Dometic Group AB (publ)

Good morning to all the participants and welcome to the presentation of this first quarterly report year 2023. Let's proceed to the presentation on the highlights immediately. So looking at the markets, very, very tough market conditions on the US RV markets. We got the latest news yesterday showing a decrease on number of units from manufacturers reaching minus 54%, which makes obviously life a little bit complicated for this industry altogether. At 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. On the performance side, we also perceived very clear results of the strategic initiatives that we have been taking 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, positive, plus 8%, and global, plus 5%, driven by e-group, 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. And then last but not least, service and aftermarket down 19%, which obviously has a major impact on our margins and on our everyday levels. Talking about every day, 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. And then 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 percent down of almost 7.3 billion krona with 30 percent organic deterioration. a growth driven by FX of 9%, and then on M&A, we have nothing left at this point. EBITDA, 847 million, Krona, 24% down versus last year, or an EBITDA margin of 11.6 versus 14.8. As I mentioned before, an improvement on cash flow of almost 600 million in comparison to the same period last year. EPS, adjusted EPS ended up at 1.44 in comparison to 2.27 one year ago. Leverage ended up at 3.2 versus 2.7 last year and 3.0 at the end of the year. Again, our sales growth, we see that organic growth has been coming down now for four quarters. So 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. So we are approaching a situation where we will have much easier comps in comparison to last year. Looking at different businesses from an application perspective, power and control, which stands for 20% of sales, shows strong 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, has been showing some deterioration due to the American markets. If we instead look at the different safe channels, we see that OEM has been moving from above 60% of total sales into 44% on the 12-month rolling number, which is at the same level as at the end of last year. And 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 says 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 and aftermarket, I believe as well that this is a very, very important slide that I would like to spend a couple of minutes on. So you can see on the different lines, the different graphs, the evolution of the market since 2018. What you see exactly is the impact in 2018, 2019, showing growth. Then we got into 2020, the first half extremely weak due to the pandemic. Then the market bounced back. And during the second half, dramatically, we saw a continuation during the entire 2021. And then 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. So you can see as well that Q2, we started to see the deterioration. uh and we got between 16 to 16 percent in q2 last year and down to 22 percent negative in q4 last year and we're still negative in this q1 this year on the contrary if you compare will we consider to be a normal base which is 2019 q2 last year ended up a plus four percent in comparison to q2 2019 q3 plus seven q4 plus ten And this first quarter of this year, we ended up at plus 60% in comparison to Q1 2019. So again, it is important to remember that we have this pandemic effect that we were very happy about in 2021. But just now, it is tough to compare. But again, we are starting to get very, very close to much easier comparables. Looking at our EVTA evolution over time, we see clearly the duration 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, very difficult to mitigate. We have been reducing capacity big time, but still very, very difficult. And of course that we are sitting with facilities, we are sitting with inventories. And it is tough. The situation in EMEA is different. It's obviously very much impacted by the lower services of the market. 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 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, Marin 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 positive effects 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 surface of the market. On the contrary, the CPV business still doing very, very well for us. And we got a number of contracts the recent years that we are turning into sales. during the last months that will continue. Evitae, obviously very much impacted by the lower volumes. And then 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 SunSolar. And at the same time as the move of the factory in Elkhart is totally completed, in a successful way looking at emea organic growth seven percent down which is uh totally driven by the service and aftermarket or and and on the contrary we m is doing very well especially on the cpv side so that means commercial and passenger vehicles why we m is still positive and we don't see just now at this point any signals or iteration on that market Every day, half in comparison to the situation one year ago. And then again, two major impacts on one side, the service and after markets. And then the other one is inefficiency due to the factory move and still some high logistic costs due to the inventory build up of our customers. I already mentioned the closure of the Seagate factory a couple of times. I will not repeat myself. And then we are looking for further uh adaptation to the new uh volume levels in in the future to come apac even here negative driven by service after market on distribution uh on the contrary and the oem site is still going very very well and happy to report obviously that despite the negative growth and the wrong service me oh sorry product mix for us doing we m and so it's an aftermarket we still see everyday improvements in comparison to one year ago and we have obviously we have been adapting capacity as well to the lower volumes that we have seen now for a couple of quarters and we are happy to see as well that our acquisitions are doing very very well in 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 and aftermarket is still negative. But as a continuation of the better, the level out that we saw in Q4, we got exactly the same situation in Q1 from a service and aftermarket perspective, which is leading 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%. And I guess that many of you are wondering how comes that you are still growing at 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 the entire industry did have a very, 