Dometic Group AB (publ) (DOM) Earnings Call Transcript & Summary

Hello, and welcome to the Dometic Q4 2021 Earnings Call. [Operator Instructions] Today, I'm pleased to present Juan Vargues, President and CEO; Stefan Fristedt, CFO; Rikard Tunedal, Investor Relations. Speakers, please begin.

Hello, everybody. Good morning from [indiscernible], Stockholm and welcome to the presentation of the fourth quarter and the full year report 2021. As usual, we are very grateful for your interest in Dometic. I will suggest that without any delay, we move over to the presentation for the fourth quarter. We are very pleased with the outcome, considering obviously the external circumstances that we are suffering from as many other industries. We continue to see a strong demand. We have -- we are ending the quarter with a record high backlog. Again, we see still retail inventory levels low across all verticals. As many other industries, we still suffer from supply chain constraints that are challenging even if we see that. Thanks to the efforts done internally, we have managed to redesign componentry, especially electronic componentry and started to gain more access into chips. Again, this is not over. We believe it is going to continue, but we feel better than we felt 3 months ago. On the performance side, very strong growth, 32% with an EBITDA margin excluding growth of 12.8% versus 12.7% last year. And then Igloo has of course a dilutive effect as we already announced in connection with acquisition. We see also a positive movement in times of pricing. Cost increases continue to raise, but we have reduced the gap that we had when price and cost increases in Q3, and we have a positive difference in Q4. Innovation Index at a very high level. As you all know, the target for Dometic is 25% today. We reached the target in Q3, and we will stay there for a few months at 26%. And then we're also happy to communicate that we are working very hard on the sustainability area and we managed to reduce the emissions, CO2 emissions by 24% during the year. If we look at financials, as I already commented, 32% total growth in the quarter with 2% organic growth, 2% positive effect from FX and then 27% coming from M&A. EBITDA SEK 771 million or 10% up versus last year, ending now up 13.9% EBITDA margin. Looking at EBITA, we ended up SEK 632 million versus SEK 536 million last year or 18% up or an EBITA margin of 11.4%. Operating cash flow SEK 546 million is slightly lower than 1 year ago and that's of course the consequence of building up inventories for Q1 and Q2. Happy to report as well, a leverage of 2.6, which is very, very close to our financial targets. And a EPS of SEK 0.62 compared to a negative of SEK 0.54 last year. If we move over to the summary of 2021, we have taken major steps in accelerating our strategy, accelerating the implementation of our strategy and driving our transformation journey. On the market developments, I will repeat is more of the same that we have seen in Q4. But again, very happy to report record high revenues for the year and operating profit. Organic sales growth up 23%, very strong. Nine acquisitions were announced during the year. On one side, we have Igloo, extremely important acquisition strategically, transformative acquisition. And then on top of that a bolt-on acquisitions. We're also very happy to see how what we have been communicating according to the strategy shift from the OEM business to the distribution and service aftermarket businesses is taking place. We ended up the year up 50% and of course, if we look at pro forma rates, it will be even lower. EBITDA margin for the year, 15.6% versus 13.8% last year, which means that we are achieving our second major or higher profitability ever in the history of the company despite all the challenges that we had around us. And last but not least, the Board of Electrolux is proposing a dividend of SEK 2.45 per share. Summarizing the financials, SEK 21.5 billion, again, a remarkable [indiscernible] of 33% total growth with 23% organic, 3% negative effect from FX and then a positive effect of 30% coming from M&A. EBITDA close to SEK 3.8 billion or 41% up and an EBITDA margin of 17.5%, which is 100 basis points above last year. And even EBITA strong, over SEK 3.3 billion or 50% up versus last year. Operating cash flow above SEK 1.7 billion, lower again by EUR 2.2 billion that we could show last year and it is very much as a consequence of the inventory EBITDA. And then EPS, a strong SEK 5.58 or much higher obviously, not the level year SEK 1.52. Looking at our trajectory in the last years, again we are extremely happy to see the levels that we are achieving. And of course, with the additional acquisitions, this will continue during 2022. Total growth of 32% with Americas showing 23% up; EMEA 19% up; APAC a strong 26% and even global, a very, very strong 55%. And then looking at Q4 this year comparison to Q4 2019, organic growth was 70%. So that's telling you obviously that Q4 last year was very, very strong and now we are facing tougher comps moving forward. Looking at our application areas, we see growth all over the place. We see an acceleration in food and beverage. That's on one side, organic growth on the other side, as where Twin Eagles and Eagle are kicking in. In Power & Control, we see a very strong acceleration as a consequence of the acquisitions that we have been doing in the mobile power solution area, as you can see, contributing greatly to the evolution. And other applications