Thule Group AB (publ)

Good morning, everyone, and welcome to the Thule Group Interim Report Q2. During the presentation, you can register to ask a question by pressing 1 on your telephone keypad. I am now going to hand over to your host, Matthias Ankerberg, CEO, to begin. Matthias, please go ahead.

Thank you very much and welcome everybody to this Q2 call. I am as previously joined by our CFO Toby Lawton and we'll get going straight away. Overall, second quarter was a quarter with a good financial result despite us making big investments for future growth. We saw some sales growth in the quarter, strong profitability and importantly have now launched A lot of products, but also two new product categories this first half year. So covering some of the highlights and speaking to the presentation material available. Financials first. Sales is up 2%. FX adjusted versus previous year and fairly the same across the geographies. We will talk about the product categories in more detail in a minute. We continue to see a tough market out there in general and in particular in some specific areas. And we also continue to see good growth from new TULU products and from bike-related products. We have a gross margin which increased to an all-time high in the quarter, 44.2%, which we're, of course, pleased to see. And that helps us to deliver an EBIT margin which is in line with last year, despite us making investments and therefore higher costs in sgna to drive product launches and new product categories strong cash flow uh again in also in q2 uh and uh helped by ebit of course but also continued inventory reduction and on track to meet our target of reducing inventory by 200 million sec by year end quite a few highlights in this quarter um car seats has been a initiative long in the making, now launched in the first European markets. We've got another recognition for our design team, which we're really proud about. We have a minor acquisition that happened actually in early July, so after Q2. And we've also put a new refinancing package in place during Q2. We'll come back to all of these points. But before we do that, on the next page... We'll take a bit of a bigger picture view. Of course, this is a quarterly update, but as you know, we are to take a long-term view of driving the business and it's therefore nice to reflect on the long-term development at least once in a while. Long-term, we have driven profitable growth for many years and it's nice to see now that after sort of the COVID ups and downs, that this year we are back to profitable organic growth again. On the last 12-month basis, we have a net sales of net 9.4 billion Swedish, an EBIT of 1.6 billion and an EBIT margin of 16.6%. With that long-term perspective commented on, we can turn to keeping the finger on the pulse on the quarterly performance. And on page four, as you know, we are a very product-driven company, so I'll speak to the development per product category. And we have four main product categories starting with sport and cargo carriers in the quarter it increased very modestly with one percent sales we do see continued growth from bike related products premium bike related products specifically and since almost a year now bike retail inventory of tulip products have been at a healthy level in europe and getting there in north america In the quarter, we do meet some strong numbers from some good product launches, particularly Thule Epos that was launched in Q2 last year. But overall, there's still a good growth in bike-related products for us in Q2. We've also launched a new generation or an updated version of the world's most sold rooftop box Thule Motion, Thule Motion 3, which has been really well received by the market. We're pleased about that. We do see a continued tough market overall in this segment, and the with cautious consumers and retailers, and particularly in North America, where we, outside bike-related products, see a decline in the business in the quarter. Packs, bags, and luggage stood out in the quarter as the fastest-growing product area, with 5%-plus FX adjusted for us. And even faster is the two branded products, which grow strongly again in Q2. actually even more than in Q1 due to the fact that we now have more product launches in the market this year. So we've updated the best-selling luggage collection we have, Thule Subterra. We've updated the duffel bag collection, Thule Chasm, really drives good growth for us. In general, we see growth in bike-related and also travel-related bags products. But this is also, as previously, partly offset by travel. us continuing to exit some legacy product categories, non-Tula branded products in this area. On the next page, two more product categories. We see good growth also in Juvenile and Pet. And again, it's the new Tula products that drive the growth. We've had a very successful introduction of our upgraded best-selling stroller, our all-terrain stroller Tula Urban Glide 3. which has continued to deliver strong growth for us throughout the quarter, I should say. Very positive. We have, as you probably know, the first full quarter with a dog transportation product, the Dog Crate Tool Alex, which of course helps. And then, which I think is a sign of the market characteristics at the moment, we have seen a bit slower sales of multi-sport and bike trailers as retailers have been cautious with managing inventory ahead of the launch of the next generation product, which was introduced to the market just at the very end of June. So that, I think, is an interesting sign of how retailers are cautious unless there is news in the market. Car seats also, of course, help. So the volumes are very small in the first quarter. First products were introduced in the first markets end of May. And I will come back to that. RV products has been in decline for several quarters and the RV industry continues to go through a challenging period. Net sales increased less in Q2, only 1% negative, which of course is nice to see. It's really a mixed picture in the quarter where we do see a decline now in sales to OE customers or manufacturers, vehicle outfitters. But nice to see this partly being offset by a return to growth in the sales to the aftermarket channel or the dealers in the quarter. Then I'd like to cover some of the highlights a bit more specifically. And we can start with car seats on page six. And car seats is a much awaited launch with several years in the making. And now we are live. We launched in three countries. and german-speaking countries in in europe germany austria and switzerland at the end of may with three products a base an infant seat and a toddler seat and we are really proud of the products innovative products safety in focus easy to use uh to the design language and and really putting safety in in front left front and center so to speak with uh Our approach also being making sure that it should be easy for the consumer or the user to make sure the product is installed correctly and safe to use. We have got good reception from the industry and from our premium retail partners. We have got good placement with key retailers, premium retailers in these countries. We've had a positive reception from media and we have got no less than six product design awards from IfDesign and RedDot. even before launching the price in the market. So it's a nice start for us. And now the long-term work to build market positions in this category has started. We will continue to roll out these products to more European markets throughout the half year two of this year. Two countries in Q3, but most countries commence sales in Q4. And then we of course have more products in the making, both for the European markets and also for North America. I also wanted to highlight another recognition for our design team. We were named the Red Dot Design Team of the Year in 2024. You may remember that the last quarter, the previous quarterly update in Q1, we were proud to see more product design awards than ever before. 23 design awards from a combination of F-Design and Red Dot with both being awarded for upgrade versions of our best sellers, some new innovations and products in our new categories. And now we also during Q2 got the award Red Dot Design Team of the Year or Best of the Best, as it's sometimes called. And it's really nice to see, really proud of the team. You can't apply for this award. It's really something which is awarded through an independent jury. And nice to see the Thule design team being mentioned in the same sort of category as Sony or Apple or Philips as some of the earlier winners. So proud of the team. One more highlight from me before handing over to Toby for some financials. We have done a small or a minor acquisition in the beginning of July and thereby entering the category for water sport and cargo bike trailers. A German company called Recha. It's a small business, but it's an interesting niche category of water sport and cargo bike trailers, which is a emerging and fast growing in Europe and basically in its sort of infancy in North America. Often we find that I mean we're a very product oriented company and want to have the best products in the categories where we operate and we often find that in these new categories the best products are often done by real enthusiasts and in this case it's the inventor with a passion to surf and needed to find a solution to transport his surfboards to the french atlantic coast when he was surfing and invented this product and has developed it over over time and it's really a high quality bike trailers for this kind of of products and holds a strong market position in this little niche in europe so we will integrate this business fully into tool operations it will be A Tula product, it will be Tula branded and it will be distributed and manufactured throughout sort of Tula channels. And it's small, but quickly provides a starting point for us to continue to grow in this niche. Good fit with our existing portfolio. And with that, I will hand over to Toby to cover some financials in more detail.

