Good morning and welcome to the Mips Q2 2022 earnings conference call. All participants will be in listen- only mode. Should you need assistance, please signal a conference specialist by pressing star then zero on your telephone keypad. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press Star then one on your telephone keypad. To withdraw your question, please press star then two. Please note this event is being recorded. I'd like now to turn the conference over to Max Strandwitz, CEO. Please go ahead.
Thank you, operator, and 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, and we will take you through the result presentation of the Q2 2022 results. First of all, if we go to the second page, and if we look at the key highlights of the quarter, we had a very strong quarter with a net sales growth of 45%, 25% if we adjust for FX effect. That, of course, is a very strong number since we were up against a 139% prior year growth comparators. Really strong numbers. If we look at the year-to-date number, we are at 53%. Of course, doing the same adjustment for FX, we see a net sales organic growth of 33%.
We saw good development in all our categories, despite very challenging market conditions. We did deliver a strong improvement in EBIT, mainly from higher sales. We did not actually experience any major disruption in supply chain during the quarter. Also in June, we did announce our new strategy and financial target, which we presented at our Capital Markets Day. The new financial targets are, first of all, we want to grow more to more than SEK 2 billion by the end of 2027. We want to deliver an EBIT margin of more than 50% and also during the time, distribute more than 50% of net earnings as dividend payout. If you then turn to next page and we go into the category development.
First of all, if we look at our main category, which is Sport, we saw strong sales in the quarter, mainly driven by very strong sales in snow helmets. It was a good quarter in Sport with 48% growth. If we look at the year-to-date sales number, that's now at 52%. The snow continues to be the main driver of growth, but we did actually experience also growth in bike helmets during the quarter. Retail inventory of bicycle helmets have now been restored. However, we still see unbalanced inventory with a lot of inventory in the lower price points and low amount of inventory in the higher price point. We see good momentum with high number of customer implementation projects. We do see a short-term uncertainty in bike.
Longer-term, the Sport category outlook remains very strong, as we indicated also in our Capital Markets Day in June. If we then turn to next page, I'm now in page number 4. In Moto, we saw good development in Moto also there, despite a very strong comparator in prior year, where we actually grew 370%. Despite the very strong growth comparator, we still managed to deliver a 14% net sales growth. We see good development in both on and off road helmets, and the Moto sales have increased significantly during the last quarters and is becoming a much more material part of the Mips sales. We have been very active in Moto, and that, of course, starts to pay off. If we then go to the next page, we look at the Safety category. In Safety, we still see modest sales.
However, we do see that the pipeline is filling up and volume will be more material throughout the years. We have now in total 10 different helmet brands that has launched helmets with Mips, so far. We did also announce our partnership with the UK's largest distributor, Arco, during the quarter, and the partnership is about increasing awareness about workplace-related head injuries, and it's a really important project for us to drive awareness and progress for the UK market. We have also started to establish an organization to drive awareness and sell through on our different markets. We had people starting first of July, both in the U.S. market but also in the very important German market. No change to the previous communication. Volume will increase during 2022.
If we then go to next page, a very short update on supply chain. We continue to see a challenging supply chain. However, we didn't see any impact on sales during the quarter. We still see limited impact from raw material cost increases. Cost inflation is expected longer term. We did increase prices, as you remember last year, and if we see cost inflation, of course, we will take mitigating pricing to offset that. Supply chain is expected to remain unpredictable for us also coming quarters. If we then look at the category performance, and of course we are organized in three different categories, we start with the first one, which is Sport. There we saw 48% growth in the quarter, 52% year-to-date, and of course, driven mainly by snow, but also promising to see that we saw growth in bike during the quarter.
If we look in Moto, we did deliver 14% growth, 370% growth compared to in prior years, a really strong set of numbers. Then if we look at the year-to-date performance in Moto, we are up 56%. In Safety, it's still early days, but like I said, volumes will come during the year and pick up as we go into next year. With that, I hand over to our CFO, Karin.
