Sustainable Growth and Value Creation enabled by focused transformation Amer Sports CMD 2018 Heikki Takala, President & CEO, and Jussi Siitonen, CFO
Topics today We continue to grow and create value Our strategy is working and organic growth drivers remain largely unchanged We continue our transformation towards areas of faster growth, higher profitability, and asset efficiency, with increasing weight of Softgoods, D2C, and China As part of the transformation, we will broaden our toolbox to include strategic portfolio choices a more focused company 2 Amer Sports CMD 2018
We continue to drive sustainable profitable growth and value creation
Our Glidepath: Sustainable Profitable Growth 3,000m 2,800m 2,600m 2,400m 2,200m 2,000m 1,800m 1,600m 1,400m 1,200m Net sales (EUR) and EBIT margin, 2006 2018 Growth and profitability 10% improvement largely driven by 8% Softgoods, D2C and China * 6% 4% 2% 0% Net Sales EBIT Margin 4 *L12M 18 = July 2017 June 2018, Peak Performance included Amer Sports CMD 2018
2018 outlook: profitable growth continues 2018 outlook* unchanged: Net sales in local currencies as well as EBIT excl. IAC are expected to increase from 2017 Due to ongoing wholesale market uncertainties, the quarterly growth and improvement are expected to be uneven *Outlook given in Q2/2018 5 Amer Sports CMD 2018
Our performance has driven long-term value creation Share price development, 2010 9/2018 * 450 400 Amer Sports 350 OMXHCap 300 250 200 150 100 50 0 2010 2011 2012 2013 2014 2015 2016 2017 2018 *Data as of 3th September 2018 +311% +81% Since 2010 Share: +311% TSR: +363% Since 2015 Share: +79% TSR: +90% 6 Amer Sports CMD 2018
The performance has been based on our strategic choices Sustainable Growth Model 1. Clear portfolio role for each Business Unit 2. Group scale and synergy 3. Transformation: Strategic acceleration in Softgoods, D2C, China, USA and Digital 4. 7 Amer Sports CMD 2018
1) Sustainable Growth Model 1. Annual topline growth 2. Annual profit and cash flow improvement 3. Investing for the future 4. Continuous renewal and productivity improvement 5. Long-term view: 3-5 year commitment cycle to businesses 8 Amer Sports CMD 2018
2) Clear portfolio role for each Business Unit Business Unit Role Role fulfilled? Apparel Footwear WSE Ball Sports Fitness Sports Instruments Cycling Full acceleration Sustainable, profitable growth Sustainable profitability in all conditions Cash and profit first Sustainable, profitable growth Disproportionate growth for scale Profitable growth In line In line overall, growth slowdown in 2018 due to distribution clean-up In line Profit & cash in line, but growth challenging Growth accelerated, profitability improvement next Growth step-changed, profitability improvement next Growth & profitability below expectations 9 Amer Sports CMD 2018
3) Group scale and synergy 1. Go to Market Growth 2. Operations GM% 3. Digital business platform OPEX efficiency 4. Long-term investment capacity Funding for growth 10 Amer Sports CMD 2018
4) Transformation: Strategic acceleration Acceleration area 2017 Target CAGR Conclusion Softgoods EUR ~1,000 m 9-10% D2C EUR ~250 m 20+% China EUR ~120 m 20+% USA USD 1,000+ m 3-5% Connected Devices & Digital Services EUR ~250 m 20% 11 Amer Sports CMD 2018
4) Transformation outcome: Portfolio shift towards faster growth, higher profitability and better asset efficiency Share of business 2010 Share of business 2018 SOFTGOODS ~20% ~40% D2C* ~2% ~10% CHINA ~1% ~6% 12 *Of total Group sales, including non-d2c relevant businesses such as Fitness Amer Sports CMD 2018
Growth and transformation continue, but recent slowdown calls for expanded toolbox
