Thank you very much. Good morning. This is Roger Johansen calling in from Solna to report out on Q1 2017 for Dometic Group. As always, we'll go through the presentation and open up for Q and As at the end of that. Please go to the Q1 twenty 17 highlights, where we, as always, try to summarize up the quarter.
I think we can all say that we booked a strong sales quarter, 1st start of the year this year with reported sales growth of 15%, of which 11% is organic. Positive with that is that all regions contribute with growth and basically all businesses globally contribute with growth. Gross profit increases, we want to highlight that, which is always a sign of the underlying strength of the business, goes from 30.4% to 31.5%. It's worth mentioning since the EBIT margin is impacted by costs that we will talk about to you later. EBIT is, however, up 11%, and you see that we have taken some SEK 46,000,000 cost in the quarter in the operating result related to rebranding, the legal fees for the class action lawsuit and some costs that came in correspondence with the 2 acquisitions we did in EMEA.
Talking about EMEA, they clearly had fantastic growth, strong sales, where we outperformed the RV business. We had 17% growth in RV. We also had a very strong car and truck sales in the quarter with an increase of 24%. If we look on Americas, also there worth mentioning is that the underlying margin is improving with 1.7 percentage point. We start to see that we're at least closing the gap on the RV OE side.
We have taken a couple of important steps in the right direction in the RV business in the U. S. We grew 4%. And as you have seen, the 1st 2 months of the year in terms of shipments to dealers was 9%. As we have talked about many times, there is a certain delay that you need to take into consideration, but we're at least encouraged that we're moving in the right direction there.
APAC sales growth of 13% and 24% EBIT improvement. APAC books a very strong quarter, in my opinion. We also improved cash flow for the group. We always have at least still negative cash flow in this Q1. In the future, we have ambitions to move in the other direction, but Arne will
definitely talk
about that later. And leverage lands at 1.8x EBITDA. The 2 acquisitions that we have talked about earlier contributed with sales of SEK 47,000,000 and very little earnings in this quarter for different reasons. We'll mention that a little bit later as well. Okay.
So all in all, strong start of the year sales wise, very broad and nice sales improvements. We move to the next page. This is just to visualize it differently, where you see the 15% and the 10% in comparable currency up to SEK 3,400,000,000 in the quarter And the EBIT where we have also shown those extra costs visually there, so SEK 4.18 reported and SEK 4.64 with that extra cost considered. We put cash flow, as I said then, from SEK 102 minus operating cash flow last year to 44 this year. If we take a glimpse of the markets, we always start with the U.
S. RV market, which continues to be strong, good shipments in the 1st 2 months of the year. Rolling 3 was 11% up and year to date then 9% up on an LTM basis, 15% up. The market continues to be optimistic. There is good growth.
And what we discussed after the Q4 about potential, let's say, political impacts from the changes in the White House or whatever is nothing that we have really seen any signs in any negative direction. So we remain optimistic and positive about the market in the U. S. Same goes for Europe, where you can see that rolling 3 through March was up 5%, with still Germany booking 6%. And worth mentioning is that Sweden is running well, 11% up.
And also encouraging is to see that there is growth in France and Italy. We don't have Spain on the chart, but also there from low levels is moving in the right direction. I think that the sentiment in the RV industry in Europe is very optimistic as well. There is several of the big manufacturers are adding capacity. I think for you that follow this market, you also saw that Riggano had a good report here last week.
We move to trucks. It's a steady upward trend, and we see that we have a good we have good growth in our CPV business in the quarter. Year to date, up 4%, rolling 3% +8%. As we always say, is that also it's not necessarily registrations here that is the main driver for us, but more of penetration. And I think we had a good mix of both in the quarter.
Moving to U. S. Powerboat sales. You've seen this curve now for a long time. It's hovering around 6%.
Nice to see is that in the 60 to 100 feet segment up there was a strong start of the year. That also is seen in our numbers. We had a good start of the year in the Marine business actually globally, but specifically in the U. S. So if we move to Americas and look at their highlights for the quarter, organic growth of 4%, and then we have backed out these divested businesses that we have talked about now for a while.
So we're going to come into a normality and not needing to talk about that. Underlying RV OEM sales is 4%. And obviously, not in line with market still, but we see the same pattern as we have talked about before. We have a mixed shift. We have smaller camper trailers that does impact a little bit our value to each sold unit.
We have, however, returned turnaround the trend in the U. S. A little bit when it comes to the share discussions we have had. We've taken some important refrigerator businesses during this quarter and also fighting hard to get back on our share on awnings. We have also actually moved in the right direction on air conditioners in this quarter with some important businesses going forward here.
