Rapala VMC Corp. said its operating environment for 2023 remains challenging due to the global economic slowdown and peak inflation.
The Finnish manufacturer and distributor of fishing gear and Nordic skis said in its year-end report that the slowdown has caused stores to manage their stock and left unpredictability in their ordering patterns. Rapala said the stock reduction continued through 2023 but began to decline in the latter part.
Consumer spending remained tight due to peak inflation and affected reduced-price ticket sales. Sport fishing also competed with other recreational activities, which had been limited during the pandemic.
The company’s net sales for the full year 2023 decreased 19% year-on-year to €221. 6 million from €274. 4 million. Exchange rate fluctuations had a slight negative effect on sales. On a like-for-like basis (CTX), net sales decreased 17% compared to 2022.
The company’s President and CEO, Lars Ollberg, said: “2023 started in challenging business situations as stock reduction in the market continued. We focused on executing our €6 million charge savings program and saw positive progression in the second half of the year. , either in terms of our operations or the business environment. As a result, our profitability increased in the second half of the year and our inventories decreased from €11. 0 million to €87. 5 million compared to the end of June. That’s €30. 2 million less than just 18 months ago. We pay special attention to generating hard money and boosting stock turnover through our “One More Turn” strategy. The One More Turn strategy gives us the flexibility to temporarily react to market adjustments while optimizing our company’s monetary returns. performance.
Excluding those factors, sales increased by as much as ten percent at CTX rates. The expansion is due to resilient customer demand for products such as lures, fishing lines and accessories. The acquisition of DQC International in July 2023 had a positive effect on consolidated revenues, although the overall rod and reel segment remained challenging.
Post-COVID overstocking generated through the unforeseen market slowdown is gradually deflating and freeing up the possibility of new products for retailers. North America’s economic outlook remains somewhat cautious; However, customer discretionary spending would be more stable, with a greater appetite for customer goods rather than more expensive durable items. Open-water consumables saw a 10 percent increase in sales, while the ice fishing sector in North America hurt its momentum. year of poor ice situations that impacted sales.
Poor retail sales in the ski sector, following record deliveries in the second part of 2022, would have had a significant negative effect on replenishment sales at the beginning of 2023. This also affected preseason deliveries in the first part of 2023. Second part of 2023. Favourable weather conditions at the end of the year would have made it possible to recover some of the lost sales before the season.
The interruption of concessions to third parties reduced its turnover by approximately €1 million.
The biggest drop in sales is due to the discontinuation of third-party distribution dealers, which accounted for €4 million of the year-on-year decline.
In Europe, customer discretionary spending remains cautious and stores are turning more towards buying seasonal foods and cutting pre-sale commitments, relying more on supplier inventories. The winter season in Northern Europe benefited from good weather conditions, allowing for retail and wholesale trade. Stock clearance. The company’s sales network in Europe is extensive for the industry. Overall, European distribution operations would be committed to achieving greater profitability and efficiency, and the focus is on streamlining and integrating the two main logistics hubs in Northern and Southern Europe.
In the rest of the world segment, the Australian market is expected to continue to grow, but the other major APAC markets in Japan, Korea, and China are not expected to recover until the second half of 2024. The company is confident that its APAC markets will operate in 2024 with local responsibility and a strong entrepreneurial spirit.
Segment Review
Ice fishing and winter sports retail sales remained strong during the year. Poor retail sales in the 2022/23 season are due to adverse weather situations and cautious consumers. This affected replenishment sales at the beginning of the year and pre-season deliveries in the latter component. of the year. Favourable winter conditions in Finland helped to recoup some of the lost sales at the end of the year.
Comparable effects exclude market-to-market valuations of currency trading derivatives and other items that affect comparability.
Comparable operating profit margin was 2. 5% for 2023, compared to 5. 6% last year. The reduction in profitability compared to last year is due to reduced sales, both in the open water market and in winter activities. Production lines from Vääksy and Sortavala to Pärnu would have temporarily higher prices and this is expected to normalize in 2024. The €6 million savings program would be implemented according to plan and is expected to have its full effect in 2024. although the savings program component will be implemented as planned. The benefits are expected to be offset by increases in inflationary burdens.
