Fiskars Oyj Abp

Hello, and welcome to Fiskars Group's Q2 results webcast. My name is Essi Lipponen, and I'm the Director of Investor Relations. I'm here with our President and CEO, Natali Ahlström, and our CFO, Jussi Siitonen. Hello. Natali and Jussi will first go through the Q2 highlights, and after that, we will have plenty of time for your questions. And you can type in your questions in the chat already during the presentation. Natali, please go ahead.

Thank you Essie. Thank you, and welcome also everybody from my side. It's a delight to be here to talk about Q2. First, to the highlights of Q2. We are very proud that we had two all-time highs in this quarter. Both our gross margin, driven by Vita's elevation of the portfolio upwards, and then also all-time high of free cash flow. So gross margin, all-time high, free cash flow, all-time high as a company for Fiskars Group. Also, we continue to deliver savings thanks to the simplified way of operating we have today, and also we are going to continue to accelerate the savings as we go forward. We keep our guidance intact, which means that we are slightly above last year's EBIT level. And as I've said in many webcasts today, nine months after we procured Georg Jensen, I'm going to talk about the integration that is progressing well on track. Already 75% of the cost out synergies are in implementation. So now into the details. When we look at where we are in Q2, it's very evident that the only issue we have is volumes. This is on the volumes decline. It's driven by macro and especially in the US where the consumer sentiment is down. Of course, it's a global macroeconomic environment. Despite the big volume drop, we were able to deliver, as said, the all-time high gross margin improvement and also the free cash flow. And this, of course, led them to the cash per share is up. And as I said, with the volume that impacted our EBIT and then earnings per share. But let's look at the details on Vita. Vita, this is where the challenge really was on the volume side in this challenging market environment. But considering this drop in volume, We are very proud that the GeoGensen integration now is highly accredited to the EBIT of the whole group and to Viita. So already in Q2, making a profit in GeoGensen compared to in the last time, in last years. And Jussi will talk more about that. And as I said, the all-time high gross margin of Vita that has driven the whole company up, so moving the portfolio upwards into the more premium, premium luxury area. The gross margin improvement of Vita came both from organic actions we are doing, mainly supply chain improving, and also, of course, pricing, and then the addition of GeoGens and that, from a portfolio point of view, sweetens the mix. We also have had good growth building blocks. China continued to grow, this time only at 5%, although when looking at the market, we are quite happy with the 5% growth in China. Sweden continued to grow, and Moom in Arabia continues to be very strong. So these are the organic growth building blocks, in addition, of course, to the inorganic of Georgiansen. Then with fish cars. Fish cars had soft sell-out in the markets, and the volume impact also here as in Viitta, and that's macroeconomic driven. At the same time, we had strong sales in Nordics, so good performance in Nordics by our team. And Gerber, our outdoor brand, continues to be a growth building block for us, thanks to new listing, new doors where we are selling Gerber in the US, and also the category expansion to outdoor cooking with our Camp Cook range. Then looking at our strategy, we've continued to focus on winning, focus on the winning brands, channels and countries. And with this, with a clear focus on the winning, that's also how we are actively managing our portfolio. As I've said, we are moving upwards the whole profile of the company. The transformation levers continues to deliver also in this challenging market and they are important for us to build a strong foundation for future growth. As we said in the capital markets day, we have our transformation is from 2021 to 2025. And we soon start to be at the final leg of our transformation. And I'll come soon to that. But looking first at the transformation levers, as said, these are good foundation was when the volumes come back for the future growth. We are very happy with the gross margin, as you've heard me saying so many times already, with the all-time high that is driven by Vita, now at 49.1% in the gross margin. This is also nearly 12 months ahead, or when we look at the year to go and towards December, this is nearly 12 months ahead of what we said in the capital markets day, where we are going to take the gross margin. So good development that we are going to continue to push upwards. things we are doing on focusing on winning channels, winning brands, winning countries. So channel strategies and also the supply chain efficiency improvements that we are doing. Direct-to-consumer was weaker this time, this quarter. It's actually the weakest in a long time. And this is only one thing driving it. It's the e-com in China. That was hit hard. So EECOM, our big channel there, was down, and so much down that it took the whole EECOM of the group down. So one single area. When considering that, it's really amazing how well our China team did in China, that despite EECOM being so negative, that they still could grow organically without the Georgians in integration, 5%. So again, our local team is doing a stellar job in China. On U.S., we continue to see that the big box players and all our customers are very prudent with inventory management, extremely prudent and focused on working capital. And therefore, the market continues to be sluggish in the U.S. So I talked about that we had the final leg of the transformation that we started in 2021. And we really see that the way we are operating, that the focus is on the business areas Fiskars, business area Vita. It's a simplified way of operating. where the whole accountability, the P&L accountability, sits with the