Thank you, Mattias. And good morning, everybody. And we can turn to slide nine on the income statement. And here you see the income statement is by quarter for both 2023 and also the first half of 2024. And focus here on the quarterly development, which is the recent news. And we had sales in the second quarter of 3.1 billion SEC, which was a growth, as Matthias has said, of 2% versus last year. You can see then the gross margin here. Here was strong, and it's an all-time high at 44.4% in the second quarter. That's close to 1% up versus Q2 last year. And the driving factors here are favorable product mix and lower material costs, driving the improvement in gross margin. When it comes to the EBIT margin, it's more or less flat. It's 23.6% for Q2. quarter two this year, and it was 23.5% in quarter two last year. And this is, of course, helped by the higher gross margin. But the selling and administration expenses include investments to support the new product launches, which means we end up with a flat EBIT margin for the quarter. Absolute profit then is 732 million of operating income versus 711 million last year. So profit EBIT is up as well. When it comes to the net interest expense and effective tax rate, I say they're both stable. You can bear in mind that last year there was a one-off positive in the net interest expense related to foreign exchange, but otherwise it's very stable in terms of net interest expense and effective tax rate, which is slightly better this year than last year, all in all resulting in a net income for the quarter of £559 million or net income for the first half year of £858 million. With that, I can click on to the next slide, slide 10. And here you see a bar chart showing the sales by quarter. And first of all, I think you can see from this chart that we are, of course, a seasonal business and the second quarter is the largest quarter. So you should bear that in mind that our business is strongest in the second quarter. You can then see from Sales growth, I think you can then see also from this graph, which shows the development since 2019, and it's important to bear in mind that 2019 was the last year before the pandemic, and we had some large swings during the pandemic and just after the pandemic. We keep track of that on this slide. When it comes to sales growth for the second quarter, as we've mentioned, sales growth was 2% versus 2023. And we had 8% sales growth in the first quarter. But when you look versus the pre-pandemic, before these swings, Q2 is actually slightly better versus 2019 than Q1 and is also more in line with the peak pre-pandemic years. So I think it's important to just bear that in mind when looking at the sales development. If we look specifically at the second quarter, what's driving the growth in the second quarter is bike-related and new products driving the growth. And then on the other hand, it's RV where we have a decline, but it's less of a decline than we had in the first quarter. All right. With that, I can flick on to slide 11. And finally, one slide on the cash flow. And we continue to have strong cash flow generation in Tudor. And that's driving a deleveraging of the balance sheet. So it's very good to see. And we delivered in the first half year, 819 million on the bottom right here of both cash flow from operations, but after deducting the investments. So good cash flow generation. Then this is driven also by a good performance on working capital. And we had a good reduction in working capital in the second quarter, which is really driven by a reduction in inventories. And we have an inventory reduction target for the year of 200 million. And we're, as I say here, we're on track for that target. We're actually overshooting that target in the second quarter. But you should bear in mind that inventories do normally go up in the fourth quarter due to seasonality. When it comes to the net debt, we are now at a net debt of 1.753 billion SEC versus 2 billion at the end of last year. There's some 250 million lower net debt, and that's driven, we've got the positive cash flow, which more than funds the dividend payment, which was also made in the second quarter here. So that leads to a deleveraging, and our net debt to EBITDA has now come down to 1.0 times EBITDA when measured on a last 12 months basis. And then a final point here to mention that we've refinanced during this quarter. And that refinancing has basically extended the maturity of our funding. And the refinancing consists of an RCF, a revolving credit facility of 320 million euros and a term loan, bilateral term loan of 80 million euros. And these new funding basically extends our maturity, but also has diversified our maturity profile. So we have a maturity spread between three, four and five years. And we're very pleased to see that our banks have given us good support and really want to continue to support Tula's growth journey. So happy to see that. And with that, I will hand back to Mattias.

