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Trelleborg AB
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Ladies and gentlemen, welcome to the Trelleborg Audiocast Teleconference for Q4 2021. [Operator Instructions] Today, I am pleased to present Peter Nilsson, CEO; and Fredrik Nilsson, CFO. Speakers, please begin.
Thank you. Peter speaking here. And as already mentioned, I will be supported in this call by Fredrik Nilsson, our CFO, who will guide you through the financial figures. But before Fredrik is doing this, we will run through some overall comments and also some general comments for each of our 3 business areas. And while doing this, of course, as usual, we will use, as a kind of extra information, the slide which is displayed on our own page. So I'm starting with that. First page, Trelleborg Interim Report for Q4 2021 and then quickly moving to Page 2 with the agenda. And once again, as usual, starting with highlights, comments on business areas, financial then by Fredrik and then summary and some outlook for the running quarter and then finishing off with the Q&A session as usual. Turning to Page 3. Having strong finish to a record year, I mean, this is best ever quarter 4 for us in terms of sales and in terms of EBIT. And also, overall, for the full year, record sales, record margins, record EBIT and also very strong cash flow. So for us, it's a good year, and also finishing off in a good way. So for Q4, isolated sales ending up 15% ahead of last year at EUR 8.8 billion. Organic sales, very strong, continues to be very strong at 14%, and we're also adding another percent on acquisition, so a total increase of 15%. EBITDA, up by 12% ending up at slightly north of SEK 1.2 billion, and then it equals to margin, 13.8%. As I already commented, highest fourth quarter sales and EBITDA date for us. Items affecting comparability at SEK 160 million in the quarter, and that is ongoing restructuring projects, ongoing improvements of the structure, which is being charged in this way. Cash flow, a little bit shy of SEK 1 billion, impacted, of course, Fredrik will comment more on that. But of course, as we have the strong increase of sales, working capital is up. But we feel that everything is well under control, and I mean it's nothing really to be worried about. It's strong cash flow, strong cash conversion, but of course, once again impacted by the strong sales increase throughout the year. Dividend is proposed at SEK 5.50, which is kind of 10% up compared to a year ago to then to be confirmed at AGM here in April. Also note that we've done 2 smaller acquisitions in the quarter, VB Seal in North America which is then supporting our geographical position and somewhat also widening our offering in this small service-oriented concept that we have within Sealing Solutions and putting priority on. And then also a very strategically, although small as well, Alpha Engineered Composites, a small add-on to a good business that we already have within Industrial Solutions in North America. So 2 good acquisitions, although, let's say, on the smaller side, but once again, bringing in benefits in the multiple of dimensions. So this is overall comments and then turning to Page 4, on the geographic growth sales development, strong overall. As already commented at 14 were done in North America is bringing in a lot. Very strong organic sales in North America, 24% up compared to a kind of a solid minus a year ago. But nevertheless, we see North America is strong. South America also very strong, but of course, a bit small share of sales in total, but nevertheless, very strong. Europe also very solid at 10%, while Asia and other markets, slightly slower, but nevertheless, at a very healthy 8%. So a strong development in all geographical areas throughout the world. Turning then to Page 5. Agenda, again, business areas. Quickly turning to Page 6 for comments on individual business areas, starting with Industrial Solutions. Solid organic sales in the quarter, 9% up. Sales stable in Europe and strong increases here in North America and Asia. We note especially the market which is related to construction, aerospace and also train is, let's say, bringing in good benefit for us and behind the strong sales increase of organic sales growth of 7%. We still have, let's say, shrinking of our automotive sales, although small in the business areas, but of course, impacting the overall. And we also note that EBIT and margin decreased even though we kind of managed to increase sales, and that is due to the fact that the comps compared to a year ago was quite challenging since we're a year ago, which we don't comment on there and also have commented since what was extraordinarily strong in the best quarter by far ever for Sealing Solutions a year ago. So the comps are very challenging due to the fact that a year ago, we had some very good project sales in the quarter, which then creates a good margin drop-through and good profit. So while looking at the individual quarter without kind of really comparing with a year ago, 12.7 as EBIT, which is a strong quarter in the way, and we are overall positive on Industrial Solutions going in moving forward with the strong order books and with, let's say, clear focus on continuing climbing the value ladder as we have been, let's say, telling the story before. Leaving then Industrial Solutions, turning to Page 7, Sealing Solutions. Very strong organic sales as 14% where we know the general industry and of course, aerospace as well is growing substantially. And basically, all geographies is benefiting. And of course, also here where automotive is slightly bigger. Then, of course, also behind this very strong sales figures, we have although a negative development actually coming from automotive. Although not very major, but nevertheless, it's impacting us and pushing us in a negative direction if you look only at that. Healthcare & Medical, solid growth. I mean, of course, not on the levels that we have on the full business area, but this has been stable, and it's a very solid high single-digit growth in the quarter, although we still note that there is still what we call elective surgeries is still a little bit slow. We have a few, let's say, some exposure into that area, and we know that in this area, still not really speeding up yet. EBITDA margin drop-through is good on this level, and we are able to increase the EBIT margin by 2 percentage points and profit is up by almost 30%. So very strong drop-through and strong development on, of course, good drop-through on higher volumes and also generally a very good cost control [indiscernible] business area. So good development also here. We have a very solid order