ANNUAL REPORT 2013

FINANCIALS

REPORT BY THE BOARD OF DIRECTORS FOR THE YEAR 2013

Year in brief

In 2013, Fiskars once again delivered a strong financial performance amidst volatile market conditions and while undergoing major structural changes and system implementations. In addition to Royal Copenhagen becoming part of the group, key contributing factors were focused cost management and development of the product offer. Operating profit excluding non-recurring items increased 17% to EUR 73.8 million (63.1), reaching an all-time high for the fourth year in a row.

From a sales perspective, performance was mixed. Consolidated net sales increased by 7% to EUR 798.6 million (2012: 747.8), but comparable net sales were a disappointment, due to softness in the Outdoor business and adverse performance in Home categories. Comparable net sales (currency neutral and excluding Royal Copenhagen) decreased 2%.

Cash flow from operating activities was EUR 81.0 million (95.0). Earnings per share were EUR 1.14 (2.18, incl. EUR 1.06 from the sale of Wärtsilä shares). The Board proposes a dividend of EUR 0.67 per share (0.65).

Group performance

Operating environment in 2013

In 2013, the market environment showed some signs of improvement in many European markets, with the exception of Finland, where the retail environment was weak and holiday season sales were challenging and price-driven. The European markets suffered from unusually poor weather in the important spring selling season, which reduced traffic in stores and which left its mark on the Garden retailer landscape. Overall consumer confidence was still low in many key markets and retailers were on the lookout for ways to decrease inventory risk and manage costs.

In North America, cold weather also lingered across the United States and spring sell-out from Garden retail was slow. Sentiment was more positive than in Europe, but riddled with volatility due to concerns about the economy. Government funding issues dampened institutional spending and added to general uncertainty.


Net sales and operating profit in 2013

Net sales,



EUR million 2013 2012 Change Change cn*
Group 798.6 747.8 7% 8%
EMEA 564.2 501.9 12% 13%
Americas 245.1 250.4 -2% 0%
Other 6.5 6.3 3% 3%





* currency neutral




Operating profit (EBIT),



EUR million
2013 2012 Change
Group
61.0 63.9 -4%
EMEA
39.9 42.6 -6%
Americas
31.4 34.2 -8%
Other
-10.3 -12.9 -20%

In 2013, Fiskars net sales increased by 7% to EUR 798.6 million (2012: EUR 747.8 million) mainly due to the acquisition of Royal Copenhagen. Comparable net sales, using comparable exchange rates and excluding Royal Copenhagen, decreased by 2%. Net sales for EMEA amounted to EUR 564.2 million (501.9). Comparable net sales in EMEA decreased by 1% due to decreased Home sales whereas comparable sales in the Americas remained flat. Net sales for the Americas totaled EUR 245.1 million (250.4).

The Group’s operating profit excluding non-recurring items grew by 17% to EUR 73.8 million (63.1), reaching again an all-time high. This positive development was driven by the strong performance of Royal Copenhagen and supported by offer and cost management. The Group recorded a total of EUR 8.2 million EMEA 2015 restructuring costs and EUR 4.6 million impairment charges in EMEA during the year, which resulted in operating profit decreasing by 4% to EUR 61.0 million (63.9). The depreciation and amortization related to the five-year investment program in EMEA increased compared to previous year.

Operating profit for EMEA amounted to EUR 39.9 million for the year (42.6). Non-recurring costs amounted to EUR 12.8 million. In the Americas, operating profit for the segment decreased by 8% in 2013, totaling EUR 31.4 million (34.2). The contraction of outdoor sales contributed to the decrease in profit.

Financial items and net result in 2013

Fiskars share of profit from its associated company, Wärtsilä, in 2013 was EUR 50.8 million (2012: 47.8). The change in the fair value of biological assets was EUR 0.7 million (5.6 due to inventory of forestry assets).

Net financial costs totaled EUR -4.3 million (-3.8). Profit before taxes was EUR 108.3 million (200.4, incl. EUR 87.0 million from the sale Wärtsilä shares). Income taxes for the entire year were EUR -14.3 million (-21.5). The main reason for the decrease was the recalculation of deferred tax liabilities due to the announcement of a lower Finnish corporate tax rate for 2014. Earnings per share were EUR 1.14 (2.18) for the financial year.


