Thule Group AB (publ)

Thank you and welcome everybody to this call. I'm Mattias Hankeberg, the new CEO of Tule, and I'm here with our CFO Jonas Lindqvist. We will firstly hold a brief presentation. And as usual, the material is available on our investor relations website. And after the presentation, we will hold a Q&A session. But first, on page two, let me take the opportunity to introduce myself. I started as CEO of Tule Group two and a half months ago, August 9, 2023. My background is from the consumer industry. I've spent plus 20 years in various segments and categories, typically in international roles. I worked for eight years for a McKinsey company based in Sweden in the US. I was for a similar time period at H&M Group in various roles. And lastly, as the global head of sales and marketing member of the group management team. And then my last position was CEO of a Nordic DIY retail company called Big Max Group. So I am new as the CEO of Tule, but I'm not new to Tule. I have been on board for five years of Tule Group. And of course, also a big fan of Tule products and person who likes several outdoor activities and have a lot of Tule stuff at home. So I am very energized and very happy to be on board, in addition to having been a board member now being on board full time with Tule. So great to be here. Let's turn to the quarter on page three. Overall, the quarter is a good quarter for us. We show good profitability in what is a tough market. We are back to sales growth, 1%, so not a lot, in constant currencies, but still growth. We have clearly different trends, which we will come back to in the call today between different regions. We could growth in Europe and negatives in America still. And we do see that we are operating in the tough market, particularly the previous trend of increasing consumer optimism has reversed during the autumn, particularly in North America. Having said that, what is positive and clear in the quarter is that new Tule products drive growth also in the tougher market. We have a strong improvement in the gross margin compared to previous year, almost 6% points up. And it is also stronger in historical context, it is higher than the gross margin before moving into the pandemic, higher than in Q3 2019. We continue to see positive product and channel mix effects, although we still are under utilizing our own production capacity. EBIT margin also improves a lot compared to a low level last year to 15.5%. Again, also that means operating profit above the level which we were in before entering the pandemic, i.e. before above Q3 2019, excuse me. And in addition, and importantly, we have the highest ever operational cash flow for a quarter in this quarter, with again, good profitability and inventory levels that continue to decline in line with what we have communicated earlier. So that's the overall summary. On page four, we have the reported numbers also in local currencies. To give you the overview, have a sale that increases 8% in reported currencies to 2.3 billion SEC, taking the -to-date sales to 7.6 billion, a decline of 11%. And the EBIT amounted to 359 million in the quarter and a bit shy of 1.5 billion for the -to-date number. Turning a bit more into the business side of things on page five, I'd like to step back and comment on the sales in the quarter in the light of the developments that have been going on for the last few years. It's of course been a lot of variation in the sales pattern during both the COVID period and also with the following post-COVID effects. So let's put the quarter into perspective. And I'd like to note three things. Firstly, we can note that this is the first quarter, the Q323, in the year that we are back to growth versus the previous year period. So that's of course positive for us. Secondly, if we look at this year, we note that compared to pre-pandemic, Q1 was up only 12% in sales, whereas both now Q2 and Q3 have been up 23% and 24% respectively, so it's a step in the right direction. And then thirdly, what we see now in the third quarter is a mixed picture in the sales development with particularly two positive and two negative factors impacting the sales development. And if we start with the positive, we can see that the bike products, at least the premium bike products, which are so important to Tule, have now returned to good growth, actually strong growth from bike-related, which we are really happy to see, and gives us optimism for the future. The second positive point is that Europe, our biggest geographical region, generally performs well across product categories, which of course is also solid and positive for us. The exception, starting with the negatives, to Europe, the exception is what's called the RV product segment, so recreational vehicle-related products. We see a decline in the quarter in this segment, and we will come back to that in a minute. And the second negative is a decline in North America, which we'll also come back to in a minute. So a mixed pattern in terms of sales development, but the quarter, which is growing versus last year, and at a 24% higher level than pre-pandemic. So with that overall context, I would like to mention a few more details around the two different regions that we report, Europe vs. the world, respectively to America. So we can start with Europe vs. the world on page six. Europe vs. the world saw an 8% increase in constant currency sales versus the previous year. Excuse me. And again, we do see strong growth from premium bike-related products in the quarter. We now see that bike-related inventory of, I would say, premium products and TULU products specifically are generally back to healthy levels in Europe. That is not the case for bike-related inventory levels in general, or bike-retail inventory levels, I would say, but for TULU products, we are positively back to healthy levels. We also see, which is very positive for us, that new products like the TULU AirBoss that we launched during spring is really contributing to growth, which is very positive. Secondly, as I mentioned a bit earlier, Europe generally performs well, except the RV side, which I'll get back to. We have solid performance in sport and cargo carriers, also outside bike carriers, so roof racks, roof boxes, et cetera, perform well. We have good growth in juvenile and pet through multi-sport and bike trailers. Our smallest category in Europe, packs, bags, and luggage, continue to see good growth from the TULU branded collections. Also, some newness helping to drive growth there. And overall, across Europe, across our product categories, there is a trend that we see the stronger sales performance in the premium segment, which is mainly where we play, so that's also good for us. So coming to the RV side, we see that the RV products decline in the quarter double digits. And to nuance that picture a bit further, we actually see continued growth to, if we separate the sales chances to two different areas, we continue to see growth in one area, which is the OE or the vehicle outfitters, who are still delivering on an order backlog from previous periods. So we actually have growth in that area still. However, we see a decline in aftermarket sales, which is bigger than the growth in the OE side, so in that we see a double digit decline. And as a reminder, RV products is TULU Group's only exposure to what is an historically cyclical market segment. As a last comment or two comments, we see that we continue to grow our DTC share, so at TULU.com share, which is of course positive. It is from a small base, but show good growth. And in terms of geographical differences, we have the strongest performance in Germany and the Nordics, and still a decline in France with retail chains that are fairly cautious. On page seven, I'll give a similar highlights to the Americas region. And the Americas region declined in constant currency sales, 15% versus previous year. I'd actually like to, excuse me. Excuse me, I'd like to highlight two factors. Firstly, the North American consumer optimism that we have seen really improve over 12 month period, maybe even more, has clearly first stalled and then reverted here during autumn. A less optimistic consumer, of course, impacts the demand. And then secondly, more of a maybe more technical note, the comparables are tougher for region Americas in historical context. Comparing the two regions to the pre-pandemic levels, Europe and the rest of the world, Q3 versus Q3 2019 plus 20%, so the comparables 22 to 19. Whereas it was 38% for Americas. So it is a more cautious consumer, but also tougher comparables. So with that backdrop, how did the quarter turn out? Well, we'd actually see bike related products returning to growth also in Americas. It is that a more modest growth than we see in Europe, but still good growth. And in terms of the important topic of bike related inventory level, we see that the large retail chains are generally back to healthy inventory levels for Tula products. But we do see that many smaller independent retailers, bike retailers still have overstock situations that they need to manage. All product categories are in decline. If you look at the product category level, except juvenile and pet, we do see growth in bike carriers as we said, but in total sports and cargo carrier segment decline. And we do see a lot of nuances within the product categories in also the other categories, outside sports and cargo. So luggage and duffels continue to grow within tax bikes and luggage, for example. But we do see an overall decline because we have decided earlier to exit some OE business was low margin for us. We do see juvenile and pet growth as mentioned before, driven by the strollers and the child bike seats. And again, the RV side also in Americas, which is very small for us and very niche position, but continue to be weak in what is a very tough RV market in Americas. TTC continue to grow also in Americas. And within the Americas as mentioned, it's the North American markets, US and Canada, that drive the decline, but there's still good growth in Brazil. With that, I turn to Jonas to go through some of the financials starting on page

