Ladies and gentlemen, welcome to the Trelleborg Q1 report 2018. Today, I'm pleased to present Peter Nilsson, President and CEO, and Ulf Berghult, CFO. For the first part of this call, all participants will be in a listen-only mode. Afterwards, there will be a question and answer session. I will now hand over to the speakers. Please begin.
Thank you. Peter Nilsson speaking. Welcome to all of you to the presentation of our Trelleborg's interim report for January to March 2018. I will start. Later on in the call, Ulf Berghult, our CFO, will support me and guide us through the financials. At the end of the call, I will get back to sum it up, and also opening up for a Q&A session. Jumping on to the presentation of our report, I'm going to use the PowerPoint presentation, which has been presented on our web, which I guess all of you also have in front of you. That is what I'm going to use while guiding you through the presentation. Starting, turning over to page two in this presentation, the agenda.
As usual, when we present our report, we start with some highlights, guide you through the business areas individually. Ulf will guide you through the financials more in detail, and some summary and some comments on the running quarter, and finishing off with the Q&A. Moving on to the highlights on page three in this presentation, we have a headline, good earnings improvement. Sales is increasing in the quarter by 3% for us, which equates to an organic sales by 4% and 5% if you exclude our project deliveries, which we usually do as they are normally bumpy. EBIT is up by 12%, which indicates a good leverage if you compare to the increase of sales.
That is corresponding to a margin of 15.1%, which makes this quarter the highest ever for Trelleborg, both in terms of EBIT and in terms of margin. Items affecting comparatives, slightly minus 18 in the quarter, slightly lower than the average. Also, Ulf will get back. The guidance for the full year remains the same, and nothing strange in these items from our point of view. Operating cash flow, slightly ahead of SEK 400 million, roughly in line with last year. Still going with, we say, efficient management of working capital. Of course, somewhat influenced by the growing sales and also maybe more so influenced by the somewhat higher CapEx in this quarter compared to the corresponding quarter last year. All in all, continued as we see it, a very solid cash conversion running for the last 12 months at 87% of EBIT.
That is the summary. Moving over to page 4, also part of this, with some further light on the organic sales. You see here, we have basically fairly stable organic growth all across the globe, but for what we call Other Europe, which is basically former Central and Eastern Europe for us, where we are down, while the other areas are up between 6% and 9%. On the positive, we highlight, let's say the bigger economies in Europe doing fine. The U.S. is still doing fine. Asia, all over, basically doing fine, with China as a driver, but also good development coming from Japan and India in this quarter for us.
In the Other Europe, partly of this downturn in Central Eastern Europe, is we've been through some portfolio cleansing of some of our sales, some of the local sales here from some of our factories here. We have stopped selling some external compounding, for instance, which is low profitability, but nevertheless influencing the sales in the quarter. That is basically as expected, and a fairly global, evenly growth for us. Page 5, back to the agenda slide, moving on to the business areas, turning to page 6, where we look at Coated Systems, organic sales down by 4%, but better productivity and better control of the operation is pushing up the profit anyway. As you see, the margin is up by 1.5 percentage points. A few more comments on the sales.
Coated Fabrics, relatively strong development in North America, but somewhat weaker in Europe and Asia, although not that big difference as printing blankets, somewhat lower sales in most regions across the globe. Also these sales here, get back to the comment I had before, most likely lower sales in Central Eastern Europe. Here we have had in one unit, we've decided basically to downsize our mixing operations, align it more with internal demands, which has been putting down the sales somewhat, but not really influenced the profit, since this has been used more as fixed cost coverage, and now we are adjusting the fixed costs in order to get a better leverage of this. All in all, EBIT is up, also let's say 1.5 percentage points up on the EBIT margin.
Also note in the quarter, we made an interesting add-on acquisition called Dartex, which is then strengthening in one particular niche within coated fabric, which means medical fabric, you can say, which is used in healthcare applications. Nice add-on for us, supplementing our already existing business within that segment. Moving on to page 7, Trelleborg Industrial Solutions, solid or very solid even, you can say, organic sales growth of 8%. Here we can say we have improvement more or less all over, especially in all kind of industrial, general industry-related sales. We also see that most geographical regions actually improved here, also specifically Asia developing very nicely. This extra good growth is also having a good drop through in EBIT, which means also that we increase in the margin from 10.6% to 11%.
