Ladies and gentlemen, welcome to the Dometic Q2 Report 2019. Today, I'm pleased to present Juan Vargues, President and CEO, and Per-Arne Blomquist, CFO. For the first part of this call, all participants will be in a listen-only mode. Afterwards, there will be a short question and answer session. Speakers, please begin.
Good morning, everybody. This is Juan Vargues speaking. I'm sitting together with Per-Arne Blomquist, the CFO of the Dometic Group. 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 second quarter as continuation of a solid performance in the first quarter as well. Looking at the growth rate, we ended up at 1% total growth in a pretty challenging environment. If we are coming from a Q1, obviously that was pretty soft, 6% down organically. April started pretty good. May continued pretty good, much better than Q1.
The last two weeks in June became very weak, with a number of our main customers in the U.S. shutting down the factories and having, obviously, a very negative effect on our numbers in June. If we look at the aftermarket, we show that 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 continued to see a stable market in the MEA region and even Asia did pretty good. I'm also very pleased with the performance of Kampa 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 during the Capital Markets Day, we're initiating activities to penetrate the puppy door, the outdoor business, mobile deliveries, and professional marine. We continue to see, as I mentioned before, stability in MEA and in Asia. If I would take two areas of the company that I feel especially proud of is really our EBIT performance when considering the circumstances. We see obviously that we have lower volumes, that we have the tariffs in place since the January 1st. We have a negative geographical mix, meaning that we are just now shrinking in two high margin areas while MEA, which has been until now the lowest EBIT margin area, has been growing.
On top of that, we are also increasing our amortization of acquisition intangible assets. 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. Having said that, I'm also very confident that once we move from the tough markets we are seeing just now on the RV side, we will also see a good marginal effect on our growth. We continued to run our restructuring program. We see good effects during the first quarter and the second quarter. We are just now year to date at SEK 35 million in savings coming from the restructuring program, and we are expecting SEK 60 million at the end of the year. The other area where I feel very proud of is our cash flow.
I still remember some apocalyptic comments some months ago when the market started to shrink about what was going to happen with our EBIT number, our cash flow, and even the risk that we would have for raising capital. I do believe that now after four pretty weak quarters from a market perspective, we have been showing solid EBIT numbers, and we have been showing as well a pretty strong cash flow generation. Last but not least, as a consequence, obviously of the tariffs implemented in the U.S., we already started to manufacture in Mexico. We built up a factory that was up and running in February last year, and we are building up a second site, which is three times the size of the first site, and that 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 7% organic. Our estimation is that if we take away the effects of the shutdowns during the last two weeks of June on the U.S. market, plus the fact that we have one working day less in the quarter, the - 7% should have been - 5%. On top of that, we have positive effects of 5% and 3% on M&A coming from the Kampa acquisition. On EBIT number, 2% down in absolute terms or an EBIT margin of 16.9% versus 17.5%.
If you take a 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 had one year ago despite a 7% 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. We will continue to do so, obviously, as far as the market is now returning to the positive. Obviously moving forward, what we have that we started to kick 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 SEK 1.1 billion.
Cash flow, I already mentioned, very strong, above SEK 1.4 billion or 50% up. EPS 11% down, diluted by the lower EBIT performance and financial items that Per-Arne will go through in detail. When looking at the first half, it's very similar to the second quarter. Totally speaking, 3% growth with 6% organic down, 6% FX, and 3% M&A. The same is valid for the EBIT. If like for like, if you take away the additional amortization we have this year, we could be almost at the same level as one year ago. If you add also the negative tariff impact, we could be beaten last year despite a negative growth of 6% in total. EBITDA, strong 6%. There I have to say that I'm very happy to see working capital coming down, inventories, days of inventory reduced by eight days after two quarters.
