Thule Group AB

STO:THULE

Earnings Call Transcript 2021-Q1

[Operator]

Ladies and gentlemen, welcome to the Thule Group Q1 Interim Report 2021 Call. My name is Bethany, and I'll be coordinating your call for you today. [Operator Instructions]I will now hand over to your host, Magnus Welander, to begin. Magnus, please go ahead.

[Magnus Welander, CEO & President]

Thank you, Bethany. Very welcome to the 2021 Q1 report. For the exciting times we are in, very happy to say that we have not only a fantastic start to the year, but that we've also, today, this morning, announced our new long-term targets, which I will also walk you through in this presentation, although there is a more full-blown presentation on that available on our homepage as well.Let's go to the first slide and look at the executive summary first of the quarter we have just closed. And as I said, we can clearly say that it was a very strong start to the year. We had a 56% growth in currency-adjusted numbers. So a phenomenal continuation of the very strong second half of the year and now 3 quarters in a row with almost around 50% growth. Very positive to note the fantastic results in Region Americas with 83% growth, but also very strong then in Region Europe and rest of the world with 49%.We also continue to show a strong gross margin where we are, despite challenges, as any company has these days with logistics and the supply for the increased demands, we have been able to ensure a strong gross margin performance, thanks to a good absorption in our supply chain. That all results in a fantastic EBIT margin, where we, in the quarter, had an EBIT margin of 23.4% versus the 18.7% we had last year. So a strong EBIT result of SEK 594 million versus the SEK 326 million we had the first quarter of last year. Also meaning that we, on a rolling 12-month basis, have an EBIT margin of 21.6%. As always, the operational cash flow is small in this quarter because it is a part where we are building and manufacturing a lot. But we still was positive and more positive than last year with SEK 69 million. And as I just mentioned at the beginning of the call, exciting also to be presenting our new long-term targets. So if we go to the next page and look at then, very briefly, once again, the pickup in the numbers because they are worth mentioning. It is maybe easy these days to take for granted that a company should be able to achieve over 50% growth, and there are many companies presenting fantastic growth numbers. But I can assure you, in presenting 3 quarters in a row with this type of organic growth as this is, is a testament to how well our supply chain has been built up over the years to be able to handle this type of increase. And also then a 91% currency-adjusted EBIT increase shows that it materializes in true profits. If we go to the next slide, I also want to remind you that we do know that we have a comparative reality, which was relatively weak in quarter 1 last year. So looking at the 4 quarters and looking a little bit to the history as well, I think it's important to remind ourselves what we are comparing with. So first quarter last year, we had a decline versus 2019. And that was all caused by the mid-March lockdowns that took place around most markets around the world. And what that meant was a performance that was solid for 2020 until, all of a sudden, the market went out under our feet, so to speak, in the second half of March. Therefore, are -- a fantastic result. In the best quarter we've ever had in the history of the company, we do need to remind ourselves that this is the highest sales we've ever had, quarter 1, was also in terms of potential growth compared to a relatively seen then weaker 2020 due to that mid-March onwards pandemic situation. And that mid-March onwards pandemic situation, as you remember, greatly affected also April in 2020 and halfway into May until we, towards the end of May period, started once again to see markets opening up, lockdowns being eased and people wanting to pursue activities in and around their closed homes. So that meant that we also -- what that means that when we look at the second quarter, we know we have a very weak comparable quarter.Therefore, it is no doubt that we will continue to significantly outperform the second quarter because our trends are very positive as we speak, both the long-term trends that have been enabling us as a company to grow for many years actually and mostly to grow in the first half of the year when a lot of people normally would buy our product. So a return to a traditional seasonality and a return to a positive underlying trend. And then comparing that to an abnormally weak second quarter last year means, of course, that we will have a strong result. On top of that, we do see a clear boosted momentum with more staycation. So very strong second quarter will be the case. But then if you look at the third and fourth quarters, you realize that as we did mention several times during last year when we presented those quarters, that we did have a delayed season impact boosting significantly, especially quarter 3, but also in some parts, early parts of quarter 4, making those quarters bigger than normal because they were actually taking some of the volumes moved out from the first half.So there, for the second half, we have extremely difficult comps because, as you know, quarter 3 was 52% growth versus 2019 last year and quarter 4 was 45%. So we do need to be significantly ahead of last year by the first 2 quarters, and I can assure you that we will be. If you look at the long trends behind, those are still very positive. So overall, I feel very confident on the total year with the first half of the year as a great outperformance.So therefore, if we look at the quarter that we have passed and a little bit what's going on, and we turn to the next page to talk a bit about the biggest region, Europe and rest of world first. If you look at Region Europe and rest of the world, with 49% growth, we have to remember, once again, that we did have a slight decline, 6% down in quarter 1 2020 versus the previous year. So there is a comp effect in it. But still, this, of course, then tells you that we've had fantastic growth. And that has been across all markets. And if you look at what has happened is that our very clear market-leading portfolio in all the bike-related categories, both the big bike rack category, but also bicycle trailers, child bike seats and bike pannier bags and other bike-related products, have been gaining strong traction in a generally, for years, positive European biking trend that is further now than boosted as a bike trend with the pandemic situation.On top of that, I'm very happy to say that both roof racks and roof boxes categories grew in the quarter, which is very positive to note, especially as we had mentioned, and it was the fact that some of the out countries had very strict lockdowns in place, what is normally a strong season for those types of products for us, when people go on their classical winter skiing holidays in those big markets. That did not materialize this year. Despite that, thanks to a strong performance in the Nordic region, where a lot of people did try to go to ski resorts and a start of the spring season where other people maybe didn't go to their winter ski resorts, but did go on other close-by vacations, meant that we still grew in both these categories.We also continue to grow very strong in our stroller category. And this is, of course, a combination of a number of factors, one of the factors being that we have now, over a few years, taken space in retail and are becoming more of a household name for that young mom and dad or to be that are thinking about which stroller they should buy. They are now walking around in their cities and seeing many, many more impressions of Thule products with kids associated with them. As that happens, we would get considered as one of the brands they potentially could buy. And that is one of the reasons that we are seeing a very, very good growth. The other one is the fact that we have been getting into more and more stores. And the third one is that we continue to now have a solid and broader portfolio. We are in year 2 of our third model, and we continue to see that the models help each other, so to speak, to sell more as well. Within the RV product category, which is big in this region, where we -- out of the total RV product sales, this represents more than 95% in this region.And if you look at RV products in this region, there has been a number of companies, manufacturers that have already announced their results ahead of our quarter 1 results. So I think you all expected that we would have seen some very good performance because there has been a positive momentum from the RV manufacturers in Region Europe. And the reason for that has been that they have, after a difficult period in 2020 when they struggled with complex supply chains to get those going in the second quarter after lockdown measures were in place, they took almost to the end of quarter 3 and really was only in quarter 4 where we see strong momentum in higher capacity, higher output from the manufacturers, to meet the clear demand that is out there in the community. There's a lot of people wanting to travel in their own private sphere, wanting to have that small band, that small motor home, that mobile home to travel around with. And now, in also quarter 1, it's clear that the manufacturers are much more capable of producing more units. We had a very strong growth as anybody in that industry had in quarter 1. If you look at the only category within the region that did not grow, it was our Packs, Bags & Luggage, and that is not surprising because as you were all aware, international air travel has been severely limited and that has, of course, grossly impacted our Luggage category. And also the fact that the back-to-campus and back-to-work situation hasn't really materialized yet, has also meant that those type of bags haven't been sold much. We are seeing very strong growth, as you would also expect, in the outdoor and sport year bags because a lot of people have been out and about and gone to national parks or just the forest close to where they live. So we see very solid growth there. But we saw a small decline. And now as we go in the coming quarters, we will, of course, face very much weaker comps. So we also expect to see a better performance in like-for-like for those categories in Europe.If we go to the next page and look at then Region Americas that had such a strong start to the year. It's a fantastic result to achieve 83% growth because that means that we've also been doing a great job to meet, from a capacity point of view, a lot of the increased demand. We have to remember once again that in Q1, we had a 13% decline as the North American market saw some more restrictive lockdowns across the board, especially in the U.S. but also in Canada in Q1 last year. So it was a weaker comp, but still it is, of course, phenomenal growth, 83%. And also here, very positive to note that, although it's clear that the most important markets, U.S. and Canada did very well, it was also the fact that Brazil and all the other Latin Americans grew. So we had growth across all markets also in this region. And especially, if you take that North America and the Sport&Cargo Carriers, our biggest category, it was actually across all product categories, so a very strong growth. And if you compare to Europe, you could say that North America, it was an even clearer trend and more American consumers took the cars to go various types of vacationing, so we saw a very strong performance across all our different subcategories within Sport&Cargo Carriers. You know that rooftop tents had been a success story since we acquired Tepui. And now we've also launched a number of Thule-developed new rooftop tents and rebranded it, and timing was great here. We have to say luck a bit there as well because what it has meant here, similar to the motor home discussion I had in Europe, when people now have wanted to go on that short trip, what better than to bring your own reality of where to stay on your car. So we've had a very strong performance on our rooftop tent business. Also in this region, we had a very strong result across the 3 subcategories within Active with Kids. So that's both the bike-related categories or bike trailers and child bike seats, but it's also a phenomenal growth in strollers. Similar to what we said in Europe, I think it's a combination of a continuously becoming more of a household name, broadening our portfolio, having great products that are for active people, hitting right on the current, and we believe long-going trends makes us a winner in Active with Kids. Also in Region Americas, where the bags category is much bigger than in the Region Europe and rest of the world, we saw a clear pickup versus the very weak trend we had in 2020, but there was still a small decline in Packs, Bags & Luggage in the region. And before I close the region, we are today actually letting our Region Americas President celebrate his last days with the company. So Fred Clark, who has been very successfully managing the region, has that fantastic thing to end on a high because what could be higher than 83% growth. And we have our new Region Americas President, Hillary Hartley, well on board, and I feel very comfortable with him now continuing a fantastic journey for the region.If we then move over to the financials on the next slide, I'll leave it to Jonas to walk you through some of that.

