Ladies and gentlemen, welcome to the Finetic Q1 Report 2019. Today, I please present Juan Farkas, President and CEO, Saan Domfiest, CFO and Johan Lundin, Head of Investor Relations and Communications. For the first part of this call, all participants will be in a listen only mode and afterwards, there will be a short question and answer session. Speakers, please begin.
Good morning, everybody. This is Juan Gabriel speaking. First of all, welcome to Sanjay's talk on today on the presentation of the Metis interim report for the Q1. We'll proceed immediately with the report. I have to say that the Q1 of 2019, we proved again how our diversification strategy increased focus on operational performance, together with our capacity or reaction by creating a stronger company and helped us to perform very well in a very challenging environment, primarily influenced by the industry the inventory buildup in the RV industry and the difficult comparatives that we have since last year.
Looking at the growth side. Total growth ended up at 7%, excluding the R and B OEM market. We also reached 1% organic growth when excluding the RV, OEM and the Campo acquisition. We continue to show strong development in marine, both from an OEM perspective and an aftermarket perspective. We are happy with evolution in EMEA, and we are especially happy as well with the performance of Tampa.
It's always difficult for new companies with a lot of activities in the 1st months post acquisition, but we had a very, very nice organic growth and profitability is developing in a good manner. During the quarter, the RV OEM slide that everybody knows has been dropping, especially on the American market, for us went down 40%. Having said that, we have to remember that we are comparing with a quarter where the RVUEN market for the entire company went up 30% 1 year ago. So once again, very, very difficult comparative numbers. What we are doing, obviously, in order to mitigate the situation in the RV is to work even harder and have the market organization.
We are building up the CPV area, retail, lodging and key investment on the Marriott side. When looking at the markets, in reality, nothing has changed on the underlying needs. We see a good underlying demand. We see that global lifestyle continues to develop in more and more markets as well as demographics. But we also perceive, obviously, the weakness in the RV OEM market in Americas, but also during the last 6 months in the Pacific area.
In terms of profitability, we are happy with our EBIT performance considering the circumstances. We have been driving efficiency improvements all over the world. We have also compensated partially the impact of the tariffs by pricing. And we were very fast when implementing our contingency plans as soon as we started to see how Q3 last year evolved. We have continued to work very, very hard to keep up our capacity, fitting obviously the needs on the marketplace.
We launched a new restructuring program at the end of Q4 last year, and we are running the program, evolving according to plan. And last but not least, we are building a second site in Mexico, and we are happy with the evolution there as well. So in principle, what we are talking about is that we are going to multiply by 3 the space that we have today in Mexico. If we move on to next slide, total sales reached 5% with 6% negatively organically. We have a positive influence of FX of 7% and then Canpa stood for 4% of growth.
To get EBIT, we reached £618,000,000 or 3% down versus last year. On the upside, we have efficiency improvements. We have also a positive channel mix between aftermarket and OEM, and we had also pricing efforts. We have been producing capacity quite a bit all over the world. It's over 2 digits, I would say, altogether.
And we're still ahead, so we have still a good protection moving forward. And obviously, we are impacted by both the volumes, the RB volumes and the tariffs. And on top of that, we also have a negative effect of the regional mix with Europe just now growing, while we have a negative Americas and APAC. EBITDA developed in a positive way, plus 10%. And when looking at the comparatives on the EBIT side, we have additional amortization during the quarter this quarter of about €24,000,000 more in comparison to 1 year ago.
So in reality, the loss of 1.1 percentage points on the 6 negative organic growth is the 1.1% becomes 0.6% when measuring apple to apple. EPS was down 8%, ending up at NOK1.6 billion. And that's a consequence, obviously, of a slightly lower EBIT and then the section that Karli will comment on later on. If we move on to the next slide, we see obviously the evolution of the organic growth during the last three quarters and also how it looked like the previous quarters coming from very, very high comparatives, as you can see. And we're looking at the periods from the Q1 2017 to the Q1 2019, we are showing an organic growth of 8%, sorry, 8%, which we think is a very good number.
If we move on to the next slide. This is, in our opinion, a very interesting slide where we are comparing in reality RV OEM growth and everything but RV OEM. And what we are showing in reality is why RV OEM is dropping 14%, the rest is growing 7%. And we're looking at purely organically. As I mentioned at the beginning, non RV OEM organically went up 1%, while RV OEM went down 14%.
