Ladies and gentlemen, welcome to the Trelleborg Q2 report 2020. Today, I'm pleased to present Peter Nilsson, CEO, and Ulf Berghult, CFO. For the first part of this call, all participants will be in listen mode only, and afterwards, there'll be a question and answer session. Speakers, please begin your meeting.
Thank you. Yes, Peter Nilsson speaking. Welcome all of you to our interim report for Q2 2020. As usual, when we are presenting the report, I will start giving some overall highlights and also some comments on our different businesses. Ulf will assist me with more financial slides. We finish up with a brief summary, opening up for questions. Of course, also as usual, we're going to use the slides which have been on our website for two hours roughly. Please, that is what I'm going to use as a guidance, starting with page one, which is basically only telling that this is the interim report and myself and Ulf presenting. Turning to page two, which is the agenda slide.
Also, as usual, starting with highlights, some individual comments on the business areas, financials by Ulf, and then a summary, and also a little bit of commentary on the outlook for the running quarter, and then finishing up with the Q&A. Rapidly turning to page three. Highlights of the quarter, heading satisfactory quarter under the circumstances, which I guess all of you know the circumstances and the satisfactory quarter for us is that even though we had, let's say, organic drop of 19% in the quarter, of course dramatic, we managed to offset quite a lot of that. Not all of it. The delivering for us, seeing a rather solid margin of 12.3%. With the corresponding EBIT of slightly shy of SEK 1 billion in the quarter.
We had items affecting comparability in the quarter where we then accounted for SEK 105 million, and where we're also adding some new guidance on that for the full year here of 2020, which I'll get back to and comment a little bit more on later. Cash flow for us, very strong in the quarter, and that is something Ulf will get back on that, but we are quite happy with the way we managed to take care of especially the working capital in the quarter. We actually, with this fairly good result, I trust all of you also noted that we actually released inventory in the quarter, which means that we're on top of these results, we also underproduced in relation to the sales in the quarter, which is then turning into a very solid cash conversion of 120% rolling 12.
Also, which I already hinted or commented on, we are also now following this development of COVID-19 and what we see in front of us. We also initiated some further restructuring measures. We did addressing both production structures and sales structures, we're going to, of course, throughout the year, tell more of these initiatives as they are being implemented. The guidance for the full year is being upped from SEK 300 million to approximately SEK 700 million, which we expect to be used this year. Also commenting on that a little bit further on the next page. Before I do this, also, we had here, actually Friday, an announcement of a new incoming CFO, Fredrik Nilsson is joining here beginning of next year.
Fredrik coming from AAK, where he's been CFO for them for a little bit shy of seven years, due to the fact that Ulf has accepted a challenge to go outside of Trelleborg and joining another company, a private equity-owned company, to take up the role there as CFO for them. Turning to page four, a little bit further comments on the extra restructuring measures that have been initiating. Of course, this is not really to address solely, of course, partly the demand situation following COVID-19, but maybe more important to change the setup in a few areas where we believe the environment beyond COVID-19 will be slightly different. So we are then, as I already hinted or told, that we are upping the restructuring cost to SEK 700 million from previously guidance being SEK 300 million. We also guide that this SEK 700 million will provide equal amount of savings.
Of course, this is cost downs, which is not necessarily, which is also partly to cover for a lower demand. Nevertheless, we are initiating savings of SEK 700 million on a full year basis with full impact from 2022. It will take some time, as you understand, to get these measures implemented and done. This is also addressing all across the company. We are giving you some guidance here, restructuring costs roughly one-third between Trelleborg Industrial Solutions and Trelleborg Sealing Solutions, and then the remaining one-third, which means then one-sixth being for Trelleborg Wheel Systems and one-sixth being for Business Under Development. We also want to guide here that this is not an upping, this is extraordinary measures coming from the development during this pandemic, and we expect 2021 to normalize between SEK 200 million-SEK 300 million.
