Fiskars Oyj Abp

OMXH:FSKRS

Earnings Call Transcript 2021-Q4

[Kristian Tammela, Director of Investor Relations]

Good day, ladies and gentlemen. Welcome to the webcast for Fiskars' Q4 and Full Year 2021 Results. My name is Kristian Tammela, I'm the Director of Investor Relations.Today, we are in a bit of a different setting here as we actually are in the middle of moving our headquarters to Espoo. So next time, we'll have a different place again. Today, as usual, we'll have a presentation first by our CEO, Nathalie Ahlström; followed by one from CFO, Jussi Siitonen. Let's get started immediately. I'll hand over to Nathalie.

[Nathalie Ahlstrom, President & CEO]

Thank you, Kristian. And also from my side, welcome, everybody. It's really a pleasure to be here today to talk about our record performance in 2021. This is an all-time high what we've done on profit and net sales ever in the 372 years history of the company. So very strong, and we're very pleased about being here today and talking about the performance. This was also the seventh consecutive straight quarter where we were growing. So also on the growth strategy, we are delivering. At the same time, in Q4, if you look our growth investments that we already flagged in Q3, they are weighting down on the profitability in Q3 -- Q4, sorry, but at the same time, that's growth for the future. Our outlook then for the year to come, 2022, is that we are going to increase from these record levels also than in 2022. So we are going to increase from last year's level. And finally, the dividend proposed, a strong dividend of EUR 0.76 per share for this year. But let me go into the details about the performance. Starting with net sales growth, here, we see that in Q3 -- sorry, Q4, we grew 13%, and that is 15% more than 2019. So strong growth year-over-year. And for the full year, the growth for the whole company was 14.2%.Also, when we look at our business and how it's made up, we see that we have a strong, well-balanced portfolio. That is the strength of us. All our businesses are delivering. And here, we see Vita, Terra and Crea, all of them delivering. And when looking at the full year figures, Vita, in total, the whole year grew 19%; Terra, 8%; and Crea, 5%. So strong performance from all the businesses. Then going to the profit side, as already said, it's -- Q4 was somewhat below last year's level. At the same time, last year was an all-time high and supported by the record year in 2020. The somewhat lower Q4 is due to the growth investments, the conscious growth investments we've done in Q4. And this is really to invest into our future and the continued growth then in 2022. And a bit on the investments, where do we invest? The biggest focus is on investing in talent capabilities; and secondly, on digital, the digital journey. So that is the future proof of the company. Then let's take a short look at our strategy and the growth for the future. This is our growth strategy that we presented during the Capital Markets Day. We are well underway to deliver on this strategy, as you will see in our figures. And Jussi will also, in his part, talk about how we are performing against the new financial targets we set during the Capital Markets Day. And as I promised during the Capital Markets Day, we will, every quarter, come back to how are we progressing on the transformation levers so that we know how the growth strategy is going into execution every single quarter. And looking at where we are now, if I start with commercial excellence, so here, we have our 4 transformation levers, the progress on this. So on commercial excellence, we can truly say that the power of the brand is visible. We have, despite the dynamic market, despite the inflation environment we are living in, we have been able to improve the gross margin both in Q4 and for the full year. So every single quarter, we have improved the gross margin in Q4, 180 basis points; and for the whole year, 240. That's -- I just can thank the whole team for that. That's a remarkable achievement, taking into account the inflationary environment we are in. And that shows the power of the brands and also, when we are focusing on transformation lever like commercial excellence, it does pay off. The second one is direct to consumer. In direct-to-consumer channel being both e-com and retail, physical retail, we are growing above group average: in Q4, 14%; and for the full year, 20%. So that's really a transformation lever for our growth going forward. U.S., also performing well. Good growth -- sales growth in Vita and Terra in Q4 and overall double-digit growth versus last year. And China, a fantastic success with our local team in China. Q4 continued strong. Net sales were up 1.5x. And for the full year 2021 in China, we nearly doubled the net sales in China. So on the transformation levers, we are delivering on them. And as I've promised, we will continue also to show and tell where we are going forward with this. Also then on executing our strategy, we have done strategic choices. As we have said, we are focusing on the winning brands, the winning channels and the winning countries. And part of focusing on winning brands, that we also have asked ourselves, where are we the right owner? And as you saw earlier this week, we announced that we have now completed the divestment of the North American Water business. That was completed earlier this week. In the deal, we have divested the Gilmour and Nelson brands and the related assets and trademarks. This is really about strategic execution where we ask ourselves, are we the right owner for the business? And with this more commoditized business of Gilmour and Nelson, we know we were not the right owners. And therefore, this was in line with our growth strategy. The rest of the Watering business that we have in Fiskars, that's a total different kind of value proposition portfolio also -- product portfolio that's sold under the Fiskars brand, and that will continue and be a successful part of our portfolio in Europe going forward. So no change there. Then about one of our important enablers for the growth strategy is sustainability. And I'll give a few examples on sustainability achievements we've done this year. One, for example, is our commitment to reduce waste to landfill. And only in 2021, we were able to reduce 28% of waste to landfill in only 1 year. That's quite a remarkable achievement, again, an example of where we are taking steps forward on sustainability. Another example is products from recycled materials. During 2021, we were able to increase the net sales of recycled products by 78%. So we're also doing our part of the circular economy. So growth strategy going forward, we're executing on what we are saying we are going to do. You will see that soon also in the financials. And that, of course, leads to the guidance for 2022. We expect our guidance of EBIT, from hereon, we are reporting EBIT to increase from the 2021 level. And at the same time, we are going to continue to invest in growth, invest in the growth in talent, digitalization and so on, to be able to deliver on our transformation levers. And with that, I hand over to Jussi.

