Stock exchange release February 16, 2005
FISKARS CORPORATION?S RESULTS 2004
Stock Exchange Release 16.2.2005 08.30 am FISKARS CORPORATIONS RESULTS 2004 RESULT FOR THE FOURTH QUARTER 2004 Net sales of EUR 127 million (132) during the period from October to December were 4% lower than in the previous year. The decrease in sales is attributable to foreign exchange fluctuations. The average USD foreign exchange rate in Q4 2004 was 9% lower than in the previous year. Growth in sales volume of other product groups compensated for the drop in sales of garden furniture operations. Gross profit margin improved in Q4 2004 to 29.8% (27.2%). There were no charges recognized in Q4 2004 corresponding to the asset and goodwill impairment losses of EUR 75.6 million recognized in Q4 2003. Profit from operations before exceptional items of EUR 5.7 million (-75.7) was considerably better than in the previous year representing an operating profit margin of 4.5%. Income from associated company of EUR 9.7 million (0) reflected a solid fourth quarter performance by Fiskars associate, Wärtsilä. Net financial expenses including other financial income from long-term investments, grew slightly from the previous year to EUR 1.2 million (0.4). Profit before taxes was EUR 14.2 million (-75.3) and net profit was EUR 14.5 million (-43.9). Report by the Board of Directors 2004 Consolidated net sales decreased from the previous year by 4.0% to EUR 597 million (620). Net sales before USD foreign exchange losses grew by 2.0% from previous year. Therefore, fluctuations in the USD foreign exchange rate accounted for a 6.0% decrease in net sales from the previous year. Industrial operations consisting of Fiskars Brands Inc. and Inha Works generated operating profit of EUR 40.8 million compared to previous years loss of EUR -48.9. Garden furniture operations incurred non-recurring losses of EUR 3.9 million while previous year restructuring costs consisted of asset and goodwill impairment losses of EUR 84.2 million. Improvement in the profitability of Real Estate operations yielded good results. Consolidated operating profit of EUR 39.0 million (-51.9) representing a margin of 6.5% (-8.4%) was a clear improvement over previous year. The Fiskars share of income from associated company Wärtsilä in 2004 amounted to EUR 20.9 million. In the previous year, income from Wärtsilä dividends of EUR 25.6 million was recognized in income from investments. Net financial expenses remained level with the previous year at EUR 9.5 million (9.4) and profit before taxes improved to EUR 56.7 million (-30.0). Profit for the financial year and earnings per share amounted to EUR 44.9 million (-12.8) and EUR 0.58 per share (-0.16), respectively. In the current year, return on equity and return on invested capital were 13.5% and 12.3%, respectively, while both ratios were negative in the previous year. The board of directors proposes the payment of dividends on Series A shares and Series K shares amounting to EUR 0.30 per share and EUR 0.28 per share, respectively, totaling EUR 22.8 million. The extraordinary general meeting decided to increase the companys share capital through a bonus share issue in December. As a result, all key figures per share presented in this report have been adjusted for the effects of the bonus issue. Dividends declared for 2003 and paid in March 2004 adjusted for the effects of the bonus issue amounted to EUR 0.22 per Series A share and EUR 0.21 per Series K share. Bonus issue adjusted amounts for extra dividends paid in December total EUR 0.71 per Series A share and EUR 0.70 per Series K share. Total dividends declared for 2003 and paid in 2004 amounted to EUR 71.8 million. Financial statements for the 2004 financial year have been prepared in accordance with generally accepted accounting principles in Finland. With the first interim report of 2005, Fiskars shall begin applying International Financial Reporting Standards (IFRS) in the preparation of its financial statements. BUSINESS OPERATIONS Fiskars Brands The 5% decrease in Fiskars Brands net sales of EUR 561 million (589) is wholly attributable to weakening in the USD foreign exchange rate. The amount of USD denominated sales increased slightly representing 58% (61%) of total sales. Imports from low cost countries for certain products are competitively priced and of moderate quality. As a result, Fiskars Brands