Dometic Group AB (publ)

Welcome to Dometic Q3 Report 2025. Today I am pleased to present CEO Juan Vargas, CFO Stefan Friestet, and Head of Investor Relations, Tobias Norby. For the first part of the call, all participants will be in listen-only mode. During the questions and answers session, participants are able to ask questions by pressing pound key 5 on their telephone keypad. Now I will hand the conference over to the speakers. Please go ahead.

Good morning everybody and welcome to the presentation of this third quarterly report. I would like to thank you all for participating today. We know that this is a very busy morning for many of you. With that said, let's move rapidly to the highlights. Starting obviously with still top market conditions where the most effect is really by consumer confidence still staying at pretty low levels all over the world. We see also retailers, dealers, VMs being keeping to be still today being very, very careful in building up inventories. At the same time, we also see encouraging signs of stabilization in oil intake. And we see that we are leaving this quarter with a far better backlog situation or the stock situation that we are coming from after the last two quarters. We saw improvements already in Q2, clear improvements as well in Q3. Looking at performance, a decline of 6% organically with service and aftermarket showing an improvement in comparison to Q2, moving from minus 12% to minus 4%. Distribution declined by 6%, very much driven by mobile cooling solutions, and we will get back to that. There are some aspects or some reasons for that negative decline. And then OEM also showing negative minus 8 organically, which is a clear improvement versus past quarters. And where we see land vehicle Americas moving in a positive manner, as well as marine, after many quarters being positive in the quarter. Strongly retained margins, rounding at 10.4% versus 8.6 for last year. A combination of one side of the margin improvements led by cost reactions. As you all know, we are running a structuring program that has been kicking in since day one, and we see very positive effects out of that, at the same time as we are working in many different areas. And at the same time, we also see that all segments with the section mobile cooling are improving our margins in comparison to the last quarters as well. And again, we will comment specifically on mobile cooling solutions. And strong cash flow, free cash flow, 527 million, and a leverage landing of 3.2% in comparison to three times last year. Looking in more detail into the numbers, almost 4.9 billion in revenues with 6% organic decline, 6% decline driven by FX, and then 1% decline led by the portfolio changes that we have been doing, leaving some of the businesses that we have been into before. Evitae, just a little bit over half a billion, Corona, over an Evitae margin of 10.4%. Looking at adjusted EPS, we ended up at 64 earlier. And again, a free cash flow of 527 million. And leverage, I already commented, landed at 3.2. Looking at the yearly numbers, almost 17 billion in revenues, with a decline of 9% organically, 5% led by FX, and the same 1% led by portfolio changes. And every day, just below 2 billion krona. And good to see, obviously, that we are getting closer as well on the EBITDA margin when we landed exactly the same level as one year. So we have seen a recovery in recent months in comparison to the first half of the year. Adjusting the PS to krona 90 earlier and a strong free cash flow of 1.4 billion. Looking a little bit deeper into the sales evolution over time, land vehicles ended up at minus 10%, which is a clear improvement versus Q2 with Americas showing 3% negative growth, which is a substantial improvement in comparison to the situation we saw in Q2. EMA showing a duration as well as a back in comparison to last quarter, very much led still today by the VM side. Very positive, was great to see after many quarters, and also showing a positive oil intake, which is positive for us, obviously. Mobile cooling, 8%, and then Global Ventures, minus 6%. When you look at the different channels, no major changes in reality. Perhaps to point out that the OEM side is for the first time in many, many, many years below 40%, while both distribution and services aftermarket are moving 100 base points upwards. And just as a reminder, looking at the RV OEM situation, we are just now, RV OEM stands for 18% of total business in comparison to the 49% in 2017. So obviously, we are a less sensitive company to the cyclicality that we have seen on the VM side. Looking a little bit more in depth into the different channels, we see a clear improvement in service aftermarket. Still, we see volatility month to month, but again, moving in the right direction. Distribution very much affected by mobile cooling solutions. and the main reason for that is is really inefficiency in kt texas uh since we had to employ uh above 200 new employees and by that training a lot of training cost us inefficiencies we will see this negative effect in q3 we will also see that in q4 and then it's going to be gone and then so so i'm We will come back to mobile cooling, but we have a double effect on one side that had a negative impact on the growth and that had also a negative impact on the margins. Looking at OEM, we see a clear path moving forward, different segments. So we see LDA turning positive in a quarter, and this is the second quarter in a row that OEM in LDA has been positive. And we also see marine turning positive. while we see still LVE and LVC being negative. Positive to see, obviously, we're looking at our results. Strong margin recovery in comparison to last year. We see strong gross margins, almost 30%, compared to 27.3% last year. Very much driven by cost reductions. Again, one side we have a structured program, but we also have contingencies driven in all segments, simply because we still see negative growth coming in. And we also have a positive impact on the sales mix. When looking at operating expenses, another area where we are working very, very hard, we see a decline of 6% in constant currencies, despite the fact that we continue to invest in a number of areas. We