MIPS AB (publ)

Good morning, everyone. My name is Max Strandwitz, and I am the CEO of Mips.

And with me today, I also have the Mips' CFO, Karin Rosenthal, and we will talk you through the presentation of the year-end report. And if we start with the key highlights of the quarter, it was another strong quarter with 58% growth in net sales.

Organic growth in the quarter was 52%. Year-to-date, we have now delivered 35% organic growth.

We see good development in all our categories and all the regions. We see that the consumer market remains challenging and buying behavior is still erratic, but positive trends in the recent U.S.

retail data. We see that the important U.S.

market has now on a total helmet level started to grow again, which we are really happy to see after quite a lot of quarters with decline. Only 1 quarter, still too early to call it a trend, but at least it was a positive indication.

Then, of course, the interest in implementing Mips' safety system in new helmets remains high. Market share and penetration of Mips continue to increase throughout the world, which is, of course, very reassuring to see.

And the amount of projects that we implemented the Mips technology in is the highest since inception. The Board is proposing a dividend of SEK 6.5 per share, up versus SEK 6 the year before, and that corresponds to 122% of net earnings, which is also well above our ambition.

And yesterday evening, we communicated a change to one of our long-term targets, and that is something that I'm going to talk about on the following slide. So as we communicated before, we remain very confident on our strategy.

We have had a strategic review during the year, very few adjustments, very few changes, and we see that we are delivering on that strategy that we also communicated in 2022. Despite the good progress and market share gains that we see, the overall consumer market has taken longer to return to normal purchasing patterns.

Additionally, we also see that the restrained consumer spending and geopolitical situation have resulted in a decision to retain our net sales target but now with the ambition to reach the target no later than 2029 instead of 2027. The remaining 2 targets remain unchanged.

The first one is to achieve an EBIT margin of exceeding 50% and to distribute more than 50% of annual net earnings. When we look at the 3 strategic pillars, they remain intact.

And just to remind you, the most important one for us, we have an excellent customer base and to grow with those customers is our main objective. Then we have talked about opening up new channels, and that's, of course, also going into some of the mass opportunities, mass initiatives that we have talked about before.

That's also working really, really well and also expanding for Mips' new markets or into new markets for Mips, which is another strategic objective for us. And the last one is, of course, to capture new opportunities within helmet safety.

So just to remind everyone, the new updated targets are then to reach SEK 2 billion on net sales by 2029 to achieve or exceed 50% EBIT margin and to distribute more than 50% of the annual net earnings. If we then go to next slide, and we go into the category development in sports, we saw strong development in all the subcategories.

Just to remind you, the subcategories or main subcategories in sport is bike, it's snow and then, of course, it's also equestrian. We saw good performance with 56% net sales growth.

We saw that the year-to-date number is up 35%. So see really positive development.

And we see good development in bike and also in snow, which have quite a challenging year. But despite that, we have seen significant market share gains and also good development there.

Inventory levels are much healthier, but market conditions are still challenging due to weaker consumer sentiment and the higher emphasis on working capital. Like I said in the introduction, we see that the short-term market trends showing that both Europe and U.S.

bike markets are growing again. And we are really positive on the long-term outlook of the sports category.

If we then go to Moto, we continue to see strong growth. We had 57% growth in the quarter, and year-to-date, we now see 25% growth.

Situation is much more normalized with customers buying from us again, but still challenging market conditions, great interest in our new solutions that we launched in Moto to become a lot more relevant in the category and especially the very important Mips Integra TX solution, which is a fabric solution where Mips is integrated directly into the padding, which is something that our customers appreciate a lot. And we also attended the EICMA Motorcycle Show in November, where we also saw a lot of attention for Mips, which is, of course, very good to see.

And no change in the long-term outlook. We see a good opportunity to continue to grow in the category.

In safety, we continue the expansion. We see good development in safety with, again, the largest quarter ever.

We saw 119% growth in the quarter, 55% increase in sales year-to-date. And of course, we now start to see also the effect of the rollout of all the new helmet models equipped with our technology.

And of course, that's starting to generate a lot more volume and, of course, the expected market demand, and we remain positive on the outlook for this category. We're also happy with the announcement of the midsized brand, HexArmor in the U.S., which we launched -- in the collaboration we launched in November, which is also another brand to add to the portfolio and will help us to be successful also on the U.S.

market. If we look at supply chain and tariffs and of course, in conjunction with the installation of the new American President, tariffs of 10% have been communicated for goods imported from China.

