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Rapala VMC Corporation Reports results

Ristimaki_Jussi_0716_RapalaCEO_370_Rapala

In a ‘big fish eats little fish’ business world, results are everything. Here top lure and tackle company Rapala shares its results with.

Sales at Rapala fell by two per cent in the second quarter of 2017 compared to the same period last year. The figures were reported to the Finnish Stock Exchange, with the company’s president and CEO, Jussi Ristimäki, revising outlook and confirming: “Trading conditions remained tough in key markets for the first half of the year.”

The sales of group products remained at last year’s level, while third-party products decreased somewhat. The positive highlights for the first half were good sales development in carp business, ice fishing as well as Marttiini knives.

“The ongoing structural changes in the US retail market had a negative impact on our sales as consumers are increasingly going online. We are responding to this by making more investments into our digital presence.

“Big European markets were affected by the cold and late start of summer as well as tighter price competition and consequently sales were lagging, especially in France.

“Our profitability was down from last year following lower sales and tightening competition. Comparable operating profit decreased only marginally in group products, whereas profitability in third-party products was disappointing. Focus on working capital management is yielding results, and cash flow from operations was strong and above last year’s levels as inventories decreased to 99.1 MEUR. As a result of strong cash flow, lower inventories and the successful issuance of a hybrid bond, our net debt was a record low at 71.3 MEUR. Outlook for the whole year is cautious and our sales and profitability is expected to decrease from last year. We are executing our strategy of improving profitability, lightening the balance sheet and improving operational performance in all our business units. The transfer of some production phases from the lure factory in Finland to Estonia and Russia is proceeding well and ahead of schedule.”

 

Key figures

  H1 H1 change FY
MEUR  2017  2016 %  2016
Net sales 140.9 143.1 -2% 260.6
Operating profit 11.0 14.2 -23% 7.2
% of net sales 7.8% 9.9%   2.8%
Comparable operating profit* 11.4 15.6 -27% 18.8
% of net sales 8.1% 10.9%   7.2%
Cash flow from operations 8.1 6.2 +31% 26.7
Gearing % 46.8% 82.9%   70.6%
EPS, EUR 0.15 0.19 -21% -0.08

* Excluding mark-to-market valuations of operative currency derivatives and other items affecting comparability. Other items affecting comparability include material restructuring costs, impairments, gains and losses on business combinations and disposals, insurance compensations and other non-operational items.

 

Market Environment

Trading conditions remain challenging. Especially in the US, consumers are increasingly shifting into digital channels, which affects the retail business structures and some of the Group’s biggest customers are in financial distress. The changes have a negative effect on sales in the marketplace, but the Group has largely been able to recover the lost sales from other channels in the US. In Europe, the cold and late start of summer coupled with increased price competition in certain product categories has impacted sales.

 

North America

With comparable exchange rates, sales in North America were at last year’s level. The sales in Canada were above last year’s level due to successful sales campaigns. The retail landscape in the US is going through a structural change as traditional retail business is giving way to e-commerce. This has caused turmoil early in the year, but the market is slowly stabilising. The first half of the year’s sales in the US were affected by financial difficulties of a few bigger customers. However, sales to other retail channels increased in the second quarter and lost sales have largely been recovered. Despite these changes in the trade, the Group is expected to have kept its market share because the whole fishing tackle business is hit by the same challenges. Strengthening of the US dollar had a positive impact on the region’s sales.

 

Nordic

In the Nordic countries, the sales were below last year’s level, affected by lower hunting sales in Denmark and a challenging second quarter in Finland caused by a cold spring and the late start of the summer season. The Group’s knife factory, Marttiini, showed strong growth, supported by the Finland 100 Anniversary Knife sales. Sales in Norway and Sweden grew from last year but were hindered by some third party supply problems and late deliveries.

