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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Ladies and gentlemen, welcome to the Dometic Q1 report 2019. Today I'm pleased to present Juan Vargues, President and CEO; Per-Arne Blomquist, CFO; and Johan Lundin, Head of Investor Relations and Communications. [Operator Instructions] Speakers, please begin.
Good morning, everybody. This is Juan Vargues speaking. First of all, welcome to sunny Stockholm today and the presentation of Dometic's interim report for the first quarter. If you would proceed immediately with a report, I have to say that the first quarter of 2019 we proved again how our diversification strategy, increased focus on operational performance together with our capacity reaction are creating a stronger company and helped us to perform very well in a very challenging environment, primarily influenced by the inventory build-up in the RV industry and the difficult comparatives that we have since last year.Looking at the growth side, total growth ended up at 7% excluding the RV OEM market. We also reached 1% organic growth when excluding the RV OEM and the Kampa acquisition. We continued to show strong development in Marine, both from an OEM perspective and aftermarket perspective. We are happy with the evolution in EMEA and we are especially happy as well with the performance of Kampa. It's always difficult for new companies with a lot of activities in the first months post acquisition, but we had very, very nice organic growth and profitability is developing in a good manner. During the quarter, the RV OEM side that everybody knows has been dropping, especially in the America market. For us it went down 14%. And having said that, we have to remember that we are comparing with a quarter where the RV OEM market for the entire company went up 13% one year ago, so once again, very, very difficult comparative numbers. What we are doing obviously in order to mitigate the situation in the RV is to work even harder in the Aftermarket organization. We are building up the CPV area, Retail & Lodging, and keep investing on the Marine side.When looking at the markets, in reality nothing has changed on the underlying needs. We see a good underlying demand. We see global lifestyle continues to develop in more and more markets, as well as demographics. But we also perceive obviously the weakness in the RV OEM market in Americas, but also during the last 6 months in the Pacific area.In terms of profitability, we are happy with our EBIT performance considering the circumstances. We have been driving efficiency improvements all over the world. We have also compensated partially the impact of the tariffs by pricing. And we were very fast in implementing our contingency plans as soon as we started to see how Q3 last year evolved. We have continued to work very, very hard to keep up our capacity fitting obviously the needs on the marketplace. We launched a new restructuring program at the end of Q4 last year. We are running the program, evolving according to plan. And last but not least, we are building a second site in Mexico and we are happy with the evolution there as well. So in principle, what we are talking about is that we are going to multiply by 3 the space that we have today in Mexico.If we move on to the next slide, total sales reached 5% with 6% negative organically. We had a positive influence of FX of 7% and then Kampa stood for 4% of growth. Looking at EBIT, we reached SEK 618 million or 3% down versus last year. On the upside, we had efficiency improvements. We have also a positive channel mix with Aftermarket and OEM and we had also the pricing efforts. We have been reducing capacity quite a bit overall, over two digits I would say altogether. And we're still ahead. So we have still a good protection moving forward and obviously we are impacted by both the volumes, the RV volumes and the tariffs. And on top of that, we also had a negative effect of the regional mix with Europe just now growing, while we have a negative Americas and APAC.EBITDA developed in a positive way, plus 7%. And when looking at the comparatives on the EBIT side, we have additional amortization during this quarter of about SEK 24 million more in comparison to 1 year ago. So in reality, the loss of 1.1 percentage points on the 6 negative organic growth is the 1.1 becomes 0.6 when measured in apples to apples. EPS was down 8%, ending up at SEK 1.16 and that's a consequence obviously of a slightly lower EBIT and then taxation that Per-Arne will comment on later on. If we move on to the next slide, we see obviously the evolution of the organic growth during the last 3 quarters and also how it looked like on the previous quarters coming from very, very high comparatives, as you can see. And we're looking at the period from the first quarter 2017 to the first quarter 2019, we are showing organic growth of 8% which we think is a very good number.If we move on to the next slide, this is in our opinion a very interesting slide. What we are comparing in reality, RV OEM growth and everything but RV OEM. And what we are showing in reality is why RV OEM is dropping 14%, the rest is growing 7%. And we're looking at purely organically, as I mentioned at the beginning, non RV OEM organically went up 1% while RV OEM went down 14%.If we take the next slide and look at what happened during the last years, it's quite obvious that we are working very, very hard to diversity the company. And what the slide is telling us is really that we are growing about 50% faster on the non RV OEM businesses we have. And looking at organic growth is a little bit of the same, the non RV in the last 5 years has grown 7%, while RV has been growing 5%. So the bottom line is really that Dometic has not just been growing at the back of the RV in the U.S. RV industry, which for us