Whilst long-term performance is solid, growth and profitability improvement slowed down in 2016-17 3,000m 2,800m 2,600m 2,400m 2,200m 2,000m 1,800m 1,600m 1,400m 1,200m Net sales (EUR) and EBIT margin, 2006 2018 2016-17 * 10% 8% 6% 4% 2% 0% US market slowdown Investments into Digital / Fitness / Sports Instruments started to yield with a delay Net Sales EBIT Margin 14 *L12M 18 = July 2017 June 2018, Peak Performance included Amer Sports CMD 2018
The slowdown resulted into lower value creation 140 120 100 80 Share price development, 2016 9/2018 * Amer Sports +30% OMXHCap +10% Value creation lagging since 2016 Amer Sports share +10% Total Shareholder Return +16% 60 40 20 Sharper choices and expanded toolbox needed 15 0 04.01.2016 2016 04.01.2017 2017 04.01.2018 2018 *Data as of 3th September 2018 Amer Sports CMD 2018
We capitalize on the proven building blocks, and broaden our toolbox
1) Capitalize on the proven building blocks Continue Sustainable Growth Model Drive Business Units according to their portfolio roles Pursue Group scale & synergy Continue strategic acceleration Softgoods (accelerated by Peak Performance) D2C China USA Connected Devices & Services = Company digitalisation 17 Amer Sports CMD 2018
2) Expand toolbox: Further accelerate transformation through strategic portfolio choices Strong Better owner logic: current performance Fitness Sports Inst. Ball Sports Footwear WSE Apparel Softgoods: Accelerate WSE: Sustainable profitability Ball Sports: Cash & profit first Confirm role & commitment for the next cycle Limited Cycling Strategic review = relative size Low Better owner logic: scale & synergy potential High 18 Amer Sports CMD 2018
Our strategy continues to transform the company towards faster growth, higher profitability and better asset efficiency Main transformational drivers Share of business TODAY Share of business TOMORROW Share of business FUTURE SOFTGOODS ~40% ~50% D2C* ~10% ~20% CHINA ~6% ~10% 19 *Of total Group sales, including non-d2c relevant businesses such as Fitness Amer Sports CMD 2018
Our sustainable profitable growth and transformation create value Jussi Siitonen, CFO
Our strategy creates value through several drivers 1. Our Sustainable Growth Model and scale and synergy drive profitable growth 2. Our acceleration in Softgoods, D2C, China, USA, and Digital shift the company to increasingly attractive areas 3. The accelerated transformation through strategic portfolio choices changes the company profile 4. The strategy will further drive cash generation 21 6.9.2018 Amer Sports CMD 2018
Our mid-term targets remain intact Financial KPI Target L12M* L5yrs* Net Sales growth Profit growth Mid-single digit organic, currency-neutral annual growth Annual EBIT growth (excl. IAC) ahead of net sales growth 4.0% 4.7% +8.2% +9.8% Cash flow conversion Net Debt / EBITDA Free cash flow / net profit at least 80% 58% 68% Year-end net debt / EBITDA ratio max 3.0x 2.70X 2.18X *) Peak Performance excluded 22 6.9.2018 Amer Sports CMD 2018
Net Sales: acceleration in Softgoods, D2C, China, and USA has delivered the majority of the growth, and will continue to do so CAGR, L5yrs* Contribution to Group, L5yrs CAGR of 4.7% Hardgoods Softgoods Softgoods 11% Category 1.3% 3.4% B2B Fitness Retail E-com D2C 22% Channel 2.9% 0.5% 0.6% 0.7% ROW USA China China USA 29% 6+% Country 1.7% 2.1% 0.9% 23 6.9.2018 CMD 2018 *) L12M Jun 18 vs. L12M Jun 13, (Peak Performance excluded)
