Fiskars Oyj Abp

Hello and welcome to Fisgar's Q3 2022 results webcast. My name is Essi Lipponen. I'm the head of investor relations. As usual, I'm here with our president and CEO, Natali Ahlström, and our CFO, Jussi Siitonen. Natali and Jussi will first go through the Q3 highlights. And after that, we have plenty of time for your questions. You can type in your questions in the chat already during the presentation. Natali, please go ahead.

Thank you, Essi. And good morning, everybody, from my side as well. It's really a pleasure to be here today to talk about the Q3. And first, some highlights. When we look at the Q3, our sales development was flat. But we are proud of that because it was flat against the Q3 last year, which was the all-time high in the history of Fiskars Group. So in this turbulent environment, we are quite satisfied with that performance. Secondly, our multiple actions to mitigate the cost inflation are now paying off. So we were also able to maintain a flattish profitability EBIT in Q3. Thirdly, as we go forward, we continue to focus on our growth strategy. And this means that we continue to invest in our fundamentals in the direct-to-consumer and digital. This is so important to future-proof the company. And with all of that, we keep our full year outlook intact. That means that our comparable profit is going to increase from last year. But let's look at the details. On net sales, as said, we are in Q3 on par with the comparison period where we had the all time high Q3 last year. And year to date, we're still at 7.2% net sales growth. In this turbulent environment, I think that's okayish. And what I'm especially happy about is Asia-Pacific is booming. Asia-Pacific is really driving growth. And we also have multiple channels brands that are driving the growth, and you will see more about that in the presentations. So our well-balanced portfolio really is delivering as we go forward in this turbulent environment. You can also see on the left side, you see here Q3 2019, just as a comparison, where were we before COVID hit. And there you see it's truly a transformation we've done on the top line in Fiskars Group. Then look at profit. Here you can see that Q3 and year to date is flat compared to last year. It's been a bumpy road. For sure, it's been a bumpy road with the cost inflation that is there. And now we're happy to say that the gross margin improvements, they are paying off and we are seeing them coming through. Gross margin increase already now in Q3 of 100 basic points and then being flattish on year to date level. We are quite satisfied with that and gross margin development is also the one going to drive us as we go forward. Then looking at our strategy, as said, we have a very firm focus on our growth strategy so that we ensure that we continue to transform Fiskars Group. We focus on the brands, channels and countries where we are winning and where the opportunities is the biggest and allocate our investment money accordingly. Also, when it comes to marketing money, this is where we allocate it to have the biggest yield. On transformation levers, full focus, laser focus on commercial excellence, direct consumer, US and China. And I'll talk soon about also where are we going with this? How are we progressing as a company? And of course, Enablers being important here to support us with people, our digital journey, innovation and design and sustainability. But let's look at where we stand with the transformation levers. What is the progress in this time, in Q3? Starting with gross margin, as I said, in Q3, we started now to see the impact of the gross margin. So 100 basic pointed up. And if you look at reported, it's 290 basic points up in Q3, despite energy increase, inflations and so on. So this we feel very strongly about, that the focus on commercial excellence is paying off. Then direct-to-consumer continues again to grow, especially e-com. So e-com in Q3 grew 5%. And if you look at year to date, the growth in e-commerce 9%. So again, showing where we focus, we are truly transforming the company. On the direct-to-consumer, the share also of direct-to-consumer in the whole company is increasing. Now in Q3 it was 21% of the whole company, whereas last year direct-to-consumer was 18%. So we are increasing the share of direct-to-consumer, which we are very happy about, because it's relevant to the consumers and of course the earnings logic. is very good there. And thirdly, we get the data. We get the data all the time, supporting also what is the consumer sentiment. So this that we can in these times show 5% growth in e-com, 9% year to date, and also in own stores, 10%. We get an incredible amount of data that we then also can use for our wholesale to show these are the levers to pull to continue to grow. Then on U.S., U.S. was challenged in Q3. It's our big retailers who are worried about inventories, as we all know, and they are being very careful in taking in inventories. So U.S. went backwards