Mips sell all products on Incoterms Ex Works, which means basically delivered at Mips warehouse, which means that the buyer takes responsibility for transport costs, fees, taxes and tariffs, et cetera. And no further updates regarding tariffs since last communication, but we do expect the world trade to be a little bit volatile coming months.

If we then go to next page, and in sustainability, we saw a great performance during the years and really closing in quickly on our science-based target commitment to 2030. All of the key sustainability targets in 2024 were met.

We managed to reduce emissions with 18%. And that, of course, was significantly ahead of our science-based target ambition.

And including 2024, we have now achieved 43% of the ambition that we have for 2030, which we are very happy about. We have delivered all the third-party audits that we planned.

And another objective that we have is to increase the usage of recycled materials in the Mips product. We had a target of 10% and actually managed to achieve 16% for the year and really happy with the performance that we had in sustainability.

So if we look at the development of net sales in our 3 different categories, Sports, good performance across the board in bikes, no any question, 56% growth in the quarter, 35% year-to-date. Moto is really starting to accelerate again, 57% in the quarter, 25% growth year-to-date.

And in safety, it was the largest quarter so far, and we saw 119% growth and 55% year-to-date. With that, I hand over to Karin, our CFO.

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 fourth quarter with increase in net sales of 58% and adjusting for FX due to a stronger U.S. dollar versus SEK, net sales increased 52% organically.

Gross profit increased with 64%, and we saw a gross margin of 72.9% versus 70.2% last year, and the increase is mainly due to the increase in net sales. In OpEx, we have continued to invest in our strategic priorities.

We saw a strong EBIT, which was up 260% to SEK 62 million versus SEK 17 million last year. The EBIT margin improved by 24.1 percentage points to 42.9% versus 18.8% last year.

And this show how scalable our business model is as net sales increases, it will have a positive effect all through our P&L. We also have good operating cash flow in the quarter with SEK 87 million versus SEK 31 million, and this is mainly due to good profitability and also a repayment of preliminary taxes related to 2023.

So looking at our financial KPIs, 52% organic growth, an EBIT margin of 43% and SEK 87 million in operating cash flow. Then we turn to next page and look at the development for the full year.

Net sales increased with 35% and adjusting for FX, no change. So net sales also increased 35% organically.

Gross profit increased with 38% and a gross margin of 72.5% versus 70.9% last year, and the increase is mainly due to the increase in net sales. In OpEx, we continue to invest in our strategic priorities, marketing and R&D.

EBIT was up 148% to SEK 174 million versus SEK 70 million last year, and EBIT margin that improved with 16.4 percentage points to 36.1% versus 19.7% last year. And operating cash flow for the full year was SEK 142 million.

Looking at our financial KPIs, 35% organic growth, 36% in EBIT margin and SEK 142 million in operating cash flow. If we then turn to next page, we are now on Page 12, balance sheet and cash flow.

We have a strong cash position with cash and cash equivalents of SEK 382 million. And just to remind you, we don't have any loans.

And the Board proposes a dividend payout of SEK 6.5 per share versus SEK 6 per share last year, and that corresponds to 122% of net earnings. And operating cash flow in the quarter amounted to SEK 87 million, and we have an equity ratio of 87%.

Over to you, Max.

So, thank you, Karin. If we then summarize the quarter and the full year, strong delivery in the last quarter of the year with 52% organic growth year-to-date or full year performance at 35% organic growth.

Good performance in all our 3 categories, and we see growth in all the regions. Good increase in market share and penetration in the market, which we were very happy to see.

Inventory situation is now much more balanced and positive to see the improvement in consumer confidence during the last quarter. One out of our financial targets has been updated with the ambition now to reach net sales of SEK 2 billion by 2029.

The other 2 financial targets remain unchanged. With that, I open up for questions.

Hi, Max, Karin. Let's start on the financial targets.

It's being delayed, but reaffirmed. I mean, the number is still very ambitious even with the 2 additional years.

So could you please break down, I mean, how you plan to achieve the target, including which categories or regions that will drive the growth? And obviously, given the limited acquisitions you can make in this very niche market, is it all going to be purely organic or do you still see any opportunities to -- for M&A?

Yes. So I mean, if we start with M&A, of course, there is always a lot of opportunities.

There is a lot of companies for sale at the moment, but our focus is organic growth. If there is anything that we will acquire that will top up the growth.

