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Trelleborg AB
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Okay. Good day, and welcome, everyone, for today's financial year-end with Trelleborg. I also like to welcome everyone participating via the webcast and the telephone conference. Moderator today is Douglas Lindahl from Kepler Cheuvreux, and he will be back later and lead the Q&A session. But I now hand over to the CEO of Trelleborg, Mr. Peter Nilsson.
Thank you. Welcome all of you to our year-end report, more focus on quarter 4 for 2019. As usual, in the presentation, I will kick off giving some overall flavor for the quarter and some comments on our new business areas, and also then comment on the special unit that we created here beginning of December, businesses under development. And then I will be supported by Ulf Berghult, our CFO, who will guide you through the figures. And then we're summing up with the Q&A session and also facilitated by Douglas. So Agenda points. Starting off with the Trelleborg highlights, business areas, financial, another summary, and then some comments on the running quarter as well and then some Q&A. So starting with the highlights. It was stable despite continued challenges. And actually 2 out of our 3 business areas actually performing very well. And the challenge is really -- is mainly in one of the areas in Wheel Systems. I will comment on that a little bit more when I comment over that one. But overall, quite satisfied with the results. I mean, sales is up by 8%, of course, supported by structural growth for some 4% in currencies and 4% on a flattish or even actually flat organic sales compared to last year, but a mix behind that, which I also will comment a little bit on it.EBIT at just north of SEK 1 billion is actually the highest EBIT in Swedish kroners that we ever had -- ever have had in a quarter 4 for us, but also here, of course, supported a little bit with exchange rates. Margin down a little bit 0.5 percentage point compared to a year ago, but nevertheless, on a healthy level for us in quarter 4. Items affecting comparability is, of course, very high in the quarter, but that is kind of linked to the communication that we did here early December. But -- so it's fully in line with guidance and no surprises on that line for those of you who has been following us for some time. Cash flow, very good cash flows. It's actually the highest cash flow we have ever had, the highest operational cash flow that we have ever had in a single quarter, just north of SEK 1.5 billion which, of course, shows that we've been managing the working capital very well, and also CapEx is under control, all in all delivering a very good cash flow which is then, of course, also supporting our balance sheet in many, many ways. Cash conversion at 90%, which is then, let's say, getting up to healthy levels again after some focus on the cash throughout the year, as the businesses in general has becoming more challenging in some areas. And already which I mentioned, we are of course, launching a new organizational structure here from 1st of January. And this report, as you have already seen, is kind of presented in the new format. Talking about the sales, I mean, we see some differences here. As you read here in the figures, we have negative organic growth in Western Europe and North America, which is a change compared to a year ago, but no real drama on that one, to be honest. We know where it's coming from, and we understand the situation here. I mean, Western Europe heavily influenced, of course, by agri sales being down a lot. And North America, more in general decline but also minor extent also impacted by the Wheel Systems' negative organic growth. As you know, Wheel Systems' major exposure is Western Europe and North America. So that is why there are also this minus negative -- minus 9% in the year, of course, influencing those areas. We look in the other parts, other Europe. We're still separating that a little bit to keep focus on that one, positive or 0. And then South America, very good, but that's a very small part of Trelleborg, so that is mainly related to the oil and gas sales coming back. So we have some extra invoicing down there. And then, of course, it's kicking in to very, very high figures. Asia actually performing very well for us. I mean, is a surprisingly good -- driven by a very good organic sales in the quarter, both in China and India, which is a little bit a surprise, I shouldn't say. But actually, behind this 2% is actually some very good sales in China. And in India, while we are suffering on some project business, especially in Australia, which is making the comparisons a little bit strange. But very well -- very good development overall at least for this quarter. I get back and comment on that for China and, once again, for India as well, performing, let's say, well above 10% organic growth in those 2 countries. Business areas. Starting with Industrial Solutions, which is somewhat new. As you know, we shifted around a little bit here. And this is the new setup, and that is actually -- if you look at the full year in Industrial Solutions, that is with the new organization. If we go back, if you look at the restated figures, this is actually the best year ever for Industrial Solutions, in terms of margin in the new structure. Then, of course, we carved out some difficult areas, but nevertheless, what we now have in Industrial Solutions, this is the best year ever for this new organization, developing well in the quarter. Actually, sales is up by 11%, driven by structural growth and a slim positive organic sales. Profit up by even more, and then also margin expansion coming primarily actually from a strong bounce back in our marine and port solutions. We say marine is then what we call mainly related to oil and gas activity in these marine houses, which is delivering very well. And then also all the kind of marine equipment, the marine infrastructure business also delivering very good results. So that is kind of the primary driver for this improvement, is this improvement primarily in this marine infrastructure activity. Lower sales -- slight lower sales. General industry and also automotive actually quite stable here, even though we have, let's say, exposed to a tougher environment in general in automotive, as you know. But within this business and the positions we have here within automotive, they're actually developing very well in relation to the market. And that is coming primarily from that we are kind of extending our scope in certain areas. Actually, we're selling more to each application more than actually pure volume growth. Geographically, we say negative in Europe, overall, while flattish in North America and a rather positive in Asia. So it's a mix. It's difficult really to draw some long-term conclusions from this. This is kind of some railway sales and some project-related -- not project-related in that way, but more so some individual sales, which is pushing this in a little bit of various directions. But no, no drama here. It's a little bit relatively stable, and overall, boiling down to 1% positive. Already touched -- EBIT and margin up primarily related to this higher marine infrastructure business, which is then performing substantially better than a year ago. While in the other activities, actually, there's a mixed bag, which is all that will be in Industrial Solutions. There will always be a mixed bag. But here, kind of this mixed bag is moving in the right direction, and that is why we see an improvement on the overall performance. Sealing Solutions, very solid quarter. Organic sales, 3%, which, I would say, was slightly better than we anticipated. Here when we were, let's say, looking at this some 6 months ago, but I mean, been solid performance throughout the quarter. And on top of that, also structural growth coming from a few acquisitions in North America, one medical acquisition which we did in this Sil-Pro beginning of the year; and then also, we have another one, this Tritec kicking in also here and assisting the structural sales, which is still not, let's say, fully into the figures -- on a full year figure. So there is still to be some pro forma adjustments coming from that. General industry, in general, I mean, this is, as you know, a very wide exposure in a lot of different, let's say, industrial segments generally a little bit softer, but we're still continuing a positive momentum in North America. And I think that is mainly related -- continue to grow our market share, continue to improve our offering. And also Asia, also performing well here. Asia as you -- in this industrial segment, a bit up and down throughout the year. But in this quarter, actually been a bounce back in China and which is coming from a fairly soft start of the year in China. So it's a little bit strange. Also, I would say, you should be careful to draw too much conclusions out of this. But nevertheless, this is kind of the fact for this quarter. Automotive, surprisingly good here, primarily driven, as we say, aftermarket sales. As you know, we have an aftermarket business here, primarily related to brake applications for cost. And that business has been performing a lot better than we actually believe that this part, as we have new product launches and partly also that we managed to, I would say, played off the market a little bit better than before. So that is something also which we are strong, benefits from both in terms of sales, but also actually a positive, let's say, margin impact coming from that development as well. Aerospace, even though all of us are aware of this Boeing communication, all of that, which is slowly impacting us in a negative way. But overall, aerospace is still developing very well. And even though the growth rates in this quarter is slightly lower than the beginning of the year, but we still talk about 10% plus organic growth in that segment. EBIT up primarily due to acquisitions and cost control. But we also -- as we said before, the acquisitions is actually coming in with a lower margin than our overall margins. Even though they are benefiting in absolute EBIT area, realized a negative push on the margin from the acquisitions. So that is also something that needs to be seen in this, but that is the way we want it to be and the way we need it to be. And Tritec Seal is a very interesting -- it's actually an acquisition doing a very hard plastic seals, if I say it like that, so some PTFE seals, which is then a kind of a growing seal segment. And we're lacking capacity for that segment, so this acquisition is both good in the terms that we get in and entering into some new application areas, where we can offer our complete solutions. But on top of that, there's also offerings, also some capacity in some segments we're actually lacking capacity at the moment. So this is a kind of a double benefit from this acquisition. I'm very happy. Even though it's not a major -- as you know, we're not going to do any major acquisitions here. This is, if I remember correctly, some EUR 30 million annual sales on this one, and that is kind of the acquisitions that we need to do. But that is providing a few percentage points of structural growth in this area, and that is the way we would like to continue to add this kind of 5% to 10% structural growth per year in sealing, which is still high on the agenda to try to find supplementary acquisitions in this business. Then we have Wheel Systems, which is, of course, is very tough. I mean, a 9% down organic. And as those of you following the big guys in this industry talking mainly agriculture here, you see John Deere, and you see AGCO, and you see Case New Holland. I mean, they are -- for the bigger tractors, the combines, as they usually say. I mean, they are -- I think they released reports last week, and we have not analyzed it in details, but they are talking about the downturn in that of some 15% to 20% of global productions. Of course, in that perspective, this has been quite good. So we are gaining market share, even with this kind of very negative organic growth. We're actually gaining market share in the OE market. Now in these figures, we have a slight upturn in the aftermarket, which you know has been down throughout the year, which is then kind of benefiting in a way. But nevertheless, 9% is dramatic. But nevertheless, we actually feel that we're doing quite okay, and we are kind of preparing ourselves for the upturn that ought to come. Material handling and construction, similar development actually, driven by this global uncertainty and all of that. We don't buy forklifts. We're not investing in this kind of stuff at the moment. And also on top of this, which is then been hurting our margin quite a lot, actually, is that we've also been doing kind of under production in order to adapt to these kind of extended stops that we've seen on the OE. So that has been pushing down. But on the benefit, of course, due to -- have reducing the inventories. We have been under producing. Even though we have this negative 9%, we're actually producing even less, which you then can see also in very good cash generation, which is then providing more comfort as we go forward here, because we don't go into the -- let's say, this year, with actually too high inventories. We can still cut some inventory. We're still going for improving the working capital somewhat but, of course, we're doing that in a more controlled way going forward. Business under development. I mean, that is also a major, of course, percentage-wise, a major improvement. And all of this improvement is basically coming from offshore kicking back. I mean, very strong organic growth in this area. And then with kind of good -- relatively good drop through, it will get better, hopefully, but relatively good drop through as well, which is then improving the profit with this kind of EUR 6 million, EUR 7 million year-on-year. Rest of the business actually performing in line. But in this area, of course, we are pushing through now also some intensive actions. So there is some restructuring, some downsizing, some repositioning, a lot of activity in this. And hopefully, we will be able in the next few months or next few quarters to give you some more news on things happening in this area. Financials, Ulf?
