Trelleborg AB

STO:TREL B

Earnings Call Transcript 2023-Q1

[Operator]

Welcome to the Trelleborg Q1 2023 Report Presentation. [Operator Instructions]Now I will hand the conference over to CEO, Peter Nilsson; and CFO, Fredrik Nilsson. Please go ahead.

[Peter Nilsson, executive]

Thank you. Welcome to all of you to this presentation of the Trelleborg Interim Report for the first quarter of 2023. Peter Nilsson speaking, President and CEO of Trelleborg, and also joining me on the call here is Fredrik Nilsson, CFO; and also on the call in case we need his skills, Christofer Sjogren, our Head of Investor Relations at Trelleborg.So turning then to Page 2, the agenda for the call. As usual for us, we start off with some highlights where I do some comments on that and also commenting on our business areas. And then I hand over to Fredrik to guide us through the financials and then we sum up the call with some summary and some comments on the outlook for the running quarter and then finishing off the call with a Q&A session.Moving to Page 3, starting with the overall head, let's say, comments for the quarter. The heading on the call and also quarterly report a good start to the year. We feel that the start -- 2023 has started in a good way for us. Sales is up by 23%, roughly equally split on organic sales, currency and M&A. EBIT growing slightly less 15%, up to a little bit north of SEK1.4 billion corresponding to margin of 16.2%. And this then due for the continuing operations, the highest quarterly sales and the highest EBIT to date. We have some items affecting comparability linked to ongoing restructuring of some SEK50 million.Strong cash flow in the quarter to be a first quarter for us. I mean we always have -- usually, we have, let's say, a very good ending of the year and actually a capital buildup, let's say, working capital buildup in the first quarter. So it's naturally that the cash flow for the first quarter is slightly lower. But I mean, this is strong cash flow for us for the first quarter in comparison to normally. Also in the quarter, of course, a very important step for us.We did get the final merger clearances for disposal of Wheel Systems then we're waiting long for this. But in the quarter, we got this from the U.K. authorities and also from EU. So we are getting ready to close this deal. We also announced a minor acquisition for us in U.S. focused on aerospace, although small, but a very nice add-on to us for aerospace components and coming into Sealing Solutions, which a company based out in Washington State, very close to the headquarters of Boeing, which is then creating opportunities for us to sell more based on the long-term connections into Boeing, in Seattle for us. Headlines.And then turning over to Page 4, a little bit comments on the organic sales. I mean, still solid organic growth in Europe, although lower than last year, also solid organic sales in Americas, but also there, lower than last year. Then we note that in Asia, we have been hurt in the quarter by lower sales, especially in China for well-known reasons, all to comment on that, we see a strong ending of the quarter, and we do expect that to pick up substantially throughout the year now as China is up and running again. Overall, I already commented on that in the beginning, overall organic sales, 7% majority being priced, but also smallish volume in the quarter, slightly as a downtick in -- compared to last year, but still a solid growth in the quarter.Turning to the agenda slide again, and moving on to the business areas. Page 6, to comment on the Industrial Solutions. Good development continues. We had a very solid development in Industrial Solutions for quite some time, and it continues in this quarter. No step changes, but I'd say, a solid uptick. Again, organic sales strong at 8%, especially strong then on LNG and Marine Solutions to [ Initio ], which is -- where we have good global market positions, and we are, let's say, growing with a very strong underlying market. We also note in some areas, aerospace, especially continuing very strong, which also later on will comment on Sealing Solutions. Automotive also kind of well known for everybody is also picking up in the quarter where we note especially, and Europe doing good. And we also have in the quarter, good railway sales is a little bit -- let's say, a little bit bumpy sales as is product-related, but we note in the quarter that we have a strong order intake and as well as good sales in this railway segment.Slightly weaker, also well known, commenting before, European residential construction, where we are hurt by this downturn in this industry, and we also want to highlight certain industrial segments. And I mean just to comment further on that, the industrial segments, which is being hurt here is mainly the industrial segments where we do not sell directly, where we sell through distributors and dealers, where we note that this is down. And this is probably -- or we know is kind of a double even slightly weakened outlook for those guys, and which means that you're also cutting down inventory, which is then hitting us in kind of a double way for these segments, minor part of Industrial Solutions, but nevertheless, noticeable in the quarter. This development overall, although was a good development.And as I said, the sales is up in reported currency, Swedish Krona is for 16%, and we see profit is up by 20%, which means then a slight uptick also in margin running at 13.8%, which we are satisfied with. And we also note that in the quarter, inflation is well offset by pricing and efficiency, and we don't see anything that we are not behind in any way to, let's say, to compensate ourselves for this slide in costing. And we know that it's going to continue throughout the year. We still see valid for all of Trelleborg, we still see some inflation kicking in for certain raw materials, and we also, of course, watching carefully what is happening with the salary inflation. But overall, we continue to feel confident that we're going to be able to continuously act against this when it's hitting us. So that is for Industrial Solutions.And then moving to Page 6, and Sealing Solutions, heading higher sales and EBIT to date, although margin is a little bit down, but we still for known reasons, and then go back and comment on that one. But nevertheless, we know that sales is the highest so far and also EBIT is the highest so far for Sealing Solutions. Organic sales up by 5%, M&A up by 17%, which is