Dometic Group AB (publ) ($DOM)

Welcome to Dometic Management Q&A Board's proposal regarding dividend. Today, I am pleased to present CEO, Juan Vargues; CFO, Stefan Fristedt; and Head of Investor Relations, Tobias Norrby. [Operator Instructions] Now I will hand the conference over to the speakers. Please go ahead.

Good morning, everybody. This is Juan Vargues speaking, and welcome to this conference call. The reason for this call is obviously that both [indiscernible] in the U.S. last week, attending the trial that we had with the counterpart on the Igloo lawsuit, meaning ACON. And we testified both Wednesday and Thursday and arrived back to Sweden on Friday evening at 5:30. As you all know, we sent a press release on Thursday. And the reason for that is that last Thursday was the very last day to send the invitation to the AGM. And in connection to that, during the few days before Thursday, we were obviously observing what was going on, on the market. We realized that the war in the Middle East started to have an impact. We saw oil prices at $62 a barrel on the 15th of February, at $74 on the 4th of March, $103 on the 12th of March. We started to hear comments from dealers, especially in the U.S., both from a Marine perspective and RV perspective. We started to read comments. And of course, in such a situation, it's about taking a decision. We could take the decision to continue to run the AGM as nothing happened or really consider proactively whether the situation in the Middle East will have an impact on our customers, not today, but tomorrow, in the months to come, especially considering, obviously, that March is, for us, the heaviest month in Q1. And then we have a Q2, which is also the heaviest every year and a Q3. And we don't know whether the war is going to last for another week, 2 weeks or 6 months. So in such a situation, you need to take a decision. And the decision, the proposal from the Board was obviously to withdraw the payout of the dividend, just in case. That's very much really what happened during the week. Right or wrong, the decision was taken. And that's what we communicated as soon as we could on Thursday last week. And with that introduction, I would like to open for the Q&A session. So please go ahead.

[Operator Instructions] The next question comes from Fredrik Ivarsson from ABG Sundal Collier.

Juan, you said you're starting to hear comments from players in the RV and Marine industry. Can you elaborate some on that statement? What kind of comments are you hearing?

Yes, I mean the impact of oil prices, the impact of inflation on consumer confidence. And there are also reports from Baird from last week and the week before starting to talk about the oil prices and the potential influence that oil prices will have on the American consumer, especially on the RV industry and the Marine industry, since we are talking obviously on high-ticket discretionary spend.

Okay. So it's more, I guess, precaution more than you're actually seeing the markets pulling back orders and stuff like that.

Indeed. Indeed. It's forward-looking.

Got you. And then it would be interesting since you were in the U.S. in the trials last week, if you could give some kind of reflections from those days.

Positive, both Stefan and myself testified. We feel optimistic as we always felt. Our attorneys, and we have many of them, feel very optimistic as well. Unfortunately, just now it's about waiting. And we know, I mean, the communication from the attorneys is that most probably we are not going to have any final verdict before year-end or beginning of next year. So just now, it's nothing more than we can do. What should be done has been done.

Okay. And last question. Obviously, March is the biggest month of the first quarter, but can you say anything about the first couple of months on trends and various pockets in the industry?

A little bit of the same comments that we have been commenting in the last months. We have seen order intake, which is coming very, very close to an inflation point. We see the backlog in the same situation. We experienced a better January, a little bit weaker February, but nothing special. So more of the same. I mean, again, 2 weeks ago, as you remember, we were quite optimistic about 2026. I think the change that we see just now is obviously how oil prices, inflation will impact consumers. And of course, historically, we had that experience. Of course, if the world stops next week, you will have a situation. If the world lasts for another 6 months, then we will most probably have a different situation.

The next question comes from Agnieszka Vilela from Nordea.

I have a few. Maybe again, coming back to the demand situation right now. I think you actually wrote in the press release that the demand and trading conditions are somewhat weaker than anticipated already for you. So this is my question. I mean, are you really seeing it already in your orders or sales? And also if you could comment maybe more -- a bit more in the detail on the development across the business areas and geographies.

