Good day, ladies and gentlemen, welcome to Fiskars Group's call on the third quarter of 2020. My name is Kristian Tammela. I'm from the investor relations at Fiskars. With me is our Interim CEO and CFO, Sari Pohjonen. As usual, we'll start off with a presentation by Sari, and then we have a Q&A session at the end. You can post your questions in the chat already during the presentation at any time. Please note that this conference call will be recorded and published on our website after the call. We'll also be referring to the presentation that can be found on our website. Please note the disclaimer here, as we'll be making forward-looking statements during the call. You can find a more complete description of the risks and uncertainties in the interim report published today and in our annual report, as usual. With that, Sari, over to you.
Thank you, Kristian, and thank you , everyone, for joining the call. We released our Q3 report this morning, and I'm pleased to say that we made good progress in the quarter. Firstly, our net sales and comparable EBITDA increased year-over-year, in particular towards the end of the quarter. Secondly, we continued to see strong demand in business area Terra and Crea's categories. Thirdly, we made good progress with our strategic priorities in direct e-commerce and with the expansion in China. The growth in our comparable EBITDA was driven firstly by volume growth and by both temporary and permanent savings. I'll dive a bit deeper into the savings in a while. In addition to the growth in net sales and comparable EBITDA, our cash flow for the quarter was really strong.
Here I would like to underline that the cash flow was supported by timing-related factors as the end of the quarter was so strong for us. We have also reinstated our guidance for 2020 earlier this month and now expect our comparable EBITDA to increase from 2019. Let's look at the quarter in more detail. First, the net sales increased by over 7% and in comparable currencies or comparable terms by 9.5%. This is a significant improvement. There are also clear differences by business area. As can be seen on this slide, growth continued in the Terra and Crea segments, whereas the net sales decreased in the Vita segment. There are several various factors behind this development. The pandemic continued to have a negative impact on Vita as traffic to stores remained weak.
At the same time, however, other categories have benefited from the favorable weather conditions and stay-at-home trend, which has been prevalent in many of our markets. We've also worked consistently to gain new distribution in our key markets, and this was visible in the increased net sales. Our direct e-commerce continued to grow with strong double-digit figures in all business areas. As you can see from here, currencies had some negative impact on the net sales in the quarter, and this is mostly related to the US dollar. Just like in the second quarter, the comparable EBITDA increased clearly during the third quarter from the previous year's level, and the margin increased as well. For this quarter, our comparable EBITDA increased in all business areas. The profitability development was supported by many factors, including also significant savings actions.
As we have informed earlier in the year, we took proactive steps to lessen the negative impacts of the pandemic. This includes significant temporary cost-cutting measures, which are related to, for instance, sales, marketing, and administration. We have been reducing our marketing spend across all brands, and on the other hand, we have shifted spending to those channels where consumers have been shopping. Furthermore, we have reduced or did reduce working hours among office employees and in many of our factories and retail stores. It's good to note, though, that a clear majority of the savings related to the reduced working hours of office employees materialized already during the second quarter, and only a minor impact was visible anymore during the third quarter. Naturally, these savings are temporary in nature and cannot continue for longer periods without a negative impact on our business.
As said earlier, the savings do not, however, only include temporary cost-cutting measures. A part of the savings comes from our ongoing programs. I would like to point out that in the third quarter, the majority of savings came from temporary measures when compared to the previous year's level. In Terra and Crea, there was a clear increase in volumes, and that of course supported the profitability as well. If we take a closer look at the Vita business area, the situation improved from the first half of the year, even if net sales were decreasing. The challenges were related to the pandemic, which decreased footfall to stores, also drove retailers to lower their stocks, and generally decreased gifting.
I can say that gifting overall continues to be impacted by the pandemic, as social gatherings were limited, and the lower demand on that front was clearly visible. Some markets, namely Japan and the U.S., were more challenging than others to us during this quarter. For example, in Japan, the pandemic impacted traffic to stores. There were, however, many highlights as well. Our focus on China is proceeding well, and the net sales growth continued with the Wedgwood brand. In fact, we were able to more than double the net sales from the previous year's level. While the share of sales from China is still fairly small compared to our other key markets or to the total Group, we continue to see potential in the Chinese market, and our growth there is confirming that we are on the right track in that country and in that market.
Additionally, we also saw positive development in Scandinavia as well as in Central Europe. Generally, not only for us but overall, a major theme in the retail space this year has been e-commerce, and net sales in our direct e-commerce have increased with strong double-digit figures in 2020, and the third quarter was no exception for that. As we have said for quite some time, direct e-commerce is one of our strategic priorities. We continue to develop our digital capabilities going forward, and this goes for the entire group, not only for the Vita business area. There is more still to be done in order to strengthen our digital presence. If we look at the result development for Vita, the comparable EBITDA increased in this segment, and this was mainly driven by cost savings measures.
