Earnings Call: Q4 2018

Feb 13, 2019

Okay. Good day, everyone, and welcome for today's financial hearing with Treleborg. I'd also like to welcome everyone participating via the webcast and telephone conference. Moderator today is Hampus Engelau from Handelsbanken. He will be back later and lead the Q and A session. But I now hand over to the CEO of Trellborg, Mr. Peter Ensign. Please go ahead. Thank you. Welcome all of you to this presentation of our year end results, more focusing than on the Q4 performance. I'm going to start the presentation, give you our overall takeaways and introduce the business areas and Tell you about the performance of the business areas, various business areas we have in Treleborg, and then I will be assisted here on stage By by Ulf Berghult, our CFO, who will then guide you through the financials and then finishing up with a summary for me and also some comments On the outlook for the running quarter and then as usual also finishing off with the Q and A session. So Running agenda, as usual, nothing news in Treleborg, starting with some yellow highlights, business areas, Ulf doing the financials and then Ulf and me jointly Doing the summary and running quarter outlook and then also Ulf and myself jointly on the Q and A. Starting on the overall headlights for the quarter, I mean, we came in Solid overall sales growth of 8%. Organic sales then split on 2% up and excluding the projects as we usually do Since the project is a little bit up and down, increase was 3%. And then of course, the difference in between currency and also some structural growth, Continue to make acquisitions, and we continue to add also structured growth on top of the organic sales. EBIT came in at SEK 977,000,000, which is the highest ever for Treleborg in a quarter. And we have now, as As Ulf will guide you through, we have now more than 5 years of every single quarter increasing the profit, but Ulf will show that a little bit later. Margins come in a little bit slim compared to last year, 11.7%. Also with some We had a heading here despite challenges also. I didn't comment on that. There is a few individual units where some Special situations, and I'm going to tell you about that as well, which then pushing down the EBIT somewhat in the quarter. Items affecting comparability of €98,000,000 Ulf will also guide you to that, but 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 Rauling 12, and that is driven by very high CapEx for the in historic perspective, Continue to invest a lot. We continue to build for the future. Ulf will also comment on that and show you the CapEx levels. But this, I mean, Already here, maybe worthwhile mentioning that this high CapEx is not kind of an overall Higher CapEx is actually driven with the high CapEx by some individual projects that we're running at the moment, which not kind of recurring projects. It's 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, this 2 wheeler business where we then are kind of running out of capacity, Running at full capacity in our existing plants, and we needed to add capacity. And we decided then, together with a partner in India, which we have known for many years, So we start kind of a manufacturing joint venture in India. Then in order to continue to grow this niche within what we call a 2 wheeler business with the majority of the sales Exactly in Europe, but also with this coming on stream, we will also be able to push these sales into North America and parts of Asia. So, let's say, an interesting step even though it's going to take a few years before we see the full benefits of this. Looking at the sales in various Geography, as we can say, is basically good all over. But in other Europe, in other Europe For us, it means based Central and Eastern Europe where we are down, while all the others is doing good. North America continue 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 we are going to get later. And other Europe, we see more as an individual quarter with dramatic drop linked to some special events. But 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 structure growth, Driven then by some acquisitions, which has been kicking in during the year. As you know, we have 2 operations here, coated fabrics and printing blankets, Good all over in a way in general. We know it, as many others, a little bit weakening in the automotive segment for coated fabrics, But overall, still growth in that segment. The Printing Blank is also a slim increase now, especially driven by a good performance in Europe. And all of this is then dropping down to a good drop through, driven by, of course, the higher sales, but also on higher productivity and also So benefiting from the acquisitions, a good performance for Coatings 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 to Northern Europe, which is a little bit weaker and also in certain segments in North America, also Weaker in these segments, but nothing really noteworthy, but nevertheless slightly weaker. As I said before, all geographies are doing fine here. We are widening our this is a majority of the European focused business, but we're also growing our presence in North America and Asia, especially in Asia from relatively low levels, but nevertheless, very strong growth, generally in Asia and also North America, in general, Developing nicely. We have one issue here in this business area, which has been kind of escalated during this quarter. It's an issue that we have had For some time, we have been struggling with 1 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. But in this quarter, these problems continued, and I mean, we created inefficiency. We say in the quarter, We have a hit from this in