It's very much related to the U.S. at this point. I mean we see Europe in a better shape. We have registration numbers for January and February. They were positive. We know -- we are aware that there is a tax situation in Europe, which is most probably also benefiting the high registration numbers in January and February. We see WACC pretty stable at this point. So it's very much the Marine and the RV side in the U.S. where we are experiencing those kind of comments, and we see that it has been a little bit softer in the last couple of weeks.

Perfect. Maybe if you could also help us to kind of quantify this kind of downside in the U.S. It's not that it's full stop that you see already. Is it?

What we can say, I mean, it's clear that we have read in a number of comments that Dometic is collapsing. What I can comment is that we are not collapsing.

Yes, and then maybe on cash flow expectations also. I mean, Q1 is usually a negative free cash flow quarter for you. On the other hand, you had a bit softer cash flow in Q4 building inventories. But with what's happening, should we still expect a negative free cash flow quarter in Q1?

Yes. You should expect negative cash flow in Q1. You can probably look at last year and you get a good indication.

The next question comes from Daniel Schmidt from Danske Bank.

Juan and Stefan, coming back to the geography, and I hear what you're saying in terms of the U.S. is where you see the weakness. Why is that the case? Why isn't this sort of a global impact?

Well, I don't know whether we are going to see that in Europe or not. But obviously, inflation, the risk for inflation will have an impact sooner or later. And for us is more when is the situation in the Middle East going to stabilize. And of course, when you see the oil prices going through the roof in the last, I would say, 10 days because it has been 10 days, then you need to start thinking what is going to happen? What kind of influence is that going to happen in 3 months from now? I mean the other problem that you have is lead times and logistics. That is not having an effect on us yet. That might have obviously in the coming weeks, but we don't see that happening to us at this point. And the same with logistic costs. We don't see that in our numbers just now. But of course, if the situation continues, sooner or later, we will have an impact. So you see, it's not -- what we see the comments from the dealers are primarily just now coming from the U.S. That's what we see.

And then I think we can also add, Daniel, about tariffs. I mean it's -- on the one hand, you could, of course, argue that what the Supreme Court decided in U.S. could, in the long run, be positive, right? But I think there is also still uncertainty on what is really going to happen there. And that uncertainty is obviously not beneficial for the consumer sentiment.

Are you sort of between the lines saying maybe that dealers in the U.S. are more jumpy than they are in Europe?

Yes, they are faster. I mean there's...

And more nervous?

Yes, absolutely.

In general, on the back of the tariff situation...

I mean, you have the interest rate situation, right? It has been promised a number of times that interest rates would come down. But of course, at the same time as oil prices are coming up in the way that they are doing, I think, it's easy, especially for the kind of vehicles that we are talking about. I think it's easy to understand that they are nervous. And again, it's not coming from us. I mean you can read already comments from Baird. I don't know if you are following Baird and the comments, right? I have one in front of me saying our dealer samples suggested continued retail declines and a stable to improving inventory comfort. Notably, recent actions in the Middle East and related volatility in oil prices has dealers concerned. So I mean that's what's having an impact, obviously, just now on the sentiment.

Because you have a bit contradicting data of the same days that you guys were out and maybe that the difference is that this is big ticket and of course, quite fuel dependent. But you also had big sporting goods out the same day, guiding quite well for 2026 in terms of like-for-like growth and all that the small ticket items...

And I have to say that we have not seen anything on the Igloo side. But of course, then we are talking about $175. Is the high ticket -- what we have seen so far is the high ticket items, which are connected to the boats and to the RVs.

And connected to the fuel price?

Yes.

All right. And in this situation that you might end up in. We'll see where this takes us. What is your sort of plan in terms of counter actions?

I mean, I think we have demonstrated so far that we are pretty good at adjusting our cost and working on our cash flow. And of course, that will be more of the same. So it's clear that after what we have seen during the last couple of weeks, we are looking for more opportunities at this point in time.

But that is still to come? Or have you already sort of decided on more actions?

