Fiskars Oyj Abp

Hello, and welcome to Fiskars Group's Q1 2024 results webcast. My name is Essi Lipponen. I'm the director of investor relations. I'm here with our president and CEO, Nathalie Ahlström, and our CFO, Jussi Siitonen. Natali and Jussi will first go through the presentation and the highlights from Q1, and after that we will be ready to take your questions. You can type in your questions in the chat already during the presentation. Go ahead, Natalie.

Thank you, Essi. And also welcome from my part. It's a privilege to be here to talk about Q1 report that we just published. Let me go first to the highlights. Q1 now in 2024, it's a solid performance in a very challenging market. What we are proud of is that despite the challenging market, we are able to continue to strengthen our foundation. So it's really about the foundation that our transformation is strengthening. And we continue to deliver on gross margin, Ecom and China. I'll come to the details later. At the same time, we have also today announced that we are investing and making change in our plants, in our factories, in our glass factories, that we are taking the portfolio upwards towards more premium and luxury products. So significant investment and at the same time actively managing our portfolio. And for 2024, our guidance remains intact. Our comparable EBIT will be significantly above, no, slightly, sorry for that, slightly above 2023 levels. But let me take you to the key facts about Q1. If we start with the key figures for the quarter, despite the volumes coming down in Q1, driven by the weak consumer sentiment, yet again we were able to increase our gross margin by 185 basic points. Now, if you look in the last three years, a bit more than three years, we've increased gross margin from 40.6 to today, where we are at 48.3. So it's nearly 800 basic points that we've increased the gross margin. Talking about how we are working to strengthen the foundation of the company, transforming it. Another thing just to highlight is last year, we had the all time high cash flow of the company's history. And now in Q1, free cash flow continues at historical normal levels. Then looking at Vita. In Vita, we see that the consumer sentiment that is weaker has impacted our volumes. On the positive side, of course, we are growing via acquisitions. So the acquisition of GeoGensen that we did in 1st of October is now part of our figures. And that is then inorganic growth that we show in Vita. The integration of GeoGensen continues really well. And when we come out with Q2 in July, we will then also report on how GeoGensen integration is progressing. And today it's progressing really well. Despite the challenge on volumes in Vita, the highlight is how Ecom continues to grow. Ecom continues to grow at 12%, which again shows that consumers are driven to our web pages. They come, they want to read the stories. It's about storytelling. It's about the lifestyle experience they get from our brands. So Ecom is growing. So we're moving our portfolio, actively managing it. And therefore, as I mentioned in the beginning, we are continuing to invest and we are making significant investment now into our factory in Rogazka, that's in Slovenia, where we today announced that we invest in 15 million euros to both optimize production, increase competitiveness and modernize the factory. This will also much more accelerate our journey towards net zero in the factory in Rogarska. So we are investing. At the same time, what we are doing, these changes, it's yet again a move of moving our portfolio of the company towards more premium and luxury with the setup. And then, as I said, also the journey towards net zero. So as a summarize, what we have communicated today with the changes, not only Rogashka, also in the Itala factory, it's really in line with the portfolio roles that we spoke about in November during Capital Markets Day, where we say that we are moving more up towards luxury. And we also have brands, Itala, Waterford, that we need to optimize to future-proof the competitiveness of these brands. So we are actively managing that. Then the highlight of Q1 is truly Fiskars. Despite net sales coming down, it's extraordinary profitability for Fiskars in Q1. We reached 18.9% of EBIT margin in Q1, so it really talks about the commercial excellence we are looking at. Which are the channels, which are the places we want to be present in? What does good look like in stores? And as a consequence, despite the volumes coming down, we were also able to increase gross margin and that offset the decline in volumes. And we were able to deliver a solid EBIT for four fish cars. Another highlight in the Fiskars BA is the outdoor brand Gerber. Gerber has truly been one of the growth building blocks in Q1, where Gerber introduced a new category in Camp Cook and at the same time won more listings that were now opened up and filled in Q1. So fantastic work. Also there to drive growth for the future. So building the foundations for the future. Then, coming to the strategy. Like we always say, we are here and we have sharpened the logic. We sharpened the logic of what we are doing and it's really that we're actively managing the portfolio. Like the examples I've just given, for