Trelleborg AB

STO:TREL B

Earnings Call Transcript 2020-Q4

[Operator]

Ladies and gentlemen, welcome to the Trelleborg Q4 Report 2020. Today, I'm pleased to present Peter Nilsson, CEO; and Ulf Berghult, CFO. [Operator Instructions] Peter, please begin.

[Peter Nilsson, President, CEO & Director]

Great. Thanks. Welcome to all of you to this presentation of our year-end report. But of course, focusing particular on the performance in quarter 4 of 2020. As usual, I'm going to start off with some general comments and also some comments on our business areas, before handing over to Ulf to guide you through the financial pages before I'm getting back again and doing a summary, before opening up for a Q&A session. And as usual as well, we're going to use, for this presentation, the deck that you can find on our homepage, where we're kind of highlighting the main topics in our report. So that's what I'm going to refer to and get back to that. Moving then to Page 2 in this presentation deck with agenda, as already stated, starting with the highlights, some business areas by me, financials. You're going to be guided by Ulf on that. And then some summary and some comments on the outlook for the running quarter and then finishing off with a Q&A session. So then turning to Page 3, heading for our reports, strong end to the year toward a better 2021. I'm going to talk more about that, but that is the way we feel it overall when we are reporting this quarter and also looking into the running year. Sales decreased quite a lot, 10%, organically by 3%, which is a sequential improvement, but we had a substantial negative currency in the quarter, pushed down the sales in Swedish krona by 7%. EBIT came in at a little bit north of SEK 1.1 billion, which is then corresponding to a margin of 13.6%, which is actually the best ever EBIT for Trelleborg in a Q4 and also the best ever margin for Trelleborg in a quarter 4. Items affecting comparability came in slightly lower than our guidance, which we also guided for, that we did expect it to be lower than earlier guidance, and Ulf will get back and comment a little bit more on this in his presentation. All of it is kind of related to earlier announced actions. Cash flow, very strong in the quarter. We managed to costs assisted by a strong EBITDA and also with good management of CapEx and also, maybe we were particularly happy with good management also of working capital in the quarter. We continue to lower inventory and we continue to manage the account receivables in a good way. So the cash flow individually, let's say, in this quarter alone is actually the best-ever quarter for Trelleborg in all aspects when we look at the operating cash flow. Cash conversion then, let's say, consequentially very high at 125%, which, of course, not sustainable, but very happy to deliver this cash flow in such, say, a difficult year at 2020, which we think also show that we have strong operational control, not only on the cost and EBIT, but also on the cash. Dividend proposed for the AGM coming up in April is SEK 5 per share, which is on the kind of the higher end of our policy, we set 30% to 50% of net profit, but we feel this is well motivated by strong balance sheet and also with taking into perspective that we didn't pay any dividend in 2020. Also to note, post Q4, we also announced, a separate press release was sent out with the new climate target, what we call, "50 by '25," which means that we should, let's say, half our CO2 emissions from now and up until 2025. And we also give a guidance that we should be fully carbon neutral by 2035. And this is a work, which, of course, has been running for some time. It will now be intensified, and we'll get back and comment more on this later in 2021, when we will give more details of what is really -- what we're going to do here and what this means for our operations. But we'll get back to that later, but no more comments on this in this call. Shifting then to Page 4. On organic sales overall, as you see, there is a strong difference here. I mean, when we say in this individual quarter, we have 10% growth, basically, what you call Asia and other markets and also what we call Central Eastern Europe and also South and Other Americas, where we're running at 10% organic growth. Western Europe, but we're still separating out this market. It's flattish while we have a strong negative in North America. So very strong in Asia. Europe getting flattish and then North America still negative. Here, we see maybe some over-performance in Asia, and we see improvements, it would be common, a little bit going forward. We see continued improvements in Western Europe. And we see also Americas getting better here as we're moving into this quarter. So this is kind of the overall geographical development. Then turning to Page 5, back to the agenda and touching on the business areas, quickly moving to Page 6, talking about industrial Solutions, very strong operational performance in the quarter by Industrial Solutions, still negative organically. Main push down, aerospace, even though a small part of Industrial Solutions, but it's impacting. So basically half of the negative organic sales is actually coming from the drop that we see in the aerospace, where we still are adjusting.We have been adjusting very well here to this drop, which you see in the margins. It will, I'll say, highlight some areas developing better in the quarter. Construction, getting better. We also see, of course, like everybody else, a very strong bounce back in light vehicles automotive in the quarter. Even though, like, in the small parts of the BA. But still, of course, impacting in a positive way. EBIT and EBIT margin increased to an all-time high for this business area. Very strong cost control. And also, we should say, a very positive sales mix in the quarter. And already now commenting on that this EBIT margin of 15%, you should not see as a guidance for the next running quarter. We believe that this is kind of an extraordinary quarter, and we're going to get back closer to our target margin for Industrial Solutions as we move forward when the target margin extended at 