Good morning, everyone, and welcome to the Stoll Group Interim Report Q3 2021. My name is Emily, and I'll be coordinating the call today. During the presentation, you will have the opportunity to ask a question by pressing star followed by 1 on your telephone keypad. I now hand the call over to our host, Magnus Wallander, CEO. Magnus, please go ahead.
Thank you very much. Good morning, everybody, and welcome To another fantastic quarter from the Tilly Group. We can really say that we had another very strong quarter across The Board, so we can go to the first slide in the presentation. And on that, you can see that we had a Total sales of SEK 2,772,000,000, which was a 16% currency adjusted growth versus 2020. And I think it's very important immediately, and we'll talk more about that on the coming slide later on in regards what it means in reality Because we also have to remember we had a very specific comparable period in 2020.
As you will remember, in 2020, the Q2 was stifled in terms of sales due to lockdown measures And people not being able to go ahead and do their activities, so to speak. And that meant that we last The year would we really had a much stronger Q3 when we caught up with that in the season. So we had a very Tough comp period. Despite that, we grew FX adjusted with 16%, which actually means then that versus 2019, the last Normal year, so to speak, it is a 75% currency adjusted growth. So fantastic efforts being able to capture the majority of the demand that was out there.
At the same time, as you all are very aware, we have Seeing increasing costs across the board in the world. So also for the Thule Group, raw material costs have increased Dramatically, freight costs have increased even more dramatically. And on top of that, of course, when you're Running to cope with a fantastic demand increase, you do have some challenges in running your plants as efficiently as you would normally do. We have in our own assembly plants had more temporary staff. We've had more shift work.
And with suppliers not being able to fully Fulfill orders, we've had to do many more switchover between various products on our assembly lines, thereby losing some efficiencies. So therefore, in total, those things were partly compensated by the midyear price increases that we did and, of course, Some production overhead assumption. So as you can see, our gross margins was 40.6% versus 42.9 As we wrote in the quarterly report, we are feeling very good about that with our January Price increases. We will have fully compensated for those cost increases. And therefore, we will see some of those negative effects also in Quarter 4.
The EBIT margin was the fantastic 24.2%, which leaves us at the rolling 12 or latest Trailing period of SEK 23.6 EBIT margin percentage. And we had an EBIT of SEK 670,000,000, Which was clearly above the 596 we had previous year. Our scalability in our back end was proven once again where we, with fantastic Teams and good systems in the background could maintain very efficient cost controls while growing significantly as a business. Overall, our operational cash flow grew was positive of EUR 525,000,000 which was less than the same period last year, and that is Really attributed to 2 major effects. One is that we are spending more money on investments in capacity, So SEK113,000,000 this quarter.
And the other one is that we finally, especially in Europe, are starting to be able to build up Some more inventory than we were capable of doing at the same time last year. If we go to the next slide, we can see a little bit, as I mentioned, about Quarterly performances. Because for most businesses, you see a reality of a very weird quarterly reality Going on in the business, we see that we have comparative periods that are different. And That means that you should focus on the year to date numbers. So year to date, we have shown a 44% Currency adjusted growth.
And year to date, we have also then managed to grow our EBIT with 64%. So don't be too fixated in comparing separate quarters. Look at the totality of the numbers. That has meant also that, of course, we've seen a significant pickup in EBIT margin as the year to date, the 1st 9 months have delivered a really Strong performance. So don't be too focused on quarters.
Look at the more rolling month period. If you go to the next slide, you can see why because then when actually looking at the quarters, you can see some very strange Things going on in 2020. So our comparable period was strange in terms of performance in 2020. You see our track record from 2018 to 2021 there. And therefore, you can See this effect, as I mentioned in the beginning of the call, that the Q2 2020 was challenged due to lockdowns And people not being allowed to go out and do their activities, that meant a bigger pickup in quarter 3 in 2020 And even actually some of the seasonality that normally would be considered late spring, early summer products being sold As far as into quarter 4 due to backlogs in our business and still a demand that's maintained.
When we therefore look at the business in 2021, it has a more normal seasonality. Strong start in quarter 1, a very big season push in quarter 2 and a continued strong Q3 is a more normal pattern but at a much higher level. So versus 2019, The growth has been 45%, 48% and 75%, respectively. When we then now look forward to How are we coping with that demand situation? We first have to look at a very demanding comp period in quarter 4, but we also feel that despite Having done a great job in catching up with some of the backlog, we haven't been fully able to meet Demand, especially in North America, which showed a very good growth in the Q3.
So also in 2021, we will see Some spillover effect of a late season happening in the Q4, meaning that we are feeling very comfortable In what also 2021 quarter 4 we'll be delivering, but once again versus a very tough comp period. So a strong continued performance versus 2019 is something I'm very sure about that we will show also in quarter 4 This year. If we then go to the next page and talk a bit about the regions, starting with the biggest region, Region, Europe and Rest of World. We can see once again here that you need to be cautious in too much focusing on the growth on Specific quarters, and I would actually say more looking at this very strong growth year to date. But in the 3rd quarter, We showed 7% growth versus 2019, it was a 59% currency adjusted growth.
