Mips interim report January–September 2022

July-September 2022

• Net sales decreased by 39% to SEK 113m (185), organic growth amounted to -50% during the quarter
• Operating profit amounted to SEK 37m (110)
• Operating margin was 32.8% (59.6)
• Cash flow from operating activities amounted to SEK 97m (71)
• Earnings per share, diluted, was SEK 1.10 (3.33)
• On 12 September 2022, Mips announced that the company predicted a short-term weaker development of
  the bike market

January-September 2022

• Net sales increased by 11% to SEK 456m (410), organic growth amounted to -4%
• Operating profit amounted to SEK 205m (221)
• Operating margin was 45.1% (54.1)
• Cash flow from operating activities amounted to SEK 189m (196)
• Earnings per share, diluted, amounted to SEK 5.91 (6.64)

CEO’s comments

A challenging bike market had a negative impact on both sales and profitability
During the third quarter, net sales decreased by 39 percent. Adjusted for exchange rate effects, the decrease was 50 percent. In the interim report for the second quarter 2022 we communicated that we saw a partial slowdown within bike following a very strong growth in 2021. On 12 September 2022, we published an update when we realized that we had underestimated the speed and the magnitude of the slowdown in the bike sector. The decrease in net sales in the third quarter is explained by reduced sales to the large product group bike
helmets. Bike retailers around the world have generally built up too high inventory levels of bikes and bike accessories and therefore helmet manufacturers pulled the handbrake in terms of helmet manufacturing ahead of next season.
 
Despite the challenging environment, we see a good development in our other helmet categories. During the first nine months of the year, net sales has increased by 11 percent.
 
In the quarter, operating profit decreased by 66 percent and amounted to SEK 37m (110). During the first nine months of the year, operating profit decreased by 7 percent and amounted to SEK 205m (221). In the quarter, we experienced a material decrease in gross margin which was mainly attributed to the volume effects from the decrease in net sales and product mix.
 
In the quarter, the operating margin was 33 percent (60), explained by our continued investments for long-term growth, and 45 percent (54) for the first nine months of the year. During the quarter, there was a good development of the operating cash flow with an increase to SEK 97m (71). The operating cash flow during the first nine months of the year amounted to SEK 189m (196).
 
Helmet category Sport – short-term uncertainty within bike
The softer development in the Sport category compared to previous quarters is entirely explained by the slowdown in the bike market. The uncertain market situation in the bike industry has continued during the third quarter and has resulted in excessive inventory levels of bike and bike accessories at retailers. Our assessment is that the challenging market and inventory situation in the bike industry remains, where retailers in most markets have significantly reduced their purchases, which will negatively affect Mips’ sales and results during the rest of the year and to some extent the beginning of 2023. The majority of Mips’ sales in the third and fourth quarters are historically driven by sales to bike helmets, when most of the production of this type of helmets takes place.
 
A more “wait-and-see” approach among retailers has had a greater impact on sales than we anticipated, especially compared to the previous year's strong comparative figures. We assess that this is a short-term negative trend in the bike industry and that this may continue for the remainder of the year and the first part of 2023 until inventory levels are fully balanced. We do not believe that the short-term negative impacts in the bike industry should affect our long-term opportunities to grow within the bike subcategory. We believe that this subcategory will return to growth driven by strong trends in e-bikes, commuting and people wanting to spend more time outdoors. We still see a high interest from our customers wanting to launch new
products within the bike subcategory. Therefore, we are confident in our continued investments in bike.
 
Our other helmet categories in Sport have not experienced the same negative impact and we still see positive developments going forward.

Helmet category Motorcycle – development continues to be good
The Motorcycle helmet category continued to develop well during the quarter with a growth of 16 percent. During the first nine months of the year, the category has grown by 38 percent, and we believe that the development will continue to be positive also going forward. This quarter’s growth is mainly due to good progress with our existing customers, but it also comes from more new customers launching helmet models with Mips’ technology.

Helmet category Safety – great interest from the industry
During the quarter, one of our key partners, uvex, launched two new helmets globally and we believe in a good sales trend going forward. During September, we participated in the NSC fair in San Diego where we presented our first exhibition stand in the Safety helmet category. At this fair, we once again experienced a confirmed industry interest in Mips' technology, and we believe that the US can become a key market for the Safety category (as it is for the Sport category). Our focus remains – to drive sell-through together with our existing customers and naturally also establish partnerships with new customers.
 
Our most active quarter ever
Participating in fairs has been a very beneficial way for Mips to both recruit new customers and increase awareness of Mips around the world. We participated in more fairs during the quarter than ever before, and it has been great to meet many of the customers that we could only meet digitally during the pandemic. We exhibited at the world's largest bike fair, Eurobike, in Frankfurt, the world's largest equestrian fair, Spoga, in Cologne and NSC, a large construction fair in San Diego, USA. We will participate in two fairs during the fourth quarter; EICMA in Italy, which is the biggest motorcycle fair, and ISPO, which is a fair for winter sports.
 
We do not see that our customers' interest in developing new helmets with Mips’ technology has decreased. On the contrary, we experience a good momentum in all our categories. We continue to see a high inflow of new helmet projects from our customers and are investing in our strategic initiatives at an unchanged pace.

Short-term challenges but confident in our strategy and long-term financial targets
The year started in a strong way with a good increase in demand, however following the large inventory adjustment within the bike sector and a more uncertain world we have experienced a challenging market during the third quarter, and we expect this to remain short-term. We have handled the faced challenges well so far and I am confident that our market position together with our strong balance sheet will lead to Mips becoming even stronger when this is over. Short-term, we assess that the coming quarter will continue to be erratic since a lot of bike helmets are normally manufactured in the fourth quarter. We continue to gain market share and advance our position within all our categories.
  
We are convinced that the positive long-term trends remain and, thus, that demand will continue to be good in all our categories going forward. We continue our efforts and investments in accordance with our long-term plan with the aim of consolidating our strong market position when the curve turns up again. With our new strategy and new initiatives, we are prepared for the opportunities and challenges that lie ahead, and I look forward with confidence to the journey towards our long-term targets.
 
 
Stockholm, October 2022
 
 
Max Strandwitz
President and CEO