Welcome to Dometic Q1 Report 2024. Today I am pleased to present CEO Juan Vargues, CFO Stefan Fristedt, and Head of Investor Relations Rikard Tunedal. For the first part of the call, all participants will be in listen-only mode. During the questions and answers session, participants are able to ask questions by pressing *5* on their telephone keypad. Now I will hand the conference over to the speakers. Please go ahead.
Hello, good morning everybody, and welcome this Friday morning to the presentation of the first quarterly report for 2024. Without any delays, let's move into the highlights for the quarter. So we'll start with the market conditions. We perceive the market still today to be under challenging conditions. We see as well that inventories at retail level, both in terms of Service and in Aftermarket and Distribution, are on the way down. But at the same time, we also perceive that the order pattern, the purchasing pattern of our customers, our customers' customers, is changing slightly. It is clear that high interest rates is leading to a situation where capital cost is also increasing, and people are waiting till the very last minutes to build up inventories for the season.
We see as well an OEM market which is declining everywhere, with the exception of, in reality, the EMEA region still today. Now I'm talking about the EMEA region, so it's the market and not our organization. At the same time, it is also clear that American volumes in the RV industry have been growing, but we have to keep in mind that we are still coming from 313,000 at the end of last year, which is in parity with 2012 years' levels, so still a very, very low level. If we look at Dometic now, moving from the market to Dometic, we went down 2% organically, with Service and Aftermarket down 10%. I would say that that's perhaps the major surprise for us internally in terms of the report. It is clear that customers, as I mentioned earlier, are still cautious with their orders.
But at the same time, as you all know, Q1 is a very short quarter for us. January, February are always very slow, and then March is when the season, in reality, kicks in. This March, unfortunately, we have two factors. On one side, we have Easter, which is coming a little bit early, but then we also have a very, very wet and rainy month of March, which again is when we have our revenues that did have an impact, a negative impact. I would say that our own estimation somewhere is that if you take the weather and the Easter effects, then those numbers should be around 5 percentage points. If we look at distribution, down 13%, which is a major step in comparison to the -20% that we were showing in Q4. We see already a positive trend in Mobile Cooling.
We commented in connection to the last quarter that we saw inventories at retail coming down at the same time as sales from retail to the market were going up, and we will continue to see that pattern. Very, very happy to see that EBITDA margins continue to improve despite lower volumes for the company. Ended up at 11.8, so another 20 basis points better than the situation the same period last year. And then last but not least, we are also happy to show strong cash flow, even again, slightly lower than one year ago, but we need to consider that 2023 was extremely high. And then leverage standing at level 3, where obviously it's higher than what we were showing in Q4. But then you have even there two factors.
On one side, you have FX being two-thirds of the difference, and then one-third is due to the seasonality pattern that we can see every single year. So moving into the numbers, 10% down in total growth, 12% down organically, EBITDA down 9% still, and EBITDA margin improvements of 20 basis points up to 11.8%. Cash flow, operating cash flow ending up at SEK 212 million, and then leverage 3, as I mentioned, and an EPS of SEK 0.85 in comparison to SEK 1.04. If we move over to sales, we can clearly see that this is really the eighth quarter with negative growth. Still, looking at Q4, ended up at -13%. This quarter ended up at -12%, and we expect, obviously, seeing improvements during the course of 2024.
Looking at different segments, Americas is down 20% organically, EMEA down 7%, APAC down 5%, Marine down 13%, mobile cooling, the new segment, first time as we report as a segment, 16%, and then global down 4%. In terms of the sales channels, no major changes. So the service and aftermarket channel went down 10%, the distribution channel went down 13%, and the OEM channel went down 13%, which means that we had a balanced, so to say, drop in the different channels. What is perhaps worth to mention is that the RV OEM that represented 49% of sales in 2017 represents 22% of sales nowadays, even if it is higher, the higher level that we were showing 2017. Let's have a look on the service and aftermarket, which I tend to believe is one of the major questions that we have for the quarter.
So we ended up at 10%, as I said. A very rainy March and early Easter having an impact in our numbers. Our estimated impact is about 5 percentage points. And as I also commented before, we see a changing order pattern with our customers, which we have seen also in the distribution channel where companies or customers are pushing purchases forward and waiting until the last minute and expecting short lead times since everybody is sitting today on too high inventories. At the same time, it is clear that inventories are coming down. So we are expecting, in the same way as we did in Q4, that we will see improvements moving forward.
Also perhaps worth to mention when looking at the upper part of the chart that you can see that the pandemic created a different pattern when customers were ordering much earlier than they were normally doing in the past. 2024, we are hitting the same levels that we had 2019. And what we are expecting is, obviously, that we will see the seasonal pattern to come to normal levels during 2024. Happy to see as well when looking at the evolution of our EBITDA margins that this is the third quarter in a row where we see improvements versus same period last year. We have three segments showing clear improvements: Land Vehicles, EMEA. We see Mobile Cooling Solutions also moving upwards as well as Global Ventures. We see as well Land Vehicles, APAC, standing at a very high level as well as Marine despite dropping top line.
