Hello, and welcome to Fiskars Group's Capital Markets Day 2023. My name is Essi Lipponen, and I'm the Director of Investor Relations. Our previous Capital Markets Day was in 2021, almost exactly two years ago. In that Capital Markets Day, we presented our growth strategy and updated financial targets. Today, you will hear more about how this strategy has progressed and what we will do in the second half of the strategy period. This is the agenda for today. After this short introduction, we will hear from our President and CEO, Nathalie Ahlström, and after that, we will have a presentation by our CFO, Jussi Siitonen. After these two presentations, we will have a joint Q&A. We will have questions both from the audience here present at the Fiskars Group campus in Espoo and also online.
So you can type in your questions in the chat already during the presentations, and we can take them in the joint Q&A at approximately 3:30 P.M. The webcast will end by 4:00 P.M., and after that, we invite the people who are here present in Espoo to stay and enjoy discussions with the Fiskars Group team. Without any further ado, please welcome Nathalie Ahlström.
... Essi, and also from my side, a warm welcome here to our campus, all of you here today, and also all of you online, both in Finland and globally. It's really a pleasure to be here to talk about where we are in our strategy, where we are with the execution, and where we are heading. Today, we are talking about delivering towards 2025, and what's really important is with the further precision. That, that's the key here. We're sharpening where we are going. The key three important topics I'm going to talk about today, and Essi also touched on it earlier, is our strategy remains intact. The transformation we started two years ago, it's delivering, and we're going to continue delivering on that strategy. The new thing here is that we have sharpened our logic.
We sharpen our logic and actively are managing our portfolio, our portfolio of brands. Thirdly, with the growth strategy, how we deliver, how we manage our actively our portfolio, how we—how are we set up? How do we operate as a company to ensure that we're agile, we're simple going forward? These are the key important topics I'm going to address. Jussi will wrap all this together and talk about, okay, how do we create shareholder value from all of this? How do we execute in all conditions, in these tough conditions, and then we remain and keep our financial targets unchanged? If we start with who are we? Who are we as a company? Who, who is Fiskars Group? We're home of design-driven brands. This is really a home of, of design-driven brands. These brands, they have a unique heritage. It's based on craftsmanship.
It's unique consumer experiences, and this experience is very important. These are brands that have a story to tell. These are brands that touch the heart of consumers. These are also brands with a lot of innovation. If we look at our Fiskars brand, for example, Fiskars brand is winning Red Dot Design Award every single year. So it's about the pioneering design, it's about innovation, the storytelling, and this is what brings us together. This is what brings all the fantastic brands under Fiskars into one... together to create value, and these are our strongholds. Then when we look at what are our strongholds that we're building on, and also where we started our transformation, what are the strongholds we're building on? It is, of course, the pioneering design of fantastic brands and the portfolio of brands that we're having.
Like I said earlier about the active portfolio management, I will come back to that. How do we, how do we prioritize the brands? Today, already one-third of the brands are up in the luxury segment, so we are moving the portfolio up in the value chain. Already today, we have fantastic global scale and teams, global teams, fantastic, passionate team members who are also very committed to Fiskars, very committed, passionate, knowledgeable team members. I'll come back to this, to our fantastic team members who are so committed to Fiskars Group and, and the journey, the transformation journey we have going forward. Also, what is a stronghold is, of course, sustainability. Sustainability is at the core of everything we do. These are our strongholds.
As we look forward, and we are transforming the company, as we said, we started the transformation journey two years ago. We made very good progress on three of the four transformation levers: on commercial excellence, direct to consumer, and China. But it's tough times now. It's really tough times now, and what we want to make sure is that we're winning also in tough times, and we're focusing on the areas where we can win in the tough times. We've been continuously improving our gross margin, and since 2020, we've improved our gross margin 560 basis points. That means when the volumes come back, this is quite the profit engine that we have in place with this kind of a much higher gross margins. At the same time, in tough times, we're prudent with cost.
As an example, in the last 12 months, we have, we have reduced headcount more than 500 persons. It's not only the big programs we are talking about, but systematically, we are prudent with cost to ensure that we win in the tough times. And of course, cash management, focused on inventory management as we go forward. So the transformation is delivering, and we go forward. And now we're entering the next phase that I will talk about, where we talk about our strategy remains intact, but we're making much sharper. When we talk about strategy, and I, I've said a few times already that our strategy remains intact. This is the strategy we presented two years ago, and that this strategy is serving our purposes really well, this growth strategy. It helps us to focus, it helps us to prioritize.
The logic is we're focusing on the winning. Winning is the key, and here with the winning, what we've now done and doing here now in this capital markets today is that we further sharpen, and we show that we actively manage our portfolio of brands. The transformation levers that I just spoke about that are delivering commercial excellence, direct to consumer, U.S., and China. We call them transformation levers because they are truly transforming the company. They are something that makes us even stronger as we go forward, and these transformation levers are delivering. Enablers, important for us, people, digital, innovation, and sustainability. And with the enablers, what we are going to talk about today is: How do we simplify? How do we drive our operations so it's meaningful for the brands in line with our operating in line with our brand portfolio prioritization?
Then, today, as I said, these are the three highlights. We're going to talk about the sharpening logic, how we actively manage the portfolio, the transformation levers that deliver, and then simplified way of operating. And then, as I said, Jussi will wrap it up and talk about the shareholder value creation from all of these elements. In all of these three sections, I will go through the logic, how we execute, the KPIs we've delivered, and the outcome. So it's very much about execution, deliver what we say we are going to do, and very focused on the outcome. If we start with the sharpening logic and active portfolio management, it all starts with the trends. And these trends, the dynamics in the market, the consumer trends, they're really supporting our transformation of the company and the brands.
We talk about the powerful brands that surround the consumers. 50% of consumers today are loyal to brands. They love the brand images, and they want to be surrounded by the brands they love. This is a huge asset for us. The importance of direct to consumer is not going to go away. Direct to consumer, that's where the storytelling starts. If you go to a store, you have a question, you want to hear about the craftsmanship, the heritage. You want to get a Christmas present, that happens in the store, or you're browsing on your phone, you want to see stories that starts on your phone. So it all starts in the direct to consumer channel, either offline or online. We also know luxury is resilient. Luxury is growing approximately globally 6x -8x faster than normal consumer goods.
Then, of course, sustainability, that's so important to us. 58% of consumers say they feel they actively can make choices by choosing sustainability. These long-term market dynamics, they have not changed, but they're here to reinforce when we talk about the portfolio roles. The logic of our portfolio roles is that the sharpened logic will accelerate the group profile improvement. With this focus, we're going to enhance the group profile, elevate the group profile. What this means with the sharpened portfolio logic is that we focus on the brands that can move the needle. It's all about moving the needle all of the time. We want to make the big brands bigger and more powerful, so investing behind the ones that really make a difference. We want to be in brands that have a potential to surround the consumer, that are meaningful to consumers.
It's about driving the positioning high up, higher gross margins, and also towards luxury. That's where the growth is. It's also expanding direct to consumer, where the consumers are, and finally, of course, focusing on the brands where we can demonstrate our sustainability leadership. So this is the logic, and by applying this logic to our brands, the outcome is that we're going to accelerate group profile. We're going to grow faster with higher margins and better asset efficiency. Now, let me become a bit more practical, because this all sounds good, but what does it mean to our brands? This... To talk about the portfolio logic, this is what it means in action. We have clear roles for every single brand. Every brand, we have clear focus, how we invest, and how we allocate resources internally. And these, these are clearly defined, as I'm also showing you here today.
This, I'll explain the slide a bit. First of all, we look at what is the relative performance of the brand? What's the potential of winning? How easy is it for the brand to win, and where is it performing today? And then the x-axis, we look at what's the potential to leapfrog growth to become a global brand. It's good to be a global brand because then you have more growth avenues. And when we plot the brands like this, we see that in the northeast corner or top right, there are the sweet spot for the brands. They have fantastic performance, and they have a global opportunity. And again, this follows our logic. We want to make the big brands bigger, and we're focusing on the ones that are having this potential.
