Ladies and gents, welcome to the Dometic Interim Report Q4 2017. Today, I'm pleased to present Juan Vargues, President and CEO, Per-Arne Blomquist, CFO, and Johan Lundin, Head of Investor Relations and Communications. For the first part of this call, all participants will be in a listen-only mode, and afterwards, there'll be a question-and-answer session. Speakers, please begin.
Okay, good morning. This is Juan Vargues. Good morning, everybody, welcome to this presentation of the fourth quarter and the full-yearly report for 2017. I'm delighted about having the opportunity to share this first report with the audience. I have been five weeks into the job. I spent my time meeting people, meeting our own employees. I have been meeting customers. I visited a number of factories. I visited a number of sales organizations, and I'm extremely happy to see the level of engagement that we have in the company. We have a lot of talent, and I see very motivated people ready to take this company to the next level.
Before moving into the report, I would like to take the opportunity to thank Roger Johansson, my predecessor, and the rest of the management team for a fantastic job that they did, both in the fourth quarter, but also in the entire 2017. On top of that, I would like also to thank you all for, on one side, the transition period and introduction, the good introduction that I have got into this company. With that said, I would like to move on to the highlights for the fourth quarter. We had a pretty strong fourth quarter. Net sales achieved SEK 3.3 billion, corresponding to 17% total growth, of which 16% was organic, while currencies did have a negative effect of five percentage points. On top of that, we had also acquisitive growth of six percentage points.
EBIT did show as well a very good development, ending up at SEK 310 million, which is about 9.5% percentage, and two percentage points up from last year's numbers. We are going to discuss a lot about RV, I'm sure of that, but the reality is that we had a very strong growth in seven out of the eight areas that we are present in, and we had also an improved EBIT level in six out of eight business areas. If we move on to the regions, Americas continues to develop very positively, and again, good on the RV OEM, but very positive as well in a number of other segments, and showing an excellent development on profitability.
If we move on to EMEA, we also had a very good growth in many business areas, but I am very pleased as well with the fact that we have started to see margin improvements after a weak first half. We have seen improvements in Q3 and especially Q4, we saw indeed great improvements. APAC is very much driven by the aftermarket. On the aftermarket side in the Pacific. On top of that, we also saw very good development in emerging markets in Asia. We had on top a negative effect on raw material, and the product mix and geographical mix did have a negative effect on our profitability. A very important factor that took place during the quarter was the acquisition of SeaStar, strategically, a very important step for our future expansion into the marine segments.
We ended up as well with a very strong cash flow of SEK 536 million, beating up the level of last year quite a bit. If we move on to the different regions. In constant currencies, we had a growth of 23%, of which AM stood for 17% and OEM for 26%. Looking at the EMEA region, a strong 14% in constant currencies, with the aftermarket growing 5%. We have also to consider that we have a very strong project one year ago, amounting for SEK 29 million, and if we exclude the effect of that project, the real growth, the underlying growth was 13% in the quarter, while the OEM market did show a growth of 21%. Moving over to Americas, a great quarter as well, growth-wise.
Total growth 33%, excluding SeaStar, 24%, with strong growth both in the aftermarket, including SeaStar, 33%, and the same number for the AM market. Even when excluding SeaStar, we had a very strong quarter in AM, 14%, and 27% for the OEM market. Moving on to APAC. Same, 15% up in constant currencies, of which 19% aftermarket, very positive, and 10% on the OEM markets. If we try to summarize the results on the fourth quarter. Sales did show a pretty strong development, 17% in running currencies, of which 23% is in constant currencies. EBIT levels, very positive, SEK 310 million. A growth of 48% and even more in constant currencies, 69%. Currencies did have a negative effect as well on our profitability. A very strong cash flow, which is 52% up versus last year, and ending up at SEK 536 million.
On the markets, and I will come back obviously to some statistics, but we are focusing a lot on innovation. We have seen an acceleration during the last months. We launched a number of new products in the last quarter as well. Among them, the drop-in cooktop in Americas that were launched in December. We also did launch the new Glazing Dome for the EMEA region in early October. We also launched a new generation for APAC, which is pretty innovative and that is very much expected on the markets. What is also very positive to see is that even if we are just the beginning of February, we are starting to get a number of awards. We got two awards in the Pacific area for good design, and that is an area as well where we have been investing for quite a bit of time.
Also, the new generation of refrigerators in EMEA was awarded. This is the first product of the 10 series in refrigeration in the EMEA region. If we leave the quarter and move on to the full year numbers, again, a very positive development, ending up at SEK 14 billion, which is 13% total growth and 12% organic growth. Currencies didn't have any effect at all when looking at entire year, M&A stood for one percentage point. EBIT ending up at SEK 1,860 million, which is 15% growth and margin improvement of 10 basis points. When looking at growth, a little bit of the same story as for the quarter, very nice growth in six out of eight business areas, and improvement in seven of eight business areas.