Then we have the situation in Land Vehicles, Americas, that I will come back in a couple of minutes. So let's have a look on the different segments. Starting with Americas, LV Americas, organic growth down 20%. We see a decline in the service and aftermarket. We see also very low volumes on the RV industry on a very high competitive market just now where everybody is obviously fighting for volumes. And we are taking a different approach in this case. As we have been discussing now for a number of quarters, we want to be more selective and really differentiate products where we are expecting to see service and aftermarkets during the lifetime of the product and products where we see more of a transaction where we should be very, very careful in dropping prices and instead fighting for margins.
Looking at EBITDA, despite the fact that we are dropping 19% on the top line, we are ending up approximately at the same level as we had one year ago, which drives our EBITDA margin to -11.5%. We see, of course, that this is having an impact on our infrastructures. We still have infrastructures, and we are working to reduce our infrastructures in RV Americas. And we have, as you all know, a new management in place, and it is as head of the segment but also developing the new subsegment organization in order to get even more accountability lower down in the organization. If we look at RV in the EMEA region, down organically 7%. Even there, we see a decline in the service and aftermarket. And in distribution, we see still some improvements in comparison to where we are coming from during the last four quarters.
Again, inventories are definitely coming down. At the same time, in the EMEA region is, in reality, the only segment where we see that the OEM side is pretty stable so far, which is very much in accordance to what we have been hearing, obviously, from some of the OEM customers across the EMEA region. Happy to see that the EMEA is coming up after a few weaker quarters. We see the impact of the cost reductions. We see the impact of the restructuring program that we have been running the last couple of years at the same time as we are still, obviously, dropping top line, and that has a negative effect. Even in the EMEA region, due to the size of the region, the complexity of the region, we have also implemented new subsegment structures to really increase accountability and get even closer to the business.
Moving into LV APAC, down even in this case 5% with service and aftermarket, even in this case, below last year. Distribution is starting to move upwards, which is positive to see. We see that the decline on OEM is primarily coming from the RV industry, where the RV industry in Australia is coming down quite rapidly. Happy, of course, to report that we are keeping our margins despite a dropping top line. Like in all the other cases, we are working on continuous basis on efficiency improvements at the same time as the mix also contributed positively when we see distribution starting to move upwards. Moving over to Marine, down 13% organically with a service and aftermarket that has been stabilizing the last couple of quarters at the same time as OEM. OEM production, meaning our customers, OEM customers, are pretty much down.
Just for all your information, boat manufacturing is down about 30%, engine manufacturing is down about -13%, and we are not close to those kind of numbers. Still, of course, when the market drops 30%, it's difficult to stay at the same levels as we were one year ago. Happy even here to see that our margins are holding up very, very well, ending up at 23.6% despite the fact of the lower sales. In this case, on top of all the efficiency improvements that we are doing to mitigate the drop in volume, we also have the technology shift, which is helping as well to keep our margins. I'm referring, obviously, to the move from mechanical steering systems into electric steering systems.
Moving over to the new segment, Mobile Cooling Solutions or MCS, as we call it internally, down organically 16%, which shows quite an improvement in comparison to minus 25% on Q4. That's exactly the levels that we saw during the course of the entire second half of last year. We see that the inventory levels at retail are coming down. At this point, they are down 20% in comparison to the same period last year. We see as well that sales from retail to the consumers are up 7%. We also see that our market share is still growing and has been showing improvements of 2.7 percentage points versus last year. EBITDA margins, even here, coming up 7.7 versus 7. As you all know, Q1 is, even from a distribution perspective, a very short quarter for us. In this case, we are driving sales initiatives.
We are, as you know, introducing the new active cooling boxes on the American market. We are also introducing the passive cooling boxes in the rest of the world, both on the Igloo brand and the Dometic brand. We are betting a lot on innovation. Just as a sample of that, we communicated in connection to the last quarter that we were introducing the first active coolers under Igloo brand with Dometic technology inside. We are very happy to see that on one side, we are starting to sell in 600 new stores across Americas. I'm talking just now about Igloo coolers, active coolers, which is great to see. We see also that sales is starting to happen, meaning sales from retail to the consumers above the expectations. We are very happy to see.
We're also happy to see, obviously, that in the in News week, the magazine published a report a few weeks ago where Igloo is awarded the position number 8 among all the consumer goods brands, which is fantastic for a cooling brand. And of course, we are talking about being behind companies like Procter & Gamble, companies like Colgate. So we are talking about major players in the consumer space. Moving over to global ventures, even here, we see a drop of 4%. We see Mobile Power Solutions being very, very stable. And the drop is really and we see a hospitality business, which is also slightly positive, while we have residential in the U.S., which is still negative. Happy to report margin improvements. And they are, to a very high extent, coming from our Mobile Power Solutions business.
And speaking about Mobile Power Solutions, we're also very happy in the way the integration is taking place. On one side, obviously, those businesses are competing within their own industry. But at the same time, we see fantastic opportunities to create new synergies by really connecting the Mobile Power Solutions from Dometic with other Dometic mobile devices. In this case, it's really the first 48-volt air conditioner connected to Dometic Mobile Power Solutions, meaning that you can basically spend the nights in your RV off-grid and still have your air conditioning on during the whole nights. From a sustainability perspective, even there, a lot of progress with both industries developing better than our targets. We see share of female managers 29%, even there, higher than our targets and showing a great improvement in comparison to one year ago.