Thank you, Toby. I'll round off with just two pages on a bit forward looking. We are on page 12. We are this year in the most intense product launch year in Tudor history, as I'm sure you're aware. And we've done a lot, but the good news is that there's more to come. Already launched several upgraded versions of existing best-selling products and also several new innovations. And more importantly for the future, we've also now entered two new product categories. One Dog transportation with the first product in Q1 and now car seats in the first countries and first products at the end of Q2. And we have several things coming also for the second half year. We are now just at the sort of calendar stage. Moved from Q2 into Q3, launching Thule Chariot Generation 3. Thule Chariot is our multi-sport and bike trailer, which we are really proud of. And we believe that the world's best child bike trailer just got even better. And we're very pleased about that. We're continuing to bring innovations to the bike category to market, this specifically for a North America specific product coming in. And then we have a few products for the RV segments. It's going to help drive excitement and hopefully sales already for the autumn. And also adding to our dog transportation category with Tule Beksi, which is the second product in the dog transportation category in our first dog bike trailer coming in summer. On the page 13, to summarize, forward-looking, we continue to be a long-term oriented company. We continue to drive our long-term growth strategy and do so at a high pace. We are fortunate to have several strengths to build on as a company with market tailwind, strong market positions and making long-term investments in innovation and quality. We expect that the market, which is tough, will continue to be tough during 2024, generally, and particularly in RV and in North America. But we are committed to continue executing the priorities that we set for ourselves and that we see make a difference and create value for Thule. So product development, which we just talked about, more product launches than ever. We now have two new product categories to start building market positions. We continue to focus on consumer visibility or being more visible, including DTC growth, and continue to focus on supply chain efficiency with closures of external warehouses to reduce costs, or I should say consolidation to our internal warehouses maybe, and also to reduce inventory levels, which mentioned in the beginning is an effort that is on track. As Toby said, we're a seasonal business. We have just completed the intense spring season and the peak quarter Q2. But Q3 is also a quarter with a lot of activity, both for consumers who want to live their active lifestyles, both for Thule when it comes to sales, production, operations, but also when it comes to more product launches. So busy times ahead. We will continue now to drive the launches, to build the market positions in the new categories, and to look forward to a really intensive half year or two as well for 2024. With that, we conclude the presentation part of this call and turn to moderator to take questions. Thank you.

Thank you very much. If you would like to ask a question, please press star followed by one on your telephone keypad now. When prepping to ask your question, please ensure your device is unmuted locally. We've got our first question from Frederick Evarson from ABG. Frederick, your line is now open. Please go ahead.

Thank you. Hi, Mattias and Toby. I have three questions. I'll take them one by one. First one on the gross margin. I don't think you mentioned better absorption as a sort of key driver for the margin expansion, which is something you've been talking about before. So can you comment on that and also how to think about absorption as we look forward a bit?

Yeah, I can take that directly, Frederick, Toby here. But absorption is also positive. We mentioned the two that are really driving the positive effect. This quarter is lower material cost and a better product mix. So those are the two biggest effects. But absorption is also, you could say, improving as basically production levels improve going forward.