12%. So that is really what we see going forward here. Once again, strong sales mix here, pushed especially by some good project orders in the quarter related both to railway, to some oil and gas projects and also to what we call marine construction, which means, let's say, berthing and mooring products, all of them, let's say, delivering good extraordinary good performance in the quarter, which then pushed up the margin to this 15%, which, of course, we are very happy to deliver. Turning to Page 7. Talking about sealing solutions, heading, improving sequentially, but aerospace is still tough. And that is, as we said before, aerospace, we do not expect, let's say, any -- actually, any immediate improvements. But we are now also, I'd already commented on that, we are now feeling comfortable that we get to the adjusted -- adjusting our cost base as we move forward to at least, which will not be seen in the margin, even though it will continue to impact organic sales for sealing solutions in the next coming quarter. Yellow industry, getting better, especially in Europe and Asia, and that is also improving our kind of mix. Going forward, we still have a fairly strong negative here in North America, where we also see some lights in the tunnel, even though we do expect that it's going to take some time to get back to kind of back to where we're before , let's say, the COVID impact in North America. But once again, it's going to -- we expect it to be better quarter-on-quarter. Light vehicle here, of course, even though it's not kind of a very major part of this one, but also as already commented on Industrial Solutions, this cause also a strong positive push in the quarter. We -- margin, EBIT, I mean, we are dropping. We are still impacted, as I already commented on the aerospace. But as we move forward, we believe we're going to get back on the margin side closer to where we were before, even though, once again, that we do expect continued kind of negative impact in the organic sales in the next few quarters from this aerospace in sealing. But overall, also in this area, we are satisfied with the performance, and we feel that we have everything very well under control going forward. Then moving to the Wheel Systems on Page 8. Very good agri in the quarter. As I guess, several of you have noticed from these kind of different indicators following agri. Although, I mean, we should also say we still have, let's say, a 2-digit negative organic growth coming from the material handling year-on-year. And that is where we still, of course, see signals here as well is getting better, but we should be open to tell that in the quarter, we still had a very strong negative coming from material handling comparing year-on-year. Organic sales, although overall positive at 8%, which is then kind of stopped by exchange rates. So overall, we're ending up more or less flattish on net sales. But overall, of course, these extra volumes, also in combination with some cost -- continued cost discipline and price discipline in the quarter. And also, we should note here also, we continue to see benefits from the structural improvements, structural investments that we've been doing for a few years in this area. We now saw benefits from the moving production, especially into our Serbian factory and also partly on the reallocation that is ongoing among our Czech Republic factories is also assisting us to get a better efficiency and a better profit, and we're happy to deliver a 2-digit EBIT margin on this one. Although, we also note that still, if this is better, but all of you know as well from a seasonal point of view, Q4 is always the lowest quarter for Wheel Systems. And that's, of course, also impacting the overall margin in the quarter. We also, let's say, just to be fair, also to say a year ago, 4.4% is not really that we had a margin -- EBIT margin last year is not really the normal running rate last year. We did major inventory adjustment and did some underproduction in the quarter. We did push down the margin in that quarter alone. But also going forward, positive agri sentiment, while we're still waiting a little bit for the material handling, getting back and fully on track. Turning to Page 9. Business is under development. Strong negative organic sales coming, which we already also guided for before that we saw offshore oil and gas pushing down. I mean, actually, the order book in oil and gas is quite good. I mean, year-on-year, it's actually slightly up compared to a year ago, but we see that several of the priorities being delayed. And also here, we still have an impact from the COVID, where we can -- we have difficulties doing site installations, which is then pushing some of the sales forward, and that was impacting in the quarter. We also see a slight lower deliveries in the other parts with just printing, blacking and technical rubber here, although the offshore is the major kind of negative in the quarter in looking at sales. But although with this very strong negative organic sales, we still managed to improve the margin and more -- double the margin, actually, and also, let's say, increase the profit substantially, coming from a general very good cost control and cost adjustments in the quarter and also, some structural improvements in the Czech operations where we had also telling about before that we have been moving around some assets in Czech operations and also adjusting for overall lower sales. We also want to comment in this quarter -- in this quarterly report that we are well on the way of achieving our overall guidance to get this sorted and decided how to manage it forward. All of the businesses within business and development will be managed in 2021. And we are in several, what we call advanced discussions with external stakeholders for some of the businesses in this area. And hopefully, some of that can be concluded fairly soon, and all of that being kind of managed well within 2021. So that is the comments on the areas. Turning to the business areas, turning over to the agenda, financials, Page 10, and then quickly handing over to Page 11 and Ulf to guide us through the financials.

