Rapala VMC Corporation
Stock Exchange Release
July 23, 2008 at 10.00 am
Good performance in a challenging market condition with a weak US
dollar
- Net sales for second quarter reached a new quarterly record at 74.2
MEUR (II/07: 73.4 MEUR). Net sales for the first six months increased
2% to 139.4 MEUR (I-II/07:136.8 MEUR) despite negative currency
movements. With comparable exchange rates, the six-month net sales
were up 8%.
- Operating profit for April to June improved 26% from last year
mainly as a result of performance improvement actions and totaled
13.8 MEUR (11.0 MEUR). Operating profit for the first half of the
year was up 6% to 24.5 MEUR (23.0 MEUR). Comparable operating profit
improved to 24.6 MEUR (21.7 MEUR) and operating margin to 16.7%
(15.9%).
- Net profit for the second quarter increased 40% and amounted to 9.4
MEUR (6.7 MEUR) and 16.2 MEUR (14.4 MEUR) for the first half of the
year. Earnings per share was up to 0.21 EUR (0.17 EUR) for the
quarter and 0.37 EUR (0.37 EUR) for the first six months.
- Cash flow from operating activities was 6.2 MEUR (13.6 MEUR) in the
second quarter and -10.1 MEUR (6.2 MEUR) for the first six months as
working capital increased.
- Net interest-bearing debt increased slightly from March to 98.7
MEUR (Dec 2007: 80.2 MEUR). Equity-to-assets ratio increased from
March to 37.5% (Dec 2007: 38.2%) and gearing decreased from March to
96.1% (Dec 2007: 82.8%).
- Rapala continued to implement its strategy for profitable growth.
The acquisition of fishing line brand Sufix and conclusion of an
exclusive supply agreement were closed on July 10. The ramp-up of the
lure assembly factory in Russia and development of manufacturing
operations in China proceeded on plan and the Irish lure factory was
closed in April.
- It is expected that the net sales for 2008 will increase 5-10% from
last year assuming 2007 average exchange rates. With comparable
exchange rates and excluding non-recurring items, full year operating
margin is expected to improve from 2007.
The attachment presents the interim review by the Board of Directors
as well as the accounts.
A conference call on the second quarter 2008 result will be arranged
today at 12 pm Finnish time (11 am CET). Please dial +44 (0)20 8602
0812 or +1 212 999 6646 (pin code: 222408#) five minutes before the
beginning of the event and request to be connected to Rapala
teleconference. A replay facility will be available for 14 days
following the teleconference. The number (pin code: 222408#) to dial
is +44 (0)20 7806 1970 or +1 718 354 1112. Financial information and
a teleconference reply facility are also available 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
Market Situation and Sales
Market situation continued good in North and East Europe, whereas
some markets in West Europe and especially North America started to
suffer from the downturn in economy. In Nordic countries, sales were
up 16% for the second quarter and 19% for the first six months.
Boosted by the East Europe, net sales in Rest of Europe were up 15%
for the second quarter and 16% for the first half of the year. Sales
in Rest of the world were at last year levels in local currencies
while reported euro-based net sales were below last year mainly
because of strong weakening of US dollar and South African rand.
In North America, the overall economic climate continued to weaken.
This together with strongly increased gasoline prices started to
affect also consumer spending on fishing tackle towards the end of
the second quarter despite of the fact that fishing tackle business
has traditionally not suffered a lot from the economic slowdowns. As
a result of previous factors and weakening of the US dollar, net
sales in North America decreased 25% for the second quarter and 22%
for the first six months. With comparable exchange rates, North
American sales were down 15% for April to June and 11% for January to
June.
The decrease of sales in North America affected strongly the net
sales of Lures, which was down 19% for the quarter and 17% for this
first six months. Net sales of Fishing hooks was down 9% for April to
June and 7% for January to June. Net sales of Fishing accessories
grew 6% for the second quarter and 3% for the six-month period. Net
sales of Third party fishing products were up 13% for the quarter and
19% for the first six months due to increased sales of Shimano rods
and reels. Net sales of Other products grew 19% for the second
quarter and 18% for the first half of the year mainly as a result of
increased sales of gift and hunting products.
