Thank you. Peter speaking. Welcome to all of you to our presentation of Q3 2020. As usual, I'm going to start off with some headlines and also covering comments on our business areas, and then Ulf Berghult, our CFO, will take care of the financial part of the presentation. Ulf and myself jointly then finishing off with some comments on the running quarter and also then of course, with the Q&A session at the end. Basis for the presentation will be the PowerPoint that we released on our web this morning. That is going to be used as the guidance through this call, and I assume all of it has it in front of you.
We're moving into that part and starting with agenda page as already stated, starting with some highlights, comments on the business areas, Ulf guiding you through the financials, and then we jointly finishing off with a summary and some comments on the outlook for the running quarter, and then some Q&A at the end. Turning to page three, headlines for our report earnings and cash flow level with previous year, which we are quite happy with. Sales in the quarter, year-on-year, decreased by 12%, organically by 7%, and then, of course, like several others, on top of that, some negatives coming from exchange rates.
Even though with this rather substantial decrease still, maybe, of course, better than Q2, but still high numbers, we managed to keep EBIT more or less on par in absolute number compared to last year, which then pushed up the margin actually higher than the corresponding quarter last year, ending up within 12.9% EBIT margin, let's say, neglecting the non-recurring costs in the quarter. Cash flow, very strong. We are happy with, of course, the management of working capital in the quarter. We are actually still under-producing the quarter, which means that we released inventory in the quarter, substantially so, especially within Wheel Systems and Sealing Solutions, and also still very good control of account receivables. On top of that, of course, becoming more careful with the CapEx as guided earlier.
All in all, well-managed cash flow, well in line with our expectations, which is then pushing up the cash conversion at above 100%, 121%. Also as basically from the board and not from management, we're also confirming our earlier call that no dividend will be paid in 2020. Background to this is, of course, that we still see uncertainty, and we also see an opportunity here to in line with some legal, how should I say, legal complications still pending. Let's say the board decided for no dividends, which is then okay. The money will remain in the company and, of course, strengthen our balance sheet and create more flexibility going forward. Turning to page four, where we comment on the organic sales development by geography, starting with the positives is, of course, Asia and other markets where we are growing in the quarter.
Very strong contribution, especially from China and also for us, good contribution actually from Australia, while we are still, like most others, suffering a little bit in Japan and India. It's a mixed picture in Asia, but overall positive, driven once again primarily by China, but also supported for us with good sales in Australia. We're also starting with some positives. We also have a good development in Central Europe, other Europe. We are still tracking Europe in two parts within Trelleborg. Other Europe's strong growth coming from, let's say, from a decent development before as well, while we then continue to struggle, especially Western Europe and North America, or Western Europe is performing slightly less bad than North America, which I think also is in line with the general perception in the, let's say, general industry segments.
South America is very, let's say, negative for us, but we also have to note that that is a very small part of Trelleborg and its individual sales, which is kind of pushing us down in this very negative territory. This is kind of the overall ending up and summing up with minus eight in total. I should say, highlight also here to make that clear, this is just a comment on the core business where we are taking out the business under development. That is why you see minus eight on this, while minus seven on the full company then where we have business under development, which is performing good, primarily driven then by oil and gas, continued good oil and gas development in the quarter. This is some comments on the sales.
Turning to page five, agenda point, then moving over to business areas. Turning to page six, starting off with some comments on Industrial Solutions. Well-managed quarter, organic sales minus 9, but also with EBIT well under control and actually a beat on the margin compared to a year ago by half a percentage point. Here, a negative impact still from COVID-19 in most regions, and we still see the construction-related parts of this business area is still very much influenced, while we then saw strong recovery in the light vehicle, automotive-related parts of this, and still also in this quarter, also good, which is not commented here especially, but also good development related to the oil and gas sales coming in this business area.
EBIT, of course, down by these lower volumes, but overall, very happy with the cost control and also strong price discipline here, which is once again keeping the margin, or making the margin actually coming out higher than a year ago. We are still, as indicated also in end of quarter two, we are implementing structural improvements here, and that actions are ongoing, and we are continuing to implement those actions already being decided. We are still focusing very much on cost control in order to continue to offset the effects coming from COVID-19. Sealing Solutions, the heading, next page, on page seven, heading, Very Tough Aerospace Markets. You know Sealing Solutions, 15%, 20% of sales related to aerospace, and that is more than halved in the quarter, and that, of course, the majority of the organic sales drop is actually coming from aerospace sales.
