Earnings Call: Q2 2019

Jul 18, 2019

Ladies and gentlemen, welcome to the Treleborg Q2 2019 Call. Today, I am pleased to present Peter Nielsen, CEO and Urs Parikhog, CFO. For the first part of this call, all participants will be in a listen only mode and afterwards there will be a question and answer session. Speakers, please begin. Thank you. Welcome to all of you to this Q2 update call for Frontrella Board. Speaking is Peter Nielsen, and I will be starting off this presentation as we usually do in presenting it, I'll be presenting our quarterly results and give you some update highlights from the group and also walk you through the business areas. And then Urs Berghold, our CFO. Also, as usual, we'll guide you through the financials. And then jointly, we will sum up with some with the guidance For the running quarter and of course, also be available for any potential follow-up call. So In the call, we're going to refer to the presentation, which has been on our web page for a few hours. So I trust all of you has He's in front of you. So starting then turning to Page 2, agenda highlights, then business areas, financials and then summary in Q3 And then finishing off with the Q and A. Quickly turning on to Page 3. We have heading here overall a solid quarter. We have development in most areas in line with our expectations, with a few exceptions that I will touch upon. Starting sales, up by 7% as a flattish organic. And then, of course, we have a structural Benefits of some acquired units and then currency also, as we have seen for the last few quarters, also pushing up sales A little bit. Excluding private deliveries, as you know, we give 2 organic sales figures here on the total, Flattish, but excluding the deliveries, which is varying a little bit more in between the quarters and also fluctuating A little bit more a long time, but organic sales actually decreased with 1%. And looking into the interbillion markets, Positive aerospace still in general continuing very well. As you know, we've also been investing the last Few years actually into Medical Devices, and that part of the business is also, although not the biggest part of Treleball, but developed very nicely for us. And we also see in the more kind of project related areas, oil and gas and infrastructure construction that they're now picking up. As we comment later, also we're expecting to pick even more pick up even more going forward. But also in this quarter, we see benefits from this Pickup in this more, if you may say, more late cycle. Industries on the negative side, we are well known, I guess, in all of the automotive Being pushed down, and we also have agriculture a little bit challenging in the quarter, especially then on the very Late part of the quarter, comment a little bit more on that later on. General Industrial, a slight dent downwards, But nothing no drama in general industrial demand for us, but nevertheless, a small Once again, a small turn downwards. Looking at geographies, when I get back, then I highlight you can see Americas, both North and South America Developing favorably while we see a slight downturn in Europe and Asia. Get back a little more detail on that. Looking then at EBIT. EBIT ending up without extraordinary items, ending up at SEK 1,300,000,000 Corresponding into margin of 14.1%, which is actually, again, the best ever EBIT for us in Swedish kronas Reported here and we now have 25 quarters in a row with growing EBIT in Swedish kronas. And then in terms of margin, this is actually the 3rd best Quarter for us historically when we look solely at the margin, of course, we are well aware that this EBIT is Assisted by our currency movement and also partly with the IFRS 16. So in total, of course, it was comparable figures. It's not as good as last year, But we have the less looking at the actual reporting reported figures, it is the best every EBIT Tralborg has had in an individual quarter. But I'd also hint that we see that some of the areas is going down, some of the markets Some of our market segments going down. So we have by the end of the quarter, O and D was more clear for us, imitated quickly, Call it an action program where we're addressing the cost base and then mainly through headcount reduction, but also some efficiency measures by moving Manufacturing from one area to another. And this is then also Ulf will touch on that later, which is then adding another SEK 2 SEK 50,000,000 in non recurring costs for us in the quarter, and this equates to some 700 Permanent employees who will leave Tralaport. And on top of that, of course, we will also have some downsizing On temporary and contracted workers, so in total, we believe this to shy of 1,000 employees that we're leaving the group In relation to those actions, which is already initiated, by the way, but will continue Throughout the year and also partly going into next year. But Urs will touch a little bit on that later. We have to note as well, I mean, the This is more of a program, we call it cost avoidance program because this is addressing the downturns. So even though we're lowering the running cost By this extra SEK 250,000,000 by roughly the same figure, by SEK 250,000,000 on an annual run rate. But once again, I mean, this is Not really expected to improve the earnings, more kind of avoiding a drop in the earnings. But then of course, with that said and done, if the development is slightly better, then of course, there will be some savings coming to this. And we also, Of course, doing this to create a better setup. So when and if the demand start to turn up, then of course, we will move into a more efficient structure. So that's Something about that. So it means in the quarter, we reported items affecting comparability of a little bit north of SEK 100,000,000 And Urs will get to more to guide you. For the future, that cash flow roughly equal as last year, a little bit more than SEK 1,000,000,000. Slightly disappointing, we could say, or slightly lower than we anticipated Basically, at the end of the quarter, due to this downturn in sales in a few areas, we are slightly a little bit high on working capital in a few area, nothing major. So if you look at the cash conversion, which is slightly lower than last year, then we also know the majority of that is actually coming from CapEx, even though once again We also have some working capital related to, let's say, it's anticipated not really fully anticipated downturn in June. In some areas, We still pushed up inventory, but also we say more on the other part of this weighing scale. And of course, this also means that accounts payable is Slightly lower. So the total impact here is not major. But once again, we were aiming for a little bit higher cash Conversion in the quarter. So this is really the overall topic that we want to address and call as highlights. So quickly Turning them over once again on organic sales on Page 4. I commented on this a little bit. Western Europe and other Europe down. And I mean, Clearly, you can see that this is a bit worse than last year in those areas, while North and South America still holding off