Okay. Good day, everyone, and welcome for today's financial hearing with Trelleborg. I also like to welcome everyone participating via the webcast and telephone conference. Moderator today is Hampus Engellau from Handelsbanken, he will be back later and lead the Q&A session. I now hand over to the CEO of Trelleborg, Mr. Peter Nilsson. Please go ahead.
Thank you. Welcome, all of you, to this presentation of our year-end results, more focusing then on the Q4 performance. I'm going to start the presentation, give you our overall takeaways, introduce the business areas, and tell you about the performance of the business areas, various business areas we have in Trelleborg. I will be assisted here on stage by Ulf Berghult, our CFO, who will guide you through the financials, and finishing up with the summary from me and also some comments on the outlook for the running quarter. As usual, also finishing off with the Q&A session. Running agenda as usual, nothing new from Trelleborg. Starting with some general highlights, business areas, Ulf doing the financials, Ulf and me jointly doing the summary and the running quarter outlook, and also Ulf and myself jointly on the Q&A.
Starting on the overall highlights for the quarter. We came in solid overall sales growth of 8%. Organic sales then split on 2% up and excluding the project as we usually do since the project is a little bit up and down, increase was 3%. Of course, the difference in between currency and also some structural growth, continue to make acquisitions, and we continue to add also structural growth on top of the organic sales. EBIT came in at SEK 977 million, which is the highest ever for Trelleborg in a quarter. As Ulf will guide you through, we have now more than five years of every single quarter increasing the profit, but Ulf will show that a little bit later. Margin come in a little bit slim compared to last year, 11.7%. We had a heading here, despite challenges also, I didn't comment on that.
There is a few individual units where some special situations, I'm going to tell you about that as well, which then pushing down the EBIT somewhat in the quarter. Items affecting comparability of SEK 98 million. Ulf will also guide you to that, we're running as usual, high activity in order to continue to improve our structure as we have been doing for many years now. Operating cash flow, a little bit lower than last year and also a bit lower if you look at rolling 12, that is driven by very high CapEx for the Trelleborg in historic perspective, continue to invest a lot. We continue to build for the future. Ulf will also comment on that and show the CapEx levels. Already here may be worthwhile mentioning that this high CapEx is not an overall higher CapEx.
It is actually driven with a high CapEx by some individual projects that we are running at the moment, which is not recurring projects. It is simply a coincidence that a lot of big projects is coming at the same time. Also in the quarter, important step for us in one niche that we have within Wheel Systems is two-wheeler business, where we are running out of capacity, running at full capacity in our existing plants, and we needed to add capacity. We decided then together with a partner in India, which we have known for many years, we start a manufacturing joint venture in India then in order to continue to grow this niche within what you call a two-wheeler business, with the majority of the sales is actually in Europe.
Also with this coming on stream, we will also be able to push these sales into North America and parts of Asia. As I say, an interesting step, even though it is going to take a few years before we see the full benefits of this. Looking at the sales in various geographies, we can say it is basically good all over. In Other Europe, for us, which means by Central and Eastern Europe where we are down, while all the others is doing good. North America continuing on a very good path. South America continuing for us on a very good path. Asia also in general doing very well. While then we are down in Western Europe compared to last year, which is also then linking a little bit back to our overall comment on the outlook that are going to get later.
Other Europe, we see more as an individual quarter with dramatic drop linked to some special events. Basically, overall, good sales development in the quarter and generally good activity level all over the world still. Talking about the business areas, starting with Coated Fabrics. Organic sales up in the quarter and even stronger structural growth driven down by some acquisitions which has been kicking in during the year. As you know, we have two operations here, Coated Fabrics and Printing Blankets. Good all over in a way, in general. We note, as many others, a little bit weakening in the automotive segment for Coated Fabrics, but overall still growth in that segment. Printing Blankets also, slim increase now, especially driven by a good performance in Europe.
All of this is then dropping down to a good drop through, driven by, of course, the higher sales, but also on a higher productivity and also benefiting from the acquisitions. A good performance for Coated Systems and a solid profit growth compared to last year. Industrial Solutions, basically also overall good development. Organic sales strong, 7% up. Most markets, most geographies, developing well. If we should highlight something, some builder related segments related mainly to Northern Europe, which is a little bit weaker and also in certain segments in North America, also a little bit weaker in these segments, but nothing really noteworthy, but nevertheless, slightly weaker. As I said before, all geographies doing fine here.
This is a majority of the European-focused business, but we are also growing our presence in North America and Asia, especially in Asia, from relatively low levels, but nevertheless, very strong growth general in Asia and also North America in general, developing nicely. We have one issue here in this business area, which has been escalated during this quarter. It is an issue that we have had for some time. We have been struggling with one of our factories in Czech Republic to get workers and to keep the workers, and this bottleneck has been basically a fact for quite some time. In this quarter, these problems continued and we created inefficiency. We say in the quarter we have a hit from this in the range of SEK 25 million-SEK 30 million. We are addressing it.
