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Edited Transcript of TREL B.ST earnings conference call or presentation 18-Jul-19 1:00pm GMT

Q2 2019 Trelleborg AB Earnings Call

Trelleborg Jul 23, 2019 (Thomson StreetEvents) -- Edited Transcript of Trelleborg AB earnings conference call or presentation Thursday, July 18, 2019 at 1:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Peter Nilsson

Trelleborg AB (publ) - CEO, President, Business Area President of Trelleborg Offshore & Construction and Director

* Ulf Berghult

Trelleborg AB (publ) - CFO

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Conference Call Participants

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* Douglas Lindahl

Kepler Cheuvreux, Research Division - Analyst

* Erik Pettersson-Golrang

SEB, Research Division - Head of Research for Sweden

* Erik Paulsson

Pareto Securities, Research Division - Analyst

* Hampus Engellau

Handelsbanken Capital Markets AB, Research Division - Automotive Analyst

* Johan Sjöberg

Danske Bank Markets Equity Research - Analyst

* Klas Henrik Bergelind

Citigroup Inc, Research Division - Director

* Olof Cederholm

ABG Sundal Collier Holding ASA, Research Division - Analyst

* Robert John Davies

Morgan Stanley, Research Division - Equity Analyst

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Presentation

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Operator [1]

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Ladies and gentlemen, welcome to Trelleborg Q2 2019 Call. Today, I'm pleased to present Peter Nilsson, CEO; and Ulf Berghult, CFO. (Operator Instructions) Speakers, please begin.

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Peter Nilsson, Trelleborg AB (publ) - CEO, President, Business Area President of Trelleborg Offshore & Construction and Director [2]

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Thank you. Welcome to all of you to this Q2 update call for Trelleborg. Speaking is Peter Nilsson, and I will be starting off this presentation we usually do when presenting it and presenting our quarterly results and give you some update highlights from the group and also walk you through the business areas. And then Ulf Berghult, our CFO, also, as usual, will guide you through the financial. And then jointly, we will sum up with some -- with the guidance for the running quarter and of course also be available for any potential follow-up call.

So in the call, we're going to refer to the presentation, which has been on our web page for a few hours. So I trust all of you have this in front of you.

So starting then turning to Page 2. Agenda; highlights, then business areas, financials and then summary and Q3 and then finishing off with a Q&A.

Quickly turning then to Page 3. We have heading here, overall a solid quarter. We have development in most areas in line with our expectations with a few exceptions that I will touch upon. Starting sales up by 7% as a flattish organic and then, of course, we have a structural benefit of some acquired units. And then currency, also as we have seen for the last few quarters, also pushing up sales a little bit, excluding project deliveries. As you know, we give 2 organic sales figure here on the total. Flattish, but excluding the project deliveries, which is varying a little bit more in between the quarter and also fluctuating a little bit more along time with organic sales actually decreased with 1%.

And looking into the individual markets, positive aerospace, steel, in general, continuing very well. As you know, we've also been investing the last 2 years actually into medical device and that part of the business is also, although not the biggest part of Trelleborg, but developing nicely for us. And we also see in the more kind of project-related areas, oil and gas and infrastructure construction that they're not picking up. To comment later, also we expect them to pick even more -- pick up even more, going forward. But also in this quarter, we see benefits from this pick up in this more, as you say, more late cyclical industries on the negative side. We're well-known, I guess, in the world of the automotive being pushed down. And we also have agriculturally, the challenging in the quarter, especially then on the very late part of the quarter, comment a little bit more on that later on.

General industrials, a slight downwards, but nothing, no drama in general industrial demand for us. But nevertheless, small -- once again, a small turn downwards.

Looking at geographies, will they get back? In the highlight, you can see America, both North and South America developing favorably, while we see a slight downturn in Europe and Asia, get back a little bit more detail on that.

Looking then at the EBIT. EBIT ending up without extraordinary items, ending up at SEK 1.3 billion, corresponding then to a margin of 14.1%, which is actually, again, the best-ever EBIT for us in Swedish kronas reported here. And we now have 25 quarters in a row where we're growing EBIT into Swedish kronas. And then in terms of margin, this is actually the third-best quarter for us historically, when we look solely at the margin. Of course, we are well aware that this EBIT is assisted by currency movement and also partly with this IFRS 16. So in total, of course, those comparable figures is not as good as last year, but nevertheless, looking at actual reported figures, this the best-ever EBIT Trelleborg has had in an individual quarter.

But as I also hinted and we see that some of the areas is going down, some of the markets -- some of our market segments going down. So we have by the end of the quarter when this was more clear for us initiated quickly, call it, an action program where we're addressing the core space and then mainly through headcount reduction, but also some efficiency measures by moving manufacturing from one area to another. And this is then -- also we'll touch on that later, which is then adding another SEK 250 million in nonrecurring course for us in the quarter. And this equates to some 700 permanent employees who will leave Trelleborg. And on top of that, of course, we will also have some downsizing on temporary and contracted workers. In total, we believe this towards the shy of 1,000 employees that will be leaving the group in relation to those actions, which is already initiated by the way but will continue throughout the year and also partly going into next year. But Ulf will touch a little bit on that later. We have to note as well, I mean, the -- this is more of a program, we call it, cost avoidance program because this is addressing a downturn. So even though we're lowering the running cost by this extra SEK 250 million by roughly the same figure -- by SEK 250 million on an annual run rate. But once again, I mean, this is not really expected to improve the earnings more kind of avoiding drop in the earnings part. Then, of course, with that said and done, if the development is slightly better, then, of course, there will be some savings coming to this. And we also, of course, doing this to create the better setup. So when and if the demand start to turn up, then, of course we'll move into more efficient structure. So that's something about that.

So it means in the quarter, we reported items affecting comparability of a little bit north of SEK 100 million, and Ulf will get that more to guide you for the future on that.

Cash flow, roughly equal as last year, little bit more than SEK 1 billion, slightly disappointing, we could say, or slightly lower than we anticipated. Basically, at the end of the quarter, due to this downturn in sales in a few areas, we have slight -- a little bit high on working capital in a few areas, not in major. So if you look at the cash conversion, which is slightly lower than last year, then we also know the majority of that is actually coming from CapEx, even though, once again, that we also have some working capital related to, let's say, this anticipated, not really fully anticipated downturn in June in some areas, which can push up the inventory, but also we say more on the other part of this weighing scale and of course this also means that the accounts payable is slightly lower so the total impact there is not major. But once again, we were aiming for a little bit higher cash conversion in the quarter.

