Trelleborg AB

STO:TREL B

Earnings Call Transcript 2022-Q2

[Operator]

Hello, and welcome to Trelleborg Audiocast for Teleconference Q2 2022. [Operator Instructions]

Today, I'm pleased to present CEO, Peter Nilsson. Please go ahead with your meeting.

[Peter Nilsson, executive]

Thank you, and welcome to all of you to this presentation of our half year report. I will start -- Peter will start here to give you some overall headlines and some overall comments on our business areas and then Fredrik Nilsson, our group CFO, will support me with -- support us with some more financial comments and then we will finish off with some guidance on the running quarter. And then of course at the end of the session also to open up for Q&A. Throughout the call, we will use the slides that's on our web page, which is then presenting our report here for Q2. So that is what we're going to refer to and turning to that. Turning to Page 2 or Slide 2 in that presentation. Agenda; starting with highlights, general highlights, business areas, financial by Fredrik, then some summary on some comments on the outlook and then some Q&A at the end.

Turning to Page 3, our headline for this report. Continued strong growth and record margin. Sales increased in the quarter compared to last year by 21% driven by very strong organic sales growth of 11%, currency benefits of 8% and also some M&A adding 2%. So in total summing up to 21% sales growth. EBIT then growing more than that, growing by 27% up to little bit north of SEK 1.3 billion in the quarter, which is then corresponding to this record high margin for us at 17.9% of the continuing business. And this then sums up to the highest quarterly sales for us, highest EBIT and highest margin so far for Trelleborg. We have small items affecting comparability of minus SEK 33 million, which is then well within guidance for the full year. Fredrik will come back and comment on that. Cash flow at just shy of SEK 800 million then impacted by this higher business activity, which is then obviously given naturally tying up some of the accounts receivables and also higher inventories.

So we are now no way concerned about that. We see it as a natural and I mean we will get better here as the business develops. Also a smaller acquisition in the quarter called EirMed, which is then being incorporated into Trelleborg Sealing Solutions, which is a company fully focused on health care and medical with one factory then outside of Minneapolis in U.S. Turning to Page 4, organic sales development by geography. Very strong development in Americas, 23% organic growth of course is very, very strong. Europe also strong, 10% organic growth in Europe. And then a little bit weaker in Asia then heavily impacted by the shutdowns linked to COVID in China. So we are not really concerned about that either. We believe that when China is opening up again, we're going to bounce back rapidly. In China order intake still okay and the order backlog in China very good. So that will be bouncing back as the market is opening up.

So overall, very strong organic sales all over. But once again China or Asia then impacted by the Chinese lockdowns linked to COVID. Turning to Page 5, business areas. Quickly turning to Page 6 and comments on Industrial Solutions. Very strong growth and record profitability. In Industrial Solutions, organic sales 16% and we're actually growing in all geographical markets and also in all market segments. Also here we actually grow in automotive due to market share gains in our automotive segments in this business area. Of course heavy cost increases here as well linked to -- here as well all over of course linked to the high inflation of raw material, freight and energy; but that has been very well upset by efficiency and pricing and of course with the volumes also -- drop-through from higher volumes also benefiting this. And that means that EBIT in total and also margin increase, the record high margin is actually first time touching here 15% EBIT margin.

Of course in the quarter benefiting from good project sales and once again good development in all businesses in Industrial Solutions. So a very strong quarter for Industrial Solutions. Turning to Page 7, Sealing Solutions. Also good growth and very resilient margins. Organic sales up by 7%. Strong organic sales in general industry both in Americas and Europe, but China then down by -- that's impacting Asia in total with the COVID lockdowns in China. We note also sales to health care, medical and aerospace increased significantly with both sales in the quarter, but also very strong order intake going forward. In this we have a small decline in automotive related sales linked to of course now supply chain issues in automotive industry, which is then also impacting us of course. But as said, this is not heavily impacting us but nevertheless, there's a slight decline linked to that.