then, of course, majority of that linked to Minnesota Rubber and Plastics. We note satisfactory sales growth in Europe and Americas and already comment on on Asia is weaker on -- specifically on lower China sales, but also Asia, there is a minor part there also linked to semiconductors, which is also notably down in the quarter. And this is just to comment on that in China sales as well as semiconductor sales. So semiconductor seals that we sell into the semiconductor industry is influencing also the margin, because it's creating a negative mix. And so we have a few tens of percentage points that is kind of hitting us due to this kind of change mix in lower sales in China and lower sales linked to the semiconductors.We note also that the sales to aerospace and health care and medical is notes will be up, let's say, substantially stronger in organic sales compared to the overall average. And we also note that automotive developed favorably, which is also kind of here in this area, we note also satisfactory sales also in North America as well as in Europe. We have some industrial demand where we are a little bit uncertain. I mean, it's not any kind of strange things, and there's no drama in this. But we do note that it's a little bit flattish in a few industrial segments, especially linked to construction equipment, but also in some areas, which is still a strong order book for us. But nevertheless, we do note that there is some kind of carefulness kicking in, in a few areas.Also, margin is impacted, well known as well that we had the MRP acquisition kicking in, which is a major PPA effect as well. So that's, of course, explaining kind of half the EBIT change compared to last year. And then we also note that last year was a very good quarter with 24%. So we do note that there is a slight kind of downtick also in Sealing Solutions overall, which is then soft China sales, but also commenting on this kind of mix effects, which is also hitting us somewhat. But overall, satisfactory developments in the quarter.Turning to Page 8, let's say, hopefully or likely, very likely the last comment for us on Wheel Systems, which is reported as an asset for sale. It is a solid quarter for Wheel Systems organic sales flattish, but favorable sales in -- especially in North America and also globally on the original equipment, agricultural tire business, while we note that Europe is impacted, let's say, sizably by a lower aftermarket sales. And EBIT is although up, although margin is slightly down, but we are keeping this in a good way, although we have kind of a negative gross margin mix seem to OE sales growing and aftermarket sales going down. But nevertheless, well managed by our colleagues in Wheel Systems in the quarter.Then turning to Page 10 to comment a little bit further on the divestments. I mean, as you know, we have 2 pending divestments, Trelleborg Wheel Systems and also this Trelleborg Printing Solutions, which is a business unit that we have been kind of signed an agreement to sell to Continental. To comment on this, we are, as I already commented, the final merger clearances for Wheel Systems happening in the quarter. There's nothing now left really to solve is more to some formalities that need to get in place, and we do expect closing of the wheel systems to happen in Q2. And the same actually applies also to printing solutions, where we also have the final kind of outstanding points agreed, and we're also in the fine-tuning of these acquisitions. We do expect that also to close here in the next month or 2.And also in commenting earlier, I mean, these 2 acquisition -- these 2 divestments will create a cash inflow for us that will make a solid into a net cash position for the group here at -- in quarter 2. Also, just to confirm earlier comments, capital gain from the divestment will amount to approximately SEK6 billion, and that would also be expected to be reported as a nonrecurring income in quarter 2. And we will get back, of course, when these 2 deals finally are closed, we will get back with more comments on that, and we will send out the press release for each of them to give you detailed figures for this.Okay. Turning then to Page 11, some comments on sustainability. We're focusing basically on 2 areas: carbon emissions and then a little bit more electricity supply and those work cases. I mean, you know that we are kind of on a continuous operation kind of flattish compared to a year ago in absolute terms, but that's, of course, also linked that we have acquired companies here. So if you look at the tons intensity, then we have actually improved 28% year-on-year. Quarter-on-quarter, here, of course, you need to compare quarter-on-quarter since the temperatures are different, and you cannot really compare quarter-on-quarter. So we have to do an -- this annual comparison. So this is kind of well managed and we continue to run in a good way, down 28% year-on-year.Turning to Page 12, in the next page, there we talk about share of renewable and fossil-free electricity and lost work cases. On this one, you note that it's 44% only, if I may say, only increasing the share of renewable and fossil-free electricity by 2 percentage points. But also here, we need to know that Minnesota Rubber coming in with virtually no renewable electricity in their portfolio. And that is, of course, something that we, let's say, expect to improve considerably going forward. So we do expect that also to go up. And you know that we have a long-term target here of getting above 80%, and we feel very comfortable that we're going to get there in the kind of foreseeable future, put it like that. So we are not that far away from that goal even though it looks like that at the moment.Lost work cases which is another important task for us to keep our employees safe. And you see also we are, let's say, all-time quarterly low here on 27 is still not good enough, and we're going to improve that as well. But nevertheless, we also do see a positive movement in this area. So we are quite satisfied overall with the development of this sustainability. Of course, there is several other KPIs also in this area, but we have decided to highlight this in a quarterly report and then we don't get back and look into this. And of course, we're going to continue to focus on this area and also improve both in terms of performance as well as in terms of reporting.Turning to Page 13, agenda again, financials. And then quickly turning over to Fredrik, starting at Page 14. Please, Fredrik.

