Interim Results. Thursday, 20 th July Transcript produced by Global Lingo London

Transcription

1 Interim Results Thursday, 20 th July 2017 Transcript produced by Global Lingo London

2 Opening Remarks Second-Quarter Update Magnus Welander CEO, Thule Group Welcome, everybody to the second-quarter update 2017 for the Thule Group. I am happy to say it is after another strong quarter for the company. We started the year really well in quarter one and we have continued well now in quarter /Q2 Another Strong Quarter If we move on to the first slide, you can see that our net sales grew to SEK 1,955 million, compared to SEK 1,725 million last year. That means we grew 13.3%, or 8.6% if you exclude currency FX. What was also very positive to observe was an improvement in historical performance from the company; when we drive topline growth we also drive strong EBIT growth. Our underlying EBIT grew to SEK 474 million versus SEK 414 million last year, which meant that we had an underlying EBIT margin of 24.3%, compared to 24% for the same period last year. In reality, that also meant that we actually had a strong improvement in constant currency on underlying EBIT margin with 1.2%, and the main driver for that improvement has been, as we have proven in the past that, with economies of scale driving top line and a highly efficient back end, we can materialise an EBIT improvement as we grow top line. If you look at net income for the period, we grew to SEK 348 million compared to SEK 304 million the previous period, and our earnings per share therefore became SEK We continued to follow the historical trends of cash flow, which means that the second quarter starts to generate strong cash flow for the group, and we generated SEK 416 million from our ongoing operating activity. As we have also made press releases for during the quarter, we did finalise the divestment of our US pickup truck toolbox business, therefore meaning that we are now today a fully focused company on branded consumer goods for active families and people out there. And we have finalised that strategic review that was initiated a few years ahead of the stock listing and where we over the last two and a half years then have divested our Snowchains business and now divested our toolbox business. Related to that divestment of our Snowchains business done in 2015, there were two possible earn-outs in that divestment process, and we have unfortunately not seen a very strong winter for two years in a row, which meant that now when final closing of the second earn-out phase, meant that we also received a negative 5 million hit on the books on that earn-out not materialising. Overall, as I said, a very strong quarter. Sales Growth Drives EBIT Growth If we look at the next slide, you can see that when we then look at the first half of the year the performance in the quarter means that we for the first half of the year have grown our sales with 15%, or 11% in constant currency. And for the first half of the year we have an underlying EBIT margin of 21.4%, which is then a 14.4% growth in constant currency. On a rolling 12-month basis, that now means that we have an underlying EBIT margin of 18.1%. Overall, a very solid and strong first half of the year with a number of positive contributing factors. Net Sales and EBIT Outdoor & Bags We can talk a little bit more about the regional performance in the quarter, and you can see that as we anticipated and communicated before, the strong growth in Europe and Europe and rest of world being the strong locomotive driving our topline growth continues, where we have a constant currency growth in the region of 12.1% in the quarter. 2

3 What is positive, although not at the levels of Europe and the Rest of World, was that we for the second consecutive quarter now had growth in the region Americas, which is specially important considering that the number-one market in that region, the US region, actually has had still in second quarter a relatively shaky reality in terms of what the retail sector has been going through. Overall, happy with two growth quarters in Americas and a fantastic continued growth in Europe and Rest of World. Key Events If we go to the next slide, I will walk you through some of the key things that have been the background for generating these strong results. If we look at it, the number one is actually the point that all the major key product launches that we did late in Q1, and that we did see some very nice pickups already in the quarterone report versus the same period last year, have continued to perform well during the second quarter. Now having then passed the second quarter, as we said after the first quarterly report, now we really do know that there is a sell-through as well, because here we are talking about customers buying it out from the stores, not just selling in, so positive reception across the board, and across the countries for those new launches, which is very positive to know. Sport and Cargo Carriers If we look a little bit on the product categories that are dominant, the product category and our historical sporting cargo carriers generating about two thirds of our sales, is a key performance measure for us, and what is good to see is we continue with a very strong quarter globally in this classical core category. We are continuing to be a big winner in bike carriers in both regions, and we also saw good growth in our roof rack and box categories, which are performing well as well. Overall, a solid, strong performance across the globe in this category. Other Outdoor & Bags We then have what we call Other Outdoor and Bags, in reality made up of three relatively different subcategories, something that we will be presenting and discussing more at the upcoming capital markets day. If we look at it today, within Other Outdoor & Bags, one of the categories, the biggest one, is RV Products, which is mainly to a very dominant extent sold in Europe. After the first quarter, I mentioned the fact that we saw an extremely hot market for motorhomes and caravans in Europe, and that actually continued in Q2. So not only are a lot of European consumers buying RVs, which is somewhere between a 12% to 13% growth in sales of RVs in the region, but on top of that, manufacturers of RVs are producing more than that sell-through, which means that there is a double effect in the market still going on, with very good market growth. On top of that I am very happy to say that we are winning market share on top of that big growth, which means the RV product category has been extremely strong for us also in Q2. I do mention in our report and I want to highlight it here, that we see positively on the RV sector also in the second half of the year, but we had indications that although positive, it might not be at the same very strong trends as we have seen so far this year. It might be slowing down a little bit, but still with positive numbers compared to the comparable tiered second half previous year. Active with Kids When we look at the other big category there, Active with Kids, I am extremely happy. Out of all the product categories this is the one that I am most happy with performance, because what we have been able to do here extremely successfully is the new introduction of the Thule Chariot Sport and the Thule Chariot product shown there, the multi-sport trailers, has been a phenomenal success in Europe. 3