Sales growth, as I mentioned, of 18% in the Marine OE, favorable markets, strong positioning with new products, so that's encouraging. Aftermarket sales up 10%, if you exclude the divestments, driven by both RV, marine and retail from a very low level. Worth mentioning is a gross margin improvement of 1.7 percentage point. And the underlying EBIT margin increase goes a little bit up to 13.2%, if we then take out the burdening of the legal and rebranding costs in this region in the quarter. If we move to Europe, very strong sales, both RV and CPV and aftermarket sales, strong development also here in Marine.
It also was enhanced with this new acquisition of Oceanair. We had, as I mentioned, also positive truck market momentum, aftermarket growth in many businesses, particular strength in RV and lodging as well. If you now take out some of the rebranding and acquisition costs that we've had, actually the EBIT margins are slightly improved. That's hard to see. And I can understand that you think that we would have gotten more out of such an organic sales growth and so do we.
I mean, it's not where we want this to be. We would have also expected a little bit more leverage coming out of this, but we have a business that is very impacted on mix issues. You need to bear that in mind. We have a very RVO is strong quarter, and we run our operations at a very high pace now. And we have a rather high direct labor share of our direct labor share of our operating costs in Europe.
And to some extent, that also adds cost when you come up above some certain limits in some of the plants that we have had at the start of the year. The acquisitions did not really contribute earnings wise in the quarter in Europe as well, which is worth mentioning. And there is a little bit of a cost buildup in Europe right now, and we need to take a harder look at that and tighten up the cost in Europe because we have also added a little bit to build the future of this region, so to say. We've added some overhead costs in terms of wage hours, in terms of internal control and some other functions. And again, I think that we need to take a tighter look at this to get these margins back on track.
If you look at Asia Pacific, moving there, I think that all in all, we must say that Asia booked the best quarter of the 3, very strong. You remember, we said they were a little soft in Q4, but they really come back here very strongly so and impressive both sales performance and earnings performance. We outpaced the market in Australia, which for the time being is somewhat soft. And we have also actually started to see an increased RV interest in the smaller markets, but nevertheless also important markets for us such as Japan and dynamics going on also in China. Strong development in market in aftermarket, both Retail Australia and actually China is booking a very nice quarter coming from rather low levels, as you know, but very high growth in the quarter.
So that boils down stronger in that region from 20.7% to 24% 22.4% operating margin, And that is also impacted on the other side here on favorable product mix also that we see mainly in Australia. Just moving forward and looking at the trends, not really so much to comment about those trends. We can move to the next one that shows the business areas development, looking at from the businesses itself. And again, here, this is what I'm very encouraged about is that all our main businesses is really showing growth and also most of them margin improvement on a gross level. So as you know, we measure 24 businesses globally, and that is maybe, as I said also the last quarter, the most encouraging is that we see such a broad improvement throughout the company.
So very strong growth, little bit mixed on the earnings side. We'll come back to that, but I will hand over to Perona.
Thank you, Roger. I will try to avoid repeating exactly what Roger has said. But if we start with the key ratios, you can see what Roger just mentioned, the organic growth overall with 11% reported even 15%. And we talked about the margin. I will come back to that later on.
Core working capital is also up slightly. I will comment that also later on the presentation. When we look at the return on operating capital, it's in line with the last 12 months, but lower than last year. We have added on now with certain assets on the balance sheet without sort of getting the same results. So that will sort of improve over time.
Operating cash flow, I will also come back to an earnings per share in line with last year. And let's talk a bit about that later as well. If we start with the net sales bridge that we usually show, you can see that the 15% of our growth are consisting over 5% of translation FX, U. S. Dollar, euro and also dollar stands for 9 5% of this.
That's sort of the also the 3 most important currencies from our perspective. And we still have a you can say rather volatile currency market and also looking at what is happening after the election etcetera. This is something that we just have to live with and also dealing with. Divestments are actually investments are minus 1 in this quarter. Remember that we actually have sold businesses in the U.
S. So even though we have invested in U. S, it's still a negative impact on the top line numbers. If we go into the regional results, overall, I would say a solid result even though you can see that both Americas and EMEA have lower margins. Roger has commented on this.
And just to repeat once again the class action and also rebranding and hitting in Americas. When it comes to EMEA, we have the new acquisition, the cost for the acquisitions and also very low return at the beginning. This will change and they will yield more positive results from next quarter. So I expect this not to be a burden the coming quarters, rather the opposite that it will help us to increase the margins. APAC, great quarter, I would say.
And if you remember previously, they have had a certain volatility in the margins and I will come back to that later on. But the underlying margin from the business perspective is actually pretty good. We have also added on some central costs. And as Roger also said here, we are doing some investments for the future, which we will continue to and certain quarters might be affected by this investment. But looking this is 1 quarter.