So this is really the overall topic that we want to address and call as highlights.

So quickly turning then over, once again, on organic sales, on Page 4. I commented on this a little bit. Western Europe and other Europe down. I mean you clearly can see that this is worse than last year in those areas, while North and South America still holding up on a positive territory. And to comment on that, in North America, for instance, both Canada and U.S. doing good, and South and other Americas is mainly -- the main economy is down here in Mexico and Brazil, which is providing the uptick here, while in Western Europe is a mixed picture. Germany, Sweden, basically flattish, and we're losing a little bit very mainly U.K., Italy, Spain. But it's not really any major differences. Other Europe, of course, is the big economies here, which is then pushing down a little bit like in Czech Republic and Poland for us, which is a little bit negative. Asia and other markets, slightly negative as well, minus 3%. There's also kind of a mixed picture. China is down for us, while India and Japan is up. But China is a bigger economy than, of course, with overall pushing down the organic sales in the quarter. So this is really the comment. And as a totality, we already said, is minus 1% compared to 4% plus a year ago. So of course, this is downgauging on the overall sales development.

Then turning to Page 5. Agenda, business areas. Quickly turning to Page 6. Commenting on Trelleborg Coated Systems. Headline being growing with improved profitability. Good organic development here coming from several areas but highlighted by aerospace being good. In fact, I should highlight one area here, but also good efforts among the other areas. And on top of that also we're having structured growth coming from the acquisitions done during the last 12 months. So it's a good growth. In total, good drop too as well for this extra sales, which is then pushing up the margin by 1.6 percentage points. So both EBIT and margin is up. And we're seeing improved productivity, which is basically coming from higher volumes. But also, slightly also sales mix with the growing in more profitable areas than the -- than we had the mix -- overall sales mix is slightly better than we had a year ago. But overall, a good development within coated, and we're happy for that.

Turning to Page 7, Industrial Solutions. We say organic growth, but muted profitability and good organic sales. We say oil and gas favorable. I mean quite strong growth in the small -- relatively small part of Industrial Solutions growth, oil and gas has very strong growth there. General industry basically flat here. If you look at that, while we also have the automotive sales, which is then some 15% of the business here, which is declining. But overall, as you see, a good organic sales. And also, relatively good development in all geographical areas. Continue -- as told before, we continue and expect that to continue to hit that for a few quarters that we will have this inefficiency in Czech Republic, which is creating, we're working on many different levels here to improve it. I mean we're investing in order to get a better, say, overall efficiency in the plant. Also, working on the customer mix a little bit, being some aggressive on pricing in a few areas where we don't really believe in it long-term and that's of course also then addressing the cost base here. And as part of this overall program that we're initiating now that will be also -- will be impacting this -- these operations in Czech Republic. We also note this acquisition that done in the quarter here or post actually, that was concluded off at the ending of the quarter Signum and I -- you have to comment on that because we had some questions on that, that is not really related at all to LNG or oil extraction that is more, we say, a major business areas we call LNG transfer, which we see as the quickly growing activity, which is basically supporting this development that we see in many markets around the world, where you want to replace other fuels with LNG. So this is really riding on the wave of investments being done in LNG ports, which is both export ports and import ports. So this is a very interesting add-on for us, which is then enhancing our offering and making a more complete offering for this, also called LNG transfer segment. And also, not only kind of OE equipment, but this is also -- a major part of this is also through after-market because this product is seen a safety-critical and in many cases require, let's say, regular service and then also replacement. So this is something, which we expect going to bring benefits for us both in terms of ongoing fairly nice operations, but also creating opportunities for good synergies, especially that are related to our Fluid Handling business of Industrial Solutions.

Moving over then to Page 8. Trelleborg Offshore & Construction, heading being a step towards profitability. We see now organic sales is turning positive. We see good organic growth in both oil and gas and infrastructure segments. Then this is driving some EBIT and margin improvements. And also, we continue to have a growing order book. And we actually kind of have a turning point here, where we are getting relatively okay with overall order book, and we are now turning focus from actually -- from pure volume and also looking at the margin here. But of course, we know that an early uptick that we're going to see here in the next few quarters is not going to be with the best product and not with the best profitability, but that will improve over time. And we now feel very confident. You can say, that we will see a significant organic growth in the second part of the year. And we will also see positive results, at least in Q4. Significant, I mean, we also expect some questions on that and talked about 2-digit organic growth here. But it's also a little bit tricky to give a very, very clear guidance on that since we know this is crowded business and we know there is slippage in between quarter sometimes. But overall, we know the order book we have and we know that we're going to grow substantially or significantly over the next few quarters here in sales and that's going to also then role over to a better EBIT. So that is really the story on Offshore & Construction at the moment.

Turning then to Page 9, Trelleborg Sealing Solutions. Headline being mixed market development. We have a flattish organic sales here, and we are benefiting from structural growth from acquisitions made. North America continuing positive overall. Europe and Asia slightly softer without really any major things happening, but there is better sales growth in -- better sales development in North America, a little bit worse in Europe and Asia. General industry, as I already commented before, slightly weaker. Of course, we cannot have, while having automotive down and aerospace still strongly up. Of course, outer down, we know that's going to impact machine tools and fluid power and all of that indirectly, so of course, this is a little bit to be expected. The tricky thing here is really to fully understand how much of inventory reduction is ongoing here and how much is actually down-the-line demand. We know that the automotive is good in high single digits, but we don't know exactly the impact on inventory on the other areas, so that is something we're watching carefully. And of course, there's a weekly or at least monthly development that we are targeting here.

EBIT did increase, but coming from mainly or only from acquisitions. And as you probably know from before, the acquisition made is usually coming in with the lower margin at overall EBIT and we need to work with it in order to get it up to draw our margin levels. The margin is somewhat kind of depressed by this, but major factor is actually coming mainly from this down -- volumes down in some of outdoor-related plants, somewhat Sealing Solutions where we're downgrading the speed and thereby have a little bit lower contributions and lower cost absorption in this plant, which is then hitting us a little bit in this quarter. But of course, long term, this is the way we would like it to be. But overall, good performance in Sealing Solutions. So we're happy with overall development of the business areas, even though we have, yes, 1.4 percentage point down on the margin in the quarter.