was not able to fully adjust sales prices to cover the effect of raw material input price increases. In particular, the prices for steel and plastic raw materials rose significantly during the period. Despite the decrease in net sales, profit before exceptional items improved from the previous year and was EUR 41.0 million (32.8). Profit after exceptional items improved and was EUR 37.5 million (-51.4) improved. Exceptional items amounted to EUR 3.5 million (-84.2). Profitability was enhanced through production efficiencies, increased subcontracting and new product development. Fiskars Brands office in Shanghai, which is primarily subcontracting in the Far East, has grown significantly. Disposal of loss-making garden furniture operations in September resulted in a EUR 3.9 million realized loss. The disposal of the seasonal business was not finalized in time to have a significant effect on Fiskars Brands net sales or profits. In North America net sales of FISKARS branded sales of school, office and crafts supplies decreased by 12.0% although profitability was maintained at a good level. New management was appointed during the last quarter in 2004. FISKARS garden tools and home and leisure products were combined into one product group in the United States. These products partly share a common distribution channel creating the potential for marketing and logistics efficiencies. Net sales have decreased slightly from the previous year. Profitability was negatively impacted by non-recurring expenses from operational and administrative rationalizations. USD denominated sales of GERBER and WINCHESTER branded products distributed mainly in the United States as leisure, camping and hunting related products grew 44.0%. Profitability of these products also improved. The product range was expanded in January 2004 to include LED technology travel and pocket flash lights. Net sales of consumer electronics products sold in the Unites States under the POWER SENTRY and NEWPOINT brands grew substantially by 11.0% while profitability remained on the same level as in the previous year. Housewares are a significant product group in Europe. Belonging to this product group, there are a number of nationally recognized brands including FISKARS, RAADVAD and MONTANA. During the current period, several new kitchen knife series were launched for European markets. These products will be sold in the current financial period. Sales of housewares have grown particularly in the Nordic countries. Net sales in Europe remained even with the previous year. Overall economic development has fluctuated and remained at modest levels. Great Britain has assumed Germanys position as the largest single market. Net sales have grown in Denmark, Finland and Norway. The Billnäs factory has invested in product efficiency improvements and shipments to Europe have grown. Inha Works Net sales at Inha Works grew by 21.0% to EUR 29.2 million (24.2). The domestic boat market grew and the sale of Buster boats surpassed the average growth in the market. Exports to Norway and Sweden also grew considerably. The strong increase in sales caused temporary problems with production capacity, particularly for the new Buster XL. During the financial period, capital expenditures were made in surface treatment line and all middle size and bigger boat models will be painted. The demand for other products has continued at a good rate. Operating profit at Inha Works improved to EUR 3.3 million (2.5). Real Estate Operations Operating profit from the real estate operations was positive and the development of operations continued in accordance with the strategy. Fiskars Village is a major part of the real estate operations. Historical values have been preserved in the ironworks village founded in 1649. New activities have replaced its original industries. The operating unit leases real estates to both Finnish Fiskars companies and external customers especially in the Fiskars Village area. Real Estates Group manages totally 15 000 hectars of real estates. Of the land areas, 120 hectares have been designated as nature reserves (Natura) in 2004. CAPITAL EXPENDITURES AND ACQUISITIONS During the financial period, EUR 19.6 million (26.7) was invested in industrial operations. Investments consisted mainly of two fairly small acquisitions whereby new products were acquired for the Fiskars Brands leisure product