Dometic Group AB (publ)
STO:DOM
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
51.4
88.1597
|
| Price Target |
|
We'll email you a reminder when the closing price reaches SEK.
Choose the stock you wish to monitor with a price alert.
This alert will be permanently deleted.
Dometic Group AB (publ)
You don't have any saved screeners yet
So hello, and welcome to the Dometic Q2 2022 Earnings Call. My name is Rikard Tunedal, Head of Investor Relations at Dometic. With me in this room, I have Juan Vargues, President and CEO; and Stefan Fristedt, CFO. [Operator Instructions]
So let us start with the presentation. Juan, please.
Good morning, Rikard. Good morning, everybody, and welcome to the presentation of the interim report for the second quarter. Without any delay, let's move on to the presentation as such.
So in terms of the markets, we have seen a challenging macroeconomic environments. And not just macroeconomic, but even geopolitical environments as a continuation of what we saw in Q1, and as a consequence of that, weakening market demand. We experienced that retailers globally started to rebalance their inventories during the quarter, and good news is obviously that our order backlog is still higher than 1 year ago.
When looking at performance, all-time high in terms of sales, 53% up. Slightly negative organic growth, minus 1%. We saw a very strong growth in the OEM side -- on the OEM side. Igloo continues to develop very positively in terms of growth and profitability, and we are also very happy to see that all the acquisitions that we did last year are developing in a positive way. And I would like to especially mention our Mobile Power Solutions companies that are performing very, very nicely.
On EBITA, we ended up 15.7% in comparison to 18.6%, and this is very, very much a consequence of a negative channel mix, and we will go a little bit more in detail into that. But also, obviously, that some of the supply chain constraints that we have been suffering from, or the entire world is suffering from, continued during the quarter, having a negative effect on efficiency. We are very happy also to report that Igloo is running just now at a double-digit EBITA, and again, some more comments will come later.
Operating cash flow, SEK 738 million. Happy to see as well, leverage at 2.9x, considering obviously all the acquisitions that we did during the last 12 months. And then, of course, what we see when looking at the macro environment and when looking especially at the RV OEM industry globally is that second half is going to be weaker than the first half, and as a consequence of that, we are acting very, very fast. So when looking at the end of June, we -- on a pro forma basis, we have 1,000 people less than we were on June 2021. That's telling you, obviously, that we are starting to reduce capacity.
At the same time, we continue to drive our manufacturing footprint program that we introduced in 2019. And as the last step of that program, we announced the closure of our German factory in Siegen and they move the consolidation into Hungary, our existing factory in Hungary. At the same time, as we are also launching an additional cost reduction program that will affect about 700 people, leading to savings of SEK 200 million on an annual basis.
Looking at our numbers, sales ended up at close to SEK 8.5 billion or 53% total growth, with a slightly negative organic growth, minus 1%. FX having a positive effect of 11% and M&A contributing by 43%. EBITA, SEK 1.3 billion or 20% up. And as I already commented, EBITDA margin of 15.7% versus 18.6%. We are also happy to report, obviously, a nice EPS improvement, growing 36% and ended up at SEK 2.9. Cash flow, SEK 738 million, lower than 1 year ago as a consequence of the inventory buildup that we are, by the fact, working very hard, obviously, to reduce in the coming months. Our leverage at 2.9x.
If we look at the half year's results, we ended up at SEK 16 billion, again, all-time high, or 54% total growth with 3% organic, 7% FX led growth and then 44% coming from M&A contribution. EBITA at SEK 2.4 billion or 33% up, with an EBITA margin of 15.3% versus 17.6%. And even here, we see a nice evolution of our EPS, 30% up versus last year. And cash flow is still weak in comparison to last year, but we are working, as I said, very, very hard to improve moving forward.
When looking at sales, as already commented, SEK 8.5 billion, 53% total growth. Americas showing a nice total growth of 35%. Of course, that we have contribution from the acquisitions. EMEA, up 13%; APAC, 12%, Marine, 23% and Global, over 900%. We see organic growth in Marine as well as in Global, where the decline happened in both EMEA and APAC, America standing still.
Looking at the application areas. We see already here, obviously, the effect from our acquisitions, meaning that Igloo is having a very positive impact, obviously, on Food and Beverage, really stepping up. At the same time, as we are also very happy to see that our Mobile Power Solutions are affecting the Power and Control application, developing very, very nicely. And as you can see also, we see Climate in comparison to the others coming down, especially in Europe where the RV OEM is already -- on the RV side is already down in the second quarter.
Looking at the sales channels, and this is really what explains what happened to the margins, you see that OEM is growing very, very strongly during the quarter. At the same time, our Service and Aftermarket is weak. And considering the huge margin difference that we have between the 2 sales channels, this is affecting greatly our margins in the quarter. And distribution, of course, showing a major growth.
