Thule Group AB (publ)

Good morning. Thank you for attending today's Thule Quadra III Interim Report. My name is Sarah, and I'll be your moderator today. Our lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. If you'd like to ask a question, press star 1 on your telephone keypad. I'd like to pass the conference over to our host, Matthias Eckenberg, CEO. Please go ahead.

Thank you very much. Welcome, everybody, to this call. I am, as usual, also joined here by Toby Lawton, our CFO. We'll be speaking to the presentation, and the presentation will be available at our IR website following this call. So... Starting from the top, it's a quarter which in many ways are in line with the year that we've seen before, with the exception that profitability is improving in a better way. So good profitability in a continued tough market. Sales was up in total 13% versus last year, excluding currency effect, which is the same trend we've seen with the year so far. We do continue to see a weak market with cautious consumers and retailers. We'll speak more about that. Organic growth is down 4% in the quarter, which we, of course, are not pleased about. And currency effects continue to be significant, minus 5% in the quarter. We are actually pleased about the performance of our new product categories and our new products, which add sales in the quarter, as well as the acquired Cordlock business, which continues to add sales and growth. EBIT margin was 17.9% in the quarter, which is higher than last year and also higher than the historical averages for the quarter. We had a strong gross margin up to 47.5%. SG&A, excluding the acquired Cordlock business, decreased versus last year. We have mentioned before that we would face R&D costs and launches differently this year, which helps this quarter. And other SG&A costs are also actually a bit lower. And the margin increase versus the last year is driven by the Tule business, excluding the acquired Cordlock business. In all, EBIT increased to 453 million SEK up from 413 last year. We continue to generate good cash flow from operations, 668 million. And the working capital patterns have been now returning to what we've seen historically. Toby will get back to that later. And we continue to reduce inventory. We have a target of reducing it further 200 million SEK. This year, which will be then the third year in a row, we take inventory down, and that is on track. On the highlight side, we do continue to see good development of our newest product categories, and we've launched a few new products. We'll come back to the details, but both dog products is performing really nice, including Thule Cappy, which was just launched at the very, very end of Q2. And during Q3, we have launched a high back booster seat, child car seats for a bit older children called Tulle Palm to now have a complete premium car seat portfolio for kids of all ages. And we have continued to work hard on the changes in North America that continue to give results. Moving to page three and stepping back before we come into details. With this quarter now in the books, it adds to the long-term trend we've seen over a decade or so of profitable growth for Thule. In the last 12 months, we have a net sales of just over 10 billion SEK, 10.3, an EBIT of 1.7, and an EBIT margin of 16.1. So having zoomed out, let's zoom back in. Page four, starting with the regional perspective. As mentioned in the intro, it is still a challenging market across basically all regions. In region Europe, which is by far the biggest region for us with 70% of the sales, we are now year-to-date flat on organic sales. All these numbers refer to organic sales. after a weak end to the spring-summer season. So let me give you some more color on that. We continue to see a quite promotional market with cautious consumers and retailers. We've actually had pretty good growth, organic growth in Europe during the high season. It was a plus 4% during Q2, and it continued to be a good start to the summer season at the start of Q3. But we clearly see an end-of-season effect where retailers are very cautious at the end of Q3 to replenish spring-summer products and mindful of inventory levels, which clearly impacted the sales for the full quarter negatively. And what's positive to see, though, is beyond that, that the newest categories, which have had a good start in Europe recently, Car seats is a European effort for us and continue to grow really well, as well as do the dog products. In North America, we continue to see that region as the toughest region for us, the toughest part of the footprint that we operate in. Organic sales was 5% down in the quarter, which is slightly better than the year-to-date number of 7%. We did have a very weak start to the quarter following the announcements of the tariffs, and we communicated quite a lot of actions that we made during the first part of the year that we continue to see give positive effects. So there are some actions related to cost, but regarding the organic sales, we have changed the growth priorities. We have launched quite a lot of new north american specific products this year and the big difference in the performance in q2 and q3 versus earlier in the year is the uh bike carriers for the north american market that continue to do really well and adds good sales for us so in overall it's in the right direction compared to the start of the year but still an opera of course we want it to be Region rest of the world, clearly our smallest region with just 6% of the share, improved in the quarter, organic sales of plus 11%. It's a small region, and we typically see some quarter-to-quarter movements, so probably not read too much into that number, but it is nice to see that that's the... spring season starts in the southern hemisphere, we see also good growth in some of those markets and the trend improved in both the Asian market and in Latin America for us. Switching to the category perspective on page five, the picture is similar in many ways, but we're starting with sport and cargo carriers, which is our biggest product category. We have a year-to-date minus 1% organic net sales and a bigger negative in Q3 following a better Q2. And again, we do see actually underlying this good growth from our new Thule products this year. We have upgraded our best-selling bike carrier called Thule Easy Fold to Generation 3. That's really well in the market. We have introduced a mid-price bike carrier called Thule Outpace. That's very nice growth for us, both in Europe and North America. We have, as mentioned before, launched North American specific bike carriers. And for example, to the Rebirth, the hanging bike carrier is doing really well. And also on the cargo side, cargo box side, the rear of cargo products, the tow bar mounted products also continue to see very nice growth. But again, it is still a challenging market situation. We do continue to see the best performance in the premium and the toughest space to be in North America. And I think I've already talked to the replenishment effect of the spring and summer product in this category. RV products continue to grow despite the weak market. And it's very much the same trends as we've seen in the last quarter. Industry is going through a challenging period. And we do continue to see a decline in sales to the The OE channel and good growth in the aftermarket channel. And it's also, I think, pleasing for us internally to see that the new products we've launched in the last 12, 18 months really make up for all the growth that we see in the RV business, both in the quarter and this year. A good sign that the new Tuller products are delivering value. Moving to the next page, the last two product categories. Active with kids and dogs is a similar picture as previous quarter. Net sales down 7% organically in the quarter, three for the year to date. Dog transportation continued to do well. The premium dog crate Tula Alex that we launched now 18 months ago is continuing to grow very nicely. And the recently launched crust-tested dog harness Tula Cappy It's done really well right out of the gate. And as mentioned earlier, we do see continued good growth in child car seats, and additionally so by introducing the high-back booster seat to Le Palme in the quarter. Our strollers, all-terrain and running strollers, continue to do well, but active consumer is still there and wants to spend money on great product. But we do see a decline, which unfortunately outweighs these growth areas for us. And the decline is related to bike-related products in general for children, where retailers are cautious on inventory. We do continue to see growth on D2C, T2D.com, which is a sign at least that consumers are interested, but the retail inventory situation is taking the whole category to a negative spot. Bags and mounts, we continue to see good growth from Performance Full Mounts, the acquired QuadLock business. So organically, that is excluding QuadLock, net sales is down 5% in the quarter, which is an improvement from the trend earlier in the year. And including QuadLock, of course, the number is a very big plus. QuadLock now accounts for two thirds of this category. QuadLock continued to grow nicely. 5% organically about in this quarter, which is a bit lower than the trend before. And that's the only reason is that there was a major new retail customer introduced in the third quarter last year, which takes the percentage down. But the growth trend continues really nice and is now at a 15% year-to-date growth development. And the bags and luggage business, the other part of the bags and mounts category, is improving, although still not at a plus. It's nice to see that the Thule brand is actually back to organic growth in Q3. We have launched a few new products, including a new collection of our best-selling duffel bags, Thule Chasm, which was well-received and clearly helps. But we do see a continued decline in the sort of legacy business, in the CaseLogic brand and in the OA products that continue. Turning to page seven, as mentioned in the introduction, in the quarter, the margin was helped by efficiency improvements and cost control. So I wanted to share a few words on that. Firstly, there is, of course, a benefit for the quarter of lower R&D costs in the quarter, which is due to phasing, as shared and communicated previously. This is an intense product launch year for us also in 2025, and we have decided ahead of the year to take a more front-loaded launch calendar. to capture more of the high season. And that meant higher R&D costs for the first half of the year, but also then consequently lower for the second half. And that's what we see now coming through in Q3 just as planned. So that helps the margin for the quarter specifically. Additionally, though, we do see some efficiency gains that clearly support the margin both on the gross margin side and on the SD&E side. I think just to give you a few examples, we have quite some unutilized manufacturing capacity and we have increased insourcing to take better use of that. That helps the gross margin. We've actively consolidated third-party warehousing services that helps the SD&E. And we have continued to trim processes and cost efficiency around admin sales and marketing with help of automation and digitalization, which is also helping SG&A to improve. So we have a bit of a small land culture here in this company, of course, and it's nice to see that the continuous efficiency gains also are visible in the results. And then in addition to continuous improvements, we are driving a few structural cost initiatives that are not giving so much effect yet, but will, and they are on track. So firstly, we have changed the cost in North America with the new organization and closure of a satellite office that we shared in Q1. We shared in Q2 that we are automating and extending a warehouse in Poland, which is expected to give annual cash savings of about 100 million SEK, full effect 2028. And that's on track. And thirdly, we've also spent a good effort this year on developing what we call technology platforms. So using common components across different products and product families to, of course, create a more efficient manufacturing system. set up and combining that with more in-house component manufacturing. And that's the work that we've been driving this year quite hard and is now ready to be in place to support profitability for next year. So with those comments on the short and long term of control and efficiency, I will turn to Toby to go through some of the more financial aspects.