EMEA investment program

In December 2010, Fiskars launched a five-year investment program to create competitive structures, systems, and processes in EMEA, including a new, shared enterprise resource planning (ERP) system. The investment related to the program was estimated at EUR 50 million.

During the first half of 2013, Fiskars reviewed the scope of the investment program and decided to expand the program’s scope to additional interfaces and the recently acquired Royal Copenhagen. Accordingly, the total investment related to the program will amount to approximately EUR 65 million by the end of 2015.

The largest implementations took place in the third quarter of 2013. Around 60% of business volume targeted by the program is now running through common systems and processes. The implementations temporarily impacted sales and operational efficiency during the last quarter.

Fiskars estimates that annual investments in the program (including both operational and capital expenses) will decrease after 2013, whereas depreciation and amortization related to the program will increase gradually and its negative impact on the Group’s results will be greatest in 2015–2018.

EMEA 2015 restructuring program

In June 2013, Fiskars announced a restructuring program to optimize operations and sales units in the EMEA region. The planned “EMEA 2015” program aims to improve the competitiveness and cost structure of end-to-end supply chain and align sales operations in the region with the company’s new business model. The total cost of the program was estimated at EUR 25–30 million for 2013 and 2014. At the beginning of 2014 Fiskars decided to shift some initiatives originally planned for 2014 to 2015, which means that some of the program’s costs will be recorded in 2015. Program costs will be recorded as non-recurring expenses.

Of the total expenses related to the program, EUR 8.2 million were recorded in 2013. They related to the re-location of the Swedish sales office, restructuring of the Group’s manufacturing operations in Finland, restructuring of the Home business area and divestment of the UK-based Sankey pottery business and the reorganization of the Group’s entities in Denmark.

As part of the program, Fiskars divested its local UK-based Sankey plastic pottery business and production at the end of the 2013. The divested business had sales of EUR 8.5 million in 2013.

To further improve efficiency and quality in the Group’s manufacturing facilities, Fiskars is considering investments totaling over EUR 10 million in connection with the restructuring program.

The targeted annual cost savings of the program are EUR 9–11 million once the program is fully implemented. The targeted cost savings will be achieved gradually, and the full impact of the savings is expected to materialize in the Group’s results starting from the end of 2015.

Impairment charges

Related to the divestment of the UK-based Sankey business and production, Fiskars recorded a goodwill impairment charge in EMEA of EUR 3.7 million in the third quarter of 2013. In addition, Fiskars recorded a real-estate write-down of EUR 0.9 million in the third quarter.


Cash flow, balance sheet, and financing in 2013

Cash flow from operating activities was EUR 81.0 million (2012: 95.0), which was affected by cash-based EMEA 2015 restructuring charges. The cash flow includes dividends paid by the associated company, Wärtsilä, totaling EUR 25.6 million (26.8).

Cash flow from investing activities was EUR -84.6 million (94.5, including proceeds from the sale of Wärtsilä shares totaling EUR 126.4 million) during the year, which included the acquisition of Royal Copenhagen. Cash flow from financing activities was EUR -2.7 million (-179.2, including payment of extra dividend) for January–December 2013.

Capital expenditure in 2013 totaled EUR 37.2 million (32.8). The increase in capital expenditure is mostly related to replacement investments in glass production. The company also continued to invest in new product development. Investments related to the five-year investment program launched in EMEA decreased compared to 2012.

Depreciation, amortization and impairment were EUR 29.2 million (21.9) in 2013. The increase in depreciation and amortization was mostly related to the five-year investment program in EMEA.

Fiskars working capital totaled EUR 88.3 million (71.4) at the end of December. The increase in working capital can be attributed to the addition of Royal Copenhagen and an increase in trade receivables. The equity ratio decreased to 61% (66%) and net gearing was 24% (12%).

Cash and cash equivalents at the end of the period totaled EUR 9.7 million (16.4). Net interest-bearing debt amounted to EUR 152.6 million (72.4). The increase in net interest-bearing debt is mainly attributable to the acquisition of Royal Copenhagen. Short-term borrowing totaled EUR 108.8 million (20.4) and long-term borrowing EUR 56.2 million (69.3). Short-term borrowing mainly consists of commercial paper issued by Fiskars Corporation. In addition, Fiskars had EUR 450 million (430) in unused, committed long-term credit facilities with Nordic banks.

