Ladies and gentlemen, welcome to the Dometic Q3 Report 2020. Today, I'm pleased to present Juan Vargues, President and CEO, and Stefan Fristedt, CFO. For the first part of this call, all participants will be in a listen-only mode, and afterwards, there'll be a question- and- answer session. Speakers, please begin.
Thank you very much. Good morning, and welcome to the presentation of the interim report for the third quarter. In Stockholm, I have Stefan Fristedt, our CFO, and Rikard Tunedal, our Head of Investor Relations. I would suggest that we start immediately with the presentation without any delay, and as usual, we will have time for a Q&A session. Starting with the highlights for the third quarter. After a very tough second quarter, we saw a very fast recovery in Q3 as a consequence, obviously, of the shutdowns during Q2, but also the fact that the retail inventory levels have been very low. Of course, the staycation has accelerated the underlying trend that we have seen for outdoor activities.
From a negative perspective, after a strong July month in Australia, we saw a new lockdown coming in in August and September, having a negative effect on our numbers. We are happy to see a very high backlog, strong order intake during the last few months. We reach, for the first time since seven consecutive negative quarters, an organic growth of 3%, driven by after-market. Our EBIT margin showed as well a strong improvement up to 15.5% versus 13.5% last year. Of course, that after really pulling the brake heavily in Q2 as a consequence of COVID and seeing a very fast recovery of the customer demand at the beginning of Q3, that creates a lot of strain in the supply chain. Our own supply chain, our suppliers, and it takes a while before we are reaching again normal capacity. Innovation index is something that continues to improve.
We ended up the quarter over 21% versus 16% one year ago. On top of that, we continue to work on our cost reduction activities, where we can mention that the restructuring program that we initiated in Q3 last year, in this quarter, we added another four locations. In terms of complexity reduction, we continue our program. We are down now to 44%, meaning that we have more than achieved the target that we had for 2020. If we move over to the financial summary. Net sales ended up at a negative 3%, and we're looking at organic growth is up 3% with a negative effect on currencies of 6%. EBIT ending up at SEK 690 million or 11% more than one year ago, leading to an EBIT margin of 15.5% or 200 basis points better than one year ago.
From a positive perspective, we have a positive, beneficial mix OEM aftermarket in the quarter. For the first time, aftermarket reached a 50/50% versus OEM, and that has obviously a positive impact on the margins. We also continue to work on our cost-saving activities. As you all know, we have been working with that now for a couple of years and see the results of that all hard work that we have been doing. As you remember, we had 25% tariffs starting in July one year ago. That means as well that Q3 started to match the Q3 on the 25% at the same time. We have easier comps on one side at the same time as our factories in Mexico and the production that we move from China to Mexico is starting to have a positive effect on the tariffs.
EBITDA, as a consequence, ended up 6% up versus last year. Our operating cash flow was very strong. Even if we are showing 20% down versus last year, the fact is that last year, we released a lot of inventories that we had previously, and now we are building up inventories to catch up with the capacity need. EPS ended up at SEK 95 or 24% down versus last year. Stefan will comment later a little bit more in detail, but it's very much the effect of finance net and taxes. If we move over to the year-to-date numbers, I will not go in detail. The bottom line is really that organically, we are down 17% with no effects from FX or M&A.
EBIT margin, we are just now reaching 12.3% year to date versus 14.7% last year, of course, very much as a consequence of the COVID effect, but also that we had the negative tariff impact during the first half, moving from 10% to 25%. Then again, we have seen during the year a positive mix effect from more after market in comparison to the OEM. Then we have, as I said, still today, the negative effect from the tariffs. Well, we are working very hard to reduce it even more. It will take a while. If we look at the EPS year to date, SEK 2.07. Very much, again, depending on the finance net and the taxes. If we move over to the application areas, of course it looks very negative, affected primarily by the COVID effect.