To note, but maybe here not as a bullet, this is the first quarter where we include parts of this Rubena Savatech that came into the CGS acquisition with that being added to this business area. More comment about that in the report, where you can read more in detail exactly what has been moved to get to these figures that you see on this slide. Moving on to the next page eight. Still challenging market position is the heading here, where we continue to see a dramatic drop in organic sales in the quarter, 18%, and the market situation remains challenging in offshore and O&C. However, we have to note what we call the order tunnel is increasing, and we see that the activity level is increasing in the oil and gas activity. The major impact on that is actual sales.
We still have to wait for some six months before we will see that as shown in uptick in sales. We still will struggle, you could say that, with offshore activity for the next few quarters. In the quarter, we are still, let's say, a good market development, if you say the infrastructure part of this business area. In the quarter, was somewhat lower sales, and on top of that, also some unfavorable product mix. As we call it means actually that some of the projects being delivered in the infrastructure area in the quarter were showing a somewhat lower margin than they will do long term. This is, of course, it continues to be challenging, and we continue to address overall, especially offshore-related activity, continue to address our cost base there and positioning ourself for the future.
Turning to page nine, Sealing Solutions, a fairly plain quarter to be. Good organic sales, good all over the place, with Asia being especially strong, and a good drop-through on this extra sales, which is pushing the margin to the all-time high for this business area, an all-time EBIT percentage as well. Good development for Sealing, basically all across the business. Turning to page 10, Trelleborg Wheel Systems, heading strong improvement to profitability. As you see, we are growing sales by 8%, but EBIT is up by 30%. Overall good development, even though organic sales is up by 4%, we have a good growth in Agri, OE, and also industrial construction tires is also increasing.
We have the aftermarket sales, especially for the Agri side, has been impacted by this rather harsh winter conditions in the northern hemisphere, which basically both North America and Europe has been impacted by this. It is difficult for us really to fully estimate the impact, but we note that we have a somewhat delayed sales startup in some of those areas. All in all, as I already stated, good drop-through and good profit improvement, and we are pushing the margin then up to 14.7%, which is the highest ever for Wheel Systems as well, on the back of course, higher sales, stable raw materials, but also that we continue to see the benefits of the synergies coming from the integration of CGS or Mitas after the brand for the tires is called.
Even though, same as before, we have, let's say, a major part of the synergies actually in front of us as we are now investing in a new manufacturing platform, which then will create long-term benefits as we move into this new setup in the next year or so. Also a comment here, even though, we also note that this sales channel mix that we have with the growing OE sales and a little bit lower in the aftermarket has, let's say, adverse sales channel mix, if you look at the margin, even though it should not be interpreted as being major. We note that there is some impact from this sales mix change in the quarter. Turning to page 11, back to agenda, financials, leaving to Ulf to move on from page 12.
Thank you, Peter. Let me get straight into the consolidated group numbers. On my first slide, page 12, the sales development. You can see that the organic growth in the quarter was plus 3%, coming mainly from a better demand from several segments. However, the organic growth is still impacted by lower project deliveries to the oil and gas segment. If we exclude for project-related business, which mainly consists of our oil and gas operations, our organic growth in the quarter was plus 5%. Moreover, we believe that the unusually prolonged winter conditions in the northern hemisphere hampered some of our business areas' organic growth potential in the quarter. The impact from currency was minus 1%. Next slide, page 13, describes the historical performance of our organic growth.
As you can see on the bottom end of the chart, we have had five quarters in a row of positive organic growth. Remember though, that our organic growth has been hampered by declining raw material prices in the years prior to 2017. On slide 14, you will find the reported sales development per quarter, as well as rolling 12 months. The organic growth accounts for the improvement in the last quarters. Slide 15 presents our EBIT development. Our EBIT reached 1,291,000,000 SEK, equivalent to an increase by 12%. Good market development cost control improved quarter-over-quarter EBITA to a highest level to date. EBIT margin of 15.1% versus the 13.9% a year ago is also the highest to date. The EBIT was positively impacted by currency translation of 6 million SEK. Slide 16 presents the EBIT and margin on a rolling 12-month basis.