In December 2013, Fiskars signed two EUR 100 million revolving credit facilities, which replaced the company’s existing EUR 80 million and EUR 100 million revolving credit facilities signed in December 2007. The new facilities have a tenor of five years and serve for general corporate financing purposes.

Research and development

The Group’s research and development expenditure EUR -13.3 million (2012: -10.3), equivalent to 1.7% (1.4%) of net sales. As of January 1, 2013, Fiskars changed its accounting policy regarding the classification of certain costs relating to product development, and the figures for the comparative periods have been reclassified. This decreased the cost of goods sold and increased research and development costs by EUR 2.1 million in the full year 2012.


Personnel

The average number of full-time equivalent employees (FTE) was 4,087 (2012: 3,364). At the end of December, the Group had a total of 4,330 employees (3,449) on the payroll, of whom 1,582 (1,610) were located in Finland. The increase was mainly due to the acquisition of Royal Copenhagen.

Personnel (FTE),



average
2013 2012 Change
Group
4,087 3,364 21%
EMEA
3,282 2,604 26%
Americas
568 550 3%
Other
237 210 13%

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 in 2013

Net sales,



EUR million 2013 2012 Change Change cn**
Home* 386.2 319.5 21% 22%***
Garden* 284.5 290.9 -2% -1%
Outdoor 123.7 133.3 -7% -5%
Other 4.2 4.1 2% 2%





* Fiskars has reclassified certain product groups from the Home business area to Garden as of January 1, 2013, and the figures for the comparison periods have been adjusted accordingly: Garden net sales increased and Home net sales decreased by EUR 1.1 million in Q4 2012 and by EUR 3.3 million in FY 2012.

* currency neutral

*** Excluding Royal Copenhagen and with comparable exchange rates, Home net sales decreased 2%.



EMEA in 2013

EUR million
2013 2012 Change
Net sales
564.2 501.9 12%
Operating profit (EBIT)
39.9 42.6 -6%
Capital expenditure
16.6 8.4 97%
Personnel (FTE), average
3,282 2,604 26%

 
Net sales in EMEA increased 12% to EUR 564.2 million (2012: 501.9), due to the acquisition of Royal Copenhagen. Comparable sales, currency neutral and excluding Royal Copenhagen, decreased 1%.

Net sales in the Home business increased, driven by the acquisition of Royal Copenhagen. Excluding Royal Copenhagen, sales of homeware decreased. The Home business was affected by the weak retail environment in Finland and temporary negative impact of a system change. In addition, Home sales were impacted by changes in channel management and streamlining of the offering.

Net sales in the Garden business were slightly below the previous year due to currency effects. With comparable currency rates, sales were flat. Strong sales efforts and marketing campaigns helped boost garden sales in the second half of the year and offset the poor spring selling season.

Sales of Outdoor products grew, as successful business-to-business initiatives brought Gerber’s tools to new consumers across Eastern Europe. The Boat business was slightly up despite an overall decline in the market and Buster maintained its market leadership.

The segment recorded an operating profit excluding non-recurring items of EUR 52.7 million (41.8) despite an increase in IT costs and depreciation and amortization related to the five-year investment program. Royal Copenhagen contributed to the increase in operating profit, as did cost control measures. The Group recorded a total of EUR 8.2 million non-recurring costs related to the EMEA 2015 program during the year, and in addition an EUR 4.6 million impairment of goodwill and real estate.

Americas in 2013

EUR million
2013 2012 Change
Net sales
245.1 250.4 -2%
Operating profit (EBIT)
31.4 34.2 -8%
Capital expenditure
5.5 4.4 26%
Personnel (FTE), average
568 550 3%

 
Net sales in the Americas decreased 2% to EUR 245.1 million (2012: 250.4), weighed by softness in Outdoor and Garden sales, as well as the US dollar. Using comparable currency rates, sales remained at the previous year’s level.

Garden net sales were slightly below the previous year’s levels as a result of decreased distribution of pottery. Core garden tool categories performed well and increased distribution boosted Fiskars market share.

Sales of School, Office, and Craft products increased, driven by innovation within the scissors category that helped gain additional placement and a good back-to-school season.

The Outdoor business area was impacted by considerably decreased demand in the institutional channels. Sales in commercial channels were flat.

