Ladies and gentlemen, welcome to the Trelleborg Q2 2018 report. Today, I'm pleased to present Peter Nilsson, CEO, and Ulf Berghult, CFO. For the first part of this call, all participants will be in a listen-only mode. Afterwards, there will be a question-and-answer session. Speakers, please begin.
Okay. Thank you. Welcome to all of you to this Trelleborg half year report 2018. I'm speaking, Peter Nilsson, CEO of Trelleborg. Later on, I will be joined in the call by Ulf Berghult, our CFO. Also supporting us on this call is Christofer Sjögren, Head of Investor Relations, who might also step in if any specific question pops up later. Moving on to the agenda, of course, as usual, guiding us through this is some slides, which I guess you have picked up on our webpage. Turning to page two with the agenda in this pack. As usual, starting with some general highlights, guiding you through the business areas. Ulf will guide you through the financials. Finishing off with a summary and some comments on the outlook for the running quarter. Finishing off with a Q&A.
That's the agenda. Quickly moving to page three, which is the headlines for the quarter heading on this slide and also for the report, continued earnings improvement. We continue to move our earnings up, and this is actually several quarters in a row now that we've been able to increase profit, rolling 12 profit, actually more than five years now. That has been a steady increase, and it continued this quarter. Sales is up in the quarter by 6%, assisted by organic sales, 2% in total. Excluding project deliveries as we report these two organic figures, sales is up by 4%. Also to note here, we see, let's say, an increased positivism going into here in the running quarter, Q3.
We had in the finishing of the quarter some sliding of sales, let's say, impacted by some tightness in certain parts of the supply chain. We're actually going into Q3 with a better order book than we went into Q2 seasonally adjusted. We are confident about the running rate here going forward into the running quarter. More comments about that later. EBIT increased by 19% year-on-year, corresponding to a margin of 14.7%, highest EBIT for Trelleborg in a quarter, also with a margin which is well ahead of last year, equal quarter. Items affecting comparability came at SEK -32. Ulf will get back and comment on that. No change. There is, of course, some lumpiness in between the quarters on this. The guidance for the full year remains on this one.
Cash flow, on a similar level as last year, slightly down on cash conversion, impacted by somewhat higher CapEx this year compared to last year. Ulf will comment on that as well. We also note with satisfaction that we continue being able to make bolt-on acquisitions, which is then supplementing our already strong positions in these two areas. I've got some more comments on that as we talk about this in the individual quarters. Moving to page 4, a little bit of organic sales growth. As you see all across the world, basically, with the exception of Other Europe, but Other Europe is also impacted by some decision to actually step out of some mixing sales, compound sales, external compound sales, related to our operation in Slovenia and also some other items.
Generally, no concern about that and good growth and good markets in all regions, especially strong maybe on China. Ulf will get back also and comment on that a bit later. Moving to page 5, back to the agenda, and quickly moving on to the business areas and on to page 6. Start talking about Trelleborg Coated Systems. Organic sales down by 6%, but this is also the business area which has been impacted by this change of sales in the mixing operations in Slovenia, where we then decided to focus this mixing unit in internal demand and on purpose, actually stepped out of some external supply of compounds. Coated fabrics, which you know is half of this business, roughly. General industry, automotive is strong. Aerospace is somewhat weaker in the quarter, but not really driven by less underlying demand.
We see this more as an inventory adjustment for one of our customers. We don't see that being real underlying demand. Printing blankets, lower sales in Europe and Americas, up in Asia. Basically the same development that we've seen for some time. EBIT is up. Satisfaction here, we are still some way away from our target, but at least we are now firmly moving in the right direction with a margin improvement, solid margin improvement compared to last year, with the results, especially on this overall productivity. We are putting a lot of measures here to improve the underlying operations, and with some satisfaction, we see that the improvement is actually kicking in.