book going forward, we feel confident on the next few quarters. Turning then to Page 8. Having strong demand for all tire categories. We're actually moving very strong in all areas. Organic sales is, let's say, 25%. But of course, some of that being pricing as well. But nevertheless, the volumes is also moving very good in all areas, basically, both ag tires, material handling, construction tires and basically in all regions. So it's a very, very solid development. We continue to put priority on OE customers for long-term benefits by being, let's say, having the OE [indiscernible], we will get a higher aftermarket share in the future, and that's, of course, some little bit short-term pain but long-term gain. So this is, of course, something that we continue with this strategy, and we continue to believe that this is the right way of doing it. Also in the quarter, I mean, with this high volume, you could expect that a higher drop-through, but there's still this delay, the price impact from price increases is being implemented, and we still believe that it's going to move to a substantially higher margin here in the next few quarters. We are still impacted in quarter by high raw materials, freight and energy prices, which are kicking in also in Q4, which this is something which is pushing another round of price increases, and this is what's kind of impacting the EBIT and the margin as well, of course. But we -- once again, we feel certain that this will be adjusted already. From 1st of January, new price increases is kicking in, and we will continue to adjust it's never easy to increase pricing. But with this kind of demand situation we see at the moment is we feel confident that, that's going to be happening, and we are still kind of confident on this kind of guidance that we did on the Capital Markets side. And as we're going to get 2% to around 15% here, let's say, in the next few quarters. So this is kind of the comments on the business areas. And then agenda, Page 9, financials, I'm leaving them to Fredrik on Page 10 to guide us through this.
Thank you, Peter. Let's then move to Page 10 or look at the sales development. Organic sales in the quarter amounted to 14%, with good organic growth in all 3 business areas. And if we compare to 2019, we have an organic growth of 13% in the quarter. If you look at the total reported net sales, it was 15% in the quarter and were 1% positive impact from acquisitions during the quarter. Looking at year-to-date, the organic growth was 16%. If we then move to Page 11 and showing historical organic growth, the fourth quarter was another quarter with strong organic growth in historical context, as you can see in the chart. Moving on to Page 12, showing the quarterly sales on a rolling 12-month basis. The SEK 33.8 billion in sales for the full year was a record high for continuing operations. Moving on to Page 13, looking at the EBIT. We have a record high EBIT for fourth quarter. It increased by 12% to SEK 1.211 billion. And as Peter mentioned, it's particularly driven by the profit growth in Sealing Solutions and Wheel Systems. In the result, there was also a small through FX impact from translation of foreign subsidiaries of only SEK 3 million in the quarter. So net both in the larger scale. EBIT margin decreased from 14.2 to 13.8. Industrial Solutions had a very strong competitive period due to some large project business in 2020, and Wheel Systems, as Peter mentioned, continued to be impacted by higher raw material prices and increased costs for freight and energy. Going to Page 14, looking at EBIT and EBIT margin. For the full year, EBIT excluding items affecting comparability, increased by 26% to SEK 5.151 billion and Trelleborg was, for the first time, above SEK 5 billion in EBIT for a full year and the EBIT margin of 15.2% also at a record level. Moving to Page 15, profit and loss statement, some further details. We have items affecting profitability for minus SEK 160 million in the quarter, and it was entirely relating to the restructuring cost. Financial net declined from SEK 68 million to SEK 43 million in the quarter and the lower financial expenses are mainly due to the lower debt level. So we are, in fact, paying lower interest costs. The tax rate for the quarter was slightly higher, 27%. This quarter, the fourth, was impacted by some transfer pricing adjustments to be in line with today transfer pricing guidelines for the full year. But I would like to highlight that our early guidance of underlying tax rate of 25% still stands for the full year. Moving to Page 16. Earnings per share, up 10% to 3.9, excluding items affecting comparability in the quarter. And for the full year, EPS improved by 34% to 13.95. Moving to Page 17, cash flow. Operating cash flow in the quarter amounted to SEK 989 million versus SEK 1.714 billion last year. We have a good positive contribution from increased EBITDA. And then as you can see in the chart, we have a less positive impact from working capital. But I would like to highlight that the 2020 cash flow from working capital was exceptionally strong, and we still have a positive cash flow in the fourth quarter '21 from working capital despite we have tied up more in inventory due to the strong business momentum we have. And then as Peter also mentioned, we have a higher CapEx level in '21 versus '20. Moving on to Page 18, cash flow conversion. 84% on the last 12 months, and it just reflects the higher business activities which require some additional working capital. Moving on to Page 19, gearing and leverage development. The net debt to equity ratio continued to improve and is now down to 25%. And if we look at net debt divided by EBITDA, we have a solid improvement from 1.7 billion down to 1.2 billion. If we then turn to Page 20, a quick recap of the updated financial targets from our Capital Market Day in December. We kept our sales growth ambition of 5% to 8%, but I would like to highlight that this -- there is a clear ambition to accelerate the organic growth in this target for the coming years. EBIT margin, we raised that from 15% to 16%, and we also have returned capital employed as a new target and we have the ambition here to at least reach the 14%. I would also like to stress that this should -- the new targets should be seen as a midterm targets. Moving on to Page 21. I will finish off this section by some financial guidelines for 2022. CapEx of 1.4, the same level as we have seen now in 2021. Restructuring costs of around SEK 300 million. And as I said earlier, an underlying tax rate of around 25%. And then we expect amortization of intangible assets of around SEK 375 million. By that, I would like to hand back the microphone to Peter.
