Dometic Group AB (publ)

Good morning, Juan Mark speaking. Good morning to the presentation of this second quarterly report for 2024. Moving over to the highlights in the quarter, looking at the market, we still see tough market conditions. So no major changes from that perspective. If we talk in general terms, then we will, of course, look to the different sales channels we have. We see also retailer inventories coming down very much in the US, but also in the other areas, which is also leading obviously to a better situation for our service and aftermarket business as well for distribution, while we see OEM still weak. Looking at performance, we are happy to deliver a good margin improvement considering, obviously, the loss that we have on the top line. Service and aftermarket down 1%, which is a substantial recovery in comparison to Q1 of this year, but also very much in line with our expectations after the last quarter. Distribution also, a clear improvement, ending up at minus 2%, very much driven by mobile cooling solutions. And then on the OEM side, 17% down, with negative growth practically in all areas. And what we see, the major difference we see really in the quarter is that we start to see the negative effects also in LV, in LVMA region. Every time margins, as I mentioned previously, good margin improvement, 14%. We have to consider obviously that last year we have a one-time effect, positive effect of 33 million. So the improvement is really 0.3 percentage points in comparison to one year ago. We continue to work on our efficiency improvements. We continue to work obviously on the pricing and then we have a positive effect on the sales mix. At the same time, as we also have a negative effect of segment mix, where as you most probably have seen, marine is down 17% and they are very high margin business for us. That means in reality that this is the fourth quarter in a row with improved margins despite the loss on the top line. We're also very happy to report a continuous strong cash flow, which is clearly helping down our leverage. If we move over to the numbers, 8% down on organic growth, EBITDA down 9%, EBITDA margin ending up at 14% in comparison to the 13.7% of last year when correcting for the one time off that we had one year ago. Adjusted APS of 1.76 krona, a strong operational cash flow of almost 2 billion krona, and a leverage down to 2.9 in comparison to 3.2 that we were showing one year ago. If we move over to the yesterday numbers, 14.2 billion after six months, or 10% organic growth. So we have a sequential improvement in comparison to Q1. Every day down 9% with margin of 13% in yet to date in comparison to 12.7 that we were showing one year ago. Adjusted EPS of 2.96 and operational cash flow of almost 2.2 billion in comparison to 2.6 billion one year ago. looking at organic growth this is the ninth consecutive consecutive quarter where we are showing negative growth and our expectation is obviously obviously that we will start moving outwards from this point so with that what we would like to say is that the draft we have passed the draft so to say from a growth perspective if we look at the safe mix no major changes uh perhaps worth to comment that on one side OEM is all-time low in terms of percentage of sales while distribution is all-time high as a consequence obviously mobile cooling moving upwards at the same time as the OEM business is coming down moving over to service and aftermarket happy to see service aftermarket coming back in Q2 in comparison to Q1 and now we are starting to get close to largest numbers We see clearly when looking at the upper side of the upper chart on the slide, we see that the traditional historical seasonal pattern is changing. And that's really a consequence, obviously, of dealers being very careful in building up inventories and ordering in the very last minutes. And I believe that we are going to see exactly the same situation for a couple of quarters until the situation stabilizes. At the same time, we see the retailers are destocking, and that's what we see now when we are moving upwards percentage-wise in comparison to last year. And what we can see when talking to dealers is that consumers are still repairing, they're still using the vehicles, but of course they are cautious in spending more money than absolutely necessary just now to get out on the road. Again, we don't foresee any major changes as far as the interest rates still are at a pretty high level. If we move over to the EBITDA margin, we are of the opinion that we are doing a pretty good job in protecting our margins despite the drop in sales. and the negative segment mix that we have. So the reality is that we have all the lower margin businesses improving the margins at the same time as both LBC where we have very high margins and Marine where we have very high margins are just now having a negative impact on the sales, the negative sales. Having a look at the different segments, LB Americas, Organic growth down 13%. We showed good growth in service and aftermarket in the quarter at the same time as we still have decline in the OEM. And we are clearly prioritizing margins in this case since that's where we have the lowest margins for entire group. Improvement on every day and every day margin ending up at minus 1.1 in comparison to minus 2.5. very much supported by the mix, meaning service and aftermarket moving to positive territory at the same time as OEM is still in negative territory. And