Welcome to this Q2 analyst presentation. And I have to say what a weird quarter it has been. I think for anybody in business, it's been one of those very extreme years, but especially the last quarter has been the most extreme in my business life of 30 years in both seeing differences between countries, between months and between categories that are very significant in the same short time span. So if we go to the first part of the presentation and what we can see that we can look at, we can talk about a quarter 2 where I am very happy to see what we've managed to achieve in terms of profitability in what has been a challenging quarter. So our sales declined with 12%.
We hit $2,043,000,000 and actually decline was very much in line between the two regions, both declining $0.12 But what I'm most happy with, as I said, is how we have shown that our flexible production setup and our structure in business has enabled us to still deliver a very good EBIT margin of 21% in the quarter compared to the 24.1% we had in the second quarter last year. The net income in the quarter was $312,000,000 compared to $419,000,000 last year, And we generated very strong cash flow from our activities in the quarter of DKK 523,000,000.
So if you look
at that, it was, as I said, a quarter with very different periods. As you may remember from the Q1 conference call when we were at the very end of April, April was almost down half the volume of what we did the previous year. And that means, of course, that we saw a big shift in the months that came where you can really state that as of mid May when a number of the major markets we operate in started to ease their lockdown measures, our performance immediately started picking up, and we ended with a very strong June compared to last year. So if we go to the next page and look at what that has meant year to date as well, you can see that year to date, we've had a decline of sales of 10% in constant currency and a decline of 18% in EBIT, delivering year to date an EBIT margin of 20% in the quarter. So we in the half year to date result.
So strong performance in a challenging market definitely if we look at those 1st 6 months as well. And if we then challenge what we've been able to do, we also have to say the differences, as I mentioned, are just the months in the quarters, which had great differences. It's also the geographies and the categories. So let's start by looking at Region Americas on next page. And in Region Americas, the quarter ended with 12% therapy time.
What is common for both regions is that month by month performance is very obviously the same, which means very weak April followed by an okay May and a very strong June. That applies for both. If you look at what happens from a market by market within the regions, you know that our region, Americas, by logical nature of things, is very strongly dominated by the U. S, which is the biggest market in the region. And in the U.
S, you are also very well aware, having followed media, I'm sure that there the states have imposed different levels of lockdown measures at different times in the big country of the U. S. And that, of course, impacts us differently as those different states close down in various ways. What you can say in general is that the bigger states where we have the majority of our revenue in the U. S.
As well as Canada started easing up on lockdown measures in mid May, and we started then immediately picking up sales. While in Latin America, we clearly saw that the whole COVID impact came later. And I know you will follow media, so that is not a surprise to you that there has been significant efforts of pandemic lockdowns later in the period, which also has resulted for us that Latin America is the weakest performing countries or region within region Americas as we've seen an opening up from mid May in North America. If we look at the product category trends, before we talk about our product categories, it's well worth mentioning that in many of our categories, we are positively exposed to bike related products. So we do both in 5 sporting cargo carriers.
Our biggest product subset is the bike carrier range within sporting cargo carriers. But also within active with kids, we are a very strong player with bike related products, doing both bike trailers and child bike seats. And of course, we also strollers, but 2 of the 3 categories are associated with bike usage. And even within packs, bags and luggage, we have bike transport cases, bike hydration packs, bike pannier bags. So there's some exposure to a lesser extent in pack, spice, and lice as well.
And that is the strongest trend and wave of we have seen of positive momentum. The bike sector is normally a sector with a very strong spring slowing down in when weather gets a little bit too warm in the middle peak exposed to a slower start in normal of what would be our normally strong bike spring season. And instead, we have seen a very strong pickup at the end of Q2 and also into now the 1st part of Q3 as consumers waited in acquiring their bike related products until they were allowed to go outdoors and do those activities. Specifically for North America, you've also seen an extreme demand increase of what we would call basic bicycles. So you can look at the bicycle industry in North America as much more than in Europe historically over the last 10, 15 years exposed to the enthusiasts like the people you see in the image.
So people that truly take their bikes out to do activities and to do things from a more sporty experience based use. While we in Europe also have a lot of people using the bikes as a more daily commute tool or less just taking the family biking. These enthusiast buyers, which are great fans of Tula are, of course, great. But what has happened also this year later than in Q2 and is continuing is that there has been a big group of returning or new bike users of less advanced nature, buying much cheaper bikes, much more basic bikes, they will, of course, not to the same proportional degree, take their products with them and go exploring every weekend or every week and therefore maybe not buy as high share of Thule product. But some of them, we are convinced, will still want to bring those bikes with them on a picnic or going somewhere.
So there is a nice energy boost and a wave of bike category that will help us going into Q3 as well, meaning that we believe that in the bike category related products, we will recover what we lost in the spring in bike sales. If you look at the other bigger subset within sports and cargo carriers, which are then roof racks and boxes, The performance was clearly weaker in the quarter, but in a similar sense, started picking up a little bit in the end of the quarter and is expected to be more okay in Q3. And when we look at activewear kits in Region America, we have a strong sales, also strollers, which is our biggest subset of the active kits. And the stroller sales developed very strongly in the quarter in the U. S.
