CEO’s review

From Orthex Interim report for the period January-September 2022:

ALEXANDER ROSENLEW, CEO

In the third quarter Orthex’s net sales increased by 1.4% to 22.1 million euros (21.8). Our strategy to accelerate sales at a faster pace in the rest of Europe progressed well. The distribution build-up for the new customers gained during the previous quarters had a positive impact on sales development in Europe outside the Nordics. Sales in this area grew by 7.4% during the third quarter compared to the same period in 2021. Sales in the Nordics grew by 0.4%, driven by price increases. There is uncertainty visible in customer purchasing behaviour, but so far little significant effect is seen in consumer behaviour that would reflect in less spending on Orthex products. We are committed to implementing our growth strategy with a focus on international growth and sustainability. The Storage category stands for most of the growth outside the Nordics, but in the Nordics the sales of the Storage category were slower. This resulted in a flat development overall in the Storage category during the third quarter. Kitchen category sales increased mostly in the Nordics, which resulted in growth of almost 5% in the category overall. International sales outside Europe remained challenging, mostly due to slower demand in a few customers.

Cost development had an impact on Orthex’s profitability as the adjusted EBITA margin percentage decreased in the third quarter to 10.1% (15.1) and the adjusted EBITA to 2.2 million euros (3.3) compared to the same period last year. Even if the raw material price index is down from its highpoint in April, the index is still showing an increase of around 45% for the period between December 2020 and September 2022. In the third quarter, we were affected by the continued deterioration of the Swedish Krona. We are actively working with price increases to adapt to the rapid cost inflation. It takes time to implement price increases wisely without losing volume or customer assortment listings. Our ambition is to follow a long-term pricing strategy adapting to the changing conditions. Even if we saw a decrease in material price indexes during the reporting period, the future development is hard to predict. Despite the prevailing short-term challenges and market uncertainty, 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 long-term target.

In September, we launched a significant research project for the development of future recycled plastic products and the related ecosystem. The project is carried out in cooperation with partners and will last until the end of 2024. In addition, we will participate in a large cooperation project of seven years starting in January 2023, to promote the circular economy of plastics. In line with our sustainability strategy, both projects support Orthex 2030 carbon neutrality target and the target to increase the use of sustainable raw materials. In the third quarter, we started using renewable raw materials in the production of our SmartStore™ Compact and Compact Clear storage boxes. The raw materials in these products are produced by applying a mass balance approach. The mass balance approach means that renewable materials are mixed with fossil materials in the raw material production process. This reduces the amount of fossil-based plastic and supports our target to increase the share of sustainable raw materials in our production to 80% by 2030.

During the reporting period, we prepared an application and made calculations to commit to the Science Based Targets initiative (SBTi) and its science-based climate targets. The purpose of the calculations was to ensure that Orthex’s climate targets are aligned with the target to keep global warming below 1.5°C in accordance with the Paris Agreement.

We are putting strong efforts on growing and defending sales profitably as demand development is likely to remain unpredictable. We believe that the raw material market will eventually stabilise which will help us to fully focus on actively growing profitably. We have an interesting and expanding range of products that facilitate recycling at home and we are continuing our strategy of launching new products closely following trends and consumer demand. Since the start of 2021 we have invested around 6.5 million euros into capacity, efficient production machines, automation, and new product moulds to ensure continued successful strategy implementation. We have further strengthened our European sales organisation to accelerate the implementation of our international growth strategy. I am proud of our employees who adapt well to the very fast changing business conditions and are consistently executing our strategy. We are all eager to improve consumers’ everyday life with practical and sustainable products.