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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Welcome to Dometic Q4 Report 2022. Today, I am pleased to present CEO, Juan Vargues; CFO, Stefan Fristedt; and Head of Investor Relations, Rikard Tunedal. [Operator Instructions]
Now I will hand the conference over to the speakers. Please go ahead.
Good morning, everybody, and welcome to the fourth quarter and full year report for Dometic from a sunny Stockholm. And without any doubt, [ seeing some folks ], we have a lot to talk about. Let us move into the presentation.
So Q4, challenging environment out there. It has been pretty tough on the marketplace. Retailers are still keeping inventories at a high level. In terms of performance, we showed 11% organic negative growth with Marine still very, very strong, 11% up. Service & Aftermarket continues to show hefty negative numbers, minus 22%. OEM is negative at 6%, but very much driven by the RV market in Americas, while the rest of OEM is still positive.
EBITA ended up at 7% versus 11.4% last year with clear declines in EMEA and Americas. EBIT margins were in line in comparison to last year. And we have to keep in mind that for entire group, but even more specific for Igloo, Q4 is the lowest or weakest quarter every single year.
And then we are obviously very happy to report a significantly improved cash flow. We saw already a clear improvement in Q3, and we had an even more important improvement in Q4. Inventories, we commented a couple of times before that we are working very, very hard to get them down, are starting to show that they are coming down. That trend will continue in the months to come.
If we move over to Q4 sales, SEK 6.2 billion, total growth of 11%, but organic growth at minus 11%. EBITA of SEK 430 million or 32% versus last year with an EBITA margin of 7% versus 11.4% for last year. EPS at SEK 0.54 in comparison to SEK 0.98 1 year ago.
Operating cash flow, twice as much as last year, meaning SEK 1.1 billion in comparison to SEK 0.5 billion last year. Leverage at the same level as in Q3, meaning 3x versus 2.6 in Q3 1 year ago. And then the Board has decided a dividend or will propose, rather, a dividend of SEK 1.30 in comparison to SEK 2.45 last year.
Moving to the full year, total growth of 38% or very close to SEK 30 billion, ended up at SEK 29.8 billion with 3% negative organic growth. EBITA, even there at all time high, SEK 3.9 billion or 17% compared to last year, reaching an EBITA margin of 13.2% versus 15.6% last year.
EPS, even there, all time high at SEK 8.32. And operating cash flow of SEK 2.3 billion -- almost SEK 2.3 billion in comparison to SEK 1.7 billion or plus 30% versus last year.
Moving over to sales growth. 11% total growth, with Americas negative 21%, and now we are talking about total growth. EMEA, still positive, 5%; APAC, positive 6%; Marine, plus 30%; Global, plus 66%. Still, organic growth was down 11%.
In terms of application areas, it is really Climate where we are seeing the major slowdown, and that's very much due to the American RV industry where we are very, very heavy on Climate. Food & Beverage and Power & Control still growing very nicely, totally speaking, very much driven by the acquisitions in those areas.
Looking at different sales channels. Service & Aftermarket down 4%, and we will get much more into detail in a couple of seconds. While OEM, as you can see, is still up; on Distribution, very positive driven by Igloo.
This is an important slide. It really shows the transformation of Dometic from 2017 to 2022. We have doubled the size of the company, but, which is even more important, we have also reduced our exposure to the OEM market, moving from 61% 5 years ago to 44% this year.
If we look at the share within OEM, the RV OEM stands today for 25%; Marine, 14%; and CPV, 5%. And as we commented before, RV OEM Americas, which is about half of the total RV, is just now where we see a negative growth. All the rest is positive.
Then coming back to Service & Aftermarket, which is one of the areas having the most impact on Q4 and our margins, totally speaking, what you can see is extremely important. You see, obviously, that the pattern looks very, very similar year-on-year with exception of 2020, where we were hit by the pandemic in Q2. We saw a fantastic bounce back in Q3, Q4, that continued during the entire year 2021.
Worth to mention when looking at the graphs is Q1 2022, where we still saw a fantastic growth even in comparison to 2021. Meaning, obviously, the distributors, wholesalers were still building up inventories on the vision of having a strong season 2022. That obviously never happened.
If you compare, on the contrary, the numbers in 2022 with the numbers, 2019, if you took 2019 as a base, all of a sudden, we are growing 4% in Q2, we are growing 7% in Q3 and we are growing over 10% in Q4. So again, it is important really to understand what is going on, on the markets.
