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.

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. You can also write your questions on the webcast page. The next question comes from Fredrik Ivasen from ABG. Please go ahead.

Thank you. Good morning, guys. I've got three questions. First one on marine. You obviously refer to tough market environment here with, I guess, customers down around 20-30% on average. And then when I look at the sort of market expectations of these peers or customers, if you will. I noticed a quite steep expected improvement in Q4, still maybe negative, not positive, but an improvement from Q3. And then positive growth as we look into the beginning of next year. I'm curious to hear whether you have the same view or what kind of visibility you have when you look into the coming, say, three to six months in marine operations.

So we start with the first question, Marine. I do believe that we need to be very, very careful. I mean, of course, that some of the Marine customers might see some improvements depending on where they are coming from and the sub-segment within Marine. But I mean, we had one more report yesterday, as late as yesterday, coming from Polaris, expecting minus 40% for this year. So I think it's a mixed bag. I don't expect any major improvements in the short term. On the contrary, I mean, we need to keep in mind that the marine markets, if providing that Q4 is going to be negative, which I believe is going to be negative as an industry, of course, that will show that we have 18 months of drop for Dometic and that we will have about two years of drop for the industry. So, of course, as you know, later it will stabilize in the same way as it has stabilized on the RV industry. If you look at the RV industry, it's not developing as the expectations, but it's stable. So keep in mind that the expectations for 2024 for the RV industry was 15 to 20, and the market is going to end up at 3%. And I believe that we will see most probably the same evolution of marine. So again, I believe that we need to see some less volatility, and we see some more continuity before we can foresee what's going to happen in 2025.

Yep, makes sense. Thanks for that, John. And then second one on the margin. In me, I was down six percentage points year-on-year, quite steep drop, especially when looking at the previous quarters when you sort of expanded the margin. Can you, Wille, on this sort of soft margin, A little bit, I appreciate the inefficiency comments and so forth, but some more color on this margin drop.

It's obviously driven by the fact that the utilization in our factories are on the low side. I mean, it's the combination of that. Obviously, I lost my track here. Sorry. No, but it's driven by the low utilization in the factories, and then also that we still are seeing higher logistic costs. And then you need to keep in mind that logistic costs is not only what we pay to the freight forwarders. There is also some typical structures in this type of cost. And then we see, especially on the CPV side, a lower margin. To compensate ourselves with different surcharges and so on is a little bit more difficult in that customer space, thinking about the higher transportation costs from China, for example. I would say that that's, you know, I was saying before that it is lower demand, obviously, but combined that we are also reducing inventory quite a lot, which is obviously also making the utilization in the factories lower than what they would normally be.

Okay, thanks Stefan. And that last question from my side on the impairment in the U.S., Is it any specific of the acquired companies that this relates to, or is it the whole sort of portfolio, if you will?

It's actually not related at all to any of the acquired companies. It's related to intangible assets that was created as far back as 2011, when the current Dometic structure was inaugurated, when when EQT took over. So nothing related to the newly acquired companies.

Okay, good. Thanks. That's all from my side. Thank you.

Thank you.

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

Yes, good morning, Johan and Stefan. A couple of questions from me then. Just coming back to what we just talked about in terms of utilization in being lower in factories as you lower the inventories, which has of course created a good cash release for the past couple of quarters. How should we look at that correlation in the coming quarter or quarters?

Yeah, I mean, in terms of working capital, as I said before, we have We still have a too high inventory level, so even if we have done a very good job in reducing inventories, there is still more to come on that side. That's something that we will continue with. Then it's not the same for all segments, right? Where we have high inventory levels is still in LVA to some extent, in land vehicles EMEA as well. Then for the other segments, it's more of a continuous management from quarter to quarter.

Yeah. I just mean, should we expect the same impact in terms of under-absorption of fixed costs? which is probably, as I understood it, what you're referring to happened in Q3. Should we expect an equal impact or is this mitigated by, you talk about structural cost savings coming to that before the Q4 report. Is that something that could sort of be implemented and you would see a better balance between taking inventories lower and not having the same impact on absorption of fixed cost in production.

