Dometic Group AB (publ)

Hello, good morning, everybody, and welcome to the presentation of this Q3 report. I suggest that without any delays, we move over to the highlights. Obviously, the market didn't help us in Q3 either. We still see challenging market conditions, and not just the market conditions as such, but also our geopolitical situation affecting all markets. Despite that, we reported an improved EBITDA margin and a very strong cash flow. On the positive side, we see retail inventories coming down after a year, a complete year of negative growth. And finally, we see improvements moving from minus 10% in Q2 to minus 5% in Q3. We also saw a decline in the OEM. driven primarily by RV Americas and the marine business. When looking at performance, 2% down organically with service and aftermarket minus five, which is an improvement in comparison to the minus 10 that we saw in Q2. Distribution down 13%, what we perceive to be a short-term decline in Igloo as a consequence of inventory adjustments in some of our customers. And then finally, the OEM business down 16%, as I mentioned before, due to Americas and Marine. Strong EBITDA ending up at 14.3% versus 14% last year with improvements in three segments, EMEA, Global, and APAC. Americas was back to profits after a couple of quarters of negative profits. And then Marine, we are very happy, obviously, to see that the Marine margins held up very, very well despite the sales decline. And finally, we are extremely happy to see as well that cash flow came in as we expected, a very high level of 2.1 billion, which is the second major cash flow quarter in this history of the company, which supported leverage to come down to 2.9 in comparison to a 3.2 that we got in Q2 this year. Moving over to To the summary for the quarter, we ended up at 6.8 billion krona, which is 2 percent down organically. EBITDA ended up at 973 million, or 14.3 percent in comparison to 14 percent of last year. Strong operating income of 2.1 billion, leading to a leverage of 2.9 in comparison to three times last year, and 3.2 in Q2. And EPS reached one krona and 29 urn. Looking at year-to-date numbers, we ended up at 22.5 billion krona, which is also 12% organic drop versus last year, with Evitae very close to 3 billion krona, or 13.4% in Evitae margin. Very strong cash flow, even for the whole year, 4.7 billion. And then an EPS of four corona and one over. Looking at size growth, we see clearly in the chart that the negative growth started really with the RV industry in Americas coming down. And we have seen a clear deterioration now for a number of months. And again, moving forward, we will come back to, but we see a mixed bag. Looking at the quarter, Americas was down 18%, EMEA down seven. APAC down 5, Marine 15, and Global 12. Looking at sales by application area, no major changes. In reality, it's power and control on the 12 months rolling number, and that's very much driven partly by mobile power solutions and partly by the marine business has been doing very well until Q3. Looking at our sales by channel, Same, no major changes apart from the fact that distribution until now we're looking at 12 months or a number has been doing better than both the OEM channel and distribution channel. And also perhaps as a reminder, the RV-OEM that has obviously the most cyclical of all our verticals represents today 22% of total sales in comparison to 49% in 2017. Moving over to a very important slide for us, which is a service and aftermarket. We see clearly that our retailers are this talking now or continue to this talk. They have been doing that now for three quarters. We see a gradual improvement ending up at minus 5%. And as you can see on the lower chart, it has been a tough journey that we have never seen before. I would like to repeat that. You see that we hit the draft in Q4 last year, and since Q4 last year, we have been improving step by step, and we will continue to see that improvement moving forward. One of the very, very positive results is obviously to see the EBITDA margins now moving into better numbers than we had one year ago, driven very much by gross margins. despite the fact that we have a negative FX impact in the quarter. We see three segments showing improvements, EMEA, APAC, and Global. Americas is back to profitability after a couple of negative quarters. And Marine, showing what we consider to be very strong results despite low in excess. Looking at the different segments, America's down 18% with organic growth of 18% as well. We went back to positive growth in substance aftermarket and distribution. And we have seen a lower drop on the RV OEM industry. We got the numbers from the association yesterday and the numbers are valid for the month of September. showing alteration of 13% in comparison to last year, ending up the quarter minus 20%. But then we have to remember that we are coming from minus 49% in the first half of this year, minus 47% in the second half of last year. So again, the comps are becoming easier, and we should expect that to continue moving forward. Positive results leading an everyday margin to 2.8 versus 5.8 last year. Clearly, we're still impacted by the decline in the OEM business, but we see on one side a better service mix with service starting to grow and distribution starting to grow where we have higher margins. At the same time, we keep working on cost reductions and holding our prices. I'm good to see that the acquisitions in the mobile power solution area are still performing very well. We move over to Europe. Sales up 1%, but organic growth down 7%. We see still pretty low numbers, especially in aftermarket and distribution, but we see at the same time that the situation in the value chain is improving, meaning that retailers continue to destock. At the same time as we see Still today, very nice growth in the WM channel. Clear improvements on EBITDA, landing at 11.7% versus 8.6% last year. With a little bit of the same factors that we have seen in all the other segments, meaning we keep working on cost reductions, we hold our prices at the same time, we see as well that some of the inefficiencies that we have been suffering from are starting to be less, which means that our gross margins are starting to come up. A strategically extremely important move from our factory in Germany to Jasvarenyi that has been very successful and now we start seeing efficiency gains month by month. Looking at APAC, 5% down organically, very much driven by distribution. We also have a decline in service and aftermarket. at the same time as OEM still is growing in the segments. Very strong every day, despite the negative growth, ending up at 27.1% versus 26.6, and a little bit the same. We keep working on our cost, improving efficiency at the same time as we hold our pricing. And also happy to report that we have launched the first series of e-group products in APAC, and the results are very positive so far. Marine, 15% down in the quarter, showing service of the market as a stable position, while at the same time we see that the lower retail numbers that we have been seeing for a number of quarters started to have a clear effect on production numbers as well. we see the decline in the power and control area, meaning the steering systems primarily in the US. At the same time, we also see that we are growing on the bigger yachts, which is primarily an European product. Looking at the EBITDA, very strong, 23.8, despite 15% down in organic sales. And again, on one side, we have a positive mix, meaning that We have stability on the surface of the market at the same time as WEM is coming down, but we have also shown to be very, very fast in taking down our costs. And at the same time, still we see obviously the higher margins and the higher sales coming from the technology shift, meaning more electronic steering systems in comparison to mechanical systems. And finally, looking at global, 12% organic drop. In this case, we saw a drop of the igloo business, very much due to a couple of retailers in the US rebalancing their own inventories. At the same time, we have to remember that Q3 last year was showing a growth of 70%. So we have difficult comps in this case, while the rest of the distribution is showing stability. Evitae, very nice improvement, ending up at 13.3 versus 11% last year, with margin improvements in other global verticals, and Igloo at the same level as last year, despite the volume drop. And even in this case, we are just now introducing the new pros for the season 2024 to our retailers, and the first impressions are very, very positive. If we move over from the segments to cost reductions, as you all know, we have been running two manufacturing footprint programs that should lead to total savings of 600 million krona when they are finished, and estimated cost of approximately 1 billion. We took 25 million in the month, and leading the year-to-date number to 74 million. And the run rate that we have in savings just now is on the 475 million level. And as you know, we will continue to drive the savings in the quarters to come. Also very happy to report improvements in sustainability with all parameters below the targets that we have for 2024. We have a minor pickup on injuries, but it's very temporary in one market, so we will see improvements going forward. Female managers developing very positively in the same way as CO2 reduction and outreach. Moving over to the product side, we introduced a smaller – sorry, a new product platform for smaller refrigerators that will be present in all the verticals. And what is new here is really that we are achieving major energy savings in comparison to all available products on the markets. And the other very positive result is that we have been working in modularity and bringing common platform of similarity across the different geographical regions. And this is leading to an SKU reduction or a complexity reduction for this product range of 63% in comparison to previous products. We also launched during the quarter a new patented air exchanger with heat recovery system for the RV industry, which is offering savings up to 20% of the energy consumed in an RV. And also leading to improvements of the air quality. And this product is meant to be as well as the entry product for our AC range. So the target in this case is that when looking especially at the European market, but also on the rest. it is still not a standard function that you have air conditioners. We see this as really a way of selling this product and then upgrading this product to air conditioners after a while. And with that said, Stefan, could you please enlighten us?