Despite the fact that we are building up a factory and that we are building up inventories to bridge 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. We move over to the sales growth, as I mentioned previously, this is the fourth quarter with negative growth on the RV side. The RV OEM side started already in Q3 last year with -6% organic, Q4, -10% organic, Q1, -14%, and now -17%. Moving over to the next slide. This new slide shows really the importance of the non-RV OEM how important it is 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 1/3, 33% of the total revenue of the company, in comparison to 39% one year ago. On one side, the RV OEM is shrinking at the same time as the non-RV OEM is growing faster. We are adding acquisitions. We move over, I already commented this one. You can see how the RV OEM is coming down from 39% to 33% over how the non-RV OEM stands today for 67% and growing 5%, while the RV OEM is coming down organically by 17% in the quarter. We move over to EBIT. As I said, I feel very proud of what the team has achieved despite the headwinds that we had a number of us with the tariffs, with the volumes. That's telling you that underlying, we have a lot of efficiency improvements all over.
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. 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. On the pro side, on the next slide, we would like to mention the new generation of equipment for mobile deliveries. We launched the first generation a few years ago. Considering our strategic task moving forward of getting into new businesses and reducing even more dependence on RV OEM, this is one of the areas where we invest in the most, maybe mobile deliveries, starting with the vehicles. This product was launched about two months ago with so far 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. Again, the market has reacted very positively so far. This is really the first step. The second step, we will move also not just for being part of the vehicle, but also into the boxes. That's something that we are building up organizations just now and hiring people. If we move over to the regions, starting with Americas. A drop of -12%, as I mentioned previously, June was really bad in the last two weeks, even if we saw improvements in April and May. We see when looking at the new application areas that both Food & Beverage and Climate have been negatively 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 the EBIT, it's 22% down, totally speaking. Then we have to consider again that the tariffs have a pretty negative effect on those numbers. We would not be far away from last year's EBIT number in percentage if we didn'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, 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. The expectation from the RVIA for 2019 was about 453,000 units. For 2019, that has been revised into 416,000 units. Then we need to remember that we are coming from almost 484,000 units during 2018.
That means as well that the inventory correction that started in Q3 last year expects to be prolonged or a little wide. If we move over to the NEAR region, we are very happy with the performance. We see organic growth. We see that Kampa is developing in a very positive way for us. It's more than two-digit organic growth after six months. We see power and control growing due to new product launches. I think last quarter, we commented the new battery charger, the PLB40, that has had a great success around the world, but even more in the NEAR region. Then we see also Food & 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.
At the same time, in the same way, we have been adapting our cost base, even if we are still positive organic growth, but we are down in number of fees by 6%. As a consequence, we see also how our EBIT improvements are kicking in. We are 19% up versus last year, we expect even the second half to show very positive development in that area. If we move over to APAC, negative growth, 2%, a bit of a similar situation as we see in Americas with inventories, especially in Pacific. While Asia continues to grow organically in a good manner, Pacific is negative. There exactly the same with the Food & Beverage and Climate impacted by the negative effects 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. We see that the market is kicking off, and there is a good acceptance for our products 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. Even here, we have exactly the same situation. We have a negative geographical mix kicking in while efficiency is increasing quarter by quarter. We move over to our strategy, a lot of things are going on. We keep working with our expansion, even if just now, obviously, we have the organic growth influenced by the RV market. We are working on the four initiatives that we initiated in connection to the Capital Markets Day. We see Kampa kicking in.
We see still today a good aftermarket growth. We are moving more investments into the aftermarket side. We are also adding resources into the M&A teams to accelerate that part of the business. On the Product 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 is starting to improve from 12.3% one year ago into 15.5%, 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%. When we are talking about 7% here is SKUs that are totally out from our systems, from our inventories. 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 negative effects of the tariffs by having a bigger site in Mexico. I'm also happy to see, as I mentioned previously, the inventory reduction, eight days during the last six months, and more to do moving forward. That will also help again to generate positive cash flow moving forward. 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 Per-Arne, please, on the financials.
