Interim report April - June 2019
“During the second quarter of the year, sales increased by 7 percent, of which acquired units contributed 3 percentage points. Organic sales were unchanged compared with the year-earlier quarter, with variations between geographies. North and South America generally continued to perform well for us during the quarter, while the trend in Europe and Asia was more tentative, with increased uncertainty. Overall, The Group's earnings trend was stable, with the underlying EBIT increasing by 2 percentage points. The rate of investment remained at a high level, which reflects the ambition to further sharpen our market positions in most segments.
The trend shifted during the period: the quarter began cautiously in April, an improvement was noted in May, while there was a downturn once again in June. Our interpretation is that intensified political tension and escalated global trade conflicts are increasingly impacting the sentiment in several markets, meaning that the near future is difficult to forecast. Our understanding is that we will see increasing differences in the development between various market segments, but that overall demand will remain at the same level for the next quarter. In this scenario, however, we anticipate a disadvantageous sales mix for us, which is expected to have a somewhat negative impact on the earnings trend.
To address an expected decline in demand in parts of the Group, we took a proactive approach at the end of the quarter and initiated measures to reduce costs, primarily through targeted personnel reductions. These initiatives will generate nonrecurring costs and our estimate is that the restructuring costs for the year will amount to approximately SEK 500 M, which is an increase of about SEK 250 M compared with information provided earlier.
Our largest business area, Trelleborg Sealing Solutions, noted unchanged organic sales, but with distinct differences between various segments. Deliveries to the automotive industry were declining, sales to the aerospace industry and the healthcare & medical segment remained strong, while sales to general industry were slightly weaker than during the first quarter of the year.
Demand for tires for the agriculture sector declined during the quarter, probably impacted by the intensified trade conflicts, but also by the weather conditions in certain markets. The market statistics published after the end of the period displayed a significant decline in the European aftermarket for agricultural tires during the quarter. Generally, we continued to grow our market shares, particularly in the OE segment, but this did not offset the decline in the aftermarket and also created a negative sales mix for Trelleborg Wheel Systems. Accordingly, the business area initiated targeted activities during the quarter to adapt to the lower level of demand.
Trelleborg Industrial Solutions continues to note healthy growth, and most market segments performed positively. As previously forecast, profitability continued to be affected by inefficiency in a Czech production unit. Work is continuing to improve the situation, through targeted investments and cost adaptations.
Our oil & gas operation and major infrastructure construction projects are now recovering after a prolonged period of weak market conditions. Order intake was favorable during the quarter and our evaluation stands that the business area will recognize a positive organic sales trend in the second half of the year and achieve profit during the fourth quarter.
For the third quarter, our overall assessment is that demand will be in line with the second quarter of the year, but with a disadvantageous sales mix that is expected to have a somewhat negative effect on earnings. We are continuing to carefully monitor economic developments and maintain a high level of preparedness to manage fluctuating market conditions,” says Peter Nilsson, President and CEO.
Net sales for the second quarter of 2019 rose 7 percent to SEK 9,361 M (8,786).
Organic sales were in line with the preceding year for the Group in its entirety, and declined 1 percent, excluding project deliveries.
EBIT, excluding items affecting comparability, amounted to SEK 1,321 M (1,293), which was equivalent to an EBIT margin of 14.1 percent (14.7).
Items affecting comparability for the quarter were a negative SEK 118 M (neg: 32) and pertained to restructuring costs. At the end of the quarter, an action program was launched to address an anticipated downturn in certain market segments. Restructuring costs for the full year will amount to approximately SEK 500 M, an increase of about SEK 250 M compared with information provided earlier.
Earnings per share, excluding items affecting comparability, totaled SEK 3.36 (3.40). For the Group in its entirety, earnings per share amounted to SEK 2.98 (3.31).
Operating cash flow amounted to SEK 1,052 M (1,074). The cash conversion ratio was 69 percent (83).
Market outlook for the third quarter 2019
Demand is expected to be on a par with the second quarter of 2019, adjusted for seasonal variations.
Market outlook from the interim report published on April 26, 2019, relating to the second quarter of 2019
Demand is expected to be on a par with the first quarter of 2019, adjusted for seasonal variations.
For further information, please contact:
Media: Vice President Media Relations Karin Larsson, +46 (0)410 67015, +46 (0)733 747015, firstname.lastname@example.org
Investors/analysts: Vice President IR Christofer Sjögren, +46 (0)410 67068, +46 (0)708 665140, email@example.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 1:00 p.m. CET on July 18, 2019.
This is a translation of the company’s Interim Report in Swedish.