Rapala VMC Corporation’s Annual Accounts 2023: Strong Cash Flow but Sales and Profitability Down From Last Year in a Tough Market Environment
RAPALA VMC CORPORATION, Financial Statement Release, March 7, 2024 at 4:00 p.m. EET
January-December (FY) in brief:
- Net sales were 221.6 MEUR, down 19% from previous year (274.4). With comparable exchange rates sales were 17% lower than last year.
- Group products sales were 208.1, down 9% from previous year (228.4). With comparable exchange rates Group products sales were 7% lower than last year.
- Operating profit was 4.0 MEUR (12.3).
- Comparable operating profit* was 5.6 MEUR (15.3).
- Cash flow from operations was 20.6 MEUR (-12.9).
- Inventories were 87.5 MEUR (99.9).
- Net profit for the period was -6.9 MEUR (3.7).
- Earnings per share was -0.19 EUR (0.10).
- Dividend proposal is 0.00 EUR per share (0.04).
- 2024 guidance: Full year comparable operating profit to increase from the previous year as trading outlook for 2024 is improving after witnessing better operational performance in the second half of 2023.
July-December (H2) in brief:
- Net sales were 103.7 MEUR, down 18% from previous year (126.0). With comparable exchange rates sales were 13% lower than last year.
- Operating profit was -0.4 MEUR (-1.3).
- Comparable operating profit* was 0.3 MEUR (-0.2).
- Cash flow from operations was 2.0 MEUR (-4.4).
- Net profit for the period was -5.8 MEUR (-5.0).
- Earnings per share was -0.16 EUR (-0.13).
* 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.
Rapala Group presents alternative performance measures to reflect the underlying business performance and to enhance comparability between financial periods. Alternative performance measures should not be considered in isolation as a substitute for measures of performance in accordance with IFRS. Definitions and reconciliation of key figures are presented in the financial section of the release.
President and CEO Lars Ollberg: “Year 2023 started off with difficult trading conditions as destocking continued in the market. We focused on executing our 6 MEUR cost savings program and started to witness positive development in the second half of the year, both in our own operations and in the trading environment. As a result, our profitability improved in the second half of the year and our inventories decreased from the end of June by 11.0 MEUR to 87.5 MEUR. This is 30.2 MEUR lower than what we had just 18 months ago. We place a special focus on strong cash flow generation and accelerate inventory turnover with our “One More Turn" strategy. The One More Turn strategy offers us flexibility to react quickly to market changes, while optimizing the financial performance of our business.
Post-COVID excess inventory generated by the unforeseen market slowdown is now gradually deflating and releasing the flow of new products to retailers. The North American economic outlook is still somewhat cautious; however, consumer discretionary spending is steadier with a bigger appetite for consumer goods rather than bigger ticket durable items. Our open water consumable products witnessed a 10% increase in sales while the ice fishing business in North America experienced its second year of poor ice conditions impacting on our sales.
In Europe, consumer discretionary spending remains cautious, and retailers are shifting more to in-season purchases and lower presales commitments, relying more on supplier inventories. Winter season in Northern Europe benefited from relatively good weather conditions allowing to release inventories both at retail and wholesale. Our sales network in Europe is one of the most extensive in the industry. Overall, our European distribution operations are engaged in improving profitability and efficiency, and the focus is to further streamline and integrate the two major logistics hubs for North and South Europe.
In Rest of the World segment, the Australian market continues to grow but other large APAC markets in Japan, Korea and China won’t pick up before the second half of 2024. I’m confident our APAC markets will improve their performance in 2024 with our local accountability and strong entrepreneurial spirit.
The highly successful North American soft bait launch of “Rapala Crushcity” has seen exceptional consumer purchasing levels and strong retailer reordering. The initial sales and order book in Europe is also very promising, and all leading retailers are supporting the category. This, backed by category leading marketing, will drive Rapala brand dominance and consumer engagement to substantially grow our long-term market share. Soft bait market provides a platform of incremental growth, and the market is generally considered larger than the hard bait market.
Year 2024 will witness our third full season with Okuma partnership, maximizing the growth opportunities. Thanks to its wide product portfolio, all European diverse fishing techniques at the right price points are covered. Okuma’s growth will be facilitated by more intense marketing support leading to market share gains.
