Fiskars Oyj Abp

OMXH:FSKRS

Earnings Call Transcript 2018-Q1

[Operator]

Good morning, ladies and gentlemen. Thank you very much for standing by, and welcome to today's Fiskars' Quarter 1 2018 Webcast for Investors and Analysts Webcast. [Operator Instructions] I must also advise you that this webcast is being recorded today, Friday the 27th of April 2018. And I would now like to hand the webcast over to your presenter, Kristian Tammela. Please go ahead.

[Kristian Tammela]

Good day, ladies and gentlemen, and welcome to Fiskars' analyst and investor call concerning our first quarter of 2018. As said, my name is Kristian Tammela, I'm the Investor Relations manager here at Fiskars, and with me here today is our President and CEO, Jaana Tuominen; and our CFO, Sari Pohjonen. I will start off with an overview with Jaana and Sari and then they will continue to have a Q&A session at the end. We will be referring in this presentation that it can be find in our website in the Investors section. And please note that the disclaimer here as we will be making forward-looking statements during the call. And without further ado over to you, Jaana.

[Jaana Maija-Liisa Tuominen]

Thanks, Kristian, and thank you, everybody for joining us today to hear about our Q1 2018. So that means that we have today announced our interim report for the first quarter. And on the Page 3, we will have that we have the key takeaway from the quarter. And as it says in the position #1 that we did have tough start to the year with the main reasons were related to the adverse weather in many parts of our world, both North America and Europe. So the weather was not optimal for gardening work. Also, we had some differences in timing between the quarters, and spring campaigns would be an example of that. Also, it's good to recognize that the comparison period during, which is the first quarter of 2017, was very strong. And at that time, we've benefited from the favorable spring weather conditions and timing of the campaigns. For Q1 2018, comparable net sales and comparable EBITA decreased in the Living segment. The main reason impacting sales were the challenges in the English & Crystal Living. EBITA was mainly affected by the product mix in the Scandinavian Living business. In the Functional segment, both comparable net sales and EBITA decreased, and it's really unusual -- unusually late spring in Europe and North America that's impacting the net sales and the lower volumes, and a negative impact on EBITA. This was especially the case in the Functional EMEA. We maintained our full year guidance and expect comparable net sales and comparable EBITA to increase from previous year. Looking at these key figures for the quarter and that the group's performance during the first quarter. Fiskars' net sales decreased to EUR 266 million. This was mainly due to changes in foreign exchange rate and as well decreased net sales involved, Living and Functional SBU yields. You can also see the comparable change year-over-year on this line. Comparable EBITA excluding any items affecting comparability decreased to EUR 23.6 million. Cash flows from operating activities before financial items and taxes improved demonstrating that our inventory management has been improving. Seasonally the cash flow has been negative in the first quarter of the year and now has improved from the previous year. So even though the figures touch with the minus, it's a improvement and a positive thing. Earnings per share were EUR 0.20, and it was reporting that the implementation of the IFRS 9 accounting standard has affected the EPS figure, more about that later in our CFO's presentation. Next page, please. Here we have the sales and profitability development over a longer period, 2016, '17 and now the first quarter of '18. Recorded sales have been negatively impacted for the last few quarters by current sales and market related challenges in some of our key countries. Our EBITA decreased year-on-year mainly due to the Functional EMEA as well as the Scandinavian Living business where the product mix was a key factor. In net sales bridge, you will see the impact of divestments and currencies. And as you can see the FX rate makes a big difference in our reporting numbers. The divestments related to the container gardening business in Europe where some net sales were still recorded in the first quarter last year. Although the impacts of currency is clear, we didn't get support from the Functional or Living segments due to the reasons I mentioned earlier. Before going at more details into the numbers, a few words about the consumer facing activities. In the Living segment, our brands were present at the number of different sales and trade exhibitions and a few of them are mentioned here on the slide. I am also pleased to see that Mainio, the new tableware series from Arabia has been positively welcomed by consumers in the segment. The series started shipping at the beginning of 2018 and the start has been really good. In the Functional segment, we launched our annual product recycle campaign and this time we included also the gardening category not only cooking. Our new cooking range Norden was introduced at the Ambiente trade fair in Frankfurt during the Q1 and that will start shipping later this year. Gerber's new fishing category, those products started shipping in the first quarter of 2018. We introduced these products already in the latter half of 2017. Those are now available in U.S., Australia, Norway and Finland to begin with.Our third category, Other, includes our Fiskars Village, the heritage of the company. In January this year, Fiskars Village won Culture EDEN in Finland award. This is an award that is known internationally and it's an initiative of the European Commission and promotes sustainable tourism across the EU. So we are very happy that Fiskars Village, which is, where our company was founded 369 years ago, received this prestigious award. I think it would be good to look at the numbers more in detail. So I will hand it over to our CFO, Sari, who will cover the first quarter in more detail.