Americas, of course, benefiting from very high levels on the RV market, but also a good development in the RV AM market, and a very strong improvement in profitability that has been accelerating during the last half of the year. On the EMEA region, as I mentioned previously, I'm very happy to see the margins are starting to kick in since that's an area where we have been focusing during the last months after a weak start of the year. On top of that, as you all are aware of, we also launched an efficiency program in Q3, and we are expecting to start seeing results in the first quarter of 2018. APAC, I'm also pleased to see the development. We have to remember that the Australian market is pretty flattish.
At the same time, we are growing rapidly in Asia, with China growing over 40% and also the rest of Asia at almost 20%, which is, of course, putting some pressure on our margins. On top of that, we were a little bit late on adapting our prices to the increase in raw material prices at the beginning of the year, and we are making efforts just now to bring them up. Very pleasant to see that we ended up three acquisitions during the year, Oceanair in the U.K., IPV in Germany, and then SeaStar in Americas. Extremely exciting to see the SeaStar acquisition because of the impact that that will have for our numbers moving forward.
When looking at the pie chart on the bottom, we see also that even if we didn't see any major effect in 2017, that chart will look in a very different way at the end of 2018, since RV will go down to 55%, at the same time as Marine will go up to 22% in the coming year. Very strategic acquisition. Strong cash flow for the year, ended up at SEK 1.7 billion. We are proposing, or the Board of Directors will propose a dividend of SEK 2.05, which is about almost 11% up versus last year. Moving to the regions. EMEA did have a very nice growth, 15%, and I repeat myself when saying that these projects that we had in EMEA last year had an effect of seven percentage points.
Underlying growth in EMEA was 15% in comparison to the 8% that we are showing for the AM business. At the same time as OEM was extremely strong, ending up at 23%. Looking at Americas, 7% on the AM business up, while the OEM went up by 12%, and we have seen an acceleration during the second half. We had a weaker first half on the RV OEM, while the second half has been extremely strong. APAC, a 12% growth totally speaking, with 13% for the aftermarket and 11% for the OEM market. If we try to conclude the year 2017, growth of 13% in constant currencies, an EBIT improvement of 15%, ending up at SEK 1.9 billion in EBIT, and a 33% growth on operating cash flow. If we look at the statistics coming from the American market, we are all-time high.
We were all-time high already in 2007, ending up at 505,000 units. What we have to remember is that the latest peak that we had on the market took place in 2006. The number at the time was 391,000 units. We see still an acceleration, and what is even more important is that despite the fact that the full year ended up at 17% up, the last quarter ended up at 19%. We don't see a slowdown. On the contrary, we see an acceleration of deliveries on the American markets. We have also a positive forecast coming from [vision], telling us that the market should go up by another 4% in 2018. We are moving over to the EMEA region. Here, we are following very close a number of associations, local associations, and we see especially Germany showing also very strong acceleration.
We see as well growth in most of the markets. We are looking at the total numbers coming from the European Caravan Federation. A little bit of the same, we saw an acceleration in the last quarter, up 19% in comparison to total year numbers that went up about 13%. Even here we have a forecast, which is positive for 2018 of about 9%. If we leave the RV market and move over to trucks, a little bit more difficult, but what we see clearly is an upwards trend still today, even if it is not strong, but it is another 1% versus the last year's numbers. As you know, this has an effect for our CPV, what we call our Commercial & Passenger Vehicles business.
On the boating side in the U.S., where we traditionally had a very strong position on the larger sizes, we see as well that with the acquisition of SeaStar, we will start seeing also growth in the smaller sizes. Even if the trend looks downwards, we have to remember that we are talking about year-over-year. It is still a growth rate of 4.4% versus last year, which is positive. In other words, of course, that we are following these numbers very closely. We are aware that we are reaching all-time highs in a number of segments. At the same time, the way we perceive is that we see an acceleration in the last quarter instead of a deceleration. If we move over to Americas, I look a little bit deeper on the highlights.
About SEK 1.5 billion in revenue in the last quarter, with a total growth of 20% and a growth on constant currencies of 33%. Good EBIT improvements, ending up at 11% EBIT. Good growth on OEM, as I mentioned previously, but we saw as well a very strong growth in RV AM, in marine, in lodging. Altogether, we saw growth in most of the areas in America region in Q4. Again, very strong margin improvement. Last but not least, the acquisition of SeaStar to be mentioned, since it's going to have a major impact for us moving forward. Moving over to the EMEA region, about SEK 1.2 billion in revenue in the last quarter, with a total growth of 15% and in constant currencies, 14%. I am very pleased seeing that we had a two percentage points EBIT improvement.