We are down 13% in the quarter organically. Once again, half of that, or more or less exactly half of that, coming from the drop in aerospace. Basically, the same trend everywhere, even though we are also very strong in China especially, but for Asia overall, offset a little bit by the negative development we see in Japan. Already commented on aerospace. Significantly weaker. We do not expect that really to rebound shortly. As part of these efforts, initiated following Q2, several of those efforts that we then announced is addressing aerospace. It will take some time to get these adjustments made.
EBIT is influenced by this lower, and here also maybe not only on this overall downtrend by COVID-19, but also with this very quick drop in aerospace, which created some underutilization in that part of the business, which we are, as I commented before, are addressing, but it's going to take some time to get that corrected and then get the margin up again. Moving over to page eight. Commenting on Wheel Systems. Agri Drives Strong Profit Improvement is the heading. We had a strong development in the agriculture in the quarter. Continued good, was also quite good in Q2 compared to other segments, all in all, even though strong organic growth in the Agri sector, we are still pushed down by still negative development in material handling and construction.
Overall, though, ending up with a positive 1%, and EBIT, and then strongly up based on strict cost control and price discipline, and also continued benefits from earlier implemented restructurings. Doubling the EBIT margin in the quarter, which is then, of course, a strong development on the back of the overall market development. You also should note that a year ago, we were actually pushing down inventory, and there was some underproduction in the quarter last year. Turning to page nine, some comments on this business and development. We have pushing down organic sales to -3%, but a mixed development among the areas. Continued very good offshore oil and gas performance, even though, as we guided in the report, we do not expect this good development to continue in the next quarter. We expect a few tougher quarters for offshore oil and gas.
In this quarter, we are still benefiting from this, and we have a down in the other printing blanket technical rubbers is down, but overall, well-managed, and cost control in all operations is good. We are also continuing to implement profit improvement activities all over here, and especially so in the ship operations, which has been a burden for quite some time, but is slowly now getting better, and we are positive that we're going to continue to move in the right directions in this part of business under development. This was comments on the business areas, and now page nine, next agenda point, financials, and turning over to Ulf on page 11.
Thank you, Peter. On my first slide, page 11, Sales Development, you can see that organic development in quarter was -7%, which was a clear improvement versus quarter two with organic development of -19%. Our core business reports an organic development of -8% versus quarter two organic development of -20%. All business areas reported a sequential improvement in quarter three, and I wanted to highlight business area Trelleborg Wheel Systems organic growth in quarter of +1% versus the quarter two organic development of -18%. Business under development reported organic development of -3%, which also was an improvement from quarter two. Next slide, page 12, describes the historical performance of organic growth. On slide 13, you will find the reported sales development for quarter as well as rolling 12 months. Slide 14 presents our EBIT development.
Our EBIT reached SEK 999 million in the quarter, and with an EBIT margin of 12.9%. The EBIT margin improvement shows the strength of our flexible cost base. Core business reports an EBIT margin of 13.7%. Again, I want to highlight this area where we assist an EBIT margin of 13.1% in the quarter. Business under development continues to improve and report adjusted EBIT and EBIT margin versus the same period a year ago, despite having a negative 3% organic growth. Currency translation impact EBIT with a negative SEK 59 million. Slide 15 presents EBIT and margin on a rolling 12 months basis. A stable EBIT margin looking over the period, despite having exposure to many tough market conditions during this period. Again, this slide shows how agile our cost base is. On a rolling 12 months basis, we are currently at 12.4% EBIT margin.
Next slide presents the profit and loss statement for the Trelleborg Group. Items affecting comparability consist of the restructuring cost and is in line with our annual guidance. Financial net has been impacted by a positive exchange rate difference of SEK 30 million in previous year. This year's financial net is impacted negatively by increased liquidity buffer, which results in a somewhat higher net interest. The tax rate was 23% in the quarter. Our guidance of an underlying tax rate is 25% to the expense. Slide 17 presents earnings per share, adjusted to comparability items, which was down by 18% to SEK 31. Slide 18 describes the development of our operating cash flow. The strong focus on working capital continues to develop positively, even though the relief in the quarter is lower than previous years due to a high activity in the quarter.
CapEx spending is well managed by the business areas, and our full-year guidance of SEK 1.2 billion is still valid. Slide 19 presents the rolling 12 months operating cash flow. The business have areas that handle the cash flow very, very well. Slide 20 shows our leverage and gearing development. Strong operational cash flow, no dividend payouts and no acquisitions have strengthened the group balance sheet and readiness. Net debt was positively impacted by a exchange rate movement of SEK 59 million year to date. Slide 21 describes the return on equity, where the long-term target is 12%, including items affecting comparability. The action outcome is impacted negatively by one-off items reported in quarter four 2019. Finally on page 22, where I want to go through the guidelines for the year, and it's still then the CapEx, the guidance is SEK 1.2 billion.