What happened in 2020 was we had some very big sales period of delayed Orders from the spring that truly made a fantastic Q3 in Europe in 2020. So although the growth doesn't seem so big, if you really compare it on a pre pandemic normal seasonality, as you can see, We had a fantastic period actually in quarter 3, and that was across markets. Strong performance across all the markets. We have a very strong bike category that continues to perform well, and it is clearly aided by strong momentum in general in More biking, both bike commuting and active holidaying and active weekends with bikes. But we also saw a very strong period in terms of roof racks, Roof boxes and rooftop tents across our sporting cargo carrier category with a number of people that is growing All the time taking those short breaks and those short weekend trips closer to their homes.
In the RV product category, which For our case, it's very focused almost solely on the European market with only a little bit of niche sales in North America. We saw a strong momentum and a strong performance of the team as motorhome manufacturers did increase their production capacity. As we mentioned a few times before, it's clear that these motorhome manufacturers would have liked To be able to manufacture even more vehicles because demand is very strong, but they are struggling to get enough chassis From the large chassis manufacturers, mostly Fiat and Mercedes, as they are having similar problems as you've been hearing From the truck industry and the car industry with components coming into this type of assembly, Especially semiconductors, but also other things. What is also good to note in this region is that we continue to have a very good pace of growth on our stroller sales, and we're becoming a stronger and stronger brand in that product category. And it was nice to see, yes, against a very weak comp period, but it was nice to see a solid growth in the Bags business, In this case, as would be assumed, driven more by sport and outdoor packs than luggage or everyday bags.
More and more people are returning to work. Ourselves at the Thule facilities have Ostap back as of 1st October in our offices. And that means that we didn't see the normal August, September returning to work, I buy a new bag situation. And the same applies to universities and high schools around the world. Having 2 daughters myself at university, I know that both these 2 Swedish universities had different dates and different realities when they returned fully.
And so most of them are coming back to the School, so to speak, later this year, meaning that the normal business of normal backpack sales in the Back to campus period was definitely less. But overall, nice to see a very strong performance in our Sport and Outdoor packs. If we go to Region Americas on the next slide. Also here, very positive to note, strong growth across all markets. You are reading daily about the big challenges in some of the Latin American markets with later COVID pandemic effects And a challenged economy.
But I can assure you we've had very strong growth in both the major market, U. S. And the second very large market, Canada And but also in all our Latin American markets. So a strong very strong performance. You also see that our comparable numbers Q4 3 looks much better in Region Americas.
That was partly because we caught up earlier In 2020, with demand and meeting demand in Europe, so the growth was strong in Europe in quarter 3 in 2020 and less strong in region Americas. So that is part of it. But it is also the case, which is very nice to see, that year to date, we have a 57% growth. So very strong demand, and the team is Doing their utmost to meet that demand. We are, at the moment, still a little bit more behind in the region Americas in Capacity and coping with the fantastic demand we have.
But we have, as you can see on the numbers, never produced as many products as we are producing also in Region Americas. As I mentioned, strong growth across all markets, but it was also nice to see its growth across all categories. So very strong performance in sport and cargo carriers by carriers, of course, but also all the other products with roof boxes, roof racks, Rooftop pens, fishing rod carriers, water sport carriers, it is truly across a very strong performance. What is also very nice to see is that within Active With Kids, we've had for many years a very strong performance with our Jogging strollers, but we are also seeing growth with other strollers like the one on the image there, our Kule Spring Stroller, which is a more city urban everyday stroller. But also a very solid growth in the bike trailer category In North America, which is nice to see, which has been a relatively seen smaller category in that region than it has been in Europe, But now has picked up very nicely in a reality with more bike commuting and more bike weekend being done by parents.
Also in this region, a bag sales growth. Once again, we did have a weak comp last year, but it is nice To see the performance growth here, the team is doing a very good job in winning a number of contracts in terms of supplying to large companies For their returning staff. And we're also seeing a very clear strong performance in terms of A larger pickup of air travel in North America than you see in other parts of the world. It's clear that the U. S.
Domestic travel has So overall, we're very happy with the performance from a sales point of view. And I leave it to Jonas to, on next slide, Speak a little bit more about the rest of the finances.
Thank you, Magnus. Yes, we are now on Slide 7, the reported income And I will concentrate on the Q3. The sales for the Q3 amounted to SEK 2,000,000,000.7 SEK 72,000,000. This is an increase of 14%. And excluding FX effect, the increase is 16%.
