Dometic Group AB (publ)

Hello, good morning everybody, and welcome to the presentation of the quarterly report for the second quarter of 2023. I suggest that without any delays, we start immediately with the highlights for the quarter. We are proud to deliver another quarter showing solid earnings and record high cash flow, especially considering the current market conditions. We still see inflation interest rates having a negative impact on consumer demand. We see the RV industry production in the US still at very, very low levels. Up to May, the industry is down 50%. This is not the number for Dometic, but for the industry. We see as well that the inventory levels on the service and aftermarket import and service and aftermarket for us still down. but we see clear improvements in comparison to what we saw in Q1 or Q4 last year. In regards to performance, 10% down in organic growth, driven primarily by Americas, down 35%. At the same time, as we see OEM outside Americas still showing nice growth for us. Service and aftermarket, 10% down, but again, clear improvements versus Q1 where we were showing 19 down or q4 last year where we were showing 22 down every time margin before items affecting comparability comparability 14.1 on the decline is driven primarily by americas we see improvements in the emea segment even if we are still below last year we continue to have solid margins in APAC and marine, and we are very happy to see the strong improvements in segment global driven primarily by Igloo. And of course, we feel very, very proud of delivering a very strong operating cash flow driven by the reduction on our inventories. If we move on to the financials, we ended up at 8.3 billion in sales or 2% down in total growth with 10% drop in organic and supported by an increase, a growth of 8% due to currencies. Evitae almost at 1.2 billion for an Evitae margin of 14.1 to be compared with 15.7 last year. We also reached an operating cash flow of 2.3 billion, which is obviously a heavy improvement in comparison to the delivery last year.

And with that,

Leverage remained at the same level as in Q1 2023, at 3.2, despite the fact that we had the dividend payouts, we had burnouts, and a negative FX impact on the numbers. And finally, EPS ended up at 1.67. If we move over to the year-to-date numbers, we ended up at 15.6 billion, in the same way, at 2% total negative growth with 11% drop in organic growth and 8% in positive FX effects. Every day, slightly over 2 billion krona or an everyday margin of 13% in comparison to 15.3 last year. Even in this case, heavy improvement in operating cash flow delivering almost 2.6 billion in comparison to slightly over 300 million last year. and APS ending up at 2.72 order. If we look at the sales growth, I will not go through all the numbers, but perhaps worth to mention that we are showing, again, 10% organic growth drop versus 13% down in Q1 and 11% in Q4 last year. If we move over to sales by application area, no major changes in this case. Perhaps the one to mention is climate, which stands today for 28%, and the one that is mostly affected by the RV situation in the US, since the number of air conditioners is higher in the US than anywhere else. And that market is obviously the largest market in the world. Other than that, very, very stable. If we move over to sales channels, worth to mention here that the OEM has moved from 61% in 2017 to 43% in 2023, at the same time as the RV OEM has moved from 49% in 2017 to 22% in 2023. And as you can see, distribution is increasing its share simply because the RV business is dropping more. Looking at the OEM, which is something that is not always that we are elaborating, you can see that the RV OEM side stands today for 22%. And it has been growing since 2017, clearly. But what is even more important is that the CTV business has doubled its size in the last five years, and the marine business has multiplied its size by four in the last five years, both organically and acquisitively. Looking at the service and aftermarket and what happened during the last couple of years, you can see the pandemic effects after the first half, the very weak first half of 2020 kicking in when the market bounced back in the second half of 2020. continued to grow dramatically in 2021 and also Q1 2022. And then the bullwhip effects that we have been commenting a couple of times started to kick in in Q2 last year. What's important here to mention is that on one side, we see the service and aftermarket gradually improving. We were showing in the quarter minus 10% in comparison to the minus 22% in Q4 or minus 19 in Q3. Oh, sorry, Q1 2022. this year. And the other factor which is important is that now we have Marine being positive, and we have also APAC being positive, while we need to recover America's anemia. But we see, again, that the buildup, the inventory buildup that took place in the last 18 months is starting to be consumed all over the world. Looking at EBITDA, we ended up at 14.1. driven very much by Americas. We see that EMEA is improving quarter by quarter now, but still below last year's. And the reason for that on one side is the sales mix, where we are still growing in OEM while we have a still quite negative growth in service and aftermarket, but also the extra logistic costs that we have commented in a couple of quarters now. And on top of that, the inefficiencies caused by the factory move from Germany to Hungary. And then happy to see that Igloo continues to improve its margins. If we move over to the segments, Americas, total negative growth of 27%, with organic growth of 35% down, very much due to the RV situation. We see the service and aftermarket is below last year's numbers, but much better than we have seen during the last quarters. So again, coming up gradually as we have been commenting. Every day, negative 26 million or negative every day margin of 1.8%, which of course is not easy to compensate when the market is dropping at the pace that it is dropping. What we are doing about that is obviously to continue to right-size the business, looking for additional savings wherever we can at the same time as we continue also to drive price management. and prioritizing margin in regards to volume. EMEA, positive growth, totally speaking, 5%, but organic negative growth of 4%, with good organic growth in OEM, both on the RV side, but also the CTV side. In the same way as in America, service and aftermarket is still below last year's numbers, but a clear improving trend. EBITDA ended up at 312 million krona or an EBITDA margin of 12.8, which is still below last year's, but we see also a major improvement in comparison to what we saw during the last quarters. Even in this case, the mix is having a negative impact since we are still quite negative on the sales and aftermarket, and we see as well the logistic cost starting to point down in comparison to what we have seen so far. We are expecting to see inefficiencies due to the factory move to Hungary in the coming months, but it will gradually improve. And the reason for that is obviously that when you are moving a factory for a certain period of time, you are carrying double money in order to secure the quality and the delivery performance. Siegen, the factory that we have in Germany, has been totally closed, which means that all manufacturing refrigeration in Europe today is taking place in Hungary. In the same way as in Americas, we continue to look for improvements, improving efficiency, reducing our costs, and also driving price management. APAC showed an organic growth, negative organic growth of 3%, with double-digit organic growth on the VM side. Service and aftermarket is slightly up in comparison to the same period of last year, while distribution is still having a negative impact on our numbers. Solid EBITDA margin, 130 million, or 25.8%. And even here, obviously, the growth on the OEM side at the same time as we have negative distribution is having a negative impact on our margins in the quarter. And happy to see that the acquisitions are still keeping a very, very good level of performance.

