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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 Q2 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.
Hello. Good morning, everybody, and welcome to the presentation of the quarterly report for the second quarter of 2023. I suggest that without any delays, we start immediately with the highlights for the quarter. We are proud to deliver another quarter showing solid earnings and record high cash flow, especially considering the current market conditions. We still see inflation, interest rates having a negative impact on consumer demand. We see the RV industry production in the U.S. still at very, very low levels. Up to May, the industry is down 50%. This is not the number for Dometic, but for the industry. We see as well that the inventory levels on the Service & Aftermarket import and Service & Aftermarket for us still down, while we see clear improvements in comparison to what we saw in Q1 or Q4 last year.
In regards to performance, 10% down in organic growth, driven primarily by Americas, down 35%. And at the same time, as we see OEM outside Americas, still showing nice growth for us. Service & Aftermarket, 10% down, but again, clear improvements versus Q1, where we were showing 19% down over Q4 last year where we were showing 22% down. EBITA margin before items affecting comparability, 14.1%. And the decline is driven primarily by Americas. We see improvements in the EMEA segment, even if we are still below last year. We continue to have solid margins in APAC and Marine, and we are very happy to see the strong improvements in segment Global driven primarily by Igloo. And of course, we feel very, very proud of delivering a strong -- very strong operating cash flow. driven by the reduction on our inventories.
If we move on to the financials, we ended up at SEK 8.3 billion in sales or 2% down in organic -- total growth with 10% drop in organic and supported by an increase of growth of 8% due to currencies. EBITA almost at SEK 1.2 billion or an EBITA margin of 14.1% to be compared with 15.7% last year. We also reached an operating cash flow of SEK 2.3 billion, which is obviously a heavy improvement in comparison to the delivery last year. And with that, leverage remained at the same levels as in Q1 2023 of 3.2x despite the fact that we had the dividend payout, we had earnouts and a negative FX impact on the numbers. And finally, EPS ended up at SEK 1.67. If we move over to the year-to-date numbers, we ended up at SEK 15.6 billion. In the same way, a 2% total negative growth with 11% drop in organic growth and 8% in positive FX effects. EBITA, slightly over SEK 2 billion or an EBITA margin of 13% in comparison to 15.3% last year. Even in this case, heavy improvement in operating cash flow, delivering almost SEK 2.6 billion in comparison to slightly over SEK 300 million last year and EPS ending up at SEK 2.72.
If we look at the sales growth, I will not go through all the numbers, but perhaps worth to mention that we are showing, again, 10% organic growth drop versus 13% down in Q1 and 11% in Q4 last year. If we move over to sales by application area, no major changes in this case. Perhaps the one to mention is Climate, which stands today for 28% and the one that is mostly affected by the RV situation in the U.S. since the number of air conditioners is higher in the U.S. than anywhere else. And that market is obviously the largest market in the world. Other than that, very, very stable.
If we move over to sales channels, Worth to mention here that the OEM has moved from 61% in 2017 to 43% in 2023. At the same time, as the RV OEM has moved from 49% in 2017 to 22% in 2023. And as you can see, distribution is increasing its share simply because the RV business is dropping more.
Looking at the OEM, which is something that we -- is not always that we are elaborating, you can see that the RV OEM side stands today for 22%, and it has been growing since 2017, clearly. But what is even more important is that the CPV business has doubled its size in the last 5 years, and the Marine business has multiplied its size by 4 in the last 5 years, both organically and acquisitively.
Looking at the Service & Aftermarket and what happened during the last couple of years. You can see the pandemic effects after the first half, the very weak first half of 2020 kicking in when the market bounced back in the second half of 2020. Continued to grow dramatically in 2021 and also Q1 2022. And then the [ boom ] effects that we have been commenting a couple of times started to kick in, in Q2 last year. What's important here to mention is that on one side, we see the Service & Aftermarket gradually improving. We were showing in the quarter minus 10% in comparison to the minus 22% in Q4, minus 19% in Q3 -- sorry, Q1 this year. And the other factor which is important is now we have Marine being positive, and we have also APAC being positive, while we need to recover Americas and EMEA. But we see, again, that the inventory buildup that took place in the last 18 months is starting to be consumed all over the world.
Looking at EBITA, we ended up at 14.1% driven very much by Americas. We see that EMEA is improving quarter-by-quarter now but still below last year's, and the reason for that on one side is the sales mix, where we are still growing in OEM, while we have still quite negative growth in Service & Aftermarket, but also the extra logistics costs that we have commented in a couple of quarters now and on top of that, the inefficiencies caused by the factory move from Germany to Hungary. And then happy to see that Igloo continues to improve its margins.
