Hello, and welcome to the Domestic Call. For the first part of this call, all participants will be in listen only mode and afterwards there will be a short question and answer session. Today, I'm pleased to present Juan Vargas, President and CEO and Stefan Friesteth, CFO. Speakers, please begin.
Hi, good afternoon, everybody, and welcome to this call where we are going to share an introduction about our latest acquisition, Igloo. So let's proceed to the first page without any delays. In our opinion, this is a transformational acquisition, which is really giving us A fantastic position and what we described to be the vehicle based outdoor business. Igloo is based out of Texas and is one of the world's leading companies in the market for pacificulimboxis and drinkware. This is an old company, was established in 1947, has an iconic brand.
For us, it will become a foundational base for our continuous journey towards growth, higher profitability levels. It gives also a strong position in one of our main markets, namely the food and beverage markets, a growth market, as I will come back later too. Igloo has been developing very nicely in the last couple of years. Just now on 12 months rolling numbers, They are running at about $400,000,000 or 24% up versus last year with an EBITDA margin of 10%. Talking about the price, the price for Igloo is going to be $677,000,000 on a cash under free basis and We describe Igloo a little bit closer.
I mentioned previously, established in 1947, 1100 With a very, very strong experience, a vast experience on the consumer business, they have a number one market position without any kind of doubts In terms of hard coolers, they have a number one position in terms of hard cooler brand in the U. S. They have a position as well branding wise worldwide, even if the sales is very, very limited, as to With the history of the company and the iconic brand they have, Igloo gives us a fantastic opportunity obviously to establish the domestic presence or to accelerate I would say, the domestic presence in the U. S. Retail markets having access now to 90,000 retail stores.
Igloo has been growing on the B2C e commerce channel very, very fast in the last couple of years, still very Away from the numbers that a competitor that you are very familiar with, namely Jetty is running, while Igloo is running at 9%, 10% D2C e Commerce Jetty is today at 54%. That brings, of course, opportunities for Igloo to grow in that channel. All manufacturing sites in Texas, out of Kathy, Texas that provides Obviously, closeness to the market, flexibility, natural lead times. We get fantastic and Growth per portfolio coolers, but also Dreamwear. Dreamwear represents approximately 20% of our earnings and offers also opportunities both as Igloo brand where they have been showing very nice growth numbers also on the Dreamwear side, but Also to accelerate our journey as the domestic brand.
They have been working the last couple of years as well to introduce renewable products, Have been launching a number of so called eco friendly products that we are also very excited about that we will be collaborating to introduce also as Domestic products using their own technology. The target with Igloo is really to keep the brand. This is as I Mentioned before, an iconic brand and we see Dometic position as the premium brand and we see Igno position Next, We see the cooling box market as very attractive and growth markets. This is part of what we call outdoor industry. And as we see, outdoor lifestyle has been growing for the last 12 years.
We continue See a growth path and the provisions are also strong for the years to come. This is a huge market. It's an USD 8,000,000,000 USD markets where it is included in both cooling boxes and Drinkware. It gives us also the opportunity to introduce even more innovative products. This is a design product Aria, profitability wise, we know that some of our competitors are running at 20% EBIT margins.
We also know that Oncology, Automatec are well above the company average, showing very strong margins, and we see opportunities For bringing Igloo close to the margins that we are talking about in this case. Let's move on. This is a very strategic step for us, which is following to 100% strategy that we introduced In May 2019, meaning expanding in the outdoor channel, we wanted to get become much more B2C and get So into e commerce. And of course, we were aware that in order to accelerate our repositioning as a company, we also needed to look for acquisitions outside our traditional areas, and this is obviously a quantum leap in that direction. Next.
This is really the journey that we have been running in the last couple of years. You go back to the Q2 of 2018 and just a few months after I joined the company. The OEM business is still for 61 The total revenue of the company excluding Igloo, we are today down to 53 Even when considering the RV OEM market has been growing very, very strongly in the last 12 months. And then you can see on the right hand side The important impact that Igro will have in our numbers moving forward. So again, we are walking the talk.
We are Developing the company according to the strategy that we introduced to the market. That would also lead obviously to lower Cyclicality and higher margins over time. Next. And then with that stuff from my side, I would like to hand it over to To give us some more insight on the transaction as such. Stefan, please?
