REPORT BY THE BOARD OF DIRECTORS 2012

2012 in brief

Against the background of a volatile business environment and weakening economic climate in Europe, Fiskars’ business performed steadily in 2012. Net sales increased by 1% to EUR 747.8 million (2011: EUR 742.5 million) despite the divestment of Silva during the third quarter 2011 and slower snow tools sales than in 2011.

The Group’s operating profit excluding non-recurring items grew by 2% to EUR 63.1 million, reaching again an all-time high. Including non-recurring items, operating profit increased by 21% to EUR 63.9 million (52.8). This good development was driven by increased efficiency in Fiskars’ own operations.

Cash flow from operating activities was EUR 95.0 million (107.4) and earnings per share were EUR 2.18 (1.91), including a non-recurring profit of EUR 1.06 (0.85) per share from the sale of Wärtsilä shares. The Board proposes a dividend of EUR 0.65 (0.62 plus an extraordinary dividend 0.75) per share.

Group performance

Operating environment in 2012

In 2012, the unstable financial climate, combined with cuts in government spending, reduced consumer confidence in Europe, and tight inventory management was still a priority for retailers. The sentiment in Northern Europe was more stable than in Southern Europe, where market conditions were especially challenging. The economic climate weakened during the year, impacting retailers and consumers in many markets. In many European countries garden-related retail suffered additionally due to unusually bad, rainy weather.

In North America, the year began with cautious optimism, and consumers seemed to be gaining more confidence and to be willing to spend on purchases which they had put off. In the spring and summer, consumer confidence deteriorated as Americans grew more pessimistic about their finances yet again. Warmer weather helped DIY and garden retailers, some of which continued to work down inventories from the previous year’s poor garden selling season. Towards the end of the year a string of encouraging signs from the economy boosted consumer sentiment and retail spending increased, but worries about the fiscal cliff again dampened sentiment at the end of the year. Despite the growth in retail sales, retailers were still holding back on replenishing inventories.

Net sales



EUR million 2012 2011 Change Change cn*
Group 747.8 742.5 1% -3%
EMEA 501.9 516.8 -3% -4%
Americas 250.4 232.5 8% 0%





* currency neutral.




Operating profit (EBIT)



EUR million
2012 2011 Change
Group
63.9 52.8 21%
EMEA
42.6 33.7 26%
Americas
34.2 30.5 12%
Other
-12.9 -11.4 13%

 

Net sales and operating profit

In 2012, Fiskars’ net sales increased by 1% to EUR 747.8 million (742.5) despite the divestment of Silva during the third quarter 2011 and slower snow tools sales than in 2011. Comparable net sales, using comparable exchange rates, and excluding Silva in Q1-Q2 2011 decreased by 1%. Net sales in EMEA decreased, whereas sales in the Americas increased thanks to favorable exchange rates.

Net sales for EMEA amounted to EUR 501.9 million (516.8), and for the Americas to EUR 250.4 million (232.5).

The Group’s operating profit excluding non-recurring items grew by 2% to EUR 63.1 million, reaching again an all-time high. Including non-recurring items, operating profit increased by 21% to EUR 63.9 million (52.8). This good development was driven by increased efficiency in Fiskars’ own operations.

Operating profit for EMEA amounted to EUR 42.6 million for the year (33.7). Non-recurring income amounted to EUR 0.8 million in Q3 2012, resulting from the reversal of a provision relating to the sale of Silva in 2011. There were no non-recurring costs in 2012. In 2011 non-recurring expenses amounted to EUR 9.3 million, of which EUR 5.3 million related to the sale of the Silva business and EUR 3.0 million to a competition infringement fine. In the Americas, operating profit for the segment increased by 12% in 2012, totaling EUR 34.2 million (30.5, which included a EUR 1.1 million non-recurring product recall cost during the third quarter). The growth in SOC sales contributed to the increase in profit.

