Hello, and welcome to Fiskars Group Q3 2023 results webcast. My name is Essi Lipponen, and I'm the Director of Investor Relations. I'm here with our President and CEO, Nathalie Ahlström, and our CFO, Jussi Siitonen. Nathalie and Jussi will first present the Q3 highlights, and after that, we will have time for your questions. You can type in your questions in the chat already during the presentation. Nathalie, please go ahead.
Thank you, Essi, and welcome also from my side here for our Q3 report. Starting with the highlights of the quarter, it's a tough time. Sales and EBIT came down in this challenging market. However, on the bright side, we are very, we're very proud of the free cash flow and the gross margin improvement we delivered. Also, the profile of our company is moving, with D2C continuing to grow, especially e-com growing, which talks about the attraction consumers have to our e-com and our brands. We also in September and in Q3, accelerated our strategy significantly. We combined Terra and Crea into one business area, Fiskars, because it's about the brands, making the big brands bigger and what the consumers care about. In addition, we enhanced our Vita portfolio with the acquisition of Georg Jensen.
As a consequence of the challenging market environment, in early October, we renewed our guidance, and now we expect our full year EBIT to be between EUR 100 million and EUR 120 million. But let's look a bit at the details of the Q3. As said, volume was a challenge in Q3, continues to be a challenge. It's from the wholesale we see the volume dropping. And at the same time, thanks to the actions we are doing on gross margin, we were able to mitigate some of the volume drop, with a gross margin increase in 240 basis points. That was across the businesses and really talks about the power of the brands. And as said, free cash flow, very strong, EUR 170 million improvement from last year. As a consequence of the EBIT coming down, our EPS also followed the same way.
Looking then at the businesses, Vita, was supported by the strong growth in e-com. E-com grew overall for the whole company 16%, and now in Vita, the share of direct-to-consumer in Q3 is 45%. Last year, at this time, it was 37%. So we are clearly seeing that we are changing the mix of the portfolio in Vita. Also, China continued strongly with 14%. Despite the lower volumes in wholesale, we were able, with cost mitigation, also to keep the EBIT margin at 14% in Q3 in Vita. Then Terra. In Terra, we saw the biggest volume drop of our businesses, and it's really the wholesale area where the wholesale players are very careful with inventories. On the bright side, Gerber in U.S. won some new accounts, and we saw that new footprint of distribution.
Also, Terra, like all our other BAs, improved the gross margin, and especially Terra was really good at inventory management in Q3. That helped then our trade working capital. Then Crea. Amazing EBIT margin, 26%. Gross margin improved like all the rest, but what, what really makes Crea stand out is that despite the volume drop, the OpEx management was phenomenal, and that led to their being able to deliver the 26% EBIT margin. Then about our strategy. As I said, we took many transformative steps in strategy execution in September. The first one, when we talk about our logic, when we say that making the big brands bigger, of course, it's natural then that we have we combine Terra and Crea into one, one Fiskars.
And that we did now, in Q3, also to ensure that we benefit of all the potentials under the Fiskars brand. So now today, half of the company is Fiskars and half is Vita. Then on the inorganic side, we acquired Georg Jensen, which is fantastic strategic fit when we look at the transformation levers. I'll come to that a bit later. Looking at the transformation levers, and like I said, we're always going to report to you where we are standing with the transformation levers. Commercial excellence, really taking a step up, and this really talks about the power of the brands. It's the channel right assortment, it's the channel choices we are making and enhancing the portfolio upwards. Gross margin growing 240 basis points in Q3, and year to date, 220. So a strong development, quarter by quarter.
As I've said earlier, also, direct-to-consumer continued to excel. Overall, direct to consumer growing 6%. For the whole group, it's now 25% of net sales in Q3. So we see that direct consumer is growing. The challenge we are having is on the wholesale volume side. The bright spot, of course, of direct-to-consumer is e-com... growing 16%. With talks about consumers' interest towards our brands, they are starting the journey in the direct to consumer, and they're coming to our websites and, and buying there. Thanks to the power of the brand, the storytelling, the experience they are getting there. U.S. has been a challenge for us already five quarters.
