Fiskars Oyj Abp

OMXH:FSKRS

Earnings Call Transcript 2020-Q4

[Kristian Tammela, Manager of Investor Relations]

Good day, ladies and gentlemen, and welcome to Fiskars Group's webcast for Q4 and full year 2020 results. My name is Kristian Tammela. I'm the Director of Investor Relations here at Fiskars Group. Today, we have a special event, as our new CEO, Nathalie Ahlström, will for the first time, be presenting in this webcast. After her presentation, our CFO, Sari Pohjonen, will do her part and following with the Q&A session. [Operator Instructions] This webcast will be recorded, and it can be found on our website. There, you can also find the presentation materials. Before we start, please have a look at the disclaimer here. And with that, I'll hand over to Nathalie.

[Nathalie Ahlström, President & CEO]

Thank you, Kristian. And good morning, good evening, everybody on the call. Great to be here and getting to know you. My name is Nathalie Ahlström, and I've just joined the Fiskars Group roughly 2 months ago. When getting ready for this role and getting to know Fiskars Group, I've done an extensive listening tour. And I will later today also, during the presentation, go through a bit what are my first observations of Fiskars Group and the potential laying ahead of us. During my listening tour, I've spoken to more than hundreds of our employees here at Fiskars Group in one-on-one sessions. And I must say, I've been highly energized by these discussions. In addition, I've spoken to all our stakeholders out there, customers and other partners in our ecosystem. I must say I'm -- having discussed with all around us and having these dialogues, I'm proud to be part of the team and also proud to be here presenting a fantastic Q4 2020 that the team has delivered. But let's go into the Q4 2020. Q4, as you have seen also from our pre-announcement 2 weeks ago, was an extraordinary quarter for us. We have now shown 3 quarters in a row of growth that shows the health of the company. We also, in Q4, Had all-time highest EBITA. This is the highest EBITA in the whole history of the company in the 372 years of Fiskars Group. So a great achievement to the team. So the performance and health is in place in Fiskars Group. Then we come to the outlook. The outlook, we are saying that 2021 will not be at the same level as 2020. And this is due to 2 reasons: number one, being the significantly poor visibility during the COVID-19 situation. And the second one is amount of temporary savings that supported 2020 financials. On dividend, we see a continued dividend growth. That's a proposal to the AGM. So overall, a fantastic Q4. Then going a bit more into the details. Here, looking at the net sales, we see the significance to Fiskars Group of the Q4, how big a part it plays in the total achievement. What I'm especially pleased about is that when we look at the net sales graph here, we see that all the business areas, Vita, Terra and Crea grew. So it's a healthy company, and it's a great team effort that all the businesses are performing well. Then looking at the profitability. As said, Q4 was an all-time high in EBITA, nearly EUR 50 million. And also, of course, here on the graph, we see the importance of Q4 to our overall performance in the year. Then going to my first observations after roughly 2 months in the company. The first one is about our talent. I see an extremely talented team with passion, and it's a global team, and that's a great base for us to continue the journey. We also have a well-balanced portfolio with the beloved brands and iconic products. And that has, of course, served us well in these times last year. And finally, if we think about what is our #1 priority going forward, it's growth, the growth engine. And there we see the levers for growth being that we focus much more on the consumer everyday culture; on digitalization, which includes also the e-comm side; and sustainability. And sustainability is at the core of our business and sustainability for us is a mission against throwaway culture, towards a carbon-neutral future and increased joy. So these are my first observations. So good portfolio, good base and now we need to focus on growth. Looking at the strategy. We made good progress during the year to execute the strategy. And Sari will later today also give examples of strategic execution 2020. We will continue with the ongoing programs in 2021. And then looking at the challenges that we are seeing today. It remains a COVID-19 situation. Also get -- after the 3 quarters of good growth, continue the growth journey, getting the growth momentum throughout the organization. And the final one is the resilience and agility in the continued COVID pandemic situation. And here, we want to emphasize the importance of the dialogue internally and dialogue with our stakeholders to be able to be agile enough to set up on the consumer growth journey. Then about our programs. We will continue to execute the programs. There's no changes to these. And Sari will also then talk a bit more about how these were impacted in Q4, but the programs are going on, and we will continue in 2021 with the programs. Then coming to the outlook. Our outlook is that our comparable EBITA is expected to be lower than in 2020 but not lower than EUR 110 million. And this is due to 2 reasons: the poor visibility in the COVID-19 situation. And just as an example, I can mention that roughly 1/5 of our own stores are closed at the moment due to the lockdown situation. So the visibility remains poor at the moment. The second one is the temporary savings nature of 2020. 2021, we want to embark on growth, and we need to invest and fund the growth journey ahead, and therefore, cannot foresee to do the same temporary savings done in 2020 we did. Then looking at the long-term financial targets. These remain unchanged. And it's a joy to say that one of our targets is the increased dividend payout, and that is a proposal also that we will continue to increase the dividend. And then here, we see it in the graph how the dividend is continuing to increase. And with that, I hand over to Sari.

