Kvartalsrapport och bokslutskommuniké 2017 | Trelleborg Group

Interim report and Year-end report 2017

"Growth and better earnings"

“Trelleborg is reporting yet another strong year. Sales increased 16 percent, with structural growth contributing 12 percent, at the same time as organic sales rose 4 percent. EBIT, operating profit excluding items affecting comparability, increased 17 percent year on year. Sales in the fourth quarter developed well and increased 4 percent, comprising organic sales growth of 7 percent and a negative currency effect of 3 percent. The corresponding EBIT rose 10 percent in the fourth quarter.

The favorable trend is the result of several of our market segments improving during the year, and maintaining a focus on continuous operational improvement in all dimensions. The agricultural sector gained momentum in Europe during the year, primarily OEMs, and we are hopeful that the North American market will once again start growing following several years of decline. Our deliveries to the aerospace industry remained healthy, although we observed indications of bottlenecks in the sub-supplier stage in the second half of the year, which partially impacted us too.

The year also held many challenges, including a sharp upward trend in the price of raw materials early on that turned downwards later during the year – although we could see a clear increase in raw material prices over the entire year. We compensated for the higher raw material prices in a satisfactory manner, albeit with a certain natural delay. We experienced continued challenging market conditions for some of our businesses, including the oil & gas segment.

We do not anticipate any improvement in the near future for parts of our oil & gas operation. We are therefore continuing to adapt the business and a decision on a number of strategic measures was taken during the fourth quarter. We announced, among other actions, a consolidation of our U.S. manufacturing of buoys for drilling equipment in deep-water environments with our similar operation in England. These measures aim to build a more effective structure that we will benefit from when the market gradually improves.

Trelleborg continued to improve its positions by focusing on selected segments and applications. We are pursuing several initiatives for organic growth, and complementing these with acquisitions that accelerate the process. The rate of investment has never been higher than it is now; we are investing in new facilities and new technology and increasing the capacity of existing facilities. A great deal of effort was also put into ensuring that our acquisitions over the past few years are being integrated in a forward-looking and structurally correct manner. In parallel, we are intensifying our ambitions to utilize new technologies, not least connected to digital solutions, to make it even easier to do business with us.

During the year, there were also a change-of-generation among our business area presidents, resulting in a partial renewal of Group Management. I view the fact that we were able to fill these positions through an internal recruitments as a sign of strength. We work consistently to be able to offer our employees internal development opportunities and our activities within the scope of our Trelleborg Group University continued during the year.

We have also reduced our level of indebtedness to below the level before the major acquisition of CGS in 2016. In other words, net debt has decreased by a full SEK 2.5 billion during the year. We have succeeded in achieving this more rapidly than we expected when the acquisition was made, driven by continued healthy cash generation and occasional divestments. This creates favorable scope for action for us moving forward.

Now, however, 2017 is behind us and we look ahead with confidence to the next step in our journey toward a bigger, better and more profitable Group. Our assessment is that demand in the first quarter of 2018 will be on a par with the fourth quarter of 2017. As previously, we are carefully monitoring economic developments and continue to maintain a high level of preparedness to manage fluctuating market conditions”, says Peter Nilsson, President and CEO.

Fourth quarter 2017

Net sales for the fourth quarter of 2017 rose 4 percent to SEK 7,708 M (7,434).

Organic sales increased 7 percent. Excluding project deliveries, the corresponding increase was 9 percent.

EBIT, excluding items affecting comparability, rose 10 percent to SEK 928 M (841), which was the highest figure ever for the Group for a fourth quarter. This was equivalent to an EBIT margin of 12.0 percent (11.3).

Items affecting comparability for the quarter were a negative net amount of SEK 314 M (neg: 118) and comprise the following:
- Restructuring expenses of SEK 781 M in line with information previously communicated, the majority of which relates to the consolidation of U.S. manufacturing in offshore and the corresponding operation in England. Refer to page 7.
- Additional payment related to Vibracoustic of SEK 689 M that will be received in the second quarter of 2018. The amount exceeds expectations and yields a positive earnings effect of SEK 467 M. Refer to page 7.

The Group’s tax expense in the quarter totaled SEK 284 M (expense: 151), impacted by a negative non-recurring item of SEK 129 M related to a tax reform in the U.S. passed at the end of December 2017. Refer to page 8.

Earnings per share for continuing operations excluding items affecting comparability totaled SEK 2.31 (2.23).

Operating cash flow amounted to SEK 1,208 M (1,331). The cash conversion ratio for the most recent 12-month period was 90 percent (99).

Full-year 2017

Net sales for full-year 2017 increased 16 percent to SEK 31,581 M (27,145). Organic sales rose 4 percent. Effects of structural changes made a positive contribution of 12 percent.

EBIT, excluding items affecting comparability, rose 17 percent to SEK 4,091 M (3,496), which was the highest figure ever for the Group for a full year. This corresponds to an EBIT margin of 13.0 percent (12.9).

Items affecting comparability were a negative net amount of SEK 69 M (neg: 391). The amount includes restructuring expenses in the negative amount of SEK 1,008 M in line with information previously communicated, the capital gain of SEK 472 M from the divestment of the compounding operation in Lesina in the Czech Republic and a positive earnings effect from an upward adjustment of SEK 467 M to a receivable related to the divestment of Vibracoustic. Refer to page 7.

Earnings per share for continuing operations rose 30 percent to SEK 10.60 (8.18).

Net profit for the Group totaled SEK 2,874 M (6,585), with the preceding year being positively impacted by the divestment of Vibracoustic.

The tax expense for the year was impacted by a negative non-recurring item of SEK 129 M related to a tax reform in the U.S. passed at the end of December 2017. Refer to page 8.

Operating cash flow for continuing operations amounted to SEK 3,688 M (3,460), up 7 percent.

Market outlook for the first quarter of 2018
Demand is expected to be on a par with the fourth quarter of 2017, adjusted for seasonal variations.

Market outlook from the interim report published on October 27, 2017, relating to the fourth quarter of 2017
Demand is expected to be on a par with, or slightly better than, the third quarter of 2017, adjusted for seasonal variations.

Dividend 2017
The Board of Directors proposes a cash dividend of SEK 4.50 per share (4.25).

For further information, please contact:
Media: Vice President Media Relations Karin Larsson, +46 (0)410 67015, +46 (0)733 747015, karin.larsson@trelleborg.com
Vice President IR Christofer Sjögren, +46 (0)410 67068, +46 (0)708 665140, christofer.sjogren@trelleborg.com

This information is information that Trelleborg AB is obliged to make public pursuant to the EU Market Abuse Regulation and the Securities Markets Act. The information was submitted for publication, through the agency of the contact person set out above, at 7:45 a.m. CET on February 2, 2018.

This is a translation of the company’s Interim Report in Swedish.