Good morning, and hello to everyone, and welcome to this Rapala VMC Corporation first half 2024 audio cast and teleconference. My name is Tuomo Leino, and I am here with CEO Lars O llberg.
Hello, good morning.
CFO, Miikka Taarna.
Hello, good morning.
Without further ado, I give the floor to Lars.
Yes, good morning, and good morning to everybody, or if you're in Asia, then it's a good afternoon to you. And I hope the typhoon that's in the area is not hitting you too badly. But I'd like to welcome everybody to this first half review, which I'll go through with Miikka, and we'll get into the details later on. But first of all, I'd like to say a couple of words about me being here about one year. I started a year ago in May. I came into a very challenging situation. Company was coming out from recovery, and we had a toolbox that we used to put things right in the place that matter.
Looking back on the year, I'm actually quite satisfied on the turnaround of the key issues of our debt management and our return on capital, on our gearing and our equity. Actually, the first half, I'd like to see that we have now formed a platform for further growth, and we are now much healthier than we were half a year ago or a year ago. All the key numbers have improved, if not dramatically, but still in such a shape that also our stakeholders in the finance side and also our shareholders and other stakeholders are hopefully seeing a more solid, a more united, and healthier company altogether to go further.
So, looking back into the first half, I'd like to start from my recent trip to USA. I've visited the USA this year already three times, and that's not without the reason. And the best reason is that the USA being the largest market in the world, and our relative position in that market is stronger than anywhere else in the world. And we have now seen the clouds behind us in the market. The destocking is tapering down, and on the latest statistics I have seen is that the market is back. We are back on growth track in the US, not only in the consumables, but also on the more durable items like, you know, rods and reels.
I had a long discussions with the association, American Sportfishing Association people, and all are echoing the same message: the market is back. I also met the heads of our key customers in the U.S., and the big boxes are the ones that are really making a change in the market. We have the same understanding of the situation going forward. So I'm quite prudently optimistic about the situation, but I'm also like, I'm satisfied with the achievements we did. We are relying a lot on our most valuable brand, which is Rapala.
We have moved more and more business under the Rapala brand, and we have been able to, to hold the profitability, and the sales levels with the Rapala, to, like, in a historically stable level, despite the market turbulences. The business in the U.S., in North American market altogether, has remained strong.
And I would say that the common nominator is that the stronger partners whom we have, they dictate the biggest part of the market, and our partnership with those guys is becoming better and better. And it's partly due also to our, I would say, relatively high inventory levels that allow us to fulfill their weekly needs, with 90, 95%, 85%, 87, and 92% fill rates.
I would say the fill rates and having the right products at the right time, letting our customers have a good stock turns and good return is something that will carry forward for a long time. The European market we faced earlier like relatively big challenges, and we've did now a good turnaround in the European continent, which of course consists of a lot of different countries and a lot of different markets. But we have been improving profitability and efficiency, and also the inventory levels that were a bit of a challenge before are now in a much more comfortable level.
One of the things that took us also by surprise a year ago was the manufacturing transfers from Finland and from Russia to Estonia. We got some unforeseen surprises which affected our profitability pretty badly. But now all these transfers are concluded, our quality levels have been intact, and our efficiencies have increased to satisfactory levels.
We also are now adding a satellite factory to Estonia to stabilize the situation which was a bit volatile, especially with the returning Ukrainian workers that were going back to their home country. So now we are having and adding this satellite factory, assembly factory to a place which is, like, supported more by local employees.
Looking to the One More Turn strategy that we established last year, I think this has been one of the key issues to improve our situation in the debt, in the return of capital, in the gearing and in the equity, as well as the customer service and fill rate levels. I'm very satisfied about this strategic action, which has improved our profitability and our working capital management. The start of 2024 was a bit of a challenge. January, February, we had to destock some of our older inventories, which affected the profitability somewhat, but I would say from February, March onwards, our sales been on a good trend.
Thanks to those sales, our sales improved to EUR 120 million, and our profitability improved 10%-15% to more than EUR 6 million, which is very promising. Also, our inventories decreased 15% from already reasonable levels. I say reasonable because only a while ago, our inventory was EUR 125 million. Now we are looking at 85 million, so it's a staggering 35% decrease in inventories, which is one good reason why, following last year's great cash flow, we already ended up the cash flow at EUR 18 million positive on the first half. So thanks to everybody for this great achievement.
I'm coming to the back of my review, but I couldn't have the review without mentioning the greatest launch of all times in Rapala history, which is the soft baits, the CrushCity. Some people call it the jigs. But this jig market or the soft bait market is generally considered as much larger than the hard bait market, where Rapala has been a market leader on the hard baits for decades. And now the brand strength has been used to make us already in the top five soft bait seller in the US. This didn't come without sacrifice, and this sacrifice also affected our profitability.
