Ladies and gentlemen, welcome to the Dometic Interim Report Q3 2017. Today, I am pleased to present Roger Johansson, President and CEO, Per-Arne Blomquist, CFO, and Johan Lundin, Head of Investor Relations and Communications. For the first part of this call, participants will be in listen-only mode. Afterwards, there will be a short question-and-answer session. Speakers, please begin.
Thank you. Good morning and good afternoon to everybody on the call. This is Roger Johansson and PA calling in for the Q3 results 2017. We will do like that all the time. We go through the material, then take Q&A. If we summarize it on the Q3 highlights, all in all, I think it is 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 seven out of eight businesses on the global level with improved margins. Going over the regions, the highlight and the star in the quarter is Americas. We will go through that in more detail later on with all over the line, let us say, a very strong quarter, I would say. EMEA, it is a mix.
The good thing is that we start to see a slight change in the margin development moving in the right direction. Still, it is under par what you should expect from the region. There is a very strong OEM effect in EMEA. We have also improved SG&A. We will talk more about the EMEA later on here. We will do some more efforts around profitability. We have called it a program. You should not see it as a restructuring program. It is the management in EMEA seizing the opportunity. We are making some organizational changes. We see the opportunity and the need to take out people. Thirdly, on APAC, I think it is an okay quarter. As we always have told, 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.
We have mixed effects that drags down margin. We have a very strong core business right now that is under par margin-wise that we are addressing as we speak, which is hurting the quarter. We have the consolidation in China that we had announced earlier, which gives us SEK 166 million one-time effect here that you obviously need to take into consideration. We have strong cash flow. 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. Our Pompano Beach facility in Florida lost three days of production in the month, and also a typhoon hit our Zhuhai factory that took down that plant for roughly two days of work. That should be considered. We have estimated that effect to roughly SEK 10 million of EBIT.
If we go to the trends, I think that all arrows go in the right direction. 11% growth in comparable currencies on sale and 18% improvement in EBIT on comparable currencies. Cash flow SEK 67 is good. PA will go in more in detail, but strong result and also good management of receivables, I think are the two main highlights there. Trends are in the right direction. 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 strong curve. We need to change now, I think the Y-axis here soon. Rolling three 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%. 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 Caravan Salon Düsseldorf, which is the largest RV show in the world, actually, and had very good visitor numbers, and also extremely positive, let's say, sentiment from the manufacturers, dealers, suppliers, what have you. Rolling three months up for the main markets of 17% and an LTM of 10%. You can see some of the markets with, obviously, as always, Germany being the locomotive here.
Continued consolidation in Europe with Trigano now having clearance from competition authorities to take over Adria, 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. Rolling three, actually no growth, but year-to-date is three, an LTM of three. 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 and it's 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 these 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. As always, we tell you that our soft spots is more in the mid and larger yachts here. I think we, by the way, should mention that 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 are insurance companies involved and things like that, but I think we're going to see that coming here, starting early next year. Let's move to the regions.
I think that the star in the quarter is Americas, which overall has a strong result over the line. Sales growth organically of 15%, margin increase to 16.5%. If you would back out the legal cost, 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 consistently now over quite some time towards improved margins. Also very encouraging is to say that we're outperforming the RV OE 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 RV OE share. We have, you recall that I said some 20% growth in the market, and we're running at 30%. We're strengthening our market position 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. Midterm, 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. 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 and 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. 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. 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 two and a half years, and we're selling some 1.4 million 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 SEK 60 million in sales, very strong growth rate. For the doubling of the mobile cooling business, U.S. will contribute very strongly in the next two to three years. We were excited here the other week when we saw headlines from tests where it said that Dometic is the Michael Jordan of mobile cooling. I think we start to make a buzz over there about non-ice cooling. We have now a strong team in place finally that will build this growth going forward. 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. Obviously, they're working hard to move in the right direction here.
