Morning, ladies and gentlemen. I'd like to welcome you to the Thule Group Interim Reports Q2 2017 Results Presentation. My name is Holly, and I'll be the coordinator for today's conference. During today's presentation, you will have the opportunity to ask a question I would now like to introduce your host for today, Magnus Verlander, CEO. Good morning, Magnus.
The line is now yours.
Thank you very much, Holst. So welcome everybody to the Q2 update 2017 for the TULSE Group. And I'm happy to say it is after another strong quarter for the company. We started the year really well in quarter 1, and we've continued well now in quarter 2. So if we move on to the first slide, you can see that our net sales grew to 1,955,000,000 compared to 1,725,000,000 last year.
That means we grew 13.3% or 8 0.6% if you exclude currency effects. What was also very positive to note and proven in historical performance from the company when we drive top line growth, we also drive strong EBIT growth. So our underlying EBIT grew to SEK 474 1,000,000 versus SEK 414 1,000,000 last year, which meant that we had an underlying EBIT margin of 24.3% compared to 24% for the same period last year. In reality, that also meant that we actually had a strong improvement in constant currency on underlying EBIT margin with 1.2%. And the main driver for that improvement has been, as we have proven in the past, that with a economies of scale of driving top line and a highly efficient back end, we can materialize an EBIT improvement as we grow top line.
If you look at net income for the period, we grew to SEK348,000,000 compared to 304000000 the previous period, and our earnings per share, therefore, became 3.41 dollars We continued to follow the historical trends of cash flow, which means that the Q2 starts to generate strong cash flow for the group, and we generated SEK 416,000,000 from our ongoing operating activities. As we have also made press releases for during the quarter, we did finalize the divestment of our U. S. Pickup truck toolbox business. Therefore, meaning that we are now today a fully focused company on branded consumer goods for active families and people out there.
Consumer goods for active families and people out there. And we have finalized that strategic review that was initiated a few years ahead of the stock listing and where we over the last two and a half years then have divested our SnowChain business and now divested our Toolbox business. Related to that divestment of our SnowChain business done in 20 15. There was 2 possible earnouts in that divestment process. And we have unfortunately have not seen a very strong winter for 2 years in a row, which meant that now when final closing of the second earn out phase meant that we also received a negative €5,000,000 hit in the books on that earnout not materialized.
Overall, as I said, a very strong quarter. If we look at next slide, you can see that when we then look at the first half of the year, the performance in the quarter means that we, for the first half of the year, have grown our sales with 15% or 11% in constant currency. And for the first half of the year, we have an underlying EBIT margin of 21.4%, which is then a 14.4% growth in constant currency. On a rolling 12 month basis, that now means that we have an underlying EBIT margin of 18.1%. So overall, a very solid and strong first half of the year with a number of positive contributing factors.
If we go to the next slide, we can talk a little bit more about the regional performance in the quarter. And you can see that as we had anticipated and communicated before, the strong growth in Europe and Europe and Rest of World being the strong locomotive driving our top line growth continues where we had a constant currency growth in the region of 12.1 percent in the quarter. And what is positive, although not at the levels in Europe and Rest of World, was that we, for the 2nd consecutive quarter now had growth in the region Americas, which is especially important considering that the number one market in that region, the U. S. Region, actually has had still in second quarter a relatively shaky reality in terms of what the retail sector has been going through.
So overall, happy with 2 growth quarters in Americas and a fantastic continued growth in Europe and Rest of World. If we go to the next slide, I will walk you through some of the key things that have been the background for generating these strong results. And if we look at it, the number one is actually the point that all the major key product launches that we did late in Q1 and that we did see some very nice pickups already in the quarter, one report versus the same period last year, have continued to perform well during the Q2. Now having then passed the Q2, that is, as we said, after the 1st quarterly report, now we really do know that there is a sell through as well because here we're talking about consumers buying it out from the stores, not just selling in. So positive reception across the board and across the countries for those new launches, which is very positive to note.
If we look a little bit on the product categories, you know that our dominant product category and our historical sport and cargo carriers generating about twothree of our sales is a key performance measure for us. And what is good to see is we continue with a very strong quarter globally here in this classical core category. We are continuing to be a big winner in by carriers in both regions, and we also saw good growth in our roof rack and box categories are performing well as well. So overall, a solid strong performance across the globe in this category. We then have what we call other outdoor and bags, really in reality made up of 3 relatively different subcategories, something that we will be presenting and discussing more at the upcoming Capital Markets Day.
