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Good day, ladies and gentlemen, and welcome to the Fiskars Q3 2019 results presentation here in Helsinki, Finland. My name is Kristian Tammela. I'm the IR manager of Fiskars. Today, we'll start off with a presentation by Jaana Tuominen, our CEO; and after that, a presentation by Sari Pohjonen, our CFO. And after that, we'll have time for some questions. If you have any questions, you can feel free to post them already online. If not, then you can do it later on while we present.Before we start, please have a look at the disclaimer here. And with that, I'll give the floor to Jaana.
Thank you, Kristian. Welcome, everybody, and nice to have you here both online and in the room. So you've already seen obviously the Q3 results this morning, so I go straight to the topic. There's no news coming here as I'm sure everybody has read it already. So Q3 was a challenging quarter for us. There's no denying that. So it was a disappointment in a few ways, but also some highlights as well. So as you could see already in the Q3 report title, so comparable net sales, comparable EBITA and cash flow all decreased compared to 2018. This is largely due to challenges in the Functional business in Americas, and we're going to go into those in more detail later in the presentation. However, Functional in Europe continued the good momentum they've had all this year, so that continued even in Q3. The Living segment is also doing an improvement, especially when you're looking at the profitability, and the English & Crystal Living is driving that development. So definitely good news in the Q3. And as you know, we did lower our guidance for the full year comparable net sales in mid-October. So that's already then known for you.The numbers, looking at net sales first. This is how it looks like, looking at the few quarters at the time. And as you can see, the change is about 3%. So partly -- the comparable change and the reported change pretty much in the same ballpark. You can see on the right side of the screen that the FX is actually supporting the development this quarter as it's been in 2019 before as well. And also it's very clear that it's the Functional that took down the net sales development in Q3. The divestment here, that's the Leborgne that was divested early this year. So we're a little bit less in sales than the previous year and as expected, but the big difference comes then in looking at the profitability. Here, the EBITA -- comparable EBITA and EBITA, the difference is really the -- mainly the Living transformation program that's under the 0 line in the picture, the EUR 6.2 million in this quarter. So we will go through more in detail what's in it and -- but it's really coming from the Functional Americas where there are several things that did not go to the direction as expected. So this is the big disappointment for us. It's good also to remember it's only 1 quarter and not even the most important quarter of the year for us. But definitely, not something that we are happy to share or to experience.If we then look at what we've been doing, things like, I'd like to call them, consumer facing. So what do the consumers see? I start with the Functional. And you can see when you read it that we are doing what we are saying. Actually, we've been investing into our direct to consumer. And that is also now valid for the Functional business, which we haven't been doing that much direct-to-consumer sales before. So we have opened a new cooking shop-in-shop. You may remember the one that we had in Germany earlier. Now we have one in Norway. We have launched Fiskars' web shops in Finnish, in Swedish, the U.S., and also we will continue to develop that market. So it's a new channel pretty much for the Functional business. So investing in channel development. And also we have added some new product. As always, that's one way to grow and this time it's the Gerber that launched more products at the fishing range. So these are typically a thing that we are doing. We're also adding to our geographical presence, and this time, it's really the watering to the Central Continental Europe. So we launched those products now in Germany. So Functional is growing direct to consumer, new geographies with existing products and then also increasing the product assortment. So doing all the 3 types of growth that we are planning to do. So nice development in the quarter.Looking similar things in Living. We also have now launched new products, new tableware from Royal Copenhagen, the HAV. That's still very exclusively in selected channels, so it's not available all over the place. We have entered China in a little bit bigger way that we've done. So you can see the development in China, working together with the key opinion leaders on the online channel, creating the brand pull among the consumers. And also then, we have kind of decided that Wedgwood is a good product for China and we've been working with that. So expansion to China in the Living has been one of the quarter's highlights.We also -- we talked about the Vintage before. Now it's available in every Iittala store in Finland. So that's expansion that we promised to do by the year-end. Now it has happened. So again, new channels, getting to the online in China. We are working with geographical expansion, new products. And also here, new services, new type of business model with the Vintage. So the growth, even though you couldn't see it in this quarter, it's still very much on our minds and we are working on it.And then I'll give it to Sari in a second to tell you about the details. Just kind of emphasis without just saying, so growing the business is one of our 3 -- our 4 strategic priorities, and it's very much on our minds and there's a lot of things that we're working on and investing in it. E-commerce and China, I already mentioned. Expanding services, for example, the Vintage. And then clearly, we have a lot of countries, brands, product assortment that are very well known and appreciate by the consumers. So growing that core is obviously a key as well. So I would say kind of stay tuned. The growth will be there, and there's a lot of options and ways of doing it. But then back to the Q3 for Sari and the details.
