Ladies and gentlemen, welcome to the Mips Audiocast with Teleconference Q1 2022. Today, I am pleased to present CEO Max Strandwitz and CFO Karin Rosenthal. For the first part of this call, all participants are in listen-only mode, and afterwards, there will be a question and answer session. Speakers, please begin.
Thank you, operator. Good morning, everyone. My name is Max Strandwitz, and I am the CEO of Mips. With me today, I also have our CFO, Karin Rosenthal. I will take you through the quarter one results presentation. If we start with the key highlights of the Q1 . Despite a very challenging world around us, we had a strong start of the year with an increase of net sales of 65%. If we adjust for FX effects, we did see a 48% organic growth in the Q1 . So a very strong start. We did see a good performance in all our three categories. We continued to deliver improvement in EBIT, mainly driven by the higher- sales that we saw in the quarter. We have had challenging supply chain in the quarter, mainly related to COVID shutdowns in China. However, very limited impact on sales.
In April, we announced our first top five global partnership in safety with uvex safety group. We are progressing well in terms of the review of our strategic and financial targets, and the outcome of that review will be presented on the ninth of June this year. If we then turn to next page. In bike, we continue to see good sales performance in bicycle helmets. We do see demand mainly in mid and high-end helmets. Capacity in helmets factory is expected to be in balance again in H2 of this year. The ones that follow us knows that there hasn't been enough helmet production capacity in the industry in the last two years. There has been quite a lot of investments to manage capacity, and like I said, in H2, it will be in balance again.
We have also talked a bit on retail inventory, and that is expected to normalize by the end of Q2, in line with the previous communications that we have done. If we then turn to next page. In snow, we did see very strong growth in the Q1 , good consumer sales in all key markets. It seems like all the geographies sold well and have very little surplus inventory for coming season. We continue to outperform the market with existing and new customers rolling out the Mips technology in a larger part of their assortment. We also here expect to see good demand throughout the year. If we then turn to next page, and now on page number five.
In moto, we had a very strong performance in the quarter with 150% growth, partly coming from new orders, but you also know that we had a carryover of orders from previous year. We have done several activities in retail to strengthen the awareness in moto. We know that if consumers understand what we do, they also prepare to pay a little bit more for a helmet equipped with the Mips BPS system. Also here, we do expect good consumer demand also coming quarters. In safety, we continue to see good development in the category with an even higher- interest for Mips in the category. We also announced in April our partnership with uvex safety group, one of the top five brands in the world, and of course, a perfect partner to drive awareness of Mips globally.
We have now in total 10 partnerships announced in the safety category, and we have already started to deliver products to 8 of them. We do expect the volumes will increase during this year. If we then turn to next page. As most companies, we have seen a very challenging supply chain, and we continued to be challenged during the quarter, however, with limited impact on the sales. The key issue that we faced was COVID-related shutdowns, mainly in China. Limited impact on increased raw material prices so far, but our longer-term expectation is that we will see cost inflation. If so, of course, we will do the mitigating prices to offset those increases exactly as we did last year.
We expect supply chain to remain unpredictable also coming quarters, but from what we know, we have managed it so far during the pandemic situation. We haven't missed an order. I'm sure we will manage it better than a lot of companies. If you then turn to next page, and now on page number 8. If we look at the development of the different categories, we start with sports. There, we see good growth, 60% in the quarter. Very strong performance in snow, but we also saw good growth in bike. Motorcycle, even though it's a smaller category still, we saw very strong growth with 150% growth, growing both in MX and also in street motorcycle helmets. In safety, it's still early days, but like I said, the volumes will pick up during the year.
With that, I will hand over to our CFO, Karin Rosenthal.
Good morning. I'm Karin Rosenthal, CFO of Mips. I will take you through the financial part of the presentation. Development in the Q1 . Net sales increased by 65%. Organic growth was 48%, and the difference is fully explained by FX due to a strong US dollar versus SEK in the quarter. Gross profit was up 65% and a gross margin of 72.5% unchanged versus last year. In OPEX, we continue to invest behind our strategic priorities, R&D and marketing. EBIT was up 57% to SEK 62 million versus SEK 39 million last year. In EBIT margin, we saw a deterioration with 2% all related to FX. Underlying, there would have been an improvement. Operating cash flow of SEK 37 million compared to SEK 69 million last year. The decrease is mainly explained by paid tax in previous years.