If we move over to the segments. Americas, total negative growth of 27% with organic growth of 35% down, very much due to the RV situation. We see the Service & Aftermarket is below last year's numbers, but much better than we have seen during the last quarters. So again, coming up gradually as we have commented. EBITA, negative SEK 26 million or a negative EBITA margin of 1.8%, which, of course, is not easy to compensate when the market is dropping at the pace that it is dropping. What we are doing about that is, obviously, to continue to rightsize the business, looking for additional savings wherever we can, at the same time as we continue also to drive price management and prioritizing margin in regards to volume.
EMEA, positive growth totally speaking, 5%; but organic, negative growth of 4% with good organic growth in OEM, both on the RV side, but also the CPV side. In the same way as in Americas, Service & Aftermarket is still below last year's numbers, but a clear improving trend. EBITA ended up SEK 312 million or an EBITA margin of 12.8%, which is still below last year's, but we see also a major improvement in comparison to what we saw during the last quarters. Even in this case, the mix has had a negative impact since we are still quite negative on the Service & Aftermarket. And we see as well the logistic cost is starting to point down in comparison to we have seen so far. We are expecting to see inefficiencies due to the factory move to Hungary in the coming months, but it will gradually improve. And the reason for that is, obviously, when you are moving a factory for a certain period of time, you are carrying double money in order to secure the quality and the delivery performance.
Siegen, the factory that we have in Germany has been totally closed, which means that all manufacturing refrigeration in Europe today is taking place in Hungary. In the same way as in Americas, we continue to look for improvements, improving efficiencies, reducing our cost and also driving price management. APAC showed an organic growth -- negative organic growth of 3% with double-digit organic growth on the OEM side. Service & Aftermarket is slightly up in comparison to the same period of last year, while distribution is still having a negative impact on our numbers. Solid EBITA margin of SEK 130 million or 25.8% (sic) [ 24.8% ]. And even here, obviously, the growth on the OEM side at the same time as we have negative distribution is having a negative impact on our margins in the quarter. And happy to see that the acquisitions are still keeping a very, very good level of performance.
Moving over to Marine. Total growth of 10% with organic growth of 3%. We showed organic growth on the OEM. At the same time as Service & Aftermarket was slightly up. So for the first time, above the same level that we have last year. And EBITA of SEK 495 million or 25.8% EBITA margin and even here, impacted by negative sales mix and considering as well that Q2 2022 was an all-time high quarter for us.
On the strategic side, we see that hydraulic and electric devices, steering systems continue to grow. So we're looking at the share is 2 percentage points up versus the same situation last year. So the technology transformation that we have been talking about continues during 2023. Looking at Global. Total growth of 4%, organic growth of -- or negative organic growth of 5%, will decline in Other Global Verticals. Residential was down but compared to a very, very strong first half of 2022. Hospitality continued to show strong numbers. And Igloo, for the first time, showed a low single-digit decline. EBITA, very positive, SEK 267 million, with EBITA margin of 13.1%, even if we need to add, in this case, that we had a positive onetime effect of SEK 33 million due to tariffs. And we see that Igloo -- underlying Igloo margin is improving now quarter-by-quarter as we have been commenting in the past. And hospitality is still doing very, very well.
Important, this is something new is that we are forming, as we speak, a global Mobile Cooling organization where we are going to combine on one side the Igloo business with existing legacy Dometic business. We have been working on this now for a number of months, and it is taking place. Our intention is to start reporting from the first quarter of next year, which means that we will restate the numbers, and we'll come back to all of you with more information.
At the same time, the collaboration between the total Mobile Cooling business that we have been driving in the last 18 months is starting to show in the number of launches that we are planning for, and we will see in a couple of slides what we are talking about.
We have also commented before that we used to have an organization under the Dometic brand called Mobicool in Europe. That organization has been transferred now to Igloo, which means that the Igloo EMEA organization is from now on up and running. We participated in a big show in Germany in ISPO as Igloo and introducing also both the traditional Igloo products but also the new products that are developed in connection with Dometic. And what we mean with that is that we are launching for the first time the first Igloo compressor cooler with Dometic inside. So that means Dometic active technology together with an Igloo product design. This product is going to be launched in Australia in the coming -- upcoming October month, and then the upcoming launches in the U.S. and EMEA region in January 2024. So we will take, obviously, the opportunity of the high season in the Pacific area with the new products.
And the same is valid with the thermoelectric coolers under Igloo brand, even in this case with Dometic technology inside. And this product range will be also launched in Q1 2024. So again, according to our plans -- original plans of really combining the strengths of Igloo with the strengths of Dometic to build up global businesses.
