Good morning, ladies and gentlemen, and happy to have you listening in to our quarter 1 2019 report call. And it's always good to start the year in a good way, which is exactly what we have done with 2019. So if we go to the first slide of the presentation, you will see that we started the year with a net sales of SEK 1,834,000,000, which was then a growth of 13.8%. In a currency adjusted growth, that was 7.5%. And as we did the acquisition of the small company Tepui late last year in December, we also got some growth contribution from that in quarter 1.
So the true organic constant currency growth rate was 6.4% for the quarter. As we had planned and communicated, it was the region, Europe and Rest of World that was in the driving seat and grew with 10.3% currency adjusted, while region Americas declined with 0.7%. I'm going to comment more about the regions later on. The development was in line with our expectations, so in line with what we thought. In terms of EBIT, we reported a EBIT of 18.7 percent EBIT margin and SEK 342,000,000, which was also in line with our expectations incurring to the which was also in line with our expectations incurred into the plan.
So totally a solid start to the year in terms of all aspects, and we are off well for the peak season that's coming in. If we go to Slide 3 in the presentation, you will see a little bit more on the financials. And if you look at that slide, it states the growth, as we once again said, of 13.8% on sales, 7.5% in constant currency and 6.4% in constant currency organic growth. I think it's interesting to look at the EBIT margin because obviously you see a small drop from 19 0.2 percent EBIT margin to an 18.7%. You should remember that if you would look at last year's EBIT margin in constant currency, it would be instead 18.9% comparative.
And that therefore means a 200 basis point drop, which was in line with our expectations. So a solid start for the year with numbers in what we thought. If we go to Slide 4 in the presentation, which is the presentation about region Americas, We can say that it started slow in the beginning of the year as we expected it would. And there were several reasons, as we had communicated previously, with our plans to phase out some business plus some expected tariff impact in some delays. But if we go through it well, let's start with a small acquisition of Tepui.
That acquisition has really been quickly and well implemented in our business, and everything is up and running as it should. So we are very happy to say that, that has been quick and smooth. The sales in the Q1 for all the rooftop tent products was SEK 18,000,000, which is also a growth in true organic growth versus what Tapu sold in the same quarter last year, so a positive development. We have communicated a long time that we are expecting to see the drop of our OE products that we are phasing ourselves out, which is both some accessories to pickup trucks as well as 2 bag and case collections to OEs. In fact, the decline was a lot less than we thought in quarter 1.
So some of that decline effect will instead hit the coming quarters comparatively. It will still by the end of the year be the expected SEK 60,000,000 that we have communicated in total decline or sorry, SEK 45,000,000 this year. So we have $45,000,000 as a total, but it was a little bit less decline in this quarter. If you look at the other parts independent bike dealer channel. And we historically have a strong spring with those guys selling a lot of our bike racks.
We still expect also 2019 to have a very strong spring. We see good numbers also here in April already, we can say. But normally, we would have had some preseason orders at the later part of quarter 1. This year, however, due to that those independent bike dealers expected an additional tariff to hit on the 1st January 2019, which was previously communicated. So we had the first tariff impact on Chinese imports in September 2018 with 10% and then previously a communicated additional 15% to hit as of 1st January.
What then a lot of the independent bike dealers did since they buy most of their bikes from China and 15% on a bike is very much money. They decided to buy a lot of bikes at the very end of quarter 4 last year. Then the tariff was postponed in communication by the U. S. Authorities, first communicated as a 60 days postponement and then an additional postponement.
And now nobody really is sure if it will come or not, those additional 15. But it means that a lot of the small independent bike dealers tied up a lot of cash with expensive bikes. Since we have a very strong track record of on time in full delivery performance and we have local manufacturing, that meant that we saw less pre season orders than we normally do. And therefore, we are feeling very good that we will see some of that pickup, as already I mentioned, starting to see it in April to those same as the season goes. Secondly, we also saw that for the first quarter in a very long time, we had did not have growth in Canada.
We had a slight decline. That was very much due to a phasing versus last year where we, at the very end of quarter 1, had some big load ins to 2 big retailers in Canada. We are very calm about our continued total growth rate in Canada being similar to in the last few years where Canada has been the strong performer in North America. So no worries whatsoever in terms of total performance. Thirdly, we have some challenges in the overall economy situation in some of our midsized Latin American countries like Costa Rica, Colombia, Argentina and Panama.