that where you find Valterra having also a major impact, especially in the area of sanitation. If we look at different state channels, more of the same, very strong development in both service and aftermarket and distribution. And again, this is both organically and acquisitively. Organically, we have been building up teams in all of the world, both in service and aftermarket business and our distribution business. But of course, the acquisitions are also starting to play a major role in our development. You can see clearly the shift that we are doing from OEM standing for 61% and for the full year 2017 to 50% on 2021. We should -- if we look at pro forma, we should be on around 42%, 43% when looking -- when moving over to 2022 before we generate any growth. So a very, very strong sheet in a very [indiscernible] group. EBITA ending up at 15.6%, as I mentioned previously, in comparison to 13.8% 1 year ago. Excluding Igloo, we should be on 16% and I'm commenting excluding Igloo, obviously, because Igloo had an impact for 2 months. Otherwise, we will be higher than that. And we will of course for next year, not comment Igloo because it's part of the running business, so to say. Positive impact on the growth, of course, pricing, cost savings activities and then we have currency -- positive currency effect. At the same time, we also see obviously negative effects by the supply chain constraints on one side, leading to freight costs, leading to inefficiencies in our factories. We see raw material prices that stabilized for a few weeks at the beginning of Q4, but they're starting to creep up again, not at the pace that it used to be, but creeping up anyway. At the same time, again, as we have compensating -- more than compensating by price increases. And then last but not least, we also have tougher comps due to the fact that we were coming Q4 after a pandemic and we still have a very, very low cost base. Looking at different segments. Americas up 23%, organic negative 6%, very much due again to a fantastic Q4 2021. We see growth in all areas, especially in Power & Control and other applications. We see both the OEM business and the service and aftermarket business developing nicely and we also -- and also the acquisitions are driving a better business mix. EBIT margin ended up by 3% versus 1.9% last year. Again, I will not repeat myself in some of the pricing. It's about working with our efficiencies in our factories and distribution and then acquisition is also having a positive effect. If we look at the full year growth rate, 34% total, 20% organic and a clear improvement from 0.9% in EBIT margin last year to 5% this year. Looking at EMEA, 19% total growth for the quarter or organic of 8%, driven very much by the climate application. We are leaving 2021 with an all-time high backlog in EMEA. And even here, the acquisitions are helping us to get a better business mix in comparison to the OEM. EBIT margin slightly lower than last year, 5.1% in comparison to 5.9%. And as usual, here we have the supply chain constraints playing a role. We have raw material prices that we are partially compensating by the price increases, and we have also extra M&A transactional costs that kicked in, in the quarter. Looking at the full year, 24% up or 22% up organically, a clear EBIT margin improvement from 11.5% to 12.9% this year. We are extremely pleased to see our APAC segment continue to develop. Total growth in the quarter was 26%, organic growth 1% with growth in application areas and in all sales channels with backlog at much higher levels than we had 1 year ago, and here acquisitions are playing a positive role. EBIT margins, fantastic 26.3% compared to 25.9% despite the fact that we have a lower cost base 1 year ago. And then same reasons, so we are working very hard on the pricing, we are working efficiencies. Against us, we have obviously a supply chain constraint and raw material prices. Looking at the entire year, 49% up totally, 34% organically and a very, very strong margin improvement up to 26% in comparison to 20.6% 1 year ago. And then finally, looking at global, very strong 55% total growth with organic 5%. And here is really where we do have on one side, Twin Eagles doing very well for us. And then we have Eagle showing also a very strong growth in the quarter. Very solid growth in Marine as well, leaving also the year with all-time high backlog levels. And we see also that the hospitality business has been coming back very, very strong. And we expect that to continue in the coming year -- or in this year, sorry. EBIT margins, 12.3% in comparison with 20%, of course, affected by Igloo. Excluding Igloo, we would have been showing 19.2% versus 20% the same reasons obviously, supply chain constraints and componentry prices. Looking at the year, very strong 37% up totally, 24% organic and then total EBIT 19.2% in comparison 20.4% last year, but even here, excluding Igloo 21.4% versus 20.4% last year. A couple of words about Igloo, ended up the year very strong. As you can see, we are the market leaders in the American market, the prime market in the world, ended up with a market share of 31% versus 20% last year. And what is interesting here to observe is with happening just now with the average prices in comparison to the volume. So we are growing much higher on the -- in U.S. dollars than we are growing in number of units. And the reason for that is innovation. We're starting to move from a good positioning to a better positioning. We're starting