Sales were not so strong, mainly affected by a couple of things. First of all, you need to recall that last year we had a very strong CPV aftermarket business because we had the opportunity to have a very big order from one of the biggest car manufacturers in Europe that refreshed their units in all, basically, workshops in Europe. That was a big business that we are not having this year. That should be known. Secondly, the aftermarket business was dampened in the quarter. If you compare now, we can conclude that we had a very strong sell-in in the early summer. We had bad weather making 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 two, closing in slowly, but it is moving in the right direction. It is clearly affected by mix, by commodities, and by the weather, as I said. I think that we see strong growth in all OEM businesses. That gives the mix effect. I think this is the, if I may say the worst, to use that word, mix, in all the three quarters so far this year. Despite that, 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. What we are doing here is that we are doing a reorganization down there. We are seizing that opportunity.
We need to take out more people and take out people in terms of overheads, so to say. We are going to do that. We have now a good, let's say, one-off from the sale in China. We take the opportunity also to use some of that money. We are going to spend some EUR 5 million-EUR 6 million in taking out people in high-cost countries here. The target of that program is to improve the margins with some two percentage units on top of, let's say, the normal activities. 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, we will keep very strong positions there. We are doing well in the RV market. You are going to see here, I think, aftermarket performing better here as we move on.
One product also on the EMEA side, on the next page, you see a control panel. This is something that we launched at the Caravan Salon Düsseldorf. It is truly how 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. I think that we have with this display and this solution together with also an app, clearly launched the most modern and user-friendly solution that is out there. It was well received at the show. It is 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. We are moving slowly towards connectivity also in Dometic. Let us 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 car OEM sales in China that has ramped up quite significantly at the wrong margins. Things have happened there, and they are clearly under par. Chatting with the management over there, they take action here. 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. 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 RV market, which is the most important market for the region, is very encouraging.
We continue to have the team down there selling new products, 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%. We have good positions down there, we continue to move this market upwards, which is very encouraging. China is up 30%. The aftermarket growth is 14%, driven mainly by retail and RV markets. 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. 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 RVer.
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. This together with the CFX box with similar design is obviously a very nice solution for RVs moving forwards. Very well received by customers also in Europe, by the way. One of the examples of smart innovation. Okay. I've talked a lot. I will move over to my partner in crime, Per-Arne, to talk more detail about financials.
Thank you very much, Roger. I turn to the Dometic Group trends, I would say that they overall look positive. We start with the sales, we have now reached about SEK 13.5 billion in rolling 12 months. That is, you can compare with September 2015, where we were below SEK 11.5 billion. We are growing the company in a good way. You could also see that on the EBIT, where we are at SEK 17.59 for rolling 12 months, also becoming a bigger company. Operating cash flow now about SEK one and a half billion on a 12-month rolling basis.
Margin, as you can see, has been under pressure for the beginning of this year. 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 mid-term financial targets. Looking at the different business areas' development, we have three out of four 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 +% in growth with an aftermarket more or less flattish. That is what also Roger mentioned about the mix. It's positive on one hand because it's growing our basic business, but it's partly hurting the margins in the short-term perspective. 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, about 10%, 10.7 in the quarter, 10.2 year-to-date. 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. We're now getting closer on the year-to-date numbers to the margin we had before and last year, and we are now close on the last 12 months compared to full year. Our 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 about the 35%. During the IPO process, we said that we should be between 35%-40%. We have had a slight downturn now for a while, but now getting back on track again with the returns on the working capital. You could also see that the cash flow, as Roger mentioned before, is solid and earnings per share good in this quarter, SEK 151, 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. The translation effects are sort of bigger than the transaction effects.
Transaction effect of this quarter is more or less neutral. If you look at the regional results, Roger has 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 the closure action cost 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. Once again, Americas margin is impacted by close to SEK 70 million of closure action costs this year, and excluding that, they would have been at 16.1% in margin.
We turn to the P&L. We had discussion around our SG&A development after the first quarter. We said at that point in time that we should now address this. We started to do that in the second quarter. You can see also that our costs are, I would say, well in line with last year, despite the fact that we have been growing the business. SG&A is down to 17.2% compared to sales versus 18.8% last year. The question around SG&A has been addressed. We continue to work very hard on this in all different regions. Earnings per share, I mentioned before, SEK 1.51 compared to SEK 1.05. Important to note is the tax rate. The total tax rate is 24%. In line with what we have said.
