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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 Q4 Report 2018. Today, I'm pleased to present Juan Vargues, CEO; and Per-Arne Blomquist, CFO. [Operator Instructions] Speakers, please begin.
Hi, good morning, everybody, and welcome to this call. This is Juan Vargues speaking. I'm sitting together with Per-Arne Blomquist, CFO. I'm very proud to present these Q4 results, in our opinion, showing a very strong performance considering obviously the headwinds in the market and the tough comparatives that we have against last year. When looking at growth, we are showing a 6% organic growth outside the RV OEM Americas side, which is a strong performance organically in all the areas with double-digit Aftermarket growth, with a very positive and strong growth in Marine and then both including SeaStar as well as all Dometic Marine. So that's very pleasing. We see as well EMEA and all the businesses in EMEA developing very nicely, including RV. So again altogether in terms of the growth side, apart from the RV OEM in Americas that we are all aware of, all the rest is showing very good improvements. When looking at the markets, just to say that the underlying demand we see in all the other markets is pretty satisfactory. And then again to repeat myself, RV OEM in Americas and Pacific is on a low level. Considering the situation obviously and the volume drop, I think that we are showing a very strong EBIT improvement. We have been implementing a battery of different measurements in order to protect our results. We have pricing. We implemented new prices during Q4. We have been working very, very hard on improving our efficiency altogether to compensate both for commodities and the tariff situation that we have in the U.S. And on top of that and based on the situation specifically in Americas but also adapting our capacity to new levels, we have implemented contingency plans, pretty severe contingency plans in other areas that are also giving us respective results. At the same time, we are also very happy about the completion of the Kampa acquisition, an acquisition that will bring a good Aftermarket growth moving forward. And I will come back to that in a few minutes from now. In order to improve our competitiveness even more, we also initiated a restructuring program, which is going to affect all the regions. And this is both regarding factories, warehouses and nonetheless also a number of offices around the world. And we're also very happy about our new site in Mexico. It took 97 days from taking a formal decision about building up a new factory in Mexico to the delivery of the first units from that factory. So I'm very pleased with the cooperation with the Chinese teams and our American teams to get it done in such a fast manner. When looking specifically at Q4, we had a strong growth of 25%, totally speaking, with a low organic growth due to the RV OEM. We were helped by FX 7% and then a good evolution also on -- coming from M&A, 20%. When looking at EBIT, it's even better, plus 35%, totally speaking, with an EBIT margin of 10.3% versus 9.5%. We see that the efficiency improvements that we started to kick in during the last part of 2017 continue to give the effective results. And on top of that, we have been also adapting our price into the new situation, both in terms of commodities and tariffs. As I mentioned previously, we are also very proud on how the organization has adapted into new market demands in terms of volumes. And this is also one of the reasons obviously for the strong results that we are able to show today. And then again, the market there's nothing that we can do about, and RV OEM has been very weak during the quarter as expected. And I believe that the situation in the coming first and second quarter is not going to be fantastic either. I believe that we will see a weak first half and a stronger second half. At the same time, we have to keep in mind that we are coming from a Q4 2017, where we were showing an organic growth of 16%. So we have very, very tough comparatives. I'm very proud also to show a very strong cash flow, 60% up versus last year. In that number, we have to consider as well that we have over SEK 200 million in inventory built up in order to mitigate the effects of the tariffs in the first quarter as we were working on the Mexico factory. EPS of SEK 0.46 or 51% down versus last year. But even there, we have very tough comparison. We had, on one side, a positive effect last year of the U.S. tax reform. At the same time, as you all know now, we are booking SEK 92 million in restructuring cost during the quarter. So altogether, we feel very proud of our outperformance in Q4. Looking at entire year. I feel good this company is 30% bigger today than we were 1 year ago. We have shown 5% organic growth, which is exactly what we set already after Q1 in 2018. So we were expecting obviously the second half to be tougher, very much due to the tough comparisons that we had. EBIT, even better, 44% up versus last year. EBIT margins went up to 14.7% or 1.5 percentage points higher than we had 1 year ago. We are working very hard across the entire organization to keep on improving our efficiency all over. And I believe as well that we have done a pretty good job in adapting our pricing to the new circumstances on the markets and mitigating effects again from both currencies, commodities and nonetheless the tariff situation in the last half. Cash flow, more of the same, very strong for the entire year. Leverage, that has been obviously a question during the entire year. And we are very, very pleased as well to have taken it down to 2.6 when excluding the Kampa acquisition that has an effect of 0.1. And the FX situation, as we all know, the U.S. dollar has been strengthening in regards to the krona, so ending up at 2.8 on 2.6 adjusted for Kampa and FX. And EPS again affected by the same factors that I commented before, so altogether, a very pleasant picture. When looking at the sales growth in constant currencies, we were down 2% totally. As I said, 25% and then please have a look on Q4 2017, showing a fantastic 16% organic that we have never seen for many, many, many years. So the