Ladies and gentlemen, welcome to the Trelleborg Q1 report 2019. Today, I am pleased to present Peter Nilsson, President and CEO, and Ulf Berghult, 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 Nilsson. Please begin.
Thank you. Welcome again to all of you to this presentation of our Quarter 1 results for Trelleborg, January to March 2019. Throughout the call, we're going to use the presentation, which can be found on our webpage. As usual, also we're presenting our results. I'm going to kick off by giving you some overall takeaways from our point of view and also commenting on the individual BAs. Ulf will support me, guiding you through the financial part of the report. We will finish off with some kind of outlook for the running quarter. As usual, also finishing off with a Q&A session. Quickly then referring to the presentation, turning to page two, agenda page.
As usual, we have these bullets here that we highlight, starting with the highlights and business areas, financial by Ulf. Summary and Q2 2019 outlook, follow with a quick Q&A where Ulf and myself is going to guide you through. Also on the call here, you might also hear Christofer Sjögren, our head of IR, if there is any questions which we feel that is better to reply on than Ulf and myself. Kicking off to page number three, having 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 an individual quarter, we note, of course, that this is assisted both by currency and also some accounting changes, which Ulf will tell you more about later on.
Overall, it means that the margin is down in the year quarter. Even then, we had the best ever margin a year ago. Even the margin that we have in this quarter is also close to the second best ever for us in a Q1. Margin, although, as I said, driven down compared to last year a little bit by sales mix, also some delays in compensating ourselves from a cost inflation relating to raw materials, also to some other costs. All in all, as I said, a decent quarter for us, even though we expected it to do and we hoped to get it a little bit better. Of course, we're working hard now to get close again to what we had last year. Of course, that is the focus here for the next quarters.
This means that the sales in the quarter are up by 9%, supported by this one percentage point organic growth and two percentage point structural growth, and then on top of that, some currency, which is then pushing up our sales here as they are reported in Swedish krona. EBIT 12.95 corresponded to a margin of 13.8. Already commented on that. We had also, as usual, some items affecting comparability at SEK 20 million, which is lower than the annual run rate. It is 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 than last year, impacted by higher CapEx, mainly then what we call a higher seasonal working capital, which means that we have a higher, especially accounts receivable is higher this year compared to a year ago, which means that we expect that this working capital is in a good spot and that we expect to get that back throughout the year. 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 note with satisfaction here, beginning of the quarter and impacting the sales and profit in the quarter, we have completed acquisition of Sil-Pro within Sealing Solutions, and thereby by this, following another stream of acquisitions the last few years.
We are establishing ourselves with a nice platform for medical and healthcare, and medical and healthcare now is approaching some 10% of sales within Sealing Solutions. That is a nice move that we have done the last few years, which is then strengthening our position in, for us, attractive market segment. That is the overall headlines. Moving to the next page four, commenting a little bit on organic sales. 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 America is 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 change in direction in any way, simply an individual quarter measurement here. We expect it to get better going forward. Turning to page five, new agenda point, business areas. Moving on to page six and commenting on the first business area Trelleborg Coated Systems, organic sales down by 3% and then compensated by a strong structural growth following acquisitions last year, ending up with 11%. Also supported once again by the currency, up by 11% year-on-year. As you know, we have two main businesses in this, which is coated fabric, which is basically unchanged.
North America, as you see yourself, with a little bit change throughout the geographies, but nevertheless, a good development in this segment. Printing blankets, weak in the quarter, in terms of sales, we should 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 continuous trend going forward. EBIT up, linked to the acquisitions. We also note a little bit that we have a small mix issue here, that is pushing down the overall margin a little bit, but nothing really strange in this. Is simply a move in the right direction overall for Coated Systems. We feel, strategically, very satisfied with the development we encountered. Moving on to page seven.