I would say that, like, we didn't see anything close to full potential of the CrushCity. The sacrifice, what I'm saying, what I'm meaning is the air freight. We air freighted a big part of the CrushCity into the market, which is now tapering down, and now the capacity, the overall demand and under capacity resulted also in very low fill rates. But at the same time, our air freight allowed our customers to get superior sales at the full margin and still, even with low fill rates, they have a very, very good sales history now when they are planning for second half of 2024, and especially 2025.
They will, they will have, we will see a very strong inflow of CrushCity orders as, as the customer understood that we, we, we suffered on the expense of, of, letting our customers to have a, a great results on, on CrushCity. And the buzz on the show, I came from the ICAST show, the largest tackle show in the world.
I, I discussed with the key customers, I discussed with our pro fisherman, and I discussed with, with many of our, head reps, our sales representatives, and they were thanking me with two hands for making, making it possible for Rapala to make, really a crush into the market in this, the biggest lure market in the world. And not only in USA, the CrushCity was a winner.
I'm witnessing testimonials from the biggest customers in Australia, and the biggest customers in Europe, and also now the leading customers, both in Canada and both in USA. And they are saying that, "Guys, we made a change. We made a mark." The talk of the show was the CrushCity and the new items we are witnessing here.
So enough of this CrushCity, but a bit negative news I would have to say came from our ice business, where we suffered a second bad year in a row. This could have a silver lining, hopefully so. We have high inventory still on our ice business. The life cycles of the products are long though, so we have a healthy inventory.
But, if we get a good ice year, we'll see a nice half too, but that remains to be seen. On the European side, and on the rods and reels side, I'm happy to see Okuma coming back to the growth path. And also I'm really happy to see the deep losses, I have to say, that we encountered with the DQC company. They are finished.
They are finished, and we have cleaned the company, and the 13 Fishing sales will now provide more profit and more sales into the pool of the Rapala branded products. So, all in all, I'm satisfied on the first half, but I'm not happy.
I'm challenging our people that we, we have now a machine that's ready to take much more business, and we have much more buffer to take more business, and our people are ready to take more business. And I'm, I'm optimistic about the outlook. I still have a prudent outlook for the year, and we keep the prudent outlook.
We are expecting a better result, and that our profit will increase from 2023. The trading outlook is, we say it's reasonable. If I look at only May, it's good, but like, let's keep it as reasonable. The economy is holding, inventory is going down, and the retailers' inventories are going down.
In all the markets, I see encouraging messages that we'll be making a good, reasonable, or even better results than anticipated. But I want to be careful and not over-promise, but with these words, I'd like to say that I'm proud of our people, I'm proud of what our team achieved, and I'm here to support also the next step. With these words, I'd like to pass the word to my brother-in-arms, Miikka, our CFO. So Miikka, thanks for this year, and let's make sure that we are in good shape for meeting the upcoming challenges of constant growth.
Thank you, Lars. I will now walk you through the slides and the first half profitability and review. Let's start from the first. Let's move on to the next slide. Profitability improved in a recovering market. Our sales landed 2% above prior year, so EUR 2.6 million of more sales.
Our group product remained strong, and sales grew in the group product segment, and they were 96% of our total sales. We saw improving retail activity, also following the easing in the inflation. And it was noteworthy that consumables improved much more from prior year, while higher value items, such as rods and reels, are only on a back path to recovery.
Retailers and consumers both remain a bit cautious, especially on the high-ticket items, but we saw towards the end of the first half of the year that the appetite, retailers' appetite to getting stock was, improving. Also, we saw the trend from pre-orders towards in-season replenishment, which also impacted our timing of our sales from the beginning of the year to more towards the end of the reporting period.
Comparable operating profit improved to EUR 6.2 million, so improved 16% from prior year. We made about EUR 1 million more of operating profit compared to prior year. And profitability improvement was driven by higher sales and especially in the open water markets and in the consumable products there. Our sales margin was under pressure.
It decreased slightly, but at the same time, we continued to put a lot of emphasis on operational efficiency, which enabled low operating expenses, and we were able to offset the slight decrease in our sales margin. Related to these operational efficiencies, the EUR 6 million savings program continues, and we have added new line items to the savings program as part of the savings was offset by inflationary cost increases.
One of the big things that we did and also published a separate stock exchange release on that. So we are bringing decision-making closer to the local markets and defining clear accountabilities, streamlining the organization, and removing matrices or extra layers in the management structure. Following this, our ExCom was reduced to 8 members. This actually, I must say, was a very smooth transfer.