Another one that we feel very proud of and that we announced about one year ago when we launched the first series in Americas is the new generation of air conditioners, which are bringing fantastic performance. I would not mention all the numbers, but we are increasing cooling capacity by 48%, at the same time as we are reducing energy consumption by 38% or the CO2 impact by 70%. We are offering to our consumers many more features than we had in the past at the same time as we are reducing the complexity by 50%. So this implies fewer -- 50% fewer number of components, which is a major achievement. This is a global launch. We started in the U.S. We have continued now during the first half of 2023 in EMEA and APAC, and we'll continue in the upcoming 18 months launching new versions. Looking at cost reductions. As you all know, we have 2 programs, one that was launched in October 2019. The other one was launched in 2022. Expected savings combined of SEK 600 million and an expected total cost of SEK 950 million. We booked SEK 31 million additionally in the quarter, which means that the total cost that we have taken so far is SEK 867 million. And the run rate that we have on savings just now is SEK 425 million, which means that we have another SEK 175 million left to go.
And then finally, sustainability, another very important area for us, what we want to drive the market in our industries. I'm happy to report that we are improving in 3 out of 4 KPIs. The only one where we are slightly negative in comparison to last year is on injuries, and this is temporary. We know that we are working on many different activities, and we have seen fantastic results until now. We are confident that we will see this improvement also in the coming months. Other than that, we are showing, again, improvements in all the areas.
And with that said, Stefan, could you please get us deeper into the financials, please?
Absolutely. Thank you, Juan. Starting with our Q2 EBITA development where we have the bridge from Q2 2022 to Q2 2023. So the points here. We obviously are seeing a lower net sales driven by segment Americas. We have, as you know, the logistic costs and manufacturing inefficiencies in EMEA where we will, and we were, seeing a gradual improvement here, and that will continue when we're getting further into the year. SG&A expenses are slightly up, excluding FX. We are doing investments in sales and marketing in strategic structural growth areas. We also continue to invest in R&D. And then on the other hand, we have cost reductions, which are contributing positively from the programs that we are running.
Juan also mentioned that we have a onetime positive effect of SEK 33 million in segment Global related to a tariff refund that we got in the quarter. And then we have positive impact from FX on EBITA, mainly translation effects. And there is no effects from acquisitions in this quarter.
Moving over to cash flow for the period. As already mentioned, the operating cash flow of almost SEK 2.3 billion, it's record high. We have never had such a strong operating cash flow in one single quarter. Obviously, a significant improvement versus the same period last year. It's very much driven by the release of working capital and driven by the reduction of inventory.
If we look on the effects from acquisitions, we have paid SEK 418 million in earn-outs related to previous year's acquisitions. And it's not related to Igloo, which means that the majority of the earn-out payments has now been taken care of. We are going to see a little a bit above SEK 100 million still to come during this year mainly in Q3.
Net cash flow from financing, SEK 548 million. We have been paying dividends, SEK 415 million. We have paid the net of paid and received interest of SEK 258 million. We also have the private placement that we did in May of SEK 750 million, running with a maturity of 3.25 years. And then we have what we did already in the first quarter, Svensk Exportkredit, and a slight extension of our bank loan of USD 54 million. Moving on. Yes, here, you can see illustrated about the record-high operating cash flow of SEK 2.3 billion. And this also means that we have year-over-year improvement for the last 4 quarters.
Taking a look on the different components of the working capital. We see a reduction of accounts payable, which is really driven by a mix effect. We are buying less in China where we have the longest payment terms. Accounts receivables, they are developing on a very stable way, so ending on 46 days. And then on inventories, we can start to see that the [ DIO ] curve is starting to point down, 153 days, which is, of course, according to expectation. If we then look on total working capital, it's making up 34% of net sales, which is obviously extremely high still. We have to be aware of that when calculating this KPI, we're using 12-month average working capital in relation to last 12 months of net sales. If we would use where we ended at the end of June, we are starting to approach 30%, and that reduction will continue. And as you know, our target or at least our first target is to get working capital down to around 20% in net sales. Let's move over. If we look on CapEx and research and development spendings, CapEx is pretty flat to last year and is hovering around 1.3% to 1.4% of net sales. And as I mentioned before, on the R&D side, we are now in this quarter spending 2% of net sales. And we are increasing the spending and -- which is in line with our ambition here to support our strategy execution. And areas -- examples of areas where we are investing is Mobile Cooling and Marine.
