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Trelleborg AB
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Ladies and gentlemen, welcome to Trelleborg Q1 report for 2021. [Operator Instructions] Today, I'm pleased to present Peter Nilsson, CEO; and Fredrik Nilsson, CFO. Please begin your meeting.
Thank you. Peter speaking, so welcome all of you for joining our call here for results of the first quarter for us in 2021. And turning to Page 2 in the presentation, which I assume all of you have in front of you, which has been shared on our web page for those of you not having it in front of you. Turning to Page 2 in this presentation pack, I'll talk about the agenda. As usual, we start off by giving some general highlights by myself. And then also some comments on the 3 business areas. And then followed up, Fredrik then is giving his input on the financial slides, and then summing up with a brief summary and some comments on the outlook for the running quarter. And then as usual, also finishing off with the Q&A session. Turning to Page 3. We have a heading for this report, "strong start to the year." We have to say that we've been kind of surprised throughout the quarter over the strong demand, which accelerated throughout the quarter with a stronger ending that -- finish in the quarter. Sales for the full quarter, though, ended up by, let's say, a little bit north of SEK 8 billion, which is compared -- in comparison to a year ago, a decrease with 3%. Organic sales, though, increased by 5%. And of course, we have a substantial negative ForEx on the figures of 8%, which is then, once again, summing up to the actual numbers being 3% down year-on-year. EBIT, strong, SEK 1.350 billion corresponding to a margin of 16.4%, which is both in absolute number and in terms of margin, our best-ever quarter or best quarter so far in the history of Trelleborg. Items affecting comparability, this quarter is actually positive, coming from, let's say, restructuring expenses linked to previously announced restructurings of some SEK 45 million, but we also have a capital gain related to some sale of real estate in the quarter, which then gave us a kind of a net profit of SEK 144 million in the quarter, which was booked in the quarter, which is then turning up to a positive items affecting comparability of just shy of SEK 100 million. Cash flow, actually quite strong. Even though we were of course building working capital throughout the quarter, the cash flow nevertheless ended up stronger than last year at SEK 962 million. As always the case, of course, that we're building working capital in Q1 compared to ending of the year. But once again, we are happy with the cash flow coming from a well-managed working capital and also which continued kind of rather below CapEx in the quarter, which means that the cash conversion for the last 12 months is at 128%, which we then see very strong. Of course, impossible to keep very long term, but nevertheless, a good result for the ending of this quarter. So this was kind of the overall, let's say, highlights. Turning to Page 4. A few more comments on the sales development. As you see, very strong sales in Asia and other markets, as we define it, 30% up. But of course, good organic growth and good underlying market, but of course, also quite impacted by the pandemic last year, which started in China, which closed down China. But also in this, even considering that, a very strong development, especially in China, but also throughout Asia. Europe came in at 4% plus, which is then a solid improvement compared to a year ago, but also were generally good. We are a little bit behind in North America. Even though we see it's getting better in North America, but in the quarter, we were down by 10%. And then also having a very strong development in South and Other America, which is -- although all of you have to -- probably is aware, it's a small market for us, but nevertheless, a very good development it is in total, then ending up to 5% organically on the totality. So this is kind of the sales development in the quarter. Turning to Page 5. An agenda, business areas and quickly then turning to Page #6, a few more comments on Industrial Solutions. A solid quarter for Industrial Solutions. Organic growth is back. And then with a good cost control and good overall price discipline is then turning into a strong increase in the margins. Organic sales in figures, up by 3%. Strong growth in -- or yes, strong growth in Europe and Asia, but the declining sales in North America in the quarter. Most segments actually developed well. We still have a negative impact, of course, year-on-year on aerospace, and we also note a fairly low sales into train manufacturers in the quarter. This, of course, especially the train business is a private-related business. So that could vary in between the quarters, but nevertheless, in this quarter, it was a firm positive -- a firm negative, sorry, for us. All in all, then, of course, EBIT is up substantially. Margin is up substantially, well-managed on the higher volumes, a good drop-through on the higher volumes. That's based on continued good overall cost control. Turning to Page 7, Sealing Solutions. "Higher volumes and margin recovery" is the heading. Strong organic sales at 6%. Good industrial growth in Europe and Asia, but also here, a declining organic development in North America. Light vehicles, very strong. Healthcare and medical is also strong, both in Europe and Asia. Aerospace, of course, still pushing down