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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Welcome to Dometic Q1 Report 2023. Today, I am pleased to present CEO, Juan Vargues; CFO, Stefan Fristedt; and Head of Investor Relations, Rikard Tunedal. [Operator Instructions]
Now I will hand the conference over to the speakers. Please go ahead.
Good morning to all the participants, and welcome to the presentation of this first quarter -- year 2023. Let's proceed to the presentation and the highlights immediately.
So looking at the markets, very, very tough market conditions on the U.S. RV markets. We got the latest news yesterday showing a decrease on number of units from manufacturers reaching minus 54%, which makes, obviously, life a little bit complicated for this industry altogether. At the same time, we also see that the inventory levels at our distributors and dealers are high even if we perceive that they are starting to come down.
On the performance side, we also perceived very clear results of the strategic initiatives that we have been taking for the last couple of years. Looking at the results. Growth, and we are talking about organic growth, in. This case, reached 30% down versus last year, with 2 segments doing well. Marine, positive plus 8%; and Global, plus 5% driven by Igloo but also hospitality, doing very, very well. At the same time, we see the OEM side being down 14%, everything due to the RV OEM Americas. We see still today a strong CTV OEM and a strong RV OEM, both in Europe and in APAC.
And then last but not least, Service & Aftermarket down 19%, which obviously has a major impact on our margins and on our EBITDA levels. Talking about EBITDA. We ended up at 11.6% compared to 14.8%, 1 year ago, with 2 segments showing deterioration EMEA and Americas, and 3 segments showing improvements, namely Marine, Global and APAC. We're also happy to report a strong operating cash flow. A lot of efforts have been put in place, obviously, to release cash during the last 3 quarters, and we see a gradual improvement.
And then also very happy to see that all the KPIs on the sustainability Report are pointing in the right direction for us. Looking at growth, 3% down of almost SEK 7.3 billion with 30% organic deterioration, a growth driven by FX of 9%. And then on M&A, we have nothing left at this point. EBITDA, SEK 847 million, 24% down versus last year or an EBITDA margin of 11.6% versus 14.8%. As I mentioned before, an improvement on cash flow of almost SEK 600 million in comparison to the same period last year. EPS -- adjusted EPS ended up at SEK 1.44 in comparison to SEK 2.27 on r 1 year ago. Leverage ended up by 3.2x versus 2.7x last year and 3.0 at the end of the year.
Looking at, again, our sales growth. We see that organic growth has been coming down now for 4 quarters. So this is the fourth quarter, and we have seen a gradual deterioration driven primarily by the U.S. RV markets. We see as well, just as a reminder, the Service & Aftermarket has been negative for us since Q2 last year. So we are approaching a situation where we will have much easier comps in comparison to last year.
Looking at different businesses. From an application perspective, power and control, which stands for 20% of sales shows strong performance, very much driven by the Marine steering system range as well as by Mobile Power Solutions. Food and beverage, which is very much driven by Cooling boxes, Igloo and Dometic, but also the CPV business on the cooling compartments and the RV, showing also good stability.
At the same time, as climate, which is very much depending on the RV industry, have been showing some deterioration due to the American markets. If we instead look at the different sales channels, we see that OEM has been moving from above 60% of total sales into 44% on the 12 months-only number, which is at same level as at the end of last year, and again, very much driven, obviously, by 2 things. On one side, the strong deterioration in North America RV plus also a deterioration that we see on the Service & Aftermarket during the last 12 months.
Worth to mention that the RV OEM sales in North America stands today for 10% of our total revenues for the company, which is important, obviously, since very often, we are perceived very much as a very, very heavy American company and very exposed to the RV OEM industry.
Looking at Service & Aftermarket. I believe as well that it is a very, very important slide that I would like to spend a couple of minutes on. So you can see on the different lines, the different graphs, the evolution of Service & Aftermarket since 2018, where you see exactly the same pattern in 2018, 2019 showing growth. Then we got into 2020, the first half, extremely weak due to the pandemic, then the market bounced back and during the second half, dramatically, we saw a continuation during the entire 2021.
And then if we look at 2022, you see that Q1 2022 was even stronger than 2021, which was, of course, the expectation of building up a very, very strong year by industry and that never happened. So you can as well, Q2, we started to see the duration. And we go between 16% to -- 16% in Q2 last year and down to 22% negative in Q4 last year, and we're still negative in this Q1 this year.
