Ladies and gentlemen, welcome to the Trelleborg audiocast for teleconference Q3 2021. Today, I'm pleased to present Peter Nilsson, Chief Executive Officer, and Fredrik Nilsson, Chief Financial Officer. For the first part of this call, all participants will be in a listen-only mode, and afterwards, there will be a Q&A session. Speakers, please begin.
Thank you. Welcome all of you to this presentation of the Trelleborg Q3 results for 2021. As already said, it's gonna be myself, Peter Nilsson, presenting, and then supplemented later on by Fredrik Nilsson, who are gonna guide us through the more, let's say, figure-related part of our report. And as usual, using the slides which has been on our homepage for some time now. Guiding you through this and moving to page two in this deck, the agenda slide. As usual, starting with some yellow highlights and then giving some comments on our business areas. Financials then by Fredrik, and then finishing off with a summary and some comments on the outlook for the running quarter. Then also, as usual, ending with the Q&A session.
Moving to page three, strong quarter for us. Sales increasing by 15% with the strong organic sales of 16%, some minor negative FX. I mean, growth basically in all market segments and all geographies, and get back and comment on that. Very broad growth in more or less all areas of the company. EBIT, good drop-through on the extra sales. EBIT increased by 25% and little bit north of 1.2 billion SEK, corresponding to a margin of 14.6% in the quarter. And this is actually the best Q3 sales and EBIT and margin to date for Trelleborg.
Items affecting comparability ending up at SEK -32 million, which this time comprises basically SEK 65 million restructuring charges, but also positive capital gain on a real estate sale that we have done in the U.S., which ending up at SEK -32 million, I said. Cash flow is still very strong, even though CapEx spending slowly increasing from these depressed levels from 2020, and also, of course, impacted also by a growth in working capital related to the increased sales. But also working capital here in relation to sales is maintained at a very good level. This means that rolling twelve months cash conversion still remains above 100%, and thereby also good cash inflow and then strengthening the balance sheet as well.
This is a good quarter for us, a good quarter in more or less all aspects. Also not commenting here on the slide, but in the report, also on top of this, let's say, generally a good order intake ahead of sales in the quarter still. Page four, showing which I already commented, a very broad growth in all geographies, actually quite similar if you look at these five regions we are looking at. Asia still doing good. We are still growing good in China. We have good order intake in China as well, although we see some segments, of course, being a little bit more challenged. For us, we don't see it as much as we have seen others commenting on. Europe, strong. North America, slightly better.
As expected, which we already guided last quarter, we saw North America growing slightly more, and then South America growing substantially, but that's also a very low share of our sales, so we shouldn't put too much emphasis on that. Nevertheless, a good growth in South America as well. Moving to page five, back to agenda slide, business areas, and quickly moving to page six, Trelleborg Industrial Solutions. Also here, organic sales good, +9%, and growing in more or less all areas, especially construction and industry, very strong. We also note with satisfaction that some of these more depressed segments, like aerospace and train railway, is also growing now with both a good order intake and also growing sales in the quarter.
We, as everybody else, are of course impacted by these automotive customers production stops, which is then impacting a minor part. As most of you know, I mean, our automotive sales is fairly limited, but nevertheless, it's developing in a negative direction in the quarter. This in total means that we have, let's say, a growth both in margin and EBIT, continued and supported by the higher volumes, but also with the maintained good cost control coming from earlier actions. Turning to page seven and Sealing Solutions, also here, very high growth in basically all segments and regions. It's quite uniform actually, which is quite unique in a way, where we see all geographies and basically all segments growing at the same time.
With this, of course, we are struggling as some others has already commented on in this period. There is some shortages of components, especially with automotive sales, but also indirectly also impacting other segments. Of course, we could have sold more if we would have not seen this. Also, of course, this is also impacting our output in a way. Aerospace also now back in growth mode. With the solid double-digit growth, which we also foresee going into 2022 now, good order intake, and we also with great satisfaction. Those of you who are following us for some time know that we have been creating a platform within Sealing Solutions for healthcare and medical. The sell-in processes for this kind of sales is quite long.
We now see, let's say, from this growth or this platform creation a few years ago, we now see also a solid growth, both in order intake and actual sales in the quarter for Healthcare and Medical, which of course is creating more stability long-term. All in all, a very good quarter, which is then delivering a margin above 23%. Based of course here also on good drop-through on the extra sales, but also with a good underlying cost control behind these great figures. Wheel Systems also here we see a growth in all areas. Agri, Material Handling and Construction tires growing very well. We also see with satisfaction that basically all geographical areas performing well.