Okay, clear. And second question, also on the gross margin, lower aromats obviously support. I guess that's mainly on the back of the lower aluminum coming down, obviously, from the extreme levels we saw in 2022. So do you see that this is becoming sort of headwind in the coming quarter since aluminum now is up 10-15% versus last year? Or is that not relevant?

I think... Basically, the reduction, you're right, aluminium is a significant part of it. It's not just aluminium, but it's a significant part. The reduction has flattened out, and we do see aluminium going up a bit, but it's a much less dramatic increase in prices as we've seen in the past. But you're right that we do see that effect flattening out or even slightly increasing when it comes to aluminium.

Okay. Thanks. And last question from me on the product development costs. We've been talking about those for a while. And for the full year, I guess you guided for the same level as last year, which was a bit above 600. And also that it's going to be tilted towards the first half of the year with, I guess, Q2 being... biggest given all the launches you made so can you give a ballpark number on how much of these costs you took either I guess in Q1 or sorry Q2 or H1 or just any color on those on the sort of phasing of those costs would be helpful.

What I can say Freddie we don't give those numbers quarterly as you say we give selling expenses which include product development but we we we do expect product development to be flat uh but this year versus last year so that that guidance we still stands that's uh that's what we expect um and then it's worth mentioning selling expenses includes also sales and marketing costs and there are also investments in sales and marketing costs for the product launches and that you've seen in in the first half year and q1 and q2 as well um We expect, and I could just add to that, we expect that impact to be a bit less in the second half, but it will also be, it's a higher sales and marketing cost this year versus last year because of supporting the product launches. So it will still be a bit higher in the second half, but less so than in the first half.

Okay, fair enough. I'll jump back into the queue. Thanks, Toby.

Thank you. We've got a question from Daniel Schmidt from Danske Bank. Daniel, your line is now open. Please go ahead.

Thank you. Good morning, Toby and Mattias. A couple of questions from me then. Starting off with sort of sales, how did sales develop during the quarter? Because it was my impression when you reported Q1 that you were off to a similar start to Q2 as you reported in Q1, i.e. a good April. Has it sort of tailed off in May and June in terms of growth? And maybe you have put more difficult comparisons because you also had the April's launch and so on.

Hi, Daniel. Mattias here. No, I think you're on to an important point when it comes to your last point of the statement that the comparables are really different quarter by quarter, but also within the quarter. And I think last year, even the CEO comments said something about weak start to the quarter, but the better end or something like that. So on a comparable basis versus just last year, you know, there are clearly different patterns as bike retail recovered and as we launched particularly two lepos to your point which had a great start already at the end of of q2 from a sort of more big picture or or you know long-term perspective as toby said um you know quite a few years ago now pre-pandemic 2019 is five years out but you can see that we were sort of trend in Q2 versus Q1, then I think that's the reflection we have on a sort of more bigger picture.

Yeah. But of course, I understand that we can't see all the months, of course. But if you look at the April's launch last year, which you highlighted quite a lot, had a terrific start last year, and you mentioned it now as well, and you stacked that up against what you have in the pipeline now in terms of dog crates and car seats and How is that going to look in sort of Q3 maybe? Is that something you can comment on? Is this sort of the 2%, is that a good reflection of sort of the comp phase going into the second half of this year?

Well, you know, a couple of qualitative comments around that. First of all, I think I've also said... in this quarterly report, but I think even more so in the last one when commenting on the launches for this very launch-intensive year, that in the short term, of course, introducing new bestsellers or new versions of existing bestsellers or upgraded version of categories where we're already strong, of course, that has a big commercial impact from sort of day one. And building in new categories is a work that takes time, So I think that's an important thing to keep in mind. And then I think if you want to think more about development specifically by quarters, I think my advice would be think a little bit about the momentum in the market and what we've got going on, but maybe also reference the historical numbers to Toby's point where you can get another basis for growth. So we want to grow. We want to grow faster than we're growing, for sure. But we also want long-term growth. And it may seem like a cliche, but we are not overly focused on monthly or quarterly development. Of course, we want to grow fast all the time. But the most important thing is we're developing in the right direction and getting where we want to be.

Yeah. You seem to be happy. I understand that it takes time to build new categories. But you do seem to be happy with Alux and car seats. And car seats are still there. Very early days, only in three markets so far. But I think you mentioned two more markets in Q3. And how many more markets are you planning for Q4?

Rest of EU. So quite a few.

Okay. Okay, good. Just maybe also coming back to top line on RV and you mentioned, or I think you're a bit surprised that it hasn't fallen more and you have sort of growth again in the aftermarket and OE on the other hand declining and you seem to be a bit more hesitant on the OE side, which I think is quite understandable given what we see in terms of the manufacturers in Europe today. And there is, I think, an ounce downtime, extensive downtime from one of the bigger ones in August, which I guess is going to have an impact on your OE performance. But do you feel that it could be compensated by what you see on the aftermarket, that they are neutralizing each other for the time being?