We have been addressing it for some time, and we are very sure that it is going to improve. We are investing in this factory to create a better workers' condition, also higher optimization and better process flow. This issue will be solved. The good thing is that we have the sales, so the sales is there, but it is more to make sure that we are addressing these sales in a good way. We are going to also admit that a little bit taken by surprise that we had these issues here. This is now being heavily addressed, and we are adding more resources in order to solve this as quick as possible, even though, there is never really any quick fixes on this. Nevertheless, it is going to get better and we are going to improve going forward.
If you take that back, this SEK 25 million-SEK 30 million extras, then you add that back, then you see we have actually a good drop-through in all the remainder of the business within Industrial Solutions. Also very small, but also here, as I said, we are growing in Asia, and we actually created a joint venture with the biggest hose manufacturer in Southeast Asia and creating a joint venture focusing on a specific niche called composite hoses with a very high-end application for industrial hoses, very aggressive chemicals and very, let's say, demanding environment. This is, which is not currently not being produced in Southeast Asia. We are starting now to create a local presence within those areas. This was Industrial Solutions. Looking Offshore & Construction continued. Very strong organic decline of sales.
We also comment that basically coming both from offshore and more periodically, I should say, on infrastructure construction, it is not really an underlying problem in that respect in infrastructure construction. It is more an individual quarter here pushing down the sales due to some projects being pushed forward. Of course, this is then impacting us that we have an under absorption. On top of that, we also have some issues here related to a few bigger projects where we have actually allocated too much hours to those, and we need to do a write-down and take away some costs also in this. We have an individual hit related to this, which is kind of non-operational issue, which is then costing us also some SEK 25 million-SEK 30 million in this quarter. That is kind of the dimension of that.
We note as well, if you look more long-term, of course, we're always focusing on long-term, we continue to have strong growth in the order book, both related to the infrastructure construction and to the oil and gas activity here. One project to mention, we got in the quarter, we got actually our biggest ever tunnel order, for instance, for China. Fortunate, I should say. Of course, this is not to deliver until end of this year, even going into 2020. Even there, as we're filling up the order book and we see also on the tunneling project now that that is also picking up from a few very weak years. On top of that, we have plenty of good fender projects coming in.
Also we see basically all over the offshore oil and gas area that is also this continuation of growth in demand or growth in projects is growing. We're tracking this, what we call orders to be placed, which is basically where we know that our customers has gotten the orders but have not yet placed the order to the supplier for the projects. We see this growth in orders to be placed is continuing, especially related to the oil and gas activities. We continue to believe that we are on a very bottom of this cycle now, and we firmly believe that we're going to see a strong improvement throughout 2019 with the, let's say, the bulk of this improvement coming to the later parts of 2019 and going into 2020.
We believe that we have turned the corner here, we believe once again that we're going to see a substantial improvement, especially here going from second part of this year, continuing into 2020. Sealing Solutions, which of course, the key profit contributor in Trelleborg and the key kind of value driver for us continue to deliver very well. Organic sales up 6%. All geographical areas continue to develop very well here. We say also general industry continue. Aerospace, very good. We have on the last few years in aerospace kind of widened our target segments, if you put it like that is paying off now. We get a very good order intake in the aerospace. We create, let's say, big benefits. This is long-term orders, of course, in the aerospace.
If you get into an aircraft, you know you're going to be delivering to that for several years. Then following that is the aftermarket, that effort is paying off very well here within Sealing, which is creating a more solid foundation for the future. A little slightly weaker in automotive for us is actually North America, which is a little bit maybe not exactly like everybody else, that is where we see continued good demand in Europe, continued good demand in Asia, while we have been suffering somewhat. We shouldn't highlight, it's not really a big figure. If we should point out something, it's actually a suffering for us in automotive in North America. We leave it odd. It's related to individual platforms and individual customers. It's not really linked to the overall demand in a way. EBIT and margin, slightly up.
Drop-through is not maybe that high compared to the sales and going down to EBIT. As we commented before, we are investing in this area. We continue to grow in order to keep a sustainable growth in this. Even though, of course, we always balance short-term, long-term, but especially in this area, we like to really create the foundation for the future and make sure that we continue to grow. It's also in this area where we have, let's say, we say before it was high CapEx, and this is also the area which is kind of getting the highest share of our CapEx, where we're then building new factories. We're expanding actually a factory in Sweden here in Kalmar, and we're also developing a factory in Denmark, and we also, as you know, during the year also invested a lot in our innovation center in Stuttgart.