A strategically important move to fully enter the US rod & reel market through the acquisition of 13 Fishing business was completed in December 2023. Full integration into the nationwide strong Rapala sales network was completed simultaneously. Enabled synergies will have a positive impact in business economics and in building consumer and retailer confidence with our operational excellence. The 13 Fishing “cool, US lifestyle brand” has a great long-term growth prospect within the Rapala portfolio. In 2024 Rapala’s North American business is entering also into the tackle storage segment. All these initiatives will further strengthen our relationships with our key retailers. This strategy in turn drives the mission & strategy to grow North American business and become the most trusted partner within the recreational fishing sector.
To accelerate our transformation journey, an enhanced Global Management Team was appointed. This new management team, together with several other key managers all over the world, will focus on implementing the new strategic plan for 2024-2026. An important part of the implementation process are clear and measurable projects that focus on improving profitability and working capital management.”
Key figures
| H2 | H2 | Change | FY | FY | Change | |
| MEUR | 2023 | 2022 | % | 2023 | 2022 | % |
| Net sales | 103.7 | 126.0 | -18% | 221.6 | 274.4 | -19% |
| Operating profit/loss | -0.4 | -1.3 | -69% | 4.0 | 12.3 | -67% |
| % of net sales | -0.4% | -1.0% | 1.8% | 4.5% | ||
| Comparable operating profit/loss * | 0.3 | -0.2 | 250% | 5.6 | 15.3 | -63% |
| % of net sales | 0.3% | -0.2% | 2.5% | 5.6% | ||
| Cash flow from operations | 2.0 | -4.4 | -145% | 20.6 | -12.9 | -260% |
| Gearing % | 51.7% | 77.0% | 51.7% | 77.0% | ||
| EPS, EUR | -0.16 | -0.13 | -24% | -0.19 | 0.10 | -295% |
* 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.
Rapala Group presents alternative performance measures to reflect the underlying business performance and to enhance comparability between financial periods. Alternative performance measures should not be considered in isolation as a substitute for measures of performance in accordance with IFRS. Definitions and reconciliation of key figures are presented in the financial section of the release.
Market Environment
In 2023, operating environment remained tough due to the global economic slowdown and high inflation. Slowdown caused retailers to focus on managing their inventories and caused unpredictability in their ordering patterns. This destocking continued throughout the year but started to ease in the latter part of the year. Consumer spending remained tight due to high inflation and impacted especially higher ticket item sales. Sports fishing also competed with other recreational activities which were previously restricted by the covid restrictions.
Business Review January-December 2023
The Group’s net sales for the year were 19% below the comparison period with reported translation exchange rates. Changes in translation exchange rates had a slight negative impact on the sales and with comparable translation exchange rates, net sales were down by 17% from the comparison period.
North America
Sales in North America decreased by 16% from the comparison period with reported translation exchange rates and decreased by 14% with comparable translation exchange rates. Majority of the drop comes from sales of Third Party Products following a strategic decision in December 2022 to outsource the supply chain function of 13 Fishing products sold to DQC International (13 Fishing USA). Another negative impact relates to ice fishing category in which poor ice conditions in 2022/23 season impacted retail sell-through and replenishment sales. This also had knock-on impact to pre-season shipments for 2023/24 season.
Excluding the above factors, sales increased by 10% with comparable translation exchange rates. Growth came from resilient consumer demand for core products such as lures, fishing lines and accessories. Acquisition of DQC International in July 2023 had a positive impact on the consolidated sales even though the rod and reel segment in general remained tough.
Nordic
Sales in the Nordic market decreased by 29% from the comparison period. With comparable translation exchange rates sales were down by 28%. Retail destocking continued for a good part of the year but started normalizing towards the end of the year. High retail inventories and high inflation hit the sales of summer fishing items and continued to limit replenishment sales in the latter part of the season.
Poor retail sell-through in ski business, after record-high deliveries in H2 of 2022, had a significant negative impact on replenishment sales in early part of the year. This also had a knock-on impact to pre-season deliveries in H2. Favorable weather conditions at the end of the year helped to gain back some of the lost pre-season sales.
Discontinuation of Third Party distributorships reduced the sales of this segment by 1 MEUR.
