And gentlemen, welcome to the Domestic Interim Report Q3 2017. Today, I'm pleased to present Roger Johansen, President and CEO Per Arne Blomqvist, CFO and Johan Lundin, Head of Investor Relations and Communications. For the first part of this call, participants will be in a listen only mode
This is Roger Johansen, NPR, calling in for the quarter 3 results 2017, and we'll do like that all the time. We go through the material and then take Q and A. So if we summarize on the Q3 highlights, I think all in all, I think it's a good quarter. We have good organic growth, and we have growth in all regions. We have decent leverage with 18% growth on EBIT.
We have 7 out of 8 businesses on the global level with improved margins. Going over the regions, the highlight and the star in the quarter is Americas. We'll go through that in more detail later on with all over the line, let's say, a very strong quarter, I would say. EMEA as a mix, I mean, it's the good thing is that we start to see a slight change in the margin development moving in the right direction. Still, it's under par what we what you should expect from the region.
But there is a very strong OEOM effect in EMEA, but we have also improved SG and A, and we'll talk more about the EMEA in later on here. We will do some more efforts around profitability. So we have called it a program. You shouldn't see it as a restructuring program. It is the management in EMEA seizing the opportunity.
We're making some organizational changes, and we see the opportunity and the need to take out people. Turning on APAC, I think it's an okay quarter. As we always have told this margin can go up and down. I think we have double digit growth in small markets, and we have a very strong situation in the Australia RV market. But we have mix effect that drags down margin.
We have a very strong core business right now that is under core margin wise that we are addressing as we speak, which is hurting the quarter. Consolidation in China that we had announced earlier, which gives us 166 €1,000,000 month on effect here that you obviously need to take into consideration. We have strong cash flow, and we have obviously low continued leverage. What should be mentioned, I think, is that we did lose production in this quarter. We had a lot of weather incidents.
We had our Pompano Beach facility in Florida lost 3 days of production in the month and also a typhoon hit our Zhuhai factory that took down that plant for roughly 2 days of work that should be considered. We have estimated that effect of roughly €10,000,000 of EBIT. If we go to the trends, I think that all arrows goes in the right direction. 11% growth in comparable currencies on sale and 18% improvement in EBIT on comparable currencies. Cash flow, EUR 66 $7,000,000 is good.
Pia will go in more in details. But strong result and also good management of receivables, I think, is are the 2 main highlights there. So trends are in the right direction. So let's take a look at the markets. We go to the RV.
Start with the U. S, which continues a very strong trend. This is a very, very strong curve. We need to change now, I think, the y axle here soon. So rolling 3 is up 20%, year to date, 15% and an LTM of 16%.
U. S./North America is fast moving towards 500,000 shipments here. And I think that continued growth is expected next year. We say this all the time. We do not think it's going to be this strong.
It's going to be clearly more in the lower single digit numbers, maybe 3%, 4%. But we have said that now for some years, and it continues to be very strong. The sentiment there is optimistic, to say the least, for the industry. The Europe RV market is also continuing well. We had very great reception for the industry at the Dusseldorf show, which is the largest RV show in the world actually and had very good visitors numbers and also extremely positive, let's say, sentiment from the manufacturers, dealers, suppliers, what have you.
Rolling 3 months up for the main markets of 17% and an LTM of 10%, and you can see some of the markets with, obviously, as always, Germany being the locomotive here. Continued consolidation in Europe with Triggano now having clearance from competition authorities to take over Adrian, which has been known now for quite some time. Good market. Moving to Trucks. I think the growth rates in Europe are not that strong, but when you listen to the truck manufacturers, it's more optimism than what we see here in the market.
So rolling 3, actually no growth, but year to date is 3 and LTM of 3. When it comes to U. S. Trucks, I think we see some lightening there actually versus the market in the past couple of years over there. Go to U.
S. Powerboats. It's a curve that is continuing to have growth. It's an industry that continues to have growth with 3.5% LTM. It's moving downwards, so growth is going down a little bit for this type of boats.