On the contrary, if you compare it with what we consider to be a normal base, which is 2019, Q2 last year ended up at plus 4% in comparison to Q2 2019; Q3 plus 7%; Q4 plus 10%; and this first quarter of this year, we ended up at plus 16% in comparison to Q1 2019. So again, it is important to remember that we have this pandemic effect that we were very happy about in 2021. But just now, it is tough to compare. But again, we are starting to get very, very close to much easier comparables.
Looking at our EBITDA evolution over time, we see clearly deterioration in Americas and EMEA. At the same time, as we see improvements in the other 3 segments, two consequences. Obviously, when you are losing as much as 48% organic in Americas due to the RV industry is very, very difficult to mitigate. We have been reducing capacity in big time, but still very, very difficult. And of course, that we are sitting with facilities. We are sitting with inventories, and it is tough.
The situation in EMEA is different. It's obviously very much impacted by the lower Service & Aftermarket. At the same time, as we are moving a factory, as you all know, flow in Germany to Hungary, which means, obviously, that we have double counting -- double headcount and some efficiency costs that will fade away during the coming months. The expectation is that the factory will be shut down -- totally shut down and moved by the end of Q2.
On the contrary, Marine continues to do very, very well, and we will see some more details in a couple of minutes as well as Igloo is also continuing to show improvements, which have also a positive effect from FX.
Looking back at the details in different segments. Americas, as I mentioned before, organic growth, 48% down. And again, totally impacted by the RV and the Service & Aftermarket. On the contrary, the CPV business still doing very, very well for us. And we got a number of contracts in recent years that we are turned into sales during the last months that will continue.
EBITDA, obviously, very much impacted by the lower volumes. And then we're looking at strategy, we see still today a better evolution of the acquired companies in the last couple of years, namely Valterra and Zamp Solar. And at the same time, as the move of the factory in Elkhart is totally completed in a successful way.
Looking at EMEA. Organic growth, 7% down, which is totally driven by the Service & Aftermarket. And on the contrary, OEM is doing very well, especially on the CPV side. So that means commercial and passenger vehicles, while OEM is still positive, and we don't see just now, at this point, any significant iteration on that market.
EBITA halved in comparison to the situation 1 year ago. And then again, 2 major impacts on one side, the Service & Aftermarket, and then the other one is an efficiency and due to the factoring move and still some high logistic costs due to the inventory build up of our customers.
I already mentioned the closure of the Siegen factory a couple of times, I would not repeat myself. And then we are looking for further adaptation to the new volume levels in the future to come. APAC, even here negative, driven by Service & Aftermarket and Distribution. On the contrary, and the OEM side is still going very, very well. Happy to report, obviously, that despite the negative growth and the wrong service -- sorry, product mix for us in OEM as Service & Aftermarket, we still see EBITA improvements in comparison to 1 year ago.
And we have, obviously, we have been adapting capacity as well to the lower volumes that we have seen now for a couple of quarters. And we are happy to see as well that our acquisitions are doing very, very well in the segment. Marine, very, very nice to see that the growth is still there. Even here, we have a negative mix with OEM growing still very, very nicely, while Service & Aftermarket is still negative. But as a continuation of the better, the level out that we saw in Q4, we bought exactly same situation in Q1 from a Service & Aftermarket perspective, which is leading us to believe that we will see improvements in the months to come.
Even here, despite the negative mix, we see a margin improvement to 26.3% versus 25%. And I guess that many of you are wondering how come that you are still growing at such a nice level. Well, it's a couple of factors. On 1 side, we see that even in the boosting industry has been down now for a number of months from a greater perspective.
We see that we had -- and by industry, we have a very, very high backlog level. At the same time, we see as well that the small boats have been coming down quite a bit, while the larger boats are still pretty stable. And then we see as well that the larger engines where most of our equipment goes is still growing very, very nicely. So it's a combination of a number of things, very much driven by the technology shift that we have been commenting since the acquisition of the SeaStar a few years ago.
We see a continuous movement from mechanical products into hydraulics and electronic products, and we see an acceleration over the last 12 months on top of that. Global, very much driven by Igloo, but we see organic growth, both in Igloo and hospitality, while we see negative growth on residential. We see as well a good margin improvement in comparison to last year. And our expectation is that we will continue to see improvements in the quarters to come.
