Thule Group AB (publ)

Good morning everybody for this 2023 Q1 report. And as we had expected, it was a slow start to the year. So if you can go to slide two, please. We knew that we would be facing a tough bike retail situation with bike retailers having significant stock on hand. And on top of that, of course, we are also facing in reality a very tough comp period because last year in 2022, during the first few months of the year, there was an extreme stock buildup by bike retail. So our sales ended up at 31% down, FX adjusted, which is very much in line with our expectation. It is a small growth versus 2019, the first pre-pandemic year of 12%. So it's not Catastrophical from that sense, but of course, clearly we are feeling the situation of bike retail placing very limited orders as they instead sell down their stock. What I'm very happy with in the quarter is our ability to still deliver a very strong gross margin. Our gross margin improved to 41.2%, which is a 1.2% improvement, but actually 1.5 percentage points currency adjusted. And the key contributor to that is, of course, the fact that we during 2022 implemented price increases also mid-year because of the situation of costs out there. If you look at a positive situation as well, is this that we see that freight costs are returning to more normalized level after having been extreme during 21 second half in 2022. We also see a clear positive channel mix As retailers are having an inventory sell down period and therefore are buying less product from us, we don't have that impact in our own direct consumer where we therefore have grown our share of sales that goes direct to consumers. That was happening anyway, even without retail inventory adjustments. The channel mix would have anyway gone to direct consumer because that is the winning and fastest growing channel we have, but that it was accentuated in Q1 then when retailers sold down stock level. There was a negative effect in the fact that we still have a significant underabsorption in our factories. And that is, of course, because we have decided not only was our sales limited, but we are also on the journey of reducing our own inventory levels, which did go down in the quarter with 158 million Swedish krona. So the fact that we are seeing an inventory reduction plan going ahead at the same time as we're selling less means we're producing significantly less hours in our plants than we did at the same time last year. And in fact, we are at the end of the quarter 900 people less in our plants than we were at the same time in 2022. That has been done because we have a very efficient three-tiered staffing level in our production facilities. And we couldn't react fast enough during the second half of 22 with a very rapid and significant slowdown in the bike orders. But we could then act anyway during the second half. And now we see the positive impact from that. From an SG&A cost point of view, we are a steady level. In fact, we have a cost reduction in terms of constant currency of 17 million Swedish kronor. And that is despite a very aggressive continued product development push and an earlier than normal push also in marketing efforts, as we see a number of key launches and also fairs and events coming earlier than they used to do in the past. Overall, that meant that we delivered an EBIT margin of 17.2%, which is floors down significantly versus 2021. Two, but still a strong margin considering the negative sales development and the underabsorption of our factors. If we go to the next slide, we'll talk a bit more about the timing logic in what will be an extreme year once again to compare to. So if we look at slide three and talk about what we're seeing in terms of sales by quarter, we knew when we stepped into the beginning of the year that we would be facing the toughest quarter in terms of the comp reality in the first quarter. And the logic is clear. That was due to the fantastic sales in 2022, as especially bike retailers were aggressively filling up inventory, expecting a fantastic bike sales years. Now we are seeing the absolute opposite of that, but therefore we see also that if you look from a comp period now going forward, the second quarter is also a challenged quarter, which had 43% growth versus pre-pandemic times, while the first quarter had 64% growth. And then we have two clearly weaker quarters, which only grew 23%, respectively, 28% versus 2019, as we already then saw a dramatic and rapid bike retail slowdown on sales. So a tough first half and a very easy second half comp-wise. We therefore have had a lot of discussions and I know there's also been among investors and analysts, a lot of attempts and speculation and tries to try to find where is that point when bike retailers will find their normal inventory levels. And if you remember what we stated already way back in September last year, when we did a profit warning for the coming quarters, We announced that we felt it would not be possible for the bike retail sector to normalize their inventory levels until sometime during the peak season, which is always in the spring of the following year. We said already at that time, and we have reiterated that in the last two quarterly reports, that it's going to happen sometime between April and June. And the most optimistic people in the world were saying April. And the most pessimistic people in the world were saying around end of June. When we now look at April, it's clear that the most optimistic people were wrong. We were not among them. We did not believe it would materialize in April. And we're starting to see finally towards now the end of April, some good bike orders coming in. We know that the situation will be improving from a retail inventory level on a weekly basis now, because we see the sellout are starting to happen and we're starting to see orders picking up. So by the end of the second quarter, I am convinced that we will have seen a normalization of those inventory levels. That will mean also on a comparative basis, we will have our worst performing months versus compared to last year in the beginning of the quarter. And then as sales started to slow down of bike related products towards