eight. Thank you, Mattias. Like Mattias said just now, we are on slide number eight. And I will concentrate on the quarter as always. The sales of ,000,000 sick in the quarter was 1% above the sales for the same quarter prior year, excluding FX effects. In particular, bike product sales were higher in the quarter and the product category sport and cargo carriers, where bike carriers is the biggest category, is now back at the same share of sales as before the pandemic. As Mattias said, most of our customers have reduced inventory of Tula products to a normalized level, which means that our sales more closely reflects the end user demand. As Mattias also mentioned, the RV business is coming down after an extended period of strong growth, and we see a subdued demand in the North American markets. The gross margin of .7% is 5.8 percentage points higher than the same quarter last year, which was a weak quarter. That's primarily the demand for bike related products, so a substantial reduction with large inventories at our customers. The increased gross margin level now comes from lower transportation cost, which was very high last year. These have now gone back to the levels that we had before the pandemic. The material cost has also continued to come down from last year, primarily on aluminum and plastic components. The product mix has been favorable in comparison to Q322 with a higher share of bike related sales and continued growth in our direct consumer business. The smaller share of RV sales also has a positive impact on gross margin, since RV has lower gross margin, but it is at the same time, leaner in overheads. We have still delivered a substantial part of sales from our inventory that has continued to go down, which I will come back to when we look at the cash flow. But it also means that we have costs for unutilized production capacity that is impacting gross margin negatively. Operating expenses as G&A have increased from 531 million sick to 559, but excluding FX effects, it's only an increase of 1% or four million sick. Worth remembering is that we continue with our ambitious product development plans and that the overhead cost for this will remain on a high level, which in particular impacts the smaller quarters when we compare development to sales. The operating expenses as a percentage of sales are .2% compared with 24.8 prior year Q3. The EBIT margin of 15.5 is 6.5 percentage points higher than last year's 9.0%. And in the third quarter, it is 0.7 percentage points higher than before we went into the pandemic. The finance net in the quarter is lower than the same quarter last year because of higher interest rates since the borrowing is lower. The tax, and this is year to date, of 340 million sick corresponds to a tax rate of 22.6%, which is at the lower end of our guided range of 22 to 25%. And on the same level, 22.5 after three quarters last year. I would like to turn to the next slide, working capital and cash flow. That is slide nine. Operating working capital was 2,874 million at the end of Q3 23. Excluding currency effects, the inventory has decreased by 861 million sick compared with the same time last year. The reduction has continued during the quarter and contributed to the cash flow by another 360 million. We are now leaving the bike season and other products now get the biggest share of our sales. These will not reduce inventories further this year. Examples are roof racks and roof boxes. Accounts receivables are on a similar level as the same time last year. As a percentage of sales, the operating working capital is down by 3.2 percentage points. However, the calculation is based on an average of four quarters, which lags behind in this time of rapid reduction of inventory. If we look at the inventory at the end of the quarter and compare this to the rolling 12 month sales, we see that it is 25% to be compared with last year at the same time when it was 30%. And I also want to add that the inventory levels we saw during the pandemic, as you can see still in 2021, they are by no means sustainable. The operational cash flow for the quarter was almost double the amount from last year. And as Mattias said, it is the best cash flow quarter in the Tula history. The major contributor is of course the reduction in inventory levels. But worth noting is that we have also reduced our capital expenditure compared to the levels in previous years. Capital expenditure in the third quarter was on half the level from last year, 59 million now to be compared with 116 million saved for the same quarter last year. That's it from me, Mattias. Thank you.