group. The other capital expenditures in Fiskars Brands were made for the purpose of maintaining production capacity as well as enhancing operational efficiency and the use of information technology. The largest individual capital expenditures have been made to improve efficiency at the Billnäs factory in Finland Capital expenditures at Inha Works included investment in a surface treatment line and factory expansion. ASSOCIATED COMPANY WÄRTSILÄ Fiskars increased its share in Wärtsilä Corporation at the end of the first quarter 2004 by acquiring 824 146 A shares and 376 333 B shares for a purchase price of approximately EUR 22.0 million. Fiskars is Wärtsiläs largest shareholder holding 20.54% of share capital and 28.07% of the voting rights. Fiskars has applied the equity method since the beginning of 2004 to account for its investment in Wärtsilä. Income from associated company after goodwill amortization for 2004 was EUR 20.9 million. The book value for investment in associated company in the consolidated balance sheet totaled EUR 212.6 million, consisting of EUR 192.2 million of the Fiskars share of the equity and EUR 20.3 million of goodwill. In the prior year balance sheet, Wärtsiläs shares have been recognized at their original acquisition cost. The book value for Wärtsilä shares in the parent company was EUR 214.0 million (192.0). The market value of the Wärtsilä shares was EUR 295.0 million at the balance sheet date. INVESTMENTS Fiskars focuses on direct industrial ownerships. As part of this strategy, investments totaling EUR 25.0 million were sold including investments in the EQT funds. At the end of the financial period, only insignificant holdings of fund investments remained. Income from investments in 2004 amounted to EUR 6.3 million. Income from long-term investments in 2003 amounted to EUR 31.3 million and consisted mainly of dividends paid by Wärtsilä. BALANCE SHEET AND FINANCIAL POSITION Cash flow from operations was EUR 84.4 million (83.6). Additional assets were released from working capital and depreciation exceeded the capital expenditures in industrial operations. Cash flow from long-term investments was clearly positive. Fiskars capital structure changed at the end of the financial year when the Board of Directors decided to issue a capital loan to shareholders. The loan was oversubscribed and its total value determined by a Board decision was EUR 45.1 million. In accordance with the Finnish Companies Act, the loan has been classified as a capital loan. The loan bears interest at 6.25% and may be repaid in full at any time prior to its maturity in 5.5 years only if the parent company and the consolidated shareholders equity are left with full cover on restricted equity and other non-distributable equity. Consolidated net debt fell to EUR 184.3 million (198.6) and the net debt to equity ratio was 58.0% (57.0%). Cash and cash equivalents at the balance sheet date were EUR 15.6 million (16.9) and considerable unused credit limits at year end are a sign of solid group liquidity. Net interest expenses were level with the previous year at EUR 9.5 million (9.4). Consolidated shareholders equity was EUR 318.8 million (348.3) at the year-end. Dividends from 2003 totaling EUR 71.8 million (60.3) reduced shareholders equity. The gearing ratio remained at a reasonable level at 50% (51). Consolidated total assets decreased to EUR 635.0 million (678.4). Fixed assets and other long-term investments decreased by EUR 18.0 million to EUR 371.5 million (389.5). Goodwill comprises of both Fiskars Brands operations and the Wärtsilä associated company. The book value of industrial fixed assets was EUR 115.0 million (134.8). The most significant long-term investment was the share of the Wärtsilä. PERSONNEL At the end of the year the total number of personnel was 3 448 (3 877). The number in the United States decreased by 462 to 1 481 due mainly to the disposal of garden furniture operations, which accounted for 344 of the total personnel decrease. Personnel decreased also as a result of the streamlining of operations. The number of employees in Finland totaled 915 (873), of which 248 (202) are employed at Inha Works. MANAGEMENT There were no changes during the financial year in the parent company management group. Heikki Allonen, M.Sc. continued as CEO and President. William J. Denton acted as CEO of Fiskars Brands until September