Ladies and gentlemen, welcome to the Dometic Interim Report Q2 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, all participants will be in listen only mode, and afterwards there will be a short question and answer session. Speakers, please begin.
Thank you. Good morning, everybody. This is Roger calling in from Solna for the second quarter results. We're glad to have you with us as always. Today, we also have Fredrik Cappelen on the line, Chairman. We're planning to run the report as normal and the report presentation, then we take Q&As around the report, then if there are any additional questions, we're open for them, both me and Fredrik here. With that, I will start and run directly into the presentation, starting with the Q2 highlights. I must say, encouraging to see that our growth path continues also in the second quarter. We have strong sales of 14% up, nine of them organic, and all regions contribute to that sales growth. Also encouraging, as you hear me say, is that we have broad improvements.
We have sales growth in six out of eight businesses, and we have profit improvement in seven out of eight. We have stable gross profits of 33.2%, EBIT growth of 11, and that is including SEK 29 million of class action cost that we booked in the quarter. SG&A is actually flat in money if we would exclude the acquisitions. I think that's worthwhile mentioning because we talked during the first quarter about tightening up SG&A, especially in EMEA, and we have seen that. We have done that in the quarter, it's encouraging to see that we keep SG&A flat. EBIT is at 17.2 if you exclude class action, an improvement of 4.3% versus prior year. If we look on the regions, America is, I would say, the strongest region in the quarter. They book very qualitative result, I must say, in all aspects. Very nice to see.
EMEA is on the right path. I think that we had a bit of a weak margin situation in EMEA in the first quarter, to some extent maybe still have, but we're moving in the right direction there. We're outperforming the market on the RV side, We have also started to take some initiatives to make sure that the margins move in the right direction here. We'll talk about that soon. When it comes to APAC, solid quarter. Again, outperforming the RV market in a rather soft environment in Australia, Strong business still down there. Worth mentioning is that we have good growth in China and Japan, markets that we don't talk so much about, especially Japan. They have done an incredible trip for the past year, That's nice to see.
I think we have strong cash flows, up SEK 60 million from last year, and leverage is down at 1.7. Last week, we actually announced the consolidation of our operations in China. I'll say a few more words about that later on. If we move to next page, it simply shows the results in a different visual appearance. The arrows are pointing in the right directions here. I basically said these things, I think that all in all, a solid quarter. We're satisfied with it. Moving the path towards our markets. If we, as always, start with the U.S. RV market, continuously strong. It's fantastic. The whole industry continues to be in very optimistic mode, both for the rest of this year and also moving in, actually now start to talk already about 2018, also seeing growth.
On rolling three, it's up 14%, year to date, 12%, and LTM, through May, 16%. The latest forecast for the full year 2017 is +9.6% or 474,000 units, which is another year where the RVIA organization were conservative going into the year with the growth, so it's encouraging. The market is running at a high pace. I'll come into that a little bit more soon. Looking at the European RV market, also there, strong numbers with, as always, Germany having the lead. Rolling three months in the big markets here is up 12%, and LTM through June is up 10%. You can see that also our home market here is up 11% in Sweden. Even the historically important camping country, Italy, is up 11%. It's nice. Moving to trucks. Here we have seen a nice path in the past three, four years.
It's moving with some sharp teeth, but it's moving upwards. We're having also very encouraging talks with truck manufacturers about growing in terms of comfort products in cabins. As you have always heard me say, we have rather low penetration in this industry, but it's an important industry, and it's an industry of growth for us going forward. You see hovering around 4%-6% growth, which is nice. Powerboat sales in the U.S. up 5% on an LTM May basis. Continue to grow, but also here we say quarters can vary depending on projects. Little a soft quarter this time in our sweet spots, but very strong on super yachts up to 100 feet. Not bigger yachts where we also have businesses in. Again, there is quite positive sentiment continuously in the marine business in the U.S.
Moving to the dimension of the regions, looking at Americas first, which I think is having a really good quarter. If we first look at coming back to the market, April was up 5.5%, 5.6% in shipment. May was tremendously strong with some 20%, 21% in shipment. It's high variation between months here. We haven't seen the June numbers, but a very important message to you guys is that we have clearly turned the page on share. We're taking share in the quarter, and we have booked nice businesses that will start to tick in here also later this autumn. It's a very hot industry. It's a very hot market situation, and the suppliers are producing at very high pace, and so do we.
I think that in this environment, we're happy to be a big player, and we have opportunity to grow when we have situations like this. Knock on wood, our operations are doing well. Our distribution network is working much better than last year when you remember we had some issues around that. We have organic sales growth of 11%, and we have a margin increase from 16% to 16.2%, even including this SEK 29 million that we book in the region. If you would move that out, Americas is almost at 18% EBIT, 17.9% to be precise, which we have not seen that they have ever had in the history. It's good news. RV we say is, as I said, are strong up 12%, and we're closing the gap to the market growth.