There is still growth. There is some shift in the market, long term shift to outboard engines we see, but that won't hurt the upper yachts that you see here on the chart. And as always, we tell you that our soft spots is more in the mid and larger yachts here. Enquip, by the way, should mention that we you will see some effect from the hurricanes in the boat market in the U. S.
It'll be temporary as always, but we saw it at earlier hurricanes, and it was quite some damage being done on boats after this terrible hurricane season over there. That takes time. There is insurance companies involved and things like that, but I think we're going to see that coming here starting early next year. So let's move to the regions. I think that the star in the quarter is Americas, which overall has strong result over the line.
Sales growth organically of 15%, margin increase to 16.5%. And if you would back out the legal costs, they're at 17.2%. I don't know, but I don't think we have ever been at this type of level, but we're moving improved margins. Also very encouraging is to say that we're outperforming the RVOE market now. We've talked about that in the past that we have put actions together to do that, and we're seeing very good developments in terms of RVO we share.
So we have you recall that I said some 20% growth in the market, and we're running at 30%. We're strengthening our marketplace and now we're taking share. I think that all in all, the work in many areas is showing effect now. We have worked hard with our logistic capabilities. We've taken down cost in the distribution.
Long mid term, we have also worked a lot with long mid term, we have also worked a lot with the positioning of our business in the U.
S. As you recall, we have divested dog businesses, and those were the right decisions
to take. We have worked strongly on product and quality, and you see that paying off now, also helping our position in the market. So continued efficiencies overall will move this in the right direction. More importantly than this quarter is that we're securing a strong 2018. We're having a situation in the U.
S. Where we have the opportunity to utilize both Chinese plants capacity and U. S. Plants and capacity to feed the market in a very high capacity utilized situation right now, which is also good for us. The RV market is approaching 480,000 units in 2017, just as a reminder.
So all in all, I have to be very positive and optimistic also for the next couple of years coming up here for Americas. Well done. We said we're a product company. We said we should also once in a while show a little bit what's going on, on product. But we also promised you last quarter that we would say a few more words about the mobile cooling situation in the U.
S. As you have heard us say, we love this product. It's growth. We have grown the company's sales of mobile coolers some 40% over the past 2 years, 2.5 years, and we're selling some 1,400,000 units. Put that in perspective to the U.
S, where we're coming from basically nowhere, we have sold 16,000 units roughly year to date, and you can see that we're hovering now around 60,000,000 second sales, but very strong growth rate. So for the doubling of the mobile cooling business, U. S. Will contribute very strongly in the next 2 to 3 years. And we were excited here the other week when we saw headlines from tests where it said that domestic is the Michael Jordan on mobile cooling.
I think we start to make a buzz over there about non ice cooling. So we're very and we have now a strong team in place finally that will build this growth going forward. So if we move to EMEA, EMEA has started to move in the right direction slowly in terms of margin because margin has been the discussion here with you guys. And obviously, they're working hard to move in the right direction here. Sales were not so strong, mainly affected by a couple of things.
I mean, first of all, you need to recall that last year, we had a very strong CTV aftermarket business because we had the opportunity to have a very big order from 1 of the biggest car manufacturers in the world in Europe that refreshed their units in all basically workshops in Europe. That was a big business that is that we're not having this year. That should be known. Secondly, the aftermarket business was dampened in the quarter. If you compare now, we see we can conclude that we had a very strong in selling in the early summer, and we had bad weather making the our customers to manage their inventories in a way that the aftermarket sales were quite dampened.
When we look at the margin, the gap is smaller versus the comparable quarter last year versus quarter 2, closing in slowly, but it's moving in the right direction. It's clearly affected by mix, by commodities and by the weather, as I said. I think that we see strong growth in all OEM businesses, and that gives the mix effect. I think this is the if I may say, the worst, to use that word, mix in all the 3 quarters so far this year. Despite that, it's we are closing in on the margin side.
When we say profitability program, the management there has taken the opportunity to launch more initiatives to accelerate the margin improvement. So what we're doing here is that we're doing a reorganization down there. We're seizing that opportunity. We need to take out more people and to take out people in terms of overheads, so to say. And we're going to do that.
