Earnings Call: Q1 2019

Apr 26, 2019

Ladies and gentlemen, welcome to the Trelebori Q1 Report 2019. Today, I am pleased to present Peter Nielsen, President and CEO and Ulf Berhult, 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. I will now hand you over to Peter Nielsen. Please begin. Thank you, and welcome again to all of you To this presentation of our quarter 1 results for Trelleborg, January, March 19. Throughout the call, we're going to use the presentation, which can be found on our web page. And as usual, also we're representing our results. I'm going to kick off giving you some overall Takeaways from our point of view and also commenting on the individual PAs. And then Ulrik will support me guiding you through the financial part of the report, and then we will finish off with Some kind of outlook for the running quarter and then as usual also finishing off with the Q and A session. So Quickly then referring to the presentation. Turning to Page 2, agenda page. As usual, we have these bullets here that we highlight, starting with the highlights and business areas, financials by Ulf and then summary in Q2 2019 outlook and follow with a quick Q and A where Ulf and myself is going to guide you through. Also on the call here, You might also hear Christoper Schoeghner, Head of IR, if there is any questions which we feel that is better to Reply on that, then Ulf and myself. So kicking off to Page number 3, heading a decent start to the year, which means that sales for us was basically in line with our expectations. EBIT, Although on a kind of an all time high for us in the mid to the quarter, we will note, of course, that this is assisted by the Currency and also some accounting changes, which Ulf will tell you more about later on. Overall, then it means that the margin is down in the year on year quarter. But even then, we had the best ever margin a year ago. And Even the quarter as I say, the margin that we have in this quarter is also close to yes, the 2nd best ever for us in Q1. Margin, although, as I said, driven down compared to last year, a little bit by sales mix, also saw some delays In compensating ourselves from the cost inflation then relating to raw materials, but also to some other costs. But all in all, as I said, a decent quarter for us. Even though we expected it to do, we hoped to get it a little bit better. And of course, we're working hard now to kind of get close again to what we had last year. And of course, that is the focus here for the Next quarter. But this means that the sales in the quarter, up by 9%, supported by this 1 percentage point organic growth and then 2 percentage point structural growth and then on top of that, some currency, which has been putting up our sales here as they are reported in Swedish kronas. EBIT, EUR 12.95,000,000 corresponding to margin of EUR 13.8,000,000, already comment on that. We had also, As usual, some items affecting comparability are SEK 20,000,000, which is kind of lower than the annual run rate, But it's in line. We still keep the same guidance as before. Ulf will also comment on that and confirm that later. Cash flow, a little bit lower Then last year, impacted by higher CapEx, but mainly then what we call a higher seasonal working capital, which means that we have a higher Special accounts receivable is higher this year compared to a year ago, which means that we expect that this working capital is kind of in a good spot And that we expect to get that back throughout the year. So this is not really an indication in any way on a lower cash flow generation. Cash conversion then obviously gets a little bit lower in the 70%. Once again, we expect that to move up throughout the year. We also noted with satisfaction here at the beginning of the quarter and impacting the sales and profit in the quarter, we have Completed acquisition of Silpro with Ian Sealing Solutions and thereby by this following another string of acquisitions the last few years. Now we are Ourselves with a nice platform for Medical and Healthcare, and that is kind of approaching Medical Healthcare now is approaching some 10% of sales within sealing solutions. So that is a nice move that we've done in the last few years, which is then strengthening our position in, for us, attractive market segment. So that is kind of the overall headlines. And then moving to the next page, Page 4, commenting a little bit on organic sales. Then we note that organic sales, although lower than a year ago, still holding up very well in Western Europe and North America. Other Europe down, nothing really Strange in that, that is a normal south and other Americas also fairly small for Trelleborg. Asia is the part where a little bit lower than we Would have likely to be and where we have some lower sales in this quarter compared to the run rate before, although We don't see this as a kind of a change in direction anyway. It's simply an individual quarter measurement here. We expect it to get better going forward. Turning