It comes to the balance sheet items, and as for efficiently, I hand over to Jussi for comments.

Transcription

1 Q Amer Sports Oyj Earnings Conference Call May 2, 2016 C: Paivi Antola; Amer Sports Oyj; Head of Corporate Communications C: Heikki Takala; Amer Sports Oyj; President, CEO C: Jussi Siitonen; Amer Sports Oyj; CFO P: Kalle Karppinen; Danske Bank; Analyst P: Don Holman; Citibank; Analyst P: Adrian Rott; Deutsche Bank; Analyst P: Chiara Battistini; JP Morgan; Analyst P: Robin Santavirta; Handelsbanken; Analyst P: Usa Requena; Groupe SEB; Analyst +++ presentation Paivi Antola^ Good day and welcome to this quarterly call, Amer Sports first quarter results. Together with me in this call, I have Heikki Takala, the president and CEO of Amer Sports, and Jussi Siitonen, CFO. We'll start with Heikki's short introduction and then go over to Q&A. Heikki, please. Heikki Takala^ Thank you, Paivi. Thank you and good morning, good afternoon, and thank you for joining. We had a broad-based improvement in our quarter one. Net sales grew by 11% and organic growth was 6%. So, solid start for the year driven by footwear and apparel, good momentum in both sports, and also fitness is starting to [re-immunize] growth from challenges in Geographically, EMEA grew by 4% and rank us 17% and Asia Pacific by 19%. Business to consumer was up 34%, driven by e-commerce 42%. Gross margin was very healthy at 47.4%, driven by healthy inventory situations, and quite surprising, ahead of the currency pressures, which we have seen. We are proactively appraising for what we see, and now we gaining some short, exceptional benefits from that. EBIT was $46 million, and that includes quite some OpEx investment into acceleration, especially in business to consumer digital in line with our strategic acceleration plans. Free cash flow was at the 33%, slightly below a year ago. It comes to the balance sheet items, and as for efficiently, I hand over to Jussi for comments. Jussi Siitonen^ Thank you, Heikki. So, the ones who have followed us longer knows that we have now focused more and more on capital turnover there, and now we

2 succeeded to continue improving our capital turnover, our asset efficiencies there, now being a level of 1.91, when it comes to that (inaudible) numbers. What needs to be remembered is that, as it turns out, we loaded there the top-line still come in from both region s acquisitions. So therefore, we continued improving our asset efficiency. Net debt went up EUR80 million from the yearend with a dividend of EUR65 million, around 10 base, and the acquisition of EUR45 million (inaudible). Free cash flow [were quite] natural reasons for that increase. Net assets remains healthy and this asset turnover and return of capital employed will be the main focus for the rest of the year also. Back to you, Heikki. Heikki Takala^ Okay. And then if we go a bit more into detail by segment, by reporting segment, our outdoor had a good quarter; 11% local currency growth driven by footwear, 16% apparel, 19% sports instrument, 14% specialty footwear and apparel. Good start for the year, maybe not indicative of the rest of the year; we know that there are some trade stocks there, some buffers facing us there. But it's good to start the year well. In the sport equipment, minus-6%, slightly minus-3%; we disclosed equipment, [of course], impacted by the conditions out there; cycling, we starting to turn it around. We have a good pipeline of current innovations coming out, more initiatives coming out, but still in Q1 not quite into effect; we expect improvement going forward. EBIT was improved driven by the phase growth and the gross margin, which I touched earlier. Moving onto ball sports on the next slide. We had solid growth for the quarter supported by the acquisition of the Louisville Slugger, and overall, we improved growth-base; at the same time, we invested quite a lot of OpEx into future acceleration. We put in place new digital platforms, we have a pipeline of digital product, and we also have with expansion into customization, into direct to consumer, and the investments, of course, offset some of the benefits from the growth and gross margin. And EBIT was, by and large, has not yet [leveled]. Next one, fitness, quarter one; we were pleased to see a return to the growth. We have now completed the go-to market integration, especially in the North American market. Our capabilities are improved and now a strong pipeline of initiatives is starting to kick in. You may remember that last year we acquired the Queenax functional fitness business; we expanded into pro cycling into new areas, more regionalization, and then, of course, a solid pipeline of the core business. And we see that they are starting to, little by little, have an impact. EBITDA was slightly down versus year ago due to factory start up costs, some pressure on gross margin, and also continued OpEx investment in traditional acceleration and the likes. However, we expect that once we get going and once we introduce and grow out the new pipeline, that gross margin pressures, of course, start to go away.

