Ladies and gentlemen, welcome to the Dimetriq Q2 Report 2019. Today, I'm pleased to present Jan Vargas, President and CEO and Per Arne Blomqvist, CFO. For the first part of this call, participants will be in a listen only mode. And afterwards, there will be a short question and answer session. Speakers, please begin.
So good morning, everybody. This is Juan Maris speaking. I'm sitting together with Arane Blomqvist, the CEO and CFO of the Dometic Group. And just to start the presentation of this quarter, I would like to say that while I'm not very happy, obviously, with the market situation, neither in Q1 or Q2, I'm pretty pleased with our performance as a company during the Q2 as continuation of a solid performance in the Q1 as well. Looking at the growth rate, we ended up 1% total growth in a pretty challenging environment.
We are coming from a Q1, obviously, that was pretty soft, like 6% down organically. April, SKARC did pretty good. May continued pretty good, much better than Q1. But then the last 2 weeks in June became very, very weak with a number of our main customers in the U. S.
Shutting down the factories, having obviously a very negative effect on our numbers in June. If we look at the aftermarket, we showed a 12% total growth, with good progress in a number of areas. I already commented the RV OEM market down totally by 13%, organically by 17% in the quarter. We continue to see a stable market in the EMEA region, and even Asia did pretty good. And then I'm also very, very pleased with the performance of Kempa since the acquisition took place in December last year, showing a very strong growth improvement in organic terms as well as margin improvements.
Looking at what we are doing on the markets. Already commented, obviously, the situation on the RV OEM market. We are putting in place a large number of initiatives on one side on today's markets where we see still today a pretty good progress while we're initiating also new activities. As we commented in the Capital Markets Day, we're initiating activities to penetrate the patio door, the outdoor business, mobile deliveries and professional marine. And we continue to see, as I mentioned before, stability in EMEA and in Asia.
If I would take 2 areas of the company that I feel is especially proud of is really our EBIT performance when considering the circumstances. We see obviously that we have lower volumes, but we have the tariffs in place since the 1st January. We have a negative geographical mix, meaning that we are just now shrinking in 2 high margin areas, while EMEA, which is the lowest, has been not enough. The lowest EBIT margin area has been growing. And on top of that, we are also increasing our amortization of acquisition intangible assets.
So when you put all that together, we show a pretty strong performance, which is also telling you that underlying, we have a lot of improvements in many different areas across the company. And having said that, I'm also very, very confident that once we move from the tough markets we are seeing just now on the agribus side, we will also see a good marginal effect on our growth. And we continue to run our restructuring program. We see good effects of during the Q1 and the Q2. We are just now year to date €55,000,000 in savings coming from the restructuring program.
We're expecting €60,000,000 at the end of the year. And then the other area where I feel very, very proud of is our cash flow. I still remember some Apocalypsich comments some months ago when the market started shrinking about what was going to happen with our credit number, our cash flow and even the risk we would have for raising capital. And I do believe that now after 4 pretty strong quarter pretty weak quarters from a market perspective, we have been showing solid EBIT numbers. We have been showing as well a pretty strong cash flow generation.
And then last but not least, as a consequence, obviously, the tariffs implemented in the U. S, we already started to manufacture in Mexico. We did that factory that was up and running in February last year, and we are building up a second site, which is 3x the size of the first site, and we will be taking over during Q3 or beginning of Q4 this year that will help us to mitigate the negative effects of the tariffs. If we move over to the financial summary, as mentioned previously, 1% total growth with 10% organic. Our estimation is that if we take away the effects of the shutdowns in the last 2 weeks of June on the U.
S. Market, plus the fact that we have one working day less in the quarter, the minus 7% should have been minus 5%. And on top of that, we have positive FX of 5% and 3% on M and A coming from the Camp acquisition. On EBIT number, 2% down in absolute terms or an EBIT margin of 16.9% versus 17.5 If you take like for like, if you add the additional amortization that we are doing due to the acquisitions and trademarks plus the tariff situation, we would have beaten quite a bit the EBIT margin that we have 1 year ago despite a 7% organic growth negative organic growth. We are obviously working very hard to keep our cost in balance with our volumes, and that's also what you are seeing in the numbers.
And we will continue to do so, obviously, as part of the market is not returning to the positive. And then, obviously, moving forward, what we have started to kick in, in June is the 25% tariffs moving from the 10% that was applied from the end of last year into 25% again during the recent weeks. EBITDA was positive 5%, ending up €1,100,000,000 Cash flow, I already mentioned, very, very strong, above €1,400,000,000 or 50 percent up. And then EPS, 11% down, diluted by the lower EBIT performance and financial items that Perane will go through in detail. When looking at the first half, it's very, very similar to the Q2.
So, obviously speaking, 3% growth with 6% organic down, 6% FX and 3% M and A. And the same is valid for the EBIT. It's like for like, you just take away the additional amortization we have this year, we will be almost at the same level as 1 year ago. And then if you add also the negative tariff impact, we will be beaten last year despite a negative growth of 6% in total. EBITDA, strong 6%.
