Ladies and gentlemen, welcome to the Dometic Q3 report 2018. Today, I'm pleased to present Juan Vargues, President and CEO, Per-Arne Blomquist, CFO, and Johan Lundin, Head of Investor Relations and Communications. For the first part of this call, all participants will be in listen-only mode. Afterwards, there will be a short question and answer session. Speakers, please begin.
Hi. Good morning, everybody. Juan Vargues speaking. Welcome to this call for the third quarter of 2018. I would like to start by saying that I'm happy to report what I consider to be strong results in a tougher market environment on the RV side. We have seen improvements in a large number of areas. We are today a bigger company. We see as well how diversification is playing an important role for us now when the RV market is becoming softer. We have stronger EBIT developments in all the regions. I'm also especially happy to see how strategic actions are starting to play an important role in the future of the company. On organic growth, it is clear that we have been affected by the situation in the RV markets. We have a good organic growth in the EMEA region.
We had a flattish evolution in Americas despite a weak RV OEM market, ending up at -7% in the quarter after two very strong quarters. APAC has been down, partially due to the weaker RV market as well in the Pacific area, but also due to the fact that we have been leaving low-margin businesses in Asia, specifically. We have seen growth in seven out of eight businesses. We are also very happy to see that the aftermarket, after a very weak first quarter, we got a strong second and third quarter. On the market side, it is clear that the RV OEM market that we have been describing on the inventory level has started to have an effect on our numbers. Obviously, the market has been talking quite a bit about Americas.
We see not just this slowdown in Americas, but also in the EMEA region as well as in Pacific. I will come back to that. Having said that, we have seen a continuous positive evolution on the rest of the OEM market, meaning Marine and CPV, as well as in the aftermarket showing a very strong development. In the same way, I can communicate that SeaStar continues to develop for us in a positive way. On the EBIT, we see EBIT improvements in the three regions. On one side, obviously, we have raw material prices playing against us. On the other side, we have seen both the effects of pricing as well as efficiency gains that we have in two out of three regions. We have a strong operating cash flow as well.
We are also very happy to have got the Eurobond, the EUR 300 million Eurobond, a good rate, 3%, and Per-Arne will come back to that. Last but not least, we have a new head of EMEA that was appointed a few months ago and that joined the company on the 1st of October. If we look at the financials for Q3, 32% up in total growth, with a flattish evolution on organic growth, +1%, 8% coming from currencies, and 23% coming through the M&A, primarily in this case, obviously, SeaStar. EBIT, strong EBIT evolution, 46%, reaching an EBIT margin of 15.6% in the quarter versus 14.2% last year. As mentioned previously, we had raw material prices playing against us while we have both price improvements showing up quite nicely in both EMEA and APAC while Americas have not been developing in the same manner.
At the same time, we also continue to see efficiency improvements, especially in EMEA, but also in APAC and to a lesser extent in Americas. Even in this case, we have a good cash flow evolution and EPS ending up at SEK 1.47, which is -3% in comparison to last year. We need to consider last year, we had a net profit coming out of the sale of one of the buildings we have in China. Excluding for that effect last year, we would have been 32% up in EPS as well. If we move on to the nine months period, sales 32% up, 7% organic, 3% currencies, and 22% coming from M&A. In the same way, EBIT has been showing a very strong evolution, 46%, improving our margins 1.5 percentage points from 14.4% to 15.9% as a consequence of the same factors as I mentioned previously.
Even in this case, cash flow has been developing very positively, we have exactly the same situation on EPS. We are showing just now +18%, excluding the sale of this building in China, we would have been showing 32% for the nine-month period as well. If we look at growth, we have been showing a very strong organic growth for a number of quarters, as I mentioned previously, we have been negatively affected in the quarter by the RV OEM market all over, while we have been showing pretty nice growth still on the AM side of RV and in the rest of the businesses. We are showing good growth in seven out of eight businesses. The average quarterly organic growth ended up after the last quarter at 9%. If we look at EBIT, same. We keep on a good pace in terms of EBIT improvements.
