Quarterly Report • Apr 26, 2018
Quarterly Report
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| Q1 | Q1 | LTM | FY | |
|---|---|---|---|---|
| SEK m | 2018 | 2017 | 2018 | 2017 |
| Net sales | 4,442 | 3,443 | 15,043 | 14,044 |
| EBITDA | 761 | 495 | 2,494 | 2,228 |
| % of net sales | 17.1% | 14.4% | 16.6% | 15.9% |
| Operating profit (EBIT) | 638 | 418 | 2,127 | 1,907 |
| % of net sales | 14.4% | 12.1% | 14.1% | 13.6% |
| Operating profit (EBIT) before items affecting comparability | 638 | 418 | 2,081 | 1,860 |
| % of net sales | 14.4% | 12.1% | 13.8% | 13.2% |
| Profit for the period | 375 | 296 | 1,574 | 1,495 |
| Earnings per share, SEK | 1.27 | 1.00 | 5.32 | 5.05 |
| Cash flow for the period | -116 | -384 | -149 | -417 |
| Operating cash flow⁽¹⁾ | -27 | -44 | 1,744 | 1,727 |
| Core working capital | 4,298 | 3,239 | 4,298 | 3,376 |
| Capital expenditure in fixed assets | -78 | -63 | -321 | -306 |
| RoOC | 32.3% | 31.2% | 32.3% | 33.0% |
⁽¹⁾Net cash flow from operations after investments in fixed assets and excluding income tax paid.
Operating profit (EBIT) before i.a.c
Dometic had a positive start to the year, with our efficiency and pricing initiatives beginning to generate results. Sales were strong, despite fewer working days due to Easter and cold weather in Americas and EMEA. Total sales growth was 29 percent, of which 10 percent was organic. The EBIT margin grew by 2.3 percentage points, whereof 0.4 percentage points were contributed by SeaStar. The integration of SeaStar is progressing according to plan and performance is in line with expectations.
Americas showed strong RV development and a good performance from SeaStar. Total sales growth was 52 percent, of which 12 percent was organic. The EBIT margin improved by 3.7 percentage points, of which 0.2 percentage points related to SeaStar. The outlook for the RV and Marine markets remains positive.
EMEA reported organic growth of 6 percent and an EBIT margin improvement of 1.7 percentage points. I am especially pleased to see positive effects from our efficiency and pricing improvements in the region. Aftermarket performed well, particularly in RV AM and Retail.
APAC reported organic growth of 16 percent. The EBIT margin declined by 1.6 percentage points, mainly due to the geographical mix. We saw strong development in China, Korea and Taiwan, all growing at double-digit rates driven by RV, Retail and Lodging.
Cash flow was in line with our expectations. Leverage was at 3.4x at the end of the quarter and we will now begin deleveraging based on the seasonally strong cash flow in the coming quarters.
Our short-term priorities are to improve margins through further efficiency gains, compensate the commodity cost increases through pricing, focus on cash flow and deleveraging.
Strategically, we are currently emphasizing three areas: growth, innovation and competitive cost base. We have initiated a number of activities to support further growth and improved profitability.
During the quarter we appointed a new CTO, an important step as part of our ambition to improve process ownership and increase speed and efficiency in product development and innovation.
The outlook for our combined businesses remains positive with an estimated organic growth in line with our target of 5 percent. With the acquisition of SeaStar, combined with continued efficiency improvements, we are aiming at reaching our target of 15 percent EBIT margin during 2018. Leverage is expected to be around 2.5x by the end of 2018.
Juan Vargues, President and CEO
Net sales totaled SEK 4,442 m (3,443), an increase of 29% compared to the same quarter the previous year. This is made up of 10% organic growth, -2% currency translation and 21% M&A.
Operating profit (EBIT) totaled SEK 638 m (418), an increase of 53% compared to the same quarter the previous year. The EBIT margin was 14.4% (12.1%).
Items affecting comparability totaled SEK 0 m (0).
Financial items amounted to a net of SEK -127 m (-31), including SEK -96 m in interest on external bank loans (-26) and SEK 1 m for revaluation of unrealized exchange gains on cash (6). Other FX revaluations and other items amounted to SEK -35 m (-11) and financial income to SEK 3 m (0).
Taxes totaled SEK -136 m (-91), corresponding to 27% (24%) of profit before tax. Current tax amounted to SEK -66 m (-52) and deferred tax to SEK -70 m (-39). Paid tax of 19% is higher compared to the same quarter the previous year, mainly due to withholding tax on a dividend distribution from Hong Kong and higher paid tax in SeaStar's Canadian business.
Profit for the quarter totaled SEK 375 m (296).
Earnings per share amounted to SEK 1.27 (1.00).
Operating cash flow totaled SEK -27 m (-44). The improvement mainly derives from stronger operating profit.
Cash flow for the quarter of SEK -116 m (-384) includes a positive impact of SEK 62 m related to the final payment from relocation of a manufacturing facility in China in the third quarter of 2017. During the first quarter, a deposit of SEK 233 m has been made for an ongoing tax audit in Hong Kong.
Financial position. Leverage was 3.4x (1.8) at the end of the first quarter of 2018.
At the 2018 Annual General Meeting held on April 10, Fredrik Cappelen was re-elected as member and Chairman of the Board. Jacqueline Hoogerbrugge, Rainer E. Schmückle, Erik Olsson, Peter Sjölander, Heléne Vibbleus and Magnus Yngen were re-elected as members of the Board of Directors. The proposed dividend of SEK 2,05 per share was adopted.