example, the investments we are making into the glass factories. We have transformation levers that deliver. We're making the foundation to make it even more solid, future-proof for fiskars. And when the volumes come back, we'll really see an uptick in our performance. And also we have a simplified way of working. It's with very clear accountability and decision making in the BAs, in BA Fiskars, BA Vita. So that makes us agile and much faster as we go forward. So speed is of essence. Then looking at how do we deliver on the transformation levers. So, three out of four transformation levers are delivering. I mentioned already gross margin and commercial excellence, and it's very much about the channel mix that we're working on, as well as our assortment. And we saw that in Q1, our gross margin grew 185 basic points. So yet again, a quarter when the gross margin goes up. Direct-to-consumer, e-com, fantastic growth of 12%. It's about the storytelling, the power of the brands. Consumers want to take part of this. Retail declined, but when we look at like-for-like and the pop-ups that we've closed after Christmas, the like-for-like of retail is flat. And now when we look at the importance of omnichannel, especially in the luxury segment of Vita, it's fantastic to see that Vita direct-to-consumer is already more than 50% of all of Vita. So we are truly moving the portfolio up and executing on the portfolio roles. US continues to be challenging and our big retailers, big box customers continue to be cautious with inventories. And we saw a slight decline in the US. Then China, again, the local Chinese team doing a fantastic job, growing Wedgwood, Rolke, Copenhagen. So 15% growth in China. If we include our newly acquired Georgiansen into the figures, so including then inorganic growth, China growth is 20%. So 15% organic growth in China with Georgiansen 20%. So China continues to be strong for us. And despite China overall on a macroeconomic level being a bit subdued for us, it's about the scalable model we have where we started with Wedgwood. Now we are doing Royal Copenhagen and Georgiansen then on top of it. So it's a scalable model that we can continue to deliver the growth building blocks in China. It's not only on the business itself we are transforming. Of course, sustainability, ESG, is the heart of what we are doing. It's the heart of our DNA. And on biodiversity, our recycled content, it's fantastic to see that yet again, we increased a little bit to 15% of all the content is circular products and services. So we are also, from an ESG point of view, transforming Fiskars Group. And therefore, it's natural that we in March came out with our net zero target. We are going to become net zero by 2049. If you wonder why do we have such a strange year of 2049, that's when we turn 400 years as a company, while we are this year turning 375. To reach the net zeros and the current targets that we are having, we have a lot of plans in place and we are going to continue to execute on them and reporting back to you where we are with this. Other highlights from Q1 and also from now where we are. I'll start with this. I spoke about the growth building blocks. It's really in our brands. It's about the lifestyle that the brands are creating for consumers. And this Gerber has taken to its heart and they are surrounding the consumers with new categories. An example, as I mentioned earlier, is Camp Cook that Gerber launched now in Q1. Then Fiskars brand won yet again Best of the Best for Red Dot. This is the fifth consecutive time we win Red Dot Design Award for products. And this year we won two Best of the Best. We're also innovating to enhance our ESG journey sustainability. And one important fact is that today already two thirds of our cookware products are PFAS free. This is important for the consumers and also for sustainability for the whole planet going forward. And by the end of this year, all our cooking products will be PFAS free. So a lot of growth building blocks, innovations. But it's also about our culture, our culture at Fiskars. And I'm very happy that we could in March announce that we are going to continue to reinforce our ownership culture in the company with MyFiskars, where employees, through employee share savings plan, can invest into the company and own shares. So in this way, we can also welcome our Georg Jensen employees into the program. And from the first launch we had already in 2023, we see a fantastic uptick in participation from our employees. Today, as an example, in Finland, in offices, 50% of our employees are Fiskars shareholders. So it's truly about the ownership culture we are creating in Fiskars. And then our guidance for 2024. Our guidance remains intact. It's a challenging environment with the macroeconomics and also wage inflation is against that. At the same time, and Jussi will talk about that soon, we see that the savings from what we initiated last year is starting to come in. With the Georg Jensen acquisition also, we see that our profit will be much more heavy at the end of the year, heavy loaded at the end of the year. So the typical quarterly variations is going to change towards the end of the year. But with that, I'll hand over to Jussi. Thank you.