Great. Thank you, Matthias. And good morning, everybody. If we turn to slide eight and I'll start off looking at the quarter three number and we had revenue, you can see in quarter three here of just over two and a half billion sec in quarter three. That's eight percent higher than quarter three last year. So the reported sales growth was eight percent. The biggest factor there is the acquisition of Quadlock, of course, which is adding 17 percent on quarter three. On revenue, but we have a significant negative from FX, which is important to remember now. So that impacts net sales negatively by 5% this year because of the primarily the strong SEC. And organic growth, as Matthias mentioned, in the quarter was minus 4%. Gross margin has increased to 47.5% in the quarter from 42.9% last year. The biggest factor behind the increase in the gross margin is the acquisition of Quadlock. So that's a bit more than half. But we have price mix and supply chain efficiencies, which are also giving a good contribution as well. So bringing the gross margin up to 47.5. So a good development there. When it comes to EBIT, we report an EBIT in the quarter of 453 million SEC. We had 413 million SEC in the same quarter last year. And that means the EBIT margin as well is 17.9% this year versus 17.6% last year. And this is a few factors impacting the EBIT margin. Obviously, the gross profit, the phasing of the selling expenses driven by the product launches more towards the first half, which Matthias mentioned, is obviously a factor. And then further cost efficiencies in SG&A, which also are contributing to the improvement in margin together with QuadLock. And I think when you... take these effects. It's a good performance to see the increase in profit. And if you exclude the acquisition of Quadlock, the SG&A costs have actually come down in the Tula business, excluding Quadlock as well this quarter. And also worth mentioning, when you look at the EBIT margin, Quadlock is accretive to the Tula EBIT margin. But the biggest factor behind the EBIT margin increase versus Q3 last year is is also, again, the Tula business excluding Quadlock. So a good performance. And obviously in a quarter where organic sales growth is negative, it's even tougher to hit EBIT margins and EBIT targets. So a good performance on the cost side. Net interest expense in the quarter was 37 million and effective tax rate in the quarter, 24%. Just turning then to the year-to-date numbers, which you see on the far right-hand side, here we have reported sales growth of 9%. We're now three-quarters of the way through the year, and organic growth for the three-quarters is minus 1.5%, and here it's flat in Europe, our biggest market, and negative 6.7% in North America. And here again, the QuadLock acquisition is adding 15%, and FX has been negative all year, so it's minus 4% also. on the year to date. The gross margin improvement we've seen throughout the year. Again, QuadLock is a major factor, but also price mix and supply chain efficiencies. So we have a gross margin year to date for the first three quarters of 46.2% versus 42.9% last year. And adjusted EBIT is also 1588 million SEC versus 1557 prior year. So that Altogether means then when you say the year-to-date numbers are EBIT margin is 18.5% versus 19.8% last year. If I just turn to the next slide on the cash flow, and this was a good quarter for cash flow. We had cash flow from operations in the quarter of 668 million SEC. which is obviously a good cash flow and a big contribution from a seasonal decrease in working capital. Q3 is usually a good quarter for cash flow, and it's been, again, a good quarter for cash flow this year, so driven by that working capital decrease. When you also take into account the capex in the quarter, we had 140 million sec of capex in the quarter, primarily relating to the automation and extension of our warehouse in Poland. And when you take that off, we basically have a net or free cash flow of around 500 million SEK. And that's meant that we were able to amortize our net debt also by 500 million SEK. And finally, to mention that we are reducing inventory further this year and our inventory target that we have had all year of reducing inventory by a further 200 million SEC on top of the big reductions last year and the year before is on track. And finally, the next slide, slide 10, the net debt to EBITDA where we have a high focus. And as I mentioned, net debt has been reduced by 500 million a sec in the quarter, which drives the ongoing deleveraging that we're seeing here. And you can see the net debt to EBITDA ratio is now down to 1.81. So with that, I'll hand back to Matthias.