the range of SEK 25,000,000 SEK 30,000,000, which is not really we are addressing it. We have been addressing it for some time, and We are very sure that it's going to improve. We are investing in this factory to create a better workers' condition, also higher optimization and better process flow. So this issue will be solved. I mean, the good thing is that we have the sales. So the sales is there, but it's more to make sure that we are addressing these sales in a good way. But we are more to say also admit that it will be taken by surprise that we had these issues here. So this is now being heavily addressed, and we are adding more resources in order to solve this as quick as possible, even though, I mean, there's never really any quick fixes on this. But nevertheless, going to get better and we're going to improve going forward. But if you take that back, this 25,000,000, 30,000,000 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're growing in Asia, and we actually created a joint venture with the biggest house manufacturer in Southeast Asia and creating a joint venture focusing on a specific niche called composite houses. We have a very high end application for industrial houses, Very aggressive chemicals and very, let's say, demanding environment. So this is which is not currently not being produced in this in Southeast Asia. So we are starting now to create a local presence within those areas. So this was Industrial Solutions. Looking offshore construction, continued Very strong organic decline of sales, but we also comment that basically coming both from offshore And more periodically, as you say, on infrastructure construction, it's not really an underlying problem in that respect in So, I think construction is more an individual quarter here pushing down the sales due to some priorities being pushed forward. And of course, this is then impacting us that we have an under absorption. And 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, then we have an individual hit related to this, which is kind of non operational issue, which is then costing us also some SEK 25,000,000 to SEK 30,000,000 in this quarter. So that is kind of the dimension of that. But we know it as well, if you look more long term, and of course, we're always focus 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. I mean, one project to mention we got in the quarter, we got actually our biggest ever tunnel order, For instance, for China, yes, fortunate, I should say. But of course, this is not deliberate until end of this year, even going into 2020. But I mean, even there as 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. And on top of that, we have plenty of good fender projects coming in. And also, we see basically all over the offshore oil and gas area that there's also this Continuation of growth in demand or growth in projects is growing. I mean, we're tracking these, what we call, orders to be placed, which is basically where we know that our customers has gotten orders, but have not yet placed the order to the supplier for the projects. And 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 down Of this cycle now, we firmly believe that we're going to see a strong improvement throughout 2019 with, let's say, the bulk of this Improvement coming to the later parts of 'nineteen and going into 'twenty. So we believe that we have turned the corner here, and we believe once again that we're going to see A substantial improvement, especially here going from 2nd part of this year and then continuing into 2020. Sealing Solutions, which, of course, the key profit contributor in Treleborg 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 Aerospace, very good. We have, on the last few years in Aerospace, kind of widened our target segments, if you put And that is paying off now. We get a very good order intake in the aerospace, which we're going to create, let's say, big benefits. I mean, 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. And then following that is aftermarket, And 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. It's actually North America, which is a little bit maybe not Exactly like everybody else, but that is where we see continued good demand in Europe, continued good demand in Asia, While we have been suffering somewhat, I mean, we shouldn't highlight, it's not really a big figure, but if we should point out something, it's actually suffering for us in Automotive in North America, we leave it odd and 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, dropped through It's not maybe that high compared to the sales and going down to EBIT. But as we commented before, we are investing in this area. We continue to grow In order to keep a sustainable growth in this, and we might not 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. And it's also in this area Well, 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, we also invested a lot in our innovation center in Stuttgart, and we also now are also attacking what Recall the logistical setup also plays an 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. So this is kind of an area where we're focusing a lot, And we also continue, of course, to scout for bolt on. And that is why also happy here to say Silpro, which is now going to be changed into, of course, the Treleborg name. But We were 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 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, but now also we have Kind of following a few acquisitions into these segments in North America, we are now establishing a firm leading position within this niche within Sealy. So that is a very strategic important acquisition for us, which is opening up