Thank you, Juan. Starting with the long-term trends, you can see that Dometic right now is pacing at SEK 18.5 billion in sales, which is done more than 100% up since 2014. We are now also hovering around SEK 2.6 billion in EBIT, which has been a sort of higher increase than the net sales increase. More importantly, if you look at EBITDA, there we have had an increase of 171% the last year and are now pacing at SEK 3.3 billion. Operating cash flow, really up big here, 141%, and pacing at SEK 3.2 billion, which means that if you take the LTM for 2019, we have a cash conversion of 97%. I think that's really good. Also, in these times when the markets are a bit tougher, it's good to see that we continue to have a very high cash generation.
This is the focus for us within Dometic, to continue to make sure that we can generate cash for future investments. You look at the trends overall, we have talked about our sales plateauing out right now. We can see that the 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, the big bit here is under pressure, and especially the American markets and Australian markets. Meanwhile, we can see a sort of long-term growth in the PD business and also in marine and regional lodging. RV today stands for 52% of the business, and marine has now surpassed 25%.
I think the balance is supposed to be pretty good, and also that you know that the marine business is having a good margin and a good overall margin that helps us also to protect the margin even when we see downturns as we have seen right now within the RV business. We have the new application areas that we introduced during the Capital Markets Day: Food & Beverage, Climate, Power, and Control, and other applications. What is under pressure right now is Food & Beverage, of course, due to the fact that we have a pressure on the oil market. Still see a bit of positive development on the Climate side and of course, Power, and Control with acquisition of SeaStar continue to be a much more important area for us.
We are also happy to see that even though it's a small area, that other application continues to grow. We are putting efforts into different areas to make sure that we are growing at the same time that we see a sort of decline in other areas. I then look at the key ratios, I think it's worthwhile to stay here a second or two. I think this is the fourth consecutive quarter where we show resistance to a downturn in the market. This has been, during the last five years, a lot of discussion what happens with Dometic when you see a real downturn in the American RV market. 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 are down 60 basis points on EBIT, we're actually up on EBITDA, even though EBITDA is inflated by the new IFRS 16 rules. Even if we should take that away, we should be up 19.8%. We're actually protecting the margins in a very good way. We can also see that operating cash flow is up with sixth consecutive quarter. If you take the same view on the first half year, improving gross profit, we are improving EBITDA margins. We are down, of course, on the EBIT side, I will come back to that later on. We are improving the cash flow of roughly 64% during the first half year. I think this is strength, and this is the fourth consecutive quarter that we show this resistance to a very tough market.
If you look at the same slide, you can see that the weak Swedish krona is, of course, affecting us. We have translation effects of 5%, it's very much the US dollar that has been moving. We have more than 50% of the business now in the U.S., and of course, we are translated to that. If you look at the earnings per share, it's down, and it's partly we have a higher financial net. I will come back to that later, we actually renegotiated our loans, bank loans, and we have some redemption fees or prepayment fees that we needed to pay. Overall, the situation for the financial net will be very good going forward, and I'll come back to this 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, at the same time, when we implemented that, it also implemented the new rules for what we call GILTI and BEAT. That's protecting the tax rate for the time being, makes it a bit on the higher side than we have expected. If you look at also the double taxation agreement with Canada, we are right now paying taxes both in Canada and in the U.S. for the same result, that makes the tax rate be a bit higher than the 25% that we have anticipated before. Some of these rules and new laws will then be eliminated during the end of this year. I expect the tax rate to be better in the coming year and come back to close to the 25%, perhaps to the 6% that we have displayed before.
If we go to the regional results, you can see, I will just summarize what Juan has said, that it's the same tendency in the quarter in the first half year. Americas, of course, under pressure given the difference we see especially on the volume side, on the RV side. At the same time, EMEA is improving, I think that is the effect of the long-term work that we have been working with since, I'll say, the end of 2017, that's now start really to yield effect, we expect that to continue to yield good effects. Asia Pacific, quite a tough top-line decline. We are protecting the margins on a pretty high level. I think 31.6% when you have a net sales going down 11% is a very good protection that they have shown in a very tough market.