on the positive territory. And to comment on that, in North America, for instance, both Canada and U. S. Doing good. In South and other Americas, it's mainly the main economies down here in Mexico. And Brazil, which is providing the uptick here, while in Western Europe is a mixed picture. Germany, Sweden, Basically flattish and we're losing a little bit, mainly UK, Italy, Spain. But it's not really any major differences. Either Europe, Of course, it's the big economies here, which is then pushing down a little bit like Czech Republic and Poland for us, which is A little bit negative. Asia and other markets, slightly negative as well minus 3%. It is also kind of a mixed picture. China is down for us, While India and Japan is up, but China is a bigger economy, then of course, we're overall pushing down organic sales In the quarter. So this is really the comment. And as a totality, we already said it's minus 1% compared to 4% plus a year ago. So of course, It's a downgrading on the overall sales development. Then Page 5, agenda, business areas, quickly turning to Page 6, Commenting on Trademark Culture Systems, headline being growing with improved profitability. Good organic development here Coming from several areas, but highlighted by Aerospace being good, if I should highlight one area here, but also good 1st, in my other areas. And on top of that, also, we're having structural growth coming from the acquisitions done during the last 12 months. So good growth in total. Good drop through as well for this extra sales, which is then pushing up the margin By 1.6 percentage points, so both EBITDA margin is up. And we say improved productivity, which is basically coming from higher volumes, but also Slightly also sales mix that we're growing in more profitable areas than we had. The mix overall sales mix is slightly better Than we had a year ago. But overall, a good development within Kauter, and we're happy for that. Turning to Page 7, Industrial Solutions. We say organic growth, but muted profitability. And good organic sales, we Oil and Gas, favorable. I mean, quite strong growth in a small relatively small part of industrial solutions rate, oil and gas, but very strong growth there. Yes, the industry basically flat here if you look at that, while we also have the automotive sales, which is then some 15% of the business here, Which is declining. But overall, as you see, good organic sales and also relatively good development in all geographical areas. Continue. As told before, we continue and expect that to continue to hit us for a few quarters That we will have this inefficiencies to Czech Republic, which is great thing. We're working on many different levels here to improve it. I mean, we are investing in order to We have a better, say, overall efficiency in the plant, also working on the customer mix a little We'll be being some aggressive on pricing in a few areas where we don't really believe in it long term. And that's, of course, also then addressing the cost base here. And As part of this overall program that we're initiating now that we will also be impacting these operations in Czech Republic. We also note there's an acquisition done in the quarter here, a post actually that was concluded after the ending of the quarter, Signum, and I have to comment on that because we had some questions on that. That is not really related at all To LNG or oil extraction, that is more, when we say, major business here, we call energy transfer, which we see as a quickly growing Activity, which is basically supporting this development that we see in many markets around the world where we want to Replace other fuels with LNG. So this is really riding on the wave of investments being done in LNG ports, is Tanker Export Ports and Import Ports. So this is a very interesting add on for us, which is then enhancing our offering and making a more complete offering for this, what LNG Transfer segment. And also not only kind of OE equipment, but this is also a major part of this is also to aftermarket because These products is seen as safety critical and in many cases require, let's say, a regular service and then also replacement. So this is something which we expect Going to bring benefits for us both in terms of ongoing fairly nice operations, but also creating opportunities for Good synergies, especially they're related to our fluid handling business of Industrial Solutions. Moving over to Page 8, 12 of our Wachs and Construction, heading being a step towards profitability. We see now organic sales is turning positive. We see good organic growth in both Oil and Gas and Infrastructure segments. Then this is driving EBIT and margin improvements. And also we continue to have a growing order book. And we actually kind of have a turning point here where we are getting relatively Okay. With the overall order book, and we are now turning focus from actually from pure volume and also looking at the margin here. But of course, We know that it's early uptick that we're going to see here in the next few quarters. It's not going to be with the best product and it's not with the best profitability, but that will Improve over time, and we now feel very confident. We can say that we will see a significant organic growth In the 2nd part of the year, we will also see positive results, at least in Q4. Significant. I mean, we also expect some questions on that. And we talk about the 2 digit organic growth here, but it's also A little bit tricky to give a very, very clear guidance on that since we know this is private business and we know there is, let's say, a slippage In between quarters sometimes, but overall, we know the order book we have and we know that we're going to grow substantially or significantly Over the next few quarters here in sales, and that's going to also then roll over to a better EBIT. So that is really the story on offshore construction at the moment. Turning then to Page 9, Trondebox Sealing Solutions, headline being mixed market development. We have a flattish Organic sales here, and we are benefiting from structural growth from acquisitions made. North America continuing positive overall. Europe and Asia, slightly softer without really any major things happening, but there is better sales growth In our better sales development in North America, a little bit worse in Europe and Asia. General Industry, as I already commented before, slightly weaker. Of course, we cannot have While having automotive down and aerospace feels strongly up. Of course, auto down, we know that's Going to impact machine tools and fluid power and all of that indirectly. So of course, this is a little bit to be expected. The tricky thing here is really to Fully understand how much of inventory reduction is ongoing here and how much is actually the underlying demand. We know that The automotive is good in high single digits, but we don't know exactly the impact Total inventory on the other areas. So that is something we're watching carefully. And of course, it's a weekly or at least monthly development that we are targeting here. EBIT did increase, but coming from mainly