Of course, with the assumption that we're going to be able to continue to make acquisitions, which is also not that easy at the moment, of course. That is something that we are still working on and hope to conclude. If this is happening, we will keep the guidance anyway to this SEK 200 million-SEK 300 million for 2021. That was about this extra restructuring measures. Turning to page five, a few comment on organic sales development by geography before going into the individual business areas. Reading the figures here, which I trust you already done, you see that the sharp downturn, especially for us, hitting us in Western Europe and North America. High number also for South and Other America, that is a smaller part of our sales.
For this, close to 70% of our sales, which is being in North America and Western Europe, we have a hit here of you say 22% and 24%, of course, dramatic, and then a slightly better development, but still very high drops in Other Europe and Asia, and other markets within Asia is turning 8% down, and Other Europe -13%. It's still a dramatic drop everywhere, but with a major difference between North America, Western Europe in comparison to Asia, and Central and Eastern Europe. Turning over to page six and the next item on the agenda, business areas, quickly turning on to page seven to comment on Industrial Solutions, which is, as you know, it's a fairly diverse businesses here in Industrial Solutions. Overall, we have a heading: temporary production shutdowns.
We have been hurt all across Industrial Solutions, but by these temporary production shutdowns, either by our customers, but also where we have been forced to shut down due to either let's say very low demand or also linked to different governmental instructions or guidelines. Organic sales turning down to -20%. Little bit structural growth. Going against that due to the acquisition that we did roughly a year ago, Signum, is kicking in with some positive sales. Of course, we are hurt by COVID-19 all over. This you will get from my comments on all business areas, but just to highlight it here as well. Also, in line with my previous comments on geographical differences, it's the same here. Strong organic sales, negative in all regions with a slightly less impact in Asia.
Of course, EBIT and margin is impacted by this lower demand and this somewhat unfavorable sales mix also between the various parts of Industrial Solutions. Of course, also a common recurring comment on all our business areas. We have been implementing very harsh measures to limit COVID-19 in all areas, working with furloughs, working with redundancies, working with salary cuts, working with all kind of discretionary spending cuts. This is well implemented. We are satisfied with the actions taken by our different businesses in the quarter, and that also applies to Trelleborg Industrial Solutions. Overall, as I say, -16% on sales, -38% on EBIT, and minus some three percentage points on EBIT percentage. That is developing the quarter for Industrial Solutions. Turning to the next page, comments on Sealing Solutions.
Slightly higher organic sales drop than Industrial Solutions, also here some structural growth coming from acquisitions with 2 percentage points. Here also same development as in the other areas, more severe downturn in North America and Europe, while slightly better in Asia. Highlighting here that automotive and aerospace has been very weak in the quarter. General industry also weak, not as weak as automotive and aerospace, that has been pushing us down substantially in the quarter. Also here, customer shutdowns and making planning difficult, making deliveries difficult. Of course, this is pushing down the margin here as well. Roughly the same development. Net sales down by 19%, roughly slightly less than double of that down on EBIT, then percentage points down by little bit more of 4 percentage points.
Overall, quite okay considering this 19% drop and, of course, delivering still a very strong EBIT margin at almost 19% EBIT. Considering this drop, we are also satisfied with the development in this business area. Wheel Systems also let's say quite harshly hit by temporary shutdowns among the OEs, both the manufacturers of tractors and forklifts, has been shut down for several weeks, and in some areas a month plus during the quarter, which of course, has been hurting us in basically all areas.
Where we have been satisfied with the development is agriculture aftermarket, where we actually in the quarter, even though this dramatic 19% down in sales and 18% organic, we are still recording slight growth in the aftermarket. That has been benefiting us also with the positive sales mix, and I must say, very successful cost measures, cost control measures, and furloughs, and a lot of other activities has been well managed in Wheel Systems, and therefore, actually, even though this drop of 19% in sales, we are actually able to deliver the same EBIT %, and that means also that we have the same kind of EBIT drop as we have sales drop. Well-managed in Wheel Systems, supported by a positive sales mix. Turning to page 10, Businesses Under Development, which is an area we are working on, as you know, treating a little bit special.