Reported operating profit margin was 1. 8% for the year, compared to 4. 5% last year. The reported source of operating income includes a negative effect of €0. 2 million on the mark-to-market valuation of operating currencies. Derivatives. Rapala said net expenses from other comparative-affecting parts included in reported operating profit were negative €1. 9 million, compared to negative €3. 2 million last year. These expenses would be highlighted by the restructuring of the company’s headquarters in Helsinki and expenses similar to the full integration of DQC International (13 Fishing) into existing distribution operations in the United States.
Total (net) monetary expenses amounted to €10. 2 million for the year, up from €3. 5 million in 2022. Net interest and other financial expenses amounted to €9. 4 million in 2023, up to €3. 6 million in 2022, and exchange expenses (net) amounted to €9. 4 million, €0. 8 million in 2023.
The net source of revenue for 2023 decreased to €10. 6 million to a loss of €6. 9 million, or a loss of €0. 19 consistent with participation, compared to a net profit of €3. 7 million, or €0. 10 consistent with participation, in 2022.
Operating profit for the second part of the year was a loss of €0. 4 million, compared to a loss of €1. 3 million in 2022. Like-for-like operating revenue amounted to €0. 3 million, compared to an operating loss of €0. 2 million last year.
Operating money amounted to €2. 0 million in the fourth quarter, compared to negative money of €4. 4 million in the fourth quarter of 2022.
Net source of income for the second half of 2023 a net loss of €5. 8 million, or a loss of €0. 16 consistent with the interest, compared to a non-consistent loss of €5. 0 million, or a loss of €0. 13 consistent with the interest.
Inventories at the end of 2023 amounted to €87. 5 million, compared to €99. 9 million at the end of 2022. The replenishment of the obsolescence provision reduced the price of inventories by €0. 7 million and adjustments to the exreplace rates decreased the price of inventories by €2. 2 million. The acquisition of DQC International increased inventories by approximately €3 million. The solution of the liquidation of stocks at the point of sale and the adjustment of production capacities to bear fruit in the second part of the year and inventories decreased by 11. 0 euros. million from June to December.
The net money used for investment activities decreased compared to the comparative period to €9. 5 million (€10. 7). Investments amounted to €9. 5 million (€11. 5) and disposals amounted to €1. 4 million (€0. 8). the expense relates to the relocation of production from Russia and Finland to the Rapala VMC campus in Pärnu, Estonia. Last year’s capital expenditure includes expenditures similar to moving Russian production to Estonia.
The Group’s liquidity position is good. Committed and unused long-term credit lines amounted to €35. 0 million at the end of the year. The debt-to-equity ratio decreased and the equity-to-assets ratio increased compared to last year following the issuance of €30 million. Hybrid bonus. See the “Hybrid Bond Issuance” segment for more details.
In September 2023, the Group and the destination banks agreed to waive the quarterly verification of the third-quarter monetary covenants until the terms of the next refinancing have been agreed. However, control of the third-quarter covenants expired with the signing of the new syndicated refinancing agreement on November 29. At the end of the year, the covenant leverage ratio stood at 4. 92 (limit 6. 00) and net debt at €81. 6 million (limit €95 million). to meet long-term banking requirements. The Group’s monetary position remains smart and money and money equivalents amounted to €20. 0 million as of December 31, 2023.
In terms of operations, 2024 will be the first full year of centralized production operations at our Pärnu plant. At the same time, our European distribution operations are striving for profitability and efficiency, with the focus being on rationalizing and integrating the two main logistics centres. in northern and southern Europe. Finally, the complete integration of thirteen seafood products into our strong sales network in the United States is expected to generate synergies.
As a result, the Group expects the full-year comparable operating revenue source to accrue year-on-year, with business prospects for 2024 after delivering increased operational functionality in the second part of 2023.
Rapala Group said it submitted select functionality measures to reflect the underlying business functionality and compare them between financial periods. The company cautioned that other functionality measures should not be considered in isolation as a replacement for IFRS functionality measures.
Image courtesy of Rapala
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