When looking at Q3, we could say that food and beverage is up 7%. The power and control is two digits or 17% up, and even other applications are up 18%, while climate is one of the areas where we are suffering in supply chain constraints and is down 10%. Looking at total sales growth, as you can see, after seven consecutive negative quarters, we are back to the positive with Americas growing 5% organically, EMEA 4% organically, and Asia Pacific, as a consequence, again, of the lockdown in Australia, 15% down in the quarter. We have seen a very positive development on the aftermarket, ending up at 13% up organically during the quarter. On EBIT, we are very pleased, obviously, to show what I would consider to be a strong profit improvement in the quarter of 200 basis points.
Again, I will not repeat myself, as a consequence of cost reductions, the sales mix, aftermarket OEM, and then the impact on the U.S. tariffs. We have to remember that we have quite of a negative effect from FX, but also a negative effect from COVID-19 on one side on the top line, but on the other side as well on the bottom line. Moving over to the different regions, Americas ended up at 5% organic growth. We have a very strong order intake, and we have a record high backlog. Aftermarket developing nicely, especially in the marine area. We started during the quarter deliveries to the automotive OEM contracts that we commented already in connection to the Capital Markets Day in May 2019. This will keep growing during the quarters to come. EBIT up 30%, ending up at SEK 383 million.
Even there, a pretty hefty margin improvement of 400 basis points as a consequence of the same that I have been commenting before, the mix, aftermarket OEM, efficiency improvements, and then the lower U.S. tariffs. Just commenting on the tariffs, we had a cost of SEK 55 million in the quarter versus SEK 81 million in the same quarter 2019. If we move over to the EMEA region, up 4% organic. A couple of comments here. I commented already a couple of months ago that we were starting to look at the European operations on how to reduce complexity. We have communicated internally a new organizational structure. What we are doing really is that we are moving from many small markets into five regions, meaning that we are going to see higher efficiency coming from the five new hubs.
At the same time, that will give us the opportunity to invest even more in our new growth areas. Aftermarket, even in EMEA, was double digit. What we saw in EMEA, on the contrary to the U.S., is that the OEMs in the marine area are still in negative territory. On the EBIT side, up 6% and ending up at SEK 253 million, despite a pretty hefty negative effect in comparison to the situation we had one year ago, where we had a positive FX effect last year and a negative effect this year. Of course, even here, we have been working on efficiency improvements, and we see that kicking in month after month. Moving over to APAC, negative growth in our application areas. A very clear difference between July and the rest of the quarter.
We saw really a strong recovery both in Asia and Pacific in July, while the new lockdown took place in the middle of August in Australia, obviously, where we have most of our revenues in the region. The good news is that the pandemic is evolving now better in Australia, the markets are expected to open up in the coming weeks. In Asia, on the contrary, we had organic growth during the entire quarter. EBIT ending up at 36% down versus last year or SEK 53 million, with a margin deterioration of about 450 basis points. Even here, very much driven by the high margins that we have in Australia that slowed down at the same time as we also have a pretty hefty negative currency effect. On the restructuring program, another four locations were affected in the quarter, so we are just now at 21.
At the time of communicating the program, we were talking about around 20, and we might see a couple more of them. In terms of employees, we are just now 740 in total or around 20 more during the quarter. Cost was impacted with SEK 40 million a quarter, ending up SEK 240 million in comparison to the SEK 750 million that we provisioned for in Q3 last year. There we go. Okay. Sorry for that. Technical problems, obviously. Coming to strategy, I will stay short. We continue to work on our strategy. We see progress in all the different three areas. I'm very much moving exactly according to the strategy that we launched in connection to the Capital Markets Day one year ago. Let's move on, so we have time for the Q&A.
Coming back to our outdoor lifestyle trend that has been a trend there for the last 10 years. Already one year ago, we introduced to the market our VBA concept, or vehicle-based concept. We are developing solutions and packages for daily activities, staycation, and vacation. The outdoor lifestyle trend that we have been commenting before has been really been very clear when looking our Dometic.com, our website. We have yet to date, after nine months, over 70% more visitors than we had one year ago. What's really interesting to see is how the demographics is changing. One year ago, the largest visitor group was people between 45 and 55 years old, while in the last months, we see a change towards people between 25 and 34, and between 34 and 44. It is clear that the market, the industry is attracting younger customer groups, new entrants.