But if we look at it today within other outer and bags, one of the categories, the biggest one is RV products, which is mainly to very dominant extent sold in Europe. After the Q1, I mentioned the fact that we saw an extremely hot market for motorhomes and caravans in Europe and that actually continued in quarter 2. So not only are a lot of European consumers buying RVs, which is somewhere between a 12% to 13% growth in sales of RVs in the region. But on top of that, manufacturers of RVs are producing more than that sell through, which means that there is a double effect in the market still going on with very good market growth. And on top of that, I'm very happy to say that we are winning market share on top of that big growth, which means the RV product category has been extremely strong for us also in quarter 2.
I do mention in our report and I want to highlight that here is that we see positively on the RV sector also in the second half of the year, but we have indications that although positive, it might not be at the same very strong trends as we've seen so far this year. It might be slowing down a little bit, but still with positive numbers compared to the comparable period second half previous year. When we look at the other big category there, active with kids, I am extremely happy. Out of all the product categories, this is the one that I'm most happy with performance because what we have been able to do here extremely successfully is the new introduction of the Tula Chariot Sport and the Tula Chariot products shown there, the multi sport trailers, has been phenomenal success in Europe. This is a product category mostly sold in Central Europe and Northern Europe, countries where people bike with their children to daycare before they go to work.
They are sold in other countries as well, but there in those other countries is most sold for sporty people going around the weekend. So the big volumes of this product category are definitely Central and Northern Europe. And in those countries, we've had extremely strong growth with the launch of the updated award winning Thule Cherry product. So very strong performance, especially in Europe. You know that we bought the JEP company almost a year ago exactly now.
And with that, we also introduced a new collection, Tula YEP Next, which hit the market in Q2 this year, which has been received extremely well. It is a multiple award winning product similar to the Chariot product. It won the IFF Product Gold Design Award. But the Thilo Yet Next also won the which is the Oscars a little bit in Product Design. And the Grammys in Product Design, which is the Red Dot Award, the Thule Jap NEXT won the best of the best also in that category.
And in child bikes, it's now with a wider portfolio after the acquisition of JET, we are also doing very well in the Q2. And thirdly, very important for the future as we are targeting strong growth within the stroller categories that our growth of the Thule Urban Glide Joggings and Sport at stroller is going extremely well also around the world. So the whole active with kids category, a very strong performance, creating also a strong brand awareness, which is going to be key for the future ambitious growth targets we have for the Active With Kids category. The last subset within outdoor outdoor and bags is what we call sport and travel bags, which is then a combination of technical backpacks, bike transport cases, bike pannier bags. And most importantly, as of this year, also our first of many steps into the luggage category with the launch of the Tula Satera collection.
I mentioned after the quarter 1 that we were positive with the listings we had received. I can now confirm that we're also positive with the sell through of those listings and additional listings. So although relatively small numbers still it is very positive signals, which is, of course, key for us as we also in this category have some growth ambitions for the future. So also here a good start. And then finally, our still challenged category bags for electronic devices.
We do see some positive signs here, especially in those categories we consider growth categories for the future, which is the smaller day packs and laptop bags where we are growing globally in this category. However, we still have a decline in some of the legacy Case Logic products and in some of the legacy cases that we do for OEMs as well as camera bags. So that's still also in the Q2 pulled down the performance, especially in the Americas region. I am and have been telling you in the past that we are working to see the light at the end of the tunnel. I am seeing the light at the end of the tunnel here and are feeling more and more confident that we're slowly but surely coming into a position where we will also for this category be able to generate a good growth going forward.
So overall, a stable performance across categories. If we turn to the next page, you see an image from the Thule store in Malmo, located at the bottom floor of our head office. And why I'm showing that image is because we are very happy after some intensive development work to have presented to the market are new to the merchandising and store concept. When entering now in a much more aggressive way into the juvenile channel and luggage and bag channel, we have done a very comprehensive work to fully update our entire merchandising approach and store concept approach with franchise agreements, etcetera, having been developed. And we will, as of the autumn now in Q3, start rolling out a number of these targeted stores for the new categories around
the world.
Most of these will be definitely in a franchise concept, and we also have opened in the quarter one of those first few stores, a luggage store and the biggest shopping mall in Italy in close to Bergamo. We feel very good about the feedback of what we are offering in terms of merchandising support and concept. And this will be a combined key element together with the new categories when we talk about our growth plans in the coming 5 to 10 years. So exciting early stages, but a very solid work having been done. With that, I leave it to Lennart to comment a little bit about some of the financials.