to penetrate also deeper and deeper the sporting goods market and of course, adding 90,000 stores to Dometic that we help also Dometic penetrate that as a channel. And then B2C that they started in 2020 -- at the end of 2020, showing also a very strong growth, still small numbers, but showing very nice growth. We are working very hard on the integration process, working both from a product development, working from geographical evolution all over the world. And then we already have the price increases coming through from Q1 from January, we should start seeing clear improvements versus last year. Looking at strategy, I will make it very short. Dometic, we are working our strategy, both walking the talk. What we communicated to you during the Capital Market Day 2019, we see clearly the shift that we have done in terms of distribution and servicing of the market. We have our acquisitions kicking in and accelerating the process. We see also our B2C efforts, again, still very low numbers, but growing dramatically as we are implementing it in more countries. Probably this year we're very, very happy at 26%, very, very strong level and great evolution in the last few years. And we have a strong pipeline of new products coming through in the coming years as well and then working hard on cost reductions. I think we reduced complexity massively. As you can see, SKUs down 59% since 2018. And we are accelerating now the restructuring program that slowed down due to the pandemic in 2020 and 2021. Social media, another area where we are investing. As you can see, Facebook is starting to slow down big time, but we are shifting more and more towards Instagram showing a very strong growth and then LinkedIn also showing our regional growth. Outdoor, thus our main area going forward, dramatic change in a number of impressions in number of stores worldwide. On one side, we moved organically quite a bit from 3,500 to over 5,000 stores, and then we got the Eagle acquisition kicking in with another 90,000 stores. So I would say a massive change in how Dometic looks like moving forward. We see also our efforts, as I mentioned previously on B2C e-tailers, e-tail is growing organically in the quarter by 89% and looking at our own channels, our own e-commerce channel growing in the quarter 52% and growing for the year 93%. Acquisitions, hopefully, the slide is satisfactory, how we're integrating companies and that all the companies but Igloo are integrated into Dometic. We're using double branding already now after a couple of months, and Igloo will be separate as they stand for something different. You can see as well where the acquisitions are coming from. Most of the acquisitions are in mobile power solutions. We have Service & Aftermarket. We have the vehicle-based outdoor market and then finally residential outdoor. So 100% according to the strategy that we communicated. And talking about acquisitions, NDS, we announced at the end of the quarter and will be completed during Q1 2022. These are I know a very important step in our mobile power solution entry. It's a company again contributing with 75% of the sales in the Service & Aftermarket, complements geographically the acquisition of [ Bosnet ] perfectly. So Bosnet is obviously started in the north of Europe, while NDS is started in the south of Europe. And as I mentioned, completion is expected in Q1. Looking at product development, a lot of inflows flowing through here. We have some samples. So Front Runner is -- made the launch during the quarter, different solutions, heavy-duty solutions for [ overlanders ] especially. You see as well the barbecue, the new barbecue wheel making it easier to pack and unpack when you are on the road. Marine, another very, very important area of our business where we have invested in the last few years and showing a fantastic development. We're starting to develop the products also for other geographical areas and investing even more in developing the service aftermarket part of the business, where I have to mention that if you compare the [indiscernible] vertical and the Marine vertical, the Marine vertical is much more service-intensive than the [indiscernible] vertical. And that's also one of the reasons for the Marine business to be very important to us. The restructuring program, a lot of activities behind the scenes, but no location affected in the quarter. So 22 locations up to now since we started the program. Number of employees affected so far, 804. We added another SEK 36 million in the quarter restructuring cost, bringing in the total -- the total figure to 619, we are accelerating now our pace in terms of implementing the program. And then I'm also very happy to report our progress in the sustainability area with injuries coming down dramatically in the year by 26%, with a lot of activities in all our segments. We increased our number of female managers from 24% to 25%. Unfortunately, we didn't reach our target of 26%. Again, working very, very hard to achieve and get higher than even the target that we see just now 26%. Audits, despite the pandemic and all the restrictions to enter, especially China obviously, but we ended up on 88%, also a lot of progress in comparison to the situation 1 year ago, another very important area for us. And then CO2, we moved to green electricity in a huge number of countries and even here with so far there reductions there in the years to come to come. And with that said, Stefan, I would like to hand it over to you, please.

