Rapala VMC Corporation ($RAP1V)

Welcome to this Investor Relations call of Rapala VMC Corporation covering the Full Year 2025. My name is Tuomo Leino, and I am here with President and CEO, Cyrille Viellard.

Good morning, everyone.

And CFO, Miikka Tarna.

A very good morning to you all.

We will first hear from Cyrille and after that, Mikika will go through the key figures. After the presentations, we are open to questions. So, without further ado, Cyrille, if you may.

Thank you, Tuomo, and thank you very much to all of you again for attending our call today. It has now been for me 1 year since I have been entrusted with leading Rapala VMC with our global management team. We have delivered what we targeted in 2025 in a highly disrupted trading environment, with fluctuating tariffs and slow consumption in our European markets. We have grown sales. We have improved comparable EBIT and improved our financing situation. So, a big thanks to our global Rapala VMC team for their hard work, passion and dedication. If we look, as you see on the chart at the last 5 years, we are back in sales with brands we control. We are back at the level of the high time levels of 2021 and 2022. Controlling the brands we sell is key for sustainable growth. Our comparable EBIT has grown 35% year-on-year through dynamic new product introductions, expanding our brands in new categories and also strengthening our core positions. And we are in a business with highly seasonal and weather-dependent demand, requiring a wide range of gear, excellence in processes and supply chain agility are core competencies we are constantly developing. And this has been the case in 2025, where we improved our stock turns and while we were faced with highly disrupted supply chains due again to the tariffs. So, we have improved our financing situation as well, lowering the nominal amount of our hybrid bond that was 3x oversubscribed last November, underlining the confidence in Rapala VMC from the investing community and trust in our brand-focused strategy. So, we are really in line with our -- what we believe we promised and in line with our transformation. I'll say a few words on our -- one of our key items of our strategy, which is our cultural transformation that will fuel long-term sustainable growth at Rapala VMC. So, we come from a distribution culture, and we are now brand-driven. It's a fundamental change. We have exceptional brands in our portfolio and Rapala, where I will focus is one of them. Rapala as a brand is to grow and lead all our brands. I'll say a few words here on the achievements of our flagship Rapala brand in 2025. So, we will continue to drive appetite, connection, affection to our flagship brand that breathes innovation, performance and excitement on the water. We are celebrating 90 years of our brand and growing its audience. As highlights, our Pro staff, you can see in the middle, Jacob Wheeler was elected Angler of the Year multiple years in a row. And Dustin Connell was third 3-time champion at Red Crest and in Europe. On the left, Matthias Holgersson and Jonathan won both $100 and Pike Fight, having the most wins in Pike Fight history. This has led in explosive TikTok growth and doubling of viral videos that we had. And if we look at our peers in peer in our focus brands, our peers, Rapala leads the game. You see with 2.1 million fans. So, growing audience is for us key. And that audience needs to be fed with innovation in products. 50% of our sales in 2025 for the Rapala brand were generated by new products introduced in 2024. It shows really the dynamics of our product development teams in the Rapala brand. So, Rapala, as you know, is the creator -- is one of the creators of artificial lures and still leading the lure category, but it has grown in other categories over the years and will grow further in the strategy we are implementing. In 2025, some of the highlights, we renewed and extended all our luggage and bags. We expanded our soft paid strong penetration with CrushCity with new products and delivered growth in that category. And we won the 2 best offshore products at ICAST in the U.S., so let's say, in our core heartbeat category with Claptail and the CD Mag Elite. And these will turn in sales in 2026. So, this was a short overview of some of the core actions on the brand side and on the product side for the Rapala brand as part of our overall house of brand strategy. We have similar approach with all our other brands. where we have now dedicated expert and passionate brand managers with dedicated brand teams so they can address dedicated identified market segments. We believe this is the way forward to globally fight for market share in the world of recreational fishing. To summarize, it was a troubled year, but in line with our continuous improvement promise, which we renew for 2026. I will now give the floor to Miikka, who will guide you in a more detailed manner to our financial results. And thank you very much for your attention.