Also in this area, an important, small though, but an important acquisition for us, Lamcotec, which is supplementing our position within a special niche within coated fabrics, which has been concluded here in the beginning of Q3. That's basically the comments on Coated Systems. Moving over to the next page 7, Industrial Solutions, organic sales are +6%, same level as previous quarters. Basically good demand in most segments. We see some building-related segments, which is more flattish, not down, which we see is more related, not really to the underlying demand, but more with some supply chain issues in certain areas of this segment, which is basically generally a common area in Industrial Solutions.
There is tight supply chain in certain areas. If we and our customers have been able to really deliver everything which is asked for, we would have seen a slightly higher sales here. That is something we're working on and something that we expect to be sorted here going forward. We also have to note the continued tight availability, especially the qualified labor in Czech Republic here. That is also a challenge that we've been working with in order to improve going forward. In total, we have also here a solid improvement in profit. Margin is up by almost one percentage point. We have also EBIT is up basically the double percentage compared to the sales growth. This is also good leverage on the increased volumes and generally good managed. Moving on to page eight, Trelleborg Offshore & Construction.
Here the heading is light at the end of the tunnel. We actually see now for the first time in quite some time, we see a solid improvement, especially in the oil and gas during the quarter, even though we have to highlight that it will take time before this improved market situation actually kicks into sales. We have a timeline here of some six, nine, 12 months, depending on the business that we're working with. This would not be immediate change in the next one or two quarters here, but definitely we see that we're starting now to build order book. We see with some confidence that we are actually turning a corner here. We also see within the infrastructure part of that, also certain improvements.
There is also some mixed issues in this business. We are seeing here that we are actually turning the corner. We are, for the next running quarters here, actually believing that we're going to be moving into positive territory here in terms of profit and also organic sales year-over-year. This is, of course, satisfactory. On top of that, we also want to note that the closure of the U.S. plant that has been communicated end of last year is fully running according to plan. We have now manufactured the last product in this U.S. plant. We are now starting to move all this equipment to our facility in U.K., where we'll be up and running then in the next few months, thereby also kicking in some extra benefits related to this closure. This is Offshore & Construction.
Moving on to page nine, Sealing Solutions, organic sales +6. Could have done slightly better here. There is some tightness in the supply chain, both for us and for our customers. This is impacting. We have also some, I shouldn't say +6 and no disappointment, it cannot be that. If we would have been able to sell a little bit more, if we would have been able to actually deliver exactly what the customer asked for, the customers would have called off what they are actually using. This is generally good all geographical markets, all geographies and most market segments developing nicely.
Asia, especially strong. EBIT and margin is up almost a percentage point. The same here, we see that EBIT is growing more than the sales, so we have a good drop-through also here from the extra sales. Wheel Systems, organic sales +4%, especially strong in Agri OE. Aftermarket ag is more flattish, even though we note that we estimate that we are actually gaining share here, both in the OE and aftermarket sales, and we're actually performing better in ag than the underlying market. We also note that behind this organic sales figure, there is some negative impact from this dry weather that we know about in Northern Europe, even though we should not exaggerate this, but there is probably a percentage point or something which you could blame for this.
Industrial and Construction Tires continue to do very well. Here we have also some tightness. We are actually not able to fully satisfy the demand, but this is something that we are investing in. We are building capacity, will be step by step here coming into full operational mode here, step by step for the remainder of the year and actually going into 2019. That is being adjusted. EBIT, substantially up 34% up, benefiting from the higher sales, but also benefiting from the continued successful integration of CGS. We see now continuation of synergies kicking in. Here also we note after an acquisition, a local, very regional acquisition, which makes us market leader in New Zealand, which is an interesting agricultural market. This is solidifying our position in the Pacific area, say Australia and New Zealand by this acquisition.
That is something which we are also happy to be concluding in here in this running quarter. Moving over the agenda, again, financials, asking Ulf to guide you through. Ulf?
