© 2024 Alpha Spread Limited. All Rights Reserved.
www.alphaspread.com is not operated by a broker, a dealer, or a registered investment adviser. Under no circumstances does any information posted on www.alphaspread.com represent a recommendation to buy or sell a security. The information on this site, and in its related newsletters, is not intended to be, nor does it constitute, investment advice or recommendations. The information on this site is in no way guaranteed for completeness, accuracy or in any other way. In no event shall Alpha Spread Limited be liable to any member, guest or third party for any damages of any kind arising out of the use of any content or other material published or available on www.alphaspread.com, or relating to the use of, or inability to use, www.alphaspread.com or any content, including, without limitation, any investment losses, lost profits, lost opportunity, special, incidental, indirect, consequential or punitive damages. Past performance is a poor indicator of future performance.
You don't have any saved screeners yet
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Welcome to Dometic Q3 Report 2022. 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.
Thank you, and good morning to everybody, and welcome to the third quarter's report. Without any delays, let's proceed to the presentation, Rikard. We are happy to report a strong quarter, especially considering the tough market conditions that we are facing for consumers. We have a challenging macroeconomic environment, retailers that continue to rebalance inventories. We see clearly decline in RV OEM demand, most especially in North America. On the performance side, good total growth 37%; 6% decline in organic growth, very much impacted again by what we see just now on both the RV OEM side, but also the Service & Aftermarket; while Marine still continues to show strong growth; and Igloo in the same way, continues also to show very strong growth. EBITA margin ended up at 14% versus 15.9% with all the segments with the exception of EMEA showing higher EBITA. We are, of course, very happy to see that Igloo develops exactly in the way that we expected and delivers margins over 10% and well above 10%. We're also very pleased with seeing that cash flow is coming back more than double, the operating cash flow that we were showing 1 year ago when we were building up inventories. And now we're starting to take down the inventories. And the restructuring program is showing progress as planned. Looking at the financial side, we are up 37% in total growth with, as I mentioned before, 6% decline organically, 15% FX growth and 28% driven by M&A. EBITA up 20%, surpassing the SEK 1 billion with an EBITA margin of 40%. EPS -- adjusted EPS, up 43%. Operating cash flow, as I mentioned earlier, more than double the numbers 1 year ago. Leverage 3x versus 1.5x, influenced by currencies, primarily. If we look at the year-to-date numbers, 48%, totally speaking, flattish on organic growth, 10% FX impact and 38% coming from M&A, with even there an EBITA margin (sic) [ EBITA ] surpassing the SEK 3.5 billion or 29% up. And EBITA margin of 14.8% versus 17%. So the gap that we had at the beginning of the year is kind of coming closer now when we see our underlying margins improving, especially driven by Igloo. At the same time, as Service & Aftermarket is still showing weakness. EPS up 34%. And operating cash flow were on SEK 1.1 billion versus SEK 1.2 billion 1 year ago. Looking at the growth pattern, we are just now running at a 12-month or number of about SEK 21.1 billion. As you can see on the right-hand side, Americas shows flattish growth in the quarter. We see EMEA, 8%; APAC, 10%; Marine, 33%; and Global, very, very nice, obviously, numbers since we didn't have Igloo 1 year ago. Organically, 6% with Marine developing still very nicely; EMEA, APAC and global, all of them are minus 3%; and Americas minus 23%, impacted, as we said, both by the RV OEM evolution as well as Service & Aftermarket. Looking at application areas, we can obviously see what is the impact of the RV OEM on the different charts. Climate is very much dependent on the RV OEM. And that for we see obviously the impact during the last quarter. While Food & Beverage is very much driven just now by Igloo, showing continued very nice growth. And we also see that Power & Control continues to develop in a very positive way driven by the acquisitions that we did in the last 18 months. Looking at the sale channels. Still, we see the Service & Aftermarket is very much influenced by the rebalancing situation of inventories and we will come back to that in a minute. OEM, you can see as well that we -- this is the first quarter when we see that we are dropping in comparison to the situation in the last 12 months, while Distribution still develops very, very nicely. And Igloo is important, but I would also like to take the opportunity to comment Hospitality, which is a small business for us, while still doing very, very well. This is my opinion, one of the most important slides since it's kind of confirming the strategic journey that we initiated 4 years ago. As you can see, RV OEM ended up at 23% in the quarter in comparison to 31% 1 year ago. We see the more important is that RV OEM in Q3 2017 stood for 49% of the business. So basically, we have quite a different company than we had 5 years ago. If we look at the American market specifically, where we see just now the impacts of RV OEM decline. The RV OEM in Americas stands for 11% of the total business at Dometic. You can see as well how if you look at the last years, all the channels have been growing quite heavily, but some Service & Aftermarket and Distribution have been growing much, much faster than the OEM side. And perhaps worth to mention is that while RV OEM is down in the quarter, both CPV OEM and Marine OEM are still developing very nicely. Spending some more attention into the Service & Aftermarket. What you can see really is what is known as the bullwhip effect. The pandemic kicking in 2020, changing totally the pattern that we have in our systems. As you can see, 2018, 2019, developing very, very similarly. We got in Q1 March 2020, COVID coming in. We have Q2, and besides Q2, obviously, with a lot of stores worldwide shutdown. Then Q3, opening the stores, expectation starting to kick in massive growth. The massive growth continued during 2021, and even in the first quarter of 2022. So it's worth to mention in -- when looking at the chart is as a matter of fact, that when you compare Q2 2022 with Q2 2019, we have organic growth of 4%. The 4% becomes 7% in Q3. Our expectation is that this will be showing gradually improvements. But of course, the comparables are very, very tough, which is obviously exactly the same as many other companies have been experienced in the last months. Looking at EBITA margins, I already mentioned 14% versus 15.9%. Igloo is, even if they are improving the margins quite strongly, they are still having a diluting effect on our total margins. We have on 1 side, Service & Aftermarket, which is dropping 17%. And as you all know, with have much higher margins on the Service & Aftermarket that we have on the OEM. And then on top of that, we have a unique, I would say, extraordinary logistic costs related to EMEA, where we had difficulties to unload containers, difficulties to find warehouses to have the goods that we were importing during Q2, having an impact in Q3 and will still have an impact for a number of months moving forward, and then we will be clean. Still, we see a positive effect from our growth clearly from the acquired companies, not just Igloo, but all the rest. We have price management that continue to kicks in having in -- so we have a neutral effect between raw material prices and price increases. The good news there is obviously that we don't see the lower raw material prices in our P&L. We start to see them on the balance sheet. And as we are introducing our inventories, we will start getting the new prices at a lower level. We have a lot of cost saving activities ongoing, and then we have positive effects from currency, clearly. Having a look at the long-term perspective, what we can see is that we have more than double the size of the company in the last 5 years. And in the same way, more than double as well, the earnings of the company in the last 5 years, even if we still see the negative effects from the tariffs that were quite heavily when they kicked in, in 2019. Looking at different segments, Americas, flattish, 23% organic growth, down with, again, as usual, we are being very much impacted as we all knew now for months and still saw some of the market being negative due to the rebalancing of inventories, EBITA ending up at SEK 100 million with an EBITA margin of 5.8%, which is an improvement versus last year. We see extra help from the lower tariff costs. So we are reducing the impact of the tariffs in our numbers, and we see also a positive effect coming from FX. While at the same time, we have a negative effect from the channel mix. And all the acquisitions that within Americas during 2021, doing very well. If we look at the EMEA region, which is perhaps the major disappointment in this specific quarter, growth down 3%. We see Service & Aftermarket down. But at the same time, we also see that CPV did show a very nice evolution during the quarter. EBITA ending up SEK 162 million -- an EBITA margin of 8.6%, which is a clear drop versus the 14.8% that we had 1 year ago. I already commented the logistic cost of SEK 35 million. We will see improvements moving forward, but still negative effects for a number of months. As you all know as well, we communicated the closure of Siegen. This is progressing according to our plans and will be completed mid-2023. APAC up 10% with organic growth even here of negative 3%, driven by exactly the same factors as for the other couple of regions, rebalancing of inventories. We see a very nice development of the acquisition that we did 1 year ago in Mobile Power Solutions area. EBITA, very good job, ending about SEK 151 million or 26.6% margin, which is an improvement versus last year. And here, obviously, we are adapting capacity and we have been adopting capacity during the time quarter to the new demand situation. Marine, also very positive, 33% up, totally speaking, with organic growth of 11%, very much driven by OEM or Service & Aftermarket even here is negative. Backlog at the same levels as last year. And what we see in Marine is that the technology shift that we have been talking about earlier continues, meaning that customers are moving from mechanical products, mechanical steering systems, to hydraulic and from hydraulic to electronics, and that has a positive impact on the average price per board. EBITA, heavily up SEK 469 million. Even EBITA margin is slightly down, very much driven by the sales mix, meaning higher OEM, great growth in OEM, while quite a bit of decline on the Aftermarket. Even here, we completed an acquisition during Q1, Treeline, which is developing very, very nicely. Last but not least, Global showing also fantastic growth, obviously, but very much driven by the fact that Igloo was in our numbers in the quarter. From Q4, we will see Igloo in our numbers, which means that we'll be converted into organic growth during the quarter. While Residential was down, I'm very, very pleased with the Hospitality. You all know what happened with the pandemic and investments in the hospitality industry despite the fact of a lot of projects are just now ongoing. We already see that we are on a higher pre-pandemic on that side. And Igloo continues to develop very nicely. EBITA ending up at SEK 174 million, heavily up versus last year with well above 10% EBITA margins at Igloo. The integration is progressing very nicely. So let's have a deeper look at Igloo.