Thank you, Toby. A few forward-looking comments before we turn to Q&A. So page 11, our priorities continue to be to drive our long-term strategy for profitable growth. For sure, it is a tough market and we expect that it will continue, particularly so in North America for a bit longer. We are well positioned as we are global market leaders with premium products. We do deliver new products and innovations that we see make a difference in the marketplace. And we have a strong global brand with own manufacturing both in Europe and the US, which are nice assets to have at this time. And importantly, we also have opportunities to drive growth through our own actions. We do invest in product development when we see that those results are adding growth also when the market is tough. And we do have opportunities to drive efficiency. We do, of course, continuous efficiency improvement as part of our day-to-day work, but also have now structural efficiency initiatives in place that will support the market development over time. We'll continue to push the four clear priorities we have set out for the year. Product development being top of the list. The season was front-loaded to capture more of the high season, so there is less now for the last quarter. I'll come back to that in a minute. But particularly in North America, we have increased our focus to focus more on pockets where we think are attractive. We will continue to scale up our newest categories, stock transportation, child car seats in Europe, and the performance phone mounts business that we have acquired. We are continuing to show more, to sell more, as we call it, to be more visible for consumers, to sell more of what we have. And then, as Toby rounded off on the last page, continue to focus on supply chain efficiency, both on reducing inventory levels and cost levels. So on the launch calendar for page 12, this was a year where we continued to keep a high pace. And we have launched most of what you see on this list already. There are three examples that call out very soon that we will now launch in Q4. This is also the time where we summarize our plans for next year. We will, of course, continue to launch great products also in 2026. And the pace of that and the launch calendar and what that means for R&D costs, we will come back to at the capital market today. We will hold in November in a few weeks. Turning the page, the... products or notable products that are due to launch here in Q4. I'd like to start to describe ToolXscape. We talked about that a bit, but it's part of our North American growth push. This is a pickup truck rack, a bed rack as it's called, which we believe to be the best on the market. It's the easiest to install, it's easiest to adjust and has strong performance and all quality dimensions that we launched now at the end of the quarter during December. We're building on the good growth trend in dog transportation and introducing the Tula Alex dog crate in double door version or for two dogs. And we've seen really nice reception for the product and the category as a whole. And the whole positioning of designing a product to protect both dogs and people seems to resonate with this premium consumer. So look forward to that launch. That's also towards the end of the fourth quarter and then last example is the tule arcos xl version which is a rear of car cargo box that is of larger size it's wider so it now fits up to 180 centimeter for example skis behind your car and this product has already been introduced to the market just last week in october To present the news last year and also to make sure we tell the story about all the news we've been delivering in the last period to the market, we are holding a global customer and media event in Q4 to present our launch calendar, again, our products, but also our brand. This is a concept that we introduced two years ago that was very successful and we got a lot of attention. So we look forward to hosting global outdoor retailers and top media partners in Sweden, in Hillerstorp and Malmö in a couple of weeks. And to round off, speaking of meeting people in Sweden, we are shortly after our customer event holding a capital markets day on November 20. We will cover our strategy, our priorities and the path to financial targets. It's possible to participate either online or on site in Malmö, Sweden. uh of course all very welcome to join if you have the opportunity to join in malmo there will be opportunity to see some product demos and have lunch of course and meet the representatives from the wider to the team and then the presentations and q a session start at one o'clock central european time uh both then again on malmo or online so Register to join, and we look forward to seeing you then. And with that, I open up for a turn to operator to manage questions.