If we then turn to next page, balance sheet and cash flow. We have a strong cash position with cash and cash equivalents of SEK 478 million. Just to remind you, we don't have any loans. A proposed dividend of 5 SEK per share corresponding to 51% of net earnings compared to 3.50 SEK per share last year. Equity ratio of 80%. Over to you, Max.
Yeah. If we then summarize the Q1 , it was a great start of the year despite the very challenging world around us. Good performance in sports and motor. We have announced our first top five global partnership in safety. We do expect to be challenged in supply chain during the year and that it will remain unpredictable. We foresee good consumer demand for Mips' products in all our different categories, and outcome of the financial target and strategy review will be presented in a Capital Markets Day in the ninth of June. With that, I open up for questions.
Ladies and gentlemen, if you wish to ask a question, please press zero one on your telephone keypad to enter the queue for the question and answer session. We already have one question coming from Carl-Oscar Bredengen from Berenberg. Sorry. Please go ahead.
Hi there. Yes, good morning, everyone. Thanks for taking my question. A few from me. I guess one of the things I was wondering about supply on these, a bit on these supply issues that you mentioned, where probably also some sort of supply issues are going to H2. Is this a kind of similar thing to what we then saw in Q4? Also, could you just remind us where in China most of this manufacturing takes place, and what provinces, et cetera? That would be quite helpful.
Yeah. Thank you, Carl. It's not a thing because there is nothing really happening at the moment that is hitting us in terms of capacity or unpredictability. It's more that we don't know what we don't know. No, I don't expect the same thing happen in Q4 that we saw last year, which was related to energy restriction. It's more that in everything that is happening around us, we don't know exactly what to expect, and that's why we say that the supply chain will remain unpredictable, and unpredictability is about things that you don't know. There is nothing going on at the moment that is hampering us in terms of sales. Of course, it's more what we don't know. Hopefully an answer to that question.
When it comes to our production, of course, today we have manufacturing collaboration with around 83 different units around the world. 90% of those are still in China. A main part of them are still in the Shenzhen region in China, which is about two hours outside of Hong Kong. It's not because of us, that's where a big part of the helmets in the world are being produced. Of course, we will always stay close to our customers when it relates to production. We do see a shift to other parts of the world. Of course, as we also enter into safety and start to see more volumes there is very little part of the production that is in China. Main part of the production for safety helmet is actually in Europe and in US. Gradually, you will see a shift of that.
Perfect. Thanks. In terms of sport, obviously, snow did very well. You know, I think you mentioned in conjunction with the last report that you expected that volumes would come a bit earlier this year. I appreciate, you know, demand outlook looks favorable throughout the year. Could you just remind us, kind of the seasonality here, how that works? I'm thinking specifically maybe going into Q2 from last year. Is there, for example, sort of challenging comps of volumes last year that fell into Q2 that you don't expect now? Is there anything? There
No, of course, in terms of challenging comps, if you had growth of 139% in prior year, of course, that's a challenging comp. Does it mean that we still cannot grow? Of course, we can. When it comes to snow specifically, there is nothing that happened really last year that is impacting the comp as such. What we saw last year is, of course, if you look at the total year in snow, the market actually shrank, but we still managed to deliver a 50% increase in sales in snow. We're really happy about that. But we don't see any reason why we can't continue to grow in snow also during Q2.
We know that there have been quite strong season in snow helmet in general or in the winter sport industry in general, even though there has not been fantastic weather conditions around the world. It still have been a really strong season, very little inventory, and we also see high- demand for the coming season.
All right. Thanks. Thanks a lot. Just had a question on Moto. Obviously, you recruit some of those volumes that were lost late last year due to the issues in China. 150% growth this quarter. Sort of how much of volumes within that are recuperated from last quarter, would you say? It would be interesting to just get a feel for that.
Yeah. Of course, some of the volumes, like I said also before, is coming from the carryover, but the majority of the volume is still new orders. We see very good momentum in motorcycle. There is a lot of things happening. We see a big interest for Mips. The majority of the sales is still from underlying performance, I'd say.
Okay. One last one for me before I open up the floor to someone else. Just in terms of this, a new collaboration with uvex, obviously, really, really exciting stuff, being one of the top- players. Can you give any kind of feel for, you know, what kind of market share they have within that addressable market that you provided? Or, you know, in terms of, I guess also, you know, you're launching two models now this summer, if I understand it correctly, and then you say it's probably more to come. You know, how many different models are out there that could potentially use the Mips system? That'd be helpful.