new avenues for growth and income going forward. So happy to have that concluded. Finishing off then with WheelSystem, organic sales a little bit down, actually minus 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 Some time now that in North America, we have a much weaker market share than we have in Europe. So in North America, we're growing On the back of growing market share, while in Europe, we are well established and in Asia, it's a little bit turbulent sometimes. And in Asia, Maybe if you should highlight something where we have been suffering a little bit from this new trade wars. It's largely some move of manufacturing of tractors From China and into North America, and that is kind of benefiting us North America, and we're losing a little bit in Asia. But no big deal actually for us. I mean, we are more global Than most of our competitors, and we were able to swing this around in a way that others might not be able to do. Then to supplement this weaker agri sales, I mean, we continue to have a solid growth both in industrial and construction tires. Industrial, as you know, we have a good global market share. We continue to grow with the growth of global trade, if you put like that, while in the construction 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. But 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. So here, I should say, even though overall very satisfied with the development, with the execution of the synergies Following the CDS acquisition continues to deliver, but we still have this kind of negative mix. Of course, we hope now going into 'nineteen That we will see a better aftermarket and thereby also turning from a negative mix into a positive mix. Let's see if it happens. I mean, we know that it's weather dependent, little About the farmers' income and all of that, but nevertheless, we have had we have been suffering from this throughout 2018, While still, as you know, have been growing the profit a lot. So of course, if you get this positive mix as well going forward, we will see an improvement also In that respect. But 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 your intention in India. I mean, we're working here with Nicias, and this is kind of creating a foundation also to start to focus with more on this 2 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 1 in the world, and this is something really that we want to focus on. And then from that position, also try to grow a little bit more on the road with specific initiatives. So that is kind of our ambition here, not to create kind of a global Leading market share in total of that business, but we're very niche in this, yes, extreme niche, if you may say. So that is a little bit about the business areas. And then ask Ulf to comment on the figures before I'm back to Supplement tool for the stage. Thank you, Peter. I will then go through the consolidated numbers then. So this is the slide showing then The overall development ending in the quarter and then year to date, as Peter mentioned, we had another growth of organic growth in 2%. If I then Exclude the project related business, we have 3%. I need to remind you that also then at quarter 4 1 of the weaker quarters that we are stronger in Q1, Q2, first half and then slightly weaker in the second half. As Peter mentioned then, as he reminded that we had a good growth in Industrial Solutions with 7%, also then followed up by the sealing solution with 6%. And then also then on which we haven't had a long time, which has been impacted by that we have moved some volumes structure with minus 17% and then we also had wheels, as Peter just mentioned, minus 1%. And the structural growth in the quarter, that is coming from Kote Systems and Trele Boy Wheel Systems. The next slide is then showing the development over the last So we have 11 quarters of positive sales development, and it's then impacted both by structural and organic growth. On the bottom side of the slide, bottom part of the slide, you will see then the organic growth. And then, of course, that quarterly development and on the rolling 12 months development. And we can then say that the quarter 4, that is the highest Quarter so far for quarter 4. Moving over then to EBIT. This is, in absolute terms, in absolute amount, the highest quarter we have had in Q4. We for the full year, this is the best year we have had in the Treleborg Group in both in absolute terms and in margins. So we ended up then with the SEK 13,800,000 for the full year. And if I then comment on the currency impact, We have a slight currency impact here in the quarter. We have a translation impact of SEK 40,000,000. And year to date, we have SEK 134,000,000 on translation. Moving over then to the quarterly development. As Peter mentioned and we have had this is the 23rd consecutive quarter of improved profits and with this with EBIT growth. And then We'll touch base. This is then the consolidated profit and loss statement of the group. And what I would like to comment then is on the restructuring. We guided in the beginning of the year €250,000,000 when it ended up and then on restructuring, it ended on €180,000,000 But then Compared with 2017, which was more of a one off year then, we had comparability items or we had Fraction items of SEK781,000,000 which we then closed our facility in Houston with the offshore construction. And at the same time also we got another deferred payment on our divestment Treleboybyb Acoustik of SEK467. So that is then the reason for the 2017. The other comment I would like to do is then also the tax situation where we have had they've changed the tax in U. S. Both in 2017 2018, and now we have the final We hope that is the