Still not where we wanted to be, but a clear improvement in comparison to where we are coming from. Even in the EMEA region, even we are paying a lot of attention to RV, we saw a good growth, a high two-digit growth in many other segments. CPV did have a very strong growth on the OEM side, even marine had a fantastic growth. As mentioned previously, we have been working on the pricing, we have been working on efficiencies. Our expectation is that we will see improving margins moving forward as well. On top of that, we have the efficiency program that we launched in Q3 that will start kicking in in Q1 2018. Finally, the APAC region. Sales are about half a billion SEK, with a total growth of 10%, and in constant currency is 15%. EBIT coming down.
A couple of reasons for that. One is, again, that we were slow in terms of increasing prices when the raw material prices started to kick in. At the same time, we have a clear pool mix variation, and we have geographical mix variation where the Pacific market is pretty flattish at the same time as we're increasing big time in China, but also in the rest of Asia. I repeat myself, China went up for us over 40% last year, and the rest of Asia, almost 20%. That has an impact on our numbers. With those words, I would like to give the word to Per-Arne, please.
Thank you very much, Juan. Summarizing sort of the year and perhaps some years back, Dometic Group has had a good development. We have now reached more than SEK 14 billion in sales. If you compare that to 2015, we were down at SEK 11.4 billion and even below SEK 8 billion if you go back to 2013. We have been growing the company in a pretty rapid way. Adding on SeaStar means another two and a half billion SEK at the top of this. EBIT has also increased, coming from roughly SEK 1.4 billion in December 2015. We are now coming close to SEK 1.9 billion. Operating cash flow continued to generate in a good way, a bit about one and a half billion SEK.
EBIT margin, however, has been under pressure during the last 12. Already in, let's say, Q4 last year, and very much of this was the impact from commodity pricing pushing down the margins, and we, as Johan said, we reacted a bit late on this. Now have regained a momentum to be able to work towards our margin target of 15%. If we then look at the businesses, we can see 3 areas where we have double-digit growth. The CPV business growing at 3%, but behind this, we have different patterns in the different markets. U.S. has shown the weakest development. We have rather good development, but a small market in APAC. Some of these business, as we have said before, is low margin. We try to get out from this. EMEA shows a scattered picture.
The OEM part shows double-digit growth, but at the same time, the aftermarket shows a drop, given the fact that we in 2016 have some bigger orders when it comes to AC stations. This area is very much more a question of penetration than in the other areas. The RV market, close to SEK 9 billion, is the biggest market. We have been growing at 14%. Marine, up 34%, and this includes both the currency effects and also acquisition. This will be a business for us, which will be closer to SEK 4 billion going forward. This is a way of balancing the RV business in a better way than we have done before. In other, we have lodging and retail, and I'm happy to say that we see good growth, especially in retail business, both in APAC, but especially in the U.S.
The cooling box activities that we have initiated start to yield results, even though it sort of starts from pretty low levels. If we then look at the key ratios when it comes to sales, we have had 2 years now with good organic growth. In 2016, we were at 7%. This year, we are about 11%. We have worked hard with the profitability, but it's flattish between the year, very much depending on the commodity pricing that I mentioned before. We have also had impact from our class action, and that is roughly, I would say, SEK 55 million in 2017. It was more or less the same in 2016 as well. It impact our ability to raise the margin at a quicker pace. We had hoped to have a quicker pace in raising the margin.
Capital efficiency, I'll come back to that later on, but you could see improvement when it comes to core working capital. I'm happy to say that it's now slightly coming down. We have seen increased return on operating capital, 1.5% units, which is good. Operating cash flow is strong, 33% up compared to last year. Earnings per share have exceeded files, which showed ended up at SEK 5.5. Juan talked about the impact from the currencies. I will not repeat too much of that, but you could see that in the fourth quarter, we had a translation effect of -5%. This is especially the weakening of the U.S. dollar that had the biggest weakening in the fourth quarter. Small strengthening of the EUR. If we take down the full year, you could say that we have more or less a flattish.
We are flattish on translation, where USD is -45% and EUR has been strengthening. You can see that the impact from the currency movements came in the fourth quarter. If you look at the regional results, Johan Lundin talked about that before, we are happy to say that we see strong improvements in the Americas, and if you take away the class action, it would have come closer to even 15% in margin. All three regions have shown double-digit growth. We have seen double-digit improvements of the EBIT in absolute terms, slightly below in APAC, this is the reason also what Juan explained earlier. It has been a change during the year, and if you look at the EBIT margin development, we started off the year with being behind 1.2% units in the first quarter.