If we go into the key ratio, I think it's also worthwhile looking at this. We have a very stable underlying profit. We know EBIT is down, if you take EBIT up, you can see that we are down from 18.5% to18.3% on the quarterly side, we are down from 17.1% to 16.7%. This is despite the fact that we are actually taking now investment for IT, we're taking investment for product development, we're taking investment for product management. We have the impact from the Paris. We also have cost for building up new capacity in Mexico. I think this is the strength to show that we are protecting the margins in such an environment where we also see a real downturn on the top line.
Underlying profit is looking good given also the different efforts that we're doing right now. 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, in the coming years. You can see on the next slide that we are continuing to invest, as I said, in CapEx and also in product development, and we are at closer to 2% in both areas, and that's what I think you should expect from us, 2%-3% over time. Also when we invest more heavily in the new sites like in Mexico. Working capital, it was mentioned by Juan that we have been able to take down the working capital.
When you look at this slide, you could see that the SEK 3.55 is a cash flow effect of what we have done with the working capital, i.e., taking down especially inventory, but also improving the accounts receivable side. The target is still to be at 20%, and that's for sure achievable. More difficult to do with the activity right now, we also see a down from the top now, but all the time you should expect us to operate on the 20% level. Working capital now down to SEK 4.4 billion, and we have also in that number a Kampa effect of more than SEK 280 million, and inventory are affected by tariffs. There is underlying good progress on the working capital side.
Cash flow, I mentioned before, SEK 1.4 billion in the quarter, up with 50%, and the target is for us to continue to have a high cash conversion, we said at the Capital Markets Day that we could be roughly at 85% of the time. Net debt down to SEK 2.8 billion. We have taken it down from SEK 3.3 billion last year at the same period, down to SEK 2.8 billion. We are still very firm on the target that will be around two at the end of this year. I think with the cash generation we have right now and also the debt structure that we have in place, we feel very strongly for that we will be able to deliver upon that target. We can look at the debt side. We have been very active when it comes to the capital structures.
We have, during the first half year, issued a bond in Swedish krona, was a two-year bond, SEK 1 billion, 2%. We have started to issue commercial papers in March, SEK 500 million on offer percentage, three months. We have also issued a EUR bond, seven years of 51, where we paid 3% for EUR 300 million. We have amortized bank loans. We have renegotiated bank loans, which means that we have only bullet loans left. We have also prolonged the maturities of this loan, and we have also expanded the revolving credit facility. Average interest right now will be expected to be roughly 3.5%-3.6% going forward.
If we then look at the cash and the cash on hand, we have today SEK 2.6 billion in cash on hand, and we have unutilized RCF for roughly EUR 200 million, which means that we have available cash of close to SEK 4.7 billion. If we also look at the debt maturity profile, given the change we have done, we have just one amortization in 2021, which is SEK 1 billion. That's the Swedish bond that we made. Otherwise, we will have no amortizations until the maturity of 2023, which gives us a good ability to generate cash for further investments in both M&A activities and also in CapEx in the company. If you remember that three.
2 billion in cash that we talked about at the beginning. We take away roughly SEK 400 million in interest cost, and we have tax around SEK 600 million. We have roughly SEK 2 billion in cash generation that we could use for, on an annual basis, that we could use for different investments. Financial targets. The new one, we have 10% in the mid-long term net sales growth. We are pacing at 7% right now when it comes to the last 12 months. EBIT margin of 14.2%. Target is 15%-17%. The investment that we are doing right now will yield results in the coming, I will say, year and years, and it will help us to reach that. I think we have a good pace when it comes to deleveraging the company. Also given the new debt structure that we have in the company.
Juan, please, sum this up.