Yeah, but I mean, in the very short term, of course, you know, I think we're also writing in the report that we don't expect any dramatic change in demand for the coming quarter, right? And... It's also from our smallest quarter in general because of seasonality. But then in the little bit more medium term, of course, the program that we are going to come back with in Q4 or in conjunction with the Q4 report, that is, of course, to address this situation. Yeah, okay.

Okay, then maybe as I understood it, what surprised you was really sort of the service and aftermarket segment coming down the way it did. Was that very sudden as we got into sort of August, September or could give us any sort of shed some light on the sequencing of what happened in service and aftermarket and what you see going into the last quarter of this year? I hear you that you're saying not Not that much has changed, but sort of how that progressed in the quarter.

It was a stepwise deterioration. We saw July coming weaker. We saw August coming considerably weaker. We saw an acceleration in September, clearly. And I guess our assumption is really that what happened is that our customers, dealers, on one side, consumers being careful, as I commented, but also dealers looking that Q3 didn't develop from the beginning, as expected, didn't reorder for the quarter. So that's our interpretation of the situation. And I have to say, I mean, the question for you will be, obviously, what are we expecting you for? I don't expect any major changes, I have to say. I believe that looking at volatility, looking... What I believe consumers is just now waiting to see the interest rate decreases in the wallet.

And as I said, keep in mind that Q4 is seasonally our smallest quarter, especially on surface market.

At the same time, I have to say that obviously now we look at the trends and we look at the charts. It's clear that we have seen a trend moving to the minus 10. then minus one, minus 11. So we need to believe that there is an unsatisfied demand out on the market. So sooner or later, this is going to turn. And I think that all the negatives that we have been suffering from, we were seeing turn into something positive. The question is, when are we going to see? We believed that we were going to see that in Q3, and it never came. So that's why I'm sorry, but I believe that just now we need to be a little bit careful. We need to see some consistency in the numbers before we look at the crystal ball.

As Q4 is the smallest quarter, then we know that the season starts normally sometime at the end of Q1. And Q2 is obviously the largest service market quarter that we have. So thinking a little bit ahead.

Yeah. But would you say, when you look normally at Q3, would you say that sort of the rebalancing when it comes to inventories at retailers and them being more reluctant to take on inventory as they head into the low season, is that decision and rebalancing normally done in September or is that constantly done through the last quarters of the year as well? Or is that big sort of decision taken in September?

I mean, normally with a service and aftermarket distribution, it's a little bit different. But on service and aftermarket, it's very much done already when you see how the season is developing. So I think Q3 is very much, if you take the first part of Q3, is already when people feel how floor traffic looks like, how sales and orders are looking. I mean, one of the things that we are hearing from many dealers is that the waiting times for a loading bay where you are repairing your RVs is coming down quite dramatically recently, which is obviously telling you that people are doing what is necessary to change to get their RV or the boat to last for one more year. But as I said, they are not upgrading, they are not replacing. And of course, sooner or later, we'll see that change.

Yeah. I'm just trying to get to sort of the retail cautiousness. Maybe the bulk of that is already been sort of decided on and more drama probably is not going to happen in Q4. I'm not saying it's going to get better, but we've done that reset.

Well, but there's also, I mean, they know how it looks like until yesterday, but they don't know what is going to happen tomorrow. I mean, provided that you have, I mean, you know, you need to measure floor traffic, how the oil intake is coming down to your base. So I don't think that you should try. I think it's very, very difficult. You know, something happens to your RV and you have to do something, right? So to me, it's very difficult to foresee. Again, I for sure, three months ago, the service and aftermarket would continue to move upwards. And it didn't. It turned negative. So just now, I do believe that we need to look at what we are getting in every single week. Again, the value chain just now is expecting changes. But the changes are not taking place at the speed that we would like to. None of us. I don't feel that our dealers are happier than we are.