If we start with the category called Accelerate, these are the brands where we're going to over-invest. We're going to over-invest with a direct-to-consumer-first-led approach in key cities and categories. These Accelerate brands are Royal Copenhagen, Georg Jensen, and Wedgwood. These are already performing well. These are already well-known global brands, and therefore, we're going to over-invest in them because the payback is just so much bigger. All of these three brands in the Accelerate, they are already known luxury brands. Again, talking about the company profile. The most important brand, the biggest brand, Fiskars. Fiskars is our anchor brand, and as you see from the size, it's a very big brand. In Fiskars brand, the brand potential is huge. We want to unlock the brand potential of Fiskars. The brand stretch is also significant in Fiskars, as we know from the history of Fiskars.
Importantly, we're going to focus where we grow with Fiskars, where we invest in Fiskars. Again, focusing on where the investment returns. So the logic is, make the big brands bigger, that support... are supported by the global trends and where the growth is and that are already performing well. These four brands represent 70% of our net sales today, so they are already a very meaningful part of our portfolio, and this is where we're going to focus. The other brands in our portfolio, they're also valuable. They just have a different role, and it's fine to have a different role, and it's fine when you know what your role is, then it's easy to execute. We have fantastic brands, Moomin, Arabia, and Gerber. They already, as you see on the chart, they're performing excellently. They are really performing well.
They would just want them to continue to perform, continue to grow, but it's a self-funded model. It's like a helicopter. The more they do good, the more they can invest themselves. The teams in Moomin, Arabia, and Gerber, they know this, and that's how they are behaving. So they are really behaving according to the portfolio roles... Then we have brands that are still not there where they should be. These Optimize brands. These are brands where we need to focus on profit first. We need to get the profit in place, and we need to step up performance. And then we have Tactical brands. These brands are smaller, local brands that are very important. And how can I say they are important? Yes, they are important because they really complement the Accelerate brands.
They complement, they are there to support. I'll give you an example, for example, an example from Australia. Wedgwood is growing, doing well in Australia, and we are moving Wedgwood upwards in, in, in the chain and with the brand positioning. Then in Tactical brands, we have Royal Albert and Royal Doulton, who are there when we are doing the channel strategy, when we are doing the channel mix, and also, the product pyramid. So Wedgwood, we are moving up, and Royal Doulton and Royal Albert take that space. So we continue to have a good offering to consumers and our customers. So that's the Tactical brands' role. This was just an example from Australia, but we have other from other regions. They also have a very important role to play.
So this is what we mean when we talk about sharpened portfolio logic, and that we are acting as active portfolio managers. The outcome, of course, is faster growth, higher profitability, and better asset efficiency. This is very much about organically what we are doing, but we're also using on a group level, where we want to elevate the profile of the group, we're also using, of course, inorganic opportunities. When we look at inorganic opportunities, I mentioned the word execution many times today. For us, execution is key. Also, when we're looking at inorganic opportunities, we're very systematic and disciplined in what we are doing, and we evaluate what are the opportunities. Here are some examples from the last 1.5 years. 1.5 years ago, we exited U.S. watering business.
Honestly, we were not really the right owners for it. It was quite the commodity business. The category in U.S. Watering, where we were, majority was watering hoses. Also, this was dilutive to our group financials. So there was no logic from a portfolio management point of view to be their owner. We were not the right owner for U.S. Watering. On the other hand, as you know, one month ago, we acquired Georg Jensen. Georg Jensen has a strong portfolio fit to the underlying market dynamics I spoke about, with the brand positioning, driving direct to consumer, surround the consumer. Also, it's a sizable acquisition, driving size and also gross margin. Then, of course, the synergies. We are able to drive significant synergies from this acquisition and improvement potential. And finally, of course, it's accretive to group financials and our pro- profile.
I'll talk a little bit more about that. But as you see, we also look at when we are disciplined, and we are systematic. When is it a seller's market? When is it a buyer's market? And I can guess one of the questions you're going to have later, "Okay, now we are in buyer's market. When are you going to do the next acquisition?" That's quite a normal question, so I'll actually preempt and answer it ahead of for you. But first, let me talk about Georg Jensen. Georg Jensen, as I said, is a strong fit to our portfolio. It's about the big brand. It's our second bigger second largest brand today in the portfolio. Fiskars is our biggest brand, our second largest is now Georg Jensen.
So when we do acquisitions, they are sizable, they're meaningful, they're moving the needle, and we are making them more powerful. It has a high-end positioning in luxury. There's a huge opportunity in category expansion in the lifestyle and surrounding the consumer, and it's direct-to-consumer led, again, strengthening the underlying dynamics. Now, the focus is on the synergies, delivering the synergies. And as you have seen, we've said that we're going to deliver EUR 18 million of synergies. It's important to note that these are cost synergies. We focus on the cost synergies because in these tough times, that's what we have in our own hands. So the EUR 18 million is only cost synergies. We have more than 50 individual integration streams to deliver this EUR 18 million savings.
We are on track, one month in, on Georg Jensen, and what we'll do is in the second Q2 earnings call that we'll have in July next year, we'll then give you a comprehensive update on where we are on the integration, where it's going, and so on. Again, to be systematic, deliver on our promises, and deliver on the synergies. So next summer, we'll give an update on that. And of course, what this brings with a strong fit, significant cost synergies. It enhances our group profile, its incremental EBIT, incremental profit, not only Fiskars' profit plus Georg Jensen profit, but also the synergies of EUR 18 million, cost synergies. So it's incremental, and it's also accelerating our cash conversion. So again, ticking many of the good boxes. So I said about the M&A, when will we, when will we do the next one?
The answer is on this one, we do the integration first, we deliver the synergies, we deliver what we promised, then we start to look at next integration. But this is about being executing, focus on execution, being mindful on being systematic and disciplined and not jumping from opportunity to opportunity. So that's about being an active portfolio manager and the roles we put in place for every brand. The growth strategy we spoke about already, two years ago. As I said, the transformation is delivering, and I'll now go through the transformation levers one by one. Again, the logic, execution, the outcome, and the KPIs, and where we are heading with all of them. So again, focus on execution. Starting with the commercial excellence.
Commercial excellence, this is one where I get a lot of question: What does commercial excellence actually mean? What are you actually doing? Key things that we have been doing the last two years is we are executing channel strategy. We're laser focused on channel strategy. We prioritize our own D2C channels. We win with the winning partners. This means that for each brand, each country, we have defined who are the winners, who are our customers who are winning, who are the ones who are innovative, who are doing new things, who are savvy on digital, who are taking market share, and they are the ones we are focusing on. This strategy is really paying off. It's, it's fantastic, how far we've come with these partners.
We sit together and say, "We are strategic partners, we are going to win together." At the same time, when we do these choices, these are. It's about strategic choices, we also leave unhealthy business behind. This means that we are leaving channels that are not right for our brands, that are not right for the positioning. There again, comes the Tactical brands. They might have a role to play there. And we utilize our full portfolio. We price in line with our brand and product positioning, but the key comes from this channel strategy to ensure that we're in the right places, and then have the channel right assortment. And then we excel in-store and online. And as you see here, our gross margin has clearly improved. Commercial excellence, we calculate or prove via gross margin.
And if we look at where our gross margin was two years ago at 43.3%, today, we're at 46.5%. That's quite a step up. And, as I said in the beginning, also, when the volumes come significantly back, when the market turns, when consumer sentiment turns, this will become a profit engine because we have the gross margins up. And we're raising our ambitions to become closer to 50%, that means 49, 49%. So we continue to raise our ambition in everything we do. This is something that's delivering. Another area that's delivering is direct to consumer. It's about scaling the capabilities we are having globally, scaling the e-com capabilities. We have roughly 32%, it might be a bit more today, 32 own web shops, and of course, in the back office, we can scale and repeat the good successes we see.
We can also scale digital and analytics in our e-com. If you look again... So this is logic, what we are doing, because this is where the consumers are shopping. That's where they start their journey. That's where they're looking for inspiration and stories. Two years ago, direct to consumer was 18% of the whole company, today, 23%. So we are steadily growing the share of direct to consumer, and our ambition is to come to 30% in a very short time. Of course, the Georg Jensen acquisition helps, and this supports, again, sweetening the mix of the company and the portfolio. If we look at Vita, for Vita, this is crucial. Direct to consumer, we see that it's already 46% in Vita, and we're heading towards 50% in the next two years.
