“During the second quarter, we achieved the highest sales, earnings and margin for the Group to date. Net sales increased year on year by 21 percent, with organic growth contributing 11 percent, positive exchange rate effects 8 percent and acquisitions 2 percent. EBIT, excluding items affecting comparability, increased 22 percent and the operating margin was 17.9 percent (17.0).
The development was better than expected, given the challenges we faced during the period. The prices of raw materials, energy and freight continued to rise sharply. In addition, we were negatively impacted by renewed lockdowns in China caused by Covid-19. Other constraints that we successfully managed included shortages of certain raw materials and disruptions in the supply chain. Operating cash flow was negatively impacted by generally higher working capital as a result of the increase in sales and intentionally higher inventory levels for the purpose of ensuring customer deliveries.
The earnings improvement was enabled by higher volumes in both business areas combined with cost control and strict price discipline. During the quarter, we successfully offset inflation with price adjustments to customers, efficiency improvements and strong operational implementation. We view this as confirmation of the effectiveness of our business model, which in combination with our favorable market positions means that Trelleborg is standing stronger than ever before.
We continued to report healthy demand for products and solutions of Trelleborg Industrial Solutions. The vast majority of market segments and geographic markets reported an upturn in demand, which was particularly notable in the North American market. The margin reached its highest level on record.
Organic sales for Trelleborg Sealing Solutions also performed well. Deliveries to general industry increased overall, despite a downturn in sales in Asia due to Covid lockdowns in China. Deliveries to the automotive industry declined somewhat, but nonetheless performed well in relation to the global market. The continued high level of sales to healthcare & medical and the aerospace industry was particularly satisfying.
Our tire business, reported under Assets held for sale, once again demonstrated strength despite difficult circumstances. The war in Ukraine, freight shortages and a drought in several countries presented tough challenges. Despite this, organic sales rose by more than 20 percent during the quarter. An increase in demand in all tire categories was noted in all geographic markets, particularly in North and South America, where the trend was especially robust.
Acquisitions continue to be an important part of our growth strategy, and we announced a smaller acquisition of a US company with a customer base in healthcare & medical. We will continue to build on our already strong market positions through acquisitions, but also in the form of focused organic initiatives in rapidly growing segments.
While our order book is very solid and remains at record levels, we can see a slight downturn in order intake compared with previous quarters. There are clear indications of increased uncertainty ahead of the second half of the year. Meanwhile, we are highly confident in our ability to address the fluctuations in the market. For the third quarter, our overall assessment is that demand will be slightly lower than in the second quarter of the year”, says Peter Nilsson, President and CEO.
Second quarter 2022 – continuing operations
Net sales during the quarter increased 21 percent, positively impacted by acquisitions and exchange rate effects, and amounted to SEK 7,351 M (6,079). Organic sales increased 11 percent compared with the preceding year.
EBIT, excluding items affecting comparability, increased 27 percent to SEK 1,319 M (1,036). The EBIT margin was 17.9 percent (17.0). Sales, EBIT and the margin were the highest to date for a quarter.
Operating cash flow amounted to SEK 798 M (864). The cash conversion ratio for the most recent 12-month period amounted to 69 percent (101).
Items affecting comparability for the quarter were a negative SEK 33 M (neg: 40) and pertained to restructuring costs.
EBIT, including items affecting comparability, amounted to SEK 1,286 M (996) for the quarter.
Earnings per share, excluding items affecting comparability, totaled SEK 3.63 (2.75). For the Group as a whole, including discontinuing operations, earnings per share were SEK 5.68 (3.65).
An agreement was signed in March 2022 to divest the business area Trelleborg Wheel Systems to Yokohama Rubber Company. It is reported as a discontinuing operation in the financial statements.
The key figures in this report relate to continuing operations, unless otherwise stated.
Market outlook for the third quarter of 2022
Demand is expected to be slightly lower than in the second quarter of 2022, adjusted for seasonal variations. The geopolitical situation entails a heightened degree of uncertainty. For further information, refer to page 11.
Market outlook from the interim report published on April 27, 2022, relating to the second quarter of 2022
Demand is expected to be on a par with the first quarter of 2022, adjusted for seasonal variations. However, the geopolitical situation that has arisen entails a heightened degree of uncertainty.