Thank you, Cyrille. I also want to first thank our global team. I mean, this is a team effort, all the numbers that we have put together, all the sales that we have brought in, all the improvements that we have made. It's truly a global team effort to make these numbers happen. So, to summarize, 2025 year we had, we continued our improvements and our recovery path as promised. It was underlined by successful new product launches and also improved operations. Our sales grew by 3% in reported exchange rates. Exchange rates as such, mainly USD had a negative impact to us. And in comparable currencies, our sales grew by EUR 12 million or 6%. Most of the growth came from North American market, which proved very resilient despite all the tariff-related disruptions and also the related price increases that we implemented during the year. In Europe, on the other hand, we had a decreased sales, which was coming from the lower consumer sentiment from the global trade disputes and also the political environment. On operating profit, comparable operating profit level, it improved by EUR 2.2 million from prior year and mainly driven by the increased sales both in the winter fishing and summer fishing markets. These 2 offset the winter sport sales, which was subdued and decreased from last year. Tariffs, of course, had a negative impact on our cost base. But with our carefully planned price adjustments, cooperation both with our retail partners and our vendors, we managed to reduce the negative impact that it had on our margin. Inventory value, inventory landed at the same level as last year. I'll talk about that a little bit in the upcoming slides, but maybe to say here that inventory turn improved from prior year. Looking at our short-term outlook. So, again, we confirm our long-term trajectory and recovery path. So, we commit to increase operating profit in 2026. If we go little bit to the details behind that guidance, the North American consumer demand has remained robust despite all the uncertainties in the global trade and the global political environment. We have so far been fairly successful or very successful with mitigating the tariff impacts on our sales and profitability. However, of course, we have had to adjust our pricing in the North American market and this impact of this to consumer behavior is difficult to predict, and there is uncertainty on how the consumer spending and the basket size will develop. European markets, we have experienced, as mentioned, slow consumer spending with the economic and political developments. And of course, we expect this to continue in 2026. So hence, we will continue our operational efficiency initiatives and scrutinize our cost base to lower our breakeven point in Europe further. With the winter fishing seasons, we have now seen 2 consecutive good winter fishing seasons in the North American market. And this is always what it means to us when we sell to retailers that the pipeline of product is pretty clean in North America, and we expect to have a good winter fishing preorders for the upcoming 2026, 2027 season. And this guidance, of course, reflects our current conditions. Perhaps we don't mention the latest Middle East developments here on the slide. But of course, the recent increase in oil price might have an impact is one of the unpredictable things that will impact us in 2026, mainly, well, all over the world in our main markets. Oil prices might impact foot traffic in the stores by consumers, amount of discretionary spending. But as we don't have direct-to-consumer sales or it's not a significant part of our sales, we mainly sell to retailers. So, it will -- the impact to us will be somewhat delayed if any impact comes. Next, on the key figures. Our reported operating profit was -- fell to EUR 4.2 million from EUR 8.6 million. I'll mention that in the next slides, what contributed to that. And of course, the one-off items had a significant impact and hence, our net profit fell to minus EUR 5 million negative and earnings per share was EUR 0.23 per share. Let's talk a little bit more about the geographical areas. So, in North America, our comparable sales increased by 14%. Currencies had that slight EUR 5.5 million negative impact mainly from the North American market. We had 2 strong ice fishing seasons. So, we had very good replenishment in the early part of this year and also good preload in orders delivered in the latter part of this year. Also, the successful relaunch of the 13 fishing product range that definitely boosted our sales, not only in the summer fishing, but also it had strong presence in the winter fishing segment. And CrushCity continued to increase market share and sales. And of course, following CrushCity, it also boosted our VMC Hook and rig sales. And these are the brands that I will mention now, but we had solid momentum across all key brands. And new product introductions also, as Cyrille mentioned, brought nice increase to the sales. In the Nordic region, we had exceptionally low winter sports equipment sales, so cross country's ski business, the winter sports business, as we call it. We have had a couple of years with poor snow conditions, and this is impacting the pipeline of products. Products in the pipeline are still higher than we would like it to be. They're not selling through and that this basically impacts our