Thule Group AB

STO:THULE

Earnings Call Transcript 2019-Q4

[Operator]

Ladies and gentlemen, welcome to the Thule Group Year-End Report 2019. My name is Felicia, and I will be coordinating your call today. [Operator Instructions] I will now hand you over to your host, Magnus Welander from -- the CEO. Magnus, please go ahead.

[Magnus Welander, CEO & President]

Thank you very much. So we're ending 2019, and we ended with the fourth quarter, which was in line with our expectations. So if we look at the summary on Slide 2, you can see that we had a net sales of SEK 1.211 billion. And that meant that we had a 4.7% growth, a 0.6% growth, excluding currency effects. Whereas we have seen throughout the year, Region Europe and Rest Of World was the positive driver with a growth of 4.2% and Region Americas, as we had previously commented with a decline of 5.7%. Our underlying EBIT was SEK 71 million, and that means an underlying EBIT margin of 5.9%, slightly better than last year, in what is, as you are well aware, by far, our smallest quarter in the year, which is also then, by far, our lowest EBIT margin quarter for the year. As we had communicated in our quarter 3, we took the steps of doing some reorganizations, mostly in our North American commercial setup. And we -- during the process of this restructuring work, we decided to take some further steps in what we were doing. And that meant that we took a slightly higher than the communicated one-off cost. But also in relation to that, we also communicate a higher ongoing savings effect from those restructurings. So the restructuring cost of SEK 24 million was included in our reported EBIT. We had a net income, therefore, of SEK 30 million. And if you look at the cash flow part of the company, you see that we had a very strong cash flow of SEK 174 million, significantly better than the fourth quarter last year. And then finally, the Board proposes an increased ordinary dividend of SEK 7.50 per share, which is then SEK 0.50 more than the SEK 7 we had last year. If we go to the next page and then more summarize that year due to this quarter, you can see that over the year as a whole, we had an 8.5% sales growth and an EBIT growth of 7%, ending the year with a 17.7% underlying EBIT margin. So overall, as I wrote also in my CEO letter for the report, I would say that this is an average year or a rather slower year in terms of top line growth. But overall, when I look at the number of things we have done in improving the business for the coming years, and the fact that we grew in all product categories, which I will come back to, I still summarize it as a solid year from that perspective. If we go to the next page and talk about some of the key events that happened and what we did in the quarter. At the very end of the year in December, actually, the last days of the year, we acquired a small niche player in a category called fishing rod vaults, which are shown in the image. And what that is, is a way for mostly fly fishermen, but also other fishermen to bring their rods with them in a safe way and protective way when they're transporting them to the river beds in -- and on top of the car in the case of these Denver Outfitters product. Denver Outfitters, a small company, sales below USD 1 million, but still the leading player in the category in North America. So of course, the acquisition will not have a major financial impact on our company. But what it does, it matches very nicely with the rooftop tents that we acquired late 2018 and some other additional products that we have launched in terms of awnings on SUVs and some other products in what we call adventure, camping and adventure life, it broadens our offer in that category. There will be, of course, some clear synergies by also rolling the Denver Outfitters business into the Thule Group. And with immediate effect as of the season, this spring, the products will be sold under the Thule brand. And at the same time, we're also rolling out the previously Tepui branded rooftop tents as Thule branded products globally as well. As I mentioned, the communicated restructuring was implemented and dealt with, having one-off costs of SEK 24 million. And an estimated annualized savings already from this year of SEK 25 million. We had 2 very important launches in the quarter in terms of broadening our luggage category, where we rolled out the Thule Crossover 2 Luggage collection, or the rolling bags in spinner wheels and other bags, and that is our second large than soft version of luggage, complementing the Thule Subterra collection. And in the Thule Subterra soft luggage collection, which was launched in 2017, we also took the step to broaden that offer significantly with adding those 4-wheel spinner solutions also for those -- that collection. That means that we, today, ending '19 then coming into 2020, have 3 luggage collections, these 2 soft collections and our hard-sided Thule Revolve that was launched earlier in '19. We also had a very exciting launch of our premium top of the line roof box, the Thule Vector, which offers both a very premium styling, but also a lower wind drag and some key features on what is a truly defining top of the line roof box with a successful reception in the market. Then very excited also to announce, as we did in the end of November, the major decision to further invest in our product development at our global development center in Hillerstorp in Sweden. We announced a SEK 100 million expansion of our facilities, both in terms of development center, but also as test facilities. And we are already well into the building works and preparation, and the entire site will be up and running by the spring next year. And then finally, as you work with a lifestyle brand as we do, it's always nice when that brand gets recognized for its premium position. And we were very proud in November when at the very big Red Dot awards for Brand Communication, we won 2 very prestigious prizes, one in the Best of the Best category. And then also as specifically the Best Outdoor Brand of all the outdoor brands in Brand Communications. These type of recognitions are, of course, signs that all the hard work we're doing both in terms of launching fantastic products, but also in how we communicate with the market and how we support retailers to present the brand in the best way, are paying off in terms of creating a strong perception of the brand. If we go to the next page and look a little bit then on the sales by region. Not going to spend too much time on that, and we're going to focus a little bit more on the product category update. But if you look at it, you can clearly see that Region Europe and Rest Of World ended the year then with a 6.1% organic growth for the full year and that we showed a small decline in Region Americas. It's important to note that the 1% decline in Region Americas is, of course, affected by, as we've communicated already, the low-margin OE contracts that we have phased out in 2019 finally. And without those