MIPS AB (publ)

Hi everyone, my name is Max Dramvids and I am the CEO of MIPS and with me today I also have our CFO Karin Rosenthal. We will take you through the MIPS Q2 results presentation and if we start with the first quarter and the key highlights of the quarter. We did flag already in last report that we were expecting soft demand in the second quarter. And indeed we did see soft demand in the quarter, which impacted both sales and profit in the second quarter as expected. Net sales was down with 51%. If we adjust for currency effect, we saw a development of minus 53%. We do expect a gradual increase in demand and assess that Q3 will continue to be challenging, but we see a stronger Q4 ahead of us and we do expect to deliver growth for the last six months of the year. We see a strong development in our safety category. Moto have a challenging start of the year. However, we have still full year expectation of delivering good growth in that category. We see a strong development in market shares in all our key markets. And it's really important for us that we separate what's actually happened in the market And what is the effect of having too much inventory in the different channels? When we look at all the key markets, we are continuing to increase market shares. We do see excellent performance when it comes to penetrating more brands and helmets with MIPS. of course really good when we now get out of this inventory situation and can start delivering products to the market again. We are of course believing in our long-term plan and I'm really happy that our board continue to support our ambition and that we are allowed to continue to invest behind our strategic initiatives which will position us really really well when we want to deliver future growth. We remain confident in delivering on our long-term strategy and the financial targets that we have set. If we then go to next page in bike, we see gradual recovery of the bicycle market. It was indeed a challenging quarter in sports with a decrease of net sales of 53%. The soft start of the season in bikes slowed down the inventory improvement. Sales in many geographies is still above pre-pandemic numbers. We do see softer performance in snow versus prior year in the quarter. Our customers' cash flow optimization led to more volumes in H2 versus prior years. So of course, cash is more expensive. Everyone wants to produce closer to the season. We still see good performance full year and of course, good momentum in our snow business. Retail inventory helmet or levels in helmets in bicycle are normalizing. Our customers inventory levels are still high due to the slow start of the season. but we expect to be back to normal by the end of the year. And our long-term positive outlook for bike remains. We do expect that more people will ride bikes, more people will wear helmets around the world, and we believe that we can gain market share also going forward. If we then go to the next page and we switch to the motorcycle category, Challenging quarter again in Motu. Full year ambition of good growth remains. We did see soft development in the quarter in Motu with a decrease of sales of 42%. Motu markets are indeed slower in general but not to the extent that we have seen in Byte. Major impact from the new implementation of EC2206. So a lot of retailers first want to clean out all the old stock that they have. And just as a reminder, from 1st of January, you are not allowed to produce any new helmets not complying to the new standard. So of course, a switching effect to the new standard, but not something that we see as an issue long term. And we also see some change in buying patterns. No change in outlook, strong interest in the category. We will have a lot more new customers being launched during the autumns and also significant increase in the amount of models equipped with MIPS in this category. If we then switch to next page and in safety, we continued on our strong development in line with ambitious plans we have. We are following the plan that we set up. We see strong development in the US market with a lot of tendering wins that we have seen and really start to see that we get good momentum there. But also happy to see that we have gained listings with MIPS Equip Helmet at several of the major distributors in Europe, which of course also will generate volumes going forward. We have an ambitious autumn ahead of us with the two largest fairs of the year taking place in October with NSE in the US and A plus A in Germany with great launches of both new brands and new products that will be released to the market. If we then go to next page and if we look at the development of MetSales in our categories, soft performance, in sport with a decrease of 53%, fully explained by the really soft performance that we saw in bike. In moto, we do see soft performance, but expect to be back on track by the end of the year. And in safety, still small numbers, but really strong performance in terms of sales growth. With that, I hand over to our CFO, Karin Rosenthal.

Good morning, I'm Karin Rosenthal, CFO of MIPS, and I will take you through the financial part of the presentation. We saw a soft development in the quarter with a decrease in net sales by 51%, and adjusting for FX due to a strong dollar versus SEC, sales decreased with 53% organically. Gross profit decreased with 53%, and we saw a gross margin of 70%. versus 73.4% last year. The decrease was due to higher share of fixed COGS as a result of decreased net sales. In OPEX, we continue to invest in our strategic priorities. We saw a negative impact of 2 million from FX under other operating costs. EBIT was down 78% to 23 million and an EBIT margin of 22.6%. If we then look at our financial KPIs, minus 53% organic growth, a 23% EBIT margin and 9 million in operating cash flow in the quarter. If we then turn to the next page and look at the development for the first six months, Net sales decreased with 45% and adjusting for FX, sales decreased 48% organically. Gross profit decreased with 47% and we had a gross margin of 70.4% versus 73% last year. Decrease due to higher share of figs, cogs as an effect of decreased net sales. In OPEX, we continue to invest in our strategic priorities, R&D and marketing. EBIT was down 77% to 38 million with an EBIT margin of 20.2%. We had a negative operating cash flow the first six months due to tax payments relating to the 2021 profit. If we look at the financial KPIs, minus 48% organic growth, 20% EBIT margin, and minus 33 million in operating cash flow. If we then turn to next page, and we are now on page 9, balance sheet and cash flow, we have a strong cash position with cash and cash equivalents of 356 million. We paid out 144 million in dividend in May, corresponding to 5.5 SEC per share. And important to remind you that MIPS don't hold any loans. Operating in the cash flow in the quarter was 9 million, and we have an equity ratio of 85%. Over to you, Max.

Thank you, Karin. So if we then summarize the quarter and the first six months of the year. Challenging times, and indeed it was a soft quarter, but our outlook remains the same. And I think it's also quite important to point out that what we are experiencing is not a lack of demand, but more effects of the COVID unwind. Like I said in the beginning, we are gaining market share across the world. We see fantastic penetration on MIPS just looking at Tour de France, which is, of course, the most prestigious bicycle race in the world, or bicycle tour. There, 71% of the riders are using MIPS equipped helmet. If we then look at the women's tour that will start soon, There they are actually at 87%, so really strong momentum and a good demonstration of the penetration on MIPS in bikes. So really happy when we are out of this COVID-19 and really can show what we are doing. We do expect a gradual recovery of the bike market, retail inventory. are normalizing. We see most markets actually already normalized in Q2 and we see that by Q3 it should be fully normalized when it comes to retail inventory. We do see, because of the slow start of the year, that some of our customers still have higher inventory than they want, but we expect that to be fully normalized by the end of the year. Higher customer interaction, significant number of new helmet models to be released when the inventory returns to normal levels. Good customer momentum. We are still doing almost one new helmet equipped with MIPS per working day, which is, of course, a fantastic number. We are investing in our business to make sure that we can deliver on strategic priorities. That's why you see higher investment ratios in both R&D and in also marketing, because of course, we want to make sure that we have the right position when things are now turning around. We do expect Q3 to remain challenging, but a stronger Q4. We do expect to gradually return to growth in the last six months of 2023. and we are confident to deliver on our long-term targets. So with that, I open up for questions.