Fiskars Oyj Abp (FSKRS) Earnings Call Transcript & Summary

Hello, and welcome to Fiskars Group's Q4 and Full-Year Results Webcast. I am Noora Huttula from Fiskars Group's Investor Relations, and I am here with our President and CEO, Nathalie Ahlstrom; and CFO, Jussi Siitonen. Nathalie and Jussi will first take you through the highlights of the quarter and the year. And after that, we have time for your questions. You can type in your questions in the chat during the presentation. Nathalie, please go ahead.

Thank you, Noora, and welcome, everybody, to be here now to hear about our Q4 and the full-year of 2024. First, a few of the highlights. We are very proud how we finished the year. It's been a tough year, and we finished strongly with an all-time high EBIT. So very strong foundation that we are having now in place despite the weak volumes and the consumer sentiment that we have had. This all-time high EBIT was driven by also all-time high gross margin of 49.4% in Q4. So really a strong finish to the year. This also led to a robust cash flow in Q4, and it shows that we are returning to normalized level on cash flow, which also then leads to that the Board is proposing to the AGM that we are increasing the dividend to EUR 0.84. And then the guidance, we are improving from 2024 level, our EBIT. I'll come back to that later in the presentation. So these are the highlights. Strong finish to the year, all-time high EBIT in Q4. And with that, I hand over to Jussi.

Thank you, Nathalie. Let's start first with Q4. So on Q4, net sales slightly down 2.4% there, which was very much expected. And overall, we can say that Q4 was pretty well in line with the guidance we gave in October for the rest of the year. More importantly, as Nathalie mentioned, EBIT now record high Q4 EBIT there of EUR 42.9 million there, EUR 5.2 million up or 14% up from the previous Q4. It was a combination of gross margin improvement. We had record gross margin in Q4 and then those cost efficient programs we initiated already in 2023. I'll get back to that a bit later. As I said, when we had all-time high quarterly gross margin there, both BAs, both Vita and Fiskars improved versus the same period last year. Cash flow in Q4, very solid of EUR 69.4 million. However, it was down from all-time high Q4 year before. On comparable earnings per share, we were up EUR 0.17 there to EUR 0.57 and then cash earnings per share was down EUR 0.26 to EUR 0.85. On a full-year basis, the guidance what we had, i.e., EBIT slightly above last year. We were up EUR 1.1 million at EUR 111.4 million there. Top line down 5% organically, including Georg Jensen, which was now first year -- first time full year in our books, we were up 2.4%. Strong gross margin also and again, also on a full-year basis, both BAs improved last year. Bearing in mind that what we have said about our long-term gross margin target being at 49% or over 49% by end of 2025, we are well on track towards that target. Comparable earnings per share for full year, EUR 0.08 up and then cash earnings per share down almost 50%. That was due to this record high cash flow what we had in 2023. If we then dive a bit deeper to those savings and EBIT bridge what we had for full-year. So I said, in Q4, we continued benefiting from those saving programs what we had. And then also when the negative volume impact was less in Q4, we ended up for the full-year that savings fully compensated impact of declining volumes. The full-year net savings were approximately EUR 40 million, out of which approximately EUR 10 million was in Q4. And I need to highlight that these are net savings. So they are including also the salary inflation, what we experienced throughout the year 2024. The plans we introduced in 2023, especially when it comes to those SG&A savings, those plans are now closed and the savings are pretty much into our P&L. Supply chain plans also introduced in 2023, they continue still delivering savings in 2025, plus what we announced in October when we talk about this Vita and Fiskars split, they continue also now in 2025. There are some items we need to take into account this year. And of course, U.S. tariff discussion, which is currently -- the situation there is very dynamic, as you all know. USA is approximately 30% of group net sales and approximately 50% of Fiskars BA. And most of the products sold in the USA are manufactured outside. The plans what we have in place, of course, is that we are very much monitoring and diversifying our sourcing footprint, what we have in Europe and what we can benefit in Europe, what we have in other Asian countries there. So based on the current situation, what we have seen, we believe that we can mitigate the current expected tariffs. And overall, this is an industry-wide issue in our industry. So all our peer companies are very much in the same situations and therefore, it's most likely that all these are pushed back to prices. As well, the other topics what we have, we are looking for exemptions if possible. And as I said, the situation is quite dynamic at the moment, we are monitoring it very carefully. And then moving to cash flow. So I said, very strong free cash flow what we had in Q4 and a very strong rebound there from Q3. That took us back to full-year historical levels. So we were there roughly EUR 82 million for full-year. This just shows how year-end loaded our free cash flow is. So Q4 delivered 85% of full-year cash flow. Then on net debt EBITDA, there also, it's following our seasonal pattern, what we have. So we are always coming down in Q4 on a net debt EBITDA. Now we went down to 2.55x, which in our terms, we are there practically back to our target of 2.5x. Then on dividend, supported by solid cash position, the Board is proposing to shareholders' meeting a dividend of EUR 0.84, which is EUR 0.02 up versus last year. This is well in line with our dividend policy, i.e. stable over time increasing dividend. 79% of payout when it comes to comparable earnings per share and then 60% of cash earnings per share. Also, our dividend yield, 5.2% based on the average share price last year and 5.6% based on yesterday's closing is quite attractive with this dividend. That's very shortly where we are with finances. And now handing over to you, Nathalie.