this dramatically with some 50% down year-on-year comparison. Expected to improve with the comment we see here, and even down from a lower level, we do expect it to improve year-on-year in the next quarters throughout 2021. Overall, strong development, higher volumes kicking in, pushing up the EBIT and pushing up the margin to level -- to very good levels also in historic comparison. Turning then to Page 8. In Wheel Systems, we have a heading, "strong increase in demand for agri tires." For those of you following us -- let's say, following the market segment in total, now that agri is kicking back and we see that also in our figures. Overall organic sales for the full business area, 6%, but behind that is a mix, a strong mix difference between agriculture and material handling construction. Very rapid increase in demand for agri tires, and we have been struggling to keep up with this demand. We are still, in a few of our entities, impacted by COVID, giving us -- well, it is a high staff absenteeism and some difficulties in actually recruiting new people. And also on top of this, we have also been faced with some freight challenges on -- especially on incoming materials, which has been a little bit -- it's not unmanageable. It's actually quite manageable, but nevertheless, it's created kind of an extra burden on our production units as we are trying to gear up. Also noted in this, I know there have been a lot of focus, let's say, naturally on the agriculture development, but also have to note that material handling construction -- although, let's say, a firm improvement quarter-on-quarter, it's still very much negative year-on-year comparison. We do expect it to get better going forward, but in this quarter, that was a strong negative. So a strong positive in agriculture and a fairly strong negative on material and construction created, although, this mix of plus 6%. Also here, we see a strong improvement in EBIT and margin. Volume, of course, kicking in, assisting us, but continued good cost control and also price discipline. And also, worthwhile mentioning also, we see continued improvements coming from earlier investments in the structural improvements in this business area. So this, I guess, was the comments -- my comments on the business areas. So turning to Page 9. Agenda -- next agenda on financial and then quickly turning to Page 10, I'll ask Fredrik to guide us through the next few pages here.
Thank you, Peter. Let's go to Page 10 and look at the sales development. We have organic sales increase of 5% in the quarter. We had organic growth in all 3 business areas, and the reported net sales declined by 3% due to negative translation FX. Sequentially, we have strong growth in both Sealing Solutions and Wheel Systems. Moving to Page 10 -- 11, showing the historical organic growth. The first quarter was a good quarter in a historical context. Moving to Page 12, showing the quarterly sales around 12 months. Continuing to Page 13, we have a strong EBIT and EBIT margin improvement in the quarter. EBIT in the quarter increased by 15% to SEK 1.350 billion. In the result, there was a negative FX effect from translation of foreign subsidiaries by SEK 100 million compared to corresponding quarter last year. EBIT margin, as Peter said, improved from 13.8% to 16.4%. As we said, this was the best quarter-to-date for both EBIT and EBIT margin. Going to Page 14, looking at EBIT. EBIT margin around a 12-month basis, we see positive trends and increased margin is also confirming our good cost control in all 3 business areas. Moving to Page 15, profit and loss statement. Looking into items affecting comparability for the quarter, it was plus SEK 99 million in the quarter. We have a restructuring cost of SEK 45 million, and the capital gain was linked to sales profit of SEK 144 million, so net plus SEK 99 million. Financial net declined from SEK 56 million to SEK 32 million in the quarter. The lower financial expenses are due to reduced net debt and some nonrecurring costs related to strengthen the group's liquidity last year. Tax rate for the quarter was down to 22%, which was favorable due to limited withholding taxes on internal dividends from subsidiaries. Our earlier guidance of 75% in tax rate for the full year still stands. Moving to Page 16, earnings per share. We had a really strong improvement year-on-year, up 24% to SEK 3.77 per share, excluding items affecting comparability. Moving to Page 17, cash flow. As Peter said, we have a strong operating cash flow, amounted to SEK 962 million, which was positively impacted by the higher earnings generation, lower investments than last year. This was partly offset by increased working capital due to the higher sales. Going into next page, Page 18, cash flow conversion. We managed to keep the cash conversion ratio on a rolling 12-month basis of 128%, which is strong due to the higher activity level. Going to Page 19, gearing and leverage development. Debt/equity ratio continued down during the quarter and ended at 32%. Net debt in relation to EBITDA was 1.6. Finish off this section by Page 20, which is our financial guidelines for 2021. We estimate our CapEx to be around SEK 1.4 billion, restructuring costs of around SEK 500 million, then we have a real estate gain of SEK 144 million. So net, we estimate it to be around SEK 350 million. Underlying tax rate, as I said earlier, 25% still stands. And finally, amortization of intangible assets of around SEK 400 million. By that, I would like to hand back the microphone to Peter.
