Thule Group AB

STO:THULE

Earnings Call Transcript 2020-Q2

[Operator]

Ladies and gentlemen, welcome to Thule Group Interim Report Q2 2020 Call. My name is Kelly, and I'll be coordinating your call today. [Operator Instructions] I'll now hand you over to your host, Magnus Welander, CEO, to begin. Magnus, please go ahead.

[Magnus Welander, CEO & President]

Thank you very much, and good morning, everybody. Welcome to this Q2 analyst presentation. And I have to say what a weird quarter it has been. I think for anybody in business, it's been one of those very extreme years. But especially, the last quarter has been the most extreme in my business life of 30 years in both seeing differences between countries, between months and between categories that are very significant in the same short time span. So if we go to the first part of the presentation and what we can see, that we can look at, we can talk about a quarter 2 where I am very happy to see what we've managed to achieve in terms of profitability in what has been a challenging quarter. So our sales declined with 12%. We hit SEK 2.043 billion. And actually, decline was very much in line between the 2 regions, both declining 12%. But what I'm most happy with, as I said, is how we have shown that our flexible production setup and our structure in business has enabled us to still deliver a very good EBIT margin of 21% in the quarter compared to the 24.1% we had in the second quarter last year. The net income in the quarter was SEK 312 million compared to SEK 419 million last year, and we generated very strong cash flow from our activities in the quarter of SEK 523 million. So if you look at that, it was, as I said, a quarter with very different periods. As you may remember from the Q1 conference call when we were at the very end of April, April was almost down half the volume of what we did the previous year. And that means, of course, that we saw a big shift in the months that came where you can really state that as of mid-May, when a number of the major markets we operate in started to ease their lockdown measures, our performance immediately started picking up. And we ended with a very strong June compared to last year. So if we go to the next page and look at what that has meant year-to-date as well, you can see that year-to-date, we've had a decline of sales of 10% in constant currency and a decline of 18% in EBIT, delivering year-to-date an EBIT margin of 20% in the quarter. So -- in the half year-to-date results. So strong performance in a challenging market definitely if we look at those first 6 months as well. And if we then challenge what we've been able to do, we also have to say the differences, as I mentioned, aren't just the months in the quarters, which had great differences. It's also the geographies and the categories. So let's start by looking at region Americas, next page. And in Region Americas, the quarter ended with 12% sales decline. What is common for both regions is that month-by-month performance is very obviously the same, which means a very weak April followed by an okay May and a very strong June. That applies for both regions. If you look at what happens from a market by market within the regions, you know that our Region Americas, by logical nature of things, is very strongly dominated by the U.S., which is the biggest market in the region. And in the U.S., you are also very well aware having followed media, I'm sure that the states have imposed different levels of lockdown measures at different times in the big country of the U.S. And that, of course, impacts us differently as those different states closed down in various ways. What you can say in general is that the bigger states where we have the majority of our revenue in the U.S. as well as China that started easing up on lockdown measures in mid-May, and we started then immediately picking up sales. While in Latin America, we clearly saw that the whole COVID impact came later, and I know you all follow media, so that is not a surprise to you that there has been significant efforts of pandemic lockdowns later in the period, which also has resulted for us that Latin America is the weakest performing countries or region within Region Americas, as we have seen in opening up from mid-May in North America. If we look at the product category trends, before we talk about our product categories, it's well worth mentioning that in many of our categories, we are positively exposed to bike-related products. So we do both in Sport&Cargo Carriers, our biggest product subset is the bike carrier range within Sport&Cargo Carriers. But also within Active with Kids, we are a very strong player with bike-related products doing both bike trailers and child bike seats. And of course, wheel strollers, the 2 of the 3 categories are associated with bike usage. And even within Packs, Bags & Luggage, we have bike transport cases, bike hydration packs, bike pannier bags. So there's some exposure, to lesser extent, in Packs, Bags & Luggage as well. And that is the strongest trend and wave of -- we have seen of positive momentum. The bike sector is normally a sector with a very strong spring, slowing down in -- when weather gets a little bit too warm in the middle peak side[Audio Gap] exposed to a slower start in normal of what would be our normally strong bike spring season. And instead, we have seen a very strong pickup at the end of Q2 and also into now the first part of Q3 as consumers waited in acquiring their bike-related products until they were allowed to go outdoors and do those things. Specifically for North America, you've also seen an extreme demand increase of what we would call basic bicycles. So you can look at the bicycle industry in North America as much more than in Europe, historically over the last 10, 15 years, exposed to the enthusiasts, like the people you see in the image. So people that truly take their bikes out to do activities and to do things from a more sporty experience-based use. While we, in Europe, also have a lot of people using the bikes as a more daily commute tool or less -- just taking the family biking a bit. These enthusiast bikers, which are great fans of Thule are of course great, but what has happened also this year, later then in Q2 and is continuing, is that there has been a big group of returning or new bike users of less advanced nature, buying much cheaper bikes, more -- much more basic bikes. They will, of course not do the same proportional degree, take their bikes with them and go exploring every weekend or every week. And therefore, maybe not buy at high share of Thule products. But some of them, we are convinced, will still want to bring those bikes with them on a picnic or going somewhere. So there is a nice energy boost and a wave involved in bike categories that will help us going into Q3 as well, meaning that we believe that in the bike category related products, we will recover what we lost in the spring in bike sales. If you look at the other bigger subset within Sport&Cargo Carriers, which are then roof racks and roof boxes, their performance was clearly weaker in the quarter, but in a similar sense, started picking up a little bit in the end of the quarter and is expected to be more okay in Q3. And when we look at Active with Kids, in Region Americas, we have a strong sales, also strollers, which is our biggest subset of the Active with Kids, and the stroller sales developed very strongly in the quarter in the U.S. especially. But across the region, therefore, both boosting stroller sales with our strong portfolio of the new Thule Spring, combined with the Thule Urban Glide stroller. And therefore, the North American market, more limited to Sleek. But the Thule Urban Glide and the Thule Spring strollers doing really well, combined then with the boosted bike-related Kids transport. We had a very strong performance on Active with Kids in Region Americas. Packs, Bags & Luggage is relatively saying, a bigger category for Region Americas than when compared to the group as a total and then, of course, when compared to Region Europe and Rest of World. And there, it's clear that with travel limitations, especially air travel, but just generally, if you look at Q2 travel decrease in general and people staying at home and working from home and not going to universities, et cetera, negatively put pressure on our Packs, Bags & Luggage. It's also the category where we have the greatest exposure to brick-and-mortar store type of sales, and many brick-and-mortar stores in the region were closed down for a