If we take next slide and look at what happened in the last years, is quite obvious that we are working very, very hard to diversify the company. And what the slide is telling us is really that we are growing about 50% faster on the non RV OEM businesses we have. Looking at organic growth is a little bit the same. The non RV, the last 5 years, has grown 7%, while RV has been growing 5%. So the bottom line is really that domestic has not just been growing at the back of the RV in the U.
S. RV industry, which for us is, of course, very, very important, which is also reinforced when you see next slide, meaning that the RV OEM market has come down from 40% of the total to 38% of the total, while the rest has been growing. Of course, we have a negative impact from the RB, but we also have an impact on the organic growth on the rest and the competition. Looking at profitability and EBIT margin. Obviously, the lower EBIT margin in this quarter is putting a little bit of pressure on the long term trend.
So we are just now 14.4 percent while we ended up last year at 14.7 percent altogether. And we still believe that we will reach the same levels around 15% at the end of this year. Moving over to products. We continue to invest in innovation. We are accelerating in that score.
What you see on the slide is the first thermoelectric cooling box in the world made of biocomposite. And despite the fact that we're calling for cooling box, it has both functionalities. So it's cooling down, but it's also warming up up to 65 degrees. It's also for us one more sample of how we are combining new products, innovation and sustainability, sustainability efforts that we are putting in place, something that our customers do appreciate. If we look at the different regions, Americas on the next slide went down 11% organically.
Excluding the other side, we had a growth of 5%, with marine showing 6%, organic retail very strong, 19%, still low numbers, about 90% organic growth. And even lodging, which show a pretty nice evolution, again, proving that the investments that we are doing on the market side are paying off, while obviously, we were impacted by the RV at the RV side. EBIT, 22% down. On one side, we have the volumes. On the Ares side, we also have a negative impact from the tariffs.
What we did is really to compensate already in Q3. We have continued to compensate for the volume drops. We are working on the pricing. At the same time, it is clear that we have infrastructures, we have factories, we have machinery that we need to pay for, and we are even working there to become a more flexible agile company moving forward. Looking at the drop of the RB in Americas, we need to remember that we are coming from a quarter last year where we were showing 12.4% up organically.
Now we are showing 11% down. That's giving you the swings that we have been seeing on the RV markets. On the RV OEM market Americas, we went up 20% 1 year ago. We are down 2% to 3%. That tells you the gap that we have been waiting in 4 quarters, so to say, which is massive.
When looking at EMEA, we are very pleased, showing 3% organic growth with aftermarket growing very nicely organically but also as a consequence of the capital position. Good growth in the on the RV aftermarket side on the CPD. Good growth and especially Marine AM, where we are putting together a dedicated organization to develop that side of the business, showing also pretty good evolution. As I mentioned before, I'm very pleased with the evolution of Campa in the 1st months, considering based on my experience, how difficult it is during the 1st months. Very nice evolution on the EBITDA.
As you may know, we have been working on improving efficiencies across the continent in the last 18 months and continue to show very good evolution. We are also working on the pricing side. Last but not least, we also work a lot on product innovation and reducing costs through our innovation path. Moving over to APAC. We showed a 3% drop organically.
And what we see there is, especially Pacific, pretty soft on the heavy side, but also pretty soft on the heavy side. We know just now that there are uncertainties, specifically in the Australian market. We have elections in May. We have just now some more strict regulations from the banks on credits, and that's put some pressure on this kind of discretionary spend that we believe is going to be a little bit lighter once the elections are over. Harvey in Asia continues to develop in a very positive way, 25% up, and the same is valid on the aftermarket.
So again, impact is really a mixed bag. With Pacific, just now pretty soft Asia continues to develop very nicely from small numbers, of course. We're especially pleased with our EBIT margins. As you all know, we started to leave a number of nonprofitable businesses about 1 year ago or 9 months ago, and that's where we see it is also having an impact on the top line, but we see that that's also helping us to improve our margins percentage wise. Pricing, we have been working with, and we have, as I also mentioned before, a negative effect of geographical mix.
