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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 2024. 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.
Hello. Good morning, everybody, and welcome this Friday morning to the presentation of the first quarter report for 2024. Without any delays, let's move into the highlights for the quarter.
So we'll start with the market conditions. We perceive the market still today to be under challenging conditions. We see as well inventories at retail level, both in terms of social aftermarket and distribution are on the way down. But at the same time, we also perceive that the order pattern, the purchasing pattern of our customers, our customers' customers, is changing slightly.
It is clear that high interest rates is in the situation where capital cost is also increasing. People are waiting to the very last minutes to build up inventories for the season. We see as well an OEM market, which is declining everywhere with the exception of, in reality, the EMEA region still today. And now I'm talking about the EMEA region, so it's the market and not organization.
And at the same time, it is also clear that American volumes in the RV industry have been growing, but we have to keep in mind that we are still coming from 313,000 at the end of last year, which is in parity with 2012 year levels. So still a very, very low level.
If we look at Dometic now, moving from the market to Dometic, we were down 12% organically, with Service & Aftermarket down 10%. And I would say that, that's perhaps the major surprise for us internally in terms of the report. It is clear that customers, as I mentioned earlier, are still cautious with their orders.
At the same time, as you all know, Q1 is a very short quarter for us. January and February are always very slow, and then March is when the season in reality kicks in. And this March, unfortunately, we have 2 factors. On one side, we have Easter, which is coming a little bit early. But then we also have a very, very wet and rainy month of March where, again, is when we have our revenues. That did have an impact -- a negative impact. I would say that our own estimation somewhere is that if you take the weather and the Easter effect in those numbers, it should be around 5 percentage points.
If we look at Distribution, down 13%, which is a major step in comparison to the minus 20% that we were showing in Q4. And we see already a positive trend in Mobile Cooling. We commented, in connection to the last quarter, we saw inventories at Retail coming down at the same time as sales from retail to the market were going up, and we will continue to see that pattern.
Very, very happy to see that EBITA margins continue to improve, despite lower volumes for the company, ended up at 11.8%, so another 20 basis points better than the situation in the same period last year.
And then last but not least, we are also happy to show strong cash flow, even, again, slightly lower than 1 year ago. But we need to consider that 2023 was extremely high. And the leverage is standing at 3 -- level 3, where obviously is higher than what we were showing in Q4. But then you have even there are two factors. On one side, you have FX being 2/3 of the difference, and then 1/3 is due to the seasonality pattern that we can see every single year.
So moving to the numbers. 10% down in total growth, 12% down organically. EBITA down 9%, still an EBITA margin improvements of 20 basis points up to 11.8%. Cash flow, operating cash flow ending up at SEK 212 million and then leverage, 3, as I mentioned. And EPS of SEK 0.85, or 85 oren, in comparison to SEK 1.04.
If we move over to sales. We can clearly see that this is really the eighth quarter with negative growth. Still looking at Q4, ended up at minus 13. This quarter, ended up at minus 12. And we expect, obviously, seeing improvements during the course of 2024.
Looking at different segments. Americas, down 20% organically. EMEA, down 7%. APAC, down 5%. Marine, down 13%. Mobile Cooling, the new segment, as the first time as we report as a segment, 16%. And then Global, down 4%.
In terms of the sale channels, no major changes. So the Service & Aftermarket channel went down 10%. The Distribution channel went down 13%, and the OEM channel went down 13%, which means that we had a balance, so to say, drop in the different channels. What is perhaps worth to mention is that in the RV OEM that represented 49% of sales in 2017, represents 22% of sales nowadays, even if it is higher -- at a higher level than we were showing in 2017.
Let's have a look on the Service & Aftermarket, which I tend to believe is one of the major questions that we have for the quarter. So we ended up at 10%, as I said. A very rainy March and early Easter having an impact in our numbers. Our estimation -- our estimated impact is about 5 percentage points.
And as I also commented before, we see a change in order pattern with our customers, which we have seen also in the Distribution channel, where companies or customers are pushing purchases forward and waiting until the last minute and expecting short lead times since everybody is sitting today on too high inventories.
At the same time, it is clear that inventories are coming down. So we are expecting in the same way as we did in Q4, and that we will see improvements moving forward.
Also perhaps worth to mention when looking at the upper part of the chart that you can see that the pandemic created a different pattern when customers were ordering much earlier than they were normally doing in the past. 2024, we are hitting the same levels that we had in 2019. And what we are expecting is obviously that we will see the seasonal pattern to come to normal levels during 2024.
Happy to see as well, when looking at the evolution of our EBITA margins, that this is the third quarter in a row where we see improvements versus same period last year. We have 3 segments showing clear improvements: Land Vehicles EMEA. We see Mobile Cooling Solutions also moving onwards as well as Global Ventures. We see as well that Vehicles APAC is standing at a very high level as well as Marine, despite a drop in top line. And then we have the situation in Land Vehicles Americas that I will come back in a couple of minutes.
So let's have a look on the different segments, starting with Americas, LV Americas. Organic growth, down 20%. We see a decline in Service & Aftermarket. We see also very low volumes on the RV industry on a very high competitive market just now and where everybody is obviously fighting for volumes.
