Fiskars Oyj Abp

OMXH:FSKRS

Earnings Call Transcript 2019-Q1

[Kristian Tammela, Manager of Investor Relations]

Good day, ladies and gentlemen. Welcome here to Helsinki to Fiskars Group Q1 2019 Result Presentation. My name is Kristian Tammela, I'm the IR Manager. And today, we have with us, as usual, our CEO, Jaana, and our CFO, Sari.We'll have a normal presentation here today. And after that, we'll have the Q&A session, so you'll be able to present questions. You can do it already online, if you want to. And without further ado, the presentation materials can be found on our website and a recording of this event as well from the same link. And please pay note to the pretty boring disclaimer. As normal, we'll be making forward-looking statements. But without further ado, I'll give over the word to Jaana.

[Jaana Maija-Liisa Tuominen]

Thanks, Kristian. Welcome to join me and us. Sorry, I'm -- kind of a limited availability move, so I will be sitting on this chair, but you can hear and see me.So as you know, the first time we'll do it only in one set, so it's the webcast and the physical presentation. And thank you for joining us.Very traditional view. Let's start what the Q1 looked like, and I'm sure some of you have already read the material that we published earlier today. So we start with the good news. The comparable EBITA increased despite of the slight decrease in the comparable net sales. And we will be going through the numbers more in detail, you see more about it. You can already now say that after the FX rate being a burden for the result, this time, it's the other way around. So now we have the change in the foreign exchange.The profitability increased especially in the Functional segment. We had nice improvement in Europe in the Q1, and the net sales were pretty much flat compared to the previous year. In the Living quarter -- in the Living business, the quarter is not that important. As you may remember, Q4 is really the gifting season for that business. The sales did decrease in Q1. The result was quite flat. No change to the full year guidance.And let's go forward, if it wants to do that, yes. Here, you can see a little bit longer view on the quarterly sales. And the reported sales is plus 1% up. But as you can see the comparable, minus 1.4%, as mainly the exchange rates then did that change to the different direction. There wasn't really any major divestments in that number. And you can see the FX impact and also then how the SBU Living was lower in the net sales in Q1. Also, you can clearly see that this is a little bit seasonal business. The quarters are not identical.Looking at the comparable EBITA. As I said, it increased nicely in Q1, almost 10%, and that there are other items affecting comparability, the EUR 5.8 million. It really has to do with the Living transformation that we announced late last year. So that is proceeding as planned, so we are quite happy with the progress of that program. And the reported EBITA went down as there is a significant IAC in this quarter.A few words about the Living Transformation program that was announced in October. And I said it's proceeding as planned. And currently, we have the EUR 5.8 million in the items affecting comparability. And also now, during Q1, we announced plans to reduce our production in the U.K. facility. That is part of the bigger Living Transformation plan. You might remember that it's going to be costing us about EUR 40 million for the next 3 years, and the total savings on annual level are expected to be EUR 17 million. So far, we have booked EUR 8.1 million for this Transformation program as items affecting comparability. And as you could see, EUR 5.8 million of that was Q1 this year.A few words about what do the people see about our brands, and here is now the Functional SBU marketing highlights. I'd like to start with the first picture there, 0% selfies, 100% happiness. Gardening is a topic that's really enjoyed by people, and it's a great way of relaxing and having something else to do than thinking about social media, work, e-mails and so on. That has been really appreciated by our customers and consumers alike in different parts of the Europe. We've launched this now in France, in Germany, in Nordics, quite a few countries. So that's the basis for our marketing to be.We have received not only one, but 7 Red Dot awards for our design, one of them was the Nordic axe, that's in the picture. That's a new product. And also then, we have had some new product launches on the Gerber brand as well. For example, the fishing is now expanded to saltwater fishing. The similar way from the Living side of it, we're extremely proud that we have been able to launch the Vintage that we tested already last year. It's now available in selected stores in Finland. We will be expanding that to new stores, maybe also brands and countries. Some new product has been launched in different parts of the world. And typically, when we launch a new one, we take it pretty much one country at a time and make sure then that the launches are done properly. And now blomst was expanded to Germany during Q1. Raami was already introduced earlier, and now during the Q1, the sales have started. That's an Iittala brand series.And now we have to say that I need some help with the computer as I can't move. There is something on the screen. Sorry about that. Thank you.But those were kind of the major highlights at the high level and as typical for the quarterly reports. So Sari will go through then the details on the figures.