Yeah. I mean, if you're top five, it's a relatively consolidated market. You can assume that they have a big chunk of that market. We haven't announced a specific number, but you can assume a double-digit share of the total addressable market. They are indeed a big player. Like you said, they are launching two helmets at the moment. In total, they have about five helmets that would be specific for use of Mips and so on. Of course, it's a very interesting partner. It's important to realize that all these partnership is, of course, always long-term. We normally don't work with partners that's only doing one helmet and testing Mips in the assortment, then we would not announce it like we do.
We have great potential here, but we also need to do the job of getting the sell-through through, and also convince globally that Mips is the right technology in construction helmets. Really excited about the partnership.
Perfect. Thanks a lot. That was all from me. Thanks.
Thank you.
We have another question from Frederic Modrigo from Erik Penser Bank. Please go ahead.
Thank you. First of all, coming back to the lockdowns you experienced in Q1 and expectations of uncertainty, at least for the coming quarters, could you help us understand how you're preparing for that supply chain volatility? Are you doing scenario planning or how are you preparing for that uncertainty?
Yeah, I mean, this is of course not something new. It's something that we have experienced more or less in the last two years. First of all, what we have done, I mean, Mips has a very strong balance sheet. Why wouldn't we use our balance sheet to make sure that we can become a little bit more flexible? When we started the pandemic situation, we had about one month of stock of our key components. Today, we have six months of stock. Still not a material part of our balance sheet, but really important to use the leverage that we have to really make sure that we can deliver. Of course, it's always a bit more complex when we talk about COVID shutdowns because you don't know exactly where it will happen. When we started the pandemic situation, we had inventory at one place.
Today, we have inventory at three places with a certain distance to make sure that if one area is under shutdown, we can deliver from another area. Of course, I think we have probably taken a lot of precaution or more precaution that than a lot of other companies. Of course, that has served us well. I think from proactiveness in terms of, being able to deliver, that has served us really, really well. If the whole of China is being shut down, then of course we see a different issue, but then it's an issue for the whole helmet industry because still a majority of all the helmets in the world is produced in China. We have worked with the flexibility to make sure that we can deliver to the extent possible.
Okay. Very, very good to hear. You spoke to some extent about awareness activities, particularly in the Moto category. First of all, do you have any specific white spots in terms of brand awareness on the sports side that you're addressing, any targeted investments on that? When it comes to awareness activities in motor and safety where you are a bit behind, if I may say so, compared with the sports side, what kind of activities are you conducting to drive awareness?
Yeah. I think it's a very good question, Frederick. First of all, white spots. When we talk about white spots, for me, the whole of Europe is still a bit of a white spot because there the awareness of Mips is significantly lower. When we started doing our awareness measurements in Europe about 2 years ago, we had about 10% awareness to the average consumer in Europe. When we closed last year, we are at 35%. Of course, our activities is starting to pay off, but we still have a job to get it to the same level as we have, for instance, on the North American market. Then when you look at the penetration, today, when you look at, for instance, bicycle in US., we are a bit more than 50% in terms of penetration of the addressable market.
When it comes to Europe, we are not even at 20%. Just doing the penetration journey also from a sales point of view will enable us to drive a lot of sales and also awareness. Because when you look at size, the European market and the US. market is almost equal in size. For us, our focus in terms of white spots in or white spots in Europe is really Europe. You also see that during the Q1 we had a growth in the European region or to European-based brands of 18%. Of course it also starts to pay off. When it comes to motorcycle, it's a very different animal. When it comes to the much smaller part of motorcycle helmets like MX, motocross for instance, we have a fantastic penetration.
We have about 25% of the addressable market. We see a lot of interest. Anyone going out riding a motocross motorcycle knows that there is a big likelihood that they will have an accident, and therefore they are very keen on wearing production or protection. If you look at the Supercross league in the US., out of the top 40 riders, 31 of them have Mips-equipped helmets. I think our penetration there is fantastic. When it comes to the biggest chunk of the business in motorcycle, which is street motorcycle, it's much more about image, it's much more about other things. Unfortunately, that rider normally thinks that he will never have an accident, is actually not that keen on wearing a lot of protection. There of course, we have an education journey to do.
If you look at our penetration in that type of helmet, it's not even 1%. Of course, we still need to do a big education journey. A lot of the awareness building that you do in street motorcycle is actually happening in store. Of course for us it's really important that we start to educate the consumers in store. We are having collaboration with the bigger motorcycle helmet or motorcycle stores in the world to make sure that we start there, really build the awareness. Because one thing we know, and that all our market share surveys shows, is if the consumers are aware about Mips, understand what we do, they're also prepared to pay a little bit more for a Mips-equipped helmet.