A stable EBIT margin looking over the period, despite having exposure to many tough markets during this period. On a rolling 12-month basis, we are currently at 13.3% EBIT margin. The next slide presents the profit and loss statement for the total group. Items affecting comparability consist of the restructuring cost and is in line with our annual guidelines. The tax rate was 25% in the quarter. Our guidance of an underlying tax rate of 26% for the full year still stands. Slide 18, % earnings per share, adjusted for comparability item, which was up by 9% to 3.41 SEK for continued operations. Slide 19 describes the development of our operating cash flow. The operating cash flow was impacted by an improved EBITDA, offset by a high working capital coming from a high activity. The CapEx is in line with our annual guidance of 1.8 to 2 billion SEK.
Slide 20, % rolling 12 months operating cash flow. Slide 21 shows the net debt to EBITDA ratio and net gearing development. Our leverage level is currently at 1.8 times, and our net debt equity ratio is at 34%. Net debt is impacted negatively by SEK 360 million from rate movements. Slide 22 shows our leverage development based on continuing operations, excluding comparability items. Slide 23 describes the return on equity, where the long-term target is 12% on a continuous operation, including items affecting comparability. The actual outcome in the quarter is 10.8% compared with the 12.1% a year ago. Year-on-year development is impacted by the one-off U.S. tax charge in quarter four 2017, but also by the capital gain from the divestment of Trelleborg Vibracoustic. That is a larger equity base.
Finally, on page 24, I want to finish off this part of the presentation by repeating our financial guidelines for the full year 2018. As I mentioned, the CapEx has been, for the full year, SEK 1.8 billion-SEK 2 billion. Going back to previously year's restructuring cost, that is about SEK 250 million. We have an underlying tax rate that is 26%, and we have amortization of intangible assets, mainly the PPA impact from acquisition that is above SEK 300 million on an annual basis. That concludes the financials. I will hand it over to Peter again.
No. Thank you. Moving quickly to page 25, where we have agenda slide again, summary in Q2. Outlook, page 26. As I said, sales in the quarter up by 3%, organic 4% and 5% if you exclude the project deliveries. EBIT on an all-time high level for us and also with the margin all-time high at 15.1%. Items affecting comparability is slightly low, but the guidance for the full year remains the same. Cash flow at slightly north of SEK 400 million, which is a slight decrease a year ago, but behind this is actually a continued improvement in efficiency of working capital management, but is influenced by slight CapEx, which is also perfectly in line with our guidance. All in all, the cash conversion remains at very comfortable levels at 87% of EBIT. Page 27, about, as I said, the priorities. No change here, really.
We continue to focus on growth and excellence and try to balance these two items. Market conditions remain good in vast majority of geographies and vast majority of industries. We still have a few industries, as we have been talking about, oil and gas, where we have to continue to adjust our cost base and continue to adjust for slightly lower sales. Even in these segments, we see basically an improved activity all over the place, with exception probably of the Gulf of Mexico. We see the North Sea is improving. We see West Africa improving, we see Brazil improving. We see also Asia improving. We expect that to be better in the future, even though, let's say, the timing here between increased activity and increased sales will be a few quarters.
We will not see any kind of improvement in our figures until the end of the year. In all businesses, we continue to work heavy with our market positioning, continue to invest in operational excellence in all aspects. Of course, also by using new technology, we continue to launch new initiatives and new products to improve our customer integration in various aspects. We also note there on bullet number three, continued portfolio management. We continue to make clear priorities on where to invest and where not to invest. Also, of course, continue to scout for acquisitions to supplement our organic drives to get to this improvement. Integration of CGS, still very high on the agenda. The structural changes have been done. The new organization is now fully launched from this quarter.
As you know, the tire operations has been integrated within Wheel Systems for some time. Now in the quarter, we're integrating the Rubena Savatech activities into Industrial Solutions and Coated Systems. We also have some other acquisitions, which we also have been successfully integrated. Also noting, which I already commented on before, some of the synergies, especially from CGS acquisition, is still in front of us as they are linked to some changes in the manufacturing footprint, and that requires some CapEx, which is ongoing, and that is also one major explanation of why the CapEx for this year is going to be slightly higher than our average CapEx. That is in order to prepare these new factories for absorbing or to change the overall setup for manufacturing, especially of some of the tires. This is really the priorities we have for 2018.
Moving over to page 28 on the outlook. We believe or we expect this running quarter to be on the same level as the quarter we just left, which means that the activity level will remain high in most of our businesses and then also in most of the geographies. We expect the overall demand to be in line or to be on par with the quarter we just left. Page 29, before we move on to Q&A, I want just to highlight that we also, during the quarter, sent out an invitation to our Capital Markets Day for 2018, which will be held at June 5th at Berns in central Stockholm. Very welcome to all of you to register to participate here and listen to a run-through of the full company and our strategies and our plans going forward.