| Q1 | Q1 | Change (%) | LTM | FY | ||
|---|---|---|---|---|---|---|
| SEK m | 2018 | 2017 | Rep. | Adj.⁽¹⁾ | 2018 | 2017 |
| Americas ⁽³⁾ | 2,287 | 1,506 | 52% | 63% | 7,110 | 6,329 |
| EMEA | 1,696 | 1,527 | 11% | 7% | 6,131 | 5,962 |
| Asia Pacific | 459 | 410 | 12% | 17% | 1,802 | 1,753 |
| Net sales | 4,442 | 3,443 | 29% | 31% | 15,043 | 14,044 |
| Americas ⁽³⁾ | 334 | 164 | 104% | 120% | 1,055 | 885 |
| EMEA | 209 | 162 | 29% | 26% | 665 | 618 |
| Asia Pacific | 95 | 92 | 4% | 9% | 360 | 357 |
| Operating profit (EBIT) bef. i.a.c.⁽²⁾ | 638 | 418 | 53% | 58% | 2,081 | 1,860 |
| Americas ⁽³⁾ | 14.6% | 10.9% | 14.8% | 14.0% | ||
| EMEA | 12.3% | 10.6% | 10.8% | 10.4% | ||
| Asia Pacific | 20.8% | 22.4% | 20.0% | 20.4% | ||
| Operating profit % bef. i.a.c.⁽²⁾ | 14.4% | 12.1% | 13.8% | 13.2% |
⁽¹⁾Represents change in comparable currency. ⁽²⁾Before items affecting comparability. ⁽³⁾Including SeaStar Solutions.
¹ Before i.a.c.
First quarter 2018
Americas reported net sales of SEK 2,287 m (1,506), representing 52% of Group sales. Total growth was 52%, of which 12% was organic, -7% currency translation and 47% M&A.
Operating profit (EBIT) before i.a.c. totaled SEK 334 m (164); an increase of 104% compared to the same quarter the previous year. The EBIT margin was 14.6% (10.9%).
In the US, growth in the volume of RV shipments from OEM manufacturers to dealers remains strong. For the January – February period 2018, RV shipments increased by 17% to 85,479 units compared with the same period the previous year. For the rolling three-months December 2017 – February 2018, RV shipments increased by 15% to 121,706 units.
Sales of US power boats increased by 3% for the rolling 12-months period from April 2017 – March 2018.
Total OEM growth was 53%, of which growth in constant currency adjusted for the acquisition of SeaStar was 18%.
Total Aftermarket growth was 48%, of which growth in constant currency adjusted for the acquisition of SeaStar was -6%.
RV OEM reported strong sales. High growth for refrigerators and air conditioners.
Marine OEM excluding SeaStar reported slightly negative growth.
CPV OEM reported modest growth.
Aftermarket excluding SeaStar reported negative growth, mainly because RV AM sales was impacted by cold weather. Retail and Lodging showed strong growth.
Proceedings related to the putative class action complaints continue. During the quarter, Dometic was successful in defeating the plaintiffs' request for multi-district litigation in California. The California courts then granted Dometic's requests to transfer the cases pending in California to the Southern District of Florida. Consequently, the proceedings filed in California are now only pending in the Southern District of Florida in front of the same judge who previously granted summary judgment for Dometic. Dometic awaits a decision from this judge as to whether the cases will be consolidated for unified proceedings.
During the quarter, Dometic was reimbursed for a certain portion of its defense costs related to the class actions complaints. Total reimbursement from the insurance company amounted to SEK 29 m, with a net positive net effect on EBIT of SEK 22 m.
We remain firm in our position that the allegations in the cases are without merit.
Q1
First quarter 2018
EMEA reported net sales of SEK 1,696 m (1,527), representing 38% of Group sales. Total growth was 11%, of which 6% was organic, 4% currency translation and 1% M&A.
Operating profit (EBIT) before i.a.c. totaled SEK 209 m (162); an increase of 29% compared to the same quarter the previous year. The EBIT margin was 12.3% (10.6%). The EMEA profitability improvement program is progressing according to plan.
During the January 2018 – March 2018 period, RV registrations in the largest European markets, excluding the UK and Spain, increased by 16% to 30,722 units.
Heavy truck registrations increased by 3% in the rolling three-months period from December 2017 – February 2018, compared with the same period the previous year.
Total OEM growth was 11%, of which growth in constant currency was 7%. Total Aftermarket growth was 11%, of which growth in constant currency was 7%.
RV OEM reported good sales growth. Demand remained positive on key European markets.
Marine OEM reported good sales growth. Positive impact from the Oceanair acquisition in Q1 2017.
CPV OEM reported strong sales growth. High demand in the passenger vehicle segment and a solid performance in the commercial vehicle segment.
Aftermarket reported strong growth, mainly due to good performance in Retail, and RV AM.
OPERATING MARGIN (EBIT%)¹
¹ Before i.a.c.
First quarter 2018
APAC reported net sales of SEK 459 m (410), representing 10% of Group sales. Total growth was 12%, of which 16% was organic, -4% currency translation and 0% M&A.
Operating profit (EBIT) before i.a.c. totaled SEK 95 m (92); an increase of 4% compared to the same quarter the previous year. The EBIT margin was 20.8% (22.4%).
For the January – February 2018 period, statistics on Australian domestic RV production showed an increase of 12% to 3,127 units. RV production increased by 10% to 4,650 units in the rolling three-months period from December 2017 – February 2018.
Total OEM growth was 14%, of which growth in constant currency was 19%. Total Aftermarket growth was 10%, of which growth in constant currency was 15%.
RV OEM reported strong growth. Performance was particularly good in China. Continued good performance in Australia.
Marine OEM reported high growth. General good performance across the region and especially strong in Taiwan.
CPV OEM reported very high growth, driven by continued strong sales in China.
Aftermarket reported strong development. Growth was mainly driven by the Retail, RV AM and lodging business.
First quarter
The Parent Company Dometic Group AB (publ) comprises the functions of the Group's head office, such as Group-wide management and administration. The Parent Company invoices its costs to Group companies.
For the first quarter of 2018, the Parent Company had an operating profit of SEK 0 m (-4), including administrative expenses of SEK -37 m (-36) and other operating income of SEK 37 m (32), of which the full amount relates to income from Group companies.
Profit (loss) from financial items totaled SEK -206 m (15), including interest income from Group companies of SEK 56 m (25), interest expenses to Group companies of SEK 0 m (0) and other financial income and expenses of SEK -263 m (-10).
Profit (loss) for the period totaled SEK -1 m (11).
For further information, please refer to the Parent Company's condensed financial statements on page 11.
