Good day, welcome to Rapala VMC Teleconference Full Year 2022 conference call. Today call is being recorded. At this time, I'll now turn the call over to Tuomo Leino. Please go ahead, sir.
Thank you. Good afternoon, everyone, and welcome to Rapala VMC Corporation's full year 2022 conference call. My name is Tuomo Leino, freshly appointed General Counsel and Head of Investor Relations of Rapala VMC Corporation. I am here with President and CEO, Chairman of the Board, Mr. Louis d'Alançon, Chief Financial Officer, Mr. Jan-Elof Cavander, and former Head of Investor Relations, Mr. Olli Aho. Without further ado, I'd like to welcome Louis d'Alançon to go ahead.
Hello, everyone. This is Louis d'Alançon. I'm gonna give you just some highlights of the, of the year. After that, Jan-Elof C avander, our CFO, will go into some details for your benefit. The net sales for the year decreased as compared to the previous year. It should be noted that the trend continues since several years of a reduction in third-party product, and that was the case again in 2002 as compared to 2001. Sorry, 2022 as compared to 2021. In fact, the group products on which we had better margins or far better margins occasionally, in fact, increased.
The comparable operating profit was substantially lower than last year at EUR 15.3 million versus EUR 32.7 million. A number of reason for that, first of all, obviously lower sales, but in particular in open water fishing market. As many people have experienced, high inflation and high volatility of freight costs did put pressure on the margin. We managed to offset some of that by price increases. Of course, we kept a very close eye on the operating expenses to offset the decreasing sales. The inventory value increased in the first half of the year.
That was essentially due to what I've just described as, that is to say supply chain disruption, combined with a sharp market reset after the record COVID year. That had as a consequence extensive de-stocking by retailers, which lowered the sale. We were able to improve considerably that situation in the second half of the year. As compared to the inventory at the end of June, we improved it by EUR 17.8 million in December. As to the short-term outlook, we expect a 2023 comparable operating profit, which to decrease from 2022. We expect the cash flows from operations to be improved and to be on a good level altogether.
Of course, the market outlook continues to be challenging in all our key markets. The inventories in the overall fishing segments continue to be high. I'm talking about the retailers here. Due to poor winter sales, sail or winter business will be affected both in the Nordics and in North America. The global macroeconomic situation also affect the purchase behavior at retail and consumer level. On this, I let Jan-Elof Cavander develop these numbers.
Good afternoon, all. It's Jan-Olov here. First, thanks for joining the call. It's good to walk you through today the numbers and the key financials for 2022. Now I go to Louis talked already on the investor presentation that is available on our corporate website. Louis covered pages 2 and 3 in the customary way, and I will now continue on page number 4 on the investor presentation, as said, which is available on the corporate website. Net sales for 2022 was EUR 274.4 million, which is down by 7% from the prior year. Operating profit ended at EUR 12.3 million using the IFRS operating profit, which translates into a 4.5% margin.
Comparable operating profit was EUR 15.3 million, and the items affecting comparability, which make the differentiation between operating profit and comparable operating profit, consisted mainly of organizational and management changes in the group, as well as a write down of some assets in Russia. One other thing to mention that affects comparable operating profit is the EUR 2.3 million negative impact of share of results in associate, associated companies. Last year, we had a positive impact here, and now we have a negative impact, and this comes of course, from the 13 Fishing USA investment. This had a couple of millions of negative impact on the comparable operating profit in 2022. Net profit for the period amounted to EUR 3.7 million, down from prior year.
This is now all attributable to the parent company holders as there are no non-controlling interests anymore in the group's subsidiaries. Net interest-bearing debt increased to EUR 107.1 million. This obviously means a higher gearing percentage, which rose from 50.7% to 77%. Of course, lower profitability generation also had some big impacts on the return on capital employed, which was 5.4% in the fiscal year 2022. I move to page number five on the sales review for 2022 by region. Our biggest region, North America, ended sales in EUR 132.2 million. The FX comparable change was -12% from prior year. The FX supported the top-line number here.