4 This is a product category mostly sold in central Europe and Northern Europe countries where people bike with their children to day-care before they go to work. They are sold in other countries as well but there in those other countries it is most sold for sporty people going around the weekends. So the big volumes of this product category are definitely Central and Northern Europe, and in those countries, we have had extremely strong growth with the launch of the updated award-winning Thule Chariot product, so very strong performance especially in Europe. Yepp acquisition You know that we bought the Yepp company almost a year ago exactly now, and with that we also introduced a new collection, Thule Yepp Next, which hit the market in Q2 this year, which has been received extremely well. It is a multiple award-winning product, similar to the Thule Chariot product. It won the If Product Gold Design Award, but the Thule Yepp Next also won that, which is the Oscars a little bit in product design. And the Grammys in product design, which is the Red Dot Award, the Thule Yepp Next won the best of the best also in that category. In child bike seats now, with a wider portfolio after the acquisition of Yepp, we are also doing very well in the second quarter. Thirdly, very important for the future as we are targeting strong growth within the stroller categories, that our growth of the Thule Urban Glide jogging and sport stroller is going extremely well also around the world. The whole Active with Kids category is very strong performance, creating also a strong brand awareness which is going to be key for the future ambitious growth targets we have for the Active with Kids category. Sport & Travel Bags The last subset within Other Outdoor & Bags is what we call Sport & Travel Bags, which is then a combination of technical backpacks, bike transport cases, bike pannier bags, and most importantly, as of this year, also our first of many steps into the luggage category, with the launch of the Thule Subterra collection. I mentioned after the quarter one that we were positive with the listings we had received. I can now confirm that we are also positive with the sell-through of those listings and additional listings, so although relatively small numbers still, it is very positive signals, which is of course key for us as we also in this category have some growth ambitions for the future, so also here a good start. Bags for Electronic Devices Then finally, our still challenged category, Bags for Electronic Devices. We do see some positive signs here, especially in those categories we consider growth categories for the future, which is the smaller day packs and laptop bags, where we are growing globally in this category. However, we still have a decline on some of the legacy case logic products and in some of the legacy cases that we do for OEMs, as well as camera bags. That still also in the Q2 pulled down the performance, especially in the Americas region. I am and have been telling you in the past that we are working to see the light at the end of the tunnel. I am seeing the light at the end of the tunnel here and are feeling more and more confident that we are slowly but surely coming into a position where we will also for this category be able to generate a good growth going forward. So overall, a stable performance across categories. New Thule Merchandising and Store Concept If we turn to the next page, you will see an image from the Thule store in Malmö, located at the bottom floor of our head office. Why I am showing that image is because we are very happy after some intensive development work to have presented to the market our new Thule merchandising and store concept. When entering now in a much more aggressive way into the juvenile channel and luggage and bag channel, we have done a very comprehensive work to fully update our entire merchandising approach and store concept 4