Moving over to Marine.

Total growth of 10% with organic growth of 3%. We showed organic growth on the OEM at the same time as service and aftermarket was slightly up. So for the first time above the same level that we had last year. And EBITDA of 495 million or 25.8% EBITDA margin. And even here impacted by negative seismics. considering as well that Q2 2022 was an all time high quarter for us. On the study side, we see that hydraulic and electric devices, steering systems continue to grow. So if we're looking at the share is two percentage points up versus the same situation last year. So the technology transformation that we have been talking about continues during 2023. Looking at global, total growth of 4%, organic growth, or negative organic growth of 5% will decline in other global verticals. Residential was down, but compared to a very, very strong first half of 2022. Hospitality continued to show strong numbers. And Igloo, for the first time, showed a low single digit decline. Evitae, very positive, 267 million with Evitae margin of 13.1%. Even if we need to add in this case that we had a positive one-time effect of 33 million due to tariffs. And we see that Igloo underlined, Igloo margin is improving now quarter by quarter as we have been commenting in the past. And hospitality is still doing very, very well. Important, this is... Something new is that we are forming, as we speak, a global mobile cooling organization where we are going to combine, on one side, the igloo business with the existing legacy domestic business. We have been working on this now for a number of months and it's taking place. Our intention is to start reporting from the first quarter of next year, which means that we will restate the numbers and we'll come back to all of you with more information. At the same time, the collaboration between the total mobile cooling business that we have been driving in the last 18 months is starting to show in the number of crew launches that we are planning for. We will see in a couple of slides what we are talking about. We have also commented before that We used to have an organization under the Dometic brand called Mobicool in Europe. That organization has been transferred now to Igloo, which means that the Igloo EMEA organization is from now on up and running. We participated in the big show in Germany in ISPO as Igloo and introducing also both the traditional Igloo products, but also the new products that are developed in connection with Dometic. And what we mean with that is that we are launching for the first time the first Igloo compressor cooler with Dometic inside. So that means Dometic active technology together with an Igloo product design. This product is going to be launched in Australia in the upcoming October month. And then the upcoming launches in the US and EMEA region in January 2024. So we will take obviously the opportunity of the high season in the Pacific area with a new product. And the same is valid with the thermoelectric coolers under Igloo brand, even in this case with Dometic technology inside. And this product range will be also launched in Q1 2024. So again, according to our plans, original plans of really combining the strengths of Igloo with the strengths of Dometic to build up global businesses. Another one that we feel very proud of and that we announced about one year ago when we launched the first series in Americas is the new generation of air conditioners, which are bringing fantastic performance. I will not mention all the numbers, but we are increasing cooling capacity by 48% at the same time as we are reducing energy consumption by 38%. or the CO2 impact by 70%. We are offering to our consumers many more features that we had in the past at the same time as we are reducing the complexity by 50%. So this implies 50% fewer number of components, which is a major achievement. This is a global launch. We started in the US. We have continued now during the first half of 2023 in EMEA and APAC, and we'll continue in the upcoming 18 months launching new versions. Looking at cost reductions, as you will know, we have two programs. One that was launched in October 2019. The other one was launched in 2022. Expected savings combined was 600 million and an expected total cost of 950 million. We booked 31 million additionally in the quarter, which means that the total cost that we have taken so far is 867 million. And the run rate that we have on savings just now is 425, which means that we have another 175 million left to go. And then finally, sustainability. Another very important area for us where we want to drive the market in our industries. I'm happy to report that we are improving in three out of four KPIs. The only one where we are slightly negative in comparison to last year is on injuries and is temporary. We know that we are working on many different activities and we have seen fantastic results until now. And we are confident that we will see this improvement also in the coming months. Other than that, we are showing again improvements in all the areas. And with that said, Stefan, could you please get us deeper into the financials, please?

