Okay. Good day and welcome everyone for today's financial hearing with Trelleborg. I'd also like to welcome everyone participating via the webcast and telephone conference. Moderator today is Douglas Lindahl from Kepler Cheuvreux. He will be back later and lead the Q&A session. I now hand over to the CEO of Trelleborg, Mr. Peter Nilsson. Please go ahead.
Thank you. Welcome all of you to our year-end report. We're more focused on Q4 for 2019. As usual, we'll do the presentation, and I will kick off giving some overall flavor to the quarter, and some comments on our new business areas. Also then comment on the special unit that we created here beginning of December, Businesses under Development. Then I will be supported by Ulf Berghult, who is our CFO, who will guide you through the figures. Then we're summing up with the Q&A session and also facilitated by Douglas. Agenda points, starting off with the general highlights, business areas, financial, then the summary, and then some comments on the running quarter as well, and then some Q&A.
Starting with the highlights, stable despite continued challenges, and actually two out of our three Business Areas are actually performing very well, and the challenge is mainly in one of the areas on Wheel Systems. I will comment on that a bit more when I comment on that one. Overall, quite satisfied with the results. Sales is up by 8%, of course, supported by structural growth of some 4%, the currency some 4%, and a flattish or actually flat organic sales compared to last year. The mix behind that, which I also will comment a little bit on. EBIT at just north of SEK 1 billion is actually the highest EBIT in Swedish kronor that we ever have had in a quarter four for us. Also here, of course, supported a little bit with exchange rates.
Margin down a little bit, half a percentage point compared to a year ago. Nevertheless, on healthy levels for us in Q4. Items affecting comparability, of course, very high in the quarter, but that is kind of linked to the communications that we did here early December. It's fully in line with guidance and no surprises on that line for those of you who have been following us for some time. Cash flow.
Very good cash flow is actually the highest cash flow we have ever had, the highest operational cash flow that we have ever had in a single quarter, just north of SEK one and a half billion, which of course shows that we've been managing working capital very well and also CapEx is under control, all in all delivering a very good cash flow, which is then of course also supporting our balance sheet in many ways. Cash conversion at 90%, which is then let's say getting up to healthy levels again after some focus on the cash throughout the year as the businesses in general has become more challenging in some areas. Already, which I mentioned, we are of course launching a new organizational structure here on the 1st of January. This report, as you have already seen, is kind of presented in the new format.
Talking about the sales, we see some differences here as you read here in the figures. We have negative organic growth in Western Europe and North America, which is a change compared to a year ago. No real drama on that one, to be honest. We know where it's coming from, and we understand the situation here. Western Europe heavily influenced, of course, by agri sales being down a lot. North America, more in general decline, but also minor extent also impacted by the Wheel Systems' negative organic growth. As you know, Wheel Systems' major exposure is Western Europe and North America. That is why there also this minus nine in there, of course, influencing those areas. If we look at the other parts, other Europe, we're still separating that little bit to keep focus on that one. Positive or zero.
Then South America, very good, but that's a very small part of Trelleborg, so that is mainly related to oil and gas sales coming back. So we have some extra invoicing down there. Then, of course, it's kind of kicking in to very high figures. Asia actually performing very well for us. Surprisingly good, driven by a very good organic sales in the quarter, both in China and India, which is a little bit surprise, I shouldn't say. Actually behind these 2% is actually some very good sales in China and in India, while we're suffering on some project business, especially in Australia, which making the comparisons a little bit strange. Very good development overall. At least this quarter.
I get back and comment on that for China and once again for India as well, performing, well, about 10% organic growth in those two countries. Business areas. Starting Trelleborg Industrial Solutions, which is somewhat new. As you know, we shifted around a little bit here, this is the new setup. That is actually, if you look for the full year in Trelleborg Industrial Solutions, that is with the new organization. If you go back, if you look at the stated figures, this is actually the best year ever for Trelleborg Industrial Solutions in terms of margin in the new structure. Of course, we carved out some difficult areas, but nevertheless, what we now have in Trelleborg Industrial Solutions, this is the best year ever for this new organization. Developing well in the quarter as you would say.
It's up by 11%, driven by structural growth and a slim positive organic sales. Profit up by even more, also margin expansion coming primarily, actually, from a strong bounce back in our marine and port solutions. We say marine is what we call mainly related to oil and gas activity in these marine houses, which is delivering very well. Also all the kind of marine equipment and marine infrastructure business also delivering very good results. That is the primary driver for this improvement, is improvement primarily in this marine infrastructure activity. Lower sales, general industry, also automotive actually quite stable here, even though we have, let's say, exposed to a tougher environment in general in automotive, as you know. Within this business and the positions we have here with the automotive are actually developing very well in relation to the market.
That is coming primarily from that we are extending our scope in certain areas. Actually, we are selling more to each application more than actually pure volume growth. Geographically, we say negative in Europe overall, while that is North America and rather positive in Asia. It's a mix. It's difficult really to draw some long-term conclusions on this. This is some railway sales and some project-related. Well, project-related in that way, but more so some individual sales, which is pushing this in the various directions. No drama here. It's little bit relatively stable and overall boiling down to 1% positive. Already touched EBIT and margin up, primarily related to this higher marine infrastructure business, which has been performing substantially better than a year ago. While the other activities, actually there's a mixed bag. Which it always will be in Industrial Solutions.