We see CO2 reductions taking also major steps in comparison to our targets that were set in 2020. We see audits for new suppliers also well above targets. And last but not least, a new KPI that we are introducing formally, which is Innovation Index, where we are happy to report one more step in our recovery in Innovation Index. As you all know, we have as a target 25%. We are coming from 14% in Q1 last year and ending up this quarter at 18%. And we will continue to see the improvements as now our inventories are coming down, and we are introducing the new products that have been ready and waiting, really, for lower inventories to be introduced in the last quarters. And with that said, Stefan, could you please.
Yeah. Thank you. Enlighten us. Yes. Thank you, Juan.
Starting off with our EBITDA bridge, where we obviously have a drop in absolute EBITDA with SEK 78 million. Behind that is a number of things. First of all, of course, the negative organic growth of minus 12% is a clear reason. With that in mind, it's actually really nice to see that we still are able to improve our gross margin to 27.9% from 26.5% last year. Behind that is that we are and have been implementing efficiency programs, including the closure of the manufacturing in Siegen. We also gradually see declining negative effects from the extraordinary logistic costs. We also gradually, as we are consuming our inventory, enjoy lower raw material costs. As you know, we have been actively working with our price management, and we had not a very significant impact of the Red Sea situation in Q1. We have R&D and S&A expenses.
They are, in absolute terms, down in constant currency with 5% in the quarter. But in relation to net sales, they are going up to 16.2% from 15% of sales. And we are continuing to invest in R&D in the structural growth areas that we see. And then that is partially offset by cost reductions in S&A in the other estimate lines. Then FX in the quarter has a very limited impact, and there is no effect of acquisitions. Moving on to cash flow, operating cash flow of SEK 212 million compared to SEK 294 million last year, which I see as a solid performance, taking the seasonally weak quarter into consideration. Income tax paid a little bit lower than last year. And on this point, I would like to highlight that the effective tax rate is 30% in the quarter, and it is somewhat higher than what we have seen before.
It's driven by the mix of countries where we are paying tax, basically. So we are more successful in the higher tax jurisdictions. Then we also have the tax deductibility of interest costs that is impacting to a certain extent. Acquisition and divestments impact on cash flow is SEK 103 million in the quarter and is related to one of our earlier acquisitions. We have left SEK 50 million to be paid in Q3 this year related to acquisitions. Then we are done. Okay. We still have Igloo, but you know our view on that, that we don't think that we should pay anything additionally. Financing minus SEK 993 million. We have paid back SEK 1 billion of an EKN-backed loan here in Q1. And then we have been issuing commercial papers at the value of SEK 299 million.
Then the net of paid and received interest is SEK 170 million, which is up compared to SEK 140 million last year. On the next slide, you just see the development of operating cash flow in historical perspective. As you can see, SEK 212 million is a rather okay operating cash flow to be the first quarter. If we go into working capital, we see a stable development on accounts payable and accounts receivable. On inventory, which we have reduced to SEK 7.7 billion compared to SEK 9 billion one year ago, we see that the number of days of inventory is coming down, 145 days currently. And we are obviously actively continuing to work on driving down inventory, and we will see more of that for the remainder of the year. As you know, our overall target of working capital is 20%.
We obviously have a gap to the 31% where we are at the moment. But we should see that continuously coming down during the year. Going to CapEx and research and development, we had a rather low quarter on CapEx, mainly timing-related, but also that we are selective on where we are allocating resources. We are on 2% of an LTM level, which is a level that we have been communicating we should be around. Looking into R&D, we spent 2.4% in the quarter. And as I mentioned before, we are continuing to invest in structural growth areas like mobile cooling, mobile power solutions, and marine. And the last 12 months, we are on 2.3% R&D to net sales. If we take a look on our net debt development, it ended up with 3.0 compared to 3.0 one year ago.
That has been a movement upward from 2.7 in Q4. The main reason for that is the weakening Swedish krona, which contributes with 0.2. We have the normal seasonality impact in Q1, which is contributing with 0.1. As you know, we are committed to achieve our leverage target of around 2.5, and it will trend down during the year. We will move into the target area during 2024. If we then go to our debt maturity profile as of end of March, there has actually happened a number of different things. First of all, as I mentioned, we have repaid an EKN-backed loan of SEK 1 billion. So that is 50% of that facility. We have also refinanced the second part of our credit facility agreement with our bank group. As you know, we did the first part in Q1 last year.
On March 27, we signed this agreement. That is relating to the US dollar term loan of $333 million maturing in 2025, which we now have then extended with 3 years with the 1+1-year extension options. We will amortize $100 million of that term loan in July 2024. On the RCF side, we have increased that with EUR 80 million. That is now a total of EUR 280 million. As I mentioned, it was signed on the 27th of March. We have also issued SEK 299 million in outstanding short-term commercial paper program with 4-6 month maturity. This refinancing activity will increase our average maturity to 2.6 years. With that, Juan, I hand back to you to summarize. Thank you.
Thank you, Stefan. I mean, looking at the business, the market is not a lot that we can do about. It's what it is.