We are down also in this area substantially, but here, somewhat different compared to the others. We are still, at least in this quarter, benefiting from very strong sales growth within our oil and gas activity, and that development is then balanced with low deliveries both in printing blankets and these technical rubber operations in this area. Overall, even though this 18% overall sales drop coming 10% from organic and 6% from this divesture of the Baltic Molded Components business, but that is still turning into a positive EBIT growth, as I trust you understand, coming primarily from the good development in the oil and gas activity. Also here, of course, same as in the other areas, we've been very tough and very, let's say, direct on doing all cost cutting we can do and making sure that we manage the cost side in the best possible way.
These were some comments on our various business areas, and then agenda on page 11. Quickly turning over to Ulf then to guide us through the financials. Please, Ulf, go ahead.
Okay. Thank you, Peter. On my first slide, page 12, Sales Development. As you can see, the organic growth in the quarter was heavily impacted by the current market conditions and ended up on a -19%. All business areas were equally negatively impacted. No impact from currency in the quarter, and structural growth was 1%. Both Industrials and Sealing Solutions report structural growth, but the disposal of an entity in Businesses Under Development offset that growth on group level. My next slide, page 13, describes the historical performance of our growth. The quarter really sticks out, and will likely go down in history as one of the worst ever in Trelleborg history. On slide 14, you will find the reported sales development per quarter as well as rolling 12 months. Slide 15 presents our EBIT development, excluding items affecting comparability.
Our EBIT reached SEK 942 million, down by 29% versus Q2 2019. The EBIT margin ended up at 12.3% versus 14.1% a year ago. The margin performance shows the strength in our flexibility on our cost base on the back of a sales drop of -19%. The EBIT was negatively impacted from currency translation of -SEK 12 million. Slide 16 presents EBIT and the margin on a rolling 12 months basis. A stable EBIT margin looking back in time, reflecting a resilient business model. On a rolling 12 months basis, we are currently at 12.1% EBIT margin. The next slide, page 17, presents the P&L statement for the total group. Items affecting comparability was -SEK 105 million in the quarter, related to restructuring costs.
Due to the heavy impact from COVID-19 in the certain segments, we are proactively addressing the cost base by increasing our cost adjustment initiatives. Full year 2020 guidance on restructuring costs will be around SEK 700 million, an increase by SEK 400 million from our previous guidance. Financial net has been impacted positively by favorable interest rates. The tax rate was 22% in the quarter, coming from a favorable country mix. Our guidance on an underlying tax rate to 25% for the full year still stands. Slide 18 presents earnings per share. Adjusted for comparability items, the EPS was down 26% to SEK 2.47 for continuing operations compared with previous year. Slide 19 describes the development of our operating cash flow. Operating cash flow is reflecting the impact from COVID-19. That is a negative impact on EBITDA, but the release of working capital.
CapEx is in line with our annual guidance of around SEK 1.2 billion. Slide 20 presents rolling 12 months operating cash flow. Our cash conversion is reflecting well-managed COVID-19 impact by our business area management. Slide 21 shows the year-on-year development of leverage on continuous operations, including or excluding comparability items. Net debt is impacted by negative translation difference of minus SEK 38 million. We have a strong financial readiness through a good central liquidity and a secured long-term financing in place. Slide 22 describes the return on equity, where the long-term target is 12% on continuous operations, including items affecting comparability. Rolling 12 months basis is impacted by the impairment of capital employed in the reporting segment Businesses Under Development in Q4 2019.
Finally on slide 23, I want to finish off this part of the presentation by repeating our financial guidance for the full year 2020. The CapEx, as I said, is guiding SEK 1.2 billion. The restructuring cost is then raised up to SEK 700 million. The underlying tax rate is 25%, amortization of intangible assets, that will be around SEK 400 million.
Peter?
Thank you, Ulf. Back to the agenda slide on page 24, quickly moving to some summary and some comments on the outlook for the running quarter before we opening up for Q&A. Overall, page 25. Overall, sales decreased by 18%, organic down by 19%. Strong margin for us considering this dramatic drop keeping it at 12.3%. Some comparability items in the quarter, SEK 105, which is aligned with the previous guidance, as I said before, we upped the guidance in this quarter since we are implementing more measures. Strong cash flow, well managed especially since we are able to actually underproduce in a quarter like this, still keeping the EBIT on the level which we did.
