Thule Group AB (publ)

Thank you and welcome everybody to this call. I'm Mattias Hankeberg, the new CEO of Thule 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 Thule 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 international roles. Worked for eight years for a McKinsey company based in Sweden in the U.S. I was for a similar time period at H&M Group in various roles. And lastly, I was the global head of sales and marketing and 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 Thule, but I'm not new to Thule. I have been on the board for five years of Thule Group and, of course, also a big fan of Thule products and a person who likes several outdoor activities and have a lot of Thule stuff at home. So I am very energized and very happy to be on board in addition to having been a board member and now being on board full-time with Thule. 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 see clearly different trends, which we will come back to in the call today, between different regions, with good growth in Europe and negatives in America still. And we do see that we are operating in a 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 tools of product strive growth also in a tougher market. We have a strong improvement in the gross margin compared to previous year, almost six percentage points up. And it is also strong in a historical context. It is higher than the gross margin before moving into the pandemic, i.e. higher than in Q3 2019. We continue to see positive product and channel mixed effects, although we still are underutilizing 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. above Q3 2019. 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 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, we have a sale that increases 8% in reported currencies to 2.3 billion SEK, taking the year-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 year-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 Q3-23, in a 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, you can see that the bike products, at least the premium bike products, which are so important to Thule, uh 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 uh 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 and the rest of the world, respectively America. So we can start with Europe and the rest of the world on page six. Europe and the rest of the world saw an 8% increase in constant currency sales versus the previous year. 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 Tula 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 Tula products, we are positively back to healthy levels. We also see, which is very positive for us, that new products like the Thule EPOS 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 a solid performance in sport and cargo carriers, also outside bike carriers. roof racks, roof boxes, etc. 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 Thule 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 strongest 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 a 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 OA side. So net, we see a double-digit decline. And as a reminder, RB products is Tula 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 B2C share, so Tula.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 highlight to the Americas region. And the Americas region declined in constant currency sales 15% versus previous year. I'd actually like to highlight two factors. Firstly, the North American consumer optimism that we have seen really improve over a 12-month period, maybe even more, has clearly first stalled and then reverted here during autumn. So, 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. So comparing the two regions to the pre-pandemic levels, Europe and the rest of the world, Q3 versus Q3 2019 is 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 actually see bike-related products returning to growth also in Americas. It is 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 Thule products. But we do see that many smaller independent 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, the sports and cargo carrier segment declined. And we do see a lot of nuances within the product categories and 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 OA business. It was low margin for us. We do see doodad 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. DTC 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 2,311,000,000 SEK in the quarter was 1% above the sales for the same quarter prior year, excluding FX effect. In particular, bike product sales were higher in the quarter, and the product category sport and cargo carriers, where bike carriers is the biggest subcategory, is now back at the same share of sales as before the pandemic. As Mattia said, most of our customers have reduced inventory of Thule products to a normalized level, which means that our sales more closely reflect 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 39.7% is 5.8 percentage points higher than the same quarter last year, which was a weak quarter, as primarily the demand for bike-related products saw 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 Q3 2022 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, SG&A, have increased from 531 million SEK to 559, but Excluding FX effects, it's only an increase of 1% or 4 million SIG. 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 24.2% 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 314 million SEK 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 9. Operating working capital was 2,874,000,000 at the end of Q3 2023. Excluding currency effects, the inventory has decreased by 861,000,000 SEK compared with the same time last year. 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 a 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 particular Europe, is back to healthy inventory levels of Thule products. We do see a long-term positive trend for bike. It is a high share of Thule 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 particular the two areas. We expect to see a continued challenging RV market in the coming year, this historically cyclical segment. And we also, of course, note that the North American consumer is less optimistic for the future. Very short term, the Q4 2023 highlights our smallest quarter in terms of sales and also has 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 TULU 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 excited about that and if 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 bestsellers we are during the first half year launching several so through the urban glide generation three is our best performing all-terrain stroller new version coming out to the verse is replacing our current best-selling us bike carrier new version new product We are refreshing our leading luggage family, Tudor Subterra, with the second generation. We are delivering a third generation of Tudor 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, Thule Motion, also at the Generation 3. So several bestsellers that are getting new versions or updates, which we are very positive about. We are also entering two new product categories completely. The first one is dog transportation, Thule Allax, our first car-drunk dog grade, 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 bexy our uh first dog bike trailer is coming in q2 2024. we are also uh launching car seats in europe during q2 2024 as communicated earlier and then in addition to that we are bringing some innovations uh we are launching what is the world's first tober mountain attempt called it to the outset which uh it 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 the Tullivera Swing, which is a tow bar that swings aside so you can easily access the back door of the RV. And the Tullis 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 months as CEO. I'd like to call out three. Excuse me. Firstly, it is clear that Thule 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 Thule 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 Thule 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 Thule premium lifestyle brand. We have a flexible supply chain of a lot of in-house manufacturing capacity. We are have high ambitions for sustainability and work with sustainability in an integrated way in our operations. And last but definitely not least, we have a lot of engaged Thule colleagues with this Thule 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 positively. 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. Tule is, and 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 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 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.