is looking for to work on their particular set of equipment. So again, very tailored to every customer's needs.

This requires, again, a very experienced technical staff and very experienced operations folks in our plants, excellent systems to be able to respond quickly to customer needs and a great supply chain management system to be able to respond to changes in the marketplace quickly and deliver solutions to our customers. All the products we make are delivered in 1- to 2-week lead times, so they're all made to order. Nothing is put in inventory. And again, that's done at a 98% on-time and complete service metric. Again, critical to being successful in the rubber market in North America, but anywhere you're supplying rubber products. We have very local technical staff. Again, that local message is really important. Our people spend a lot of time in our customers' facilities, providing technical support and helping customers with their internal problems or needs. Again, another significant advantage in the marketplace.

As we talk about the market, we deploy into the marketplace in a segmented strategy. So we have 2 segments, the Automotive segment and our Industrial segments. Again, we split the management of the business into these 2 groups, and then we split our resources that way. So we have a dedicated commercial and technical team that focuses on automotive. We have a dedicated commercial and technical team that focuses on industrial customers. We found that these segments can be very, very different, different in their pricing strategies, different in their service strategy, how they need to be serviced and even different in their technical support strategy. So we segment those industries that way, and we tailor those needs to the customers. Every customer's categories into one of these segments, we manage that with a respective team, technical and commercial leaders that help that particular customer. Again, we found that, that approach allows us to get closer to the customer, understand their needs be more responsive and be more engaged with the customer to find them solutions and new products.

This is a partial list of our blue chip customer base, both in automotive and industrial. Every one of these customers listed here are market leaders in their particular area of products. In the automotive market, we typically supply Tier 1, Tier 2, Tier 3. We don't have any direct contracts with the OEMs, which I believe is a positive. We're not obligated to any multiyear cost downs that are required in some of the OEM contracts. So by supply in Tier 1, Tier 2, Tier 3, we avoid that contractual obligation but also can support all the different manufacturers through our Tier 1s, Tier 2s and Tier 3s. These customers provide highly engineered products such as weather stripping, vibration dampening products, gromets and seals and various hoses and belts for just about every vehicle produced in North America. It's a little different in the Industrial segment, in the Industrial segment. These are the OEMs. So these are the actual end users of the product that they manufacture. And these customers apply products like high and low voltage insulation and transmission products, Wire & Cable, electrical products, motion control products and various construction products for many industrial applications and flooring products. As Ralph mentioned, some of these products are out front. We can talk about them during the break.

Many of these customers are on multiyear supply agreements, either a supply agreement or a pricing agreement. About 50% of our customers are under some type of agreement. And this allows us to manage pricing adjustments in a very simple and effective manner as the market changes. HEXPOL is the leader in North America with several -- but we have several growth opportunities that we'd like to discuss today that we're currently focusing on. It's still a very fragmented market in North America. We believe we continue to take wallet share with existing customers and support new customers entering the North American market. We'll use our #1 position in the market, our world-class resources and our expansive geographic reach to be the supplier of choice everywhere we decide to service our customers. We believe that onshoring that's new product coming into the U.S. or North American market from overseas, and we'll continue as the current and future trade issues and will drive local supply into North America, and we're seeing that increase now with some of the tariff situations.

And we think supply chains will continue to evolve, and this will require suppliers who are not only local, but dependable, and that can navigate through the supply chain challenges that our customers are seeing. Electrification standpoint, whether that's for automotive, infrastructure and supply or data centers is a growing area for us. We will continue to drive our Wire & Cable segment in our business. The area represents about 12% of our business today. automotive being the biggest in the 40s Wire & Cable being second. But it's our fastest growing segment. We see increased opportunities as our customers are now working agressively to figure out how to supply the growing needs in the Wire & Cable market.

Many of these customers are vertically integrated. Let me go back. I think I'm still on this, I'm sorry about that. Many of these customers are vertically integrated today. So we work very closely with them to support their outsourced needs. Some of this comes in many forms, emergency mixing, long-term capacity needs or permanent outsourced due to technical issues that they can't solve in their own factories and they come to us for help. And finally, we're seeing a current trend to what we call Captive Conversion. I know there was a question about that earlier. We'll talk a little more about that in a minute in detail. But these are vertically integrated manufacturers that all of a sudden make a decision to no longer mix product for themselves in-house and focus on their end product that they produce for the market. We're very well positioned to do that for our customers to support these initiatives. We have strong experience. We're typically supplying them product today is either a backup source or a capacity help. So we understand their needs. We understand the products. We understand their service needs, and it's very easy for us to take that business on in the future.

So currently, we see automotive market as fairly flat, but we see it improving over the next 12 to 18 months, at least the forecast show that and customers are signaling that. We continue to see growth in e-mobility, but in the U.S. market or North American market has that slowed down. The incentives that the government was putting on electric vehicles that went away at the end of September, has a little bit of negative effect on e-mobility, but we're seeing that turn into increased requirements for ICE and hybrid vehicles. So we're seeing the demand for those and some of those models that were supposed to go out of production are continuing for years longer now as some of the electric vehicle has slowed down. We think this will continue, especially with the low gasoline prices we see today and we forecast for the future.

So we think the American market will still grow in e-mobility, but at a little slower pace with more focus on maybe the hybrids for many, many reasons. As I mentioned, we're seeing new opportunities as trade issues are driving changes in the supply chain. And there's no other custom mixer in North America that can supply on either side of the border. So whether you need help in Mexico or the U.S. and many of our customers need help in both markets, we're the only custom mixer that can do that in North America. The electrical Wire & Cable segment seeing rapid growth to support the infrastructure that's being developed and to help on the data center build-outs. This segment are probably, again, 12% of our business, it was predicted to grow 10% to 15% per year for the next 5 years. So we see that as a nice growth opportunity to participate in. I was at a large customer last week, and they're seeing over 50% year-over-year growth, investing aggressively building new plants, again, to support the same the same market as the AI race heats up, they're all reacting to that.

We support a wide portfolio of products in this area, high and low voltage insulation, transmission products for the Wire & Cable markets. This market is a little bit different than others, and that a lot of these customers are vertically integrated. So we work closely with them to figure out what we can do for them, where we can help them on capacity needs why they're trying to catch up with the ability to service. In the building and construction market, we see this improving too, probably a little into next year. There's still somewhere between 4 million and 5 million home shortage in North America. So there's still a huge need for housing in North America. And as the interest rates continue to drop over next year, we see that picking up and helping us in the -- not only new builds but in the remodeling and repair markets as well.

One common theme across all these markets. And one thing we're really working on hard in North America right now to be successful. We need to respond really quickly in the marketplace. Customer needs are changing daily. And speed is something we're working on everything we do, whether it's development, service, ability to react to customer demand speed is everything we're working on in North America. My experience, and I've done this 20 years, in the market is that the first one to provide the customer with a solution, usually wins the deal and usually had a little bit of a premium over its competitors. If you're the last one in the door, all you have is price. So we're working on speed to really be the first one to service our customers' needs.

So as you look to 2030, we're going to continue to drive organic growth. through customer focus and responsiveness. We'll engage in multiple levels in our customer organization to understand their needs now and for the future to help them be successful. This will improve our share shift efforts and help us win a new product capture. We work closely with our wire and cable customers as they navigate the ever-changing electrification and data center markets. Our customers are reacting daily to these changes in demand that they're seeing from the major drivers of data centers, which everybody knows are the big 10, right, the Metas and the Googles, et cetera. And we want to help them as many we can. And we'll help them well partnership with them, and we'll do a hybrid approach where they make some things, we make some things we're very flexible and how we'll work with these customers. We'll partner with customers on what we call captive conversion opportunities. We'll focus on getting those done with laser speed because it's really, really important and we'll talk more about that shortly on the next slide.

As Magnus mentioned, we're going to continue to look at M&A opportunities in North America. We'll focus on M&A that expands our technology our manufacturing capabilities or gives us entry into a new market we don't participate in today, and we'll react quickly when these opportunities present themselves. And we're focused on growth. That's really, really the key for North America to continue to grow and we'll continue our commitment to operational excellence and of course, continue to focus on sustainability, not just internally in our plants, but also working externally with our customers as they're trying to navigate that area as well. We're the leader in North America. We'll continue to utilize our technical and operational excellence, cost competitiveness and geographic reach to be the supplier of choice in all the markets that we currently service. So let's talk a little more about captive conversion. As you can see, it's a large opportunity. About 60% of the market is captive in some way, about $3.5 billion in size. These customers in this world of captive conversion tend to flex their outside compound by based on their internal capacity utilization.

So when the markets slow, like now, economy is a little soft, they bring that material in to utilize their internal capacity and fill up their machines. And then as the market picks up, they outsource that to their partners like ourselves. We want to make sure we're aligned with those customers approved on all their products. So as the market starts to turn and they run into trouble, we're the most logical choice to take over those needs. And that can come in a lot of different ways. So there's overflow capacity, number one, that's just helping customers when they fill up their machine and they need that incremental pound of rubber, but they don't have the assets internally to do it. Then there's a complete outsource of their mixing assets. That's where they decide it's not core to us anymore to mix. We want to focus on our end product. We're not going to mix anymore. We'd like you to do it for us.

And then it's a hybrid approach where they make some things in-house we mix some things for them, usually things they don't like to mix. Things that are too difficult for them that they need our expertise on. The key drivers for this in the market are really what's going on in America right now. Labor shortages lack of skilled labor. Supply chain logistics is a huge part. Customers have moved their manufacturing operations to other more effective areas like Mexico. And now their plant that was mixing rubber is no longer logistically the right location to supply rubber. So -- and then they have lack of skilled talent. There's not a lot of rubber chemists coming out of U.S. colleges today. So they depend on us for that technical help. And then, of course, the aging asset issue. As they get to a decision where they got to invest $10 million, $20 million in new mixing assets, they have to make the decision on do I want to do that or do I want to invest in the product that actually sell out the door every day. So we're helping them through that.

We believe customers are getting full right now, capacity-wise, and we'll start seeing more outsourcing next year as the economy starts to pick up. And we're currently working with 2 very large vertically integrated manufacturers right now on their outsourcing volume. The key things around, they both have Mexico and U.S. needs. So we're again, we're going to supply them product in Mexico. We're going to be able to supply them product here in the U.S., and they're going to shut down their current operation, again, due to the same issues, lack of labor, lack of skilled talent. Their assets are getting old. In fact, some of their assets, they find their shut down the mechanical problem. So we're excited about that.

Again, we're the only manufacturer in North America that could support both sides of the border, and that's a real competitive advantage for us. To do this, we have to have capacity, which we do. We have to have the technical know-how, which we do, the geographic location being close, we do. And they want supply redundancy, and that's really important. We have multiple plants in the U.S., we have multiple plants in Mexico that can support our customers. The key to winning these opportunities be competitive, right? You got to have your cost in line. You have to be fast. They want it done quickly. We want to get speed and technical approvals, quality approvals. We have to get their customers to buy in get a contract in place quickly. And finally, make sure that the customer actually dispose of those assets after we make the transition so they can't go backwards in the future. We find the longer these projects drag out the success rate falls pretty quickly. So we got to get them done quickly and under the tent.

Let's talk about data centers and the whole electrification in the U.S. We're seeing this as a huge growth opportunity for our Wire & Cable Electrical segment. It's something we're focusing on very intently. In fact, I was with customers last week, and we're spending a lot of time trying to understand their needs. The U.S. data center market is expected to grow from like 25 gigawatts of demand to over 80. And just to kind of put that in perspective, 1 gigawatt can power like 0.75 million to 1 million homes. So it's a huge requirement on the infrastructure today is just not there to support it. And most of our customers in this area are heavily engaged in that build-out or that investment.

But 19 new data centers started in 2024. So we predict there's about 50 and -- on the books to get built. And they're putting them in more remote locations where the demand on the grid is not so heavy, but you still have to get power there, right? So a lot of our customers try to solve that problem from the power plant. And we're agnostic to where the power is coming from wind, solar, nuclear. Our customers work on the transmission lines to get that power from that plant to the actual location. So that's where our products come into play. We have seen data suggesting that capital spending procurement and installation of mechanic and electrical systems, we see about $250 billion by 2030, and that's per McKinsey report, you guys can look that up as well.

