Ladies and gentlemen, welcome to the Domestic Interim Report Q2 2017.
Today, I
am pleased to present Roger Johansen, President and CEO Per Arne Blomqvist, CFO and Johan Lundin, Head of Investor Relations and Communications. Speakers, please begin.
Thank you. Good morning, everybody. This is Roger calling in from Solna for the Q2 results. We're glad to have you with us as always. Today, we also have Fredrik Kaplan on the line, Chairman.
We're planning to run the report as normal and the report presentation, and then we take Q and As around the report. And then if there are any additional questions, we're open for them, both me and Fredrik here. So with that, I will start and run directly into the presentation, starting with the Q2 highlights. And I must say encouraging to see that our growth path continues also in the Q2. We have strong sales of 14% up and 9 of them organic and all regions contribute to that sales growth.
Also encouraging, as you hear me say, is that we have broad improvements. So I mean, we have sales growth in 6 out of 8 businesses and we have profit improvement in 7 out of 8. We have stable gross profits of 33.2 percent, EBIT growth of €11,000,000 and that is including $29,000,000 of class action costs that we booked in the quarter. SG and A is actually flat in money if we would exclude the acquisitions. I think that's worthwhile mentioning because we talked during the Q1 about tightening up SG and A, especially in EMEA, and we have seen that.
We have done that in the quarter. So it's encouraging to see that we keep SG and A flat. EBITDA is at 17.2% if you exclude class action, so an improvement of 0.3% versus prior year. If we look on the regions, America is, I would say, the strongest region in the quarter. They booked 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 Q1 and to some extent maybe still have, but we're moving in the right direction there. We're outperforming the market on the RV side, but 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, but strong business still down there. Worth mentioning is that we have good, good growth in China and Japan, markets that we don't talk so much about, especially Japan. We have done an incredible trip to the past year, so that's nice to see. I think we have strong cash flows, up $60,000,000 from last year and leverage is down at $1,700,000 And last week, we actually announced the consolidation of our operations in China. I'll say a few more words about that later on.
So 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. So 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, be 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. So on rolling free, it's up 14% year to date, 12% and LTM through May 16%.
So the latest forecast for the full year 2017 is plus 9.6% or 474,000 units, which is another year where the RBI 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.
So rolling 3 months in the big markets here is up 12% and LTM through June is up 10%. And you can see that also our home market here is up 11% in Sweden. And even the historically important camping country, Italy is up 11%. So it's nice. Moving to trucks.
Here we have seen a nice path in the past 3, 4 years. It's moving with some sharp teeth, but it's moving upwards. So we're having also very encouraging talks with truck manufacturers about growing in terms of comfort products in cabins. So 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. But you see hovering around 4% to 6% growth, which is nice.
Powerboats 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 soft project little soft quarter this time in our sweet spots, but very strong on superyachts up to 100 feet, not bigger yachts where we also have businesses in. But again, it's also there is quite positive sentiment continuously in the Marine business in the U. S.
So 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 the coming back to the market, I mean, April was up 5%, 5.5%, 5.6% in shipment. May was tremendously strong with some 20%, 21% in shipment. So it's high variation between months here. We haven't seen the new numbers, but a very important message to you guys is that we have clearly turned the page on share.
So 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. And I think that in this environment, we are happy to be a big player and we have opportunity to grow when we have situations like this. So knock on wood, our operations are doing well.
Also, our distribution network is working much, much better than last year when you remember we had some issues around that. So we have organic sales growth of 11 percent, and we have a margin increase from 16 percent to 16.2 percent even including this 29,000,000 that we booked in the region. If you would move that out, Americas is almost at 18% EBIT, dollars 17,900,000 to be precise, which we have not seen that they have ever had in the history. So I mean, it's good news. RV OE sales, as I said, are strong, up 12%, and we're closing the gap to the market growth.
We have also booked improved efficiencies in logistics. Also helping cost wise, but 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. So we had actually in the quarter, we had 50% growth, which is nice, which is good growth, but also when it come when the ambition level in U. S.