The restructuring cost will be around SEK 700 million. There might be a slide into 2021 due to COVID-19. So far we are aiming then to charge the P&L with SEK 700 million in 2020. The underlying tax rate is 25%. Then amortization of intangible assets that is still around SEK 400 million. That concludes the financials. I will hand it out to Peter for the summary and the outlook of the fourth quarter.
Great. Page 23, agenda, and quickly moving to page 24, summary. Earnings and cash flow level on previous year. We have seen a sequential improvement throughout the quarter, and the best order intake for several months was actually in September. Overall, the quarter is still down organically by 7%, but as we already commented, both Ulf and myself, we managed to control costs and control pricing in the quarter in order to deliver actually a year-on-year improvement on margin, which we are very happy for, and with the absolute EBIT excluding non-recurring basically on par compared to a year ago. Very strong cash flow, still underproducing in the quarter, which also was, of course, a small drag on the profit if that was not happening. We're delivering a good cash flow.
Cash conversion at 121 and no dividend, which of course will mean that this money stays in the company and strengthening our balance sheet and creating more options going forward. This is kind of the overall comments on the quarter. Going forward, page 25. Of course, we are still concerned about the COVID-19. As already stated here, we see an improvement in Q3, substantial improvement in Q3 compared to Q2, and we are relatively confident going forward. Of course, we note that this COVID-19 is increasing everywhere, and we do expect some headwinds coming from that in certain areas, and that is why we are still focusing a lot on actions related to this and making sure that we are able to manage these headwinds in a good way. That is kind of still a very high priority.
We are still also now kind of getting up again on this business under development to investigate structural alternatives for those businesses. We were basically ready with this beginning of the year, then came this COVID-19 development, which stopped these discussions. We're also in the quarter picking up these discussions again, and we have, let's say, ongoing discussions in many areas at the moment to be able to create the long-term best setup for this business under development. Continue to work on our portfolio management, both in a positive and negative way, in a manner that we are still moving very firmly into some areas, while we are lessening our interest in other areas. Still working also on bolt-on acquisitions in certain areas in order to strengthen certain parts of the portfolio.
Very strong focus on operational excellence and making sure that we continue to implement efforts to improve the operations long term. Of course, without neglecting the customers here and making sure that we are continued to be seen by the customers as the most innovative and best partner for our customers. Integration of acquisitions are also always on the agenda, even though it's less acquisitions made in the last few quarters. We are still working on the integration of some of the operations we've been acquiring over the last few years. Moving to the final page before opening up for Q&A, outlook for Q4.
If you look solely at the figures, it is an improvement in the quarter, as I said, let's say a stepwise improvement month by month, and September was the best month in the quarter. We do note, of course, we read the papers, and we see what is happening with COVID-19, and we do expect some further headwinds from that, which is influencing our overall outlook. That's why we're ending up, but we expect the month to be on par with third quarter and not really improving. Let's say, neglecting any further outbreaks from COVID-19, we would have probably said there was going to be an improvement, but we are a little bit cautious in this, and considering the potential impact from these measures that will be implemented in several countries following this, let us say, second outbreak or whatever you want to call it of COVID-19.
That is also why we are adding uncertainty is high, both from could be better, it could also be worse, and that is dependent on the development of COVID-19 that we're going to see in the next few months. That is really some add-ons and some further comments to the outlook. With that, moving to page 27, final bullet on the agenda, Q&A, moving to page 28 where we say questions and answers. Please, now we are open for myself to address any questions you might have.
Thank you. Our first question comes from the line of Klas Bergelind of Citi. Please go ahead, your line is open.
Yes. Hi, Peter and Ulf. It's Klas from Citi. First on Wheel Systems, it's a solid margin given that you are underproducing in the quarter. You obviously get support from less underproduction year-over-year, but still solid. How much was positive price cost looking at input costs driving the results in addition to better volumes, good execution? Will that affect even more margin to year-end? Obviously, the margin will be seasonally lower in the fourth quarter, but interested in how pricing versus input costs are developing. I will start here.