If we look at this, our VBA, vehicle-based activities, what do we mean with that? Historically, we have been working very close to the RV industry. Once we achieved a pretty strong position, we started to develop the marine business through a number of acquisitions. We also took a very strong foothold on that market. We have seen a trend towards small vance, and that's a trend going on all over the world. At the same time, as we believe that it's important for Dometic not just to be on what I would call for high-ticket products or solutions, but also to develop more toward lower-ticket products and solutions. What we are doing just now is developing packages for people to use together when owning a normal passenger car.
The reason for that is obviously that we believe that there is a market for those kind of products and solutions. We would like really to use anybody having an SUV, a station wagon, to use the car as a normal car during the week, but as a mini RV during the weekend. The reason is obvious. If we compare the RV market being about 800,000 to 900,000 units per year, and the SUV market is about 29 million vehicles per year, an install base, which is just massive, and we see lots of opportunities to start introducing our products and our solutions into that market stepwise. With all that said, I would like to hand it over to Stefan. Stefan, please.
Thank you, Juan. Starting off, commenting on the COVID-19 impact, as expected, we saw a significantly lower impact of COVID in the third quarter. The estimated impact on the P&L is SEK 130 million on net sales and SEK 30 million on EBIT, which is the net of a whole handful of different effects. Looking on government grants, they are almost half of what they were in Q2, this is governmental support that we have been receiving and recording in our own income statement. We have other support measures, which is mainly made up of the short-time work compensation that our employees have received from various governments around the world. As you can see, that has been almost nothing during the third quarter. Moving on to cash flow.
Cash flow is returning back to healthy levels and close to levels that we have seen in the past, and that's, of course, driven by improved earnings. Working capital has also given a positive contribution, but not so strong as we saw in Q3 2019. Still, we see a cash conversion of 118% in the quarter. Moving on to some of the details in the working capital. As you can see DPO, is moving up from 45 days in the third quarter last year to 55 days, and that is the effect of that we are continuously focusing and working on extending our payment terms in different ways around the world. DSOs is up from 42 days to 50, and the underlying reason for that is a couple.
First of all, we have had a mix towards aftermarket in the quarter, and aftermarket versus OEM means longer payment terms. We see a general delay in payments due to the whole COVID situation. However, it's worthwhile commenting that we have no indications of any material bad debt at this point in time. Looking on DIO, they are slightly higher than what it was at the same period last year. We are seeing a shift that we have lower finished goods, but higher components and work in progress. Of course, this is impacted by the supply situation that Juan has been commenting upon. Moving on to CapEx and product development. We are starting to invest a little bit more. The trend is continuing that we are investing less in machinery and equipment, and more in product development, IT, and other similar areas.
We have also, during the year, been holding back, but are now starting to open up for increasing our investments again. Looking on product development, it's nice to see that the innovation index is continuing to come up. We are also in this area starting to invest more, but we are very selective in which products that we allocate resources to. It's actually underlying fewer products, but it's products with higher effect. Juan was showing you a couple of examples of new products that we have been launching. Going over to net debt and leverage. You see that our leverage is continuing to come down. It ended in the quarter of 2.8.
It's due to the strong cash flow, and the improved earnings that we have seen. Interesting to notice that we are almost back on the level that we were in Q3 last year where we ended on 2.7. Our favorable debt maturity profile, you have seen it before. There is no changes. This debt maturity profile has helped us in these difficult times that we have seen here in Q2 or in the first half of 2020. Looking into the financial net and the tax position that has been impacting the EPS during Q3.
On the financial items, it's exclusively FX related effects that has taken up the financial net. As you can see, the interest on external bank loans is actually down somewhat versus last year. On the tax line, it's one effect. We have been creating a provision for an ongoing foreign tax dispute, which is alone the reason for that we are seeing the effects on taxes here, ending up with SEK 242 million versus SEK 129 last year. With that, I hand back to you, Juan, to summarize the third quarter.
