CEO’s review

From Orthex Half Year Financial Report January–June 2021

ALEXANDER ROSENLEW, CEO:

Orthex’s net sales growth in the second quarter continued strongly at +25,5% compared to the second quarter of 2020, contributing to total net sales growth of 28.8% for the first half of 2021 and amounting to 43.8 million euros (34.0). In line with our strategy, invoiced sales outside of the Nordics are growing faster than the sales growth in the Nordic market. Invoiced sales in the Nordic market grew strongly by 24.1% compared to the first half of 2020, amounting to 36.4 million euros (29.4). In the rest of Europe, invoiced sales grew as much as 40.1% and amounted to 7.2 million euros (5.1). Sales in the rest of the world grew by 98.0%, amounting to 1.4 million euros (0.7). The positive development is a continuation of the successful commercial strategy implementation, which includes launch of new products, widened distribution, and opening new customers.

All our product categories performed strongly during the first half of the year. The biggest category Storage, with the brand SmartStore, continued to deliver fast-growing sales, taking the first half growth to 31.7%, with total invoiced sales increasing from 21.6 million euros in 2020 to 28.4 million euros in 2021. Our second largest category Kitchen, with the GastroMax brand, performed at a convincing 17.0% growth rate. The smaller categories Home & Yard grew by 17.6% and the Plant Care category grew by 39.0%.

I am particularly impressed by the commercial team for showing resilience and determination in implementing the strategy leading to positive sales development during times of lower predictability due to COVID-19. With less opportunities to arrange physical customer meetings, visit shops, attend trade fairs or exhibitions, our ways of working had to be adapted to the circumstances. The aim is to be the best partner for our customers also under these times of restrictions and travel bans.

As anticipated, adjusted EBITA margin was relatively lower in the second quarter at 11.9%, mostly due to high raw material prices. For the first half of the year, adjusted EBITA margin was 13.6% (15.0). Adjusted EBITA for the second quarter was 2.6 million euros (3.2), taking the first half adjusted EBITA to 5.9 million euros from 5.1 million in 2020. The strong sales growth helped to bridge the negative cost development during the first half of the year.

The raw material prices continued to rise during the second quarter, but the availability of our main raw materials on the market has eased. At the moment raw material converters’ margins are at historically extraordinary high levels. Raw material price fluctuation and measures to off-set the effects are common to the business. Unpredictable and fast increases in raw material prices create a short-term profitability challenge due to the delayed effects of implementing price increases or cost savings. Our long-term goal is to deliver adjusted EBITA margin exceeding 18%, and we are committed to ensure that our actions lead to reaching our goals.

As part of our sustainability strategy, we are continuously aiming to reduce our carbon footprint, and this includes increasing the use of recycled and bio-based raw materials. The energy we use in our production is another important factor that we can influence. In 2020, we switched our Finnish production site to use only renewable electricity, reducing our carbon footprint with more than 600,000 kg CO2e. In perspective, this compares to driving a car for 4.3 million kilometres or 100 times around the globe. We have now made the change to renewable energy also in our Swedish factories, which means that we have completed the switch to renewable energy in all our factories. The effect of the switch will be reported in our next sustainability report.

Orthex’s innovations continued to perform well during the first half of the year and the pipeline of innovation both in terms of new products and new materials remains strong.

We have been able to ramp up capacity according to plan to secure our delivery performance. This is important to ensure being our customers’ preferred partner during times of high sales growth. The installation of our new moulds and injection moulding machines strengthens our production platform and we have also strengthened the operations organisation to adjust for the increased demand and rising volumes in our Lohja and Tingsryd factories. A positive side effect of installing new machines is that energy consumption and efficiency improves overall, also resulting in improved sustainability of production, as less energy is needed per product produced.

The first half of the year has been positive, and we are prepared to continue to implement our growth strategy, with focus on accelerated international growth and sustainability. We have taken measures to reduce the impact of high raw material prices, and we are committed to continuing to take targeted action depending on the raw material price development. During uncertain times, optimally timing the corrective action is important to maintain positive growth momentum.