But all in all this is still resulting for Sealing Solutions in record high EBIT and a record performance in the quarter. Although the margin is down by 0.4 percentage points, still with the growth and with everything else, we are delivering the best-ever EBIT for Sealing Solutions. Touching also on Wheel Systems since you know that we have signed an agreement to sell this to Yokohama and we are in the process of getting this deal finalized. But until then it's reported as assets held for sale, which is then on Page 8. And then turning to Page 9 to comment on the development in Wheel Systems. Heavy inflationary headwinds we have to say in Wheel Systems, but well managed by the team in Wheel Systems resulting in organic sales of 21% and basically a healthy growth in all tire categories and all geographical areas. But we should note that sales to America -- sales in Americas both North and South America are particularly strong.

We have as a comment in this area probably the heaviest impact from raw materials, energy and transport. But once again well managed and been well compensated by pricing primarily, but also by increased efficiencies linked to higher volumes and well managed on these higher volumes, which is then pushing us to a margin of 15% in the quarter. Turning to Page 10, which is a new slide for us we're reporting in this. We talked about also sustainability KPIs. We can see that our CO2 has been also well managed in the quarter going down in absolute figures and then of course also going down into what we call CO2 intensity, which is as tons of CO2 per million, which is also going down. So also in this respect, developing nicely in the quarter-on-quarter. This is not annual so this is more quarter-on-quarter development than comparing with a year ago.

Then turning to next page also on sustainability. We're also having another main KPI here, which is linked to our share of using renewable energy in comparison to total electricity and here this is flat quarter-on-quarter. You are well aware of the challenges here in purchasing and getting electricity in certain geographies, but we are at least keeping this flattish and we are running at the same level as in Q1. So that is the new slide so KPIs for sustainability.

Turning then to Page 12, financials and then handing over to Fredrik to move from Page 13.

[Fredrik Nilsson, executive]

Thank you, Peter. Let's then move to Page 13 looking into the sales development. Organic sales increased by 11% in the quarter with organic growth in both business areas. Reported net sales increased by 21%. We had 2% impact from acquisitions during the quarter and then currency added another 8%. Moving on to Page 14 showing the historical organic growth. You can see here that we have a new good quarter with the second quarter of 2022 and we now have 6 quarters in a row on our growth target or above. Moving on to Page 15 showing the quarterly sales on a rolling 12 months for continuing operations. You can see that the second quarter was record high SEK 7.351 billion. Moving on to Page 16. We have a record high EBIT of SEK 1.319 billion, which was 27% higher than Q2 last year with a good strong profit growth both in Industrial Solutions and Sealing Solutions. In the result, there was also positive FX impact from translation of foreign subsidiaries of SEK 69 million compared to corresponding quarter last year.

EBIT margin for continuing operations excluding items affecting comparability increased from 17% to 17.9%. In both Trelleborg Industrial Solutions and Sealing Solutions, there was a strong sales growth supported by price adjustments. Moving on to Page 17 looking at EBIT and EBIT margin rolling 12 months. You can see that the positive trend continues with increased EBIT and higher margin. Page 18, profit and loss statement. Looking at some further details. You can see we have items affecting comparability of minus SEK 33 million in the quarter and that was entirely related to restructuring costs. Financial income and expenses up from SEK 37 million to SEK 40 million in the quarter. We have increased our net debt in the quarter and that is mainly due to the ongoing share buyback program, but we are also seeing increased interest rates.

Looking at the taxes, amounted to 24% in the quarter and as earlier communicated, we have said that it will be 26% for the full year and that still stands. And then looking at net profit for discontinuing operations, you can see there is a strong improvement. Here we have also some additional support from IFRS 5 where we had to stop depreciation and amortization, which has added SEK 151 million in the quarter. Moving on to Page 19, earnings per share. For continuing operations, excluding items affecting comparability, we increased EPS with 32% from SEK 2.75 to SEK 3.63. And for the group as total, earnings per share was up 56% in the quarter. Moving on to Page 20 looking into the cash flow. We have an operating cash flow of SEK 798 million, very positively affected by the higher earnings generation and then, as Peter mentioned, we have a higher business activity which is dragging a little bit more working capital.