Okay. Thank you. Good morning. So I would guide you through the -- to wrap it up for the group. So this is the sales. And overall, as Peter said, it was a flat organic growth, but also then to highlight and to recap slightly, TSS, a good growth of 3%. And TIS, also 1%. And then, of course, then we had BUD with offshore with 11%, but then offset by wheels, minus 9%. And as we say -- see here, the currency had an impact of plus 4%. And then we had a structural growth of 4%, which is basically coming from the 2 acquisitions -- or 3 acquisitions, Sil-Pro and Tritec in TSS and Signum in Industrial Solutions. The next one is then the rolling -- the growth, the organic growth for the total growth over the last quarters. You can see then we have had 15 quarters of positive sales development. And of course, most of that then lately [indiscernible] are coming through acquisitions. We have done then -- in this year, we -- in 2019, we then closed 8 acquisitions. And then on the bottom line here, you can see then that we had a flattish growth, as I mentioned, in the end of previous quarter of minus 1%. If we go to next one, that is then the only -- the rolling 12 months basis. And then you see this is the highest fourth quarter sales to date. If we move on to EBIT. This is then, as Peter said, it's the highest fourth quarter EBIT in Swedish money. And also then going through the business areas then. It's the Industrial Solutions also the highest EBIT and return on sales, with a good performance on return on sales in the new setup. And as I understand, we have then restated all the numbers backwards. Sealing Solutions had a very strong quarter with 21.2% return on sales versus previous year 20.4%.Business under development then. Basically, offshore then had a very positive bounce back, coming back then with a delta of SEK 68 million. And then, of course, then we had a negative one in Wheel Systems then impacted by the market conditions and also then that we have taken deliberately that we want to take down the stock. So we have an under absorption in the profit and loss. And there's a small currency movement here that any quarter from translation point of view, we had SEK 46 million, and year-to-date, we have SEK 169 million impact from translation. And then, this is then the rolling 12 months basis. And then you can see then we have a slight drop in EBIT in return sales due to Wheel Systems. When I summarize then the profit and loss. Then, as Peter mentioned earlier, we have then the restructuring in line with our guidance, both on restructuring costs but also the write-down, then -- mainly then within -- all within business under development. The finance is slightly higher. That is due to then IFRS 16 and the pension. I will come back to it later on in the slide. We're within IFRS 16 impact, and then we have moved the pension debt from working capital into net debt. And that has an impact of SEK 25 million in the quarter. If we take that away, would actually will be a lower net financial interest. And tax is also then impacted by this write-downs. And if I look on the underlying in the quarter, that was about 28%. And at the full year is we have the underlying tax rate of 25%. Moving into the cash flow, a lot of the EPS, the earnings per share, and also then to take away items affecting comparability. We have a slight down then from SEK 2.55 down to SEK 2.45. It's come from then -- from the restructuring. If I then move into the cash flow. As Peter mentioned, this is the highest cash flow we have ever had in a quarter. And I just want to point out this is the bridge then from last year's performance and to this year's performance. And the EBITDA is then impacted by the IFRS 16 restatement, and that should then be offset through the leasing of the SEK 116 million. But then -- also then, what is then underlying, we have a better EBITDA performance, but also then we have a lower CapEx overall in the quarter. And also, we have had -- although it doesn't looked that impressive here, the SEK 59 million, but in the quarter, we released SEK 467 million in working capital, out of which -- majority of that is inventory. So we have a much, much healthier balance sheet, and then from a closing balance point of view. This is the cash conversion then. As coming back then, we had a -- we would like them to be between 80% and 90%, but they're more up to 90%. And of course, that is impacted by then improvement in working capital, but also then that we have a lower CapEx. Then just to take you through then for you to understand this is the last slide, or this is the last -- I will not show this slide in the next year because then we are on apple-to-apple comparison. But we had an opening balance then on SEK 10 billion. We moved in to the pension debt, and then we have the cash flow. We pay tax. We have the M&A activities. We have the dividend and then others, and then we end up with a net debt of SEK 12.7 billion. And then we're moving into SEK 2.4 billion on leasing debt. So the closing balance, that is SEK 15 billion. Then the leverage is then the 1.7, and coming from 1.7 and then up to 2.1. Still healthy, but it's then -- it's, of course, then impacted by the higher debt and then slightly not EBITDA coming in full. And of course, also, it has an impact because those -- some of the acquisitions we have not had full impact for the full year, while we have it on the balance sheet. And then this is the development on then the gearing and the leverage over years. And then moving into return on equity, we also see a small decline then from 11.7% down to 10.9%. Then I will then sum -- finish my presentation by guiding in the guidance for 2020. Then we have the CapEx. We are saying SEK 1.6 billion to SEK 1.8 billion. We are then aiming to -- we will be more and more harsh on CapEx in 2020. We still have some -- what we call strategic CapEx that we have taken a decision on that will have an impact in 2020. But we are very reluctant then to approve new strategic CapEx. And then restructuring costs, we guide in -- we normally do SEK 250 million, but we still have a turnover -- spillover then from last year. So that's in line with that guidance. So that's -- so we guide in SEK 300 million in 2020. And I also said an underlying tax rate is to be about 25%. And then amortization of intangible, that is about SEK 400 million. So Peter?