Looking at strategically our sales channel development. And despite the fact that Service and Aftermarket was weak in this specific quarter, we have moved the needle from 52% coming from businesses outside the OEM into 59% in 1 year. Worth to comment that the RV OEM, which is the most cyclical part of our business, is today down to 24% despite the fact that we saw good growth in the quarter as well. So in other words, we are a less cyclical company today than we were 1 year ago, a much less cyclical than we were 4 years ago.
Looking at our EBITA evolution, down, as I commented, very much on one side due to the dilutive effect of Igloo that was expected from the beginning. And then the surprise, I would say, this quarter is really the mix, the negative mix that we experienced, that we believe is going to be corrected over time as the inventories are being rebalanced at retail level. And on top of that, as I also commented, we have some efficiencies -- inefficiencies due to the supply chain constraints primarily in -- on the ports, loading and unloading of the containers we have all over the place.
Sometimes it's good also to take one step back and look at the evolution over time. And what we can see on this picture is obviously that during the last 5 years, we have doubled the size of the company, we have also doubled our EBITA earnings. And especially, obviously, that the company is fundamentally different in terms of exposure to the RV OEM industry.
If we move over to the segments, Americas was up 35%. We saw flat organic growth, very strong growth in the OEM -- on the OEM side, while Service and Aftermarket was weak. And we see everywhere, this is not just Americas, I will comment that in all the segments that for the first time ever, I would say, we see strong growth on the OEM side but negative growth, and even pretty substantial negative growth on the Service and Aftermarket that we believe is really a rebalancing of the inventories. Meaning that due to the supply chain issues that the entire world suffered from during 2020, 2021, and having customers obviously expecting a strong 2022, everybody was early on buying the inventories, preparing ourselves by strong 2022. And 2022 is not becoming as strong as expected, and thus leading to excess of inventories that they are just now acting on.
If we look at EBITA, SEK 160 million or 8.2% margin versus 8.9%. We saw an improvement in this quarter in comparison to the quarter, the first quarter. And hopefully, we will see these improvements coming through as now, we have also moved -- we have taken the last step of the move from Elkhart into Mexico, and that should give us the additional savings that we have been calculating with.
If we move over to EMEA, some similarities on the situation, but also some differences. While the RV OEM industry in Americas has already filled in the inventory levels at retail level, that's not the situation in EMEA. EMEA and the negative OEM, RV OEM numbers we see as a consequence of our customers not getting chassis from the chassis suppliers, meaning that they cannot finish their own vehicles. So at the same time, as inventories in EMEA are still low. So the question here is, obviously, what is going to happen in the second half? When talking to customers, they expect also a weak second half simply because chassis suppliers will still be suffering from problems.
On the contrary, we saw a very, very strong development on CPV OEM, and so it's an aftermarket exactly the same as for the rest of the segments. Very, very weak and unusually weak, I would say. Even here, we've seen very nice development of all acquisitions that we have made. EBIT margin, 15.2% as a consequence of the very negative sales mix. And then on the strategic highlights, the fact that we announced the last step of the restructuring program announced 2019, which means they move from Siegen in Germany into Jászberény in Hungary.
Moving over to APAC, 12% up totally, but organic growth of 10% (sic) [ -10% ]. We need to remember as well that Australia and New Zealand did apply very, very strong lockdown measures in connection with COVID during Q1 the previous year. Q2 was extremely strong, and we have very difficult comps. But at the same time, we also see a little bit of the same effect as we see in EMEA, meaning that the RV OEM manufacturers have difficulties to get hold of chassis and components, which is slowing down our deliveries. At the same time, our expectation is that this will continue in the second half.
And on the positive side, very, very strong evolution of Mobile Power Solutions in the segment.
EBITA margin, very strong still to date, 26%. It looks lower than 1 year ago, but then we need to consider that 1 year ago, we have the net profit coming from the sale of a building in Hong Kong that had a positive impact of SEK 21 million. And as I commented at the beginning, we have been acting very, very fast on the weaker market conditions, adapting our capacity in APAC but also in the rest of the group.
Marine is still very strong, 23% totally speaking, with organic growth of 5%, primarily driven by OEM. While Service and Aftermarket is showing negative numbers exactly in the same way as the rest. EBITA, strong, SEK 485 million or 27.7%, which is an improvement versus the situation last year despite the negative sales mix that we got. And then the acquisition, the Treeline acquisition that we announced in Q1 has been developing also very, very nicely during Q2.
Moving over to Global. Strong growth, obviously, through the Igloo acquisition, but not just the Igloo acquisition. We see both Hospitality and Residential developing very, very strongly for us. Hospitality business is already now above the numbers that we saw pre-pandemic, which is good since the hotel industry has just started to invest again. EBITA-wise, SEK 197 million, which is 10% versus the 15% as a consequence of the dilutive effect of Igloo. Other than that, the margins are better than 1 year ago.