Summarizing the second quarter. Focus on growth of 1%. Obviously negative impact by the RV markets. Also with obviously being aware that the non-RV is holding 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 acquisition pipeline, and we have been working 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 proud about what the teams have achieved in terms of underlying EBIT performance under 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 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. Last but not least, we are also looking for additional initiatives to reduce the cost even more now that we see that the volumes are low. Then of course, as I said, we have still today a very strong cash generation capability that we will utilize to generate a positive growth moving forward. With that, I would like to move over to the last slide.
As you all know, we held our Capital Markets Day in Stockholm May 28th. 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 cost reductions. When looking at that and considering the long-term targets and the detailed activity plans that we have communicated, we will put all our emphasis moving 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 moving forward. In the future, our intention is to keep working on the long-term strategic plans and to share with the market obviously, what we see on the market trends and 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 the revised forecast from the RVIA. We expect EBIT margin to be above 14% and lower than the close to 15% that we announced before. It's really two different factors. One is again, the lower volumes that we are expecting for the rest of the year. At the same time as the 25% tariffs are new to us and is pretty 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, considerably better than June ended up in the last two weeks. We see clear that inventory correction is being prolonged in accordance to the communication that we have with our customers.
That's why we are obviously being a little bit more cautious in the second half. Leverage, we continue to expect to be around two, obviously excluding acquisitions. With all that said, I would like to open for the Q&A session.
Thank you. Operator, if you have a question for the speakers, please press zero on your telephone keypad now. 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 a bit better. 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?
Yeah. This is also explaining to you. We knew from the beginning, obviously, that second quarter was going to be tough. We have been talking about that Q1 and Q2 in comparison to 2018 were going to be very tough, while we would see improvements in Q3. What happened, especially after seeing April and June come in in the way they were coming, we never expected what was going to happen during the second half of June. What I'm just saying is that had a major effect on our second quarter. It's a reality, obviously, that when they are shutting down the factories, it's obviously because they are also adapting to the new sentiments on the RV market, which is talking about -14% in comparison to the -5% that was communicated before. Numbers are numbers, so they are real.
-17% is real. I'm just trying to explain why we are adapting also our view moving forward.
Talking about this guidance on the full year, you have the first half already done. I guess you should have a fairly good visibility into July in your order backlogs as well, and Q4 is typically a very small quarter. Are you really confident that you can beat the 14% margin?
Not the 15%. The 15% is gone, but the 14% we believe, absolutely. I mean, of course, we could never forecast what happened in the last week or the two last weeks in June. We have uncertainties on the marketplace. 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. That with all the activities we have in place, we will be able to a very high extent, mitigate the effects, the negative effects of additional tariffs.
Okay, good.
Again, we don't have a crystal ball. My crystal ball is a little bit better than yours.
Thank you.
Not so much more.
No. Then just on this new product you mentioned here, the Dometic Frigo. It looks clearly compelling. What sales channel? Is the CPV channel something to use or do you need to develop a new sales channel for this product?
No, for this specific, which is very much sitting on the vehicles, 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. What we are doing is we are building the organization to be even more present on the CPV channel, starting with Europe, and then we will look, especially in Pacific and the U.S. The pilot is really Europe, where we always had a strong CPV organization.
Does this also imply that you already have this product in some new models already with the OEMs or how does it work?
We are already selling. It is up and running. We see obviously from a low base, but it is selling very well. The market acceptance has been very positive.
Okay, excellent. That was all from me. Thank you.
Thank you.
Thank you. Our next question comes from Annabel Asquith from Morgan Stanley. Please go ahead. 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. 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 yourself?
Yeah. We take on the customer side, we are tracking that on monthly basis. When looking at the inventories on the American market, it's our opinion that the inventories have dropped 20%. We believe the manufacturers just now are not sitting inventories, it's the retailers who are sitting with inventories. There we see that the retail numbers have been down somewhere between 5%-10% during the first five months, while as you can see, we are down after five months. The industry is publishing the numbers and we are down close to 20%. The inventory have been reduced. Our calculation just now is talking about a little bit over 200,000 units on the entire marketplace. The magic number, according to the historic experts on this market, there is a magic number which is two turms, and we are very much there at this point.