and remains available at the request of the board. James S. Purdin was appointed as CEO of Fiskars Brands on 15 October 2004. He has been Fiskars Brands Chief Operating Officer since beginning of 2003. Jukka Suonperä M.Sc continued as CEO of Inha Works. CORPORATE GOVERNANCE Fiskars complies with the directive on administrative and corporate governance rules for stock exchange listed entities as published by Helsinki Stock Exchange and the Federation of the Chamber of Commerce, Industry and Employers (KTT) and taking effect on 1 July 2004. ANNUAL GENERAL MEETING 2004 In the Fiskars Corporations annual general meeting held on 16 March 2004, total dividends of EUR 16.8 million were declared on A Series (EUR 0.22 per share) and K Series shares (EUR 0.21 per share). The number of Board members and deputy Board members was set at seven and one, respectively. Re-elected board members included Göran J. Ehrnrooth, Mikael von Frenckell, Gustaf Gripenberg, Olli Riikkala and Thomas Tallberg. Paul Ehrnrooth and Ilona Ervasti-Vaintola were elected as new members to the Board. Alexander Ehrnrooth was appointed deputy Board member. The mandate for all Board and deputy Board members ends on the date of the 2005 annual general meeting. KPMG Oy Ab was reappointed as auditor, Sixten Nyman, Authorized Public Accountant, as a principal auditor. The annual general meeting authorized the Board of Directors to acquire and dispose during a one-year period companys shares to maximum 2 617 724 Series A shares and 1 127 865 Series K shares. All previous authorizations were cancelled. Göran J. Ehrnrooth was elected Chairman of the Board. Mikael von Frenckell was elected Vice-Chairman of the Board. EXTRAORDINARY GENERAL MEETING 2004 As proposed by the Board of Directors, Fiskars Corporations extraordinary general meeting in 3 December 2004 declared an extra dividend for the year ended 31 December 2003. Series A and Series K shareholders received extra dividends of EUR 0.71 per share and EUR 0.70 per share, respectively, representing a total dividend payment of EUR 55.0 million. The decision was also reached to increase the Companys share capital from EUR 55 364 430 to EUR 77 510 200 through a stock dividend issue. Series A shareholders received a two for five stock dividend resulting in a total stock issue of 15 698 426. Series K shareholders received a two for five stock dividend resulting in a total stock issue of 6 447 344. All shares have a EUR 1.00 per share calculatory nominal value. All new shares issued are entitled to full dividend rights for the year ended 31 December 2004. General meeting also decided to sell the companys shares, which have not been transferred into book-entry securities system, on behalf of the owners. TREASURY SHARES During the financial year 2004, the Board has exercised the authority granted in the 2003 Annual General Meeting regarding the acquisition and reissue of treasury shares. Treasury shares amount to 127 512 Series A treasury shares and 420 Series K treasury shares at 31 December 2004. The respective average prices for Series A and Series K shares are EUR 7.05 per share and EUR 7.50 per share. The Board has not exercised the authority granted in the 2004 Annual General Meeting regarding the acquisition and reissue of treasury shares. SHARE PRICES The market price of Fiskars shares on the Helsinki Exchanges rose during the year by 14.0% and was 31 December 2004 EUR 612 million (537). The share prices for Series A shares and Series K shares were EUR 7.90 per share (6.71) and 7.90 per share (7.46), respectively. In 2004, the trading volume of Fiskars shares totaling EUR 114 million (44) more than doubled the trading volume in the previous year. The respective trading volumes for Series A shares and Series K shares were 11.7 million shares (6.2) and 3.2 million shares (0.6). The total trading volume for all Fiskars shares was 19.1% (8.9%) of total shares. OUTLOOK The structure of Fiskars operations and portfolio has been streamlined during the financial year 2004. The balance sheet will stay solid and liquidity will remain good given the positive cash flow. The Companys market is characteristically seasonal and the first half of the year is important for the products. Significant changes in the market conditions are not expected although the spring season has begun at a slower pace than in the previous year. Fiskars will