Yeah, you get the nuances very well there, Daniel, I think. And we're positive to see that RV is not declining as much as maybe we had feared during H1, to put it like that. And it's also, if we're keeping on the positives, nice to see that the aftermarket business is coming back now in Q2. which that's a business that, of course, closer to the consumer. And in general, we maintain the view that consumer interest is still good in this category and attendance at fairs, etc. But it's been slow due to high prices and high financing costs. So that's nice to see. But, you know, on the other hand, OE has kept up production for quite some time. And now we do see, to your argument also, production stops being announced regularly. And we are expecting to see a stabilized or positive aftermarket for H2, and the question mark is OE. And if production stops are prolonged or more players do that, then of course that would probably be a negative in RV total for another quarter or two. But hopefully this sign of a recovered aftermarket means that by at least year-end or so we are back to an RV business, which is more in balance and back to flat or growth. So it's hard to comment on how this OE production stop game will play out and particularly short term over months and quarters. But that is the sort of factor that will decide the RV industry pace for the coming quarter or two.

And then just as maybe jumping to the gross margin, which you already commented on, I think you have stated fairly clearly in Q4 and Q1, and maybe also in Q2, that you took tooling costs related to production of new products. Is that sort of behind us now as we go into the second half of this year? Yeah, I can comment. Basically, yes. Yes, it is. And were they present in Q2?

I mean, we have tooling costs in Q2, yes, absolutely.

We have tooling costs for several types of new product introductions I'd just like to add, which we do treat as part of development costs and as part of SG&A, and we've done, so yeah.

Yeah. And I think you highlighted, of course, that raw material has been a tailwind and also favorable mix. And then there was a question on underabsorption or absorption of fixed costs. But that was a reference to sequential development, right? Because you're still down 800 million in inventory compared to Q2 last year. So the production rate must have been higher.

lower this quarter compared to the same quarter last year but higher than in q1 is that the right sort of observation um i mean we've absolutely we've we've reduced inventory this court as that means we've we've basically sold more inventory than we've produced um i think that's quite that would that would have been the same in the second quarter last year as well i think so um i'm not sure if that answers your question daniel but but uh but but

So there's a kind of seasonal... I got the impression that sort of absorption of fixed costs would have been positive, as a positive... Yeah, exactly.

I mean, as we reduce... Inventory, we're selling out the products which we produce during a week period with worse absorption of fixed costs. So we do expect to see a positive effect continuing from a better absorption of fixed costs in production. Absolutely, that's an effect we see and we expect to continue for a little bit longer. Yeah, okay.

Okay, thank you. Maybe just a last question on sort of the new credit agreement. Is that a more expensive financing agreement in terms of the size of it?

No, I mean, it's slightly different tenors, but basically very competitive pricing and no material costs. I mean, I think we refinanced also at a very competitive time last time. So we're happy to see we can match that cost, basically. That was 2018. We set the prices on most of the previous financing. But we don't expect to see an increase in financing cost.

And the total size is about the same?

It's slightly bigger, but slightly.

Yeah, yeah.

Okay, thank you.

Thank you. And another question from Gustav Hagges from SEB. Gustav, your line is now open. Please go ahead.

Just to maybe get some more input there. With the costs from external warehousing coming down in the quarter, was it positive for margins? And then production, to Daniel's point, inventory came down, right? And you say that you're ahead of your own ambitions in terms of inventory reductions for the year in the first half, meaning, I guess, that you would produce a little bit more in H2, which should be good then for absorption effects. But could you weigh those points against each other and give us some indications on

uh sort of the delta going into h2 and 2025 from that aspect yeah yeah um so i think on external warehousing so so as as we bring the inventory down it's you know we we obviously don't need the same space for warehousing so that that drives an improvement in external warehousing which is you know good to see a good side effect if you like from bringing inventory down um uh so that's that effect but but absolutely as we as we um as we go into h2 we expect to see production uh you know it's going to be bigger it's going to be higher production levels than we we had during h2 last year and and we you know we we therefore as we i said before we do expect to see positive effect in in absorption of production overheads so that that's um Then there is a seasonal effect in here, which I'm just a bit cautious how I'm answering because, you know, inventory comes down in Q2 also because we, you know, it's also high sales quarter. So you need to just separate those two effects.

Yeah. And then, sorry, but skipping to a different subject, you write in the report about promotional activity in the market being high. Could you elaborate a bit on to what extent Tula participates in those promotions? And second to that, if following some quite high price increases from your end during the pandemic, would you say that the price gap now between your products and sort of good and better products from other producers have widened? Or is that similar to what it was two years ago?