[Ulf Berghult, Chief Financial Officer]

Okay. Thank you, Peter. So let me take you through the consolidated group numbers. On my first slide, Page 11, sales development. You can see that the organic development in the quarter was a negative 3%, which sequentially was an improvement versus the Q3 organic development of negative 7%. Our core business reported an organic development of negative 1% versus Q3 organic development of negative 8%. All business areas reported a sequential improvement in quarter 4, and I want to highlight business area Trelleborg Wheel Systems' organic growth in the quarter of plus 8%, despite the fact that material handling and construction tires are still down year-on-year. Business under development reported organic development of minus 16%, impacted by fewer project deliveries within offshore. Next slide, Page 12, describes the historical performance of our organic growth. On Slide 13, you will find the reported sales development per quarter as well as rolling 12 months. On Slide 14 presents our EBIT development. Our EBIT reached SEK 1.106 million in the quarter and with an EBIT margin of 13.6%. The EBIT margin improvement shows the strength of our flexible cost base. Our core business reports an EBIT margin of 14.4%, and I want to highlight business area Industrial Solutions EBIT margin of 15% in the quarter. Cost adjustments and a positive sales mix is behind this strong margin. Business under development continued to improve and reported better EBIT and EBIT margin versus the same period a year ago despite having a negative 16% organic growth. Quite a tough currency headwind in the quarter. Translation impacts EBIT with a negative SEK 96 million. Slide 15 present EBIT and margin on a rolling 12 months basis. A stable EBIT margin looking over the period despite having exposure to many tough market conditions throughout this timeframe. And again, this slide shows how agile our cost base is. On a rolling 20 months basis, we are currently at 13% EBIT margin for the group and with core business at 13.8%. The next Slide 16 present the profit and loss statement for the total group. Items affecting comparability consist of the restructuring cost, and came in below our annual guidance -- guideline of SEK 700 million. Some SEK 300 million of last year's nonutilized restructuring costs will then roll over to 2021 to be placed on the top of the normal SEK 200 million for 2021. So about SEK 500 million restructuring cost in 2021. And however, don't forget that we also will have a real estate capital gain of approximately SEK 145 million to be booked in quarter 1. Financial net is impacted positively by a lower net debt, but with a slightly higher interest compared with the same period a year ago. The tax rate was 24% in the quarter. Our guidance of an underlying tax rate of 25% still stands. Slide 17 presents earnings per share, adjusted for comparability items, which was up 16% to SEK 290. Slide 18 describes the development of our operating cash flow the best cash flow in a single quarter. CapEx spending is well-managed by the business areas and came in accordance with our full year guidance of SEK 1.2 billion. The strong focus on working capital continues to develop positively, even though the release in the quarter is lower than previous year due to a high activity in the quarter. Slide 19 presents the rolling 12 months operating cash flow and the cash conversion. The business areas have handled its cash flow very, very well. And Slide 20 shows our leverage in gearing developments, strong operational cash flow, no dividend payout and no acquisitions have strengthened the group's balance sheet and readiness. Net debt was positively impacted by FX movements of SEK 732 million year-to-date. Slide 21 describes the return on equity where the long-term target is 12%, including items affecting comparability. And then, finally, on Page 22, I want to finish off this part of the presentation by repeating our financial guidelines for the full year 2021. So as I said, CapEx will be SEK 1.4 billion. The restructuring cost will then be SEK 500 million, which is then, as I said earlier, the SEK 300 million spillover from 2020. We would have a real estate capital gain of approximately SEK 140 million to SEK 150 million in quarter 1 2021. The underlying tax rate, that will be 25%. It's estimated 25%. And then we have amortization of intangible assets around SEK 400 million. So Peter? Thank you.

