Welcome to Dometic Q1 Report 2023. Today, I am pleased to present CEO Juan Vargues, CFO Stefan Fristedt, and Head of Investor Relations, Rikard Tunedal. For the first part of the call, all participants will be in listen-only mode. During the questions and answer session, participants are able to ask questions by pressing star five on their telephone keypad. I will hand the conference over to the speakers. Please go ahead.
Good morning to all the participants, and welcome to the presentation of this, first quarter of 2023. Let's proceed to the presentation on the highlights immediately. Looking at the markets, very, very tough market conditions on the U.S. RV markets. We got the latest news yesterday, showing a decrease on number of units for manufacturers, reaching -54%, which makes obviously life a little bit complicated for this industry altogether. The same time, we also see that the inventory levels, at our distributors and dealers are high, even if we perceive that they are starting to come down. The performance side, we also perceive very clear results for the strategic initiatives that we have been taking for the last couple of years.
Looking at the results, growth, and we are talking about organic growth in this case, reached 30% down versus last year, with two segments doing well: Marine, +8%, and Global, +5%, driven by Igloo, but also Hospitality doing very, very well. At the same time, we see the OEM side being down 14%, everything due to the RV OEM Americas. We see still today a strong CPV OEM and a strong RV OEM, both in Europe and in APAC. Last but not least, Service and Aftermarket down 19%, which obviously has a major impact on our margins and on our EBITA levels.
Talking about EBITA, we ended up at 11.6% compared to 14.8% one year ago, with two segments showing deterioration, EMEA and Americas, and three segments showing improvements, namely Marine, Global, and APAC. We're also happy to report a strong operating cash flow. A lot of efforts have been put in place, obviously, to release cash during the last three quarters, and we see a gradual improvement. Also very happy to see that all the KPIs on the sustainability reporting are pointing in the right direction for us. Looking at growth, 3% down of almost SEK 7.3 billion, with 30% organic deterioration. A growth driven by FX of 9%, on M&A, we have nothing left at this point.
EBITA, SEK 847 million, 24% down versus last year, or an EBITA margin 11.6% versus 14.8%. As I mentioned before, an improvement on cash flow of almost SEK 600 million in comparison to the same period last year. EPS, adjusted EPS ended up at SEK 1.44 in comparison to SEK 2.27 one year ago. Leverage ended up at SEK 3.2 versus SEK 2.7 last year and SEK 3.0 at the end of the year. Looking at, again, our sales growth, we see that organic growth has been coming down now for four quarters. This is the fourth quarter, and we have seen a gradual deterioration driven primarily by the U.S. RV markets.
We see as well, just as a reminder, the service and aftermarket has been negative for us since Q2 last year. We are approaching a situation where we will have much easier comps in comparison to last year. Looking at different businesses from an application or a perspective, power and control, which stands for 20% of sales, shows some performance very much driven by the marine steering system range, as well as by Mobile Power Solutions. Food and beverage, which is very much driven by cooling boxes, Igloo and Dometic, but also the CPV business on the cooling compartments and the RV, showing also good stability. At the same time as climate, which is very much depending on the RV industry, have been showing some deterioration due to the American markets.
If we instead look at the different sales channels, we see that OEM has been moving from above 60% of total sales into 44% on the 12 months only number, which is the same level as, at the end of last year. Again, very much driven obviously by two things. On one side, the strong deterioration in North America RV plus also the deterioration that we see on the service and aftermarket during the last 12 months. Worth to mention that the RV OEM sales in North America stands today for 10% of total revenues for the company, which is important obviously, since very often we are perceived very much as a very, very heavy American company and very exposed to the RV OEM industry.
Looking at service aftermarket, I believe as well that is a very, very important slide that I would like to spend a couple of minutes on. You can see on the different lines, the different graphs, the evolution of service aftermarket since 2018, where you see exactly the same pattern, 2018, 2019, and showing growth. We got into 2020, the first half extremely weak due to the pandemic. The market bounced back during the second half dramatically. We saw a continuation the entire 2021.
If we look at 2022, you see that Q1 2022 was even stronger than 2021, which was, of course, the expectation of building up a very, very strong year for the entire industry, and that never happened. You can see as well that Q2, we started to see the deterioration, and we got between 16%-16% in Q2 last year and down to -22% in Q4 last year. We're still negative in this Q1 this year. On the contrary, if you compare with what we consider to be a normal base, which is 2019.