And I have to say that I'm very happy to see working capital coming down, inventories, days of inventory reduced by 8 days after 2 quarters. And despite the fact that we are building up a factory and that we are building up inventories to reach over the period of time where we are running the factory. Strong cash flow, the same level on the EPS, down 10% due to the EBIT and the financial items. If we move over to the sales growth, as I mentioned previously, this is the 4th quarter with negative growth on the RV side the RV OEM side. Started already in Q3 last year with minus 6% organic, Q4 minus 10% organic, Q1 minus 14% and now minus 17%.
And then moving over to the next slide, this new slide shows really the importance of the non RDUAN, how important it's obviously for us to diversify even more and to reduce our dependence on one segment that we have today. Having said that, we have to remember that RV OEM stands today for onethree, 53 percent of the total revenue of the company in comparison to 39% 1 year ago. On one side, the RV, we end the shrinking at the same time as the non RV, we end is growing faster, and then we are in acquisitions. So if we move over, I already commented this one. So you can see how the RWEM is coming down from 39 to 33 percent or how the non RWEM stands to be 67% and growing 5%, while the RWEM is coming down organically by 17% in the quarter.
If we move over to EBITS, as I said, I feel very proud of what the team has achieved despite the headwinds that we had in a number of markets with tariffs, with the volumes. And that's telling you that underlying, we have a lot of efficiency improvements all over. And of course, not to forget that we are also working on the pricing, trying to mitigate as much as we can the negative effects of the tariffs. And on top of that, as already mentioned as well, we are building up a new site in Mexico to move even more products from China into Mexico. So on the growth side, on the next slide, this is we would like to mention the new generation of equipment for mobile deliveries.
We launched the 1st generation a few years ago. And considering our strategic path moving forward of getting into new businesses and reducing even more dependence on RV OEM, this is one of the areas where we're investing the most, maybe mobile deliveries, starting with the vehicles. And this product has been launched was launched about 2 months ago with so far very, very good entry into the market. We have license pending that have been filed. We expect to get approved in a few months from now.
And again, the market has reacted very positively so far. This is really the first step. On the second step, we will move also not just for being part of the vehicle, but also into the boxes. And that's something that we are building up organizations just now and hiring people. If we move over to the regions, starting with Americas, above minus 12%.
As I mentioned previously, June was really bad in the last 2 weeks, even if we saw improvements in April May. We see, when looking at the new application areas, that both food and beverage and climate have a negative, still impacted by the RV OEM, while power and control, which is primarily going to the marine industry, has been developing positively during the quarter. If we look at EBIT, 22% down, totally speaking. And then we have to consider again that the tariffs have a pretty negative effect on those numbers. So we would not be far away from last year's EBIT number in percentage if we don't have the tariffs.
We obviously continue to adjust our cost base. We have been working very hard in pricing, and we will continue to do so moving forward. At the same time, it's obviously when the market is down at the level that we are, it's very difficult to compensate totally for those negative effects. Just one comment about the market. Depreciation from the American Association for the year 2019 was about 453,000 units for 2019 and has been revised to 460,000 units.
And then we need to remember that we are coming from almost 484,000 units during the year 2018. And that expects that means as well that the inventory correction that has started in Q3 last year expects to be prolonged, so a little more a little wide. If we move over to the EMEA region, we are very happy with the performance. We see organic growth. We see that Tampa is developing in a very positive way for us.
It's more than 2 digit organic growth after 6 months. We see Power and Control growing due to new pro launches. I think last quarter, we commented a new battery charger, the PLV-forty, that has had a great success around the world, but even more in the Nea region.
And then
we see also food and beverage growing, especially on the mobile cooling side, but also in some other segments. We have also a positive impact of the aftermarket in EMEA. And at the same time, in the same way, we are also we have been adapting our cost base even if we are still positive organic growth, but we are down in number of years by 6%. As a consequence, we see also how our EBIT improvements are kicking in. We are 19% up versus last year, and we expect even the second half to show very positive development in that area.
We will move over to Asia Pacific. Negative growth, we presented in detail a similar situation as we see in Americas with inventories, especially in the Pacific, while Asia continues to grow organically in a good manner. Pacific is negative. And they're exactly the same. We see food and beverage and climate impacted by the negative effect of the RV OEM, while we see at the same time, the marine, power and control are growing.
We established a new company in Korea a few months ago, and we see that the market is kicking off, and there is a good assessment for our growth in the area. I'm also very happy to see the EBIT evolution in APAC when looking at the organic growth developments. We are delivering an EBIT performance of 22% versus 23.6% last year. And even here, we have exactly the same situation. So we have a negative geographical mix kicking in while efficiency is increasing quarter by quarter.