Maybe you should note there, especially Americas is in a good growth mode for us, even though it's a smaller part of our total sales. Those of you who have been following us also for some time know that we have been building a platform in North America, and been waiting a little bit for this kicking into sales. We see now in this quarter that we are going into a solid growth mode in North America as well, which is then of course supporting the development there long-term. Also on top of this. There is, I mean, as you say, there is generally a shortage of tires in some areas, and we have been continuing to put priority on original equipment manufacturers since we see this is more long-term beneficial for us.
Since we, if we sell into an OE, we know that we get a solid replacement eventually with then a good full pricing on that. So that is something we are continuing to put priority on, even though short-term, of course, we could have made a little bit more money by putting more emphasis on the aftermarket, but that has been on the negative then against the OE customers. So this is kind of part of our overall strategy. Also here, of course, this has been impacting also the other areas, that raw materials, freight and energy prices is going up, as all of you is aware. This, of course, pushing down the EBIT margin in this quarter.
We have no concerns that we're gonna get, let's say, compensated for this, but it's only that it's happening with some delay in this area since it's kind of a slightly different sales model than our other businesses. Since some of this is sold both through to distributors, which is then kind of have a longer price up. We are also working with formulas, say, raw material formulas towards our OE. Once again, we have, let's say, a very solid story going forward, where the margin for Wheel Systems will continue to increase, and will increase as this price adjustment is kicking in. Of course, with the assumption that we'll not see raw material continuing upwards because these price increases will then, of course, be pushed forward as well.
Overall, we are very satisfied with development in Wheel Systems, even though the EBIT margin is somewhat lower than last year. Overall, the development in Wheel Systems is very satisfactory for us, and we feel confident on the way forward. Back to the agenda, and leaving financials for Fredrik, and then quickly moving to page 10.
Thank you, Peter. Starting with organic sales, which was up 16% in the quarter with good growth in all three business areas. If we then compare with 2019, the sales were up 7% for continuing operations with organic growth for all business areas. Reported net sales increased by 15%. We still have some minor negative translations effects in the quarter. Looking at year to date, organic growth of 17%. Moving to page 11, showing the historical organic growth. The Q3 was a strong quarter in historical context. Moving to next page 12, just showing the quarter sales in rolling 12 months. As you can see, the trend upwards continues. Moving to page 13, we have a record high EBIT for the Q3, as Peter said.
We increased the EBIT by 25% to SEK 1,203 million. In the result, we also have a negative minor FX impact of SEK 12 million compared to the corresponding quarter last year. EBIT margin improved from 13.5% to 14.6% due to the higher volumes in all business areas and continued good cost control. Look, going to page 14, looking at EBIT and EBIT margin, and the positive trend continued during the quarter, and as I said, was a record high for the Q3. Moving to page 15, the profit and loss. We have items affecting comparability for the quarter of SEK -32 million, comprising of a restructuring cost of SEK 65 million, which was partly offset of capital gain related to sale of a real estate in the U.S. of SEK 33 million.
Financial net declined from SEK 66 million to SEK 43 million in the quarter, and the lower financial expenses was linked to the reduced net debt. Tax rate for the quarter was 24%, which was slightly favorable due to limited withholding tax on internal dividends. Moving to page 16, we have a strong improvement in earnings per share, up 47% to 3.25, exclude items affecting comparability. Moving on to page 17, the cash flow. We have an operating cash flow in the quarter of SEK 1,117 million. Positive impact from increased earnings generation. You can see EBITDA up SEK 232 million in the quarter. Working capital increased, driven by the higher sales, and also a little bit higher inventory to ensure, stable supply to our customers. CapEx was higher than in the preceding year, which was unusually low in 2020.
Moving to page 18, cash flow conversion. As Peter mentioned, continued good cash conversion at 102% despite the high activity level. Moving to page 19, gearing and leverage continued to improve. We have a debt equity ratio of 29% due to the strong operational cash flow, and net debt to EBITDA continued further down to 1.3. Moving to page 20, financial guidelines. CapEx of SEK 1.4 billion. We expect the higher activity level we saw during the Q3 to continue into the Q4. Restructuring costs, still guiding SEK 400 million. Underlying tax rate, 25%. This will most likely be slightly lower, but please have in mind that Q4, we normally have a little bit of a higher tax rate due to seasonality. Finally, amortization of intangible assets, SEK 400 million.
By that, I would like to hand back the microphone to Peter.
Thank you, Fredrik. Going back to the summary and also some comments on the outlook for the running quarter before opening up for the Q&A. Our quarter, page 22. Solid quarter in more or less all aspects. Strong organic sales increase in all business areas. Good drop through. EBIT is up by 25%, and then a margin of 14.6% in the quarter, which means that we are delivering the best quarterly result, let's say quarter three results so far. Items affecting comparability on a relatively low level, where restructuring still continuing, but we also have a capital gain in which is impacting us positively in the quarter. Cash flow still on a good level, and the cash conversion for the last 12 months above 102. Solid quarter in more or less all aspects.