Solna, April 26, 2018
Juan Vargues President and CEO
Dometic Group AB (publ) reg. no. 556829-4390
We have reviewed the condensed interim financial information (interim report) of Dometic Group AB (publ) as of 31 March 2018 and the three-month period then ended. The board of directors and the CEO are responsible for the preparation and presentation of the interim financial information in accordance with IAS 34 and the Swedish Annual Accounts Act. Our responsibility is to express a conclusion on this interim report based on our review.
We conducted our review in accordance with the International Standard on Review Engagements ISRE 2410, Review of Interim Report Performed by the Independent Auditor of the Entity. A review consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing, ISA, and other generally accepted auditing standards in Sweden. The procedures performed in a review do not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
Based on our review, nothing has come to our attention that causes us to believe that the interim report is not prepared, in all material respects, in accordance with IAS 34 and the Swedish Annual Accounts Act, regarding the Group, and with the Swedish Annual Accounts Act, regarding the Parent Company.
Stockholm, 26 April 2018
PricewaterhouseCoopers AB
Anna Rosendal Authorized Public Accountant Auditor in charge
| Q1 | Q1 | FY | |
|---|---|---|---|
| SEK m | 2018 | 2017 | 2017 |
| Net sales | 4,442 | 3,443 | 14,044 |
| Cost of goods sold | -3,064 | -2,359 | -9,599 |
| Gross Profit | 1,378 | 1,084 | 4,445 |
| Sales expenses | -527 | -451 | -1,791 |
| Administrative expenses | -191 | -188 | -667 |
| Other operating income and expenses | 30 | -9 | -52 |
| Items affecting comparability | 0 | 0 | 47 |
| Amortization of acquisition related intangible assets | -51 | -18 | -76 |
| Operating profit | 638 | 418 | 1,907 |
| Financial income | 3 | 0 | 6 |
| Financial expenses | -130 | -31 | -212 |
| Loss from financial items | -127 | -31 | -206 |
| Profit before tax | 511 | 387 | 1,700 |
| Taxes | -136 | -91 | -206 |
| Profit for the period | 375 | 296 | 1,495 |
| Profit for the period attributable to owners of the Parent Company | 375 | 296 | 1,495 |
| Earnings per share before and after dilution effects, SEK - Owners of the Parent Company |
1.27 | 1.00 | 5.05 |
| Number of shares, million | 295.8 | 295.8 | 295.8 |
| Q1 | Q1 | FY | |
|---|---|---|---|
| SEK m | 2018 | 2017 | 2017 |
| Profit for the period | 375 | 296 | 1,495 |
| Other comprehensive income | |||
| Items that will not be reclassified subsequently to profit or loss: | |||
| Remeasurements of defined benefit pension plans, net of tax | 21 | -2 | 0 |
| 21 | -2 | 0 | |
| Items that may be reclassified subsequently to profit or loss: | |||
| Cash flow hedges, net of tax | 34 | 5 | 25 |
| Gains/losses from hedges of net investments in foreign operations, | |||
| net of tax | -65 | -17 | 66 |
| Exchange rate differences on translation of foreign operations | 303 | 35 | -502 |
| 272 | 23 | -411 | |
| Other comprehensive income for the period | 293 | 21 | -411 |
| Total comprehensive income for the period | 668 | 317 | 1,084 |
| Total comprehensive income for the period attributable to owners of the | |||
| Parent Company | 668 | 317 | 1,084 |
| Mar 31, | Mar 31, | Dec 31, | |
|---|---|---|---|
| SEK m | 2018 | 2017 | 2017 |
| ASSETS | |||
| Non-current assets | |||
| Goodwill and trademarks | 17,363 | 12,872 | 17,016 |
| Other intangible assets | 4,237 | 1,040 | 4,260 |
| Tangible assets | 2,016 | 1,588 | 1,952 |
| Deferred tax assets | 842 | 1,183 | 897 |
| Derivatives, long-term | 11 | 6 | 1 |
| Other non-current assets | 69 | 53 | 65 |
| Total non-current assets | 24,538 | 16,742 | 24,191 |
| Current assets | |||
| Inventories | 3,701 | 2,785 | 3,350 |
| Trade receivables | 2,159 | 1,699 | 1,485 |
| Current tax assets | 188 | 51 | 180 |
| Derivatives, short-term | 152 | 36 | 90 |
| Other current assets | 586 | 261 | 418 |
| Prepaid expenses and accrued income | 148 | 106 | 132 |
| Cash and cash equivalents | 1,066 | 1,213 | 1,159 |
| Total current assets | 8,000 | 6,151 | 6,814 |
| TOTAL ASSETS | 32,538 | 22,893 | 31,005 |
| EQUITY AND LIABILITIES EQUITY |
15,182 | 14,294 | 14,514 |
| LIABILITIES | |||
| Non-current liabilities | |||
| Liabilities to credit institutions, long-term | 9,962 | 4,332 | 9,810 |
| Deferred tax liabilities | 1,930 | 607 | 1,901 |
| Other non-current liabilities | 41 | 17 | – |
| Provisions for pensions | 681 | 534 | 687 |
| Other provisions, long-term | 148 | 106 | 131 |
| Total non-current liabilities | 12,762 | 5,596 | 12,529 |
| Current liabilities | |||
| Liabilities to credit institutions, short-term | 1,182 | 321 | 733 |
| Trade payables | 1,562 | 1,244 | 1,459 |
| Current tax liabilities | 328 | 352 | 371 |
| Advance payments from customers | 29 | 28 | 23 |
| Derivatives, short-term | 34 | 27 | 45 |
| Other provisions, short-term | 302 | 218 | 289 |
| Other current liabilities | 306 | 181 | 264 |
| Accrued expenses and prepaid income | 852 | 632 | 778 |
| Total current liabilities | 4,594 | 3,003 | 3,962 |
| TOTAL LIABILITIES | 17,356 | 8,599 | 16,491 |
| TOTAL EQUITY AND LIABILITIES | 32,538 | 22,893 | 31,005 |
| Jan-Mar | Jan-Mar | FY | |
|---|---|---|---|
| SEK m | 2018 | 2017 | 2017 |
| Opening balance of the period | 14,514 | 13,977 | 13,977 |
| Profit for the period | 375 | 296 | 1,495 |
| Other comprehensive income for the period | 293 | 21 | -411 |