We are always working on actions, Daniel. But of course, it's not the same. If the market goes down with 5% or it goes down with 10% or 15%. We are not expecting 10% or 15%. We are simply being proactive and cautious, nothing more, nothing less. We are working on a continuous basis with contingency plans. So you have the restructuring program that was announced in December 2024, and then we work with contingency plans. What happens if the top line drops 5%, what happens if the top line drops 10%?

So in the restructuring program that we -- that has already been launched in December 2024, there is further actions already decided for 2026, which has been a part of the plan, but the execution is going to happen this year. And it's very much activities in North America.

Yes. All right. And maybe just a nitty-gritty question on January and February that you talked about a little bit. The winter storms that we had in the U.S., which impacted production of RVs at least from late January to early February. Is that part of your comments? Did you see that impact as well?

Yes. And we see OEMs working -- running just now 4-day weeks instead of 5 days. And we know that retail in January was down 15%, while manufacturing was down 11% from an RV perspective, while Marine was down 17% on retail.

Yes, and February...

We don't have the numbers for February. They will come most probably at the end of next week or the week after. But we know as well, as I commented before, that the OEMs are running for 4-day weeks.

All right. And then maybe you talked -- you got the question on the Igloo case, and you said it will take to year-end according to your legal counseling. Wasn't it sort of a maximum of 6 months when it comes to the ruling or it could be 9 months equally?

Yes. Normally, we should get away in 6 months. But of course, they are careful in telling you that it could be also in the beginning of next year. I mean for us, the sooner the better, right? We are optimistic about the case, and we believe that it's going to be good for us to leave it behind us.

Because there is the post phase now after the trial, right? And the 6 months starts to count from when that post phase is concluded and each side should file some type of additional summary information and so on. So it's when this 6-month period starts to count. And according to our legal advisers, they said end of the year, beginning of next year.

Okay. Okay. And maybe just to summarize my questioning, you don't want to give any more detailed guidance on how you think the quarter will end in terms of organic growth and your cost savings from the cost saving program. Is that on track or worse or better than you expected?

The restructuring program is running according to plan. Yes. And on guidance, as you know, Daniel, we don't guide forward.

But in terms of the cost saving program then, do you think it's going to be a fairly linear savings throughout '26 in line with -- or is that back-end loaded?

As I said, we have decided actions -- and they are more back-end loaded, if I say so. So it's things that -- they are in preparation now, but they will be executed during the year and the effects will start to come through more in the second half of this year. But then we, of course, have full year effects of what was already done last year and so on. So it's -- there is obviously things like that. But for the additional new activities, effect is going to be seen in the later part of the year.

Okay. And you mentioned the cash flow should be in line with Q1 last year.

Somewhere in that neighborhood, but it's going to -- my view is that we will have a negative cash flow.

The next question comes from Eric Blake from Fitch Solutions.

I was just wondering if you could tell me if this is going to have any impact on your previously announced plans for repaying the outstanding 2026 bonds?

No. Yes, the answer is no.

The next question comes from Johan Eliason from SB1 Markets.

Juan and Stefan, I wanted to follow up on the debt repayment here. You said you will repay a bond and then you sort of highlighted potentially an additional SEK 800 million after the summer. Is that in any way related to your view on the dividend payment that you are prioritizing bond repayments as we speak?

That is absolutely one of the reasons to -- as we noted in the press release, to keep the financial flexibility. So it's -- that could be one of the consequences. But I mean, it's -- the EUR 200 million in May, absolutely, we are going to repay that. And then the SEK 750 million in September, it's a little bit depending on the party who is sitting on that private placement with us. So it's -- but we have a readiness to pay that back as well. So it's -- that's within the potential planning, yes.

Okay. Good. I think there are many reasons for you to try to run a stronger balance sheet going forward. So I would view this as a positive decision from my point of view.

The next question comes from Mads Lindegaard Rosendal from analyst.

So could we touch a little bit on your COGS? We have seen many commodities rise this year and now also, as you say, oil. So how should we think about COGS this year? How hedged are you in your key COGS? And could you also just for memory, list your key sensitivities when it comes to COGS?