[Sari Pohjonen, CFO & Deputy CEO]

Thank you, Nathalie. If we then start taking a closer look at the Q4 starting by Vita here. All in all, I think it was a very good quarter for Vita. As you may recall, during Q2 and Q3, we actually saw a situation that Vita sales were severely hit by the pandemic. We had to close a lot of our own locations. Many of our customer stores were also closed down, and that apparently impacted the sales development in those quarters. But in this quarter, despite still many lockdowns being the situation in plenty of markets, Vita started to grow again, which is a great achievement for the quarter. And I'm actually mostly pleased with our development in China. China has been one of our strategic priorities already for quite some time. And the investments and the efforts we have made there are paying off as planned, and that was great to see. We also saw good growth in, for instance, Australia and the Scandinavian markets. On the other hand, as mentioned on the slide, there were still some challenges, especially in the Americas and in the U.K. In the U.K., for instance, the lockdown situation has been very bad, as we all know. Online and developing the e-commerce has also been one of our strategic priorities for quite some time already. In 2020, we made several efforts to further improve, first of all, the availability of online to a broader network of customers globally or consumers globally, and we also implemented many improvements to our online channel. And that was visible in the results as well. So the direct online continues to grow, and it's becoming even more important as we know that the consumer shopping behaviors have been changing and seems that the pandemic has only accelerated this trend. Then if we take a look at the result. As you can see, there was a considerable or one could even say a significant improvement in the Vita result compared to the previous year. Two key reasons there. First of all, I would like to emphasize the fact that we were able to increase the gross margin for the business. That's hugely important, especially in the most important quarter for Vita, and then we continued on the cost savings efforts that took place also in the other quarters of 2020. Then if we take a look at Terra. Typically, Q4 is the smallest quarter for Terra and that was the situation in 2020 as well. However, we were growing. And I would like to note here that on a full year basis, the Terra business area grew by 14 -- roughly 14%, which is a good achievement. I could even say, an excellent achievement, thinking about that the categories generally grow globally just with single-digit low percentages by year. Terra continued the successful 2020 also during this quarter. We saw good development in many of our key markets. For instance, in the Americas, the situation continued to be very strong from Terra perspective and also in certain parts of Europe, we saw good development. After the summer, we were talking about the weather being favorable to us. Now it was the opposite in Q4. Right now, it might be difficult to believe that there was lack of snow in the Nordics still before the year-end, but that was indeed the situation. So obviously, in that type of a situation, we didn't see that much snow tool sales. So this is, again, a phenomenon for Terra which can fluctuate from one year to the other, depending on the weather. Also, the good result development continued in Q4. It was obviously related to the sales volumes, but we also continued the cost savings or prudent cost spending in general that we had done throughout 2020. Looking at Crea. A somewhat similar situation, I could say, that for Terra. Again, a strong quarter here. As you can see from the graph, the Crea business is more stable between the quarters compared to Vita and Terra, but good growth in the quarter. And in a similar fashion, as we were able to grow on an annual basis with the Terra business area, also the Crea business area grew currency-neutral by more than 14% compared to 2019 on a full year basis, which is an excellent achievement by the team. During this quarter, we saw growth in multiple categories, multiple markets. So as said, a strong quarter for this business area as well. In the same way as for Terra, we continued the prudent cost spending here, but then obviously the increased sales volumes played a role in the EBITA improvement as well. Then if we take a look at the geographics. Maybe I'll just pick one highlight from here, and that's the growth in the APAC region, be it for the Q4 or be it for the full year 2020. Growing in the Asia Pacific region is a strategic key priority for us, especially to grow in China. And we have been able to prove this year or in 2020 that we have been able to achieve good growth there, and that was the situation in most of the APAC markets, which are becoming even more important for us in the future. Then if we take a look at the full income statement here, maybe a couple of notes. On a full year level, the gross margin remained somewhat below the 2019 level but getting closer to it compared to the previous quarters. And then we made, during Q4, a write-down on the Waterford trademark. Waterford is mostly present in the U.S. market. And as you may recall, we have, during the past years, been talking a lot about rationalizing our distribution in the U.S., making the right choices to where to distribute the brands. And on top of that, we all know that the U.S. market, in general, hasn't been too rosy in the past few years, and this is now reflected in the situation here as well. Then if we take a look at the SKU situation. We said a couple of years back that our target is to get back to the sales-per-SKU levels where we were before the latest big acquisition in 2015. As you can see, the curves are moving to the right direction but there is still plenty to be done before we are reaching our target levels, but the work continues in all of the business areas. Here is the EPS per quarter. On a full year basis, we reached EUR 0.83 as a total number for the year. Then looking at the cash flow and working capital development. 2020 was an unusual year in many ways. And the way it was reflected in our cash flow was unusual as well. If you look at the accumulated pattern in the cash flow, it typically goes so that the Q4 is the strongest in the year. And so it was also this year. But what was quite unusual was that also the Q3 was extremely strong and having 2 very strong consecutive quarters ended up with an exceptionally high cash flow for the full year. At the same time, you can see that our working capital was very low at the end of the year. It's also visible here in the balance sheet. So our inventory levels were quite a bit lower than a year ago. And at the same time, we had a very, very high amount of trade payables at the end of the year. Then if we take a look at the key ratios here. As a result of the good overall development for the result of the company as well as the good working capital development, the net debt declined quite significantly from the previous year's level or comparable level a year ago. And all in all, the strong development was also visible in the key ratios for us. So that was our Q4 in a nutshell.