then to Page 5, new agenda point business areas. Moving on to Page 6 and commenting then on the first business area, Treleborg Coater Systems. Organic sales Down by 3% and then compensated by a strong structural growth following acquisitions last year, Ending up with 11%, also then supported once again by the currency, but up by 11% year on year. And as you know, we have 2 Main businesses in this with the Dakota Fabric, which is basically unchanged, were North America as in CSL, which is a little bit changed Throughout the geographies, but nevertheless, a good development in this segment. Printing Blankets weak in the quarter in terms of sales, which then, Of course, interpret that this is the area which brings down the organic growth in this business area. We expect part of that to be linked to some inventory adjustment to our customers. So we don't really see this as a trend continuous trend going forward. EBIT up, but Linked to acquisitions, but we also note a little bit that we have a small mix You hear that is pushing down the overall margin a little bit, but nothing really strange in this and it's simply a move in the right direction Overall for Coated Systems, so we feel, let's say, strategically very satisfied with the development within Coated. Moving on to Page 7. Good organic growth is the heading, but weaker margins. And the margin here is, As I will relate to it, it's still impacted by these challenges or inefficiencies that we have in the Czech plant, which was also impacting us in the last quarter. Overall, organic sales up by 4% and then supported also with currency, Construction related segments, positive. General Industries is a bit mixed. We note also We have a positive sales here in Europe and Asia, slightly weak in North America, not really big differences. And EBITDA margin generally is good, but the year on year The impact is that we are hit more with these challenges we have in Czech Republic, which we, of course, working very hard to correct and where we have several actions ongoing, And we kind of expect it to be better step by step going forward. We also note that within this area, we are Establishing Q1 integration actually happening this month, both in U. S. And India in U. S, then consolidating 3 Smaller factories into 1 bigger, which then creates more efficiency, but maybe more important, the better kind of Strategic opportunities, better capabilities to support our customers and better capabilities to really bring new business in. In India, it's a pure expansion, which forced us then to move to a new facility where the main Activity for India actually is anti vibration components for the Indian Railway, where we then are getting orders and that we need to create a So moving over to Page 8. Offshore and Construction, organic sales down by 8%, which is still A lot down, of course, but it's still getting better and better as we have indicated before. We are now seeing improvements here. But in the individual quarter, we are, of course, hitting here also losing on EBIT because of these lower sales And particularly in offshore, but also a little bit in the infrastructure segments, and that is, of course, pushing down Both the EBIT and the margin. But also here, we noticed satisfaction what we told before. The order book continued to grow, both for Offshore and Infrastructure segment, and we or, as stated before, getting more and more confident that the recovery is on the horizon, and we are still Firm that's going to get better and better by quarter and also that by the end of the year, that we're going to turn into profitability again in this business area. Turning to Page 9. Treleborg Sealing Solutions, organic sales flattish, but with the structure growth of 4%. We have North America developing nicely, Europe and Asia slightly softer, general industry flattish, You can read, you're reading yourself, Automotive weaker, Aerospace strong. So there is just a mix, as you see, about geographies and segment wise. And also from the acquisitions, we also have to note when we look at the EBIT percentage that what we're acquiring is actually Mix wise, bringing down the margin a little bit here, which, of course, we don't expect to be lasting, and that Something we're working on in order to improve and get it back. So it's not really pushing down our margin in a negative way on a medium long term. Already commented Silpro, of course, satisfactory and are once again creating a good platform for us in Medical and Healthcare. And now we are Getting on a pro form a basis close to 10% of sales from Zealand Solutions coming from Medical and Healthcare segment. Turning to Page 10 on Wheel Systems. Good organic sales, we can say 3% and a good Structural growth as well. And on top of that also, so some currency, which pushing up the sales by 11%, agri, All relatively small, small figures, but still positive agri sales in Europe and North America, while a bit softer in Asia in the quarter. And while the other segments, 2 segments here, Industrial and Construction, continue to grow, margin here, a little It's a bit dramatically down in a way compared to a year ago, primarily driven then by some price increases, which Kicked in during the quarter, so we're going out of the quarter with a slightly higher margin than we actually have for the full quarter, driven by that we have to Had to increase prices in order to compensate ourselves for raw material pricing, and it has been happening and it's been implemented. So the run rate is slightly higher now compared to what we have for the full quarter in Q1. So that is basically the business areas. Moving over to agenda, Page 11, financials and then slowly quickly moving over to Ulijn on Page 12. 