We have now a good, let's say, one off from the sale in China. We take opportunity also to use some of that money. We're going to spend some €5,000,000 to €6,000,000 in taking out people in high cost countries here. The target of that program is to improve the margins with some 2 percentage units on top of, let's say, the normal activities. And this is, of course, to accelerate their move towards their financial targets but also the group's financial targets.
I think enough said about Europe. All in all, I mean, we will keep very strong position there, and we're doing well in the RV market. And you're going to see here, I think, aftermarket is performing better here as we move on. One product also on the EMEA side. On the next page, you see its control panel.
I mean, this is something that we've launched at the digital trade fair. It is truly to do mobile homes smart. This is a solution that makes you utilize and use and manage all most applications you have in an RV over one single device. And I think that we have with this display and this solution together with Ozen Up clearly launched the most modern and user friendly solution that is out there. So I mean it was well received at the show.
It's an open architecture, which means that we also welcome competitors' appliances into our system, which is normally not the case, And that is also well perceived by our customers. So we're moving slowly towards connectivity also in domestic. So let's move to APAC. I think APAC, we can conclude to say okay. Organic sales is strong, but the mix is hurting us.
I mentioned initially that we have a core OEM sales in China that has ramped up quite significantly at the growing margins. Things have happened there, and we they are clearly under power. Chiling with the management over there, they take action here. So we're going to partially exit if necessary or make sure that these margins on the car side goes up. That is hurting the region.
And that is also a big piece of that growth is coming from that, and that is also diluting the margins. I'm not overly concerned about that midterm, but right now, it's a little bit showing effect in the region. The Australian Army market, which is the most important market for the region, is very encouraging. We continue to have the team down there selling new products, and we're doing very well in a not so strong market in terms of growth, but we are doing well down there. Just as mentioning, Japan, up 21%, good we have good positions down there, and we continue to move this market upwards, which is very encouraging.
And China is up 30%. The aftermarket growth is 14%, driven mainly by retail and RV markets. So I think that's it for now. I think that the team is also contributing extremely well for the group when it comes to operations and manufacturing product for the rest of the world here. So very busy quarter also for Asia Pacific.
They have also developed and launched a beautiful and fantastic and very practical solution in terms of cooking and the cooking experience if you're an RV, and it's a slide out kitchen that is not only beautiful and user friendly, but it's also very light. It's roughly half of the weight of what most of the competitor solutions are about. And this, together with the CFX box with similar design, is obviously a very nice solution for RVs moving forward, very well received by customers also in Europe, by the way. So one of the examples of smart innovation. Okay.
I've talked a lot. I will move over to my partner, Craig, Veronert, to talk more detail about financials.
Thank you very much, Roger. If we then turn to the domestic group trends, I will say that the overall look positive. But if we start with the sales, we have now reached about SEK 13,500,000,000 in rolling 12 months. And that is you can compare with September 2015, where we were below 11.5%. So we are growing the company in a good way.
You could also see that on the EBIT where we are at 17.59 for rolling 12 months, also becoming a bigger company and also operating cash flow now above 1.5 €1,000,000,000 on a 12 month rolling basis. Margin, as you can see, has been under pressure for the beginning of this year and has sort of flattened out. And now we start to see a rebound on the margin. And the ambition for us is to make sure that we are growing the margin up towards the 15%, which is our midterm financial targets. Looking at the different business areas development.
We have 3 out of 4 businesses where we see double digit growth. If you take the RV business, this quarter has been extremely strong on the RV OEM, where we have seen plus over 20 plus percent in growth with an aftermarket more or less flattish. And that is what also Roger had mentioned about the mix. And that's it's positive on one hand side because it's growing our basic business, but it's partly hurting the margins in a short term perspective. But over time, this is very good.
If you look at other growing with 21%, that's the retail business above water growing in this quarter, growing with 23%, driven by good growth in Australia and also in the U. S. If you look at the key ratios, you can look at the organic growth that has established itself now this year above 10%, 10.7% in the quarter, 10.2% year to date. And that shows that we have a good underlying business now overall in the group. EBIT margin has now improved in this quarter, going from 13.6% up to 14.2%.
