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

Welcome to Dometic's Webcast and Q&A regarding the new segment structure and the restated financials. Today, I am pleased to present CEO, Juan Vargues; CFO, Stefan Fristedt, and Head of Investor Relations, Rikard Tunedal. [Operator Instructions] Now I will hand the conference over to the speakers. Please go ahead.

Good morning to all of you, and welcome to the presentation of Dometic's new segment structure. So let's start immediately by looking at where we are coming from. On the right -- sorry, on the left-hand side, you have the chart showing our structure 2017. As you can see different colors, the gray area represents the original 3 Regional segments that we have, meaning in Americas, EMEA and APAC. The green side represents what we reported as the Marine part at the time of the Regional segments, but that was the Marine business that we have in 2017. And the blue part represented the hospitality side that we have at the time. As you can see, it has been a dramatic change during the last 4 years of 2023, where we have seen all the segments growing, but you can also react to the fact that Marine has been showing fantastic development as well as segment Global, so combination of both organic and acquisitive growth. So of course, the question -- the first question is why are we doing this new change again? And the reason is really that we believe in focus, we believe that focus and specialization always pays off. When I joined the company in 2017 -- sorry, beginning of 2018, we had 3 Regional segments. And we had 3 Geographical segments in charge of in principle 14 different product groups and 7 different verticals. And everything that we have done since the beginning has been really to try to reduce the complexity in the business, getting our management in the different segments to get deeper into both the product side and the customer side. So in reality, the journey is very much about shifting our focus from regions and a regional approach and more in products and global approach. Just to explain in some way, if we do have a number of factories doing refrigeration, you have much more in common by running one single customer, 3 refrigeration factories across the globe than having a combination of refrigeration appliance, you don't have a lot of things in common, you win those 2 products. There is not a lot of synergies. You have different material, you have different suppliers. So we believe that this global approach will give us higher number of synergies, and we will get even more understanding for different customers. So first step in the journey after the SeaStar acquisition was really to create, on one side, the Marine subsegment as a part of the Global segment that we announced 2021 first. And then after the acquisition of Igloo in November 2021, we moved the Marine segment to become a new segment on the top and then we included Igloo as part of Global. And that's the way we have been reporting now for the last couple of years. At the same time, background for the Igloo acquisition was from the beginning that we knew that we have normal synergies between the Igloo organization and the Cooling Box business that we had within Dometic historically. So this was really the plan from the beginning. But of course, we wanted to see Igloo developing in the first 18 months, 24 months before making this change. We have been working together now for 2 years, and we believe that it is starting now to get additional attention to the Mobile Cooling business, which is one of the businesses where we have major expectations going forward. At the same time, we also communicated that we completed 6 acquisitions in the other area where we have very, very high expectations going forward, which is Mobile Power Solutions. And therefore, we are taking this new step. On one side, moving the Igloo business together with the Dometic legacy Cooling Box business to become Dometic Mobile Cooling, as we announced some months ago, at the same time, we created also a global organization called Mobile Power Solutions that becomes the one new subsegment within Global. So next question that we might get is obviously, so what about the rest, land vehicles. And I would like to reemphasize again that if we could split land vehicles into different products, we will do it because, again, we see more synergies that way. Unfortunately, vehicles look differently in different parts of the world. Just to give you a sample, if you look at an RV in the U.S., the average number of air conditioners is 2.5. If you look at Europe, the average number of air conditioners is 0.25, 0.30. So the technology we have today is different enough not to motivate to have one globalization driving air conditioning globally. Having said that, of course, as you know, we are growing in some of these areas more, we have been commenting a number of times that we also prepare to divest and are working on divesting some other parts. And that might lead to a situation down the road where we would take next step. So again, we want to drive the business out of a product perspective. We believe that that's the driving force behind organic growth. So just to clarify even more, the 3 regional segments that we had in 2023 are being renamed to Land Vehicles Americas, Land Vehicles EMEA, Land Vehicles APAC, and they will be responsible for product and solutions for land-based vehicles, which means on one side we have the business, but that means as well -- when we are talking about trucks, we are talking about agriculture, so any kind of land-based vehicles where we have our equipment, and that includes as well most of the stand-alone products, meaning tents, meaning [indiscernible] systems, meaning as well, what we call, mobile cooking. Now we have the Marine business that is moving from being a subsegment to become -- has been already a segment, and they are in charge of product and solutions for the boating industry. We have as well Mobile Cooling Solutions, which is the combination of the Igloo business that we acquired in 2021, and they carve out all the Dometic Cooling Box business that we have up to 2023. And then last, but not least, we have Global Ventures, which is the combination of one side of the Mobile Power Solutions, the Global Mobile Power Solutions business that we are carving out from the Regional segments, plus other global verticals. And just as a reminder, in other global verticals, we have 3 different verticals. One is hospitality, second is residential, and thirdly, we have mobile deliveries. So looking at the changes at the top. This means really that the Regional segments, land vehicles will represent about 44% of the total business. The Marine business will be 23% of sales. Mobile Cooling Solutions will represent exactly the same number, meaning 23% of total sales, and the new Global Ventures combining other global verticals and Mobile Power Solutions will represent 10% of the total business. And with that said, I would like to hand it over to Stefan, please?