We spend a couple of seconds on Igloo. Very, very strong organic growth, organic pro forma growth, I would say, not organic but pro forma. And what we saw as well is that resin prices went up separately after the Russian invasion of Ukraine. We adapted prices already the beginning of March, but it takes 60 days, which means that we had lower results in April and May and came back very strongly in June once the prices were already in place.
On the strategic highlights, we keep investing, obviously, in other global verticals, prod development, and we keep receiving also awards on our products. And Igloo integration developing very nicely.
On e-commerce DTC, I'm fully convinced that you are reading on everywhere in the news that the online business has -- is suffering from difficult times. We have been investing in the last couple of years, and we are just now running at 5% of our non-OEM business coming from e-commerce. We implemented in the U.S. or North America, rather, Australia, and we are just now up and running 8 European countries and some more countries to come as well. And here, we are also getting support from a number of the acquisitions that we did during the last couple of months already having a strong online business.
Happy to report as well that we have our first store, in-store shop in Stockholm, participating together with Haglöfs in Central Stockholm, and where we are showcasing our Dometic outdoor stand-alone products, something we believe very much in. We have been launching in the product range during the last couple of months all over the world, and we have very good expectations that that's going to be growing in the quarters to come.
On design, I already mentioned, I will not go through any details, but we keep receiving design prices, and we keep working on the introduction of these new products to the market.
Looking at our cost reduction programs. As I said, we already adapted capacity during the last couple of months. We are down 1,000 people less than 1 year ago. At the same time, as we are -- we announced the shutdown of Siegen, which means really that we are running just now at this point at a run rate on savings of SEK 250 million. And as you know, the expected amount is SEK 400 million by mid-2023, and we are fully convinced that we will be there.
At the same time, we are also announcing a new program at a cost of SEK 200 million that will also generate savings for another SEK 200 million, affecting 700 employees, and Stefan will give you more specifics in a couple of minutes from now.
On our strategic execution, again, we keep moving the needle from the OEM, the once dominant OEM business into both Service and Aftermarket and Distribution. We are just now 59%. We see a very, very nice development in Mobile Power Solutions. As I commented a couple of times, we are running just now at a sales number of SEK 2.2 billion on a pro forma basis, and this is becoming one of the most important businesses that we have moving forward.
On the product leadership, still suffering from the supply chain constraints and semiconductors. And the fact that we need to test and when we change semiconductor, it takes months, obviously, to be on the safe side. We don't want to launch a new product in a new product category and run into mistakes, so that's moving slower than we expected when we launched these programs, obviously. But we keep investing on innovation. This is one of the most important areas that we have to grow organically, the company, and we will see the effects coming back.
Cost reductions, obviously, reducing complexity on a continuous basis, and I already commented a couple of times the new steps that we are taking.
Sustainability, another area where we have been working very, very hard in the last couple of years. We are happy to report that we are just now lower below the target that we have for 2024. We have reduced injuries in our factories by 42%. It's a great improvement, and showing obviously that investments that we have been doing in health and safety are paying off.
On the contrary, we are still not happy with how our share of female managers is developing. We are standing still even if we are running a number of programs, but we have not seen the effects yet.
On CO2, that's another area where we are making great progress. We have all the factories in Europe just now running on renewable electricity. We have a few factories in Americas and we are also investing in China to do the same, so we expect additional improvements in the months to come.
And then on ESG, we did what I consider to be a very good job in terms of audits in low-cost countries for the last couple of years. We are at a pretty high level, and now we're also starting to look at our acquisitions and how to get all these new suppliers to be 100% audited.
And with that said, Stefan, please let's listen to you.
Thank you very much, Juan. And taking the first slide here, talking about our EBITA development from Q2 last year to Q2 this year. The first bucket here concerns the asset gain that we had in Q2 2021 related to a sale of a redundant building in Hong Kong of SEK 21 million.
Second bucket, the organic development plus FX effect. We have seen positive currency translation and transaction effects in the quarter, north of SEK 100 million. Then we have had negative effects of sales channel and segment mix, and then we are continuing to suffer from inefficiencies due to the global supply chain constraints that we have in the world for the time being. In terms of price versus cost increases, we are on a total group level neutral on that in the quarter, however, it varies slightly from segment to segment.
Third bucket is Igloo, and we are moving on in the expected direction and we are showing double-digit margin in the quarter. We have seen a negative impact all due to the resin cost increase driven by the conflict in Ukraine. And that has then been compensated by price increases, as Juan mentioned before, effective from June 1, and we also had the expected significant improvement in margin in June stand-alone.
Then we have the fourth bucket, it's the other acquisitions, and they are developing very nicely, and they are delivering above or above average domestic margins as we have seen in the past as well.