is of course very, very important. Which is also reinforced when you see the next slide, meaning that the RV OEM market has come down from 40% of the total to 38% of the total, while the rest has been growing. And of course we have a negative impact on the RV, but we also have an impact for organic growth on the rest and the Kampa acquisition. Looking at profitability and EBIT margin, obviously the lower EBIT margin in this quarter is putting a little bit of pressure on the long-term trend. So we are just now 14.4% while we're ending up last year at 14.7% altogether. And we still believe that we will reach the same levels, around 15% at the end of this year. Moving over to products, we continue to invest in innovation and we are accelerating in that score. What you see on the slide is the first thermoelectric cooling box in the world made of bio-composite. And despite the fact that we call it for cooling box, it has both functionalities. So it's cooling down, but it's also warming up, up to 65 degrees. This is also for us one more example of how we are combining new products, innovation and system ability; system ability efforts that we are putting in place, something that our customers do appreciate. If we look at the different regions, Americas on the next slide went down 11% organically. Excluding the RV side, we had a growth of 5% with Marine showing 6% organic and Retail very strong 19%, still low numbers, but 19% organic growth; and even Lodging did show a pretty nice evolution, again proving that the investments that we are doing on the market side are paying off, while obviously we were impacted by the RV side. EBIT, 22% down. On one side we had the volumes. On the other side we also have a negative impact from the tariffs. What we did is really to compensate already in Q3 we have continued to compensate for the volume drops. We are working on the pricing. At the same time, it is clear that we have infrastructures. We have factories. We have machinery that we need to pay for, and we are even working there to become a more flexible, agile company moving forward.While looking at the drop of the RV in Americas, we need to remember that we are coming from a quarter last year where we were showing 12.4% up organically. Now we are showing 11% down. That's giving you the swings that we have been seeing on the RV markets. On the RV OEM market Americas, we went up 20% 1 year ago. We are down 23%. That tells you the gap that we have between, 4 quarters so to say, which is massive. When looking at EMEA, we are very pleased, showing 3% organic growth with Aftermarket growing very nicely, organically but also as a consequence of the Kampa acquisition. Good growth on the RV Aftermarket side on the CPV, good growth on especially Marine AM where we are putting together a dedicated organization to develop that side of the business, showing also pretty good evolution. As I mentioned before, I'm very pleased with the evolution of Kampa during the first months, considering based on my experience, how difficult it is during the first months. Very nice evolution on the EBIT side, as you may know we have been working on improving efficiencies across the continent during the last 18 months and continue to show very good evolution. We are also working on the pricing side. And last but not least, we also work a lot on product innovation and reducing cost through our innovation path. Moving over to APAC, we showed a 10% drop organically and what we see there is especially Pacific, pretty soft on the RV side. But also pretty soft on the RV side, we know just now that there are uncertainties, specifically on the Australia market. We have elections in May. We have just now some more strict regulations from the banks on credits and that's putting some pressure on this kind of discretionary spend that we believe is going to be a little bit lighter once the elections are over. RV in Asia continues to develop in a very positive way, 45% up. And the same is valid on the Aftermarket. So again, APAC is really a mixed bag, with Pacific just now pretty soft. Asia continues to develop very nicely from small numbers, of course. We are especially pleased with our EBIT margins. As you all know, we started to leave a number of non-profitable businesses about 1 year ago, 9 months ago. And that's why we see this also having an impact on the top line. But we see that that's also helping us to improve our margins percentage-wise. Pricing, we have been working with. We have, as I also mentioned before, a negative effect geographical mix. So looking more on the medium and long term, on execution, we will continue to invest in developing the Marine business. We will keep developing Kampa to become a global business and looking as well for complementary acquisitions. And last but not least, organically it is extremely important for us to accelerate the growth on the Aftermarket side, which is something that we have been doing really during the last quarters, putting more dedicated teams all over the world. On the product side, I'm happy to report that what we have been discussing before in terms of global product platforms is starting to take place. It's materializing and we are taking the actions and we see activities starting to pay off. We also accelerate the reduction of SKUs, the complexity that we have within the company and we're also very pleased with evolution on that side. On the cost reductions, I already mentioned contingency plans. I mentioned as well the restructuring program that we are running and the fact that we are building a larger site just now in Mexico. And last but not least, we will continue to adapt our capacity to the needs of the RV market in the months to come as far as this evolution continues.And with those words, I would like to leave to Per-Arne to get us deeper into the financials, please?