OE-contracts' drag, we would have seen a growth of 1.4%. So you can say from a geographic point of view in Region Americas, we continue our strong performance in Canada and Brazil, while the use -- U.S. market has been the more challenged. While over in European and Rest of World region, generally, we can say we're doing really well across most countries, where especially, for example, Southeast Asia has been very strong in the luggage part, Germany, France and other large markets like U.K., have been doing really well and really, the only underperforming has been Russia and a slow start in the Nordic region for '19, but that was also due, as we have previously communicated, to the fact that we had a very large one-off business in 2018 at the beginning of the year, so a comparative number that was difficult to make up to.So overall, from a geographic perspective, very happy with most of the markets. If we go to then the next page and look at product category performance. You can see that we have a very similar split of the categories as we had last year. 63% of our sales was in the category where we are the undisputed global market leader in Sport&Cargo Carriers. 15% was in what is a very strong European niche market-leading position in RV Products, 12% in our Packs, Bags & Luggage business and 10% in Active with Kids. If I look at those 4 categories and look at also the big regions, I would say, we only have one internal disappointment in terms of performance versus our expectations, and that is within the Active with Kids category in Region Americas, where you can see that we posted a decline of 3%, which is clearly not good enough and not according to our expectations. The major factor there was that we have a big business there, mainly with strollers because this subcategory in Region Americas, which is 7% of the region's sales is very much focused on today our jogging stroller, the Thule Urban Glide. And the jogging stroller Thule Urban Glide, although very appreciated and a great product, has one major competitor in the U.S. market. And for reasons, be known only to that company, they decided for the entirety of 2019 to be extremely aggressive on discounting those products. And we chose strategically to not follow suit on such an aggressive pricing strategy. And thereby, we did lose share to that player. We believe they cannot maintain those type of strategies going forward, and we are convinced that we will regain growth in that jogging stroller category. And on top of that, we're also, as you might have seen earlier this week, launching a new stroller that we believe is very suitable for the North American market, the Thule Spring, a small everyday stroller. So we are convinced we will turn that negative to a positive in 2020. Aside from that, what stands out is also that in Sport&Cargo Carriers, we only posted a 1% increase, knowing that we then had the drag in the Region Americas of our phased out pickup truck accessories that will not drag anymore as we go into 2020. You have also heard me talking during the year about some of the factors when all are phasing out the roof racks generation, et cetera. So overall, I'm okay with that number. But we, of course, need to show that we are returning to the normal growth that we have had for all the years in Sport&Cargo Carriers as we go forward in the coming years. I will talk a little bit more about details when we go into the other pages. So we'll start with Sport&Cargo Carriers then. If you look at it, we had a 2% growth actually in both of the regions, if we excluded the OE phase out contracts. So if you look at that, that is not the level we want to be at. We want to be above 5% here, but we did have a number of specifics with our choices of phasing out an existing roof rack generation and, thereby, also seeing some of our distribution partners reducing sales to sell out the existing products they had all stocked. We've clearly seen that the bike carrier market in the U.S. was very much affected, as we talked about in the Q2 and Q3, by the high tariff impacting the entire bike sector in the region. And so if we look at those things and combine that with a relatively shaky overall U.S. market, I think we did okay in Sport&Cargo Carriers in 2019. If you look at our focus in 2020 going forward, it's clearly to finalize that roof racks generation with the third phase being implemented at the end of the year. So that by then, we will be having a completely fresh portfolio, which aside from driving our sales will enable us to really capture those efficiency gains in the factory in Sweden, where we make all the roof racks. Then number two thing is, of course, to continue to uptake market share with what is now a very fresh and really fantastic portfolio of roof boxes. Having launched new, good, better and now best products in the market over the last 2.5 years, we have a fantastic portfolio there. It is also to win share and in what we believe in to be an okay U.S. bike market, we do not think that the U.S. bike market will be booming in 2020. But clearly, we now believe that the tariffs is now the new normal, so to speak, and the market will, therefore, see a more comparable performance, which is okay. And in that okay market, we have a number of products that we are convinced will enable us to take share. And then, of course, with some new stuff that we have added into the company, as I mentioned before, although small, the fishing rod vaults, and, of course, now with going with the Thule branded rooftop tents that will assist this category as well. If we look at the second-biggest category, RV Products, I am once again very happy to say that the team has done a fantastic job. They have been helped by a slightly better market than I have been anticipating over the last year. And here, we have estimated that the market has in Europe grown somewhere between 7% to 8%. And since 95% of what we sell in RV Products is for the European market that has a clear connection to what that makes for us. But as we are growing 13, it means that we continue to win market share. And the team has done a fantastic job over the year to be able to both launch great new products, but also to handle all the growth challenges with big key accounts. And we also have to point out that we have a clear strength, as you can see also on the image on the type of smaller vehicles, smaller vans and smaller motor homes, where we have a fantastic product portfolio, and that is the fastest-growing subcategory in Europe within the types of motor homes and caravans. So that helps us. If you look at in Region Americas, as you realize then, it's 95% in Europe. The Region Americas is tiny. And what we do there is we specialize in those type of niche products for those more premium, smaller vans, where there is a possibility to have a good margin on these type of products. The focus for 2020 is to continue to beat the market, as we've done the last 14 years in a row, in what we believe to be a slightly less positive market. And