Going to the next, talking about our cash flow for the quarter. We have had an operating cash flow of SEK 738 million. And yes, the adjustment for non-cash items are related mainly to depreciation and amortization, of course, driven by the acquisitions but also FX components. Then we have the negative effect of the change in working capital, and that's mainly driven by the increase in inventories, and I'm going to come back to that a little bit more in detail in a couple of slides.
Moving down below the operating cash flow, we paid the dividend of SEK 783 million. We have also taken up SEK 1 billion in a private placement bond in May, and that makes the net cash flow from financing, yes, more or less neutral. So total cash flow for the period of SEK 358 million.
The next page is just showing the operating cash flow development over time, and we are seeing the expected pickup in Q2 of 2022. However, not to a level that we are satisfied with, so we have a cash conversion of 48% in the second quarter, which is below our expectations for this time of the year.
But then moving over to working capital, where you have the 3 different components on the account payable side. I'm really happy with the job we are doing there in improving payment terms, so it's steadily moving up. Accounts receivables is showing a stable development. And then we have the last portion, which is inventories, which is now up to 137 days. If we look on the increase between Q2 last year and Q2 this year, which is approximately SEK 5 billion, SEK 1.5 billion of that comes from acquisitions, SEK 1.3 billion comes from the weakening Swedish krona, then we have SEK 1 billion that is driven by raw material price increases, also increases in inbound logistics costs. And then we have SEK 1 billion that is related to securing critical components and also longer lead times, where we see more than double the lead times for shipments between Asia and Europe and Americas.
We are driving actions across all segments now to get back to our inventory efficiency, which is natural, so we are expecting improvements of that to come through here in the coming quarters.
CapEx and Research and Development, we are, in absolute terms, spending more. As Juan mentioned, we are spending money on innovation, which is important to us. In relation to net sales, we are either slightly down or flat to previous periods.
Taking a look on our debt maturity profile, which I consider to be a well-diversified debt profile, we have an average maturity of 3.3 years. As I mentioned before, we did the private placement of SEK 1 billion in May to a rate of 5.1%. It's, of course, higher than what we have had before, but I still see the average financing cost in our portfolio to be satisfactory. We also have an undrawn revolving credit facility of EUR 200 million.
As you saw, the Q2 net debt leverage ended at 2.9x compared to 2.7x in Q1 2022. We have paid the dividend, and then we also have the weakening Swedish krona which is contributing negative with 0.1x on deleverage. Then we, of course, also have the continuous buildup of working capital. We are still in the position that we have and deleverage profile that is strong, and we are working very focused on, yes, improving that for -- during the coming quarters.
Juan has already mentioned the restructuring program, starting with the one from 2019. And as mentioned, we have now basically entered into the final step in that by the announcement of the closure of the manufacturing in Siegen in Germany. As you remember, in Q1, we announced also the closure of the refrigeration manufacturing in Elkhart in U.S. And totally, 24 locations have now been impacted since the start and 243 employees affected in the quarter, and 1,200 since the start.
As mentioned, the targeted savings, SEK 400 million, we are expecting to achieve that mid-2023. And the run rate so far is SEK 250 million. We had SEK 13 million in cost in the quarter, and that is SEK 468 million since the start of the program. The total cost estimated to be around SEK 750 million, and the most of the remaining spend there is expected to come in the coming 3 quarters, and the majority of that is going to be cash out.
Turning to the 2022 restructuring program, that's the next step in our efficiency plan. And the scope of that is, yes, continued optimization of locations and rightsizing of resources very much driven by the digitalization effort that we have been putting in over the last couple of years. We have started the journey in bringing the number of ERP systems down, where we have started with U.S. and have now continued with EMEA. We have invested in e-commerce solutions for B2B and B2C, and that is now starting to pay off in terms of more efficient transaction flows.
It concerns all segments and all functions, and it is going to impact approximately 700 employees. The savings will amount to SEK 200 million, and they are in addition to the SEK 400 million from the 2019 program, and we will start to see a gradual impact from Q4 this year and will be fully realized by the end of 2023. And the cost, as mentioned, SEK 200 million, and the majority of that is going to be cash out.
As the times are getting a little bit tougher, if we look in a historical perspective on how Dometic has shown resilience in downturn scenarios in the past. In the upper graph, you can see the profitability over times in 2016 to 2021. And also, how it has been performing, for example, during 2019 when we had a 16% reduction of RV production in U.S., but also during the COVID-19 outbreak in 2020. So we have been clearly showing that we have been able to keep up the profitability level, and that the sales development have been coming back rather quickly. Also, our ability to generate cash in a historical perspective is something that we feel is contributing to our resilience in tougher times, and we don't see any changes to that profile.