2 comments on the figures. Thank you, Peter. Okay. So let me take you through the consolidated group numbers. So on my first slide, Page 12, sales development, you can see Net organic growth in the quarter was plus 1%, which was basically in line with our guidance for the Q4. And if we exclude for project related businesses, Which was mainly consist of our oil and gas operations, our organic growth in the quarter was also plus 1%. In other words, Project business did not have a big impact in this quarter. Structural growth of 2% is mainly coming from Coated Systems and Tivity Solutions. The impact from currency translation was +6 percent. Next slide, Page 13, describes the historical performance of our organic growth. As you can see on the bottom end of the chart, we have had 8 quarters in a row of positive organic growth. On Slide 14, you will find a reported sales development quarter as well as rolling 12 months. Slide 15 presents our EBIT development. Our EBIT reached SEK 1,295,000,000 in the quarter and was positively impacted by Korn's translation of SEK 53,000,000 and also from the new accounting rule IFRS 16 on the leasing by SEK 20,000,000. Negative sales mix and phasing of actions to compensate cost increases impacted the EBIT margin in the quarter. Slide 16 percent EBIT and margin on a rolling 12 month basis. The stable EBIT margin looking over the period Despite having exposure to many tough markets during this period, on a rolling 12 month basis, we are currently at 13.5 percent EBIT margin. Next slide presents the profit and loss statement for the Telstra Group. Items affecting comparability consist of the restructuring cost is in line with our annual guideline. Financial net has been impacted by negative exchange rate difference of SEK 24,000,000 and effects from interest expense on the lease recognized in accordance with IFRS 16 of SEK 20,000,000. Underlying international net has been impacted by higher interest rates. The tax rate was 26%, and the guidance And our guidance of an underlying tax rate of 26% for the full year is still down. Slide 18 percent earnings per share adjusted for comparability items, which was down by 5% to SEK 3.25 Slide 19 describes the development of our operating cash flow. EBITDA has been impacted by IFRS 16 with plus SEK 96,000,000. And as you can see, we have amortized SEK 90,000,000 on the leasing debts. The operating cash flow was impacted by higher seasonal working capital and by higher CapEx activity. CapEx is in line with our annual guidance of SEK1.8 billion to SEK2 billion. Slide 20 Rolling 12 months base to a 12 months operating cash flow. Slide 21 shows the impact of IFRS 16. Opening balance has been impacted by the reclassification of the pension debt from working capital to interest bearing debt. We have restated the historical balance sheet numbers on this change. Closing balance has been impacted by IFRS 16 leasing debt of SEK 2,400,000,000. Slide 22 shows the net debt to EBITDA ratio, including and excluding the impact of lease and pension liability. Both wages have been impacted by higher M and A activity in the quarter and by timing of the dividend payouts. In addition, the operational cash flow was weak in the quarter. Slide 23 shows the net debt to EBITDA ratio and the net gearing development, excluding the lease potential liability. Slide 24 describes the return on equity where the long term target is 12%, including items affecting comparability. The actual outcome in the quarter is 10.5% compared with 9.2% here. And then finally on Page 25, I want to finish off this part of the presentation by repeating our financial guidelines for the full year 2019. And as I mentioned, CapEx is then SEK 1,800,000,000. The restructuring cost, that is SEK 250,000,000. The underlying tax rate is 26%, and then amortization of intangible assets, we raised that from NOK 300,000,000 to NOK 350,000,000 for 2019. So that concludes the financials. So I hand it over to Peter again. Thank you. So then Page 26, Summary in Q2. Outlook running quarter outlook, turning on to Page 27. I mean, as I said, sales Developing as expected and then supported with, let's say, some exchange rates. EBIT at an all time high, but we know it, as Ulf Comment on as well that this