 

Rest of Europe

The first half year sales were below last year’s level, hurt by the continuing challenges in the region’s biggest markets, Russia and France. While the Russian ruble has strengthened, having a positive impact on the region’s EUR-nominated sales, it has not materialised into higher consumer demand. The demand is shifting into more low-end products, which has a direct effect on the sales. In France, the sales were below last year’s level, impacted by tightening competition and general consumer uncertainties. Following product portfolio changes, the sales in Poland were below last year. Business grew in the UK following the change in business model and Portugal also showed positive growth trends. After a slow start of the year in the Baltic countries, the sales grew in the second quarter supported by special campaigns.

 

Rest of the World

With comparable exchange rates, the sales for the region were below last year’s level, mainly affected by a decrease in sales in Thailand, where the market is suffering. The sales in South Africa were above last year’s level, supported by new hunting and outdoor business and sales to the Middle East and North Africa. In Australia, after a good start of the year, outsourcing of the warehouse operations temporarily affected the sales negatively. In South Korea the sales grew in the second quarter after a slow start of the year, and brought the first half of the year’s sales above last year. Currency exchange rate changes, especially the South African rand, had a positive impact on the region’s sales.

 

Strategy Implementation

The Group updated its strategy in February 2017. Following the conclusions of the strategy update, to build a solid financial and operational platform for long-term growth, the Group’s primary focus in the coming three years will be on capturing organic growth opportunities in the fishing tackle business. The Group will also take determined actions to improve its profitability, lighten the balance sheet and improve operational performance. Longer term, the target is to return to more aggressive growth track and actively seek synergistic growth opportunities also outside the fishing tackle business.

The execution of the updated strategy has started on all levels in the Group. Several organic growth projects are ongoing in all businesses utilising deep market and customer understanding. Special focus has been set to leverage our global innovation power to serve growing product categories and niches within fishing.

 

Focus And Resource

Significant focus and resources have been allocated to streamline internal supply chains and to develop better sales and operations planning to achieve lower group-wide inventories. Additionally, lean projects are ongoing in several factories. Transfer of certain production phases from Finland to Estonia and Russia is developing ahead of schedule. Following the codetermination negotiations, 50 people were laid off from the lure factory and head office. The annual cost savings will be around 1.5 MEUR, which will materialise from 2018 onwards.

The Group is investing in group-wide common IT systems to increase efficiencies and enable better end-to-end supply chain and product management. It is also making increased investments towards digital channels to exploit these opportunities stronger in the future.

 

Product Development

Continuous product development and consistent innovation are core competences for the Group and major contributors to the value and commercial success of the brands. The Group has reorganised and boosted its lure product development procedure by centralising the product development know-how and key resources to one location in Finland that serves both the European and Asian lure-manufacturing units.

Product development cycles are getting shorter, which allows faster reaction to market needs and developing trends. Product launch schedules are more flexible and can be better adjusted to target specific markets’ seasons.

The most important product launches in the first half of the year were a globally coordinated launch of Storm 360 GT Searchbait in January and the June introduction of Sufix Advance fishing line at the European Fishing Tackle Trade Exhibition, where the line received the Best New Monofilament award. Further introductions of hero lure categories were prepared for the US trade show ICAST in July.

 

Short-Term Outlook And Risks

Following the continued market turmoil and structural changes, especially in the US, the outlook for the full year is cautious. The market situation in the US is, however, expected to slowly stabilise and the Group sees continued consumer demand for its products via old and new channels. For example, pre-orders for ice fishing products are significantly up from last year in the US. In Europe, the price competition in certain product categories has increased and this will continue to affect the second half of the year. The Russian market is still expected to be under pressure, impacted by general low consumer demand. Increased political risks arising from North Korea affect consumer markets in South Korea and Japan.

The Group has launched various strategic initiatives to boost organic growth and improve cost and capital efficiency as well as operational performance in the future. These initiatives will trigger some additional expenses and investments in 2017.

Following the decreased sales in key markets and tightened price competition the Group specifies its outlook. The profitability of the second half of the year is expected to be lower than last year. The Group expects full year net sales to be around last year’s level and comparable operating profit (excluding mark-to-market valuations of operative currency derivatives and other items affecting comparability) to be clearly below last year’s level. Previous outlook expected net sales to be above last year’s level and comparable operating profit below last year’s level.

Author: tackletradeworld

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