The accounts receivable is very logical because sales is up, but then we also have a little bit more inventory to secure a stable supply to our customers. So we have both little bit extra on the raw material side, but also on the finished goods. And then investments was also a little bit higher than the corresponding quarter. Looking into the cash conversion on Page 21. You can see we had a cash conversion ratio of 69% in the quarter and that reflects the higher business activities, which require some additional working capital. Moving on to Page 22, the gearing and leverage development. The debt-to-equity ratio was 31% end of the quarter and it's 2 items that is increasing our net debt here and it's the dividend that we paid of SEK 1.481 billion during the quarter and the share buyback, we have bought back almost SEK 1.5 billion in the quarter. And then net debt in relation to EBITDA was 1.4x by end of the quarter.

Looking at the return on capital employed, new record high of 16.1%. We have a higher capital employed due to the higher sales, acquisitions and exchange rates; but that was very well offset by increased profitability. And then I will finish off this section with some financial guidelines for the rest of the year or for the full year. We have said that CapEx will be SEK 1.4 billion for the full year, restructuring costs SEK 300 million, amortization of intangible assets SEK 300 million and underlying tax rate 25% and for continuing operations it will be 26%. That is unchanged since the first quarter.

And by that, I would like to hand back the microphone to you, Peter.

[Peter Nilsson, executive]

Thank you. Then finishing off with summary and some comments on the running quarter. Heading for the report. Continued strong growth and record margin. I mean sales up by 21% driven by strong organic growth and also some assistance from FX or also smaller add-ons on M&A. EBIT is up even more. EBIT is up at 27%, which then gives us a record EBIT margin in the quarter of 17.9%, which means that the highest quarterly sales for us, highest EBIT and highest margin today for Trelleborg. Items affecting comparability at SEK 33 million. And then cash flow already commented a few times SEK 800 million, which is then a little bit pushed down by higher business activity, higher sales, which is then consuming some working capital, also smaller add-on acquisition for our medical and health care business within Sealing Solutions, EirMed been added in the quarter. So this is kind of once again a very strong quarter for Trelleborg and we are very happy with the performance in this quarter.

Turning then to Page 27 and some comments on the outlook. We are guiding for slightly lower demand in the next quarter in the running quarter and I mean this is now drama in this. I understood here that there was some questions here between the report and our call here about our order book, but we want to clarify that the order book for us is still on a record high level and we have been growing the order book in the quarter. So we're going into quarter 3 with the highest order book to-date for Trelleborg. But nevertheless, we need to be transparent and say that I mean here at the final weeks of the quarter is also the slowdown and then whether that is kind of continuing or not, we don't really know at the moment. I mean the first weeks here of this running quarter does not indicate any kind of major downturn. It's more a flattening compared to what we have seen before.

But once again we have had a very strong order growth for many, many quarters now and also there was a growing order book also during Q2. So this is no drama in this, but nevertheless, we believe that we will see a slightly lower business activity here in this running quarter compared to before and of course this is said with still quite high uncertainty. We still have the potential for further COVID lockdowns in China. I think we should expect that at least up until October that we have to very careful in China. And of course we have still the war situation Ukraine-Russia, we don't know what that's going to give us in terms of gas supply and other stuff. So this is what we -- the best estimate we can do and the best estimate we can do for the running quarter. So this is the way we look at it.

So we can leave it there and then handing over for Q&A and opening up for Q&A. So Please go ahead.

[Operator]

[Operator Instructions] Our first question comes from the line of Klas Bergelind from Citi.

[Klas Bergelind, analyst]

It's Klas from Citi. So first on the comment on this slowdown you talk about. I know it's early days, but I'm just trying to understand to what extent this is real demand weakness piece or maybe a normalization of preordering following your big price hikes and in which segments and regions do you see this? I'll start there.

[Peter Nilsson, executive]

I mean it shouldn't really -- I understood that there was some comments on this following our report, but we don't put too much drama into this. There is kind of a flattening or maybe even growing the order book for I think for 23 months and then we have a flattening in the 24th month here of June, but it's still on a high level. So this is something which we still -- I mean once again we have a record high order book and this is of course impacted by some lack of components for some areas. They are not ordering from us. It's not that we cannot supply, but since there are problems for others to get supply are slowing down. So we don't see that as a -- we don't want to raise anything and we don't want to -- there's no difference in geographies.