On the 12 months rolling number, we are just now 1.7 percentage points better than one year ago. We see a positive evolution even during the last quarter. Looking at the market, this is obviously, I'm fully convinced, one of the questions that we are going to get in the coming days. We have seen clearly a slowdown during the last couple of months, especially in August and September. We see in Americas, according to numbers from the association, that American markets went up 9% 12 months rolling. It is clear that we see when talking to the market, when talking to the rest of the industry, everybody's talking about a correction for high inventory levels that we have been experiencing. At the same time, we see the same situation in Americas as we see in EMEA, as well as in Pacific. I will not say Asia.
Asia is a small market and still growing, but we see Pacific also coming down. That means obviously that something is going on out there, and we are correcting for that, and we will come back to that. Again, we're looking at the 12-month rolling numbers, positive in Americas, +9% year to the 12-month rolling number. 9% in EMEA as well. We got information from association just a few days ago that the top five markets across Europe did have a growth of 7% in number of registrations in August. We will follow, obviously, the evolution very closely during the months to come. Australia, we have a number of new players that are reporting to association, and that's the reason for showing +2%.
When excluding the new players, the market would have been showing -10%, which means that we are in parity with the situation in the market ourselves as well. If we move on to the other segments, CPV, we see still today positive evolution in Europe. We are growing faster than the market. We see as well very positive evolution in Americas. As you all know, we have been investing quite a bit during the last 12 months in building up a good organization, a fully dedicated organization for CPV, and we're starting to see awards coming in. We are talking about long cycles, so even if we are getting the awards just now, we will not see the revenues for a number of quarters, but it is moving in a very positive manner. We are happy to see that.
On the Marine, the U.S. Marine markets, we see as well a positive evolution, +3%. We are developing both the old Dometic as well as SeaStar much, much stronger than the markets. Obviously, we are taking market shares. Then I would like to remind us that we have two factors. On one side, we have a very strong position on the U.S. market, but secondly, we also see a technology shift, which is helping us to grow much faster than the market as such. We continue to work on products and innovation. We have a number of important product launches lately. We are showing just a new cooling box with double lids, meaning that you can open from two different directions. We are also improving in digital. We will have communication capabilities.
We have also launched a new switching platform for the Marine industry, where we can connect all the electrical systems to the same device and being controlled remotely, which is also very much appreciated in U.S. market. Last but not least, even in Australia, we are continuing to strengthen our market position by launching a new series of refrigerators on a narrow product range with added functionality and even their digital capabilities. If we move on to the different regions. Americas, flattish, zero organic growth, despite a negative RV OEM market of 7%. Aftermarket, on the contrary, grew very nicely, +15%. We see a good evolution in many markets. Retail up, still small numbers, but up 78%, showing again that the investments that we have been doing in the last 12 months are starting to pay off. Marine AM, very strong as well, +21%.
The RV AM market, +10%. This is a little bit what we have been commenting as well. There is no direct link between RV OEM and RV AM, and this is what we are starting to see in all the regions in respect to the RV markets. EBIT up 60%, an improvement of 0.2 percentage points. As I said, raw material and wage inflation playing against us. At the same time as we have been investing in both CPV and mobile cooling organizations. What we are doing is obviously that we are correcting for the situation. We have been adapting our capacity in the U.S. in the last couple of months. We are down 8% in number of FTEs in September 2018 in comparison to 2017, and we will continue to adjust depending on the situation.
Before we leave Americas, I would like to spend a couple of minutes more. First of all, we are not happy with America's performance. U.S. did have a very strong evolution during the first half of the year. Our volumes went up quite a bit. We were taking market shares. It is our opinion that we could have done a better job in paying a little bit more attention to offsetting the commodity prices, in the same way as we did in the other regions. We were a little bit too slow in Americas, and I also believe that we were a little bit too slow in reacting on the noise in terms of the inventory levels that we could have started to adjust our capacity a little bit faster.
At the same time, after a couple of months in the company, we started to have a look as management, strategically to what we could do to improve our performance all over the place. We started to look for manufacturing footprint activities, sourcing activities, it is clear now that looking at the recent development in the RV OEM markets, what has been going on commodity prices, and also the discussions about the U.S. tariffs. Those three factors are helping us to accelerate the efforts to increase the number of actions and reduce our cost base. As I mentioned previously, we have reduced our number of FTEs by 8%, excluding SeaStar. SeaStar obviously is still showing a very nice growth, so we don't want to touch that. So far, we are attacking our manufacturing structures, so to say.
