Thule Group AB (publ)

Good morning everybody and welcome to this 2023 Q2 report for the TULI group, which is also my final as a CEO. The 35th quarterly call since TOC listed and actually my 50th quarterly report are realized. Time flies when you're having fun. So let's go to the first slide and when we look at the summary of the second quarter, I think we can happily say that what we expect to happen has been happening throughout the quarter in terms of sales. So as you all remember when we summarized the first quarter in late April, we also informed the market that we would have a slow start to the quarter, partly due to the high inventory levels in bike retail and partly due to the late bike season start due to weather. And that was true. We did have a weak first month in the quarter. April was clearly very weak. May got clearly better and June was strong. So in total, we end the quarter with a 15% decline currency adjusted. We're helped a little bit by currency. So it's only 9% down when it comes to reporting currency, but 15% down currency adjusted. That is still 23% growth versus the pre-pandemic second quarter in 2019 currency adjusted. And as I said, the monthly trend is strongly positive. When we look at what makes me most happy in the quarter, it is our very strong gross margin at 43.6%. Not only was that a clear improvement versus last year, but it was also the strongest we've ever had. We have never historically had any quarter such a high gross margin. And that was, as you are aware and naturally can consider, done when we had very low production overhead absorption, because not only did we sell less, we continued to reduce our own inventory levels according to our plans. So the positive factors that made us deliver the best ever gross margin was, most importantly, as we already communicated in conjunction with the Q1 report, the mid-year 2022 price increases are still, of course, impacting us positively. We still see very significantly reduced freight costs. And what was very positive to see is the continued positive channel mix that we see in the quarter. I'm going to come back to a little bit of what we see in the growth of our direct to consumer, but there was a general positive channel. We still do have the negative economies of scale, and there is still with reduced bike carrier sales versus historical past in the quarter, some negative product mix effect. However, some of the new products like the Tula EFOS bike carrier on the image are coming in with good volumes, very strong sales of that product, and at very good margins as being a new best in class product. What was also good, we kept our SG&A cost steady despite a very aggressive product development push as we continue to do. In fact, on a rolling 12-month basis, we are now up to .1% spend of sales on product development. So we're pushing very hard for the future growth and then to be able to still hold on to that same level. In fact, a small V3s, even when you look at it in constant currency, is strong, also considering some of those senior management changes impacting costs in the quarter. EBIT margin therefore landed at a very strong 23.5%, which was a little bit down versus the extremely strong 2022 second quarter, but a very strong result overall, and an EBIT of 711 million crowns. As I mentioned, our inventory reductions are following to our plan and even slightly ahead considering that some of that inventory value is also a currency effect. We are currently reducing inventories in line with the plans that we presented already last year. So a reduction of inventory of 308 million krona in the quarter. So a very good plan followed there and a very strong cash flow as we have already communicated we would have throughout 2023. If we go to the next slide, we can then see a little bit of the performance on a quarter by quarter basis and what goes on in our business. And when we look at the performance on a continuous basis, it is easy to do the classical mistake to only compare with the previous year period. That's why we're showing a few years because we've had, as you are all aware, some very weird swinging quarterly performances throughout the pandemic and also now then due to the bike inventory situation in the beginning of 2023. So when we look at the start of the year, we saw a big gap versus 2022 and we have to remind ourselves then that in 2022, bike retailers were very, very optimistic in the beginning and ahead of the season ordering significant quantities after having had very good sales in 2021 and many players then slightly or significantly overestimating how much they would need in the season. That impacted our start of the year and now in the second quarter as I mentioned we were 15% down, currency adjusted versus 2022 Q2 but still 23% up. The second quarter was the second most difficult comp quarter. The first quarter was exceptionally challenging because we had a fantastic preseason sell-in. We saw some of that especially at the beginning of the quarter in 2022 as well, so a difficult comp and now we're coming with a very positive monthly trend with April being very weak, May being better and June being strong and we're now facing as you are aware a very weak comp period in the third quarter where we saw the handbrake being pulled by the bike retailers in July and August last year and therefore our profit warning that we did in September as a consequence knowing that that would impact us for a number of quarters going forward. So now we're starting to see easy comps. I therefore urge you all not to get too excited that we will be beating our 22 results. I think it's more important to look at the continuous performance of 23 versus a more normal season pattern which you can see in the yellow columns on the 2019 is a more normalized pattern of how our sales should pan out. So a very positive view on a strong second half of the year because bike retail is now back to a more normalized level and we will be seeing a much more normal performance on a seasonal basis. If we then go to slide four and look from a more regional perspective you can see that the performance actually was relatively similar between the two big regions but as always there are some differences. If we take Europe and rest of the world then first what was similar in the two regions was it started weak with bike retailers having stock still that is applicable in both regions so that has been exactly the same performance. What we see also is generally as we already mentioned in conjunction with the Q1 report is that generally in sporting cargo carriers the retailers are cautious they're not placing big orders they're taking smaller orders with frequency rather than aggressive bigger orders that is also similar across the two regions. What starts to differ is of course a little bit the exposure we have due to historical reasons between the product categories. So as you are aware in the biggest region Europe and rest of world the RV product is a significant part of our business because we are the market leader in the categories we play. Here we have one further solid quarter thanks to that the motorhome manufacturers are still catching up with some of the order book backlogs they've had now for several years and everybody in the motorhome industry is very much anticipating the big question mark that will be more clear in conjunction with the caravan salon in Düsseldorf in September is how many new orders will be filling into the system. What is clear consumer interest is high in going with motorhomes and doing that flexible vacationing but we also it is clear at the same time that the cost of these vehicles have gone up significantly and there is of course a concern with the inflationary pressures and higher interest rate logic of how many new orders that will be signed. I discussed in the last two three quarters the risk that people would be stepping out of line so that they had committed to buy a motorhome some years ago but when the cost went up and the backlog finally was starting to be filled up that they would step out. That is not a pattern what has been good for the industry and for Tula but it will now be more of a question mark for the 24 season how much new orders that are signed so to speak by the European