Thank you, Stefan. In a couple of words, a very rapid increase on market demand. We see that staycation and the outdoor trend continues to grow, and is accelerated partly due to the pandemic, obviously. An organic sales growth of 3%, first time that we get back to positive after seven consecutive negative quarters. A record high backlog that obviously secures our revenues in the coming quarters. What we consider to be a very strong performance showing a 200 basis points EBIT margin improvement. Strategic wise, we continue to work in our areas. We are, as I mentioned before, on one side revamping the entire product area for traditional Dometic, but at the same time investing more and more in building up the new areas, starting with outdoor.
We will see mobile deliveries and hospitality, residential kicking in stepwise. We see a very strong growth on number of visitors to our website, which is a fantastic asset moving forward now when we are implementing a B2C channel as well. Innovation index continue to grow at a very nice pace. We feel that we are very well positioned for growth, for margin expansion. With all that said, we are fully committed to reach our financial targets in the years to come. With that, I would like to open for the Q&A session.
Thank you. Ladies and gentlemen, if you do wish to ask a question, please press zero one on your telephone keypad now. Our first question comes from Daniel Schmidt from Danske Bank. Please go ahead. Your line is now open.
Yes. Good morning Juan and Stefan and Rikard. A couple of questions from me, starting with, of course, maybe the supply disruptions or supply chain and production ramp-up difficulties that you've experienced in the quarter, especially in Australia and the U.S., if I understand it correctly. You state that the order intake is, of course, much higher than the invoicing. Where are we in terms of sorting out these supply chain issues, if I start there?
Improving every day. Obviously, when you are dropping 38% in one quarter and everything is about reducing cost and protecting the interest of the company, when it turns and all of a sudden it becomes very high growth numbers, you simply need to have some time to recover from that. This is not about just our factories, it's obviously our suppliers, our supplier's suppliers, so it takes a while. We see the improvements, as I said, practically every day now. In Australia, it's a different story. In Australia, we are totally depending on the lockdown.
It is getting lighter, so the expectation just now is to open up on the 2nd of November, and if that happens, what we saw in July when Australia opened after the first wave, was a very strong growth already in July. We are expecting a positive evolution as soon as they open up. I think that you have two trends, Daniel. On one side, you have a clear, growing underlying demand in combination with low inventory levels at retail level. At the same time, we still see that the pandemic is there, and that is affecting us in the short term. While in the medium term, we are very optimistic.
Yeah. No, everyone, I think, can clearly see that there's a lot of things speaking for you.
Yes.
Just a matter of how you can execute on this.
Absolutely
Very strong demand. Can you say anything about the spread between the order intake and the invoicing in the quarter? If invoicing was up 3%, was order intake up 15% or what's the spread?
It's more than that.
20
It's more than that.
It's above 20.
Daniel.
Just to get a feeling for.
Yeah, I understand. I understand. Obviously, you are also following our customers. You have seen the numbers
Yeah
About the backlog. Our backlog is of the same magnitude as their backlog.
Yeah. Okay.
In comparison to the backlog that we had one year ago.
And if you?
Yeah. Sorry.
If you had a lot of problems this quarter, do you expect those problems to halve, basically, if you look at Q4 and look ahead and then as you enter 2021, those supply chain issues will be gone or what's the lead time?
As I said, we see improvements every single week. If we look at our revenues, already after Q2, I commented that June ended up at the same level as June last year. We saw an improvement in July, we saw an improvement in August, we saw another improvement in September. If you excluded Australia from the September number, we would be two digits.
Okay. Okay.
So we see.
Yeah
It is clear that it is coming.
Yeah. Absolutely. Okay. Is it then fair to assume that once we enter 2021, you think most of these things will be behind us, if we don't get a very sharp increase in lockdowns?
We are working for that. Yeah.
Yeah.
We are working for that without any kind of doubts.
Yeah. Okay. Another question. I think you said that the modularity that you're building into production is starting to have a positive effect on efficiency and economies of scale and so on.
At what pace are we seeing that improvement, if you look into the coming quarters?