Net sales for April to June reached a quarterly record level at 74.2
MEUR (73.4 MEUR). Net sales for the first six months increased to
139.4 MEUR (136.8 MEUR). Weakening of the US dollar, South African
rand and some other currencies decreased the net sales for January to
June by 7.7 MEUR. With comparable exchange rates, the six-month net
sales were up 8%.
The first half of the year is traditionally the strongest period for
Group sales since the fishing tackle deliveries to dealers and
retailers are normally at their peak from February to May.
New products for the 2009 season were introduced in June at EFTTEX
trade show in Italy and in July at ICAST trade show in the USA. The
new introductions were rewarded in several categories and well
received by the fishing professionals and distributors.
Financial Results II II I-II I-II I-IV
MEUR 2008 2007 2008 2007 2007
Net sales 74.2 73.4 139.4 136.8 242.5
EBITDA 15.4 12.6 27.6 24.9 33.8
Operating profit (EBIT) 13.8 11.0 24.5 23.0 28.3
Profit before taxes 12.8 9.8 22.1 20.8 23.3
Net profit for the period 9.4 6.7 16.2 14.4 17.5
Operating profit for the second quarter increased to 13.8 MEUR (11.0
MEUR). Operating margin was up to 18.7% (15.0%) and return on capital
employed reached 29.3% (23.6%). Operating profit was negatively
affected mainly by declining sales in North America. This was more
than compensated by the improved profitability in East and North
Europe and the results from the performance improvement actions
started in 2007. The result also benefitted from the decreased IFRS
based fair value of option programs as a result of the decline in
share price.
Operating profit for the first half of the year increased 7% and
reached 24.5 MEUR (23.0 MEUR). Operating margin improved to 17.6%
(16.8%) and return on capital employed to 25.9% (24.7%). This
improvement comes mainly from the gain from the sales of the French
real estate in January (1.2 MEUR), results of performance improvement
initiatives and decreased IFRS based option expenses. On the other
hand, operating profit for January to June was negatively affected by
the decreased sales in North America, one-time restructuring and
other non-recurring costs (0.5 MEUR) and the weakening of especially
US dollar and South African rand (0.8 MEUR). The result of currency
hedging related to operating profit (+0.6 MEUR) is booked in
financial items. Operating profit for January to June in 2007
included 1.3 MEUR (net) non-recurring gains and expenses. Comparable
six-month operating margin, excluding non-recurring items and foreign
exchange effects, improved from 2007 and reached 16.7% (15.9%).
Management
analysis
MEUR I-II/2008 I-II/2007 I-II/2008 I-II/2007
Net sales as Operating profit
reported 139.4 136.8 as reported 24.5 23.0
Foreign
exchange Non-recurring
effects 7.7 - items (net) -0.7 -1.3
Comparable Foreign exchange
net sales 147.1 136.8 effects 0.8 -
Comparable
operating profit 24.6 21.7
Operating
margin as Comparable
rep. 17.6% 16.8% operating marg. 16.7% 15.9%
All geographical segments but North America improved their operating
profit both for the second quarter and the first six months.
Profitability of Nordic countries improved in line with improved
sales and results of performance improvement actions. Improvement in
operating profit of Rest of Europe was boosted by the good
performance in East Europe and the French capital gain. Profitability
of Rest of the world was boosted by increased sales of gift products
and increased manufacturing prices. Operating profit of North America
suffered from the reduced sales and increased purchase prices.
Financial income and expenses were close to last year levels. Net
interest expenses were 1.5 MEUR (1.5 MEUR) for the second quarter and
2.9 MEUR (3.0 MEUR) for the first six months. Currency exchange gains
were 0.4 MEUR (0.4 MEUR) for the second quarter and 0.5 MEUR (0.8
MEUR) for the first six months.
Net profit improved clearly from previous year and amounted to 9.4
MEUR (6.7 MEUR) for the second quarter and to 16.2 MEUR (14.4 MEUR)
for the first half of the year. Earnings per share (basic) was 0.21
EUR (0.17 EUR) for the quarter and 0.37 EUR (0.37 EUR) for the first
six months.
Cash Flow and Financial Position
Cash flow from operating activities decreased in the second quarter
from last year but improved clearly from the first quarter. Working
capital increased from last year and December 2007 as trade
receivables increased seasonally and new inventories for Shimano
distribution tied additional capital. Inventories increased also in
the USA as a result of the decline in sales.