Looking at the year-to-date numbers, we are showing a pro forma growth close to 20%. We received Igloo, looking historically as a very, very stable, resilient business. We continue to gain market shares -- and we see as well when measuring -- I mean, of course, everybody is just now talking about inventories in many other industries. We have seen the green industry coming down heavily, but when looking at our numbers until today, the post numbers, so sales through at the retail level, are still down in comparison to the level that we had that we saw in 2019 and 2020, which is positive for us, obviously. EBITA more than double, a lot of job has been done on product innovation and segmentation, so having dedicated products from different customers, so they can position as customers composition different products in different ways. Good cost control. What we see as well is the resin cost has stabilized and slightly coming down, which is also positive for our numbers moving forward. Again, fantastic job. If you look at the evolution in the last 4 years, we have taken a lot of share, 13 percentage points, while the following 3 major competitors have been losing share. That's also positive because the position that we are getting, the branding, the rejuvenating branding position that we are getting is going to help us when penetrating new markets for us as active cooling, soft cooling, where we are still underrepresented, nonetheless, drinkware having a fantastic potential for growth. You can see as well on the right-hand side, how the company evolved during the financial crisis 2007-2009, very, very, very stable. We see as well that the fact that consumers are a little bit more careful might lead to a situation, specifically for Igloo, where people are moving from high priced products to slightly lower priced products. So we feel very, very confident that Igloo will continue to develop in a positive way moving forward. Another area that we obviously like to talk about is Mobile Power Solutions, where we can see a fantastic development over the last 4 years. This is, of course, pro forma sales, and we -- this is -- sorry, the total sales and you see the evolution in the last 4 years, showing CAGR of 24% during all those years. And what is driving this is really sustainability. Sustainability is leading to electrification. Electrification is leading to a business which is growing underlying. Always positive is not just the growth rate, but also the profitability rates that we see in these businesses, more to come. We have been spending a lot of time integrating these companies. I have a very positive feeling about how things are progressing. We're starting to launch products under the Dometic brand. We have all these companies cooperating together. And I feel, again, very positive about what we are going to see in the coming quarters. Just 1 more of our units, Go Power, out of Canada and U.S. doing a fantastic job, having a strong brand name in the industry. And what this company is doing, they are very much on the Service & Aftermarket. But what they are doing is really that they are upgrading the truck fleet to Mobile Power Solutions. They have already today 25 years of experience, doing this on 1 million installations. And again, there is much more to do from a Service & Aftermarket perspective in this area. And other products that we launched during the quarter is a new inflatable rooftop 10 series, which makes it much, much faster. It makes it much more convenient to spend a weekend together with the family. It's very lightweight, very convenient, and we see that this is a market also showing underlying growth rates. So we will continue to invest in that area. E-commerce, an area which is obviously having a tough time just now post pandemic. We see slight growth during the last quarter in comparison to previous quarters, but not growing at the pace that we would like to, but it's very much obviously driven quite the same. Just now the e-commerce business is much tougher. We have implemented the software in the U.S., in Australia, 8 markets around Europe and just now, everything is about traffic. It's about getting more traffic to our website and converting traffic into sales. Looking at our restructuring programs. We are running 2 programs, 1 initiated in Q3 2019, announced in Q3 2019, leading to a total saving of SEK 400 million and at a cost of SEK 750 million. And the second one that we just announced in Q2, aiming for total savings of SEK 200 million total cost of SEK 200 million. If we look at the quarter, we have taken SEK 329 million as cost and influencing 500 new employees. Most of it is really the shutdown of Siegen in Germany, which means when summarizing the total cost that we have taken so far is SEK 797 million out of the SEK 950 million that we have communicated. We're looking at run rate, we are running at SEK 300 million to be compared with SEK 150 million that we were showing in Q3 1 year ago. And as we know, we have the expectation at the end -- by the end of the next year, we're going to be running at the total savings of SEK 600 million. Organic strategy, this is perhaps -- also one of the most important slides we want to talk. We introduced the market strategy in 2018, and this is what we are continuing to run. Sales growth, 48%. Of course, we have acquisitions, and they are important for transformation of the company. All the positions are showing nice profitable growth. Distribution and Service & Aftermarket stands today for 57% of the business versus 50% 1 year ago. Even again, in that part of the business, just now is going through this rebalancing of inventories. From product leadership perspective, Innovation Index is down to 15% versus 26%. There is no drama. This is very much suffering from the situation with the semiconductors. Whenever we have electronics in all our products, we are running field testing and as soon as we discover something during the field test, we