Great, Fredrik. Thanks. Agenda slide again, Page 22. Quickly turning over to Page 23. Recap, strong finish to a record year. Fredrik has highlighted, I commented before, let's say, higher sales, higher profit and higher margin for us and also with a very solid cash flow throughout the year. Looking individually, as I say, more focused on Q4. Sales -- organic sales up by 14%, adding another percentage point on acquisitions. EBITDA by 12% and margin, 13.8%, slightly lower than a year ago by impacting by this -- primarily by this extraordinary year ago -- extraordinary Q4 a year ago in Industrial Solutions, which is pushing this margin down somewhat although highest quarter sales and higher absolute EBIT ever for Q4 for us. Cash flow is strong, almost SEK 1 billion, but as we already commented, higher business activity is consuming some working capital and also, of course, the tire business activity is also pushing up CapEx a little bit. But nevertheless, we feel very strong cash conversion and a strong cash control in all areas. The proposal is to increase the dividend to 5.50 and also commenting on 2 smaller acquisitions executed in the quarter. Also some other, Fredrik already highlighted that. But nevertheless, we decided to include some main messages from the Capital Markets Day, which was held here beginning of December. Main message here, where there are plenty of slides, if you want to go back there on our web page. But I mean we see the Trelleborg, the platform we have is stronger than ever. We have a strong balance sheet. We have good businesses all over, and we know what we want to do. We have been working the last few years on exit of some of these business development units and that has now been executed even though we have not closed kind of the final lead here related to bring the solution by design and we think that's a matter of time. And if you look at that and also as we presented on the Capital Markets Day that the kind of underlying growth rate and also EBIT margin actually improves. While when we have done this, when this is fully executed, we also highlighted some segments which we would be more focusing on which we've then internally called speedboats, and that is where we're going to allocate more resources and make sure that we get going in those areas. We also said that we are focusing with the strong balance sheet and with, let's say, strong cash flow going forward, we also see that we will increase M&A. I mean we have been commenting before on valuations and that this may be first signs of a shift here now in the -- in this running quarter or the last quarter where we see that it's more processes being started, and I think also there is some more value to be created by making M&A and maybe not overpaying for everything. So that is an area where we see some more opportunities showing. We also maintain that we have, let's say, slightly different strategies. I mean we call it bespoke strategies. Each of the business areas have their own strategy. They have their own priority. We have a very clear game plan for each of our business areas. And also on the Capital Markets Day, we announced this particular -- hold there on the next Annual General Meeting that was held by the end of last year. We now have kind of authorization to initiate the share buyback program, where we also have been, of course, I mean, as you understand, from this authorization, we have been in the kind of a close period since we are end of the year, and we think it's going to now kick off, and we're going to start that shortly. So that is the comment on that. And then finishing up before the Q&A, some outlooks. We are commenting on the outlook for the running quarter to be on par with a very strong fourth quarter. We are entering into 2022 with the best order books ever. Very solid order book basically in all areas. And of course, we still have this little bit depressed sales, I don't say them all, but the depressed sales coming in from automotive areas, but we do expect that to improve also here. We don't know a little bit beyond our control, of course, but we do see that the -- it's going to improve. It's not going to get worse. And maybe on this as well, just to comment on the outlook, we have to clarify that also that on Wheel Systems, which has been a little bit delayed on the price increases, we remain confident that we're going to -- this price increase is kicking in here from Q1 and some also coming into Q2. That's going to grow and be well executed, and we're going to get a benefit from that as we move forward here. And then, of course, we still have to highlight. There is still pandemic going on. And I mean even though it seems easing, kicking in, in a few areas, but it's still very high sick leaves in certain of our factories, and we still have kind of lack of people in certain areas and who knows is going to develop. So we still have to keep this kind of comment since this is once again outside of our control. We feel confident that we will manage it in a good way. But nevertheless, there is a risk that something will impact us short term. So that, I guess, is the official presentation, if I may say. Moving to the end and then quickly over to Q&A and opening up for questions. So please go ahead.