Cash used in investing activities amounted to 1.4 MEUR (1.9 MEUR) for
the second quarter and 3.4 MEUR (4.9 MEUR) for the first half of the
year.
Net interest-bearing debt increased slightly from March to 98.7 MEUR
(Dec 2007: 80.2 MEUR). Equity-to-assets ratio increased from March to
37.5% (Dec 2007: 38.2%) and gearing decreased from March to 96.1%
(Dec 2007: 82.8%). Both ratios improved also from June 2007.
Strategy Implementation - Growth
Rapala's strategic objective is profitable growth. During the second
quarter, management continued discussions and negotiations regarding
acquisitions and business combinations to implement the Group's
strategy. Development of organic growth also in terms of new product
lines, extensions of current product categories as well as special
marketing, sales and brand initiatives continued.
In June, it was announced, that Rapala and Yao I Co ltd ("Yao I"),
one of the leading manufacturers of fishing line in the world having
its offices in Changhua, Taiwan, and fishing line factories in Taiwan
and China, have decided to conclude an exclusive supply agreement for
the supply of fishing lines. In connection with this arrangement, Yao
I agreed to sell its Sufix brand, including all intangible assets
relating to Sufix branded and other fishing line business (excluding
manufacturing related), to Rapala. The deal was closed on July 10.
According to the terms of the exclusive supply agreement, after an
interim period and under certain conditions, Rapala alone will be
selling fishing lines manufactured by Yao I and Yao I will be
manufacturing fishing lines for Rapala only, including subcontracted
fishing lines for third party customers (OEM).
Sufix brand is very well known around the world already for more than
20 years. The largest market for Sufix is currently the USA but the
brand is well represented also in Europe, Asia and Oceania. As part
of the deal, Rapala will acquire the Sufix branded fishing line
inventory from Sufix North America, Inc. In the USA, Sufix fishing
lines will be distributed by Rapala's US distribution company,
Normark Corporation, from the end of July onwards. After a short
interim period, also all other Rapala's 27 distribution companies
around the world will commence the distribution of Sufix branded
fishing lines.
Rapala aims to expand its fishing line sales in the next few years to
some 25-40 MEUR and gain a significant market share of the global
fishing line business. In 2007, the fishing line sales of Rapala were
some 7 MEUR. This deal will have an immaterial effect on Rapala's
2008 net sales and profitability but it is expected to increase
Rapala's fishing line sales close to 10 MEUR in 2009 compared to
2007.
The consideration for the Sufix brand, including all intangible
assets relating to Sufix branded and other fishing line business
(excluding manufacturing related), is 10 MUSD and will be paid over
the next seven years. In addition, Rapala will pay some 1.7 MUSD for
Sufix US fishing line inventories.
Strategic distribution alliance with Shimano continues to strengthen
the Group's position in the fastest growing fishing tackle markets in
Eastern Europe. As the latest addition to this distribution alliance,
Rapala will start to distribute Shimano fishing tackle through its
Czech joint venture distribution company in September. The Group has
also recently established a sales office in Slovakia for supplying
fishing tackle to Slovakian market.
Strategy Implementation - Profitability
During the quarter, strong emphasis on performance improvement
initiatives continued.
The manufacturing operations in Ireland were closed in the end of
April. The manufacturing functions have been taken over by the
Group's lure factory in Estonia and the majority of the assembly work
previously made in Estonian factory has been transferred to the
Russian factory. The ramp-up of the lure assembly factory in Russia
progressed on plan.
The next step in the initiative to consolidate the Group operations
in France to Morvillars is the move of distribution unit Waterqueen
and fishing line supplier Tortue during the third quarter of 2008.
The final step will be the move of hook distributor VMC Europe, which
will take place earliest in the fourth quarter of 2008 but most
likely later in 2009. After all relocations have been made and the
new organisation is fully operational, the annual savings in France
are expected to be 1-2 MEUR.
The performance improvement initiatives at the Group's manufacturing
facilities in China to enhance its production efficiencies and
shorten lead times proceed on plan. The physical separation of
fishing tackle and gift businesses into separate premises and
organizations is now completed. New production planning system and
related new processes are expected to be implemented by the end of
the year.