long period in the quarter. So this is the category where we have the biggest challenges, clearly. There are pockets of growth here as well, but it's generally going to be the most challenged category going forward also in the coming quarters. Then we have a very, very small category of niche targeted products for the Region Americas for RV Products, mostly targeting vans and smaller RVs and with a niche offering of products. And in this very small category for the region, we had very good growth with mostly, I would say, associated to our product launches and less due to what went on in the market as a whole.If we then continue with Regions Europe and Rest of World, here, we see even greater differences between countries and categories than we did in Region Americas. And that is even, I would say, neighboring countries in Europe have had very different views on lockdown measures. And that has, of course, then meant also very different performance for us as a whole in the region. As I mentioned, in the region as a whole, we declined with 12% in the quarter. And here, we have countries where we are growing in the quarter and other countries where we are significantly down. And it is very much associated with the degree of lockdown measures and at which time those were starting to be eased during the quarter. So strong performing countries in Region Europe and Rest of World where some of the Asian markets; it was Germany, the Netherlands; parts of Eastern Europe, countries like Czech, for example; and Nordics, where we had a greater degree of openness and more limited pandemic measures in terms of lockdowns. While we had significant decline in the quarter in countries where there were greater pandemic measures being put in place like Russia, France, Italy, Spain and the U.K. And some of those markets are very big. You realize that France and U.K. are 2 of our 3 biggest markets, Germany being the third one in this region. So we saw very big differences in performance also in the bigger geographies here.If we look at the product category trends, it is very similar to what you saw in Region Americas, which means that the bike-related products are both happening in a similar way. Very, very weak start, which is normally the big spring period to sell bike products, meaning that June and July strong bike sales-related products. Then also being helped of a strong general bike trend with, here in Region Europe and Rest of World, on top of enthusiasts buying bikes there is also a lot of commuters that have chosen, when their countries started exiting from lockdown, maybe not to jump on a bus the first thing they did and instead go with their bikes. And when they did this and maybe not taking the car to drop the children off at their kindergarten, for example, that has meant especially for those bike-related Active with Kids products [indiscernible], but also then for our bike rack category at the end of the quarter, capturing some of what the sales that normally would have happened in April and May. So Sport&Cargo Carriers, strong in all the bike-related products. And in similar way that I mentioned for Region Americas, a very slower start for roof racks and boxes, not the same degree of pickup but a more okay level towards the end of the quarter in roof racks and boxes. Similar to the Region Americas, our strong portfolio of products, both the bike related and the stroller products in Active with Kids, continue to boost and drive very good sales growth. And here, specifically, I want to highlight the child bike seats. And the logic here is we sell a lot of bike trailers and we sell a lot of child bike seats. I think people realize that a bike trailer is a bigger financial commitment. It costs clearly more, many times more than a bike. It's also, therefore, more associated with somebody convinced that they will, for a long period of time, be utilizing this as a great practical everyday tool to bring their kids around either to kindergarten during the week or just to have great fun and be out in the outdoors over the weekend. When you are then a new and maybe forced user in some cases, you are maybe buying a cheaper bike, normal lady's bike they're called in Sweden. So you're buying it as a commuting, comfortable little tool. But you don't know, and you're not sure that you will be commuting for years. You might have spent like EUR 400 on a bike. It is, therefore, more likely that you pick up a bike seat for EUR 100 than a bike trailer for EUR 1,000. And that is what's happening. So you can see that our bike trailer trend, which has been extremely strong for years, continues more or less in the same level it's been in the last few years. Very strong growth of a long-going, underlying trend of people commuting with bikes in this region. Now this year, we are getting a specific, I would call it, COVID-related commuting boom of child bike seats booming in buying that tool to bring your kids with you for the cheaper bike you just bought [ this summer ]. We believe that some of these commuters will find it so nice -- I'm commuting via bike to my work. It's a brilliant thing to do, right? And I think many people once they try it will get hooked on it and consider this the right way, might even upgrade to a bike trailer, because they're going to use it more frequently and it's more comfortable for the kid and you can then do more with it, or they're just going to love the bike seat they bought. So I don't think it's a blip in the curve, that it's just temporary, but it's clearly being boosted very much by those commuting limitations that have been applied in some bigger markets and countries. We also did well in strollers here in this region with Active with Kids, so very strong performance overall with Active with Kids. Also in Europe and Rest of World, Packs, Bags & Luggage has been a very tough category. Here also exposed to the fact that we had a successful growth in what you would call airport destinations and travel destinations in Asia. And also for the fact that, here, limitation in travels clearly has impacted. There are, as I mentioned before, pockets of types of bags, hiking backpacks, et cetera, that will do better and bike hydration packs, for example. But generally, we will see a very tough few quarters definitely in Packs, Bags & Luggage also in this region. And then finally, in this region, RV Products is a significant category. And also RV Products would normally have a, for us, where we are a little bit earlier in the supply chain since a big part of our sales goes to being assembled on the vehicle, therefore we tend to be a few more -- few months earlier in the cycle in sales than the rest of our products. So normally, the early spring would be a very strong period. As I mentioned on the Q1 call, there was -- those manufacturers closing down their manufacturing facilities. But even the sub-suppliers, chassis makers to those RV motorhome manufacturers, were also closing down. So once the motorhome manufacturers saw that there was a big interest because there's been a very big interest to acquire motorhomes now during the pandemic period from consumers, what happened was in the beginning of the period, the motorhome manufacturers struggled to get chassis delivered as the big suppliers of chassis like the Fiat factory were closed down. When production started initially in those chassis manufacturers and motorhome manufacturers, there were serious concerns in May, especially that there would not be nearly enough vehicles to be -- or chassis to build vehicles on because most of those vehicles would have gone normally to what you would call the transport sector with vans being used for transporting goods.However, since many of those manufacturers of transport vehicles and the use of those transport vehicles did not materialize in the same way, what happened in the end of the quarter was that the chassis manufacturers diverted a higher degree share of their total production output than normal to the motorhome manufacturers. So there was a stronger pickup in the end of the quarter than initially expected. And since sales have been extremely strong in some markets of older vehicles standing on dealers' lots, we see indications from [Audio Gap] [ 3 ], now getting enough chassis to continue to do well. So clearly a better, more positive view of the RV market, both from a supply chain efficiency step up as well as market demand from only a few months ago. If we then leave it to Jonas to walk you a little bit through the income statement and our cash flow. Over to you, Jonas.