sales. This, combined with subdued consumer confidence, basically impacted our second half deliveries for the season. On a positive note, on the summer fishing, the main business, the summer fishing business, we saw growth. So, the organizational changes that we have mentioned earlier, they are still bringing fruit, and we increased our sales in the summer fishing segment in the Nordics. And although the spring or summer season started a little bit late, we had good preorders and actually, the summer proved out to be okay. And as the autumn lasted longer, we had replenishment sales almost until the end of the year. In rest of Europe, beginning of the year, sales were negatively impacted by retailer carryover inventory from the previous season. There was too much products in the pipeline. This together with subdued consumer activity impacted our sales. So, retailers remained extremely cautious with replenishment orders throughout the year. And of course, here as well, our approach that we are very cautious with credit risk and that it didn't limit our sales much, but maybe I would like to say that we are cautious with credit risk in the area. And our focus remained on core brands in rest of Europe and Okuma brand continued its growth trajectory being the highlight of the area. In Rest of the World, where we have Asian countries and Latin American countries, the Asian markets, the sales there declined. The overall trade disputes weighed on consumer sentiment and also foreign exchange volatility directly impacts our sales in that area. The competitive landscape changes as the Asian, mainly Chinese manufacturing are more becoming competitors to us by increasing their marketing and brand investment in the area. In contrast to Asia, Latin American markets actually performed very well, supported by economic recovery and currency stability. And here, as a highlight, the growth was partly driven by the new Okuma distributorship in Chile. So, to underline, cash flow remains the #1 priority. Our inventories were at last year level, very small change there. But when we look at the factor behind it, we see that organic increase in inventory was EUR 4.3 million. And currency exchange rates decreased the inventory value by roughly the same amount. We had most of this increase -- organic increase was from the U.S. tariffs, which are, of course, absorbed over time to our inventory values. Our inventory still remained at the same level if we exclude the tariff impact. So, we are showing improved turns, although not as fast trajectory as we would like, and this will remain the focus for 2026. Cash flow from operations landed at EUR 5.5 million compared to EUR 23.4 million. Here, it's very noteworthy and important to mention that if we exclude the working capital impact, our cash flow before the working capital impact was EUR 12 million positive compared to EUR 4 million last year. Last year, we released a lot of capital from working -- a lot of cash from working capital. This year, we tied a little bit of more working capital, and this is mainly coming from couple of things. We have the tariffs, which can be considered that they are now included in the working capital and no further impact from the tariffs is expected. And the second one, sorry, I need to check. Yes and the second one, of course, being the ICE business, which tied working capital. The season was much bigger. We have done the deliveries, but the payment term is mainly on Q1 and Q2 when we get the money in from that business. Then as a result of these factors, our gearing increased by 13.7 percentage points. Equity to assets are little bit lower. We have a little bit of foreign currency-related impact here as well as pretty big part of our net assets are located in the U.S. Net interest-bearing debt increased by EUR 11 million from prior year. And this comes mainly -- the biggest impact here is the refinancing. So, the hybrid bond of EUR 30 million was repaid and another EUR 25 million hybrid bond was issued. So, this is -- explains EUR 5 million of the increase in the net debt. Of course, we paid the hybrid interest as well, and we had the tendering of the old hybrids. So, we had altogether from refinancing and hybrid-related activities that actually explains the whole EUR 10 million increase in our net debt. So, we have now in December, agreed on refinancing with our lending banks and the whole facilities is EUR 91.5 million. And we are compliant with financial covenants, and we will continue in 2026 to streamline our operations, cash flow, and we expect to comply with future covenants as well. And maybe here, I would also -- on this slide, I would like to mention those items that impacted our reported EBIT. So, we had one one-off noncash one-off item relating to the closure -- final closure of the Russian and Indonesian manufacturing operations. So, there are translation differences that have been included and booked in our equity in prior years. And now as the facilities were finally fully closed, it's IFRS regulation that this EUR 4.2 million and EUR 0.5 million are now recycled through our P&L. So, the reported EBIT includes this one-off item, cash flow item, which comes from the equity and goes back to the equity. So, it has 0 impact on our equity or leverage ratios as such. I think we can move on to the Q&A section now. Thank you.

