Fiskars Oyj Abp

Hello and welcome to Fisgar Group's Q2 2022 results webcast. My name is Essi Lipponen. I'm the investor relations director. I'm here with our president and CEO, Natalie Ahlström, and our CFO, Jussi Siitonen. As usual, We will first hear about the quarter highlights from Nathalie and Jussi. And after that, we have plenty of time for your questions. You can type in your questions in the chat during the presentation and also after it. Without any further ado, Nathalie, please go ahead.

Thank you, Jessi. And it's really a pleasure to be here today to talk about our first half and Q2. We're really happy to be here talking about it. Starting with the highlights of Q2, this was our ninth consecutive growth quarter. This shows that we are on a transformation and we are delivering on the growth. Net sales in Q2 grew 7.7%. So we have a strong growth foundation in place. We also show that the growth we delivered is broad-based. We have a well-balanced portfolio. In Q1, we talked a lot about the bumpy road ahead of us. And yes, it was a bumpy road. We had a constant inflation that is now partially mitigate, shown also in the EBIT. And the actions that we put in place during Q2 are fully then going to show in second half. But it's been a bumpy road and we weathered it. And where we are happy is that then when you compare first half in totality versus last year's first half, we are at par. At the same time, despite the bumpy road and the environment we are living in, we are able to continue to invest in our growth fundamentals so that we can future-proof the company going forward and continue to execute our growth strategy. So we still have the firepower to continue to invest. And with that, we keep our outlook unchanged for the full year. It is a dynamic world, but we have a lot of things in our hands. And as I said, we are a company in transformation. And we have a broad base of growth pockets in the company. Looking at the net sales, here we really see that the growth came from all business areas. It came from the brands, from regions and channels, and this makes the performance so solid because we have so many places where the broad-based growth comes from. Then resulting in this comparable 7.7 net sales growth in Q2 and for the first half, 10.6% growth. That, of course, is then translating into the profit. And here we can also see in the Q2 performance on profit that it's a volatile environment with a bumpy road. Despite this, all the BAs delivered profit improvement in Q2. And also despite the cold spring for Terra. As said, for first half, we're at par with last year, and we've been able to continue to invest significantly in our growth fundamentals into digital and direct-to-consumer. Also, our ability to show to be at par with the first half last year shows that the team is winning. Our team is winning. Our team is having grit to where that is going forward. Then if we look at the growth strategy here, I again want to say this growth strategy is the foundation for our transformation. This is also the one that keeps us focused, focused on what are the true levers really to deliver and continue to win as we go forward. And when we then look at where are we in the transformation levers, how are we delivering against those in Q2 and also in the first half, we see that we are delivering. And let me go through that. If we look at the commercial excellence, here we see that it's a broad-based growth. It's coming from all the parts of the company. What we're also especially proud of is that of this growth, the 7.7% growth that we perform in Q2, 50% of exit volume and 50% value. So it's healthy growth, healthy growth driving the company forward. Yes, we had the challenges with cost inflation and therefore we see with the underlying gross margin decline in the operating performance. And Jussi will talk more about that also, the impact of the cost inflation and the gross margin. Then direct-to-consumer, this is a transformation lever that's really delivering for us at the moment. And as I said, this is also where we have invested behind. So we see investments are paying itself back. Ecom growing 16%, owned retail globally 15%. So good growth in the channels that's in our own hands. In the US, the growth was merely 4%. Anyway, we are proud of this 4% because we had a very exceptional spring, a cold spring for Terra. And at the same time, Vita, thanks to the very good gifting season with Waterford Wedgwood in the US, was able to mitigate that and Crea with a broad-based growth, also back to school. So, again, a well-balanced portfolio. When there's challenges with the cold weather in one place, the other places can help and support. And then China. China, despite the lockdowns, our local team continued to have the can-do attitude, have the winning mentality. And in totality for Q2, delivered a 17% growth in Q2. then when we look at what's the run rate where where's the business heading when we look at june for example where the lockdowns were easing we already see 1.5 x growth so the business is bouncing back very fast along with the lockdowns and i think this performance in u.s and china is a good example of the well-balanced and broad-based growth that we're having in the company despite the many underlying consumer sentiments we have such a broad portfolio so we can work on it as we go forward. Then looking at sustainability, one of the key enablers, also for a strategy going forward, of course, on greenhouse gas emissions, we reduced in first half 7%, in totality since 2017, 44%. So we are advancing step by step on greenhouse gas emission. Then our commitment to use more recycled materials. Now, in first half, it's 5% of products are used of recycled materials. And I think a good example of that is, of course, our pots and pans that are already today used of recycled steel, but where we further took a strategic step in our commitment to sustainability with the partnership with Autocompo. Fiskars is the first company globally using the new lowest emission steel from Autocompo. The steel is minus 92% less emission compared to normal. So a true showcase of how big steps you can take through partnerships. And then outlook. As said, our outlook is unchanged. We're committed that our comparable EBIT for the full year will be above last year's. And this is what we're working towards. And with that, I hand over to Jussi.