[Jonas Lindqvist, Chief Financial Officer]

Thank you very much, Magnus. If we move to Slide #6. Since Magnus has taken you through the sales development, I don't need to go through any more of that. So if we move to gross margin, it was down by 1.5 percentage points in the quarter compared to the same quarter last year. And the reason for this is primarily underabsorption of production costs, and that follows the reduced sales and production volumes in the first 2 months of the second quarter this year. To some extent, it's also a consequence of product mix. Our SG&A cost was SEK 15 million lower than in the same quarter last year and comes from lower sales and marketing costs. The financial cost increased by SEK 11 million in the quarter compared to last year. And this is primarily a currency-related revaluations of cash, both locally and in our cash. And this is since the SEK has strengthened during the quarter. Also going into the corona pandemic, we also decided on a very conservative approach financially and drew on our banking facilities to ensure a strong cash position in all events. And this has also temporarily increased our borrowing costs. The tax rate in the quarter was 23.6%, which is virtually the same level as the last year second quarter. Moving over to the working capital on Slide #7. The working capital has gone down in the quarter, both absolute and also in relative terms compared with the same quarter last year. Working capital amounts to just below SEK 1.6 billion, and this is equal to 23.9% of sales. It is primarily inventory that's gone down, and inventory has -- was about SEK 150 million lower than last year's same quarter. Inventory normally goes down in Q2 compared to Q1 since the second quarter is the strongest quarter of the year. This year, however, the inventory reduction between Q1 and Q2 has been higher than in recent years and amounts to almost SEK 200 million more compared with just below SEK 100 million in previous years. The exchange rate to SEK is marginal in the quarter.As a consequence of the favorable development of primarily inventory, the cash flow for the period has been very good and better than previous year, and this amounts to SEK 560 million compared to SEK 470 million last year. The inventory is at a low level at the end of Q2. It's even below planned levels in bike-related product categories, where we saw very fast growth at the end of the quarter. CapEx amounts to SEK 37 million in the quarter compared with SEK 34 million in the same quarter last year. Thank you, Magnus.

[Magnus Welander, CEO & President]