At the same time, we are still working on the full impact of the U.S. tariffs after the third round of tariffs. We are working very hard to understand the full impact, at the same time as how much we are going to mitigate the effects of the additional 15 percentage points, meaning totally 25% on Chinese products. What I'm trying to say is that we started to look at manufacturing footprint activities 6 months ago. Due to the fact that we have just now the situation with the tariffs, we are accelerating the entire process. We are looking at other countries to manufacture. We are, at this point, looking very closely at Mexico, and we will be communicating clearly the net effects of the tariffs during Q4 or as soon as we have the final numbers. A lot of activities in that area, obviously.
At the same time, we also have the renminbi that the RMB has been devaluating heavily in the last couple of months. Just now, we are down about 11% in comparison to the same period of last year, and that will partially compensate, obviously, for the impact of the tariffs. That's why it's not that easy to say just a clear number here now. At the same time, I will have a number of variables moving on. If we move over to EMEA, I have to say that I'm very happy to see the evolution. It has been very consistent across the entire year. Organic growth, still nice, 5% with CPV OEM, another area where we have been investing during the last years, +15%. Marine OEM 9%, Aftermarket, nice 5%. RV AM, still the same as in North America.
We see that as RV OEM is coming down, RV AM is coming heavily. Marine Aftermarket developing nicely and even Lodging developing in a very positive way. I am especially happy to see as well that the margins continue to develop in a positive way. We have 160 basis points better than the same quarter last year. Here is really pricing, which is helping us. We have also the efficiencies that we are gaining through the profitability program that we started one year ago, but we keep on finding new ways of increasing efficiency. We have a net improvement despite the raw material prices that are playing obviously against us. If we move over to APAC, we went down 6%. Two reasons. One is, as I said, RV OEM markets, but we also left a number of low-margin businesses that we had in Asia.
We see while Pacific is coming down, Asia is still developing nicely. We are 7% up in the quarter and even more obviously year-to-date. We have a number of businesses that are doing very well. Lodging was up 30% in the quarter. Marine was up 30% as well. I'm especially pleased to communicate, obviously, the positive EBIT evolution that we see despite the fact that we have the wrong, so to say, geographical mix with Asia growing quite nicely at the same time as Pacific is slowing down. Pricing is helping us. The fact that we left the low margin inverter business that we have in China, and then again, mix and raw materials are playing against us. If we move over to strategy. We have been spending quite a bit of time as management pushing through a number of activities that we initiated some months ago.
I'm extremely happy, obviously, after the acquisitions of SeaStar, but also Oceanair and Kampa one year ago. Three different acquisitions outside the RV environment, which will be helping to develop or to reduce our exposure to the RV markets. We have invested in building up dedicated organizations in Americas. We have also reorganized our EMEA operations, meaning that we have more people dedicated to the different segments, and I'm fully convinced that we are going to see the same positive results that we saw in Americas before. The same is valid for the aftermarket, where we are dissecting what we used to call the aftermarket and looking for different segments within aftermarket in order to develop them even faster. On the RV organization, I commented a couple of times in connection to other reports that we are also starting to look at global products and global technologies.
We are reorganizing ourselves in order to improve our performance. We are working very hard in reducing our complexity, keep on working on reducing our number SKUs. Happy to report that when looking at the last quarter, we are down 7% in number SKUs, this is nothing that we are going to see in our results next month. Over time, we will have a major impact in many different areas, both on the cost side, but also on the balance sheet. When we are talking about inventories, this is one of the reasons, obviously, for our high inventory levels. On the operations, we are working in building up a stronger sourcing organization with category management that we already have in Americas, we are putting it together in Europe as well. We are also working on supplier quality. We see evolution in those areas as well.