Turning to Page 10 and Trelleborg Wheel Systems. Heading here, weak aftermarket results in margin drop. We have organic sales negative 5%, but still with some -- supported with some structural growth. We see positive agri sales in North America. For those of you following us for some time know that we are kind of an entrant into North America and we are still continuing to benefit on that one, even though the market might not be very, very good in North America either. And we see a softer development in Europe and a little bit softer development in Asia. And continue to see overall a positive organic sales for OE in both agri and also actually now also material handling and construction as we are building up that product range. And this, of course -- we feel firmly that we're growing our market share in those segments, which is perfectly in line with our target, and this is an area that we would like to sell. We would like to get into OE and then create a full effect in the aftermarket at a later stage in order to get a little bit better pricing in the aftermarket. And of course, I must say, it's surprise for us in the quarter, significantly decline in the aftermarket for both segments. By the end of the quarter, it's a little bit tricky to be perfectly honest with you to understand why this happened. I mean we know that it is kind of trade conflict going on and we also see that this is being relatively good sales of OE for several quarters now, and we see this as a correction in the market. And we don't see any kind of difference in the overall long-term prospects of this area. But short term, then this is cost creating a negative mix effect for us, but we have, let's say, a better gross profit on the aftermarket than we have on the OE. Even though sales cost is also dramatically different, so we still kind of confirm that overall EBIT margin on the business does not vary that much between OE sales and aftermarket sales because when we have big swings in a quarter and then, of course, it is dropped to on the marginal sales is great in challenges. And of course also -- we have also this down, also to watch the inventories and stuff like that, it's also having, let's say, effect for us in the quarter. But with this what we noted, of course, we will immediately address the cost base, and we all know already implementing some cost-reduction measures in the area in order to address this, both the change mix, but also we must not neglect either or not talk too much about sales mix because also we know there is organic sales drop of 5%, which will require some changes in a few areas in order to approach this somewhat lower volumes. So this is kind of the story on Wheel Systems.

So leaving that for time being at least. And then turning out to financials and turn over to Ulf then quickly from Page 11, turning to Page 12.

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Ulf Berghult, Trelleborg AB (publ) - CFO [3]

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Okay. Thank you, Peter. On my first slide, Page 12, sales development. You can see that organic growth in the quarter was flat, and excluding project-related business, the organic growth decreased with 1% coming from Wheel Systems, while all other business areas reported positive organic growth. The impact from currency was plus 4%, structural growth was 3%, coming mainly from acquisitions in Coated Systems and Sealing Solutions.

Next slide, Page 13, describes the historical performance of our growth. And see, we have had year-on-year sales growth for the last 13 quarters.

On Slide 14, you will find the reported sales development of the quarter as well as rolling 12 months, which is mostly impacted by structural growth.

Slide 15 presents our EBIT development. Our EBIT reached SEK 1.321 million equivalent to an increase of 2%. The EBIT was positively impacted from currency translation of SEK 32 million and from new accounting rules IFRS 16 leasing of SEK 20 million in the quarter. EBIT margin, excluding items affecting comparability ended up at 14.1% versus previous year of 14.7%.

Slide 16 presents EBIT and margin on a rolling-12-month basis. Stable EBIT margin looking back in time and an absolute EBIT improvement every quarter for more than 6 years running.

On a rolling-12-months basis, we are currently at 13.3% EBIT margin.

The next Slide 17, presents the profit and loss statement for the total group. Items affecting comparability was minus SEK 118 million in the quarter related to restructuring cost. Due to softening demand in certain segments, we are proactively addressing the cost base, mainly through headcount reduction and move productivities to more efficient setups. In total, about 700 employees will leave the group. 2019 guidance on restructuring cost will be around SEK 500 million, an increase by SEK 250 million from our previous guidance.

Financial net has impacted by a negative exchange rate difference of SEK 14 million and effects from interest expenses on lease recognized in accordance with IFRS 16 of SEK 20 million. The tax rate was 26% in the quarter. Our guidance of an underlying tax rate of 26% for the full year still stands.

Slide 18 presents earnings per share adjusted for comparability items, these earnings per share was down by 1% to SEK 3.36 for continuing operations compared with previous year.

Slide 19 describes the development of our operating cash flow. EBITDA has been impacted by IFRS 16 with plus SEK 100 million. And as you can see, we have amortized SEK 100 million on the leasing debt. The operating cash flow was impacted by higher seasonal working capital. The CapEx is in line with our annual guidance of SEK 1.8 billion to SEK 2 billion.

Slide 20 presents rolling 12 months operating cash flow. Our cash conversion is impacted by increased CapEx activity and by higher working capital movements in some business areas.

Slide 21 shows the impact of IFRS 16. Opening balance has been impacted by the reclassification of the pension debt from working capital. We have restated the historical balance sheet numbers on this change. Closing balance has been impacted by IFRS 16 leasing debt of SEK 2.4 billion.

Slide 22 shows the year-on-year development on leverage on continued operations, including or excluding comparability items. Net debt is impacted by negative translation difference of SEK 296 million and by acquisition activity of SEK 1.1 billion in 2019.

Slide 23 shows the leverage and net gearing, excluding lease and pension liability development since 2011.

Slide 24 describes the return on equity where the long-term target is 12% on continuous operations, including items affecting comparability. Our actual outcome is 10% versus 9.8% a year ago.

And then finally, on Slide 25, I want to finish off this part of the presentation by repeating our financial guidelines for the full year 2019. As you can see, the restructuring cost guidance has been revised as I mentioned earlier. So the CapEx -- the guidance on CapEx is SEK 1.8 billion to SEK 2 billion. The restructuring cost is SEK 500 million than the -- early guidance was SEK 250 million. And then underlying tax rate is 26%.

So thank you, and then over to Peter.

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Peter Nilsson, Trelleborg AB (publ) - CEO, President, Business Area President of Trelleborg Offshore & Construction and Director [4]

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Thank you. Quickly turning to Page 27 then. Sales up in the quarter by 7%; 3% structural, 4% currency basically. Organic sales flattish in the quarter.

EBIT at SEK 1.321 million, which is the highest ever for Trelleborg, but then equal to margin of 14.1% supported, of course, with currency and also with some accounting. But nevertheless, the highest EBIT ever in individual quarter for Trelleborg. And as Ulf also stated before, more than 6 years of every single quarter with increasing EBIT on a rolling-12 basis.

In the quarter, let's say, to address expected downturn in certain segments. We are expanding our action programs, and then basically, yes, cutting down cost in the areas where we don't expect to it be better short-term and that's just called mainly to downsizing of our employees. So some 700 permanent employees will leave the group as a consequence of those actions, which are then going to be kicking in, in the next few quarters step-by-step.

Items affecting comparison in the quarter SEK 118 million. And as Ulf also guided up earlier, we guide now for SEK 500 million for full year. Cash flow equal to last year, but then impacted on a little bit lower by higher CapEx, but also as I commented before somewhat higher working capital in a few areas. So this is really short version of Q2 2019 for Trelleborg.