Q2 last year ended up a +4% in comparison to Q2 2019, Q3 +7%, Q4 +10%, and this first quarter of this year, we ended up at +16% in comparison to Q1 2019. Again, it is important to remember that we have this pandemic effect that we were very happy about in 2021, just now it is tough to compare. Again, we are starting to get very, very close to much easier comparables. Looking at our EBITA evolution over time, we see clearly the deterioration in Americas and EMEA at the same time as we see improvements in the other three segments. Two consequences.
Obviously, when you are losing as much as 48% organic in Americas due to the RV industry is very difficult to mitigate. We have been reducing capacity big time, but still very difficult and of course that we are sitting with facilities, we are sitting with inventories, and it is tough. On the situation, EMEA is different. It's obviously very much impacted by the lower service aftermarket. At the same time, as we are moving a factory, as you all know, from Germany to Hungary, which means obviously that we have double counting, double head counting and some efficiency costs that will fade away during the coming months. The expectation is that the factory will be shut down, totally shut down and moved by the end of Q2.
On the contrary, Marine continues to do very, very well, and we will see some more details in a couple of minutes, as well as Igloo is also continuing to show improvements, and we have also a positive effect from FX. Looking back at the details in different segments, Americas, as I mentioned before, organic growth 48% down, and again, totally impacted by the RV and the service aftermarket. On the contrary, the CPV business still doing very, very well for us, and we got a number of contracts through recent years that we are turning to sales during the last months, and that will continue. EBITA, obviously very much impacted by the lower volumes. We're looking at strategy.
We see still today a better evolution of the acquired companies in the last couple of years, namely Valterra and Zamp Solar. At the same time as the move of, the factory in Elkhart is totally completed in a successful way. Looking at EMEA, organic growth 7% down, which is totally driven by the service and aftermarket. On the contrary, OEM is doing very well, especially on the CPV side, so that means Commercial and Passenger Vehicles, while OEM is still positive and we don't see just now at this point any signals of deterioration on that market. EBITA, halved in comparison to the situation one year ago. Again, two major impacts.
On one side, the service and aftermarkets, and then the other one is inefficiency due to the factory move and still some high logistic costs due to the inventory built up at our customers. I already mentioned the closure of the Siegen factory a couple of times, I will not repeat myself. We are looking for further adaptation to the new volume levels in the future to come. APAC, even here negative, driven by service aftermarket and distribution. On the contrary, the OEM side is still going very, very well.
Happy to report obviously that despite the negative growth and the wrong service or sorry, product mix for us within OEM and service aftermarket, we still see EBITA improvements in comparison to one year ago. We have obviously, we have been adapting capacity as well to the lower volumes that we have seen now for a couple of quarters. We are happy to see as well that our acquisitions are doing very, very well in the segment. Marine, very, very nice to see that the growth is still there. Even here we have a negative mix with OEM growing still very, very nicely while service aftermarket is still negative.
As a continuation of the better level out that we saw in Q4, we got exactly the same situation in Q1 from a service and aftermarket perspective, which is leaning us to believe that we will see improvements in the months to come. Even here, despite the negative mix, we see a margin improvement to 26.3% versus 25%. I guess that many of you are wondering how comes that you are still growing at a such a nice level. Well, it's a couple of factors. On one side, we see that even in the boating industry has been down now for a number of months from a retail perspective, we see that we had the entire industry did have a very high backlog level.
At the same time, we see as well that the small boats have been coming down quite a bit while the larger boats are still pretty stable. We see as well that the larger engines, where most of our equipment goes, is still growing very, very nicely. It's a combination of a number of things, very much driven by the technology shift that we have been commenting since the acquisition of the SeaStar a few years ago. We see a continuous movement from mechanical products into hydraulic and electronic products, and we see an acceleration over the last 12 months on top of that. Global, very much driven by Igloo, but we see organic growth both in Igloo and hospitality while we see negative growth on residential.
We see as well, a good margin improvement in comparison to last year. Our expectation is that we will continue to see improvements in the quarters to come. The integration process moving according to plan, in a positive way. We have no further news in regards to the lawsuit from the former owners. From innovation perspective, a couple of products that we have launched recently. On one side, a slim, very slim, new cooling box under Dometic brand, driven by compressor technology, which makes it possible to have it in a standard car, and either in the console or in the seats on the back.