We were 0.4% behind the second quarter, we have regained momentum, and the activities that we have put in place during the year start now to yield effect. I will expect this also to have a positive rollover effect in the coming year. The fourth quarter had some items affecting the comparability. We have press released most of this is well known, I will anyway repeat this. We had reimbursement, which was positive, of SEK 28 million related to the U.S. class action. Going forward, we have reached an agreement with the insurance company that certain parts of the cost will be reimbursed up to 75%. This means that we will now stop to give an estimate around the cost levels each quarter on the class action.
I think that will be minor, we will also see later on that the activity level right now is rather low within the class action job. We also had other effects on EBIT. We had the cost for the EMEA profitability program, SEK 61 million. This will help us to raise the margin with 2% units during the coming two years. We have acquisition costs of close to $7 million, SEK 58 million, for the acquisition of $875 million SeaStar, that's the cost for doing this bigger acquisition. We have spent quite a lot of time on taxes, I think we are not the only company that have been doing that the last months. For us, it has been a bit more cumbersome given that we closed the deal with SeaStar the 15th of December.
Effects of this was basically positive. We had a small negative revaluation of our tax assets with the effect of a cost of SEK 20 million, we had a positive effect with tax liability revaluation of close to SEK 300 million. These two items will not have any cash effect in the short-term perspective. If you then look at the earnings per share, you could see that all these activities around the taxes makes the tax rate a bit awkward in the fourth quarter. For the whole year, we stay at 12%. You can see that taxes paid are 34%, which is high compared to what we normally have. We have been under 10% the whole year. We had, in addition to what we mentioned before, also some settlements of tax orders in Germany, Slovakia, also Italy.
Then we also had a smaller effect also from the SeaStar acquisition that came in later than we had sort of press released. All in all, I think we have one-off effects of SEK 50 million-SEK 60 million on the tax and tax payments. Coming into CapEx and our investments, we continue to invest in the company, and we are around the 2.5%-3% in CapEx, and I don't foresee any change to this level in the coming year. The same goes for PMI, where we're often now at 2.5%. I will say that so we're at 2.5%-3% goes for both CapEx and PMI each going forward. Working capital, as I mentioned, down to 22.3%. We will have a sort of consumption of working capital in the first quarter also in 2018. This is the plan that we see.
We try to minimize down the need in Q2, and then we will have positive effects also in Q3, Q4. If we look at the working capital overall, it has increased from SEK 2.6 billion up to SEK 3.4 billion. A pretty big increase, but this also affects all the SeaStar acquisition where you have close to SEK 600 million in all coming from the acquisition. Also goods and transit. We have done very well in the U.S. We are competing well in the market, and we get more orders in. But it also means that capacity-wise, we are outsourcing internally, especially when it comes to refrigeration, to sell or to produce in China and then sell in the U.S. This gives us more tied-up capital for five to six weeks when we have all these goods on the water. Finally, cash flow. As you see, it's a strong quarter.
We have a cash conversion of 134%, which I think is very good. We are up close to SEK 200 million compared to the quarter in the fourth quarter in 2016. We are happy to see that we continue to generate cash. If you then look at the leverage level, if we had not made the SeaStar acquisition, we should have been down at 1.0, which would have meant that from the IPO where we started at 275, we have taken it down in close down to two years with 175, which means that we have a good cash generation. I don't foresee any change on that trend going forward. That will be good for us to continue to generate cash, to take down leverage, but also to create opportunities for further acquisitions.
Then we look at the dividend, we will propose to the AGM that we will increase the dividend with close to 11%, up to SEK 0.5, as Juan said before. This means 40.5% of net profit, which means that we are well aligned with the financial targets that we have set up. You could also see that the share price and the Dometic share has sort of gone up with 25% during 2017. Finally, looking at the financial targets. We have reached the net sales growth. We are above the 5% that we have as a medium long-term target. The net debt or the leverage is up to 3.3, but underlying, we should have been at 1.0.
We will come closer to two and a half during 2018 and come closer then to our target during 2018 and come down to the target, I would say, in the middle of 2019. Dividend policy, we keep the 40%, as I said before. Just before I leave it over then to summarize for Juan, I would say some words about the class action. We have a very low activity level right now. I think that in Florida, we have more or less sort of stalled the case right now. We are now looking at what will happen in California. It will either continue in California or we try to transfer to Florida. For the time being, we should expect a very low activity level, and we will come back when we know more about this.
So far, we have not made any settlements, and we have got our case right in all instances that we have been sort of proceeding. Juan.