[Jussi Siitonen, CFO & Deputy CEO]

Thank you, Nathalie, and hello, everyone. So before diving a bit deeper into the Q4 financials there, just a reminder, our financial targets we announced in November last year, and even though the financial targets were set for 2022 to 2025 period, we have now a good start for this 4-year journey. What you can see here is our net sales growth, the target being that we should deliver mid-single-digit growth year-on-year. Last year, we were at strong double-digit growth there. On profitability, achieving this roughly mid-teen EBIT margin by the end of 2025, now being at a level of 12.3% there. And what we have also highlighted is that this is not meant to be a [ holistic ] effect there, that all the improvement is coming then later in this journey. But the target is to sustainably improve our EBIT margin toward this roughly 15%. On cash flow conversion, target being 80%, even though last year, we invested quite significantly in working capital and inventories there, we were well above this target. Compared to 2022, I would say we had a lot of interventions there. And by no means, this kind of over 200% cash conversion is not a sustainable level. Then net debt on EBITDA, they are 0.7x, target being less than 2.5. So we can see that at least 4 -- 3 out of 4, we are green. And the fourth one, i.e., profitability, is well toward this targeted level by end of 2025. Then about Q4, what you can see here is Q4 also for 2020 and 2019, so as Nathalie said, we continued improving gross margin there. So 180 basis points versus 2020 and 50 basis points versus 2019. More importantly, all the BAs, all the businesses improved their gross margin in Q4. So it was very broad-based contribution to what we got there. Then as we mentioned in Q3, we had some year-end-loaded investments there. The total amount, approximately EUR 20 million for full year 2021, most of this EUR 20 million in Q4. So this was well in line what we guided earlier. And then items affecting comparability, what we said in Q3 in October, actually, was that it's approximately EUR 10 million for the quarter. We were a bit lower level, EUR 8 million there. And now what I can confirm that all those big Restructuring programs are now closed. So we don't continue them anymore. Then one word about gross margin still. So what's remarkable, not only for Q4, but on a full year basis, we succeed more than offset the negative impacts there from input cost inflations. And that is how our model is built, so we can continue tackling this kind of extra challenges there from macro and continue improving our gross margin. Then BA by BA, and what you can see here in all the BAs is that profitability, EBITA is coming down versus, I would say, abnormal high level when we talk about 2020 Q4. But the most important thing is that all the BAs, they continued improving gross margin, which is the driving engine of our profitability improvement. Vita, up roughly 8% versus previous quarter and well up versus 2019 same period there. What's important here is that we had both sales volumes and then both channels and price/mix, which were improving both growth and profitability on full year basis. One note also is that English & Crystal brands, you all know that they have been under pressure over the recent years, they were one of the biggest contributor to this improvement, what we had in Vita. So coming from their breakeven-ish level, they are now at, not yet at very good profitability, but really contributing to improvement, what we had at the group level also. On Terra, Terra was the biggest contributor to our gross margin and top line in Q4. So top line up 18% versus last year and then over 20% versus 2019. And there also gross margin, as I said, continued improving, but profitability, partly due to the fact that Q4 last year or year before was at a subnormal level. We are now improving nicely towards 2022. And Crea, top line up 6%; and then versus 2019, 19% up. So strong improvement there on top line and profitability followed the trend, what we had in other businesses also. When it comes to regional sales improvement there, it's very broad-based. In Europe, in Americas, in Asia Pacific, all strong growth. Europe and Americas both 9% up on currency-neutral basis. And U.S. alone, as Nathalie mentioned, double-digit growth in Q4. Asia Pacific, 14% up versus last year, very much driven by China, which was 1.5x versus 2020. Moving then to cash flow. And whilst we invested significantly in inventories to ensure our 2022 deliveries there, we succeeded to maintain a strong cash conversion, 109%, target being over 80%. You can see here on our full year numbers that over EUR 90 million increase in our inventories. It's fresh inventory what we have, so we can secure our shipments now in the first half of this year, second half this year. And therefore, we are off a good start also in that sense. On balance sheet, on top of having a profitable growth, we also had an asset efficient growth. What you can see here on the bottom right is that our return on capital employed improved significantly versus last year. So we are 5.5 percentage point up. The good thing is that not only on EBIT margin improvement, but also capital turnover improved significantly, contributing this return of capital employed. One note about this U.S. Watering, what you can see here on our capital employed of EUR 922 million by end of 2021, EUR 38 million of that capital employed is now off from our balance sheet when we closed the deal with this U.S. Watering. Then last but definitely not least, our dividend. The dividend proposal for the shareholder meeting is EUR 0.76 per share paid in 2 installments. On top of this dividend, the Board has also decided to start sale buybacks. So we are now contributing the cash flow to our owners into 2 ways with this dividend and sale buyback. That's pretty much all about Q4 financials.