Okay, Daniel.

Thank you. Thank you.

The next question comes from Martha Ford from Jefferies. Please go ahead.

Hi, good morning. I just had a question on your restructuring program. You mentioned that divestments would form part of it, and that you already had a couple of these lined up. So I was wondering if you could give more detail about what they could relate to. I know you've mentioned the Americas as a potential area for divestment.

I'm sorry, but obviously in terms of investments, we have not communicated what we have communicated that we have a number of companies that we have been working on. And of course, we need to be very, very careful. You know, that we have many people in our organization and to reveal which areas we are looking at might have a negative impact. So that's a piece of information that we keep for ourselves. What I can share with you is that we are talking about either non-strategic areas, meaning old acquisitions that fit very much into the business 15 years ago, but they don't fit anymore now when we are becoming more of a consumer business, right? Or areas where we have lower margins and very, very little service and aftermarket revenues. So there are very, very

uh small recording revenues over time so those are the two areas that we are prioritizing uh that makes sense thank you very much and then just to understand your performance in mobile cooling solutions um it's a bit surprising given one of your key peers has seen pretty strong development there and is expecting like further strength so what how does how why why is igloo diverging from existence

But this is, yeah, I understand where you're coming from. And I understand who you are referring to. So it is clear that they are basically 60% D2C. We are 10% D2C. So that's an upside that we have. They are over 50% ringware, whereas ringware is about 10%. So that's another upside. But we are not there. So those are the major differences. If we are talking about hard coolers, which is really what Eagle is coming from, we are improving our market share even today. So even if the market is coming down slightly, we are improving. So again, the comparison to our most important peer, I would say, is twofold. There's one dreamware, where there is above 50% of the revenues is dreamware, and the other one is at the 10% DTC, while we are 10% DTC.

Right, that makes a lot of sense. Thank you very much.

You're welcome.

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

Good morning, guys. Thanks for taking my questions. Morning. Morning. I'd like to circle back to the impairment that you announced the other day. Is it fair to assume that you're taking down book value for your US RV or US land vehicle business from, say, six and a half to four, four and a half? And referencing that, why now? I mean, this has been a market that has been troublesome for quite some time, but it seems like registrations or shipments are improving, right? And we're at the bottom of the cycle. What drove you? to sort of look over the book value this time.

Yeah, no, but it's correct. The numbers that they are all for are correct. Then concerning why now, I mean, this is a continuous process that we are, you know, exercising uh more or less uh every every quarter that we we obviously have to review the the value of um of our assets and as you know the value of of intangible uh is is obviously driven with uh you know when we're looking into them today to the plan for the future and and um and obviously the uh the the development that we have seen so far and the recovery we you know we we we have you know adjusted our assumptions there. So it's adopting to the market situation and what we basically believe is realistic going forward here. And also, it is something that is ongoing on a continuous basis. It is this quarter when we saw that we came to this conclusion, obviously. Our plans for 2024 was different than how it has been playing out so far. And then very much also driven by the development, obviously, versus the RBOEMs, but also on the service and aftermarket. So that is what has been flowing into this. And as we also noted in our annual report last year, this was the segment with the smallest margin in the impairment test.

Sure. And looking at Budkvalli, is it fair to assume that of the remaining four, four and a half working capitals, probably a billion, a billion and a half, and then Valterra, you say that this mainly relates to legacy assets of Altera. I guess the majority of that is still in that segment. So you're actually writing down everything but those two items by more than half. Is that how to interpret it? Yeah. Okay. And staying with USRV, can you shed some light on the development in market shares by sort of the verticals? It seems like it's quite well known now that you've been struggling a bit in terms of market shares for awnings and refrigerators. And I assume the latter one at least is a bit structural and more international competition. But in terms of the other sub-segments, ACs, spares, what have you, how have they developed? And also, if you could add a bit of comment on how entangled are they in the rest of the organization in terms of common R&D program, common production sites, so forth, with other segments that would be interesting to hear.