or only from acquisitions. And as you probably know from before the acquisition we made, it's usually coming in with a lower margin that I've already been, and we need to work with it in order to get it up To our margin levels, the margin is somewhat kind of depressed by this, but the major factor is actually coming Mainly from this down volumes down in some of the auto related plants of sealing solutions where we're then downgrading The speed and thereby have a little bit lower contribution and lower cost absorption in these plants, which is then hitting us A little bit in this quarter, but of course, long term, this is the way we would like it to be. But overall, good performance in Sales Solutions, and we are happy with With the overall development of the business areas, even though we had 1.4 percentage point down on the margin in the quarter. Turning to Page 10 and Trondeborg Wheel Systems. We're heading here week aftermarket results in margin drop. We have organic sales, negative 5%, but still with some supportive with some structural growth. We see positive agri sales in North America. For those of you following us for some time now that we are Kind of an entrant into North America, and we are still continuing to benefit on that one even though the market might not be Very, very good in North America, Eider. And we see a softer development in Europe and a little bit softer developing in Asia. Continue to see overall Positive organic sales for OE, Banff Agui and also actually now also material handling and construction as we are building up that product range. And this, of course, we feel firmly that we're growing our market share in the IO segment. It's perfectly in line with our target. And this is an area that we would like to sell. We would like to get into IV and then create a full effect in the aftermarket at a later stage in order to get a little bit Peter, pricing in the aftermarket. And it was, I must say, a surprise for us. In the quarter, a significant decline in the aftermarket for both segments. By the end of the quarter, It's a little bit tricky, to be perfectly honest with you, to understand why this happened. I mean, we know that This kind of trade conflict going on and we also see that it's been relatively good sales of For several quarters now, and we see this as a correction in the market, and we don't see any kind of Difference in the overall long term prospects of this area. But short term, then this is, of course, creating A negative mix effect for us that we have, let's say, a better gross profit on the aftermarket than we have on OE, even though sales cost is also dramatically different. So we still Cannot confirm that overall EBIT margin on the business does not vary that much between OE sales and aftermarket sales, but when we have big swings in a quarter and then, of course, it is the drop through on the marginal sales It's creating challenges. And of course, also we will have also this down Also to watch the inventories and stuff like that, which is also having, let's say, effect for us in the quarter. But then with this, What's been noted, of course, we immediately addressed the cost base, and we are now already implementing some cost reduction measures in the area in order to address this, both the sales mix. But also, we must not neglect Adrian, not talk too much about Sales mix because also we note there is, let's say, this organic sales drop of 5%, which will require some Changes in a few areas in order to approach this somewhat lower volume. So this is kind of the story on wheel systems. So leaving that for time being at least and then turning our financials and turn over to Ulf then Quickly from Page 11 turning to Page 12. Okay. Thank you, Peter. On my first slide, Page 12, Sales Development. You can see that organic growth in the quarter was flat. And excluding project related business, the organic growth decreased with 1% coming from Wheel Systems, While all other business areas reported positive organic growth. The impact from currency was plus 4%. Structural growth was 3% coming mainly from acquisitions in Quilter Systems and Sealing Solutions. Next slide, Page 13, describes the historical performance of our growth. As you You can see we have had year on year sales growth for the last 13 quarters. On Slide 14, you Finally, report the sales development per quarter as well as rolling 12 months, which is mostly impacted by structural growth. Slide 15 presents our EBIT development. Our EBIT reached SEK 1,321,000,000, equivalent to an increase of 2%. The EBIT was positively impacted from currency translation of SEK 32,000,000 and from new accounting rules IFRS 16 leasing Of SEK 20,000,000 in the quarter. EBIT margin, excluding items affecting comparability, ended up at 14.1% versus previous year of 14.7 Slide 16, percent EBITDA margin on a rolling 12 month basis. A stable EBIT margin looking back in time And an absolute EBIT improvement every quarter for more than 6 years running. On a rolling 12 months basis, we are currently at 13.3 percent EBIT The next Slide 17 presents the profit and loss statement for the total group. Items affecting comparability was minus SEK 118,000,000 in 2nd quarter related to restructuring costs. Due to softening demand in certain segments, we are proactively addressing the cost base mainly Through headcount reduction and the move of activities to more efficient setup, in total about 700 employees will leave the group. 2019 guidance on restructuring costs will be around SEK 500,000,000, an increase by SEK 250,000,000 from our previous guidance. Financial net has been impacted by a negative exchange rate difference of SEK 14,000,000 and an effect from Interest expenses on lease recognized in accordance with IFRS 16 of SEK 20,000,000. The tax rate was 26% in the quarter. Our guidance of an underlying tax rate of 26% for the full year still stands. Slide 18 percent earnings per share. Adjusted for comparability items, the earnings per share was down by 1% to SEK 3.36 for continuing operations compared with previous year. Slide 19 describes the development of our operating cash flow. EBITDA has been impacted by IFRS 16 With SEK 100,000,000 and as you can see, we have amortized SEK 100,000,000 on the leasing debt. The operating cash flow was impacted by higher seasonal working capital. The CapEx is in line with our annual guidance of SEK 1,820,000,000. Slide 20 percent rolling 12 months operating cash flow. Our cash conversion is impacted by increased capital activity and by higher working capital movements in some business areas. Slide 21 shows the impact of IFRS 16. Opening balance has been impacted by the reclassification of the pension debt from working capital. We have restated the historical balance sheet numbers on this change. Closing balance has been impacted by IFRS 16 leasing debt of EUR 2,400,000,000. Slide 22 shows the year on year development on leverage on continuing operations, including or excluding comparability items. Net debt is impacted by negative translation difference of EUR 296,000,000 and by acquisition activity of EUR 1,100,000,000 in 