motorhome manufacturers in conjunction with the caravan salon. In Juvenile and Pet which is also bigger in this region than it is in region America's and thanks to our strong bike commuting trend with children in Europe and specifically then the German market in Switzerland so to speak and the Benelux and the Nordics where people commute to kindergarten with their kids. That is a significant chunk and here we're very happy to say that we saw an earlier normalization than in any other category in terms of the bike trailers where we are the European market leader so already in the Q2 we saw growth in our bike trailers in the region because there was an earlier normalization than there were of some of the other bike related chapters which is also sign that the trend that young parents want to bike commute with more and more commuting opportunities done in municipalities around the world with all the investments is definitely a trend that will continue. In the Pax, Pax and Duffel luggage category it was the luggage and duffel that were the best performing sub catalyst. From a regional market perspective we saw France being our weakest of the bigger markets and the main reason here is we have a few very large retail chains that are positioned slightly lower some more mid-priced products and they are still comparably the most conservative and also sitting on slightly more inventory in the quarter than in other markets. The best performing markets were the UK and Poland. As I mentioned direct consumer nice to see from a very small base in this region but a very strong growth and now in the quarter it was six percent of sales. You have to remember that we do not ever consider to do the RV product sales direct consumer because the consumer won't be buying those products that way so as a share of the possible business it's still growing very nicely. If you go to slide five and then look at region Americas as I mentioned many of the patterns are the same so the picking up month over month is absolutely the same the high inventory levels in bike retail at the beginning of the quarter exactly the same but then we and also what is similar is this general cautiousness of placing large orders for sporting cargo carrier products but with this lot of continuous smaller orders. What differs a lot is this exposure to RV products where it's a significant category in Europe while it's a tiny niche category for us in region Americas and in part the European motorhome markets being stable by catching up with backlog as I'm sure you've been reading a lot about the North American motor market was weak and so we had a similar performance with our niche category in RV product. With impact by some luggage we took a decision some time ago as you know from years ago but also specifically now some quarters ago that we had still in our legacy categories that we play in some OE business where we do direct business to business of other more simpler bag solutions we decided to step out of this business and phase it out that is impacting us quite significantly in this quarter and will impact also the next quarter. What is good that that is that that was very low margin business so from a mixed point of view it didn't it helps us from a mixed margin point of view and it isn't the business we want to be in long term but from a sales perspective it did hurt the packed bags and luggage category in Q2 and we'll do so partly in Q3 as well. What is going well is very similar to Europe it's the luggage and duffel bags especially that continues to grow nicely. From a geographic perspective in this region the two big North markets of US and Canada had a similar performance while we strongly grew and it was nice to see some growth in Latin America so here clearly Latin America the better performing on the geographic spread. Here direct to consumer continued to grow at very strong pace and in the quarter in the region it was now 16 percent of our sales so as you understand from that from a gross margin percentage point of view the strong growth of direct consumer of course continues to help us. If we go to slide six then and look a little bit more on what's going on in our business in general as I said many patterns are similar across the regions and also patterns in terms of what's going on in our trending on things. So if you look at the financials on an operating working capital point of view is the key message the inventory reduction despite a currency effect of making the inventory being 186 million SEC higher purely due to currency we are now seeing that planned reduction of inventory as we announced already late last year. In fact we would be slightly ahead of plan if it wasn't for those currency effects. From an accounts receivable and an accounts payable if you look at from a trending point of view obviously as we mentioned with a slow sales start in the beginning and then stronger and stronger we see an accounts receivables going in the right direction and what you can see is also key that on an accounts payable basis we are still not buying a lot of product and components in thanks to the fact that we still are planning to reduce our inventory also clearly throughout the third quarter of the year. So overall I am happy with what we've been doing in terms of reducing the inventory and that is the key contributor to what we knew would be a very strong operational cash flow in the period and as you see a lower capex in the period than the previous year but that is not just the previous year we are in fact doing things over time to get back as we said after a heavy investment phase to more normalize the investment phase. If we go to slide seven and look at how the business unfolds as I said some strong positive trends and some good things happening and when you look at what this company first and foremost does great is new products so of course it's important for you to realize how many new products we are coming with in the 18 month period that started more or less from April this year. So we've already this spring helping us especially in the Q2 but will be helping us also throughout Q3 and 2024 is a number of key launches that have already taken place. You've seen the fantastic Thule approach rooftop tent you've heard about our brilliant Thule Arco's rear or car box solution with very good energy efficiency you've seen the very cool Thule Caprock premium lifestyle roof platform and you will definitely be hearing a lot more over the coming years about world's best rear of car bike carriers. So we launched the European version of tow bar mounted in the second quarter and now in the third quarter we're going to start to see volumes also in North America for the hitch mounted version. The Thule has already won multiple awards and won also a gold award at a recent Eurobike event and is clearly already taking a clear place as the best in the market. We have also since we announced the Q1 report had a number of other trade introductions and we are seeing some of those that will be hitting sales already positively in the autumn. The Thule Alex the world's safest dog crate for the car trunk is coming into market at the end of the third quarter and it's in the upper right corner of the image. I'm sure that will be a significant contribution and at Eurobike where we in June showed all our new bike related products we also launched a second dog transport product the Thule Bexsi dog bike trailers which is shown in the top left image. So with those two we'll start to have two big products in dog the Thule Bexsi comes at the beginning of next year while the Thule Alex dog crate comes in the end of the third quarter. We have also in the autumn launches of a number very nice bag collections that I feel very strongly about. We are hitting it spot on in terms of design and recyclability and sustainability on those bags and styling is as I've joked a few times it's always good when my daughters and their boyfriends steal the bags that I have home for testing and so it looks very very positive. But what is also important to know is that we sometimes do more money than anything else with an upgraded generation of a key volume product and at Eurobike we launched Thule chariot generation three. So Thule chariot is the world's most