And that is a reality of a tougher economy there, but we are doing well in the biggest market, Brazil. So we are still positive overall for Latin America. If you look at the commercial launches, the key launches for the period, this was really the first big quarter for the U. S. Organization and the North American organization for the new roof rack generation, and that has been very well perceived in the market and is rolling out well.
And then in this region as well as in Europe and rest of world, we hit the market with our first hard case luggage collection ever, the Thule Revolve, and that has been very well received in the market. And also in terms of Thule Sleek, the 4 wheel stroller, which was launched later in the U. S. As we initially last year focused mostly on Europe, It's starting to get really good listing in various department stores and juvenile stores. So the listings part are rolling out well.
We now need to see during the rest of the year in terms of the true sellout in the North American markets. If we turn to the next slide and look at the strong performance of Europe and the Rest of the World, where we had a 10.3% constant currency growth, you can say that in general, we had a very strong start to our sporting cargo carriers. And part of that is a phasing situation a little bit other way around than we just mentioned in the U. S. When we talk about our bike racks, which is our biggest category in sporting cargo carriers in Europe, we have mentioned many years that we are a little bit dependent on how quickly the spring season comes, not in total sales over a year, but in will some of that sales come late Q1 or early Q2.
This year, the second half of March, had some great weather. Spring weather was tempting for a lot of consumers. And we had a very strong start of the season a few weeks earlier actually than we had in 2018. So we are very confident over the bike rack category's total growth, but it was a little bit exceptionally strong at the very end of Q1 as well. So a little bit of phasing effect, but generally aside from that a very strong performance in sport and cargo carriers.
Also impacts back to luggage, a solid start with nice growth and the big growth driver being the Tullerwold Hardcase luggage launch, which is going as well as we planned, which is very nice to see. Production in Poland is running well, and we're getting very good orders. And early to tell, as often is the case, so early in the year how well it will sell through. But in terms of orders from retailers, listings, very solid start. Also, the Thule revolver has helped to create momentum in the Thule Stobterra soft luggage.
A little bit what we internally have joked about saying it's difficult to win when you have an army of 1 in a store. And in some stores, we've only had the Solesoptera luggage and therefore maybe not impressive presence that you would want as a brand. When you now add in the same stores a hard case collection as well, we start to become more of a brand in the stores, and that has actually also helped our total stopterra luggage. And then in this region, as we know, similar to the U. S.
But with less impact, we also see a shrinking legacy product category, but that is becoming smaller, and it's shrinking a little bit less in quarter 1 than we did last year. In the active with kids category, we continue to grow at a very fast pace. The multi sport bike trailers category is doing great, going very well for us. Child bike seats is chugging along very nicely. And we continue to grow in our Tula Sleek rollout in the stores.
So we are seeing good communication and good throughput there. Finally, in this region, we do sell a lot of products to the RV market, awnings by carriers and a few other things. And we have communicated for quite some time that we believe there is an adjustment necessary in the market. That adjustment is happening a little bit, but it's coming a little bit later than we thought initially. So it was actually a relatively okay quarter 1 with less impact than we thought from the market perspective.
And we are doing very well outpacing the market significantly. So we had a very strong start for RV Products, stronger than actually expected. With a market that is flattish in terms of registrations if you take all over Europe, but with the core markets for the Thule Group, which are the German market and the central markets in Europe doing better than the Nordics and the Brexit Exposed UK. So we are in a slightly better situation than we expected. We still expect the market to be slightly cooler for the full year, but feel very confident about our growth ability in RV products as well.
If I then leave it to you, Lennart, to talk a little bit more about some of the other financial numbers.
Thank you very much, Magnus. So we are at Slide 6, the income statement now. So gross margins were down in the Q1 versus the prior year with 0.9 percentage points, including an unfavorable currency effect of 0 point 4 percentage points. Decrease in the gross margins in constant currency then of 0.5 points, driven by the negative material price development we have communicated is that we will see the beginning of this year at least, year over year, not yet fully compensated by our ordinary customer price increases that we do implement in the Q1 and also the fact that the Chinese tariffs for U. S.
Purchases implemented during the autumn with the 1st 10% increase, where we only do like for like price increase to our customers, hit our gross margin as well. Our selling expenses, higher than prior year in absolute numbers. In percent of sales, we ended the year the quarter at 17.8% versus prior year 17.6% due to the product development push and commercial initiatives primarily in our new categories. The financial net was minus SEK 13,000,000 in the quarter versus minus SEK 16,000,000 last year. This year, we had no unfavorable currency impact, while prior year, we had a minus SEK 5,000,000 on that.
