Hello, welcome to Trelleborg press conference. Throughout the call, all participants will be in a listen-only mode, and afterwards there will be a question and answer session. Just to remind you, this conference call is being recorded. Today, I am pleased to present CEO Peter Nilsson and CFO Ulf Berghult. Please go ahead with your meeting.
Thank you. Peter speaking, as already indicated, Ulf is also joining me on the call here and ready to take on some questions or improve the presentation. As you know, we have announced this morning that within Trelleborg, we are strengthening our focus on some selected segments, in line with that, also doing a reorganization, which then entails going from five to three business areas, also announcing a new unit. In order to do this in a more structured way, I propose that we use the presentation which has been on our website for a few hours. That is what we're going to refer to, of course, at the end of the session, opening up for Q&A as usual.
Starting with the second slide, current organization of Trelleborg, as you're well aware, this is the five business areas that we've been running and will be running up until end of the year also, where you see the split of sales. Moving down to page number three, as I already indicated, as all of you have read in our press release, we are now changing this setup. From January 1st, we will go from five to three business areas, with Trelleborg Industrial Solutions, which are specializing in polymer-based niche applications and infrastructure projects, Trelleborg Sealing Solutions, specializing in polymer-based sealing solutions, Trelleborg Wheel Systems, focusing on off-highway and tires for off-highway vehicles. In line with this, Coated Systems and Offshore and Construction will discontinue and will no longer be business areas in Trelleborg.
On top of this, we will also, I'll get back to that later and explain more in detail, but some businesses from Industrial Solutions, from Trelleborg Offshore & Construction, from Trelleborg Coated Systems, and a very small part of Trelleborg Wheel Systems will be transferred into a new reporting segment, which we're going to call Businesses Under Development. Get back and comment more on that later as well. If you move down to page four, you will see the new organization, and also with rolling 12 figures on those businesses as backwards rolling 12 figures on those businesses now as we move into 2020. I should comment here also, let's say as an enclosure to the press release, of course, you have also seen restated figures more in detail for those of you more interested in the details and seeing the development a few years back.
That is really leave it from there, moving on to page five. As we do this, we'll do an impairment of capital employed, and with the SEK 3.2 billion, which is then impacting solely, or let's say, going solely on the businesses that have been transferred on to these Businesses Under Development. To receive a question, and maybe you should have been clear on that already, just to clarify, the remaining capital employed for those businesses will be some SEK 3 billion, where then one third of that roughly is working capital and two thirds then more tangible assets. The write-down is more or less solely related to goodwill, that is also more details on this will be provided as we report end of the year.
Also in this, there will also be, let's say, some organizational changes related to this. Some redundancies and some other extra costs will going to be what we, let's say, estimate to be in the range of SEK 50 million, where this will be distributed between 2019 and 2020, and we don't know exactly how much of this is going to be 2019 and how much is going to be 2020, and we're going to be updating you on this as soon as we have more clarity on this one. Moving on to page six, we have already covered most of this.
As I say, Coated Systems discontinued, Offshore and Construction discontinued. Trelleborg Industrial Solutions going forward will then, let's say, contain current operations, of course, less than the selected molded components operations in Sweden, Estonia, Czech Republic, and a small unit also in Mexico. That is something which we're going to talk a little bit more about later. Also moving then into Industrial Solutions from Trelleborg Coated Systems is then in a coated fabrics operations, also moving from Offshore and Construction to operations related to marine solutions and infrastructure projects. Basically two businesses going out of Industrial Solutions and two businesses going into Industrial Solutions.
Sealing Solutions not affected, and Wheel Systems very marginally affected as we're transferring a bicycle tire operation, which has then been integrated to run together with these molded components that we do in Czech Republic, and we're now moving that back into this old unit, which then is known before as the Rubena business. Moving on then to page seven. Businesses Under Development going forward will then consist of printing blankets from Coated Systems, oil and gas operations from Offshore & Construction, as I said, a Swedish and Estonian operation from molded components of Trelleborg Industrial Solutions, also from Industrial Solutions, also moving out these molded components and technical rubber products in Czech Republic, as I already said before, also the bicycle tires operations Wheel Systems, which is currently running in the same unit as the other operations in Czech Republic could also be transferred into this.