Good organic growth is the heading, weaker margins. The margin here is, as I will relate to it, 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 four, supported also with currency. Construction-related segments, positive. General industry a little bit mixed. We note also that we have a positive sales there in Europe and Asia, slightly weak in North America, not really big differences. EBIT and margin generally is good, the year-on-year 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. We expect it to be better step by step going forward.
We also note that within this area, we are establishing two integration actually happening this month, both in U.S. and India. In U.S., consolidating three smaller factories into one bigger, which then creates more efficiency, maybe more important, the better 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 force us then to move to a new facility where the main activity for India actually is anti-vibration components for Indian Railways, where we then are getting order intake, and that we need to create a bigger facility in order to support this growing segment of ours in India. Moving over to page eight. Offshore and Construction, organic sales down by 8%, which is still a lot down, of course, still getting better and better.
As we have indicated before, we are now seeing improvements here. In the individual quarter, we are, of course, hitting here also losing on EBIT because of these lower sales, and particularly in offshore, also a little bit in the infrastructure segments. That is, of course, pushing down both the EBIT and the margin. Also here we note the satisfaction what we told before. The order intake will continue to grow both offshore and infrastructure segment. We are, as stated before, getting more and more confident that the recovery is on the horizon. We are still firm that it's going to get better and better by quarter, also that by the end of the year, that we're going to turn into profitability again in this business area. Turning to page nine. Trelleborg Sealing Solutions. Organic sales flat-ish, with a structural growth of 4%.
We have North America developing nicely, Europe and Asia slightly softer. General industry flat-ish. You're reading yourself. Automotive weaker, aerospace strong. There is some mix as you see in both geographies and segment-wise. Also from the acquisitions, we also have to note when we look at the EBIT percentage, that what we are acquiring is actually mix-wise, bringing down the margin a little bit here, which, of course, we don't expect to be lasting. That is 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. Order intake Sil-Pro, of course, satisfactory and now once again, creating a good platform for us in medical and healthcare.
Now we are getting on a pro forma basis, close to 10% of sales from Sealing 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 on the top of that also. Some currency, which pushing up the sales by 11%. Agri, relatively small figures, but still positive agri sales in Europe and North America, while a little bit softer in Asia in the quarter. While the other segments, two segments here, industrial and construction, continue to grow. Margin here a little bit dramatically down in a way compared to a year ago, primarily driven down by some price increases which kicked in during the quarter.
We're going out of the quarter with a slightly higher margin than we actually have for the full quarter, driven by that we had to increase prices in order to compensate ourselves for raw material pricing. 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. That is basically the business areas. Moving on to agenda, page 11, financials, then slowly. Quickly.
Quickly.
Quickly moving over to Ulf on page 12.
Okay.
To comment on the figures.
Okay. Thank you, Peter. Let me take you through the consolidated group numbers. On my first slide, page 12, sales development. You can see that organic growth in the quarter was +1%, which was basically in line with our guidance for the quarter. If we exclude project-related businesses, which was mainly consist of our oil and gas operations, our organic growth in the quarter was also +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 Sealing Solutions. The impact from currency translation was +6%. 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 eight quarters in a row of positive organic growth.
On slide 14, you will find a report of sales development quarter as well as rolling 12 months. Slide 15 presents our EBIT development. Our EBIT reached SEK 1,295 million in the second quarter and was positively impacted by currency translation of SEK 53 million and also from the new accounting rule, IFRS 16 on the leasing by SEK 20 million. Negative sales mix and phasing of actions to compensate cost increases impacted the EBIT margin in the quarter. Slide 16 presents EBIT and margin on a rolling 12 months basis. A stable EBIT margin looking over the period, despite having exposure to many tough markets during this period. On a rolling 12 months basis, we are currently at 13.5% EBIT margin. Next slide presents the profit and loss statement for the total group.