Thank you, Natalie. And hello, everyone. Let's start first with the net sales. So as Natalie mentioned, we were down 5.8% organically. Out of that, Fiscus was 6.2% negative and then Vita 5.7%. When it comes to Fiscus BA there, the good thing is that we started to see growth there in Sweden, which is a big country for for Fiscus. Then the biggest countries, US, Finland, we had low single digit negative in those countries, taking the whole Fiscus BA down to this minus 6.2. On Vita, as already mentioned, China, which is 100% Vita country, Denmark, Sweden, UK, Norway, they were all up. So we have now more and more countries which are growing. However, the two biggest ones now in Q1, Finland and Japan, they were down. So that's why we were down also in VIT as a total. Natali already mentioned that Kerber was nicely up. We were up roughly mid-teen there, thanks to these new categories and footprint expansion when it comes to distribution. So these were the main drivers there for this like-for-like net sales minus 5.8 and then total net sales up 2.9%. Then on EBIT, EBIT came down. EBIT came down 3.7 million there when we have like-for-like basis, which means that excluding Georg Jensen impact here. It was mostly because of low volumes. That was the biggest single reason what we had there taking EBIT down. We succeeded to partially mitigate this with better gross margins, especially Fiscus BA and then the savings. And we are very pleased with the fact that now, after those announcements what we had last year, one announcement in January and then another one in September, we start now seeing that savings are flowing in. If you go through this bridge, what we have here, you can see that the low volumes impacting, of course, gross profit due to the net sales drop, but then also production, negative production variances, what we had there. Those were the biggest single reason. Then top line driven negatives, mainly coming from bad debts, marginally down. And then depreciation and marketing. These were all items which are not under those saving programs, what we initiated last year. Then you can see that both cost of goods and SG&A, they are nicely contributing our EBIT growth. And that's important also to understand that whilst the EBIT as such is coming down, the underlying good momentum there, what we have the saving plans, seems now to work. When it comes to a big part of the SG&A, employee cost of salaries, there still we see that inflation is partially offset the benefits what we are getting from a low headcount base. But let's see how now it's continued during the year. On cash flow, Q1 cash flow minus 20, free cash flow minus 20 million there. That follows the historical pattern what we typically have in Q1. Of course, we are not happy with this kind of negative cash flow, especially when last year we succeeded to make positive free cash flow in Q1. Out of this minus 20 million, roughly 8 million is Georg Jensen impact and then 12 million old Fiscus. The main reason for this negative is the net broking capital. However, within this net broking capital, we succeeded to continue inventory reductions so that now they were 31 million down in Q1, nicely equally down in both BAs, both in Viitta and Fiscus BA. On balance sheet, net EBITDA, the target being this 2.5x. We were now 2.9x. That's a seasonal impact what we have. Capital employed remained pretty flat, and that's important for us that we need to continue improving our asset efficiency. So now it's temporary down due to the fact that we still have some fair valuations therein from Georg Jensen, but we gradually start improving also that one. Q1 negative cash flow and then dividends, they're all funded through cash reserves, what we had at year end. And return on capital employed, 9%. So we still are in value creation mode in that sense. Taking all our financial targets, four financial targets here, net sales growth, organic, EBIT margin, cash flow and balance sheet. If you take a rolling 12 months at the end of Q1, the cash flow conversion is still very positive there. And then taking a longer perspective there, mitigating this kind of short term volatility there. The balance sheet remains strong and we are also catching up on cash flow. EBIT and net sales are the ones which are impacted by this challenging environment, what we currently have. That's very shortly about financing and giving it back to you, Natalie.

Thank you, Jussi. And then just summarizing with the highlights. So a solid performance in a very challenging market. We continue to transform the company, make it more future-proof and building the foundation so that when the volumes are back, we are really in a good position with gross margins, e-com and China continue to deliver. Today also we've announced we're investing in our glass factories and we're making changes in the production to ensure that we are moving the portfolio up more towards premium and luxury products. And finally, our guidance for 2024 remains intact. Our comparable EBIT is expected to be slightly above 2023 level. Thank you.