comparatives are pretty tough. Yes, I think that I move on to the next one, which I believe is a very important slide. I think that we spend a lot of time obviously discussing the situation on the RV market, discussing what's going on just now in Americas. But when you look back at what's happened in the last 5 years in Dometic, the reality is that all the businesses but RV OEM is growing exactly at the same pace organically as RV OEM. So when looking at last year's, please keep in mind that it's not just that Dometic is growing on the back of RV OEM market situation in Americas, all the rest organically has been developing very nicely. On top of that, if we look at what's happened in the last 5 years, the reality is that our total growth rate is 50% higher for everything apart from RV OEM, non-RV OEM. And this is also what we see in Q4 and what we have seen in entire 2018. But despite the headwinds on RV, we're still developing as a company in a very nice way. Which should bring us obviously to the next picture, which is showing how the company, how Dometic is becoming a more diversified company, reducing our exposure to the RV OEM market. And we can just see that everything apart from RV OEM went up from 51% in 2017 to 60% of the total weighting in 2018 and growing at a faster pace. So altogether, we are working according to our strategy. When looking at EBIT and EBIT margin, same. I'm very pleased obviously to see that we improved EBIT margin by 1.5 percentage points. We also have a 0.8 improvement in Q4, despite again lower volumes, despite the tariffs and obviously compensating by a number of different measurements. On top of that, since we want to improve our performance even more by becoming a more efficient company, we are also initiating a restructuring program during Q4, where all different regions will be affected: Americas by SEK 34 million net; EMEA, SEK 57 million net; and APAC, SEK 1 million net while gross is SEK 10 million. So we have a SEK 10 million there, which is coming from the net profit that we had 1 year ago from the sale of a factory in China. We expect as well a very good payback of 1 year. So this is not going to be a long program. Considering the situation obviously that we have on the market and the potential we have, we decided to implement it very, very fast. On the growth side, Kampa, we are very pleased. We believe that it's a very good company that has been showing very nice growth, first in the U.K., where they had a very strong position and then in a later phase, establishing themselves across Europe and showing very nice organic growth and very, very good profit improvement over time. On the product area, we are also pleased to launch during the quarter a new product, which we believe is going to become more and more important in the future. People, our lifestyle, people are spending more time outside, no matter if we are talking about marine or we are talking about campers, they want to have access to their computers, they want to have access to their cell phones. And we are launching a power pack, which is -- has a number of features that are pretty unique on the marketplace, have a very strong expectations on the development moving forward. I believe that we are going to see more products like this moving forward and we just need to strengthen our position on the marketplace. When looking at the regions and starting with Americas, we were down 10% organically. When looking at again everything outside the RV side, our organic growth ended up at 31% with Aftermarket, excluding SeaStar, showing a very strong 13%, showing as well a very strong evolution of the SeaStar acquisition, 13% as well. And then we can just realize that the OEM market, the RV OEM market, is pretty soft and show a 2-digit negative growth. When looking at EBIT, we also delivered in Americas a strong performance, plus 30% with EBIT margin coming down to 10.8% from 11.9%. And there, I have to say that I feel very good about the speed that we showed in implementing all these actions to adjust our cost, to reduce our capacity in the factories while also increasing prices to compensate for the tariffs.Moving to EMEA. I am extremely happy. I think that EMEA 15, 16 months ago was in a negative trend. And I do believe that during the entire 2018, we had demonstrated that EMEA could come back, has shown to be coming back with both a strong -- a very strong organic growth at the same time as we have a strong EBIT improvement. And there, I have to say Q4 was perhaps a very, very, very positive surprise when looking at the organic growth, including the RV OEM market. After the Düsseldorf exhibition, there was some noise about the inventories. There was some noise about the market. But again in Q4, we had a very strong organic growth. Aftermarket, up 13%. And we have seen a positive trend for years. We've seen also RV AM, up 20%, fantastic development; CPV AM, 22%; and Marine, again this is not including any SeaStar numbers, 8% as well. So altogether, a very good evolution, and I'm fully convinced that is also a result of the fact that we are implementing our strategy, we are getting more dedicated teams, more focused approach into the different segments. EBIT, also very strong, plus 127%. And it is really coming both from efficiency improvements and the pricing measurements that we have been taking during the entire year. And as you can see, we have -- we are doubling the EBIT margin as well. Looking at the situation in APAC. We went down 5% organic. We have seen also during the last couple of years that the RV market has been flattish. Now it's becoming a little bit weaker, at the same time, as we have also been leading the low margin differences that we have both in Pacific and in Asia, especially in the CPV area but not only in the CPV. The rest of Asia continues to develop in a positive way. And of course, when looking at the numbers as a consequence as well of leaving the low-margin business, we are very happy to see how our EBIT margin is growing to 20.9% in comparison to 18.7% one year ago. And then keep in mind, obviously, that we have higher margins in Pacific than we have in Asia. So we have, in reality, a negative geographical mix during the