need to reprogram. Then again, with the long lead times that we have been suffering from the last 2 years, that means a lot of delays. So we have a lot of new products in the pipeline. We are very confident that we are going to get back to the numbers that we have been seeing during the last couple of years. IP is nothing that we are normally talking about, but is also showing a great development as a consequence of investments that we have been doing in the last few years. We have more than doubled our IP rights in the last 4 years, we have multiplied by almost 5 the IP rights during the last 6 years. Cost reductions. SKU down to 65%. And more to do, we are not done totally now as we're introducing new products, we will see even more SKU reductions. I already commented on restructuring programs. And when looking and comparing Q3 2022 versus Q3 2021, we are about 1,200 fewer FTEs. Sustainability. I also feel that we are making a lot of progress, injuries. This is the second quarter when we are showing numbers below our expected target for 2024. So we are 29% down in injury rates in comparison to the situation 1 year ago. I don't feel good on our share of female managers on 23%. We are working extremely hard. Still, we have difficulties to make it -- bring it up to the levels that we want to see. But I'm fully convinced that with all the efforts that we are doing, we will see that coming up. On the contrary, [indiscernible] showing also a very nice development as a consequence of investments that we are doing on renewable electricity. And ESG, we have a new target to audit all new suppliers, and we are also achieving our target after the job that we did in lot of countries in the last couple of years. So all of us at all, a lot of different activities on the entire organization. And with that said, Stefan, could you please get us deeper on the financial results.
Yes. Okay. Thank you, Juan. Starting off with our EBITA development bridge, talk a little bit about the different buckets, starting with the organic plus FX. Obviously, currency effects, translation and transaction effects have been positive in the quarter. We have also seen cost reductions related to the cost reduction programs that we're running, but also on the tariff side, where we are seeing the tariffs coming down. Then on the negative side, we obviously have the organic sales decline, lower volumes. We have a sales channel mix effect related to higher OEM sales in the quarter and lower Service & Aftermarket compared to the same quarter last year. Then we have the extraordinary logistic costs in EMEA -- and we are also continue to invest more in R&D. Then as Juan mentioned, from the balance between our price increases and the cost increases, we have been neutral in the quarter. And even though we are starting to see raw material costs and transportation costs coming down, it's going to take a while until we have used the inventory that we currently have on hand. Moving over to Igloo. Igloo has made a good development in the quarter, and we see margins which are well above 10% in the quarter. And yes, it's a development that is according to our expectations. Looking on the other acquisitions, we see that they continue to deliver growth, and they are also continuing to deliver above average domestic margins in the quarter. Moving over to the next slide. Looking into cash flow. We did SEK 812 million in operating cash flow in the quarter, and that is more than double up compared to the same quarter last year. So slowly, but surely, we are seeing the cash flow coming through. And if we look on the change in working capital, that is still negative, but you have to take into consideration that the accounts payable, they are down approximately SEK 1.1 billion. A part of that is seasonally driven, but it's also a sign on that we are reducing our purchase orders to supplier on materials. Then we have the adjustment for noncash items that is basically consisting of provisions related to the restructuring programs, we have taken the cost, but we have not fully yet paid them out, depreciation and amortization, obviously, and also some FX effects. The investment in fixed assets are up compared to the same quarter last year, and it's very much driven by fixed asset investments in the Mobile cooling area. If we look on the net cash from financing, we have a big positive effect in Q1 last year. Just to remind everyone, that was the bond that we did in September last year. And here, you have it laid out over time. And we start to get something that is a bit similar to historical trends that we have seen, that we are now in Q2, Q3, Q4 in the cash-generating season, so to speak. The SEK 812 million, that is equal to 63% cash conversion. And -- as you know from our historical pattern, Q4 is also a typical cash-generating quarter. Moving on to the next. The different components in the working capital, accounts payable, we have been -- as we have been communicating before doing a good job on the accounts payable side, where we have been extending payment terms to suppliers around the world. On accounts receivables, we have a stable level, and we haven't seen any indications of that pointing up. And then we obviously have on the inventory side, the rather significant increase here. We also need to draw your attention to the fact of the SEK 5.1 billion or around SEK 5 billion increase in inventory, acquisition stand for SEK 1.4 billion, FX of about SEK 1.7 billion, and then increase in raw material prices is making up approximately SEK 1 billion. So that means that volume related to secure critical components and longer lead times is making up SEK 1 billion. That is important to keep in mind when you are assessing our inventory situation. Further comment on inventory. We are expecting the inventories to start to come down. And if we take the September month isolated, we have been starting to see the decline that we have been expecting to come through.