Thank you, Natalie, and hello, everyone. Let's start first going through our Q2 financials and the big picture first, where we are tracking with our financial targets. So on net sales, the target being this FX-neutral mid-single-digit growth year on year, and how we measure it now is last 12-month basis. You can see that we were still at strongish double-digit growth there, 10.5% for the last 12 months. So we are well on track with our financial target on growth. Also on the balance sheet. What we have said about both balance sheet and cash flow is that first and foremost, they are there to safeguard our organic growth. And that EBDA, the target being maximum at 2.5, we are now 1.5 there. So we are still well below the maximum target, what we have set for ourselves. Then on EBIT, still okay is level 11.9 for the last 12 months. However, the direction is wrong because we have committed to this 15% by 2025. And we have also said that this is a non-hoccystic approach, all the improvement coming in late of the glide path. So there we still have work to do. Then on cash flow, no drama in that sense. We were negative of 8% there when it comes to free cash flow. There were inventory growth, and I'll get back to that later in my presentation. A couple of call-outs on Q2 and first half income statement. Let's start first with gross margin. If you just take a look on our reported gross margin, you'll see improvement. There are 30 basis points in Q2. 110 basis points in first half. However, this improvement, what you can see here, is due to structural changes we made when we sold US bordering in the beginning of this year. If we take like-for-like gross margin, it was down 220 basis points in Q2 and 90 basis points in first half respectively. And the reason for this drop what we have in like for like gross margin is the cost inflations. We haven't yet been able to fully mitigate. So both in first half and Q2, the gross cost inflations what we had on our gross profit was roughly 400 basis point. And as you can see, when we came out with 220 basis point drop, we succeeded to mitigate a bit less than half of the cost inflation in Q2, and then three quarters in the first half. This is exactly what Natalie talked about, bumpy road. So we continue driving up gross margin, and the actions what we have put in place start impacting positively in the second half. Then about those investment fundamentals. So operational expenses were up 14 million in Q2 and 27 million in the first half. Both in Q2 and first half, if you take sales and marketing expenses, two thirds of that increase is from investments, both in digital capabilities, what we have in marketing side, as well as D2C capabilities, especially in e-comm. And then on general admin cost, half of that growth, what we had in Q2 and first half, are driven by those investment in other digital capabilities, but marketing. So you can see that the main drivers of our OPEX growth are coming from those investment in fundamentals. Then when it comes to EBIT, the comparable EBIT was down 5.1 million in Q2, and we were quite flattish on the first half. If we look at the bridge of our EBIT, so you can see that when we're carving out the impact of US water there, 2.9 million, we are slightly improving our like-for-like EBIT. But the growth or EBIT improvement is coming from volume growth. And then that partially offset by cost inflations, net of mitigations, and then sales and marketing, as I said, D2C investment, two thirds of that. And then digital capabilities, half of general admin growth. So we start second half at the same level with last year. Moving 10 to BAs, first Viitta on top line, as said, strong high signal digit growth organically, 7.3%. Waterford, Royal Copenhagen, Wedgewood, Moomin, all at high signal digit or double digit growth. So, they really boosted this e-commerce growth also. So, D2C, both online and offline, D2C continued growing nicely. Now, double digit in this specific quadrant. Then, Finland and Sweden down, as they were also in Q1. And when Itala brand is 60% in Finland and Sweden, Itala brand came down. On EBIT, on the right-hand side here, Viitta succeeded to improve gross margin also when it comes to value there. So, gross profit improvement is not only the volumes what we had in Viitta, but also margin improve. So, that shows the power of portfolio what we have in Viitta there. We succeeded to mitigate inflation impact. Then we continued investments, mainly those D2C investments, what I referred, they are in Vita business, and also digital capabilities are in big time under Vita segment. 10 Terra, which is mostly exposed USA. And when USA came down, of course, that had an impact on Terra. The positive side, however, is that also in Terra, we continued growing. And that growth came from Europe. So Terra Europe was a double digit growth in Q2. And that's why the whole business was at missing a digit growth. In Terra, the like-for-like EBIT improves slightly. and all improvement that we had there came from volume growth, which was then almost fully offset by gross margin decline. a strong growth of 15% there in Q2, and the growth was very broad-based. Approximately 7% of Q2 net sales came from countries with declining top line. So you can see that growth came from various sources there. It was not only back to school, which was driving growth, but it came also from other segments there. We continued investing also in CREA. We have just started D2C in CREA business, and then also digital capabilities are now there in CREA to boost our further growth in this business. That's about P&L side. Ten regions, this is mainly a summary of what I just said. All the regions continued growing. Europe, a bit shy of 6% there. America's 6.3%. And then, ESA Pacific overperformed all the other regions there, mainly driven by China. and also Japan. This shows that our portfolio, no matter whether it's countries, whether it's brands, whether it's categories, it's very broad-based. And then the ones which are going down are offset by the ones which are improving. Then on cash flow, and no drama in that sense, that even though we are now minus 73 million for the first half, you can see that the big negative came already into Q1 there. The cash flow is very much now heavily weighted by inventory growth, what we had. That was the biggest single driver of slightly negative cash flow also in Q2. We continue monitoring inventories when it comes to inventories in Viitta and Crea. Those are now to be prepared for second-hand deliveries. And then in Terra, especially America's inventories are something we are very closely monitoring to make sure that we are up to speed with potential consumer sentiment changes there. We also continued share buybacks. We pulled back shares worth of seven million in Q2, and we increased our cash level by 30 million to 74 million to be ready for any challenges in liquidity in the second half. On balance sheet, you can see the inventory growth here, what we had. But first and foremost, even though inventory growth, we continued improving our asset efficiency in terms of capital turnover. So capital turnover up to 1.4. However, when the last 12 months EBIT came down, our return of capital employed went down slightly to 16.6%. As I mentioned earlier, balance sheet continued being very strong. Our net EBITDA solid at 1.11 and net equity 27%. With that, back to you, Natalie.