Is tremendously high. So you know that we have our ambition to, as a first step, double our sales for the company on mobile toolers and Americas should bring a big contribution to that. Yes, you see the growth of 11, where 11 is also organic, but 5 is negative because of the divestment situation that we did and then 5% is currency. Peer will talk more about currency later on. So all in all, strong quarter for Americas.
I think EMEA is 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%, burn mainly by the RVOE 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 were 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. Also, when you look on the region, you should keep in mind what we talked about last year.
We had a tremendous big order from 1 of the big automotive companies that replaced their air conditioning service stations. And that is that has run out this year. So 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 RVO and that includes pricing.
So 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. And you can see that out of the 2018 growth, 8% is organic, 7% is acquisitions relating to the Oceanair and IPV acquisitions and 3 is currency. So we feel good about where EMEA is moving on here. Going to APAC, I think APAC books a solid quarter.
We're glad to see that they're keeping up margin. They have organic sales growth of 6% despite a rather used towards soft RV market in Australia, which is a big, big portion of the of our business down there. But we also continue to have good growth in the retail side, cooling boxes and other products. So 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're 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. So we're addressing that at this point, but it's quite some sales there. So that is also a little bit burning the margin in the region. So 8%, 6% organic and 5% is currency.
So good quarter for APAC.
If we
move to the trends, not so much to say the green bars mainly are moving in the right direction Here, if we look on the business areas, they as I said before, all areas are growing and growing quite well actually. So that shows that we're doing the right things and that we're also in the right sectors. So I will pause there and hand over to my mate, Piaan, start to say a few words about you.
Thank you very much. Thank you. If we then move into the key ratios and also the sales, you could see that we have had a solid organic growth for a while. The Q2 end up with 9% plus in organic growth, the 1st year with 10%. And then the last 12 months, we have had more than 8%, which is then above 7% of the 116.
And the company is now reaching a bit above SEK 13,000,000,000 in turnover, SEK 13 and a half. And I will just repeat that if we exclude the cost for the transaction, we hope would have been above 17,000,000, 17 point 2. And the same goes also for the first half year. The 14,400,000,000 would have been 15,400,000,000 if we then exposure to both rebranding and clause action. I know these, of course, have actually have, but you have to look at the underlying operations, it's important to do from time to time.
Core working capital is slightly improving. I will come back to that later on. But I would say that improvement and also the underlying result creates a good and solid cash flow. In the Q1, we are up with 11.5% sorry, 2nd quarter, sorry, we are up with 11.5% from 5.11% to 5.70%. And for the first half year, we are actually increasing with 28% in cash flow from $4.10 up to $4.26 and producing somewhat up EPS as well in the first half year and the Q1.
We talked about the FX, and we had some movements, especially late in the quarter. If we look at the U. S. Versus SEK, it's still showing strength with 5% in the quarter, but actually was strengthened at 3% in the last week. So we had a lot of movements that partly hit the results in a negative way 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. So for the quarter, you can see the impact in translation is 4%. We have slightly positive impact from acquisitions.
You know that we have the acquisitions of Oceanair and also of IPV, but we have also sold business in the U. S, so 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 transaction. And as you said, Roger, we would have been at 80%, which would have been all time high for the Americas. In the discussion about the profitability in the Q1, I think it's also, as Rodie has said, is first of all, more one off issues.
Now it's more a product mix issue, and we have also the margin pressure in certain areas that we start to deal with and also working hard to sort of improve the situation with the margin in EMEA during the second half of this year. If we look at the first half as well and also looking at the group as such, excluding both the rebranding and the class action would have been at 15.4%. So we are operational wise up somewhat on the margin. And Americas, especially with excluding the class action, would have reached 15.6% to 13.7% and that's a very, very good I would say, improvement based on a better position in the market, better market share and also lower logistic costs. If we don't turn into the P and L, we had some discussions about, as also Roger said, here in the Q1 around our cost side.