I think we will see a stepwise development, obviously. It takes between two to three years to develop a new platform of products. We have started pretty fast after I joined the company. We see, obviously, the first products coming out. We have a lot of exciting products kicking in during the coming quarters. As I mentioned today, we have the new generation of refrigerators, we have a new generation of air conditioners that will start kicking in at Q4 and during the first half of next year. We have a new generation that we launch on mobile living products. Just to give you some flavor, if we look at some of our product areas, we are already above 35%. That's telling you at which pace we are moving.
Of course, you need to introduce the products, your customers need to accept the products. It takes a while because you are introducing products in the middle of the model year. It's not always that they take it immediately after. You will see this kicking in during the quarters, and with every single product, new product that we are launching, on one side, we want to get the extra sales, the extra share of the market. At the same time, we are also working a lot on reducing the complexity and thereby the cost we have. We are involving our suppliers much more than we ever did in the past. Again, we are not doing anything new, but we are trying to emulate what other industries did 20 years ago.
Yeah. All right. Good.
We see, if you look, Daniel, another way of formulating it is that if you see our revenue evolution during the last eight quarters, you see as well our EBIT margins, without all these complexity reductions, efficiency improvements that we have been doing the last couple of years, we will never be at the EBIT margins that we are today. No way.
No. Speaking of EBIT margins, you finished off by saying that you're very well-positioned for growth and margin expansion and fully committed to the targets that you laid out.
Yeah
In May 2019, and those were quite aggressive, those targetsGrowing 10% annually over a business cycle and then reaching 16%-7% EBIT margin. Has COVID-19 in any way sort of delayed your ambitions to deliver on that ambition in the coming three years? If you summarize, if you're looking back, is that needed to be shifted out another year to get to that track record? How do you see it?
The target was over a cycle.
Yeah.
Of course, that COVID came in and had a negative effect. At the same time, we also see that we are entering a situation where inventory levels, both in the RV industry and in the marine industry, are pretty low. The fact that we are running just now 3% doesn't mean that we could not be on 10% and above 10% in three years from now. At this point, I cannot tell you, "I believe that we need to move down for another year." We still have exactly the same targets. Of course, things happen even away.
Yeah.
That's why it's important not to get crazy about one year. You need to talk about a cycle because things happen every single year, both positives and negatives.
Yeah. If you look at what you can control, do you think that COVID has accelerated your cost or moved forward your cost-cutting efforts or ambitions?
In the short term, yes.
Yeah.
In the short term, yes, but you have also consequences. If COVID kicks in and you cannot travel, obviously, it's difficult to open up factories if you cannot travel. It's difficult to have double manning when the people in those sites need to teach the people in the new sites, and you are not allowed to travel to one country. I think it has accelerated on one side, and I believe that we have shown to the market that we can be pretty fast in taking down cost.
At the same time, you have the next step, which is the long-term changes. I believe that it is a little bit too early. I think that I'm happy with the job that we did in Q2, reducing our cost and delivering what I consider to be a good result. We are very proud of the result that we are delivering in Q3, despite an organic growth of 3%.
Yeah.
I think the good news is that we see the market kicking in.
Yeah, exactly.
With that market and the additional revenues, obviously our results will evolve in a positive way.
Finally on innovation index that you mentioned at 2021 or 1/2021.
Yeah.
Is that ahead of plan or is that what you felt that you would be at nine months ago?
No, 20%. Yep. We said 20% at the end of the year. We are 21% just now.
Yeah.
We will be somewhere between 20%-22%. That's my guess.
Slightly ahead, maybe moving into 2021.
Yeah. Yes.
Yep. Yeah. Then by end of 2021, you should be at 25 or?
Correct.
Yeah. Okay, that's all for me. Thank you, Juan and Stefan.
Thank you, Daniel.
Thank you. Our next question comes from Fredrik Moregård from Pareto Securities. Please go ahead.
Thank you very much. Good morning, everyone. First of all, the way I read your numbers, at least for Americas and for the OEM business particularly, is that the weakness is mainly coming from the RV business. Just maybe you could help us understand the bridge between the way shipments for Q3 look to be about perhaps 25%. Obviously, we haven't got the September number yet, but somewhere around there, while you guys seem to have a decline in your RV OEM business. Is it a production mix issue, or is it OEMs having products on their lot that they can ship?
