Welcome to Dometic Analyst Call. 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.
Good morning, everybody. It's Juan Vargues speaking, and welcome to this special call after the announcement of our restructuring program. I would suggest that we start immediately with the presentation and move into the next page. So I would like to start really with the journey. We introduced a new strategy in May 2019. We have been working hard to implement our strategy. And again, this is a journey with a number of different steps. We obviously got the pandemic situation and the post-pandemic situation that still is affecting our business like many other businesses. We communicated in connection with the Q3 report that we were going to announce our restructuring program, and that's exactly what we communicated at 7:30 A.M. Next page. So let's talk about what we achieved during the last few years, the last five years.
First of all, our exposure to the OEM markets has changed quite a bit. We started over 62% of our sales coming from the OEM channel. Today, we are down to around 40%. We increased our innovation index from 14% to 20%, where we ended up at the end of Q3, and that will keep creeping up upwards. We have implemented two restructuring programs during the course of those years. We have reduced the number of factories by 28%. We started with 28 factories. We added four factories, three acquisitions, and we have reduced nine factories. We have significant efficiency gains. We have increased our sales per employee by 64%. We have reduced our number of employees from the pandemic by 3,200, which is about 20% at the same time as our sales has also dropped 20%. A lot of changes, in other words.
So why are we taking this step today? Well, basically, two main reasons. One of the reasons is to put even more emphasis in our portfolio. We have been driving very, very hard during the last couple of years our portfolio management. We want to reduce the complexity. We want to focus more in future growth areas. We want, obviously, to focus even more on the high-margin businesses and on the trends that are going to influence our growth moving forward. So that's one part. From that perspective, we are looking at, on one side, the investments, and this is nothing new. We have been talking about investments now for a while. What we have done now is that we have got even deeper after our portfolio management exercise and looked for some additional businesses that we believe are not strategic anymore.
We are very much aware, obviously, of all the questions that we got about the lower margins OEM business that we have in the company. Of course, part of the job that we have done is looking at those businesses, but also at businesses that might have higher margins but still don't fit strategically to today's Dometic. That's one part of the discussion today. The other part is, obviously, that it's clear that our volumes have been coming down recently. We expected 2024 to become a better year. We expected the interest rates to move faster on the way down. It has happened. Having said that, we need to adapt our capacity to the needs that we see just now on the markets. Next page.
So on one side, getting more focused on the future growth areas at the same time as we want to divest a number of non-strategic product areas means that we will have more resources to find our growth in what we call growth areas, such as Mobile Power Solutions, Mobile Cooling, Marine, and so forth. The steps that we are taking today will continue to serve the three sales channels that we have currently, meaning the OEM, meaning the aftermarket, and meaning distribution, and at this point, we are not changing either the segment, the structure that we implemented during the last years. Next page, so as I commented, on one side, low-growth businesses, but also businesses that strategically are not part of our future.
We are talking about businesses, a number of businesses having a revenue today that will, sorry, give us a total net sales of SEK 1.5 billion-SEK 3 billion today. We are looking at 2024. The margins are different across different businesses. Discussions were initiated already a couple of years ago, and they have been accelerated during the last months, and hopefully, we will be able to close some of these deals in the coming months, and of course, we will communicate more details as the transactions are completed. Next page, then the second part is also businesses that we are discontinuing, and this is something we have been working for now for a number of months, and we are talking about the large compressor refrigerators for the RV industry. We are talking as well on the window businesses that we have in the U.S.
We are talking about the hot and cooking product categories as well. The three different product areas are very much related to Land Vehicles Americas. So this is not impacting the other regions. We're also looking at the generator business that we had in Global Ventures. We are also looking at a number of different product categories, low-margin product categories in the segment Land Vehicles in EMEA. We are going to be exiting those businesses in the coming 24 months, and we will see this will also lead to a positive impact on our margins. We are talking altogether on a revenue 2024 of about SEK 800 million. The third part is the structural cost reductions. Next page. Yes, correct. We are clearly right-sizing the business just now to the capacity and the volumes that we see on the market.
This will impact two manufacturing sites and five distribution centers. We are also talking about 500 employees that will be affected by these changes. It will affect all the segments, but primarily Land Vehicles Americas, Land Vehicles EMEA, and even Marine. And then with that said, Stefan, could you please tell us about the financial impact of those changes?
Yeah. Summarizing the financial impact of the program, so savings related to structural cost reduction and the business exits. It's planned to be SEK 750 million on an annual basis when it is fully implemented. We expect the implementation time to be within 24 months, and we will start to see a gradual effect from the first quarter of 2025, and as you can see on the pie chart to the right, approximately one-fourth of the savings relates to SG&A, and the other three quarters of the savings is related to cost of goods sold. The cost to execute this program will be reported as items affecting comparability, and the total restructuring charges, as we have mentioned, is SEK 1.2 billion, whereof SEK 0.4 billion is estimated to have a cash flow impact.