Absolutely. Thank you, Sean. So taking a look on our Q3 EBITA development bridge, positive. We are improving our gross margin with 3.3% units, driven by a number of different components. Sales mix is one of them, price management, cost reductions in relation to our MFP programs. We are also gradually enjoying lower raw material costs as we are turning over the inventory. And then we also see a gradually declining negative effect from the logistic cost and manufacturing inefficiencies in EMEA. On the R&D and SG&A expense side, it's going up in relation to net sales to 15.5%. And we are continuing to do investments in structural growth areas. Then, however, SG&A expenses, they are trending down in the quarter. We have a small negative year-on-year impact on FS transactions in the quarter, and there is no effects coming from acquisitions in the quarter. Highlighting some other items in the income statements, we have items affecting comparability, 33 million, and it's mainly related to the ongoing global restructuring program here. And the large number in Q3 last year has to do with the closure of the Ziegen factory. Looking on net financial expenses, 184 million on the interest cost. Net of financial income is 198 million. It's up versus last year, which is to be expected. Then we had a rather significant FX revaluation effect in the financial net last year of 160 million, which is almost nothing this year. Then from a tax rate point of view, we have in the quarter 32%, which is of course significantly up versus the same quarter last year. The two drivers for that is that we are seeing some limitations of the interest cost deductibility. And then we are also seeing a change in country mix, where are we earning our money, basically. The year-to-date tax rate of 29% should be reflective of the estimation of the full year tax rate. Moving over to cash flow. really positive to be able to report another record quarter in terms of operating cash flow of 2.1 billion significantly up versus last year and it's driven by the reduction of working capital in the quarter. Acquisition related cash flow effects 107 million and that is according to plan and we have another 200 million to come in 2024 in the first half of 2024 not taking any consideration to EGLU. Net cash from financing as we have said all along we did repay our 300 million euro bond using cash at hand in September and then we have paid and received interest 288 million in the quarter. Here you see a time series of the development of our operating cash flow and you can see that we have been posting two record quarters here in Q2 and Q3 and we achieved 176% cash conversion in Q3 which is very very positive even if it was according to our expectation. Looking into the working capital, I mean, the development on accounts payables and accounts receivable is either slightly improving or stable. So everything is about inventories. Total working capital is 32% of the net sales related to inventories, but also that we actually have a 12% organic decline year to date in net sales. Inventory, it's down 2.3 billion. And we have seen a continuous sequential decline since Q3 last year. And the number of days are now also turning down. And we are going to continue to work relentlessly, to continue to optimize working capital going forward. And the long-term target is to take it down to be around 20% of net sales. Looking on CapEx and research and development spend, CapEx is staying pretty stable around 100 million and 1.6% in relation to net sales. R&D is 2.3% in relation to net sales in the quarter. And it of course includes capitalized development expenses as before. And we are continuing to do investments in structural growth areas like marine mobile cooling and mobile power solutions. Taking a look on our net debt to EBITDA leverage, really happy to be able to report that we are coming down to 2.9 or even 2.88 if we should be really down to the point and it is driven by our strong cash flow of course and we have adequate headroom to our to our covenants we are as we have said all along committed on achieving our leverage target which is around 2.5 And you know, of course, the different items driving that going forward. It's the development of EBITDA. It's a continued focus on reducing inventory. It's CapEx. And it's, of course, the big unknown here. It's the FX development, the Swedish krona versus dollar and euro. Moving on to our debt portfolio and our debt maturity profile. Again, we repaid 300 million euro bond in September. It's important to underline that the euro bond market is going to remain an important long-term funding source for us in combination with other bond markets. We have an average maturity of 2.8 years if we include the 1 plus 1 extension option that we have in our bank facilities. The average maturity is three years. And then we have an undrawn revolving credit facility of 200 million euro maturing in 2026, but also with a 1 plus 1 extension option. So with that, John, I'm handing over to you for some final concluding comments.