3 A few words about the Amway acquisition. Amway is a fast-growing brand in high-end, very high-end, carbon. We use components and accessories, and, as [Emanuel] says, approximately $30 million. We acquired in the last month; acquisition price was $50 million, and the acquisition brings important capabilities in carbon and also very good capabilities in operation-side, and it helps us identify and drive scale as energy benefit, including go-to market, especially in the United States. And the acquisition was engaged, finalized, on March 8. Going forward, out with outlook. Outlook is unchanged. We expect the Company net sales in local currencies to increase in EBITDA margins, excluding items affecting comparability to improve from 2015, despite quite some challenging market conditions. And the Company will continue to focus and growing the core business and accelerating into prioritized areas as earlier indicated. The flight path continuous. We have delivered 60 years of sustainable, profitable growth. We are mid-way on the flight path and we have our targets. We have them in place for, for 2020, meaning $1.5 billion via top-line, improving profitability and also cash flow and balance sheet targets. We got the building blocks in place, and now we are already executing at full speed as we deliver 2016 and put in place the building blocks for the years to come. With that, I will actually then hand it back to Paivi for Q&A. Thank you. Paivi Antola^ Operator, now we would be ready for the questions from the audience, please. +++ q-and-a Operator^ (Operator Instructions) Kalle Karppinen. Kalle Karppinen^ It's Kalle from Danske here. Two questions. First, on the outdoor segment and the apparel business where you had 19% growth in local currencies, but only 14% reported growth. So, I was a little bit surprised by this 5% [4X] impact. Can you explain this a little bit? And the other question is related to Louisville slugger in the ball sport segment. Counting what you have reported so far after the acquisition, I get to around $45 million, $50 million of sales contributions and we're close to full-year after the acquisition. And this seems to be quite a bit less than the sales that were communicated at the time of the acquisition. So, can you give some detail on this also? Jussi Siitonen^ The Louisville Slugger annual sales was, approximately, $70 million. And we are in line with that, so I'm not sure which number you are referring to. We basically fine lined with what we targeted and the way we communicated at the time of the acquisition.

4 So if you Kalle Karppinen^ I m referring the annual report says that the contribution to your sales last year was $32 million, so about EUR27 million-ish, EUR28 million. And now, you've probably got EUR15 million to EUR20 million more in the Q1. So, this doesn't take me to $70 million yet. Jussi Siitonen^ Again, I'll say it, we are in line with the communicated numbers, at least so far. So, we're delivering as the acquisition economics and what we communicated at the time. Kalle Karppinen^ How about the apparel growth numbers? Jussi Siitonen^ Yes. We did 19% excluding currency, which is, then, mainly Canadian dollar because active numbers are all accounted in Canadian dollars and that's [the Euro], so that s main reason for the difference there. Operator^ Don Holman from Citi. Don Holman^ First of all just on the gross margin, you talk about the improvement was driven by a team of entry-based and pricing ahead the currency-related pressures. Can you just give us an idea of how much pricing you've taken and how much you expect those currency pressures to increase as we go through the year? What kind of gross margin improvement would you think was reasonable for the full-year? And then if we could just get a little bit more detail on the right off of the EUR6.3 million that would be really useful. Jussi Siitonen^ (Inaudible) versus hedges and currencies overall. So, when we have openly communicated our currency exposure as the US dollar last year, then we develop 1.35%, 1.36% with our hedges there. Now this year, we have said that we develop $120 million level. However, what needs to be remembered is that that's an annual average or year average currency. So still, in Q1 we are benefiting from both hedges once we had made a good level, especially in good for, which is mostly exposed currencies. For the bad of the year, our hedge ratios for US dollar is [$1.9 million]. So we are getting closer and closer to spot right there with hedges. And therefore, this kind of gross margin hike, what you saw in Q1, it's stabilizing to watch the end of the year. So, this is not a proxy for year improvement. Heikki Takala^ And as to the pricing, the hedges gave us the room to maneuver, so we had time to plan. We had time to plan for the pricing needs and actions, and also, internal efficiency programs to then actually mitigate the impact as the benefit of the edges going away. We're taking sufficient pricing mostly behind our initiatives behind