And I'm convinced that most of you have already heard about the bullwhip effect. This is not my graph. This is coming from supply chain experts. But we -- this is telling you that the small changes in demand at the consumer side lead normally to major swings the more upstream you go. This is a very well-known situation in normal cases. But of course, the pandemic distorted everything. And this is really what we are going to see.
We move over to the next slide. When looking at our Service & Aftermarket, we have 3 different channels. We have the D2C, which is very much driven by our own platforms. Then we also have dealers, small dealers already placed. We have, in principle, about 35,000 dealers, and then we have wholesalers/distributors.
If you look at the upper graph, what you can see that when we are talking about dealers, meaning companies closest to the consumers that are not building up inventories, our sales is very much in parity with 2021. On the contrary, when you see distributors, our sales is coming down after Q1 started to see.
So again, distributors/wholesalers built up inventories, expecting a strong season 2022. That never happened. And this is just now what is leading to this negative growth on Service & Aftermarket that we believe is going to be flushed through during the coming couple of quarters.
In terms of profitability, looking at EBITA, we ended up at 13.2% for the year versus 15.6% last year. Then when excluding Igloo, we ended up at 14.5% in comparison to 16% last year. Looking more specifically to the quarter, 7% is very much due to the fact that Igloo is having an effect for 3 months this year, 2 months last year. And as you all know, Igloo is -- has a dilutive effect on our margins.
We have a clear negative effect of the volumes and also the product mix, both in EMEA and Americas. And on top of that, we have also lower FX tailwind in some of the segments. On the contrary, Marine is still performing very, very nicely and having a positive effect on our results. And we have been obviously working very, very hard to reduce our costs everywhere.
Having a look at the different segments, starting with Americas. Organic growth down 41% with RV OEM very much down. We got the numbers from the American Association the day before yesterday showing that Q4 was down 47%. As a continuation of Q3, that was also down 36 -- 37%. So it's tough times for the RV manufacturers and for us as a consequence.
On the contrary, we see that automotive is still doing very well. We invested heavily in building up a CPV organization during last year, and it's showing very, very nice growth, still from small numbers. And then Service & Aftermarket, we already commented. And I would say that no matter the segment, Service & Aftermarket is still going through this rebalancing of inventories.
Negative EBITA at SEK 60 million with an EBITA margin of 5.1% down versus 4.7% positive last year. And again, very much impacted, obviously, by the sales decline, both from an OEM perspective but also an AM perspective. And there are a couple of acquisitions that we completed last year, developing in a nice way and contributing positively to our EBITA margins.
Moving over to EMEA, negative organic growth of 6%. Growth in OEM primarily driven, even there, by CPV, while RV OEM is stable. But even here, Service & Aftermarket showing pretty negative growth.
EBITA margin, 3.8%, and this was for us the major disappointment in the quarter, very much as a consequence of high logistic costs, FX playing negative in comparison to positive in Q3 last year. And then we have obviously a clear negative impact from product mix.
If we look at strategically, we are working on the move from Siegen in Germany to Jászberény in Hungary. And we expect the entire move to be completed mid-2023.
Looking at APAC, even in APAC, we show negative growth of 2%. OEM, the same. Same, same. OEM still being very stable, while both Service & Aftermarket and Distribution going down. EBITA ended up at 22% versus strong -- very strong 27.3% 1 year ago. We have, even here, a negative impact of the sales channel, meaning Service & Aftermarket being down and OEM going up. Negative FX effects in comparison to last year and, even here, slightly higher logistic costs. And of course, we are adapting capacity, especially in our Chinese factories that are feeding the Pacific area.
Looking on Marine, very, very strong, 11% organically, driven by OEM, where we see that the technology shift that we have been describing now for a couple of years continues, while Service & Aftermarket is also down. But the difference between Marine and the rest is that Marine started the slowdown in reality already in Q3 2021, and Q4 2022 shows a lower decline than we have seen during the year. So hopefully, this is giving us the indication that the Marine Service & Aftermarket is going to show improvements in the months to come.
EBITA, very strong, 25.5%. And it is clear that this is happening. We're improving EBIT margin despite the fact that we have a negative product mix. We completed the acquisition of Treeline in Q1, and that acquisition is doing very, very well.
Moving over to Global where, as you know, the vast majority is Igloo, organic growth of 3%. In this case, the negative organic growth was driven by residential [ grids ], and hospitality showing a stable development as well as Igloo.