When looking at the Q3 this year, please bear in mind, like Magnus said, that last year, there was a big shift in seasonality. Many of the lockdowns were lifted in the latter part of the second quarter, and there was both pent up demand As well as the strong growth in sales for staycation and outdoor products. The inventories helped us to satisfy a large part of the demand increase in the Q3 last year, and that is the Q1 of really tough comps The gross margin in the quarter this year was 40.6% compared with 42.9 for the same quarter last year, which was a high number. The reason for the decrease is higher cost for purchased materials And transportation of incoming goods. In addition, we still run our production at high levels, Which are expensive to maintain, and we do it, among other things, with the help of extra shifts and hiring of agency workers.
The higher volumes that we have seen have on the positive side also led to good absorption of production overhead costs, Which counts as part of the increased costs. The EBIT margin in the quarter was 24.2% Compared with 24.4 percent in Q3 last year, which means that we are on the same level this year. It's primarily the economies of scale that come into play here since the gross profit was SEK 80,000,000 Higher and the SG and A costs only showed a slight increase compared with the same period previous year. The financial net of minus SEK 12,000,000 in the quarter is lower than last SEK 15,000,000 and it's the lower utilization of our credit facilities that explains the difference. Tax costs in the quarter amounts to SEK 142,000,000, which as a percentage is slightly lower than what I estimate for the Full year, where I expect us to be very close to the middle of our guidance of 0.22 percent to 0.25 percent If we please move to Slide 8 and look at the working capital and cash flow.
Operating working capital was SEK 1,947,000,000 At the end of Q3 this year, which is about CHF 500,000,000 higher than last year. As a percentage of sales, however, we are at the same level, just above 19%. The net increase in working capital consists of an increase in stocks from a very low level at the same time last year, A moderate increase in accounts receivables and countering that, an increase in accounts payables. The increase in inventory must be seen compared to a strange situation with very low level at the same time last year. When many countries came out of the lockdowns, as mentioned, the demand for outdoor products soared.
Even though we canceled furloughs and even holidays, we were not able to meet the demand with our production, And the inventories were dramatically reduced during Q3 last year as some of our products flew off the shelves. Since then, we have increased the production but encountered and solved other problems such as shortages in some components Materials as well as shortage of containers to transport goods coming from Asia. In view of this, we have decided To make sure, now in the slightly low period of the year, that we will not go into the new season without the good capability to meet The demand of our customers. And this means that we are now in the process of stocking up ahead of the new season, Which we didn't get a chance to do last year. We get an offsetting effect on working capital from increased accounts payables, And this increase reflects the current high activity in our production.
The development in working capital And the fact that we are investing in increased production capacity have, of course, had an impact on the cash flow. The operational cash flow of SEK 525,000,000 in the period is lower than the same period last year when it was SEK 7 €77,000,000 And the main reason for the lower cash flows the main reasons for the lower cash flow Are, as I mentioned, the stock buildup and also increased investments in production capacity. Capital expenditure in the quarter amounted to SEK 100 SEK 13,000,000 to be compared with SEK 32,000,000 in the Q3 last year. And as I mentioned, the investments relate to increased production capacity.
Thank you, Jonas. If we go to Page 9, we can then look a little bit forward. And what you can say for Q4, but also, of course, leading into 2020 So it is clearly that we have a strong operational focus to prepare for what we are convinced will be a very good We have clearly proven that our growth strategy with great products But also high on time and full availability for our retail customers and our consumers buying direct to consumer is key to our growth. So to be sure that we can improve and come back to the very high end market leading levels of on timing full delivery performance, We are pushing a lot of growth investments earlier than we would have planned 2 years ago before the pandemic. The reason we're doing that is we are convinced, as many are, when you look at the trends in the market, That a lot of the behavior that you've seen over the last 18 months is here to stay.
We simply will have a bigger base business. So what we are doing is significant expansion of capacity at all the main plants. We are Tuning our very aggressive product development push for future product launches and future growth, we will be finalizing our Expansion in our global test facility to cope with all the testing of all the new products. And we are also continuing to invest In our own online and direct to consumer sales tools, we need to get back to serving That follows consumers and retailers at the level they should be served. And that means that there is both a short term focus then To meet these demand increases, but also structured long term plan.
That structured long term plan Means, as we noted in the report actually, that we will see the most aggressive CapEx in the Since I became a CEO in the company with a few years of clearly higher than our average and prior guidance, We will be around the 5% type of CapEx for a period of time and might even be above that. And the simple matter is it's because we are convinced That we need to be at the service levels and the production efficiencies that will ensure a highly profitable business For us going forward, we have big growth ambitions. In the short term, it's a lot about handling mitigation of various smaller issues. It can be anything from the Chinese government deciding that electricity are closed down for certain days of the week at Chinese sub suppliers to a complete lack of containers somewhere, as Jonas mentioned. It can be the fact that there is, in Vietnam, still Significant COVID lockdowns of some of our technical backpack manufacturers, etcetera.