Thank you, Jonas. And then if we look at next slide and a little bit summarize where we stand versus our financial targets. It is clear that our organic growth target of minimum 5% in constant currency we're not close to, but I'm still happy with how we saw an improvement at the end of the quarter. And therefore, for the year-to-date, are now at minus 10%. If you look at our underlying margins, we are at 20% for the first 6 months, which means that on a rolling 12-month basis, we are at 16.5%. And we held on well, as I mentioned, in the quarter and therefore have a strong continued margin. We are below our leverage target of leverage between 1.5 to 2.5x. We're at 1.4x, which is then also lower than we were at this point of time last year. And as you remember from our presentation in the Q1, and as communicated via separate press releases that the group's Board of Directors took the long-term view of securing a strong financial position, and therefore, withdrew the previously communicated dividend proposal of SEK 7.50 per share due to the uncertainties that the corona pandemic poses to the company. So if we look at what the focus for us for the coming period and, on the last slide, it's really -- as you will understand from my comments about incredibly differing performance between months, between countries and between categories and even within categories between products, that means we have to focus our organization very much so on a very flexible approach. While we, as a company, and I'm sure you know that by now, we'll always have a very focused long-term approach in doing what is right for the company for the long term. And here, I have to send out a huge thanks to all the staff in the company, all my colleagues around the world that have gone through a rollercoaster of a ride with, initially for a very short period of time, short-term furloughs to working night and day trying to cope with a ramp-up of demand at the end of the period. And also for, in a period when we can't do the traditional selling-in work with fairs and events, needing to more quickly than ever pull together fantastic digital virtual selling tools so that we can present all the cool new products that will come to market in 2021 in a convincing and selling way to our retail partners during the coming months. And here, everybody has done tremendous effort. Now we are focusing, of course in a period of this, on the health and safety of our employees, but we are moving back to work at offices in a phased approach around the world across sites. And of course, doing that with a focus on the distancing rules and the hygiene setups that's happening. We're also having very, very limited traveling, as you can understand from the realities, and that's why it is so good that we already have a very strong virtual setup in terms of meeting structures, both within the company and with our main customers, and have developed some great new digital selling tools to show and showcase and present and train on our new products. If you look at the flexibility that is required as we speak, actually, it is a reality on where this company is normally very good, I think we have proven over the years to be smart at combining statistically driven forecasting with a hands-on approach. But we have to admit, at the moment, statistically-based forecasting is a waste of time partly, because there are such huge swings, which puts great demands on product management, supply and demand planning teams in trying to do its -- our best in meeting those very big swings between categories and customers and markets. Our own plans are working at a much higher capacity output in some parts bike-related products and actually a lower output in other parts at the same time, which, of course, then internally demands a lot from management communicating inside supply chain to those various teams in a logical, pedagogical and understandable way, while some are working extra shifts and others are not needing to do that. And we are, of course, in very close discussions with many suppliers on capacity of what they do and time limit. And here, we are sometimes, in some cases, exposed to suppliers that generally have customers that are not performing very well and, therefore, want to deploy short-term furlough or earlier closedowns of vacation periods where we are forcing them, I have to say in some cases, to keep open only for us with some penalties actually financially as a consequence, but it's a decision we're taking to try to meet demands of those categories that are outperforming expectations at the end of the quarter 2 and in the beginning of quarter 3. And if you look at that, as Jonas mentioned, we are having lower inventory than we would want to have in the bike-related products, and we are struggling to meet demands of bike-related products like bike racks, child bike seats and bike trailers, and despite having output levels that are higher than ever before for this period of the year. And we will see some issues with that going into Q3 as well. But with all the great effort we're putting in place, we're ensuring that we're catching up as quickly as possible to serve those increased demand.If you look at that, what it means is that we -- you know us, we do not give you forecast, even SKF that normally gives very detailed forecast didn't give one. So you're not going to get a forecast from a company that normally doesn't even give forecast. But what is clear is that you've heard from our commentary that we believe strongly in the bike-related categories. And that in those bike-related categories, we will be capturing those things that were lost in the spring. That means a good start in the quarter for bike-related product categories, and we're working very hard to meet those demands. You heard me mentioning that the continuous strong performance of Active with Kids that we've had now for years and years continues. So that will continue to do well. We are going from a pessimistic view of what would happen to RVs to a slightly more optimistic view, not hugely optimistic but definitely slightly optimistic on what the RV industry will be able to do. And we know that we've stated every single time we present all these facts that we are going to beat the market. And if we believe the market is a little bit less pessimistic and maybe even optimistic, we will do better than that. That means that we have a positive view on our Q3 performance. However, there are categories where we are going to see very, very limited sales in bags, especially, but also in other categories where we clearly will not have the same performance as we had last year. And we also have to acknowledge the fact that there are countries that are in very big lockdown measures at the moment. You have several Latin American markets, for example. And you have markets and states where there are second waves of lockdowns happening. We've had that in Victoria, state of Victoria in Australia. There are signs of that in California, et cetera. So we have to, of course, be very careful of being too bullish about what could happen in the market. What we are very convinced of, on a more mid- to long-term view is that as the company is pushing very hard for product development and launching great, cool new products every year for those active people that want to do a vacationing and just -- or just live a daily active life in their close vicinity, we will continue to be hitting on a trend that was already existing before the pandemic, which we believe will only be enhanced by the pandemic. So we feel very comfortable with our long-term strategic view, even if there will be some shakiness definitely in those coming quarters as we see it. With that, I will leave the call open for questions.

[Operator]

[Operator Instructions] We have our first question from Daniel Schmidt from Danske Bank.

[Daniel Schmidt, Research Analyst]

Yes. Do you hear me?

[Magnus Welander, CEO & President]

We do.

[Daniel Schmidt, Research Analyst]

A couple of questions. And then starting out with what you sort of finished off with the bike-related sales and sort of recouping some of that, that you weren't able to deliver in Q2. Could you give us an indication of what you regard to be lost sales in Q2?

[Magnus Welander, CEO & President]

I think you have to split it out in 2 things. There is always a spring period where we normally have a big selling period. That wasn't there due to the fact that consumers weren't allowed to do things. Then when sales grew faster and demand grew faster than, I think, anyone expected at the end of the quarter, we have had cases where we haven't fully been able to meet that demand, and we're making it then instead in July. But then if it continues to do well in July, despite doing more in July than we normally do, we might not be able to fulfill everything even for July. So if you look at it, it's too many different factors to actually give a number on it.