Yes. So as a summary, sales up by 8%, 4% currency, 4% structural growth, flat organic sales, EBIT just north of SEK 1 billion, margin at 0.5 -- margin down by 0.5 percentage point compared to a year ago, driven primarily by our only, if I may say, only from the downturn in Wheel Systems, which is then more market-driven really than performance driven for us. And we have kind of accelerated that downturn by focusing more on the cash flow than we kind of needed to in order to create a more healthy balance sheet. But overall, still delivering the best ever EBIT for us in Q4. Cash flow then, highest ever in quarter of Trelleborg, SEK 1.5 billion. Cash conversion then, of course, high. And then, of course, we are running into this new organizational set up, which, of course, is something we're working a lot with internally as well to get this right and to get everything going in the right way. So the priorities here, really, for us, of course, to get this going, what we call business under development, continues, so to say -- continues evaluation of various structural alternatives. So that's of course, something ongoing. It's something we're working with hard and something Ulf and myself is spending quite a lot of time on at the moment in order to get this going in the right direction because this also requires some organizational changes or some setups in order to create more independent businesses. I mean they've been part of Trelleborg for quite some time. So in certain areas, there is some carve-out issues that needs to be -- not really any major carve-out issues, but a lot of smaller operational issues that need to be settled and people need to get going in the new organization. Then, of course, on top of that, managed market conditions. We have, as usual, in Trelleborg some mixed areas. We still have, let's say, this, what we call marine infrastructure and oil and gas, which is kind of a heavy, heavy growth, continue to struggle to supply what's demanded on the aerospace area. So we have some of that businesses. And then, of course, we have other businesses, especially related then into the Wheel Systems area, where we still are kind of trying to find out exactly what we should believe. Of course, it's a downturn, but we still see the overall kind of macro environment in these businesses, so still quite positive. But at the moment, they are really not the farmers, so we're really not buying any tractors, even though they produced more than they've been doing before. So this is something, of course, we're watching, getting the inventories at the right level, but also be ready if it turns up or when it turns up. So that is something -- we're going to continue to see us doing portfolio management. The majority of the portfolio management organic that we do internally in the business, making sure that we continue to improve the businesses. Now of course, we're done on a group level. We've done this change on the organization, which, of course, a big portfolio management activity for us, never to forget about operational excellence. Daily improvements in Trelleborg is high on the agenda, continue to do this with good footprint optimization. We don't talk a lot about that, but of course, I don't say monthly, we're closing factories in Trelleborg. But I mean, it's happening quarterly at least, where we announce a new factory closure. So this is still a high activity level, still something coming also when we continue to do acquisitions. Then, of course, we also need to make sure that these are integrated in the correct way. Customer integrations, smart use technology still high on the agenda here because we see the industry is changing and the way you interact with the customers is changing. And that's also something. So this is kind of the agenda for me and Ulf and the top management to make sure that we really change this, let's say, strategic -- in a strategic clever way. Looking at the outlook for Q1. I mean, it's been -- as you know, during the quarter, we have had this global -- as I say, they're starting like this instead. I mean, the overall business is actually quite good. I mean, we have a fairly solid order book actually compare year-on-year. And I mean, there's, of course, always some mix, but the order book is actually on -- overall, on a fairly good level. So what we have put in here is what we said, slightly lower or somewhat lower demand. I mean, this is only related to this, let's say, what we see happening in China. I mean, we are in the middle of it. It's really difficult to -- we get daily updates. I just got it before the meeting here. And at the moment, of course, we have 8 factories in China, 4 is still closed, but 4 is open. And we don't know exactly, and the local regulation is somewhat different. Now they're implementing -- for instance, the workers is now coming back from the regions to work, you need to put them in 14 days of quarantine before they can go into the factory. Or worse, you are not allowed to bring truck drivers into the factory unless you have really seen that they have health certificates and all of that. And that makes it quite difficult to actually -- so at the moment, you -- that is very difficult to get. And it is basic support on the lawyers and the freight and all of that is not really working. And the workers is also slowly getting back into the factories. So this is really an uncertainty which we don't know exactly. Of course, we still see the order book is quite okay. But this is something that definitely will have an impact. And how much negative, honestly, it's difficult for us to judge at the moment. We see it's going to be negative, but we don't know how much. And this, of course, if ring true. Now as we see also in other areas are people -- we see now some flights is canceled to Malaysia. They're canceled to Singapore, and we don't know really what the surroundings will be out of this. We -- of course, we assume, and I think everybody assume that it's going to be settled in a few weeks or a few months, but we don't know, really know the impact. The only thing we know that the order books are fine, but it's difficult to deliver and sell if you cannot have a [ lawyer ] picking up the goods. So this is something which is troublesome at the moment, is something we're working hard on, but a little bit outside of our control. But this said and done, of course, we shouldn't make it a bigger issue than it is. So because -- I mean, our overall was a flattish demand, but now we see this kind of China. We still have -- what is it? 8% or something, our sales. I think, 8% of our sales is in China. So it's not really -- so we need to put that in a perspective. And I mean, this is -- but nevertheless, so that is really the way you should read this that overall demand is actually quite okay. The order book is quite okay. But now we have this, let's say, maybe we'll call it a hiccup because not that we're not showing respect, because it's really a difficult situation in China. And of course, we are fully supporting the local authorities in order to do the best they can to stop this kind of outbreak. But it will have an impact. And I mean, people at once -- you all know that Chinese New Year has just been and people are going back and they are kind of reluctant to go back. Of course, they have families at home and all of that. So there's still a lot of uncertainty exactly how to get the factories up and running. So this is the way you should read this statement. So with that leave, I'm opening up then for Douglas to guide us to on the Q&A session.
I guess that's my queue. Hello. I'm Douglas Lindahl, equity analyst with Kepler Cheuvreux. I will moderate this Q&A session. And we will start off with a few of my questions. Then we'll take some questions in the room and then the telephone conference questions.
So Peter, starting off, you already touched about this in your presentation, but I wanted to move back to your reorganization that you announced in December. What have you been doing internally? I know you sold an asset in France. And -- but what really have you been doing to lift profitability? And what can we expect going forward? More spin-offs and so on?
Yes. And I mean, there will be some further spin-offs. But we also need to get the businesses in the best shape. And I mean, we have said that this is not really an immediate activity. This is a great independent business, solely independent businesses, make sure that they have their -- solely their own agenda in order to maximize the performance and maximize in a way the value for these businesses. So that is happening at the moment. I mean, we've up and running with that only for 2 months. So of course, we are still a little bit in the planning, a little bit starting on the execution of some changes that are being identified. So that is more, say, very operational mode at the moment in order to get that aligned. And of course, at the same time, we are -- since we communicated this, of course, I say your colleagues at the other side of the Chinese wall. The investment bankers, of course, is running around and trying to create business for us and for others. And that's, of course, something also we are evaluating at the moment, whether this is a better option to discuss with those guys and to focus on the operations. So that is a continuous activity. But I think internally, the focus at the moment is great independent businesses and make sure that we have a game plan for how to improve those businesses as a stand-alone businesses.
And so far, is that going according to your plans, would you say?
Yes. I mean, I say, of course, there is some discussions. There is always carve-out issues like IT or stuff like that. As you know, it takes longer time. But I mean, overall, I think we have solid plans now and we are kind of, once again, in execution mode, slightly different, of course. Then we have the offshore activity here with the -- major struggle is actually to cope with increasing demand at the moment. So that is a little bit different to maybe the other businesses that we have here is more in kind of carve-out mode. And while the offshore business is more to deliver on the growing order book at the moment.
