Mips interim report January–September 2023
- Net sales decreased by 32% to SEK 77m (113), organic growth amounted to -33% during the quarter
- Operating profit amounted to SEK 15m (37)
- Operating margin was 19.5% (32.8)
- Cash flow from operating activities amounted to SEK 12m (97)
- Earnings per share, diluted, amounted to SEK 0.52 (1.10)
- Net sales decreased by 42% to SEK 266m (456), organic growth amounted to -44%
- Operating profit amounted to SEK 53m (205)
- Operating margin was 20.0% (45.1)
- Cash flow from operating activities amounted to SEK -21m (189)
- Earnings per share, diluted, amounted to SEK 1.82 (5.91)
A soft quarter with the impact of inventory adjustments still being felt in the bike sub-category
As expected, the third quarter was soft with a 32 percent decline in net sales compared to the same quarter last year. The decrease in net sales was mainly due to a continued soft demand in the bike sub-category.
After a slow start, sales gradually improved during the quarter. Bike retailers in the key US and European markets continued to reduce their inventory during the end of the summer and inventory of bike helmets have now returned to normal levels in the majority of bike stores. Inventory levels at some of our customers in the bike sub-category, the helmet brands, are still higher than normal, but improved during the quarter.
Inventory normalisation in the bike sub-category has taken longer than what the sector and we ourselves predicted. Customers and retailers are more cautious in building inventories as they now have higher cost of capital. As always at this time of the year, the orders we are receiving and producing now for the bike sub-category are for helmets that will be sold during the coming spring season, so they are not a direct effect of our customers’ sales to end customers.
Our customers communicate that they see a recovery ahead for 2024. Even if demand from end customers has been lower than during the pandemic-boosted years, sales of bike helmets to consumers are still higher than before the pandemic in most of the major markets. At Mips we have also substantially increased our customer penetration in recent years with more helmet models equipped with Mips solutions, and we have won new customers.
Operating profit decreased by 60 percent, amounting to SEK 15m (37) in the quarter. During the first nine months of the year the operating profit decreased by 74 percent to SEK 53m (205). The operating margin was 19 percent (33) and during the first nine months it was 20 percent (45). The decrease in operating margin can largely be explained by the lower sales, ongoing investments within our strategic initiatives in marketing, research and development, as well as the negative impact of currencies.
The operating cash flow amounted to SEK 12m (97) in the quarter, and during the first nine months of the year it amounted to SEK -21m (189).
Helmet category Sport – bike market remains soft
As mentioned above, the third quarter was slow in the Sport category, and we saw a decline in net sales of 29 percent compared to the prior year. The decrease in net sales was mainly due to slow development in the bike sub-category.
When we analyse data from our major bike channels, we see that despite the impact of inventory corrections, we successfully continued to take market share and increase market penetration of helmet models with Mips’ safety system. We therefore remain confident about our long-term growth opportunities in the bike sub-category once the market starts to normalise.
Within the snow sub-category we continued to deliver many Mips solutions after a strong 22/23 winter season, especially in the North American market. Our view is that the winter season will be strong again this year as we see an increase in the level of our customers’ pre-season orders compared to last year.
Helmet category Motorcycle – worse than expected
Despite new customers and new helmet models launched on the market, the Motorcycle category continued to be weak with a decrease in net sales of 68 percent. While we still see a great interest in Mips, we are seeing that it is taking our customers longer than both we and they had expected to get helmet models equipped with Mips solutions out in the market. There are several reasons for this but the main one is that a somewhat weaker consumer demand has led the helmet brands to focus on selling the older models they have in stock, which are not equipped with the Mips safety system.
Our assessment is that the Motorcycle category will remain soft in the near term. We have already initiated initiatives to increase sell-through sales and awareness of Mips, both in stores and online. We have also launched Mips technology in new helmet models with our customers that will generate volume going forward and support our long-term growth ambition.
We remain positive about the Motorcycle category, but at the same time need to increase the number of activities, mainly in the on-road motorcycle helmets sub-category, to ensure we achieve our long-term plan for the Motorcycle category.
Helmet category Safety – continued good development this quarter
Our Safety category continued to develop well with strong growth in sales both during the quarter and for the year, compared with the prior year.
In October we participated in the sector's two major annual trade fairs, NSC in New Orleans, USA and A+A in Düsseldorf, Germany. In conjunction with these fairs we announced new helmet launches with existing customers as well as two new collaborations. One of these is with the strong global brand MSA and the second is with the brand LIFT Safety, which has a strong position in the US safety market in the premium segment.
With these two customers we have further strengthened our position on the North American market and have now established a solid customer base that supports our long-term plan for the Safety category. I am pleased with our development in this category and with the new customers and models we have launched, and I look forward to delivering on our ambitious, long-term plan.
Exciting investment in sensor technology
On 31 August we acquired 25 percent of the sensor technology company Quintessential Design, Inc., “Quin”. This investment is the first step towards exploring the opportunities of sensor technology. It will enable us to gather more data regarding incidents by using high-precision sensor technology and accompanying machine learning algorithms, which makes this investment an important step in delivering Mips’ vision, ambition and strategy.
Strong confidence in our strategy and the future - despite a soft market
We have a bright view on the future and we are convinced that the bike market will return to growth. We are pleased with the development in the important Safety category, and while we believe the Motorcycle category will be challenging in the near term, we see great opportunities for strong growth in this category too.
Our market research shows that awareness of Mips’ brand continues to increase around the world. We see, as before, that there is extremely strong loyalty amongst Mips users. Awareness and willingness to buy is also growing rapidly amongst helmet users who do not already have a helmet equipped with the Mips safety system. We therefore continue to invest at the same pace in the initiatives that support our journey towards our long-term plan.
We continue to see great interest from new and existing customers in developing new models with Mips’ solutions and at the same pace, so we still believe there is strong growth ahead. Corrections in inventory levels in the sector have meant that we have not been able to show the market the large number of new helmets that have been fitted with the Mips safety system, and the full sales potential these entail. The start of the fourth quarter has been stronger than the same period last year in terms of orders received and we perceive a balanced optimism in the market.
During the last 12 months, the bike sector has faced tough challenges, but several sector analyses indicate an expectation that the market will normalise in 2024. This is after the sector has been impacted by a decline in consumer sales for the last one and a half years after the strong years of the pandemic in 2020 and 2021. Above all though, the sector was impacted by the retailers’ extreme inventory adjustments after the over-optimistic predictions ahead of the 2022 season.
Due to the general market unease about the effects of higher inflation and higher interest costs, both in terms of consumer purchasing habits and the retailers’ financial ability and desire to return to the inventory levels they had historically, this recovery will probably take place gradually and at varied speed depending on the geography and brand. Overall though, we look forward to a more stable base for our journey towards our long-term goals.
Stockholm, October 2023
President and CEO