Each data center, just an interesting fact, uses over 300 kilometers of wire and it uses about 3 kilometers of hose. So these data centers generate a lot of heat. So you've got to cool them. So there's lots of hoses and cooling systems and HVAC systems that use our products to keep those data centers cool. And then there's other things like sealing and vibration control to make sure that those data centers are isolated and can perform 24/7. So again, this rapidly increasing demand has strained supply chain. Everybody is trying to catch up and be the first one to be able to get that done. So working closely with our customers, help them to let them define their requirements, make sure we're aligned with those. We have the technical people aligned with them as well to help support them.

And again, customers have told us about 10 -- overall, 10% to 15% per year growth for the next 5 years. So we're excited about that opportunity and to participate in that. So in conclusion, we're well positioned to continue to be a leading manufacturer of rubber compounds in North America. There's nobody even close to what we can do in North America from a capability standpoint. We do have a mature automotive market moving electrification but a little bit slower pace, but that again has increased the ICE and hybrid requirements. So again, we see that market as mature and flat but growing in the future. We see a strong infrastructure growth, as we talked about in wire electrical cable, not only from the supply side, but also at the data centers themselves. The energy market remains strong. We're going to need the energy complex is going to need to generate a lot of a lot of energy resources for the electrical demand. So we see that as continuing.

We see improving housing trends in the next 12 to 18 months. So as the interest rates continue to come down, we see the building and construction market improving, which helps not only new builds but also on the remodeling and repair side. We're well positioned to take advantage of these current trends through our technical resources, our geographical presence and again, our world-class facilities. And finally, our focus on driving the organization to be very customer-centric, speed in everything we do in the business just makes it better and then driving profitable growth and just generating a lot of free cash flow for Peter to go buy a bunch of other companies.

Facilities. And finally, our focus on driving the organization to be very customer-centric, speed in everything we do in the business just makes it better and then driving profitable growth and just generating a lot of free cash flow for Peter to go buy a bunch of other companies. So that's our goal. So thanks, everybody. Looking forward to talking at the coffee break. I appreciate it.

Thank you, Ken. So this concludes the first part of this CMD. There are now -- for those of you who are in the room, there will be refreshments outside, and I will also encourage you to have a look at these exhibitions both on this floor and on the upper floor. And for those of you who are here online, we will start again in 25 minutes. So see you soon.

[Break]

So welcome back, everyone. We're now going to do a deep dive in the two remaining business segments, Thermoplastic Compounding and Engineered Products both headed by Jan Wikström. So you will start with presenting thermoplastic compounding, then we will have a fireside chat and then you move on to Engineered Products. And then we finalize the presentations with Peter Rosen and then followed by the bigger Q&A. Jan, please welcome.

Thank you, Rodney. I'm excited to be here this afternoon to talk more about our new business area, thermoplastic compounding. It's a fairly new business area that we have formed this year by combining our TPE and thermoplastic companies into one business unit. The reason for doing that is that we will -- we believe that will accelerate and drive our growth. We have a lot of similar or identical customers. We can increase our cross-selling and drive the organic growth.

I will talk about the growth opportunities and the way we see our journey going forward, trying to do the same journey as HEXPOL has done in rubber compounding. But I think it's also important to emphasize that this today is not the start of this journey. We have already begun. And in the last 3 years, we have added 4 acquisitions with 6 manufacturing sites into this business area.

I will also describe our organization and the way we are organized both for organic growth, but maybe more importantly, for how can we integrate the companies as we accelerate M&A story. Magnus has already talked about the M&A strategy, but I will also talk more about that going forward.

Today, we are 14 units globally. We have strong footprint, strong positions in Europe and North America. We have -- we are recognized for recycling leadership technical expertise and being close to our customers. We serve around 2,500 customers, and we have a broad portfolio of products in the automotive and consumer space. We have identified growth areas in medical and electrical market segments where we believe our expertise in customer formulations will serve us well. We believe the total market around USD 260 billion on TP and TPE gives us a lot of growth opportunities going forward.

So what do we do? Klas showed you earlier how we formulate custom compounds using polymers, additives, colors and reinforcements. The way it was described to me many years ago when I started by an older colleague is that we are a gourmet ice cream shop. We don't deal in plain vanilla cream. We do -- we use plain vanilla cream, and we custom formulate the ice cream that the customer wants and creating thousands of different flavors.

Automotive is by far the biggest market segment for us. Here, we deliver both to interior and exterior parts. A large portion of what we deliver in automotive is recycled. I think most of you come in contact with these type of products in your daily life as our products are used in many different market segments. We deliver a lot of both TP and TPE into household and furniture, where we can combine the rigid properties of the thermoplastics with a soft TPE materials.

One area which we believe will be growing quickly is medical. And that requires very high requirements on the products that we make. It needs to be pure and clean raw materials and the same goes for food and beverage and child and care products were products that are in contact with your skin, with patients or food and beverages.

Looking at our market characteristics on the drivers. As I mentioned, it's a big, large, fragmented market, around USD 260 billion in total for thermoplastics and TPE. There are many small- and medium-sized compounders serving the local markets, and we believe there is a large potential for cancellation in the industry. Our ambition is to grow both organically, but maybe more importantly through M&A in order to get a more complete product portfolio that we can offer to our customers. We believe cross-selling is a very large opportunity for us going forward.

We have a portfolio of TPE products. We have a portfolio of TP products. But now we can also bring that to all our customers and do a lot of cross-selling and offer a much broader portfolio. Instead of one sales person showing up on Monday, selling TPE, someone else showing up on Tuesday selling polyamides and the third one coming on Wednesday, selling propylene. We will have an integrated organization selling the whole broad portfolio that we offer. With that said, we have some strength in Europe. We have other strengths in North America. So there's also a lot of opportunity for us to consolidate the market and having a more broad portfolio, a similar portfolio in Europe as we have in North America and vice versa.

There are a lot of mega trends working in our favor and the growing and aging population is a very strong megatrend in working for us. We see that the growing population and growing with the class, they have an increasing demand for electronics, appliances, even autos in some countries around the world. but it's also a strong driver for the demand for health care and medical treatments and medical appliances, where we see a big growth opportunity. We are today supplying products into medical treatments. The consumables like medical tubing and chambers, et cetera. But we have not really explored yet the medical devices where we see a big opportunity to grow as well.

Another trend is sustainability that both pushed by customers and the regulation. I think more driven by customers at the moment as they are looking to increase the minimum level of recycled material in the product. And we also see sustainability driving the need for new types of materials to replace other materials such as metals or changing the polymer in the products.

We have a new directive here in Europe, the European end of life Director for automotive, where cars need to have a certain level of recycled content. They need to be signed for recyclability and recycling at the end of the life. And that's also a big driver in the changing types of polymers used in cars.

So electrification as well, not only in autos, but as we heard before, also the electrical grids needing upgrades that will also drive the need for different types of solutions with cables, connector, electrical boxes, et cetera. But again, automotive electrification is also a big driver as cars are becoming quieter. There's no combustion engine doing a lot of noise. So you will hear all kinds of noise and squeaks from the interior and that's also a big driver in changing the types of materials used in cars. And it's been a big driver for us. Automotive markets may be flat at the moment, but we are still seeing a growth driven by this demand.

If we then look at the attractive market segments. I think you have seen this picture before where we illustrated as a pyramid, where you have compound commodity polymers at the bottom, which is in both in volume and revenue, the largest part. We have engineered polymers, including the TPE, which is also a very attractive and large segment in terms of volume and revenue. And at the top of the pyramid, you have the high-performance polymers, which in volume is not that large, but in revenue, it's quite large because of the high prices on those types of products.

Today, we have a presence in engineered polymers and certain high-end niches of the commodity space. And our plan going forward is trying to move up in the pyramid, where we can find better margins where we can find the stronger growth. But we are not at all disqualifying certain market segments in the commodity polymers. We believe there is still pockets of strong growth and profitability at the base of the pyramid. We have some examples already today in our group, companies which could be considered a commodity polymer, but they have some of the best margins in our group, looking at our company. So we will find some pockets in the commodity polymers focused on engineered polymers and also at the base of the high-performance polymers. That's our plan going forward.

We believe this addressable market is around USD 75 billion, looking at it from our perspective where we believe we can play. And the growth at the lower end of this pyramid is around the same level as GDP. But as you move up in the pyramid at the top of the pyramid, it's around twice the GDP growth rates. So we believe because of the size of the market, there's plenty of opportunity for us to grow, but we have to evaluate and pinpoint which market segments that we are interested in.

We did a study earlier this year to try and identify which growth opportunities that we could work with. Automotive is a big, big part of the total market, and it's a big part of our business. It's fairly flat at the moment, but we believe globally that the growth will come back. But as I mentioned before, we still see growth in these markets, especially in Europe as the sustainability demand is driving new types of materials, increased share of recycled materials. Today, post industrial is the predominant material that's used in recycling, but there is also a lot of work looking at post-consumer recycling.

We believe we are well positioned with our recycling capabilities, both in North America and Europe here in order to grow. And there is also a shift in electric vehicles towards more heat resistant materials. That's also something that's working in our favor besides what I mentioned before that interiors require new materials to reduce the [ NVH ] inside the car. But you also have battery trace, cooling lines, et cetera, in electric vehicles that's driving demand for our type of products.

The second market segment that we identified is Electrical & Electronics. It's also something that's driven by the change in demographics, growing with the class, the growing population, but also the renewals of electrical grids. Here, we see strong growth in electrical appliances in certain markets around the world. You also have computers. You heard about data centers, some of the racks in the data centers are also made with plastics. But we believe there's a big market for housing in grid applications in connectors and appliances that we could grow with.

The third one that we identified with very strong growth is Medical, also again driven by the aging population. We deliver a lot of consumables today in TPE, medical tubes, catheters, drip chambers, et cetera. There's also a trend of TPE replacing PVC, something that we are capturing and benefiting from. But we have also looked into medical devices, precision parts as well as housing and medical devices and hospital beds and hospital furniture.

As a side note for our engineered products business where we produce wheels, hospital beds is one of the biggest markets for caster wheels that we deliver to today. So it's a market that we are somewhat familiar with, but we are digging deeper into this to find exactly where we can grow at a higher pace, both organically and through M&A. I think the organic growth in automotive will be given for us. But in Medical and E&E, we may look more towards acquisitions because there's a very long cycle time in developing new products and getting them approved and so on. So we will take a quicker leap by doing M&A in those areas.

Our strategic priorities going forward, similar to what you have heard from our colleagues with organic growth, M&A agenda and operational excellence. We believe we have an organization that we have launched here in August this year for thermoplastic compounding that will give us much stronger tools to grow organically. We have set up the organization in sales to sell all our products. Cross-selling is a big opportunity for us. And I think it will be fairly quick that we are bringing our complete product portfolio to our customers, our existing customers.

We're also working very hard on sharing best practices and sharing the information between the organization and developing new products that we can launch to all our customers worldwide. We believe, again, working in our core business, there's lots of opportunity, but we're also trying to expand into adjacent market segments to bring our know-how and our products into new market segments. And R&D, I think Klas mentioned that we will put more effort into -- or more emphasis on the R in R&D, not only work with customers on developing new products, but also do some research on our own to bring new products and give them to our customers before and anticipating their needs before they know that they need the product.

On the M&A side, you heard from Magnus that we are trying to build a broader product portfolio. We have a pretty broad portfolio today, but there are some white spots. For instance, Magnus mentioned, we are very strong in TP in Europe. But in the U.S., we are not as strong. So we want to, of course, have the same TP market presence and strength in North America as we have in Europe. So there's a lot to be done in terms of M&A. We have a similar situation with other polymers, but maybe we are stronger in North America than we are in Europe. And then we are also exploring possibilities in Asia, focusing on India, China and Southeast Asia. We have one TP facility in China today, very small, but we will try and use that as springboard to try and expand our business in Asia organically, but maybe more importantly, through M&A.