Turning to Page 28. Priorities, of course, we continue to focus on growing the business and making sure that we run it in the best possible way. We have some -- as we see it, some more volatility to be expected among the market geographies going forward. So we will address this a little bit more. Already -- as you noted, of course, we are addressing it already, but of course, we will manage it and make sure we do it in a best possible way. We're going to continue to work with our portfolio, making sure that we long-term get the leading position we want.

Also, as usual, high attention to operational excellence in Trelleborg and continuous focus on making sure that our footprint is the best one for the future. Also continue to invest in innovation, and we still have plenty of activities ongoing in Trelleborg, what we call, improved customer integration with a lot of that linked to smart use of new technology, not least all that digital solutions that we continue to integrate into the business and we continue to see benefits from. And we continue also to make acquisitions, of course, as always high in the agenda then to make sure that those acquisitions are integrated in the best possible way.

Turning to Page 29, give you some guidance and outlook for the running quarter. We expect, let's say, the demand in this running quarter to be basically on par with the development we saw in the last quarter in Q2, but there will be some mix changes in this and that is -- was the highlight in our comments and say that we expect the Offshore & Construction area to grow a little bit more than the others and thereby, also creating a slight negative margin mix for us going forward. But nevertheless, of course, positive that we finally see this Offshore & Construction that had a growth in order book kicking into sales and that is, I mean, the first time we're going to see it really in the figures, of course, with the expectation in Q3. And then, once again, as we expect the uncertainty on the other areas going forward as well. So this is really the outlook as we see it today.

So then going back to agenda, Q&A. And then turning over to Page 31 and opening it up for the Q&A. So please -- operator, please introduce the questions and Ulf, myself, we'll address those questions in the best possible way.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question is from Hampus Engellau from Handelsbanken.

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Hampus Engellau, Handelsbanken Capital Markets AB, Research Division - Automotive Analyst [2]

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I have 3 questions, if I may. Starting off on autos relating to sealing and industrial. If I remember correctly, you have a quite big exposure to after-market and your volumes have been rather stable compared to what we've seen previously quarters in terms of production cuts by [the old trend]. Well, [we haven't] -- maybe talk a little bit about what possibly changed now and you're now seeing negative organic growth there? Second question is on the volatile demand that you highlighted during the quarter in April, May and what happened in June. Would it be possible to maybe have some flavors on geographies and end markets where there was the biggest volatility? And then maybe last, but certainly not least, where you expect to see full run rate on the executed program on the savings, SEK 250 million?

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Peter Nilsson, Trelleborg AB (publ) - CEO, President, Business Area President of Trelleborg Offshore & Construction and Director [3]

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No, not a doubt. I mean it's correct, like you say, that we have the feeling we have a business, which is after-market-oriented and not really pushed by the underlying demand. But it is short-term impacted by this and we have had an impact also on the aftermarket business in this quarter. We expect also to say that, that this auto going down in this quarter actually higher, going down with higher numbers than the underlying demand because it's the area of sales. I mean when this is happening, when there is a shift in demand and of course there is a high inventory focus as well. So it has been kind of hitting us all over in the automotive business, as I say, you will have a minimum but not really any major differences, even on the aftermarket, it's has going down. We believe as a guess on this bad, let's say, more worse feeling in the market, which has also pushed some of the aftermarket player being a little bit more careful. So -- but once again, coming to that, it's not really the way it should be. So we expect it to be slightly better actually going forward if I'm being very blunt. But it's really difficult to get a full view of that and the transparency is not very good on some of our customers in this aspect data. So this is something we need to stay very close to and we need to kind of adjust as quickly as we can, which we all would have been doing, which I -- we highlighted before talking about TSS, where we already as kind of addressing and bringing down the production volumes in a few factories.

About the volatility in demand, it's really difficult honestly, even though we have all the figures, we have everything, but there is a variation. But if I should highlight the variation -- the biggest variation has probably been for us in the agricultural sector and also in certain kind of industrial segment. But it's not -- it's kind of difficult to draw the fair conclusion on a trend in this. We want to highlight there was more volatility throughout the quarter without really being able to highlight any specific takeaways from this, to be honest. But the only thing that we see at the end of the quarter was a dramatic downturn in the agricultural sector that is probably what we can highlight. But otherwise, it's difficult to pinpoint anything other being specific.

And then on the savings -- sorry...

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Hampus Engellau, Handelsbanken Capital Markets AB, Research Division - Automotive Analyst [4]

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No, I was -- just shouldn't you be more favorable in Wheel Systems, given that you have a higher OE exposure compared to the market?

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Peter Nilsson, Trelleborg AB (publ) - CEO, President, Business Area President of Trelleborg Offshore & Construction and Director [5]

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We are. We are probably better than others. But even though, we are better than others because we don't know there will be some industry statistics. But we have seen them, but we cannot really use them at the moment because they're not really made official yet. So this [ECRMI], which is this industrial organization that will release our figures. But I can say that you will see there is really a big figure -- big swing in aftermarket, bigger than we expected and bigger honestly than what we saw also in our sales in at least in the beginning of the quarter. So there will be -- so even though we're doing better than the others for sure, but still having a major impact also for us.

And then on the savings that we try we call it on a -- cost avoidance...

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Ulf Berghult, Trelleborg AB (publ) - CFO [6]

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Yes, because it's cost of restructuring. It's the cost avoidance in order to kind of mitigate the decline in markets as we indicated.

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Peter Nilsson, Trelleborg AB (publ) - CEO, President, Business Area President of Trelleborg Offshore & Construction and Director [7]

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But of course, it is a cost down of roughly equal to the -- to this SEK 250 million is really also the cost down, if we were kind of selling the same, which will be difficult without these people, but even if we're selling the same that will, let's say, return roughly the same SEK 250 million as an extra, call it, savings, but we prefer to call it the cost avoidance.

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Operator [8]

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And the next question is from Erik Golrang from SEB.

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Erik Pettersson-Golrang, SEB, Research Division - Head of Research for Sweden [9]

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I have 3 questions. The first one is a follow-up on the savings program you mentioned. So the 700 people, SEK 250 million in savings from that. Is that from the incremental increase from SEK 250 million to SEK 500 million in restructuring?

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Peter Nilsson, Trelleborg AB (publ) - CEO, President, Business Area President of Trelleborg Offshore & Construction and Director [10]

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Yes.

