Rapala VMC Corporation Stock Exchange Release 1(12)
April 26, 2007
Improved profitability for the first quarter
* Despite the weakening of US dollar and slow sales of winter
fishing and sports equipment, first quarter net sales were on last
year record level at 63.4 MEUR (I/06: 63.4 MEUR). Weakening of US
dollar and some other currencies decreased net sales by 3.2 MEUR.
* Operating profit improved clearly from last year and
amounted to 12.0 MEUR (10.0 MEUR). Operating margin improved to
18.9% (15.8%).
* Net profit for the first quarter amounted to 7.7 MEUR (5.7
MEUR). Earnings per share were 0.20 EUR (0.15 EUR).
* Cash flow from operating activities was above last year
level. Net interest-bearing debt increased to 109.1 MEUR (Dec 2006:
99.3 MEUR) due to Terminator acquisition and seasonally higher
working capital. Accordingly, equity-to-asset ratio decreased to
32.9% (Dec 2006: 33.4%) and gearing increased to 123.5% (Dec 2006:
122.2%) while both indicators improved compared to March 2006.
* Rapala continued to implement its strategy for profitable
growth. The acquisition of Terminator fishing tackle business was
completed in January. Also in January, a new sales company was
established in South Korea. The start-up of the new lure assembly
factory in Russia proceeds. Integration of previously acquired
businesses is completed.
* Several performance improvement initiatives have been
initiated in the Group and they are expected to show some results
already in 2007 but mainly in 2008 and 2009.
* It is expected that the Group's net sales for the financial
year 2007 will increase 5-10% from last year assuming 2006 average
exchange rates. With comparable exchange rates, also operating
profit and operating profit margin are expected to improve from
2006.
The attachment presents the interim review by the Board of Directors
as well as accounts.
A conference call concerning the first quarter interim report will be
arranged today at 2 pm Finnish time (1 pm CET). To participate,
please dial 5 minutes before the beginning of the event +358 (0) 2069
9121 and request to be connected to the Rapala teleconference. There
will also be a replay facility available for 72 hours immediately
following the teleconference. The number to dial is +358 (0)
800 177 109 (pin-code: 0976).
Rapala's financial information is also available on the internet at
www.rapala.com.
For further information, please contact:
Jorma Kasslin, President and Chief Executive Officer, +358 9 7562 540
Jouni Grönroos, Chief Financial Officer, +358 9 7562 540
Olli Aho, Investor Relations, +358 9 7562 540
Distribution: Helsinki Stock Exchange and Main Media
Operating Review and Sales
The fishing tackle market remained quite stable in Western Europe and
USA. In Australia and South-Africa the market remained very strong
and the summer fishing tackle season is now coming to its end. The
market growth continued in Eastern Europe and Asia. Due to an
unusually short and mild winter season in the Nordic countries, the
market for both winter fishing and winter sports equipment was very
slow.
First quarter net sales were in line with Group expectations and
reached last year record levels at 63.4 MEUR (I/06: 63.4 MEUR). Net
sales were negatively affected by the mild and short winter and the
weakening of especially US dollar. Weakening of US dollar and some
other currencies decreased net sales by 3.2 MEUR. Excluding the
effect of foreign exchange movements, organic growth was 4% for the
first quarter. Net sales in North America were slightly down due to
weak US dollar. With comparable exchange rates, sales were up 8% in
North America. Net sales were down in Nordic due to the slow winter
season while sales in the rest of the world increased clearly from
last year.
Investment in strategic development of the Group's product portfolio
and market coverage continued during the quarter. For more details on
acquisitions and organic growth see section "Strategy
Implementation".