I also mentioned before, medical E&E, it's a way of us to take quicker steps to become bigger in those markets and trying to develop new products, offering them to customer doing all the testing validation that could take, in some cases, several years before you get approval. So M&A will be very important in getting into those market segments as well. And again, tying back to the pyramid, we want to go as high up in the pyramid as we can in order to have good margins and good profitability. But also finding the pockets where we have really good growth and profitability at the base.

Operational excellence, also something that we are working very hard to improve and get that into our day-to-day work. We are working with continuous improvements. We have started some groups within thermoplastics to share best experience. We're working on the supply chain, how we can see synergies on the supply chain. It's not so easy on recycling material because that's a local business where you have to have a lot of personal connections in order to get the materials that you need. But we are also working together with our rubber colleagues on the TPE purchasing, where we have some similar commodities in oils and some of the rubber raw materials.

We are looking at automation and digitization similar to what Rubber Compounding is and [ Karsten ] showed you the mix in 5.0. We are not working on a totally new technology, but we are looking at how can we do data collection, how can we use AI tools to improve the process, but also how can that be used to develop new products based on all the knowledge that we have on our existing products, existing manufacturing when we get a request from a customer, can we use AI to quickly come up with a proposal that we then can fine tune. So there's lots of opportunities for us on operational excellence going forward.

But we are a new organization, we have only been since May, but we have already a lot of examples where we are working together also transferring production from Europe to U.S. is one example where we have an automotive customer that has been asking for local support, local production in U.S. instead of importing is something that we've been working on for a while now, and we'll probably start up that during the second half of next year. At the same time, we are quite strong in rotomolding products in North America, but we don't have that in Europe. So we are looking at and we are investing in equipment in Europe to start rotomolding production in Europe during next year.

And the example where we have come the furthest is probably within TPE where we acquired the company a little over a year ago, and we have transferred a lot of products from Europe to North America on the TPE side. So there's lots of things going on. It's a new organization, but there's a lot of positive energy. People are looking to each other to see what we can do, what we can learn from each other and how to improve the business and grow a little bit quicker than we have in the past.

Growth strategy, it could be described as we have different strategies to grow. The first one being commercial expansion, which is really expanding our current core business. Gaining market share, selling more to our existing customers finding maybe new customers in our existing regions and markets. The second one being regional expansion. And here, we have a lot opportunities, both in North America and Europe, where we can bring our products into new regions. For instance, North America, we are strong in Northeast and U.S., but we are a little bit weaker in Southern U.S. and Mexico. Trying to grow a business in those regions is high up on our agenda.

And the third one would be portfolio expansion bringing new products to the market and developing new products through our R&D resources, bringing new innovation, I think we have a very, very, very skilled people in our organization, developing lots of new products, and we can bring them to both new customers and new regions.

But this is part of our day-to-day work. But on top of this, we also have the M&A, which can really accelerate all these three growth strategies. I mean, we can -- in commercial expansion, we can acquire a competitor to consolidate the market to gain market share. Regional expansion, we can buy companies in those regions where we don't have a strong presence today like Mexico, Southern U.S., Southern Europe. And portfolio expansion is buying a company that brings new products to us that will complement our existing product portfolio and broadening that. So there's -- as we see it, a lot of opportunities, both organically and through M&A to grow this business.

Our organization, we are as I mentioned, a new organization, but we have put an organization in place that will benefit us to date by increasing the cooperation within the group. Cross-selling is the #1 focus from us. We have focused on three areas to begin with. It's sales, purchasing, R&D. These are, as we see business critical areas where we can quickly extract synergies from our companies.

Cross-selling. I mentioned number one, but we are also on the purchasing side, looking how can we leverage our size and also being part of the HEXPOL Group in order to get better support, better products and hopefully, more competitive pricing from our suppliers.

And R&D right now [indiscernible] and in terms of equipment in the different laboratories, how can we use them in the best possible way to strengthen and benefit the whole group.

Second part of the organization that we have been looking at is our branding. Today, we have many different brands and different legacy brands. But we have decided that we are moving towards the HEXPOL brand also for thermoplastics. HEXPOL is already well known in the rubber industry as a very strong brand. And we want to build the same strength in thermoplastics where we can develop HEXPOL brand as a thermoplastic supplier. It will take some time. Maybe it will take a year or two before we are within one HEXPOL brand, but that's our clear goal going forward.

Thirdly, but not last, we're also reviewing our processes and the systems that we are using, trying to streamline that. So it will simplify our day-to-day business. It will simplify sharing information, analyzing the information and not the least, when we acquire companies, it will make the integration of the new companies a little bit easier.

What we looked at earlier this year, just a little bit more details about the market study that we did, how we identified the growth areas and growth opportunities. we found a lot of opportunities that were then prioritized depending on our strengths and weaknesses. And many of them are within our core business. expanding the offer to our existing customers, maybe moving a little bit outside of our existing customers but bringing the same type of products to them. We're also looking at how we can move into adjacent areas of our core business where we have a good product portfolio that could help us grow in other areas of the business. And thirdly, we have the new potential or the future business that maybe more ties into the M&A agenda to take a quicker or a bigger step into those new markets.

So to finalize and summarize our thermoplastics market. We believe we have strong positions today in both North America and in Europe. We have a global footprint. We have operations in Asia. But there is still more to do in order to both get a more complete product portfolio and get a better geographic reach. That will be helped with the M&A agenda to try and consolidate the fragmented market, buying competitors in our core business, but maybe more importantly, buying companies that complement us in terms of regions or product ranges, market segments, et cetera. And as I mentioned, the new organization, we kept in mind our future needs, not only the needs today and on the strong coordination of our sales, purchasing and R&D but also kept in mind how can we grow quicker through M&A and still quickly and easily integrate them into our existing organization as we grow.

So with that, I'd like to invite Rodney back on stage.

Thank you, Jan. When it comes to the auto specifically, you talk a lot about recycling. And I'm a bit curious how does that affect both pricing for customers as well as your production cost because I can assume that it's some volatility built in there?

Yes. And if you look at it historically, recycled had always been a little bit cheaper than virgin material, but that has changed over time. And at the same time, virgin material is much more volatile than recycled material. So it changes over time, but I would say we don't see a significant difference in margins between virgin and recycled materials.

And then you also talk about moving production capacity to the U.S. Is that driven by the new situation on tariffs? Or is it due to operational excellence?

It's driven by customer demand, and they want us to serve them locally in each market that we work with them. The tariff situation has really not changed that, but it has forced us to speed up the process a little bit, both from the customer side and from our side.

So when do you expect to start moving?

We will start shipping from the U.S. to the U.S.-based customers at the second half of next year is the plan.

so within a year?

Yes.

You talk a lot about this M&A agenda. And I mean, how do you -- how will you be able to facilitate this speed up in the agenda to maximize the value creation for shareholders and not just add another logo, so to say?

I think we are well prepared, and we know what to do. We also had the experience from the Rubber Compounding side, the journey that they have done. But again, our organization, we are geared for growth and we are trying to coordinate certain functions that we believe are critical for the business such as sales, purchasing and R&D. So I think we are together with the decentralized structure, I think we are very well organized and ready for the growth.

You talked also a bit about Asia, and it seems like you have big growth opportunities there. So how can you expose yourself in the best possible way to that growth?

Looking at the HEXPOL Group, we are already in Asia. And for the thermoplastic group, for us, it's important to identify which market segments we want to be in. We cannot be in every market segment, and we want to select the ones where we have good growth and good margins. And I'm confident that you can make money in Asia, and that's without the question. We have examples of that within the HEXPOL Group in our wheels business. China is our most profitable market [indiscernible] is growing. We just have to find those market segments.

Yes. Let's come back to that in awhile. I mean within thermoplastics, we have discussed that before also that the margins are a bit lower. So can you just guide us to what is the margin strategy if you look at the pyramid, top level versus commodity, during the end of the strategic period, how do you think your margin situation in your business segments will be?

I think in general, if you compare thermoplastics with rubber, yes, the margins may be a little bit lower, but it's not across the board. You can find market segments where you have really good margins even in commodity space. Again, we have one company within our group in the commodity space. That's really the one with the highest margins. So it's not so easy to say low margins at the bottom, high margins at the top. You can find really good growth in margins in every segment. And the key for us is to understand and find those segments and I'm confident that at the end of this period in 2030, we will contribute in a positive way to the group.

But you don't want to give a margin figure?

No, we don't give an outlook on that.

So where do you see the best opportunities to grow within your segment?

I think the best opportunities for us is Europe and North America, where we are present. We have quite a good presence, but we are not complete in Europe, and we are not complete in North America. So there's lots of work left to be done in those markets. And then we are also exploring possibilities in India, China and Southeast Asia on top of that. But I think our main focus would be Europe, North America for now.

Because one question that comes to mind is that, I mean, your revenues are around $500 million in your segment. And you're talking about the margin that it's in total $260 billion in your addressable market is $75 million. So it's a huge market. So I would assume that at least you need to focus and concentrate on certain segments and areas and so forth.

Yes. I think when we already said our addressable market is $75 million total is $260 billion. We have made the first selection. Some areas we will not play in, but still in the USD 75 billion, it's a big market. And we can't address the whole market. We have to find exactly where we want to be and focus our efforts on that.

But is it too early to say exactly how you want to address it?

Yes, not here today, we will not speak about it. Not in detail.

So we're looking forward to listening to this. So thank you, Jan. You will now do the second presentation on your second responsibility, which is Engineered Products?

Yes.

So please. The stage is yours again.

Thank you. So I'll speak a little bit about Engineered Products, which is the smallest business area within HEXPOL. It's a business area that has had very strong growth over many, many years. It's also a very profitable and quite stable business. We will talk about our growth and how we will continue to grow organically. We will speak a little bit about our global organization and the footprint. I think our organization is probably the recent. The single biggest reason why we've been so successful in growing and improving our margins over time.

We recently made some organizational changes as well, where [ Peter Lee ] has been appointed President for [ HEXPOL Wheels ]. Peter has been with the company almost 20 years. He's been responsible for our China business, bringing that up from basically zero to being the fastest growing and the most profitable part of our Wheel business. On the gaskets and seals side, Erika [indiscernible] has been appointed President for that also earlier this year. Erika has also almost been 20 years with the company and has a background in sales, both for gasket sales and wheels and assumed his position just before the summer. So we believe we have an extremely strong team in engineered products that will continue to grow the business.

We have also seen over the years, an accelerating innovation pace partly driven by customers requesting new type of products and sustainability. But I would say it's mostly driven by ourselves that we have worked very hard to diversify this business and developing new products that we bringing to new customers in order to grow.

As I mentioned, we have two product areas within the business area, Gaskets, which specializes in the manufacturing of gaskets for plate heat exchangers and extruded sales in advanced polymer materials. Here, we are the leading producer of gaskets for plate heat exchanges worldwide. We have strong positions in Europe and Asia and a growing business in North America.

On the wheel side, where we offer a complete range of wheels for forklifts and material handling. Here we are one of the leading suppliers globally, but we are the only one with the global production capabilities on polyurethane wheels. We have 7 manufacturing sites around the world, 1 in the U.S., 2 in Europe and 4 in Asia. So we're quite heavy in Asia. I will explain a little bit about that because we produce for our local markets. So what we produce in the U.S., we usually sell in U.S. What we produce in Europe, we sell in Europe, what we produce in Asia, we sell in Asia with one exception, and that is our two manufacturing sites in Sri Lanka where we produce rubber wheels and gaskets. And those are production sites that deliver to the worldwide market. So everything we produce there is for export.