[Operator Instructions] Our first question comes from Klas Bergelind with Citi.
So the first question I had is on other operating income and expenses. So it can mean a pretty big positive versus what we've seen in the past. And I guess that this is the Czech operation that is still at the group level, not in discontinued. But if you could clarify, Fredrik, if it's not a capital gain, something else in there because it appears as if the price cost development was perhaps a bit more challenged than the first meets the eye. I don't think people had that big positive in the forecast in the P&L. I'll start there.
Thank you, Klas. I will say it's 3 main components. It's the fora money that several Sweden or all Swedish companies has received during the fourth quarter. That's one part of it. It's the excess return of some pension money that has been paid back to Swedish enterprises during the fourth quarter. Then there is some operational FX effects that was negative in the fourth quarter 2020. That is now turning a little bit positive in 2021. And there is also some sales of fixed assets, and that's the smallest amount.
Okay. But I'm trying to understand and when I look at the division...
And also, Klas, just to mention, it's not part of the adjusted EBIT. It's reported outside the adjusted EBIT.
Okay. When I'm looking at P&L, it looks like it's part of the adjusted EBIT, but maybe I got that wrong then. Okay. And there is nothing in terms of -- because most of the Czech operation isn't discontinued. But is there anything at group level still that is contributing positively to that line? Or is that completely outside?
Not sure I understand. The only thing we have left on the asset held for sale is the printing blankets.
All right. Okay. No, I was just wondering. I got a lot of questions on this. Okay. My second one is on Wheel Systems and the margin. You did say you're confident that the margin will improve here. And at the CMD, I think, you had, Peter, that it can take off in Wheel Systems and actually quite soon. Energy cost is a new cost headwind to the margin and could come through with a lag. Would you say that this is the biggest risk to the margin into the first quarter, because expectations now for Wheel Systems is for the money to jump from 10% to 15% into the first quarter. So I'll -- I would be interested to hear your thoughts.
That is, let's say, roughly our plan as well. And then we remain there. And I mean that there's uncertainty here I mean, there has been a little bit energy prices. I mean that has been the extra add-on. But once again, Klas, we feel very well under control. I think we were quite open that we're going to remain with this challenge also in Q4, and we do expect it to turn the corner here in Q1. That is really what we are -- take -- that is our view on it still. There's no change on that.
Okay. My very final one is also on Wheel Systems, sorry. So you had quite a big step-up in growth. I had 14% and already had quite a big price increase in the number, you can mean at 25%. That seems like it's underlying demand improving quarter-on-quarter. It wasn't only pricing that drove that delta, right? It seems like it's a big volume effect. I just want to understand that.
Yes. There is a substantial volume effect under substantial pricing. We don't really want to give the share. But I mean, there is -- let's say, we did it on both.
Our next question comes from Hampus Engellau with Handelsbanken.
Two questions from me. I'm sorry to come back on Wheels, but when you have raised prices, is this prices just compensating the cost increase? Or is there some in-built margin expansion here, given your comments on the profitability going forward? And the 50% target within a few quarters, I would be interested if you could maybe discuss a bit on how much of that is demand is trending up now, pricing, as I mentioned earlier, and also cost measures executed by you guys. That is maybe many questions in my first question. I'm sorry for that. And the last question is a bitsy one, that's just if you have any further comments on this buying interest of Wheel Systems. I'll stop.
Sure. No, no. But I mean, of course, it's a mix of everything. On demand, it's very good in Wheel. I mean we are struggling to cope with the demand as our competitors. Demand is very high from OE. Demand is high also from the aftermarket. But there is, of course, like we have covered before, since we have, let's say, give or take 50%, let's say, are we -- exposure to OE is kind of with an automatic price formula, and that is kicking in with the kind of step-by-step on a 6 to 9 months delay. So we all know that some -- that price increases for kind of 50% of the sales that, that is kicking in by a formula. So that is something which is very, let's say, certain. On the aftermarket, of course, I mean, we have been this high demand. We have partly overcompensated for the price increases since the demand is very high. So that is kind of something which is benefiting on top of the kind of the automatic price increases. And then, of course, there is always some efficiency measures kicking in. But I mean the major thing here in getting the margin is simply to adjust the pricing to the underlying cost situation. So we, once again, I mean, of course, the proof is in the pudding, and then we're looking forward to prove what we're saying here in Q1. With regards to this rumor that was kind of in the media that we had to comment on, there's not much more to say. I mean it's true that there was some interest and we are, let's say, keeping these conversations going and if there is anything to comment, we will get back and comment on that. I'm sorry, I cannot say any more about this than we already stated in the press release here during Christmas.