The transfer of duties was planned well, and it was executed well, and the people moving outside from the company have been very cooperative in the transfer process. Main thing is that global roles were more or less discontinued and moved close to where the sales and marketing activities happen in the regions and in the countries.
Our inventory landed at EUR 84.7 million, which is down 14% from prior year, or EUR 14 million, roughly. The inventory was EUR 3 million below year-end level. Moving on to the next slide on the short-term outlook. We reiterate our outlook as what we published at last year-end. The trading outlook remains reasonable, and destocking is tapering down in most markets. The U.S. economy is holding and entering into a modest growth mode.
Higher value durable items in North America have started recovering, and actually the sales growth in these higher value investment goods have surpassed the growth of consumer products. In Europe, the results of this first half of the year are very encouraging, and we will continue our work to improve the profitability and efficiency, and we have a lot to gain still in this market area.
In the winter businesses, the upcoming season, the pre-sales for the upcoming season are somewhat behind expectations. There was unfavorable ice conditions in the North American market, which left the retailers with high inventories. And in the European side, also, consumer cautiousness towards high-ticket items will impact the ice winter businesses. On manufacturing and supply chain side, we are happy to happy that our production transfers have been concluded, and efficiencies have increased to satisfactory levels.
The work continues still on the efficiencies of the manufacturing. And definitely a good thing that our product and production quality has remained high despite the transfers. More on our business risks, I refer to our H1 report. There's a section for business risks, but there is no additional business risks identified compared to the prior, and I would mention one as one being the geopolitical tensions, which might impact global trade.
Moving on to the next slide of key figures, our reported operating profit increased to EUR 11.2 million from EUR 4.4 million last year. And this, following this, our earnings per share was 0.07 EUR compared to -0.03 EUR last year. And there is a big one-off item included in these figures, the Canadian real estate sale and leaseback transaction.
Our comparable operating profit, our relative profitability improved by some 20% from 4.5% to 5.1%. Let's move to the operating environment per geographical region. In North America, sales were up 6% with comparable currencies, and here, the newly launched Rapala CrushCity soft plastic lures contributed significantly.
Also, following the CrushCity soft plastic sales, our VMC jigging hook sales were up by a decent amount. Overall, the open water categories all witnessed growth in the first half of the year. The only category within the open water market was hard baits, which was impacted by a trend shift in fishing technique, which favored soft plastics over hard baits.
Replenishment sales remained robust with big box retailers, which dominated the market, and the replenishment sales remained strong until the end of the reporting period. 13 Fishing integration has been fully concluded and done, and that contributed positively, but was held back by existing retail inventories. 13 Fishing items are more of high-ticket items, investment goods, so explains part of the slow sales.
Ice fishing sales were slightly higher than prior year, despite the second consecutive poor ice season, which held retailer inventories on a higher level. In the Nordic segment, the sales grew 1% from prior year. Here, the retailer's inventories returning to normal level was somewhat slower than in the other regions, and also, general economic conditions impacted sales negatively. Although, despite this, demand for consumables, low price tag items improved.
Our focus on these consumable products, Rapala lures and other Rapala branded items, increased the sales. Also, our Nordic market has been catching up to previous year, thanks to better availability and, again, strong focus on these core products. Our winter sales in this region remained at our prior year level. In the rest of Europe, sales were up 3% with comparable currencies.
And here also, we can see the impact of CrushCity increasing the sales, but as well, also on the carp fishing side, Dynamite Baits sales grew after putting a lot more emphasis on that brand. We also saw a nice momentum for Okuma. Okuma sales returned back to growth path after some difficult years with the destocking and challenges in high-ticket items.
France, our biggest market in Europe, sales were supported by novelties and early seasonal order deliveries. That compensated for poor weather conditions in many areas in France. Germany has continued its strong growth, recovery, becoming one of the largest European markets. In this region, we had some termination of third-party distributorships, which impacted the sales negatively.
So without these, the sales in the region were actually up by 6%. Rest of the world, sales in comparable currencies dropped by 5%. Sales were down in most markets, and here we could see the macroeconomic headwind and low discretionary spending. Asian market suffered from weak currencies, which favored locally produced products over imported goods. Excuse me. In Latin American markets, sales were partially postponed to second half of the year due to late deliveries from third-party suppliers.
In Korea, we successfully launched Okuma, which brought incremental growth, and the soft plastic CrushCity range were very successfully launched in the Australian market. Moving on to the next slide, we had another good year of strong cash flow in the first half of the year, so following the strong focus on cash and working capital management.
