Dometic : 20230127 Dometic q4 2022 earnings call

Transcription

Dometic Q4 2022

27 January 2023

Juan Vargues: Good morning, everybody. Welcome to the fourth quarter and full year report for Dometic from a sunny Stockholm. Without any doubts in some few minutes that we have a lot to talk about, let's move into our presentation. Q4, challenging environment out there. It has been pretty tough on the marketplace. Retailers are still keeping inventories at a high level. In terms of performance, we showed 11 percent organic negative growth with Marine still very, very strong, 11 percent up.

Juan Vargues: Service & Aftermarket continues to show hefty negative numbers, minus 22 percent. OEM is negative six percent, but very much driven by the RV market in Americas, while the rest of OEM is still positive. EBITA ended up at seven percent versus 11.4 last year, with clear declines in EMEA and Americas. Igloo margins were in line in comparison to last year. We have to keep in mind of the entire Group, but even more specific for Igloo, Q4 is the lowest or weakest quarter every single year.

Juan Vargues: Then we are obviously very happy to report significantly improved cash flow. We saw already a clear improvement in Q3. We had an even more important improvement in Q4. Inventories, we commented a couple of times before, that we are working very, very hard to get them down. Are starting to show that they're coming down and that the trend will continue in months to come.

Juan Vargues: If we move over to Q4 sales 6.2 billion. Total growth of 11 percent, but organic growth at minus 11 percent. EBITA 430 million or 32 percent versus last year, with an EBITA margin of seven percent versus 11.4 for last year. EPS at 54 krona in comparison to 98 krona one year ago. Operating cash flow twice as much as last year, meaning 1.1 billion in comparison to half a billion last year. Leverage at the same level as in Q3, meaning three times versus 2.6 in Q3 one year ago. Then the board has decided dividend or will propose rather a dividend of one krona on 30 percent in comparison to two krona and 45 percent last year.

Juan Vargues: Moving to the full year total growth of 38 percent or very close to the 30 billion ended up at 29.8 with three percent negative organic growth. EBITA even there at all time high 3.9 billion or 17 percent compared to last year, reaching an EBITA margin of 13.2 percent versus 15.6 last year. EPS even their all time high at eight krona of 32 krona and operating cash flow of almost 2.3 billion in comparison to 1.7 or plus 30 percent versus last year.

Juan Vargues: Moving over to size growth. Eleven percent total growth with Americas negative 21 percent, and now we are talking about total growth. EMEA still positive five percent, APAC positive six percent, Marine plus 30 percent, Global plus 66 percent. Still, organic growth was down 11 percent.

Juan Vargues: In terms of application areas, it is really climax where we are seeing the major slowdown and that's very much due to the American RV industry, where we are very, very heavy on climax. Food & Beverage and Power & Control still growing very nicely. They speak in very much driven by the acquisitions in those areas.

Juan Vargues: Looking at different sized channels, Service & Aftermarkets down four percent, and we will get much more into detail in a couple of seconds. While OEM, as you can see, is still up on distribution, very positive, driven by Igloo. This is an important slide. It really shows the transformation of the metric from 2017 to 2022.

Juan Vargues: We have doubled the size of the company, but which is even more important, we have also reduced our exposure to the OEM market moving from 61 percent five years ago to 44 percent this year. If we look at the share within OEM, the RV OEM stands today for 25 percent, Marine 14 percent and CPV five percent. As we commented before, RV OEM Americas, which is about half of the total RV is just now where we see a negative growth. All the rest is positive.

Juan Vargues: Then coming back to Service & Aftermarkets, which is one of the areas having the most impact on Q4 and our margins are totally speaking, where you can see is extremely important. You see obviously that the pattern looks very similar year on year with exception of 2020, where we were hit by the pandemic in Q2, we saw a fantastic bounce back in Q3, Q4 that continued during the entire year, 2021.

Juan Vargues: Worth to mention when looking at the graphs is Q1 2022, where we still saw a fantastic growth even in comparison to 2021. Meaning, obviously, that distributors/wholesalers were still building up inventories on the division or having a strong season 2022 that obviously, never happened.

Juan Vargues: If you compare, on the contrary, the numbers in 2022 with the numbers 2019, if you took 2019 as a base. All of a sudden we are growing four percent in Q2, we are growing seven percent in Q3, and we are growing over 10 percent in Q4. Again, it is important really to understand what is going on, on the market.

Juan Vargues: I'm convinced that most of you have already heard about the bullwhip effect. This is not my graph. This is coming from supply chain experts. What this is telling you is that the small changes in demand at the consumer side lead normally to major swings the more upstream you go. This is a very well known situation in normal cases, but of course, that the pandemic distorted everything. This is really what we are going to see if we move over to the next slide.