Thank you, Peter. Let's dig a bit deeper into the financial numbers. On my first slide, page 12, slide sales development, you can see that organic growth in the quarter was +2%. Excluding project-related business, the organic growth was 4%, coming mainly from Industrial Solutions, Trelleborg Sealing Solutions, and Wheel Systems. The impact from currency was +3%. Structural growth is 1%, coming from the Dartex and White acquisition in Coated Systems and Wheel Systems. Next slide, page 13, describes the historical performance of our growth. As you can see, we have had growth in the last nine quarters. Organic growth has been positive the last six quarters. On slide 14, you will find the reported sales development the quarter, as well as rolling 12 months, which is mostly impacted by structural growth. On slide 15 presents our EBIT development.
This was our single best quarter to date, measured in absolute terms. Our EBIT reached SEK 1,293 million, equivalent then to an increase of 19%. The EBIT was positively impacted from currency translation of SEK 29 million in the quarter. EBIT margin, excluding items affecting comparability, ended up at 14.7% versus the previous year of 12.3%. Year to date, the EBIT in absolute terms and EBIT margin are the highest so far. Slide 16% EBIT and margin on a rolling 12-months basis. A stable EBIT margin looking four years back. On a rolling 12 months basis, we are currently at a 13.7% EBIT margin. The next slide presents the profit and loss statement for the total group. Items affecting comparability was minus SEK 32 million in the quarter related to the restructuring cost and is in line with our annual guidance of SEK 250 million.
The tax rate was 25% in the quarter. Our guidance on an underlying tax rate of 26% for the full year still stands. On slide 18, percent earnings per share. Adjusted for comparability items, the earnings per share was up 16% to SEK 3.40 for continuing operations. Slide 19 describes the development of our operating cash flow. The operating cash flow was mainly impacted by an improved EBITDA, but also increased CapEx spending, which is in line with our annual guidance of SEK 1.8 billion to SEK 2 billion. On slide 20, presents a rolling 12 months operating cash flow. Our cash conversion is on a healthy level, however, impacted by the increased CapEx activity lately. Slide 21 shows the year-on-year development on leverage on continuing operations, including or excluding comparability items. Net debt is impacted by a negative translation difference of SEK 709 million.
Slide 22 shows the leverage in net gearing development since 2010. Slide 23 describes the return on equity, where the long-term target is 12% on continuous operations, including items affecting comparability. Actual outcome is 9.8% versus 12.7% a year ago. Prior year rolling 12 months was positively impacted by the capital gain from the disposal of the Czech compounding operations executed in Q1 2017. This year's rolling 12 months is impacted by higher restructuring charges coming from the closure of a factory in the business area Trelleborg Offshore & Construction, which was communicated then in the end of 2017. Finally, on page 24, I would like to finish off this part of my presentation by repeating our financial guidelines for the full year 2018. As I mentioned, the CapEx guidance is SEK 1.8 billion to SEK 2 billion. We are running costs on the restructuring cost, that will be about SEK 250 million.
The underlying tax rate, that is 26%. The as for information that we have amortization of intangible assets in the size of about SEK 300 million. Peter over to you.
Thank you, Ulf. Back to the agenda, summary, finishing with outlook. Moving on to page 26. Said before, we continue to move. We have 21 quarters now. We're stable and continuous improvement on EBIT, we continue that. Sales is up by 6% in the quarter, supported by organic sales of two. Excluding project delivery, somewhat better up to four. Note, we want to highlight this, we are going into Q3 with a positive momentum. I have been mentioning a few times that we have tightness in the supply chain. Shouldn't be exaggerated, really. We are working on that, but there is some limited impact from this in Sealing Solutions and Industrial Solutions. Also some lack of capacity, especially for construction-related tires within Wheel Systems.
All of this is being addressed, most of it is actually related to fine-tuning, with the exception of this construction tire capacity in Wheel Systems, which is more driven by, let's say, major CapEx, especially down here in Serbia, but also supplementing a little bit step by step also in China and U.S. in order to move into that segment. We don't feel that being a major problem, but nevertheless, it has been a smaller issue here, especially ending here of Q2. EBIT is up, as I said, by 19%, to be compared with sales up at six. This is a good leverage. Margin up 14.7, even now 14.9 for the six months, even though all of us know that we have kind of more heavier sales in the first six months, in the second six months within Trelleborg.