That's a positive. It's a mix of both aftermarket sales, OE sales and let's say also some regional sales development as well with this impact in that. There is a positive price mix, but we don't really want to highlight that. We expect that to continue to be a positive for us. I don't really want to give any kind of numbers on what it is, because it gets into a fairly complicated matrix in order to explain that. I want to stand with there is a positive price mix in the component, which we did expect because we have had better aftermarket sales and also better geographical split of sales as well.
Yeah. Okay, fair enough. My second one is on Sealing Solutions, excluding Aerospace. It seems like we were down around 6%-7% year-over-year. Could you help us, Peter, with September year-over-year and perhaps even how October has started? I'm talking ex-aero. It sort of feels like if September has been this strong, it almost feels like it was flattish year-over-year. That would be really helpful.
As I said, it is an improvement month-by-month, and September is the strongest month. We are going into Q4 with a fairly okay order book. Once again, we are taking a little bit cautious stance here because we see that in some of our key markets, we see the corona is increasing, and we do expect some limitations on manufacturing and output in the quarter. Difficulty also in this is, of course, to get the full picture on what the kind of pent-up demand coming from the closures in Q2, how much is that positively impacting us in Q3? In certain segments, we know that in automotive, for instance, that there is, let's say, too strong development in Q3, and that is something we do not expect really to fully continue in the same way in Q4.
Overall, we are fairly confident on the development of this industrial part of Sealing Solutions. While on the downside is this a little bit unknown COVID-19 effect in Q4 and going forward. Then, of course, aerospace, we do not see really any improvements in the next few quarters, and that is where we are at the moment, addressing this by structurally lowering our cost base. That will take some time, because also here, just to highlight that why it takes time is, of course, that this requires, if we are to move around products among our factories, it will require some customer approvals. At the moment, we don't really get the attention for these approvals. I guess our customers within aerospace is focusing on their own operations and not really interested at the moment in assisting us in any moves between factories.
That is why it's going to take some time to get that more efficient. We have the plan in place, and we know what we want to do, but it will require some shift of manufacturing between factories, and that is at the moment, we're not getting the approvals to get that done.
My third and final is on offshore oil and gas, and obviously backlog. The backlog is now getting depleted, and we're likely going to see more pressure on revenues at year-end, as you say, Peter. How are the margins looking on new orders right now? Is there a lot of price pressure? Are the order margins lower than the margins coming out of the backlog currently?
Not really. Honestly, also, the order book is quite okay still. We say it, surprisingly high activity in the certain areas of oil and gas. This is a little bit delayed deacceleration in this industry, and that is why this has been ongoing, and we had good in this one. The order book is not really the major problem here. The problem is really that some of the investments have been pushed, and that is what we still have a fairly good order book. We have been successful also in our, let's say, oil and gas activities, also, we've got substantial orders in renewables, which is basically the same kind of application, subsea applications that we use in offshore, but it will take time to push that into sales.
As we look at it today, it's going to be two or three quarters with slow, but still with the then good order book, and we're looking into the second part of 2021, it still looks fairly promising, and we still have a few big orders pending. Pricing wise, it looks quite okay. It's better than a year ago, if you put it like that, in the pricing in the order book. Once again, we have a softening here, a substantial softening, because some of the projects have been pushed forward and some of the invoicing that we were kind of expecting here for Q4 and Q1 has been pushed in the future. It's not really a problem with the pricing. It's honestly not really a major problem either with the order book as such.
It's more that it's a push in invoicing and sales for a few quarters.
Thank you.
Thank you. Our next question comes from the line of Hampus Engellau of Handelsbanken.
Thank you very much. Two questions from me. Maybe starting off on the Wheel Systems and the Agri business. Would it be possible for you to maybe divide the development between the OE and the aftermarket? Are they both growing organically, or how should we think about that? I presume that the industrial tire part were down quite a lot. Second question is related to the group EBIT margin. Very good operating leverage during the quarter. Would it be possible for you to maybe quantify what the impact was on the production and how we should think about the production coming into fourth quarter? Those are my two questions. Thank you.
It's a good development both in OE and aftermarket, but we do expect that OE in Agri is a little bit pent-up demand because it was really pushed down on the manufacturing in Q2, and this is a little bit artificially high in Q3. That is why we say that the aftermarket is actually, even though the development is fairly the same if you look at percentage-wise, but aftermarket is performing stronger once again due to the fact that OE in the quarter was artificially high due to the push overall of manufacturing from Q2 into Q3. That going forward, we do expect in the short term at least, aftermarket to outperform the OE. Then, of course, we are more like everybody else.