The decrease in sales was caused by a couple of reasons. First of all, the cold and delayed spring in 2022, that had an effect. The second effect came from the sharp post-COVID market normalization after COVID kind of got into an easier situation in the region. This was heavily amplified by the strong retailer destocking that started in 2022. High inflation and especially high gas prices also affected the consumer demand and the overall consumer sentiment. Sales in the Nordic region was EUR 38.9 million. Here the FX comparable change compared to prior year was minus 14%. The strategic focus on group products and the successful launch of the Okuma rods and reels business in the region helped to maintain the sales of the continuing business close to prior year.
As our strategy has been the decline in the sales come from the most part from the third-party business where we have been ending distribution agreements. Rest of the Europe area generated EUR 70.6 million of sales. This represents a 15% reduction to prior year using comparable FX rates. In this region, group product sales was above prior year, driven by the start of the Okuma business in the region. Same story as in the Nordic area, that the decline comes from the third-party business, from those contracts that were ended during the year or the prior year. Rest of the world region net sales was EUR 32.7 million. Here the FX comparable change from prior year is smaller, -5%.
Group product sales in this region was fairly solid throughout the year and landed close to the same level as last year. Here also we had some exit of third-party distribution agreements, which obviously took sales down in the third-party businesses. I move on to page number six on inventory and cash flow from operations. End of December 2022, inventory was EUR 99.9 million. In the first half of the year, first six months in 2022, inventory increased sharply due to mainly three reasons. First of all, the supply chain disruptions worldwide end 2021 and early 2022 had a big impact on factory lead times and that meant inventory coming in earlier when the lead times went shorter. Again, that increased the inventory.
Obviously, on top of that, the sharp market normalization as well as the strong destocking that we saw at the retail level meant that inventory increased significantly during the first half of the year. During the second half of the year, we managed to decrease the inventory by EUR 17.8 million from June to December. This means that the year ended at EUR 99.9 million, as said, which represents a 16% increase from the prior year. Cash flow from operations was negative in financial year 2022, -EUR 12.9 million. This is driven by two things. First of all, decreased profitability plays a role, and more significantly, the change in working capital had a big negative impact on the cash flow from operations.
Change in working capital had minus EUR 28.7 million impact on the operative cash flow. Means that in total, the reduction from prior year was more than EUR 37 million. I move on to page 7, on the financing of the group and the financial situation. First of all, as said in the beginning, net interest-bearing debt increased from EUR 70.6 million to EUR 107.1 million, which represents a EUR 36.5 million increase from the prior year. This consequently means that gearing rose by 26.4 percentage points and equity ratio declined, slightly from the end of prior year.
Liquidity position of the group was good at the end of December. The undrawn committed long-term credit facilities were more than EUR 20 million at the end of the period. On top of that, we had cash and cash equivalents of EUR 29 million in the balance sheet. As the final remark, due to increased net debt and decreased EBITDA, our leverage has been on the high side. The group has agreed with its lenders to temporarily change the financial covenants used in the loan agreements from the periods from Q3 2022 until the end of Q1 2023. That has been agreed with the banks during the 2022 year.
We are now ready for questions. If the operator, could give the instructions how the callers, can make the questions. Thank you.
Thank you, sir. Dear participant, if you'd like to ask a question, please press star one on your telephone keypad. To withdraw your question, please press star two. We'll pause for just a moment to allow everyone an opportunity to signal for question. Once again, ladies and gentlemen, please press star one to ask for question. We'll pause for another quick moment to allow everyone an opportunity to signal for question. We'll take our first question today. Please state your name and company before posing your question. Your line is open. Please go ahead.
Yes. Hi, good afternoon. It's Jonas Forsman OP Markets. I have a couple of questions regarding the guidance. Firstly, you mentioned the high dealer inventory levels, which had a big impact on your sales already in H2. I'm just wondering how high are they in the industry, and when do you think they will normalize? That would be the first.
Well, yeah. Hello. It's Olli Aho here. We indeed have seen these high inventory levels and that has been reflected in our pre-orders also. And we are very cautious with this also coming to 2022. So we believe that it will certainly have an effect still 2023. Does that answer your question?
Okay. At least partially, yeah. Thanks. Have the dealer inventories decreased at all in H2 as they were high already at the end of June? Are the goods moving to the end consumers or How should I think about this?