Okay. My second question is on the general demand situation. You write in your report that Europe is down, but you also report a quite impressive 3% organic growth for Sealing. Do you see this 3% organic growth as a sustainable figure for that business, more specifically? And is it mainly automotive that's driving this?
I think the positive surprise there was automotive a little bit. I should say that we got more, especially related to aftermarket, which was substantially up. It's not a major part of Sealing Solutions, I mean, but this is, of course, is 10% or something. But I mean it's really substantially up on that part, partly due to easy comps, I should you say as well. So that is also part of the explanation. We don't know -- we don't think that, that's going to last a little bit, this kind of automotive growth, but we still see a positive growth in aerospace, we still see a positive growth in our kind of new segment. Medical and healthcare is also growing at a solid growth rates. And honestly, on the Industrial, it's more challenging to get the full picture. But we see the order book is still solid. I mean it's okay, but of course, it's not really booming. So that is more where we need to watch it. And so I'd say, 3% is probably a little bit on the positive side, but who knows? I mean we are a little bit also -- not be too a bit too complicated, but I mean, we're also looking into how short-term orders versus long-term orders -- the short-term orders has sometimes increased the last few months, because as uncertainty grows, then people are a little bit more careful giving orders. But that has impacted, for us, in [ Grover ] our short-term orders compared to long-term orders, which is then making the reading of the forecast somewhat more challenging. So sorry to be a little here...
[indiscernible]
Yes, more, let's say. But that is why, of course, what I want to say, we stay close to it, and we don't see any kind of major obstacles outside of China, Asia. Because China, Asia, we don't know the impact from. So of course, this is something which is a little bit challenging. Once again, for Asia, we have the orders, but will we be able to deliver? Will we be able to -- will they actually do the call offs that they have? And that is something we will start -- I mean, as you know, most of the factories in China actually started, let's say, Monday. So of course, we are still very early in this kind of phase, and we don't really know the -- to what extent this will hit us in terms of deliveries.
So excluding the coronavirus, would you have a different outlook, would you say?
Yes, probably. So that then we will be more flattish overall for the group.
Okay. Yes. Do we have any questions in the room?
Agnieszka Vilela, Nordea. Can you give us more color on the wheel development in the quarter? How much did you under produce? So if your sales went down by 9%, how much your -- was your production down in the quarter? And also what do you expect more or less for Q1?
A little bit difficult. And some of it, I didn't really want to respond to, give you details. We had, of course, I mean, a few hundred millions more of cash flow than last year. And I mean that is -- majority of that is coming from Wheel. That is probably what I want to say, not really give internal details about that one. Development during the quarter, we also need to be aware that the Q4 is kind of the lowest quarter, especially for agriculture because there's some seasonality on that one. So it -- I don't want to say -- this didn't really change. I mean I think we saw a downturn end of -- major downturn end of Q3, actually, and that continued on a similar level throughout Q4. So we didn't really see any development or changes throughout the quarter.
I mean rather into Q1, do you think your inventories are more in balance?
No. But okay, no, on that one, we...
We have to take what we believe is...
Is sufficient. So...
Is sufficient. So in Q1 it's not really downturn. That's more than to cope with what is underlying demand and what do we need [indiscernible]...
So meaning, if you say it is negative, if you were aiming for this negative year-on-year margin development, we don't see that really in Q1. It's a little bit early to want to say it, but I mean, it shouldn't. Let's put it like that because the Q1 is not going to be impacted by under production at all on the level that we saw in Q4. But we're still not expecting booming markets in Q1.
Yes, I understand. But then if the demand doesn't change much, should we expect the margins to return to kind of former levels?
Yes, but what we said, there's no formal levels. But we have had higher returns in other quarters. Q1, Q2, those are the highest quarter from a seasonality point of view. But same time, I mean, as Peter said, the underlying market if it really, really picks up, which we don't really see because it's moving in and then we will have -- but we will not have the impact of this under absorption.
Okay, perfect. And then my last question is on the -- generally, can you tell us if you had any kind of cost saves impact in the quarter, given quite good leverage for Industrial Solutions? Do you think...
Of course we have that. I mean you know we have -- we accelerated these cost savings here midyear, and that is -- we see some impact on that, I say, both in Sealing Solutions and in Industrial Solutions. So that is kind of partly explaining also the EBIT improvement. But that's the way it should be. So that is not really a surprise for us. And also, honestly, if we would've done this downsizing that we had done -- major downsizing in Wheel Systems, then of course, that would've been even worse. So of course, we see the impact from this, which is otherwise -- yes.
We need to see that impact, and it's really kicking in.
Hampus Engellau, Handelsbanken. I have 3 questions. Maybe continue on Wheel Systems. I mean, you've been fighting a headwind in the market for some time, and I was wondering if you could maybe talk a little bit about the difference in profitability between Maximo or Mitas? Because on Trelleborg, is there a big difference? Is one lagging or it's equally spread?
It's not really made difference anymore. I mean we have a little bit size -- the bigger tires, the bigger profitability, but it's not really a mix. No, I say in -- generally, no, without going into detail. Of course, we don't sell a lot of -- I mean, Maximo, we don't sell. So it's actually Mitas and Trelleborg. So Maximo and Cultor is -- we communicate them, but we don't sell a lot about them. They're a lower margin, as you say, but we don't really sell any of that. But the Mitas brand and the Trelleborg brand, no major differences.
Fair enough. Industrial Solutions, improving profitability, reorganization, new financial targets, will there be new targets? Or how should we think about that?
Yes, I mean we are still behind the targets there. So of course, I mean, we would like to deliver on those targets. But of course, the ambitions are beyond that. But before we need to review, let's say, discuss that, we need to make sure that we deliver on the targets that we have. And of course, now -- once again, not to dwell on this China thing, but also for them, it is causes -- some of the areas there is quite heavily impacted on China as well.