Cash conversion then running also very high at 120%, and as I already comment on a few times, we are implementing new measures and upping, as Ulf also commenting on upping the guidance for restructuring from SEK 300 to SEK 700, but then of course also upping the savings coming from those initiatives. Following the quarter on Friday last week, we announced that Ulf is leaving for another assignment out of the group, and we have appointed Fredrik Nilsson coming from AAK to the new CFO and then starting beginning of next year, and Ulf will finish off this year before he's leaving for his new challenges. That was the overall, and also finishing off on page 26, a little bit, nothing really strange on this, but just to highlight our priorities for this year is of course, to continue to address the market condition following COVID-19.
I mean, it's still relatively high uncertainty where it's heading in certain areas and different markets are moving in different ways, and we need to stay close to that, and we need to make sure that we continue to implement measures when needed. On top of that, of course, even though these strange market conditions, we are of course continuing our review with the Businesses Under Development and working on the various alternatives to make sure that this business gets solidly improved or taken care of elsewhere. Continue to work on the portfolio management. We continue to scout for acquisitions even though the environment is somewhat challenging at the moment.
We continue to have that high on the agenda and continue to address the possibilities both through organic efforts, will be more important for us to make sure that we allocate resources to the areas we want to grow and allocate less resources to the areas where we don't find that interesting, and on top of that, of course, scouting for acquisitions to see if we can speed up the changes we are aiming for. Continue to focus on operational excellence, continue to address possibilities of further efficiency measures and footprint optimization. At the same time, continue to invest in all kind of innovations, and especially on customer integration is still very high on the agenda using different kind of digital tools in order to be a more efficient supporter of our customers.
Also integration acquisitions, even though it's slightly lower activity in that level, we still are pushing in acquisitions made in the last 12 months. As already comment on, we hope that we will be able to get back working on even this kind of avenue of growth when the markets gets somewhat more stable. Page 27, our guidance for the running quarter. We believe that it will be slightly better in this quarter, in quarter three will be slightly better in relation to last year compared to what we have seen in quarter two. This is said, with still a high degree of uncertainty, as all of us know. I mean, our different societies opening up again, it's also pushing in new closed down measures. We have to wait and see how it develops.
Once again, our guidance as of today and our best estimate as of today, that is that we will get a slightly better market development in quarter three compared to quarter two. Nothing dramatically better, but somewhat better is what we are believing. Of course, with a slightly different move, we expect some industries, aerospace, automotive, maybe to be slightly better in this quarter, while other industries, more kind of slow-moving industries, some general industry segments will be not better in Q3 compared to Q2. Once again, overall balancing everything, we believe it's going to be a slightly better quarter in relation to last year, this running quarter compared to last year. This is really our comments, quickly agenda back again, Q&A, turning on to page 29 and opening up for a Q&A session.
Please go ahead, operator, and invite for questions and comments.
Thank you. If you wish to ask a question on the audio, you may do so by pressing 01 on your telephone keypad. If you wish to withdraw your question, you may do so by pressing 02 to cancel. Just as a reminder, it's 01 on your telephone keypad if you wish to ask a question. Our first question comes from Klas Bergelin, Citi. Klas, the floor is now open to you
Yes. Hi, Peter and Ulf. It's Klas Bergelind from Citi. three from me, please. First, on the ag side, this aftermarket strength that we see here, to what extent is this market share gains that could reverse as competition opens up versus an underlying improvement? The reason for asking is we have been waiting for this replacement cycle to kick in on the ag side for a while. That's my first one.
Yeah. We believe we've been gaining market share in the quarter. There, of course, been some import limitations from India and China, and also we have had probably a better exposure in terms of manufacturing footprint compared to some of our competitors, and it's difficult to really give some detailed impacts on this. There've been some market share gains, but whether they are sustainable or not, we believe they are sustainable in a certain area. Of course, also we need to watch very much our competitors. There is once again, some market share gains, but it's nothing really dramatic on that one.
Okay.
Also to say that, this is basically the first quarter we've enabled. We've been investing quite a lot in Serbia, and this is basically the first quarter we've enabled really to take the benefit out of this kind of increased efficiency, this new setup has created. We have had also some market share gains based on better range and better kind of availability of a few tire types.