So in the next two years, half of Vita's sales will be in direct to consumers because, again, it's all about the storytelling, to consumers, the experience. And this is also why we are succeeding in China, because we're using the recipes of commercial excellence and direct to consumer in China. And if we look at China, we've tripled the net sales in the last years. Tripled. We're benefiting from Wedgwood. We started with Wedgwood. It has a very strong brand position in China. It's the number one, number one brand in its luxury category, by far, number one. Then again, being systematic in how we execute. In 2021, so only two years ago, we introduced Royal Copenhagen. We repeated the Wedgwood model. We did it for Royal Copenhagen. Now, we're going to bring in Georg Jensen and repeat it again.
So it's a scalable, repeatable model we are doing in China. But again, we are systematic and prudent. We don't do the whole portfolio of brands, we are doing the ones with the biggest potential, and again, thinking about the investment needed to get it to the right places. If we look at China, two, two years ago, when we had the Capital Markets Day, we had 24 stores in China. Today, we have 40. This, this month, we have 40. So there also, we see that when we take one brand in, we just multiply the stores and go forward. Now, of course, when adding Georg Jensen, it's fairly easy because we're already quite big retail partners at the main shopping malls or, or with Tmall and, and Alibaba. So we have the scale in place. 3x we've increased in, in China.
The CAGR is fantastic for the last years. And also, we're not shy of being happy about the last 12 months of 28% in this softening market that we have in China, and that, again, talks about the resilience of, of luxury segment. The area we are not happy with, and, and that, that has been hurting us is U.S. We have truly had a adverse impact by the retailers. Retailers' focus after Black Week last year, so that's end of November, starting December last week, last year, total stop in taking new orders and hard focus on inventory management. You've heard that from, from everybody globally. So total change, in, in the market environment there.
When we look at what has gone well in U.S., it is also there we've been able to enhance the gross margin, so we are making the business more healthy when the volumes come back. But we are not sitting only idle and waiting, waiting for the volumes to come back. What we have done is we've simplified our U.S. organization. It's totally U.S.-led, totally focused on, on the business there, separate for Fiskars, separate for Vita, because these are different businesses. We've also deepened our relationship with key accounts, and as an example, we set up a top team, one of our best, absolutely best e-com teams, who are there to help with the dot com. How do you serve HomeDepot.com? How do you serve Walmart.com? Because we have that knowledge from our e-com business. That's just an example of what we've done.
Working on the innovation pipeline at a very rapid speed, bringing new innovations at actually speeds we've never seen before, a matter of months now, and of course, accelerating direct to consumer. But this has been the area we are not that happy with. So we're actively managing the portfolio. We sharpened it. We are delivering on the transformation levers on commercial excellence, direct to consumer, and on China. We're putting actions in place in the U.S., and of course, we know U.S. is a global economy that will come back the fastest. Now, how do we do this, then? How are we set up to serve this? A lot you hear, I'm talking about execution, I'm talking about speed, being close to the market, being close to the consumer. So how are we set up?
For us, it's really important, as when we look at our business, it's Fiskars, Business Area Fiskars, it's Business Area Vita. That's the most important. These business areas have true P&L ownership, end to end. These business areas are also the ones who, based on what the brands needs, tell what can we afford and what not. To support Fiskars and Vita, that we are growing, we have scalable platforms, the platforms that we as a group can offer. But that's not much. We all the time ask ourselves: What really brings value to the brands? Scalable platforms like digital, and I will give you an example, like logistics, like sourcing, like certain big accounts where we are serving all the brands. These are the scalable platforms, but only when it really, truly brings value to the Fiskars and Vita.
Then you see, group. Group, we, we are quite thin there, and, and group, we're evolving into becoming a portfolio manager, active portfolio manager and an active portfolio manager who's driving performance, very focused on performance, driving aspiration, putting the KPIs up, and also driving the portfolio according to the roles in the portfolio logic. Also, what we are having with this, it's this approach of all the time improving, all the time questioning, how can we be faster? How can we be more agile? How can we be simpler? How can we be more cost-efficient? So this is a model that will continue to evolve and continue to be more meaningful for the brands. I'll give you an example to highlight it more, what it means in practice. If we look at, this is what we looked like two years ago.
We were pretty heavy matrix organization, functionally matrix-led. What we are today is a much more simple, with clear P&L ownership, with clear P&L ownership in BA Vita and BA Fiskars. The scalable platforms are there to support, and group is there to allocate resources and investments according to the portfolio logic. And, I'll show you this Vita example, because if we double-click on Vita, then we say, okay, Vita is also organized accordingly. Every brand in Vita, the big brands, have again, P&L ownership from top to bottom. P&L ownership, I'm talking all the way to EBIT and cash, also cash. And this means that we have a very good feeling of what's needed for the brand, what the, the consumers and the customers demand. What can we afford, and what is the pace? How fast do we need to run in these changing times?
You also see from this model how we are set up here, the example of Vita. With the end-to-end responsibility, that it's very easy to bolt on new acquisitions in this model. This really makes it easy to further bolt on acquisitions and then deliver the synergies, not only from the capabilities we have in Vita, but also scalable platforms. So that's how we're operating today. Quite a big journey from where we were two years ago, now towards much more simplified setup, clear accountability, end-to-end P&L, and cash accountability. And now, I'll give you an example of these scalable platforms. What does it mean? We talk a lot about we're investing in digital, we're scaling, we're doing data and analytics. Data and analytics is key to us. We have a central team, a agile team, that's working.
And I think it's best to illustrate it through example in Gerber. This is just one of many examples they've done. With data and analytics, they've analyzed the data and said that for the next spring mid-season sale, what are the products? What are the SKUs? What's the portfolio we're going to put on sale? And what's the price point? And what's the combination of all this, if you look at the landing page? What's the totality, so that you catch the attention of the Gerber consumers who come to the page? And by modifying that with data analytics, we were able. Our fantastic data analytics team were able, first in spring, to enhance sales by 2x. Then, of course, they became more clever, they got more data, they learned from failures also.
Then from spring to autumn, they enhanced the sales in the campaigns 5x. So this is the kind of scalable, repeatable benefits we can bring from our scale platforms. On this, this is a good example from Gerber. In 2022, so last year, we did five campaigns like this. We did a few here in Scandinavia and a few others. This year, 2023, we've already done 40. 40 campaigns like this across different countries, across different brands. So it's truly repeatable and scalable at large. So this is one example of what we're doing on data and analytics, and why we believe it really brings value to all the brands in our portfolio. Then, I mentioned sustainability a few times. Everybody says sustainability is core. For us, sustainability is core to our purpose. It's so important to us.
We do it because of that. But it's also important to show what are we doing, and what are the concrete steps we are doing. I'll give you quickly a few examples. We are focused on circular products, because circular products is the best way to save the planet and enhance biodiversity. And therefore, senior leadership are all incentivized on circular products. That's very good. Another concrete thing we are doing to reduce the CO2 emission, as we go for the green transition, is that we have concrete steps how we are reducing our CO2. And the steps you see here on the chart, they are based on these concrete... They are not wishful thinking. They are based on concrete steps that we are doing. For example, enhancing energy efficiency in our manufacturing, having more renewable, and so on. And I think it's quite easy to put it in relationship.
What does it mean, where we are coming towards? And what kind of levels are we coming? Because we are soon coming to a level that corresponds to the carbon sink we have from our own forest. That's pretty cool, and we're pretty soon at the level of CO2 emissions of the same as our own forest uses as carbon sink. So that's just a few examples, and of course, when we do on the recycled side, we do big steps. We don't do nitty-gritty products here. Like these scissors that you're going to get, of course, this is a huge product for us, and next year we're going to do this iconic orange, fantastic scissors in totally recycled material. So we are taking big steps. We're going with the core products because that's how we can impact the fastest.