Tax paid is now at 5%, which is well below the 10% that we set as the benchmark for this year, which of course positively impacts our cash flow. You look at CapEx and PMI. We continue to invest. We should have high investments in the third and fourth quarter. That is where we have the time to invest, where we have lower loads in the factories. In this quarter, we are up to 2.4%. We continue to invest in our products, 2.2%. All in all, we are keeping up the level of what we have said and also what we have showed before. Working capital. I think it is 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 two years. Still, we are on a rather high level with the 22.6%.
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 first quarter. I think we have good development when it comes to the fast and normal moving stocks. However, the very high, I would say, market and the requirement for the market in the U.S. makes us then to also turn to China. ACs, air conditioning, and also refrigerations all produced in China. We are selling that from China to the U.S., and that takes 6-7 weeks. What has actually increased is then the goods in transit, and that is 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.
One reason for us to be able to take market share is that we can offload the factories in the U.S. and actually order from China. That is positive for our market share, but in the short-term perspective, we will have somewhat higher inventory. I am 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. It has been a strong quarter. We could also expect a strong quarter in Q4, which we usually have. That creates a good leverage. We are now down to 1.3x compared to 1.8x last year at the same time.
We're having now cash in hand of roughly SEK 1.8 billion, and our net debt is down to SEK 2.6 billion. If you look at the Q4, we usually give some guidance upon what will happen there. The class action, the legal fees, we believe that will be approximately around SEK 50 million. As always, this is depending on the activity levels, but this is the best guess that we have right now. We will also book cost for profit improvement program in EMEA. Somewhere between EUR 5 million-6 million 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, Roger, would you just comment upon this?
Thank you, Per. 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 continue to focus on it. We are very firm in our position that these allegations, in this case, are without any type of merit. 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 defense costs. More to come when we have more concrete things to say about that.
Finally, from my side, the financial targets, we are mentioning the sales growth at 10% organically, well above the 5%. Net debt, EBITDA below the 2, and we have not changed our dividend policy and the EBIT margin now at 14.4%. The aim is to reach the 50% during the coming 12-15 months. If I 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 had some disturbances in the production. Given all this, I think it has been a very solid quarter. Yes.
To add on that, I also 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 Per touched on raw material. I think that maybe we haven't reported out on that in more detail, but we have year to date, some gross impact on raw materials, around SEK 90 million for the group. Hoping a little bit higher than we had in the early days of the year. It's going to end up north of SEK 100 million. I think in the quarter, we have gross effects of roughly SEK 40 million 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. We have continued to raise prices.
There is also a price increase on all after-market businesses here due November 1st, negotiations with OE customers are squeezed out over the year, it's more coming in to cover for the raw material aspect. Clearly, EMEA is the region that has been mostly affected by this. All in all, strong sales growth. Clearly, the OE markets are good. We're both having stronger positions than the markets themselves and strong underlying markets. This, as we have said now two times, is also affecting the mix here. All in all, improved profitability, strong cash generation, and market share gains in the U.S. is very encouraging. The program will be launched in EMEA to just take additional efforts to move here in the right direction in EMEA, and continued focus on product development, of course, cost control in general, and sales initiatives.
The focus is to build a very strong 2018 and 2019. We have a great product pipeline. Also in EMEA, I think that we don't expect further increases in our key raw materials coming for next year. I think that we're going to see those effects turning to our advantage in the next year. We're well prepared for 2018 and 2019. With this, I conclude, and we open up for Q&A.
Thank you. Ladies and gentlemen, if you have a question for the speakers, please press 01 on your telephone keypad. The first question comes from the line of Josh Brotherton from Morgan Stanley. Please go ahead.
Hi, good morning, gentlemen. Just one question on EMEA. It appears from the RV registration data that you underperformed 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 5 million-EUR 6 million?
Yes. Good morning, Josh. Could you repeat the first part of the question on the RV, please?
Yeah. Can you just discuss exactly what went on in Europe? Because it appears you underperformed the market slightly here.
Underperformed. I don't know why you draw that conclusion, really, but we are not underperforming the market in Europe. Where did you draw that conclusion in terms of registration?
Yeah, the RV registry seemed quite strong.
Where are we?
Plus 17% rolling three months, 10% last 12 months, 2017.