We have also booked improved efficiencies and logistics, also helping cost-wise. More importantly, actually, is that the distribution is running smoothly. Worth mentioning, one of my favorite subjects and our favorite subjects, our beloved mobile coolers. We really feel that we start to get the team in place there, and we start to see quite some interesting momentum also in the marketplace around our active coolers. Actually, in the quarter, we had 50% growth, which is nice, which is good growth. Also when the ambition level in U.S. is tremendously high, you know that we have our ambition to, as a first step, double our sales for the company on mobile coolers, and Americas should bring a big contribution to that.
You see the growth of 11%, where 11% is also organic, 5% is negative because of the divestment situation that we did, then 5% is currency. Per will talk more about currency later on. All in all, a strong quarter for Americas. I think in EMEA, it's encouraging the activities that are going on there. I think that we're going to see here month by month and quarter by quarter that EMEA will also strengthen their position when it comes to margins. They have good organic sales growth of 8%. They have an EBIT margin of 15.1%, burdened mainly by the RV OE business, where we have not been able to price some cost dynamics in our, let's say, product costs, mainly in direct material, where we're having quite some hits in the first half year and the second quarter on acrylic glass, raw materials.
That is half of our RV business actually in Europe, which is hurting us. When you look on the region, you should keep in mind what we talked about last year. We had a tremendous big order from one of the big automotive companies that replaced their air conditioning service stations. That has run out this year. That is also impacting actually the region in the quarter. In terms of margin, that was good margin business. We have, as we said we would do, after Q1, we have initiated initiatives to address margins, mainly within RV OE, and that includes pricing. There will be price increases ticking in here during the autumn, and there are discussions going on with further price increases in the industry here from our place. Aftermarket growth in all businesses, particularly in RV, lodging, and marine.
You can see that out of the 18% growth, 8% is organic, 7% is acquisitions relating to the Oceanair and IPV acquisitions, 3% is currency. We feel good about where MEA is moving on here. APAC. APAC books a solid quarter. We are glad to see that they are keeping up margin. They have organic sales growth of 6%, despite a rather, I use the word soft RV market in Australia, which is a big portion of our business down there. We also continue to have good growth in the retail side, cooling boxes, and other products. As I mentioned before, strong sales development in Japan of 25%, and in China 32%. China is the dilemma to always manage margin versus growth, and we are trying to do that in the smartest possible way.
The aftermarket growth is driven mainly by strong RV aftermarket, CPV and lodging. We have some automotive business in China that is not at the profitability levels that we wish. We are addressing that at this point, but it is quite some sales there, that is also a little bit burdening the margin in the region. 6% organic and 5% is currency. Good quarter for APAC. Not so much to say. The green bars mainly are moving in the right direction here. As I said before, all areas are growing quite well, actually. That shows that we are doing the right things and that we are also in the right sectors. I will pause there and hand over to my mate, P.O., start to say a few words about Johan.
Thank you very much. Thank you. You can see that we have had a solid organic growth for a while. The Q2 ends up with 9% plus in organic growth. The first year with 10%, the last 12 months we have had more than 8%, which is about 7% that we had in 2016. The company is now reaching a bit above SEK 13 billion in turnover, SEK 13.3 billion. The growth and underlying organic growth is still solid. Roger mentioned the 16.5%, and I will just repeat that if we exclude the cost for the class action, we would have been above 17%, 17.2%. The same goes also for the first half year.
The 14.4% would have been 15.4% if we exclude both rebranding and class action. You have to look at the underlying operations. It is important to do from time to time. Working capital is slightly improving. I will come back to that later on. I would say that improvement and also the underlying result creates a good and solid cash flow. In the second quarter, we are up with 11.5%, from SEK 511 million to SEK 517 million. For the first half year, we are actually increasing with 28% in cash flow from SEK 410 million up to SEK 426 million, producing somewhat up EPS as well in the first half year and the first quarter. We talked about the FX, we had some movements, especially late in the quarter.
If we look at the U.S. versus SEK, it has shown a strength with 5% in the quarter, but actually was strength with 3% in the last week. We had a lot of movements that partly hit the result in a negative way in a short-term perspective. We have also seen that the euro has been strengthening versus the U.S. dollar with close to 7% in the Q2, and was close to 2% in the last week as well. For the quarter, you can see the impact in translation is 4%. We have slightly positive impact from acquisitions. You know that we had the acquisition of Oceanair and also of IPV, but we have also sold business in the U.S., so the net value of this is 1%.
If we look at the regional results, I will not repeat what Roger has said, but I think it's really worth looking at the Americas business, which is actually up with 0.2% in the margin despite the fact of the clause action. As you said, Roger, we would have been at 18%, we have been all-time high for the Americas. EMEA, discussion about their profitability in the first quarter, I think it's as also Roger has said, it's first of all more one-off issues now. It's more a product mix issue, and we have also the margin pressures in certain areas that we started with, and also working hard to improve the situation with the margin in EMEA during the second half of this year.