Moving over to our net debt-to-EBITDA leverage. We have been remaining at 3.2x in the quarter. same level as in Q1. If you look at the bottom, you have the bridge, and you can see that the slightly reduced 12-month moving EBITDA is increased leverage with 0.1; cash flow, improving it with 0.3; and then we have the weakening Swedish krona leaning in the other direction with 0.3. So without the weakening Swedish krona, we would have been on a level below 3x. And as we have been talking to you about before, I mean, what is impacting the leverage going forward is, of course, the EBITDA development. It's going to be continued inventory reduction activities, which means further strong operating cash flows. It's CapEx, and it's obviously FX development. If we move over to our debt maturity profile. It's -- as Juan already have mentioned, the plan is to use cash at hand to repay the EUR 300 million bond maturing in September 2023. I want to underline that this doesn't change anything to the fact that the Euro bond market remains an important long-term funding source for Dometic.
And if we just summarize the key financing activities performed in 2023. We have the private placement done now in May of SEK 750 million with 3.25 years maturity. We have the loan from Svensk Exportkredit of USD 44 million maturing in 2026. And then we have a slight increase of the bank facility with USD 10 million where we also have extended the maturity to 2026. And then on the last bullet point here, it's that we have completely renegotiated the bank facility, which means that we also have a 1 plus 1 year option to the 2026 maturity.
So with that, Juan, I'm handing back to you for summarizing.
Thank you, Stefan. So summarizing, we are happy to present solid earnings and a record high operating cash flow. We keep transforming the company into a more diversified and resilient company moving forward. It's obviously very difficult to predict how the consumer sentiment is going to change, and that will very much depend on interest rates -- inflation rates and interest rates. Our best expectations at this moment are really that Service & Aftermarket will continue to recover as inventories are consumed to our customers and our customers' customers. We see also a gradual deterioration on the OEM business with 2 main sections: the RV Americas where we are expecting to see a stability at the end of the year; and CPV, which is on a totally different phase where the degree of penetration of our products is increasing globally. So we don't see any deterioration there.
And then on distribution, we see a slightly weakening demand during the coming quarters, which I would like to point out, we don't see any drama, but we see that our customers and our customers' customers are having a more cautious approach to build up inventories for 2024 in comparison to what they did for 2023. So we expect this to be a temporary effect and nothing else. At the same time, as we also expect to see continuous margin improvements on the Igloo side in the coming quarters.
Obviously, we are still not happy with the performance in EMEA and Americas, and we'll continue to drive cost savings and price management to improve the performance of those businesses. And we are totally committed to achieve the net debt or the leverage target of 2.5x as we have financial targets. At the same time, as we need to show to be very agile and to adapt to the market conditions, we believe in an underlying growth market. We see and we hear every single day that all the camping grounds are already fully booked for entire summer, both in the U.S. and Europe, and that's good news for our business. So we're still very, very positive about the long-term trends for Dometic. And we'll continue to drive our strategic agenda as we have been doing in the last 5 years.
And with that said, I would like to thank you all for your attention and open for the Q&A session.
[Operator Instructions] The next question comes from Daniel Schmidt from Danske Bank.
A couple of questions from me, starting with the outlook maybe as you just run through, Juan. I was just thinking about sort of the OEM business, which, I guess, a lot of people are puzzled about how that will turn out in the second half of this year into '24. Of course, you reiterate that you're expecting a stabilization of RV in Americas and you also see sort of continued strong performance of CPV. That means, of course, you're expecting Marine OEM and RV Europe and APAC to come down. Starting with Europe, a lot of other -- or some other sort of manufacturers are saying that they continue to see a strong market in European RV mostly, I guess, on the back of the fact that we have been underproducing a lot last year. And there are sort of supplies improving on chassis and production are coming up and backlog seem to be fairly intact. Are you seeing anything different there compared to other more optimistic people?
I think that you have 2 different realities. You have manufacturing reality, and then you have dealer reality. We see registrations coming down in Europe. And of course, it's just a question of time. So what manufacturers are doing, they are filling the pipeline. Then for me, it's kind of mission impossible to tell you are we going to see the market coming down in November, or is it going to be in February. But what is crystal clear is that if the consumer sentiment doesn't change to the positive, and that will have very much to do with inflation rates and interest rates, I have difficulties to believe that we are not going to see a slowdown in Europe or APAC as we have seen in America. What is different is, obviously, the magnitude of the drop. As we know, the American market is always reacting much faster and much more dramatic, both on the way down and the way up. So we are not expecting what we have seen in Americas. But are we expecting soon or later a slowdown? Well, unless the consumer sentiment doesn't change, we will.
Yes. That would sound reasonable. But have you seen anything in terms of cancellations of backlogs in Europe?
No. We said, we are talking about the gradual. So we don't see -- if you look at our numbers, as I commented, I mean, Q2, we had very, very nice growth both in EMEA and APAC on the OEM side.