| Total comprehensive income for the period | 668 | 317 | 1,084 |
| Transactions with owners | |||
| Dividend to shareholders of the Parent Company | – | – | -547 |
| Total transactions with owners | – | – | -547 |
| Closing balance of the period | 15,182 | 14,294 | 14,514 |
| Q1 | Q1 | FY | |
|---|---|---|---|
| SEK m | 2018 | 2017 | 2017 |
| Cash flow from operations | |||
| Operating profit | 638 | 418 | 1,907 |
| Adjustment for other non-cash items | |||
| Depreciation and amortization | 123 | 77 | 321 |
| Adjustments for other non-cash items | -28 | 0 | -99 |
| Changes in working capital | |||
| Changes in inventories | -254 | -131 | -361 |
| Changes in trade receivables | -623 | -638 | -151 |
| Changes in trade payables | 52 | 223 | 296 |
| Changes in other working capital | 143 | 70 | 120 |
| Income tax paid | -97 | 5 | -105 |
| Net cash flow from operations | -46 | 24 | 1,928 |
| Cash flow from investments | |||
| Acquisition of operations | – | -187 | -7,482 |
| Investments in fixed assets | -78 | -63 | -306 |
| Proceeds from sale of fixed assets | 64 | – | 139 |
| Deposit | -233 | – | – |
| Other investing activities | 0 | -1 | -4 |
| Net cash flow from investments | -247 | -251 | -7,653 |
| Cash flow from financing | |||
| Borrowings from credit institutions | 542 | – | 6,301 |
| Repayment of loans to credit institutions | -233 | -112 | -229 |
| Paid interest | -87 | -26 | -99 |
| Received interest | 1 | 0 | 5 |
| Other financing activities | -46 | -19 | -122 |
| Dividend paid out to shareholders of the Parent Company | – | – | -547 |
| Net cash flow from financing | 177 | -157 | 5,308 |
| Cash flow for the period | -116 | -384 | -417 |
| Cash and cash equivalents at beginning of period | 1,159 | 1,599 | 1,599 |
| Exchange differences on cash and cash equivalents | 23 | -2 | -23 |
| Cash and cash equivalents at end of period | 1,066 | 1,213 | 1,159 |
| Q1 | Q1 | FY | |
|---|---|---|---|
| SEK m | 2018 | 2017 | 2017 |
| Administrative expenses | -37 | -36 | -133 |
| Other operating income | 37 | 32 | 130 |
| Operating profit | 0 | -4 | -3 |
| Interest income subsidiaries | 56 | 25 | 50 |
| Interest expenses subsidiaries | 0 | 0 | – |
| Other financial income and expenses | -263 | -10 | -77 |
| Profit (loss) from financial items | -206 | 15 | -28 |
| Group contributions | 205 | – | -157 |
| Profit (loss) before tax | -1 | 11 | -188 |
| Taxes | 0 | 0 | 2 |
| Profit (loss) for the period | -1 | 11 | -186 |
| Mar 31, | Mar 31, | Dec 31, | |
|---|---|---|---|
| SEK m | 2018 | 2017 | 2017 |
| ASSETS | |||
| Shares in subsidiaries | 16,622 | 13,563 | 16,622 |
| Other non-current assets | 5,203 | 17 | 5,116 |
| Total non-current assets | 21,825 | 13,580 | 21,738 |
| Current assets | 1,274 | 2,628 | 893 |
| TOTAL ASSETS | 23,099 | 16,208 | 22,631 |
| EQUITY | 10,843 | 11,590 | 10,845 |
| PROVISIONS | |||
| Provisions | 30 | 14 | 27 |
| Total provisions | 30 | 14 | 27 |
| LIABILITIES | |||
| Non-current liabilities | 9,962 | 4,332 | 9,810 |
| Total non-current liabilities | 9,962 | 4,332 | 9,810 |
| Current liabilities | 2,264 | 272 | 1,949 |
| Total current liabilities | 2,264 | 272 | 1,949 |
| TOTAL EQUITY AND LIABILITIES | 23,099 | 16,208 | 22,631 |
Dometic Group AB (publ) ("Dometic") applies International Financial Reporting Standards (IFRS), as adopted by the EU. This consolidated Interim Financial Report has been prepared in accordance with IAS 34 'Interim Financial Reporting'. The Swedish Annual Accounts Act and RFR 2 Accounting for Legal Entities, issued by the Swedish Financial Reporting Board, have been applied for the Parent Company. The interim report comprises pages 1-19 and pages 1-7 are thus an integral part of this financial report (IAS 34.16A).
Totals quoted in tables and statements may not always be the exact sum of the individual items because of rounding differences. The aim is for each line item to correspond to its source, and rounding differences may therefore arise.
The Group has adopted IFRS 15 Revenue from Contracts with Customers. This supersedes all current revenue recognition requirements under IFRS. The Group has chosen to use the full retrospective transition method. The standard came into effect as of January 1, 2018. The Group concluded that comparative figures for the 2017 financial year do not need to be restated since the impact is immaterial, which is why there is no effect in Q1 2018. Consequently, no transition provision was required to be disclosed at the end of December 2017. The accounting policies for the Group's main type of revenue are described below.
The standard IFRS 9 Financial instruments is also adopted and came into effect as of January 1, 2018.
As described above, the accounting principles applied correspond to those described in the 2017 Annual Report, with the exception of IFRS 15 Revenue from Contracts with Customers and IFRS 9 Financial Instruments, for which there are changes to Dometic's accounting and valuation principles compared to the principles described in Notes 2 and 4 of the 2017 Annual Report.
The detailed description of the accounting and valuation principles applied by the Group in this interim report are to be read in addition to descriptions found in Notes 1, 2 and 4 of the 2017 Annual Report, available at www.dometic.com.
The following information should be considered in addition to the description of the new accounting standards and related activities provided in the 2017 Annual Report, Note 2.