Will always be a mixed bag, here, this mixed bag is moving in the right direction, that is why we see an improvement on the overall performance. Sealing Solutions, very solid quarter. Organic sales 3%, which I have to say was slightly better than we anticipated here when we were, let's say, looking at this some six months ago. I mean, been solid performance throughout the quarter and on top of that, also structural growth coming from a few acquisitions in North America. One medical acquisition, which we did in this Sil-Pro beginning of the year. Then also we have another one, this Tritec kicking in also here and assisting the structural sales, which is still not, let's say, fully into the figures and the full year figures. This is still to be some performance just coming from that.
General industry in general, I mean, this is, as you know, very wide exposure in a lot of different, let's say, industrial segments, generally little bit softer, but we still continuing a positive momentum in North America. I think that is mainly related to continue to grow our market share, continue to improve our offering. Also Asia also performing well here. Asia as you know in this industrial segment, a bit up and down throughout the year, but in this quarter actually been a bounce back in China and which is coming from a fairly soft start of the year in China. It's a bit strange. Let's say that you should be careful draw too much conclusions out of this, but nevertheless, this is the kind of the fact of this quarter. Automotive, surprisingly good here. Primarily driven, as you say, after-market space.
As you know, we have an after-market business here, primarily related to brake applications for cars. That business has been performing a lot better than we actually believe. It is part that we have new product launches and partly also that we managed to, I would say, play after market a little bit better than before. That is something also which we are strong benefits from, both in terms of sales but also actually a positive margin impact coming from that development as well. Aerospace, even though all of us are aware this Boeing communication, all of that, which is slowly impacting us in a negative way. Overall, aerospace is still developing very well. Even though the growth rate in this quarter slightly lower than the beginning of the year, but we still talk about 10% plus organic growth in that segment.
EBIT up primarily due to acquisitions and cost control. We also, as we said before, the acquisitions is actually coming in with a lower margin than our own margins. Even though they're benefiting in absolute EBIT, there will actually a negative push in the margin from the acquisitions. That is also something that needs to be seen in this, but that is the way we want it to be and the way we need it to be. Tritec Seal is very interesting. It's actually acquisition doing a very hard plastic seals, if I say like that. Some PTFE seals, which is then a kind of the growing seal segment, and we lacking capacity for that segment. This acquisition is both good in the terms that we get in and entering into some new application areas where we can offer our complete solutions.
On top of that is also offering us some capacity in some segments we're actually lacking capacity at the moment. This is a kind of a double benefit from this acquisition. Very happy. Even though it's not a major, as you know, we're not going to do any major acquisitions here. This is a, if I remember correctly, some EUR 30 million annual sales on this one. That is kind of the acquisitions that we need to do. That is providing a few percentage points of structural growth in this area. That is the way we would like to continue to add this kind of 5%-10% structural growth a year in seal, which is still high on the agenda to try to find supplementary acquisitions in this business. Trelleborg Wheel Systems, which of course, been very tough.
I mean, the 9% down organic and as those of you following the big guys in this industry talking mainly agriculture here, you see John Deere and you see AGCO and you see Case New Holland. I mean, they are the biggest tractors, the combines, as they usually say. I mean, I think they released reports last week, and we have not analyzed it in details, but they are talking about a downturn in that of some 15%-20% of global production. Of course, in that perspective, this has been quite good. We are gaining market share even with this kind of very negative organic growth. We're actually gaining market share in the-And we market. Now in these figures, we have a slight upturn in the aftermarket, which has been down throughout the year, which is then benefiting in a way.
Nevertheless, 9% is dramatic. Nevertheless, we actually feel that we're doing quite okay, and we are preparing ourselves for the upturn that ought to come. Mechanical construction, similar development actually driven by this global uncertainty and all of that. You don't buy portfolios, you don't invest in this kind of stuff at the moment. Also on top of this, which has then been hurting our margin quite a lot actually, is that we've also been doing underproduction in order to adapt to this extended stop that we've seen on W.E. That has been pushing down. On the benefit, of course, due to have reducing the inventories. We have been underproducing even there, we have this negative nine.
We are actually producing even less, which you then can see also in the very good cash generation, which is then providing more comfort as we go forward here because we don't go into this year with actually too high inventories. We can still cut some inventory. We're still going for improving working capital somewhat. Of course, we're doing that in a more controlled way going forward. Business under development. That is also a major percentage-wise improvement. All of this improvement is basically coming from offshore kicking back. Very strong organic growth in this area, and then with relatively good drop-through. It will get better, hopefully, but relatively good drop-through as well, which is then improving the profit with this EUR 6 million-EUR 7 million year-on-year. Rest of the business actually performing in line. In this area, of course, we are pushing through now some intensive actions.
There is some restructuring, some downsizing, some repositioning, a lot of activity in this. Hopefully we will be able in the next few months or next few quarters to give you some more news on things happening in this area. Financials, Ulf.
Okay. Thank you. Good morning. I will guide you through to wrap it up for the group. Overall, as Pete said, it was a flat organic growth. Also then to highlight and to recap slightly, TSS a good growth of 3% and TIS also 1%. Then, of course, then we had bad with offshore with 11%, but then offset by WE's minus 9%. As you see here, the currency had an impact of plus 4%. Then we had a structural growth of 4%, which is basically coming from the two acquisitions or three acquisitions, Seal and Sidetrack in TSS and Signum in Industrial Solutions. The next one is then the growth, the organic growth or the total growth over the last quarters.
You can see now we have had 15 quarters of positive sales development and of course, most of that lately has been coming through acquisitions. We did in 2019, we closed eight acquisitions. On the bottom line here, you can see that we had a flattish growth as I mentioned, and the previous quarter a minus one. If we go to the next one, that is only the rolling 12 months basis. You see this is the highest fourth quarter sales to date. If we move on to EBIT. This is, as Peter said, is the highest Q4 EBIT in SEK.