[Fredrik Nilsson, executive]

Thank you, Peter. Strong sales increased in the first quarter of 23%, 7% organic growth in the quarter with organic growth of both Industrial Solutions and Sealing Solutions in the quarter. We have acquisition adding 9% to the sales, and then currency added another 7% and then it total up to the 23% improvement year-over-year.Moving to Page 15, looking at the strong sales trend. That continues. I mean, we had a strong first quarter again, and we have now 9-quarter in a row where we have been on or above our sales growth target.Moving on to Page 16, showing the quarterly sales on a rolling 12 months for continuing operations. We have SEK8.711 billion sales was the highest to date for a quarter. And then if you look at the rolling 12 months, we reached SEK31.7 billion.Moving to Page 17. EBIT, it was the highest to date with SEK1.411 billion, a 15% increase with profit growth in both Industrial Solutions and Sealing Solutions. I would also like to highlight that in the result, there was a translation of foreign subsidiaries that has a positive impact in the result of SEK67 million compared to the corresponding quarter last year. EBIT margin reached 16.2%, which was impacted with acquisition with lower margin, and we also have the PPA amortization that Peter mentioned earlier.Moving on to Page 18, looking at EBIT and EBIT margin rolling 12 months. The positive trend with increased EBIT continued, while the margin declined in the quarter impacted by the recent acquisitions. If we look at rolling 12 months, EBIT amounted to a little bit more than SEK5.2 billion with a margin of 16.5%.Moving on to Page 19. Looking at some further details in the income statement. We have items affecting comparability of minus SEK49 million in the quarter, which was entirely related to restructuring costs. Financial net increased from SEK45 million to SEK165 million in the quarter, and it was impacted by higher interest expenses linked to acquisition of Minnesota Rubber and Plastic. We have, in general, higher interest rates, and we have also continued to buy back owned shares in the quarter. Tax rate for the quarter amounted to 25%. The underlying tax rate still remains at 26% for the full year. So the earlier guidance is still the same despite we have 1 percentage point lower in the first quarter. Net profit for discontinued operations improved due to the continued profit growth for Wheels Systems.Moving on, Page 20. Earnings per share for continuing operations, up 13%. And if we look at the total group, earnings per share increased by 11% in the quarter.Moving on, Page 21. We have a strong cash flow improvement compared to first quarter last year, good improvement from EBITDA of SEK308 million in the quarter. And then you can see a slightly higher CapEx compared to prior year.Moving on Page 22. Cash flow conversion. We have a cash flow conversion ratio of 75% during the first quarter of '23 versus 76% last year.Moving on to Page 23, looking at the debt-to-equity ratio. We have 56% end of the quarter, and the increase was entirely related to the Minnesota acquisition that we closed during the fourth quarter last year. Net debt was also impacted by the ongoing share buyback program, and we have bought back shares for SEK654 million during the first quarter. So net debt in relation to EBITDA ended at 2.4%, which is unchanged versus year-end.Moving on to Page 24, looking at return on capital employed at 14.9% end of the quarter versus 15.7% end of first quarter 2022. The capital employed has been impacted by higher working capital as a consequence of the higher sales and also the acquisitions that we have made during last year and also there is an FX impact linked to the return on capital employed.I will finish off this section by some guidelines for 2023. They are unchanged compared to what we presented a quarter ago. So CapEx, we estimate to be around SEK1.5 billion for the year. Restructuring costs of around SEK250 million. Amortization of intangibles, we expect to amount to around SEK500 million for the full year and underlying tax rate to 26%.By that, I would like to hand back the microphone to Peter.