That's great. Just a follow up then on wheels on the margin then. I mean you are right that you are still kind of suffering a bit on having too much OE business compared to aftermarket, even though that you generally aren't exposed to aftermarket. And can you see that kind of normalizing to your normal level within 2022? Or how should we think about that?
We still see a very strong demand from OE at least here in the first 6 months, and then we have to see at the end of the year how that will turn. And that is -- I mean, that is something that we are, let's say, on -- by decision really deciding to suffer a little bit on the margin due to the fact that we firmly believe that have their visiting will benefit us going forward. I mean we will be able to reallocate if we wanted to, but of course, we will be disappointed and we will kind of allow others to have that visiting. So we don't expect that mix really to improve here in the next few months. So the improvement in margin will solely come from adjusting from a higher cost base and not really for many improved mix benefits.
Our next question comes from Erik Golrang with SEB.
I have 3 questions. The first one, of course, on Wheel Systems and prices. Could you -- to get a sense of the challenge here to get pricing through, how much do you have to raise prices from where we are to cover '21 and expected '22 cost headwinds? And based on your experience, how confident are you that you will actually be able to realize that? That's the first question. And then the second one, if you could perhaps give a sense to what extent -- I mean, you talk about good orders, high order books. Are you concerned at all that there's sort of double ordering in the order book with customers eager to get delivery so they place a bit of extra orders? And if so, is there a particular sort of area where you see risks of demand being unrealistically high? And then the third question on Sealing. And if you could say something just about the magnitude of the organic sales decline for the auto part in Sealing?
On the TBS pricing, we can say that is kind of more or less the pricing is agreed formulas, and we talk about the hundreds of millions Swedish kroners on price increases. And I don't really want to comment on that. But when we talk about -- and we are not -- we are confident. I mean I don't want to tell it again. We are very confident that these price increases will kick in because the majority of it is actually coming from an agreed formula with OEs. So that is something which is going to kick in. And once again, just to remind you on why this is the case is usually when they sell new tractors or sell new harvesters, I mean they usually sell them several months ahead, and they want to have a firm pricing also on the tires there. And that is happening on the pricing on the tires is -- or the cost of the tire is going up or the cost is going down is still going to happen. So this is kind of an agreed formula, same as you have in the car OE industry and the truck OE industry. That is the way the industry is. And that is why we feel very confident that these prices can even kick in. And of course, if you do the calculation, we talk about, yes, total for price increases year-on-year. I mean, we talk, let's say, ahead of SEK 500 million Swedish kronas in total. So in the year -- but this price increase is basically already agreed. And the risk if I may say is more in the aftermarket. That is more exposed to the kind of general market terms. But there also, we feel at the moment, of course, it can change. But I mean, for the foreseeable future, we see the demand is good, and we see also that the price increases there is firm. But that is where it might change if the demand is changing or the raw material pricing is changing and that is where the exposure is. But the exposure is really not in the OE. And OE is where we're lacking price increases year-on-year. So we feel very confident that, that's going to be compensated. I mean the risk here, of course, what's happening with underlying raw materials, underlying cost, is that continuing up, and we will continue to be in delay. But if you see the raw material, energy pricing start to go down, then, of course, we will be in a positive territory instead. So that is the uncertainty. I mean this is nothing really strange. I mean if you look into other tire companies which exposed into other tire segments, you will see the same development. This is the industry, and that is something where we need to accept and work with. With the order book, I mean, it's a fair question you have, what is the strength of the order book, where we see a very strong order book, but I mean not necessarily -- the strength in order book is not necessarily for the next 6 months strength. I mean this is true that the length of the order book is growing. And of course, that creates a higher uncertainty whether the order book is going to stay solid or when it's go by. But as we see it today, it's growing in basically all dimensions. And I mean we talk about tens of percentage points higher order book than we -- than sales in a way. So the growth in order to continue to outgrow the sales, and that is where it's getting stronger and stronger. But of course, what happens, but we feel very confident that at least for the first 6 months of this year, it's going to be very solid. And I mean, also beyond that, we have never had more orders kind of 6 months plus ahead than we have at the moment. But whether that remains, I mean, we have to wait and see. But I mean, we can only note that the order book is very strong in basically all dimensions. And also where we maybe change a little bit, if I just, let's say, comment a little bit more about the change in order book, where you see very strong order book is a little bit on this, call it, late cycle call where we see as a more big construction related like [indiscernible], tunnels, this is kind of the area has also been very, very strong here in the last 6 months, and that is also where the order book, I should say, has been weak, but that is also where we've seen a strong growth in those areas, which is, by definition, a bit longer order book but not necessarily uncertain. So that is some further comments on the order book. I mean with regard to Sealing and Automotive, I'm going to know a major share of the ceiling exposure to automotive is aftermarket, which has not been that heavily impacted as OE. So we don't talk about, let's say, tens of the tens here, we talk about, let's say, single-digit shrinkage of automotive for us. So that I think we're -- I want to say, I don't know, Erik, if you want to do any follow ups on that.