Going through the business areas into the Industrial Solutions, also the highest EBIT and return on sales within a good performance on return on sales in the new setup. As I understand, we have restated all the numbers backwards. Sealing Solutions had a very strong quarter with 21.2% return on sales versus previous year, 20.4%. Business under development basically offshore had a very positive bounce back coming back with a delta of SEK 68 million. Of course, we had a negative one only with Wheel Systems impacted by market conditions and also that we have taken deliberately that we want to take down the stock. We have under absorption in the profit and loss.
There's a small currency movement here that in quarter from translation point of view, we had SEK 46 million, and year to date we have SEK 169 million impact from translation. This is then the rolling 12 months basis. You can see then we have slight drop in EBIT and return on sales, basically with systems. When I summarize then the profit and loss then as Pete mentioned earlier, we have then the restructuring in line with our guidance both on restructuring cost but also the write-down. Mainly then within business under development. The finance is slightly higher. That is due to the IFRS 16 and the pension. I will come back to that later on in slide, where within IFRS 16 impact we move the pension debt from working capital into net debt.
That has an impact of 25 million SEK in the quarter. If I would take that away, we'd actually be lower net financial interest. Tax is also then impacted by these write-downs and if I look underlying in the quarter, that is about 28%. The full year is we have underlying tax rate of 25%. Moving into the cash flow. A lot of the EPS, earnings per share, and also to take away the items affecting comparability. We have a slight down from 255 down to 245. This come from the restructuring. If I then move into the cash flow, as Peter mentioned, this is the highest cash flow we have ever had in a quarter. I just want to point out this is the bridge then from last year's performance then to this year's performance.
The EBITDA is then impacted by the IFRS 16 restatement and that should then be offset through the leasing of the IFRS 16. Also what is then underlying, we have a better EBITDA performance, but also then we have a lower CapEx overall in the quarter and also we have had, although it doesn't look that impressive here, the SEK 59 million, but in the quarter we released 467 million SEK in working capital, out of which majority of that is inventory. We have a much healthier balance sheet from a closing balance point of view. This is the cash conversion then that's coming back then. We would like them to be between 80% and 90%, but then we're up to 90%. Of course, then it's impacted by then improvement in working capital, but also then that we have a lower CapEx.
Just to take you through then for you to understand this is the last slide. We not show this slide next year because then we are on an apple comparison. We had an opening balance then of SEK 10 billion. We moved in the pension debt. We have the cash flow, we pay tax, we have the M&A activities, we have the dividend, and then others, and then we end up with a net debt of SEK 12.7 billion. We're moving in the SEK 2.4 million on leasing debts. The closing balance, that is SEK 15 billion. The leverage is then 1.7 and coming from 1.7 and then up to 2.1. Still healthy. It's of course then impacted by the higher debt and then slightly not EBITDA coming in full.
Of course, also it has an impact because those some of the acquisitions we have not had full impact for the full year while we have it on the balance sheets. This is the development on the gearing and the leverage over years. Moving into return on equity. We also see a small decline from 11.7 down to 10.9. I will finish my presentation by signing the guidance for 2020. We have the CapEx. We say 1.6 to 1.8. We are aiming to be more and more harsh on CapEx. In 2020, we still have some, what we call strategic CapEx that we have taken a decision on that will have an impact in 2020. We are very reluctant to approve new strategic CapEx.
Then restructuring costs we guide in, we normally do the SEK 250 million, but we still have a spillover then from last year. That's in line with that guidance. We guide then SEK 300 million in 2020. I also had an underlying tax rate to be about 25%. Then amortization and intangible, that is about SEK 400 million. Peter.
Yeah, as a summary, sales up by 8%, 4% currency, 4% structural growth. Flat organic sales. EBIT, that's north of SEK 1 billion. Margin down by half a percentage point compared to a year ago, driven primarily by, or only, if I may say, only from downturn in Trelleborg Wheel Systems, which is more market-driven really than performance-driven for us. We have kind of accelerated that downturn by focusing more on the cash flow than we kind of needed to in order to create a more healthy balance sheet. Overall still delivering the best ever EBIT for us in a Q4. Cash flow highest ever in the quarter of Trelleborg, SEK 1.5 billion. Cash flow version of course high.
Of course, we are running into this new organizational setup, which of course something we're working a lot with internally as well to get this right and to get everything going in the right way. The priorities here really for us, of course, to get this going, what you call business under development. Continuous, I would say, continuous evaluation of various structural alternatives. That's of course something ongoing and something we're working with hard and something Ulf and myself is spending quite a lot of time on at the moment in order to get this going in the right direction. It also requires some organizational changes and some setups in order to create more independent businesses. I mean, they've been part of Trelleborg for quite some time.
In certain areas, there is some CapEx issues. Not really any major CapEx issues, but a lot of smaller operational issues that need to be settled, and people needs to get going in the new organization. Of course on top of that managed market conditions. We have as usual in Trelleborg some mixed areas. We still have, like I said, this so-called marine infrastructure and oil and gas, which is kind of heavy growth. We continue to struggle to supply what's demanded on the aerospace areas. We have some of that businesses. Of course we have other businesses, especially related then to the Wheel Systems area where we still are kind of trying to find out exactly what we should believe. Of course, it's a downturn, but we still see the overall kind of macro environment in these businesses are still quite positive.