has been supported with some exchange rates again and also with these accounting Changes related to lease contracts. So that means that overall, the margin is down, driven a little bit driven by sales mix in various areas And also with this bit slow compensation for some cost inflation in some areas. But all in all, decent quarter With the expectations on sales in line and we, of course, would have aimed for a slightly higher margin in Quarterly working hard to compensate for that going forward. Also, final bullet point here, I'll remind you again about the Silco acquisition, which is This is an opening up a nice platform for us in Medical and Healthcare within sealing solutions and also we already which we have already done also in Kotel And we also, during last year, made an acquisition also moving it closer to this Medical and Healthcare segment. Turning then to Page 28, I mean, current no real changes for us in the way we see market conditions. We don't see, as you say, the market conditions is not really Changing going forward, there is a mix issues we were going to get back to where we still see some Challenges in Automotive or Vehicle segment, while we see that some other segments will continue to improve like oil and gas, Construction, we don't compensate for that. And of course, we continue to stay very close to the operations and very close to the business With our model, a decentralized model, making sure people keep on being very agile and quick in Changing if needed, continue overall on Trelleborg, of course, to work with our portfolio management and focus On improving or keeping our leading positions, still some constraints in supply chain in some materials. Even though we See softer demand in some areas. We still struggle in some areas to get exactly the raw materials on the time we want, and that Something also in parts of the business, which is a challenge for us. Another area where we continue to invest And continue to learn, as I say, especially with the smart use of new technology and the way we are using that to innovate new products and solutions for our customers. And then we still continue on integration. We did quite a few acquisitions last year. And of course, we are Making sure that we get the synergies and that we get the correct setup for those acquisitions, making sure that they're integrated in the right way into the existing business. So that is kind of the focus operational priorities for us at the moment. Turning to Page 29, commenting on the outlook in the current quarter. We see also based on a Good order. I mean, good and a reasonable good order intake in the quarter. We feel confident that running in the running quarter will be on par With the quarter we have left behind us. So our guidance is that we have a similar demand Expecting a similar demand in the running quarter, Q2 2019 as we saw in Q1 2019. So with that, turning to Page 30 and then quickly to Page 31 and opening up for a Q and A session. So please, Operator, guide us through this session. Thank you. Our first question comes from the line of Klas Bergelind from Yes. Hi, Peter Nouf. It's Claus Van Sveet. A couple of questions, please. The first one is to ask you on coated volumes are now weaker, and it's only down to a weaker Curbactra printing is pretty volatile there. So I just wanted to ask you, Peter, about your confidence level in reaching the 15% margin target. If you could provide us with an update on the actions, what is needed and to get there on the timing, please. Do you think you need to Look at the portfolio by any chance, are you confident that you can reach 15% as coated is structured now? I will start there. Yes. And I mean, to quickly comment that we still remain on the 15% target. I mean, as you know, we have made some acquisitions. We see Opportunities there for synergies and all of that. So we're working hard in order to get there. It will not happen this year. And But we are still, let's say, feeling it will be reached for a run rate during 2020 for that business. But still, it will entail that we are successful in doing This kind of synergistic actions that we are about to initiate. Yes. So just to follow-up on that. Jundi, the capital markets in Stockholm last year, I think you guys have said that The target was within reach now that when the production issues were sold in North America, the 400 bps margin gap on rolling 12 months, You said that half of that was explained by the production issues. We have roughly similar gaps still on rolling 12. So could you just talk a little bit about the production issues and whether you're surprised that we haven't seen much more expansion there? I mean, it's not really a Big gap. It might look a big gap, let's say, looking at the figures, but we're now looking behind the figures that is really a few things that needs to Moving in the right direction. We need there is a few areas here where especially on the coated fabrics side where we have we need Some orders in certain