And looking at the future, I think this is the right thing to do. So both costs that we have had for the acquisitions and also the investment that we have done will lead later on for the domestic group. If you then turn into the margin development in the different regions, you can see that we have a certain seasonality. This is a one of the better quarters, but the best quarter is normally Q2. So you should expect now the margins to go up in the second quarter, given that the peak season both for Americas and also for EMEA.
And that's also where we have a higher part of our aftermarket sales coming through. Looking at EMEA, once again, I hate to actually sort of exclude things, but just to understand what is actually behind the numbers. It could look a bit down that the money is going down. But if we actually take away the acquisition costs and the rebranding and also take out sort of the central costs are allocated, we could see an increase of 13 point up to 13.2 percent compared to 13 percent. It's still perhaps not what we would have hoped for given the top line growth, but it's anyway an underlying improvement in the margins.
APAC, you remember Q3, I think some of you were a bit questioning sort of the underlying margin development. And at that point in time in Q3, we had both one time effects and also hedging effects. You can see right now that if we exclude the hedging effect, which is negative right now in APAC, we are actually increasing the margin from 22% up to 27%. So it's a very, very strong quarter in APAC. And I would repeat what actually Roger said that they are perhaps the best region right now in this quarter.
Earnings per share SEK 1 is in line with last year. What's worth mentioning here is that the total tax rate is somewhat up to 24% compared to 2019 last year. At the same time, we have had refund of taxes or pay taxes actually positive. Nothing that I can promise you to have in the future. We will have pretty low pay taxes during this year.
We have said that we'll probably be around 10%. But this quarter was a bit exceptional with the sort of repayments that we had within the EMEA region. When it comes to CapEx, we continue to invest. The Q1 is normally a rather slow quarter when it comes to investments. We also try to avoid invest too much in the second quarter when we have the peak season.
The 3rd Q4 is where we plan and phase in the CapEx. Normally around 2% to 2.5% we have not changed that view and we continue to invest where we think there is a need. We don't feel like we have a financial restriction right now to do. This is more up to us to find the right investment cases that we have within organization. The same goes for the product development and PMI, roughly now 2.2%.
And I would guess that we'll be roughly at 2.5% over the coming 12 months. So all in all, CapEx and PMI will remain around the 5% that we have mentioned before. Working capital development, I mentioned that at the beginning, it's somewhat higher than it has been seen in the previous quarters. We came down from roughly 25% to 21% to 22% when we are now up to 23%. I think it's more a seasonal thing that we have built up both the inventory, but we have also seen receivables coming up given a very good sales at the end of the quarter.
We still remain firm in our belief that we will take this down to 20% over time. It might take 12 to 18 months, but we will be well below the 22.8% that we see right now. If we look at the working capital, yes, to underline what I've said around the receivable side, you can see that we had receivables of SEK 1.7 1,000,000,000 compared to roughly SEK 1,000,000,000 in last quarter. Very much good sales coming in late in the quarter and I'm not worried about the increase. It will help us to have a positive cash flow the coming quarters.
Talking about the cash flow, you could see on the next page that the Q1 has normally been negative. We haven't aimed to in the future make sure we do not have any quarters with negative cash flow. Let's see what we can do about that. But the Q1 will be and has been historically, let's say, a weak cash flow quarter. The cash flow will start to yield in the Q2 and especially in the 3rd and the 4th and nothing will change from that pattern this year either.
Finally, the leverage, given sort of development we have had on the leverage side, we have gone down from 2 point 4,000,000 last year in the Q1 out of 1,800,000,000 in line with Q4, very normal pattern for our company. We're having today a cash position of SEK1.2 billion. We do not use our revolving credit over SEK1.3 billion. So I think we're well prepared for the future looking at different acquisitions. And the cost for that is for us pretty low.
We are now paying roughly 2% all in. And given sort of the cash flow that we will generate during this year, we will definitely also continue to deleverage during this year. Finally then, the financial targets. Yes, we are above the medium long term target on net sales growth, 11%. EBIT margin, it's still to be delivered.
We are below the net debt target, and we had this year now paid a dividend of 40% for the financial year 2016, and we don't see any reason for us not to be able to deliver on that in the future. Roger?
Thank you, Pia. As always, we say that we're going to continue to give you updates on the class action in the U. S, if there has been any developments during the quarter since we reported last time. In the case of the California case, no major developments has since actually occurred. In the Florida case, during February, there were some developments.
The court granted our motion to dismiss regarding 10 of the remaining plaintiffs that left only 3 plaintiffs with one course of action. And later in the month of February, they, however, filed amended complaint in which they then attempt to bring 7 course of action on behalf of 10 main plaintiffs. And then we have responded to that and made our objections. And then since then, we have not really heard anything new from the court. So I remain on what I have said many times.