quarter. If we move on to strategy, we had a meeting, a conference with our top 155 managers across the globe in Berlin in October, where we introduced a new revised strategy for the group based on 3 different blocks: profitable expansion, product leadership and cost reductions. And we are going to come back down the road always in the same manner on this -- commenting these 3 different blocks. On the growth side, Kampa, I already commented, we are very happy about that. We see the Aftermarket developing very nicely. And we are putting even more resources into the Aftermarket. We see Marine developing strongly both the old Marine and the new Marine and see no signals of deterioration on those markets. On the product leadership side, we are implementing global platforms. We have decided to go for 3 global products: refrigeration, air-conditioning and mobile cooling and create global technologies as well. And we continue to reduce complexity by reducing heavily a number of SKUs we have across the organization, something that we will not see in our numbers in the short term but will have a major effect down the road. Looking at our cost. We have seen good efficiency improvements in all the regions. We have adapted our capacity very fast to the new market demands, especially due to the RV situation. We put in place a new restructuring program that has already started to be implemented. And then again, as I said before, I'm very, very happy about how we reacted on the tariffs, how fast we could put a factory in Mexico, which is in production, as we speak. And with those words, I would like to lean over to Per-Arne, please.
Thank you, Juan. Starting with the last 5 years, as you can see, we have been growing this company in a pretty good pace and at around more than 100% of net sales but even more important, 163% on EBIT. And as Juan said here at the beginning, I mean, we are a much stronger company today than we were a couple of years ago. And if you take the last year's growth of 30%, which means SEK 4.2 billion in added sales, we have also added SEK 800 million in -- more than SEK 800 million in EBIT. That implies an incremental EBIT of 19.5%. So from that perspective, I think that even though we have a good first half, a somewhat slower second half of '18, it has been a very, very good year for us. If we then look at the different trends, it supports what we have said that sales is going upwards. We continue to grow EBIT. We have slightly slowed down on the EBIT margin improvement. But above all, we have a very strong operating cash flow since the beginning of the year. And this is important for us because we are aiming at continuing to invest in the company. We're aiming to generate cash to make it possible for us to continue to work with different M&A activities. If we then look at the different business areas development, I think the strength right now is that we are growing in local areas outside the RV OEM, as Juan also had alluded to. If we take the Marine business, it has been growing with 6% organically and over 200% including the acquisition. And that means that we, today, have a business that is slightly south of SEK 5 billion in Marine. CPV, up 7%, Retail and Lodging, up 9%. And within Retail, we have our activities around the mobile cooling. So we have a lot of areas where we see growth and we're investing in growth for the future. That includes Marine, that includes CPV and Retail and Lodging as well and, of course, RV, which is our biggest area. You can see also that it's slightly rebalanced, as I said, at the beginning of the year. RV is now down to 53% from 65% and Marine is up to 26%. So we're starting to get bigger segments, which are big and where we also are market leaders in these different businesses. If we look at the key ratios, I think it's a good reading for the year. We have 30% up in growth, 5% organic growth. EBIT going to 14.7%, which means it's a 38% increase. EBITDA, up with 41%, important to look at EBITDA from a cash flow perspective. Working capital is still on the higher side. And thus there, we're working very, very hard to take it down. And I still think that we should be able, over time, to take it down to 20%. That will require best of processes when it comes to inventory, and that is also something that we have invested resources and competency right now to make sure that this can happen. Operating cash flow, up with 51% in SEK 2.6 billion. Good for us to have this cash flow for the future. And I will come back to the EPS later on in the presentation. If we then look at the translation FX, 7%. And of course, it's the U.S. dollar and the euro that impacts it. And if you compare the rates in U.S. dollar, it went from SEK 8.51 up to SEK 8.87 and the euro went from SEK 9.63 up to SEK 10.2. So that makes sort of the big difference that we have in FX. Summarizing the regional results. You can see that all regions, they have improved their margins, Americas from 14% up to 15%. We have EMEA from 10% up to -- 10.4% up to 12.1% and perhaps also more impressive to see Asia Pacific to go up from 20.4% to 21.8%, remaining sort of the top region from a margin perspective. And even that they have lost somewhat on top line in the last quarters, I think it's a good thing they have taken out unprofitable business, as we have said before. And that also shows that we are keen on both improving the margins but also on the growth, but it's not the growth at any cost. And then going into the earnings per share in Q4, somewhat lower or even half of what they had in Q4 last year. Sometimes you tend to forget that we have the tax reform in the U.S. and we had a positive effect from that, given that we -- just a week before the tax reform was established, we acquired SeaStar. And that meant roughly SEK 278 million in the positive taxes. Otherwise, you can see that the underlying EBIT improvement from the different businesses has been pretty good. If we now take the full year, SEK 5.33 in earnings per share compared to SEK 5.05. If you exclude the tax sort of effects, we should have been at SEK 4.11, so it's a pretty good improvement of the underlying, both operation and also from a financial net perspective improvement. When it comes