here, actually, you can really start to look in more details on the big European market because as was noted already in 2019, there are clear differences between the markets. The German market was a very strong performer in '19 and is by most people in the industry expected to continue to be a very strong performer. While there were markets actually with clear declines in '19, mostly in Sweden and the U.K., for example, and there were other markets like France, Spain, Italy and Benelux, et cetera, which were slow, just tiny growth type of market. We believe those markets will be performing similarly but maybe the German market will not be as booming as it was in 2019. So we believe a low single digit growth in the market. And we are convinced that we will continue to take share in that market. If we then look at Packs, Bags & Luggage, it is really positive to note that finally the category grew. And of course, what is driving that growth is the growth in what we call our future-focused categories. So if you look at those categories, which are then luggage, it is those more everyday backpacks that you use going to your university or your work, and it's in our sport-specific bags, so tech packs, bike hydration packs or boot bags and ski bags, those type of products. If you look at those categories together, they grew with 10%. And in luggage, that's, of course, driven by the fact that we both grow in our existing product collections, but also that we did launch at the end of the year, some new ones. In everyday packs, it is a continuous growing with listings and product launches and refreshes. And in sport and outdoor packs, it's a continued growth with a broader assortment and also a stronger recognition as a brand in those type of product areas. If you look at the Legacy&OE, as we call it, so these are the camera bags, it's the tablet folios for small tablets, it can be GPS cases, it can be CD wallets still. And of course, there are then some specific OE contracts. If you look at that business, it declined with 12% in 2019. And the only good with that bad is proportionally these categories that unfortunately will continue to decline, are now when we look at it, much smaller than they used to be. They are now at the end of the year, 29% as we enter 2020 out of the entire Packs, Bags & Luggage category. So although we believe they will continue to decline, the impact of that drag will, of course, impact both the category and the global sales of Thule less, and it will specifically, of course, impact Region Americas drag less because the majority of those legacy businesses are U.S. based. That means that the focus for 2020 is definitely the focus to grow on those, what we call, future categories. So luggage, everyday backpacks and sport and outdoor packs. In luggage, we will roll out 2 additional luggage collections, and we are coming with a number of new everyday laptop backpacks, and we are also coming with a number of new sports and outdoor packs. In our Legacy&OE business, it's about smartly managing the decline cost efficiently. In some of the sub tax rates it is truly a last man standing effort. The only one still selling some of these cases at a decent margin. And in others, it is a little bit defined with the right product offer and limited spend, ensuring that we hold on in the right way on that business. And then finally, if we go to Active with Kids. As I did mention, the disappointment of an underperformance in the Region Americas, but still a strong growth continuing in the Region Europe and Rest Of World. And here, there is also a little bit of an exposure difference. That's why we've chosen to show the image of that bike trailer. The bike trailer segment is continuing to do fantastically well for us in the European region, while that type of product is very small for the Americas region. So the bike trailers and strollers did perform very strong with continued broadened distribution in the European market. And I did mention already the stroller disappointment with the jogging stroller competitor doing some very aggressive price discounting. And we also have to say that we did not get the Thule Sleek as established in the Americas region as we managed in Europe. We are coming with a new stroller model. I'll come back to that, but that is, of course, a key also to continue to do in this category. So if you look at it, the Thule Spring, our first true global everyday stroller, big launch happened on Monday. If you go in and look at Instagram, you will see a lot of images already, it's a very broad launch with a lot of excitement. And of course, a continued belief in how we establish the brand in strollers is very much connected to now adding a third collection as well. If we then go to how that made us sell by brands, we have clearly communicated that the focus is to drive the growth of our premium, very well-known lifestyle brand Thule. And the brand in 2019 stood for 83% of sales. And that also means that we grew 6% in constant currency in the Thule branded product. And if you look at it by default since we're going to produce or -- and implement the Thule brand on 2 categories where we didn't have it in 2019, the previously branded Tepui rooftop tents and the Denver Outfitters branded fishing rod vaults that we only acquired by the end of the year, that will, of course, generate the Thule brand growth as well, aside from all the other products we're doing in the Thule brand. The other Thule Group brands where Case Logic is the biggest one, but in 2019, you would have found Tepui in there as well, for example, was 8% of sales. Our OE business, mostly then to RV manufacturers in Europe and premium car brands in Europe was 7% and a small private label focused business, it's a very limited number of customers, 2% of our sales. What is great is the continued recognition the Thule brand is getting, not only those Brand Communication Red Dot awards, as I mentioned, but numerous other design awards and customer event awards and selections by all the consumers in the industry. So for example, the König Kunde Award, which is given out by the biggest RV magazine in Germany, where we continue to be the best brand in both awnings and bikes. It's a great confirmation. And as I said, a number of product design award wins continue to show that we know what we're doing in driving the Thule brands value. With that, I will be leaving over to Lennart. And as I do that, I can then also note that this will be the last time I'm having Lennart presenting our financials, as he is moving on to become a CEO Backahill AB, which I know he will do brilliantly. So I will take the opportunity to thank Lennart for all the fun, hard work we've done together with this company. And I am very grateful for all the things we've done together. I am also sure that his team and our new CFO, Jonas Lindqvist, who will join the company at the end of March, will continue to deliver the same strong performance as Lennart has done. So with that, I'll leave it to you, Lennart.