Thank you, Juan. So transaction in overview, We acquired Igloo for an amount of USD 677,000,000 on a cash and debt free basis. And in addition, there is an earn out element that can generate a maximum of USD 2 USD 23,000,000 in additional purchase price. The profitability level That the earn out is based on is significantly above the current LTM level. If we look on the development of our net debt to leverage ratio, The acquisition of the Igloo is going to add approximately 1.3x.
And considering where we are starting from, we will be slightly above our target of 2 or around 2.5 times. As Juan mentioned before, the net sales of Igloo for the last 12 months is USD 401,000,000 and They have seen a growth of 24% in this time period. And the EBITDA margin is For the last 12 months, it's 10.1%. Synagis from increased sales and cost improvements, We have identified, and it's approximately 50,000,000 Dollars per annum, and they are expected to be fully achieved within 5 years. And the transaction is expected to be accretive to the domestic EPS from 2022.
And the closing is expected to happen in Q4 2021. Than in Q4 2021, subject to normal regulatory approvals. And from a reporting point of view, you're going to find Igloo in our segment global going forward. Please, next. If we talk a little bit more about the synergies as such, as I mentioned, They are approximately around USD 50,000,000 on an annualized basis and will be fully achieved within 5 years.
And they are basically coming from 3 different areas. Starting with the first, It's the continued implementation of Eagle's stand alone improvement activities. This is something we have seen during the process of Yes. To learn about this company that Igloo and its leadership team have had a solid program, both on the commercial side and on the cost improvement side to improve the profitability of the company. And so far, they have shown a strong track record and good traction of delivering these EBITDA improvements.
The second part of the synergies is coming from the commercial side. So we see approximately 150,000,000 Dollars in increased net sales, and that's coming from utilizing the strong combined sales platform. As Juan mentioned, also to grow Igloo outside of U. S, they have 92% of their current sales in U. S, mainly targeting EMEA and APAC, And then utilize Aegis' strong presence in North America also for domestic products.
Then the 3rd category of the synergies is related to cost synergies, which is a smaller portion. It's USD 5,000,000. It's coming from supply chain sourcing and distribution improvements, But then also the ability to utilize Igloo's high efficient manufacturing plant in Texas for the products that domestic is already having in its portfolio. So please move ahead. We would like I mean, you know our financial targets, and we just would like to take the opportunity To reiterate that we are staying committed to the targets, and they mean that we should have a sales growth of totally 10%, which is a combination of organic growth but also M and A driven growth.
EBIT margin, 16% to 17% on an average over a business cycle. Net debt to EBITDA, we have, as As you know, updated and the target is now that it should be around 2.5 times. Dividend policy means that we should distribute at least 40% of net profit. So with that, I hand back to you, Juan, to make a summary.
Thank you, Stefan. So we are obviously very pleased with I've been able to share with you about the Igloo acquisition. This will help us will help Domestic to We'll build up an even stronger and more stable end user oriented company. As you know, we have been Describing that we see a metric that is much more consumer driven, is much less exposed to cyclicality, is penetrating the major market in the world, both in terms of cooling boxes and rim wear, but also The more general outdoor business, which is North America, it is one more step in Putting together a portfolio that will be appealing for what we call vehicle based outdoor industry or in other terms How to have consumers, how to have every single owner of a pickup truck, of an SUV, a Station Wagon or a Sedan to use our products, to be able to buy a rooftop tent this year or to buy a cooling box next year or To buy a barbecue the year after and without obviously taking down the cyclicality exposure that we have today. We want obviously to move from being perceived as a high ticket discretionary spend company to a lower ticket discretionary And we believe that we are getting access to a fantastic brand that has there is no American not familiar with with Igloo brand and we believe that we have opportunities to use the strength of the marketplace to introduce Even more domestic frauds, but we also believe that domestic is creating a fantastic platform for Igloo, not just to stay In American market, but to become really a global brand.
And with that said, I would like to Start with the Q and A session.
Thank you. 1 on your telephone keypad now. If you wish to withdraw your question, you may do so by pressing 2 to cancel. Our first question comes from the line of Johan Eliason of Kepler Cheuvreux, please go ahead. Your line is now open.
Yes. Hi, Juan and Stefan. Congratulations to what looks like a very Interesting acquisition. It looks like you will have some work to do going forward. I have Two questions I would like you to dwell a bit on.