Thank you, Jussi. And I'll talk a bit about the business areas, the performance, market dynamics and also strategic topics. Starting with Vita. Vita continued to have an impact on sales declining. Although in Vita, we see that now Q4 was less declined than the quarters before. So it's starting to improve. In Vita, the real star performance of the quarter was Royal Copenhagen and Moomin Arabia. They were also the brands really performing well throughout the year. When we look at the comparable Q4 EBIT, it only declined marginally despite the lower sales. So a strong finish also in Vita. And in 2025, we are going to focus really on demand creation, and I'll talk more about that here now. We also announced today that we are going to do some simplification in the organization in Vita. This is really to increase the accountability locally in the markets that they can execute the brand strategies and that will be much closer to the consumers and faster growth and adapt. This means that we are going to have a saving of EUR 10 million in Vita. And all of this EUR 10 million, of which we are going to see the largest impact already now in 2025, we are going to reinvest, reinvest into growth in Vita, EUR 12 million in marketing spend. So saving in order to reinvest to reignite growth in Vita. So it's really about demand creation and also entering new categories, distribution and new markets. Then looking at some highlights in Q4 from Vita. It's really about omnichannel in Vita. We want to be close to the consumers and where the consumers are shopping in these kind of categories in luxury and premium affordable products. We are close to them in our flagship stores, our stores, but also e-com. So it's an omnichannel approach. And in the whole year last year, we now have more than 500 owned stores in Vita owned stores, own operated stores, and we added 50 new stores throughout the year. Majority of these new stores were all in China. We also see -- I spoke about this category expansion. We also see good impact of our category expansion. As an example, in mid of December, we introduced in China [indiscernible] Wedgwood brand, a hydration flask that's selling beyond any of our expectations and is really a hit among the Chinese consumers. So we see our brands are attractive and consumers come to them and category expansion is working. Then an example from U.S. Then an example from U.S. In U.S., our Waterford brand had a very good growth in the e-com sales coming up to Black Friday and also for Christmas. So that we also see that the omnichannel approach with e-com works globally. And then a big highlight for whole of Vita last year is, of course, Georg Jensen. Now we have had 1 year of Georg Jensen in our portfolio. It's performing well. And thanks to this, we are moving up the needle in terms of luxury in Vita. Today, 65% of the net sales in Vita is luxury. And then looking ahead for the year in Vita for 2025, not only demand creation with added marketing investment of EUR 12 million, we also have something to celebrate. This year for Vita, it's an anniversary of Moomin, Moomin Arabia turning 80 years and then Royal Copenhagen having a fantastic celebration of 250 years of Royal Copenhagen. So good areas for growth this year. Then going to Fiskars. Fiskars had a very solid performance across the year, and it's really a testament to the Fiskars team, how well they did manage the business throughout the year. It's a lot of the gross margin that they've been able to lift up and also cost management throughout the year despite lower volumes. So a very testament to the Fiskars team. And full-year EBIT is up to 14.1% EBIT margin, so very good. A delight that I will talk about later is the German market share growth for Fiskars brand. And going to 2025, the focus now is to drive growth, invest in media and innovation for the long-term. So really demand creation for the long-term forward. A few highlights from Q4 is really our commitment to all consumers globally. Now all cookware that we are manufacturing is PFAS-free. So we've already moved to that. Everything is PFAS-free that we manufacture from this year onwards. Also in the U.S., our U.S. team's focus on the big retailers dot-com, for example, homedepot.com, walmart.com and so on is really showing attraction, and we are growing rapidly in that area, which is, of course, very important to future-proof the company because that's how consumers are shopping and finding information. Last year was a year of 375 years of Fiskars Group and Fiskars brand, which just shows a testament to the brand strength and how enduring our brand is from century to century. And then about winning market share in Germany, really a fantastic case about how we can drive growth in Fiskars. I'll talk about this case about winning in a tough market. We know Germany is tough at the moment. And for us in -- for Fiskars brand, Germany is our second largest market after U.S. U.S. is by far the biggest, but Germany is the second largest in Fiskars brand. And today, we are #2 in the German market. We have been winning in Q4 so much that we've grown 40%, roughly 40% in Q4. And thinking about how flattish the German economy is, this is, I would say, really outstanding. Already in Q3, we had strong, strong