INVESTORSMESSAGE FROM CEO

CEO Q2 2021

Another strong quarter with profitable growth paves the way

Net sales for the quarter amounted to MSEK 46.9 (17.3), an increase of 171.1 % compared to the previous year. Organic growth, amounted to 47.3 % (adjusted for currency fluctuations, 65 %). During the period, a gross margin reported was 61.8 % (70.3). Operating profit before tax was MSEK 10.0 (-1.1), providing an operating margin of 21.3 %. Cash flow, MSEK 5.2 (0.0), was positive.

The Polygiene Group reports strong growth in 2021 for the second consecutive quarter – 171.1 % compared to the same period last year. Organic growth, adjusted for currency fluctuations, was also strong at 65 %. This primarily is a result of the activation of the new agreements entered into during 2020, but also points to the slow recovery of existing customer operations. Despite the polymer shortage affecting the business in the short term, Addmaster continues to deliver stellar results, with growth at 77.5 % (excluding internal sales). The current global logistics situation continues to have a major impact on operations, with delays and rising shipping costs affecting gross margin. The transport industry is likely to experience continued challenges this year before operations normalize in the future. Despite a slightly weakened gross margin and non-recurring expenses of MSEK 1 for work related to the new branding platform, the Group has been able to deliver a solid operating profit of MSEK 10, providing an EBIT margin of 21.3 %. This demonstrates the scalability of our business. Without considering the above logistic challenges and non-recurring expenses, the EBIT margin would have been 26.7 %, compared to 24.8 % in the previous quarter. As the turnover continues to increase, we will make the leverage effect visible in our business model.

This quarter, we have focused on developing a future brand platform, leveraging the clear synergies between the Polygiene and Addmaster. We now share a common vision for the Polygiene Group, where the two brands – Biomaster and Polygiene – work together, creating marketing synergy. By linking company operations, we can utilize Group resources in a more efficient way and create central and local functions that work for both brands. I am pleased with the extensive work we have accomplished around branding so far and expect the way forward to be presented in the autumn. Progress has been intentionally slow and deliberate to ensure as little disruption as possible to our ongoing business and to anchor any changes resulting from the branding project internally, with our partners and customers as well as in the market.

The second quarter also saw the launch of Polygiene Tellus, a webinar series intended to inspire a more conscious lifestyle and educate stakeholders in our area. The purpose is to create and deepen relationships with new and existing customers during the pandemic when in-person meetings were either difficult or non-existent. In July, the premiere webinar debuted in the U.S. to much acclaim; similar webinars will be rolled out in other regions in the future. Our ambition is hold three to four webinars a year.

Polygiene

The Polygiene brand has, in many respects, had a very positive quarter. Most satisfying are the repeat orders from new customers signed in 2020. These include new customers with strong brands, such as Diesel, Dr. Scholl’s and Samsonite, but also new volume customers with recurring orders. Repeat orders signal customer satisfaction with the value our technology brings to their products. It also is an affirmation that our customers firmly believe that Polygiene is the right partner to work with. Recovery is also underway among existing customers who order Stays Fresh technology, which was most affected by the pandemic last year. Although the business has not yet completely rebounded, we see many key customers making sound progress, which is gratifying.

Several new partners signed agreements this quarter, matching the number of new agreements signed during the same period last year. Normally, a sales cycle requires between 6 and 18 months from agreement to order; due to the global pandemic we are seeing delays in new product launches, which have been postponed due to temporary factory shutdowns. Regions such as India, Japan and Korea have experienced challenges with standstills or decreased production capacity. This affects both other customers with production in these countries as well as all operations in the local market. This is a temporary situation that, hopefully, will soon be resolved.

»In the coming years, the goal is to continue to deliver strong profitable growth«

Biomaster

Addmaster, with the Biomaster brand at its forefront, experienced an impressive organic growth rate of 77.5 % this quarter due to new product launches by new and interesting customers. Biomaster is constantly breaking ground in new product areas, and press releases spreading the news help generate new business. For instance, Hemispheres, the onboard magazine for United Airlines, is now treated with Biomaster technology, following the heels of the inflight magazines of American Airlines and Hawaiian Airlines. Swedish fashion tech brand Happy Plugs introduced antimicrobial headphones in its latest model as well as another collection of treated headphones for a younger audience, ages 3 to 15. In addition, a Biomaster-treated fabric for airplane seat covers manufactured by MGR Foamtex Ltd was distinguished as a 2021 finalist in the Clean & Safe Air Travel category of the Crystal Cabin Awards, recognized internationally as a seal of quality in the aviation industry.

Higher raw material prices this past year have posed challenges, which has led to price increases in the market. The price of silver, a vital component in some of our products, has increased on average by 50 % in the last 12 months. Although extremely small amounts of the active substance are used to achieve the desired effect, price increases from suppliers have been inevitable. The rise in demand for antimicrobial ingredients in 2020 also contributed to a decrease in supply, further contributing to escalating prices. To compensate in part for the loss in margin, Addmaster has proactively adjusted prices. Set to take effect beginning in Q3, these price adjustments have been widely accepted by customers since no price increases have occurred in recent years.

Organization

Based on the ongoing integration work and common vision for the future, we will take a structured approach to implementing changes within our organization. These changes will include the addition of Addmaster expertise to the management team as well as ensuring the most efficient use of shared resources. To meet the growing demand for Biomaster technology, India Hanspal joined the UK team in May as Business Development Manager.

India has hit the ground running, working independently and making significant contributions to the organization.

As mentioned, Marcus Hefter will join the Group on September 15 as Commercial Director, Europe, Middle East, Africa, Polygiene. EMEA is teeming with large, untapped potential. With additional resources dedicated to EMEA, we plan to gear up in the region, focusing also on key areas outside Europe.

The search for a new Chief Marketing Officer (CMO) has been ongoing. Because the CMO will play a key role in shaping our new brand platform, we are keen to identify the right person to develop sound strategies that will take both Polygiene and Biomaster brands to the next level.

Looking ahead

I look back with satisfaction at an eventful year and on the last quarter as the work accomplished thus far paves the way to continued growth and increased efficiency. The first half of the year focused on identifying how best to integrate Addmaster into the Polygiene Group fold, to ensure collaborative ways of working, and to shape a shared vision of the future.

In the coming years, the goal is to continue to deliver strong profitable growth, both from existing business as well as from new products and new segments. By increasing brand awareness among end consumers, we will be able to highlight how the choices we make every day can contribute to a more sustainable world. Continued and more intense focus on key messages around sustainability is therefore of utmost importance. Potential acquistions in future are not being ruled out as long as the target company is relevant and will contribute to the Group in a positive way. With a solid, financial foundation and a lean organization supporting it, the Polygiene Group stands ready to make great strides in growing our business.

As we enter the busiest period of the year, key indicators point to the growth momentum that the Group is now experiencing will continue into the third quarter.
Exciting times lie ahead.

Ulrika Björk CEO Polygiene Group

Polygiene woman with laptop