Absolutely. Thank you, Juan. starting with our Q2 data development, where we have the bridge from Q2 2022 to Q2 2023. So the points here, we obviously are seeing a lower net sales driven by segment Americas. We have, as you know, the logistic costs and manufacturing inefficiencies in EMEA. where we will see a gradual improvement here, and that will continue when we get further into the year. Yesterday, expenses are slightly up, excluding FX. We are doing investments in sales and marketing in strategic structural growth areas. We also continue to invest in R&D. And then, on the other hand, we have cost reductions which are contributing positively from the programs that we are running. Shana also mentioned that we have a one-time positive effect of 33 million in segment global related to a tariff refund that we got in the quarter. And then we have positive impact from FX on the data, mainly translation effects. And there is no effects from acquisitions in this quarter. Moving over to cash flow for the period. As already mentioned, the operating cash flow of almost 2.3 billion. It's record high. We have never had such a strong operating cash flow in one single quarter. Obviously a significant improvement versus the same period last year. It's very much driven by the release of working capital and driven by the reduction of inventory. If we look on the effects from acquisitions, we have paid 480 million in earnouts related to previous year's acquisitions. And it's not related to Iglo. which means that the majority of the earn-out payments has now been taken care of. We are going to see a little bit above 100 million still to come during this year, mainly in Q3. Net cash flow from financing, 548 million. We have been paying dividends, 450 million. We have paid the net of paid and received interest on 258 million. We also have the private placement that we did in May of 750 million, running with a majority of 3.25 years. And then we have what we did already in the first quarter, the Svensk Exportkredit and a slight extension of our bank loan of 54 million US dollars. Moving on. Here you can see it illustrated about the record high operating cash flow of 2.3 billion. And this also means that we have year-over-year improvements for the last four quarters. Taking a look on the different components of the working capital, we see a reduction of accounts payable, which is really driven by a mixed effect we are buying less in China where we have the longest payment terms. Account receivables, they are developing on a very stable way. So ending on 46 days. And then on inventories, we can start to see that the DIO curve is starting to point down 153 days. which is, of course, according to the expectation. With a look on total working capital, it's making up 34% of net sales, which is obviously extremely high still. We have to be aware of that when calculating this KPI, we are using 12-month average working capital in relation to the last 12 months of net sales. If we would use where we ended at the end of june we are starting to approach 30 percent uh and that reduction will will continue um and as you know uh we um our our target or at least our first target is to get working capital down to uh around 20 percent net sales Let's move over. If we look on CapEx and research and development spendings, CapEx is pretty flat to last year and is hovering around 1.3 to 1.4% of net sales. And as I mentioned before, on the R&D side, we are now in this quarter spending 2% of the net sales and we are increasing the spending, which is in line with our ambition here, to support our strategy execution. And examples of areas where we are investing is Norval Cooling and Marie. Moving over to our NetDebt EDTA leverage. we have been remaining at 3.2 in the quarter, same level as in Q1. If you look at the bottom, you have the bridge, and you can see that the slightly reduced 12-month moving EBITDA is increasing leverage with 0.1. Cash flow improving it with 0.3, and then we have the weakening Swedish krona leaning in the other direction with 0.3. So without the weakening Swedish krona, we would have been on a level below three times. And as we have been talking to you about before, I mean, what is impacting the leverage going forward is of course the EBTA development. It's It's going to be continued inventory reduction activities, which means further strong operating cash flows. It's CapEx, and it's obviously FX development. If we move over to our debt maturity profile, as Juan already has mentioned, the plan is to use cash at hand. repay the 300 million euro bond maturing in September 2023. I want to underline that this doesn't change anything to the fact that the euro bond market remains an important long-term funding source for domestic. And if we just summarize the key financing activities performed in 2023, we have the private placement done now in May of 750 million with 3.25 years maturity. We have the loan from Svensk Exportkredit of 44 million US dollars maturing in 2026. And then we have a slight increase of the bank facility with 10 million US dollars where we also have extended the maturity to 2026. And then on the last bullet point here, it's that we have completely renegotiated the bank facility, which means that we also have a one plus one year option to the 2026 maturity. So with that, Jean, I'm handing back to you for summarizing