First of all, obviously, a very solid growth profile already of this company, The 4% you say over the last 12 months. I noticed that this peer In the U. S, YETI has grown 35% over the same period. Is there a significant reason for this? Is it So that yet is moving more outside of the U.
S? Or how would you see that difference? And then secondly, on the margin side, I think you have already alluded to it a little bit, but one big plant in Texas wouldn't be So far to move sort of to your plant in Mexico, for example. But I got the feeling that it was also the distribution channel That's important for the margin in your presentation. What's the main activities to get this margin up to a more reasonable level?
Thank you.
So we'll start with the first one. It is clear that it's not a one to one to Jetty. Jetty is much more dreamware than Igloo is today. Jeti has become more international during the last few years. Jetty is much more e commerce.
With the e commerce, you don't just get high margins, you also get higher revenues as such. So those are a number of the factors. If you look at market share wise, we are growing just now market share Faster in American market than with Jetty. So Jetty is just now focusing more on international expansion. So that was the answer to the first question.
On the second question, it's a little bit of what I'm referring to. So you have one side, you have Jetty, but we know automatic has totally different kind of margins. So that's one. We know that it is possible. The second one is, as we said, We have Dreamwear, it's a very nice category to be growing in.
So that's another one. We have e commerce, that's another one, which is extremely important. When YETI is running at 54%, e commerce, Igloo is at 9%. The user started one day ago. And they are showing by now fantastic numbers, but of course from a low base.
Okay. Thirdly, you have also international markets. The U. S. Is obviously the largest market in the world, but that's also where you have the most competitors.
So having Tometic as a base abroad overseas, we have fantastic platform for Igloo to develop as well. So it's not the ones in the bullet, there are a number of different areas. From a manufacturing perspective, Igloo is an American brand. It's an iconic American brand. If you look at these kind of products, Meaning, cooling boxes, jeanware, you will find them obviously all over the continent.
But in reality, it's very much on the South.
Yes.
So to me, to move to Mexico here and now, it doesn't make any sense. We have our customers in the U. S. And we have our customers more even more in Southern U. S.
Then we have that's in terms of the hard coolers. Then you have soft coolers, so called soft coolers and you have Drinkware. And very much of that is imported from Asia And everybody else is important for Asia as well. So I think that we have a very, very good setup for distributing our products. And of course, in this case, and if you when looking at the synergies, we have synergies on the cost side, but that's not the reason for making this acquisition.
The reason for the acquisition is to get access to distribution, to get a fantastic brand to help on one side, domestic and on the other side to offer this eGrow brand a global platform that they are lucky today.
Excellent. If I just may add just to get the feeling for the pandemic impact as well, how would you see Igloo's Sort of €400,000,000 turnover visavispre pandemic 2019 levels just to get the feeling for that development as well.
They have been growing organically during the last 5, 6, 7 years. And if you look at both Igloo and Jeti were showing very nice numbers in 2020 despite pandemic.
So
I was also telling you the kind of exposure These kind of products our markets do have in comparison to the more traditional where domestic has been historically. Yes.
Okay. Thank you very much.
You are so welcome.
Our next question comes from the line of Agnica Villia of Nordea. Please go ahead. Your line is now open.
Thank you, operator. Yes, I have a question on the underlying profitability of Igloo as a stand alone business. Looking at the last 12 months, we can see that the EBITDA margin was 10% despite the growth of 20% more than 20%. So What kind of progression did they make in the recent time? I think, Stefan, you mentioned that they did improve The kind of level and what's the kind of aspiration level that you see for that business?
Yes. There is I mean, one of the drivers of our interest around Ilio is that we have seen that The current management team of Igloo have implemented and are continuously implementing A number of activities that is going to drive profitability in Eglu. They've been able to show that improvement. The challenge that they have been seeing lately is the Pandemic related and related to the raw material price development that has been Very quickly, rapidly increasing, not only by the pandemic. There has been other circumstances as well, which It has more have to do with extreme weather situations that has even more fuel this situation.
So If you look through that, you can absolutely see that they have been improving the margin with a couple of percentage points year by year since they came into place, which was approximately 3 years ago. So This is also reflected in the earnout structure that we have with them, which is not an Extremely long one. It's so that is reflected in that way we are expecting or The sellers and with us as buyers are expecting to see significantly underlying improvements Coming through here when the raw material situation is normalizing. So This is an important part, which has been one of the driving forces for us to have the interest in Igloo, absolutely.