final outcome. So we also have a hit in the quarter of SEK 51,000,000 and last year, we had a hit of SEK 129,000,000 due to this U. S. Tax reform. The underlying tax is 23% in the quarter. And our guidance, which I will come back to, but that is still valid, that It's still 26% going forward. Next slide is then earnings per share, which then We I will concentrate then on continuous operation excluding items affecting comparability because that's the underlying performance. So that is up 10% year on year or quarter by quarter. Moving over then to cash flow. As the headline sales said, it's impacted by higher CapEx activity, and I will come back to the guidance for 2019. You can also say that we have a year on year improvement or we are kind of releasing more 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, but those are in the right places because that is within Industrial Solutions, Sealing Solutions and Wheel Systems. Then moving over then to the quarterly development and the rolling 12 months, then you can see then it has been then sliding, and that is due to a higher CapEx The leverage, it's stable. We are then on 1.7. That is slightly If I take away the items affecting comparability, last year, we had SEK 1,800,000,000, now we're in SEK 1,700,000,000 And moving over to then to the slide of which we show both gearing and leverage. You can see that we are on a healthy levels And the gearing is on 33% and then the leverage is on SEK 1.7 billion. I want also to mention that the net debt as such has been impacted by The currency negatively by almost SEK 800,000,000 for the full year or we've got closing balance end of 2018. Return on capital employed equity, we are then aiming to reach or try to even to get up to 12%. We have a slight improvement in both for these targets for the group total. So we are moving from 11.0 up to 11.1. It's not much, but And then if I take away those items affecting comparability, it's slightly better than up to 11.7%, but the target is on the total group. And then moving to the guidance for 2019. We are then guiding for the CapEx of SEK 1,820,000,000. And then kind of back to Peter's comment earlier that the bulk of the increased CapEx, that is basically that We are taking a move into strengthening our logistical setup in within sealing solution and then in Germany. We also have 2 core sites or key sites that we are improving, both the Helsinki Ull site, as Peter mentioned, also then our site in Sweden and Kalmar. We're also then doing investments in wheel systems in Czech Republic in order to increase the capacity. And also, we have slight investments in Industrial Solutions also in Czech Republic, slightly then related to the issues that we have had in this probably With this bottleneck on labor. And then going forward, any restructuring, we are then guiding SEK 250,000,000 for the full year. The underlying tax rate, that is SEK 26,000,000. And then just for kind of information, the amortization of intangible asset, that is about SEK 300,000,000. So moving over then to you. Thank you, Ulf. So comment on yes, please stay here. Just stay here. So As we said before, record earnings for us. I mean, 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, is bottlenecks in Czech Republic, which we are addressing, both reinvestments and adding extra Resources in order to solve this and on top of that also some write downs in the offshore, let's say, operational write downs, If you put like that within the offshore area, which is then pushing down a little bit. But overall, besides that, very stable development in Industrial Solutions, stable development, good development in senior solutions, also good development within wheel systems, especially then related to we still have this Somewhat negative pricemix here, which is pushing down the margin a little bit and also satisfactory development within Coated Systems in the quarter. Maybe within 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 Coater Systems. So we're expecting a better kind of 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 said, a little bit shy of SEK 1,000,000,000, Which is the highest ever. As Ulf said now, we have had 23 quarters of a growing profit if you calculate rolling 12. And also if you look at even more, Of course, Lark, at the last 10 years of Treleborg, we have been growing sales by CAGR of 7%, which is, of course, good, which is in line with our target. But more importantly, we've been growing profit during the same time with the CAGR of almost 16%, 17%. So 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, but 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 solution And on top of that, also addressing some potential bottlenecks within wheel systems. As we are growing wheel systems, we expect Possibilities to grow into both new geographical areas and new applications. So we need to invest into that. And these investments, of course, also That's creating some cost synergies and some operational synergies related to CGS acquisition. So we firmly believe that these investments makes a lot of sense and creating a good foundation for continued development of Trelleborg. So this is really the takeaway. And if you look at Treleborg in total, I mean, we continue to work in the same way. I mean, we know that the company It's addressing a lot of different niches, a lot of different applications, but we continue to manage all those Activities individually 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, let's say, organically, exiting a few areas we don't find interesting long term. And we still see in some areas that we have constraints in the Lie, Shane. I mean, even though a little bit slower organic growth in