If we move over to our strategy, a lot of things are going on. So we keep working with our expansion even if just now, obviously, we have the organic growth influenced by the RB market. We are working on the 4 initiatives that we initiated in connection to the Capital Market Day. We see comp kicking in. We see still today a good aftermarket growth, and we are moving more investments into the aftermarket side.
And we are also adding resources into the M and A teams to accelerate that part of the business. On the pro leadership, I'm happy to see as well how the new strategy is kicking in. We are hiring key persons, both in operations and product development. We see our innovation index starting to improve from 4.3% 1 year ago into 16.5%, and we will see an acceleration in the quarters to come. We are also pretty pleased with evolution on complexity reduction.
We see SKU coming down now 7%. And when we are talking about 7% here is SKUs are totally out from our systems, from our inventories. And we are working with taking away the 23% remaining that we have for the rest of the year. On the cost reductions, a lot of initiatives in place, both in terms of direct labor, indirect labor. We are also, as you all know, executing a restructuring program, which is also giving us good results.
We will mitigate the effects of negative the negative effects of the tariffs by having a bigger side in Mexico. I'm also happy to see, as I mentioned previously, the inventory reduction, 8 days during the last 6 months and more to do moving forward. So that will also help, again, to generate positive cash flow moving forward. And then last but not least, we are strengthening our management, especially on the sourcing side, where we see good potential moving forward. With that said, I would like to leave over to Karane, please, on the financials.
Thank you, Juan. Starting with the long term plans, you can see that domestic right now is pacing at €18,500,000,000 in sales, which is done more than 100% up since 2014. We are now also hovering around €2,600,000,000 1,000,000,000 in EBIT, which has been a sort of higher increase than the net sales decrease. But also then more important, if you look at EBITDA, there we have had an increase of 171% from last year and now pacing at SEK3.3 billion. Operating cash flow really up in capital 41 percent and pacing at €3,200,000,000 which means that if you take LTM for 'nineteen to have a cash flow, it's roughly 97%.
I think that's really good. And also, these times when the markets are a bit tougher, it's good to see that they continue to have a very high cash generation. And this is the focus for us within domestic to continue to make sure that we can generate cash for future investments. If you look at the trends overall, we have a lot of our sales, partly flattening out right now. We can see that EBIT and EBIT margin is slightly under pressure.
Meanwhile, operating cash flow as I said is moving upwards. Looking at the different business areas. RV, as we said here, is under pressure and especially the American markets and the Australian markets. Meanwhile, we could see a sort of long term growth in the BBB business and also in Marine and Regional Launching. And obviously, it stands for 52% of the business and Marine has now surpassed 25%.
So I
think the balance is supposed to be pretty good and also that you know that the Marine business is having good margin and improving overall margin that helps us also to protect the margin even when we see the downturns as we're seeing right now in the oil business. Then we have the new application areas that we introduced in during the International Markets Day, food and beverage, climate, power and controls and other applications. What is under pressure right now is food and beverage, of course, due to the fact that we have a pressure on the oil market. Still see a positive development on the climate side and, of course, Power and Control with the acquisition of Seastore continue to be a much more important area for us. And there's also we're also happy to see that even though it's a small area that other application continues to grow.
So we are putting efforts into different areas to make sure that we are growing at the same time that we see as certain declines in other areas. If I don't look at the key ratios, I think it's worthwhile to stay here a second or 2. I think this is the 4th consecutive quarter, where we show resistance to a downturn in the market. And this has been during the last 5 years, a lot of discussion on what happens with domestic when you see a real downturn in the American RV market. And here you can see that if you take the quarter, which was a tough quarter with close to 7% down in organic growth, We're actually up on the gross profit.
We're defending our gross profit. We're down 60 basis points on EBIT, but we're actually up on EBITDA. Even though EBITDA is inflated by the new IFRS 16 rules, even if we should pick up the way, we should be up 19.8. So we're actually protecting the margins in a very good way. You can also see that operating cash flow is up with 5th 3rd month in the quarter.
And if you do the same take the same view on the first half year, improving gross profit, we are improving EBITDA margins. We are down, of course, on the EBITDA, but I will come back to that later on. And we are improving the cash flow of roughly 64% during the first half year. That's the strength. And this is the 4th consecutive quarter that will show this resistance to a very, very tough market.
If we then look at the sales side, you can see that the weak Swedish krona is, of course, affecting us. We have translation effects of 5%, and it's very much the U. S. Dollar that will be moving. We have more than 50% of
in the U. S.
And of course, we are positive for that. If we then look at the earnings per share, it's down and it's partly to have a higher financial net. I would like to speculate what we are actually renegotiated our loans, bank loans, and we have some redemption fees, prepayment fees that we needed to pay. But overall, the situation for National Debt will be very good going forward. And I'll come back to Peter's later on.
Tax side is a bit of a concern right now given the new rules in the U. S. We had a lower tax rate, but at the same time, when we implemented that, they also implemented the lower rules for what we call build and beat. And that's affecting them the tax rate for the time being, makes it a bit on the higher side than we have fixed effect. And look at also the double taxation agreement with Canada.