Thank you, Juan. Starting with 5-years trend build for sales and EBIT, you can see that the company has been growing substantially during the last 5 years. And on net sales, we are up 110% and are pacing at SEK 18.5 billion in sales. EBIT has grown even quicker, 161% up, and now hovering around SEK 2.7 billion. And you can see here that we like growth, but we also like to have profitable growth. Perhaps even more important, if you turn to the next page you can see that EBITDA has increased 167%, a good proxy for our cash flow. And operating cash flow is now up SEK 2.7 billion and this is up 190% compared to 2014. And also if you look at the EBITDA in absolute terms, it's close now to SEK 3.3 billion compared to SEK 1.2 billion if you go back 5 years. So you can see that this company has become a bigger company. I would say it's more stable today than it was a couple of years ago, and I think it's what we have proven now in the numbers in the first quarter.If you then look at the more short-term trends, Juan has already alluded to this point about sales. The sales growth has now dampened somewhat. EBIT is flattening out and we have a slight downturn on the EBIT margins. But you can see that operating cash flow is continuing to go up. If you then take the underlying businesses, I think the strength that we are seeing today is that the RV business including the Aftermarket stands for 54% and all this segment is down in constant currency with 1%, up overall 5%. But you could also see that the other segments: the CPV business up with 5%, Retail & Lodging up with 2% and Marine given also the acquisition of SeaStar up 108%. And we'll continue to as I say get even strengthening of the balance with other segments, as always that's helping us to grow the company. Perhaps one important slide, perhaps the most important slide to look at this, the next with the key ratios. During the last year since we've been listed, we have had a lot of discussions around this EBITDA of the company. Both investors, analysts and also rating agencies [indiscernible] what happens with the company when the downturn comes. And this has been a concern. And I could say, well, this is what happens. We had 27% downturn in RV OEM shipments in this quarter, and still we delivered total growth of 5%, organic growth of minus 6%, and in constant currency, 2%. We improved our gross profit from 31.1% to 31.4%. We are slightly down on the EBIT for sure, but also as Juan alluded to, part of this is the acquisition costs that we have taken from the previous acquisitions and also that we start to write off certain brands. And our EBITDA margin is actually up to 17.6%. So this is what happens. It's not the company that is hurt severely despite a very, very big downturn in the American market. This is our main market. And above all, we're actually generating a positive cash flow, a better cash flow than last year. So I think all these things is sort of a message from our side to you how strong this company has become, even though we are exposed to an RV market that might fluctuate a bit over time.If you then look at the impact from currencies, the Swedish krona has unfortunately been weakened big time the last couple of years, and we have a big impact of roughly 7% in translation effects in the quarter, which means close to SEK 300 million. Of course the major part of that, 2/3 are in the U.S. dollars. Earnings per share, down, and part of that is then the tax. We are hit with the new American rules. We have certain rules for non-deductible interest cost, even though your operating profit goes down in the U.S., you still have interest cost that will be recorded as non-deductible. And that's why we have the high tax rate in the U.S. We also have some double taxation issues with Canada where we're earning quite a lot of money in Canada. And these companies are owned by the [indiscernible] in U.S. That's why we then come closer to 30% in this quarter. This might be the case also in the next quarter. But over time, we will see a lower tax rate there coming through.Summarizing the regional results, once again proud to see that we keep up volumes in Asia Pacific on the sort of high level. We're improving in EMEA and that's even the fact that we also have some acquisition costs from Kampa included in these results. And then of course we are down in Americas. But given also the magnitude of the downturn, I think Americas is holding up pretty well. We continue to invest in the company, CapEx around the 1.8% to 2% that we have been talking about. We also have the product development roughly at 2%. So we are investing, you could say, roughly 4% in all in CapEx and product development. And for us, we have said it many times that we are prepared to put in more money into this. But we also need to make sure that we get efficiency in this and mainly for the time being it's not restrictions. It's more around capability and we are trying to focus more and more now to make sure that we get decent launches out in these channels in the coming years. Working