this quarter, but 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. So that is something, of course, that we're addressing. And also innovation is a key thing for us. Of course, also since we are on the forefront in most of the positions we have, of course, we want to be not only the market Leader, but also we've seen clearly as the innovation leader. So this is also an area we're investing a lot. And then also to make sure that we integrate and continue to make acquisitions. We have been doing acquisitions Throughout 'eighteen, we expect also 'nineteen to be a year of acquisitions, even though you can never exactly plan when those This will happen, but we will continue to address it and making sure that we integrate it in the best possible way. So this is the focus of Treleborg, 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 and but more Growing profit even more than sales. I mean, that is really the ambition here that we have long term. Looking at the outlook 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, if we like that, than we were going into Q4. 4, but I mean it's really on the brink of being we might be that we are wrong with this estimate. It might be that we end up At 2% again or similar to 2%, but it might also be that we are slightly lower. So this is really our take on this. So We feel that underlying demand is still good. We will continue to, as I grow order book, and we continue to believe that this outlook might Had to be changed upwards again when we go into Q2. But as we see it today, it might be 2%, it might be a little bit shy of 2%, but we don't see really any drama In this guidance, as I saw already here on some comments, they put in some guidance to some drama into this, but we don't really see it. It's more Try to be continue to be fully transparent on the way we will look at the business. So this 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 Thank you very much, Peter. Why don't I start there then? I mean, somewhat lower. That is, of course, something that One has to react to him. Is there other areas? Or is it still like Europe, auto or how and Asia? Or how should we think about that? No, I mean, I don't think we are we're looking at our world demand. I mean, the only segment really that we can see is a little bit tougher, say, is automotive. I mean, all like you say, all industrial segments is performing well. Might be in certain areas, some inventory Adjustments and all of that, but we don't see the underlying demand. We don't really see the number of projects being less. It's always a balance also. We see continued growth in demand, for instance, for offshore oil and gas and for the infrastructure. And we should say also oil and gas is, of course, even though we talk offshore Construction, no doubt of that. But 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 continued higher activity even though Usually it is slightly longer before you get into sales. So I don't know if you want to supplement. Where is the weak areas, But as I said, within some we see within automotive. And 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 flattish. We have a growth Maybe it's also correct. It's a tough comps in OE for Agri especially as well, but that is not really Quarter on quarter, not that bad, but nevertheless, it's going to be tough. So once again, I mean, this is a tint. I mean, what do you say? Do you say you can keep it same or you can keep it slightly lower? I mean, it's really a balance. And we will And that if anything, we believe it's going to be slightly lower instead of slightly higher. I mean, that is really our take on this. But We also start of the year has been relatively good. So it's not really any major direction change in this guidance. And on the Q4, 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 take away that, 3%. Because also we should say offshore construction, you're getting smaller and smaller. So even though it's high numbers on the minus 17%, but the impact from that on the total group is becoming less. Do we have any questions from the audience? Hello? Hello? Can you hear me? Douglas Vino, Kepler Cheuvreux. So a few questions from my side. Starting off by looking at wheels. Can you give us an update on your ag growth in the U. S. Market? Where are you in terms of maybe capacity and then yes? I mean, we still have capacity, but I mean, we are I mean, also, we are Starting to discuss adding on new capacity in order to support the growth, but it's not going to happen in this quarter, probably not next either, but we are On the outlook, I mean, so you have 2 factories now in the U. S. And one of them is becoming quite full, while the others is still having some capacity. I mean, if compare our capacity with the total volume potential is not sufficient. So we need to, of course, stay ahead of the curve a little bit here. So we are Looking into now or about adding capacity, we still have capacity to grow, but if we are successful with our plans, we'll be going to be able we're going to start to run out capacity year, beginning of 2020. So of course, we need to start to prepare for that. And you wanted to have more aftermarket sales. Is there any sort Do you have a strategy for targeting that sales specifically or In U. S, you mean? Yes, in U. S. Specifically. Yes. And I mean, we are the same there's different strategies on how to go into the To market sale, you push out the sales, you push it to distributor, you push it out by discount programs and all of that in order to make it more Attractive for the distributor to sell our tires than to sell others. We are not selecting that one, so we are a little bit slower. So we are supporting the original