It's very good to talk about how we operate, how we are set up, if you look at org charts and so on, but that's not the whole, that's not really how people react. It's of course about the culture. What are you, your passion? How are you driven? And that's what we are talking about, ownership culture. The ownership culture is key. It's really key for us. And in Fiskars Group, we are creating this, that everybody feels, "This is my company. This is my brand. This is my business. If I'm working in a store, I feel this is my store or this is my warehouse." And take really ownership of the area where you are working and being entrepreneurial, because that's all what we are saying with the portfolio logic, being active portfolio manager, transforming the company.
When we all, all of us in Fiskars Group, join My Fiskars, this ownership culture, this entrepreneurship, will really make a huge difference. We re-launch My Fiskars only this summer in June 2023. This was the first launch ever in the history of Fiskars. Of all our employees, one third of all office employees said, "I'm going to invest my money because I'm so committed to the transformation. I'm so committed to the growth strategy." And that's when I said in the beginning that our stronghold is our teams. With these committed team members who invest their money at this kind of times, in these financial times, because they are behind the transformation and the strategy. We are going to have the next enrollment period in December. This ownership culture, it's also reinforced by our leadership team.
We have a leadership team with a global background and a proven track record. It's also a lot of fresh perspective in our global leadership team, and a strong drive for change, and a strong aspiration to improve all the time. So this is how we are going to do it. This, this is how we're going to drive the portfolio and enhancing Fiskars Group as we go forward. So to recap, our strategy remains intact and the transformation levers are delivering. We sharpen our logic, and we're actively managing the portfolio, and we simplified the way of operating, and also have the ownership logic. And we're executing in all conditions, and our financial targets are unchanged. And Jussi will now talk about the value creation part. But I, I mentioned so many times today consumer storytelling, consumer experiences, and, and we want to show you a bit of...
What does it mean? It also, what does pioneering design mean? It also means to be daring, to do new things, because that's what consumers are asking for us. So now we'll show you a small story from Wedgwood. Enjoy.
Striving through the night, jive upon arrival. Licking the air, looking like a diamond. Dangerous we play, waiting the horizon. A little bit of stardust to glaze before the furnace of the world, the world of the Wedgwood.... Blue in design, traditional or rocking. Every piece makes you want to cry. A spinning plate, a cup of great, and a big old trophy prize. I'm casting it, I'm blasting it, I'm putting on a show. Swing and prance, and do the dance with an everlasting glow. Paintbrush liberating, teapot animating. Strutting strong, feeling divine, it's a Wedgwood kind of song. Porcelain gleam, creating meaning. Bodies they sway, the pigment never fading. Mm, glossy, finger-licking, a little bit of stardust to glaze before the furnace of the world. The world of the Wedgwood world, yeah. I'm casting it, I'm blasting it, I'm putting on a show.
Swing and prance, and do the dance with an everlasting glow. Paintbrush liberating, teapot animating. Strutting strong, feeling divine, it's a Wedgwood kind of song.
It's good, that one, eh? I agree.
Thank you, Nathalie, and thank you, Wedgwood. I hope you all enjoyed the halftime entertainment, and now it's time to get a bit more serious again, and welcome to the stage, our CFO, Jussi Siitonen. Welcome, Jussi.
Thank you, Essi, and hello, everyone. So financial targets we set exactly two years ago in November 2021, and admittedly, since that, it has been quite a tough road there to deliver the targets. Whilst it has been a very tough economic environment there, we have continued executing the plans what we have in place, and that's the one which gives us a confidence, a stay confidence with our financial targets. So what I will do, I will first walk you through the midway milestone review, where we are after two years of our strategy, showing that the things which are under our control are proceeding as planned. Then, the back half of our journey towards 2025. What is our toolbox there, which gives us a confidence to deliver the financial targets by 2025? And then thirdly, our capital allocation principles.
The principles are clear, they are prioritized, and they are time-bound. Moving to the next one. So this is the current status what we have, and I will walk you through the current financial targets what we have. So net sales, we have said that our annual organic net sales, excluding FX changes, is expected to be there at mid-single digit growth. On profitability, we have said that EBIT should be there at mid-teens. EBIT margins should be there at mid-teens by 2025. On cash flow, cash conversion, it said so that it should be over 80%, and then on balance sheet, we have said that net debt to EBITDA should be below 2.5x. Two out of three, two out of four targets are green, reflecting the actions we have put in place, taken, regarding the cash flow.
So then when it comes to net sales and profitability, the challenging operational environment what we have had here has impacted negatively on those two targets. However, we have delivered many targets which unfortunately are hidden behind the current economic environment. So let's dive a bit deeper into what's working, what's not, with our current targets. First, a bit like a reminder. So what was our rationale there in 2025, 2021 when we set the targets? So on net sales, our assumption, how we are going to deliver this roughly mid single-digit growth, based on the assumption that we grow in our own direct consumer at high single-digit. That growth is then supported by wholesale there at low to mid single-digit growth.
On profitability, the rationale behind was a channel mix change and then commercial excellence are the ones which are driving gross margin improvement. When it comes to our OpEx leverage or overheads leverage there, the idea was that SG&A, sales, general, and admin cost, will grow less than the top line. On cash flow and balance sheet, it was planned so that our free cash flow and net asset efficiency will improve through net working capital management. These were the rationale behind, and based on this assumption, based on this, rationale behind, we set also the directional P&L targets there by 2025.
The gross margin in this very plan was meant to be in the range of 40%-47%, marketing in the range of 4%-5%, SG&A in the level of 27-28, leaving this mid-teen EBIT margin, so roughly 15% by 2025. Let's go through item by item, where we are, how we are performing versus the rationale we put in place two years ago. On top line, D2C growth is at targeted level, so we are delivering what we planned. What you can see here is our net sales growth, annualized from the last two years, and net sales growth from the last 12 months. As you can see, D2C, online and offline together, our annual growth from the last two years is 9%, and for the last 12 months, it's 6%, driven by online.
Also, at the same time, D2C share of our portfolio has increased from 19%- 24%. So I would say we can tick the box here. So what we planned for direct to consumers, that's what we have delivered. What we didn't plan was this kind of wholesale development, what we have now seen in the past two years. Wholesale has been hit hard by the current sentiment there, especially when it comes to retailers, especially when it comes to the U.S., as Nathalie showed. So we did not plan having wholesale down 7% annually in the last two years or even 18% in the last 12 months. So that's something where we haven't yet expected, what we did not expect. So that's about top line. Then on profitability, let's take gross margin first.
As I said, our target was to deliver 46%-47% by end of 2025. Now, as of end of September, rolling 12 months, we are already at that target, so we are delivering this 46.5%. 370 basis points improvement versus the baseline, what we had when we set the target. We have three levers. All of them have delivered this improvement. Structural changes. When we sold U.S. bordering business there, it has immediately an uplift on our gross margin. Then the channels mix, so the D2C is now 24% of our sales instead of 19%, what it was two years ago. It has sweetened the mix.
The good thing is that while we have continued growing in D2C, and even though we have used D2C channel there for promotions in the very lately for inventory management, we have succeeded to keep high margins in direct to consumer. So direct to consumer margin is within one percentage points of what it has been two years ago. The good thing also is that when it comes to wholesale, so despite declining top line, we have succeeded to improve our gross margin. So also, I would say that gross margin, tick the box, we have delivered what we have promised. Then the challenging part is our operational expenses here. When we set the targets for marketing, we said that it should be in the range of 4%-5%. We are there.
So when it comes to marketing, we are in the targeted range, and there also, we are following the portfolio roles. So that Vita, which is more luxury, which is more D2C, the marketing expenses is higher, while Fiskars BA, where we have more wholesale, where we have more functional, it's a bit lower. But as an average, we are well in the range. The challenging part is here in the middle. So we did not, we haven't been able to adjust our SG&A at the same speed top line has come down. For the last 12 months, when top line down 12.7%, we haven't yet been able to adjust our spending accordingly. We were almost there still in 2022, but as I said, the last 12 months has been quite challenging there. And I'll get back to that one.
However, we haven't just been here waiting for the better times. We have started the programs, and I'll get back to those programs more in detail, but there, we are targeting further efficiency improvement there to better adjust our SG&A accordingly. So actions are in place. Then on free cash flow and net debt, they are back on track. Last year, 2022, we went down. That was what happens there in the retail environment. Our wholesale customers, they started to put their orders on hold, the inventory levels went up, and therefore, last year, we had negative cash flow. Now, in the last 12-month basis, we are back on track. Our cash flow KPIs, cash conversion rate, net debt EBITDA , they are well within the range what we have set.