Inventories decreased at 14% from prior year, resulting from the resolving supply chain disruption and retail level destocking, and also from our controlled inventory reduction, which is taking place, adjusting manufacturing capacity, improving operational efficiency, putting emphasis on sales and OP, S&OP processes. The acquisition of 13, DQC International increased the inventory value by some EUR 3 million. And cash flow from operations landed at the same last year level, and here we can mention the non-interest-bearing liabilities, which landed on a higher level.
So emphasis was put on working capital management on that side. Moving on to the next slide, our gearing decreased and our equity to assets ratio increased. These are mainly coming from the issuance of the EUR 30 million Hybrid Capital Bond. And our strengthening of our balance sheet continues together and following these working capital improvement initiatives, such as the One More Turn project.
Liquidity remains good. We had EUR 27.6 million of cash and undrawn committed long-term credit facilities of only EUR 1 million. Our net debt landed at EUR 59.9 million, which is EUR 38.1 million less than prior year. Asset disposals decreased net debt by some EUR 8.7 million, and this major part of this comes from the one-off sales and leaseback transaction of the Canadian real estate. We also extended our facilities six months, and our leverage ratio landed at 3.33 at the end of the period. So we are compliant with all the financial covenants and expect to comply with future requirements as well. Thank you.
All right, now we are open for questions, and I think we have quite a lot of questions in the chat already, but we could first take any questions on the lines, if there are any.
If you wish to ask a question, please dial pound key five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key six on your telephone keypad. The next question comes from Samu Wilhelmsson. Please unmute your microphone.
Yes, can you hear me?
Yes.
Yes.
Yes. Perfect. Yeah, so Samu Wilhelmsson from Nordea Credit Research. I have two questions. First of all, are you able to quantify in more detail that what actually was the relative magnitude of the operational efficiency measures on the profitability, given that the sales margins decreased slightly? So for example, would you say it was a zero sum or, or something else?
Well, as you can see from the figures, we improved from prior year, so the margin came down slightly. So actually, in the operational costs, we were able to reduce the cost compared to prior year.
Oh, all right, I get the idea. Thanks. Yeah. Then the other question I had that you said you kept your prudent outlook on increasing comparable operating profit this year compared to last year. But then again, you said that H2 might be quite decent, depending on the ice situation. So does this, for example, mean that you aren't expecting any, you know, orders to slip from H1 to H2, given that you stated that the pre-orders are below your expectation for the winter season?
Yes, maybe I'll let also Lars to comment, but the winter business, yeah, the pre-sales are somewhat behind expectations. So that's one reason to keeping this prudent outlook. That's for one. And of course, whether then ice and winter comes early or late, that's a thing that we will then, of course, follow closely. But the prudent guidance is kept at this point in time.
Yeah, the magnitude of the drop in the ice was actually significant compared to past years. We saw this year 75% less sales in the ice segment. And these are also high-ticket items with the lithium battery-operated ice augers and such. And once the turn comes, it's a tsunami, but we want to be prudent because it's weather-related.
But all things considered, is it gonna be a third bad year? We know all about the global warming. At the same time, the global warming has a tendency also to mean extreme weather changes in places. But we are not betting on a good winter or bad winter, we are prepared for both. So, I have my fingers crossed, but that's weather-related. It is something that we can't control, but we are prepared for both options.
All right. Thanks. No question from my side.
The next question comes from Thomas Westerholm. Please unmute your microphone.
Yes, Thomas Westerholm here from Inderes. To start off, how do you feel about the current retail inventory levels? Are they happy with where they're sitting right now, or are retailers still driving down inventory levels?
I think, yeah, Thomas, thanks. It's that one key quick question for us, how do the retailers refill and what's their old inventory status? I'd say that the old bad inventory is in the past, generally speaking. I'd say that now we are looking ahead on a good stock turns from the retailer side. And during my visits to most of the continents, from Asia to North America and Europe, I'd say we are back on track on this one. Of course, exceptions allowed, but started from Australia to then to North America, I'd say we are not too bad on this now.
That's good to hear.
Yeah.
Just to help us understand the seasonality of your business this year. Do you feel like there's been deliveries postponed from H1 to H2 this year?
Well, at least I can comment on that, as the pre-sales is more maybe geared towards the in-season sales. And the sales, we had good sales in the last months of H1. So again, it comes to a weather-related question, whether the weather how does the summer season continues, that how long does the replenishment sales keep up? I would say on a high level, yeah, this year, compared to last year, our sales were like, I would say, one or two months timing of the sales was one or two months behind of last year. But again, difficult to say how long the summer and the replenishment sales keep up.