We are about 1,500 employees. The majority of those are in Sri Lanka in the two facilities there. We serve close to 900 customers worldwide with more than 8,000 individual part numbers. And looking at our market segments, if you would look at the same picture 12 or 15 years ago, it would have been forklifts and patent exchanges. So we have worked and we have -- that's been our #1 goal is to diversify our business, and we have been quite successful over the years in -- especially on the wheel side, but we still have more work on the gasket and seals side in order to diversify.

Forklifts, as I said, sort of the bread and butter of our business. It's the main part of our business where we supply to forklift OEM. That's always been our main business. But we have been able to grow the aftermarket business in forklifts. It's not only OEM customers. It's lots of dealers and distributors in the aftermarket. On the other side, you have the gasket and seal business where our main customers are the OEM producers of heat exchangers. On the seal side, we deliver a lot of sales to general industry and the building and construction up in the Nordic region. So we have a lot of potential to grow that also in Europe.

But what we are especially happy and I would say, proud obviously is the way we have diversified our wheels business from almost 100% forklift OEM into serving many, many different types of industries. And looking at some of them that has been growing fast over the last 5, 6 years, it's [ intralogistics ] driven by both e-commerce and distribution in supermarkets and in some emerging markets. That's been a really big driver. Different types of industrial conveyor systems such as automotive assembly plants has also been a growth area for us, predominantly in Asia, together with airport conveyor systems for baggage handling. But we also have some smaller market segments that are also showing quite positive development and potential to grow. We are delivering wheels for elevators, escalators some specialty wheels for railway applications and lately also getting into the defense industry with components for undercarriage systems, for tracked vehicles. So we believe we have a much more healthy market spread or customer base today than we did 10 to 15 years ago.

So what do we supply? On the wheel side, as I said, we have a complete range of wheels for forklifts and material handling. Our biggest product range is polyurethane wheels. The ones you see in the middle there. We are working with all the major OEMs worldwide. But also, as I said before, we have a growing aftermarket business in replacement and spare parts. At the bottom, you see some examples of cluster wins that we produce in both plastics and rubber. We are if not the largest, we are one of the largest producers of rubber wheels for shopping trolleys, for instance. So I think many of you will be using our wheels almost on a daily basis when you go to the supermarket.

At the top, you see some of our rubber products that we do a lot of different type of products, solid tires is probably the largest product range in the rubber but we have also developed a range of press-on rubber tires for predominantly for the U.S. market. And we're also developing some of the road application tires.

Gaskets and Seals, it's not so easy to see on this picture, but if you go upstairs, you can see in the exhibition some examples of Gaskets that are used in plate heat exchangers. And here, we are the leading one globally. We have production in Europe and Asia, and we are also shipping into North America through a distribution center. So we believe we are very -- we have very strong positions in both gaskets and seals as well as wheels on a global scale. These are niche markets, but we have very strong positions in those niche markets.

And looking at the market characteristics and the way we see it developing, there has been healthy growth in many years. We have seen growth rates in the industry of around 5% year-over-year for a very long time. And these trends behind this is on the wheel side, it's e-commerce, but we have also seen emerging markets as a big driver of both gaskets and seals and wheels. Sustainable Solutions is a big driver, especially in gaskets, but also the demographic change, especially in some of the emerging markets with people living longer, growing older. You have a growing middle class, and they want all the comforts that we have in the West as well. So we believe that this growth will continue in the foreseeable future.

Wheels side, it's a lot driven by integrated supply chain where our wheels are used on electric warehouse trucks in indoor settings, both in distribution and industrial settings. We have seen strong demand both from distribution as well as manufacturing industries. Distribution we have discovered over the years, it's very resilient towards the economic cycles, people who want food and clothes regardless of the state of the economy, and you need the same number of forklift to distribute the goods to the shops. So that's also something that we have seen as stabilized where if you compare to some industrial trucks, counterbalance trucks, they have a much more volatile market relying only on trade and industry.

So we believe, again, aftermarket, we have very strong positions in Europe. We can do a lot more in North America and Asia. Those markets are a lot more fragmented in the aftermarket. We have some focused activities on growing those aftermarkets in Asia and U.S. rubber wheels, that's a big part of our rubber business. And here, we see strong growth, both from retail, but maybe more importantly, also from health care with hospital beds. And many of the medical devices when you go to a doctor in the hospital, you see they are also placed on wheels.

So I remember when my daughter was born when we moved her out from the room, she was lying in a small medical box, but it was on wheels and I told my wife, these are our weeks. So she was not as impressed as I was.

But again, diversification has been very high on the agenda for our wheels business. And I think we have been very successful in growing and diversifying that we will continue. And we see some more new segments that's starting to grow in terms of [ intralogistics ], we have been successful. Now we are seeing AGV, is a growing market, especially in Asia. There's many, many producers of AGVs popping up all the time, and we are working with many of them in developing tailor-made solutions for their AGV solutions.

Off the road applications, I mentioned before, we are developing some range of both tires and trackpads for building and construction equipment. Trackpads is a very big business in U.S. and Europe that we want to grow and take a bigger share of if you see all the roadworks that the milling machines where they mill the payment, they are running on tracks and each track has a polyurethane or a rubber track pad bolted on in order to not rip up the roads that they are working on. So that's a very big market that we see a lot of potential in growing.

Defense, we have started working with one or two defense customers lately in developing also products for those type of vehicles that we also believe that there will be further growth in the coming years, and it looks like it will be unfortunately a very stable business going forward.

On the gasket and seals side, we have seen sustainability and energy savings being a big driver, especially since the war in Ukraine when energy prices shot through the roof. There's been a lot of investments in energy savings and efficiency improvements have been driving the demand for our type of products. But if you look at the global scale, there's also in many emerging markets, there's a need for more cooling and heating in buildings. The population, the growing middle class, they want more processed food and beverages. That's also a big market for these type of products. District heating and other quite strong growth as well. So we believe that globally, there will be very, very strong demand for heat exchangers going forward.

We have a very wide portfolio of different materials that we use in our gaskets and seals. And I think that's something that really sets us apart from the competition. If you look at our competitors in gaskets and sales, they usually don't have in-house compounding whereas we, being part of the HEXPOL Group, we developed and we manufacture the materials ourselves. So we believe that sets us apart and gives us an edge over competition that we will benefit for many years to come.

Again, the same strategic priorities as the HEXPOL Group. We want to grow organically. We want to start looking at M&A. We have not done M&A in the past within this business area. And operational excellence is something that we have been working with for more than a decade within this group. Growing organically, we see the big trend with sustainability right now, and we are working with some -- very close with some of our OEM customers on the gasket side to develop green products. We have a project called the Green gaskets with one of our customers where we are trying to actively increase the amount of recycled material as much as possible without affecting the properties of the material. This is something where we have done quite -- we have taken quite some steps forward in bringing this to the market. And we are ready as soon as our customers are.

On the wheel side, we have developed wheels based on recycled and bio waste materials, but I think we heard that before that customers are not really prepared to pay for it at this point. So for them, the total cost of ownership is more important than sustainability at the moment. But we are ready to give them the more green products today than they need it. We are also working really hard to strengthen and diversify our customer relationships. We want to have as close relationship with the new OEM customers in new market segments as we have in our traditional markets. And we are focusing here on logistics and defense and energy markets to expand and deepen our relationship with those OEM customers.

We are investing a lot in R&D. I mentioned before that innovation pace is very high, driven by both customers and by ourselves in developing new materials and new products to bring to the market. We are also looking at some new manufacturing processes in order to reduce the labor content and the dependency on labor, how can we automate more and how can we produce quality products with less labor.

M&A, a little bit new for us in Engineered Products. It's something that we have not had a lot of focus on because we have had very strong organic growth over the years, but we are open to make acquisitions if we are able to acquire a competitor to consolidate the market or if we can find someone who is strong in the new region where we are not that strong or someone that brings products to us that we don't already have.

Operational excellence and continuous improvement, something that we have been working on for more than 15 years, and we have our own version of the [indiscernible] production system that we launched many, many years ago. I think we have a very strong organization working really closely together on a daily basis globally in sharing the best practice and learning from each other and improving our business. But we're putting a little bit more emphasis also on automation going forward and digitalization, how can we collect data from our process and how can we use that data to understand and control the process better than we already are.

I think that, as I said, the team we have today is exceptional. They are working really closely together, working for many, many years. As I've said before, both Peter and [ Eric ] have been close to 20 years with the company as they assume the leadership positions in wheels and gaskets and seals. So I'm quite confident we will continue growing at a strong rate in Engineered Products.

So we have one example of successful diversification of our markets, and this is from [ Stellana ] in China and the automotive conveyor systems. As we all know, the automotive industry in China is growing at a rapid pace. There's many new producers popping up all the time. A lot of new factors have been built over the years, and we have been able to capture a big part of that market for wheels in industrial conveyor systems. And we supply today to basically all the OEMs in China, both international and domestic. These are customers that they put a lot of emphasis on quality and performance of the product. They cannot allow the line to stop because one wheel fails. So they are a little bit less price sensitive than maybe our traditional forklift customer.

We have had strong growth over the years, many new projects every year. So we believe this is now a pretty stable business going forward. Maybe there will not be as many new factories being built in China in the coming years, but now we have a very stable replacement business because they do maintenance works every year, and they replace a lot of the wheels as a preventive measure to avoid any problems going forward. So this is a business that we are quite happy with. And we believe that it will be a healthy business for us for many years in the future.

It's also given us the opportunity to work with Chinese OEMs, BYD being one of our biggest customers for these types of products in China. We have delivered wheels to many of their products, many of their factories in China. And now that they are expanding globally. We are also delivering wheels to their factories around the world. We have delivered wheels to the factory in Europe and South America. I think this is a good example of our business in China. We went to China many, many years ago in order to serve our international customers. We have built a local business with local customers. Now as those customers are becoming global players, we are also able to support them in other regions in the world such as the Americas and Europe. And this is just one example, but we have similar examples with our forklift business. Chinese producers of forklifts are exporting more and more, and we are able to supply them with spare wheels in both North America and in Europe.

So we believe we have a strong position.

Chinese producers of forklift are exporting more and more, and we are able to supply them with spare wheels in both North America and in Europe.

So we believe we have a strong position. We are not afraid of the Chinese producers becoming global companies because we are doing business with them in China, and it's a big opportunity for us to do business with them worldwide.

So to summarize, our Engineered Products business, it's stable, healthy growth for many years, and we believe it will continue that way, driven by a lot of the favorable mega trends we mentioned before. We are a global company. We have a global reach, and we have a global organization working with our customers on the local level, but with the strength of our global company in the background.

And innovation, I think we have shown over the years that we are bringing or developing new products, bringing them to market in order to diversify sustainabilities and other opportunity for us if we can develop and launch new products in greener products for our customers. So I think we are in a strong position, and we are geared up for future growth.

And with that, I would invite Peter Rosen, our CFO, up on the stage.

Thank you, Jan. We've finally come to today's highlights. We're going to talk about the financials. As you heard, we have high ambitions when it comes to growth and improve profitability of this company. And we also have the financial strength and resources to do that and support that growth. And I'll take you through how we build that strength and also how we plan to leverage the resources that we have to support that growth. But I thought that before we do that and before we go into the long term in the future, let's take a quick look at where we stand today and this year.

If we look at the first 9 months of this year, we've delivered about SEK 15 billion in sales, which is 4% below what we did the same period last year. Now if we look at those drivers, why is it lower? There are 3 things. One is that our organic sales are down 4%, I'll come back to that. This is offset by the acquisitions that we've done in the last couple of quarters. We did [indiscernible] today with the [ deed ] months at the end of last year. That brings [indiscernible] and then we are, as most of the Swedish companies are impacted negatively by the Swedish krona. So that brings us down 4%.

If we look at the 4% organic that is down from a geographical point of view, this is seen in North America. Our European business and business in Asia is stable, but we see it in the Americas. And it's very much related to what Ken said. The uncertainty that we've seen earlier this year has a negative impact on the demand of our products, and that's what we see here.

