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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Ladies and gentlemen, welcome to the Dometic interim report Q4 2017. Today I'm pleased to present Juan Vargues, President and CEO; Per-Arne Blomquist, CFO; and Johan Lundin, Head of Investor Relations and Communications. [Operator Instructions] Speakers, please begin.
Okay. Good morning. This is Juan Vargues. Good morning everybody, and welcome to this presentation of the fourth quarter and full-year report 2017. I'm delighted about having opportunity to share this first report with the audience. I have been 5 weeks into the job. I spend my time meeting people, meeting our own employees. I have been meeting customers. I visited a number of factories, I visited a number of sales organizations and I'm extremely happy to see the level of engagement that we have in the company. We have lot of talent and I see very, very motivated people ready to take this company to the next level.Before moving into the report, I would like to take the opportunity to thank Roger Johansson, my predecessor and the rest of the management team for the fantastic job that they did, both in the fourth quarter, but also in entire 2017. On top of that, I would like also to thank you all for on one side the transition period of interaction, the good interaction that they have brought into this company. And with that said, I would like to move on to the highlights for the fourth quarter.We had a pretty strong fourth quarter. Net sales achieved SEK 3.3 billion, corresponding to 17% total growth of which 16% was organic, while currencies did have a negative effect of 5 percentage points. And on top of that, we had also acquisitive growth of 6 percentage points. EBIT, they show as well a very good development, and end up at SEK 310 million which is above 9.5%, and 2 percentage points up from last year's numbers. We are going to discuss a lot about RV, I'm sure of that, but the reality is that we had a very strong growth in 7 out of the 8 areas that we are presenting. We had also an improved EBIT level in 6 out of 8 business areas.If we move on to the regions, Americas continues to develop very positively, again good on the RVOEM, but very positive as well in a number of other segments, and showing an excellent development in profitability. If we move on to EMEA, we also had a very good growth in many business areas, but I'm very, very pleased as well with the fact that we have started to see margin improvements. After a weak first half we have seen improvements in Q3 and especially Q4 we saw indeed great improvements.APAC is very much driven by the aftermarket, on the aftermarket side in the Pacific. On top of that, we also saw very good development in emerging markets in Asia. We have on top a negative effect on raw material, and the product mix and geographical mix did have a negative effect on our profitability. Other important factor to place within the quarter were the acquisition of SeaStar, a strategically very important step for our future expansion into the marine segments. And we ended up as well with a very, very strong cash flow of SEK 536 million beating out the level of last year quite a bit.So we move on to the different regions. In constant currencies, we have a growth 23% which AM stood for 17% and OEM for 26%. Looking at EMEA region, a strong 14% in cost and currencies, with the aftermarket growing 5%. I think we have also to consider we have a very strong project 1 year ago amounting for SEK 29 million, and if we exclude the effect of that project, the real growth, the underlying growth was 13% in the quarter, while the OEM market did show a growth of 21%.Moving over to Americas, a great quarter as well growth-wise. Total growth 33% excluding SeaStar 24%. We had a strong growth both in the aftermarket including SeaStar 33% and the same number for the AM market, but even when excluding SeaStar we had a very strong quarter in AM 14% and 27% for the OEM market.Then moving on to APAC, same, 15% up in constant currencies of which 19% aftermarket were reported on 10% on the OEM markets. If we try to summarize the results on the fourth quarter sales, this show a pretty strong development, 17% in [indiscernible] currencies of which 25% is in constant currencies. EBIT levels, very positive, SEK 310 million, a growth of 48%, and even more in constant currencies 69%, so currencies did have a negative effect as well on our profitability, and then a very strong cash flow which is 52% up versus last year, and ending up at SEK 536 million.On the market, and I will come back obviously to some more statistics, but we are focusing a lot on innovation. We have seen an acceleration during last months. We launched a number of new products in the last quarter as well, among them the drop-in cooktop in Americas that were launched in December. We also did launch the new glazing dome for the EMEA region in earlier October. We also launched a new generation for APAC which is pretty innovative and that is very much expected on the market. We saw also very positive to see that we are just the beginning of February, we are starting to get a number of awards. We got 2 awards in the Pacific area for good design and that's an area as well where we have been investing for quite a bit of time. And also the new generation of -- the refrigerators in EMEA was awarded. This is the first product of a 10 series in refrigeration in the EMEA region.If we leave the quarter and move on to the full-year numbers, again a very positive development ending up at SEK 40 million which is 13% total growth and 12% organic growth. Currencies didn't have any effect at all when looking at entire year and M&A stood for 1 percentage point. EBIT ending up at SEK 1,860 million which is 15% growth, and margin improvement of 10 basis points. When looking at growth, a little bit of the same story as for the quarter, very nice growth in 6 out of 8 business areas, and improvement in 7 of 8 business areas with Americas of course benefiting from very high levels on the RV market, but also good development in the RV AM market and a very strong improvement in profitability that has been accelerated in the last half of the year.On the EMEA region, as I mentioned previously, I'm very happy to see that margins are starting to kick in since that scenario where we have been focusing the last months after a weak start of the year. And on top of that as you all are aware of, we also launched