[Peter Nilsson, President, CEO & Director]

Thanks, Ulf. Turning to the agenda, Page 23, for a summary and some comments on the running outlook. Quickly then turning to Page 24. Strong end to the year toward a better 2021. I mean, I think we are happy with the management of the business within Q4, and we also believe or feel comfortable that we've created a very good foundation going into 2021 with both a lower cost base and also some structural improvements, and then with a slight uptick on the demand, we will see benefits from this better base. I mean, individually, let's say, looking back again to the quarter 4, sales down by 10%, but 7% currency and 3% from organic EBIT and margin at the highest level ever for Trelleborg in quarter 4. Items affecting comparability, slightly lower than the guidance, ending up at SEK 166 million. Already commented by Ulf on that. What we see looking forward, cash flow, best-ever quarter for Trelleborg in terms of cash flow, which is then, of course, strengthening the balance sheet and creating, let's say, a good foundation also for potential structural improvements going forward, cash conversion, then consequentially very high at 125%. And thereby, we did strengthen the balance sheet and kind of no dividend in 2020. We proposed an increase of the dividend up to SEK 5, which is 25% or up in relation to the dividend paid in 2019. And we also comment here that after the quarter, we also announced new climate targets, which we're going to get back and comment more on that during this year. Turning then to Page 25. On our agenda, we're, of course, still impacted by the market conditions on COVID. We -- although getting more manageable, we're still impacted. So for instance, sitting here today, we still have 2 factories in China, which actually closed down by the authorities, which is then still, of course, impacting us, and we have to be very open for these, continue to focus on our employees and making sure that we keep a very safe environment for everybody. While still doing our best to kind of comply with our customers' requests and make sure that we support them in the possible way, still very high in the agenda. Comments and also this review of business and development, we feel comfortable that we're going to manage this within '21, as our kind of guidance was when this was gathered in this unit. We have ongoing, call it, structural discussions. And we feel that, overall, environment for this country discussions is good, which is then a little bit limiting us on this is, what we call continued portfolio management. We feel that the valuations for M&A at the moment is actually quite high. And we need to be careful. We're going to continue to work on M&A, but that's going to be focused on deals, which is creating substantial synergies as we feel that the overall valuation is very high, which is then, of course, benefiting us on the other side, as we're looking for the structural ideas for business and development. So this is something we're watching carefully. Continue to have -- we're very focused on operational excellency, efficiency measures and footprint optimization. We feel comfortable that we have a good methods for this and well under control, which, I think, also shown in Q4 or throughout 2020, good, under control, also commented by Ulf before. Of course, at the other side, we continue to invest in innovation, customer integration and using new technologies in order to create foundations for more kind of recurring income from several of our operations. That is still high on the agenda. And we're still working on integration of some acquisitions. Even though we have not done any acquisition this year, we still see some benefits kicking in from earlier acquisitions. So this is something, our priorities for 2021. And then turning for 26 and commenting a little more specific on the outlook for Q1. We feel that we have sequentially a better demand in Q1 compared to Q4. We have a strong -- yes, a strong growth of the order book in Q4, which is then creating comfort going into Q1, although we need to comment also that we still have a very negative year-on-year comparisons for aerospace, and we expect that also oil and gas. So we have a few segments, which is going to be substantially down overall in Q1 compared to 1 year ago, which means that, I mean, we shouldn't read this into that we foresee. We are going to be expecting a few percentage points, better organic growth, but not really any major, major changes going into this quarter compared to the previous quarter. So this is the way you should read the outlook.And then turning to Page 27, the final agenda point Q&A, and then turning to Page 28 and then opening up for questions from the -- from all of you listening in. So please go ahead.