If we look at the first half as well, also looking at the group as such, excluding both the rebranding and the clause action, would have been at 15.4%. We are operation-wise up somewhat on the margin. Americas especially, excluding the clause action, would have reached 15.6% to the 13.7%. That's a very good improvement based on better position in the market, better market share, and also lower logistic cost. If we now turn into the P&L, we had some discussions about, as also Roger said, in the first quarter around our cost side. You can see now that we are at 15.9% in SG&A percentage. We have clause action and also acquired entities, which stands for SEK 53 million. Except that, we would have had just a minor increase in the cost.
We are actually taking care of the SG&A, which we said that we should do. We also have a negative impact from the FX that I mentioned before. In the other operating income expense, we have a revaluation of operational balance sheet items. That was a hit in the quarter, roughly minus SEK 14 million and a delta compared to last year of around SEK 20 million. These things happened, and happened very late in the quarter. As I said, it was the last week in the quarter that these movements came up. The margin for the different regions, you can see that we have the pattern. It's a very strong pattern in EMEA, where we have a strong first, second, and also for the third quarter. The weaker fourth quarter is more evenly spread in APAC and the same in Americas.
I don't see any reason why we should have a different change of structure this year. We will work with improvement on the margins, of course, but the overall seasonality will remain. Earnings per share, I talked about that before, SEK 1.6, compared to SEK 1.53. Total tax rate remains at 23%, and we also continue to have a low tax paid rate with this, which is 7%, and I expect this 7% to remain for this year, at least for next year as well. CapEx and our product investments, also more or less at the same level, 1.8%, and SEK 31 million a quarter for CapEx, and we were at 2% for PMI. I think today it's more a restriction of how much we can handle in the pipeline rather than a financial issue.
We try to keep a high speed, and we have spent a lot of time right now on make sure that we have a good pipeline and a lot of launches coming up in the coming, I would say, nine to 12 to 15 months. Working capital, something that we have been discussing with you before. You can see that its improvement is sort of better in Q2 compared to Q2 last year, and we are slightly down from 22.8% to 22.7%. The goal is still to come closer to 20%.
What is good in this quarter is that if you turn to the working capital specification is that you can see that the inventory is actually down between the quarters. The increase that we have in working capital is related to accounts receivable, and that is very much a phasing issue, which means that you would expect a good cash flow in Q3 and also Q4. Turning now to the cash flow page. First quarter is usually slightly negative. We will have three strong quarters, and the first out of these three are delivered. We should also expect this to continue to be strong as we have seen previously in previous years. Leverage, very much improved.
If you compare to Q2 last year, we are down from 2.1x to 1.7x. We have in this quarter also consumed the dividend payout of SEK 547 million. Despite that fact, we are better than in the first quarter. You can see that our operational cash flow actually took care of the dividend in the second quarter. We still have a very favorable position when it comes to our debts, paying up to 2% for the debts, and are now building up a good cash position, which can be used for both investment and M&A activities. If you look at the third quarter and the second half, we will have some positions or items that will affect our result when it comes to the Q3. We assess the cost for the class action to be between SEK 15 million and SEK 30 million.
It is a very wide range, I know that, but it's very much dependent on the activity level. As soon as we know anything more about the activity level, we will also tell the market around that. Then we could sort of decrease the gap and be more precise in the cost for the class action. You might have seen that we have consolidated our China operations. We sent out a press release last week. That will give us a positive effect on our EBIT. We will look at that as details affecting comparability, so it will be outside the normal EBIT, roughly SEK 80-100 million CNY. We will have the cash effect out of this for the second half 2017, roughly, I would say, SEK 55-70 million will come during this year. Then the remaining part will come during 2018.
Last but not least, our financial targets. We can say that we are really hitting or outperforming on the net sales organic growth with 10% after the first half year compared to the 5% as we have as the target. EBIT margin 40.4%, still below the 15%, but we're working very hard to reach this. This will not be done this year, but the aim is to do it later on 2018, somewhere around midyear in 2018. Net debt and the leverage is below the 2. We will continue to deleverage during this year. The dividend policy remains unchanged. Thank you. Over to you, Roger.
Thank you, Per. Couple of words about the class action. Basically, California, no major development since we talked last time. Document discovery going on there. When it comes to Florida, I think that the case from our perspective is parked. I mean, the whole fact and expert discovery are closed. Now we're waiting for the court to decide the outstanding motions by latest, we think, end of September. If we're lucky, earlier, and if there is something that is material for you to know, we will of course release that. As Per said, we have a wide range, but that's what we say at this point, SEK 15-30 million. We of course try to minimize this every quarter, but that's what we say for now. We remain very firm in our position that these allegations are without merit, as we always say.
