Operator: Hello, everyone, and thank you for joining the Thule Interim Report Q3 call. My name is Molly, and I will be coordinating your call today. During the presentation, you can register a question by pressing star followed by 1 on your telephone keypad. If you change your mind, please press star followed by 2. I will now hand over to your host, Mattias Ankarberg, CEO, to begin. Please go ahead.
Mattias Ankarberg: Thank you very much, and welcome everybody to this call. As usual, I am joined here with Toby Lawton, our CFO. We will speak to a presentation that will also later be available at our website. As usual, we will do a short presentation followed by Q&A. Starting off with the highlights on page 2, we are now three quarters into the year, and we have three quarters in a row with organic growth and improved profitability, which is clearly a step in the right direction.
Mattias Ankarberg: In the third quarter, we delivered this growth despite seeing a declining RV market, which of course impacts us. On the other hand, we see continued really good momentum and accelerating growth in Active with Kids and Dogs, which is helping the quarter nicely.
Mattias Ankarberg: Profitability continues to be improving and strong, and improvement is driven by the efficiency initiatives that we are actively pursuing. Now that we also are close to a year from setting the updated financial targets at the end of last year, we can also assess our progress so far and can conclude that we are on track towards the new financial targets that were set in November 2025, which is something we will get back to. Zooming in on the quarter on the next page, it is another quarter with continued growth and increased profitability. Modest organic growth up just over 1%, and the reported growth in SEK is 3%. It is a continued tough market, particularly in this quarter, in the RV segment, which we will come back to, but also more generally in the North American market.
Mattias Ankarberg: Europe continues to do better than North America, with organic growth being up 4% in Europe and -1% in North America. The difference between the reported growth relates to currency and also to the small acquisition of curli that we did at the end of Q2. Gross margin is really strong. However, please do note that there is a positive impact from tariff refunds amounting to SEK 52 million, and there is also a negative impact from the higher raw material prices. They in turn are partly in the quarter offset by price increases within mid-quarter, and we will get back to all of those three points later on. All in all, we have an EBIT margin of 20%, which is clearly above last year.
Mattias Ankarberg: Again, excluding the tariff refunds, we are still in line with or just marginally better than last year's level, which for those of you who follow closely may remember that was a historically high level. So we have a solid profitability and also excluding the tariff refunds. Sales and admin costs are decreasing as a percent of sales, and all in all, EBIT amounts to SEK 521 million. This is a good cash flow quarter for us and continued good cash flow, and also that above previous year, almost SEK 800 million. Zooming out to the year to date, we are now grown 2.5% organically this year so far, an improved gross margin and an EBIT margin that is up by 1.5 percentage points.
Mattias Ankarberg: Taking a further step back before we dig into the details for the quarter, we can see that this means we continue the long track record of profitable growth at Thule. This chart shows the development since the IPO in 2014. On the last 12-month basis, we are now at SEK 10.4 billion of sales, SEK 1.8 billion of EBIT, and 17.3% EBIT margin. As mentioned in the beginning, it is now almost one year since we set new financial targets. We announced those at the Capital Markets Day or in conjunction with the Capital Markets Day in November last year. Since Q4, which is the smallest quarter for us, following the third quarter, we have a fairly good view about where the direction is heading this year and can evaluate the progress made so far.
Mattias Ankarberg: Conclusion is that we are developing on track towards the new financial targets. We should mention that we have three financial targets, organic growth, profitability, and dividend payout ratio. We can see that despite the market not being easier than last year, we are improving on all metrics. So very overview-ish. Organic growth is now 2.5% for the year so far, clearly up versus the -1% last year. EBIT margin is up 1.3% on the last 12-month basis compared to last year, and dividend payout ratio continues to be above the target. It is also worth to just mention that these targets are announced, they are ambitious, they are above the historical performance of Thule, and we like them to be ambitious because we want to be ambitious. But we have also been clear that they are not to be reached immediately.
Mattias Ankarberg: We have an ambition to reach them in the midterm, which we have said is two to four years. I think perhaps more interesting than the numbers themselves is to see what is driving these numbers. You may remember, if you participated at the Capital Markets Day, that in addition to the targets, we laid out the plan for how to reach them, both what is going to happen on the growth side and what is going to happen on the efficiency side. We also set ambitions. We call it midterm growth ambitions for all of our four product areas. We can see that for each and every product area, we are moving in the right direction. For example, Sport & Cargo Carriers last year was a -1% organic growth.
Mattias Ankarberg: This year we are at +1% so far, and the ambition is to get to 5%. So a step in the right direction. RV products, 4% last year, 3% this year so far, almost at the midterm ambition already. Active with Kids and Dogs, we see a big improvement, 13% growth this year so far, almost at the 15% we are targeting as an ambition level. It is nice to see that that product area is also now more meaningful in size, so it contributes also nicely to the total. Same improvement on Bags & Mounts from -10% last year to +2% this year so far, and a good step in the direction to 10%. So good progress on the sales development in all four product areas towards the midterm ambition.
Mattias Ankarberg: With that overview completed, I thought I would turn into a bit more detail on the quarter specifically. As usual, we will give some highlights and comments to each of the four product areas. Starting off on page 7 with Sport & Cargo Carriers, which is our biggest product area. It is just over half of sales in Q3. In the quarter, we saw a small organic growth of +1%, taking the year to date to 1%. This is, as in previous quarter, driven by new Thule products. We have delivered several new products also this year, and we continue to see that premium is doing really well. A good example is the new premium bike carrier, Thule Epos ParkSecure, where we have taken our best bike carrier and put parking sensors on it.