EBITA margin, 0.1%, slightly lower than last year. But here, you need to consider that Igloo was with us 2 months. In this case, it was with us 3 months, and they have a clear dilutive effect on our margins. Strategically, Igloo is still doing very well, developing in a nice way for us and working very much with integration, which is going according to plan.
Again, a little bit deeper into Igloo. We have a pro forma organic growth of 16% in the year. We see also a very resilient business historically. We continue to gain market share in these markets. And we see even that retailer week-of-sales is still at the lower levels that we saw in 2019 and 2020.
Very good EBITA improvement in comparison to what we saw. And we are happy to report that we have higher margins than what we announced at the time of the acquisition in September last year. And as we already commented, we got a lawsuit from the former owners of Igloo, and we are fully convinced that it lacks merit and that they have no case.
Moving over to another positive area, Mobile Power Solutions, where we see very, very strong trends. We have seen a very strong trend until now. We see even stronger trends moving forward, where we have completed 6 acquisitions and ended up the year at SEK 2.3 billion in revenues and high margins. This is an area, obviously, where we will keep investing in heavily moving forward.
From an innovation perspective, we continue to invest in our products. Marine is launching now a new series of electric actuators for inboard applications. We have been launching many actuators for outdoor. Now we're also moving into the [ e-work side ] and then launching as well our Marine Gateway, iterating all the devices that we have within Dometic Marine. We're also launching a new patented heat recovery system that will become the entry product in our air conditioning program that we believe very much in.
Looking to the cost reductions, the third strategic block. We have 2 ongoing programs altogether adding up to SEK 600 million in savings and SEK 900 million in total restructuring costs. We booked SEK 20 million in restructuring costs in the quarter, which means that we are now running at SEK 817 million, totally speaking, of restructuring costs and a run rate on savings of SEK 325 million, which means that we still have SEK 275 million more to go.
We continue to drive our strategic agenda. 2022 ended up showing total growth of 38%; organic growth, down 3%. We have changed totally the channel mix in the company, and we ended up at 56% when you combine Distribution and Service & Aftermarket. Very strong growth organically and acquisitively in Mobile Power Solutions and also investing in developing our D2C channel, where we ended up the year at 6% in a market that, as you know, is slowing down and has been slowing down for a while.
From a product leadership, we ended up last year at 26%, then we had difficulties in launching new products because of the component constraints that we were suffering from the last 18 months. Q4 showed again the first step to recover, and we are fully confident that we will get back to our target of 25%. We're also happy to see, obviously, that innovation is also reflected in the number of IP rights that we are filing, which are more than double in the last 4 years.
And then cost reductions, as you know, we have these 2 restructuring programs that we are running. SKUs are down 65% in comparison to the situation we had, 2018, and we will see these numbers coming, stepwise, additionally as we are introducing new products. And comparing to the situation at the end of Q4 last year, we are 1,600 FTEs less, which is obviously a reflection that we are adapting our capacity to a new situation during the last months.
From an ESG perspective, I'm also happy to report that we continue to do a lot of progress. Looking at injuries, we are down 35% in comparison to the target -- sorry, to the situation that we have 1 year, and we are already over the target that we had for 2024.
Female managers, that's the area where we have had the most difficulties. We went down to 23% in Q3. We are back to 24%. And again, this is an area where we work very, very hard, but where we so far have not seen the results that we were expecting.
On the contrary, on CO2 reductions, a lot of job and good success. And then we're also paying a lot of attention, obviously, to suppliers and happy to report that we have audited 100% of our suppliers.
And with that said, Stefan, please?
Yes. Thank you, Juan.
Starting off with our Q4 EBITDA bridge. And on the organic plus FX side, the main drivers in that is the decline mainly related to Americas where the volume is the main driver, minus 41% organic; and then EMEA where it is mix, FX, logistic costs and inefficiencies in our manufacturing operation. Overall, we have a negative sales mix, minus 22% organic sales decline in Service & Aftermarket. And then we have had cost reductions that has contributed positively in the quarter.
Concerning FX, we still have a tailwind, but the tailwind is not as strong as it has been in previous quarters. So it's approximately SEK 100 million less tailwind in Q4 compared to Q3. On the acquisition side, Igloo margins, they are in line with last year. And as you know, they are consolidated from November 2021. And then the other acquisitions, which is Cadac, NDS and Treeline, they are all accretive to Dometic margins.