And this plan is based on our organic delivery. If you take the average per year, it means around 33% per year, which is, of course, ambitious, but we believe very realistic.

Our plan is built on -- and it depends a little bit on how you slice the pie, and I will do it in 2 different ways. So the first one is, of course, if we look at our categories, the main delivery will still be from our sports category, where we have a fantastic market position.

There, you will see the majority of the growth coming from. The second category that will contribute to the target and the delivery of the financial ambition is safety.

And then the third one is Moto. So that's relatively unchanged.

And as we presented already in 2022, the main priority for us is to get Europe to where U.S. is.

In U.S., we had fantastic delivery in the last year. We start to get to a position of around 50% to 60% of the addressable market.

And now it's really to get Europe to the same level to get them to the fair share of the market, which we believe at least 50% to 60% is. And of course, if you look at the Q4 data where you see a lot of bicycle helmets being produced, you see that the European performance is doing really well.

So we deliver on that plan.

Maybe on safety then, I mean, volumes are ramping up here, but we're nowhere near many material sales figures. So what gives you confidence in the ability to achieve the previous guidance or the current guidance that you have for this segment, the doubling every 6 to 12 months?

And with the brands that you've already onboarded now, do you feel -- is that enough or do you need more?

No. The brands that we have on board now is enough.

Of course, we would always like to have more good brands, and that will add to our ambition of reducing head injuries and saving more lives. But we have a fantastic portfolio of brands that we are working with, of course, both for the U.S.

market and the European market. And of course, when we make a plan, it's something that we create jointly with the brands that we are developing the plans with.

And of course, with them, we have a commitment to reach certain numbers, and that builds up to a plan. So I am quite happy with the development we have seen in safety.

We said before that we were lagging somewhere around 6 months behind. It's still true.

You see that the growth is really starting to explode in terms of actual numbers. But also sequentially, we see a good performance.

We are now going into the big quarters. And of course, we are quite excited to see what we will deliver in safety during 2025.

Great. And then just finally, if I may, on profitability.

The growth in the fourth quarter was very, very strong, yet you're still lagging a bit behind your or a lot behind your EBIT target. So what's going to drive that gap to reaching 50% and above?

Yes. It's only about delivering the growth.

With the growth, the profitability comes. For us, it's about maintaining our gross margin.

We have a very scalable business model with the growth comes the profitability.

Similar points here. If I look at the CAGR growth since Q4 '19, pre-pandemic until Q4 '24, I believe your CAGR has been, say, 10% on top line.

And if you look at only the service income, which I think you referenced as a sign of underlying activity is up 12% CAGR over the same period, probably helped by Swedish krona depreciation over that period, I would assume. And I hear your comment on Europe following along U.S.

in penetration level. But I assume Europe is already at 10%, 20% penetration or something like that, the U.S.

is 50%, 60%. Is that really enough to drive such a step change in CAGR growth compared to your history?

Is that not a relevant reference period that I just mentioned? Or I really would have some help -- need some help in modeling this.

Yes. So I think in terms of size of the market, the U.S.

market is somewhere a little bit plus 15 million units sold every year. Europe is about the same.

And you were right, we are somewhere around 10% to 20% of the European market. And given the market size, that, of course, gives us a great opportunity.

Then, of course, we also have an opportunity to expand into lower price segment, which we just touched so far, which means that we can also drive the penetration number up in the U.S. So there is plenty of opportunity to grow.

Of course, the period that we have gone through in the last 2 years, and that's also why we changed the ambition has been very challenging in terms of such. So if you look at before the pandemic period, we had an average growth of 48% per year.

And I don't think that we will come back to all the way to 48%, but there is a lot of growth opportunity going forward.

And just touching upon the last question here when you talking about the size of the market in the U.S. and Europe, are those 50 million units referred to all of your segments?

Or is it especially bike? Or how should we view it?

Yes. That addressable market is mainly the bike market, and you have a little bit of snow in there also.

Okay. Great.

And what's the difference between Europe and U.S. when it comes to safety?

When it comes to safety, the U.S. market seems to be slightly higher for the addressable market because, of course, when you talk about the safety market, we slice the market in 2 different buckets.

You have the first one, which is the simpler helmets or the type 1 helmet, even though it's not the perfect definition, that's more relating to hard hats. There, you probably see an equal size of the market.