Obviously, we have a massive impact post-pandemic in connection as well with interest rate increases and high inflation rates. What I really feel proud of is the transformation of the company. Despite the fact, if you compare Q1 2024 with Q1 2022, basically, top line is down 25%, which is less, obviously, than many other companies in consumer businesses. If you look at our profitability, as you can see, we are holding up in a very, very strong way in comparison to our peers in the industries where we are present. So it is clear that in the last years, we have created a far more resilient company. And that's something that we, within the company, feel very proud of. We have lots of people doing a fantastic job to create and develop a better company every day. On the market, still difficult. It is clear.
Our expectations are largely in line with what we communicated also after Q4. We see that service and aftermarket will continue to recover during 2024. We see distribution will be also recovering. Hopefully, we will see this in the coming couple of quarters now. On the OEM side, it's a little bit the same. We see that it's still tough. We see that some areas are going to show improvements in the coming couple of quarters. Some areas now, I'm referring specifically to the MEA region, will deteriorate sooner or later. But altogether, we're expecting the OEM to show some improvements by the end of the year. Strategically, it's more of the same. We have a strategy, and we walk our strategy. We will continue to work in the same pace and in the same direction.
We have implemented a new segment structure, as you are aware of. We are, on top of that, also increasing accountability in new levels of organization by creating subsegments in our largest segments. It is clear that we have three segments improving margins. We have two segments holding margins at a very, very high level. And then we have one segment that we simply need to fix, which is Americas. And that's what we are working on. We are also very, very convinced that we will see the American market growing on active cooling, and that will become a great asset for Dometic in the future to come. And last but not least, we will continue to prioritize margin before volume. And with that all said, I would like to open for the Q&A session.
If you wish to ask a question, please dial *5 on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial *5 again on your telephone keypad. Please mute your line when you have asked your question, and please limit yourself to only two questions. You can also ask questions on the webcast page. The next question comes from Gustav from SEB. Please go ahead.
Thanks, operator. And thanks for taking my question. This is Gustav Hageus with SEB. If I may start with the U.S. then, which is a bit of a topic today, I guess. With the new structure, it's obviously a bit hard to follow the development in the past now. But could you give us an indication where you think you are on organic sales now versus the 2019 level? And if you could add granularity and have a view on the volume versus 2019, I think that would be helpful. And connected to that, it would be great to get some color on the competitive dynamics in the U.S. I know that you had some competition on awnings during COVID, and then refrigerators from Asia seems to be a topic now. So some color on that would be great. Thanks.
May I go ahead? I don't have the numbers on top of my mind just now on the volume in comparison to 2019. What we can see is, obviously, that the market just now, we are talking about OEM, are starting to grow. They are up 15% in the first two months, and we are still dropping. And that's telling you, obviously, that we are, on one side, very selective on pricing. At the same time, as you just said, with the low volumes that we see on the markets, competitors are extremely aggressive on prices, and we don't want to follow. And that's a little bit all over in terms of products. But you said very much right.
If we look at refrigeration, we see a new competitive arena that, in reality, was created in connection with the pandemic, where the traditional suppliers, companies like Norcold or Dometic, of course, did have difficulties to deliver when the market opened up at the same time as Chinese importers started to kick in. So it is clear that the competitive arena in the RV industry, I would say, has changed in Americas. If we are talking and again, I'm referring to RVA or the RV American business. If we are talking about service and aftermarket, of course, that the numbers that you see is the combination of all the channels. If we are talking of the service and aftermarket business, it's very much in line with the rest of the group.
So, there, I do believe that it's much more related, really, to the inventory levels and the weather also during Q1 in the same way as we saw in Europe. Then we will need to come back to you on the comparison to 2019. I cannot answer on top of my mind.
Maybe lower.
Yes.
That's what we know.
Yeah.
Related to the refrigerators from Asia then, could you remind us roughly what the share of your sales in Americas relates to this? And secondly, have you heard anything, because there's been quite a lot of talks from both parties in the States now regarding tariffs and so forth? Could you elaborate a bit on sort of what scenarios you see in front of you on tariffs and whether or not that could change the dynamics for you in the market?
I mean, if we look at refrigeration for LVA, I believe that is around 10% of our revenues for LVA nowadays. And we are coming from about 25% 2018, 2019. At the same time, we also need to remember, 2018, 2019, we were growing like crazy since our main competitor at the time, Norcold, did have difficulties to deliver. So we were taking massive market share 2018, 2019. And then, of course, when they got the house in order, then they started to recover the market share.
And then we had the technology shift from absorption to compressor.
absorption to compressor. Yeah. So historically, the American market has been, if we are talking about technology, absorption. The problem being, again, that in connection with the pandemic, a movement from absorption technology to compressor technology, what you have in home appliances, started to take place since customers could not deliver to consumers. And that transition accelerated in connection to the pandemic.
Regarding tariffs, do you have any view there?
Not more than we have prepared ourselves. That's what we can see.
I mean, if tariffs would come true, as there has been speculations about, then of course, it's going to be tougher. [crosstalk]
It's going to be impacted more.
It's going to be tougher for the most important.
For all the rest.
Yeah.
Yeah. No doubts.
