Ladies and gentlemen, welcome to the Dimetic Interim Report Q4 2017. Today, I'm pleased to present Jan Vargas, President and CEO and Blomqvist, CFO and Johan Lunden, 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 will be a question and answer session. Speakers, please begin.
[SPEAKER JOSE RAFAEL FERNANDEZ:] Okay. Good morning. This is Juan Varadius. Good morning, everybody, and welcome to this presentation of the 4th quarter and full year report for 2017. I'm delighted about having the opportunity to share this first report with the audience.
I have been 5 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, 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 Q4, but also in the entire end 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 brought into this company. And with that said, I would like to move on to the highlights for the Q4.
We had a pretty strong full quarter. Net sales achieved $3,300,000,000 corresponding to 17% total growth, of which 16% was organic, while currencies did have a negative effect of 5 percentage points. And on top of that, we had also acquisitive growth of 6 percentage points. EBIT, this show as well a very good development ending up at DKK 310,000,000 which is about 9.5 percentage and 2 percentage points up from largest numbers. We are going to discuss a lot about RV, I'm sure of that, but the reality is that we had a very strong growth in 7 out of the 8 areas that we are presenting.
And we had also an improved EBIT level in 6 out of 8 business areas. If we move on to the regions, Americas continues to develop very positively. And again, good on the RV OEM, but very positive as well in a number of other segments and showing an excellent development and profitability. If we move on to EMEA, we also had a very good growth in many business areas, but I'm very, very pleased as well with the fact that we 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.
And we ended up as well with a very, very strong cash flow of €536,000,000 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 AEM stood for 17% and OEM for 26%. Looking at EMEA region, a strong 14% in constant currencies with the aftermarket growing 5%. But then we have also to consider we have a very strong project 1 year ago amounting for $29,000,000 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 Cistar 24%, with strong growth both in the aftermarket, including Cistar 33% and the same number for the AM market. But even when excluding Cistar, we had a very strong quarter in AM 14% and 27% for the OEM markets. And then 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 4th quarter, sales did show a pretty strong development 17% in foreign currencies, of which 2% to 3% is in constant currencies. EBIT levels, very positive DKK 310,000,000, a growth of 48% and even more in constant currencies, 69%.
Currencies did have a negative effect as well on our profitability. And then a very strong cash flow, which is 52% up versus last year and ending up at €536,000,000 On the markets, and I will come back obviously to some statistics, but we are focusing a lot on innovation and 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 cook topping in Americas that were launched in December. We also did launch the new Blazing 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. And we're also very positive to see is that even if we adjust the beginning of February, we're starting to get a number of awards. We got 2 awards in the Pacific area for good design and that's an area as well where we have been investing for quite a bit of time. And also the new generation of refrigerators in EMEA was awarded. This is the first product of the 10 series in refrigeration in EMEA region.
If we leave the quarter and move on to the full year numbers, again, a very positive development ending up at $14,000,000,000 which is 13% total growth and 12% organic growth. Currencies didn't have any effect at all when looking at the entire year and M and A stood for 1 percentage point. EBITS ending up at €18,000,000 which is 50% growth and improvement of 10 basis points. When looking at growth, a little bit of the same story as for the quarter, very nice growth in 6 out of 8 business areas and improvement in 7 of 8 business areas with Americas of course benefiting from very high levels on the RV market, but also good development in the RV AM market and a very strong improvement in profitability that has been accelerating during the last half of the year. On the EMEA region, as I mentioned previously, I'm very happy to see that margins are starting to kick in since that scenario where we have been focusing in the last months after a weak start of the year.
And on top of that, as you all are aware of, we also launched an efficiency program in Q3. We are expecting to start seeing results in the Q1 of 2018. APAC, I'm also pleased to see the development. We have to remember that the Australian market is pretty flattish. But at the same time, we are growing rapidly in Asia with China growing over 40% and also rest of the 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 pleasing to see that we ended up 3 acquisitions during the year, Oceaneer in the UK, IPD in Germany and then Cistar in Americas. And it's still exciting to see the Cistar acquisition because of the impact that will have for our numbers moving forward. When looking at the pie chart on the bottom, we see also that even we don'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. So very, very strategic acquisition.