And we are taking a different approach in this case, as we have been discussing now for a number of quarters, and we want to be more selective and really differentiate products where we are expecting to see Service & Aftermarket during the lifetime of the product and products where we see more of a transaction where we should be very, very careful in dropping prices and instead fighting for margins.
Looking at EBITA. Despite the fact that we are dropping 90% on the top line, we are ending up approximately at the same level as we had 1 year ago, which drives our EBITA margin to minus 11.5%. We see, of course, that this is having an impact on our infrastructure. We still have infrastructures, and we are working to reduce our infrastructures on LV Americas. And we have, as you all know, a new management in place, and it is ahead on the segment, but also creating, developing the new subsegment organization in order to get even more accountability lower down in the organization.
If we look at LV in EMEA region, down organically 7%. Even there, we see a decline in the Service & Aftermarket. And in Distribution, we see still some improvements in comparison to where we are coming from during the last 4 quarters. Again, inventories are definitely coming down.
At the same time, in the EMEA region is, in reality, the only segment where we see that the OEM side is pretty stable so far, which is very much in accordance to what we have been hearing obviously from some of the OEM customers across the EMEA region.
Happy to see that EMEA is coming up after a few weaker quarters. We see the impact of the cost reductions. We see the impact of the restructuring program that we have been running in the last couple of years. At the same time, as we are still obviously dropping top line and that has a negative effect, even in EMEA the region due to the size of the region, the complexity of the region, we have also implemented new subsegment structures to really increase accountability and get even closer to the business.
Moving into LV APAC, down, even in this case, 5%, with Service & Aftermarket, even in this case, below last year. Distribution is starting to move upwards, which is positive to see, and we see that the decline in OEM is primarily coming from the RV industry, where the -- the RV industry in Australia is coming down quite rapidly.
Happy, of course, to report that we are keeping our margins, despite a drop in top line. And like in all the other cases, we are working on a continuous basis on efficiency improvements, at the same time as the mix also contributed positively when we see Distribution starting to move upwards.
Moving over to Marine, down 13% organically, with Service & Aftermarket that has been stabilized in the last couple of quarters at the same time as OEM -- and OEM production, meaning our customers, OEM customers, are pretty much down. Just as for your information, both manufacturing is down about 30%, engine manufacturing is down about minus 13%. And we are not close to those kind of numbers.
But still, of course, when the market drops 30%, it's difficult to stay at the same levels as we were 1 year ago. Happy even here to see that our margins are holding up very, very well, ending up at 23.6%, despite the fact of the lower sales.
And in this case, on top of all the efficiency improvements that we are doing to mitigate the drop in volume, we also have the technology shift, which is helping as well to keep our margins. And I'm referring obviously to the move from mechanical steering systems into electric steering systems.
Moving over to the new segment, Mobile Cooling Solutions, or MCS, as we call it internally, down organically 16%, which shows quite an improvement in comparison, minus 25% on Q4. And that's exactly the levels that we saw during the course of the entire second half of last year.
We see that the inventory levels at retail are coming down. At this point, they are down 20% in comparison to the same period last year. We see as well that sales from retail to the consumers are up 7%, and we also see that our market share is still growing and has been showing improvements of 2.7 percentage points versus last year.
EBITA margins, even here, coming up, 7.7% versus 7%. And as you all know, Q1 is, even from a Distribution perspective, a very short quarter for us. In this case, we are driving sales initiatives. We are, as you know, introducing the new active cooling boxes on the American market. We are also introducing the passive cooling boxes in the rest of the world, both on the Igloo brand and the Dometic brand.
And we are betting a lot on innovation. And just as a sample of that, we communicated in connection to the last quarter, we were introducing the first active coolers under Igloo brand with Dometic technology inside. We are very happy to see that on one side, we are starting to sell in 600 new stores across Americas.
And this is -- I'm talking just now about Igloo coolers, active coolers, which is great to see. We see also that sales is starting to happen, meaning sales from retail to the consumers and above the expectations. So we are very happy to see.
We're also happy to see obviously that in the Newsweek, the magazine, published a report a few weeks ago where Igloo is awarded the position, # 8 among all the consumer goods brands, which is fantastic for a cooling brand. And we -- of course, we are talking about being behind companies like Procter & Gamble, companies like Colgate. So we are talking about major players in the consumer space.
Moving over to Global Ventures. Even here, we see a drop of 4%. We see Mobile Power Solutions being very, very stable, and the drop is really -- and we see our Hospitality business, which is also slightly positive, while with our Residential in the U.S., which is still negative. Happy to report margin improvements. And they are, to a very high extent, coming from our Mobile Power Solutions business.
And speaking about Mobile Power Solutions, we're also very happy in the way the integration is taking place. On one side, obviously, those businesses are competing within their own industry. But at the same time, we see fantastic opportunities to create new synergies by really connecting the Mobile Power Solutions from Dometic with other Dometic mobile devices. In this case, it's really the first 48-volt air conditioner connected to Dometic Mobile Power Solutions, meaning that you can basically spend the nights in your RV off-grid and still have your air conditioning on during the whole night.