Thank you, Jaana. Let's first start with Functional here. And I would like to start with the development in the Americas for the Functional products as that obviously has impacted both our sales and the result development during this quarter.This Q3 is the key season for what we are calling back-to-school season in the U.S. That's a very important season for us generally. This year, however, our performance on that season was soft, and that's one of the key reasons for the development for this quarter. At the same time, it's good to remember that while we met the previous time and also highlighted in our half year report, the watering category was suffering a lot in the U.S. in the first part of the year due to the weather. As you recall, it was very wet there. According to some statistics, it was the wettest summer in 125 years since the records were started. And obviously, that had an impact on the Q3 as well since that situation didn't improve during the Q3 either, so it continued to be wet and that was clearly visible in the watering development. So those are the 2 kind of things taking about the sales and the result development down. However, at the same time, it's important to remember that we continued to grow with our gardening category in the U.S.In terms of Outdoor business, which is mainly in the U.S., there, we had 2 reasons for the development on the top line for this quarter. One was the timing of campaigns, which is very typical in this type of a business, that they can fluctuate from 1 quarter to the other. The other one was the development on government type of channels, which is also to some extent, a bit seasonal of its nature. At the same time, as Jaana already pointed out, we continued our positive development in Europe, so continued to see growth here. And I'm also very pleased to say that we continued to grow also within direct e-commerce in Europe. That's a very important channel for us.Putting all this together, it was, of course, heavily reflected in the result development as well. So obvious, the sales volume bears a meaning. Then we highlighted in mid-May that this year, the U.S. tariffs or tariffs between U.S. and China, they will have an impact on our result. That started to affect the Functional business already in the latter part of Q2 and it's now visible in the Q3 as well. And we also faced some increased inventory and logistics costs, which were impacting the result for this quarter.Then if I move on to Living, where it's good to remember that roughly 1/3 of the Living business is direct-to-consumer sales, be it our own online or off-line. And that is an important priority, important channels for us. And there, the overall development was rather flat compared to the previous year. But it's good to remember that we continued rationalizing our outlet networks in the Americas and in Australia. Other than that, the direct channel grew. So fully in line with our strategic priorities. Then if we look at the individual businesses. Scandinavia Living was decreasing a bit compared to the previous year in terms of sales. There may be 2 things worth mentioning. If I start from the positive one, we have been seeing good growth in Japan, which is one of our focus markets. On the other hand, here in Finland, which is definitely a big market for us, the timing of certain campaigns affected the quarterly development.For English & Crystal Living, there was still a decrease in the net sales development, but that's also in line with our plans in the sense that, as I already mentioned, we continue to rationalize some of the distribution network for that business.China. It was already mentioned a few times earlier today. That's an important market for us. We have been able to grow in China and also in Japan, which is a good market for our ECL business also. During this quarter, we saw an increase on the comparable EBITA versus the previous year. That came from the English & Crystal Living business. And for the Scandinavian Living part, we were more or less on the same level as in the previous year. But here, you can see from the graphs, it's always the Q4 which is the most decisive quarter for this business. So the gifting season and the kind of the last months and weeks of the year are always very exciting and important for us.Then just as a reminder of the Living transformation program which we launched a year ago, it's a 3-year program, so it's still -- much of that is still ongoing. There are certain things we have already done. Some are ongoing and still things to be done in the future. The total spending so to speak is for the time being EUR 17 million on the cost side. And just reminding that the annual savings target for us is EUR 17 million, but it will be happening gradually so that the full impact will be there when the program is over.Then looking at the geographies. Following, of course, what was mentioned already for Functional and Living earlier, we have been growing in the Asia Pacific region this year and it's very visible in the figures for this quarter. It's, as we have said earlier, it's -- of the continents or the geographies how we present these in the reporting, it's the smallest for us, but it's certainly an interesting region for us and we are putting more efforts, especially into growing in China.For the rest, in Europe, Functional continued to grow, but the total development was negative due to the situation in Living. However, then in the U.S., especially the Functional development, but also Living, reminding again of the outlet development there that was in the red for this quarter.Earnings per share, you saw the figures for the quarter, obviously impacted by the result development. But it's good to recall also that last year, we still had the Wärtsilä dividend in the Q3, so these figures are not fully comparable in that respect.Then looking at our cash flow, which was lower this quarter than the year before, 2 key factors there. Obviously, the result development, but at the same time, our working capital was increasing. That -- if you take a look at the balance sheet, our receivables were fairly high compared to the sales volumes, so that's a timing type of thing. At the same time, to the opposite direction, our payables were somewhat lower than normal. So just a working capital fluctuation from 1 quarter to the other on. But obviously then, also the result development having an impact.Here, if we take a look at the net debt as well as equity ratio and net gearing. If we think about the, let's say, the underlying operational development, excluding IFRS 16, which was taking into use in the beginning of this year as well as the dividend -- the Wärtsilä share dividend that was distributed earlier this year, if those are excluded, one could say briefly that basically our net debt as well as the ratios, they were much pretty much on the same level as the year before, bearing in mind the seasonality of the business.Here is our updated guidance, as updated in mid-October. So we are expecting both the comparable net sales as well as the comparable EBITA to be below the previous year's level.Then just a reminder of our long-term financial targets, they are unchanged. The most recent change was roughly a year ago when we upgraded the profitability target. So on reported EBITA, the target has been 12% since November last year.So that was our Q3 in a nutshell for this year for Fiskars.