Dometic is currently assessing the impact of the new standard. Ongoing activities include further analysis of lease terms in agreements. Indications so far in the investigation phase, during which contracts have been compiled and analyzed at a high level, are that some impact is expected on financial reporting as of 2019. Note 8 in the Annual Report discloses the future cash flows for current operating leases. These cash flows, discounted to present value, may provide an indication of the increase in assets and liabilities that the Group will see in the balance sheet.
The Group is not able to quantify the impact on its consolidated financial statements at this stage of the project.
For the IFRS 16 transition, Dometic has decided to use the modified retrospective approach.
The standard is effective as of January 1, 2019. Dometic will not adopt earlier application.
Accounting principles to be read in addition to the descriptions in Notes 1, 2 and 4 of the 2017 Annual Report
Revenue recognition in Dometic Group is based on IFRS 15 – Revenue from Contracts with Customers. This standard specifies the requirements for recognizing revenue from all contracts with customers, except for contracts that are within the scope of the Standards on leasing, insurance contracts and financial instruments.
Dometic is in the business of manufacturing and selling a diverse range of products within Climate, Hygiene & Sanitation, Food & Beverage, Power & Control and Safety & Security. These products are primarily for use in Recreational Vehicles, pleasure boats, work boats, trucks and premium cars.
Products in the area of Mobile living are sold via the two sales channels Original Equipment Manufacturer (OEM) and Aftermarket (AM).
The new revenue model is made up of a series of steps required to help entities determine when and how much revenue to recognize.
In the first step of the revenue model, the Group identifies the contract with a customer. This is then followed by the second step, in which the various goods and services that need to be accounted for separately, or distinct performance obligations, are identified. In the third step, the Group determines the transaction price, which is the total amount to which the Group expects to be entitled, and then in the fourth step the transaction price is allocated to the distinct performance obligations. Finally, the amount of revenue allocated to each distinct performance obligation is recognized either at a point in time or over a period of time, depending on when the customer acquires control over the promised goods or services in that performance obligation.
Purchase orders from the customer, which is the most common way of ordering goods, qualify as an IFRS 15 contract, including all enforceable rights and obligations required.
The promises are all distinct, since the customer can benefit from the goods on their own and the service (if included in a contract) together with the readily available goods. Each promise (performance obligation) is accounted for separately.
In the rare cases where the Group offers installation services, revenue for that performance obligation is recognized over the
contract period during which the service is provided. At present, the service part of the Group's revenue is immaterial, which is why revenue over time is not separately presented in the disclosures.
Sales are recorded based on the price specified in the customer agreements, net of the estimated discounts and returns at the time of sale. Accumulated experience is used to estimate and provide for the discounts and returns. If the consideration includes a variable amount, the transaction price includes an estimate of what the entity will be entitled to receive. Estimated discounts are accounted for at the time of the sale and simultaneously reduce external revenue. The amount is estimated by using either the expected value or the most likely amount.
The revenue estimate is included in the transaction price only if it is highly probable that there will not be a significant reversal in the amount of cumulative revenue recognized.
Revenue is recognized when the Group has fulfilled its performance obligation, which means the Group has transferred the promised good or service to the customer. The good or service is regarded as transferred when the customer has obtained control of the good or service. Revenue from the sale of goods and services is recognized in a pattern that reflects the transfer of control of the promised good or service to the customer, and this takes place when the customer has obtained the ability to direct the use of the goods and obtained substantially all remaining benefits from the asset.
Control either transfers to the customer over time or at a point in time, and this is determined at contract inception. The assessment of whether control transfers over time or at a point in time is critical to the timing of revenue recognition, since revenue is recorded when or as control transfers.
The Group has a limited number of arrangements where the performance obligations are satisfied over time, including some services but also a small volume of customized goods constructed for customers. To achieve valid revenue timing, progress toward satisfaction of a performance obligation must be measured.
Indicators for the transfer of control at a point in time for goods are if the Group has a right to payment for the goods or if the customer has legal title to the goods. Other indicators which the Group considers are if the Group has transferred physical possession of the goods and if the customer has the significant risks and rewards related to the ownership of the goods.
Additionally, the Group considers whether the customer has accepted the goods in accordance with the customer acceptance clause.
International commercial terms are important as a checkpoint, to determine when control transfers to a customer. The Group must use judgement to determine whether all relevant IFRS control factors collectively indicate that the customer has obtained control before recognizing revenue.
If the timing of the payment of the consideration is in advance or deferred and the timing provides a significant financing benefit, the payments are adjusted for the time value of money. However, since sales are normally made with a credit term of 30- 60 days, which is consistent with market practice, no element of financing is considered to exist.
Revenue is not recognized for products expected to be returned in cases where the customer has a contractual return right. A liability for the refund (refund accrual) and an asset plus a corresponding adjustment to cost of goods sold for its right to recover products from customers on settling the refund accrual is recorded.
Dometic offers a standard warranty, normally of between two and three years. In some cases, an extended warranty may be offered to the customer. The standard warranty is recorded as a provision and a warranty cost in the income statement, whereas the extended warranty is a separate performance obligation. The portion of the transaction price in the contract that is allocated to the extended warranty is accounted for as revenue over the term of the warranty period.
IFRS 9 Financial instruments addresses the classification, recognition, measurement and impairment of financial instruments and hedge accounting. The standard replaces the earlier IAS 39 standard and is effective from January 1, 2018, although early adoption is permitted.
Dometic will apply the new standards effective from January 1, 2018, with no comparative historical adjustments as permitted by the standard.
Dometic has reviewed the standard during latter 2016 and 2017 with the conclusion presented in the Annual report 2017 that the new rules regarding classification and valuation have immaterial impact on Dometic Group. As a result of this, no material transition effects have been identified and no transition effect is recorded in the group financial statements on December 31, 2017.
Dometic determined that all existing hedge relationships that are currently designated in effective hedging relationships will continue to qualify for hedge accounting under IFRS 9.
Financial assets are initially recognized at fair value plus transaction costs for all financial assets not carried at fair value through profit and loss. Financial assets carried at fair value through profit or loss are initially recognized at fair value, and transaction costs are expensed in the income statement. Financial assets are derecognized when the rights to receive cash flows from the investments have expired and substantially all risks and rewards of ownership are transferred. Regular way purchases and sales of financial assets are recognized on tradedate, the date on which the Group commits to purchase or sell the asset.