We are still some way away, even though getting close for the six months to our long-term target of 15, but that is a full year rolling 12 figure, that will of course go down now as we will have less sales in the second part of the year. Items affecting comparability are relatively low in the quarter, but as you heard from Ulf, the overall guidance for the full year remains. Cash flow also, somewhat lower cash conversion, but still on a healthy level, but good control of that and really not driven by an increase in working capital. It's actually increase of CapEx, which is then used to increase efficiency further and to improve our geographical balance and of course also to grow capacity in the areas where we deem that being beneficial. Also satisfactory, two bolt-on acquisitions continue to work on acquisitions.
We continue to see possibilities in that area, even though organic efforts always top priority, we're using more the bolt-on acquisitions as catalysts to improve in the areas where it makes sense. Moving on to page 27, overall priorities, same as before, adding one bullet there, manage constraints in supply chain. Once again, not to exaggerate this is something which is of course, in a way, a positive challenge for us that we have increasing demand in certain areas, but it's definitely becoming a priority for us going forward, being able to actually cover the demand as we have. These, of course, also the constraints in supply chain is also somewhat pushing up the raw material pricing in certain areas, but that is also something we feel that we are very well under control and don't see any problems related to that.
Page 228, outlook for Q3 remain the same as the outlook for Q2. Q2, as you see, slightly lower organic sales compared to Q1 for us, but we see with now, let's say, confidence that maybe Q3 will be closer to Q1 than Q2 in terms of organic growth. That is what we see at the moment. That is why we have this comment that we're going into Q3 with a more positive momentum than actually going into Q2. That is finishing off, and by that, quickly moving over to Q&A on page 30, and opening up for questions and comments.
Thank you, ladies and gentlemen. If you do wish to ask a question, please press 01 on your telephone keypad. Our first question comes from the line of Claes Berglund from Citi. Please go ahead, your line is now open.
Yes. Hi, Peter and Ulf. It's Claes on Citi. A couple of questions from me. First, I want to come back to Sealing Solutions and the slower growth. You talked about deliveries being pushed to the right. Is it really only bottlenecks, or are we seeing customers being more cautious in light of the trade war narrative? Others in the sector haven't seen any weakness yet, I'm interested in terms of what you're hearing on an underlying basis.
Yeah, the comment on that, we actually have a stronger order book now than we had. We have continued to build order book in the quarter. We don't see a softening at all. Of course, we are very well aware of these trade discussions, if you want to call it that, but we don't really see it in the business at the moment. Of course, we have to be careful whether this growing order book is on the back of longer delivery times. As we see it today, we don't really see any softening anywhere, to be honest, looking at Ulf. We don't really see it anywhere else. It is stronger in Asia, North America, continuing very good. Europe is, of course, a little bit softer compared to North America and Asia, but still holding up on a very good level.
Okay, perfect. On Trelleborg Offshore & Construction, seems like infrastructure deliveries can help you in the second half, but for oil and gas deliveries to improve in 2019. You talked about quotation activity picking up, but can you tell us about the actual orders? How much real increase have you seen so far? How much of the lost volumes in the near term can you recover? Would obviously be great if we get a feel for the annual run rate looking at orders. On the margin then, just to follow up, you previously said that you can reach the previous peak margin in this division without seeing super cycle volumes and that it can happen pretty soon. Can you provide us an update here on when we can get to maybe low double-digit margin?
It's difficult to give exact guidance exactly when it happened, but we have a firm growth in the order book for the first time in two years, I guess. We have the two and a half years back before we can see this. We have big orders. Because the oil and gas, we've been lacking a little bit bigger orders, but we have a few big orders coming in now for a bump in North America, for Brazil, for Mexico, we had one. That is actually coming. But what we are tracking is what we call orders to be placed, because we know that our customers has gotten the order and then they're going to get back to us. That kind of orders we place has been growing a lot the last few quarters.