Thank you, Jonas. We can move to page 10 and turn to forward looking comments. Let's start by commenting on the world around us before we get to the priorities for us internally to the group. We overall expect to see the continuation of this mixed picture in the market dynamics that we saw in Q3. On the positive side, and this is an important positive for us, is that bike retail in particularly Europe is back to a healthy inventory levels of Tula products. We do see a long-term positive trend for bike. It is a high share of Tula Group's total sales and it is very positive to see that inventory levels of premium products are now where we would like them to be. On the negative side, we cannot ignore the market dynamics that are going on around us in particularly two areas. We expect to see a continued challenging RV market in the coming year. This historically cyclical segment. And we also, of course, know that the North American consumer is less optimistic for the future. Very short-term, the Q4 2023, sorry, the Q, it's historically, in general, Q4, I should say, is historically seasonally our smallest quarter in terms of sales and also had a higher share of sales from RV and lower from bike-related. On a positive note, having said that mixed market dynamics with positives and negatives, it is clearly positive to see that new Tula products drive growth also in a tougher market and we see that in Q3. We also have more new products than ever before coming to retail in 2024. So we are internally very excited about that. And we are both updating some of our best-selling products in several product categories and bringing, entering two new product categories for the first time. So calling out a few, if we start with mentioning our updated generations or our new versions of best sellers, we are, during the first half year, launching several. So Tula Urban Glide Generation 3 is our best performing all-terrain stroller, new version coming out. Tulaverse is replacing our current best-selling US bike carrier, new version, new product. We are refreshing our leading luggage family, Tula Subterra, with the second generation. We are delivering a third generation of Tula Chariot, which is our, and we think, the world's best child bike trailer, which gets even better and got really positive reviews so far when released to trade. And we are updating our leading roof box, Tula Motion, also at the Generation 3. So several best sellers that are getting new versions or updates, which we are very positive about. We are also entering two new product categories completely. First one is dog transportation, Tula Alex, our first car-drunk dog grade, excuse me, where we really have focused on maximizing safety for both the dog and the person or the passenger. It's coming in Q1 2024. And to the Bexie, our first dog bike trailer is coming in Q2 2024. We are also launching car seats in Europe during Q2 2024, as communicated earlier. And then in addition to that, we are bringing some innovations. We are launching what is the world's first tow bar mounted tent called the Tula Outset, which was personally part of the release of that product at the event where we released it. It was very positively received. It was very exciting to see actually. And then on the RV side, despite the negative market dynamics, we have no less than five new products coming out next year. And two of them are Tula Vettaswing, which is a tow bar that swings aside. So you can easily access the back door of the RV and the Tula side hill, which is the first removable awning in the market. So a lot of new great products coming to retail in 2024, which we are of course very excited about. On the last page, page 11, I would like to conclude the presentation part of this call by sharing a few reflections from my first month as CEO. I'd like to call out three. Excuse me. Firstly, it is clear that Tula is really in a favorable market position that gives us tailwind. And that's very, of course, positive for us. Consumers increasingly want to live active lives. We are making more and more very good products that enable an active lifestyle. We are a global market leader in many categories with specific positive trends in addition. And we have a premium brand position with the Tula brand, which we see is a strong segment in the market. So tailwind long-term, trend is our friend, and we are very fortunate to start from that position or to be in that position. Secondly, I am personally a big proponent of the build on your strengths principle. And fortunately, Tula has a lot of strengths to build on. To mention a few, we have in my view, world-class product development capabilities, which we I think have proven again and again. We have a very strong Tula premium lifestyle brand. We have a flexible supply chain of a lot of in-house manufacturing capacity. We have high ambitions for sustainability and work with sustainability in integrated way in our operations. And last but definitely not least, we have a lot of engaged Tula colleagues with this Tula spirit that I would summarize as never settling, always improving, celebrating but quickly, and then moving on to the next improvement. It's really struck me during these first months, very positive. So going forward, we will continue to focus on product development and also focus more on the end consumer. Product development is the foundation of our strategy. We have a long-term approach of investing in product development to drive profitable organic growth and a strong track record to deliver that growth. And we see that it works also in tougher times. That will be the priority number one for us. Secondly, we will focus more on the end consumer. Tula is, in my view, should first and foremost be a product company, but we do see opportunities to benefit from direct consumer sales and marketing to a higher degree. And then lastly, we also need to, always need to ensure we are cost efficient. And as a second adjustment or as a priority, we will focus on reducing what is excess supply chain capacity. We have a lot of own factories that utilization in those will increase over time when we grow more. But what we see now is short-term opportunities to reduce, for example, external warehousing services that we may not need for the coming period. So overall, that concludes the presentation part of this call. So I will turn to moderator for Q&A and ask moderator to take questions.