But I just try to understand the gap Nowadays or today between Igloo's profitability and your own profitability, as you mentioned, or even yet is it I mean, are they more dependent on the raw materials? Or is it so that's the kind of premiumness of the brand is somewhat less? Or how should we Standard, the gap.
I think it's probably has a lot to do with the Positioning and with the pricing, we believe that a lot of it is sitting there, and they have Started a very, what should you say, impressive journey in Product segmentation per channel and where they are moving the positioning within each one of the channels And going in the direction of being a better position rather than a good positioned company. So then the raw material situation is more of a caused by the pandemic and some other circumstances. So that is something that we Normalize over time. So I don't know, Graham, if you want to add something to this.
You have a couple of factors.
I mean, you have one side, e commerce has a massive impact on the numbers. That's crystal clear. So that's one of the areas where we will obviously work together with the company in the same way as we are doing internally in Domestic to grow much faster. The other one which is important in this case like for many other companies is We know that you have you don't need the same infrastructures when you are doing coolers than when you are doing Dreamwear. They are much more heavy on the Dreamwear than we are.
So from that perspective, we have also clear targets to increase. So rest assured That would target is to get to the numbers of other and we have. I mean we know how much we are making on cooling boxes. So now we're in
the Yes. Perfect. Thank you. And then my last question is probably again to Stefan. The leverage now is increasing above 2.5 times after this acquisition.
Do you think that it will limit your capacity for future Especially also taking into the consideration the earnouts that might kick in.
No, but I think if you see it in the short term, of course, we have To keep this in mind, but as you know, the smaller acquisitions we are doing is not adding a lot of leverage. But then if we are looking ahead, I mean, we know that we have already before the acquisitions had A rather strong deleveraging profile, and that deleveraging profile has not getting has rather improved somewhat with the acquisitions that we have done during 2021. So I'm expecting the leverage to come down rather quickly over the coming 12 months here. So I think if you look more on the Medium term and beyond. I mean, I don't see that there is any compromise on what we would like to do to
I think if I may comment, Agnieszka, we have been repeating this a number of times. We believe That we will see one of these transformational acquisitions once every 3 years, once every 4 years, for the simple reason that there are no many targets. On the contrary, there are many both. And as Stephane mentioned, of course, both in terms of price tag Or in terms of leverage is a different story. So I guess that the short summary is that Igloo is not stopping our journey.
Right. Same
thing, of
course, we are going to see know the transformation acquisition in 3 months from now.
Great. Thank you.
Thank you.
Our next question comes from the line of Frederic Mulgard of Pareto Securities. Please go ahead. Your line is now open.
Thank you very much, operator. Hello, Stefan and Juan. First off, just a question on the synergies of $150,000,000 On sales that you're seeing, just to be very clear on how that is defined, I mean, should this be interpreted as being on top of the organic growth that you would expect from both domestic and legal as standalone companies. So purely an effect of the combination of the two companies. Is that a correct way to interpret it?
That is the correct way of interpreting it, yes.
All right, perfect. Then secondly, when it comes To B2C sales, you mentioned it was 19% for Igloo. I'm guessing at least that that's higher than it is For most of your other similar businesses in domestic, it's the same time you bought Frontrunner earlier this spring And now we've got another D2C platform with eNelo. What is your strategic plan when it comes to growing direct 2 consumer businesses, are you going to work with different platforms across different geographies? Or are you looking to integrate all of those to One common platform for you to try to grow
We are integrating. We are already there. So we implemented a new platform in the U. S. In January, we implemented a new platform in the Pacific back in June, and we're implementing just now across EMEA.
Then of course, the first thing that we do is not to take Igloo and to take Frontrunner into the new platform since they have just now But of course, as you know, IT moves quickly. So sooner or later, we will need to upgrade platforms, and then we will be based on the Como platform. Then as I mentioned before, it is also important to remember that Igloo is Igloo, Dometic is Dometic from a branding perspective. So you will not go to the Dometic website and buy Igloo. You will go to the Igloo website.
