"Satisfactory quarter under the circumstances"
“The second quarter was dominated by intensive efforts to respond to all of the direct and indirect effects arising from COVID-19. All units in the Group implemented local action plans that address their unique situation. Considering these special market conditions, performance during the quarter was satisfactory, despite a significant decline in organic sales and earnings generation.It was a very challenging quarter in many respects and without the extensive efforts and positive attitudes displayed on a daily basis by the Group’s employees at all of our sites throughout the world, this would not have been possible. I want to take this opportunity to extend my thanks for all the good efforts made. Our foremost priority remains the health and safety of our employees, while, at the same time, we continue to do our best to meet our customers’ needs.
Organic sales for the Group declined 19 percent, with an improvement in the latter part of the quarter. EBIT, excluding items affecting comparability, declined 29 percent, corresponding to an operating margin of 12.3 percent (14.1). Operating cash flow was strengthened significantly.
The market situation for the Trelleborg Industrial Solutions and Trelleborg Sealing Solutions business areas was similar, with COVID-19 having a negative impact on organic sales and earnings in most regions. Most market segments experienced a strong decline in activity and this was particularly difficult in the aerospace and automotive industries. Sales declined in most regions, with a more limited sales decline in Asia. Effective cost control, flexible structures and targeted actions limited the impact of the volume loss on the earnings trend of both business areas.
Trelleborg Wheel Systems’ sales of tires to OE manufacturers of agricultural machinery was negatively impacted by several customers closing their production sites for a number of weeks. However, there was a slightly positive trend for agricultural tire deliveries to the aftermarket. Sales of tires for material handling and construction vehicles were impacted to an even higher degree by COVID-19, since deliveries to OE manufacturers and aftermarket customers declined significantly. At the same time, the volume loss was partly offset by the positive sales mix, strict cost control and the benefits gained from structural measures implemented earlier.
Organic sales in Businesses Under Development declined in spite of continued strong development for offshore oil & gas, although the rate of growth for this segment was lower than for the first quarter of the year. Other operations were affected by temporary facility closures caused by customers suspending production and official decisions.
The near future will remain challenging and we do not expect a rapid return to normal market conditions. Many countries have gradually implemented the easing of restrictions, which is positive news, of course, but this has also led to new cases of COVID-19 appearing, which has led to restrictions being reimposed.
Due to the anticipated and long-term effects of COVID-19 on demand, Trelleborg will implement further measures to manage these negative effects. These initiatives address production and sales structures in all business areas and aim to enhance the efficiency of the organization to face a new market situation after COVID-19.
The Group has demonstrated its ability to navigate well through the challenging market conditions created by the ongoing COVID-19 pandemic. Our strong cash flow generation and resilient margins also give us great opportunities to continue building an even stronger Trelleborg for the future”, says Peter Nilsson, President and CEO.
Second quarter 2020
- Organic sales during the second quarter of 2020 were impacted by the negative market development as a result of COVID-19. Uncertainty regarding demand for the coming quarters remains considerable. Refer to page 6.
- Net sales for the quarter declined 18 percent to SEK 7,689 M (9,361).
- Organic sales declined 19 percent.
- EBIT, excluding items affecting comparability, amounted to SEK 942 M (1,321), corresponding to an EBIT margin of 12.3 percent (14.1).
- Items affecting comparability for the quarter were a negative SEK 105 M (neg: 118) and pertained in their entirety to restructuring costs.
- Restructuring measures were initiated during the quarter to address the impact of COVID-19. Restructuring costs for 2020 will amount to SEK 700 M, compared with the amount of SEK 300 M announced earlier. Refer to page 6.
- Earnings per share, excluding items affecting comparability, totaled SEK 2.47 (3.36). For the Group, earnings per share were SEK 2.11 (2.98).
- Operating cash flow amounted to SEK 1,440 M (1,051). The cash conversion ratio for the most recent 12-month period amounted to 120 percent (69).
Market outlook for the third quarter 2020
Demand is expected to be slightly better than in the second quarter of 2020, adjusted for seasonal variations. Uncertainty regarding demand for the coming quarters remains considerable.
Market outlook from the interim report published on April 23, 2020 relating to the second quarter of 2020
Demand is expected to be significantly lower than in the first quarter of 2020, adjusted for seasonal variations.