Thank you. Thank you, Per-Arne. Summarizing 2017, very strong organic sales growth of 12%, driven by the RV market. That's true, but we have to keep in mind that we had five out of eight business areas showing high two-digit growth during the year, which is very strong. Improved profitability, 15% up versus last year, with good efficiency improvements in Americas, and starting to see clear improvements as well in the EMEA region. Three very important acquisitions for us that are giving us even more presence in the marine area. We had SeaStar at the end, but we also had Oceanair at the beginning of the year. Getting a pretty strong position and mitigating, obviously, our exposure to the RV markets.
We are also working on efficiencies in EMEA, as mentioned previously, and we will see the first effects in Q1 2018. We are also working on the consolidation of our factories in China. That will give us also improved efficiencies. Increased focus on product development. We have seen a number of product launches during the last month, and we will see more product launches coming forward. Something that we are not talking a lot about, but is also starting to have an effect, is emerging markets. I mentioned China, I mentioned also Asia, but we had also very nice growth in Eastern Europe, 19% up. We had CIS, very high numbers. Africa doing very well. We see that even population in those countries are starting to appreciate our products, and we see some trend changes that should benefit us moving forward.
As you are all aware of, I came into the company or joined the company on January 8 this year. We're looking to the future. We're still positive about 2018. We believe that we will be in line with our 5% financial targets. We see that we have a number of underlying trends helping our numbers. We don't see so far any changes in any trends. On the contrary, as we mentioned previously, we saw a very positive trend acceleration in Q4 of last year. We are aiming at reaching 15% EBIT margin during 2018. We will keep on working on efficiencies all the time. We aim to reach as well a leverage of 2.5 at the end of 2018.
After the SeaStar acquisition, we went high, we have all the intentions in the world to come back again to the levels that we had before. We are proposing a dividend, or the Board of Directors is going to propose a dividend of SEK 2.05, which is about 11% up versus last year. Very much in line with the target that we have 40%, slightly above the target. With those words, I would like to initiate the session for Q&A.
Thank you. Ladies and gentlemen, if you have a question for the speakers, please press zero one on your telephone keypad now. Our first question comes from the line of Erik Karlsson from Industrial Equity Partners. Please go ahead. Your line is now open.
Thanks for taking my questions. I thought I'd start with the margin guidance. When you say 15% during 2018, is that reported for 2018 or as a run rate sometime during the year?
Sometime during the year.
Okay. Just to follow up on that, thank you. Is that then as a 12 months? Because there's seasonality in this business. Should we then think about it as the 12-month run rate backwards, or how should we measure your success?
Well, I think you have a number of factors playing in, obviously. I mean, SeaStar is going to start kicking in. At the same time, we have the EMEA program is starting to kick in. At the same time as we are working with pricing. We saw an acceleration on price increases during the second half of last year, and we understand as well the raw material prices are starting to move upwards, and we will act accordingly. Our estimation just now is that at the end of Q3, we should be starting to get very close to the 15%.
Very good. Maybe one question on North America. You had 34% RV OEM growth there, which is sort of an astounding number. As you pointed out, an acceleration. Is there any type of one-offs or anything unsustainable in that number that you would like to point out, just when we make our forecast going forward?
Well, we see that some of our competitors are having problems on deliveries, we have been benefiting from that. Even when excluding those numbers, we see a very positive trend. We have been clearly taking market shares during the last six months of the year.
Per, Erik, it's not that we have some extra orders. I mean, as Juan says, it's very strong underlying. Also, we don't have any explicit sort of extra orders. It's just very strong.
Very good. Also on the EMEA restructuring program, I think it's fair to say that you have seen a few restructuring programs over the years, Juan, you're well-placed to comment, I think. Could you just help us understand how you look at this program? Because it was initiated before you joined. How does it look in terms of scope, how is it going in terms of progress?
Well, we have seen the program was launched in Q3. Obviously, the work was initiated earlier than that, which means, again, that we see that we are in line with our expectations, we should starting to see effects in Q1. A number of people have already left the organizations, some more people will be leaving now in January and February. Again, I see a good progress, we are totally determined to deliver what we have said.
It is not an FC&A program. It's a cost reduction program. We're looking both at production and FC&A and overall sort of costs.
Efficiency. That's why we call it for efficiency program.
Exactly. That's what we're aiming for.
Very good. It sounds like it's in line and maybe a little bit ahead.
Well, I don't know if it's ahead.
It's in line.
I think it's in line, and we have said 2% units during two years.
Okay. Last question, sorry for so many questions, but on M&A side, you've done some phenomenal acquisitions through 2017, and you have high leverage. Do you think we should expect a freeze now during this year, or would you be willing to look at smaller bolt-ons also this year?
No, I think we can do smaller bolt-ons this year. First of all, we have to manage the first four, five months, where we have dividends to pay, et cetera. We will not be rush away. What we're looking at is strategic good M&A activities, that's what we're aiming for.