capital, moving a bit upwards, even though it's better than last year. We are now up to 24%. We will expect this to move downwards during the rest of this year. And if you look at this in absolute terms or numbers, we're up to SEK 4.7 billion compared to SEK 4.3 billion last year. There we have roughly an impact from Kampa and also from the tariffs, so roughly SEK 360 million. The inventory part is up somewhat, but what has actually moved in the first quarter is then the accounts receivable and that is more a timing issue. We had a lot of invoicing in the last 2 weeks. And that will help us then in the second quarter to have a good cash flow as we usually have. So for me, this is more a timing issue. But we still on accounts and inventory report are working in order to get this down and we will see an improvement on the inventory levels during the months to come. Cash flow we already mentioned a couple of times. We're very proud of having a cash flow of SEK 84 million, even though some of these are then the new rules when it comes to the IFRS 16, it's still positive. It will be roughly [ SEK 44 million ]. So that shows that even with the downturn, we have been focused and able to protect the cash flow. And for the first time as a listed company, we show a positive cash flow in the first quarter.Leverage is now down to 2.95 compared 3.34 last year. The currency, the weakening of the Swedish krona of course hurts us to some extent. And we have also added on Kampa. So yes, the currency part, if you should revaluate this compared to March rates '18, it's a difference of 15 basis points. Going forward, we will expect the leverage to go down and that you will see in the outlook. We have said that it will closer to 2. That is our financial target at the end of this year.We have also been active in the debt market. During this quarter we have issued a Swedish bond for the first time, 2 years, paying 2% at SEK 1 billion. We have also been active in the commercial paper market in Sweden where we issued a 3-month paper of SEK 500 million paying 0.5% in cost. Finally then the financial targets, if you look at the sales growth last 12 months, down 2%, EBIT margin at 14.4% and net debt at 2.95x. And we'll come back to the outlook later on with [indiscernible]. So please, Juan?
So thank you, Per-Arne. So summarizing the first quarter, a strong performance in a tough quarter for us, organic growth of 1% excluding RV OEM and a total growth of 7% excluding RV OEM again. We see the underlying trends for the different industries where we are present to be still positive. But at the same time, we have a situation with this inventory correction in a few markets. We will keep on working on Aftermarket and developing the different legs that we have within Aftermarket today. And we are increasing our pace in innovation even more. We are very proud on our EBIT performance with 2 out of 3 regions performing very nicely and improving their performance in comparison to last year and we still see potential for further improvements. And we are investing quite a bit of time in getting deeper and deeper in the different processes of the company in order to increase our operational performance even more. Moving over to the outlook, we are still convinced that we will have a slightly positive growth at the end of the year. We see again the impact of new product launches kicking in step-wise during the year. We will continue to invest our time to develop the other sides outside the RV. And then on the downside, we have the uncertainties that all of us are aware of in the RV OEM market. EBIT-wise we also expect to be around 15% and we are working very hard in a number of areas to achieve that target. And as Per-Arne already mentioned, leverage will be close to 2 at the end of the year. And with that said, I would like to move on to the Q&A session, please. Hello? So we're ready for Q&A.
[Operator Instructions] Our first question comes from Peter Testa from One Investment.
Just a couple questions outside of OEM RV, on the European performance where you had quite good margin performance, can you give some sort of sense as to you how you feel that was driven by cost as opposed to price adjustment? I'll go one at a time.
Yes. I would say that this is 50-50. So we have been adapting our capacity. We have just now quite a few number of employees lower than we had 1 year ago, despite the fact that we are showing good organic growth. And then on top of that, we have been driving pricing now for a number of quarters. So it's a combination of both. And I would say that this is a 50-50 ratio.
Right, okay. And then the second question, just on the Marine market in the U.S., I mean we've seen some U.S. state data which shows leisure craft down 5.9% and then looking at other peers like the Volvo Penta, which I guess is relevant on the leisure side, saying it's roughly flat. You're suggesting still plus 6% and a good market. I was wondering if you could just give some understanding of how you see the market and your performance in that market.