see growth development, one of the areas where we are investing the most, but also building up our sales organizations in a number of segments where we see a stronger growth moving forward. We see, again, margin improvements in all the segments, with the exception of mobile cooling in the border. We're looking at tariffs. Not much new here. to comment in comparison to last quarter. As you know, we have good protection in the U.S., having nine of 12 factories that we have in North America based in the U.S. in the short term, obviously, and this is still carrying a lot of uncertainties moving forward. It's very much about passing prices to the markets, something that we have done in a pretty good way, and we have compensated for everything but for a few customers in the mobile cooling solution area. And that's really the impact that we see negative in the quarter of $35 million that will be compensated by the pricing. We implemented prices already twice in all of the areas, by the way. But in the specific case of model cooling, we had a couple of customers where we prolonged the time for kicking in with the new prices. This is going to have also negative effect in Q4. From Q1, we will not see any more negative effects. Looking at different segments, starting with land vehicles, total organic growth, negative organic growth of 9%, with soft distribution on season of the markets, while we see as well a double-digit decline in OEM, in both EMA and APAC, but positive growth in Americas. We see also a pretty strong recovery margins for the entire segment, 6.3 versus 3.7, with clear profitability improvements in EMEA. A slight decline in APAC, but still showing very robust margins. And then we see as well reduced losses in Americas. And we will continue, as you know, to drive the recovery on the American situation. And as we informed A couple of times in the last quarters, the most of the restructuring program that we are driving, it will have an impact on LBA and LBE. Moving over to marine, positive Q3 quarter, we are getting growth of 1%. We see OEM coming back to growth. We still see a single-digit decline in services of the market. But we also see a positive water intake that should help us as well in coming quarters. EVTA recovered as well. We are again over 20% in EVTA margin, 20.8. And that's a consequence of the mix and also the cost reductions that we are driving in the segments. Then mobile pooling solutions. A double hit, I would say. On one side, we didn't manage to see growth due to the labor constraints that we had in the factory that caused us inefficiency. At the same time, we also saw a negative effect on the margins coming from both the tariffs. Again, that will be gone in Q1 next year at the same time as we have the labor inefficiencies. And we also have a negative wage impact. The mobile cooling business is highly seasonal. Historically, we always had a couple of hundred of non-immigrant foreigners working at our factories to keep up with the capacity needs. And the US administration did some changes on forcing us to increase the salaries. Again, we are compensating our prices, but we have a time lag. And those negative effects will be gone from Q1, as I commented before. Moving over to Global Ventures. where we see also a negative growth of 6%. We grow in other global verticals, very positive in some of the areas, and then still decline in mobile power solutions driven by the soft RV industry. Good margin improvements, 11.5 versus 9.2, very much driven by other global verticals. Happy to see as well our progress in the sustainability area with injuries well below target, so 1.5, We see as well that we are on target in regards to female managers and we keep working hard in that area and moving forward as well. We see renewable energy also quite a bit already now above the target for the year. We keep assessing our suppliers, our vendors. We ended up at 60% slightly below the target for the year. Of course, we will reach the target at the end of December, and we see also progress in innovation where we landed at 22%, a couple of percentage points above last year. We are talking a lot about sales decline. We are talking a lot about cost reductions, but we keep investing in the product area, in product innovation. This is the first time that Dometic, as the Dometic brand, we have soft coolers. It's a totally new area. For the Dometic brand, we had soft coolers under the Igloo brand, but we're also launching a new series of soft coolers under the Dometic brand for the first time. And we have great expectations. Also, from a branding perspective, to help us to reinforce the Dometic brand among consumers. Then we move over into the gyro. We have very, very positive reception by customers. We have been introducing the products in a number of different shows around the world. We see Oriente kicking in in many different areas, happy with the results. And on top of that, we are getting a lot of awards, which is always helping us when visiting new customers, offering a totally new product area for us as well. And again, we are getting awards, a lot of awards, not just for the gyro in the marine industry, but also for many other programs that we have been launching in the last 12 months. So positive to see that our investments are paying off both in terms of awards and order intake. And then on the restructuring program that we initiated one year ago, as you all know, will generate savings of 750 million when it is completed at the end of 2026. We closed down, so far, one factory and three distribution centers, affecting 250 people altogether. We are running just now annual savings of 250 as the running rate. We had a cash out in the quarter of 35 million, and yet to date, a little bit above 100 million. We keep continuing on our portfolio, and we discontinue one of the product areas that we had before. This is leading to a negative organic growth of 1%, and we keep investing on, sorry, keep spending time on the divestments. Still, we have not seen the finalization of any of them, but we keep working and convinced that we will see the results moving forward. And with that said, Stefan, let's go a little bit deeper into the results.