Thank you, Natali and Jussi. We do have questions here already. You can continue sending your questions to us via the chat. Okay, if we start maybe with a question related to the US. And Natalie, if you take this one. In the US, retailers are still cautious. How have the first weeks of April started in terms of sellout? And do normalizing inventories within retailers cause restocking at some point?

Yes, it's true. The big box players in the US continue to be cautious with inventory. We think it's a new normal. As long as interest rates are going to be this high, the inventory management will be very tight. Then about the first weeks of April, it's horrible to say, but it's a bit weather dependent that we've had a few very warm, fantastic weekends in April in the US. So that always helps. But it depends on now. the weather a bit how it goes and then of course following closely the pos data how it devolves as we go forward then about restocking it's very case by case dependent on on the big box players Okay, thank you.

And maybe another one for you, Natalie, related to Asia Pacific. Comparable sales in APAC was down despite clear growth in China. Can you talk a bit about the other main markets in that area?

Yeah, the biggest besides China that grew 15% or if you want to say 20% with Georgiansen. Japan had a challenging start to the year, so it's very much a Japan question.

Yes. And maybe one for Jussi. What was the organic change in gross margin, i.e. excluding impact from Georgiansen?

As Natalie mentioned, total gross margin improvement was this 185 basis point there. Without Georgiansen, it was still improving a bit more than 100 basis point. So more than half of this improvement is organic and the remaining part is Georgiansen.

Great. Let's see. Then a question related to Finland and the political strikes that we had in Q1. And maybe Nathalie, if you take this. How large of an impact did they have in Q1? And do you expect some effects still in Q2?

The political strikes we had in Finland here in Q1, they didn't materially impact. Our teams in both supply chain production planning and so on were very agile and could react to the situation. So fantastic teamwork led to that the impact was marginal.

Then another one for you, Natali, and going back to China. China's comparable growth was healthy at 15% in Q1. Can you give indications of monthly sales development in the country?

In China, like in all our countries, all our markets, it's very dependent also on the occasions of the year and which month the occasions fall into. In China, as we all know, the Chinese New Year is one of the biggest events in Q1. So that then fluctuates how it's between the months.

Okay, then maybe a question related to the planned factory changes. So Natalie, will the planned optimization measures in production mean that the production would better respond to the kinds of market demand situations we saw in Viitta in Q1?

In Viita, when volumes came down, in glass manufacturing, that's a process industry, it's difficult to flex the volumes. These changes we are doing now in the factories are not driven by the situation in Q1. These are long-term strategic changes we are doing. as we want to move the portfolio up towards premium and luxury, so being less volume-dependent, and the importance we will strengthen. We have machine manufacturing in both Ital and Rogaska, and we want to further enhance the importance of hand-blown, mouth-blown glasses, because that's so important in the luxury industry. segment. So this will improve our competitiveness and also how we are moving up the portfolio in positioning the brands.

Great. And then also another question related to that. Are these optimizations expected after 2026 or already earlier?

The optimizations start now. And the investment we are doing in Rogashka, the 15 million euros, that also now starts ordering the new oven for Rogashka.

Yes. Let me see. Jussi, maybe if you take the first part of the question and then I'll continue to Natalie. So Jussi, how much did Georg Jensen burden profitability in Q1?

Yeah, as you probably saw in my slides, Georg Jensen Q1 net sales was 27 million and then EBIT minus 1.7 million. So that gives a good proxy on that one. Yeah. Yeah.

And then Natalie, the latter part of the question to you, how is the integration progressing? I know you mentioned it already, but if you can. Give a summary.

It's fantastic. The integration is going really smooth. Couldn't be better. And it's thanks to the rigorous plans that we have in place, had in place already, most of them before signing the deal in September. So we're executing on them. And in July, when we come out with Q2, we will talk more about that. But it's fantastic progress. Yes.

Then Jussi about cash flow. So cash flow was negative in the first quarter. Are you worried about this?