We are right now paying taxes both in Canada and or in the U. S. For September. So that makes the tax rate a bit higher than the 25% that we haven't anticipated before. Some of these rules and new laws will then be eliminated during the end of this year.
So I expect the tax rate to be better in the coming year and come back to close to the 75%, perhaps to the 6% that we have listed before. If we then go to the regional results, you can see and I would just summarize what Juan has said that it's the same tendency in the quarter as in the first half year. Americas, of course, under pressure given sort of the decline we see, on the volume side, on the RV side. At the same time, EMEA is improving. And I think that is the effect of the long term work that we have been working with since, I would say, at the end of 2017.
And that's also a real deal effect, but we expect that to continue to yield good effects. And Asia Pacific, in spite, a tough top line decline, we are projecting the noise on a better high levels of in quarter 1 point 6%. When you have a that says going out with 11% is a fair bit of protection that they have shown in the warehouse market. If we then go into the key ratio, and I think it's also worthwhile looking at this. We have a stable, however stable underlying profit.
If you take, we know EBIT is, yes, it's down, but if you then take EBIT up, you could see that we are down from 18.5% to 18.3% on the quarterly side, and we are down from 17.1% percent to 60.7 percent. And this is the right effect that we are actually taking our investment for IT. We're taking investment for product development. We're taking investment for product management. We have the impact from the tariffs.
We also have cost for building up new capacity in Mexico. And I think this is a strength. The picture shows we are protecting the margins in such an environment where we also see a real downturn on the top line. So underlying profit is looking good given also the different efforts that we're doing right now. And all these efforts will pay off later on.
This is long term investment that we are doing that will be a gain for the company in the coming quarters and the coming years. You can see on the next slide that we are continuing to invest, as I said, in CapEx and also in corporate development. And we are at closer 2% in both areas, and that's what you should expect from us, 2% to 3% over time, also when we invest more heavily in the new side of Slack in Mexico. Working capital, this was mentioned by Juan that we have been able to take down the working capital. And when you look at this slightly to see that, to see if 55 is the cash flow effect of what we have done with the working capital, I.
E. Taking down especially inventory, but also improving the accounts receivables side. The target is still to be at 20%, and that's for sure achievable. More difficult with the equity right now, we also see a downturn of top line, but over time, you should expect us to operate on the 20% level. Working capital now down to SEK4.4 billion, and we have also in that number a camper effect of more than €280,000,000 and inventory are affected by tariffs.
So there is an underlying good progress on the working capital side. Cash flow, I mentioned before, SEK1.4 billion in the quarter, up with 50%. And the target is for us to continue to have a high cash flow. And we said that the capital markets that are going to be roughly at 8% to 5% on the time. Net debt, down to 2.8%.
We have taken it down from 3.3% last year at the same period, down to 2.8%. Percent. And we are still very firm on the target, it could be around 2% at the end of this year. And I think with the cash generation we have right now and also the debt structure that we have put in place, we feel very strongly for that we will be to deliver upon that target. If you look at the debt side, we have been very active on the accounts of the capital structures.
We have during the first half year
issued a
bond in Swedish krona, a 2 year bond, €1,000,000,000 We have sought to issue commercial papers in March, €500,000,000 on half a percentage 3 months. We also issued a Eurobond 7 years after Q1, where we paid 3% for €300,000,000 We have amortized bank loans. We have renegotiated bank loans, which means that we have only bonded loans left. We have also prolonged maturities of this loan, and we have also extended the revolving credit facility. Average interest right now will be expected to be roughly 3.5% to 3.6% going forward.
And if we then look at the cash and the cash on hand, we have today €2,600,000,000 cash on hand, and we have an unutilized RCA for roughly €200, which means that we have available cash of close to €4,700,000,000 If we then also look at the debt maturity profile, given the change we have done, we have just on the Page 1021, which is €1,000,000,000 that Swedish won't make. On the advisory, we will have no amortization until the maturity of 2023, which gives us a good ability to generate cash for further investments in both M and A activities and also in CapEx in the company. If you remember, there's CHF2.2 million in cash that we talked about at the beginning, and we take away roughly CHF400 1000000 in interest cost and we have tax around SEK600,000,000 we have roughly SEK2 1,000,000,000 in cash generation that we could use for on an annual basis that we could use for different investments. The net and targets. Q1, we have 10% in the mid long term net sales growth.
We are pacing at summer right now when it comes to the last 12 months. EBIT margin of 14.2 percent, probably 6% or 17%. And the investment that we are doing right now will yield results in the coming, I will say, year years. That will help us to reach that. And I think we have a good pace of our accounts to deleverage the company also given the new debt structure that we have in the company.
So, Tom, please, Tom is off.
So, summarizing the 2nd quarter, total sales growth of 1%. Obviously, negative impact by the RV markets. But also, with obviously being aware that the non RV is falling pretty well. We continue to work on the long term activities. We are strengthening the aftermarket organization.