5 approach, with franchise agreements, etc., having been developed, and we will as of the autumn now in Q3 start rolling out a number of these targeted stores for the new categories around the world. Most of these will be definitely in a franchise concept, and we also have opened in the quarter one of those first few stores, a luggage store, in the biggest shopping mall in Italy close to Bergamo. We feel very good about the feedback on what we are offering in terms of merchandising support and concept, and this will be a combined key element together with the new categories when we talk about our growth plans in the coming five to ten years, so exciting early stages but a very solid work having been done. With that, I leave it to Lennart to comment a little bit about some of the financials. Over to you, Lennart. 2017/Q2 Reported Income Statement Financial Update Lennart Mauritzson CFO, Thule Group Thank you very much, Magnus. Looking at the gross margins in the quarter this year it was 42.2% versus prior year 42.6%, and year to date we have gross margins at 41.6% versus 42.3%, so slightly worse but both year to date and the quarterly decline is due to unfavourable currency. If we look at financial net, continue to be low. This quarter it was minus SEK 12 million; last year it was minus SEK 10 million, so no big difference between the years. Effective tax rate for the Group is 24.7% in the quarter versus prior year 24.1%, and we have a year to date tax rate of 24.6%. Like Magnus mentioned, we had two items this quarter affecting the discontinued operations. It is the net result from the divestment of the US pickup truck toolbox business, where we have a positive result from that transaction with SEK 66 million year to date, and if we now look at the Snowchains divestment as mentioned where we did not reach any turn out closing the winter season 2016/17, which meant a write-off in our books of 5 million, which means SEK 48 million. So net-net, a positive income of SEK 18 million year to date. 2017/Q2 Operating Working Capital and Operational Cash Flow We ended Q2 with a working capital of approximately SEK 1.3 billion, which is 23.3% of our last 12 months of sales. That is an increase of SEK 160 million. Due to that, we have increased our sales for the majority of increase in working capital in absolute numbers of our higher accounts receivables. Good to see this quarter is that inventory has come down from the end of Q1 where we had a higher number, to actually the same absolute number this year versus prior year end of Q2, despite higher sales. That shows our efficiencies again in our working capital handling. So good control of the working capital in combination with a good performance financially has shown once again that the cash flow is very positive, especially now in Q2. We had a SEK 369 million positive cash flow. I would also like to mention that we have had year to date approximately SEK 30 million higher CAPEX versus prior year, which is due to the building of our second assembly plant in Poland, which Magnus will come back to. Overall, good performance in working capital and cash flow. Performance Update 5

6 2017 YTD Performance vs. Financial Targets Magnus Welander CEO, Thule Group Thank you, Lennart. If we look at our performance versus financial targets you can see that it is green across the board which is of course very good. We are at constant currency net sales growth excluding the Yepp acquisition then at 9.6% growth versus our target of about 5%. We are delivering an underling EBIT margin on a rolling 12-month basis of 18.1 versus the target of above 17, and our leverage rate is two times, versus the 2.5 times as a target. If you look at the dividends, you are aware that we paid out an extra dividend of SEK 7.50 per share in the May pay-out, and also the half of the ordinary dividend of SEK 3.40 was paid out in the May pay-out. From an ordinary dividend we had a 51% versus our net income, so a positive green across the board, and I might anticipate one of the questions I am sure I am going to get by some of the analysts. I have already anticipated a few times. No, we will not discuss anything about new targets or different targets before we have our capital markets day on 20 th September, where of course in the context of our long-term plans, we will also discuss around what type of targets should the company have, going forward. Focus Areas for Coming Months Continue to Drive Profitable Growth End summer season sales successfully With that, let us look at what we in the company are focusing on for the coming months. As always in this company, our number-one focus is the continued big focus to drive profitable growth. If you look at that from us, then what that is meaning in practice is the short-term focus definitely. We are now in the month of July and August at the ending part of our absolute peak season, the summer season. Then sales start slowing down a little bit in the September month. Of course, a very big focus at the moment going on entirely in the company is to both support the retailers to help them drive sell-through to the consumers; and of course, considering the nice growth numbers especially in some of the product categories with some very strong percentage growth, is to ensure that we continue that very high on-time in-full product availability that we have been able to show throughout the year and past years. Continue to build the Thule brand The second big focus area is the continued building of the Thule brand, and especially then we talk of course about the new categories and the new channels, because our brand is fantastically strong in the traditional sport and cargo carriers globally already. However, having now entered in a serious way into juvenile and also in sport and travel bags, a lot of our focus goes on working with those new retail channels for those new categories, and ensuring that we also in an emotional way in various social media connections and blogger events etc., make sure that our brand Thule is recognised also in these categories. Further, of course, with significant award wins and test wins of our new product categories, it is of course a big focus for the organisation to consider and continue our PR traction in these new media channels. Then finally, as I just highlighted a little bit before, we have spent a lot of time and energy in working on enhanced merchandising solutions and a new store concept focus, especially targeting these new categories. Create market buzz around 2018 launch programme The third big point, because we are just about to enter our very busy fair season with lots of fairs. Anything from the world s biggest bike fair, Eurobike, to the world s biggest juvenile fair, Kind + Jugend, coming up in the next few months during quarter three. We have a very big focus of course to finalise all those developments, being able to show fantastic new products and creating a market buzz around them as we introduce them to trade. I think all of you guys are of course aware that today there is not anymore the concept of introducing something to trade. In reality, the same day you introduce something to trade with all 6