to the tax rate, on the high side today at 27%. But we expect this to be around 25% to 26% during the year. And tax paid will slightly go upwards, given that we have had a high profit generation during the last couple of years. And the tax losses carryforward will disappear during the next 12 to 15 months. CapEx, continue to invest in the company, 2.9%, slightly higher than I have seen before. The increase comes mainly from SeaStar, where we have made some important divestments for the future. And I feel very, very comfortable that these investments will yield good result in the months to come. Working capital, I mentioned before, a bit on the high side. But we should also remember that we have added on some effects from the tariffs and also from trade [ done ] from China. And all in all, if you look at the -- on the slide with the working capital, it means roughly SEK 250 million. And that I think is done and makes also the cash flow even more impressive as we have added on these amounts but still have a very, very good cash flow generation. And you could also see that the working capital now is below SEK 4 billion. If we then look at the cash flow per quarter, we have had the same pattern as previously that the first quarter in the year is slightly negative and then we have a very strong second quarter and good third and fourth quarter. I'm happy to say that the fourth quarter in '18 was well above the quarter in 2017. And we've been working very hard on the cash flow side, and we will continue to do that to make sure that we keep up the very high cash generation. This cash generation helps us to lower the gross debt that we have. We have repaid roughly SEK 1.1 billion in senior loans -- from loans during the Q4. And that means that our gross debt had gone down from SEK 12.8 billion down to SEK 11.6 billion and also gives a leverage before constant currency and the Kampa exclusion to 2.8. And we are -- when we look now at the leverage here, convinced that we will come closer to our 2, which is the target for the group during this year. Finally then if you look at the financial targets, yes, we reached the 5% that we have in organic growth as a target, very close to the 15% on EBIT margin, a bit high on the leverage side but is according to the plans that we had when we acquired SeaStar. And we are fully committed to try to really make sure we've got to get it down to 2 at year-end. And dividend policy, as you have seen, we proposed a dividend of SEK 2.15, which is up to roughly 5%. And that means 40.4% of pay -- in payout ratio. So Juan, for you to summarize 2018.
Thank you, Per-Arne. Well, as my first year in Dometic, I'm extremely proud of our achievements. And this is a more diversified company than we had 1 year ago. We really hit our organic growth of 5%, we've already mentioned at the beginning of the year. We show a very strong Aftermarket growth of 7% helping us obviously on our margin journey. We are extremely pleased with the integration of SeaStar. That has been a fantastic acquisition for us. And we will see more things happening obviously in Marine during the course of the coming years. EBIT improvements, very pleasing, 1.5 percentage points with very strong improvements in EMEA, in APAC, in SeaStar. And of course, then we have the RV OEM market had an effect on our Americas organization. But we are just now working very, very hard to improve the situation even there, despite the headwinds. A lot of hard work internally to get business process owners in place, so we can really work both on innovation side and on the cost reduction side. And we have, in my opinion today, a very strong team, which is starting to have an impact on our evolution. A lot of efforts during the last months on improving efficiency. We started the journey on the SKU reduction, complexity reduction. And it's starting to pay off. We adapted promptly to the new demands on the RV markets. I think I'm extremely happy, I'm proud on how the organization took on the challenge. It's not easy to grow as fast as we have been growing in the last years and pull the brake in the money that we did to mitigate the negative effects. Restructuring program, ongoing, that will keep -- that will help us, of course, to stay and to improve our competitiveness in the marketplace. And again, I think it's impressive to build up a site in 97 days and to be up and delivering products already now. And then last but not least, very positive as well about the Kampa acquisition. When looking at fiscal '19, we believe that we will be slightly positive at the end of the year. We have obviously 2 quarters that will be a little bit tougher due to the comparatives that we have and the situation in the RV OEM market, especially in Americas. But we believe that will be more than compensated by the growth that we have in all the other segments and also an improving RV OEM market in the second half of the year. We will continue to invest in developing our businesses outside the RV, meaning diversifying our company and keeping exactly the same course as we initiated a couple of years ago. We intend to invest more into development. Innovation will be key for our future as well. And then of course, we have the doubts, like anybody else, about what is going to happen on the RV OEM in the coming months. And the only thing we can do obviously is to work very, very hard to mitigate any negative effects coming from there. On EBIT, we have, as I mentioned previously, a battery of measurements to make sure that we maintain our margins and that we see -- that we reach our long-term financial targets of 15% as a consequence of all the activities that we have taken in place during the last months. And then leverage is big for us. We will keep on working very hard. As Per-Arne mentioned and we have mentioned a couple of times, we are pretty good at receivables, we are pretty good at payables. Inventories has been a challenge for us. We are working very hard and we are starting to see, during last quarter, a major effect of the investments that we have done in the area. We have specific resources to take it down to a better level. And with that, I would like to thank you all for your attention and open for the Q&A.