Our next question comes from Agnieszka Vilela with Nordea.
I have 3 questions, and I will ask them one by one. So starting with the comment on the other operating income and expenses. Fredrik, I don't really -- I didn't really catch what you said about that. It was not included in the adjusted EBIT that you reported. I thought that they only nonrecurring items that you adjusted EBIT forward SEK 160 million restructuring costs. So if we could start with that.
I think there has been some misunderstanding. It's part of -- you're absolutely right. It's -- you have the restructuring SEK 160 million and then other operating income is part of the normal EBIT. And then, of course, the other income and cost is splitted between the business area.
So it's basically supporting the business area in a way, you can say.
Yes, absolutely.
And what should we expect going forward for the sign? I mean it could be quite volatile, but do you expect positive figures for other operating income?
No, I mean, the pension payback was a one-off item that we got here in the fourth quarter. So I don't expect that to be recurring. And the sales of the fixed assets, which was a smaller amount is also one-off item. And then, of course, FX, it can go up and down. I mean it was negative in Q4 '20, and then it was positive here in Q4 '21. So I mean that can go up and down a little bit between the quarters.
Great. Very clear. And then my second question is on the share buybacks. Obviously, you have demanded now. And my question is really, when do you plan to start it? And will it be opportunistic when buying back your shares? I mean will you use any kind of valuation model for your shares? And will it be a kind of deciding factor for buying back?
I mean we will comment on that. I mean we've been in a kind of a close period as you understand. And I mean, because we cannot really act -- even though we had a mandate, we couldn't act here in January. But now since we're releasing the report, if we start to work with that, in a few weeks, we will comment more about this. We don't really want to comment more on it at the moment. We will get back with more information when this is starting.
And then my last question is on the cost headwinds. Obviously, we have now the buckets of both raw materials, energy prices and labor costs and the -- to [indiscernible] accelerated during Q4. But could you give us a glimpse of what's happening with raw material prices for you? Also remind us if you are buying on spot or on contract. And given where you are, when it comes to purchasing, do you see a large headwind on raw material costs in 2022 compared to 2021?
Yes. First, I mean, as a general comment, we are not concerned about this. We have good pricing power. And I think we have shown that we are able to compensate. We have in most of the businesses, one outside of Wheel Systems. So we are in most of the areas, single source, and we have a good relation with our customers. We are appreciated by the customers. And if we do fair price adjustments, they are generally accepted. So we don't feel any concern about this. But of course, we cannot act ahead of kind of unknown incidents. I mean, of course, we had this rumor, to be honest, we were caught a little bit with surprise on this very, let's say, sharp rise in raw materials in Q4. We are in delay for some of that compensation. And that is valued, I mean, to smaller dimensions for Industrial Solutions, smaller dimension for Sealing. But the majority of that is impacting also Wheel Systems. So we are implementing new price increases. They are kicking in here from 1st of January. We do expect, let's say, price -- the headwinds, but price, let's say, cost of raw materials to remain on a higher level in 2022 compared to '21. But we are already adjusted for it. And then the setup in Wheel Systems. Unfortunately, there is, let's say, a few months delay in getting that compensation. But what I said many times in this call, we feel confident that this going to happen although with kind of a 3-month delay on this compensation. I mean we're talking about raw materials. I think the underlying raw material pricing is relatively flat from Q4 going into Q1. There is a certain raw materials that also have been impacted by this higher energy prices, and that is some energy surcharges that need to be addressed. But I mean, so far, lower dimension than what we've seen throughout '21. So we don't see -- there is a cost inflation raw materials, but a much lesser extent than we go throughout '21. And I mean that is manageable. And then, of course, correctly stated by you, we do expect like everybody else also as the salary inflation. But I mean we don't really concerned about that as well. I mean we are managing a good way, and we feel confident. And I think you can see that also on our overall margin once again on Sealing Solutions and Industrial Solutions that we have been managing is very sharp increases throughout the '21, once again, with the delay Wheel Systems. So we feel it's well under control. There is cost inflation, yes, but we feel confident that we're going to be able to compensate for that.
Our next question comes from Douglas Lindahl with DNB.
Peter and Fredrik, I had a question on restructuring. I think you guided for SEK 400 million in 2021. It came in below that while you are now guiding for SEK 300 million in 2022. Is there some spillover effect from '21 into 2022? Or what's the reason for the sort of lower than expected restructuring costs in 2021?