We feel very strong in our position about the case. And secondly, is that we hope that during the summer that we will get clearance clarification through the Florida case, And the California case will continue later this year as well. So that's what we have to say about the clear section in the U. S. We'll move to the next one.
Outlook and well, summary first. So all in all, I think good start of the year with strong sales and good availability of product, better performance throughout our DCs at the start of the season here. So we're quite optimistic about where that is right now. Favorable market dynamics in, if not all, absolutely most of the businesses globally. Underlying profitability improvements, clearly, it's burdensome to have these legal costs and some rebranding cost in the quarter, but it is what it is.
It was SEK46 1,000,000. I think that we see for the upcoming quarter some SEK30 1,000,000 to SEK40 1,000,000 in the same category of cost. We can come back to that if there are Q and As around that. Worth mentioning, I think, is that we see that our rebranding effort has started to show really positive effects in sales and also in the awareness. I think that the way we demonstrate our products and present our products now is has been very well received through the dealer and the retailer network globally as we have now launched our new looks, let's say, in all our businesses.
So I think that also long term, we're going to see this having been a very good investment. We need to continue to focus on product development. That's the heart blood of the company, and that's what we're doing. Continued drive in sales initiatives, that is really going very well. And then maybe a little bit extra now based on seeing the EBIT margins not where we really wanted them to be, cost control.
We need to work on tighten up costs a little bit extra here during the next coming months, especially in EMEA. So if we look on the outlook, obviously, the underlying markets, I have commented on them. The outlooks are positive when it comes to RV, both in EMEA and the U. S. The top line growth is in line with our mid- and long term targets.
You can, of course, say now and reflect with this strong top line in Q1. If this continues throughout quarter 2, we will clearly beat our 5%. But we have said that we stick to what we have said so far. Q2 is a very important quarter as PR7 and we need to see that that is coming in as expected. But there is nothing right now that does not say that we will not clearly beat this 9%.
We continue our focus to expand margins towards 15% and that we are committed to. Leverage is at below 2% as we also expect it to be going forward. And we are looking at some interesting potential acquisitions. And as always, we will keep you posted on where that has taken us when when we feel that the time is right. I will stop there.
And as always, then open up for questions and answers.
We have a question from Erik Karlsson from Bordenholm Capital. Please go ahead. Your line is now open.
Thanks for taking my questions. I wanted to start with the Americas margin where the gross margin was up 170 basis points, which is very impressive. But given the good organic growth, you must have had significant deleverage on the SG and A front as the underlying margin was up less than the gross margin was up. Could you just help us understand what is driving the SG and cost growth in Americas and how we should look at that for the rest of the year?
Good morning, Erik. Well, obviously, you know that the big thing in the U. S. When it comes to overheads and cost is the legal activity that's going on there. So that is the big one thing that derails the overheads in the U.
S.
Sorry, I think the margin the EBIT margin even if you adjust for that, was up less than the gross margin was up. So I'm taking out those costs. Even with that, I think the EBIT margin expansion underlying was less than the gross margin was up.
Yes. No, but that is true. And that is also driven a little bit about the buildup in the sales organization that we're doing for our expansion on the boxes and some other initiatives. And yes.
So my question is really for the rest of the year, if we see similar organic growth, we don't know, but just making that assumption, do you think we should see similar growth in SG and A as well?
Still talking about Americas or
Yes, Americas.
Yes. But I think that I mean we if you look at if you take out the rebranding in the quarter, you were up to 13.2% and that might have been lower than the gross margin development. I think that we are working very hard now with the logistics cost of very high loss here. So we are working with this to make sure that we get the better leverage within the States. How that actually will play out remains to see, but we are working all of this issue.
So is it fair to say that it did not play out in Q1, the improved logistics and so on in the cost levels quite yet?
No, no, no, not to that extent that we expect it to do in the future.
And what have you asked Scott to commit to in terms of delivering results on that and in terms of timing?
Well, we don't give sort of commitment on certain logistic costs for certain regions. I mean, it's what our commitment is that we should come closer to 15% for the group. And then we need them to also in order to do that, of course, you need to also get the better leverage when it comes to cost side also in Americas.
Sure. Do you still think you can do 15% next year?
That has been always our drive what we have said for the past. You guys hear now, Erik. So that is clearly still our aim.
Very good. And one question on EMEA as well, if I may, where you had a bit of negative product mix. Do you still do you anticipate that product negative product mix to also on a year on year basis? And I do understand things get better in Q2 and so on. But on a year on year basis, will that still remain the case in Q2 so that we are likely to see some margin dilution from mix in EMEA in Q2 as well?