From an end customer perspective, is primarily automotive, which is down, while we grow in some other areas such as wire and cable. But all in all, if we look at it for the first 9 months, sales are down 4%. That also has some impact on the profits and the margins. EBITDA is down more. And as you can see, the margins are as well. And this is related to both the lower sales, but also that we have a somewhat less favorable mix in the sense that automotive is down, which is a good segment for us. Cash flow is also down, but it's down less than profits. And that is because underlying is a very robust and strong cash flow management. And this always the case that we delivered softer cash flows in the first half of the year, and then we see stronger cash flow in the second half of the year. So that parent still remains here.

So even though there are some short-term challenges, there is financial resilience built into the HEXPOL business. And there are 3 reasons why that is the case. The first one you see on the left-hand side, and that's the business model in itself. Klas showed it earlier, this is a simplified version of it. And there are several components to it, one which is key is that we develop customer-specific compounds. And we also give high technical support to our customers. And that means that as long as we can do that, we have very long customer relationships. They are sticky. They stay with the business with us. So inherent here is a low risk.

The second part is how we are organized. We are a global company, and we take advantage of the things that where volume and size matters, such as procurement. At the same time, as you've heard from all my colleagues here, the business is, at the same time, quite local. So all the 50-plus production sites that we have, they are close to the customers, and that gives us the opportunity to react quickly when there are specific customer needs that we need to meet, but it also gives us flexibility when it comes to production planning because we can move the volumes to the site that makes the most sense for us from a cost perspective.

The third part is how we manage working capital. We are very light on working capital. Apart from managing payment terms with customers and suppliers, we maintain a low inventory level to a large extent because we primarily have raw materials on stock. But that also means that we are very efficient when it comes to generating cash flow, which I will come back to in a bit.

If we take a little bit longer-term view on our developments, with the exception of specific time periods such as COVID or perhaps now, where we've seen softer demand in sales, we've always delivered sales growth and high profitability. At the same time, we deliver high cash flows. The blue bars are absolute cash generated each year. The yellow one shows the cash -- free cash flow in relation to EBIT. We are generally generating more free cash flow than EBIT. There are some exceptions, but that is primarily when we've taken a conscious decision to invest more in something that makes sense for us.

One example is when we invested more in [indiscernible] to increase our medical production capacity, or in relation to when we've done acquisitions and decided to invest more in their capacity to produce. But in general, we generate more cash than EBIT.

We also pay out fairly much in dividends. Last 10 years, we paid a SEK 12 billion in dividends to our shareholders. Ordinary payments, dividends has been around 50% of net profits. And then there are some years, as you can see, where you see the peaks where we've done additional dividends. And if you look at over a 10-year period, on average, we paid out 60% of our net profits to our shareholders. And that means that regardless if we look at it from a short-term perspective or a longer-term perspective, we stand with a very strong financial position.

Equity asset ratio is high. Net debt is low. If we look at the net debt-to-EBITDA ratio, if we look at the last 5, 10 years, we've been below 1. There are some years where we go up such as 2018, 2019, where we go from 0 -- below 0 up to 1. And that's because we -- at that time, we acquired Mesgo preferred at the same time, and then quickly the year after we come down because of this strong cash flows. And we plan to use this strong balance sheet to leverage the growth that we've been talking about here today.

So if we then take a look at a little bit the future and how can we create value? Well, you've heard some of these words before, but there are 3 main components to that. One is increased focus on organic growth. That will come from R&D to drive product innovation. It will come from adding sales resources, but it will also, as Ken talked about, how do we deal with capital conversion? How can we get that volume from our customers. That will require that we will invest -- need to invest more in these resources. We think that when it comes to this part, we can manage that in step with us growing. So we don't think that's going to change the cost structure that much.

The second part is the raised M&A agenda. We've clearly stated and we published new financial targets that we are willing to go out to a net debt-to-EBITDA ratio of 2.5. Magnus has shown and describe how we plan to do that and the possibilities when it comes to targets. And if we look at the modern time in the last 5, 10 years, we've been at 1 or below 1. So we plan to leverage the balance sheet more than we've done historically.

Third part is operational excellence, and it comes very much down to cost leadership in this industry, production efficiency, but also how we manage the product portfolio. Carsten mentioned mixing 5.0. That is one part of us leading this and beating the industry average to become more efficient. That will most likely will require incremental CapEx to set that up. But at the same time, we think that over time, that CapEx will replace the CapEx we already do because we're moving production technology from the 5.0 to a more modern state. So incrementally, we'll see more CapEx over time, that will replace current CapEx that we would rather do.

So we think these 3 things will add value to our shareholders, both in absolute EPS growth, more than what we've done historically, continue with high dividends and will still retain the financial strength to continue to support the growth going forward.

As of this morning, we have 3 financial targets: Annual sales growth of above 10%. EBIT margin above 17% and an equity asset ratio of above 30%. When it comes to the latter, we've always been above it. We are normally around 60%. We have often been or been close to the sales target to grow 10%. The 17% EBIT margin target has been more of a challenge. It's part of because it's a moving target for us. And I'll try to give some flavor to that.

There are 2 things why it becomes more difficult for us. One is the way we manage pricing. We pass on changes in raw materials to our customers. We pass on the absolute change in prices. So if raw material prices go up, we pass that on to our customers. That means that our margins will actually go down and vice versa. So our margins, the 17% EBITDA will actually move with how the raw material prices move. So it makes it a little bit difficult.

The second part is we acquire companies, most of those companies run with lower EBIT margins than we do. So every time we buy a company, added to HEXPOL, it will incrementally have a negative impact on the EBIT margin. The more we buy, the more negative impact we will have on that margin. And also, it's somewhat limiting because sometimes, we do look at companies that are sound, have a good business, but we think that their margin is -- normally, we can bring them up. But if we think that we can bring them up to 17, we don't look at it. So we say no to some companies that perhaps could actually add value to the company in absolute terms.

So as of this morning, we decided to go for and change our financial targets that we think better align with the growth ambitions that we have here in the company. One is to go for EPS growth above 10% CAGR during this time period. We think it better reflects the business model that we have. And it also reflects better what we want to do on the M&A part.

Second part related to this is, of course, that we want to put a guidance on when it comes to net debt to EBITDA ratio. When we say we are willing to grow up to 2.5, keeping in mind that normally, if you look at the last 5, 10 years, have been below 1. So it's a fairly substantial increase in leverage in the balance sheet.

And the third part is to have a dividend policy in the range of 40% to 60% of our net profits. And we think that we can do this at the same time. And if we look at the last 10 years, ordinary dividends of 50%, including extra dividends has been around 60%. We will keep the sales growth of about 10% and an EBIT margin in the range of 14% to 16% because they are important to us. And we will always keep them in mind. But the focus will be on the 3 financial targets.

Now those of you that follow us, we know that we report 2 business segments: Compounding and Engineered Products, Compounding makes up about 93% of our sales, Engineered products make up the remaining 7%. Next year, we will change that. We will split the Compounding segment into rubber compounding and thermoplastic component. Partly because we want to increase the transparency. But also, as you've heard today, thermoplastic compounding is a key area where we want to focus on try to get growth. So we think it makes sense to split those up.

And also just briefly go into the numbers, if we look at the sales growth since 2020, compounding has shown 11% growth. If we look at Rubber Compounding and thermoplastics within that, Rubber has been at 9, Thermoplastics about above 20% growth. And we also see similar on the EBIT part, where Rubber -- where Thermoplastic grows faster than the Rubber Compounding part. So as of Q1 next year, Rubber Compounding, Thermoplastic Compounding and the Engineered Product as it is today.

So to summarize where we stand on the financial part, I would like to highlight 3 things. We have a very strong financial position that we intend to leverage to support the growth. That's both the organic growth and the M&A part that we've presented here today. We think that focus on growth will be attracted to the shareholders, both growth when it comes to EPS growth, but also that we continue to plan to pay out high dividends in the range of 40% to 60% of net profits. And we've changed the financial targets to better support the growth agenda and the strategic priorities that we have.

And by that, I thank you for listening, and I welcome [indiscernible] back up on the stage.

Thank you, Peter. And that concludes the presentation part, and it's now time for the longer Q&A. So Peter, please stay on stage, and I would welcome up the rest of the management team.

So just like we did on the previous Q&A session, we will take questions both from the room and online, and you who are online, some of you have already submitted questions, and you're, of course, welcome to fill in even more. And yes, when you get the microphone again, please state your name and organization, and we'll take it from there. So we can please start here.

This is Henric Hintze, ABG. So it seems to me that the key component in reaching the new financial targets will be an increased M&A base compared to what you've [indiscernible] before, at least that's how it looks compared to the assumptions I have been making. I guess, if you just -- we've heard a lot about where you will be looking for M&A and what you're looking for and things like that. But just in terms of boiling it down to how you will actually be able to increase that pace. Is that mostly about relaxing the margin restrictions that you talked about, Peter? Or are there any other key components we should keep in mind, which will actually enable you to increase that pace?

I think if I -- maybe I start and please feel free to fill in. I was looking for [indiscernible]. So for us, it's -- as we said, we have a history of acquiring quite a lot of companies as we have seen 45 companies. So we feel that is something that we master, if I may call it that. To increase that pace, we're adding resources also. And I think what you said about decreasing the demand when it comes to profitability and so on. We have to find the right target companies, of course, that both when it comes to products, when it comes to geography. And we are looking for -- Magnus had a good word for good companies. So somehow, that is still the plan we have going forward. Not to compromise on being, if I may call it, a good company.

But we will add resources to this. And of course, that will be challenging for us to do the increase. And I think you mentioned it before right now in the situation where we are in the market situation now, we see that some companies are a bit weightening because of the current market situation. But we have a pipeline that give us confidence that during this period, we will fulfill those targets.

Yes. Maybe to build a little bit on that. We have worked on the pipeline for a number of years. So we feel that there might be a pent-up demand for coming out with those targets. I believe when the market turns back now, we will see more closures as well on the M&A side.

Maybe if I could just follow up on that. So except for the margin requirements that Peter talked about, are you in any other way altering how you evaluate value accretiveness of an acquisition in terms of what you're willing to pay?

I would say no.

Andres Castanos from Berenberg. You're so confident that you can apply your historically successful rubber playbook to the thermoplastics business, but I wanted to understand if they have similar cash profiles. You talked a little bit about margins already, maybe lower? And also on working capital, the requirements of the thermoplastics business, are they different how they compare with the rubber businesses?

Klas, start.

If we look at the working capital side, I think it's very individual for each company. As Jan mentioned, we have some companies within HEXPOL that has a higher inventory because related to recycled materials, that will not be the case for all the thermoplastic companies. So you can say that, by definition, it's higher.

Secondly, we also need to improve today. It's for us a fairly small part of the business, and we will increase the efficiency in managing working capital going forward as well.

Carl Deijenberg again with DNB Carnegie. So first, I had a question. We spoke about it a little bit on the Q3 numbers. I guess it's more towards you can on the U.S. development and the organic side. And you had the slide there previously on the development. And I guess I wanted to understand a little bit the sort of in-sourcing continent we talked about on the captive side and so forth. Comparing your organic growth in the U.S. relative, automotive output and also taking account to the growth aspects in wiring cables, for example, it seems like your effect has been quite pronounced on the downside in the delta relative production, if I just take your organic development and backing it out.

So I'm just trying to understand how much more can you see your customers taking this announce [indiscernible] this sort of a low point. And if output comes up higher in '26 '27, do you get the full effect on the upside as well?

We believe they're -- they brought in what they're going to bring in and that if there's any increase in automotive build, building and construction, wire and cable, will force an overcapacity situation that we can take advantage of.

And do you have any approximation of how much the negative effect has been just incrementally from that effect, if you take the last 6 quarters?

I don't have those numbers in front of me.

Okay. Then I want to ask also on -- just your general view on the European automotive OEM sector, I mean, it's obviously quite challenged from the Chinese players. And I guess we haven't really seen the Chinese OEMs establishing full local capacity in Europe yet. And you have a customer list on the Engineered Products side, a lot of the OEMs there. And I want to understand if they deploy capacity in Europe locally, do you get the upside on the rubber side as well? Or is it a different supply should set up?