an efficiency program in Q3, and we are expecting to start seeing results in the first quarter of 2018.APAC, I'm also pleased to see the development. We have to remember that the Australian market is pretty flattish, but at the same time we are growing rapidly in Asia with China growing over 40%, and also rest of Asia almost 20% which is of course putting some pressure on our margins. On top of that, we were a little bit late on adapting our prices to the increase in raw material prices at the beginning of the year, and we are making efforts just now to bring them up.Very pleasing to see that we ended up 3 acquisitions during the year, Oceanair in the U.K.; IPV in Germany; and then SeaStar in Americas. It's still exciting to see the SeaStar acquisition because of the impact that that will have for our numbers moving forward. When looking at the pie chart on the bottom, we see also that even if we didn't see any major effect in 2017, that chart we're looking at very different way at the end of 2018 since RV will go down to 55% the same time as Marine will go up to 22% in the coming year. So very, very aesthetic acquisition. Strong cash flow for the year ended up at SEK 1.7 billion and we are proposing -- or the board of directors will propose dividend of SEK 2.5, which is about almost 11% up versus last year.Moving to the regions, EMEA did have a very nice growth, 15%, and I repeat myself when saying that these projects that we had in EMEA last year have an effect or 7 percentage points. So underlying growth in EMEA was 15% in comparison to the 8% that we are showing for the AM business at the same time as OEM was extremely strong ending up at 23%. When looking at Americas 7% on the AM business up, while the OEM went up by 12% and we have seen an acceleration in the second half. So we had a weaker first half on the RVOEM, while the second half has been extremely strong.And then APAC, a 12% growth totally speaking with 13% for the aftermarket and 11% for the OEM market. If we try to conclude the year 2017, growth of 13% in constant currencies, an EBIT improvement of 15% ending up at SEK 1.8 billion -- SEK 1.9 billion in EBIT and a 33% growth on operating cash flow.If we look at the statistics coming from the America market, we are all-time high, we were all-time high already in 2007 ending up at 505 million units. We have to remember is that the latest peak that we have in the market took place in 2006 and the number at the time was 391,000 units. So we see still an acceleration and we see the more important is that despite the fact that the full-year ended up at 17% up, the last quarter ended up at 19%. So we don't see a slowdown, on the contrary we see an acceleration of deliveries in the America market. We have also a positive forecast [indiscernible] telling us that the market should go up by another 4% in 2018.We're moving over to the EMEA region. Here we are following very, very close a number of associations, local associations and we see especially Germany showing us a very strong acceleration, but we see as well growth in most of the markets. When looking at the total numbers coming from the European association, a little bit of the same, we saw an acceleration in the last quarter up 19% in comparison the total year numbers that went up about 13%. And even here we have a forecast, which is positive for 2018 of about 9%.If we leave the RV market and move over to trucks, a little bit more difficult, but what we see clearly is on our strength today even if it is not strong, but this is another 1% versus the last year's numbers. And as you know this has an effect for our CPV, what we call our commercial passenger vehicle business.And then on the boating side in the U.S. where we traditionally had a very strong position on the larger sizes, we see as well the acquisition of SeaStar, we will start seeing also growth in the smaller sizes. And even if the trend looks downwards, we have to remember that we are talking about year-on-year, so it's still a growth rate of 4.4% versus last year, which is positive.So in other words of course that we are following these numbers very, very closely. We are aware that we are reaching all-time highs in a number of segments. But at same time the way we perceive is that we see an acceleration in the last quarter instead for deceleration.If we move over to Americas and look a little bit deeper on the highlights, about SEK 1.5 billion in revenue in the last quarter with total growth of 20% and a growth from constant currencies of 33%. Good EBIT improvements ending up at 11% EBIT. Good growth on OEM as I mentioned previously, but we saw as well a very strong growth in RVAM, in marine, in lodging, so altogether we saw growth in most of the areas in America region in Q4. And again, very, very strong margin improvement. And then, last but not least, the acquisition of SeaStar to be mentioned since going to have a major impact for us moving forward.Moving over to the EMEA region, about SEK 1.2 billion in revenue in the last quarter with total growth of 15% and in constant currencies 14%. I'm very pleased seeing that we had a 2 percentage points EBIT improvement, that's still not where we wanted to be, but a clear improvement in comparison to what we are coming from.Even in EMEA region and even we're paying out attention to RV, we saw a good growth, a high 2-digit growth in many other segments. CPV did have a very strong growth on the OEM side and even marine had a fantastic growth. As mentioned previously, we are -- we have been working on the pricing, we have been working on the efficiencies and our expectation is that we will see improving margins moving forward as well. And on top of that we have the efficiency program that we launched in Q3 that will start kicking in, in Q1 2018.And then finally, the APAC region sales of about SEK 0.5 billion with total growth of 10%, in constant currencies 15%. EBIT coming down; a couple of reasons for that. One is again that we were slow in terms of increasing prices when the raw material prices started to kick in, but at the same time we have a clear product mix variation and we have geographical mix variation where the Pacific market is pretty flattish at the same time as we are increasing big time in China, but also in the rest of Asia. And I repeat myself, China went up for us over 40% last year and the rest of Asia almost 20%. So that has an impact on our numbers.With those words, I would like to give the word to Per-Arne please.
