Welcome to Dometic Q1 Report 2025. 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 thank you for joining us on this call where we are going to present the first quarterly report for the year. Moving into the summary, as you all know, the market conditions continue to be tough for some of our main verticals. I would say the quarter has been very much marked by the situation with the tariffs starting at the beginning of January. Of course, as a company, we have spent, I do not know what to say, hours, days, weeks calculating on different scenarios, obviously, and preparing ourselves. We see the retail inventories at our customers are lower and coming in some areas to very low levels. At the same time, as we still see, obviously, that due to the market situation, customers are cautious in building up any new inventories.
The situation we see is a little bit every second month. We see that people are starting to buy, but then traffic is not as expected, and then they postpone the next purchase order. When looking at our performance, we reported -10% organic growth. Out of that, we also have 1% negative growth coming from the fact that we left one of the businesses that we already communicated back in December. We saw a situation with all the sales channels improving in comparison to where we are coming from in Q4. We see also some, as we already indicated when we reported Q4, some green shoots. We see that the order stock in LVA in North America is starting to grow. We see also in the subsegment OGB that even there the order stock is improving.
We see that Mobile Cooling, specifically in Europe and in APAC, is showing positive organic growth, a nice positive organic growth after a few quarters of negative growth. We see as well that the Service and Aftermarket in some of the subsegments are also improving. We saw specifically the Service and Aftermarket on the RV side starting also to grow. In other words, some positive signs that things are starting to move out there. Of course, again, we have the tariff situation and the impact that that might have in consumer behavior moving forward. The challenge still today is really the OEM. I would say that the sales channels are really evolving as we expected when we communicated Q4 as well.
OEM continue to see a deterioration, even if it is less negative than Q4, while we see slight improvements both from a Service and Aftermarket and distribution perspective. We are happy to report, well, happy, that is perhaps not the right word. We are proud to report a 10.4% EBITDA margin. Happy, we cannot be happy, obviously, when we are reporting lower EBITDA margins than we did last year. Again, I believe that the entire team is doing a fantastic job in protecting margins while the volumes are still very, very low. What we are doing, obviously, to support those margins is to, on one side, focus on the mix. As you all know, we have higher margins on the Service and Aftermarket and distribution than we have on the OEM side. Really moving resources, adding some more people in high-margin businesses in comparison to the low-margin businesses.
We continue to launch new products and focus on product innovation. Of course, we pay a lot of attention to cost reductions all over. We also deliver negative cash flow for the quarter, SEK 400 million, growing in, as we state, a seasonally weaker quarter. Keep in mind that the lowest quarter always for us is Q4. We have Q1, while Q2 and Q3 are strong quarters for us. Leverage ended up at 3.3 in comparison to 3.1 in Q4. All in all, 11% in negative growth totally, of which 10% is organic growth, negative organic growth. EBITDA ended up at SEK 606 million, leading to an EBITDA margin of 10.4% versus 11.8%, with EPS delivering at SEK 0.57, or adjusted EPS at SEK 0.88, with, again, a negative cash flow of slightly more than SEK 400 million and a leverage of 3.3.
Looking at the different segments, Land Vehicles came in at -12%, Marine came in at -13%, Mobile Cooling at -4%, and Global Ventures at -6%. We will give some more details down the road. Looking at the sales channels, as we can see, no major changes. What is going on is obviously that the OEM is dropping much more than Service and Aftermarket, that distribution. You can see also looking historically, clearly that the OEM side is far more cyclical than the other two, which means as well that as percentage of sales is coming lower down, while distribution especially is improving. Just as a reminder, if we look at the RV OEM, Americas stands today for about 6% of total sales for the group.
I think this is a pretty interesting slide to have a look at, where we can see that in the last few quarters, again, we're still showing negative growth, but less negative. I'm coming back to the green shoots that we see here and there, with a backlog, especially in LVA, which is improving. We see as well that the Service and Aftermarket is moving in the right direction, while Marine on the Service and Aftermarket specifically is still pretty low. Distribution, I commented, the Hospitality business, Residential are both positive. Mobile cooling is negative altogether, very much marked by the U.S., while Mobile Cooling in both Europe and APAC have turned to positive numbers.