If I can squeeze in a final question before I get back into line. In EMEA then, perhaps a bit surprising positive trends in terms of registrations in Germany, as you alerted. Do you think we're out of the woods now in EMEA, or is this a flip? Or what's your view internally on the market?
No, I do believe, I mean, I don't think that anybody knows, I have to say, because I have seen registration numbers coming down heavily during 2022 and then 2023. Having said that, the last couple of months in 2023 were positive. The first three months of 2024 are positive. You take the last six months on registrations, Europe is up 3%. At the same time, it's clear the manufacturers have been producing much more. Depending on when interest rates go down or not, that will have an impact on whether manufacturing is going to drop more or less. It is clear in the last couple of years, we have exactly the same situation as we saw in Americas. You have much more manufacturing than registrations.
I think that the key question is going to be, when do we see interest rate decreases, and what is the level of inventories at that point?
Okay. Thanks for taking those questions.
You're welcome.
The next question comes from Daniel Schmidt from Danske Bank. Please go ahead.
Yes. Good morning, Juan, and Stefan.
Morning.
Morning. Just a couple of questions on, I guess, the second topic for today, service and aftermarket. You already touched upon it quite a bit, mentioning early Easter and rainy March and so on. You estimated that might have an impact of 5% in the quarter. Do you see those 5% coming back in Q2, referring to Easter especially?
Well, Daniel, I'm not sitting with a crystal ball, unfortunately. But what I can tell you is that what we can see until now in April, it looks better.
Yeah. Okay. Okay. Good. And we talked quite a bit about the Red Sea in Q4 report and surcharges. And I think Stefan mentioned just briefly in his statement, it sounded like it haven't been impacted, really. Or could you shed some more light on that and the ability to pass on and so on?
Yeah. No, but we have a negative impact of about EUR 1 million in Q1. At the same time, we are also, obviously, compensating for that through pricing. So our expectation is that we are going to cover up for any negative impact.
Then it is, of course, two weeks longer lead.
Yeah. Yeah.
Yeah. Okay. Good. Do you fear anything in terms of freight costs? They were coming up quite a bit and then down, but then up again now. Still, of course, nothing compared to a year and a half ago, but still quite a bit more than we saw before Christmas. Sort of looking into the second half of this year and so on, is it getting more difficult given the volatility that we have now, at least?
Not really. I mean, the problem that you have with freight prices, especially on ocean freights, is that you have contracts, and you have normally annual contracts. The problem is, obviously, that when you have a small war here or there, then they apply what is called force majeure. And then you can forget the contracts. So if you look at the contracts that we are negotiating just now, they are lower than the contracts that we had one year ago. But of course, if we have, again, another small war, then we don't know. So just now, we see the contracts are at lower levels than we had one year ago.
Okay. Okay. Good. And then maybe some smaller ones. I think everyone expected one-offs to be behind us. But is there going to be sort of smaller one-offs here and there in the coming quarters as well?
I mean, not of any significance. No.
No. And then maybe just one more on Igloo. Any update you can give us in terms of the dispute? I think you mentioned two quarters ago that there was a court date set for Q1 2025. Is that still the case?
Yep.
Yeah. And no changes to that timetable at all?
No changes. Exactly the same schedule.
Okay. Maybe just the last one. Sort of in terms of improvements when it comes to EMEA, which was quite sort of meaningful, and you mentioned Siegen and all that, is that still something that's going to look even better, or are you at the level that you want to be now in Hungary?
Oh, no. No, no, no. It will keep improving. No doubts.
Okay. Okay. That's all for me, guys. Thank you.
Thank you. Thank you, Daniel.
The next question comes from Agnieszka Vilela from Nordea. Please go ahead.
So you mentioned the hesitance from some customers to build inventory as it costs more right now ahead of the selling season. Can you just remind us what divisions really this behavior affects most right now, and what is your kind of overall inventory assessment in the channels?
Yeah. So this really is service and aftermarket and distribution. Those are the two channels. OEM is not affected by that. They are always running on very, very low inventories. So it's really the two other channels. And if we are talking about the level, I mean, unfortunately, it's not easy to measure that. The American market is always much, much better than the European market. We see that, as I mentioned during the call, that you look at retail inventories for coolers are down 20% today in comparison to the same period last year. And we see as well that POS, meaning sell-through from retail to consumers, is up 7%. So we are pretty convinced that in not too long from now, we are going to see improvements on the top line. And we saw, by the way, an improvement in comparison to Q4.
The inventory correction from retailers started, in reality, in June last year.
All right. Perfect. And on the chart that you show, actually, in the slides package, you showed 2019 trend improving in Q2. Do you think that we will see this kind of improvement this year also?
Yeah. Are you referring to Igloo, or?
No, to the service.
Yeah, yeah, yeah. No, no. The finality. The seasonal pattern. That's our expectation. No doubts.
We're going into our most important quarter on service and aftermarket. But it is, like you said, Juan, that the ordering patterns have been being short before the pandemic, then getting longer, and now it is getting even shorter than it was before the pandemic. That's the trend.
All right. That's very helpful.