Mattias Ankarberg: It is a great example of how we can expand the category and attract the consumer that still has money to spend and has the passion and willing to spend it on great products. So that is a great example. We have continued momentum, what we call rear of car cargo, so boxes that you mount behind the car. Actually, also when we upgrade entry price products like the rooftop box, Thule Pulse has helped also. Generally, we see the most positive development around the premium price points, particularly connected to new products and innovation. We do see quite good growth in Europe, but we do continue to see a decline in North America, which is holding this total Sport & Cargo Carriers growth back. Within RV products, we are currently experiencing a negative market development, which is clearly impacting sales.
Mattias Ankarberg: We declined 5% in the quarter, taking the year to date to 3%. Coming from a period where market conditions had been improving for a few quarters, we did see a decline in registrations of new vehicles, motor homes, and caravans starting around mid-Q2 in most European countries, and that has continued into summer, also in the Q3. Clearly, this is impacting sales of new vehicles, obviously, but also then our sales to those customers. It is for us so far, particularly impacting the aftermarket or the dealers, which are closest to the consumer, whereas the OE channel in manufacturers is more stable. We continue to do better than the market and the registrations, and we continue to see that, as we have talked about for several quarters, that new products also within the RV product area are adding growth for us.
Mattias Ankarberg: The consumer interest continues to seem high, with high activity and great bookings at campsites across summer and good attendance at big fairs now recently. But a tougher market takes the sales down in the quarter by -5%. The third product area is Active with Kids and Dogs, where we see a fast and also accelerating growth, 22% organic growth in the quarter. If we include the acquisition of curli, small acquisition, and look at the total, net sales is up 31%. We see that all of the three categories that we call champion candidates are continuing very strong. These, just to clarify, are categories where we have the opportunity to be clear global number one, drive the category through innovation and get leverage as the number one player in the category, and out-innovate competition.
Mattias Ankarberg: But they are not yet of the scale that we call them a champion. They are not yet at SEK 500 million each. But we continue to see really good growth in all-terrain running strollers. We see a very nice trend in dog transportation, including the launch of the new products and the harnesses Thule Dart, excuse me, and also sustained momentum in child car seats, which is also further boosted by the rollout of the connected car seat that was initiated during summer has continued throughout Q3. We are also pleased to see that we have seen an improved trend for multi-sport and bike trailers, which is also part of this category. Had a tough start due to still too much stock at retail, but turned around mid Q2 and continues to grow now in Q3.
Mattias Ankarberg: Similar to other categories, it is clearly the most premium products that are driving the growth. The last-
Operator: I am afraid we have had a little bit of a problem with the other line. So I will give it about a minute. Hold while I attempt to reconnect.
Mattias Ankarberg: Continue on Bags & Mounts on page 10, which is the fourth product area, giving some details for the quarterly performance. Just to start that over to make sure we got it, a decline of 4% in the quarter and a +2% year to date. A few different factors to note in the quarter. Performance phone mounts, on the one hand, clearly benefit from some new products, which have been well received. I will give an example later. But also a wider distribution. Part of that is supported by some Thule team working closely with the Quad Lock organization. For example, you can now find these products at big retailers like Halfords in the UK. We have launched these products in China on some marketplaces, and that is clearly helping the growth.
Mattias Ankarberg: On the other hand, there is a phasing impact which impacts the sales in the quarter, excuse me, negatively. The reason is that particularly Apple has changed the launch schedule compared to last year. One big moment for consumers to upgrade their phones is, of course, when there is a new phone available, and last year Apple launched an upgraded suite of phones in September this year. So far, only the Pro models. So fewer options to upgrade, lower sales, and that means that sales will be phased differently until these new models are launched. But good progress besides that phasing impact. On the bags side, we continue to see good growth in Thule-branded bags. Good reception of some new products for this year, including the Thule InLock for bike commute and the Thule Chasm gear holders.
Mattias Ankarberg: We continue to see a decline in Case Logic as we have done for a long time. Also just to note that after the quarter, we acquired the intellectual property and product rights for some mountain bike bags delivered by a company called Airoh. You see some of the products on the picture to the right. It is a small asset deal with a company which had small sales, but it is a really nice product that fits really nicely into the bags category and very much in line with the strategy we have taken to bags to move more into outdoor and sport-related products, for example, bike. With that, I conclude that part of the presentation and hand over to Toby to cover some of the more financial details.
Toby Lawton: Thank you, Mattias, and good morning, everybody. We will start on slide 11 here on the financial summary. Firstly, on sales, you can see we had sales of SEK 2.6 billion this quarter on the top left in the table. This represents a 3% increase versus Q3 last year. If I just break down that 3%, you can see 1.2% comes from organic growth, as Mattias has mentioned. 1% of it comes from exchange rate movements, which, yes, are now positive this quarter, which is a change from some previous quarters. 0.8% comes from that acquisition of curli, which Mattias mentioned, which we made at the end of Q2 in the Active with Kids and Dogs product area.
Toby Lawton: For the year to date, you see on the right-hand side of the table, we have then seen an organic growth of 2.5% year to date, for the first 3 quarters of the year. When it comes to gross income and gross margin, we have increased versus last year. Very important here to understand that this includes a one-off impact from tariff refunds from the USA of 52 million SEK in the quarter. I could just give a bit of a color that this is basically all of the tariff refunds we have received so far, and it relates to the repayments of tariffs, which we paid out during basically the last 3 or 4 quarters or so. It is basically the full refund that we expect for now.