Okay. Fine. Last question for me is on this Business Under Development. I guess how much goodwill is there left in the -- from the right on the due date? And secondly, if you deliver on your targets in these businesses, will there be a reverse in value? And also, should we think that there should be a potential capital gain? And how much of this will remain?
But I think all the goodwill is off.
No. What we have done is that we have -- it is one of the Business Under Developments, that's one, but we have individually gone through the businesses, and then done by the books as a net present cash flow, and then also what we have from a value point of view, what we believe what is a fair market price. And so it's not only goodwill. We're also, in some business that we have, written down tangible assets or even down to working capital, because -- in order to reflect it. And then let's come back, if we have that problem, or we -- if they are improving that much record and then we are lifted back, then let me come back on how to deal with that. But we are not doing any -- trying to tricks or something.
The intention is not to write it down and then create, let's say, a big capital gain. If that happens, we'll be very happy. But that was not really the intention, that was here to be fully transparent and really value the businesses as they are to be valued in sell prices.
Erik here. Erik Golrang, SEB. I have 3 questions. You said aerospace and Sealing Solutions still grew double-digits in the fourth quarter, a bit slow, but still good growth levels. Given what you know now on the pace of production of the 737 MAX, how much of a deterioration do you think you'll see in aerospace in Q1?
We will grow less in 2020 compared to '19. But I still -- standing here today, I still believe that we're going to do double-digit organic growth in that one. And that is more coming from kind of market share. I mean we will also down to the details, as you know, in Trelleborg, we have different subsegments in the aerospace and some of these, as I've said -- as we have been very successful growing our market share. So that is really what is kicking in. And this is orders that were already had. There is still a ramp-up, I mean, there's still a ramp-up in certain 350 Airbus and 320neo and all of that. So still ramp-ups happening on a few other areas. And on back of that, we still feel that we're going to have 10% plus organic growth in that part of Sealing Solutions.
And then the second question, how much of the SEK 300 million in restructuring costs this year will be in Business Under Development and how much in the core business?
Majority of it is actually -- let's say, that roughly -- majority is within that business because it's coming from the launch that we did in Q2. So it's also the spillover into this one. So it's basically within Industrial Solutions, partly in Sealing Solution, but also Wheels. But some of this also within BUD. So this is Under Development.
Yes, we have to get back, Erik. I don't have it on my head exactly the spill of this.
Where would you say, I mean, we've been at around SEK 250 million, I think, for the group, right?
SEK 250 million, normal. Yes.
SEK 250 million is the level. Yes.
So what we guided for last year was SEK 250 million, and then we had another SEK 250 million on this Q2 restructuring. And then we guided for another SEK 50 million due to this Business Under Development. And part of that is Business Under Development was taken in 2019. Part of it, which was then also in a spillover into 2020.
Yes. And how much restructuring, if we looked now, assuming you exited the businesses under development, how much restructuring in the next couple of years on average?
We still feel it's going to be a -- I mean, dependent on acquisitions and all of that, because we also need to know that this is coming partly from that we make continued acquisitions that we do. So if we continue to do acquisitions, our best guess is that we will remain on this between SEK 200 million and SEK 300 million. So -- but if we don't do acquisitions, then of course, is going to slide down substantially.
And then the final cost, you talked a bit about creating a bit more independent business areas as you're doing these carve outs. Could that trigger increased costs in the near term, if you need to put up more overhead?
No. That is more that we need to look into who is responsible what, and what is that, and hopefully, maybe...
This is not the cost drivers?
Maybe in certain areas, there could be more cost. But then, of course, these extra costs should generate more income as well. So we don't see that as a general cost increase. That's not going to cost us anything in total because that is not what we're aiming for. We're aiming maybe for -- because they get bigger and they can have more kind of drive on their activity and not be dependent. It could be also some transfer between head office and these businesses, of course, also some of that going to happen. But I don't see that as an issue, honestly.
I think we have some questions on the telephone line. Operator?
We do. [Operator Instructions] And your first question comes from the line of Klas Bergelind from Citi.
Coming back to Wheel Systems. I just have 1 follow-up here too. Judging by what you said on the inventory outs, then I guess roughly half of the decline in the margin from destocking -- we always have demand sequentially improving into the first quarter. If you stopped the destocking now, then the margin should return to at least 10%, I would have thought, not back to the peak levels, but maybe around the 10% levels. I just want to see if that reasoning is reasonable.
Yes, what is uncertain here, of course, Klas, is that we don't know how the OEs is doing. We don't know really on their stock levels. I mean we know that they have extended shutdowns here and focused on the inventory. So that's within our certainty. But everything equal, of course, you must be -- your assumption is correct. But then, of course, there's still this uncertainty on the turbulence in the market that we don't really know. As you know, when we're dropping like -- I don't remember now, hopefully, I don't mix them up. But take a case -- new report coming last week and I mean, that said, 16% down on sales and on cost. And of course, there is kind of a big momentum for them as well to bring down the inventory. And that is something where we don't really know the full impact yet. But they can say the same as us, that they have lowered inventory and they are down. And so -- but that is -- but all equal, then, of course, there should be this increase of some 5 percentage points, at least, on the margin.
Okay. And another one on Wheel Systems price mix. And I'm thinking about the mix here, Peter. We're starting to see some signs of better volumes in the aftermarket in North America. Europe is obviously your key area. What are you seeing on the aftermarket here? When we met you guys at Agritechnica in November, they and others talked about like a bottoming of replacement in Europe in 2020 given this 2- to 3-year lag from when we replace tires on the newer tractors. What do you think anything of that?
We should see a better -- yes, we're going from a deteriorating mix throughout 2019. We should see a better mix going into 2020, because now we expect the kind of -- the aftermarket to be a bigger share of the sale, maybe partly due to the fact that the OE is going down. But nevertheless, the overall mix should improve. If I'm standing here, and you'll push me to make a guess on what's going to happen in 2020, it should be a better mix.