At the moment they are really not performers or really not buying any tractors even though they produce more than they've been doing before. This is something of course we're watching. Getting the inventory at the right level, but also be ready if it turns up or when it turns up. That is something we're going to continue to see as doing portfolio management. The majority of the portfolio management organic that we do internally in the business, making sure that we continue to improve the businesses. Now, of course, on the group level, we've done this change on the organization, which of course a big portfolio management activity for us. We need never to forget about operational excellence. Daily improvement is critical, always high on the agenda. Continue to do this with footprint optimization.
We don't talk a lot about that, of course, I don't say monthly we're closing factories in Trelleborg, it is happening quarterly at least, where we announce new factory closures. This is still a high activity level, still something coming. Also, when we continue to do acquisitions, of course, we also need to make sure that these are integrated in the correct way. Customer integration, smart use technology, still high on the agenda here because we see the industry is changing and the way you interact with the customers is changing. That's also something. This is kind of the agenda for me and Ulf and for the top management to make sure that we really change this in a strategic, clever way.
Looking at the outlook for Q1, it's been, as you know, during the quarter, we have had this global I'll just say, let's start it like this instead. I mean, the overall business is actually quite good. I mean, we have a fairly solid order book actually compared year-on-year. I mean, of course, always some mix, but the order book is actually on a overall on a fairly good level. What we then put in here as a slightly lower or somewhat lower demand, is only related to this, let's say, what you see happening in China. I mean, we are in the middle of it. We get daily updates. I just got it before the meeting here. At the moment, of course, we have eight factories in China.
Four is still closed and four is open, we don't know exactly. The local regulations is somewhat different. How they're implementing, for instance, the workers is now coming back from the regions to work. You need to put them in 14 days of quarantine before they can go into the factory. You're also not allowed to bring truck drivers into the factory unless you have really seen that they have health certificates and all of that. That makes it quite difficult, actually. At the moment, that is very difficult to get any of this basic support on the lorries and the freight and all of that. It's not really working. The workers is also slowly getting back into the factory. This is really an uncertainty which we don't know exactly. Of course, we still see the order book is quite okay.
This is something that definitely will have an impact. How much negative, honestly, is difficult for us to judge at the moment. We see it's going to be negative, but we don't know how much. This, of course, filtering through now as we see also in other areas. We see now some flights is canceled to Malaysia. They are canceled to Singapore and we don't know really what the surroundings will be out of this. We assume, and I think everybody assumes that it's going to be settled in a few weeks or a few months, but we don't know really know the impact. The only thing we know that the order books are fine, but it's difficult to deliver and sell if you cannot have a lorry picking up the goods.
This is something which is troublesome at the moment or something we're working hard on, but is a little bit outside of our control. This said and done, of course, we shouldn't make it a bigger issue than it is. Because our overall was as a flattish demand, but now we see this kind of a China, we still have, what is it, Ulf? 8% or something? Our sales, I think 8% of our sales is in China. We need to put that in a perspective. Nevertheless, that is really the way you should read this, that overall demand is actually quite okay. The order book is quite okay. Now we have this, let's say, maybe we'll call it a hiccup because that is not showing respect, because it's really a difficult situation in China.
Of course, we are fully supporting the local authorities in order to do the best they can to stop this kind of outbreak. It will have an impact. People, as ones you all know that Chinese New Year has just been and people are going back and they are kind of reluctant to go back, of course. They have families at home and all of that. There's still a lot of uncertainty exactly how to get the factories up and running. This is the way you should read this statement. With that, leave and opening up then for Douglas to guide us to on the Q&A session.
I guess that's my cue. Hello, I'm Douglas Lindahl, equity analyst with Kepler Cheuvreux. I will moderate this Q&A session. We will start off with a few of my questions, then we'll take some questions in the room and then the telephone conference questions. Peter, starting off, you already touched about this in your presentation, but I wanted to move back to your reorganization that you announced in December.
Yes.
What have you been doing internally? I know you sold an asset in France. What really have you been doing to lift profitability and what can we expect going forward, more spinoffs and so on?
There will be some further spinoffs, we also need to get the businesses in the best shape. We have said that this is not really any immediate activity. This is to create independent business, solely independent businesses, make sure that they have solely their own agenda in order to maximize the performance and maximize, in a way, the value for these businesses. That is happening at the moment. We've been up and running with that only for two months. Of course, we are still a little bit in the planning, little bit starting on the execution of some changes that are being identified. That is more, say, very operational mode at the moment in order to get that aligned.
Of course, at the same time, since we communicated this, of course, I say your colleagues at the other side of the Chinese wall, the investment bankers, of course, is running around and trying to create business for us and for others. That's of course something also we are evaluating at the moment, whether this is a better option to discuss with those guys than to focus on the operation. That is a continuous activity. I think internally, the focus at the moment is create independent businesses and make sure that we have a game plan for how to improve those businesses as standalone businesses.
So far, is that going according to your plans, would you say?
Yes. I'm going to say, of course, that there is some discussions, there is always some carve-out issues like IT and stuff like that as you know take longer time. Overall, I think we have solid plans now.
We are kind of once again in execution mode. Slightly different, of course, than we had the offshore activity here with the major struggle is actually to cope with increasing demand at the moment. That is a little bit different to maybe the other businesses that we have here is more in a kind of carve-out mode. While the offshore business is more to deliver on the growing order book at the moment.
Okay.
Yeah.
My second question is on the general demand situation. You write in your report that Europe is down. You also report a quite impressive 3% organic growth for sealing. Do you see this 3% organic growth as a sustainable figure for that business more specifically? Is it mainly automotive that's driving this?