Thank you. If you would like to ask a question, please press star followed by one on your telephone keypad. To remove your question, press star followed by two. Again, to ask a question, press star one. As a reminder, if you are using a speakerphone, please remember to pick up your handset before asking a question. We will pause here briefly as questions are registered. Our first question comes from Frederick Everson with APG. You may ask your question.

Thank you. Good morning, gentlemen. Three questions. First one, on the gross margin, it seems like the legacy gross margin, I excluding QuadLock, was up by, I guess, more than two percentage points at least. And I recall it was flat in Q2. Can you explain what the biggest differences between Q2 and Q3 were then in terms of the gross margin?

Yeah, hi, Frederick. I can take that one. So, yeah, the gross margin is up. Quadlock is still the biggest factor in the gross margin increase, but you're right, there's a significant factor from the legacy business. And this is a few factors here, but it's product mix is the main impact together with efficiencies in the factories and in the supply chain as well. And it's worth remembering as well that... You know, we are producing at a higher rate this year as well. So we have more efficiencies in utilizing our factories a bit more than we did last year, where we were still selling down from inventory to some extent as well. So we have a good trend on gross profit from that impact, which is also driving supply chain efficiencies.

Okay, and these you didn't have to the same extent, obviously, in Q2, I guess.

Not to the same extent in Q2, no.

Okay, good. Second one on Quadlock, EBIT 70 million versus 100 million in Q2. And I recall you said Q3 was by far the strongest quarter in terms of earnings for Quadlock. So it seems like the seasonality has changed a little bit. Can you give some color to this development and maybe...

also what we should expect as we look into q4 with the black week and everything else yeah i can just say um you're right last year q3 was the strongest quarter um i think we talked a bit before about there was an impact last year that we we saw from uh from introducing some new customers in q3 which led to an increased sort of bump in the q3 q3 volumes which we didn't expect to see this year but we yeah the the seasonality has been different this year you're absolutely right so it's not been a strong top line from from quad lock in in q3 uh this year um and it's it's i think they've shown yeah 15 growth year to date had a strong a strong second quarter um so um and quarter threes yeah been a bit softer than the second quarter in terms of organic growth, but still a good, I mean, a good approximately 15% organic growth year to date in Quadlock.

Yeah. And do you expect more of a level development in heading into Q4 then versus last year's big drop from Q3 to Q4?

Yeah, I don't think I want to comment on Q4 expectations, but we see, I mean, We don't see any significant changes in, you know, in what blockchain good growth. And it's a good business. And it's had 15% growth year to date this year. And yeah, Q4 is still to come.

Yeah, that's fair. But you didn't have the same kind of one of impacts in Q4 as you did in Q3.

No, this customer introduction that we had last year was in Q3. We didn't have the same impact in Q4 last year. That's correct.

Okay, perfect. Thank you. And last one, I guess given the most recent developments in terms of tariffs and other external factors, how should we think about pricing as we look into next year?

Hi, Fredrik Mathias here. Yeah, so, you know, just to recap, historically, we've been on sort of an annual price increases as of Jan 1. Then we've had lots of effects during, excuse me, during pandemic, but then also related to tariffs, which means we've made some in-season or sort of in-year price adjustments, as you are very aware, in North America as of June 1. We are, you know, I guess, two principles to put things into perspective. We are doing annual price increases as of Jan 1, 26, again, also, as we always do, or usually do. And regarding the tariff situation, we're monitoring that very carefully. And we have been very open that, of course, we will try to offset any tariffs with efficiency improvements to the best of our ability and change our supply chain. But we will also pass on increased tariffs prices to the consumer to protect our margins if needed. So, as of right now, we are monitoring the tariff situation and do not feel the need to make another price adjustment before the end of this year. But of course, that could change on short notice. But for now then, to summarize, we will see a typical price list increase as of January 1, 2026.

That's very clear. Thank you. That's all.

Thank you. Our next question is from Daniel Schmidt with Dansky Pet. You may ask your question.

