"An eventful quarter"
“The second quarter was particularly eventful. The acquisition of CGS, which was announced at the end of 2015, was finalized during the period and the operations have been consolidated into our financial statements as of June. The integration of CGS into our existing operations has begun and is progressing well. Following the acquisition, Trelleborg’s annual sales amount to approximately SEK 30 billion on a pro forma basis.
We devoted considerable time during the quarter to complete the sale of our holding in Vibracoustic to our partner Freudenberg. The transaction has now been finalized and we can look back with satisfaction on the development of the joint venture. Following the divestment, we can give our undivided attention to developing our core operations.
During the quarter, the Group’s organic sales declined compared with both the preceding quarter and the second quarter of 2015. This downturn was mainly attributable to our oil & gas operation, where sales have decreased sharply as expected. Nevertheless, our operational control remains effective and we have proactively adapted our operations to the prevailing market situation. This is why the Trelleborg Offshore & Construction business area succeeded in delivering a profit, despite these challenging market conditions.
The underlying organic sales were slightly stronger than in the preceding quarter, when excluding these project transactions. However, our conclusion is that the market situation has not changed significantly in recent months.
The trend for general industry remains sluggish in several markets, particularly in the more capital-intensive sector. As in the past, our growth is instead being driven by sales to the automotive and aerospace industries, markets outside Western Europe and North America and by other targeted initiatives. We are also seeing indications that the trend in the agricultural market, which has long been negative, is beginning to stabilize, albeit at a low level.
We reported a strong EBIT for the quarter, particularly given the aforementioned market conditions, and achieved the highest quarterly result to date for the Group. Our EBIT margin improved compared with the corresponding quarter in the preceding year.
Naturally, the integration of CGS is now at the top of our agenda and we have identified significant coordination gains that we plan to leverage moving forward. We have also conducted other interesting acquisitions recently. For example, during the quarter we finalized the acquisition of SSF, a U.S.-based manufacturer of high-precision silicone components in the high-growth life sciences market, providing us with a strong platform for continued development in this attractive segment.
Once again, I can only describe future business trends as difficult to assess. In addition to low commodity prices and a weak general industry, the U.K.’s decisions to ultimately leave the EU has increased the prevailing economic uncertainty. Nevertheless, we will continue to focus on the factors we can influence and maintain a strong focus on cost control, cash flow and value creation in this unpredictable business environment.
Overall, we expect our markets to continue to moving laterally, or slightly downward, during the third quarter, mainly due to the continued decline of our oil & gas operation. We are continuously monitoring developments and are well prepared to adjust our various businesses to match fluctuating demand,” says Peter Nilsson, President and CEO.
Net sales for the second quarter of 2016 were on par with the year-earlier period and amounted to SEK 6,544 M (6,531). Organic sales declined by 6 percent, mainly as a result of the foreseen downturn in deliveries to the oil & gas segment. Effects of structural changes made a positive contribution of 9 percent, of which CGS explained most of the increase. The effects of exchange rate movements were negative 3 percent.
The acquisition of CGS was finalized during the quarter. One month’s earnings for the acquired business are included in this interim report.
EBIT, excluding items affecting comparability, rose by 2 percent to SEK 899 M (883), which was the Group’s highest result to date for a quarter and equivalent to an EBIT margin of 13.7 percent (13.5).
Items affecting comparability for the quarter amounted to an expense of SEK 107 M (expense: 23), including non-recurring expenses of SEK 49 M pertaining to the acquisition of CGS. In addition, net financial items were charged with financial non-recurring costs totaling SEK 20 M, which were attributable to the acquisition.
Earnings per share for continuing operations totaled to SEK 1.98 (2.28) and were impacted by higher items affecting comparability in the quarter.
Operating cash flow amounted to SEK 835 M (603), up 38 percent.
In late June 2016, Trelleborg received positive notifications from the relevant authorities to be able to finalize the divestment of Vibracoustic and thus reported the divestment during the second quarter. The total purchase consideration of approximately SEK 6.9 billion has been recognized as a financial receivable in this interim report. The transaction resulted in a capital gain of approximately SEK 4.1 billion.
A payment of approximately SEK 6.2 billion was received on July 5, 2016. The remaining SEK 0.7 billion of the purchase consideration is subject to Vibracoustic’s forecast sales performance in 2016 and 2017.
Net profit in discontinuing operations is recognized in accordance with IFRS and amounted to SEK 4,369 M. This amount includes a capital gain of SEK 4,070 M and a reclassification of shareholders’ equity of SEK 299 M. The net effect on shareholders’ equity amounts to SEK 4,070 M.
Market outlook for the third quarter of 2016
Demand is expected to be on a par with, or slightly weaker, than the second quarter of 2016, adjusted for seasonal variations.
Market outlook from the interim report published on April 21, 2016, relating to the second quarter of 2016
Demand is expected to be on a par with, or slightly weaker, than the first quarter of 2016, 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 7:45 am CET on July 19, 2016.