Thomas, I would like to add here also one, is it the peculiarity or like a uniqueness of the tackle business, is that this is a business of small streams. We sell a lot of products every day. Like, I've given an estimate that we sell 150,000 items every day. Our average prices are between 5 and 10 EUR. And if you average our sales out like EUR 1 million per day, we are seeing that we are shipping every working day, like 150,000 to 200,000 items. And then getting the right products into the right place in a very fragmented markets from Australia to Canada, of course, it's a bit of a challenge.
But, like I had a question here also, like, came in about like, what was the key reason for us missing from the estimates of the, of the Q... Especially the Q2 results? And, my simple answer is that we missed a little bit of sales. Not much, but we, according to our own targets, we missed a little bit of sales. And with the high profitability we have on a gross level, that tickled down to tend to the levels of EBIT growth that we were at best hoping for.
So we are now putting more emphasis on pushing the sales more, keeping up with the good gross margin we have, and I'm optimistic about the future. But at the same time, I have to say that, like, the products flow all the time, and the availability is one of the keys for keeping up the partnership with the key customers.
Got it. If I can just sneak in one more question: So what are the drivers that put pressure on your material margin or the material cost relative to sales? It feels like with the higher SKU toward your own products, I feel like it could have been higher than during H1.
Yeah, I'd say one key reason was really the air freight. The air freight, which, like, we got a new freight cost from Europe to North America and all- but then the Asian air freight and the sea freight also has been increasing. But air freight on CrushCity was actually pretty hard for us. Now, it's stabilized. I don't see any more air freight coming in, but at the same time,
I say that it's an investment well made, because as mentioned in my opening, the sales history of CrushCity is a platform on which the customers, without any earlier sales history, that they are gonna use this history for placing the new orders. That's what the sales reps were thanking me about, because the forecasts and the estimations for 2025 and partly late second half will now witness a really strong growth on CrushCity on regular margins.
Got it. That's all for my behalf. Thanks.
The next question comes from Joonas Häyhä from OP. Please go ahead.
Yes, thank you. It's Joonas Häyhä from OP Financial Group.
Hi.
I have a couple of questions. Firstly, you talked about the, the replenishment orders coming in season, as you've said in the, in the previous call, some five or six months ago. So dealers are keeping a tight inventory policy still. Based on the report, I get the impression that your ability to supply has been quite good. So firstly, is this the right interpretation?
Yes, this, this is correct.
Thank you.
This is correct, especially in North America, where the game is played, so to say, we are. I'd say that we are the top supplier in the industry. And like, if I may have a little bit longer reply on this, I'd like to say that the being and becoming and improving to becoming the best partner for our customers, this is one of the keys for us to fight against the house brands, which per se are the largest and the biggest single risk in the largest markets. Where the big boxes, where they are dominating the retail, they are growing, growing. They want to grow their house brands' private labels.
They need the key brands in their stores, too. They can't survive. They don't become IKEA. These guys, because of the fragmented style of the fishing, they need leading brands, and we will make sure that Rapala and our brands, we will be the leading brands in each category. Because otherwise, if we are not taking care of the innovations, or if we are not taking care of the marketing, and if we are not taking care of getting customers popping and coming into their stores, we could be doomed.
But as long as we take care of customers asking for our products, our retailers, they will keep on selling our products, and that's for two reasons: First of all, the Rapala prices that carry or the Rapala or the Storm Sufix, they carry a brand premium. So of course, our products are somewhat more expensive than the private labels, which actually is exactly what these large big boxes want.
They want the price difference of the branded products to be reasonably high, so that their own house brands look like a better value or better buy for those price-conscious customers. They then have the right to pick, like the original, the one that they are sure to perform, or then a less less pricey option. And only the ones that carry the brand premium and the brand prestige are good enough to make also the house brands then more kind of credible. You cannot compare otherwise this product. The second reason why
Why these big boxes, they want to keep the premium brands and the good brands in their stores, is that they will no longer use our brands as a in the discount baskets. When they sell our products, they get the full margin. And when consumers are coming like in crowds of asking the you know the likes of the new Rapalas and the you know the the CrushCitys and everything, the new Sufix.
Sufix just won the Best of Show also in USA. That's where they make a lot of money. That's why we will keep on the top of the wave also in in all the key markets. And I see this as a global trend. Marketing is our key tool, innovation is the number 2 tool, and then our good service level number 3 tool for keeping us on the top of this industry for the years to come.
All right, thanks. That's, that's very helpful. And maybe, maybe just to continue on the same, same topic, so the order cycle change that you've seen. Would you say that you've even benefited from this? And here, I'm thinking maybe that if, if smaller competitors haven't been able to supply as well as you have, how, how, how should we think about this?