More to come, hopefully soon, on this one. If we summarize the quarter, strong sales, continued favorable market dynamics in most businesses. If we take out the class action, we have a slight profitability improvement. We have strong cash generation. We continue our relentless focus on product and product development and product quality, and of course, cost control and sales initiatives. As ending, we say the outlook remains positive in most of our businesses because that's the case. We see no dynamic going in any other direction. We're very encouraged about that. With that, we close the presentation and open up for questions regarding the report and the results. Please, Annika, you can open up for questions.
Thank you. Ladies and gentlemen, if you do wish to ask a question, please press 01 on your telephone keypad. If you wish to withdraw your question, you may do so by pressing 02 to cancel. Once again, it is 01 on your telephone keypad to register for a question. The first question comes from the line of Lucie Carrier from Morgan Stanley. Please go ahead.
Hi. Good morning, gentlemen. My first question would be around the legal class action in the U.S. I appreciate it's difficult to give any precise forecast for that, but it seems that the legal costs have been accelerating. In terms of your best guess, do you think that you should have a clear sense of what this legal action entails for you in terms of cost by the end of September? Are you expecting that it could drag much longer?
Hi, Lucie. In the case of Florida, we really think that we will know quite precise and quite well how that case will end up. In terms of California, as we have said, it's going to take throughout the year for sure.
Okay. Thank you. My second question was around the U.S. RV market. Also, two elements, one on the mix, because some of your customers have signaled a higher propension for smaller RVs. I was wondering how you see that potentially impacting your mix going forward, also how you think whether there could be some free buy effect considering that RV financing might become maybe a bit more expensive if interest rates are indeed continue to go up in the U.S. That was question number two.
Yeah. When it comes to the mix effect, you know, Lucie, we have talked about the fact that a little bit through half year last year and this first half year, we have been a little bit disadvantaged by the mix of the smaller vehicles, also in terms of customer with Jayco. You can also see throughout the year that motor homes has high growth still, and also smaller units are at higher pace growth. There is somewhat to that, but if you ask me now, I actually would see that mix effect is starting to level out because of good, let's say, discussions and also good inroads we do with some customers in the U.S. without exploiting that too much. I'm more on the positive sign that this mix will not be as strong as in the past.
Secondly, with all the stakeholders we're close to in the U.S. around the industry when it comes to interest rates, when it comes to what we hear from dealers or the whole macro environment, I think that the macros and the lifestyle, let's say, factors are stronger than any interest rate movement at this point. At the end of the day, interest rate does impact big capital goods and also the RV industry, and so does gas to some extent. There is no, let's say, signals that it's hurting the outlook for the industry at this point.
I also think it sometimes, if you just compare automotive industry and the car industry funding with this is slightly different. I would regard this more, we should look at the mortgage market more. If you start to have issues with the mortgage market, then I think that will impact more on the RV side than consumer credit for cars.
Okay. Just maybe my last question was around the marine business. It was actually your strongest segment across the group for the quarter, up very strongly. Of course, I know this market normally is very margin accretive, and probably the largest part of that is in the U.S. I was wondering how much visibility you had for that business for the second half of the year.
Yeah. Especially the U.S. vessel market is very much project-focused, so we have a good view on the pipelines for most builders. We have both U.S. business and the European business, as you know, Lucie. The marine business continue to be very strong for us. When you look at the top line for those that are not as close as you are, there is also a certain element of Oceanair that adds in the quarter here with the acquisition we did in Europe. Even if you take that out, we're optimistic about the marine market. We have also strengthened our marine aftermarket business in this year so far versus last year. It's an interesting sector for us, and we are very encouraged to see that also small boats are coming back, even if we don't have that much content in smaller boats.
We have an ambition to grow, also in smaller boats in Europe. Long answer.
Thanks very much.
Yeah, that's the answer. Thanks, Lucie.
Thank you.
The next question comes from the line of Olof Nordström from SEB. Please go ahead.
Good morning, gentlemen. A couple of questions from my side. Firstly, you talked about price increases in Europe that you have conducted during the second quarter, and also maybe something more to come later during the year. Could you please elaborate a bit more on that? Do you see potential for price increases in North America given extremely strong demand as well?
Hi, Ole. I think that if we start with RV in Europe, we have been burdened mainly about this PMMA material that we have not been able to fund through yet, but we have done it now, starting during the second quarter, and there will be more falling in during the second half year. I will not go into details around that for obvious reasons about disclosing discussions with customers. It's a concrete development that is burdening us, and we need to deal with that. U.S. has traditionally been pricing pressure type of market and to some extent still is, but as you say, as you allude to, it's also very hot market there, and I think that the whole supply base has to work quite hard, and to some extent suffer to keep up now with the growth here, and I think that's good for us. Yeah.
Just to add on to this, as we saw last year when we were taken by surprise a bit by the strength and all the increase, especially on the distribution, I think given that I get this sort of under control right now, we can gain from this situation this year. That's more to allude to what Roger said.
Yeah.