We're increasing our pace of innovation, and we see that already in the numbers. We are actively building up our acquisitive pipeline, and we have been working very, very hard on the cash flow on our financing, so we can afford starting to look even more actively on those acquisitions. I feel very, very proud about what the teams have achieved in terms of underlying EBIT performance and the tough market conditions, and I'm fully convinced that we will see the marginal positive effects when the market turns to positive that we will see that the EBIT numbers coming up quite a bit. At the same time, as we are working as one of the main activities on continuous cost reductions. Obviously, we have done a pretty good job in adapting capacity until now, and we will continue to do so.
We are executing the restructuring program that we communicated at the beginning of this year. We are working on the Mexico side. We are making progress on our digital agenda that will also generate further savings down the road. And last but not least, we are also looking for additional initiatives to reduce the cost even more now when we see that the volumes are low. And then, of course, as I said, we have still today a very strong cogeneration capability that we will utilize to generate positive growth moving forward.
And with that, I would like to move over to the last slide. As you all know, we held a Capital Markets Day in Stockholm May 28. At that time, we communicated our long term financial targets. We believe our new targets are ambitious and will require investments in new business segments, innovation, acquisitions and continuous core reductions. When looking at that and considering the long term targets and the detailed activity plans that we have communicated, will put all our emphasis going forward in delivering the expected results.
In other words, this also means that this new revised outlook for 2019 that we are communicating today will be the last short term outlook that we will release going forward. In the future, our intention is to be working on the long term strategic plans and to give to share with the market, obviously, what we see on the market trends, on demands, up or down moving forward. Now moving now in practice to the outlook. We expect for the year a negative organic growth, very much influenced obviously by what we saw in June, but also revised forecast from the American Association. We expect EBIT margin to be above 14%, lower than the close to 15% that we announced before.
And it's really 2 different factors. 1 is, again, the lower volumes that we are expecting for the rest of the year. At the same time, the 25% tariffs are new to us and is very difficult to compensate totally for such an impact. That means also in practice that we are still expecting to have a slightly positive growth in the second half. July has started better, surely better than June ended up in the last 2 weeks.
But we see clear that inventory correction is being prolonged in accordance to the communication that we have with our customers. And that's why we are obviously being able to be more cautious during the second half. Beverage, we continue to expect to be around 2, obviously, excluding acquisitions. And with all that said, I would like to open for the M and A sorry, the Q and A session. Thank you.
And our first question comes from
the line of Johan Eliason from Kepler Cheuvreux. Please go ahead.
Yes. Good morning. I hope you can hear me. I was just wondering about this closure you talked about the end of June. You said you adjusted for that organic growth for the Peper.
But why would you adjust for that? Was there any specific reasons for this closure? Isn't it just to adapt to a lower end demand?
Yes, yes. But this also explained to you. So we knew from the beginning, obviously, that the Q4 was going to be tough. We have been talking about that Q1 and Q2 in comparison to 2018 were going to be very, very tough while we will see improvements in G3. What happened and then especially after seeing June as April June coming in the way they were coming, we never expect it was going to happen during the second half of June.
So what I'm just saying is that, that's had a major effect on our Q2. That is a reality, obviously, that when they actually have been down the factories, is obviously because they are also adapting to the new sentiments on the RV market, which is talking about minus 14% in comparison to the minus 5% that was communicated before. So numbers are numbers, so they are real. So minus 7% is real. I'm just trying to explain why we are adapting also our view moving forward.
And talking about this guidance in our view on the fuel year, you have the first half already done. Yes, you should have a fairly good visibility into July in your order backlogs as well. In Q4, it seems
to be a very small quarter. Are you really confident that
you can beat the 14% margin?
Not a 15%. The 15% is gone, but the 14% we believe, absolutely. I mean, of course, that we could never forecast what happened in the second in the last week or the 2 last weeks in June. So we have uncertainties on the marketplace. But considering what we know today, we feel pretty confident that we are going to deliver according to the guidance.
We still believe that the second half organic growth wise will be positive. We will not fly, but it will be positive. But with all the synergies we have in place, we will be able to, to a very high extent, mitigate the effects, the negative effects of the regional tariffs. My crystal ball is a little bit better than yours. I'm not so much more.
No. And then just on
this new product you mentioned here, the domestic price we go, it looks clearly compelling. How what sales channel? Is the CPV something to use? Or do you need to develop a new sales channel for this product?
For this specific, which is very much on the seating on the equals, we have the channel. So it's a CPV channel. Having said that, historically, we have been very strong in CPV in a number of European markets. We are launching the product all over Europe. So what we are doing is that we are building optimization to be even more present on the CTV channel, starting with Europe, and then we will look, especially in Pacific and the U.
S. But the pilot is really Europe, what we always had, a strong CPU utilization.
And does this also imply that you already have this model in some or this product in some new models already with the OEMs?