Financial items and net result

Fiskars’ share of profit from its associated company, Wärtsilä, in 2012 was EUR 47.8 million (42.7). The change in the fair value of biological assets was EUR 5.6 million (-1.0). There was a positive effect of EUR 4.4 million on the fair value of biological assets, resulting from the third-party verified stocktaking during 2012, where both the total amount of standing timber and the proportional amounts of different types of timber were updated.

Net financial costs totaled EUR -3.8 million (-2.4). Profit before taxes was EUR 200.4 million (161.8) in 2012. In Q2 2012, Fiskars recorded a profit of EUR 87.0 million (Q1 2011: 69.8) from the sale of part of its shareholding in Wärtsilä. In 2011, income taxes were affected positively by the change in the 2012 corporate tax rate in Finland, which was decided upon in December 2011. Earnings per share were EUR 2.18 (1.91) for January–December.

Investment program in EMEA

Fiskars is in the process of implementing a new, integrated operating model. In December 2010, the company launched a major, five-year investment program to create competitive structures, systems and processes in EMEA, including a new shared enterprise resource planning (ERP) system.

The investment of approximately EUR 50 million will be funded by operative cash flow. During these years, the program will increase Fiskars’ operating expenses and capital expenditure.

The implementation of the system in the countries began during 2012. The most important implementations will take place in 2013 and 2014.


After an initial implementation period, the investment program is expected to further enhance the efficiency of Fiskars’ operations and gradually improve profitability and cash flow, as well as provide a platform for enhanced customer service and growth.

Cash flow, balance sheet and financing

Cash flow from operating activities was EUR 95.0 million (107.4). The cash flow includes dividends paid by the associated company, Wärtsilä, totaling EUR 26.8 million (40.9).

Cash flow from investing activities was EUR 94.5 million (92.3) during the year. Cash flow from investing activities includes proceeds from the sale of Wärtsilä shares totaling EUR 126.4 million (109.7). In 2011, the divestment of the Silva business had a positive impact on cash flow from investment activities of approximately EUR 6.3 million in total. Cash flow from financing activities was EUR -179.2 million (-199.5) for January–December 2012.

Capital expenditure in 2012 totaled EUR 32.7 million (24.4). The increase in capital expenditure is mostly related to the investment program launched in EMEA in December 2010. The company also invested in new product development, capacity expansion and replacements.

Depreciation was EUR 21.9 million (21.5) in 2012.

Fiskars’ working capital totaled EUR 71.4 million (82.7) at the end of December. The equity ratio increased to 66% (59) and net gearing was 12% (27).

Cash and cash equivalents at the end of the period totaled EUR 16.4 million (6.1). Net interest-bearing debt amounted to EUR 72.4 million (150.8). Short-term borrowing totaled EUR 20.4 million (82.5) and long-term borrowing EUR 69.3 million (75.4). Short-term borrowing mainly consists of commercial paper issued by Fiskars Corporation. In addition, Fiskars had EUR 430 million (455) in unused, committed long-term credit facilities with Nordic banks.

In November, 2012, Fiskars signed a EUR 80 million revolving credit facility, which replaced the company’s existing EUR 80 million revolving credit facility signed in November 2007. The new facility has a tenor of five years and serves for general corporate purposes.

Research and development

The Group’s research and development expenditure totaled EUR 8.1 million (8.6), equivalent to 1.1% (1.2) of net sales. The decrease was related to the divestment of Silva.

Personnel

The Group employed an average of 3,364 (3,545) FTE employees. At the end of December, the Group had a total of 3,449 employees (3,574) on the payroll, of whom 1,610 (1,670) were located in Finland. The decrease in the number of employees is mainly due to the divestment of the Silva business in July, 2011. 

Personnel (FTE), average
2012 2011 Change
Group
3,364 3,545 -5%
EMEA
2,604 2,798 -7%
Americas
550 566 -3%
Other
210 180 17%

 

Operating segments and business areas

Fiskars’ operating segments are EMEA (Europe, Middle East, and Asia-Pacific), the Americas, Wärtsilä (associated company), and Other (Real Estate, corporate headquarters, and shared services).