As we also commented, OEM in Americas looks better, while just now the numbers are very much impacted by EMEA and APAC and Marine still at the same levels as we have seen now for a few quarters. Looking at our EBITDA, I'm happy to report that gross margins are improving. I feel especially proud of those margins when considering, obviously, that we are dropping more on our high-margin businesses, both in LVA, as you remember, Land Vehicles, Pacific, where we have very high margins, and Marine. The underlying gross margin improvement is obviously better than that. It shows that we are a pretty resilient organization when considering the cyclicality that we are exposed to just now.
We continue to invest in product development and continue to invest in sales in the sales organizations in what we consider to be the growth areas just now, meaning Service and Aftermarket, meaning Mobile Cooling, meaning Mobile Power Solutions. When looking at the tariffs, obviously, this has been the theme, I would say, of the quarter for many companies, including us. About 50% of our sales is today going to the U.S. market. Out of that, about 60% is produced today in the U.S. And the other three countries where we are producing for the U.S. market are Mexico, Canada, and China. We are ruled under USMCA for a major part of what we are producing today in Mexico and Canada, which is obviously giving us a good protection in comparison to the major competitors that we have today on the American market.
We have commented a couple of times in the last couple of years that specifically for the Land Vehicles Americas on the RV side, we have been exposed quite a lot to Chinese competition. That has been a changing factor for us in the last couple of years. Now looking at the tariffs that are implemented at this point, it is clear that we have a competitive advantage in comparison to many of our main competitors during recent years. Again, we are not happy about the tariffs. I do not think that anybody can be happy on the tariffs. At the same time, from a competitive perspective, we are well positioned. Obviously, we are working on pricing, and we have already issued new prices in all the segments in the U.S. That is, of course, a short-term support.
On the long term, we are evaluating and we are working on different scenarios to change both logistic flows and to add more local production in the U.S. The problem just now is that you can start pushing buttons without knowing with some kind of certainty how the end game is going to look like. Just now, again, it's very much preparing the next steps. From a long-term perspective, we cannot just start pushing buttons. Looking at different segments, Land Vehicles down 12% with low single-digit decline in Service and Aftermarket. If we are looking at the CPV side, the Commercial and Passenger Vehicle side is, from a Service and Aftermarket perspective, negative, while the RV side is positive for the quarter, which is good. We have seen a positive trend during the last couple of quarters.
We see good stability in Americas. We are, I would say, pretty optimistic that the situation created now with the tariffs might bring to us some competitive advantage from an RV perspective, which is positive. EBITDA margins ended up at 5.9% or SEK 150 million with reduced, I would perhaps mention specifically the reduced losses in Americas as a result, both on efficiency gains, but also the fact that we are running, as you know, the restructuring program that we announced in December. Looking at Marine, organic growth down 13% with decline both on the Service and Aftermarket and on the OEM side. We are very pleased with the product launch that we announced in connection to the Marine boat show in Miami in February and hopeful that that new product range is going to support our growth moving forward when the market starts moving upwards.
EBITDA ended up at SEK 256 million or an EBITDA margin of 19.7%. Mobile cooling ending up at a negative organic growth of 4%. We see exactly the same situation as we saw during Q4, it's a little bit every second month. We see retailers building up inventories and then being cautious every second month. Good to see, though, as I commented earlier, that both EMEA and APAC are showing pretty nice numbers in Q1 after a number of negative quarters. EBITDA, good positive evolution ending up at SEK 123 million or 8.6%. Even here, supported by product launches on one side, but also cost reductions. Finally, Global Ventures ending up at organic growth of 6%. The difference between the 13% and the 6% organic is obviously the fact that we exited one of the businesses that we communicated back in December.
We have nice growth in both hospitality and residential, negative growth in Mobile Power Solutions, but part of that, again, is the exit of one of the businesses, a generator business that we had. The fact that that business is partially linked to the RV manufacturing. EBITDA ending up at $78 million or 13.3% versus 14.2% last year. We are also happy to report good progress in our sustainability scorecards with injuries at 1.2 versus a target of 1.5, with the share of female managers reaching a target of 30% already in the quarter, with renewable energy ending up at 34% when we have a target of 35% for the year. We are working very hard as well to audit our major suppliers on raw material. We are already down to 48% when we have a target of 65%.
Innovation index stayed at the same level as Q4 at 21%. We are confident that we are going to see that percentage growing during the quarters to come. A lot of product launches in a number of areas. We have been launching in both for the under the Igloo brand and the Dometic brand. We have a very, very comprehensive product range, and we will continue. We have a number of new product launches as well during Q1 and Q2 this year, both in the U.S. and EMEA.