I think if you look at our entire organization, it's really Land Vehicles America, we have seen the entry, as you just said, of new players. What we have seen, obviously, a dramatic drop on volumes, which is driving pricing down big time. And we opted for not to participate in that price war, which means, I mean, again, there is no secret. We have lost market share in very much in those two product areas that you commented. And when looking at the rest of the segments, we already commented mobile cooling. I think that if you take LV EMEA or LV APAC, We are very much in parity. We might be losing 1% in one product area, and then we will gain another 1% in a different area. So I see that it's pretty stable. On marine, exactly the same. So I think that it's very much on the LBA, sorry, LBA America's segment, where we have been seeing one side structural changes on the market, but also a price war very much driven by 40% drop on the market. I mean, keep in mind that even if you yourself commented that the market is growing, it's going by 3%. The expectation for this year was 50% to 20%. The expectation for next year is another 4%. So I think that the people having heavy structures are just now trying to keep the structures ongoing by pricing. We believe in the long run that's not right. especially if you want to maintain your position as a premium brand.

Thanks. And circling back to the overlap or entanglement with the rest of the organization from U.S. RV, to what extent... Very, very little.

Very, very little. I mean, if you look at the marine business, the marine business is totally dedicated people, so there is nothing. And the same is valid with Whirlpooling. So, you know, this is one of the things that we have been doing since I joined the company. We have been really getting organizations that are fully dedicated. I mean, you might perceive Dometic as being in one industry. Well, we are not in one industry. We are in several industries. Mobile cooling has very little, very little to do with RV, apart from the fact that you as a consumer might buy an RV from an OEM or a dealer to an OEM, and you might be a cooling box in three years from now. But that's the only reference. I mean, it's like you're thinking about your own home, your own house. You are thinking about the roof being the same industry as your TV. Again, you are buying your product, your home, with a number of products in store, and then you are equipping your home. That's exactly the same connection that we have between cooling boxes or portable products and then the OEM side. It's different industries, and that's why we have organized it as different industries.

Okay, Gustavo.

Thank you. Appreciate that. Thank you.

The next question comes from Agnieszka Wylela from Nordia. Please go ahead.

Perfect, thank you for taking my question. So just circling back to Americas, two questions for me on that topic. Do you expect to regain some market share after you move the production or part of your production back to Elkhart, I think it's Ownings? And then also if you can provide us with the kind of update when it comes to the transition to compressor fridges in the US. Is that move completed now or do you still have some volumes at risk? And also, what is your refrigeration sales in the US mix? If you could share that with us. Thanks.

So let me say the second question. The first question was, sorry.

On moving back production to Elkhart.

Yes, we are expecting to gain share back. That's totally correct. On refrigeration, we still sell absorption. we don't see the transition being 100%. And that's for certain reasons. I mean, people that want to be off-grid will opt for such an option. The question is, how big is the market? We keep selling. That was the second question. And then you have another one, a third.

Just how big is the refrigeration business in the U.S. mix for you?

Small, nowadays.

100%. Small.

Yes, it's small nowadays. Yes. So if you look, coming back to the question from some of your peers, where we have lost market share very much, it has been on refrigeration and on earnings. On the earnings, it's not structural. It's a question about competition, and that's why we moved back part of the production closer to our customers in Elscar. On the refrigeration, it's clearly structural.

And on refrigeration, the volumes that we are running now is mainly on service and off the market. We have to keep in mind that there is 11 million vehicles on the roads in the US and many of them have absorption technology installed from the beginning. So some of them would of course like to keep that as you have to basically reconfigure your RV if you want to run compressor instead of absorption.

Yeah. Perfect. That's very helpful. And then, Stefan, just a question to you. I mean, now that the EBITDA is at three times, but just looking at the typical cash flows developments in Q4 and Q1, it's usually not that good. And EBITDA probably will be pressured also by this kind of market situation right now. So can you guide us in any way to what to expect for this ratio in the coming quarters, like Q4 and Q1?