Of course. Thank you. Our first question today comes from Daniel Schmidt from Dansk Bank. Daniel, please go ahead. Your line is open.

Thank you. Good morning, Mattias and Jonas. Hope you can hear me. A couple of questions from me. And starting with the quarter, and I think you touched upon it a few times, Mattias, the trend shift in terms of the US market and also European RV on the AM side. But just trying to sort of get a feel for the level of change, because you also said leaving Q2, that you were entering Q3 very strongly, and it sounded like you were in double-digit growth in the beginning of Q3. Does that mean that you were basically 10% down leaving Q3, heading into Q4? Is that a fair assumption?

Hi, Daniel. Are you allowing clear, Mattias here? I think the question is best answered in terms of the category dynamics and geographical dynamics that you presented before, the sort that you commented on. Of course, bike-related products are very strong in the beginning of the quarter, particularly for where the retail hit the brakes last year in July. So I think we don't see a major shift between months that is not reflected in category performance, if you see what I mean.

Okay. And just on the US market, which is of course down a lot still, although bike is up slightly and some other smaller product categories, roof racks and roof boxes, unlike in Europe then, has to be down quite a bit in order to get to minus 15 for the entire sort of continent. Is that a fair assumption?

Yes, that is a fair assumption. Clearly so. And then the only comment I would add to that is that the comparables are different between America and Europe. I think the most interesting discussion is the forward-looking, so I think the consumer optimism point is more important to consider. But as I accounted for earlier, the comparables are tougher in America, specifically in this quarter, which also explains the drop in boxes and racks to some extent.

Yes, okay. And I think you, Jonas, you mentioned that sort of for the last quarter of this year, we shouldn't expect any further lowering of the inventory. Does that indicate that you will be producing more in line with demand? Of course, depends on where demand is going, of course, but is the sort of the structural need to take down inventory over as we get into Q4 and hopefully into next year?

To take the first part of the question, yes, we will produce more in line with the demand because it goes into part of the year where roof boxes, for example, is a bigger part of our sales and we don't store them to more than a very small extent. Structurally, I think we have a bigger ambition than settling at the current level. We will maybe not come back to the levels that we had before the pandemic because we have more product categories now, but going down from the level that we are, I think we can expect that in the coming year, yes.

