The cycling division of the Amer Sports group, which includes the Mavic and Enve brands, has been placed under strategic review, the company said last week as part of an update about its transformation and its assets.

The Finnish group behind Salomon, Arc'teryx, Atomic, Wilson and many other brands told analysts at a capital markets day earlier this month that it would continue to focus on assets that have been delivering on its plans, including its apparel and footwear business. That does not apply for the cycling division, and it remains to be seen if the fitness and sports instruments divisions will manage to raise their profit margins, after an encouraging rise in demand.

Amer said that its cycling division had under-performed for several years, despite considerable management effort and investment. Another issue is that the division is not a particularly judicious fit to create synergies with other parts of the group.

Mavic, Enve and other parts of the cycling division reported sales of €134.7 million in 2017. For the first half of this year, sales were down by 13 percent to €60.0 million, a decline of 11 percent in constant currencies. The group said while reporting these results that it had suffered from lower OEM sales and weaker wholesale revenues.

As described by Heikki Takala, the group's chief executive, the strategy deployed in recent years has been based on sustainable development, with a clear function assigned to each part of the portfolio, efforts to build up group scale and synergies, and investments in five areas earmarked for more rapid growth.

The role assigned by the Amer Sports group to the cycling division for the current strategic cycle was to deliver profitable growth, but this has apparently not materialized. Making up about 3.5 percent of the Amer Sports group's turnover, the cycling division is part of the larger outdoor division, and its operating performance is not reported separately. After the event in Helsinki, Amer Sports was quick to clarify that this strategic review for the cycling division was not equivalent to an imminent sale.

Takala said four of its seven business units closely fit with its requirements in terms of performance and synergies – from footwear and apparel to winter sports equipment and ball sports.

The fitness and sports instruments divisions offer fewer synergies than the other four, and their performance has to improve in terms of profit margins.

For both of them, Amer Sports has decided to continue working on improvements until the end of the current investment cycle, and to make choices for the next cycle based on the outcome. The group indicated that this assessment of long-term strategic options would include standalone opportunities.

The sports instruments division was meant to deliver disproportionate growth for scale, on the back of investments to enlarge the product offering. It raised its turnover by 20 percent to €69.9 million in the first half, and Takala told investors that improvements in profitability would come next.

Among the four other business units, apparel has delivered on its assignment to deliver a full acceleration. This entity has been further reinforced with the acquisition of Peak Performance earlier this year.

Footwear, which was supposed to produce sustainable, profitable growth, has done just that – until a slowdown in its sales expansion this year, but this was due to a distribution cleanup that should be beneficial in the longer term.

The target for the winter sports equipment business unit was to yield sustainable profitability regardless of weather conditions, which has been the case. Cash and profit were the priorities for the ball sports division. This has worked out quite well, although sales growth has been more challenging.

The strategic priorities of recent years have led to significant shifts in the spread of the turnover. While apparel and footwear made up about 20 percent of sales eight years ago, the ratio should reach about 40 percent this year, and 50 percent in the next cycle. The share of direct to consumer sales has soared from less than 2 percent to more than 10 percent, and the expectations are that they will double in the next cycle. Accounting for just 1 percent of sales in 2010, sales in the Chinese market have risen to about 6 percent of Amer's turnover.

But Amer Sports suggested that it had to make new choices, due to a slowdown in its growth curve in the last two years. Some of this was attributed to the issues in the U.S. retail market, which caused the loss of more than 1,000 doors for the group. Another factor is that Amer Sports has invested upfront for its digital development and its fitness division.

The priority areas have delivered and will remain in focus. The group's soft goods generated sales of about €1 billion in 2017 and they have achieved the targeted average annual growth of 9 to 10 percent. Direct to consumer sales, which surpassed €250 million in 2017, are on track with their annual sales rise of over 20 percent. The same applies for sales in China, which reached €120 million last year. Sales of connected devices, which amounted to €250 million in 2017, are aligned with targeted growth in the range of 20 percent. The U.S. generated a turnover of €1 billion for the group last year and regional sales are within the reduced targeted range of 3 to 5 percent.

Amer's financial targets remain unchanged, aiming for a mid-single digit organic annual sales growth in constant currencies, an annual Ebit growth excluding one-off items ahead of sales growth, a conversion rate of net profit to free cash flow of at least 80 percent, and a maximum ratio of three times net debt to Ebitda at the year-end.