Thank you very much Juan. Summarizing sort of the -- perhaps some years impact, Dometic has had a -- sorry, I was moving the microphone, so hope you can hear me. We have a good development of the Dometic group. We have now reached more than SEK 14 billion in sales. If you compare that to '15, we were down at SEK 11.4 billion and even below SEK 8 billion if you go back to 2013. So we have a good grow in the company in a rapid way. Adding on SeaStar means another SEK 2.5 billion at the top of this.EBIT has also increased coming from roughly SEK 1.4 billion in December 2006 and we are now coming close to SEK 1.9 billion. Operating cash flow continued to generate in a good way a bit above SEK 1.5 billion. The EBIT margin however has been under pressure during the last 12 months and we had a downturn starting already in I'll say Q4 last year and very much of this was the impact from commodity pricing pushing down the margins and we [indiscernible], so we're -- act a bit late on this, but now we're gain a momentum to be able to work towards our margin target of 15%.If you then look at the businesses, we can see 3 areas where we have double-digit growth. The CPV business growing at 3%, but behind this we have different patterns in the different markets. U.S. has shown the sort of weakest development. We have rather good development, but a small market in APAC. However, some of these business as well as we have said before is low margin, and we try to get after on this.EMEA shows a scattered picture, the OEM part shows double-digit growth, but at the same time the aftermarket shows a drop given the fact that we in '16 had some bigger orders when it comes to AC stations. This is -- this area is very much more a question of penetration than in the other areas.The RV market close to SEK 9 billion is the biggest market, we have been growing to 14%. Marine up 34% and this includes both the currency effects and also acquisition. This will be the business for us, we would be closer to SEK 4 billion going forward. So this is way of balancing the RV in a better way than we have done before. In there we have lodging and retail. I'm happy to say that we see good growth in the retail business both in APAC and -- but especially in the U.S. The cooling box activities that we have initiated started to yield result even though it sort of starts from pretty low levels.If you then look at the key ratios, when it comes to sales, we have had 2 years now with good organic growth. In '16 we were at 7%, this year we were above 11%. We have worked hard with the profitability, but it's flattest between the year very much depending on the commodity pricing that I mentioned before, but we have also had the impact from our class action and that is roughly I will say SEK 55 million in '17, it was more or less the same in '16 as well, but has impacted our ability to raise the margin at the quicker pace.We've got to hope to have a quicker pace in raising the volume margin. Capital efficiency, I'll come back to that later on, but you can see improvements when it comes to core working capital, I'm happy to say that it's now slightly coming down, we have seen increased return on operating capital, but [indiscernible] which is good. Operating cash flow is strong, 33% up compared to last year and earnings per share have exceeded size which is shown and end up at SEK 5.05.Juan talked about the impact from the currencies, and I will not repeat too much of that, but you could see that in the fourth quarter, we had a translation effect of minus 5%, but this is especially the weakening of the U.S. dollar that had sort of the biggest weakening in the fourth quarter, small strengthening on the euro and if we take down the full-year, you could say that we'll have a more or less a flattish -- we are flattish on translation, where USD is minus $4 to $5 and euro has been strengthening, but that -- you can see that the impact from the currency movements came in the fourth quarter.If you look at the regional results, Juan has talked about that before, but we're happy to say that they see strong improvements in the Americas and if you take away the class action, they would have closed the deal at 15% in margin. All 3 regions are showing double-digit growth. We have seen double-digit improvement on the EBIT in absolute terms, slightly below in APAC and this is the reason also what Juan explained earlier.But it has been a change during the year and if you look at the EBIT margin development, we started off the year with being the high-end 1.2% units in the first quarter. We were 0.4% behind the second quarter, but then we have regained momentum and the activities that we have put in place during the year start now to yield effect and I would expect this also to have a rollover -- positive rollover effect in the coming year.The fourth quarter had some items affecting the comparability. We have in -- we have the press release most of this, so that is well-known, but I will anyway repeat this, we had reimbursement which was positive over SEK 28 million related to the U.S. class action. Going forward we have reached an agreement with the insurance company that certain parts of the cost will be reimbursed up to 75%. This means that