Yes. On the COGS side, we are hedged absolutely to a certain extent. We are also by the fact that the inventory that we will need for the main season here just starting off, I mean, we have already a lot of it already. So it's not 100%, of course, but I mean, already a portion is -- or a pretty decent portion is already there, so to speak. So it's -- then we obviously have the whole situation with tariffs, which eventually also impact COGS, right? And there, I think the world is kept a little bit in the dark. I think we have an idea what we are going to do with that and so on. And so -- but that's obviously a little bit of an unknown, if I say so. We had also planned price increases, obviously, already implemented, but also implemented from the 1st of Jan here. So it's like I said before, there is still a lot of uncertainty around that part. So -- and if we talk about what type of materials, we have obviously polyethylene or polypropylene, which is a big component in our mobile tooling business, but also in some of our other businesses. Then we have things like aluminum and copper. We have obviously electronics. So that would probably list the absolute main things that we have.

Okay. So if there's a headwind, it would be more visible next year rather than this year? I mean, if prices stay where they are now for these key inputs.

I mean, we are obviously selling stuff also in the later part of Q3 and Q4. But -- so there will be -- there could be potential effects then, but mainly more than for next year, I agree.

And of course, you have moving targets as well, right? Because we have been suffering from the tariffs clearly. And just now, the tariffs for some of the countries are coming down. So I think it's a moving target at this point. And of course, if they are kicking in and they are kicking much, then we will also need to adapt prices. But again, then we are talking about consumer confidence again. So you have 2 different questions. What is going to be the effect on COGS for Dometic, but also what is going to be the effect for pricing for the consumer down the road, not just for Dometic, right? If the raw material prices are coming up, that will impact all suppliers, and that will impact our customers as such.

The next question comes from Daniel Schmidt from Danske Bank.

Sorry, I just had 2 short follow-ups. Could you give an update on you, Stefan, and your positioning? What's happening there? Are you leaving by the end of April as communicated? Or are you staying longer? Or are you going to have somebody in place soon?

I am leaving at the end of April and the rest of the question I hand over to Juan.

And we are working on that, and we will communicate, obviously, as soon as we are done. But it is moving. The process is moving, obviously.

Okay. Okay. And then just the nitty-gritty, you said that OEMs in the U.S. are running at 4-day production weeks now in March. Was that 5-day production weeks in March last year? Or is that on the same level as last year?

Yes. It is slightly lower.

Okay. So it is a step down year-over-year simply?

Yes. And keep in mind, I mean, we don't have the numbers for February, right? But we have the numbers for January. January, as I commented before, retail was down 15%, while production was down 11%. So I think they are trying to get into the same level as retail. So they don't build up inventories.

Yes. And is it sort of when you talk about dealers and you say both in Marine and RV, is it sort of equally from both channels or both end markets that you hear the same? Or is it tilted towards one or the other?

It's both. It's both. It has been more clear. There is more information, far more information in terms of RV industry, the marine industry, but we also get the comments from the marine industry.

The next question comes from Agnieszka Vilela from Nordea.

Just one follow-up. On ACON lawsuit, you sounded quite optimistic about the hearing that you had last week. But just for us to assess the risks, if the verdict goes against you, what is the maximum earnout that you would need to pay out?

Well, in our opinion, we are not going to pay anything, in our opinion. What they could claim is the first tranche and the first tranche is $75 million. The second tranche is just on the skies.

So the second tranche is not kind of under this lawsuit, no?

But I mean the first tranche is $183 million. But I mean I mean we are sitting here and speculating now because we are speculating against ourselves because we don't believe we should pay anything. But if threshold is met, then it would be $75 million. But we -- as we are not even by $75 million, obviously, we are by 0. So it's -- but just that you have -- I mean...

We have not won yet, formally.

No.

So we need to wait. What we can comment is obviously that our legal counsels are very optimistic that we feel good after testifying. That we got obviously feedback from our attorneys as well. They continued last Friday, was also a positive day for us. That's what we know. So with that said, thank you very much for your attention. We really appreciate it. And hopefully, you got some more clarification on really what happened during the week and why we communicated in the way we did. And with that said, thank you very much. Have a good day, all of you.