June, we will towards the end of the quarter see stronger comparable numbers with bike retailers having now adjusted their inventory levels. It is, of course, in general, though, still uncertain market conditions out there. And I know all of you speculating the same way, what will happen in total with the concerns that consumers have in terms of what their spending can be. And we will be needing to be very flexible on various product models and be very much on top of the trends that happen also in the coming quarters. If you go to slide four, we'll talk a bit more about what has happened in the region, Europe and rest of the world. And if you look at region, Europe and rest of the world, we saw a 26% decline versus the very strong 2022 in constant currency. It is the bike capture that was hit very hard. But we also have seen a relatively cautious retail in the total outdoor arena. And that is as people that have followed Tudle for many years and have been investors for Tudle for many years, knows that in the months of March and April, we have always said that there might be, due to when the Easter season hits and how good the weather is, you might see sales moving between those ending of the first quarter and beginning of the second quarter. So what we clearly have seen is a cautious retail sector being a bit worried about what will happen in a consumer pattern and also never blame the weather. It's just facing its timing differently, but it didn't help us that it was a week and late spring. When we look at the RV product category in Europe, which is the dominant part of our RV product sales with more than 95% of sales in that product category happening in the European region, It was a strong, solid quarter with positive growth, thanks to that the motorhome manufacturers are now starting to catch up with those order book backlogs that they've had for a very long time during the pandemic. So despite everybody's concerns about what will happen when motorhomes are significantly more expensive since the last few years, and also the discretionary spending opportunity for consumers, There is a very healthy backlog that now finally the motorhome manufacturers are filling up and sending out. As our products are mounted and assembled either by the manufacturer or at the dealership, because the consumers won't trust themselves just quickly attaching it, that means that we are partly connected to that performance. We are outperforming the market once again, as we've been doing for the last 17 years. And I'm sure we will continue to do that. But we have to be aware, as we have noted a few times, that the biggest interesting point for the RV product sector in Europe will not be what the order backlog is at the moment. There will be solid sales. It is more how many new consumers are filling up at the end of that order book now when there might be more concerns about the financing of those vehicles. We also had a very strong tax, bags and luggage performance. But that's logical, to be honest, because if we talk about tough comps, we can also talk about easier comps. And as most of you will remember, 2022 Q1, there were still significant limitations on travel opportunities for people in Asia and Southeast Asia. Those have been loosened up. And when people are commuting back and forth to work and commuting back and forth to universities, they buy laptop backpacks and other things. And when they are starting to travel internationally, they buy carry-on bags and duffel bags. So we are seeing a solid sales growth driven by a more return to normal in Asia, but also by very strong collections in our new luggage series that have been receiving very positive reviews in the marketplace. So if we look at it from that point of view, you also naturally can follow as a consequence, which geographies did best in the region. It was the Southeast Asian and Japanese markets and also China, because those are markets which had limited sales last year and also markets where we had a higher share of our sales in the packs and bags and luggage category and less in the bike related categories. We also had a very strong performance, same thing due to a week comparable last year in all the markets close to Ukraine. So we saw a significant and very natural concern after the Russian invasion to Ukraine and consumer market concerns were significant in 2022. Now there is a positive normal momentum actually in those neighboring markets. which means that we have a strong performance in Eastern Europe in the quarter. As I mentioned for the total group is also applicable specifically for region Europe and rest of the world that are direct to consumer sales shows a very strong growth in actual numbers. And then if you combine strong growth in actual numbers, albeit from a very low percentage, it still impacts us positively as we also saw a clear retail slowdown in ordering as they were selling down inventory. Our path of growing direct to consumer will definitely continue in the coming quarters. In the next page, we look at the Americas region, so on slide five. We can see that the actual number in terms of comparative versus the fantastic 2022 was a 45% decline. The reality is that in North America, we were catching up much later as we've reiterated a few times in our ability to fulfill the orders during the pandemic. So we were still more than in region Europe and the rest of the world actually selling bike-related products still into early Q1 2022 that had been already ordered for 21 late, which means the comp is extreme. If we would go all the way back to 2019 comparatives, it is actually very similar performance between the two regions. As I said, bike category is also here, the one that has hit the hardest. And also here, similarly as to the major retailers in Europe, there is some cautiousness in how much they're bringing in orders ahead of the spring. In this market, the very small niche product of RV product impacts very little. We've had fantastic growth numbers there for a while. You won't be surprised of me telling you, if you've looked at the motorhome sales and the whole caravan and motorhome industry, that that was not the case in the first quarter of 23, because it's