Financial Results
I I I-IV
MEUR 2007 2006 2006
Net sales 63.4 63.4 226.6
EBITDA 12.3 11.6 28.0
Operating profit (EBIT) 12.0 10.0 21.7
Profit before taxes 11.0 7.8 14.6
Net profit for the period 7.7 5.7 11.0
Operating profit for January-March improved 20% from last year and
reached 12.0 MEUR (10.0 MEUR). Operating profit margin increased to
18.9% (15.8%) and return on capital employed to 25.4% (21.9%). The
result benefited from the good summer season in Australia and South
Africa, increased sales of lures and other Group manufactured
products and a negative goodwill from the acquisition of Terminator
lure business (1.2 MEUR). Operating profit was negatively affected by
bad winter season for winter fishing and winter sports as well as the
weakening of the US dollar (-0.2 MEUR net for all currencies). The
result of currency hedging related to operating profit (+0.3 MEUR) is
booked in financial expenses in accordance with IFRS. Integration and
business development expenses were at last year levels.
Geographically, the biggest increase in operating profit came from
North America while Nordic suffered from the mild winter and China
from the increased raw material costs and wages.
Financial expenses decreased from last year due to currency exchange
gains of 0.5 MEUR (losses of 0.9 MEUR). Net interest expenses
increased to 1.4 MEUR (1.3 MEUR) as a result of higher base interest
rates. Net profit for the quarter amounted to 7.7 MEUR (5.7 MEUR) and
earning per share was 0.20 EUR (0.15 EUR).
Cash Flow and Financial Position
Cash flow from operating activities was above last year level due to
increased profit and lower increase in working capital. Working
capital increased 17.8 MEUR from December 2006 as inventories and
especially trade receivables were seasonally up and new inventories
were built up for the acquired Terminator lures, the new sales
company in South Korea and the South-East European new sales of
Shimano products. Net cash used in investing activities for the first
quarter, including acquisitions, amounted to 3.0 MEUR (6.2 MEUR).
Net interest-bearing debt increased to 109.1 MEUR (Dec 2006: 99.3
MEUR) as a result of acquisitions, new businesses and increased
working capital. Equity-to-asset ratio decreased seasonally to 32.9%
(Dec 2006: 33.4%) and gearing increased accordingly to 123.5% (Dec
2006: 122.2%), both of these ratios improved compared to March 2006.
Strategy Implementation
During the first quarter of 2007, Rapala continued the development of
the Group's product portfolio and market coverage to implement its
strategy for profitable growth.
In January, the Group closed the purchase of the US based
manufacturer and distributor of Terminator branded spinner baits and
other fishing lures. Terminator is number two in the US spinner bait
market with annual sales of some 2 MEUR in 2006. Currently these
lures are manufactured in a subcontract facility in Mexico but the
production is planned to be transferred later to Rapala's factory in
China.
Also in January, Rapala established a sales company in South Korea to
expand its distribution network in Asia. The sales of Group branded
products in Korea started in February as planned.
The start-up of the new lure assembly factory in Russia proceeds. By
the end of the first quarter, the recruiting of personnel and
preparation of premises were finalized. The final approval from local
authorities was granted in April and the assembly work starts on the
last week of April.
The new sales of Shimano products to South-East Europe through the
Group's distribution center in Hungary have started well in the first
quarter and are expected to further strengthen during the year.
Integration of businesses acquired in 2005 and 2006 is completed.
Short-term Outlook
The market outlook for the rest of 2007 looks quite stable. Fishing
tackle sales in North America and Europe have started well while
Australia and Africa are heading for the winter season, which will
seasonally slow down their business for few months.
It is expected that the Group's net sales for the financial year 2007
will increase 5-10% assuming 2006 average exchange rates. Possible
additional acquisitions during 2007 would further increase the sales.
The profitability of the Group's ongoing operations continues to be
good. Special initiatives have been started to further improve the
profitability. In addition, prices have been increased and further
price increases are planned to compensate for recent increases in raw
material costs and wages especially in China. Business development
and integration expenses and start-up costs will continue in 2007
while the new initiatives are planned and implemented but these costs
are not expected to exceed the comparable costs in 2006.
Assuming 2006 average exchange rates, operating profit and operating
profit margin are expected to improve compared to 2006 while the
investments and development initiatives made since 2005 will start to
bear fruit in 2007.
The project to reduce working capital, especially inventories, and to
improve cash flow from operations continues. The target is to see an
improvement on ongoing operations while newly acquired businesses,
start-ups and strongly growing units will tie additional working
capital.