[Jonas Lindqvist, Chief Financial Officer]

Thank you very much, Magnus. We are now on Slide 7, the group income statement. And as you have seen by now, we have had a very strong start to 2021 and, as Magnus mentioned, the highest sales in a single quarter in the history of Thule. The sales amounted to SEK 2.538 billion, and this is an increase, excluding FX effects, of 56%. The gross margin in the quarter was 41.3% compared to 40.9% for the same quarter last year. The higher volumes have led to higher absorption of production overhead costs. And this, in combination with a favorable product mix, explain the higher gross margin compared to last year. The EBIT margin in the quarter was 23.4% compared with 18.7% in Q1 last year. Here, we see the fall-through of increased sales and gross margin to operating earnings. The increase in selling expenses is driven by launches of direct-to-customer sales and also some other variable sales costs.Administration expenses in the quarter are approximately on the same running level as for the past 12 months. So the cost in the first quarter 2020, the comparison period was lower than the average last year. The financial net of minus SEK 9 million in the quarter is somewhat lower than last year and the quarterly average for the last 12 months, certainly. This is because of lower utilization of our credit facilities, which in turn was driven by the decision last year not to pay dividend. Tax cost in the quarter amounts to SEK 137 million, and the tax rate is approximately the same as for the full year 2020, that is 23.5%. And if we move over to Slide 8. The story for the period regarding working capital and operational cash flow is that the strong sales drove both a big increase in accounts receivables in the quarter and also, as we've seen, an increased profit. And the cash flow effect from the increased profit compensated for the increase in net working capital in the quarter. Overall, the level of working capital as a percentage of sales is continuing down and is now on 21% to be compared with 23% last year and 24% the year before that. If we adjust for exchange rate effects, the reduction is somewhat smaller. And I show the impact reach of the categories for working capital in this slide. But as you can see, the story doesn't change. Despite our current high production level, we are still somewhat on the low side when it comes to inventory because of the high demand and the high level of activity. And this activity level is also reflected in the increase in accounts payables in the quarter. Finally, capital expenditure in the quarter amounted to SEK 56 million, which is slightly higher than last year when it was SEK 50 million in the first quarter. Thank you.