We see the quoting activity going up, we expect fairly strong order intake here in the second part of the year. We have from order to delivery is going to take us from basically 3 to 12 months. That is what we say. We're probably going to get some benefit also due this year, but the major benefit will be here going into 2019. Which relates to infrastructure, just to comment on that is more, we have a good underlying demand in the infrastructure. We have a good order intake there. That is more phasing of individual projects where it's going to be slightly stronger we expect here in the second part of the year compared to the first part of the year.
Of course, all in all, we expect this in Q3 to get close to break even or maybe moving slightly into positive. That relates also to organic growth year-over-year. We are on the same slightly positive or zero and then going into more positive territory in Q4 and then even more so going into next year. That is what we see at the moment, to be very open and transparent on that.
To comment on exact when they are kicking in, when it's Q1 or Q2 and exactly what the margin will be, we're definitely moving in the right area and for the first time in quite some time, we feel firmly, let's say, confident that this improvement is actually coming.
Okay, that's good. The next one is on the aftermarket in ag. You say growth would have been 1% higher for wheels if it wasn't for the weather. The aftermarket would have been growing maybe 2% more than if it wasn't for the weather. Is that correct? What would the aftermarket volumes have been?
It is very difficult, Claes, to give you as a guidance. We see there is a few individual percentage points on this. That is more a guidance. We're not talking 10%, but when we talk 1 or 2 or 3%, it's really difficult for us to estimate. Of course, we see that there is underlying, and we also have to say because it's Northern Europe and of course we are selling a lot in South, we're selling North America, selling China, selling everywhere. Of course, we shouldn't overestimate this. There is a negative impact, yes, but whether that is 1 or 2% on sales, I honestly don't know.
Okay, my point I'm looking at it like this, that if it's only 1 to 2%, then I thought that the weather impact was bigger in aftermarket because otherwise it would signal that the underlying momentum in the aftermarket is also not great or it's only weather.
It's just definitely big in Northern Europe, but Northern Europe is not the only market we're working in. Of course, we know about this, Christofer, we say ag in total is 60% or something.
Yeah
60% of wheel and out of that probably Northern Europe is, I don't know, 20% of that or something is Northern Europe. That is what has been impacted, of course, and so that is where the impact is. We shouldn't kind of exaggerate that because we have to know also that the underlying tractor registrations are normally still negative in Europe, even though we understand from the OE that they're expecting a pickup, even though turning slightly positive in North America tractor registrations, but it's still small figures and they're hovering around zero growth in the OE segment. That is really what we can comment about that.
A quick one, finally, bottlenecks and in relation to your increase in CapEx, Wheel Systems growing 4%, but if the bottleneck starts to ease, which will release further growth, what can we see here into the second half, I guess? Is it the second half that you expect the bottlenecks to ease?
The bottlenecks in Wheel Systems is more related to our kind of following the ČGS acquisition we've been pushing quite a lot into the construction segment. That is more related to that really, that is related to a strategic effort and still it's a small part of Wheel Systems , but nevertheless there's also one or two percentage points probably on the total of Wheel Systems that we've been able to sell and that is a little bit dependent here for the remainder of the year. That is also something that we especially will see going into 2019 actually, when we are pushing that because we're a little bit reluctant.
We get a lot of interest for our efforts into that segment, especially from OE, but we need also to balance OE compared to I don't know also because this is also, I don't know if you noticed, we had also an acquisition in our wheel. Camso, one of our main competitors in material handling tires was acquired by Michelin only a few days ago. That is of course also changing a little bit the OE's ways of that. There will be some turbulence for us in a positive way. We believe that is positive for us, but there will be some turbulence in that arena going forward, which is something we are working on and we don't really know exactly the impact, but we believe that's going to be positive for us.
Thank you.