And we're now getting closer on the EBIT rate numbers to the margin we had before and last year. And we are now close on the last 12 months compared to full year. And the ambition is then to be at least at par with the margin for last year. Core working capital, a bit on the high side, I will come back to that later on, driven by partly inventory. Return on operating capital now above the 35% during the IPO process.
We said that we should be between 35% to 40%. We have had a slight down to now for a while, but now getting back on track again with returns on the working capital. Now you can also see that the cash flow, as Rod had mentioned before, is solid and earnings per share good in this quarter, EUR 151,000,000, partly also then impacted by the one offs. If you look at the net sales and also the impacts from our FX, on the translation side, you could see that we have a 3% negative impact, especially driven by a weaker U. S.
Dollar compared to the Swedish krona. And the translation effects are sort of bigger than the transaction effects. Transaction effects for this quarter more or less neutral. If we look at the regional results, Roger have mentioned this, but just a brief overview of this. All three regions have a double digit growth.
You can also see that Americas is really improving good on the EBIT side. If we exclude their the class action costs for this quarter, it would have achieved 17.2%, as Roger mentioned before. You could also see that EMEA having a better leverage in this quarter, 10% up on sales. Meanwhile, the profit is increasing with 9%. Year to date, you can see also good growth in EMEA, Asia Pacific.
We are catching up in Americas. And once again, Americas margin is impacted by close to €70,000,000 of Global Action costs this year. And excluding that, they would have been at 16.1% in margin. If we then turn to the P and L. We had discussion around our SG and A development after the Q1.
And we also said at that point in time, we should now address this, and we started to do that in the Q2. And now you can see also that our costs are, I will say, well in line with last year despite the fact that we have been growing the business. So SG and A is down to 17.2% compared to sales versus 18 point 8% last year. So the question around SG and A has been addressed. And we continue to work very hard on this in all different regions.
Earnings per share, I mentioned before, €151,000,000 compared to €105,000,000 Important to note is the tax rate. The total tax rate is 24%. And now with what we have said, tax paid are now at 5%, which has done well below the 10% that we set as the benchmark for this year, which, of course, positively impact our cash flow. If we then look at CapEx and PMI, we continue to invest. We should have high investments in the 3rd Q4.
That's where we have the time to invest, where we have lower loads in the factories. And in this quarter, we're up to 2.4%. We continue to invest in our products, 2.2%. So all in all, we're keeping up the level of what we have said and also what we have showed before. Working capital.
I think it's a good quarter in the sense compared to Q3 last year and also Q3 in 2015, sort of the best third quarter for the last 2 years. Still, we are on a rather high level with the 22.6%. And this is basically, if you turn to the page where we look at the working capital divided, the inventory remains at 2.7%. It is lower than it was in the Q1. And we I think we have a good development when it comes to the fast and normal moving stocks.
However, the very high, I will say, market and the requirement for the market in the U. S. Makes us then to also turn to China, ACs, air condition and also refrigerations are produced in China. We are selling that from China to U. S.
And that takes 6, 7 weeks. So what has actually increased is then the goods in transit, and that's an effect of a positive market development. U. S, there are high utilization loads in all factories when it comes to refrigeration, not only for us but also for our competitors. And one reason for us to be able to take market share is that we can offload the factories in the U.
S. And actually all from China. So that's positive for our market share. But in the short term perspective, we will have somewhat higher inventory. I'm still positive that we will take this down over time, but we have also said that we will make sure that we could sell to our customers and also make sure that we have the right products in the inventory.
Mentioned the cash flow before strong, and it has been a strong quarter, and we should also expect a strong quarter in Q4, which we usually have. And that creates a good leverage. We are now down to 1.3% compared to 1.8% last year at the same time. We're having now cash in hand of roughly 1,800,000,000 and our net debt is down to SEK 2,600,000,000 If we look at the Q4, we usually give some guidance upon what will happen there. The class action, the legal fees, we believe that it will be approximately around €50,000,000 As always, this is depending on somewhere between €5,000,000 to €6,000,000 will be booked, and that will be booked in items affecting comparability.