We have also succeeded to reduce our senior net debt by EUR 44 million in the last 12 months. How we have done it is very much very tough working capital management. We have cut our own sourcing over 50% in last 12 months. We have cut our own production over one third in the last 12 months. So we have taken actions there to get back on track, and now we are there. So what's working, what's not? If I need to summarize, where we are despite this challenging economy, what we have. Most of the things we have put in place are delivering what we expected them to deliver. D2C growth, 9% there, fundamentals in place for further growth. Gross margin, 370 basis points up, still we have untapped potential there.
Then the challenging part, wholesale, and especially our SG&A flexibility, are something where we still have further improvement. Then on cash flow, as said, we are back on track. We are set to deliver the back half of our strategy period. That's about history. Then let's move to the future. As said, the targets remain unchanged, and the rationale behind the target based on these following things. On net sales, no rapid reignition of growth is expected in 2024. Our plans are based on very flattish growth in 2024, and then we start seeing again growth in 2025. On EBIT, we have several levers there to pull. First of all, Georg Jensen acquisition, it will further sweeten our mix, improving our gross margin. Supply chain drives incremental gross margin improvement.
And then the ongoing efficiency program we have announced is a third lever to improve profitability. On cash flow and balance sheet, first of all, now the short-term target, it get back to the target post-acquisition, where our leverage will go temporarily above our target, and then continue with predictable cash distribution for shareholders. Acquisition of Georg Jensen will slightly change our P&L structure, but important is to understand that the bottom line, the 15%, roughly 15% EBIT margin, will remain unchanged. So, what happened here is that gross margin, the previous guidance was 46, 40, 47. Well, we are already there. The new target is that we should deliver a bit north of 49% by 2025. Marketing, having more D2C in portfolio, having more luxury in portfolio, so it's quite natural that marketing expense will also increase.
Then SG&A, because D2C P&L structure is a bit different, there also we expect some increase. But important to understand that despite some changes there in our P&L structure, EBIT margin of mid-teens by 2021-2025 will remain intact. So how we are going to deliver it? Let's take it now, item by item. Following the portfolio roles Nathalie presented earlier, you can see it here. So what we have here is the Fiskars standalone sales split by Accelerate, i.e., Royal Copenhagen, Wedgwood. Then we have Anchor Fiskars brand, then we have maximize potential, optimize and tactical. Adding Georg Jensen into these numbers, we are there at 70% of net sales when it comes to Accelerate and anchor brand, i.e., Fiskars. So this is the structure.
Annual growth last two years, do we have a proof point that we can continue growing? And we do. You can see that Accelerate, the last two years, average growth there, of course, excluding Georg Jensen, is 6%. The role of this Accelerate in our portfolio is that we continue investing, we continue even over-investing into growth there. The growth is D2C first, it's across key cities, it's across key categories. Then on anchor brand, Fiskars, there we have a lot of untapped potential we need to unlock. And then we are even more focused, so we believe that Fiskars is the one we can turn it around back to growth. When it comes to maximize potential, optimize or Tactical brands, what we have in portfolio, there we also see growth potential, but growth is a bit different. First of all, it should be self-funded.
Even some brands, we are focusing most on, first on profit, then growth. So their role is a bit different in, in that sense. Then on gross margin, again, following the same structure, accelerate brands, anchor brands, maximize potential, optimize and tactical. You can see that accelerate brands are the ones which has contributed most of our gross margin improvement in the last two years. Anchor brand, slightly down, maximize potential, slightly up, and then optimize and tactical, slightly down. So what are the drivers behind we believe that we can continue improving gross margin? First, accelerate its D2C-driven channel mix change, and then moving towards luxury categories there, where we have higher price points, much better pricing power. Then Fiskars is commercial excellence. It's very much U.S.-focused.
What we need to remember is that Fiskars brand is 50% U.S., 50% Europe, and there the biggest challenges what we have had are in the U.S. wholesale market. So there, through the commercial excellence, through our new key account approach, due to this dedication there in the local market, we believe that Fiskars is the brand which start contributing our gross margin improvement in the next two years. And then when it comes to rest of the portfolio, then the toolbox is a bit different. We are talking about supply chain efficiency improvement there. We are talking about enhanced brand positioning, and then complete our selected distribution there. The good thing for this second half of our journey towards 50, twenty twenty-five, is that it's not only brands, it's not only channels which are contributing our gross margin improvement.
This time, it's also supply chain, which has a key role in this improvement. What you can see here is our cost of goods split into the different components: logistics, warehousing, variable part, and then fixed part. We have a specific plan for each of these ones. So when we are talking about logistics, it's warehousing footprint to match with our new channel strategy, and also stabilizing logistics cost inflation will help us here. A lot of levers there to pull when it comes to variable part. So first of all, improving our capacity utilization, the ongoing efficiency program, and then procurement, where we have already results in place. So what we have renegotiated there with suppliers, how we have succeeded to push prices down, those are already in action.
Then also there, stabilizing cost inflation will help us further to deliver gross margin improvement. When it comes to fixed part here, then it's mainly ongoing efficiency improvement, which will take it down. So these are the plans what we have to get this gross margin a bit north of 49%. Then the OpEx, then our SG&A part. As said, we haven't been able to adjust our overheads there at the same speed top line has come down. However, we haven't just been here waiting for the better times to start to improve our overhead efficiency. For that, we have introduced two programs. The first one was in January this year, and the second one was in mid-September this year. Let me remind you what we have in these programs.
So January program, we said that savings, what we are expecting from this one, are approximately EUR 30 million. Half of those savings should come in the second part of, second half of this year, the rest in 2024. Tools what we had were role reductions, so we said that we will cut 100 roles there. We continue terminating external services, and we start renegotiating our supply chain contracts. The positive impacts are mainly in, in SG&A, partially also in our cost of goods. So where we are with this program at the moment, those 100 roles, they are terminated. They have been terminated already at the end of June. So tick the box with that one. External services reduced, new supply contract negotiated. The challenging part here is that those savings are partially offset by inflation, especially inflation in our employee cost.
It has been mid, even high single digit in certain countries, and this is something which eating out part of the savings. Then the recent program we announced in September, we said that the target there is to have cost efficiency improvement worth EUR 25 million, the majority of which will be there in 2024. Net reduction of 400 roles through delayering the organization. As Nathalie showed, what's our future model there for organization, we have already taken steps towards that one in our supply chain. The positive impacts of these programs are mainly there in the cost of goods, partially also in SG&A. So with these programs, where we are at the moment? The consultations is still going on. We expect to get all the consult, consultation negotiation to be completed now in November. However, all the plans are proceeding as planned.
Some of the positions out of this 400 were already terminated in late Q3, and they are now positively impacting in Q4 this year. If you wonder why on earth we need this kind of program there with such a big headcount impact, 100 there, 400 here, is the fact that our SG&A is so employee cost heavy. 50% of our SG&A is in people cost. Then external services, 8%, other 11%. So you can see that 70% of our cost are the ones we can have big impact. When it comes to sales cost, well, they are mainly top-line driven. When it comes to depreciation, amortization, pretty fixed. When it comes to nearshoring, licenses, et cetera, what we have in IT, well, the actions made already in the last two years, so that's pretty much done. So therefore-...
Having this kind of program, we need to touch to the biggest levers, what we have left there in SG&A. So combining all the previously mentioned actions, they are our multi-tools to deliver the targeted profitability by 2025. What you can see here is our journey from 2021. First, midway milestone here as of today, and then how we are going to deliver the back half of this plan. What's good here? It's much more balanced improvement what we are now expecting from this second leg. The first one was very much driven by gross margin, then more than offset by cost increases. The second leg, it's balanced between gross margin improvement and SG&A. Of course, further contributed by Georg Jensen acquisition.