Our next question comes from the line of Erik Golrang from SEB. Please go ahead. Your line is now open.
Thank you. First question on Wheel Systems. You talked about your capacity there limiting growth. If you could put a number on how much better organic growth would have been had you not had the capacity constraints you talked about?
Once again, the capacity constraints here is not really related to the base business. It's related to our efforts into construction, and that would have added a one, two, three percentage points, but that is something that will come and it's not really related to underlying demand. It's more related to us pushing into that segment. That is something which is not related to the underlying market. It's more related to our strategic efforts. The efforts has been kind of more successful than we expected since we got a higher demand for that segment than we expected or not planned for because we planned for it, but we would been able to sell more quicker than we will, but that will come.
That is simply a matter of when we have this Serbian factory up and running, we will get this capacity and especially in the OE we have, let's say substantial interest for us to move into that arena.
Okay. Thank you. The second question, if you could just repeat what you said for Offshore & Construction, if I heard you correctly there Organic growth around zero in Q3 and then potentially positive in Q4, and margins to be around breakeven in Q3. Is that correct?
Also to be fully transparent, our own estimates here show a slight positive organic growth in Q3 and a slight positive also EBIT. Of course, the demand on phasing on individual projects and all of that, but we look for the, let's say, the full second part of the year, we firmly believe in a positive organic growth and positive EBIT. Of course, let's say, not really getting anywhere close to what we're aiming for long term, but definitely, let's say, turning the corner and we feel that we have both positive organic growth as a positive result for the remainder of the year.
Okay. Thank you. The follow-up on that, last time around or when we've seen improving demand from low starting points in that business, it's often been on extremely challenging pricing conditions. How's that developing now when you're starting to see some demand coming back here?
It's always the same here. Of course, the first big orders you have to be calm and you need to wait, and that is always a balance. That is what we see. The first orders will be with lower margin, and the better margin orders will be only on later end of these first orders. Once again, we talk about in a year's time or something when we're going to get the benefits of these better orders. The first orders is always. That is kind of already in the order book, that is why we see, put on a normal pricing, we would probably make more money than we will do in Q3.
Thank you.
Once again, ladies and gentlemen, if you wish to ask a question, please press 01 on your telephone keypad. Our next question comes from the line of Johan Sjöberg from Danske Bank. Please go ahead, your line is now open.
Thank you. I appreciate your comments on Wheel Systems, also the impact in Q2 from the warm weather. If you were to guess now for the Q3, would you say that it would be roughly the same impact or is it getting worsening, i.e., you have been referring to Q2. If you were to make a guesstimate for Q3, should we be more worried about Q3 than Q2?
We have the seasonality here also going down. Usually the first part of the year is stronger in the aftermarket. It's going to be weather-dependent here, also what's going to happen here with some government support or something. It's really difficult to speculate. We don't see any change. If you look at the weekly figures at the moment, it's actually continuing on the same path. You not really see any major changes compared to what we have seen in the first six months. It's going to be weather-dependent, there's going to be government support, it's still hovering around the same kind of demand as we see now. I don't know, Ulf, if
No, as Peter said, the seasonality. The focus we have is to building, we have to capture the synergies. If the market comes, it will come, so to say, we are prepared. The weather is weather. As you remember also, we had a very bad start at the beginning of the year with a really wet and a long winter, coming into this one. It's not been ideal conditions for these poor farmers.
Once again, I want to remind all of you, this is for Northern Europe. We're working globally. This, of course, we're sitting here, most of us is working out of the Scandinavian region, we are heavily impacted by this, we read the papers and everywhere, it's not really the, let's say, the fact of life everywhere that this is an issue.
Yes. Understood. Maybe you, Ulf, can talk a little bit about the raw material cost that you saw or the headwind you saw in 2017. When you look at now the 2018 figures here, obviously, there's a dramatic improvement in underlying EBIT. Would you say that we should still expect some raw material cost, easy comps in Q3, or would you say that that has now been phased through during the first half?