So looking more on the medium and long term on execution, we will continue to invest in developing the marine business. We will keep developing Tampa to become a global business and looking as well for complementary acquisitions. And last but not least, organically, it is extremely important for us to accelerate the growth on the aftermarket side, which is something we have been doing really during the last quarter, excluding more dedicated teams all over the world. On the growth side, I'm happy to report that what we have been discussing before in terms of global growth platforms is starting to take place. It's materializing.
And we are taking the actions, and we see that PUD is starting to pay off. We also accelerate the reduction of STUs, the complexity that we have within the company, and we're also very pleased with the growth. On the cost reductions, I already mentioned contingency plans. I mentioned as well the restructuring program that we are running and the fact that we are building a larger site just now in Mexico. And last but not least, we will continue to adapt our capacity to the needs of the early market in the months to come as far as this evolution continues.
And with those words, I would like to leave to Pernod to get us deeper into the financials, please.
Thank you, Juan. Starting with the 5 years trend, both for sales and EBIT, you can see that the company has been growing substantially during the last 5 years. On net sales, we are up 110% and now pricing at SEK18.5 billion in sales. EBIT has grown even quicker, 161 percent up and now hovering around SEK2.7 percent. And you can surely see here that we are we like growth, but we also like to have a profitable growth.
Even more important, if we turn to the next page, you can see that EBITDA has increased 167%. Good proxy for our cash flow and operating cash flow is now up to €2,700,000,000 and this is up 190% compared to 2014. And also, if you look at EBITDA in absolute terms, it's close now to CHF3.3 million compared to CHF1.2 million if we just go back to 5 years. So you can see that this company has to come this company was more stable today than it was a couple of years ago. And that was what we have proven now in the numbers in the Q1.
If we then look at the more short term trends, Fran has already alluded to this partly about sales. The sales growth is now dampened somewhat. EBIT is flattening out. We have a slight downturn on the EBIT margins. But you could see that operating cash flow is continuing to go.
If we don't take the underlying businesses, I think the strength that we are seeing today is that the oral business, including the aftermarket, down 4% And all this segment is down in constant currency with 1%, up or over 5%. But you could also see the other segments, the C2B business up with 1% with the loading up in 2% and Marine, even also the acquisition of overseas up 108%. And we continue to, I would say, get even strengthening of the balance with other segments as an orbit that's helping us to grow the company. Perhaps one important slide, perhaps the most important slide to look at is next with the key ratios. During the last years, we've been listed, I've had or we have had a lot of discussions around the stability of the company.
Both investors, analysts and also rating agencies has also what happens with the company when the downturn comes. And this has been a concern. And I could say, well, this is what happens. We had a 27% downturn on RV OEM shipments in this quarter. And still, we delivered total growth of 5%, organic growth of minus 6% and in constant currency, 2%.
We improved our gross profit from €31,100,000 to €31,400,000 We are slightly down on the EBIT for sure, but also as Juan alluded to, part of the acquisition costs that we have taken from the previous acquisitions and also that we start to write off certain plans. And our EBITDA margin is actually up to 17.6%. So this is what happens. It's not the company that are hurt severely. Despite a very, very big downturn in the American market, which is one of our main market.
And above all, we actually generate here positive cash flow, better cash flow than last year. I think all these things is sort of a message from our side to you, how strong this company have become even though we are exposed to an order market that might fluctuate a bit over time. If we then look at the impact from currencies, the Swedish krona has unfortunately been weak in big time in the last couple of years. And we have a big impact of roughly 7% in translation FX in this quarter, which means close to €300,000,000 Of course, the major part of that fuel cells are in the U. S.
Dollars. Earnings per share, down. And part of that is on the tax. We are hit by, let's say, new American rules. We have certain rules for nonprofitable interest cost even Though your operating profit goes down in the U.
S, you still have interest cost that will be regarded as non deductible. That's why we have a high tax rate in the U. S. We also have some compensation issues with Canada where we are earning quite a lot of money in Canada. And these companies are owned by these companies in U.
S. That's why we can come close to 30% in this quarter. This might be the case also in the next quarter, but over time, we will see a lower tax rate coming through. Summarizing the regional results. Once again, proud also to say that we keep up margins in a hypothetic on this very high level.
We're improving in EMEA. And that's even the fact that we also have some acquisition costs from Canco included in these results. And then, of course, we are down in Americas. But given also the magnitude of the downturn, I think America is holding up pretty well. We continue to invest in the company.