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Erik Pettersson-Golrang, SEB, Research Division - Head of Research for Sweden [11]

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Then the second question is, if you can remind us of the aerospace business in sealing, how much of that goes to Boeing specifically? And to the extent that you've experienced these options to -- on Boeings, on that business related to the 737 Max please?

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Peter Nilsson, Trelleborg AB (publ) - CEO, President, Business Area President of Trelleborg Offshore & Construction and Director [12]

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We don't want to really tell how much goes to Boeing and Airbus, but what we can say we had a very limited impact, surprisingly limited impact from this 737 Max. I don't really know, but they are still producing 737s and putting them somewhere, so we have not really seen any downturn in deliveries.

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Erik Pettersson-Golrang, SEB, Research Division - Head of Research for Sweden [13]

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Okay. Then last question on pricing in Wheel Systems. I assume it's still fair to say that you're not fully covering the raw material cost, and if that's the case, could you, in any way, quantify that? And as a follow-up, what are your plans there on pricing for the second half, realizing that demand is weak, of course?

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Peter Nilsson, Trelleborg AB (publ) - CEO, President, Business Area President of Trelleborg Offshore & Construction and Director [14]

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We have increased pricing and the run rate is that we are now balancing ourselves on that front. We don't see a need for kind of further price increases. But there is some, of course, with these import duties and stuff like that where we need to work. And so there we might have a gap of some, yes, EUR 2 million or something that we will have to cover either by resourcing or by price increases. So that is something, which is currently addressed. But in terms of raw materials, we are relatively -- I mean we are, let say, covered, and we don't really expect any upturn going forward. I mean now with the latest industrial trends, even though we don't see it, but it could be, that we're turning more to a more kind of short-term of these supportive raw material trend. But that is a little bit too early to say and we're not seeing it really in Q3, but we're of course watching carefully now on the price in Q4, whether there will be any hints of lower raw material prices. So that is why I don't see a need there to increase the pricing at the moment with the exception on specific hires where we are not -- we are hit by the import duties, but on that front also our competitors are hit by import duties. And that is more that you need to run out the inventories and then you have new imports and then the new imports with the hit. So -- and I think we have lower inventories in that one. So we have had a loss. We estimated to be very -- we estimated in the quarter to have a negative of some EUR 2 million coming from not fully compensated input duties in Wheel Systems. It's not big -- and that one is not really big, big figures in the way. And that is something we're rolling into better coverage going forward.

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Operator [15]

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And our next question is from Klas Bergelind from Citi.

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Klas Henrik Bergelind, Citigroup Inc, Research Division - Director [16]

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Yes. It's Klas from Citi. First on printing blankets, you're talking about consolidation of the footprint, some factors there. I guess that's part of the increase in restructuring of SEK 500 million, if that's correct?

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Peter Nilsson, Trelleborg AB (publ) - CEO, President, Business Area President of Trelleborg Offshore & Construction and Director [17]

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It was -- that was earlier in the plan. So that was the original restructuring. So that is something to be -- a decision we made already more than a year ago. So that is a part of the long-term plan, so it's not really an immediate action.

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Klas Henrik Bergelind, Citigroup Inc, Research Division - Director [18]

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And then on the SEK 250 million then, so you obviously say that it's cost avoidance, it's obviously a defensive move, which is absolutely fine. But where do you see the need to do this then to keep the margin steady? Is this more geared to Wheel Systems then or any other...

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Peter Nilsson, Trelleborg AB (publ) - CEO, President, Business Area President of Trelleborg Offshore & Construction and Director [19]

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The majority of this is Wheel Systems and then parts of Industrial Solutions, yes.

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Klas Henrik Bergelind, Citigroup Inc, Research Division - Director [20]

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Okay. Good. And then thinking a little bit about Sealing Solutions and through the quarter and particularly thinking about Asia, we had the working day impact. But would be interesting on an underlying basis to hear about how volumes in June developed relative to the other, and I'm thinking year-over-year, and how July has developed the first 2 weeks. If you have any, can you give us any information on that.

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Peter Nilsson, Trelleborg AB (publ) - CEO, President, Business Area President of Trelleborg Offshore & Construction and Director [21]

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Of course we have the information. It's only a matter of question of whether I want to tell you about it. So -- but if I say industrial, let's say, in Sealing Solutions, it's not been varying that much across the different months, at least not in terms of sales. Then, of course, order intake has been varying a little bit. But that is also related a little bit -- because sealing, as I just explained, is the wrong word. But to elaborate a little bit on that, sealing is of course selling quite a lot into assembly of the various kind of industrial customers. And we know they're coming up. And the biggest market for us in Europe and that is coming up to their summer breaks and all their planning for that. So we expect -- there was a downturn in sales for Sealing Solutions in June, but that we believe was also quite a lot leading to inventory planning among our customers. So of course, that was kind of expected. If you see a downturn -- a slow downturn in an industry, we expect, as I said, early stages of that downturn, we will have a bigger hit, and of course -- and especially then linked to the summer break. So I don't know exactly, I don't have all the facts at the moment, but I expect, if they are, let's say, expecting a little bit lower demand then, of course they will start to cut inventories and they'll start to have call-offs from us in June just before the summer breaks, we would be slightly lower. So that is something we will have difficult-ish really to get to a very firm conclusion at this stage. We are on our toes. We're watching it carefully, of course. But we have to wait for a few more weeks or a few more months really to get the full picture of that. Sorry for elaborating a little bit about it, but that is the way it has to be. As usual, we're very open about how we look at it.

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Klas Henrik Bergelind, Citigroup Inc, Research Division - Director [22]

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Yes. No, at least talking about June, we've heard from others as well. My final one is on ag and also elaborating a little bit, Peter, you said that obviously it's difficult to know why the aftermarket is weaker as well. But we had this aftermarket weakness already last year because of erratic weather. So the comp should be easy. And in Europe where we understand that the customers are driving sort of longer distances, the wear and tear should be more apparent. And obviously, tariffs is more an equipment question. So [often we see] that aftermarket is weaker in Europe.