Strong cash flow for the year ended up at 1,700,000,000 and we are proposing or the Board of Directors will propose a dividend of SEK 2.5 which is about almost 11% up versus last year. Moving to the regions, EMEA did have a very nice growth, 15%. And I repeat myself when saying that these projects that we had in EMEA last year had an effect of 7 percentage points. So underlying growth in EMEA was 15% in comparison to the 8% that we are showing for the AM business. At the same time, as OEM was extremely strong, ending up at 23%.
While looking at Americas, 7% on the AM business up, while the OEM went up by 12% and we have seen an acceleration to the second half. So we had a weaker first half on the RV OEM, while the second half has been extremely strong. And then APAC, a 12% growth, totally speaking, with 13% for the aftermarket and 0% for the OEM market. If we try to conclude the year 2017, growth of 13% in constant currencies and EBIT improvement of 15%, heading up at DKK 1,900,000,000 in EBIT and up 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 505,000,000 units. We have to remember is that the latest peak that we have in the market took place in 2006 and the number of time was 391,000 units. So we see still an acceleration and what's even more important is despite the fact that the full year ended up at 17% up, the last quarter ended up at 19%. So we don't see a slowdown. On the contrary, we see an acceleration of deliveries 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're moving over to the EMEA region. Here we are following very, very close a number of associations, local associations and we see especially Germany showing also a very strong acceleration, but we see as well growth in most of the markets. When looking at the total numbers coming from the European Association, a little bit of the same. We saw an acceleration in the last quarter, up 19% in comparison to total year numbers that went up about 13%.
And even here, we have a forecast, which is positive for 2018 of about 9%. If we leave the RV market and move over to trucks, a little bit more difficult, but what we see clearly is an awards trend still today even if it is not strong, but this is another 1% versus the last year numbers. And as you know, this has an effect for our CPV, what we call our commercial passenger vehicle business. And then on the voting 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 Sistar, we will start seeing also growth in the smaller sizes.
And even if the trend looks downwards, we have to remember that we are talking about year on year. So it's still a growth rate of 4.4% versus last year, which is positive. So in other words, of course, that we are following these numbers very, very closely. We are aware that we are reaching all time highs in a number of segments. But at 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'll look a little bit deeper on the highlights, about SEK1.5 billion in revenue in the last quarter with 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 RVAM, in marine, in launching. So altogether, we saw growth in most of the areas in America region in Q4. And again, very, very strong margin improvement. And then last but not least, the acquisition system to be mentioned since it's going to have a major impact for us moving forward. Moving over to the EMEA region, about $1,200,000,000 in revenue in the last quarter with total growth of 15% and in constant currencies 14%.
I'm very pleased seeing that we had a 2 percentage points EBIT improvement, still not where we wanted to be, but a clear improvement in comparison to where we are coming from. Even in EMEA region and even if we are paying a lot of attention to RV, we saw a good growth, a high 2 d growth in many of the segments. CPV did have a very strong growth on the OEM side and even marine had a fantastic growth. As mentioned previously, we have been working on the pricing, we have been working on efficiencies and our expectation is that we will see improving margins moving forward as well. And on top of that, we have the efficiency program that we launched in Q3 that will start kicking in, in Q1 2018.
And then finally, the APAC region sales of about SEK0.5 billion with a total growth of 10% and in constant currencies 15%. EBIT coming down, A couple of reasons for that. One is, again, that we were slow in terms of increasing prices when the raw material prices started to kick in. But at the same time, we have a clear 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. And I repeat myself, China went up for us over 40% last year and the rest of Asia almost 20%.
So that has an impact on our numbers. With those words, I would like to give the word to Ferranil, please.
Thank you very much, Juan. Summarizing sort of the year and perhaps also some years, back, Domestic has had a sorry, yes, moving the microphone. So hope you can hear me. We have a good development of the Domestic Group. We have now reached more than SEK 14,000,000,000 in sales.