At the same time, we're also launching as a way of penetrating it more the outdoor standalone industry, a new series of tents, inflatable tents with our own technology, which we believe is going to drive growth in the coming years. Moving from innovation to cost reductions, our manufacturing footprint program continues. We booked SEK 19 million in the quarter, bringing the total cost so far to SEK 836 million out of the expected total number of SEK 950 million. We have affected so far 1,800 employees, and the run rate on the savings perspective is SEK 340 million of a total of SEK 600 million, which means that we have another SEK 260 million to go. Last but not least, sustainability.
We're very, very happy to report that the numbers continue to improve. We see injuries coming down dramatically. Just as a comment, we used to be on four, five years ago. We are down to 1.6, and we believe that we can reduce the number even more. On female managers, we also see improvements ending up on the quarter on 26% of managers being female in comparison to 24% one year ago. We continue to invest on energy and converting more and more of our factories into electric energy, driving down the CO2 by 41% in comparison to the starting point in 2018 and ahead of the target that we have for 2024. In terms of audits, we're also seeing clear improvements year-over-year.
We are just now at 94% compared to a target of 90%. We are fully convinced that we are going to reach the 100%. With that said, Stefan, I'm handing over to you.
Thank you very much. Let's start with our EBITDA development in Q1. The organic and FX part, which is obviously the majority nowadays, is very much impacted by the lower sales and also the negative mix where we have - 90% organic sales decline in the service and aftermarket. In terms of S&A and R&D expenses, if we look in constant currency and also pro forma with the acquisitions, the S&A expenses, they are flat compared to last year.
However, we are continuing to invest both on S&A on R&D expenses in strategic structural growth areas such as Mobile Power Solutions and Mobile Cooling. We also have the logistic expenses, the extraordinary logistic expenses that and the manufacturing efficiencies within EMEA that is impacting negatively. Ongoing cost reduction measures, they are contributing positively. We have a positive impact from FX in in the quarter. The acquisitions still falling in the acquisition column. It's related to Cadac, NDS, and TriLine, and they were consolidated during Q1 last year. Moving over to cash flow. We have a significant improvement in our operating cash flow compared to the same quarter last year. It's almost SEK 700 million. That is very satisfying, I must say.
It's driven by reduced inventories. Then accounts receivables are seasonally driven up. And then we also, when we're going below the operating cash line, we have the income tax paid sticking out a bit, which is related to payments from last year's. Here you can see the operating cash flow in a longer time series. I went back even further than this, and I can just say that this is the best Q1 from an operating cash flow point of view ever in Dometic's history. Again, very satisfying. I think also when we look on the cash flow generator since Q2 last year, we are on a very good track.
Looking on the different components in the working capital. The working capital totally is 34% of net sales, obviously, significantly above our ambition level. As we have said, we are expecting that to come down, maybe not to the level where we believe it's going to be decent, but we're going to take a meaningful step in that direction. In terms of inventory, we see a decline from Q2, driven by operational improvement, and we are expecting this development to continue here. Looking on our spend on CapEx and R&D, CapEx is almost SEK 100 million in the first quarter, 1.4% in relation to net sales, which is in line with what we have seen historically.
In terms of R&D, we are spending more, 2.1% of net sales, SEK 155 million. That is really driven by what I mentioned before. We have some in strategic important areas like Mobile Power Solutions and Mobile Cooling, where we are investing more in on R&D. Looking on our net debt to EBITA leverage, it came up to 3.2% in the quarter. As you can see on the little bridge below the chart, it's basically the EBITA reduction that is driving this. We have some positive effects from cash flow and FX. Ended at 3.17% using two digits behind the comma.
As we communicated already, in connection with the last quarter report, I mean Q1 is our weakest quarter in terms of cash flow. It was not the quarter where we did expect any other development than what we are seeing, according to expectation. With that said, we are absolutely committed on achieving our target of around 2.5%. As we also have been communicating before, we are going to take a meaningful step towards that target during 2023. The items which is going to drive that is obviously the EBITA development. We are going to see continued inventory reduction. We obviously have the dividend that we are going to pay now in Q2.
We have some restructuring payouts still to be done and along with earn-out related payments from the acquisitions done in 2021 and 2022. Obviously we have the CapEx component to consider as well. As you could see from our press release on March 31st, we have been renegotiating the first part of our bank agreement, the part that is maturing or were maturing in 2024. With this new arrangement, we have increased our average maturity to 2.8 years.
If we are including the extension options with 1 + 1 year, we are on 3.0 years average maturity. We have also done a new agreement with Svensk Exportkredit for a loan of $44 million maturing in 2026. The bank facility has been increased with $10 million, so totally $54 million in increased funding during or in relation to these two agreements. We moved the maturity from 2024- 2026, and then we have + 1, + 1 on top of that. The revolving credit facility is also part of what we have been refinancing here now, and it's still on EUR 200 million. I was talking about the extension options here.
