Dometic Group AB (publ)

So good morning, everybody, and welcome to this presentation of the Q3 report for Dometic. Let's start immediately with the highlights. So the market remains challenging, clearly, despite the fact that the interest rate decreases have been announced. We feel that both consumers are still cautious with the purchases, as well as the value chain, meaning retailers. and distributors continue to be very, very, very cautious and avoid to build up inventories as much as they can, especially in front of the low season that we are approaching now. Critical inventories on the way down, lower than last year already, but as I commented already, we feel cautiousness from customers. OEM weak all over Europe. the place and in all verticals, which is no surprise. I have to say that that's part of the business that was very much expected during the quarter. We already saw what happened in Q2 with both Europe and APAC coming down from a VM perspective and that situation accelerated quite a bit during Q3. Looking at sales, 4% down organically with service and aftermarket, 11%. and basically a decline in all segments with the exception of land vehicles EMEA. Distribution equally down minus 10% and a little bit the same weak in all verticals especially as you all know mobile cooling solutions is the major part of the distribution business and then we are very much as expected 20% down where we saw both the EMEA land vehicles organization and APAC coming down according to expectations. EBITDA margins down 8.6 versus 14.3 last year as a consequence of lower sales, also as a consequence of the much lower sales in the service and aftermarket and distribution. That causes, obviously, when it came as unexpectedly as it did, it causes some extra inefficiencies in our manufacturing that we're obviously working in order to correct. And that leads to a situation where we will accelerate even more our strategy implementation. I will come back in a few minutes about that. Cash flow continues to be strong. We came in at 1.3, which is lower than one year ago. But of course, our inventory situation is also different than what we had one year ago. Our leverage as a consequence ended up at 3 versus 2.9 one year. So looking at sales, 5.6 billion or 14% down organically with EBITDA ending up at 483 million for 8.6 EBITDA margin versus 14.3%. Adjusted EPS at 59 earlier and a cash flow, as I already commented, ending up at 1.3 billion. A leverage at 3. Looking at the year-to-date numbers, 19.8 billion or 11% down organically with EBITDA at a little bit above 2.3 billion or 11.7% as EBITDA margin versus 13.4. And of course, there we have seen an acceleration in Q3 especially, let's just remember that the previous four quarters, even if sales were down, we improved margins quarter by quarter. So we have seen quite a bit of a change, very much driven by the surging of the markets. EPS, adjusted EPS, ending up at 3.56 EUR with a cash flow that ended up at 3.4 billion. and a leverage of three, as I already commented. Looking at the sales development, of course, not a very pleasing picture with 10 quarters with negative growth. And this is everywhere at this point in all our segments we saw negative growth. Again, the surprise was not the OEM, but rather the service and aftermarket and distribution businesses that came down after, I could say, a positive development in Q2. We turned back to a negative in Q3 again. Looking at different sales channels, no major changes. In reality, the change is that the distribution business is weighting a little bit higher since it is dropping less than the other two. We see as well that the RVVM business represents today 21%. We are coming from 22% approximately one year ago. Other than that, it's very, very similar. Let's have a look at the real surprise for the quarter. I mean, as you can see on the upper chart, we see 2019 and the typical seasonality that we see year on year. We see as well 2024 getting very, very close to the same seasonal pattern as we have seen historically, being 2022 and 2023 really deceptions. We had expected really Q3 to start to get close to 2019. That never happened. Again, it's difficult to... understand we have spent a lot of time trying to analyze reasons we can only find two reasons talking to our dealers talking to and the view on how consumers are behaving what we hear is that where consumers normally did upgrade and replace all products just now they are repairing on the hopes that the product is going to last for one more year and then see what happens on the next season But of course, so that's from a consumer perspective. From a dealer perspective, it's very much trying to avoid building up inventories now, especially when getting close to the end of the season in Q3. And that's also what just now we don't expect any major changes on Q4. Seeing what happened in Q3, we believe that even Q4 will continue to be volatile and weak. Moving over to EBITDA and EBITDA margins. Of course, disappointing to see that after four consecutive quarters where we were improving our margins, despite lower sales, Q3 came in as a negative surprise. And we will, of course, work hard to repair our margins again. Lower sales is one of the reasons, but the other main reason is, again, the lower sales and services of the markets. We have been working on reducing our expenses, and they are down. But as percentage of sales, of course, they