Next agenda point, page 30. Moving on to Q&A, quickly to page 31, opening up for Q&A. Please go ahead.
Thank you. Ladies and gentlemen, if you wish to ask a question, please press zero followed by the one on your telephone keypad. Thank you. Our first question comes from Hampus Engellau from Handelsbanken. Please go ahead, your line is open.
Thank you very much. I have three questions. Starting off with Sealing Solutions. Very nice to see a really good drop-through on the organic growth. I think that you previously have downplayed the operating leverage in Sealing Solutions going forward, more talking about prioritizing growth. I guess my question is, should we think of this type of operating leverage going forward, given that where organic growth is trending? That's the first question. Second question is on Wheel Systems. If you would dare to maybe discuss what type of organic growth you had in aftermarket, if that was negative during the quarter, or maybe how we should think of that for the rest of the year. Last, more general comment on offshore. A bit surprised by the organic sales drop.
Do you feel that you have ended all restructuring there, or given this drop, do you see that you might need to do something else? Those are my three questions. Thank you.
Yeah, let me talk about TSS. We continue to invest a lot to grow the business. As we said before, it seems anything stays the same, and we are more interested actually in growing the business at similar margins going forward to continue to invest, and then it has some small individual variations, so I can say that the same drop-through will remain. Honestly, I hope not. I hope that we will be able to grow the business and grow the EBIT. That will be more and more important for us than really to push the margin up. With that said and done, we're running with fairly high gross profits in this, and of course, increasing sales will create a drop-through. I don't really want to give a firm guidance on the drop-through. Don't take this as a guidance going forward.
We expect the EBIT to continue to grow, of course, as the organic growth is growing, but we also would like to continue to invest in certain segments. We are investing to strengthen our position, for instance, in aerospace. We are investing quite a lot also in medical and healthcare to grow that area, and also within this, what we call electrification. Not only about the automotive industry, but electrification of a lot of industries where you're today using combustion engines or hydraulics, then moving over to electrification, we're driving a completely new demand on certain seals and all of that. We continue to invest in those areas to strengthen our position. About Wheel Systems, aftermarket was negative, but with some of that being that we kind of decided to. Still, I think it was better than the outlying market.
I think we grow market share, but it's difficult really to estimate this, but definitely there was a winter impact as the farmers couldn't use the tractor since there was snow on the fields, then, of course, they didn't buy tires. We don't expect that to last. We expect it to bounce back, but we can't say that everything of it is bouncing back. The mix effect is substantial in the quarter going from growth in OE and a slight decline in the aftermarket. With our Offshore & Construction, I would say we were also a little bit negatively kind of surprised by the actual outcome here. There is some slight delay in some projects, and also as I hinted on the call, you shouldn't read this as it being solely offshore related.
We had also in the quarter slightly low sales of the infrastructure part of it, but that's a more kind of a quarterly one-off impact. If you look at the full year, it will get better. I cannot say really next quarter or next quarters for offshore will continue to be challenging, and then we will hopefully see a slight improvement by the end of the year. We expect the infrastructure part to actually get better as the year develops.
Thank you very much.
Thank you. Our next question comes from Jeffrey Setin, private investor. Please go ahead, your line is open.
Yes, good afternoon, gentlemen. I hope you can hear me clearly.
Yes.
Good. My question concerns the innovation center which you are creating in Germany and are due to open in the summer of this year, I presume.
Yes, correct. Opening at the beginning of September. Yes.
My questions are as follows: Where is it located? How many employees will it have, and will there be any production facilities attached to that location?
The location is Stuttgart, it will be combined then with our headquarters for our Sealing Solutions activity. Number of employees, it depends because it's a mix both with sales, R&D, and all of that. There is different kinds of R&D centers. In this, there is kind of basic R&D, put it like that, material R&D, but there's also comprehensive testing because a lot of this innovation that we do here is very much linked to applying new materials into new products. It's kind of a combination of that, but we don't really want to announce exactly how many it is, and it also a kind of innovation center supporting our 30 other plants around the world. That is also not really interesting really to talk about the number of people.