Last but not least, as I said, we started a process of mapping our manufacturing footprint six months ago, we are starting to get a very clear view on what to be done in the months and the years to come. Digitalization, another important area for us on one side in order to modernize the company, but also to reduce our cost. On one side, we believe that we need to take an active role in the new world through e-commerce that will also help us to reduce our cost on distribution. At the same time, we need to get those infrastructures in place. We are making all the progress on the ERP implementation. We are going to go live in Q2 next year. This is a global process and not just an American process.
We have the other regions also involved in this process. With those words, I would like to hand over to Per-Arne. Per-Arne, please.
Thank you very much, Juan. Before we dig into the details on year to date and also the quarter, I'd like to start to look at the more long-term trends. If you look at the slide with sales, EBIT, and margin cash flow, you can see that we are today on the last 12 months running at rate of SEK 17.5 billion. We are becoming a much bigger company than we were just two, three years ago. We have passed SEK 2.5 billion in EBIT. We have now an EBIT margin of 14.7%, and the cash flow has reached to SEK 2.3 billion. It is a more robust and bigger company today than we were just a couple of years ago. Also interesting to look at the trends for the different business areas. We see more or less double the growth in all different areas.
10% in RV, CPV up 9%, Retail and Lodging up 16%, Marine up with close to 200%. If we then dig down to the third quarter, we have comments about just 1% organic growth. I think it's given that we see that the RV business or the OEM business within RV is down declining with 6%. It actually means that all other areas, as Juan said, is actually growing. If you take the aftermarket business in the RV business, actually growing with 12% in this quarter. Net, we're talking about the -1.3% for the RV in the quarter. That also means that the rest of the businesses is growing 5.2%. We see growth in a lot of different areas. This is also a effect of the better balance that we have today.
RV now stands for 54%, the OEM part of the RV is 40%, we will continue to strengthen these other areas. Which means that even though a 6% down on the OEM market doesn't mean that the company as a whole shows negative growth. If we then take the five-year perspective, you could see that we have mentioned that before, that we are close to SEK 17.5 billion. We're growing with more than 120% in net sales, even more important, our EBIT has increased with 170%. This is also for the future, continue to grow, make it happen with improved profitability or sustained profitability. If you look at the key ratios, interesting to see that now the EBITDA margin is now getting close to 19%, 18.6%, both when it comes to year-to-date and also in the quarter.
We have mentioned operating cash flow, SEK 843 million, means an increase of 28%. As I said, SEK 2.3 billion in cash flow the last 12 months shows the strength of the company. If you then look at the growth and the impacts from the different currencies in the quarter, we had translations effects of 8%. 80%-90% of that is the U.S. dollar, the euro is weak. The Swedish krona sort of shows that we are, especially given that we have so much businesses in both euro countries and also U.S. dollar countries, that affects us in a very positive way that we have a weaker krona. If you look at the transaction effects, they are positive in the quarter, we also have some negative hedges, it's slightly positive overall if we compare transaction and also hedging effects.
Juan mentioned the renminbi, this has actually been weakening with 11% since April, that of course, is partly an offsetting some of the increased commodity prices that we have seen. The regional results. Happy to see that especially APAC making a big jump from 17% up to 22% for the margins in the Q3. That also means that they on a year-to-date basis are higher than last year. They are at 22.2%, it, I think, is a good thing that we protect high margins in APAC, we have done it with a, I would say, better mix, also that we have taken out lower profitability products from our sales. EMEA, we mentioned they continue to improve the margins. Americas actually improving on a year-to-date basis, slightly up in Americas in the quarter.
We should also know that if we look at this result, the effects from commodities is year to date, roughly SEK 75 million so far, and we realized 32 of this in Q3, and I would say 80% of that is actually hitting the U.S. They are sort of very much hit by more commodity prices in the third quarter than before. Looking at the earnings per share, Juan has mentioned that before. Do not forget that last year we had SEK 166 million in gain from a sales of real estate in China, and that means roughly SEK 40. That has sort of affected this. We have a low tax paid in this quarter. It is due to some repayments that we have seen. Normally, we would rather see that the tax paid will be closer to 15%. It was 13%, year to date.