You can see now that we are at 15.9 percent in SG and A percentage, but we have class action and also acquired entities, which stands for filter 3. So except that, we would have had just minor, minor increase in the cost. So we are actually taking care of the SG and 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 that we have in the evaluation of operational balance sheet items. So that is was a hit in the quarter roughly minus SEK14 1,000,000 compared to last year over around SEK 20,000,000.
But these things happen, and it 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 sort of a strong pattern in EMEA where we have a strong first, second and also for the Q3, a weaker Q4. It's more a bit 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 than we will work with improvement on the margins, of course, but overall, the seasonality will remain. Earnings per share, I talked about that before, 1.6% compared to 1.53%. Total tax rate remains at 23%. And we also continue to have a lower 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 percent, €31,000,000 a quarter for CapEx and we were at 2% for PMI. And we continue to invest as much as we can. And I think it's more today's more restriction on how much we can handle in the pipeline rather than the financial issue. So 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 will say, 9, 12, 15 months. Working capital, something here we have been discussing with you before.
You can see that it's 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. And 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 Q3. Turning then to the cash flow page.
First quarter is usually slightly negative, and then we will have 3 strong quarters. And the first out of these 3 are delivered, and we should also expect this to continue to be strong as we have seen previously in previous years. Leverage very much improved. If we compare to Q2 last year, we are down from 2.1 to 1.7. And we have in this quarter also consumed the dividend, the payout of 547,000,000 and despite that fact, we are better than in the Q1.
As you can say that our operational cash flow actually took care of the dividend in the Q2. And 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 and A activities. If you look at the Q3 and the second half, we will have some positions or items that will affect our results when it comes to the Q3. We assess the cost for the class actually to be between 1000000. It is a very wide range, I know that, but it's very much dependent on the activity level.
And as soon as we know anything more about the activity level, we will also tell the market around that and then we could sort of decrease the gap and be more precise in the cost for the transaction. You might have seen that we have consolidated our China operations, and we sent out the press release last week, and that will give us a positive effect on our EBIT. We will look at that as the e terms affecting comparability. So it will be outside the normal EBIT, roughly €80,000,000 to €100,000,000 C and I. And we will have the cash effect after this for the second half twenty seventeen, roughly, I would say, €55,000,000 to €70,000,000 will come during this year and then the remaining part will come during 20 18.
Last but not least, our financial targets, we can say that we are really hitting or performing on the net sales organic growth with 10% after the first half year compared to 5% as we have as a target. EBIT margin, 40.4%, still below the 15%, but we're working very hard to reach this. And this will not be done this year, but the aim is to do it later on 2018, somewhere around 2018. Net debt and the leverage is below the 2, and we will continue to deleverage during this year. And the dividend policy remains unchanged.
Thank you. Over to you, Roger. Thank you,
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. And now we're waiting for the court to decide the outstanding motions by latest, we think, end of September. So if we're lucky, earlier.
And if there is something that is material for you to know, we will, of course, release that. And as Piotr said, we have a wide range, but we that's what we say at this point, €15,000,000 to €30,000,000 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. So more to come hopefully soon on this one.
So if we summarize the quarter, strong sales, continued favorable market dynamics in most businesses. If we take out the Class X, 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. And as pending, we say the outlook remains positive in most of our businesses because that's the case.
We see no dynamics going in any other direction. So we're very encouraged about that. And with that, we close the presentation and open up for questions regarding the report and the results. So please Annika, you can open up for questions.
Thank The first question comes from the line of Lucy Collier from Morgan Stanley. Please go ahead.
Hi, good morning, gentlemen. My first question will 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 your kind of 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?
Or are you expecting that it could drag much longer?
Hi, Lucie. In the case of Florida, we really think that we will know quite precisely quite well what 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. My second question was around the U. S. RV market and also two elements, 1 on the mix because some of your customers have kind of signaled a higher proportion for smaller RVs. So I was wondering how you see the potential how you see that potentially impacting your mix going forward?
And also how you think whether there could be some pre buy effect considering that all the financing might become maybe a bit more expensive if interest rates are indeed kind of start to or continue to go up in the U. S? So that was question number 2.