I think that what we I think we're seeing improvement because we have to remember that we had acquisitions coming in, in this quarter where we had little low contribution bottom line in absolute terms. And that will improve the next quarter. And Eric, this is the case when you're investing for the future, when you're doing this kind of acquisition, you might have one on all the other quarter where you can't see the sort of the positive effects coming through. But over time, it will definitely do. So for me, this is more a timing issue.
So on the number side, so it's fair to say that the 4% of growth that came into EMEA from acquisitions, that delivered almost no EBIT?
Exactly. That's the truth.
And that will improve in Q2?
Definitely. Because I mean, we have some stocking costs that we had in the quarter, including also sort of acquisition costs. So that's why also dilutive to EMEA.
Very clear. Thank you very much.
Our next question comes from the line of Lucie Corriere from Morgan Stanley. Please go ahead. Your line is open.
Hi, good morning, gentlemen, and good morning, Erica. Maybe just some sort of a follow-up on the mix. The aftermarket business seems to be growing nicely across the group in Australia, but also in the other region. But it doesn't seem clear that we see that benefit on the margin side, even if we kind of look at your underlying margin, I. E, excluding the additional overhead costs or litigation costs and so on.
So I just I was just wondering if you can provide us a bit more color on the dynamics between the OE margin and the aftermarket margin because if we kind of look kind of year on year, it looks like either the aftermarket margin is maybe not as accretive as it seems to be or that BOE margin to some extent is coming down because we're pretty much around stable. So that was question number 1.
Now what we have said, Luci, good morning, is that you know that the RVO business is our biggest business, but it is also on the lower end of the margins, which is we have all been very transparent about that. And with the strength, with the growth that we have in Europe now on the RVO side, we're running some of the plants at very high pace and we do have extra cost in that as we speak. But that will also that would play out with time as we do productivity gains and productivity improvements. On the aftermarket side, yes, I can understand that reflection. We have not also mentioned in the report today that if you look on the direct material side, we do have an impact in the year.
We expect for the full year of direct material impact €100,000,000 but €50,000,000 of that, that we will offset. I mean, we have said that as a thumbs mark, and that is also impacting some of the aftermarket products, which should be taken into consideration. But normally, you should see more leverage coming out of the aftermarket business.
And you can tell if you look at APAC, they really see that. But what they have a very strong, I mean, the down the line margin goes from 22% up to 27%. And they have, I would say, in the strength of that is that they are yielding will result in all different areas. And EMEA especially with a very strong RVOM growth that to some extent is diluting the margin.
Thank you. And just sorry, because I might have missed that in your previous comments, but so you're saying you're expecting in terms of a materials cost of materials headwind SEK 100,000,000 for this year with about half of that that you expecting to offset. Is that correct?
Yes. The impact will be SEK 50,000,000 negatively as we can see right now. Then I mean, if you go back and look at the last 2 weeks, you can see that some of the commodities have been softer right now, which is positive for us. But this is the guess we have right
now. Okay. My second question was around actually the U. S. Market, which is still very strong generally.
We've seen some of your customers when they reported, they seem to indicate there was a bit of trading down in the market, notably some smaller RVs, some smaller vehicle. And I was wondering if you could maybe help us to understand whether that means anything for you, kind of a a smaller VI call, how we should think about that if that trend continues in the U. S?
Yes. It's a trend that we see globally that the RB growth is mainly driven by smaller units. In Europe, you see smaller motorhomes, rebuilt vans, things like this, which is also attracting younger users of RVs. And actually, you see that trend to some extent also in the U. S.
And if you break down RVIA sales shipment data, you can see that it's smaller travel trailers that are also growing the most over there. And what we have tried to tell you guys is that we have less content on those. I mean, if we if they build a large motor home or a large caravan in the U. S, we can have up to 3 air conditioners on the roof. And if it's a small travel trailer, we might only have 1.
It's a huge impact value wise for us. So I think that it's a mixed I mixed emotions about it because on the one hand, we like younger RV users to come into play. And the number of units are increasing, but the sizes of them is trending downwards. But all in all, I think that's good.
And then just maybe my last question, just to come back on Eric's one on the U. S. It seems that your Marine business was actually quite solid overall. And I remember that this is normally a very nicely contributing unit for you, a very nicely contributed business. So again, I'm just trying to understand a little bit the dynamic within your portfolio considering we're not really seeing margin expansion.
Also because I remember what you have divested in the U. S. Last year was, I remember, below region margin, so it should help. And so I'm just trying to understand the balance here between the different businesses.