7 the social media, all the bloggers, all of those realities, in a very practical sense you actually launch it to the consumer at the same time. A big focus on all the buzz around those new product categories and the traditional categories at the industry fairs and media. Use operational efficiencies to offset raw material costs The fourth point is ensuring that we continue the good job we have done with our operational efficiencies, especially in our distribution sector and in our supply chain, to offset some of the higher raw material costs that all companies are experiencing at the moment. Raw material costs are not increasing as much as they did in the quarter one and they have slowed down a little bit. Still, we need to be very aware and have been able, as you have seen on our strong EBIT performance in quarter two, to offset a lot of those. That is of course a key focus in the mid-term. Deliver on strategic initiatives for the future Then if you look at the real long term, we have a number of very large, very important strategic initiatives going on. One is of course this big initiative to strengthen our presence in the retail channel for luggage and juvenile product, and we will talk much more about that at the Capital Markets Day, but that is a big effort for us. Secondly, as Lennart has already mentioned, I am very happy to say that we are a few weeks ahead of schedule on our building of our second big assembly plant in Poland. Our target is now to have it operational in already late Q4 rather than Q1, which was the ambition before. We are tracking well to get that set up. Initially, this will be a relatively small assembly plant but our mid-term plan is it will become the second-biggest assembly plant of the Group with ambitious targets for both assembly of current classical product categories, but especially also for assembly of some of the products in the new growing product categories. Therefore of course, a crucial focus as always in this company, which is very much driven on the mantra product is king, is to ensure that we deliver on those product development projects for both the 2018 launches and the 2019 launches. I am very happy to say that for the tenth year as I have been in the company now, we will be able to be saying that we have never shown as many new products as we will be showing at this year s fairs. A very exciting fairs season ahead with a number of very exciting product launches, and of course that is a key focus area going forward as always in this company. With that we will leave it to questions, and I leave it to you to guide us through that. Q&A Stellan Hellström (Nordea): I had first a question on the signs of brightness that you are seeing for your bags category in the US. Can you expand a little bit on this? Is this due to some success in the smaller backpacks and the declining category has now shrunk so much? Or is there anything else here? Magnus Welander: You are actually right, it is a combination of the two first things you said. We are seeing mathematically by default, when you shrink a lot in a category it starts to be small. Secondly, we have especially in the Thule brand in smaller packs seen some pick-ups in those as well. The combination of those two factors. Stellan Hellström: Then on the growth but still a little bit slower on outer and bags in the US. I understand it is a challenging retail environment, but to what extent is this reflecting in end user demand or market share? Anything you can comment there? Magnus Welander: Yes, we feel very confident that we are holding our market share or even gaining some in sport and cargo carriers. We are definitely taking big market share wins from a very small basis but still within the Active with Kids, and also in sport and travel bags. As I mentioned in the report, the struggling 7