[Daniel Schmidt, Research Analyst]

All right. Could you say sort of under normal circumstances, disregarding this particular period, how much of sales is usually bike-related if you look at bike carriers, child bike seats, bike trailers and so on?

[Magnus Welander, CEO & President]

I think a lot of you analysts I've seen you guessing around 25%-ish, and that is on an annualized basis very right. But if you look at it, as I've been saying a few times, bike is normally heavier skewed to the spring than many other categories. So then by default, more than 25% in Q2.

[Daniel Schmidt, Research Analyst]

All right. Good. Would you say that when you look into Q3 and given the sort of the seasonality of the business, do you think that this particular year that we have a bit of a prolonged season, given what's been happening with COVID-19 in the world? Or is that incorrect?

[Magnus Welander, CEO & President]

I think for bike, definitely, we believe so. We see indication not only then for Thule, but also talking to all the large bike manufacturers. If you look at it, it is very likely that there will be a longer or later, combination of later and longer, bike-purchasing period than there was due to biking being an option that a lot of people will appreciate in a year like this of being able to both have as an exercise tool or do vacations with it or just as a commuting tool. So I believe the biking period definitely will last longer as it was late in starting. If you look at the more traditional just going on a weekend or a vacation, 1-week or 2-week vacation, driving with your roof rack and your roof boxes and stuff in it to the coast or your summer house, I see maybe a little bit of sliding within the quarter, so to speak. I believe if you would ask a lot of your friends and colleagues around the world, you will have heard many maybe trying to slide the vacation 1 or 2 or 3 or 4 weeks forward to hopefully see more opening of social distancing and the ability to go where they would love to go. So maybe a little bit sliding in the quarter, but not generally a huge difference for those other categories.

[Daniel Schmidt, Research Analyst]

Okay. And I think it was fairly clear that you really want to recover when it comes to capacity on the bike side in Q3. And you're doing everything you can to succeed on that, and that sounded to me that that's going to be better for absorption of fixed cost going forward compared to your plan in Q2. But you did also state you had an unfavorable mix when it comes to, I think, you rolled products in markets. Where do you see that going in Q3 so far?

[Magnus Welander, CEO & President]

I think if you look at it, one, we don't give an indication of the Q3 in that sense. But you can say that, you're right, of course if we expect that our own plants that are assembling these products will have more to do than they did have to do in Q2, you're absolutely right that you'd get a better absorption from that perspective. And then in terms of mixes, it would be a presumption to say that we know how those mixes will pan out because if it was difficult in any given normal year to forecast exactly which countries and which markets did what, it's almost impossible at the moment. So how the product and category channel mix, so to speak, will pan out is very difficult to say. But you're absolutely right, we will see a better absorption than in Q2 compared quarter-to-quarter like-for-like in Q3 versus Q3 last year than Q2 versus Q2 last year.

[Daniel Schmidt, Research Analyst]

All right. And then a final one, I think you said, Magnus, in connection with Q1 call and a lot of things have happened since then, but I think you alluded to product development spending exceeding 6% of top line in 2020. Given the development that you've seen in June and maybe so far in July and the strong, strong recovery that you've sort of noticed, do you feel that you have any sort of reason to change that outlook when it comes to product development spending as a percentage of sales for the full year?

[Magnus Welander, CEO & President]

I think it's still going to be around 6%. It's going to be around that area. It's not going to be a huge difference.

[Operator]

Our next question comes from Gustav Sandström.

[Gustav Sandström, Research Analyst]

If I might start with a follow up on Daniel's question on the gross margin. You're right in your report, if I'm correct, it's down underlying 1.5 percentage points. And you referenced, as Daniel talked about, all the customer and product mix. I'm curious, to what extent does that relate to the lower share sales from RV in the quarter? Because I would assume that luggage, for instance, which is down a lot, probably carries lower gross margins than the group average.

[Magnus Welander, CEO & President]

I think what a lot of people underestimate, it's not as simplistic as saying that Sport&Cargo Carriers is one, Packs, Bags & Luggage another one, Active with Kids is the third one and RV is the fourth one. There is huge differences within the subsets of those 4, and there's huge differences within the subsets of those 4. So here, you can say that product mix and category channel mix is much more complex than you would assume. And therefore, that is a much more detailed picture that pans out as things go. What is clear is that if you look at the negative 1.5 that we mentioned in Q2, there are some positive signals, and I'm not the one that normally wants to promise anything. But reality is we presented very clearly that we are having a comparable drag in Q2 2020 versus Q2 2019 due to that there are tariffs now in the U.S. for some Chinese goods that are higher than they were at the same time last year. As we now move into Q3, we will have a like-for-like comparison that is much closer. Not 100% aligned, because there's still some tariffs that are higher, but that drag will be smaller. We are clearly saying that we had a big underabsorption in the quarter with a drop of sales. And we now, with our own factories doing, for example, bikes, I just mentioned [indiscernible], so that we will see a better absorption. Raw materials are going in a positive direction, although we are not a raw material purchaser, we purchase components with value-add and other things, and I did mention in some cases we even have to pay a little bit extra to keep them open, we still see that as a relatively positive contributor. So from a bigger high-level point of view, there are a few factors speaking in our favor in that. Then in terms of channel-customer-country product mix, that most will pan itself out as things go.