Yeah, good questions, Gustav. I think it's really been a promotional market in Q2, and I think we've talked about it a little bit before as well. And Thule does generally, it's our retail partners mainly that decide on the promotional activities and not us, but typically we don't see Thule products being, you know, promotionally activated to a high degree, particularly not the new products or the more recent products, the premium products. And we also see the premium segment doing better in general. Now, of course, some of our products are activated and particularly in some of the markets where there is a bit more clearly defined guidelines around promotions. So, for example, in the US market where you have promotional windows that everybody participate in more or less. I would say, maybe phrase it like this, that the promotional activity is high. I think Amazon is a good sign of that with more and more Prime days and Prime days extending to beyond Amazon and what's going on just as we speak in the marketplace. I would say that premium stands out still as better and still less promotional intense. And we perform better at the sort of premium price points. But we do also operate in sort of mid-price or low price for us, but mid-price in the market. And that is an area where we perform less strong, clearly, in Q2 than we do in the premium end of things.

And with that as a reference, how do you feel about... you also report very strong gross margins, obviously, now in Q2. How do you think about gross margins versus growth in terms of maybe being a little bit more generous to your retail partners on price with new products and so forth going forward? How do you resonate between the two?

Well, we want to be, if you think about the we want to think about it from sort of product portfolio perspective. And we think about our products and the market in terms of, let's call it good, better, best. And we play particularly in the best area and a little bit in the better area. And our focus is to continue to drive both the best and the better area and varies by category where we are strong and where we want to develop. But when we have the best product in the market that are in the most premium or in the best sort of, segment, we think that that should also warrant a premium price. Premium product, premium price. And that's our stance on that. There are a couple of areas where we could fill some holes in the product portfolio in the better segment. And that could help us when introducing more products at more mid-price price points over time. But we are not trading down or actively reducing price or discounting our strong premium products. We see that that's where we perform at the best. And that's the way we think is the truly way going forward in terms of both brand positioning and product development.

Okay. Thanks for taking those questions. Appreciate it. Thanks, Christoph.

Thank you. As a reminder, to ask a question, please press star followed by one on your telephone keypad. We've got another question from Matt Sliss from Kepler Chevro. Matt, your line is now open. Please go ahead.

Yeah, hi, thank you. Thank you, Flora. Just a couple of quick ones. First, you mentioned the promotion activities there. Could you indicate in what segment you're more affected by those? And also, are these promotion activities more related to high inventories that will continue to be built down, maybe not by you, but by competitors?

So I'm happy to comment on that. And then as a reminder, it's really a retail calendar and retail activity to drive the promotions. We have some share of DTC, but generally it's a retailer's game and not our game as a product or a consumer goods company. Just to comment on that. But we do see quite heavy promotional activities in some areas, particularly in North America. but also to some extent in Europe and in some product categories within Europe. And, yeah, a couple of examples, I think, after the Memorial Day promotional period in North America, which is a pretty big one in May, which I think in the outdoor industry, a lot of retailers were not so happy about the outcome. I think the talk is promotional fatigue with consumers. We have clear examples where... You know, inventory is filling up with some of our retail partners and even buying departments at retailers placing orders for for the products. But their logistics team is not taking it in because the warehouse is full. So clearly there are some areas where there is too much inventory to to answer your question in the market in general, where retailers are want to get out of. So clearly that's the case still.

Okay, and what product categories are more affected, or is it sort of evenly spread over the categories, so to speak?

I would say it's a general phenomenon, and I think geographically maybe more different than categories, but if you look at some of the bigger categories, we see that clearly in export and cargo in North America. We see... clearly within juvenile products and channels, both in Europe and in North America. A little bit less in travel-related products, as that segment is now coming back to healthier growth. We see also within RV a bit, I wouldn't say promotional, but maybe a bit back to or a bit steeper discounting from RV dealers to consumers to stimulate demand in Europe. So it takes different forms and aspects, but... I think clearly that is one of the tools that the retailers or the dealers have to drive demand and clear out inventory during these times.

Okay, great. And just a final one. I mean, maybe I mentioned this about bike-related products. What part of sales Have you seen in the quarter and could you shed some light on that?

We don't give quarterly figures, or actually we don't give figures on bike-related sales per se, but we have stated that it's a big exposure for Thule and that bike as an activity is the biggest exposure of any activity that we have as a company.

Okay, great. Thank you.

Thank you. And we've got another question from Daniel Schmidt from Danske Bank. Daniel, your line is now open. Please go ahead.

Thank you. Hi again, Mattias and Toby. Just to follow up on RV and mix, and you also mentioned mix as a favorable factor when it comes to the gross margin in the quarter, and you also said that aftermark goes up and OE down. Is there a big difference in profitability? I assume it is. Or could you give us any sort of shed some light on profitability in each segment?