It's both. If you look at historical numbers and you go back to 2015, 2016, there is a delay between shipments from manufacturers and our deliveries. That's part of the answer. Of course, you have a shift towards towables from motor homes. That also has an impact, some kind of impact on the content per vehicle. You have, as I mentioned as well, that we had supply chain constraints during the first couple of months. We are catching up, and we believe that we are going to be in a much better position at the end of Q4. It's a combination of them. Look at historical numbers, and you will see that there is a delay. That's telling you that the manufacturers are also sitting with inventories internally, and they use those inventories to start shipping before they start reordering.
Sure, the shift to towables from motorhomes, is that a short-term production issue, or is it an underlying demand trend that you're seeing, i.e., should we think about your content per vehicle as probably declining somewhat over the coming years for the entire production?
Yeah. This is nothing new. We have seen that trend during the last four or five years. At the same time, the market, of course, the more people are getting access to the market. It is true that you have somewhat lower content per vehicle, but at the same time, you have more vehicles. On top of that's why, Fredrik, for us, it's so important to develop new ways of growing the business. We see the RV industry a very important industry for us today and even tomorrow. We also believe that with this outdoor trend, people wanting to get out to nature and enjoying nature, that there is a very good opportunity for us to use our competencies.
We are good at a number of core competencies of technologies, we are good at mobility, and we are good at the small spaces. When you see the trend on the automotive industry moving towards bigger cars, SUVs, pickup trucks, we see a great opportunity to increase our sales moving forward. I don't think that this has a massive impact for us, and it's not a new trend. It's a trend that has been going. Of course, accelerating now in recent times by new entrants coming to the market.
If you read what the associations are publishing, but also the Ford or the Winnebago of the world, they clearly see that out of the revenues that they have seen in, or the orders that they have seen in 2020, about 50% is new entrants to the market. Of course, the first thing that you buy when you are entering the market is not an A-class big RV. Normally, you enter with a fifth wheel, or you enter with a trailer, which is obviously smaller and with less content per vehicle.
Sure. Do you see any opportunity for you, because obviously I agree that there's a growth opportunity in other verticals such as passenger cars and so on, but do you think there's an opportunity for you to be innovative and increase the content per vehicle for the RV business as well?
Yes
Driving or Yeah?
Yes. We see new technology. It is clear that things are happening as well. You have the connectivity, electronics, you have energy savings, and we see opportunities to enter into new markets.
Okay, sure. Just finally, a question on Australia. Obviously, production constraints with the lockdowns. Could you comment something about the retail environment in Australia as opposed to North America and Europe?
A little bit of the same. You have two issues in Australia. One side you have the really manufacturing of these kind of vehicles, 80% is really in Victoria. Not in Australia, but in Victoria. The other one is that Victoria locked down, retailers also shut down. We had online sales during the quarter, but a lot of the retail stores were under lockdown as well. As I said, Q2 was very tough in Pacific as well. They opened up. July was extremely strong, and then we saw the lockdown kicking in middle of August and having a major impact in our numbers.
Sure
If you look the difference perhaps between the market in Australia and the market in, or the similarity I would say, on the market in the U.S., is that even in Australia, the market has been shrinking for the last couple of years. Of course, with these lockdowns at the same time as the outdoor trend continues to grow, even during the lockdowns, that means that there will be a gap between market need and production quantities. We expect Pacific also to show much better numbers in the coming year.
Okay. Thank you very much. I'll leave room for the next speaker.
Thank you.
Thank you. Our next question comes from Gustav Hagéus from SEB. Please go ahead.
Thank you, operator. Good morning, guys. If I can return to the question of the order backlog, which you seem to indicate is 20% or more up year-over-year. Could you just remind us what's your visibility typically? How long is your order backlog in terms of production weeks and whatnot? Thanks.
Normally we are talking about a couple of weeks. Just now it is many weeks.
By many you mean 10 or so?
Yeah, as I said. Thank you. Where were we?
We were talking about the backlogs with Gustav.
Yeah
10 weeks or not.