So over to you, Lennart.
Thank you very much, Magnus. So on Slide 7, we have the income statement. So looking at the gross margins in the quarter, this year, it was 42.2% versus prior year 42.6%. And year to date, we have gross margins at 41.6 versus 42.3. So slightly worse, but both year to date and the quarterly decline is due to unfavorable currencies.
If we look at financial net, continued to be low. This quarter, it was minus SEK 12,000,000 and last year, it was minus SEK 10,000,000. So no big difference between the years. Effective tax rate for the group is 24.7% in the quarter versus prior year, 24.1%. And we have a year to date tax rate of 24.6%.
If you then like Magnus mentioned, we had 2 items this quarter affecting the discontinued operations. So it is the net result from the divestment of the U. S. Pickup truck toolbox business, where we have a positive result from that transaction with SEK 66,000,000 year to date. And if we then look at the snow chain divestment, as mentioned, where we didn't reach any earnouts for closing the winter season 2016 2017, which meant a write off in our books of EUR 75,000,000, which means SEK 48,000,000.
So net net, a positive income of SEK 18,000,000 year to date. If we then go to Slide 8, and we're looking at our operating working capital and operational cash flow. We ended Q2 with a working capital of approximately SEK 1,300,000,000, which is 23.3 percent of our last 12 months of sales. That's an increase of SEK 160,000,000, which is due to that we have increased our sales, but the majority of the increase in working capital in absolute numbers are for higher accounts receivables. Good to see this quarter is that inventory has come down from the end of Q1 where we had a higher number, to actually the same absolute number this year versus prior year end of Q2 in spite of higher FX.
So that shows our efficiencies, again in our working capital handling. So of course, good control over the working capital in combination with a good performance financially has shown once again that the cash flow is very positive, especially now in Q2. So we had a SEK 369,000,000 positive cash flow. I would also like to mention that we have had year to date approximately SEK 30,000,000 higher CapEx versus prior year, which is due to the building of our second assembly plant in Poland, which Magnus will come back to you and given status about. So overall, good performance in working capital and cash flow.
Thank you, Lennart. If we then look at our performance versus our financial targets on the next slide, you can see that it's green across the board, which is, of course, very good. We are at constant currency net sales growth, excluding delivering an underlying EBIT margin on a rolling 12 months basis of 18.1% versus the target of above 17%. And our leverage rate is 2x versus the 2.5% as a target. And if you look at then the dividends, you are aware that we paid out an extra dividend of Swedish SEK 7.50 per share in the May payout and also the half of the ordinary dividend of SEK 3.40 was paid out in the May payout.
So from an ordinary dividend, we had a 51% versus our net income. So a positive green across the board. And I might anticipate one of the questions I'm sure I'm going to get by some of the analysts. I already anticipated a few times, no, we will not discuss anything about new targets or different targets before we have our Capital Markets Day on the 20 September, where, of course, in the context of our long term plans, we will also discuss around what type of targets should the company have going forward. With that, let's look at what we are in the company focusing on for the coming months.
And as always in this company, our number one focus is the continued big focus to drive profitable growth. And if you look at that from us then what that is meaning in practice, it is the short term focus definitely. We are now in the month of July August at the ending part of our absolute peak season, the summer season, And then sales start slowing down a little bit in the September month. So of course, a very big focus at the moment going on entirely in the company is to both support the retailers to help them drive sell through to the consumers. And of course, considering the nice growth numbers, especially in some of the product categories with some very strong percentage growth, it's to ensure that we continue that very high on time and full product availability that we've been able to show throughout the year and past years.
The second big focus area is the continued building of the Thule brand and especially then we talk, of course, about the new categories and the new channels because our brand is fantastically strong in the traditional sport and cargo carriers globally already. But having now entered in a serious way into Juvenile and also in Sport and Travel Bags, A lot of our focus goes on working with those new retail channels for those new categories and ensuring that we also in an emotional way in various social media connections and blogger events, etcetera, make sure that our brand is recognized also in these categories. And further, of course, with significant award wins and test wins of our new product categories, it's, of course, a big focus for the organization to consider and continue our PR traction in these new media channels. And then finally, as I just highlighted a little bit before, we've spent a lot of time and energy in working on enhanced merchandising solutions and a new store concept focus, especially targeting these new categories. The 3rd big point, because we are just about to enter our very busy fare season with lots of fares, anything from the world's biggest bike fair Eurobike to the world's biggest juvenile fair, Kinder Nugen coming up in the next few months during Q3.