I think it's also worthwhile mentioning, Daniel, that financing is playing a somewhat smaller role in Europe compared to Americas.
Yes. That's fine. And then coming to Marine then, which, of course, is another sort of -- possibly another shoe to drop, but we know from history that volatility has been lower than if you compare to U.S. RV for that matter. What are you seeing there in terms of backlogs that you've talked about before that the mix is moving in your favor in terms of bigger boats and also as we talked about many times, hydraulic shift and the electronic shift. And do you feel that, that shift combine with your mix is going to be something that will continue to counterweight a downturn in that market? Or is it more pronounced now?
I think it will mitigate. But of course, it will not eliminate. So if you look at the market, I mean, retail has been down now for about one year. We see the boat manufacturing, if you look at smaller boats, has been down quite heavily now for one year. So manufacturing has been coming down. But then you have a difference between smaller boats and bigger boats. If you look at both bigger engines and bigger boats, it has been growing until now even when looking at the May numbers. Bigger boats are still up, but not at the same pace as they used to be for the first 4 months of this year. If we look at the smaller boats, they are still in May. Like year-to-date, about 20% down. So that's where you have the difference.
Then at the same time, we see that the technology shift, I think I commented before, is 2 percentage points up this year versus last year. So transformation keeps taking place. So I think on the marine markets, a little bit the same as your question in reference to EMEA, I think it's going to be very much about interest rates and consumer sentiment. It is clear that retail has been down. It is clear that manufacturing has been down for small boats. And what we see is that the growth on the bigger boats is not the same as it used to be during the beginning of the year. So that's why, obviously, we have, I would say, what we consider to be a realistic approach and expect that we will see a deterioration on the OEM side. Having said that, we also see that on the aftermarket side, we are already today after Q2 slightly positive. We are above zero on marine aftermarket, which is telling you, again, that everything is going to be about timing like we have been commenting now for 3, 4 quarters that we have on one side, we have geographical differences. On the other side, we have the mix, and we see some of these areas coming down gradually at the same time as we see some of these areas improving gradually.
And you are sort of, as you mentioned, leaning on the word gradually, you're not seeing any sort of big shift in OEM as we go into the second half of this year to the worst.
No. Certainly, no. We haven't seen anything in our numbers. We don't have any cancellations. And you mentioned that yourself, when listening to our European customers, they are still very bullish. Then of course, we need to remember that this market is always bullish until it starts dropping. So that's where -- we don't see anything happening in the coming 14 days. But we see, again, that the logic is that if interest rates don't start coming down, we will have an effect sooner or later.
But sort of from an earnings perspective, if you get the aftermarket marine with you, you will be able to neutralize some of that decline in the OE business simply?
Correct. I mean keep in mind that we are really making a major readjustment like many other companies, obviously, coming from very, very heavy growth during 2021. And all of a sudden, the market stops in a number of areas. So when you have such a situation, you get a lot of inefficiencies. We are talking about inventories in Europe, but we're also talking about inventories -- we are talking about warehouses. We have extra warehouses to take care of inventories that we built up during 18 months. We are talking about inefficiencies. So the answer is yes. With the margin difference that we have, between Service & Aftermarket and OEM, we expect to seeing improvements going forward. And I think that you can see that already if you compare Q4 last year, Q1 this year and Q2 of this year. You have seen that our EBIT margins, the gap between the last period and this period is coming down quarter by quarter.
Moving on maybe to the cost side a bit. You mentioned that you realized SEK 425 million in the cost program. There's another SEK 175 million in savings to go. Do you still think it's realistic to realize those savings in the coming 3 quarters? Or will it take longer?
No. I think we are still there. I mean it's always impossible to tell you it's going to happen in week #27 or next year, but it will be about. Absolutely.
And of course, volume is, of course, also going to play a role here.
That's an important factor.
And more maybe on the topic of costs. And clearly, you've been hurting from high logistical costs in EMEA and also this sort of move of production from Germany to Hungary. And now that is sort of done and dusted, of course, will take some time to get efficiency up in Hungary and be back to square one basically. But do you see logistical cost normalizing and efficiencies in production in Germany normalizing by the end of Q3? Or will it take longer?
I mean, my experience is that it will take the rest of the remainder of the year. That's based on my experience and what I have seen in all these factory moves during recovery year. It takes about 6 months.
But we will still see a gradual improvement over the coming years.
Gradual improvement, yes, absolutely, both in terms of warehousing cost and in terms of the efficiency in Hungary.
The next question comes from Gustav Hageus from SEB.
A few follow-ups from my side. Just to be clear, the sort of excess warehouse costs you had from your inventory, mainly, if I understood it, located in near the ports, how far along are you from taking those costs down in Q2? Are you nearly there? Or is there more to come in Q3?