I mean as your commentary -- you can comment later, but this is, of course, an assumption that we do. And I mean part of this restructuring is coming from acquisitions, and we integrate acquisitions, and we have been able to do less acquisitions in '21 that we kind of assumed that we're targeting, and that is kind of impacting that we have a lower restructuring. And that of course also overflow into '22, that it will be slightly lower than this previous guidance of SEK 400 million, which is partly an adjustment to a little bit lower acquisitions also in '21. I think that is -- but it's still on the same ballpark. I mean -- all this lesser restructuring is a good payback, and we don't see that as we are not stopping it anyway. We are still addressing it, but it's partly impacted by acquisitions. I don't know, Fredrik, if you want to add anything else.
No. I mean it's projects that we have approved and decided going back in 2020, 2021 and expect to approve here in 2022. And so all moving according to plan. And as also, as we mentioned at the Capital Markets Day, we said that it will be less than 1% of our sales. So the SEK 300 million we are now commenting upon fits very well into that range.
And if we do some -- are able to do some clever acquisitions, then of course, that will most likely go up. And then we will, of course, reguide. But at the moment, the best estimate we can do is it's going to end up SEK 300 million.
[Operator Instructions] Our next question comes from Robert Davies with Morgan Stanley.
My first question was just jumping back into Industrial Solutions. I know you mentioned the tough comparable margin from the projects in 4Q '20. Could you just quantify the benefit there? Because obviously, through the first 3 quarters of this year, you've seen a reasonable kind of margin improvement on sort of positive top line growth. I just wondered if you could kind of quantify how big the sort of, I guess, the one-off effects, we can kind of figure out what the underlying operating leverage was in that business in the fourth quarter.
We feel that 12.7 is actually good. I mean we had 12 as a target, so there is still a drop through on that one. And I mean, so we're talking about a few percentage point benefit compared to a year ago. So we still feel that the well-managed leverage is good. Volume is kicking in. So we feel confident that business is well managed. And then we are kind of slowly pushing the margin up. We commented on the Capital Markets Day that we're going to go for more value, climbing the value ladder as we defined it then. I mean that is still the overall ambition for this business area, and we -- it's difficult to give you exact guidance on that, but we still feel it's well managed. Structure is there. We are focusing a lot on what's called contribution margin and then -- so we feel that, that is kind of definitely moving in the right area. And then we had a one-off positive a year ago and that's, of course, making the explanation in this quarter somewhat more difficult. But nevertheless, I mean, we don't want to send any negative signals, rather than the positive signals that we are doing it in a good way.
That's great. And then I had 2 more questions. One was just around...
Robert, maybe only to give you, I'm sorry, just to highlight, looking at -- if you look at Q4 in 2019, we were at 11.2, just to give you, let's say, that 11.2 and now it's 12.7. So of course, compared to the running rate in Q4 2019, if we use that as a benchmark, then of course, it's a substantial uptick.
Yes. No, I see. Okay. And then my 2 other questions. One was on the comment you made, I think, from the Sealing Solutions business, around the components, the shortages holding back. Also can you give us some sort of sense of the magnitude of that impact? And is that still an issue now? Is it sort of minor, major? Can you just sort of quantify that impact and where we are in that trajectory?
As I said, I mean, let's say, a big part of our -- a big part, let's say, a major, let's say, a meaningful part of our exposure in Sealing Solutions Automotive is aftermarket. And that has not been really impacted by this at all. But we do know -- I don't want to give you a figure. But I'm going to talk about the lower, let's say, single-digit percentage shrinkage in the quarter on the total automotive exposure, where maybe the wheel is a little bit higher and then the aftermarket exposure is less. I think aftermarket -- I don't have the figures actually in front of me, but I mean, the aftermarket exposure in Sealing Solutions Automotive was growing on -- let's say, on a, let's say, low single-digit percentage. But overall, we are not concerned about that. And I mean we don't expect it. We expect it to be slightly better here in Q1 and Q2, but we still expect some headwinds from these shortages, which is impacting that industry.
And then my last one is just on I guess, the portfolio. You mentioned, I think, earlier in the call that the remaining assets, let's just say, were just the printing line of business. Is there anything kind of looking back now over the last 2 years that you think could be a good candidate to sort of move into business and development also ultimately sell? Or are you pretty happy with everything that you originally kind of put in that pot of the 3 different divisions? You're happy with all the bits or there? Or is there anything else still that you think about getting rid of?
No, I mean, we are happy with what we have. But it's always -- I mean, we are moving forward if somebody coming in and offering something or something we will always look at it. But there is nothing really up for sale. There is nothing that we're actively selling, but if there is somebody knocking door, we will, of course, always look at it. I mean that is our job. If somebody stepped in and offering something, we have to look at it. But once again, it's not really anything which we are not happy with, and there's nothing that we believe that we cannot develop in a good way. So we are confident on the full portfolio, and we're confident that we're going to, let's say, be able to develop everything that we have at the moment.