Items affecting comparability consist of the restructuring cost that's in line with our annual guideline. Financial net has been impacted by negative exchange rate difference of SEK 24 million and effects from interest expense on the lease recognized in accordance with IFRS 16 of SEK 20 million. Underlying financial net has been impacted by higher interest rates. The tax rate was 26% and our guidance of an underlying tax rate of 26% for the full year stands down. Slide 18 presents 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 SEK +96 million, and as you can see, we have amortized SEK 90 million 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 SEK 1.8 billion-SEK 2 billion. Slide 20 presents rolling 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 2.4 billion. Slide 22 shows the net debt to EBITDA ratio, including and excluding the impact of lease and pension liability. Both ratios have been impacted by higher M&A activity in the quarter and by timing of the dividend payouts. In addition, the operating cash flow was weak in the quarter. Slide 23 shows the net debt to EBITDA ratio and the net debt development, excluding the lease and pension 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% yearly. Finally on page 25, I want to finish off this part of the presentation by repeating our financial guidelines for the full year 2019. As I mentioned, CapEx is SEK 1.8 billion-SEK 2 billion. The restructuring cost is SEK 250 million. The underlying tax rate is 26%. Amortization of intangible assets, we raised that from SEK 300 million-SEK 350 million for 2019. That concludes the financials. I hand it over to Peter again.
Thank you. Page 26, summary and Q2 outlook, running quarter outlook. Turning to page 27, as I said, sales developing as expected and supported with, let's say some exchange rates. EBIT at an all-time high, but we know as Ulf commented on as well that this has been supported with some exchange rates again, and also with these accounting changes related to lease contracts. That means that overall the margin is down, driven by sales mix in various areas, and also with this a bit slow compensation for some cost inflation in some areas. 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 this quarter. We are working hard to compensate for that going forward.
Final bullet point there, I will remind you again about the Sil-Pro acquisition, which is opening up a nice platform for us in medical and healthcare within Sealing Solutions. Also, which we have already done also in Coated Systems, where we also during last year, made an acquisition also moving it closer to this medical and healthcare segment. Turning to page 28. No real changes for us in the way we see market conditions. We do not see, as you say, the market conditions are not really changing going forward. There is a mix issues where we are going to get back to where we still see some challenges in the automotive or vehicle segment, while we see that there are some other segments which continue to improve, like oil and gas, infrastructure, construction. We compensate for that.
Of course, we continue to stay very close to the operations and very close to the business, with our model of decentralized model, making sure people keep on being very agile and quick and 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 is, of course, 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.
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. That is 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 reasonable good order intake in the quarter, we feel confident that the running quarter will be on par with the quarter we just left behind us. Our guidance is that we have expecting a similar demand in the running quarter Q2, 2019 as we saw in Q1 2019. With that, turning to page 30, and then quickly to page 31 and opening up for a Q&A session.
Please, operator, guide us through this session.
Thank you. Ladies and gentlemen, if you do wish to ask a question, then please press zero one on your telephone keypad. Our first question comes on the line of Klas Bergelind from Citi. Your phone is open.
Yes. Hi, Peter. No, if it's Klas on speak. A couple of questions, please. The first one to ask you on coated volumes are now weaker, and it's not only down to a weaker macro backdrop. Printing is pretty volatile there. I just wanted to ask you, Peter, about your confidence level in reaching the 15% margin target. And 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.
Yeah. Quickly comment that we still remain on the 15% target. As you know, we have made some acquisitions, and we see opportunities there for synergies and all of that. We're working hard in order to get there. Will not happen this year, but we are still, let's say, feeling it's within reach for run rate during 2020 for that business. Still, it will entail that we are successful in doing these kind of synergistic actions that we are about to do it in the state.
Yeah. Just to follow up on that. During the Capital Markets Day in Stockholm last year, I think you guys said that the target was within reach now when the production issues were solved in North America, the 400 basis points margin gap on rolling 12 months. You said that half of that was explained by the production issues, where roughly similar gap still on rolling 12. 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?