Mm-hmm. I mean, for Q4, it will not be below 3, right? So that's my expectation. And normally, what you see in Q1 is obviously that we are flat or we are down like 0.1. So that's... you know, it will, it will follow that, uh, that, that pattern. And, and, and, um, then we are obviously, yeah, taking, taking measures on, on, on, uh, uh, yeah, different, different areas where, where that could potentially, uh, have an impact, but that's something that we need to, to, to, uh, to talk on when, when the, or talk about when they are, when we are, uh, occurring. So, so it's, uh, but, um, so, um, leverage will remain on three or a bit higher for the coming quarters.

Thank you.

Thank you.

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

Hello, gentlemen. Thanks for taking my questions as well. I wanted to circle back to the marine. Just to clarify, we've had, obviously, hurricane season now in Florida, and I was just curious to hear if you've heard anything in terms of how that's impacted the production sites in general, impact for the marine industry in general. Any comments on that?

Whenever you have a hurricane hitting our estimates, Of course, you have, on one side, you have a delay. So, obviously, they are fully occupied in getting back to business. And then normally what happens as well is that your aftermarket will, I mean, unfortunately, it's always when you have a tragedy, it's always tough, right? But normally for business, it has a positive impact down the road. It's when are you going to see it? Are you going to see that in Q4? Are you going to see it in Q1? But normally... over some time, it has a positive impact.

Okay. Yeah, on the factory side, from the OEMs, you haven't seen any factories being damaged or anything like that?

No, not major damages. On the contrary, we have some damages in some of our suppliers.

Okay, thanks. And then sticking to the US, I read that you haven't said anything basically on the EGLU lawsuit. Just, yeah, your wording on what's going on there or what has changed in recent time would be useful.

What we have seen is really that, again, we saw a clear improvement in Q2. We were running at close to zero. It's on the lawsuit.

On the lawsuit specifically.

On the lawsuit, no news. No news whatsoever. The expectation is still that we will know more by April next year. Okay, good.

Thanks. And then my final one is basically shifting away from what's going on right now and just looking at a future where your balance sheet is back to a good situation and volumes are solid again. I was just curious to hear what, you know, stars are aligned again. What would be an ideal acquisition for Dometic and where do you see the business increasingly focused over the next five to ten years? The ideal acquisition is the question, basically.

You know, we have been investing on you look back to 2021, 2022, we were doing quite a few investments on one side on the portable product area, moving more away from high discretionary spend into low discretionary spend. So that was one of the targets. The second one was mobile power solutions. And those are together with marine, the three areas where we see more investments coming through. And of course, I mean, again, you should never say never, right? But we have seen that We don't see the need of having more factories. We don't see the need of having more OEM-driven businesses. We see more distribution, more consumer, basically. So, again, I think, you know, unfortunately, we got the pandemic in the wind, right? But if you see what we have done in the last six years, it's a lot to change our mix from high discretionary spend into low or lower discretionary spend. Of course, the pandemic is changing, all the statistics is challenging, all facts that we had prior to the pandemic. But that's where we need to go back. And that's why also we are communicating as we are doing that we want to invest more in the underlying growth areas. We see that anything having with energy is going to be a growth area. No matter just now the automotive industry has doubts about electrification, it's coming and it's going to be much more than we have today. even if it's not going to be 100%, right? We see that the expectations for coolers up to 2030 are 8% for several years. So of course we want to be part of that journey. We know that we are underrepresented on dreamware. We would like to be part of the dreamware market, which is very much consumer-driven. So I think we have a lot of clarity on where we want to invest. But that also means that we need to refocus even more, even faster. And looking at the situation that we have seen in the last quarters, it makes it even more actual to hurry up. We don't want to be in the same situation on the next cycle.

Okay, thanks so much.

Thank you.

The next question comes from Stephanie Vincent from Bank of America. Please go ahead.