Toby Lawton: Future tariff refunds are possible, but they, for the moment, remain highly uncertain, and we will comment if and when we know more. If we, however, exclude those tariff refunds, the gross margin in the quarter was 47.3%. You can see it is slightly down on the same quarter last year, which was 47.5%. This is due to the fact that we had higher material costs and freight costs coming through as a result of the Middle East conflict and the higher oil price. Those have started to hit us this quarter. Previous quarters, we were basically hedged from that impact, and we talked about that previously as well. These higher costs then for materials and freight are partly offset by increased prices, which have come in from 1 August. Obviously that means they have not had full effect this quarter.
Toby Lawton: If I move down to selling and administration expenses are slightly higher in the second quarter, but lower as a percentage of sales. This lower cost level overall is driven by the efficiency initiatives that we are continuing to drive and continues to contribute to the EBIT margin improvement. That is contributing positively both in the quarter and also in year to date to improving profitability. The EBIT then for the quarter was 521 million SEK, and the EBIT margin for the quarter is then 20%. This is up versus the same quarter last year, but it is worth mentioning that even without that tariff impact that I mentioned previously in gross profit, even without that impact, the EBIT margin is slightly up versus last year as well. Even noting that we had a strong margin and strong EBIT result in this quarter last year.
Toby Lawton: It was a historically high level last year, and now it is even higher. Finally then, just coming down to the bottom line on net income after financial costs and taxes, and we report a profit in the quarter of close to 400 million SEK. Year to date, we have just over 1.2 billion SEK, both of which are up double digit versus last year. That also means that obviously earnings per share is also up versus last year by the same amount. If we just move on to the next slide, share of sales, and here you can see our sales by geography and by product area. On the left-hand side, you can see that the share of sales from Europe on an LTM basis has increased, so it is now 69%, and this is where we have the strongest organic growth.
Toby Lawton: That is the reason behind that. It is important, obviously, that we perform well in Europe, by far our biggest and most important market. North America and particularly the USA has been more challenging in the last couple of years, but the actions we are taking here continue to have effect, and we see traction and improving trend there as well. On the right-hand side, you can see the share of sales by product area. Maybe one quick comment here that the biggest increase is obviously in Active with Kids and Dogs product area, where we have seen strong growth from the champion candidates that Mattias mentioned earlier. Going forward, we will also have a small impact from the new acquisition, curli, in Active with Kids and Dogs as well. Otherwise, no big changes in the profile.
Toby Lawton: If we turn to the next slide 13, just showing the margin development over recent years. This we also talked about in the Capital Markets Day in November last year, so you can refer to some more details on margin development there. Firstly, if we look at the EBITDA margin at the top, you can see that the LTM EBITDA margin has now increased to 20.8% versus 19.5% in 2025. That level is higher than the historical level pre-pandemic in the history, with the exception of the pandemic period, which obviously had a different profile. Secondly, if you look at the EBIT margin, you can see this also increased on an LTM basis to 17.3% versus 16% in 2025, so 1.3% margin improvement.
Toby Lawton: That is really a result, and good to see the result of the actions that we are taking, that they are having an impact in both gross profit and in EBIT margin and cost efficiencies. We are taking an important step towards our EBIT margin target of 20%. On the next slide, we have some data on cash flow. It has been a good quarter on the cash flow side. I could mention Q2 and Q3 seasonally are our strongest quarters where we deliver good cash flow due to the seasonality of the business. You can see that on the graph on the bottom left. The cash flow from operations in the quarter was SEK 791 million, which was a good level with good profitability and also with a reduction in working capital contributing here of more than SEK 200 million.
Toby Lawton: We also had some cash outflows in the quarter for CapEx of SEK 120 million, and this is mainly related to the investment we are undertaking for automating and extending our warehouse in Poland. This good cash flow obviously means we managed to reduce our net debt. We had an impact on our net debt of close to SEK 600 million in net debt reduction, bringing our leverage down to 1.6 times. That is our net debt to EBITDA leverage. So we are down to 1.6 at the end of the quarter, which you can see on the graph on the bottom right. So good to see a good impact on the balance sheet and deleveraging there as well. With that, I will hand back to Mattias.
Mattias Ankarberg: Thank you, Toby. Just a few forward-looking comments before we open up for questions. We are now on page 15. While our focus, our strategy, and our priorities stay the same, we are focused on building champion categories and driving efficiency gains, and we can see that it is delivering results. Again, three quarters in, three quarters of organic growth and increased profitability. We are still in a market with cautious consumers and retailers, and from a geographical view, North America is still the toughest market. As noted in the beginning, following a period, a couple of quarters of improved market conditions, we see that RV registrations in Europe, our RV business is almost entirely in Europe. Registrations started to decline in mid Q2 and now continued over the summer. That impacts us negatively, of course.
Mattias Ankarberg: The raw material cost increases that were a consequence or started to increase following the conflict in the Middle East are impacting us now, but we are mitigating it by price increases that started in mid Q3. That is where the market situation is, and we do not see a major shift in the market in the short term, either for the positive or for the negative. We have things we can do, which we continue to do at a very high pace. We continue to work. Our number one priority is to build bigger and more champions, launching updated and upgraded products to grow the existing six champion categories that we have, but also continue to fuel the fire in our champion candidates, which are now accelerating in growth in Q3 across actually all of dog transportation, car seats, and all-terrain and running strollers.