[Sari Pohjonen, CFO & Deputy to the CEO]

Thank you, Jaana. And let's start with Functional business or Functional segment where the Q1 obviously is very important for us due to the gardening. And as you can see, we were able to improve the comparable EBITA for the segment. However, for the net sales, the comparable net sale remained close to previous year's level. The development for us, in a way, a bit twofold for the segment. Here, in Europe, we had a very good quarter. We were benefiting, first of all, in the beginning of quarter, still on the sales of snow tools, and thereafter, both the cooking and gardening categories. But in the U.S., this spring has started in terms of weather, fairly slowly. So it's been a cold Q1 in the U.S. We did increase our sales for the gardening category. But for watering, obviously, when the spring hasn't really started yet, we didn't reach previous year's levels. And that is then reflected in the results. So the improvement is coming mostly from Europe and good to highlight also the Outdoor business there.In terms of Living, as Jaana already mentioned, the comparable net sales decreased for Living. The result was pretty much flattish with the previous year. As you can see from the bottom part of the slide, the Q1 is a very small quarter in terms of result for this segment. Our Scandinavian Living business grew during the quarter while English & Crystal Living decreased. And that was mainly due to a result of lower volumes and secondly, on unfavorable mix, which was reflected in the comparable EBITA as well.It's important indeed to know that this is a fairly small quarter. And as you can see, the latter part of the year and especially the Q4, those are the decisive ones for this segment.On a group level, our comparable net sales increased in Europe and in Asia Pacific. In Europe, that was related to the Functional business. In Asia Pacific, it was related to the Living business and actually our development in Japan. The Americas decreased both due to the Functional and Living there.As for the Other segment, which is our real estate operations investment portfolio, some corporate functions, there were no major changes during the quarter. However, it's, of course, good to know that at the Annual General Meeting in March, the Board's proposal to distribute the Wärtsilä shares as an extra dividend later this year was then decided upon.Here, you can see the development of earnings per share, a little bit increasing from the previous year, and there is still for '17. We are showing the operative EPS at that -- because at that point, we had a different accounting method or calculation method for the ratio, and it's reflected in the slide over there.In terms of accounting principles, we have implemented since the beginning of this year new IFRS 16 standard regarding leases. Generally, the impact to our profit and loss is fairly small on an annual level to EBITA. The estimated impact is approximately EUR 1 million. So far for 1 quarter, obviously, not that much. But there are some impacts to the ratios as well as to the balance sheet, and we have tried to clarify those in these materials. As an example, you can see that our cash flow from operating activities improved during the quarter. The major part of that is indeed operational improvement, but there is also a EUR 6 million impact from different type of reporting starting beginning of this year for lease liabilities, and that is kind of explaining part of the difference. But as said, the majority of it is indeed operational improvement. And in the same way in working capital, actually, part of the increase is due to this accounting change. So that is reflected in the latest bar. We haven't restated the historical figures, but we will try to in the course of the year to give some clarity on the comparability of the various figures.And the same actually goes here. If you look at the net debt bar itself, it seems that it's been increasing, but that is due to the implementation of the new standard. So if the standard wouldn't have been applied, actually, the net debt would have been decreasing during the quarter or compared to the previous quarter a year ago. And then there was also, as you can see, an impact on both the equity ratio as well as the gearing. But we are also giving the figures without this change to improve the comparability for you.It was already mentioned that we are keeping our outlook unchanged. So we are expecting both the comparable net sales and the comparable EBITA to be on the same level as 2018. And this year, as we have said earlier, is impacted by growth initiatives, which will kind of bear fruit in a more longer term. E-commerce is being one of us. It's certainly a focus area for us now and in the future.Our long-term financial targets, no changes there. But maybe just as a reminder as usually, the profitability target for EBITA margin is reflecting the reported EBITA. And there, the target is to reach 12%.In terms of dividend, one part of the cash dividend has already been distributed and the second part will be distributed in September. But on top of that, the Annual General Meeting approved the dividend proposal on -- later this year, estimated or scheduled in June for the Board to decide on the payment of an extra dividend in the form of the Wärtsilä shares. This distribution of an extra dividend will not affect our long-term financial targets, and we will continue to execute our strategy as planned.And here, you can still see the dividend tracked from the past decade. The base dividend will decrease this year as we no longer continue receiving the Wärtsilä dividend, and the base dividend has thus been kind of adjusted accordingly. But obviously then, the planned Wärtsilä share distribution is an extra dividend for this year.That was our Q1 in a nutshell. So very pleased to be answering any questions you might be having.