And if you compare it to SEK 15,000,000,000, we were down at SEK 11,400,000,000 and even below SEK 8,000,000,000 if you go back to 2013. So we have been growing the company in a pretty rapid way. Adding on Seastar means another SEK 2,500,000,000 at the top of this. EBIT has also increased, coming from roughly SEK 1,400,000,000 in December, 2,005, and we are now coming close to SEK 1,900,000,000 Operating cash flow continued to generate in a good way, a bit above SEK 1,500,000,000 EBIT margin, however, has been under pressure during the last 12 months, and we had a downturn starting 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 Harald said, we react a bit late on this. But now we have regained a momentum to be able to work towards our target 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 the different markets. U.
S. Has shown the sort of weakest development. We have rather good development, but a small market in APAC. However, some of these businesses, as we have said before, is low margin. We're trying 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 Win 16 has 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 ROE market close to 9 and also acquisitions. This will be a business for us.
We will be closing to and also acquisitions. This will be a little bit of business for us. We will be closer to SEK 4,000,000,000 going forward. So 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 in especially in the retail business, both in APAC and particularly in the U. S. The cooling box activities that we have initiated started the year result 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 were above 11%. We have worked hard with the profitability, but it flattens between the year very much depending on the commodity pricing that I mentioned before. But we have also had impact from our class action, and that is roughly, I will say, €55,000,000 in 2017. It was more or less the same in 2016 as well. But this 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 can 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 strong, 33% up compared to last year and earnings per share have exceeded SEK 5,000,000,000 ended up at 5,000,000,000 to 5,000,000.
Juan talked about the impact from the currencies, and I will not repeat too much of that. But you could see that in the Q4, we had a translation effect of minus 5% on leases, especially the weakening of the U. S. Dollar that had sort of the biggest weakening in the 4th quarter, small strengthening of the euro. And if we take down the full year, you could say that we have more or less a flattish sorry, we are flattish on translation where USD is minus EUR45 1,000,000 and EUR has been strengthening.
But that you can see that the impact from the currency movements came in the 4th quarter. If you look at the regional results, Johannes talked about that before, but we are happy to say that we see strong improvements in the Americas. And if you take away the class action, they would have come closer to even 15% in margin. All three regions have shown double digit growth. We have seen double digit improvement of the EBIT in absolute terms, slightly below in APAC.
And this is the reason also what Trond explained earlier. But it has been a change during the year. And if you look at the FX margin development, we started off the year with being behind 1.2% units in the Q1. We were 0.4% behind in the 2nd quarter, but then we have regained momentum. And the activities that we have put in place during the years and start now to see the effect, and I will expect this also to have a rollover, positive rollover effect in the coming year.
The Q4 had some items affecting the comparability. We have been we have press released most of this. This is well known, but I will anyway repeat this. We had reimbursement, which was positive of SEK 28,000,000 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 any forecast around the cost levels each quarter on the transaction. I think that will be minor. And we will also see later on that the activity level right now is rather low within the transaction job.
We also had other effects on EBIT. We had the cost for the EMEA profitability program, EUR 61,000,000. This will help us to raise the margin with 2 percent units during the coming 2 years. We had acquisitions cost of close to SEK 7,000,000, 58,000,000 for the acquisition of USD 875,000,000 Seastar. So that's sort of the cost for doing this bigger acquisition.
Now we have spent quite a lot of time on taxes, and I think we are not the only company that have been doing that the last months. For us, has been a bit more cumbersome given that we closed the deal with C Star, the 15 December. We had the tax reform coming in the 22nd December. But the effects of this was basically positive. We had a small negative revaluation of our tax assets with the effect of the cost of penalty medium, but we had a positive effect with tax liability revaluation of close to SEK 300,000,000.
These two items will not have any cash effects in a short term perspective. If we then look at the earnings per share, you can see that all these activities around the taxes makes the tax rate a bit awkward in the Q4. But 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 or tax orders in Germany, Slovakia and also Italy. And then we also had smaller effect also from the Caesar acquisition that came in later than we have sort of press release. And all in all, I think we have one off effects of SEK 50,000,000 to SEK 60,000,000 on the taxes and tax payments. Coming into CapEx and our investments. We continue to invest in the company, and we are around the 2.5% to 3% in CapEx and I don't foresee any change of this level in the coming year.