From a sustainability perspective, even there, a lot of progress with both injuries developing better than our targets. We see share of female managers at 29%, even higher than our targets and showing a great improvement in comparison to 1 year ago. We see CO2 reductions taking also major steps in comparison to our targets that were set in 2020. We see audits for new suppliers also well above targets.
And last but not least, a new KPI that we're introducing formally, which is innovation index, where we are happy to report one more step in our recovery in innovation index. As you all know, we have as a target 25%. We are coming from 14% in Q1 last year and ending up this quarter up 18%. And we will continue to see the improvements, as now our inventories are coming down and we are introducing the new products that have been ready and waiting really for low inventories to be introduced in the last quarter.
And with that said, Stefan, could you please enlighten us?
Yes. Thank you, Juan.
Starting off with our EBITA bridge, where we obviously have a drop in absolutely the EBITA with SEK 78 million. And behind that is a number of things. First of all, of course, the negative organic growth of minus 12% is a clear reason. But with that in mind, it's actually really nice to see that we still are able to improve our gross margin to 27.9% from 26.5% last year.
And behind that is that we are and have been implementing efficiency programs, including the closure of the manufacturing in Siegen. We also gradually see declining negative effects from the extraordinary logistics costs. We are also gradually, as we are consuming our inventory, enjoying lower raw material costs. As you know, we have been actively working with our price management, and we have not a very significant impact of the Red Sea situation in Q1.
Then we have R&D and SG&A expenses. They are in absolute terms down in constant currency with 5% in the quarter. But in relation to net sales, they were going up to 16.2% from 15% of sales. And we are continuing to invest in R&D, in the structural growth areas that we see. And then that is partially offset by cost reductions in SG&A in the other [ estimates ]. Then FX in the quarter has a very limited impact. There is no effect from acquisitions.
Moving on to cash flow. Operating cash flow of SEK 212 million compared to SEK 294 million last year, which I see as a solid performance taking the seasonally weak quarter into consideration.
Income tax paid, a little bit lower than last year. And on this point, I would like to highlight that the effective tax rate is 30% in the quarter. And it is higher, somewhat higher than what we have seen before, and it's driven by the mix of countries where we are paying tax basically. So we are more successful in the higher tax jurisdictions. Then we also have the tax deductibility of interest cost that we -- is impacting, to a certain extent.
Acquisition and divestments impact on cash flow is SEK 103 million in the quarter and is related to one of our earlier acquisitions. And we have left SEK 50 million to be paid in Q3 this year related to acquisitions, then we are done. And -- okay, we still have Igloo, but you know our view on that, that we don't think that we should pay anything this year.
Financing, minus SEK 993 million. We have paid back SEK 1 billion of an EKN-backed loan here in Q1. And then we have been issuing commercial papers at the value of SEK 299 million. And then the net of paid and received interest is SEK 170 million, which is up compared to SEK 114 million last year.
On the next slide, you just see the development on operating cash flow in historical perspective. So as you can see, SEK 212 million is a rather okay-ish operating cash flow to be the first quarter.
If we go into working capital, we see a stable development on accounts payable and accounts receivable. On inventory, which we have reduced to SEK 7.7 billion compared to SEK 9 billion 1 year ago, we see that the number of days of inventory is coming down, 145 days currently. And we are obviously actively continuing to work on driving down inventory, and we will see more of that for the remainder of the year.
And as you know, our overall target of working capital is 20%, and we obviously have a gap to the 31% that we are -- where we are at the moment. But we should see that continuously coming down during the year.
Going to CapEx and research and development. We had a rather low quarter on CapEx, mainly timing related, but also that we are selective on where we are allocating resources. We are on 2% of LTM level, which is a level that we have been communicating where it should be around.
Looking into R&D. We spent 2.4% in the quarter. And as I mentioned before, we are continuing to invest in structural growth areas like Mobile Cooling, Mobile Power Solutions and Marine. And the last 12 months, we are on 2.3% R&D to net sales.
If we take a look on our net debt development. It ended up with 3.0 compared to 3.2 1 year ago, and that has been a movement upward from 2.7% in Q4. The main reason for that is the weakening Swedish krona, which contributes to -- with 0.2. And then we have the normal seasonality impact in Q1, which is contributing with 0.1. As you know, we are committed to achieve our leverage target of around 2.5, and it will trend down during the year, and we will move into the target area during 2024.
If we then go to our debt maturity profile. As of end of March, there has actually happened a number of different things. First of all, as I mentioned, we have repaid an EKN-backed loan of SEK 1 billion, so that is 50% of that facility. We have also refinanced the second part of our credit facility agreement with our bank group.
As you know, we did the first part in Q1 last year. And on March 27, we signed this agreement. And that is relating to the U.S. dollar term loan of $333 million maturing in 2025, which we now have then extended with 3 years, with 1 plus 1 year extension options. Then we will amortize SEK 100 million of that term loan in July 2024.