Our next question is from Karl Bokvist with ABG Sundal Collier.
Yes. My first 2 questions are just -- the first one on Sealing, if you experienced any form of a tougher environment in raising prices in case cost inflation has hit ceiling in a higher way than you perhaps imagined a quarter ago? And then just on the kind of seasonality-wise, there's usually a working capital release. Now we have a very strong market environment, just wanted to double check in case there's anything else behind the inventory buildup apart from just preparing for continued high demand.
On raising prices, TSS or Sealing Solutions, we -- once again, we have said in many times, we feel that we are, in most cases, single source. If you are fair with the customers, they do accept price increases so that we don't feel that we are -- and then, of course, in some areas, we were a few million euros may be behind on price increases. But I mean, in the total scheme of things, it's nothing but that is hitting us always in a little bit. I will touch on that a little bit. Unexpected shown hikes on energy prices. So it's always an ongoing discussion, but we feel that we are very well compensated, and we have no problems being compensated for, let's say, potential inflation hitting Sealing Solutions. So no concern and nothing really impacting the margin in a way in the quarter or even going forward linked to the inflation. On the working capital, I mean, I think, Fredrik, we can say that the percentages, yes, please.
Yes. The percentage looks good. I mean if you look from an inventory point of view, I mean, the inventory level was exceptionally low 2020. And then, of course, with the higher business activities, we have built up a little bit inventory to securing a good supply to the customer with longer lead times. So there's nothing else in the inventory, Karl.
We feel that it's got good KPIs and really...
Yes. It looks good and rather stable. So nothing strange in the inventory as we know.
Understood. And apologies because I didn't really fully hear your answer to that question, but the positive SEK 107 million in other OpEx, I think, the kind of core eliminations in the group EBIT reconciliation from divisions is still at minus SEK 80 million similar to last quarter, but then we have the plus SEK 107 million in Q4 compared to minus 5 in Q3. Just the first one, again, what was it related to? And what kind of impact did that number have on a divisional level since the kind of core eliminations are unchanged quarter-over-quarter?
I don't have the split between the BAs. And we have, as I said, it's 3 elements that you have in other operating income. It's the sale of fixed assets, it's the FX impact. Operating FX impact was negative in Q4 '20. Now it's positive. So of course, that's created a delta. And then you have the pension payback from Flora, which was a one-off payback leading to excess return.
All right. Understood. And that pension part was that the majority of it? Sorry for...
No. But 1/4 of it. The majority was linked to this FX.
Majority the FX case, which is difficult to [indiscernible].
Yes. That will be plus in 1 quarter, negative in the next quarter and so forth.
Okay. And my final one was just a follow up on the buyback comments. Just what kind of details do you have left to sort out before you can initiate it? And will it be kind of delegated to kind of just being a systematic program where you do not have kind of the mandate to decide the volume and days where you buy it just entirely at a third party, so to say.
Most likely it has to be through a third party because considering our daily volumes and considering the set up. And then all these kind of lockup periods and all of that is going to be challenging otherwise to get this executed. I mean so that is the system, and that is where we still debating, because we need to pay some banks to do it, and we need to agree on the fee and we need to agree on the setup around it. So it's more some mechanics still being discussed and then will run. But very likely or only option in a way is to have this what we call a safe harbor, let's say, arrangements to get that done.
It will be similar, most likely that you have seen other companies doing it.
All right. Understood. So there's no a thing like exemption from insider information or anything like that, that might...
We try to get away from that by having the safe harbor set up just we're going to get away from that.
At this time, there are no further questions. I will hand back to the speakers for a final remark.
Great. Thanks for your interest. I mean we are leaving '21 in a very good way. I mean we are leaving it with the strongest quarter, Q4, for us. There's still some price compensation or cost compensation will be done in Wheel Systems. And once again, in several questions about that. We are confident that's going to kick in. It's more or less an automatic price adjustment, so that will kick in. And I mean we still go in. And with that in mind and on top of that, record-high order books, good confidence in, let's say, managing future inflationary, potential inflationary pressure and a strong balance sheet. And of course, we're moving into a very exciting '22 for Trelleborg. We feel that we have all the deck of cards ourselves, and we need to decide how to play it. And we feel that we are going to be able to play this card or the deck of cards in a very good way. So we go in with '22 with confidence and leave behind us a very nice '22. So that was maybe my final comment for this call. And I mean, as usual, also Christofer is around, I'm around and Fredrik is around. If any follow-up questions, do not hesitate to make contact if you feel that you need further clarifications or if you have any kind of other questions that you want us to address. So thanks again, and do take care and stay safe.