Fiskars Oyj Abp

OMXH:FSKRS

Earnings Call Transcript 2018-Q4

[Operator]

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to the Fiskars Q4 2018 Webcast for Investors and Analysts. [Operator Instructions] I would now like to turn the webcast over to your presenter today, Kristian Tammela. Please go ahead, sir.

[Kristian Tammela, Manager of Investor Relations]

Thank you. And good day, ladies and gentlemen. And welcome to Fiskars' analyst investor call regarding our fourth quarter of 2018, and obviously, also the full year results, and we have also other interesting topics to cover today.My name is Kristian Tammela, as said, I'm the Investor Relations Manager here at Fiskars Group. I'm here as usual with our President and CEO, Jaana Tuominen; and our CFO, Sari Pohjonen. We'll start with an overview from Jaana and Sari and then have a Q&A session at the end. We will be referring to presentation materials that are already on our website, so please you can find the materials there as well. And then here's still the disclaimer as we will make some forward-looking statements. But without further ado, let's get started, and Jaana, please.

[Jaana Maija-Liisa Tuominen]

Thank you, Kristian, and especially thank you for all of you joining us in this call. It is an important day as we have published our financial statement release for the year of 2018, our outlook for the current year 2019 and also the dividend proposal, including a distribution of the Wärtsilä shares as an extra dividend.Let's start with the key takeaways from 2018. As a whole, I'm pleased with the outcome of the year when taking into consideration all of the happenings and challenges, events we faced during the year. We were able to increase our comparable EBITA. However, it's naturally disappointing that our comparable net sales decreased. That was according to the guidance we gave in July 2018. Comparable net sales in the Functional segment remained at the previous year's level and comparable EBITA increased clearly. Good example on the possibility to deliver without the growth in sales. In the Living segment, the year was more challenging, both comparable net sales and comparable EBITA decreased, weighted in particularly by challenges in the English & Crystal Living business. We have today given our guidance for the year 2019, and we expect the comparable net sales and comparable EBITA to be at the same level as in 2018. For the year of 2018, the Board of Directors proposed a cash dividend of EUR 0.27 in March and an authorization to distribute another EUR 0.27 in September. Additionally, the proposal includes the distribution of all or substantially all shares in Wärtsilä as dividend.So these are the key takeaways. If you look at more in the details. So the key figures both for Q4 and the full year, you can see on this slide. Overall, as said, I'm pleased with the performance, especially during the last quarter. We have reminded on many occasions, the last quarter is extremely important for Fiskars Group, especially in the Living business.Looking at the Q4, you can see that our comparable net sales increased 1.1% during the fourth quarter and comparable EBITA increased by 38%, finishing with EUR 48.8 million. Quite an achievement. Supported by strong profitability, we were able to reach the full year guidance and increase our comparable EBITA from the previous year. Looking at the cash flow from operating activities before financial items and taxes, it decreased in the last quarter whereas the earnings per share increased. However, looking at the full year cash flow and earnings, increased profit year before.A little bit more detail. Here we have the sales and profitability development over a longer period. You can see the changes quarter from quarter. Clearly, the financial performance during the last quarter improved from the previous year's level, as illustrated by the step-up in Q4 comparable EBITA, which is the line here, and ended up with 15.1% in Q4. Also, you can clearly see how important the Q4 is in sales for us. Also, I'd like to highlight the comparable EBITA in Q4, 48.8% is the highest in Fiskars' history, so quite good results in Q4.Looking at the net sales, a little bit more in detail for Q4. So you can see the impact of divestments and currencies. Divestments almost 0. You may remember earlier in 2018 the FX rate has impacted our sales quite a lot in Q4, [ paying that cost much ] small already. It is clear that the comparable net sales increased in the Functional segment but decreased somewhat in the Living. Even though Living -- but still Q4 was important even for the Living segment, no question about it. And then in the -- at the end of October, we announced the transformation program in the Living business. We are focusing primarily on the English & Crystal Living to improve its profitability. The goal is to simplify and strengthen the business, drive performance improvements, and we target an annual saving of EUR 17 million. The cost of the program is about EUR 40 million during 2018 to 2021, and of that, EUR 2.5 million in cost have been booked by the end of '18. So as said earlier, at the end of last year, we are initiating a 3-year program to build a healthy business platform for our brands to thrive on and keep growing according to the consumer need.Talking about consumer, a couple of pages of what the consumer sees from our portfolio of our brands in Q4. And here are a few examples, the marketing activities that we had.Iittala launched a new tableware series in collaboration with Jasper Morrison, a internationally famous designer. This is a really important launch for the brand. And the series features items made of glass, wood and ceramics. This has been very visible in different parts of the world, including the Museum of Modern Art in New York having Raami in its -- two of its windows in New York. New Year's Eve celebration at the Times Square was the highlight for Waterford, as usual. Even this year we had the crystal ball for the countdown of the year. Also in the U.S. several of our Living brands participated at the New York Tabletop Market show. We increased the collaboration within the group as we stand to benefit from working together even more closely as Fiskars Group. On the Functional side, we had the launch of cast iron Norden cooking products last year. And now we have introduced the stainless steel version of the products, which are also called Thermium, our innovation for nonstick frying. We received quite a few awards again in the GOOD DESIGN award and the Outdoor business extended cooking tool series. Outdoor products are very often introduced in the spring or fall, but this is really excellent gifting and we launched it just before the main gifting season.I think with that I'll hand it over to Sari for more details on the numbers.