Thank you, Jussi. And then just to summarize where we stand after the second Q2 and the first half. This is our ninth consecutive growth quarter. We are very proud of this. This is showing the winning spirit of our teams. At the same time, of course, we are not immune to the cost inflations, the dynamic world we are living in. And even though we were able to mitigate already now part of that, the actions we put in place are there to support the second half. What we are proud of is that our first half is at par with last year's first half. At the same time, we are able to continue to invest in the growth fundamentals, to continue to execute our growth strategy and execute on the transformation levers. And with that, of course, we keep our outlook unchanged and continue to deliver as we go forward. Thank you.

Thank you, Natalie and Jussi. We do have some questions already, but please continue to type in your questions if you have any. But first, on Terra, can you comment on the sell-through of your products slash inventory levels at retail, i.e. has also the end demand remained solid for your products?

When we look at Terra, it's two stories. As Jose was mentioning, our growth in Europe was double-digit. It was very strong, our growth in Europe. In the US, we were more hit by the cold spring, the late arrival of the spring. So Europe going all well, and then in US, the weather challenging, and also then leading now that the high inventories at the retailers. The sell-through data is, of course, weather dependent. But again, dependent if you look at Europe or US.

Thank you. Another one on CREA. Is there any impact of timing of sales driving the sales growth?

Hmm. Interesting question. Well, Crea is the business of our businesses that has least seasonalities. Back to school, of course, is one a bit, but no. Crea is a very solid business delivering every quarter.

Thank you. Then a question on the price increases. Can you be more specific on the price increases in H2? when do they come, in which months, and will you have all cost inflation offset by end of 2022? Maybe Jussi, if you can take this.

Yeah, for sure. The price increases, what we have implemented, they are coming in Q3, 1st of August, 1st of September, not specific time there, but during Q3, we are expecting all the price increases in. Then when it comes to inflation coverage there, of course, you'll never know where the inflation is now heading to, but the plan what we have in place and where the guidance is based on is that those mitigation actions we have now put in place, price increases being the one, start yielding positive impact now in the second half, and that's where the base of the guidance.

Then there was also a question, would you like to dive deeper into the actions planned for offsetting the cost inflation in H2, maybe other than pricing?

Yeah, I can start, and then Natalie, feel free to add. For sure, we continue growth in our own channels, D2C, where the margin levels are better. And also, we can use that channel for our high inventories. So that's, of course, one. Then those continuous improvement, what we have especially in our own production, they continue yielding back. And very much then focusing on commercial excellence, because that's the best tool what we currently have to drive gross margins up on top of the pricing. It's also how we look and feel in the stores and very basic commercial excellence things, which are then delivering results.

I would just add to what Jussi was saying. Pricing is only one of the components in the commercial excellence toolbox that we are having. And we are using all the tools that we have in that box. So there's multiple things we are working on.

Thank you. Then a question about the US. Can you tell us more what you see in the US consumer landscape? Maybe this is for you, Natalie. A good festive season, but what else? What are you seeing in the US?