So I would say from -- as I mentioned in the presentation, I would say that's what we see as well that the Chinese OEMs are entering more and more the European market. And that's why we are just right now in a process to try to establish the partnership and relationship with them as well. In China, in order to participate on their market penetration here in Europe. So that's the way how we want to somehow participate in that direction.

And I think an additional fair comment is that it is not decided yet if the Chinese OEMs will bring their Tier 1, because remember that we sell our products to the extruders to the Tier 1s to the OEMs. So -- but in both cases, so either it will be our established markets or established customers providing the Chinese OEMs or if they bring their own Tier 1s, then we need to take the context, as Ralph described, which we have then established in China.

And I understand you're evaluating this right now, but at first class is this a dramatic difference depending on how the supply chain would pan out? Or is it fairly uniform for you? I'm just meaning you were talking about if they would -- it's still very early days if they were fully deploying that kind of supply chains you're seeing in China relative to Europe, but not depending on what kind of scenario plays out? Is it a material difference for U.S. supply? Or is it?

No. I would say we have already, as you know, sites in China. So we are going out with them, not to the same extent like we have the, I would say, leadership in Europe here. So from that perspective, we have a little bit of work to do in order to strengthen that relationship. But I would say it would not change for us from a product portfolio.

I would like to add on the Thermoplastic side, we have Chinese-owned Tier 1 and Tier 2 suppliers in Europe already that we supply to, and we are facing some competition from China on our business, and have been facing that for some time. So it's not something new, but exactly how that will play out remains to be seen. I don't think they will bring all their suppliers with them here.

Yes. And maybe one final one. I want to ask a little bit on the electric vehicles. I guess the growth as we talked about, have slowed down on a general basis, but can you just remind us a little bit the content per vehicle for you relative regular petrol vehicles and, yes, how significant is the difference you talked about?

I think on Thermoplastic side, we have seen -- have been gaining business because of more electric vehicles. They require more quiet interiors, and they are switching from certain polymers to other polymers to get rid of noise and squeaking sounds in the interior when you don't have a combustion engine, making lots of noise, that's been positive to us on the Thermoplastic side.

Is it 30%, 40% higher per car? Or is it?

I think that's different from different carmakers. We do a lot of business with the premium OEMs in Europe on the Thermoplastic side, and there has been very positive for us.

So we have a few questions online, which all relates to multiples or your value and company set. So Julia saying, can you please give a broad range of multiples you expect to pay for these targets. And [indiscernible], he's also asking multiple [indiscernible] companies being Thermoplastics?

Yes. I mean, generally, you can see a little bit higher multiples on the Thermoplastic side compared to the Rubber Compounding, but it's very dependent on the performance of the company. So we cannot give any specific multiple guidance there. But you can say that you need to go a little bit higher on the Thermoplastics side.

And when it comes to the M&A activity, from [ Julia Winkelmann ] from Bank of America, what makes you confident that there is the right target for sale and why is now the right timing? Is the valuation more favorable. And then we have a similar question also from Julia. What makes you this confident to be able to find the right assets for M&A.?

I mean, as I said in my presentation, we don't act on ad hoc opportunities. We have a plan, we have a strategy. So when we find companies that fits into that model, we react on that if the price is right. So we actually have a lot of criteria to make M&A. So we feel quite confident that what we actually act on fits both from a strategic standpoint and from a price standpoint.

And why is now the right timing?

Timing is right when things are for sale. So I mean we have a long list of companies we would like to buy. If that's going to be possible today or in 2 years, that is not really important for us because we act when we have the opportunities.

Johan Sjöberg from Kepler Cheuvreux. Based on your experience within the rubber company, when you have a market which is with a lot of uncertainty right now, and you expect things to move gradually in the right direction. How long time does it take before typically buyers and sellers meet on sort of agree upon a price, because right now, there's a big uncertainty how -- just given your past experience, when could we sort of expect to see the M&A again, that sort of kicking in for you guys?

We have seen quite a long time with the falling profits in companies in our sector. And that, of course, makes M&A more difficult because when you have a higher profit a couple of years back, it's hard to adjust to a lower price. But I think we will come to a situation right now when a lot of sellers kind of come to the conclusion that it will never come back to the '21, '22 situation. So I think that will unlock a lot of possibilities for us.

So I think, Klas, you talked a little bit about it before, you're sort of looking at the 10% sales growth target. Is this more sort of -- I understand it's between 26% and 30%, but if you were sort of you expect a slightly lower growth in the next few years and sort of growth picking up on the back of the earlier comments. Is that a fair guess?

Yes. I think that we said -- I mean, Peter showed us a glance of the Q3 figures, where we see where we are currently, given the current market situation. But again, during this period, we believe that we will get back to a more normal and stable total market situation.

And then also just looking at the competitive landscape also on -- are there any other players out doing the same sort of growth ambitions within the Thermoplastic business as you are? Is that high competition for the company? That's what I'm trying to figure out.

We have quite a few private equity funds that do a similar type of roll ups as we do. We have some more levers to pull in those processes because we have synergies, so that talks in our favor. And also a lot of family companies do not want to sell to private equity, and that also plays in our favor.

Johan Dahl, Danske Bank. Just on Thermoplastics, which is obviously the hot topic that do you have any round number for the achieved organic volume growth in your Thermoplastic TP operations a round number just to put it into context, what you see. And I'm also wondering, is there a cannibalization going on between Rubber Compounds and TP. In automotive, for example. If you could just address that briefly.

Secondly, I was also wondering -- I understand you want to replicate a bit of what the roll-up that's been done in Rubber Compounding. But then again, that was in Rubber was an effect of fairly big platform acquisitions, which yielded a significant market position. Here, we're addressing a much larger market. Could you just help us address that as well? Maybe we should segment the TP market more to see how you can achieve a big market position. Just curious here.

I can take the first one. No, we don't publish specific numbers when it comes to organic for Thermoplastics. But safe to say also, as you've heard here today, but all of the growth segments that we -- when we talk about Thermoplastics, we can see wiring cable, et cetera, et cetera. So it has a higher -- general, it has higher organic growth than Rubber.

Carsten, do you want to take the cannibalization of Rubber to TP or?

Yes. I mean, there is a certain cannibalization between TPE and Rubber. It depends on the application we are in. So interior materials moved more towards TPE. But what we should not forget PAUSE all the rubber materials being used in automotive environment, these are performance products. So they have a certain, I would say, task to fulfill to drive that part. I mean it is sealing the passenger cabin. It is providing you right and comfort. We are talking about air spring systems. We are talking about the sealing systems in that car. You want to be sure that the door is still see when you're running with fast speed over the highway. So there are certain, I would say, dynamic properties, which will always be covered by rubber compounds in the future.

So some cannibalization you could see, but the predominant market we are in with the rubber compounds are performance products and there, we don't see that much of cannibalization.

And if I may add something to that, I would say, no. We are already quite long with the company. And I remember when we did the first steps into TPE, there was a little bit in that idea. Is there may be a risk of cannibalization from rubber to TPE. So it makes now what is now 20 years on about. And at the end of the day, we figured out that with the TPE, we grew TPE, but not because of cannibalization, but because TPE, there were applications were, I would say, TPE was growing, but not for cannibalization in the rubber side. So from that perspective, to be honest, we are not really worried about that.

And then maybe I should comment a little bit on the M&A roll-up on the Thermoplastic side. We -- on the Rubber side, we are market leaders plus volume leaders. We will never be up on the Thermoplastic side. So we will be #1 or #2 in specific segments on the Thermoplastic side. And that's very different when it comes to the rollout strategies.

Andres Castanos from Berenberg. Can you compare the wire and cable rubber compounding margins with the margins, which you've been automotive. I understand there is much growth here, but how that's the margins compare?

I can start. Again, it depends on where you are. And if we talk about wearing cable, we'll talk about high voltage or low voltage. So again, coming back to what Jan presented, we want to be in the right part of that pyramid of products. And then there are very good margins that we can find. And I mean, we have the same ambition when it comes to the rubber part. So you can't say that 1 segment is better than other. It's depending on where you are in that pyramid. And as we've said, both for Rubber Compounding and Thermoplastics, we want to be in the middle upwards and then they are good margins.

The value pyramid you have seen before in another context. That is what you see also in the rubber and wire and cable business where you have on the base, you have the, I would say, low voltage PVC type of cabling to connect your computer to connect your TV. This is definitely not the market area where we want to be in. So we are stepping in when it comes to electrification, infrastructure, grid connections. So our target is to be more in the medium voltage to high-voltage application. High voltage is that is really top of the notch in the pyramid, but a good position in the medium voltage application. That is what we are looking for.

So we have some questions online about your organic growth. You mentioned another driver for growth will be increasing sales capabilities, and this is from Julia [indiscernible], Bank of America. Is there specific targets and measures? And can you give a number of how many people you will add and in which regions and markets?

I think that's -- it's not so easy to give a general figure on that. That depends very much. I would say what segments we are targeting. I think you can mention going into the industrial segment and what that means versus being in the automotive segment. So I don't think we can give a general figure just that we are prepared to increase that capacity. And I think you, Ralph mentioned about looking at key account management, product management that where we can meet our OEMs and understand their needs more, but it will be very different, I would say, depending on [indiscernible] .

Yes. And one related question [indiscernible] one related question from John Hilton from Pareto Asset Management. You say you will invest to grow, but also say that organic growth is expected to be low single digit. Does that mean that investments will mainly be in M&A, where our investments needed to also grow organically?

And I think like we said that we need to invest in -- also in the organic growth. And so it will be both that, but also into M&A.

If I do the math quickly in my head, I get to like SEK 2 billion in free cash flow to acquire for in the next 5 years annually to get to the net debt target, and that means more than doubling the M&A. If you don't succeed in the M&A, would you sort of do buybacks to get EPS growth down because you almost get to 10% EPS growth with SEK 2 billion free cash flow, if you acquire your own shares or [indiscernible]?

Priority number one is to do the M&A. And then we have the dividend policy of 40% to 60%. And hopefully, we will use all of that to support what Magnus presented here today. pAUSE hypothetically, if it does materialize, that's a much later question, but priority number one, M&A and then the fairly high dividends of 40% to 60%.

[indiscernible] So I was curious to hear more about both the R&D spend going forward, what you intend to do there? And then also, you touched upon the CapEx side, how much you expect that to increase for the next couple of years?

I can take the CapEx side just initially. What we talked about and mention here today is primarily mixing [ 5.0]. And just before I answer that, I mean, we are very well invested when it comes to CapEx. We've been -- every year, we do all the CapEx we need to maintain a high level of production efficiency. [indiscernible] is new, and that will be incremental at the start. And we thought the first site, we probably talked about roughly estimate SEK 10 million to set up that run. However, at the same time, as I mentioned before, that is successful, we will roll that out also in more in Europe and also in North America, but that will, over time, replace CapEx that we already do today to maintain the efficiency.

So incrementally, yes, there will be a certain increase. But over time, we believe it will come down to similar levels to where we are in relation to size.

And then your next question was about spending in R&D. And I don't know if you want to -- you mentioned that we have a center in Italy. Maybe just a few words as 1 example, let's say?

I mean, a good part of that central R&D department in that facility in Italy, we acquired already with the acquisition of Masco at that time. We are further expanding that. We put additional equipment in there. Yes, there is a CapEx involved in that, but not extensive. It is more about the human resources we are going to build up there, but also it's not a massive investment, but very specific. On top with the process intelligence team, we will also put more efforts to use artificial intelligence also in the area of R&D, very important point.

Then you also talk about data centers as a growth booster going forward. What's your current exposure to data centers? And how do you expect that to sort of increase over time?

Well, we're not exposed. When I say data centers, we're so exposed to data centers through our wire and cable networks and our power transmission companies that supply that. So again, a lot of the names I put up on the board there are supporting that directly, and then we are supplying them materials for their products. So we're involved in the transmission of the infrastructure to the data center and then some products in the data center as well, but through our customer partners.