[Peter Nilsson, executive]

Page 26, agenda, we work with the summary and some comments on the running quarter and then finishing off with the Q&A.So Page 27, good start to the year. Sales increase of 23% with organic up by a solid 7%, currency supporting us with 7%, and then M&A, adding another almost 10%. EBIT up by 15%, margin, 16.2%, slightly down compared to a year ago, but that is linked to -- primarily to an effect from this acquisition of Minnesota. And then I nevertheless, giving us the highest quarterly sales and highest EBIT to date, some normally as well, SEK50 million on items affected comparability, solid cash flow in the quarter. And important, of course, for us also emerging clearances for the disposal of Trelleborg Wheel Systems has been received, and we all know we're kind of wrapping up that to finally execute the sale and get the money on our accounts. And also note in the quarter continue to do smaller bolt-ons, strategically important, but nevertheless not sizable in that way, but I mean, important for us to grow our sales and get closer in this case, especially to one of our key customers, Boeing. That does, let's say, the overall summary of the quarter.Turning to Page 28, to comment a little bit on the running quarter. Our statement here is that we expect it to be in line or somewhat lower than in the first quarter still solid demand overall, but it is kind of a little bit mixed bag where we have a smaller part of the group where we see a downturn. I mean we comment on residential construction in a way in Europe impacting us, but also in North America, somewhat slow. And we also note that a few other businesses, which is linked specifically to distributor dealer sales, small part of Trelleborg, but nevertheless, that is also where we see a downturn.And then we have, let's say, also a chunk of the business where we feel a little bit uncertain wage heading is still solid order intake, but we see some increased uncertainty. And then we have also some major parts of the group, but we continue to see a solid demand, solid growth we say aerospace, automotive still looking good, health care and medical and also especially LNG, oil and gas and big kind of infrastructure construction. So also a major part of the group still expect solid growth. But overall, a little bit cautious maybe. But I mean that is something the way we look at it. We do expect this running quarter to be in line with this quarter or maybe somewhat lower in certain areas.And of course, as usual, there is this add-on for us as for everybody else. We still see the political situation being uncertain that there could be things impacting us a quarter. But if it -- we continue to stay very close to the operations, and we'll continue to adjust and we continue to improve Trelleborg whatever happens.So that was kind of finishing off. And also before handing into Q&A, just adding on Page 29, just a reminder, we have a Capital Markets Day coming up here where, of course, all of you are invited running May 23 in Stockholm. And if you do intend to participate, which we definitely want you to participate and please register no later than this day here, let's say, May 10. And please note that also if you -- you know, we move these dates. So if you have, let's say, registered for the previous CMD, you have to reregister here to make sure that you are attending, there is a link on this slide as also where you want to do that. So if you have any questions on that, Christofer is here to support you. So make contact with Christofer, if you have any questions or want some support to be able to join us on this event.So with this, turning to Page 30, Q&A. And then quickly to Page 31 and opening up for questions. So please go ahead.

[Operator]

[Operator Instructions] The next question comes from Karl Bokvist from ABG Sundal Collier.

[Karl Bokvist, analyst]

A question there on the demand outlook or the comments where you say that you see a bit of a more normalized demand scenario, you highlight some areas that are weak. I was just wondering, if you see -- seen any areas that were previously quite strong where you seen -- where you see that they are leveling off when it comes to this normalization comments.