No, that's good. My second one is on the OE equipment side of ag. Your exposure stands out versus others in the sector, at least here in Europe. I was wondering maybe if the ag segment in wheels could see more growth than the pure industrial side in Trelleborg Industrial Solutions and in Trelleborg Sealing Solutions. Looking into the second half, maybe there is more pent-up demand, replacement that I could see ag outperforming industrial. Of course, it's fragile out there, but a relative assessment, Peter, would be great.
That speculation, Klas, is difficult to speculate on it. For sure, as you've commented on before, it's been kind of a subdued demand for quite some time, and we'll have to wait and see what happens. We are ready, and we are balancing here a little bit the inventory side, of course, to be ready to sell if the demand is coming. We firmly believe that we are in a good position, both in terms of brand positioning and efficiency in our operations compared to some of our competitors. We have to wait and see. Difficult for me to comment exactly, but you know it, I know it, that the demand, especially for the ag tires, has been a little bit pushed down the last few years.
Yeah. Okay, now that's clear. My very final one is on the cost side. Can you help us with how much cost savings were temporary in the quarter, reduced travel, bonuses, and so forth? If that is tricky, maybe I can ask this in a different way, Peter. The SEK 700 million of cost saving is 200 basis points at your guidance, assuming that volumes next quarter will be down 13%, 14%. Obviously you did 13% almost in the first half, that's 15% margin target at current demand. How should we think about this? If demand stays at the current level, how much should we give back in terms of temporary savings? Do you feel like 15% now with these cost savings are sort of reachable?
Now, we have to manage it day by day, to be honest. Of course, we've been pushing costs. Of course, there is some discretionary spending, which will get back into the P&L later on, will be pushed in front of us. We push that in front of us with the belief that the demand will be slightly better. Really to start to give guidance on the figures like you're asking for is very difficult to be honest. We need to watch this, and we need also to start to see if there's also pricing environment, which is quite uncertain at the moment as well. What's going to happen with the pricing? We are also there confident on our positioning, but there's a lot of parameters in this equation to get to something.
Of course, if the demand is coming back quickly, then of course we will see, as we had a kind of well-managed downside leverage, we'll of course have a positive leverage also if the demand goes back. We are not kind of speculating or planning on a quick bounce back. Of course, if this is the new reality, if we're continuing to run at this -20, then of course we need to continue to manage the cost. It is day-to-day management, what we feel very comfortable in doing. We have during the quarter, I think with the assistance of Ulf and his team on the financial community, been able to create a lot of new follow-ups and new KPIs and all of that.
We feel very confident that we have full control both on the cost side and not to say also on the cash side. We feel that the model that we're running has been functioning very well, and we believe the model will continue to function very well if or when we see an uptick in demand.
We get a lot of questions on how much of the 12.3 is basically sort of discretionary cuts that can come back. Maybe it's difficult to help us with that.
It is a lot of it, of course. That is the way you manage it. You're pushing cost. We have pay cuts among senior managers. We have furloughs. We have, of course, some government support. It's a wide variety of measures, and we talk about vacation, encourage people to take a vacation and all of these kind of cost measures, and all of that is ending up in a big bag, which is then turning up towards the results. To look at the individual components is not really a fair or a correct way of doing it. Also to note, we have been, as I said before, underproduced. If we have been manufacturing a little more, then of course that would have been supported results, and we have not been doing that. We have been adapting our manufacturing volumes to this new demand.
That is also a benefit if the demand gets back, we will also get benefit in a more efficient manufacturing setup. There is a lot of components, and that is why, we have gotten that question already outside of the call about this kind of governmental support. We don't want to comment on that because it's a lot of variety of measures and a variety of impacts, which is impacting us in various ways.
Got it. Thank you and best of luck, Ulf.
Thank you very much. Thank you.
Thank you. Our next question comes from Hampus, Handelsbanken Capital Markets. The floor is now open to you.