But when it comes to a little bit more expensive market or expensive helmets, you see the U.S. market being ahead, and that's also where we see the conversion from hard hats into real safety helmets going really, really quickly.

So we see that the majority of the type 2 or the better helmet of our addressable market is actually sold in the U.S. market.

Okay. Got it.

And coming back to safety again here and looking into 2025, you said that we are lagging about 6 months or so. But is -- are there any like seasonal patterns that we should be aware of heading into 2025 looking -- looking at the first half of 2025 compared to the second half year?

Are there any potential triggers here in the first half that could --

Yes. I would say for us, really, the important month is the first quarter and the second quarter because, of course, that's where you see a lot of the helmets are being manufactured that will be delivered for a lot of the projects that is being started.

So of course, the whole of '25 is important, but really Q1 and Q2 is months where, of course, we see a lot of orders coming in and also a lot of the tenders of previous years are going to be delivered.

Okay. Got it.

And just touching upon those tenders, how many tenders are there normally in Q1 or in the first half? [indiscernible]

Yes, there is actually -- yes, the tenders as such is not taking place, but a tender is that, for instance, when you have a construction company somewhere in the world, they are, of course, participating in tenders for different projects. And as you know, in the U.S., there is a lot of these really, really big projects.

The process of delivering on a tender is normally somewhere around 6 to 9 months. So normally, you apply for a tender, you are selected for the tender and then somewhere around 6 to 9 months, later you need to deliver or start delivering products and so on.

So it's not like there will be tenders in Q1 and Q2. A lot of those has already happened.

And in Q1 and Q2, you start to manufacture the product that should be delivered according to the tender that you want.

Okay. Got it.

And also looking at the first half of 2025 then, you mentioned that you have seen significant market share gains in the snow category. What's the current status there regarding snow coverage, et cetera?

Are we -- do we have favorable weather situation as well?

No, I think the winter season has been quite erratic. First, there were little snow in Europe and then there came some snow, but still not an excellent season.

Also in the U.S., they actually had a lot of snow a couple of weeks ago, but also not an excellent season. There haven't been a lot of snow.

So I would say, at best, we will be at a moderate snow season and so on. That doesn't mean that we can't grow.

We delivered significant growth in 2020, which, of course, we haven't seen on the market, and we haven't seen with a lot of the brands on the market. So we are gaining a lot of shares there.

But I would say, at best, it will be an average winter season. There is still a couple of months to go, but average so far at best.

Yes. Got it.

And since we also are in this recovery phase regarding bike, do you think there will be any spillover effect from Q4 into Q1?

Yes. There is a little bit potentially of spillover effect because, of course, the Chinese New Year came really, really early this year, which means that you still have some opportunity to produce bicycle helmets in Q1.

And then, of course, in last year comparator, we also had a bit of inventory effect, so a little bit an easier comparator.

Got it. And maybe a last question from my side, if possible, Max, maybe you could reflect a bit or elaborate on the timing of updating the financial target.

Do you see a more stable market as a whole? Or how should we view it, do you think?

No. I think, I mean, there is different things.

First of all, when you update the financial target, you need to look at your strategy. We did that during 2024.

We looked at market share, we looked at our own development. And then when you normally summarize the year, then, of course, you also look at what do you see going forward.

And when we added all the pieces together, we saw that it would be too challenging to achieve the target by 2027, and that's why we updated. We took in the consumer sentiment, the new buying patterns, the geopolitical situation, even though it's very unpredictable, of course.

And together with the Board, we came to this assessment.

So I just wanted to ask you come back a little bit here to the start of Q1. I mean it would be helpful to hear your thoughts on what you've saying here in general.

I mean I appreciate that as you're highlighting comparisons are quite [indiscernible] from Q1 last year as well. But would it be possible to say anything of, let's say, the growth rate here that you're seeing in the first half of the year based on, let's say, the mix shift Q1 versus Q4 and also what you said regarding the phasing of the new [indiscernible] in China, et cetera?

Yes. Carl, you broke up a little bit.

I think there is a bit of a bad connection. I answer from what I think you hear if I missed or I heard, if there is anything I missed, just repeat the question.

But of course, we do not give any forward guidance for a quarter as such. We have good momentum, of course, still relatively easier comps in Q1.

We haven't seen anything that is changing the momentum that we have at the moment. We continue to deliver a lot into the bicycle market, which is now much more normal.

We are ramping up safety in motorcycle and so on, and we expect that to continue.