Thank you. Thank you, Stefan. So if we summarize the quarter, very happy to see improved margins and a very strong cash flow generation in the quarter. The future is still very difficult to predict, obviously, especially on the short term. We still have high interest rates and we still have a geopolitical situation affecting most markets, most industries. But we expect service after market to continue to recover. We expect distribution to show some weakness for some quarter. At the same time, we also expect margin improvements moving forward. On the William side, we expect a gradual weakening in a number of verticals. At the same time, we also expect the RV Americas to stabilize at the end of the year. And if we're listening to the industry, the industry is expecting at 20% growth already next year. And I think that it's important to remember that it's really the RV Americas, which is the most cyclical market vertical of all the markets that we have. And we'll continue to work hard, obviously, to reach our leverage target 2.5. Strategy-wise, we are very optimistic about the long-term trends in the mobile living industry. of course that we have seen that the pandemic accelerated the trends but the trends underlying up there we have seen the company industry despite the financial situation on the markets that all campaign grounds are fully booked during this past summer and the summer 2022 so the trends are still there we will continue to implement our strategy our strategy has delivering results and we are fully committed to achieve our targets our financial targets And last but not least, we will continue to prioritize margins before volume in order to facilitate the achievement of our targets. And with that said, I would like to move into 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 Gustav Hagius from SEB. Please go ahead.