I think the positive surprise here was automotive a little bit.
Yeah.
I should say that we got more and especially related to aftermarket, which was substantially up. It's not a major part of Sealing Solutions. This is, of course, it's 10% or something, but it's really substantially up on that part. Partly due to easy comps, I should say as well.
That is also part of the explanation. We don't think that that's going to last a little bit, this kind of automotive growth, but we still see a positive growth in aerospace. We still see a positive growth in our kind of new segment, medical and healthcare is also growing at a solid growth rates. Honestly, on the industrial, it's more challenging to get the full picture. We see the order book is still solid. It's okay. Of course, it is not really booming. That is more where we need to watch it and so to say 3% is probably a little bit on the positive side. Who knows? We are a little bit also, not to be too complicated, but we're also looking into how short-term orders versus long-term orders.
The short-term orders have sometimes increased the last few months because as uncertainty grows, then people are a little bit more careful giving orders. That has impacted for us in growing our short-term orders compared to the long-term orders, which is then making the reading of the forecast somewhat more challenging.
You're more difficult for us to understand then.
Yeah, more, let's say. That is why, of course, what I want to say, we stay close to it, and we don't see any kind of major obstacles outside of China, Asia. China, Asia, we don't know the impact from. Of course, this is something which is a little bit challenging. Once again, for Asia, we have the orders, but will we be able to deliver? Will they actually do the call-offs that they have? As you know, most of the factories in China actually started, let's say, Monday. Of course, we are still very early in this kind of phase, and we don't really know to what extent this will hit us in terms of deliveries.
Excluding the coronavirus, would you have a different outlook, would you say?
Yeah, probably. We'll be more flattish overall for the group.
Okay.
Yeah.
Yeah. We have any questions in the room? Oh.
Agnieszka Vilela, Nordea. Can you give us more color on the wheel development in the quarter? How much did you underproduce? If your sales went down by 9%, how much was your production down in the quarter?
Also, what do you expect more or less for Q1?
Little bit difficult and some of it I didn't really want to respond to give you details. We had, of course, a few hundred SEK million more of cash flow than last year. Majority of that is coming from Wheel. That is probably what I want to say. No, not really give into any details about that one. Development during the quarter, we also need to be aware that Q4 is kind of the lowest quarter, especially for agriculture, because there's some seasonality on that one. I don't want to say it didn't really change. I think we saw a major downturn end of Q3 actually, and that continued on a similar level throughout Q4. We didn't really see any development or changes throughout the quarter.
I mean, rather into Q1. Do you think your inventories are more in balance?
Oh, no, okay. On that one,
We have to take it, but we believe.
It's sufficient.
sufficient.
Yeah.
The focus in Q1 is not to bring it down further. That's more than to cope with what is the underlying demand and what we need to deliver.
Yeah.
If you say this negative, if you were aiming for this negative year-on-year margin development, we don't see that really in Q1. It's a little bit early in Q1 to say it, but Let's put it like that, because the Q1 is not going to be impacted by underproduction at all on the level that we saw in Q4.
And that's-
We're still not expecting booming markets in Q1.
Yeah, I understand. If the demand doesn't change much, should we expect the margins to return to kind of former levels?
Yeah, what we said, there are no former levels, but we have had higher return on, say, quarters. Q1, Q2, those are the highest quarter from a seasonality point of view.
Yeah.
Same time, as Peter said, the underlying market, if it's really picks up, which we don't really see because it's moving in, we will not have the impact of this under absorption.
Okay, perfect. My last question is on the Generally, can you tell us if you had any kind of cost saves impact in the quarter, given quite good leverage for Industrial Solutions?
Of course, we have that. We accelerated these cost savings here mid-year, and we see some impact on that, I say both in Sealing Solutions and in Industrial Solutions. That is kind of partly explaining also the EBIT improvement. That's the way it should be. That is not really a surprise for us. Also, honestly, if we wouldn't done this downsizing that we had done, major downsizing in Wheel Systems, then of course it would have been even worse.
Yeah.
Of course, we see the impact from this. We need to see that impact, and it's really kicking in.
Perfect. Thank you.
Hampus Engellau, Handelsbanken. I have three questions. Maybe continue on Wheel Systems. You've been fighting a headwind in the market for some time, I was wondering if you could maybe talk a little bit about the difference in profitability between Maximo and Mitas, Cultor in Trelleborg. Is there a big difference? Is one lagging or it's equally spread?
It's not really a major difference anymore. We have a little bit size, the bigger tires, the bigger profitability, but it's not really a mix. No. I say generally, no, without going into details. Of course, we don't sell a lot of Maximo. Maximo we don't sell. It's actually Mitas and Trelleborg. Maximo and Cultor is we communicate them, but we don't sell a lot about them. They are a lower margin, as you say, but we don't really sell any of that. The Mitas brand and the Trelleborg brand, no major differences.
Fair enough. Industrial Solutions, improving profitability, reorganization, new financial targets. Will there be new targets or how should we think about that?
We are still behind the targets there, of course, we would like to deliver on those targets. Of course, the ambitions are beyond that. Before we need to discuss that, we need to make sure that we deliver on the targets that we have. Of course, now, once again, not to dwell on this China thing, but also for them, it is of course some of the areas there is quite heavily impacted on China as well.
Okay, fine. Last question from me is on this business under development. I guess, how much goodwill is there left from the writedown that you did? Secondly, if you deliver on your targets in these businesses, will there be a reverse in value? Also should we think that there should be a potential capital gain, and how much of this will remain?