CapEx around the 1.8% to 2% that we have been talking about. We also have the product development roughly at 2%. So we are investing, obviously, roughly 2% or 4% in all in CapEx and product development. And for us, we have set up many tasks that they are prepared to put in more money into this, but we also need to make sure that we get efficiency and money for the time being, not restrictions more our own capability. And we have to focus more and more now to make sure that we get these launches out in this year and also in a couple of years.
Moving capital,
moving a bit upward, even though it's better than last year. We are now up to 24%. We will expect this to move downwards, generally, up to this year. And if you look at this in absolute terms or numbers, so we're up to SEK4.7 billion compared to SEK4.3 billion last year. Here we have roughly a impact from CAMPA and also from the tariffs of roughly SEK3.6 billion.
The inventory part is up somewhat, but what has actually moved in the Q1 is then being accounts receivable. And that is more a timing issue. We had a lot of invoicing in the last 2 weeks. And that will help us then in the Q2 to have a good cash flow as we usually have. So for me, this is more a timing issue, but we're still on a challenging part working hard to get this done, and we will see an improvement of the inventory levels during the months to come.
Cash flow, we have mentioned
a couple of times, very proud of having a cash flow of €84,000,000 even though some of these are then new rules when it comes to the yes, for instance, it's still positive. We'll be roughly €44,000,000 Well, that shows that even with the downturn, we have been focused and able to protect the cash flow. And for the first time, as a listed company, we show a positive cash flow in the Q1. Leverage is now down to €95,000,000 compared to 4% last year. The currency is weakening in Swedish krona, of course, hurts us to some extent.
And we have also added on compound. So yes, the currency part, if we should evaluate this compared to March rates 'eighteen, it's just over 15 basis points. Going forward, we will expect the leverage to go down. And as you will see in the outlook, will close to 2%. That is our financial target at the end of this year.
We have also been active in the debt market. During this quarter, we have issued a Swedish bond for the first time, 2 years, paying 2% €1,000,000 We have also been active in the commercial paper market in Sweden, where we issued a 3 month paper of €500,000,000 paying 0.5 percent in cost.
Finally, then the financial targets. If you look at
the sales growth, last 12 months, down 2% EBIT margin at 40.4% and net debt at 2.95 And we will come back to the outlook later on with the support of Juan. So please, Juan?
So thank you, Per Arne. So summarizing the Q1, good performance in a tough quarter for us. Organic growth of 1%, excluding RV OEM, and total growth of 7% excluding RV OEM again. We see the underlying trends for the different industries where we are present to be still positive. But at the same time, we have the situation with this inventory correction in a few markets.
We will keep on working on aftermarkets, developing the different legs that we have within aftermarket today, and we are increasing our pace in innovation even more. We are very proud on our EBIT performance, with 2 out of 3 regions performing very nicely and improving the performance in comparison to last year. And we still see potential for further improvements. We are investing quite a bit of time in getting deeper and deeper in the different processes of the company in order to increase our operational performance even more. Moving over to the outlook.
We are still convinced that we will have a slightly positive growth at the end of the year. We see, again, the impact of new product launches kicking in stepwise during the year. We will continue to invest our time to develop the other sites outside the RV. And then on the downside, we have the uncertainties that all of us are aware of in the RV OEM markets. Heavy wise, we also expect to be around 50%, and we are working very hard in a number of areas to achieve that target.
And as Terane already mentioned, leverage will be close to 2 at the end of the year. And with that said, I would like to move on to the Q and A session, please.
Our first question comes from Peter Teska from 1 Investment. Sir, your line is now open.
Hi. Thank you very much. Just a couple of questions outside of OEM, RV. On the European performance where you had good margin performance, can you give some sort of sense as to how you feel that was driven by cost as opposed to price adjustment? 1 at a time.
Yes.
I would say that this is fifty-fifty. So we have been adapting our capacity. We have just now quite a few number of employees lower than we had 1 year ago, despite the fact that we are showing good organic growth. And then on top of that, we have been driving pricing now for a number of quarters. So it's a combination of both.
And I would say that this is a fifty-fifty ratio.
Right. Okay. Thank you. And then the second question is just on the marine market in the U. S.