We obviously have the Eurobond maturing in September 2023. As I have said before, we want to keep our options open here and our own cash and cash flow is going to play a role. It's still the question to what extent. We had almost SEK 4.4 billion in cash and cash equivalents ending Q1 2023. That is not including the additional SEK 54 million of financing. They are going to come in now during Q2. With that, Juan, I hand back to you to summarize.
Thank you, Stefan. Summarizing, I mean, it is clear that the market is just now has been tough for a number of months in a situation where on one side, the U.S. RV industry is in a kind of free fall at the same time as this industry as many other industries is still suffering from the inventory built up around the world. In many industries, I believe that we are performing well. I believe that we are performing a good double-digit EBITA, showing that the strategy that we communicated already four years ago is paying off and creating a more resilient company. We have two segments showing growth, organic growth, and we have three segments out of five showing profitability improvements that are obviously supporting our results. Moving forward, difficult to know.
Just now it's very much about observing what is going on every single day and obviously reacting on those changes. We're expecting a gradual improvement on the service and aftermarket in the coming quarters. Difficult to know what is going to happen next month or the month after, but we will see improvements. We expect as well stability in terms of distribution, where we see obviously that hospitality, Igloo are doing very, very well. We also expect improvements in the second half somewhere in terms of residential. Then it's very much what is going to happen on the OEM side, where we see, as we mentioned before, CPV doing very well globally. We see OEM in EMEA and APAC doing well, and then we see when is the RV AM Sorry, OEM market in the U.S. going to start stabilizing.
Our expectation is obviously that that's going to happen during the second half. At the same time, we have Marine. We don't see any changes in our numbers from the Marine side. Even there, we're expecting improvements from a service and aftermarket perspective. At the same time as we are obviously realistic and can see that if inflation doesn't come down, if interest rates don't come down, there is obviously a risk that we will see a deterioration on the Marine OEM down the road. Cash flow. We will continue to put a lot of attention to our cash flow. We as Stefan already mentioned before, we are totally committed to reach our 2.5% leverage level.
Obviously on the two different segments that today are kind of struggling, EMEA and America, we will continue to stay close, and we will continue to adapt our costs so we can see improvements even there during the second half. Some of them will come by for natural reasons, meaning that we are very close to end up the shutdown of Siegen. We have the logistic cost and obviously as a service and aftermarket is coming back, the number of local warehouses is going to be reduced and our results are going to improve. Not to forget the major impact that we have from a service and aftermarket margin perspective. So two different spots. On the short term, be close and adapt.
On the long term, we are very optimistic about the long-term trends for mobile living, we will continue to implement our strategy as usual. With that said, I would like to start with the Q&A session.
If you wish to ask a question, please dial star five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial star five again on your telephone keypad. The next question comes from Fredrik Ivarsson from ABG Sundal Collier. Please go ahead.
Thank you, operator. Good morning, gentlemen. I've got two quick questions. First one on the service aftermarket within the Marine division in particular. I think you saw this part of the business sort of starting to decline before both RV and CPV as well. I suppose that means that it should recover before as well. Can you say anything about what you currently see within that part of the business?
We have seen a clear improvement that started in Q4. We saw more or less the same numbers or the same negative numbers that we saw in Q4, which are much better than the numbers that we saw during the previous, I would say, four to five quarters. We see a clear trend upwards, even if it's still negative.
Perfect. Thank you. Second question on the margin in Igloo. It looks like it has expanded around, but at least I'd say two percentage points. Can you explain what's driving that and also whether that might be a decent proxy for the full year, i.e., two percentage points margin expansion versus last year?
I think, I mean, as you know, we don't guide, but we have been communicating from day one that we knew that there were a number of opportunities to increase Igloo margins. One is obviously pricing to be more focused on price management. Secondly is product mix. It is clear that we have different products within the range, and some products are higher margins than others. It's very much about being a little bit more selective on the low margin products at the same time as we're a little bit more attention on the high margin. Third, but not least, cost. We see clearly that business is also very dependent on two things. First of all, internal efficiencies, and we can improve even more. Secondly, it's also the raw materials.
I mean, we 2021 and part of 2022 were tough due to the resin prices. Resin prices have been coming down at the same time as we have been working pretty well on our pricing, and that has a positive effect altogether. Of course, our intention is not to release from now on, but to be very, very close. Far, so good, according to our expectations.
