Interim report January – September 2020
July - September
· Net sales increased by 94% to SEK 102m (53).
Organic growth during the quarter increased 108%
· Operating profit amounted to SEK 55m (20).
Adjusted operating profit* amounted to SEK 55m (21)
· Operating margin was 53.6% (38.6).
Adjusted operating margin* was 53.6% (39.5)
· Cash flow from operating activities amounted to SEK 29m (12)
· Earnings per share, diluted, amounted to SEK 1.61 (0.62)
January - September
· Net sales increased by 24% to SEK 225m (180).
Organic growth for the period increased 27%
· Operating profit amounted to SEK 91m (69).
Adjusted operating profit* amounted to SEK 92m (71)
· Operating margin was 40.5% (38.3).
Adjusted operating margin* was 41.0% (39.2)
· Cash flow from operating activities amounted to SEK 66m (43)
· Earnings per share, diluted, amounted to SEK 2.69 (2.12)
Strong growth driven by high demand, especially in bicycle helmets
The third quarter was the strongest so far in the history of MIPS, normally the third quarter is a seasonally soft quarter. After the exceptional situation with shutdowns during the spring, we saw increased demand during the summer months. As I mentioned in the last quarterly report, we began to see a positive recovery in demand for most helmet types, for which we sell solutions, already in June. The positive development continued with bicycle helmets as the biggest contributing factor.
We continue to grow with existing customers expanding their range of helmets with MIPS solutions. During the third quarter the positive market situation, in the bicycle industry, contributed to the growth. We have seen a very good development from helmet brands in both the US and Europe. Demand from the US has primarily been driven by sales of bicycle helmets specifically for recreational use. The market situation in Europe has been favorable mainly from strong demand for bicycle helmets used for commuting.
Net sales increased by 94% during the quarter and amounted to SEK 102m. Adjusted for currency effects, organic growth was 108%. The increase in sales was, as mentioned, primarily driven by a favorable development for bicycle helmets but also motorcycle helmets. The quarterly growth comparison was positively impacted by the weak sales in the prior year which was caused by the uncertainty in the US from the implementation of trade tariffs.
Operating profit increased by SEK 35m during the quarter, an increase of 169%, and amounted to SEK 55m (20). The increase in volume and our scalable business model meant that the operating margin increased to 53.6% (41.0). We also saw a strong improvement in operating cash flow, which amounted to SEK 29m (12).
Effects from COVID-19
It is difficult to grasp all the effects of the COVID-19 pandemic, especially with regards to future effects on our operations, our current view of the situation is summarized below.
Helmet category Sport - continued strong demand in bicycle helmets
As we mentioned earlier, cycling for both commuting and recreation has increased around the world in the wake of the COVID-19 pandemic. This had a positive impact during the beginning of the second half of the year on our sales. Demand has been higher than what the helmet manufacturers have been able to meet, which has led to low inventory levels. We expect a strong demand in the coming quarters.
In the snow helmet sub-category, we experienced weak sales during the second quarter, partly due to delayed order placement. During the third quarter, sales partially recovered, and we saw improved growth. There is still a great uncertainty regarding the development of the winter season due to restrictions in ski resorts in Europe and the US. What we know is that we have more helmet models than ever equipped with MIPS solutions available on the market for the 2020–2021 season.
Helmet category Moto - strong recovery in sales during the quarter
After weak sales of MIPS solutions for motorcycle helmets during the second quarter, which we considered to be of a temporary nature, we saw good growth during the third quarter. There is an overall increased demand, as many people avoid public transportation due to the COVID-19 pandemic, for both motorcycles and helmets. In mid-July, a new helmet standard was approved, ECE 22.06, which includes testing of rotational forces, which we believe could increase demand for
MIPS’ technology in the future.
Helmet category Safety - higher understanding that brain damage is a problem
Three years ago, we at MIPS began to review accident statistics, primarily in the construction industry, in order to better understand relevant injury criteria. From the accident statistics, we have been able to determine that brain injuries are significantly more common than what the general perception seems to be, especially regarding more serious injuries. This is something that has now also begun to receive attention in the construction industry. Among other things, several articles have been published that address this topic, which we believe will increase the relevance of and understanding of the importance of improving today's construction helmets. The safety category is a new category for us and many of the dialogues that take place are with helmet brands and construction companies that we have not previously collaborated with. Despite this, we have advanced in this category during the year and we look forward to its long-term potential.
Additional initiatives to strengthen the MIPS brand
A long-term strategic initiative is to strengthen the MIPS brand to symbolize safety and become an obvious consumer choice when buying a helmet. During the year, we have revised our brand platform to simplify and streamline our external communication. The next step is to strengthen the awareness of MIPS as a brand among consumers. We have launched several different initiatives, where one is the creation of Team MIPS, a team of athletes who share our belief in the importance of safer helmets. At the end of September, we presented the team's first member, Henrik Harlaut, a legend in the ski world. An athlete who has won the most X Games medals and who has taken the sport to a new level. Henrik has a strong focus on safety and has for a group of skiers who previously did not wear a helmet, raised the understanding that safety is crucial for a professional athlete. Therefore, Henrik is an obvious MIPS ambassador.
Continued high commitment from all employees at MIPS and intact long-term goals
Dealing with the large fluctuations in the industry and delivering a doubled turnover in the quarter during an ongoing pandemic, has required significant efforts from all employees at MIPS, I am proud with how we so far have handled and navigated a challenging period.
With continued positive developments in bicycle helmets, progress in motorcycle and promising discussions in the safety category, I optimistically look at the rest of the year and continued progress next year. Therefore, I continue to look forward to the journey towards achieving our unchanged long-term goals.
President and CEO