Hidden within Fiskars' Q4 2023 earnings call lies a tantalizing clue to a silent revolution brewing within the Finnish consumer goods giant. While analysts obsess over cost-cutting measures and the Georg Jensen integration, a subtle yet powerful force is quietly driving Fiskars towards its ambitious mid-teen EBIT margin target: circularity.

Circularity, the concept of designing out waste and pollution, keeping products and materials in use, and regenerating natural systems, has long been touted as a sustainability buzzword. But Fiskars is demonstrating that circularity isn't just good for the planet – it's good for business.

Their own metrics tell the story. The share of circular products and services within Fiskars' total net sales tripled in 2023, soaring from a modest 5% to a significant 14%. This remarkable achievement is not mere happenstance. It represents a deliberate shift in strategy, a recognition that circularity offers tangible financial advantages in addition to its environmental benefits.

The implications are profound. By embracing circularity, Fiskars is lowering its reliance on virgin materials, thereby mitigating the impact of volatile commodity prices. The company is also reducing waste throughout its operations, leading to lower disposal costs and enhanced operational efficiency. Furthermore, by extending the lifespan of its products through repair and refurbishment programs, Fiskars is tapping into a growing consumer desire for durable, high-quality goods that withstand the test of time.

While the company remains understandably tight-lipped about specific financial gains directly attributable to circularity, a close examination of their Q4 transcript reveals a few intriguing hints.

Nathalie Ahlström, Fiskars' CEO, highlighted the company's efforts to enhance the profile of its portfolio by driving 'commercial excellence' and a shift towards 'direct-to-consumer' channels. These strategic levers align perfectly with circularity principles.

'Commercial excellence,' in this context, likely encompasses initiatives such as utilizing recycled materials in product manufacturing, reducing waste in factories, and optimizing logistics for a minimized environmental footprint. These efforts translate into lower production costs and an improved gross margin, which Fiskars has consistently delivered on.

Similarly, the direct-to-consumer channel provides Fiskars with a unique opportunity to build relationships with customers and offer circularity-driven services like repair, refurbishment, and even product take-back programs. This fosters brand loyalty, enhances customer lifetime value, and creates new revenue streams.

Circularity Driving Growth

While Fiskars hasn't quantified the specific impact of circularity on its 2024 guidance, the company expects to 'slightly increase' its EBIT compared to 2023. This projected growth, despite a challenging macroeconomic environment, suggests that internal initiatives, including circularity efforts, are bolstering the bottom line.

This 'silent revolution' might not be grabbing headlines just yet, but it's quietly positioning Fiskars for long-term success. As the company continues to weave circularity into its operational fabric, expect this seemingly modest shift to have an outsized impact on its financial performance, driving it towards its ambitious margin targets and solidifying its position as a leader in sustainable, profitable growth.

Hypotheses

Circularity's contribution to gross margin improvement: While Fiskars hasn't explicitly quantified the impact, the consistent gross margin improvement (190 basis points in 2023) points to circularity-driven efficiencies playing a significant role. Potential for circularity-driven revenue streams: By offering repair, refurbishment, and product take-back programs through its direct-to-consumer channel, Fiskars could unlock new revenue streams while fostering brand loyalty and customer lifetime value. Circularity as a hedge against volatile commodity prices: By increasing the use of recycled materials, Fiskars is mitigating its exposure to fluctuations in virgin material costs, contributing to more stable profitability.

Key Figures

3x increase in circular product & service sales share (5% to 14% in 2023) 190 basis point improvement in gross margin in 2023 Projected 'slight increase' in EBIT for 2024 despite challenging macro environment

These figures suggest that circularity is becoming a tangible force within Fiskars' operations, contributing to its financial resilience and positioning it for future growth. As the company continues to innovate and invest in circularity initiatives, expect this 'silent revolution' to gain momentum, delivering both environmental and financial benefits for years to come.

"Fun Fact: Did you know that Fiskars invented the iconic orange-handled scissors in 1967? Originally intended to be red, black, or green, the orange handle was chosen because the color was readily available at the factory! Today, those orange-handled scissors are recognized worldwide, a testament to Fiskars' design legacy. And now, with its focus on circularity, the company is poised to create a new legacy of sustainable, profitable growth."