I mean, we've seen some U. S. State data, which shows leisure craft down 5.9%. And then looking at other peers like the Evot War Penta, which I guess is relevant on the leisure side, you're saying it's roughly flat. You're suggesting still plus 6% in a good market.
I was wondering if you could just give some understanding of how you see the market and your performance in that market?
If you look at the market, the opposite to the other markets on the Marine side, the business has never been close to the levels that we had back in 2008, 2009. So we have seen in the recent years organic growth of 2%, 3%. We know that both dealers do have their order books totally filled for the year. And if you just forget just now for one second the general industry, we as a company, we have been moving really on the technology side more and more from mechanical products to hydraulic products and from hydraulic to electronic products. And with that, the content of boats is increasing big time.
And this is what we have been seeing now for a number of quarters that while the industry is growing to the 3%, we have been growing much more. Now the industry seems to be coming a little bit, a couple of percentage points, and we are still growing very nicely. So on the OEM side, we have we show, I think today, a very, very strong growth.
Which is then a combination of volumes and also value. Yes. Absolutely. So there's a value on the technology ships.
Yes. And by the way, I mean, we see that in Americas, but we see also Marine is for us developing very nicely all over the world. So that's it's important to remember. It's not just U. S, and it's not just the core domestic marine business or what we used to call for system.
Okay. And then last question, just when you look at trying to understand where the trough is in organic growth, I mean, given as you said, there's difficulty in inventory correction, a few markets that have been going on for a bit. And you showed a slide of the non ROV OEM, which is a bit slower this quarter. But if you look at the where you think the trough is, is it Q1, is the trough appropriate for the domestic?
I think our Q1 has been extremely tough for us. And I think that this is if you look if you compare with Q3 and Q4, we have a very, very high aftermarket performance. Q1 is a little bit lower, but we also know that at the beginning of the year, with the weather and a couple of weeks of invoice income make an enormous difference, We see many of our businesses are growing very, very nicely. I mean, we already mentioned marine. We have lodging doing well.
We have retail in Americas doing very, very well. So we see a number of opportunities to grow many other businesses in the rest of the year. So, I think that Q1 for us, I mean, we haven't seen such a quarter for years years. I guess that we have to go back to the 2,009, 2010.
So I mean, the comparables on the and then also on the traffic is mildly because we expect to see improved EBIT comparables during the year to come. We are still expecting a slightly positive growth across the year. So I think this will be a diverse quarter.
Our next question comes from the line of Annabel Asquith from Morgan Stanley. Go ahead. Your line is now open.
Hello, good morning. Thank you very much for taking my questions. I have a couple, please. Maybe I'll start with the first one. So your guidance is assuming a fairly large rebound for the rest of the year.
And considering the Q4 is typically a seasonally low quarter, how much visibility do you have on the second and third quarter?
First of all, I don't know if I can say a great rebound. I mean, what we have seen is obviously a great drop in Q1. Keep in mind that the market has started to go down big time in Q3 last year. So we expect to see much easy comparables during the second half. That's the first one.
The second one is that if you look at the statistics from the association, if you look at the inventory levels, I do believe that everyone understands that inventories are coming down based on. I mean, we bought the numbers from the American Association yesterday. The market in Q1 was down 27% shipments. And obviously, retail is not coming down 27%. So for every single month, it's becoming closer to the day where the drop is gone.
So I wouldn't say that we expect fantastic growth, but we are going to mitigate obviously the effects that we have been seeing in the last three quarters. This is the Q3, and a big negative growth. Secondly, we have seen as well our capability of growth other businesses. During recent quarters, we have been investing quite a bit in building up CTV in Americas, building up CPV in APAC. We have been building up Greater in Americas, Greater in APAC and developing the different aftermarket legs that we have within EMEA, where we have moved from having a generalistic approach to dedicated teams with dedicated managers.
So is that going to give us a great rebound? Well, I don't know if it's going to happen in Q3, Q4 or Q1 this year. But we are working very, very hard to improve the performance that we have been seeing on the growth side in Q1 this year.
And then would you be
able to give a little bit more color on your aftermarket sales? Obviously, we can see that they were in negative territory in Americas and APAC this quarter. How much do you think that growth there can support the kind of OE trends?