BAs. The scalable platforms are there to drive efficiencies and synergies. And also what we are doing now in supply chain, we see that that's really benefit fitting and also that it's targeted BA specific actions that we are doing that's fit for the business. So our key principles is that it's systematic improvement and improving on the cost efficiency and then making it strong for future growth. There's some examples also of this rigorous focus on brands first approach. And one is of course that we announced already early in the year where we split sales into the business areas. Also, the supply chain transformation that we have reported a lot about is BA specifics and looks at the needs of the BAs. We also in this report talking that we are accelerating efficiency improvements. They are not a new program we initiated. It's not anything. It's just that we continue this systematic approach. And one example that we are doing now is our distribution centers, our warehouses in both Europe, U.S. and Asia. We're really making big changes there to drive further efficiencies that meets the demands of BA Fiskars and BA Viitta. So a lot happening here at the final leg of the transformation with a focus on what does BA Fiskars need, what does BA Viitta need. Then on the inorganic side, I said I'm going to talk about Georg Jensen. And the Georg Jensen integration is nearly at its completion. And the synergies are really on track. The rationale when we bought Georg Jensen was, and still is, the strategic rationale, is we want to move the needle. We want to buy a big brand that moves the needle. It's also a brand with higher positioning, driving the luxury and also changing our portfolio. As we say in the group, we are portfolio managers. It's also category expansion where we, thanks to Georg Jensen, has expanded into lifestyle, more lifestyle brand and also jewelry. And Georg Jensen is direct to consumer led. So this is the rationale behind the purchase of Georg Jensen. Now when we look at when we acquired it we said we are going to deliver 18 million euros of cost synergies and we bought it at a multiple of 4.7. So where are we today? Only nine months since we closed the deal. Now today 75% of this 18 million is already in implementation. We will not see it all this year. It will spill over to next year due to many of the things like procurement are very volume dependent. But the actions are already taken. So 75% of the cost synergies done. Also, we have as an example, what have we concretely done, not only the procurement, integrating sales organization, but we've also reduced net 10% of headcount in Georgiansen. And this is all according to our disciplined M&A playbook that we have in place. The only thing outstanding from the integration of Georg Jensen is the IT ERP integration that's ongoing. So fantastic. Nine months ago we bought the company for a multiple of 4.7 and now most of the integration already completed. Then looking at other areas, we are transforming the company. It's not only on the financial side, it's of course also our stance on sustainability. And we are very proud of the sustainability where we are today. One of our key metrics is how much of our net sales is based on recycled content products for circular economy, for biodiversity. And in Q2, we've jumped from in Q1, we were at 15% was recycled content. Today, it's 24%. So it shows that our focused approach, we go for big needle movers, we focus and we get a big impact. So 24% of all our net sales today already recycled content product. In this quarter, we also are very happy to say that already today, 58% of our suppliers have science-based targets. We've said earlier that our target is 60%. So the remaining 2%, we will very soon close. Another ESG metric we are proud of is our diversity and inclusion metrics, where we are within the top 10% of companies globally. So a lot of progress also on ESG and sustainability. And this has been recognized externally as well. Ecovaadis awarded us with platinum grading this year. We are very happy about that. And Time magazine also listed us as one of the 500 top sustainability leaders globally. So, good place to be. But then looking at some other highlights from the quarter. I've spoken about growth building blocks. The key heroes in Q2 continues to be Moomin and Gerber. Both Moomin and Gerber are opening new doors, having new distribution, and at the same time doing category expansion. Moomin expanding into textiles, Moomin also has opened eight new stores now in this year to date. And Gerber with a camp cook and also new stores, new open doors in US. Then Iittala. There's been a lot of discussion about Iittala, and we're very happy to see that the consumer engagement continues to grow. And we have grown the subscription of MyIittala memberships by 9% compared to last year. So a lot of interest also from consumers to MyIittala, where they are voting with their wallet and joining MyIittala membership. We also talk about our luxury brands and the positioning of them and are proud of the cooperation between Wedgwood and Löwe, the luxury brand Löwe. And then from an ownership point of view, a mentality that we are all the owners of the company. We are entrepreneurs. We are driving the future of the company. We are happy that with my Fiskars program, the employee share savings plan we have in place, over 10% of our employees are owners of Fiskars. And then to the guidance. It's unchanged. Macroeconomics continues to be challenging. We don't foresee the second half to be any easier from a macroeconomic point of view. And wage inflation is impacting us. At the same time, we talk about accelerating efficiency improvements, we talk about the savings, and the simplified way of operating that we have where we are BA dedicated will continue to drive the efficiencies so that also we are set up for growth when the market macroeconomic changes. And as we all know, for Fiskars Group, it's always very second half Q4 heavy when we make the most of the profit. And with that, I hand over to Jussi. Thank you.