Rest of Europe
Sales in the Rest of Europe market decreased by 19% from the comparison period. With comparable translation exchange rates sales were down by 17% from the previous year. As in Nordics, the destocking at retail level continued for a good part of the year but started showing signs of normalization towards the end of the year. In Group Products segment, hook sales were down as hooks are supplied to other manufacturers in the beginning of the normalizing value chain. Okuma sales decreased due to retailers remaining cautious with allocating purchases towards high-ticket items and relying more on supplier inventories.
The largest drop in sales come from discontinued Third Party distributorships which explain 4 MEUR of the drop.
Rest of the World
With reported translation exchange rates, sales in the Rest of the World market decreased by 20% from the comparison period. With comparable translation exchange rates, sales decreased by 18% compared to the previous year. Consumers remained cautious throughout the year and discretionary spending remained low. Sales decline came evenly from all product categories. As a highlight of the area, Australia and Brazil came out strong. China and neighboring markets witnessed increased competition from local brands as Chinese fishing tackle manufacturers searched for ways to utilize unused capacity.
External Net Sales by Area
| FY | FY | Change | Comparable | |
| MEUR | 2023 | 2022 | % | change % |
| North America | 110.6 | 132.2 | -16% | -14% |
| Nordic | 27.8 | 38.9 | -29% | -28% |
| Rest of Europe | 57.1 | 70.6 | -19% | -17% |
| Rest of the World | 26.1 | 32.7 | -20% | -18% |
| Total | 221.6 | 274.4 | -19% | -17% |
| H2 | H2 | Change | Comparable | |
| MEUR | 2023 | 2022 | % | change % |
| North America | 52.3 | 62.9 | -17% | -11% |
| Nordic | 14.4 | 18.8 | -23% | -23% |
| Rest of Europe | 24.3 | 28.0 | -13% | -6% |
| Rest of the World | 12.7 | 16.2 | -22% | -18% |
| Total | 103.7 | 126.0 | -18% | -13% |
Financial Results and Profitability
Comparable (excluding mark-to-market valuations of operative currency derivatives and other items affecting comparability) operating profit decreased by 9.7 MEUR from the comparison period. Reported operating profit decreased by 8.3 MEUR from the previous year and the items affecting comparability had a negative impact of 1.6 MEUR (3.0) on reported operating profit.
Comparable operating profit margin was 2.5% (5.6) for the year. The decreased profitability compared to the previous year was driven by lower sales both in open water market and in winter businesses. Production transfer from Vääksy and Sortavala to Pärnu increased costs temporarily and this is expected to normalize in 2024. The 6 MEUR savings program is being implemented according to plan and full impact is expected to be realized in 2024, although part of the benefit will be offset by inflationary cost increases.
Reported operating profit margin was 1.8% (4.5) for the year. Reported operating profit included impact of mark-to-market valuation of operative currency derivatives of -0.2 MEUR (-0.2). Net expenses of other items affecting comparability included in the reported operating profit were -1.9 MEUR (-3.2). These expenses come from restructuring of the Helsinki headquarters and expenses from integration of DQC International (13 Fishing) fully to the existing US distribution operations.
Total financial (net) expenses were 10.2 MEUR (3.5) for the year. Net interest and other financing expenses were 9.4 MEUR (3.6) and (net) foreign exchange expenses were 0.8 MEUR (0.0).
Net profit for the year decreased by 10.6 MEUR and was -6.9 MEUR (3.7) and earnings per share was -0.19 EUR (0.10).
Key figures
| H2 | H2 | Change | FY | FY | Change | |
| MEUR | 2023 | 2022 | % | 2023 | 2022 | % |
| Net sales | 103.7 | 126.0 | -18% | 221.6 | 274.4 | -19% |
| Operating profit / loss | -0.4 | -1.3 | -69% | 4.0 | 12.3 | -67% |
| Comparable operating profit/loss * | 0.3 | -0.2 | 250% | 5.6 | 15.3 | -63% |
| Net profit / loss | -5.8 | -5.0 | -17% | -6.9 | 3.7 | -286% |
* 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.