If you look at the external data here, what the index is calling, ECCO for CEMA, the American Purdue index is becoming more positive, and we do hope or expect that to turn into a better OE market going into next year. That is still to be seen. That is what the indications show. Meanwhile, we do expect aftermarket to continue to develop nicely. That was the first question. What was the second question? Sorry, my memory is short.
No, that was on the group operating leverage.
Okay, now under absorption. Sorry. We are, of course, having an under absorption, and we are releasing SEK several hundred million of inventory.
Of course, we shouldn't exaggerate that one. There is, of course, some tens of SEK millions or maybe SEK 100 million or something. Tens of SEK millions of under absorption in the quarter if we would have.
Yeah
Let's say, kept the inventory. I don't know if you want to highlight that.
It's important that we are having a high focus. They are delivering well. We had a slight delay on the Sealing Solutions from Q2 to Q3 because they needed then to shift all the parameters. They released a good inventory. They had a good inventory release in Q3. We expect in Q4 then to continue that, not on the same level. You need to remember that Q4, from a seasonality point of view, is lower activity as well. We would naturally have an under absorption. To really do, say, a number on it, we don't want to do that.
Sure.
Okay.
Just one follow-up there on the Wheel Systems business. If I remember correctly, you had a quite positive mix in the second quarter. How was the mix in the third quarter, and how has the mix between Agri in terms of split of sales changed between aftermarket and OE, given the production changes?
There is a positive mix sample, but I don't want to put that as a major thing, really.
It was more pronounced in Q2.
Yeah, it was more noticeable in Q2 since OE was so low. We don't have the same kind of positive mix in Q3 as we had in Q2, if I put it like that. It's not really any major explanation on the margin improvement. The margin improvement is coming from a better underlying market overall, also continued improvements coming from earlier restructurings. On top of that, also a good price discipline in certain areas.
Also then we are into the improvements that we have done.
Yes.
It's not only restructuring that we have. As you know, we have put a lot of investment into Serbia, and that is more up and running.
Czech Republic is also improving the setup there. That is growing into a better operating setup in a way.
Fair enough.
Thank you. Our next question comes from the line of Erik Golrang of SEB.
Thank you. Two questions. First one on Sealing Solutions. You say sorting the under absorption headwinds will take some time. Does that mean that we should expect a sequential decline in profitability into Q4 as seasonality typically dictates? On the second question, how much of the SEK 700 million in targeted structural savings are in Q3 earnings?
The seasonality on the Sealing Solutions, of course, is going to be there. As we indicate, we do not expect any kind of major improvements coming from these aerospace changes. Once again, it's not really due to the fact that we are slow. It's more that we're not really getting enough customer attention to make the changes that they want to do. That is the way it is, and we have to expect that. They have lots of other things on the agenda at the moment, and we need to manage this setup in the best possible way. We do expect the same kind of pattern as we had from a year ago.
This is said, Erik, with some kind of cautiousness, because we need to also. If we simply were looking at the figures at the moment of Sealing Solutions, it will improve. We do expect the headwind from COVID-19 kicking in and creating some negatives also in Q4. That is really to be seen, if that is happening. Second question was about the-
The 700.
How much of the SEK 700, Ulf, I don't know if you want to comment on that.
On the savings or the cost cuts?
Of the SEK 700 development in savings from the accelerated cost reduction programs.
We don't want to comment on the individual amounts, but it has had an impact in quarter four. Quarter three. Please remember that we announced it in the end of quarter two, but we have had a positive impact in quarter three. Again, we don't want to comment on that because there's also other factors moving up and down. It has had a positive, Once again, it's SEK tens of millions. We're not talking about SEK hundreds of millions. It's SEK tens of millions. The full impact is expected from 2022.
Thank you.
Thank you.
Thank you. Our next question comes from the line of Agnieszka Vilela of Nordea. Please go ahead. Your line is open.
Hi, thank you. I have a few questions on sealing, starting with your aerospace exposure there, which you said was down by some 50% in the quarter. When you look at your order book and the business that you have there, do you see more pressure for this exposure for the coming quarters? Also, if you could comment maybe on your decline rates in September, specifically for aerospace. Thanks.
The decline rate is the same. We have roughly 50% in Q2, and it's roughly 50% in Q3. It's not an acceleration in any way, and we do not expect that really to change near term. We do expect it to kick back a little bit From this level, with let's say a slight growth actually going into 2021. Coming, because in this 50% reduction, there is of course both underlying production cuts, but there's also some inventory adjustments with our customers. We do expect this inventory adjustment to go away, and then we do expect from this new basis, at the moment, our best judgment is that we will have some 10% growth year-on-year. Of course, with a substantially lower basis from going into, let's say full year sales of aerospace in 2020.