I mean, I think what is important to remember when looking at that chart, and of course, that we are a little bit surprised in the same way as you are, right, is that we have seen a clear pattern during the last six quarters. It has been improvement quarter-on-quarter. And then all of a sudden, you get into -10%. There is no logical reason. And it's everywhere. I mean, if you had one segment, you could say, "Okay, something happened in that segment." But what you have in common is weather. No matter if you look at the weather in the U.S., you look at the weather in Europe, or you look at the weather in Australia, it has been extremely wet. That's the only thing that you find in common. And all the markets are coming down. So expectations.
That's very helpful. Yeah.
Our expectation is, obviously, that we will see improvements. As we commented, April has started well. Then, of course, we have another two and a half months to go.
Great. Thank you. And on Americas, that's my second question, really. Can you remind us about the split that you have between OE and the aftermarket business? And also, if you could tell us what growth this subsegment had in Q1?
Yeah. So if we look at LVA, historically, it has been 65% OEM, 35% AM, or service and aftermarket. If we look at just now, without having the numbers on top of my mind, I would say that we are closer to 55%-45%, 50%-50% since the OEM still is very low. Whereas service and aftermarket, even if it has dropped, it has not been dropping by far at the same pace as the OEM.
The quarter specifically of this -20% organic growth, how was it split in these segments?
It's more on the OEM side than it is on the aftermarket.
Still double-digit negative on sequential quarter?
Yes, in the quarter. And by the way, we have the number just now, 50, 50. So it has gone from 65, 35, service and aftermarket, to 50, 50 just now.
Then just last one for me on Americas. I mean, you had -12% EBITDA margin in the quarter, and it looks like it was the lowest point ever for the division, I understand. I appreciate the fact that the sales really collapsed in the quarter. But my question really is, do you believe that you're doing enough in the region, and also, do you expect Americas to turn to profits during 2024?
I mean, we will do anything we can to turn into profit. We are doing a lot of things, a lot of activities. If we are talking about organizationally, I would say that LVA is probably number one, number two, number three. And then LV EMEA is probably number four, number five. So I hope that I'm clear enough. It is clear that we are working extremely hard. We don't like the numbers that we are showing. We need to find a way to turn that business to profit again. If you look at our EBITDA margins and just extract Americas, you will see the effects.
I mean, as you mentioned as well, I mean, we have changed the head of LVA, but it's not only on that level. It's one step down as well where we are strengthening the organization.
Of course, again, it's easy to have a look at Americas looking at losses when we have been making money. Keep in mind that, again, the volumes are 50% down on the volumes we had 2.5 years ago. It's tough.
Yeah. Understood. Thank you so much, Juan.
You are so welcome.
The next question comes from Douglas Lindahl from DNB Markets. Please go ahead.
Hi, gentlemen. A few questions from my side as well. Thanks for all the answers so far. It's been super helpful. I wanted to circle back to Americas a bit. Obviously, we've seen the market here grow, and you're not sort of following that trend. And you mentioned a very high competitive environment and you saying no to certain orders. But given the dynamics and the sort of growth trends we see, when would you expect your business to turn positive again organically? So maybe not exactly the same question, Agnieszka, but more on the top-line side.
I cannot tell you a day or dates, but it is clear that we are doing a number of changes in the organization. I mean, on one side is we don't want to buy market share. I don't believe that that will benefit us in the long run to buy market share now when the market is still at very low volumes and you have lots of competitors dropping prices to keep volumes. And we believe that that's the wrong medicine when the market is in such a shape. So our focus just now is internally looking at our structures, looking at our sales organization, looking at verticals. What can we do in other verticals? So for me, LVA has to continue a transformation of the business that we have been driving in Dometic during the last five, six years. And we will get back to growth.
I cannot tell you a date, but we will get back to growth. That's no question. We will get back to profits.
Yeah. But I mean, we also need to keep the extraordinary situation in mind here, which has never happened before, where OEM and service and aftermarket has been dropping double-digit at the same time. Normally, you have a different pattern there where they are not going hand in hand.
I mean, we commented on the question of Agnieszka that just now, we have a share, which is 50/50. If service and aftermarket are starting to grow, then we have a massive impact on our margins immediately.
Okay. I was sort of thinking about the organic portion of things, but I realized it's a difficult question.
Well, the thing is it's going to be very much about how the market reacts as well. I mean, we have seen during the first two months of this year that shipments are up 15%. Of course, if that continues, we will see improvements in our numbers as well. You have a backlog in between, so it's very, very difficult to say exactly when things are going to happen. Our job is just now to get.
No, I asked you just you expected towards later part of this year, mid or sort of how should we think? Well, how are you thinking?
Correct. Second half. Second half.
Okay. Good. Good. Okay. So then maybe moving onwards, one area we didn't talk a lot about, but you did mention on the marine side that you're not dropping as much as both the OEMs and the aftermarket manufacturers. But would just be interesting to hear more about your expectations here for the marine business in 2024, maybe also if possible breaking that down in aftermarket and OEM as well?
I feel that the marine business has been very, very negative now for about one year. If we are talking about the boating industry, we are expecting that the industry will start dropping far less in the second half. And thereby, we also expect that our sales to OEMs are going to be dropping less than we have seen during the last nine months. I mean, keep in mind that for us, it didn't start yesterday. We have seen very, very low numbers during the last three quarters, even if our numbers are much better than the industry numbers. In terms of the service and aftermarket, we see stability. We have seen stability during the last two quarters, which means that it's still negative, but it's slightly negative.