2019. Slide 23 shows the leverage and net gearing excluding lease on pension liability development since 2011. Slide 24 describes the return on equity where the long term target is 12% on continuous operation, including items affecting comparability. Action outcome is 10% versus 9.8% a year ago. And then finally, on Slide 25, I want to finish off this part of The presentation by repeating our financial guidance for the full year 2019. As you can see, the restructuring cost guidance has been revised, as I mentioned earlier. So the CapEx the guidance on CapEx is SEK 1,800,000,000 to SEK 2,000,000,000. The restructuring cost is SEK 500,000,000, then the early guidance was SEK 250,000,000 and then underlying tax rate is 26%. So thank you. And then over to Peter. Thank you. We quickly turning to Page 27 then. Sales up in the quarter by 7%, 3% structural, 4% currency basically. Organic sales flattish in the quarter. EBIT at EUR 1,000,000,000,000, which is the highest ever for Teleport, but then equal to a Margin of 14.1% supported, of course, with currency and also with some accounting, but nevertheless, the highest EBIT Every individual quarter for Trello Borg. And as Ulf also stated before, more than 6 years of every single quarter with increasing EBIT On a rolling 12 basis. In the quarter, let's say, to address expected downturn in certain segments, we are expanding Our action programs and basically, yes, cutting down costs In the areas where we don't expect it to be better short term, and this is called mainly to downsizing of our employees, So some 700 permanent employees will lead the group. As a consequence of those actions, we're still going to be kicking in, In the next few quarters, step by step, items affecting compared to the quarter 1 2018. And as Ulf also guided up earlier, we will guide now for SEK 500,000,000 for full year. Cash flow equal to last year, But then impacted on a little bit lower by higher CapEx, but also as I commented before, somewhat higher working capital in a few areas. So this is really a Short version of Q2 2019 for Trelebor. Turning to Page 28. Priorities, of course, we continue To focus on growing the business and making sure that we run it in the best possible way, we have some as we see it, some more Volatility is to be expected among the markets and geographies going forward. So we will address this a little bit more already. As you Noted, of course, we are addressing it already, but of course, we will manage it and make sure we do it in the best possible way. We're going to continue to work with our portfolio, Making sure that we long term get the leading positions we want. Also, as usual, high Attention to operational excellence in Intralerborg and continuous focus on making sure that our footprint is the best one for the future. Also continue to invest in innovation. We still have plenty of activities ongoing in 12 about what we call improved customer integration With a lot of that linked to smart use of new technology, not the least all that digital solutions that we continue to integrate into the business and we Continue to see benefits from and we continue also to make acquisitions. Of course, it's always high on the agenda then to make sure that those acquisitions are integrated in the best possible way. Turning to Page 29, gives you some guidance on the outlook for the running Quarter, we expect, let's say, the demand in this running quarter to be basically on par with the development we saw In the last quarter in Q2, but there will be some mix changes in this, and that is where we want to highlight in our comments and say that we expect The offshore construction area to grow a little bit more than others and thereby also creating a slight negative margin mix for us Going forward, but nevertheless, of course, positive that we finally see this offshore construction, the growth in the order book kicking into Sales and that is coming the first time we're going to see it really in the figures is, Of course, now what we expect here in Q3 and then once again, as we expect, the uncertainty on the other areas going forward as well. So this is really the outlook as we see it today. So then going back to the agenda, the Q and A and then turning over to Page 31 and opening it up for the Q and A. So please, Operator, please introduce the questions and Ulf, myself will address those questions in the best possible way. Thank you. Our first question is from Hampus Ingenlo from Sandler I have 3 questions, if I may. Starting off on autos relating to In Industrial, if I remember correctly, you have a quite big exposure to aftermarket, and your volumes have been rather stable Compared to what we've seen previously quarters and perhaps all production cuts by the OEM. OEM, could you maybe talk a little bit about what are the big Change now and you are seeing negative organic growth there. Second question is on The follow-up time, the norm that you highlighted during the quarter, April, May, that's what happened in June. Would it be possible to maybe have some favorites on geographies and then the markets where there was a bigger volatility? And then maybe last and not least, what you expect to achieve full run rate on the Exeget Kogan, on the sale is SEK 250,000,000. Thanks. No, no, the Oertho, I mean, it's correct, like you say, that we have in sealing, we have a business which is Aftermarket oriented, they're not really pushed that under the moment. But it is short term impact. By this, we have had an impact Also in the aftermarket business in this quarter, we expect also to say that this outdoor Going down in this quarter, actually higher going down with higher numbers than the actual underlying demand because Experienced sales, but I mean, when this is happening, when there is a shift in demand, then of course, there's a high inventory focus as well. So it has been Kind of hitting us all over in the automotive business, as I say, Ursberg, but not really any major differences. Even on aftermarket, it's been going down. We believe, as a guest on this bad, let's say, more or worse, I'd say, feeling in the market, which has also pushed some of the aftermarket players Being a little more careful. So but once again, Hampus, I mean, that is not really the way it should be. So we expect it to be Slightly better actually going forward, if I'm very blunt. But it's really difficult to Get the full view of that and the transparency is not very good on some of our customers in this aspect either. So this is something we need Stay very close to where we need to kind of adjust as quickly as we can, which we already have been doing, which I we highlighted before, Talking about TSS, we'll be already kind of addressing and bringing down the production volumes in a few factories. About the volatility in the moment, it's really Difficult, honestly, even though we have all the figures, we have everything, but there is variations. But if I should highlight the variations the biggest variations have probably been for us In the agricultural sector and also in certain kind of industrial segments, but it's not it's Kind of difficult to