we will now stop to give forward cost around the cost levels each quarter on the class action. I think that will be minor and we will also see later on that the activity level right now is rather low within the class action [indiscernible].We also had harder effects on EBIT. We had the cost for -- in the profitability program SEK 61 million. This will help us to raise the money with 2% during the coming 2 years. We had acquisitions cost close to $7 million, SEK 58 million for the acquisition of SEK 875 million SeaStar, so that's the cost for during this bigger acquisition. We have spent quite a lot of time on taxes, I think we're not only company that have been doing that the last months. For us it has been a bit more cumbersome given that we closed the deal with SeaStar the 15 of December, we had tax reform coming in the 2nd of December.But effect of this was basically positive. We had a small negative revaluation of our tax assets with the effective [indiscernible], but they had a positive effect with tax liability revaluation of close to SEK 300 million. These 2 items will not have any cash effects in long-term perspective.If we then look at the earnings per share, you could see that all these activities around the taxes make the tax rate a bit awkward in the fourth quarter, but for the whole year we stay at 12%. You could see taxes paid are 34% which is high compared to what we normally have in under 10% the whole year. We have in addition to what we mentioned before also some settlements of tax orders in Germany, Slovakia and also Italy and there we also had smaller effect also from the SeaStar acquisition that came in late, then we had sort of press released. All in all I think we have one-off effects of SEK 50 million to SEK 60 million on the tax and tax paid.Coming into CapEx and our investments, we continue to invest in the company and are around the 2.5% to 3% in CapEx and I don't foresee any change to this level in the coming year. The same goes for PMI where we're roughly now at 2.5%. I will say that somewhere between 2.5% to 3% goes for both CapEx and PMI each going forward.Working capital as I mentioned down to 22.3%. We will have sort of consumption of working capital in the first quarter also in 2018, this is the trend that we see, and -- but we tried to minimize down the need in Q2 and there we will have positive effects also in Q3-Q4. If we look at the working capital overall, it has increased from SEK 2.6 billion up to SEK 3.4 billion, pretty big increase, but this is also effects of the SeaStar acquisition where you have close to SEK 600 million in all coming from the acquisition, but also goods and transits we have done very well in the U.S., we are competing well in the market and we get more orders in, but it also means that capacity-wise we are outsourcing internally especially when it comes to refrigeration to sell or to produce in China and then sell in the U.S. and this gives us more tied-up capital for 5 weeks to 6 weeks when we have all the [indiscernible] on the water.Finally then, cash flow, as you see it's a strong quarter. We have a cash conservation of 134% which I think is very good, we are up with close to SEK 200 million compared to the quarter in the 2016 -- the fourth quarter in 2016, and we are happy to see that we continue to generate cash. And if you then look at the leverage level, if we had not made the SeaStar acquisition, we should have been down at 1.0 which would amount that from the IPO where we started at 2.75, we have taken it down in close -- down to 2 years with 1.75 notches, which means that we have a good cash generation. I don't foresee any change on that front going forward. That will be good for us to continue to generate cash to take down the EBIT, but also to create opportunities for other acquisitions.If we then look at the dividend, we have -- we will propose to the AGM that we will increase the dividend with close to 11% up to SEK 0.5 as Juan said before. This means 40.5% of net profit, which means that we are well-aligned with the targets, the financial targets that we have set up. You could also see that the share price and the domestic share has sort of gone up with 25% during 2017.Finally then looking at the financial targets, yes, we have reached net sales growth, we are above the 5% that we have also mid and long-term target. And net debt to leverage is up to 3.3x, but underlying we should have been at 1x, so we are -- we will come closer to 2.5x during 2018 and come close then to our target during '18 and come down to the target in the mid of 2019. Dividend policy we keep the 40% as I said before.Yes, then before I leave it over then to summarize for Juan, I would say some words about the class action. We have a very low activity level right now, that in Florida we have more or less stalled the case right now and we are now looking at what will happen in California. It will either continue in California or we'll try to transfer to Florida.But for the time being, we should expect a very low activity level and we will come back when we know more about this. But so far, we have not made any supplements and we have got both our case right in all instances that we have been sort of proceeding. So Juan?