Yes, good morning, Mattias and Toby. A couple of questions from me then. And maybe starting with the performance in the U.S. market, and especially given that you did raise prices quite a bit from the 1st of June, I'm sort of a little bit surprised that you still see a 5% organic decline in the US. Are you able to sort of share your performance versus the market over the summer or the start of this year? Could you give any sort of indication of how you're performing versus the market?

Hi Daniel, Mathias here. Yeah, so couple of comments and of course it's a it's a tough space and. And it's good that things are better than the start of the year, but clearly not where we need to be with the minus five in the quarter for sure. I think a few points, you know, the prices are in effect, so the volume is lower. I think it's interesting to observe that where we still do very good and the best is at the sort of premium end, the top of the range, and particularly when it comes to news, but also in general in our portfolio. So that a real enthusiast or premium consumer that you know has the money and is willing to spend the money on their passion uh i think is is still what's driving the business for us but it uh of course much tougher in sort of the mid and the lower lower ranges uh in general and and so it is for for us so Market statistics are, as you probably are aware, not easy to get a hold of. We do work closely with some of the biggest retailers in the US where we see our own sales performance and we see the category sales performance. And there are some statistics, but they are only released on an annual basis. But our view is that we continue to take market share, particularly in the biggest category, bike carriers. And that's really been driven by the new products that we have launched. And that the overall market in volumes is clearly down. I mean, we have raised prices, but so has everybody. So it's... It's a volume loss for everybody and for the American consumer in the market at the moment.

Yeah. So it's not really your sense that the price increases that you had to conduct in June has sort of made has has worsened your position in the market on the categories where you can make the comparison.

No, quite the opposite, actually. And let us see if we can, at some point in a separate conversation, dig up some more information and show you. But, you know, we have to remember, we do have manufacturing capacity in the U.S. And half of the products that we sell in North America are made in the U.S. And that puts us in a better position than most. So we have seen competitors raising prices by 20, 25, some even 35 percent to offset manufacturing. Some of the tariffs that we have seen varies a lot by category and competitor, of course. But in general, we are favored with our manufacturing footprint versus virtually everybody that we compete with. So, no, we have seen big price increases across the categories, across the board, slightly varying timings and some in more steps. But when we have seen good market share growth in the biggest categories that we follow more closely with the big retail partners that we have, um but it's a tough market situation overall and the volumes are down if you look at some things like you probably follow consumer sentiment numbers they're very near all-time low or 60-year low right so it's it's a it's a tough spot for many american consumers at the moment now but good and and then maybe turning focus to the european market

and one of the few areas where there's good data or reasonable data at least on the retail side is the RV business and we've been through now I think it's four and a half quarters of quite five quarters quite significant under production and it doesn't sound like there was any change in Q3 because retail sales has been developing quite okay and Do you see any change to that sort of low production level of RVs on the OEM side in Europe in Q4?

Yeah, I can take this. Hi, Daniel. I mean, you're right. It's been weak on the OEM side for basically for some time now, for four or five quarters even. And it's been reduced manufacturing volumes from the OEMs, which is what drives the weakness in our volume sold to OEMs as well. You know, I think it's obviously now comparing against weak periods last year because we were already in where OEMs were taking significant downtime. And yeah, we started in Q3 last year, but also Q4 and carried on from there. And as you say, the buyout statistics to consumers have been relatively stable. Yeah, they've been okay this year. So I think most OEMs are starting to work on taking orders for next year and to look towards the next year's season. And they do expect it to end sometime during the winter. Yeah, I think it's not going to be a quick pickup, but whether it's Q4 or Q1, we don't really know, but it's...

yeah we don't expect it to um to continue weakening versus weak comps basically as a summarized and i think it's not maybe you know it's not back to full long growth patterns or anybody yet but we do expect that this drag coming from oem will you know stop as a comparison versus last year in in during the winter if it's q4 or it goes into q1 but uh that we do expect to to not longer be a drag for the ROE development.

Yeah, well it sounds reasonable because it was quite extensive shutdowns in Q4 last year running into Q1. Good, and then on the cost side, And you are quite adamant saying that you are down on the legacy business on SG&A, not only due to product development spending, but also the rest of SG&A. And I think you actually mentioned in connection with the Q2 report that you would be back, or maybe it was actually with your September call with Morf. More thinking, more thoughts around product development spending and SG&A into Q4 and 2026, maybe more specifically. Is that something you want to share now?

Yeah, well, I think part of that will be covered during the Capital Markets Day, so we should save some of that conversation. But, you know, of course, we... High level, you could say we will continue to invest in our product categories for sure and drive growth through that. I mean, we have been through a big push on new categories and we have been through a big push now on some of the core legacy categories at a higher pace than usual for 24 and 25. So there is, you know, more nuanced picture to put in place for 26 and at the same time addressing some pockets or niches that we think there are still opportunities on. So we are wrapping that up or we have wrapped that up, sorry, and we have the plan in front of us. But let's save the discussion on the launch calendar and the implications for costs to the capital market state.

Okay, having said that, do you want to sort of, just looking at, because I think you've said for this year at least, that H2 will be less heavy, and you saw that in Q3, and there's no reason not to see that in Q4, is that correct?

Yeah, yeah, that's correct. I mean, yeah, as we said all year, the development has been faced with the first half.

And on that, is it also from October 1st that you will see some savings coming through from the shutdown of the Colorado office? Is that already in Q3?