External borrowing costs, slightly lower than prior year. And this year, we also have a negative effect by the new IFRS 16 accounting rules implemented from January 1, with SEK 2,000,000 extra in our financial expenses due to that. Though as you can see on the right hand side on the page that we have a very little effect on our income statement due to the IFRS 16 change. So we have a favorable impact of SEK 1,000,000 on EBIT in the quarter and a negative SEK 1,000,000 on the net income. Effective tax rates for Q1 was 23%.
So if we turn to the next Slide 7, the operating working capital and operational cash flow. This quarter, we ended with SEK 1,600,000,000 in total operating working capital, which is 24% of sales versus the 21.4% prior year. As communicated last report, increase and levels of specialty inventory is in line with our expectations and plans, and we do not expect the inventory levels to go back to more normal levels until the second half of this year after peak season is done for our biggest categories. Therefore, it follows the pattern for the operational cash flow, where the buildup of working capital preparing for the coming sales in the much larger in sales. Q2, had a negative operational cash flow by SEK 75,000,000 versus prior year SEK 69,000,000 minus, but we will see a significant improvement in Q2 and Q3 following.
Thank you very much.
Thank you, Lennart. So overall, if you look at Slide 8 and our performance versus financial targets, we feel very good that we're tracking to our plans with a solid organic constant currency growth boosted with the small acquisition of Tepu in Total Growth. We are tracking to what we expected in terms of our EBIT margin, And we see that we are with the new rules of IFRS 16 at a 1.9 times net debt to EBITDA leverage, while if we would exclude the IFRS rule, it would be 1 point 7,000,000 comparably to what we've presented historically. There is an Annual General Meeting today where the proposal of a dividend of SEK 7 per share is being presented, and that would mean a net 86% dividend then to net income. If we turn to the future on this last page for the coming months on what we focus on, on Page 9.
First of all, it's great to sit with great products, a production setup that is working very well. We have done major projects in all 6 out of the 9 plants without any disruptions. We have shifted our Western European distribution center without any disruption. And we expanded our Eastern European distribution center without any disruption to our business. That means we sit with full inventory levels, we have some great new product launches and we have a good performance in our plans, which made me very confident ahead of the peak season.
In terms of sales and marketing, a lot of focus is going on, of course, as you would imagine, in truly both establishing ourselves and also driving sales through in our 2 additional focus categories, so to speak, the new ones of luggage and strollers. And that has, of course, meant that we have hired some new people in the bigger markets where it merits own dedicated sales forces, generally as key people from the industry with good experience to be added to our own internal competencies. It also means that we are doing a lot of initiatives at various small affairs and events locally, especially inside the Juvenile. And we think these are keys to drive the long term growth. And in terms of product development, we are running a number of parallel big projects.
We have just started sales of a number of very recent product introductions. But more importantly, the fairs, the annual fairs are coming earlier and earlier every season. So many of the fares that historically would have been at the later end of Q3 are now even at the very beginning of Q3 or some of them even at the very end of Q2 in June, which means that our product development efforts are pushing very hard to be ready with all those new products that we will be showing retailers in June, July August for then launching them to consumers in 2020. We feel very good about all our projects, some very exciting products to come. And we have decided to continue at the high development spend level, which is around 6% of sales.
Then finally, in an operational way, it's, of course, a huge peak season for us. We are at the very moment with the most people that we will have anytime during the year in our plants. We are running several shifts in most of our plants. It's a very exciting peak period. In that peak period, there is, of course, also a focus of having done a number of major investments in our plants in 2018.
We're starting to see and what is a big focus is to capture some of those efficiencies that those big investments and layout changes to the plants should deliver on. And then we are in the finalization stages, especially in our U. S. Site in Seymour, where we have constructed an additional building with a fabrication plant next to our assembly plant, where we are in the midst of the last phases of that, which will be ready in May. We are also needed to expand our Belgium R and D product site after those years of fantastic volume growth.
And we have, therefore, also the last phases of that startup of that additional small plant. And then finally, we are in Phase 2 of our big roof rack generation rollout, which means that the Swedish plant is still going through some major innovation in terms of assembly lines. But we feel very good on the performance. And I have to say that the operations team in the company and the supply chain team has done a tremendous job to run so many plants, so many major projects without any issues in terms of disruption of deliveries. So a fantastic job of that team.
With that, I leave the floor open for questions.
Thank you. So our first question today comes from Daniel Schmidt calling from Danske Bank. Daniel, please go ahead.