Especially. But across the region, therefore, both boosting stroller sales with our strong portfolio of the new TILUS Spring combined with the Thule Urban Glide strongest stroller and for the North American market more limited to sleek. But the Thule Urban Glide and the Zulub Spring strollers doing really well combined then with a boosted bike related kids transport, we had a very strong performance of active kids in region Americas. Taxback and luggage is relatively seen a bigger category for region Americas than when compared to the group as a total and then, of course, when compared to the region, Europe and rest of the world. And there, it's clear that with travel limitations, especially air travel, but just generally, if you look at Q2, travel decreased in general and people staying at home and working from home and not going to university, etcetera, negatively puts pressure on our packs of luggage.
It's also the cat group where we have the greatest exposure to brick and mortar store type of sales. And many brick and mortar stores in the region were closed down for long periods in the quarter. So this is the category where we have the biggest challenges, clearly. There are pockets of growth here as well, but it's generally going to be the most challenged category going forward also in the coming quarters. Then we have a very, very small category of niche targeted products for the region Americas for RV products, mostly targeting vans and smaller RVs and with a niche offering of products.
And in this very small category for the region, we had a very good growth with mostly, I would say, associated to our product launches and less due to what went on in the market at the home. If we then continue with regions, Europe and the Rest of the World, Here, we see even greater differences between countries and categories than we did in region America. And that is even, I would say, neighboring countries in Europe have had very different views on lockdown measures. And that has, of course, then meant also very different performance for us as a whole. As I mentioned, in the region as a whole, we declined with 12% in the quarter.
And here, we have countries where we are growing in the quarter and other countries where we are significantly down. And it is very much associated with the degree of lockdown measures and at which time those were started to be eased during the quarter. So strong performing countries in region Europe or rest of the world were some of the Asian markets. It was Germany, the Netherlands, parts of Eastern Europe, countries like Czech, for example, and Nordics, where we had a greater degree of openness and more limited pandemic measures in terms of lockdowns, while we had significant decline in the quarter in countries where there were greater pandemic measures being put in place like Russia, France, Italy, Spain and the UK. And some of those markets are very big.
You realize that France and UK are 2 of our 3 biggest markets, Germany being the 3rd one in this region. So we saw very big differences in both also in the bigger geographies here. If we look at the product category trends, it is very similar to what you saw in Region Americas, which means that the bike related products are both happening in a similar way. Very, very weak start, which is normally the big spring period to sell bike product, meaning that June July, strong bike sales related products. Then also being held of a strong general bike trend with here in region Europe as well on top of enthusiasts buying bikes.
There is also a lot of commuters that have chosen when their countries started exiting from lockdown, maybe not to jump on a bus the first thing they did and instead go with their bike. And when they did this and maybe not taking the car to drop the children off at their kindergarten, for example, that has meant especially for those bike related active kids products, a fantastic win, but also then for our bike rack category at the end of the quarter capturing some of what the sales that normally would have happened in April May. So, sporting cargo carrier, strong in all the bike related products. And in similar way that what I mentioned for Region Americas, a very slower start for roof racks and boxes, not the same degree of pickup, but a more okay level towards the end of the quarter in refraction boxes. Similar to the region Americas, our strong portfolio of products, both the bike related and the stroller products in active kids, continue to boost and drive very good sales growth.
And here specifically, I want to highlight child bike seats. And the logic here is we sell a lot of bike trailers and we sell a lot of child bike seats. I think people realize that a bike trailer is a bigger financial commitment. It's clearly more many times more than a bike seat. It's also therefore more associated with somebody convinced that they will for a long period of time be utilizing this as a great practical everyday tool to bring their kids around either to kindergarten during the week or just to have great fun and be out in the outdoors over the weekend.
When you are then a new and maybe forced commuter in some cases, you are maybe buying a cheaper bike, a normal ladies bike they're called in Sweden. So you're buying it as a commuting comfortable little tool, but you don't know and you're not sure that you will be commuting for years. You might have spent like €400 on a bike. It is therefore more likely that you pick up a bike seat for €100 than a bike trailer for €1000. And that is what's happening.
So you can see that our bike trailer trend, which has been extremely strong for years, continues more or less in the same level it's been in the last few years, very strong growth of a long going underlying trend of people commuting with bikes in this region. Now this year, we are getting a specific, I would call it, COVID related commuting boom of child bike seats booming in buying that tool to clean your kids with you for the cheaper bike you just wanted. We believe that some of these commuters will find it so nice. I'm commuting via bike to my work. It's a brilliant thing to do, right?