8 point is still in the bags category. However, most of that is related to very much reduction of the categories per se rather than our market share in the categories. Stellan Hellström: Very well. End user demand then, is this lower in the US than in Europe? Magnus Welander: Yes, since we have quite a few different categories here, what you can say generally is the feedback if you look at retail numbers for the US are tough for the brick and mortar but quite okay when you combine brick and mortar and online. There is a situation where there are more positive winds in Europe, but it is a relatively balanced positive situation in Americas as well. Stellan Hellström: Then looking on the previous two years we have seen slow growth in the second half versus the first half. I would assume that partly this is due to differences in product sales mix but any reason to expect anything different this year? Magnus Welander: No, you are right, the trend is due to a mix or product categories and also launch timing of when we get the biggest boost is a likelihood of a slower second half than first half, but still with positive yield on the second half. Peter Reilly (Jeffries): I wanted to start please just with a question on Active with Kids. You said it is the segment you are the most happy with. Clearly you have got very strong momentum there. You mentioned you are winning share. I know it is probably quite difficult to give a mathematical answer but I would be interested to know where you think your market share is, how much headroom there is. Clearly your products are very much at the premium end, so I guess you are helping to expand the market with the very high price categories. Maybe you could talk about the market share trends and the headroom available? Secondly I wanted to ask about European RVs. If I understand it correctly you are a bit concerned that there is some excess inventory building up with production rates growing faster than retail sales. Are you a bit concerned you are going to have an under-production in the second half of the year, so even if retail sales hold up? You might still get a bit of a negative impact on production. Lastly, your new merchandising concept, maybe you could talk about the commercial issues of who actually pays for that. I imagine it is quite expensive to re-equip a store with these new product displays, so is that something we are going to see any impact in the income statement? Or is that paid for by the retailer? Magnus Welander: Excellent. I will start with Active with Kids. If you look at it you can really split the Active with Kids into the three product groups to understand a little bit the market share. Generally, we will of course spend a lot more time on this category as it is so important at the Capital Markets Day. On a short and quick version, in the multisport trailers we are already the market leader and we are definitely the premium player. What we have been able to do there generating growth is really driving the market and taking some market share on that category. It is a very difficult category to say how much headroom it is, because it is a conceptually timely right in the marketplace. People are wanting to bike around. It goes well with the environment, etc., but it is also still very much only in few countries. Your home country for example, multisport trailers is not a big product because not that many people bike to kindergarten and drop off their kids. It is when some of these trends might hit certain markets, but there we are the market leader. If you take child bike seats, we are one of the two big European players, now having acquired Yepp and we are with the Yepp acquisition now a significant player but there is plenty of headroom to be taken. We now have the best portfolio and widest portfolio in the market. We are very optimistic there. If you take strollers, we are almost not registering yet. We have to be honest. We are only dealing at this moment a sport stroller which is targeted to a very little niche. There in that little niche we are taking a nice market share, but if you look at it in the longer term there is a fantastic headroom in strollers. Obviously strollers is a big focus from a size opportunity going forward which we will talk much more about on the Capital Markets Day. 8

9 If you take the RV question, no I am actually not worried about significant drop-off in the second half. What I am more saying is that that significant add-on to sell-out I do not think we will see. We have seen a factor, those very nice sell-out numbers in Europe but on top of that a lot of the manufacturers having then experienced last year s inability to deliver when people wanted the things they have this year with very strong order books. If you look at other listed companies, and if you listen to companies like Dometic and others, they will confirm there are very strong order books among the OEM players. I am not worried that there will be a significant drop-off versus sell-out but I do not think there will be the same top-up versus sellout that we have seen in the first half. I am still positive about RV. I am just saying it is unlikely it will be as fantastic. In terms of us still taking market share, yes, we have been taking market share all year long. I am convinced we will continue to take market share also in the second half of the year. Then thirdly if you look at merchandising concept, honestly we have had a merchandising concept for many years which we have been spending quite a lot of money supporting our retailers. It is not the fact that we go from not having had a concept to having a concept. What we have done is a major review of how we could adapt that concept to better fit into the type of retail outlet we would do now. What there will be of course is as we have big growth predictions, if you look at five-year scenario in both luggage and strollers, for example in the juvenile channel, it is clear that we will be working with retailers more and more in those channels and supporting them to some extent with them taking some cost and us taking some costs in growing that category. That at the same time should be of course connected to significant topline growth. I am not worried that it would have a detrimental effect on our EBIT performance but it is going to be part of a packaging of how we drive that topline growth. I hope that answers your question. Peter Reilly: It does, and if I can come back just on a follow-up with the new Yepp child seat. Is that something you designed after Thule took ownership or was that a product that was in the works before you bought the company? Magnus Welander: It was a product that was underway where we came in and did a number of changes and improvements on it. It is really a joint effort of a development project that was underway where we added some of our expertise and skillset. We took over the manufacturing aspects and therefore did a lot of product engineering and other work with it. However, it was a project that was already underway when we bought the company. Peter Reilly: That is great. Thank you for the answers. Magnus Welander: That either means that it was very clear what we have said or that you are already thinking about that picture that shows on your screen with all those fantastic Thule and you want to go out on your vacation. I hope you will enjoy a fantastically active vacation so that you see all the Thule products when you are out there in the world. I hope I will see a number of you at our upcoming Capital Markets Day where we will be presenting more about our ambitious growth views on some of the new categories, as well as discussing the views of what type of financial targets the company should have. Thank you very much and I wish you a great summer. [END OF TRANSCRIPT] 9