The company’s business areas are Home (Living, Kitchen and School, Office, and Craft), Garden, and Outdoor (outdoor equipment and boats). 

Business areas

Net sales



EUR million 2012 2011 Change Change cn*
Home 322.8 306.3 5% 3%
Garden 287.6 294.3 -2% -5%
Outdoor 133.3 137.8 -3% -8%





* currency neutral.



 

EMEA 

EUR million
2012 2011 Change
Net sales
501.9 516.8 -3%
Operating profit (EBIT)
42.6 33.7 26%
Capital expenditure
8.4 13.4 -37%
Personnel (FTE), average
2,604 2,798 -7%

 

Net sales in EMEA decreased 3% to EUR 501.9 million (516.8), due to the divestment in Silva and a decrease in snow tool and boat sales. Comparable sales, currency neutral and excluding Silva in Q1-Q2 2011 decreased 2%.

Net sales in the Home business increased, driven by the Living category. Growth was supported by successful launches and increased distribution. Net sales of Kitchen and School, Office, and Craft products did not reach the previous year’s levels.

Net sales in the Garden business were below the previous year, when demand for snow tools was exceptionally strong. Supported by marketing campaigns, Fiskars continued to gain market share and increased sales in other categories in Central Europe, despite rainy weather conditions in the selling season.

Sales of Outdoor products reached 2011 levels in spite of the divestment of the Silva business in July 2011, as the investments in Gerber’s international expansion delivered a strong growth in sales. The Boat business was affected by the economic uncertainty, but Buster boats maintained their market leadership.

The segment recorded an operating profit excluding non-recurring items of EUR 41.8 million (42.0). Operational efficiency increased, but costs related to IT systems were higher than in 2011. In Q3 2012, Fiskars recorded a non-recurring income of EUR 0.8 million from the release of a provision related to the sale of Silva.


Americas 

EUR million
2012 2011 Change
Net sales
250.4 232.5 8%
Operating profit (EBIT)
34.2 30.5 12%
Capital expenditure
4.4 3.9 13%
Personnel (FTE), average
550 566 -3%

 

Net sales in the Americas increased 8% to EUR 250.4 million (232.5), supported by good development in the SOC and Garden businesses and the strengthening of the US dollar. Using comparable currency rates, sales remained at the previous year’s level.

Garden net sales developed positively, with good development across many key accounts.

Sales of School, Office, and Craft products continued on a strong track, boosted by successful product launches and good back-to-school sales to key accounts.

The Outdoor business area was affected by decreased demand in the institutional channels, and sales did not reach 2011’s record levels. Commercial sales developed positively.

The segment’s operating profit excluding non-recurring items was EUR 34.2 million (30.5). Strong sales performance in School, Office, and Craft contributed to this development. In 2011, the segment recorded a EUR 1.1 million non-recurring loss related to a Garden product recall during the third quarter. 

Other 

EUR million
2012 2011 Change
Net sales
6.3 6.2 2%
Operating profit (EBIT)
-12.9 -11.4 13%
Capital expenditure
20.0 7.5 168%
Personnel (FTE), average
210 180 17%

 

Fiskars’ Other segment contains the Real Estate unit, corporate headquarters and shared services.

Net sales were EUR 6.3 million (6.2) for January–December, largely consisting of timber sales and rental income. The operating profit was EUR -12.9 million (-11.4) for January–December.

Acquisition of Royal Copenhagen

On December 12, 2012 Fiskars signed a definitive agreement to acquire 100% of the shares in Royal Copenhagen A/S and Royal Scandinavian Modern KK Japan from Royal Scandinavia A/S, whose controlling parent company is the Danish private equity group, Axcel.