Good morning, everyone. So I will review the different segments. Starting off with the 3 land vehicle segments. First of all, Americas, its products and solutions for land-based vehicles in Americas within the RV and CPV industries. As Juan mentioned, it makes up 15% of the group sales in the new structure. We have been moving out Mobile Cooling Solutions and Mobile Power Solutions to the new segments, as we just mentioned. If we look on the financials for Land Vehicle Americas, they had a turnover of SEK 4.2 billion in 2023. That is compared to 2022 an organic decline of 32%. It has obviously been significantly impacted by the RV industry production in Americas as well as the inventory reduction cycle in the service and aftermarket channel. The EBITDA margin in 2023 was minus 3.8% compared to 3.4% the year before that. And that is obviously mainly driven by the significant decline in sales. And just to be clear, the sales of this segment is sold across all our sales channels. Moving over to Land Vehicles EMEA. The comments above are the same as for Americas. So I go directly to the segment financials. So we had almost SEK 6.8 billion in turnover in 2023, that is equivalent to minus 2% change in net sales. The EBITA margin stayed pretty flat on 9.3% compared to 9.5% the year before. And here, the same comment as for Americas is valid that it's -- the sales is coming from all sales channels. Moving on to Land Vehicles APAC. We had -- it's making up 5% of the total sales in the group. We have a sale of SEK 1.4 billion in 2023, and that is equivalent to a 5% organic growth in 2023. As a matter of fact, the already strong margin is actually increasing somewhat when we have been breaking out Mobile Cooling Solutions and Mobile Power Solutions and ends up at 31.2%. And here, we have the same comment as on the other ones that we are selling through all sales channels in Land Vehicles APAC. Moving on to the Marine segment, where we sell products and solutions for the marine industry globally. We have moved out Mobile Cooling Solutions and Mobile Power Solutions to the new segments. But it was not a significant part of the Marine segment, so the share of group sales is going down from 24% to 23%. We achieved almost SEK 6.5 billion in sales in 2023, equivalent of minus 4% organic growth. The EBITA margin of 25% is slightly down versus the year before and that is obviously driven by the organic sales decline and also that we have had an unfavorable [indiscernible] aftermarket have been going down of the total sales. And we are selling the marine products through the service and aftermarket and the OEM channels. So coming into segment Mobile Cooling Solutions. And as you mentioned, Juan, it was already clear from the beginning after the Igloo acquisition that we would take this step in combining the Igloo Mobile Cooling business with the Dometic branded mobile cooling business in order to drive further value creation and also secure the realization of the USD 50 million in synergies that we did point out in connection with the acquisition. And if we look on the business as such, 80%-plus of the sales is coming from the Igloo business in 2023. So 2023, we had SEK 6.2 billion in sales in these new segments, and that's equivalent to minus 11% organic growth and it was really impacted mainly by that we had a reduction by the larger retailers in U.S. on their inventory levels. And we have also seen a similar development in the APAC region within Mobile Cooling. We have an EBITA margin of 8.8%, which is an improvement versus the year before, where it was 8.3%. And it has, of course, been impacted by the minus 11% organic development. But then we have also seen increasing logistic and warehouse costs in this segment. And we are continuing to invest in new products in our product portfolio, which we believe is absolutely necessary to drive the development in this segment. And we -- if you do the backwards calculation, you will see that the margin on the Dometic-related Mobile Cooling business has been going down, and that is exactly related to declining sales but also increasing extraordinary costs around logistics and warehousing. We are expecting that we are gradually going to come back to the margins that we have seen in the Dometic branded Mobile Cooling business, which has been around 20%. And 100% of the sales in this segment is via the channel distribution. Then moving on to segment, Global Ventures, and that is really 2 distinct subsegments, its Mobile Power Solutions which is self-explanatory. Then we have other global verticals as you -- which has existed already before, and that consists of businesses on the residential side, hospitality and mobile deliveries. Mobile Power Solutions is going to make up around 70% of the segment sales in 2023 and that has obviously been driven by the 6 acquisitions that we have done in the period of 2021 and 2022 in all the 3 geographical areas. Going over to the segment financials, SEK 2.6 billion in net sales, which is equivalent to minus 22% development. And it has been very much driven by the development in the mobile Power Solutions business and very much so to the U.S. side of it where it has been impacted both by the decline on the RV OEM side, but also the same decline driven by the inventory reduction on the service and aftermarket channel in Americas. The EBITA margin is 14.1% in this segment. And it has, of course, been impacted by the sales decline. And if we are -- and we are continuing to invest in product development in this space to be a part of this fast-growing industry. If we look specifically at the acquired Mobile Power Solution businesses, they have been delivering an EBITA margin which is well above group average despite challenging market conditions. If we look on the sales channel split, other global verticals is distribution as well as in Mobile Power Solutions. So with that, I would like to open up for Q&A. So I hand it over.