growth figures and now in Q4, over 40%. This really shows what we have been doing when we are taking the growth into our own hands and taking the performance forward. What we've done is we've won a lot of distribution gains, so winning market share. We've also done that through having taken the brand strength and coming out with concepts that are easy to buy for the consumers. We're also attracting new consumers who are coming to us for the first time into the category. So we're winning these new consumers. And finally, it's about the strong product offering and also much better -- good, better, best coverage that we are having in the market. So a fantastic example by the strong performance of the Fiskars team in Germany. Then moving to the news that came out in the end of October that we're splitting the company into 2 parts into Fiskars and Vita. And I'll come soon how we are progressing on this. But the rationale, just to repeat it is, the businesses of Fiskars and Vita, they are very different. Fiskars is all about functional innovation. 97% of all the customers are huge, huge retailers like the Walmart, Orbi, Bauhaus that you have globally. So it's really a different way go-to-market and innovation is the key. Over the years, we won 64 Red Dot Design Awards in Fiskars. Then we'll talk about Vita. Vita is a portfolio of brands, portfolio of luxury and premium brands. We also recognized for our creative design. For example, Royal Copenhagen, who turns 250 this year. In Vita, the go-to-market is totally different. We have over 500 owned stores, and it's all about the omnichannel approach. So over half of our net sales is through our own e-comm, our own stores globally. And also what characterized Vita is a very high gross margin. And as I've said before, today in Vita, already 65% of the portfolio is luxury. So that's why we are splitting the company into 2 legal entities because the businesses are different and the potential and the investment needs of the different businesses are different, and we're going to be closer to the consumer and much faster being able to grow. Then about the process. So the new organization is now already in force. We are twice faster than what we said in October. We've done all this and become operational in 3 months. That's, in my mind, a testament to our employees' commitment to the company and also how right this move is that is able to do it that fast. Today of our employees, 13% are active shareholders in Fiskars Group, which also shows the dedication and the future potential of the company and making these kind of big changes in twice faster than planned. And what now we will get from this new organization, new setup is with the legal entities, separate businesses, we will have full business accountability for Fiskars and Vita who are then end-to-end accountable and led by their own CEOs, independent CEOs. We also have much more dedication for future innovation, future things we are putting in place. Is it digital? Is it media spend and so on. So much more dedication and again, tailor-made and faster to the market and with the result of making the big brands bigger. This also gives all of us much better transparency and ability to measure how we are performing in Fiskars and Vita. And finally, to have the independent legal structures of Fiskars and Vita gives us a lot of structural optionality as we go forward. The role of the group will continue to be rigorous performance management and really being active portfolio managers to drive growth, profitability and cash in the future. Then a few highlights on sustainability. We have, in 2024, we more than doubled or almost doubled the net sales coming from circular products from 14% to 26%. So when we focus, we do deliver and make things better for the planet going forward. Also, our supplier target, we have reached that last year. And as a testament to all the good work we are doing on ESG and sustainability, we won earlier in the spring, EcoVadis Platinum award, which is only 1% of all the companies globally are having that. So we remain committed to ESG because it's important for our consumers globally. Finally, to the guidance. Our guidance for the year is that we will improve the EBIT from this year's level. While the operating environment continues to be challenging, there's a bit of limited visibility because majority of our earnings we do in the second half, and it's really tilted till Q4. But what is helping us really in delivering improvement in 2025 is the gross margin improvements will continue, as Jussi was talking about also how it's coming. They will continue and improve us. And also the savings from the organizational changes announced 2024 in supply chain and the ones announced in October will continue to help us. So this is our guidance for 2025 improving. Maybe to wrap up everything, we had a strong finish to a tough year, strong finish to a very tough challenging year and finished with all-time high EBIT in Q4 and all-time high gross margin in Q4 and for the full-year. And as the cash flow is now robust, the Board is proposing to the AGM that we're increasing the dividend to EUR 0.84. As said, the guidance for 2025 is that we're expecting to improve our EBIT from 2024 levels. Thank you.