It's not really a big gap. It might look a big gap, let's say, looking at the figures. We now when looking behind the figures, that is really a few things that needs to move in the right direction. There is a few areas here where, especially on the coated fabric side, where we need some orders in certain areas. We have had some kind of internal mix issues, unfortunate. We see possibilities to get that right now. That especially relates to North America, where we've been selling into some segments while we would like to upsell into other segments.
That is a little bit mix issue, on top of that, as I said, some synergetics and some cost down actions related to some of those acquisitions we've been doing as well. It might look that we are far away, but it's not really. It could turn quickly if we have a little bit, if we get business in the right areas.
Okay. My second one is on the price increases that you have announced in Wheels. It may be 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 you pushed through today enough for the margin to go back to that 14%-15% level again? Would be good to understand whether they're on price versus cost. Is cost now stable, so we're just waiting for the price increase to filter through?
Price increase or price is, of course, the simplest way to increase the margin, but also we need to make sure that this filters through when we get the right volume. It's a combination of volume and price increases. 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. At the same time, of course, we note that oil price is up a little bit and we know from history that then the raw material suppliers will try to increase prices and then, of course, that's going to be linked a little bit to the demand situation how successful they are on that.
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 Wheel Systems. We stay close to it, but at the moment, there is no more kind of price increases in our immediate plan. Who knows? We stay very close to it and we will of course continue to act in a rapid way if we see a need and a benefit in increasing pricing. Also to note, since we continue, of course, also we talk on the margin side, we continue to have cost synergies kicking in, and we continue to have a small support also from that during this year.
Just to follow up, understand obviously raw material, but you started off the call by saying that it is raw material and some other cost inflation. Could you just talk, is it wages? Any bottlenecks somewhere in Wheels we have to be aware of?
Not really. There are of course some bottlenecks everywhere, the general cost increase is more the salary. It is not really related solely to Wheel Systems. That is an overall kind of cost inflation issue. As you say, we were taken by surprise, but we are a little bit behind on a few compensations, not only Wheel, but also in other areas. For instance, we have a fairly increase in logistic costs and transport costs and all of that, but also what you, surprise is the wrong word, but we are not really quick enough to challenge ourselves to get fully compensated. That is in various areas, not only raw materials. It is salaries, it is logistic costs.
It is a little bit, you know it as well, that we have seen a kind of inflationary pressure, which is a little bit higher than the last two years, we have corrected it now, but we could have done better in that aspect. That is simply that you have to be honest to yourself.
Yep
In order to make sure that you improve going forward.
Yep. General cost increase. Okay, good. My final one is in offshore when volumes eventually recover, because we know that orders right now are up strongly. 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? Just 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 above the previous profitability with the, let's say, lower volume that we had before. 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 these projects that we're quoting at the moment? I don't think the volume or cost is not the big thing, it's more what kind of pricing we're able to get.
We know that as the volume grows, as the kind of bottlenecks start to show in some areas, then of course the pricing will go up because it's not only volume dependent, it's also a matter of the kind of pricing we can get on the projects that we actually catch.
Mm. My final follow-up then. Has the pricing backdrop quarter-on-quarter improved at all with the recovering oil price? Do we need to see the supply demand getting tighter for that to come through?
It's getting better, but it's not on the level as it was kind of before the crisis. That is why we see a double up here, triple up. We say both volumes are up, pricing up and cost down. That's of course a combination which sounds very great. We need to get, let's say, the projects on a better price level than before. We are getting there, but it's a little bit also a 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 full. 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.
We need both. We need a mix in the factories in order to get back to or get closer to this, let's say, 10% EBIT margin that we are still aiming for in the long term.
Thank you, Peter
Thank you. Our next question comes on the line of Douglas Lindahl from Kepler. Please go ahead. Your line is now open.