Good morning. I'm Karin Rosenthal, CFO of Mips, and I will take you through the financial part of the presentation. We saw strong development in the second quarter with 45% net sales growth and a 25% organic growth explained by FX due to strong US dollar versus SEK in the quarter. Gross profit was up 45% and a gross margin of 73.4%, down 40 basis points versus last year due to sales mix. In OPEX, we continue to invest behind our strategic priorities, R&D and marketing. EBIT was up 48% to SEK 107 million compared to SEK 72 million last year. An EBIT margin of 51.7%, up 1 percentage point versus last year. If we look at our financial KPIs, 25% organic growth, 52% EBIT margin, and SEK 55 million in operating cash flow.
If we then turn to next page and look at the development for the first six months, we had a strong development with 53% net sales growth and a 33% organic growth, fully explained by FX. Gross profit was up 52% to SEK 250 million with a gross margin of 73%, down thirty basis points due to sales mix. In OPEX, we continued to invest behind our strategic priorities. A strong EBIT was up 52% to SEK 168 million, compared to SEK 111 million last year. An EBIT margin of 49.1%, down thirty basis points versus last year. If we look at the financial KPIs, organic growth of 33%, an EBIT margin of 49%, and operating cash flow of SEK 92 million.
If we then turn to next page, we are now on page 10, balance sheet and cash flow. At the end of June, we had cash and cash equivalents of SEK 398 million. We have a very strong cash position, and important to point out that Mips don't have any loans. We had an operating cash flow of SEK 55 million in the quarter, compared to SEK 56 million last year. The cash flow has been impacted by an increase in accounts receivable due to increased net sales. We saw a record high net sales in the quarter. In May, dividend of SEK 5 per share was distributed to our shareholders, and we had an equity ratio of 74%. Over to you, Max.
Thank you, Karin. If we then summarize a very successful quarter. First of all, record sales in the quarter with improved profitability. We see an overall good demand for Mips' product. Bike demand unpredictable short term. Longer term, demand is expected to remain strong. Moto and safety will become a much more material part of the Mips sales. We continue to have a high amount of new helmet implementation projects, strong momentum in all our three different categories. In June, we did update our strategy and financial targets, and we are fully on track to deliver against those targets. With that, we open up for questions.
We will now begin the question- and- answer session. To ask a question, we may press star then one on your telephone keypad. If you are using a speaker phone, please pick up your handset before pressing the keys. If at any time your questions have been addressed and we would like to withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. The first question is from Carl Deijenberg of Carnegie. Please go ahead.
Thank you, operator, and good morning, Karin and Max . A couple of questions from my side. First, on the inventory levels that you are mentioning here in the bike category and the imbalance between budget and premium products. Would you say that is a tilted phenomenon to the U.S. in particular, or do you see it as sort of global phenomenon?
Yes, I think to answer the question, it's also important what has happened during the pandemic and so on. The issue is mainly related to the US market. What has happened during the pandemic is that since there was a lack of components and materials and so on during the pandemic, a lot of retailers, they bought whatever they could. Of course, when you are in a pandemic situation, it's much easier to buy low complexity goods. There was more availability of low-priced goods with low complexity. Of course, they bought that because they sourced what they could. Now, the consumers is becoming a lot more picky on what they buy. If you look at the consumer demand in the higher price points, there is still quite high demand. In the lower price points, that has ticked off.
A lot of retailers, they are sitting with a lot of low-priced goods that needs to be cleaned out. Of course, we don't know exactly how long that will take, but we will expect one or two months, and we already see now that there is a lot of clean out of stock with a massive amount of sales, especially on the U.S. market and so on. That is where our worry is. For us, when we look at bike, like I said, we grew in the second quarter. We are delivering on our strategic priorities. We are growing with the customers that we already have. Important to realize in bike is that we have all the key customers in the world.
If you look, for instance, at the very important strategic objective for us to be able to drive penetration in Europe to the same level as the U.S. market, and the U.S. market and the European market are equal in size. We have been growing with 100%, almost 100% the last two quarters there. Of course, that can still deliver growth. Yes, there could be some short-term uncertainty in the U.S. market when it comes to inventory levels. Longer term, we are still very confident on the trends that we see. Very strong growth in e-bike. We also see commuting picking up really a lot around the world. Then, of course, we still see a trend of people wanting to stay out and a lot of staycation, especially in the higher price point. Hopefully that answers your question.
