Ladies and gentlemen, welcome to the Dometic Q1 Report 2019. Today I'm pleased to present Juan Vargues, President and CEO, to Per-Arne, CFO, and Johan Lundin, Head of Investor Relations and Communications. Afterwards there'll be a short question- and- answer session. Speakers, please begin.
Good morning, everybody. This is Juan Vargues speaking. First of all, welcome to our earnings call today on the presentation of Dometic's interim report for the first quarter. We proceed immediately with the report. I have to say that the first quarter of 2019, we proved again how our diversification strategy increased focus on operational performance together with our capacity of reaction are creating a stronger company, and helped us to perform very well in a very challenging environment. Primarily influenced by the inventory build-up in the RV industry and the difficult comparisons that we have since last year. Looking at the growth side, total growth ended up at 7% excluding the RV OEM market. We also reached 1% organic growth when excluding the RV OEM and the Kampa 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 Kampa. It's always difficult for new companies with a lot of activities in the first months post-acquisition. We had a very nice organic growth, and profitability is developing in a good manner. During the quarter, the RV OEM side that everybody knows has been dropping, especially on the American market. For us, it went down 14%. Having said that, we have to remember that we are comparing with a quarter where the RV OEM market for the entire company went up 13% one year ago. Once again, very difficult comparative numbers. What we are doing obviously in order to mitigate the situation in the RV is to work even harder in the aftermarket organization. We are building out the CPV area, retail, lodging, and keep investing on the Marine side.
When looking at the markets, in reality, nothing has changed on the underlying needs. We see a good underlying demand. We see the global lifestyle continues to develop in more and more markets, as well as demographics. We also perceive, obviously, the weakness in the RV OEM market in Americas, but also, during the last six 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. 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 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, we are running the program, evolving according to plan. Last but not least, we are building a second site in Mexico, we are happy with the evolution there as well. In principle, what we are talking about is that we are going to multiply by three the space that we have today in Mexico. If we move on to the next slide. Total sales reached 5% with 6% negatively organically. We had a positive influence of FX of 7%, then Kampa stood for 4% of growth. Looking at EBIT, we reached SEK 618 million or 3% down versus last year. On the upside, we have efficiency improvements. We have also a positive channel mix between aftermarket and OEM, we had also the pricing efforts.
We have been reducing capacity quite a bit all over the world. It's over two digits, I would say, altogether. We are still ahead, we have still a good protection moving forward. Obviously, we are impacted by both the volumes, the RV volumes and the tariffs. 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, +7%. When looking at the comparatives on the EBIT side, we have additional amortization during this quarter of about SEK 24 million more in comparison to one year ago. In reality, the loss of 1.1 % points on this 6% negative organic growth, the 1.1 becomes 0.6 when measuring apple to apple. EPS was down 8%, ending up at SEK 1.06.
That's a consequence, obviously, of a slightly lower EBIT then taxation that Per-Arne 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, also how it looked like on the previous quarters coming from very high comparatives, as you can see. We're looking at the periods from the first quarter 2017 to the first quarter now in 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. What we are showing in reality is while RV OEM is dropping 14%, the rest is growing 7%.
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 hard to diversify the company. 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 during the last five years has grown 7%, while RV has been growing 5%. The bottom line is really that Dometic has not just been growing at the back of the U.S. RV industry. Which for us is, of course, very important.
The RV OEM market has come down from 40% of the total to 38% of the total, while the rest has been growing. We have a negative impact on the RV, but we also have an impact on the organic growth on the rest and the Kampa position. EBIT margin. The lower EBIT margin in this quarter is putting a little bit of pressure on the long-term trend. We are just now 14.4%, while we ending up last year at 14.7% altogether. We still believe that we will reach the same levels, around 15%, at the end of this year. We continue to invest in innovation. We are accelerating in that score.
The first thermoelectric cooling box in the world made of biocomposite. Despite the fact that we call it for cooling box, it has both functionalities. It's cooling down, but it's also warming up to 65 degrees Celsius. This is also for us one more sample of how we are combining new products, innovation, and sustainability efforts that we are putting in place, something that our customers do appreciate. Americas went down 11% organically. Excluding the RV side, we had a growth of 5%, with Marine showing 6% organic. Retail very strong, 19%, low numbers, but 19% organic growth. Even Lodging did show a pretty nice evolution, again, proving that the investments that we are doing on the market side are paying off.