[Operator]

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

[Klas Henrik Bergelind, Research Analyst]

Yes. So, Peter and Ulf. It's Klas you'll take these [ all ]. The first one is on Wheel Systems and ag recovery, and it's now very broad-based, which is good to see. So I wanted to ask you on the aftermarket, Peter, and Europe specifically. We are, through our contacts, we're hearing of an imminent replacement cycle in the higher horsepower segments. And are you seeing Europe accelerating now on the aftermarket side? Or is that yet to come through in a big way? And I guess, I guess, such recovery would be good for mix, if that happens, I'll start there.

[Peter Nilsson, President, CEO & Director]

Yes. No, I mean, it's correct. I mean it is a recovery in the aftermarket, but also in the OE. And that is always a balance. I mean we will have some -- the market is probably asking for more tires than is available at the moment, and there will always be a balance in order to keep this. I mean, long term, we will get more -- we feel that we get more benefits to supplying the OEs to get our targets, let's say, fitted on the real equipment. At the same time, we want to get, like I said, the maximum margins by selling into the aftermarket. So it's a balance. But I mean, there is, let's say, a growing demand in both channels, and that is something that we're working on more or less daily in order to get that balanced between, let's say, short term, long term. So there is definitely an uptick in -- yes, there is, let's say, a firm uptick in all channels.

[Klas Henrik Bergelind, Research Analyst]

All right. Very good. My second one is on the margin in Wheels Systems. And so how much of the savings at group level would you say will fall into wins this year? I understand that most of the structuring savings will be targeting areas such as aerospace. But I think there are structural savings, synergies, you have the capacity expansion in wheels as well, if we could get some sort of number there. And I guess on price cost. I guess, you should be able to keep this relatively stable when growth is this solid, right?

[Peter Nilsson, President, CEO & Director]

Yes, I don't know, because it's kind of -- I mean, the immediate savings that we're initiating throughout the year has been mainly kicking into Industrial Solutions and Sealing Solutions. While in Wheels Systems, it's more long-term structural improvements. As you know, we've been shifting volumes into Serbia, we are now in the middle of, let's say, major reshuffling of capacity within Czech Republic, actually. I mean, we announced the closure of one of the factories there in Zlin and moving the majority of that volume into the coverage. We're in the middle of that. So I should say, we still have some kind of structural improvements. And these projects in Czech Republic will run up to quarter 1, I think, '22. So that's another year running before we can finish with that. And that is another -- yes, another couple of millions of euros, which is kicking in from that one. So I don't say that for Wheel Systems, we feel comfortable that we have more kind of structural savings kicking in. And on top of that, as you already said, good demand from the agri segment. Where we're a little bit surprised to be -- negatively surprised, it's, of course, material handling, where we did expect that to get back closer. We still see good kind of signals from the OEs on demand on that one and we know, as the overall industrial demand is growing, we usually also see a growing demand for the aftermarket for forklifts and material handling. But that is not yet in the figures for Q4. But we do see an improvement in that area also going forward.

[Klas Henrik Bergelind, Research Analyst]

Very good. My final one, quick one is on portfolio optimization and business under development. You said discussions have intensified. You said several discussions, Peter. Are we talking about the entire portfolio being looked at? Or is it just offshore oil and gas, to understand the scope better?

[Peter Nilsson, President, CEO & Director]

No, no, we were working on all aspects. But it might not be that -- we are not looking at the clean cut and sell everything to one party. So it's going to be, let's say, in bits and pieces. And some of it is also being restructured. Smaller parts of it, I ask you to not misinterpret that, smaller parts of it is also being adjusted to maybe, let's say, be managed more long-term and then moving back to core business. But that is when it's showing, let's say, good prospects and good profitability. So we also have some of that ongoing. So what we're commenting here, the majority of the business is probably to be sold. The vast majority of the business is to be sold, and that is the way we will manage it. And there, it's not one process, it's several processes.

[Operator]

And the next question comes from the line of Robert Davies from Morgan Stanley.

[Robert John Davies, Equity Analyst]

The first was just maybe if you'd give us a little more color on just what you're seeing from a kind of monthly development perspective within North America. I know you've called out that region as been sort of particular weakness in the fourth quarter, just be interested in sort of the monthly development. That's my first question.