5 the new innovation pipeline. And of course, we've taken that by season. And now the higher pricing is impactful in many of the categories in many of the new ranges. That's giving us the needed protection against the week of going away of the hedges, and now we're getting some short-term benefit. The point here is that we always said we want to protect the gross margins at the level where we get them. We don't want them to go back and we do what is needed in order to keep them at the 45%-plus level, where we always aspired for. So the point is, we think doing sufficient amount of activities we take into measures to mitigate and offset the impact the currency pressures. Jussi Siitonen^ Then getting back this to right down, what you refer as our identifying impacting [comparability]. It's coming fully from one customer and it's capturing 11 filings, and they are public filings in the USA. You can see that Wilson was one of the top 50 creditors there and that's the main part of this right down coming there. And then, of course, (inaudible) seeing also there. So overall, it's $6.3 million coming from one retailer in USA. Don Holman^ And just to clarify on the receivables, is there anymore [bat] at risk, or are you saying that $6.3 million is a full write-off? Heikki Takala^ Not that s all significant numbers, of course. We are always following our great policies there; we are making provisions for all more than 120 days past due to receivables, and therefore, based on all provisions, what we have placed, not just aspects items as this was is not expected. Operator^ Adrian Rott from Deutche Bank. Adrian Rott^ Number one; on [Asterisks] and the store roll out, maybe just a quick update on how things are going whether you find more of these locations and enter enough the sort of qualified staff and so on? And also, if you could maybe just roughly split up Q1 apparel growth into how much of that was like-for-like in your own monobrand stores, and also versus some store openings. And secondly, on Wilson; so we had a little bit of noise from competitors in US ball sports and Wilson was also growing organically in Q1. Can you just share some thoughts on how the market is doing currently, i.e., can you actually take share of the market from some of your weaker competitors now? Are things broadly running okay, or is this sort of the retail organization in the US also impacting Wilson going forward? Heikki Takala^ On [Asterisks], the first question was about the expansion and the capabilities to enable the expansion. Yes, we re finding we have a pipeline of candidates all the time for new store openings. We qualifying in the model, we're still young in the retail segment, if you will. But yes, we start have a lead, especially in the United States and Canada, also in China and some in Japan.

6 But in Europe, and we continue looking at the market and where the opportunities is ripe and where we believe we have the proven format, we will expand. And I think you will see a pipeline of expansion in a steady pace in the current and in the years to come. Yes, we find staff, we find the capabilities, and we believe that we have a model which we can actually repeat. And it is turning into a building block. The like-for-like royalties, that's what s US and was 22%. So hopefully that answers your question. On the Wilson side you asking, how is the market and how we are doing? You know, we had some organic growth. In 2010, we had of course the boost from the acquisition. I think that's within that kind of frame, we are taking share. We are taking share in the segments where we now have good momentum, and that's what we believe; we can't really read that in the market; there's no official reading. We can't buy statistics, but the way we end [up producing] is that we have the momentum and that momentum is better than in the market overall. That's mostly in the team sports segment. We're also doing quite well in golf at the moment. It's improving all the time. And then, I think, the market is flattish and we're performing, I think, close to the market. We always need to remember that growth comes from in tennis is typically when we have significant introductions, new initiatives, and again, the answer is not always the same. You see here, for example, our tennis pipeline is biased more to Q3 and that's when we come in with new items. So I hope I'm answering your question. Operator^ (Operator Instructions) Chiara Battistini from JP Morgan. Chiara Battistini^ I just have a couple of questions, please. First on just on a housekeeping question, really. On [Envay] and the consolidation of [Envay], should we think about any specific seasonility in terms of sales by quarters, or can we assume a similar seasonality as Mavik, please? Then just going back on your comment that your outdoor Q1 performance should not be extrapolated for the rest of the year, I missed the reason for that; is that because of excessive inventories in the trade, or anything you could elaborate on that, please? And just a clarification on your comment on the like-for-like or [Asterisks] being 22%; should we then assume that [Salaman] is significantly down, given that apparel is up 19% [tax FX], or what am I missing here, please? Heikki Takala^ Yes. Let me take them one-by-one. We should follow, by and large, the same logic as Mavik and we re you know, Mavik [grows], yes. I think that's the expectation you can have. Outdoor, the exception is that following quite a late and kind of mild winter, that the overall trade stocks are elevated and we believe that there is going to be some softness in the winter-related apparel. That's what I'm referring to. I'm not talking about us as being [not]; especially, I'm talking about the go-to market. So the expectation is that the