Thanks for taking my questions. Good morning, guys. I have a few, if I may. Firstly, on the marine side, you say 15% negative organic growth while service and aftermarket is stable, which, if I recall correctly, is close to 50% of that business normalized. And you reference also that the larger boats, exposure to larger boats is quite okay, meaning that the smaller boats smaller leisure boat segment on the om side must be be down quite a lot firstly could you try to give us some color on how much that part of the business is down and and whether or not you think that we're starting to see the full effect of that that downturn already in q3 or how do you see the near-term outlook for that specific part of the marine business yeah so i mean first of all i would like i would like to to add one more piece of information in during the last

12 months, sorry, 18 months, the service and aftermarket of marine has not been 50%, simply because we were negative on service and aftermarket at the same time as the VM side was growing like crazy. So I would say that it's closest to the 40 than to the 50. That's the first question. If we talk about the mix, it is clear that 70% of the marine market globally, this is not automatic, but globally, is the U.S., And retail in the U.S. has been negative now for a number of months. Now it's obviously moving into manufacturing. And we believe that what we have seen in Q3 is quite what we are going to see moving forward. I don't believe that we are going to see much worse than this. And at the same time, we also expect the service and aftermarket to keep growing. Again, we have seen a stabilization. We're still not positive on the surface and aftermarket, but we're expecting to see, obviously, gradual improvements, which is logical at the same time, and this is what happens in every single cycle. When the UM goes down, normally the surface and aftermarket goes up.

Thank you. And if I can add to that, on the margin side, quite impressive to maintain 24% EBITDA margins, obviously with 15% decline organically. But if you believe that this will not get worse, is this a margin that you feel comfortable being somewhat sustainable then throughout the cycle?

Yes, we do.

Okay, that's very clear. Thanks. If I may skip to cash flow then. So strong cash flow again, as you point out, but with working cap to sales at 32% rolling. It's still quite a lot of room then to your long-term target of 20%. But can you give us a little bit of granularity? Do you expect another step towards that target already next year? And how big of a working cap improvement do you see near term? How long is the long term target?

Yeah, but I mean, for 2024, we are still expecting there to be continuous releases of working capital, meaning inventory. I mean, where are we in this journey? I mean, we are not even halfway, I would say, to be able to to achieve what we believe is something that we could consider being okay. Will we achieve the 20% working capital next year? No, we will not. But that is the long-term target and that is what we are setting our activities to deliver. But it will take definitely longer than 2024. So the answer for 2024, we are expecting a continuous working capital release in 2024. And then for Q4 specifically, I mean, you have to consider our typical seasonal trend. I mean, Q4 is not our weakest cash flow quarter, but the second weakest or the third best, I would say. So you need to keep that in mind. We had a a pretty strong Q4 last year. So if you want to do some benchmark, please keep that in mind. What you can add to all of this is, of course, the demand situation is of course going to be important here. But I think I have been clear on what we are aiming for in the short term for next year and long term.

That's great, thanks. And staying on inventory, you reference that logistics related costs in EMEA then have come down but are still negative. I think you have given us a number previously on those costs in the quarter. Could you give us an update on where we're at at the moment?

we're still high but we see improvements that's what i can tell you i mean we we added a number of warehouses uh during the last 15 months in order to obviously to warehouse all the inventories that were coming from from asia and just now we are reducing them step by step so we will see improvements in the coming quarters as well but it is in the magnitude of 35 million sector

35 million? Yes. Okay, thanks. That's helpful. And just a couple more, if I may. First, on capital allocation, you are now edging closer to the 2.5 EBITDA gearing target. But you also now mention, I mean, you mentioned a few things here, like limitations to deduct interest costs in your tax. And obviously, the interest environment is a bit different than when those targets were set. But can you please sort of give us an overview how you think about capital allocation in terms of your debt level and also M&A opportunities? And also note that while you know, CapEx at 1.6% isn't very high, maybe to other companies and R&D at 2.3% is up, right? But it's still below some of your consumer peers, if you would like to call them that. So having a broader discussion, that would be very helpful.