been very slow in general in that market. With impact space and luggage, we continued to grow after commuting to back and forth to work and universities start to pick up and as people fly around more. In terms of geographies, it was the Latin American distributed markets that showed the growth, the smaller markets we deal in, And that's partly, once again, if we're honest, as we always are, it's due to the fact that we saw a relatively weak ordering in 2022 in those markets in the first quarter. Also in the North American markets, US and Canada, where we do direct to consumer sales, we saw a significant share increase of our sales in direct to consumer. Once again, a combination of us continuing to show actual growth and then as a share of course with retailers adjusting and balancing inventory it became also higher share sales if we then go over to the financials I'll leave it over to Jonas thank you Magnus we are now on slide number six

The sales of 2,226,000,000 SIC in the quarter was 31% below the sales for the same quarter prior year, excluding FX effects. This is on an expected level, and as in the previous quarter, sales of bike-related products continued to be slow. Please bear in mind that we are looking at tough comps from last year's first quarter, and part of the strength in that quarter was because of sales of bike carriers at the end of 2021 spilled over into the comparison quarter. Q1 2022, that was due to delays that we had in 2021. As Magnus said, our customers are still reducing inventory, so our sales do not reflect end customer demand. On the positive side, we saw an increase in sales of packed bags and luggage and a continued good level of sales in the area of RV, recreational vehicles. The gross margin is slightly higher than for the same quarter last year, and the improvement comes from our ability to quickly adjust variances in production volume, drastically reduced freight cost and effects from price increases. Regarding freight costs, last year we had to accept container prices on sea freight that were almost 10 times the current level. Operating expenses have increased slightly from 522 million SEK to 534 million SEK but excluding FX effects It's a reduction of 3%. Savings are coming primarily from sales and marketing costs as a consequence of the lower variable costs relating to sales. We are continuing our spending on product development. As a percentage of sales, the operating expenses are 24% compared with 17% prior year Q1. The EBIT margin of 17.2% is 5.6 percentage points lower than last year's 22.8, but only 1.3 percentage points below the average for 2017 to 2019, that is before COVID. The finance net in the quarter is lower than Q1 2022 because of higher interest rates and higher utilization of our banking facilities. The tax for the quarter of 84 million SEK corresponds to a tax rate of 23.3%, which is in the middle of our guided range, 22 to 25%. We now move to slide number seven. Operating working capital was 3,418,000,000 at the end of Q1 2023. Excluding currency effects, the inventory has decreased by 200 million SEK compared with the same time last year, which is in line with expectations since the first quarter of the year is not a big quarter for bike-related products, and that is what we stocked up last year. Inventory levels on these products will come down substantially during the coming two quarters. Accounts receivables of 1,085,000,000 SEK are lower as a consequence of the lower sales, and so are accounts payables compared with prior year. As a percentage of sales, the operating working capital is 36.6% at the end of Q1 2023. The operational cash flow for the quarter was much higher than last year, primarily because of the increase in inventory in Q1 2022. The stock build up we usually have in the first quarter is going the other way this year. Capital expenditure was 59 million in the quarter to be compared with 148 million for the same quarter last year. The capital expenditure relates to investments made in our production. As we have communicated, the capital expenditure for the full year will come down in 2023, but proportionally not as much as in the first quarter. Thank you. Thank you, Jonas.

If we then go to the next page, page eight, and talk about what is so key for a true global lifestyle brand. We are in a very positive momentum in terms of the strengthening of the Tuzla brand. And one of those key efforts that has been recently implemented is that we made a significant upgrade of the most important consumer interaction point we have, Tuzla.com. So in March 21, we went live with a significantly enhanced Tuzla.com. We do that mostly because it's our most important channel to drive sales in all channels. We also will get, we are convinced, a help and boost in driving more share to direct the consumer by having significantly improved the site. It wasn't like the site was bad before. It was actually, according to many, a very good site, but we've taken all the learnings we've had over the last few years and new expertise into truly user interface designed approach because we, with very different product categories, some more emotionally easy buys, like a good looking Thule Ion carry-on bag. and some where you truly need the technical advice to make sure you have bought the right product, like a roof rack for a specific car, means that the whole approach that we guide the consumers through is needing to be different in terms of how we assist them as an online expert advisor. At the same time, we have one global brand with a fantastic lifestyle positioning. So if we correctly, like we do better today on the refreshedtoddler.com website, show and cater for that feeling and propose other new products, we are convinced it will drive sales in all our channels. What we also are doing significantly is to use our great product offer to now when the world is back to a more normal place and everybody is allowed to travel around and be it fairs and events is we are once again with all the very exciting launches that we're doing for a trade for next year but also for consumers in stores this year we have dialed up our efforts and as i said have some earlier than normal seasonality