draw, let's say, a conclusion on a trend in this. We want to highlight there was more volatility throughout the quarter Without really being able to highlight any specific takeaways from this, to be honest. But the only thing that we see at the end of the quarter was Dramatic downturn in agricultural sector, that is probably what we can highlight. But otherwise, it's difficult to pinpoint anything others Yes, I'm being specific. And then on the sales team sorry. No, no, I was just thinking, shouldn't you be More favorable in weeks is considering that you have a higher OE exposure compared to the markets. Yes, we You're probably better than others, but even though we are better than others because we don't know whether there will be some industry Statistics, we have seen them, but we cannot really use them at the moment because they are not really made official yet. So this ETRMI, Which is this industry organization that will release some figures. But I can say that you will see there is really a big figure, big swing in the aftermarket, Bigger than we expected and bigger honestly than we saw also in our sales in at least in the beginning of the quarter. So there will be So even though we're doing better than the others, for sure, but it's still having a major impact also for us. And then on the savings, like we try, I mean, we call it on the cost avoidance because it's not a restructuring. It's a cost avoidance in order To kind of mitigate the decline in the market, as we indicated. But of course, it is a cost down roughly equal to this €250,000,000 is really also the cost down. If we were kind of selling the same, which will be difficult without these people, I think we were selling the same that we will, let's say, return roughly the same SEK 250,000,000 as an extra Call it trading, but please prefer the call is the cost avoidance. Thank you. And next question is from Erik Kallrang from SEB. Please go ahead. Your line is open. Thank you. I have three questions. The first one as a follow-up on the savings program you mentioned. So the 700 people, euros 250,000,000 in savings on that. Is that from the incremental increase from euros 250,000,000 to euros 500,000,000 in restructuring? Yes. Thank you. Then the second question is if you can remind us of the Aerospace business in Sealing. How much of that goes to Boeing specifically? And to the extent that you've experienced disruptions On Boeing's on that business related to the 737 MAX, please. We don't want to really tell how much goes to Boeing and Airbus, but can say we had a very limited impact, surprisingly limited impact from this 737 MAX. I don't really know. But I guess they are still producing 737s and putting them somewhere. So we have not really seen any downturn in deliveries. Okay. Then last question on pricing in wheel Just as I assume it's still fair to say that you're not fully covering the raw material costs. And if that's the case, Could you in any way quantify that? And as a follow-up, what are your plans there on pricing for the second half, realizing that in the morning's week, of course? We have increased pricing. I think the run rate is that we are now balancing ourselves On that one, we don't see a need for kind of further price increases. But there is some, of course, with these import duties and stuff That's what we need to work on. So there we might have a gap of some €2,000,000 or something that we will have to cover either by Resourcing or by price increases. So that is something which is currently addressed. But in terms of raw materials, We are relatively we are, let's say, covered, and we don't really expect And the upturn going forward, I mean now with the latest industrial trends, even though we don't see it, but it could be that we're turning more to More kind of short term SKUs to support the raw material trends. But that is a little bit too early to say, and we will not see it really in Q3. But We're, of course, watching carefully now on the price in Q4, whether there will be any hints of lower raw material prices. So that is why So I don't see a need there, Erik, to increase the pricing at the moment with the exception on specific Tires, we are not we are hit by input duty. But on that one also, Our competitors is hit by input duties. And that is more that you need to run out the inventories and then you have new imports and then the new imports will be hit. So and I think we have lower inventories in that one. So we have had a lot we estimated to be very frank, we estimated in the quarter to have a negative of some EUR 2,000,000 Coming from not fully compensated import duties in wheel systems. Okay. Thank you. It's also not big, so you're in that one. It's not really big figures in a way, and that is something we're rolling into better coverage going forward. Yes. Thanks. And our next question is from Claus Bijelin from Citi. Please go ahead. Your line is open. Yes. Hi, Peter Nielsen, it's Klas on Safety. So first on printing blankets, you're talking about Consolidation of the footprint, some factors there. I guess that's part of the increase in the restructuring of SEK 500,000,000, if that's correct. No, it's not. Because that was earlier in the plan. So that was the original restructuring. So that is something to be Got it. We made already more than a year ago. And that is a part of the long term plan. So it's not really an Immediate action. And then on the June 15, so you obviously say that it's cost avoidance. It's obviously a defensive move, which is absolutely fine. But where do you see the need to do this then to keep the margin Is there more geared to wheel systems then or any other Yes, I mean the majority of this is wheel systems and then parts of Industrial Solutions. Okay. Good. Then thinking a little bit about Sealing Solutions and through the quarter and particularly thinking about Asia, We had the working day impact. It would be interesting on an underlying basis to hear about how volumes in June Developed relative to the other, and I'm thinking year over year and how July have developed the 1st 2 weeks, if you have any information on that. Of course, we have the information. And it's a matter of question. I don't want to tell you about it. So but if I say it in Industrial It's not been varying that much across the different months, at least not in terms of sales. Then of course, order intake has been varying a little bit, but that is also related a little bit because ceiling has to Explain, it's wrong word, but we have to elaborate a little bit. The ceiling is, of course, selling quite a lot into assembly of various kind Industrial customers. And we know that coming up the biggest market for us in Europe, and that is coming up to their summer breaks and how they're planning for that. So we expect there is a downturn in sales for sealing solutions in June, but That we believe was also quite a lot linked to inventory planning among our customers. So of course, that was kind of expected. If you see a slowdown, a slowdown in Yanot Industry, we expect, as I said, in Early stages of that downturn, we will have a bigger hit. And of