Thank you, Miikka. Okay. As said...

[Operator Instructions] The next question comes from Joonas Hayha from OP.

This is Joonas from OP. Can you hear me?

Yes, we can hear you. Yes.

Yes.

Good. A few questions, please. If I'll start with the guidance. So, you're guiding for improving adjusted EBIT, and I think you discussed some of the drivers a little bit. Apparently, you're looking for both sales growth and as well as improving profitability. But could you elaborate a little bit more the picture, which is the primary driver? And what kind of sales expectations do you have for 2026 since you didn't provide any revenue guidance? So, the drivers for improving EBIT, please?

Yes. Maybe if I start, then Cyrille can elaborate more if needed. But the -- basically, we are confident that we can continue on a growth path, and that is our ultimate goal to improve year-over-year. We know our financial position and the organization -- the whole organization well knows our position and the direction we need to head to. Although the North American market, there's lots of instability, but the brand has proved out to be strong and has helped us. So, we expect to remain strong in North America. European market is the one where we have the most to gain, and this is the focus area. We have projects ongoing in Europe with the cost base. So, we improved -- to improve our profitability in Europe. Having said that, with the balance sheet constraints that we have, we are not -- we want to be risk cautious. I wouldn't say risk averse, but cautious with taking risk. And hence, we rather see the profits have -- see the profits increase year-over-year continuously limiting the risk. So, as such, we might -- with the turnover, we have to kind of find the balance of taking risk, capturing new markets, capturing new product categories. So, picking the most cost-benefit projects in that sense.

Okay. So, to sum up, you're looking for growth in North America and then in Europe, it's perhaps more related to internal efficiency measures. Did I get that right?

Yes, that's -- where we -- where things have changed is we are -- we have more teams dedicated to product development than we had before. There's much more focus on our brands and on product development. So, this is what triggers in our industry and in many industries as well when you can enter the stores, bring exciting new products and market them. So, we have really increased our -- and we had a lot of management in sales, which we still have, but we have converted some sales to product development and brand owners, and they are driving growth, addressing core markets. And the fact that we rely less and almost not at all or very little on third-party distribution gives us, as some of our competitors, a much more controlled approach on our growth. When you sell other people's products, then you also -- you rely on their innovation. If there's innovation pipe, it's full or not as well as you can lose these distributions that happened to us in the past. So, our -- the quality of our turnover is different to what it was some years ago. And so, we see that we control it better than when a large share is from other brands that also control their innovation. I don't know if that's meaningful for the audience?

Yes. That's good color. Then moving on to inventories. So, you've had ongoing ambition to lower the inventory level yet at the end of the year, inventories were flat and actually grew organically, as you pointed in the presentation. So, how much room do you see to release tight capital from the inventory? And can you share any concrete examples of what kind of actions can or could be taken to reduce the inventory level going forward?

So, I mean -- I'll start and you maybe -- you know we are in a leisure that requires a very high number of SKUs. Whatever we do, it's a -- we provide gear for people that catch a Marlin in the keys or a Brown Trout in the Alps. That's our core. That connects our complete business. And also -- so, the diversity is related to well, the environment, the targeted fish, so, freshwater, saltwater and also our leisure is cultural. It's also related to the -- the size of the people. If you're tall, you want -- you can manage a larger rod just like a golfer. If you are smaller, well, you want a smaller rod. So, inherent it's inherent to have a massive number of SKUs. If you want to perform in that business and then you have cart fishing, well, you have accessories, gears and then you have price points. So, our leisure is driven by this complexity. So, there is not one silver bullet to improve. What we are doing is that through our brand focus, we have cut the cake in multiple pieces. And we have now people that are dedicated to flows and improving them with their KPIs. And they have GM, ROI as a core KPI. So, they need to improve their prices. They need to lower their minimum order quantities. They need to improve their lead times. And it's a lot of small streams. Our sales are improving their forecasting. So, there's a lot of processes behind. And we know from what we do and how we work that we still have significant improvements. What is -- what you see, you see a year-end value, which is in our business, it's -- that's the one we published, but that's the one you see. But in reality, we are improving much deeper than what you see from that final year value. But this you don't see. So, you need to trust me that we are on -- what we measure and how we measure our performance is average because we have winter, we have summer, we have drought opening, we have saltwater, we have North and South Hemisphere. So, we have a lot of cycles that are mixed. What we are -- what is for us very important is the tight working capital, the tight inventories throughout the year, and that is improving. That is turning better.

Okay. And then you rather recently enlarged the distribution agreement with Okuma to cover the Australian market. So, would you be willing to comment on the sales potential, what you see in that market regarding Okuma?