Mattias Ankarberg: We are also continuing the work to turn the Bags & Mounts category around, focusing more on outdoor and sport products and using bags as accessories to the other categories as well. Lastly, efficiency gains. We continue to drive the initiatives that we have underway, and we are coming down in R&D spend as a total. However, please note again that we are spending more than ever on the champions, but we are prioritizing that over other things. Continuing the supply chain initiatives that Toby referred to earlier will also help us going forward. So good progress on all ends. We have launched several products in 2026. On page 16, there is an outline of some of the most important ones.
Mattias Ankarberg: As we are now in Q4, most of these products, if not all product launches actually, are done in the year, and we are, of course, at a state now where we can evaluate what has worked and start to plan the activities for 2027. This would not be a Thule presentation unless we highlighted some of the great products that we feel are meaningful, both from showing who we are, but also for the commercial side of the business. For example, page 17, Thule ParkSecure has really been a nicely well-received product for this year, taking our most premium bike carrier and improving it by adding, in this case, parking sensors, which has been a really appreciated feature and functionality from a consumer point of view, and clearly opens up more opportunities, for example, parking sensors for some of our products.
Mattias Ankarberg: We have continued to invest in products also in performance phone mounts or the Quad Lock business, and on page 18 is a very recent example, launched just in September, of a new mount. For those of you who may remember Quad Lock, the technology and the real asset is really in the mounting part of the solution, where there are specific mounts for specific use cases for specific vehicles that protect your phone and make it easy to use the phone while being active. This is a product called Handlebar Mount Pro, which has a double axis adjustability for motorcycles. Also including vibration dampening, making sure your phone is well-protected at any kind of engine frequency and bumpy road that you may be out adventuring on. So those are some examples of continued innovation in our champion categories.
Mattias Ankarberg: We are continuing to build up the champion candidates. For example, the connected car seats, which is the next generation car seats with sensors included to give parents feedback immediately and another further step of preventing misuse, which is unfortunately very common when installing and using car seats. Really nice progress of this. Good rollout started at summer and continued throughout Q3 and some more in Q4. We are also adding products to our Active with Kids and Dogs, dog transportation product category. The most recent launch is called Thule Dart, where we have now, as you may see in the picture here, launched some products related really to safety around car and with the dog crate. We have products related to safety transporting dogs with bikes. Now we add accessories, so to speak, products that are more for everyday and by foot use.
Mattias Ankarberg: For example, the Thule Dart, which is a premium dog harness for larger dogs and also comes with leashes and in several sizes and colors. Lastly, I mention quickly that besides the champion work, we are still progressing our turnaround of the Bags & Mounts category. As being more outdoor with our assortment is a priority, we are also developing some new products, and one good example this year is the Thule Chasm gear holders, which are both to the left and right here on this picture, which is a really nice adaptable product, possible to flat pack and then expand, and has been very nicely received and helps the Bags & Mounts category turnaround in 2026. So that concludes the presentation part of this call, and we now turn to operator to manage Q&A.
Operator: Thank you, Mattias. To ask a question, please press star followed by 1 on your telephone keypad now. If you change your mind, please press star followed by 2. When preparing to ask your question, please ensure that your device is unmuted locally. We will now pause briefly for questions to be registered. Our first question comes from Adela Dashian at Jefferies. Adela, your line is now open.
Adela Dashian: Thank you. Hi, Mattias and Toby. A couple of questions from me. Firstly on if you are able to provide some sort of EBIT bridge in Q3, specifically as it relates to price effects, but also inflationary pressures, how much that has contributed in Q3. My question would like to answer what sort of offset we should expect going forward if these inflationary pressures continue.
Toby Lawton: Yeah. Hi, Adela. Toby here. Basically the price increase that we have implemented from the middle of the quarter, from August, does not quite offset the material cost increases. So there is basically a small negative in the quarter, which I mentioned. That is why the gross margin, excluding the tariff refunds, is 47.3% versus 47.5% last year. So it is slightly negative. I would say going forward, when we have the full effect of the price increase, we expect it to offset the material costs increase. So that is what we expect going forward. I will not go into the exact amounts of each. It is not huge numbers, but obviously we have largely offset it in the quarter, but not quite. Going forward, we expect to offset it. Mm-hmm.
Adela Dashian: Sorry, thank you for that. But sorry, did you mention what kind of price increases you did?
Toby Lawton: Yeah, we did. Sorry. That is a good point. We mentioned previously, so the price increase is approximately 2.5% that we had in August. So, yeah. So that is the scale of the price increase. Yeah.
Mattias Ankarberg: And maybe as we talk in details here, but maybe worth to note then is that the price increases are of course not impacting the full quarter as they were done
Mattias Ankarberg: yeah, in 1 August, so two out of three months.
Toby Lawton: Yeah.
Mattias Ankarberg: Which is why we see a more positive effect
Adela Dashian: Yeah
Mattias Ankarberg: in the next quarter.
Adela Dashian: Yeah. Makes total sense. Then, I guess moving into the next quarter, this is an RV-heavy quarter for you. I guess, how has this trading looked like in the first month?
Mattias Ankarberg: Yeah. You are very right about that. The RV segment is tough, and I think we do not expect that to change for the better or much worse in a single quarter. It is of course also the last quarter of the year, and it is a little bit of how much stock people take in, et cetera. But we expect that to be tough also in Q4. What has been good for us, as you are aware, is the Active with Kids and Dogs, we are continuing to see really good growth, which has been balancing out that and then some, which we also expect great progress on also going forward. So no real change in any of those directions.
