CEO’s review

From Orthex Interim Report January–September 2021

ALEXANDER ROSENLEW, CEO:

Orthex’s net sales growth in the third quarter was +7.7% compared to the third quarter of 2020, contributing to a total net sales growth of 20.9% for the period January–September 2021 and amounting to 65.6 million euros (54.3). Invoiced sales in the Nordic market grew strongly by 16.9% compared to January–September 2020, amounting to 54.2 million euros (46.3). In line with our strategy, invoiced sales outside of the Nordics grew even faster: in the rest of Europe, invoiced sales grew by 35.6% and amounted to 10.9 million euros (8.0) and in the rest of the world by 27.2%, amounting to 2.0 million euros (1.5).

Demand was weakened in the first half of 2020 due to the beginning of the COVID-19 pandemic but had a strong rebound in the third quarter. This is important to keep in mind when comparing the quarters between the years. September 2020 was the company’s highest-ever sales month until we broke that record in September 2021 and finished the third quarter strongly.

The positive sales development is driven by successful commercial strategy implementation, which includes launch of new products, widened distribution, customer collaboration and new customers.

All Orthex product categories performed strongly during January–September 2021. The biggest category Storage, with the brand SmartStore, continued to deliver fast-growing sales, taking growth in January–September to 24.0%, with total invoiced sales increasing to 42.9 million euros (34.6). Our second largest category Kitchen, with the GastroMax brand, performed at a 9.8% growth rate. Of the smaller categories, Home & Yard grew by 8.7% and the Plant Care category by 30.4%.

I am happy to see COVID-19 related obstacles gradually being removed. We are now able to visit many of our customers and we have already participated in some physical trade fairs. Lockdowns of stores in our major markets are no longer imposed and the demand for our products is becoming more predictable. We can already see a normalising pattern with little seasonal variation in sales over the last few quarters. 

As anticipated, adjusted EBITA margin was lower in the third quarter at 15.1% (19.9), mostly due to high raw material prices. For January–September, the adjusted EBITA margin was 14.1% (16.9). Adjusted EBITA for the third quarter was 3.3 million euros (4.0), taking the January–September adjusted EBITA to 9.2 million euros, which is at the same level as the January–September 2020 outcome (9.2).

Raw material prices started to increase sharply towards the end of 2020 and reached their highest levels during the second quarter of 2021. Since then, raw material prices have remained high. The cost for freights and electric power have risen in general but are not affecting the result notably as they are a fairly small part of the total cost. Our understanding is that raw material availability has been scarce on the market. However, we have been able to source the needed raw material for production. Raw material price fluctuation and measures to off-set the effects are common to the business, and the implementation of our measures started to have an effect towards the end of the third quarter. 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 target is to deliver an adjusted EBITA margin exceeding 18%, and we are committed to ensuring that our measures are in line with that target.

Our strong commitment to sustainability was recognised when Orthex was selected as a pioneering company to the Finnish Innovation Fund Sitra’s list of the most interesting companies in circular economy in Finland. The list presents 41 pioneering companies that offer circular economy solutions to the global sustainability crisis. The panel of experts commented on the selection as follows: “A traditional company that has executed the circular economy for years by growing the usage of recycled plastics and by designing recyclable products. The company brings innovation to the market.”

Orthex has been able to ramp up capacity according to plan to secure delivery performance. The volumes shipped through the German warehouse are increasing, driven by European sales growth. The installation of new moulds and injection moulding machines strengthens our production platform and we have now considerably increased capacity in our best-selling storage range products. We also see the negative effect of COVID-19 decreasing, as for example decreasing sick absences in production result in reduced need for over-time and temporary workforce.  

We are committed to implementing our growth strategy with a focus on accelerated international growth and sustainability. We expect that the effect of our first measures to reduce the impact of high raw material prices will soon be fully visible. We will continue our targeted actions depending on the raw material price development. At the moment, raw material prices, freight cost and energy price are on high levels and future development is hard to predict.