The acquisition of the renowned Danish premium porcelain company, Royal Copenhagen, accelerates the international expansion of Fiskars’ Home business. In addition to boosting Fiskars within the Nordic countries, the acquisition will further strengthen Fiskars’ position in Asia, where Royal Copenhagen ranks among the leading brands selling premium dining products.


The total consideration payable was EUR 66 million, less net debt and working capital adjustments as per closing of the transaction. The transaction was completed on January 4, 2013, and Royal Copenhagen became a part of Fiskars’ Home business area.

In 2011, Royal Copenhagen’s net sales were EUR 66 million, its EBIT was EUR 5 million and its balance sheet total was EUR 55 million. The company employed 749 people at the end of 2012. Based on preliminary, unaudited information, the company’s net sales and EBIT according to Danish GAAP increased for the year 2012. The acquisition is expected to have a positive effect on Fiskars Group’s EBIT from 2013 onwards, but the level of the effect in 2013 is dependent on post-acquisition costs in 2013.

New ownership strategy for Wärtsilä

On April 24, 2012, Fiskars Group agreed with Investor AB to join interests to create a strong long-term owner for Wärtsilä. The legal merging of Fiskars Group’s and Investor AB’s interests will take place in due course, but the parties are acting in concert concerning the Wärtsilä ownership as of the said date.

As part of the agreement, Fiskars’ subsidiary Avlis AB sold 2.08% of the shares in Wärtsilä to Investor AB at a price of EUR 30.90 per Wärtsilä share, totaling approximately EUR 126.8 million. Fiskars Group recorded a non-recurring profit of around EUR 87.0 million in its Q2 2012 results from the transaction.

Fiskars’ holding in Wärtsilä now amounts to 13.0% of the shares and votes (15.1), and the Group remains Wärtsilä’s single largest shareholder. At the end of 2012, Fiskars Group and Investor AB together owned 42,948,325 shares or 21.77% of Wärtsilä’s share capital and votes.

Wärtsilä continues to form one of Fiskars’ reported operating segments and is treated as an associated company, as Fiskars considers that it continues to have a significant influence within Wärtsilä.

Associated company Wärtsilä

Wärtsilä’s Annual General Meeting was held on March 8, 2012. The Chairman of Fiskars’ Board, Kaj-Gustaf Bergh, and Fiskars’ Board members, Alexander Ehrnrooth and Paul Ehrnrooth, were re-elected to Wärtsilä’s Board of Directors.

Wärtsilä’s Annual General Meeting decided to pay a dividend of EUR 0.90 per share (EUR 1.75), which resulted in dividend income of EUR 26.8 million (40.9) for Fiskars.

Fiskars’ share of Wärtsilä’s profit totaled EUR 47.8 million (42.7) for January–December. At the end of December, the market value of Fiskars’ Wärtsilä shares was EUR 839.0 million (663.9) or EUR 10.24 (8.11) per Fiskars share, with a closing price of EUR 32.72 (22.32) per Wärtsilä share. The book value of these shares on the consolidated balance sheet was EUR 280.4 million (300.8).

Changes in management

On March 2, 2012, Fiskars appointed the Group’s CFO Teemu Kangas-Kärki as President of its Home business area. Jyri Virrantuomi, Vice President, Finance, was appointed interim CFO for Fiskars Group. Jaakko Autere, former President of the Home business area, left the company. Fiskars Group’s new CFO and member of the Executive Board, llkka Pitkänen, assumed his position at the beginning of September 2012, reporting to Fiskars’ President and CEO, Kari Kauniskangas.

In May 2012, Fiskars introduced a new sales organization for the EMEA region to accelerate growth. As of September 1, 2012 two new sales regions – North and Central – assumed commercial responsibility for their respective regions. Jakob Hägerström was appointed President, Sales Region North and Axel Goss was appointed President, Sales Region Central. Both report to Fiskars’ President and CEO, Kari Kauniskangas.