[Magnus Welander, CEO & President]

Thank you, Jonas. And then if we conclude the first quarter before we talk about the long-term financial targets and turn to next page on what it is, what we're looking at for the rest of this year, I think there was a good quote from the CEO of Volvo, Martin Lundstedt, this morning. He took an old Mario Andretti Formula 1 quote and turned it into a good spin on what's going on with supply chain, which was simply this that if you're in -- 100% in control, you're not driving fast enough. And what Martin Lundstedt was alluding to and is something, I think, most CEOs of all companies that are growing fast as we are at the moment, it is clear that when you grow that fast, you will have significant challenges in your supply chain on a daily basis. You will need to do a lot of extra efforts because, as you all know, there is logistics nightmares out there in terms of how many weeks longer certain shipments take, not only has there been ongoing issues, then you have blockages of the Suez Canal, et cetera. So reality is that our supply chain team is working very successfully, as you can see on our numbers, but there is constant challenges to handle those type of demands and the capacity ramp-up that we're doing. And that implies both for the very short term. But also, as we've already announced previously, we are going into our biggest CapEx year ever. That will not be smaller now. If you look at what we're doing in terms of capacity increases for the future, so we're doing extension and big plant extensions in Poland and in Belgium to handle that volume growth, very successfully managing those projects on time, as you would expect from this company. And we're doing it really well, but there will continuously be a number of smaller issues, and we will surely struggle to meet the demand at times for the trend that we are seeing that is very positive. Then on top of that, I think what is obvious is also that there are some big cost increases coming. And therefore, you see that those effects will be starting to come in. Logistic costs will remain high, and we will, as we've always done as a company, to make sure that we ensure that we are as profitable as we should be, implement the correct price increases as they should be implemented throughout the system. We're also pursuing, as we always do, a very aggressive product development path that is both in the existing categories with new award-winning products being launched all the time in our traditional categories. We just won 2 Red Dot awards for our premium roof-mounted new bike carrier till the top ride as well as for our bike gear duffel, and we will continue to out-innovate our competition. But we, of course, are also spending money on the new categories, which we will be entering in the near future.So if I conclude, I would agree with Martin Lundstedt that anybody claiming that when they're pushing that aggressively forward that they are 100% control and can say that they won't have any supplying issues, they are probably lying, and I don't want to lie. So I'm sure we will have some short-term challenges as well doing fantastic growth numbers as we speak. And therefore, it's good to conclude with a summary of our new long-term targets. So if we go to the long-term targets presentation and you can actually click 2 slides forward to Slide 11 immediately, where we present the 4 long-term ambitions. So we -- this morning, the Board has approved, as we've said, our targets of ensuring a doubling of sales by 2030, maintaining a higher than 20% EBIT margin and increasing our net dividend -- cash dividend into 75% of the annual net income. We're combining that with our strong commitment to the ambitious science-based targets for 2030 for a reduction of greenhouse gas emissions. So an ambitious long-term plan to continue to do more of the same. That might sound boring, but I don't think it's boring when it's at the level of what we are doing. So if we look at the sustainability part, and you can actually move to Slide 13, you can see that our ambition of meeting those high levels of Scope 1, 2 and 3 sustainability targets is built on a historical factor of always looking at sustainability as a totality. We look at sustainability in all aspects. And we start with the base platform created by fantastic products designed with a life-cycle approach that are focusing on enabling active life. Since they are high quality, they will last a long time and therefore, have a positive impact on the sustainability. We then look at the environmental targets across the board inside and outside our factory. We work with all the aspects of supply chain ethics in our supply chain. And as a company, we've always engaged in a strong community engagement focusing on children, and we do that together with our ambassadors and together with our Thule crew members and our staff.If you turn to the next page, we can see those new long-term targets in terms of science-based targets. I do want to reiterate that we, of course, have a lot of other targets as we do, by the way, on financials as well. So it's not just our science-based targets on environment within sustainability, and it's all presented in more depth as in our annual report and on our homepage, so you can look more of them there. But if you look at those 3 targets of greenhouse gas emission reductions in Scope 1 from minus 46% in Scope 2 to use 100% renewable electricity, and in Scope 3, which is then outside our direct control with all the logistics and materials around that, to reduce greenhouse gas emissions by 28%. They are all very ambitious targets that have been audited externally and will be kept on looking at and targeting in a continuous updating as we go.We're not inventing these from scratch. We are, of course, basing it on what we have performed and done over the last decade and even before that. And we did have 2020 targets on sustainability that we can summarize by saying, we met them almost all of them. And we have reduced inside them what you would claim Scope 1, our greenhouse gas emissions, significantly already. We're down 76% versus our 2014 level. We have increased our recycling rate well above 98%. We have reduced our water consumption despite selling much more than ever. So I think we have a long proven track record, and this is just one further step into that. If we then look at -- you can move to Slide 16, where we show the sales growth and our doubling of sales ambition. And where we can first look at the reported net sales growth that we have had, because I think it's always important to say that we've already, as a company, performed with a 7% compounded annual growth rate since the Stock Exchange listing. So when we now say that we will double by 2030, you can really say we're extrapolating a minimum 7% compounded annual growth rate also in the coming decade. So it is something that we are feeling very confident in that we have proven that with our organic focus, we will enable that growth. So looking at next slide to summarize a bit why we are so confident that we can achieve the double sales by 2030, on Slide 17. It is because the strategy remains unchanged. We build it first and foremost on great products. We do better products than most. And in our core categories, we definitely do better than our competitors. We have shown, over the last decade, that Thule has become a lifestyle brand. We will now build on that fantastic platform created and make it an even greater and bigger lifestyle brand. We will continue to grow at a faster pace in our direct-to-consumer sales than we will do in other categories. And that will, of course, work at the channels, and that will also boost our top line. And we will do this by continuing the dogged work to really focus on great product development. We will continue to invest more than 5% of sales in product development. We have a fantastic state-of-the-art development center that is already up and operational. We are continuing with the expansion of our Thule Test Center. So the first SEK 100 million that we spent in the development center is now added another SEK 80 million to really expand the test center with capabilities that will be up and running early '22. And we will use that to truly drive growth both in current categories but also enter into the new categories. We also know that we have strong macro trends behind us, and it's always easier -- and I've said this many times, always easier to sail with the wind in your back, and we have a wind in our back. We had that wind in our back already before the pandemic, and we're getting some temporary boost by some gusts of wind. But that overarching long trend is still a positive trend that will help our categories definitely for the coming years. We've also proven that we have the supply chain to meet that growing demand that can ramp up and handle capacity, flexibility that is going to be necessary, not only in a pandemic reality, but in a demanding, ever-changing landscape of retail and consumer sales, you need to have flexible and efficient supply chain, and we have that. We've also proven that our scalable back end of the organization can handle growth. We rolled out very smoothly and silently, and I refer this to all the time as the -- it's like the referee in a soccer game, he's best when you don't see him, same thing with an ERP system. By us not having to mention, me and Jonas, about one-off costs or issues, it's a sign that we're very good and that the team there has done a phenomenal job in rolling out one global ERP system that we now can utilize. We're also rolling out a number of digital sales supporting tools to be able to be scalably handing that top line growth, and we will enter into new product categories. If you look at what that then means on our profit and capital efficiency or capital utilization ambition, you can go to Page 19, where we talk about profit and capital efficiency. And we have clearly done a great job there. We have grown our ambition level. We've raised our targets. We are now holding on to the greater than 20% EBIT margin target. But that's because we're focusing, first and foremost, on true, absolute EBIT growth in monetary terms and ensuring we maintain that market-leading above 20% EBIT margin. We will see growth in high-profit categories. We will drive growth faster in higher-margin channels and go to markets, and we will ensure that we invest and spend the right money in the supply chain and in the back end to meet those demand and so that we can truly continue to perform over many years to come. When you do that mostly organically, which is what we still will do as a strategy, that will mean that we will generate significant cash. And we have, therefore -- and the Board has approved an increased level, a raised level of cash dividend ambition to now be more than 75% of our net income. And if you turn to the next page to look a little bit to the history and what that means. I want to remind when we came to the market as an IPO in 2014, we had a goal of 15% EBIT margin, which we quickly met. We then raised that level to 17%, which was quickly raised to 20%, and we're now saying that we will maintain above that 20%. And when we look at capital utilization and targets for that, you will have noticed in our communication that there is not anymore any type of leverage target, and that is because we are convinced that we've proven to the investment community that we are diligent in how we handle our cash, that we do invest our capital in the right ways. So if you look at how our operational cash flow -- our operating working capital has performed and what we've done, I think you'll realize that with the very low leverage levels that we have today, there is no logic of having specific targets. But we will, I can assure you, continue to be as diligent as we have been in terms of capital utilization as a company. In terms of cash dividend target then, minimum 75% of our net income. That is something I think most analysts already have speculated that we would be landing on, considering what we intended to do for '19 and then due to the pandemic outbreak really postponed to do as an extraordinary dividend now for 2020 instead, but we were already at those levels both for '18, '19 and '20. And that's why we're now saying calmly that we will have that as an ambition. Should there ever be a significant M&A, et cetera? Of course, we reserve the right to look at a cash dividend target that in reality, most of those M&A opportunities are smaller companies, and we'll, therefore, be definitely handling within still meeting the more than 75% of net income target. So overall, I think you can say more of the same. More of the same sounds pretty boring, and I don't believe in boring, but when it's more of the same and it comes from the Thule Group, it's actually pretty deep fantastic. So that's the way I leave it and open up for the questions. Thank you.