If you look at the market, the opposite to that remark it's on the Marine side, the business has never been close to the levels that we had back in 2008-2009. So we have seen in recent years an organic growth of 2-3%. We know that boat builders do have their order books totally filled for the year. And if you just forget just now for one second the general industry, we as a company, we have been moving really on the technology side more and more from mechanical approach to a hydraulic approach, and from hydraulic to electronic products. And with that, the content of boats is increasing big time. And this is what we have been seeing now for a number of quarters that while the industry is growing 2% to 3%, we have been growing much more. Now the industry seems to be coming a little bit a couple of percentage points and we are still growing very nicely. So on the OEM side, we show still today a very, very strong growth.
Which is then a combination of volumes and also value.
Yes, absolutely.
Because it's value in these technology fields.
And by the way, I mean we see that in Americas, but we see also Marine is for us developing very nicely all over the world. So that's important to remember. It's not just U.S. and it's not just the old Dometic Marine business or what we used to call for SeaStar.
Okay. And then last question, just when you look at trying to understand where the trough is in organic growth, I mean given as you said there's difficulty in inventory correction in a few markets that's been going for a bit. And you showed a slide of the non RV OEM, which is a bit slower this quarter. But if you look at where you think the trough is, do you think Q1 is the trough growth rate for Dometic?
Again, Q1 has been extremely tough for us. I think that this is -- if you compare with Q3 and Q4, we have a very, very high Aftermarket performance. Q1 is a little bit lower, but we also know that at the beginning of the year we had the weather and a couple of weeks of invoicing can make an enormous difference. We see many of our businesses are growing very, very nicely. I mean we already mentioned Marine. We have lodging doing well. We have retail in Americas doing very, very well. So we see a number of opportunities to grow many of the businesses in the rest of the year. So I think that Q1 for us, I mean we have not seen such a quarter for years and years. I guess that we have to go back to 2009-2010.
So I mean it's the comparables and also what our trough feels it might be. But we expect to see improved each comparables during the year to come and we're still expecting a slightly positive growth on top. So yes, so I think this quarter will be expected as the worst quarter.
Our next question comes from the line Annabel Asquith from Morgan Stanley.
Thank you very much for taking my questions, I have a couple, please. Maybe I'll start with the first one. So your guidance is assuming a fairly large rebound for the rest of the year. Considering the fourth quarter is typically a seasonally low quarter, how much visibility do you have on the second and third quarter?
Well first of all, I don't know if I can say a great rebound. I mean what we have seen is obviously a great drop in Q1. Keep in mind that the market has started to go down big time in Q3 last year. So we expect to see much easier comparables during the second half. That's the first one. The second one is that if you look at the statistics from the association, if you look at the inventory levels, I do believe that everybody understands the inventories are coming down big time. I mean we bought the numbers from the American Association yesterday. The market in Q1 was down 27% shipments. And obviously retail is now coming down 27%. So for every single month it's becoming closer to the day where the drop is gone. So I wouldn't say that we expect fantastic growth. But we are going to mitigate obviously the effects that we have been seeing during the last 3 quarters. This is the third quarter with big negative growth. Secondly, we have seen as well our capability of growth of other businesses. And during recent quarters, we have been investing quite a bit in beefing up CPV in Americas, building up CPV in APAC. We have building up retail in Americas, retail in APAC and developing the different aftermarket legs that we have within EMEA, where we have moved from having a generalistic approach to dedicated teams, with dedicated managers. So is that going to give us a great rebound? Well, I don't know if it's going to happen in Q3, Q4 or Q1 next year. But we are working very, very hard to improve the performance that we have been seeing on the growth side in Q1 this year. I don't know if I answered your question.
Yes. Sorry. And then would you be able to give a little bit more color on your Aftermarket sales? Obviously, we can see that they were in negative territory in Americas and APAC this quarter. How much do you think that growth there can support declining OE trends?