We guess it will probably be 15 at year-end. Total tax to date, 25%, somewhat lower in the quarter, but we should expect roughly 25% for the year-end. We continue to invest in the company. You can see the CapEx is at 2.2% and also that our product development is at roughly 2%. We invest, I will say, as much as we can, and that we think is good for us right now. For us, it is not a question about the demand as such, it is also how effective we are. I think at this level right now, we feel comfortable with that. We invest at the right pace, but also try to be slightly more effective, as Juan has mentioned a couple of times before. Working capital, a bit on the high side, especially in Americas. We have seen the inventory go up. It is also on the finished goods.
We have also seen some on the supply side as well. Clear ambition to continue to take it down. We have seen good progress in EMEA and also in APAC, and we are struggling a bit in the U.S., but we will take it down over time. Working capital in absolute terms, SEK 4.3 billion is lower than in the second quarter, close to SEK 300 million, and we will continue to work with that also in Q4. That means that we expect to continue to have good cash flow. We had a cash conversion of 100%, 101% in Q3 and even more than that in Q2. Q4 is normally a very good cash quarter as well, and we expect the Q4 this year to show the same trends that we have seen the years before. Leverage is down to 3.1.
If you look at this in constant currency of 3.3. We have EUR also the quarter raised a Eurobond EUR 300 million at 3%. Good pricing, I would say, given our rating, but it was well received in the market. It also means that if you look at the leverage, some of the analysts I think have missed also that the higher leverage, the higher debt that we have in connection with the SeaStar acquisition also mean higher cost. We are roughly now at 3.6% in interest rate cost, and that means roughly SEK 400 million per year in interest cost. You should take that into account when you look at the EPS. Financial targets. We have still the 5% when it comes to the net sales growth, aiming to reach the 15% this year. Net debt 2, and that remains the same.
We think we will come back to that roughly in the third quarter next year. There is no change on the dividend policy. Juan, please.
Summarizing the third quarter. Obviously, we are not happy about the organic growth of 1%. At the same time, we are happy of the fact that we have been diversifying the company for a while, and that showed up obviously in the quarter where we are showing that despite the 7% negative on RV OEM, we are still showing growth. I believe that we are becoming a stronger company every day. Good profit evolution in both EMEA and APAC. More to do in Americas, what I believe that we should have been a little bit faster. It is quite clear that we are looking just now what is going on the RV market all over, and we are adapting our capacity immediately. I mentioned before that we are down 8% in number of FTEs in Americas, but we are down 2% in EMEA, despite the positive organic growth.
We are down 6% number of FTEs in APAC and giving you a minus 5% in number of FTEs across the group, and we will continue to adapt. On top of that, and as a consequence, as I said, all the manufacturing footprint activities and the situation with the tariffs, we are looking at accelerating our manufacturing footprint, and that will lead to us, Dometic, coming back to you during Q4 with more details and number about the restructuring program that we intend to proceed with. I think that's a very important piece of information. On inventories, we have been discussing a number of times. We are taking also specific actions. We are just now hiring a number of people that will be fully dedicated to help us to bring it down once for all.
That will be, of course, supported by the complexity reduction that is taking place and where we already see complexity coming down in a number of areas across the company. When looking at all these factors and taking everything into consideration, we keep our outlook of 5% organic growth for the year, and we keep aiming at an EBIT margin of 15% for 2018. With those words, I would like to open for the Q&A session.
Thank you. Ladies and gentlemen, if you do wish to ask an audio question, please press 01 on your telephone keypad. If you wish to withdraw your question, you may do so by pressing 02 to cancel. Once again, please press 01 to register for a question. The first question comes from the line of Lucie Carrier from Morgan Stanley. Please go ahead.
Hi, good morning, gentlemen, and thanks for taking my question. I will have three question, and I will take them one at a time. The first one is on the North American margin specifically. You've had the SeaStar contribution, which we know is accretive. You've also had double-digit growth in aftermarket, from what I understand. Per previous comment, generally, this exposure is also quite nicely margin accretive. The profitability expansion year-on-year is quite limited. I understand the RV market on OE side was down quite substantially. It seemed to me that you had been expecting this slowdown in the RV market as per regard to your guidance and for the comp base. I'm just trying to understand what has been the evolution around the operating leverage on your OE business.
Has that taken you by surprise in terms of the deleveraging maybe from the lack of growth? Just for us to understand a little bit, because from what we understand of the industry, the outlook is not necessarily on the improving side from here.