[Peter Nilsson, executive]

No, not really. I mean, the normalization is because if you go a year back, there was kind of a lack of components, there was a lack of input material, lack of capacity in certain areas. And I mean, we see -- and that is where I honestly call to be -- yes, as usual, be very open. I mean the lengths of the order book is shrinking because people are not preordering that much as I did a year ago, and that is where the reading of the order intake for us is somewhat difficult in certain areas, and it primarily linked to this kind of dramatic segment, which is a very wide segment in terms of application in end markets, but that is where we see some uncertainty.And I mean we have to be open. We are analyzing it. We're reading it. We see -- I mean, overall, the order book is shrinking, but it's not really shrinking short term. It's more shrinking long term, which is -- was kind of very strong or too strong a year ago, and that is where we have kind of a little bit difficult to analyzing it. So we don't really see a big difference in between quarter 4 and quarter 1 in that respect. But we do see, let's say, a shortening of the order book continues in a way. And I mean once again, that is normalized where we are kind of running at a very high percentage of kind of orders for the next quarter. But I mean, still in the current situation, we are kind of running higher than we did a few years ago like that.So it's kind of challenging to read into it, but nothing really specific. I mean the only we're highlighting is 2 segments where we feel it's down, and that is kind of residential construction, which is a few construction equipment going into that segment also where we see kind of a downturn. And then we also these small sales of Trelleborg, we still sell to dealer and distributors where we see that, that is for those customers are being more careful. So if you say, I mean, we still have, I don't know, round it up. We do not use it against with in the future, but we say 40% of the group is still very good and solid. 20% is a little bit weak and 40% that where we see some kind of uncertainty. So that is kind of the way we look at it.

[Karl Bokvist, analyst]

Understood. And then on Sealing and the comments regarding a bit weaker Asia, is that related to the entire Sealing business? Or was it mainly related to Minnesota?

[Peter Nilsson, executive]

No, no, that is linked to both. Minnesota is dependent on it and also Sealing in total. I mean, China for Sealing is an important market, and it's also good margins in China. So it's a positive add-on from a margin point of view. So all of China, and I trust you're aware that we had this [ closedown pandemic -- closedown ] still in running in the quarter and that impacted us to the sales was a little bit lower in the quarter, but we want to also highlight that we do expect that to pick up for the remainder of the year. So we don't see an overall bad demand in China, but we do see there is a worst challenges in getting the deliveries out of the door in this quarter, and that has been impacting us in certain areas, most majority of China.

[Karl Bokvist, analyst]

Understood. And my final one is a bit technical one to you, Fredrik. The SEK6 billion items affecting comparability expected to be reported in Q2. I guess since you have the profit contribution already in the discontinued line, the item affecting comparability, will that also be below the net profit line then and therefore not affect EBIT?

[Fredrik Nilsson, executive]

That's correct. It will be a one-off in discontinued operations. So it will be below the line, yes.

[Peter Nilsson, executive]

One comment here because Christofer hit me on the side. Just to clarify on the order book, the order book is actually up in the quarter, but let's say, order intake is somewhat shrinking. So we still have a very good order book compared to year ago, but the order intake is shrinking compared to year ago. Yes, just to clarify that.

[Operator]

The next question comes from Hampus Engellau from Handelsbanken.

[Hampus Engellau, analyst]

Two questions for me. I wonder, Peter, if you could maybe talk a little bit about dynamics on pricing here. How should we look at price increases -- prices in January compared to average prices last year? And when do you start to see like year-on-year comps getting tougher? And from new discussions with new contracts from the price leverage we've seen today, are you still seeing some momentum in raising prices further or customers more of it aware of energy cost and supply chain costs, et cetera, coming down? Or how should we think about that?