[Peter Nilsson, President, CEO & Director]

No, no. I mean, as I already commented, we have seen an improvement throughout Q4, let's say, meaningful improvement. As I said, the ending of the quarter was much better than the beginning of the quarter. So I don't really want to say that there is kind of a meaningful improvement. So of course, we do not have, we say, minus 15%, indeed, we do not at all expect that to be on that level in Q1.

[Robert John Davies, Equity Analyst]

And then just, I guess, on the aerospace side. You mentioned sort of down 15% or so coming to the fourth quarter. Are you hearing anything on that side that's getting better? Or is that just sort of down at a low level and sort of trending side right now?

[Peter Nilsson, President, CEO & Director]

In the way, trending sideways, while we still do have some slight improvement. But I mean, we are talking about individual percentage points here on some inventory reductions ending and doing that. But I mean, overall, we do expect still, let's say, on this 50% level. So we don't see any -- and that is what we are adjusting for and what we are kind of doing. While I say that, also for Trelleborg perspective, we do have some new platforms kicking in, which could improve that a little bit. But I mean, overall, we do not expect any kind of changes in the overall demand.

[Robert John Davies, Equity Analyst]

Understood. And then just my final question. You sort of alluded to the material handling within Wheel Systems having not come back as well as you sort hoped. Through 2021, what are you expecting for that business in terms of development through the year?

[Peter Nilsson, President, CEO & Director]

We do expect a substantial improvement. But I mean, I don't want to see a percentage on that one. But I said, we have been running, also in Q4, by 10% plus negative organic growth. And of course, I mean, if we can get back [ so far ] or something, then that's a substantial improvement. But honestly, the indications, if you look at the market, that actually, this should be even better. So we're, of course, planning for that, but we have to adjust to the reality. But there's good indications, as probably you know as well, following Caterpillar and Hyster and whatever, and they are kind of talking positive, but we don't really see it in the figures yet. But we do expect kind of a substantial improvement compared to what we saw in Q4.

[Operator]

[Operator Instructions] Our next question comes from the line of Agnieszka Vilela from Nordea.

[Agnieszka Vilela, Research Analyst]

So I would like to start with Industrial Solutions. If you could elaborate on the sales mix in the quarter and the reasons for the kind of good margin performance. And then also if you could remind us what's behind the kind of margin target that you have for the division. I appreciate the fact that you have it at 12%. But my understanding is that it was based on the kind of old structure around the coated business in it, which had better profitability. So if you could just explain what you're thinking behind it?

[Peter Nilsson, President, CEO & Director]

Okay. Now for Industrial Solutions, as I said before, we had an extraordinary good quarter in the kind of the marine business, where we sell into ports and harbors and let's say, ship monitoring. And that was kind of a very good quarter, where we had a few individual projects. We also have a few good projects for railway also impacting and overall also in our kind of house business, where we do have some, not call it oil and gas, but we have some LNG transfer and some kind of liquid natural gas transfer, which also delivered good. So that was overall, as you say, luck. But I mean, it was -- everything was kind of aligned and you get good. And on top of that, I mean, industrial solution has been very well pushing down the cost. And then when the sales came in slightly better than the kind of expectations, we had a very strong drop-through on some extra sales. So that is something which was a little bit too good. And then talking about the 12%. It might be that we should revise that in the future, but we want to deliver a solid 12% plus before we kind of start to discuss about some new target setting such as some adjustment of that. But of course, seeing 15% in Q4, then, of course, that is something which is also internally creating some discussions on what is really the long-term potential of this business.

[Agnieszka Vilela, Research Analyst]

And then just on your outlook, you expect slightly better demand sequentially in Q1. What's your thinking there? And then also, I was surprised by your comment that you expect only kind of few percentage points improvement on the organic growth, given the fact that you get much easier comparisons in Q1, your growth organically in Q1 last year was minus 8% versus growth of minus 1% in Q4 '19. So comparisons are getting much easier. So just help us with how you think about that.