are coming up, and we will work on that to take it down again. Looking at different segments, Americas down 23% organically. Service and aftermarket turned back after a positive, rather positive, I would say, Q2, turned down to a negative in Q3. OEM continues to be weak, which we saw also expectations for 2024 coming down as well as expectations for 2025 from the association coming down as well. Every day margin minus 8.2 versus positive 1.7 last year. Here obviously we are working and doing everything we can to turn it to positive as soon as we ever can. If we move over to Land Vehicles EMA, Organic growth down 12%. This is really deception confirming the rule. Land vehicles, EMEA, we saw service and aftermarket pretty stable. We, on the contrary, saw also deceleration of the OEM business, something that was announced. We have been talking about that now for a couple of quarters. Started already in Q2, accelerated in Q3. Every day margins, 6.5 versus 2.6, as a consequence of the much lower levels in our factories are something that we are working also to correct as we speak. And of course, the lower volumes are creating additional inefficiency in supply chain. If we move over to land vehicles APAC, even here we saw an acceleration of the OEM, negative growth. Totally went up minus 19% in organic growth. And it's very much driven by the RV manufacturing decline in Australia. Australia went up basically from an average of 22,000 units for years into 31,000 units during 2021 to 2022. And we see that it's coming down to normal levels again. Evitae margins in LD APAC. ending up at 25.9, which is, we are very happy, obviously, to maintain those high margins despite quite a hefty drop on the top line. And we see even here, obviously, the impact, negative impact of the lower sales and the negative service and aftermarket as well. Moving over to marine, 13% down organically. I think that we need to compare those numbers with many of our customers that are seeing both 25, 30, some of them even 40% down in negative growth. So again, the technology transformation helps us to maintain still a moderate drop in comparison to our peers or our customers. Even here, we saw a decline in service and aftermarket, again, from a more positive Q2 to a negative Q3. And we end still very, very, very weak. Every day margin, even here, we are happy to see that we are mitigating the negative effects of the volume drop, staying at 19.3 versus 24% last year. Overcooling solutions, minus 9% in the quarter. We saw an improvement in Q2, and then we saw a deterioration in Q3. Prior to Q2, it was very much about inventory readjustments of our main customers in the U.S. market. Even if sell-through was pretty good, in Q3, we saw something else. We saw really sell-through from our customers to consumers coming down. And then we saw as well that our customers, retailers, really postponed their orders. We are seeing some improvement during the first couple of weeks of october but again the market is behaving very very very volatile so we have to be careful and we see igloo continue to to take a share on the market where we already have a very strong position levitate margin 7.3 versus 10.2 and we we are launching we have launched a new series of cooling boxes. We launched one new series in Q2. We are launching a new one in Q3 and more products in the pipeline. And then finally, global ventures, even here down 19%. We declined in the residential business, but also declined in mobile power solutions that have been holding up very, very well, but now impacting also by the RV and marine situation. Every day margin of 9.2 versus 16.9. We had a very, very strong Q3 last year. That's also true. Hospitality developing well and holding very well their margins. And we continue. This is one of the areas, obviously, where we continue to invest and accelerate our investments in product developments. If we move over to innovation and product launches, I commented we launched the new CFX2 series during Q2. Now we are launching the CFX5, while the CFX2 series is really there to address the need for lower price products. So still high quality, but less features, CFX-5 is really the ultimate cooling box, active cooling box that Dometic and the best product that Dometic has ever produced before. And is already now launching on the US and Australian market and still we are working on the European markets. We also launched during the quarter the first cooler of a new generation of Dometic soft coolers. That's another product area where we are investing quite a bit, and we continue to do so since we believe that that's an underlying growth market. We are also very active in terms of channels. We have a new partnership signed with Volkswagen where we are going to be the partners with a number of our products in connection to the full launch of the new California series of panel vans. And then looking at sustainability, good to see that all parameters are better than targets, with exception of ESG audits that we will put a lot of attention to in Q4 to get in line again. Very nice to see as well a product innovation index. You may remember that we were up to 26%. Then we got the pandemic. Because of the inventories, we were postponing a number of product launches, and now we are improving quarter by quarter. And we are moving towards our target of 25%. And with that said, I would like to hand it over to Stefan, please.