Thank you, Juan. Moving directly over to our net sales and EBITDA bridge. So the 3 components here, starting off with currency. We had a SEK 99 million positive effect on net sales and SEK 30 million positive effect on EBITDA. I think there has been some questions around this. So to clarify where does these currency effects come from, 50% is translation-related and 50% is transaction-related. A part of the transaction-related effects are sitting in other operating cost and income and the other side of this is sitting in the gross margin. So you have to put them together to get the total effect. Moving over to M&A, contributed positively with SEK 1.132 billion in net sales and SEK 103 million in EBITDA. Igloo has been derivative on our margin. They have posted a slight EBITDA loss in the quarter and it's a little bit above 40% of the sales that is related to Eagle. That means that the other acquisitions are accretive to margin. So moving over to the last column, volume, price mix, cost and other. We obviously have had a positive sales growth. If we look on pricing and combine that with the effect on the cost increases on freight and raw material, as Juan has mentioned before, we are seeing that the price increases are coming through and they are not quite double the size compared to Q3, but almost. But then they are -- continues to be offset by further cost increases. And one thing specifically which has been a driver here in the quarter is that we are increasing the level of spot buys, that's really a measure to mitigate the constraints that we have on the component side. So there is a cost related to mitigating this effect. So if we add it all together, we have a slight improvement versus Q3. And as you remember, we -- it was minus 0.4% on the margin in Q3. So there is a slight improvement to that in Q4. We have to also mention that we have further price increases coming through here directly from the beginning of Q1. So we will see a further development in the right direction here to Q -- the first quarter. Then as you know from before, we have been investing in sales and marketing-related activities. And that is to strengthen B2C, it's to strengthen outdoor service and aftermarket as we have mentioned in previous quarter. Then we also have to recognize that we have a low cost base in Q4 2020 coming out of the pandemic lockdowns and all the effects that the pandemic have in 2020. So that are the main effects in that column. Moving over to the same view, but for full year. So as Juan mentioned before, we are moving from 13.8% EBITDA margin to 15.6% despite that we have negative currency effects in the full year. So they are SEK 143 million on the EBITDA level, and it's also approximately 50-50 between translation and transaction here. M&A has been contributing with SEK 2.1 billion in sales and almost SEK 300 million in EBITDA. As we mentioned, Igloo has been delivering this margin related to their November and December. And then the other acquisition, they are accretive to the average Dometic margin. Volume, price, mix and cost, we have seen a growth of SEK 3.7 billion and we have had a drop through of a little bit more than 25% on that. And that's driven by that for the full year. Pricing have had a better effect than in the last 2 quarters. We have been continuously to execute on our cost-saving activities. And then obviously we have some negatives on supply constraints, freight costs and raw material prices. And then we have the investments that we have decided to do, which is approximately SEK 130 million. So let's move over to the next. To give you some better flavor to how the acquisition has impacted Dometic in 2021, reported we have SEK 2.1 billion in net sales and we have SEK 298 million in EBITDA. If we would present that on a pro forma basis as if we would have owned all the acquisitions for the full 12 months, then that would equate to SEK 6.6 billion in sales and SEK 661 million in EBITDA. And of that, Igloo is approximately SEK 3.8 billion in sales and SEK 110 million in EBITDA. Total amortization of required related intangible assets, including not only the acquisitions we have done during 2021, but the totality that we have is going to be around SEK 0.5 billion to SEK 0.6 billion. Looking on the distribution of sales, all these acquisitions that we have done is taking down the cyclicality of Dometic. But we are still sensible. So you can see Q1 is 23%, Q2 is 31%, so by far, the largest and most important quarter and then 25% in Q3 and 21% in Q4. And then in the table below, you can see when they were announced and from which month they are included in our accounts and in which segments they are reported. Moving on to the next. Cash -- operating cash flow, 68% cash conversion in Q4 and cash flow in general has not been coming up to the levels that we are used to see, and that's very much driven by working capital. There is a very clear volume-driven component of the buildup in working capital, but we also have a significantly longer lead times, more than double, from China to the rest of the world for example we have product launches as well impacting the number. So that is -- we are moving over to the -- actually the details of the working capital. Here, you can see that on the accounts payable side and the accounts receivable side, we are improving on accounts payable quite significantly, which is according to plan. We are focusing on this. And then on the accounts receivable side, we see a very stable development. And you can see the development of inventory that I was mentioning. But on the total working capital point of view on a 12-month moving average, we are on 87 days, which is not significantly above what we have seen in the past. Looking on CapEx and R&D, CapEx came out higher in absolute terms in Q4, very much driven by capacity investments in the Igloo and in EMEA. It came out on percentage of net sales, around 2.8%. On the R&D side, we see increase in the absolute spend, but the decrease in relation to net sales, which is really related to that the growth in the organic business plus obviously the acquired businesses here. But we are going to stay in the range that we communicated on the Capital Markets Day, 2% to 3% on R&D. Moving over to cash flow, I think operating cash flow is slightly below last year, and it is driven by changes in working capital as I mentioned before. And we also have, obviously, the acquisitions including, so we have a seasonal inventory buildup in Igloo. Then we have the investment in fixed assets, which are already mentioned what they are related to. And it's mostly related to investments by acquired companies. Then we obviously finalized the acquisition of Igloo, thereby the SEK 5.8 billion in acquisition in the quarter. So let's move on. Yes, this one you have seen before, but nicely, we have now 3.8 years in average maturity, which is an improvement from 3.3 1 year ago. And then we also obviously have the undrawn revolving credit facility available of EUR 200 million. In terms of net debt leverage, we have been ending up after the acquisition of Igloo on 2.6x, and that's close to the target of around 2.5x over a business cycle. And as you know from before, Dometic has a rather strong deleveraging profile, which we are assuming that it's going to continue in the future. So Juan has shortly mentioned and we have also mentioned in our quarter report that we are from Q1 2022 going to change our financial reporting. This means that we are going to break out Marine as a separate segment so that we lead segment global and be a segment of its own. And I mean why are we doing this? I mean, first of all, segment global will be too large to manage in an efficient way. It will also not be very transparent from a financial reporting point of view. But then the most important thing really is Marine itself because it's a strong and prioritized global platform, and it has attractive margins. And this is certainly in an area which we want to continue to grow. And yes, capture the potential that we have also in other parts of the world than North America, working on EMEA and APAC. And then just to be clear, segment Americas, Asia-Pacific and EMEA, they will remain exactly as they are. And then we will start reporting EBITDA by segment also from the first quarter. We will provide to you a restatement of previous periods, which we distributed in the middle of March and which will then contain information from 2019 up to 2021. And as you know, our Q1 report is published on April 28 according to the new structure. Yes. Juan has already mentioned that the Board is proposing a dividend payment of SEK 2.45, which is equivalent to 44% of net profit. And we believe that this take our strategic agenda into consideration and the current conditions -- market conditions. And yes, that we should be able to continue to maintain a solid balance sheet to support our growth ambition. And as you know, the dividend target communicated says at least 40% of net profit over a business cycle. So with that, I hand over to you, Juan, to make some completion comments.