Yeah. That's very clear, Juan. One quick follow-up on that one. Can you remind us on where you are in terms of Cushing and introducing more active coolers in the U.S.?
We will introduce the first coolers on the Igloo brand in Q4 this year. That's the expectation. Obviously, we have been working with that project now for one year. At the same time, I can also comment from that perspective, from a Mobile Cooling perspective, that we are developing the organization, the Igloo organization in Europe. We have transferred a number of resources from the Dometic organization that used to be working on Dometic second brand, Mobicool, into Igloo. We are forming Igloo Europe as we speak. All the resources have already been moved and all the first preliminary.
Perfect. Thank you.
You are welcome.
The next question comes from Gustav Sandström from SEB. Please go ahead.
Thanks for taking my question. I have a few, if I may. Firstly, if we can be a little bit more granular or, so on the cost reductions that we see this year, related to the Siegen closure and the run rate cost program, where are we in terms of the year-over-year impact as you see it now in H2 from cost savings, both, I guess, from Siegen, but also a rough indication where you think if there will be cost reductions from lower inventory base and containers and so forth?
With the raw material prices and the freight costs, it is clear that we see that coming down in comparison to the situation we had one year ago. Having said that, it is also clear that we are sitting on inventories ourselves. Even if those lower costs are coming in, you know, balance sheet, they are not shown yet on our P&L. Expectations are we are going to start seeing that during the second half clearly. On the restructuring, do you have the? It's I would say we're talking about around SEK 100 million year on year.
Mm-hmm.
If you see how it has been building up since Q1 last year. We have, as I mentioned, [inaudible] during the . That's basically related obviously to the closure of [inaudible] . We are going to finalize the closure end of Q2, and then we also have the full year effects of the contingency program that we launched in Q2 last year.
You broke up a little bit. Could you reiterate what was the year-over-year EBITDA impact from those savings, the structural savings H2 year-over-year? Was it SEK 100 million?
SEK 100 million.
Yeah. Okay. Perfect. Then, you keep referencing in the report that you're a bit cautious on OEM. Just so that I understand, I guess everyone assumes that American RV OEM will at some point trough maybe start to grow again H2, and then you have the Marine business that seems to be running quite well and your CPV that is running very well with longer contract.
Mm-hmm.
What OEM are you referencing, and do you have any hard data on this? Cause I also note that European or RV OEM markets are seemingly quite strong still.
Yeah.
Is this more of a hunch or do you see any data on this?
Yeah, I think it's I'm trying to understand it. I mean, if inflationary costing and interest rates OEM manufacturer, they have a backlog, working on the backlog, but you could not deliver. The question is again, is that backlog going to be there forever or will it go away if the situation. The good news is, as you just said, that we are expecting that if that happens in EMEA, if that happens in America, that will be to a very high extent compensated obviously by Asian and the growth on the American market then, that the service and aftermarket will be coming back. To me, it's very much a question of timing. The difficulty is that Marine can be just forever pace that it is going, and that EMEA cannot be feeling backlog forever.
No.
We try to be as realistic [inaudible] .
Mm.
We're also looking at what is going around, in the surrounding industries.
Yeah.
It's difficult. Very difficult to...
Yeah. I think, I can't really hear you, but let's take that offline maybe and I'll pass it on. Maybe it's. I don't know if it's my line.
I think it's your line. It's your line.
Yeah.
Okay. Thank you, Gustav.
The next question comes from Douglas Lindahl from DNB Markets. Please go ahead.
Hello, gentlemen. Thanks for taking my questions. I wanted to start off with the Marine business. Juan.
Yep.
You mentioned that you see the Marine for larger engines doing well. First I wanted to see what you believe is the reason for that. With regards to the backlogs within the Marine business, how long do you think this can span? I didn't hear your answer if you answered it in the previous question.
I mean, if we start with the backlog, which is obviously a very important other point. We have exactly the same backlog that we had one year ago. That's good news. We see altogether that our total backlog for the company is lower than the backlog that we had one year ago. At the same time as we see the order intake coming up now during the last weeks. There you have two data points. It's clear that we are coming from a situation where the market has been shrinking for a while. North America, but also the other economies have been kind of cooling down. At the same time we see that the order intake is on the way up. That's positive.
On Marine specifically, it is crystal clear that what we see is a difference between larger boats and the smaller boats. On the smaller boats, we have seen both in retail but also manufacturing that the smaller boats have been shrinking now for a number of months, while we see still very good traction on the larger boats. The more, again, over 200 horsepowers, they are still growing high two digits.