Thank you, Natalie. Hello, everyone. So let's take a bit deeper dive into the financials here. First top line, as I said, our organic currency neutral top line was down 5.3%, so that Fiskars BA was down 2.7% and then Viitta organically 8.7% down. When it comes to Fiskars BA there, we were up in most Nordic countries, including Finland. And why Finland is important is that after the USA, Finland is the second biggest country for Fiskars BA. Central Europe, mainly Germany and Poland, which are important for our Fiscus PA, they were down. USA was flat for Fiscus PA, bearing in mind that USA is the biggest country for Fiscus PA, roughly half of businesses there. It's so important for us to get US back on the growth track. Vita net sales were up in China and Sweden, and for the rest of the world it was down. Important in Q2 is that China was the biggest country for Vita BA now in Q2. Georg Jensen acquisition, it has been in our books from 1st of October 2023 onwards, so Q4 last year was the first quarter. Now, not having comparison numbers, there's a whole 28 million of top line what we had in Georgiansen was nicely contributing our total growth, which was 4.9%. Moving then to EBIT here and organically EBIT was down 7.8 million with Georg Jensen 4.2. What you can see here is our EBIT bridge. And as Natalie mentioned, this is very much a volume game where we are now in. So the negative sales and production volume impact, that was the main reason why our EBIT came down. Other negative items we had were increased depreciation and amortization. These are very much digital driven. We have invested significantly in digital in the past couple of years. Roughly 40% of our annual capex is in digital. And then, of course, amortization and depreciations are impacting these quadrants. Then also employee cost. You can see it here in two places. The gross one shows how much our employee cost increased, and then we have also savings there. The saving programs we initiated last year. We had saving program initiated very early 2023, then in September, and we have continued those. We are very pleased. the results where we are with the savings programs at the moment. Even though if you take our P&L, you can't figure out how much they are contributing our EBIT at the moment, because we have a lot of these kinds of negatives coming mainly from volumes. But when it comes to cost of goods, when it comes to SG&A, when it comes to our employee cost, all these programs are delivering savings at the moment. They are almost mitigating the negative part, what we get there from the volumes. Then also the ones who have followed us a bit longer period, we have said that typical seasonal pattern what we have in Georgiansen is that the first nine months we are at break-even level and all the profit is made then in Q4. Now we have succeeded through those synergies Natalie just mentioned, changed the model a bit so that now already in Q2 we got 3.7 million incremental EBIT there from Georg Jensen. This very strong performance, especially bearing in mind the historical pattern. The same picture for the first half, where our EBIT came down 10.4 million and then excluding Georg Jensen 11.5. Here also you can see the significant negative impact coming from the volumes. The saving programs also here, they are actually fully mitigating the negative volume impact what we have. And this shows that the underlying improvement what we have there is in place. So once we get the volumes back, it will have a huge impact on our profitability. The saving programs for the first half, they are delivering roughly 10 to 12 million per quarter, so that we have roughly 25 million now in the first half numbers included of those savings. That's about profit. Let's move then to the cash flow. We had a bit soft start for the year when it comes to free cash flow. It was negative 20 million. Now in Q2, which is all-time high Q2 cash flow, what we had in the recent history, we succeeded to get back on track also with the cash flow. The main driver for the improvement was our net working capital, especially when it comes to account receivables, account payables, where we succeeded to get that back on the plans that we had. The rolling 12-month free cash flow stays at a high level of approximately 160 million. Then on balance sheet, so capital turnover of our capital employed is at year end level. It's temporarily elevated due to Georgiansen. So this purchase price allocations, what we got from Georgiansen acquisition, a big part of that was allocated to inventories. Now at the end of Q3 we get rid of that one and therefore we had this kind of quite natural capital turnover improvement coming when we had the full 12-month net sales of Georgiansen in and we get rid of this PPA part. That's also expected to improve our return on capital employed towards the year end. On net debt, net debt was down 32 million from Q1, driven by strong free cash flow. Our net debt EBITDA of 2.7x, it's slightly above our max target of 2.1. For the rest of the year, bearing in mind that our EBITDA is seasonally higher in the second half. And of course, Georg Jensen is now further increasing the year-end bias. Also, our free cash flow is seasonally stronger in the second half. That's partially offset then by our Q3 cash dividends. This year it's 33 million. So combining those two factors, we expect the net EBITDA is to decline towards the year-end, provided the historical trends will continue. When it comes to our financial targets, four financial targets, net sales, profitability, cash flow, and balance sheet, and especially focusing on last three years, which eliminates this kind of seasonality impacts there. On balance sheet and cash flow, we are pretty well in track. Cash flow also improving towards the target, balance sheet being there on the long-term perspective. What we need is the volumes, which will also help our EBIT margin to improve. With that, give it back to you.