Yes. And when it comes to the mix effect, we you know, Luz, 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 JACO. I you can also see throughout the year that motorhomes has high growth still and also smaller units are at higher pace growth. So I mean, there is somewhat to that. But if you ask me now, I actually would see that, that mix effect is starting to level out because of good, let's say, discussions and also good in routes we do with some customers in the U. S.
Without exploiting that too much. So 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 when we 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. But 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. But there is no, let's say, signals that it's hurting the outlook for the industry at this point.
I mean, I also think that sometimes if you just compare automotive industry and the car industry funding, but this is slightly different. I would regard this more if you look at the mortgage market more. So if you start to have issues with the mortgage market, then I think that would impact more on the side than consumer credit for cars.
Okay. And just maybe my last question was around the Marine business. It was actually your strongest segment across the group for the quarter, I mean, up very strongly. Of course, I noticed 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?
Yes. The especially the U. S. Vessel market is very much project focused. So we have a good view on the pipelines for most builders.
But we have both the U. S. Business and the European business, as you know, Luci. So we the marine business continued to be very strong for us. When you look at the top lines 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.
But 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. So it's an interesting sector for us. And we are very encouraged to see that also small boats are coming back, even if we have we don't have that much content in smaller boats, but we have an ambition to grow also in smaller boats in Europe. So long answer, but yes, that's the answer.
Thanks, Jose.
The next question comes from the line of Olof Nossamer 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 Q2 and also maybe something more to come later during the year. Could you please elaborate a bit more on that? And do you see potential for price increases in North America given extremely strong demand as well?
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 Q2. And there will be more falling in during the second half here. I will not go into details around that for obvious reasons about disclosing discussions with customers. But it's a very, very concrete development that is burning us, and we need to deal with that. U.
S. Has traditionally been pricing pressure type of market and to some extent is. But as you say and as you dilute to, it's also a 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 there, we that's good for us.
So
yes. So last year, 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 of under control of how we can gain from this situation this year. That's more to do to what Roger said.
Yes. But as you know, Ole, we have also wanted 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. So we try to manage that in the smartest way for best earnings and growth for us, okay?
Yes. And my second question is regarding the consolidation of the operations in China. And what types of gains are you expecting from this? And also, you don't see a risk that given current very strong demand, we're expecting further increase in 20 18, but there will be a lack of capacity for domestic to deliver to your customers both in Europe and in U. S?
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 general, we have known for years that, that has to happen at some point.
It's a 4 story building for us. It's quite old, and it's lying in a almost like an urban area. So was a very good, let's say, situation now to sell it off. So we're planning to move out that production of it's mainly thermoelectrical lid assemblies for cooling boxes and it also some foaming operations for smaller fridges. So we have a great operations team down there.
They will move that out here through the coming months. And 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.
But in a way, it's a nice problem to have. But the best 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. And we're trying also to utilize the fact that we have a global footprint. We can also take bridges 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.
But it is and you would hear that from other stakeholders in the industry, the American Army 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. And I think from our perspective, we have a more I mean, we don't have any issues in terms of volume in that sense. You remember we had a little bit of issues, self completed here in the 1st start of the year in our windows and doors.
But apart from that, I think that we're doing very well in Europe.
Yes. Would it be possible to quantify any type of savings from the consolidation in China?
Not at this point, but I think that it's going to generate efficiencies and have us give us the opportunity to run smoother operations over there. We're building up our Suhai facility to be a very big facility, but it's also improving month by month, quarter by quarter how we manage that to size. And it's we'll see some coming through here in terms of efficiency and synergies, but nothing that I will put money on at this point, Ulf.
Yes. And 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 that in other type of business. And it's also 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 and have a good summer.
Yes. Thank you. You too.
The next question comes from the line of Peter Reilly from Jefferies. Please go ahead.
Good morning. I've got three questions, please. Firstly, coming back to this issue of the margin in Europe. I know you've got some 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 was scope for something more radical and you're just too busy at the moment to put some more radical restructuring through.