And I think many people, once they try it, will get hooked on it and consider this the right way, might even upgrade to a bike trailer because they're going to use it more frequently and it's more comfortable for the kid and you can do more within it or they're just going to love the bike seats they bought. So I don't think it's a blip in the curve that it's just temporary, but it's clearly being boosted very much by those commuting limitations that have been applied in some bigger markets. We also do well in Strothers here in this region with active kids, so very strong performance overall with active kids. Also in Europe and rest of the world, packs, bags and luggage has been a very tough category here, also exposed to the fact that we have had a successful growth in what you would call airport destinations and travel destinations in Asia and also for the fact that here limitation in travels clearly has impacted. There are, as I mentioned before, pockets of types of bags, hiking backpacks, etcetera, that will do better and bike hydration packs, for example.
But generally, we will see a very tough few quarters definitely impacts packs and luggage pools in this region. And then finally, in this region, RV Products is a significant category. And also RV Products would normally have a for us, where we are a little bit earlier in the supply chain since a big part of our sales goes to being assembled on the vehicle. Therefore, we tend to be a few more few months earlier in the cycle in sales than a lot of rest of our products. So normally, the early spring would be a very strong period.
As I mentioned on the Q1 call, there was both manufacturers closing down their manufacturing facilities. But even the sub suppliers, chassis makers to those RV Motorhome manufacturers, were also closing down. So once the Motorhome manufacturers saw that there was a big interest because there's been a very big interest to acquire motorhomes now during the pandemic period from consumers, What happened was in the beginning of the period, the motorhome manufacturers struggled to get chassis delivered as the big suppliers of chassis like the Fiat factory were closed down. When production started initially in those chassis manufacturers and motor manufacturers, there were serious concerns in May, especially that there would not be nearly enough vehicles to be or chassis to build vehicles on because most of those vehicles would have gone normally to what you would call the transport sector with vans being used for transporting goods. However, since many of those manufacturers of transport vehicles and the use of those transport vehicles did not materialize the same way, What happened in the end of the quarter was that the chassis manufacturers diverted a higher degree share of their total production output than normal to the motor home manufacturers.
So there was a stronger pickup in the end of the quarter than initially expected. And since sales have been extremely strong in some markets of older vehicle standings on dealers' lots, we see indications from 3 now getting enough chassis to continue to do well. So a clearly better and more positive view of the RV market, both from supply chain efficiency steps up as well as market demand only a few months ago. If we then leave it to Jonas to walk you a little bit through the income statement and our cash flow. Over to you, Jonas.
Thank you very much, Magnus. If we move to Slide number 6. Since Magnus has taken you through the sales development, I don't need to go through any more of that. So if we move to gross margin, it was down by 1.5 percentage points in the quarter compared with the same quarter last year. And the reason for this is primarily under absorption of production costs and that follows the reduced sales and production volumes in the 1st 2 months of the Q2 this year.
To some extent, it's also a complement of product mix. Our SG and A cost was $15,000,000 lower than in the same quarter last year and comes from lower sales and marketing costs. The financial costs increased by SEK 11,000,000 in the quarter compared to last year. And this is primarily a currency related revaluation of cash, both locally and in our cash pool. And this is since the FICC has strengthened during the quarter.
Also going into the corona pandemic, we also decided on a very conservative approach financially and drew on our banking facilities to ensure a strong cash position in all events. This has also temporarily increased our borrowing costs. The tax rate in the quarter was 23.6%, which is virtually the same level as the last year, same quarter. Moving over to the working capital on Slide 7. The working capital has gone down in the quarter, both absolute and also in relative terms compared with the same quarter last year.
Working capital amounts to just below SEK 1,600,000,000 and this is equal to 23.9 percent of sales. It is primarily inventory that's gone down and inventory has was about SEK 150,000,000 lower than last year's same quarter. Inventory normally goes down in Q2 compared to Q1 since the Q2 is the strongest quarter of the year. This year, however, the inventory reduction between Q1 and Q2 has been higher than in recent year and amounts to almost SEK 200,000,000 more compared with just below SEK 100,000,000 in previous years. The exchange rate effect is marginal As a consequence of the favorable development of primarily inventory, the cash flow for the period has been very good and better than previous year.
This amounts to SEK 560,000,000 compared to SEK470,000,000 last year. The inventory is at a low level at the end of Q2. It's even below planned level in bike related product categories where we saw a very fast growth at the end of the quarter. CapEx amounted to EUR 37,000,000 in the quarter compared with EUR 34,000,000 in the same quarter last year. Thank you, Magnus.
Thank you, Jonas. And then if we look at next slide and a little bit summarize where we stand with our financial targets. It is clear that our organic growth target of minimum 5% in constant currency, we're not close to, but I'm still happy with how we saw an improvement at the end of the quarter and therefore for the year to date are now at minus 10%. If you look at our underlying margins, we are at 20% for the 1st 6 months, which means that on a rolling 12 month basis, we are at 16.5%. And we held on well, as I mentioned, in the quarter and therefore have a strong continued margin.
We are below our leverage target of leverage between 1.5 to 2.5 times. We're at 1 point 4x, which is then also lower than we were at this point of time last year. And as you remember from our presentation in the Q1 and as communicating via separate press releases, the group's Board of Directors took the long term view of securing a strong financial position and therefore withdrew the previously communicated dividend proposal of SEK 7.50 per share due to the uncertainties that the corona pandemic poses to the company. So if we look at what's the focus for us for the coming period and on the last slide, it's really, as you will understand from my comments about incredibly differing performance between months, between countries and between categories and even within categories between products. That means we have to focus our organization very much so on a very flexible approach.