We also now attacking what we call the logistical setup, also place chain organization, where we're also going to invest in order to make sure that we can support the growing sales and also continue our path to add more service to our products. This is kind of an area where we're focusing a lot, and we also continue, of course, to scout for Bolton. That is why also happy here to say Sil-Pro, which is now going to be changed into, of course, the Trelleborg name, but that was a deal we signed a few months ago, but it was now fully completed here by beginning of January. As expected, now that is bringing a strong growth for us, especially what you call clean room manufacturing, which is then primarily taken for clean room manufacturing, medical and healthcare, but there's also other applications for this.
We're growing in this very interesting niche and then supplementing our presence, which is already very good in Europe. Now also we have kind of following a few acquisitions into this segment in North America. We are now also establishing a firm leading position within this niche within sealing. That is a very strategic important acquisition for us, which is opening up new avenues for growth and income go forward. Happy to have that concluded. Finishing off then with Wheel Systems, organic sales a little bit down, actually -1%, driven especially by agri sales in Europe and Asia, while we continue to grow in North America, where you know, for those of you who have been following for some time now, that in North America, we have a much weaker market share than we have in Europe.
In North America, we're growing on the back of growing market share, while in Europe, we are well established. In Asia, it's a little bit turbulent sometimes. In Asia, maybe if you should highlight something where we have been suffering a little bit from these new trade wars, it's actually some move of manufacturing of tractors from China and into North America, and that is kind of benefiting as North America, and we're losing a little bit in Asia. No big deal actually for us. We are more global than most of our competitors, and we are able to swing this around in a way that others might not be able to do. To supplement this weaker agri sales, we continue to have a solid growth both in industrial and construction tires.
Industrial, as you know, we have a good global market share, and we continue to grow with the growth of global trade, if you put it like that. In the construction segment, we are fairly small, and that is an area also where we're investing into in order to grow our capacity, in order to be able to grow the construction segment. Overall, Wheel Systems developing very nicely for us. I should say in the quarter, there is a slight EBIT improvement. Could have been more, but also in the quarter, we continue to have this a little bit negative mix that we sell more to the OE than aftermarket, which is short-term pushing down the margin a little bit.
Here, I should say, even though overall very satisfied with the development, with the execution of the synergies following the CGS acquisition continues to deliver, but we still have this kind of negative mix. Of course, we hope now going into 2019 that we will see a better aftermarket and thereby also turning from a negative mix into positive mix. Let's see if it happens. We know that it's weather dependent, a little bit about the farmer's income and all of that. Nevertheless, we have been suffering from this throughout 2018, while still, as you know, have been growing the profit a lot. Of course, if you get this positive mix as well going forward, we will see an improvement also in that respect.
Nevertheless, results based on the sales should have been better in the quarter, but once again, negative impacted by this negative mix. Also here, I wanted to comment on the joint venture in India. We're working here with niches, and this is kind of creating a foundation also to start to focus with more on this two-wheeler business, which is a very niche business, of course. We are globally very strange niche, but we are off-road motorcycles. We are number one in the world, and this is something really that we want to focus on. From that position, also try to grow a little bit more on the road with specific niches. That is kind of our ambition here, not to create a global leading market share in total of that business, but be very niche in this extreme niche, if you may say.
That is a little bit about the business areas, and then ask Ulf to comment on the figures before I'm back to supplement Ulf on the stage.
Thank you, Peter. I will go through the consolidated numbers. This is the slide showing the overall development in the quarter and year to date. As Peter mentioned, we had a growth of organic growth in 2%. If I exclude the project-related business, we have 3%. I need to remind you that quarter four is one of our weaker quarters, that we are stronger in Q1, Q2, first half, and slightly weaker in the second half. As Peter mentioned, as a reminder that we had a good growth in Trelleborg Industrial Solutions with 7%, followed up by the Trelleborg Sealing Solutions within 6%.
On which we haven't had long time, which has been impacted by that we have moved some volumes on our mixing in Coated Systems, they actually may report a 2% organic growth in the quarter. However, this is offset by the Offshore & Construction with -17%, and we had Wheel Systems, as Peter just mentioned, -1%. The structural growth in the quarter, that is coming from Coated Systems and Trelleborg Wheel Systems. The next slide is showing the development over the last quarters here. We have 11 quarters of positive sales development, and it's impacted both by structural and organic growth. On the bottom part of the slide, you will see the organic growth. Of course that has been impacted by the project-based business over the last quarters here.
Next slide is the quarterly development and on the rolling 12 months development. We can say that the quarter four, that is the highest quarter so far for quarter four. Moving over to EBIT. This is in absolute terms, in absolute amount, the highest quarter we have had in a quarter four. For the full-year, this is the best year we have had in the Trelleborg Group, both in absolute terms and in margins. We ended up with the 13.8 for the full-year. If I just comment on the currency impact, we have a slight currency impact here in the quarter. We have a translation impact of SEK 40 million, and year to date we have SEK 134 million on translation. Moving over to the quarterly development.