Thank you. Happy to answer that. As we are in so different categories, different brands with different brand positioning and also different consumer segments, it's a place where we can really balance the portfolio. If I start with Vita. In Vita, we are predominantly with Wedgewood and Waterford that are products of more higher added value, higher value products. And that's a different kind of a consumer group who buys that kind of products. And the current challenges that we see may be more in the big box consumer group. That's not the same kind of a consumer group. Then when we come to CREA with a back-to-school season that we have in Q3, yes, consumer inflation sentiment is hitting in the US. At the same time, there are a few things that are always important for everybody, and the schooling of your children is very important. So the gifting and the high-end position of the brands of Vita, and then the importance of schooling and the well-being of your children is supporting Vita and Crea as we go forward. And then with Terra, the season starts to be a bit over. So we are gearing up for next year.

And then regarding the demand in Finland and Sweden, Are there any signs of demand picking up now in the start of Q3?

When we look at Finland and Sweden, even there, the countries are quite different and the underlying drivers are different. Overall, I would say the consumer sentiment is maybe a bit weaker in Finland compared to Sweden. And in Sweden, one of the impacts we had also in Q2 was that many of our big e-com retailers had quite big inventories at the start of the year. So also, even though we are so close Finland and Sweden, even here we see different drivers in the market. And again, that's a benefit for us because then we can offset in the different places. Yes.

Okay, and then maybe a question for Jussi. The adjusted EBIT margin declined. Is there anything in particular that we should keep in mind regarding the decline? Any changes to the SG&A going forward that we should consider?

Yeah, the targeted P&L structure, how we have built this, is very much cross-margin and cross-profit improvement driven. And of course, then all the OPEX savings that we will have are part of the OPEX leverage. Our top line continues growing faster than than the OPEX there, so this is the main driver. We have no specific saving program in place. It's this kind of OPEX efficiency, what we are doing every day, and then prioritizing those investments, what we have in fundamentals. So we continue investing in D2C, we continue investing in digital, and at the same time, we are very much scrutinizing this kind of non-value-added spend there.

Actually, I think you already answered this question, but I will read it anyway. If meeting the 2022 EBIT guidance proof stuff, will you cut your growth investments towards year end to achieve the guidance?

As said, the way we have built the guidance are improving absolute EBIT, which was 154 last year. It's very much based on the facts that we have said, especially coming from commercial excellence, which are then improving cross-profit and therefore also absolute EBIT. We are also very mindful and monitoring top expense there, but we are not too much sacrificing our long-term targets with short-term.

Great. Then another one for Jussi. The working capital increased year on year, mainly driven by a higher inventory level. Would you mind elaborating on that?

Yes, indeed. It's a bit twofold when it comes to inventory peaks, what we had in Viitta and Crea. I'm less worried about those. Those are now prepared for second-hand deliveries, and we are expecting inventory levels going down in those two businesses. Also in Viitta, where we have some manufacturing, where we might face some disruptions due to natural gas, we are now prepared for shipping, even though we have these kind of disruptions there. Then the one we are monitoring very closely is Terra, especially Terra US, how we are then delivering the existing inventories there. So as I said, it's twofold. Two businesses very much in the plans what we have had, and in Terra the focus is now to mitigate the inventory growth.

Thank you, Jussi. Then a foreign exchange related question for Jussi. Can you comment on the impact of stronger USD versus Euro and how long are your hedges currently?

For sure. So overall, less than 20% of our commercial flows are exposed to current fluctuation. So you can see that we are quite well naturally hedged. On USA, we are net buyer of US dollar worth of roughly 30 million per year. We have hedged the US dollar for June 2023. So, we have 12 months hedge in place at level of 1.13. So, you can see that we are well hedged also for this kind of power position of US dollar.

Then maybe one for Natalie. Can you specify your exposure to natural gas?

When we look at natural gas, the biggest places where we use natural gas every day is in a glass manufacturing in Itala here in Finland and in Rogaska in Slovenia. As Jussi was saying already, we have built up inventory for Vita so that we are in a good place for the second half, whatever happens in the energy part in Europe. So we have backup plans in place also for the rest of the operation.

Great. Thank you. Then final one at this point, and for you, Natalie, what were the main surprises in the results? Was there something surprising?

No, no. We have a very clear growth strategy that keeps us focused. That keeps us focused on the things that really matters, the transformation levers. And yes, it's a bumpy road. Yes, the world is unprecedented, but we have a clear focus and we have a fantastic team focused on winning and having the grit. So no, no surprises.

Exactly. Thanks. It seems that there are no more questions at this point. So thank you for active participation. If there are any questions afterwards, just please contact me and I'll be happy to help. Wishing you all a very nice day. Thank you.