I think this is a good way of showing as well how the Igloo acquisition was strategically so important to us to get really to the good and the better range of the cooling market, while Igloo is also supporting us to develop new products under the premium class for both the passive hard coolers, soft coolers, and drinkware, which is, as a matter of fact, something new for Dometic in the last couple of years since the Igloo acquisition. Moving over, this is the way we are showing ourselves as a consumer business, taking more and more space. This is a 300 sq m store-in-store location in one of the major retailers in the outdoor industry across Europe, which is Go Outdoors in the U.K. I hope that you agree that it looks brilliant. Another super interesting area is the gyro.
This is a totally new product range for us. This has been a high-growth, high-margin market that has been evolving during the last 10 years, especially in the U.S., but also coming to Europe and the Pacific area. We estimate the global market to be about $500 million. We have, as I commented, the product launch in connection to the Miami Boat Show in February. We have won an innovation award already and feel optimistic about the evolution of this range already in 2025. A lot of attention we keep paying, obviously, to innovation and in a market which is tough to still gain market share based on our product innovation. Last but not least, we introduced the restructuring program in December. We see good progress in that area.
As you may remember, we are talking about annual savings of SEK 750 million once the program is fully implemented at the end of 2026. We had good progress in the quarter, ended up by closing down one of the manufacturing sites and one Distribution center. 150 people were impacted by those changes. This is just now giving us a run rate saving of SEK 100 million. And we had cash out in the quarter of SEK 40 million. We continue to work on the divestment plan that we communicated as well. Things are moving. Of course, the situation just now with the tariffs, all the uncertainties are getting into a little bit tougher negotiations that we had about six weeks ago. We are sitting still on the table and having those discussions. With that said, Stefan, the stage is yours.
Thank you. Let's go in and dissect the income statement.
Very good to see that we are keeping up our gross margin and even improving them during the quarter here. That is related to, obviously, the sales mix and partially also the new product launches, but also that we are continuously working on adjusting the capacity to the lower volumes, including obviously the effects of the restructuring program that we are running right now. Operating expenses are down in constant currency with around 3%. Of course, because the sale is down with 11%, the percentage in relation to net sales is up. We keep on investing in strategic growth areas that we have identified. The other operating income and expenses are negative SEK 37 million, which is mainly related to FX hedges, partially offset up in the gross profit margin.
If we look on the net financial expenses, they are, if we look on the interest on the loan facilities that we have, it's SEK 138 million compared to SEK 199 million. It is moving down according to plan. We have somewhat higher FX revaluation, FX and other items of SEK 59 million, which is higher than last year. If we look on the tax line, the effective tax rate has gone up a little bit, 32% versus 30%. In absolute terms, we are down from SEK 190 million last year to SEK 87 million this year in the first quarter. Moving over to our cash flow, if we start to look on our operating cash flow, I mean, the working capital is, of course, seasonally up a little bit, mainly driven by accounts receivable.
If we look on an LTM basis, the working capital is reduced with over SEK 1 billion. I just feel that we are doing a great job, and we will come back to that later and talk a little bit about the different components in the working capital. The cash effects of our restructuring program in Q1 is SEK 40 million. We are continuing to prioritize our investments in fixed assets and product development in the quarter. Q1 last year was an exceptionally low quarter due to timing. That is why we have a difference there, but nothing that is really sticking out. If we look on the free cash flow before M&A, we have income tax paid. As I said, it has declined over 30%. Paid interest or the net of paid and received interest is also down with 16%.
The refinancing activities is positive, $900 million, but that's related to the refinancing that we did here in February, basically. I'm coming back to that. Moving over to the next slide, here you see the free cash flow development over a longer time period. As you can see, I mean, the first quarter is our weakest quarter, as you know. It might move some $100 million back and forward here. $406 million, I would still say that that is within what we could expect. Moving over to working capital, we can see that the working capital in relation to net sales is down from 31% last year to 28% on a 12-month basis. If we take the quarter standalone, we are down to 27%. Inventory balance, it's now on $5.6 billion.
The number of days outstanding in inventory is 131 days compared to 145 days last year. We also see that in absolute terms, the inventory continues to come down in the first quarter, currency neutral around SEK 350 million. We obviously have a target of 20%, which leaves us further potential to take down the working capital in relation to net sales. My estimation right now is that we will not be on 20% of net sales this year, but we will still take a meaningful step towards our target during 2025. Accounts payable is stable and accounts receivable equally. No big movements there. If we look on CapEx and R&D spend, we did spend SEK 98 million, which is in the pattern that we typically are spending. We had, timing-wise, a low quarter in Q1 2024.