[Gustav Sandström, Research Analyst]

All right. And a follow-up on the RV specifically, there's been some extraordinary acceleration in Europe RV registrations, I believe German motor caravans in June was up 60% or so. Do you see what -- is there an element of sort of one-offs in those numbers? Or do you see a very strong trend also, thus far, into July from what you can tell?

[Magnus Welander, CEO & President]

There is a one-off effect, definitely, if you would also listen to what Thor Industries and what the caravan associations are presenting, which was that there was a pent-up -- actually people not being able even to go to the dealership and buy, and therefore not being able to register. And even certain registry offices being closed, so therefore not possible to register in April and May, which then meant that June was extreme. So very, very extreme in some countries due to those factors. But what is clear is that there was a positive trend going on anyway in those 2 specific markets that are doing best, Germany and the Benelux. There was anyway a relatively positive expectation and then it just was a glut in June. However, for those markets, there is a strong belief that Q3 will be good as well. Not nearly as good as June, but still good.

[Gustav Sandström, Research Analyst]

And 2 more questions, if I may. Firstly, obviously, a very strong backdrop from pricing sales. I believe there were more bikes sold in the U.S. in May. That was the biggest number since the oil crisis. So obviously, a very strong backdrop. But it seems to be a subtrend, too, that the battery electric bikes are growing at phenomenal rates. And I'm a bit curious how you feel about your assortment to that backdrop. Do you feel that you have a good product assortment towards electrical bikes? Or is that an opportunity for you, you think, going forward?

[Magnus Welander, CEO & President]

Electric bikes is very good for Thule for 2 main reasons. One, the electrical bikes are significantly heavier than normal bikes. And when you are loading several significantly heavier bikes on a bike rack, you're going to be needing a better quality, better professionally done bike rack. A cheap, private label, low-end product can't even cope, the bikes will fall off or the whole carrier will fall off. So you need to spend more money on a high-quality product. We are one of those that can provide that better than anybody else. So that helps us from that simple just being able to use the bike rack on a much heavier set of bikes. There is a second logical also thing that helps us, and that is if you're buying an electrical bike, you have paid significantly more for your bike. So you pulled out your credit card, you paid those EUR 3,000, EUR 3,500, maybe for the bike and the salesman in the store says to you, "Sir, how are you getting that home tonight?" And then, "Yes, you're right. I need to get these 2 bikes that I bought from myself and my wife back home tonight." And then, "Have you seen this fantastic tow bar-mounted platform carrier with lights and everything, tiltable, foldable? It's a brilliant piece of kit. It's EUR 800." You just [ hanked up ] EUR 7,000 for 2 bikes. And when he says it's EUR 800, you feel like now that's reasonable. I'm carrying these 2 very expensive bikes with it, it's worth it. If you had just bought 2 very cheap bikes at some type of do-it-yourself store for EUR 350 a piece, your bike carrier in total would cost the same amount as 2 bikes. And it's more likely in that case that you would have gone with a cheap, crappy bike carrier rather than a high-quality one from Thule. So we're helped 2 ways definitely by the e-bike trend.

[Gustav Sandström, Research Analyst]

Yes. Makes sense. And lastly from me, if I read the report correctly, you received SEK 40 million in governmental assistance in Q2, of which SEK 9 million is from Sweden. Given a very solid financial results in Q2, which I assume is a lot better than you figured when you applied for these assistance, are you looking to pay back to the government in a similar fashion that some of your peers have done?

[Magnus Welander, CEO & President]

I think as everything, when you do these things with pandemic measures and you apply various governmental aids, you don't ever know beforehand how it will pan out. And as things now develop, we will make all those right assumptions and do what is right from all aspects of it as the year progresses.

[Operator]

Our next question comes from Fredrik Moregard.

[Fredrik Moregard, Analyst]

A couple of questions on expenses. First of all, as you're ramping up production or have been ramping up production throughout the second half of Q2, you said you had some additional expenses with regards to more or less forcing some suppliers to remain open. Are you adding other costs as well with regards to bringing part-time labor back? Or is it more costly or more difficult for you to restart production this late in the season?

[Magnus Welander, CEO & President]

No. I think generally, there, we're very capable of showing extreme flexibility at similar cost levels. What you can say, and we are not the only one is, of course, that when you're ramping up late in the season and at the same time there has been very many challenges generally in the transport sector, you're struggling to get your incoming and outgoing freights at the same rates that you'd normally would get them. And so there is some penalty, marginal, but still there in convincing certain suppliers to produce for us. And there is clearly also some impact in just purely logistics cost being slightly higher with sea freight being too slow and canceled, in many cases. Train, which we're using in a lot of cases, having some extra costs associated with it. So there's some more due -- related to logistics.

[Fredrik Moregard, Analyst]

Okay. On selling expenses then, I think they were down some 5% or so year-over-year. And Jonas said that marketing expenses, sales expenses were lower than previous year. I would assume that most of those cost cuts came in the first half of the quarter. So could you tell us something about how you're thinking about ramping those costs back up, I guess, marketing at least? And maybe if there are some costs that you see will be stickier than others. So...

[Magnus Welander, CEO & President]

So -- yes. If you look at, of course -- yes, you're right there, Fredrik, that some are, of course, connected to the sales volumes of what you do and how you support your partners. So there is -- if you sell more, you will have some increase to that. Some of these marketing expenses are associated. We will be spending more money on various digital tools and providing more digital material, but still as compared that we will not be going to a number of major fairs, we will be in that marketing way saving some money even in Q3. Some of that was Q2 and some will be saved in Q3. And then on other things, we'll spend slightly more. And associated then with sales pickup, we will be, of course, spending sales and marketing expenses more in line with those.