So that will not hit the normal EBIT result. Update regarding the U. S. Class action complaints. Ronn, yes, would you just comment upon this?
Thank you, Piotr. The proceedings on the class action are pending. We've talked about it before that we had positive signs in Florida where it was dismissed. But still, this process is ongoing, so we'll continue to focus on it. We are very firm in our position that these allegations in this case are without any type of merit.
So I think that we're encouraged about the work going on. We're also negotiating with our insurance company now very concretely for coverage of the incurred and the due to the funds costs. So more to come when we have more concrete things to say about that.
And finally, from my side, the financial targets. We have mentioned the sales growth at 10% organically, well above the 5%. Net debt to EBITDA below the 2%. And we have not changed changed our dividend policy. And the EBIT margin now at 14.4%.
The aim is then to reach the 50% during the coming 12
or 12 or 15 months. So if
I just summarize the quarter, I think it has been a good quarter in the sense that we have had headwinds when it comes to both commodity pricing. We have had headwinds when it comes to mix and also that we have some disturbances in the production. So given all this, I think it's been a very, very solid quarter.
Yes. And to add on that, I think that I also think I think it's an okay quarter. We've had a lot of activities and also things happening. But despite what has been going on here, we report a good result. I think Piotr touched on raw materials.
I think that we maybe we haven't reported out in any more detail. But I mean, we have year to date some gross impact on raw materials around €90,000,000 for the group, hovering a little bit higher than we said in the early days of the year. But it's going to end up north of $100,000,000 I think in the quarter, we have gross effects of roughly $40,000,000 on raw materials going into the plants. We see that we can offset this in North America and in Asia. And in EMEA, it takes more time.
So we're starting we have continued to raise prices. There is also a price increase on the auto aftermarket businesses here due November 1. And negotiations with OE customers are squeezed out over the year, but it's more coming in to cover for the raw material spec. So clearly EMEA is the region that has been mostly affected by this. So all in all, Stone sales growth, clearly, the OE markets are good.
We're both having stronger position than the markets themselves and strong underlying markets. So this, as we have said now 2 times, is also affecting the mix. But all in all, improved profitability, strong cash generation and market share gains in the U. S. Is very encouraging.
The program will be launched here now in EMEA to do just take additional efforts to move here in the right direction in EMEA, continued focus on product development, of course, cost control in general and sales initiatives. I mean, the focus is to build a very strong 2018 2019. We have a great product pipeline. And also in EMEA, I think that we don't expect further increases in our key raw materials coming for next year. So I think that you're going to see those effects turning to our advantage here in the next year.
So we're well prepared for 2018 2019. And with this, I conclude and we open up for Q and A.
Thank The first question comes from the line of Josh Vergerton from Morgan Stanley. Please go ahead.
Hi, good morning, gentlemen. So just one question on EMEA. So it appears from the RV registration data that you performed the market slightly. Can you just elaborate a bit more on what happened here and just go into a bit more detail on the cost cutting plan you have going on with the EUR 5000000 to EUR 6000000?
Yes. Good morning, Georges. Could you repeat the first part of the question on the Orbi, please?
So yes, can you just discuss exactly kind of what went on in Europe because it appears you underperformed the market slightly here?
Yes. I don't know why you draw that conclusion really, but we are not underperforming the market in Europe. So where did you draw that conclusion in terms
of Brazil? Yes, the RV registry seemed quite strong. Plus 17% rolling 3 month, 10% last 12 month 2017? We
have growth of 16 and the registrations of 17. So I don't know registrations have a lag versus our sales, which is in Europe, it can be quite significant. So I think we're basically on par. And if you would ask our teams, I think that we even strengthened our position on the ORV. So 1 percentage point, 16% or 17% I think shouldn't draw those strong conclusions out of that.
So my answer is that we're not underperforming. We're I would say we're even overperforming, but that doesn't show in the registrations versus the sales. But you need to consider that when we ship and invoice our business versus when these units are registered, you have months between them, okay?
Okay. Sure. And just one more question on the aftermarket. So obviously, it's lagged a bit behind on the OEM market. Do you see going forward that trend starting to turn?
Are you specifically in Europe?