Mm.
That's obviously, the group that.
Absolutely.
Behind the smaller boats, they are not as financially resilient as the one buying the larger boats.
Correct. An important piece of information of course that on the smaller boats you have mechanical steering. On the larger boats, you have hydraulic and electronic steering. You have a major price point difference as well. That's another thing which is driving our growth in comparison to what the industry is performing altogether.
Mm. Yeah. Okay. Interesting. Thanks for that. On switching topics a bit, on the earn outs, excluding Igloo. I note that your other current liabilities is down somewhat sequentially. What's the reason for that, would you say, Stefan?
The reason for that is that, we are continuously, updating, what we are, you know, expecting that we will have to pay. We have done that. The payment as such, excluding Igloo is, you know, going to come, you know, around a whole SEK 500 million during Q2.
Excluding Igloo, earn outs will be SEK 500 million in Q2?
Yeah.
Okay.
You know our point of view on Igloo, right?
Yeah, yeah. Yeah. A final question, if I may. On APAC, super strong profitability, as you already highlighted there with organic growth declining, how should we think about this business in sort of a negative growth environment? Is this sustainable margin levels, would you say, or are they exceptionally strong here?
We have always been pretty strong in APAC, that's a consequence of the mix. It is important for you guys to understand the main difference that we have with OEM business and service aftermarket business. That's valid even in APAC, not to the same extent as in the rest of the regions, but that's also valid. Then we have a good mix where OEM is less than 45% in comparison to service aftermarket and distribution.
Mm.
I cannot guarantee you that we are going to be on 25.6% forever. Since I joined the company, we have never been below 20%.
Yeah.
Of course, it is not my intention to reduce it. We know that we are perfect. We still see opportunities, of course that is it's very much due to the mix. The good news in this case is that we have a negative mix, still we perform better. At the same time, I hope that you note as well that we are pretty good at reducing cost, adapting our capacity needs into new situations. You have another factor which is of important, and it is the acquisition that we made and the MPS acquisition that we made two years ago that has a nice accretive impact on the APAC numbers as well. MPS altogether is bringing very nice margins.
I mean, I would tell you all the acquisitions that we did during 2021, 2022 with exception of Igloo, and that's why we are paying a lot of attention to Igloo as well.
Mm.
to elevate those margins.
Okay. Thank you very much.
You're welcome.
Thank you.
Please state your name and company. Please go ahead.
Yes. Good morning, Stefan and Juan. Hope you can hear me.
Yep.
Couple of questions. Hi. Couple of questions from me and, maybe starting with the outlook, somebody said that it looks bleak, and of course it does, but you actually detect slight improvement of the outlook compared to what you wrote in the Q4 commentary, when it comes to what you say in terms of OEM, where you actually added that you expect to see stabilization in demand by the end of the year when it comes to the RV business in Americas. What sort of how do you model that and what do you hear from your customers? It's, I can also sort of come up with a situation where you're actually back to growth by the end of Q3, and what do you find realistic?
I think, Daniel, that you have to differentiate what customers tell us and what we think. I mean, history tells so far, for the five years that I have been in the company, history tells that our customers tend to be a little bit too optimistic, and that we tend to be a little bit more realistic, you would say. Of course that I am a little bit more optimistic today for two different reasons. One, the traction that we had on the Marine business, on the RV OEM in both EMEA and APAC is still there. That means that we see, so to say, a postponement of the negative trend, which is positive. Secondly, we see order intake flattening out and starting to improve as well, which is positive.
At the same time, you cannot deny the fact that everything is going to have to do with inflation and interest rates if you're going to buy a new boat, no matter you are in Australia or you are in the U.S. It's a question of time. I think, I mean, I'm not, I'm more optimistic today. I would say that I am perhaps less pessimistic today than I was six months ago when we saw that the American market was coming down at the same time as we could find a logic on the other OEMs were going to come down as well. You also need to model in your files that the American market is always a V-shape. It drops dramatically, very fast, and it starts growing dramatically on the way up again.
Europe and APAC are much softer movements. I think to me, it's very much a question of timing. It's really when will EMEA OEM and Marine OEM have some negative impact, and when are we going to see the U.S. RV Americas flattening out and starting to go up. Everything is about...
It looks like they could trade places, sort of starting to look like the U.S. market could be troughing out towards the end of Q3, maybe.
Mm.