[Operator]

[Operator Instructions] The first question comes from Daniel Schmidt of Danske Bank.

[Daniel Schmidt, Research Analyst]

You do talk about -- of course, you're very optimistic. So don't get me wrong, but you do talk about supply chain and sort of availability quite a lot in your opening statement. Are you seeing that, that is getting increasingly difficult as of March and into Q2? That's my sort of first question.

[Magnus Welander, CEO & President]

No. I wouldn't just say reality already [follows] because if you see the type of growth with more than 80% in Americas and close to 50% in Europe, it's clear that we are putting a lot of pressure on all our sub-suppliers in getting those quantities in. And although we are not as complex as the supply chain as somebody making a truck, for example, we -- you realistically, when you've been doing that for 3 quarters, you will see constant issues if there are then a Suez Canal block or a specific ship that doesn't come into harbor as soon as possible. And I'm more saying it because if you would go into any of the home pages of a number of our retailers or even our own homepage in those countries where we sell direct-to-consumer, you will see at times that we will say not available, not available. And reality is, as I have to even mention to my own marketing team at times, it's not like we're not producing at all. We're producing more than we've ever produced. But at times, we still can't cope with the very good demand that is out there. So it's not an issue that is, in general, holding growth back. We're going to grow very nicely, but we potentially could have grown even more if we wouldn't have had those challenges.

[Daniel Schmidt, Research Analyst]

Yes. Yes, no, but I think I got you there. But just -- I was just referring to sort of the fact that you entered the high season in March, and now you have a high season for entire quarter. And is that putting you in a different situation than the average for Q1 basically?

[Magnus Welander, CEO & President]

No, I don't think so. I feel that we are at a similar type of situation we've been for a while.