Dometic classifies and measures its financial assets in the following categories: Amortized cost and fair value through profit and loss.
a) Amortized costs: The Group's financial assets at amortized cost comprise trade receivables and other receivables as well as cash and cash equivalents in the balance sheet. The objective of holding these financial assets is to collect the contractual cash flows, thus the "hold to collect" business model. The cash flows from these assets are solely payment of principal and interest, and are therefore measured at amortized cost. Selling or trading these financial assets are not part of the business model. If a sale would occur, it would be incidental and low frequent.
Trade receivables within this category are amounts due from customers in the ordinary course of
business. Trade receivables are recognized initially at fair value and subsequently measured at amortized cost using the effective interest method, less provision for impairment.
b) Fair value through profit and loss: Financial derivatives that are not subject to hedge accounting are always recognized at fair value through profit and loss. Valuation of financial derivatives at fair value is done at the most recent updated market prices. Gains or losses arising from changes in the fair value of the "financial assets at fair value through profit or loss" category is presented in the operating result or financial net in the income statement depending on the nature of the economic relationship with the underlying asset.
Assets are classified as current assets if expected to be settled within 12 months, otherwise they are classified as non-current. Receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except for maturities later than 12 months after the balance sheet date.
The Group has revised its impairment methodology for financial assets subject to IFRS 9's impairment model for financial assets leading to a so called expected credit loss model. With start on January 1, 2018, Dometic recognizes expected credit losses over the expected life of the trade receivables. Historical information by legal entity is used regarding credit loss experience and ageing to forecast future credit losses. In addition, current and forward-looking information by legal entity is used to reflect current and expected future losses. To support and harmonize the organization, a calculation matrix for calculating expected credit losses has been developed by headquarters and distributed to the relevant functions throughout the Group.
Dometic applies the simplified approach to measure life time expected credit losses for trade receivables to provide for losses each closing. The new model changed the loss allowance immaterially.
Financial liabilities are recognized initially at fair value, net of transaction costs incurred. Liabilities to credit institutions are subsequently stated at amortized cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognized in the income statement over the period of the borrowings using the effective interest method. Fees paid on the establishment of loan facilities are recognized as transaction costs of the loan to the extent that it is probable that some or all of the facility will be drawn down. In this case, the fee is deferred until the draw-down occurs. To the extent there is no evidence that it is probable that some or all of the facility will be drawn down, the fee is capitalized as a pre-payment for liquidity services and amortized over the period of the facility to which it relates. Liabilities to credit institutions are classified as current liabilities unless the Group has the right to defer settlement of the liability for at least 12 months after the balance sheet date. A financial liability is derecognized when the obligation under the liability is discharged or cancelled or expires.
Trade payables are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Trade payables are classified as current liabilities if payment is due within one year or less. If not, they are presented as non-current liabilities. Trade payables are recognized initially at fair value and subsequently measured at amortized cost using the effective interest method.
Financial assets and liabilities are offset and the net amount reported in the balance sheet, when there is a legally enforceable right to offset the recognized amounts and there is an intention to settle on a net basis or realize the asset and settle the liability.
Derivative financial instruments and hedging activities Derivatives are initially recognized at fair value on the date a derivative contract is entered into and are subsequently remeasured at their fair value. The method of recognizing the resulting gain or loss depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged. The derivatives in Dometic hedge a particular risk associated with a recognized asset or liability or a highly probable forecast transaction (cash flow hedge).
The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is recognized in other comprehensive income, and accumulated in reserves in equity. The gain or loss relating to the ineffective portion is recognized immediately in the income statement. Amounts accumulated in equity are accounted for in the income statement in the periods when the hedged item affects profit or loss. The gain or loss relating to the effective portion of interest rate swaps hedging variable rate borrowings are recognized in the financial net. The gain or loss relating to the ineffective portion is also recognized in the financial net. When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss existing in equity at that time remains in equity and is recognized when the forecast transaction is ultimately recognized in the income statement.
Dometic applies hedge accounting for net investment in foreign operations. Hedges of net investments in foreign operations are accounted for similarly to cash flow hedges. Any gain or loss on the hedging instrument relating to the effective portion of the hedge is recognized in other comprehensive income and accumulated in reserves in equity. The gain or loss relating to the ineffective portion is recognized immediately in profit or loss within other income or other expenses. Gains and losses accumulated in equity are reclassified to profit or loss when the foreign operation is sold.
As all businesses, Dometic is exposed to a number of risks that could have a material impact on the Group. These risks are factors that impact Dometic's ability to achieve established Group targets. This applies to both financial targets and targets in other areas outlined in Dometic's business strategy. Dometic performs an annual risk analysis by assessing each defined risk's likelihood and impact in a risk register, resulting in global and regional risk maps presented to Group management and the Board of Directors and used as a foundation for the control activities within Dometic. The risks that Dometic is exposed to are classified into four main categories (business and market risks, operational risks, compliance and regulatory risks and financial risks) where each category has underlying risks. These risks can be both internal and external. Internal risks are mainly managed and controlled by Dometic whereas external risk factors are not caused nor can be controlled by Dometic but the effects can be limited by an effective risk management.
Dometic is subject to transaction risks at the time of purchasing and selling, as well as when conducting financial transactions. Transaction exposure is primarily related to the currencies EUR, USD and AUD. As the majority of the Group's profit is generated
outside Sweden, the Group is also exposed to translational risks in all the major currencies.
Efficient risk management is a continual process conducted within the framework of business control, and is part of the ongoing review of operations and forward-looking assessment of operations. In the preparation of financial reports, the Board of Directors and Group management are required to make estimates and judgments. These estimates and judgments impact the income statement and balance sheet, as well as the disclosures. The actual outcome may differ from these estimates and judgments under different circumstances and conditions. Dometic's future risk exposure is assumed not to deviate from the inherent exposure associated with Dometic's ongoing business operations. For a more in-depth analysis of risks and risk management, please refer to Dometic's 2017 Annual Report.