Yeah, there is some difference in profitability, of course. Then we should remember that RV as a whole is, you know, 15 to 20 percent thereabouts, depending on the quarter of Tule. So shifts within that matter, but other shifts also matter. I think regarding the product mix, two more points there. Daniel, I think bike-related being back to growth is good for us, good for margins in general. And then, you know, look, we had a lot of product launches this year, more to come, but we are focusing and introducing premium products, right, at the sort of top end generally, which also supports cross-margin. Yeah.

Okay, so it's more there where you see the mixed impact rather than the RV side, but I guess the RV side is also slightly in favor.

Correct.

Yeah. But just on that topic then, you've made a lot of investments, you've taken a lot of tooling costs as we talked about here, but you also made investments in automation in Poland and Sweden and so on. Do you see the benefits of those investments coming through in the gross margin that you delivered today, or is that more for later, or is that gradually coming through?

Well, you could say yes and no to be really transparent. Of course, it helps us underlying. It's more efficient, and it also helps consistent quality levels, we should remind ourselves. But then again, are we running everything at full speed at the moment? No, we're not. So we do think it's good to see all-time high gross margin. We like that one of the big drivers is product mix, which is something we continue to drive. And then... Yeah, raw mats can sort of swing a little up and down, but with over time and market recovering and us growing and therefore getting better utilization of our factories, we of course hope that that, together with investments made to your point, should also be beneficial. So long term, we are seeing the positive effects of those investments, but right now with the limited volume still less so. Yeah.

Makes sense. Maybe just a last question on the car seats. And you were very explicit when it comes to the European launch, basically in entire Europe as we get to the end of this year. U.S. is a different story. Could you just update us there?

Yeah. And a quick reminder for those of you who may not have all the context, there's been a new regulatory framework introduced in the U.S., regarding car seats. We've been waiting for that, and we now know what the playing field looks like, so to speak. As a newcomer into the category, we've also, as mentioned before, said we want to see a little bit how the big players take this into product portfolio specs. We have a fairly good view of what that looks like. We have a development project. It is underway. It will not be for 2025. And we have not yet commented on more details than that. So we will do that when the timing is right. But it's not for next year. There will be also more products coming for the European market, which is also underway. And that we will also comment on more in detail within shortly.

Okay. Is it your expectation or hope that the new regulatory framework in the US will put sort of pressure on price points to move north? And is that part of what you're waiting for?

Well, we like when there are higher requirements for safety and in such technical complexity, I almost said, but it's not the requirement per se. But when safety standards are high, We think that's helpful in driving price points, premiumization, and high focus on quality. So Tula territory. And that is positive with the new regulations that we see that being moving in that direction. So yes, in a short answer, yes.

Okay. And given this new regulation, is there a grace period for the producers to adapt, or how does it work?

Yeah, to be honest, I'm not even sure that it's fully set yet, but at least I don't personally have all those details as we speak. But there is a timing, there is a time frame when these... new regulatory frameworks are put into place. But I don't have the details of that right now, Daniel. We could follow up separately with some of our teams. That's important too. Sure. Thank you.

Thank you. And we've got our next question from Adela Dashian. Adela from Jefferies. Adela, your line is now open. Please go ahead. Thanks a lot.

Good morning. A few questions for me, and I'm sorry if you've already answered them. I joined the call a bit late. The first one on this acquisition, maybe we could get a view on your M&A strategy. Is it going to amplify even more going forward, and are these type of acquisitions important? typical rationale? Or are there other areas in which you wish to not only strengthen the existing offering, but maybe also venture into new segments? And what are the purchase, what are the price considerations in this kind of an environment? And does the market conditions present any newer opportunities that weren't present previously? A lot of questions in one thing's

Thank you. I'll start and then Toby can follow up to the second part of your question. But yeah, Tula's history and value creation path has really been organic growth and very product driven. And of course, that's the foundation for us also going forward. But we do see an opportunity to strengthen our product portfolio in existing and sometimes new categories. And we've done that in the past. We've entered rooftop tents that way. We entered bike trailers that way and with, you know, several things. So REACHA, as it's called, is, you know, small but leading in this niche of water, sport and cargo bike trailers. And I think it's a good representative examples of M&As that make sense to us. I mean, size aside, this is very small, but that kind of good fit with where we are strong today in terms of brand, product presence, channel presence, but clearly a niche or a product family that we're not in. So it's something we hope to be able to both get some synergies, but also boost sales over the coming period. So good fit for us. Will we do more? clearly looking for you know the right opportunities but again the the uh foundation here is organic growth and that's the the main um main pillar of the strategy so to speak and then on terms etc maybe toby you can comment yeah i could just make a brief comment really but i don't know you can draw any kind of big conclusions from uh you know dynamics in in in the sort of

pricing for M&A. I think we generally make, of course, a business case and we can be convinced that this is a good value creation opportunity for Tula. And that's where we base our evaluation on. I don't think you can really say much more than that or draw wider conclusions.