And I believe were in cable is like 8%, 9%, 10% [indiscernible] and how much of that do you expect to be data centers?

I don't know how to break that out yet. So we'll try to do that in the future.

So a question from the online from [indiscernible] from Millennium Capital Partners. Would you be willing to fund any acquisitions via equity in order to keep the net debt-to-EBITDA below SEK 2.5 million?

Hypothetical question. I think if we come to a point where a big acquisition makes strategic sense and everybody believes in also the Board, I would imagine that they are willing to have that discussion as well. But sort of hypothetical at this time.

It's Gustav from Nordea again. I thought maybe just in what you present today, I mean is there any underlying ambition of actually reducing your automotive exposure?

We have to bear in mind that the automotive industry for us is a very good business. And we see, as we said many times now that it's been suffering, let's say, the total market due to different reasons. But that is very profitable for us. And I think we just have to be on our toes to remain relevant for that sector. But saying that, we see and maybe one example is wire and cable that -- where we can grow in other sectors and that we welcome to have a better spread.

In automotive used to be a bigger part of HEXPOL as you know, than it is today. But again, we have to remember that is a solid foundation in that sense for our business. And we should nurture that if that's the right [indiscernible].

Okay. So we should not interpret sort of that you see this growth in other areas. You talked about M&A Thermoplastic, of course, automotive in that, but that you will continue to gradually dilute this trend towards 2030?

Well, as I see it, if we find depending on the targets, it could be in other sectors, of course. And then we would welcome that in the sense that we broaden our segment exposure.

And actually, if you look at the high technical products that we like to sell their automotive is a very big part of that. So we probably have a lower automotive share than the market as a whole.

And then just my second question here. I thought maybe if you can just touch upon a bit on the pipeline in sort of China, India, Southeast Asia and also that sort of transaction market differs from the one in Europe?

Well, as Klas told you about, we have done quite an extensive market study for Asia, that's China, India and Southeast Asia. We don't have an extensive pipeline there right now. So that's something we will build over the next year or so. So that's a little bit longer-term projects than in Europe and North America.

So we have one final question from online. Is the EPS target starting from 2025?

2026 to 2030.

So the starting point is from '25?

Yes.

Thank you for clearing that out.

Do we have any more questions here in the room?

Good. So this then concludes the Q&A session. So I would like to thank you all Jan, Peter, Ralph, Carsten, Klas, Magnus and Ken. So thank you all. And Klas, it's now time for your closing remarks.

So first of all, I would just like to say to you in the audience here in Stockholm that I appreciate your interest in HEXPOL and also you online, thank you for your questions. And just to summarize that we feel that we have a very strong foundation going forward in this growth strategy. For us, the priorities are clear. We have shared with you some examples of what we plan to do in the different business areas. I also would like to thank my colleagues for sharing that. And our ambition, I hope, is also clear about what we say being #1 and #2 in the segments where we operate. And then the new financial targets are ambitious, but that is HEXPOL. We are ambitious. We will work very hard to achieve these targets. And we are not giving up the operational metrics, which was discussed back and forth about the 14% to 16%.

We are, let's say, every morning when we wake up, we think about profitability. To gain that, I think we heard also my colleagues saying, we have to be close to our customers. We have to be quick in answering to our customers. That is what makes a difference. So by saying that, we have to get back to our customers now. But again, I must say, I appreciate your interest. And I feel personally honored also that you show this interest for our company.

So again, thank you being here in this room, and thank you all joining us via online. We appreciate that. And we wish you all the best and looking forward to meet you again. Thank you so much.

Welcome to the HEXPOL Q3 presentation. [Operator Instructions] Now I will hand the conference over to the CEO, Klas Dahlberg and CFO, Peter Rosen. Please go ahead.

Thank you, operator, and hello to you all, and thank you for joining this call, and welcome to the HEXPOL Q3 presentation. This is Klas Dahlberg speaking, and I'm here together with our CFO, Peter Rosen. If you please turn to Page 2. I will start with a business update. Peter will take you through the financials, and I will summarize the quarter. After that, we are happy to answer your questions. If we then go to Page 4, please. I will start by going through the Q3 performance. We see that most markets continue to be affected by the geopolitical uncertainty, but it's pleasing to see that the European market continues to be rather stable, while the North American market is still challenging. We had only minor direct impact from tariffs, whereas the indirect impact on end customers affected the overall demand, especially in North America. It's also pleasing to see that including acquisitions, volumes were actually higher than last year. And excluding acquisitions, they were in line with last year, but with an unfavorable mix.

Looking at our main segments, we saw that the automotive end customer segment continued to be slow, primarily in North America. That was partly compensated for by increased demand in building and construction and also in wire and cable. Our most recent acquisition, Piedmont in the U.S. and Kabkom in Turkey contributed positively to the quarter. Sales prices as well as prices on major raw materials were stable, both versus last year but also sequentially. High uncertainty continues triggered by U.S. tariffs and U.S. trade policy, and that is impacting us indirectly, as mentioned before. In North America, that is the main reason why we could not grow the overall sales and results compared to last year. In the quarter, we delivered sales of close to SEK 4.7 billion with a negative FX effect of some SEK 300 million.

Piedmont and Kabkom added some SEK 240 million in sales that was offset by lower organic sales in Rubber Compounding Americas. Compounding Europe showed rather stable organic sales. We reached an EBIT of SEK 688 million and a margin of 14.7%, impacted negatively by FX of some SEK 50 million and an unfavorable mix. The operative cash flow continued on a good level, and we reached SEK 740 million in the quarter. If you please turn to Page 5. If we look into the different business areas, starting with HEXPOL Compounding, the overall organic volumes were in line with last year. The lower sales were impacted by negative FX of some SEK 290 million, but also by the mix.

The automotive end customer segment was down primarily in North America, but that was partly offset by increased demand in building and construction and wire and cable. The price on major raw materials were sequentially stable and also versus last year. And the lower operating margin was affected by an unfavorable mix. Rubber Compounding Americas is, as you know, an important part of the HEXPOL Group. And we are very happy to welcome Ken Bloom back to HEXPOL as the Interim President for Rubber Compounding Americas. Ken has a clear mission to take the next step capturing and growing that business. If we then jump to HEXPOL Engineered Products, if we exclude a negative currency impact of SEK 22 million, we actually had a small increase in sales compared to last year and also good development across all product areas, leading to a stable EBIT.

We are firmly committed to sustainability and our focus continues. We are on a good path to deliver on the 75% CO2 reduction target that we set for the end of this year. We are also working on the sustainability strategy and the new targets will be completed during Q1 next year. M&A is, as you know, an important focus area for our growth plans. We have the financial resources to accelerate acquisitions. Short term, the geopolitical uncertainty impacts the M&A activity level. There is somewhat a wait-and-see mentality among some companies, and that is affecting that. And last but not least, on November 4, we will have our Capital Market Day in Stockholm, and then we will share more about our growth strategy. If we then turn to Page 6. It's time for the financial update, and Peter will start with the sales development in Q3.

Thank you very much. So if I can ask you to turn to Page 7, we'll take a look at the sales development in the quarter. And as you've seen, we delivered sales of SEK 4.7 billion in the quarter, which is down 6% compared to the same quarter last year. And if we look on the drivers, we see that organic sales are down 4% in the quarter. And at the same time, the acquisitions of Piedmont and Kabkom added 5% in sales. And as Klas mentioned, there were large negative effects in the quarter, adding up to SEK 312 million. Coming back to the volumes, overall organic volumes were on the same level as last year, but sales were still down, affected by a less favorable mix. Looking at it from a geographical perspective, Europe showed stable sales in the quarter, while we saw a decrease in North America that also translates into the decrease on group level.

From an end customer perspective, automotive showed soft demand, which was partly offset by increased demand primarily from building and construction, wire and cable, but also several smaller end customer segments that showed higher sales in the quarter. If I can ask you to turn to Page 8, just taking a look at the financial overview and the P&L. We delivered a profit of SEK 688 million. That includes a negative FX impact of just above SEK 50 million. EBIT margin of 14.7%, which is below what we did the same period last year. And the main reason for this is somewhat less profitable mix, but also OpEx in relation to the lower sales that we saw here in the quarter. Strong cash flow in the quarter with an EBIT of SEK 688 million, we delivered a cash flow of SEK 740 million in the quarter. If I can then ask you to turn to Page 9, taking a somewhat different view of the financial performance here in the quarter. We see that sales came in at SEK 4.7 billion with an operating profit at SEK 688 million below last year, as mentioned, and an operating margin of 14.7%, which is then below what we did last year.

If I can ask you to turn to Page 10, looking at the drivers of the operating profit, we see that the lower EBIT is primarily driven by the lower sales, but also impacted by lower gross margin. The lower gross margin is affected by mix. OpEx is somewhat above last year levels, but that is driven by we've added Piedmont and Kabkom to the cost base compared to the same period last year. If I then ask you to move over to Page 11, starting to look at HEXPOL Compounding in the quarter, delivered sales of SEK 4.3 billion in the quarter, which is below what we did the same period last year. Negative FX has a sizable impact of almost SEK 300 million in the quarter. Recently acquired Kabkom and Piedmont added about SEK 230 million in sales, while as mentioned before, organic sales were down some. And these lower organic sales are seen in North America, while Europe showed sales on the same level as last year.

And as mentioned, from an end customer perspective, the lower sales is seen with automotive customers, and this was partly offset by higher sales to end customers within building and construction, wire and cable and also some other smaller segments. Operating profit came in at SEK 624 million with a margin of 14.4% for the quarter. If I can ask you to turn to the next page, we take a look at Engineered Products, where adjusting for negative effects in the quarter, sales were up 3%, and this is driven by strong performance by the gaskets products. Operating profit at SEK 64 million with a good EBIT margin of 18.1%, both in line with last year levels. If I can ask you to turn to Page 13, taking a look at the working capital. You can see that we continue to manage working capital efficiently. Despite adding Piedmont and Kabkom, working capital is on the same level as last year, both in absolute terms and in relation to sales. And as mentioned also in last quarter, there are no changes to underlying payment terms.

And if I can then ask you to turn to Page 14, taking a look at the cash flow. As mentioned, we delivered a strong cash flow in the quarter, SEK [ 640 ] million with smaller movements across the various items, but well above the EBIT that we delivered in the quarter. And then finally, when it comes to the financial part, if I can ask you to turn to Page 15, looking at the net debt standing at SEK 3.9 billion and a net debt-to-EBITDA ratio of 1.14 at the end of the quarter. This is higher than last year, but this is mainly driven by the acquisition of the minority share of almak as well as the acquisition of Kabkom that we've done this year. So all in all, after the third quarter, we continue to stand with a very strong financial position. And with that being said, I hand over to Klas.

Thank you, Peter. Finally, then just to summarize the third quarter. Europe showed stable sales compared to last year. Engineered Products also showed stable sales with a good profitability. We saw lower demand in North America affected by the high uncertainty related to U.S. trade policy; however, we didn't really see a direct impact from tariffs in Q3. As mentioned, Ken Bloom is appointed as the Interim President for Rubber Compounding Americas. And we consolidated Kabkom as of the 1st of May. And as we've said many times now, wire and cable that they represent is a growing segment for us. We continue to focus on M&A, and we have a strong balance sheet allowing us to act. We continue to focus on sustainability with good progress, both when it comes to our internal targets, but also when it comes to our products. And on the 4th of November, we will have our Capital Markets Day in Stockholm. So by that, we conclude the presentation of the third quarter, and we open up for your questions, ladies and gentlemen.

[Operator Instructions] The next question comes from Joen Sundmark from SEB.

So starting with a question on automotive. If I look at the S&P figures on light vehicle production in Q3, it looks like it has improved a bit compared to last year, yet you mentioned that the decline in automotive seems to be present for you guys in Q3. So do you expect that there is some kind of lagging effect here? Or is it rather your particular exposure that's impacting this? If you could shed some light on that, it would be very helpful.