Really happy to be able to report a strong end of the year in terms of operating cash flow. We ended on a little bit more than SEK 1.1 billion in operating cash flow with a cash conversion of 167%. So that really completed a strong second half in terms of operating cash flow for the group.
If we look on the different components on -- in working capital, we see that accounts payable is stable, around 60 days, where we have seen a gradual improvement over time. And the same thing to be reported around accounts receivable, stable around 45, 46 days. Then we obviously have the inventory development, which -- where we have seen that the inventory in absolute terms have started to come down here in Q4.
If we take a look on the inventory, we have a total increase of SEK 2.3 billion. SEK 2.2 million of that is related to acquisitions; then we have an FX part, around SEK 1 billion; and then the remaining SEK 1 billion is a mix of that we have seen reduced demand, especially on the Service & Aftermarket side, we have raw material prices and we have also taken certain strategic decisions to secure critical components, and then we obviously have had longer lead times as well.
If we take a look on our CapEx and R&D spend, normally, Q4 is a large CapEx quarter. So we ended up on 3.3% in relation to net sales. And the investments, they are focused around mobile cooling and marine in the quarter. Then if we look on an average for the full year, we are on 1.9% of sales. And as you know, we have communicated that the ambition level is 2% to 3%. So we are in the lower part of that span.
The R&D spend for Q4 is 2.4% of net sales, and that includes capitalized development of SEK 23 million, also very much focused around the Marine segment. And the full year averaged 1.9%, which is also in the lower span of our ambition level of 2% to 3%.
If we take a look on our financial leverage, it ended up at 3.0, which is the same as we had at the end of Q3. The strong cash flow has contributed positively on the cash position, then we have seen a positive effect of the revaluation of our debt. But then the rolling-12 EBITDA has been coming down somewhat, and that is then making the leverage stay flat versus Q3. And as you know, our target is to be around 2.5x, which we are committed to move towards.
Taking a short look on our debt maturity profile. We have, as you know, a bond expiring in September 2023 and then we have an average maturity of 2.8 years. And then we also have our undrawn revolving credit facility of EUR 200 million. So we obviously are continuously working with our financing, as we always do. And we end the year with SEK 4.4 billion on-hand cash. We are expecting a continued strong cash flow development in 2023. And then obviously, we are continuously evaluating various external sources of capital.
Moving over to the dividend proposal. As Juan earlier mentioned, the Board is proposing a dividend of SEK 1.30 compared to SEK 2.45 last year, and that is equal to 23% of the 2022 net profit. And then when the Board has been considering this proposal, they have taken the current uncertain market conditions into consideration as well as that we are coming from 2 rather extensive years in terms of M&A activities.
And as you know, our dividend target is that we should pay a dividend of at least 40% of net profit over a business cycle, and Dometic stays firm to that dividend target every time.
We take a little bit of an overview of how the financial development is moving, due to that, we are driving our strategic agenda. We can see that the net sales ended up on SEK 29.8 billion. That's equal to a CAGR of 16%, and the average annual organic sales growth is 2%.
In terms of EBITA, we ended up on SEK 3.9 billion in EBITA, equal to 13.2% EBITA margin in 2022. If we take out the dilutive effect of Igloo, we would have been on 14.5%. Then we, obviously, compared to 2017, have a negative impact from the tariffs of approximately SEK 170 million.
In terms of net debt leverage, as mentioned before, we are on 3.0 at the end of the year. The increased working capital has been driving that. And I mean if we would anticipate some type of normalization of that, that would impact the leverage with somewhere 0.5 to 0.7x. And then obviously, as I also mentioned before, we are coming from a 2-year period where we have completed 10 acquisitions.
So with that, Juan, I hand the word back to you.
Thank you, Stefan.
So summing up, we see a challenging macro environment affecting consumer demand. We have experienced, during Q4, the RV OEM drop in Americas. We believe as well that the RV OEM situation will continue for the months to come. At the same time, we also see a stepwise recovery in Service & Aftermarket during the coming quarters. And we are expecting as well Distribution to be stable during the coming quarters.
Our focus just now is obviously on cash flow, releasing -- and reducing our working capital, increasing cash flow and reducing by that our leverage. And again, we're extremely happy to report twice as much operating cash flow as we had 1 year ago. We are taking additional measures to address the situation in EMEA and Americas. And the Board has proposed a dividend of SEK 1.30.