So is this a case where we the margin is going to struggle to get much better without more radical action? Or 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? Then secondly, I was going to ask about Cool Boxes in Americas, very strong growth plus 50%. 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, 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? And then 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 do 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. First of all, margins in EMEA, I think that should just straightforward answer your question. We're not planning radical moves, as you'd call it.
We're clearly planning to consistently take through a combination of actions here that will get us back on track. When it comes to coolers in the U. S, obviously, this is we're extremely excited about this. And I think that you mentioned a couple of things that we're actually doing. I mean, 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 scooters, but we'll come back to that. It's nothing that I want to disclose today.
But just the sheer fact that we have them as offering over there also on our homepage is driving sales. I mean that we see that we have been we're also quite active on social media in the U. S. And just as an anecdote, I mean we have more than 150,000 followers on Facebook after 2 months of really putting up one page on Facebook that is organized and looks professional. So we start to see a buzz here in new segments that we haven't seen before.
We have a couple of adventures that have tested our products and are extremely upbeat about our ZFX boxes. So it starts to spread over there. But 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 few years here. When it comes to China, I think that one of the pieces of growth over there right now is this automotive business on inverters.
That is good business, but it's a little bit too long hardening for us. We're trying to deal with that with the customer there. We also have a couple of interesting products launching later this year that I won't go into now. But I think our China business is approaching some €150,000,000 if you exclude everything that goes through Hong Kong. But €150,000,000 in Mainland China is a ballpark number for you, Peter, okay?
Okay. And 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 anticipated. I look at the reviews against on amazon.com and the reviews are generally fantastic. So is the mix looking a bit different to what you expected 1 or 2 years ago?
Yes and no. Obviously, we have not started to sell through own site. It's something that we're playing in our thoughts to do. But you're right. I mean, with these big online sellers that are picking up our products and they are eager to get more of them, we have a we know that we have the best market 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. So and I think that that's also what we see in America now. Ice less fridge and freezing. That's what this is about.
So
But 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. Yes.
Okay. Well, I shall follow with interest. Thank you very much.
Thank you, Peter. Have you bought the box, by
the way? Yes. I'm still
waiting for my free sample.
The next question comes from the line of Anjeska Villalala 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? And also, if you could quantify what was the growth if we exclude the aircon service stations business? Thank you.
Yes, I think hi, Anjeska. I think that I agree with you, but it's clearly an impact from the aircon stations. I don't have that number in my head. We could take that out. But that combined with not a very hot spring or not a very hot, let's say, 2nd quarter and you know that heat is good, But that combined with the aircon service stations, and we'll see here if Erika will be able to come up with a number.
What we could say was that, I mean, given that we have the Easter in April and also this was not very warm, normally, it could be a very good sort of week for us, but this was a weak this year. So but it is very much a conversation. And that is started up late in May and June was stronger than April.
Otherwise, if you just look at your, say, aftermarket business and underlying, are you happy how it performed versus the market during the quarter
in Europe? In terms of product 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, I mean, June as a month for the company
of Domatic was tremendously strong.
We're also very eager to read about the heat wave that is building up in Germany. Heat wave in Germany is always good news, okay? So
yes. Perfect. And 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?
And 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 will 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. And then one question on the mobile cooler business in the U. S. Again, can you just quantify how much you sell? And also, I think that you named that you have the ambition to double the sales there for Mobile Cooler Business.
And 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, and we have not disclosed the sales yet because of we've had good reasons for that. And I won't do that today, still. But I mean, you see that this is building up and we're very serious about this. So what we'll do for all of you is that we would bring some more meat around what we do, how the sales look, what the channels for the next call here.
Okay. Yes, perfect. And then my last question to Peor. Can you just confirm what's the outlook for the tax rate for 2017 2018, please?
Yes. We would remain at 23% on booked tax, charge tax and then the pay tax will be roughly out.
Perfect. Thank you.
7% to 9% this year on the same for next year.
Great. Thank you.
Thank you, Anasco.