[Daniel Schmidt, Research Analyst]

Yes. Yes, okay. But good. I have a couple of questions. So coming back to the new financial targets, and again, don't get me wrong here, but should we read you when you say, in between the lines, that you should grow by an average of slightly more than 7% over the coming 10 years and the historical average is around 7%? It's slightly below. So it's basically the same growth rate that you're implicitly targeting for the coming years. But should we read that more as that you will outperform that in the same way that you outperformed the old targets and the same spread? Do you see what I'm getting to? And what the...

[Magnus Welander, CEO & President]

I think in terms of -- so spread calculation is up to you. I think we have clearly made a point of saying, we don't put up wishful targets as a company, as a management. We intend to meet our targets, no doubt. But that's -- we are not inventing nice-to-have targets that we never hit. So that's obvious that we are intending and hoping to beat our targets. How much, the future will tell.

[Daniel Schmidt, Research Analyst]

Yes. Okay. Good. And then maybe finally, could you say anything about sort of -- because everything is up very strongly, of course, apart from Bags, Packs & Luggage, even though it sounded like it did a little bit better in the Americas and maybe that's an indication of what's going to happen for the entire category once Europe gets sort of a little bit more out of this pandemic. Could you say how much it was down in Q1? And what trend do you see for that category in Q2 so far?

[Magnus Welander, CEO & President]

So if you look at it, we were significantly down. We were not as much down as the big Packs, Bags & Luggage companies. If you saw -- looked at Samsonite's report, they were down 65% last year. We were not nearly down as much, but we were down very significantly in the second half of the year. We were low double-digit decline at the beginning of this year, and it's getting better for every week we speak. So the trend is positive, definitely.

[Daniel Schmidt, Research Analyst]

Yes. Okay. And when you talk about sort of being ahead in H1 in order to the cope with H2 and sort of the quite dramatic shift in comps, of course, is it obvious that you need to be very much ahead in H1 in order to get a full year growth if you look at sort of the trends that you're seeing in Americas and the fact that Europe is lagging Americas? And if we assume that Europe will have the same development as Americas but a couple of months later, could that still compensate and make it into a very strong Q3 as well?

[Magnus Welander, CEO & President]

I think what you have to do is just a mathematical comparison. I don't have any doubt that Q3 and Q4 will be strong, but you just to do the mathematical logic of what you're comparing with. And that's the difference. That if you look at them as absolute performance and roll back versus a '19 or '18 and do a cargo on them, I have no doubt that 2021 Q3 and Q4 will be exceptionally strong quarters, but you're comparing them to absurd quarters with a seasonal shift, which is a big difference. That's why we're saying this.

[Daniel Schmidt, Research Analyst]

Yes, yes. But I understand that. But you also have sort of 2 markets in different gears, even though they're in a high gear, both of them. One of them is sort of speeding ahead quite a lot. And I assume that comes back to the pandemic and the fact that the U.S. is doing much better than Europe. And just referring to -- if we get the same situation in Europe finally, that could be something that could compensate quite a lot during the summer as well.

[Magnus Welander, CEO & President]

Absolutely. I mean we are optimistic about the year as a whole, no doubt.

[Operator]

The next question comes from Gustav Hagéus from SEB.

[Gustav Hagéus, Research Analyst]

I'm curious about the 7% CAGR target. I'm sure there's more numbers below that figure that you've discussed. So if you could share a little bit, first of all, if you believe that with the current and future product, the market mix that you envision is sort of the 1% price increase per year that we've had is incorrect. Is this still something we expect to be true if it's a higher or lower number? And also, if you could try to little bit rank in order of importance sort of mix effect enter to new categories, market share gains in existing categories and so forth to build up to that 7% CAGR [target]?

[Magnus Welander, CEO & President]

Yes. If you look at it, yes, you're right on the pricing, similar levels, slightly above 1% in average over that period, and there will be more certain years and less are [those], maybe, but as an average, over time, a bit more than 1% from pure price increases is a good guidance. If you look at what is going to be the biggest driver, it is, of course, the similar combination to what we have done, which means that Sport&Cargo Carriers being such a big share of the sales will continue to grow at a very solid pace over the coming decade as well. We will see a faster growth pace in Active with Kids as we have been seeing already, maybe not as high if you look at that very high percentages, but definitely a higher growth pace than the average. We will continue to see a solid growth pace in RV with a clear momentum as we see at the beginning of this decade. For the next year, there will be a very strong positive momentum we see. And then as we enter the new categories, they are small in the beginning. So as a percentage, they will be in their own -- have a very fast growth pace, but the impact on the group's numbers is relatively small in the first few years, and it's only towards the end of that decade that they start to impact a lot. A little bit similar to Active with Kids. It's really in the last 2 years that you've seen the fast growth pace being impacting the total number when we're now up to 12% of the sales, then a 30% growth starts to truly impact the growth of a total business as well.

[Gustav Hagéus, Research Analyst]

That's helpful. And then also on the margin side, you have the ambition to have a 20% plus margin. Do you expect then to have higher gross margins and we invest some of that into OpEx to fuel the growth to reach that 7%? I guess your 5% R&D target doesn't really suggest that. Of course, there are other ways to sort of drive growth through OpEx, that it's not R&D or -- talk a little bit how you break down the margin target as well.

[Magnus Welander, CEO & President]

Yes. I think it's about -- it's very easy to always assume that you can always add a growth margin percentage. But when you're in the traditional business of manufacturing a product and selling them in a lot of markets and you're entering in a lot of new categories, you always have some additional costs aside from the pure product development in setting up your business. So what we're saying is that above 20% doesn't mean it has to be exactly 20%. It just means that it will definitely have to be above 20%. And we will clearly be above 20% in this decade to come. And in some years, I think we can be clearly above that 20%, but it will also differ between years depending on how much we dial up certain new entries and certain efforts to grow the top line because that's why I'm talking about more important to grow through EBIT by growing top line than being fixated with a certain percentage.