If you remember coming back then that we had a very kind of a headwind in the first half of 2017, then we moved in then with more of a par in Q3 and then slightly better in Q4. We are moving into, from a year-on-year comparison, we are more or less on the same level. The rest of the organization, I'm quite impressed with that we are proactive and we are on it. We are ready with if something comes, we are ready to compensate that fully.
We see now, based on this demand that we see, and you're following other companies as well, you see demand. Of course, there is a renewed push upwards on raw materials in general at the moment. We are already implement the price increases, and we're working proactively on that. That is something we are expecting further price ups for raw materials here in the second part of the year. As Ulf said, we are well on top of that, and we are not in any way concerned about that.
When you're moving into a slightly calmer environment in terms of organic growth in Wheel Systems, you've been talking about the synergy progress being kind of put on hold or at least being postponed. How is that activity going right now since underlying demand is slowing?
That's well under control, we were getting the benefits that we have. I must say that we have an impact, as Ulf said, especially on the Ag side from this late winter and now the dry summer and all of that. We still expect that we are kind of ahead of the peak in Ag. We are still expecting an uptick eventually on Ag OE and also for the, let's say, after-market demand. We don't feel that we are in any way have the peak behind us. We actually still have the peak in front of us. Especially when it's happening, it's difficult to say, because a lot of things is impacting that. We don't see that this kind of needed upgrade on agriculture equipment has not really happened yet.
Great. Thanks a lot.
Our next question comes from the line of Olof Cederholm from ABG. Please go ahead. Your line is now open.
Yeah. Hi, it's Olof from ABG. I have a couple of questions. First, going back to the offshore and construction business. Just to get a sense of 2019, would it be possible for you to share sort of current book-to-bill ratios or maybe what the order growth is year-over-year, just to get a sense of what the top-line recovery can be in 2019 as it looks right now?
Yeah. It's really difficult, Olof, because we are well ahead of 100, of course, book-to-bill at the moment. Exactly when that will kick in, and we need actually to get back and give you a better guidance on that one when we have more orders. What we see now is that we are getting the first orders, and we have booked some orders. What we are more positive is that we say these orders we place. We know there is a lot of orders out in the market, and we're going to get our fair share of that, but that's going to happen here in the next few months or up till end of the year. Of course I can guess in 2019, but it will really be a wild guess.
I prefer to wait with that until we have a firmer view on that ourselves.
All right. That's fair. Turning a bit to Coated Systems. The internal change of mixing operation there, how long should we expect that to be a drag on? Is it basically a couple more quarters or how does it look?
It will be still a negative impact from that in Q3 and basically gone in, but more or less than in Q2 and basically gone in Q4. That is something we started a year ago or a short year ago. That will be up and run rate here mid Q4 or something like that, and we'll have no impact from that.
All right. How should we think about organic growth for this business in the longer run? You have some printing blankets, it's not that exciting maybe. The coated fabrics should be growing right now. If we look at Q2 and take out sort of the negative internal effect, those three percentage points, but how is coated performing versus printing blankets right now, and how do you think about the long-term growth?
Printing is running with a good efficiency, good cash generation, but maybe shrinking with a percentage a year or something like that. The other part of it should be growing, but well within our range there between 5% and 8%. In total, we should be, let's say, between three and five positive organic. That is really what we see for the full business area. In the individual quarter, as we hinted here also, we have been negatively impacted by some lower aerospace orders, which is not really based on any underlying demand going down and definitely we are not losing share. We are actually gaining share in that segment. That is more supply chain on the manufacturing of airplanes. We don't really see where we are.
Little bit more negative in the quarter than it should have been, especially driven by the lower aerospace deliveries.
All right. Perfect. Thank you very much.
Our next question comes from the line of Hampus Engellau from Handelsbanken. Please go ahead. Your line is now open.