facing of some of our marketing spend the image on the below right is an image from the copenhagen airport where we showcase during the big Swedish and Danish winter sport holidays, our new Thule Caprock roof platform and a lot of other cool Thule products to showcase the lifestyle that our brand enables. If we go to the next page, I'll talk a bit more about them on the new product launches as we are on page nine. We are doing some key consumer launches in the spring 2023. We quickly have mentioned some of them here, but I can tell you there are many more. The Thule Approach Tent is the most spacious rooftop tent in the market. It is also recently awarded with a new Red Dot Design Award. And also, if we look at our fantastic Thule Arcos Rear of Car Premium Hardshell Box, It has garnered significant attention in the marketplace as not only is it great looking and very practical, it actually enables to reduce the famous range anxiety for all those e-car buyers. In fact, in several studies proven both by ourselves, but also external third parties and media, It is, in fact, with a number of car models, the fact that if you put a Tula Arcus at the back of your car on the tow bar and load your bags in that one versus having the same bags in the trunk of your car, it actually reduces battery consumption. So that has been a very big PR and media attention grabber. I already mentioned the fantastic Thule Caprock. That is something for the true outdoor enthusiasts, those people that used to love the Land Rover Defender and nowadays maybe are already drooling about the Grenadier coming out with very cool vehicles. But it actually works for a normal vehicle like a Subaru or a Volvo also to create that platform for new adventure and put a lot of gear on top. And then, as I will show you more soon on another page, a fantastic launch of Thule EPOS, a revolutionary premium rear car bike carrier that hit the stores as of last week. A fantastic step up on what is today's the world's best, the Thule Easyfold XT. And now we're taking another level with the Thule EPOS. We're also coming with a number of key launches, as you are aware. 423 and I think we were a little bit hot to trot to show the Telepos. Since we are on the image of the Telepos, I can mention and show a little bit what it does. It is foldable. It has wheels. You can roll it out to your toe bar. You can just tilt it on your toe bar. You have a loading ramp. It can grab virtually any type of bike in any type of position on the bike. There is the possibility to add a locking for a key lock for your bikes. There's the possibility to have a bike repair stand sitting on the carrier. And when it's sitting, which is the below picture on the low end, when it is not having bikes on, you don't even need to tilt it away to open your trunk because you can just fold down the arms. So to go back, and you don't need to go back to the slide, but can we still mention it? The fact is that we are launching also our dog products as expected in Q3, the Thule Alex dog crate, the world's safest dog crate. And we will also, of course, launch a number of new bag collections, etc. also want to use this opportunity to let you know that we have decided to delay the launch of our car seats to the market which were planned for q4 in 23 to the spring 24. the reason is we have had longer than expected lead times of deliveries of the assembly equipment and some of the electronics for those products and we want to be 100 sure of course from a pure safety point of view but also from a mass manufacturing capability that once it hits the stores we can continue with solid supply throughout the launch period and the ramp-up period. So we are entering into a very exciting trade introduction period and that trade introduction period will start with a huge fair that is called Eurobike where among other things Telepos as you see on the screen will be showed but also some very high volume driving new products that will hit the market in 24. so if we go to the last page page 11 that is a key focus on what we're doing at the moment preparing for those launches our growth strategy remains unchanged we will definitely focus on driving profitable organic growth with great products we have the strongest assortment of new launches we've ever had in the history of the company in the coming 18 months and it is high volume driving type of product so it's not niche products so feel very strong about that we are continuously dialing up the efforts of the lifestyle brand with the bring your life tagline We are, of course, capable now of handling growth since we have invested well in the back end of our business. So we are underutilized a little bit with the sales we see at the moment. And we are continuing to support those right retailers with the right tools to sell. But we will see a much faster growth in our direct-to-consumers sales channels. So when we look at all those exciting news, we also have clearly a reality that we have a low level of production staffing. That's a reality. We can't say anything else because not only do we have less sales, we also have a higher inventory ourselves. So we decided to ensure that we reduce that inventory. We will be running with lower production levels. But the plants are extremely well invested with modern equipment, modern automation lines and ready for that volume growth that we're convinced will come. And as you sell down inventory, you, of course, generate a lot of cash, which means we will be very cash strong. So as a conclusion, before we open up for questions, it is a tough first half to comp against. We have a very easy second half to comp against. There is a fantastic number of launches hitting the market, both for the season 23 and for the season 24. There is, however, many uncertainties still in the world. So we need to be quick to act and as flexible as we've been in the recent years. And we will be that. And I will be around also for one more quarterly report, but we are already well underway, myself and Mattias, in ensuring that he is well-versed and running fast when he hits the ground running in August. So with that, we leave it to you, Bruno, to lead the questions. Thank you very much.