Thank you, Stefan. Well, we already heard about the dividend, and we have seen the evolution of the dividend payouts during the last years. And coming back and trying to link, so to say, the quarter, the short-term perspective with long-term perspective, when looking at the other financial targets, you can see that in the last couple of years, we have moved the company from SEK 14 million in revenue to a full year of $21.5 million in 2021 or SEK 26 billion on a pro forma basis. If we forget pro forma, if you look at the actual numbers, I look at the CAGR in the last years, we are above the financial target. We're in 11% and 4.4% organic, so not far away from our organic financial targets, so to say. If you look at EBITDA, we have also taken up our profitability quite a bit despite all the challenges that we have seen in the last couple of years in terms of tariffs, in terms of FX during the time. And then, of course, the inefficiencies that are brought by supply chain constraints and so forth. So again, we are still a bit away from our EBITDA targets, but we are working very hard and we are totally committed to achieve those targets. And then in terms of leverage, another very important financial target for us as an acquisitive company is that despite the growth that we have generated in the last years, we have also made sure to have the finance to move forward, and we managed to end up the year at 2.6%, which is exactly in accordance to our financial targets. And then 2021, again we will end of the year -- we have ended up the year with low inventory levels, we see still customer demand out there. We have a strong backlog. We are happy to report that we see a good start for the Eagle acquisition, both in terms of growth and in terms of profitability above what we expected a couple of months ago. And then we have the negative side, the supply chain constraints obviously that are an uncertainty, but I have to say that I feel better today than a few months ago. Again, we had [indiscernible] area. On the strategic agenda, I would not repeat myself. I think we are simply walking the talk and totally committed to reach our financial targets in the future. And with that, I would like to finish the presentation and move over to the Q&A session.