The integration process moving according to plan in a positive way, and we have no further news in regards to the lawsuit from the former owners. From an innovation perspective, a couple of products that we have launched recently on one side slim, very slim new cooling box under the Dometic brand, driven by compressor technology, which makes it possible to have it in a standard car and either in the console or in the seats on the back.
At the same time, we're also launching as a way of penetrating even more the outdoor stand-alone industry, a new series of tents, inflatable tents with our own technology, which we believe is going to drive growth in the coming years.
And then moving from innovation to cost reductions. Our manufacturing footprint program continues. We booked SEK 19 million in the quarter, bringing the total cost so far to SEK 836 million out of the expected total number of SEK 950 million. We have affected so far 1,800 employees, and the run rate on the savings perspective is SEK 340 million of a total of SEK 600 million, which means that we have another SEK 260 million to go.
And last but not least, sustainability. We're very, very happy to report that the numbers continue to improve. We see injuries coming down dramatically.
Just as a comment, we used to be on 4, 5 years ago, we are down to 1.6, and we believe that we can reduce the number even more. On female managers, we also see improvements ending up on the quarter and 26% of managers being female in comparison 24%, 1 year ago. We continue to invest on energy and converting more and more of our factors into electric energy, driving down the CO2 by 41%, in comparison to the starting point 2018 and ahead of the target that we have for 2024.
And in terms of audits, we also see clear improvements year-on-year. We are just now 94% compared to a target of 90%, and we are fully convinced that we are going to reach the 100%.
And we have Stefan. Handing over to you.
Thank you very much. Let's start with our EBITA development in Q1. The organic and FX part, which is obviously the majority nowadays is very much impacted by the lower sales and also the negative mix where we have minus 90% organic sales decline in the Service & Aftermarket.
In terms of SG&A and R&D expenses, if we look in constant currency and also pro forma with the acquisitions, the SG&A expenses, they are flat compared to last year. However, we are continuing to invest both in SG&A and R&D expenses in strategic structural growth areas such as mobile power solution and mobile cooling. Then we also have the logistic expenses, the extraordinary logistic expenses that -- and the manufacturing efficiencies within EMEA that is impacting negatively.
Ongoing cost reduction measures, they are contributing positively, and then we have a positive impact from FX in the quarter. The acquisitions still falling in the acquisition column. It's related to Cadac, NDS and Treeline, and they were consolidated during Q1 last year.
So moving over to cash flow. We have a significant improvement in our operating cash flow compared to the same quarter last year, it's almost SEK 700 million. So that is very satisfying, I must say. It's driven by reduced inventories then accounts receivables or seasonally driven up. And then we also -- when we're going below the operating cash flow line, we have the income tax paid sticking out a bit, which is related to payments from last year.
And here, you can see the operating cash flow in the longer time series. And I went back even further than this, and I can just say that this is the best Q1 from an operating capital point of view ever in Dometic's history. So again, very satisfying. And I think also when we look on the cash flow generator since Q2 last year, we are on a very good track.
Looking on the different components in the working capital. The working capital totally is 34% of net sales. Obviously, yes, significantly above our ambition level. But as we have said, we are expecting that to come down, maybe not to the level where we believe is going to be decent, but we're going to take a meaningful step in that direction. In terms of inventory, we see a decline from Q2, driven by operational improvement, and we are expecting this development to continue here.
Looking on our spend on CapEx and R&D. CapEx is almost SEK 100 million in the first quarter, 1.4% in relation to net sales, which is in line with what we have seen historically. In terms of R&D, we are spending more, 2.1% of net sales, SEK 155 million. And that is really driven by what I mentioned before. We have some in strategic important areas like Mobile Power Solution and mobile cooling, where we are investing more on R&D.
Looking on our net debt-to-EBITDA leverage. It came up to 3.2x in the quarter. And as you can see on the little bridge below the chart, it's basically the EBITDA reduction that is driving this, and we have some positive effect from cash flow and FX. So ended at 3.17x using 2 digits behind the comma. As we communicated already in connection with the last quarterly report, I mean Q1 is our weakest quarter in terms of the cash flow. So it was not the quarter where we did expect any other development than what we are seeing, so according to expectations.