Okay. Very well.

Then I had a second question. I mean, just generally speaking on, let's say, price adjustments and this inflationary environment that we are still in.

I just wanted to hear a little bit your view. I mean your gross margins are still developing very nicely.

But how, let's say, are your own use of making, let's say, internal price adjustments? I mean just comparing versus a couple of years ago, you're obviously spending quite a lot of more resources now on R&D and your solutions, one could argue that they are quite much more complex as well.

So is there any reason to -- yes, I mean, just generally, your thoughts on that and then if you're planning to make such, that would be interesting to hear about?

Yes. Indeed, there is an inflationary environment at the moment.

We still see great opportunity for mix improvements, also delivering price increases through innovations. We normally don't do normal price increases adjusting for inflation if there is not like extraordinary things on the market, and we haven't seen that.

So I think we will continue with the model that we have at the moment. We see a very good price/mix development.

We see also a lot of interest for our more advanced solution, which also makes the average price of our product go up. And we are quite happy with that development.

So with the current situation and what we know and see at the moment, there is no additional pricing planned.

I believe I was cut off for my follow-up. But I was thinking about margins.

Your margin target stays at 50% plus. You've already achieved that during 2021, right, throughout the period.

But I'm wondering about the FTE count here. You had, if I recall correctly, just below 50 FTEs during 2019 and now you're at above 100.

And I think you alluded to that there are more investments in personnel that you'd like to do during 2025. Is this -- has anything changed in your model in terms of how much personnel that is required to operate?

Or were you a bit lean before? And where do you think this count will be, say, 2025, end of '25 and into 2026 and how to think about margins from that perspective?

Yes. I mean we have a very scalable business model where we will continue to invest a lot is especially in R&D.

So of course, we are ramping up our R&D activities. We are investing a lot more into research and product development, of course, which is the right thing to do.

And then we are also adding behind our marketing activities. Those are the 2 ones that will develop in line with the net sales growth that you will see.

The rest of our FTEs are, of course, more relating to other functions and so on, and they don't need to grow in line with the net sales development, and that's where you see the effect. We've said that before that during this year, we hope to employ another maybe 15 to 20 people to deliver on our ambitions and so on.

And of course, that's something that we plan to do. But of course, we expect our growth number to exceed that number, and that's where you get the scalability.

So we got some questions on the web. The first one is you target 36% per year sales growth.

Would you expect a broadly even sales growth development per year or more front-loaded growth? So first of all, it's 33% on average.

And as we have good momentum, and of course, it's always easier to grow in the beginning of a curve, the growth is a bit front-loaded. Then the second question is on safety.

You mentioned that you have commitments with the brand to reach certain numbers. Can you elaborate a bit on that?

So of course, when we onboard a brand, then, of course, for us, it's really important that we have a joint commitment to do something. If you come to Mips today and you say, I will only do one helmet with Mips because I want to try a little bit.

Then normally, we say no because for us, it's really important that we share the same commitment, we see the same attention or we give Mips the same attention to really make sure that it's successful on the market. With that, of course, comes a pricing model that comes from a volume commitment and so on.

And in order to achieve that pricing, you need to do a certain volume commitment. And then, of course, we make plans on how we will grow and increase the penetration of Mips in their portfolio going forward.

So it's quite a well-established process and something that we have worked with over the last years. Then there is a third question.

Should we expect the tendering seasonality to be an ongoing point to note on this going forward, creating a stronger Q1 and Q2 for safety? Or is it just this year?

No, I mean, tendering is something that comes back every year. And you also see that the volumes are, of course, delivered throughout the whole year.

It's not like you get all the volume in one big delivery. You normally phase it out through the year.

The big difference is that a lot of the big volume drivers that we had in our portfolio last year came after the tendering process last year, and that's why we didn't see an effect. Now, of course, we see that we had an opportunity to participate in a lot of tenderings.

And then, of course, that's why we expect to see a little bit more of an effect this year versus the last year. Over time, of course, that's just the normal thing of doing business.

And then, of course, we got also a question if we have won any tenders in the safety segment that will take place during 2025? And yes, of course, there is always tenders that we participate in.

Now it's normally not only one Mips equipped helmet in every tender, but there is more. So of course, we had success in also winning tenders, and that's also why we talk about it.

So that was all the five different questions that we got on the web. And if nothing else, then my suggestion is to close the call.

Thank you for listening in and talk to you again in Q1.