That's also the reason why we believe that we are reaching kind of the magic number, and that we should be seeing turning to positive in the second half. Keep in mind, obviously, that everything started in August last year. That was the first number in the-
Okay.
Sorry.
Sorry.
Yeah.
In terms of marine.
Yeah.
Inventory levels, what are you seeing there?
A little bit of the same. We believe that what we see in marine just now is really obvious. The information I'm getting is that the issue during the last, I would say seven, eight weeks when looking through the numbers published by the associations is really that the outboard is still in a good shape, which is where we are present. 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 on negative numbers on the retail side. Looking at our own inventories, we are working on a continuous basis. Coming back to personal visibility, we have, I would say a few weeks on the RV side, a couple of months on the marine side. That's on that level.
Okay. Thank you. Can you please provide some color on your end market trends in the EMEA business between RV, marine, commercial vehicles and the other segments? Since there was the 1% organic growth this quarter and that's signaling a fair amount of deceleration. Just color on what you're seeing there, please.
The RV OEM has been negative. Marine has been pretty good. I would say that it's very much driven by 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. Again, aftermarket is solid. On the RV, perhaps I should take the opportunity to comment, but as you know, we have new regulations kicking in in Europe for vehicles, for RVs, and we know that a number of chassis manufacturers did have issues to deliver to the OEMs. The expectation for the year 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 RV OEM side, negative in Q3 due to these delays on the new regulations, and we will be positive in Q4.
Okay, thank you. Would you please be able to explain the organic decline in your non-OE sales in America and APAC? 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 that a number of our customers did carry quite a bit of inventories, during especially Q4, but also beginning of Q1 when the market has been softer. We see that our forecast on our outlook is that we will have a better second half than we have seen in the first half.
Also important to remember that some of these retailers in Australia that have a year-end result in June as well. They are trying to take focus into account for the year-end numbers.
Okay. Thank you.
Thank you.
Thank you. Our next question comes from Daniel Schmidt from Danske Bank. Peter, your line is now open.
Yes, good morning, Per-Arne and Juan. Just a question on the short term again, sorry for that. 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 14% guidance that you gave this morning for the full year?
Daniel, good morning.
Morning.
As you know, we have been working now for 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 been, as you know, adapting our cost level to the new volumes on the marketplace. What we see just now is that some of the plans that we had a little bit further on could be accelerated. We have all intentions in the world of accelerating those plans so we can still keep our EBIT margins at the levels that we are performing today. I think priority number one, number two, number three, four are just now is to protect profitability while building up a 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, we can accelerate some of these plans that we have down the road.
We also feel confident that we can do that because if you look at the build-up of this half in Mexico has also been going very well. We feel confident we could do these things, make the investments and focus both to protect the company in the short term, but especially for the long term. That's what we're looking at right now.
Yeah.
Without that activities coming, we are pretty confident we could reach 14% anyway. This is just to have a perhaps a more mid and long-term perspective.
All right. Okay. Are you then 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 write between the lines.
All right. Okay, good. Just 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 zero 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?
Yeah. It's always, Daniel, if it is going to be in September or in October. In those terms, yes. We believe that Q3 will show a clear improvement versus Q1 and Q2. Q4 should be positive.
Yeah. All right. Okay, good. That's all for me. Thank you.
Thank you, Daniel.
Thank you. Our next question comes from Peter Reilly from Jefferies. Please go ahead. Your line is now open.
Hello. Good morning, everybody. Firstly, if I can start with a technical question. The PPA amortization you're putting through, which obviously is depressing your report. Is that all in the Americas? 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. Maybe you can help us with that.
No, it's not. That is, I would say, Europe and also in the Americas. That is where we have most of it. The PPA that we are putting through is also based on us sort of write off certain brands that I also think is proper sort of balance sheet management right now. It is basically, I would say, EMEA and the Americas.
Can you give us the numbers for the Americas, please?
No, we have not done that. Let's see whether we can help you out later on. We are not specific on this.