sold premium bike trailer for children and at Eurobike we launched an even better version with the same iconic design and look but with multitude of big improvements that got raving reviews from all our importers. As I mentioned we already saw bike trailer sales starting to grow in Q2 and with the trend that is in the market and this fantastic new product I see very positively of this high volume product having a significant impact in 2024 as it hits the market at the beginning of 2024. And what is also nice to say is that when Matthias Ankeberg takes over as CEO we'll be doing the quarter three update. He's going to have a lot of cool news to tell you about in that quarter three update as well because there are some still upcoming fires and events and as we've always said we don't tell you investors before we tell the retailers and consumers that will buy it but at those upcoming later in this quarter then events we will be announcing some other key volume driving product launches for next year. So not just niche little product launches but some serious volume launches with brilliant new products so we feel extremely strong about our product launch assortment coming for the coming 18 months. If we go to slide eight look at what this of course means it's not always completely free of charge to drive for future growth and when you do that you will need to invest and spend but it keeps the focus going in the long run. So our focus for the second half is a strong growth focus strategy that remains unchanged. We are pushing new products and new solutions to the growth. From a pricing point of view we are keeping the prices stable after those multiple increases we did in 21 and 22 so it will be by new units new volumes that we will generate top line growth coming into the near future. We are also doing that by continuing to strengthen the very strong global lifestyle brand Fille. We are going to see now despite doing a second or continuous phase of inventory reduction also in Q3 but we will now start to see as we produce more the possibility to utilize a very well invested backend to drive cost efficient growth in the coming quarters and we are continuing to boost our direct to consumer sales and that will of course drive a margin improvement as well but it's not only around direct consumer sales our big improvements that are noticed by retailers as well is on for example our Tilo.com solution and our other merchandise solution is to generally drive growth across all channels. The product portfolio push I've already talked about the fact is that we will continue with extremely lower levels of production staffing throughout 2023 Q3 because we are reducing inventory levels and it will only be when we start to go into 2024 we will see more normalized levels. We have been continuing our investments as you are aware of high heavy investments in automation and efficiency gains for our plants so when the volume comes I feel very confident we will be able to meet those capacity demands and we will be able to do so in a very efficient manner and the strong cash generation will continue throughout the year which is always good because that enables us the freedom to spend where we should so all of that is the focus going forward. A reminder is of course also that we will now face some very easy comps especially Q3 is very easy and Q4 is also relatively easy shouldn't get too carried away internally or we investors because we should be beating and will be beating those quarters but it's nice to see that we have that momentum and we have to remind ourselves the world is the most uncertain in many ways there's many things going wrong so our ability that we've proven once and again to be flexible will be key and we have proven that throughout recent years. If we go to slide nine one of the questions we've been getting quite a lot from investors over the last few months or since beginning of the year has been around how much are you really spending on product development and when will it normalize and how much have you been spending on capex and how will that normalize so looking a bit on those two things you are completely correct that we have had an extremely aggressive product development push that was already planned when we then saw bite retail slowing in sales and us seeing them reduce sales we were faced with the choice of pulling back on some very good product development initiatives that we were sure would drive future growth or take so to speak the rolling 12-month hit of increasing our R&D spend. We correctly I'm convinced chose to be pushing very aggressively for future growth and future performance with fantastic new products to hit the market. That means with the reduced sales we've been seeing as retailers were selling down inventory that in fact on a rolling 12-month basis we are now up to 7.1 percent of sales in product development. Now I won't be running this company in the future and you all know that I'm slightly a glorified product developer and product manager but even I would not consider 7.1 percent at the right level for Tule in the future. I think as I've said a few other times that the level should be normalizing somewhere in the range of slightly above five over time so that of course will happen for two reasons. One this has been an extreme push with loads of new products but two we will see no doubt a pickup on rolling 12-month sales as we're now facing several quarters in a row with very weak comps Q3, Q4 in 22 and Q1 especially but partly also Q2 in 23 have been weak so the rolling 12-month sales will be stronger but also the absolute spend will be more normalizing so we will be going down from these extremely high levels. When we do that we will also do that partly because once you start actually selling in new categories and as I said we start selling dog products at the end of Q3 beginning of Q4 you start to see volumes hitting and when you roll into Q4 you will therefore see a natural offset to our dog spending so to speak and the same will happen for the car seats in the second half of Q4 and beyond you will get an offsetting of actually the revenues in categories where we have been hitting the P&L with heavy development spend. From a capex perspective we told you several times throughout the autumn of 20 and 21 and 22 that you would be facing or we were facing a number of years three we in fact said of significantly higher than average capex 21 and 22 partly also because we did very large investments in a completely new development facility that some of you saw and visited at our capital market stay in 22 but also a fantastic state of our new test center so those two above and investments that we don't do very often came at the same time as we needed to do significant capacity investment having gone from seven billion second sales to 10 billion in a very rapid rise and then on top we did investment to be able to automate optimize more in some of our high volume products and then finally investment to prepare for production insight in our own sites of these new categories as you can see on the rolling 12 we are now starting to normalize so we are already on a clear downward trend and i'm sure from 24 and on to a normalized slightly above two percent type of capex spend in the group if we then go to the final slide slide 10 and look at something i take this opportunity 35th time i do this so i've always been and will continue to be a forward looking person but sometimes when you're told to lead you can also look a bit backwards so i've taken the liberty to do a bit of backwards looking and i can tell you then i'm a very proud person in what we have achieved my colleagues and myself over the 17 years i've been at the company and having been CEO since 2010 i can strongly say that too late today a stronger company in every single aspect than it was when i took over we have successfully divested a number of underperforming car industry sub-supply divisions most of them were actually divested even before we got stock listed and a few after we've changed from a complete wholesaler model to retail oriented sales and as you've seen in our last few quarters an exciting quick growth of our d2c journey we have no doubt a true world class product development with