Well, if you look at it is true that this Q1 was weaker than we had expected from the beginning, but we are also coming from Q4 that was very, very strong. We are talking about the Q1 when we still have aftermarket in the Q1 is much lower than we will see in Q2 and Q3. So if you move 2 weeks of invoicing, 1 week of invoicing will have a major effect. So we have seen just now 3 weeks or 3.5 weeks in April that it looks much better. So I don't I wouldn't estimate what we have seen in Q1 is what you are going to see in the rest of the year.
And then again, if you look at you need to break down aftermarket into different businesses. We see good growth in lodging. We see nice growth in the marine market. We have seen RV AM North America a little bit lower than we expected. We have seen aftermarket in Pacific specifically a little bit lower than expected, while we have seen Asia being in this time growing this time.
So it's a mixed bag even there. And again, we see when looking at our numbers in the last weeks, it looks better than that. And by the way, I think the other one I would like to comment is that we are investing much more in aftermarket today than we were doing 1 year ago. We are breaking it down into different businesses and putting people behind the different businesses instead of having this generalistic approach. That will pay off.
And then my second question. Can you comment a little bit more on the margin contraction in Americas for this quarter? Just relative to the organic growth decline, which is fairly similar to the Q4 last year, there's
kind of
more of a margin decline. Can you just give a little bit more color on that, please?
Yes. I think it's very much a question about the volume decline, but I can't tell you, and we have to remember that we had a fantastic Q1 last year, where we were had to outsource sort of the internally, let's say, a lot of features to China, which is a lot of high margin. That would be the combination of volume and product mix that creates
this more margin compression. We have to remember that Q1 last year was the quarter where we had the highest margins based very much in Ramiel's comments. So we had we were importing quite a few switches from China due to the difficulties to one of our main competitors in the American markets. And that gave us very, very good profitability. Then, of course, you have another effect, which is the tariffs.
Even if we are pricing and mitigating the effects of the tariffs, but we still have a net effect, a negative effect. And then you have another one that you have this transaction where we had a positive one on 1 year ago in comparison to this year. So you have a number of parameters just now playing against us in comparison to Q1 last year.
Our next question comes from Leonard Schmidt from Deutsche Bank. Please go ahead. Your line is now open.
Yes. Hello. It's Leonard Schmidt. Hello, Juan and Just a couple of questions, then I guess I'll start back to the RE questions. I think when we talked during the winter, there was a lot of discussion that producers in the U.
S. Were planning to go from 4 day to 5 day working week during March. Was that postponed? Or do you see that happening? Are we in
any way getting signs that
the underproduction is going to be sort of picked up and be more in line with end market demand soon?
I think personally, Daniel, my personal perception is that Q2 is going to be down. For Q3, we are going to have easier comparables. I think that we are talking with many of our customers, and I would say that some of them are telling you that it looks better. Some of them are still careful. So I what is waste to and everybody is talking about the second half is going to be much more clear than the first half.
But I'm looking at inventory levels exactly the same way as you are doing. The only thing that we can be fully aware of is that inventories are coming down. Then the question is when? When will the OEMs start asking for more deliveries? When is the confidence on the retail side coming back?
So they are putting orders into the OEMs.
And there is no pattern right now, Daniel, when it comes to 4 or 5 days. I mean, it's very much out because it's different manufacturers are happy on this. Yes. So we'll be confident that that will go into the 2nd half. With Easter in that way, in fact,
is Easter the start to the sort of to the RV driving season and the fact that Easter was later this year compared to last year, has that impacted in any way?
Yes. But I will be careful in the fact we're getting the impact of that. I can adjust now with this inventory correction how much one day or 2 days of inventories, I think it is more than that. I think we need to wait. We need to be working as we are working both on the cost side and developing other businesses.
I wouldn't dare to say it's going to happen on the 15th June.
I mean, it's normally I think Europe is sort of a stormy point for the season, but it's sometimes the Easter is early,
calm weather.
Yes. Yes. All right. And then on the topics, jumping to EMEA and Europe. You said at the start of the year that you expected the European RV market to be down a couple of percent.
You did have a good start to the year. And we've seen some statements from in Europe talking about destocking a bit more now than they
did last year. Are you
seeing any changes and any underproduction in Europe for the time being as you move into Q2?