While the decrease in volumes obviously had a negative impact on the development, we, on the other hand, saw a positive effect from an improved product mix. The third-quarter comparable EBITDA was positive. Difficulties during the first half of the year are visible in the results for the first nine months. Once again, I'm reminding you that the fourth quarter of the year is seasonally the most important one for Vita. Under current circumstances, the pandemic causes significant uncertainties. Looking at Terra Business Area, here we had a strong quarter with broad-based improvement. Net sales increased in all markets but one and in all categories. One can say that this was an exceptionally strong outcome. I'd like to highlight here the gardening and watering categories, as well as the Americas region as a whole.
The reason for the positive development was the overall strong demand as people have stayed at home. On top of that, weather conditions were favorable, and we have also been increasing our distribution. In other words, there were both internal and external factors driving and supporting the performance. I already mentioned the Americas region, but in addition to the Americas, I'm pleased to see that our efforts to grow in Central Europe are paying off. This has been the case for a few quarters already, and it's encouraging to see the development. Another positive indication is the Gerber custom service, which was launched during the second quarter of the year. With the service, we offer customizable or personalized knives that are only available on Gerber's website, so our own direct Gerber e-commerce.
The service has been well-received, and based on our experience from the first months, it has been a success story in terms of sales, as we are providing something completely new for the consumers. Comparable EBITDA in Terra increased significantly, as you can see from the graph here, also from the numbers. This was a result of both increased net sales as well as cost-cutting measures, while the product mix weakened a bit. All in all, I can say that the first nine months have been exceptionally strong for Terra this year. Looking into Crea, just like Terra, we had a strong quarter in Crea as well. Net sales increased in all categories and key markets. The strong demand that we saw in the second quarter continued, and it was partly supported by the stay-at-home trend.
The impact was visible, especially in the Americas, and came from, one can say, the overall crafting trend as well as the increase in mask making. On the other hand, the pandemic had a negative effect on the back-to-school season in the Americas. The high season of back to school is usually quite short, but now, as the pandemic has impacted the school start, the season has been prolonged and generally has a negative effect on demand. On the other hand, it's good to see that for us, back-to-school season was successful in Europe, and we have also gained new distribution otherwise in Europe, for example, in Germany as well as in the cooking category in Scandinavia. Also for Crea, overall, the net sales in the direct e-commerce channel were increasing. At the same time, sales in our stores were decreasing.
There were still some lockdowns, and the footfall in the stores was less than before. As you can see from the data here, the comparable EBITDA increased clearly. The positive drivers here were the increase in volumes. Cost-cutting measures and some supply chain efficiencies helped to support the performance. When looking at the geographies, our comparable net sales increased in all three geographical regions during the quarter. In Europe, the growth was driven by Terra and Crea. Here our focus on Central Europe, which I already have mentioned a few times during this call, has shown results, and I would, again, like to highlight here Germany in particular. On the other hand, the U.K. and Ireland were challenging markets for us during this quarter. The same goes for the Americas, so Terra and Crea have been performing well there.
If we look at the Asia Pacific region, the highlights were Vita's performance in China and Terra in Australia and New Zealand. We have to say that the pandemic has been impacting the situation in Japan, where net sales were decreasing. The Japanese market has been hit by the pandemic, with still some store closures and also low footfall in general. After the quarter, we announced an important step forward in our sustainability efforts, we are committed to climate action by joining the Business Ambition for 1.5°C and setting science-based targets. The science-based targets to reduce greenhouse gas emissions are one integral part of our long-term commitment to become a carbon -neutral business. Also reminding that earlier this year, we launched our three long-term sustainability commitments: designing circular products and services, achieving carbon neutrality, and creating positive impact.
Over the next year, we will lay out the time-bound climate plan, including short-term targets consistent with the 1.5°C path. Let's take a look at some of the marketing highlights from the quarter. Supporting growth in China, Wedgwood opened a new concept store in Shenzhen, we aim to grow with both e-commerce and our own stores in China; these two complement each other well. With the Fiskars brand, we leverage some e-commerce opportunities in both the direct and indirect channels. Going to the income statement, our gross profit margin increased during the quarter, as you can see here. Here the supply chain efficiencies and the improved mix in Vita supported the development. The savings actions, which I have referred to plenty of times already during this call, are visible, for example, in the sales and marketing expenses as well as in other expenses.
Items affecting comparability were low this quarter. This brings us to the next slide, which is about the ongoing programs. As said, we had a low level of cost related to our programs in the third quarter; this is not at all related to the pandemic, as we are proceeding as planned with the two ongoing programs. It's quite typical for these types of programs that the cost incurred may vary from one quarter to the other. I would also like to remind you that these programs are already continuing to impact our reported numbers. In terms of EPS, you can see that it did increase clearly during the quarter, and the increase was driven by the strong growth in comparable EBITDA. Looking into cash flow development, it increased from the previous year's level by more than EUR 100 million.
The strong growth in profitability obviously played a role, and on the other hand, the decrease in working capital, which is also visible here. I would like to underline once again that timing plays an important part here, especially as September was such a good month for us. Typically, our cash flow is at its highest level in the fourth quarter of the year. Now some of that strength can be seen already in the third quarter, and our cash flow curve, as you can see, has not followed the same seasonality as we usually have had. Looking a bit still at the balance sheet, the working capital deviations are visible here, and they are the key highlights. Inventories decreased and trade payables increased clearly. Credit losses have been remaining, one could say, at the normal level during the year despite the pandemic.