The next question comes from the line of Karl Mathiasen from Capital. Please go ahead.
Good morning. This is Karl from BodoNholm. First of all, congratulations for a good quarter and thank you for taking my question. I just have one question regarding the margin in U. S, which is very impressive.
I know that you have solved the quality issues with the AC stations that burdened the margin last year. I wonder, I mean, did this help the Q2 margin? Or is the effect still to come in the next coming quarters?
Yes.
Hey, Cor, just to connect you a little bit, the quality we had in the U. S. Was on air conditioners for RBE, one specific model. So it was not air con stations in that. I want to be clear about that for those listen to this call.
To some extent, yes. I mean, warranty is somewhat down in the U. S, but it's not a big contributor to the quarterly results. But we have had that has been driving some of the warranty here last year. So I think that it's tapering out for sure.
Yes. So it's part of the it's somewhat part of the improvement, but not B.
And I would say that it's a combination of good management when it comes the cost on SG and A. I mean, not just the cost is going down, as we have said that we had the 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. So it's a combination of a lot of things, which I think is comfortable because we're not relying upon just one event right now.
And is it fair to say that this will continue to be a positive driver for the margin the next quarter as well or yes?
Yes. I mean, that's our intention. We never stop. So I mean, continuous improvement, we would 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?
Yes. Sounds great. And then one last question.
Yes, sorry. Go ahead.
Yes. One last question about M and A. Can you please get some color on the pipe current pipeline and your outlook?
Yes. We're having we're having a rather big pipeline, as we have talked to you about. We have also Carlin on board to increase capacity here around Peniclas and ourselves, me and Perona to drive this. We're not in a process that will put signatures on papers soon, but we have some interesting things that has popped up. So we'll keep you updated throughout the quarter.
Okay, great. Thanks a lot.
The next question comes from the line of Erik Alassen 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 shipped product from Asia to the U.
S. Market. And 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, Erik. 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. So it's no news. It's nothing new that are starting up.
But my point is that it's good that we can level our capacities and utilizations between the two plants in terms of refrigeration. So air conditioners, we take everything from China into the U. S. So I mean, they have a I think it's around 20 plus percent of their production value in for the region is generated in China for them. So it's more how we manage this in terms of product mix and where we want to grow in certain areas.
And 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. So it's not margin dilution. It's 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 I mean we have the opportunity to divide it into 2 different factories. And if we would have capacity constraints in the U. S, then we then need to add on over time, etcetera, extra ships, that will be dilutive. But now we can actually balance this in a better way. So I think that we even help the margin development.
Okay. And one thing for all of you as well is that, I mean, we're having a lot of production up in Elkhart County and Indiana. And the workforce there is utilized fully. I mean, the it's hard even to get qualitative people for the shop floor. So I mean, we're fighting around workers.
That's no I mean, that's known. Also, our customers and our competitors, we fight
about the best people out there. And that drives,
to some extent, also cost labor cost. That should be taken into consideration in this situation.
Yes. Got you. And the last question really about quarter is actually about what 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?
Yes. 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 this
The sun is shining today, and that's good.
Yes. 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.
Yes. We can move soon into that, Erik. 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, Erik. Anyone else?
We have a follow-up question from Lucy Collier from Morgan Stanley. Please go ahead.
Hi, thanks again for taking just 2 kind of small questions. The first one is around the corporate cost. When I look at the slide where you separate kind of the margin and the margin excluding the corporate cost, it looks like they were kind of down year on year in the quarter. I mean is that are you going to have a lower run rate in terms of corporate costs going forward? That was question number 1.
And then 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 now going to have kind of additional costs related to the legal case?
Okay. If we start with the corporate costs, yes, we try to trim the corporate costs as well. And they are lower and we intend to keep them as low as we can. So that's a correct reflection. And but we don't have sort of any, you say, cost saving programs, actually, but we try to keep them as strict as we can.
And then, I mean, in order to the next question, the seasonality will be the same, where we have the Q4 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 it's still you will still have this kind of seasonality, but that will not change. Did you have a third question, Alvaro?