These operations will be managed independently and focused, then report to our CFO, Ulf Berghult, for this period. Intention of this moving to page 8, it is, of course, to more intensify the strategic review of these businesses, these four independent businesses, and their primary focus is to improve profitability with multiple of measures within the 12 to 24 months. We will have to see, let's say, significant improvements of these businesses if they should remain in Trelleborg long term. Of course, during this period, we will also continuously evaluate other options such as integration in full or part into the business areas, also opening up for joint ventures in order to improve the positions, also consider divestment, we could also be interested in, let's say, joining up with others where we might not be the majority owner going forward.
Basically, all options are open, and this is something that will be concluded within the maximum 24 months. Beyond 24 months, we will have clarity on this, then we should have better operations as part of Trelleborg, they will not be part of Trelleborg anymore. Page nine, also a comment from Klas related to the board when we announced this and to avoid any kind of uncertainty, we see this kind of write-down of SEK 3.2 billion not really impacting our financial capacity. There also we want to have clarity as the board already here, very early, of course, already here indicate that we believe if everything we know also today, there will be a proposal to the annual meeting, will be a proposal to have a dividend of SEK 4.75 then for when this is coming up here in April next year.
This is really going through this presentation, and with this, leaving for questions. Please go ahead.
Thank you. If you would like to ask a question, please press 01 on your telephone keypad. Our first question is from Klas Bergelind from Citi.
Yes. Hi, Peter and Ulf. It's Klas from Citi. A couple of questions, please. First, on the margin in those Businesses Under Development, down from high single digits in 2017 to now negative 1% last 12 months. Could you please help us speak for a bit about the peak and the low points of printing blankets offshore and the rest? I'll start there.
We don't want to give you full clarity on that, unfortunately, Klas. We would like to keep this a little bit. In general, we can say, of course, we have been commenting before, we've been losing margin on this business in Czech Republic, and that has been going down, and at the same time, we've been suffering from market downturns in Offshore. I should say the printing blanket is not really a big change during this period. The negative is coming here from this, what we internally before called Bohemia, now going forward, going to call Rubena, and from the Offshore operation, while the other parts has not really changed. With that said and done, one of the reasons for initiating this now is, of course, that we see improvement possibility, especially in the Offshore area.
As we indicated before, we have a strong order intake, and we expect that to improve from here onwards. At the same time, as you know, in the Bohemia team, for those of you who've been following us for some time, or now the Rubena that we've been investing, and this investment is coming up to an end also. We expect improvements in both of these areas, but I don't really want to elaborate any more details on the margins at this stage.
Okay. My second one is on potential dissynergies. If these businesses do not manage to improve the margins, and should you divest these assets, obviously, dissynergies used to be on the purchasing side, on the polymers. Are these easy carve-outs should this happen? That's my second one.
Yeah, if a general comment on that is, of course, Trelleborg will still remain as being one of the biggest purchasers within technical rubber, industrial rubber. For us, it's not a limitation. It's more like this business, of course, they will potentially suffer for some dissynergies in that aspect. There is some carve-outs. They've been part of Trelleborg, some of these operations have been part of Trelleborg for a very long term, and that's also why we need some time to do carve-out. There is some, in certain areas, some common customer contracts, common contacts at the customers and where we sell together, and that needs to be sorted.
We do not expect this to be a major issue in any way, honestly, because also even though, talk about the printing blankets, talk about the offshore, we are already, with this business, we are a global leader in those segments. Even though the segments that we decided to put them aside in this development unit, but they are, let's say, global leader in those segments. I don't see that as being If I look at Ulf, it's not been really a major thing for us or major consideration when looking into this.
Okay, that's good. My third and final one, and a quick one, is for you, Ulf, on depreciation and CapEx and ROCE. Suppose this write-down, Ulf, does this change the depreciation profile of the group? Linked to that is obviously CapEx and ROCE, how asset-heavy are these assets? You've been very helpful with the performance margin improvement, an update on depreciation, CapEx, and ROCE would be most helpful.