No, the office is finally closed at the end of October, yes. So you're right, there will be savings of that starting. They'll be pretty small in Q4, but starting from now, basically.

Yeah. And lastly, on Quadlog's profitability, I appreciate that there was difficult comps on top line, but you still grew organically, and the profitability is quite much lower. Is that also relating to the specific startup of a customer that you didn't have before, or is that more relating to U.S. tariffs?

No, it's the former. So it's not... It's relating to the high volume and high sales they had last year due to this customer effect, which we mentioned. So their gross profit is the same. And, you know, with a business model, if the sales are a bit lower, the margin is a bit lower. But it's still a good margin and still accretive to do this margin.

Thank you. That's all for me.

Thank you. Our next question comes from the line of Gustav Hatu with SEP. You may ask your question.

Thank you, operator. Thank you so much for taking my questions. Clearly, I've stepped forward on the OPEX sequentially, as mentioned, and that's guided for. So congratulations to you and the team. I'm looking at the FTE build in a quarter, which does not align with the OPEX development. So it's up about 10% excluding Quadlock, I reckon. How much is, because the volume is clearly down, but then I guess the speed of inventory reduction is lower in the quarter compared to last year. So I assume that is a delta. But could you sort of dissect what those 10% FT's, how much goes into manufacturing? on the inventory reduction specifically and what relates to other areas. Thank you.

Yeah, just high level, Gustav. It's true that, of course, organic sales is down. It's true that inventory is coming down, but production volumes are actually up. And therefore, production staff is up. I mean, you've seen some weaker performance in some of the sourced products, for example, bags over the year, but where we've seen strength in other products, if you look at the full year in, for example, things that we produce ourselves, for example, bike carriers. So production hours are up and then staff is up.

Okay, thanks. And looking at how you allocate OPEX between Quadlock and Thule, is there any, vintage Thule, is there any costs that have been allocated to Quadlock that was previously within the Thule organization a year ago?

I think it's a very simple answer. We don't allocate costs around like Gustav. Quadlock's costs are Quadlock's costs and the rest of Thule's costs are the rest of Thule's costs. There's nothing being allocated.

Thanks, that's clear. And then back to the U.S. development. Is it fair to assume that given that you're pushing a bit for new products in the U.S. market this year, that you had a positive mix contribution to top line in North America in Q3? Not price, but mix from new products. Is that a fair assumption?

Yeah. You mean mix effect in terms of on the sales line or on the growth market? New products carry a higher price than previous products, so that you... Yes, overall, yes. I mean, in North America, for sure, I'd step back and say, overall, we have seen good development of the new products, even though the market has been tough. We've been talking about a lot, and that helps us, both from a top-line perspective and, for sure, from a gross margin perspective. And in the US, that's been true also. And to your point, Gustav, we have been launching quite a lot of new North American-specific products to the North American markets, which has helped price points and And then on top of that, I mean, there is for sure an effect of the price increases we have done on June 1, which is also helping the top line in terms of sales. And then again, volumes, on the other hand, have been clearly lower.

Yeah. And finally on that, I recognize your comments that you might have raised prices in the US, maybe perhaps even to a lower level than some peers. but there is seemingly quite a stark relationship between the all-time high gross margin and the, say, 15% organic volume decline in the state. Have you considered perhaps not passing forward those costs and instead trying to go for some volume recovery or market share gains in the state? How do you balance those two, between the gross margin and the volume in this environment?

I think it's a good question, Gustav, and I think the way to answer that question is to look at the different parts of the market. So I'll try to see if I make myself clear. And if not, please do ask a follow-up question. So I think where we're seeing strength is in the premium end of the market, you know, the best bikers, the best rooftop boxes, the best, et cetera. And there, Tull is really strong. We have a very, very high market share. We can do our best innovations. We can drive price points. And we see that the consumer is there and is willing to pay, and that resonates. So You know, that's really strong for us. And there's continue to invest and continue to drive innovation. And over time, higher price point is the strategy forward. Having said that, there are other parts of the market, in the mid-price market and in the low end of the market, where Thule is not as strong. You may remember coming into this year that we said, look, we think there's an opportunity in mid-price where we can play. So this year we are launching a new mid-price rooftop box and we're launching a new mid-price bike carrier, Thule Outpaced. And that has done well for us, really well, actually. Thule Outpaced has done really well both in Europe and in North America. And then the low end and the sort of value end, Thule is not playing, of course. So I think... To answer your question, maybe in a more summarized way, the way forward is not to take price cuts on our top products, but the way forward is to build a wider portfolio that addresses more needs in the market, including some mid-price and some other opportunities where we still have market share opportunity. Does that make sense?

Sure. And then if I can sneak one last in, we're all asking sort of the same topics here, but on Quadlock, the sequential deceleration of growth that you point to, let's call it a one-time order, last year is comparable. If you sort of take that out of the comp from last year, is there still a deceleration in growth in Quadlock? And is there a price component that was not there in Q3, similar to the U.S.,

general market that is boosting organic growth for Quadlock in Q3 those are my two questions on Quadlock Hi Gustav that's an elegant way to answer the question and yes if you would take that sort of introduction of the new big customer out of that month in Q3 you'd see about the same growth trend over the year so far and the average is around 15% and Let's see, a question was around price. Yes, there is some price increases in Quadlock as well. It's a DTC heavy business and price increases can be made more gradually. So it's not a big step up in Q3 and it's not actually a major effect overall, but it's not something that affects Q3 versus the other quarters in any material way.

