CEO’s review

2016 was another year of record sales, profits, and renewal – and a year of external challenges

In 2016, we delivered again record sales and profits as we closed our 7th consecutive year of profitable growth following our Sustainable Growth Model with annual growth, annual profit improvement, and annual investment for the future. We reached several strategic milestones, including Footwear & Apparel net sales at approximately EUR 1 billion, Business to Consumer bypassing EUR 200 million, and China bypassing EUR 100 million. We continued to invest into our 2020 acceleration priorities, most notably digitalization, retail openings, and developing new products and technologies for future commercialization. We built future warehouse and operations capacity to support our long-term growth objectives. In addition to the organic growth, we made two strategic acquisitions, ENVE Composites in Cycling and EvoShield in Baseball, to continue reinforcing our leadership positions.

The year was also challenging, especially in the second half, partially due to internal reasons as we had to postpone some of the planned launches in Sports Instruments and we had a delayed impact from some Fitness product launches, and partially due to a market slowdown resulting from elevated wholesale inventory levels, and several bankruptcies of our wholesale customers in the US market. As the market slowed down, we pursued sustainable, non-promotional growth. We improved our gross margins and tightened our opex management, whilst simultaneously continuing to invest into our strategic acceleration priorities. As a further enabler for profitable growth, we started a smaller scale cost restructuring program with focus on factory footprint reduction and legacy cost elimination.

Key achievements and key improvement areas

In 2016 we continued to successfully accelerate following our strategic priorities. To name a few achievements:

• Footwear and Apparel net sales grew to approximately EUR 1 billion (approximately EUR 300 million in 2010).
• Business to Consumer grew to EUR 200+ million, representing 8% of the Group sales (1% in 2010).
• China sales bypassed EUR 100 million, up more than 6x since 2010.
• Winter Sports Equipment continued to improve profitability despite lower topline in a context of unfavorable winters.
• Gross margin continued to improve to all-time high.

We also fell behind our plans especially in two areas:

In Sports Instruments and Fitness, we invested into transformational technology platforms and the biggest ever initiative pipeline. In Sports Instruments, we faced technical challenges and market introduction delays, and in Fitness, the impact of the product launches was delayed, which hurt our short-term sales and profits. The issues are being solved, and we look forward to the 2017 roll-outs and positive impact.

Our operating cost base is too high. As growth has become more uncertain in the short-term, we need to pursue efficiencies faster. In 2016 we started a EUR 20 million restructuring with good initial results, and we will further expand the cost restructuring program for bigger opex reductions, worth approximately 100 EBIT margin basis points once the program has been completed in approximately two years. This will ensure we close any gaps versus our sustainable profitability improvement target, whilst simultaneously enabling sufficient investment into accelerated growth in the selected priority areas.

Value creation

Since 2010, Amer Sports has delivered a Total Shareholder Return of 334% consisting of share price appreciation of 270% and paid dividends invested back into the company of 64%. Thanks to our improving performance and stronger balance sheet, we have now increased our dividends every year since the renewal of the strategy in 2010, and for 2016 The Board of Directors is proposing yet another increased payout to the shareholders. In the short term, in 2016, our share price was slightly down by 6%.

Targeted acceleration to 2020

In the 2016 Capital Markets Day we called our 2020 targets, with most notably organic growth to EUR 3.5 billion, with the five selected acceleration priorities:
i) Grow Footwear and Apparel beyond EUR 1.5 billion
ii) Grow US beyond USD 1.5 billion
iii) Stepchange China beyond EUR 200 million
iv) Build Business to Consumer beyond EUR 400 million
v) Drive Connected Devices and Services beyond EUR 600 million

In three out of these five priorities, i.e. Footwear & Apparel, China, and B2C, we delivered 2016 in line with our 2020 targets. In two, i.e. US and Connected Devices and Services, we were somewhat behind due to the US market turbulence and due to the challenges with the Sports Instruments and Fitness product launches. We remain committed to driving all five areas, energized by our successes, and we are determined to fix the challenges, expecting commercial success in 2017.

To enable the longer term acceleration, we continued to invest significantly into future building blocks. We opened 27 new brand stores and several new e-commerce shops, and continued to build our global cloud-based consumer database. We expanded warehouse capacity to meet tomorrow’s needs of significantly higher e-commerce volumes both in EMEA and in the US. We recruited key talent to build capability to execute the acceleration, and we continued to drive our Corporate Responsibility efforts with broad-based improvement in our Key Performance Indicators. These investments ensure we build the capability and capacity for long-term growth and improvement, despite short term dilutive profit impact. This is what makes our Sustainable Growth Model sustainable.

The way forward: toward 2020

We have now delivered seven consecutive years of profitable growth and overall performance improvement, following our Sustainable Growth Model. This solid performance is the foundation for our future growth and value creation. Our initiative pipeline for 2017 and beyond is strong, our acceleration priorities are enabled through funding and improved capability, and we continue to focus on delighting our consumers, partnering with our customers, and building strong brands and organization. As the times are uncertain, we are increasingly agile and vigilant, driving growth where it makes sense whilst improving productivity and scale & synergy, and eliminating legacy spend through continuous renewal in all areas of the company. This is how we continue to create value, today and tomorrow.

 

Heikki Takala
PRESIDENT AND CEO

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