The bright side here is that when we look at the year-to-date decline in U.S., minus 16%, we improved that a bit to minus 11% in Q3, so it's a bit easing. Then China, despite softer consumer sentiment in China, our local team continued to deliver a 14% growth in China. It's not only on transformation levers we are transforming the company, it's also on the sustainability and ESG side that we continue to deliver. Looking at the ESG, our target towards circular economy, today, 8% of our net sales is already with circular products. It talks about what we are bringing to ensure the biodiversity of the planet. On Scope 1 and Scope 2, we are today have reduced already 53% on our CO2 emissions.
The improvement we saw in Q3 is on our suppliers who have signed up to Science-Based Targets that increased from Q2, from 42% to now to 46%. So we are making step by step. What is also important is that when we look at Scope 1 and Scope 2, there we start to see that the investments we made into energy efficiency, they are starting to impact. They also... Of course, when it's energy efficiency, they are also starting to impact the P&L. Then about Georg Jensen. I said this is fantastic strategic fit to our portfolio. It's enhancing our transformation strategy, our growth strategy, and it's also impacting our company profile. Now, with Georg Jensen with us since the first day of October, one third of our portfolio is luxury brands, and we know luxury brands are much more resilient in tough times.
Georg Jensen is also not a small brand. Its net sales is more than EUR 100 million, much more than EUR 100 million, so it's transformative acquisition that supports us going forward. Also, one fourth of the net sales will after, or now with Georg Jensen in our portfolio, be direct to consumer and much higher for Vita as we go forward. Also, we are in a buyer's market, so the multiples, and in addition with the multiples, then with the synergies, are very attractive. And with the cost out, synergies are quite significant because of the good strategic fit. It's not only inorganic growth. Of course, we also need to make sure that we win in the tough times, that we do the measures needed in the tough times, in the tough environment around us, but also what's right for our strategy.
And we continue to simplify our operating model so that it's fit for the brands, fit for the businesses. And I already mentioned the combination of Terra and Crea into Fiskars, into one big, making the big brands bigger and unlocking the opportunities. At the same time, when we talk about the simplifying operation model and what's really needed for the brands to excel and grow, we also do a delayering, especially in the supply chain, where we are doing delayering. And this is the measures we are also doing in the tough times, to win in the tough times, and the outcome is, as we have reported, a reduction of 400 roles. This will be completed in end of November, the proposed outcome. And then, in addition, we have the 100 headcount reductions already communicated in January.
So where we are in looking at the guidance for the full year, and I mentioned a few times, it's tough times. We're doing a lot of measures, but we continue to see volatility. What we also see is inflation in our G&A, in the general and admin, and at the same time, we continue to, of course, invest behind our strategy. The savings are supporting us, and also Georg Jensen's addition to our Q4 EBIT will contribute. And with that, our updated guidance since earlier October maintains that we are forecasting our EBIT between EUR 100 million-EUR 120 million for the full year. Thank you, and over to you, Jussi.
Thank you, Nathalie, and hello, everyone. So let's start first with our net sales there. So as Nathalie said, we were 12.7% down in comparative basis in Q3. We were down in all BAs. When it comes to Vita, so Vita was down roughly 10% there. It was nicely partially offset by this good growth what we have in D2C. As mentioned, D2C is 45% of Vita in Q3, so that was nicely offset the decline what we had there. When it comes to Terra and Crea, where we have over 90% of business in wholesale and roughly 50% of business in USA, the both were taking down the net sales quite dramatically there.
So they were exposed to this, what we have seen there when it comes to big retailers, how they are focusing on inventories. When it comes to geographies there, we had four countries in our portfolio which grew in Q4. We had growth in Norway, Canada, Japan, and China. All the other countries were down in Q3, so it was very broad-based decline, what we saw in this particular quarter. On EBIT, as said, we are roughly EUR 11 million down on comparative basis in Q3 versus last year, down in all BAs when it comes to absolute EBIT. However, in Crea, we succeeded to improve profitability. The main, and I would say the only reason why we see this kind of decline on our EBIT, is the wholesale volumes.