So leverage to pull is, of course, that we are continuously doing various types of scenarios on the future development. We have experience, recent experience of handling downturns. We are accelerating our restructuring program, as we have been talking about. We have less infrastructure today in terms of number of sites, number of factories. The sales mix is clearly turning towards Service and Aftermarket and Distribution. Approximately 20% of our total workforce is temps, so that makes us flexible to adjust to increasing or decreasing demand. We can, of course, limit our freeze capital expenditure, and historically, we have generated cash from a reduction of working capital when we go into a downturn.
Moving on to what have the acquisitions then contributed to our -- to the resilience of the group. All the acquired businesses, more than 85% of them are outside the cyclical OEM business. We have -- looking into the structural growth areas, we have 6 acquisitions in the last 16 month in Mobile Power Solutions, which is a structural growth area driven by the electrification trends and sustainability. Also looking at our largest acquisition, Igloo, historically, they have been showing a strong resilience also in tough times. So they had low single-digit sales growth during the financial crisis in 2007 and 2008, and they have had growth each year from 2019 with a CAGR of 6% since 2010 up to 2021.
So with that, Juan, I hand back to you to summarize.
Thank you, Stefan.
And I would like to summarize, I would like to start by stating that Q2 is, once again, all-time high in terms of sales and earnings. That we showed a total growth of 53% and the backlog is higher than 1 year ago. That the market conditions clearly are starting to get tougher as a consequence of the situation on the market. We see a decline in OEM production, especially on the RV OEM side. We see that already happening all around the world even if the background is a little bit different, as I said, Europe and Australia driven just now very much by the lack of access to chassis.
Retailers are clearly rebalancing their inventories, that did have a negative effect on our margins in Q2. And hopefully, we will see that leveling out during the coming months. And at the same time, I'm very, very happy to see, obviously, that all the experience that we have been collecting for years as organization is paying off when looking at the acquisitions and the areas where we acquire these companies that are giving us a totally different mix moving forward.
Strategically, we are becoming more resilient as a company. We continue to execute on our strategy. Efficiency is an important part. We need to become more and more efficient so we can finance as well our growth in new areas. And that explains, obviously, the step with the announcement in Siegen as the final step for restructuring program 2019, but also the start of a new program for -- to be run during the coming 16, 17 months.
And finally, we are very optimistic on the future of mobile living. We believe that this is an underlying -- showing an underlying growth trend despite what we are experiencing just now on the short term. And we have been -- we introduced our strategy in May 2019. We are very, very confident that the strategy that we are driving today is going to pay off in the long term.
And with that said, Rikard, please let's open for the Q&A session.
Thank you very much. So operator, over to you. .
[Operator Instructions]. Please go ahead.
Yes, can you hear me?
Yes we can.
Please go ahead.
Yes, can you hear me?
Yes, we can. Yes, we can hear you. Can you hear us?
Yes, I can hear you. Sorry, just there's a bit of an echo.
Yes, I'll start with -- I'll stick to 2 questions. Firstly, Juan, we've moved from last quarter, and you mentioned in the press release that retail inventory levels being below historical levels to now talking about rebalancing. Maybe if you could just spend a little bit of time here on what has happened in the quarter? Clearly, it caught you by surprise. And also there, do you have any sense of the whole pull-forward demand that you've seen last year? And how long this sort of weakness in the Service and Aftermarket should like?
I think we need to split it up into the OEM business and the Service and Aftermarket business. The comments last quarter were very much on the OEM business. The OEM business was showing still very low inventory levels. The inventory levels have been filled in the U.S., which is not the case in Europe and Australia. In Europe and Australia, inventory levels are still low. But on the contrary, manufacturers, our customers, do have difficulties to complete vehicles because they are lacking chassis from other suppliers. So that's one.
The second one is that we have never experienced an aftermarket going down in 1 quarter as we saw this time. And the only explanation that we have at this point is really that our retailers have been loading with inventories in preparation of the 2022 year's season, and the season didn't start in the same positive way obviously in 2021, and they have been sitting on excess inventories. Again, if we look at historical numbers from 2005 and forward, we have never seen the Aftermarket business, the Service and Aftermarket business, dropping as we saw in this quarter. So for us, so far, is a temporary slowdown, and we believe that it's going to be leveling out as months go by.
Understood.
And with this performance, was it throughout the quarter? Or did it get worse as we -- as the quarter progressed? .
I would say that the first 3 weeks in April were good, but then we saw a change during the last week, and then it has been pretty stable during May and June.
You see, I mean, that's something perhaps that I can comment is that if you look at some of our customers' reports, I mean, you can look at Camping World. They were commenting their Q1 where their own business, Service and Parts, was down 20%. If you look at another important customer like Keystone, they were also showing 10%. So it is clear that they are just now working on their own inventories, that the sales was not in Q1 as good as they expected.