Then on the RCF side, we have increased that with EUR 80 million, so that is now a total of EUR 280 million. And as I mentioned, it was signed in 27th of March. Then we have also issued SEK 299 million in outstanding short-term commercial paper program with 4 to 6 months maturity. And this refinancing activity will increase our average maturity to 2.6 years.
So with that, Juan, I hand back to you to summarize.
Thank you, Stefan. So I mean, looking at the business, the market is not a lot that we can do about. It is where it is. And obviously, we have a massive impact post pandemic in connection as well with interest rate increases and high inflation rates.
What I'm really is proud of is the transformation of the company. Despite the fact, if you compare Q1 2024 with Q1 2022, basically, top line is down 25%, which is less obviously than many other companies in consumer businesses. If you look at our profitability, as you can see, we are holding up in a very, very strong way in comparison to our peers in the industries where we are present.
So it is clear that in the last years, we have created a far more resilient company, and that's something that we, within the company, feel very proud of. We have lots of people doing a fantastic job to create and develop a better company every day.
On the market, still difficult. It is clear our expectations are largely in line where we communicated also after Q4. We see that Service & Aftermarket will continue to recover during 2024. We see Distribution will be also recovering. And hopefully, we will see this in the coming couple of quarters now.
And on the OEM side, it's a little bit of the same. We see that it's still tough. We see that some areas are going to show improvements in the coming couple of quarters. Some areas, and now I'm referring specifically to the EMEA region, will deteriorate sooner or later. But altogether, we are expecting the OEM to show some improvements by the end of the year.
Strategically, it's more of the same. We have a strategy, and we watch our strategy. So we will continue to work in the same pace and in the same direction. We have implemented a new segment structure, as you're aware of. We are on top of that also increasing accountability in new levels of organization by creating subsegments in our largest segments.
It is clear that we have 3 segments improving margins. We have 2 segments holding margins at a very, very high level. And then we have 1 segment that we see we need to fix, which is Americas, and that's what we are working on. We are also very, very convinced that we will see the America market growing on active cooling, and that will become a great asset for Dometic in the future to come. And last but not least, we will continue to prioritize margin before volume.
And with that all said, I would like to open for the Q&A session.
[Operator Instructions] The next question comes from Gustav from SEB.
This is Gustav Hagéus with SEB. If I may start with the U.S. then, which is a bit of a topic today, I guess. With the new structure, it's always a bit hard to follow the development in the past now. But could you give us an indication where you think you are on organic sales now versus the 2019 level?
And if you could add granularity and have a view on the volume versus 2019, I think that would be helpful. And connected to that, it would be great to get a -- some color on the competitive dynamics in U.S. I know that you had some competition on awnings during COVID. And then refrigerators from Asia seems to be the topic now. So some color on that would be great.
Well, look, I don't have the numbers on top of my mind just now on the volume in comparison to 2019. What we can see is obviously in the market just now. Even we are talking about OEM are starting to grow. They are up 15% in the first 2 months, and we are still dropping. And that's telling you, obviously, that we are, on one side, very selective on pricing.
At the same time, as you just said, with the low volumes that we see in the markets, competitors are extremely aggressive on prices, and we don't want to follow. And that's a little bit all over in terms of products.
But you said very much right. If we look at refrigeration, we see a new competitive arena that, in reality, was created in connection with the pandemic, where the traditional suppliers, companies like Norcold or Dometic, of course, these have difficulties to deliver during -- when the market opened up. At the same time, Chinese importers just started to kick in. So it is clear that the competitive arena for -- in the RV industry, I would say, has changed in Americas. If we are talking -- and that's again, I'm referring to RVA or the RV American business.
If we are talking about Service & Aftermarket, of course, that the numbers that you see is a combination of all the channels. We are talking of the Service & Aftermarket business is very much in line with the rest of the group. So there, I do believe that is much more related really to the inventory levels and the weather also during Q1 in the same way as we saw in Europe. And then we will need to come back to you on the comparison to 2019. I cannot share...
It might be lower, it might be lower.
Yes, that's what we know, yes.
Yes.
And how -- related to the refrigerators from Asia then, could you remind us roughly what the share of your sales in Americas relates to this?
And secondly, have you heard anything about -- because there's been quite a lot of talk from both parties in the States now regarding tariffs and so forth. Could you elaborate a bit on sort of what scenarios you see in front of you on tariffs and whether or not that could change the dynamics for you in the market?
I mean, if we look at refrigeration for LVA, I believe that is around 10% of our revenues for LVA nowadays. And we are coming from about 25% 2018, 2019. At the same time, we also need to remember, 2018, 2019, we were growing like crazy since our main competitor at that time, Norcold, did have difficulties to deliver. So we were taking massive market share in 2018, 2019. And then, of course, when they got their house in order, then they started to recover in the market share.
And then we had the technology shift from absorption to compressor.
Yes. So historically, the American market has been, if we are talking about technology, absorption. The problem being, again, in connection with the pandemic, a movement from absorption technology to compressor technology, where you have in home appliances, started to take place since customers could not deliver to consumers. And that transition accelerated in connection to the pandemic.