And the other way around is value for NumetiQ. So NumetiQ is implementing clearly a global platform. We are building up a global organization and we are rolling it out already now. Again, small numbers, but growing very, very fast. Frontrunner is a fantastic addition.
They are B2C orientated. They are on 50% already today. BC, that proves again that it is possible. It's not just yeti doing that. We are also doing that with some of our units where we can learn a lot.
And now we have Igloo being a fantastic complement, which is on the way up. They started with e commerce just 18 months ago. So they are in the early phase of this and that's why we believe firmly that we will see growth and we will see margin improvements over time.
All right. Yes, 19% after 18 months. That sounds very promising. Thank you very much.
Thank you.
Our next question comes from the line of Kari Rinter of Handelsbanken. Please go ahead. Your line is now open.
Thank you. Thanks very much. I will start with the just a clarification. Is it 9% or 19%? 9%.
9%. Yes. 9%.
9%. Okay.
Yes.
And then the 1100 employees that they have, how many Of them roughly work in manufacturing.
600, 600,000,000. 600,000,000.
Yes. Okay. 600,000,000,000,000,000,000,000,000,000,000,000,000. All right.
Yes.
And then finally, more strategic, these cross selling synergies given that in active calling you are a high end player, Whereas Igloo is more mid market to low end. So in the physical channel in stores, So where do you see those opportunities that you can add? Let's say, in EMEA, you can add Igloo to the channels where you're Selling domestic. And in the U. S, where do you see the same kind of opportunities in adding domestic Product to retailers that are selling Igloo.
So any names, any specific examples?
Yeah. I mean, you have the sports and goods channel is a great channel. They are there. We are starting as We have been commenting Dometic is today on REI. We are on Deakin the goods, Deakin Sporting Goods, we are.
But of course that we are taking step by step. And customer, when you are new to the market as we are astometyx, They are cautious. They need to prove us and all that kind of stuff. If you look at Igloo, They are already in REI since many, many years. They are in all these channels.
Of course, if you have been working for Walmart as these guys have, you have the credibility. They have ships in Walmart for the last 40 years with Target, but they have relationships with Cabela's, with MBI, with all these companies. Of course, we see those opportunities in the U. S. Then we have the other opportunities where we are talking about overseas.
All They don't have people. We have people. It wouldn't be the same for Igloo, obviously, to establish their own organization in France In Germany, France, and to have an organization on 5, 6 people the first day that you're opening the door than to have one person, which It's Egloo dedicated, hosted by our medical organization. So we see and what is funny is that even if the sales is Minimum, outside the U. S.
We are talking about 8% outside the Americas rather than the U. S. So they still have a brand. And that's very positive. What they are lacking today is the presence.
They are lacking the distribution. Of course, we have distribution in Europe. We have Our main warehouse in Germany, in the middle of Germany, reaching the rest of Europe in hours. So of that will be a fantastic complement of what they are doing.
Okay. And then a quick follow-up on that because I think The U. S. Market is well understood and we have talked about some of the strong names there, but the European market for passive calling, which would be the competitors that they would be I
think that it is today limited competition, but what is really positive here is that now we have American company that has made a fantastic journey and that is establishing in Europe all over the place, which is YETI. You can find today Jetty for street, and you can find Jetty in any of the main capital cities, of course. That is creating a market as And that's what we see with our own passive coolers as well. We were not selling passive coolers in Europe 3, 4 years ago. We are selling passive coolers today.
So all of a sudden, we have 2 players in So all of a sudden, we have 2 players in Nomatic and Jetty developing that market.
And Pricing wise, pricing strategy in Europe because the given that the brand is not that known in a sort of a non Internet world, could probably price it at a premium to the level that they sell in the U. S. That means that all of the stuff is in Amazon, so you can't really deviate from mobile prices. That's the
target. Yes. All right. So the positioning of Igloo from a starting point, Igloo has been historically good and better. Our job is obviously to help Igloo to become better and That's the American market.
If you look at the European market, it's wide open. So then we I believe that we have a different opportunity to become much more better from day 1, Being an American product with a strong brand name, even again, is a brand name is Not known in Europe. It is yet it is not known in Europe until now. So we are working together at the same level, so to say, to develop that brand across Europe. And then the other one is that I truly believe that there is a market for active cooling.