Going forward, of course, there is logistics challenges and inflation kicking in. We feel that our positions in the markets are good. We are good in compensating for this inflation, and we are good in managing the supply chain challenges. Of course, it creates then some extra pressure in several aspects, but we feel confident we will be able to manage this. COVID-19 is still around. It seems like in some comments, it's not around anymore, but we have some countries and some operations still exposed to this with limitations, and we cannot, let's say, take for granted that it's not gonna impacting us, so that's of course something we're watching. Even there, we are also in this aspect not overly concerned.
We believe that we will be able to manage it in a good way, even if it should be impacting us in a major ways again. Operationally, of course, we continue to focus on the portfolio management, both in aspects of focusing on the right customer, the right market segments, and the right geographies, and also making sure that we continue to improve our portfolio in order to continue to improve our operational margin and operational leverage in when extra sales is kicking in. Also continue to work on operational excellence and looking for ways to improve our overall structure, always high on the agenda.
Of course, also continue to increase the value for our customers by staying close to them and also being good in integrating with their operations and making sure that they continue to appreciate our offers and our solutions. We continue to scout for acquisitions, but as I say, that in this area, that's maybe one of the areas where we would have liked to do a little bit more, but we're also a little bit cautious. We think in certain areas that the valuations at the moment is a little bit on the high side.
We are involved in a lot of discussions at the moment, but once again, we are a little bit cautious on the valuation here in order to make sure that this is, if we buy something, it should be a good deal for Trelleborg and our shareholders. So that's an area where we do expect activity going forward. Once again, we are involved in quite a lot of processes, but it's kind of difficult to really give a guidance whether this will end up in a favorable way for us or if we continue to be a little bit cautious on these valuation levels as we see at the moment. Still, once again, high on the agenda for us.
If you're looking at the running quarter, we expect the overall demand to be on par basically with the running quarter. Of course, we do expect, like a lot of other companies, that automotive will be somewhat more depressed in this running quarter. They will be impacted by these shortages of components. We have also some other areas which is going to continue to improve like aerospace and rail and certain industrial segments, healthcare and medical. Overall, we believe that this good development in several segments will, let's say, on the totality compensate for this negative that we see on automotive. Maybe also comment on automotive there, especially in sealing solutions. I didn't mention that before, but maybe it's worthwhile to see it as well.
That, I mean, quite substantial sale of automotive, for instance, in Sealing Solutions is exposed to the aftermarket for automotive, which is not at all impacted by these challenges that we see on the OE side. Once again, we feel confident that this is gonna continue in the same way in the running quarter as we have seen in the Q3. Then, of course, do we still keep this note. We actually discussed here, should we keep this note or not on the pandemic's impact, but we do see that in certain geographies it might get back as an issue, and we need to add this, we need to keep this comment for some time. It could potentially impact us in certain areas.
Not that we have any specifics to highlight at the moment, but things can change and is still impacting in several geographies. This is really what we wanna comment about the running quarter. With this, I think we move to page 22, agenda Q&A, and then quickly to page 26 and opening up for some questions. Please go ahead.
Our first question comes from the line of Claes Berglund from Citi. Please go ahead.
Yes, thank you. Hi, Peter and Fredrik, Claes at Citi. My first one is on the margin in Wheel. Last time, Peter, you said that underlying margin in Wheel was 17% in the Q2, should you have compensated fully from the cost pressures through pricing. What was the margin on that basis in the Q3? I'm interested to get that net negative impact on EBIT again, which I think was SEK 100 million to get to the 17% in the Q2. Yeah, I'll start there.
The margin is slightly lower as overall running. I mean, the impact in the quarter is actually slightly north of EUR 10 million in this quarter. It's more than EUR 10 million. If you let's say put this together and run at the year-to-date number, we are touching I don't know the EUR 25 million plus or something for the full year as an impact from raw materials, which we're gonna get back eventually, because that is more a matter of a formula. I mean we are year-to-date. It is somewhat difficult to calculate because it's depending on mix and all of that. I mean in the ballpark figure we are probably let's say having price increases already in the formula.
In our pricing formulas, which is gonna kick in the range of EUR 25 million, and probably a little bit, yeah, give or take half of that is probably impacting us in this quarter.
Okay. No, very good. Then a follow-up on that. I'm just thinking near-term on the cost pressures. You say that the margin in Wheel Systems could recover already sequentially into the Q4 at the same cost level. Could you let us know how you see your raw materials basket currently and how you look at your likely logistics and energy cost into the Q4? Obviously, these are moving items, but if the cost levels continue up, it could be tricky. We can see the raw mats, energy cost, freight data, but I'm interested to hear Trelleborg Wheel Systems.