And on tariffs, do you have any view there?
Not more that we have prepared ourselves. That's what we can see.
And I mean, if tariffs would come through, as there has been speculations about them, of course, it going to tougher for Dometic.
It's going to be tough for the rest, yes. No doubt.
And if I can squeeze in a final question before I get back into line. But EMEA then, perhaps, a bit surprising, positive trends in terms of registrations in Germany, as you've alerted. Do you think we're out of the woods now in EMEA? Or is this a flip? Or what's your view internally on the market?
No, no. I do believe -- I mean, I don't think that anybody knows, I have to say, because we have seen registration numbers coming down heavily during 2022 and then 2023. Having said that, the last couple of months in 2023 were positive, and the first 3 months of 2024 are positive. So you take the last 6 months of registrations, Europe is up 3%.
At the same time, it's clear, the manufacturers have been producing much more. So depending on when interest rates go down or not, that will have an impact on whether manufacturing is going to drop more or less. But it is clear the last couple of years, we have exactly the same situation as we saw in Americas.
You have much more manufacturing than registrations. So I think now the key question is going to be, when do we see interest rate decreases and what is the level of inventories at that point.
The next question comes from Daniel Schmidt from Danske Bank.
Just a couple of questions on, I guess, the second topic for today, Service & Aftermarket. And you already touched upon it quite a bit, mentioning early Easter and a rainy March and so on. And you estimated that might have an impact of 5% in the quarter. Do you see those 5% coming back in Q2 referring to Easter, especially?
Well, Daniel, I'm not sitting with a crystal ball, unfortunately. But what I can tell you is that we can see until now in April, it looks better.
Yes. Okay, okay. Good. And we talked quite a bit about the Red Sea and Q4 report and the surcharges. And I think Stefan mentioned just briefly in the -- in his statement, it sounded like you haven't been impacted really. Or could you shed some more light on that and the ability to pass on and so on?
But we have a negative impact of about EUR 1 million in Q1. At the same time, we are also obviously compensated for the actual pricing. So our expectation is that we are going to cover up for any negative impact.
And then it is, of course, 2 weeks longer lead time.
Yes, yes.
Okay. Good. And do you fear anything in terms of freight costs? They were coming up quite a bit and then down, but then up again now. Still, of course, nothing compared to 1.5 years ago, but still quite a bit more than we saw before Christmas. Sort of looking into the second half of this year and so on, is it getting more difficult given the volatility that we have now, at least?
No, not really. I mean, the problem that you have with freight prices, especially on ocean freight, is that you have contracts and you have normally annual contracts. The problem is obviously that when you have a small war here or there, then they apply what is called force majeure, and then you can't get the contracts.
So you look at the contracts that we are negotiating just now. They are lower than the contracts that we have 1 year ago. But of course, with our -- again, I know there's more war, then we don't know. So just now, we see the contracts are at lower levels than we have 1 year ago.
Okay, okay. Good. And then maybe some smaller ones. I think everyone expected one-offs to be behind us. But is there going to be sort of smaller one-offs here and there in the coming quarters as well?
Not of any significance, no.
No. And then maybe just one more on Igloo. Any update you can give us in terms of the dispute? I think you mentioned 2 quarters ago that there was a court date set for Q1 '25. Is that still the case?
Yes.
Yes. And no changes to that time table at all.
No changes. Exactly the same schedule.
Okay. And maybe just a last one. Sort of in terms of the improvements when it comes to EMEA, which was quite sort of meaningful, and you mentioned Siegen and all that. Is that still something that's going to look even better? Or are you at the level that you want to be now in Hungary? .
No, no, no. It will keep improving, no doubt.
The next question comes from Agnieszka Vilela from Nordea.
So you mentioned the hesitance from some customers to build inventory as it costs more right now ahead of the selling season. Can you just remind us what divisions really this behavior affects most right now? And what is your kind of overall inventory assessment in the channels?
This is really in Service & Aftermarket and Distribution. Those are the 2 sales channels. OEM is not affected by that. They have always -- they're always running on very, very low inventories. So it's really the 2 other channels.
And that -- if we are talking about the level, I mean, unfortunately, it's not easy to measure that. There are -- the America market is always much, much better than the European market. We see that, as I mentioned during the call, that you look at retail inventories for coolers are down 20% today in comparison to the same period last year. And we see as well that post, meaning sell-through from retail to consumers is up 7%.
So we are pretty convinced that in not too long from now, we are going to see improvements on the top line. And we saw, by the way, an improvement in comparison to Q4. So then the correction -- the inventory correction from retailers started in reality in June last year.
All right. Perfect. And on the chart that you showed actually in the slides package, you showed 2019 trend improving in Q2. Do you think that we will see this kind of improvement this year also?
Are we -- are you referring to Igloo or -- yes, yes. No, no. This is on a pattern. That's our expectation, no doubt.
We're going into our most important quarter on Service & Aftermarket. It is, like you said, Juan, that the ordering patterns has been being short before the pandemic, then getting longer. And now it is getting even shorter than it was before the pandemic. Absolutely.