As you know, we have had a very clear ambition to take back initiative on share in the U.S., and share and price always goes hand in hand. We try to manage that in the smartest way for best earnings and growth for us. Okay?
Yeah. My second question is regarding the consolidation of the operations in China, and what types of gains are you expecting from this? Also, you don't see a risk that, given current very strong demand where we are expecting further increase in 2018, that there will be a lack of capacity for Dometic to deliver to your customers, both in Europe and in U.S.
Yeah. Okay. If I start with China, we released this last week. This is a great move for different reasons. We have planned to consolidate what we call the old factory in Shenzhen. We have known for years that that has to happen at some point. It's a four-story building for us. It's quite old, and it's lying in almost like an urban area. It was a very good, let's say, situation now to sell it off. We're planning to move out that production of, it's mainly thermoelectrical lid assemblies for cooling boxes, and it's also some foaming operations for smaller fridges. We have a great operations team down there. They will move that out here through the coming months. We don't foresee that that will lead to any disturbances or anything like that. We have planned it, and we'll execute it as good as possible.
When it comes to capacities, I think that the area that is stressed right now is Americas for the whole industry. I think that goes for producers of RVs as well as suppliers. In a way, it's a nice problem to have. If you can use the situation without adding too much cost as you move up in volumes here, that's obviously what you want to do. We try also to utilize the fact that we have a global footprint. We can also take fridges from China if we need to balance out our Elkhart factory as one example. I think the team over there is managing it very well. It is, and you would hear that from other stakeholders in the industry, the American RV industry is running at very high steam right now. In Europe, we're not really there.
I think that there is still also being capacities installed at the customer side, I think from our perspective, we don't have any issues in terms of volume in that sense. You remember we had little bit of issues self-conflicted here in the start of the year in our windows and doors. Apart from that, I think that we're doing very well in Europe.
Yep. Would it be possible to quantify any type of savings from the consolidation in China?
Not at this point, I think that it's going to generate efficiencies and give us the opportunity to run smoother operations over there. We're building up our Zhuhai facility to be a very big facility, it's also improving, month by month, quarter by quarter, how we manage that site. We'll see some coming through here in terms of efficiencies and synergies, nothing that I would put money on at this point, Ole.
Last question from my side. You also mentioned some new contracts that you took during Q2. Is that, let's say, a normal type of business, or is this something that we should see improving growth onwards, and could you please quantify that, if so?
You should see it as another type of business. It's the result of our focus in taking back share in specific areas in the U.S. I won't go into more detail.
Okay. Thank you very much. Have a good summer.
Yeah, thank you. You too.
The next question comes from the line of Peter Reilly from Jefferies. Please go ahead.
Hello. Good morning. I've got three questions, please. Firstly, coming back to this issue of the margin in Europe. I know you have the cost issue with some of your raw materials, but you're also very busy with a very high level of organic growth. I'm wondering whether there is scope for something more radical, and you're just too busy at the moment to put some more radical restructuring through. Is this a case where the margin is going to struggle to get much better without more radical action? Do you think the combination of price increases and other issues will get you to the stage where the margin is something you're happy to talk about slightly more positively? Secondly, I was going to ask about cool boxes in Americas. Very strong growth, plus 30%.
I know it's still quite a small business, but I'd love to have some more color on who's buying these, whether it's through distribution channels and therefore it's all sell-in, or whether it's through people like Amazon where it's going to the real end customer, so we can get some feel for whether this is a demand pull or a supply push. Lastly on China, again, I know another small market, but strong growth in China. Maybe you could give us an update on how big your Chinese business is and what you see coming in China, given the government's plan to increase domestic holidays and grow the RV market and so forth.
Okay. Hi, Peter. Good questions. Yeah. First of all, margins in ME, I think that to just straightforward answer your question, we're not planning radical moves as you called it. We're clearly planning to consistently take through a combination of actions here that will get this back on track. When it comes to coolers in the U.S., obviously, we're extremely excited about this. I think that you mentioned a couple of things that we're actually doing. We do sell to Amazon in the U.S. We do sell through all the aftermarket channels. We have a team in place with some new young guys coming from the outside that really knows how to do this. We're putting that team in place, and we're going to invest also in some specific market niches over there to sell these coolers. We'll come back to that.
It's nothing that I want to disclose today. Just the sheer fact that we have them as offering over there, also on our own page, is driving sales. We're also quite active on social media in the U.S. Just as an anecdote, we have more than 150,000 followers on Facebook after two months of really putting up one page on Facebook that is organized and looks professional. We start to see a buzz here in new segments that we haven't seen before. We have a couple of adventurers that have tested our products and are extremely upbeat about our CFX boxes. It starts to spread over there. Obviously, we're looking at bolder moves than this, and you're going to see them. This is probably our most exciting growth area in the next two years, yeah.
When it comes to China, I think that one of the pieces of growth over there right now is this automotive business on inverters.