[Peter Nilsson, President, CEO & Director]

Yes. By these 2 -- I mean, for Q1, we do expect aerospace to be substantially down year-on-year. So that is kind of one of the major dips where we kind of, I don't know, half the sales or something like that compared to a year ago, when we do also expect oil and gas, which was actually fairly strong a year ago to also go negative. And then basically, all the other segments to improve. So if we end up at kind of a few percentage points better. We think overall that, that indicates that the industrial businesses will do substantially better, automotive will be substantially better while we see tens of percent or maybe half sales for oil and gas and aerospace. And overall, that mix is pushing down the sales. But that's, of course, not -- we do expect an improvement on the margin. We do expect improvement on the profitability as we kind of get a better mix, and we also are getting to adjusting the cost base, especially for aerospace, in -- so that is kind of the way we look at it at the moment. And yes, kind of, that is the way we see it, once again, being pushed down dramatically by aerospace and oil and gas, while basically all other areas is improving.

[Agnieszka Vilela, Research Analyst]

Great. And just the last one for me. On the Aerospace business, I recall that you said that for the full 2021, you would expect that business to be probably slightly up 5%, 10%. Is it still your thinking? Obviously, it's very early days and around uncertain situation, but is it something that you expect still?

[Peter Nilsson, President, CEO & Director]

That is still. We see it's, let's say, as going to be a strong negative in Q1, and we expect it actually to be small positive year-on-year improvements for Q2, Q3 and Q4. And overall, we do expect, if that falls out, it's still going to be, let's say, a small growth overall for the aerospace activity.

[Operator]

And we have one more question from the line of Karl Bokvist from ABG.

[Karl Bokvist, Analyst]

So my first one may be difficult to answer, but let's try it anyway. So what is your thinking when it comes to the second half of the year in terms of somewhat normalizing costs and maybe somewhat higher discretionary spending if we put it in relation to what you're doing when it comes to structural savings efforts?

[Peter Nilsson, President, CEO & Director]

We have structural improvements kicking in. We do expect kind of, let's say, higher discretionary spending. And also, which we have not commented, of course, I mean, this improvement in overall kind of economy will, of course, also push up the raw material. So there will be, let's say, a cost inflation hitting us definitely, but we also expect kind of a strong volume improvement on that. And if the volume improvement is not coming, then of course, the costs will not escalate and the raw materials will not go up. But overall, we feel that overall, this equation is well under control, and we feel comfortable that we will be able to manage this kind of expected cost increases, year-on-year cost increases, yes, for the full 2021.

[Karl Bokvist, Analyst]

Understood. And turning to Industrial Solutions. Is it possible to get a form of hint after how large marine was roughly in the quarter or if this has improved compared to a year ago?

[Peter Nilsson, President, CEO & Director]

I don't know if I have these figures at the moment. I mean, you probably have to get back on that one. I mean, I don't really have it in front of me. But I mean, it's not really, looking at Christofer, sitting next also to me. I don't know if Christofer, you want to comment on that?

[Christofer Sjögren, Vice President of Investor Relations]

So the margin in Marine in Q4 was well above double digit, and that was much due to the project business Peter referred to before. And unfortunately, we will have a, not the same kind of project businesses in Q1, which is why we expect the margin to come down from the 15% to a more normal level...

[Peter Nilsson, President, CEO & Director]

12-ish.

[Christofer Sjögren, Vice President of Investor Relations]

Of 12-ish in Q1. So that is the biggest explanation for why we cannot keep 15%, which is, by the way, the highest we have ever seen in the quarter for Industrial Solutions.

[Karl Bokvist, Analyst]

All right. Understood. And just one question on Wheels. Could you give us -- in your business, did you see the strongest growth in North American ag or European ag?

[Peter Nilsson, President, CEO & Director]

European ag.

[Operator]

And one final question from Hampus Engellau from Handelsbanken.

[Hampus Engellau, Automotive Analyst]

Two questions from me. Sorry from coming back again on aerospace and sealing business in particular. But would it be possible for you to maybe discuss a little bit all the measures you're taking in the aerospace business within sealing? And also, given how we see aviation going forward, what type of structure, lower activities you're planning for a more normalized level, something, of course, maybe less business traveling and all of that. Then last question, again, coming back first, again, on the business on development. As you highlighted, that minor businesses are going to restructuring might be kept within the group. Is that solidly on the back of a business development and adding to group going forward? Or is this also a price issue here? I -- what I'm trying to search for is that is it price that is the main reason here? Or how should we think about parts that might remain in the group? Those are my questions.