We have continued to accommodate the production volumes of the very unusual situation where some units have increased production while others have been reducing output. One other highlight here is the high level of cash. We did raise some more loans during the first half of 2020 to ensure liquidity. Also looking at net debt and the gearing ratio, they have decreased from the previous year's level following the development during the quarter. Just as a reminder, the comparative data for 2019 already included the change in accounting practices, which is the IFRS 16, but not the 18 figures here. About our outlook, which was withdrawn in March, as we all remember when the pandemic was escalating. Now a few weeks ago, we reinstated the outlook for 2020, and we expect the comparable EBITDA to increase from 2019.
There are still significant uncertainties for the remainder of the year. The fourth quarter is seasonally the most important one for Vita, and the pandemic continues to impact our markets. More as a reminder, our long-term targets have not changed. 2019 was a challenging year for us. This year has so far been better, and I would like to take the opportunity here to thank our customers and also the entire Fiskars Group team for this exceptional quarter. I recognize and acknowledge the work and effort that everyone in our team has put in. Big thanks to all of our team members for their dedication and hard work during these unusual and exceptional times.
As a last note, just a reminder that in early September, we announced the starting date of our new CEO, Nathalie Ahlström, and on behalf of the entire team, I welcome Nathalie to Fiskars Group one month from now on November 30th.
Thank you, Sari. We are now ready for your questions, so if you have any questions, please type them in the chat window and we'll take them in order. We already have a few of them, so let's begin. Could you describe the factors behind Terra's increased distribution that you mentioned were a factor behind the strong sales growth? Are these some major new channels?
I wouldn't call them channels in the case of Terra, but as already mentioned during the call, we have been focusing on improving our distribution, for instance, in Central Europe. Germany is one of those countries, but we've also been able to improve and increase our distribution in other markets as well.
Okay. Could you describe the pace at which you are unwinding these temporary cost-cutting measures that were a major factor behind the excellent Q3 profitability? When are these jumping back to a normal level, if you will, that we had before the pandemic?
As we have mentioned in the materials and reports and also during this call, if we take a look at, for instance, the third quarter, the majority of the savings were related indeed to temporary ones. However, I would like to remind you that there are also more permanent savings related to our programs. We continue to monitor the situation and what's happening in the markets. We all know, for instance, reading the news this week, the pandemic has been, again, escalating in some of the markets where we also operate, and paying constant attention to the development is a key focus for us going forward.
How many own retail stores do you have at the moment, and do you see any pressure to reduce the number of own stores because of the consumer trend switching from brick-and-mortar to e-commerce?
We have a bit less than, or one could say we have roughly 400 stores, a little bit less than that, and depending, of course, also how you define a store. Some of them are fairly small, one could say shop-in-shops in department stores, as an example. There is no yes or no to this question because it depends very much on the distribution structure in each of the markets. Obviously, the sales footprint in terms of channels is one of the key cornerstones in developing our sales going forward. What we have also done during this year and during the previous year, and it's a normal part of your operations, is that sometimes you open stores, sometimes you close them, and it's always in relation to the development in each of the markets.
As an example, what we already mentioned about China, there we have a combination of physical stores, but are also heavily focusing on e-commerce, and both are working in that market.
Great. We have two questions on the same topic. I'll take just one of these. You didn't book any IACs in Q3, but according to my calculations, there will be around EUR 40 million of them in Q4 and in 2021, according to the programs. Is this calculation correct?
Both the programs continue, as I mentioned. It's very typical in these type of programs that there might be jumps from one quarter to the other related to how the costs are incurred. I would like to remind you, especially related to the restructuring program that we launched in December last year, that we are talking about net savings. It's always about other actions that we are doing, too. They don't necessarily translate into costs in one single quarter or evenly throughout the program.
Okay. Could you elaborate a bit more on how you see the existing group's long-term strategy being affected by the pandemic and its possible long-term impact?
Under this type of very unusual times, first of all, it's very difficult, of course, for anyone to forecast how long the pandemic overall will continue. I still have the same opinion as I have said earlier, that it seems that the pandemic is accelerating certain developments. It's accelerating the kind of channel transformation in many of the markets. Consumers are shopping more via e-commerce, not only related to us, but generally as a trend. Also the stay-at-home trend or what will happen in the future for remote working, et cetera, I don't think anybody will have an answer right now. It is just something we have to follow on a constant basis.
Great. Let's just give a few moments still if we have any other questions. Right. If there are no other questions, we'll thank you for our part. If you have any questions that were unanswered, please let me know and be in touch with us. Yes, one more question, last minute. You mentioned Vita product mix as positive. Is this a sustainable trend, or is it a more short-term effect?
Our product mix is always very dependent on many factors. Typically, the product mix is varying from one quarter to the other. It could be impacted by launches, it could be impacted by the timing of campaigns, et cetera. Product mix, as a general rule, I can only say that it can vary from one quarter to the other.
Great. Let's see if there are any other questions jumping in. It doesn't seem so. Okay, if you have any questions, then be in touch with me. With that, we wish you a great day. Thank you.