Thank you, Stefan.

So summarizing, we are happy to present solid earnings and a record high operating cash flow. We keep transforming the company into a more diversified and resilient company way forward. It's obviously very difficult to predict how the consumer sentiment is going to change, and that will very much depend on interest rates, inflation rates, and interest rates. Our best expectations at this moment are really that services off the market will continue to recover as inventories are consumed at our customers and our customers' customers. We see also a gradual deterioration on the OEM business with two main exceptions, the RV Americas, where we are expecting to see stability at the end of the year, and the CPV. which is on a totally different phase where the degree of penetration of our products is increasing globally. So we don't see any alteration there. And then on distribution, we see a slightly weakening demand during the coming quarters, which I would like to point out, we don't see any drama, but we see that our customers and our customers are having a more cautious approach to build up inventory for 2024 in comparison to what they did for 2023. So we expect this to be a temporary effect and nothing else. At the same time, as we also expect to see continuous margin improvements on the EGLU side in the coming quarters. Obviously, we are still not happy with the performance in EMEA and Americas, and we'll continue to drive cost savings and price management to improve the performance of those businesses. And we are totally committed to achieve the net debt or the leverage of target of 2.5 as we have as financial targets.

At the same time,

as we need to show to be very agile and to adapt to the market conditions. We believe in an underlying growth market. We see and we hear every single day that all the camping grounds are already fully booked for entire summer, both in the US and Europe, and that's good news for our business. So we're still very, very positive about the long-term trends for Dometic. and we'll continue to drive our strategic agenda as we have been doing in the last five years. And with that said, I would like to thank you all for your attention and open for 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. Please mute your line when you have asked your question, and please limit yourself to only two questions. The next question comes from Daniel Schmidt from Danske Bank. Please go ahead.

Yes, good morning, Johan and Stefan. I hope you can hear me. Yes. Yes, a couple of questions from me and starting with the outlook maybe as you just run through Juan. I was just thinking about sort of the OEM business which I guess a lot of people are puzzled about how that will turn out in the second half of this year into 24. Of course, you reiterate that you're expecting a stabilization of RV in Americas and You also say it sort of continues strong performance of CPV. That means, of course, they're expecting marine OEM and RV Europe and APAC to come down. Starting with Europe, a lot of other or some other sort of manufacturers are saying that they continue to see a strong market in European RV, mostly, I guess, on the back of the fact that we have been underproducing a lot last year.

and now sort of supplies improving on chassis and production are coming up and backlogs seem to be fairly intact are you seeing anything different there compared to other more optimistic people uh i think that you have two different realities you have manufacturing reality and then you have dealer reality we see registrations coming down in europe and of course it's just a question of time so what manufacturers are doing they are filling the pipeline then for me it's kind of mission impossible to tell you are we going to see the market coming down in November or is it going to be in February? But what is crystal clear is that if the consumer sentiment doesn't change to the positive, and that will have very much to do with inflation rates and interest rates, I have difficulties to believe that we are not going to see a slowdown in Europe or APAC as we have seen in America. What is different is obviously the magnitude of the drop. As we know, the American market is always reacting much faster and much more dramatic, both on the way down and the way up. So we're not expecting what we have seen in Americas. But are we expecting sooner or later a slowdown? Well, unless the consumer sentiment doesn't change, we will.

Yeah, that would sound reasonable. But have you seen anything in terms of cancellations of backlogs in Europe? No. No. Okay.