Many of the smaller performance improvement initiatives have already
started to improve the Group's financial performance.
Short-term Outlook
Market outlook for the rest of 2008 looks challenging. The slowdown
in the US economy is expected to affect the sales in North America.
Most fishing tackle markets are now heading to the seasonally slow
third quarter. Towards the end of the third quarter, the spring
season will start in Australia and South Africa and boost their
business for the third and fourth quarter. The distribution of third
party products for hunting, and towards the end of the quarter also
winter sports, are relatively the highest in the third quarter. Since
the margins of these products are on average lower than those of
fishing tackle, this will traditionally affect the profitability of
the third quarter.
It is expected that the Group's net sales for the financial year 2008
will increase 5-10% from 2007 assuming comparable exchange rates.
Possible additional acquisitions or business combinations during
latter half of 2008 would further increase the sales.
Profitability of the Group's ongoing operations continues to be good.
Special initiatives are being implemented to further improve the
profitability. Price increases for 2009 season are planned to
compensate the increases in raw materials, production, transportation
and distribution costs. Business development and integration expenses
and start-up costs will continue in 2008. These costs, excluding the
possible non-recurring costs, are not expected to exceed the
comparable costs in 2007.
With comparable exchange rates and excluding non-recurring items, the
operating margin for 2008 is expected to improve from 2007.
Group management continues planning and negotiations regarding
further acquisitions and business combinations to implement the
Group's strategy. Also work to manage working capital continues.
Third quarter interim report will be published on October 22.
Helsinki, July 23, 2008
Board of Directors of Rapala VMC Corporation
CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
CONSOLIDATED INCOME STATEMENT II II I-II I-II I-IV
MEUR 2008 2007 2008 2007 2007
Net sales 74.2 73.4 139.4 136.8 242.5
Other operating income 0.3 0.6 1.8 0.9 6.7
Cost of sales 39.9 42.0 74.6 74.5 135.8
Other costs and expenses 19.2 19.4 38.9 38.2 79.6
EBITDA 15.4 12.6 27.6 24.9 33.8
Depreciation 1.5 1.6 3.1 1.9 5.4
Operating profit (EBIT) 13.8 11.0 24.5 23.0 28.3
Financial income and expenses 1.1 1.2 2.4 2.2 5.0
Share of results in associated companies 0.0 0.0 0.0 0.0 0.0
Profit before taxes 12.8 9.8 22.1 20.8 23.3
Income taxes 3.4 3.1 5.8 6.4 5.8
Net profit for the period 9.4 6.7 16.2 14.4 17.5
Attributable to:
Equity holders of the Company 8.2 6.6 14.5 14.3 17.3
Minority interest 1.2 0.1 1.7 0.1 0.3
Earnings per share for profit
attributable
to the equity holders of the Company:
Earnings per share, EUR (diluted =
non-diluted) 0.21 0.17 0.37 0.37 0.45
CONSOLIDATED STATEMENT OF CASH FLOW II II I-II I-II I-IV
MEUR 2008 2007 2008 2007 2007
Net profit for the period 9.4 6.7 16.2 14.4 17.5
Adjustments to net profit for the period
* 3.7 5.8 8.7 10.5 14.8
Financial items and taxes paid and
received -3.5 -2.3 -6.3 -4.2 -11.1
Change in working capital -3.4 3.4 -28.7 -14.4 -3.1
Net cash generated from operating
activities 6.2 13.6 -10.1 6.2 18.2
Investments -1.4 -1.7 -3.2 -3.1 -7.2
Proceeds from sales of assets 0.0 0.2 0.1 0.3 0.4
Acquisition of subsidiaries, net of cash -0.1 -1.1 -0.4 -2.7 -2.7
Proceeds from disposal of subsidiaries,
net of cash - 0.5 - 0.5 5.9
Change in interest-bearing receivables 0.1 0.0 0.1 0.0 -0.1
Net cash used in investing activities -1.4 -1.9 -3.4 -4.9 -3.7
Dividends paid -6.9 -4.6 -6.9 -4.6 -4.6
Net funding 1.6 1.9 18.3 9.7 -11.5
Purchase of own shares -0.3 - -0.3 - -
Proceeds from share subscriptions - - - 0.0 5.0
Net cash generated from financing
activities -5.6 -2.7 11.1 5.1 -11.1
Adjustments -0.4 0.2 -0.6 0.2 0.4
Change in cash and cash equivalents -1.3 9.1 -3.1 6.6 3.8
Cash & cash equivalents at the beginning
of the period 24.9 21.8 27.3 24.4 24.4
Foreign exchange rate effect 0.2 0.0 -0.5 -0.2 -0.9
Cash & cash equivalents at the end of the
period 23.8 30.9 23.8 30.9 27.3
* Includes reversal of non-cash items, income taxes and financial
income and expenses.