All right. Thank you, Jaana and Sari. Now we have time for some questions. Do we have any here?
It's Petri Kajaani from Inderes. Could you describe the main reasons behind your weak gross margins in Q4 -- Q3?
It's more or less what I already mentioned about the Functional business. So obviously, the sales volumes there is always a sales mix or product mix, which is always impacting the U.S. tariffs. And then we had some increase in logistics and inventory-related costs. Those are the key factors there.
Okay. Could you open a bit more of the tariff costs between U.S. and China? And what does it mean to your business now and going forward?
Yes. Obviously, by the end of the day, the consumer will be paying the tariffs, but there is always a certain time difference. We are pushing the tariffs into the prices towards our customers and they will further do it -- do that toward the consumers. But in a situation like this year when the tariffs were levied in certain phases, but the most recent or the biggest one which happened in mid-May, that became effective immediately. So it's not possible to have the same immediate effect into our own pricing, and that's the key factor for this year. So there is a timing difference before we can push the tariffs into the pricing.
Okay. Have you already noticed it's easy to push the tariffs into the prices for your customers and for their customers?
Well, it's been -- we have been able to negotiate it with our customers, so it's going to be in there. So in that respect, I wouldn't say it's easy, but we have succeeded doing it. It's -- how would I say it? It's more difficult time and a time. So first time, pretty easy. Second time, a bit more difficult. This time, it takes longer. But definitely, that will happen even this time.
Okay. And let's put it this way. If I were a U.S. citizen and I bought your Fiskars rake last year, and now how much would I have to pay more for that rake with the tariffs and all that's going on for you to make the same amount of profit?
Of course, for a single product, it's not necessarily that huge a difference from the individual consumer points. But taking into account the total volume, then, of course, that becomes a much bigger issue for us as a company.
And the goal is that we do get dollar for dollar for the increase into the prices. And as said, looks promising. Not everything is totally done yet.
Okay. And in your Functional business, what is the relative size of your products made in China? And is made in China stamp now bad for your business in the U.S.?
Well, we do some in China. We do in Poland. We do in quite a few places. So it's only one of the countries where we manufacture the product. And obviously, it depends on the product mix, what is being sold. So there's no one kind of specific number what's coming from China. It's -- for us, it's really about the brand. We put the Fiskars label on it. We know that it's a good quality. So we don't -- we sell it as a Fiskars product and we are fine with the quality. And no matter where it comes from, we stand by our products and what they represent.
Okay. And on top of these tariffs costs, you mentioned rising inventory and logistics costs in Functional business. Could you describe more what these are? And are they here to stay?
Both of them are related partly to the sales volumes and the volume type of development. They are, in particular, affecting this quarter.
Okay. And a last question, on Functional. How are your customers perceiving that you are going forward in your own retail or direct-to-consumer business? Because that hasn't been a major part of your Functional business before.
And it's very small still, but clearly something that we do believe in. And that's something that happens every single day in every single business and company. So so far, we've been really happy to work together with the customers and they know what is the assortment, what we're doing in our own stores. So it's not affecting the consumer -- the customer, sorry, the customer relationships at that. We still have the common wish and common goal to make the brand known for the consumers. So so far, at least no negative reaction at all and I'm not expecting that to happen either. And if you look at the volumes, it's still very, very small.
And maybe a little bit building on that. It's exactly like Jaana said. The better the brand awareness, it's actually beneficial from -- regardless of the channel and the places where the consumers are shopping.
Any other question?
It's Joonas Häyhä from OP. Regarding Living, you've had the comparable net sales coming down for some time now. I'm just wondering if you could provide a split, if that has been due to volume, or has there been price mix effects in that also?
The biggest reason for the decline in Living net sales is our own actions to select what channels we are present, closing some of our own stores. So it's very much in our own hands and it's driven by the volume.
Okay. And you also mentioned that you have the distribution network being rationalized in that segment. Just wondering where you are with that initiative. How long will those actions continue?
It is part of the Living transformation program, which is a 3-year program. So some things have already been done, some are ongoing, but there is still more to come.
So that will continue?
That will continue. Yes.
Okay. And finally, about the guidance. Can you be a bit more specific when you say declined? What kind of percentage ranges are we talking about if adjusted EBITA declines by, let's say, 30% this year? Will that be...
That we unfortunately haven't disclosed, though the guidance is as it is mentioned here. So that's what we are saying.
All right. Any other questions from here? No? And then it looks like we don't have any questions online either. So with that, I think we are done for today.
If I may still say thank you for joining us. And also it's a very special day today. Fiskars is turning 370 years today, so it's our birthday. It would be nice to have nicer numbers to show you as a birthday present, but at the same time, I think it's a good way to remind that it's 1 quarter. We are here for the long term and we feel very confident for the future. So happy birthday to everybody.
Right. Thank you. And with that, thank you all for joining us.