We were impacted at the RV side. EBIT, 22% down. On one side, we had the volumes. On the other side, we also have a negative impact from the tariffs. 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. We need to remember that we are coming from a quarter last year where we were showing 12.4% up organically. We are showing 11% down. The swings that we have been seeing on the RV markets.
We went up 20% one year ago. We are down to 15%. The gap that we have been with in 4 quarters, so to say, which is massive. We are very pleased, showing 3% organic growth, with aftermarket growing very nicely organically, but also as a consequence of the Kampa acquisition. Good growth on the RV aftermarket side, on the CPV. 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. I'm very pleased with the evolution of Kampa in the first months, considering, based on my experience, how difficult it is during the first months. Very nice evolution on the EBIT side.
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. What we see there is especially Pacific, pretty soft on the RV side, but also pretty soft on the RV 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.
RV in Asia continues to develop in a very positive way, 25% up, and the same is valid on the after market. Again, APAC 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 non-profitable businesses about one year ago, nine months ago, and that's what we see is also having an impact on the top line. We see that that's also helping us improve our margins percentage-wise. Pricing we have been working with, and we have, as I also mentioned before, a negative effect on geographical mix. Looking more on the medium and long term on execution, we will continue to invest in developing the marine business.
We will keep developing Kampa to become a global business, looking as well for complementary acquisitions. Last but not least, organically, it is extremely important for us to accelerate the growth on the after market side, which is something we have been doing really during the last quarter, putting more dedicated teams all over the world. On the product side, I'm happy to report that what we have been discussing before in terms of global product platforms is starting to take place. It's materializing, and we are taking the actions, and we see activities starting to pay off. We also accelerate the reduction of SKUs, 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. Last but not least, we will continue to adapt our capacity to the needs of the RV market in the months to come, and as far as this evolution continues. With those words, I would like to leave to Per-Arne to get us deeper into the financials, please.
Thank you, Juan. Starting with the five-year trend both for sales and EBIT, you can see that the company has been growing substantially during the last five years. On net sales, we are up to 110% and are placing at SEK 18.5 billion in sales. EBIT has grown even quicker, 161% up and now hovering around SEK 2.7 billion. You could see here that we like growth, but we also like to have profitable growth. Even more important, if we turn to next page, you can see that EBITDA has increased to 167%. Good proxy for our cash flow and operating cash flow is now up to SEK 2.7 billion, and this is up 190% compared to 2014. Also, if you look at EBIT here in absolute terms, it's close now to SEK 3.3 billion compared to SEK 1.2 billion if you ask about five years.
You can see that this company has become, I would say, more stable today than it was a couple of years ago, and I think also what we have proven now in the numbers in the first quarter. If we then look at the more short-term trends, Juan has already alluded to this point about sales. The sales growth has now dampened somewhat. EBIT is flattening out, and we have a slight downturn on EBIT margins, but you could see that operating cash flow is continuing to go up. If one takes the underlying businesses, I think the strength that we are seeing today is that the RV business, including the aftermarket, stands for 54%, and all this segment is down in constant currency with 1% up over only 5%.
You can also see that the other segments, the B2B business up with 4%, special loading up with 2%, and Marine, given also the acquisition of these two, up with 108%. We continue to, I would say, get even strengthening of the balance with other segments other than RV that 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 since we've been listed, we have had a lot of discussions around the stability of the company. Both investors, analysts, and also rating agencies ask what happens with the company when the downturn come? 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. Still, we delivered total growth of 5%, organic growth of -6%, and in constant currency at 2%. We improved our gross profit from 31.1% to 31.4%. We are slightly down on the EBIT for sure, but also as I alluded to, partly because of acquisition costs that we have taken from the previous acquisitions and also that we start to write off certain brands. Our EBITDA margin is actually up to 17.6%. 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 markets. Above all, we actually generate a positive cash flow, better cash flow than last year.
I think all these things is a sort of a message from our side to you, how strong this company have become, even though we are exposed to all the markets that might fluctuate a bit over time. If you now look at the impact from currencies, the Swedish krona has unfortunately been weakened 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 SEK 300 million. Of course, the major part of that, two-thirds are in the US dollars. Part of that is down the tax. We are hit by the new American rules. We have certain rules for non-deductible interest costs. Even though your operating profit goes down in the U.S., you still have interest costs that will be regarded as non-deductible.