[Operator Instructions] The next question comes from Johan Eliason from Kepler Cheuvreux.

It's Johan here. I was curious about the Land Vehicle segments now that you are making them even more sort of focused in terms of product areas. But we still see a significant difference in margin here between Americas, EMEA and APAC. Can you sort of give us some explanation to the reason for the significant difference in margin? I guess part of it is that the RV volumes in Americas is obviously significantly weaker than in Europe. But is it also CPV or any other type of bigger aftermarket or other sort of profile that explains this difference? And sort of do they all have the same margin potential in the future?

So I would say that is different. I mean, first, we will start with APAC. It is clear that APAC for us is in, per se, 2 different subsegments. You have the Pacific area and then you have Asia. Asia is very small for us. Pacific is huge for us. We have a very good organization, very huge margins. And of course, there is not a lot of competition. It's far away from the U.S., it's far away from Europe, so we have, I would say, a unique position in that area. Then you have, on the other side, Americas. Americas is the one which is the most exposed to the RV side. We have a business, a CPV business in Americas, that is relatively small in comparison to what we have in Europe. And they have basically not a lot of stand-alone products in comparison to what we have in EMEA. So if we look at EMEA, it is the one having, I would say, the most diversified program. On one side, we have a CPV, which is substantially bigger than what we have in the other 2 regions than what we -- the business -- the CPV business is currently once upon a time. And then the other side is that it is also in the EMEA region where we made a few of the important acquisitions completed in 2021, both the Front Runner business and the Cadac business were there. And they are coming as well with higher margins. So if I move from your first question to the second question, do they have the same potential? The answer is no. It is clear. It is clear that we have more competition in the American market that we have in the European market. At the same time, it is also true that the American market has been extremely tough during the last couple of years. So I believe that we will continue to see the same situation, meaning APAC, highest margins; EMEA, in between; and Americas, lower margins. But of course, we don't have the intention of losing money as we are showing for 2023. And then you have the service & Aftermarket business, which is also a very, very important part of the business where we have a higher service and aftermarket in EMEA driven really by the combination of businesses and the fact that the CPV business is so much bigger is in Americas. So Americas is the most [indiscernible] to the RV OEM business.

Excellent. And then I wonder a little bit about the Global Ventures. Is that an area where we will see more acquisitions going forward? Or is this also an area where you're considering divestments?

Lower is a very, very exciting area. We completed, as you know, 6 acquisitions in Mobile Power Solutions business, and we believe that, that market will continue to grow at a higher pace than the rest. We believe that the market is very fragmented, and we have a unique situation to be one of the companies growing up that market as such. So we will see more. Just to complete on that one. I mean, the reason for calling benches is that you have other global verticals when the intention is really to develop global businesses. You might be in a situation 3 years from now where we feel that it is difficult to penetrate certain markets with some of the products. And then we will not hesitate in raising the question up and saying, "Okay, is this something for the future or not?" So I would like to split Mobile Power Solutions, which is definitely part of our future, big time; and Global Ventures, which is very much about investing in number of areas, having the potential, but what we still need to see that they can develop into a next step. I mean, one of the areas is mobile deliveries. As you know, we have been investing heavily in developing that area of the business because it is clear there is a customer demand. But until now, even if we are trying the products, even if we have some of the global chains trying the product, still we don't have basically any sales. So of course, that we cannot invest for another 10 years before we take a decision on whether that's part of the future or not. It might be that it's still early days for that kind of products. Did I answer your question?