So this is the way, and this is the reason why we stay confident with our 15% EBIT margin target by 2025. On top of the profitability improvement, we also continue driving asset efficiency improvement. We continue driving improvement in our return on capital employed. Even though return on capital employed is not our official measure, it's not something we are putting our financial targets. Every quarterly result, every quarterly webcast, we communicate where we are with our capital, return on capital employed, because that's the key KPIs for us internally, how we allocate resources, how we allocate CapEx. For that, we have clear roles for Vita and for Fiskars BA in our portfolio, and they are quite different from each other. So let me show how they are to be planned.
So what you can see here is our capital employed, quite exactly EUR 1.1 billion. It's relatively fixed. Big part is there on non-moving, non-moving assets, so increasing net sales will improve our capital turnover ratio significantly. This is especially the case with Vita, where most of the non-moving assets are, and you can always discuss, should you allocate these to BAs? Well, someone needs to earn also for those assets, and they are so dedicated to Vita that that's why we keep them, keep them for Vita. So in Vita, we are looking for more growth. And why we are looking for more growth in Vita is that we get capital turnover up there. Then on Fiskars BA, their capital turnover is already at a targeted level, so there it's more looking for profitability.
So combining these different roles in our portfolio, we believe that we can increase our group level return on capital employed to the level where typically branded goods companies should be there. Now, we are at level of 10%. Our roughly capital, capital cost is there a bit south of 8%, so still creating value. But typically, branded goods companies should be in the range of 15%-20%, and of course, that's also the place where we like to be. Then a couple of words about Georg Jensen, how it will boost our profitability and what we are doing with, with the acquisition. What you can see here is illustrative P&L. So we have Fiskars standalone here for the last 12 months, combined with Georg Jensen similar period P&L. So Georg Jensen will bring us roughly 200 basis point gross margin improvement.
At the same time, the P&L structure is a bit more SG&A heavy than ours, but those synergies of EUR 18 million will make this case EBIT accretive. So that's the plan behind. Then on top of having EBIT accretive here, Georg Jensen will improve our cash conversion rate, so their business model is more cash flow efficient than what we have in standalone Fiskars. So these EUR 18 million, these are synergies what we have on EBIT level. On top of that, we will have further synergies, especially when it comes to financing item. We are currently rearranging the acquisition financing, and we are expecting further synergies. Let me start first here in the middle. So this is the transaction financing we put in place.
So this bridge facility, worth EUR 170 million, that we had at the time of the acquisition, it was used, first equity funding, and then we took over this EUR 40 million bond what Georg Jensen had. Now, last week, we called back this bond. So this bond is now redeemed for the EUR 40 million. It was high-yield bond, 700 basis points, and now what we are doing is we are planning takeout financing from our bridge. We are quite confident that we can find more lucrative or attractive funding rather than 700 basis points. Also, timing-wise, if you look at our repayment schedule of the existing debt, you can see that there are some empty holes, 2028. So therefore, some kind of five years instrument would be ideal for our loan portfolio.
Last week also, we announced that conversion of this bridge financing to bond is one alternative. That's about the strategic period. How we, what we have delivered in the first two years, what we are going to deliver the last two years, and then thirdly, let's move to our capital allocation principles. As I mentioned, they are clear, they are prioritized, and they are time-bound. What I mean with time-bound is that we have clear plans for 2024 and then for 2025. First and foremost, the short-term priority is to deliver our balance sheet back to target post the Georg Jensen acquisition. That's the priority for 2024. When it comes to organic growth, there the target is to secure funding for organic growth. The good thing is that Fiskars is quite CapEx light.
Our annual CapEx is very low level. I'm getting back to that one. Then priority throughout all periods is to ensure a stable, sustainably increasing cash dividend, which is well predictable. And then, of course, we like to maintain financial flexibility, therefore, future M&A. We also like to maintain financial flexibility for potential share buybacks. We have taken a very opportunistic approach to share buybacks, and that's why we need some financial flexibility there. Now, let's take first our historical performance here. How have we succeeded to follow the principle I just presented? Let me explain what we have here. So the orange curve is our cash flow from operations from the last four years. Then you can see our capital expenditures, share buybacks, and cash dividends there for each of the year. So our strong balance sheet has enabled steady investments.
They have enabled increase in shareholder returns despite the recent cash flow volatility. Especially what happened in 2022 when we went down on our cash flow, we continued investing in those capabilities. We continue with our shareholder distributions. Our balance sheet is and remains strong. The balance sheet KPIs, no matter whether it's net debt, equity there, it's at the level of 42% at the moment, the long-term average being 32%. Then our official target for balance sheet net debt EBITDA, it's now 2x, the long-term average being this 1.6x, and the max target currently is this 2.5x. So we have succeeded to follow the way we, we set our capital allocation principles. Then net debt EBITDA, as said, this Georg Jensen acquisition will take us temporarily above the target of 2.5x.
As a standalone Fiskars, our net debt at the moment is EUR 336 million. Now, with this Georg Jensen acquisition, it goes, a bit, less than EUR 530 million there. EUR 170 million there, and then EUR 20 million from the, lease liabilities. Based on the plans what we have put in place, also then contributed by Georg Jensen with a more cash flow efficient business model, we believe that, that in this second period of our strategic journey, we get back to targeted level quite soon. So that in 2025, we should be back, back to targets there, the range 1.8-2.3. Then CapEx and dividends. So how we have planned our capital expenditures there, how we have planned our dividends for the next two years.
So we continue having a balanced model, balanced distribution of cash between organic investments and dividends. Let me explain what we have here. So what you can see here is our historic CapEx operational cash flow ratio and historical dividend operational cash flow ratio. Quite widespread there, and that's about predictability. So we haven't been very predictable there when it comes to this ratio. For future, we believe that in the next two years, our CapEx should be roughly 30%-35% of our cash flow from operations, and then the cash dividends there in the range of ±40%-40%. So narrowing the range, we are providing further predictability also when it comes to distribution of the funds. Let's take CapEx then first, more in detail, what we have there. Our growth investment share of CapEx allocation will increase.
As I already mentioned, CapEx overall, we are quite CapEx-light business. So annual CapEx has been quite exactly EUR 45 million. So this is the average of last two years. Now, for the next two years, we are slightly increasing the CapEx, CapEx share thereof sales. The earlier guidance what we have given was that it's approximately 4%. Now, we are saying that it's 4%-5% of net sales. And then the growth investments, be it retail, be it supply chain, or be it digital, will increase. Maintenance investments are coming slightly down. Let me explain what we have here. So retail, current retail investments, they are 7% of our total CapEx at the moment.
The plan is that their share will increase in the next two years, and when it comes to portfolio roles, Vita is the one benefiting from that one because Vita is more exposed to D2C. Functional CapEx, 12%, that go down. Product development CapEx will stay flat, benefiting both BAs. Then supply chain, investments there in sustainability, investments there for capital efficiency improvement will take more share, and the traditional replacement investment will have a minor role. Though overall, we expect this slightly to increase, benefiting both BAs, benefiting both Vita and Fiskars BA. Digital, which is the major part of our CapEx. There, the CapEx, which is enabling sales growth, enabling business performance improvement, will take more share. Having said that, we are very mindful that investments, what we need to do there for continuity and especially for cybersecurity, will stay.
Our digital investments are closely linked to direct consumer, and therefore, most of the digital investment will benefit more Vita than Fiskars. So that's about CapEx. Not so CapEx heavy and clear plan for the next two years. Then on dividend. Our solid history of returns sets a good foundation also for resilient, sustainable growing dividends in the future. Our dividend KPIs are very solid, so dividend CAGR there for the last four years, 12.6%. Our payout ratio, 59% there on earnings per share, 61% there on cash earnings per share, bearing in mind that 2024, our cash earnings per share were negative. So combining all the ongoing plans, what we can control, this gives us a confidence to continue following the historical trends, on cash distribution.
So I have gone now through our strategic period and confirmed the toolbox, what we have for the second half of this glide path. I also confirmed our capital allocation principles there, especially a balanced approach, what we have for organic growth and then dividend. With that, I'll hand it over to you, Nathalie.