The charges are going to be booked in Q4 2024, and the cash impact is going to be within 2025. The impact on net sales, the total current annual net sales of the businesses that we are discontinuing, as mentioned before, is SEK 0.8 billion. The total current sales of the businesses that we are looking into divesting is in the range of SEK 1.5 billion up to SEK 3.0 billion. We will communicate more about these divestments, transaction per transaction, when they are occurring. You can also see that the run rate of the savings, that approximately SEK 300 million is expected to come in 2025, and then up to the full amount in 2026. Next page. Just to reiterate, these measures we are taking here are falling within the communicated strategy. The strategy remains. You have all of the components here. It's profitable expansion.
It is product leadership through innovation and obviously continuous cost reduction. So there is no change to the underlying strategy. Next page. So in relation to our targets, we stay committed. It will now be taken in some steps here, obviously. And the first part here is obviously to take actions to turn around Land Vehicles Americas as we have had the toughest development in that segment. So in 2024, we have strengthened the organization and the capabilities. As you know, we have a new leader for that segment, but not only the leader, where there has also been carried out changes in his direct report organization. Then with the global restructuring program, we are accelerating the actions to turn around the business. And we are targeting improvements, notable improvements in 2025, and that we are returning to profit in 2026.
And then the long-term potential in that segment, we see still double-digit margins, probably not to the total average of the group, but still double-digit margins. And as a consequence of this program, we are expecting an EBITDA margin for the group of 14% in 2027. And it is obviously driven by this global cost reduction program. It's to turn around in the LV Americas. And it is also building on current market conditions. So obviously, if the market conditions are getting better, there is more potential. And if the market conditions are getting worse, then it could affect the total saving potential. So current market conditions is what we are assuming here. Remain committed to our long-term financial targets, and it is supported by continued operational excellence and the sales growth in strategic growth areas.
And then this program will also support that, obviously, that we are getting more focused in the group. And then concerning our net debt leverage target, we are staying committed to that target. And it's not to be expected that we will be fully there at the end of 2025, but we will take notable steps in the right direction. So with that, we would like to open up for Q&A.
If you wish to ask a question, please dial star 5 on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial star 5 again on your telephone keypad. Please mute your line when you have asked your question. You can also write your questions on the webcast page. The next question comes from Agnieszka Vilela from Nordea. Please go ahead.
Thank you. I have a few questions. Maybe starting on the potential divestments of between SEK 1.5 billion to SEK 3 billion sales. Can you put any more color on that and maybe also tell us why you put the low end to the range? Does it mean that you are quite certain to close these deals? Thanks.
We have started discussions with some other targets already two years ago. Of course, it has been discussions about pricing. As we know, the market is tough just now. And in the same way, as a seller, you want to pay the same multiples that we could see in 2021. As a buyer, it's the other way around. So again, it's nothing that we are starting now. It has been ongoing. And we are hopeful that we are going to see some of these divestments done soon. I cannot be more specific than that.
So you should probably say that SEK 1.5 billion is the minimum and SEK 3 billion is the maximum.
Yeah.
And if you remember, Agnieszka, we have been commenting earlier one to two. So that means that we have added some additional business to what we had from the beginning.
Understood. And maybe a follow-up on that. You also mentioned that you consider selling some businesses with a higher margin, but the businesses that don't fit strategically in Dometic. Can you provide us with any detail? What kind of product can it be?
Not really. As you know, with acquisitions, you get, it's very, very seldom that you get 100% everything that you like. Sometimes you have 20% that it doesn't fit. You get 10% that it doesn't fit. And I do believe that for Dometic, it's time now to clean up, to be even more focused on the businesses that we see as part of the future, and simply to find better owners for the businesses that don't fit strategically.
Yeah. Understood. And then maybe on the exits, especially in the U.S., after these exits, will you still have some operations that will be lost bringing in Americas?
Not over time. But of course, it takes a while to get it right.
Understood. And then the last question, really. On your margin guidance for both Americas for 2025-26 and then on a group level for 2027, you don't assume any kind of normalization of the markets. And then in case the markets normalize, what would be the upside if you could quantify it?
Yeah, but I mean, basically, I mean, we are obviously staying optimistic about this space, but I mean, 2025 is most likely still going to be a challenging year, and it's more about the delay in time of that recovery. But it doesn't that we say that we are using the assumption of current market situation doesn't take away that we are, of course, optimistic about the potential in this space over time, but it's more about timing, and of course, if the market conditions are getting better, then there is more potential. If the market conditions are getting worse, then maybe a little bit less, so it's just an assumption to be able to express the potential with this program.
Perfect. Thank you.
You're welcome.
The next question comes from Daniel Schmidt from Danske Bank. Please go ahead.