Thank you very much. I'm [inaudible] Handelsbanken. Three questions also from my side. Starting off on the restructuring, SEK 700 million. Would it be possible for you to maybe give some more details on how much of this is headcount and, I guess, other costs? Second question is on if you could maybe give some comments on June development on the business areas on a year-on-year comparison to see how much of that affected the second quarter results. Last for me is on Wheel Systems, very impressive resilient margin here, and I understand it is partly driven by sales mix, and I guess that aftermarket is much more profitable. Are there other elements in the resilient EBIT margin in Wheels that you could highlight, or is this just a sales mix effect with aftermarket? Thank you.
Start finishing off with the last one. We also have here, which I already hinted on, we have now the first quarter with all the benefits from our Serbian investments. That is also bringing in a few millions SEK of saving compared to our previous setup. That is, of course, also there is some structural improvement in that. We could not really explain everything by mix. It's also underlying structural improvement, which is benefiting us. We talk about the mix. Mix is one of the explanation, but generally, I must say very well managed also from a cost perspective. They've been running it in a good way in the quarter and will continue to manage it in a good way. About the restructuring measures, there is also some plant closures in this as well, and there's also some kind of organizational changes.
We are expecting a structurally lower demand, for instance, in aerospace. We are expecting also in certain areas a structurally lower demand in automotive for some areas. We are also changing the organizational setup in both of these areas by taking away some engineering and consolidating manufacturing in a fewer factories or in a different way compared to before, and also on top of that, actually changing the organization for the automotive setup in Sealing Solutions, especially. There is a few areas which is more matter of structural changes more than headcount. Of course, there will be some headcount cutting in this, but the major savings is not really coming from absolute headcount reductions, because the headcount reduction is more an operational changes than really restructuring changes for us. This is not the explanation.
Then about development in the quarter, for sure, April and May were softer than June, and June was then substantially better. Honestly, we do not expect the June development to continue into the quarter because June development was, of course, benefiting from these quite extensive close downs in certain areas in April and May, which is then, let's say, delivering some kind of pent-up demand in June. That's also why we decided not really to give this in order to not to send the wrong signals, but for sure, June was better than April and May.
Can I add on the comment you made on auto and measures taking down capacity, et cetera? We also saw the light vehicle production numbers for second quarter, especially in the Triad being now 60%-70%. I know that you're very focused aftermarket here. Would it be possible for you to maybe indicate on how aftermarket, how resilient that was compared to the light vehicle production number? Is it a lower activity in the aftermarket that is driving this, or how should we think about that?
Unfortunately, it was not really a major difference in this quarter. Aftermarket for us was down almost as much as OE, which is a surprise for us, honestly. It seems like everybody was driving less and sending less cost for changing the brakes or whatever they do. And honestly, in the quarter, it was virtually exactly the same. It was probably the same. It was the same development in both aftermarket and OE, which is a little bit strange in comparison with what we have seen before, but that is probably linked to driven kilometers. We've seen it in the oil consumption, all of that as well. In this quarter, no major difference between these two segments.
Thank you.
Thank you. Our next question comes from Robert J. Davies, Morgan Stanley. The floor is now open to you.
Yes. Thank you for taking my questions. My first one was just if you could give us a little bit more color in terms of the regional dynamics that you are seeing. If you could provide any additional color, particularly in the recent trends you've seen out of Europe and Asia, that would be particularly interesting. The second one was just, you mentioned that with the aerospace and auto, we're in a difficult spot. Could you quantify the type of growth declines you were seeing specifically in those two end markets? That was my first two questions. Thank you.
Regional development. Asia is stronger, especially China is getting better. China has been very strong in the last, let's say two months. In Europe and Americas has been almost the same in the quarter, while we see probably a more little bit tougher environment at the moment in Americas, slightly better in Europe. It's very high uncertainty. Unfortunately, it is high uncertainty, high volatility. It's difficult to draw any. I understand it's challenging for you, it's challenging for us as well to get into some kind of overall trends here. It varies depending on political measures and beliefs. We have seen a huge fluctuation between individual weeks, which we have not really seen before.
It's very easy. Generalized, I think Asia continuing good, Europe slightly better, and Americas slightly better than we saw in the last quarter, and North America slightly worse than we saw in the last quarter. If that is probably looking at Ulf a little bit, that's probably what we're guessing at the moment. Guessing, as you say, because it's really difficult to have, because all the kind of KPIs that we're using with order books and confirmed orders and stuff like that, all of that has been a little bit up in the air and not really following the trends that we had several years before.