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 a 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 as you can rationalize the manufacturing footprint.
It's both. Obviously the 7%, we have a very detailed process with a number of toll gates. The 7% is when the SKUs in all our inventories are gone, totally gone. All of that is out. We are working, and this is nothing new. It's not that we are starting to work now. We have been working now during the last 15 months in passing the toll gates for the remaining 23% up to the 30%. We feel still confident that will be done. Obviously, one of the differences that we have in the last six months is that just now we have three, four, five people fully dedicated to get this done, working in the different regions. It took a while last year before we got the resources in place. The resources have been in place now for a while.
Then-
Peter, we are tracking this every single month. We have the numbers.
Well, I'm sure you are. I was just surprised by the scale of reduction you're planning in the second half of the year.
Which is a very big reduction in this six-month period.
We have started, again, it's nothing that we are starting now. It started already 15 months ago. When we see the 7%, this obviously details the easiest one.
Can you talk a bit more about what you did in the last two weeks in June? I'm slightly surprised that you talked about the last two weeks being very difficult with all of your U.S. customers.
Yeah.
Essentially closing the factories. Yet there's very little margin damage in the second quarter. I assume you had very little advance warning of this factory shutdown. Normally, when you have a sharp slowdown in the last weeks of a quarter, you can't avoid having a fairly major margin impact because there's no time to react. What actually happened?
That's the reality. We cannot release people for one week if we don't know in advance. If we have been given notice three, four weeks before, we could have acted in a different way. When you have these kind of situations, there is no chance that you can send people home overnight. That's the reality. That's why, Peter, I'm saying that I'm 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 the tariffs that started to kick in 1st of June, is pretty solid. Again, underlying, we have the margin that we had in Q2 last year or year-to-date, last year, despite 6% organic growth drop.
If you take into account all the investment doing in IT, product development, and things like that, it is probably all in all perhaps SEK 50 million for the first half year. That shows the underlying work efficiency is actually shifting.
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 second quarter.
Let's come back another time. We have to check exactly how reveal or what is this. That's why also this probably looks more on EBITDA and also the EBIT side.
Yeah.
That shows sort of what's happening in the business.
Just for your understanding, Peter, if you look at our manning just now in the U.S., sorry, in Americas, we are down 16% in number of piece in comparison to the situation we had one year ago. We have been pretty good or pretty tough in reducing cost and adapting our capacity. Our plan is to continue to do the same. As I said, I believe that the underlying efficiency that we have in the company today is quite a bit higher than what we had one year ago.
Mm-hmm. Sure. If I could just have one final one. Any comment you can make on some of your growth initiatives, particularly mobile coolers and SUV armor coolers? You've given us another picture of the armor cooler without yet telling us.
It's growing. It's growing very nicely in EMEA. One of the parts on the aftermarket side that is growing the nicest in EMEA is really mobile cooling. We have 21%-22% organic growth in Americas, while, as I mentioned previously, on the Pacific, we have been suffering the first two quarters. We expect to see improvements in the second half. Altogether, we are positive in Q2, we are positive year-to-date on mobile cooling. Capacity has had a negative impact. We are launching a totally new generation of coolers in Q1 next year.
Okay. Thank you very much.
Thank you.
Thank you. Our next question comes from Alex Hogan from PGIM. Please go ahead. Your line is now open.
Hi there. Just two questions. I'm trying to get a better understanding of like-for-like development in EBITDA. I was just wondering, did you strip out the impact of IFRS 16 in your 2019 numbers? Also the impact of M&A. I'm just trying to understand like an organic.
If you take the EBITDA, if you take the margin, if we would take out the IFRS, it would be more 19.8 compared to 19.9.
Yes. Correct.
Sorry, 19.8?
In comparison to 2019.
Last year.
Okay. On M&A, the impact year-over-year versus what your EBITDA numbers you've got for Q2, right, SEK 1,100. How much of that is from the M&A?