[Operator Instructions] Our first question is from Johan Eliason from Kepler Cheuvreux.

This is Johan here. Just first on Igloo. Did I understand you right, Stefan, that you said the pro forma EBITDA contribution would be around SEK 110 million on Igloo?

That is correct for 2021. So it's important to remember here is obviously that for -- we are expecting a pretty significant improvement on that and that's also what is built into [indiscernible] that they have. And what we can say is that the main driver behind this is that they have had a negative dynamic between their own price increases to their customers and the cost increases from their input costs, so to speak. And yes, they are expecting a little bit of a reverse situation of that in 2022. Hello? Still with us?

He is not with us anymore, so I'll move on to the next question. Our next question is from Agnieszka Vilela of Nordea.

I have 2 questions. Starting with the contributions from the acquisitions in the quarter. At least for me, it was surprisingly strong. You added SEK 1.1 billion to sales from acquisitions that was some SEK 400 million more than what I expected. And I think that was more or less where I was. So the question really is, what did we get wrong? Was the season a bit stronger or do you see very good growth at the acquired businesses right now? Or maybe that you see some stocking at the distributors right now, if you could explain that.

I mean we have both. I believe that out of the line acquisitions, 7 were completed. Igloo is dilutive and then the remaining 6 are accretive. So we see nice growth in those companies that are the reason for acquisitions. I mean, we are jumping into growth trends in those areas, both outdoor, mobile power solutions and service and growth areas. And they have the right growth profile and they have the right margin profile. And then we have Igloo. And Igloo for us is still very strategic and we are totally convinced that we are going to see a very positive evolution going forward, even if we don't see that just now or we didn't see that in 2021.

Okay. Perfect. And then just a follow-up on Igloo. If I calculated correctly, you had minus SEK 12 million contribution from this acquisition the EBITDA line. And the first question here is, is this number including any positive impact from the currency hedge gains? Maybe start there and that's probably a question to Stefan.

So the specific question is related to Igloo, right?

Yes.

The answer is no. The answer is no.

Okay. So that's underlying minus SEK 12 million in EBITDA in Q4. And if I calculate it, it's probably like minus 2%, minus 3% EBITDA margin than underlying for the quarter, which to my understanding is better than it was in Q3. So if you could explain what's driving that improvement in Q4 for Igloo?

Absolutely. I mean it's driven by a stronger growth in FX than expected. So -- and that's a combination of volume and price. So price increases are starting to come through and that will continue going forward. So that is the main explanation, Agnieszka.

Yes, one of the most important KPIs that we are going to follow is really the difference between growth in volume, meaning number of boxes and growth in dollars. That's telling Igloo that we are moving up the ladder in terms of innovation, in terms of penetrating new channels for Igloo, high margin channel.

Great. And maybe the very last one on the group level, just price cost dynamics and what you expect for 2022. Do you compensate for the price increases?

Yes. So if we take Q4 specifically, we see that in comparison to Q3, we have positive evolution. So cost -- so forget we have one more factor that has been kicking in the last couple of months, which is a spot buy. If you forget the spot buy and take all the rest, all the material prices, freight costs. We have more than compensated in Q4 in comparison to cost. Then with during the last couple of months as a consequence already signing componentry to be able to source new chips, new componentry. We have been spending more money in spot buying, and we have increasing prices during December and January. So our intention is exactly the same, to compensate. Then you have obviously a time delay. We are very happy to see a time delay that we have on the underlying raw material prices. It's gone. Now, we have a positive difference and now we are implementing prices to compensate for the spot buy.

Our next question is from Daniel Schmidt of Danske Bank.

Just a few questions from me. If you try to sort of calculate what the impact has been from supply chain constraints on organic growth in the quarter, what would you say that -- what kind of impact was that you think in Q4?

2% to 3%.

2% to 3%?

2% to 3%. Yes.

And you're also saying that you are still seeing difficulties, but at the same time, maybe some easening in several areas. Should we interpret that as that negative impact that you had in Q3 is going -- Q4 is going to be a bit less than Q1 going into '22?

That's what we are working for, Daniel. I mean, as I said, it's not that the external circumstances are changing. It's really that, like, other industrial companies are doing you have new -- the chief suppliers are just now betting on new chips. So they are moving the manufacturing to new chips. So all of us having chips that are 3, 4 years old, all of a sudden do have difficulties to get access. So that you have to do is to put a lot of engineering resources, a lot of sourcing resources to redesign their own componentry so you get access to the spot market and that's what we have done. So we see, in my opinion, a better situation than we had 3 months ago, I guess the team has at very beginning. We still lack -- it doesn't mean that there are no clouds. There are a lot of clouds, but we see much lighter, and we saw a few more [indiscernible].

Yes. Okay. And also coming back to the bridge on Stefan's slides when it came to the quarter, SEK 98 million came from volume, price, mix, cost and other. And I think you said that you had higher price hikes in Q4 than you had in Q3 and Q2. Would you dare to quantify that close to SEK 100 million, is that basically mostly price overall or any -- could you shed some light on that?

I mean, the way you know that we did quantify the price/cost effect in Q3 to minus 0.4% on the margin. And it's still a minor sign, but it's a smaller minus sign in the fourth quarter. So price increases are coming through. I mean, not quite double the rate, but significantly higher in Q4 compared to Q3. But then we also have a continuous pressure on the cost. But then you need to keep in mind that here is coming price increases now directly from Q1 to compensate, for example, for these spot buys. So it's -- and we -- as we can see them now, we absolutely did these price increases that are not insignificant coming through here now that they are going to be adequate as we can leave. But we will have to, it's almost like a weak monitoring of this situation. Okay, Daniel?

Yes.

Our next question is from Fredrik Moregard of Pareto Securities.

So for the question on the cost inflation side, I mean you've been mentioning raw materials, right, some spot buying as well. Just wondering what you're seeing on wage inflation and whether or not you've been incorporating any expectations on wage inflation to the price increases you've been announcing to your customers?