[Lennart Mauritzson;Chief Financial Officer]

Thank you very much, Magnus for that. So if we look at Slide 12, the income statement, I'll comment on some of the numbers, Magnus hasn't mentioned yet. So if we look at the gross margins, full year versus prior year, we were down 0.3 percentage points, including a favorable currency effect of 0.3%. So decrease in gross margins in constant currency of 0.6%. That is driven by the Chinese tariffs for import to U.S., which I mentioned, whole year, approximately 0.3 points, so half of the deviation and then also the under absorption for both due to lower production volumes and some planned unused capacity standing for the remaining points. We're very happy to see -- good to see that in Q4, we are slightly positive, 0.2 percentage points versus prior year, in spite of the continued negative effect from the Chinese tariffs of 0.3. So we do see the main reasons for the positive purchase price variances, which we have communicated as well that we would see a more positive view on prices from our like aluminum and steel for the second half of the year. And also that we do have less under absorption, and we see some efficiency gains now in our European plants mainly. If we look at full year selling expenses this year, SEK 1.315 billion, that is including this SEK 25 million for the RV Products recall, and the -- in Q4 hit of SEK 24 million for the restructuring. If we exclude those 2 items, we have a cost increase in like-for-like currencies of 62% -- SEK 62 million, sorry. That also include, of course, the acquisition of Tepui. So that means SEK 22 million added overhead cost due to that acquisition. So SEK 40 million in cost increase of selling expenses. And then worth mentioning is that product development, where we do take everything direct on our P&L as an expense, we did end the year at 6% of sales, the same percentage as last year. Financial net, we did minus SEK 14 million in the quarter versus minus SEK 8 million last year. IFRS 16 change, accounting change explains SEK 2 million out of the SEK 6 million increase and the remaining increase is due to unfavorable currency effect in our revaluation of our cash pool accounts, so we do that at closing dates, and we had some slight negative currency swaps versus last year where we had positive currency swaps. Effective tax rate for 2019 is 22.9%, where we had 24.9% last year. We did -- as you can see, there is a low tax expense recorded in Q4 this year, where we have been taking a favorable of SEK 11 million due to the fact that when we invested in our plant -- second plant in Poland couple of years ago, that is placed in what we call the EU economic zone where you will get some benefit of taxes, where you can show that you have invested, you have number of people working and things like that, and we are now at that stage. So we could take that benefit of that investment in -- also in the tax releases in Poland. And as you can see also on the low right-hand side of it, from an accounting change of IFRS 16, it hasn't meant anything for us on the net income side because we are neutral to that. If we now turn into Slide 13, which is the operating working capital and cash flow, you will see that we ended the year with SEK 1.267 billion in operating working capital, which is 18% of sales, same percentage as of last year, though, which has been the main focus over the year to get the inventory down a little is actually currency adjusted slightly down versus prior year in spite of our increased sales. And I think more important is that we see now a positive trend on the date of inventory, which is good, considering the slightly negative development we saw in 2018. So very happy with that development. And as you can see also, we had in 2018, SEK 802 million in cash flow -- operational cash flow. This year, we ended very well. So we had a strong quarter and reached SEK 195 million in the quarter versus SEK 15 million prior year. So in total, we increased our operating -- operational cash flow with SEK 388 million and ended at close to SEK 1.2 billion, which is very good. And that is, of course, due to our increased earnings, improved working capital and less -- slightly less CapEx spend. So this year, we spent 2.3% of our sales in CapEx versus 2.7% prior year. With that, I leave over to Magnus again.

[Magnus Welander, CEO & President]