[Operator Instructions] And our first question comes from the line of Daniel Schmidt from Danske Bank.
Okay. So I have two questions. And I appreciate, of course, that there's high uncertainty when it comes to the RV market in the U.S. right now. But Juan, could you say anything -- you shed some more light on what you see in terms of work week schedules from the big customers in the U.S. There was comments yesterday from one of your competitors that some of them are going to actually increase from 4 to 5 days in a couple of weeks' time. Are you seeing and hearing that as well? And what do you think about the destocking? And where are we in that sort of journey? I think I'll start with that one.
Okay. It is clear that retail sales has been, just now, better than production numbers, which means that the inventories are coming down. I believe there is still more to go. In regards to the -- your question about our competitors and our customers, it is -- I hear exactly the same comments from the market. But we also need to keep in mind that January was extremely cold in Indiana, it was extremely cold in Elkhart. Customers stopped for additional days due to the cold weather. And the question is whether they are compensating now for the days that they shut down their factories or if we really see or they really see higher demand in the coming weeks. So I think it's simply too early to mention more than that.
But it's very clear, Per-Arne here, that, I mean, they are going back to 5 days right now. And they even have been working Saturdays. So that's the fact. But then the question is whether to compensate the very slow January or is this an uptick in the market.
Yes. But this shutdown due to the cold weather, that was only the last week of January, right?
Yes, that's correct. You have 20 working days, then you shut down for 2 days, that's...
Sure. But yes, so a good point. Secondly, you've had sort of raw material headwind in at least the latter half of 2018. You talk about price hikes during Q4. And if you look at steel, aluminum and so on, those prices are down since 5 months ago. Is it reasonable to assume that you can actually experience raw material tailwind as we get into the spring and summer?
You are totally right. So if you look at what happened on the steel price and aluminum prices, they were much higher in the first half and they have been increasing, in reality, during the last 2 years. So it is first the last half year that they have been coming down. They have been coming down much more rapidly in EMEA and APAC. They are starting to come down in Americas as well, even if it's not on the same pace. So obviously, we have inventories in headwind, so yes, we should be seeing improvements in the coming months.
And we have roughly SEK 90 million in '18 when it comes to headwind on the raw material. And even that, we have actually improved our gross profit close to 1%. So coming back to the price hikes and efficiencies this year, it had sort of materialized.
Our next question comes from the line of Lucie Carrier from Morgan Stanley.
I will have three questions. I will go one at a time. Could you maybe comment on the current trading in the various regions? And including on the Marine side, which is one of your customer this week has signaled a slowdown in the marine market and specifically on motorboat for 2019 versus 2018. So that would be my first question on current trading.
Okay. The -- I don't see any differences in the first -- again, we are obviously 4, 5 weeks into 2019. I don't see any major changes that we have seen in Q4. In terms of that specific customer, I don't know. I cannot comment on that customer. But what I can comment is obviously as expectation from the industry, steel for 2019 is clearly stated 3% to 4% growth. And everybody is talking about full books for them to deliver. So we don't see -- I'm looking at our numbers, we don't see any indication whatsoever. So on one side, you have the industry statistics, you have the industry forecast and then we have our own numbers. More than that, we cannot judge at this point.
And if you look at the outboard motors that we are addressing within SeaStar, I mean, there, we also have a technology shift as well in addition to that. And talking to our Head of Americas yesterday, he said that around all the manufacturers more or less have a full backlog right now. So there's no tendency or indications of a slowdown.
My second question was around the different initiatives you've been taking. So the first one is on the cost saving and optimization measure. Is the SEK 92 million restructuring you've taken in the fourth quarter, is that the full of your initiatives? And you said the benefits roughly the same amount for -- in 1 year. Or is there more to come to that? And also the reason why I'm asking is also to know how you're going to be reporting from now on. Because previously when the optimization program was done in Europe, it was taken directly into EBIT. But I see that now you've excluded these costs. So I'm just trying to understand from more, I would say -- for us, our model standpoint, how we should look at the expenses, if there are more restructuring expenses from here.
If I start with then the technical question, I mean, last year, we also had a restructuring program that we took below the line. Otherwise, we have -- normally, I mean, we have a transaction cost for M&A, et cetera, if they are at lower levels to take that within the line. But if you have bigger restructuring programs, then we have to take it over the line because it's -- that will, otherwise, sort of distort the comparison.