We are investing a lot in this, especially what we call innovation in applications, we put it like that. It's a lot of testing, a lot of facilities, which is kind of assisting our customers to develop better products.
This innovation center will support the whole of the Trelleborg group and not just Sealing Solutions.
Primarily Sealing Solutions, of course, there will also be some benefits here. Sealing Solutions is very good, for instance, in friction and how to minimize friction, how to avoid heat buildup in frictions, and some of these innovations will benefit also in other parts of Trelleborg. The major focus in this, the primary focus in this is to support Trelleborg Sealing Solutions.
It's a good location, Stuttgart, to do that.
We firmly believe that. We've been there forever, I shouldn't say, we've been there for very long, what we have is a highly kind of innovative area of Germany. With that said and done, of course, we have similar innovation centers, although a lot smaller, both in Asia and in Americas.
Okay. Thank you.
Thank you. Our next question comes from Erik Golrang from SEB. Please go ahead. Your line is open.
Thank you. I have three questions. Following up on what was said on wheel systems, I am just struggling a bit to square the organic growth there given your end markets. Construction equipment and material handling, at least on the OE side, should be up well into double digits if you look at the industry, at least in the first quarter. If AG OE is up as well, then the aftermarket part should be really weak. Could you give some kind of indication of what the construction and material handling parts are growing? Secondly, on your guidance give, and given what you said about the tough winter impacting aftermarket demand for AG, it doesn't seem as if you're really comfortable that that will come back in the second quarter. Is that correct?
Thirdly, on your specific growth initiatives in Sealing Solutions, springs, the new segment you talked about, online initiatives. Can you give some update on how those are developing?
On the aftermarket, I should be honest to say that we are also struggling a little bit to get the full picture of that, we cannot really read how much of this is kind of linked to the harsh winter. For sure, there have been a substantial push down on the aftermarket. Also in that area, we are also doing our positioning, we are phasing out a few accounts in order to get this higher margin, to get the right mix going forward. We have a substantial increase, but also in OE, I don't know where you get your figures, but the tractor registrations is actually down in Europe and in North America, we are growing in that. We are actually gaining market share.
I think we are outperforming substantially, as I say, in OE, and that is being then pushed down a little bit with the aftermarket. Correct, you state also construction is doing good. Also on that, we are relatively small, even though that is part of our ambition here as we invest, especially in Serbia, we invest in the factory in Ruma in order to grow our capacity for construction equipment, which we believe will assist us in growing that part of the business going forward. I'm sorry, we don't really want to give any further guidance on this. This is also a little bit of competitive intelligence that we don't really want to share openly. Some of this that's coming from the harsh winter, most likely will be a bounce back here in the running quarter.
Honestly, we don't really know. We know that part of these farmers, they are kind of having the money in their pocket, and they're spending it. We are a little bit concerned that some of this, which we lost in the first quarter, that we've not gained it back fully in the running quarter. What was the final question? Was it about the-
Big growth initiatives in Sealing that you talked about.
We are pushing that all across. The springs is improving, but it's still a low base. There is online support. Online sales is growing, but it's also small figures, all of them in totality. They are progressing in a good way, but they are not really impacting the overall sales growth yet.
Thank you.
Thank you. Our next question comes from Johan Dahl, from Danske Bank. Please go ahead, your line is open.
Thank you. Returning to the drop-through in Sealing Solutions, I remember in Q4 it was a little bit of a hiccup because the drop-through was. You highlighted that there were some negative impact from acquisition, also a high SG&A cost. Now we bounce back really in Q1. I just want to make sure here, I know you got the question earlier, what should we view as a normal quarter? This quarter or the fourth quarter, would you say?
Yeah. Probably. I say also, the acquisitions is improving as we have them. Of course, we have them, and they integrate more and more into our model. It gets better and better. I don't know, Ulf, if you want to supplement.
Also then, basically, we are running with the same cost base on a quarterly basis, and quarter one and quarter two is much, much larger in sales than quarter three and quarter four. Of course, you have a larger drop, or you have a larger base, and then if we then get organic growth on top of that, then we have a nice drop-through.
Okay. Yeah, that makes sense. Okay. Yeah, fine.
There's not really any major change. It's simply that we had a few bigger projects in Q4. We're talking here about individual millions of EUR, which is not really a major impact on the totality.
Okay. Also just coming to the calendar effect in Q1 also, the Easter effect. What would you say was the impact from that in the quarter?