We said we are talking about a gradual. So we don't see, if you look at our numbers, as I commented, I mean, Q2, we have very, very nice growth, both in EMEA and APAC on the OEM side.

I think it's also worthwhile mentioning, Daniel, that financing is playing a somewhat smaller role in Europe compared to America.

Yeah. That's fine. And then coming to marine then, which of course is another sort of possibly another shoe to drop. But we know from history that volatility has been lower than if you compare to US RV for that matter. What are you seeing there in terms of backlogs that you've talked about before that the mix is It's moving in your favor in terms of bigger boats and also, as we talked about many times, the hydraulic shift and the electronic shift. Do you feel that that shift combined with your mix is going to be something that will continue to counterweight a downturn in that market? Or is it more pronounced now? I think it will mitigate, but of course it will not eliminate.

So if you look at the market, I mean, retail has been down now for about one year. We see that boat manufacturing, if you look at smaller boats, has been down quite heavily now for one year. So manufacturing has been coming down. But then you have a difference between smaller boats and bigger boats. If you look at both bigger engines and bigger boats, it has been growing until now. Even when looking at the May numbers, bigger boats are still up, but not at the same pace as they used to be for the first four months of this year. And if we look at the smaller boats, they are still in May, like yet to date, about 20% down. So that's where you have the difference. Then at the same time, we see that the technology shift, I think I commented before, is two percentage points up this year versus last year. So the transformation keeps taking place. So I think on the marine market, it's a little bit the same as your question in reference to EMEA. I think it's going to be very much about interest rates and consumer sentiment. It is clear that retail has been down. It is clear that manufacturing has been down for smaller boats. And what we see is that the growth on the bigger boats is not the same as it used to be during the beginning of the year. So that's why obviously we have, I would say, what we consider to be a realistic approach and expect that we will see a iteration on the OEM side. Having said that, we also see that on the aftermarket side, we are already today after Q2 slightly positive. We are above zero on marine aftermarkets, which is telling you again that everything is going to be about timing, like we have been commenting now for three, four quarters. that we have one side, we have geographical differences on the other side, we have the mix and we see some of these areas coming down gradually at the same time as we see some of these areas improving gradually.

Yeah. And you are sort of, as you mentioned, leaning on the word gradually. You're not seeing any sort of big shift in OEM as we go into the second half of this year to the worst.

Not until now. We have not seen anything in our numbers. We don't have any cancellations. And you mentioned that yourself. When listening to our European customers, they are still very bullish. Then, of course, We need to remember that this market is always bullish until it starts dropping. That's where we don't see anything happening in the coming 14 days, but we see again that the logic is that if interest rates don't start coming down, we will have an effect sooner or later.

But sort of from an earnings perspective, if you get the aftermarket marine with you, you will be able to neutralize some of that decline in the OE business simply.

Correct. I mean, keep in mind that we are really making a major readjustment, like many other companies, obviously, coming from very, very heavy growth during 2021. And all of a sudden, the market stops in a number of areas. So when you have such a situation, you get a lot of inefficiencies. We are talking about inventories in Europe, but we are also talking about inventories. We are talking about warehouses. We have extra warehouses to take care of inventories that we built up during 18 months. We are talking about inefficiencies. So the answer is yes. With the margin difference that we have between service aftermarket and OEM, we expect seeing improvements moving forward. Yeah. And I think that you can see that already if you compare at Q4 last year, Q1 this year, and Q2 this year. You have seen that our EBIT margins, the gap between the last period and this period is coming down quarter by quarter. Yeah.

Good. Moving on maybe to the cost side a bit. You mentioned that you've realized 425 million in the cost program. There's another 175 in savings to go. Do you still think it's realistic to realize those savings in the coming three quarters or will it take longer?

No, I think we are still there. I mean, it's always impossible to tell you what's going to happen in week number 27 or next year, but it will be about absolutely.

Of course, volume is of course also going to play a role here.

That's an important factor.

And more maybe on the topic of costs and clearly you've been hurting from high logistical costs in EMEA and also this sort of move of production from Germany to Hungary. Now that is sort of done and dusted. Of course, it will take some time to get efficiency up in Hungary and be back to square one, basically. But do you see logistical costs normalizing and efficiencies in production in Germany normalizing by the end of Q3, or will it take longer?

My experience is that it will take the rest of the remaining of the year. That's based on my experience and what I have seen during all these factory moves during my career. It takes about six months. But we will still see a gradual improvement over the coming years. Both in terms of warehousing cost and in terms of the efficiency in Hungary. Okay, Daniel.