[Gustav Hagéus, Research Analyst]

Yes. No, that makes sense. And in terms of the semi-recent categories you've entered, I'm not talking about Luggage then, but perhaps Active with Kids, some of Active with Kids categories and, yes, stores and so forth. Is that a drag on EBIT margin today? And the ambition is to be a driver to EBIT margin must give the more [indiscernible] there in terms of efficiency?

[Magnus Welander, CEO & President]

I think you could say that if you look at the Active with Kids, it's now the size of business, as I mentioned, in 2 ways, size of business enough that it can merit that senior management can focus on some other new things and allow the teams that are working with it to handling it because the teams are big enough, we're proven enough, we are not looking away when our small child hurts itself by playing around, so to speak, a little bit harshly because it needs a lot of senior management intention and focus when the category is in its early days. That category is now starting to become seriously big enough with proven track record, proven supply chain set up, proven sales organizations, marketing I expect and therefore, also proven profitability. And as it is, as we've mentioned a few times, market-wise, not only for the Thule Group, but in a market-wise, the premium juvenile categories has good gross margins, it is definitely a positive contributing factor to our EBIT already. So what we do have already is obviously then the drag of some of the new categories we haven't even announced started selling, where we're already spending money on them, and we will have that in the future as well.

[Gustav Hagéus, Research Analyst]

Yes, yes. No, that makes sense. And lastly, on the leverage target, I don't really get in mind why you won't stay or indicate sort of corridor or why you leave it all up to us to have a view on. Do you feel that this is -- if you think of it philosophically, do you think Thule is a company that is well off with some debt than being optimized to balance sheet in that sense? Or should you perhaps have a net cash position in terms of maybe a cyclical end market for RVs and other key categories? Or could you help us a little bit here? That would be helpful.

[Magnus Welander, CEO & President]

Yes. We can help you a little bit by saying that you've seen what we've done over the years and how we've utilized our cash, and you can see our cash generation that even doing above 75% cash dividend, we will build cash in the company if we would do that because we're actually generating even more cash than that. So clearly, the case is that we think to have cash is smart. To have too much cash is not useful when you, with our strength, can clearly access cash in a good way and have facilities. So we're going to be having cash in there, and we're not going to necessarily leverage ourselves for any length of time over a logical reason, but we might choose to do it if the right specific M&A, which was larger, came up, for example. And that's why we're not setting a specific level to have over all the 10 years because it wouldn't make sense in our view.

[Gustav Hagéus, Research Analyst]

Congrats on the very good results.

[Magnus Welander, CEO & President]

Thank you, Gustav.

[Operator]

The next question comes from Fredrik Moregard from Pareto Securities.

[Fredrik Moregard, Analyst]

So first of all, on the margin. I mean, a few of the previous speakers have touched upon that in your margin targets. And I hear what you're saying with regards to absolute EBIT growth being the most important thing, and I completely agree with that statement. But I don't -- I fail to understand or fail to see how that sort of disqualifies raising margin target as well. Perhaps if you could just explain this from a different perspective.

[Magnus Welander, CEO & President]

Yes, I can. I think the number one thing to do there, Fredrik, is ways to look at how many consumer goods companies in the world has a higher EBIT margin target than 20%. And if you look in the -- really search around the world for large international proven product manufacturing, product selling companies with own sales organizations that have a target above 20% that are in the world, you will realize there is a logic why not a lot of people do that. And it doesn't hold us back to over deliver. But if you look over a decade, which is what we're doing, because we're not saying next year or this year because we just announced that our rolling 12 is already at 21.6%. So it's clearly that we're not going to try to dilute that down to hit 20%, just to say we're just above 20%. There will be performances over peers that are clearly higher than that target level. But what we're saying is all the period will be above that level. That's, I think, why you see so few companies having higher target than that.

[Fredrik Moregard, Analyst]

Okay. Fair enough. We'll have to see how that develops simply. Then on the second thing that I was thinking about for the next 10-year plan up to 2030 and Jonas touched upon some additional costs in the selling expenses relating to B2C launches. How do you see that channel mix developing over the coming 10 years? I mean there are some international companies in the outdoor space that have been really successful in getting consumer activity or getting consumer connections through the B2C channels as well as a very nice mix improvement through that category. So could you just elaborate on how you're thinking about that strategically?

[Magnus Welander, CEO & President]

Absolutely. I think if you look at most of those that have been able to do that, they had a pretty low-margin mix with their current retailers. So the mix effect was more positive for them than it would be for us, as you can see on our current EBIT margin versus most of those companies, to be true. But reality is, you're right. Still for us, even having very good margins selling via retail, we will, of course, pick up margin the more we do direct-to-consumer. And as I mentioned, clearly, we will outpace the growth in our direct-to-consumer significantly versus the rest of it. But we are small today. I mean we're not even in U.S., we are a double digit, just touching upon double-digit of our sales in the U.S. We have just rolled out major markets during the last year. So Germany, France, Holland, U.K. rolled out only a few weeks ago. We've been in Sweden and Norway -- Sweden and Denmark, sorry, for 1.5 years. We will be adding more markets. So clearly, we see direct-to-consumer as a faster growth than anything else. But we have to be a realistic company when you have already got 35,000 doors successfully selling your product at very high margins for yourself, you need to be smart about -- we are also not sending a T-shirt in a bag that anybody can drop off at their local [indiscernible] when they want to send it back. It's slightly more cumbersome product than that. So the reality is it will grow at a much faster pace. It will become a bigger share, but don't compare us with clothing companies in the outdoor sector, for example, because we won't be at their percentages.

[Fredrik Moregard, Analyst]

Sure. Any ballpark figure what that portion of your sales could be by 2030?

[Magnus Welander, CEO & President]

If we would have had that, we would have announced it in the presentation. We will talk more about it as we tend to do when it starts to be significant enough to talk about it, like we've done with Active with Kids, et cetera. So clearly, in the coming years, you will hear us talk much more and divulge much more about our intentions in direct-to-consumer.