areas, we have had some kind of internal mix issues, unfortunate, and but we see possibilities to get that right now. That's especially related to North America, where we've been selling into some segments where we While we would like to upsell into other segments, so that is a little bit mix issue. And on top of that, As I said, some synergistics and some cost down actions related to some of those acquisitions we've been doing as well. So it might look that we are far away, but I mean, it's not really it could turn quickly if we have a little A bit if you get business in the right areas. Okay. My second one is on the price increases that you have announced in wheels. Maybe tricky to talk about the next price increase if it happens on this call, but just to understand, to what extent is the price increase that you pushed through today enough For the margin to go back to that 14%, 15% level again, it would be good to understand better there on price versus cost. Is cost now Stable. So we're just waiting for the price increase to filter through. Price increase, so price is, of course, the simplest way to increase the margin. But also, we need to make sure that this It is true when we get the right volume. So it's a combination of volume and price increases. And I mean, we are always Staying close to the market. But at the moment, we are not really planning or see a need for further price increases. But At the same time, of course, we note that oil price is up a little bit, and we know from history that under raw material We will try to increase prices, and then, of course, that's going to be linked a little bit to the demand situation, how successful are on that. And as we know, the Automotive is a little bit under challenge in certain areas, and we know that automotive is the biggest consumer of these standard Rubber grades, which is also impacting us in the wind systems. So we stay close to it, but at the moment, there is no more Kind of price increases with in our immediate plan, but Who knows, because we stay very close to it and we will, of course, continue to act In a rapid way, we see a need and a benefit in increasing pricing. Also to note, we continue, of Also to we're talking the module side, we continue to have cost synergies kicking in, and we continue to have a small support also from that during this year. And just a follow-up. So I understand, obviously, raw material, but you started off the call by saying that it's raw material and some other cost inflation. Could you start, is it wages, any bottlenecks somewhere in wheels we have to be aware of? Not really. There are, of course, some bottlenecks everywhere. And I mean, this general cost increase is more the salaries. It's not really related solely to Wheel Systems, that is an overall kind of cost inflation issue, I shouldn't say, taken by surprise, but we are a little bit On a few compensations, not only wheel, but also in other areas. I mean, for instance, we have a fairly increase in logistic The transport costs and all of that was also in what's a surprise is the wrong word, but we're not really quick enough to challenge ourselves To get fully compensated for that, so that's in various areas, not only raw materials, it's salaries, it's logistic costs. It's a little bit I mean, you know it as well, that we I've seen kind of inflationary pressure, which is a little bit higher than the last few years, and we have corrected it now. But I mean, we have We could have done better in that aspect. That is simply that you have to be honest to yourself in order to make sure that you improve going forward. Yes, so general cost increase. Okay, good. And my final one is on offshore, when volumes eventually recover because we know that orders right now Or up strongly. But with the cost cutting now in place, I'm not sure if you will answer this, but I will try. Is it possible On the new cost structure, to see the margin back there to perhaps the low double digit, but at lower volumes, as you have this cost action and as Pricing here with the recovering oil price should perhaps stabilize. You have to understand where margins can go to once deliveries increase. Definitely, if we are able to sell at the same prices as we did before, then of course, we will get back to the above the previous profitability With the, let's say, lower volume that we had before. But the big but here and the challenge we have to be Very transparent is, of course, what is the pricing we have here in this uptick of the market? What pricing will we get and what can we get on this project that we're quoting at the moment. So I don't think the volume or cost is not a big thing. It's more what kind of pricing we're able to get. And we know that As the volume grow, as the kind of quarterly starts to show in some areas, then of course, the pricing will go up It's not only volume dependent. It's also a matter of what kind of pricing we can get on the projects that we actually catch. And my final follow-up