I mean, I think what is important to remember, we're looking at that chart. And of course, that we are a little bit surprised and saying, where as you are, right, is that we have seen a clear pattern during the last 6 quarters has been improving quarter-on-quarter. And then, all of a sudden, you get into minus 10%. There is no logical reason. And it's everywhere.
I mean, you had one segment, you could say, "Okay, something happened in that segment." All you have in common is weather. No matter, you look at the weather in the U.S., you look at the weather in Europe, you look at the weather in Australia, it has been extremely wet. That's the only thing I can find in common, and all the markets are coming down.
So our expectation is obviously that we will see improvements. As we commented, April has started well. Then, of course, we have another 2.5 months to go.
Great. And on Americas, that's my second question, really, can you remind us of the -- about the split that you have between OE and the Aftermarket business? And also if you could tell us what growth this subsegment had in Q1.
Yes. So if we look at LVA, historically, it has been 65% OEM, 35% AM or Service & Aftermarket. If we look at just now, without having the numbers on top of my mind, I would say that we are closer to 55-45, 50-50. And since the OEM still is very low, while Service & Aftermarket, even if it is dropping, it has not been dropping by far at the same pace as the OEM.
And in the quarter specifically of this minus 20% organic growth, how was it split in this segment?
So it's more on the OEM side than it is on the Aftermarket.
But still double-digit negative on Service in the quarter.
And by the way, we have the number just now, 50-50. So it has gone from 65-35 Service and Aftermarket to 50-50 just now.
And then just last one for me on Americas. I mean, you had minus 12% EBITA margin in the quarter, and it looks like it was the lowest point ever for the division. I understand and I appreciate the fact that the Phase 3 collapse in the quarter. But my question really is, do you believe that you're doing enough in the region? Or -- and also, do you expect Americas to turn to profits during 2024?
I mean, we will do anything we can to turn into profit. We are doing a lot of things, a lot of activities. From -- if we are talking about organizationally, I would say that LVA is probably the #1, #2, #3. And then LV EMEA is probably the #4, #5.
So I hope that I'm clear enough. It is clear that we are working extremely hard. We don't like the numbers that we are showing. We need to find a way to turn that business to profit again. You look at our EBITA margins and just extract Americas, you will see the effects.
And I mean, as you mentioned as well, I mean, we have changed the Head of LVA. But it's not only on that level. It's one step down as well where we are strengthening the organization.
Absolutely. And of course, again, it's easy to have a local Americas looking at losses where we have been making money. But keep in mind that the volumes are 50% down on the volumes we had 2.5 years ago. So it's tough.
The next question comes from Douglas Lindahl from DNB Markets.
A few questions from my side as well. I wanted to circle back to Americas a bit. Obviously, we've seen the market here grow, and you're not sort of following that trend. But -- and you mentioned very high competitive environment, and you're saying no to certain orders.
But given that dynamics and the sort of growth trends we see, when would you expect your business to turn positive again organically? So maybe not exactly the same question with Agnieszka, but more on the top line side.
I cannot tell you a day or a date, but it is clear that we are doing a number of changes in the organization. I mean, on one side is we don't want to buy market share. I don't believe that, that will benefit us in the long run to buy market share now when the market is still a very low volumes and you have lots of competitors dropping prices to keep volumes. And we believe that, that's the wrong medicine when the market is in such a shape.
So our focus just now is internally looking at our structures, looking at our sales organization, looking at verticals, what can we do in other verticals. So for me, LVA has to continue the transformation of the business that we have been driving in Dometic in the last 5, 6 years. And we will get back to growth. I cannot tell you a date, but we will get back to growth. That's no question. We will get back to profits.
Yes. But I mean, we also need to keep the extraordinary situation in mind here that -- which has never happened before where OEM and Service & Aftermarket has been dropping in double digits at the same time. Normally, you have a different pattern there where they are not going hand in hand.
I mean, we commented on the question of Agnieszka that we are just -- just now, we have our share, which is 50-50. If some sort of the market has started to grow, that will have a massive impact on our margins immediately.
Okay. Sort of thinking about the organic portion of the things, but I realize it's a difficult question.
Well, it's going to be very much about how the market then reacts as well. I mean, we have seen during the last -- the first 2 months of this year that shipments are up 15%. Of course, if that continues, we will see improvements in our numbers as well. You have a backlog in between, so it's very, very difficult to say exactly when things are going to happen. Our job is just now...
No. You expect it towards the later part of this year, mid or sort of how should we think -- or how are you thinking...
Correct. Second half, second half.
Yes. Okay. Good, good. Okay. So then maybe moving onwards one area we didn't talk a lot about. But you did mention on the Marine side that you're not dropping as much as both OEMs and the engine manufacturers. But it would just be interesting to hear more about your expectations here for the Marine business in 2024, maybe also possible breaking that down in Service and OEM as well.
I see that the Marine business has been very, very negative now for about 1 year, and we are talking about boat in industry. We are expecting that the industry will start dropping far less in the second half. And thereby, we also expect that our sales to OEMs are going to be dropping less than we have seen during the last 9 months.