And when looking at the global numbers, it is clear as well Passive coolers is the major market in the world. And even when you take automatic premium active cooler and compare with Ajetti Premium Active Cooler, it is a significant price difference. So we will attract new customer What we are not today.
Another follow-up, if I may. Sorry about this. But would you say that This cross selling synergies, there is actually more potential from Europe than there is in the U. S. In short term.
I think it's both. I think that it is the same for I do believe that Igloo will give Dometic a lot of credibility among the major Retailers in the U. S. And we are talking about obviously sporting goods, we are talking about the outdoor the more outdoor Based retailers in the U. S.
Just The fact that they have been there for so many years is just impressive. I have been working with Walmart before, right? And I know how demanding they are. I have been working with Target before. I know how demanding they are.
You cannot simply miss deliveries. You have to get it 100% right. That gives us credibility. Even if we have 2 different brands, even if we have 2 different teams, There is no American retailer that is not going to know today that Omedic owns Igloo. And we will obviously Shared platforms in terms of logistics and all that kind of stuff.
Thank you very much.
Perhaps this is what's interesting to mention. I see a market as well on the best and good for active That I don't want to get into with the Aeromex brand, but I have an Igloo brand, an Igloo brand. So, no, that's interesting. We have domestic being super premium in the U. S.
Even if we are small, if you look at premium products on coolers, you will find Jetty being the giant And Dometic, the second one. Even if obviously site wise, we are minuscule today in Coolers. But still, we have a very strong Then you have Eagle, which is, as I said, good and better. Giving Jeti technology Coming from NOMENTIC, we will help also Jetty to start looking at their own positioning to become much better. But also, obviously, with that, You follow the prices the pricing.
And you create a new category, which is not in those retailers. So So we believe that we can put together a very, very attractive pro portfolio. All right.
Thank you very much. That's very interesting.
You're welcome.
Our next question comes from the line of William McAuley of Morgan Stanley.
I hope you all stay as well. My first question is on the phasing of the synergies. You said that you expect To achieve them within 5 years. But could we get a little bit more color about the actual time frame of these? How is it going to stay there in the next couple of years?
And kind of an extension of that. If you achieve the synergy target, how much of the earn out would you have to pay?
Yes. If we achieve the full So that you target them, then that would mean that we would pay them the majority. Yes. Clearly so. And then they're phasing in.
I mean, it's going to be you have to follow the already Initiated stand alone improvements that has been driven by the current leadership team and the leadership team that is going to continue to run Igloo. And there we are There both we and the sellers are expecting to see results. As I did indicate that you would have to see a significant Improvement of versus the current LTM EBITDA for it to materialize. They are not to materialize. So there is, of course, going to be, how should I say, A step change related to that.
And then I think the commercial synergies It's obviously going to take a little bit longer time to realize. So they will probably come in more gradually during this The 5 year period.
Okay, perfect. And my second question is, well, On the slide, you mentioned how this acquisition helps you move away from high value, more cyclical discretionary spend towards low value, less Discretionary spend. So I guess my question is why not also divest some of these more cyclical Businesses to really focus on this low discretionary spend market.
You never know how it could look like tomorrow. Of course, of course, that we are revising our pro portfolio and we will continue to revise our pro portfolio. I mean, you can see on the chart that we were showing that things are happening. And we might be in a situation sooner or later where we simply decide to I have always been talking a lot about which kind of products are driving aftermarket and which kind of products Do drive very little aftermarket. Of course, we will evaluate on continuous basis when it is time.
Whether first, if We should. 2nd, when is the right timing for doing this? So you are totally right. We have no intention of growing everywhere. We have no intention of being doing everything for everybody.
We are focusing a lot. We are dissecting businesses. We are organizing ourselves thereafter. And I believe that we are becoming much more segmented as a company. We want to be world class in the things that we are doing.
Very clear. Thank you very much.
You're welcome.
Thank you. We have no further audio questions. I will hand back to the speakers for any final remarks.
Well, Juan Margre is here again. Thank you very much for your attention. This is a very important step for us. This is opening a new era for us. We've had Sista a few years ago where that became a growth platform for us within the marine markets.
And we see Igloo as another growth platform that will help us to penetrate the outdoor market. We are becoming More and more of an outdoor lifestyle company for every day. So thank you very much for your attention and talk to you soon. Goodbye.
Thank you. Goodbye.
Bye.