We have growth of 16 on the registrations of 17. I don't know. Registrations have a lag versus our sales, which in Europe it can be quite significant. I think we're basically on par, and if you were to ask our teams, I think that we even strengthen our position on the RV. One percentage point, 16 or 17, Josh, I think shouldn't draw those strong conclusions out of that. My answer is that we're not underperforming. I would say we're even over-performing, but that doesn't show in the registrations versus the sales. 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. Just one more question on the aftermarket. 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.
No, I think that, for sure. I think that if you look on the quarter, as I said before, the CPV aftermarket business and workshop stations, which was so high last year, that is what you need to consider. Secondly, the weather impact on the inventory management at our customers clearly impacted the quarter. We expect these are no long-term patterns. The only thing that you can say, when you have these 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 lag. 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. We are not at all worried about the aftermarket business in Europe.
Thank you very much, gentlemen.
Thanks.
Thank you.
The next question comes from the line of Agnieszka Vilela 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 are expecting effects for the coming quarters because also on the RV side, there has been quite some damage out there. There is a lag, Agnieszka, in terms of people cleaning up. 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. Thank you. On the legal processes in the U.S., can you just remind us how many processes are there today? Do you have any clue about how long they can take, and what we should think about the legal cost for 2018? Finally, on this one, what are your expectations for the reimbursement from the insurance company?
On the legal case, we still, let's say, having the two. We have California and Florida, but you saw what happened on the Florida case during the summer. That one is not dead because these cases, you can say a case is dead, but it doesn't stop people from trying again. There are only these two processes, so no new processes, Agnieszka, versus the past. We had roughly SEK 15 million of cost in the quarter. We expect roughly the same run rate in the fourth quarter, 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, soon October is out, but I really hope and think that we will get a response on that here during, hopefully, during November.
Perfect. Thanks. On the EMEA improvement program, can you quantify the expected savings? Can you tell us when do you think you will reach them?
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's mainly cost will generate an additional two percentage points of margin. Then you know as well, Agnieszka, you can count backwards to get the size of this.
Absolutely.
Okay. 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. 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 help here. It's different type of elements, and you're going to see the effects here starting to move in throughout all 2018. When we have said that we will reach our financial targets, we need more help from EMEA to do that. We stick to what we have always said that run rate end of 2018 is when we aim to meet our targets.
EMEA will perform better during next year to help that.
Perfect. Thank you. That's all from me.
Thanks, Agnieszka.
The next question comes from the line of Rasmus Engberg from Handelsbanken. Please go ahead.
Yes, hi, good morning. Can I just first ask, the Americas numbers are very strong despite the weak aftermarket sales overall. Is there anything of a sort of non-recurring 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. It's a combination, I would say, about the better cost levels, better cost structures. Also that we're gaining market share once again, and also that the market is growing. It's not the one-off. We see a trend here that they have strengthened the business as Roger described before.
Okay. Did I hear you right in you saying that you don't expect any further raw material cost increases 2018? Can you please explain why that is, if that is so?
Look, Rasmus, what I picked up this year is the acrylic glass, the PMMA effect, the aluminum to some extent, steel and stainless steel, and the ingots materials of stainless steel. When I see here what has been going on this year, this is just our view on this. It's like currencies. You cannot really know, but if you ask me for a qualified guess and an estimate, I think that you're going to see this tapering off this year. 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 this year.
We have not seen those type of moves in the past. I think that that cannot continue.
On a more slightly high-level view on this, 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? Is there a particular segment where that would be likely to happen?
Yeah. It is the RV OE that is so strong, mainly, of course, in U.S. with the units that they build over there. There is always a laughing and a crying eye. You run at very high volumes in what we always say, the lower margin side of the business.
Okay.
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.
Okay.
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. We're going to see continued growth in the RV, both in Europe and the U.S. As I explained before, if it tapers off, I think you're going to see the RV aftermarket product and sales moving upwards. Just to remind ourselves about this quarter, despite the fact that EMEA had a sort of a, you could say, headwinds both when it comes to the mix and also commodities, they found that the margin pretty well. Pure mathematically, if you have lower growth in RV and we continue to grow the aftermarket, of course, we will be helped by that.
Just a final question, a bit nitty-gritty maybe, but is there some sort of effects 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 in the financial costs, you have some movements on the currencies that some of it, but we try to hedge what we could hedge. Otherwise, I would say that transactions effects are pretty neutral.
Okay.
There are some, it could be some revaluation effects from the balance sheets.