Great, thanks. Those are all my questions.

Thank you. Our next question is from Agnieszka Vilela with Nordia. You may ask the question.

Thank you. I have a few questions. Maybe starting with your organic sales development, it was done by 4% in the quarter, and you also talked about the hesitancy both from consumers and retailers, especially in the late part of the quarter. Can you give us any flavor about that development in October? And also, what is your assessment right now of the retail inventories in the channels?

Hi, I'm Mattias here. I can start. I think, well, it's not, how do I answer this? I think the Q3 was really colored in the organic sales number by the end of the quarter, to your point. And there's a clear sort of end of season or not restocking spring and summer products that happened. and it's now in as you ask about october we're moving into winter season and you know the market is still what it is but it's nice to see that these kind of end of season effects is it's not not happening in q4 that was more end of q3 season so i think q4 is more in line with the or sort of October is more in line with the full year rather than represent anything else. It's not a representative metric to look at the end of the Q3 number. So, yeah, I guess confirming that this end of season effect really was there. And your second question, could you please repeat?

Yeah, what are the inventories right now at retailers from what you can see?

Right. Oh, sorry. So yes, overall, I think retailers have been trying to keep inventories at the efficient and low level best they can for the year to focus on cash and profitability. So we don't see big retail inventories in any part of the chain, which is sort of dramatic. Having said that, we also think that retailers continue to be very careful on inventories. And in general, I mean, there are some exceptions to this, of course, but in general, I think the behavior we saw at the end of the summer season is much more connected to the fact that some of these products, if you take them in end of September, you won't probably not sell them until or much of them until March or April. So why carry that inventory when you know that, for example, Tule can deliver in one or two days? So I think we don't see a really big stock effect piled up. I mean, there are exceptions in bike retail in some parts of North America, for example, but in general, that's not what we're seeing.

Good. Thank you. And then maybe a question to Toby. On the legacy gross margin, you mentioned that the improvement was driven by product mix and efficiency in factories and supply chain. Do you expect that factors to continue in the coming quarters?

Basically, we expect to hold a good gross margin. But obviously, we do also see seasonal effects in our gross margin. So that's important to remember that Q4 gross margin is impacted by the seasonality being a smaller sales quarter. But we absolutely work to maintain...

uh yeah maintain the gross margin trend that we've we've seen over the last quarters over the last yeah four four or five quarters perfect thank you and then the last question will be coming back to to quad lock um with the q3 margin development and margins now lagging last year especially the quarter quite significantly uh do you still expect about say 20 percent underlying a bit margin for the business or what are your expectations right now uh for the future

Yeah, you're talking about Quadlock EBIT margins, basically. Yeah, and we do, I mean, I think what I would say is, I think what we've said always before as well is that Quadlock is accretive to this EBIT margin, and we expect that also for the full year. So, yeah, so that I think that's what we can say.

Perfect, thank you.

Thank you. Our next question is from Matthews with Kepler Chef Rocks. You may ask your question.

Yeah, hi, thank you. A couple of questions for me as well. First, I mean, you mentioned these efficiency measures and also some cost initiatives. Have they been fully implemented during the quarter, or have you seen the full impact? I mean, the increased insourcing that you mentioned and the consolidation of third-party warehousing, for instance, and maybe also if you have adapted to the current market situation fully with the cost initiatives, so we should expect more of this going forward.

Hi, Mattias here. I can start at least. I think it's a good question. We try to think about the cost initiatives in sort of two separate themes or two parts. One is sort of continuous efficiency trimming or gains, if you like. This is, we think, is part of what we do. And to your point, yes, the things you have mentioned are examples of things that have been done during this year and in this quarter. For example, consolidating third-party warehousing and increasing some insourcing. And then we, of course, adapt the variable costs to the very best of ability to the sales trend as well. But maybe more importantly on this, we try to always look for efficiencies and see how we can improve no matter of the market situation. And that's nice to see that's been sort of coming through in the results and it's now visible in the quarter. And then that's continuous efficiency, continuous improvement maybe. And then the second part is sort of structural cost initiatives where we make changes structurally and those changes We have been driving, but they have not yet kicked into the P&L. I mean, there will be some costs to North America that will start to generate savings soon. And then we have a big project for the Poland warehouse, which will kick in fully in 28. And then we have some more things on technology platforms that will kick in for 26 on the gross margin. So it's a mix of things that are already in there with the continuous improvement points. And then structural initiatives will continue. come later.

Sounds great. And then you mentioned the product launches here in the fourth quarter. I just wanted to sort of ask about the year-over-year comparison there. You mentioned Alex and the different... Is it sort of a low-level year-over-year, so we shouldn't expect the launching costs to be at the same level as last year?

That is true. It is a lower level of launches and a lower level of R&D costs expected also for the fourth quarter compared to last year.

And also about North America there and U.S., you have this new product. Do you have, well, sufficient or do you see more sort of retailer segment to penetrate or are you sort of fully equipped there so you don't need to address new customers anymore?