Yes, specifically in Europe.
Yes. No, I think that yes, for sure. I think that if you look on the quarter, as I said before, the CTV aftermarket business and workshop stations, which was so high last year, that is what you need to consider. Secondly, the weather impact and the inventory management at our customers clearly impacted the quarter. We expect this is no long term these are no long term patterns.
The only thing that you can say when you have these very, very strong RV OE businesses that you have both in the U. S. And in EMEA, there is a certain tendency that the aftermarket in RV
can lack.
But on the good side is that we're pumping out a lot of units in the field, and those units will generate aftermarket business mid- and long term. So we are not at all worried about the aftermarket business in Europe.
Thank you very much, gentlemen.
Thanks, Neil.
The next question comes from the line of Anishka Vlena from Carnegie. Please go ahead.
Good morning. I have a couple of questions. Starting with the hurricane effect in the U. S, you mentioned that you expect it to be positive for the replacement demand for the boats. Do you expect any positive effect on the demand for RVs in the coming quarters?
Yes. The industry really are expecting effects for the coming quarters because also on the harvest side, there has been quite some damage out there. There is a lag on Jeska in terms of people cleaning up and people. There's a lot of pressure on insurance companies, but yes, you will see effect on that. We cannot put numbers on it, but we have seen that in past hurricanes.
Perfect. And then on the legal processes in the U. S, can you just remind us how many processes are there today? And also, do you have any clue about how long they can take? And what we should think about the legal costs for 2018?
And finally, on this one, what are your expectations for the reimbursement from the insurance company?
On the legal case, I mean, we're still, let's say, having the 2. We have California and Florida, but you saw what happened on the Florida case during the summer. And that one is it's not dead because these cases, you can say a case is dead, but it doesn't stop people from trying again. But it are only these two processes, so no new processes, Anirka, from versus the past. We had roughly €15,000,000 of cost in the quarter.
We expect roughly the same run rate in the Q4, give or take. We are still waiting and pending response from California. It should come any minute. We had hoped it to come in September and soon October is out. But I really hope and think that we will get a response on that here during hopefully, during November.
Perfect. And on the EMEA Improvement Program, can you quantify the expected savings? And also can you tell us when do you think you will reach them?
Yes. What we communicated now, we thought about this, and we know you guys. We say that the effects out of the program, which consists of, let's say, some different elements, but it mainly costs, will generate an additional 2 percentage points of margin. And then you can you know as well, Andreska, you can count backwards to get the size of this, okay? And that is clearly and we're down to quite rigorous plans for this program.
The team is having names of people and things like that. We have communicated this recently, but we will, of course, always treat individuals well, go through unions if necessary and things like that. And then we have one area of it, which is affecting other overheads, direct material and some plans that we will go through in more depth also with some external head peers. So it's different type of elements, and you're going to see the effects here starting to move in throughout all 2018. But when we have said that we will reach our financial targets, we need more help from EMEA to do that.
And we stick to what we have always said that run rate end of 'eighteen is when we aim to meet our targets, and EMEA will perform better during next year to help that.
Perfect. Thank you. That's all from me.
Thanks, Anastya.
The next question comes from the line of Rasmus Engever from Handelsbanken. Please go ahead.
Yes. Hi, good morning. Can I just first ask, the Americas numbers are very, very strong despite weak aftermarket sales overall? Is there anything of a sort of a nonrecurring nature in giving a positive deviation here? Or is this actually how good that division now is?
No. I think that if you go back, let's say, 15, 18 months, we started to work with sort of improvement programs. We had issues with logistics. We had issues with the distribution. And these things now start to yield.
And so it's a combination,
structures,
also that we're gaining market share once again and also that the market is growing. So it's not a one off. It's we see a trend trend here that have strengthened the business as Roger described before.
And did I hear you right in saying that you don't expect any further raw material cost increases 2018? And can you please explain why that is, if that is so?
Yes. Look at us, Moshev, what has hit us this year is the acrylic critically at the PMMA effect, the aluminum, to some extent, steel and stainless steel and the ingot materials on stainless steel. And what I see here what has going to be going on this year, I this is just our view on this. It's like currencies. You cannot really know.