Adela Dashian: Okay, I see. Then maybe you already did mention, but this de-phasing of the performance phone mounts, will that come through in Q4 or in H1 next year?
Mattias Ankarberg: Yeah. So performance, we do see really nice underlying performance with increased distribution, good new products. But this phasing thing is really related to launch of new products and phones and particularly Apple. Yeah, it really depends on when Apple decides to launch the remaining iPhone 17 products. So far, I think the market intel or rumor is that that would be in Q1 next year, which means that why is this important? Well, because it is when there is a launch of a new smartphone, some people upgrade to new phones. I think another event that typically happens is around Black Friday or Christmas sales. So we expect that unless those products are launched very soon, that will weigh on the Q4 as well. But hopefully, it will not play as big of a role.
Mattias Ankarberg: But we will see when these new phones are launched. But most likely what we hear is it is probably beginning of 2027.
Adela Dashian: Okay, great. That is good color. That is all for me. Thank you.
Operator: Thank you, Adela. Our next question comes from Gustav Hagéus at SEB. Gustav, your line is now open.
Gustav Hagéus: Thank you, operator. Thanks for taking my question. Nice to be back. I have a question on the organic growth of 1% in the quarter. You mentioned, Toby, that two-thirds of a 2.5% price increase were in that number then, and then was it a 1.5% also from January in those numbers, let us say, a little more than 3%? Is that the price component in the quarter? If you could confirm that roughly. And then also what is the mix component to the top line? That would be helpful.
Toby Lawton: Yeah. So what is the question exactly, Gustav? Sorry. But yeah, we had the
Gustav Hagéus: If you could divide the top line growth in price mix volume, please.
Toby Lawton: Yeah. It is obviously big changes in mix with obviously RV being the main one declining this quarter with strongest growth in Active with Kids and Dogs. So it is not comparable to measure a volume of an Active with Kids and Dogs product to a volume of an awning. But absolutely, price has an impact on growth and yeah, the new products that we launch. But yeah, I think it is not relevant to compare volumes of leashes to volumes of awnings, to be honest. But
Gustav Hagéus: Okay. But if you combine mix and volume then into one, is it fair to assume that price was more than 3% of the 1% organic growth? Is that how we should understand it?
Toby Lawton: We had a price increase from the start of the year, then we had the, yeah, obviously the price increase from August. Yeah, you are right. Combine those two, yeah, you are somewhere around that, yeah, somewhere around 3%.
Mattias Ankarberg: I think one more factor to add is that we are launching new products, and they are, of course, in general, sort of driving price points up. I think a good example is the one we brought up with Thule ParkSecure. So that also impacts the mix, of course. We do renew our assortment on a quite frequent basis, which impacts the mix positive. But price mix is for sure helping us this year.
Toby Lawton: Yeah, absolutely.
Mattias Ankarberg: If that is what you are asking, Gustav.
Gustav Hagéus: Yeah. That's what I'm guessing. Thank you, guys.
Mattias Ankarberg: Yeah.
Toby Lawton: Thank you. Thanks, Gustav.
Operator: Thank you, Gustav. Our next question comes from Daniel Schmidt at Danske Bank. Daniel, your line is now open.
Daniel Schmidt: Yes. Good day, Mattias and Toby. Just coming back to the gross margin maybe and the price increases that you did do by 1 August, which implicitly means that you had a headwind from higher raw material and higher freight costs evolving during the spring into the summer affecting July. Assuming that July is bigger than one-third of sales in the quarter and the gross margin only being down 0.2 underlying makes me think that the price increases that you've done should overcompensate a bit versus what you experienced, given the underlying gross margin for the quarter. Are there other sort of underlying factors supporting the gross margin, and will those also support the gross margin in Q4?
Toby Lawton: Yeah. There are other underlying factors. For example, the mix with obviously RV being down, the rest being up, it means the mix is more positive. There are also some things around the timing of how the increases come in, Daniel Schmidt. Sometimes it takes a bit more time than originally predicted to come through into the cost of goods sold as well. We do not expect overall the price increase to offset more than the cost increase over time. We expect it to offset the cost increase, but no more, basically. Then in Q4, probably these effects, mix will always depend on what the mix in the quarter will be, but the effects of the timing of the raw materials coming in and the timing of the price increase, we expect to be fully in Q4, basically.
Daniel Schmidt: Okay. Just looking at the latest raw material development, it seems to be coming down a bit in the past month and a half. What is the lead time, in general, for raw mats to hit you?
Toby Lawton: Yeah, generally, we are kind of fully hedged one quarter ahead and partially hedged a quarter after that. So it takes three to six months to come through. We do see a little bit of easing. It is still definitely up this year, but it kind of went up very quickly, I would say, when the crisis erupted in the end of Q1, and then it has stayed pretty similar level, but yes, it has eased off a little bit in the last month or two.
Daniel Schmidt: Yeah. Okay. Mattias Ankarberg, you talk a lot about the acceleration of growth that you have seen in Active with Kids and Dogs. Is there any inventory effect here at all, or is this sort of a true reflection of sell-through or underlying demand? If so, why the acceleration versus what you saw in H1?
Mattias Ankarberg: No, I think there was a little bit of holding back in H1 in bike trailers in this category, which maybe partly explains why it is accelerating now. I think another explanation we try to point out is we have added more products throughout the year. These product categories, particularly car seats and dog products, we introduced, what is it now, 2 years ago. So we are kind of building the portfolio and building the distribution still, which helps. For example, the connected car seats and to the dark now in Q3. There was a bit of stock overhang, so to speak, or stock issues in trailers that held back Q1 and part of Q2, and then that is now gone. So that also helps.