We see obviously that the industry and our customers are talking about that. As William, you saw in our numbers, Q1 looks good, given from an RVUEM perspective in Germany sorry, in Europe. We expect Q2 to be weaker, at least according to what industry talks, but we haven't seen that yet. What we have done, Daniel, is that we already in December started to reduce capacity and money. So just to give you some feeling, we have just now a gap in number of people of some 6%, 7% between growth that we have and number of fees.
So we are protecting ourselves, just in case.
Yes. As you said that you were estimating the mark to be down minus 5% of that line item connection was in Q4?
Minus 6% to be be minus 6% to be more exact. Yes.
Okay. And then thirdly, on raw material, is it still relevant to believe that raw material will turn into a tailwind during Q2 and onwards?
Yes. Yes. Yes, for sure. So on that, I mean, yes.
In a similar magnitude that we talked about in Q4?
30, 40,000,000 On the base? Yes, that's correct.
On the base that we see raw materials, the problem as you know is raw materials change every week.
Yes, yes. And then the final one, I think, Perni said that EMEA EBIT included some transaction costs relating to Kampa acquisition. And I also think that you've said that seasonality in camp is usually loss making in Q1. Could you shed some more light on those two items?
No. They are definitely not loss making in Q1, but we have the SEK8 1,000,000 of so called step ups, the inventory valuation. And so roughly it is €10,000,000 in transaction cost for them in the Q1. All right. But this will pay down now after May.
So it's lower profitability. What is true in what you said is that it's lower profitability in Q1 than in Q2 and Q3, but it is profitable. And they
are growing fine. I mean, they are
Underlying the profitability, so you have good organic growth, very good organic growth in Q1, and you have underlying profitability improvements.
And is it significant going from Q1 to Q2 in terms of profitability?
It will have a couple of percentage points. Yes. All right. Okay. That's all from me.
Thank you. Thank you.
Our next question comes from the line of Olav Stendrom from ABG Sundal Kania. Please go ahead. You're now open.
Hi. It's Olaf from ABG. I just have one question on the cost reduction initiatives. Is it possible to quantify the effects of those for the year? And maybe the timing coming through throughout the year, will there be a much greater effect from these efforts in Q2, Q3?
Or how should we think about this?
Yes, you were talking about the restructuring cost or?
No, no, the savings coming from the restructuring program.
The same, yes. I mean, we talked about others, it would be up to €60,000,000 in the year and we are up to £12,000,000 in the 1st quarter.
Sorry, roughly £10,000,000 in the 1st quarter?
Yes, £10,000,000.
Okay. Thank you. And looking at the growth, you mentioned that it was picking up in April outside of RV. Does that include the aftermarket for U. S.
RV? Is that also doing better? Is that growing in April so far?
So far, the RV aftermarket in Americas is growing in April so far.
Okay. Perfect.
Thank you very much. Thank you.
Our next question comes from the line of Peter Reilly from Jefferies. Please go ahead. Your line is now open.
Good morning, gentlemen. Can I start out with an accounting question, please? You've seen a significant increase in the amortization of acquisition in capital. Can you talk about whether it's going to be an ongoing issue going forward, whether it's just in the Q1? And in particular, your margin guidance or expectation for the full year is obviously after this amortization.
I assume if you annualize the Q1 number, it looks like you're expecting the margin for the group on a pre PPA basis to actually up in the full year. So maybe you could help us understand what's driving us and whether I've analyzed the trends correctly. I'll come back with a second or third questions.
If I start on with the acquisition cost, I mean, what we have added on is for wrapping off for the plants and also for Kampa that has done roughly NOK20 1,000,000 in the quarter. And that will be added on for the quarter throughout the year.
And am I right that your margin guidance for the year is after these extra costs? So you're bearing an extra burden this year because the amortization and your margin guidance is after that extra burden?
Yes. That's all correct for sure. And then what you could see what you could see there, Peter, is also that, I mean, you have a you'll have a bigger discussion between EBITDA margin and also EBIT margin for some given the number of acquisitions that we have done. I'm also trying to write off as much as we can from the on the tangible side. So that will hurt the EBIT margin, but it's still it's close to 15% in closest.
No, I'm just I'm interested because it implies to me that your underlying profitability is doing probably better than I expected and your guidance issue. Exactly. Yes. I would encourage you to look at the before EBITDA, but that's obviously your choice. But one more comment is that I think it's these days on the basis that it's a non cash accounting charge.