It will be -- we have obviously strong ambitions. Okuma is really well fitted for the Australian market with a strong saltwater offering. Now the brand has been not really nurtured in that market and competition is very tough with very dominant positions from our competitors. So, we have strong ambitions. It will be a slow ride, but it's step-by-step. We're quite confident. Offering matches. Competitive landscape is highly unfavorable for us because highly more -- even more concentrated in other markets. But our neighbor in New Zealand is very strong with Okuma. So, we'll follow and we're working close with our New Zealand partner, which is a -- and so it's more symbolic for the group as a whole and in line with our overall strategy to consolidate a global partnership with Okuma.

Yes. And maybe a follow-up regarding Okuma. So, would you be willing to provide any color on how much revenue is being generated in all of your markets from distributing Okuma's products? If I recall it right, when you started the cooperation, was it so that the Okuma's sales in Europe and Russia, wholesale sales, I mean, were roughly EUR 10 million at the time of the signing of the original agreement?

Maybe I'll take this one. So, we -- I'm afraid I have to give you the same answer that we don't disclose the brand-specific sales, but what we can say that we have grown Okuma almost every year. There was the COVID disruption, of course, impacted us. But now Okuma is one of the leading brands, which we are growing in Europe. Unfortunately, yes, we don't disclose the number by brand.

Yes. Okay. Fair enough. Then one maybe a technical question regarding your cash flow statement. I see that you have in the financing part, you have a EUR 10.2 million outflow due to the hybrid bonds. So, could you open up what does this item consist of?

Sure, sure. So, the EUR 10 million, of course, we decreased the capital of the hybrid bond, so that explains EUR 5 million of that amount. Then we paid the interest on the EUR 30 million hybrid. So, that's EUR 3.75 annual interest roughly. And then as we issued the EUR 25 million new hybrid, we tendered the old EUR 30 million hybrid out from the market, and there was a premium of roughly EUR 1.4 million, EUR 1.5 million. I can't recall the exact figure, roughly that much was the premium that we paid to tender the old hybrid.

Okay. Good. And then finally, you're planning to transition to quarterly reporting in 2026. So, will you provide quarterly comparison figures at some time during the spring? Or how does this go?

Yes. We have -- do we have any other questions on the chat related to that?

No.

No. Okay. Yes. So, we plan -- when we publish our Q1, we plan to give 2 to 3 years of historical information to provide the kind of the trend of the sales and the profitability per quarter. When comparing -- I think it was 2017 when we last time gave quarterly sales information. So, I assume you have checked those figures, and that's kind of the baseline for your estimations. But to elaborate on that a little bit, of course, the group now is very different from 2017 when we still had Shimano distributorship. We had the hunting business, which brought sales in fall in Q3. But now when looking at our composition of sales -- quarterly composition of sales compared to 2017, the company is different, but the percentage split by quarter actually has remained quite the same compared to 2017. So, we still generate 55% of our sales in the first half and then 45% on the second half. Maybe a slight difference that we have compared to those figures and also what we've seen in the last year or 2, the trend in the market that our Q1 is maybe somewhat a little bit stronger than Q2. So, instead of retailers taking goods in Q2, they might take them a little bit earlier in Q1.

Okay. So, you will provide the numbers in touch with the Q1?

In touch with Q1, yes.

Okay. So, not before? Okay. Yes. That's all I have at the moment.

Shall we go through the questions in the Tuomo in the chat?

Yes. I suppose there's no more questions on lines waiting for us. So, let's move on to the chat questions. So...

Should I take the first question from...

Yes. So, first question that we have on the chat is that how far are you looking to expand the Rapala brand under the updated strategy? Should we expect introductions of new categories or mostly extensions within current categories? So, Cyrille if you may.

So, here, under our strategy work, we have defined the Rapala brand as a lure predator fishing brand, so predator lure fishing brand. So, that we will encompass all the gear that allows a passionate, competitive angler to go on the water and live his predator fishing experience, whether fresh and saltwater. So, yes, we will continue to expand. We have been expanding in the last 90 years to accessories, to knives. And so, we will go into a wider range of accessories, tackle box, storage, rods, all with innovation, clear branding. That's the strategy. Not diluting the brand value. So that's -- Rapala brings innovation, excitement. It's competitive. It's for the pros competition, and that's what it will remain. Also connecting it with the core of its turnover still today, which is lures, where we really lead in terms of quality and the range that we cover in that category.