Group management continues planning and negotiations regarding
further acquisitions and business combinations to implement the
Group's strategy.
The launch of Rapala's new products for season 2008 will take place
during the second quarter. This new product program will include new
sport fishing attractants that contain Ultrabite branded fish
pheromone.
The second quarter interim report will be published on July 26.
Helsinki, April 26, 2007
Board of Directors of Rapala VMC Corporation
CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
INCOME STATEMENT I I I-IV
MEUR 2007 2006 2006
Net sales 63.4 63.4 226.6
Other operating income 0.3 0.2 1.5
Cost of sales 32.5 33.4 128.3
Other costs and expenses 18.8 18.6 71.9
EBITDA 12.3 11.6 28.0
Depreciation 0.3 1.5 6.3
Operating profit (EBIT) 12.0 10.0 21.7
Financial income and expenses 1.0 2.2 7.1
Share of results in associated companies 0.0 0.0 0.0
Profit before taxes 11.0 7.8 14.6
Income taxes 3.3 2.1 3.6
Net profit for the period 7.7 5.7 11.0
Attributable to:
Equity holders of the Company 7.6 5.7 10.8
Minority interest 0.1 -0.1 0.2
Earnings per share for profit attributable
to the equity holders of the Company:
Earnings per share, EUR (diluted = non-diluted) 0.20 0.15 0.28
STATEMENT OF CASH FLOWS I I I-IV
MEUR 2007 2006 2006
Net profit for the period 7.7 5.7 11.0
Adjustments 2.8 4.3 7.1
Change in working capital -17.8 -19.6 -8.1
Net cash generated from operating activities -7.3 -9.6 10.0
Investments -1.4 -1.1 -7.2
Proceeds from sales of assets 0.0 0.1 0.6
Change in loans receivable 0.0 0.0 0.2
Acquisition of subsidiaries, net of cash -1.6 -5.2 -8.3
Net cash used in investing activities -3.0 -6.2 -14.7
Dividends paid 0.0 0.0 -4.2
Net funding 7.8 12.3 14.7
Proceeds from share subscriptions 0.0 0.4 0.4
Net cash generated from financing activities 7.8 12.7 10.9
Change in cash and cash equivalents -2.5 -3.1 6.2
Cash & cash equivalents at the beginning of the
period 24.4 19.2 19.2
Foreign exchange rate effect -0.2 -0.2 -1.0
Cash and cash equivalents at the end of the period 21.8 15.9 24.4
BALANCE SHEET Mar 31 Mar 31 Dec 31
MEUR 2007 2006 2006
ASSETS
Non-current assets
Intangible assets 53.4 56.1 53.3
Property, plant and equipment 29.3 30.0 29.4
Non-current financial assets
Interest-bearing 0.6 0.6 0.6
Non-interest-bearing 6.3 5.9 6.3
89.6 92.6 89.6
Current assets
Inventories 79.9 77.7 73.0
Current financial assets
Interest-bearing 0.0 0.3 0.2
Non-interest-bearing 77.6 68.8 56.5
Cash and cash equivalents 21.8 15.9 24.4
179.3 162.7 154.0
Total assets 268.8 255.4 243.6
EQUITY AND LIABILITIES
Equity
Equity attributable to the equity holders of the
Company 87.8 82.2 80.7
Minority interest 0.6 0.3 0.6
88.4 82.5 81.3
Non-current liabilities
Interest-bearing 75.4 59.0 64.6
Non-interest-bearing 6.6 5.9 6.6
82.0 64.9 71.1
Current liabilities
Interest-bearing 56.1 70.4 59.9
Non-interest-bearing 42.4 37.5 31.3
98.5 108.0 91.2
Total equity and liabilities 268.8 255.4 243.6
Rounding of figures
All figures in these accounts have been rounded. Consequently the sum
of individual figures can deviate from the presented sum figure. Key
figures have been calculated using exact figures.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Attributable to equity holders of the
Company
Share Fair Cumulative
Share premium value translation Retained Minority Total
MEUR capital fund reserve differences earnings interest equity