Mathematically, I think it's one less working day. Then, of course, you have Easter, some holidays, it could be more. If I was saying something between one and two days, which is then what, you have 60 days or something, then we talk about, what is that? That is one or two percentage points or something like that. It's not really any major, but there is, of course, a negative.
Okay, cool. Also coming back to Wheel Systems here. Could you explain a little bit about the bridge here? If you look at the Q1 last year, I think you had a negative impact from raw material cost of SEK 200 million in the first half. I'd make it simple for myself to say that it's SEK 100 million, all things equal, in Q1. I look at also at the organic growth there year-over-year, it's 4%. I still see that the underlying EBIT is up less than SEK 100 million. Is there some other effect here, which we are missing here? Or was it that in Q1 last year, you had a good sale of aftermarket tires?
We have some. We already hinted on that. There is some sales mix impact on this one, of course, which is pushing it down. All in all, of course, we're moving into, it's not being kind of fully compensated yet, and we are moving into a better reality. It's difficult really to give the bridge in detail, of course, we feel that definitely moving in the right direction, and we are more or less compensating ourself for the raw materials. On top of that, we have some impact on this negative mix, coming from kind of higher share of OE and lower share of-
Is it a big margin difference there between aftermarket and OE?
Yes. Immediate it is, but long term it's the same, basically. We said because to sell the products for the OE, the selling cost for that is substantially less than the aftermarket. If you look at the total EBIT drop-through, it's basically the same. Of course, if you have these swings from one quarter to another, you cannot really adjust it. If this remains, then of course we will adjust it, and we'll get better on the totality.
Also my final question about your cost-cutting program in Houston. Q1 was slightly weaker or weaker than expected, obviously here, and Q2 doesn't seem to be great either. If you look at into the second half here and just looking at your own cost initiatives, do you expect offshore and construction to be running with black figures as of Q3, or is that too early?
I don't really want to comment on that, Johan. We have to wait and see a little bit. Of course, as we move into a better reality, it will get better. Whether we go into black in Q3 or whatever, that's going to depend a little bit on the sales and the margin, of course, also we'll be getting on the projects we are going to ship in that individual quarter. It will definitely be better. We will move into a more efficient setup as the months pass.
Great. Thank you so much.
Thank you. Our next question comes from Agnieszka Vilela from Nordea. Please go ahead. Your line is open.
Hi. I have two questions. Firstly, I wonder what was the net pricing in Q1 and what we should expect in the near term. If you could just elaborate about the current balance between your pricing and the raw materials situations. Secondly, in the report you write a couple of times that you had very good cost control during the quarter, I can also see that you have relatively low research and development and administrative expenses. Is it sustainable or what do you expect for the coming quarters?
Starting with on the cost side, of course, we are always looking at the cost. We're always cost cautious we don't see it any kind of abnormal in the quarter. It's more that it's more stable, we don't really have a lot of one-off initiatives in the quarter, which is some have marketing campaigns or exhibitions or whatever. We are fairly low on that, which means that the quarter is, let's say, on a good level in terms of total cost. Once again, it's not really any extraordinary, simply it's good cost control across most areas. We talk about raw material and pricing. The raw materials has been stable for some time, we are constantly adjusting, of course, to adjust. We are seeing some smaller raw materials, not maybe on the bigger entities, but some smaller raw materials there is some bottleneck situations.
Of course, we are working still with price increases, it is going to be in only in very specific segments and with very specific materials. We have a few like silicones, we have some PTFE, we have some in bronze. There is a few materials with which the supply is getting very tight, it's not really major for Trelleborg. In those areas where we influence by that, of course, we continue to adjust the pricing.
Thank you.
Thank you. Our next question comes from Malte Schulz from Commerzbank. Please go ahead. Your line is open.
Yeah. Hi, good afternoon also from my side. A couple of questions. The first one is on Wheel Systems. Can you elaborate a little bit on the position in the U.S. on your market share gains and on the ramp-up process and where you are now and maybe your plan for the next coming quarters? My second question will be again on Offshore and Construction, particularly on the oil and gas. Some other companies have reported relatively optimistic statements on oil and gas recently, and also for example, Alfa booked several orders in offshore oil and gas. My question is here, do you already have booked orders yet for the later part of H2, or is it still that you would expect orders coming in there? My final question would be on the M&A. Was relatively quiet from your side in the past months.