It's quite clear. I mentioned that before, Lucie. We are not happy. I do believe that we have been too slow, and that we should have reacted much faster. Obviously, that's why we have been reacting now during the last weeks, and we have taken down the number of people, and we are looking at our pricing as well. It's crystal clear. I think that we have been suffering from Sometimes you suffer from your own success. Obviously, the fantastic growth that we had during Q3, Q4 last year, Q1 and Q2, even if people were talking, we were not seeing these numbers coming through. Now we got the numbers coming through, and we didn't react fast enough.
Once again, as I said, we had an impact from raw material coming in the quarter. We had SEK 32 million for the whole group, and more than SEK 20 million of that was in the U.S. It hit them pretty badly in the third quarter.
I understand of the impact, but you had kind of highlighted to us that you were expecting some slowdown in the raw mats. It seemed that it was known at least at the level of the company from your communication.
Like I mentioned already, we were too slow.
Also, if you look at the quarter as such, we had also more of a slowdown also in September, where some of the manufacturers actually closed down the first week in September, closed down their production. It has been a pretty rapid change in the modus, I would say, in the late part of the quarter.
September came as a cold shower, it became as a cold shower all over in terms of RV. It was Americas, EMEA, and APAC at the same time.
Okay. Understood. The second question I had was more around the current trading. I was seeing after you reported this morning, I guess you had a press call. You were mentioning that October was kind of tracking better than September. When this is tracking better than September, are we talking about a positive growth number, or it's just kind of sequentially better? How should we think also about that in terms of the comp base?
I think it's better than September. At the same time, you have to go back to Q4 last year and see what happened Q4 last year. It was extremely high. If you look at the numbers after three quarters and consider that we are stating 5%, that's telling you that we are expecting still a negative growth for Q4. We prefer to be a little bit more cautious and to start taking out cost at the same time as we will adapt, obviously, if we see the RV market is looking better than we are expecting just now. At the same time, I have to convey the message. We see this in the RV market. The RV OEM rather standing for 40% of the business. We are growing in all the other businesses.
We don't see any signals so far. We don't see any signals anywhere else. It's very much limited to the RV OEM, it's not just Americas, it's all over the place.
Okay. Just my last question more on the strategy and all your initiatives. Juan, you've been at the company now for almost a year, I mean, 10 months. You have spoken very early on about a lot of the initiatives you wanted to take. You've detailed some of them around reducing the SKUs. You're now looking at the manufacturing footprint, procurement and so on. Can you give us maybe, because I'm guessing you're now quite advanced in looking at that in almost one year, a bit more granularity around the savings that you're expecting from those initiatives, but also the implementation? Because my concern is.
Yes
It might be maybe a multi-year and we are facing quite a lot of headwind, at least in the short term.
Obviously, to tell you a number here now is something that I cannot do. What I can tell you that we will come back during Q4 with a structure program. That structure program is not going to be run over a number of years, simply because there is no company that can run 10 factories or six factories or seven factories in one year. We need to take it step by step. What is going to happen is that we are going to act already now to mitigate or eliminate the risks that we have in 2019. We will take it from there. That's going to be obviously in Americas, but not just in Americas. We are also going to look at Europe. As I said, this is nothing new. We have been looking now for about six, seven months.
Obviously we are accelerating the plans due to the tariff situation and the RV headwinds.
All right. Thank you.
Give us some more weeks. We'll come back.
Thank you. The next question comes from the line of Peter Reilly from Jefferies. Please go ahead.
Well, good morning. You obviously had a very good quarter in terms of the RV market growth, plus 7%. Can you give us a bit more color of what's going on there? I'm particularly interested in whether you've seen some positive weather impacts and therefore the underlying rate is maybe slower than that. I'd like to know a bit more about the retail business in the U.S. where you've got particularly strong growth. I guess that's mainly your mobile coolers business. Maybe we can start with that one, please.