Great, Fredrik. Thanks. Turning to Page 21. Next agenda point and summary and some comments on the outlook for the running quarter. Turning quickly to Page 22. Strong start of the year. Let's say, good, as you saw in Fredrik's slides. Good organic sales, 5%, which is overall, I'll say, the best we have had for a long time. Negative ForEx kicking in, which is then resulting in 3% net on the sales. EBIT and EBIT margin, higher so far in the history of Trelleborg. Items impacting comparability is a plus 100 -- or plus SEK 99 million in this quarter, where, let's say, earlier restructuring cost is kicking in by SEK 45 million. We have a real estate gain turning it positive. Cash flow is strong, well-managed working capital, low CapEx and better earnings create excellent cash conversion. I'll say, more than good, actually, an excellent cash conversion of 128% for the last 12 months. 23 Page are some comments on the overall priorities. We have a heading of "balancing challenges and opportunities." We're going in with a strong order book and a good momentum, but we also recognize that COVID and the pandemic is still impacting us. And this kind of strong uptick in demand, strong uptick in sales would, of course, push our supply chain and well-known also logistics challenges, and we do expect also inflation to kick in here more, especially raw materials. Although we are not that concerned about this higher raw material, we feel that we have a good position in the market and a good opportunity to actually push this forward to the market. Of course, there could be some time lag in it, but we feel we are on top of that, and we are already working a lot with getting this compensation done. COVID-19 is still going to have -- still, of course, a lot of uncertainty to this, where we cannot rule out that there will be new lockdowns and new regulations and guidelines impacting us. We have some challenges in some areas to recruit people. I don't know whether it's directly linked to the COVID, but COVID is definitely not making it easier. Then overall, on the strategy, of course, we will continue to work on our portfolio. We have, as we already commented. We didn't comment that much about it here in the call, but of course, we still have this Businesses Under Development to manage. And we have some processes here where we do expect that to be concluded here within this year. And -- but it needs to be executed, although I feel confident that that's going to be done as we are guided for already before. Continued focus, of course, on excellence and making sure that we continue to get more efficient and to work on our footprint. Also to invest more in innovation and also this customer integration, which has been, the way we call it, there's lots of digital tools and a lot of ways of making it easier for the customers to do business with us is still very high on the agenda. And we also continue to scout and integrate acquisitions, which is also still going to be kind of an important tool in building a better Trelleborg going forward. Turning to Page 24, outlook for the running quarter. A slight uptick in our guidance. We feel confident throughout the quarter that the underlying kind of environment has been improving, and we are here guiding that we believe that the demand in this quarter will be slightly better or better even than the first quarter of 2021. But also, this is said with some cautiousness linked to the pandemic impact. I mean we cannot rule out that things are happening, and there will be new things happening, which have -- which might impact operations in various ways, and thereby, also could impact the underlying demand and the sales that we're going to get in the -- in this quarter. Leaving this, turning to Page 25, Q&A and then quickly turning to Page 26 and opening up for questions and answers. So please, go ahead, those of you interested in asking a question or giving us some comments on the reporting. Please, go ahead.
[Operator Instructions] We have a question from the line of Klas Bergelind from Citi.
So a couple of questions, please. The first one is on Wheel Systems. So when I look at March, it seems like a very good margin. I calculate this to around 16% to 17%, considering that you had bottlenecks in the beginning of the quarter. You probably had it throughout. I'm just interested in that March margin because it really feels like a reflection of the new higher level when demand is strong for Wheel Systems. So if we can start in terms of the margin of exit, Peter?