We do expect that to turn the corner, but of course, with a much lower basis going into 2021. There's still a lot of uncertainty in this, and we are getting mixed signals from the customers on this. It's really a moving target in a way. We are adjusting down, we are adjusting it down to this run rate of some 50% lower.
Yeah.
From this 50% lower run rate, we do expect a slight growth going into 2021.
Okay. Well, understood. If I understood you correctly also, you need to have this kind of acceptance by your aerospace customers really to adjust the business and structure it and adapt it to lower volumes. Is that correct?
That is part of at least we can of course cut in the administration and the sales and all of that, but if we are to move around production, then of course we will need approvals to do that. That is normal practice. It's the same as you have in automotive and certain other customers. You cannot really move it around without having customer approvals. At the moment, of course, the attention of our aerospace customers is not really to support us in our efforts, it's more to protect themselves.
If we look at the ex-aero for Sealing apart from the aerospace, it was down probably by some 5% in the quarter. Even here, if you could comment on the exit rates in September, what you're seeing in October, and also did you see any kind of restocking impact in Q3 after the closures in Q2 by your customers?
I guess I should be honest here. It's really difficult because you get mixed and customers are acting in different ways, so it's really difficult to get a really firm analysis done here. We do not really see any major restocking positives in Q3. I cannot say that. That has not really been the major, let's say, takeaway for us. We do see some pent-up demand from very low production, for instance, in the tractor manufacturing, automotive and all of that. Once again, that is also very difficult to get really figures on it. It's going to be pure speculation, and we have to act on the facts, and we are watching the weekly or sometimes the daily order intake, and then we are adjusting according to that. We don't really run our business at the moment with the several months of beliefs going forward.
We need to adapt, and customers are acting in different ways. Some customers are more focused on cash flow, others are less. That is really the reality which we need to work with at the moment. I think we're doing it good as well. We have good control, and we feel that we're staying very close to the operations and staying very close to the actual orders coming in.
Yeah. Thank you. The last from me, I was a bit surprised about your automotive comment going into Q4. When we look at, for example, IHS car production forecast for Q4, it expects sequential improvement, and we're hearing a lot about the restocking needs both in the U.S. and even in Europe. I don't really understand your cautiousness about the automotive vertical.
Automotive is fairly small to us. We see some positives on that one, we're talking about 10% of our sales. In that area, we have had some strong growth in certain areas, I don't see that being a major impact for us. We are much more concerned or focused on the general industry than automotive. If the factories are keep on running, if there are no factory closures, it will be positive in Q4. Once again, who knows what's going to happen with this COVID-19 and all of that is probably reflecting our comment a little bit. We're following the same figures as you do, I shouldn't say I'm not doubting the figures.
They probably have their rationale and the calculations behind that, but it's kind of assuming that there will be no factory closures implemented in Q4.
That's correct. Thank you.
Thank you. Our next question comes from the line of Johan Soderberg of Danske Bank. Please go ahead, your line is open.
Thank you. I have three questions. Starting off with the Sealing Solutions, if you could say how much Sealing Solutions was down in September?
No, sorry. We don't want to say that.
Okay. No, that's fine. In terms of your margins or rather when you take the initiatives within the aerospace business, what sort of margin impact should we expect coming from those measures? Is that something you can comment upon?
Our target is to get it above 22%, and we're going to get back there. That's of course the major difference between the current margin and that one is the aerospace adjustments.
Okay. The final thing, you mentioned the order books here, and could you compare the three different business areas if you look at the core operations, Industrial, Sealing, and also Wheel? How do they look relative wise there?
Please repeat that.
Yeah. My question has to do with the order books. You're referred to saying that they were strong at the end of the quarter, and if you compare the three business areas within core operations, how do you compare them relatively?
First of all, we don't track really Wheel Systems on orders, as they don't really have an order book. Within Sealing Solutions and Industrial Solutions, I would say that there would be a similar difference between the different exposures, as they have the automotive exposure, both of them, and they also have an aerospace exposure, both of them, and general industry. I would say that we don't see any major difference, high or mid. Similar pattern.
Okay. Thank you.
Yeah.
Thank you. Our next question comes from the line of Robert Davies at Morgan Stanley. Please go ahead. Your line is open.
Yes. Thanks both for taking my questions. The first one was just around the timeline for the portfolio optimization strategy you had around your businesses under development. I think you'd originally laid out a one to two-year timeline. You mentioned that some of those negotiations had restarted. Based on where we are right now, what are your current targets or expectations around that? Thank you.