In the same way as we're expecting on the rest of the service and aftermarket, we're expecting to go back to growth during this year without any kind of doubts. We are more optimistic. We are a little bit more optimistic on the marine side simply because the marine side started dropping earlier from a service and aftermarket perspective.
Yeah. Yeah. Yeah.
They were also the most stable one in the first quarter.
Absolutely. Yes.
Yeah. Yeah. Thank you, Juan, and Stefan.
You're welcome.
The next question comes from Fredrik from ABG Sundal Collier. Please go ahead.
Thanks so much. Morning, guys. Just tagging along to the aftermarket discussion here. Can you tell us what happened to the margin in the aftermarket given the soft top line?
It has been improving. It has been improving on one side due to the mix. When service and aftermarket in Americas is dropping more than service and aftermarket in APAC, you have a positive effect on those numbers. Then you have as well the fact that logistic cost is coming down. Logistic cost impacts service and aftermarket quite a bit since you have individual shipments very, very often. So we see improvements due to that. And then, of course, we are still very, very keen on our pricing, having selective pricing.
Are we talking percentage points of improvements or basis points, or?
Yeah. We are talking basis points, high basis points.
Okay. Excellent. And then.
We expect that to continue. Again, keep in mind that we are still at very low levels.
That's clear. And then I thought you mentioned improvements potentially in terms of infrastructure in the Americas. Can you just give some color on where exactly you see potential for improvements here?
No, but it is clear that it's very much about what we expect in terms of growth from the industry in the coming couple of years, right? As I mentioned before, we are down just now to 2012-year levels. And the question is, is it going to take a couple of years to go back to 450,000-500,000 units, or is it going to take longer time? How many DCs do we have? Can we consolidate more? Should we be moving to more 3PL so it becomes variable cost instead for fixed cost? So it's a lot of activities that are taking place, obviously, in order to take down our cost base. I mean, what I would like to of course, it sounds strange, but keep in mind that we are dropping top line 20%.
We are delivering the same krona at neutral currency rates as we were doing one year ago, when we were selling 20% more. So it's a lot of activities that are taking place even if the results are bad.
Yep. That's good. That's all my questions. Thanks a lot.
You're welcome.
The next question comes from Johan Eliasson from Kepler Cheuvreux. Please go ahead.
Hi. Good morning. This is Johan from Kepler Cheuvreux. A few questions just on this active cooling box you're introducing in the U.S. now. You applied the Igloo brand. But my understanding was sort of also that you would also push the Dometic brand business in the U.S. sort of in a different price point. Is that sort of still ongoing?
Absolutely. It is ongoing. You will see Dometic branded products in more stores, in more retail chains during 2024, starting in Q2.
And the profitability level of those for you vis-à-vis the similar products under the other brand is positive, I suppose?
Absolutely. Absolutely. Dometic has higher gross margins than Igloo will have for similar technology simply because of the brand position.
Yep. Excellent. Then I have a question to Stefan, just trying to understand your movements in the debt. When I looked at the Q4 presentation, you had maturity profile for the USD part of $3.3 in 2025 and $2.6 in 2026. And now you say that the 2025 dollar-denominated loan has been pushed out to 2027. But in the chart you showed today, it's still sort of $3.625, but very limited 26 instead. How should I interpret these graphs?
Effective from July, right?
What?
Effective from July.
Yeah, exactly. Yeah, exactly. We have signed the agreement on March 27, but then it's effective from the 1st of July. So there hasn't happened anything yet on this. So it will be effective from the 1st of July.
So the total debt repayment profile after this contract for 2025, how much will that be sort of of these SEK 3.6-SEK 10.1?
I mean, we did repay 1 euro bond last year of EUR 300 million. Then we have repaid SEK 1 billion of an EKN-backed loan in Q1. And then we will repay another $100 million in Q3.
Yeah. What is due after these coming into effect in July then? What is due to be repaid in 2025 of the SEK 5.6 billion you have in the chart today?
Exactly. So what we have then remaining in maturities for 2025 is then the second part of this EKN-backed loan, which is SEK 1 billion. And then we have one private placement of SEK 1 billion as well. So that is what is then remaining to refinance or pay back in 2025.
We are down to SEK 2 billion in total then?
Yeah. Exactly. Exactly.
Excellent. I understand it. Just on the interest cost was maybe a little bit above my expectations in the quarter here. How do you see this item developing for the remainder of the year?
I mean, approximately 50% of our total debt portfolio is fixed, and then the other half is variable. So we have an average of 5.2% or something like that right now on our debt portfolio. And I mean, a little bit depending on how the underlying interest development is going to be. But I mean, I think everyone is agreeing on that it should come down. It's just a question when it will come down. So over time, I expect that to decrease.
For the near term, we should assume the same for Q2 and Q3 unless we have a major development on the interest rates.
Yeah. Correct.
Yep. Okay. Thank you. That was all I had.
Thank you.
The next question comes from Karri Rinta from Handelsbanken. Please go ahead.