Okay.
And last quarter, you helped us with the split of organic revenue growth between sort of pricing and volume. I was wondering if the sort of pricing element was still sort of 5%, 5.5% in Q2?
Yes, around those numbers. Yes. Absolutely.
And again, of course, what you can see is that raw material prices are coming down. But keep in mind that what we see just now on all the statistics is something we are going to see in our numbers in 6 months from now. So if you compare the raw material prices in the first half of 2022 with the first half of 2021, they are still very, very high.
And if you look at the history of how sticky those price increases are on the elasticity of demand, especially when you have a weak environment, it is -- pricing historically has been sticky?
We have been pretty resilient, yes.
Okay.
[Operator Instructions] We will now take our next question. Please go ahead.
Yes. This is Daniel Schmidt from Danske. Can you hear me?
Yes. Daniel?
Sorry. Do you hear -- Yes. Okay. There's something with the line, guess it's not only me. Anyway, a couple of questions from me then.
So you're saying basically that the raw material prices that we see now has been coming down quite a lot since April, that will have an impact on your business towards the end of this year. Is that correct? And -- and could you shed some light? You said that you've had this historically good resilience in terms of price stickiness, but could you shed some light on where you're stronger and where you need to follow the market more, and where you can keep your own pricing a bit more? Could you give us a sort of some more data on it and sensitivity?
Absolutely. I mean, it's crystal clear that Service and Aftermarket is always much more resilient than the OEM business, and that has always been the case.
And what do you think about the sort of the new business that you've acquired over the past 2 years? Of course, you don't have any history on that business. But in terms of market position and competition and so on and the need for price increases that you have been conducting, is that going to be sort of difficult to keep, or in line with the average for the group or better? Or how do you see it? .
We see -- I mean, you have on one side, you have Igloo, as Stefan commented, and then you have all the rest. If you look at all the rest, they are on underlying growth trend businesses, industries. We see that even today, even the second quarter, in the same way as the first quarter, they are showing very strong growth and very strong profitability.
When looking at Igloo, we see as well that the prices that we implemented at the end of last year kicked in during the first quarter this year. Again, when resin prices went up in March, we implemented new prices, and we see already now in June. And worth to mention as well that there is a lot of statistics on the U.S. on the cooler markets. And Igloo, even considering the price increases, is gaining market share which is positive. That's going to just -- giving you some kind of indication that it's not about -- it's not just about Igloo automatic, that everybody just now is forced to increase prices.
Yes.
And speaking about raw materials, sort of looking at the other side of that and the inventory levels and so on, are you then also saying that the downturn in raw material prices should have a positive effect on working capital as we get into Q4? Is that a fair assumption?
Absolutely. I mean, that's also what Stefan commented that out of the inventory levels that we see, a huge part is obviously prices. Both on raw material prices, but also on the logistic cost. Keep in mind that we are paying kind of still today, 40% more. Still today, even if container prices have been turning south, we're still paying 40% more than we were paying 1 year ago.
Yes.
And container prices, is that also a 6-month lead time when we compare to the spot prices that we see right now?
About.
Yes. I think I lost you there a little bit.
No, I said, Daniel, that is about the same. Depending on the board, so you have longer lead times in the U.S., a little bit shorter lead times in Europe. As an average, I would say, this is very much around the same.
Yes. All right.
And you write that the implementation of new price increases when it comes to Igloo by the first of June, had a significantly positive effect on profitability. I think it's a bit hard to exactly know the mix that you're exposed to when it comes to the Igloo raw materials, but it looks like that raw material component has been coming down as of late, which, of course, many others have as well. And you raised prices by the first of June. Does that mean that you're looking into Q3 with an improving profitability even though we're entering more of a mid-season?
Yes. If you compare with Q3 last year, without any kind of doubt, of course, the volumes will be lower in Q3 than Q2. At the same time, you have the new prices kicking in and the new prices are higher since resin prices went up quite a bit as well. So the answer is yes.
Yes.
And do you agree with the fact that resin prices have been coming down lately?
Yes. But again, keep in mind that we have even their inventories, so you're going to see that on Q3. You will see that most probably at the end of Q3, beginning of Q4.
All right. Okay. Those were two questions from me.
Agnieszka Vilela from Nordea.
It's Agnieszka Vilela at Nordea.
Starting with your comments about the retail inventories being balanced right now, I just wonder how -- what do you think about the future demand for you? And here, I'm thinking about H2 this year or 2023? And maybe if you could split it and look at both the distribution and aftermarket, when will you think the inventories will be rebalanced and the kind of underlying resilience will appear again there? And also, what do you think about the demand coming from OEMs?
Yes. So I think we need to split it up into the different businesses.