We have not changed our overall guidance. We still say that within one or two years, which means that this should be sorted here within this time frame. We are working on it. We lost a quarter or a quarter plus, so it's not really changing the overall timeline in any way.
Also to clarify, we have structured alternatives for this business. It's more a matter of valuations and other kind of conditions in an agreement with somebody.
I see. Thank you. My second question was just around, sorry to go back to Sealing Solutions again. Just to be clear, I guess the margin level in the quarter around 18% versus your, I guess, closer to 22, 23% range. How much of that was coming from the drag from aerospace versus the volume growth from the rest of the business? I guess the way to put it is, if aerospace was normal, would you have been close to that typical range, or was the volume enough to pull you down a bit lower than that anyway?
It probably will be slightly lower, of course, we will be seasonally lower, we will be, let's say, fairly close to. Generally also we have the stronger margin in the first half of the year compared to the second part of the year. Of course, we would have been a few percentage points higher in EBIT.
Of course, we also had a downturn in general industry here, as you said, with some half of this overall downturn in Sealings. Of course, there would have been a negative impact, but it would be very few percentage points.
Understood. Thank you. My final question was just around some of the end market developments into the fourth quarter. I guess where are you most or least concerned? I think you mentioned a couple of times, obviously, the potential uncertainty around COVID. Is that particularly more acute around automotive segments, or where do you see the biggest risks? Is it due to a regional perspective or where you've got manufacturing hubs? Where's the main focus, I guess?
It's more a general comment. If we have some of the major countries, we don't see any issues in China, but we do, of course, see some potential issues in several countries in Europe, and we also a little bit, I don't say U.S. is the major problem here, but it mainly relates to potential kind of restrictions kicking in in Europe. I guess that is where we have most of our concerns at the moment.
I see. Great. Thank you.
Once again, it's not coming really from any input from our customers. It's more a general view on the development in the last few weeks, and we see the sentiment is rapidly changing in several countries in Europe, and hopefully it will not create any further closures, but we see a risk of that happening. Once again, it's not related to Trelleborg, it's more related to the overall development of the economy.
I see. Great. Thank you very much.
Thank you. Our next question comes from the line of Karl Bokvist of ABG Sundal Collier. Please go ahead. Your line is open.
Yes. Hi. Thank you. My first question has to do a bit about the portfolio optimization here and the businesses under development. You mentioned that discussions had been resumed, and the time frame and so on. Just a question here. Are you still thinking about it's possible to divest just parts of certain businesses or divisions, i.e., it's not that you are looking for improving the entire Well, you're looking to improve a portfolio, of course, but would you consider just improving or divesting certain parts of the business instead of just letting it all go in a one package deal, so to say?
Of course. We are open for all options. Of course, at the end, we need to have, let's say, a sustainable model, a sustainable business. In order to get there, it could be in one potential deal, but also it could be that we're also restructuring and keeping parts of the business. We are open to all options, and we are, at the same time, let's say, working on several options. All options are open. Of course, some businesses in this portfolio is more coherent. If we talk about the printing blanket business, that is a coherent business. The most diverse business we have in this portfolio is probably the oil and gas business, where we could potentially move it in different directions, because it's depending also on what kind of exposure.
Some is more exposed to drilling, some is more exposed to production, some is exposed to seismic, and some of the business is actually exposed also to a substantial degree to non-offshore related businesses. You could potentially split the offshore business in several parts. While I guess the other businesses we have here, the Czech operation and the printing blanket, is a more coherent businesses which needs to move in the same direction.
All right. Turning to the gas pedal instead, where are we on progress of potential acquisitions? If you're looking into that or is more now focusing on the existing portfolio improvement and potential divestments?
As I said before, our focus here is to try to expand Sealing Solutions, and we're working there both on geographical expansion and also some kind of product portfolio extension. That is activity working, but more bolt-on related acquisitions. We are also with the Wheel Systems working more on what we call our interfit, our service model there, in order also to try to find opportunities to grow that one, which is in a more stable business and also with a higher margin business, even though more smallish and local businesses. That is also something where we try to grow that part of Sealing Solutions. Also within Industrial Solutions, we have some small pockets also where we want to supplement our offering, especially. We are working in several directions, but the priority is to find, let's say, supplementary businesses for Sealing Solutions.
Once again, developing this interfit model of Wheel Systems and then some smaller parts of the Industrial Solutions.