Dometic uses interest rate swaps to hedge senior facility term loans to move from a floating interest rate to a fixed interest rate. The Group also uses currency forward agreements to hedge part of its cash flow exposure.
The fair value of Dometic's derivative asset and liabilities were SEK 163 m (Q1 2017: SEK 42 m) and SEK 34 m, (Q1 2017: SEK 27 m). The value of derivatives is based on published prices in an active market. No transfers between levels of the fair value hierarchy have occurred during the period.
For financial assets and liabilities other than derivatives, fair value is assumed to be equal to the carrying amount.
| Mar 31, 2018 | Balance sheet carrying amount |
Financial instruments at amortized cost |
Financial instruments at fair value |
Derivatives used for hedging |
|---|---|---|---|---|
| Per category | ||||
| Derivatives | 163 | – | 52 | 111 |
| Financial assets | 3,880 | 3,880 | – | – |
| Total financial assets | 4,043 | 3,880 | 52 | 111 |
| Derivatives | 34 | – | 9 | 25 |
| Financial liabilities | 13,012 | 13,012 | – | – |
| Total financial liabilities | 13,046 | 13,012 | 9 | 25 |
| Q1 | Q1 | FY | |
|---|---|---|---|
| SEK m | 2018 | 2017 | 2017 |
| Net sales, external | |||
| Americas ⁽¹⁾ | |||
| OEM | 1,731 | 1,130 | 4,576 |
| Aftermarket | 557 | 376 | 1,753 |
| Americas net sales, external | 2,287 | 1,506 | 6,329 |
| RV | 1,369 | 1,282 | 5,341 |
| Marine | 839 | 147 | 651 |
| CPV | 50 | 52 | 208 |
| Other (Lodging and Retail) | 29 | 26 | 128 |
| Americas net sales, external | 2,287 | 1,506 | 6,329 |
| EMEA | |||
| OEM | 924 | 833 | 3,154 |
| Aftermarket | 772 | 694 | 2,808 |
| EMEA net sales, external | 1,696 | 1,527 | 5,962 |
| RV | 857 | 778 | 2,821 |
| Marine | 191 | 181 | 725 |
| CPV | 409 | 382 | 1,553 |
| Other (Lodging and Retail) | 240 | 186 | 863 |
| EMEA net sales, external | 1,696 | 1,527 | 5,962 |
| APAC | |||
| OEM | 215 | 188 | 847 |
| Aftermarket | 244 | 222 | 907 |
| APAC net sales, external | 459 | 410 | 1,753 |
| RV | 221 | 209 | 921 |
| Marine | 33 | 29 | 109 |
| CPV | 46 | 39 | 160 |
| Other (Lodging and Retail) | 160 | 135 | 563 |
| APAC net sales, external | 459 | 410 | 1,753 |
| Net sales, external | |||
| Americas ⁽¹⁾ | 2,287 | 1,506 | 6,329 |
| EMEA | 1,696 | 1,527 | 5,962 |
| APAC | 459 | 410 | 1,753 |
| Total net sales, external | 4,442 | 3,443 | 14,044 |
| Operating profit (EBIT) | |||
| Americas ⁽¹⁾ | 334 | 164 | 827 |
| EMEA | 209 | 162 | 557 |
| APAC | 95 | 92 | 523 |
| Total operating profit (EBIT) | 638 | 418 | 1,907 |
| Financial income | 3 | 0 | 6 |
| Financial expenses | -130 | -31 | -212 |
| Taxes | -136 | -91 | -206 |
| Profit for the period | 375 | 296 | 1,495 |
⁽¹⁾Including SeaStar Solutions.
Segment performance is primarily assessed based on sales and operating profit. Information regarding income for each region is based on where customers are located. Management follow-up
is based on the integrated result in each segment. For further information, please refer to Note 5 of the 2017 Annual Report.
| Q1 | Q1 | FY | |
|---|---|---|---|
| SEK m | 2018 | 2017 | 2017 |
| Relocation China | – | – | 166 |
| Acquistion-related costs SeaStar Solutions | – | – | -58 |
| EMEA profitability improvement program | – | – | -61 |
| Total | – | – | 47 |
No transactions between Dometic and related parties that have significantly affected the company's position and earnings took place during 2018.
Dometic has not made any acquisitions or divestments during Q1 2018.
During Q1 2018 the goodwill in the preliminary purchase price allocation has been adjusted with SEK +13 million.
The purchase price allocation of IPV and Oceanair Marine Limited are considered as final. No changes have been made.
On November 22, 2017, Dometic announced the acquisition of SeaStar Solutions, leading provider of vessel control, fuel and system integration systems to the leisure marine industry. SeaStar Solutions is based in North America and employs 1,250 people. The transaction was closed on December 15, 2017 after all approvals from relevant competition authorities was obtained, and Dometic has consolidated the company as of that date. The total cash purchase price amounted to USD 868 m (SEK 7,286 m). The summary of value adjustments recognized as a result of the preliminary purchase price allocation of SeaStar Solutions amounts in total to SEK 7,361 m, including goodwill of SEK 3,361 m, trademarks and tradenames SEK 1,376 m, other intangible assets SEK 3,365 m, tangible assets SEK 347 m, other non-current assets SEK 1 m, cash SEK 1 m, net operating assets and liabilities SEK 686 m and provisions and other noncurrent liabilities of SEK -1,777 m.
Goodwill is justified by new potential customers and new future technologies with SeaStar Solution's leading position in vessel control, fuel systems and system integration and strong relationships with manufacturers. Acquisition-related costs amount to SEK 58 m, reported as items affecting comparability in Q4 2017. Sales and cost synergies of USD 20 m per annum will be fully realized within 3 years. The acquisition has affected consolidated net sales from the date of the acquisition by SEK 108 m and operating profit by SEK 5 m, including step-up costs for fair value revaluation of inventory of SEK 9 m. If the acquisition had been consolidated as of January 1, 2017, the
effect on pro forma net sales would have been USD 320 m and EBITDA of USD 85 m.