Mostly, right on, as Peter said, mostly then will impact on the intangible assets.
Got it.
Basically then it's a limited impact on amortization. Then on return on capital employed, it's then slightly, of course, an uptick, but we were talking about 0.5%, somewhere like that.
Yes.
It's a minor uptick.
Okay. Thank you very much.
I think it's also important that we will run this business, and we will do what is necessary then to improve the business. From a CapEx point of view, we are not downgrading that they will not get any CapEx. They will get the CapEx. If it is a good course and it's a good business case, then we will, of course, then support with the necessary CapExes.
Okay. Thank you.
Thanks.
Our next question is from Douglas Lindahl from Kepler Cheuvreux.
Hi, Peter. Hi, Ulf. One question from me. I was curious about the businesses included in the Businesses Under Development, which to me seems to be something in between a regular business area and sort of an asset put for sale. Peter, you mentioned there in the press release that we need to see a significant margin improvement over the next 12-24 months for these Businesses Under Development to be kept within Trelleborg. Can you be a little bit more specific on what this really means? Also, if, for example, the oil and gas business becomes significantly more profitable, which potentially could happen here with the strong order intake, will you keep it within this reporting under the Businesses Under Development, or will this become sort of its own business area, or will you include it in the Industrial Solutions?
Can you talk a little bit about that, please?
We have not decided really. We are going for this and to improve it significantly, and we are not putting up some borderlines. This is something that we need to look into. Of course, they need to go into digits to be able to be interesting for us to keep. Even with two digits, we need to feel comfortable that this is a kind of long-term viable business. I don't really want to put down any kind of thresholds what we need to achieve, but we will be very careful to change the direction of this. This is something that definitely needs to be completely different set up and a lot more stability than we had before in order to be interesting for us going forward. It's difficult to put up some kind of firm thresholds in this respect.
This is something we need to look at the options, and we need to see what can be achieved. What we say here, we are going to initiate, let's say, on all these businesses and look at the options, but of course, if we sell anything, it's definitely not a fire sale in any way. This is something that we would like to make sure that we get the maximum value out in all aspects. I don't know, Ulf, if you want to elaborate.
I think it's as Peter said, if we would be then coming after that it's not a fire sale, we have the business, and we will improve the business, and then the management, they are dedicated then to take on this challenge.
Just to highlight that as well. We are, as we believe at least now, we are all kind of very low in historical perspective, both in offshore and this Czech business, and we expect both of them to improve from here because we have been investing, we have been preparing, and now we see an uptick, especially in the oil and gas activity, and we do also getting to the end of this kind of investment program been running in Czech Republic to improve that operation. That is something which we expect it to improve, and then it's how much is improved and at what pace that we have to look at.
Okay. Just on that double digit, I assume that would be sort of a sustainable double digit rather than just hitting-.
Yes, of course.
Okay. Thanks, Peter. Thanks, Ulf.
Thank you.
Our next question is from Erik Paulsen from Pareto Securities.
Hi there, it's Erik. Regarding the oil and gas operations of the Offshore & Construction and the decision to put this under the Businesses Under Development, is this something to do with ESG? You keep the one related to marine hoses for handling oil and gas, right, in the Industrial Solutions? How come you put this one here and when we see this better momentum in that business area?
We will have oil and gas exposure in various areas. We have that in Trelleborg Sealing Solutions as well. We have it in several parts of the new Trelleborg Industrial Solutions. It's not really linked solely to this. This is kind of one business focusing on the subsea, where we decide where we are global market leaders, where we need to really see an improvement in order to keep it. We don't see it either. We don't see, let's say, oil and gas as a total. We still believe in LNG transfer and stuff like that. It's really a little bit on this specific segment, subsea segment, where we need to see an improvement and more stability. I don't really know how to comment on it further, Erik. It's not really a decision to exit oil and gas fully.
It's more that we have identified this business within oil and gas being in need of more stability and improvement.
Understood. My final one is regarding the new structure with three business areas. You write here in the presentation that it will be effective from 1st January, but I think you write in the press release that we will see it in the Q4 report. When will this be effective, actually?