It's continuing slightly upwards, I mean, not at all on the levels that we see in, let's say, for the Q1s of the year. Of course, we are, let's say, cautious now as we see the automotive going down, even though our automotive exposure is not that high. I mean, we still know that automotive is a big consumer of a lot of our raw materials. We are, let's say, cautious about this, but we don't really see any downward, and it's still tight on raw materials. It's still tight on containers in certain areas. We do not expect any major changes actually in Q4. We expect it to remain on the level it is.
We have some individual raw materials being pushed up, maybe not impacting, let's say, Wheel Systems that much, but we have some very specific materials for Sealing, but that is much easier to get, let's say, quick price compensation for because so specific. Overall, the basket will continue upwards, but once again, we don't see this margin pressure. We have not really seen on Industrial Solutions and Sealing where we've been compensating very quickly, but we don't see kind of an increased pressure on wheel and we expect it once again to continue on the same level while at the same time better pricing kicking in. It's not really the improved margin in a way will not come from lower input prices, but more from better pricing.
Okay. Very, quick final one from me on capital allocation. You still see that the M&A targets out there are expensive, and you have halved the gearing since 2016, looking at net debt to EBITDA, last time you did major M&A, and your stock is obviously lagging the industrials index looking at valuation. Maybe a question for the board perhaps, but how would you look at buybacks in light of this? Are you stubborn to get the growth through M&A eventually, or would you consider buybacks?
I mean, it's a question of cost. I mean, we don't need long term, we don't need this strong balance sheet that we have at the moment. We have a very solid cash generation, and we are confident that we can manage even a little slightly more leveraged balance sheet. Of course, you know, we're gonna get there eventually, and that's gonna go through acquisitions or other means. We have to wait and see. I mean, for sure, long term, we don't need to have this kind of balance sheet. Also, we will continue to deliver good cash flow. I mean, we will need to create a more efficient balance sheet one way or another.
Thank you, Peter.
The next question comes from the line of Hampus Engellau from Handelsbanken. Please go ahead.
Thank you very much. Three questions for me. First question, would it be possible for you to kind of quantify the impact on the group level for the discussed component shortage and also higher logistics costs, just to try to understand the magnitude of this? Second question is more related to the comments you made on order intake. I guess that we all noticed that the general order levels are trending higher in Q3 above the pre-pandemic levels. Again, what are your observations here? Do you see any risk in double orders and also inventory buildup at customers given the risk in component shortages, et cetera? Also maybe if you could add some flavor on the lead times.
I'll stop with those two questions, and I come back with, because otherwise I will just adding.
Yeah. No, but in pricing, of course, I mean, for freight cost, I mean, we have very sorely, let's say, very strong cost increases, basically both for raw mats, for freight, and for energy. I mean, to start to discuss numbers there, I mean, it's not really of interest, to be honest, Hampus. I mean, we are increasing pricing, and we are adjusting, and we are not really looking at this in the way you're looking for. When we feel that we are gonna get fully compensated for this, we don't have any concerns for that, and we don't really wanna discuss numbers in that way. I mean, we are mentioning it in Wheel Systems because there is a delay due to this and the pricing formulas and the way the business is.
I mean, also just to explain that maybe to fully grasp that, I mean, we are selling more or less directly into the market our tires. I mean, we are present in Europe, we are present in North America. Several of our competitors is more distributors, wholesalers, and they are buying from others. So they are somewhat kind of two months or something behind on the cost increase. So that is also why we are first in line. We are increasing the prices first, but it takes some time before most of our competitors is being impacted. I mean, we don't have a problem. If you mention names here, we don't have a problem. Michelin is as quick as we are because they're also selling into the market directly.
Some of the other brands is selling in a different way, and they are somewhat slower in the increase in pricing. At the same time, of course, today I mean, if they sell a tractor, they need to have a fixed price when they sell a tractor, but they are compensating us for that, let's say, quarter by quarter. That is why we're mentioning it on Wheel Systems, but we don't see a need to kind of comment on this in Industrial Solutions or in Sealing because there we see a direct compensation. I don't know whether you're happy with that reply, Hampus, but that is the way it is.
That's fair enough.
Yeah.
On the order side.
On the order intake, I mean, we are, I should say, surprised, but we have a very solid order intake basically all over, but in automotive. I mean, maybe for Trelleborg, it might be somewhat different. We also have a kind of a little bit light cyclical. We have record orders here for some construction. We also see oil and gas coming, even though it's getting small in Trelleborg. We have a few, let's say, big construction orders for Fender projects. We have a few, let's say, also bigger contracts actually for oil and gas exploration. Once again, even though it's substantially smaller here since the divestment, but it's still impacting us. We see a good industrial general, as you highlighted, good general industrial order intake.