Bridge calculation of comparable operating profit
| H2 | H2 | Change | FY | FY | Change | |
| MEUR | 2023 | 2022 | % | 2023 | 2022 | % |
| Operating profit/loss | -0.4 | -1.3 | -69% | 4.0 | 12.3 | -67% |
| Mark-to-market valuations of operative currency derivatives | -0.3 | -0.2 | +50% | -0.2 | -0.2 | 0% |
| Other items affecting comparability | 0.9 | 1.3 | -31% | 1.9 | 3.2 | -41% |
| Comparable operating profit/loss | 0.3 | -0.2 | 250% | 5.6 | 15.3 | -63% |
More detailed bridge of comparable operating profit and definitions and reconciliation of key figures are presented in the financial section of the release.
Segment Review
Group Products
With comparable translation exchange rates, Group Products sales decreased by 14.7 MEUR from the comparison period. Slow sales in H1 were a result of macroeconomic headwinds resulting in consumer cautiousness and wide destocking among retailers. The drop in sales was evident across most categories. As the destocking started easing halfway of 2023, most open water categories evidenced growing demand in the latter part of the year. As a positive note, sales of consumable type products such as lures, fishing lines and baits reached prior year sales level.
Ice fishing and winter sports sales remained tough throughout the year. Poor retail sell-through in 2022/23 season was caused by adverse weather conditions and consumer cautiousness. This impacted replenishment sales in the beginning of the year and had a knock-on impact on pre-season deliveries in the latter part of the year. Favorable winter weather in Finland helped to gain some of the lost sales at the end of the year.
Third Party Products
With comparable translation exchange rates, Third Party Products sales were 30.7 MEUR below the comparison period. 13 MEUR of the drop is explained by outsourcing of supply chain function of 13 Fishing products. Before outsourcing, supply of 13 Fishing products to then associated company DQC International were recorded as sales. Rest of the sales drop comes from terminations of Third Party distributorships and from decline in winter business sales as highlighted under chapter Group Products.
Net Sales by Segment
| FY | FY | Change | Comparable | |
| MEUR | 2023 | 2022 | % | change % |
| Group Products * | 208.1 | 228.4 | -9% | -7% |
| Third Party Products | 13.6 | 46.0 | -71% | -69% |
| Total | 221.6 | 274.4 | -19% | -17% |
| H2 | H2 | Change | Comparable | |
| MEUR | 2023 | 2022 | % | change % |
| Group Products | 98.3 | 107.6 | -9% | -4% |
| Third Party Products | 5.5 | 18.4 | -70% | -67% |
| Total | 103.7 | 126.0 | -18% | -13% |
* Full year sales of Group Products included Group Fishing Products 202.2 MEUR (2022 220.0 MEUR) and Other Group Products 5.9 MEUR (2022 8.4 MEUR).
Comparable operating profit by Segment
| H2 | H2 | Change | FY | FY | Change | |
| MEUR | 2023 | 2022 | % | 2023 | 2022 | % |
| Group Products | -0.0 | 0.6 | -107% | 5.1 | 15.0 | -66% |
| Third Party Products | 0.4 | -0.9 | 142% | 0.6 | 0.3 | 80% |
| Comparable operating profit / loss | 0.3 | -0.2 | 227% | 5.6 | 15.3 | -63% |
| Items affecting comparability | -0.7 | -1.1 | 36% | -1.6 | -3.0 | 45% |
| Operating profit / loss | -0.4 | -1.3 | 69% | 4.0 | 12.3 | -67% |
Financial Position
Cash flow from operations increased by 33.5 MEUR from the comparison period and was 20.6 MEUR (-12.9). Lower profitability and high financial costs burdened cash flow but relentless focus on cash generation and driving down inventory levels resulted in a positive result. During the year, 9.9 MEUR was released from working capital, while last year 28.7 MEUR was tied in working capital.
End of the year inventory in 2023 was 87.5 MEUR (99.9). The change in obsolescence allowance decreased inventory value by 0.7 MEUR, and changes in translation exchange rates decreased inventory value by 2.2 MEUR. Acquisition of DQC International increased inventory by some 3 MEUR. Resolving retail level destocking and manufacturing capacity adjustments started to show results in the second half of the year and inventory decreased by 11.0 MEUR from June to December.