China is of course is impacting -- I mean people are not ordering here in the COVID slowdown so that's been a little bit shrinking of the order intake in China particularly. But I mean whether that is linked to the COVID lockdown and not really linked to the underlying demand is our kind of best estimate on that. And I mean once again it's not really any drama in this. We need to read into everything and we need to do the best estimate and the best look at it in a more -- look at the figures and do what we believe is correct. But once again I mean we are very confident on Q3 that we are going into Q3 with a record high order book and we have very good order coverage for all the sales that we will be able to supply in Q3. So we are not really seeing that as a weakening. But nevertheless, we need to kind of address and tell what we believe.

[Klas Bergelind, analyst]

It's hard to ask given that you singled it out in the report. All good, understand. And my second one is on [ pace ]. It's obviously very good to see this margin. You're able to compensate well on price cost, but it also seems like previous M&A and restructuring is now paying off. Can you talk to, Peter, to what extent this is sustainable into the second half? Of course we have the seasonality into the third quarter. But I'm just a little bit concerned further out that pricing can rollover as cost inflation levels off. I need to understand to what extent this can go.

[Peter Nilsson, executive]

No. I mean what is benefiting in this quarter in Industrial Solutions is good project sales and I mean that will not be like that in every quarter. But we have been guiding that we believe -- we firmly believe that Industrial Solutions will continue to improve. But I mean I don't want to say there's a continuing 15% here because 15% is the all-time high margin in this. But if we -- so I don't expect -- I shouldn't give you the guidance that we get 15% for the second part of the year for Industrial Solutions. This is little bit extra good. But we do believe that it's going to continue with high sales growth, but then dependent on projects, the outcome will be probably slightly lower. But I mean we are happy and the performance is good and we have been -- we are not kind of sliding in any way. Good compensation for inflation and good price adjustments and good efficiencies. So very well managed and a good outcome. But we still have to wait a few more quarters before we can put this on a 15% forever level in a way.

[Klas Bergelind, analyst]

Yes. That makes sense. My final very quick one is on the choice between M&A and redemption. Obviously a very solid balance sheet at the start of next year if Wheel Systems go through, you seem confident that this will happen. But you're already a big player in your TM market and you say that you want to do bolt-ons and that to me that will take quite some time to redeploy that cash into growth. Could you offer some detail on the choice between maybe partial redemption and M&A or is M&A still the big focus?

[Peter Nilsson, executive]

No. I mean the priority will be if we can find good M&As, which is long-term beneficial for us then of course that will be the priority. But we will not spend the money simply because we want to spend the money. Then it's because we find a good M&A, which we believe is more long-term beneficial for our shareholders. I mean that is what we will do. So really where that could end up, I don't know. I mean we're working on a few projects as we always do. But of course as you already hinted, most of the M&A we're looking for is smaller M&As, which could be made more or less with a running cash flow. So that's really the only thing is consuming.

And then there is of course a few bigger ones that we want to go for, but then it's more if that makes sense and we get it at the right valuation and with the right kind of long-term benefits for both the company and our shareholders. So we are still keeping options open and we don't really know how it's going to end up. It depends on where we kind of if we find anything interesting or not. It's not really about the priority in that respect. It's more if we find -- the priority is if we find a good M&A, we're going to spend it on that.

[Klas Bergelind, analyst]

Yes. No, I was just emphasizing your previous comment on bolt-ons and given the sheer size of the balance sheet, then it will take some time. That was just my point. All good.

[Operator]

And the next question comes from the line of Karl Bokvist from ABG.

[Karl Bokvist, analyst]

I just wanted to ask a first question on Industrial Solutions, very strong performance and I think similar to a couple of quarters ago, you mentioned the strong project business and a bit of marine and a bit of other aspects. And also something you touched upon here earlier, you expected strong sales to continue into the second half. My question is really how much of the performance in Industrial that was more or less particularly related to projects you delivered upon only in Q2 and what could continue into the second half?

[Peter Nilsson, executive]

It's always a mix of the projects. It was a little bit up in profitability. That's a pure -- that is the business of project business at least for us and even though sales is not always with extraordinary margin. So that is a mix. But once again the overall guidance is 15% is probably a peak quarter for this year. So that is really we don't want to give any more guidance than the 15% was probably a bit on the high side.

[Karl Bokvist, analyst]

Understood. And then you mentioned a couple of comments here on certain end markets and such. But were there any particular end markets or anything in any of particular divisions where you did see a bit of a decline in order intake towards the end of the quarter?