[Fredrik Moregard, Analyst]

Okay. So perhaps more or less taking out one or another of those structural costings that you're seeing at least for the second half of the year with less fair costs, but ramping up digital initiatives and marketing.

[Magnus Welander, CEO & President]

Yes. And I think I want to point out, we're very long-term focused. So it's not like we've tried to save anything core in our marketing. We've done an upgrade on Thule.com in June with activity-based navigation, which is enhancing the brand experience when you go in there. We're providing some great visual selling materials with lifestyle movies and instruction films and great imagery and all that. So most of the core marketing efforts, we are pumping in money to drive long-term growth. But specifically on marketing, there were some quite significant savings from fairs just being canceled and we getting the money back.

[Fredrik Moregard, Analyst]

Sure. Sure. And just finally, the SEK 14 million, I think it was, that you had in furlough grants, is it possible to get some detail on where in the P&L these are found?

[Jonas Lindqvist, Chief Financial Officer]

Yes. They are primarily in the cost for production.

[Fredrik Moregard, Analyst]

Okay. So cost of goods sold then, I guess?

[Jonas Lindqvist, Chief Financial Officer]

Yes.

[Operator]

Our next question comes from Karri Rinta.

[Karri Rinta, Research Analyst]

When it comes to current trading conditions, you have been very helpful in discussing the bike-related Active with Kids and then the Packs, Bags & Luggage. So I guess the -- it's fair to assume that the bike-related Active with Kids may be 50% of your summer month sales will be doing well this summer. And then you have been -- Packs, Bags & Luggage not so well. But how should we look at rooftop boxes, rooftop -- roof racks and RV for the -- if we look at combined Q2, Q3?

[Jonas Lindqvist, Chief Financial Officer]

If you look at it, I mean, one, we don't give forward-looking statements on detail. But what is clear is that, as we are mentioning in Sport&Cargo Carriers, bike did well in Q2 and roof racks and roof boxes did not. We believe they will do better in Q3 from the indications we see and also because now people are allowed to go in those shorter 2, 3, 4-hour trips where they pack their stuff in and go to their summerhouse. When they weren't allowed to do that, they don't buy those products. Now they're allowed and they buy them. So we will do better, but we don't have a booming support like we little bit do in bike. And if you take RVs, you can say that the RV industry impact, as I did mention quite in detail, was associated with also supply chain closures and other things. And therefore, a lot of the questions on performance there will be how well that supply chain actually performs from an [indiscernible] demand in those core markets and consumers wanting to buy new vehicles, the question is more if those manufacturers can't cope to produce them for this summer, are those same consumers as eager to have it delivered in October, November and just parking it then for 6 months. It's a question that nobody really knows even in the RV industry. So there, it's going to be really a lot about performance now from those manufacturers getting the output, which is not in our hands.

[Karri Rinta, Research Analyst]

All right. That's helpful. Then about the -- your online sales that you have a few countries where you do online sales directly to consumers. Given the extraordinary or abnormal times that we're living in, is this having any impact on your plans to maybe turn on additional countries during 2020, i.e., you have to focus on your traditional retail customers instead of putting more effort into your direct online sales to direct to consumers?

[Magnus Welander, CEO & President]

No, we're actually following our long-term strategy, which has been that we -- in countries where we are convinced that we can add value for the consumers and in a cost-efficient manner handle the service levels that would be expected for a consumer in terms of delivery and everything around that, that we will be opening up more countries as a complement to our retailers selling. We have just recently opened up Germany a few weeks ago and there -- which was in line with our plans, and there will be further countries in Europe following that as well. So we historically had U.S. for a few years. We've had Sweden and Denmark for a year. Germany has just recently opened up a few weeks ago. And there will be more countries as we come in the coming period, and that is following our previous plan.

[Karri Rinta, Research Analyst]

All right. Then finally, about new product introductions. You mentioned in the release that you will release new products this year as well that will then hit the shops next year. But is the fact that there are no fairs, there are no sporting events, is that having any impact on your launch plans for 2021?

[Magnus Welander, CEO & President]

No, there isn't. We're launching the same number of products as we were targeting to do anyway. What it has had has been a significant impact in how we decided to prepare material, and at which time we've never actually been as early, been as ready with so many various digital sales tool in terms of the instruction movies, sales training, sessions, online training sessions, lifestyle imagery, et cetera. The team has done a tremendous work from product management, product development and marketing over the last few weeks, working really night and day, so that we will be able to share this with our retail partners over -- as of beginning of August and in the coming months. But launch breadth and portfolio is as aggressive as we were planning to be anyway. It's just how we bring it to market to those retailers will be looking different.

[Operator]

Our next question is from Mats Liss.

[Mats Liss, Equity Research Analyst]

Coming back to bikes, I mean the lack of capacity and so on. Just wondering, have you sort of kept your market share? Or maybe -- I mean do the competition have a similar problem as you?