Well, you know that our business is heavily seasonal, so. The main season in the Northern Hemisphere starts in, let's say, March and ends roughly June. We expect that during this time that our dealers, they will be able to sell their stocks.
Yeah. Okay. Then you also mentioned the weather component. Could you please elaborate a little which products are being impacted by this unfavorable weather conditions?
Well, the first impact was the winter season, which was poor both in North America as well as in the Nordics, which are important markets for us. There was a late spring also as a result. For example, the summer season in the North of the United States was probably late by 6-8 weeks, which is highly unusual and had obviously an impact on sales, especially what is called the replenishment sales, i.e., when retailers come for a second lot of products having sold their first lot. That barely happened last year.
Towards the end of the year, the as a result of that as well, there was actually a little reduction in the sales for the next season as a result of that. That also had an impact. However, we did manage to reduce our inventories, which is in fact what achieved these conditions.
Yeah. Okay. A couple of questions more. What kind of inflationary pressures are you expecting in 2023? What kind of cost inflation.
You mean in 2022?
23.
Twenty-three.
Yes.
Well, I think like everybody else, in the world, in fact, we're experiencing big increase in inflation. As I think I mentioned earlier, we did manage to, in 2022, to pass on a fair amount of price increases to our customers. In fact, a number of our, of our competitors have done the same, and by and large, this has been well accepted. That did indeed compensate a little bit our numbers. In practice for 2023, we are gonna have to look at the macroeconomic conditions. I would point out to you guys the fact that there is a sharp decrease in money supply at the moment, at the same time as a tightening of interest rates, which some say have been actually too strong and too quick.
We think that the inflation will peak and actually has already peaked. The big question is how far and how fast that decrease will take next. Of course, you must have a segmentation as well by type of products. It's clear that energy prices are remaining still high for the reason of the Russia-Ukraine situation. At the same time, we've seen a very sharp reduction in 2022, in second half 2022 of the freight cost where the cost of containers from Shanghai had been multiplied by 10 at the beginning of the year and now come back to the normal level, and that trend seems to continue. This is actually quite positive.
Yeah. Okay. Are you planning to do further price increases to offset last year's inflationary pressures?
We certainly will try where we can, but we're now already seeing resistance to that.
Okay. On the cost side, are you planning to do further measures in that respect, and what would be their impact in 2023?
This is a continuous exercise. We look at our costs very, very strongly and very, very thoroughly. We have done a number of rationalization of our productions, for example, which will produce results. Just as a matter of an example, we have finished to consolidate all our warehousing in Europe into two sites. That consolidation is gone and will bear benefit very quickly from now on. These are one example of many initiatives that we have whose effect is to reduce the cost base.
Yeah. Okay. Thank you very much. That is all from me.
Thank you.
We'll take our next question. Your line is open. Please go ahead.
Hi, Olli Vilppo from Inderes. In the guidance, you say that the cash flow from operations is expected to be a good level. Does it mean that you are going to get it from the decreasing inventories? Are you going to pause any productions or how do you react?
Jan- Elof Cavander, thanks, Olli, for the question. Yeah, I think it comes from many issues, of course, but two things to highlight is that yes, we adjust the production capacity taking into account both the retail demand and our current inventory levels. As the current inventory levels are still high, they decrease during the second half, as explained, but they are still on a high level. The target for the group is obviously to continue the reduction in the inventories. If that takes place, that will of course then support the operative cash flow. That's one of the biggest or the biggest driver.
Okay. Does this good level mean that it will be more than the EBIT guidance?
We are not commenting it in a more precise way than this.
Okay. Thank you.
Ladies and gentlemen, please press star one to ask for a question. We'll pause for another quick moment to allow everyone an opportunity to signal for questions. There are no further question on the line, sir. Please proceed.
All right. If there is no more questions, I'd like to remind at this point that the investor presentation and the recording of this conference call will be available on our corporate website, rapalavmc.com. We thank everyone for participating in this call and enjoy your weekend. Thank you.
Thank you.
Thank you. Tight lines.
Thank you for joining today's call. You may now disconnect.