The segment’s operating profit amounted to EUR 31.4 million (34.2), as volume loss and the product mix in the Outdoor business outweighed good performance in School, Office, and Craft products.

Other in 2013

EUR million
2013 2012 Change
Net sales
6.5 6.3 3%
Operating profit (EBIT)
-10.3 -12.9 -20%
Capital expenditure
15.1 20.0 -24%
Personnel (FTE), average
237 210 13%

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

Net sales were EUR 6.5 million (2012: 6.3) for January–December, largely consisting of timber sales and rental income. The operating profit was EUR -10.3 million (-12.9).

Associated company Wärtsilä

Fiskars holding in its associated company, Wärtsilä, amounts to 13.0% of the shares and votes (13.0), and Fiskars remains Wärtsilä’s largest shareholder. Wärtsilä forms one of Fiskars reported operating segments and is treated as an associated company, as Fiskars considers that it has a significant influence on Wärtsilä.

The legal merger of Fiskars Group’s and Investor AB’s interests in Wärtsilä took place on February 7, 2013. Fiskars Group agreed with Investor in February 2012 to join interests to create a strong long-term owner for Wärtsilä. Fiskars Group and Investor AB’s joint venture, Avlis AB, and its subsidiary, Avlis Invest AB, held a total of 42,948,325 Wärtsilä shares at the end of 2013, equaling 21.8% of Wärtsilä’s shares and votes.

Wärtsilä’s Annual General Meeting was held on March 7, 2013. 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. The Board of Directors appointed Kaj-Gustaf Bergh as Vice Chairman.

Wärtsilä’s Annual General Meeting decided to pay a dividend of EUR 1.00 per share (EUR 0.90), which resulted in dividend income of EUR 25.6 million (26.8) for Fiskars.

Fiskars share of Wärtsilä’s profit totaled EUR 50.8 million (2012: 47.8) for January–December. At the end of December, the market value of Fiskars Wärtsilä shares was EUR 917.2 million (2012: 839.0) or EUR 11.20 (10.24) per Fiskars share, with a closing price of EUR 35.77 (EUR 32.72) per Wärtsilä share. The book value of these shares on the consolidated balance sheet was EUR 286.1 million (280.4).


Acquisition of Royal Copenhagen

The acquisition of the renowned Danish premium porcelain company Royal Copenhagen, announced on December 12, 2012, was completed on January 4, 2013, and Royal Copenhagen became a part of Fiskars Home business area.

The debt-free enterprise value was approximately EUR 66 million, and the acquisition increased Fiskars net interest-bearing debt. The Group’s total assets were increased by EUR 101 million on the acquisition date and it contributed EUR 73 million to Group’s net sales in 2013. Royal Copenhagen performed well in 2013 and had a positive effect on Fiskars operating profit in the EMEA region.

Changes in management

Fiskars Executive Board was strengthened as of September 16, 2013 with two new members, the group’s new Senior Vice President, Human Resources, Nina Ariluoma-Hämäläinen, and Chief Information Officer Frans Westerlund. Frans Westerlund has worked as Fiskars CIO since 2009 and has been a member of Fiskars Executive Team. Fiskars previous VP, Human Resources, Timo Leskinen left the company at the end of July to assume a new position.

Jason Landmark, President of Fiskars Outdoor Americas business and a member of Fiskars Executive Team, accepted a position outside the company and left the company on November 1, 2013. Tom Genereux, VP, Finance for Outdoor Americas has been appointed interim head of Fiskars Outdoor Americas business.

New sales Region Asia-Pacific and new name for the EMEA segment

On December 11, 2013 Fiskars announced that it would establish a new sales region for Asia-Pacific as of January 1, 2014 to accelerate growth in the region. The Asia-Pacific sales region will contain Fiskars sales units in Australia, China, Japan, South Korea, and Taiwan. In addition, the new sales region will be responsible for all distributor-based sales in the region. As President of the new sales region and a member of the Group’s Executive Team, Fiskars has appointed Matteo Gaeta, MBA, who will be based in Shanghai, China.

Following the establishment of the Asia-Pacific sales region, Fiskars EMEA segment will be renamed “Europe and Asia-Pacific” and it will consist of three sales regions: North, Central, and Asia-Pacific. The North sales region consists of the Nordic countries and Russia, as well as Fiskars export sales. The Central sales region is responsible for sales and general management in the key Central European markets.