then we keep working on reducing our costs and finding the right balance. If we move over to LV EMA, 6% down organically, with growth in service and aftermarket as well, decline in the OEM. And I would like to mention here that we continue to see positive registration numbers while we were 3% down in registrations during the first half of last year. Now we are plus 6% in registrations in the first half of this year. And to those first six months of this year, we need to add also last quarter was also positive. So on one side, we see that the market is developing really according to our expectations. We knew this was coming. At the same time, now we see registrations moving upwards, which means that perhaps the drop is not going to be as deep and as long as we expected. Especially, I mean, the good news in this case is that registrations are increasing despite the still high interest rates. EBITDA, good improvements in EBITDA margins, moving from 11.7 to 13.7. Same, same. So on one side, we keep working on efficiencies. We have the closure of the factory in Siegen that we completed during 2023, and that's having a positive impact. And then we have also, obviously, the sales mix in the service and aftermarket is growing. If we move over to LV in the APAC region, negative growth in the same way, minus 11%. We service and aftermarket in this case below last year. We are growing in distribution. We see that the RV industry in Australia is having a tough time. This is not the first quarter, so we have seen this now for two and a half quarters, I would say, and that will continue for a couple of quarters additionally. Still, we are very proud, obviously, of showing very strong margins today, ending up at 29.9% in comparison to 31.4%. Moving over to marine, another OEM, very tough market on the OEM side, organic growth down 17%. At the same time, we need to keep in mind that the first half of last year, we were showing nice growth. And the iteration started really in June last year, and they continued during the remainder of the year last year. So in this case, we are expecting, obviously, some gradual improvements in comparison to the situation that we had during the second half of last year. Single-digit decline in service and aftermarket. And I'm coming back to the same comment. Just now, we will see some volatility on the service and aftermarket, since it's very much about dealers waiting until the very last minutes. So we might be seeing some growth one quarter and then some reduction next quarter, but we are moving upwards. That's what we can confirm. Evitae margins, even in this case, good margin protection, ending up at 23.4 versus 26.2 one year ago. And it's very much sales-driven, the drop on the top line. while we are doing a good job in protecting our margins on one side through cost reductions, but also having support by the sales mix. In this case, obviously, suction aftermarket is dropping less than the VM side, at the same time as we see also the percentage of electric steering growing still today in comparison to the rest of the steering systems. Mobile cooling ending up floutish at the same level as one year ago. We saw the positive trends in the mobile cooling area in the second quarter. We saw retailers starting to order again as we expected, same as for marine. We had organic growth in Q1, Q2 last year. Then retailers started to balance their inventories during the second half of last year and Q1 this year. And now we are seeing more traction. So we are optimistic. We continue to take market share on the hard coolers, which is good to see. And we are very positive. We are very optimistic after the launch of the first compressor driven cooler under the Igloo brand. ABTA, strong 20% in comparison to 10.2 last year when you exclude obviously the one of positive effect that we have one year of 33 million. And the improvements are very much driven by innovation, meaning new products, but also becoming more and more efficient. And then moving over to the last one, global ventures showing negative growth of 5%, very much driven by the drop in the residential market in the US. Every day, even there, we have good margin protection, 15.1 versus 15.6, despite the lower sales. And in this case, we are investing quite a bit in IP, developing our IP in the mobile power solutions area that we started to consolidate at the beginning of the year. Moving over to innovation, we just launched a new range expansion for our active coolers. So we have a very strong position with our CFX3 series. We introduced a CFX2 series to capture a higher portion of the market where we are present today. We also launched a new camping stove and the Dometic and Kavak brand, which is also moving in a very positive way during the first couple of months, as well as a shelter. In both cases, we continue to invest in developing more sustainable products. And this is also the case with these two products. Last but not least, and this is just a few of the pro launches that we had during the quarter. We also launched the new PLB15, which is a new portable lightweight battery for outdoor applications and nonetheless to be connected to our own cooling boxes. But again, this is valid for our own cooling boxes as well as for any other electronic device that should be charged. And we will continue to invest in innovation, especially in the areas where we are expecting high growth, high margins moving forward. With that said, Stefan, let's move into the finals.