[Peter Nilsson, executive]

Not really. I should point out of course a little bit slow in some automotive related businesses where people are kind of slowly adjusting the year-end estimates and potentially order a little bit more -- a little bit less, sorry, but that is something which is not really a major. So I would say everything developed nicely, but than some automotive related businesses and China. I mean that is really the only 2 negatives we can see. Basically everything others is positive.

[Karl Bokvist, analyst]

Understood. And my final one is just where in the process you are when it comes to the Wheel's exit in terms of is it like competition or how far have you come?

[Peter Nilsson, executive]

No. Our estimate is still, as we said before, by end of the year plus/minus is going to be concluded. So that is really -- there's no standing blocks, nothing strange and nothing which is creating any kind of concerns on our side. It's running as planned and we still expect it to be closed hopefully before year-end or just a few days into next year. That is really where we are looking at the moment. I mean on that as well, we have also the Printing Solutions pending. I mean the final closure of Printing Solutions as well, which is sale to Continental, and that is also something we do expect here to be -- that is to be expected well before year-end. Well, we could say here in end of Q3 or beginning of Q4. So that is little bit earlier on that one. But once again on the Wheel Systems activity, nothing strange, everything going as planned and we do expect closing and the money in our accounts here hopefully before year-end.

[Operator]

The next question comes from the line of Agnieszka Vilela from Nordea.

[Agnieszka Vilela, analyst]

I have few questions. I understand that automotive and China were weak in Q2, but I just wonder what you see going into Q3. We're hearing from the automotive companies that they see better supply of semiconductors and components and that they are ramping up production. So the first question here, what are your expectations for your automotive exposure going into Q3?

[Peter Nilsson, executive]

Exactly as you're saying, Agnieszka. We expect it to improve and we expect both China to improve and we expect the automotive to improve. So that is kind of a positive. Going forward of course, China with some uncertainty. As we know, this convention coming up here in October. I think we're going to expect them to be careful up at least until October. So it could be further closedowns in China, but we do not kind of expect that to be -- we expect it to be better. And let me say China now with the closedowns was softening a little bit in June, it was very strong in June. So we do not expect if nothing strange, then we will be catching up China before year-end. And as you've already commented, we do expect some improvements on automotive as well. So that is kind of 2 positives if you compare to the run rate here in Q2.

[Agnieszka Vilela, analyst]

Perfect. And China specifically, how much was it down for you in Q2?

[Peter Nilsson, executive]

It actually was down a little bit -- actually what we did in Industrial Solutions is a little bit -- our main activity in China for Industrial Solutions is in Qingdao Province and Qingdao was not really any closedown measures that was going. While for Sealing Solutions, we got the main activities in Shanghai, they were a little bit down. I mean I would say they were down by less than 10%. I would say that it was negative. I can't really remember the figure, 7%, 8% or something like that for the China sales for Sealing Solutions, but it's not really dramatic in the totality. But I mean still 7%, 8% down and it could be probably hard to get that back. Then of course it has to be growth in the second part of the year, which we do expect it's going to be.

[Agnieszka Vilela, analyst]

Yes. But practically if there are no further lockdowns in China and we see improving automotive, then you would have some support for your Sealing Solutions business in Q3?

[Peter Nilsson, executive]

We do expect it to be having support from better activities in Q3.

[Agnieszka Vilela, analyst]

Perfect. And then I wanted to ask about your dependence on the gas as an energy source for your factories in Europe and maybe more specific Russian gas, how do you think about it and do you have any contingency plans for that?

[Peter Nilsson, executive]

Yes. I mean for the gas, we are not -- I mean we don't have a lot -- we have very limited manufacturing in Germany. We sell in Germany so the indirect impact on closedowns might be something, but there's nothing we can do about that. But for our own manufacturing in Germany, we don't see any real issues. The only issue we have with the gas supply in Italy for our Wheel Systems activity. That is the only kind of concern we have. We're working with different contingency to manufacturing in different sites if that happens. But I mean we don't see that as a major thing for us honestly.