I mean, we have a lot in the existing categories. We've been for a very long time. We are a very good distribution and very present. But we have new categories where we are still for sure building presence still. And that's expanding. And then on top of that, we have some markets and channels where we think we can do better. So for sure, we are also expanding that a bit. But from a big picture perspective, the existing product categories, we have a strong distribution in all the important markets.

Great. And finally, just looking forward to the capital market stay there. And I was just wondering, I mean, it's early days yet, but I mean, you have the financial targets and so on. Should we expect you, and things maybe have changed since they were launched, but should we expect some rebalancing of those? Or is it too early yet? I mean, there are several years before you are expected to reach them.

No, it's a good question. I think, you know, we will talk about our path to drive profitability, sorry, growth of profitability and also the path to financial targets at the Capital Markets Day. And, you know, financial targets are such that they are what they are until anybody at some point decides to change them. So for now, we have not changed them. And then we will come back to, of course, the topic when we meet on November 20th.

Okay, great. Thanks a lot.

Thank you. We have a follow-up question from Daniel Smith with Danske Bank. The line is open.

Yes, hello again. Mattias, you mentioned that you have been developing a tech platform with common components, and I don't know how big this is, but this is the first time I've heard it at least. Is that supposed to generate any sort of savings in terms of more efficient work processing? And maybe sort of if you tie in the AI component as well, which you have been using a bit more when it comes to translation and image processing and so on, is that more to come from that in the coming quarters? Or did we already see much of that in Q3?

Thank you, Daniel. It's good topics. I think two separate points. I think on this sort of AI and digitalization, we mentioned that it's examples of how we continue to drive efficiency in our processes, in admin. We do a lot of product development. There's a lot of imagery and a lot of drawings and a lot of technical documentation. And here, clearly, some of these new tools can help us to be faster and use faster. less expensive consultants and whatnot. So that's more of sort of the continuous efficiency part, which, well, with the new tools and technology, we will continue to drive. But I think the maybe bigger point is the first part of your question regarding what we call technology platforms and It's something we worked on for this year and actually starting a bit earlier than that last year as well. So to try to set this into perspective, we have, for example, now a wide portfolio of bike carriers, if we take that as an example, where there are several different components that we use, everything from fixtures to straps to bike arms to tires. fixation points do lots of different things and if we can harmonize some of those components across the product portfolio then of course we have production efficiencies more volume on fewer components and coupled to that we can do more of those in-house we can be efficient and use our manufacturing capacity that you know we have quite a bit unutilized today so that gives us some scale Then very nicely, it also gives us at least the opportunity to shorten product development lead times. If you have, let's call it the library of components that we know work with a certain set of conditions and product niches, then it gives the development team lots of good options to at least use these components if they prefer to instead of developing new ones. There's for sure been cost and time efficiencies to be had here by thinking More platform thinking, as we call it internally. Yeah.

And is it correct to assume that that entire sort of project is more sort of going live as we speak, or is that sort of in a gradual process through the year?

Now, we've introduced a few things during the year, for sure. But I think next year is the year where we will start to see, you know, production lines being in place to do this at the bigger scale. So it is more ahead of us than it is in the current PML, if that's to put it very bluntly. So it's a nice structural initiative, a bit more engineering driven than sort of any sort of specific cost initiative, but will for sure support the gross margin development going forward. Yeah.

And maybe just to follow up, I don't know if you said it or not, coming back to the U.S., but just for clarification, your direct-to-consumer channel in the U.S., was that growing in QFIG?

Overall, I mean, DTC has been challenged as all the markets. I actually don't have the number in front of me, but I do believe it was also stressed. But it is, let's put it like this, Daniel, it's better than the retail channel across every single market that we operate in. So the sort of end consumer is still cautious, but there is for sure this retail inventory effect in any market that we look at. And then we can get back to you with specific numbers if we haven't. But that's the trend. Yeah. That's all for me. Thank you.

Thank you. Our next question is from Gustav Hatuf with SEP. You may ask your question.

Hi. Sorry, time is running. I didn't realize it was five past one. I was going to give that question, but a quick one. Given the current development and the recent development in the organic volume, I'm just curious to hear about you're currently investing in the Polish industry. manufacturing plants with automation as one of the key investments. I would assume that automation brings higher margins as volume grows. In a scenario, I'm not saying this will be the case, but in a scenario where you don't grow the volume from here as you launch the new warehouse, is it still an acceptable return on those investments?

I can say the base calculation is without volume increase. So the savings that we talk about are basically without volume increase. And then if there is volume increase, the return gets better. So, yeah, we think it's good returns without volume increase.

And maybe just to add to it, because what's happening is, of course, we create an automated warehouse, but it's also a bigger warehouse, so we can close other warehouses. So in total, this makes for a more efficient setup. Close third-party warehouses, I should say. Thank you.

Thank you. There are no further questions at this time. I'll pass the conference back to Matthias Ackerberg for any further remarks.

Thank you very much all for joining. Look forward to talk to you again at the Q4 report, but hopefully before that, see you at the Capital Markets Day on November 20. Thank you very much.

That concludes the Q3 interim report. Thank you for your participation. You may now disconnect your lines.