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.