So here on the right, you can see our EBIT bridged by component and the decline what we get there from sales volumes, roughly EUR 15 million. We were only partially able to offset that by improving gross margin. Marketing expenses, we were able to keep quite flattish. And when it comes to SG&A, those programs Nathalie talked about a bit earlier, especially the one we introduced in January, saying that the annual impact will be EUR 30 million, out of which roughly EUR 15 million, i.e., half should be in the second half this year. We started to see impact of that program already now in SG&A. So the component or the items where we had increase in SG&A was digital, so we continued investing in digital. All the others were down, which means that some of those savings are flowing in.
However, the quite rapid inflations, what we have still seen, especially when it comes to salaries, that was partially offset the impacts of this program. So those were the components why we came down to the EUR 17.99 million for Q3. Then, as said, we control what we can control, and cash flow is the one we can control. So therefore, after quite volatile last year, when we went down even to EUR 100 million there, we have succeeded to make quite significant recovery. So now our Q3 cash flow of EUR 53 million, it was EUR 117 million better than Q3 last year, and almost EUR 250 million better than year to date last year. So significant rebound there is all coming from our supply chain volume adjustment, what we have done.
We have cut our sourcing more than 50%. We have cut our own manufacturing more than one third, and the impact can be seen now in our own inventory levels. When it comes to inventories, overall, the trade working capital there, it's over EUR 120 million down versus the same period last year, and almost EUR 60 million down versus year-end last year. The main driver is inventories, especially in Terra. We have had also good development there when it comes to Crea inventories and still work to do with Vita. You can see that we are now coming down also as a percentage of sales there. We are not yet the level where we want to be, so we still have a lot of unleashed potential there in our trade working capital.
The first step is to get back to pre-COVID levels, and no one is saying that that's the, that's the target, ultimate target. So we believe that when it comes to cash flow, we still have potential there to further improvement. When it comes to net debt, it decreased in Q3, still about a year-end level due to increased lease liabilities. We have renewed a couple of our quite big lease contracts there, especially when it comes to our distribution centers. So that's why lease liabilities are up, senior net debt down EUR 44 million from the same period last year and also slightly down from the year-end. These numbers here, these are September end, and they don't include any impact yet from Georg Jensen acquisition.
When we came out with Georg Jensen acquisition, we said that it will be first funded by bridge, and now today we have announced that we are considering also the bond funding for this takeout financing. But those numbers are not yet in these net debt, net debt figures what we have here. On balance sheet, balance sheet, our capital employed slightly down from the year end, driven by this trade working capital reduction. Our capital turnover asset efficiency, however, is still somewhat declining due to a very rapid top line, top line drop what we have had. Return of capital employed, a bit more than 9%, is still over our weighted average cost of capital. Two KPIs what we have in our financial targets are cash conversion and then Net Debt / EBITDA.
Those are the ones which are now green. So net debt/EBITDA, target being 2.5 or less, it's now 2.24, and then free cash flow net profit target being over 80%. The fact that we have such a strong free cash flow at the moment, and while the profitability or net profit is coming down, we are significantly above our targets. The ones which are blinking red here are organic net sales growth and then EBIT margin by 2025. Those are the ones where we still have work to do. When it comes to full year guidance, how we said it on the 12th of October when we came down, we said that Georg Jensen acquisition will have a role in our full year guidance, especially when it comes to Q4 here.
Georg Jensen will be consolidated into our numbers from October first onwards. And when it comes to organic EBIT contribution from this acquisition, we believe that being positive. Here you can see the last four Q4s from Georg Jensen publicly disclosed Q4 results. I would say, when it's now in our books, these last four years' Q4s, they are pretty good proxy also what we are now expecting for Q4, bearing in mind, of course, the current consumer sentiment. Then another thing is that this purchase price allocations, what we have to do, since we get the final closing balance sheet of Georg Jensen, the amortization of intangible assets, we do not expect them to be material negative impact on our Q4 EBIT there.
On a full year basis, it seems that amortization from those items will be there at low single-digit EUR millions, which means that for one quarter we are not expecting any material number. Most of the fair values will be addressed to inventory, and which will be valued at a net result- net realizable values. And, and once we get this inventory turned around once, we get rid of those fair values there. These significant negative impact will be reported as items affecting comparability, and therefore, in our guidance, they are excluded. That's very shortly about where we are with finance.