I mean, keep in mind that for us, this didn't start yesterday. We have seen very, very low numbers during the last 3 quarters, even if our numbers are much better than the industry numbers.
In terms of the Service & Aftermarket, we see stability. We have seen stability during the last 2 quarters, which means that it's still negative, but it's slightly negative. And in the same way as we are expecting on the rest of the Service & Aftermarket, we are expecting to go back to growth during this year without any kind of doubts.
We are more -- we are a little bit more optimistic on the Marine side simply because the Marine side has started dropping earlier from a Service & Aftermarket perspective.
Yes, yes, yes. And they were also the most stable one in the first quarter.
Yes.
The next question comes from Fredrik from ABG Sundal Collier.
Just tagging along to the Aftermarket discussion here. Can you tell us what happened to the margin in the Aftermarket given the soft top line?
It has been improving. It has been improving, one side, due to the mix. When Sales & Aftermarket in America is dropping more than Service & Aftermarket in APAC, you have a positive effect on those numbers. Then you have as well the fact that logistic cost is coming down, and logistic cost impacts Service & Aftermarket quite a bit since you have the individual shipments very, very often. So we see improvements due to that. And then, of course, we are still very, very keen on our pricing and having selective pricing.
And are we talking percentage points of improvements or basis points? Or...
Yes. We are talking basis points, high basis points. And we expect that to continue. Again, just to remind you, we are still at very low levels.
That's clear. And then I thought you mentioned improvement potential in terms of infrastructure in the Americas. Can you just give some color on where exactly you see potential for improvement here?
No. But it's clear that it's very much about what we expect in terms of growth from the industry in the coming couple of years, right? As I mentioned before, we are down just now to 2012 year's levels. And the question is, is it going to take a couple of years to go back to 450,000, 500,000 units? Or is it going to take longer time? How many DCs do we have? Can we consolidate more? Should we be moving to more 3PL, so it becomes variable costs instead for fixed cost?
So there's a lot of activities are taking place, obviously, in order to take down our cost base. I mean, what I would like to -- of course, it sounds strange, but keep in mind that we are dropping top line 20%, we are delivering the same krona at neutral currency rates as we were doing 1 year ago when we were selling 20% more. So there's a lot of activities are taking place, even if the results are bad.
The next question comes from Johan Eliason from Kepler Cheuvreux.
This is Johan, Kepler Cheuvreux. A few questions. Just on this active cooling box you're introducing in the U.S. now, you applied the Igloo brand. But I -- my understanding was sort of also that you would also push the Dometic branded business in the U.S. sort of in a different price point. Is this sort of still ongoing?
Absolutely, absolutely. It is ongoing. You will see Dometic branded products in more stores, in more retail chains during 2024 starting in Q2.
And the profitability level of those for you, vis-a-vis the similar products on the other brand is positive, I suppose.
Absolutely, absolutely. Dometic has higher gross margins than Igloo would have for similar technology simply because of the brand position.
Yes. Excellent. Then I have a question to Stefan. Just trying to understand your movements in the debt. When I look at the Q4 presentation, you had maturity profile for the USD part of 3.3 in 2025 and then 2.6 in 2026. And now you say that 2025 dollar-denominated loan has been pushed out to '27. But in the chart you showed today, it's still sort of 3.6 '25 , but very limited '26 instead. How should I interpret this growth?
It's the average from July.
Yes, exactly. That's the -- yes, exactly. It's -- we have signed the agreement on March 27, but then it's effective from the 1st of July. So it's -- that's -- so there hasn't happened anything yet on this. So it will be effective from the 1st of July.
So the total debt repayment profile after these contracts for 2025, how much will that be sort of this 3.3...
I mean, we did repay one Euro bond last year of EUR 300 million. Then we have repaid SEK 1 billion of an EKN-backed loan in Q1. And then we will repay another USD 100 million in Q3.
Yes. And what is due after these coming into effect in July then? What is due to be repaid in 2025 of the SEK 5.6 billion you have in the chart today?
Exactly. So what we have then remaining in maturities for 2025 is then the second part of this EKN-backed loan, which is SEK 1 billion. And then we have one private placement of SEK 1 billion as well. So that is what is then remaining to refinance or pay back in 2025.
So we are down to SEK 2 billion in total.
Yes, exactly. Exactly.
Excellent, and I understand it. Then just on the interest cost was maybe a little bit above my expectations in the quarter here. How do you see this item developing for the remainder of the year?
I mean, approximately 50% of our total debt portfolio is fixed, and then the other half is variable. So we have an average of 5.2% or something like that right now on our debt portfolio. And I mean, a little bit depending on how the underlying interest development is going to be. But I mean, I think everyone is agreeing on that it should come down. It's just a question when it will come down. So over time, I expect that to decrease.
But for the near term, we should assume the same for Q2 and Q3, unless we have a major development on the interest rates.
Yes. Correct.
The next question comes from Karri Rinta from Handelsbanken.