While we, as a company, and I'm sure you know that by now, we'll always have a very focused long term approach in doing what is right for the company for the long term. And here, I have to send out a huge thanks to all the staff in the company, all my colleagues around the world that have gone through a roller coaster of a ride with initially, for a very short period of time, short term furloughs to working night and day, trying to cope with ramp up of demand at the end of the period and also for in a period when we cannot do the traditional selling in work with fairs and events needing to more quickly than ever pull together fantastic digital virtual selling tools so that we can present all the cool new products that will come to market in 2021 in a convincing and selling way to our retail partners during the coming months. And here, everybody has done tremendous effort. Now we are focusing, of course, in a period like this on the health and safety of our employees, but we are moving back to work at offices in a phased approach around the world across sites.
And of course, doing that with a focus on the distancing rules and the hygiene setups that happen. We're also having very, very limited traveling, as you can understand from the realities, and that's why it is so good that we already have a very strong virtual setup in terms of meeting structures, both within the company and with our main customers and have developed some great new digital selling tools to show and showcase and present and train on our new products. If you look at the flexibility that is required as we speak, actually, it is a reality of where this company is normally very good. I think we have proven over the years to be smart at combining statistically driven forecasting with a hands on approach.
But we have to admit, at
the moment, statistically based forecasting is a waste of time partly because there are such huge swings, which puts great demands on product management, supply and demand planning teams in trying to do our best in meeting those very big swings between categories and customers and markets. Our own plans are working at a much higher capacity output in some parts of bike related products and actually a lower output in other parts at the same time, which, of course, then internally demands a lot from management communicating inside supply chain to those various teams in a logical, pedagogical and understandable way, why some are working extra shifts and others are not needing to do that. And we are, of course, in very close discussions with many suppliers on capacity of what they do and time. And here, we are sometimes, in some cases, exposed to suppliers that generally have customers that are not performing very well and therefore want to deploy short term furlough or earlier close downs of vacation periods where we are forcing them, I have to say, in some cases, to keep open only for us with some penalties actually financially as a consequence, but it's a decision we're taking to try to meet demands of those categories that are outperforming expectations at the end of the quarter 2 and in the beginning of Q3.
And if you look at that, as Jonas mentioned, we are having lower inventory than we would want to have in the bike related products, and we are struggling to meet demands of bike related products like bike racks, child bike seats and bike trailers. And despite having output levels that are higher than ever before for this period of the year. And we will see some issues with that going into Q3 as well. But with all the great effort we're putting in place, we're ensuring that we're catching up as quickly as possible to serve those increased demands. If you look at that, what it means is that we you know us, we do not give you forecast.
Even SKF that normally gives very detailed forecast didn't give one. So you're not going to get a forecast from a company that normally doesn't even give forecast. But what is clear is that you heard from our commentary that we believe strongly in the bike related categories and that in those bike related categories, we will be capturing those things that were lost in spring. That means a good start in the quarter for bike related product categories, and we're working very hard to meet those demands. You heard me mentioning that the continuous strong performance of active with kids that we've had now for years years continues.
So that will continue to do well. We are going from pessimistic view of what would happen RVs to a slightly more optimistic view, not hugely optimistic, but definitely slightly optimistic on what the RV industry will be able to do. And we know that we've stated every single time we present RV products that we are going to beat the market. So if we believe the market is a little bit less pessimistic and maybe even optimistic, we will do better than that. That means that we have a positive view on our Q3 performance.
However, there are categories where we are going to see very, very limited sales in bags especially, but also in other categories where we clearly will not have the same performance as we had last year. And we also have to acknowledge the fact that there are countries that are in very big lockdown measures at the moment. You have several Latin American markets, for example. And you have markets and states where there are second waves of lockdowns happening. We've had that in Victoria, States of Victoria and Australia.
There are signs of that in California, etcetera. So we have to, of course, be very careful of being too bullish about what could happen in the market. What we are very convinced of on a more mid- to long term view is that as a company pushing very hard for product development and launching great, cool new products every year for those active people that want to do a vacationing and just or just live a daily active life in their close vicinity, we will continue to be hitting on a trend that was already existing before the pandemic, which we believe will only be enhanced by the pandemic. So we feel very comfortable with our long term strategic view even if there will be some shakiness definitely in those coming quarters as we see. With that, I leave the call open for questions.
We have our first question from Daniel Schmidt from Danske Bank. Daniel, please go ahead.
Yes. Good morning, everyone. Do you hear me?
We do. Good morning, Daniel.
Good morning. A couple of questions and then starting out with what you sort of finished off with the bike related sales and recouping some of that that you weren't able to deliver in Q2. Could you give us any indication of what you regard to be lost sales in Q2?