Understood. But are you expecting more from here? Or is the program always what you wanted to achieve - done for now?
I think, Lucie, that we are an acquisitive company. We have 28 factories. We have I don't know how many sales offices around the world. And that would be wrong for myself to say that this is the last time that we are going to do anything. As far as we are acquisitive, we will keep on having programs to stay competitive all the time. And then of course, we will deliver the savings that we have stated that we are going to get.
And as also Juan said, I mean, we have taken out a high number of people from the factories before the Q4. And that has been taken within sort of the normal numbers. When you come into the sort of restructuring program, where it's not only people, it's also closing down sites, et cetera, then it's too much of a one-off that will distort the numbers.
So that pickup...
Sorry, I understand that. I understand that. I'm just trying to get a sense from you whether for 2019, we should expect further strong initiative on the restructuring and if you could quantify that.
At this point, we don't have any additional plans.
Okay. And then just my last question was actually on the production in Mexico, the ramp-up of the new factory. I was just curious if all of you -- everything that you were producing in China for the U.S., is that now everything is produced in Mexico, including air-con?
No, it is not because obviously you have different tariff levels for different products. So now what we are doing is really air-condition.
And the product [ we have in there ].
All of the air-conditioning? So all of the air-conditioning is now in Mexico for the U.S.?
We have started to produce air-conditioning in Mexico. It's not 100% yet. We are going to be ramping up in the coming 6 months. And then we will have 100% of all air-condition in Mexico for Americas, obviously.
Yes.
Our next question comes from the line of Johan Eliason from Kepler Cheuvreux.
I was wondering about this Mexico site. What will now be the tariff impact for you '19 over '18? Will it sort of be neutralized fully by this move and the potentially falling raw material costs?
I think you have two things. I mean, obviously what you have is that we are going in pursuit of the tariffs while at the same time, you have a starting cost for building up a factory, which also had an impact. So what we have to say that we have in our calculations is that we will compensate for the tariffs. And that's a combination of efficiency improvements plus having obviously Mexico into consideration but also the fact that we have pricing. So we are passing tariffs to the markets. So it's not just one activity, it's a number of activities to really mitigate and eliminate any of the effects of the tariffs. Then of course, we have another potential 25% that might be decided and that we will need keep on working.
Excellent. And then Europe or EMEA, I thought the margin was obviously priced as high as previous year and a very high margin for the final quarter. Is this now the new sustainable level we should expect in what would normally the weakest quarter over the year for EMEA?
We are working extremely hard to improve from that level.
They sort of dilute the whole margin for the group, I mean. And so the ambition is really to improve the margin and do not have sort of the slowdown in EMEA. If you look at the other regions, they are very much more evenly spread. That will be the ambition also for EMEA going forward.
I mean, we are coming back obviously to why we are taking all these actions, why we are taking restructuring. We have infrastructures. And we need get -- we need to become more agile than we are today. We have been seeing this during the entire year. And EMEA, we will get close to the levels that we have in other regions. We cannot to do it overnight. But I do believe that you saw quite good improvement in 2018. And I foresee quite of an improvement in 2019 as well.
We've posted a plan where we have the 2-year program that we launched a year ago.
Yes, excellent. Then just a question around Marine and the comparison to the RV. I mean, the RV slowdown is partly a reason on the back of the dealers building too high inventories after -- for the demand that started to slow somewhat last year. Are you seeing any similar risk there in the Marine that there might be too high inventories in the dealers out there? Or is it completely a different sort of picture for that channel?
I mean, we don't see any risk at this point. But as a risk, of course, in the general cycle, you will always have inventory built up and then you need to take it down. So just now what we can say is that we are following obviously very, very closely, that we are talking to our customers, we are seeing our own numbers, but we don't see the risk at this point. If we see obviously a deterioration, then we will need to act in the same way as we have acted in terms of the RV. But just now, I mean, all the contracts, all the discussions that we have with customers is that they are hiring people. They have difficulties to deliver because the backlog is full.
And if you take the Marine business in the U.S., I mean, they are also producing, when it comes to steering systems, very much all from factory direct to the OEMs, the base for the production. And then of course, you will have a certain buildup in the Aftermarket. That's my theory. But that's sort of the hope for the business. And also if you take Europe, when it comes to air-conditioning, a lot of these things are also order-based, customer-based.
I think perhaps a final comment is if we look at Marine at Dometic, and I'm talking about both the SeaStar and the old Dometic Marine, the second half and even Q4 is even stronger than Q3. Q3 was much stronger than the first half. So the growth pace has been increasing during the last quarters. So we don't see any indications at this point of any potential issues on the Marine side.
Our next question comes from the line of Fredrik Moregard from Pareto Securities.