Thank you, Lennart. So if we look at the financial targets and our performance, we delivered 2.9% constant currency growth, excluding acquisitions, which is behind what we want to achieve and expect to achieve for 2020, the minimum 5%. We delivered an underlying EBIT margin of 17.7%, which is in line, as Lennart mentioned, also due to the tariffs, roughly in line with what we expected. We have a net debt leverage -- net debt EBITDA leverage of 1.5x, in line with our target range. And the Board's proposal of a SEK 7.50 per share dividend means that, that would be 88% of ordinary net income. And therefore, clearly higher than the official policy. If we turn to the last page and look a little bit forward. If we look at then the focus areas of 2020, it is very much about driving our growth strategy. We are very comfortable that we have the right strategy. I'm convinced that we're doing all the right things. And it is very much about focusing on great products. Key is those great products. But it's also about continuing the journey of that brand, the Thule brand with the tagline, Bring your life, becoming a true household lifestyle brand. We are adding tools in our toolbox to become those serious contenders in Strollers & Luggage, not just great new products or great new marketing materials, but also specific sales staffs in the U.S. organization, we've added expertise from the field to further strengthen our own organization, we've done the same in other countries, and we continue to focus on having all the different parts in play to become those serious contenders in both those categories. We continue to use a very efficient strong back end of our organization to make sure that we do drive this growth cost efficiently. And the product portfolio push, it continues, not only in this SEK 100 million investment in Hillerstorp or increased staffing as we've had but the fact that we have several parallel large ongoing projects in both Strollers & Luggage, and of course, in all our traditional categories as well, where we plan for some key ramp-ups as we go forward. We believe our spend will be just below 6% of sales also in 2020. In our supply chain, we continue to see improvements. But of course, the key here is a lot the classical space and the proof is in the eating of the pudding. We have now over a few years done a number of major layout changes, major automation implementations and efficiency projects. And we started to see, as Lennart mentioned, towards the end of the year, some of those, but of course, it's to capture the upside of those initiatives in 2020 will be key for our performance. In terms of what we do to support our retail partners around the world, we continue to focus first and foremost on consumer-driven online, but reality is that is, of course, always combined with great support also in a brick-and-mortar reality. So we continue to roll that out. And we are convinced that, that jointly will make sure that 2020 will be another year of very strong cash generation. That will be an opportunity that to both ensure that we can do further M&A, but also to have an increased dividends as we go forward. The image to the right, as I mentioned it before, Thule Spring, our new fantastic stroller hitting stores as of Monday and really already getting a lot of attention in both awards and in a number of sales already as we speak. I think I would be a remiss as any CEO would be at the moment, if I didn't bring up the subject of the Coronavirus and the potential impact of our business, so I'll take that one myself even before I get the question. Generally, if you look at our company, we are a -- very much focused on doing most of the product assembly ourselves. We focus on being close on -- to the market. And we pride ourselves of having a high on time and full capability. That also means, as we've communicated several times over the last few years, that we don't try to win brownie points with a Board or investors by having a super duper low inventory holdings just for the sake of it, especially not as we enter the season, which means that we do not have a panic because we do have product on hand. However, any company, realistically, if you look at it, depending on the scenarios that all serious management teams around the world and companies are doing at the moment of how long and how will this Coronavirus impact production in reality because although we only have a few for Tier 1 suppliers that are Chinese companies, we do have, as everybody else, a lot of Tier 1s in Europe that are dependent on things like fasteners and other things that are really only made in China, nowadays, which, therefore, means that should a Coronavirus mean lead to longer disruptions than what is currently expected, also we will be affected later on. So we are working a lot with -- closely with all our key suppliers. We're monitoring it daily. We're in very close contact with them, and we're planning it accordingly in our plans of what we can do. It's clear that it's not good for business. So that's obvious. The impact is not very significant, if it starts to get up into production this week and next week. And I know that all of you analysts, at least, are reading this media more than I'm doing even that when I talk to my supply chain team and their discussions with suppliers, we estimate that about 2/3 of our suppliers are up and running. They are not all up and running at full capacity. Some maybe only about 30% to 50%, but they're back and running. So as long as that continues to go in the right direction, we will -- feel we will be able to come through this quite okay. And if it would continue, of course, we will have to come back and say what the potential impact could be. With that, I leave the floor for questions.

[Operator]

The first question we have is from Daniel Schmidt from Danske Bank.

[Daniel Schmidt, Research Analyst]

A couple of questions from me. And starting with what you mentioned a couple of times in the report, price aggressiveness relating to the U.S. and Central Europe. And you also said that this cannot continue and that you're convinced that you will regain market shares. Have you seen this sort of price aggressiveness die down at the start of 2020?

[Magnus Welander, CEO & President]

Yes, I wouldn't be as convinced if it wouldn't have already happened because you never know how other managements are thinking. But yes, you're right. The U.S. player has already moved pricing up as we start 2020. So that puts us on a much more even footing, which I am sure with the strength of our product offer and our sales organization will mean that we will regain growth again.

[Daniel Schmidt, Research Analyst]

And are you seeing that dynamic, so to speak, already then?

[Magnus Welander, CEO & President]

Yes, otherwise, I wouldn't be as convinced.

[Daniel Schmidt, Research Analyst]

Okay. And Central Europe, is that the same thing?

[Magnus Welander, CEO & President]

Yes, in Central Europe, it was in regards to a smaller category, bike seats and specifically -- actually not even all of Central Europe, it was one market really, the Dutch market, which is a big market for us for bike seats. There, I think it's more -- some have, some have not. So there's a slightly tougher reality there. There is still some that are doing quite aggressive steps. So not as clearly changed as the U.S.

[Daniel Schmidt, Research Analyst]

Okay. And then sort of another here and now question. Weather conditions in the Nordics have been sort of lacking winter, there's massive sort of destocking on some larger retailers like XXL and so on. I know that your exposure, I think, is very small to those guys. But, first of all, has that had any sort of impact during the start of this year? And then on top of that, speaking about the Coronavirus, do you see any risk of sort of Asian traveling to Europe and the U.S. diminishing as a consequence going forward?

[Magnus Welander, CEO & President]

If we take a quite separate subject, we take weather and impact on our business. We always say that, that we love clear seasons as does anybody in the outdoor business because it makes life easier in the mind of the consumer. It is time to buy this. It is time to go skiing. It is time to go biking. So we do appreciate that, differently, though, from the clothing industry in the outdoor sector. It is more the fact that people are still planning to go in their skiing holidays, and they're not canceling those trips. Some of them are slightly frustrated that it's not as much snow as they would have loved and maybe, but they still go on the trip. We are more, therefore, associated with that it might not be helping us one month, but they will do it another month. So I don't -- we're not nearly seeing anything similar to what the clothing industry is doing. But we would love that it was a better winter, more clear winter as we also love when spring comes popping one day with fantastic weather for the rest of the spring. But that's life. It doesn't happen any year in all the countries. So there will always be some that has a nice winter, some that don't. So we're feeling pretty -- it's good. It's nothing specific in our case, not specifically good, not specifically bad, it's a normal reality for us, I would say. If you take the Coronavirus, it is clear that with us having a strong momentum, mostly in Southeast Asia, but also in Asia, in general, in Packs, Bags & Luggage, that is not brilliant that people travel less. Because that's a typical occasion when you think about buying a rolling suitcase or where rolling carry on is more when you're traveling a lot. So I -- it was not good that there was demonstrations in Hong Kong, one of our nice markets either. So I would say that's a negative clearly to our business, specifically to sales in that region of Packs, Bags & Luggage. In the rest of our business, a reduced air travel for Asians or Chinese, that's mainly then coming to Europe or U.S., doesn't impact the rest of our business because the rest of our business is more people living in those places going and doing things with their friends and family. And it wouldn't be sold to those consumers, so to speak, in that reality. But it does impact specifically our ability to sell Packs, Bags & Luggage in Asia, clearly.