Yes. Thanks. Good morning. Thanks for taking my questions. Just for me, one, the tough competitive situation in the U.S. RV business, and you say that you don't want to buy market share. But there's probably players that do want to buy market share, and there's probably players that might want to buy market share by making acquisitions. So how should we think about this increasing the likelihood that we might see some divestments in your RV business in the U.S.?
That's crystal clear. I think we have mentioned that a couple of times. I mean, we need to get LVA to a totally different margin profile. They have always been most exposed to the RV industry and especially to the RV OEM industry. And as we all know, that's where we have the lowest margins. So either we lift our margins through pricing, cost-efficiency improvements, or we will consider to divest. No doubts about that.
All right. Good question.
So we are open, and that's no secret. I mean, we have been talking about that since 2021.
Good. But would you say that? I mean, of course, with every day that goes by, I mean, I don't know if the likelihood is increasing, but at least you have been working on this for longer.
Yeah. You mean, are you talking about, are you thinking about LVA specifically or other parts? Because as you know.
No, LVA specifically.
LVA specifically. Not really. I mean, in LVA, it has been very much about increasing efficiency and something that we have done. But at the same time, obviously, when the market is 50% of the market that we had two years ago, then it's very, very tough to see that in our numbers. At the same time, we have been commenting that you have products that we lead into service and aftermarket revenues for 15 years. And there are products that are very transactional. Of course, that we will look in the first place at those kind of products that are transactional. And we are doing that as we speak. Then the question is, is it about divesting? Is it about increasing or repositioning the products so we become even more high margins? We are working on that. I can assure you.
Sure. Thanks. And then the second question is that maybe trying to summarize, and you have been clear about RV OEM business, that that's likely to weaken in 2024. But then if you look at the rest of your portfolio, do you think that you can safely say that the worst is behind you, i.e., that organic growth rates are not getting worse in any of the other subsegments?
That's our feeling. I mean, and the reason for that I mean, the logic behind that is obviously that everybody overstocked in 2021, on the first quarter of 2022, in the expectation on a good season 2022. And then we got interest rates kicking in in a brutal way. So of course that those inventories are consumed step by step. It has taken longer time than we expected, and I guess that you expected as well when looking at other consumer businesses. But of course, the inventories are lower. At the same time, we're also expecting that sooner or later, interest rates are going to come down. We know that camping grounds are still filled, fully booked. And as far as our products are used, sooner or later, you will need to upgrade. Sooner or later, you will need to change.
So we are fully I mean, again, the situation that we have seen in the last two years on the service and aftermarket side or on the distribution side, we have never seen anything like that. Never. But again, the last time we had a pandemic was 100 years ago.
Exactly. Thank you. That was very helpful.
You're welcome.
The next question comes from Henrik Christiansson from Carnegie. Please go ahead.
Sure. Yes. Hello. So one question to Stefan, perhaps. I think you mentioned that there was some impact from lower raw materials. And the question then is, what was the impact in the first quarter? And then if you look at the spot rates currently compared to the cost you have in your inventories, once that inventory is worked through and you sound quite keen on keeping prices, I mean, how much could that help on the margin side? Is it one percentage point? Is it two? Or any sort of indications that would be interesting?
I mean, it's always the combination of all the different items that I was listing in the bridge here. I mean, there is a dynamic in this with raw materials because as we, I mean, even if our inventory has been coming down quite a lot, we still have inventory that has been acquired at higher cost, obviously, X number of months ago. As we are consuming that, that is then replaced by products that have been acquired at a lower raw material cost. Now we can maybe see some developments on the raw material markets where things are potentially pointing a little bit upwards again. It's obviously a continuous dynamic here. We will continue to see effects of this both on the logistics side as well as on the raw material side going forward.
It's going to be if I just estimate it here, like 50-100 basis points or something like that. It's going to be helpful.
I think what we have to remember is that even if the raw material prices are lower than they were one year ago, they're still much higher than the situation that we had pre-pandemic. I think that's a reference point. Again, we cannot speculate about what is going to happen moving forward. But we know that raw material prices have been much lower than they are today.
Yes. Good. And then the second question on working capital, 31% the sales, target 20%. What do you think is realistic to achieve during this year?
I think the following, Henrik, that it's always very difficult to have this in relation to net sales KPIs when net sales is developing organically as it does. But I mean, as a matter of fact, we are SEK 2 billion lower in working capital now compared to one year ago in constant currencies. So I think that is an underlying positive development. Inventories continue to come down in Q1, even though it was not as much as in Q1 last year. But as I have said before, I still expect that we are going to have a continuous meaningful reduction of working capital during 2024. Will we be able to repeat the record operating cash flow that we had last year? Probably not. But it should still be strong.
Perfect. Thank you.
There are no more questions at this time, so I hand the conference back to the speakers for any closing comments.
Thank you very much, everybody, for your attention. Again, continuous challenges on the markets, but we will continue to work very, very hard to continue to improve our margins. We are more positive moving forward than we have been until now. The reason for that is obviously that we see that the second half should be better than we have seen lately. At the same time, we continue to work on our efficiencies in order to improve our margins and deliver a strong cash flow and reduce our leverage. With that said, thank you very much for your attention, all of you. Have a great weekend.
Thank you.