There is a constant daily challenge. As Viking category is our biggest, I like to do a Viking similarity here. I don't know how much Viking fan there is on the call. But if you saw this Here's Paris Roubaix, one day classic. It was a brilliant reality of what the life looks like in the supply chain today.
So Paris Roubaix is always a tough race. You have the famous pave sections with cobblestones that make it incredibly hard to buy fast, Mixed up with pretty straight and easy road bits, that's the reality we have today, a constant intermingling of Some production lines, some products being quite smooth and in at a very high pace with somebody At the lead of the Peloton really pushing and pulling. And then all of a sudden, you turn into one of these pave sections, And it starts to get difficult even in easy years. This year at Paris Opera, it was pouring down. And on those pave sections, you had mud.
So it was the slipperiest anybody has ever seen. There's never been as many falls. And not only you were also getting Sprayed with mud from other people around you. And then there was people in the way, so people were falling and having to pick themselves up. The great bikers like the Italian Sonico Breli who won in a fantastic fashion is a little bit what to list.
We're better than most, Definitely better than our competitors at avoiding those obstacles on the Pave, taking that slippery road, keeping our Melek's moving and just pulling ahead when the flatter sections come. That's what we will be doing also in the coming 6 to 12 months Because life will not be easy in supply chain in 2022 either. All of the people that hope for that are already realizing and Smelling the roses, it will be a hugely challenged 'twenty two. Why we feel so good is we've taken capacity expansion decisions Much earlier than most. We have a fantastic supply chain team that has shown their flexibility to handle obstacles better than most.
We had a brilliant product portfolio, so we feel very comfortable when we look ahead. But it is clearly the case there are some bigger challenges. There is the cost challenges. I've never seen price increases like the ones I'm seeing on raw materials at the moment. I've never heard about increases Like some of the freight cost increases, which therefore forces our hand to pass on those costs to our customers and in the long term to our consumers.
We decided, as we communicated before, to do that in 2 steps. And with the price increases that are being implemented in January, We feel comfortable that we will have mitigated those cost increases. So in closing, it is a little bit like The race on Paris Roubaix, don't take you up eyes off the road. Keep pedaling. You will fall down.
You need to get up quickly, And we will do that better than most. So with that, I open up for Q and A.
Thank you very much. Our first question today comes from Daniel Schmidt from Danske Bank. Daniel, your line is now open.
Thank you, and good morning, Jonas and Magnus. And thanks for the bike race analogy. I'm sorry, good. A couple of questions for me then. Magnus, you said that You're still not able to fully meet demand during the Q3, and you said the same thing in the Q2.
But Am I right in believing that this is more related just to the Americas rather than both Europe and Americas, if we start there?
You're right that it's mostly Americas that we've had during the quarter, especially in the beginning of the quarter. We did have Some challenges still with also in Europe as we have for every month been catching up stronger in Europe. I feel Pretty good in Europe now. Still not at the level in terms of onetime inflow that I would have wanted, but we are Close to that, and we will be at good levels when we now enter 2022. While we will see some challenges in region Americas Still for a few months, even if we are actually building a new plant and opening up a new plant as we speak in the early parts of next year to further add
And just looking back to Q3 last year, you This probably was maybe more widespread than you talked about prolonged sort of biking season. Is there a little bit less of that In Europe now, this year?
The interesting thing is from a consumer perspective, the prolonged season is still there. You have never seen on the mountain bike trails, this late in the year, so many new bikers and so many bikers. You've not seen on the roads so many bikers, and you're seeing more bike commuters. Even if it's pouring down in the Malmo City most days of the week, the last week, There are more bike commuters as well. So from a consumer perspective, demand has not decreased.
What has changed is we've been better at supplying, So we didn't have the same bottleneck and a backlog of orders, but the actual new orders with bikers is very strong Still as a trend. So the Viking season is longer from a consumer perspective, not with the same we need to fill the backlog slipping into Q4 Aside from then the U. S. Where we do still have some of those backlogs to fill.
So is it then fair to assume that the product mix is normalizing a little bit in Europe in Q4 then? Is that impacting In any way, the profitability sort of mix?
No. I would argue that if you see it is that it's a very similar structure in what we sell versus 2020, which has then some skewing versus 2019 because Historically, bags had its one big quarter in Q4 and still very small in Europe. But otherwise, I would say it's a relatively similar performance. While you in Americas then have more Viking products and some other products coming into quarter 4 than we've historically had.
Yes. Okay. And talking about mix, and you said pushing the direct to consumer channel is, of course, far cry on the agenda, and you've said that for some time. Do you have any numbers you can update us on where you are in terms of how much of your sales is going through direct to consumer now compared to a year ago?