Strategically, I would like to start by commenting that we have doubled the size of the company in the last 5 years. We have doubled the profits of the company in the last 5 years. And we are running at a lower leverage level than we have 5 years ago. So a lot of things have taken place. We are a more diversified and resilient company than we were 5 years ago. We are just now experiencing the Service & Aftermarket, but we have to remember that this is a unique situation that we have never seen before in the history of the company and is very much driven by the pandemic.
We are optimistic about the trends, the long-term trends in the mobile living industry. And we will continue to drive our agenda, at the same time, obviously, as we will adapt our capacity to the new situation as it comes.
And with that said, I would like to open for the Q&A session, please.
[Operator Instructions] The next question comes from Gustav Hagéus from SEB.
Two questions then. Firstly, if you could give us a little bit of an update on the recent development in the markets and not so much about channel inventories, but end demand, how has that sort of changed if you compare it a few months ago, how you felt about end demand as of lately and into Q1? That's my first question.
I mean I have to say that this -- that's what we are trying to show on one of the graphs on the Service & Aftermarket. So if you look at dealers on the Service & Aftermarket, they are the closest to the end users. As you can see, they are running still at the same levels than 2021 despite the fact that we have inflation and we have concerns about interest rates.
So we don't see the consumers from our Service & Aftermarket having an issue. We still see, obviously, that we have an inventory buildup. So I think that the closest you can get to the consumers is really retailers and dealers. And there, we are in parity with 2021, so no changes from that perspective. I believe that the challenge here is when are the inventories, Distribution side, going to be flushed out.
And then you have the situation in Americas. Obviously, when we are talking about RV, meaning discretionary -- high-ticket discretionary spend, where the RV manufacturers really push for volumes during 2021 and part of 2022, where we are seeing a major correction, obviously. And I do believe that it's going to be very much dependent on inflation rates and interest rates, how consumers react in the months to come. But the expectation is that retail in the RV industry is going to go down about 15% in 2023, while shipments are going to go down 20% to 25%.
Then that's very much RV. If we are talking about Marine, marine still, we see good push in the value chain. If we are looking about distribution, still very positive. So I think it's -- again, keep in mind that, as we said, RV is 25% of our business. Out of the RV OEM, Americas is about 50%. Obviously, the market is dropping 47% by default, that's 6% to 7% down organically for the group. But we cannot just see that everything is black because it is not.
It is defined into 2 different areas: RV OEM Americas and Service & Aftermarket, where we are optimistic that we will see Service & Aftermarket coming back in a number of months from now. The question is when exactly. We know that we had a very strong Q1 in 2022, but we know as well that Q2 -- sorry, Q2 2022 was down 16% versus Q2 2021. So I think our Q2 will be critical to really estimate when are we going to be through this trough.
And one more question then. You're above your gearing target and you're below your dividend target. So I assume there was a discussion on what to prioritize and not with the Board. But could you give us -- Stefan said that in a normalized working cap situation, we're looking at 0.5 to 0.7x deleveraging on net debt to EBITDA. Is that sort of the base case for you? Are you looking at -- just to be clear, if the normalization of your working cap your base case then, all else equal, that's your expectation, 0.5 to 0.7x deleveraging 2023?
We have -- yes, go.
No, no, about the -- absolutely. Then obviously, we also have to take into consideration that we have some other commitments during 2023 as well in terms of the earn-out payments and what you see that we have recorded in the books now for the end of December, then that is what we believe is going to be the maximum. And can it be lower? Yes, it can be lower. So -- but absolutely, 2023 is holding our working capital release earnout.
And just to be -- I understand, the earn-outs are in that [ direction ] of 0.5 to 0.7x EBITDA -- net debt to EBITDA...
No, no. No, that was working capital only.
The next question comes from Rizk Maidi from Jefferies.
I'll start with a follow-up on the Service & Aftermarket. What we see here is a geographical or maybe a business unit divergence in the sense that you said Marine Service & Aftermarket started to behave a little bit better. But then it looks like on Americas especially and even Europe, you've seen a leg down versus Q3.
Just perhaps can you talk about the reasons why, if my calculations are correct, we're seeing something in the decline of high 30s in Americas on the Service & Aftermarket versus high teens in Q3? Why have we seen that weakness? And also, what gives you the confidence that we should see a normal behavior here in the next season? I'll start here.
I mean it's 2 things. I mean I think perhaps I expressed myself in the wrong way or you misinterpreted it. I didn't say that Marine Service & Aftermarket was flying. I said that it was better than it was Q3, meaning that they have faced a slowdown on Service & Aftermarket earlier than the rest of the business and they seem to be getting through earlier than the rest of the business.