[Peter Nilsson, executive]

We feel that overall, we are balanced samples. I mean, we think we are in line. And if anything, slightly positive, not any major things, but we are not behind. If we are something we are slightly ahead. And we continue to adjust pricing. We continue to see some raw materials going up. We have freight, for instance, long business rate is down, but we still have challenges in short distance, freight, let's say, in Europe and North America, getting trucks and all of that. So there is still where we see price increases. And we don't really have a problem in getting clear adjustments. So we're going to continue to stay close, and we are very quick in kind of adjusting pricing. We don't see any kind of -- it's always a fight, and it always takes time to agree, but we do believe that our customers recognize this and they are kind of as long as we are fair, they will accept the price increases.And then also, if you look at Trelleborg, you need to also be aware that the vast majority of our sales is kind of a single source, let's say, specific applications. So it's not that we're going to be kicked out because the switching cost is very high. So as long as we are fair in our price increases, which we would like to be and get compensated for our cost increases. We are not, in any way, not in any way, we are not concerned about that development. So we feel that it's going to continue to be price adjustments and will continue to be firm in getting them implemented. So we don't see that as an issue, if I [ want to say blunt ] on that one.

[Hampus Engellau, analyst]

And on this speedboat areas, is it fair to assume that it's a better pricing power for you guys in those segments? Or is it just simply that those end markets are just growing faster?

[Peter Nilsson, executive]

I think they're growing faster. I don't think we are kind of having a better position in that respect in a way. And that's maybe also I didn't comment on that. That is also was partly the explanation also on TSS that we've been adding -- on Sealing Solutions, we've been adding some costs. And we talked about EUR1 billion or something. But nevertheless, there is EUR1 million in extra costs in the quarter for these kind of efforts, but it's not really any difference in the kind of business logics in that areas compared to the overall business. It simply that speedboats is more higher growth areas.

[Operator]

The next question comes from Klas Bergelind from Citi.

[Klas Bergelind, analyst]

So my first one is on the China impact coming back there to Sealing Solutions. You talked about semi, but then you also said the overall China business is a higher margin. That business is now coming back, as you alluded to in March, and we heard that from others. What was the impact, Peter, in terms of the margin? Where would the underlying margin, if China would have been flat? And then I'm curious about Minnesota. Did you say what the dilution impact was and also including PPA?

[Peter Nilsson, executive]

I mean, in China, we talk a few tens of percentage points in the margin overall. So we don't really -- I don't want to comment more on that clause, but it's not at least 1 percentage point. It's less than 1 percentage point. This is a few tens of -- few tens of percentage point impact on the overall margins. So that is -- that's, I guess, what we can see about that.And the second question was little about...

[Fredrik Nilsson, executive]

The MRP impact, the dilution? I mean, it's for Sealing Solutions, it's around 2% impact if you include both our underlying business and the PPA amortization.

[Klas Bergelind, analyst]

Are not only Minnesota?

[Fredrik Nilsson, executive]

Not only in Minnesota, of course, there are some other small acquisitions as well.

[Klas Bergelind, analyst]

Yes. And yes, on PPA, how much was it, sorry, I was late on the call. It's been a busy day.

[Fredrik Nilsson, executive]

We have increased PPA in the quarter in total by SEK66 million.

[Peter Nilsson, executive]

Well, that means our mortgage. He says it's...

[Klas Bergelind, analyst]

[ That I can work out my foot ]. Oh, good.

[Fredrik Nilsson, executive]

And compared to a year ago.

[Peter Nilsson, executive]

Compared to a year ago, yes.

[Fredrik Nilsson, executive]

Here we didn't have these [ AMD in ] Minnesota. But if you compare to the Q4, it's slightly higher simply because it's been consolidated for 1 month longer than we had it in Q2.

[Peter Nilsson, executive]

But that's in the report -- the detailed figures are in the report.

[Fredrik Nilsson, executive]

We have SEK118 million in PPA amortization in the quarter. And the SEK66 million was the increase versus a year ago.

[Klas Bergelind, analyst]

Yes. Clear. My second one is, I'm sure you're going to touch on this during the CMD, but I'm just still a little bit curious on the speedboat segment, Peter, and how these end markets are geared to decarbonization, of course, you have wind in there. You also have semi, obviously, on the digitalization side. But is there any content story, i.e., do we need more sales? Do we need more [ hosts ] and so forth? I'm curious in the mix impact because that obviously can be material, both to growth and to the margin.