No, if we start with the last question, is totally right. Obviously we started to invest in the mobile cool business about one year ago, and we see very strong growth. Still small numbers though, but if I look at the quarter, I think we were up some 78%, which means that we are some 57, 58% after nine months, which is pretty strong. We see as well, coming back to the total aftermarket. We see also Lodging where we had a very strong growth in the quarter, +18%. We see RV AM developing very nicely. We see also Marine AM developing very nicely. CPV has been a little bit weaker on the AM side, while it has been very strong on the OEM side.
I think what we see on the AM market is really the consequence of having more dedicated people and spending more time in developing AM. I think it's crystal clear. It's not in one region, but it's in all the regions as well, which is obviously very pleasing to see. That was the second question. The first question was, please?
Weather.
The weather. The weather. It's always ups and downs, right? Of course, that you could say that Q3 could have been positively affected in some areas while the fact that it has been so long, that's telling you as well that people have not been using the equipment as for entire period of time. We are coming also from a Q2 where we saw improvements despite the fact that we had a late spring. I cannot tell you. Lodging is not influenced by the weather. If we are talking about Retail, perhaps a little bit. It's impossible to me to say might have been, but I do believe that the reality is that we have been spending a lot of time in developing, focusing on the AM organization and getting more dedicated resources.
We have today, if you compare the situation today with situation one year ago. We have dedicated organizations for Lodging. We have dedicated organizations for mobile cooling. We have dedicated organizations for CPV. Of course that is paying off and will pay off. We will just now with the situation on the RV OEM, it is clear that we will invest even more in developing those areas of the company.
Yeah. If I could just come back on the RV OE and aftermarket split. You said that obviously OE, you have the headwinds you all know about, aftermarket is developing favorably.
Yes.
How much of that do you think is just a sort of natural issue where if the OE is weak, therefore you get more interest in aftermarket? How does that countercyclicality work and how long does it last? You also said in your comments that you were seeing bad news everywhere, the European data on RV OEs being generally holding up better than the U.S. data. Are you also getting nervous about the European OE for next year as well?
I have exactly the same feeling. I believe that if you look at the numbers that we have in terms of EMEA, is registrations. Registrations have been positive. It doesn't tell you, obviously, production. What we see in our numbers is what we are delivering to the OEM manufacturers.
Yeah.
If I go back to the first question or first comment, is it counter cyclical? I don't think that I can tell you after one quarter. I do believe that you look at Q2, we had, as I said, a late spring. We had a very weak April, but we saw a pretty strong May and June as well, despite the fact that we were growing big time on the OEM side.
I think Per-Arne here, I think that we can't look at the sort of trends in one quarter. Remember, as Juan said, it was a very slow start, which meant that no one's actually stocked up, which they normally did in May and June, and we are seeing that happening right now. That also shows that we have a seasonality. We very often talk about cyclicality, but we have a seasonality which is important that when the season change, you will see this kind of pattern. I think it's a combination of perhaps a later stock up, but also the dedicated organization .
Yeah. If I can just lastly finish with your product development spend is not going up as a percentage of sales. You've talked a lot about the growth initiatives. Do you still expect to take up product development as a percentage of sales, or is that something you're going to review given maybe a weaker end market outlook than you had six, nine months ago?
I think that we need to have some time just now in order to get the organization in place. I think that I communicate before that we are revising as well what we are doing. Product development was very much connected to the recent factories historically. We see that we are diluting our investments by doing so, and we are creating centers of excellence. We have created three global products, three global technologies. Just now to invest at the same time as we are going through all those changes would be wrong. I think we need to get it right first, and then we will invest, and we will increase the pace of investments.
At the same time, we actually increased to SEK 25 million in absolute terms.
Yeah.
Don't forget that because you're talking about something in relative terms.
Yeah.
Actually have increased this year with SEK 25 million.
Okay. Thank you.
Thank you.
The next question comes from the line of Daniel Schmidt from Danske Bank. Please go ahead.
Yes, good morning, Juan and Per-Arne. I just wanted to ask you two questions. To start with raw material. Juan, you said that you were slow in adapting the pricing in the U.S. market. How should we view raw material into the last part of this year? I think you said it was $32 million in negative impact for the quarter and $20 million in Americas. Would you dare to give us any sort of estimation for the last quarter?