But if you look at Service & Aftermarket in Europe, Americas or Pacific, they're all negative. And Marine is negative, but less negative than they are coming from. So while the negative side in the rest of the areas is -- was emphasized in Q4, Marine went the other way around. And our interpretation is that they, again, entered the slowdown earlier and they are starting to show more positive signals.
Why do I feel confident? Because I see, as I mentioned a couple of times, that dealers, which are the closest that are to the consumers, are flat in comparison to the situation 2021, and they have been flat during the entire 2022. The problem has been wholesalers. Wholesalers built up inventories. And of course, at the pace that we are talking about, minus 16%, minus 17%, minus 22%, we believe that they are going to come through in the coming months. Hello, are you still there?
Okay. Interesting. The second one is maybe on the profitability on EMEA. Maybe can you help us with the -- yes, can you hear me?
Yes. Yes, we can.
Second one was on the profitability of EMEA. Can you perhaps help us with the extraordinary logistic costs and the inefficiencies in operations, just to separate what's to be perceived as sort of extraordinary versus the underlying profitability, please?
Yes. So it's 2 things primarily. On one side, we have, again, the situation on Service & Aftermarket. As we were expecting and, obviously, our customers were expecting a strong season 2022, we order thereafter. Then we saw the slowdown coming from distributors and wholesalers in Q2, Q3 and Q4, meaning that we are sitting on high inventories. Instead for having a couple of locations, we have too many locations just now holding material that should have already been sold, obviously, according to our provisions 1 year ago, thus lead in to a lot of inefficiencies. So that's the first factor.
The second factor is that we are moving from Siegen in Germany to Jászberény in Hungary. And of course, when you are moving a factory, you have always additional inefficiencies. We are hiring people. We are training people. And of course, we cannot expect that they are just as efficient as people that have been working for the company for the last 10 years. So those are the 2 main factors.
Then on top of that, you have FX having a negative impact on the EMEA numbers. So those are in reality. And then you have obviously the sales mix. We are still growing on OEM at low margins, and we are dropping quite a bit on Service & Aftermarket where we have very high margins. So those are the factors.
And then, of course, we have a short quarter. For us -- for entire group, I commented before that Igloo is even far extreme. But for entire group, Q4 is about 20% of our annual business. So any deviation will have even more impact percentage-wise in Q4. Hello?
Understood. And just quickly, the sales of the group has more than doubled over the past 5 years. You've done a lot in terms of manufacturing footprint, reduction of SKUs, et cetera. Juan, what's your approach in terms of divestments? Is this something on the agenda, the way to actually improve the sales mix within the group and also reduce the leverage?
Correct. So we are working on that. We announced that about 1 year ago, and that's still part of our agenda. Then, of course, it's 2 things having an impact just now: on one side, obviously, you have multiples, the market has been coming down; and sellers, in this case, we are sellers. We're expecting to get well paid, while buyers are still a little bit bargaining on prices. So that's kind of having an impact.
The second impact is that part of the businesses that we are going to divest have been integrated for years. So you need to carve out and put together a business before you can sell it out. So we are working very, very seriously to divest areas that are not interesting anymore. Without any kind of doubt, that will happen. Hello? Yes?
Okay. By the way, there's a massive lag. That's why I could -- we couldn't understand ourselves.
Understood. Thank you.
The next question comes from Karri Rinta from Handelsbanken.
Following up on the aftermarket, sorry about that. Can you give us a number on how much of your total aftermarket business comes from Marine where you do sound like you expect sales growth for 2023? And will this be then enough to sort of offset the what most likely will be a decline in the non-Marine aftermarket business in 2023?
But I mean if you look at more -- I cannot give you a number here now. But if you look at Marine, Marine is about $560 million, $570 million, about that is about 42 to 45-ish-percent Service & Aftermarket. And as we commented, we see that Q3, Q4 was down minus 14%. Q4 -- sorry, Q2, Q3 was down minus 14%. Q4 is minus 8%. But they started a slowdown, as I said, already in Q3 2021.
But that means that the Service & Aftermarket portion in Marine is larger than on the RV side.
Absolutely, it is. It is.
All right. Great. I can do the math. Then secondly, this -- I just wanted to clarify that this lawsuit from the sellers of Igloo that's related to the earnout. And then I wanted to understand what is the timing for this earnout? Is it based on which year's numbers? So when will this become sort of -- when will you need to pay this, if you would need to pay this?