[Sari Pohjonen, CFO & Deputy to the CEO]

Thank you, Jaana. And let's have a view on the quarterly development in our segments in more detail. As illustrated here, the last quarter is structurally the most important one for our Living segment. Overall, the market was good around Black Friday and Singles Day, but in December showed some weakness. And the comparable net sales for the quarter decreased by 1.6%. I'm again pleased to note that the direct e-commerce channel grew by double-digit figures in the fourth quarter, continuing the development for the full year.In the English & Crystal Living business, there were still some challenges in the U.K. and Australia markets. For the Scandinavian Living business, net sales remained at the previous year's level. We transferred the Iittala distribution in Japan to our own organization in early 2018, and this has now started to have a positive impact on the figures, especially during the important holiday season in Q4.Comparable EBITA for the Living segment increased by 11% for the quarter. This was mainly due to improved gross profit, increased efficiencies and a positive development in the Asia-Pacific region.And now moving on to the Functional segment. All businesses performed well and supported the development of comparable net sales, which increased by over 5% during the quarter. The fourth quarter is typically seasonally the weakest for the segment, and I'm pleased to see that the efforts to improve the business during the quarter paid off.The Outdoor business has improved its performance throughout the year, and the fourth quarter was a good end to the year. The business grew in Europe, supported by the gifting season.For Functional EMEA, the snow tool sales supported comparable net sales for the quarter. There were still some challenges in Eastern Europe, as the distribution network rationalization continues there. And for the Functional Americas business, net sales development was supported by extended distribution. As you can see from the figures, the comparable EBITA for the Functional segment increased clearly, but the improvement was supported by all businesses. Obviously, the sales development had a role, but also the operational efficiencies played a key role in terms of the development for the last quarter.And then moving on to the net sales split by geography. In the fourth quarter, the comparable net sales decreased in Europe. That was weighted by the Living segment. But in the other regions, Americas and Asia Pacific, comparable net sales increased. And for the full year, we were growing in the Americas, thanks to the Functional segment.The Other segment that contains our investment portfolio, including the shares in Wärtsilä, the real estate unit corporate headquarters and shared services. And Jaana will talk more about the proposed Wärtsilä share distribution later during this call.One important element in improving our efficiency is further to continue streamlining our offering. Here you can see the number of stock-keeping units, which continue to decrease also during 2018. And we continued to improve on the net sales per SKU KPI, which is especially internally a key one for us. This is the right direction, but we do acknowledge that there is still room for further improvement here. As we have said earlier, our target is roughly to double the net sales per SKU from the current levels.In terms of earnings per share, there was a clear increase from the previous year's level during the quarter. And for the full year of 2018, our EPS was EUR 1, up from the comparable figure of EUR 0.98 in 2017.As for the cash flow development that was already mentioned earlier during the call, for the fourth quarter, our cash flow decreased. However, it's important to note that for the full year the cash flow improved compared to 2017. And as you can see from the second graph here, working capital remained close to the previous year's level.During the last quarter of the year, our net debt decreased and amounted to EUR 135 million, following the typical pattern of seasonality in our business. The equity ratio increased slightly, and also net gearing decreased somewhat. Also there, the gearing following the seasonality pattern of the business. Today we have also introduced the guidance for 2019, and we are expecting the comparable net sales and the comparable EBITA to be at last year's level. There are a number of things to consider regarding the outlook. Our ambition is to grow, as we have stated in our long-term financial targets. We will make growth investments in 2019 that are expected to add sustainable value in the long term. And there are also material risks, which can impact our business performance, for example, a possible non-deal Brexit and increased U.S. tariffs might have a significant impact on our comparable net sales and comparable EBITA.And as in previous years, the foreign exchange rate fluctuations might impact our comparable EBITA. In fact, in 2018, the FX or rather the translation impact related to the FX had a negative impact on our comparable EBITA of EUR 4.2 million.What comes to our reporting in 2019? We will add up IFRS 16 regarding leases from January 1, 2019. All these lease agreements will be booked as right-of-use assets and liabilities in the balance sheet, and more details of the change can be found on the financial statements release.And here we have our long-term financial targets. In November, we updated the long-term financial targets regarding profitability. We now aim to reach 12%, while the previous target was to exceed 10%. In 2018, our margin on that one was 10.1%.As said before, the dividend proposal is exceptionally high. We do, however, maintain our long-term financial target regarding the dividend. And I will now let Jaana to tell more about the board's proposal.