CapEx in percentage on net sales right now is 1.7%. R&D spend, we keep on investing in strategically important areas like Mobile Cooling, like Marine, to mention two areas. In absolute terms, the spending is more or less kept on the same level. It is going up a little bit in relation to net sales because of the declining net sales, and it is now 2.8%. Moving over to the debt, our debt portfolio. As you have seen, in February, we did issue a bond in SEK 2.5 billion. SEK 1.5 billion of that with a three-year maturity and SEK 1 billion with a five-year maturity. We used that proceeds to pay back an EKN-backed loan of SEK 1 billion and also a bond of SEK 500 million. As you can see from the maturity here, we still have SEK 0.5 billion in a SEK bond.
The assumption is that we are going to pay that back here also during Q2. We have also prolonged half of our USD loan previously maturing in 2027 to 2028. We now have an average maturity of 2.5 years, 2.7 including the extension options compared to 2.1 years in Q4 2024. The average interest rates on the debt portfolio right now is 4.7%. As you know, I have mentioned it before, a little bit more than 50% of the portfolio is fixed, and the rest is variable. We also have an undrawn revolving credit facility of EUR 280 million maturing in 2028. Obviously, we have an updated EMTN program for being able to issue bonds in euro and Swedish krona. We also have a certificate program of SEK 3 billion, which is more a source of short-term financing.
If we go over to net debt to EBITDA and the leverage ratio here, it ended with 3.3 compared to 3.1 in Q4. It is sequentially a natural movement. We have seen a positive effect from FX. We have had a reduced EBITDA. We obviously have our seasonally weaker operating cash flow in the quarter. We continue to focus on the important things to protect our margins and reducing our working capital. I mean, we are continuously committed to take the leverage towards around 2.5, which is our target. As you can imagine, with the current macroeconomic situation going on right now, it's a little bit difficult to exactly assess the timing. I expect that we are going to see improvements over the coming quarters here, of course, with the caveat on what is going on on the macroeconomic level and the tariff situation. With that, Juan, I am handing over to you to make the summary.
Thank you, Stefan. Summarizing the quarter, we feel that we are delivering a robust performance in, I would say, most probably the toughest times that we have experienced, at least I have experienced in my professional career after the pandemic. We continue to take actions to both protect our margins and to mitigate the tariff impacts, both in the short term and in the long term. We see inventories coming down on a continuous basis, but we also see, obviously, customers being cautious in building up new inventories. Considering all together, and under normal circumstances, we would expect to see Service and Aftermarket recovering as well as distribution stepwise. Our expectation would be to see also clear OEM improvements during the second half.
Of course, it's impossible to assess without getting more certainty in how the tariffs are going to impact demand. Strategically, we continue to work on the right things. We continue to invest in the areas that we believe are going to generate growth and high profitability moving forward. We continue to invest in innovation. Of course, we spend a lot of time in taking down our breaking points by reducing costs all the time. Altogether, we are confident that despite the turbulent times, we are going to take Dometic to a higher level of performance moving forward. With that said, I would like to open for the Q&A session, p lease.
If you wish to ask a question, please dial star five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial star five 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 write your questions on the webcast page. The next question comes from Agnieszka Vilela from Nordea. Please go ahead.
Thank you so much for taking my question. Maybe starting with the gross margin development in the quarter, you improved it despite lower volumes in the quarter. Can you tell us about what were the main drivers? Also, if you could kind of rank them, what was the most important for good margin development on the gross margin side?
Yeah. I mean, as we have commented, we have much higher gross margins and EBITDA margins on certain aftermarkets. Of course, having a more positive mix has some major influence on our margins immediately.
Of course, we are running a restructuring program, and we are already now generating savings. It is a combination of both. Again, Agnieszka, do not underestimate service aftermarket margins. They are huge for us in comparison to OEM.
Perfect. That is very helpful. Maybe just following up on that, I think on page seven, you showed the sales growth for different channels. I just know that Q2 last year was quite good, actually, for both Service and Aftermarket and distribution. Should we be a bit concerned with the fact that you are meeting a bit tougher comparables now going into Q2? Do you think that the business will continue to improve sequentially?