Okay, great. When it comes to the difference in penetration between the US. and Europe, is that an effect of US. brands being earlier to implement Mips or is it something about the European consumers behavior compared to the US.?
I think it's a mix of both, but the biggest reason is that if you look at the awareness of the average consumer of TBIs, which is traumatic brain injuries, and concussion in general, it's much higher in the US. The US. has much more awareness of actually what happens when you are hitting your head into something. You have the whole discussion about American football. Mips launch in the US. really started with an article in Popular Science about concussion in the football industry, and that has really paved a bit of the way for Mips in the US. market. I would say that the average consumer in the North American market is probably 5-10 years ahead when it comes to awareness about how to protect your brain and also the issues around TBIs and so on.
There of course we have a job to do. It's starting to pay off and we start to see that the consumer is getting more aware, but there is for sure a head start in the North American market.
Okay, great. The last question on my side. It looks like you're staffing up hirings sequentially. I think you ended the quarter with 8 more people than you entered the quarter with. First off, any specific areas that you're staffing up? Secondly, how should we think about the pace of hirings throughout the year? Is Q1 a sort of an outlier with more hires than we should expect going forward? Or are you deliberately ramping up your employee base?
Yeah. I mean, if you look at where we start or where we were when we started the pandemic, we were around 50 people. When we closed this quarter, we were a little bit more than 80 people. Of course we are staffing up. The key areas where we are increasing our headcount is of course in our strategic priorities, which is in R&D. We of course always want to continue to invest in our product to make sure that we have the most relevant consumer offering. We're also increasing our headcount in marketing, and there of course it's not so much of a cost increase, it's more of a headcount increase.
A lot of the work that we are insourcing at the moment has previously been done by agencies, but with the pace we are moving, with the amount of activities we are moving, we want to have that in-house. There of course, if you insource a person in marketing, it doesn't mean that the total cost will increase because it's just a shift between outsource to insource and so on. In sales. In sales of course our task has become a little bit different because especially in the safety category, there we recruited our first person in Germany, for instance. We are looking into people also in UK and in the US market. That's more to start really educating all the construction companies and so on.
We do see a lot of interest for Mips, but it's still very much of an education journey. The whole ramp up of the safety category for the right reasons is of course involving a headcount. Will it continue to increase with the percentage increase that you have seen in the last two years? No, it will be slightly slower, but of course we will not hold back in terms of investing in the right headcount to deliver according to our strategic priorities.
Okay, that sounds very good. Thank you very much.
Thank you.
We have another question from Daniel Thorsson from ABG. Please go ahead.
Yes, thanks. I have two questions. The first one is, we saw the launch of Lazer's KinetiCore four weeks ago. Now we have three other kind of competing technologies also getting five stars in Virginia Tech bike helmet tests. Do you see any risk of these technologies being available for more than just one brand? I guess that Bontrager's exclusivity on WaveCel must come closer to an end, for example.
No, I think, I mean, first of all, the KinetiCore is, some call it a technology. I think we have about 6-8 brands in our portfolio that is using a similar type of technology. However, they don't call it a technology because this is the way helmet has been constructed in the last 20 years, especially in motorcycle helmets. You normally make different kind of like hollow structures in the foam of the helmet in order to manage densities, in order to reduce weight, and so on. It is not really a technology as such. Therefore, of course, it's different or difficult for me to understand why something or someone will pay for something that they already have. That risk I think is very limited.
The whole five-star rating of Virginia Tech is becoming maybe a little bit redundant in terms of that, because yes, they have five-star. They are the lowest ranked helmet in the five-star. Out of 140 helmets or close to 150 helmets that has been tested, they hold the position between 70-80 in terms of the rank. Of course, yes, five-star, but you can of course always do a slightly better job when it comes to address rotation. Our other customers that is using this type of technology is not addressing it as a rotation technology. Of course, we have tested the technology. We always test technology as such, and we don't see any superior performance in that helmet versus another helmet without Mips.
We know it, we have seen it, and so on. When we look at competition, and I've said that before, it's actually not the brands that will launch rotation and motion technologies, because today they are still less than 10% of our total sales, and that's the total amount of competition, versus 90% of the market that we don't have as a customer today. If we always start looking back and see what others are doing, if they are not a superior technology, and of course, we haven't found that superior technology, I think it will be slowing us down. We try to look forward. We try to run as fast as we can. I think there will come more competition. I will be surprised.
As long as we keep the head start to make sure that we have a superior technology, we have a stronger awareness of our brand than anyone else in the industry, and the consumer preference is with Mips, then I still think that we have a great opportunity to keep that distance.