But if you ask before a qualified guess and estimate, I think that you're going to see this temp tickling off next year. And whether they stay on this level is one thing, but I don't think they're going to continue to move up. What we have seen on PMMA has been extraordinarily. We have not seen those type of moves in the past. I think that, that cannot continue.
And on a more slightly high level view on this, I mean, you have had a year now with extremely strong OEM growth in the RV segment and yet you managed to sort of defend your margins despite negative mix. If we look into 2018 and maybe 2019, do you then think that your aftermarket sales will outgrow OEM and thereby help your margins? And is there a particular segment where that would be likely to happen?
Yes. I mean it is the RV always that is so strong, mainly, of course, in U. S. With units that they build over there, there is always a laugh and a cry and eye. You run at very high volumes in a what we always say the lower margin side of the business.
But having said that, with the improvements they do in the U. S, for us, this can continue, and we have a very fortunate situation capacity wise versus our competitors. So we actually see month by month of strengthening our positions based on the good work that both the Asian team does supporting U. S. But also the U.
S. Team themselves. So we're going to see continued growth in the RV, both in Europe and the U. S. But as I explained before, if it tapers off, I think you're going to see the early aftermarket product and sales moving upwards.
And just to remind ourselves about this quarter, I mean, despite the fact that EMEA had
a little bit of, I
could say, headwinds both when it comes to the mix and also commodities, I mean, the 7th of the margin in the previous year. And pure mathematically, I mean, if you have lower growth in Norway, we continue to grow the autumn. Of course, we will be helped by that.
Just a final question, a bit nitty gritty maybe. But is there some sort of FX or something special in the financial costs in this quarter? They seem a bit high compared to previous quarters.
No, it's not. I think it's in the financial cost, you have some movements on the currencies that someone is. But we're trying to hedge both equity hedge, both hedges. Otherwise, I would say that transactions effects are neutral.
Okay.
So there are some in my mind, there could be some revaluation effects from the balance sheet. But that's Okay. Yes.
Yes. All right. Thanks. Thanks.
The next question comes from the line of Peter Reilly from Jefferies. Please go ahead.
Morning. I've got three questions, please. Firstly, on the European profit improvement program. Why now? Why not some time ago?
And then going back to the IPO, EMEA has always been the region, which was a bit underperforming. I guess internally, you could have seen last year that the ACS contract was giving you particularly good profitability that was always going to fall away in 2017. So what's triggered you to launch the program now as opposed to say 12, 18, 24 months ago? And then secondly, on the U. S, fantastic growth in the RV OE business.
It's very nice to see some of that reversal of the share loss. Maybe you can give us a bit more color about what's happening. Are you recapturing lost share in the products where you've been losing the share? Is it share gains in other products? And do you have any visibility of based on contract wins or awards about whether you can continue to gain share into 2018 just mechanically because you've maybe got some contract wins?
And then I'll follow-up with the 3rd, if I may.
Okay. Hi, Peter. I heard 2, but let's start with them. If I start on the program, why now? Yes, you can always ask that question.
I think that a couple of things. One, we did an SG and A thing in 2015 and 2014 during 2015 that we got good effects from, but it also shook the organization a little bit. So we say no, let's say, more programs get into normal business. Secondly, we have a new management in place that has made now have had the opportunity to assess the business, to assess the organization and operations. And now clearly, it was a good opportunity because we're doing some reorganizations down there, and we'll say now is the time to take out people, not because we have a good one off of cost that we can also use a little bit here.
But it is it was right timing. You cannot continue to do programs all the time. You need to come into normal mode. But now we said it's time to do that. And EMEA management clearly also wanted and needed to do that.
On the U. S. Side, yes, it is concrete situations that gives us a I don't want to be too super here, but we have a good momentum in the U. S. Now.
And we're growing on refrigerators. We're growing on air conditioners. We have a situation in the market, Peter, that is very stressed for some of the supply chain stakeholders. And that's when it's good to be in that little pond. We are big, and we have a lot of operations, and we can produce in different areas of the world.