Or how does it work?
We are already selling. It's up and running. So we see obviously from a low base, but it's selling very, very well. So the market has helped us has been very positive. Okay, excellent.
That was all for me. Thank you. Thank you.
Thank you. Our next question comes from Annabel Asquith from Morgan Stanley. Please go ahead. You're now open.
Good morning. Thank you very much for taking my question. I will have a few, please. Perhaps if I go one at a time. So the first one, how much visibility do you have on your inventory levels at your customers and your dealers?
And how would you assess your overall inventory level to yourself?
Yes. So we take on the customer side, we are tracking that on monthly basis. When looking at the inventories on the American market, we it's our opinion that the inventories have dropped 20%. We believe our manufacturers just now are not sitting inventories. It's the retailers are sitting with inventories.
There we see that the retail numbers have been down somewhere between 5% to 10% during the 1st 5 months, while as you can see, we are down after 5 months. The industry is producing the numbers, and we are down close to 20%. So the inventory have been reduced. Our calculation just now is talking about a little bit over 200,000 units in the entire marketplace. And the magic number, according to the experts or the historic experts on this market, there is a magic number, which is 2 terms.
And we are very much there at this point. So that's also the reason what we believe that we are reaching kind of the magic number and that we should be seeing turning to positive in the second half. And keep in mind, obviously, that everything started in August last year. So that was the first number ending sorry.
Sorry. And then
Yes. In terms of Yes.
What are you seeing there?
A little bit of the same. We believe that what we see in Marine just now is really, obviously, the information I'm getting is that the issue during the last, I would say, 7, 8 weeks when looking through the numbers that we have associations is really that the outboard is still in a good shape, which is what we are present. And then one of the issues has been really the weather, the flooding that we have seen in the Midwest in the U. S. That has had an impact or negative numbers on the retail side.
And then looking at our inventories, our inventories we are working on a continuous basis. Coming back to personal visibility, we have, I would say, a few weeks on the Avid side, a couple of months on the Marine side. That's on that level.
Okay. Thank you. And then can you please provide some color on your end market trends in the EMEA business between RV, Marine, Commercial Vehicles and the other segments? And since there was the 1% organic growth this quarter and that's signaling fair amount of deceleration. And just color on what you're seeing there, please.
The RVVM has been negative. Marine has been pretty good. So I would say that this is very much driven by RV Marine sorry, RV OEM in the second quarter. Other than that, all the segments are positive. We are flattish on CPV OEM, but we are strong on marine OEM.
And again, aftermarket is solid. On the RB, perhaps I should take the opportunity to comment. As you know, we have new regulations kicking in in Europe for vehicles, for RVs. We know that a number of chassis manufacturers, these issues to deliver to the OEMs. And the expectation probably here is that the market is going to be down about 6%.
We were positive in Q1, and we were slightly negative in Q2. The expectation is that we are going to be, on the ABU OEM side, negative in Q3 due to these delays, the new regulations, and we will be positive in Q4.
Okay. Thank you. And then, could you please feel to explain the organic decline in your non OE sales in America and APAC? And then how should we think about this going forward, especially since the OE outlook remains uncertain? What do you think
we should be thinking about here?
I think basically, it's one segment. Is really retail in Pacific, where we see a number of our customers did carry quite a bit of inventories during especially in Q4 but also in the beginning of Q1, and the market has been softer. So we see that we should have our forecast and our outlook is that we will have a better second half than we have seen in the first half.
And also, it's got to remember that some of these retailers in Australia, they have a year end result in June. So we are trying to take focus much into account for the year end numbers.
Okay. Thank you.
Thank you.
Thank you. Our next question comes
from Darnell Smith from Deutsche Bank. Please go ahead. Your line is now open.
You write in the report that you You write in the report that you're looking at additional initiatives in all three regions to protect profitability. In the short term, is that something that you feel that you need to be addressing more aggressively in order to stay above the 40% guidance that you gave this morning for the full year?
I think, Daniel, good morning. Good morning. As you know, we have been working now 15 months on a lot of activities, both basically long term. But at the same time, when you see, obviously, the volumes, then we have we have been, as you know, adapting our cost level to the new volumes in the marketplace. What we see just now is that some of the plans that we had a little bit farther on could be accelerated.
We have all the intentions in the world of accelerating those plans. So we can still keep our heavy margins at the levels that we are performing today. So I think priority number 1, number 3, number 3 for us just now is to protect profitability, while building up more diversified company moving forward. The market volumes on the RV, we cannot do anything about. We can protect our company.
We can gain efficiency. And we can accelerate some of these plans that we have down the road.
I also feel confident that we can do that because if you look at the top of the size and mix we have been going very well. We could do these things, make the investments on the Sao Paulo business, both to protect the portfolio in the short term, but especially for the long term. So that's what we're looking at right Yes. We don't need so without the lab activities, I mean, we are pretty confident that we could reach 40% anyway. But it's just to have a price of more meat than the wood perspective.