I mean, you could of course that we are considering that. But for us at Dometic, we are heavy manufacturing. And when you look at manufacturing or manufacturing side, it's very much about raw material. So I see that a major hit, I mean, we have taken obviously a hit this year in comparison to last year simply because we had the situation with the pandemic. Now we are starting -- we have already been flying for 6 months. A lot of people are starting to -- have been traveling in the second half of the year. So on wages, of course, that inflation will lead to higher rates. But again, we are implementing price increases and our ambition is to have a positive difference and not a negative difference, which we had in the first half, absolutely clear.

All right. And then a second question on the restructuring program that you're running. You're saying that you're going to accelerate it in 2022. Does that mean that you're pulling forward the full-year impact of -- that you said will be implemented from probably 2023? Should we expect that to be even earlier now or is that still the main idea?

I think you should keep it as is just now, but we will do anything we can to accelerate furthermore. And again it's not that we have not been working. We have been working a lot. It's simply as I have commented a couple of times that we are going to move factories around, you need to have people to meet. You need to spend time in the receiving side. And that's pretty difficult when you are banned from those countries. So the situation is easing up. We see clear improvements and we are traveling -- we have been traveling now for 6 months.

Our next question is from Henrik Christiansson of Carnegie.

So 2 questions, please. First one on the strength in APAC, it continues to deliver very strong number. What is driving the strength and that is, is that sustainable?

There's couple of things. I mean, first of all, you have the reality of the market. The market has been growing very, very nicely for us, despite pandemic. And by the way, as one more comment, additional comment to the line of growth in Q4, we need to remember that Omicron has started to kick in already in Australia in December. And December and January are the strongest month for that region of the world, right? So -- but again, apart from that, [indiscernible] the pandemic, the growth has been fantastic. Secondly, you have a mixed situation when APAC is growing faster than Asia. And you know how the situation looks like in China, but also in Korea, in terms of lockdowns as soon as they found one case. So that gives you a geographical mix difference. Thirdly, we have the fact that Service & Aftermarket and distribution is growing faster than we have even if OEM is growing. All those factors together do have a positive impact on the margins. Then is this sustainable? I mean we have been running at 20%-plus now for a number of years, is 26% sustainable? Things move, I mean, our intention is to keep investing in high-margin areas, not just in APAC, but in the rest of the world. But in APAC, specifically we have clearly a geographical mix positive impact.

Great. And then the second question, I noted the headline here on the Newswire where you say that you will definitely be able to increase margins in 2022. I mean what are the main drivers there in improving margins year-over-year and especially given the dilutive Igloo acquisition [indiscernible]?

Underlying [indiscernible]. And then I was talking about pro forma. Of course that the Igloo is coming in and they're taking down our margin pro forma, right? And our intention is to pick them up quite a bit in comparison of pro forma number. So it is not that we are going to move from the 15.6% to 17%. That's not going to happen next year. The first target is obviously to get back to the 15.6% since we are starting much lower.

Our next question is from Lucie Carrier of Morgan Stanley.

Bit of a battle to log in after all of the cancellation. I will start, first of all, to try to reconcile what we see in terms of organic growth, which seems to be decelerating in the quarter. And I think this is consistent obviously with some of the consumer leading indicators that we are seeing, which are also kind of decelerating. But at the same time, we are seeing a massive buildup of inventories, which have gone from SEK 5 billion in the third quarter to SEK 7 billion in the fourth quarter when usually the fourth quarter is seasonally down a lot. So that seems to be a bit counterintuitive. I appreciate the M&A addition, but the inventories have gone much higher than the M&A addition to sales. So how should we understand the decelerating organic growth and the buildup such massive of inventory?

I think, first of all, you also have to take into consideration that there is a value component to inventory as we are as you know seeing cost increases. Then you also need to take into consideration that it is the first quarter where we have Igloo and clearly Igloo have a seasonal inventory buildup in front of the high season that typically starts late March, beginning of April. So that is a normal pattern that we are seeing. Then we also see that the lead times are more than double on the shipments from China to the rest of the world. So I think that are basically the main explanations.

If I can just quickly follow up on that. If the lead time of components take much longer, how come the inventories is much higher? I would think that effectively, if you cannot procure the parts, you would -- your inventory shouldn't be going so high.

But I mean, we have approximately the double goods in transit compared to a normal situation.

I see. So they're -- okay, so they're kind of accounted for that. Okay. Understood. That's clear. Just also, I was hoping you could maybe update us around the savings you were expecting, the pace of the savings you were expecting for 2022 and 2023. And how does that compare to what you have done in 2021? And do you -- again, coming back to some of the questions around price cost, how do you stack that with the cost inflation and also the price effect? Shouldn't we be seeing an element of the price cost or the overall cost being truly kind of offset by all of that?

