In the midst of reforms to turn around the business, Rapala VMC has appointed Nicolas Warchalowski as its new chief executive, effective from March 1, 2020. He has had an extensive career in international consumer businesses, heading up companies such as BabyBjörn, Peak Performance and Haglöfs.
Warchalowski is taking the place suddenly left vacant at the top of the Finnish-based distribution and fishing tackle company by the departure late last year of Jussi Ristimäki, who had worked for the company since 2007. Louis d’Alançon, chairman of the group, took on his responsibilities on an interim basis (SGI Europe Vol. 309 N° 33+34 of Oct. 4, 2019).
The change of management comes after Rapala announced a group-wide plan to save €10 million in costs through efficiencies and internal synergies, lowering operating expenses and reducing net working capital. The main goal of the program is to centralize European distribution operations.
The group raised €25 million at the end of 2019 through a bond, after its results deteriorated in the first half of last year due to lower sales of third-party products. However, revenues improved significantly in the second half, driven by good performance in North America. This led the company to post a 5 percent gain in revenues for 2019 to €275.4 million, with a 3 percent gain in constant currencies. On an organic basis, sales also grew by 3 percent from 2018.
Operating earnings dropped by 9 percent to €13.4 million. However, excluding material restructuring costs and impairments, as well as gains and losses on business combinations and disposals, the comparable operating profit rose by 7 percent to €17.8 million.
The management said efforts to turn around the business are showing results, including the reorganization of Rapala’s Indonesian lure manufacturing operation and several other changes in supply chain management. As a result, inventories decreased by 7 percent from the previous year, while net debt – without taking into account IFRS16 accounting changes – fell from €70.3 million in 2018 to €61.1 million in 2019.
Overall, the North American market last year continued the positive growth trend that began in 2018, with a particularly strong second half in North America. Revenues soared by 9 percent to €104.2 million in reported terms and by 4 percent in constant currencies, with sales continuing to grow both in the U.S. and Canada. Most product categories did well in the market. Despite some delivery issues at the beginning of the year, ice fishing sales rose sharply for the full year. Good sales of branded lures also supported the growth.
In the Nordic countries, Rapala’s sales were up by 3 percent to €56.6 million in reported terms and by 4 percent in constant currencies. Finland was a highlight, as the good trend in winter sports product sales continued last year. However, the group recorded weak hunting sales in Denmark and sluggish overall sales in Norway, where sales of third-party products tumbled.
In the Rest of Europe region, revenues improved by 4 percent to €81.3 million, or by 3 percent at comparable exchange rates. Sales were supported by the successful ramp-up of the group’s own sales operations in some of the key Central European markets following the termination of very important distribution agreements with Shimano. Russian sales remained flat, while the Baltic countries and most of the Eastern European markets performed well.
In the Rest of the World, revenues declined by 1 percent to €33.3 million, with and without currency exchange rates effects, with a positive contribution from South Africa as well as the Latin American markets.
Overall, revenues generated by the company’s own products advanced by 6 percent to €185.2 million. This was mostly driven by the North American market, with especially strong ice-fishing sales, and to a lesser extent by the Rest of Europe. Meanwhile, the group’s revenues from the sale of third-party products progressed by 3 percent to €90.2 million, lifted by strong sales in the Nordics and the Rest of Europe.
Overall, the company’s operating profit margin declined by 0.7 percentage points to 4.9 percent. Net income tumbled by 38 percent to €4.1 million.
As previously reported, Rapala has agreed to terminate many of its distribution agreements with Shimano across Europe and in South Africa by 2020 (SGI Europe Vol. 30 N° 3+4 of Jan. 28, 2019). The company said that one of its key near-term strategic priorities is to accelerate the global development of its rod and reel products. As we have already reported, Rapala has become the distributor outside the U.S. for the 13 Fishing brand of rods and reels, after acquiring a 49 percent stake in the company.
The group is looking to sell more of its own products in large European fishing tackle markets in Germany, the U.K., Italy and Benelux. As a result, the management said 2020 will be a year of transition, with significant changes in the group’s third-party products business, introducing 13 Fishing products to the markets as well as continuing to restructure its operations and distribution worldwide. It expects sales to decrease from the previous year due to a decline in third-party products sales and lower sales of winter sports items, owing to the mild winter weather in Europe at the beginning of this year. The operating profit is also expected to decrease as compared to last year.