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Peter Nilsson, Trelleborg AB (publ) - CEO, President, Business Area President of Trelleborg Offshore & Construction and Director [23]

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Yes. But we have had really little tough comps in Europe also. We have had a very good sales last year. And then not to overly, let's say, to make it very bigger, but of course, the comps get easier here going forward. It gets a little bit easier in Q3 and Q4. And of course, then we have the trade war situation, which is also difficult to really to read how much that is. And people probably are waiting, and they -- so of course, this could be -- I mean we expect there could be a boost if there is, let's say, a problem -- if this is getting solved one way or another, then of course there could be a positive boost. So we need to wait for -- also there, we need to wait because there's so dramatic change here within the quarter. So we need to wait a little bit before we get to a firm conclusion. And then commenting on July, July is very early, it's before, but we can it's not continuing down in the some pace at least. So it's not really a big drama here in the first 2 weeks of July. But then to do -- to get to conclusion only offer, let's say, the 10 trading days or whatever it is, is not really clever either. So we need to watch a little bit more and see what's happening here through the summer break and then let's say what is happening after the summer break in Europe before we can really get a more firmer view on the way forward. But we do see or we do believe in certain areas that, that is going to be less demand. And that is why we are attacking the cost base then. And of course, it's variable cost. So we are not really addressing any structural -- [as you see] it's more variable cost to take out people honestly.

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Klas Henrik Bergelind, Citigroup Inc, Research Division - Director [24]

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My very final on this and just to think about the margin impact. Obviously, aftermarket versus equipment, it's not the big difference per se. But when aftermarket is falling, you get this difference on the drop-through. Could you at all say how much you are off on the margin, so we just can think about what can happen when the aftermarket bounces?

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Ulf Berghult, Trelleborg AB (publ) - CFO [25]

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We don't really want to elaborate on that one because it is a little bit sensitive information for some of our own competitors and stuff like that. So sorry, no.

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Operator [26]

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Our next question is from Douglas Lindahl from Kepler Cheuvreux.

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Douglas Lindahl, Kepler Cheuvreux, Research Division - Analyst [27]

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Two from my side, firstly on the Signum acquisition. Correct me if I'm wrong, but did you comment on profitability levels for that business? I guess maybe not in absolute numbers, but at least in relations to group levels?

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Peter Nilsson, Trelleborg AB (publ) - CEO, President, Business Area President of Trelleborg Offshore & Construction and Director [28]

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Well in line. I mean so we -- of course, it's not going to drag down the margin.

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Douglas Lindahl, Kepler Cheuvreux, Research Division - Analyst [29]

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Okay. Appreciate it. And then moving forward on Coated Systems, which has been the business area, where we'll see quite a lot of volatility, I think organically at least, going back historically. Have we now reached sort of an inflection point? Do you have -- sort of what are your expectations going into the next quarter and maybe even longer for (inaudible)?

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Peter Nilsson, Trelleborg AB (publ) - CEO, President, Business Area President of Trelleborg Offshore & Construction and Director [30]

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It is because -- I mean this -- especially the coated fabrics part of this is little bit volatile because that is linked to more projects. So that's going to be a little bit up and down. I mean we are working for quite some time to get more stable, we invested in a few areas, which is more medical and health care related, all of that. But I think we, at least -- we are expecting this to continue to be volatile. And I don't really want to give a firm guidance on the next quarter, but it is going to be a little bit up and down going forward as well. So there's not really any -- you don't see this as a sustainable growth. They are more generally exposed to the overall industrial demand. And now in this quarter, I think, especially aerospace was very good. So that is, of course, something which we continue to have a good aerospace business, but not -- maybe not exactly on the level that we had in this individual quarter.

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Ulf Berghult, Trelleborg AB (publ) - CFO [31]

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You have to highlight -- you have to follow up on all Klas questions before just to elaborate on the margin on the Wheel Systems. I mean the underlying cost is well under control. We are very happy to be owners and talk about this integration on CGS. I mean we have a good development in transformation, we have a good development in selling expenses. So the margin drop here year-on-year is mix related and country related. And then we have also some for the -- this import duty. So it's not really any -- cost inflation is not an overall problem with the cost base, rather the opposite. We are actually developing nicely there. So the business overall within Wheel Systems is developing according to plan. And then we have this dramatic change in mix in the quarter, which was pushing down the margin.

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Operator [32]

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Our next question is from Johan Sjöberg from Danske Bank.

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Johan Sjöberg, Danske Bank Markets Equity Research - Analyst [33]

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I have -- continuing on that remark, which you just made, Peter, upon the Wheel Systems, a little bit to -- how to think about this. I mean we can look just at a few indicators, CMI indicators, and they show that May was pretty grim. I look at the organic growth in Wheel Systems, minus 5%. But would you say that the whole drop which we saw or these parameters showed us, have they already happened in Q2? Or is that their kind of a negative rollover effect taking place in Q3? Basically, what should we think about the organic growth in the third quarter? Yes, please.

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Peter Nilsson, Trelleborg AB (publ) - CEO, President, Business Area President of Trelleborg Offshore & Construction and Director [34]

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I'm sorry, Johan, you tell me a little bit. That is the problem. Because I mean, it's really tricky. And I mean we did not and I think none of us really anticipated this strong drop in [yield.] So this is something we are still watching, and we still believe that overall, I mean, the farmers are investing -- our wheel sales have been relatively good this year and continues. For us especially, we've been growing the market share. But also overall, I mean there are -- you probably can look at John Deere and (inaudible) and [Case Hi,] they're guiding for a relatively good market, even though maybe a little softer going forward than it has been, but they are not kind of guiding for any dramatic drop. So we have a little bit trouble to understand especially why there was this. And not only we, we of course looked around and we spoke to people, and there is speculation on saturation, all of that. But I mean it's really not difficult to find a firm ground for any conclusions. So that is why we're ending up in this trade war and general uncertainty and all of that. But honestly, that is our speculation and our conclusion, which is quite difficult. We're waiting for some industry statement, statistics and to really get to a better -- fully better understanding of this. But we need also to be aware that this development is only a few weeks old. So it's really was a dramatic turn here only in the last, let's say, 6 weeks. And that is something -- and it's not really continuing into July. So we need really to better understand this.

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Johan Sjöberg, Danske Bank Markets Equity Research - Analyst [35]

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So you're basically saying -- I mean looking at Q1 was plus 3%, then it went to minus 5%. Would you say that this was just the last 6 weeks, which -- in the quarter, which kind of made this big difference?

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Peter Nilsson, Trelleborg AB (publ) - CEO, President, Business Area President of Trelleborg Offshore & Construction and Director [36]

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Yes. Probably, we lost half of the month. And then also it was quite tough comp. Well, we need to be aware of that. It was quite good volumes Q2 last year, and it's getting slightly easier comps here going into Q3 and Q4.

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Johan Sjöberg, Danske Bank Markets Equity Research - Analyst [37]

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Yes, it was pretty tough comps in Q1 as well then, I guess.

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Peter Nilsson, Trelleborg AB (publ) - CEO, President, Business Area President of Trelleborg Offshore & Construction and Director [38]

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Yes. Yes. Yes. Correct.