course, and especially then linked to the summer break. So I don't know exactly. I don't have all the facts at the moment. But I expect If they are, let's say, expecting a little bit lower demand, then of course, they will start to cut inventories and then suddenly the call offs From us, in here, you and just before the summer breaks, we'd be slightly lower. So that is something we will have difficulties really To get to a very firm conclusion at this stage, we are on our toes. We're watching it carefully, of course, but we have to wait for a few more weeks or a few more months really to get Full picture of that. Sorry for elaborating a little bit about it, but that is No, no, to be honest, you should be very open about how we look at it. Yes. No, I mean, exactly, destocking in June, we've heard from others as well. My final one is on ag and also elaborating a little bit, Peter. You said that, obviously, it's difficult to know why The aftermarket is weaker as well. But we had this aftermarket weakness already last year because of erratic weather, so the comp Should be easy. And in Europe, where we understand that the customers are driving sort of longer distances, the wear and tear Sure. It should be more apparent. And obviously, tariffs is more an equipment question. So it's odd to see that aftermarket is weak in Europe. Yes. But we have relatively tough comps in Europe also. We had a very good sales last year. And then more to Overly, let's say, to make it very bigger, but of course, the comps get easier here going forward. It gets easier a little bit easier in Q3 and Q4. And then we have the trade war situation, which is also difficult to really to read how much that is. And people probably are waiting. And they So of course, it could be I mean, it's better it could be a boost if there is, let's say, a problem. And let's say, it is getting solved one way or another, then of course, there could be a positive boost. So we need to wait for also there, sorry, we need to wait because it's so dramatic change here within the quarter. So we need to wait a little bit Before we get to a final conclusion, any commenting on July. July is very early as before, but we can say it's not continuing down in the same pace at least. So it's not really a big drama here in the 1st few weeks of July. But then to Yes. So conclusion only for, let's say, the 10 trading days or whatever it is, it's not really a collaborator. So we need to watch a little bit more and see what's happening here Through the summer break and then, let's say, what is happening after the summer break in Europe before we can really get to a more firmer View on the way forward. But we do see or we do believe in certain areas that, that is going to be Les de Maroon, and that is why we are attacking the cost base. And I mean, of course, it's variable cost that we are not really addressing. And the structural issues here is more variable cost to Take our people, honestly. My very final on this and just to think about the margin impact. Obviously, aftermarket versus equipment, it's not a big difference per se that when aftermarket is falling, you get this difference on the drop through. Could you at all say how much it was on the margin, so we can think about what can happen when aftermarket bounces? We don't really want to elaborate on that one either because This is a little bit sensitive information for some of our competitors and stuff like that. So sorry. Okay. Thank you. Our next question is from Douglas Lindahl from Kepler Cheuvreux. Please go ahead. Your line is open. Hello, Peter. Hello, Ulf. Thanks for taking my questions. 2 from my side. Firstly, on the Signum acquisition. Christian, correct me if I'm wrong, but did you comment on profitability levels for that business? I guess maybe not in absolute numbers, but at least in relations to Group levels, I would like to say. Well in line. And I mean so we of course, it's not going to drag down the margin. Okay. Very clear. And moving forward on Coated Systems, Which has been the business area where we see quite a lot of volatility, I think, organically at least, going back historically. Have we now reached sort of an inflection point? Do you have sort of what are your expectations going into the next quarter and maybe even longer It is because I mean this especially because the fabrics part of it is a little bit volatile because that Linked to more projects, so that's going to be a little bit up and down. I mean, we are we're working for quite some time to get We invested in a few areas, which is more medical and health care related, all of that. But I think We are at least we are expecting this to continue to be volatile. And I don't really want to give a firm guidance on the next quarter, but it's going to be a little bit up and down Going forward as well. So there's not really any you don't see this as a sustainable growth. They are more generally exposed to the overall industrial demand. And now in this This quarter, I think, especially Aerospace was very good. So that is, of course, something which we continue to have a good Aerospace Business, but not maybe not exactly on the level that we had in this individual quarter. Okay. Yes. That's it for me. Thank you. Just to highlight, just to follow-up on Karl's questions before, just to elaborate on the margin on wind systems. I mean the underlying cost It's well under control. We are very happy, to be honest, and talk about this integration on CDS. I mean, we have a good development transformation, we have good development in selling expenses. So the margin drop here year on year is mix related and country related. And then we have also some for the this import duties. So it's not really any cost inflation. It's not an overall Problem with the cost base, rather the opposite. We are actually developing nicely there. So the business overall within wind system is developing according Then we had this dramatic change in mix in the quarter, which was pushing down the margin. Okay. Next question is from Johan Gerberg from Danske Bank. Please go ahead. Your line is open. Thank you. I have continuing on that remark which you just made, Peter, upon the wheel systems here, a little bit to how to think about this. I mean, we can look at the Perdue indicators, CMA indicators, and they show that May was pretty grim. And I look at the organic growth In wheel business, minus 5%. But would you say that the whole drop which we saw or these parameters showed us, have they already Has that in Q2? Or is that a kind of negative rollover effect taking place in Q3? Basically, what should we think about the organic growth in the 3rd quarter? Yes. I'm sorry, you tell me a little bit. That is the problem. Of course, I mean, it is really tricky. And I mean, we did not and I think None of us really anticipated this strong drop in June. So this is something we are still watching. And we We believe that overall, I mean, the farmers are investing. And we say it has been relatively good this year and continues to For us, especially, we've been growing our market share, but also overall, I mean, they are we probably