[Kristian Tammela, Manager of Investor Relations]

All right. Then we have a number of questions, starting with one for Nathalie. So what's your 5-year roadmap to develop your brand portfolio? Is it to acquire new brands or divest some brands?

[Nathalie Ahlström, President & CEO]

Thank you. Thank you for the strategic question. We are, at the moment, we are continuing to execute the current strategy. Of course, over the course of the year and in the future, we need to further focus and outline what are the growth -- pockets of growth where we really want to grow. And of course, we are looking at the portfolio all the time. So at this point of time, no real straight answer to the question. But of course, we want to continue to grow and develop the company.

[Kristian Tammela, Manager of Investor Relations]

All right. Then we have a question about the guidance. Would that then be for Nathalie as well? So how do you think about demand in 2021 as travel is still low and people are spending more time at home? Adjusted EBITA margin exceeded the financial target of 12%. So could you elaborate on how you think about the margin outlook and demand in '21?

[Nathalie Ahlström, President & CEO]

The demand in '21, and that is -- 2021, that is, of course, when we are going towards the consumer everyday culture that's at the -- our finger is on the pulse all the time, and we are doing our utmost to be there for the consumers. The demand is different because we have the big lockdown situation in Europe with a lot of our own stores closed. Of course, then on the other side, we see e-comm growing. But it's a scattered picture at the moment, as said. COVID-19 makes the visibility very poor at the moment.

[Kristian Tammela, Manager of Investor Relations]

Thank you. And then for Sari, have you been impacted or do you expect to be impacted by the situation in the container freight market? There is currently a shortage of containers. So do you see an impact on your shipping cost and expect shipping delays?