As Peter mentioned, we have had, this is the 23rd consecutive quarter of improved profits, and with the EBIT growth. Touch base, this is the consolidated profit loss statement of the group, and that what I would like to comment is on the restructuring. We guided in the beginning of year SEK 250 million, when it ended up on restructuring on SEK 180 million. Compared with 2017, which was more of a one-off year, we had a comparability item, we had restructuring items of SEK 781 million, which we closed our facility in Houston with the Offshore & Construction. At the same time we got a deferred payment on our divestment of Trelleborg Vibracoustic of SEK 467 million. That is the reason for 2017.
The other comment I would like to do is the tax situation where they've changed the tax in U.S. both in 2017 and 2018. Now we hope that it's the final outcome. We also have a hit in the quarter of SEK 51 million. Last year we had a hit of SEK 129 million due to this U.S. tax reform. The underlying tax is 23% in the quarter. Our guidance, which I will come back to, but that is still 26% going forward. Earnings per share, which I will concentrate on continuous operation excluding items affecting comparability, because that's the underlying performance. That is up 10% year-on-year or quarter-by-quarter. Moving over to cash flow.
As the headline here said, it's impacted by higher CapEx activity. I will come back to the guidance for 2019. You can also see that we have a year-on-year improvement, or we are kind of releasing more of cash on the working capital in the quarter, but also then to be honest, and if I look on the closing balance, we have a slightly higher working capital end of the year versus end of 2017, which is mainly coming from slightly higher inventory. Those are in the right places because that is really in Industrial Solutions, Sealing Solutions, and Wheel Systems. Moving over to the quarterly development in the rolling 12 months, you can see it has been sliding. That is due to a higher CapEx activity in 2018 and end of 2017. The leverage, it's stable.
We are on 1.7. That is slightly down on if I take away the items affecting comparability. Last year we had a 1.8, now we're on 1.7. Moving over to the slide of which we show both gearing and leverage. You can see that we are on healthy levels. The gearing is on 33%. The leverage is on 1.7. I also want to mention that the net debt as such has been impacted by the currency negatively by almost SEK 800 million for the full-year or closing balance end of 2018. Return on capital equity, we are aiming to reach, or try to even get up to 12%. We have a slight improvement in both. This target is for the group total, so we are moving from 11.0 up to 11.1. It's not much.
If I take away those items affecting comparability, slightly better than up to 11.7. The target is on the total group. Moving to the guidance for 2019. We are guiding for the CapEx of SEK 1.82 billion. Coming back to Peter's comment earlier, the bulk of the increased CapEx, that is basically that we are taking a move into strengthening our logistical setup within Sealing Solutions. In Germany, we also have two core sites or key sites that we are improving, both the Helsingør site, as Peter mentioned, also our site in Sweden in Kalmar. We're also doing investments in Wheel Systems in the Czech Republic in order to increase the capacity.
Also we have some IT investments in Industrial Solutions, also in Czech Republic, slightly related to the issues that we have had with this bottleneck on labor. Going forward in restructuring, we are then guiding SEK 250 million for the full-year. The underlying tax rate, that is 26%. Just for information, the amortization of intangible assets, that is about SEK 300 million. Moving over now to you.
Thank you, Ulf. Please stay here. You can stay here. As we said before, record earnings for us. We have solid growth in the quarter, sales growth, not a full drop-through in this quarter, linked to specific issues, especially related, as I said, these bottlenecks in Czech Republic, which we are addressing both reinvestments and adding extra resources in order to solve this. On top of that, also some write-downs in the Offshore. Let's say operational write-downs, if you put it like that, within the Offshore area, which is then pushing down a little bit. Overall, besides that, very stable development in Industrial Solutions. Stable development, good development in Sealing Solutions. Also good development within Wheel Systems, especially then related to that we still have this somewhat negative price mix here, which is pushing down the margin a little bit.
Also a satisfactory development within Coated Systems in the quarter. Maybe with Coated, we have not really mentioned, but during the year, of course, we had also made some interesting acquisitions there, which is actually moving us towards medical and healthcare. We're now investing into that area and also growing our footprint related to aerospace within Coated Systems. We're getting a better end market exposure in that market slowly. We're now addressing this structure in order to create even more efficiency. EBIT ended up, as I say, a little bit shy of SEK 1 billion, which is the highest ever, as Ulf said. Now we have had 23 quarters of a growing profit, if you calculate rolling 12.
Also, if you look even more, because look at the last 10 years of Trelleborg, we have been growing sales by a CAGR of 7%, which is, of course, good, which is in line with our target. More importantly, we've been growing profit during the same time with a CAGR of almost 16%, 17%. Of course, that has been a solid development now over 10 years for us, and we're going to continue, of course, on the same path. Cash flow is a little bit down. As Ulf and myself have commented, this is driven by CapEx, which we believe is very clever CapEx for us, which is then especially reinforcing the strong position with our Sealing Solutions. On top of that, also addressing some potential bottlenecks within Wheel Systems.