At the end of May, Fiskars announced that Hille Korhonen, the Group’s Vice President, Operations, would leave Fiskars in November to assume a new position outside the company. On November 20, 2012, Risto Gaggl, Vice President, Operations at Fiskars’ Garden EMEA business area was appointed Senior Vice President, Supply Chain, and member of the Group’s Executive Board.

Share and shareholders

Fiskars Corporation has one series of shares (FIS1V). All shares carry one vote each and equal rights.

The total number of shares at the end of the period was 82,023,341, including 118,099 (118,099) treasury shares. Treasury shares correspond to 0.14% (0.14) of the Corporation's shares and votes. The share capital remained unchanged at EUR 77,510,200.

On August 2, 2012 Fiskars announced the Board of Directors’ decision to acquire the company’s own shares on the basis on the authorization given by the Annual General Meeting held on March 15, 2012. The authorization may be used to acquire shares to be used for the development of the capital structure of the company, as consideration in corporate acquisitions or industrial reorganizations and as part of the company’s incentive system and otherwise for further transfer, retention or cancellation. The maximum number of shares to be acquired is one million (1,000,000), corresponding to 1.2% of the total number of shares. No shares were acquired during 2012.

Fiskars shares are traded in the Large Cap segment of NASDAQ OMX Helsinki Ltd. The average share price was EUR 15.67 in 2012 (16.92). At the end of December, the closing price was EUR 16.69 (EUR 13.94) per share and Fiskars had a market capitalization of EUR 1,367.0 million (1,141.8), excluding treasury shares. The number of shares traded during January–December was 4.9 million (5.7), which is 6.0% (7.0) of the total number of shares.

The total number of shareholders was 16,148 (15,339) as of the end of December. Fiskars was not informed of any significant change among its largest shareholders during the year.

Corporate Governance

Fiskars complies with the Finnish Corporate Governance Code issued by the Securities Market Association, which came into force on October 1, 2010. Fiskars’ Corporate Governance Statement for 2012 in accordance with Recommendation 51 of the Code will be published in week 8, 2013 as a separate report.

Fiskars also complies with the insider regulations of NASDAQ OMX Helsinki Ltd., latest updated on October 9, 2009, and the company’s internal insider guidelines latest updated on September 1, 2012.

Annual General Meeting for 2012

The Annual General Meeting (AGM) of Shareholders of Fiskars Corporation was held on March 15, 2012. The AGM approved the financial statements for 2011 and discharged the members of the Board and the President and CEO from liability. It was decided to pay a dividend of EUR 0.62 per share, totaling EUR 50.8 million. The dividend was paid on March 27, 2012.

The number of Board members was set at nine. Kaj-Gustaf Bergh, Ingrid Jonasson Blank, Ralf Böer, Alexander Ehrnrooth, Paul Ehrnrooth, Louise Fromond, Gustaf Gripenberg, Karsten Slotte, and Jukka Suominen were all re-elected. The term of the Board members will expire at the end of the AGM in 2013. KPMG Oy Ab was re-elected as company auditor, and Authorized Public Accountant Virpi Halonen was nominated as responsible auditor.

The AGM decided to authorize the Board to acquire a maximum of 4,000,000 Fiskars’ own shares and convey a maximum of 4,000,000 Fiskars’ own shares. The Board may also decide on the acquisition and conveyance of shares in derogation of the pre-emptive right of shareholders to company shares. Both authorizations will remain in force until June 30, 2013.


Constitutive meeting of the Board

Convening after the Annual General Meeting, the Board of Directors elected Kaj-Gustaf Bergh as Chairman, and Alexander Ehrnrooth and Paul Ehrnrooth as Vice Chairmen.

The Board appointed Gustaf Gripenberg as Chairman of the Audit Committee, and Alexander Ehrnrooth, Paul Ehrnrooth, Louise Fromond, and Karsten Slotte as members. The Board appointed Kaj-Gustaf Bergh as Chairman of the Compensation Committee, and Ralf Böer, Ingrid Jonasson Blank, and Jukka Suominen as members. The Board appointed Kaj-Gustaf Bergh as Chairman of the Nomination Committee, and Alexander Ehrnrooth and Paul Ehrnrooth as members.