Hi, Ulf. Hi, Peter. A few questions from my side. I see that you seem to be reporting some bright spots for the Group Western European organic growth, excluding project, is improving sequentially, and you've now reverted back, obviously, to your default outlook statement. 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 is not really a big change. I know that you're looking at it closely in detail, 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 par quarter-on-quarter. I cannot see any, looking at it, no big geographical differences and all of that. North America still doing okay.
Yeah.
Europe, flattish or flattish positive. The guidance is that we remain on this 1% level, roughly, in Q2. 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. Segment-wise, it's generally flattish there as well. We see a negative in automotive related, and then we see positive in oil and gas and maybe aerospace. We shouldn't forget aerospace is incumbent, but aerospace is still looking very good overall. 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, also it is a challenge here. You cannot really increase the pricing until you see the price increases. Of course, we need to follow the industry. We see that, what should I say? Sometimes some of our competitors slow in compensating. They want to sell out the stock before they are changing the pricing. We are definitely the first one in the line, but nevertheless, we cannot really be ahead of the line. We feel that we are very close to it, and we know what we want to do. This is unfortunately an impact that we cannot really avoid, that we will have a less margin impact very short term if raw material is going up and down as well. If it starts to go down, then, of course, we will have a positive one.
This is the way it is.
Yeah. I think Ulf mentioned the synergies from CGS. Can you give an update on that? Are those still on track, SEK 300 million of the 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. As Peter mentioned, and we will have further synergies coming in, kicking in in 2019.
In terms of the magnitude of the synergies in 2019, that should be comparable to the magnitude of the synergies you saw in 2018, is that correct?
We should maybe have it here, but I don't have it in front of me.
It's less incremental in 2019 than in 2018.
I think the details is in this presentation. I don't know. I look at you, Sofra. I don't know if you remember by heart, but otherwise, you can go back and look at that, and then you get some details.
That's still valid. Okay
exactly what kind of money we talk about.
Yeah. Just a final question on one-offs. You had quite low one-offs here in the quarter, and you're guiding for SEK 250 million for the full year. Ulf, should we expect most of the one-offs coming towards the latter end of the year, or is maybe the SEK 250 number a bit high?
No, SEK 250 is in line. Right or wrong, we are always guided. We don't book it according to an equal number on a quarter basis. We book them when we take decisions. We had a board meeting today, and we kicked off some of them today, so they will be coming in in the Q2 and Q3.
That's it for me. Thank you very much, gentlemen.
Thank you. Our next question comes on the line of Erik Golrang from SEB. Please go ahead. Your line is now open.
Thank you. I have one question. We've been on the topic that I want to go at it again on the margin development in Trelleborg Wheel Systems and the inability to compensate fully through the quarter there with price. 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 stands out as clearly worse in terms of managing it and being able to raise prices. That would indicate that it's a more competitive situation there or that your competitive position has deteriorated. Is there anything to that? Is it more price pressure in general, more aggressive behavior from competition?
No, we don't read it like that, Erik. We have, let's say, increased pricing during quarter, but it's kind of not kicking in until. We have a better run right end of the quarter compared to the beginning of the quarter. We don't really see it in the same way as you describe it.
Okay. That's it for me. Thank you.
Thank you. Just as a reminder, if you do wish to ask a question, then please press 01 on your telephone keypad. Our next question comes to 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. 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? Maybe then also on the other side, on the M&A side, is there anything large to expect? You still hold a relatively big cash position on your balance sheet. Is there anything you're working on it? On the offshore side maybe, can you give us an idea now on your order intake? Is it still so that you expect a significant improvement during Q2 or will it be rather than being the Q3 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, second part of the year, we can say. We are still, there is a lot of orders still pending, and we're working on that. We feel a higher activity level, and we feel more confident, if you put like that, on our guidance as the weeks go. We feel that it's going to be a substantial improvement throughout the year, but not really any immediate. Once again, guidance stands that it is going to be a substantially better second part of the year compared to the first part of the year. It's going to be a sequential improvement throughout the year.
