Net sales for the quarter amounted to MSEK 17.4 (16.7), an increase of 4.4% compared to the previous year. Compared to last year, operating profit before tax improved, totaling MSEK 0.2 (-1.1). Cash flow was positive with a surplus of MSEK 2.2.
Sales increased by 4.4%, an acceptable rate of growth given the circumstances that affected the first quarter. The novel coronavirus outbreak has presented challenges for the entire textile industry with consequences never before seen. A gross margin of 67.2 (67.7) percent is in line with last year as well as with financial forecasts. The company maintains good cost control, which is reflected in reduced administrative costs of MSEK 0.8, resources that were instead invested in strengthening the organization. Marketing costs are at the same level as last year.
I am very pleased with the first quarter results and enthused about the new opportunities that have opened up for us.
Operating profit was positive at MSEK 0.2, which is the third consecutive profitable quarter. This is a clear trend, indicating that the company is now on the right track. Cash flow is under control and increased by MSEK 2.2 during the quarter.
Due to Covid-19, much of the population in China was subject to quarantine immediately after the Lunar New Year at the end of January. Lockdown meant that all production in China, which is our largest production market, was postponed by another four weeks in addition to the three weeks planned. Taiwan was also affected, though for a shorter period. We now see similar situations in Korea, Japan, India and Thailand which are in lockdown. My short-term assessment is that there will be further delays, depending on how the situation evolves around the world. As a result, we have unfortunately experienced some logistical challenges including delivery difficulties and increased transport costs. Hopefully this will not affect us significantly throughout the year, but it may be too soon to speculate.
A new opportunity – ViralOff®
The new world order has influenced the demand and outlook for antimicrobial solutions. With its heritage firmly rooted in the healthcare industry and experience from the 2004 SARS epidemic, Polygiene was able to act quickly and decisively as soon as increased demand for antiviral textiles became apparent. In early April, we launched ViralOff, an antiviral technology for textiles that reduces viruses by more than 99% in less than two hours. The technology has been tested according to the ISO 18184: 2019 standard. The response has been overwhelming, and the technology very well received by the market. There is a great demand for methods to prevent the spread of the novel coronavirus. We are very proud that ViralOff has become part of the solution to a global problem.
Since its launch a month ago, we have successfully treated masks, hospital gowns, protective overalls and other products with ViralOff, which will be reflected in the interim report for the second quarter. Demand has been so extensive that we decided to invest more resources in the team. Andreas Holm, formerly Nordic Sales Director at Thule, will work primarily with special projects connected to ViralOff and strengthen the sales organization to meet the increased demand. There is an enormous focus on ViralOff for good cause, but we must also continue to focus on projects based on Odor Crunch and Stays Fresh technologies.
Recovery underway in Asia and the US and Lifestyle segment continues to grow
I am optimistic that ViralOff will have big impact on our business, both this year and next, but also want to emphasize that our core business got off to a very good start in 2020. Above all, Asia (+ 29%) and the US (+ 16%) had solid growth this quarter, due in part to the hard work to win back business previously lost in these markets. However, Europe finished the quarter slightly lower (-2%) than last year; this is primarily due to somewhat reduced sales to one of our partners who has large production in the countries affected by the lockdowns. Hopes remain that these volumes will bounce back in the coming quarters. Distributor order intake decreased by MSEK 1.4, which therefore gives a total increase of 4.4%. We are well aware that the tough situation affecting many of our partners may affect future sales at Polygiene in the long term. However, we see a great potential in ViralOff because it can be applied to all textiles, even in the Sport and Lifestyle segments.
The steady growth trend in Lifestyle continues, and this quarter was no exception. We see growth and stability among both existing and new partners, many of whom demonstrate promising opportunities to strengthen the business relationship. We expect the new business area of protective clothing and masks to grow in the future and want to be able to track growth; therefore, we have created a new segment, Workwear. Previously, we collaborated with several partners who produce work clothes, including Belgium Post, DHL and Bonmax. Business with these and other partners will now become part of the Workwear segment.
New situation, new ways of working
The coronavirus is changing the world we live in, affecting all of us and impacting Polygiene. For us at Polygiene, the playing field has changed dramatically in recent months. This is largely due to the fact that our business hinges on establishing relationships with our partners and our presence at trade fairs around the globe to market our solutions. Cancellations in scheduled trade fairs, events and meetings this spring most likely will continue in the coming months, forcing us to undertake new approaches and new ways of communicating. As a relatively small company, we have the opportunity to be both agile and action-oriented through the coronavirus crisis. This approach proved effective with the launch of ViralOff. I see this agility as one of Polygiene’s strengths, which is why I also believe in huge potential going forward. ViralOff broadens the product portfolio with yet another essential textile functionality, which is fully in line with our vision. ViralOff makes it possible not only to safeguard the people wearing treated garments but also to contribute to a more sustainable world by extending the lifetime of each garment.
My hope is, of course, that the world will soon return to normal mode again. However, I think we will see a new normal mode, with a new approach to antimicrobial and antiviral solutions. With Covid-19 now part of our collective consciousness, we must learn from newfound experiences. Demand for antiviral fabrics is definitely here to stay.
I look forward to an exciting and eventful year for Polygiene. I am very pleased with the first quarter results and enthused about the new opportunities that have opened up for us.