Equity on Jan 1,
2006* 3.5 16.3 - -4.5 60.0 0.2 75.4
Change in
translation
differences - - - 0.3 - - 0.3
Items recognized
directly in equity - - - 0.3 - - 0.3
Net profit for the
period - - - - 5.7 -0.1 5.7
Total recognized
income and
expenses - - - 0.3 5.7 -0.1 6.0
Dividends paid - - - - - - -
Shares subscribed
with options 0.0 0.4 - - - - 0.4
Stock option
program - - - - 0.2 - 0.2
Other changes 0.0 - - - 0.3 0.2 0.6
Equity on Mar 31,
2006* 3.5 16.7 - -4.2 66.2 0.3 82.5
Equity on Jan 1,
2007 3.5 16.7 0.1 -7.1 67.6 0.6 81.3
Change in
translation
differences - - - -0.8 - - -0.8
Net investments in
a foreign
subsidiaries - - - 0.0 - - 0.0
Fair value gains
on
available-for-sale
investments, net
of tax - - - 0.0 - - 0.0
Items recognized
directly in equity - - - -0.8 - - -0.8
Net profit for the
period - - - - 7.6 0.1 7.7
Total recognized
income and
expenses - - - -0.8 7.6 0.1 6.9
Dividends paid - - - - - - -
Shares subscribed
with options 0.0 0.0 - - - - 0.0
Stock option
program - - - - 0.2 - 0.2
Other changes - - - - 0.0 0.0 0.0
Equity on Mar 31,
2007 3.5 16.7 0.1 -7.9 75.4 0.6 88.4
* Note: 2005 and I/2006 comparables have been changed, see notes to
the income statement and balance sheet for more details
KEY FIGURES BY QUARTERS I II III IV I-IV I
MEUR 2006 2006 2006 2006 2006 2007
Net sales 63.4 64.2 49.8 49.2 226.6 63.4
EBITDA 11.6 9.7 4.4 2.4 28.0 12.3
Operating profit (EBIT) 10.0 8.1 2.8 0.7 21.7 12.0
Profit before taxes 7.8 6.1 1.0 -0.3 14.6 11.0
Net profit for the period 5.7 4.5 0.4 0.5 11.0 7.7
KEY FIGURES I I I-IV
2007 2006 2006
EBITDA margin, % 19.5% 18.2% 12.4%
Operating profit margin, % 18.9% 15.8% 9.6%
Return on capital employed, % 25.4% 21.9% 12.3%
Capital employed at end of period, MEUR 197.5 195.2 180.6
Net interest-bearing debt at end of period, MEUR 109.1 112.7 99.3
Equity-to-assets ratio at end of period, % 32.9% 32.3% 33.4%
Debt-to-equity ratio at end of period, % 123.5% 136.6% 122.2%
Earnings per share, EUR 0.20 0.15 0.28
Average number of shares outstanding (1000) 38 577 38 541 38 565
Fully diluted earnings per share, EUR 0.20 0.15 0.28
Fully diluted average number of shares (1000) 38 580 38 603 38 609
Equity per share at end of period, EUR 2.27 2.13 2.09
Number of shares outstanding at end of period
(1000) 38 579 38 576 38 576
Average personnel for the period 4 051 3 797 3 987
SEGMENT INFORMATION I I I-IV
MEUR 2007 2006 2006
Net Sales by Area**
North America 21.1 21.6 69.7
Nordic 24.9 25.8 94.2
Rest of Europe 25.4 24.4 83.0
Rest of the world 14.8 10.8 43.7
Intra-Group -22.8 -19.2 -64.0
Total 63.4 63.4 226.6
Operating Profit by Area**
North America 3.8 1.9 6.4
Nordic 2.7 3.4 6.9
Rest of Europe 4.2 3.9 7.0
Rest of the world 1.1 2.0 2.8
Intra-Group 0.2 -1.2 -1.4
Total 12.0 10.0 21.7
Net Sales by Product line***
Lures 23.1 21.6 73.0
Fishing Hooks 4.9 4.4 14.8
Fishing Accessories 10.7 11.4 45.8
Third Party Fishing Products 16.8 17.5 53.5
Other Products 8.8 9.3 42.4
Intra-Group -1.0 -0.8 -2.9
Total 63.4 63.4 226.6
** Note: This primary segment information is by geographical areas
and it has been prepared on source basis i.e. based on the location
of the business unit. Each area shows the sales/profit generated in
that area excluding intra-Group transaction within that area, which
have been eliminated. Intra-Group line includes the eliminations of
intra-Group transactions between geographical areas.