The same goes for PMI, where we're often now at 2.5%. I will say that some of it is 2.5% to 3% goes for both CapEx and PMI each going forward. Working capital, as I mentioned, down to 22.3%. We will have sort of consumption of working capital in the Q1 also in 2018. This is the trend that we see.
And but 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 2,600,000,000 up to SEK 3,400,000,000, a pretty big increase, but this is also affects overseas to our acquisition where you have close to 600,000,000 in oil coming from the acquisition. But also the goods in 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 outsourcing internally, especially when it comes to refrigeration, to sell or to produce in China and then sell in the U. S. And this gives us more tied up capital for 5 to 6 weeks when we have all these goods on the water. Finally, then cash flow. As you see, it's a strong quarter.
We have a cash conversion of SEK 134,000,000 for example, which I think is very good. We are up, which shows at SEK 200,000,000 compared to the quarter in 2006 in the Q4 in 2016. And we are happy to see that we continue to again raise cash. And if you then look at the leverage level, if we had not made the Sysco acquisition, we should have been down at 1.0, which would have meant that from the IPO where we started at to the 75, we have taken it down. It includes down to 2 years with 1.75 notches, which means that we have a good cash generation.
I don't foresee any change on that trend going forward. And that will be good for us to continue to generate cash to take down leverage, but also to create opportunities for further acquisitions. If we then look at the dividend, we have we will propose to the AGM that we will increase the dividend with close to 11% up to 0.5%, as Juan said before. This means 40.5% of net profit, which means that we are well aligned with the targets the financial targets that we have set up. You could also see that the share price and the domestic share has sort of gone up with 25% during 2017.
Finally then looking at the financial targets. Yes, we have reached the net sales growth. We are above the 5% that we have as a mid- and long term target. The net debt or the leverage is up to 3.3%, but underlying, we should have been at 1%. So we are and we will come closer to 2.5% during 2018 and come close down 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 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. And we are now looking at what will happen in California.
It will either continue in California or we're trying to transit to Florida. But for the time being, we should expect a very low activity level, and we will come back when we know more about this. But so far, we have not made any settlements and we have got our case right in all instances that we have been sort of proceeding. So,
thank you. Thank you, Beranje. So, summarize in 2017, very strong organic fleet growth of 12% driven by the RV market. That's true. But we have to keep in mind that we had 5 out of 8 business areas showing high 2 digit growth during the year, which is very, very strong.
Improved profitability, 15% up versus last year with good efficiency improvements in Americas and starting to see clear improvements as well in EMEA region. 3 very important acquisitions for us that are giving us even more presence in the marine area. So we have Cstar at the end, but we also had Oceane Air at the beginning of the year. So getting a pretty strong position and mitigating obviously our exposure to the RV markets. And 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 pro development, we have seen a number of pro launches during the last month and we will see more pro launches coming forward. Something that we are not talking a lot about, but this also is 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, 90% up.
We had CIS, very high numbers. Africa, they're doing very well. So 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. And then as you are all aware of, I came into the company or joined the company on the 8th January this year.
When looking into 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 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 Cistar acquisition, we went high and we have all the intentions in the world to come back again to the levels that we have before. We are proposing a dividend or the Board of Directors is going to propose a dividend of DKK 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.
And with those words, I would like to initiate the session for Q and A.
Thank you. And our first question comes from the line of Erik Karlsson from
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?
Sometimes during the year.
Okay. And just to follow-up on that. Is that then as a 12 month because there's seasonality in this business, should we then think about it as the 12 month run rate backwards? Or how should we measure your success?
Well, I think you have a number of factors playing in obviously. I mean, Cista 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're working with pricing, we saw an acceleration on price increases during the second half of last year. And we understand as well that raw material prices are starting to move outwards and we will act accordingly.
So our estimation just now is that at the end of Q3, we should be starting to get very close to the 15%.