That is why we have a high tax rate in the U.S. We also have some double taxation issues with Canada, where we are earning quite a lot of money in Canada. These companies are owned by the companies in the U.S. That is why we did not come closer to 30% in this quarter. This might be the case also in the next quarter. Over time we will see a lower tax rate coming through. Summarizing the regional results, once again, proud to say that we keep up margins in Asia Pacific on this very high level. We are improving in EMEA. That is even the fact that we also have some acquisition costs from Kampa included in these results. Of course, we are down in Americas. 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%-2% that we have been talking about. We also have the product development, roughly at 2%. We are investing roughly 4% in all in CapEx and product development. For us, we have said it many times that we are prepared to put in more money into this. We also need to make sure that we get efficiency in this. Money for the time being is not restrictions, more our own capability. We have to focus more and more now to make sure that we get these new launches out in this year and also the coming years. Working capital, moving upwards, even though it is better than last year, we are now up to 24%. We will expect this to move downwards during the rest of this year.
If you look at this in absolute terms or numbers, we are up to SEK 4.7 billion compared to SEK 4.3 billion last year. Here we have roughly an impact from Kampa and also from the tariffs of roughly SEK 360 million. The inventory part is up somewhat. What has actually moved in the first quarter is then the accounts receivable. That is more a timing issue. We had a lot of invoicing in the last two weeks. That will help us then in the second quarter to have a good cash flow as we usually have. For me, this is more a timing issue. We are still on account of the inventory part, working hard to get this down. 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 SEK 84 million. Even though some of these are down new rules when it comes to the IFRS 16, still positive of roughly SEK 44 million. That shows that even with the downturn, we have been focused and able to protect the cash flow. For the first time, as a listed company, we show a positive cash flow in the first quarter. Leverage is now down to 295 compared to 304 last year. The currency weakening, the Swedish krona, of course, hurts us to some extent. We have also added on Kampa. Just the currency part, if you should reevaluate this compared to March 2018 rates, it's plus or 15 basis points.
Going forward, we will expect the leverage to go down, and as you will see in the outlook, we will be closer to 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, two years paying 2% and SEK 1 billion. We have also been active in the commercial paper market in Sweden, where we issued a three-month paper of SEK 500 million paying 0.5% in cost. Finally, on the financial targets, if you look at the sales growth, last 12 months down 2%. EBIT margin at 14.4% and net debt at 295. We'll come back to the outlook later on with the support of Juan. Please, Juan.
Thank you, Per-Arne. Summarizing the first quarter, strong performance in a tough quarter for us. Organic growth of 1% excluding RV OEM. Total growth was 7% excluding RV OEM again. We see the underlying trends for the different industries where we are present to be still positive. 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 of our EBIT performance, with two out of three regions performing very nicely and improving performance in comparison to last year. 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 sides outside the RV. On the downside, we have the uncertainties that all of us are aware of in the RV OEM markets. EBIT-wise, we also expect to be around 15%, and we are working very hard in a number of areas to achieve that target. As Per-Arne already mentioned, leverage will be close to at the end of the year. With that said, I would like to move on to the Q&A session, please. Hello?
Hello, can you hear us?
Yes, I can hear you loud and clearly.
Yeah, okay. We're good.
Okay.
We are ready to.
Perfect. Ladies and gentlemen, if you have a question for the speakers, please press zero one on your telephone keypad now. That's zero one on your telephone to ask a question. There will now be a brief pause while questions are being registered. Our first question comes from Peter Testa from One Investments. Your line is now open.
Hi. Thank you very much. Just a couple questions outside of OEM RV. On the European performance, where you had quite 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? I'll put one at a time. Yeah.
Yeah. I would say that it's a 50/50. We have been adapting our capacity. We have just now quite a few number of employees lower than we had one year ago, despite the fact that we are showing good organic growth. On top of that, we have been driving pricing now for a number of quarters. It's a combination of both, and I would say that it's a 50/50 ratio.
Right. Okay. Thank you. The second question is just on the Marine market in the U.S. We've seen some U.S. state data which shows leisure craft down 5.9%, then looking at other peers like Volvo Penta, which I guess is relevant on the leisure side, saying it's roughly flat. You're suggesting still +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 RV market on the Marine side, the business has never been close to the levels that we had back to 2008, 2009. We have seen in the recent years an organic growth of 2%-3%. We know that boat builders do have their order books totally filled for this year. 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.
With that, the content per boat is increasing big time. This is what we have been seeing now for a number of quarters, that while the industry is growing 2%-3%, we have been growing much more. Now the industry seems to be coming a little bit, a couple percentage points, we are still growing very nicely. On the OEM side, we show, I think today, a very strong growth.