Yes. And it is -- I mean, not a difficult question to tell you. But of course, to put it in relation to others because March was a very long month with a lot of working days, and of course, it was better in March than the other months. But I cannot see that, that is kind of the guidance for going forward. So we feel reasonably happy with 15%, and we don't really want to comment on individual months because the individual months is impacted by the number of working days. And of course, the March should be better than January. So I mean, otherwise, its range. So of course, it's better in March, but that is not really a guidance for going forward. So then the challenge -- I mean, the challenge going forward there for wheel is that demand is good. We are probably -- if we had the capacity, if we had it in stock, we could have sold more, but we still also know that we're going to be hit by higher raw materials and all of that. So that is also something that's going to be manageable but still something that needs to be managed. So I trust you had to be happy with that reply, Klas.
Yes. No, sure. No, what I mean is I totally know that March is always a higher margin than beginning of the year, but you had bottlenecks from [ sick leave ] and so on. Did they -- at the exit of the quarter, did the bottleneck sort of...
Not really. Not really, to be honest. I mean it's not changed in the COVID. And I mean, we still had issues in Czech Republic. It's still difficult in some parts of U.S. to recruit. And I mean, it's not really any difference. And that's, of course, underway. We have been recruiting people, and we're getting more people on board. But I cannot see it's getting easier really in these aspects, the end of the quarter compared to the beginning of the quarter. And of course, we were anticipating that peak in agriculture already last year, let's say, in -- from the beginning of Q -- even into Q3 last year and beginning of the Q4. But we were surprised, I should say, with the very strong uptick kicking in here in quarter one, and that we were not able to supply everything that the customer asked for, which is not only the case for us, which is also the case for our competitors. It's not like we are feeling that we're losing market share in any way, it's more that this very strong uptick is a challenge for us and others in this industry in the agriculture. But once again, looking at Wheel Systems, I -- of course, following some other general comments. And I mean, I think sometimes it's forgotten that we still have this year-on-year strong negative for material handling and construction. Of course, it's a mix, which means that agriculture was up even more than this 6%.
Yes. No. Very clear. My second one is on -- for you, Fredrik. So at your previous shop, you're involved in a lot of M&A. And Trelleborg's balance sheet is now solid, has delevered a lot of the CGS. And on Slide 23, it says that you're scouting for M&A. So how do you think, Fredrik, you can help drive the M&A agenda of Trelleborg going forward? So those [indiscernible] complementary technologies and biography, obviously, not only your decision, but I'm just interested in how you look at things since you joined.
No, but for sure, it's a very good question, Klas. And we have a strong team here centrally. We have a strong [ scout ] in the business areas scouting for M&A opportunities. So it's very high on our agenda, both out in the BAs and centrally. So we clearly have the ambition here to continue the M&A journey with Trelleborg.
And maybe just to add on here, Klas. I mean the challenge is getting quite a lot of assets for sale at the moment, and we're looking into processes, but the balancing also the price expectations are very high. It's also something that we need to be balancing, and we need to be clever what we buy and what we're looking for. I mean also a very big deal done. I don't know -- in our kind of industry -- Laird was sold by Advent to DuPont. And of course, if you look at the multiples of that -- so I don't know. DuPont probably have their calculations and now the synergies and everything of that. But nevertheless, it was a very high valuation. And we need to balance that as well and see if we really can make -- create long-term value for our shareholders by engaging into clever M&As.
Our next question comes from the line of Hampus Engellau from Handelsbanken.
Two questions for me. And I'm sorry for going back on the March issue, but is it possible to maybe to discuss on how March developed in terms of how much it weighed in the quarter compared to average? Because we're picking up from different places that things has been, in general, the acceleration in demand in March, and I guess that has probably been based for your [indiscernible]. That's my first...
Yes, I mean, of course. We saw it was an acceleration in the month throughout the quarter. But once again, I think everybody should have had a strong March because March was, I think, if I remember correct, 2 more working days than a year ago. So I mean, all that is kind of inflecting, so some 10% extra working time in March. And then you had good sales in this, then, of course, it's a good leverage. But I mean, I don't see that -- we were building order book in March. It was a good order intake, and that is why we are more confident going into the running quarter. But I mean, to give you some further guidance on that, then we have to normalize the working days and all of that, which is not really -- so we don't see March as kind of an overall guideline for the performance going forward. It was strong, as you said. I think everybody else is telling it was a long, long month with a lot of working days. So -- but once again, it's -- we cannot say -- we don't want to comment anymore on that, and it was stronger.