Share and shareholders

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

On February 7, 2013 the Board of Directors of Fiskars Corporation announced a decision to cancel all 118,099 treasury shares held by the company, equaling 0.14% of the shares of the company. The cancellation was registered on February 15, 2013, and the number of the Corporation’s shares now totals 81,905,242.

The Board of Directors was authorized to acquire and convey company shares but this authorization was not used during the year. The share capital remained unchanged at EUR 77,510,200.

On September 30, 2013 Fiskars announced that the unclaimed shares issued in the 2004 bonus issue – a total of 17,084 shares – were sold during the period September 26–27, 2013. The right to claim from the deposited funds shall expire after four years.

Fiskars shares are traded in the Large Cap segment of NASDAQ OMX Helsinki Ltd. The average share price was EUR 18.20 in 2013 (2012: 15.67). At the end of December, the closing price was EUR 19.55 (EUR 16.69) per share and Fiskars had a market capitalization of EUR 1,601.2 million (1,367.0, excluding treasury shares). The number of shares traded during January–December was 3.0 million (4.9), which is 3.7% (6.0%) of the total number of shares.

The total number of shareholders was 16,352 (16,148) as of the end of December. Fiskars was not informed of any significant change among its largest shareholders during the year. Fiskars shareholder structure and main shareholders at the end of the year are detailed in the financial statements.

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 2013 in accordance with Recommendation 51 of the Code will be published in week 8, 2014 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 January 1, 2013.

The ultimate decision-making power is vested in the annual general meeting of shareholders, who elects the members of the board of directors. The terms of office of members will run to the end of the following annual general meeting. The board of directors is responsible for appointing, and if necessary, dismissing the managing director. Fiskars Articles of Association do not contain matters that could materially affect a public tender offer of the company’s securities.

Annual General Meeting for 2013

The Annual General Meeting (AGM) of Shareholders of Fiskars Corporation was held on March 14, 2013. The AGM approved the financial statements for 2012 and discharged the members of the Board and the President and CEO from liability. It was decided to pay a dividend of EUR 0.65 per share, totaling EUR 53.2 million. The dividend was paid on March 26, 2013.

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 2014. KPMG Oy Ab was re-elected as company auditor, and nominated Authorized Public Accountant Virpi Halonen as responsible auditor.

The AGM decided to authorize the Board to acquire a maximum of 4,000,000 of Fiskars own shares and convey a maximum of 4,000,000 of 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, 2014.


Constitutive meeting of the Board

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

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

Annual General Meeting 2014

Fiskars Corporation’s Annual General Meeting will be held on March 12, 2014 starting at 3 p.m. at the Helsinki Exhibition & Convention Centre. The invitation to the meeting will be published separately.

The distributable equity of the Parent Company at the end of the 2013 fiscal year was EUR 822.5 million (778.8). The Board of Directors proposes to the Annual General Meeting of Shareholders that a dividend of EUR 0.67 (0.65) per share be paid for 2013.

The number of shares entitling holders to a dividend totaled 81,905,242. The proposed distribution of dividends would thus be EUR 54.9 million (53.2). This would leave EUR 767.6 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. 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
  • Negative effects related to acquisitions, despite careful due diligence processes
  • 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

Fiskars is involved in a number of legal actions, claims, and other proceedings. The final outcomes of these matters are unpredictable. 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 2014

Economic indicators are trending mildly positively in many of Fiskars key markets in Europe and North America, but consumer and trade behavior is expected to remain cautious. The retail environment in Finland developed poorly during 2013 and no recovery can be expected in 2014. At the end of 2013 Fiskars divested its local pottery business in the UK, which will affect sales as of 2014.

Fiskars is half-way through its five-year investment program in EMEA. Annual investment related to the program has started to decrease, whereas depreciation and amortization start to increase. To accelerate growth, the company plans to increase spending on brand recognition, strengthening the newly established Asia-Pacific sales region, as well as on new category expansion ventures.

We expect the Group’s full-year net sales for 2014 to be at 2013 levels and operating profit excluding non-recurring items to be at, or slightly below 2013 levels.

The associated company, Wärtsilä, will continue to have a major impact on Fiskars profit and cash flow in 2014.

Helsinki, Finland, February 6, 2014


FISKARS CORPORATION
Board of Directors