I don't know when the line was cut, but I think the question was, is about 10 weeks, and I said that if you look at our customers, they have been communicating that they are somewhere between two to three times the level that they had one year ago in Americas. My comment to that is that we are approximately on the same level. That's very much valid for Americas. If we talk about Europe, we have seen extremely high registration numbers across Europe, 17% year-to-date September. Those numbers have not been converted yet into orders. At the same time, I have discussions with our customers, and they are telling me that it's coming now, that their inventories are totally empty and that they are starting to place orders. We are moving with the market, in other words. Hello?
Yes. Can you hear me? The U.S. RV Association guided for some 20% shipment growth for next year in the U.S. Do you believe us as analysts should have any other view of your organic growth opportunity next year in the U.S. than that? Thank you.
If we are thinking about the RV, if the RV market grows by 20%, that's number of units, then you need to take into consideration content per vehicle since we have a trend towards smaller vehicles. We should be in the neighborhood. If it is 20 or is 17%, I cannot answer just now. Keep in mind that that's valid for the U.S. If you look at the RV OEM market, the RV OEM market represents 30% of total revenues, and RV U.S. represents 16% of total revenues. We have many other businesses than just RV OEM, obviously.
Right. No, I appreciate that. Finally, for me, on the European marine side, you reference lower demand in the quarter. Have you seen a turnaround already here in your order book or is that more into the future?
Not yet. We hear better signals, but I'm sure that you are familiar with Beneteau. Beneteau has been obviously communicating difficulties during the year. We have a number of important producers in the U.K. I think that Brexit has had a negative impact on them during the last nine months. Again, we hear better signals now, but we have not seen that in our order intake yet.
Okay. Thank you. Those were all my questions.
Thank you.
Thank you. Our next question comes from Rizk Maidi from Jefferies. Please go ahead.
Yes, good morning, gentlemen. Hope you can hear me well. I just have a couple of questions. Number one, you talked about the difference in the content per vehicle when it comes to towables or caravans versus motor homes, and also the shift into these smaller sizes of caravans or motor homes. Can you just give us any numbers there, Juan, just to illustrate this, please?
The issue is obviously that this is complex because you have so many different types, and you have a content per vehicle for every single type. I would say that between the bigger types and the smaller types, we are talking about 20%-30% less content per vehicle, as a rough average. Again, keep in mind that there are many different types. The good news from that perspective is that if you compare towables and motor homes, motor homes is a much smaller part of the market.
Understood. Secondly, on the 200 bps margin improvement, which is substantial, I just wanted to hear from you if you could help us with any comments on the different bridge items there, like how much pricing added, how much the aftermarket mix was, and what are the sort of savings outside of grants and the short-term measures that you've had. Also, any comment on FX impact as well in the quarter that would be helpful.
Okay. It's Stefan here. Of course, the mix effect has had a fairly significant impact on the development of the margin, no doubt about that. Also our very focused work on driving efficiency in all the different areas of the company has been contributing significantly. On the positive side, that is, of course, the two factors that are impacting. We should not forget that FX is definitely materially negative in the quarter here. With that in mind, it of course puts the whole situation that on the two first points, we have been doing a really good job, I would say.
Are you okay with that, Rizk?
I would've liked sort of numbers, but a different way of asking the question is, I think you've reduced the cost base quite significantly the last two years. We didn't see it so much in the numbers because of the collapse of RV registrations in North America. Assuming we've passed the trough, Juan, how early do you think you can get the margins back to, or at least get the margins to the 16%-17% corridor?
Of course, that will very much be dependent on the mix. We are doing our best to increase the mix towards AM, and the pace will be totally decisive to be in the window that we were discussing, 16%-17%. In parallel, obviously, we are also working on our cost. As you know, we have the restructuring program which is running. We see positive effects already now after one year, and those effects will be growing in the coming quarters.
I think that we are fully committed. We presented those targets one year ago, or one and a half years ago, no, three and a half years ago. We believe that if the market grows as we are seeing just now, of course, then reaching our targets will be a separate thing. Of course, you have acquisitions and what kind of margins we see through the acquisitions. You have a number of different variables.
Okay. I'll stop here and leave others to ask questions.