Inverters.
That is good business, it's a little bit too low margin for us, we're trying to deal with that with the customer there. We also have a couple of interesting product launching later this year that I won't go into now, I think our China business is approaching some SEK 150 million if you exclude everything that goes through Hong Kong. SEK 150 in mainland China is a ballpark number for you, Peter. Okay?
Okay. If I can just come back on the coolers, because the impression I get, which may be incorrect, impression I get is you've been a bit surprised by how well the direct sales as opposed to the sales through distributors and third parties. That seems to be going faster than you anticipated. I look at the reviews you get on amazon.com, the reviews are generally fantastic. Is the mix looking a bit different to what you expected one or two years ago?
Yes and no. Obviously, we have not started to sell through our own site. Something that we're playing in our thoughts to do. You're right. With these big online sellers that are picking up our products, and they are eager to get more of them. We know that we have the best product in the market. We know that, and we have won a handful of very important tests also in Europe, as always, this spring, where we beat I won't use the wrong language here, but we beat all our competition.
I think that that's also what we see in America now. Ice-less, friction, freezing. That's what this is about.
I think it's fair to say that social media and the different forms of e-commerce will be important for our growth in the U.S.
Yeah.
Okay. Well, I shall follow with interest. Thank you very much.
Thank you, Peter.
Have you bought the box, by the way? Yeah.
I'm still waiting for my free sample.
Okay.
The next question comes from the line of Agnieszka Vilela from Carnegie. Please go ahead.
A couple of questions from me, please. When I look at the aftermarket growth for you in Europe, it was at 3% organically, which is relatively low compared to the OEM growth. Can you explain what was behind it? Also, if you could quantify what was the growth if we exclude the air con service stations business? Thank you.
Hi, Agnieszka. I think that I agree with you, it's clearly an impact from the air con stations. I don't have that number in my head if we take that out. That combined with not a very hot spring or not a very hot, let's say, Second quarter, and you know that heat is good. That combined with the air con service stations, we'll see here if Erica will be able to come up with a number before we have the numbers.
What we could say was that, given that we had the Easter in April, and also this was not very warm. Normally, that could be a very good week for us, but this was weakness here.
Yeah.
It's very much the air con stations, and that it started up late in May, and June was stronger than April.
Yeah. Otherwise, if you just look at your, say, aftermarket business and underlying, are you happy how it has performed versus the market during the quarter in Europe?
In terms of products, initiatives, focus, channel management, yes. We also have products on stock, so if there are sales, we take the sales. You can say also that, June as a month for the company of Dometic was tremendously strong.
We are also very eager to read about the heat wave that is building up in Germany. Heat wave in Germany is always good news. Okay.
Yeah
yeah.
Perfect. Maybe touch upon your expectations then for Q3 and for the second half of the year when it comes to growth. Do you expect to continue to outgrow versus the market then, or be close to the market in the U.S.? How are the expectations for you looking in Europe as well?
If we have lagged versus the market in the U.S. now in the past year, let's say, I think that we'll be on par. I think that you should expect. I'm not at the point where I say we'll outpace it. In terms of Europe, I think we have a good growth momentum, and obviously, we're going to surpass our 5% for the full year. We should do that unless something very radical is happening.
Perfect. Then, one question on the mobile cooler business in the U.S. Again, can you just quantify how much you sell? Also, I think that you named that you have the ambition to double the sales there for mobile cooler business, do you have any deadline for that then?
What we can do for next time is that we give a little bit extra insight on the cooling business. We have talked a lot about it, we have not disclosed the sales yet because we've had good reasons for that. I won't do that today still. You see that this is building up, we're very serious about this. What we'll do for all of you is that we'll bring some more meat around what we do, how the sales look, what the chances are for the next call here. Okay?
All right. Yeah, perfect. Then my last question to P-A Can you just confirm what's the outlook for the tax rate for 2017 and 2018, please?
Yeah. We will remain at 23% on booked tax, charged tax, and then the paid tax will be roughly-
Perfect. Thank you
7%-9% this year, and the same for next year.
Yeah, great. Thank you.
Thank you, Agnieszka.
The next question comes from the line of Carl Mattsson from Carnegie. Please go ahead.
Good morning. This is Carl from Carnegie. First of all, congratulations on a good quarter, thank you for taking my question. I just have one question regarding the margin in the U.S., which is very impressive. I know that you have solved the quality issues with the air conditioners that burdened the margin last year. I wonder, did this help the Q2 margin, or is the effect still to come in the next coming quarters?
Hey, Carl. Just to correct you a little bit, the quality issues we had in the U.S. was on air conditioners for RV, one specific model. It was not air conditioners in that. I want to be clear about that for those who listen to this call in. To some extent, yes. Warranty is somewhat down in the U.S., it is not a big contributor to the quarter results. That has been driving some of the warranty here last year, I think that it is tapering out for sure. It is somewhat part of the improvement, not big.