[Daniel Schmidt, Research Analyst]

Okay, good. And then finally, on the phase out when it comes to the roof racks and the older generation, you state that, that should be completed in 2020? Could you give us more specifics in terms of the time line?

[Magnus Welander, CEO & President]

Yes. If you look at it, we are in the -- we are slightly different phasing in Europe and U.S., U.S. is a little bit later. So what we're seeing is, we are already through, so to speak, Phase II in Europe. We're in Phase II in the U.S. coming now, and then we have towards the end Phase III. So the big point to make as we -- this is -- we're complicating life of people, we understand that, but it is a big complex category, roof racks, the first phase, as we call it, had the majority of the old stock. So even if there is some pipeline depletion of the second and third phase, there were fewer SKUs for fewer specific vehicles for those, and therefore, you flush through the old much quicker than you could in what was Phase I. So the impact will be much smaller by default than it was for the Phase I. And then we're already having seen most of that impact in Europe anyway with a little bit more in the U.S. to come.

[Daniel Schmidt, Research Analyst]

And the rest of the impact is basically front-end loaded in 2020 then?

[Magnus Welander, CEO & President]

So if you look at it, what we -- it's not a huge pipeline that's filling front-end loading from that perspective. But if you look at it, therefore, and you know that we had a weak performance in the beginning of the year in 2019, it means that for roof racks specifically, right, in Europe, as we communicated, it means that, once again, the comparative numbers, therefore, are realistically impacting in a similar way. And as we then go into the second half, we should have a stronger performance from a true business performance.

[Operator]

Our next question does come from Gustav Sandström from SEB.

[Gustav Sandström, Research Analyst]

If I may start with the restructuring initiatives you mentioned. If I heard you correctly, you said that they were mainly but not fully related to U.S. So if you could shed some light on what are other initiatives beyond the U.S. you have looked into? And secondly, the SEK 25 million cost savings, is that a year-over-year impact in 2020? Or should we expect any of that to spill over into 2021?

[Magnus Welander, CEO & President]

It was Canada as well. So we -- I think you have to be clear and a very minor change in the setup of some of the back-end situations in Europe associated with those steps we took, the vast majority U.S. and Canada and a small amount in Europe. If you take the effect of it, yes, you're right, we're saying already as of 2020, those savings will impact.

[Gustav Sandström, Research Analyst]

That's clear. On raw materials, if you could help us little bit out with the gross margin bridge from raw mats. I believe you previously indicated that most of your purchases are done in Q4 and Q1. So you should have a fairly good view of the year-over-year impact. Is it fair to assume that your basket of raw mats are down some high single digits year-over-year? Is that fair?

[Magnus Welander, CEO & President]

I think there are 2 things to be made. And one is that if you look at it, we don't buy so much true pure raw material, I need to point that out to everybody. We are a company buying components, made extrusions, et cetera. So it's easy to get confused to pure raw material shift versus the raw material combined with the value-added efforts that our suppliers do. So we always point that out. Secondly, the only category where you can do some hedging, also both positively and negatively impacts how quickly or not and how big or not you see pricing going through. And the biggest one for us is aluminum, which is the category you have some hedging. So that flattens things out in a positive sense and a negative sense. So there is a slight delay in it. And then if you look at it, the majority of truly, there is a big purchasing going on as we speak in Q1 and Q2 because those are the -- really big production months are coming now haven't been done. So all that, I would definitely not say that you have high single digits, but we clearly have a positive contribution expected. If you compare our pricing versus the costs we're getting in, we expect to see a positive contribution in 2020.

[Gustav Sandström, Research Analyst]

All right. On Tepui, the impact of your sales in Q4. Could you help us out a little bit? Is Q4 also very small quarter for Tepui?

[Magnus Welander, CEO & President]

You're correct. It is. So if you look at the totality then for the year, we had a growth of only a few million Swedish krona in the quarter. In the total of the year, it was SEK 70 million that we had as a revenue for the rooftop tent business.

[Gustav Sandström, Research Analyst]

Great. And lastly, I didn't see a CapEx estimates for 2020, did I miss that? Or have you announced...

[Magnus Welander, CEO & President]

No, we actually don't do estimates forward-looking. But what we have indicated is we're saying in around 2.5 and as you've noticed, we've communicated one large one being the SEK 100 million investment, which may make it go up a little bit above the 2.5 due to that.

[Gustav Sandström, Research Analyst]

Okay. And just finally, adding on to Daniel's question on U.S., 29% is still in decline amongst the categories. What's your confidence level that this number is small enough to overcome in totality to regain organic growth in 2020? And second to that, what's your experience in terms of phasing when it comes to these categories in decline? Is it typically a linear decline towards 0? Or does it accelerate at some point, typically?