Thank you, Jussi. Very clear. We're very clear where we are putting our focus, where we are investing, and the asset efficiency. Just to wrap up before we come to the Q&A. As said, and as you can see from us, we're super excited about the second leg of this strategic period up to 2025. We have a clear logic, we're executing, and we have a defined outcome for all parts of it. And as you see from it, it's a lot of KPIs that we are sharing with you so that you have a full understanding of where we are going. It's tough times now, and we're winning in tough times. We're focused on the gross margin. We are focused on the portfolio moves that we showed you earlier, managing the portfolio, and also free cash flow. And we're ready.
We are ready to continue and deliver exactly as Jussi showed, the extremely detailed building blocks, how we're going. We're also ready for the next 375 years. Next year, we are turning 375 as a company. But that means that we continue to deliver every single quarter, we are continuing delivering towards the 2025 strategy and the financial targets. But this is now the kickoff for the 375 that starts next year. Over to you, to questions. I know, as he showed me earlier, we have more than 200 persons online, and I think that's a testament to the ownership culture we have in Fiskars, that all of us are keen to hear what's happening.
Yes, so as a reminder, you can type in your questions in the chat, but maybe first, I will ask if there are questions here in the audience, who are physically... Yes, go ahead, Maria. You will get a microphone.
Yes, thank you. Maria Wikström from SEB. I wanted a little bit more comments regarding the D2C strategy, that... I mean, how do you view currently the offline and online? And then also, if you could comment that, I mean, how will the online, offline strategy is currently placed in Georg Jensen, and how do you see it, I mean, going forward?
Yeah, very good. So when we look at the D2C, it's really a omni-channel approach of both offline and online, and that's because that's how consumers start. You, you start the journey... Well, most people start their journey on the sofa. They are scrolling, they are looking, they're reading some news, they're reading some, some stories, looking some videos. Then they might go to the store, ask questions. So, so there has to be the omni-channel. When we come closer to the Christmas, you want to-- might go to the store to get it Christmas wrapped. So we see that the most successful places where we are growing direct to consumer, it's always a combination of both online and offline. We see that in all markets. It's not only in China, but in, in all markets. So it's brand specific, and, and these will always go hand in hand.
You ask also about Georg Jensen, how we are looking at that. When we look at Georg Jensen and then Royal Copenhagen, as you know, many of our stores are next to each other. Well, I gave this example earlier today. As a concession, if we look at Bloomingdale's in New York, Royal Copenhagen and Georg Jensen we're next to each other. So of course, this is going to create huge synergies locally where we are, also in the cities where we are next to each other, and how we can then benefit of these additional physical synergies we are having. Then on Georg Jensen's e-com, it's already very good. But with our data and analytics capability, we can continue to enhance it. Yep.
Thank you. Are there other questions in the audience? I think we have at least one here.
Rauli from Inderes. Hello. I had a question on the two brands you had in the kind of underperformance category. First of all, Iittala was previously a winning brand, so can you talk about a bit what has happened there, and how to pull it back?
Yeah. Thanks, Rauli. You saw on the optimized brands, they're both glass brands, Iittala and Waterford. There's a lot we need to do on the brand positioning. We are still in the middle of channel strategy execution. But why it's now challenging is because it's glass factories. When volumes are coming down, as Jussi showed, wholesale volumes are down, glass factories, you have to run 24/7. It's a very process-driven industry, and the variances from supply chain is really hurting it. So we need to optimize it first to get it up.
Mm-hmm. And then specifically on Waterford, I think it has been kind of in the underperformance category for the whole time it has been under Fiskars' ownership, if not, if not even with the previous owner. Pretty much, I guess, have tried to be-- have been done to turn it around. What, what's left to do, and would that be one brand to... you could consider selling to someone else?
I mean, at the moment, it's in a good place. We've reworked on the brand positioning and the brand North Star. But now, what is still to be done in Waterford is what we're having with the big factory and the variances from there. But the consumer, how it's taken, especially in the U.S. and especially on the U.S. East Coast, there, it's really performing well in the consumer mindset. So the North Star and the collaborations, collabs we are doing, that's working, but the supply chain is still hurting us now with the low volumes.
All right. Thank you.
Hi, Joni from Nordea. Maybe I ask a question about the gross margins now when the wholesale business has been going down and direct to consumer has been performing well, and obviously, your gross margins have been evolving well. So, what will happen when, if and when, the wholesale market is returning and maybe then growing faster than the direct to consumer? So what's going to happen with the gross margins?
Yeah. As I mentioned, when it comes to channel-specific gross margin, we have succeeded to improve gross margin there in wholesale. And it's very much a volume game at the moment. So that's why we believe that we have significant leverage potential there. So once the volumes are coming back, and then sometimes they are coming back, it's a law of physics, and therefore, we have huge potential there with improving the bottom line, in wholesale.
Also in wholesale, what I said in the commercial excellence part, when we clearly said, "Win with the winners," which are the wholesale partners where we strategically work together, that is to future-proof it.
Okay, maybe a follow-up, a bit to follow up on that, given the retailers' focus on, on inventories, how you expect this to, to go in 2024, 2025? And, maybe if you can comment anything about... because maybe this could increase the volatility of the business if, if the focus on, on inventories is remaining so high also in the future.
Yeah. I would say we take a very sober view on the inventories, and as Jussi said, in many instances, we're not sitting and hoping for better times. Maybe this is a new normal with these inventory levels, until the interest rates are coming down. And that's the mindset, that's how we are set up for the years to come, or 2024. But that also means we spoke a lot about supply chain today, that we are much more agile on the supply chain and much faster can deliver. And we've shown it now when we delivered the cash flow, that we can flex the volumes, both from sourcing and own factories faster, except in the glass factories.
Yeah.
Maybe last question related to marketing investments, given you were speaking about making brands more luxury?
Yeah.
So, how much is it enough now with the, with your budgeted marketing expenses going forward if you are upping the game in the luxury brands?
Yeah. First of all, we are marketing as almost like a pay-as-you-go model. So we need to prove that top line is coming in, then we, of course, fuel more marketing. When we don't have that kind of proof point at the moment, that's why what I showed there for the expected marketing range, 5%-6%, admittedly, Vita is higher, Fiskars is lower. We won't start increasing that until we have some kind of visibility that market is returning.
Okay, thanks.
Thanks. Thomas Westerholm, Inderes. So to piggyback on the previous question about brand strategy, how do you plan to drive brands up the value chain towards luxury, while simultaneously striving for growth and expanding brand footprints across product groups? Do these goals not compromise each other?
No, no, thanks. That's a good question. So when we look at the brands and I spoke a lot about surrounding the consumers and the lifestyle of brands. In the North Star, we also have a different tiering of the products, which ones go to direct to consumer, which one go to wholesale, which wholesale, which geography. And that way, when we have a super clear tiers, we can drive with the different levers. So it really becomes a toolbox where we can pull them and stop as we go forward. But it means that we need to be much faster with innovation and much faster in learning what consumers are expecting from the brands in the lifestyle way.
And of course, the data we gather from our direct to consumer now, when it's already so big part of the whole company, is very important for that. Not only the data from our direct to consumer, but all in all discussions with our key winning partners, we talk about data. The meetings is always about data, and it's so data-driven, then we can accelerate the innovation and be meaningful for the consumers.
Got it. And if we'd circle back to the gross margins, could you please dissect to us a bit of the drivers of the gross margin expansion you've been going through? Is it sales channel, sales mix, pricing? What are the key components here?
Yeah. Now that direct to consumer is this 24% of our portfolio, we expect that to continue growing. So it's naturally sweetening the mix what we have. We are there at high price point in direct to consumer, no matter whether it's online or offline, so that will take more share. So that's one natural part. Then also the actions, what we have, what we are putting in place or partially already put in place in supply chain. Last time, when we started the first half, supply chain did not have a major role there in gross margin improvement. Now, it actually has a major role there. How we improve our factory efficiencies, their own factories, how we make much better procurement there with our suppliers.
So those are the levers we have put in place, and we'll put even more in place. So very practical things there. Now, we have scaled up our organization also to work accordingly.
Yeah.
Got it. Thanks.
Thank you. It's Joonas from OP. Regarding the wholesale distribution strategy, I think you made some changes a few years ago to the distribution network, and you mentioned that you want to win with the winners going forward. So could you give a little bit more color on the situation in that front today? What kind of changes are to be expected during the remainder of the strategy period?