*** Note: This secondary segment information is by product lines.
Lures, Fishing Hooks and Fishing Accessories include Group branded
fishing tackle products. Third Party Fishing Products include
non-Group branded fishing products, mostly rods and reels. Other
Products include non-Group branded (third party) products for
hunting, outdoor and winter sports and Group branded products for
winter sports and some other businesses.
NOTES TO THE INCOME STATEMENT AND BALANCE SHEET
This interim report has been prepared in accordance with recognition
and valuation principles of International Financial Reporting
Standards (IFRS) and in accordance with IAS 34 (Interim Financial
Reporting). The accounting principles adopted in the preparation of
the interim report are consistent with those followed in the
preparation of the Group's Annual Report as at December 31, 2006,
except for the adoption of new and amended standards and
interpretations: IFRIC 8 (Scope of IFRS 2), IFRIC 9 (Reassessment of
Embedded Derivatives) and IFRIC 10 (Interim Financial Reporting and
Impairment). Adoption of these standards and interpretations did not
result in any changes in the accounting principles that would have
affected the information presented in this report.
Changes in comparable figures
Comparable figures were changed at year end 2006. For more
information on the changes and effects see Annual Report 2006.
Inventories
In March 31, 2007 the book value of inventories differed from its net
realizable value by EUR 1.0 million, the same as at December 31,
2006. In March 31, 2006, the book value of inventories did not differ
significantly from its net realizable value.
Hedging of net investments in foreign subsidiaries
During the first quarter the Group started to hedge its net
investments in AUD, JPY and NOK currency denominated foreign
subsidiaries using equivalent currency loans. The Group will start to
partially hedge its net investment in USD and SEK currency
denominated foreign subsidiaries during the second quarter of 2007.
Hedging relationships are treated according to IAS 39 as effective
hedges of a net investment in a foreign subsidiary, which means that
the foreign exchange effect on these loans is recorded directly in
equity.
Open currency derivatives
Mar 31 Mar 31 Dec 31
MEUR 2007 2006 2006
Net fair values 0.0 0.0 0.0
Contract amount 2.7 0.2 1.0
Commitments
Mar 31 Mar 31 Dec 31
MEUR 2007 2006 2006
Mortgages and pledges
On own behalf 16.1 41.8 17.6
Guarantees
On own behalf 1.0 0.8 1.1
On behalf of other parties 0.8 0.5 0.6
Minimum future lease payments on operating
leases 13.2 7.0 12.6
Related party transactions
In Jan-Mar 2007, purchases from associated company Lanimo Oü were 0.0
MEUR (0.0 MEUR in Jan-Mar 2006 and 0.1 MEUR in Jan-Dec 2006). At
March 31, 2007, trade payables to Lanimo Oü were 0.0 MEUR (0.0 MEUR
at March 31, 2006 and 0.1 MEUR at Dec 31, 2006).
Impact of acquisitions on the consolidated financial statements
In January 2007, Rapala acquired the fishing tackle business of
Outdoor Innovations LLC and Horizon Lures LP, USA based manufacturers
and distributors of Terminator branded spinner baits and other
fishing lures. The deal includes patents for the use of nickel
titanium wire in fishing lures, trade marks, customer lists,
inventories and some other assets.