On top of that, we also see these more late cyclical, if I may say, impacting also kicking in. We have good construction orders for infrastructure construction, good marine orders for harbors. We have good oil and gas orders. Overall, that is building a very solid order book for us. We have a record high order book at the moment. Of course, we know we are struggling a little bit because if we really would use the old KPI or old metrics for how this order book we will turn into sales, then we will not be able to deliver, honestly. Of course, we recognize that in this order book, there's probably some extra orders linked to kind of some safety measures from customers, pre-ordering or all of that.
That is, of course, something why we are cautious, but we feel confident that it's going in on a very high level. We still feel also from most of our industrial companies, I mean, with the signals they're sending at the moment is that they are actually quite low on inventory. That is also creating some comfort in this area. Once again, so we can only comment, but in a normal environment with this order book, then we will probably, I don't know, dancing on the table, but more or less because it's really on a good levels.
Once again, we are looking at this in a very, let's say, cautious way because we know there are some pre-ordering, and there have been some shortages of raw materials and all of that. The same as us, of course, we are also putting orders to our suppliers really to make sure that we get the products. Overall, it looks very good.
So-
Of course, the downside is automotive. The downside is automotive, where we expect, let's say, two-digit negative growth here in Q4. Once again, we need to remember it's only 10-ish% of Trelleborg. I mean, also part of this may be give or take one-third of this is aftermarket, which is not impacted. I mean, our direct exposure to this automotive shrinking is very limited, and it's well compensated with the growth in the industrial and the more infrastructure construction and oil and gas-related order intake.
Maybe then the last question on sealing. A very good margin during the quarter, and still there were some impacts on the autos, and you're always playing down Q3, Q4 margin in sealing, but despite some headwind in autos, you're still reporting +23% EBIT margin, which is a very good operating leverage also, even though you had those significant volume growth. My question is more related is this structural measures that we're seeing coming through there, which means that we maybe shouldn't expect that big seasonality going forward in sealing when it comes to second half?
I mean, the major impact in Q4 for Sealing is of course the Industrial segment. On that also we are growing in the medical healthcare, which is not that seasonal. I mean, also, even though it's small, I mean, of course we have also this supply into the semiconductor industry which is growing a lot. So there's some segments which is acting slightly better than normal, if I may say like that. Then we have also in Sealing, these small segments, oil and gas, and that which is also impacting. So this normal seasonality should move into becoming less in the future, but we still, the major, let's say, exposure here is still Industrial, where there is some seasonality. It should get better, but I don't really want to comment on the details.
I mean, the overall mix in sealing is slowly improving or in terms of kind of seasonal exposure.
Fair enough. Thank you, Peter.
The next question comes from the line of Agnieszka Vilela from Nordea. Please go ahead.
Thank you. I will actually follow up on the Sealing Solutions margin, and I want to ask you about your expectations on the profitability for this division in a bit longer term. We've seen that Sealing has been running at 22%-23% EBIT margin. Now, obviously you restructured a lot in aerospace, and these volumes are coming back. The question really is, should we expect this operational leverage of above 40% to continue and the division to reach even higher margins in a bit longer future?
I mean, honestly, our focus on sealing is more to grow it, maybe not to push the margin up. We can, let's of course push the margin up if we want to, but I mean, we are. Leverage is there, operational leverage there, but we want to spend more in making sure that we have a good underlying growth. Ambition is of course always to do as good as possible, but we are happy with this 22%-23%, and then we will be more happy if we can, let's say, use this extra money that's getting into the extra sales, if we can use that to create a few percentage points higher growth. That is still the ambition going forward.
We are investing our sales force, we are investing in innovation, we are investing in, let's say, upgrading, testing our kitting in order to be better in supporting our customers and get better sales. That is the priority ahead of trying to push the margin to 25% or whatever. That is, we would like to create a better kind of organic profile. Once again, that is a lot of small steps. I mean, we are maybe especially satisfied in the quarter that we see medical healthcare growing. We didn't comment that much on the semiconductor, but that's also an area where we are pushing. We still continue to see the kind of all this electrification benefiting us.
In all of these areas, we are, we also say, let's say, there's some interesting areas on this, let's say, high-end shower heads and stuff, which is also an area which is a little bit strange, but the people are prepared to spend. We see high-end bicycles. It's a lot of these small segments which is growing, and I mean, we would like to grow in all these attractive segments, so that is where we really would like to use the money.
Understand. Appreciate the comment. Then, I wanted to ask you about the momentum for your strong demand or sales growth during the quarter, also in how it looked like in September and October, if you looked whether demand accelerated or decelerated, and if you could strip out the automotive exposure.
I mean, to generalize, we see good demand everywhere. We don't see really any downturn end of the quarter. Looking at Fredrik, we cannot, you know, highlight any-
No.
...change direction in September besides automotive. I mean
No.