We will do that when we summarize the full year. But I can also say that in general, we decided in 2021, which we've been very clear Our retail customers, some companies chose to aggressively pursue their own direct to consumer because That is a nice way, if you have limited demand, that you allocate more to yourself. We actually did the opposite. We took a conscious Knowing that we have very strong retailers that we are convinced we will grow very well with in the coming years and Having prided ourselves historically to have a very high on time in full and now not having it, we decided To not penalize retailers, but rather actually penalize ourselves in 2021. So our bigger push will be in 2020 2, when we will have strong availability, that's where we will clearly see, from our point of view, a likely higher, bigger pickup in direct to consumer.
It is still around double digit in the U. S. That hasn't changed on an overall picture of what we have. Still low single digits in Europe Because the big markets have just come on board. But in terms of truly picking up more significant, it's from 2022 and beyond we see that picking up.
Okay. And what is sort of reasonable to reach, you think? Or maybe that's not a goal in itself? Or have you thought about that?
Of course. But I think when you I don't think gold in itself is the logic. We will sell where consumers think it's right to buy. We will be very profitable in all channels, and we will clearly have a Hugely dominant share via Retail for a very, very long time.
Yes. And then maybe finally on the gross margin, you alluded to that or you're just Writing and stating that it will take until maybe the start of January till you get full compensation for the raw material and the freight cost. And it will be I think you said some Effecting Q4, is that sort of insinuating a slightly less impact in Q4 versus what we saw in Q3 given the price Increases in Q3?
Yes. I mean, we've been clear that if you look at the price increase that we communicated as of Q3, we also were clear in communicating also to you as analysts and investors that we did not push that through on existing orders. And since we had a backlog in existing orders at the beginning of quarter 3, there were quite a lot of products sent out with Prices before the mid year 2021 price increases. As those orders now have been fulfilled, all the orders we are now towards End of Q3 and the beginning as we will do in Q4, they are with the prices as we have them from mid Which are higher prices than we had before. So there will be, in that sense, a little bit or more of the price clearly effect.
At the same time, we have to say that costs are also continuing in the wrong direction. So that will depend very much On the cost part, the prices are now fully rolled out at the midyear. We already anticipated that we would need so there is also a clear price Increase of 1st January, which is where we are feeling comfortable that we will be in the right space.
Yes. All right. Good. Maybe just a final one. There's been 2 announcements that you think I've seen at least when it comes the RV side and RV producers saying that there is sort of pay for us to have unplanned production stops on the back of the shortage of Components during Q4, is that something that you have experienced?
Or do you have any insight into that? Or how you will fare in Climp In that particular environment in the European market?
The RV business in Europe is booming. They're Factoring more than they ever did. And sometimes you're missing out the logic because it's clear they will have issues. No doubt, as I mentioned, the chassis manufacturers are having issues Then there are the home manufacturers that need those chassis have issues. But it's a little bit of a misconception if you believe that, that means that they will do less than they did same quarter last year.
It's just that they're producing so much more That the issues are coming on a higher platform. Therefore, the RV business is doing great for us. If you don't grow in the European RV business at the moment, you're doing something wrong because There's a fantastic momentum in it. I'm sure we will have a very good momentum in Q4 as well, but it could have been even better. I think that's What they are saying, right?
So what they're alluding to is the demand is even higher than their increased output. And due to that, they're running, running to capture the demand. When then some of these components don't show up, they will have a little bit like the truck companies and for Swedes, that's easy to think about when we hear so much about Scania and Volvo. Same issue. They're pumping out vehicles, but sometimes when they're pumping out that much and there are limitations, they will have weeks of closure.
Same thing for the RB Manufacturers.
Yes. Thanks. Makes sense. Thank you. That's all for me.
Thank you.
Our next question comes from Gustave Higgs from SEB. Gustave, your line is now open.
Thank you. Good morning, guys. Thanks for taking my questions. Good morning. Good morning.
A bit curious on Americas. It's quite an extraordinary growth you posted. It's organically, you almost doubled The business in 2 years then. Looking into next quarter then, just from the past 3 years, you've been averaging sort of 14% lower sales sequentially in Q4 versus Q3 in U. S.
Or in Americas. And you now alluded that there might be a shift of seasonality into Q4. So is that a sort of good rule of thumb also this year, you think, in terms of Sequencing for the U. S. Business?
I think in the U. S. Business, you have to realize also, as you know, we have a Significantly higher chunk of packs, bikes and luggage historically, right? And it's been almost 20% of the business, and packs, bikes and luggage is normally very big in the Q4. So there are some negatives for that for us because tax, tax and luggages, the category, are doing least well, if you look at pace wise.
So I am convinced that Region America will do very well. I'm not going to say because there It's still around or what exact that percentage will be, but it will be a strong quarter in Q4 as well.
And looking at the stacked growth adding last year's growth on top of this year, it's quite extraordinary. Do you Anticipate sort of that trend to continue because I guess it's quite interesting now that you analyze that trend. I think myself and others had expected a bit of a drop down in the growth now that you're facing much tougher comps in U. S.