We will gradually work into this one. As it's announced today, and it's not been public internally, then of course, we will gradually move into this. We will then, in order to have a better transparency then to the external world, we will then do the quarter report and annual report to reflect the new organization.
All right, great. Thank you very much.
Just as a reminder, if you do wish to ask a question, please press 01 on your telephone keypad now. Our next question is from Hampus Engellau, from Handelsbanken.
Thank you very much. I have a more broader question. Acquisition is a very much included part of your growth strategy, and this write-down a lot of goodwill. If I just look at it on a really top-down approach, it seems like you're writing down about four or five years of acquisitions here. My question is related to how has this affected your acquisition strategy going forward?
That's a valid question, and of course, we've been looking at ourself here. The major things here is of course oil and gas market going down. When we made this acquisition some 10 years ago, the view was probably different on this industry. We were running this business very good for a few years, and we probably got our money back, if I look pure from a cash perspective. Now this market is down, and now we have to make this write-down in a very much a down cycle for oil and gas. It's a cyclical thing, and that is one where we have not. I'm not really too concerned about that acquisition, where we have to look at. Where we are having, let's say, unexpected problems, if I may say, is this Czech operations was part of CGS.
As you know, before, we are very happy with the tire acquisition, and this tire operation related to CGS, but this has been a major failure so far, to be very frank and open about this. This is the major disappointment in this. This is the individual cases that I want to say. This is individual cases related to oil and gas, like cyclicality, and then with some obvious, let's say, operational problems in gas. I don't think it's correct to say that because all the other acquisitions is not in this group. The major thing here is, once again, this Czech operations and then oil and gas, which is then doing this write-down in a way in a very much a down cycle. I don't know, Hampus, if that is enough for you.
Yeah, it's adding some more flavor. On this Businesses Under Development, I guess that In these type of situations, you will of course be approached by a lot of potential buyers, given that there is a trade-off here between spending even more time on building up and making these business areas more profitable and also divesting them. I know that you also have a pipeline with 200 companies that is on a potential acquisition list. Could you maybe elaborate a little bit on how you see the trade-off here? If you would have an easy solution to this by finding a buyer, would that be a preferred choice for you, given that you can spend that money both internally and on potential acquisition on these 200 companies?
We're always looking for easy buyers who pay a lot of money. That is really what we want to get if we sell something. What I say, it's always a, let's say, balanced decision, of course. If we end up in that selling it, of course it's always a balance. If there's a correct buyer and valuation and what are the efforts to get the higher value. We did our homework on this, we know about some of the structural alternatives. It might not be solely, let's say, the selling business. It could also be combinations where we can join together with somebody. We know these businesses. We have held them for quite some time, we know what the strategic options are.
By announcing this, of course, it will be obvious that we will be more open to discuss these kind of questions. Once again, it's really focused on the operations, and the major part of this is Printing Blankets is performing quite okay, even though we have a structural challenge long term, while then oil and gas and this Czech operation is actually in an improvement cycle. We will focus on the operations and then at the same time and make sure that we get the best, let us say, financial performance out of them and at the same time look into these various options. I cannot really say. We are not going to discount it away. We have a, let's say, value expectations, and we know what we want for it in order to go down that route.
Fair enough. Thank you.
Our next question is from Olof Cederholm from ABG.
Hi, it's Olof from ABG. A couple from me. The Businesses Under Development, you said you will still allocate CapEx to them and so forth. Is the first priority to make these businesses improve? Will you allocate maybe or speed up restructuring of these businesses to improve them?
We will have a dedicated business plan for each individual business. If that entails that we need to do some CapEx, we will do that. In some areas, if you take printing, they have a new ERP system, we will not continue that further on. That would stay there. Each business will have a dedicated business plan, we will support what is necessary as long as it brings value. Yes, value improvement. We will run it as we will be more, maybe a little bit more short-sighted in certain areas until we decide long-term, as Olof said, with ERP systems and stuff. If we see CapEx as improving the operations, or even if we see smaller acquisitions, which improving it, we will not disregard that fully.