Okay. Starting with the savings program. We are progressing here on that and we are not quite on SEK 200 million since the start of the program, but we are close to. And so that is a progression over the year and also over the quarter. Then I was not quite sure on your second question here. Maybe you could elaborate a little bit more what you wanted to...

Yes. I guess what I'm trying to understand is versus the initial target of savings that you had announced back in 2019, how much has been already achieved? How much is there to come? And how do we compare that with overall cost inflation?

I mean the saving target as you know was SEK 400 million. So we are not quite half the way, but we are moving in that direction.

Okay. Just maybe if I can ask a quick short one around the backlog. Are you able to maybe tell us kind of how much higher it is, but also whether that includes M&A and FX or whether this is just the growth on the backlog is fully organic?

It is fully organic.

Any indication on by how much?

We have not commented that so far. It is all-time high, and it's quite a difference.

Our last question today will be from Rizk Maidi of Jefferies.

Glad I made it into the Q&A. So the first one is, it's just a big picture one on just the RV market. So it's quite an interesting dynamics that we're seeing at the moment. So on one hand, we see the wholesale figures going up. And at the same time, you see retail demand measured by registrations on both sides of the Atlantic sort of coming down. What's your read on those parts? And do you think this is all due to supply chain issues or is there an element of demand starting to normalize after the economic boost?

I think it's basically a timing issue. I mean if you look just at European numbers, it is clear that registrations were extremely high in 2020, while production was down. If I remember, we're now 7% or 8%. Then you have the numbers in 2021 and the other way around. So retail is increasing, but production is up big time. Now the expectation as you most probably have read about, manufacturers do have issues just now in getting material, especially from the chassis suppliers. And that of course lead to delays. I mean, what I hear, what you read today is, still today, is that consumer demand is still there. What you can say, when you can talk, when you talk to dealers, they are still telling you that is there. Then of course, we are comparing with Q4 2020 that was simply massive. And we are going to have a Q1 which was also massive in comparison to Q1 2021. So I mean the effect of the pandemic is clear, it was there. Keeping in mind that we were coming from 2 months without production at the beginning of the season. And then you get this situation. So I think it's timing. I think the other question that you're raising is obviously much more related into inflation and potential interest rate increases. That's I guess the one in the medium term that we need to understand what the impact will be. But consumer demand as we can perceive just now is still there, today.

Okay. Interesting. And then perhaps the last one if I could just come back to Igloo. Obviously, you showed some very strong increase in prices there. If I look at the retail sales in the U.S. may go something up 14%. Can you just tell us what's the historical pricing that Igloo was able to implement historically? And if you could just remind us of essentially the rate of growth that we should assume for 2022 or maybe what are you seeing there in Q4? And then perhaps a reminder of the seasonality of this business as well, please.

Yes. So I will start with last one, seasonality is very, very clear. So it's very similar to the path and that we have for Dometic. Otherwise, even if it's more pronounced, so we have a slow Q4. They have a slow Q1, a very, very strong, massive Q2 and a strong Q3. So that's on that one. If we have low prices, you have to keep in mind that you have a management -- a new management team in place since the end of 2018. And that's where they started to invest in innovation. That's what they started to work on the pricing. So if you look at the last couple of years, they have seen both a very nice growth profile. Very, very good profit improvements. Then you get into 2021 when you have storms at the beginning of the year, having an effect on resin producers not being able to deliver. As a consequence, resin prices went through the roof and then Igloo took a couple of months to establishing prices and then you have a price difference. Prices have been implemented, we should start clean -- to see clear improvements from Q1 this year. Again, 2021 was exceptional if you look at the performance for the management team that we have in place. They have done very, very well in the last 3 years since they joined the company. And then in innovation, what they are doing in innovation is really to get many more models to start moving also from a channel perspective, from being merchandised and doing merchandise and sporting goods. They are investing in B2C that has also obviously higher average prices. So there is no one silver bullet. There are a number of activities leading to what we're expecting to see going forward. And we have, by the way, what they have shown during 2019 and 2020. So from our perspective, we see 2021, they have a negative effect on the resin prices and we are expecting to see a very, very clear improvement in 2021 -- '22, sorry '22.

Okay, Rizk?

Great.

There will be no further questions at this time. So I'll hand back over to our speakers.

Well, thank you very much for your attention. We are very happy to see strong numbers in the quarter, and we will work very, very hard, obviously to keep moving towards our strategy, implementation of our strategy and to the fulfillment of our financial targets. And with that said, I wish you a wonderful day. Goodbye. Thank you.

Thank you.