Yes. That's absolutely fine. And then finally, I just wondered, I mean, we saw some decent numbers and outlooks from European RV makers yesterday. How is your current market situation, Europe, North America, et cetera?

Remember that we are reporting a couple of weeks. And the only thing I can refer is obviously to what they are communicating. We see that if we look at our customers, they are reporting high numbers on the OEM side, and they are reporting low numbers on the Service & Aftermarket side.

Thank you, Johan. I jump in here with a few web questions. First one from [indiscernible] and the question is, it looks like the Mobile Cooling and Mobile Power parts, previously that part of Americas, AMEA and APAC and Marine saw a significant margin drop in 2023. What are the key drivers? And what should we expect in coming 2 to 3 years?

I mean, drivers is basically 2. On one side -- or 3, I would say. On one side, is volume; on the second side and of course, we have seen that in any kind of consumer business, and that's a pure consumer business, the second reason is really inventories and the of course, the cost that we have for warehousing. As you remember, we have been talking about warehousing costs in both EMEA and Americas, and you think about cooling boxes, they take out the space. So of course, they are more penalized than others.

Yes. And they are sitting exactly in that supply chain from Asia to Europe and Americas. So it's...

And thirdly, both in connection to the acquisition, but also Mobile Power Solutions, we believe that innovation is critical. We have been investing and we'll keep investing in Mobile Cooling in developing both passive cooling boxes and the Dometic brand as well as active cooling boxes and the brand, and we are starting to launch those products. But of course, you have an extra course and an extra investment to develop those products before we see the sales. And the same is with Mobile Power solutions. On one side, of course, we are talking about the smaller companies and we are investing in developing our own IP on those products. So we see that as a temporary margin drop driven by volume, driven by the extra warehouses and then driven by the extra product development cost that we heard just now.

Thank you. And a few more questions here on the web from Agnieszka from Nordea. I noticed that the Mobile Cooling declined organically in 2022 -- also in '22, do you still consider this business as relatively more resilient than your other exposures?

Yes.

That's kind of the specific reason why it declined actually, yes.

Well, we have a pandemic every 100 years. I mean, we have seen both on the Dometic side and we have seen on the Igloo side where they will go back to the period pre Lehman Brothers, it has been -- I mean, if you look at Igloo, you never had any negative organic growth. If you look on the Dometic side, it has been the same. So I think that we have a strong [indiscernible] situation with the pandemic created in the post pandemic year. They will come back.

And then another one from Agnieszka. Do you have any specific EBITA margin aspirations for each of your segments that you can share?

We have aspirations that we don't share. That's right. But I mean, you know all of you where we are coming from, you know that we have financial targets. It is, I think, very, very easy. We have, I would say, 2 very, very high-margin businesses in APAC and Marine. We have EMEA that we need to get into group margins. We have Mobile Cooling that will be kind of middle-sized double digit, as we announced from the beginning. We have Mobile Power Solutions and Global that will be also high. And then we have Americas that we need to lift into those mid-double-digit business. So nothing new. I mean, I think it's more -- overly communicated from the beginning. All that together will lift us to our financial targets.

Thank you. And one more question here from Henrik from Carnegie. Could you provide a split of OEM versus Service & Aftermarket in the various segments to get a better sense of cyclicality in the various segments?

It's certainly difficult because we have different combinations even within Land Vehicles. If you look at Land Vehicles, it's clear that EMEA is the less exposed. So we have others stand alone, which is consumer growth, while you have also the CPV, which is, for us, the cyclical perspective of products where the underlying business is growing all the time. The penetration of the products, the cooling compartments is growing all the time. If you look at the RV side, the aftermarket connected to the RV side is very similar across the different continents. And then Marine, we historically have been 50-50, 45-55, but then in the last couple of years since the OEM side has been growing so dramatically in connection with the pandemic and the backlog, we have been lower in some, but we are expecting that to recover and to be again 50-50, 45-55, while we are doing at the RV side, it is more 65% OEM, 35% RV AM.