And maybe some better effect? Okay. Then my third one is on Business Under Development, and I'm thinking about -- the growth is obviously very strong in oil and gas and I guess, the margin has followed through, what the margin has been weak in printing at the moment. Just give us any sense, Peter, on where that margin in oil and gas is. Is it mid-single digit? High single digit? Low double-digit? You obviously taken out a lot of...
I mean, if -- I mean, I think we're going from minus and in best case in 2020, to mid-single digit. I mean that's really what we what we see. And part of that is, let's say, improvement throughout the year. Because if you notice, project businesses, which is going from very low to very high, then always the first order is the lower margin because everybody is very eager to get these first orders with empty factories. So usually, they're quoting at a lower price, we as well. And then as the factory gets more filled up, then, of course, you get to get the margin, you get more bullish on the pricing, and so that is a point we tell -- we talk about this internally. And even though if it -- so what -- but that is happening. So as the market grows, as the production grows, you should also have better margins in the order book. So of course, we see that as well. Our take in margin is improving, so we should have a better delivered margin as well as we move quarter-by-quarter. But on top of that, then, of course, there is some capacity because we still talk about, let's say, 10% of organic growth, which is not easy to cope with in a factory, to be honest. I mean if you have this organic growth, sometimes 50%, it's not that easy to make this in a very, very efficient way. So of course, we would like to get it up to more stable manufacturing levels in order to make sure that we have efficiency. But all in all, we see going from a, if I may say, a solid minus result up to a solid plus result. But it's not going to be 2-digit EBIT margin, no. Maybe in -- if we are successful and it happens as we look today, we talk about the mid-single digits profitability for the offshore business.
Our next question comes from the line of Erik Paulsson at Pareto Securities.
So my first question is regarding sourcing and the supplier situation. I think you have roughly 23,000 suppliers or so all around the world. How does this situation look like now? And do you see a disruptions in the chain, et cetera? And do you provide for any like contingency plans regarding sourcing of our natural resources, et cetera?
Yes. I guess you refer to this China situation, again. And of course, there is some challenges in these, which we have been on for several weeks, and we're working on contingencies. And it's not really -- this is some chemicals, it's some -- but it's not really a, really a major thing, but there is some challenges in making sure that you get supply on certain areas. We are not -- I mean, I think in comparison to other industrial companies, we are, from a component point of view, we are not that dependent on China, but we are in a way, buying from Asia in certain chemicals and -- but it's not that we can get these chemicals from other sources, but then maybe we need to pay up a little bit. So that is something that we are looking into, and of course, evaluating also daily in order to see. Once again, be aware that China was only started this week. I mean most -- in most regions, the Chinese New Year was extended, the holiday was extended by a week. And still, I think, only half -- at least half of our factories or something, is only up and running now, and this half of the factories is still ramping up. So it's still very early days. We don't know, really, the full impact on this. And of course, we're still getting -- even though I said there are no trucks, but we're still getting some deliveries from China, but I mean, we don't know exactly what's going to happen I mean this is a daily -- it's happening as we stand here.
All right. And a final one is on -- you mentioned order book year-on-year figures. Is it possible to present those more in figures?
We don't want to do that, we don't want to hand out that, because also, the order book in the different businesses is very different. So we don't really want to mix everything in 1 bag and talk about it. So we have decided we're going to keep that, that we'll not announce order intake or order book for us.
And our next question comes from the line of Johan [indiscernible] of Danske Bank.
Sorry for returning to the Wheel Systems and also the margin question. It was a very bad line, couldn't really hear it. Did you say that the Underlying Business would support, assuming this production or inventory reduction, supported double-digit margin in the first quarter for Wheel Systems? Sorry did I -- did you say that one?
[indiscernible] really to talk in detail about the margin. I'd say that the margin is going to improve quarter-on-quarter substantially. But as -- assuming what we know today. But I mean really, to give you a guidance whether that's going to be 8%, 9%, 10% or, 12% or whatever, I don't want to give that guidance. I know it's going to be improvement. But at the moment, I think we are still a bit uncertain exactly how much it will be. It will improve, and whether that will 8%, 10% or 12% or 14%, and maybe 14% is a little bit on the high side, but I don't really want to give any guidance on that, sorry.
No, that is fine. I guess wanted to double check it because the line was that bad. But also coming back to Sealing Solutions, I mean, very impressive 3% organic growth in the quarter. How -- could you say a little bit about how -- what sort of contribution did you have from your healthcare business? And medical business here? Because that seemed that -- I mean, when I compared with some of your industrial peers, like -- I mean, it's really opposite direction of your organic growth compared with your other likes there. What is the main driver there, would you say, the medical...
The medical is not the main driver. Medical, as you know, is a business that we actually been building on acquisitions the last 2 or 3 years. So we are still early days in integrating that. And I mean, also, the healthcare business is developing very well, but the order intake is very long-term there. So that is something we don't see really on the next following quarters. When I comment more on the medical and healthcare, it's more that it's a good business overall, we have good order intake, but that is honestly not kicking into sales in this quarter. So there, let's say, the high-growth areas here is, once again, we are back to aerospace and then automotive, better than -- automotive aftermarket, especially better than -- substantially better than we anticipated. But I think that is a little bit company-specific, to be honest. We were successful launching some new products. We were successful going into some of the big aftermarket chains, especially for break applications. And suddenly, we had a boost for that in the quarter, partly coming from that. We're actually low earlier in the year. So this is a little bit individual. So I think we take that out. So I think that the main positive driver for us is the aerospace. And then with the kind of continued -- a little bit bounce back in Asia and all of that, but that is more regional activity. And now we expect a negative bounce back in this quarter. So this is something which is, of course, something negative bounce back then coming from these challenges in China, as China is the most important market by far for Sealing Solutions. So that's going to be a negative in the running quarter. Good. So finishing off, Douglas, do you have any?
And those are the questions on the telephone line. I mean in that case, I'll...