We are I'm very comfortable in both regions with all the largest macro trends Underlying in various activities that we deal with, we have a higher platform With continued growth, the pace will not, of course, be the type of pace we've had in the last 18 months, but it is Clearly the case that we are convinced that we will continue to grow. It won't be stagnating or flattening out. We feel very good about 2022 and beyond.
Yes. So then I guess You had probably put a lot of effort into thinking about CapEx and so forth, and it seems like you now had to accelerate those plans, if I understand your communication correctly. And then I'm just curious about all the other assumptions going into your targets that you released not that long ago because you're hitting quite a big Base now in 2021, looking at your target now, it's shrinking to below 5% CAGR. It seems like Since the base for 2021 is so big going forward and given that you're also running on a much higher margin than the 20% Fluor that you anticipated, the implicit EBIT CAGR for your target is now, I think, 3% or something going forward. And I Magnus, I'm sure that can't be your internal goal.
So will you care to update us on sort of what your actual plan is going forward?
Yes. I think in general, you shouldn't do a financial target update in the midst of a quarterly report in the Q3. But you're absolutely Right. And 2 logics there, Gustav. No doubt.
We've said all along, it's more the 7% cargor you should focus on than the doubling of sales. So if you look at how we presented the sales growth, it was like we should at least be doing 7% CAGR. I would focus on that Aspect rather than the doubling of sales by a certain year. Then, of course, if you look at EBIT performance, We've clearly said for us, the biggest focus is true EBIT growth on the bottom line rather than an exact margin percentage. That doesn't mean, as we also clearly said, that we want to give away a hard earned, nice EBIT margin at a higher level.
But we will focus on ensuring that it's this above 7% CAGR that happens rather than being too focused on an Exact decimal point in the EBIT.
All right. And by the assumption of CAGR, you're referring to revenue CAGR or also EBIT CAGR?
Yes. So if you looked at when we presented the financial targets, we said if you do at least 7% top line growth every year, we will hit a double of sales by this Here. You can keep the if we do at least 7% COGRA every year part in that equation.
Okay. And with the 5% CapEx then to sales, it's a bit higher than I had in my assumptions, But I recognize that you want to grow and capture this opportunity. But you haven't talked about R and D to sales. How is that Looking, you think, going forward?
So if you look at it this year, as we mentioned, the top line growth has been beyond our expectation. So We never throw money at product development. It is, of course, the right development projects, the right people, and we have hired more people Then ever. But we won't be at the 5% level this year. But in the rest of the coming years in the
And where are you running, you think, this year?
I mean, we will end at a high 4 this year or rather than at 5, so to speak. We were at 6. We've said we would be around 5.5% -ish and we will instead be high 4s in the end, but we will be running around 5% in the period. And you need to also remember, if you look at the 5% CapEx that we're talking about, we will see a few years Of a limited period with a higher spend. Then our strong belief after catching up with the You have to remember that we are currently not as efficient as we would like to be because we're having to run shifts and weekends that are less Cost efficient.
And we're not being able to be as flexible to capture upside. So what we're doing in the CapEx spend is Partly to catch up with the capacity we should have already had because the growth was faster than we expected. So we are anticipating plans, Spending more to catch up, and then we're also spending to prepare for the next step. So if you look, I would say it's a 3 year period of a higher than average spend, and then we hope and expect We have caught up as well as prepared for the future, and we will return back to a more previous guidance in terms of CapEx.
Right. And then finally, you highlight quite clearly in the report that you see So it's tough for you to fully compensate for external inflation now in this year, but you also highlighted with the ordinary pricing increases next From January next year, if I read it correctly, you're going to be back. So is that basically guiding for Q4 that margins in Q4 Probably should be a bit lower than it would have been. Is that your what you're trying to say?
Yes. Nobody, I think we're being very clear, and as I also answered Daniel just before, is that we said all along that we would be seeing some of the pricing effects Price increases that we implemented during Q3, all of them in Q4. But clearly, what has happened is that raw material prices Not more than most people believe, definitely a little bit more than we thought. Freights are continuing to increase. So we're not At the level I would have liked to be, but that's why we're confident that our price increases for January will make us at the level we want to be.
So yes, there is Some effects on Q4, and the total margin will be more related than to a lot of other Will there be those intermediate frustrating stops and frustrating effects from suppliers that are forcing us to do more production shiftovers? Because one of the underestimated things aside from huge material increases in freight is that if you want to run efficient plants, You don't want to have to do switchovers because certain components don't show up. Switchovers between different products, different things always is cost inefficient. And therefore, these constant small interruptions, which are very difficult at the moment to foresee, are one of the impacts also on our gross margin In our own assembly plant, so that one is a little bit of an uncertain. But yes, we are saying there is some challenges on gross margin in 20 21 Q4.