Well, if you look at -- it is true that this Q1 was weaker than we had expected from the beginning. But we are also coming from a Q4 that was very, very strong. And we are talking about the first quarter when we still have Aftermarket in the first quarter is much lower than what we will see in Q2 and Q3. So if you move 2 weeks' invoicing, 1 week of invoicing would have a major effect. So we have seen just now 3 weeks of [indiscernible] weeks in April that looks much better. So I wouldn't estimate that what we have seen in Q1 is what you are going to see in the rest of the year. And then again, if you look at-- you need to break down Aftermarket into different businesses, we see good growth in lodging. We see nice growth in the Marine Aftermarket. We have seen RV AM in North America a little bit lower than we expected. We have seen Aftermarket in Pacific specifically a little bit lower than expected, while we have seen Asia growing big time. So it's a mixed bag even there. And again, we see when looking at our numbers during the last weeks, we look better than that. And by the way, I think the other one that I would like to comment is that we are investing much more in Aftermarket today than we were doing 1 year ago. We are breaking it down into different businesses and putting people behind the different businesses, instead of having this generalistic approach. That will pay off.
Thank you, and then my final question; can you comment a little bit more on the margin contraction in Americas for this quarter, just relative to the organic growth decline, which is fairly similar to the fourth quarter last year? There's kind of more of a margin decline. Can you just give a little bit more color on that, please?
Yes, I think it's very much a question about the volume decline when it comes in. And we have to remember that we had a fantastic first quarter last year, where we had outsourced sort of the -- internally you could say a lot of [indiscernible] to China. We placed a lot of our high volumes. I would say it's a combination of volume and product mix that drives this margin compression.
We have to remember that first quarter last year was the quarter where we had the highest margins based very much in Per-Arne in his comments. So we were importing quite a few [ switches ] from China, due to the difficulties to one of our main competitors in the America markets. And that gave us very, very good profitability. And then of course you have another effect, which is the tariffs. Even if we are pricing and mitigating the effects of the tariffs, well, we still have a net effect, a net negative effect. And then you have another one that you had is a class action. Well, we had a positive one of 1 year ago in comparison to this year. So you have a number of parameters just now playing against us in comparison to Q1 last year.
Our next question comes from Leonard Schmidt from Danske Bank.
It's Daniel Schmidt. Just a couple of questions and I guess we'll start back to the RV questions. I think when we talked during the winter there was a lot of discussion that producers in the U.S. were planning to go from 4-day to 5-day working week during March. Was that postponed or do you see that happening? Are we in any way getting signs that the underproduction is going to be sort of picked up and be more in line with end market demand soon?
I think personally, Daniel, my personal perception is that Q2 is going to be tough. From Q3, we are going to have easier comparables. I think that we are talking with many of our customers and I would say that some of them are telling you that it looks better. Some of them are still careful. So -- what is true and everybody is talking about is that the second half is going to be much better than the first half. But I'm looking at inventory levels exactly the same way that you are doing. The only thing that we can be fully aware of is that inventories are coming down big time. Then the question is when. When will the OEMs start asking for more deliveries? When is the confidence on the retail side coming back, so they are putting orders into the OEMs?
And there is no pattern right now, Daniel, when it comes to 4 or 5 days. I mean it's very much up to the different manufacturers on how they act upon this. So we've been [indiscernible] to understand that sort of pattern.
Did Easter in any way impact production? Is Easter the start to sort of the RV driving season and the fact that Easter was later this year compared to last year, has that impacted in any way?
Yes. But I will be careful in speculating the impact of that. I can adjust now with this inventory correction how much 1 day or 2 days of inventories. I think it is more than that. I think we need to wait. We need to be working, as we are working both on the cost side and developing other businesses. I wouldn't dare to say it's going to happen on the 15th of June.
No. I mean Easter is normally -- I used take Europe as sort of a starting point for the season. But it's sometimes Easter is early and sometimes it's late, it's more the weather conditions that have--
Exactly, Easter and weather. Yes.
Right, and then on the topic jumping to EMEA and Europe, you said at the start of the year that you expected the European RV market to be down a couple of percent. You did have a good start to the year. And we've seen some statements from producers in Europe talking about destocking a bit more now than they did last year. Are you seeing any changes, any underproduction in Europe for the time being as you move into Q2?