Net cash used in investing activities decreased from the comparison period amounting to 9.5 MEUR (10.7). Capital expenditure was 9.5 MEUR (11.5) and disposals 1.4 MEUR (0.8). Significant part of the expenses relate to the production transfers from Russia and from Finland to the Rapala VMC campus in Pärnu, Estonia. Prior year capital expenditure includes expenses related to the Russian production transfer to Estonia.
Liquidity position of the Group was good. Undrawn committed long-term credit facilities amounted to 35.0 MEUR at the end of the year. Gearing ratio decreased and equity-to-assets ratio increased from last year following the issuance of a 30 MEUR hybrid capital bond. See section “Issuance of Hybrid Bond” for more details.
In September 2023, the Group and the lending banks agreed to waive the quarterly Q3 financial covenant testing until terms of the upcoming refinancing have been agreed upon. The Q3 covenant testing eventually became void as the new syndicated refinancing agreement was signed on November 29. At year-end, the leverage ratio covenant landed at 4.92 (limit 6.00) and net debt landed at 81.6 MEUR (limit 95 MEUR). The Group is currently compliant with all financial covenants and expects to comply with future bank requirements as well. The Group’s cash position remains good, and cash and cash equivalents amounted to 20.0 MEUR at December 31, 2023.
For more information on refinancing and hybrid bond, see sections ‘Refinancing’ and ‘Issuance of Hybrid Bond’.
Key figures
| H2 | H2 | Change | FY | FY | Change | |
| MEUR | 2023 | 2022 | % | 2023 | 2022 | % |
| Cash flow from operations | 2.0 | -4.4 | 20.6 | -12.9 | ||
| Net interest-bearing debt at end of period | 80.9 | 107.1 | -24% | 80.9 | 107.1 | -24% |
| Gearing % | 51.7% | 77.0% | 51.7% | 77.0% | ||
| Equity-to-assets ratio at end of period, % | 52.2% | 41.2% | 52.2% | 41.2% |
Definitions and reconciliation of key figures are presented in the financial section of the release.
Refinancing
On November 29, 2023, the Group signed new financing agreement regarding 106 MEUR senior secured term and revolving facilities with OP Corporate Bank plc, Skandinaviska Enskilda Banken AB and Nordea Bank Abp as underwriters of the facilities for the purposes of refinancing the Group’s existing loan facilities with the lenders and for general corporate purposes. The financing agreement consists of a 46 MEUR term loan facility and a 60 MEUR revolving credit facility. The term of the facilities is 15 months from the signing of the facilities agreement, subject to two extension options of 12 months each.
The terms of the agreement include financial covenants based on the available liquidity (minimum 22.5 MEUR), 12m rolling EBITDA (minimum 10 MEUR), net debt to consolidated equity (maximum 100%), absolute net debt, and net debt to EBITDA (“leverage ratio”). The absolute net debt covenant is effective for Q4/2023, Q1/2024, Q2/2024 and Q3/2024 testing periods and the maximum allowed amount is 95 MEUR, 90 MEUR, 80 MEUR and 80 MEUR, respectively. The financial leverage ratio covenant levels have been set at 6.00 for Q4/2023, 5.50 for Q1/2024, 4.25 for Q2/2024 and return to normal level of 3.80 from Q3/2024 onwards. Covenants are regularly tested, either quarterly or on the last date of each month. The risk of breaching the covenants would trigger negotiations between the Group and lending banks to resolve the potential covenant breach, and to agree on actions to rectify the situation. In the unlikely event of unresolved covenant breach, the lending banks would have the right to call all or any part of the loans and related interest.
Issuance of Hybrid Bond
On November 22, 2023, The Group announced the issuance of a hybrid capital securities in the aggregate amount of 30.0 MEUR with a fixed coupon interest rate of 12.5% per annum until 29 November 2026 (the “Reset Date”) and, from the Reset Date, a floating interest rate (3m Euribor + Re-offer Spread 9.249% + step-up of 500 bps). Payment of the interest is deferrable subject to certain restrictions. The hybrid bond does not have a specified maturity date, but the Group is entitled to redeem the hybrid bond at their nominal amount on the Reset Date, and subsequently, on each interest payment date thereafter.
The hybrid bond is subordinated to the Group’s other debt obligations and treated as equity in the consolidated financial statements. The hybrid bond does not confer to its holders the rights of a shareholder and do not dilute the holdings of the current shareholders.