Thank you. Thank you.

The next question comes from Gustav Hagius from SEB. Please go ahead.

Thank you, operator. A few follow-ups from my side. Just to be clear, the sort of excess warehouse costs you had from your inventory, mainly, as I understood it, located near the ports, How far along are you from taking those costs down in Q2? Are you nearly there or is there more to come in Q3?

I would say the cost is around 55 million in the quarter. And it will not go down to zero by the end of the year, but we will reduce.

Okay. That's helpful. And if you could remind us of the savings target you had for the Siegen factory closure and the ramp up, what was the target for H2 and where do you think that can be realized, just to be clear?

We don't exactly comment only on that. We are commenting on the total program and as we mentioned before, we are on a pace now of 425. And, you know, a little bit depending on the volumes, but, you know, the ambition is to be at the 600 when we are moving into 2024. Yeah.

I see. I see. It is obviously quite an important part of that. Yeah. Yeah. It's almost 250. We have in Germany that we are moving to Hungary. It's quite heavy.

Yes. And then on the gearing then, the gearing was kept lower than at least we had anticipated here. And as you point out, the FX part plays a negative point to it, but also I guess the EBITDA is possibly impacted by FX over time. So the way you see the trajectory now with your outlooks for the market and so forth, when you think you can come back to a situation where you'd would potentially look at inorganic opportunities. And second to that question, I note that, or I didn't hear you mentioning any, that you're looking for divestments, something that I think you've been alluding to previously. So a little bit, Colin, that would be helpful, thanks.

I mean, if we start with the leverage, the target is to be around 2.5. Are we going to be able to close the full gap here until the end of the year? That's not completely realistic, but we are certainly going to take a notable step towards that. So, of course, as we are getting closer to our goal, overall uh target on this i mean then then obviously we can start to uh you know have discussions about inorganic opportunities as well as you as you know there is uh many many of these smaller to medium-sized bolt-on acquisition doesn't doesn't generate all too much leverage here but but it's still too early to talk about that but but you know we we are step by step moving gradually in that in that direction and as you see if it wouldn't have been for the week in swedish corona we we will we would most likely have been below three uh already now in in q2 you talk a little bit generally speaking about the market conditions i mean we are working on one side we haven't stopped any dialogue in terms of acquisitions

but we are holding up. And the reason for that is obviously that as a seller, you want to maximize the price. As a buyer, just now, you are looking, the valuation is coming down. So everybody's talking to everybody. And in terms of divestment, it's exactly the same. So we have a number of projects that we are working on at the same time as we are just now not getting the price that we expected. So there we are holding up. So both on the acquisitive side and on the divesting side, we keep working on both sides. And then, of course, I do believe that in terms of acquisitions, on one side you have leverage, but I also believe that you need to consider, at least we consider, the sentiment on the markets. I believe that we need to move from this negative sentiment to a slightly more positive sentiment before you can start pushing.

And finally, for me, if we could get some more color on the aftermarket side, perhaps, do you have a view on sort of sell-outs of your products or a rough view across segments?

And if not, do you have a view of sort of utilization of RV and marine fleets? growing this year? Yeah, I mean, what we have as immediate information is that camping grounds are extremely heavy. Some Countries reporting that even more occupied than they were one year ago.

I don't know it has to do with inflation, that people are spending more time domestically, but it is clear that the underlying camping market is growing, which is positive for us. With that, that means as well that you are moving, that the RV is moving somewhere. which means also spares. If you talk to dealers, they are expecting also higher consumption. Having said that, they have been sitting and are sitting still on inventories, but the inventories are coming down stepwise. And that's what we see in our numbers. As I commented before, Marine and APAC are already there. So they are slightly positive in comparison to the situation one year ago, where Americas and EMEA are still quite a bit down in comparison to last year. But we have seen a major improvement even in Americas and EMEA in comparison to where we are coming from during the past quarters.

Combined with the fact that the fleet as such has been increasing over the last couple of years, and they have started to move into the auto market. When people are not upgrading, meaning moving from one RV to another, they're spending more time on maintenance and servicing the equipment that they already own. So that has been really what has been driving the aftermarket business historically. And if you talk to dealers, they say the same. The difference in this application is really that they have been sitting on inventory. That's great. Thanks for taking those questions. You're welcome. The next question comes from Anton Brink from Antorus Capital Management. Please go ahead. Yes, good morning, gentlemen. I would have one question to which you partly alluded to before as well. But I was wondering, looking, for example, at the support from the Winnebago in the United States, they showed a very steep decline in the marine backlog. So what's your thinking of sustainability of obviously very strong earnings currently down into both age 2 and 24. I mean, we have our backlog is lower than the backlog we had one year ago. But it's not dramatically down on the marine side. And what we see, we have come a number of times, is that we have a technology shift, which is supporting, in comparison to .