All right. Okay.
And are you done between the lines saying that we should expect maybe in Q3 or in Q4 some additional one offs that we saw by the end of last year?
Daniel, we never ride. They win the lines. All right.
Okay. Good. And just a clarification then again on the short term when it comes to the top line. Are you implicitly saying even though you're saying that July is looking a bit better than June, which was dreadful, are you implicitly saying that you will be below the 0 in negative territory in Q3 and then you should be performing in positive territory on organic growth in Q4? Is that how you should model it?
Yes. I mean, it's always, Daniel, it is going to be in September October. But in those terms, yes, we believe that Q3 will show a good improvement versus Q1 and Q2. Q4 should be positive.
Yes. All right. Okay, good. That's all for me. Thank you.
Thank you, Daniel.
Thank you. Our next question comes from Peter Ryan from Jefferies.
Firstly, if I can start with a technical question. The PPA amortization you're pushing through, which obviously is depressing you reported, is that all in the Americas? And the reason I'm asking is I'm trying to get a better understanding of the operating leverage, the real underlying margin performance versus the organic growth decline in the second quarter. So maybe you can help a little bit.
No, it's not. I mean, that is that was in Europe and also in Americas. That is where we have most of it. And then I mean, we're pushing through the whole space on that. There are sort of write off certain brands that perhaps I think is proper sort of balance sheet management right now.
This is basically, I will say EMEA and Americas.
Can you give us the numbers for the Americas, please?
No. We are not done that. But let's see whether we can help you out later on. We are not specific on this.
Okay. And then in terms of the SKU reduction, you've done 7% year to date. You're talking 30% by the end of the year. That's a lot to put through in the second half of the year. Maybe you can give us some more color on how you can do that level of reduction in the relatively short space of time and whether you get any cost reduction benefits in the second half or whether it's more a longer term story because you can rationalize the manufacturing footprint?
It's both. So obviously, the 7%, we have very, very, very detailed process with a number of tollgates. The 7% is when the SKUs in all our inventories are gone, totally gone. So all of that is up. Then we are working and this is nothing new.
It's not that we are starting to work now. We have been working on during the last 15 months in passing the toll gates for the remaining 23% up to 30%. We feel still confident that, that will be done. And obviously, of the differences that we have in the last 6 months is that just now, we have 3, 4, 5 people fully dedicated to get this done, working in the different regions. So it took a while last year before we got the resources in place.
The resources have been in place now for a while.
And then
So, Peter, we are tracking this every single month. We have the numbers.
Yes. I'm sure you are. I was just surprised by the scale of production you're planning in the second half of the year, which is a very big production in the 6 month period.
We have started again. It's nothing that we are starting now. We started already 15 months a year. So when we see the 10% is obviously the tail, the easiest one.
Can you talk a little bit more about what you did in the last 2 weeks in June because I'm slightly surprised that you talked about the last 2 weeks being very difficult with all of your U. S. Customers essentially closing the batteries. And yet there's very little margin damage in the Q2. I assume you had very little advanced warning of this factory shutdown.
And normally when you have a sharp slowdown in the last weeks of the quarter, you can't avoid having a fairly major margin impact. There's no time to react. So what actually happens?
Yes. But that's the reality. I mean, we cannot release people for 1 week. We are not we don't know in advance. So if we have been given notice 3, 4 weeks before, we could have acted in a different way.
But when you have these kind of situations, there is no chance that you can't sleep at home overnight. So that's pretty active. That's why, Pete, I'm saying that I'm very, very grateful for the team because the underlying margins, when you take away the extra amortization that we have in our numbers and the negative impact of tariffs that are starting to kick in 1st June is pretty solid. I mean, again, underlying without the demand that we had in Q2 last year or year to date last year, despite 6% organic growth dropped.
And if you take into account then all the investments doing in IT here for a development, I think that is probably, all in all, perhaps million for the first half year. And so that shows that underlying work efficiency is actually
That's why I asked the boring question about the PPA amortization because I'm just a bit surprised by the U. S. Margin or Americas margin wasn't worse in the Q2.
But let's just come back
and up. We have to check if you have revealed or what is this. But that's why also stock will look more on EBITDA and also EBITDA. That goes to follow what's happening in the business.
Just for your understanding, Peter, I mean, if you look at our money just now in the U. S. Sorry, in Americas, we are down 16% in number of geys in comparison to the situation we had 1 year ago. So I mean, we have been pretty good or pretty tough in reducing cost and adapting our capacity. And our plan is to continue to do the same.
So as I said, we I believe that the underlying efficiency that we have in the company today is quite a bit higher than what we have 1 year
ago.
And then if I just
have one final one. Any comment you can make on some of your growth initiatives, particularly mobile coolers and SUV, almost coolers, you've given us another photograph of the almost cooler without yet telling us So
it's growing. Yes. So it's growing very nicely in EMEA. So one of the parts on the aftermarket side that is growing the nicest in EMEA is really mobile cooling. We have 20% 1% to 22% organic growth in Americas, while as I mentioned previously, on the Pacific, where it has been suffering in the first two quarters, we expect to see improvements in the second half.