No, we see obviously that the industry and our customers are talking about that. As you saw in your numbers, Q1 looks good, even from RV OEM perspective in Europe, we expect Q2 to be weaker at least according to what the industry talks. But we have not seen that yet. What we have done, Daniel, is that we already in December, started to reduce capacity and [ money ]. So just to give you some feeling, we have just now a gap a number of people of some 6% to 7% between growth that we have a number of these. So we are protecting ourselves just in case.
Yes. I think you said that you were estimating the market to be down minus 5 or something like that in connection with the Q4.
Yes, minus 6 to be more exact.
Yes, okay. And then thirdly on raw material, is it still relevant to believe that the raw material will turn into a tailwind during Q2 and onwards?
Yes, for sure. Yes on that. I mean we see it, yes.
In a similar magnitude that we talked about in connection with the Q4?
It depends on what we said in Q4.
Doesn't it? No, but I think we talked about a headwind. You had a headwind of SEK 80 million or something like that last year and you were contemplating a tailwind of SEK 30 million or SEK 40 million--
Yes. That was correct.
On the pace that we see, raw materials has -- they progress, as you know is that raw materials change every week.
No, but the SEK 30 million is still relevant, yes.
Yes, and then a final one, I think Per-Arne has said that EMEA EBIT included some transaction costs relating to the Kampa acquisition. And I also think that you've said that seasonality in Kampa is they're usually loss making in Q1. Could you shed some more light on those two items?
No, well they are definitely not loss making in Q1. But we had SEK 8 million of so-called step-ups, the inventory valuation. And so there's roughly SEK 10 million in transaction costs for them in the first quarter. But this will fade out now after May.
So it's lower profitability, what is true in what you said is that it's lower profitability in Q1 than in Q2 and Q3. But it is profitable.
And they are growing fine. I mean they're...
And underlying the profitability, so you have a good organic growth, very good organic growth in Q1, and you have an underlying profitability improvement.
And is it significant going from Q1 to Q2 in terms of profitability?
You have a couple of percentage points.
Our next question comes from the line of Olof Cederholm from ABG Sundal Collier.
I just have one question on the cost reduction initiatives. Is it possible to quantify the effects of those for the year and maybe the timing coming through throughout the year, will there be a much greater effect from these efforts in Q2-Q3? Or how should we think about this?
Yes, you're talking about the restructuring costs?
No. No, the savings coming from the restructuring program.
Yes, I mean we've talked about that it could be roughly SEK 60 million during the year and we are as it stands SEK 10 million to SEK 12 million in the first quarter.
Sorry, roughly SEK 10 million in the first quarter?
Yes, SEK 10 million to SEK 12 million.
Okay. And looking at the growth, you mentioned that it was picking up in April outside of RV. Does that include the Aftermarket for U.S. RV? Is that also doing better?
Yes.
Is that growing in April so far?
So far in the RV Aftermarket in Americas is growing in April so far.
Our next question comes from the line of Peter Reilly from Jefferies.
Can I start out with an accounting question, please? There's been a significant increase in the amortization of acquisition intangibles. Can you talk about whether that's going to be an ongoing issue going forward or whether it was just in the first quarter? And in particular, your margin guidance or expectation for the full year is obviously after this amortization. I assume if you annualize the first quarter number, it looks like you're expecting the margin for the group on a pre-PPA basis to actually be up in the full year. So maybe you could help us understand what's driving this and whether I've analyzed the trends correctly. And I'll come back with the second and third questions.
If I start with the acquisition costs, I mean what we have added on is for writing off certain brands and also for comp, but that's only roughly SEK 20 million in the quarter. And that will be added on per quarter for the rest of the year.
And am I right that your margin guidance for the year is after these extra costs? So you're bearing an extra burden this year because the amortization and your margin guidance is after that extra burden?
Yes, it's after extra burden, for sure. And that way what you could see there, Peter, is also that I mean you will have a bigger discrepancy between EBITDA margin and also EBIT margin, given the number of acquisitions that we have done. And we've also tried to write off as much as we can on the intangible side. So that will hurt the EBIT margin. But it's still -- so the [indiscernible] includes this.
No, just I mean I'm interested because it implies to me that your underlying profitability is doing probably better than I expected and your guidance this year --
Exactly.
And I would encourage you to look at the EBIT before PPA. But that's obviously your choice. But more and more companies are doing it these days on the basis of that it's a non-cash accounting charge.