Yes, that was very clear. Maybe following up a bit on that, on the global supply chains and component shortages on premium bikes in particular, would you say that this is incremental improvements on the supply side there, just comparing at the end of Q1 versus where we are today? Is the near-term visibility and uncertainty still very high there?
Yes. From our side, we actually haven't experienced any major disruption in Q2. There were some lockdowns in China, didn't impact us dramatically and so on. From a supply side, it actually worked out quite well. It's also important to realize that despite the whole pandemic situation, we haven't missed any orders. Of course, we know that there were some capacity issues with helmet manufacturers around the world. That has eased up a little bit, and the availability of goods is now better than it has been the last two years.
Okay. Perfect. Maybe final question on that topic, because there are some wholesalers or retailers witnessing obviously the visibility in the stock market on premium bikes extremely low, and you don't know if you can take delivery in three months or in one and a half years from now. Have you seen any or have you heard anything about dealers or retailers canceling orders on new models on premium bikes in particular due to the high uncertainty within deliveries?
No. Actually, if you look at premium bicycles, there is still high demand. If you want to order a high-end gravel bike today, you probably still need to wait a good part into next year. There is still long lead times on those. Also, if you want to have a premium road bike, there is still long lead times on those, and we haven't heard any cancellation. I think when you look at consumer confidence today, I think you need to separate the consumer in two, even though of course you can't do that. In the low-end segment, that consumer is a lot more worried than it was probably six months ago. When you look at the high-end consumer, we still see a very high demand, and they still want to have good products.
When you look at the consumer, I think you need to distinguish between low-end consumers and high-end consumers. The high-end demand, if you go into any bicycle shop today, you probably will also hear that they still see good demand on bicycle products, and especially on high-end demand or high-end products. Of course, that we also still see at Mips.
Okay, very well. I think that was all of my questions for now. Thank you very much.
Thank you, Carl.
The next question is from Emanuel Jansson of Danske Bank. Please go ahead.
Thank you, operator. Hi, Max and Karin, thank you for a good presentation, and as well, a couple of questions from my side. I think I can start with the bike segment. I wonder if you could give us some indication of how much the bike segment for Mips grew in the quarter. I suppose it continues to grow faster than the underlying market. Are you still confident that the underlying market will grow around 10% in 2022 still? Yes.
Yes. Of course we grew with more than double digits in the quarter. Of course we will grow more than the market since we are still gaining market share. We are still penetrating a lot of our customers' assortment, and we also do geographic expansion. Yes, we will grow more than the market. When it comes to the expectation of the bicycle market, we do not expect a 10% growth for the year, but more a flat to negative growth of the total market. Of course, that has nothing to do with Mips, but more the market in general. Since we are doing better than the market, you could still expect some growth in the bicycle market.
Okay. Perfect. Thank you. The growth in the quarter, was it mainly through existing customers equipping Mips into more models or as well also implementing into new customers?
No, that was mainly existing customers that already had Mips and then expanding in their assortment.
Okay, perfect. I think I got one more question from my side. Can you please elaborate a little bit more on the increase of accounts receivables in the quarter, which grew around 19% from last year, while sales grew around 45%, please?
Yes. I mean, shortage of cash is of course a problem in most of the industries and so on, and we see that also. We do have very little credit losses so far. In average, I think we have 0.09% of our total net sales, which is of course a small amount. All our customers are paying, and we have not someone that stopped paying and so on. Yes, we have seen the same increase as you see. We see the same numbers, of course. From our side, we don't see any worrying trend yet. If needed, of course we will also tighten our accounts receivable, but so far nothing that has forced us to do that.
Okay. Thank you. If I may, just last question here as well. What should we expect from the upcoming Q3 report and regarding the bike segment? Because I guess it's very tough comparables.
No, and of course we are up against a tough comparator. What we do know is that we will, of course, since we are gaining market shares, do better than the market in general. How long exactly or how many months it will take to clean out the stock and to start reordering and so on, we don't know exactly how long that will take, and that's why we say that there is a bit of uncertainty in the market. At least we will do better than the market. That's all I can say.
Perfect. Thank you very much. That was all the questions from my side. Thank you.