Thank you. Thank you Per-Arne. So summarizing 2017, very strong organic growth of 12% driven by the RV market, that's true, but we have to keep in mind that we had 5 out of 8 business areas showing high 2-digit growth during the year, which is very, very strong. Improved profitability, 15% up versus last year with good efficiency improvements in Americas and starting to see clear improvements as well in EMEA region. Three very important acquisitions for us, that are giving us even more presence in the marine area, so we have SeaStar at the end, but we also have Oceanair at the beginning of the year. So again a pretty strong -- a strong position of mitigating obviously our exposure to the RV market.We are also working on efficiencies in EMEA as mentioned previously. We will see the first effects in Q1 2018. We are also working on the consolidation of our factories in China that will give us also improved efficiencies.Increased focus on product development, we have seen a number of product launches in the last months and we will see more product launches coming forward. Something we are not talking a lot about, but is also starting to have an effect is emerging markets. I mentioned China, I mentioned also Asia. But we have also very nice growth in Eastern Europe, 90% up. We had CIS, very high numbers. Africa doing very well. So we see that even population in those countries are starting to appreciate our approach. We see some trend changes that should benefit us moving forward.Then as you are all aware of, I came into the company or joined the company on the 8th of January this year. We're looking up to the future. We're still positive about 2018. We believe that we will be in line with our 5% financial targets.We see that we have a number of underlying trends helping our numbers and we don't see so far any changes in any trends. On the contrary as we mentioned previously, we saw a very positive trend acceleration in Q4 of last year. We are aiming at reaching 15% EBIT margin during 2018. And we will keep on working efficiencies all the time. We aim to reach out with a leverage of 2.5x at the end of 2018. After SeaStar acquisition, we went high and we have all the intentions in the world to come back again to the levels that we had before. We are proposing a dividend or the board of directors is going to propose a dividend of SEK 2.05 which is about 11% up versus last year, very much in line with the target that we have of 40%, slightly above the target.And with those words, I would like to initiate the session for Q&A.
[Operator Instructions] And our first question comes from the line of Erik Karlsson from Industrial Equity Partners.
I thought I'll start with the margin guidance. When you 15% during 2018, is that reporting for '18 or as a run-rate some time during the year.
Sometime during the year.
And just a follow-up on that, thank you. Is that then as a 12-month, because there's seasonality in this business, should we then think about it as the 12-month run-rate backwards or how should we measure your success?
I think I do have a number of factors playing in obviously. I mean SeaStar is going to start kicking in. At the same time we have the EMEA program starting to kick in. At the same time we're working with pricing and we saw an acceleration on price increases in the second half of last year, and we understand as well that raw material prices are starting to move outwards and we will act accordingly. So our estimation just now is that at the end of Q3, we should be starting to get very close to the 15%.
And maybe one question on North America, you had 34% for the OEM growth there which is sort of an astounding number, and as you pointed out an acceleration. Is there any type of one-offs or anything unsustainable in that number that you would like to point out just when we make our forecast going forward?
Well, we see that some of our competitors are having progress on deliveries and we have been benefiting from that. But even when excluding those numbers we see a very positive trend. We have been clearly taking market shares in the last 6 months of the year.
Per-Arne here, Erik. I mean it's not that we have some extra award or something, it's as Juan said, very, very strong underlying, so we don't have an explicit sort of extra orders. Yes, there were somewhat.
And also on the EMEA restructuring program, and I think it's fair to say that you have seen a few restructuring programs over the years, Juan, so you're well-placed to comment I think. Could you just help us understand how you look at this program because it was initiated before you joined? How does it look in terms of scope and how is it going in terms of progress?
Well, we have seen -- the program was launched in Q3. Obviously the work was initiated early on that, which means again that we see that we are in line with our expectations and we should see -– starting to see effects in Q1. A number of people have already left the organizations. Some more people will be leaving now in January and February. So again, I see a good progress. Now we are totally determined to deliver what we have said.
And it is not an SG&A program, it's a cost-reduction program. We're looking both at production and SG&A and overall those sort of cost.
Efficiencies, that's why we call it for efficiency in program.
Exactly, so it's -- so that's what we're aiming for.
And it sounds like it's in line and maybe a little bit ahead?
Well, I don't know. It is -- I think it will take it inline. As we have said it will present you during 2 years.