With that said, we are absolutely committed on achieving our target of around 2.5 and as we also have been communicating before, we are going to take a meaningful step towards that target during 2023. And the items which is going to drive that is obviously the EBITA development. We are going to see continued inventory reduction. We obviously have the dividend that we are going to pay now in Q2 then we have some restructuring payouts still to be done. And along with earn-out-related payments from the acquisitions down in 2021 and 2022. And then obviously, we have a CapEx component to consider as well.
As you could see from our press release on March 31, we have been renegotiating the first part of our bank agreement, the part that is maturing or were maturing in 2024. And with this new arrangement, we have increased our average maturity to 2.8 years. If we are including the extension options with 1 plus 1 year, we are on 3.0 years average maturity. We have also done a new agreement with Svensk Exportkredit for a loan of $44 million maturing in 2026. Then the bank facility has been increased with $10 million, so totaling $54 million in increased funding during -- in relation to these 2 agreements. And so we moved the maturity from 2024 to 2026. And then we have plus 1 on top of that.
The revolving credit facility is also part of what we have been refinancing here now, and it's still on EUR 200 million. And yes, I was talking about the extension options here. Then we obviously have the Eurobond maturing in September 2023. And as I've said before, we want to keep our options open here and our own cash and cash flow is going to play a role. It's still the question to what extent.
And we had almost SEK 4.4 billion in cash and cash equivalents ending Q1 2023. And that is not including the additional SEK 54 million of financing they are going to come in during Q2.
So with that, Juan, I hand back to you to summarize.
Thank you, Stefan. So summarizing, I mean it is clear that the market is just now has been tough for a number of months in a situation where, on one side, the U.S. RV industry is a kind of a free fall. At the same time, as this industry as many other industries are still suffering from the inventory build up around the world. But in many industries, I believe that we are performing well. I believe that we are performing a good double-digit EBITA, showing that strategy that we communicated already 4 years ago, is paying off and creating a more resilient company.
We have 2 segments showing growth -- organic growth, and we have 3 segments out of 5 showing profitability improvements that are, obviously, supporting our results. Going forward, difficult to know. Just now it's very much about observing what is going on every single day and obviously reacting on those changes. We are expecting a gradual improvement on the Service & Aftermarket in the coming quarters. Difficult to know what is going to happen next month, or the month after, but we will see improvements.
We expect as well stability in terms of distribution, where we see obviously that hospitality, Igloo are doing very, very well. We also expect improvements in the second half somewhere in terms of residential. And that is very much what is going to happen on the OEM side when we see, as we mentioned before, CPV doing very well globally. We see OEM in EMEA and APAC doing well. And then we see when is the in -- sorry, we market in the U.S. going to start stabilizing. Our expectation is obviously that that's going to happen during the second half.
At the same time, we have Marine. We don't see any changes in our numbers from the marine side. Even there, we're expecting improvements from a Service & Aftermarket perspective. At the same time, as we are, obviously, realistic and can see that if inflation doesn't come down, if interest rates don't come down, there is obviously a risk that we will see an iteration on the Marine OEM down the road.
Cash flow. We'll continue to put a lot of attention to our cash flow. And we -- as Stefan already mentioned before, we are totally committed to reach our 2.5 leverage level. And then obviously, on the 2 different segments that today are kind of struggling, EMEA and America, we will continue to stay close, and we will continue to adapt our cost so we can see improvements even though in the second half. Some of them will come for natural reasons, meaning that we are very close to end up the shutdown of Siegen, we have the logistic cost. And obviously, as a Service & Aftermarket is coming back, the number of local warehouses is going to be reduced and our results are going to improve.
And not to forget the major impact that we have from a Service & Aftermarket margin perspective. So two different spots on the short-term, be close and adapt; on the long-term, we are very optimistic about the long-term trends for mobile living, and we will continue to implement our strategy.
And with that said, I would like to start with the Q&A session.
[Operator Instructions] The next question comes from Fredrik Ivarsson from ABG Sundal Collier.
I've got 2 quick questions. First one on the Service & Aftermarket within the Marine division, in particular. I think you saw this part of the business sort of starting to decline before both RV and CPV as well. And I suppose that means that it should recover before as well. So can you say anything about what you currently see within that part of the business?
We have seen a clear improvement starting in Q4, and we more or less the same numbers on the same negative numbers that we saw in Q4, which are much better than the numbers that we saw during the previous, I would say, 4 to 5 quarters. So we see a clear trend upwards even if it's still negative.