Just two for me. One, the tough competitive situation in the U.S. RV business, and you say that you don't want to buy market share. But there's probably players that do want to buy market share. And there's probably players that might want to buy market share by making acquisitions. So how should we think about this increase in the likelihood that we might see some divestments in your RV business?
That's crystal clear. I think we have mentioned that a couple of times. I mean, we need to get LVA to a totally different margin profile. They have always been most exposed to the RV industry and especially to the RV OEM industry.
And as we all know, that's where we have the lowest margins. So either we lift our margins through pricing, cost efficiency improvements or we will consider to divest. No doubt about that. We are open, and that's no secret. I mean, we have been talking about that since 2021.
Good. But would you say that -- I mean, of course, with every day that goes by, I mean, I don't know if the likelihood is increasing. But at least, you have been working on this for longer.
Do you mean -- are you talking -- are you thinking about LVA specifically or other parts? Because as you know...
No. LVA, specifically.
LVA, specifically, not really. I mean, LVA has been very much about increasing efficiency. And something that we have done, but at the same time, obviously, when the market is 50% of the market that we had 2 years ago, then it's very, very tough to see that in our numbers.
At the same time, we have been commenting that you have products that will lead into Service & Aftermarket revenues for 15 years, and their approach are that very transactional. Of course, that we will look in the first place at those kind of products that are transactional. And we are doing that as we speak.
Then the question is, is it about divesting, is it about increasing or repositioning the products, so we become even more high margins. We are working on that, I can assure you.
Good. And then the second question is that, maybe trying to summarize, and you have been clear about RV OEM business that that's likely to weaken in 2024. But then if you look at the rest of your portfolio, would you -- do you think that you can safely say that the worst is behind you, i.e., that organic growth rates are not getting worse in any of the other subsegments?
That's our feeling. I mean -- and the reason for that, I mean, the logic behind that is obviously that everybody overstocked in 2021, in the first quarter of 2022, and the expectation all [ about ] season in 2022. And then we've got interest rates kicking in, in a brutal way.
So of course, that those inventories are consumed step by step. It has taken longer time than we expected. And I guess, that you expected as well when looking at other Consumer businesses. But of course, the inventories are lower.
At the same time, we're also expecting that sooner or later, interest rates are going to come down. We know that camping grounds are still filled, fully booked. And as far as our products are used, sooner or later, you will need to upgrade. Sooner or later, you will need to change.
So we are fully -- I mean, again, the situation that we have seen in the last 2 years on the Service & Aftermarket side or on the Distribution side, we have never seen anything like that, never. But again, we -- the last time we had a pandemic was 100 years ago.
The next question comes from Henrik Christiansson from Carnegie.
Yes. So one question to Stefan, perhaps. I think you mentioned that there was some impact from lower raw materials. And the question then is, what was the impact in the quarter, first?
And then if you look at the spot rates currently compared to the cost you have in your inventories, once that inventories work through, you sound quite keen on keeping prices. I mean, how much could that help on the margin side? Is it 1 percentage point? Is it 2? Or any sort of indications there would be interesting.
I mean, it's obviously a combination of all the different items that I was listing in the bridge here. But I mean, there is a dynamic in this with raw materials because as we -- I mean, even if our inventory has been coming down quite a lot, we still have inventory that has been acquired to a higher cost obviously x number of months ago. And as we are consuming that, that is then replaced by products that has been acquired to a lower raw material cost.
And then now we can maybe see some developments on the raw material markets where things are potentially pointing a little bit upwards again. So it's obviously a continuous dynamic here. But we will continue to see effects of this, both on the logistics side as well as on the raw material side going forward. And it's going to be, if I just estimate it here, like 50 to 100 basis points or something like that. So it's going to be helpful.
I feel what we have to remember is that even if the raw material prices are lower than they were 1 year ago, that's still much higher on the situation that we had prepandemic. Again that's our reference point. Again, we can't speculate about what is going to happen moving forward. But we know that raw material prices have been much lower than they are today.
Yes. Good. And then the second question on working capital, 31% of sales, target of 20. What do you think is realistic to achieve during this year?
I think the following, Henrik, that it's always very difficult to have this in relation to net sales KPIs when net sales is developing organically as it does. But I mean, as a matter of fact, we are SEK 2 billion lower in working capital now compared to 1 year ago in constant currencies. So I think that is an underlying positive development.
Inventories continue to come down in Q1, even though it was not as much as in Q1 last year. But as I have said before, I still expect that we are going to have a continuous meaningful reduction on working capital during 2024. Will we be able to repeat the record operating cash flow that we had last year? Probably not, but it should still be strong.
There are no more questions at this time, so I hand the conference back to the speakers for any closing comments.
So thank you very much, everybody, for your attention. Again, continue -- continuous challenges on the markets, but we're going to work very, very hard to continue to improve our margins. And we are more positive moving forward than we have been until now, and the reason for that is obviously that we see that the second half should be better than we have seen lately. And at the same time, we continue to work on our efficiencies in order to improve our margins and deliver strong cash flow and reduce our leverage.
So with that said, thank you very much for your attention, all of you. Have a great weekend.
Thank you.