Should we expect anything in the near future?
If we talk to the ramp-up U.S., it continues according to plan. We're growing our market share in U.S., and we are getting what you call a tire type or tire type homologated, and we are getting, let's say, an attention or interest, strong interest, especially from the OE part of it. We still believe that throughout this year, our running kind of EBIT in U.S. will turn in positive probably at the later part of the year and not in the earlier part of the year. We are definitely moving in the right direction there. With this offshore, we are also very positive in a way on the changes in offshore.
We are following what we call orders to be placed, which is basically we know that our customers has been getting the order, and we know that they need to award the order. That kind of, how should I say, that activity has increased a lot so that we know that we're going to get orders, and the orders are starting to get in. The major chunk of that is something we expect to see an uptick of in the next, let's say, one or two quarters, and then it will take another one or two quarters before we actually invoice. Don't misunderstand us there, Malte.
We also feel that this is moving very much in the right direction, even though, the first one which is coming here is this MMO business, maintenance modification operations, where we don't have a lot of that because our exposure is mainly into capital equipment with offshore, and that is coming slightly later. Overall, the activity level within the oil and gas activity is substantially higher than it was before. If you're looking on the onshore activity, that is definitely already up and running, while on offshore activity, it's basically higher activity everywhere. I should say, but for the Gulf of Mexico probably, we don't really see an uptick in the Gulf of Mexico, but the North Sea is good, Brazil is good, West Africa good, and also Asia is turning also positive.
We are becoming more positive with the offshore, but we also need to be fully aware of that it's going to take a few quarters before we see it in sales. The final question was then about.
M&A
The M&A. M&A, we are continuing to scout M&A. We still have a high activity level in M&A, it's coming in bulks, or you cannot really control the timing. We still have plenty of M&A opportunities, and we're still working on several opportunities there. It was really difficult to give any kind of guidance when they actually will materialize. For sure, there is a lot of activity in that area still.
Okay. Thank you.
Thank you. As another reminder, to register for a question, please press zero followed by the one on your telephone keypad. The next question comes from Erik Pettersson from Pareto Securities. Please go ahead. Your line is open.
Yes, hello. You mentioned bottlenecks among your sub-suppliers or some of them earlier on the call. You talked about silicones, et cetera. Do you only have this among your own sub-suppliers, or do you see bottlenecks in your own production system as well? Where is that in that case? Thanks.
We do also have bottlenecks in our operations here, delivery times in certain areas is getting long. We have very strong increase in demand in certain segments. We are struggling. Of course, you always have some bottlenecks in the production, otherwise you have too much capacity. That's of course a problem that we are used of working with. Nothing really major at the moment. We are struggling in certain Sealing applications. Definitely struggling, for instance, with construction tires. Certain segments also in the Trelleborg Industrial Solutions side, is also certain applications there which is being under pressure. There is some bottlenecks, it's nothing really major in a way and nothing extraordinary. We are working, of course, to get the delivery times down and to be quick to deliver, adjusting our capacity where we can. That is, once again, I shouldn't exaggerate it.
It is a challenge which we are used to work with. Once again, if we did not have these kind of challenges, then we would have too much manufacturing capacity.
Okay, thanks. Just to follow up, is the situation now more difficult or less difficult compared to last quarter?
In what respect?
In terms of the bottlenecks.
Probably increasing somewhat, because there is in certain segments, the segments which are growing, is growing even more. If there is any change, it's probably slightly more challenges in this quarter compared to Q4. Once again, nothing really major, nothing really which is stopping us in any major way to get the sales done.
Okay. Thank you very much.
Thank you. There appear to be no further questions. I'll return the conference back to you.
Okay. Thank you. Thanks to all of you. We are going to rush here. We have AGM in Trelleborg today as well, and meet, let's say, a major part of our shareholders which lives around Trelleborg. That's going to be nice. Beyond that, of course, I hope that we're going to talk to some of you. If I'm not talking to you, of course you have full access to Christofer, who going to guide you through and give you more flavor about the results. Later on, I hope that I will see most of you, or if not all of you, at our Capital Markets Day here in June in Stockholm. Take care. Meanwhile, take care and talk to you soon. Thank you.
Thank you. Ladies and gentlemen, this does conclude today's conference call. Thank you very much for attending. You may now disconnect your lines.