[Peter Nilsson, executive]

I mean that is a very comprehensive question, and it kind of varies between the different segments. So I mean it's, of course, we need to -- as we are approaching aerospace, we are approaching health care and medical. We're growing into robotization or electrical equipment or some of that. There is, of course, some gaps in our portfolio, and that is something that we would like to either acquire or potentially work together with somebody. I mean we are lacking, lacking as we even say, we need to address and get more complete.So I'm not saying that, I should say that we are, yes, it's going to be more solution selling, but that kind of is also a general comment. But I mean, so that has always been a way for us like in Sealing Solutions that we manufacture 75% of our sales be trading, 25% in order to get a complete solution. But of course, since now we are addressing a few segments more focused. These areas are being more also focused to solve in these areas. But is it, I think a difficult question, [ clock todo ] and I should like this. But for sure, it will be part of our story when we meet at the Capital Markets Day.

[Operator]

The next question comes from Agnieszka Vilela from Nordea.

[Agnieszka Vilela, analyst]

Yes. My first question is on the weakness that you start to see more in some of the industrial segments. Peter, if you could comment more about that. Where do you see it? What's driving that? Also, I think you mentioned the industrial distribution. Is it due to the fact that the distributors need to take down the stock? And what's your opinion about the stock level today?

[Peter Nilsson, executive]

I mean to start with final question, we don't expect the stock levels to be high. Yes, I mean [ on other ] in the opposite, we still see the majority of our customers being rather lean in this one. So we believe, let's say, on the distribute -- we've seen that, especially now we exiting -- I mean we see it even more, which we didn't comment on the less agricultural aftermarket sales. But there is this kind of a combination, a slightly weaker demand speculation from the distributors. This distributor always want to speculate on being, if they do expect pricing to go down a little bit, that they don't want to buy too much and they want to be -- and that the supply is losing up, it's getting a little bit easier to supply.So the distributor sales is like that. There's always going to be a little bit more ups and downs because there is more drivers than the kind of end demand, and it's kind of difficult for us to read into that situation, especially let's say exactly. But we do know that there's more impact than the underlying demand. And if they do believe that a small -- if there is a small, let's say, demand down tick, and I see on top of that, speculating a bit lower raw material costs and more availability is natural because one of the key drivers for them is, of course, to keep the working capital low and to get returns on that. So we are not too concerned about it, to be honest, but we know that sales into that segment is slightly lower.And then on the other kind of industrial market is very wide. And I mean it's more a feeling that if you know that our order intake is shrinking. Order book is still on a very solid level on historical comparisons, but we do -- we wanted to comment on that we do see that order intake is somewhat down. And I don't really want to pinpoint, looking at Fredrik. I don't know why we want to pinpoint on specific segments in that way. It's kind of more a general feeling, maybe a little bit cautious. But I mean we always want to be transparent. We want to be very open. And we say that, I mean, those are areas we have already started to adjust.

[Agnieszka Vilela, analyst]

Exactly. And then Peter, if I read you correctly from the report, you do allude to some proactive, probably cost measures. So how should we read that?

[Peter Nilsson, executive]

That is, I mean, in this kind of residential construction side, we have already adjusted because we are kind of, for instance, a global leader in the seals for windows and doors. And in that segment, we are already immediately kind of adjusted because that we saw coming, and we've done that. We also did use this occasion, of course, also to do on this kind of industrial wholesale, for instance, we're also addressing that and bringing down. So what we want to say that we are not waiting, we are acting and we're acting up and down. And then we're still lacking people in a few areas, it's also a little bit balanced. But at one -- with that comment only to say that we are kind of addressing this, and we are ready and we have already started to adjust in those areas where we do see as it is, let's say, several 10 percentage points down or whatever it is. So make sure that we continue to adjust to keep the margin up.

[Operator]

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

[Peter Nilsson, executive]

Thank you, and thanks to all of you for listening in. And especially, thank you also. We know this is a very busy day for all of you, and we appreciate that you continue to show interest in Trelleborg. And we hope also that we're going to see you at our Capital Markets Day here in end of May or -- I promise you that we're going to be telling you a little bit more about Trelleborg and also not telling stories, but we're going to tell you about the future of Trelleborg and what we're aiming for here. I mean we have a few exciting months ahead of us where we're going to get a lot of money. And of course, this is a new Trelleborg in development, and it's creating a lot of opportunities for us, which, of course, we're going to manage these opportunities in a good way, in order to continue to create shareholder value for all of us.So, thanks again. And if any follow-up questions, of course, as usual Christofer is available. So don't hesitate to give him a call. If you feel that you have any specific questions that did not get -- that you did not get answered on this call. So, thanks again, and speak to you and see several of you soon as well. Thank you.