MIPS interim report January – June 2020

April - June

• Net sales decreased by 20% to SEK 66m (83), as a result of the impact of covid-19.
  Organic growth during the quarter was -19%
• Operating profit amounted to SEK 20m (37).
  Adjusted operating profit* amounted to SEK 20m (38)
• Operating margin was 29.7% (44.5).
  Adjusted operating margin* was 30.8% (46.0)
• Cash flow from operating activities amounted to SEK 23m (24)
• Earnings per share, diluted, amounted to SEK 0.61 (1.12)

 
January - June

• Net sales decreased by 5% to SEK 122m (128), as a result of the impact of covid-19.
  Organic growth during the first half of the year was -7%
• Operating profit amounted to SEK 36m (49).
  Adjusted operating profit* amounted to SEK 37m (50)
• Operating margin was 29.4% (38.1).
  Adjusted operating margin* was 30.5% (39.1)
• Cash flow from operating activities amounted to SEK 38m (32)
• Earnings per share, diluted, amounted to SEK 1.07 (1.50)

CEO’s comments

A soft quarter, but good future demand for bicycle helmets
The start of the second quarter was very soft as our customers, the helmet manufacturers, pulled the emergency brake when most major countries around the world went into different levels of lockdown with closed stores as a result. In June, the market situation significantly improved, resulting in increased demand. Our customers have achieved good sales in the online channel throughout the period but since the online purchases of helmets still account for a minor part of total sales, this has not mitigated the lost sales in the traditional sales channels.

In previous years, a majority of our customer deliveries in the second quarter consisted of MIPS solutions to snow helmets for the coming winter season. This did not occur this year. Our sales to snow helmet brands decreased substantially during the quarter, mainly due to uncertainty in the industry following the abrupt end of the 2019/2020 winter season. We did also see a similar development within the Moto category with very cautious ordering from our customers in the beginning of the quarter.  

Despite that most of the stores that market products equipped with MIPS’ solutions were closed during a large part of the quarter, we delivered growth within the bicycle helmets sub-category. The growth was mainly driven by our existing customers that continue to expand their model program with more helmets equipped with MIPS BPS. The increase of the general demand in the bicycling industry has however not fully affected the sales during the quarter since a majority of all bicycle helmets are manufactured in the third and fourth quarter.

Notwithstanding a strong recovery towards the end of the quarter, net sales decreased by 20% and amounted to SEK 66m. Adjusted for exchange rate effects and acquisitions, the organic growth was -19%. The decrease of net sales was mainly driven by a soft demand within snow and moto helmets.

During the quarter, the adjusted operating profit decreased by 47% and amounted to SEK 20m (38). The adjusted operating margin decreased to 30.8% (46.0). Cash flow from operating activities was stable and amounted to SEK 23m (24). 

Impacts from covid-19
It is difficult to get a complete view of all effects that the covid-19 pandemic brings, particularly when it comes to future effects on our operations. Our current view of the situation is summarized below.

Helmet category Sports – strong demand within bicycle helmets but snow helmets have been challenging
In the wake of the covid-19 pandemic, bicycling for both commuting and recreational purposes has increased significantly all around the world, which impacts our customers in a positive way. Initially, there was an increased demand mainly for cheaper helmets likely due to the number of new cyclists who started bicycling in light of reluctance of and restrictions to use public transportation. In the last month, we have seen that the demand for bicycling helmets has increased within most price points and we are convinced that this positive development will continue.

The abrupt end of this year’s winter season and the uncertainty that followed for brands with considerable sales of snow helmets led to a shift in customer ordering which will result in higher sales in the third quarter. On a slightly longer horizon, some concerns remain about consumers' future purchasing power and whether they will be restricted from traveling to winter sports destinations due to the covid-19 pandemic.

Helmet category Moto – short-term hesitation due to covid-19
The results for the second quarter were soft also with regards to the Moto category since many of these customers acted cautiously due to the uncertainty in the market. Our view is that these effects are of temporary nature and that we will see a recovery of volumes in the coming quarters.

Helmet category Safety – promising discussions
MIPS started working with offering solutions to LEAF (Law Enforcement Armed Forces) already in 2016, and I am pleased that we for the first time delivered solutions to helmets both to the Swedish search and rescue team (SAR) and military units (the latter consisting of a sample order) during the quarter. Despite the fact that lead times are often long within LEAF we see the interest for these types of helmets as a positive sign.

The quarter has been challenging in many ways, especially given that many helmet brands within the Safety category also supply protective equipment to the healthcare industry which for obvious reasons has been a priority in the recent period. Despite this, we have had many productive dialogues during the quarter with companies that are active in this category and we believe that the future demand will be good in this category as well.

Sharpening of the brand communication strategy
One of our most important strategic initiatives is to strengthen MIPS’ brand to symbolize safety and to become an obvious customer choice when buying a helmet. At the end of last year, we therefore began a major rebranding project to ensure that MIPS and our brand are optimally positioned in the market. This project is now in its final stage and has resulted in, among other things, a new logotype, a new graphic expression and a changed brand communication strategy. Our new brand material will be gradually launched during the autumn.

Expected strong development the coming quarters - our long-term targets remain intact
The positive development within bicycle helmets and continued progress in the Moto category together with promising discussions in the Safety category make me optimistic about the rest of the year after a very challenging second quarter.

As always, it is important to continue to focus on things that we can actually influence – things that from a long-term perspective lead to continued demand for MIPS’ solutions in helmets purchased by consumers and users. Nothing can make us doubt that priority. We have made significant progress in a challenging period and I look forward to the journey towards achieving our unchanged long-term targets.

Max Strandwitz
President and CEO