I'd say so, yeah, prudently, I'd say so. But of course, like fishing being a very also like a nationwide, even, even in Finland, north of Finland, south of Finland, or, or even in Scandinavia, you know, Norway, Finland, totally different, market. So there's always room for, for local specialties and, and, you know, for this river bend or this lake, you know, got the specialties. But across the board, being a global player, I'd say, I'd say that the, the fill rates, and the margin and the GMROI, our customers are doing with our product, that's the key factor. And I think that we've been gaining there. And to continue more-
Thank you.
More to continue one more thing, that one of the key factors that our customers are judging products, which is better and which is a product that gains more space is the GMROI. It's a gross margin return on investment, which basically means that how many turns they get on a peg. And that's when they expand then the space allocation for those products. And I'd say that the GMROI for our group products are, we are among the best, if not the best for the customers.
Okay, thank you. Then a couple of more maybe related to third-party sales. Those sales declined, apparently due to own deliberate actions to end contracts. So maybe a question on this front, is there further changes to be made in the portfolio, or have you done those already? Is that front looking?
To me?
Yeah, very relevant question. Thanks for asking that. I think we are coming to the end of that cycle that we started a couple of years ago. So this should be now, of course, we saw the 13 Fishing-
Okay.
Products being,
That was the biggest change, yeah.
That was the biggest change.
Yeah.
Then we had some minor ones. So we have some minor ones, and in the Nordic winter business, the ski category, there we have also still complementing distributorships. But I think the biggest movements are now done.
Yeah, okay. And then, you mentioned the trend shift, at least in the U.S., where you see, where you saw a good demand for, for these soft lures versus the, the hard baits. So just wondering if you could remind us, what is, how is the sales margin between the soft lures and the hard baits, if we think about the U.S. market?
Yeah, one of the, one of the drivers for, for actually, we could say that, that what, what made also CrushCity to become like the top, top, brand for, for this, category is, is also a recent, new technology, that we are witnessing. As always, like most of the trends, they start from North America, and then they roll on to other markets, and that's called a forward-facing sonar. Normally, when, when you are fishing from a, from a boat and, you know, you, you have a, a sonar, like a ... what's the right word in English?
Sonar.
Sonar, yeah. So that's kind of scaling down on a cone type of angle. Now, these new items from Humminbird, from Lowrance, from Garmin, they actually face the picture to the front of you. And when you have a view in front of you, it actually draws you a picture on the screen of the fishes and at what depth and at which length they are. And so instead of people casting the lure into the water and trying again, and trying again, and trying again, you actually are now going for a seen target.
That trend, that technology allows then the jigs to be like the most accurate, where you can control the depth from anything from, you know, from right on the surface to even, you know, 15 meters deep. And this trend kind of took the market by storm. Also, when I was talking to some of the retailers that how much of the sonars are nowadays with the facility of forward-facing, they say, "Oh, you know, I don't know, 70%-80% are these forward-facing sonars." I don't think that this will replace the traditional type of fishing, and I'm sure that also the hard baits have a temporary dip on the consumer sales.
Because still, the boat fishing is only like about, say, 30% of the fishing. The shore fishing is as is, and Rapala is there as strong as ever. So I'd say that the outlook for the future and the trend is actually giving us an upper hand. Also, the reason why Sufix won the best of show with the Sufix Revolve fishing line is that this line is dedicated to the forward-facing sonar technology.
Okay, thanks. And then finally, regarding the outlook, I get the impression from the comments that end demand seems to be improving, at least for the higher value or higher priced discretionary products. Is this the case also for consumables? And what do you think are the drivers for the improving end demand?
Well, yeah, we have been saying that like, the drivers for the change earlier were the consumables, where people were, you know, just buy new line, new lures, you know, and using those with the existing rods and reels. That's true. But now, on the last month or so, we've seen the change. Is it a kind of a stable change? Is that now the trend that people start replacing their rods and reels? But we saw already in May on the industry statistics that the growth, actually, of rods and reels sales exceeded the growth of the, you know, terminal tackle lures and lines.
The overall January to May sales was 4% in North America, where the lures, lines, terminal tackle growth was 5%-6% in May, and actually, the rods, reels were already like between 6%-7% growth. Is this holding? We don't know, but this is also why it's giving me confidence of the future. And now, the North American 13 Fishing launches we had are also like, 8 of 10 of the big customers are lining up the new 13 products into their selection. That gonna be delivered partly in H2 and then predominantly in 2025. A lot of positive signs, but we want to be prudent.