Looking on CapEx on a relation to net sales, we are keeping a stable level. In absolute terms, it's a bit up. And as I mentioned before, it's very much related to fixed asset investments in the Mobile cooling area. Moving over to R&D, we see a very similar picture in relation to the net sales. We have a stable development. But obviously, we are a larger company and it is important for us to continue to invest in research and development, which will then also over time, drive up our Innovation Index again.
Moving over to our debt maturity profile and leverage. Nothing has happened basically in the maturity profile since Q2. It's a well-diversified profile and the average maturity is now 3 years, and we also have an undrawn revolving credit facility of EUR 200 million. If we're looking on our leverage, it looks like leverage has been going up since the last quarter. But if you put one more digit behind the comma, you see it's 2.96 versus 2.93. So it's not much of a movement. And the underlying, we have taken down leverage with 0.1 related to our underlying cash flow and the EBITDA development. And then we all know about the strengthening U.S. dollar and euro to Swedish krona, and that have had a negative effect in the quarter of SEK 0.13. So excluding that effect, we would have been around 2.8x in leverage. So with that, I hand over to you, Juan, to conclude.
Thank you, Stefan. So looking at the business -- in the quarter, 37% sales growth supported by the acquisitions of last year. We are facing challenging market conditions. We see both geopolitical and macro environment challenges. We expect a continued decline on the RV OEM. We expect also a gradual recovery on the Service & Aftermarket that we have seen that, has experience in the inventory rebalance in the last couple of quarters. And we also foresee a stable evolution on distribution. When looking at our strategy, we are a more diversified and resilient company. As I mentioned before, RV OEM, we were very much perceived as an RV OEM company a few years ago, still for 49% of the business today is down to 23%, that's a massive change. Again, we are working very, very hard to rebalance capacity according to the demand that we see. We see that already in payables. We see that our inventories starting to come down. We see also on the containers, the number of containers that are arriving, both to Pacific, to Europe and Americas coming from our suppliers and our own factories in Asia. So we are very, very certain that cash flow is going to improve in the coming quarters as inventories are coming down. And we will continue to work hard to implement our strategy. Since simply we are optimistic on the trends -- on the underlying trends on the Mobile Living industry. And with that said, I would like to proceed with the Q&A session.
[Operator Instructions] The next question comes from Fredrik Ivarsson from ABG.
A few questions from me. If we could start with the Service & Aftermarket. Curious if you could share the organic year-on-year decline in the quarter. I mean, we appreciate the chart you showed us versus previous years, but that obviously include some M&A.
So the organic decline is 17% in the quarter, while it was 16% in Q2.
Perfect. Second one, on the inventory levels within the Aftermarket retailers, so to speak, would you mind sharing your assessment of those?
But I think -- I mean, we see that they are still high, and that's a little bit a perception. We can see what they are doing. We can see the sell-through. At the same time, I will see obviously how it looked like 1 year ago. And that's why we're expecting improvements going forward. And the question is obviously, when you are 70%, are we going to see plus 10% in the next quarter? The answer is no. I do believe that we will see the same ways.
And then I think also, Fredrik, we need to take into consideration where we are in the year. I mean we have a seasonality in this business. I mean, we know that Q4 and Q1 are the 2 smallest quarters in Service & Aftermarket and Q2 and Q3 are the strongest ones. And -- so you have to overlay the understanding with that fact.
Yes. Very clear. And last question on EMEA, the margins took a big hit in the quarter, down 6 percentage points versus last year. And that's obviously also due to the negative channel mix you saw. So what should we expect when we look into Q4 and beginning of next year?