then. Has the pricing backdrop quarter on quarter improved at all with the recovering oil price? Or do we need to see the Supply demand are getting more tight for that to come down. It's getting better, but it's not on the level as it was kind of before the crisis yet. But it's getting better and it's moving up In a good way, and that is why we see a double up here triple up. We say both volumes up, pricing up and costs down. That's, of course, a combination, which sounds very great. But I mean, we need to get, let's say, the projects on a Better price level than before. And we are getting there, but it's a little bit also gamble on How brave you want to be on the pricing and all of that because still we and a lot of our competitors still not having the factories pulled. In certain segments, We already see it in the offshore, but it's more on the smaller niches than on the bigger, more, let's say, bulk oriented sales. So we need a mix in the factories in order to get back to or get closer to this, the 10% EBIT margin that we are aiming still aiming for In a long term. Thank you, Peter. Thank you. Our next Question comes from the line of Douglas Lindahl from Kepler Cheuvreux. Please go ahead. Your line is now open. Hi, Ulf. Hi, Peter. A few questions from my side. So I see that you seem to be reporting some bright spots for the group. Western European organic growth, excluding projects, is improving sequentially. And you've now reverted back, obviously, to your default outlook statement. So how do you think we should view your marginally more optimistic outlook With regards to growth, is this mainly a certain geography that's driving this? Or is it a certain segment? That's my first question. It's not really a big change. I know that you're looking at it a little bit, a lot indeed, but kind of fine tuning. We had a little bit weaker order intake in Q4. Now the order intake in Q1 is slightly better, and that is why we feel confident that it's going to be On Power, quarter on quarter. And so we're not really I cannot see any The difference in all of that, North America still doing okay. Europe flattish or flattish positive. And so I mean, the guidance is that you remain on this 1% level In Q2, and once again, we don't see that as a major change. It's simply that we are slightly more confident, slightly better order intake in Q1 compared to Q4. And then segment wise, I mean, generally Flat this year as well. We see a negative in automotive related, and then we see positive in oil and gas And then maybe Aerospace. So we shouldn't forget Aerospace. We didn't comment that Aerospace is still looking very good overall. So it's not really a Big change from our point of view. Okay. Coming back to Wheel Systems just briefly. Raw materials here again having a negative impact. Are there any sort of internal efforts you can do to become more agile on adjusting pricing going forward? We need to be quick, but also you cannot really it is a challenge here, you cannot really increase the pricing until you, as I see the price increases. And of course, we are We need to follow the industry. And I mean, we see that, or should I say, without being sometimes some of our competitors Slow in compensating. I want to sell out the stock before they are kind of changing the pricing. We are definitely the first one in the line, but nevertheless, we cannot really be Ahead of the line. So we feel that we are very close to it, and we know what we want to do. So this is unfortunately an impact That we cannot really avoid that we will have, let's say, margin impact very short term if raw material is going up And down as well. We have also just start to go down, and of course, we will have a positive one. So this is the way it is. Yes. And I think Ulf mentioned the synergies from CGS. Are those can you give an update on that? Are those still on track, $300,000,000 out of 2020. Again, what we then communicated earlier in Capital Markets Day, we are tracking That business plan, which is also then the original business plan. So as Peter mentioned, then we will have a third of synergies coming and kicking in, in So in terms of the magnitude of the synergies in 2019, that should be comparable to the magnitude of Simages you saw in 2018, is that correct? We accounted though we should maybe have it here, but I don't have it in front of me. But it's less Incremental in 'nineteen and in 'eighteen. I think the details he is in this presentation. I don't know if I look at it, I don't know if you remember by head. But I mean, otherwise, If you can go back and look at that and then you get some details. That's still relevant. What kind of money we talk about. Yes. And just a final question on one offs. You had quite low one offs here in the quarter, and you're guiding for €250,000,000 for the full year. Should we expect most of the one offs coming towards the latter end of the year? Or is maybe the 250 number a bit high? Now EUR 250 is in line. We are always right or wrong, we