All right. Those were my questions. Thank you.
Thank you.
Our next question comes from Matt Liss from Kepler Cheuvreux. Your line is now open.
Yes. Hi. Thank you, and congrats on a solid quarter. I just had a well, a few questions there. First, I mean, you implement price increases and so on.
And I guess you are the premium brand in many segments. Do you sort of See that you benefit from more value related competitors that while they need to increase prices more.
I think in many of our countries, we have very strong local smaller competitors that sell good product. We are the only really big Global player in sport and cargo carriers. But if you, for example, take Active With Kids, there are some very strong brands as well. So we're definitely not saying That we are that different from the rest. We're just much bigger in sports and cargo carriers than all the others.
But if you look at it, everybody is pushing through price increases. So it's clearly not just us. Everybody is clearly pushing through price increases. And then there are different levels of percentages, etcetera. So We are not standing out in any shape or form in the market with our price increases.
They're relatively in line with most people, what they're doing.
Great. Then the margin, I mean the margin is good, I guess, but you indicated it could have been even So if you were able to balance all the cost increases, but what's the difference there? How much did it affect your margin?
If you look at it and you can see the reduction we had versus last year, and last year, we had a fantastic one for being that quarter. So I think it's always logical to more look at year to date reality. But if you look at it, we were about 2 percentage points down in the quarter. Part of that is, of course, raw material costs. Part of it, as I mentioned, is also the inability to be Super efficient in your plans as you're getting constant stop issues, while you're trying to desperately catch up with fantastic demand and I think demand and outputting much more than you've ever done.
When you don't have all the capacity you need, what that means is you're paying people overtime, You're paying people for weekend work. You're taking in agency workers to complement your own staff. All of those lead to inefficiencies. So there are Roughly those 2 percentage points, so to speak, is a combination of these two factors.
Yes, great. Then we have a question on RVs and so on. But I guess the fleet of used RVs is growing Try to consider also, is this market for you? Or is it more sort of new RVs that are sort of that's when you sort of equip them with your accessories?
I think the key logic to understand the RV industry that almost all RVs, when you talk about not Caravans, which is a small part and the big part is motor homes. If you look at motor homes, it's almost always triggered by somebody Buying a new home and selling their old motorhome, which means if you look at our products in the RV product Category, which is why we have always said from the beginning that they are more cyclical to a large financial investment, is it's products that you do not Put yourself on the vehicle. You wouldn't you were really afraid that you would drill into the toilet from Dometic or The van from some the fridge or something, so you wouldn't do it yourself. When you then don't do
it It's going to be at
the time when you go to a dealership, especially if it's a used vehicle or actually when you order it new from the manufacturer. So it's at the time of purchasing of the vehicle. So it's change of ownership is good. If it's change of ownership of an old one, it can Equally good. They say, Oh, I like that motorhome.
But wait, there isn't all those cool tool products I want on it. Please, dealership. Before you give it to me, put that on. So we are helped by the fact of ownership changes, so to speak, Both new or used, then we benefit equally.
Great. Yes. And Juan here, I was disconnected. I'm sorry if you answered that, my question. But I mean, We have talked a lot about increasing the offering with some sort of new product launch.
Is this the plan for next year? Or have you sort of We
will in the spring next year, we will announce our new CAT Great. We haven't changed that. So we will definitely announce what the new category is in the spring next year.
Great. And you don't want to talk more about that, I guess? It seems so.
I'm surprisingly consistent as I often joke with Daniel who tried to trust me with some very Great question. No, we will tell you when we tell everybody.
Great. And I guess, one final one I mean, you grow very well and organic growth seem to work well for you. But yes, I mean, you seems to generate a lot of cash now. And I guess, the acquisitions It's still the bolt on, small ones that you can see that Absolutely. Yes.
Yes. Absolutely. We are Convinced that you can win playing many different ways. We have, I think, proven with our growth and top line growth and our very Nice EBIT margins and our very sustainable performance as a company that this way that we are doing it works very well for us. So we will definitely continue that way.
And in that way, we've had some minor bolt on acquisitions, and I'm sure we will have some in the future as well.
And looking at next year, I guess, final, final, it will be a tough comps. And I guess, Should we expect you to be able to reach those 7% CAGR targets you have? Or is it more like Long term 2,030 targets, could you say something more there?
I feel very good about 2022.
Okay. Thanks a lot.
Thank you.
And we now have a follow-up question from Daniel Schmidt from Danske Bank. Daniel, please go ahead.
Thank you.
It is one of the tricky ones, Daniel.
I'll leave that for later. No, but I just wanted to come back to Spent the pickup that you're announcing. And also, I think you said that you're being quite forceful when it comes to Product development into 2022. Could you try to shed some more light on exactly what you're doing on the CapEx Backside, because you've been in this process of automating production in Sweden and in Poland and so on. And where are we in that Process and what are you adding now?