Thank you, Jussi. And then just to wrap up Q3, as said, it's tough market out there with the consumer sentiment. What we are proud of is what we've achieved ourselves with a strong cash flow and strong gross margin improvement. Yet again, one quarter we're improving the gross margin. We're also moving the mix of the company more D2C, even more D2C, and continuing to execute our strategy with the formation of a business area, Fiskars, and also the acquisition of Georg Jensen. And then, of course, our guidance update from early October. With that, open up for questions, or...?
Yes, before going into questions, a reminder of our Capital Markets Day. We will have that next week on Thursday. You can still sign up for the physical event until tomorrow, and after that, of course, you can also sign up for the webcast still. And what you will hear in the Capital Markets Day is an update on the progress of our growth strategy and our value creation model. You can find more information on our website, or of course, you can contact me. But then, I think we are ready for questions. Maybe the first one for you, Nathalie. Have you started to ramp up own production and sourcing volumes?
We have in certain areas, I mean, the factory is up there, it's seasonal, but not in any material way.
Thank you. Then to Jussi, what caused adjusted EBIT to decline clearly in Other segment? Was the main reason development expenses related to strategic programs, and how long these last?
Yeah. The question refers to our other segments, which came down from EUR -6.6 million to EUR 10 million, i.e., down EUR 3.4 million there. I would split in 2 pieces. Roughly half of that is that we still have some business there in other segments, and their gross profit, absolute gross profit, came down roughly EUR 1.5 million. Then the latter part is exactly those strategic programs there, a bit less than EUR 2 million. We expect them to stabilize now towards the year end. As you might remember, one of those items, what we had there in our efficiency improvement program announced in January, is to get rid of these kind of external services, and therefore, we assume that that will be visible there in other segment.
Yes. Thank you, Jussi. Then, Nathalie, what are your thoughts currently about inventories in the U.S. and possible shipments for Terra in Q4?
Thank you, and I assume you're talking about inventories at the wholesale, at the big box players. We see that the inventories have come significantly down. We have a very good transparency into what the inventories are by location and by customer. However, we see that this is a new normal. With the high capital costs, we don't expect wholesale to start to take significant inventories, so we are adjusting as we go.
Yeah. Then, Jussi, if you take this one. Sales in China were up 14% year-over-year. How did sales develop during the quarter?
It was quite stable, and then what we can see for the rest of the year, I would say it continues quite, quite stable. So the year-to-date growth, what we have for China, is pretty good proxy also for full year.
Yep. Then, Nathalie, a question related to the cost savings we have announced. How much of the cost savings target announced in September is related to temporary savings in supply chain, transformed into permanent ones?
Oh, the savings we announced in September. It's not only in supply chain, but the majority is in supply chain. Those are not temporary. They are here for the long term, as we are simplifying the structure.
Yeah.
Yeah. Regarding those savings of EUR 25 million, I said part of that is in supply chain, so therefore, all the savings can be seen in our SG&A. But-
Mm
... a bit, roughly half goes to our cost of goods, and then another half there in SG&A.
Then, Jussi, if you continue, related to the PPA, should we expect Georg Jensen's depreciation level to be fairly similar what the company has reported as a standalone?
Standalone depreciation for Georg Jensen-
Yeah
... is roughly EUR 6 million, if I remember correctly, so EUR 1.5 million for each of the quarter. Then on top of that, as I said, when it comes to fair value of those intangibles, what we continue amortizing, it would be a small number for the quarter, low single-digit million for full year. So therefore, it's fair to say that no material change for the annual depreciation level.
Thank you, Jussi. Then our final questions is a bit more general, not related to Q3. Nathalie, if you take this one. Who is Fiskars' biggest competitor?
Oh, it's any consumer product.
Yeah.
It's where we spend our time. We are about storytelling and experiences for the consumer. So it can be many ways.
Yeah.
Yeah. It seems that at the moment we don't have any other questions, so we are then ready to close, this results webcast. Thank you for joining in, and, remember also the Capital Markets Day next week. And, have a nice day.
Thank you.
Thank you!