That is probably the guidance I can give. We also know that this is individual invoicing in quarters and all of that. It's really difficult to give a really clear guidance expecting what's going to get in in each and every quarter. Moving backwards in a way, M&A, we continue to see plenty of M&A opportunities. Nothing big, as we said before, we're not really looking for finding any major here. It's more bolt-on type of acquisitions. We know that there is a scarcity of bigger activities, and we see a bit bigger M&A opportunities, and we think in certain processes we've been in at the moment, I have to be honest to say that we think the valuations is too high.
We are stepped out of a few activities where we feel that there's a lot of competition on all the bigger M&As, and I don't think the pricing truly reflects the value of the businesses. It's more that some is really pushing a lot to do M&A, and we are waiting for M&A who fits both in terms of valuation and business. Still, there is opportunities, and we expect to continue to make acquisitions. Once again, we'll be careful on the valuations, and we'll also be, how should I say, careful also making sure that we are only buying really what fits in. Let's say the situation in Czech Republic with Industry Solutions, we're working hard, but it will require some investment. We are running substantial investments, both in people and facilities in order to get more efficient and get a better set up there.
It will improve stepwise, but there is no magic wand who is solving this. This is simply something that we need to work hard with, and then we do a step-by-step improvement. I don't want to sit here and give a quarter by quarter improvement, but we expect it to be better quarter by quarter.
Okay. Thank you.
Thank you. Our next question comes to the line of Agnieszka Vilela from Nordea. Please go ahead. Your line is now open.
Thank you. I have a question on Sealing Solutions. Can you tell us what is your outlook for this division specifically, and maybe if you could comment on the current trading in Q2? Also, given the fact that you had some margin headwinds in Q1, what is your margin progression expectations for that division? Thank you.
In terms of the segments, we say North America is likely stronger, Europe okay, Asia going to be okay. It's been, of course, now Chinese New Year and everything is always difficult to really read too much out of it. We see high activity level continued in Asia, slightly lower in Europe, still good in North America, talk about geographies. Talking about the segments, automotive, as we said, considerably down in the quarter, driven, of course, with the low raw demand, but also we believe with some inventory adjustments pushing down the automotive even more than the underlying demand. Industrial flattish, basically globally, aerospace continuing very well. In terms of margin ambitions, we have guided for 23% for the full year, that is really what we feel is in line with what we can reach.
We also have to note that this margin, just to remind you, this margin drop, if you may say, in Q1, is primarily related to integration of acquisitions, which is then pushing down the margin somewhat. On top of that, some mix issues, internal mix issues, not really any big, but some mix issues in some segments of it. Correct me if I'm wrong, Ulf, the primary driver for the margin drop is the acquisition.
Yes, correct.
Also, we should also note that we continue to invest. Now with the medical and healthcare aerospace, we continue also to invest in creating a better growth platform. We are, let's say, on 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.
You want more EBIT.
You want more EBIT, more than pushing up the margin, yeah.
Perfect. The second question I have is on your structure for the group, rather than talking about the M&A angle, I would like to ask if you plan any kind of divestment, divestitures. Are you happy with every niche that you are present in right now?
No, of course, we are never happy. We are never happy. We always try to improve. Whether that will end up with selling something, it's not an agenda exactly at the moment. We have been selling business before, and it might or will probably happen also in the future, if we sell some businesses. 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. 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.
Thank you. Our next question comes with the line of Erik Paulsson 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 and construction in relation to the other type of business areas and the overall structure of the business?
I cannot say that I put a lot, internally, we have restructured that. We have two very capable managers now within that business area. We have one guy running the offshore, one guy running the marine and infrastructure segment. This is more run as a business area from my point of view. Those guys is running the businesses, and I don't feel, since we have restructured this into that, it's more that we restructure ourself out of the business area structure. 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 financial part.
Yeah, coordination.
Coordination of that activity. 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. 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. As usual, Christofer is available for any follow-up question. Of course, so is Ulf and myself as well. 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. 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.