can look at Yandere and Akko and Kees and all, and they are guiding for Good market, even though maybe a little bit softer going forward in Spain, but they are not kind of guiding for any dramatic drops. So we have Little bit troubled to understand especially why there was this. And not only we, we, of course, looked around and we spoke to people and there is speculation on Saturation, all of that. But I mean, it's really not difficult to find Firm ground for any conclusion. So that is why we're ending up that this is a trade war and general uncertainty and all of that. But Honestly, that is our speculation and our conclusion, which is quite difficult. We are waiting for some industry statements and statistics And to really get to a better fully better understanding of this, but we need also to be aware that this development is only a few weeks out. So it really was a dramatic turn here only in the last, let's say, 6 weeks. And that is something where and it's not really continuing into July. So we need really To better understand this. So you're basically saying, I mean, looking at Q1 was plus 3%, and then it went to minus 5%. Would you say that this was just The last 6 weeks, which in the quarter, which kind of made this big difference. Yes, probably, we are on last half The month and then also it was quite tough comps as well. We need to be aware of that. It was quite good volumes Q2 last year and it's getting slightly easier Comms here are going into Q3 and Q4. Yes. It was pretty tough comps in Q1 as well. And I guess, I mean Yes, yes, yes, go ahead. Yes. So but when I look at margins here, I mean, it was down 200 basis points in, yes, both Q1 and Q2 here. And given your guidance And how to think here? Should is this a margin drop which we should continue to see this magnitude? Or should it pick up? Or what is We don't really want to give a guidance, sorry, because it's really in a Little bit tricky situation. The only thing we can watch is, of course, that we know our cost base is good, transformation cost is good, selling expenses It's good. So this is really on the contribution level and the mix between the various, let's say, channels and the various geographies. So it's not really It's tricky. Sorry, Johan. I mean I cannot really give you a better guidance here. We need to watch on it, and then we need to see what we can do When we get, let's say, some further into the quarter. Okay. My final question here, and this has to do with your overall Quarter assessment. I mean, the demand in line with Q3 versus Q2, but this is largely sales mix here. And just Tell us a little bit about the directions here. I mean, what you're kind of highlighting. You say that it's going to be somewhat negative upon earnings. I guess, the margins, if you start off with that just I mean offshore construction you highlighted also trending Well, this is really the overall explanation. We believe offshore construction It is to grow more than it did in Q2. And then of course, I mean, and then You believe also that some other areas might since we're guiding on the same, then of course, some other areas will be slightly more challenging. So this So it is really what we want to guide for. So even though we guide for the flattish sales development, it will have A negative mix effect since more of the sales will be from offshore construction. Even though offshore construction will, of course, improve, But I will not get in at least not in Q3, that will not get to the margins we have in other businesses. Okay. But what are you I mean, Which are the soft spots here, if you want to highlight those, that will be interesting. Because I mean, we got a little bit I mean, yesterday, we had the guidance from Sandvik We expect general industries to be slightly down. We expect automotive to Continue down. Maybe not as much as we saw in Q2, but we expect like some softening in the other industry to continue. I mean these are the Big segments for us, and we expect still good rail. We still expect good aerospace. We expect kind of improvements in oil and gas, Continued improvement in Oil and Gas, continued improvement in infrastructure construction. That is really so of course, we're looking at the other guys' guidance as well. And where we don't really see We see more and more at Sandvik, a small softening in the anode industry and maybe not a flattish demand, and that is probably the mix changes. So I mean, I'm not exaggerating this, Not to interpret this too big, but we expect a small softening in the industry that is tend to be compensated by extra sales related to infrastructure Production and Oil and Gas. And that is for us driving a slight negative mix. Got it. Thank you so much, and have a nice vacation. Thank you. Thank you. And our next question is from Robert Davids from Morgan Stanley. Please go ahead. Your line is open. Hello, Rudy. Thanks for taking my question. My question is just really around the offshore and construction business now that the Margins have obviously started to improve. And I guess a couple of things. One is the outlook still for the Q4 to be positive. And sort of following on from that is, once that business returns to profitability, how do you think about those 2 segments in that business And between the oil and gas, the infrastructure, do you still see both parts as core? Is there any reason that you have to have both of those in the portfolio? I guess, How do you think about that once that business returns to the blank? Yes. No, I mean, we're always looking at our portfolio, of course. But at At the moment, we don't see any kind of portfolio changes being addressed. We will see, let's say, strong uptick in both of I mean, if we should do anything, it will not be now at least. We will have to wait until it shows that it's getting better. And then with that said and done, they are not really Combined, I mean, they are independent businesses, and we have kind of developed it into more independent businesses. We have one more oil and gas related activity and one more infrastructure related, where the infrastructure part is mainly marine construction, harbors And tunnels and some then engineered products around that. So we don't really I should say, we are watching as we watch with the rest of the group, of course, and we need to continue to see that this is improving and that can do something better with it. And that is the we still with both of these businesses, we still feel that we can improve them. And as long as we can improve them, Then of course, we'll be going to maintain the development of them. Thanks. And then maybe just as a follow-up on The comments you made on the outlook for Ag, I think you called that Adrian Europe as being the sort of the 2 weak spot. In terms of the magnitude they were down, was there any material difference between the 2? Or were they are they down to the same extent? I think for us, I mean, for all of Asia, it's small for us. Asia was down more. But we also we are market leader. We were quite quick In increasing pricing and almost when you increase pricing, you are kind of immediately hit a little