Thanks. I think that in terms of capital allocation, and we talk about CapEx, I mean, in absolute terms, we are still spending more than what we have done in the past and also on on R&D expenses where we are also in relation to net sales on a trend where we are investing more. Then in terms of M&A, I would say that we are still maintaining and working with our pipeline. It is an important part of our strategy. But as we have said earlier in previous quarters, we are committed to take the leverage towards the target of around 2.5. So I think we have shown in the quarter that we have taken a meaningful step. And I am expecting that we are going to continue with that until we are at the point where we would like to be and what we have communicated. But even if we haven't done any M&As, it doesn't mean that we are not working on that. We are maintaining our pipeline. And it's not only... I mean, it's also an environment where... sellers and buyers still have a little bit of a challenge to find common ground in terms of valuation and so on. But the leverage target, I think we have been clear on that. Okay, Gustav.

Thank you so much, guys. Thank you.

The next question comes from Fredrik Evarsson from ABG Sundal Collier. Please go ahead.

Thank you so much. Good morning. I just have one question on the distribution business. You guide for weakness, obviously, due to destocking. When do you expect the inventory levels in the trade to be more, I guess, balanced? And also, what do you see in terms of end consumer demand? Because retail sales in the US has been quite strong throughout the whole year.

And it's still there. That's why we are pretty convinced that this is a temporary rebalancing of inventories. We have seen that we are still taking share. we see that this is not valid for every single customer it's a couple of customers a couple of the major customers that are just now rebalancing so we are not expecting any collapse we are not expecting any massive deterioration but in the quarter it did have an impact and we believe obviously that we need to be cautious for a couple of quarters a couple of quarters okay good thank you welcome

The next question comes from Daniel Schmidt from Danske Bank. Please go ahead.

Yes, good morning, Juan and Stefan. Two questions from Lingi Dan. And moving on maybe on the end market exposures, I think, Juan, you mentioned that you had the September data for, if I got it right, U.S. RV shipments being down 13%. And we've been in this quite sort of clear position when it comes to the second derivative in shipment growth, even though it's been highly negative, it's becoming less and less negative month by month simply. And if you do the math, you come to the conclusion if the full year sort of the forecasts are correct, that you should be maybe even in positive territory towards the very end of this year. Are you hearing anything different compared to what I just said, or is that still making sense?

No, that's still the forecast from the industry. That's correct. Yeah, yeah. And the latest point, reference point that we have for next year is, according to the association, is a growth of 20%. Then we need to consider the association is normally too optimistic, so we are a little bit more cautious than that.

Yeah, yeah. And just sort of pairing that with what you did operationally in terms of profitability in America in Q3, you were back to profits despite top line being down 18%. And just looking at the trend in RV, which is, of course, the dominant exposure that you have in that particular business area. Is there anything in Q3 that has made the profitability unusually, abnormally strong in that particular quarter, given the weakness in top line? Or is that a good proxy or a starting point to what we should have as a benchmark looking into the coming quarters if we do believe that RV is now going to improve?

Hmm. I mean, I think, Daniel, what is important to remember is that we have a huge margin difference between service and aftermarket and OEM. And we saw positive service and aftermarket growth in the quarter. So as far as we see service and aftermarket and recovering as we saw in Q3, we are going to see those kind of improvements. Then we have to consider at the same time that Q4 is the lowest quarter every year. So you cannot just take Q3 and extrapolate to Q4. That's not going to happen.

Yeah, absolutely.

Okay, cool. This is really totally imperative where we have been communicating for years. We have much higher margins on the service side than we have on the OEM side. And of course, just now we have a positive balance.

Yeah, good. And then maybe the second question is on the same topic when it comes to the European market. which I forgot you write, you continue to see growth in the third quarter and listening to some of the OEMs, they remain surprisingly optimistic. What is your sort of judgment of the European RV market looking into 2024? What do you believe?