Of course, long term, we need to see that the profitability improve or that the value of the business increases if we are to do it. Of course, it will a little bit shorter view than we have on other businesses. Of course, we'll be a little bit more careful on the CapEx. Of course, we will more looking at the cost side. That is given. For us, it's a given one if we go into this kind of strategic review phase.
All right. Makes sense. Just talking about the printing blankets and also the Offshore business, you mentioned that they have strong market shares, which we, of course, knew already. Do you think that could have or make it more difficult for you to see structural solutions for these businesses out there? Or do you think it doesn't matter?
Of course, there is some limitations and some obstacles. We cannot really combine with everybody, but that's the way it is. If you have this 30%-40% global market share, then of course you have some limitations in that respect. We don't see that as a major obstacle because, also in that case, consolidating with somebody having similar market share might not be the best way of creating value. Probably it's more looking into combinations with somebody having adjacent product or supplementary products if we are looking into some kind of strategic combination. Correct in that, Olof. It's not a given one in the printing blankets market. There are 3-4 global players, and maybe we can combine with 1 or 2 of them, but not really with all of them.
Of course, there is some limitations in that respect in order to create a good business case in combining. Also from a legal point of view, I think it's not really that much limiting. It's more from a customer point of view, which could be, let's say, reluctant to buy, because they may still relatively small businesses on a global scale.
All right. Thank you very much.
Our next question is from Agnieszka Vilela from Nordea.
Thank you. Coming back to the carving out of the Businesses Under Development operations and the potential synergies that you have today. Can you just confirm that you don't foresee any significant dis-synergies with the core Trelleborg?
No. From a purchasing, no. There might be some customer core. By the way, that is solvable. It's more a transition period where we need to maybe sign two different supply contracts or we need to create new customer. I see that more as an operational thing, and not really a dis-synergy in that respect. In certain areas, you can also see positive synergies if you, let's say, allow more freedom to some businesses. We don't consider that as being a negative impact in this change.
When it comes to production, is it separated today, or will you need to do?
There is very limited carve-outs, where they're using some of our facilities in China and India and stuff like that. It's also not really and there is some supply of rubber compounds and stuff like that where we now need to look at supply contracts and stuff like that. Once again, there is some smaller issues, but we don't see that as any kind of major challenge in any way.
It's maybe too early, but would you consider setting new financial targets for the rest of Trelleborg?
We are always considering, let's say, what to do with our targets. When we feel ready to discuss that, we will do that, of course. We expect here to discuss this more, but I don't think the timing is now for that.
Yeah. Okay. As I understand, you have no plans to split the remaining operations into three separate companies. You will keep it together. That would be the core of Trelleborg.
Yes. That is the way we see it. We are now, let's say, we're getting three bigger units, but still the synergies exist, and we still see the rationale on keeping them together is still very much valid. Don't see it like that. It's more to get more clarity and get more focus and make sure that we continue to get all the synergies we have by having these combined.
Perfect. Lastly, I'll just try it. We have both you and Olof on the line here. Any comment on the current trading? You guided for flat demand in Q4. Maybe you could just keep us updated.
Yeah. No change there. We still see, let's say, industrial demand being a little bit uncertain. We still see, let's say, oil and gas and the infrastructure construction improving. We see aerospace continuing in a good way. Automotive, as we also expected, a slow bounce back of flattening out. I think everything is fully in line with what we guided for exiting Q3.
Perfect. Thank you.
Our next question is from Mads Tønsberg-Jensen from SEB. Mads, can you hear us?
My question has been answered. Thank you.
Just as a reminder, if you do wish to ask a question, please press 01 on your telephone keypad now.
Okay. No more questions then, I guess, huh?
No further questions.
Okay. Thanks all of you, and of course, always available myself, Olof, and not the least, Christofer also available for any potential follow-up questions. Please get in contact us if you find something else or you have some other questions that you want to ask, don't hesitate to make contact. Otherwise, unless we meet in the next few days, wishing you a good end of the year, and then speak to you again early next year. Take care and best regards. Bye-bye.