If you look at the estimate for the whole year, it's down $90 million, which means that we have down $50 million to go. What we also have seen is some kind of improvements now during the last quarter that we have lower prices, so if nothing dramatically happens, we should have less of an impact in the fourth quarter than we have had in the third quarter.
Both the steel and aluminum that are important to us have been coming down in Q3 in comparison to the first two quarters.
Yeah.
The question here is obviously, is that going to continue? Because it has happened in the last couple of years a couple of times. That the pace of increases came down, became even negative, but then it rebounds back after a while. Just now it looks better than it has been looking in the first two quarters.
All right. Thank you. I think you mentioned also before that you were lagging with the price hikes, but I guess those are going to be more aggressive now in the U.S. in Q4 versus what you saw in Q3 then. Those sort of SEK 15 million, are they going to be more evenly spread across the regions?
Absolutely. The message has been very clear to our own organization.
Yeah. Okay.
As you see, we managed to do it in both EMEA and APAC, and there is no reason for not managing in the Americas. I think this is more home cooked than anything else.
Yeah. Okay, good. Just finally coming back to RV in the EMEA again, I think you were quite clear that you saw weaknesses in all regions. Again, at the same time, you have these registrations data being quite positive. These are, of course, lagging data. What's your feeling in terms of inventory correction need or risk in the EMEA or in Europe, so to speak, by the end of Q3 going into Q4?
I have to say, that's a little bit of the situation, and that's why it's so uncertain, because no matter if I'm talking to American customers, European customers, everybody's telling me that this is an inventory correction and things will be fine.
The question is, should we wait or should we act? Obviously, we are acting.
Yeah.
Pacific is a different ballgame.
Yeah.
If you look at the market in Pacific, it has been growing even in the good times. It has been growing somewhere between +2% and -2%. Pacific is an acceleration of the growth that we haven't seen. It has been very low. Both Americas and EMEA have been extremely optimistic. They are still optimistic, but I don't dare to be optimistic.
No. Would you say that dealers in Europe have taken on a slightly bigger inventory risk this year versus last year?
I think that happened during the first quarter, perhaps during the first months. I do believe that what we are seeing just now, obviously, when we are producing less and registrations are coming still up, I believe that there is a correction by the OEM manufacturers at this point.
No. Okay. Thank you. Thank you so much.
Thank you.
The last question comes from the line of Rasmus Engberg from Handelsbanken. Please go ahead.
Yes, hi. Can I ask you about the U.S.? Given that you have such a strong increase in the share of aftermarket sales relative to the RV OEM, yet we don't see that much operating leverage.
You say that you have taken out a lot of staff, but did that really happen during the quarter, or is that something that has the future impact rather than.
No. I said at the end of September we were 8% fewer people.
Yeah.
Obviously you don't see the savings in September. You will see the savings through.
The other question, if I relate to that one as well, the slow price increases in the U.S. took place both on the OEM side as well as on the AM side, and that's what is disappointing and that's what we are correcting.
Yeah. If you wanted to say which is the bigger problem, that you had too many people in the factory or that you were late with the pricing, which one is the sort of bigger factor in this quarter?
I think it's a combination. I really believe that it's a combination of both.
No.
I think if you look at the quarter, the effect, September was really poor for us.
August was not that bad, July was okay.
Mm. Yeah. Then a slightly kind of bigger question. You have said in the past that sort of you need to deserve the right to grow and that you need to sort of get to your margin targets before embarking on an expansion strategy. Considering the sort of clearly weaker market, and the fact that you will do some footprint adjustments, I suppose, does that mean that you will sort of put a brake on your expansion, or is that a separate thing, or how do you see that going?
No, I think we have underlying, if you look at our numbers, we have underlying improvements in a lot of different areas.
The fact that we need to correct capacity on the RV market and we need to reduce headcount in a number of factories doesn't mean that we should stop everything. To me, in my opinion, it's the other way around. Just now we need to put even more attention to the other businesses.
This is to some extent funny because if I look at the discussions that we had since I joined the company, you guys have been questioning for how long the RV market is going to continue.
I have stated that that's why it's so important to diversify and to reduce the weighting of the RV markets.
To me, it's just even more important now.
Right. Okay. Thank you.
Thank you.