TRELLEBORG, Sweden—Trelleborg Group sales took a significant downturn in the first quarter of 2020, specifically in its Industrial Solutions and Wheel Systems segments, while thousands of its employees are working shorter hours during the coronavirus pandemic.
Trelleborg said March 31 that its workers worldwide have seen reduced hours, experienced layoffs or been furloughed due to temporary plant closures, caused by specific government responses or because Trelleborg customers have closed or reduced production at their manufacturing sites.
"There are thousands of people on shorter weeks. All of that is happening and has been for a few weeks now," Trelleborg President and CEO Peter Nillson said during a March 31 teleconference with investors. "In Sweden, we have actual figures at between 600 and 700 affected workers. This is a very active period for us. We are living in quite a volatile environment, and the view is changing daily."
The possibility of large numbers of workers being laid off still looms, Trelleborg said.
"Naturally, the risk depends on how long the current situation lasts. We have already temporarily laid off or given notice to some employees, and this will of course happen to more if the effects of the pandemic on society are lasting," Trelleborg said.
The safety of its workers remains the company's top priority, Trelleborg said.
"In most places we are well ahead of the requested measures to protect workers," Nillson said. "The well-being and safety of our employees are in focus, and comprehensive procedures and measures have been activated to prevent the spread of infection."
The $3.5 billion producer of polymer-engineered seals, dampening equipment and tires said demand was good at the beginning of the quarter, but sales dropped in the latter portion.
The company declined to offer specific numbers, and said it will not do so until the official first quarterly report is released April 23.
Specifically, Trelleborg Industrial Solutions, which focuses on polymer products for niche applications and infrastructure, was significantly impacted by lower sales—between 30 and 40 percent, according to Trelleborg—in the first quarter.
In addition to the pandemic, Industrial Solutions also was affected by strikes at production sites in Turkey and France in the fourth quarter of 2019, Nillson said. The strikes concluded after a few days but had a negative impact on sales and earnings, according to Trelleborg.
Its Wheel Systems segment, which makes tires for off-road vehicles, saw a drop in demand due to a "subdued" agricultural market, namely as OEMs of agricultural machinery closed production sites toward the end of the first quarter.
"We try to be transparent and open about the situation we are currently in," Nillson said. "But these are turbulent times and the situation is changing daily. We have been tracking, following and managing this on all levels, with all kinds of measures."
Trelleborg Sealing Solutions, the third of Trelleborg's three main operational segments, which focuses on polymer-based seals, has remained relatively unscathed thus far by the coronavirus chaos, according to Trelleborg.
Sealing Solutions did see declining demand toward the latter part of the first quarter, and in February the segment was hurt by plant closures in China. Production there has stabilized, however, Trelleborg said.
"Naturally, Trelleborg will be negatively affected by the spread of the pandemic in all of its geographical markets," a Trelleborg spokesperson said. "But it is impossible to try to quantify this economic impact."
Trelleborg said the overall group downturn was seen mainly in auto sales—up to 10 percent—with some in agriculture. Aerospace remains strong, as does the company's offshore operations in oil and gas.
"The books look good," Nillson said.
And despite the downturn expected in the first quarter, the company said its earnings trend and cash flow have been stable, and good liquidity gives it flexibility during this difficult and uncertain time. Most importantly, a "vast majority" of facilities continue to be up and running, Nillson said.
With an "intensified focus on working capital," the company has a strong financial base, with long-term confirmed financing in place.
"We have good liquidity and strategy in place," said Chief Financial Officer Ulf Berghult. "Long-term facilities will back up short-term facilities."
And the company said it will minimize non-critical investments for the time being, until it has a better outlook on earnings.
"We have good control of working capital, managing it quite good with accounts receivables," Nillson said. "We don't feel that we have excessive inventory. We are prepared to under-produce and we will adjust production with demand."
Nillson said the company's supply lines are relatively strong, with freight costs increasing in some cases and instances of disruption in Sri Lanka and Italy, "but nothing that is not solvable."
"A vast majority of factories are up and running," Nillson said. "With few exceptions, we've been able to supply customers. It's not about capacity, but rather about meeting customer demands.
"There have not really been any supply chain issues, and no incoming material issues. Freight expenses are rising, but there have been no missed deliveries due to obstacles with supply lines. We are looking for mutually acceptable solutions for customers."
Trelleborg has increased its trading in third-party products and maintains "a somewhat higher" proportion of temporary employees than during the financial crisis of 2008-09.
"We consider that all of this has created greater flexibility than was the case during 2008," Trelleborg said.
In addition, Trelleborg's applications in industries that are now considered "essential" during the pandemic have buoyed the company against a decline in auto sales, Trelleborg said.
"Trelleborg has significantly lower exposure to the automotive industry today, and at the same time we operate as a global player in several smaller niches," Trelleborg said in a March 31 statement.
Dividend offered April 23
Trelleborg will offer a dividend of 24 cents per share to shareholders April 23, according to Trelleborg, the same day the first quarter results are released.
The dividend is about half of what Trelleborg proposed in its first offer to shareholders, a result of exercising caution in a rapidly changing environment, Trelleborg said.
"The Board of Directors and group management have great understanding for the fact that some shareholders may be disappointed, but it has not escaped anyone that the current situation is unique. More will certainly appreciate that we are being cautious and waiting to see the future market development," Trelleborg said.
Trelleborg added that it will call an extraordinary general meeting later in the year to resolve a further dividend, if the market situation has stabilized and earnings have normalized.
"Uncertainty regarding the demand trend for the next quarter is considerable," Nillson said. "It is currently impossible to estimate the level of income loss or other direct and indirect effects on the business. Trelleborg has implemented measures and continues to initiate new measures to manage the unfolding events for all of the operations in all areas."