So we have a very big focus, of course, to finalize all those developments, being able to show fantastic new products and creating a market buzz around them as we introduce them to trade. And I think all of you guys are, of course, aware that today there isn't any more the concept of introducing something to trade. In reality, the same day you introduce something to trade with all the social media, all the bloggers, all of those realities in a
very practical sense, you actually launch
it to the consumer at the product categories and the traditional categories at the Industry Fairs and Media. The 4th point is ensuring that we continue the good job we've done with our operational efficiencies, especially in our distribution sector and in our supply chain to offset some of the higher raw material costs that all companies are experiencing at the moment. Raw material costs aren't increasing as much as they did in the quarter 1 and they have slowed down a little bit, but still we need to be very aware and have been able, as you see on our strong EBIT performance in quarter 2, also to be able to offset a lot of those and that's, of course, a key focus in the midterm. And then if you look at the real long term, we have a number of very large, very important strategic initiatives going on. One is, of course, this big initiative to strengthen our presence in the retail channel for luggage and juvenile product, and we will talk much more about that at the Capital Markets Day.
But that is a big effort for us. Secondly, as Lennart already has mentioned, we I'm very happy to say we are a few weeks ahead of schedule on our building of our 2nd big assembly plant in Poland, and our target is now to have it operational in already late Q4 rather than Q1, which was the ambition before. So we're tracking well to get that set up. Initially, this will be a relatively small assembly plant, but our midterm plan, it would become the 2nd biggest assembly plant of the group with ambitious targets for both assembly of current classical product categories, but especially also for assembly of some of the products in the new growing product categories. And therefore, of course, a crucial focus as always in this company, which is very much driven on the mantra product is king, is to ensure that we deliver on those product development projects for both the 2018 launches and the 2019 launches.
I am very happy to say that for the 10th year, as I've been in the company now, we will be able to be saying that we've never shown as many new products as we will be showing at this year's fairs. So a very exciting fair season ahead with a number of very exciting product launches. And of course, that is a key focus area going forward as always in this company. With that, we leave it to questions, and I leave it to you, Holly, to guide us through that.
Thank We have a question today from Stellan Hellstrom of Nordea. Stellan, your line is now open.
Thank you. Hi. I had first a question on the signs of brightness that you're seeing for your bags category in the U. S. Can you expand a little bit on this?
Is this due to some success in the smaller backpacks and the declining categories now shrunk so much? Or is there anything else here?
You're actually right. It's a combination of the 2 first things you said. So we're seeing as by mathematical default when you shrink a lot in a category, it starts to be small. And secondly, we have, especially in the Thule brand, it's smaller packs, seeing some pickups in those as well. So it's a
combination of those two factors.
All right. Very well. Then on the sort of somewhat slow it is growth, but still a little bit slower in outbound bags in the U. S. I understand it's a challenging retail environment, but to what extent is this reflecting in end user demand or market shares?
Is there anything you can comment there?
Yes. We feel very confident that we are holding our market share or even gaining some in sporting cargo carriers. We are definitely taking big market share wins from a very small basis, but still within the active wickets and also in Sport and Travel Bags. And as I've mentioned in the report, the struggling point is still in the bags category. However, most of that is related to very much reduction of the cat risk per se rather than our market share in the cat.
Very well. And end user demand then, is this lower in the U. S. Than in Europe?
Yes. If you look at it, it's always since we have quite a few different categories here. What you can say generally is the feedback, if you look at retail numbers for the U. S, are tough for the brick and mortar, but quite okay when you combine brick and mortar and online. So there is a situation where there is more positive wins in Europe, but it is relatively balanced positive situation in Americas as well.
All right. Then just I mean, looking on the previous 2 years, we've seen slower growth in the second half versus the first half. I would assume that partly this is due to differences in product sales mix. But any reason to expect anything different this year?
No, you're right there, Stallone. The trend due to mix of product categories and also launch timing of when we get the biggest boost is a likelihood of a slower second half than a first half, but still with positive view on the second half.
All right. Good. Thanks.
Our next question today comes from Peter Reilly of Jefferies. Peter, your line is now open.
Good morning. I wanted to start please just with some question on Activewear Kids. You said it's the segment you're the most happy with. Clearly, you've got very strong momentum there. You mentioned you're winning share.
I know it's probably quite difficult to give a mathematical answer, but I would be interested to know where you think your market share is, how much headroom there is. And clearly, your products are very much at the premium end. So I guess you're helping to expand the market with the very high priced categories. But maybe you could talk about the market share trends and the headroom available. Secondly, I wanted to ask about European RVs.