more

design and test awards than any other player in our sector we have a modern and very well invested supply chain with capacity expansion opportunities and what is in these days so important we have a true sustainability mindset with very high ambitions both science-based target and net zero and also a very strong track record on actually delivering those plans not just talking about them what i'm extremely proud of is also that tola is today a very well established global lifestyle brand i notice that wherever i travel in the world and the difference is phenomenal versus when i go back to 2010 traveling the world happy to say we've done this while delivering very strong financial build results and also with very big dividends paid to you investors if we include the october dividend payment in fact we will have paid in dividends as much as our total market cap was when we got listed in 2014 seven billion we've also what i think is very important now as we have a new ceo taken over we've had very strong internal people growth and we have a lot of internal promotions of people that have done a phenomenal job we have some people that have for various reasons left and have had fantastic and are having fantastic careers at other companies and we are today a very attractive employer in all our markets you have seen and heard about all the new great products coming the next two years and what is good is they're coming in sectors with long-term positive market trends because it's always easier to sail with the wind in your back so with all of that i feel very proud but we know in the end especially you analysts and investor will judge a ceo mostly in the end almost solely on how the investment has grown under my or their management so i have to say i'm also proud there we have created a fantastic return on investment both as an unlisted entity and since 2014 we've been in prestige share price development as a public company so a little bit as i joked with my friends being an ex soccer player it feels like in the 80th minute we get a penalty and you're looking up because there is a substitution you are surprised that it's your number coming up on that board you look around and you go like okay then you go around realize yeah they decided they replace you you go on past the back of all your teammates pump them up you go out you take off your captain's uh bando and you give it to the new guy you pep him up and you say you go in and put that penalty in let's make a fantastic future for this company so in closing i want to give a huge thank you because i do know that there is a lot of colleagues that are investors as well in the company and are listening into this call i want to give a huge thank you to all my fantastic colleagues there is a great team at hula and it's been a pure pleasure with working with you for the 17 years i've been here i am also convinced that will your help marty as well in the same way contribute to the successful future hula journey so i wish you all the best and although i normally don't single out persons i want to do one singling out now because it is an investor and analyst call i want to thank specifically credit allison our head of ir who is a brilliant ir person i know you know that as investors and analysts but who has made my life extremely easy to work with all of you investors and analysts i send him a special thanks also for being a very fun person to work with and with that we open up for questions

thank you our first question is from daniel smith from dancy bank please go ahead

yes thank you good morning magnus a couple of questions from me and and starting maybe with the sort of the tagging on the commentary that you had when it comes to bike retailers inventories which has been a big big big focus over the past 12 months and also during the spring and you're saying that you're more or less seeing a normalization of those bike retailers inventories as we go into the second half of this year could you shed some more light on what you've seen i think you mentioned the trailers are ahead of carriers and so on but also on a geographical from a geographical perspective and also maybe on on a bit more on a product perspective what you're