I would say that it's a combination of good management when it comes to the cost on SG&A. The cost is going down, as we have said that we had high before. We have had disciplined, I would say, pricing and a good mix, I would say, when it comes to our products in the U.S. It's a combination of a lot of things, which I think is comfortable because we are not relying upon just one event right now.
Mm-hmm. Is it fair to say that this will continue to be a positive driver for the margin the next quarter as well, or Yeah.
Well, yeah. That's our intention. We never stop, so continuous improvement, we will have ups and downs, but for sure, this is our intention.
I think that if you talk to the U.S. team led by Scott, I think that right now he's hunting Asia-Pacific when it comes to margin. That's what we want him to do. Okay?
Yeah. Sounds great. One quick-
Thank you, Carl.
Okay.
Yeah, sorry. Go ahead.
Yeah. One last question about M&A. Can you please give some color on the current pipeline and your outlook?
Yeah. We're having a rather big pipeline, as we have talked to you about. We have also Carl in on board to increase capacity here around Per-Niklas and ourselves, me and Per-Niklas, to drive this. We're not in a process that will put signatures on papers soon, but we have some interesting things that have popped up. We'll keep you updated throughout the autumn.
Okay, great. Thanks a lot.
[Foreign language] Tack Carl.
The next question comes from the line of Guillermo Peigneux from UBS. Please go ahead.
Hi, guys. I guess most of my questions are answered, but I was just wondering if you could give some more color on the capacity utilization in the U.S. and the fact that you ship product from Asia to the U.S. market. You talked about this in the Q1 as well. I was just wondering how much is this really, and how much is the margin dilution due to this?
Hi, Eric. I think that, first of all, it's important to say that we always ship product from China to the U.S., both in terms of boxes but also fridges. It's nothing new that is starting up. My point is that it's good that we can level our capacity for utilizations between the two plants in terms of refrigeration. Air conditioners, we take everything from China into the U.S. I think it's around 20%+ of their production value for the region is generated in China for them. It's more how we manage this in terms of product mix and where we want to grow in certain areas. I don't want to talk about competitors, but if there are constraints with others, we have a little bit of an opportunity to fill that gap. It's not margin dilution.
When we produce in China for shipments to another region, we do it because it is economically viable.
I think this is very important because we have the opportunity to divide it into two different factories. If we would have capacity constraints in the U.S., and we then need to add on over time several extra shifts, that will be dilutive. Now we can actually balance this in a better way. I think that we even help the margin development.
Okay, understand. Yeah.
Eric, one thing for all of you as well is that we're having a lot of production up in Elkhart County and Indiana, and the workforce there is utilized fully. It's hard even to get qualitative people for the shop floor. We're fighting around workers. That's known. Also our customers and our competitors, we fight about the best people out there, and that drives to some extent also labor cost. That should be taken into consideration in this situation.
Yeah. Got you. The last question really about quarter, or it's actually about how you see the Q3 proceeding, and if you could give any guidance on how the weather has been in the Q3 and what's your expectation?
As you know, we don't guide. We can just say that I think that our momentum continues. We see optimism in our markets, and that's basically what is said.
The sun is shining today, and that's good.
Yeah.
Yeah. That's perfect. Well, I don't know what you said about commenting on you leaving the position or we'll ask the question about that as well.
Yeah. We can move soon into that, Eric. I'll say a few words as well, but are there any other questions related to the report?
No, that's fine for me. Thank you.
Okay. Thanks, Eric. Anyone else?
We have a follow-up question from Lucie Carrier from Morgan Stanley. Please go ahead.
Hi. Thanks again for taking just two small questions. The first one is around the corporate cost. When I look at the slide where you separate the margin and the margin excluding the corporate cost, it looks like they were down year-over-year in the quarter. Are you going to have a lower run rate in terms of corporate cost going forward? That was question number one. I was just wondering if there could be any change in your normal seasonality of business, second half versus first half, and I'm just asking this, of course, in relation with current consensus expectation and also as you're now going to have additional costs related to the legal case.
Okay. If we start with the corporate cost, yes, we try to trim the corporate cost as well. They are lower, and we intend to keep them as low as we can. That's a correct reflection. We don't have any, you could say, cost-saving programs out there, but we try to keep them as strict as we can. What was the next question? The seasonality. The seasonality will be the same, where the fourth quarter will be the weakest quarter, and that's usually the weakest quarter also for EMEA. Trying to mitigate that, perhaps that's never done before, but you will still have this kind of seasonality. That will not change. Did you have a third question as well, or?
No, I didn't have a third question. Just on the corporate cost, do you think that the benefit you had year-on-year this quarter, is that something that you extrapolate to continue? I don't know if you can quantify how much lower the corporate costs were in this quarter versus the second quarter 2016.
No, we don't quantify this. What we also do from time to time, sometimes, is that we take some investment also in there. It could be either in product development or certain initiatives. So that might come up. Overall, we try to take down the fixed cost centrally without quantifying how much that is.