Very good. And maybe one question on North America. You had 34% RV OEM growth there, which is sort of an astounding number and as you pointed out an acceleration. Is there any type of one offs or anything unsustainable in that number that you would like to point out just when we make our forecast going forward?
[SPEAKER MARTIN PEREZ DE SOLAY:] Well, we see that some of our competitors are having progress on deliveries, and we have been benefiting from that. But even when excluding those numbers, we see a very positive trend. We have clearly taken market shares in the last 6 months of the year.
Per owner, Eric, I mean, it's nothing that we have some extra orders. I mean, it is as Juan said, it's a very, very strong underlying model. So we don't have any explicit sort of extra orders. It's just a very strong model.
Very good. And also on the EMEA restructuring program, and I think it's fair to say that you have seen a few restructuring programs over the years, Juan. So you're well placed to comment, I think. Could you just help us understand how you look at this program because it was initiated before you joined? How does it look in terms of scope and how is it going in terms of progress?
Well, we have seen the program was launched in Q3. Obviously, the work was initiated early on that, which means again that we see that we are in line with our expectations and we should see starting to see effects in Q1. A number of people have already left the organizations and some more people will be leaving now in January February. So again, I see a good progress and we are totally determined
to deliver what we have said. And it is not an SG and A program. It's a cost reduction program. We're looking both at production and SG and A and then overall to sort of cost.
Efficiency, that's why we call it for efficiency program.
Exactly. So it's so 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 in line. It's in line. The other thing is it's in line. We have said that we have 2% units during 2 years.
Okay. And last question. Sorry for so many questions. But on M and 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. But first of all, we have to manage the 1st 4, 5 months where we have dividends to pay a surplus. So we will not be sort of in rush away. But I mean what we're looking at is strategic good M and A activities and that's what we're aiming for.
And as you all know, acquisitions, they don't happen overnight. So it is quite clear that we are working actively is we are in the kitchen, but at the same time we have to deliver the first half. Yes.
Very good. Thank you so much.
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 domestic plan. 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.
So what do you see as the most important priorities you're facing for the next 6, 12 months for the group? And then I wanted to follow-up on that, just coming back to this issue of U. S. RV OE with fantastic growth in the Q4. 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. And working very intensively just now. And the management of the company has been doing a terrific job preparing this company in the last years and we see that in the performance improvements.
And of course, that after 5 weeks into the job, I see a number of opportunities, but you could say exactly the same in every single company, right? I mean, it's about keep on growing the company, it's about accelerating innovation even more, it's about looking at your costs. Growing the company cost money that's why we need to look at the cost all the time so we can finance our growth. And on top, if we want to do acquisitions, we need to be fit for that. So I guess, I mean, 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. And then on the second one, on the market, could you please repeat the question again?
It's the U. S. Market. So I mean the 33%, I mean we have had I mean we have the opportunity to given the sort of good growth in the U. S.
To take on more orders. And as I said in representation, that means that we're also shipping in from China. And that gives an opportunity to take orders and regain shares. And we have to remember that we were at the starting of this year, we were behind on shares, both on the capital refrigeration and partly also ACs. But given our possibilities to actually produce in China, we are now regaining momentum on this, and that's what we see right now.
But it also ties up more capital, but it is for good sake. So it means that no one else can produce and we can't and that's how we're taking factory years.
So, two phases in reality. First half, we were below. We were losing a little bit of share. 2nd half has been terrific and regaining and even more than that on the American market.
Good. The cash flow was. And given you've got very strong growth in the quarter, given your positive for next year, I expected a bigger working capital build. So what's happening? Are you getting more efficient at managing your inventories?
Or 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?
But I think we have learned the hand a little bit. Are we still good? No, we are not. I mean, we still have an addition to take it down to closer to 20%. But I think it's we have handled it slightly better.
So I'm happy to see this down from given also that we are shipping much more from China because that has been the without that, I think we are taking it down more. But for me, it's I mean, given the cost of capital that we're having, given the opportunity that we have in the most, I think it's right to think actually have a slightly higher inventory so to be able to sell the markets.
And just one last and quite boring question. We've seized a 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. So can you give us some guidance on what the drag is going to be for Americas with the C Star in terms of amortization?