On the line, we should be improving. You are right that Q2 was strong, while Q3 became pretty weak. Remember that we had a strong Q2, and then Q3 became minus 11%.
I think on the line, it's impossible to me to say exactly with two decimals where it's going to end up. You see a trend clearly. I mean, if you look at the quarter, it's very much Marine, I would say, which is taking down to 7%. The rest, CPV. Even if you take CPV and you just look at Land Vehicles, Land Vehicles is not in a bad place now. Marine is taking down just now, both from an OEM perspective and service aftermarket perspective. We are optimistic that it's moving in the right direction, that inventories are becoming lower and lower.
Perfect. Thank you. My last question is on the kind of net leverage and cash flows. Can you help us to understand the potential cash flow impacts in the coming quarters? Here, I think both about, Stefan, you mentioned about the working capital development, but also maybe if you could tell us about the cash outflows that we could expect, both the very probable one or like the dividend, I mean, it has happened, and then maybe the potential downside related to the, for example, settlement with Igloo sellers.
Yeah. If we start with the dividend, I mean, that's SEK 450 million, and that is already paid now in April. That will come off. If we talk about the restructuring program, I mean, as you remember, we did say that of the SEK 1.2 billion, around SEK 400 million was going to have a cash impact. I would say that we have programmed to date, we have seen a bit over SEK 100 million there. The rest is going to impact during the rest of the year, basically.
The difference between 400 and a little bit more than 100 so far. Obviously, we are going into our strongest quarter in terms of operating cash flow now in Q2. Q3, we also know, is seasonally a strong cash flow quarter. I still expect us to be able to see that we are improving on working capital. There is more potential, as I mentioned before. As I also mentioned, I mean, I do not feel that we are going to be on 20% to net sales by the end of this year, but we are still going to take a meaningful step towards that. That obviously gives you an indication that we still have a substantial effect that we are expecting from working capital release also this year. It is still not going to be like in 2023 or 2024, but still meaningful.
Thank you for the answers.
You're welcome.
As a reminder, if you wish to ask a question, please dial star five on your telephone keypad. The next question comes from Martha Ford from Jefferies. Please go ahead.
Hello. Good morning. I just had a question on your outlook. I noticed that when you talk about OEM, you now only expect possible improvements in the second half, which you did not mention previously. Is it because you have seen incrementally more weakness in OEM, or is this just to reflect the greater uncertainty that you are seeing?
No, in reality, what we see is that the OEMs, I think that is very much in line with what we already communicated. I think that if you look at, especially the European OEMs, we are a little bit more optimistic from an OEM perspective for the second quarter this year.
We were more cautious, and we said that our expectation is that it should be improving towards the end of the year. I believe that they are becoming a little bit more cautious themselves as well. Those are the kind of signals we are getting just now.
Thank you very much. Maybe on the tariffs impact, how much have you raised prices in the U.S.? If you give any level there, and also how much do you expect that you might have to raise prices if tariffs remain as they are?
We have already raised prices. The prices went up. Some of the prices went up already at the beginning of April. We have new communications, obviously, from the U.S. administration, and we raised prices again, and they are going to be live already at the end of this month.
We have a new round, which is kicking in mid-May. Prices have already been communicated to everybody, and they are kicking in at different steps. Of course, we are talking about, as we commented, about 15% of what we are just now selling in the U.S. is coming from Chinese factories, while we have very high protection levels both for what we are manufacturing in Mexico and Canada since they are USMCA.
Great. Thank you so much.
You're welcome.
Yeah. We have a question on the web, but I think you probably partly answered that, but we'll take it anyway. If you're looking at your sales in the U.S., 60% is produced in the U.S., and the remaining 40%, how is the split between Mexico, Canada, and China?
Yeah. I think we commented in China, and the rest is obviously a combination of Canada and Mexico. 15%? Yes. Is China.
Okay. Back to you, Operator.
There seems to be no questions in line, so I leave the word back to the speakers.
Okay. Thank you very much for your attention. It has been another challenging quarter, obviously, but we feel good about what we are doing as a company, delivering on our strategy, investing despite the tougher times that we are facing, and of course, navigating towards some kind of light, some kind of clarity in regards to the tariffs. We feel good from a market perspective from the sense that inventory levels are low, and we feel as well that the underlying trends for the outdoor industry are still there. Of course, we have the post-pandemic situation that we are working on, and we feel confident about the future. Thank you very much for your attention, and have a great day.