And on top of that, we have the aftermarket, which is showing even higher margins than the OEM markets.

So, as we are commenting, we are expecting a gradual deterioration on the OEM side, but we are also expecting a gradual improvement on the service and aftermarket side, and the balance is positive. And then if we talk out of work, our experience on the marine side is that the marine side is not dropping by far in the same way as the RV side. So you go back to 2018-19, that was the latest, so to say, slowdown that we saw. I think the worst quarter that we had altogether for marine ended up at minus 10% or minus 11%.

Those are the historical facts that we can comment. And in such a situation, would that say that you're able to develop more be relatively flat-ish, let's say at max 10% down? We believe that every day margin-wise, Normally, what we have is a positive balance since our margins are so much higher on surveys than they are on the web. So again, it depends, obviously, on exactly with how much it drops, but we believe that we have a pretty flexible setup in the US. And that we are acting very fast as well. I mean, if we look at our numbers already today, in terms of money, in comparison to growth, we have a positive balance. Thank you. You're welcome. The next question comes from Rizik Mehdi from Jefferies. Yeah, good morning, gentlemen. Juan, I'll start with the one on the service and aftermarket. Perhaps, how do you feel about the new season? Were you surprised that Asia uh was up and also given this improvement these two regions will get a positive which week or which month, but we have seen a very, very from Q1 to Q2. I mean, again, our expectation should be that we should be at the same level as last year at the end of the year. That's our expectation. Okay.

Secondly, Juan, can you just comment on your order intake development? And perhaps if you could just comment on, you know, this double-digit growth that you've seen on the RV OEM business in Europe and in Japan. Was that a surprise to you?

Yeah.

So the RV OEM is not double-digit in Europe, but the CPV OEM.

But it's not far from being double-digit. On APAC, on the contrary, it's double-digit. And we see still orders have been pretty good. But again, we cannot deny the fact that we see as well retail coming down.

So for us, it's much more a question of time.

As some of your colleagues raised the question before, it is clear that the industry has been suffering from difficulties to deliver to retail. So that's now what is taking place is that they are filling the retail pipeline. But at the end of the day, what is totally determining is the consumer demand. And that will be impacted by interest rates. We believe this is just a question of time. So far, so good. And that's what we get in the numbers. And the same is valid for marine. So far, so good. Yeah, it's consistent with what we have communicated before. Yes. Just if you look at what we have been reporting in reality, for the last three years, it has been a little bit of the same. America is coming first. Then unless interest rates don't change, we see that we are going to see gradual deterioration. On the other, we have businesses at the same time as we would see also a recovery on the so it's not the market. And we have quite a positive balance between so it's not the market and we envision in terms of markets. Okay. I understood. And then perhaps just on distribution, if you could just help Yeah. Yeah. Yeah. Yeah. local distribution in reality and distribution for us just now is very much about you look at global it has to be stable so not even during you know when when Before the acquisition of Ogilvy, we were looking at the numbers back in 2006. And we could never see any drop whatsoever. So you could have some slowdown for one quarter to two quarters and then back again.

Then what we see and what we are hearing is that you have two different cycles. You have sporting goods, the sporting goods business was earlier in adjusting their inventories. And we perceive that as already done. At the same time as we perceive that mass merchandising built up inventories for 2023, and they have been kind of consuming these inventories, but we hear that they are a little bit more cautious about building up inventories at the same level for 2024. So we don't expect a drama for the coming two years, but we expect a punctual adjustment in comparison to what we saw in Q3 and Q4 of last year.

And keep in mind that we will start building up inventories for the season 2024 in the coming weeks.

So we enter now the 2025. So you have, again, two different situations with sporting goods and merchandising. Sporting goods, they seem already to have adjusted, while merchandising are just now in comparison to the latest . Thank you. You're welcome. Okay, I'll jump in here with some questions on the web. So you still have much inventory in the balance sheet. Despite the release, can it quantify optimal level of inventory? And when do you expect to be at the working capital ratio of 20%? I mean, we have been commenting on this before, and if we take it more specifically, we think the day we are approaching 100 days, then we can start to talk about that we are, you know, some We're in the neighborhood of being good. And that will, as we have also said before, it will take in 2024 until we have been reaching levels around that. going to see a meaningful reduction already this year. So for the coming quarters, I am expecting continuous strong strong cash flow. Good. Another one around EGLO. What's the potential for EGLO in Europe and other regions and the risk of cannibalization towards Mobicool?