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Johan Sjöberg, Danske Bank Markets Equity Research - Analyst [39]

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Yes. So -- but when I look at margins here, I mean, you -- it was down 200 basis points in, yes, both Q1 and Q2 here. And given your guidance and how do you think here, should -- is this margin drop we should continue to see this magnitude or should it pick up or what is -- please help us, yes.

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Peter Nilsson, Trelleborg AB (publ) - CEO, President, Business Area President of Trelleborg Offshore & Construction and Director [40]

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I mean we don't really want to give a guidance, sorry, because it's really in a bit tricky situation. The only thing we can watch is, of course, that we know our cost base is good, transformation cost is good, selling expense is good. So this is really on the contribution level and the mix between the various, let's say, channels and the various geographies. So it's not really -- it's tricky. Sorry, Johan, I mean I cannot really give you a better guidance here. I mean we need to watch on it and then we need to see what we can do when we get, let's say, some further into the quarter.

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Johan Sjöberg, Danske Bank Markets Equity Research - Analyst [41]

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Okay. My final question here, and this has to do with your overall quarter assessment. I mean the demand in line with Q3 versus Q2, but this (inaudible), just tell us a little bit about the directions here? I mean, what you are kind of highlighting to say that this is going to be somewhat negative upon earnings? I guess, what is (inaudible) with that just to see which (inaudible) you highlighted (inaudible).

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Peter Nilsson, Trelleborg AB (publ) - CEO, President, Business Area President of Trelleborg Offshore & Construction and Director [42]

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It's really the overall explanation. We believe offshore construction continues to grow more than it did in Q2. And then, of course -- I mean then -- and then you believe also there are some areas -- some other areas might seem to be guiding on the same, then of course some other areas will be slightly more challenging. So this is really what we want to guide for. So even though we guide for the flattish sales development, it will have a negative mix effect since more of the sales will be from offshore construction, even though offshore construction will of course improve, but it will not get, at least not in Q3, that will not get to the margins we have in other businesses.

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Johan Sjöberg, Danske Bank Markets Equity Research - Analyst [43]

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But what are you -- which are the soft spots here? I mean if you want to highlight those, that would be interesting because -- I mean we have a little bit -- I mean yesterday, we were -- you had the guidance on (inaudible) saying something else, and right now, I don't...

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Peter Nilsson, Trelleborg AB (publ) - CEO, President, Business Area President of Trelleborg Offshore & Construction and Director [44]

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Yes, expect the general industry to be slightly down. We expect automotive to continue down, maybe not as much as we saw in Q2. But we expect, let's say, softening in general industry to continue. I mean these are the big segments for us. And we expect still good rail, we still expect good aerospace, we expect kind of the improvement in oil and gas, continued improvement in oil and gas, continued improvement in infrastructure construction. That is really -- of course, we're looking at other guys' guidance as well. And we don't really see -- would see more and more (inaudible) softening in the general industry and maybe not a flattish demand, and that is probably the mix change. So -- I mean not exaggerating this, not to interpret this too big, but it's -- we expect a small softening in general industry that is then to be compensated by extra sales related to infrastructure construction and oil and gas. And that is, for us, driving a slight negative mix.

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Operator [45]

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And our next question is from Robert Davies from Morgan Stanley.

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Robert John Davies, Morgan Stanley, Research Division - Equity Analyst [46]

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My question is just really around the Offshore & Construction business now that the margins have already started to improve. And I guess a couple of things. One is, the outlook still for the fourth quarter to be positive. And sort of following on from that is, once that business returns to profitability, how do you think about those 2 segments in that business between the oil and gas and the infrastructure? Do you still see both parts as core? Is there any reason that you have to have both of those in the portfolio? I guess how do you think about that once that business returns to the black?

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Peter Nilsson, Trelleborg AB (publ) - CEO, President, Business Area President of Trelleborg Offshore & Construction and Director [47]

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Yes -- no. I mean we're always looking at our portfolio, of course. But at the moment, we don't see any kind of portfolio changes being addressed. We see, let's say, a strong uptick in both of them. And I mean if we should do anything, it will not be now at least, we will have to wait until it shows that it's getting better. And then with that said and done, they are not really combined. I mean they are independent businesses, and we have kind of developed it into more independent businesses. So we have one more oil and gas related activity and one more infrastructure related, where the infrastructure part is mainly marine construction, harbors and tunnels and some engineered products around that. So we don't really -- how should I say? We're watching as we watch with the rest of the group, of course, and we need to continue to see that this is improving and that we can do something better with it. And then that is we're still -- with both of these businesses, we still feel that we can improve them. And as long as we can improve them, then of course, we're going to maintain the development of them.

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Robert John Davies, Morgan Stanley, Research Division - Equity Analyst [48]

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And then maybe just as a follow-up on the comments you made on the outlook for ag. I think you called out Asia and Europe as being sort of the 2 weak spots. In terms of the magnitude they were down. Was there any material difference between the 2? Or were they -- are they down to the same extent?

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Peter Nilsson, Trelleborg AB (publ) - CEO, President, Business Area President of Trelleborg Offshore & Construction and Director [49]

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I think for us, I mean, Asia is small for us. Asia was down more. But we're also -- we're a market leader. We were quite quick in increasing pricing. And when you increase pricing, you are kind of immediately hit a little bit more in Asia. So Asia was down more than Europe. But of course, from -- important point of view for Trelleborg, that Asia in the Wheel Systems is fairly small. So the -- let's say, by far most important market is Europe.

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Operator [50]

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And our next question is from Olof Cederholm from ABG.

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Olof Cederholm, ABG Sundal Collier Holding ASA, Research Division - Analyst [51]

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It's Olof from ABG. Just one question on the cost avoidance program. Maybe I missed this. But is it possible to give some sense of the timing of these savings or the lower cost, how they will come into the numbers throughout the next 18 months?

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Peter Nilsson, Trelleborg AB (publ) - CEO, President, Business Area President of Trelleborg Offshore & Construction and Director [52]

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It's a -- we have announced it and there's a little bit of development on the union discussions and stuff. But the majority of it, I guess, you can say, the majority of it will kick in 2020, not really in 2019.

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Olof Cederholm, ABG Sundal Collier Holding ASA, Research Division - Analyst [53]

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Okay.

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Peter Nilsson, Trelleborg AB (publ) - CEO, President, Business Area President of Trelleborg Offshore & Construction and Director [54]

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Yes. But we will have -- it's not about the savings, we will have discussions...