[Sari Pohjonen, CFO & Deputy to the CEO]

Thank you, Jaana. I'll go through the reporting segments starting with the Living segment. Net sales in the Living segment decreased year-on-year and did also the comparable net sales, which decreased by 7.7%. As already mentioned earlier, the decrease in English & Crystal Living was the reason behind the decrease comparable net sales. We had some challenges in the U.S., the U.K. and Australia, either related to the overall market environment or then some channel specific issues. As mentioned in earlier quarters, the streamlining of the product offering for English & Crystal Living has continued to ensure a competitive offering to consumers. And we will continue this work also in the quarters to come, but I can say that I am pleased to see that the profitability of the English & Crystal Living improved during this quarter. As mentioned already earlier during this call, the Scandinavian Living business net sales remained flat on a comparable basis. There were, however, some differences between channel, and for example, net sales increased in the direct e-commerce channel, and I am glad to see that as growing omnichannel and growing the e-commerce is one our priorities. In addition, we have made some changes to our ways of working, for instance, in Japan, where we have taken over the distribution of the Iittala brand from a local distributor. All in all as you can see from the EBITA lines, this first quarter in terms of result is the small one for the Living segment and the decrease in the comparable EBITA was due to the Scandinavian Living business where a product mix was the primary reason for this development.And now moving on to the Functional segment. Thecomparable net sales for the Functional segment also decreased year-on-year. This was mainly due to the unfavorable weather conditions, which affected the gardening category both in North America, but especially in Europe. Seasonally the first half of the year is typically strong in the gardening and important for the Functional segment. Despite the weather, our net sales in Functional Americas, grew slightly, and this was supported by new distribution in the market. I was also glad to see the comparable net sales growing in the Outdoor business, where the new fishing category products had a good start. The decrease in EBITA for the segment is mainly due to the decreased volumes in the Functional EMEA area, affected by the weather as explained earlier. And then if we look at the geographies, we reported net sales in 3 geographical areas as in 2017, Europe, Americas and Asia-Pacific. And net sales decreased in all these areas during the first quarter. In Europe, the decrease was due to the Functional EMEA business. As mentioned earlier,in the Americas, the sales in English & Crystal Living decreased, but on the other hand, the net sales increased both Functional Americas and the Outdoor business. In the Asia-Pacific region, the decrease in the comparable net sales was mainly impacted by the English & Crystal Living business in Australia, and secondly, by the Scandinavian Living business in Japan.Then if we move on to the Other segment, which contains our investment portfolio, including the shares in Wärtsilä, the real estate unit, corporate headquarters and shared services.Here it's worth noting that we implemented the new IFRS 9 accounting principles since the start of this year, which has affected the way we are reporting the change in fair value of the investments. Starting this quarter, it will be recorded in the other comprehensive income instead of the income statement. And further taking a closer look at the earnings per share. This is illustrating the effects of the changing accounting principles. Previously, we used the report both earnings per share and then operative earnings per share. But as the changes in the fair value of investment are no longer in the income statement, we only report now one earnings per share key ratio. Our new EPS is excluding the change in fair value of investments and related deferred taxes, but it does include dividends received from the investments, that is basically Wärtsilä. Our previous operative earnings per share excluded all of these items, and therefore, in this graph you can see the difference is for the last years between the new way of calculating the EPS and the previously reported operative EPS. But as already mentioned previously during this call, for this period the EPS was EUR 0.20 with the new way of calculating and the comparable figure was EUR 0.28.And then looking at the cash flow. During the first quarter, cash flow did improve from the previous year’s year-over-year. Both the figures are negative, but this is seasonally difficult for our business. This was primarily thanks to reduced inventory levels and we have constantly paid attention to reducing the inventories during the past years and keep on doing that also going forward. In terms of net debt, it decreased during the quarter from the previous year's level and amounted to EUR 226 million. At the same time, the equity ratio increased to 68% and the net gearing decreased to 18% of last year's level of 21%. And then our outlook for 2018, it is unchanged. And as stated previously we keep the focus and the outlook is that we expect the comparable net sales and comparable EBITA to increase from 2017. Regarding the sales figures, as we informed in February, we are now guarding for comparable net sales, which is excluding the impact of exchange rates as well as potential acquisitions and divestments, should there be any during the year.Then as a reminder, our long-term financial targets, which were announced last year, just to note that the EBITA margin here refers to the reported EBITA, not comparable EBITA, which otherwise is mainly the EBITA that we are focusing on in the quarterly report.

[Kristian Tammela]

Thank you, Jaana, Sari. And we are now ready for any questions. So operator, please.

[Operator]

[Operator Instructions] At this time, we currently have no questions via the phone, please continue.

[Kristian Tammela]

All right. If there is no questions, I'll hand it back to Jaana for the final remarks then.

[Jaana Maija-Liisa Tuominen]

Thank you for joining us today. As you heard Fiskars faced challenges at start of the year with adverse weather and impact from finding rare [indiscernible] factors. At the same time, we made progress in important areas. The profitability improved in the English & Crystal Living business, and comparable net sales increased in the outlook. Despite the performance during the first quarter, we remain confident in our ability to deliver according to the outlook. And with that, I thank for your time and attention. Have a great day and see you in 3 months.

[Operator]

Thank you, ladies and gentlemen. That does conclude your webcast for today. Thank you very much for participating. You may now disconnect. Speakers, please standby.