Net Sales: Transformation into modern channels drives disproportionate portion of growth Capability investment in transformation to modern channels is driving disproportionate growth Index 120 Net Sales growth by channel, L12M* 117 Modern channel growth is closely linked to Softgoods growth Peak Performance acquisition further accelerates growth in D2C 100 106 97 104 Modern channels = own retail, own e-comm, e-tail customers, click&mortar customers 80 Modern Channels 30% Fitness Channels 14% Traditional Trade 56% *) Peak Performance excluded Share of Net Sales 24 6.9.2018 Amer Sports CMD 2018
Gross Margin: Our proven building blocks are delivering Softgoods Ball Sports WSE D2C Gross Margin driver Category growth and margin improvement Complexity reduction and acquisitions for further scale Continuous production efficiency improvements and complexity reduction Channel mix change Gross Margin improvement L5yrs* Over 300bps to ~50% Over 300bps to 40+% Over 300bps to 45+% Over 300bps to ~60% *) L12M Jun 18 vs. L12M Jun 13, (Peak Performance excluded) 25 6.9.2018 Amer Sports CMD 2018
and contributing significantly to the company s profitability % 47 46 45 Category contribution to Group Gross Margin improvement* +2.0 +0.6 +2.3 +0.5-0.8 45.5 % 47 46 45 Channel contribution to Group Gross Margin improvement* +1.6 +2.3 +1.1-0.4 45.5 44 43 43.2 44 43 43.2 42 42 41 41 26 40 GM L12M Jun 13 Softgoods Ball Sports WSE Other GM L12M Jun 18 6.9.2018 Amer Sports CMD 2018 40 GM L12M Jun 13 B2B *) Peak Performance excluded D2C Other GM L12M Jun 18
Gross Margin: We have largely mitigated the recent adverse FX impacts EUR/USD 1.400 1.350 USD/EUR Hedges 1.300 1.250 1.200 1.150 1.100 USD/EUR Spot 1.050 1.000 Jan-15 Jan-16 Jan-17 Jan-18 Jan-19 Gross Margin 44.8% 45.8% 44.9% 45.5%* 27 *) 1.7.2017 30.6.2018 (Peak Performance excluded) 6.9.2018 Amer Sports CMD 2018
OPEX: Whilst we continue investing in transformation, we have normalized OPEX spend through fluidity 28 In accordance with our SGM, part of the Gross Margin gains have been invested back in the proven growth drivers Softgoods, D2C, Digital capabilities OPEX efficiency actions, initiated in Feb 2017, are delivering targeted savings together with continuous OPEX fluidity Sustainable mid-term OPEX level 36-37% of Net Sales 0 2013 2014 2015 2016 L12M 2017 L12M Jun 17 Jun 18 6.9.2018 Amer Sports CMD 2018 % 10 9 8 7 6 5 4 3 2 1 Net Sales vs. OPEX Growth L5yrs* *) L12M Jun 18 vs. L12M Jun 13, (Peak Performance excluded) Net Sales OPEX
Asset efficiency: We have continued to deliver organic improvement Capital Employed change, L5yrs ROCE vs. WACC, L5yrs +514 377 1,662 % 20 Goodwill 1,148 291 137 431 237 15 ROCE (excl PP) ROCE (L12M) PPE Other Intangibles 164 211 501 10 5 WACC (pre-tax) Net W/C 482 493 June 13 Organic M&A June 18 0 Q2 13 Q4 13 Q2 14 Q4 14 Q2 15 Q4 15 Q2 16 Q4 16 Q2 17 Q4 17 Q2 18 29 6.9.2018 Amer Sports CMD 2018
Shifting portfolio towards areas of faster growth, higher profitability and better asset efficiency
Faster Softgoods growth reshapes the P&L Softgoods higher growth and better profitability drive our P&L towards directional mid-term profitability model: Gross Margin 46-47%; and OPEX 36-37% Softgoods Softgoods/Hardgoods split of KPIs, pro forma* L12M 33.0% 39.4% 43.7% 53.2% 58.9% Softgoods share growth is also lowering company s risk profile & earnings volatility (Balance sheet solidity, 365 offering, D2C) Hardgoods 60.6% 56.3% 46.8% 41.1% 67.0% Company multiples toward Softgoods peers 31 Net Sales Gross Profit EBITDA *) Peak Performance consolidated on Pro Forma basis from 1.7.2017 30.6.2018 Group unallocated excluded from EBIT, EBITDA and Capital Employed 6.9.2018 Amer Sports CMD 2018 EBIT Capital Employed