I was wondering about the Retail businesses in the U.S. I mean, you've been talking about that as one of your major growth initiatives in the Americas region. And I was hoping you could provide us with an update of how that -- those initiatives are progressing and what your feel is for your Retail listings for the coming spring.
If you look at our growth in Retail in Americas, it has been impressive during the entire year. And Q4 was even stronger in comparison to the year-to-date numbers. So I can only comment that it has been very, very strong. Then on what we have done during the year is always -- is on top of that, that we have been listed among a number of the major retailers in the U.S. They have been testing us in a number of stores. And we are expecting those -- we have gotten very, very positive feedback. And we expect the growth pace to continue during the year in 2019. So, so far, very, very positive.
All right. And lastly, on the European RV market, I mean, the sentiment obviously grew better as the year progressed in 2018. I was hoping maybe you could show something about how discussions are going with OEMs for the coming season here.
Well, I think that doesn't -- not just discussions, but if you look at the association, the RV manufacturer association, they have just now a forecast, which is 5% down versus last year's numbers. So obviously, we don't see anything yet. As I mentioned previously, Q4 was positive, more positive than we expected, I have to say. And Q1 so far looks promising. But if you look at the industry and customers, they are talking about 5% down versus the production numbers last year.
Our next question comes from the line of Agnieszka Vilela from Nordea.
I have a couple of questions, starting with your outlook for 2019. You do expect your growth to be slightly positive yet Q4 was negative. So if you walk -- if you can walk us through your expectations when it comes to the different markets. You mentioned RV Europe OEM, which is expected to be down, Marine growing somewhat 2019. But if you can tell us something, what you expect for RV OEM in the U.S. where will this market bottom out? And also what are your expectations for your Aftermarket growth in 2019?
If you look -- if we start with RV OEM market and the impact on 2019. I mean, we are coming from a quarter where we had negative growth of 2%. But then we are comparing with a quarter, Q4 2017, where we were growing at 16% organic. So we had a very strong growth in the first half of 2018. And then we saw the negative growth in the second half. So the numbers are the same. If I go back to the industry, if I talk to our customers in Americas, they're expecting a weaker first half in comparison to the first half 2018. But they are also expecting a strong second half in comparison to the second half of last year. So altogether, what the America association is expecting is that the industry will come down by 6% at the end of 2019 split in 2 halfs, a weaker first half, a strong second half. If we look at Aftermarket, Aftermarket has been extremely good for us, not just for 2018. The average growth rate for everything but RV OEM has been 7% during the last 5 years. And you look at last quarter or last year, we were growing at the same pace. Marine, we don't have any indication whatsoever of any slowdown. On the contrary, we saw an acceleration in Q3 in comparison to Q3 2017, acceleration of Q4 in comparison to Q4 2017. So -- and that's why the way we see today is that everything will be -- will continue to grow during 2019. And then we expect a slightly better second half on the RV that will give us a slightly positive 2019. Then of course, we have also -- I mean, SeaStar has been growing very, very nicely for 1 year. We have now Kampa coming also with a very nice organic growth rate. So that's really -- those are the fundamentals that define our statements.
If you take out -- after that, add on the growth for us, of course, M&A growth, but then in addition to that, we also expect them to grow the business of more than what has been growing also.
Yes. And historically, if you look at, say, weaker economic conditions, how does your Aftermarket behave in such conditions, it's still growing by, say, mid-single digits?
Yes. Well, if we look historically, during the last 35 years, we had negative growth 1 year, 2009. For the rest of the period, we always had growth.
Okay. And then a follow-up on restructuring and a follow-up on the Lucie question really. I appreciate the fact that you say that if you acquire companies, there would be need for more restructuring. But my question really is that in your current structure, don't you see a need for doing something more? If you look, for example, at your factory footprint, don't you see a need for closing some factories? Wouldn't you like to have kind of more than a cost base? What do you think about that?
Yes, absolutely. I mean, it's not new. I mean, 28 factories aren't too many factories. And we will do it. At the same time, we can't do everything at the same time. You can only do a number of factories or consolidate a number of offices or a number of warehouses every year without creating turmoil. Keep in mind that we also need to deliver growth and EBIT every year. You need to take these changes stepwise.
Our next question comes from the line of Peter Reilly from Jefferies.
I've got three questions, please. Firstly, can you give us an update on what's happening in the U.S. CPV market? You've launched a number of product initiatives, but you haven't really said much the last couple of quarters. So if there's anything you can tell us there, that would be appreciated. And then secondly, I'd love some more detail on what's happening in SeaStar. It's your first full year of ownership. I would guess that 13% growth is materially high than expected a year ago. So maybe you can help us understand what's been going on there and what's happened to the profitability. And then lastly, I've got a question on profitability in EMEA, but maybe I'll come back for that when you've talked about the first two.