seeing yeah uh morning dan generally the trend is the same so what we're seeing is i would say as we exit in june most retailers are back to normal levels so it's not geography based at all it is specific retailer based there might be specific retailers in a specific market that have still a little bit too much they are few most of them are back to normal levels however if those few are relatively big which is what i mentioned about france where we have a few very big retailers and that are selling at slightly lower price points more mid-price there is a higher likelihood that they still had a little bit too much throughout the quarter but generally with the good sales we saw in the last few weeks of june we saw a clear normalization across the board and the logic for why certain product categories have then performed better from a inventory normalization is more due to how many different models was there available in the market when they built up so if you look at for example premium bike trailers where we saw a normalization a little bit earlier there it is because there isn't that many players and models up at the very premium end so even if there were too many there were too many of relatively fewer models while there are more models at a mid-price bike carrier for example there are more brands more models when you go upwards in the price points fewer models so less build up of inventory so you can say that's the trend not geographic as much as retailer and price point specific okay

well

that's good

and and just coming back to sort of the product and especially some of the ones that have been very successful i think you mentioned to leopold's a number of times and that launched in mid of april in europe and mid-tune i think in america's as i assume that given the sort of difference in launch date that that will probably have a good contribution also to q3 and the second half of this year in terms of of of sales in that category instead of fair assumption

absolutely to leopold's is a true volume product at very high price points and good margins so we're selling lots of units and we were not selling any of that because we didn't have it last year of course it's partly taking some share of our previous most sold ones but as we were selling very few of those as well in q3 last year due to the hold back that will be a significant contributor to the growth in q3 yep and

and speaking of that and also all these components that impact the gross margin and you've lined them up fairly sort of visually with freight impacting positively also channel channel mix and new product share of total sales given that they are sometimes produced more efficiently than the old ones and i think that goes to leopold's and then you have the price increases that you did last year as well of course kicking in looking ahead what should we expect on all these sort of different components you have the role material working against you in q2 i assume that's going to be working with you towards the end of the year and and then maybe the channel wicks will go the other way who knows could you shed some light on those different components and the gross margin impact going forward all those equal

yeah i think you should always be careful to look at too much gross margin quarter to quarter because it depends on the production of bread absorption which type of type of products are sold more each quarter so you should be looking more on the rolling 12 performance as we go ahead now but i'm very confident that we have a very solid base of a high gross margin going forward with all the things we've done and with the under absorption we've been having which has been significant not only have we sold less we've also produced a lot less than we sold due to sitting on too much inventory when we come slowly but surely back to more normalized production levels both thanks to sales and not needing to sell down inventory anymore that will of course be a nice positive contributor being able to offset some other things that is going on always in the market so i feel very confident about our gross margin development going forward

and i assume that sort of you you stated that sort of that there will be under production also in q3 and it will take until 24 until we see normal production is there any sort of step change at all from lower levels compared to q2 running into q3 on the production rate if you're just the seasonality

from a production rate logic no but as sales will be higher you still get the more pure production overhead absorption thanks to sales levels being higher versus previous year right so it's not our production levels will still be low because we're going to sell out in the inventory but we will sell more

yeah

that's understood and

then on product development spending i think you had a good slide on that but should we should we expect that normalized normalization to happen at the start of 24 is that already happening towards the end of 23 in terms of pd spending

so if you look at it we will be spending a lot but as we are now replacing low revenue quarters with higher revenue quarters from a rolling 12 point of view thanks again you get as a share of sales you're going to see the number going down only thanks to better sales spend is heavily still because we're pushing for these new products but sales will be better so as a percentage of sales will go down

yeah and i think you actually mentioned the senior management changes had an impact on sgna costs for the quarter or did i hear you did i hear you right

that's correct replacing a ceo is not free of charge

any numbers that you want to give that sort of

annual report shows what my contract is and then there's of course some headhunting costs and some other things around replacing people so it's pretty easy to do it's not it's still significant for the administration part of our cost

right good that's all for me i just want to say good luck magnus and hats off for the performance that you've been able to deliver together with team of course over the past nine years at least as a listed company thank you very much

we have our next question from gustaf hajus from seb please go ahead when you're ready

thank you uh good morning guys um to follow up on the um the margin discussions um so 23.5 cents either margin this quarter versus i think it was 24.7 last last year right so so in the same territory despite organic growth being down 15 and volumes then being down more could you give us some some color on if the volumes would have been in line with last year uh would would the would margins then be significantly up or how much is the under absorption effect and how much is the volume effect here in total you think to the margin

so so of course as always it's always hypothetical because you actually need to run the plans as well as efficiently as you want to do but as i reminded everybody when we did the fantastic volumes in 21 we were doing that by running the plan inefficiently at shift nights uh weekends at a higher cost with a lot of temps that cost more per hour etc but that was the right choice because we had the sales volume and we still made a lot of money doing it but it wasn't very efficient plans now in the second half of 22 and the beginning of 23 we had efficient well-invested production plans but they're running very little so therefore they are costing from a more traditional production overhead absorption logic that what we what would be the ideal which is what we're hoping should be then taking place in 24 with more normalized sales volumes picking up because bike retailers are not reducing inventory and we are not reducing inventory we will produce more we sell more but produce more you then get two effects you get the pure let's say top line effect of selling a lot you get the effect of producing more efficiently and if you at the same time do that also by having more optimized and better margin products you're getting three positives akin the kinder egg situation in an ideal world the ideal world has never happened to me i've had some there's always something not going as well as you hoped but totally that means there should be on a continuous basis seeing a nice gross margin development rolling forward subject to weird things like pandemics russian invasions or whatever not hurting the flow of material and the flow of your supply chain