Of course there's some individual impacts, such as we had some of the tractor OEs closing also for semiconductor shortages and stuff like that. That is not really linked to the demand. We have certain areas where there is a lack of labor, but I mean, that is normal in this kind of environment. Overall demand, we only see a negative development in automotive, to be honest, and we see, let's say, more positive than in the rail, for instance. Rail is going up. Once again, although small, oil and gas and exploration and drilling and LNG and all of that is also improving. Although this order intake a bit longer term, we're not gonna see sales for that in the next one or two quarters, but nevertheless, we see good impact from that one.
Agnieszka, sorry, I mean.
Yeah. Okay
I don't want to sound overly positive, but I mean, only automotive is basically.
Yeah.
The only red flag we see. Of course.
Yeah.
It could be individual actions, individual customers having some operational issues, some lack of raw materials, but that is not really linked to the underlying demand.
Yeah. As per your official outlook for flat demand sequentially in Q4, and given the kind of supply chain challenges that everybody struggles with, do we calculate correctly that you could achieve, based on this outlook, about, say, 9%-10% organic growth in Q4? Or what do you think about that assumption?
I don't wanna comment on the individual figures. We see automotive is down, but that is being supported by others. I mean, it's gonna be a solid growth, let's put it like that. I don't really wanna guide you in details on-
Yeah.
In the individual percentage points.
Great. Thank you. Then last one for me, if I may. On cash flows, I've seen that you've built since the beginning of the year almost SEK 1 billion in inventories, and also we've seen outflow from receivables of SEK 1.3 billion year to date. What do you plan for your kind of working capital management and changes when we look into Q4 and even 2022? What will happen with working capital for you?
No, I mean, we came from a year with lower sales, so that receivables went up. It's quite natural with the strong sales growth that we have had in 2021 versus 2020. The same thing with inventory. That was also pushed down during the COVID-19 pandemic in 2020. Also now with a little bit longer lead time, we have increased inventory to secure supply. I don't expect that we will continue the inventory further up, and as always, we also expect to have a good cash conversion here during the Q4. I think focus on the net working capital days, we expect to be more flattish going forward. I mean, we don't have any kind of extra days on receivables. We don't have any extra overdues.
I mean, it is moving our way. I mean, as Fredrik said, we have made a decision to push up the inventory a little bit because we have been a little bit low on that. But that is in order to create extra sales. But once again, like Fredrik said, it's not gonna be. We don't see any changes in this going forward, and we feel quite satisfied with the way it's managed at the moment.
Thank you.
The next question comes from the line of Robert Davies from Morgan Stanley. Please go ahead.
Thanks for taking my questions. My first one was just on the Wheel Systems. Can you just remind what is sort of underpinning your view in terms of taking that margin over 15% of the medium to longer term? I guess, what's been the sort of biggest impediment to getting there in the last couple of years? And you know, I guess where does the conviction level in terms of maybe in the first half of the year, given all the disruptions and supply chain issues and everything else that's going on, that you can get that margin north of 15% maybe in the first half of the year? And then the second one was just on the broader industrial environment.
I guess looking at the sort of more difficult growth profiles in terms of comparatives going through or coming through in the back half of this year, is it fair to assume that Industrial Solutions growth continues to taper in the first half of 2022, or are we sort of seeing a more normalized environment? Where do you feel that that business is gonna run in 2022 relative to 2019? Thank you.
Yeah. If we start with Wheel Systems, of course, we feel confident we have far better structure here. I mean, as you're aware, we made a major, I know it's going back a few years, but it takes time to do the structure. We have changed, let's say, substantially the setup within Industrial Solutions with investments in one, let's say, very efficient factory in Czech Republic, let's say strong upgrade in the Serbian factory, reallocating manufacturing of rims, for instance, from Sweden to Latvia. We have a much better setup and we also feel that the branding and the positioning is good. We feel overall that the business model is a lot better and the operations is more successful. We are-
Of course, we're struggling this year with raw materials. It's unfortunate. I mean, our guys, our colleagues in Wheel Systems is very, if I may say, sad in a way that they're not able to deliver this +15% already this year. Now as it looks today, if the raw material is flattening out, then we're gonna get these price increases kicking in. We're gonna have the best ever first six months next year. That is really where we're gonna see the impact. I mean, that is the way.
We see it at the moment. We see kind of a very strong uptick on the margin from this level as the price increases is kicking in. On top of that, we also have been losing money or running with very low profitability in U.S. We have been investing in getting into the U.S. markets, and now we start to see the benefits from this, and we see very strong volume growth in that. We see most, if not all, parameters in Wheel Systems actually moving in the right direction, but that we have this imbalance or delay in getting compensated for the price increases. Of course, there are uncertainties in the market, and we know that the farmers is impacting, but this increased petrol pricing and all of that.