bit more in Asia. So Asia was down more Then Europe. But of course, from an importance point of view for Trelleborg, then Asia in wind systems is fairly small. So let's say, by far, most important market is Europe. Yes. Okay, great. Thank you. And our next question is from Olof Sjebelholm from ABG. Please go ahead. Your line is open. Hi, guys. It's Olof from ABG. Just one question on the cost avoidance program. Maybe I missed this, but is it possible to Give some sense of the timing of these savings or the lower cost, how they will Come in to the numbers throughout the next 18 months? It's a little we have announced it, and it's a little bit of development on union discussions and stuff. But by the majority of it, I guess, you can say, the majority, if it will kick in, in 2020 and not really in 2019. Yes, probably we will have some impact already in 2019. So So we will have an impact. So the course will be gradually taken in 2019. We will have some impact in 2019 To avoid to meet the mitigate. Yes, mitigate the decline, as we say, but then also it will run into next year. I did talk about quite a high number on certain plants. And then at the moment, we cannot really because that is Linked to union discussions and stuff. But you know there is different regulations depending on how many people you're making redundant and all of that. So we can only In few cases, it will be immediate effect because we need to respect the laws, we need to respect the union discussions in this because A big share of that is this one is going to be in Europe. So that's, of course, in Europe, you know, also it's a little bit longer. In most geographies, at least in Europe, it's a little bit takes a bit longer to Makes sense. Then with the situation in Industrial Solutions, so the plant in Czech Republic and so forth. I guess you will sort this out partially through this program. But overall, could you quantify how much this cost you in Q2? And how long do you think it will take until it's resolved completely? We'll be talking about the individual 1,000,000 But I mean, it's not really in the lower end of that range, of course. So that is there. But it's kind of We have our ambitions, but of course, it shouldn't be a drag on the profitability of Industrial Solutions, which it is at the moment. So but I don't really. I mean, we are working hard on it. It's not been fully as expected in all aspects. And Now we're working on more addressing it on the next level. We have been investing. We have now also more Firm review on some portfolio changes there and now we are addressing the cost base by Cost down. So that is something which we are addressing, let's say, weekly. And I don't really sorry, I don't really want to give you a much Sorry for 4. No, no, no, no, no. But I don't really want to give you because we are working hard on it and we're doing our best. But I mean, it will be difficult Give you a very firm guidance, which we actually feel very confident about. Yes, makes sense. Lastly, With the sort of global uncertainty, etcetera, it's early days in terms of lower M and A prices. But what are the areas that you're right now looking mostly into? And have you seen signs of So the sellers wanting to accept slightly lower prices? We don't see that. I mean, we don't see pricing going down, and that's why we always Be careful. I mean the M and As we're looking at the moment is more highly synergistic ones. So I mean the ones which is more kind of stand alone, Which is very rare that we make an acquisition like that. But I mean those acquisitions is difficult. And I mean, I should be honest to say, we've been in a few processes effectively where we Because we thought the valuations was too high. But with that said and done, we still have plenty of acquisitions, which It's more synergistic and we continue to work on those. But on the more stand alone things, we still I mean, especially still private equity Seems to have plenty of money and they are kind of living in a different way of valuing companies than we do at the moment. I mean you are probably looking at that as well. It seems talking a little bit openly that the valuations in the kind of the private market at the moment is Substantially higher than it is in the public markets. All right. Perfect. Thank you very much. And as Johan said, well, Have a good summer. Yes. Thank you. And our next Question is from Erik Polson from Pareto Securities. I was looking at the cash conversion here, which has Basically decreased since beginning of 2017 from around 100% up to around 70% on a rolling 12 month basis. When do you expect this to turn upwards again? Or should we expect those levels going forward as well? Now we are we going forward and we have taken some as we guided in on CapEx is EUR 1,800,000,000 We have an underlying base underlying base is about SEK 1,000,000,000. And on top of that, we then allow strategic CapEx. We are we will run those through Urs, so that will also have a slight glide impact into next year, but we are not Committing or approving EnerNeill's strategic CapEx, so we will be more firmer CapEx. So you will see CapEx going down Gradually into 2020 next year. And then on working capital also, the other element is then we have been In some areas, in some business areas, like if you take off your construction, as then we are then even though if we see improvement In underlying performance from an EBIT point of view, that will also then consume some cash or consume more on the balance sheet. That is something that we would need to live with. In other areas, we have more specific actions that we are dealing with because we have them On inventory. So you will hopefully see next year in the next few quarters Next few quarters that we will improve our cash conversion. And that might be on the bad side. On the other flip side of the coin, if the Economy goes down, then of course, working capital will also go down. So then we will have a better cash conversion coming from a lower demand. And of We don't want to add that now, but that will add to the funding. And also then where we're spending CapEx, those are where we like in Sales Solutions or with the risk systems. So we are in the right areas. So but you will see it gradually improving. Okay, great. Thank you very much. And as there are no further questions, I will hand the word back to the speakers for any final comments. Thank you. Thanks for sharing interest in Tralborg. And as usual, Christopher is available for any follow-up calls. And of course, Ulf and myself will also know we will actually not do any roadshow here, but I mean we will be more Steve and showing our faces in several conferences here after the summer break in Europe. And then happy to catch up with you. And once again, Christoper is available as always, never on vacation. So please call him. We will be happy to take your calls. And for the rest of you, happy holidays eventually or happy vacation Whenever that comes up for you. So thanks and take care. Thank you. Thank you. This now concludes our conference call. Thank you all for attending. You may now disconnect your lines.