[Kristian Tammela, Director of Investor Relations]

Great. Then we have some questions.

[Kristian Tammela, Director of Investor Relations]

And the first one going actually to Jussi. So regarding the guidance, we guided for '22 to be clean, EBIT to increase. How is the divested Watering business excluded from this guidance? Or how do you take it into consideration?

[Jussi Siitonen, CFO & Deputy CEO]

Yes, we finished 2021 at a level of EUR 154 million EBIT, and the guidance is compared to this EUR 154 million. Of course, when we are closing our Q1, we are telling about top line improvement because our net sales growth target is organic growth target. And there, we will exclude U.S. Watering. When it comes to EBIT, EUR 154 million is the baseline where we are comparing our 2022.

[Kristian Tammela, Director of Investor Relations]

Yes. So regardless of that?

[Jussi Siitonen, CFO & Deputy CEO]

Yes.

[Kristian Tammela, Director of Investor Relations]

And then we continue with you. So what's the annual CapEx level for '22 and onwards for the strategy period?

[Jussi Siitonen, CFO & Deputy CEO]

2021 CapEx was 2.7% of sales. And we have said that we should be there at roughly 3%. So part of that is phasing. We are getting gradually towards this roughly 3%. The biggest driver of our CapEx is that we continue investing in digital. And then also, we are continuing investing in D2C. So those are the ones which are taking more CapEx in the future. But we are roughly at that level, 2.7% versus roughly 3%, what's our long-term target.

[Kristian Tammela, Director of Investor Relations]

Great. Then this one will go to Nathalie then. In Q4, we saw the highest sales growth in Terra. What would you say was the main reason? And do you believe that this trend will continue now that Terra and, obviously, the Americas is an important part of the strategy?

[Nathalie Ahlstrom, President & CEO]

Thank you. When looking at Terra in Q4, this was normal sales. So there was no extraordinary pull-forward from Q1, which also, of course, bodes well for the year to come in 2022. When we look at the consumer behavior for 2022, we feel there's a good demand in the market, and we feel there's a strong pull from consumers. At the same time, this means that we continue to work closely to ensure that we have the supply and the volumes and availability in place. So a good place to be.

[Kristian Tammela, Director of Investor Relations]

Great. Then if we continue with that, so being slightly more than 1 month into '22, so what is your feeling about Q1 so far?

[Nathalie Ahlstrom, President & CEO]

I feel our guidance for next year or 2022 is correct. It's a good guidance.

[Kristian Tammela, Director of Investor Relations]

Great. Then Jussi, could you give -- you already mentioned about how much we did in extraordinary investment spending in '21. So could you, first of all, give more flavor on how that is and how you see the OpEx base scaling in '22 now that it's part of the growth journey?

[Jussi Siitonen, CFO & Deputy CEO]

Yes. As I mentioned, roughly EUR 20 million in our 2021 numbers, most of that in Q4. When it comes to this year, and I'm bearing in mind how we have built our long-term strategy there, you might remember our targeted P&L structure, we are loyal to that one. So we continue improving our gross margin and then OpEx will be there following the trend. So this kind of big, extraordinary investments, of course, they are not at that level anymore, but we continue. It's part of a normal business to continue investing there. And instead of focusing how much we have this kind of investments there, I would more focus to deliver the long-term targets, what we have.

[Kristian Tammela, Director of Investor Relations]

Great. Then Nathalie, you delivered an impressive sales growth in all divisions. Could you please discuss how much of this was market growth and how much your own actions are taking market share?

[Nathalie Ahlstrom, President & CEO]

Yes, that's a good question. Of course, I mean we have been benefiting of the COVID stay-at-home trend. Of course, we have that. And at the same time, a huge thanks to the team. I shortly mentioned it earlier also. But our growth, half of it comes from price, half of it from volume, which means that our actions, our own actions really do matter. And also, not only the price, of course, with the commercial excellence, but also with volume, ensuring that we can be there for the consumer when the demand is there, which means a seamless cooperation from the whole supply chain outdoor sales to the shop floor, the omnichannel experience. So it's a combined answer. Stay at home helps, at the same time, we have a relentless team making sure we deliver every day.