Perfect. And second question on the margin in Igloo. It looks like it has expanded around what, at least, I would say, 2 percentage points. Can you explain what's driving that and also whether that might be a decent proxy for the full year, i.e., 2 percentage points margin expansion versus last year? .
I think -- I mean, as you know, we don't guide, but we have been communicating from Day 1 that we knew there were a number of opportunities to increase Igloo margins. One is, obviously, pricing to be more focused on price management. Secondly, is product mix. It is clear that we have different products within the range and some products are higher margins than others, is very much about being a little bit more selective on the low-margin products at the same time as we are a little bit more attention on the high margin. And then third, but not least, cost. We see clearly that business is also very dependent on 2 things.
First of all, internal efficiencies, and we can improve even more. But secondly, it's also the raw materials. I mean we -- in 2021 and for 2022 were tough, due to resin prices. Resin prices have been coming down. At the same time, as we have been working pretty well on our pricing, and that has a positive effect altogether. And of course, our intention is not to release for now, but to be very, very close. So far so good according to our expectations.
Yes. That's very clear. One quick follow-up on that one. Can you remind us on where you are in terms of Cushing and introducing more active coolers in the U.S.?
We are -- we will introduce the first coolers on the Igloo brand in Q4 this year, that's the expectation. So obviously, we have been working with that project now for 1 year, and we are -- at the same time, we -- I can also comment from that perspective, from a mobile cooling perspective that we are developing the organization, the organization in Europe. We have transferred a number of resources, for Dometic organization that used to be working on Dometic second brand mobile cooling into Igloo. So we are forming Igloo Europe as we speak. And all the resources have already been moved and...
The next question comes from Gustav Hagéus from SEB.
I have a few, if I may. Firstly, if we can be a little bit more granular or so on the cost reductions that we see this year related to the Siegen closure and the run rate cost program, where are we in terms of the year-over-year impact, as you see it now, in H2 from cost savings, both -- I guess, from Siegen also, a rough indication where you think if there will be cost reductions from lower inventory based on containers and so forth?
With the raw material prices and the freight cost, it is clear that we see that coming down in comparison to the situation we have with. Having said that, it is also clear that we are set on inventories ourselves. So even if those lower costs are coming in our balance sheet, they are not shown yet on our P&L expectations that we are going to start during the second half, clearly. And then on the restructuring do we have -- do you have the...
It's, I would say, we're talking about around SEK 100 million year-on-year. If you see how it has been building up since Q1 last year, and we have as mentioned -- during the quarter and that as well, obviously, to the closure of going to highlight the close end of Q2 and then we also have full year effects of the contingency program that we've launched in Q2 last year.
Sorry, you broke up a little bit. Could you reiterate what was the year-over-year EBITDA impact from those savings, the structural savings H2 year-over-year? Was that EUR 100 million?
EUR 100 million.
Yes. Okay. Perfect. And then you keep referencing in the report that you're a bit cautious on OEM. Just so that I understand, I guess everyone assumes that American RV OEM will, at some point, trough maybe start to grow against H2. And then you have the Marine business that seems to be running quite well, and your CPV that's running very well with longer contract. So what OEM are you referencing? And do you have any hard date on this? Because I also note that the European or RV OEM markets are seemingly quite strong still. So is this more of a hunch? Or do you see any date on this?
Yes. I think it's -- I'm trying to understand, I mean if inflationary -- interest rate [Technical Difficulty] working on the bank could not deliver, then the question is, again, is does backlog going to be there forever? Or will it end -- given the situation. The good news is as you said, we are expecting that it does happen in EMEA, it does happen in, that will be, to a very high extent, compensated, obviously, by Asia and the growth on the American market then.
And of course, the Service & Aftermarket will be coming back. So to me is very much a question of timing. What this deployed is that Marine can base that is going, but EMEA cannot be filling back forever. So we try to be as realistic, but have [indiscernible], but we're also looking at ways going around in the surrounding industries.
Yes. I think I can't really hear you. But let's take that off-line maybe. And I'll pass it on. Maybe it's -- I don't know if it's my line.
The next question comes from Douglas Lindahl from DNB Markets.
I wanted to start off with the Marine business, Juan, you mentioned that you see the Marine for larger engines doing well. First, I wanted to see what you believe is the reason for that. And with regards to the backlogs within the Marine business, how long do you think this is expand? I didn't hear the answer if you answered it in the previous question, sir.