So if we look at the RV OEM, it is clear, as we commented before, that already today, American inventories are very much at a normal level. So -- and the expectation is that the market will start pointing south. And I guess that you are following RV AA like I'm doing, so the to-go number is kind of minus 20% to minus 25% for the remainder of the year.
On the contrary, we look at Europe and Australia. The fact is that the numbers have already been negative for a number of months because of the lack of chassis supplies. So there, I believe, what I believe I know that the inventory levels are still low. The problem is more to get access to componentry so they can finish off the vehicles. So there, I don't see -- I don't foresee a dramatic change to what we are seeing already now.
So if we look at commercial and passenger vehicles, which, as you know, is also one of our businesses, that market is growing big time for us. So it is clear that you have, again, the introduction of new technology, the cooling compartments into vehicles, which is generating growth underlying, even if the automotive industry already now is negative.
If we look at Marine, we see still very low inventories. We have a strong backlog, so we don't foresee any drama in the coming months. And there, you have also the technology shift that you have from mechanical products to electromechanics -- sorry, to hydraulic and electronic. So that's on the OEM side. So again, it's very much just now what we see is the RV OEM which is, of course, 24% of our business. Another 24% of the business, about half is Americas, which is the area where we see the major challenge in the coming months.
Then you have the Service and Aftermarket. Historically, and Agnieszka, we are looking at numbers from 2006 and forward. The Service and Aftermarket has been extremely stable. So when the RV market has dropped 20% for the entire group, the Service and Aftermarket and Distribution has been down 3%, 4%. So you have a gap which is normally 15 to 20 percentage points between RV OEM, or rather OEM, and Aftermarket. Which is the reason for us being on the belief that what we saw in Q1 with some of the aftermarket customers like the camping walls, the Keystones, that is really -- that they entered the year with inventories for a high demand that they saw in Q1, and then they pull a break, and we have been suffering in Q2. But we should see this rebalancing taking place. Is that going to happen in August or in September? I don't know. But I do believe that we are going to see this leveling out.
Then of course, you could say, yes, but interest rates, consumer demand, well, still to be seen, obviously. But keep in mind that now we have moved the company quite a bit from high-ticket discretionary spend to lower ticket discretionary spend. So obviously, when we are talking about the passive cooler, and as Stefan was showing before, we have not seen Igloo dropping during all these years. And there was a [ limbo ] in the U.S. as well, but they didn't see any downturn.
So again, we feel confident. At this point, we feel confident. Of course, that we have owned all those companies for a few months. The only thing we can do is to look at history, and the history proves to us that they are pretty resilient.
Perfect. That's very helpful.
Could you also maybe quantify the decline of service and aftermarket in the quarter organically? How much was it down for you year-on-year?
Yes, it's over -- it's 2 digits.
Two digits.
Yes.
Perfect. And maybe just a few words on the -- your cash flow. I think about that...
Sorry, Agnieszka. Agnieszka, sorry, just let me...
I mean, when you look at our margins in Q2, please consider the mix. It has a massive impact.
Yes.
You know that the very often we get these questions, yes, but what about the margins in the OEM? It is a massive difference, and that plays a major role for our margin deterioration in the quarter. So ask...
And on inventories, I appreciate the fact that you explained what was driving the absolute level. But even looking at the inventories in relation to the days of sales, you can see obviously they're climbing. So when do you expect to take down your inventories and realize sales for that? And will it be also kind of connected to the fact that you will need to break production a bit more?
I don't know if -- am I on the air now? Okay.
I think for most of the segments, we have seen the peak now. And as you heard Juan saying, we are 1,000 people less now at the end of Q2 compared to the same period last year. And as we also mentioned in the last quarterly call that we are continuing to adjust the capacity on what we are seeing in terms of demand, but also how we are going to manage the inventory. So we are looking ahead for the coming quarters that we are going to see the inventory level gradually going to come down.
But obviously, I mean, we have currency, we can't do much about that. We have the acquisitions, they are contributing with SEK 1.5 billion. And then it's the raw material price increases and also the longer lead time and the critical components, so they will obviously fade out a bit over time. But we are also driving, as we mentioned, efficiency activities in each one of the segments to improve the situation, so we are looking forward to the coming quarters to declining inventory.
Perfect. That's all for me.
Okay. We have a question on the web, it's about Igloo. Any change in market conditions for Igloo?
Not really. So what we see is a little bit that if we look at all the statistics that we are getting from MPD, the retail association, we see that number of units is coming down at the same time as U.S. dollars are coming up. So I do believe that you will see very similar conditions no matter if we are talking about the grills, barbecues or coolers. Those kind of products are very much connected. So we see that our growth is there. We had a strong growth in Q2. We had -- we don't see any slowdown.