[Kristian Tammela, Director of Investor Relations]

Great. If we continue with you, regarding Terra, there was mention about headwinds in the government channel, and this obviously relates to Gerber. So is this normal fluctuation in demand? Or have you been replaced as a provider?

[Nathalie Ahlstrom, President & CEO]

The whole -- for Gerber, the government section is not that a big part of it anymore. And we are actually focusing more on the broader consumers and also working on shifting the brand proposition more to the outdoor and also including the female consumers in this. But back to the question, is this normal fluctuation? Yes, it is because it's a big contract that come and go.

[Kristian Tammela, Director of Investor Relations]

Then about Royal Copenhagen with the Royal Creatures collection that was only in our direct channel. So the question is then, can we expect similar launches for other branch to strengthen the brand image and then the DTC strategy?

[Nathalie Ahlstrom, President & CEO]

Yes, we can. And that was a good example of where we have showing the power of the brand, combining that also with then our direct-to-consumer approach. And at the same time, we do this in very close cooperation with our big customers. So there has to be a total value proposition for all the parts in -- all our partners in the play.

[Kristian Tammela, Director of Investor Relations]

Right. Jussi, then about Terra's profits, so that decreased quite a lot despite the strong top line growth. So could you give a bit more flavor on why is that? Were there any nonrecurring costs included in here?

[Jussi Siitonen, CFO & Deputy CEO]

Yes. So even though Terra improved gross margin during Q4, it's partly also phasing how the price increases are then hitting on the markets. So therefore, that was part of the reason. As said, we had also some tailwinds there in Q4 2020. So therefore, the comparison is not a very favorable year for Q4 2021. The trend, what we see there, we are very relaxed in that one. So we see profitable improvement there as we can continue improving gross margin.

[Kristian Tammela, Director of Investor Relations]

Right. Then if we continue with you, then operating expenses were up significantly. So how should we think about that going into 2022? So you already maybe talked about -- a bit about this. So...

[Jussi Siitonen, CFO & Deputy CEO]

Yes. Yes, I think I tackled it already. Yes.

[Kristian Tammela, Director of Investor Relations]

Right. Then Nathalie, what kind of assumptions do you have for market demand in Terra and Crea in '22, given that pandemic has boosted demand in '20 and '21? So how do you see that?

[Nathalie Ahlstrom, President & CEO]

Yes. During the Capital Markets Day in November, I spoke about the growth strategy, and I said that all these transformation levers, they are all in our own hands. The whole growth strategy is based on what we are doing. So we are committed to grow regardless of what happens externally. Of course, then on demand, of course, it helps us. And it looks good, it looks good for 2022, the consumer demand.

[Kristian Tammela, Director of Investor Relations]

Yes. Then we have at least one more question. Maybe Jussi can take that. Why did you not provide the comparable sales growth guidance for '22? Why is that? And will you do that later this year?

[Jussi Siitonen, CFO & Deputy CEO]

Yes. Well, we have this guidance set for period of 2022-2025, that year-on-year, we need to deliver mid-single-digit growth. That's a long-term guidance. And as said, we are loyal to our financial targets there. Of course, when we have a visibility better for full year and we can be more precise, then we need to figure out whether we are also be more precise with the guidance.

[Kristian Tammela, Director of Investor Relations]

Great. Then a question, Moomin company is now a big owner of Fiskars. Did you use stocks to pay for Moomin? I'm not quite sure what that means.

[Nathalie Ahlstrom, President & CEO]

No.

[Kristian Tammela, Director of Investor Relations]

Maybe you can a bit explain how that went?

[Nathalie Ahlstrom, President & CEO]

Yes. So in September, we announced that we bought a minority stake in Rights & Brands, which is a licensing agent of Moomin Characters. That was a pure deal, cash deal. And why did we do this? We see that our values -- starting with the values, the values of Fiskars Group and Moomin were very much aligned. We are focusing on the Nordic design and also taking those values then externally. We see that by having a strategic partnership by our investment into Rights & Brands, we can take this much, much further and much faster grow the potential of Moomin brand within the Fiskars portfolio.

[Kristian Tammela, Director of Investor Relations]

Great. Let's just see if there are any other questions coming in. If not -- then if there are any further questions, please reach out to us, and we'll be glad to help out with those. Otherwise, we'll just thank you for your attention and hope you have a great day.

[Jussi Siitonen, CFO & Deputy CEO]

Thank you.

[Nathalie Ahlstrom, President & CEO]

Thank you.