If I understand it correctly, you're a bit concerned that there's some excess inventory building up with production rates growing faster than retail sales. So are you a bit concerned you're going to have maybe an under production in the second half of the year? So even if retail sales hold up, you might still get a bit of a negative impact on production. And then lastly, your new merchandising concept, maybe you could talk about the commercial issues of who actually pays for that? I imagine it's quite expensive to re equip the store with these new product displays.
So is that something we're going to see any impact in the income statement? Or is that paid for by the retailer?
Excellent. I'll start with Actively Kits. If you look at it, you can really split the Actively Kits into the 3 product groups to understand a little bit of market share. And generally, we will, of course, spend a lot more time on this category as it is so important at the Capital Markets Day. But on a short and quick version, in the multi sport trailers, we are already the market leader and we are definitely the premium player.
So what we've been able to do there generating growth is really driving the market and taking some market share on that category. It is a very difficult category to say how much headroom it is because it is a conceptually very time it's timing right in the marketplace. People are wanting to bike around. It goes well with the environment, etcetera. But it is also still very much only in a few countries.
Your home country, for example, multi sport trailers is not a big product because not that many people bike to Kindi and let off their kids. So it is when some of these trends might hit certain markets, but there we are the market leader. If you take Childe Bikes It, we're one of the 2 big European players now having acquired YEP. And we are with the YEP and we are with the JEP acquisition now a significant player,
but there is plenty
of headroom to be taken and we now have the best portfolio and widest portfolio in the market. So we are very optimistic there. If you take strollers, we are almost not registering yet. We have to be honest, we are only doing at this moment a sport trailer, the sports stroller, which is targeted to a very little niche. There, in that little niche, we're taking some nice market share.
But if you look at it in the longer term, there's a fantastic headroom in strollers. And so obviously, strollers is a big focus from a FICE opportunity going forward, which we will talk much more about on the Capital Markets Day. If you take the RB question, no, I'm actually not worried about a significant drop off in the second half. So what I'm more saying is that, that significant add on to sell out, I don't think we will see. So we've seen a factor that very nice sell out numbers in Europe.
But on top of that, a lot of the manufacturers having then experienced last year's inability to deliver when people wanted the things they have this year with very strong order books. If you look at Trigano and other listed companies and if you listen to companies like domestic and others, they will confirm there are very strong order books among the OEM players. So I'm not worried that there will be a significant drop off versus sell out, but I don't think there will be the same top up versus sell out that we've seen in the first half. So I'm still positive about RV. I'm just saying it is unlikely it will be as fantastic.
In terms of us still taking market share, yes, we've been taking market share all year long. I'm convinced we will continue to take market share also in the second half of the year. And then thirdly, if you look at merchandising concept, honestly, we've had a merchandising concept for many years, which is we've been spending quite a lot of money supporting our retailers. So it's not the fact that we go from not having had a concept to having a concept. What we've done is a major review of how we could adapt that concept to better fit into the type of retail outlets we would do now.
So what there will be, of course, is as we have big growth ambitions, if you look at 5 year scenario in both luggage and strollers, for example, in the juvenile channel, it is clear that we will be working with retailers more and more in those channels and supporting them to some extent with them taking some costs and us taking some costs in growing that category. At that, at the same time, should be, of course, connected to significant top line growth. I'm not worried that it would have a detrimental effect on our EBIT performance, but it's going to be part of a packaging of how we drive that top line growth. I hope that answers your questions.
It does. And if I can come back just on a follow-up with the new child bike seat. Is that something you designed after Tulip's ownership? Or was that a follow-up that was in the works before you bought the company?
It was a product that was underway where we came in and did a number of changes and improvements on it. So it is really a joint effort of a development project that was underway where we added some of our expertise and skill set, and we took over the manufacturing aspects and therefore did a lot of production engineering and other work with it. But it was a project that was already underway when we bought the company.
That's great. Thank you for the
At this moment, we have no questions. So I'll hand back to you to continue.
Thank you. That either means that it was very clear what we said or that you are already thinking about that shows on your screen with all those fantastic Tula products when you want to go out on your vacation. I hope you will enjoy a fantastically active vacation so that you see all the Tula products when you're out there in the world. And I hope I will see a number of you at our upcoming categories as well as discussing the views on what type of financial targets the company should have. So thank you very much, and I wish you a great summer.
Ladies and gentlemen, that does conclude today's call. Thank you for joining and enjoy the rest of your day.