I think all the goodwill is off.
No, what we've done is that it is one business under development, so it's one, but we have individually gone through the businesses, done by the books as a net present cash flow, also what we have from a value point of view, what we believe is a fair market price. It's not only goodwill. We also, in some businesses, we have written down tangible assets or even down to working capital because in order to reflect it. Let's come back if we have that problem or if they are improving that much accordingly, we lift it back, let me come back on how to deal with that. We are not doing any trying to tricks.
The intention is not to write it down and then create, let's say.
This is-
A big capital gain. If that happens, we'd be very happy. That was not really the intention. It was here to be fully transparent and really value the businesses as they are to be valued in sell prices.
Fair enough. Thank you.
Okay.
Erik Golrang, SEB. I have three questions. You said aerospace and Sealing Solutions still grew double digits in the fourth quarter, a bit slower, but still good growth levels. Given what you know now on the pace of production of the 737 MAX, how much of a deterioration do you think you'll see in aerospace in Q1?
We will grow less in 2020 compared to 2019. Standing here today, I still believe that we're going to grow double-digit organic growth in that one. That is more coming from kind of market share. We've been also down to the details, as you know, in Trelleborg, we have different subsegments in the aerospace and some of these subsegments we have been very successful growing our market share. That is really what is kicking in, and this is orders that we already heard. There is still a ramp up. There is still a ramp up in certain A350 Airbus and A320neo and all of that. There's still ramp ups happening on a few other areas. On back of that, we still feel that we're going to have 10% plus organic growth in that part of Sealing Solutions.
Thank you. The second question, how much of the SEK 300 million in restructuring cost this year will be in business under development? How much in the core business?
Let's say that roughly majority is within that business because it's coming from the launch within Q2. It's also the spillover into this one. It's basically within Industrial Solutions, part in Sealing Solutions, but also Wheels. Some of it is also within that.
Business under development.
We have to get back on that there. I don't know. I don't have it from my head exactly the split how it is.
Where would you say? We've been at around SEK 250, I think, for the group, right?
250 normally.
250 is the level, yeah.
What we guided for last year was SEK 250, and then we had another SEK 250 on this Q2 restructuring, and then we guided for another SEK 50 due to this business under development. A part of that business under development was taken in 2019, part of it, which was then also going to spill over into 2020.
Yeah. How much restructuring if we look now, assuming you exit the businesses under development, how much restructuring in the next couple of years on average?
It dependent on acquisitions and all of that, because we also need to know that this is coming partly from that we make continued acquisitions than we do. If we continue to do acquisitions, our best guess is that we'll remain on this between two and SEK 300 million. If we don't do acquisitions, then of course it's going to slide down substantially.
Thank you. The final cost. You talked a bit about creating a bit more independent business areas as you're doing these carve-outs. Could that trigger increased costs in the near term if you need to put up more overhead?
No, that is more that we need to look into who is responsible for what and what is that, and hopefully, maybe.
It's not a cost play.
Maybe in certain areas there could be more cost. Of course, these extra costs should generate more income as well. We don't see that as a general cost increase. That's not going to cost us anything in total, because that is not what we're aiming for. We're aiming maybe for, because they'll get bigger and they can have more kind of drive on their activity and not be dependent. There could be also some transfer between head office and these businesses. Of course, also some of that going to happen.
Thanks.
I don't see that as an issue, honestly.
I think we have some questions on the telephone now. Operator?
We do. Just to remind participants, if you wish to ask a question, please dial 01 on your telephone keypads now. The first question comes from the line of Klas Bergelind from Citi. Please go ahead. Your line is open.
Yes. Hi, Peter and Ulf. It's Klas from Citi. Coming back to Wheel Systems, I just have one follow-up, Peter. Judging by what you said on the inventory out, I get roughly half of the decline in the margin from destocking. We always have the month sequentially improving into Q1 . If you stop the destocking now, then the margin should return to at least 10%, I would have thought. Not back to the peak levels, maybe around the 10% level. I just want to see if that reasoning is reasonable.
What is the uncertainty here, of course, Klas, is that we don't know how the OE is doing. We don't know really on their stock levels. We know they've extended shutdowns here and focusing on the inventory. That it's an uncertainty. Everything equal, of course, your assumption is correct. Of course, there's still this uncertainty on the turbulence in the market that we don't really know. As you know, when we're dropping like, I can't remember now, hopefully I don't mix them up. We take a case, new report coming last week, and they said 16% down on sales and all. Of course, there is a big momentum for them as well to bring down the inventory, and that is something where we don't really know the full impact yet.
They say the same as us, that they have lowered inventory and that they are down and so on. All equal, of course there should be this increase of some five percentage points, at least on the margin.
Another one on Wheel Systems. Price mix, and I'm thinking about the mix here, Peter. We're starting to see some signs of better volumes in the aftermarket in North America. Europe is obviously your key area. What are you seeing on the aftermarket here? When we met you guys at Agritechnica in November, they and others talked about like a bottoming of replacement in Europe in 2020, given this two to three-year lag from when we replaced tires on the newer tractors.
We should see a better mix.
What are you seeing of that?
Yeah. We're going from a deteriorating mix throughout 2019. We should see a better mix going into 2020, because now we expect the kind of the aftermarket to be a bigger share of the sale, maybe partly due to the fact that OE is going down. Nevertheless, the overall mix should improve if I'm standing here and you push me to make a guess what's going to happen in 2020. It should be a better mix.
Maybe some better replacement.