Yeah, that makes sense. Do you know, just to round up, do you know when the exclusivity for Bontrager and WaveCel ends?
No, I actually don't know. I mean, we have seen them out on the market trying to sell the technology. We haven't seen any more brands launching. It will probably happen. Also you have to realize that the technology as such is not that cheap. It's quite an expensive technology and so on. When it comes to relevant competitors and so on, WaveCel is not the one that we have on our radar screen.
Yeah, fair enough. My second question was related to safety here. We saw the brand Centurion. They announced earlier this winter partnerships with Veidekke and Peab, for example, with the Mips helmets. Are these helmets now available for their employees to choose from? Have you seen that contributing to sales to any extent so far? Are you expecting the volumes to come in the second half of the year from this specific customer, for example?
Yeah. We have seen a little bit of availability in terms of those type of helmets, but there is a lot more helmets coming in. I would say that the main part of that contribution you will start to see basically in Q2 and onwards.
Okay. Have you heard any first, like, feedback or feelings from the employees at these firms?
No.
In the firms-
Yeah. I mean, yes, we have talked to some employees and so on, and we also heard from the unions that they are, of course, pushing Mips quite a lot because, of course, they want to have relevant protection also for their union members and so on. At least we're off to a great start.
Excellent. Thank you very much.
Thank you.
We have another question from Emanuel Jansson from Danske Bank. Please go ahead.
Yeah. Hi, Max and Enkvist. Thank you for taking my questions. I think a lot of my questions already been answered, but coming back quickly to the Lazer situation with the new technology, have you decided yet what to do about the collaboration with Lazer? I mean, as it might be kind of messy being connected to several different technologies. I mean, because they are also selling Mips still, I guess.
Yeah. I mean, from having several different technologies, I don't see that as an issue as such. I mean, Bontrager, they still use Mips in their, like, road helmets, in their Tour de France helmets and so on, and also their most sold helmets. For us, it's not a contradiction, and I believe it's always good to have relevant comparisons in the industry. I never think it's good to have monopoly, and that's not what we are trying to promote. I think it's always good to have relevant offerings on the market. For me, it's more a bit strange on the marketing claims and so on. That is probably what I would object to. Of course, we would never discuss our collaborations with different brands in public. They are a small customer of ours.
They have around 1% of our total sales. We will take the decisions that is right for Mips and the consumers, but it hasn't been decided yet.
Okay, perfect. That makes sense. Coming back to the safety division and the new collaboration with uvex. I mean, they're global player, they are from Germany, right? Does uvex provide a good entry point into European market, or is it worldwide, or how should we view it?
Yeah. I mean, uvex has mainly a presence on the European market with a very strong foothold in Germany. That's why we're really happy about the German market. They also have exposure to the whole world. They also have a subsidiary in the US. market that is also starting to gain some traction. I mean, also in terms of these type of collaborations, when you are expanding your horizon and also going to new market, of course, it's always good to have something new to talk about. Of course, Mips becomes a very relevant technology in that safety story.
Okay, perfect. Good. A last question from my side and giving also the supply chain uncertainties in China, for instance. Do you have a feeling on what's the difference between the situation in Shanghai and the Shenzhen region as of now?
Yeah, I think, I mean, even though it's a big lockdown in the Shanghai area, I think the main difference is probably the approach. Because what we saw in mid-March, when we also announced the press release, was that they shut down a total region of around 100 million people. Of course, when they did that, a lot of the factories starting to push the government and said that, "If you shut down areas like that, you need to compensate us." Then all of a sudden, 2, 3 days later, all the factories were open again, and they took a little bit more selective approach.
That's what we also see in the Shanghai area, is that they have something and they use something which is called closed-loop production, which means that you're allowed to operate your production, but still all the workers needs to be kept within the factory, so to say. It sounds a little bit horrible, but of course, that's what they do. You make sure that you don't spread the contamination further and so on. I would say that the key difference between Q1 and Q2 is that they are addressing it much more thoroughly and much more specific to targeted areas, rather than doing a COVID approach on a 100 million area, which of course is a lot easier to manage.
Okay, perfect. That makes sense. I think that's all of my questions. Thank you very much.
Yeah. Okay. Thank you. Thank you everyone for listening in to the call. Do make sure that you take the opportunity to listen in or even visit us on the ninth of June when we have our Capital Markets Day. If you don't have that possibility, speak to you again after the Q2 report. Thank you everyone for listening in.