I think you have to split it out
in 2 things. There is always a spring period where we normally have a big selling period. That wasn't there due to the fact that consumers weren't allowed
to do
things. Then when sales grew faster and demand grew faster than I think anyone expected at the end of the quarter. We have had cases where we haven't fully be able to meet that demand, and we're meeting then instead in July. But then if it continues to do well in July, despite doing more in July than we normally do, we might not be able to fiddle everything in July. So if you look at it, it's too many different factors to actually give a number of it.
All right. Could you say sort of under normal circumstances, disregarding this particular period, how much of sales is usually bike related if you look at bike carriers, tire bike seats, bike trailers and so on?
I think a lot of you analysts, I've seen you guessing around 25% -ish, and that is on an annualized basis, very right. But if you look at it, as I've been saying a few times, bike is normally heavier askewed to the spring than many other categories. So then by default, more than 25% in Q2.
All right.
Good. Would you say that when you look into Q3 and given the sort of the seasonality of the business, do you think that this particular year that we have a bit of a prolonged season given what's been happening with COVID-nineteen in the world? Or is that incorrect?
I think for bike, definitely. We believe so. We see indication not only then for Thule but also talking to all the large bike manufacturers. If you look at it, it is very likely that there will be a longer or later combination of later and longer bike purchasing period than there was due to biking being an option that a lot of people will appreciate in a year like this of being able to both have as an exercise tool or do vacations with it or just as a commuting tool. So I believe the biking period definitely will last longer as it was late in the starting.
If you look at the more traditional just going on a weekend or with vacation, 1 week or 2 week vacation driving with your roof rack and your roof box and stuff in it to the coast or your summerhouse. I see maybe a little bit of sliding within the quarter, so to speak. I believe if you would ask a lot of your friends and colleagues around the world, you will have heard many maybe trying to slide the vacation 1 or 2 or 3 or 4 weeks forward to hope that we see more opening of social distancing and the ability to go where they would love to go. So maybe a little bit sliding in the quarter, but not generally a huge difference for those other cats.
Okay. And I think it was fairly clear that you really want to recover when it comes to capacity on the bike side in Q3 and doing everything you can to succeed on that. And then that sounded to me that, that's going to be better for absorption of fixed costs going forward compared to your plan in Q2. But you did also state that you had an unfavorable mix when it comes to, I think, your growth products and markets. Where do you see that going in Q3 so far?
I think if you look at it, 1, we don't give an indication of the Q3 in that sense, but you can say that you're right. Of course, if we expect that our own plants that are assembling these products will have more to do than they did have to do in Q2, you're absolutely right that you get a better absorption from that perspective. And then in terms of mixes, it would be presumption to say that we know how those mixes will pan out because if it was difficult in any given normal year to forecast exactly which countries and which markets did what, it's almost impossible at the moment. So how the product and category channel mix, so to speak, will pan out. It's very difficult to say.
But you're absolutely right, we will see a better absorption than in Q2 compared quarter to quarter, like for like in Q3 versus Q3 last year than Q2 had versus Q2 last year.
All right. And then a final one. I think you said, Magnus, in connection with the Q1 call and a lot of things have happened since then. But I think you alluded to product development spending exceeding 6% of top line in 2020. Given the development that you've seen in June and maybe so far in July and the strong, strong recovery that you've sort of noticed, Do you feel that you have any sort of reason to change that outlook when it comes to product development spending as a percentage of sales for the full year?
I think it's still going to be around 6%. It's going to be around that area. It's not going to be a huge difference.
Okay. Thank you. That's all for me. Thank you.
Thanks.
Our next question comes from Gustaf Sandstrom. Gustaf, please go ahead.
Thank you, operator. Good morning, guys. If I might start with a follow-up on Daniel's question on the gross margin. You're right in your report, if I'm correct, it's down underlying 1.5 percentage points. And you referenced as Daniel talked about all the customer and product mix.
I'm curious to what extent does that relate to sort of lower share of sales from RV in the quarter because I would assume that luggage, for instance, which is down a lot, probably carries lower gross margins than the group average?
I think what a lot of people underestimate, it's not as simplistic as saying that sporting cargo carriers is 1, Pax by Silog is another 1, Aktivikits is the 3rd one and RV is the 4th one. There's huge differences within the subsets of those 4, and there's huge differences within the subsets of those 4. So here, you can say that product mix and category channel mix is much more complex than you would assume. And therefore, that is a much more detailed picture that pans out as things go. What is clear is that if you look at the negative 1.5% that we mentioned in Q2, there are some positive signals.
And I'm not the one that normally wants to promise anything. But reality is we presented very clearly that we are having a comparable drag in Q2 2020 versus Q2 2019 due to that there are tariffs now in
the U. S. For some Chinese goods that
are higher than they were at the same time last year. As we now move into Q3, we will have a like for like comparison that is much closer, not 100% aligned because there's still some tariffs that are higher, but that drag will be smaller. We are clearly saying that we had a big under absorption in the quarter with a drop of sales, and we now with our own factories in the impression of Baikal just mentioned so that we will see a better absorption. Raw materials are going in a positive direction. Although we are not a raw material purchaser, we purchase components with value add and other things.