And last question, sorry for so many questions. But on M&A side, you've done some phenomenal acquisitions during 2017 and you have high leverage. Do you think we should expect a freeze now during this year or would you be willing to look at smaller bolt-ons also this year?
No, I think we can do smaller bolt-ons this year, but first of all we have to manage the first 4-5 months where we have dividends to pay et cetera. So we will not be -- sort of rush away, but I mean what we're looking at is strategic good M&A activities and that's what we're aiming for.
And as you all know, acquisitions, they don't happen overnight. So it is quite clear that we are working actively. We are in the kitchen, but I think that we have to deliver in the first half.
Yes.
Our next question comes from the line of Peter Reilly from Jefferies.
I just wanted to start by asking you to talk about your priorities. You've talked about the business and what you found, but looking at your inbox you've got the efficiency improvement program in EMEA, you've got integrating SeaStar, the cool box program, only organic product development, so what do you see is the most important priorities you're facing for the next 6-12 months for the group? And then I wanted to follow up on that, just coming back to this issue of U.S. RV with fantastic growth in the fourth quarter, can you talk a bit about what is leading you to regain the market share? Is it just regaining the share you lost or are actually winning additional share with new products and new initiatives, maybe you could help us understand that?
We'll start with the first question, priorities. Of course my first priority just now is to learn to know the company in depth. I'm working very intensively just now. The management of the company has been doing a terrific job preparing this company during the last years and we see that in the performance improvements. Of course after 5 weeks into the job, I see a number of opportunities, but you could say exactly the same in every single company, right? I mean, it's about people growing the company, it's about accelerating innovation even more and it's about looking at your cost. Growing the company costs money, that's why we need to look at the cost all the time so we can finance our growth. And on top, we want to do acquisitions, we need to be fit for that. So I guess, I mean, it sounds quite odd, but it is more of the same like in any other high-performing company. We want to be a high-performing company, I do believe that we have seen terrific improvements, but is more to be done. And then on the second one on the market, could you please repeat the question again?
I can.
It's the U.S. market.
Yes.
So I mean, the 33%, I mean we have had -- I mean we have the opportunity to -- given the good growth in the U.S. to take on more orders, and as I said the representation, that means that we're also shipping in from China. That gives an opportunity to take orders and regain shares. We have to remember that we were -- actually at the starting of this year we were the highs on shares, both on accounts of refrigeration and the partner also AC. But given our possibility to actually producing channel, we are now regaining on this, and that's what we see right now. But there is also -- ties up more capital, but it's for good sake, so we're assuming that it means that no one else can produce on the account and that's why we're taking that risk.
So 2 phases in reality, first half we were below, we were losing little bit of share, second half has been terrific and regaining and even more than that on the America market.
The cash levels and given you've got very strong growth in the quarter, given you're positive for next year, I expected a bigger working capital build. So what's happening? Are you getting more efficient at managing your inventories or do we have such strong shipments in the back end of the quarter, you just ended up with a slightly lower working capital number that maybe I have expected given the strong organic growth coming through it?
But I think we have learned to handle it a bit, or it's still good, no, where we're not. I mean we still have no reason to take it down to closer to 20%, but I think it's -- we have handled it slightly better. I'm happy to see this down to [indiscernible] and also that we're shipping much more from China because that has been the result, that has been what is taking us on the more. But for me it's -- I mean given the cost of capital that we're having -- even opportunity that we have in the [indiscernible] I think is right thing, in fact we have a slightly higher inventory, those will be able to serve the markets.
And just one last and quite boring question, with SeaStar big increase in the intangible fixed assets. I guess you have to start amortizing those in 2018, and I'm assuming you'll take that as a cost above your items of '18 comparability-wise. So can you give us some guidance on what the drag is going to be for Americas with the SeaStar in terms of your amortization?
I think it will be a roughly another SEK 150 million per year in intangibles or depreciations and that will be part of the sort of customer relations, so that we have to add on to what we already have today. That will be a part of the amortization line.
And you...
Yes.
And you'll be reporting your EBIT before 2018, comparability after this additional SEK 150 or so of the amortization?
Yes, the way we report on the normal amortization, so there will not be -- yes. But also we have -- they have that also for actual for example, so that will be our fee included in that.
Our next question comes from Rasmus Engberg from Handelsbanken.
Can I ask on you're talking a little about the next steps so to speak, do you -- how do you think about that, is it a much larger company or would you think it's a much more profitable company?
I think both. We want to be an [ And ] company. We want to grow and we want to make more money. So it's clear I think that if you want to be the high-performing company, you need to work on both ends. It is about growing, but also financing your growth by being very, very good -- very good at running your cost. And I see obviously potential in both areas.