We are growing Wheel Systems, we expect possibilities to grow into both new geographical areas and new applications. We need to invest into that, and these investments creating some cost synergies and some operational synergies related to the CGS acquisition. We firmly believe that this investment makes a lot of sense and creating a good foundation for continued development of Trelleborg. This is really the takeaway. If you look at Trelleborg in total, we continue to work in the same way. We know that the company is addressing a lot of different niches, a lot of different applications, we continue to manage all those activities individually and continue to push market position, operational excellence, and customer integration in all those areas. We're going to continue with this, what we call portfolio management.
We're going to continue to see us doing smaller bolt-on acquisitions in order to strengthen these positions and then organically exiting a few areas which we don't find interesting long term. We still see in some areas that we have constraints in the supply chain. Even though a little bit slower organic growth in this quarter, we're still running at a very high capacity utilization. It's always a balancing act whether to grow capacity or whether to try to squeeze a little bit more out of the existing supply chain. That is something that we're addressing. Also innovation is a key thing for us. Since we are on the forefront in most of the positions we have, we want to be not only the market leader, but also be seen clearly as the innovation leader.
This is also an area we're investing a lot. To make sure that we integrate and continue to make acquisitions. We have been doing acquisitions throughout 2018, we expect also 2019 to be a year of acquisitions, even though you can never exactly plan when those acquisitions will happen. We will continue to address it and making sure that we integrate it in the best possible way. This is the focus of Trelleborg, continue the same journey as we have had the last 10 years and make sure that we work in a similar way, continuously improving sales, but more growing profit even more than sales.
That is really the ambition here that we have long term. Looking at outlook for the coming quarter, I have to say that we debated a little bit internally on what to say, ended up with this conclusion and saying that we are going into this quarter with a little bit less confidence, put like that, than we were going into Q4. It's really on the brink of being, we might be that as we are wrong with this estimate, it might be that we end up at 2% again or similar to 2%, it might also be that we are slightly lower. This is really our take on this. We feel that underlying demand is still good. We will continue to grow order book, we continue to believe that this outlook might have to be changed upwards again when we go into Q2.
As we see it today, it might be 2%, it might be a little bit shy of 2%, we don't see really any drama in this guidance, as I saw already here on some comments that put some drama into this, we don't really see it. It's more try to continue to be fully transparent on the way we look at the business. I expect some questions on this, so I think I end there, and then I'm inviting Hampus to join me on the stage to guide us through the Q&A session.
Thank you very much, Peter. Why don't I start then?
Yeah.
Somewhat lower, that is, of course, something that one has to react to. Is there other areas, or is it still Europe, auto, and Asia, or how should we think about that?
I don't think we are really looking at our world demand. The only segment really that we can see is a little bit tougher, say, is automotive. I could say all industrial segments is performing well. Might be in certain areas, some inventory adjustments and all of that, we don't see the underlying demand. We don't really see the number of projects being less. It's always a balance. We see continued growth in demand, for instance, for offshore oil and gas and for the infrastructure. We should say also oil and gas is, of course, even though we talk Offshore & Construction or data, of course, we have some hints of that also in Sealing Solutions.
We have some hints of that also in Industrial Solutions, where we still see a continued higher activity, even though usually it is with a little slightly longer before you get into sales. I don't know if you want to supplement. Where is the weak areas, if you say?
As I said, within the sum we see within automotive, also fair to say that if you take the wheel business, that we had a good growth in the OE side in 2018, might be then that if you look at the outlook of our customers, they are more kind of a flat-ish. We have a growth in North America.
Maybe it's also correct. It's a tough comps in OE for agri, especially as well, that is not really quarter-on-quarter, not that bad. Nevertheless, it's going to be tough. Once again, this is a hint. What do you say? Do you say if we keep it same or you keep it slightly lower? It's really a balance. We will understand that if anything, we believe it's going to be slightly lower instead of slightly higher. That is really our take on this. We also, start of the year has been relatively good, so it's not really any major direction change in this guidance.
On the fourth quarter, if we would adjust for the project business, where would we be on organic growth? That's the number that you previously talked about.
3%, if we would take away that, 3%.
Also, we should say Offshore & Construction, you get this smaller and smaller. Even though it's high numbers on the - 17, but the impact from that on the total group is becoming less.
Do you have any questions from the audience?
Hello? Can you hear me? Douglas Lindahl, Kepler Cheuvreux.
Solve these issues? Yeah. It has been, let's say, an issue that we have had for some time. It's not a new problem.
Yeah.
We have been addressing it. We have been investing throughout the year. We are the middle of an investment program. A little bit surprised of the dimension of the problems in this quarter. We expect it to get better and better, but we don't expect a big swing, so to say. Individual quarters, we will talk, because if you say a negative with 25, 30, then of course the improvement potential is even more than that. Of course we are not only aiming to get up to zero we would like to be well above zero there. This is something which we are addressing at the moment, and it's difficult, really, to give exact details on when they're going to bounce back, but we're going to see improvements step by step.