Daniel Schmidt: When you say building distribution, have you added any sort of names that you want to call out in terms of retailers in Europe or in the US that is worth mentioning, or is this just organically in each market?
Mattias Ankarberg: No, but we have added a couple. I think we are now at a point where we are present at the most important channels in the biggest markets with both kids product and dog products. We are. I think it is also a matter of penetration. So when you work with, I will give an example, Kölle Zoo, the biggest pet retailer in Germany, you start with maybe 10 or 15 stores, a pilot stores, and you prove your product, and it sort of turns well enough to stay on the shelf, and then you get another 30 stores, and then you get maybe the full 150. I think we have now had 2 years in where we can really prove that Thule product is selling through, it is appreciated by the consumer, and we add to it.
Mattias Ankarberg: It is a continued sort of work to widen the distribution footprint in the key customers that we have and add a little bit of new channels. We are opening up, for example, dog transportation in Canada soon, it is coming, and Southern Europe, et cetera. By and large, the big markets, the big retailers, we are present, but we are expanding our footprint within them.
Daniel Schmidt: Okay. Good. I think you mentioned shortly also that you might see some pressure in Bags & Mounts in Q4 related to the same sort of scheduling when it comes to new mobile phone models from Apple, for example, but that it should be less of an impact than it was in Q3. How much did that impact Bags & Mounts in Q3, and why should it be less, you think?
Mattias Ankarberg: Well, I think these are really sort of tactical effects on sort of quarter basis. But if you look at the mounts business, one important event in Q3 is when Apple, particularly because it is the biggest player, launched new phones, and then some people, if there is a great upgrade, people buy new phones. In Q4, you have more events who have different nature. There is Black Friday, which is an important event for these kind of lower ticket items, and then there is Christmas shopping, of course. So if there are fewer new models out, that would probably impact that too. But there are also other events that could probably impact the quarter more. To be really honest, we are not really focusing on sort of a quarterly basis and exactly the impact of each driver.
Mattias Ankarberg: What we are trying to do is to add new great products. We are widening the distribution where there is still a lot to do for performance phone mounts, even though it is a great D2C business. There are also physical retail chains to work with that we are going after and successfully done this year. We will see when the phasing comes, when the new phones are launched, that will give a little bit of an extra kick probably than the beginning of next year. But so far, we see that we continue to expand the business, which feels good.
Daniel Schmidt: Lastly, there were some sudden changes to the composition of the board yesterday. What is your view on why this is taking place?
Mattias Ankarberg: Yeah, no, I am happy to comment on that. I think, and just to probably nobody may have missed it, but there was a change of chairman, and that is the only change. I think from our point, it is nice to. That is clearly the only change. The remaining board members are the same. Both the biggest owners and the board has expressed clear confidence and support for the strategy and the management team and the progress made. So I think it is a question of who should be chairman, and that is, as you know, the way things work. That is a question between the owners and the chairman. But we had a good board meeting yesterday, and we continue to make progress on our plan and continue to move forward.
Daniel Schmidt: Do you see any sort of shift of focus from the board now that you have a different chairman than you had the day before?
Mattias Ankarberg: As of now, absolutely none whatsoever. I think there has been. The new chairman came in as a deputy chair in May, and he has spent good times with us to come in and understand the business and travel to very important global metropolitan areas like Hillerstorp, for example, in Småland, and making sure to dig into the business. I think likes Thule as a company and is very on board with the strategy, and we have spent time onboarding Aron on several topics. So I think we have a clear way ahead, which is to continue the plan that we have laid out and also spend some time explaining at the Capital Markets Day last year.
Daniel Schmidt: Okay. Thank you.
Mattias Ankarberg: Thank you.
Operator: Thank you very much, Daniel. Our next question comes from Hai Huynh at UBS. Hai, your line is now open.
Hai Huynh: Hello. Thank you for taking my questions. Just a couple, please. On the pricing that you did in the last quarter, have you seen any kind of either retailer pushback or volume impact from this? Also, where are you seeing competitors? Are there similar pricing actions follow through? If volumes remain weak, is there a little bit of promotional give back in the promotional period in Q4?
Toby Lawton: I can start there. Hello, Hai. Basically, I guess retailers never like price increases, so there is always some kind of pushback. I would say, overall, we see competitors facing the same kind of pressures, so there is price increases from many of their suppliers in our sectors and others as well. It is not something that comes as a surprise. We have not seen a major pushback or major sort of drama around the price increase in any way. Was there a second part of the question there?
Hai Huynh: Yeah. Just in terms of pricing actions from competitors and also
Toby Lawton: Yeah. No, but I would say broadly similar. Yeah. It obviously depends a little bit on the kind of product and the kind of materials you have included. So when I say 2.5%, that is an average. But yeah, we certainly do not stick out on the high side, I do not think, for the price increases, and that is partly because we are in the premium segment, so obviously, as a percentage of a bigger number, it is a smaller percentage.
Hai Huynh: Sure.
Hai Huynh: Thank you. My second one is on restocking in North America. So in the pre-close you said that post Labor Day restocking is one of the key variable. Where are you seeing that now? I am seeing receivables increase quite a bit year-on-year on the sales of +3%. So is this connected? Is this a sign of restocking, or how do I interpret this North America going forward?