[Magnus Welander, CEO & President]

Yes. I think it's always tricky when you say lack of capacity, because it sounds like we're not producing anything. We're producing more at the moment than we have ever done. The problem was that the market looked to be extremely down and demand and forecast from customers was incredibly down when we normally ramp up. So in April, as I mentioned on the call, we had 500 people less than we would normally have in our factories, not knowing how long and in which way the COVID pandemic would continue. At the moment, we have more than 300 people more in our plants than we would normally have doing bike-related products and thereby having significantly higher output than we would normally have. That means, and you can go in and look at home pages, et cetera, and we have enough reference from our customers, we are 100% convinced that we're not losing market share. If anything, I think we've been, with our flexibility in size and strength, better than most of our competitors in handling these extreme shifts from halving sales to increasing sales in the bike-related products in the various months. So I'm not worried of us losing any share. And we are doing a tremendous job to try to get as much of capacity increase as possible.

[Mats Liss, Equity Research Analyst]

Great. It sounds nice to have an extreme sort of demand situation. And do you feel that your sort of consumers are prepared to pay more for the product also that you could sort of pass on some of those costs to them and improve prices or reduce discounts maybe?

[Magnus Welander, CEO & President]

I think if you look at us, we're a very long-term company. We're not changing our pricing to our retail customers. I know that some of those retail customers might be slightly tactically having less discounts, which is only good for us as a brand anyway. But in terms of our pricing to our customers, we're not changing it due to this situation.

[Mats Liss, Equity Research Analyst]

All right. And then about the season then, I guess, now we are sort of in the summer season, some holidays going on. And when [ folks ] in those times are -- stops working, and schools and kindergartens are opening up again, do you feel that your -- the bike season will be extended this year? And so maybe we have another during the second half here that -- well, could you give some flavor on that for...

[Magnus Welander, CEO & President]

Yes. I think you have to split our bike product into 2 types. Then if you look at the biggest one, bike racks is very much associated with you bringing your bikes with you to either do activities on a weekly or daily basis, or just over those weekend trips or vacations to your summerhouse. And that is very much a seasonal sales to a spring, early summer, normal. Where we do believe it will be extended since it didn't happen in the spring nearly as much as normally, that part is getting shifted into June, July, August instead. So there is more of a shifting due to that people weren't allowed to go outside when they normally would've done these things. If you take the more child-related bike products, which are then, as you correctly pointed out, used to an extent in 2 ways: one, just generally going out and moving around and biking down to the beach and biking on a little trip on the vacation, bringing it to your summer house; but you also have a significant part which is associated with actually commuting. And the commuting part, which we clearly see is very much associated, for example, to the bike trailers in Central Europe, in the Nordics, I believe there will be a lot of consumers in a trend we already were seeing anyway. Because in the last 10 years, we've had strong growth in bike trailer sales. That trend will, if anything, only be strengthened because I believe there will be -- we believe in the company, that there will be more consumers thinking twice about commuting via various buses and other solutions. And maybe some of those will choose to start biking instead with their children. We think, therefore, there might be, especially the bike trailer part, an early autumn performance that could be good when they -- after their summer holiday, say, like, "Okay. I'm going to bike every day, at least in September, October when it's decent weather. I'm going to have a nice bike trailer, so it's more company, more protective of my children." So that is one of the categories where we do believe there is a more continuous boom on a continuous trend that was there even before COVID.

[Mats Liss, Equity Research Analyst]

Maybe we will see some bike trailer with heating and so on in the product launches this autumn then, I guess.

[Magnus Welander, CEO & President]

I wouldn't say that. That's necessarily where you would want to add the weight and the flexibility, because most people can dress their kids quite warm anyway. But who knows in the future?

[Mats Liss, Equity Research Analyst]

You never know. Well, finally, about production capacity, then I guess you have some, call it, booming activities in bikes, but -- those specifically. But could you sort of readdress capacity from maybe Packs and Bags to bike-related production? Or is it sort of -- do you need to restructure somewhat? I mean Packs and Bags are sort of maybe...

[Magnus Welander, CEO & President]

Yes, our Packs, Bags & Luggage. Yes, Packs, Bags & Luggage is generally, aside from the hard suitcases, not done in our own plants. They are done by sub-suppliers. While if you look at the Sport&Cargo Carriers it is, to a very dominant degree, almost all of it, what counts, done in our own assembly plants. So there is a difference from who does it, ourselves in Sport&Cargo Carriers; and in Packs, Bags & Luggage, suppliers. It's also a very different type of machinery equipment you need. So generally, you can say our plants or those production lines within plants are very dedicated to what they do. And the challenge for us in delivering in bikes isn't how much we can ramp up in our own places. It's all about getting enough of components from suppliers that have been in short-term furloughs or are wanting to be closed down for vacations and that normally don't have this type of output in their classical vacationing period. That's the biggest challenge.

[Mats Liss, Equity Research Analyst]

Okay. Great. And one final about product launches. Could you just give some flavor in what areas you're expecting to do the major launches?

[Magnus Welander, CEO & President]

Yes. Luckily, nothing to do with the fact of the current bike trend, because we don't invent and develop products in a few months. We have a very strong assortment of bike-related product coming out next year. So we -- that will add some boost to our very strong portfolio of bike-related, bike racks and other solutions. So that was already happening. There is a number of very nice tweaks and upgrades within our stroller category as well, and there is a number of smart cargo solutions for the car as well. So I think we have a very broad offer of new product coming.

[Operator]

[Operator Instructions] We don't currently have any further questions.

[Magnus Welander, CEO & President]

So then I -- we will let you go to other calls or a vacation, depending on where you are in your lives. And thank you for your time and look forward to speaking with you again when we will announce our quarter 3 results. Thank you.

[Operator]

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