Yes. Good morning, Juan and Stefan. Just to follow up then maybe on the divestments that you hope to do in 2025, it sounds like. If you assume the midpoint of what you're suggesting between SEK 1.5 billion and SEK 3 billion in sales that will be divested, and when you look at that sort of potential business that you could divest in that space, what will that do, hopefully, you think, to margins, first of all, for the group, and then secondly, leverage for the group?
I mean, the margins in this portfolio of companies that we have on this list, on an average, you can probably assume that it is on par with the average of the group. So then it will have a positive effect on net debt to EBITDA. So.
Yeah. And.
Everything's on timing, Daniel. So the effect on the short term or the long term will depend very much on when we can close those deals.
Yeah. And at what price, of course, as well. But.
I think that's an important one. We want to divest. We don't want to give away.
No. Absolutely, and when you, Stefan, mentioned that you should make strides towards 2.5 times net debt EBITDA during 2025, but you might not get fully there, but it sounds like you think you should get close to 2.5. Does that include these divestments that we talk about, or is that more sort of organic progress?
It does not include the effect of the divestments.
Okay. Good, and you don't want to give any indications what it might do to net debt EBITDA in terms of quantity, in terms of change of the ratio?
No. Not at this point in time.
No. Okay. And then, secondly, on the same topic that was up just recently, when you look at the savings that you hope to generate through the restructuring, and a lot of it is related to RV Americas, not all of it, but you aim to have a run rate of savings of SEK 300 million by the end of 2025, how would you divide that saving between the divisions? Is half of that coming into RV Americas?
I would say that we have decided not to exactly quantify that, but it is, of course, Land Vehicles Americas, Land Vehicles EMEA, and Marine, who are the three largest areas.
Maybe also Global Ventures, or given that you said that you will terminate the generator business there?
In relation to their size of business, yes. But I was more referring to the total of the 750.
Okay. Thank you. That's all for me.
Thank you.
Thank you.
The next question comes from Johan Eliasson from Kepler Cheuvreux. Please go ahead.
Hello, Juan and Stefan. Johan Eliasson, Kepler Cheuvreux here. Just on the net debt discussed previously, I mean, you have a bit of a headwind from a seasonal perspective in terms of cash flow ahead of you, and now you have these additional sort of charges, potentially 400 million in the full year whenever those sort of come through. Have you been in contact with your bank, so to say, about your covenants, etc.? So you have enough room to maneuver right now?
The headroom in the covenants is sufficient.
Good. And I think you mentioned that the big refrigerators in the U.S. will be closed down. Is that what is impacting the Marine business, or why are you mentioning the Marine here as well in the cost-cutting program, but not identifying the products, if I have read it correctly?
Because you have one part, which is portfolio management. The other one is adapting capacity to a new situation. It is clear that the Marine business has also been coming down. Even if the marine business is highly profitable, we don't see anything wrong in keeping our margins or even improving our margins as the capacity is coming down. So it has nothing to do with portfolio management.
Okay. Excellent. That's all I had. Thank you.
You're welcome.
The next question comes from Daniel Johansson from Pantechnicon Advisors LLP. Please go ahead.
Hi. Can you hear me?
Yes.
Yeah. Hi. Thank you very much. I was wondering, obviously, there's a new president coming in in the U.S., and he has talked about tariffs basically all over the place. And this was a little bit of a headwind for you last time around, and you did a lot of changes. But it seems like the biggest currency pair for you remains the dollar versus the renminbi. So is this program partly addressing such imbalances also, or is it completely separate?
I'm not sure. Was the question around tariffs or about currency?
The question, I guess, basically is that the currency sensitivities indicate that you do export a lot from China to the US. Is this program addressing that manufacturing setup, or is it completely a separate restructuring program?
But I think that in terms of, I mean, it is like you said. We have been doing a lot of things. Last time, there were tariffs introduced, right? And our decision was then, like many others, to move manufacturing from China to Mexico. Now we have to see how this is going to end because now there has been discussion about also implementing tariffs towards Mexico and Canada, as well as increasing the tariffs versus China. I mean, we obviously have different scenarios, but I think we need to understand better what is actually going to happen. And so it might lead to actions. And I will not say that this program per se is addressing the tariff situation. But we need to get more clarity first.
But I mean, thank you very much.
I mean, I can just comment, obviously, that the direction since 2018, when the first tariffs were announced, has been to reduce our exposure to China, then, of course, it's very, very difficult to totally eliminate the exposure to China, and we will continue to reduce our exposure to China.
Okay. Thank you.
You're welcome.
As a reminder, if you wish to ask a question, please dial star 5 on your telephone keypad. 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, all of you, for your attention. We are totally committed to execute properly this program, and we are totally committed to reach our financial targets. Thank you very much. Have a very good day. Thanks.