Better asset efficiency drives higher ROCE Softgoods business model is Asset light driving company s ROCE toward 20% Relatively higher Working Capital is offset by low/no manufacturing assets Softgoods/Hardgoods split of KPIs, pro forma* L12M % X % Softgoods Softgoods Whilst Softgoods is structurally more attractive, Hardgoods is still in our core (60% of Net Sales), and continues to improve Importantly, whilst each business has future potential, we continuously reconfirm our better owner logic to ensure they contribute to our value creation model 32 Softgoods Group Hardgoods Group Hardgoods = EBIT Margin Asset turn ROCE *) Peak Performance consolidated on Pro Forma basis from 1.7.2017 30.6.2018 Group unallocated excluded from EBIT, EBITDA and Capital Employed 6.9.2018 Amer Sports CMD 2018 Group Hardgoods
Fund allocation follows the portfolio logic We prioritize main transformational drivers: Softgoods, D2C, China, modern channel logistics, We continue investing in those Hardgoods units where business is in line with portfolio role (WSE, Ball Sports), and/or where our current investment program is delivering largely in line with expectations (Sports Instruments, Fitness) Before we continue long-term commitment to Cycling, where business is not in line with portfolio role and scale & synergy benefits are insufficient, we will put Mavic under strategic review to assess whether Amer Sports is the best owner We have engaged investment bank Centerview to assist in the process 33 6.9.2018 Amer Sports CMD 2018
The strategy will further drive cash generation
Cash flow has supported organic growth and payouts but we have a gap to close vs. our financial target Cash flow L5yrs, June 18 1,261 1,261 % 140 Free Cash Flow / Net Profit L5yrs, June 18 Net Debt change 361 377 389 M&A Payouts/ Buy-backs 120 100 80 60 40 Financial target 5yrs average 80 68 Operating Cash Flow 901 136 W/C 20 0 360 CAPEX -20 Q2 13 Q3 13 Q4 13 Q1 14 Q2 14 Q3 14 Q4 14 Q1 15 Q2 15 Q3 15 Q4 15 Q1 16 Q2 16 Q3 16 Q4 16 Q1 17 Q2 17 Q3 17 Q4 17 Q1 18 Q2 18 Sources Uses Strategy drives improved cash generation through faster growth, higher profitability and better asset efficiency, closing the gap 35 6.9.2018 Amer Sports CMD 2018
Balance Sheet: whilst we remain within our targets, we now focus on deleveraging Net Debt / EBITDA up due to the acquisition of Peak Performance In line with our sustainable funding strategy for M&A s Current focus on deleveraging the balance sheet post the acquisition Fund allocation priorities remain unchanged 1. Secure organic growth 2. Ensure sustainable, steadily increasing cash payouts as per dividend policy 3. M&As and share buybacks currently deprioritized 4.0 3.0 2.0 X Financial target 5yrs average Net Debt / L12M EBITDA, L5yrs 3.0 2.2 1.0 31.12.13 30.6.14 31.12.14 30.6.15 31.12.15 30.6.16 31.12.16 30.6.17 31.12.17 30.6.18 36 6.9.2018 Amer Sports CMD 2018
Long-term loans: refinancing plans in place Cash EUR 152.9m and unused committed facilities EUR 200m (June 30, 2018) Commercial paper program EUR 500m, out of which EUR 30m utilized Scheduled H2/2018 repayments of long-term loans EUR 197.5m Average interest rate of loan portfolio 2.1% (June 30, 2017 2.5%) EURm 400 350 300 250 200 150 100 50 0 Repayment schedule of long-term loans 2018 2019 2020 2021 2022 2023=> Bonds Bank loans Other 37 6.9.2018 Amer Sports CMD 2018
Summary We continue to grow and create value Our strategy is working and organic growth drivers remain largely unchanged We continue our transformation towards areas of faster sustainable growth, higher profitability, and asset efficiency, with increasing weight of Softgoods, D2C, and China As part of the transformation, we will broaden our toolbox to include strategic portfolio choices a more focused company with increasingly attractive business model 38 6.9.2018 Amer Sports CMD 2018