So altogether, we are positive in Q2. We are positive year to date on mobile cooling, but facility has been has had, I mean, a negative impact. And then we are launching a new generation of coolers in Q1 next year.
Our next question comes from Alex Hogan from CGM.
Just two questions. I'm trying to get better understanding the like for like development in EBITDA. And I was just wondering, can you just strip out the impact of IFRS 16 in your 2019 numbers? And then also the impact of M and A. I'm just trying to understand like on organic.
Yes. But if you take the EBITDA, if you just hit the margin up, if it would take out the IFRS, it would be more even 19.8% compared to 19.9%.
Yes. Correct.
Sorry, 19.8%
last year.
Okay. And on M and A, the impacts year on year versus what your EBITDA numbers you've got for Q2 were at 1.100.
How much of that
is You don't have any M and A done. It's sort of the impact from But we don't reveal that number on the EBITDA level.
On EBIT, you have €20,000,000 in difference versus last year in the quarter, and you have €45,000,000 year to date.
But you mean the underlying profitability of the acquired entities on EBITDA level, that's what you asked for? But if you take the depreciation for IFRS 16 is SEK44 1,000,000 in the quarter and SEK86 1,000,000 in the Q1.
Okay. And the interest element as well? Is there an interest element?
I think that's it's more. I don't have that in
let's come back on that.
I think it's DSO.34 million or something. Yes, it's very small.
We have a question from the line of Agnieszka Vilara from Nordea.
Thank you. I have two questions. Starting then with June, July dynamics. I was a bit surprised when you said that this shutdowns in production, your customers came quite unexpected. We have Thor announcing production shutdowns at 10th June already.
And I can imagine that probably you have some kind of dialogue with your customers. So if you could explain that? And then another part of that question, if you can tell us about your own production adjustments. Have you been a bit behind the curve and were producing still into Q2 until the end of June? And maybe now it takes your opportunity to limit the production.
How should we see
Thanks. If you take the first one, this year that we are talking to all customers every single day, if you look at the RV and we end markets, it is not we have about thousands of customers.
On the aftermarket, it's a
little bit more difficult. On the OEM, we have daily contacts with these customers. So obviously, that they were announcing, they would never told us exactly which factories and when. So it came as a cold shower in the last 10 days, unfortunately. On our own production, we have lead times for the RVVN.
We have lead times of about 2 to 3 weeks. So obviously, we were a little bit late on adapting that. Having said that, we know as well that we are ahead of the market in adapting capacity to the levels that we see on the marketplace. So I don't see obviously, we have been operating capacity every single week in this process, started 4 quarters ago. So, I don't see that,
I have
to say.
But this does take you very surprised. And I think like I appreciate the comment about you having many customers, but when it comes to 4, isn't that customer standing for like half of the volumes in the U. S? And they explicitly say, oh, maybe not for you, but yes, in the market then. And maybe you can kind of assume what's happening in the market.
Yes, yes, don't worry. It's also very difficult to understand what is the magnitude, and they have a lot of different sites, and we have more than one customer. So it's
And you look at Thor, Thor is one company at the top. It's one umbrella, obviously. But you have you need to look at J. Korsas, you need to look at Dutchman as such. So some of these factories that are around pretty much in the Yes.
So it's impossible to know. And then you have the product mix. Or in comparison to Winnebago or in comparison to Pearl River, they are much more into A class motor homes. And we don't have a lot of equipment there in comparison to the rest. So that's why adapting capacity before doesn't mean how much they are going to or when it's going to shut down one unfortunately.
I wish that we could have a good position.
Yes. Fair point. But then overall, how would you kind of assess your visibility if these things can happen that quickly?
Okay. 2 to 3 weeks. The lease on the OEM market are to 2 to 3 weeks. So that's why you need to have daily contacts.
Yes. And on your comment about July being a bit better, then you also referred to what the customers are doing. Are they now opening factories? Or how should you see that?
We see our order intake at the beginning of July being much better than it was at the end of June, much better. But again, of course, we don't know what's going to happen in the last week in July.
Yes. But I mean, especially the second week, the first week most then you had some of the July, and then it was all closed on anyway. But then the second week, that started to tick off.
Yes. Great. And then my last question when it comes to tariffs, if you can help us to understand how much of your top line is exposed to these tariffs in Colombia?
We can comment how much we know is coming through our bills. The negative effect of the tariffs so far this year has been BRL86 1,000,000. BRL86 1,000,000. BRL86 1,000,000. BRL86 1,000,000.
Okay. So I'll hand back
to the speakers for any further comments.
So I would like to end up by thanking you very much for your attention and thanking obviously my team as well for a solid performance in our Q2. So thank you very much. And by the way, have a nice vacation. All of you.