We will see still this extra logistic costs coming in will be lower in Q4 than we will still see some. We again, as Service & Aftermarket is booming back, we will see improvement from the side. The question is obviously how much are we going to see in the quarter this year. And then, of course, we have our restructuring program kicking in. We have the material prices coming down. So [indiscernible] while we're expecting to see some positive signals in Q4, clearly. But keep in mind that the EMEA, we had a slightly negative [indiscernible] OEM. We have a heavy decline of Service & Aftermarket, and we were also showing growth in CPV, and of course, we are losing just now quite a bit on the Service & Aftermarket as a consequence of the lower sales. So that's an important -- that's extremely important to us. And as I commented a couple of times, we have never seen negative numbers like this.
Concerning the logistic cost, Fredrik, just to be clear that, that will be affecting Q4 and get lower, and there will also be then even smaller effect in Q1.
Yes. And a quick follow-up. It sounds fair to assume that the decline in Aftermarket is worse within EMEA in the quarter.
Yes. Well, the decline in Service & Aftermarket is everywhere. You can look at every single segment is down as an Aftermarket, which is telling you, obviously, that we were not -- it was not just me we've been optimistic about season 2023 -- sorry, '22. All our customers were very optimistic about 2022. Like for any other [ auto ] companies.
And it started off well.
And we started by 5%. So we were showing Q1 organic growth, Service & Aftermarket was 5% versus the same quarter last year, that was already very high. [indiscernible] was very positive. I believe that everybody underestimated the impact of inflation and the interest rate increases.
[Operator Instructions]
Just a couple of questions then. Starting on the topic of Igloo, and you're growing well into the double digits, it looks like also in Q3. And I think you mentioned one that direct-to-consumer channel has been growing for the group. I think you mentioned and maybe also for Igloo, but you didn't seem that excited about it. It's been a bit slower than you expected. What is really then making Igloo grow at this pace that it's doing? I appreciate that some of it is price. Is it sort of still only the U.S. market? Or as you -- have you been sort of branching out and getting some international sales as well?
Not yet. That's Americas. This Americas market. So we are -- as we communicated, we are just now looking at EMEA. We are working on the organizational topics in the EMEA region and that we will see that coming in 2023. Today, it is very much Americas. And they see a very nice growth. We have information on a weekly basis, about the sales through for every single customer. It looks so far so good. And, as I mentioned before, which is even more interesting is that if you look at our customers' inventories, they are still down in comparison to the situation in 2019, 2020, which is positive because after in you that no money, we will see growth even in the coming quarters.
And did I get you correctly in terms of your comments on DTC for the group. Is that also true for the development of Igloo starting the consumer channel? It's been growing, but a bit slow.
Yes, yes. It started pretty weak in Q1. We saw improvements in Q2, and we saw also improvements in Q3, but not as we expected. And I think we have same trends for anything a company on e-commerce. Of course, that e-commerce was boosted during the pandemic years and now is going to find a new level and then we want to start growing from a new level, like any other company.
And it looks like you are growing and as you also saw on the chart, you're taking share and you're outpacing yet at least what I've seen so far this year. And is it sort of I guess it's a bit hard to know what the reason is, but is it the mix between people trading down, and also you improving the assortment? Or what is -- what is the most?
I believe that the company has done an excellent job starting with the branding side, repositioning the company and spending a lot of money in product development. So the key words are product development and segmentation, developing specific products for every single chain, which means that you can, of course, position yourself in different ways for different customers. That has been a trick, and that trick will continue. Again, it's not [ 1 ] year. When you say that they are outpacing competition, it's not just 1 year. You look at 4 years.
Yes. So on your chart. Okay. Good. Just coming back to EMEA then and maybe more on the sort of the end-market exposure side. I don't think you mentioned it specifically in the report when it comes to RV in EMEA. Are you -- are you seeing any improvements that I think we talked about last time in terms of availability of chassis that some of your customers are talking about in Europe. Is that happening?
I perceive a better situation. So I have the feel that this is moving from being kind of theory into more of practice. We are not at the level. So if we look at Q3, we have a negative evolution on RV OEM in Q3 as well in EMEA, but we are more optimistic about the coming months. Then I do believe it's going to be very much dependent obviously on the foot traffic to the retailers. But manufacturers are optimistic, and we see that it is coming.