[ These are comps in ] March.
Yes. And also then, of course, also when you're looking at March isolated, that is also when the comps started to get a little bit easier because then we saw the first impact from the pandemic year ago, so that is also why -- of course, we are happy for it, but we shouldn't put too much into that on a year-on-year, say, comparisons.
And in terms of [ upping ] your outlook, is that kind of more of what we saw in Q4 in terms of how the end markets are performing? Or are there any new end market that has suddenly come to life? I know you haven't commented on aerospace bottoming out and maybe gradually improving from very low, low levels. So how should we think about that?
I mean these are all over. I mean, as you say, it was a better -- we are going into, let's say, Q2 with a better order book than we went into Q1, also from kind of venture compared to earlier years. But then, of course -- and that the difficulty here is that are we really -- is this due to there have been some lack of supply or people preordering or are they prebuying in order to safeguard themselves. We also know cost inflation is coming. I mean we're obviously seeing steel is going up. Polymers is going up. And I mean, that is also pushing safely this forward. But putting everything in one bag and try to [ judge ] and interpret, we still feel more confident going into Q2 than we were going into Q1.
And also, finally for me then on the operating leverage of Sealing Solutions. I mean you're back on 2019 levels in terms of profitability. And still, as you highlighted during the quarter, there are issues related to distancing and problems related to the pandemic. And should we think of seeing maybe slightly higher operating leverage in Sealing Solutions compared to '19 going forward when we can then have gone through these restrictions and when things are opening up in the normal way.
No, it's not a different gross profit. It is not kind of any changes in that. I mean also to note when commenting on this, of course, we do also believe that in Q1 and also going into Q2, there is some inventory buildup kicking in as well, which is, let's say, another positive in this one. I mean, I think we and others see a very strong uptick in automotive, for instance, which is, I'd say, above the underlying production levels, which indicate there has to be some inventory buildup. So once again, Hampus, we need to mix everything and make a judgment on everything. And that is why we're ending up and say that we are more confident on the demand in Q2 when we're going into Q1. But of course, it's not a dramatic change. But once again, all in all, everything considered, it is kind of -- we are slightly more positive going into Q1 than we're going into Q1 -- going into Q2 than we were going into Q1.
Our next question comes from the line of Douglas Lindahl from Kepler Cheuvreux.
Two questions from my side. Coming back to the bottleneck in wheels there. I appreciate the comments so far. But just to understand, for how long do you expect these issues to remain? And sort of, will it basically entail that volumes will even out over the coming quarters rather than seeing hockey stick, given that you say that your competitors are seeing a similar situation? Or -- yes, just a comment on that would be appreciated.
Right. It's -- if I may say, a tricky question because, I mean, that's -- so we don't really know, Douglas. But I mean we feel that underlying demand is good, and wheels is asking for tires. Aftermarket is improving. But -- so we feel confident it's going to get better, but it's not really hockey stick up, but I don't see that. Of course, it's -- and I mean you also have to know, it's quite, let's say, big CapEx in order to really dramatically change the output here. And we don't really feel confident that this is kind of a new level. We see continued good, and we're working on the fine tuning, adding extra sheets wherever we can, but then we need to recruit people, and we also have the cautiousness linked. I mean some of the, let's say, tractor original equipment manufacturer, of course, exposed to the [indiscernible] -- in Sweden, at least, we have said it's [indiscernible] semiconductors and all of that, and they are exposed to the same kind of limitations. So we have to also assume, if there is kind of some problems in manufacturing, other kinds of big capital equipment, and of course, they will also have some challenges. So once again, we need to make the judgment on everything, and we are slowly trying to gear up our pace and make a few extra tires in order to do with that. And -- but on Wheel Systems, I think that the major potential improvement going forward is an uptick in material handling construction, which is still strong negative. And we see -- I think we saw this morning [indiscernible] coming in with a very strong -- Jungheinrich is -- Jungheinrich coming in with a very strong order book. And of course, we see that, which is kind of in conflict what we see in our sales. But I mean, for -- it will improve. And then, of course, we need to adapt, and we will definitely do our best to flex our capacity upwards without kind of building too much fixed cost into the structure.