Of course, I also recognize that you said that you were expecting 600 million in inventory reduction for this year and I think you've already done 800, but we should expect some more sort of structural change to the inventory in 2024 is what you're saying still.

Yes, but I'll comment also so we get the message from two sides. I think what you see is also partly a seasonal effect that Jonas was alluding to, typically with Q4 being a smaller sales quarter, you don't see continued drop. And as you said, Daniel, we are, the goal was to reduce 600 million from year and last year to year and this year, and we are very much trending towards that, as you said, already achieved, so to speak. But we do see, as Jonas said, also an opportunity to next year continue to reduce inventory levels a

bit more. And that is despite the fact that you are adding to your portfolio quite a bit, not only to new categories, but also further line extensions, you still see that you can sort of balance that simply.

Yes, it is. And one of the things we've done here and during my first two months is to look a bit at the supply chain situation. We see that there is opportunity to reduce inventory further and also to work where we can short term with reducing some costs from excess capacity.

Yes, okay. And then just finally, sort of looking at the EBIT margin performance at .5% and it is above the reported margin that you had in Q3-19, as you mentioned, but you did have a recall cost of 25 million back then. And if you just for that, it's actually 80 basis points below and it's also low in what you have in 16, 17 and 18 for Q3. And it does look like selling expenses is the line that sticks out a little bit and also admin compared to back then. Is that something that you feel that you need to address going forward or is that a function of product development spending as you've talked about?

Well, good to speak to somebody on top of his numbers. Always a good discussion. You are right on the facts, of course. I think it requires a bit of a nuanced answer. I think the big picture, of course, comment is that it's very good that comparing to where we were in the last year, for example, we are now back to in line with, let's call it that then, the level where we were before the pandemic. Then you are right to the specifics. And the big portion, which is higher than we was from pre-pandemic is, of course, the share of sales. The big increase in the cost base measures at share of sales is, of course, a product development spend, to your point. It's almost 7% in the last 12 months. We used to be at 5, 5.5, as you know. Then there are some other smaller opportunities, I would say smaller in the scale of 7% being R&D, like external warehousing that I commented on before.

Yeah. And do you see that PD spending being down to 5, 5.5 next year, given what you think about the top line for next year?

I think that we should get back to 5, 5.5, as we've commented before. This is the way we should go. I think it's at this stage with the market situation that we see that will impact top line. We are still optimistic for next year, but I think it's wiser to speak about the ambition over time than to tie that number to a specific year.

Yeah. OK. OK. Thank you. Thanks. That's all for me.

Thank you. Our next question is from Carl Dejenberg from Carnegie. Carl, please go ahead. Your line is open.

Thank you very much. And good morning, Mattias and Jonas. So two questions from my side. Very good picture on slide 10 on the upcoming product launches. Quite detailed and easy to understand. I just wanted to ask here, I recall here on the EPOS launch previously this year, initially you started off releasing it to a selected number of retailers and while later following up on a more broad-based launch. Is that a general strategy that you will utilize for some of these new products that you show in this list? I guess that maybe goes more to entirely new products like the child car seats with the iterations that you talked about the best sellers being sort of launched broadly directly. Is that a fair assumption or?

That's an interesting business related question, Carl. And it is true that we will use that strategy for several of these products. Not for all where we are. For example, when we are refreshing a luggage family, that's easier for us to access. We already feel comfortable about the premium distribution. It's easier for access all of it at the same time. But what we will do for several of these products is what you described. And to give you maybe an example or two, when we are bringing the car seats to the market, we think it's important that we start with the right distribution. The retail that is also a bit of a stakeholder in the market, so to speak. So we will partner with those first and allow them to enable them to sell our products before we move it further to more distribution. Another example is the Tula Outlet, which is the world's first tow bar mounted tent, where we have had a lot more interest actually so far than we are able to produce for next year. So for that reason, we need to limit the distribution. So we will do it when we think it makes sense or when we need to ramp up production capacity over time.

Okay, very well. And maybe following up on that, you talked about the Epos carrier previously, and that obviously seemed to have been a quite significant success for you this year. And I just wanted to ask, and I'm maybe not expecting a material answer on it, but would it be any way possible to quantify the contribution that you're hearing in Q2 and in Q3 from Epos Isolated? How much of that contributed to the sales in rough terms?

I have a lot of understanding for that. We would love to have that specific number, which unfortunately we will not provide. We will keep the reporting structures we've done previously, but we can say that it's been significant for us. And it's also a product which is a pretty sweet spot in many senses. It is in bike carrier, which is big for us. It is in premium, where we are at our best, and it comes with real innovations. So I think it's been a really great example of sort of material adding to growth in a big category for us. But unfortunately, I will not share the exact numbers.