Okay
I don't think, yeah.
Yeah, all right. Thanks.
Thanks.
Once again, ladies and gentlemen, if you have a question, please press 01 on your telephone keypad. 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? I know, 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. What's triggered you to launch the program now, as opposed to, say, 12, 18, 24 months ago? 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?
Do you have any visibility 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? Then I'll follow up with a third one, maybe.
Okay. Hi, Peter. I heard two, let's start with them. If I start on the program, why now? Yeah, you can always ask that question. I think that a couple of things. One, we did an SG&A thing in 2015 and 2014, during 2015, that we got good effects from, it also shook the organization a little bit. We say, no, let's say, more programs, get into normal business. Secondly, we have a new management in place that have had the opportunity to assess the business, to assess the organization and operations. Now, clearly, it was a good opportunity because we're doing some reorganizations down there, and we 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. It was the right timing.
You cannot continue to do programs all the time. You need to come into normal mode. Now we said it's time to do that.
EMEA management clearly also wanted and needed to do that. On the U.S. side, yes, it is concrete situations that gives us. I don't want to be too superlative here, 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 stressed for some of the supply chain stakeholders. 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. You're going to see strengthened share here going into 2018, for sure, and booked new businesses for 2018 and 2019.
This what I mentioned when it comes to the inventory, that we see a good order intake for next year, which means we need to ship from China. 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, we can offload this and also order from China. I would say it's the ACs and also the refrigeration that Roger mentioned, that drives this. That's also the effect on the inventory level that you see.
Okay. If I could follow up on the cooler business in the U.S. Thank you very much for giving us some data. It's very nice to see some actual numbers. I wish you got very high growth rates, mechanically, I guess the growth rates potentially start to slow just because you had the base effect. I don't know what your market share is, but I guess it's still very small, low single digits. 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 there's still a large amount of potential?
Yeah, 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? 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 a market that is today dominated by ice and ice cooling. To be blunt, the Americans have not used non-ice boxes to cool, and now we're building up that understanding. 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 low level.
I think that you're going to see this grow, and we have said we're going to double the sales from roughly one. We're running at SEK 1.2 billion now, I think, for the full year of coolers around the world, and you see where this is. We've said that U.S. will have a big contribution of that in the next coming 2-3 years. Out of SEK 1 billion 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, that's very helpful. Thank you very much. If I can just ask one final question. You talked in the past about working with some of the U.S. manufacturers for car and SUV applications for coolers between the front seats and so forth. Are you any closer to any of that actually coming to the market? Given what's been happening in China, are you concerned that maybe you won't be able to get the sort of margin you'd like to get for those new initiatives?
Yeah, that's a very valid question, Peter. I mean, 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. That is continuing to grow and shows very good margins. That has not worked out in China, because the China business has been one product only so far, which is inverters, and it has been extremely price-pressured in the past 12 months. 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 two big contracts in the U.S. that's going to start to ship in late 2018 and beginning of 2019, one of them, and the other one during 2019.
With those, we have gone in with completely different margins than what we're talking about in China. It's more European-like.
There's also different product.
Yeah, these are coolers. Exactly.
Yeah.
These are engineered product that are custom-built for these models, and they're going to be center armrest type of coolers.
Will that be visible to us externally? Are these big enough platforms that we'll actually notice the impact?
You will notice the impact, yes.
It will take a year.
Yeah.
Yeah.
You're going to see no effect during 2018. If anything, at the end of 2018.
Yeah.
Yeah. No, I understand it takes a long time, but it just seems like such a natural market opportunity. I guess this is an option, I know you've had high option take-up in Europe, that's why I'm interested.
Yeah. No, it has been very successful in Europe. The thing with this automotive business, it is like, first of all, it takes a long time to get in. Once you're in and if you perform well, it sticks. These are products that the OEMs sell and make a lot of money on them as options in cars and SUVs. 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.
Once again, ladies and gentlemen, press zero one on your telephone keypad to register for a question. There are no further questions registered at this moment.
I would say thank you for the interest. We're looking forward to conclude quarter four.
Yeah.
Thank you, everybody.
Thank you.
Ladies and gentlemen, this concludes our conference call. Thank you very much for attending. You may now disconnect your lines. Thank you.