Yes. No, it's true reflections, Lucie. First of all, the Marine business is doing well, and they are higher average margin wise. We have a however, a very soft CPV market over there. As we speak, that is offsetting some of that tailwind we had on Marine.
And what was the last part of the question?
Yes, I think that was the question. Because it's CPV that are a bit softer where you are very much project driven and we had good projects last year. This is a bit more soft. So that's also impacting the margin as well.
Thank you very much.
Thanks, Lucie.
Our next question comes from the line of Olof Larssonmer from SEB. Please go ahead. Your line is open.
Thank you for taking my question. And firstly, it would be interesting if you could please elaborate a little bit on capacity utilization currently. You mentioned that you had some additional cost due to other high demand in Europe. And where are you in terms of capacity utilization? And how will that develop during the years given the investments that you are doing?
Yes. Good morning, Olof. Yes. I mean, we have some of our main product clusters. We run at very high pace right now, both in Europe and in the U.
S, and we should also say in China. So if we look on the U. S, we have very high utilization on awnings where we have had to take in some measures to really pump up the capacity there. On fridges, we have had to even shift some volume to China, reimporting it into the U. S, which has helped us to grow.
But it's we need to utilize the China capacity more than what we have done in the past, which also adds on logistic cost and some other things. In Europe, we run at very high pace in the windows and doors cluster, which is the biggest business in Europe actually, where we also have had to shift final assembly from Germany up to Tidaholm in Sweden. We did that at the beginning of the year, and it's working well now. But it is always it takes some time until the productivity is coming out when you do moves like that. On the fridge side, we're doing okay in Sighin, high volume.
And we are also you see that we're pacing stronger than the market, but there is no capacity problem in that cluster. And yes, so that's a flavor, Olaf, of what's going on here.
Yes. Thank you. And so cost for this, should do you expect that to decrease during the year or remain on this level for 1 or 2 quarters more?
Decrease during the year.
Yes. And I mean, especially if you take windows and doors, we have been more than 100% on the capacity. I think that also requires overtime. And we said that would be taken away and certainly it's we expect this cost to go down all the year. And that will also create a better leverage.
Yes. That's brilliant. And my second question is regarding the rebranding cost. And I think you mentioned that SEK 40,000,000 in cost in Q2. And I guess that's mainly relating to legal costs.
But it will also be interesting to hear your thoughts on what benefits do you expect to get from the investment that you have done in terms of rebranding costs during the last 2, 3 quarters? Thank you.
Yes. I think the benefits, when you do shifts like this in both on the product side in terms of design, the looks, the website, the packaging and all those things, I mean, we have seen that clearly as an investment in our business. And it's hard to say how it's going to play out, but I'm very convinced that this will do very well for the business. Based on the feedback we get from dealers out there, will pay out. But we have not put a euro number on that.
Well, I mean, yes, elaborate a bit more on the restructuring. What to say is that the look is great, the design is great, so they would like to display it even more. Obviously, it looks good. And of course, that will help us to sell more over time. So I think we will get that money back.
So that's why we're trying to say that we are doing quite a lot of investments now that are burdening the cost. We also have some extra cost center. But I think it's good cost for the future.
Yes. And just regarding the SEK 30,000,000 to SEK 40,000,000 in Q2, is that both rebranding and legal cost or just legal cost?
No, I will say that's basically legal cost. We will have very limited rebranding.
Yes. Thank you. That was all from me. Thank you very much.
Thanks, Ulf.
Our next question comes from the line of Agnieszka Bilala from Carnegie. Please go ahead. Your line is open.
Hi, thanks for taking my question. Starting with the cost base, but if you can talk about it more on a group level. If we look at the gross margin for the group, it improved by 1 percentage point year on year. However, when I look at the SG and A costs and even adjusting for this EUR46 1,000,000 kind of one off costs that you had, And I think you see that these costs were 1 percentage point higher as a percentage of sales year on year. So if you can just line up all the elements that is driving the SG and A cost and then also give us the indication for the coming quarters?
Will the SG and A cost continue
to increase
year on year?
Well, if you would like to have the exact deals on our SG and A in the group as far as then, you will not get that. But all we can say is that, yes, we're making investments. We are making investments centrally and with different activities that we think is good for the future. We have seen in the uptick, especially in the organization in EMEA, where we are hiring people for both in administration and also in sales to support the growth. But still, I think we have a target that over time our SG and A should come down closer to 15%.
We have said that before. And but sometimes also you need also to take some investments for the future. But we are very cost conscious. We have shown that before. So it's so we will take an extra look on that, but I will not give you an extra sort of detailed sort of description of exactly on the cost side as what we should do.
But the ambition is to come down to 15% over time for the group.