Thank you.
Thank you. Our next question comes from Agnieszka Vilela from Nordea. Please go ahead.
Thank you. I will start with a simple question, Juan. What would your growth in the quarter be if you didn't have the production issues or supply chain issues? Would it be 10 percentage point higher than what you delivered or even better?
With the kind of backlog that we have and the order intake that we have been seeing, we would be most probably north of 10%. Again, the backlog is there and the order intake is there.
Perfect. You are bullish about the demand, and you have quite good visibility, as you state for the coming quarters?
Yeah, at this point we are, because we see, obviously, we know that inventory levels are very low, both in Americas and in EMEA. We have a backlog. At this point, there is no reason to have any doubts. As I commented before, whether next year is going to be 20%, 15%, or 13%, at this point, I cannot judge. What I can say is that the backlogs are there.
Great
The order intake looks very substantial.
Great. Maybe if we can touch upon then execution the quarter, if you are happy with that or not. I also see that you changed your communication about the demand outlook. I remember when we were in Q2 and talking at the conf call there, you said that you do see a lot of optimism and you saw that your customers are very optimistic, but you also said that you are a bit skeptical to believe in what they are saying. Now my feeling is that you definitely see that it is happening. You see very good demand that will last for longer.
Agnieszka, that is not about feeling, it's that I see the backlogs.
Yeah.
Now it is real. There are numbers. It's not just feelings anymore. That makes the difference to me.
Great.
I like facts.
Yeah. When it comes to execution, in the quarter, how much of that was dependent on the fact that your suppliers could not deliver, and how much maybe was self-inflicted?
Quite a bit. Of course, we have COVID cases, whenever you have a COVID case, you need to isolate one area. You need to send people home for 14 days and things like that. The vast majority of the issues is coming from the supply chain. It's a long supply chain. You have lots of suppliers, it doesn't really matter if you have 95% of all the SKUs, if you are missing one part, you cannot deliver to your customer.
That has been improving stepwise, week after week, day after day. We believe, I know that we will see a better output in Q4. Agnieszka, it's not just about us. It's that I think that our customers are talking about that. I think that our suppliers are talking about that. It is a reality that the pulling the brake as rapidly as the industry did six months ago, it takes a while before you get up to full speed again.
Can you help us and maybe give us some color on your production rates in September and October year-on-year, and maybe capacity utilization? How does it look like right now? Are you producing close to the maximum capacity? Will you be thinking about maybe expanding the capacity given the structural growth that we see in your verticals?
Massive, that's the wrong word. We don't see a problem in the medium term. It is much more about ramping up from where we came in May. Of course, if we see this trend, if we are talking about 20% a year, then we mean that we are coming back to the levels that we had two years ago. We had the capacity at the time, right? Of course, if you put another 20% in 2022, that's a different story. We will need to start evaluating in Q2, Q3 next year, whether we need to add more capacity. At the same time, Agnieszka, we are talking clearly about outsourcing more than we are doing today. We have been extremely vertically integrated. The trick here is really much more sourcing and outsourcing than our own manufacturing capacity. That's what you see in our CapEx levels as well.
Yeah. The last question.
Go ahead.
The last question from me, is on your restructuring program and factory consolidation. Do you want to proceed with that even now, in the times where we see this demand coming back so strongly? Don't you risk that maybe you will miss some sales if you start to address your production and factories?
I think that's a very good question, and we will evaluate, obviously, weekly, because of course, you have trade-off. You know that when you are moving a factory, it takes a while before you get everything perfect, and it's not the same to run business as usual, and when you are ramping up as we are doing today. I don't have the answer just now, but what I can tell you is obviously that that's an internal discussion that we have, and depending on how the volumes develop in, I would say, during the first half, then we will need to see whether we need to delay some of these projects for a few months, or if we run it according to the plan.
Great. Thank you.
Thank you. Any final questions from your side?
I hand back to speakers for any closing remarks.
Okay. Thank you very much, everybody. I apologize for the technical issues that we suffered from. Thank you very much for your attention. Have a great day, and stay safe, all of you. Bye-bye.