[Magnus Welander, CEO & President]

Yes. If you take Packs, Bags & Luggage, which is then 21% of Region Americas, so it's in that we have the Legacy&OE part. So it's 29% of the 21% of Region Americas. It's important to remember that. And if you look at that business, it's, of course, made up of different small little cases and things. And you have strange behavior. I would love to say that I could give you in a simple macro digit it's in, but it is actually the case, for example, when you become last man standing, you can even see growth for some months. Because there's nobody else selling it anymore, and you're the only one selling that simple case in the Walmart store. So although the category is declining, you as a brand for one specific product for a period of time, might even have a, let's say, uptick short period before it truly dies and then it can be a cliff. So if you look at it, our decline in that has been 10%, 15%, 15% -- around 15% every year, right? I don't think it will be very different. Within it, there might be one that goes away completely and one that actually is even growing a little bit but very short lived. So we're still considering it a legacy type of product. Around 15% decline on around 29%, out of 21%. So that gives you a size of scale on what the drag is there. While the drag part we had in the Sport&Cargo Carriers, the pickup truck accessories, that drag will not be impacting as we go forward in 2020. So therefore, we believe we have a stronger base there.

[Operator]

Our next question is from Karri Rinta from Handelsbanken.

[Karri Rinta, Research Analyst]

Yes, Karri Rinta from Handelsbanken. Firstly, on the expectations -- on the expectation that the organic growth would accelerate this year and exceed the 5% target and then maybe more specifically on the North American market for Sport&Cargo Carriers, can you remind us of sort of what happened especially in the first half of last year when it comes to bike sales and tariff impact, i.e. remind us of the comps that you're facing in that business? And then how much help do you need from end-user demand in terms of reaching or accelerating growth in Sport&Cargo Carriers in the U.S. this year? That's my first question.

[Magnus Welander, CEO & President]

Okay. So if we take expectation, yes, we have an expectation to be able to deliver above 5%, we have done that all other years. And we believe that we have a number of key launches. And also key comparative differences. So taking that North American comparative difference, if you look at it, the U.S. retail has been shaky. We don't think that will generally change. I think U.S. retail will continue to be shaky, election years, tariffs, everything going on, but what the big specific things on the bike sector then since bike carriers is our biggest category, in -- what happened in the bike category, you saw a very tough second and third quarter, which are normally then the big season for bikes. So not only, "Oh, that was tough that it was 2 bad quarters," it's the 2 quarters when most of the business is done in the biking sector because that's when people buy bikes. Indications by the bike federation industry in the U.S. is that bike sales in these periods were down around 15% according to some, 12% according to some because there are -- not all shops report their statistics. But clearly, teens of decline in bike. We didn't nearly decline as much, but we did see a decline in that period. So we are then, especially in the peak season quarters, quarter 2 and quarter 3, comparing with relatively bad performance in that category. If you then assume, which is, of course, the key question that one you're making about consumer confidence or not is there is a clear assumption that we are making that, tariff is now the new normal. People get used to new price points due to tariffs and taxes and VATs and things. And it is now when you come into July, when was truly -- it was in July, the additional tariff hit on the bike carriers. That's when we can say that then we have a weaker comparative to start with. So really, I would say Q3 will be the month -- quarter where we should see the help in a comparative way. Generally, we believe the market has calmed down and now sees the normality. It's still up to us. We can blame and communicate and stay in the market here and there. We need to deliver it, of course, and we're doing that with some new products and some new hard work in what we've done in the reorganization. So I believe it will be an okay market for the bike carriers. I don't think it will be a fantastic market, all of a sudden, but it's going to be versus a bad market last year.

[Karri Rinta, Research Analyst]

Fantastic. Very helpful. And then about roof racks, if you can discuss the impact of this phase out on the profitability of those products, 2019, '20 and maybe '21, assuming that maybe 2021 is the best in terms of margins, but what kind of incremental improvement would you expect in 2020 in terms of the profitability for roof racks?

[Magnus Welander, CEO & President]

We don't communicate that by the way. But we have communicated as much as saying, which is clear that if you only run one type of production with highly automatized lines versus running 2 types of production, more manual, semi-automatic lines for existing and new modern automatized for new, you're not getting those efficiency gains in the plant, as you will be getting when you only manufacture in one methodology, which is the more modern, more automatized. So therefore, the bigger pickup comes fully in '21 when all the old has been phased out because that's when the staffing levels and the flow of production is the most optimized. But as we are already having implemented 2 of the 3, it's clearly some of those gains will happen already in '20. Then we don't disclose exactly the impact. But it will help us towards our overall goal to achieve a 20% EBIT margin in the coming years.

[Karri Rinta, Research Analyst]

All right. And then finally, the Packs, Bags & Luggage, if we exclude the Legacy part, and then Active with Kids, how accretive are those to your EBIT margin target? And are there some subcategories that are sort of at the cusp of becoming big enough so that they reach the scale required to become -- sort of have similar profitability that you have in the group overall?