CONSOLIDATED BALANCE SHEET June 30 June 30 Dec 31
MEUR 2008 2007 2007
ASSETS
Non-current assets
Intangible assets 49.4 53.1 51.1
Property, plant and equipment 27.9 29.4 28.4
Non-current financial assets
Interest-bearing 0.6 0.6 0.6
Non-interest-bearing 7.3 6.4 8.0
85.3 89.5 88.1
Current assets
Inventories 89.7 78.9 84.3
Current financial assets
Interest-bearing 0.0 0.0 0.1
Non-interest-bearing 74.9 74.1 52.8
Cash and cash equivalents 23.8 30.9 27.3
188.5 183.9 164.6
Assets classified as held-for-sale 0.5 - 0.9
Total assets 274.2 273.5 253.7
EQUITY AND LIABILITIES
Equity
Equity attributable to the equity holders of
the Company 100.2 90.1 96.0
Minority interest 2.4 0.7 0.9
102.7 90.8 96.9
Non-current liabilities
Interest-bearing 48.3 61.8 49.8
Non-interest-bearing 6.3 5.7 6.4
54.6 67.5 56.3
Current liabilities
Interest-bearing 74.8 71.6 58.4
Non-interest-bearing 42.1 43.6 42.0
116.9 115.2 100.5
Total equity and liabilities 274.2 273.5 253.7
KEY FIGURES II II I-II I-II I-IV
2008 2007 2008 2007 2007
EBITDA margin, % 20.7% 17.2% 19.8% 18.2% 13.9%
Operating margin, % 18.7% 15.0% 17.6% 16.8% 11.7%
Return on capital employed, % 29.3% 23.6% 25.9% 24.7% 15.9%
Capital employed at end of period,
MEUR 201.4 192.7 201.4 192.7 177.1
Net interest-bearing debt at end of
period, MEUR 98.7 101.9 98.7 101.9 80.2
Equity-to-assets ratio at end of
period, % 37.5% 33.2% 37.5% 33.2% 38.2%
Debt-to-equity ratio at end of
period, % 96.1% 112.3% 96.1% 112.3% 82.8%
Earnings per share, EUR 0.21 0.17 0.37 0.37 0.45
Fully diluted earnings per share, EUR 0.21 0.17 0.37 0.37 0.45
Equity per share at end of period,
EUR 2.54 2.34 2.54 2.34 2.43
Average personnel for the period 4 489 4 337 4 580 4 622 4 577
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Attributable to equity holders of the
Company
Cumu- Fund for
lative invested
Share Fair trans- non- Re- Mino-
pre- value lation restric- Own tained rity
Share mium re- diffe- ted sha- earn- inte- Total
MEUR capital fund serve rences equity res ings rest equity
Equity on Jan 1,
2007 3.5 16.7 0.1 -7.1 - - 67.6 0.6 81.3
Change in
translation
differences - - - -0.4 - - - - -0.4
Gains and losses
on hedges of net
investments - - - -0.1 - - - - -0.1
Fair value gains
on
available-for-sale
investments, net
of tax - - - - - - - - -
Net income
recognized
directly in equity - - - -0.5 - - - - -0.5
Net profit for the
period - - - - - - 14.3 0.1 14.4
Total recognized
income and
expenses - - - -0.5 - - 14.3 0.1 13.9
Dividends paid - - - - - - -4.6 - -4.6
Shares subscribed
with options 0.0 0.0 - - - - - - 0.0
Share option
program - - - - - - 0.2 - 0.2
Other changes - - - - - - 0.0 0.0 0.0
Equity on June 30,
2007 3.5 16.7 0.1 -7.6 - - 77.5 0.7 90.8
Equity on Jan 1,
2008 3.6 16.7 0.0 -9.8 4.9 - 80.6 0.9 96.9
Change in
translation
differences - - - -3.0 - - - - -3.0
Gains and losses
on cash flow
hedges - - -0.1 - - - - - -0.1
Gains and losses
on hedges of net
investments - - - -0.1 - - - - -0.1
Net income
recognized
directly in equity - - -0.1 -3.1 - - - - -3.2
Net profit for the
period - - - - - - 14.5 1.7 16.2