[Fredrik Moregard, Analyst]

All right. Just a final one for Jonas. I'm not really sure if you touched upon that, and sorry if I missed it, but could you give us some indication of what the raw material headwind was in the quarter? And what you might be looking at for the full year?

[Jonas Lindqvist, Chief Financial Officer]

What we are seeing is that we will get higher raw material prices from our suppliers. Exactly where we're going to end up, we don't know at this point. And we haven't really been hit by any major changes so far. And actually, Magnus, I think you have maybe some more from that standpoint.

[Magnus Welander, CEO & President]

Yes. I also think, as I said in my part of the presentation, it's clearly the case that we have proven over time that we will, of course, compensate with prices what we see with costs if they increase significantly, and we had already anticipated in our price increases ahead of the season some of those material increases. We will need to adjust in a number of cases, additionally. So I am very confident that although there is clearly a negative impact, we will be able to deliver a very strong EBIT result also in '21.

[Operator]

Next question comes from Karri Rinta from SHB.

[Karri Rinta, Research Analyst]

Karri from Handelsbanken. I wanted to ask about the growth rate and -- because for some companies, the growth rates right now are boosted by a quite massive restocking. We saw a lot of their customers destocking last year and now its restocking. In your case, it's typically not that big of an issue, if any. So can you confirm that the growth rates that you are seeing and the growth rates that you are expecting for the second quarter are really sell-through sort of end customer-driven? Or is there any element of maybe some inventory buildup that you're seeing?

[Magnus Welander, CEO & President]

There is 0 element of inventory buildup. This is pure consumer sales play selling out.

[Karri Rinta, Research Analyst]

All right. That was very clear. Then secondly, the plans to enter into new product categories. So when we look ahead, should we expect that you sort of use the same playbook that you used with Active with Kids, i.e., that you sort of acquire the first part of the portfolio and then you start to sort of add to the portfolio by organically developing the product? Or do you expect these expenses to be more organic in nature?

[Magnus Welander, CEO & President]

I would say the playbook is actually not exactly as you quoted. The playbook is, we will do only things that we organically could do. Sometimes there is an opportunity to pursue M&A early and that sometimes later. So if you take the bike trailers, it was started by an acquisition. If you take bike seats, it was -- we started organically and then added an acquisition. And if you take strollers, we've only done it organically. So I would look at the subcategories from that logic. And therefore, the combined playbook of saying, first and foremost, we only do it if we think we could be successful organically. If you start to back on the M&A, it's a bit the great American hope or the Great American hype that it can happen that you'd go and say, I'm needing to find an M&A. I need to find an M&A. I need -- we don't want to be a company like that. So we will always pursue it organically. And then we might, if we see the right opportunity, speed it up or add volume to it by an acquisition.

[Karri Rinta, Research Analyst]

Right. So it's safe to assume that the first step will be that we launch an organically developed product in the new category?

[Magnus Welander, CEO & President]

The new product -- a new category that we will announce within a year's time? Yes, absolutely, it's organically very, very well underway since quite some time, definitely.

[Operator]

The next question comes from Mats Liss from Kepler Cheuvreux.

[Mats Liss, Equity Research Analyst]

Congrats on the very good numbers, of course. I just had a question regarding the financial targets. And I guess, the growth target at 7% is impressive, even if you do more now. Is it in the, well, product offering side? Or is it in the sort of retail market? Is there any sort of area that you are seeing, well, that more of the organic growth will come from?

[Magnus Welander, CEO & President]

Yes. I think if you summarize it simply, it is, of course, product-driven growth, that is the key. But some combination of getting your product into more retail outlets is, of course, key. We see that within Active with Kids that getting into more doors has been a key, and we will continue to open more doors there. If you take Sport&Cargo Carriers, we are already in all the doors we need to be. So there, it's purely about more products being sold. If you take the newer categories, we need to get into new retail doors so we can sell them. And as we did mention and have talked a little bit about also on the questions that have come as the channel of direct-to-consumer will grow more, that will, of course, boost because you have a higher revenue when you sell direct to a consumer the same product than if you sell it via retail. So it's a combination, but it is a product-driven growth that sits at the core of it also this coming decade.

[Mats Liss, Equity Research Analyst]

Good. Then I just noticed that you see a pretty good opportunities when -- what Europe is opening up more thoroughly. But just from my point of view, I saw you as a winner of this sort of domestic holidays and so on, but do you still see yourself as a winner when things are opening up?

[Magnus Welander, CEO & President]

I think it's always also a comparative reality. We have to realize that memory is short of people, but you might not remember how terrible your summer planning was for 2020, you didn't even know if you were going anywhere. That is not brilliant for us as a company. It is much better that you know you can go somewhere. I don't believe the trend will end in a day that people -- actually, a lot of people, I'm sure, when you ask your friends that have realized that, that little hiking trip and that little mountain biking trip relatively close to Stockholm or Oslo or [indiscernible] or wherever you're sitting was actually much nicer than many people thought. And maybe it wasn't a necessity to fly to Bali and Thailand as many times as you thought. That trend, I'm not alone in thinking that, trust me, a lot of people believe that, that is a trend that will continue. Then if you compare that, this summer, most people with a vaccination rollout are feeling, I will do this type of vacation, I will bring my bikes, I will do things. So that's why we believe in a continued positive momentum compared to then what was some challenges in the beginning of the summer last year. Then towards the end of the summer when people were feeling I need to do something, we saw a fantastic seasonality shift. We will see less of that seasonality shift, but we will see a general positive trend instead.

[Mats Liss, Equity Research Analyst]

Yes. Great. And just a final -- yes, sounds convincing. Just a final one there on the situation -- I mean you have been -- you have announced the financial targets now so that -- and the product launches have been something that you have also indicated to come. And it's in a year time, a bit organic product you will launch started -- to start with.

[Magnus Welander, CEO & President]

Yes, I'm not -- I'm not sure what the question was there, Mats. I have to admit.