Okay. Thank you. And then just on EMEA, you said that you didn't make much EBIT in the acquired Tunis. But can you tell us if the EBIT from acquisitions was negative during the quarter? And also going forward, should we expect profitability in these acquisitions to be in line with the division's profitability or even accretive?
No, it will be accretive over time. Some was negative and some was positive, but the combination of these 2 were more or less 0.
So quite neutral for the EMEA margin?
Yes. It was 0. So it's not neutral, it's dilutive. Dilutive. Yes.
So it's and that will be that will definitely improve over time.
Okay, perfect. And then just a follow-up on the legal costs that you expect to run at around €30,000,000 €40,000,000 dollars If we assume that the California case would be settled, say, during the summer, so you will only have a Florida case. Should we expect the kind of running costs for that to be around €10,000,000 or €20,000,000 per quarter? Is that a fair assumption?
First of all, just to correct you, Anjaskar, the it's the Florida case that is, let's say, timing wise, upper in the pipeline here. So we hope to conclude the Florida case during the summer. Yes.
Okay. Yes.
And secondly, I don't want to be too explicit about this cost going out. We have, of course, wanted to give you some guidance for Q2, but I do not and you have to respect that one to dilute on that on this call.
Okay. Thank you.
Thank you.
Our next question comes from the line of Peter Reilly from Jefferies. Please go ahead. Your line is now open.
Good morning. I've got three questions, please. Firstly, can I come back to this issue of the share for RV OE in the U? S? You've been talking, I think, a bit more positively about the outlook there.
But obviously, you didn't have any real you still have some share issues in Q1. So can you talk about what you see coming in the next couple of quarters? I mean, do you now have contracts in hand where you're confident that you can start growing at the same sort of pace that the RV market does? Or is there still some timing issues where you'll undergo the RV market for a few quarters? And then secondly, in the past, you talked about products in the passenger car market in North America.
I know it's early days, but are you making any progress on that? And then lastly, on Europe, where you've clearly got very high utilization rates in some of your plants. And you said yourself you were a bit disappointed by the lack of operating leverage in the Q1. Do you think you need to take a more sort of fundamental look at your manufacturing footprint in Europe? And particularly now you've got a newish European CEO.
And is there an argument that you're actually quite a big overhaul of the manufacturing footprint to deliver both better leverage and over time high margins than you can manage on the current footprint?
Good morning, Peter. Yes, good questions. First of all, RV U. S. Share, yes, you're going to see this moving in the right direction.
And without being share, but you're going to see it falling through in the second half of the year. But as I've told you guys, I mean, this is the top of our agenda to get back on the right track in the U. S, but not at any cost. So I think we have made progress on the air conditioning side. I think we have made progress on the refrigerator side.
We're still challenged on the owning side, but we are taking measures there that will come into play here in the second half of the year. So I feel better than I have been in the last, let's say, 12 to 18 months in terms of this of the share taking back share in the U. S. Secondly, interesting dynamics going on, on the car and truck side in the U. S.
This is a long term play, as you know. We have established a small Detroit office since a couple of years and start to bear some fruit without being very explicit about it, but we have taken a first very interesting order there. I cannot tell you at which customer, but that's something that's going to play longer term. So I think that we see that the Americans have started to get open eyes about cooling appliances into cars and trucks. And when they do, we're up there to play among very few assessed suppliers.
So that's quite encouraging. We do, however, approach this business in a cautious way because we will not go into traditional automotive margins. We want to make sure that these businesses not only fill up plans, but also make good margins for us going forward. Thirdly, we have if you just look on the map, Peter, you could argue that our footprint in Europe is a little bit wide, I'd say. And we have a couple of very small units.
And we have obviously reviewed that in the past years, and we have done closures and selling of plants and what have you. I think it's not bad, but of course, it can be improved. We have 2 fridge plants where we have Hungary and Germany where we can still work on the mix between the 2. Have a couple of the other smaller units that we can look over. And most importantly is that short and mid term, the team, the operations team work very focused with lean initiatives to bring up productivity and should also to help us to get operating leverage going forward.
Thank you. And if I could just ask a follow-up on the automotive business. I mean, the reason I asked the question is if I'm reading your statement correctly, it sounds like you're having a very good time in Europe with premium cars, which I would imagine is a combination of contract wins and rising content per vehicle and the cars you're targeting. I mean, I'm assuming that's the sort of template you're aiming for in the States over time.
That's correct. Yes. And actually, the European engineering team has also been very involved in working towards the American OEs here. So we approach that business on a global basis, utilizing the best people we have.
Our next question comes from the line of Rasmus Ingber from Handelsbanken. Please go ahead. Your line is now open.
