Interim report and Year-end report 2018
"Record earnings despite challenges"
“Trelleborg reported an operating profit that was its highest to date for a fourth quarter, despite challenges in some units. Although areas of improvement remain, we can conclude that we had a decent end to a largely satisfactory year. For the full year we once again achieved a record result, although parts of our project business fought an uphill battle.
Full-year sales increased by 8 percent, with organic sales contributing 3 percent. EBIT, operating profit excluding items affecting comparability, increased 15 percent year-on-year. Both EBIT and the EBIT margin were the highest to date for the Group for a full year.
Quarterly sales increased by 8 percent, of which organic sales amounted to 2 percent, while structural growth contributed 2 percent. EBIT, excluding items affecting comparability rose by 5 percent compared with 2017.
During the quarter, we continued to grow in large parts of the world and it was essentially only in parts of Eastern Europe that our sales declined. This, in turn, is largely a consequence of bottlenecks in the Czech production units. The bottlenecks are due to difficulties in recruiting qualified operators as a result of the very low rate of unemployment in the country. The resulting situation is addressed through various measures, but during the quarter created significant inefficiency and affected both sales and earnings in parts of Trelleborg Industrial Solutions.
The quarter remained difficult for our project-related operations in Trelleborg Offshore & Construction. During the period, the operation was also charged with impairments related to certain project transactions. Improvement measures in the business area were implemented over the past 12 months and have created a more market-adapted and efficient operation. While there was certainly an upturn in the level of activity at the end of 2018, we expect that a distinct earnings improvement will only occur in the second half of 2019, when the higher activity level rolls over into increased sales.
Our largest business area, Trelleborg Sealing Solutions, performed well in all regions and its deliveries to both general industry and the aerospace industry were on the rise. However, sales to the automotive industry declined somewhat, which was attributable to the North American market.
There was a mixed trend in our tire business during the quarter. Sales of agricultural tires were slightly negative, but at the same time we noted that this was mainly attributable to the comparative period in 2017 being very strong as a result of new emission regulations that drove the new registration of tractors before year-end. Deliveries of material handling vehicles and construction machinery grew satisfactorily.
The Group’s rate of investment remained high during the fourth quarter. We are investing in new sites and new technology, at the same time as we are increasing our capacity at several existing sites. The purpose is to always build a stronger Trelleborg with a long-term plan in focus, and it is part of the Group’s strategy to strengthen its positions in attractive market segments.
Another example of this strategy is that we have formed a joint venture in India to promote our continued expansion in that part of the world. The company will manufacture tires for two-wheeled motor vehicles. After the close of the period, we finalized the acquisition of Sil-Pro, which expands our capacities within cleanroom manufacturing, primarily to healthcare & medical.
At the time of writing, the global economy is marked by great uncertainty, impacted by the Brexit negotiations and trade policy restrictions. As a global player in our industry, with manufacturing units located in nearly all parts of the world, Trelleborg stands well prepared to manage fluctuating market conditions. Our assessment is that demand in the first quarter of 2019 will be on a par with, or somewhat lower than, the fourth quarter of 2018”, says Peter Nilsson, President and CEO.
Fourth quarter 2018
Net sales for the fourth quarter of 2018 rose 8 percent to SEK 8,342 M (7,708).
Organic sales increased 2 percent. Excluding project deliveries, the corresponding increase was 3 percent.
EBIT, excluding items affecting comparability, rose 5 percent to SEK 997 M (928), which was equivalent to an EBIT margin of 11.7 percent (12.0). EBIT was the highest ever for the Group in a fourth quarter.
Items affecting comparability for the quarter were a negative SEK 98 M (neg: 314) and pertain to restructuring costs. For 2017, the amount comprised a negative SEK 781 M in restructuring costs and SEK 467 M as an earnings effect from a receivable related to the divestment of Vibracoustic.
Earnings per share for continuing operations excluding items affecting comparability totaled SEK 2.55 (2.31); for the Group in its entirety, earnings per share amounted to SEK 2.22 (1.01).
Operating cash flow amounted to SEK 1,166 M (1,208). The cash conversion ratio for the most recent 12-month period declined to 74 percent (90), impacted primarily by a higher level of capital expenditure.
Net sales for the full-year 2018 increased 8 percent to SEK 34,005 M (31,581).
Organic sales rose 3 percent. Excluding project deliveries, the corresponding increase was 4 percent.
EBIT, excluding items affecting comparability, rose 15 percent to SEK 4,694 M (4,091), corresponding to an EBIT margin of 13.8 percent (13.0). Both EBIT and the EBIT margin were the highest to date for the Group for a full year.
Items affecting comparability were a negative net amount of SEK 176 M (neg: 69). For 2017, the amount included restructuring expenses in the negative amount of SEK 1,008 M, a positive SEK 467 M as an earnings effect from the receivable related to the divestment of Vibracoustic and the capital gain of SEK 472 M from the divestment of the compounding operation in Lesina in the Czech Republic.
Earnings per share for continuing operations, excluding items affecting comparability, totaled SEK 12.34 (10.82). For the Group in its entirety, earnings per share amounted to SEK 11.77 (10.60).
Net profit for the Group totaled SEK 3,190 M (2,874). The tax expense for 2018 was impacted by expenses of SEK 51 M related to the tax reform in the U.S.; the corresponding negative effect for 2017 was SEK 129 M.
Operating cash flow for continuing operations amounted to SEK 3,488 M (3,688), down 5 percent. The cash conversion ratio for the most recent 12-month period declined to 74 percent (90), impacted primarily by a higher level of capital expenditure.
Market outlook for the first quarter 2019
Demand is expected to be on a par with, or somewhat lower than, the fourth quarter of 2018, adjusted for seasonal variations.
Market outlook from the interim report published on October 30, 2018, relating to the fourth quarter of 2018
Demand is expected to be on a par with the third quarter of 2018, adjusted for seasonal variations.
The Board of Directors proposes a cash dividend of SEK 4.75 per share (4.50).
For further information, please contact:
Media: Vice President Media Relations Karin Larsson, +46 (0)410 67015, +46 (0)733 747015, email@example.com
Investors/analysts: Vice President IR Christofer Sjögren, +46 (0)410 67068, +46 (0)708 665140, firstname.lastname@example.org
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 13, 2019.
This is a translation of the company’s Interim Report in Swedish.