[Agnieszka Vilela, analyst]

Perfect. And then I have a last question on working capital and I obviously understand the fact that it's going up together with sales and probably also with pricing and FX. But still you write in the report that you are building some buffer stock. So I just wonder what are your expectations for the working capital for the coming quarters? Do you expect to lower your inventories or what's your planning there?

[Peter Nilsson, executive]

Fredrik?

[Fredrik Nilsson, executive]

Yes. We expect that we should have peaked the inventory here now in June or July and then it should start falling down step-by-step here during the second half of the year.

[Peter Nilsson, executive]

But this building extra inventory, we talk about EUR 10 million, EUR 20 million. So it's not really a major item.

[Operator]

And the next question comes from the line of Erik Golrang from SEB.

[Erik Pettersson-Golrang, analyst]

I have a few questions. The first one on CapEx. If you exclude Wheel Systems for this year SEK 1.4 billion in total, where would that be at Wheel Systems?

[Fredrik Nilsson, executive]

I think there will be around 2/3 of it. I mean you can more or less taking out 1/3 of the SEK 1.4 billion and then you will be close to the full year.

[Peter Nilsson, executive]

I think that's the best calculation we can give at the moment.

[Erik Pettersson-Golrang, analyst]

Second question and maybe you said it, but how much of the 11% organic growth was price mix and what was volume roughly?

[Peter Nilsson, executive]

We don't want to give the details on it, but the majority volume let's put it like that.

[Erik Pettersson-Golrang, analyst]

Majority volume, okay. And then the final question, if you could say something about -- I mean you've already seen a bit of a stabilization in your order book towards the very end of the quarter, but still there are, I guess, a decent indicator out there that would tell us that tougher times are coming. So in terms of contingency planning and you preparing for a potential downturn, where are you in that thinking now? Is there always a contingency plan for every division that you can pull out or do you have CapEx plans that you'll have to execute on when things turn worse? If you could just say a bit about how you potentially prepare yourself for weaker demand.

[Peter Nilsson, executive]

We are always having, as you hinted, always contingency continuous plans always as a rule. But I mean you have to say this weakening of course, we're coming from a very strong organic growth and we do expect organic growth also in the second half of the year. I mean our different scenarios is still showing a solid organic growth in the second part of the year. It's only that we do foresee that it's probably not going to be as high as it's been in the first 6 months of the year. So we are not kind of -- at the moment at least our kind of plans does not include a dramatic downturn here in the second part of the year.

We're still going into the second part of the year, which I always said, with record high order books and we have very good coverage on current orders to be able to deliver organic growth for us in the second part of the year. So we of course are always looking to this. But we don't really see that being an issue here for the next 6 months at least. So of course things can change and if things change, we will be speedy in implementing new actions. But at the moment, that is not really even close to our kind of core scenario.

[Operator]

And we have one more question from the line of Hampus Engellau from Handelsbanken.

[Hampus Engellau, analyst]

Two questions from me. Coming back to price increases and it's -- have you seen the full effect of the price increases that you've implemented or should we expect more on that moving towards the second half of the year? And given where you see cost, how should we then think about the operating leverage for second half? That's my first question. Second question is more a general one. I know that you have your short list of potential acquisitions and some time ago you mentioned that could be up to 200 companies that you're monitoring. And my question is that given that we've seen a quite hefty market revaluation of listed companies at least, have these guys been softening a bit when they discuss the price tag and i.e. if that's the case, could we expect some intense activity from you guys on the back of that? Those are my 2 questions.

[Peter Nilsson, executive]

On the price increases, we have more price increases kicking in. I mean the overall cost inflation has been fairly substantial also in Q2. And I mean even though we are quick and we are implementing price increases we believe in a very solid and quick way, we do still have some pricing kicking in, but also some cost increases kicking in. So we do expect ourselves to be well in line with the cost increases and price increases, but there is more. We have not stopped increasing pricing let's put it like that. What refers to M&A, I mean it's still -- of course this overall market sentiment is impacting also the M&A market and that's of course we are trying to make sure that we get benefits from that. But that is kind of an ongoing discussion and I mean there is still a lot of companies out there which is for sale. And then of course we are -- since we are in most times buyers, then of course we are trying to talk down the price and the sellers trying to hold on to the price.