Thank you, Emanuel.
The next question is from Daniel Thorsson of ABG. Please go ahead.
Yes, thank you. My first question is on the 25% organic growth in the quarter. How much was price versus volume driven here, given that you raised some prices last year, and you also say now that you mitigate recent cost inflation with slightly higher prices?
If you take an average on the net sales, it's about 2.5%.
2.5% price increases in this quarter year-over-year?
Yes.
Okay, excellent. On the gross margin heading into the second half of the year, if we assume the bike contribution to be slightly lower than historically, safety coming up a bit, and costs coming up from inflation, is there any reason we should expect like the 73% gross margin to differ materially in the second half of the year given a changed product mix?
No. I would say that around where we are today is where we expect to be. Also, we don't see any near major deterioration. You saw 40 basis points in the quarter, and that's relating to a Mips effect. What we mean with the Mips effect is that we do a lot of customer projects, and they are lower in margin. Of course, that can have an effect on the total margin picture, but nothing different that we see other than the 73% that you talk about.
Good. My last question is about the organization here. What do you see in terms of growing the organization in the second half of the year? Any empty spots you would like to fill, or how active are you on the recruitment market? What to expect the number of employees at the end of the year, roughly?
We are of course still recruiting a lot of people to make sure that we can continue to deliver on our strategic ambition. If you look at the last two years, we almost doubled in headcounts because of course it made a lot of sense to recruit more people. The areas which we are focusing on at the moment is of course. We are putting together an organization for the safety category because there it's a lot about driving awareness. We had two more people coming in at the start of this quarter to make sure that we can drive awareness to the point we want. We're also investing a little bit more on the R&D side because of course, with our strategic ambition to also do more in the helmet, we also expand that capacity and so on. A bit here and there.
We do not expect to double the amount of people that we had like we did in the last two years, but there will still be more recruitments.
Okay. Sounds good. That's all for me. Thanks.
Thanks, Daniel.
The next question is from Carl-Oscar Vikström of Berenberg. Please go ahead.
Hi, everyone, and thanks for taking my question. Just to follow up on two main points. I think most things have been addressed, but when it comes to bike growth going forward, obviously focuses on taking further share in Europe. Could you just develop on, a re you currently with all the necessary customers you need to reach a similar level on market share? Then also, if you could just remind us your estimates of your market shares in the U.S. versus Europe.
First of all, yes, we have had a strategic project a couple of years ago where it was really to make sure that we land the key European customers, and we have them. If you look at the key German customers, because if you want to win in Europe, Germany is really important. There we have all the four key customers, which is Uvex, Alpina, then you have CUBE, and you also have KED. We have all of them on board, and they are expanding their assortment with Mips and so on. If you look at the penetration rate that we have had, it has been around 50% in our addressable market in U.S. If you looked at the European market, we were just a little bit more than 10%.
Of course, a big opportunity to grow by just driving penetration, and that is exactly what is happening at the moment.
Yes. Okay. That's clear. Then just final from me back to the receivables and operating cash flow. I appreciate that part of it is that you're growing a lot. Also if we look historically last year, you grew quite significantly and cash flow held up quite a bit better. Could you just explain in a bit more detail why that's not happening this year? I guess because year- to- date now, operating cash flow is down 26%, which is a bit of a discrepancy.
No, I think it's a very good question. Normally, what you see today is that the lead times has more than doubled. All of our customers have a lot of product at sea. The lead time from factory until you actually be able to sell the product has more than doubled during the pandemic situation. Of course, that puts a lot of constraint on cash. We do expect that that will normalize over time, and we will go back to much more normal lead times and so on. Of course, we are supporting them also on that. When things are normalizing, we will tighten, and you will see us going back to the same cash flow again.
Perfect. Yes. That's very clear. That's all for me. Thank you.
Thank you.
Again, if you have a question, please press star then one. For any further questions, please press star and then one on your telephone. This concludes our question and answer session. I would like to turn the conference back over to Mr. Strandwitz for any closing remarks. Thank you.
No. Thank you for listening in to a very strong quarter. I hope that you all have a nice summer and nice holidays. Of course, we will go on holidays for a couple of weeks and speak to you all again in August. Thank you all.