[Jaana Maija-Liisa Tuominen]

Thank you, Sari, for going through the numbers more in detail. So the dividend proposal consists of 2 parts: the cash dividend and distribution of Wärtsilä shares. The cash dividend would consist of 2 payments of EUR 0.27 each in March and by a separate decision by the board in September. The second part would consist of a distribution of Wärtsilä shares. Fiskars Group has been a long-standing owner in Wärtsilä. However, the holdings are not part of our business operation. Over the years, the stake has been reduced and proceeds used to both extra dividend to shareholders as well as acquisitions.The distribution ratio of 2:5 is proposed, meaning that owners would receive 2 shares in Wärtsilä for every 5 shares in Fiskars Group. Fractional entitlement would be compensated in cash and the group would pay the transfer tax resulting from the distribution of the share dividend on behalf of shareholders, amounting to 1.6% of the value of the share dividend.The shares would be all or substantially all of Fiskars Group's shares in Wärtsilä and subject to the authorization, naturally, would be decided upon the board in its meeting scheduled for June 6, 2019. The proposed timing is based on guidance received from Euroclear Finland, relating to the requirements for a technically secure execution of the distribution.With this distribution, the current shareholders Fiskars Group would receive the direct ownership of the Wärtsilä shares and related future dividend.In addition, our market value would solely reflect our business operation, increasing transparency. The distribution does not change our strategic goals. Our purpose is to make the every day extraordinary, and our business strategy firmly focuses on consumer market. As Sari said, the long-term financial target remains intact. The target regarding growth is to achieve an average annual net sales growth exceeding 5%, through a combination of organic growth and targeted acquisitions. We do see growth potential in our core markets and categories and seek opportunities in new areas, giving plenty of opportunities for organic growth. Acquisitions continue to be a relevant option for the company to deliver on the strategic priorities and long-term financial targets. Here's the proposed dividend in a longer-term context. And as you can see, we have been increasing the dividend year-over-year and had a few extra dividends as well. It's good to notice that the proposed dividend for 2018 to be paid in 2019, if accepted by the AGM will affect the baselines for dividends going forward as Fiskars will not be receiving the Wärtsilä dividend anymore, it goes directly to the shareholders.

[Kristian Tammela, Manager of Investor Relations]

Thank you, Jaana, and thank you, Sari. And we are now ready for questions, so if you could help us operator, please.

[Operator]

[Operator Instructions]

[Kristian Tammela, Manager of Investor Relations]

All right, if there are no questions, then I think we are ready for Jaana's final remarks.

[Jaana Maija-Liisa Tuominen]

Thank you. Thanks for attending. And I take it as a compliment. If there's no questions that means that everything is crystal clear. Thank you for that. And obviously you know where to find more information. So as you've heard, we had a good finish to the year, and we clearly improved comparable EBITA.Even though the comparable net sales decreased in 2018, we continue to seek growth opportunities in our core markets and categories as well as in areas that are new for us. Going into 2019, we are investing in generating growth. At the same time, there are significant risks in our operating environment. Consequently, we expect our 2019 comparable net sales and comparable EBITA to be at the previous year's level. Our Board of Directors proposes a total cash dividend of EUR 0.64 per share as well as distributing shares in Wärtsilä as a dividend. And with that, thanks for your time and attention. Thank you for joining us. Have a great day, and talk to you in few months again.

[Operator]

That does conclude our webcast for today. Thank you for participating. You may all disconnect.