Which is then a combination of volumes and also value.
Yes, absolutely.
Value on the technology ships.
Yeah. Okay.
By the way, we see that in Americas, we see also Marine is, for us, developing very nicely all over the world. That is important to remember. It's not just U.S., and it's not just the old Dometic Marine business or what we used to call SeaStar now.
Last question is just, when you look at trying to understand where the trough is in organic growth, given, as you said, there's difficulty in inventory correction in a few markets
Yes
That's been going on for a bit. You showed a slide of the non-RV OEM, which is a bit slower this quarter. If you look at where you think the trough is, do you think Q1 is the trough for Dometic?
I think Q1 has been extremely tough for us. I think that if you compare with Q3 and Q4, we have a very high aftermarket performance. Q1 is a little bit lower, but we also know that at the beginning of the year, we have the weather, and a couple of weeks of invoicing can make an enormous difference. We see many of our businesses are growing very nicely. We already mentioned Marine. We have lodging doing well. We have retail in Americas doing very well. I think that Q1 for us, we have not seen such a quarter for years and years. I guess that we have to go back to 2009, 2010.
It's the comparables and also the number of trough years is likely because we expect to see improved easier comparables during the year to come. We're still expecting a slightly positive. Yeah. Growth the past years. I think this will be expected the worst quarter.
All right. Thank you. Thank you very much.
Thank you.
Our next question comes from the line of Annabel Asquith from Morgan Stanley. Go ahead. The 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. Your guidance is assuming a fairly large rebound for the rest of the year. Considering the fourth quarter 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. What we have seen is obviously a great drop in Q1. Keep in mind that the market started to go down big time in Q3 last year. What we expect to see much easier 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 everybody understands that the inventories are coming down big time. We got the numbers from the American Association yesterday. The market in Q1 was down 27% shipments, and obviously retail is not coming down 27%. For every single month, it's becoming closer to the day where the drop is gone.
I wouldn't say that we expect fantastic growth, we are going to mitigate, obviously, the effects that we have been seeing the last three quarters. This is the third quarter in a big negative growth. We have seen as well our capability of grow other businesses. During recent quarters, we have been investing quite a bit in building up CPV in Americas, building up CPV in APAC. We have been building up retail in Americas, retail 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. Is that going to give us a great rebound? Well, I don't know it's going to happen in Q3, Q4, or Q1 next year, we are working very hard to improve the performance that we have been seeing on the growth side in Q1 this year.
Okay.
I don't know if I answered your question.
Yes. 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 climate carry 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 strong. We are talking about the first quarter, when we still have aftermarket in the first quarter is much lower than we will see in Q2 and Q3. If you move two weeks of invoicing, one week of invoicing will have a major effect. We have seen just now three weeks, three and a half weeks in April that it looks much better. I wouldn't estimate that what we have seen in Q1 is what you are going to see in the rest of the year.
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 aftermarket. 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 growing big time. It's a mixed bag even there. Again, we see when looking at our numbers in the last weeks, it looks better than that.
Okay.
By the way, I think the other one that I would like to comment is that we are investing much more in aftermarket today than we were doing one 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.
Thank you. My second question, can you comment a little bit more on the margin contraction in Americas for the quarter? Just relative to the organic growth decline, which is fairly similar to the fourth quarter last year. There's kind of more of a margin decline. Can you just give a little bit more color on that, please?
Yeah.
Yeah. I think it's very much a question about the volume decline by the company. We have to remember that we had a fantastic first quarter last year, where we had to outsource sort of internally, you could say, a lot of features to China, which creates a lot of high margins. I would say it's the combination of volume and product mix that creates this margin compression.
We have to remember that first quarter last year was the quarter where we had the highest margins based very much in Daniel's comments. We were importing quite a few switches from China due to the difficulties to one of our main competitors in the American markets. That gave us very good profitability. 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 negative effect.
Thank you.
You have another one that you have this class action where we had a positive one-off one year ago in comparison to this year. You have a number of parameters just now playing against us in comparison to Q1 last year.
Thank you.
Thank you.
Our next question comes from Daniel Schmidt from Danske Bank. Please go ahead. Your line is now open.
Yes, hello, it's Daniel Schmidt. Hello, Juan and Per-Arne. Just two questions I guess we'll drop back to the RV 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 four day to five 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 tough. From Q3, we are going to have easier comparables. I think that we are talking with many of our customers, I would say that some of them are telling you that it looks better, some of them are still careful. What is true and everybody's talking about, the second half is going to be much better than the first half.