Okay. Maybe another question about GP, yes, on the strategy here. So, the question that we have here is that since you just updated your strategy, how will you summarize the main adjustment made? How do you expect growth to split up between sales of your own brands compared to distribution partnerships during the current strategy period?

So, we are growing faster with our own brands than with our distributorships. That's clear. That's what we are -- we are not closing any doors for third-party distributorships as today's -- the world of recreational fishing is a market share game. So, if we have complementary brands to sell to our offering, we will take them. If it's for a long-term partnership, but we are growing, focusing on product development, on our marketing. That's the future. Today, the main threats are direct-to-consumer sales from Asian manufacturing through [indiscernible] and through the other difficulties are like for every consumer goods, our customers are becoming our competitors with their own private brands. And so, the future of our leisure and where we are luckily very strong is our brand portfolio. So, it's growing our brands with unique selling points with a strong brand value in terms of innovation, sustainability, fashion. We are here to animate the -- and bring great times on the water to people who have fishing as a hobby.

All right. Then a couple of covenant-related questions. Do the KPIs tied to Rapala's covenants match the reported net debt and comparable EBITDA? Or are there some adjustments made to these figures?

Yes, that's a good question. Thanks for stating that, Thomas (sic) [Tuomo]. So -- of course, we have net debt and we have comparable EBITDA. In the leverage covenants, we compare EBITDA net debt divided by EBITDA. The net debt is almost the same as our reported figure. There are some interest-bearing receivables that might be excluded from the net debt calculation. With the EBITDA, of course, it relies on 12 months rolling reported EBITDA. However, there are adjustments made, which mainly relate to one-off items. So, for example, the earlier mentioned currency translation adjustment, which are noncash items. There are also some other adjustments, one-offs which relate to, for example, sales of fixed assets, which are kind of not part of the ongoing operations. And then naturally, of course, it's in everybody's best interest that we improve our operations and do restructurings. So, certain restructuring-related amounts can be also excluded from the covenant calculations.

Okay. Then another question. Regarding leverage, there is not that much headroom in the covenant at the moment. Are there some measures other than improving profitability you could take to ensure that you don't breach the covenant in the coming quarter?

Yes. So, the coming quarters, Q1, Q2, we usually see with our seasonality of our business, we start to get in cash inflows. Our biggest cash flows are fall in Q2. We see some cash flows in Q1, but mainly in Q2. It depends a little bit of how the summer starts, how the season goes. So, we are -- we don't have enough headroom in the leverage covenant. We are not happy with the level that we are, and we definitely are working to improve that, and we follow that closely. So, we have procedures and processes to follow our development, both in the net debt and also in the profitability that we stay within the covenants. And as stated, we have shown a good track record that we applies to all of our financial covenants imposed to us by our lending banks, and we expect to do so in future as well. Profitability is, of course, one big factor to maintain the leverage within the covenant limits. And here, I think we also elaborated a little bit earlier that taking the right cost benefit projects and limiting the risk, taking the risk where we kind of taking calculated risks, that's something that we improve our profitability. That's the bottom line that we improve profitability and also land the sales in cash.

Okay. Then a final question that we will take is that we discussed -- you discussed about the inventory situation already, but how should we think about the overall working capital developing during Q1 and Q2?

Yes. So, this is -- I think I refer also to what Cyrille mentioned that we only see in this report it is the state year-end inventory. And that tends to be on a high level because Q1 load in sales begin in January, February. So, in Q1, we usually see inventory going down. And in terms of cash flow, we see the cash flow -- incoming cash flow somewhat in Q1, but mostly in Q2. And then in the whole working capital, that's something that with our main vendors, manufacturing partners, that's always a yearly negotiation and working together to where we plan our cash flow also that whether -- how the payments fall in Q4 or Q1 of the year. So, we still have working capital -- we have cash outflows in Q1 from the payables that we will deliver to our customers, retailers in Q1 and Q2.

Okay. We will now conclude this call. A recording will be available shortly, as well as the presentation on our website. I thank everyone. I wish everyone a nice day and tight lines for spring fishing season.

Thank you very much, everyone.

Thank you.