Mattias Ankarberg: Yeah, it is a good point, and to make sure everybody is on the same page, this has been particularly an issue or a topic for us in North America, where we have actually quite a few of our big retail partners that have seen positive sales growth of Thule products. But as they are working on decreasing their inventory, we have not seen the same sell in. We have, side note, seen very nice progress and growth in our Thule D2C channel, thule.com in the US, which is also another sign that the consumer is buying more product. But you are very right. We continue to see the retailers being cautious. I think when we speak to them and our team speaks to them, I think this is probably the correction that they wanted to do by now.
Mattias Ankarberg: But we are also exiting kind of summer or high season, which means that if you are a little on the cautious side, you are not going to carry too many bike carriers over winter, but rather stay sort of a little on the shy side, not to make sure that you have too much inventory. Still cautious retails still take in less from us than they sell out, but we hope that this is now kind of the correction, at least for spring, summer product that is done. So we should have a normalized situation as spring kicks in in 2027.
Hai Huynh: Thank you. My next one is just on when you say two to four-year horizon to meeting targets. So you are at 2.5% year to date. How much of this target depends on self-help? Do you need the market to recover to get to that kind of levels? Or is this something that you think you can deliver mostly by yourself?
Mattias Ankarberg: Mostly by ourselves, but our reasoning has been sort of the following, that historically Thule has on average delivered around 5% organic growth in a market environment where you had stable inflation, stable interest rate, and a GDP of maybe 2% to 3% and Thule's end market is probably grown a little faster being exposed to sport and outdoors. So maybe let us say 3% or even 3.5% or 4%. So an outperformance of, I do not know, 2%, 3% maybe. We think we can do better, grow some wider gap towards the market, if you like, because, for example, we have new categories that we are building up that we think will top that up. But we do need some kind of stabilized market and not the market which has continued very uncertain or even declining, which is, for example, the case now in RV.
Mattias Ankarberg: It is encouraging, I think, for us at least internally when we look at the numbers this year, because the way we look at it, the market is not easier this year. Still the things we are driving is making the growth this year better than last year in the four product areas that we are looking at. The fastest growth is coming from the area where we said we would have the fastest growth. So it is a good step in the right direction. Most of it, to summarize, are things that we can do ourselves, but we do need a stable or a somewhat positive marketplace, even if it is not all the way up to historical levels.
Hai Huynh: Got it. Thank you. Just lastly, a very quick tactical one, just for purpose of modeling EPS going forward. Your effective tax in Q3 is a bit lower, 19.2%.
Hai Huynh: Any comments there? Is it just a shift of the mix into lower tax segments? Or is there some changes that we need to model going forward here?
Toby Lawton: Well, I would say if you model, take the year-to-date tax rate, which we think is the right level to use for modeling going forward as well with the right mix. In the quarter, we had a bit of a phasing between the quarters with a tax refund, which kind of reduced it in this quarter, but it was probably a bit too high in Q1 and Q2. So year to date, around 23% we think is a normal effective tax rate for us.
Hai Huynh: Thank you very much.
Toby Lawton: Mm-hmm. Yeah.
Operator: Thank you. Our next question comes from Mats Liss at Kepler Cheuvreux. Mats, your line is now open.
Mats Liss: Yeah. Hi. Thank you. A couple of questions from me as well. Just to come back to this pricing discussion, and I guess there was some back and forth there, but do you expect to sort of implement the yearly pricing at year-end, or is it too early to comment on that?
Mattias Ankarberg: Hi, Mats. Mattias here. Yeah. We expect to stay on the annual cycle and do some price increases by 1 January, like everybody, but modest. We haven't still finalized, but modest.
Mats Liss: Great. Also, in Active with Kids, there were some questions regarding that as well, but the solid 21% growth is impressive. Will the comps become tougher in the coming quarters, or should we expect that trend to continue?
Mattias Ankarberg: Well, in a way they become tougher, of course, because we have had nice growth for a while, but we are also adding products and expanding distribution footprint as we talked about. This is a category our ambition is to grow 15% per year in Active with Kids and Dogs. That is where we need to or want to get to midterm. That should really contribute then to the overall growth profile of the company. Right now, we are at 13 year to date, so we are close, but we want to continue to scale that up and we are investing behind it. That is the goal.
Mats Liss: Okay, great. Finally, maybe a bit philosophical, but I guess the car fleet becomes more electrified. What will you say about your opportunities there in the contents you can offer in an electric car compared to a combustion engine car?
Mattias Ankarberg: There is a clear shift in the vehicle fleet, to your point. I think we have done quite a lot. One good example is I think the rear of car boxes that we have developed. With electrical cars, people are less inclined to put something on top of the car because it is a drag, and then you get lesser range. But if you have a box behind the car, actually for most electric cars you have a higher range because you get better aerodynamics, but it is also a convenient product. So we continuously need to adapt to that. We have done a big push on fitting out roof racks to Chinese electrical vehicles, for example, which has helped.
Mattias Ankarberg: So continue to adapt to these factors, to your point, Matt, but also try to drive some innovative product like, for example, the rear of car boxes will be key for us also going forward.
Mats Liss: And the change in brand mix there, the Chinese are doing well. Do you have similar opportunities there or are there domestic suppliers of those products in China which are in favor for them? Or could you say something about that?