equipment, and our focus at the This is a support of reading equipment in order to more create a pull effect in the aftermarket. It takes a little bit longer, but you're coming in with a much better price Positioning with a better kind of underlying long term demand. So that is our strategy basically. So we are not chasing short term gains where volumes we are making sure that we're ending up in the right long term positioning and with the right distributor. So that is kind of the overall framework we'll be working towards. Okay. And switching to Industrial Solutions. You mentioned your Republic. When can you give some sort of time frame on when you expect to solve these issues? Yes. It has been, let's say, an issue that we have had for Time is not a new problem. We have been addressing it. We have been investing throughout the year. We are in the middle of an investment program. And I mean, 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. But I mean, individual quarters, we will talk because if you say a negative with 25, 30, then of course, improvement potential is even more than that because, of course, we are not only aiming to get up to 0. We would like to be well above 0 there. So this is something Which we are addressing at the moment. And it's difficult really to give exact details of when they're going to bounce back, but we're going to see improvements Step by step throughout the year. That's it. Thank you. Olof? Yes. Olof Serra on ABG. Following on a little bit on the sorry for that, problem areas. Offshore and construction, there was some extra cost In Q4, a new guide for return to profit in the second half, how should we face The improvement going forward, will the extra cost be 0 in Q1? Or how should we see this? We will not have any Of course. So we have a good base now with the offshore construction within the B Business Unit Offshore and also within the infrastructure construction. So So what we're saying is that we will have Q1 will be in the same level. We will have gradually step up. Q1 will not be good. Hopefully, we will have Q2 will be better, Q3 slightly breakeven, and then hopefully, we will have a positive in there. We're estimating our That is I mean, that is our now we're giving you a fair and open our estimate. And then, of course, we don't know exactly how it's going to be. I mean, If it's going to be like this, but that is the way transparent how we look at today because the support here is that we continue, and that is, I mean, Maybe more important for us at least, who is not okay, we're targeting every single quarter, but 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. But of course, the benefits on this is going to be somewhat delayed. So 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 Q3 and Q4. But we firmly see now that we have turned the 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. And on that, the order intake, is it possible to give 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. So it's not individual percentage points above 100%. It's more than individual percentage points. But it's also because I believe it's not It's also sliding a little bit throughout the quarters, but it's well above 100%. And then perfect. Then I have one follow-up On Sealing Solutions as well. We're seeing 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. So that's, of course, something that we continue to manage and continue to address. But I mean, our ambition is more to create EBIT growth With this relatively high margin and really to push the margin a few percentage points up. Okay. Thank you. So hi, this is Erik Paulsson from Pareto Securities. Most of my questions have been asked, but I have one additional offshore and construction. Can we expect some more or additional write downs in terms of projects in offshore construction? Not as we see right now, no. That's a mistake. It should have been happened before. So that is honestly, it's a fair and open mistake in some project management in certain areas. It shouldn't happen. And we are addressing it with various new not to end up with the same kind of issues. We are addressing it with various as a changed procedures in certain areas. And you said it was something 35 something. 30 let's say 25, 30 is probably a fair estimate. So kind of half the loss of offshore construction in the quarter related to this. So the underlying which is still very poor, the underlying performance was I think SEK 60 was, it's 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 And our first question comes from the line of Klas Bergelind of Citi. Please go ahead. Your line is open. Yes. Hi, Peter and Odfjes, Klas from Citi. So 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? It's adjusted for seasonality, meaning that the Q1 can still be up in absolute terms versus the 4th. And on that basis, organic growth year over year can perhaps be around 1% to 2%. So is my interpretation correct? The Q3 can be up versus 4% on seasonality, and it means 1% to 2%. So we're getting incoming from investors wanting a clarification on the guide, Steve. Okay. Namridde, the guidance is seasonally adjusted, so it's correct that 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. And then where it's 1% or 2%, I don't really want to comment. But I mean, that is really probably the yes, That is I mean, you're not far, far away from what we mean. Thank you, Peter. My second one is on Industrial Solutions. So 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 It's a cost problem and it's on staff. Can you talk more about investments, investing yourself out of this, Adding capacity or can you utilize capacity in other parts of the business? Are you stuck within Czech