Total recognized
income and
expenses - - -0.1 -3.1 - - 14.5 1.7 13.1
Purchase of own
shares - - - - - -0.3 - - -0.3
Dividends paid - - - - - - -6.9 - -6.9
Share option
program - - - - - - 0.1 - 0.1
Other changes - - - - - - 0.0 -0.2 -0.2
Equity on June 30,
2008 3.6 16.7 -0.1 -12.9 4.9 -0.3 88.3 2.4 102.7
SEGMENT INFORMATION** II II I-II I-II I-IV
MEUR 2008 2007 2008 2007 2007
Net Sales by Area**
North America 15.4 20.6 32.7 41.7 66.7
Nordic 35.3 30.5 65.8 55.5 96.0
Rest of Europe 31.9 27.8 61.6 53.2 92.1
Rest of the world 12.9 15.9 26.3 30.7 62.9
Intra-Group -21.2 -21.5 -47.1 -44.2 -75.2
Total 74.2 73.4 139.4 136.8 242.5
Operating Profit by Area**
North America 0.9 2.2 2.8 6.0 7.5
Nordic 5.2 4.8 7.5 7.6 12.5
Rest of Europe 6.1 3.4 12.8 7.6 3.4
Rest of the world 0.9 0.4 1.6 1.5 5.4
Intra-Group 0.7 0.2 -0.3 0.4 -0.3
Total 13.8 11.0 24.5 23.0 28.3
Net Sales by Product Line***
Lures 20.5 25.3 40.0 48.4 73.9
Fishing Hooks 4.1 4.5 8.7 9.3 16.9
Fishing Accessories 12.5 11.8 23.1 22.5 43.5
Third Party Fishing Products 24.0 21.2 45.1 38.0 63.4
Other 13.8 11.6 24.1 20.4 47.8
Intra-Group -0.7 -0.9 -1.6 -1.9 -3.2
Total 74.2 73.4 139.4 136.8 242.5
** 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.
KEY FIGURES BY QUARTERS I II III IV I-IV I II
MEUR 2007 2007 2007 2007 2007 2008 2008
Net sales 63.4 73.4 52.0 53.7 242.5 65.1 74.2
EBITDA 12.3 12.6 4.6 4.3 33.8 12.2 15.4
Operating profit (EBIT) 12.0 11.0 2.9 2.4 28.3 10.6 13.8
Profit before taxes 11.0 9.8 1.4 1.1 23.3 9.3 12.8
Net profit for the period 7.7 6.7 1.1 2.0 17.5 6.8 9.4
NOTES TO THE INCOME STATEMENT AND BALANCE SHEET
This report has been prepared in accordance with IAS 34. Accounting
principles adopted in the preparation of this report are consistent
with those used in the preparation of the Annual Report 2007, except
for the adoption of new interpretations: IFRIC 11, IFRIC 12 and IFRIC
14. Adoption of these interpretations did not result in any changes
in the accounting principles that would have affected the information
presented in this interim report.
Use of estimates
Complying with IFRS in preparing financial statements requires the
management to make estimates and assumptions. Such estimates affect
the reported amounts of assets and liabilities, the disclosure of
contingent assets and liabilities, and the amounts of revenues and
expenses. Although these estimates are based on the management's best
knowledge of current events and actions, actual results may differ
from these estimates.
Definition of key figures
Definitions of key figures used in the interim report are consistent
with those used in the Annual Report 2007.
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.
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 January-June 2008. Material events after the end of
the interim period, if any, have been discussed in the interim review
by the Board of Directors.
Inventories
At June 30, 2008, the book value of inventories differed from its net
realizable value by 2.2 MEUR (1.0 MEUR at June 30, 2007 and 2.4 MEUR
at December 31, 2007).