Yes. So I mean if we have the backlog, which is obviously an important -- very, very important data point. We have exactly the same backlog that we had 1 year ago. So that's good news. We see altogether that our total backlog for the company is lower than the backlog that we had 1 year ago. At the same time, as we see the order intake coming up now during the last weeks. So there you have 2 data points. So it's clear that we are going from a situation where the market has been shrinking for a while.
North America, but also the other economies have been kind of going down. At the same time, we see that the order intake is on the way up. So that's positive. And then on Marine specifically, it is crystal clear that what we see is a difference, there were large boats and smaller boats. On the smaller boats, it is -- we have seen both in retail but also manufacturing that the smaller boats have been shrinking now for a number of months while we see still very good traction on the larger boats. And the more, again, over 200 horsepowers, they are still growing high 2 digits.
And that's obviously the group that is the smaller boats, they are not as financially resilient as the one buying a large boats.
Correct. An important piece of information for us that on the smaller boats, you have mechanical steering. On the larger boats, you have hydraulic and electronic steering. And then you have a major price point difference as well. So that's another thing, which is driving our growth in comparison to what the industry is performing altogether.
Yes. Okay. Interesting. On switching topics a bit. On the earn-outs, excluding Igloo, I know that's your other current liabilities is down somewhat sequentially. What's the reason for that? Would you say, Stefan?
The reason for that is that we are continuously updating what we are expecting that we will have to pay. So we have done that. And then the payment, as such, excluding Igloo, is going to come around SEK 500 million during Q2.
So excluding Igloo, earnouts will be SEK 500 million in Q2?
Yes. And you know our point of view on Igloo, right, so.
Yes, yes. And a final question, if I may, on APAC, super strong profitability, as you already highlighted there with organic growth declining. How should we think about this business in sort of a negative growth environment? Is this sustainable margin levels what you're seeing or the exceptionally strong here?
We have always been pretty strong as a consequence of the mix. It is important for you guys to understand the main difference that we have in OEM business and Service & Aftermarket business, that's valid even in APAC, not to the same extent as in the rest of the regions, but that's also valid. And then we have a good mix where OEM is less than 45% in comparison to Service & Aftermarket distribution. So I cannot guarantee you that we are going to be on 25.6% whatever. But since I joined the company, we have never been below 20%.
It is not my intention to reduce it. We know we are perfect. We still see opportunities. But of course, it's very much due to the mix. The good news in this case is that we have a negative mix and still we perform better. At the same time, I hope that you note as well that we are pretty good at reducing costs, adapting our capacity needs into new situations.
And then you have another factor, which is important and it is the acquisition that we made and the NPS acquisition that we made 2 years ago that has a nice accretive impact on the APAC numbers as well. So NPS altogether is bringing very nice margins. I mean I would say those acquisitions that we did during 2021, 2022 with the caption of Igloo and that's why we are paying a lot of attention to Igloo as well to elevate those margins.
I hope you can hear me. A couple of questions from me. And maybe starting with the outlook, somebody said that it looks bleak. And of course, it does, but you actually detect a slight improvement of the outlook compared to what you wrote in the Q4 commentary when it comes to what you see in terms of OEM where you actually added that you expect to see stabilization in demand by the end of the year when it comes to the RV business in Americas. And -- what sort of -- how do you model that? And what do you hear from your customers? And it's -- I can also sort of come up with the situation where you're actually back to growth by the end of Q3? And what do you find realistic?
I think, Daniel, that you have to differentiate. We've got customers tell us and what we think. I mean, history tells so far for the 5 years that I have been in the company,, history tells that our customers tend to be a little bit too optimistic and we tend to be a little bit more realistic, you would say. So of course, that I am a little bit more optimistic today for 2 different reasons. One, the traction that we had on the Marine business, on the RV OEM in both EMEA and APAC is still there. So that means that we see, so to say, a postponement of the negative trend, which is positive.
Secondly, we see order intake flatten out and starting to improve as well, which is positive. But at the same time, you cannot deny the fact that everything is going to have to do with inflation and interest rates, if you're going to buy a new boat, no matter if you're in Australia or you are in the U.S. It's a question of time.
So I think -- I mean, I'm not -- I'm more optimistic today. I would say that I am perhaps less pessimistic today that I was 6 months ago when we saw that American market was coming down. At the same time as we could find a logic on the other OEMs were going to come down as well. Then you also need to model in your files that the American market is always at this shape. Not dramatically very, very fast and starts growing dramatically on the way up again.