They are not increasing the pricing anymore -- the valuations anymore or like that. They are more trying to keep the valuations where they are. So that's an ongoing discussion. But also in most of the cases where we are kind of looking, we have quite a lot of synergies as this is a bolt-on and all of that so it's more to get them to execute. So we believe the buying multiples is still attractive. It's more to get them to get to close. So we are working on a few smaller bolt-ons and there is also a few bigger ones out there and that is something which is more where we need to watch and see what -- if we can agree on the valuation. So it's difficult to comment on examples. But I mean for sure there is plenty of discussions ongoing and then at the end of the day we need to decide whether we believe the valuation is good for us or not.

[Operator]

We just have one more question from Karl Bokvist from ABG.

[Karl Bokvist, analyst]

I just had a follow-up on your comment about how aerospace is developing nicely for you. Just out of curiosity do you feel that you have any relatively strong position within narrowbody compared to widebody or it's possible to say that you really have a stronger position with Airbus compared to Boeing for example? Just how to think about the market development.

[Peter Nilsson, executive]

We are well positioned in kind of all kind of aircraft. We are leading in the fuel landing gear, we talk activators which is controlling the wing flaps, we are also on the [ cone ] side of the engine. But for us, it doesn't really matter which aircraft it is. We are well positioned in all of those areas. I mean as I say now [indiscernible] airshow, I don't know if you know that there was an exhibition here actually early this week, which is kind of every second year the biggest airshow and it's really booming. I'm going to say it's booming. We talk about tens of percent. I mean I shouldn't say it, but I mean some of these figures are very, very high order growth in this area.

As you know, there is more airplanes so it's more a matter of capacity at the moment than actually a matter of demand. So it's really booming in the aerospace industry and it's booming all over. And for us, we have a good position both at Boeing and Airbus. So at the moment, of course Airbus is the one winning a little bit. But now also I saw that there was a few big orders being placed also to Boeing. I can't remember which airline it was who ordered 100 airplanes the other day 737. So of course, but for us it doesn't really matter. I mean we are benefiting from orders wherever they kick in. I mean for us it's once again, very, very strong order growth in aerospace.

[Operator]

And we just have a follow-up from Klas Bergelind from Citi.

[Klas Bergelind, analyst]

Maybe you covered this already, but you highlighted this depreciation effect in discontinued, Fredrik. It looks like a SEK 151 million boost and that was mainly in Wheel Systems. I just want to clarify how that was split between Wheels and Printing blankets, which I think is the case, right?

[Fredrik Nilsson, executive]

By far I mean it's -- almost everything is linked to Wheel System of the SEK 151 million. There is a small part, but only a small part that is linked to printing.

[Klas Bergelind, analyst]

Yes. So the underlying margin then, I guess price cost pressure obviously it's very energy intensive Wheel System, but the underlying margin is more like 10%, 11%. Is that correct?

[Fredrik Nilsson, executive]

No, no, no. 15% is through [indiscernible] including full depreciation and amortization.

[Operator]

And as there are no further questions, I'll hand it back to the speakers.

[Peter Nilsson, executive]

Good. Thank you and thanks. I mean once again in Trelleborg, we are very happy delivering a record quarter and I mean we are also very positively looking also the future. We go into Q3 with a record high order book and we feel confident that we're going to continue to deliver good results here in the foreseeable future. I mean of course we are not in any way trying to hide away from this higher inflation and the potential impact from higher inflation and we are preparing ourself for a slightly lower growth in the second part of the year. Once again we do still expect solid growth in the second part of the year and we do expect to continue to deliver good also with the price increases and efficiency gains to compensate for this higher inflation that we see.

So we are very confident going forward in most aspects that -- let's say more or less all aspects. Of course we have our challenges as well and that is why we are here and that is why we see possibilities to further improve. And of course we're working hard also to close these deals, first Printing Solutions and then Wheel Systems, and then as fully focus on this new exciting Trelleborg with a better business and more stable performance and better overall margin. So hopefully keep in touch on that one. And if you have any further questions, I think Christofer always available. And Fredrik and myself will also attend a few investor meetings so hopefully we will run into you here in the next few months. So take care, enjoy the summer and speak to you later. Thank you.

[Operator]

This concludes the conference call. Thank you all for attending. You may now disconnect your lines.