Assets held-for-sale and sale of assets
As part of the consolidation of French operations, Rapala signed a
sale agreement for the warehouse and office building in Saint Marcel
in January 2008. This resulted in a capital gain of 1.2 MEUR. The
plan is also to sell the building in Loudeac during 2008.
Impact of acquisitions on the consolidated financial statements
Rapala increased its ownership in the Finnish cross country ski
manufacturer Peltonen Ski Oy from 80% to 90% in January 2008 and
ownership in the Lithuanian distribution company from 82% to 100% in
March 2008. These acquisitions do not have a material impact on the
Group's financial statements for January-June 2008. Also in February,
Rapala made the final payment of the Terminator acquisition (0.2
MEUR) closed in 2007,the final payment of the Freetime acquisition
(0.1 MEUR) closed in 2005 and a payment of the minority acquisition
of Normark Innovation Inc. (0.1 MEUR) closed last year.
Related party transactions
Rents Other
expenses
MEUR Purchases paid expenses Receivables Payables
I-II 2008
Associated company
Lanimo Oü 0.1 - - 0.0 -
Entity with significant
influence over the
Group* - 0.1 0.0 0.0 -
Management 0.0 0.1 0.1 - 0.0
I-II 2007
Associated company
Lanimo Oü 0.1 - - - 0.0
I-IV 2007
Associated company
Lanimo Oü 0.1 - - 0.0 -
Entity with significant
influence over the
Group* - 0.1 0.1 0.0 -
* Lease agreement for the real estate for the consolidated operations
in France and a service fee.
Commitments
June 30 June 30 Dec 31
MEUR 2008 2007 2007
On own behalf
Business mortgage 16.1 16.2 16.1
Guarantees 3.8 2.1 3.1
On behalf of other parties
Guarantees 0.7 0.8 0.6
Minimum future lease payments on operating
leases 7.9 13.2 9.5
Open derivatives
Nominal Positive fair Negative fair Net fair
MEUR amount values values values
June 30, 2008
Foreign currency
forwards 6.5 0.0 0.3 -0.3
Interest rate swaps 14.3 0.0 0.1 -0.1
Total 20.8 0.0 0.4 -0.4
June 30, 2007
Foreign currency
forwards 3.0 - 0.1 -0.1
Total 3.0 - 0.1 -0.1
Dec 31, 2007
Foreign currency
forwards 7.9 - 0.1 -0.1
Interest rate swaps 12.9 - 0.0 0.0
Total 20.8 - 0.2 -0.2
Group's financial risks and hedging principles are described in
detail in the Annual Report 2007.
Non-recurring income and expenses in operating profit
II II I-II I-II I-IV
MEUR 2008 2007 2008 2007 2007
Sale of 50% of Rapala Shimano East Europe Oy - - - - 4.9
Consolidation of French operations - - -0.1 - -2.8
Closure of Irish lure factory 0.0 - 0.0 - -1.1
Sale of French warehouse and office building -0.1 - 1.2 - -
Other disposals of assets 0.0 0.4 0.0 0.4 0.4
Excess of Group's interest in the net fair
values of acquired net assets over costs
(negative goodwill) 0.0 0.0 0.0 1.2 1.0
Other restructuring costs 0.0 -0.5 -0.2 -0.5 -1.0
Other non-recurring items -0.2 0.1 -0.2 0.1 0.1
Total -0.3 0.0 0.7 1.3 1.6
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 2007. 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 programs is 4.6 MEUR. 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
counterparty have a shared understanding of the terms and conditions
of the arrangement. 1 909 500 share options where granted on June 8,
2004, 92 500 share options on February 14, 2006 and 978 500 synthetic
options on December 14, 2006. On March 31, 2008, the exercise period
for the 2003B stock option program expired. The 2004A stock option
program is exercisable between March 31, 2007 to March 31, 2009 at an
exercise price of 5.96 EUR per share, the 2004B stock option program
is exercisable between March 31, 2008 and March 31, 2010 at an
exercise price of 6.09 EUR, the 2006A synthetic option program is
exercisable between March 31, 2009 and March 31, 2011 at an exercise
price of 6.14 EUR and the 2006B synthetic option program is
exercisable between March 31, 2010 and March 31, 2012 at an exercise
price of 6.14 EUR. The exercise prices have been reduced by the
amount of dividends distributed after the subscription period for
option rights has ended and before the commencement of the
subscription period. Applying of IFRS 2 reduced operating profit with
0.8 MEUR in January-December 2007 and 0.5 MEUR in Jan-June 2007, and
increased operating profit with 0.2 in Jan-June 2008 mainly due to
change in fair value of synthetic option program.