Then keep in mind that we have been introducing new products now, that we are a much more innovative company today than we were 2 years ago or 5 years ago, so this is helping us big time. We can see that average prices are going up as a consequence of 2 things. One is pricing as such, obviously, but the other one is innovation. We are repositioning the company from being good and better to better and good, which is leading to higher average prices. And we will see, obviously, high margins over time as well.
Ivarsson from ABG. Please go ahead.
Yes. I think you actually just sort of answered my question.
But just to confirm, because I think you said on Igloo in Q1 that you grew double digit, and now you say that you grow nicely as well. Does that mean continuously double-digit growth?
That's totally correct.
Okay, great.
The next question comes from Henrik Christiansson, Carnegie.
Yes. So Henrik Christiansson, Carnegie. Question for me on the cash flow.
You gave good explanations on the inventories, where that's gone up and the drivers for that. Is there any difference to trade receivables that are also up? Or is it similar dynamics there? Is there anything different in trade receivables?
Yes. No, I would say that we -- on the acquired companies, especially Igloo, there is slightly higher payment terms. We know what type of customers we have on the other side. But other than that, I would say it's a very stable development in terms of, you know, if you look number of days, also in relation to the business volume, so to speak. So the majority of that increase is basically because we have a bigger business, so to speak.
Good.
And then the second question is on leverage. You ended last year with 2.6x net debt EBITA. Leverage has since moved up, and yes, you closed acquisitions in the group Q1, you pay dividends, FX goes against you. But then you also have cash outs from restructuring program in coming quarters. Are you still confident that you will bring leverage down by this historical 0.6x to 0.8x this year?
I would say that we were going to be on the lower side of that range this year. Related to the working capital, I mean, that will improve, but it will also take some time to get down to that historical level. But that we are going to see that development in that direction. Yes, that's what we are expecting. .
Douglas Lindahl from DNB Markets. Please go ahead.
Just a clarification question to begin with. You commented in the quarter report that the backlog is up year-over-year. I'm assuming you're talking about the organic backlog, right? And would this also be true when adjusting for pricing? That's my first question.
No. We are just looking at volume, number of units. But that's a difficult question, obviously, because we have 12 different product areas. So you could say in general terms, volumes are starting to go down, but that's compensated by the prices. And then as you know, obviously, the backlog is very much driven by OEM and less driven. So about, I would say, 2/3 is OEM, 1/3 is Aftermarket. And as we have already commented, in the Aftermarket side was pretty low during the quarter, so that has a major impact on the backlog as well.
The turnaround on Aftermarket is very, very fast.
Yes, I understand.
On the Marine business, Juan, you talked a little bit about that, and you said that you don't expect anything negative over the next few months, if I heard correctly. Can you talk a little bit about the Marine business in terms of your backlog visibility and also how this business has performed in previous market downturns?
Yes. So we have seen -- on one side, we see a strong backlog still today. We see strong sales. We see that inventory levels are still low. It's a little bit of the same situation that for the REM in Europe or in Australia. The problem for the Marine industry has primarily not been demand, it has been really the access to componentry. So we feel still today very confident on the OEM side. Like anybody else, it has been on the Aftermarket side in Q2.
Then on the backlog, we have a good visibility from an OEM perspective. And then what we see the positive impact that we have is really a technology shift. If we look at the average price per helmet, per boat, the average price is coming up all the time simply because they are using less mechanical products, they are using more hydraulic and more electronic products, and then the average time goes up dramatically. So if we look historically, what we have seen is, in reality, 2 quarters at the end of 2009 -- sorry, 2019, where we had negative growth. But apart from that, we have seen the company growing all the time.
And again, keep in mind that we have quite a bit negative growth on the aftermarket in Marine as well. That's telling you that the OEM Marine is still extremely solid.
Yes.
And maybe it's difficult to answer, but in terms of the businesses that you've acquired with the Marine, they have a bit longer history, I guess. What can you say about their performance?
Yes. Very strong, so far, very strong.
I'm sorry. Historically, in downturns, I should specify.
Sorry, on the -- Yes. But it has been also quite stable because the historical Dometic has been very much aimed to the larger Yachts. And normally, there's some less sensitive markets than when we are talking about the smaller boats, the American part of the Dometic Marine, the sister, is reacting on. So I believe that we have a very good mix with the larger boats on the historical Dometic Marine and then the smaller boats now, with the American part of the Marine business. So it's a pretty good balance.
Thank you. That's all the time we have today for questions. So with this, I would like to hand the call back over to Rikard for any additional or closing remarks. Over to you, sir.
Thank you very much. So before ending, any final words from you, Juan?
Well, thank you very much, all of you for showing interest for the company. We keep working on our strategy, and we will make sure to keep delivering. So thank you very much for your attention. And have a happy holidays, by the way. I guess that for many of us, this is the last day. So enjoy your holidays, and we see you soon. Thank you.