And then a final question, inventories. You mentioned [indiscernible] already in September started to come down, and that trend will likely continue into the last quarter of this year. And I assume that sort of production is running low on the OE side. And at the same time, you're seeing maybe a recovery in the Aftermarket. If you are underproducing on the OE side, i.e., sort of causing under-absorption of fixed cost there. How is that going to sort of tally versus an improving mix? Is that going to be neutralizing each other out in terms of the profitability in Q4? Or is it sort of maybe a difficult question, but any reflection on that?
I think 1 clear reflection on this is that we are a different company now. We should not forget about the measures that we have taken. I mean, as you know, we have been closing down 2 facilities in Americas. We are about to close down 1 bigger facility in Europe. And it's not that we are moving it one to one. We are moving it partially to outsourced partner or outsourcing partners and partly to our facilities. So we have a more flexible -- that we have a more flexible structure. And I mean 1 further indication of that is that we have 20 fewer locations. So it's -- it's -- I think we -- if we compare to 2019 when this was a bit of an issue as well, I mean, domestic looks different in terms of the type of structures that we are carrying ourselves. So I think that's important. But I mean, that doesn't mean that we are 0 impacted, of course, and we already see that partially in Q3. And I think we should also expect that we will have some effects of this in the coming quarters because we are very, very committed, obviously, to generate cash flow, taking down inventories. And -- it is a delicate balancing act here also with inventory that we need to make sure that we are keeping the service level...
But of course, it comes down to that, but it also comes down to sort of the mix on the top line and sort of the margin in between the 2, sort of the 3 different revenue streams that you divided into.
But then at the same time, Daniel, it is important to remember that the vast majority of the cost is material cost. And we see clearly trends week after week, the raw material prices are coming down, which -- that will have a positive impact. The question is just which month are we going to see?
Exactly. And it's important to keep in mind here as well that it's only SEK 1 billion of the total inventory increase that has to do with a volume increase, so...
[Operator Instructions].
Agnieszka Vilela from Nordea. I have a few questions to you. Starting with the -- thinking about some headwinds that you have right now maybe turning to potential tailwinds when we move into 2023. I wanted to ask you about the transport cost, and thank you for singling out the kind of extra costs you had in EMEA. But overall, when I look in your annual reports, you can see that transport costs for US group represents about 7% of sales in 2021 and has been increasing probably due to mix, but also probably due to the higher cost for shipping containers. So if you could help us understand what kind of headwind do you have in 2022 from that? So overall, kind of transport costs increasing. And also, do you expect these costs to ease into 2023?
I think Agnieszka, what you are seeing there, that's basically outbound transportation costs and distribution costs, which you see on that line. There the increase -- there has been increases during 2022, but not as significant as on the incoming side. And the incoming side, you don't see separately, that is included in cost of goods sold basically. And there, we are seeing much more significant improvements, you remember in the times we were talking about $18,000 to $20,000 for a container from China to U.S., for example. You told me, Juan, the other day that you the latest you had heard was a spot rate of $1,800. So that will really be almost back to pre-pandemic levels, but I would not say that we are generally back to pre-pandemic levels. It's still above. But -- that is obviously also going to take a while exactly as for raw material before we see that in our P&L because -- the incoming transportation cost is still residing in our inventory value and as the inventory is turned over, then obviously, we are going to start to enjoy lower transportation costs as well. So that will take a while, but it's coming. No doubt.
Yes. And maybe a follow-up on inventories. Out of the SEK 10 billion that you have on your books right now, can you tell us how much is related to the Finnish products? Just thinking about what you need to do with the kind of production levels.
I would say it's 75% and is something like that, 70%, 75%, and -- yes.
An important comment there, Agnieszka, is that, again, I'm back to expectations for 2022 [indiscernible] and what it became in reality. So we -- every single company have delivery progress 1 year ago. At the same time, the delivery expectations were very high. So of course, that we wanted to be on the safe side like any other company. All of a sudden, the market comes down, as you can see on Service & Aftermarket. And then you are sitting on excess inventories. Just for you to get a feeling -- the number of containers in Q3 this year in comparison to the number of containers that we had on the sea in Q3 last year is down 41%, 4-1. The expectations before is even higher. So we are working extremely hard. We are very confident that we will see the cash flow improving quite a bit in the coming quarters simply because we've been working on that. As soon as we saw Q1 kicking in and the first signals from retailers, we have started to take it down. But of course, you cannot stop the ships that are on the sea. Now we can see that coming. So we are tracking this every single week. These 2 things just now, Agnieszka. One, in-way Finnish goods coming from specially - from Asia to the different continents. Number two is reducing capacity in our factories. We have done both.