Okay, thank you, Juan. Starting off by summarizing the T&L for the third quarter. We are very satisfied how the gross profit margin continues to develop, 29.6% versus 27.3% last year. And the increase is driven by sales mix. We also have the restructuring program and other efficiency measures that are taking effect. Then we also need to mention here that Opan has mentioned a couple of times of the effects, especially in mobile cooling, where we have a time lag between the tariff cost as well as labor cost increases versus the mitigating price increases. And that has had a negative effect in the quarter of approximately 0.7%. And we expect that to continue in Q4, as was mentioned before. But from Q1 next year, we expect that the price increases are done to fully mitigate this development. Moving over to operating expenses, we have reduced operating expenses in ConstantFX due to the decline in net sales. It has increased somewhat in percentage of net sales. We keep on investing in strategic growth areas, as we have mentioned, and you have seen some of the results of that in terms of product development. Mobile tooling and marine are definitely two areas where we keep on investing deliberately. Other operating income and expenses, 18 million, a small number in the quarter, and it's mainly related to a part of the FX effect. Net financial expenses is up a little bit in the quarter. However, the net interest on bank loans and financial income is is down 197 million versus 214, and then we have a negative FX revaluation effect on other items leading towards that. On tax, we have an effective tax rate of 32%, which is equivalent to 54 million in tax in the quarter. Moving over to the summary of our cash flow. Operating capital wise, we see that we are continuing to drive efficiencies in working capital. Coming back to that in a second. Then we have cash out related to restructuring of 35 million in the quarter. And then, as you can see, we are carefully managing our capital expenditure and where we spend it. Free cash flow before M&A, as we mentioned before, paid and received interest is spending down, and then we have been paying lower tax. Then cash flow for the period has also been impacted by that we did a bond issue of 300 million euro in Q3. Coming back to that, at the same time, we also did a tender offer of 100 million euro. which was then a partial repayment of the bond that is falling due in May 2026. And then I would also like to underline that we are going to see further debt repayments in Q4 and in 2026. Moving over to more of how has the free cash flow developed over time. And as you can see, I'm in 527 million. It's not on the same level as last year, which I did not expect either, but still solid level, I must say. And then you can also compare it to the other periods before that. So satisfied with the level of free cash flow in the quarter. Moving over to the working capital components, you can see that working capital over the last 12 months is starting to come down 26% compared to 30% in relation to net sales. And if we look on the quarter standalone, it was down to 21%. So we are moving in the direction that we have been talking about, where the target is to reach around 20% on net sales. And you can see on the inventory balance, we are 4.6 billion Swedish kronor now compared to 6.3 billion one year ago. And the number of days is down to 124 versus 139. So things are moving in the direction that we have been planning for and expecting. As you can see, accounts payable level is staying stable as well as accounts residuals. Then moving over to CapEx and resource and development. We are prioritizing among our CapEx project and we have been spending a little bit less than 100 million in the quarter. It's 2% of net sales versus 1.7. And in the last 12 months, that's equal to 1.3%. If we look on R&D, as I said, we continue to keep up that level very deliberately because we believe in that this is important for the future. And the R&D expense to net sales is now 3% compared to 2.7%. one year ago and 2.8% last 12 months. And as I mentioned before, it's a strategic important growth areas for us, example being mobile cooling and marine. Next is going to talk about the debt maturity. As I mentioned, we did a 300 million Euro bond on a five year maturity with a fixed rate of 5% in the quarter. And the proceeds are going to be used to refinance our debt portfolio. We already did 100 million in connection with this transaction by doing a tender offer on the 2026 bond. So there is 200 million left on that one. And then, as I mentioned before, you will see further debt repayments here in Q4 as well as in 2026. We have a USD loan that matures in 2028, but it can be prolonged one year to 2029. And the average maturity is 2.8 years, which is obviously a longer average maturity compared to last year. Average interest rates 4.8% and we still have an undrawn revolving credit facility of 300 million euro maturing in 2028. So moving over to our leverage, maybe we can, I mean leverage went down 0.1 versus Q2, which is obviously positive. And you can see in the table down below that it is mainly our cash flow development that has contributed with that development. We are obviously having a high focus across the organization on protecting margin and reducing working capital, as you know. We just keep on repeating that we are committed on achieving our leverage target of 2.5. That is important to us. But it is difficult to give an exact timing of when we will achieve. So with that, Juan, I hand back to you to do a summary of the quarter.