No, I appreciate you can't comment on demand, which is not seen yet, but I was more interested on your staffing issues and how you address that. I guess you do that in the best way you can. So no possibility to comment on when that can be addressed, I guess.
No, we're working on the daily, of course. It's a daily challenge. You have customers asking for tires, and then, of course, you want to keep them happy. So of course, that is a daily struggle at the moment.
Okay. And my second question is for Fredrik. It's More on the restructuring cost. We have SEK 455 million left for the year. Is it possible to give some sort of visibility on when we can expect this timing-wise?
No, I think they will be quite linear over the remaining quarters for the year. So that will not be like a hockey stick. That's what -- that should you not expect for the coming 3 quarters.
Our next question comes from the line of Agnieszka Vilela from Nordea.
I wonder if you can share your opinion, what will happen with the agricultural market in a bit longer term? Say, in the next 1, 2 years, what do you think will happen with the demand for tires when you speak to your customers? And also, do you see the same or increased or EBITDA-based competition from the import tires in Europe?
And overall, we still believe that we have commented actually for many years that the industrialization and the mechanization of the agriculture will continue. I mean the need to get more efficient, let's say, farming is still there. And I mean, we -- you know we've been following it for some time and, Agnieszka, you know that, that has kind of been subdued for quite some time. So we see good prospects for that continuing on a good level. And I mean, we are not -- even though with this strong increase in demand, we still feel that this index -- this [ Purdue Index ] and -- what is it now called in Europe? The...
[ CEMA ].
CEMA, which is still very positive. And of course, that is expectation indexes, which is on the -- I guess, the bulk of them on the highest level evermore or less. So highest level for 10 years, Christofer says. I mean they are still positive. And of course, that is not an immediate one for the next month. That is kind of the overall sentiment in the industry. So we feel positive about that one. And so -- and we believe it's kind of underinvested for the last few years. So we think there is definitely room for this continuing for some time. Imports, yes. I mean imports is around, but also, they have also strong home markets and priorities on that one. And freight challenges has also -- they are exposed to that. We're, of course, watching, it varies between different segments, but we don't see it really as a head-on competition. Our head-on competitors is more the -- some other companies [ than ] the Indians and the Chinese. So we are not really -- of course, we were always, let's say -- yes, try to hit each other when we can. But I mean, we're not really -- it's not the main concern for us in these growing segments.
And then, on a group level, when I think about your profitability and kind of drivers for the future, could you just help us with understanding what's both tailwinds and headwinds you see for the coming quarters? Thinking about the obviously demand, which is improving. On the other hand, some raw material prices increasing, maybe hurting you a bit. What do you think about your discretionary spending, which was probably subdued during the COVID crisis? Will it come back or not? So just help us a bit with your thinking about what will happen with the profitability for Trelleborg?
Yes. No, of course, you're touching on what I'm working on daily. I mean that's always the balancing about the demand and sales. And the raw materials for sure is up [indiscernible] I mean we are pushing through price increases. We are doing whatever we can. We feel confident in our position that we will be able to compensate ourselves, might be a few time lag in a few cases, but we don't -- we are not concerned on the kind of profitability impact from raw materials. Discretionary spendings, yes. I mean it's below. It still is low. I mean we have no traveling and a slow activity level in general. We're learning from this way -- new way of working. And of course, we are implementing new tools and new ways of interacting with our customers. We believe it's going to be lower than before the pandemic, but I think it's not going to be as low as it was in this quarter, but we feel confident also as the volumes kick in, we get more kind of efficiency into our operations. So we feel that we are moving in a good level. So our ambition is still to continue to improve our margin. Of course, we know the seasonality. We know that Q1 and Q2 usually is kind of the stronger quarters. So -- but we feel that we're running on a good level at the moment, and now priority is to maintain on this and hopefully be able to absorb some more sales into the existing structure. So that is kind of the short-term priority. Longer term, of course, we're still working on our mix in our portfolio in order to drive sales in the more profitable segments and try to maintain and improve in the less profitable segment. So that is kind of the overall guidelines -- o the overall drivers going forward. So I don't know, it's difficult to give a more kind of detail also and definition.