That was that one. What was the other? Sorry, remind me what the other.
Yeah. The second one was just on the type of growth declines you've seen on the aerospace side.
Both aerospace and automotive, of course, have been higher on our group level, and this also varies a little bit. Of course, here we talk about tens of percentage points, lower growth than our raw group development. There also, I am reluctant to give you some details on that because that is also varying across the weeks and across the customers. Of course it has been tens of % of further decline compared to the overall group development.
Thank you. Maybe just a final one, was just in terms of your outlook and commentary around demand, when you're speaking to customers, where's their biggest area of concern? That just sort of the economic uncertainty is going to fundamentally weigh on demand, and there's not going to be any follow-through. You obviously mentioned that June was a bit of a catch-up month post April and May, that you weren't expecting to sort of necessarily follow through. What is it in those conversations? Is it just that they don't know yet or that they're sort of fairly convinced that they won't see that follow-through? I'm just looking within your outlook statement for a little bit more clarity of who is guiding you here.
I think, sorry, once again, uncertainty is high, and I think the customers, as us, are a little bit reluctant on speculating on the demand going forward, and we are. Honestly, if we looked at the transparent on that, if you looked at the order book, it looks fairly okay. The order book is kind of better than we expect sales to be. That was the same going into quarter two. That was the same story as well. If we were looking solely at the order book going into Q2, the sales development would have been substantially better. That is why we have kind of difficulties in judging. Overall, I think people are still concerned about, let's say, close down of societies, outbreak of coronavirus again, and all of that.
generally very cautious. They are only buying for what they actually need. They are not really focusing too much on a very smooth supply chain or very smooth operation. I guess like us, being more reluctant to manufacture for stock and to believe in the demand where the customers tell us what they want in three months. It's really a difficult environment. Overall, still kind of moving in a positive territory compared to running throughout quarter two. I don't know if Christofer or Ulf want to give me some further flavor on this, but otherwise, it is difficult to judge where we're going. Once again, if we looked solely on the KPIs, it will actually be substantially better than we believe ourselves.
Okay, great. Thank you for the call.
Thank you. Our next question comes from Agnieszka Vilela, Nordea. The floor is now open to you.
Hi, it's Agnieszka here. I have some questions starting with a follow-up on Agri Aftermarket. I appreciate the fact that you have been gaining market share, but can you tell us about the market development in the quarter? Was it growing as well? Was it flattish or still declining?
The market was growing as well. The market was overall growing.
Do you think that it's this kind of change in the trend that we were waiting for?
At the same time, of course, OE was dramatically down. It's really difficult to draw some conclusions out of that, but definitely the farmers are running the tractors, and potentially some of the guys who bought new tires, they probably would have bought a new tractor in a normal environment. That is why it's difficult to really draw some conclusions out of it. The farming season has been fairly okay, and they are getting more confident, and you know it as well, Agnieszka, it's been a very kind of under-buying for a few years, and eventually they need to catch up. Now the catch-up for the aftermarket is probably coming from both a general kind of localization of food production or whatever people are believing in, and at the same time, lower OE sales.
It's one quarter, so we need to be careful, and it's a very strange quarter. Of course, we cannot really make a firm statement that we have turned a corner and now it's on its way up. We have to wait and see.
Understand. A follow-up also on the restructuring that you are introducing right now. If I'm not mistaken, you have quite extensive production footprint with more than 100 production facilities. Will you take a chance now and consolidate the footprint?
Because our factories is individual factories, and that they are aiming towards specific segments. It's not that we are making the same in a lot of plants. I think we will still going to see, this has been a fine-tuning more than kind of overall restructuring. We're talking here, it's only a few plants we are addressing, and it's not really going to be any dramatic footprint change. We don't feel that being efficient, we don't believe it's going to be working to consolidate extensively. There will be some consolidation, but it's really minor in relation to the overall number of manufacturing units.