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. And then we see as well that the larger engines, where most of our equipment goes, is still growing very, very nicely. So 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 sister 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 and 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 And we have no further news in regards to the lawsuit from the former owners. From an innovation perspective, a couple of pros that we have launched recently. On one side, slim, very slim, new cooling box on the Dometic brand, driven by compressor technology, which makes it possible to have it in a standard car. either in the console or in the seats on the back. At the same time, we're also launching as a way of penetrating 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. And then moving from innovation to cost reductions, our manufacturing footprint program continues We booked 19 million in the quarter, bringing the total cost so far to 836 million out of the expected total number of 950. We have affected so far 1,800 employees. And the run rate from a savings perspective is 340 million over a total of 600 million, which means that we have another 260 million to go. And last but not least, sustainability, where 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, converting more and more of our factors into electric energy, driving down the CO2 by 41 percent in comparison to the starting point, 2018, and ahead of the target that we have for 2024. And in terms of audits, we also see clear improvements year on year. We are just now at 94 percent compared to a target of 90%, and we are fully convinced that we are going to reach the 100%. And with that said, Stefan, 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 minus 90% organic sales decline in the service and off the market. 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 in S&A and R&D expenses. in strategic structural growth areas such as mobile power solution and mobile cooling. Then we also have the logistic expenses, the extraordinary logistic expenses and the manufacturing efficiencies within EMEA that is impacting negatively. Ongoing cost reduction measures. They are contributing positively and then we have a positive impact from FX in the quarter. The acquisitions still falling in the acquisition column. It's related to KDAQ, NDS and Treeline and they were consolidated during Q1 last year. So 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 700 million. So 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. And 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. So again, very satisfying. And I think also when we look on the cash flow generated 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. But 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 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, 155 million. And that is really driven by what I mentioned before. We have some in strategic important areas like mobile power solution and mobile cooling, where we are investing more on R&D. Looking on our net debt to EBITDA leverage, it came up to 3.2 in the quarter and as you can see on the little bridge below the chart, it's basically the EBITDA reduction that is driving this and we have some positive effects from cash flow and FX. So ended at 3.17 using two digits behind the comma. As we communicated already in connection with the last quarterly report, I mean, Q1 is our weakest quarter in terms of the cash flow. So it was not the quarter where we did expect, you know, any other development than what we are seeing. So according to expectation. With that said, we are absolutely committed on achieving our target of around 2.5. And as we also have been communicating before, we are going to take a meaningful step towards that target during 2023. And the items which is going to drive that is obviously the EBITDA development. We are going to see continued inventory reduction. We obviously have the dividend that we are going to pay now in Q2. And then we have some restructuring payouts still to be done. And along with earn out related payments from the acquisitions done in 2021 and 2022. And then 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. And with this new arrangement, we have increased our average maturity to 2.8 years. If we are including the extension options with one plus one 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 dollars maturing in 2026. Then the bank facility has been increased with $10 million, so totally $54 million in increased funding in relation to these two agreements. So we moved the maturity from 2024 to 2026, and then we have plus one, plus one on top of that. The revolving credit facility is also part of what we have been refinancing here now and it's still on 200 million euro and. yeah I was talking about extension options here, then we obviously have the euro bond maturing in September 2023 and, as i've said before, we, 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 and we had almost 4.4 billion in cash and cash equivalents ending q1 2023 and that is not including the additional 54 million of financing they are going to come in now during q2 So with that, Juan, I hand back to you to summarize. Thank you, Stefan.

So 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 US RV industry is in a kind of free fall at the same time as this industry, as many other industries are still. is still suffering from the inventory built up around the world. But in many industries, I believe that we are performing well. I believe that we are performing a good double digit every day, 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 is very much about observing what is going on every single day and obviously reacting on those changes. We are 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. And 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 OEM market in the US 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. We will continue to put a lot of attention to our cash flow. And we, as Stefan already mentioned before, we are totally committed to reach our 2.5 leverage level. And then 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 cost so we can see improvements even during the second half. Some of them will come but for natural reasons meaning that we are very close to end up the shutdown of Seegin and we have the logistic cost and obviously as a service not the market is coming back the number of local warehouses is going to be reduced and our results are going to improve. And 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, and we will continue to implement our strategy as usual. With that said, I would like to start with the Q&A session.