Thank you, Nathalie and Jussi. So now we have time for your questions. There are already quite a few, but please do keep them coming as we go. All right. So perhaps we start with some sort of overarching topics. Nathalie, maybe you can start and then Jussi about the gross margin improvement. So the gross margin improved significantly to 48.8% in '24. How sustainable are these improvements? And do you expect to surpass the 49% target in '25?

Thank you. It's a good question. And Q4, we ended at 49.4%. So we have already in Q4 surpassed the target, and we will continue to increase it. These are sustainable. And the last 2 years, majority of the gross margin improvements have come from supply chain, so increased efficiency in our operations and also in how we are sourcing. So that's really sustainable and despite what happens in the world, will not go away. What we then did in close to 2, 3 years ago, that was more changing the channel mix and also the product mix that we are selling out to the market. Yes, so these are very sustainable. And also, if you look at our progress in the last 4 years, we have increased the gross margin every single quarter coming up. So yes, continuing the good work here.

And then perhaps looking to '25. So what gives you comfort for your 2025 guidance given the market conditions were still relatively weak in Q4?

Yes, I can start. It's really the gross margin improvements that continue to drive it. And then the cost savings, and I think Jussi had a very good slide we're showing that despite volumes coming down, we had net savings of EUR 40 million, which talks about our ability to flex. We could have been better, of course, always in flexing, but really in managing so that we go forward. Then, of course, if you look at Q4, the decline in net sales was less than we had in the other quarters. So at least Q4 shows it's a slight improvement.

One way also to show that it's actually built on very sustainable building blocks is that we haven't built it to any spectacular growth expectations. So it's based very much on our own plans.

And perhaps that's touching our next question. So are you expecting demand to improve significantly in 2025? Is it tilted towards H2? Or could we see demand improving in H1? Maybe Jussi or Nathalie?

I can start. As Jussi was saying, we don't expect the demand to improve and the visibility is quite limited. And the world is extremely dynamic, like it has been the last 3 years, but it's extremely dynamic. So we are very focused on driving growth, and therefore, we are doing this category expansion. We are investing in demand creation like media and in innovation in Fiskars and marketing in Vita, to deliver the guidance, we don't expect the market to help.

Yes. Actually, very good what you said about investments there because in our terms, I would call them significant investments what we have in demand creation and additional categories. And still the guidance is based on the improving EBIT.

Well, the next question is also about the guidance. Again, maybe, Nathalie, you start and Jussi continue. Can you quantify what increase means in guidance? Is this more than 10%? This year, you expect slightly increasing and ended up 1% from 2023?

Let's start the year and-- I just reiterate, we're improving the EBIT from last year's levels.

Great. And then we can perhaps move to more business area topics, starting with Vita and the investments. So about the Vita organizational changes, you aim to reinvest EUR 12 million in marketing. Should we view this as a step change, i.e., not a temporary impact? And is there any CapEx investment included?

In this EUR 12 million that we announced earlier today, that is all marketing. And really, it's both brand building for the future and market activation. So it's a good mix of that. What we really want to do because we have so fantastic brands over time, continue to invest in marketing. And yes, this is quite a big increase that we are reinvesting, thanks to simplifying the organization so that we can do the demand creation.