Yes. We will even talk a bit more about the EBITDA, but that's also a way to look at it.
Yes. And then secondly, can you give us any update on what's happening with your product initiatives in the U. S. CBD market? You talked before about some of the things you're working on.
You're pushing a lot more resource and people and money behind that. And maybe it's something you can talk about more in the 28th. Where are we with that process?
We are getting awards. So we booked that team in today It's about 1 year ago now with people coming from the automotive industry, having the relationships, having the networks. We also spent a lot of time together with European organization, has been working on CTV for many years. And already, during the end of Q2, Q3 and Q4, we started to get awards, and that has continued during Q1. The problem is that we are talking about loan contracts that normally automotive players, they are including these kind of products in connection to a new model.
They are not changing during the existing model. And we will see invoicing coming in at the end of 2020. We will see the 1st models coming in. So we are happy with the evolution. We see that it is working.
And of course, we are talking about the small numbers, don't get me wrong. In the same way as when we are talking about non retail, when you're starting from transcription, it takes a while before you get some kind of volume. We are happy with evolution, and we are putting more effort into it.
And then lastly, on your SKU production, do you have any metrics you can share in terms of where you come from, where you're going to? And how important is that in the overall process of making the business more efficient? Because you've talked before about needing to get SKU sorted out, then you can go to manufacturing rationalization. So can you share any metrics or timetables there?
If you're okay, I would suggest that you wait until the Capital Market Day so you get more of a whole picture. Okay.
I thought you might tell that.
Otherwise, we will not have the pleasure of seeing you. So we need to fix something for ourselves until then.
I shall book my flight. That's good. Thank you.
Our next question comes from the line of Clara Johnson from SEB. Your line is now open. Please go ahead.
Initiatives. You mentioned some help in both Americas and EMEA from pricing. What kind of price increases are you managing to get through in the U. S. Now in this market?
Yes. So you look at the group, we obviously, I will not tell you market by market. But if we look at the entire group, our prices have gone up by 1%. And then, of course, we have a negative impact to the tariffs in Americas, which means that the total number will be fully group 0.7%, up. Net.
Net, even.
All right. And EMEA, you mentioned that the profitability improvement there came from around fifty-fifty price and lower cost. Could you do with similar help from pricing in the rest of 2019
as well?
Yes.
Yes. All right. And then my second question is about you're moving production from China to Mexico. You spoke a bit about this the last quarter. And I was wondering how this is progressing.
Are you fully
Well, yes. So we have the first factory. It was up and running after 97 days. So we started deliveries after 97 days. That must be some kind of world record.
So we were very, very, very happy about that. And after 2 months up and running, we decided to start building a second place, a second factory, which is going to be 3x. So we are going to move the 1st factory into the 2nd factory, and then we will move additional production into Mexico. We are very happy with the quality that we are getting from the factory. We are extremely pleased with the talent that we are finding and the people that we are hiring.
So we're extremely pleased. We will see Mexico growing for us.
Yes. And so we could expect that you can avoid the tariffs from China, U. S. For maybe Q2?
For everything because it wouldn't make any sense. You have one side the tariffs. At the same time, we don't want to move a lot of small volumes and create a lot of complexity. We want to have the factory, obviously, to have high volume business so we can not just mitigate the tariffs, but also to become more competitive in other products. So I the target is not to move every single thing that we are doing in China into Mexico.
That will create too much complexity.
All right. And then my last question is, could you you repeat how much U. S. Are the OEMs for you in Q1? You mentioned it earlier, I
think. 23%. 23%.
And the
market dropped 27%. Yes. All right. And last year, we were growing 20%. So you have like half of 43%.
Yes. Okay. So you think that also I mean, I think you dropped around the line with the market in Q1 as well. Should we expect you to perform in line with the market also ahead? Or will you prioritize profitably more or
Well, that's what we are doing already today, right? The market is dropping 27%. We are dropping 23%. So we are careful. I mean, but for us, we will not buy back a share.
For us, it's extremely important to see our margins.
That's all of my questions. Thank you.
Thank you.
There are no further questions at this time.
Well, thank you very much, everybody, for your attention. And feel very much welcome to Capital Market Day on May 28 in Stockholm. So thank you very much, and I see you there. Bye.
Thank you. This concludes our presentation. You may all disconnect.