Understood. Turning to wheels, did you see a volume improvement in North America to your key OEMs within the more Trelleborg premium tires?
There was a slight improvement, but U.S. is behind Europe in that one, to say. We are watching now what's going to happen here. Of course, we have the election coming up and we have all of that. It's still a little bit uncertainty related to that. Our dependency is a lot more to Europe, and that is where the improved sentiment is kicking in for us more than any kind of minor changes in U.S. With that said and done, of course, North America was substantially better in Q3 compared to Q2. Still, it's small in the total picture of improvement.
Understood. Apologies, a final question here. When you mentioned the principle of production, reorganization or relocation, does it also have to do with customers, for example, if Boeing, now that they have, when they decide to move production from Seattle to South Carolina, are these sorts of things that impact you as well?
The impact is more if you want to move, let's say, production of one product from one factory to another, you need a customer approval. At the moment, this customer approval, it is a normal process, we do all the time with them. At the moment, we get slow response times, and we're not really getting attention to make these changes. I shouldn't exaggerate. You shouldn't exaggerate that is kind of slowing the activity with, let's say, a few months. It's not really a major obstacle in that way. It's simply that we cannot do the changes solely at our own discretion, that we need to also get approval from the customers to make it happen.
Yeah. Very sorry. Just the restructuring costs, you kept the full-year guidance for SEK 700, but maybe it was a bit lower in Q3. Is it more about timing, or is there anything else here why it was perhaps a bit lower?
Timing, for instance. Just to give you an example, we have, let's say, changes decided in Italy, for instance. At the moment, the Italian government has said that you basically cannot lay people off due to the fact that they have Cassa Integrazione, and you're using that. It's basically forbidden at the moment to lay people off. We have a list of people that we have basically agreed with and everything is done, but we cannot execute it. As Ulf hinted on before, if we cannot execute and get it done, even though we have a deal and everything, we cannot really account for it. There might be a slide. The action is defined, the action is ongoing and all of that, but there is some slow development in certain areas.
Both these legal complications, but also parts of these actions is also related to moving manufacturing. At the moment, we have travel restrictions, so we cannot have people traveling in between factories freely and get these changes done. The actions are there and the savings are there, but it's simply that we cannot really implement it, and that means also that. From an accounting point of view, we might not be able to account for all of it in Q4. It might have a rollover of some of the accounting into next year, but the actions are there. Due to these kind of limitations in several areas, it takes a little bit longer to get it done.
Understood. Thank you.
Thank you. We have one further question on the line. That's from the line of Klas Bergelind of Citi. Please go ahead.
Yes. Thanks for taking the follow-up. Just one. I will be very brief. On aerospace, Peter, did you say that you expect growth in aero into 2021, i.e., already by the first quarter? Was that a full-year comment for the year? Obviously the comp year-over-year is still very tough in the first quarter, just so we understand that better.
No, but at the moment, honestly, Klas, we do expect, let's say, to put it like that, based on the full-year sales of 2020, including a good sales development in Q1. Of course, roughly 50% down then if we simplify from Q2, Q3, and Q4. That is kind of a strong growth in Q1, but then a drop of 50% Q2, Q3, and Q4. From that base, we do expect a slight growth in 2021.
Yeah.
That's where that's coming from. Of course, it's coming from having, let's say, because the major driver on the negative in this year is going to come from the civil aircraft and the aftermarket, which is dramatically down.
I see.
The other parts, like we say, military helicopters and space, which is the other segment for us, is actually performing quite okay this year, and we expect continued growth. The total portfolio for us in aerospace, we do expect, let's say, low single-digit growth in 2021. Of course, from the run rate, if you say the run rate from Q2, Q3, and Q4, then that's what I referred to before, then we do expect the 10%+ growth. The year-on-year growth, you understand, Klas, it's really a little bit what you're using as the base.
Yeah. Just to be very clear, you're talking about full year 2021. You don't talk about third quarter 2021 year-over-year, because that comp isn't.
No, I'm talking about full year 2021.
Exactly. Very good.
We do expect kind of a growth. Yeah.
All good. Thanks.
Thank you. As there are no further questions on the line at this time, I'll hand back to our speakers for the closing comments.
Thank you. Thanks for the interest. As usual, Christofer especially, very keen on any kind of follow-up questions. Also myself, we'll run into you here in the next few days when we are meeting a few investors and supporting you in your efforts to talk about Trelleborg. Please do get back to us with any kind of input or questions, and we'll be happy to support you. If not, I'm sure we're going to meet and talk again in the near future. Thank you, and take care.