I can start.
Yeah, if you start.
We've taken it brand by brand. We started with Royal Copenhagen, and then we launched it out, and we also take it brand by brand and country by country. And these are tough discussions. It's really tough discussions and going to customers and saying that we are going to change what kind of product or what kind of brands you get as you go forward. There's still a lot we can do going forward with this. We've only started in the last years, and there's big potential as we go forward. Rauli, you asked about Waterford. In Waterford, for example, in the channel strategy, there's still a lot to be done in the channel strategies and having this kind of discussions in the US.
On that one, of course, we don't like to leave business on the table if you have opportunities, and that's why we have Tactical brands in our portfolio. So if we are pulling away from our luxury brands or premium brands for certain channels, we have a lot of locally relevant Tactical brands. We can provide them to our customers.
Yeah.
Okay, thanks. That's helpful. Maybe a second one regarding the product for portfolio in the different markets. If I recall it right, I think you mentioned at the last CMD that you see some potential in leveraging the product portfolio, for example, taking products that are sold in Europe to new markets, to the US. Can you update us on how has this gone through?
Thanks for asking, because here, what we did in the last two years, first of all, we cleaned up. We cleaned up the portfolios. That's huge job that Wedgwood, for example, has done when they are now performing so well. So they cleaned up to become a consistent brand. The brand, luxury brands need to look the same globally. The look and feel needs to be the same. But then, so the cleaning up has been going on. Then when we talk about our anchor brand, Fiskars, there's still a lot of opportunities to bring the fantastic products we know here in the Nordics, bring it, for example, to the U.S.
And now when we have a U.S. dedicated Fiskars team, a combined Fiskars team, we actually have a few early wins already from this autumn, where we just taken, adapted the European products to the U.S. market. So that's still an area we have a lot of potential. Then when we talk about Georg Jensen, there, of course, we then do the same.
Okay, thank you.
Maybe we can take one question from the webcast, chat in the meantime. Nathalie, if you take this one: In this insecure market environment, are you planning expansion to new markets?
We're very focused. I think I've said it a few times today. We're very focused, what we are doing, so we take it always step by step, and we focus on where the effort, the investment, the resource allocation brings the biggest payback. So at this point, we have clear strategies per brand, where they are, and for example, in China, as we said, we two years ago, we took Royal Copenhagen there. Now, with the repeatable model, we take Georg Jensen there. But we do it brand by brand, and the places where we already have a setup, so we get the payback fast.
Thank you. Do we have other questions here in the audience? Okay, let's see. There's one here in the chat. This is for you, Jussi.
Yeah.
You mentioned that you expect 2024 revenues to be flat and 2025 to return to growth. In addition to the internal measures that you have outlined, which will influence the P&L structure, what are the volume assumptions underlying the mid-teen EBIT margin target? Would a flat 2024, followed by a mid-single-digit organic growth in 2025, be sufficient? It was a long question.
Yeah.
But-
That's exactly the way we have planned our next two years, so expecting quite flattish growth there. Having said that, we still have potential there in our inventory levels, so we still can continue with low supply when it comes to our sourcing partners or manufacturing, and then get rid of products out from our inventories. So that's very much then negative volumes. It's very much pricing. In 2025, we believe that volumes are getting back because the inventory levels start to be so low there in big customers that they need to start repurchasing. So it's a balanced view. 2024, very much value. 2025, volume.
Yeah. Thank you. Let's see if we have any other questions or if there are any questions here. Okay, there's one on the front row.
Rauli from Inderes again. On the impact of the D2C, you shared the positive impact on the gross margin, which is pretty, pretty obvious, but can you share also how it, how it's been impacting on the EBIT level?
Yeah, for sure. So, answering that question, I need to split it to offline and online. So when it comes to D2C online, high gross margin there, north of 65, close to 70%, then the very light OpEx base.
So even though we allocate all the group overheads there, it's very accretive to our group profitability. When it comes to retail, the business model is a bit different. High gross margin, but then, of course, store-specific expenses are also quite high level. Then allocating back to our group overhead, this business, I would say, it's at par with group profitability.
There, we have further potential, and that's why we believe that those investments what we are putting in retail, improving also store efficiency in that sense, will make also retail very accretive to our group overall profitability.
Does the increase in scale in the own store network impact that, or is it more efficiency side or commercial side?
It's very much scale.
Mm-hmm.
First of all, how we increase store traffic and that kind of basic things, which are commercial, but also when it comes to store CapEx, how we are buying all what we need in the stores, how the in-store excellence is planned. Do we have the same setup there, in the same countries and the like? So we are scaling up this all what consumer can't see in our own retail, and then, of course, the stores are very brand-specific, but the back doors, back offices are very scaled up.
Yeah.
Like I mentioned earlier, the more store we have in the same places with the different brands, the bigger customer we are to the landlord, the rental landlords.
When we closed the Georg Jensen deal, the amount of landlords calling us the same day was quite significant-
Yeah
... in every country. So, we become a bigger player and have more negotiation power.
Clear. Thanks.
Yeah, Joni from Nordea. Maybe one follow-up, Jussi, where you were speaking about that you have still room to keep up with the low sourcing volumes. What about with the own production? Are you aiming to ramp up this even during the Q4, or is it more on 2024, and how this would then impact the gross margins?
Yeah.
Because I think the overhead costs are now quite hefty for the low volumes.
Yeah. When it comes to own manufacturing, there are no plans for the remaining part of Q4 to start increasing volumes there. Then 2024, I said, when we are planning again, quite flattish top line there. We also need to be mindful of our own production capacity, so I'm not expecting any significant increase there in our own volumes. We still have products in inventories. We can survive at least the first part, for sure.
Okay, thanks.
Maybe one more question on the capital allocation, and you are a global company, and we want to play in the many markets, but of course, I mean, the resources are still limited in one way or another.
Yeah.
So, you said you had 40 stores in China right now. So how should we look at, like, the D2C and then, the store rollouts? And like, where should we see that how many stores in China you plan to have in 2025? And, if otherwise, I mean, the... If we think about the store expansion, will that be directly to the Asian market, or how should we think about it geographical-wise?
Mm.
Yeah, I can start. So it's very brand-specific. So the brands like Royal Copenhagen, Wedgwood, and now Georg Jensen in China, the growth is coming also for number of stores there. Not only improving sales per store, but also including number of stores there. Georg Jensen coverage in China is quite limited, so there, for sure, we are increasing number of stores. Overall, it's very brand and country-specific approach what we have there. But as I said, now the retail CapEx is 7% of our total CapEx, and that share will increase. So it will also increase in that terms of we are increasing number of stores there.
At the same time, we are all, all the time looking which stores are performing, which not, because consumer flows are changing. So we're all the time also closing stores globally.
Absolutely. We are already in our D2C retail in self-funding mode, having so many stores there, including those shop-in-shop stores, concessions. We have over 350 stores, so it's a self-funding mode, what we have. There, important key figure for us, what we are following is the same-store growth. Of course, we need to be able to continue growing this kind of roughly mid-single digits there in our own stores and then add simultaneously number of stores.
We have at least one question here in the chat. Are there any further organizational changes planned, or is the new organization set? And how do you integrate the Georg Jensen colleagues?
When we talk about the organizational changes, and Jussi had a very good summary slide on that, these are the changes we have planned. These are the ones that are in place at the moment. But of course, as we go forward, we're all the time evaluating what's right for the brands, what's right for the business as we drive it from a P&L end-to-end accountability. But these are now the projects we have planned.
Are there any final questions here in the audience? It seems that the question and answer session is over. Maybe, Nathalie, if, do you want to give any closing words before we wrap up?
Well, I would say, first of all, thanks for the question, thanks for the detailed questions, and really looking forward to connect with you here afterwards also. And everybody online, thanks for joining. You're many online, so really appreciate the attention also from there. And as we go forward, we'll continue, as you know, quarter- by- quarter, reporting back how we are progressing, where we are going, and continue to bring this fantastic Fiskars Group with a 375-year journey, continue to bring it forward, and then to 2025. So thank you very much from our side. Thank you.
Thank you.