Yeah, maybe just to clarify, what about the consumables? If we forget about the rods and reels and such, how is the outlook for the end demand regarding those? What kind of signs are you hearing from the retailers and other industry sources?
Well, in the U.S., I think we are entering into a lower growth mode, so still growing, but more of a modest growth. As said, rods and reels leading the growth. In Europe, we witnessed good increase in our sales, which also reflects in the consumer demand.
In Europe, I think we also gained a lot from our own internal reorganizations and these operational efficiencies, being closer to the retailer, serving the retailers better, doing better, precise marketing towards the consumers. So, there, whether the market is growing or not, or whether we are gaining market share, I believe it's both in this case, that the European consumers are going back to the stores and using their discretionary money on the consumables. But also, I believe here that we are kind of coming back a little bit with our improved operations to gain market share.
Also on the total market, we saw a 35% increase on female fishermen, and we are seeing a 70% increase in the Hispanic. And that's also one promising, promising sign. But at the same time, also, the landing net is a little bit leaking. We are also losing consumers. But overall, our estimation is now that, like, in North America, USA, we have—we are back to about 58 million fishermen from COVID, crazy COVID years, I think we were 68, we went back to 48, and now we are back to about 55, 58, even to 60 million. So many signals, many positive signals, but we want to be prudent.
Yeah, okay. That's all for me. Thank you.
All right. I think that was the last question on the lines, and then we can move on to the questions on chat, which I will read through from here, and then we'll answer them. So the first question is that the Q2 results were below analyst estimates. What is, in your view, the number one reason for this miss?
We missed a little bit sales. That's the key reason. With the high margin, it trickled down then to a little bit lower profitability than we were hoping for. Sales.
Right, then we have a couple of questions about M&A, the mergers and acquisitions. First of all, first question is that, is M&A on the agenda for H2 2024? And sort of like, to add on this, that what kind of M&A targets would you consider in the near future?
At the moment, we are not considering this one. Of course, like, the table is full of offers, as probably in any industry. We rather are looking that are we happy with what we have? And should we consider also maybe some divesting, perhaps, but that's another question. But no, we are not, we are not active, we are not active on this front.
Then a question about Canada, one-off results impact from Canada. Can you elaborate on this? Maybe Miikka can answer.
Yes, so our office and warehouse premises in Canada, near Toronto, that was a sale and lease back transaction, so we stayed in the same premises. It was a financial transaction and resulted in a one-off gain, which is included in that 8 million sum that we showed on the gain on asset disposals. So that was a financial transaction in strengthening our balance sheet.
Right. Thank you. There's a question on sustainability, that is, is there any new ESG initiatives planned in the foreseeable future? And I can maybe answer this. First of all, at the moment, we put biggest effort on meeting the requirements of the CSRD reporting. It's a big task for us, as it is for everyone else, and we are on the sort of like first wave of companies reporting based on the CSRD, and we do not have a sort of like good history on reporting, so it's a big effort on us.
I have to say that it'll be also easier for us to set good and measurable initiatives in the future when we have good reporting year as per CSRD once behind us, and this year will be sort of like zero year for us, as we'll measure the initiatives pretty much based on this year.
But we'll be definitely doing more, and I'll urge you all to go to the Rapala VMC's renewed sustainability site on corporate site, which also includes the sustainability initiatives, which are divided into the E, S, and G. So going forward, is there growth potential, potentially in price increases? Is the customer ready to pay for quality in this market environment?
Yes, for sure, there is. I think that the key point here is that when we are bringing out new products, that we price them right. That's gotta be profit-driven pricing, strategic pricing, and not cost up. That is like in a company that has 10, 15% product, you know, new sales product every year, that's very, very important. Getting then the prices up from existing products depends, but that's much harder.
It's pretty hard when we are on a price point, price point business, and then we are also pressured by the house brand, as mentioned. Then, it is more challenging to substantially grow the consumer prices. I'm looking now into a more stronger and heavier robotization, automatization in our manufacturing side to improve the profitability, not to jeopardize our big volumes on our key items.
Right. Are there any potential negative drivers for net sales in H2, or are you expecting growth track that is almost certain?
I think in this respect, we covered that question when, during the last questions from the other guys.
Going on, are you satisfied with the current group capital structure, or could we see changes in the structure later this year?
We, of course, monitor our capital structure, and now we are on a path to strengthening our balance sheet, releasing working capital, and that's the path that we will continue going forward.
Right. Recent changes in the management team structure, how have these been received in the company, and has the transition process been successful? Any highlights to point out?
Yeah, maybe, like, the driver for this, of course, was our, I would say, the reduced sales, and then also, that needed also cost structure changes. And then, the second one was that we have also transformed our strategy from more global to regional. And, with this thought process and with this strategy process, we basically removed all global roles.