Yeah.
Okay. My third one is on business under development. I'm thinking about the growth is obviously very strong in oil and gas, and I guess the margin has followed through what the margin has been weak in printing and in molded. Can you give us any sense, Peter, on where that margin in oil and gas hits? Is it mid-single digit, high single digit, low double digit? Has it taken up a lot of?
I think we're going from minus and in best case in 2020 to mid-single digit. That is really what we see. Part of that is let's say improvement throughout the year because if you know this product businesses which is going from very low to very high, then always the first orders is below margin because everybody's very eager to get these first orders with empty factories. Usually they're quoting on a lower price, we as well. As the factory gets more filled up, then of course you get the margin, you get more bullish on the pricing. We talk about this internally. That is happening. As the market grows, as the production grows, you should also have better margins in the order books. Of course, we see that as well.
Our taken margin is improving. We should have a better delivered margin as well as we move quarter by quarter. On top of that, of course there is some capacity because we still talk about, let's say tenths of percent of organic growth, which is not easy to cope with in a factory, to be honest. If you have this organic growth sometimes of 50%, it's not that easy to make this in a very efficient way. Of course, we would like to get it up to more stable manufacturing levels in order to make sure that we have efficiency. All in all, we see going from a, if I may say, a solid minus result up to a solid plus result, but it's not going to be two-digit EBIT margin, no. Maybe.
If we are successful and it happens as we look today, we talk about the mid-single-digit profitability for the offshore business.
Perfect. Thank you.
Thank you. Our next question comes from the line of Erik Paulsson at Pareto Securities. Please go ahead, your line is open.
Yes. Hi, Erik at Pareto Securities. My first question is regarding sourcing and the supplier situation. I think you have roughly 23,000 suppliers or so all around the world. How does this situation look like now, and do you see any disruptions in the chain, et cetera, and do you provide for any contingency plans regarding sourcing of your natural resources, et cetera?
Yes. I guess you refer to this China situation again. Of course, there are some challenges in this, which we have been on for several weeks, and we're working on contingencies. This is some chemicals, but it's not really a major thing. There are some challenges in making sure that we get supply in certain areas. I think in comparison to other industrial companies, from a component point of view, we are not that dependent on China. We are, in a way, buying from Asia in certain chemicals. It's not that we can't get these chemicals from other sources, but then maybe we need to pay up a little bit. That is something that we are looking into and, of course, evaluating also daily in order to see. Once again, be aware that China was only started this week.
In most regions, the Chinese New Year was extended, the holiday was extended by a week. Still, I think at least half of our factories or something is only up and running now, and this half of the factories is still ramping up. It's still very early days. We don't know really the full impact on this. Of course, we're still getting, even though I said that there are no trucks, but we're still getting some deliveries from China. We don't know exactly what's going to happen. This is happening as we stand here.
All right. Thank you. My final one is, you mentioned the order book here on your figures. Is it possible to present those more in figures?
We don't want to do that. We don't want to hand out that because also the order book in the different businesses is very different. We don't really want to mix everything in one bag and talk about it. We have decided and we're going to keep that we will not announce order intake or order book for us.
Understand that. Okay. Thank you very much.
Thank you. Our next question comes from the line of Johan Hedbjer of Danske Bank. Please go ahead, your line is open.
Thank you. Sorry for returning to the wheel systems and also the margin question there. It was a very bad line, couldn't really hear. Did you say that the underlying business would support, assuming this production or inventory reduction support a double-digit margin in Q1 for wheel systems? Sorry, did you say that or?
Really to talk in detail about the margin, I say that the margin is going to improve quarter on quarter substantially, assuming what we know today. Really, to give you a guidance whether that's going to be eight, nine, 10 or 12, whatever, I don't want to give that guidance. I know it's going to be improvement. At the moment, I think we are still a bit uncertain exactly how much it will be. It will improve, whether that will be eight, 10 or 12 or 14, and maybe 14 is a little bit on the high side. I don't really want to give any guidance on that. Sorry.
No, that's fine. I just want to double-check because the line was a bit bad there. Also coming back to Sealing Solutions, very impressive, 3% organic growth in the quarter. Could you say a little bit about what sort of contribution did you have from your healthcare business or medical business here? That seems, when I compare with some of your industrial peers, it's really opposite direction of your organic growth compared with your other likes here. What is the main driver there, would you say? Is it medical?
Medical is not the main driver. Medical, as you know, is a business that we actually been building on acquisitions the last two, three years.
Yeah.
We are still early days in integrating that. Also the healthcare business is developing very well, but the order intake is very long-term there. That is something we don't see really on the next following quarters. When I comment more on the medical and healthcare, it's more that it's a good business overall. We have good order intake, but that is honestly not kicking into sales in this quarter. Let's say the high growth areas here is, once again, we are back to aerospace and then automotive better than automotive aftermarket, especially substantially better than we anticipated. I think that is a little bit company specific, to be honest. We were successful launching some new products. We were successful going into some of the big aftermarket chains, especially for brake applications.
Suddenly we had a boost for that in the quarter, partly coming from they were actually low earlier in the year. This is a little bit individual. I think we take that out. I think that the main positive driver for us is the aerospace, and then with the kind of continued little bit bounce back in Asia and all of that, but that is more regional activity. We expect a negative bounce back in this quarter. This is something which is, of course, something negative bounce back then coming from these challenges in China. China is the most important market by far for Sealing Solutions. That's going to be a negative in the running quarter.
Got it. Great job, guys.
Good. I'm finishing off. Douglas, do you have any?