Yeah, yeah, yeah, understood. But maybe just finally from my side, on this list that you're sharing on slide 10, you obviously commented on that some of these are already bestseller iterations that you're launching. But are any of these that you would sort of highlight that you see having such potential as obviously as the Epos have shown you this year?

Well, bike carriers is by far the biggest category. And bike carriers in Europe is bigger than in America, as you are aware. So Epos hits both the biggest category and the biggest market. So I think the honest answer is that there's not a single one which is exactly up to that level. But there are several that would be in that range, I would say. So Tudor Versus, the best-selling US replacings or the best-selling US bike carrier, which we have high hopes for. I would like to call out also the Tudor Chariot, which is a big and important product for us. We come with basically a better product across a number of features that have been very well received. And then of course, roof boxes, the Tule Motion next generation is also going to be good for us. So there are a couple of biggies here, maybe not up to the Tule Epos level. Maybe they will surprise us positively, Jonas. But there are some important products and best-selling products that we'll get, new generations or new versions next year.

Okay, very well. That was all from me for now. So I'll get back in line. Thank you very much.

Thank you. Our next question today is from Adela Dashian from Jeffreys. Adela, please go ahead. Your line is open. Thank

you and good morning. Just following up on the questions earlier about current market dynamics and how that's expected to impact your results going forward. We keep seeing the weak signals from some of the big retailers. And then the one big retailer filing for insolvency. And I do understand that you have a very broad and diverse customer base, so that supports you to some extent. But then as you look at the expected development of bike-related products into next year, how confident are you in your current ability to keep this recovery going now when inventory levels have normalized and you have a weaker consumer?

Thank you. A multifaceted question. We'll try to give our best answer. And I think if you look at the dynamics of that, or the components of that question, so to speak, what is clear is that we feel very strongly, first of all, of our own offer. We talked about the F-Boss just recently. We are coming to the burst next year. We feel we have a very strong portfolio in general on bike-related products. And we're making it even better. So we are happy with that. Secondly, if you talk about inventory situations at bike retail, I think two bullets below that message. One is that, yes, for many the inventory levels are still high in general. But, and good news for us, for Tula products and premium products, the inventory level is healthy. It is in Europe, and it is with the big retail chains in North America. So there we also have a good situation. And then lastly, the consumer demand, and of course, here we don't have a crystal ball. But we do see good long-term trends for bike. And we do see now in this quarter when the inventory levels have been more healthy, that we do see good growth again. So lastly, I would say there are comparables. And we know that for the first part, first half of 2023, bike-related products were not selling as we would have hoped before due to inventory issues. So that means comparables are easier for bike-related products during the first half of next year. So overall, we feel clearly optimistic about the opportunities in bike-related products going into 2024.

All right, got it. And then moving gears to your strategy as a new CEO, I do appreciate the comments about prioritizing direct consumer, and I don't think that's too surprising given your background. But maybe if you could give us a little color on how impactful that initiative will be and if we should expect your own sales channels to represent the significant share of sales going forward or will retailers and distributors still take majority?

Happy to. And let me first say that having been on the board for five years, I have of course been part of many of the decisions and the discussions that have been to the strategy during these years. And I think truly the great company has developed very well. And I think there are clear strengths here that we should continue to build on. I think it would be almost strange to think otherwise given my background. I'd really like to call out the strength within product development and our ability to bring innovation and sort of feed the market in the categories where we are strong. I really think this is the foundation of our strategy. We are investing long term. Even if the market has a bit of headwind in a category or year or so, we're still thinking long term about bringing innovation. So that will be the number one priority also going forward. Let's just be clear about that. Then I do to answer your questions. We do see opportunities within both selling and communicating more directly with the consumer. We are a product driven company, but we do see that and I see that across categories also outside Tula. There are when the brands have fans and I do believe Tula have a lot of fans, but I also think that consumers actually want to both shop from and communicate with the brand directly. And here I think we have more opportunities. We will definitely work on rolling out and improving our D2C offer, which is clearly one. But I also think just communicating and being more present with the consumer, we see several examples of that being also positive. So I don't think we should expect that Tula will be a very high share D2C company, but we should expect that it will clearly grow from the levels it is today. We can also expect that having more direct communication with the consumers will help us to introduce, for example, new product categories.

Great. Thanks for your clarity. And then just finally on your other big priority right now, which is continuing to launch new product categories and also developing new products. How do you view that in the current environment? Should we perceive it as a risk or an opportunity when maybe some of your competitors are pulling back on investments? How do you think about that?