continue developing its core businesses. In the coming year, the focus will be on improving the competitiveness and operational efficiency of the Companys factories relative to competitors from low cost countries. At the same time, logistical operations will be developed to strengthen sourcing operations. Due to the structural changes implemented during the previous fiscal period and the exchange rate of the dollar, net sales are not expected to increase in the present period. Income from associated company, Wärtsilä, still forms an important part of Fiskars consolidated profit. The operating profit in the Companys industrial operations is expected to remain at a slightly lower level in the first quarter than in the previous year. Profitability is expected to improve subsequently for the end of the year. CONSOLIDATED 10-12 10-12 chg 1-12 1-12 chg INCOME STATEMENT 2004 2003 % 2004 2003 % MEUR MEUR MEUR MEUR NET SALES 126.7 132.2 -4 597.0 620.3 -4 Cost of goods sold -89.0 -96.3 -8 -420.3 -448.3 -6 GROSS PROFIT 37.7 36.0 5 176.7 172.0 3 Other operating costs -32.4 -36.1 -10 -134.1 -139.6 -4 Restructuring cost 0.4 -75.6 -3.5 -84.2 OPERATING PROFIT 5.7 -75.7 108 39.0 -51.9 175 Share of assoc.comp.result 9.7 20.9 Income from investments 0.9 0.2 6.3 31.3 Other financial income 0.2 2.7 -91 0.5 2.1 -77 Financial expense -2.4 -2.5 -5 -10.0 -11.5 -13 PROFIT BEFORE TAXES 14.2 -75.3 56.7 -30.0 Taxes for the period 0.3 31.5 -11.8 17.2 PROFIT FOR THE PERIOD 14.5 -43.9 44.9 -12.8 Earnings per share, euro 0.19 -0.57 0.58 -0.16 Currency rates: 10-12 10-12 chg 1-12 1-12 chg 2004 2003 % 2004 2003 % USD average rate (I/S) 1.30 1.19 9 1.24 1.13 10 USD end-of-period (B/S) 1.36 1.26 8 1.36 1.26 8 CONSOLIDATED BALANCE SHEET 12/04 12/03 chg MEUR MEUR % ASSETS Fixed assets 174.9 173.6 1 Long-term investments 196.5 215.9 -9 Inventories 110.9 124.4 -11 Financial assets 152.6 164.6 -7 TOTAL 635.0 678.4 -6 EQUITY AND LIABILITIES EQUITY Share capital 77.5 55.4 40 Other equity 241.3 293.0 -18 CAPITAL LOAN 45.1 PROVISIONS 7.3 8.9 -18 LIABILITIES Long-term 98.2 123.4 -20 Short-term 165.5 197.8 -16 TOTAL 635.0 678.4 -6 KEYFIGURES 12/04 12/03 chg % Equity/share, euro 4.11 4.49 -8 Equity ratio 50% 51% Net gearing 58% 57% Equity, meur 318.8 348.3 -8 Net interest-bear.debt, meur 184.3 198.6 -7 Gross investments, meur 41.2 37.8 9 Average number of employees 3782 3633 4 CONSOLIDATED STATEMENT 10-12 10-12 1-12 1-12 OF CASH FLOWS 2004 2003 2004 2003 MEUR MEUR MEUR MEUR From oper. activities 33.6 -1.9 84.4 83.6 From investm. activities -1.6 0.8 -7.5 -22.4 From financing -22.7 -5.4 -77.9 -63.8 CHANGE IN CASH 9.4 -6.4 -1.0 -2.6 Cash at beginning of period 6.6 23.2 16.9 19.5 Currency transaction adjustm. -0.4 0.0 -0.3 -0.1 CASH AT END OF PERIOD 15.6 16.9 15.6 16.9 NET SALES 10-12 10-12 chg 1-12 1-12 chg BY BUSINESS AREA 2004 2003 % 2004 2003 % MEUR MEUR MEUR MEUR Fiskars Brands 119 125 -5 561 589 -5 Inha Works 6 5 22 29 24 21 INDUSTRY TOTAL 125 131 -4 591 613 -4 Corporate & real estate 3 3 5 9 10 -3 Eliminations -1 -1 4 -3 -3 4 CORPORATE TOTAL 127 132 -4 597 620 -4 RESULT 10-12 10-12 1-12 1-12 BY BUSINESS SEGMENT 2004 2003 2004 2003 MEUR MEUR MEUR MEUR Fiskars Brands 4.8 -75.2 37.5 -51.4 Inha Works 0.6 0.1 3.3 2.5 INDUSTRY TOTAL 5.4 -75.1 40.8 -48.9 Corporate & real estate 0.4 -0.6 -1.7 -3.0 OPERATING PROFIT 5.7 -75.7 39.0 -51.9 Share of assoc.comp.result 9.7 20.9 Income from investments 0.9 0.2 6.3 31.3 CONSOLIDATED SEGMENTAL RESULT 16.3 -75.5 66.2 -20.6 NET SALES 10-12 10-12 chg 1-12 1-12 chg BY MARKET AREA 2004 2003 % 2004 2003 % MEUR MEUR MEUR MEUR Finland 9 9 6 41 38 9 Scandinavia 16 15 6 62 57 9 Other Europe 21 21 2 115 119 -3 North America 74 82 -9 357 389 -8 Other 6 6 3 21 18 22 CORPORATE TOTAL 127 132 -4 597 620 -4 Export from Finland 15 12 17 56 53 6 Short delivery times are a prerequisite in Fiskars' fields of operations. Therefore, the backlog of orders and changes in it are not of significant importance. CONTINGENCIES 12/04 12/03 MEUR MEUR FOR THE COMPANY'S OWN COMMITMENTS Real estate mortgages 0 1 Pledged assets 1 0 Bills of exchange 0 1 Lease contingencies 40 54 Other contingencies 4 8 TOTAL CONTINGENCIES 45 64 NOMINAL VALUES OF DERIVATIVE INSTRUMENTS Forward exch. contracts 114 91 Interest rate swaps 22 87 FRA's 29 36 MARKET VALUES OF DERIVATIVE INSTRUMENTS COMPARED TO NOMINAL VALUES Interest rate swaps -1 -5 FRA's 0 0 Nominal values also include closed contracts.