okay and then could you shed some light on on the car seat rollout you know i'm not sure if you've said q2 before just h1 next year but it's been postponed right but i don't haven't heard a lot of comments on to why that would we there been technical issues or safety no

we

yeah i guess that we already in the q1 report a bit clearer actually that it was going to happen in q2 so it was that postponement was announced and the decision as was communicated in the q1 report is that we have seen much longer lead times as everybody else on some still on some electronic components and some assembly equipment and we do not on a product that is safety oriented one and most importantly for small children want to take any type of shortcuts when we're stepping up and mounting up mass production but also not from a pure brand perspective of coming in as a new player and then starving the market just after you've launched so that was and is the logic for why we took that delay as we communicated that to q1 report

all right that's there and finally from looking into h2 maybe next year in terms of working cap release cash flow we had a nice nice return here in q2 where do you think is that you previously said that you think that lead times and the tariffs and whatnot will keep your your inventories perhaps higher than they were in the pre-pandemic era but can you shed some light on the cash flow profile as you see

cash flow will be fantastic in the second half of the year as well because we're still reducing inventory significantly and we're seeing pickup in sales so cash flow will be very strong and then from the direction then what goes on on 24 and onwards if you look at rickard anderson our head of supply chain a brilliant guy he's not going to be stupid in trying to be goody goody two shows and i'm i've talked a lot with matthias i'm sure he won't be either in trying to show look good we are on operating working capital and taking the risk of saying no to fantastic high margin sales and the world isn't still fantastically smooth in everything so i think in 24 and beyond it will be more slowly but surely a reduction we needed to do significant deductions of inventory because we simply had far too much of bike related products in 22 exiting 22 that is being reduced now in 22.3 and will be done by the end of q3 now it will be more continuously getting normal supply chain pickup in sales and a more continued slow but sure reduction of inventory to a more normalized level i think that that's then up to rickard and matthias and others to talk about i think realistically it would be too optimistic to believe that that can be even at the levels was before because you have to remember we also do more direct to consumer when you do that you take on that responsibility to hold that stock also for the consumers which otherwise the consumer stock is held by others right so you shouldn't be fooling yourself that some of these channel mixes also impact other things so i think it will be even if we see a gradual decline of the percentage it won't be going back to the same levels of pre-pandemic okay well at least not fast

yeah no all right so thank you those are all my questions and uh good with daniel it's been a nice time with you here with two so good luck with your future endeavors whatever they be

thank you gustaf

you we have our next question from adela from jeffries please go ahead when you're

ready good morning um let me just start off by congratulating you on a fantastic career i think everyone listening in on this call will agree that you will be greatly missed um on to my question and i'm sorry if this is too repetitive but i think that the biggest topic discussion today is the margins and obviously you proved your resilience and flexibility in this quarter and also in q1 um but uh should we be worried that the efficiency measures that you've taken or are taking today won't be able to you won't be able to maintain them once the volume situation normalizes um or is this you know 23.5 even margins at a level or a new base that you will continue to build upon and it would be good if we could just have more of a clarification on what's there and i do understand that you don't give out guidance but of what a normal base could look like in a normal scenario yeah

i think you need to separate ebit margin percentage from gross margin percentage so if we take a gross margin percentage logic that will be driven by how efficient you sell and produce your things but also of course what pricing you have on them and what mix there is both my channel and product if we look at the whole logic of how we see it we believe that the mix going forward will be clearly positive as you remember we sold very little of some relatively higher margin products in q3 q4 q1 we will sell more of those as now by retailers have reduced their inventories so from a product mix we will see a positive effect in the coming four quarters versus historical the recent past from a point of efficiency we will clearly see a better production overhead and not in q3 as i mentioned because we're still reducing our inventory but as we go into 24 we will be producing more normally one because we're convinced we'll war the two because we don't need to reduce inventory so fact is we're going to get much more efficient utilization of the investments we've done and that's why we also shared the catholics graph right we did do a lot of investments that are posting us you know and we have a lot of you know fixed back in our white color basis of quality and supply chain etc when the volumes pick you get a better coverage for them so that will be positive impact i therefore feel from a gross margin perspective we have a very good situation going forward for how much that materializes in an ebit fall through is even more driven by economies of scale because we will be pushing clearly ahead i'm sure matthias and the team kallen who's a fantastic vp of senior vp of product development will be pushing matthias to do more and more cool new things sales in the future but as i said it will go down as a percentage of sales because sales will pick up so even if you do a lot of product development as a percentage of sales it will be going down so you there you have different factors you will also have a greater economy subscale on any type of head office sgna cost as sales numbers go up so therefore the ebit will be helped by that as well so i would focus if you look at economies of scale first and foremost on gross margin i feel very comfortable but we have a very good trajectory if the sales come which i'm convinced it will that will also have a positive economies of scale effect on our sgna cost both will contribute to why i'm so confident with our 20 above 20 ebit level as a continuous basis going forward