in Q3. However, if we look at the whole year to date, we are still growing at plus 5% in U.S. And then finally, our strong transformation lever, China. As I always say, our China team continues to deliver. Whatever happens in China, they continue to deliver. And with a solid 35% net sales improvement In Q3, I just think it's an astonishing result of the team when taking into account the COVID restrictions that come and go, come and go. And in China, we see it's clearly the e-com and our investment in digital and our focus on digital, not only the capabilities, but marketing and so on, that is paying off and means that we can, in tough times, grow in China in e-com. So this is where we stand on transformation levers. However, this is not all. If we then look at sustainability, of course, sustainability is at the core of our strategy. Where are we? What are we doing there? And I'm very happy to share this news that we already announced in October. So it's after the reporting period. But this investment we are doing in the Italafactory, where we're doing step change, step change in our scope one and two, and really step change for the whole Fiskars Group. So with this investment, we're reducing our scope one emission by 26% in whole of Fiskars Group. So this shows that there are actions we can take to step change the future of the company and also, of course, towards our commitment to the climate change. So not only transformation levers delivering, but also the important enablers to future-proof the company. A lot of cool stuff going on. And then we come to the outlook. We keep our outlook intact. We have a flatish year to date at the moment, profit, and we have the Q4 ahead of us. Going into the holiday season, of course, we are not immune to what happens around the world. We are not immune to the consumer sentiment. However, we have a well-balanced portfolio, many geographies, many different kinds of brands and consumer behaviors. So we keep our outlook intact. Also with the holiday season, just a small note about that. It's not only... the traditional Christmas we see here in the Western world. Double 11 in China is huge. So we have multiple events, Christmas, double 11, Thanksgiving and so on. And of course, Q4 is a Vita quarter. And here, really, I want to say, how are we going to make this? It's with the resilience and grit that we delivered this year so far, and also the fantastic, talented team we have in Fiskars Group. So, outlook for the year unchanged, intact. And finally, a bit about... Where do we stand? What is the basis? I mean, the power of our brand. We can't just highlight the importance of the power of our brand. And of course, that's also behind driving commercial excellence, behind direct-to-consumer US and China growth. The power of the brand is strong in Fiskars. And here's an example. The Fiskars brand again ranked the top brand in Finland yet again this year. Arabia, a brand that turns 150 years next year, also rose up to the top 10. So we have a good, well-balanced portfolio of beloved brands that are relevant to the consumers also as we go forward. With that, thank you from my side and I hand over to Jossi.

Thank you, Natalia. And hello, everyone. On Q3, let's start first with our financial targets, how we are performing against the targets we have set for ourselves. So first, net sales target being at mid-single digit growth organically. So rolling 12 months, end of September, we are still there at 8% growth. So tick the box there. We are delivering the targets. On profitability, the target being at mid-teen EBIT margin by 2025, so next three years time. And the target what we have is that we are getting gradually there step by step. Now we are coming a bit backwards with 11.8 at the last 12 months end of September. So that's why it's blinking yellow here. Then I take first the balance sheet, so balance sheet target net EBDA, less than 2.5. We are still below that one with 1.8. However, as you can see the trend, we are now gradually getting closer to that target. On cash flow, and I'll get back to cash flow in more detail after a couple of slides there, but having negative cash flow now for the first nine months there, of course, we are out of the range when it comes to target. Then about Q3 and year-to-date more specifically. Natalie already mentioned the gross margin improvement, what we have. The actions we put in place in the first half this year, we also mentioned those in our earlier calls, what we have had after Q1 and Q2. Mainly the price increase driven, but the whole commercial toolbox has been in place there. They started to pay off in Q3. From August onwards, we have seen gross margin improving. And you can see here quite significant gross margin improvement, if we use reported numbers. But excluding the sale of US water, we were 100 basis points up in Q3. Still, year-to-date basis, we were 30 basis points down. But the trend is good, what we have now seen there. Importantly, all the three