No, EBITDA, you don't have any M&A. That is the impact from.
From the EBITDA.
On the EBITDA. We don't reveal that number on the EBITDA level.
On EBITDA, you have SEK 20 million in difference versus last year.
Exactly
In the quarter, you have SEK 35 year to date.
Yeah. You mean the underlying profitability in the acquired entities on an EBITDA level that you asked for?
That we have not. If you take the depreciation for IFRS 16 is SEK 44 million in the quarter and SEK 86 for the first half year.
Okay. The interest element as well? Is there an interest element?
I think that's really small. I don't have that. Let's come back on that.
Okay. Thank you.
I think it's three, four SEK million or something. Yeah. It's very small. Three, four SEK million, yeah.
Okay. Thank you.
Thank you. We have a question from the line of Agnieszka Vilela from Nordea. Please go ahead, your line is now open.
Thank you. I have two questions. Starting again with the June, July dynamics. I was a bit surprised when you said that these shutdowns in production, your customers came quite unexpected. We had Thor announcing production shutdowns the June 10th already, and I can imagine that probably you have some kind of dialogue with your customers. If you could explain that, and then as 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 you take the opportunity to limit the production? How should we see that? Thanks.
If you take the first one. This year, we are talking to our customers every single day. If you look at the RV OEM market, it is not like we have thousands of customers. On the after-market, it's a little bit more difficult, but on the OEM, we have daily contacts with these customers. Obviously that they were announcing, they would never told us exactly which factories and when. It came as a cold shower in the last 10 days, unfortunately. On our own production, we have lead times for the RV OEM, we have lead times of about two to three weeks. 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.
Obviously, we have been adapting capacity every single week in this process throughout the four quarters ago. I don't see that, I have to say.
This still took you by surprise. I think I appreciate the comment about you having many customers because when it comes to Thor, isn't that customer standing for half of the volumes in the U.S.?
No.
They explicitly say Oh, maybe not for you, but yeah, the market then. Maybe you can kind of assume what's happening in the market.
Agnieszka, it's also very difficult when they announce those. Difficult to understand what is the magnitude, and they have a lot of different size than we have, more than one customer.
You look at Thor. Thor is one company at the top. It's an umbrella, obviously.
Yeah.
You need to look at Jayco as such. You need to look at the Dutchman as such. You have all these factories that are run very much independent. It's impossible to know. Then you have the product mix. Thor, in comparison to Winnebago or in comparison to Forest River, they are much more into A-class motor homes. We don't have a lot of equipment there in comparison to the rest. That's why adapting capacity for Thor doesn't mean how much they are going to, or when they are going to shut down one specific factory, unfortunately.
Okay.
I wish that we could have that information.
Yeah. Fair point. Overall, how would you kind of assess your visibility if these things can happen that quickly? Can you tell us?
Two to three weeks.
Yes. Okay.
Two to three weeks. The lead times on the RV OEM market are two to three weeks. That's why you need to have daily contacts.
Yeah. On your comment about July being a bit better, you also refer 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. Again, of course, we don't know what's going to happen in the last week in July.
Yeah.
Especially the second week. The first week was done. You had some of July, then it was all closed down anyway. Then the second week, that's sort of take off.
Yeah.
Right. Perfect. My last question, it comes to tariffs. If you can help us to understand how much of your top line is exposed to these tariffs in the quarter. Could you clarify that? Thank you.
Okay. We can comment how much we know is coming through our bills. The negative effect of the tariffs so far this year has been SEK 86 million.
SEK 96 million?
SEK 86 million.
SEK 86 million.
SEK 86 million. Okay, SEK 86 million. Okay, perfect.
On the quarter has been SEK 52 million.
SEK 52 million on the quarter. Okay. Thank you so much.
Thank you.
Okay. I hand back to the speakers for any further comments.
I would like to end up by thank you very much for your attention. Thanking obviously my team as well for a solid performance in a tough second quarter. Thank you very much. By the way, have a nice vacation, all of you.