[Peter Nilsson, President, CEO & Director]

Just talking about aerospace. We do not expect, let's say, in the foreseeable future, for aerospace to get back to where it was before. But it's still kind of an interesting business. It's a high-spec business. You have a long, let's say, aftermarket cycles. So we think if we look at overall on the, call it, contribution margin or gross margin business, what remains within aerospace is still a very attractive business. So that is -- so overall, we are adjusting kind of our cost base to work on kind of the half business on that. But on that half, let's say, following these changes that has been doing, which is mainly related to kind of factory moves. And I mean, we have been shifting factories. I think I highlighted that before. It takes time to get these approvals done. We now have some of these approvals and we know are able to shift manufacturing among our factories and thereby kind of solving a few of these overall cost issues. But we do not -- I mean, we expect us to get back to the, let's say, margins that we had before, even though the sales will be half or something compared to before. And from this base, we do expect that there is kind of possibilities to grow as we still have some consolidation efforts ongoing. We see possibilities to widen our offering within aerospace and to grow from a new base. So we still see this as an attractive business. We still feel that we have very good overall position. It's simply that it took us a few quarters to adjust the cost base to this new reality of kind of a business, yes, being basically 50% of what it was before. So that is the way we look at aerospace. It's still an attractive business, still a high-spec business, still kind of highly engineered products, still a lot of safety focus on it. So even though with the sales going forward, it's only half of it was before, it's still a very interesting business. We simply have to adjust our cost base and primarily then relate it to kind of our manufacturing footprint. Second question, sorry, what's that? But -- I mean, on this remaining, is still that we have some interesting bits and pieces in the offshore area, especially where it's not really oil and gas related, but more related to other business segments, which is still interesting for us to keep, which fits fairly well together with some other businesses in Trelleborg in the way that they are kind of approaching the same market segments and the same. So the reason for reallocating some businesses is not that we are not able to sell it. It's good performing businesses where we feel that we will be able to develop them in light in the new areas. And then, of course, I mean, you shouldn't over -- overread is. I mean what we're discussing about reallocating back is a fairly small part of overall business under development. And that is niche-y products and some lightweight composite materials, where we could use that into signature management. We have some interesting businesses, for instance, for, say, offshore wind mills and stuff like that, where it's, let's say, using similar technologies as we are doing in the offshore areas, and we have been reallocating that among the businesses within this offshore area in order to more focus on that. We have some other areas which is more related to kind of load bearings, as we call it, on some antivibration components, which is targeting, let's say, oil and gas, which is still going to be very good, let's say, add on to our businesses within industrial anti-vibration and is simply kind of an extra arm on that, and then we can use that technology also for some kind of other anti-vibration activities. So this is kind of a strategic rationale behind us keeping it and is definitely not an area that we are not able to sell it or we're not able to find a good value for it. It's simply that we believe is a good business to keep because we believe that we could, after this kind of reallocation of responsibilities and sorting out some of these factory splits, we feel this is a good business to keep, which will be kind of adding value to the remaining business of Trelleborg. So once again, so we feel very comfortable that this solution that we go in from a business under development will be a very good solution.

[Operator]

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

[Peter Nilsson, President, CEO & Director]

Good. Thank you. Thanks again, all of you, for listening in on this. I mean, delivering Trelleborg, as we said, the heading, a good ending of the year and a good kind of setting for moving into '21. We feel comfortable that '21 will be better than 2020. And on top of that, also, we feel now more comfortable than before. I mean, we've always been comfortable, but more comfortable before that we also get out of this business under development, and we get into a more solid structure of Trelleborg, so we can more start to build on the future. And of course, when this is done, we need to get back to all of you and be better outlining on how we want to develop Trelleborg further beyond this kind of activity that has been the focus, both with the COVID year and also with this business development. We're going to get happy to get back to you and discuss that in the next few quarters. So thanks again. And I mean, if you have any further questions, I'm sure that Christofer is happy to support and as always available, of course. So please contact Christofer, and Christofer will then call on me or Ulf if there is any need for further clarification. So meanwhile, take care, stay safe and hopefully see you sooner. Thank you.

[Operator]

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