I think it will be roughly another €150,000,000 per year in intangibles or depreciation. So that will be a part of the sort of customer relation, etcetera, so that we add on to what we already have today. So that will be a part of the amortization line.
And you'll be reporting your EBIT before items affecting comparability after this additional €150,000,000 or so with the amortization?
Yes. They will be part of the normal amortization. So there will not be enough, yes. Okay. Because we have that also for Atwood, for example.
So that will be included in that.
Yes. Okay. Thank you very much.
Thank you. Our next question comes from Rasmus Enberg from Handelsbanken. Please go ahead. Your line is now open.
Yes. Hi. Good morning or good day maybe even. Can I ask on you're talking a little bit about the next step, so to speak? Do you how do you think about that?
Is it a much larger company or would you think it's a much more profitable company?
I think both. We want to be an end company. We want to grow and we want to make more money. So 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, very good at running your cost. And I see obviously potential in both areas.
Yes. And Rasmus, if you just go back to 5 years, I mean, we have increased the top line with 80% the quarter. We have increased our profitability with 95%. I think that's a good combination. Absolutely.
We will look at going forward and try to repeat.
So I think we have a great base, yes.
Yes.
And just coming back to Peter's question earlier about depreciation and amortization. If we take a 15% EBIT margin, what roughly does that imply in terms of EBITDA now with C Star coming in both with, I assume, assets but also, to a larger extent, the acquired intangibles? Roughly, how many percentage points of D and A do you think you'll have?
Well, I haven't made that calculation. But normally, we have add on 2% units from EBITDA to EBITDA. That might be quite long. But I have had them make the math together check that, but normally it's 2%.
But could you say that in absolute terms maybe perhaps roughly what would be the total?
€150,000,000 is roughly
the total. Okay. And that's all. And then maybe 2% on sales in 3 Star, so to speak.
That's what we should use.
Yes. And then you add on because we already had in cash flow of 60 or 70 something.
Yes. Very good. Thank
you. Thank you. And we have a question from the line of Kenneth Johansen from Carnegie. Please go ahead. Your line is now open.
Yes, 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, very high levels in the U. S.
What are your opinions of this?
Well, 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's quite clear. And what we can do is obviously to be very, very close. The RB Association in the U. S.
Is still forecasting a growth, which is clearly lower than we have seen. They are forecasting 4%. And of course, we are watching this every single week, every single month. And of course, that we are preparing ourselves for any kind of event that might happen.
But it's not that your customers have asked you to hold back a
little bit because they feel
they have too high inventories at the moment?
No, I mean, if you look at last quarter's numbers and the December numbers, we're going to say we don't see a deceleration. On the contrary, we see an acceleration.
I wouldn't even say that 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, so which means that they can't finalize the work with RVs, which meant that they're sending us the inventory and then they can't ship it out. So I don't that could be one explanation, but we have not seen anyone ask us to holding back on the contrary.
And then as the season is that you should sort of build inventory of RVs now ahead of the selling season, I guess?
Yes, yes, that's right. And what we also try to do is then build up of course, have a Chinese New Year. But that's the normal thing. And I think what we have also done during the last is then 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.
So when we do is we have to prepare for the season coming up. So that's why we are prepared to build up some inventory to be prepared for the market.
Sachin? 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 and the market level at that time was 391,000 units. We are running just now 505,000 units and the expectation for the market is to be on 525,000 units.
So for us, our interpretation is obviously that our discussion about lifetime life wage changes are taking place in the U. S. Clearly. We are starting or these markets are starting to attract the millennials, the young families, and this is creating a new market. Then for how long?
We don't know. I think that just now is willing to watch very, 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 now open.
I just wanted to ask 2 more, please. Roger was talking last year about a contract you won, which isn't in production yet. So I think it was maybe 2 contracts for coolers in either trucks or SUVs in the U. S. I think it was maybe some of the first U.