Mar 31, 2007 Seller's
Fair carrying
MEUR value amount
Working capital 2.6 2.6
Intangible assets 0.7 0.1
Tangible assets 0.1 0.1
Deferred tax liability -0.1 0.0
Fair value of acquired net assets 3.2 2.8
MEUR I 2007
Cash paid 1.5
Cash to be paid 0.4
Cost associated with the acquisition 0.1
Total purchase consideration 2.0
Excess of Group's interest in the net fair value of
acquired net assets over cost 1.2
Cash paid for the acquisition 1.6
Cash and cash equivalents acquired 0.0
Net cash flow effect 1.6
Non-recurring income and expenses in operating profit
I I I-IV
MEUR 2007 2006 2006
Gains/losses on disposals of intangible and tangible
assets 0.0 0.0 -0.1
Excess of Group's interest in the net fair value of
acquired net assets over cost 1.2 0.0 0.0
Restructuring costs 0.0 0.0 -0.2
Start-up costs 0.0 0.0 -0.1
Total 1.3 0.0 -0.4
Share-based payments
The Group has three separate share-based payment programs: two stock
option programs and one synthetic option program settled in cash.
Terms and conditions of the option program are described in detail in
the Annual Report 2006. The options are valued at fair value on the
grant date by using the Black-Scholes option-pricing model. The total
estimated value of the program is EUR 5.5 million. Share-based
payment programs are valued at fair value on the grant date and
recognized as an expense in the income statement during the vesting
period with a corresponding adjustment to the equity or liability.
Grant date is the date at which the entity and another party agree to
a share-based payment arrangement, being when the entity and the
counter party have a shared understanding of the terms and conditions
of the arrangement. 1 909 500 share option where granted on June 8,
2004, 92 500 share options on February 14, 2006 and 978 500 synthetic
options on December 14, 2006. The exercise periods of the option
program are: for 2003A March 31, 2005 to March 31, 2007, for 2003B
March 31, 2006 to March 31, 2008, for 2004A March 31, 2007 to March
31, 2009, for 2004B from March 31, 2008 to March 31, 2010, for 2006A
from March 31, 2009 to March 31, 2011 and for 2006B from March 31,
2010 to March 31, 2012. Applying of IFRS 2 reduced operating profit
with 0.9 MEUR in 2006, 0.3 MEUR in Jan-Mar 2006 and 0.3 in Jan-Mar
2007.
Shares and share capital
Based on authorization given by the Annual General Meeting in April
2007, the Board can decide to issue shares through issuance of
shares, options or special rights entitling to shares in one or more
issues. The number of new shares to be issued including the shares to
be obtained under options or special rights shall be no more than 10
000 000 shares. This authorization includes the right for the Board
to resolve on all terms and conditions of the issuance of new shares,
options and special rights entitling to shares, including issuance in
deviation from the shareholders' preemptive rights. This
authorization is in force for a period of 5 years from the resolution
by the Annual General Meeting. The Board is also authorized to
resolve to repurchase a maximum of 2 000 000 shares. This amount of
shares corresponds to less than 10 per cent of all shares of the
company. This authorization is in force until September 30, 2008.
2 500 new Rapala shares where subscribed with 2003A option rights in
March 2007. The share capital increased with 225.00 EUR and the
subscriptions were registered in the Trade Register on April 4, 2007
and listed on the main list of the Helsinki Stock Exchange on April
5, 2007. As a result of the share capital increase the company's
share capital is 3 472 089.21 EUR and the number of shares 38 578 769
on March 31, 2007. All 500 000 shares have now been subscribed with
2003A option rights.
As a result of the share subscriptions with the 2003 and 2004 stock
option programs, and if all stock options are fully exercised, the
Group's share capital may still be increased by a maximum of 122 505
EUR and the number of shares by a maximum of 1 361 168 shares. The
shares that can be subscribed with these stock options correspond to
3.5% of the Company's shares and voting rights.
During the first three months 2 131 888 shares (3 267 463 shares)
were traded. The shares traded at a high of 6.27 EUR and a low of
5.65 EUR during the period. The closing share price at the end of the
period was 5.92 EUR.
Events after the end of the interim period
The Group has no knowledge of any significant events after the end of
the interim period that would have a material impact on the financial
statements for Jan-Mar 2007. Material events after the end of the
interim period, if any, have been discussed in the interim review by
the Board of Directors.