BAs improved their gross margin versus last year in Q3. When it comes to inflation, we saw some stabilisation there, or even declines when it comes to raw materials, inbound logistic, but these were the only ones. Outbound logistic, as well as especially energy price, there we still see being some increase, or we are at least much higher level than where we were in comparison period. Three OPEX drivers, so the OPEX overall, 11 million up in Q3, 38 million up year-to-date basis. For both period, 60% of this OPEX increase came mainly from those investments we have decided to do. Investment in D2C, investment in digital, and then also marketing. Marketing especially, digital marketing here, supporting our D2C growth. On EBIT for both period for Q3 and year to date, we were quite flattish. And I'll go through a bit more detailed how we ended up with this flattish EBIT. What you can see here on the left is our Q3. So admittedly, we got some help there from FX Translation, a bit less than 3 million, but the main driver for this improvement was improved gross margin. So that contributed most of our EBIT improvement. And then those investments worth of 11 million I already mentioned, they took us back to this last year's level. When it comes to year-to-date, the FX impact was a bit shy of six million positive, but still when it comes to nine months here, we got a lot of boost from the volumes. So that was the biggest driver of our EBIT improvement in the first nine months period. Then more about businesses, first Viitta. So Viitta, 2% like-for-like growth. And this was very much driven by combination of D2C, Wedgewood Brand and China. And Wedgewood Brand, just to give you an example, mid-teen growth in Q3. So that was a great profit contributor or top-line contributor for Viitta. Viitta's profit was quite flattish, gross margin improved, and that was invested back in those capabilities I just referred. Terra. Very good development with outdoor, i.e. Gerber brand in USA. We all know that US market was lukewarm at best, but Gerber succeeded to grow 14% in that market. Another growth driver what we had was gardening in continental Europe. So we succeeded to continue growing there also double digit number. That together brought us to a bit more than 3% organic growth versus previous year. Then when it comes to profitability, excluding this US water impact there, we were quite flattish. There also we saw volume improvement, slight gross margin improvement, and that was offset, especially with marketing expenses. On CREA, we saw some shift from Q3 to Q2 actually. So back to school season was more biased into Q2 this year. We were 15% up in Q2, now 12% down in Q3. So that's the main reason there. Also, we have seen some softness there in consumer demand in CREA's categories. On EBIT, volumes were down, but we improved the margin. And that was the factor there that we remained practically flattish also with this business. When it comes to regional sales, what you can see here is Europe minus a low single digit number. That was very much driven by Finland and Sweden. So both countries fell down both Q3 and the year to date basis. Same also applies to D2C in this region. So it was very much Finnish and Swedish D2C which went down. America is down quite significantly, both in the US and Canada. D2C, especially in e-com in USA, however, was up. Then APAC is only having 13% growth. It might even sound quite lukewarm, growth 13%, but it's hidden the fact that China was up over 30%. China was up over 30% in all channels, in D2C, in e-commerce, in retail. And what you can see here also is that China has not so dominant role in our global sales, but they are almost half of our D2C sales now for Q3. Then about cash flow, and as I mentioned that earlier in my presentation, let's take a more deeper dive here. So free cash flow down 63 million in Q3 and now a bit shy of 140 million for year to date basis. This is very much working capital, very much inventory driven. If we split this inventory growth, what we have there, more than half of year-to-date inventory growth is coming from Terra. Vita is roughly one third, and the rest is then in Crea. The silver line what we have here is that Q4, as Natalie mentioned, is very much Vita-driven. So we believe that we get, at least in Viitta, inventories back to a bit lower level where we are at the moment. We have funded this negative cash flow through short-term funding, but of course, at a certain point, we need to start converting that more long-term to be safe in our long-term funding process. On balance sheet, balance sheet is still solid. Its leverage ratios are up due to the working capital growth, but net EBITDA is still well in line with the target. One KPI we are following quite closely, even though it's not in our formal financial targets, it's our return on capital employed. Now we are at level of 15, and of course, the target is to get a much higher level. With that, I'll give it back to you, Natalie.