Thank you, Johan. Starting off with reflecting on the EBITDA development in Q2. As already has been mentioned a couple of times, we had a one-time effect of 33 million in Q2 last year related to EGLO and to tariff reimbursement in that part of the business. So with that taken into consideration, we have an improvement of 0.3% units in our underlying margins. Looking at the different details, obviously the organic sales decline has been impacting the EBITDA in absolute terms. Then the gross margin has improved with 0.3% units. uh if we take them the 33 million into consideration it's 0.9 percent units improvement driven by efficiency improvements and it's including the closure of the manufacturing in segan which happened mid-year last year and then we have lower raw material costs which are also Kicking in more and more as we are turning over our inventory, then we have sales mix and price management also contributing to this development. R&D and SG&A expenses are increasing to 14.6% from 14% of net sales. We are continuing to invest on R&D in strategic growth areas like marine mobile power solution and mobile cooling solutions. And then that is partially offset by cost reductions in SG&A. We have very limited effect on FX in the quarter and obviously no effect from M&A. Moving over to cash flow. As Sean already mentioned, we are really happy with the continuous strong cash flow, almost 2 billion. And that was obviously... supported by reduction of inventory and reduction of working capital in general. So inventory level is down 900 million versus last year, which is happy to see that. Income tax paid are slightly lower than last year. However, commenting on the tax rate here, it's higher than last year. But this is following the comments that we did in Q1 already. And it's driven by that we have a higher amount of profits in high tax year restrictions. And it's also partially related to non-tax deductible interest costs. Financing, there is a big swing in that. The different parts of that, we pay dividends, 607 million, which is a little bit more than last year. Then we have the net of paid and received interest, 320 million versus 258. However, in Q2, as you can see, sorry, we'll leave it by that. And then 750 million in private placement was signed in the second quarter in 2023. Moving over to CapEx and R&D. CapEx is coming down a little bit. We have been tougher in prioritizing as the situation is right now with a tougher demand. So CapEx is 0.9% of net sales in the quarter and 1.9% over the last 12 months. Looking on R&D, it's 2.1% versus 2% last year. And it's driven by what I mentioned before, investment in structural growth areas, mobile cooling solutions, NPS and marine. And over the last 12 months, we have 2.4% in R&D expenses in relation to net sales. Taking a look on our net debt to EBITDA, we have been coming down to 2.9 compared to 3.2 times one year ago and sequentially coming down from 3.0 from Q1. and it's obviously driven by the strong operating cash flow and it's a high focus as well in protecting margin and reducing working capital around the organization. I can also just repeat that we are committed on achieving our leverage target of around 2.5 and we are expecting that the leverage will continue down during the remainder of this year. Taking a step into working capital, accounts payable are stable and more moving depending on mix. When we buy less in China, the number of days goes down a little bit as we have the longest payment conditions in China. Perceivable stable 44 days. So nothing to report there. And then we can see on the inventory side coming down to 141 days, which is obviously in relation to what has been mentioned before. We can also see that the inventory balance compared to one year ago is 6.7 billion compared to 8.4. And we are continuing to take actions to optimize working capital towards the target of 20% of net sales. It's obviously a bit of a difficult KPI when we have the organic sales decline as we have. So I still think that the underlying work with reducing working capital is absolutely moving on according to expectations. Summarizing the operating cash flow, almost 2 billion in the second quarter compared to 2.3 in the same quarter last year. And it's like I have reported before, we are expecting that the strong cash flow is going to continue. We are not going to achieve the record high that we had last year, but still strong and solid for the coming quarters. Moving into our debt maturity profile, as you might remember, we did sign in March 2024 a new agreement with the second tranche of our credit facility, which then concerns the term loan of $333 million. That is now moved out to 2027 with a one plus one year extension option. Then we have also amortized 100 million dollars July 1st, according to plan. And then the revolving credit facility has been increased by 80 million euros. So it's now a total of 280 million euro and it is undrawn. And the average maturity by this has been extended from 2.2 to 2.5 years. If we include the extension options, the average maturity is three years. And for the time being, the average interest rate is 5%, and it's slowly going to trend up. With that, I hand over to you, Jean, to summarize.

Thank you. Thank you, Stefan. I mean, the market is where it is. It's not a lot that we can do about, but we continue to drive performance improvements, and we are happy to report improved margins, strong cash flow, and a leverage which is moving south, trending down. We are very happy to see as well the distribution of the market are moving upwards stepwise, and that should continue. then if we talk about the future our expectations is a little bit more the same so we continue to see service after market as well as distribution moving outwards stepwise we are not going to to see a major massive improvement in one quarter we will see that in steps uh while we see the vm still remaining pretty weak all over the place. Some areas, as we saw, the US market is stabilizing, but stabilizing at a low level, while the rest of the OEM businesses are coming down. Strategically, more the same, we will continue to drive our strategic agenda. We have a better balanced mix today than we had a few years ago, which is obviously helping us to maintain our margins at good levels. We keep investing in growth areas. Stefan mentioned a couple of times some of the areas where we believe that we have an underlying growth, structural growth moving forward as we want to put more of our resources and our investments. And we will, in other words, continue to prioritize margin expansion in order to achieve our financial targets. And with that said, I would like to open for the Q&A session. Please.