Thank you.
Thank you, Lucie.
There are no other questions registered at this point.
Okay. If I say a few words, Fredrik, then I open up if you want to add something, if there are any specific question. Basically, this is rather straightforward from my side. What you read in the press release is really what this is about. It is no more hocus pocus. I spent five years with this great company, and I've had a lot of fun, but a lot of hard work. I think that we have transformed Dometic quite well. There is also a really tough agenda going forward with a lot of interesting things to do. You need to have someone coming in with another, at least five-year perspective on this and take it to the next height, because that height is there and it's tremendous.
I just felt that, I think it's the right time for me and for Dometic to change leadership, and I need to do, and I want to do something else. I have not signed up with another company at this point. There is, as I say, there is no more hocus pocus than what you read. I have, of course, mixed feelings about this. I love this company, and I have been very engaged with it for a very intense five years. I can just say that I'm extremely happy that we have found a very suitable successor that I can just say it's going to be great for the people and for the company and for you guys. That's what I can say. I don't know, Fredrik, maybe you should say something here.
Yes. Good morning, everybody. Thanks, Roger and P.A., for a good presentation. You have read in the news, we will have a CEO shift at Dometic. Roger has been in, I would say, very much joint understanding with the board, decided to leave his assignment. We are of course, very sorry for that. We have also tried to keep him there. As Roger put it himself, things have its time, and we've been fighting the market together, Roger and I and the team. I think, we respect Roger's decision. Roger will then remain in his current role until the end of the year. I do agree with Roger that Juan Vargues, currently head of the Entrance Systems Division at ASSA ABLOY.
He has been appointed as new CEO from the year-end, he has, in the board's opinion and my opinion, a very strong track record and is very suitable for continuing the very interesting journey that Dometic is on. I think it's a very undramatic change. We know where we are, and we know where we are going, and we have a fantastic team under Roger, everybody is fully committed to continue the journey. Juan has all the skill sets that we like, and we are sure that that's going to be a good handover at the year-end. I think that's what I want to say. We're going to thank Roger later, as things are continuing, we are continuously driving the business forward. I can assure you all that we will not stop for a second. We will push on.
That's what I wanted to say.
Thanks, Fredrik. If there are any questions around that, Annika?
Once again, if you do have any questions, please press 01 on your telephone keypad. We have a follow-up question from Peter Reilly from Jefferies. Hello, Peter. Your line is open. The question seems to have been withdrawn. We have another question from Eric Galison from UBS. Please go ahead.
Yeah. Fredrik, I was just wondering if you can elaborate a little bit more why you think Juan is particularly suitable to this mission, really to take the next step for Dometic, if you're able to say a little bit more about that.
I think first of all, one has to remember that Dometic it's a very complex business in many senses. It has all the aspects of complexity. Many markets, many different businesses in one business. It is aftermarket, it's direct sales. There is also the ingredients of consolidation and continuous growth. You need to be able to master the whole value chain in a complex world on a global basis. Juan has a very long experience. Roger and the team has that experience, but Juan has been working with us now since 1992. He's been basically proving that he has been growing, for example, the head of Entrance Systems from around SEK 3 billion to some SEK 20 billion. That growth has come from efficiency work, acquisitions, healthy organic growth.
I think for any one of you can also look into that development as it is also quite public information. I think those are the things. He is a very proven strong leader, and I think that's also with his experience before ASSA ABLOY at SKF. The extreme or very deep knowledge of manufacturing excellence I think is also very valuable in addition to all these other aspects that I mentioned. That's in short.
Very good. Thank you very much. You're not going to make automatic opening doors for RVs?
That's a good idea. Do you think that's a good idea?
It's brilliant. Let's do that. Okay. Thank you very much and have a great day.
Thank you.
We have a follow-up question from Peter Reilly from Jefferies. Please go ahead.
Oh, good morning. Sorry, there was a technical problem on the line. The question I wanted to ask was, if you look at Entrance Systems in ASSA ABLOY, ASSA has been very acquisitive, and Entrance Systems as being the most acquisitive part of an acquisitive company. Is there a message here that you want to accelerate the pace of acquisitions going forward, and that's one of the reasons why you've chosen this individual? Or is that just a bit of a side issue?
Thanks, Peter. I think there is no message here more than we are committed to make the journey and continue the journey that Roger and the team has started off on. That includes continued efficiency work, driving organic sales, but also accelerating acquisitions. It's not a secret message, but it's just reinforcing that we are committed to our continued development, and we are sure that we have the right man for that.
Okay. Thank you. I want to wish Roger all the best in his new career.
Thank you, Peter.
Thank you.
We'll meet here during the autumn as well.
I look forward to it.
Thank you, Fredrik, as well, and thanks to everybody. Annika, we close the call. Thanks, everybody, and have a great summer.