Yeah. Okay.
I'm looking at inventory levels exactly in the same way as you are doing. The only thing that we can be fully aware of is that inventories are coming down. The question is when. When would 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?
There is no pattern right now, Daniel, when it comes to four or five days. I mean, it is very much up to the different manufacturers on how they act upon this.
Yeah.
We believe that that is what is going to happen.
Did Easter in any way impact production? Is Easter the start to the sort of RV driving season and the fact that Easter was later this year compared to last year?
Yes.
Has that impacted in any way?
Yes, I would be careful in speculating the impact of that. I can adjust now with this inventory correction how much one day or two days on 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 of June.
No. I mean, Easter is normally I think Europe is sort of a starting point for the season.
Yeah
Sometimes Easter is early and sometimes it is now. The weather conditions.
Exactly. Easter and weather.
Yeah.
On the topic 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 %, you did have a good start. Yeah To the year. We've seen some statements from producers in Europe talking about de-stocking a bit more now than they did last year.
Yeah.
Are you seeing any changes, 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 you saw in our numbers, Q1 looks good, even from an RV OEM perspective in Germany. Sorry, in Europe. We expect Q2 to be weaker, at least according to what the industry talks, we haven't seen that yet. What we have done, Daniel, is that we already in December started to reduce capacity and manning. Just to give you some feeling, we have just now a gap in number of people of some six, 7% between growth that we have a number of keys, we are protecting ourselves just in case.
Yeah. You said that you were estimating the market to be down -5% of the language in connection with the Q4.
-6% to be more exact.
Yeah. Okay. 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. For sure. Yeah.
In a similar magnitude that we talked about in connection with the Q4?
Depends on what we sell in Q4 I think is what you're referring to.
It does, doesn't it? No, I think we talked about you had a headwind of SEK 80 million or something like that last year, and you were contemplating a tailwind of, what was it, SEK 30 million, SEK 40 million?
That's correct.
On the phase that we see raw materials at the moment, as you know, is that raw material change every week.
Yeah.
The story remains still relevant.
Yes.
Yeah. It's relevant.
Then the final one, I think Per-Arne said that EMEA, EBIT included some transaction costs relating to the Kampa acquisition. I also think that you've said the seasonality in Kampa 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 because we had SEK 8 million of so-called step-ups, the unit of evaluation. Roughly it is a SEK 10 million in transaction cost for them in the first quarter.
All right.
This will pay out now after May.
It's lower profitability, what is true in what you said, is that it's lower profitability in Q1 than in Q2 and Q3, it is profit.
All right.
They are growing fine.
Underlying the profitability. You have a good organic growth, very good organic growth in Q1, and you have a pretty good underlying profitability improvements.
Is it significant going from Q1 to Q2 in terms of profitability?
It'll have a couple of change points .
Yeah. All right. Okay. That's all for me. Thank you.
Thank you.
Our next question comes from the line of Olof Cederholm from ABG Sundal Collier. Please go ahead. Line now open.
Hi, it's Olof 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?
Yeah. You were talking about the restructuring costs?
No, the savings coming from the restructuring program.
Yeah. We thought about that it should be roughly SEK 60 million annual year, and we are up to SEK 10 million-SEK 12 million the first quarter.
Sorry, roughly SEK 10 million in first quarter?
Yeah. SEK 10 million-SEK 12 million.
Okay. Thank you. 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?
Yes.
Is that growing in April so far?
So far, yeah. The RV aftermarket in Americas is growing in April so far.
Okay. Perfect. Thank you very much.
Thank you.
Our next question comes from a line of Peter Reilly from Jefferies. Please go ahead. The line is now open.
Good morning, gentlemen. Can I start out with an accounting question, please? There's been a significant increase in the amortization of acquisition in Kampa. Can you talk about whether that's going to be an ongoing issue going forward, whether it's just in the first quarter? In particular, your margin guidance, or expectation for the full- year is obviously after this amortization. I assume if you annualize the first quarter number, it looks like you're expecting the margin for the group on a pre PPA basis to actually up in the full- year. Maybe if you'd help us understand what's driving this 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, what we have added on is for writing off for the brands and also for Kampa. That's on roughly SEK 20 million in the quarter. That will be added on per quarter the rest of the year.
Am I right that your margin guidance for the year is after these extra costs? You're bearing an extra burden this year because the amortization of your margin guidance is after that extra burden?