On top of that, I mean, of course they also have a good commodity pricing at the moment. It's really. We feel the environment is still good. On top of that, we always talk a lot about agriculture for Wheel Systems, but it's also Material Handling, which is also improving at the moment, where we see this increased general activity in industrial and e-commerce and all of that. That is benefiting Material Handling. We have good momentum in all areas but for the raw materials. We are confident that we're gonna get compensated for raw materials, but it takes a little bit longer to get this compensation in Wheel Systems compared to others. We are once again, let's say, confident on that.
With regards to Industrial Solutions, it is, I mean, as you're aware, it's a little bit mixed bag. We with some automotive exposure, some industrial exposure, some construction exposure, some infrastructure construction exposure. It's a mixed bag. We feel confident also that this will continue to develop a good way. We have been working to be also open about that, I mean, on the overall portfolio within Industrial Solutions and making sure that we can increase the margins. I still. That's an activity in Industrial Solutions in order to push the margin higher.
It could be that with the difference for Sealing Solutions and Wheel Systems, we are still working on kind of getting a structurally higher margin in Industrial Solutions while in Wheel Systems and Sealing, we feel that we have the kind of structure fully in place, and we simply to deliver with the sales getting into the systems, while in Industrial Solutions, once again, we still have some fine-tuning to be done in order to push the margin slightly higher. I mean, we know that we are running at 12%, which is our kind of earlier at least communicated long-term target, but that could potentially be more ambitious.
Thank you. Just my final question was just on the, I guess, the remaining operations that you had lined up for sale, just in terms of sort of timeline there, what are you thinking in terms of your sort of discontinued operations, et cetera? Is that all due to be gone this year, next year? What are you thinking?
No . I mean, we have commented before that we are in active discussions on that one. We feel confident that that's gonna be concluded. It might be that the actual closing will be later, but we feel confident that the deals and the activities ongoing that we will be finished within this year.
Okay, great.
That's the same as before.
Okay, thank you. That was all my questions.
We have one final question from the line of Karl Bokvist from ABG. Please go ahead.
Yes, thank you, and hello. My first question relates to Industrial Solutions there, just following up on what you say there about, you know, structural possibilities of raising the margins further. First, just a more short-term-oriented question, how you feel, you know, Industrial Solutions has managed with the headwinds that you're facing and the possibility of, you know, seasonally-wise, I think we would see an uptick in the margin in Q4 for Industrial, but I would just like to hear your thoughts on this in relation to the potentially increasing cost tailwinds and pricing support and so on. Then for the longer-term question, it's more like what kind of areas in Industrial do you feel could, you know, provide this support for structurally higher margins?
No, I mean, first of all, I mean, Industrial Solutions is fairly spread. I mean, also, yes, I heard you comment on Q4, but I mean, don't really do a comparison with Q4 last year because that was exceptionally high linked to a few product orders and a few specific deals. So it's not really gonna be. Please do not compare with that. Compare instead what you have seen on the last few quarters. It is still a 12-ish level, which is kind of the level we're targeting. On these structural questions, while restructuring and more focus on Industrial Solutions, being more focused on a few areas, we have identified very good management, I should say, also good management by my colleagues in Industrial Solutions, and they have identified further improvement potential.
That is not really linked to any specific areas. It's more an overall better efficiency and overall better focus on interesting profiles, less interesting market segments and product segments. It's a lot of small things. Overall, we feel that we have a very good plan going forward in how to improve in I should say more or less all areas of Industrial Solutions. This is not really any specific areas that we want to highlight. It's more the overall performance of this business area. Overall management, overall structure of this has improved, and then we see continued possibilities to improve going forward. I think I need to stay on that more general comment.
I mean, otherwise we go down to a lot of details, and once again, it's not linked to any specific actions but to manage small actions.
All right. Just you mentioned a comment there on, you know, certain markets that you saw improving, for example, Marine, and I think that's an area where you have been investing a bit in new applications in recent years. You know, in terms of the total Trelleborg, how large is Marine today? Is it, you know, just 1% or 2%, or how meaningful could it be?
Looking at Christoffer, what are we usually guiding on that one?
Marine, it's around 20% of Industrial, I would say.
Yeah, 15.
Yeah. .
Let's say 15.
Depending on. Yeah.
15%-20% of Industrial, depending a little bit how you calculate.
All right.
It's not a major part of Trelleborg. Once again, that's one of the portfolios in Industrial Solutions where we have been getting better position, and we're doing a portfolio change there, going more away from kind of commodity dominating this. I mean, they are sending strong signals that they expect very strong growth in the next few years, actually. That is solely on the single-aisle aircraft, the A320s and the 737. That is kind of the areas where we see growth. We need to trust the customers. They have a good order intake, and they start to get the orders again, and they have still a very good order book. It's more whether they are delivering from that order book or not. That is an area, and we still see military.