Yes, hello. Good morning, Magnus and Lennart. Hope you can hear me. Just the first question, a couple of subjects and to start with. With RV and what you said on Europe, and it sounded like you were outgrowing the market quite a bit.
And you also said that you were a bit surprised about the fact that the market impacted or the slowdown in the market was implicitly, it sounded like it was less than you expected. Would you say that starting sort of Q2 has been a bit more like you feel at the start of the year? Or what's the trend currently in RV when it comes to production? I think I'll start with that one. Yes.
Good morning, Italo. Yes, I think if you look at it, we see a trend. We thought the RV manufacturers would have gone more aggressive like they've done historically sometimes in the past of extending Christmas holiday breaks, not getting so many back when they were now doing this pipeline adjustment. So maybe more of a stop and go type of thing and then be more calmer in Q2, Q3. But it seems more like they've done a more balanced way, which is actually better for everybody, I think, and are not taking a big hit, so to speak, in Q1, but rather balancing it out, spreading it thinner.
So it's not like there is a dramatic change in our expectations for Q2. It's more that it will be more slightly slower the whole time. We were more fearing a very aggressive turning off the switch almost completely for a period in Q1. They didn't.
All right. And but is it fair then to say that this inventory correction will be going on a bit longer than you expected at the start of the year? Or are you seeing retail demand in your markets improving going into Q2 and sort of taking the edge of the need to destock?
I think the need to destock is there. We are not changing our opinion on that. What we are seeing is less of a step quarterly effect than we maybe thought, and it's going to be more a consistent. We don't we haven't changed our mind on what we believe roughly that destocking is. But actually, if you look at Nordics is a very specific market.
UK is a specific market due to other reasons, UK due to the Brexit, Nordic due to some of those emission rules. But if you look at the big markets, Germany is doing well in registrations. Some of the other central markets are doing really well on registrations. If you look at Triggano's recent report, if you look at some of those caravan statistics, it's not doing that badly. It's tainted a bit about the Nordics and UK, luckily not our most key markets for our products.
We are more Central Europe. So overall, it's roughly in line with our expectation as a total, but it more smoothed out.
Okay, good. And then just
very briefly on the portfolio pruning. The rest the remaining EUR 33,000,000, is that going to be done in Q2? Or is that sort of slipping into Q3 as well?
You're right. Our expectation now is that they will actually slip in, spread out also longer. It's the same amount, but it will probably spread out longer into the second half as well. We see it unlikely that it will now in Q2. It probably will be spread over the whole year.
All right. And then thirdly, raw material was negative. It was a headwind for you in Q1. Is it fair to believe that raw material will turn gradually to be a tailwind by the end of Q2?
It's definitely going in the right direction. Tailwind is always a questionable thing. It won't be left negative initially. We know that much, and it will go in the right direction if you compare it then, of course, with the price increases implemented as well. So you have to do both the comparisons, so to speak.
But yes, it's improving in the right direction.
And then the last one for modeling. You said the product development you're pushing product development very hardly very hard right now, and some of the fares have been sort of brought forward compared to historical dates. Are you implicitly saying that Q2 will be more heavily burdened by product development spending, but the overall figure is going to be 6%?
No. The reason is mostly at the fairs, we will be showing very professionally made but still prototypes, which is not the heaviest impact cost when you do things. You have various things impacting your product numbers. So it's going to be spread very similarly to previous years. It's more of a time pressure, let's put it like this, where if you look at this year, the guys have had a little bit shorter time than normally between the previous year's launches and this year's launches to get them ready and to show them to retail, but from a cost perspective now.
Okay, thanks. Thank you.
Our next question today comes from Peter Reilly from Jefferies. Peter, your line is open.
Good morning, gentlemen. Could we talk a bit about what's happening with PAX, Bags and Luggage? You say in the release that it grew in Europe. I guess it's still shrinking in the U. S.
Because you got the bigger impact from legacy products being phased out. But overall, did PBNL grow in Q1? Are you on track to grow for the full year? And in particular, can you talk about whether the Revolve had any significant impact or whether it's just all very small numbers currently because it's the initial stock orders? So maybe you can help us understand what's happening with PBNL, please?
Yes. We actually were flat in the U. S. So that means since we grew nicely in Europe and rest of the world, we had a growth in packs, packs and lagging. Not a big growth, but we had a growth.
We are still being pulled down in Region Americas, as you mentioned, by having a significantly larger share of those legacy things. But overall, that is, of course, shrinking as we go. Even in Americas where it's much bigger share of the total business with more old Case Logic stuff, it's dripping fast there as well. So that's good. The key contributor for that was Tula Revolve and some of those what we call everyday backpacks.