are always guided. We don't book it according to kind of an equal number on a quarter So we booked them when we take decisions. And we had more billing today, and we kicked off Some of them today, so they will be coming in Q2 and Q3. That's it for me. Thank you very much, gentlemen. Thank you. Our next question comes from the line of Erik Gollrang from SVB. Please go ahead. Your line is now open. Thank you. I have one question. I mean, we've been on the topic, and I want to go at it again, on the margin development in wheel systems and the inability to compensate fully through the With price, it just at least if I'm not mistaken on the kind of raw material volatility we've had leading up to this And looking at historical patterns, this sort of stand out as clearly worse in terms of managing it than being able to raise prices. Is it a more and that would indicate that it's a more competitive situation there or that your competitive position has deteriorated. But Is there anything to that? Or I mean, is it more price pressure in general, more aggressive behavior from competition? No. We don't really like that, Erik. I mean, we have, let's say, increased pricing during quarter, but it is kind of not kicking in until so we have a At the run rate end of the quarter compared to the beginning of the quarter, we don't really see it in the same way as you described it. Okay. That's it for me. Thank you. Thank you. Our next question comes from the line of Malte Schulz from Commerzbank. Please go ahead. Your line is now open. Hi. Just a couple of questions left from my side. And You already talked a little bit about on the Czech side. Is it something or when are you confident that this issue is Completely resolved. Is there already some plan? Is it mid quarter? Is it end of quarter? And maybe then also on the other side, I mean, On the M and A side, is there anything large to expect? I mean, you still hold a relatively big cash position on your balance sheet. So anything you're working on it? And on the Offshore side, maybe can you give us an idea now on your current Is it still, sir, that you expect a significant improvement during Q2? Or will it be rather than being mid history end of the year? Starting with the offshore one, the guidance that we have done before is fine. Order intake is good. We expect this improvement throughout the year, But it's not going to get into some kind of positive territory until later end of the year, 2nd part of the year, we But we are still I mean, there is a lot of orders still pending and we're working on that, but we feel a higher activity level and we feel We're confident, if you put like that, on our guidance as the weeks go. So we feel that going to be a substantial improvement throughout the year, but not really an immediate. We once again, guidance stands that it is going to be It's essentially better second part of the year compared to the 1st part of the year. It's going to be a sequential improvement throughout the year. So that is probably the guidance I can give. We also know This is individual invoicing in quarters and all of that. So it's really difficult to give a really clear guidance, especially what's going to get in, in each Moving backwards in a way M and A, I mean, we continue to see plenty of M and A opportunities. Nothing big. As we said before, we're not really looking for Franekindi Major here. It's more bolt on type of acquisitions. We know that there is a Scarcity of bigger activities, and we see bigger M and A opportunities. And we think in certain process that we've been in at the moment. I have to be honest to say that we think the valuations is too high. So we are kind of stepped Out of a few activities where we feel that the there's a lot of competition on all the bigger M and As, and I don't think Pricing truly reflects the value of the businesses. It's more that Sam, it's really pushing a lot to do M and A, and we are waiting for M and A or fits both in terms of valuation and business. But still, There is opportunities, and we expect to continue to make acquisitions. But once again, we'll be careful on the valuations, and we'll also We'd be, I should say, careful also making sure that we are only buying really what fits in. And let's say, the situation is Czech Republic with Industrial Solutions. I mean, we're working hard, but it still requires some investment. We are Running substantial investments both in people and facilities in order to Get more efficient and get a better setup there. And it will improve. It will improve stepwise, But it's not kind of there is no magic wand who will be solving this. This is simply something that we need to work And then we do a step by step improvement. So I don't want to sit here and give kind of a quarter by quarter improvement. I do expect it to be better quarter by quarter. Thank you. Our next question comes from the line of Agnieszka Vilela from Nordea. Please go ahead. Your line is now open. Thank you. I have a question on