[Kristian Tammela, Manager of Investor Relations]

Yes, Petri.

[Jaana Maija-Liisa Tuominen]

There's a mic on the table, yes.

[Petri Kajaani, Analyst]

It's Petri Kajaani, from Inderes. I'm just wondering how did the start of the year go compared to your own expectations.

[Jaana Maija-Liisa Tuominen]

Well, for the first, I have to say that I'm really happy with the Functional Europe development. We already saw it happening end of last year. You may remember that the beginning of the year was tough, and the improvement is now very visible both on the increased Internet sales and especially on the EBITA. So that was the good news. And the thing that could have been better is actually the U.S. Functional, watering specifically like Sari said, and that's something you can't anticipate actually. I was just telling our board yesterday that a week ago, Sunday -- well, almost 2 weeks ago now, Sunday, I got the -- I have a friend, I used to live in Chicago, and a friend sent me a WhatsApp message. It was snowing in Chicago. And that's pretty obvious then that you don't sell much of watering equipment when the watering is happening from the sky, the cloud-based watering, so to say. So that was definitely unpleasant thing, but that's nothing we can do about and couldn't anticipate that. From the Scandinavian Living, it was pretty much as expected, as I said also, and close to last year. And English & Crystal Living, as you know, we're working with the transformation, revitalizing the brand, so no surprises. But I would say that it was impossible to anticipate snow in Midwest in actually April. So that was the big surprise for us.

[Petri Kajaani, Analyst]

Okay. And considering the restructuring plan that you're doing in the Living segment now, are the costs more front-loaded? Or do you have any more visibility than the last time we spoke? You are doing now the -- all the restructuring in -- was it Scotland or...

[Jaana Maija-Liisa Tuominen]

It's in England.

[Petri Kajaani, Analyst]

In England. And some major costs are going to probably occur during this spring. The EUR 40 million is not going to equally distribute into the years that you are doing the program, right? It's more front loaded.

[Sari Pohjonen, CFO & Deputy to the CEO]

Well, actually, as Jaana already said, the Transformation program is proceeding as planned. We already said last year that we have started actions in -- at that point, in Japan, Australia and Indonesia. Now we have the negotiations ongoing in the U.K. So it's not one single thing that we are doing. So it's working on many fronts, and that obviously will then impact how the costs will be incurred. Now it's EUR 8 million kind of not year-to-date, but since the start of the program. And certainly, some more costs will come up this year. But I wouldn't kind of in any way say that it will be front or back loaded. We will proceed with the plans. And when the timing is right for each part of the plan, then obviously the costs will happen.

[Petri Kajaani, Analyst]

Okay. And third question. On the Living segment revenues, it decreased. So how much is the general market? And how much is the -- like your own activities on cutting SKUs and sales channels? And could you like elaborate more?