We don't see any cannibalization. In reality, it's the other way around. I mean, you have on one side

Dometic has the opportunity through Igloo to start migrating the market from passive cooling to active cooling, where we have higher average prices, where we have high margins. If you look at the European region, there has never been a quality, a cooler quality market. And that's what we believe we will be able to create. So it's not... So, of course, what we are taking as Mobicool is really, I believe, that Igloo will do a much better job driving our second brand in terms of growth and profitability than the market has been doing.

For the simple reason, obviously, that Dometic employees want to sell Dometic brands. And we feel that Mobi Cool as a brand has been a stepchild Now we have an organization which is used to deal with that kind of customers and that kind of frauds. And we expect growth. So we don't expect the cannibalization. Keep in mind that more people become igloom. as such. So we're expecting, obviously, to keep those volumes and to grow those volumes at higher margins. At the same time, we are implementing the quality passive coolers that we never had as mobile Thank you. And then the one here, giving the strong input for reduction in recent quarters must be significant on their absorption in 2022 and 2023. 23 in manufacturing is it possible to quantify this compared to normal levels i mean it's not but uh of course we have under absorption but keep in mind that a lot of the is also coming from . So if we are talking about ,, for instance, manufacturing ,, there are, I would say, or our total sales is coming from trading products. That has no effect on our factories. And I would also say that we have been transforming our operational structure.

Over the last couple of years, we have been closing down a number of factories. Now we are closing the final one. So we have been adjusting our footprint, making it more, what do you say, more able to react to changes in In volume, we have been outsourcing more, etc. So that is exactly in line with what we have said. And that's helpful in this situation that we are seeing now.

So just to give you a couple of factors.

On one side, we have reduced the level of vertical integration that we had in-house a few years ago. So meaning that when we are moving from one country to another country, we are not just moving one to one.

we are trying to question what should we do ourselves? So that's one parameter. The other parameter is that when this management joined the company, the level of temporary workers was about 10%. The level of temporary workers today in our factories is slightly above 20%. So that gives us, obviously, additional flexibility to react very, very fast. So the profile of the business has changed. And then as Stefan commented before, the number of sites, the number of factories which have today is 20% fewer. The next question comes from Douglas Lindell from DNB. Please go ahead. Hello, gentlemen. Thanks for taking my questions. Congratulations to Strong for the results, and thanks for answering all the questions. or the other questions. My question is on your ego reservations on the balance sheet. Can you hear me? Yes, we can. Good morning. It seems like looking at the balance sheet... reservations or the earn-out reservations in total, let's say. It seems to be pretty unchanged quarter over quarter, considering that you pay these foreign millions in the quarter. How should we think of it? This is my question and also an update on the law. It would be super useful. Think about that. We have been. We have.

other things moving in our current liabilities.

It's not only Ornaut related. So there you have currency effects and you also have movements in other positions in there. So on the Iglo side, we haven't changed anything on the reservation there. I don't want to exactly comment on how much it is. So no change on that. And then, as I said earlier, you should expect that there is coming a bit above 100 million Swedish krona additional payments this year. And the majority of them will come in Q3.

Then there are still some remaining payments, still talking about non-EU-related for 2024, and that's a little bit less than 200 million, our expectations. be a little bit less than a million but that is for 2020. there is the process is basically ongoing there is no news to report in this in this quarter and we are expecting to continue and you know Most likely, building it on previous experience, it could very well take into the next year before we have any conclusions on this. in our workforce. Okay. And just to clarify, it seems any sort of ego-related earn-ups for this year is not including your expectations, basically. No. against the for the fact that they didn't respect the terms that were in agreement. Whenever you have a disagreement, you need to follow up processes. And that process was never followed by the sellers. Again, this is a long process. Okay, thank you. You're welcome.

That was the last question at this time, so I hand the conference back to the speakers for any closing comments.

Thank you all for your attention, for your interest in Dometic. We feel good about presenting a good report and we will continue to work exactly in the same way, being and acting very, very fast on changes on the market at the same time as we continue to follow our strategic agenda. And with that said, thank you very much. And I wish you all a great summer. Thank you. Goodbye.