Cealing Solutions. Can you tell us what is your outlook for this division specifically? And maybe if you could Comment on the current strategy in Q2. And also given the fact that you had some margin headwinds in Q1, what Is your margin progression expectations for that division? Thank you. Yes. In terms of the segments, we say North America, slightly stronger Europe, okay. Asia, going to be okay. It's been, of course, now Chinese New Year and everything. It's always difficult to really Read too much out of it, but we see high activity level continued in Asia, slightly lower in Europe and still good in North America, talk about geographies, talking about the segments. Automotive, as we said, is down, I mean, considerably down in the quarter, driven, of course, with the lower overall demand, but also we believe with some Inventory adjustments pushing down the automotive even more than the underlying demand. Industrial flattish basically globally and then Aerospace continuing very well. In terms of margin ambitions, I mean, we have guided for 23% For the full year, and that is really what we feel is in line with what we can reach. Because we also have to note that, I mean, this margin Just to remind you, this margin drop, if you may say, in Q1 is primarily related to integration of Positions which is then pushing down the margin somewhat. And on top of that, some mix issues internal mix issues, not really any big, but Some mix issues in some segments of it. But the primary driver for the correct me if I'm wrong, Jose, but primary driver for the margin drop is the acquisitions. Yes, great. And also then we should also note that we continue to invest. I mean now with the health care, let's say, medical and health care, aerospace, we will continue also to invest in creating a better growth platform. So we are, That's all purpose carrying a little bit extra cost in order to create a better platform for growth long term, Which we have been also telling before that we are investing in this business area in order to create good platforms for long term growth. We want more EBIT. You want more EBIT, more more than pushing up the margin, yes. Yes, perfect. And second question I have is on your structure for the group. And Rather than talking about the M and A angle, I would like to ask if you plan any kind of divestment, divestitures. So are you happy with every initiatives that you are present In right now? No, of course, we are never happy. I mean, we are never happy. We always try to improve. But whether that will end up with selling something, I mean, it's not an agenda exactly at the moment, but we have been selling business before, and it might or will probably happen also in the future We sell some businesses, but that is nothing really that we want to elaborate on externally what to sell or what to buy or something like that. That is something we are running as an internal process. But our portfolio what we call portfolio management activity is a never ending activity and something which we are Continuously addressing and working on. Thank you. Our next question comes from the line of Erik Paulson from Pareto Securities. Please go ahead. Your line is now open. Yes. Hello. This is Erik. Maybe a bit strange question, but I'm wondering how much management Activity or time do you put on offshore construction in relation to the other type of business areas and the overall structure of the business? I mean, I cannot say that I put a lot, but we have I mean, internally, we have restructured that. We have 2 very capable managers now Within that business area, I mean, we are 1 guy running offshore, 1 guy running the Marine and Infrastructure So this is kind of more run as a business area from my point of view. And those guys It's kind of running the businesses, and I don't feel since we have restructured this into that, it's more that we kind of restructure ourselves out of The business area structure, so that is really the activity. And we also changed a little bit internally in the quarter and say that Ulf is stepping out, and we appointed another guy who is More assisting on the kind of financial part. Yes, coordination. Good coordination of that activity. So I don't feel that, that is any kind of Special burden for me, if that is what you are referring to. Yes, exactly so. All right. That was it. Thank you. Thank you. And as there are no further questions registered, I will hand the word back to the speakers for any closing comments. Thanks a lot for your interest in listening in on our presentation of our Q1 results. And as usual, Christophe is available for any follow-up question. Of course, so is Ulf and myself as well. And we will meet some of you, I guess, here in the next few days as we are visiting a few guys To present this further in detail and if not so, then hope to see you soon and have a nice weekend. Have a nice weekend. This now concludes our conference call. Thank you all for attending. You may now disconnect your lines.