We think about that as an opportunity, actually. I mean, it's really comforting and positive to see that even in this quarter where the market is tough, we see that new Tula products really perform. We talked about Tula Epos. It was the same for a refreshed bags assortment. We see the same in child bike seats, for example. So we see that we operate in premium where people are willing to pay a bit more for quality products, maybe have less of an impact of a tougher macro. I guess that's up for debate. But anyway, we see that new products work. So we see that as an opportunity to, of course, drive growth for next year. You'd probably drive more growth if the market had tailwind, but still so. And then secondly, we would like to be long-term about things. Some of these product development cycles are multi-year cycles. And we are happy to be in the fortunate situation to be a profitable company. We generate a lot of cash and we can continue to invest for the long term, even if there's a little bit of a bump in the road in the market for the year or two. So both as an opportunity and a long-term thinking, that's where we continue.

Great. Thanks a lot. That's all for me. Thank you. Our next question is from Matt Sliss from Kepler Chevrolet. They have removed their question, so I'll move on to the next question. Our next question is from Carrie Winnpa from SEB. Carrie, please go ahead. Your line is open.

Yes, thank you Carrie from Amanda Spanken. Thanks for taking my questions. I wanted to expand on Adela's question on direct to consumer. And Mattias, your comment about increased communication. So how should we think about the selling

expenses

for the next few years? Because I can see that you've had a record here in terms of new product launches, but at the same time your selling expenses are pretty much flat compared to last year.

So do you

expect selling expenses to increase both in absolute terms and as a percentage of sales in the coming years and then maybe a few years down the road that will then pay back in higher gross margins when direct to consumer has reached a higher level? How should we model these numbers in the next few years?

I think you should think about it in a few different areas. So firstly, selling expenses have gone up and will continue to go up mainly because we are driving in the new categories. Of course that costs money. And then of course that is outside the R&D part which we talked about before in terms of S&G and A. In terms of the, which I guess is what your question is more alluding to, the more consumer oriented or the direct consumer approach. My experience is that you can do quite a lot with quite limited resources. And that's where we will start to do. We already have a DTC set up. We will roll it out. It will cost a little bit more. But we can work on things like social media and partner with retailers to be present at events and things like this with fairly limited amounts of money. So that will be the route that we will take. But then of course over time, carried to your point, we hope that we will build a stronger link directly to the consumer, have a higher share of DTC that will cost a bit of money. But that should also be reflected in both sales growth and gross margin.

All right. Thank you. And then maybe a few words about Germany because that is your largest market in terms of individual country. And you said that I think you're the only company so far that has commented on Germany in a positive fashion in the third quarter. So is it easy comparables from last year or do Germans tend to be early adopters and they have been sort of embracing your new product? So what is explaining the strong momentum that we have had in Germany and how sustainable is that?

Maybe they are particularly interested in premium quality to the products. To be honest, I haven't spent much time reflecting on other companies' performance in Germany in the last quarter. What I see is that we have had good progress or good momentum in our core categories. So bike related, for example, Germany is our biggest market to a point. Bike carriers are our biggest category and we see a very good growth there. So I think you have quite a good portion of the answer there. And then in general, I would say we continue to see solid performance in Germany also across other categories. So actually, I don't have much reflections on other companies' performance in Germany, but we are happy about the performance.

All right. Thank you very much. Thank you.

Our next question is from Andreas Lundberg from SEB. Andreas, please go ahead. Jelena Davetim.

Thank you. Can you hear me?

Yes.

Cool. Grossmartians, Jonas, you talked about key drivers there in the third quarter in Europe, they're on a high level. What do you see for these drivers going forward into 2024? And also if you take the expected product mix into account? Thank you.

Yes. The driver transportation cost, that was a boost during COVID. We are back to levels before the pandemic and we don't see any major increases going forward regarding transportation. Normally, we don't even talk about transportation as part of our cost, but we had to do it during the pandemic, especially the later part of the pandemic. So we don't see that coming back up. And when we look at material costs, that will, as we can see now, it's on its way down. We don't see any dramatic increases there either, or rather we see continued pressure on prices like aluminum, plastic, and to some extent, steel as well going forward. So we don't see that part change either. When it comes to the mix between the product groups, I think it's very difficult to say, like Mattias has mentioned already, to say when these will change. It's more a question of the market sentiment. But in the short term, I think there is not going to be a huge change also in the product mix.

Cool, thank you. And I wanted to know about the unutilization of capacity in factories. How do you see that factor?