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Ulf Berghult, Trelleborg AB (publ) - CFO [55]

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We will have impact already in 2019. So we will have impact -- so the course will be gradually taken in 2019. We will have some impact in '19 to avoid -- to meet the...

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Peter Nilsson, Trelleborg AB (publ) - CEO, President, Business Area President of Trelleborg Offshore & Construction and Director [56]

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Mitigate.

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Ulf Berghult, Trelleborg AB (publ) - CFO [57]

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Mitigate the decline, as we say. But then also it will run into next year.

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Peter Nilsson, Trelleborg AB (publ) - CEO, President, Business Area President of Trelleborg Offshore & Construction and Director [58]

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But we talk about quite high number on the certain plants, and then at the moment, we cannot really -- because that is linked to union discussions and stuff. But you know there's different regulations depending on how many people you're making redundant and all of that. So we can only -- in a few cases, it will be immediate effect because we need to respect the laws, we need to respect the union discussions in this because a big share of that -- this one is going to be in Europe. So that of course in Europe also is takes a little bit longer. In most geographies, at least in Europe, it's little bit -- takes a little bit longer to implement these kind of changes.

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Olof Cederholm, ABG Sundal Collier Holding ASA, Research Division - Analyst [59]

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Makes sense. Then with the situation in Industrial Solutions through the -- another plant in Czech Republic and so forth, I guess, you will sort this out partially through this program. But overall, could you quantify how much this cost you in Q2 and how long do you think it will take until it's resolved completely?

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Peter Nilsson, Trelleborg AB (publ) - CEO, President, Business Area President of Trelleborg Offshore & Construction and Director [60]

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We're talking about the individual millions of euros, but I mean, it's not really in the lower end of that range, of course. So that is there, but it's kind of -- we have our ambitions, but of course, it shouldn't be a drag on the profitability of Industrial Solutions, which it is at the moment. So -- but I don't really -- I mean we're working hard and it has not been fully as expected in all aspects. And now we're working on more addressing it. In the next level, we have been investing. We have now also more firmer view on some portfolio changes there. And now we're addressing the cost base by cost downs. So that is something which we are addressing, let's say, weekly. And then I don't really -- sorry, I don't really want to give you a much -- sorry for being -- but I don't really want to give you -- because we are working hard on it and we're doing our best, but -- I mean it will be difficult to give you a very firm guidance, which we actually feel very confident about.

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Olof Cederholm, ABG Sundal Collier Holding ASA, Research Division - Analyst [61]

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Makes sense. Lastly, with the sort of global uncertainty, et cetera, it's early days in terms of lower M&A prices. But what are the areas that you're right now looking mostly into? And have you seen signs of sort of sellers wanting to accept slightly lower prices?

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Ulf Berghult, Trelleborg AB (publ) - CFO [62]

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We don't see that. I mean we don't see pricing going down, and that's why we all need to be careful. And I mean the M&As we're looking at the moment is more highly synergistic ones. So -- I mean the ones, which is more kind of stand-alone, which is very rare that we make an acquisition like that. But -- I mean those acquisitions is difficult. And I mean I should be honest to say, we've been in a few processes lately where we actually stepped down because we thought the valuations was too high. But with that said and done, we still have plenty of acquisitions, which is more synergistic, and we continue to work on those. But on the more stand-alone things, we still -- I mean especially still private equity seems to have plenty of money and they are kind of living in a different way of valuing companies than we do at the moment. I mean you're probably looking at that as well. It seems talking a little bit openly, that the valuations in the kind of the private market at the moment is substantially higher than it is in the public market.

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Operator [63]

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And our next question is from Erik Paulsson from Pareto Securities.

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Erik Paulsson, Pareto Securities, Research Division - Analyst [64]

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Yes. I was looking at the cash conversion here, which has basically decreased since beginning of 2017 from around 100% down to around 70% on a rolling 12-month basis. When do you expect this to turn upwards again? Or should we expect those levels going forward as well?

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Ulf Berghult, Trelleborg AB (publ) - CFO [65]

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Now we are -- going forward and we have taken some -- as we guided in on CapEx is SEK 1.8 billion to SEK 2 billion. We have an underlying base. Underlying base is about SEK 1 billion. And on top of that, we then allow strategic CapExs. We will run those through, so that will also have a slight glide-along impact into next year. But we are not committing or approving any new strategic CapExs. So we will be firm on CapExs. You will see CapExs going down gradually into '20 -- next year. And then on working capital also, the other element is then we have been in some areas -- in some business areas like, if you take offshore construction as then -- we are then -- even though we see improvements in the underlying performance from an EBIT point of view, that will also then consume some cash or consume more on the balance sheet. So that is something that we will need to live with. In other areas, we have more specific actions that we are dealing with because we have in -- on inventory. So you will hopefully see next year...

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Peter Nilsson, Trelleborg AB (publ) - CEO, President, Business Area President of Trelleborg Offshore & Construction and Director [66]

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In the next few quarters.

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Ulf Berghult, Trelleborg AB (publ) - CFO [67]

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In the next few quarters that we will improve our cash conversion.

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Peter Nilsson, Trelleborg AB (publ) - CEO, President, Business Area President of Trelleborg Offshore & Construction and Director [68]

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And that might be on the bad sign. The other flip side of the coin, if the economy goes down, then of course, working capital will also go down. So then we will have a better cash conversion coming from a lower demand. And of course, we don't want to have that, but that will happen as well.

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Ulf Berghult, Trelleborg AB (publ) - CFO [69]

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But again, also then where we're spending CapEx is those are where we like in Sealing Solutions or with the Wheel Systems done. So we are in the right areas. So -- but you will see it gradually improving.

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Operator [70]

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And as there are no further questions, I will hand over back to the speakers for any final comments.

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Peter Nilsson, Trelleborg AB (publ) - CEO, President, Business Area President of Trelleborg Offshore & Construction and Director [71]

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Thank you. And thanks for showing interest in Trelleborg. And as usual, Christofer is available for any follow-up calls. And of course, Ulf and myself will also -- no, we will actually not do any roadshow here, but I mean we will be more active in showing our faces in several conferences here after the summer break in Europe and then happy to catch up with you. And once again, Christofer is available as always, never on vacation. So please call him. He will be happy to take your calls. And for the rest of you, happy holidays eventually or happy vacation, whenever that comes up for you. Thanks, and take care. Thank you.

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Ulf Berghult, Trelleborg AB (publ) - CFO [72]

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Thank you.

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Operator [73]

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This now concludes our conference call. Thank you for attending. You may now disconnect your lines.