I would say the cost is around SEK 55 million in the quarter, and it will not go down to zero by the end of the year but will reduce.
Okay. That's helpful. And if you could remind us sort of the savings target you had for the Siegen factory closure and the ramp-up? What's the target for H2? And where do you think that can be realized? Just to be clear.
I mean we don't exactly comment only on that. We are commenting on the total program. And as we mentioned before, we are on pace now of SEK 425 million. And a little bit depending on the volumes, but the ambition is to be at the SEK 600 million when we are moving into 2024.
[indiscernible] obviously quite an important part of that. [ almost 250 ] we have in Germany that we are moving to Hungary, is quite heavy.
Yes. And then on the gearing then, it was, again, was kept lower than at least we had anticipated here. And as you point out, the FX part plays a negative point, too. But also, I guess, the EBITDA is possibly impacted by FX over time. So the way you see the trajectory now with your outlook for the market and so forth, when do you think you can come back to a situation where you would potentially look at inorganic opportunities? And second to that question, I note that the -- or I didn't hear you mentioning any -- that you're looking for divestments, something that I think you've been alluding to previously. So a little bit of color on that would be helpful.
I mean if we start with the leverage, the target is to be around 3.5 or we won't be able to close the full gap here until the end of the year. That's not completely realistic, but we are certainly going to take a notable step towards that. So of course, as we are getting closer to our overall target on this, I mean, then obviously, we can start to have discussions about inorganic opportunities as well. As you know, there is many of these smaller to medium-sized bolt-on acquisitions, doesn't generate all too much leverage here. But it's still too early to talk about that. But we are step-by-step moving gradually in that direction. And as you see, if it wouldn't have been for the weakness in Swedish krona, we would most likely have been below 3 already now in Q2.
If you talk a little bit generally speaking about the market conditions, I mean, we are working on one side, we haven't stopped any dialogue in terms of acquisitions, but we are holding up. And the reason for that is, obviously, that as a seller, you want to maximize the price. As a buyer, just now, you are looking the valuations coming down. So everybody is talking to everybody. And in terms of divestment, it's exactly the same. So we have a number of projects that we are working on, at the same time as we are just now not getting the price that we expected. So there, we are holding up. So both on the acquisitive side and on the divesting side, we keep working on both sides. And then, of course, I do believe that in terms of acquisitions, on one side, you have leverage. But I also believe that you need to consider, at least we consider, the sentiment of the market. I believe that we need to move from this negative sentiment to a slightly more positive sentiment before you can start pushing.
And finally for me, if we can get some more color on the aftermarket side perhaps. Do you have a view on sort of sellout of your products or roughly across segments? Or if not, do you have a view of sort of utilization of RV and marine fleets? Is that growing this year?
Yes. I mean what we have as immediate information is that camping grounds are extremely heavy. Some countries are reporting that even more occupied than they were one year ago. So I don't know if it has to do with inflation that people are spending more time domestically. But it is clear that the underlying camping market is growing, which is positive for us. With that, that means as well that you are moving -- that the RV is moving somewhere, which means also spares. If you talk to dealers, they are expecting also higher consumption. Having said that, they have been sitting and are sitting still on inventories. But the inventories are coming down stepwise, and that's what we see in our numbers. As I commented before, Marine and APAC are already there. So they are slightly positive in comparison to the situation one year ago, where Americas and EMEA are still quite a bit down in comparison to last year. But we have seen a major improvement either in Americas and EMEA in comparison to where we are coming from during the past quarters.
Combined with the fact that the fleet as such has been growing over the last couple of years, and they are starting to move into the aftermarket [ realm ].
So historically, what we have seen is normally that when people are not upgrading, meaning moving from one RV to other, they are spending more time on maintenance and servicing the equipment that they already own. So that has been really what had been driving the aftermarket business historically. And if you talk to dealers, they are expecting the same. The difference in this occasion is really that they have been sitting on inventories.
The next question comes from Anton Brink from Antaurus Capital Management.
I will have one question, to which you partly alluded to before as well. But I was wondering, looking, for example, at the earnings report from Winnebago in the United States, they showed a very steep decline in the marine backlog. So what's your thinking of sustainability of, obviously, very strong earnings currently going into both H2 and '24?