I do believe that we are going to get hit sooner or later i believe well i don't believe i see registration numbers coming down they are negative after nine months we have negative registration numbers in 2022 and i do believe that we should not be naive i mean the question is is going to happen in january or is it going to happen in april or is going to happen in august but it is going to happen at the same time i would like us to remember that we have never seen historically any kind of drops like we see in the US. So it's much slower and much less than America's. America's is always brutal at the same time as it comes back pretty fast, comparison to Europe. So this is important. I would believe that we are going to see iteration moving forward, but it's impossible to say when. I believe that we are a little bit more cautious than our customers. And normally we have been pretty right on that.

Yeah, now that makes sense. But here and now, it does sound like the OEMs continue to ramp up production, actually. So I guess there is short-term support, and then we'll see what happens at the start of 2024, simply. Exactly. Okay, that's all for me. Thank you. Thank you, Daniel. Thank you.

The next question comes from Douglas Lindahl from DNB Markets. Please go ahead.

Hello, gentlemen. Thanks for taking my questions. I want to start off by the EGLO lawsuit, which it seems like you now have a court date for, or is it some sort of preliminary court date at least? So I wanted to get your view on the latest with regards to this and also how you're handling this on the balance sheet and how This impacts your thinking with regards to capital allocation if the court date now is Q1 2025. That's my first question.

yeah but yeah i think that uh from our point of view uh i think yeah or we we have been very clear what we think about it uh so uh we don't think it lacks any any merit and we are still at that point then this is the process that you uh have in uh in in us and we did expect that it was going to take time now there is a date in the first quarter 2025. It doesn't really change a lot in real terms for us. I think we have been clear on what we think about it. Then we still have an amount in our balance sheet, but I don't want to talk about it. I don't think it is beneficial for anyone to talk about it, but that is what it is.

But it's continuing current liabilities, or? Current, yeah, it is. Okay, even though the quarter is set beyond sort of 12 months. Just to understand the accounting of it. Okay, that's fair. I appreciate the answer and I understand where you stand. So maybe then moving on to APAC where margins are continually very, very strong and it's obviously slightly tougher there as well. How should we think, sort of similar as to the question on marine resilience going forward, how should we think about the resilience in the APAC margin here?

I think we are very resilient. I think it's a little bit the same. So you look at APAC is pretty much distribution and service of the market. We have higher margins than we have on the OEM. So historically, we have been pretty resilient. And we, I mean, at the same time, At the same time, it's a little bit more the same. I mean, we started to implement a strategy to get this company to become much more flexible than we used to be in the past. And that's what we see now. You see that in reality is very much about Americas. We had some issues in EMEA one year ago. We're starting to see the traction and we're expecting to see the traction moving forward. The market is where it is, but of course we can do things internally to mitigate the negative effects.

Personally, I'm quite impressed by everything you're doing there to protect margins in the group, so congratulations on that. That's my final words from my side. Thank you. Thank you very much.

The next question comes from Johan Eliasson from Kepler-Tuvriax. Please go ahead.

Good morning, gentlemen. This is Johan at Kepler-Chevreux. I have a few questions. Just in the marine space, you talk about this technology shift going from hydraulic steering to electronic steering. Can you sort of talk about, this is probably, you know, in the smaller boat categories, obviously, can you talk about sort of the value shift per boat or so? I think your American peers are much more diligent in talking about value per unit, et cetera, that they are managing to get in. But can you give us some details here on what this shift means for you in terms of value per boat and how that could potentially offset the decline in the headline numbers on boat if 10% is today with electronic steering and it could be 50% next year or whatever?

So we have seen a continuous shift from mechanical to hydraulic, from hydraulic to electronics. The price difference between hydraulic steering and mechanical steering is five times, not 5%, five times. The difference between electronic steering and hydraulic steering is five times again. So the difference between mechanical and electric is about 25 times the price. Of course that you are now moving from 2% one quarter to 25% next quarter. This is a small shift which is taking step by step. And mechanical steering is still close to 50%. So you could say that over time there is another 50% to go. Again, it's not going to happen in one quarter, but we have seen this shift since we acquired Sista and it's a continuous shift. What is important to see as well is that normally it takes many years to get these percentages up but we see that electric steering is more much faster now we have seen historically which is positive for us obviously sounds very good and if i got the numbers right mechanical steel 50 electronic two percent and then the delta hydraulic and i would be yes no i never said electric and two percent electric is today high single digits. Okay. Good. So a way to go, which is positive.