So the Tula backpacks that you would use to work or to go to school with, university with. Those are the 2 strong performers. But actually, we're doing really nicely also in the small niche categories of tech packs and sports specific bags. So overall, I think a promising Q1. Volumes are not huge into Liravold in quarter 1 because we only started selling it as of February mid February, right?
So you've only had 1.5 months. So impact will be more positive in Q2 and going forward, which has evolved in terms of volumes.
And also in terms of mix, obviously, you had a small margin decline in the Q1 for the reasons you talked about. But should mix still be getting better as the year progresses because you'll have the legacy products phasing out? Hope you've got rising contribution from newer higher margin products. So do you feel confident that you should have a steadily improving mix as the year progresses?
Yes. We have absolutely in our plan a mix improvement, as you mentioned, for these reasons. What we have also made clear is that versus last year, we do have a tariff impact on the gross margin. So indicatively, the tariffs in itself, since we just decided to pass on the exact cost increase, not with a markup on it, on the tariffs, that meant if you take that effect, that was about a 200 basis point effect in quarter 1 just from passing on only the cost increase. So if you take away the FX adjusted part of what happened to our EBIT line and you take away that margin impact of only passing on the cost, actually, the rest of the mix is already was flat in Q1, which means by default, as you mentioned, less of legacy, less of OE, some better products, yes, we should see a positive development.
And then lastly, and you may not want to answer this, but can you give us any hint about the new products that are coming later in the year? Obviously, you won't want to talk about the details, but in terms of the scale and importance, is this are these minor infills or are these relatively major launches that will create a meaningful impact in years to come?
So if you look at it in the classical catheter sport and cargo carriers, we have launched the big things just at end of Q1. They're going to have their big numbers in Q2, Q3 due to the fact that that's when people buy those products. And there is generally, as always, some very good new buy carriers. We are coming this autumn with an additional thing, what we've already communicated, a new top of line roof box, which is only coming in the second half of the year, the Tula vector. Even if the most premium roof box is not the one that creates the biggest volume, that will be, of course, a meaningful impact in the second half of the year with a new premium roof box.
Then in the categories where we truly see some products that will generate, if we are as successful as we hope with them, some meaningful impact is with Impact's Fashion Luggage, where we're launching an additional luggage collection in the second half of the year. And we have we are just launching also ahead of the back to campus season and the next winter season, a number of new backpacks and models. So our hope is that those will be significant for the future as well 2nd half launches.
That's great. Thank you very much. Thank you.
Our next question today comes from Gustaf Sandstrom from SEB. Gustaf, please go ahead.
Thank you. Good morning, guys. Most of my questions have been answered, but I have one question that I'd like to ask regarding the Tula fleet. Could you give us some indication on you've had it obviously now in the market for some time, the run rate or the development for that stroller and if you could put in reference to perhaps your Chariot or Glide categories in terms of units sold or trajectory? Thanks.
Thank you, Gustaf. As we never talk about Unionsales about anything, I won't do that. But I can give you an indication. We are seeing a in a number of the Central European countries, Benelux especially, the type of sell through and the type of effects we wanted. We have seen a slightly slower start than we wanted in North America, partly because we came a lot later.
So it's going to be very telling now Q2 and Q3 how U. S. Does. If you look at the Northern Europe, the Nordics, we're more or less in line with what we thought. So I would say it's better in some Central European countries.
It's worse in the U. S. And it's more or less in line in the north of what we expected. And if you look at that, it's a very, as I said, very different type of stroller, so it's not comparable in that sense to other things. But it's roughly a little bit behind plan due to the U.
S. But otherwise, it's doing really well in the countries where it was launched first in, so the Benelux and Germany.
Okay, great. And referencing to your saying of the Army of 1, is it fair to assume that Tula Sleek will have a companion or 2 before the year end in the more broader stroller category?
Not in stores, but we will be showing, that's not a secret. We've told the market that we will be showing a brand new stroller model at the Ferris this autumn that will be in store as of 2020, which are also clearly mainstream strollers in that sense, not an additional joint stroller. It's going to be typical core volume driving mainstream stroller. But with of course, tillerless touch to make it better than
most. Excellent. All right. Thank you so much for taking my questions.
Thank you.
We have no further questions. So I'll hand back to you, Magnus.
Ben, I want to thank you, everybody, for taking the time and listening in and looking forward to catch up again after the Q2 in July. So I hope you have a very active spring, travel a lot, do a lot and buy a lot of the product.