7 stocks, or inventory levels, are somewhat elevated and we believe that they can beat the pressure. We still believe that we can have solid growth; we continue in-line with our flight path. As I was maybe saying more is that, you know, if the level of Q1 growth, you got to be expected and extrapolated throughout the full-year. No, it's not. Do we believe that we have solid growth going forward? The answer is yes, yes, we do. So, no weaknesses as such; more trying to manage the expectation. The first question, you had the Jussi Siitonen^ Yes (inaudible) like-for-like growth of 22%, so that was for total to be able to see what we have; 34% all in growth and 22% like-for-like growth. So we end up specifying it by brands. (Inaudible). Chiara Battistini^ So that is for your for the [Asterisks ] own stores, correct? Heikki Takala^ No. This is total B to C; total (inaudible) B to C. Chiara Battistini^ Then, if I can follow-up on the previous question; would you be able to give an indication of, or at least a rough indication, on how much is volumes in existing doors and how much is actually growth in new doors and increased penetration of the apparel business? Heikki Takala^ There is a healthy underlying growth, but more than half typically comes from the underlying base-business and then the rate of growth comes from the underlying business. So kind of like [flight] and then the rest comes from (inaudible). Operator^ Robin Santavirta from Handelsbanken. Robin Santavirta^ First a question, perhaps, to Jussi. Whether you book this EUR6.3 million right down in the PNL, is it about gross profit or below? Jussi Siitonen^ It goes to sales and distribution cost, so it s part of our OpEx there. And how we are now reporting it is, as you notice, we are following the new standards of these items affecting [convertibility], so this EUR46 million EBITA what we reported now is excluding this item affecting [convertibility]. Robin Santavirta^ Then on OpEx, or fixed cost growth, now it seems as you have sort of stepped on the accelerator here a bit, perhaps given your strong gross margin, and that's probably a good thing. But can you distinguish between sort of growth-related OpEx investments now in Q1, for example, compared to last year in Q1, or at least comment whether they're up or down and if you have some kind of number to provide on that? Jussi Siitonen^ Yes. (Inaudible). So when we said in our report that operating expenses increased by approximately EUR25 million [on currency neutral], we can say the top-line

8 prevents the store openings what we had already last year, and then the distribution expansion overall. It was roughly EUR15 million out of this EUR25 million. The remaining is investment-driven, and the cool thing is that this maintenance type of OpEx what we have is to remain flat. Robin Santavirta^ And then related to gross margin, I think the big question here is This year seems to be quite good. Is it wrong to assume that you can have a flat gross margin in 2017, or is it a too ambitious target? Jussi Siitonen^ (Inaudible) guidance here that reminding our principles that, really, we are always finding of change the gross margin [there also], because that's the main driver of our profitability improvement there. And the cool thing, what we have had now is that, thanks to good [hedge winds], which has been our place for the past year and also part of this year, we have luxury of time to be able to increase prices to be more efficient now in our sorting operations and the like. So then we are well prepared for the year when we are facing the spot-rates there in currencies. So therefore, not giving any other guidance, but we are following our principle to fight against gross margin erosion. Robin Santavirta^ And a final one. Have you commented or can you comment whether the apparel business operating, or EBIT margins above or below the group average on a 12 months rolling basis? Jussi Siitonen^ We don't comment on that. It's a contribute of the Company growth. The underlying profitability is very healthy, but then of course, we invest back a lot because we see that that's a scalable model and we can repeat that mode successfully. Of course, in line with our strategy, a lot of our investment, our OpEx and scalability increases, everything goes back to apparel and footwear. Hence in our readings, carrying that extra cost, but of course, it's also yielding quite a lot of good, solid growth. Robin Santavirta^ I guess everything boils down to building up enough scale sort of to drive up the margin there as well. Jussi Siitonen^ Absolutely correct. Operator^ (Operator Instructions) Usa Requena from SEB. Usa Requena^ Many of my questions have been answered already, but I have two here relating to the actually the apparel growth. The first question is on the split between apparel growth in [Asterisks] and [Salaman]. And once in a while, you've given some indications on [Asterisks ] growth. Could you give some indication here apparel was up 19% in a quarter. Is it fair to say that [Asterisks] grew significantly more than that and [Salaman even is] significantly less?