Thank you, Jean. Starting off with taking a look on our income statement for the third quarter. The gross margin is down approximately 3% even versus last year. Driven by lower volumes. which is causing supply chain inefficiencies, including factory cost variances and higher logistic costs in relation to net sales. On operating expenses, we are below last year. However, as the net sales is down, it increases in percentage of net sales. And we continue deliberately to invest in R&D in our strategic growth areas which you also can see as the innovation index continues upwards. Then we have the line amortization and impairment. Obviously a significant number in the quarter driven by the Goodwill impairment of 2 billion related to the segment land vehicles Americas that we communicated on Friday last week. Then moving on to the net financial expenses, it's almost on par with last year, but looking a little bit closer into it, we can see that The net interest on bank loans and bonds is coming down. It's 154 million versus 198 last year. Then we have some ethics revaluation and other items making up the rest. Taxes, minus 60 million compared to 192 million. And the tax rate is, of course, impacted by the impairment loss. Then the adjusted year-to-date tax rate is 32%, which is compared to 29% last year. And this is driven by country mix as well as non-tax-deductible interest costs, which is obviously going to be mitigated over time with that the interest cost is on its way down. Moving over to cash flow. We had a robust operating cash flow of almost 1.3 billion in the quarter. Not on the same level as last year, but that's what we have communicated before that we didn't expect that either. But it's driven by continuous working capital improvements. Moving a little bit further down into the cash flow statement, looking on income tax paid, it's slightly higher than last year, but that's more related to timing effects than anything else. Then we have an acquisitions and divestments at 56 million, and that is related to payout of holdback of the purchase price, which was there to cover any potential claims against the warranty and guarantee catalog. But as there were no effects according to that, we paid that out now during the third quarter. On the financing side, we are almost negative 1.5 billion, and that is driven by that we have paid back 100 million US dollars according to plan in the beginning of the third quarter. and last year we did a repayment of a bond of 300 million euros. Going to the next, you see the operating cash flow laid out over time, and there you can see that the almost 1.3 billion in Q3 is a good Q3 quarter, looking in a historical perspective. going further back than 2023 obviously, so happy with that. Looking into working capital, we can see that the working capital last well month is 30% and it's down 2% during units versus net sales. On accounts payable and accounts receivable, it's a stable development. Looking into inventory, We have in the last 12 months down the inventory balance with 1.5 billion Swedish krona and the number of days inventory outstanding is now 139 compared to 146 last year. We continue to work on optimizing working capital especially on the inventory side and we see further potential in this area. Looking on CapEx and research and development spendings, CapEx is 1.7% of net sales compared to 1.6 one year ago. And the last 12 months is 2% of net sales. So slightly down in Q3. On R&D spendings, we are on 2.7% compared to 2.3% of net sales. It's including capitalized development expenses of 13 million. And as I mentioned before, we are deliberately continuing to invest in structural growth areas today. And this means that the last 12 months, we have had two and a half percent of R&D spending in relation to net sales. Moving on to the next, we have a graph showing our net debt to EBITDA leverage ratio. It ended at 3.0 compared to 2.9 one year ago. and 2.9 in Q2, so slightly up on a sequential basis. Obviously, reduced EBITDA is having a negative impact, but it's partly offset by robust cash flow and somewhat also on the fixed development. We continue. Obviously, to have a high focus in the organization on protecting margins and reducing working capital. And we can just repeat that we are committed to move towards the leverage target of around 2.5 times. The last is showing our debt maturity profile. As I mentioned before, we paid back 100 million US dollar on July 1st, 2024. And the average maturity is 2.3 years. If we include the extension options, it's 2.7 years. And the average interest rates is on its way down and is now on 4.9%. So with that, Juan, I'm handing back to you to summarize. Thank you.

Thank you so much, Stefan. I mean, before that, I would like to comment a little bit more about our strategy implementation. Since 2019, we have been working very, very hard to implement the strategy that we announced in May 2019. We have changed enormously the settings that we have in the company, reducing our exposure to OEM, increasing service and aftermarket, and increasing distribution. Of course, when you look at the sales pattern in the last 10 months, it's simply disappointing to see the negative growth. Having said that, we get a pandemic every 100 years, statistically. And hopefully, once we are leaving this post-pandemic situation behind us, we will see that Dometic is a much more stable, much more resilient company than we used to be. We see innovation index coming back again after the pandemic that we are very happy about. We believe that that will generate organic growth down the road. We have reduced our cost base by taking down the number of factories from 28 to 23, and also by obviously adapting our workforce to a new situation in the markets. Just as one comment, we are We have abused more than 3,000 people in the last three years as a consequence of the pandemic. What we are doing just now is twofold. On one side, we are looking at a new restructuring program. It is clear that the recovery that we expected is moving slower than we believed. We need to adapt our course base to a new situation. At the same time, as we announced a couple of years ago, our intention as well to divest a number of areas. something we have been working on. We have a couple of them already ready for the market. At the same time, we are looking at increasing the number of areas that are potential divestments moving forward. We intend to spend the coming couple of months working on all the details, and more information will be shared with all of you during the quarter or the latest in connection to the Q4 report. And then summarizing the situation, more of the same, the market still is challenging, remains challenging and volatile, difficult to predict what is going to happen, again, with the exception of the OEM, which is quite predictable. We believe it's going to stay in the same situation during Q4. We, as I commented, we saw that our customers, dealers, distributors are very, very cautious on building up inventories. hopefully when it turns, we will also see an acceleration of that. We see also consumers during the last month being as well very, very cautious in spending the money in upgrades and replacement of all products. Clearly, we are not satisfied with the profitability that we showed in the quarter. It came as, as I said, a surprise when the service of the market came down at the same time as our factories did suffer from the lower volumes from the OEM. Keep in mind that our factories are primarily driven by the OEM businesses. And that's why we are looking at the restructuring program. Strategically, we keep investing in our structural growth areas and we will accelerate our strategy implementation. And with that said, I would like to open for the Q&A session.