Maybe then you will see some weakness in the European market, for instance.
Yeah.
Are you seeing any changes when it comes to sort of consumer credit availability in the U.S. market on the RV side?
No, not more than people are a little bit more cautious for natural reasons.
Oh, okay. Okay, good. Just a nitty-gritty question for Stefan, maybe. Given what we know, as you mentioned, when it comes to the earn-out payments being around SEK 500 million for Q2, and you have the dividend as well, and what you say in terms of cash flow in H1 versus H2, and you also had restructuring payments, I think you mentioned as well in Q2. Maybe a good big release on inventories. Is it reasonable to see free cash flow being positive in Q2?
Let me say, I would hope so. Of course, I mean, there is a lot of dynamic, driven by the demand of course, which is going to be crucial. I mean, we are taking all measures internally to, you know, to continue to drive down our inventory, which is obviously going to be crucial here. It's going to be a little bit up to the demand development here and the service in aftermarket. We, as we say, we are expecting a gradual improvement here. Also on that side, as Juan is mentioning, it's a lot about timing here. When will that happen? It's-
Yeah.
You know, it comes down very much to the demand, I would say.
As you model it, given what you expect in terms of cash release from inventories, it's not impossible although you do have the dividend and the earn-out, and you also mentioned something about restructuring payments.
Yeah. You are guiding yourself.
Yeah. Okay.
No, but it is timing. I mean, whether it's going to happen on the 27th of June or on the 10th of August is impossible.
Yeah, yeah.
What we know is that Q1 is a tough quarter for us. Historically, it has always been a tough quarter for us. We have Q4 and Q1, and I do believe that at least the takeaway is we have a good performance. We are delivering 11.6% in EBITA. We are delivering a strong cash flow in our second weakest quarter every year.
Mm.
We have service and aftermarket down 19%. We have an organic growth in Americas - 48%. We're still delivering good cash flow, good EBITA margin.
Mm. Yeah.
The best is yet to come.
Absolutely.
I guess that's the best I can say.
Okay. But good. Then a final maybe nitty-gritty as well on the inventory and that expected to continue to come down and that sort of in relation to what you guys mentioned in terms of freight cost and raw materials. If we see inventories coming down as you expect during Q2, will it still, will we still have to wait until Q3 to see a positive effect from freight and raw material in the P&L?
The more material for that, you need to think H2. Yeah.
Yeah. Okay. Okay, thank you. That's all for me.
Welcome. Thank you.
The next question comes from Agnieszka Vilela from Nordea. Please go ahead.
Hi, guys.
Hi.
My first question is on your comment, Juan, on the improving order intake in the recent weeks. Could you just elaborate on that? Is there any specific segment that is driving this improvement?
I would say that we see practically everywhere with the exception of Americas. If you look at the three different sales channels, we see improvements in the different sales channels. We're looking at segments. We see in reality Global doing well. We see Americas showing very well. We have Americas being still negative, clearly. APAC is quite flattish. Yeah, that's it. Marine doing same level sales last year.
Perfect. Thank you. Juan, if you could comment on the pricing environment right now, if you look at yourself and your industry. Is there any risk that you will need to cut prices if the demand slows down a bit more in the Marine business or in EMEA? Or do you want to kind of try to stick to your pricing?
We will stick to our prices. To me, you know, this is very much up to each company to decide. From my perspective, to be aggressive on prices in a situation where your products are not seasonal and where demand is not there, that would just prolong the pain. Why would you do that? Our intention is the other way around. In a situation where the market is falling as it has been falling, I don't believe in buying market share, especially if the market shares are on the low, the most low margin business that we have. I would say the other way around. Our intention is to be more selective moving forward as the OEM market is moving upwards. Again, we have a different mix today than we had a few years ago.
Yep.
We have a financial target that we will hit. In order to do that, we cannot just keep doing things in the way we always did. We need to be more selective on pricing. We need to think a little bit less on market share and think a little bit more in how do we grow the company in a more profitable way than we have historically done.
Perfect. Thank you. Then just last question on the your commitment to 2.5x standard EBITDA. Do you have any kind of time target for reaching that?
It's what we have said that we are going to move towards that target during 2023. You know, are we going to reach that exactly? Probably not. It's but a meaningful movement towards the target in 2023.
Okay. Maybe just a short follow-up on this one. You still have SEK 9 billion in inventories. Can you share with us how much of that inventories do you plan to release through the end of 2023? Thanks.