Juan Vargues: When looking at our Service & Aftermarket we have three different channels. We have the DTC, which is very much driven by our own platforms. Then we also have small dealers all over the place. We have in principle about 35,000 dealers, and then we have wholesalers/distributors. If you look at the upper graph, well you can see that when we are talking about dealers, meaning companies closest to the consumers that are not building up inventories, our sales is very much in parity with 2021.

Juan Vargues: On the contrary, when you see distributors, our sales is coming down after Q1 started to see. Again, distributors, wholesalers built up inventories expecting a strong season 2022 that never happened. This is just now what is leading to this negative growth on Service & Aftermarket that we believe is going to be flushed through during the coming couple of quarters.

Juan Vargues: In terms of profitability looking at EBITA, we ended up at 13.2 for the year versus 15.6 last year. Then when excluding Igloo, we ended up at 14.5 in comparison to 16 percent last year. Looking more specifically to the quarter, seven percent is very much due to the fact that Igloo is having an effect for three months this year, two months last year. As you all know, Igloo has a dilutive effect on our margins.

Juan Vargues: We have a clear negative effect of the volumes and also the product mix both in EMEA and Americas. On top of that, we have also lower FX tailwind in some of the segments. On the contrary, Marine is still performing very, very nicely and having a positive effect on our results. We have been obviously working very, very hard to reduce our cost everywhere.

Juan Vargues: Having a look at the different segments, starting with Americas, organic growth down 41 percent with RV OEM very much down. We got the numbers from the American Association the day before yesterday showing that Q4 was down 47 percent, as a continuation of Q3 that was also down 37 percent. It's tough times for the RV manufacturers and for us as a consequence.

Juan Vargues: On the contrary, we see that automotive is still doing very well. We invested heavily in building up a CPV organization last year, and is showing very nice growth still, from small numbers and then Service & Aftermarket we already commented. I would say that no matter the segment, Service & Aftermarket is still going through this rebalancing of inventories.

Juan Vargues: Negative EBITA at 60 million with an EBITA margin of 5.1 down versus 4.7 positive last year. Again, very much impacted obviously by the sales decline, both from an OEM perspective, but also on AEM perspective. The couple of acquisitions that we

completed last year developing in a nice way are contributing positively to our EBITA margins.

Juan Vargues: Moving over to EMEA, negative organic growth or six percent growth in OEM, primarily driven even there by CPV, while RV OEM is stable, but even here Service & Aftermarket showing pretty negative growth. EBITA margin 3.8 and this was for us the major disappointment in the quarter. Very much as a consequence of higher logistic cost effects play negative in comparison to positive in Q3 last year. Then we have obviously a clear negative impact from product mix.

Juan Vargues: If we look strategically, we are working on the move from Seagen in Germany to Jaszbereny in Hungary, and we expect the entire move to be completed mid 2023. Looking at APAC, even APAC we showed negative growth of two percent. OEM same. OEM is still being very stable while both Service & Aftermarket and Distribution going down. EBITA ending up at 22 percent versus very strong 27.3 percent one year ago. We have even here a negative impact to the sales channel, meaning Service & Aftermarket being down and OEM going up. Negative effects in comparison to last year and even here, slightly higher logistic cost. Of course, we are adapting capacity, especially in our Chinese factories that are feeding the Pacific area.

Juan Vargues: Looking at Marine, very, very strong. Eleven percent organically driven by OEM, where we see that the technology shift that we have been describing now for a couple of years continues, while Service & Aftermarket is also down. The difference between Marine and the rest, is that Marine started then slow down in reality already in Q3 2021, and Q4 2022 shows a lower decline than we have seen in the year. Hopefully, this is giving us the indication that the Marine Service & Aftermarket is going to show improvements in the months to come.

Juan Vargues: EBITA very strong, 25.5. It is clear that this is happening. We are improving with margin despite the fact that we have a negative product mix. We completed acquisition of Treeline in Q1, and that acquisition is doing very, very well. Moving over to Global, where the vast majority is Igloo, organic growth of three percent. In this case, the negative organic growth was driven by potential increase and hospitality showing a stable development as well as Igloo. EBITA margin 0.1, slightly lower than last year, but here you need to consider that Igloo was with us two months. In this case, it was with us three months, and they have a clear dilutive effect on our margins.

Juan Vargues: Strategically Igloo is still doing very well, developing in a nice way for us and working very much with integration, which is going according to plan. I'm getting a little bit deeper into Igloo. We have perform organic growth of 16 percent in the year. We see also a very resilient business. Historically, we continue to gain market share in this market. We see even that retailer week of sales is still at the lower levels that we saw in 2019 and 2020.