Yes, we will even talk a bit more about EBITDA because that's also a way to look at it.
Yes, and then secondly, can you give us any update on what's happening with your product initiatives in the U.S. CPV market? You've talked before about some of the things you're working on. You're putting a lot more resources and people and money behind that. And maybe it's just something you can talk about more on the 28th. But where are we with that process?
Well, we are getting awards. So we put that thing in place it's about 1 year ago now, with people coming from the automotive industry having that relationship, having the networks. We also spent a lot of time together with [indiscernible] organization has been working on CPV for many years. And already during the end of Q2, Q3 and Q4, we started to get awards and that has continued during Q1. The problem is that we are talking about contracts that normally automotive players, they are included in these kind of products in connection to a new model. They are not changing during the existing model. And we will see invoicing coming in at the end of 2020, we will see the first models coming in.
Okay, because...
So we are happy with the evolution. We see that it is working. Then of course we are talking about there's more numbers. Don't get me wrong. In the same way as when we are talking about in retail, when you are starting from scratch, it takes a while before you get some kind of volume. But we are happy with the evolution and we are putting more efforts into it.
And then lastly on your SKU reduction, do you have any metrics you can share in terms of where you're coming from and where you're going to, and how important is that in the overall price, as in making the business more efficient? Because you talked before about needing to get the SKU sorted out. Then you can go to manufacturing rationalization. So can you share any metrics or time tables there?
Peter, if you're okay, I would suggest that you wait until the Capital Market Day, so you get more of a full picture.
Okay, I thought you might say that.
Otherwise, we will not have the pleasure of seeing you. So we need to keep something for ourselves until then.
I shall rebook my flights.
Sounds good. Thank you.
Our next question comes from the line of Klara Jonsson from SEB.
I have a question about your pricing initiatives. You mentioned some help in both Americas and EMEA from pricing. What kind of price increases are you managing to get through in the U.S. now in this market?
Yes, so you look at the group. Obviously, I will not tell you market by market. But if we look at the entire group, our prices have gone up by 1%. And then of course we have the negative impact of the tariffs in Americas, which means that the total number will be for the group 0.7% up net even.
All right. EMEA, you mentioned that the profitability improvement there came from around 50-50 price and the work costs. Could we expect similar help from pricing in the rest of 2019 as well?
Yes.
All right. And then my second question is about you moving production from China to Mexico. You spoke a bit about this last quarter and I was wondering how this is progressing. Are you [indiscernible]?
Well, yes. So we have the first factory was up and running after 97 days. So we started deliveries after 97 days. That must be some kind of world record. So we were very, very, very happy about that. And after 2 months up and running, we decided to build in a second place, as a second factory which is going to be 3 times. So we are going to move the first factory into the second factory. And then we will move additional production into Mexico. We are very happy with the quality that we are getting from the factory. We are extremely pleased with the talent that we are finding, in the people that we are hiring. So we're extremely pleased. We will see Mexico growing for us.
Yes, and so we could expect that you can avoid the tariffs from China-U.S. so maybe in Q2?
Not for everything because it wouldn't make any sense. You know you have one side, the tariffs. But at the same time, we don't want to move a lot of small volumes and create a lot of complexity. We want to have that factory obviously to have high-volume business, so we can be not just mitigate the tariffs, but also to become more competitive in other products. So the target is not to move every single thing that we are doing in China into Mexico. That would create too much complexity.
All right. And then my last question is could you repeat how much U.S. RV OEM dropped for you in Q1? You mentioned it earlier, I think.
23%.
23%?
And the market dropped 27%. And last year we were growing 20%. So you have a gap of 43%.
Yes, okay, so do you think that's also -- I mean I think you dropped around in line with the market in Q4 as well. Should we expect you to perform in line with the market also ahead, or [indiscernible] profitability more, or?
Well, that's what we are doing already today, right? The market is dropping 27%. We are dropping 23%. So we are careful. I mean for us, we will not buy market share. For us it's extremely important to keep our margins.
There are no further questions at this time.
Well, thank you very much, everybody, for your attention. And feel very much welcome to the Capital Market Day on May 28th in Stockholm. So thank you very much and I'll see you there. Bye.
Thank you. This now concludes our presentation. You may all now disconnect.