CPV first?
Yes, CPV first. So on CPV, we have seen -- first of all, we have recruited a new team coming from the automotive industry. In the CPV business in Americas, we have been awarded a number of orders during the year. The situation is looking promising. But at the same time, we are talking about long cycles. So unfortunately, we will need to wait another 18 to 24 months before we see that in our books as sales. Just now is awards that we are getting. On the Aftermarket, we have seen improvement during -- CPV Aftermarket, we have seen improvements as well during the second half of last year. So we are expecting there will not be any dramatic changes in terms of sales in Americas during the year simply because again it's long cycles. But we are very excited about the evolution during the last 12 months. And the second question was?
By way of adding on to this, I mean, you just had [ '19 ] sort of a gap year in the U.S. But I will say that even in 2020, we will start to see orders coming into the sales here. So I think that 2020 is the year where it will sort of takeoff. Second question, what about SeaStar's performance?
SeaStar. I mean, fantastic, I believe that it could not be much better. With my experience in acquisitions, I know that the first year is normally the toughest year because a lot of changes for the company's integration, restatement of financials, all the kind of things that they need to be working on, branding, all that kind of stuff. And our company performing organically at 13% growth rate at the same time in the quarter, 2-digit also for the entire year. At the same time as we are improving EBIT margins quite heavily, it's very, very decent. So I think we have a very good company, a very good team, and we expect SeaStar to keep on growing.
Yes. And I was surprised by the growth as well because, as you said, normally the first year is more difficult and sometimes these things have been slightly inflated before the sale price has concluded. So where does the 13% come from? Is that new product introductions, winning share, growth in the end market? And have you got any synergies yet with the other Marine activities? Or is SeaStar more or less still standalone?
Yes. No, so you have a number of areas. And now you raised a couple of questions, [ really good ] questions. So the first one is both new products. But we also have, what we commented before, a technology shift. So the content for a boat is still growing a ton. The entire marine industry is moving from mechanical steering systems into hydraulical -- from hydraulical into electromechanical. And the average content for a boat changes from 1 to 4 to 1 to 7. So by default, even if the number of boats could be reduced, we should be seeing a pretty nice growth. So that's one. In terms of cooperation, we are cooperating more and more, I have to say. So SeaStar, this is, by the way, the last quarterly report where we are going to mention the word SeaStar. Because for now, it's Dometic Marine Americas. So SeaStar is becoming integrated as an integral part of Dometic simply because we see more things coming in the marine industry. We believe that, that organization is a very good engine for additional growth within Marine globally. On the integration, we have obviously financial integration is already done. Just now we are working on the branding integration. So SeaStar, as I mentioned before, is becoming Dometic Marine Americas. We are working on the product branding. So we will also have a double branding strategy with the SeaStar products and Dometic. And one of the reasons is again that we have the same culture, we have the same targets, we are growth companies. And we believe that together we can achieve much more than as just Dometic companies on their own. So SeaStar is already today pretty much integrated. It's going to become fully integrated during 2019.
And when we talked about the synergies, we said it should back-end loaded. So it's more to come. We will see a lot of initiatives coming in 2020 but also in 2021.
And then lastly, on the...
Perhaps just to comment that we are just now increasing the pace of cooperation and integration also in APAC. So we are hiring people that will be supporting SeaStar in APAC as well as EMEA.
And then lastly, on the margin in EMEA, you had a very good improvements in '18, 170 bps up. You've obviously had a number of drivers because you've got the benefit of the restructuring program. I guess, mix has been better. You've had volume leverage as well. Can you help us understand a bit the blend of those 3 because I'm trying to work out whether you've reached a new base level because it's mainly restructuring or whether it's primarily being you just had a combination of good mix and volume and so the underlying, if you like, hasn't changed that much.
I have to say that there are no free tickets. I mean, we are working on the 3 parameters that you mentioned, a couple more. We will continue to do so. I mean, obviously we have the restructuring program that we launched 5 quarters ago. And now we are launching a new one, which is also going to have a positive impact on EMEA. But apart from that, we have a lot of underlying activities. So yes, you can add those 3 at the same time, okay?
Thank you. And we have now reached the end of our call. So I'm handing back to our speakers for any closing comments.
So thank you very much, everybody, for your attention and for very good questions. From my side, I would like to take the opportunity to thank my team, all our members around the organization and, of course, to give a special thanks to Per-Arne Blomquist, which as you know is leaving the company. Per-Arne has done a terrific job for Dometic in the last 5 years. And he will be supporting us also until we have a successor to him. And I am wishing him all the best in the future to come. Thank you, Per-Arne for a fantastic year.
Thank you, Juan. Thank you.
This now concludes our conference. And thank you all for attending. You may now disconnect.