Extraordinary General Meeting 2012

Following the sale of 2.08% of shares in Wärtsilä to Investor AB, the Extraordinary General Meeting of shareholders of Fiskars Corporation on September 12, 2012 decided to distribute an extra dividend of EUR 0.75 per share to Fiskars’ shareholders, totaling EUR 61.4 million. The dividend was paid on September 24, 2012.

Annual General Meeting 2013

Fiskars Corporation’s Annual General Meeting will be held on March 14, 2013 starting at 3 p.m. at the Helsinki Exhibition & Convention Centre. The invitation to the meeting will be published separately.

Board’s proposal to the Annual General Meeting

The distributable equity of the Parent Company at the end of the 2012 fiscal year was EUR 778.8 million (448.8). The increase in distributable equity was mainly attributable to the reversal of impairment loss in subsidiary shares of Avlis AB. The Board of Directors proposes to the Annual General Meeting of Shareholders that a dividend of EUR 0.65 per share be paid for 2012.

The number of shares entitling holders to a dividend totaled 81,905,242. The proposed distribution of dividend would thus be EUR 53.2 million. This would leave EUR 725.6 million of distributable profit funds at the Parent Company.

No material changes have taken place in the financial position of the company since the end of the fiscal year apart from the acquisition of Royal Copenhagen. The financial standing of the company is good and, according to the Board of Directors’ assessment, distributing the proposed dividend will not compromise the company’s solvency.


Risks and business uncertainties

Fiskars’ business, net sales and financial performance may be affected by several uncertainties. Fiskars Corporation details the overall business risks and risk management in its Annual Report and on its web site. The principal business uncertainties are related to the following:

  • Decline of general market conditions and consumer demand in Fiskars’ main market areas, Europe and North America
  • Loss of or reduced sales to major retail customers and serious disruptions in the distribution channel
  • Sudden or significant fluctuations in raw material and energy prices or availability; the most important raw materials being steel, aluminum, and plastic
  • Steering and availability disruptions related to supply chain and country risks, especially regarding suppliers in Asia
  • Decrease in consumer confidence in Fiskars’ brands
  • Adverse weather conditions, which particularly affect the Garden business area
  • Changes in currency exchange rates that may affect Fiskars’ competitiveness and the reported net sales of the Group, its operating results and balance sheet negatively
  • Despite careful due diligence process, all acquisitions include risks
  • Major decline in the profit of associated company Wärtsilä or its dividends
  • Delay in the five-year process and IT program that was launched in 2010 or failure to reach the program’s financial goals

Litigation

The court case related to Fiskars’ subsidiary, Iittala Group Oy Ab in the Market Court was closed in January 2012.

Fiskars is involved in a number of legal actions, claims and other proceedings. The final outcomes of these matters cannot be estimated. Taking into account all available information to date, the outcomes are not expected to have a material impact on the financial position of the Group.

Outlook for 2013

Fiskars’ operating environment remained uncertain throughout 2012, and recovery cannot be expected in the near future. Both consumer and trade behavior may be affected by the lengthened economic and financial uncertainty.

Fiskars will continue implementing its integrated company strategy and the investment program in EMEA. The company will also continue investing in new product development and marketing in order to improve its product offering and competitive position.

In January 2013, Fiskars added Royal Copenhagen to its Home business portfolio. The acquisition is expected to have a positive effect on the Group’s operating profit, but the level of the effect is dependent on post-acquisition costs in 2013.

We expect the Group’s full-year 2013 net sales and operating profit excluding non-recurring items to be above 2012 levels.

The associated company, Wärtsilä, will continue to have a major impact on Fiskars’ profit and cash flow in 2013.

Helsinki, Finland, February 7, 2013

FISKARS CORPORATION
Board of Directors