The proceeds from the issue were used for general corporate purposes, including supporting the Group’s balance sheet, cash balance and improving its financial flexibility amid challenging trading environment.
Strategy Implementation
The strategic vision of the Group is to become a focused Group Brand and innovation driven recreational fishing market leader in lures, hooks and accessories globally in connection to creating outstanding experiences to global fishermen. The revitalized “Together. One More Turn” – strategy for 2024-2026 was implemented in Autumn 2023 with a strong initiative to improve profitability and working capital management while maintaining and strengthening the focus on sales, customers and consumers. In addition, SKU & category management, operational excellence and training and education of our employees continues to be the core of our priorities.
To support the execution and implementation of the “Together. One More Turn” – strategy the Group established a project called “Restore Success” which focuses on six key improvement initiatives ensuring a successful turnaround. These initiatives focus on profitability and working capital management (One More Turn) as well supporting a sustainable sales growth.
The fundamental elements of our revitalized 2024-2026 strategic plan have not changed from the previous One Rapala VMC strategy. The six building blocks are all interconnected and shared around the Group in all business units.
TEAM & CULTURE - The first strategic building block is associated with the foundation that all business units and functions strive for togetherness as a one strong winning entity. This enables the entire Group culture to become more united, collaborative, dynamic and growth oriented. New managerial changes were carried out during the year to underline that the Group continuously positions team and culture to the forefront of its strategy. With fewer management layers and agile leadership structure, the Group is well positioned in the normalized market conditions to continue strong strategy implementation.
SUSTAINABILITY - We fight together to ensure that future generations get to enjoy fishing and the great outdoors. The aim is to become the leading company in the fishing tackle industry behind concrete sustainability actions from everyone in our team to ensure that we make a real and long-lasting difference. The Group’s sustainability initiatives have steadily progressed across all key product categories.
CONSUMER - Focus on end-users is a critical part of the strategy. The aim is to lead the market and bring newest trends to the fishing industry by offering innovative and exciting products. The Group continues to put emphasis on improving its e-commerce to provide the best possible customer experience for the continuously growing digitally aware consumer base. The new e-commerce platform underlines the Group’s ambition to become more directly connected with consumers.
CUSTOMER - Relationships with key customers and winning position in local markets are emphasized with deep customer and market know-how as well as continuously investing in all sales channels. The Group has invested in premium Customer Relationship Service. During the year the Group has implemented new B To B platform in different languages.
PD & INNOVATION - R&D and PD&I functions are becoming even stronger competitive advantages for the entire Group at the same time as fishermen around the world demand new innovations to catch more fish. In order to address consumer and customer needs on a global scale.
OPERATIONS & FINANCE - The Group continues to invest in its operations to make a step-change in operational excellence, to improve working capital efficiency.
In H2 2023 the Group continued to streamline and harmonize operations and fully completed the centralization of manufacturing operations to Pärnu. Reduction of the Group’s working capital and streamlining of our portfolio progressed in a challenging market environment. In H2 2023 Group also made the first shipments of the new Crush City product launch which has proven to be very successful in the early stages. The formalization of the new revitalized strategic plan was completed in Q4 2023 and the implementation has started from January 2024 onwards.
Product Development
Rapala VMC kicked the second half of 2023 in a big way receiving major awards at two of the world’s largest Fishing Tackle Trade shows. At ICAST in Orlando Florida, Rapala VMC was awarded “Best of Show” in Terminal Tackle for the VMC Swinging Ned Jig - a great win for VMC within the Bass category. Shortly thereafter another huge win was taken at AFTA in Australia, where all new Rapala CrushCity “Imposter” was awarded “Best New Soft Plastics” and “Consumers Choice Award”.
Overall, 2023 closed on a high note for our core brands. Despite challenging market conditions in many regions core brands continued to grow with the support of aggressive 2024 product pipelines that commenced shipping to retail in early in Q4. CrushCity soft plastics led the way by providing a substantial uplift to Rapala lure sales in the key regions that got a jumpstart on the launch. Strategically Rapala entered the Soft Plastics category to drive new incremental business in lures, which was clearly realized with strong initial shipments to major customer in late 2023. The soft plastics outlook for 2024 is extremely positive.