And I did mention in some cases, we even have to pay a little bit extra to keep them open. We still see that as a relatively positive contributor. So from a bigger high level point of view, there are a few factors speaking in our favor then in terms of channel, customer, country, product mix that moves pan itself out as things go.
All right. And a follow-up on the RV specifically. There's been some extraordinary acceleration in the Europe RV registrations. I believe German motor caravans in June was up 60% or so. Do you see is there an element of sort of one offs in those numbers?
Or do you see a very strong trend also thus far into July from what you
can tell?
There is a one off effect definitely if you would also listen to what Thor Industries and what the Caravan Association are presenting, which was that there was a pent up, actually people not being able even to go to the dealership and buy and therefore not being able to register and even certain registry offices being closed, so therefore not possible to register in April May, which then meant that June was extreme. So very, very extreme in some countries due to those factors. But what is clear is that there was a positive trend going on anyway in those 2 specific markets that are doing best Germany and the Benelux. There was anyway a relatively positive expectation, and then it just was a glut in June. However, for those markets, there is a strong belief that Q3 will be good as well, not nearly as good as June, but still good.
And two more questions, if I may. Firstly, obviously, a very strong backdrop from the Viking sales. I believe there were more bikes sold in the U. S. In May.
That was the biggest number since the oil crisis. So obviously, a very strong backdrop. But it seems to be a sub trend too that the battery electric bikes are growing at phenomenal rates. And I'm a bit curious how you feel about your assortment to that backdrop. Do you feel that you have a good product assortment towards electrical bikes?
Or is that an opportunity for you, I think, going forward?
Electric bike is very good for Tula for 2 main reasons. 1, the electrical bikes are significantly heavier than normal bikes. And when you are loading several significantly heavier bikes on a bike rack, you're going to be needing a better quality, better professionally done bike rack, a cheap private label, low end product, can't even cope the dice will fall off or the whole carrier will fall off. So you need to spend more money on a high quality product. We are one of those that can provide that better than anybody else.
So that helps us from that simple just being able to use the bike rack on a much heavier set of bikes. There is a second logical also thing that helps us and that is if you're buying an electrical bike, you have paid significantly more for your bike. So you pulled out your credit card, you paid those €3,000, €3,500 maybe for the bike. And the salesman in the store says to you, Sir, how are you getting that home tonight? And they go, Ulla, yes, you're right.
I need to get these 2 bikes that I bought for myself and my wife back home tonight. And I said, have you seen this fantastic towbar mounted platform carrier with lights and everything, tiltable, foldable, until it's a brilliant piece of kit. It's €800 You've just hunked up €7,000 for 2 bikes. And when he says it's €800 you feel like that's reasonable. I'm carrying these 2 very expensive bikes with it.
It's worth it. If you have just bought 2 very cheap bikes at some type of do it yourself store for EUR 3.50 apiece, your bike carriers until it would cost the same amount as to bikes, and it's more likely in that case that you would have gone with a cheap crappy bike carrier rather than a high quality one for Tullow. So we're held 2 ways definitely by the e bike churn.
Yes, makes sense. And lastly from me, if I read the report correctly, you have received SEK 40,000,000 in governmental assistance in Q2, of which SEK 9,000,000 is from Sweden, given very solid financial results in Q2, which I assume is a lot better than you figured when you applied for these systems? Or are you looking to pay back to the government in a civil fashion that some of your peers have done?
I think as everything when you do these things with pandemic measures and you apply various governmental aids, you don't ever know beforehand how it will pan out. And as things now develop, we will make all those right assumptions and we'll do what is right from all aspects of it as the year progresses.
Great. Thanks.
Thanks.
Our next question comes from Frederic Morgard. Frederic, please go ahead.
Good morning, everyone. Magnus Johanoff. Good morning. Couple of questions on expenses. First of all, as you're ramping up production or have been ramping up production throughout the second half of Q2, you said you had some additional expenses with regards to more or less forcing some supplies to remain open.
Are you adding other costs as well with regards to bringing part time labor back? Or is it more costly or more difficult for you to restart production this late in the
season? No. I think generally there, we're very capable of showing extreme flexibility at similar cost levels. What you can say, and we're not the only one, is, of course, that when you're ramping up late in the season and at the same time, there has been very many challenges generally in the transport sector, you're struggling to get your incoming and outgoing freights at the same rates that you normally would get them. And so there is some penalty marginal, but still there in convincing certain suppliers to produce for us.
And there is clearly also some impact in just purely logistics costs being slightly higher with fee freight being too slow and canceled in many cases, train, which we're using in a lot of cases, having some extra costs associated with it. So there's some more related to logistics.
Okay. On selling expenses then, I think they were down some 5% or so year over year. And given as you said, marketing expenses, sales expenses were lower than previous year, I would assume that most of those cost cuts came in the first half of the quarter. So could you tell us something about how you're thinking about ramping those costs back up, I guess, marketing at least? And maybe if there are some costs that you see will be stickier than others?