I mean, there is going to be also a, you know, a material release for the remainder of this year. I mean, it's obviously also a balancing act here depending on timing when, you know, the service and aftermarket is going to, you know, start or start to recover as we're seeing. That is obviously one factor. On the incoming side of the inventory, we are taking significant measures. We have containers down 58%. We have, you know, number of FTEs down 14%, very much related to our manufacturing capacity. It's.
As always, it's going to be a balancing act also when does, you know, the service and aftermarket going to show recovery here. It's like a day-to-day game here, I would say.
I mean, the good news that we know is obviously that we have Q2 and Q3 are the strongest quarter for us. At the same time, as Stefan commented, we have the KPIs in place to measure every single day, every single week, the number of containers that we are coming from that are coming from China.
Mm-hmm. Yeah.
We know exactly the number of FTEs that we have in the factories. Obviously, when the inflow of new material is coming down as dramatically as it is doing...
Mm-hmm
... at the same time as what we are producing is so much less than we are, we are, we need. At the same time as the going up simply because of seasonal reasons.
Mm-hmm.
The effect should be there. Is in our opinion-
Yeah
it's pure mathematics.
Absolutely. Yeah.
Okay. Perfect. Understand. Thank you.
You're also welcome.
The next question comes from Johan Eliason from Kepler Cheuvreux. Please go ahead.
Yeah. Hi, Juan, Stefan, and Rikard. Thank you for taking my questions. I was just wondering a little bit pricing versus volume. Organically, you dropped, some 13%. How much of that was positive pricing? Where are we in terms of volume development?
Yeah. I would say that pricing is somewhere, depending on the product, it's very difficult to give you a number for the entire group since we have so many, so many products and so many verticals. I would say an average pricing is some 10%-12%. Keep in mind that we have been increasing prices now for two years.
Yeah.
And we keep-
And, and if-
We have recent price increases again.
Mm-hmm. Okay. If you look into Global, and I guess Igloo, you had positive 5% organic. Are we talking about the same 10%-12% price hikes there?
Yes. If you look at the American market and we are following obviously the numbers from one of the American associations looking at that. If you look at the last, I would say two quarters, the volume on the American market from a cooler perspective has been down, while our revenue has been quite a bit up. It is not dramatically down, but it is down.
Yeah. Excellent. Then I wonder just... I mean, this is a bit of a guessing game obviously, but you were talking about these double costs in EMEA because of the plants you're running.
Yeah
can you quantify it, to any degree now in Q1, Q2?
Well, I can tell you that we still have in Germany about 200.
240 people.
240 people. 240 people. Of course that we need to hire, and we need to train 240 people. When you calculate the average cost for a person, then you realize that this is quite a bit.
Mm-hmm.
That's for sure. I would guess we are having the number on top of my mind, that there's most probably 1% on the EBITA on EMEA.
Yeah. Good. Then, one thing I was thinking about, just having acquired an electric vehicle of my own. In the CPV segment, I mean, your air conditioners and fridges and what you have always been focusing quite a lot on energy efficiency because they are used when the engines are not running in the mobile homes or boats, et cetera. Would this be an opportunity for you? Because in an electrical car, I mean, this energy efficiency is as important as it is for a still standing RV, obviously, to keep the air con going. Or Is that sort of an opportunity that is not really open to you because there are two big competitors in that space?
I think you have different factors. If you look at our CPV OEM business, you have one business which is cooling compartments, and that business is showing a fantastic underlying growth. It has been showing a fantastic underlying growth now for years. We are getting awards, that market is a growth market, clear. You have the truck business. The truck business has also been doing pretty well in the last 24 months, and we are selling air conditioning, and we are selling also refrigeration. The kind of mini bars for the truck industry. That business has been doing also very, very well. The new one, which is also very interesting, is as you know, we have made six acquisitions on Mobile Power Solutions companies.
Of course, both cars. Nonetheless, fleets need to electrify to reduce consumption. That's a fantastic opportunity that we have in front of us. Some of the businesses that we acquired are already doing that. We have more opportunities to expand it to the other businesses.
Okay. Looks promising for the future then someday. Excellent. That were all my questions. Thank you very much.
You're welcome. Thank you.
Okay. Thank you very much. That was the final question, so I'm just handing over to Juan for some final remarks, please.
Thank you, Rikard. Well, ladies and gentlemen, thank you very much for your attention. Again, I think that in the market is not a lot that we can do about, but we are doing our very best to perform in a very positive way and to make sure that our company keeps developing according to our strategy. Thank you very much to all of you and have a great day.