MIPS INTERIM REPORT JANUARY – MARCH 2020
Jan - Mar
- Net sales increased by 25% to SEK 56m (45). Adjusted for exchange rate and acquisitions, the increase was 16%
- Operating profit increased by 38% to SEK 16m (12). Adjusted operating profit increased by 43% to SEK 17m (12)
- Operating margin increased to 29.1% (26.3). Adjusted operating margin increased to 30.1% (26.3)
- Cash flow from operating activities increased by 95% to SEK 15m (8)
- Earnings per share, diluted, amounted to SEK 0.47 (0.38)
Strong performance in a challenging quarter
Despite the fact that we have a challenging quarter behind us we managed to deliver a growth of 25% and net sales increased to SEK 56m (45). Adjusted for currency exchange effects and acquisitions, our organic growth in the quarter was 16%. Our existing customers were the main contributor to the growth during the quarter, but we did also see exciting launches from new customers such as Dainese and K2 within the Sports category. We have also seen a continued great interest from new customers in all our categories at the same time as our existing customers continue to broaden their assortment with MIPS’ solutions.
During the quarter, the adjusted operating profit increased by 43% and amounted to SEK 17m (12). The adjusted operating margin increased to 30.1% (26.3). Cash flow from operating activities increased by 95% to SEK 15m (8).
The covid-19 pandemic lead to some production challenges in Chinese helmet factories
At the start of the year, few could imagine the world would face one of its greatest challenges of modern times. Initially, we noticed an impact on our supply chain as a large part of the world’s helmets is produced in China. The Chinese subcontractors and helmet manufacturers with which we cooperate resumed production later than planned after the Chinese New Year and have gradually returned to normal production capacity during February and March. I am glad to say we have successfully navigated us through the production challenges and at the same time been able to deliver growth despite the prevailing circumstances during the first quarter.
The market will be shaky the coming quarters
MIPS has a broad customer base with a large number of helmet models and we are continuously winning new customers in both traditional categories but also in new categories. The short-term challenges we are facing are therefore entirely related to the lock down measures implemented by different countries around the world.
When stores are closed and consumers are not allowed to move around freely outside their homes in major markets such as the U.S., France, England and Italy, it will obviously affect helmet brands’ sales and in turn also have an impact on our sales.
The uncertainty about when and how the next phase in the resumption of a more normal life will develop in different markets makes it difficult to predict the development for the rest of the year. I am, however, convinced that we have a great number of positive factors that will strengthen us over time – a strong financial position, a greatly flexible supply chain, a broad customer base that continuously keeps broadening and expansion opportunities into newer categories.
As far as the helmet market is concerned, some signals can be discerned regarding underlying consumer trends. The outdoor industry and media talk among other things about that it may be a cycling boom in the wake of the covid-19 pandemic. It is difficult to consider the possibility of such a boom at this stage, but we have noticed that bicycle commuting seems to have increased significantly in different parts of the world. It is however too early to say how this in turn will affect the long-term demand for helmets.
Many seem to be worried about that the winter season ended abruptly and that it could have an impact on the demand for winter sport helmets ahead of the next season. Based on the information I have today I cannot see that this would impact our volumes to any great extent. However, I believe that if the purchasing power of consumers weakens as a result of a deep recession, together with less traveling, then the need for new helmets will decrease and there will be a subsequent risk that it will affect us.
A challenging situation in the world but our long-term targets remain intact
MIPS is a growth company and for me it is important that we continue to focus on things we can actually influence – things that from a long-term perspective lead to a continued demand for MIPS’ solutions in helmets purchased by consumers and users. We have a strong balance sheet which gives us long-term staying power and an opportunity to continue to focus on our strategic priorities at the same pace as before. This makes us well-equipped to continue our growth journey, both during the prevailing circumstances but also when the new normal has been established in the world surrounding us.
I am convinced that the long-term demand for our solutions will continue to be good and I am confidently looking forward to the continued journey towards our 2025 financial targets.
President and CEO