As a reference, we did provide some numbers in the report. Yeah, there were some numbers in the report. Yep.

Yep. But would you ever also consider divesting any of the existing segments, or do you feel fulfilled with the current product offering that you have?

There are no plans to divest anything.

Okay. And then a question also on the market development and the fact that the North American market or consumer is continuously weaker than the European. Do you have any...

idea of why that is and then are you seeing any limelights in the coming months that could change that around with the high season being in full spring so to say it's it's a very interesting topic i think the u.s consumer and i think maybe we have chatted about it uh also on these conference calls but at least with some of you in in other sessions i think on the one hand for quite some time now several quarters the u.s economy has done fairly well the consumer uh should be in a fairly good place seems to spend tickets on travel and restaurants and taylor swift tickets but uh less so in other in other categories um it's actually not a very positive picture looking just at data at the moment for the u.s consumer um i think one example which is fairly telling is the consumer sentiment data very broad of course um metric but still a good metric of how the consumer feels about uh the economy and their own spending and of course it was uh plummeting uh during covid uh recovered a bit but and was improving going into 24 but starting february march or so it's really reverted and dropped down into even more negative territory so there is something about the u.s consumer which is uh not optimistic at the moment.

All right. Thanks a lot.

Thank you. And we've got a question from Frederick Everson from ABG. Frederick, your line is now open. Please go ahead.

Thank you. Just a follow-up on Matt's question regarding the bike-related sales, just trying to figure out the sort of ballpark figure on growth in this category. And we see that juvenile and pet as a whole was up 4%, and I think the majority of that category is bike-related. And then sports and cargo, I guess, is another category with plenty of bike products, and that category was up 1%. So it's difficult to see... I guess double-digit growth, that seems a bit punchy, but is it a fair guess somewhere between, say, 5% and 10% at least? Is that a good guess?

Yeah, it's really hard to ask if you're a good guesser, Fredrik. But, you know, look, we had, as I mentioned, Barculator had even stronger growth in Q1, but so were comps. Right now we're meeting some growth. last year so it's a bit less but still is a very good growth in bike related for us and then to the first half of your sort of question or or comment yes um juvenile and pet does include uh does include um quite a lot of bike-related products with trial bike seats, multiple bike trailers, etc. Sport and Cargo includes bike carriers, which is a big category for us, but it also includes other big categories like rooftop boxes and roof racks and other things. So it was good growth. And yeah, let's hope you're good at guessing, Frederik.

Thanks. We'll see. And one more quick one from my side. Freight costs, I know it's usually not affecting your margins significantly, but it was so during the last couple of years when it's been very volatile, and now we see freight costs coming up quite a bit again. So is it going to be a valid factor to consider here?

Yeah, I mean, freight costs are going up a bit at the moment. I mean, it's particularly freight costs from Asia to Europe, which is most of our manufacturing is made in Europe or North America. So it's a lesser impact on us than others, I would say. But it is an increasing freight cost on things we – particularly on things we import from Asia. But I would say it's not – like I said, it's not – a dramatic or a big increase. Things were much, much higher during the pandemic, so they've come down to a more normal level. But it is a cost that's increasing slightly.

Okay, thank you.

Thank you. And we've got another question from Matt Sliz from Kepler Chevro. Matt, your line is now open. Please go ahead.

Yeah, thank you. Coming back to inventory development, I guess you had a good trend in the second quarter. But then again, you have these car seat launches going on. Could you give some indication how much that impacts? I mean, you need to have products ready when you do these launches. but maybe it's not of a material impact for a quarter.

Yeah, I think the product launches don't really have a material impact on inventory. I mean, we have to, with a seasonal pattern, build up inventory for our seasonal sales in other categories, not just newly launched products. So it's not a material effect.

You can say partly also, it's not the only reason, but part of the reason why we, for example, with car seats are sequencing this across quarters, the rollout is to be able to build up production and have volumes. So it takes a while to get new production lines trimmed in, get the volumes up to speed and have enough inventory to be able to meet initial demand from some markets. And it's been a positive thing. I don't want to say problem, but it's been a positive factor for us that we can't address more markets at the same time in that respect. But that also means that it doesn't have a big impact on the inventory as we ship out in the beginning what we build up to meet customer demand.

Okay, great. Thanks a lot.

Thank you very much. We currently have no further questions, so I will hand back to Mattias and Toby to conclude.

Thank you very much, everybody, for joining the call. Wish you great summers and look forward to talking to you again at the Q3 call. Thank you.