Yeah. Throughout the year.
That's it. Thank you.
Olof?
Yes, hi. Olof Cederholm from ABG. Following on a little bit on the, sorry for that, problem areas. Offshore & Construction, there was some extra cost in Q4. You guide for return to profit in the second half. How should we face the improvement going forward? Will the extra cost be zero in Q1, or how should we see this?
We will not have any extra costs where we're looking. We have a good base now in Offshore & Construction, within the business unit offshore, and also within the Infrastructure Construction. What we're saying is that Q1 will be in the same below. We will have gradually step up. Q1 will not be good. Hopefully Q2 will be better, Q3 slightly break even, and then hopefully we will have a positive in there. What we're estimating.
Now we're giving you fair and open our estimate. Then of course, we don't know exactly how it's going to be. If it's going to be like this, that is the way.
Yeah.
Fully transparent how we look at today. The support here is that we continue, and that is maybe more important for us at least, we're targeting every single quarter, more important that we grow the business and move it in the right direction. Order intake is very strong, and we see also the take-on margins, which is important, is also improving. Of course, the benefits on this is going to be somewhat delayed. Where we're standing here, we are very certain that we're going to see an improvement, but we cannot really give you extremely clear guidance whether that's going to be Q2 or Q3 or Q4. We firmly see now that we have turned a corner. Order intake is improving, take-on margins is improving, and that's going to roll out into, let's say, improved performance of the business.
On that, the order intake, is it possible to give us an indication of book to bill or how much the order book is up year-over-year or something like that?
Well above 100%, let's put it like that. It's not individual percentage points above 100, it's more than individual percentage points. It's also sliding a little bit throughout the quarters, but it's well above 100%.
Perfect. I have one follow-up on Sealing Solutions as well. We've seen a margin drop through, which has been not as great as in the past because you're investing. That's great. Now growth is slowing in 2019. How should we think about the margin then? Will you still be able to grow the margin in Sealing or will these investments eat margin?
We are focusing on growing sales more than margin. Of course, with that said, we don't want to lower the margin. That's of course something that we continue to manage and continue to address. Our ambition is more to create EBIT growth with this relatively high margin than really to push the margin a few percentage points up.
Okay, thank you.
Hi, this is Erik Paulsson from Pareto Securities. Most of my question have been asked, but I have one additional Offshore & Construction. Can we expect some more or additional writedowns in terms of projects in Offshore & Construction?
Not as we see right now, no.
That's a mistake. It should have been happened before. That is honestly a fair and open mistake in some project management in certain areas. It shouldn't happen. We are addressing it with various new not to end up with the same kind of issues, we are addressing it with various changed procedures in certain areas.
You said it was something SEK 35 something.
Let's say SEK 25-SEK 30 is probably a fair estimate. Half the loss of Offshore & Construction in the quarter related to this. Which is still very poor. The underlying performance was, I think SEK 60 what is it, SEK 30-ish on the underlying performance of this in the quarter.
Okay. Thank you very much.
Thank you very much. Operator, do we have any questions from the telephone conference?
Thank you. Ladies and gentlemen, if you do wish to ask a question via the telephones, please press zero one on your telephone keypad. Our first question comes from the line of Klas Bergelind of Citi. Please go ahead, your line is open.
Yes. Hi, Peter and Ulf. It's Klas from Citi. A couple of questions from me. The first one is coming back to your guidance. There seems to be some confusion in the market of what you mean. My interpretation is that flat to somewhat lower is adjusted for seasonality, meaning that the first quarter can still be up in absolute terms versus the fourth. On that basis, organic growth year-over-year can perhaps be around 1%-2%. Is my interpretation correct? The first quarter can be up versus the fourth on seasonality, and it means 1%-2%. We're getting incoming from investors wanting a clarification on the guide, please.
Okay. The guidance is seasonally adjusted, it's correct, as you say. It's not referring to the sales in Q4 related to Q1. That is Q1 compared to last year, Q1. Let's say seasonally adjusted, let's put it like that instead. Seasonally adjusted as you have interpreted it. Right. Whether it's 1% or 2%, I don't really want to comment, but that is really probably You're not far away from what we mean.
Thank you, Peter. My second one is on Industrial Solutions. It doesn't really seem to be a growth problem. Obviously, growth in some areas are actually accelerating. You did 7% organic growth against a pretty tough comp. It's a cost problem and it's on staff. Can you talk more about the investments? Investing yourself out of this, adding capacity, or can you utilize capacity in other parts of the business, or are you stuck within the Czech Republic with this issue? I'm just trying to understand how long this can last for, because bottlenecks, unless there's a slowdown in the market, they could last for quite some time there. If you could help us there.