okay thank you very much for that clarification and then also a quick question on what the current trading looks like i do understand that the inventory levels on a retail level are now looking more rebalanced than what they did at the beginning of the quarter but but the logic behind detailers placing smaller orders is that a behavior that is also improving on a week by week or daily basis that they're now less cautious than what they were just two weeks ago or or are we still seeing that kind of behavior as we go into the second half of the year and what could the implications be in that case if that behavior is sustained for for more than just one quarter

so this is a normal behavior in the end of the summer season so if you look at a company like providing next day deliveries what normally is done by retailers is at the beginning of the season they pump up and fill up their stores because they will have a lot of people coming in in the spring buying their bike stuff and buying their products right going on vacations then after the peak period they normally even in pre-pandemic times didn't place big orders in q3 because they placed replenishment orders of smaller quantities of specific models specific colors so the is more for every week that goes more similar to historical patterns which should be smaller quantities with frequent orders we see a very continuous strong trend if you saw the first three if you go back to what i said very weak april okay may strong june that isn't changing overnight right so if you look at the trend we feel very good about the word orders that are coming in on daily basis and now in this part of the year it is more normal that they place smaller orders in the spring historically they would place bigger orders but because of the situation they didn't so it's more the spring that was weird it's not so weird now that it's a continuous smaller replenishment order cycle

got it um so taking all together your your outlook on the half of the year

i have a very positive outlook yeah correct hello

hi i think we've lost our line and but moving on to the next question uh it comes from carl it's eijenberg from carnage please go ahead

thank you and good morning magnus two questions from my side maybe first the general one following up here on the the comments with regards to the inventories in the channels and bike retail in general if you could provide us or if you have any sense sort of how the the overall bike market is is doing this year given that we're quite far into the peak season now it'll be interesting to sort of uh your uh your sense of the sellout development if you take you know both bikes in europe and in the us versus take versus the pre-pandemic period and versus last year uh is the sellout in your view still above pre-pandemic levels i can see that the participation rates seem to be high but yeah anything on that would be interesting to hear from your side

yeah having been at eurobike i of course have a lot of things a lot of other cels in the business and we talk with them all the time or we talk with the retailers i think in general people will say that it's clearly higher levels than 2019 but it's you know depending on who you talk to there's a speculation that it's mid single to five to ten percent below the peak during the pandemic so to speak what is helping the bike retail sector and bike brands is that average price points are higher so if you look at it from that perspective they're compensating partly because the growth of e-bikes and e-bike being so much more expensive than a bike with no e in it and the general price increases that have impacted has helped but yeah clearly above 2019 levels but below the peak levels

okay thank you and then i have a question on this this new product that we're looking ahead of now the car set launch here in in the beginning of next year and the new carry off that you launched here at eurobike i just wanted to ask sort of the new products that you're planning to launch here or all of this being to produce through your new sort of more running or more efficient production line that you've been investing here in in the last few years is that going to be for all of the new products were some of them requiring a different process

so if you look at it for example the bags we are launching a number of new bags they will still be done by southeast ancient suppliers so it's not every single product that you can generally say it's a high volume product like the two labels like some of the other products that will be announced soon they are high volume ones that's where an automation setup makes sense of the heavy true full-on automation otherwise it will continue for a longer volume product there which we will also launch a few of course because we need to fully complement the portfolio there is more traditional semi-automized setups that we will have but on the number of the key bike carrier volumes some other cool products coming truly more optimized assembly being used with investments we've done over the last few years

okay very well i think that was was all from my side so a big thank you again and also from my side a big good luck on your new adventures here at the Nivingtola thank you thank you very much

we have our next question from Kari Rintar from SHB please go ahead

Thank you thank you operator for taking my question first the clarification on inventories when you say that inventories have normalized i just wanted to make sure that you are specifically talking about retailer inventories of Tüle products and of and not

their overall levels

that

is correct inventories have normalized on Tüle products you're correct there Kari there is lower price points for example still on cheap bikes many retailers will clearly say that they still have a little bit too much but it's the categories we play in in our inventory there are some of our competitors that these retailers still have too much but not the ones that we compete directly with the ones that compete at lower price points that we don't play at all right thanks

and then the direct to consumer sales that have been growing nicely and as you said in the US it's already or in North America it's already 16 percent of sales have you changed your view of on what would be the sort of the ambition level for a company like Tüle at what level do you think that you will stable or that you should strive to reach if we just if we exclude rb products

yeah if you look at that one Kari i think it's it's one of these where you have to say we're going to be a two with very few exceptions Sweden being the one with three own shops now one in Gothenburg as well as the one in Stockholm Malmö because there aren't many brilliant retailers in Sweden but otherwise our focus will be online therefore we need to be in terms of when we internally challenge and target and follow up we look at online sales reality what share of online sales in any given market should we have so when you look at it I think you have to be realistic that this is a physical product that people want to see in touch and you know do as well so you want a lot of stores to be successful physical stores as well and what you will see is that there will be fewer players online selling to the products and some of that online sales that go to us I think that's the trend US will always be the highest share because there you have the opportunity with the mediums minimum sales retail policy to price the same way as your online customers so you are not going to have that price negative comparison effect which always will have in Europe where people will be selling your product at a lower price so I think there is we are now getting a CEO who has lived in -it-yourself price driven business retail I'm sure he knows a lot more about direct to consumer than I do so I will let him have fun with that speculation of what he thinks is the right way going forward