Hi. Thank you so much for taking my questions. A lot of them have already been answered. But I was wondering about the servicing business versus the OEM business. So on your customers' inventories, It's a bit of a question. We realize that inventories at the dealers are fairly high, but I was just interested in, do you guys keep up with like the average age or holding period of recreational vehicles and sort of where you believe that underlying demand or replacement cadence is? And maybe if that's been, I mean, we know it's been pulled forward by the pandemic, but just interested to know if The RVs and marine products that are outstanding are much newer now than they were before.

Yeah, we know that quite well. We know it by the whole industry, looking at how the fleet has been increasing in recent years, prior to 2022, obviously. And at the same time, we also know the cadence for every single product area, or the product area where we are working, obviously. So you don't have the same cadence for a refrigerator that you have for air conditioning equipment, for instance. So you have high frequency and low frequency. And that explains as well, when we are talking about exiting, when we are talking about divestments, that's obviously one of the areas where we are looking at. It's not the same if you have low margins, but recurring revenues for the coming 20 years. but if you have low margins on the OEM and then low recording revenues. So that makes a huge difference.

And how can we think about the sensitivity to your customers' two interest rates? I know that you're saying that you're expecting the demand to be pretty stable in the coming quarters, but how can we look at that moving forward now that we've gotten some rate cuts?

I think that even if the rates have been announced, I believe that Just now, a lot of people are waiting to see those lower rates in the pockets. Normally, it takes some time. You have a delay, right, in the system. So I simply believe that a lot of consumers on one side are waiting for even lower rates. I mean, at this point, we don't know if it's going to be another 0.25 or 0.50 in the US when Fed comes next time, right? We don't know that yet. And I think that's the kind of reassurance that consumers need to see. So I think it's on one side getting more signals, but also seeing the effect on your pockets. Then, of course, we will see a difference between the service of the market, that I believe is going to be much faster, and then the OEM. I mean, on the OEM, you already have today for North America, you have a forecast from the association which is talking about 7%. You have another forecast from Baird which is talking about 4%. If you just go back a few months back, they were expecting 20% for this year and it's coming 2024 and it's going to become 3% and they were expecting close to 15% for next year and now we are talking about 4% to 7%. So I think you have a delay on the OEM. It's not going to drop. It's getting more stable now. But I believe that we should not expect the OEM side to get back to 400,000 during the coming one or two years. I think it's going to take a while. I think our service and distribution are going in a different cycle. I think that will be much faster.

Okay. That's very helpful. Thank you.

You're welcome.

The next question comes from Johan Eliasson from Kepler-Tuvriax.

please go ahead yeah hi it's your one here thanks for taking my question i dropped out of the call suddenly a bit earlier so i might have missed your reply but coming back on on the issue of of the market share losses we've understand this structural change on on the compressor uh fridges um How does this transition look like in Europe? And is fridges an important part of the profitability in Europe?

I mean, you look at the European market has been there for a while, but the difference between Europe or Australia and the US is the size. So the American sizes, you think about RVs in the US or The sizes in Europe or in APAC are totally different. An American RV, you have a lot of space where you, and that's what we have been seeing, right? It's very much the entry or residential companies or, sorry, Chinese companies manufacturing residential refrigerators that in size and features, compressor-driven, are very similar to what you are using at home. We don't see that happening in Europe or in APAC. by any means at that kind of speed, simply because the vehicles are different, sizes are smaller, and it takes some major investments to adapt to this small industry. The US industry on one side, you have the size of the industry as such, which is twice the size of the European industry, or 10 times, 15 times the size of the Australian industry, but then also the size of the vehicles makes a difference. and then on the profitability profitability on refrigerators in europe is not very high either okay excellent thank you very much you are welcome there are no more questions at this time so i hand the conference back to the speakers for any closing comments Well, thank you very much to all of you for attending this call. We know that this is a very busy day for many of you. What we can reassure you is that we are doing anything we can, obviously, to restore our profitability after this weaker quarter. It came as a surprise for us. We are doing anything, again, to get back to where we are coming from. So thank you very much for your attention and have a great day.