So the earnout was for the year 2022. So from that perspective, it's over. You need to audit the numbers before you pay the earnout. So normally, it would be during the second part of the first half, so I would say, from April and forward. Now we have this claim. As we are commenting as well, we have filed a claim to dismiss their claim. And our opinion, obviously, that it will take a while. I mean these kind of cases are lengthy. So it's impossible to me to say when exactly it's going to happen, but it's not going to happen in the coming couple of months, that's for sure.
Okay. And the reason that why you still have this SEK 1.9 billion in the books is because it's to be audited, it's not there?
Well, it's -- first of all, it's because it's not just for Igloo, right? We have some more earn-outs. Secondly is that we -- it's our obligation to have a careful approach to that. So we have considered, after a lot of thinking and discussions, we have considered that's the right amount to have still in the books.
Yes. But you should consider that to be the max.
Absolutely.
Okay. And then finally, I think this was already discussed, but I missed it, is this part of your net debt or not?
No, it's a current liability.
[Operator Instructions]
Fredrik Ivarsson, ABG. Sorry, I was talking away with the operator. And sorry if I'm making you repeat yourself, I came in a bit late here. But to get back to the dividend and, I guess, some might argue that actually paying a dividend could be a bit aggressive given the current leverage ratio and also the limited visibility into this year. So could you help us understand how you sort of communicated with the Board around the cash flow and EBITDA projection for this year?
I mean we can obviously not, in any kind of detail, refer to how we have been communicating with the Board. But what I absolutely can say is, obviously, that this aspect has also been taken into consideration. So you have to see SEK 450 million, that's approximately 0.1 of leverage.
Okay, fair. And then second one, on Igloo and the synergies, I mean you have a quite ambitious synergy target for Igloo that you communicated when you bought it. What have you done so far? And what can we expect to be done in '23?
So we have done a lot. We have an integration team working on Igloo as part of the business with, I mean, everything from product innovation where we are working together, within the entire mobile cooling, so that means looking at Igloo, looking at Dometic products and what we can do together.
We have decided to invest in Katy, Texas to start building up as well Dometic products in the Igloo factory. We are, as we speak, establishing a European Igloo sales organization. We are, of course, working on sourcing so that we -- I think that we have some 32, 33 different work streams with people in charge of different streams working together.
And maybe we should also mention that a part of these synergies was stand-alone improvements in Igloo. And from that point of view, we are on a good track on the stand-alone improvements.
So, so far, So, so far, so good. Yes.
Yes. And would you care to try and take a stab to quantify this?
It's very difficult to give you exactly a percentage, right? But when we are discussing internally, our estimation is that we are through about 10%.
Yes. Okay, I'll step in here with a few questions on the web. So first one, do you intend to continue a high focus on acquisition, acquisitive growth? Or should we expect a slowdown on such activities now?
I mean it's a -- I can answer that question in 2 ways. Obviously, this is not the time to be aggressive. We keep working on acquisitions. But at the same time, we know that there is also a discussion about multiples. So just now, our most important focus is to increase cash flow and reduce leverage. That doesn't mean that we are stopping all activities, not at all. We keep working.
And then second one, how do you intend to address your debt maturity profile with significant debt to refinance in the short term?
Yes. No, I mean, as I mentioned before, I mean the work with our financing is a continuous process going on all the time. And what we know is that we have our cash on hand. It's SEK 4.4 billion at the end of this year. We are seeing that the cash flow for 2023 is going to continue to be strong.
I just want to remind the audience on that, Q1 is typically not our strongest cash flow quarter, but that is going to continue. And as I also mentioned, a part of that is obviously a release of working capital. And then we are also evaluating, yes, different external sources, as we always do, on -- to be a part of this equation. And then not to forget, we also have an undrawn RCF of EUR 200 million.
Thank you. Okay. Operator, back to you for more telephone questions.
The next question comes from Douglas Lindahl from DNB Markets.
You talked already about a lot of stuff. But on Marine OEM, do you have -- any additional color you could add to that? You seem to be quite optimistic in general is my feeling. What sort of gives you that confidence?
Well, we see obviously other orders are still coming in. We see that still, the technology shift that we have been talking about is still there. We know that on every step, when we are moving from mechanical products to hydraulic, you have a factor 5. And when you are moving from hydraulic into electronic steaming, you have another factor 5. So we are still confident.