Republic within this issue? I'm just trying to understand How long this can last for? Because bottlenecks, unless there is a slowdown in the market, they could last for quite some time there. So if you could help us there. Yes. I mean, we are investing in DSO, investing in new machines, we are investing in new processes. So we are kind of doing more optimization, and we are Kind of investing ourselves away from some of the, I should say, the labor efficiency, Less labor basically to get the more products out. So it's really not bottleneck in terms of overall capacity. It's more a bottleneck of being able to process the sales in an efficient way. So the bottlenecks is one problem, but the bottlenecks is also creating, let's say, higher labor turnover, More scrap, more inefficiencies. So this is really by creating a more stable process. There's several investments It's ongoing and several changes in the process flow. And I mean, what I want to address also, this is nothing that we started this quarter. I mean, we are not Unaware of this issue is simply that in the quarter, the costs for these issues escalated compared to before. So it's not really any news I mean, we started this investment program in this unit already in 2017. So this is something is kind of ongoing for quite some time. It's simple that we have this quarter where the problems became a little bit bigger than they were before. I understand it. So my final one is a couple of quick ones on offshore. First a bit on orders. Last quarter, you said that you The best order intake in 2 years. Did orders improve further sequentially versus the 3rd? And what's the big step up again? And in what regions did you see an improvement? And finally, is the use and capacity take us fully on track, yes, 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, but I mean on the opposite, was better to take on margins. So that is always a mix in the project business what kind of margins and volumes. So but still on a high level and still Kind of on a level which is bringing us into profitability actually. If we get that orders processed True into executed in a good way and processed into sales. That's going to bring us into profit. So the order intake in Q4 Was on that level. And also maybe less, we have not been speaking that much about that, but also in the infrastructure construction area, which is the kind of the other more than 50% of offshore construction, What was also very solid order intake. So this is something which is once again, we don't want to give you exactly the figures on that one, but you need 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. But there is a process time before you get into sales. And 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 a few 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 In the Q3, has that improved in Q4? Yes. On the raw materials, I mean, you see most of them has been kind of flattish, but on a lower level than before. But it takes time before it rolls in. And we have, I'll just say, Ulf, I mean, you know, the figures overall, I don't think there is a major Overall, we don't have an issue. Then we have Specific business areas where we have Yes, but it varies a little bit between the business areas. So overall, it's not really a big deal. We are going into 2019 with slightly lower raw materials overall than we had in 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 For raw material costs, rather the opposite that there could be a bit of a tail. Yes. And of course, but then of course, we have other 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 increases is on a higher level and all of that. So nevertheless, even though raw materials, we are at the moment pushing And then the second question, you mentioned that the addressable 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. But At the moment, we don't really want to give you any numbers. But I mean, we're not talking major anyway. We talk about individual percentages of the total sales of Seeing the solutions, but we have very strong growth. I mean, the Aerospace, give me some hints here. I'm looking at Christopher, 15% or something of Yes. It's 15% of total ceiling, that's it. Total ceiling, and this 15% is more than Well above double digit growth. So of course, you're going to but it's not going to be a dramatic change, but this 15% is going to grow in share of sealing solutions, but we're not talking about doubling it, of course. It's organically driven as well, primarily organically driven. Yes. And then the final question on the investments on the 2 wheeler side. I mean previously or historically, you've been quite eager to stress that you don't 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. And that's when you say the consumer, you talk Consumer, but we are aiming really at the high end, and we are an issue in this. You might say that off road motorcycle is not The biggest segment within the tire, but it's still an interesting segment. That is really the core. And when we have this, we also can touch on some on the road tires. And Some of that is then also fairly close in terms of sales to the farm and agri part of it because a lot of these Sales is actually going into the farmer community as well. So that is why we see a link in that. And currently, we're running out of capacity in that area. And we saw this as a very cost efficient way of growing capacity Without really investing too much or without really taking too big financial risk in kind of Making it possible for us to address a segment where we already have all the needed kind of access points. And then as follow-up there, I mean, you're doing this through a JV structure where you will