Yes.
You can look at, of course, yes. You're right there, Ferdin.
Some are, of course, connected to the sales volumes of what you do and how you support
your partners. So to the sales volumes of what you do and how you support your partners. So there is if you
sell more, you will have
some increase to that. Some of these marketing expenses are associated we will be spending more money, are associated we will be spending more money on various digital tools and providing more digital material. But still, as compared that we will not be going to a number of major fairs, we will be in that marketing way saving some money even in Q3. Some of that was Q2 and some will be saved in Q3. And then on other things, we'll spend slightly more.
And associated then with sales pickup, we will be, of course, spending sales and marketing is basically more in line with those.
Okay. So perhaps more or less taking out one another those structural costings that you're seeing at least for the second half of the year with less fair cost but ramping up digital initiatives and marketing?
Yes. And I think I want to point out we're very long term focused. So it's not like we've tried save anything core in our marketing. We've done an upgrade until the coming June with activity based navigation, which is enhancing the brand experience when you go in there. We're providing some great visual selling materials with lifestyle movies and instruction films and great imagery and all of that.
So most of the core marketing efforts, we are pumping in money drive long term growth. But specifically on marketing, there were some quite significant savings from Paris just being canceled and we getting the money back.
Sure, sure. And just finally, the EUR14,000,000 I think it was that you had in parallel grounds. Is it possible to get some detail on where in the P and L these are found?
Yes. They are primarily in the cost for production.
Okay. So cost of goods sold then, I guess?
Yes.
Yes. Thank you very much.
Thank you.
Our next question comes from Kerry Rinta. Kerry, please go ahead.
Yes. Good morning. When it comes to current trading conditions, you have been very helpful in discussing the bike related active with kids and then the packs and luggage. So I guess the it's fair to assume that the bike related active with kids, maybe 50% of your summer month sales will be doing well this summer. And then you have been tax packs and luggage not so well.
But how should we look at rooftop boxes, roof racks and RV for the if we look at combined Q2, Q3?
If you look at it, I mean, 1, we don't give forward looking statements on the detail. But what is clear is that as we are mentioning in Sport and Carried areas, bike did well in Q2 and roof racks and roof boxes did not. We believe they will do better in Q3 from the indications we see and also because now people are allowed to go on those shorter 2, 3, 4 hours trips where they pack their stuff in and go to their summerhouse. When they weren't allowed to do that, they don't buy those products. Now they're allowed and they buy them.
So we will do better, but we don't have a booming support like we little bit do in bike. And if you take RVs, you can say that the RV industry impact, as I did mention bike in detail, was associated with also supply chain closures and other things. And therefore, a lot of the questions on performance there will be how well that supply chain actually performs. From an underlying positive demand in those core markets when consumers wanting to buy new vehicles, The question is more if those manufacturers can't cope to produce them for this summer, are those same consumers as eager to have it delivered in October, November and just parking it down for 6 months? It's a question that nobody really knows even in the RV industry.
So there, it's going to be really a lot about performance now from those manufacturers getting the output, which is not in our hands.
All right. That's helpful. Then about the your online sales that you have few countries where you do online sales directly to consumers. Given the extraordinary or unnormal times that we're living in, is this having any impact on your plans to maybe turn on additional countries during 2020, I. E, you have to focus on your traditional retail customers instead of putting more effort into your direct online sales to direct to consumers?
No, we're actually following our long term strategy, which has been that we in countries where we are convinced that we can add value for the consumers and in a cost efficient manner handle the service levels that would be expected for a consumer in terms of delivery and everything around that, that we will be opening up more countries as a complement to our retailers selling. We have just recently opened up Germany a few weeks ago and there which was in line with our plans, and there will be further countries in Europe following that as well. So we historically have had U. S. For a few years.
We've had Sweden and Denmark for a year. Germany has just recently opened up a few weeks ago. And there will be more countries as we come in the coming period, and that is following our previous plan.
All right. Then finally about new product introductions. You mentioned in the release that you will release new products this year as well that will then hit the shops next year. But is the fact that there are no fairs, there are no sporting events, is that having any impact on your launch plans for 2021?
No, there isn't. We're launching the same number of products as we were targeting to do anyway. What it has had has been a significant impact in how we decided to prepare material and at which time we've never actually been as early being as ready with so many various digital sales tool in terms of instruction movies, sales training sessions, online training sessions, lifestyle imagery, etcetera. The team has done a tremendous work from product management, product development and marketing over the last few weeks, working really night and day so that we will be able to share this with our retail partners over as of beginning of August and in the coming months. But launch breadth and portfolio is as aggressive as we were planning to be anyway.
It's just how we bring it to market to those retailers will be looking different.
All right. Thank you very much.
Thank you.
Our next question is from Max List. Max, please go ahead.
Yes. Hi. Thank you. Coming back to bikes, I mean, the lack of capacity and so on, Just wondering, have you sort of kept your market share or maybe I mean, do the competition have a similar problem in a few?