Are those all the questions on the telephone line? In that case We have two further questions from the phones at this time. The next question is from the line of Martin Schulz at Commerzbank. Please go ahead. Your line is open.
Hi, sorry if you've said it, but the line was sometimes quite weak. On China maybe, on the current impact for Q1, can you assume or can you make an assumption how much it will impact the organic growth on the standstill from what you know by now? My second question would be with your change now to the business under development structure. Would you rule out that you would do any larger M&A acquisitions at the moment and rather focus on restructuring of these area or is M&A still on the table?
First off, China, once again, I think I need to be clear. It's very uncertain. We have been only up and running for two days after the Chinese New Year. You have been reading on CNN, you have been reading everything what is happening, and you have this development day by day. The local regulations in China, local authorities, they do what they can. At the moment, the regulations is not really fully, how should I say, fully coordinated. Some local authorities give one instruction, regional authorities give some instructions, the national instructions are different. Some are allowed to move, let's say, a truck in between the different regions and some they are not. This is something which is really happening at the moment. We can only say that it's going to have a negative impact.
We know it's not going to be positive. It's honestly at the moment impossible to give you any flavor on exactly what kind of impact we will get. Hopefully will not be big. We don't know. I still heard today, for instance, we had one factory that was open yesterday, then they asked us to close it today. This is happening because they had a kind of extra infection in that area suddenly they say, "Okay, now we close again." This kind of stuff is happening all the time. Related to M&A, M&A is always on the agenda. We have always said big M&A is not really the normal way we do in Trelleborg. We're going to have this, we're working on acquisitions which is a few tens of millions of EUR.
That is a normal acquisition for us, which is then assisting us in a certain specific application or certain specific region or certain specific customer segment. That is the way. On the agenda, we don't really see any big M&A, but hopefully we will be able to continue to make these kind of smaller acquisitions.
Okay. Thank you.
Thank you. The last question comes from the line of Robert Davies at Morgan Stanley. Please go ahead. Your line is open.
Yes, thanks for taking my question. My first one was just you mentioned you'd divested or sold a small business out of France. Could you give us a little more color on exactly what you sold and maybe some of the financial metrics of that business? What was the sort of margin profile or how much did you sell it for?
This is a small business. This was a business what was doing some kind of printing related rubber rollers. Sometimes when you print, you have rollers, which is kind of assisting the printing. We said this is not really a core, even though it's related to the printing on textiles in this way and, let's say, stretching the textile when you're printing it. It's kind of a supplementary business for the printing. As we are focusing this, we said this might not be the core offering for this one. Then we had a taker, and honestly, always honest and frank, of course, we sold this also partly because they also managed to sell real estate next to it. The financial metrics in terms of multiples and stuff like that, what was not really the best.
In total, of course, we managed to get out of this business. We managed also to cash in the real estate, which was part because also now explaining, because this what we sell was a location in Cernay in France, where we had a big factory before, where we have been downsizing, and then we've been moving some pure printing blanket manufacturing from this site to Italy a few years ago. We're standing with the real estate, which was far bigger than actually this one. With this acquisition, they bought the business, but they also bought the real estate. For us, it was a very good cash inflow. Maybe once again, as a term of a multiple, we talk a low single-digit multiple on EBITDA.
In total, if you also said that we cashed in the real estate, it turned out to be a good business. This is the kind of decisions that we need to take. It had no impact whatsoever on kind of the performance because it's such a small activity. This is the kind of cleanup that we need to do in this kind of businesses and to decide whether we. Once again, we jumped on the opportunity here to get out of the real estate as well. I will not restate the numbers. No.
Understood. My second one was just around some of the regional trends. Could you give us a little more color from a country perspective between Western Europe, which was down 4%, was there much regional variation? A sort of follow-up, I guess, for North America, which was down 2%. What's your outlook for the North American business, given industrial production is trending lower?
We don't normally comment on that. We don't really. Of course, Germany is a little bit more down than the others, but otherwise it's small variations, so we cannot see an overall major trend. U.K. is actually slightly up in the quarter. That is also individual invoicing by monthly ends and stuff like that. We at least don't draw too much conclusions out of development in each country for individual months.
On the outlook for the North American business, given the ISM and PMI readings and industrial production has been struggling there, are you incrementally nervous about the business in the early part of 2020 in North America?
Not really. We are still generally building our presence in North America. As Sealing Solutions, we have made quite a lot of acquisitions the last few years. We are not really dependent on the market in that way. The same applies for the Wheel Systems activity. We're fairly have a small market share. There's individual businesses where we have higher market share, but in most cases, I would say in North America, we are still in kind of a growing mode or establishing mode. We are not too concerned about the overall market development there. We have probably higher market share in certain, let's say European, like Northern Europe or Germany or U.K., where we need to be more careful in following the overall development. In U.S., in general, we still have a possibility to grow even if the market is slowing somewhat.
Good. Okay. I think that concludes the Q&A session. A big thank you from my side. Any closing remarks, gentlemen, from your side?
No. For us, for Trelleborg, solid quarter. Two out of three BAs actually performing on a basically all-time high levels. Wheel Systems, we feel that we have a very good platform, but we are suffering, I dare to say, very challenging markets at the moment when you talk about organic growth on the OE is down by, let's say 15% or something. Of course, it's quite tough to compensate for that. I think we've been doing better than the overall market in Wheel Systems, even then, of course, we are suffering. That is something where we need to position that and make sure that we are ready when the market actually turns up. Thank you.
Okay. Thank you.
Bye.