And Rasmus, if we just go back to 5 years we have increased the top line with 80%, so the quarters, we have increased our profitability with [indiscernible]. I think that's a good combination. We will look at the rewards and try to release. So I think we have a great base there.
And just coming back to Peter's question earlier about depreciation and amortization, if we take a 15% EBIT margin, what roughly does that imply in terms of EBITDA now with SeaStar coming in both with assumed assets, but also the logics then, the acquired intangibles? Roughly how many percentage points of D&A do you think you'll have?
Well, I haven't made that calculation, but normally we have add on 2% units from EBIT to EBITDA. That might be quite normal, but I have some -- I'll check that, but normally it's 2%.
But could you say that in absolute terms maybe perhaps roughly what would be the total?
SEK 150 million is roughly the...
That's all, and maybe 2% of sales in SeaStar so to speak, but that's what we should be...
And then you have -- because we already had -- of SEK 60 million or SEK 70 million-something.
[Operator Instructions] And we have a question from the line of Kenneth Johansson from Carnegie.
I just have a question on the inventory levels of RVs in the U.S. There have been some discussions in the market that those inventory levels of finalized RVs are on very, very high levels in the U.S. What are your opinions of this?
Well, I wish that they had their crystal ball. At this point I do believe that we have obviously a gap between our deliveries and the inventories, that's quite clear. And what we can do is obviously to be very, very close. The RV association in the U.S. is still forecasting a growth which is clearly lower than we have seen. They are forecasting 4% and of course we are watching this every single week, every single month. And of course that we have to [indiscernible] ourselves for any kind of event that might happen.
But it's not that your customers have asked you to hold back a little bit --
No.
-- because they feel they have too high inventories at the moment?
No, I think if you look at the last quarter's numbers and the December numbers we're going to say -- we're going to see a deceleration. On the contrary we see an acceleration.
I would even say it is my fear, I don't know for sure about what we have heard all this time, some of the customers has problem with supplies, so which means they can't finalize the work with RVs, which meant that they're standing at the inventory and then the country develops. So it's -- I don't -- so that could be one explanation, but we have not seen anyone asked us to holding back on the contrary.
And then as the season is that you should sort of build inventory of RVs now ahead of the selling season I guess?
Yes.
Yes, that's right. And what we also try to do is some deductibles will have a challenged new year. But that's the normal thing. I'm not saying what we have also done during the loss is then to try to have more even development on this. We are not taking down the inventories, I'm absolutely clear at the end of the year we don't have any [ combinant ] issues. So what we've done is to then prepare for the season coming up. So that's why we are prepared to build up some inventories to be prepared at the moment.
So I think that one another thing that we need to remember again is that we are just now at all-time high in the U.S., the latest pitch took place in 2006 and the market level at that time was 391,000 units. We are running just now 505,000 units and the expectation for the market is to be on 525,000 units. So for us our interpretation is obviously that our discussion about lifetime -- life-way changes are taking place in the U.S. clearly. We are starting -- or this market is starting to attract the millennials, the young families and this is creating a new market. Then for how long? We don't know. Just now is usually to watch very, very closely and to act accordingly.
We have a follow-up question from Peter Reilly from Jefferies.
I just wanted to ask 2 more please. Roger was talking last year about a contract you won which isn't in production yet, so I think it was maybe 2 contracts for coolers in either trucks or SUVs in the US. I think it was maybe some of the first U.S.-made SUVs we have cool box between the seats. Can you just tell us if that's still on track? I think he was talking about that starting sometime in 2018. And then secondly on the European RV business, you have been losing your bit of share there. I know you have had some problems and maybe you've got some dislocation with the restructuring program you're putting through, but can you give us more color on what's happening in your European RV business and whether there's anything meaningful happening in terms of market share developments?
If I talk with the U.S., well, this is still on track, but it's -- well, you will obviously be thinking impact of that milestone, there's some impact in 2018, but really it will take off in '19 and '20. But this is still on track, yes. And that's good things for us to have this kind of cooling compartments coming into SUVs. Then on the...
Yes, if we move back to Europe and the RV markets, I feel if you look at the numbers that we are getting from the association it might be that we were losing a couple of years ago, but we're looking at other numbers we have in front of us. We cannot say that we are losing market share. Of course, now we are talking about on one side timing, keep in mind that we're delivering to our customers, our customers will keep it in their inventories for a while before shipping. That's one effect. The second effect we have is product range. We have different average prices for different products; we have number of units. So in my view that we are losing some share in some product while we are gaining some other product. So I don't have any feedback from our organization that we might be losing market share just now in the country. If you were looking at the last period, we have been gaining market share.