9 Heikki Takala^ Yes, I can say that both were at double digit growth, and the higher growth rate was for [Asterisks]. Usa Requena^ And on the same area, just to double check you. You talked about what I'm aiming here for is (inaudible). In the quarter, you talked about the gross margin, I think that sounded clear, and I'm just double checking here that you said in the latter half, we'll see probably growth flowing in [after all] due to the weather. But looking at Q1 and Q2, was there any shifts, sort of to say, that Q1 would be an extraordinary good in apparel or footwear for that matter, and then that would be sort of away from Q2, or should we think about Q2 as a normal Q2? Jussi Siitonen^ I mean, Q1 is typically is the pre-order quarter and Q2 is more reorders, as I think maybe can do smaller. And you know, we know the reorders as we get them, and now we are in Q2, so the expectation is up. Things are relatively normal, but of course, now we need to deliver the quarter, we need to get orders and all of that. So it's work underway, so I don't expect any major significant deviations, but it is yet to be confirmed. Operator^ Chiara Battistini from JP Morgan. Chiara Battistini^ Just a very quick question on fitness, actually. I've noticed the regional growth for fitness is very different, right, depending on the region. So EMEA negative and Asia-Pacific is very, very strong. Is it just a matter of a quarterly seasonal volatility, or is that something more that we should be reading into that? And 6% organic growth for the quarter; is that the kind of level you're comfortable with also for the rest of the year, and generally, as an outlook for this part of the growth? Jussi Siitonen^ You know, we have solid momentum; you see is quite in line back in the Asia-Pacific, and momentum seems to be going on. The market is dynamic and we are faring well in that market. We are good, we are competitive, and we have good capabilities. We now have focused on reuniting the growth in the United States. We put in place a lot of building blocks to be made in acquisitions, and of course, we did the Salesforce remodeling, which is now starting to show signs of working. And then EMEA, we are again, we need to realign growth here, and it doesn't always happen all at the same time. Some of the pipeline is more fit for some markets and we see, for example, that this the pipeline we have in place at the moment is really taken well in the United States and it's giving us the benefits. You know, we say that first, we need to turn around the business back to growth, reunite growth. We expect that to be the case now. The pipeline is good, the pipeline is solid. And then once we confirm that we can actually get back to profitable growth, then we ll see [classic] rates even more. But at this level, at least we are encouraged by the 6%, and then let's see how it is, but looking at all the initiatives we have up and coming, I think the future looks positive.

10 Chiara Battistini^ And just a second ask for a clarification on that. When you say the pipeline is maybe more fit for some markets versus others and the current pipeline is more fit for the US, do you mean because it's more digital, or anything specific in terms of other launches that we should be thinking of? Jussi Siitonen^ No. I would say that some of the trends which have taken place in the market place, if you look at the United States market, you see certain trends where for example, [Kleenex] is very, very fit [for years] and there's high demand for [Kleenex]. There are studio concepts, there is personalization there. A lot of thing which are happening there, and looks like the market is taking them really well. And also, the fact that we have just finalized the close of market reinvention. So I think our go-to market is in really good shape there. I think we can do the same in EMEA, but we need to seek when to prioritize. So it's not like we do everything always at the same time. So I expect the same trends will be global and I expect that we'll benefit from those trends also in the other regions. Operator^ (Operator Instructions) As there are no further questions in the queue, I would like to hand the call back to our speaker for any additional or closing remarks. Paivi Antola^ Thank you. In that case, we can cease the call here. Thank you all for participating and have a good day.