Thank you. And one question here on the APAC segment, 31% EBITDA margin quite high, is this resilient? And what is driving this? I think you partly answered that but maybe you can repeat it.

No, but I think we have a competitive arena, which is pretty unique, it is clear. We have another factor which I think is important that is supporting us is the Australian market as such, is also changing. We have seen a lot of Chinese imports, so RV imports. We have also a strong organization in China, which is equipping those vehicles from the beginning, but at the same time, once they reach -- the vehicles reach Australia, Australia has very, very strong valuations, which means that they have to be equipped with Australian approved products from a safety perspective and that benefits us big time. So even if the vehicles are Chinese, the equipment has to be approved, and we have all the approvals and the [indiscernible] in place. So I think that the Australia market is very unique. Again, you never know, obviously, we are going to get tons of different competitors in the coming 5 years. But so far, we haven't seen that.

But I mean to add, I mean, Australia is an early adopter market. I mean, it's where many new trends are emerging. And from that point of view, it's a market where there is coming out a lot of new products, obviously. So I think the answer is that we feel that it is a high margin, but we see absolutely pathways to keep that profitability level.

I mean, of course, that 31% is extreme. Whether it is 31% or 27%, it will be more difficult to tell, but it is a high-margin area of the world without any kind of doubts. And I have to say, it's not unique for this industry, and I have been working in different industries, and we always have higher margins in that part of the world, especially when you have 80% of the APAC business in the Pacific. It will be different if we have 80% of the business in Asia.

Thank you. And the last kind of web question we have here is, this is the third restate in 4 years. This -- is this the last one?

For the time being, as I mentioned before, at the start is really -- I mean, I would love to also move from Land Vehicles into products -- Global Products. But the way the American RV industry looks like in comparison to Europe or in comparison to APAC today is different. We see obviously a trend in Americas, where vehicles are becoming smaller. We see Asia, which is a lot of SUVs coming in. So this might be changing in the future. And then we will need to rethink. I mean, again, if I could have a big bag and create global crew groups, I would do it because I believe that we have much more in common in that area and that will give us more expansion opportunities by using the same technology, same product vertical by vertical instead being as dependent as we are on a few verticals. But -- so again, that intention is to continue, but we don't have anything inside just now. That might be a combination of how the markets develop, at the same time as what kind of areas could we divest tomorrow.

Okay. Thank you. That was the last web question. So over to you, Merlin.

[Operator Instructions] The next question comes from Johan Eliason from Kepler Cheuvreux.

It's Johan here again. Just a little bit of follow-up on the M&A. I mean, it is an important part of your growth target of 10% on the top line. Is there any sort of area -- I mean, you mentioned solar power, obviously, being one such. But if you look at the LV segment, so the Marine or Mobile Cooling, is there any specific area where you see a significant M&A opportunity?

Yes, we do. I mean, if you go back to what we did in 2021 to 2022, we also acquired a number of companies in the [indiscernible] alone, meaning portable products. We believe that that's also a very interesting area with growth -- high-growth opportunities, with high-margin opportunities where we have seen the companies that we acquired developing nicely despite tough market conditions, where we would like to become much more global than we are. It's very much about reducing exposure to a few verticals as we have been talking about. And you have clear, clear touching ground between what we are doing on the RV side, but also the fast-growing automotive. We have been talking about the SUV, the pickup market where we have a lot of space to fit the trunks on the front with portable products coming from us. So we see on one side Mobile Power Solutions, on the other side, stand-alone products. And then from a Marine perspective, extremely interesting as well. We see very much doing what we are doing, looking for steering systems, looking for [dried] and handling products in other parts of the world. So we can complement, obviously, when we are there in North America so well.

I think that was the last question that we had. So we would like to end this call. Any final words, Juan?

No. Thank you very much for your attention. I fully understand the questions on whether this is going to be the last time? I cannot promise that, but what I can assure you is that we are doing our best to bring even more transparency to the business, more understanding of how it looks like, hopefully, you get some more understanding after this call. It is really getting deeper and deeper in each of our businesses and to see that we have good opportunities to develop both from a growth perspective and a stability perspective. So thank you very much for your attention. I'll talk to you soon again. Thank you.

Thank you. Bye.