I removed one global layer except the finance, the global finance, so global HR, and global PD, and global IT. And so those positions were removed, and thereby then the changes were in place. And this has gone through quite well because everybody understood also that it was a necessity, and I don't see any basically any negatives following this.
All right. Any new business risks that you may have identified after the previous result publication?
Maybe, of course, the political environment. This is unforeseen. We can't know what's gonna be happening. And of course, top of mind here is the presidential election in USA. Is it gonna be somebody or somebody else? And if it's gonna be aggressions towards China, we will see duty barriers building up. In this respect, if there's gonna be a new trade war between China and USA,
I'd say that Rapala is better equipped to go through this storm, so to say, because of our strong European manufacturing base. In addition, we have a strong base in Taiwan. We have increasingly stronger base in Vietnam, and I'd say, compared to our key competition as well as the house brands, we are much less vulnerable to the so-called China risk.
Yeah. And, in which geographic markets do you see the most resilient customer for your products?
America. America. Both also, I say Americas. We've been actually pretty successful in South America, Mexico, Chile, and Brazil. I see that those are also very resilient. North America, Canada is back. Canada was a bit not in the ropes, but like, they had some troubles. Now I see Canadian market coming back. Internationally or this side of the pond, I say we need to put more emphasis on our home market, Finland.
We haven't been strong enough here. Finland, Sweden, good markets. UK has witnessed good growth potential, and also I'm very optimistic about Australia. Australia should be same size market than Canada, but in Australia, we are only half of what we do in Canada. I'd say that like, as a pastime sport, fishing will hold its base, 250 million global anglers are there and are not going anywhere other than fishing.
Yes. Then I have another geographical question on France. How do you see the macroeconomic indicators and other signals in the French market area, and are you worried for these?
Well, this question I saw the question, and I was thinking that from where we are looking, it took me a bit by surprise. I haven't noticed anything noteworthy in our business, only the financial strength of our customers, our retailers, if that's gonna be affected somehow. But I think France has been also nicely growing on the past years, and I can't actually answer this in a deeper way than the question took me by surprise, and it means that we haven't seen anything, we haven't witnessed anything that would be jeopardizing our position in the French market.
In your expectations, what is the most promising growth area for you in the late 2024 and early 2025, geographically and product-wise?
Well, of course, the king of the hill is CrushCity. And then, like, I've been simplifying some of the slogans within our company. The One More Turn is a kind of overall improvement slogan, but the other one is like an all on red. We have to use the Rapala, the red logo of Rapala, as the locomotive, as the magnet that drives all the other brands in.
So I'd say that the Rapala is as strong as ever, and the CrushCity, in addition to that, it's letting us to jump into the largest single lure market in the world. It's also, I have to say, making the Rapala brand younger. Our pros, our most prominent pros, they are younger guys, really active guys, driving fast boats, making millions of money with the Rapala products. I, I'd say that, Rapala is as strong as ever, and, that's gonna be our key, key driver.
A couple of questions on financing, which I'll stack together. First one: would you consider raising interest bearing, bearing debt in H2 2024? And then another question, that gearing is coming down and interest rates are coming down, will this be the time to boost growth with additional debt capital? Miikka, can address this one, these ones.
Yes. For the first question on the interest-bearing debt, so we have a commercial paper program running, which we adjust, we issue new papers or claim them back, depending on our capital needs with our seasonal business. Following the One More Turn strategy and focus on working capital, naturally, we will, we don't expect to have imminent need for more interest-bearing capital, other than due to the seasonality of the business.
And then there was a question about gearing, and interest rate levels coming down and seeking growth through debt capital. We still have, gearing came down from, of course, from nice cash flow, but also due to the fact that we have that EUR 30 million hybrid bond in our balance sheet with 12.5% interest. And that's a fixed interest rate. So that was the main reason for the gearing coming down.
All right. A question about the working capital management, and is there any additional value to be released from the working capital management, or did you reach the ideal levels?
There is still room for improvement there. We have, we have shown now a steady, steady progress, positive progress in the inventory levels and also in the working capital items, and we will continue. At the same time, we want to make sure that we serve our retailers, we stay as the best partner for the retailers. So, given that as a guideline, still having the S&OP process improved and rolled out more in our business regions, we will continue the work on the working capital reductions.
Okay, and I think this is the last question today, is that if you can only pick one, is this the time to focus on growth or profitability?
Profitable growth, Tuomo.
Okay, I think this concludes our call and audio cast today. I'll thank everyone for this and wish everyone a very nice summer, and especially tight lines.
Thank you very much.
Thank you.