As I said, definitely we are not happy with this kind of negative cash flow, especially when we succeeded last year, deliver positive Q1 cash flow. I'm not too worried about that. We know that it's this volatility, which is further intensified by Georg Jensen having now in our portfolio. And typically we have made the cash flow in the second half, especially in Q4. And it seems that we continue following the same pattern.

Yes. Great. And maybe, Jussi, if you continue. Do you expect to reach your leverage target again already in H2 this year?

By end of this year, you mean? Yeah. Yeah, that's for sure. Is the target there to maintain our 2.5x NetADVDA?

Okay. Okay, maybe one for Natalie in between. Low volumes impacted Viitta's profitability. Could you give any indications of your own manufacturing utilization ratios and are you expecting this to gradually recover during the year?

Yeah, in Viita, correctly, low volumes impacted Viita significantly in Q1. In many of the places where we produce pieces, it's easier to flex the volumes, but the glass factories that are process-driven industry, that's why it's difficult to just flex like this. But now also with the changes we announced this morning, when we go to more premium, more mouth-blown, we will also be able to not only get in the premium position net zero but also then flex going forward.

Yeah and I'm not sure but I think that the question also referred to we have said that we have last year reduced the amount of manufacturing and also sourcing. So what is our situation with that? Are we still producing less and sourcing less?

That's a very good addition. Thank you, Essi. It's a very factory by factory situation, depending on if it's a ceramics factory, if it's a glass factory. And in some of the places, it's a lot of hand painting. For example, Royal Copenhagen is hand painting. It depends. And as I said, these are then easier. Some of them are easier to flex than others. When it comes to sourcing, that's, of course, where we have the easiest to adapt to the rapidly changing situations. And Viita has much more own manufacturing than Fiskars, and that we saw in Fiskars BA last year, that they could much more adapt also than on working capital.

Thank you. Okay, then Jussi, a couple of questions for you. The other segment, have you completed savings in external services or are you expecting to reach a lower run rate cost level?

When it comes to our so-called segment other there, the underlying operative costs that we have there, they are typically 1 to 1.5 million each month. So that's a good proxy also here. The external services we have reduced or terminated there, they should still deliver some benefits for the further quarters.

Great. And Jussi, if you take this one as well, good to see that the savings are now coming in. Is Q1 savings also a good proxy for the full year?

Yeah, I agree. It's very good to see that savings are coming in. The GOG savings, which are both a combination of lower unit cost, what we have there, thanks to price negotiations, what we have succeeded to go through, and then also the efficiency improvement, what we have seen in our factories. That part should continue. Of course, it's partially volume driven. So we need to see increasing volumes to get all savings out. On SG&A part, external services is a good example. That will continue. The one thing what we have there in SG&A, of course, is the people who cost salaries and the inflation from last year. It will have now a full year impact. And then also for this year, we see roughly 4% salary inflation. there, which partially offset the savings we are heading. So answering the questions whether Q1 is a good proxy, we truly believe that we can continue at the same pace.

Great. And still, if you continue, you see the tax rate quite high in Q1. What about full year?

Yeah, the effective tax rate in Q1, 32%, that's not a proxy for the full year. So I would say 22-25% range is a good proxy for not only for full year, but also for longer period of time. What's our effective tax rate?

Great. And we have one question left. So if you still have any in your mind, you can type in during this next one. So maybe this is still for you. Can you explain the one-offs you had in Q1?

Yes, for sure. Actually, the biggest one there definitely, which is still continuing Q2 and Q3, relates this purchase price allocation of fair valuation of acquired asset of Georg Jensen. The part of that was allocated to inventories. And now we are amortizing this there. It takes one inventory turn when they are out there, which is by end of Q3. As much as I respect accounting, I would say this has nothing to do with the underlying business operation as such. So it's truly this kind of accounting technical type of topics there. Then another one is what we informed when we acquired Georg Jensen, that is roughly 10 million, what we need for integration there to get all the integration benefits out. And that's also partially now in Q1 there. So those are the two big items.

Yes, great. Thank you. It seems that we don't have any more questions at this point. So thank you for active discussion and feel free to contact the IR team if you have any further questions. Thank you.

Thank you.