And on top of that, could you give us any examples of new ranges or New collections in different categories that you will have in the market next year.
Absolutely. So if we start with the last question, what we decided to do is that with so many challenges To just be able to produce what we're producing, we've really focused on adding only products in where we were missing something in our Rather than replacing a very well selling fast growing category. So if you look at it, we will have a number of new products in Rooftop TENS, we will have some new cargo solutions. We're adding some bike solutions. But if you look at it, I would say Very much more focused on capacity and meeting demand on very well performing product categories is a key focus in 2022 To regain the on time in full and the confidence from retail.
So mostly there's still a lot of new product coming. But if you look at it, not Any of the huge volume sellers being replaced, the huge volume sellers, we are struggling enough to keep up with just making the ones we have. So in 2022, a lot of focus on the big volume products being the same and then nice smart additions around in the portfolios. If you take where we're spending the CapEx money, you're absolutely right that we've had some very successful automation projects On our roof rack factory in Sweden, and that has not been a bottleneck, which proves out one of those things that if you do the right way. So what you can really say is that what is happening at the moment with those big volume increases we've had is that we, at all the major plants, We are anticipating previous plans of extensions.
So we're doing building extensions at both our 2 Polish plants. We're doing building extensions in Sweden. We're doing building extensions in the U. S, in Connecticut to have more space For more production, that more production is also more automized because it's realistically the case that With big growth ambitions in the future, we need to ensure that we don't become too dependent on being able to find enough staff. It is also the case that when you have certain production lines that are more similar And you have more modular approach as we have also some of our new models coming out from the beginning of how they were product developed.
You can merit to set up an optimized production. So interestingly enough, what people seldom realize is Automized productions need much more space because you need the self guiding robots to drive around. You need more Space when you build automatic assembly lines. So therefore, we need space in terms of new shelves, So to speak, in the plans with new roof over it. So you're seeing across the board both new building extensions And heavier automation investments with robots.
To give you one example, in a near future, we will, in 2022, have More robots new than we had total robots in Poland in the past, only the new ones in 2022. So if you look at that, we're pushing ahead of automation and space is the 2 key focus.
Yes. Okay. And if you're sort of I don't know if you can answer this or not, but if You are currently at a situation where you can produce corresponding to SEK 10,000,000,000 in top line in a year. With these investments, what will your sort of capacity be in terms of revenues, if that's possible to measure?
Yes. I think there is 2 it's a good question actually, Daniel. I think you need to answer it in 2 ways. One is that If you would deploy it on a yearly basis, you can add up a lot more 1,000,000, right? But what is the key for us, we want to get back in a high on time in full exactly When the consumers wanted to buy the product.
So that then forces us on an annualized basis to have overcapacity. Otherwise, we're not going to be flexible to meet the capacity when they actually wanted it during the year. So what we are dialing up now is not just The capability of adding €5,000,000,000 in sales with the same capacity. It's actually, in practice, dialing it up even more To capture those months when truly there is a need for higher capacity because there's 2 ways you can serve that high on Time in full in a seasonal business. One is having endless inventory.
We don't want to have endless inventory because inventory for the sake of having inventory actually is not a brilliant thing. Sure. For the sake of having inventory, actually, it's not a brilliant thing. It is more cost efficient and more Flexible to have the right things going if you increase your capacity opportunity for the peak season. So what we are currently doing is not only catching up with the capacity we should have had.
It is adding the capacity not only to meet An annualized growth number that is big. It is actually adding capacity to handle a few months' growth capacity at much higher levels. So that's a little bit to answer your question. We're talking about several billion more capacity if you look at it from that Perspective that we want to be able to have in the capacity output.
Yes. Okay. I got you. And did you say also, I don't know if I got you right or not, but you gave us guidance for 2022 in terms of 5% of sales. But I thought I heard you say something about a couple of years.
Was that right? You're right. With elevated CapEx?
Yes, you're right. I think you can in your models, so to speak, in your macro models, I think it's logical to see in front of yourselves A 3 year period of a higher than historical average before we can turn back to the historical average Just due to the huge sales increase we've already had and some ambitious plans of sales increases going forward, plus A new category being introduced that itself triggers quite large CapEx.
Okay. And would you say in that per year period that 22 is the peak year in terms of percentage?
That will all depend on how quick the top line growth as it is a percentage.
But as you plan it.
No, I think yes. Yes, you could say that actually.
Yes. Okay. Okay, good. Thanks. That was all for me.
Thank you.
At this time, we have no further questions. I'll now hand back to Magnus for any closing comments.
Thank you very much. And I wish you all I know you have incredibly busy day with loads of companies reporting, so I wish Lots of fun, and I hope all the other companies had equally brilliant reports as we did and look forward to have a nice follow-up for the Q4. Thank you, everybody.
Thank you,
everyone, for