S.-made SUVs with 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. And then secondly, on the European RV OE business, you have been losing a bit of share there. I know you have had some problems and 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. Sale, well, this is still on track, but it is whether you will not see a big impact of that now, there will be some impact of 2018. But then really, it will take off in 2019 2020. But this is still on track and that's good things for us to have this kind of cooling compartments coming into SOVs.
SOVs.
Yes. If we move back to Europe and the RV markets, I feel that if you look at the numbers that we're 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, 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. So it might be that we are losing some share in some products, while we are getting some other products.
So I don't have any feedback from our organization that we might be losing market share just now. On the contrary, I think when looking at the last period, we have been gaining market share. And
we have actually turned down some more especially when it comes to windows and doors. So we have had a very high utilization for ship costs over time. We said that we will not take that. So we have actually it will not improve our margin. So we're going to tap on that.
And looking at your pipeline of new products, you decided a couple of years ago or several years ago to spend more money on product development, rebrand the products and have more sophisticated design. Is that something you see acceleration 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. So do we see
Well, I think 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. So 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. So 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. So we have a clear target of increasing our profitability in Europe. And if you
look at now the design team, I mean, if you look at the beginning of past presentation, we still have got some awards for the design, so that's going to pay off. Some of what we still have to do is that will be better on cost competitive. That's what we that's why I found it is more of the same. And we need to accelerate that. And 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'm not fully convinced that it's about getting even more market share. I think it's about applying our pricing with the strength of our market position at the same time, again, as we are becoming a more profitable company.
Because I was surprised to hear you say that you're going to get some impact from the EMEA cost reduction program already in Q1. I mean, Europe is normally thought of as being a region where takes a long time to get cost reductions to come through. So how come you're doing it so fast? I was pleasantly surprised by that.
Because we are talking about efficiency. So efficiency doesn't necessarily mean just to get people out. It is also about implementing lean, it's about becoming a more efficient company all over. We're of course looking at other costs. I mean, personnel is obviously normally the junk or the cost, but you have other cost types of weather you can attack pretty fast.
But people have actually already left the company, so I mean we were pretty quick on this. So they November, December, yes. November, a fair amount of people leaving the company.
Yes. Well, I look forward to following the progress during 2018. Thank you very much.
We'll see you. We'll see you. We'll see you.
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. So you mentioned price increases accelerating in the second half of the year. On the other hand, we see some companies with raw materials exposure having pressure this year. How do you see that balance playing out for you?
Is it the net positive, net negative or neutral for margins this year?
Well, until now, it has been negative. Yes. But we have the intention of making it positive
during this year.
Yes. But it depends on how big the increase, but what we have seen so far, I mean, we must be able to mitigate the increase that we've seen. Then Last year, if you say, we have roughly €100,000,000 to €130,000,000 in commodity impact, and I think we could mitigate half of that. But I think the increase we have seen so far, we must be able to mitigate. But then we'll see how much how this continues.
I mean, our discussion just now internally is obviously that we see the commodity prices coming up again in recent weeks. We will be acting as we speak.
No, that's very helpful. If we look at last year sorry, go ahead.
No, what I said is that it is important in pricing is very much is about the speed. It's about obviously passing your prices to the market before you get hit yourself. So we are watching commodity prices every single week and we are already having discussions of our own organizations on pricing. So our intention is obviously to be faster than we were last time.
And if the gross impact was €130,000,000 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 what how much it will be. But it's I don't know if we might have another €10,000,000 to €30,000,000 something lower. That's the qualifying guess. Because it is also I mean, you had some at the end of the year, you had some of these that also went down.
So the dollar has gone down. And then also, we had the PMI, which was the biggest one in EMEA, the plastic part. So it's not a huge impact so far this year, but if it continues to go up and the Nomadoma and Steel, etcetera, of course, that will affect us. But let's come back and we'll see more clear crumbs.
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, very grateful for the job that entire management with Robert Johansen on top did achieve in the last years.
And now I think is for us, expanding the company, the opportunity to take this company to the next level. And I'm fully convinced that we are going to achieve that. So with those words, I would like to thank you all for your presence and for your strong interest. Thank you very much.
Thank you. This now concludes today's webinar. Thank you for attending. You may now disconnect your