Yeah, that's good. Then on the tax rate, you are now guiding for 29% year-to-date and talks about these non-tax deductible interest rates. How should we think about tax rates going forward in the medium term, 24 and 25? Is it this 29% as well?

You should think about it that we will gradually go back to the 27. It will not be 27 next year but step by step because a part of this is temporary. I would say then we can have a debate about the interest rate but obviously it's about being on a certain level so uh and as we are taking different kinds of measures maybe the the the interest rate environment is going to shift to something else you know that is going to to to reduce uh over time so and and then the country mix is is also going to uh you know swing swing back to something that is more according to the to the history. So I would say that we should gradually move back towards 27%. But it will, like you say, it's more 25 that we're going to achieve that next year is going to be still higher than the history.

Okay. And normally when earnings are at low end, companies get difficulties in achieving a low tax rate because they are not sort of allowed to recognize some tax assets because there's a question mark if profits will ever return in that tax jurisdiction. I guess that's partly also for you, the situation. Do you think sort of going forward that actual paid tax rate could, because of this, be slightly reduced? lower than than the reported tax rate as you return to profit you might actually be able to sort of recognize some of these tax assets yeah that could very well uh be uh you know in this scenario yeah okay that's all i had thank you very much thank you thank you the next question comes from Agnieszka Wajlela from Nordia

please go ahead.

Thank you and good morning. I have three questions and I will ask them one by one. So the first one is on the marine business. I mean obviously you defended your margin in a very good manner in the quarter. So I just want to know if you could be more specific what did you do maybe especially in your kind of production structure and what did you do to keep the costs low in the marine business and do you think that you are

of well positioned for the weak markets that could continue for some time i mean if i if i start answering by your last sentence i believe that we have seen already quite a bit i mean we go to history and what happened during the the 2018-2019 marine was pretty close to the kind of numbers that we are seeing just now so so i think that normally when when the cycle hits Companies, OEMs are pretty brutal in reducing their orders dramatically. So that's my first answer. The second answer is really that we are very much keeping our eyes on the ball. We are ahead of the game. Whenever we see any kind of trends pointing south, we are reducing our capacity. And I think that's what you see. You look at the number of fees that we have in the company today, we are practically 20% down in comparison to the number of fees that we were two years ago and kind of close to 11% down in comparison to the number of fees that we had one year ago. So it's very much about acting fast, which is, Agnieszka, according to a strategy that we introduced a few years ago. We wanted to become more agile, more flexible, and especially reducing and mitigating the risk. when you have a negative cycle. You can talk about, you can see just now Marine, but you have seen APAC is negative. EMEA is negative. In reality for us just now is Americas, which is the most exposed to the RVOM. Yeah.

Perfect. Thank you. And then maybe a question to Stefan. On the cash flow generation, actually usually Q4 is quite good for you. But I don't know, maybe I interpret your comments in a wrong way. Do you expect that cash flows will be reduced significantly versus Q3 and Q4 and what will drive that? Is that the correct impression that they get or not?

No, no, but there is nothing changing in that seasonal pattern. You should not expect 2.1 billion in Q4, if I say so. But I mean, what I also said is that We had an operating cash flow in Q4 last year that was on the strong side, I would say. But Q4 is still, as you say, Q1 is our weakest cash flow quarter. Q4 is still okay.

And maybe a follow-up on that, just on the working capital. Do you think that you can release working capital in Q4 or will you start building ahead of Q1?

I mean, it's a little bit of both, I would say. We will, in some places, continue to reduce inventory in Q4. In some other areas, due to the season, we are going to build inventory. So you should expect a little bit of a different pattern on that in Q4, which is very normal.

And then the last one, I mean, we see some companies writing down the goodwill positions. And I mean, you have quite significant goodwill position in your balance sheet. So if you could just comment on What is the performance of the acquired businesses and maybe when did you do the last goodwill test? Are you doing it only annually or are you doing it more often than that?

We are continuously analyzing that and my only comment to that is that we don't see any need for writing down any goodwill.

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.

Well, thank you very much for your attention, to all of you. And I would like just to end up by stating where I started. Very, very good margins. We are very happy to see the margin improvements versus last year, and we are expecting to see major improvements moving forward. very strong cash flow and we will keep delivering on our strategy since we believe that the strategy we are applying is going to develop a much better company than we have in the past. So thank you very much for your attention.