Again, we have not seen any slowdown in the demand. Then I fully understand where you're coming from, right? We have also consumers and you have consumer sentiment and all that kind of stuff, but I cannot tell you anything that we don't see.
So you think that the technological shift is basically offsetting potentially the slowdown from consumers? Or have we not really seen the slowdown in consumers yet?
I do believe that you will. I mean, in theory, at least, we should see a slowdown on the consumer sentiment. But at the same time, we also know that inflation -- in the Marine business, we are very, very dependent on American market, the U.S. market. The good news is obviously that the U.S. market inflation has peaked and now it's starting to move downwards.
We see, obviously, that we are starting to get very, very close to the peak also on interest rates increases. And I believe that we have benefit and we have been benefiting, the entire marine industry in the U.S. has been benefiting by a high backlog because of the problems with component supplies for years, right, after the pandemic.
And what I can see -- again, we don't see any slowdown in our demands. We have very, very good discussions with our customers. By the way, I'm going to visit Miami, the Miami show in February, and I guess that I will be able to answer the questions in more detail. But so far, so good.
Then you have another consideration, which is obviously that on the contrary to the OEM, the aftermarket side for Marine has also been suffering like for everybody else. And we are starting to see the first indications that we might be seeing some improvements in the coming months. So if OEM comes down the same time as Service & Aftermarket comes up and we have high margins on Service & Aftermarket, that should be beneficial for us.
Yes. And coming back to the question that was asked previously, but focusing maybe on a different area, the lawsuit, are we -- I mean should we start to include some sort of lawyer fees going forward? Or what can you say about that? And also you seem quite confident that this lawsuit lacks merit. What sort of -- what gives you that confidence?
Yes. I mean, of course, that we have our advisers, we have our legal counsels and we have gone through all the cases. We are fully convinced that they don't have any case. And in terms of the fees, we don't see the fees until now. Of course, that depends a little bit on how the court decides now in the coming months, but we feel very, very confident.
And you said there, over the coming months. What's the time frame, if you have that?
I wish I could tell you. We believe that it's going to happen during Q1. Most probably we might be getting something in Q2.
The next question comes from Agnieszka Vilela from Nordea.
I just wanted to dig into EMEA a bit more. Actually, looking at the quarter, your total sales in EMEA were up by some SEK 80 million year-on-year, but EBITA dropped by SEK 160 million, so definitely very negative operational leverage here. And I understand when you talk about the sales mix and logistics and moving factory from Germany to Hungary. Could we just get a bit more quantification for it? Because probably, I mean some of these costs will not be there in Q4 2023. So start there.
Yes. I mean, say, if we take a look on the extraordinary logistic cost, I mean that's north of 3% units of the margin drop here. And then, yes, the under-recovery in factories is around 1.5%. So you have 2 of the important factors here.
Perfect. And then maybe also more on the group level. When we think about 2023, obviously, we can have our own idea about the demand and what will happen with the markets. But could you help us on any kind of tailwinds and headwinds to the earnings that you see in 2023? What will get better, you believe, profitability-wise? And what could still get worse?
I mean we have seen clearly -- I mean, first of all, we have our own efforts, which means what we are doing to reduce capacity, what we are doing in terms of becoming more competitive with the move from Germany to Hungary. Then we have -- obviously, we are looking at additional measures to reduce our capacity.
Then from an external perspective, we have seen, clearly, the raw material prices are coming down quite a bit. We see also the freight cost is coming down dramatically. Of course, that since we have been sitting on these inventories, it takes a number of months before they can flush through to the P&L, right? But we have -- those are positives that will be kicking in without any kind of doubts.
And then, of course, the mix is -- has a major impact on our numbers. Just as a reminder, I mean we have the lowest margins on the OEM. We have the highest margins on the Service & Aftermarket. If you look to the RV OEM Americas, it's negative, but the others are still positive. And our Service & Aftermarket, where we have very high margins, is very negative. So we should see this turn into positive during the year.
That was the last question at this time. So I hand the conference back to the speakers for any closing comments.
Thank you very much, everybody, for your attention. This has been a tough quarter. But I would like just to finish off by saying that we had all-time high in sales, we had all-time high in profits and we are totally convinced about the future and the positive trends that we have in mobile cooling even if we have dark clouds just now. But the good news is that after the rain, the sun always shines.
So thank you very much for your attention. Goodbye.
Thank you very much.