Rapala VMC also started shipping several new and exciting products under its flagship brands. One standout was the Jigging Rap Magnum which was designed specifically for the rapidly advancing techniques in forward facing sonar. Rapala is working across all of its brands to front-run the adoption of this trend. Other successful introductions included the Rapala Mavrik and ShadRap Elite. From VMC we saw the highly successful launch of the Redline Series.
In rod and reel category, a continued European product rationalization for Okuma is in full swing to ensure the existing product ranges are optimized for the key market and fisheries. In addition to this streamlining there were notable new Okuma introductions, including all new Inspira Spinning reels. With the full acquisition of 13 Fishing completed in late 2023 plans to fully revitalize and re-launch the core categories of Rods, Reels & Combos have begun. However a deeper integration with Rapala USA sales, marketing and product development teams took shape much earlier in the year. The focus was on both updating and streamlining the US range in preparation for a more refined and focused approach in 2024 and beyond. Deep collaboration between these teams resulted in an incredibly strong multi-year product pipeline which will first be launched to the trade in April 2024.
Based on the relatively strong performance of our “core” brands during less-than-optimal market conditions the outlook is strong with a continued aggressive product pipeline and road map through next 3-5 years of new product introduction cycles. The global product development team is well integrated and working in a deeply collaborative way with our sales and marketing departments leading to a dynamic, all-encompassing approach to product development and strong market utilization across the brand portfolio.
Sustainability
Looking at our sustainability work in 2023, our focus was on adapting and preparing for the future. The major step was redefining the Group's sustainability strategy, named the Strategy of Constant Improvement, as part of the overall new business strategy. Our target is to be an industry leader in terms of sustainability work integrating sustainability work to our processes. Commitment to constant improvement echoes the significance of incremental progress, as the little streams make the big rivers. This strategy update not only better mirrors our position, and the aspirations for sustainability actions but also addresses the evolving landscape of sustainability-related legislation and requirements.
In tandem, we revisited the roadmap to achieve our predefined sustainability goals, aligning them more closely with the Group's financial situation and allowing greater flexibility in product development costs. Despite these revisions, great achievements were achieved. The year 2023 saw a significant shift in Rapala manufacturing methods as we reached a key milestone: over 90% of Rapala lure models are currently lead free. This feat required hundreds of hours of work from a team of Product Designers, Production Engineers, and Procurement Specialists. On the other hand, with the Williamson branded products we transitioned essentially to 100% of the global product range to plastic free packaging. All packages from the global Williamson range were re-designed, a process that took over two years to complete, involving over 900 SKUs. Based on recent sales history this action should reduce our plastic stream into the marketplace by two metric tons annually. Another full-scale sustainability leap, providing a more sustainable option for the consumer, we are proud of!
Moving on, we updated the Group's sustainability-related guidance documents, including the Supplier Code of Conduct, based on recent experiences. Additionally, we fine-tuned processes related to the procurement of conflict minerals (wolfram) and timber, aligning the latter with the EU Timber Regulation. Our preparation extended to the impending extended producer responsibility for fishing gear, in line with the European Union directive scheduled for implementation in the coming years across the EU-countries.
Also, to respond to the reporting requirements of the EU Corporate Sustainability Reporting Directive (CSRD), the Group conducted a double materiality analysis. To streamline Group-wide data collection and reporting, we introduced groupwide sustainability data software. The Group will publish a considerably more comprehensive sustainability report of the year 2023 than before and invest on meeting the full requirements of CSRD during 2024. The Group will also revise its taxonomy reporting as manufacture of electrical and electronic equipment has been included in the new taxonomy activities under the environmental objectives. Rapala VMC sources various fishing related low voltage appliances such as well known and reputable electronic filleting knives and electronic ice drills.
Simultaneously, a cross-functional risk assessment group has updated the internal analysis of sustainability-related business risks. Presently, we specifically consider climate change and its implications, such as effects on fish stocks and winter sports, as well as shifting attitudes towards recreational fishing, and their potential impact on the Group's reputation, as material risks. Employee well-being and commitment is also on the focus as competitive advantage to be nurtured. Our sustainability strategy aims to respond to and address the identified sustainability-related business risks and potential risks are assessed constantly.