you're

fair enough

and if we look at just one final question on this topic if we look at absolute numbers then the direct to consumer sales are roughly similar in Europe and in North America so how much more margin-accrued are the sales in North America given that it's one country one language and so forth and would you say that the European direct to consumer sales are still subscale to be more to the creative no

absolutely not they are at very similar levels because we historically built our set up in terms of how we both do our to the dot-com set up with language and translations historically with all of those normally extra costs but also from a physical how we handle the supply chain we have very efficient handling of our supply chain also in Europe because we were already doing retail sales which were pick and pack and we then just in slotted in that rather than picking and packing for a small retailer they're picking and packing for a consumer in those same places so both regions are equally margin-accrued to all right great

and yeah I think those were all my questions so

I

would also like to thank you for your service and thank you for making both these conference calls and reporting days to suck less so thank you very much

I'll take that as a huge compliment party thank you

our last question comes from Mark from Kepler please go ahead

yeah hi thank you for taking my a couple of questions here first talking with the while you mentioned all the product launches Magnus and very impressive I guess and if you just could indicate how much of of this offering of your current offering are sort of upgraded um yeah that's the first one

so I'm not sure I understand the question but I'll try to interpret an answer no I mean for the whole

offering you offering you have in in all the four business segments so how much is sort of upgraded yeah

so if you look at it I think first of all it's important to remember that tool has always done a lot of product development spend it's not just this year so we do roughly 50 percent of our sales is product launch the last three years what is happening now with some high volume products getting a new generation you're going to get a big boost to that but then it normalizes over time so to speak so I think from a high level point of view you should be thinking that 50 percent should be coming from sales should be coming from product launch the last three years and in a short while here in 24 there will be more of it because the rolling 12 will pick up and it will mostly pick the new products of a high volume product

okay great great thank you and and all these sort of discussions regarding directors consumer there in what areas do you see most opportunities to to grow sales there and do you also expect you need to make investments in that area to sort of handle returns and so on aria sort of could you could you use external suppliers to to handle those

yeah

I think the first key is here since we do a relatively technical product with a conscious buy rather than a passionate I want to buy three t-shirts and four shoes but I don't know exactly the fit so I bring them all in and send half of them back it's not happening we already have been doing this for a while we have extremely low return rates of course we are always working on should we be able to handle it should they increase but the type of products and not only totally if you talk to other companies that do these type of more hard goods more advanced products they have extremely low return rates so that's not an issue where we are concerned at all that we would need to invest we are not clothing or fashion or something like that where there are huge return rates right so not a big issue at all we're not concerned at all and in terms of opportunity it will actually be more than anything it is already driven by how good retailers do we have in each type of product and how strong have we been in winning space at those retailers as I physical store for sport and outdoor therefore we needed to have some stores in some countries there are brilliant stores offering fantastic assortment of both toilet products and other brands and if there is our likelihood of taking a bigger share will be small so sometimes it's because of the type of retailers that exist sometimes it's because we haven't done a good job winning share in those retailers so we're needing to sell it more in our direct consumer

great answer then I mean coming back to this inventory you have the 2.7 billion cost well in the second quarter and you you expected to to decline during the second half how much how much money is that do you expect to be able to to reduce

it with yeah so at the end of last year we said we we wanted to reduce 600 million SEC versus the 3.0 billion we have that was before currency valuation started growing it with quite a lot but as I said we've actually reduced more excluding that currency effect and that ambition of the 600 million less than when we exited 22 is still the right ambition to have

thank you and and just finally there I mean there are some tough market conditions out there and maybe it will get worse but you also have a history of making sort of bolt-on acquisitions to speed up the growth in in new areas like well whatever and now you launched the car seat there do you see opportunities well coming up there due to market I am

convinced that Matthias will get the same type of pressure as I have been getting from the board to do more acquisitions and then he I'm sure will have to do the same valuation as I've done in saying it's not always that easy to do those acquisitions but I'm sure Matthias will do a smart and structured valuation together with the team on which smart additions we could do because the ones we have done have been extremely successful we haven't done so many but they've been brilliant actually

great thank you Magnus and thank you for all the help during the years and thank you very much me as well thank you

we have no further questions registered I will now hand back to your host Magnus for final remarks

thank you very much Carla so I want to then jump on the bandwagon of what Kari said I want to thank all of you analysts because honestly without you asking questions this would be a very boring monologue so on Kari's theme I want to thank you all for you making these type of events not suck but actually be intelligent analytical and fun challenging to try to answer your questions without giving away too much which a CEO should never do but enough for you to truly make up a clear and good understanding it's been a true pleasure having these calls with you and I know that Matthias and the team will enjoy them in the future as well thank you very much and have a great summit