Mattias here. It is clear that we are not producing to full capacity quite a bit from it. And of course, that is putting a drag on the gross margin. You know, over time as we continue to grow, we will fix that situation, of course, and that would help the gross margin going forward. Depending on the market situation, as Jonas alluded to, that can also help us for 2024. So that is an upside if we get the growth that we are hoping for.

Thank you. And then lastly, you talked about R&D to sales before, but could perhaps give some flavor on R&D in absolute numbers, we are heading into 2024. Thank you so much.

We are at the level now where we have some big projects that cost a lot of money. Of course, car seats is such a project where we are launching next year. So we will remain at a high level also next year in terms of absolute terms. But we don't see an increase from this level in money. We see a need to, we will complete the big project that we have going on. So we will continue to be at the high level. For 2024 specifically,

your question. Thank you so much.

Thank you. Our next question is a follow up from Daniel Schmidt from Danske Bank. Daniel, please go ahead, your line is open.

Yes, hi again, Mattias and Jonas. I just wanted to follow up a little bit on the discussion on the cost lines and especially COGS. And you talked about it, Matisse, just now in your comment when it comes to 2024, depending on demand. You hope to have better sort of capacity utilization in 2024. And that's of course would be nice. But also coming back to the investments that you've done in optimization, shouldn't that sort of once you get that

more

normally utilized, given the investment that you have done in the production, shouldn't that be sort of an extra kick? Yes. Yeah, good. That was all for me.

Thank you. Our next question is from Matt Liss from Kepler Schiverer. Matt, please go ahead, your line is open.

Yeah, hi. Thank you. Two questions please. First, I guess you indicated you have all these new product launches. Is this something that you plan to ramp up production for or are you already sort of ready to launch them? Could you say something about that?

Yes, happy to. In terms of capacity or structural setup, we don't need any further investments. We are ready to move into 2024. And then in terms of actual production starts for different products, of course there's a whole number of launches here and they start at various time points. Some have started already and some will start during particularly the first part of next year.

Okay, great. And then maybe more philosophical one about M&A opportunities and I guess in maybe slower economic conditions, even if it don't affect the premium segment, do you see opportunities to grow through acquisitions to sort of use opportunities popping up? Or is it more products and similar strategies that remains the same, more bolt-on or so on?

Well, I think first of all, I'm a big fan of organic growth. So that is the foundation and very sort of product-led, product-driven growth. We talked a bit about earlier this corn, so that is the sort of foundation. I like the bolt-on acquisition strategy that Tula has done previously. I mean we've seen some really good examples of the giant bike seats, the rooftop tents, the chariot, the multi-sport trailers back from almost more than a decade ago. But the approach has been finding really great products that have traction, fits with Tula brand, get it into the Tula family and we can both improve the product and provide global distribution. So those opportunities we are interested in and I actually think that the market environment is not hindering or sort of enabling it so much. It's more about finding the right opportunity. So we will keep our eyes open for that also in a more challenging market environment.

Okay, great. Thanks a lot.

Thank you. Our next question is a follow-up from Carl Degenberg from Carnegie. Carl, please go ahead, your line is open.

Yes, thank you. I had a follow-up also and that is with regards to pricing. You talked a little bit about some promotions here in certain markets in Q3. I recall that your price dynamics have been or that you've been raising prices subsequently throughout the pandemic and I think previously you've been quite clear that there will no be sort of downwards adjustment. That's what I recall. So I just wanted to hear sort of your view on the pricing dynamics going forward. Will these sort of new launches that you're talking about here coming into the market from next year be used as a way of sort of increasing prices for example through these iterations or what's your view and the feedback that you hear from customers around this?

Yeah, that's an important topic. We have done a lot of pricing activities of course in the last couple of years. We are for sure not seeing a need for decreasing prices in general. Having said that, we also are not pushing for a general price increase. What we do is, which is maybe what you alluded to Carl, always see opportunities for increasing prices with new products. We see that new products are well received and the new features and elements that come out to our products people are willing to pay for. So given the launch calendar for next year, which is very full, the new product will of course drive average price up for the company in total.

Okay, very well. So you don't see or hear anything from competitors pressuring prices given that the market dynamics have deteriorated slightly here. That's not the feedback that you're hearing.

Well we see and hear a lot of things in that area. I think on the retail side the promotional activity is quite high to be honest. But we do see that we play particularly in the premium segment and there the pricing pressure is less. And we see that newness is performing. So we are positive and confident in that pricing situation that we have and also confident in the ability to increase average price through new products.

Okay, very well. Thanks again.

Thank you. We have no further questions so I'd like to hand back for any closing remarks.

Thank you very much everybody for joining this quarter's call and have a great weekend and look forward to speaking to you again in a quarter's time.