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 by using funds in
the unrestricted equity. This amount of shares corresponds to less
than 10% of all shares of the company. The shares may be repurchased
in deviation from the proportion of the shares held by the
shareholders. The shares will be repurchased through public trading
arranged by OMX Nordic Exchange in Helsinki at the market price of
the acquisition date. The shares will be acquired and paid in
pursuance of the rules of OMX Nordic Exchange in Helsinki and
applicable rules regarding the payment period and other terms of the
payment. This authorization is effective until the end of the next
Annual General Meeting.
On June 30, 2006, the share capital fully paid and reported in the
Trade Register was 3.6 MEUR and the total number of shares was 39
468 449. The average number of shares in Jan-June 2008 was 39
468 449. On April 23, 2008 the Board decided to start buying back own
shares in accordance with the authorization granted by the Annual
General Meeting on April 3, 2008. The repurchasing of shares ended on
June 30, 2008. At June 30, 2008 Rapala held 62 366 of its own shares.
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 80 955
EUR and the number of shares by a maximum of 899 500 shares. The
shares that can be subscribed with these stock options correspond to
2.3% of the Company's shares and voting rights.
During the first six months 2 184 117 shares (4 800 770 shares) were
traded. The shares traded at a high of 5.65 EUR and a low of 3.85 EUR
during the period. The closing share price at the end of the period
was 4.03 EUR.
Short term risks and uncertainties
The objective of Rapala's risk management is to support the
implementation of the Group's strategy and execution of business
targets. The importance of risk management has increased when Rapala
has continued to expand its operations fast. Accordingly, Group
management allocated more resources to risk management and developed
risk management practices during 2007 and this work has continued in
2008. Detailed description of Group's strategic, operative and
financial risks and risk management principles are included in the
Annual Report 2007, see www.rapala.com.
Due to the nature of the fishing tackle business and the geographical
scope of Group's operations, Group's deliveries and sales as well as
operating profit have traditionally been seasonally stronger in the
first half of the financial year compared to the second half. In
first half of 2008, deliveries to customers have realized according
to plan, without any material operative problems in the supply chain.
Group's sales are also to some extent affected by the weather. Second
mild winter in a row affected negatively the winter sports equipment
sales and this may have some knock-on impacts on the sales in the
coming winter season.
Even if the fishing tackle business has traditionally not been
strongly influenced by the increased uncertainties and downturns in
the general economic climate, this may influence, at least for a
short while, the sales of fishing tackle if retailers reduce their
inventory levels. While continuing, these uncertainties may also
affect the amount retailers invest in advertising and promotions,
which may affect consumer spending at least temporarily. Also quick
and strong increases in living expenses, like interest rates on
mortgages and price of fuels, may temporarily affect consumer
spending also in fishing tackle.
Group's sales and profitability are impacted by the changes in
foreign exchange rates, especially US Dollar. Group is actively
monitoring the currency position and risks and using e.g. foreign
currency nominated loans to manage the natural hedging. In order to
fix the exchange rate of future USD-nominated purchases, the Group
has entered into currency hedging agreements. As the Group is not
applying hedge accounting in accordance to IAS 39, also the change in
fair value of these unrealized currency hedging agreements have an
impact on the Group's operating profit. Due to uncertainties in the
general economic climate, Group is actively monitoring the collection
of its accounts receivable.
Increase of prices of certain raw materials and salaries, especially
in China, have impacted Group's profitability. Group has successfully
introduced price increases targeted to offset at least part of these
effects.
Following the agreements concluded with Taiwanese Yao I, Group is in
the process of taking over the Sufix-fishing line distribution to its
28 distribution companies, which will require special attention of
the management.
No significant changes are identified in the Group's strategic risks
or business environment.