I mean we have -- our backlog is lower than the backlog we had one year ago, but it's not dramatically down on the marine side. And what we see, as we have commented a number of times, is that we have technology shift, which is supporting in comparison to Winnebago. And then on top of that, we have the aftermarket, which is showing even higher margins than the OEM markets. So as we are commenting, we are expecting a gradual deterioration on the OEM side, but we are also expecting a gradual improvement on the Service & Aftermarket side, and the balance is positive. And then if we talk out of our experience on the marine side is that the marine side is not dropping by far in the same way as the RV side. So you go back to 2018, '19, that was the latest, so to say, the slowdown that we saw, I think the worst quarter that we had altogether for marine ended up a minus 10% or minus 11%. Those are the historical facts that we can comment.
And in such a situation, would then, let's say, your EBIT development be relatively flattish, let's say, at max 10% down?
Well, we believe that EBITDA margin-wise, normally, what we have is a positive balance since our margins are so much higher on service than they are on the OEM side. So again, that depends, obviously, on exactly how much it drops. But we believe that we have a pretty flexible setup in the U.S. and that we are acting very fast as well. I mean if we look at our numbers already today, in terms of money in comparison to growth, we have a positive balance.
The next question comes from Rizk Maidi from Jefferies.
Juan, I'll start with one on the Service & Aftermarket. Perhaps, how do you feel about the new season? Were you surprised that Asia Pac was up? And also given the sequential improvement we see in EMEA and Americas, what do you think these 2 regions will get to see a positive development? I'll stop here.
I mean I cannot tell you exactly which week or which month, but we have seen a very, very strong improvement from Q1 to Q2. We're expecting -- I mean, again, our expectation should be that we should be at the same level as last year at the end of the year. Then it's still to be seen. That's our expectation.
Okay. Secondly, Juan, can you just comment on your order intake development? And perhaps, if you could just comment on this double-digit growth that you've seen on the RV OEM business in Europe and Asia Pac. Was that a surprise to you?
Yes. So the RV OEM is not double digit in Europe, but the CPV OEM, that is not far from being double digits. On APAC, on the contrary, is double digits. And we see still orders have been pretty good. But again, we cannot deny the fact that we see as well retail coming down. So for us, it's much more a question of time. As some of your colleagues raised the question before, it is clear that the industry has been suffering from difficulties to deliver to retail. So just now what is taking place is that they are filling the retail pipeline. But at the end of the day, what is totally determining is the consumer demand, and that will be impacted by interest rates. So we believe this is just a question of time. So far, so good, and that's what we are showing in the numbers. And the same is value for marine. So far, so good.
Yes. I'd say it's consistent with what we have communicated before.
Yes. So if you look at what we have been reporting in reality for the last 3, 4 quarters has been a little bit of the same. Americas coming first, then unless interest rates don't change, we see that -- we are going to see a gradual deterioration on the other OEM businesses at the same time as we will see also a recovery on the Service & Aftermarket. And we have quite a positive balance between Service & Aftermarket and OEM businesses in terms of margins.
Okay. Understood. And then perhaps just on distribution, if you could just help me understand that fact it seems like you're still looking for some weakness there over the coming quarters. How should I compare that cycle to the Service & Aftermarket cycle? Why is there a bit of lag there or discrepancy?
Yes. So I mean if we look at distribution in reality and distribution for us just now is very much about Igloo. You look at Global, it has been extremely stable, so not even during -- when -- before the acquisition of Igloo, we were looking at the numbers back to 2006, and we could never see any drop whatsoever. So you could have some punctual slowdown for 1 quarter, 2 quarters, and then back again. Then what we see and what we are hearing is that you have 2 different cycles. You have sporting goods. The sporting goods business was earlier in adjusting their inventories. And we perceive that as already done, at the same time as we perceive the mass mechanizing built up inventories for 2023 and they have been kind of consuming these inventories. But we hear that they are a little bit more cautious about building up inventories at the same level for 2024.
So we don't expect a drama for the coming 2 years, but we expect a punctual adjustment in comparison to what we saw in Q3 and Q4 or last year. And keep in mind that we will start building up inventories for the season 2024 in the coming weeks. So we enter now the 2024 year season. So you have 2 different situations with sporting goods and mass merchandising. Sporting goods, they seem already to have adjusted, while mass merchandising are adjusting just now in comparison to the levels of 2023.
Okay. I'll jump in here with some questions on the web. So we still have much inventories in the balance sheet despite the release. Can you quantify optimal level of inventories? And when do you expect to be at the working capital ratio of 20%?
I mean we have been commenting on this before. And if we take inventory specifically, we think today, we are approaching 100 days, then we can start to talk about that we are somewhere in the neighborhood of being good. And that will -- as we have also said before, it will take into 2024 until we have been reaching levels around that. So it will -- but we are still going to see a meaningful reduction already this year. So for the coming quarters, I am expecting continuous strong cash flow.
Another one around Igloo. What's the potential for Igloo in Europe and other regions and the risk of cannibalization towards Mobicool?