[Jaana Maija-Liisa Tuominen]

Sure. We can do that. So a lot of this is in our own hands, obviously. As we have the Living Transformation ongoing, it does include revitalization of the brands looking at the channels, looking at the customers, so -- and the number of SKUs, as you mentioned. So there's a lot of activities that are in our hands. And I'd say that that's the major part of that. There's a lot of trends that actually support the long-term growth of the business looking at urbanization, sustainability, people wanting to have more lasting design. So on the longer term, we believe that there's a lot of growth opportunities when we do the things right on the brands in the English & Crystal Living, like we've been now saying for a while.

[Kristian Tammela, Manager of Investor Relations]

And we could take a few questions online. First of all, let's start here with the Functional. Do you expect potentially more normal weather in North America in second quarter to help the season's gardening sale? Or is the spring already partly lost?

[Jaana Maija-Liisa Tuominen]

Well, it's interesting question, and clearly, I don't have the prognosis for the weather forecast to be able to answer that part of it. But we've seen it before that in U.S., the season is quite long. And even if the early -- just looking at previous years and decades actually. So even if the start is late, the total length of the season doesn't typically shorten, so -- which is different from Europe. And when it's here, it starts late, it still ends at the same time. So that's a different dynamic in the market in U.S. and Europe. So I guess my take on this one would be I dare to take a prognosis that it shouldn't affect on the whole season. That's typical in the U.S.

[Kristian Tammela, Manager of Investor Relations]

All right. Thank you. Then can you somehow quantify the growth initiatives mentioned in the outlook, whether such costs already in the first quarter?

[Sari Pohjonen, CFO & Deputy to the CEO]

Well, e-commerce is certainly, as I already mentioned, one important element for us. Meaning, in practice, that we are currently investing in new platforms, new types of -- or new ways of working. And also maybe good to highlight, we mentioned also the Vintage as a separate type of a project or service that we are now offering. These are good examples of those initiatives.

[Kristian Tammela, Manager of Investor Relations]

All right. Then from the Living segment, a few questions. Could you please give a short recap of all the challenges you have been facing during the past couple of years? Also, are there any new developments in the operating environment in early 2019?

[Jaana Maija-Liisa Tuominen]

Well, I have 18 months experience in the company, so maybe if that's enough for a couple of years. So when we look at the English & Crystal Living brands, that you have pretty much next to me here, Waterford and Wedgwood being the biggest ones. So they have very long history with loyal consumers and people who love the brands. And when you have a great brand, you have to take care of it. And there might have been times that the focus has been somewhere else instead of just kind of what's the key brand essence and how to take care of that, and that's where the focus has now been to make sure that we'd stay relevant with the brand lovers and find the right ways to grow. So I would say that, together, reducing the SKU and rebuilding the brand promise have been the major things that we've been working on, and that's also then how we're going to change the picture going forward. Looking at then the general business environment, if I understood correctly. So consumer confidence is lower in Europe and especially in U.K. And I think everybody can understand, with the political situation and with Brexit currently, the questions are pretty big and the confidence is a little bit lower. At the same time, it typically doesn't affect very fast or very deeply in this kind of categories we have. People are still enjoying the nice cup of coffee, want to have something new in the home. So we feel quite confident with the operating environment.

[Kristian Tammela, Manager of Investor Relations]

All right. And then at least one question, still for the Living segment. Could you give any more color on all the restructuring measures that will be carried out in the Living segment during this year other than the ones that have been already mentioned?

[Sari Pohjonen, CFO & Deputy to the CEO]

Those other ones that we are now working on, but obviously this is a 3-year program. So we are -- we will continue planning on the next steps. But the ones, which we have communicated in Japan, Indonesia, Australia and now the latest in the U.K., they are the ones we currently work on.

[Kristian Tammela, Manager of Investor Relations]

Any other questions from the public? Well, if not, then thank you for attending and thank you for speaking with us. And the webcast, we'll be able to view it afterwards in a while. And should you have any more questions, then please feel free to contact us and we'll be able to provide you with the answers. And with that, have a nice day from us.

[Jaana Maija-Liisa Tuominen]

Thanks.

[Sari Pohjonen, CFO & Deputy to the CEO]

Thank you.