And we're utilizing that right now to lock in business for next year. So you're going to see strength and share here going into 'eighteen for sure and booked new businesses for 'eighteen and 'nineteen.
And this what I mentioned when it comes to the inventory that we see a good order intake for the next year, which means that we need to ship from China. And I think given the competitive situation, that's a big advantage because we have some of the competitors, including ourselves, are running on very high workload in the factories, but we can offload it from its order from China. So I would say it's the ACs and also the refrigeration that Ronny mentioned, plus this, but that's also the effect on the inventory level that you see.
Okay. If I could just follow-up on the cooler business in the U. S. And thank you very much for giving us some data. It's very nice to see some actual numbers.
You've obviously got very high growth rates. And mechanically, I guess, the growth rates potentially start to slow just because you have the base effect. But I don't know what your market share is, but I guess it's still very small, low single digits. So maybe you can talk a bit more about your ambitions without wanting to give too much of a detailed forecast. Do we start to see the growth rate mechanically slowing?
Or is your market share so low, still a large amount of potential?
Yes, a
couple of things. First of all, market share is non measurable because we're basically in our way of looking at this, we're creating a market here, okay? And that's why we have said we need to get in on the right pricing points in this market because we have very exposed pricing throughout the world since we sell this product globally. This is a situation where we're going to market that is today dominated by ice and ice cooling. And to be blunt, the Americans have not used non ice boxes to cool, and now we're building up that understanding.
So I think that we're coming from nowhere. We're having good growth rates, but you also see, of course, that it's not compared to the rest of the world where we have these businesses, we're still at a very, very low level. But I think that you're going to see this grow, and we have said we're going to double the sales from roughly 1 we're running at €1,200,000,000 now, I think, for the full year of coolers around the world, and you see where this is. So we've said that U. S.
Will have a big contribution of that in the next coming 2 to 3 years. But out of €1,000,000,000 in growth, we expect half of that to come from the U. S. Within a 3 year time period. If you want to have a quantitative statement from me, that's what we expect them to do.
Well, very helpful. And if I can just ask one final question. You talked in the past about working with some of the coolers between the front seats and so forth. Are you any closer to any of that actually coming to the market? And given what's been happening in China, are you concerned that maybe you are able to get the sort of margin you'd like to get for those new initiatives?
Yes. That's a very valid question, Peter. And I mean, we have on the automotive side, we have a very strong automotive business in EMEA that has been going on for several years with all the blue chip manufacturers basically, Germans and others. And that is continuing to grow and shows very good margins. That has not worked out in the in China because the China business has been one product only so far, which is inverters, and it has been extremely now price pressured in the past 12 months.
So that is what it is. It's a very specific situation over there. In the U. S, we have actually and we have not talked about that, but we have gained 2 big contracts in the U. S.
That's going to start to ship in late 2018 beginning of 2019, one of them and the other one during 2019. And with those, we have gone in with completely different margins. That's what we're talking about in China. It's more European like.
And there's also different product as more Yes.
These are coolers built in exactly. So these are much more these are engineered products that are custom built for these models, and they're going to be center armrest type of coolers.
And will that be visible to us externally? Are these big enough platforms that will actually notice the impact?
You will notice the impact, yes.
But it will take a year. Yes, yes. Yes. No, no.
You're going to see hardly you're going to see no effect during 2018, if anything at the end of 2018.
Yes. I understand it takes a long time, but it just seems like such a natural market opportunity. And I guess this is an option, but I know you've had high option take up in Europe. So that's why I'm interested.
Yes, yes. No, it has been very successful in Europe. But the thing with this automotive business, it is like, first of all, it takes a long time to get in. And once you're in and if you perform well, it sticks. And these are products that the OEMs sell and make a lot of money on them as options in cars and SUVs.
So that's a good business to be in. This is not tire business or something like that.
Okay. That's very helpful.
Thank you
very much.
Thanks.
There are no further questions registered at this moment.
Then I would say thank you for the interest. And yes, we're looking forward to conclude quarter 4.
Thank you, everybody. Thank you.
Ladies and gentlemen, this concludes your conference call. Thank you very much for attending. You may now disconnect your lines. Thank you.