Thank you very much. Two questions for me. If I look at your guidance, your repeating guidance for third quarter, [system adjusted] as for second. At the same time, you say that your order book is better moving into third compared to moving into second quarter. Is this related to the tightness in the supply chain that we should see some of that business moving into third quarter, or how should we think of that? If you could maybe talk a little bit about that.
No, really, to be also, as usual, very transparent, the sales in the individual quarter fell a little bit short of our expectations going into the quarter. Really the guidance here that is we are more firm, that we're going to get closer to the organic growth that we have in Q1. There is some benefits of some delay on some product orders in Q3, but overall, we see it's basically the same as year-to-date or slightly better than year-to-date. If you want to give an even more firmer guidance here going into Q3, that is really what we want to say, Hampus. It's not really a change in guidance. It's simply that our sales expectations in Q2 fell slightly short due to a little bit on the tightness of supply, but also to a few individual orders being pushed into Q3.
Fair enough. On the operating leverage, very good operating leverage in Wheel Systems, 40%, if I'm right in my calculations. Apart from the seasonality second half, should we expect a better operating leverage for Wheel Systems going forward if you take in both the volume side and where you are on prices compared to raw material?
A little bit careful here, Hampus, because also the benefits is also coming from synergies kicking in. I don't think we will see. We still have some synergies that's going to be kicking in, especially here related to we have the new factories up and running, and we still actually have some synergies in front of us because we say the synergies will be up and running here going into 2020. There are some actions that are still not being implemented. That we'll continue to get the kind of synergies on top of the operating leverage, and that is also what we see in the individual quarter. We see that kind of format continuing here for the next one or two years.
All right. Then last question, still moving around with systems. Could you maybe give us an update on where you are in Spartanburg and in the U.S. and how things are going there?
The U.S. is moving in a more positive now. That is where we see tractor registrations going up, and we also see that we continue to grow, and we continue to grow our share in that area. That is still moving, and as you know, we have two factories, Spartanburg and one open in, what's the name of the city? Slater. Slater, Iowa. Both of them is moving in a positive way. Of course, always some bumpiness here as you are gearing up and you are going into more and more tire models and pushing that into the market. Overall, we firmly believe that our move into U.S. is positive, and it's going to continue to be positive.
All right. Thank you so much.
Our next question comes from the line of Matthias Schulze from Commerzbank. Please go ahead, your line is now open.
Hi, good morning also from my side. Basically two questions left. First of all, on the point you've just mentioned on the synergies, can you give or maybe quantify which synergy you still target until 2020? My second question would be on the organic growth. In Asia, we've only seen 5% this quarter, and you especially mentioned that China was quite good. Is there any other regions where there are some problems?
To talk about the first, the China growth, Ulf, maybe you can share which growth did you have individually in China this quarter? For total group? Yeah. In China, we had 14%. 14% organic there. That's continuing, and the negative is more related to some individual territories. Yeah. Basically, we gather China, all of the Asia together with Africa and Middle East. Mm-hmm. Basically, Asia is growing. We had some in quarter in rest of the world, as we say, but we had a good growth in China and in Asia.
It's continuing. Then, of course, about the synergies. The synergies is that we are, as Peter then said earlier, that we are building, we have done some CapExes and then also moving into the construction tires and the building capacity, and those will then be. That is in the middle of it. Can I just add also that, Matthias, you know the slide we showed in Ulf's package during the capital market day?
There you have the phasing, we are phasing according to plan, basically. There is some firm slide on that if you go back on the capital market day, and that guidance still remains. Yeah.
Okay. Thanks.
Once again, ladies and gentlemen, if you do have a question, please press 01 on your telephone keypad. We do appear to have no further question at this time, I'll hand the conference back to you, sir.
Okay. Excellent. Thanks to all of you for your continued interest in Trelleborg. As usual, Christofer is fully available for any kind of follow-up questions. Following that, wish those of you going on to vacation, a nice vacation, and then meet all of you here early autumn, I guess, in various forums. Take care and have a nice summer. Thank you.
Thank you. Thank you for attending. You may now disconnect your lines. Thank you.