[Mats Liss, Equity Research Analyst]

No. Yes, I think the last conference call, you talked about this product launch that you were expected to be done during the second half and the...

[Magnus Welander, CEO & President]

I want to be clear because I always -- Mats, I always remember what I said. We will announce it to trade. And so we will announce it to trade and when we announce it to trade, but it isn't like just because you announce something to trade, it becomes significant in your revenue day 1. You have to announce it to trade some time before it is sold to consumer. So we will definitely announce to trade before the end of this year a new category to enter into. And you will then, as analysts and investors, know what that new category is. And then that category will be tiny in the beginning but like we've proven with Active with Kids, after a few years, it will be a significant growth boost for the company.

[Mats Liss, Equity Research Analyst]

But it's a different animal. It's -- well...

[Magnus Welander, CEO & President]

It's a new product category that we don't do today, correct.

[Operator]

We have one follow-up question from Daniel Schmidt from Danske Bank.

[Daniel Schmidt, Research Analyst]

Just a follow-up on what you said, Magnus, and you just talked about when it comes to new product categories, plural, and of course, we know that you will say something in the second half of this year, and it will be in the market the year after in '22. Sort of when you look at this 10-year horizon that you gave us today, how many legs do you think that can stand on and basically be relevant in?

[Magnus Welander, CEO & President]

I think realistically, you need to give every leg you add. The -- as I said, the time to actually grow out and be steady and muscular, so you don't wobble like a small deer just coming out of the tummy and wobble around, you wanted to be firming up. When you've done that a few times, it goes quicker because the organization learns and understands how you handle a new category when you get into it. So realistically, I would be disappointed that if within 10 years' time, we don't have at least 3 new product categories that we don't do today established in the marketplace.

[Daniel Schmidt, Research Analyst]

And do you mean -- by that, do you mean 3 new business areas? Or are they a mix between line extension and a new area and -- or could you just...

[Magnus Welander, CEO & President]

We don't run business areas even today, and that's why I don't call them that name because it's actually that we do sales by regions and then we develop product categories that open up opportunity to sell in those business regions we have. So it's not that they are run like separate business areas. In our company, we take an approach of having joint development, joint supply chain, joint marketing and regional sales. But if you look at it from a point of view, it's things we absolutely don't do today. It's things that are significant enough because we've launched small new things. I don't call rooftop tents a new category. You haven't heard me call it a new category, right? That will be a pretty significant part of what we do. It's growing nicely, but it's too small as a sizable chunk of business for a few years out.So to be allowed, so to speak, in our mind to be called a category, we need to be seeing it as a significant potential of volume out there and it needs to be distinctly different. So there will be line extensions within strollers, line extensions within bike trailers, et cetera, they will not be called as new categories, but they will happen as they have happened within Sport&Cargo Carriers and within RV products as well. So these are defined clearly market-wise as different product categories with significant size in the marketplace.

[Daniel Schmidt, Research Analyst]

So what you're saying is that there will be -- even though you don't call it business areas, there will be a new line in the reporting that we can see at the start of next year, will be sort of 5 lines instead of 4, and you feel that it could be a couple of more, a couple of more years out. And if I get you right, is it more important now than it has been or is it similar that these new product categories that you might be thinking about are more global than Western-oriented?

[Magnus Welander, CEO & President]

I don't think we've underestimated the global situation ever historically either. It's -- you just come from a past, we have a heritage, a strength and a position and some of our products, therefore, are more sought-after in certain geographies. We have then added additional categories because we take logical steps on where we do that maybe are considered more Western. But to give you an example, the country we grew most in, in quarter 1 was South Korea. So you -- it's not only Western, if you consider geographies Western. But behavior-wise, we are doing products for families mostly or enthusiasts that want to live an active outdoors-oriented life. In markets where people have the money, have the time and have the inclination to do that, we will always do better. Historically, that has been geographically exposed mostly to Western Europe and Northern America. You have a few countries on the Southern Hemisphere, and you have Japan and Korea. I can assure you that growth is happening, as we speak, Latin America and Southeast Asia as well and slowly, but surely, also in a market like China. So reality is, I am sure our global exposure will become more global, but not necessarily so much because of what we do, more because of what the consumers want to pursue as an activity.

[Operator]

We have another follow-up question from Karri Rinta of Handelsbanken.

[Karri Rinta, Research Analyst]

I wanted to take the sort of the flip side of that. The Thule is entering new product categories and just ask about whether this sort of significantly increased interest in your existing product categories has attracted new competition, if you have seen any new entrants in bike carriers or if you expect to see such? And what are your sort of countermeasures in that respect?

[Magnus Welander, CEO & President]

So within Sport&Cargo Carriers, there hasn't come up any new company of size or importance in the last few years. I think there is always going to be interest in any category where there is growth. I don't underestimate that in any sense or any shape. There's a lot of small, very successful small local competitors that are doing excellent job, and we see them as also very keen local competitors, and we don't underestimate them either. The reality is that simply the best way to ensure is you can't put up boundaries or create walls. What you can do is you can create a situation where consumers will prefer you and retailers will prefer you because you have better product, better service and better offer and a stronger brand. So that's the way we're going to make sure that we keep on growing in these categories by doing fantastic work with new innovation, patent protection, IP, doing all of the efforts that we do very successfully, then serving retailers with fantastic service above and beyond great products and then building a brand for the future that attaches to the lifestyle so that we are allowed in, so to speak, with the consumer when they want to enjoy their life more than just a product provider. That's the best way to try to protect that position that we're in.

[Operator]

We have no further questions registered. So I'll hand it back to yourself, Magnus.

[Magnus Welander, CEO & President]

Thank you. A new record there, but what else when we have so many fantastic things to talk about, new long-term targets and a tremendous quarter. So thank you for all your interest and listening in and all the good questions. And looking forward to a super-active spring and a great call when we speak again after the second quarter. Thank you.

[Operator]

Ladies and gentlemen, this concludes today's conference call. Thank you for joining. You may now disconnect your lines.