Mattias Ankarberg: Yeah, sure. The Chinese domestic market is quite small still for some of these type of products. There is a lot of regulatory hinders to put things on top of your car and behind your cars, whatnot. But Chinese automotive players are, of course, gaining a lot of ground in, for example, Europe and South America and Australia. And there we have just made sure we have a really great assortment that fits these cars. As you know, some of our products have fit kits that we call them, that are adapted to each and every car model out there.
Mattias Ankarberg: This is one example of a competitive advantage that Thule has because we have engineers in three continents that measure all the new cars and can quickly then get those measures and drawings back to our engineering teams and get new fit kits out to quickly have those globally in each market. So it is one example of how we adapt to the Chinese car, I don't know, revolution or growth, but primarily outside China, not in China.
Mats Liss: Okay, great. Thanks a lot.
Operator: Thank you, Mats. Our next question comes from Fredrik Ivarsson at ABG. Fredrik, your line is now open.
Fredrik Ivarsson: Thank you. Thanks for the questions. First, maybe on the underlying gross margin. When I try to strip out Quad Lock from the equation, it still looks like you are approaching, say, 44%-ish versus pre-pandemic average of around 40%. Can you talk about this expansion a bit more? What has been the key drivers apart from price, and do you see more upside to it as you, I guess, wash out some non-core products and additional supply chain efficiencies, et cetera?
Toby Lawton: Yeah. Hi, Fredrik. We have been on a journey to increase gross margin, which you have seen over the last 2 years or so, or 3 years or so. You are right, it has increased. Quad Lock has had a positive impact, but even without Quad Lock, it has increased and there have been many factors. There have been not least the efficiencies we are driving in supply chain, which are improving gross profits. On top of that, we are growing in sales through D2C channels, which improves gross profit. Then you always have some mix changes within our business as well, partly between the product areas that you see, but even within the product areas where we are driving more growth in premium than in the lower price points as well. So it is multiple factors, Fredrik, but yeah, absolutely.
Fredrik Ivarsson: Is it also fair to assume that the champion categories come with a little bit higher gross margin on average?
Toby Lawton: Because they are so big and a big part of the business, they are very close to the average, I would say that. Not really. I think they are in line with the average basically, yeah.
Mattias Ankarberg: I think one interesting little observation, I am not sure how it ties in, but it is a good observation, Fredrik, but I think it is maybe not easy, but we can clearly get benefit from innovation and new premium products with the champions category. So focusing more on that also helps the mix effect, if you like. I think this Thule ParkSecure is maybe one concrete example of a higher price point, but higher functionality, if you like, and positive contribution to the mix on both sales and margin profile.
Fredrik Ivarsson: Yep. Okay, thanks. And sorry for coming back to this, but the phasing in Quad Lock, just to understand how this works, because I think last year Apple launched the iPhones, I think they were in stores latter part of September, so end of Q3. Shouldn't the phasing effect then be worse in Q4?
Mattias Ankarberg: Well, I guess it could be. I think we are also having, in general, holiday season in Q4. Q4 is a fairly substantial quarter for the Quad Lock business. There is Black Friday, there is Christmas shopping, there is post-Christmas shopping. So I guess there are other more general shopping behavior things also lifting up the quarter. As I said before, we have not modeled the phasing effects compared to other effects in detail, to be really frank. What we can see is we see a negative effect in Q3. We expect there to be some negative effect in Q4 as well. If that effect is bigger or smaller than Q3, I guess we will see.
Mattias Ankarberg: There are other big consumer moments aside from new phone models that you can tap into and work to drive growth with, which we are hoping would deliver a better number in the short term.
Fredrik Ivarsson: Yeah, we will see. Thanks, Mattias. On this similar topic, when I look at Bags & Mounts, I guess around 70% is Quad Lock, then the remaining is the legacy bag business, and you are washing out parts of that product category at the moment. I got to maybe around a 20% sales decrease in Q2. First, maybe can you confirm that number and is the decline similar in Q3?
Mattias Ankarberg: I will try to follow your logic, but you are right that more than two-thirds is now Mount or Quad Lock. That is correct. The Thule bags business is the majority now of the remaining bags business, of the bags business, I should say, quite largely so. It is delivering positive organic growth, modestly, but still. The legacy business, Case Logic brands and OE stuff is declining sharply and maybe 20% is probably directionally right in that part of the business. Just to be underlined, that is not including the Thule-branded bags business, which is actually growing, even if as a modest number.
Fredrik Ivarsson: Yeah, makes sense. Thanks. Last one on product development cost. Can you help us to think about 2027 already now, if you expect those to remain stable or increase or decrease next year?
Toby Lawton: Yeah. Hi, Fredrik. Yes, I can refer back to what we talked about at the Capital Markets Day, where we expect to reduce product development costs by 1% over this medium-term period, so two to four years. We've reduced by a bit this year, so we'll see where we end up this year, but I think we'll have taken a step maybe halfway there this year, and we expect, as a percentage of sales, to come down a bit again next year, as a percentage of sales. So overall, with growth, we expect the absolute number will probably increase a bit, but as a percentage of sales, it will come down, and then overall, over that two to four-year period, we expect to come down by 1%.
Fredrik Ivarsson: Yeah, that's clear enough. Thank you, Toby. That's all.
Toby Lawton: Yep.
Operator: Thank you, Fredrik. That concludes the questions that we have time for today. I'll hand back to Mattias Ankarberg for closing remarks.
Mattias Ankarberg: Thank you very much, everybody, for joining the call. Have a great day, and talk to you again at the next quarterly call, if not before. Thank you.
Operator: This concludes today's call. Thank you for joining. You may now disconnect your lines.