Yeah, no, we're investing in this. We're investing in new machines. We're investing in new processes. We are doing more optimization, and we are investing ourself away from some of the, how should I say? The labor efficiency, the less labor basically to get the more products out. It's really not a bottleneck in terms of overall capacity. It's more a bottleneck of being able to process the sales in an efficient way. The bottleneck is one problem, but the bottleneck is also creating, let's say, higher labor turnover, more scrap, more inefficiencies. This is really by creating a more stable process. There's several investments ongoing and several changes in the process flow. What I want to address also, this is nothing that we started this quarter. We are not unaware of this issue.
It's simply that in the quarter, the costs for these issues escalated compared to before. It's not really any news for us. We started this investment program in this unit already in 2017. This is something which is ongoing for quite some time. It's simply that we have this quarter where the problems became a little bigger than they were before.
No, I understand that. My final one is a couple of quick ones on Offshore. First, a bit on orders. Last quarter, you said that you had the best order intake in two years. Did orders improve further sequentially versus Q3? Was it a big step up again? In what regions did you see an improvement? Finally, if the use and capacity take us fully on track, guess we should start to see savings year-over-year now kicking in here in the first half.
Order intake was slightly lower in Q4 than Q3, on the opposite it was better to take on margins. That is always a mix in the project business, what kind of margins and volume. Still on a high level and still on a level which is bringing us into profitability, actually. If we get the orders processed through into executed in a good way and processed into sales, that's going to bring us into profit. The order intake in Q4 was on that level. Also maybe less, we have not been speaking that much about that, but also in the infrastructure construction area, which is the other more than 50% of Offshore & Construction, was also very solid order intake.
This is something which is, once again, we don't want to give you exactly the figures on that one, you need to trust us that the order intake in this area has been very solid in Q4 and continue to look very promising also for the running quarter. There is a process time before you get into sales, that is why, once again, that we're commenting here that we feel confident in our beliefs that we're going to see a substantial improvement in this business area throughout the year.
Thank you.
Thank you. Our next question comes from the line of Erik Golrang of SEB. Please go ahead. Your line is open.
Thank you. I have three questions. Could you give us a sense for the balance between raw material costs and your selling prices? Where are we in the quarter? You were a bit negative there net in the third quarter. Has that improved in Q4?
Yeah. On the raw materials, you see most of them has been kind of flattish but on a lower level than before. It takes time before it routes in. We have a-- I'll say, well, you know the figures overall, I don't think there is a major.
Overall, we don't have an issue. We have in specific business areas where we have.
Yeah, it varies a little bit between the business areas.
Overall not.
Overall, it is not really a big deal. We are going into 2019 with slightly lower raw materials overall than we had going into 2018, but it's not really a major thing for us at the moment.
There's no need to sort of push through additional price increases to compensate for raw material costs. Rather the opposite, that there could be a bit of a take.
Of course. Of course, we're not only raw materials. We also have some concerns, I should say, on the overall inflationary pressure in Europe. As you know, the salary increase is on a higher level and all of that. Even though raw materials, we are at the moment pushing two price increases.
Okay. The second question, you mentioned that the addressed market for aerospace within Sealing Solutions had increased following some investments recently. Could you put some numbers on that?
I don't want to do that at the moment. We might get back to you on that later, at the moment, we don't really want to give you any numbers. We're not talking major anyway. We talk about individual percentages of the total sales of Sealing Solutions. We have very strong growth. Aerospace, give me some hints here. We're looking at Christofer, 15% or something of-- Yeah. It is 15% of total Sealing-
Sealing.
Total Sealing, this 15% is more than double, well above double-digit growth. It's not going to be a dramatic change. This 15% is going to grow in share of Sealing Solutions. We're not talking about doubling it, of course. It's organically driven as well, primarily organically driven.
Yeah. Then the final question on the investments on the two-wheeler side. Previously or historically, you've been quite eager to stress that you're not in the consumer tire business, rather the opposite. Now you're investing there. What's changed?
No, simply, we saw an opportunity in this niche as well. That's when you say the consumer, you talk consumer, we are aiming really at the high end, we are niche-y in this. You might say that off-road motorcycle is not the biggest segment within the tire, it's still an interesting segment. That is really the core. When we have this, we also can touch on some on the road tires. Some of that it then also fairly close in terms of sales to the farm and agri part of it, because a lot of this sales is actually going into the farmer community as well. That is why we see a link in that.
Currently we're running out of capacity in that area. We saw this as a very cost-efficient way of growing capacity without really investing too much or without really taking a too big financial risk in making it possible for us to address a segment where we already have all the needed kind of access points.
Okay. A follow-up there. You're doing this through a JV structure where you will hold 24%, I think. You're not really in control. Is that the right way or the only option for you? There's no way for you to do it in your own fully controlled setup?