[Magnus Welander, CEO & President]

Yes. If you look at it from a gross margin perspective, the Active with Kids category is clearly accretive already, while the Packs, Bags & Luggage, you have certain collections that are, certain are not. And it's also there where you see the biggest necessity, so to speak. If you really want to have the margin contribution being the right, the volume has to grow in Packs, Bags & Luggage because we are more dependent on suppliers there, while we do most -- a lot of own assembly in Active with Kids. And therefore, we quicker get to those efficiencies in terms of margin. So if you look at gross margin perspective, Active with Kids very good, Packs, Bags & Luggage, not yet there. If you take the look at what it means in through contribution, we have been clear and I want to be clear also now that if you run several parallel stroller projects and several parallel luggage projects, you are proportionally overspending on your product development versus what the size of the business are, which we are doing still in '20 as well. If you look at the rest of our business, the majority of the staff is, of course, the same type of staff in a customer service team or in a supply chain team or in a distribution center or in a finance team. We do add some product managers and specific sales people. But it's a total effect, therefore, thanks to that efficient economies of scale in back-end. They will be accretive really even before they are sort of the standalone accretive, and thanks to the fact that we don't have to add all the back end staff to sell them. So there is a positive contribution already as we speak, as those categories grow, even if there is a lot of potential on having those categories being more profitable than they are today.

[Operator]

And we have another question from Fredrik Moregard from Pareto Securities.

[Fredrik Moregard, Analyst]

An impressive year, obviously, in the RV Products segment. But I was a bit curious about how you define you're beating the market, so to say, I mean, the market, as you say, grew 8%, 9%, while you grew 13%. But how are we comparing in the bike carriers and the awnings segment of the RV market? Are you still gaining market share there?

[Magnus Welander, CEO & President]

Yes, absolutely. There is no official statistics. So I can't give you that because we would be as the undisputed market leader sharing too much data, but I am 100% sure that we're gaining market share there.

[Fredrik Moregard, Analyst]

Okay. Okay. Very good. And on the stroller side, obviously, Sleek has been less of a good performer in the U.S. than you anticipated, say, 1 year ago. What sort of critique have you been facing in the U.S. markets that you were not expecting with regards to the Sleek. I remember you talking about the sleep being a perfect or a very good stroller for the European and North American markets specifically?

[Magnus Welander, CEO & President]

Yes. I think this is -- as always, when you launch products, especially in a new sector, new channel, new category that you aren't the most established in, sometimes, you get very clear feedback, "oh, you should have done it this way, it's slightly lighter here, different color there".I can clearly say, having spoken to some of the most senior people in some of the retailers, one of the biggest U.S. retailers simply told us, we don't get it either. We took it in. We like it. We think it's brilliant. Sometimes in a category for no really good reason, a certain brand will be very successful with a certain product. And you haven't had that luck. We are clearly the winner in the U.S., is a brand called UPPAbaby. They have a model VISTA, that does the same thing. So stadium seating for 2. They can't seem to not be able to put their foot wrong with that model. We have to give them credit for that. They've done that work really well. And we haven't -- for no obvious reasons in terms of ratings, the comparative tests or anything, we simply haven't got that traction among their moms and dads and mostly moms in the U.S., especially. And if you don't, you're not going to see it in the coffee shop, you're not going to see it in social media in the way that it becomes this positive spiral. That's what we haven't succeeded in. And we, of course, have worked a lot of thinking into what that means in how we're launching the Thule Spring at the moment aside from doing a good product and how we're working on all those aspects. But I honestly cannot put a finger on specifically the product, it's more of a reality of the total situation that didn't come across. We didn't deliver as much as we hoped.

[Fredrik Moregard, Analyst]

Okay. So the issue has rather been to get the strollers out of the stores rather than to gain access to...

[Magnus Welander, CEO & President]

Yes. I think if you look at it, we got maybe not all of the ones we wanted because that would be a bit arrogant to say, but we got the right ones and quite a few, and some of them have been doing well with it, but some have not. And when we then, of course, spend a lot of time discussing it because we're very happy that some of those retailers that did not do well with Thule Sleek still have jumped on with commitments that are quite significant for the Thule Spring. So that shows that they still believe in us in the stroller. They have struggled to make clear statements on what specifically in their mind was the reason why the Thule Sleek did not succeed.

[Fredrik Moregard, Analyst]

Okay. So you're not losing listings then for this reason due to poor performance in '19 then?

[Magnus Welander, CEO & President]

Nope.

[Operator]

[Operator Instructions] Another question from Mats Liss from Kepler.

[Mats Liss, Equity Research Analyst]

Well I appreciate all the organic growth opportunities. But I just had a question here regarding the M&A opportunities. I mean, the fishing rod company you acquired seems to be a bolt-on one. Do you see more like that coming up in 2020? Or is it sort of a focus on organic opportunities?

[Magnus Welander, CEO & President]

I think we can clearly say, as a company, we always make sure that we will deliver on the organic growth. And we've said that we will, as we get more and more established, see more and more opportunities of either additional smaller bolt-ons or potentially bigger category entrants where we take a bigger chunk of a category. We are constantly evaluating companies, and we will clearly do that. There will be, as always, both depending on what's available in the market and how well we fit -- it fits us and how well we think we could do with it after having acquired it. But I feel confident that we will continue to do some acquisitions also in the future. But the key is, we're not going to sit them wait for those. In the meantime, we will drive the organic growth.

[Operator]

There are no further questions on the line.

[Magnus Welander, CEO & President]

Thank you very much then, everybody, and look forward to an exciting 2020. I know we're all hoping that all the effects and situations around the world with Coronavirus, et cetera, dies down. And subject to that happening, we feel very confident on what we are doing for the 2020 plans. I also then want to end up by once again thanking Lennart for a brilliant and fun time working together. And I know he will do very well in his new job. So next time, you will be hearing me and Jonas instead presenting. Thank you, everybody.

[Operator]

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