Great. Thank you. Maybe a question to Ulf, if you could help us with thinking about the working capital development in the coming quarters. Looking at your inventories level, I can imagine that you probably could take it down more. Probably you will build up some accounts receivables. Can you guide us a bit?
It depends. The only thing what we said that it's kind of difficult, not difficult, but it's kind of you saying they've done a very good job, all of them. At the same time, if you compare with the sales that we still have too high inventory compared with the sales in quarter. They need to go in and adjust all the parameters, ordering points and et cetera. We still have plenty to do. Again, also it depends on the sales development going forward, because again, it's more expensive to lose a customer, to lose the delivery than to gain some low inventory. We're working on it, and so far we have done a very good job. Particularly Wheels have done a very good job. Sealing, they have little to do in order to change the parameters.
We will still see by also moving into a lower season, let's say, in Q3, Q4, so you would see a further drop in inventory.
Yeah. The last one from me, I maybe misheard you, but did you say, Peter, that you expect slightly better quarter the next quarter versus last year? Did you mean versus this quarter?
No. Sorry.
You mentioned something about North America.
Sorry, Agnieszka. If I said that, I was wrong, because it's slightly better development year-on-year in quarter three compared to year-on-year in quarter two.
All right, I understand. You also mentioned something about North America getting slightly worse than last quarter. Can you?
If we should kind of grade it, then we expect North America to be slightly tougher compared to Europe.
All right. Thank you.
Thank you. Our next question comes from Malte Schulz, Commerzbank. The floor is now open to you.
Hi, good afternoon. Three questions also from my side. First of all, with only one sixth of your added restructuring and Businesses Under Development, don't you have seen there more opportunities to make now a deeper restructuring or is it also kind of the final big go, or shall we expect that in the next year or two years, we will see another very big one here to make it more profitable for the future? Second question would be, given that aerospace is probably down for the at least say next five years, do you expect also significant write-downs to come? Maybe also final comment, would be my last question on the oil and gas market on the offshore side, how much recovery is still left?
Probably also when you look at your orders for Q4 or even further down, they will probably be diminished with the very low oil price, or what do you think?
Finally, on the business development, we had last year already, we did some major restructurings already last year. The fine-tuning here in this quarter, if I might call it a fine-tuning, might be not that good to call it that, but what we did here was some restructuring related to specific markets within oil and gas, where we see the changes coming up due to the, let's say, these low oil prices. That was more fine-tuning. We don't see any major restructuring going forward in that area. We are already moving from earlier announced restructuring. That's going to be continued improvements from a structured point of view. Not really any extra efforts that we see today.
Write-downs in aerospace, I cannot see that happening either, because that is something with us, it's shared factories, and we don't really have a lot of intangibles or anything connected to that area. Don't see any kind of risk in that related to aerospace. Oil and gas, we still see a high activity level. Of course, we are not blind, we see that overall oil price is down, and we see that overall activity, but also there, a little bit linking back to the wheel season, it's been kind of a pent-up demand for that, and there's still quite a lot of big projects.
We have, in the quarter, actually received quite a lot of big orders, and we have not been shrinking the order book in the quarter, but maybe not been billing as much that we have done before. We expect a much, let's say, more stable development, at least in the next few quarters. We need to watch and see what is happening, going into next year. That is really the timeframe that we're looking at the moment in relation to oil and gas.
Okay. No, that's clear. Thanks.
Thank you. Just as a quick reminder, if you do wish to ask a question, you may do so by pressing 01 on your telephone keypad. There's just going to be a brief pause while any other questions are registered. Okay. There appears to be no further questions, I'll hand back to the speakers for any other remarks.
Okay. Thanks a lot for the interest. As usual, of course, Christofer, myself, and Ulf is still around, so if you have any follow-up questions, then don't hesitate to get back and push that first questions at least to Christofer, then we will support Christofer in making sure that you get good replies on your questions. If we don't hear from you shortly, I hope that I will be able to meet all of you here as the autumn kicks in, and we are then again attending various seminars and doing presentations. Meanwhile, some of you, I think, have already been on a few weeks of vacation, if not, then best of wishes, and stay safe, and take care. Thank you.
Thank you. This now concludes our conference call. Thank you for attending. You may now disconnect from your line.