[Sari Pohjonen, CFO & Deputy CEO]

That is a situation which indeed is prevailing in some parts of the globe right now, not in all of the places and monitoring the situation, making sure that the product availability stays good. And at the same time, making sure that we can be, in a way, either cutting the spending on that front or keeping it stable is a key priority for us. But yes, the situation is somewhat tricky in certain parts of the globe right now. And that is some of the challenges for all of the companies to solve this year.

[Kristian Tammela, Manager of Investor Relations]

Great. Then could you give an update on Brexit and how we are managing the situation? Maybe, Sari, you can continue with that.

[Sari Pohjonen, CFO & Deputy CEO]

Yes. I can take that one. Well, obviously, there was plenty of time to prepare for Brexit, and we have done it as any responsible company should do. For the time being, I would say rather that our situation in the U.K. is more heavily impacted now by the pandemic situation in the country and the lockdowns there rather than the Brexit itself.

[Kristian Tammela, Manager of Investor Relations]

Great. If you can still continue, what happened with the Q4 gross margin as it was below last year's level?

[Sari Pohjonen, CFO & Deputy CEO]

Our gross margin is always impacted by several factors. It's a question about category mix. It's a question about customer mix. It's a question about channel mix. So there is seldom any one single answer to that question. So it is always a mixture of many things. But as a key KPI for the company, it is something we are very closely following internally as well.

[Kristian Tammela, Manager of Investor Relations]

Okay. Then we can take one for Nathalie. In your Q4 report, you mentioned the number of store closures increased clearly towards the end of the year. So where are we now at the moment? Has the trend continued?

[Nathalie Ahlström, President & CEO]

Yes. It -- regrettably, it has over the past weeks. And as I said earlier, roughly 1/5 of our stores are closed at the moment in our home markets, not only in Europe but in Oceania and the U.S.

[Kristian Tammela, Manager of Investor Relations]

Okay. And then over to Sari. You have around EUR 40 million of nonrecurring costs coming in from the programs in '21. So what are you planning on doing in '21 in terms of these programs since these costs are so material?

[Sari Pohjonen, CFO & Deputy CEO]

Both the programs are proceeding in line with our plans, as Nathalie was also mentioning earlier today. It is very usual for these type of programs that neither the costs related to them nor the benefit, they don't necessarily behave or materialize in a linear manner. So we are repeating our best estimate of the situation. And that's the one mentioned in the release today also and we're continuous on both of those this year as well.

[Kristian Tammela, Manager of Investor Relations]

Okay. If you can then continue. On the guidance, so what are the major reasons that you didn't give any top line guidance? And second of all, as the EBITA is expected to decrease, so could you describe what segments you're seeing the most downward pressure?

[Sari Pohjonen, CFO & Deputy CEO]

Maybe I continue on that one. Nathalie already commented on the guidance earlier. First of all, for the net sales guidance, we didn't have that in 2020 either. Generally, as repeated already many times during today, the visibility is very poor. And that's due to the pandemic. And that situation, unfortunately, continues. Where the pressures will or won't be will definitely depend on the pandemic situation as well, be there lockdowns in country A, country B, country C or et cetera, that will be impacting our development, certainly. But we are still managing it on a daily basis as we did also during last year, and it's definitely one of the key priorities for the management also this year.

[Kristian Tammela, Manager of Investor Relations]

Thank you. We currently don't have any more questions. Let's just give a few seconds to see if there are any other ones. It looks like we don't have. So then I'll hand over to Nathalie for last words.

[Nathalie Ahlström, President & CEO]

Thank you, Kristian. And thank you also for the good questions. I welcome this kind of a dialogue and let's continue that as we go forward. As closing remarks, I would emphasize, we are continuing to execute our strategic priorities. As Sari was mentioning, we are going to continue with the programs that we have in place. And then the focus is on the consumer everyday, digitalization and sustainability to growth -- to drive the growth in the years to come and also to manage the COVID-19 situation that we are in now. So that's the closing remarks. And on the outlook 2021, as discussed, it will be lower than the profit in 2020 due to the poor visibility and then the nature of the temporary savings because now we want to focus on funding the growth for the future. Thank you.