As you all know, acquisitions, they don't happen overnight. It is quite clear that we are working actively, is we are in the kitchen, at the same time, we have to deliver the first half.
Yeah.
Very good. Thank you so much.
Thank you.
Thank you.
Our next question comes from the line of Peter Reilly from Jefferies. Please go ahead. Your line is now open.
Good morning, and welcome to Dometic, Juan. I just wanted to start by asking you to talk about your priorities. You've talked about the business and what you found, but looking at your inbox, you've got the efficiency improvement program in EMEA, you've got integrating SeaStar, the CoolBox program, and all the organic product development. What do you see as the most important priorities you're facing for the next six, 12 months for the group? I wanted to follow up on that, just coming back to this issue of U.S. RV OEM with fantastic growth in the fourth quarter. Can you talk a bit about what is leading you to regain the market share? Is it just regaining the share you lost, or are you actually winning additional share with new products and new initiatives? Maybe you could help us understand that.
Okay. We'll start with the first question, priorities. Of course, my first priority just now is to learn to know the company in depth. I'm working very intensively just now. The management of the company has been doing a terrific job preparing this company during the last years, we see that in the performance improvements. Of course, after five weeks into the job, I see a number of opportunities, you could say exactly the same in every single company, right? It's about keep on growing the company. It's about accelerating innovation even more. It's about looking at your costs. Growing the company costs money. That's why we need to look at the cost all the time so we can finance our growth. On top, if we want to do acquisitions, we need to be fit for that.
I guess, it sounds quite odd, but it's more of the same, like in any other high-performing company. We want to be a high-performing company. I do believe that we have seen terrific improvements, but it's more to be done.
On the second one, on the market, could you please repeat the question again?
It's the U.S. market.
Yeah.
The 33%, we have the opportunity to, given the sort of good growth in the U.S., to take on more orders. As I said, the unit representation, that means that we're also shipping in from China. That gives an opportunity to take orders and regain shares. We have to remember that at the starting of this year, we were behind on shares, both when it comes to refrigeration and partly also ACs. Given our possibilities to actually produce in China, we are now regaining momentum on this, and that's what we see right now.
It also ties up more capital, but it is for good sake. It means that no one else can produce and we can, and that's why we're taking back shares.
Two phases in reality. First half, we were below.
We were losing a little bit of share. Second half has been terrific and regaining, and even more than that on the American market.
How good the cash flow was, and given you've got very strong growth in the quarter, given you're positive for next year, I expected a bigger working capital build. What's happening? Are you getting more efficient at managing your inventories, or did you have such strong shipments in the back end of the quarter that you just ended up with a slightly lower working capital number than maybe I've expected, given the strong organic growth coming through?
I think we have learned to handle it a bit. Are we still good? No, we are not. We still have an ambition to take it down to closer to 10%, but I think we have handled it slightly better. I'm happy to see this down from given also that we are shipping much more from China, because without that, I think we were taking it down more. For me, given the cost of capital that we have and given the opportunity that we have in the market, I think it's right. Things actually have a slightly higher inventory to be able to serve the markets.
Just one last and quite boring question. With SeaStar, big increase in the intangible fixed assets. I guess you have to start amortizing those in 2018, and I'm assuming you'll take that as a cost above your items affecting comparability lines. Can you give us some guidance on what the drag is going to be for Americas with the SeaStar intangible amortization?
I think it will be roughly another SEK 150 million per year in intangibles or depreciation. That will be a part of the customer relation et cetera. That will be add on to what we already have today.
Okay.
That will be a part for the amortization line.
And you-
Go ahead, Peter.
You'll be reporting your EBIT before items affecting comparability after this additional SEK 150 million or so of the amortization.
Yeah, they will be a part of the normal amortization. There will not be another, yeah.
Okay.
We have that also for Atwood, for example. That will just be included in that.
Yeah. Okay. Thank you very much.
Thank you. Our next question comes from Rasmus Engberg from Handelsbanken. Please go ahead. Your line is open.
Yes. Hi, good morning, or good day, maybe even. Can I ask, you're talking a little bit about the next step, so to speak. How do you think about that? Is it a much larger company, or would you think it's a much more profitable company?
I think both. We want to be an and company. We want to grow, and we want to make more money.
It's clear, I think that if you want to build up a high-performing company, you need to work on both ends. It's about growing, but also financing your growth by being very good at running your cost. I see, obviously, potential in both areas.
Yeah.
Rasmus, if we just go back to five years, we have increased the top line with 80% over the course.
Yeah.
We have increased our profitability with 95%. I think that's a good combination.
Absolutely
that we will look at going forward to try to repeat.