Yes. I think it's always tricky when you say lack of capacity because it sounds like we're not producing anything. We're producing more at the moment than we have ever done. The problem was that the market looked to be extremely down and demand forecast from customers was incredibly down when we normally ramp up. So in April, as I mentioned on the call, we had 500 people less than we would normally have in our factories, not knowing how long and in which way the COVID pandemic would continue.
At the moment, we have more than 300 people more in our plants than we would normally have doing bike related products and thereby having significantly higher output than we would normally have. That means and you can go in and look at homepages, etcetera, and we have enough reference from our customers, we are 100% convinced that we're not losing market share. If anything, I think we've been, with our flexibility and size and strength better than most of our competitors in handling these extreme shifts from halving sales to increasing sales in the bike related products in the various months. So I'm not worried of us losing any share, and we are doing a tremendous job to try to get as much capacity increase as possible.
Great. It sounds nice to have an extreme sort of demand situation. And do you feel that you sort of consumers are prepared to pay more for the product also that you could sort of pass on some of those costs to them and improve prices or reduce discounts maybe?
I think if you look
at us, we're a very long term company. We're not changing our pricing to our retail customers. I know that some of those retail customers might be slightly tactically
having less discounts, which is only good for us
as a brand anyway. But in discounts, which is only good for us as a brand anyway. But in terms of our pricing to our customers, we're not changing it due to this situation.
All right. And then about the season then. I guess now we are sort of in the summer season, some holidays going on and when both those times are while it starts working and schools and kindergartens are opening up again, do you feel that you the bike season will be extended this year? Sort of maybe we have another during the second half here that could you give some player a lot of those opportunities? Yes.
I think if you have to split our bike products into 2 types then. If you look at the biggest one, bike racks, is very much associated with you bringing your bikes with you to either do activities on a weekly or daily basis or just over those weekend trips or vacations to your summerhouse. And that is very much a seasonal sales to a spring, early summer norm. Where we do believe it will be extended since it didn't happen in spring nearly as much as normally, that part is getting shifted into June, July, August instead. So there is more of a shift being due to that people weren't allowed to go outside when they normally would have bought these things.
If you take the more child related byproducts, which are then, as you correctly point out, used to an extent in 2 ways. 1, just generally going out and moving around and biking down to the beach and biking on a little trip on the vacation, bringing it to your summerhouse. But you also have a significant part, which is associated with actually commuting. And the commuting part, which we clearly see is very much associated, for example, to the bike trailers in Central Europe and the Nordics, I believe there will be a lot of consumers in a trend we already were seeing anyway because in the last 10 years, we've had strong growth in bike trailer sales. That trend, if anything, only be strengthened because I believe there will be we believe in the company that there will be more consumers thinking twice about commuting via various buses and other solutions, and maybe some of those will choose to start Viking instead with their children.
We think, therefore, there might be, especially to the bike trailer part, a early autumn performance that could be good. When they, after their summer holidays, say like, okay, I'm going to bike every day, at least in September, October when it's decent weather, I'm going to have a nice bike trailer. So it's more company, more protective for my children. So that is one of the categories where we do believe there is a more continuous boom on a continuous trend that was there even before COVID.
Maybe we will see some bike trailer with heating and so on in the product launches this autumn then, I guess?
I wouldn't say that, that's necessarily where you would want to add the weight and the flexibility because most people can dress their kids quite warm anyway. But who knows in the future?
You'll never know. Well, finally, about production capacity then, I guess you have some booming activities in bikes, but could you sort of readdress capacity from maybe packs and bags to bike related production? Or is this sort of do you need to restructure somewhat? I mean packs and bags are sort of maybe
Yes. Packs, bags and luggage is generally aside from the hard suitcases not done in our own plants. They are done by sub suppliers. While if you look at the sporting cover carriers, is, to a very dominant degree, almost all of what counts done in our own assembly class. So there is a difference from who does it ourselves in sporting cargo carriers and in packs by supply suppliers.
It's also very different type of machinery equipment you need. So generally, you can say our plants or those production lines within the plants are very dedicated to what they do. And the challenge for us in delivering in bike isn't how much we can ramp up in our own places. It's all about getting enough of components from suppliers that have been in short term furloughs or are wanting to be closed down for vacations and that normally don't have this type of output in their classical vacationing period. That's the biggest challenge.
Okay, great. And one final there about product launches. Could you give some flavor in what areas you're expecting to do the major ones?
Yes. Luckily, nothing to do with the fact of the current bike trend because we don't invent and develop products in a few months. We have a very strong assortment of bike related product coming out next year. So we're that will add some boost to our very strong portfolio of bike related bike racks and other solutions. So that was already happening.
There is a number of very nice tweaks and upgrades within our stroller category as well. And there is a number of smart cargo solutions for the car as well. So I think we have a very broad offer of new products.
Okay, great. Thanks a lot. Thank you.
We don't currently have any further questions.
So then I we will let you go to other calls or a vacation depending on where you are in your lives. And thank you for your time and look forward to speaking with you again when we will announce our quarter 3 results. Thank you.