Our next question comes from the line of Erik Golrang from SEB.
I have three questions. First one on Wheel Systems. Could you indicate in any way how much demand you were not able to deliver on? What would organic growth have been without constraints?
No. It's difficult to say, Erik. We could have sold more, and I recall -- but we're not talking about 10% more, but we're talking about 1 or 2 percentage points more than we should, let's say, been doing. And then, of course, if we would have had capacity, then maybe we could have sold even more. But I mean, with the existing order book, you talk about 2 percentage points, something like that, give or take. But I mean, it's a lot -- it's a little bit theoretical question. So -- but for sure, the demand is higher than the output, not only from us, but also from others.
But I mean, given how much you addressed this point, the constraints in the report and the presentation, 2 percentage points doesn't seem like -- I mean, that's within the [ margin of error ] of any quarter, right?
Yes. But I mean, then, of course, if we have had the capacity -- I mean, that depends. If we would have had this capacity early, we could been more aggressive and maybe it could have been even higher. The demand is higher, but it's always -- this is a theoretical question since nobody had a capacity to do it.
Okay. Second question. If you could give some more, I mean, guidance of better demand. Obviously, we have a comparison that is very different now for the second quarter versus Q1. You had a peer that related demand to the second quarter of '19. Is that a comparison that will be relevant -- would be relevant for you as well? You think organic sales here in Q2 sort of online with where it was Q2 '19?
I don't really have the figures in front of me, and I don't want to comment on it. I cannot comment on this area on the fly. I mean, I think we have to get back on that question. But I don't know if Christofer is assisting here.
So we had an organic growth in Q2 of '19. We were flattish.
I mean you're referring to absolute numbers, Erik.
Yes. So I mean, to get some bearing on what better demand means here in terms of absolute sales.
But what you say is, let's say, a sequential growth, of course. That is what we're talking about.
Yes.
So we are not really referring the year -- year-on-year comparisons gets very strange here, especially in Q2. So we are more guiding on sequential.
Okay. Final question on -- you talked about M&A accounting for targets and so on. What's the -- I mean, we know that particularly within sealing, there's been a few larger ideas at very high multiples, which you likely have opted out on. What's the situation there, given that you said you're gearing M&A towards Sealing Solutions that typically means higher quality assets? Are you -- do you see any opportunities even with those principles?
Yes. But I mean, I think we need to go to slightly smaller targets. I mean that is what we do. And then more of them is there. What [indiscernible] synergies is -- but then we are not going to be exposed to this very, very high multiples paid on this last bigger deals. So our, let's say, target there, which we think we have plenty of those is more smaller and smaller targets, where we then -- synergies is a bigger share of the valuation for us.
[Operator Instructions] Our next question comes from the line of Robert Davies from Morgan Stanley.
My first question was just around some of the trends you're seeing in North America. I know you noticed that region was quite weak in the quarter. Just wondered across the different end markets for you, there's still color -- a little more color, I guess, what's going on in North America specifically?
Yes. I mean, overall -- I mean, medical healthcare is doing quite okay. If you say that, it's doing good. But then, more or less, other -- all industrial segments is a little bit down. Automotive is slightly better. But most of the core industrial segments is little bit slow in Q1. And I don't know [ what it's like in ] Europe, we'll wait a few months. I mean that is our best guess at the moment. So that's -- I mean, we feel a good order intake. We feel it's improving in North America, but it's difficult really to point out that there is kind of an extraordinary development anywhere. It's more that this is a few months behind. Automotive, a little bit stronger. All the kind of core industrial segments, a little bit slow. Aerospace, of course, is the same as in Europe. I mean it's been very -- it was a very strong Q1 last year in North America for aerospace and a very strong drop in Q2. So we feel also in aerospace that the year-on-year in Q2 is going to get better also in North America in aerospace, even though from very low levels.