No, I didn't have a third question. But just on the corporate cost, I mean, do you think that the benefits you had year on year this quarter, is that something that you extrapolate to continue? And I don't know if you can quantify how much lower the corporate costs were in this quarter versus the Q2 2016?
No, we don't quantify this. But I mean, what we also do from time to time simply is that we take some investment also and it could be either in product development or certain initiatives. So that might come up. Overall, we try to take down the fixed costs centrally without quantifying how much that is.
Thank you.
There are no
further questions registered at this point.
Okay. If I say a few words, Frederik, and then I open up if you want to add something, if there are any specific questions. But I mean, 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 5 years with this great company, and I've had a lot of fun, but a lot of hard work. And I think that we have transformed Tometi quite well. But there is also a really tough agenda going forward with a lot of interesting things to do. So I mean, you need to have someone coming in with another at least 5 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 the Medic 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. So there is as I say, there is no more hocus pocus than what you read. I, of course, mixed feelings about this. I love this company, and I have been very engaged with it for very intense 5 years. I can just say that I'm extremely happy that we have found a very, 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.
So that's what I can say. I don't know. Fredrik, maybe you should say something here.
Yes. Good morning, everybody. Thanks, Roger and Pia for a good presentation. Yes, I mean, you have read in the news, I mean, we will have a CEO shift at Ometik. Roger has been in, I would say, very much joint understanding with the Board, decided to leave his assignment.
And we are, of course, very sorry for that. We have also tried to keep in there. But as Roger put it himself, I mean, things have its time, And we have been fighting the market together, Roger and I and the team. So I think we respect Roger's decision. Roger will then remain in his current role until the end of the year.
And I do agree with Roger that Joao Vargas, currently Head of the Entrance Systems Division at Assa Abloy. He has then been appointed as new CEO from the year end. And he has, in the board's opinion and my opinion, a very, very strong track record and is very, very suitable for continuing the very interesting journey that Tometic is on. So I think it's
a very
undramatic change. We know where we are, and we know where we're going. And we have a fantastic team under Roger, and everybody is fully committed to continue the journey. And Joao has all the skill sets that we like, and we're sure that, that's going to be a good handover at the year end. I think that's what I want to say.
I mean, we're going to thank Roger later. But as things are continuing, we are continuously driving the business forward. And I can assure you all that we will not stop for a second. I mean, we will push on. So that's what I wanted to say.
Thanks, Rudi. There are any questions around that, Annika? Otherwise, I think that
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 Erik Gullison from UBS.
Please go ahead.
Yes. So Frederic, I was just wondering if you can elaborate a little bit more why you think Johan is particularly suitable to this mission really to take the next step for domestic, if you're able to say a little bit more about that.
Yes. No, I think first of all, I mean, one has to remember that domestic is 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. And there is also the ingredients of consolidation and continuous growth.
So you need to be able to master the whole value chain in a complex world on a global basis. And Juan has a very, very long experience. I mean, Roger and the team has that experience, but Ron 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 $3,000,000,000 to some $20,000,000,000 And that growth has come from efficiency work, acquisitions, healthy organic growth. And I think for any one of you, you can, I think, also look into that development as it is also, I think, quite public information?
So I think those are the things. He is a very proven strong leader, and I think that's also with his experience before us, Pablo 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. So that's in short.
Very good. Thank you very much. So you're just going to make the automatic opening doors for RVs?
That's a good idea.
Do you think that's a good idea?
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.
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 Assarabloy, I mean Assar has been very acquisitive and Entrance Systems has been 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 driving organic sales, but also accelerating acquisitions. So it's not the secret message, but it's just reinforcing that we are committed to our continued development, and we assure that we have the right plan for that.
Okay. Thank you. And I want to wish Roger all the best in his new career.
Thank you, Peter. But we'll meet here during the autumn as well.
I look forward to it.
Okay. Thank you, Fredrik as well. And thanks to everybody. I think with that, Annika, we close the call. Thanks everybody and have a great