While Europe and APAC are much, much softer movements. So I think to me, it's very much a question of timing. It's really when will EMEA OEM and Marine OEM have some negative impact. And when are we going to see the U.S. RV Americas flatten out and started to -- so everything is about...
But it looks like they could trade places, sort of starting to look like the U.S. market could be troughing out towards the end of Q3, maybe -- and maybe then you will see some weakness in the European market, for instance. Are you seeing any changes when it comes to sort of consumer credit availability in the U.S. market on the RV side?
No more than people a little bit more conscious of natural reasons.
Okay. Okay. Good. Just a nitty-gritty question for Stefan maybe. Given what we know, as you mentioned, when it comes to the earn-out payments being around [ 500 ] for Q2 and you have the dividend as well. And what you say in terms of cash flow in H1 versus H2 and you also had restructuring payments, I think you mentioned as well in Q2. And then again, maybe a big release on inventories, is it reasonable to see free cash flow being positive in Q2?
Let me say, I would hope so. But of course, I mean, there is a lot of dynamic here driven by the demand, of course, which is going to be crucial. I mean, we are taking all measures internally to continue to drive down our inventory, which is obviously going to be crucial here. So it's going to be a little bit up to the demand development here and the Service & Aftermarket. And we -- as we say, we are expecting a gradual improvement here. But also on that side, as Juan is mentioning, it's a lot about timing here. When will that happen? So it comes down very much to the demand, I would say. So but...
But as you model it, given what you expect in terms of cash release on inventories, it's not impossible, although you do have the dividend and the earnout and you also mentioned something about restructuring payments.
Yes. You're guiding yourself.
Okay. Okay.
I mean, what is going to happen on the 27th of June or on the 10th of August is [indiscernible]. What we know is that Q1 is a tough quarter for us, historically, has always been a tough quarter for us. We have Q4 and Q1, and I do believe that, at least, the takeaway is we have a good performance. We are delivering 11.6% in EBITA. We are delivering a strong cash flow in our second weakest quarter every year. We have Service & Aftermarket down 19%. We have an organic growth in Americas of minus 48%, and we're delivering good cash flow, good EBITA margin. The best is yet to come absolutely.
Okay. Good. And then the final, maybe nitty-gritty as well on the inventory and that's expected to continue to come down and that sort of in relation to what you guys mentioned in terms of freight costs and raw materials if we see inventories coming down as you expect during Q2, will it still -- will we still have to wait until Q3 to see positive effects from freight and raw material in the P&L?
The more material for that you need to think H2. Yes. .
The next question comes from Agnieszka Vilela from Nordea.
My first question is on your comment, Juan, on the improving order intake in the recent weeks. Could you just elaborate on that? Is there any specific segment that is driving this improvement?
I would say that we see practically everyone with exception of America. But if we look at the 3 different sales channels, we see improvements in the different sales channels. And then we're looking at segments. We see in reality, global, doing well. We see Americas showing very, very, very well. And then we have Americas being still negative, clearly. APAC is quite flattish, just as Marine doing the same levels as last year.
Perfect. And then, Juan, if you could comment on the pricing environment right now. If you look at yourself and your industry, is there any risk that you will need to cut prices if the demand slows down a bit more in the Marine business or in EMEA? Or do you want to kind of try to stick to your pricing?
We will stick to our prices. To me, this is very much up to each company to decide. From my perspective, to be aggressive on prices in a situation where your products are not seasonal and where demand is not there, that would just prolong the pain. So why would you do that? So our intention is that the way around. In a situation when the market is falling as it has been falling. I don't believe in buying market share, especially if the market shares are on the low -- the most low margin business that we have.
So I would say the other way around. Our intention is to be more selective moving going forward as the OEM market is moving upwards. Again, we saw a different mix today than we had a few years ago. And we have a financial target that we will hit. In order to do that, we cannot just keep doing things in a way we always did. We need to be more selective on pricing. We need to think a little bit less or market share and seeing a little bit more in how do we grow the company in a more profitable way than we have historically done.
Perfect. And then just the last question on the -- your commitment to 2.5x net debt to EBITDA. Do you have any kind of time target for reaching that?