And moving on to Georg Jensen. So how did Georg Jensen perform over Q4 when it's been the whole quarter in your numbers last year as well as Q4 '23. So how did Georg Jensen perform in Q4?

Georg Jensen, if we talk about the whole year, the first half, it was the first time in a very, very long time that Georg Jensen did profits. So already by the integration and the cost synergies that we have had, we were able already in Q1 and Q2 to show profits in Georg Jensen. And then overall, it had a strong finish in the year. And also, of course, Georg Jensen, like most of all Vita brands is very tilted to Q4, but it had a strong finish to the year.

And then more on the Fiskars side. Nathalie perhaps you again. What is your initial view of U.S. gardening season? Have you seen any pickup in orders?

No, we are very early February. So difficult to say about pickup in order. But I would say that the sell-out data is stable and looking good being stable. But I mean, we are first week of February. So it's not exactly gardening season, but so far, so good.

And then Jussi on the business area other. Were there some shifts of costs? And what level should we expect to be in 2025?

The saving actions what we have put in place or introduced in 2023 and then executed in 2024, they were also impacting positively on this segment. Other, where we have kept typically this kind of unallocated cost also for group level investments in the past. Now we are back, I would say, the level what it used to be. So underlying negative EBIT there is there in minus EUR 1.5 million per month, which is then this minus EUR 12 million, minus EUR 15 million approximately for full-year. So I would say we are now back on track what it used to be and what it should be.

And Jussi, perhaps again, will the ongoing strikes in Finland have an impact on Fiskars Group?

Yes. And now we talk about strikes which were announced and already passed. So no material impact on our production nor sales.

And then perhaps moving a bit more into financials. So Jussi, regarding taxes. So taxes in Q4 were clearly positive. What was behind that? Should we see a more normal tax rate in 2025?

Yes. So we have had net operating losses. We haven't yet able to be utilized and therefore, record tax assets. Now we are, and that's the biggest shift there. So we increased our tax assets based on the visibility what we have for the future, how we can utilize them. Our underlying effective tax rate, it's a good proxy is 23%, what can be used.

And then on one-offs, what level of one-offs should we expect in 2025?

What we announced today is this plan roughly EUR 4 million. Of course, we continue monitoring business as we speak. We continue monitoring the asset efficiency and that kind of things. So if we have a program where we can demonstrate that we have a very good payback for these one-offs, of course, then we will have it. But I don't start now estimating the full-year.

And then on the net debt to EBITDA. So it's at 2.55x, slightly above your long-term target of 2.5x, what steps are you taking to reduce leverage further?

As I said, practically, we are at targeted level of 2.55x, but yes, we are slightly above there. One, what can be seen when taking a better look on our balance sheet is that we still have additional working capital where we can benefit from. All the things what supply chain has put in place now have been mainly benefiting the gross margin improvement. The gross margin improvement is now a sustainable level and then continue improving. Now the focus is very much then on working capital, especially on inventories. We have openly estimated that based on the current turnover rates and also the historical pattern, we have approximately EUR 100 million potential there in working capital. One thing what we need a bit is the volume. So all the plans put in place and will be put in place are then benefiting from increasing volumes.

And then there's one more question regarding the 2025 outlook. So given your investments into demand creation and still soft market, should we expect OpEx sales to be flattish in '25? Maybe, Nathalie, if you want to comment?

I mean we are doing a lot on the cost base all the time. But yes, I mean-- and in our guidance for improving 2025, we say that there's savings announced last year that are still helping.

And I think we have just one more final question. [Operator Instructions] So this is also regarding the investments, but perhaps a bit more flavor. So CapEx increased slightly to EUR 52.5 million. So what are the key investment priorities for '25?

Historically, in the past few years, we have heavily invested in digital and advanced analytics there. So that's taken a major share of our CapEx. Now as I mentioned, now supply chain, which is improving both the gross margin and then also net working capital in the near future. I would say now the investments are more biased on supply chain improvement rather than a digital assets.

Great. Thank you. And I think that is it for the questions. So with that, I thank you for listening in and for your active participation. And if you have any further questions, please don't hesitate to reach out to the IR team. So with that, thank you, and have a good day.

Thank you.

Thank you.