hold 24%, I think, so 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. I mean, we're going to own the brand, and we're going to own the sales channels So this is a pure kind of manufacturing setup. I mean, I say we're giving away to our joint venture partners to sell these tires in India, but for the basically for More or less all of the rest of the world, we're going to have exclusive sales rights. So that is we don't see that we're letting go of control. And we should say also This also creates some 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, I mean, first of The oil prices are still relatively low. And is it something which has pushed some clients to delay orders? Or did you feel that also there has been some delays on some of orders we have seen in Q3 have been pushed out further out. I mean also when I incrementally look at your guidance, it sounds like you pushed to deliver it out by at least a quarter Compared to a quarter ago, and so how satisfied are you or how confident are you that we will really see this uptick in at least in Q4? And the second question is, can you give us an update on your footprint realignment progress by when do you have moved all the production? So partly choosing you for when is it all finished? And is the setup as you would have liked to have it? Well, difficult to hear you a little bit. But if I Geber, you're right. I mean, how confident are we that we're going to get this sales growth in North Shore Construction? Is that what you're asking? Yes, on the first one, I mean, you had a delay Yes. But I mean, there were always a risk of delay. But I mean, 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 1 quarter, 1 quarter Q4 or Q3, we would like it in Q3 instead of Q4, But we don't really care, to be honest. So that is more something that it will happen, and we will make sure that we supply as quick as we can and the current kind of orders, he's asking us. And when we say that we have a firm uptick in Q3, That is really what we see from the orders and when the customers at the moment is asking for delivery. And we are confident that we will be able to supply According to their kind of desired delivery date, but whether they will change in the future because we know also I don't know if you're Some of you are definitely aware, but in oil and gas active area at the moment is actually talk about bottlenecks. There are huge bottlenecks in the engineering side. A lot of these Big engineering companies, so 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's more than 3,000 redundancies at the moment Within the oil and gas activities for engineers. So this is, of course, a concern for us, but we can only believe what the customer tells us. And if they're asking for delivery in Q3, Then we, of course, are preparing for delivery in Q3. But then later on, they came back to us and they don't want it in until in Q4. We cannot do anything about that. So But the current estimate, with some cautiousness, is that it will be, let's say, a tick up in Q3 and then, let's say, Further increase in Q4 and going into 2020. That is what we see about orders at the moment. I don't know whether that is sufficient for you, Malte. Yes. So you don't see risk that we will lose volume overall, I mean, also out of Q3. What was my concern was more or less that it's Kind of we see continuous pushing out of orders. So Impossible to say, honestly. We don't know that. Okay. And then on about the footprint alignment, I mean, we are working on that, and we are well according to our plan. And we feel that I mean, Hopefully, it will never end. We will always get some kind of activities in order to improve the footprint and improve our efficiency. But I mean, the plans related to CDS integration that is progressing according to plan. We will have, as you said, we will have some upgrades Czech Republic this year. We have completed our first round of investments now in Belgrade. We were down there last week 2 weeks ago To, as I confirm this, so 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. So that is ongoing fully according to plan. Sorry, Malte. It was kind of difficult to hear your questions, and I hope I addressed it in the right way. Yes. Just one clarification. I mean, is there particularly any point where things that most of the footprint Plan from CGS is finished. Is it like something like Q2 or Yes. No, I mean, if you look, let's say, solely on that, what we do, so then 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, put it like that. And going into 2020, we will have Probably some limited investments related to that, but the majority of all kind of footprint investments related to CDS acquisition will be done in 2019. Thank you. All right. Thank you. Our next question comes from the line of Agnieszka Villela 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 SEK183 1,000,000 positive this quarter, Quite above last year's SEK 71,000,000. And 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. That is mainly the main item, that is currency on hedge contracts. We don't put that on gross margins. So swings on that could be plus and minus within in that line. That is the main. And then also then we have other provisions, plus and minus, which I can't comment individually, but that also is swing. Could be swing, Swinney. Okay, perfect. Thank you. All right. I think we need to hand there. Unless you have a finishing question or I'll keep that. Okay. Thanks a lot. And of course, we do follow-up. Christophe is available Further, let's say, follow-up and of course, Ulf and myself as well and some of we will meet here in a roadshow in the next few days. Otherwise, see you soon. Thanks a lot. Thank you.