We see the aftermarket flight kilometers going up. We see a strong growth in more or less all areas of the aerospace segments, of course, coming from very low levels. Margin in that area is on par or slightly better with Sealing Solutions. We have been good in managing that, so we've not really been kind of suffering from this downturn. We've been able to compensate ourselves, so we don't see any impact really on the overall margin for Sealing Solutions due to the fact that aerospace is going up. That's gonna be kind of an average. Let's say average plus margin on the overall impact for Sealing Solutions.
On the healthcare, I mean, of course, just to highlight that on aerospace, we're still talking about it's, I don't know, it's gonna end up this year somewhere within, I guess 12% or 13% of Sealing Solutions is aerospace. So it's not really a major impact on the totality, although it's growing by 15% or 20% or whatever. On the healthcare and medical, I mean, our focus area, I mean, there is two ways, I mean, on healthcare and medical. There is a lot of contract manufacturers simply manufacturing what they're told to manufacture, and then there are solution providers. We are at the moment somewhere in between. If you're a pure contract manufacturer, then generally the margin is slightly lower.
Of course, our ambition in that area is to move from a component manufacturer into solution provider, and that is also supported by the customers, but that will take time. At the moment, I should say that the healthcare and medical overall is slightly lower margin than the average of Sealing Solutions. Our ambition going forward is as we move from more of a component manufacturer into a solution provider, we do expect the margin to increase. At the moment, the overall healthcare and medical is slightly lower. This journey from a component supplier to a solution provider, I mean, that has been the story for long on Sealing Solutions.
I mean, as you know, in Sealing Solutions, several of our, let's say, competitors, if I may say, on the manufacturing side, several of them is today component providers. We are a solution provider, and that is why we are able to run at a kind of a double margin compared to most of our competitors in that area. Of course, our ambition in healthcare and medical is the same. I mean, the healthcare and medical for Sealing and Precision Components is still very low consolidation in that area, and we see possibilities for several years to grow that area and to make it a kind of a major part of Sealing Solutions. Then as-
Once again, as we move from a component supplier into solution provider, we do expect also the margin in this area to get up to at least be on par with average in Sealing Solutions and maybe longer term, even better than that. That is, I mean, a little bit longer explanation on that, but just to share a little bit our view on that segment.
Okay, thanks. My final was just in wheels, if it would be possible to get a bit of insight into how the Trelleborg brand performed compared to Mitas.
Both brands is doing great. I mean, we have been working on getting the positioning right and we have that, and we are talking Trelleborg brand being kind of what I call a specified brand, which means that the customers need to ask for it, while the Mitas brand is more a wholesaler brand, distributor brand. This position is great, so that they have their strength, and they have their kind of space in the market differently, and we feel that both brands is developing well. We don't see any difference. They're using slightly different kind of sales channels and different way of selling. But we feel now, it's been, of course, a journey ever since we got this Mitas and get this positioning right.
At the moment, we feel that the positioning is right in the agriculture. We say on the material handling that there's still some way to go, and we are at the moment, I mean, I don't expect several of you to buy, let's say Forklift tires. If you do, then of course, you also note in that areas that there is kind of a brand repositioning ongoing for Trelleborg. I mean, we are number one or two in that market globally, and at the moment, we're working quite a lot with our product range in order to get that right as well, and also to get it aligned. As you know, we're working with this, we call it Interfit concept, which is now approaching, let's say, 10% of sales of wheel systems.
In that channel, we have the possibility there so also to do a different kind of brand positioning. That is ongoing at the moment in Material Handling on a global scale. That is also where we do expect some benefits in maybe lower inventory and of course also better pricing eventually. Brand is always on the agenda here, and then making sure that you are pushing it in the right channels will be Interfit. We also launched now, for instance, on Amazon and all of that, and also start to sell there, even though that's very small. You need to have, let's say a clear brand positioning in order to manage these different channels available to go into the market.
We feel that we are good in doing that, and we have a very good brand management and brand positioning.
Okay, thank you.
Okay. If that's all, I mean, then I'm gonna leave you now. I mean, this is a very strong quarter for Trelleborg. I mean, we have 16% organic growth, best sales ever in the Q3, best EBIT in the Q3, and that's also the best margin in the Q3 for Trelleborg. Outlook, same demand as in this quarter, and we're basing this on, although we recognize that automotive is going down, but we see other segments as they're well compensating for that. Overall, we feel confident moving forward. Of course, we're gonna continue to watch these component shortages and some overall cost inflation, but once again, we feel confident we will be able to compensate for the impact from this in a good way.
I guess with that, thanks to all of you, and, of course, Christoffer is around to support any potential follow-up questions, and of course, so am I and Fredrik as well. Please get back to us if you have any further queries, and, we'd be happy to continue to support you. Thanks again, and thanks for showing interest in Trelleborg. Thank you.
This concludes our conference call. Thank you all for attending. You may now disconnect your lines.
Thank you.