And we have actually turned down some orders, especially when it comes to [indiscernible], so we have had a very high utilization [indiscernible], we will not take them, so that we have actually -- it will not improve our margin, so we have been tough on that.
And looking at your pipeline of new products, you decided a couple of years ago or several years ago to spend more money on product developments, re-brand the products and have more sophisticated design. Is that something you see acceleration going into '18 with potential for more because I guess that will -- aim of that program is market share gains, better pricing, and a more competitive advantage. So do we see...
Well, I feel we have a clear task specifically in the EMEA region, which is to increase our profitability. Products are crucial both to competitive market from our future perspective and entering into new segments, but also from our cost perspective. So our intention is to innovate more and more often. We will be talking about more features, but we will talk also about less cost. It's crucial to work on both sides, is about the top line, is about market share as you are talking about, but it's also about I wouldn't say be more competitive, but make more money. So again we have a clear target of increasing our profitability in Europe, yes.
I mean, if you look at now the design team, I mean if you look at the beginning of our presentation, we still have about some reward for the signs --
Yes. Yes.
-- of that detail, but we still have to do with [indiscernible] from pricing and also to be more cost-competitive, that's what we are -- that's why it's more of the same, and we need to accelerate that and given the discussion we have had around the leverage in Europe it's obvious that we need to accelerate the cost side.
Well, I feel we have a very strong position in many areas or in many products. I'm not fully convinced they said about gaining even more market share. I think is about applying our pricing with the strength of our market position, at the same time again as we are becoming a more profitable company.
Because I was surprised to hear you say that your organic had some impact from the EMEA cost reduction program already in Q1. I mean, Europe is normally thought of as being a region where it takes a long time to get cost reduction to come through. So how come you're doing it so fast? I was pleasantly surprised by that.
Because we are talking about efficiencies, so efficiency doesn't necessarily mean just to get people out. It is also about implementing lien, it is about becoming a more efficient company all over. We are of course looking at other cost. I mean personally obviously no money [indiscernible] or the cost, but you have other cost types as well that you cannot act pretty fast.
But people have -- have already left the company, so I mean we were pretty quick on this.
November, December. Yes.
November, December, fair amount of people leaving the company.
We have a follow-up question from Erik Karlsson.
Just curious to hear how you look at the price to raw materials net impact for the year? So you mentioned price increases accelerating in the second half of the year. On the other hand, we see some companies with raw materials exposure having pressure this year. How do you see that balance playing out for you? Is it a net positive, net negative or neutral for margins this year?
Well, until now it has been negative --
Yes.
-- but we have the intention of making it positive.
During this year?
Yes, but it depends on how it increased, but what we've seen so far, I mean we must be able to mitigate the increase obviously done. Last year we have roughly SEK 130 million in commodity impact and I think it will mitigate half of that. But I think the increase you have seen so far we must be able to mitigate, but then we'll see how much, how this continues.
I mean our discussion just now internally, so obviously we see the commodity prices coming up again in recent weeks, we will be acting as we speak.
So we can look at last -- no, that's very helpful.
Yes. Yes, I...
-- if we look at last year -- no, sorry, go ahead.
No, what I said is that it is important in pricing is very much is about the state. This is about obviously passing your prices to the market before you get hit yourself. So we are watching commodity prices every single week, we are already having discussion with own organizations on pricing. So our intention is obviously to be faster than we were last time.
And if the gross impact was SEK 130 million last year, if we freeze raw materials where they are today, what's the gross impact 2018?
Well, we probably -- we can't comment on that right now. Let's see now what -- how much it will be, but it's -- I don't know if we might have another SEK 10 million to SEK 30 million lower, that's the [indiscernible] I guess. It was a -- it is also -- I mean you have some -- yes, so this all has gone down, and then also that the PMI was the biggest one in EMEA, the plastic port, so it's -- it's not the huge impact so far this year, but if it continues to go up and I talk about [indiscernible] steel et cetera, quarter will affect us. But let's come back, I just want to see more clear accounts.
Any final questions?
I will hand back to you for any closing remarks.
Well, I would like to finalize by as stating again that I'm very happy with Q4. I do believe that I got a very good base for a start, building this company to the next level together with my team. I'm excited about the people I'm meeting, I'm excited about the team. And I'm very, very grateful for the Europe -- the entire management with Roger Johansson on top did achieve in the last years. And now I think is for us standing the company that new opportunity to take this company to the next level. I'm now fully convinced that we are going to achieve that. So with those words, I would like to thank you all for your presence, for you showing interest. Thank you very much.
Thank you. This now concludes today's webinar. Thank you for attending. You may now disconnect your lines.