As a subsequent event in early 2024 the Group nominated a new Senior Sustainability Manager who will drive the sustainability work within the Group to the next level. In addition to the sustainability reporting induction, Group’s sustainability function will emphasize even stronger sustainability communications during reporting year 2024.
Organization and Personnel
The average number of personnel was 1 436 (1 704) for the full year and 1 389 (1 636) for the last six months. At the end of December, the number of personnel was 1 374 (1 543), decrease coming mainly from Russia, Finland and Indonesia.
Jean-Philippe Nicolle, who is already a member of the Global Management Team and currently the Chief Financial Officer, has been appointed as Chief Operating Officer responsible for Business Performance, Finance Controlling and Internal Auditing as of January 1, 2024.
Miikka Tarna has been appointed as a member of Global Management Team and Chief Financial Officer as of January 1, 2024. Tarna has worked for the Rapala VMC Group since 2010 and is currently Deputy Chief Financial Officer.
Tuomas Akkanen has been appointed as a member of Global Management Team and Executive Vice President, Head of Group Supply Chain and Winter Sports as of January 1, 2024. Akkanen has worked for the Rapala VMC Group since 2017 and is currently head of Group Supply Chain and Winter Sports.
Päivi Ohvo has been appointed as a member of Global Management Team and Executive Vice President, Human Resources, as of January 1, 2024. Ohvo has worked for the Rapala VMC Group since 2005 and is currently head of HR and the Managing Director of Marttiini Oy.
Tuomo Leino has been appointed as a member of Global Management Team and Executive Vice President, General Counsel as of January 1, 2024. Leino has worked for the Rapala VMC Group since 2019 and is currently Group’s General Counsel, Secretary of the Board and Head of Sustainability.
Joni Tuominen has been appointed as a member of Global Management Team and Executive Vice President, Global Business Development and IT as of January 1, 2024. Tuominen has worked for the Rapala VMC Group during 2011-2015 and since 2018 and is currently heading the Group’s Global Business Development function.
All persons referred above report directly to President and Chief Executive Officer Lars Ollberg.
Short-term Outlook and Risks
Trading outlook for 2024 is improving as evidenced by better operational performance in the second half of 2023. Retail inventories are finally returning to regular levels allowing normalized flow of goods to the market. The North American economic outlook is still somewhat cautious; however, consumer discretionary spending is steadier with a bigger appetite for consumer goods rather than bigger ticket durable items. The ice fishing business in North America experienced its second year of poor ice conditions which will have negative impact on the presales of the season 2024/2025. In Europe, consumer discretionary spending remains cautious, and retailers are shifting more to in-season purchases and lower presales commitments, relying more on supplier inventories.
In operations, year 2024 will be the first full year of centralized manufacturing operations in our Pärnu facility. At the same time our European distribution operations are engaged in improving profitability and efficiency, and the focus is to further streamline and integrate the two major logistics hubs for North and South Europe. Lastly, full integration of 13 Fishing products into our strong US sales network is expected to release synergies.
Consequently, the Group expects 2024 full year comparable operating profit (excluding mark-to-market valuations of operative currency derivatives and other items affecting comparability) to increase from 2023.
Short term risks and uncertainties and seasonality of the business are described in more detail in the end of this report.
Proposal for profit distribution
The Board of Directors proposes to the Annual General Meeting that no dividend will be paid for 2023.
Financial Statements and Annual General Meeting
Financial Statements for 2023 and Corporate Governance Statement will be published in week 12 commencing on March 18, 2024. Annual General Meeting is planned to be held on April 18, 2024.
Helsinki, March 7, 2024
Board of Directors of Rapala VMC Corporation
For further information, please contact:
Lars Ollberg, President and Chief Executive Officer, +358 9 7562 540
Miikka Tarna, Chief Financial Officer, +358 9 7562 540
Tuomo Leino, Investor Relations, +358 9 7562 540
Please join the teleconference by registering using the following link: https://palvelu.flik.fi/teleconference/?id=5006479. After the registration you will be provided with phone numbers and a conference ID to access the conference. To ask a question, please press *5 on your telephone keypad to enter the queue. The teleconference will be held on March 8, 2024 at 11:00 EET.
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