Yes. Hi, thank you. I was just wondering if you could help with the EUR 46 million you took in this quarter, where were they taken in which divisions?
Well, they? Yes.
I will say it's very small part taken in APAC and then you have I have to say, good day. In the U. S. Then you have, yes, 60% to 70% in the U. S.
Okay. Right. And then about your raw material guidance, is that do you think your raw material costs will be linear over the year? Or you had any raw material headwind in this quarter?
Yes. We have had in this quarter. I think that the headwind will probably be done the 3 1st quarters. Of course, we have lower, you could say, utilization production in the Q4.
Okay. And then just wanted to ask you, are you in a buildup phase for launching the cooling boxes in the U. S. Right now? Or have you been for some time?
Are you taking extra costs for that? Or how does that work? When do you think that will be a contributor to your profitability?
Yes. And that's what I mentioned it in the early part of the call, and we do actually do that. We this won't come by itself. So we're building a little bit of a team over there and infrastructure that should help this growth coming. And it's not huge, but it is extra cost tied to this.
And is it is that I mean, I presume I mean, the U. S. Is a pretty large market. If you're going to and you're not really in the retail space at all right now, is that something that's sort of gradually going forward will accelerate in terms of costs as you build up the launch? Or have you target specific regions only for the launch of cooling boxes?
Or how is your thinking there? [SPEAKER KARL HENRIK SUNDSTROM:]
We will not burden the organization with too much cost. So we try to do this in a smart way. And then in parallel, actually, we're also looking for some maybe a smart acquisition that can help us accelerate this growth.
Okay. Thank you. Thank you.
Our next question comes from the line of Erik Gunnarson from UBS. Please go ahead. Your line is now open.
Good morning, everyone. Well, I'm kind of just left with 2 minor things that I wonder about. Firstly, continue with the raw material part. How much would you say that of the costs that you communicate of 100 for the year? How much percentage wise is that into the Q1 numbers?
And also how much percentage wise is the offsetting of €50,000,000 into Q1? I. E, the question is, have you how much have you been able to raise your prices in relation to the cost in raw materials? Or will you have to continue doing that throughout the year?
Okay. The difficult question to answer because I mean, it's but I mean, the net effect over the year will be
Some has fallen
in at the beginning whether that is sort of 20% or the $50,000,000 or it's a part of this.
Okay. So you have a rise in new prices to that extent that you're
Yes. So I mean the net remains sort of the $50,000,000 is the net effect and that's what we see coming in right now. And then it's a combination of better prices to some extent also better volumes that could offset it, especially in China.
All right. So well, the next thing I wonder about is basically a more broad question of how do you work with the product initiatives going forward? I mean, how will you I mean, in short term for the season, are you pushing any new products and that you think you're confident about or?
Yes, we have a continuous flow of product launches. But now at this phase where it's more in terms of sales effort, now are the important months where things should leave the shelves and sense. I mean, we have we launched some products at the beginning of the year, and we will launch also later during the late summer and autumn, depending on where in the world.
So that question relates to, I mean, new products, but also products that entering new geographies. So would you see that new geographies are still things to come?
Yes, it is. But it will not have big impact for the result this year. We see some very nice growth rates in some of the, call it, the smaller or the new geographies. I mentioned China, where we had I think we had 57% growth in the quarter. But also, we have seen very encouraging results in terms of growth in Japan.
And longer term, we see South Korea. But you wouldn't see this as a big value driver for this year with
new geographies.
All right. Okay. Thank you.
Thank
you. We have a follow-up question registered from the line of Erik Karlsson from Boredenhum Capital. Please go ahead. Your line is now open.
Thanks for taking my questions. Just on aftermarket in EMEA and North America, which were was very strong in the Q1. Anything that indicates a slowdown to you that you can see right now?
No, not that we can see right now. But with the caveat, Erik, and we have talked to you and others about this, that we don't see the aftermarket business far out a lot. I mean, you have seen when you have coming back to the weather similar to some other companies working better when it's nice weather, you it can be very short term changes here. But right now, no.
Very good. And also one quick one on the tax rate. Before you talked about less than 10% cash tax rate this year, I think. Now you said around 10% cash tax rate.
Okay. Well, then I had to rephrase and I said less than 10%.
Okay. Very good. So 5% to 10%.
No. Okay.
Okay. Very good. Less than 10 anyway. Thank you so much.
Thanks, Erik. Okay. I think we need to wrap up unless there are some one final from anyone urgently.
There appears to be no further questions registered at this point. So I'll hand back to the speakers.
Okay. Then again, I mean, strong start sales wise, little bit blurred on the margin side. We're taking action to fix that. And we're looking forward to talk to you soon again here to report on Q2. Thank you very much for your interest.
Bye bye.