It's definitely after the extra burden, for sure. What you could see there, Peter, is also that you will have a bigger discrepancy between the EBITA margin and also EBIT margin for us, given the number of acquisitions that we have done. We also try to write off as much as we can on the tangible side. That will hurt the EBIT margin, but it's still close to 15% EPS.
No, I'm interested because it implies to me that your underlying profitability is doing probably better than I expected and your guidance.
Exactly.
Yeah. I would encourage you to look at the EBIT before PPA, that's obviously your choice. More and more companies are doing it these days on the basis that it's a non-cash accounting charge.
Yeah. We will even talk a bit more about EBITA, because that's also a way to look at it.
Yeah. Secondly, can you give us any update on what's happening with your product initiatives in the U.S. CPV market? You talked before about some of the things you're working on. You're putting a lot more resources.
Yeah
People and money behind that.
Yeah.
Maybe it's something to talk about more on the 28th, where are we with that process?
We are getting awards. We put a team in place. It's about one year ago now, with people coming from automotive industry, having the relationships, having the networks. We also spent a lot of time together with European organization, has been working on CPV for many years. Already during the end of Q2, Q3, and Q4, we started to get awards, that has continued during Q1. The problem is that we are talking about long 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. We will see invoicing coming in at the end of 2020. We will see the first models coming in.
Okay.
We are happy with the evolution. We see that it is working. Of course, we are talking about the small numbers, don't get me wrong.
Yeah.
In the same way as when we are talking about retail, when you are starting from scratch, it takes a while before you get some kind of volume. We are happy with evolution, and we are putting more efforts into it.
Lastly, on your SKU reduction, do you have any metrics you can share in terms of where you have come from, where you are going to, and how important is that in the overall process of making the business more efficient? Because you talked before about needing to get the SKU sorted out, then you can go to manufacturing rationalization. Can you share any metrics or timetables there?
Peter, if you are okay, I would suggest that you wait until the Capital Markets Day, so you get more of a whole picture.
Okay. I thought you might say that.
Otherwise, we will not have the pleasure of seeing you. We need to keep something for ourselves until then.
I shall rebook my flight. Thank you very much.
That's good. Thank you.
Thanks.
Our next question comes from the line of Klara Jonsson from SEB. Your line is now open. Please go ahead.
Hi, Juan, thanks for taking my question. I have a question about your pricing initiatives. You mentioned some help in both Americas and EMEA from pricing.
Yes.
What kind of price increases are you managing to get through in the U.S. now in this market?
Yeah. You look at the group, obviously, I will not tell you market by market, if we look at the entire group, our prices have gone up by 1%. Then, of course, we have the negative impact to the tariffs in Americas, which means that the total number will be for the group 0.7% up.
Net.
Net.
All right.
Net even.
All right. Thank you. In EMEA, you mentioned that the profitability improvement there came from around 50/50 price and lower cost. Could we expect similar help from pricing in the rest of 2019 as well?
Yes.
Yeah. All right. Thank you. Then my second question is about you moving production from China to Mexico.
Yes.
You spoke a bit about this last quarter, I was wondering how this is progressing. Are you fully?
Well, yes. We have the first factory was up and running after 97 days. We started deliveries after 97 days. That must be some kind of world record. We were very happy about that.
Yeah.
After two months up and running, we decided to start building a second place, a second factory, which is going to be three times. We are going to move the first factory into the second factory, 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 in the people that we are hiring. We're extremely pleased. We will see Mexico growing for us.
Yeah. We could expect you can avoid the tariffs from China U.S. from maybe Q2?
Not 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 be not just mitigate the tariffs, but also to become more competitive in other products.
All right.
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. Thank you. My last question is, could you repeat how much U.S. RV OEM for you in Q1? You mentioned it earlier, I think.
23%.
23.
The market dropped 27%.
27.
Yeah. All right.
Last year, we were growing 20%, so you have a gap of 43%.
Yeah. Okay. Do you think that also, I think you dropped around in line with the market in Q1 as well. Should we expect you to perform in line with the market also ahead or?
Well, I think with the
Profitability more or?
Well, that's what we are doing already today, right? The market is dropping 27. We are dropping 23. We are careful. For us, we will not buy back this year. For us, it's extremely important to keep our margins.
All right. That's all my questions. Thank you.
Thank you.
There are no further questions at this time.
Well, thank you very much, everybody, for your attention. Feel very much welcome to Capital Markets Day on May 28th in Stockholm. Thank you very much, and I see you there. Bye.
Thank you. This now concludes our presentation. You may all now disconnect.