We don't see any cannibalization. Reality is the other way around. I mean we -- you have, on one side, Dometic has the opportunity through Igloo to start migrating the market from passive cooling to active cooling where we have higher average prices, where we have high margins. If you look at the European region, there has never been a quality -- a cooler quality markets. And that's what we believe we will be able to create. So it's not -- so of course, what we are taking as Mobicool is really, I believe, that Igloo will do a much better job driving our second brand in terms of growth and profitability that Dometic has been doing, for the simple reason, obviously, that Dometic employees want to sell Dometic brand. And we feel that Mobicool, as a brand, has been a stepchild treated.
Now with our organization which is used to deal with that kind of customers and that kind of approach and we expect growth. So we don't expect the cannibalization. Keep in mind that Mobicool becomes Igloo. Mobicool disappears as such. So we're expecting, obviously, to keep those volumes and to grow those volumes at higher margins at the same time as we are implementing the quality passive coolers that we never have as Mobicool brand.
Thank you. And then final one here, given the strong inventory reduction in recent quarters that must be a significant under absorption in 2022 and 2023 in manufacturing, is it possible to quantify this compared to normal levels?
I mean it's not -- of course, we have under absorption. But keep in mind that a lot of the inventory reduction is also coming from traded products. So if we are talking about tents, for instance, we are not manufacturing tents. There are -- I would say that a decent part of our total sales is coming from traded products [ we are ] manufacturing. That has not an effect on our factories. In our factories, we are much faster on reacting, obviously.
And I would also say that we have been transforming our operational structure over the last couple of years. We have been closing down a number of factories. Now we are closing the final one. So we have been adjusting our footprint, making it more, what do you say, more able to react to changes in volume. We have been outsourcing more, et cetera. So it's -- that is exactly in line with what we have said, and that's helpful in this situation that we are seeing now.
So just to give you a couple of factors. On one side, we have reduced the level of vertical integration that we had in-house a few years ago. So meaning that when we are moving from one country to another country, we are not just moving one to one. We are trying to question, what should we do ourselves, what should we outsource. So that's one parameter. The other parameter is that when this management joined the company, the level of temporary workers was about 10%. The level of temporary workers today in our factories is slightly above 20%. So that gives us, obviously, an additional flexibility to react very, very fast. So the profile of the business has changed. And then as Stefan commented before, the number of sites, the number of factories we have today is 20% fewer than we had 5 years ago.
The next question comes from Douglas Lindahl from DNB Markets.
Congratulations to strong set of results. My question is on your Igloo reservations on the balance sheet. Can you hear me?
Yes. Yes, we can.
Okay. Good. It seems like looking at the balance sheet, your Igloo reservations or the earn-out reservations in total, let's say, it seems to be pretty unchanged quarter-over-quarter considering that you paid this SEK 400 million in the quarter. And how should we think about that? This is my question. And also, an update on the lawsuit with ACON would be super useful.
You should think about that, we have been paying out SEK 417 million. We have other things moving in our current liabilities. It's not only earn-out related. So there, you have currency effects, and you also have movements in other positions in there. So on the Igloo side, we haven't changed anything on the reservation there. I don't want to exactly comment on how much it is. But -- so no change on that. And then as I said earlier, you should expect that there is coming a bit above SEK 100 million additional payments this year, and they will -- the majority of them will come in Q3. Then there are still some remaining payments still talking about non-Igloo related for 2024, and that's a little bit less than SEK 200 million, our expected to be a little bit less than SEK 200 million. But that is for 2024.
And then on the claim?
Yes. On the claim, there is -- the process is basically ongoing, and there is no news to report in this quarter, and we are expecting it to continue. And most likely, building it on a previous experience, it could very well take into next year before we have any conclusions on this. But as soon as we have any news, we will, of course, include that in our report.
Okay. And just to clarify, it seems any sort of Igloo-related earn-outs for this year is not included in your expectations basically.
No. As we said, perhaps something that we have not commented. But we have it in the report, you can read in the report is that we have filed a counterclaim against the former owners of Igloo for the fact that they didn't respect the terms that we have in agreements. Whenever you have disagreement, you need to follow a process, and that process was never followed by the sellers. So they have a claim [indiscernible]. So again, this is a long process.
That was the last question at this time. So I hand the conference back to the speakers for any closing comments. .
Thank you very much all of you for your attention, for your interest in Dometic. We feel good about presenting a good report, and we will continue to work exactly in the same way, being and acting very, very fast on changes on the market. At the same time as we continue to follow our strategic agenda. And with that said, thank you very much, and I wish you all a great summer. Thank you. Goodbye.
Thank you.