It's what we have said that we are going to move towards that target during 2023. But are we going to reach that exactly rally not. So it's -- but a meaningful movement towards the target in 2023.
Okay. And maybe just a short follow-up on this one. You still have SEK 9 billion in inventories. Can you share with us how much of that inventories do you plan to release through the end of 2023?
I mean it's -- there is going to be also a material release for the remainder of this year. I mean, it's obviously also a balancing act here depending on timing when the Service & Aftermarket is going to start to recover as we're seeing. So that is obviously one factor.
And on the incoming side of the inventory, we are taking significant measures. We have containers down 58%. We have a number of FTEs down 14%, very much related to our manufacturing capacity. So it's -- but as always, it's going to be a balancing act also when does the Service & Aftermarket going to show recovery here. So it's like a day-to-day gave here, I would say.
The good news that we know is, obviously, that we have Q2 and Q3 are the strongest quarter for us. At the same time, as Stefan commented, we have the KPIs in place to measure every single day, every single week, the number of containers that are coming from China. And we know exactly the number of fees that we have in the factories. So obviously, when the inflow of new material is coming down as dramatically as it is doing. At the same time, what we are producing is so much less than we are -- we need. At the same time, [indiscernible] going up simply because of seasonal reasons, the effect should be there in our mathematics.
Absolutely. Yes.
The next question comes from Johan Eliason from Kepler Cheuvreux.
Juan, Stefan and Rikard, I was just wondering a little bit pricing versus volume. So organically, you dropped some 13%. How much of that was positive pricing? Where are we in terms of volume development?
I would say that pricing is somewhat -- depending on the product, it's very difficult to give you a number for the entire group since we have so many products and so many verticals, but I would say an average pricing is so 10% to 12%. Keep in mind that we have been increasing prices now for 2 years. We have recent price increases again.
Okay. And if we look into global and I guess, Igloo, you had positive 5% organic. Are we talking about the same 10% to 12% price hikes there?
Yes. So if you look at the American market, and there are -- we are following, obviously, the numbers from one of the American associations looking at that. If you look at the last, I would say, 2 quarters, the volume on the American market from a cooler perspective has been down. While our revenue has been quite a bit up. It's not dramatically down, but it is down.
Yes. Excellent. And then I wonder just -- I mean this is a bit of a guessing game, obviously. But you were talking about the double costs in EMEA because of the plans you're running, can you quantify it to any degree now in Q1, Q2?
Well, I can tell you that we still have in Germany, about 200 -- around 240 people. And of course, that we need to hire, and we need to train 240 people. So you calculate the average cost for a person then you realize that this is quite a bit. That's for sure. I would guess we are having the number on top of my mind, that there's most probably 1% on the EBITDA on EMEA.
Yes. Good. And then one thing I was thinking about just having acquired an electric vehicle on my own, in the CPV segment, I mean, your air conditioners and the fridges and what you have, have always been focusing quite a lot on energy efficiency because they are used when the engines are not running in the mobile homes or boats, et cetera. Would this be an opportunity for you? Because in an electrical car, I mean, this energy efficiency is as important as it is for still standing RV, obviously, to keep the aircon going. Or has -- is that sort of an opportunity that is not really open to you because there are 2 big competitors in that space?
I think you have different factors. So if you look at our CPV OEM business, you have one business, which is cooling compartments and that business is showing a fantastic underlying growth and it has been showing a fantastic underlying growth now for years. We are getting awards and that market is a growth market here. Then you have the truck business. The truck business has also been doing pretty well in the last 24 months, and we are selling air conditioning, and we are selling also refrigeration. So kind of mini bars for the truck industry. That business have been doing also very, very well.
The new one, which is also very interesting is, as you know, we have made 6 acquisitions on mobile power solution companies. And of course, both cars, but nonetheless fleets need to electrify to reduce consumption. That's a fantastic opportunity that we have in front of us. Some of the businesses that we acquired are already doing that, but we have more opportunities to expand into the other businesses.
Okay. It looks promising for the future then someday. Excellent. That were all my questions.
Okay. Thank you very much. That was the final question. So I'm just handing over to Juan for some final remarks, please.
Thank you, Rikard. Well, ladies and gentlemen, thank you very much for your attention. And again, I think that the market is not a lot that we can do about, but we are doing our very best to perform in a very, very positive way and to make sure that our company keeps developing according to our strategy. So thank you very much to all of you, and have a great day.