I think we have a great base.
Yeah.
Just coming back to Peter's question earlier about depreciation and amortization, if we take a 15% EBIT margin, what roughly does that imply in terms of EBITDA now with SeaStar coming in, both with, I assume, assets, but also the larger extent, the acquired intangibles. Roughly how many percentage points of D&A do you think you'll have?
I haven't made that calculation. Normally, we add on 2% units from EBIT to EBITDA.
Quite a lot.
I have to make the math again to just check that, only 2%.
Could you say then in absolute terms, maybe, perhaps, roughly what would be the total?
SEK 150 million is roughly the.
Okay
revenue.
That's all, maybe 2% on sales in SeaStar, so to speak. That's what we should use.
Yeah. You add on, because we already had a
Okay
of 60 or 70 something.
Yeah. Very good. Thank you.
Thank you. As another reminder, if you do wish to ask a question, please press 01 on your telephone keypad now. We have a question from the line of Kenneth Johansson from Carnegie. Please go ahead. Your line is now open.
Thank you. I just have a question on the inventory levels of RVs in the U.S. There have been some discussions in the market that those inventory levels of finalized RVs are on very high levels in the U.S. What are your opinions of this?
I wish that I had a crystal ball. At this point, I do believe that we have, obviously, a gap between our deliveries and the inventories. That is quite clear. What we can do is obviously to be very close. The RV Association in the U.S. is still forecasting a growth, which is clearly lower than we have seen. They are forecasting 4%. Of course, we are watching this every single week, every single month. Of course, that we are preparing ourselves for any kind of event that might happen.
It is not that your customers have asked you to hold back a little bit.
No
because they feel they have too high inventories at the moment?
No. If you look at last quarter's numbers and the December numbers, we don't see a deceleration. On the contrary, we see an acceleration.
Yeah. I would even say it might be, I don't know for sure, but what we have heard also is that some of the customer has problem with supplies.
Yes.
Which means that they can't finalize the work with RVs, which meant that they are sending us the inventory, and then they can't ship it out.
That could be one explanation, we have not seen anyone that asked us to hold him back, on the contrary.
As the season is, that you should sort of build inventory of RVs now ahead of the selling season, I guess.
That's right. What we're also trying to do is then build up, of course, ahead of the Chinese New Year.
Okay, great.
That's the normal thing. I think what we have also done during the loss is to try to have more even development on this. We are not taking down the inventory dramatically at the end of the year because we don't have any covenant issues.
What we then do is to prepare for the season coming up. That's why we are prepared to build up some inventory to be prepared for the moment.
Okay.
I think that one of the things that we need to remember, again, is that we are just now at all-time high in the U.S. The latest peak took place in 2006, the market level at that time was 391,000 units. We are running just now 505,000 units, the expectation for the market is to be on 525.
For us, our interpretation is obviously that our discussion about life way changes are taking place in the U.S., clearly. This market is starting to attract the millennials, the young families, and this is creating a new market. For how long? We don't know. I think that just now it's really to watch very closely and to act accordingly.
Okay. Good answers. Thank you.
We have a follow-up question from Peter Reilly from Jefferies. Please go ahead. Your line is open.
I just wanted to ask two more, please. Roger was talking last year about a contract you won, which isn't in production yet. I think it was maybe two contracts for coolers in either truck for SUVs in the U.S. I think it was maybe some of the first U.S.-made SUVs. Cool boxes between the seats. Can you just tell us if that's still on track? I think he was talking about that starting sometime in 2018. Then secondly, on the European RV OE business, you have been losing a bit of share there, and I know you have had some problems and you've maybe got some dislocation with the restructuring program you're putting through, but can you give us a bit more color on what's happening in your European RV OE business and whether there's anything meaningful happening in terms of market share developments?
If I start with the U.S., this is still on track, but you will not see a big impact of that now. There's some impact of that through 2018, but really it will take off in 2019 and 2020. This is still on track, and that's good things for us to have this kind of cooling compartments coming into SUVs.
Yep.
Now on the-
Yeah. If we move back to Europe and the RV markets, I feel if you look at the numbers that we are getting from the association, it might be that we were losing a couple of years ago, but we're looking at the numbers we have in front of us. We cannot say that we are losing market share. Of course, that we are talking about, on one side, timing. Keep in mind that we are delivering to our customers, and our customers will keep it in their inventories for a while before shipping. That's one effect. The second effect we have is product range. We have different average prices for different products. We have number of units. It might be that we are losing some share in some products while we are gaining some other products.
I don't have any feedback from our organization that we might be losing market share just now. On the contrary, I think if we're looking at the last period, we have been gaining market share.