All right. So when it comes to automotive, we always look at the production. And as you say, there is, of course, a certain time difference, those figures compared to our figures. When it comes to the North American market in September, there was, from a sales point of view, an increase, and that was due to the fact they had a subsidy of EUR 7,500 per vehicle. So that triggered sales in that very month, let's say. But other than that, it's a rather slow market.

Okay. That's clear. And I know that you have a fairly short order book, but could you share some color on the current discussions on demand that you have with your customers out there and sort of what they foresee demand-wise?

Well, as you say, we have a very short order book. And the trend we have seen is that it becomes even shorter. So we get very late orders from many of our customers. But yes, the overall situation, like I said, it's a rather uncertain situation. So we don't have good visibility when it comes to the order book.

Okay. Fair enough. And on the back of that sort of uncertainty in demand and as the margin trend have been quite negative now for a few quarters, do you see any signs of that shifting? Or how are your sort of current discussions going to address that and improve the margin profile going forward?

Peter here. Just to be clear, we don't give guidance or earnings. That being said, there are a couple of things. One driver of the somewhat lower margin is the mix. And it's no secret that automotive is an important end customer segment for us. So we would prefer to see that automotive production goes up and we get some of those volumes back and which is, of course, something that we are working on. The other part is looking at our cost structures. And there are 2 things. One is looking at the manufacturing footprint. But in the short run, we haven't taken any new decisions on that. Then when it comes to the more -- the other cost side, we're looking both at manning indirect production to bring that down and allocate that according to the volumes coming in. And you will see in Q3 that the number of people were actually lower, about 60 people less this quarter compared to last quarter, Q2 this year. So we're looking at those costs as well to see what can be done to bring down the cost level and manage those.

The next question comes from Henric Hintze from ABG Sundal Collier.

This is Henric at ABG. So on -- I was wondering if you could give us an update on how you view the M&A landscape at the moment. For example, are potential buyers and sellers closer or further apart on pricing compared to earlier this year?

As I mentioned in my report that what we see right now is some of the companies are also affected by this uncertainty in the market. And because of that, there is a certain wait and see at the moment. So it's not maybe so much about multiples and so on. It's more that if their total result goes down, they are a bit hesitant at the moment to, let's say, to close a deal, if I call it that. So that is what we see. But with that said, we still have quite a pipeline of companies of prospects, so to say. So that's what we're dealing with at the moment.

All right. And continuing on capital allocation, if this wait-and-see attitude persists among sellers, would you consider buybacks or extra dividends if you're unable to find attractive M&A opportunities?

Peter here. Priority #1 is to do the M&A, and it's a very high and very clear priority for us. That being said, a while back, the dividend policy was upgraded to be in the range of 40% to 60%. And I think that's where we are right now. So priority #1, M&A. And then we haven't increased dividend policy since I think about 2 years. So that's what we can say at this point.

The next question comes from Gustav Berneblad from Nordea.

Yes. It's Gustav here from Nordea.

I thought maybe just to build on your comment there, Peter, on the cost side. As you said, you haven't really taken out anything recently. Is that more due to -- you want to wait and see where demand is heading due to the geopolitical uncertainty? Or do you feel that you do have a quite good balance where you are today and with enough overcapacity to be ready to deliver if demand returns? If you can elaborate a bit more on that.

Yes, of course. First of all, I think just to point out, last -- Q4 last year, we decided to close one site in the U.S., and that project was finalized in second quarter. So I just want to say that to be clear that we've just finished one project to close a production facility. That being said, there's always a trade-off on do we want to close sites in relation to the expected volumes when they come back. Since we are a batch producer, and we also don't work with order stocks, we need to have a flexibility when it comes to production capacity because when customers come and ask for volumes, we need to have that capacity ready to produce. So we need to strike a balance between the cost and having the capacity to meet volumes when they come back. And I would say that's where we are right now.

Okay. Perfect. And then if we move to Europe, I mean, it looks to be quite stable here year-over-year. Is it possible to give a bit more comments there? Is that stability, is that across all end markets? Or are you seeing sort of wire and cable drawing a heavier part here and being sort of a cushion, if you know what I mean? If you can just elaborate a bit there.

In a sense, it's a similar pattern as we see on the group level just with smaller movements. So automotive, somewhat softer and building and construction, wire and cable and some of the other smaller end customer segment being somewhat positive. So in a sense, same pattern, but smaller movements compared to North America.

That's very clear. And then just one last question there to build on Henric's here on the M&A side. Would you say that you're more open to close acquisitions in Asia today than you were a couple of years ago within compounding?

So when it comes to Asia, that's too early for us to say. And I think that's also part of, as I mentioned, our Capital Market Day to come back to that subject, how -- what opportunities could be there for HEXPOL, let's say. We will come back to that, Gustav.

The next question comes from Andres Castanos-Mollor from Berenberg.

Can you please comment on any impact of the bankruptcy of first branch group if it has had any impact at the [indiscernible] Group level at all? I assume it was a client. Is there any receivable at risk here? Or will you have any demand -- lack of demand, let's say, while the company solves its issues?

We don't normally comment specific customers. But let's put it this, Andres. We don't expect any material impact at all from that customer.

Right. And also, I was thinking in the changes in the U.S.A., the footprint changes you've been doing there, a few plant closures, also replace the leadership of the business there. What are your priorities or objectives for the region with these changes?

Sorry, Andres, I didn't hear the beginning of your question. You mentioned change footprint.

Yes, footprint changes. You have closed a few plants in the U.S.A. You have also replaced your leadership there. What are the objectives for the new interim leadership?

If I'll start with the first one when it comes to the manufacturing footprint. The last 2 years, we've closed 2 sites, one in California. The reason for that was that we had 2 sites in California, and we could see that we could service the customers from one site. So that's an efficiency improvement that we closed that down, and we could maintain all those customers. The site that we decided to close last year was Kennedale, Texas, similar reason there.

We saw that we could service those customers from other sites. So it was a redundant capacity that we had, and that's why we closed Kennedale. So both of those plant closures where we said that we could maintain the volumes, but we could service our customers from other existing sites. So that was to improve profitability.

And if I may, Klas here, Andres, regarding leadership in North America, we saw a need for a change to better address the challenges we see and also to capture the opportunities in the North American market. And we think that Ken Bloom is the right person to do that. And he has experience also from HEXPOL. He knows the organization. So we are very positive about that change.

The next question comes from Johan Dahl from Danske Bank.

Just wanted to dig a bit deeper on the comments you made, Klas, regarding unchanged organic volumes in the quarter, if I got it correctly. I mean, excluding acquisitions, I guess you referred to unchanged volumes in the group. Does that mark a material improvement compared to what we've seen earlier in the year in your view, i.e., the year-on-year progression on volumes? Is that sort of significantly better than in Q3 compared to previous quarters this year?

Johan, it's Peter here. Just to be clear, again, we're not going to give any guidance on coming quarters when it comes to volume or profitability, et cetera. That being said, if we look at the volume development, we've seen both in Q1 and Q2, we did discuss that we had lower organic volumes. This quarter, organic volumes are in line with last year -- Q3 last year. So in that sense, it's somewhat different compared to the first and second quarter this year. What that will mean -- Sorry, go ahead, Johan.

Can you hear me?

Yes. No, I can hear you again.

That's good. No, it's just -- you have minus 4% on organic revenue growth, right? And you're saying raw material is flat pretty much and also volumes flat organically. It's a fairly massive shift in the top line if you have the average selling price per tonne going down 4%. So what I'm just wanted to pick your brains on is what's your sort of visibility in terms of how this develops going forward? Is it just a function of sort of small variations U.S. versus Europe and auto versus other segments? Or is there something else going on here? Are you selling significantly more bulk volumes, for example, commoditized products? Are you losing market share in that sense?

No, you're right in your first reasoning. If we look at the 4% organic, volumes are -- organic volumes are basically flat compared to last year. If we are very specific, we're talking very, very low single-digit volume down, percentage. So a very, very small part of the 4%. Then if we look at the other part, it's not sales prices, but there is a mix effect, and it consists of 2 parts. One is a geographical shift. We do lose -- see lower volume and sales in our North American market. And price levels in North America are generally higher. So that has an impact. Then we also see that there is a, call it, a product mix shift, which is the basically automotive. Automotive, as we've said many times before, is a good end customer segment for us. So it's a combination, smaller combinations of those 3 items that make up the organic. So it's not a structural shift in that sense. No, it is not.

It's just that it's a fairly big number for those sort of variations. But I totally hear your message there. And on to the topic, what you can do to affect this. Is this just a function of the way markets go? Or do you have any visibility, i.e., how you sell more advanced compounds, et cetera?

You mean for the profitability, Johan?

Well, I guess both in the end, both top line and profitability. I understand that if U.S. is weaker than U.S., it's going to impact your organic growth. But I'm just trying to understand how you structurally can sort of approach this issue to sort of possibly improve mix as we go forward.

Yes. And again, as Peter is saying, I mean, automotive is an important part, and that has not been growing, as you know, and even shrinking as we can see in the S&P figures. And we have found a business, as you can see also in our report within building and construction, wire and cable is a segment that is also growing and where we have also been able to capture business. So I mean that's our day-to-day operation to find new ways because we can change the market conditions in that sense. We have to work on the things we can influence, of course.

The next question comes from Carl Deijenberg from DNB Carnegie.

I came a little bit late into the call, so apologies if this question was already brought up. But I have to ask again, I mean, when I look at the S&P production figures for the North American market for Q3, I think they indicate roughly plus 3% year-on-year. And you're talking about flat volumes, but of course, it sounds like some of the other segments are sort of offsetting with positive growth relative to automotive. And I think when I look at the production numbers for Q2 as well, it seems like there's been a little bit of a discrepancy on, let's say, the production numbers relative to your reported organic growth if I try to back it out on the automotive side.

So yes, very simple question. Is there a simple answer to this question? Is the OEMs or your customers bringing this more in-house now when production levels are fairly low? Or is there something else?

There are at least 2 things that separate the official S&P production numbers from the volumes that we look at. One is the timing. There's normally 20, 25-day timing difference from production of a car and material that we supply. So there's a timing difference. The other part is, which I think is fairly unique for this business is that a lot of our customers have their own compounding business. And we do see that when volumes are down in the market, they tend to bring it in-house. So when you see an S&P production number, that doesn't automatically mean that it's transferable or translatable to ours because we also have customers who sort of shrink the market where we can compete, what we normally call captive conversion or in-sourcing. And that also has...

Yes. Understood. And I think that's fairly interesting. If you can talk a little bit more about that. I mean, what kind of, let's say, in-house levels are we at right now relative to, let's say, a pre-COVID scenario or something like that? I mean just understanding sort of the magnitude, which have fallen into this topic. Would it be possible to give a fairly -- yes, high-level view answer to that would be...

High level. It's difficult to measure exactly because we don't have statistics where we see the exact movements in the total market and what goes in and out at customers. But our view is that we've probably hit the -- let's call it, maximum in-sourcing at this point. When we see volumes flowing back into the market where we can compete, that is difficult to put a timing on. But our view is -- our current view is that we'll probably hit maximum in-sourcing at this point.

That's very much appreciated. And maybe just finally on that topic rounding it off. I mean, obviously, we don't know what '26, '27 is going to look like. But do you have any sense of what kind of production numbers you would have to see in the industry for that, let's say, in-sourcing to reverse back into your hands? What kind of demand levels? Is it growth of mid-single digits on the production numbers? Or -- because I guess that could be a fairly significant swing factor for you, if I just look at the numbers relative to the -- yes, what we've seen in the production numbers here.

Very good question. I sort of wish we had an exact number to say that at this point, it will start to flow back. But we -- currently, we don't know. And that's also one of the things that brings uncertainty into future orders, as Klas mentioned in the beginning.

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

All right. Thank you, operator, and thank you all for participating in this call. And we hope to see you all at our Capital Market Day in Stockholm on the 4th of November. You are all very welcome to join us there. So thank you very much, and enjoy the weekend.