Perfect. And then I have a last question actually on Americas. You have defended your profitability quite nicely despite more than 20% organic decline. Could you just tell us what were the main drivers? Was it the cost savings and closing the facility? Or maybe contribution from the newly acquired companies. And also maybe a follow-up on that just will you see a kind of similar improvement in EMEA once the German factory is closed?
But I think you mentioned all the factors yourself, obviously, I mean, the restructuring measures that we have been taking is starting to come through. Then the acquired companies are, of course, contributing with over-average margins. And if we look a little bit on the mix side, I mean, -- we also have the CPV business that is developing nicely. Based upon the contracts that we have been winning and generating, yes, good margins, basically. So I think you -- except for the CPV, the one you were listing, all the factors -- and obviously, I mean, it's -- we will expect a mix change to the better if we are looking at a couple of quarters ahead here and obviously, the restructuring measures, they -- they are there.
Okay. We have a few questions on the web. So I'll just interrupt with those very quickly. "Can you say anything around the debt maturity in '23? Are you planning to refinance those?"
Yes. Let me say the following that, that is something that we are working with, as we always do. And I would say that we are keeping our options open. We are looking into various alternatives here and 1 option is to use our own cash flow to various portions.
Good. Next one. "When you look at 2023, do you expect a more balanced kind of retailer situation inventories? And do you expect the EMEA margins to come back?"
I mean on the retail side, with organic, kind of doubts. We see, again, that 2022 started very, very strongly on the Service & Aftermarket. We saw Q2 and Q3 very weak. We are expecting stepwise improvements going forward. And of course, later on, the whole 2023, I believe that we are going to see a positive evolution. The question is obviously when we're going to see the positive numbers kicking in first? Again, that's the basic. If we are looking about the distribution side, I also believe that is the same rebalancing is taking place. Again, this is not just Dometic. This is -- you look at grid companies, if you look at other companies, we are all seeing the same. And I think that is, again, we are comparing with extremely strong 2021 and second half 2020. And for every single month, we should be closer to a situation where it's turning to the positive.
And the final one, "On the leverage side, how do you expect that to develop coming quarters?"
Now -- but I mean, as we have communicated before, we are committed to take down our leverage and we are prioritizing that. And you building on what we have been talking about, that we will see a good development of the cash flow in the coming periods here. And, yes, that will obviously support that development. So we are committed to take down leverage.
Okay. And operator, back to you for the final question, please.
[Operator Instructions]
This is Gustav Hagéus with SEB. I didn't contrast in Q1, Q2 reports, so I didn't find any comments on the order book in this report. Maybe I missed it, but could you give us some flavor on to what extent filling back orders was a major part of this sales figure in Q3? And if you have any visibility into Q4 in that regard?
Yes. We have a lower backlog than we had in Q3 last year, driven obviously very much by the RV OEM in Americas. The rest is very much in the same is really RV OEM driving this down. And of course, the Service & Aftermarket that we're expecting to recover elderly. Marine is doing very well. We see again, Distribution with exception of Residential doing well.
And on Marine specifically, which posted quite nice organic growth in the quarter, driven by OEM sales partly. Is there any chance that this can be maintained into Q4? Or was this mainly an effect of catching up with the back orders?
I mean I think it's difficult to foresee that we are going to be growing organically 11%, at the same time, Service & Aftermarket is heavily negative. So I do believe that you're going to see is that the OEM side is going to come down. And we should be seeing, obviously, Service & Aftermarket improving over time. I'm not expecting 11% organic growth last year -- next year, sorry.
No, that's probably a fair bit. And then I'm wondering about as we go into November now, which is typically a big discounting month in retail, do you see any signs of price deterioration in your retail sales? Or what do you expect now into Q4 in that regard?
What I'm expecting is obviously that we will do a good job in protecting our margins. I mean customers are doing the job. We also need to do our job. And as you know, raw material prices are coming down now, but they have been up in the last 2 years. So my statement is that we will do anything we can to protect our margins.
There are no more questions at this time. So I hand the conference back to the speakers for any closing comments.
Thank you very much, everybody, for your attention. Rest assured that we will keep implementing our strategy and keep developing the company, as we have communicated for a few years now. The tough -- it is tough market conditions just now, but we have done it before, and we will do this time as well, and we will get even stronger when coming out from the actual situation. With that said, thank you very much for your attention, and goodbye.
Thank you very much. Bye.