We have actually turned down some orders, especially when it comes to windows and doors. We have had a very high utilization, all shift plus overtime. We said that we will not take that. We have actually. It will not improve our margin, so we have been tough on that.
Looking at your pipeline of new products, you decided a couple of years ago, or several years ago, to spend more money on product development, rebrand the products, have more sophisticated design. Is that something you see accelerating going into 2018 with potential for more? Because I guess the whole aim of that program is market share gains, better pricing, and a more competitive advantage. Do we see
I feel we have a clear task, specifically in the EMEA region, which is to increase our profitability. Products are crucial both to compete on the market from a feature perspective and entering into new segments, but also from a cost perspective. Our intention is to innovate more and more often, and we will be talking about more features, but we will talk also about less cost.
It's crucial to work on both sides. It's about the top line, it's about market share, as you are talking about, but it's also about, I wouldn't say be more competitive, but make more money.
Okay.
Again, we have a clear target of increasing our profitability in Europe.
If you look at now the design team, if you look at the beginning of Juan's presentation, you see we have got some awards for design, that's not the payoff.
Yes.
What we still have to do is then to be better on pricing and also to be more cost competitive. That's why Juan said it's more of the same, we need to accelerate that.
Yes.
Given the discussion we have had around the leverage in Europe, it's very obvious that we need to accelerate the cost side.
Well, I feel we have a very strong position in many areas or in many products. I am not fully convinced that it is about getting even more market share. I think it is about applying our pricing with the strength of our market position, at the same time, again, as we are becoming a more profitable company.
I was surprised to hear you say that you are going to get some impact from the EMEA cost reduction program already in Q1. Europe is normally thought of as being a region where it takes a long time to get cost reductions to come through. How come you are doing it so fast? I was pleasantly surprised by that.
We are talking about efficiency. Efficiency doesn't necessarily mean just to get people out. It is also about implementing Lean. It is about becoming a more efficient company all over. We are, of course, looking at other costs. Personnel is obviously normally the chunk of the cost, but you have other cost types as well that you can attack pretty fast.
People have actually.
Left already.
already left the company. We were pretty quick on this.
November, December.
November, December, a fair amount of people leaving the company.
Yeah. Well, I look forward to following the progress during 2018. Thank you very much.
We too.
Okay.
Thank you. Thank you. We have a follow-up question from Erik Karlsson. Please go ahead. Your line is now open.
Thanks for taking my question. Just curious to hear how you look at the price to raw materials net impact for the year. You mentioned price increases accelerating in the second half of the year. On the other hand, we see some companies with raw materials exposure having pressure this year. How do you see that balance playing out for you? Is it a net positive, net negative, or neutral for margins this year?
Well, until now, it has been negative.
Yeah.
We have intention of making it positive.
During this year?
Yeah.
Yes.
It depends on how big the increase, but what we have seen so far, we must be able to mitigate the increase that we've seen. Last year, we had roughly SEK 120 million-SEK 130 million in commodity impact, and I think we could mitigate half of that. I think the increase we have seen so far, we must be able to mitigate. We'll see how this continues.
Our discussion just now internally is obviously that we see the commodity prices coming up again in recent weeks, and we will be acting as we speak.
No, that's very helpful.
Yeah.
If we look at last year, sorry, go ahead.
No, what I said is that it is important. In pricing, it's very much about the speed. It's about obviously passing your prices to the market before you get hit yourself. We are watching commodity prices every single week, and we are already having discussions with our own organizations on pricing. Our intention is obviously to be faster than we were last time.
If the gross impact was SEK 130 million last year, if we freeze raw materials where they are today, what is the gross impact 2018?
We can't comment on that right now. Let's see now how much it will be. I don't know if we might have another SEK 10 million-SEK 30 million, something over. That's a qualifying guess. It is also, at the end of the year, you had some of these that also went down.
Yeah.
The US dollar has gone down, then also you had the PMI, which was the biggest one in EMEA, the plastic part. It's not a huge impact so far this year, if it continues to go up, and I talk about aluminum and steel, et cetera, of course, that will affect us.
Let's come back when we see more clear trends.
Okay. Thank you.
Thank you. Any final questions?
I will hand back to you for any closing remarks.
Well, I would like to finalize by stating again that I'm very happy with Q4. I do believe that I got a very good base to start building this company to the next level together with my team. I'm excited about the people I'm meeting. I'm excited about the team, and I'm very grateful for the job that the entire management with Roger Johansson on top did achieve in the last years. Now I think it's for us, extending the company, the opportunity to take this company to the next level. I'm fully convinced that we are going to achieve that. With those words, I would like to thank you all for your presence and for your shown interest. Thank you very much.
Thank you. This now concludes today's webinar. Thank you for attending. You may now disconnect your line.