No, we're going to own the brand and we're going to own the sales channels fully. This is a pure kind of manufacturing setup. I say we're giving away to our joint venture partners to sell these tires in India. Basically for more or less all of the rest of the world, we're going to have exclusive sales rights. That is, we don't see that we letting go of control, and we should say this also creates a flexibility that we are not 100% promising that we will buy everything from him.
Thanks.
Thank you. Our next question comes from the line of Malte Schulz of Commerzbank. Please go ahead. Your line is now open.
Hi, good morning also. Just two questions first. First of all, the office is still relatively low end. Is it something which has pushed some clients to delay orders? Did you feel that also has there been some delays on some of the orders we have seen in Q3 have sort of been pushed out further out? When I incrementally look at your guidance, it sounds like you pushed it a little bit out by at least a quarter compared to a quarter ago. How satisfied are you or how confident are you that we will really see this uptick in, at least in Q4? The second question is, can you give us an update on your footprint realignment progress? By when do you have moved all the production? Q4, when is it all finished and is it set up as you would have liked to have it?
Malte, difficult to hear you a little bit, but if I interpret you right, how confident are we that we're going to get this sales growth in Offshore & Construction? Is that what you're asking?
Yeah. On the first one.
Yeah.
Because you had a delay.
Yeah. There were always a risk of delay. As we get the orders on board, okay, we would like to supply as soon as we can, but whether that is really being pushed one quarter, Q4 or Q3, we would like it in Q3 instead of Q4, but we don't really care, to be honest. That is more something that it will happen, we will make sure that we supply as quick as we can, the current kind of orders is asking us. When we say that we have a firm uptick in Q3, that is really what we see from the orders when the customers at the moment is asking for delivery, we are confident that we will be able to supply according to their kind of desired delivery date.
Whether they will change in the future, because we know also, I don't know if some of you are definitely aware, but in oil and gas area at the moment is actually, talk about bottlenecks, there are huge bottlenecks in the engineering side. A lot of these big engineering companies, they are really struggling to execute the projects because as we see the same growth in our order intake, they also see a big growth in their order intake, and they're actually struggling to get the supply. I don't know, talk about in Norway, there is more than 3,000 redundancies at the moment within the oil and gas activities for engineers. This is of course a concern for us, we can only believe what the customer tells us, if they're asking for delivery in Q3, we of course are preparing for delivery in Q3.
Whether then later on they come back to us and they don't want it until in Q4, we cannot do anything about that. The current estimate, with some cautiousness, is that it will be, let's say, a tick up in Q3 then, let's say, further increase in Q4 going into 2020. That is what we see about the orders at the moment. I don't know whether that is sufficient for you, Malte.
Yes. You don't see risk that we will lose volume overall, also out of Q3? My concern was more or less that it's kind of we see continuous pushing out of orders.
Impossible to say. Impossible to say, honestly. We don't know that.
Okay.
About the footprint alignment, we are working on that, and we are well according to our plan, and we feel that hopefully it will never end. We will always get some kind of activities in order to improve the footprint and improve our efficiency. The plans related to CGS integration, Progressing according to plan. We will have, as you said, some upgrades in Czech Republic this year. We have completed our first round of investments now in Belgrade. We were down there two weeks ago to, let's say, confirm this. We have been addressing that, and this is coming step by step. We cannot do all investments at the same time. We need to do it step by step. We need to make sure that we allocate competent resources to execute those investments. That is ongoing fully according to plan.
Sorry, Malte, it was kind of difficult to hear your questions so now I hope I-
Yeah.
Addressed it in the right way.
Yeah. Just one clarification. Is there a particular point where things that most of the footprint plan from CGS is finished? Is it something like?
Yeah, I mean.
Q2 or?
If you look, let's say, solely on that, will be done. Q2, I don't know, probably it's going to run into a little bit, but the majority of the investments will be done this year.
Yeah.
Put it like that. Going into 2020, we will have probably some limited investments-
Yes
Related to that. The majority of all kind of footprint investments related to CGS acquisition will be done in 2019.
Thank you.
All right. Thank you. Our next question comes from the line of Agnieszka Vilela of Nordea. Please go ahead. Your line is open.
Thank you. I have just one question on your income statement on the other operating income expenses line. It was SEK 183 positive this quarter, quite above last year's SEK 71 million. Also when I look at the full-year, it's also quite positive. Can you just remind us what's in that line, and why is it swinging so much? Thank you.
The main item, that is currency on hedge contracts. We don't put that on gross margin. Swings on that could be plus or minus within that line. That is the main. Then also, we have other provisions, plus or minus, which I can't comment individually, but that also could swing.
Okay, perfect. Thank you.
All right. I think we need to end there.
Yeah. Unless you have a finishing question or.
I'll keep that.
Okay. Thanks a lot. Of course, we do follow up. Christofer is available for further, let's say, follow up. Of course, Ulf and myself as well. Some of we will meet there in roadshow in the next few days. Otherwise, see you soon. Thanks a lot.
Thank you.