And then the other two, maybe I'll ask them at the same time. Just you mentioned on the inventory restocks that's underway, I guess, just historically, when you look back, how long have you typically seen those inventory cycles persist for? And then my second question was around -- or last question, I guess, was around material handling. How do you explain the disconnect that you highlighted between the prerelease from Jungheinrich, for example, today? And what you're hearing from your customers? What's your best guess and explanation for that?
So on the Jungheinrich one, [ it's because ] orders. I mean it's orders versus sales. I don't see the number. I don't have the Jungheinrich numbers in front of me. But I saw a very strong uptick in order intake. And of course, that -- if they get orders, it takes a few months or something before it really kicks into us. So that is natural, that is always the way it is.
And we can see how orders[ has been ].
Yes. Orders are also getting better. And that is why we are confident we're going to get improvements. So we see it in order books, it's getting better for us as well. So we see it's getting better, but we are not yet, let's say, started to ship. Second question. Sorry, Robert, what's the second question?
The duration of the inventory restock cycle, just [indiscernible] sort of on average, how long do you typically see this go on for?
It varies. So usually, automotive is quick and then the industrial is a little bit longer. So it's a few quarters impact on that one. I cannot give any more details on it. But generally, I mean, if I -- out of my experience in automotive, it's very quick in filling up while the industrials is a little bit lower.
Our next question comes from the line of Karl Bokvist from ABG Sundal Collier.
Yes. So my first one is on margins and seasonality. Do you think that we are approaching a kind of market situation where we can start to talk about normal seasonality patterns for the divisions on margins, for example?
In general, yes. So -- but otherwise, I mean, we're still -- once again, we are still into this uncertainty about the pandemic impact and all of that. But if nothing happens, then of course, it will be similar, which means a little bit stronger beginning of the year, ending. So that is normal pattern if you go back and look on the more normal years for Trelleborg. I think, Karl, you can discuss it more in detail with Christofer if you want to, but generally -- in general, yes on the question.
All right. And then if maybe you disclosed it, but is there any way of sort of separating rating out if you're still seeing tailwinds from any kind of temporary savings effects compared to the kind of more structural savings programs that you have initiated?
If you talk about, let's say, pandemic support or COVID support, it's neglectible (sic) [ negligible ] in the quarter. So it's really nothing behind on that. Of course, we are still -- we are in a mood now going from, call it, dramatic downsizing a year ago. We noted the upsize, but I mean, we don't see any, call it, temporary effects on that. That is normal kind of adjustment to demand.
All right. And then I understand that this might be a difficult one to answer. But just looking at your SG&A development, it's been -- we're going from a kind of close to 20% of sales levels in 2016, and then it's been steadily declining into the pandemic and now continue to decline in Q1 as well. And now we're below 17%. Just your view here, what do you think is a kind of, if possible, a more normalized long-term level where you would like to be?
It's probably on a slightly lower level than it should be long term. Once again, [ we are not ] traveling, there's a lot of, I'll say, projects being delayed at the moment. But I mean, of course, we will see -- we are not getting back to 20% again. So of course, but I mean probably on slightly lower percentage points the normal. But of course, at the same time, we expect to sell a little bit more, which get good leverage or transformation cost and everything. So it's not necessarily going to be nagging on the underlying EBIT margin, but it is on the [ low, low ] side.
Okay. And finally, we've been talking about M&A and maybe more about the acquisitions. But could you please provide an update on where things are standing now with the remaining parts of what was formally called [indiscernible].
Yes. And I mean, we have 3 units there, and all of them is engaged in what we call advanced [ pro stages ]. And of course, it needs to be concluded. We need to agree on SPAs, but we have [indiscernible] interested in all business, and we have ongoing discussions in all businesses, which is in this division. So we feel confident that that's going to be concluded and done, let's say, before year-end. I mean that is what we said before, and we are sitting here today being kind of even more confident than we were when we commented on this few months ago.
There are no further audio questions registered. So I hand back to the speakers.
Okay. Great. Thanks. Thanks to all of you for showing interest in quarter 1 for Trelleborg. As always, I'm available for follow-ups and so are Christofer and Fredrik. So please reach out if you have any further questions or if you feel that we were unclear on anything and then get back to primarily Christofer. And then for sure, Christofer will involve me and Fredrik if there is any need for that. So thanks again for showing interest. Take care, and yes, hope to see you soon.