We have 2 further questions from the phones at this time. The next question is from the line of Malte Schulz at Commerzbank.
Sorry, if you said it, but the line was sometimes quite weak. On China, maybe on the current impact for Q1, can you assume or can you make an assumption how much it will impact the organic growth on the standstill from what you know by now? And my second question would be, with your change now to the Business Under Development structure, so would you rule out that you would do any larger M&A acquisitions at the moment and rather focus on restructuring of this area? Or is M&A still on the table?
First of China. I mean, once again, I think I need to be clear, it's very uncertain. We have been only up and running for 2 days after the Chinese New Year. And you have a reading on CNN, you have been reading everything, what is happening, and you have this development day by day. And I mean the local regulations in China, local authorities, I mean, they do what they can. But at the moment, the regulations is not really a fully, how should I say, fully coordinated. I mean some local authorities give one instruction, regional authorities give some instructions, the national instructions are different. And some are allowed to move, let's say, a truck in between the different regions and some, they are not. And I mean so this is something which is really happening at the moment. So we can only say that it's going to have a negative impact. We know it's not going to be positive, but it's honestly, at the moment, impossible to give you any flavor on exactly what kind of impact we will get. Hopefully, it will not be big, but we don't know. I mean there are still -- I heard today, for instance, we had 1 factory that was open yesterday, and then they asked us to close it today. So this is happening because then they had a kind of extra infection in that area. And suddenly, they say, okay, now we close again. So this kind of stuff is happening all the time. And then we relate to M&A. M&A is always on the agenda, but we have always said, big M&A is not really the normal way we do in Trelleborg. So we're going to have this -- we're working on acquisitions, which is a few tens of millions of euros. I mean that is a normal acquisition for us, which is then assisting us in a certain specific application or certain specific region or certain specific customer segment. So that is the way but we have on the agenda, we don't really see any big M&A. But hopefully, we will be able to continue to make these kind of smaller acquisitions.
And the last question comes from the line of Robert Davies at Morgan Stanley.
My first one was just you mentioned you divested or sold a small business out of France. Could you give us a little more color on exactly what you sold? And maybe some of the financial metrics of that business? What was the sort of margin profile? Or how much did you sell it for?
I mean this is a small business, and this was a business that was doing some kind of printing-related rubber rollers. So that they will be -- sometimes when you print, you have rollers, which is kind of assisting the printing. And we said this is not really a core -- even though it's related to the printing, printing on textiles in this way, and let's say, stretching the textile when you print on it. So it's kind of a supplementary business for the printing, and as we are focusing this, we said this might not be the core offering for this one. And then we had a taker. And honestly -- always honest and frank, of course, we sold this also partly because they were also managed to get -- to sell a real estate next to it. So the financial metrics in terms of multiples and stuff like that, what was not really the best. But in total, of course, we managed to get out of this business, we managed also to cash in the real estate, which was part -- because also now I'm explaining because this, what we sell was a location in Cernay, in France, where we've had a big factory before, where they have been downsizing, and then we've been moving some pure printing blanket manufacturing from this side to Italy a few years ago. So we're standing with the real estate, which was far bigger than actually this one. And with this acquisition, they bought the business, but they also bought, let's say, the real estate. So for us, it was a very good cash inflow. But maybe, once again, as the term of the multiple, we talk of low single-digit multiple on EBITDA. But I mean in total, if you -- as I also said that we cashed in the real estate, it was -- turned out to be a good business. So this is the kind of decisions that we need to take. But it has no impact whatsoever on kind of the performance because it's such a small activity. But this is the kind of cleanup that we need to do in these kind of businesses and to decide whether we -- but once again, we jumped on the opportunity here to, once again, to get out of the real estate as well.
I will not restate the numbers.
No.
Understood. And then maybe my second one was just around some of the regional trends. Could you give us a little more color from a country perspective, between Western Europe, which was down 4% with a much regional variation? And then a sort of follow-up, I guess, the North America, which was down too. What's your outlook for the North American business, given industrial production is trending lower?
Countries -- country development in ...
But we don't normally comment on that.
No we can say, which is -- so I have to...
Yes, but it's a mixed bag. So it's...
No, we don't really. I mean, of course, Germany is a little bit more down than the others. But otherwise, it's really very small variations. So we don't really -- we cannot see an overall major trend. U.K. is actually slightly up in the quarter. So -- but that is also individually -- individual invoicing by monthly ends and stuff like that. So you shouldn't probably draw -- we at least don't do -- draw too much conclusions out of development in each country for individual months.
And then on the outlook for the North American business, given the ISM and PMI readings and industrial production has been struggling there, are you incrementally nervous about the business in the early part of 2020 in North America?
Not really. I mean we are still kind of generally building our presence in North America. As we have seen in solutions, we have made quite a lot of acquisitions the last few years. So we are not really dependent on the market in that way. And the same applies for the Wheel Systems where we clearly have a small market share. Then there's individual businesses where we have a higher market share, but in most cases, I must say, in North America, where we are still in kind of a growing mode or establishing mode. So we are not too concerned about our overall market development there. We are probably higher market share in certain, let's say, European, like Northern Europe or Germany or U.K. where we need to be more careful and following the overall development. But in U.S., in general, we still have a possibility to grow even if the market is slowing somewhat.
Good. Okay. I think that concludes the Q&A session. A big thank you from my side. Any closing remarks, gentlemen, from your side?
No, no. For us, Trelleborg, a solid quarter, 2 out of 3 BAs actually performing on a basically all-time high levels. And then Wheel Systems, we feel that we have a very good platform, but we are suffering a -- I dare to say, very challenging markets at the moment when you talk about organic growth on the OE is down by, let's say, 15% or something. Then, of course, it's quite tough to compensate for that. And I think we've been doing better than the overall market in Wheel Systems. But even then, of course, we are suffering. So that is something where we need to position that and make sure that we are ready when the market actually turns up.
Thank you.
Okay. Thank you.
Bye.