While the Company uses its best estimates and assumptions as part of the purchase price allocation process to value assets acquired and liabilities assumed at the acquisition date, the purchase price allocation for acquisition is preliminary for up to 12 months after the acquisition date and is subject to refinement as more detailed analyses are completed and additional information about the fair values of the assets and liabilities becomes available.
On December 22, 2016, Dometic announced the acquisition of the assets of IPV, a Germany-based aftermarket provider of coolers and other outdoor products. The acquisition strengthens Dometic's position in the EMEA market for mobile coolers. The purchase price was EUR 3.5 m, and the transaction was closed on January 3, 2017. On February 7, 2017, Dometic acquired Oceanair Marine Limited, a UK-based market-leading manufacturer of marine blinds, screens and soft furnishings for the Leisure Marine and Super Yacht segments. The acquisition strengthens Dometic's presence in the marine market and broadens the product portfolio. The company reported revenues of GBP 11.4 m for the 2015/2016 fiscal year. The initial purchase price was GBP 14.0 m in cash, with an additional earn-out consideration of a maximum of GBP 2.5 m subject to the achievement of certain performance-related targets over the next 16 months.
The summary of value adjustments recognized as a result of the acquisition of Oceanair amounts in total to SEK 160 m, including goodwill of SEK 80 m, other intangible assets (trademarks and customer relationships) of SEK 100 m, and a deferred tax liability of SEK 20 m. Acquisition-related costs expensed in the consolidated income statement Q1 2017 amounts SEK 2.5 m.
The total purchase price consideration in cash for the transactions (IPV, Oceanair), less cash and cash equivalents, amounts to SEK 197 m, including earn-out paid in the third quarter 2017. The acquisitions did not have any significant impact on operating profit during 2017.
At the 2018 Annual General Meeting held on April 10, Fredrik Cappelen was re-elected as member and Chairman of the Board. Jacqueline Hoogerbrugge, Rainer E. Schmückle, Erik Olsson, Peter Sjölander, Heléne Vibbleus and Magnus Yngen were re-elected as members of the Board of Directors. The proposed dividend of SEK 2,05 per share was adopted.
Dometic presents some financial measures in this interim report, which are not defined by IFRS. The company believes that these measures provide valuable additional information to investors and management for evaluating the company's financial performance, financial position and trends in our operations. It should be noted that these measures, as defined, may not be comparable to similarly titled measures used by other companies. These non-IFRS measures should not be considered as substitutes for financial reporting measures prepared in accordance with IFRS. See Dometic's website www. dometic.com for the detailed reconciliation.
Consists of inventories and trade receivables less trade payables.
Operating profit (EBIT) before Depreciation and Amortization.
EBITDA divided by net sales.
Net debt excluding pensions and accrued interest in relation to EBITDA.
Total borrowings including pensions and accrued interest less cash and cash equivalents.
EBITDA +/- change in working capital excluding paid tax, after capital expenditure.
Sales growth excluding acquisitions/divestments and currency translation effects. Quarters calculated at comparable currency, applying latest period average rate.
Operating profit (EBIT) divided by operating capital. Based on the operating profit (EBIT) for the four previous quarters, divided by the average operating capital for the previous four quarters, excluding goodwill and trademarks for the previous quarter.
Aftermarket.
Expenses related to the purchase of tangible and intangible assets.
Commercial and Passenger Vehicles.
Net profit for the period divided by average number of shares.
Financial Year ended December 31, 2017.
Items affecting comparability are events or transactions with significant financial effects, which are relevant for understanding the financial performance when comparing profit for the current period with previous periods. Items included are for example restructuring programs, expenses related to major revaluations, gains and losses from acquisitions or disposals of subsidiaries.
Liabilities to credit institutions plus liabilities to related parties plus provisions for pensions.
Profit (loss) for the period
Other comprehensive income.
Original Equipment Manufacturers.
Interest-bearing debt plus equity less cash and cash equivalents, excluding goodwill and trademarks.
Earnings before financial items and taxes.
Operating profit (EBIT) divided by net sales.
Recreational Vehicles.
January to March 2018 for Income Statement.
January to March 2017 for Income Statement.
Core working capital plus other current assets less other current liabilities and provisions relating to operations.
Analysts and media are invited to participate in a telephone conference at 10.00 (CEST), April 26, 2018, during which President and CEO, Juan Vargues and CFO, Per-Arne Blomquist, will present the report and answer questions. To participate in the webcast/telephone conference, please dial in five minutes prior to the start of the conference call:
| Sweden: | +46 8 566 42669 |
|---|---|
| UK: | +44 20 3008 9802 |
| US: | +1 855 831 5945 |
Webcast URL and presentation are available at www.dometic.com
Hemvärnsgatan 15 SE-171 54 Solna, Sweden Phone: +46 8 501 025 00 www.dometic.com Corporate registration number 556829-4390
Dometic is a global market leader in branded solutions for mobile living in the areas of Climate, Hygiene & Sanitation, Food & Beverage, Power & Control and Safety & Security. Dometic operates in the Americas, EMEA and Asia Pacific, providing products for use in recreational vehicles, trucks and premium cars, pleasure and workboats, and for a variety of other uses. Dometic offers products and solutions that enrich people's experiences away from home, whether in a motorhome, caravan, boat or truck. Our motivation is to create smart and reliable products with outstanding design. We operate 28 manufacturing/assembly sites in eleven countries, sell our products in approximately 100 countries and manufacture approximately 85% of products sold in-house. We have a global distribution and dealer network in place to serve the aftermarket. Dometic employs approximately 8,800 people worldwide, had net sales of SEK 14.0 billion in 2017 and is headquartered in Solna, Sweden.
Johan Lundin Head of Investor Relations and Communications Phone: +46 8 501 025 46 E-mail: [email protected]
This information is information that Dometic Group AB (publ) is obliged to make public pursuant to the EU Market Abuse Regulation. The information was submitted for publication, through the agency of the contact person set out above, at 08:00 CEST on April 26, 2018.
This document is a translation of the Swedish version of the interim report. In the event of any discrepancy, the Swedish wording shall prevail.
18 JULY 2018: Interim report for the second quarter 2018
25 OCTOBER 2018: Interim report for the third quarter 2018
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