Rapala VMC Corporation
Stock Exchange Release
October 22, 2008 at 10.00 am
Improved profitability in a challenging market environment
- Net sales for the third quarter reached a new record at 52.7 MEUR
(III/07: 52.0 MEUR). Net sales for the first nine months increased 2%
to 192.1 MEUR (I-III/07:188.8 MEUR). With comparable exchange rates,
the nine-month net sales were up 7%.
- Operating profit for July to September improved 24% from last year
mainly as a result of performance improvement initiatives and totaled
3.6 MEUR (2.9 MEUR). Operating profit for the first nine months was
up 8% to 28.1 MEUR (25.9 MEUR). Comparable operating profit improved
to 28.4 MEUR (25.1 MEUR) and operating margin to 14.1% (13.3%).
- Net profit for the third quarter increased to 2.0 MEUR (1.1 MEUR)
and to 18.2 MEUR (15.5 MEUR) for the first nine months. Earnings per
share was 0.03 EUR (0.03 EUR) for the quarter and 0.40 EUR (0.40 EUR)
for the first nine months.
- Cash flow from operating activities was 14.0 MEUR (12.2 MEUR) for
the third quarter and 3.8 MEUR (18.4 MEUR) for the first nine months.
- Net interest-bearing debt decreased clearly from June to 89.0 MEUR
(Dec 2007: 80.2 MEUR). Equity-to-assets ratio increased from June to
39.4% (Dec 2007: 38.2%) and gearing decreased from June to 83.7% (Dec
2007: 82.8%) - both ratios improved also from September 2007.
- The Group continued to implement its strategy for profitable
growth. The acquisition of fishing line brand Sufix and conclusion of
an exclusive supply agreement were closed in July. Development of
manufacturing operations in China started to materialize with clear
efficiency improvements and the move of two business units in France
was completed. A new sales office was opened in Khabarovsk, Russia,
and the distribution of Shimano fishing products was started in Czech
Republic and Slovak Republic.
- 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 third quarter result will be arranged today
at 4 pm Finnish time (3 pm CET). Please dial +44 (0)20 8602 0812 or
+1 212 999 6646 (pin code: 114929#) 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: 114929#) to dial is +44 (0)20
7806 1970. Financial information and a teleconference replay facility
will also be 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: NASDAQ OMX Helsinki and Main Media
Market Situation and Sales
Market situation remained quite good in Scandinavia and very good in
East Europe, whereas some markets in West Europe, and especially
North America, continued to suffer from the downturn in the general
economy. In the USA, the high petrol prices have affected also the
sales of fishing tackle but this effect is expected to soften with
the decreasing fuel prices. The general market conditions in Asia and
Australia have tightened in the past few months.
In Nordic countries, sales were up 10% for the third quarter and 16%
for the first nine months. Boosted by the strong performance in East
Europe, net sales in Rest of Europe were up 11% for the third quarter
and 14% for the first nine months of the year despite the fact that
almost one month sales were lost in France due to the move of the two
business units. Net sales in Rest of the world were below last year
mainly because of clearly weaker US dollar and South African rand. As
a result of high fuel prices, weak general economics and weakening of
the US dollar, net sales in North America decreased 15% for the third
quarter and 20% for the first nine months. With comparable exchange
rates, North American sales were down 8% for July to September and
11% for January to September.
The decrease of sales in North America affected strongly the net
sales of Lures, which was down 16% for the quarter and 17% for this
first nine months. Net sales of Fishing hooks was down 21% for July
to September and 17% for January to September. Net sales of Fishing
accessories grew 17% for the third quarter and 9% for the nine-month
period. Net sales of Third party fishing products were up 16% for the
quarter and 18% for the first nine months mainly due to increased
sales of Shimano fishing tackle products. Net sales of Other products
grew 2% for the third quarter and 11% for the first nine months of
the year mainly as a result of increased sales of hunting products.
Net sales for July to September reached a third quarter record at
52.7 MEUR (52.0 MEUR). Net sales for the first nine months increased
2% to 192.1 MEUR (188.8 MEUR). Weakening of the US dollar, South
African rand and some other currencies decreased the net sales for
January to September by 9.4 MEUR. With comparable exchange rates, the
nine-month net sales were up 7%.
Third quarter of the year is traditionally the slowest quarter in
terms of sales due to seasonality of the fishing tackle business.
Financial Results
III III I-III I-III I-IV
MEUR 2008 2007 2008 2007 2007
Net sales 52.7 52.0 192.1 188.8 242.5
EBITDA 5.2 4.6 32.7 29.5 33.8
Operating profit (EBIT) 3.6 2.9 28.1 25.9 28.3
Profit before taxes 2.6 1.4 24.6 22.2 23.3
Net profit for the period 2.0 1.1 18.2 15.5 17.5
Operating profit for the third quarter increased to 3.6 MEUR (2.9
MEUR). Operating margin was up to 6.8% (5.6%) and return on capital
employed reached 7.7% (6.4%). 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 included a capital gain of 0.2 MEUR
from the sale of the second real estate in France and 0.2 MEUR of
non-recurring costs related to the ongoing restructuring projects.
Operating profit for the first nine months of the year increased 8%
and reached 28.1 MEUR (25.9 MEUR). Operating margin improved to 14.6%
(13.7%) and return on capital employed to 20.1% (19.1%). This
improvement came mainly from the gain from the sales of the French
real estates in January and September (1.4 MEUR), results of
performance improvement initiatives and decreased IFRS based option
expenses. On the other hand, operating profit for January to
September was negatively affected by the decreased sales in North
America, one-time restructuring and other non-recurring costs (0.7
MEUR) and the weakening of especially US dollar and South African
rand (1.0 MEUR). The result of currency hedging related to operating
profit (+0.9 MEUR) is booked in financial items. Operating profit for
January to September in 2007 included 0.8 MEUR (net) non-recurring
gains. Comparable nine-month operating margin, excluding
non-recurring items and foreign exchange effects, improved from 2007
and reached 14.1% (13.3%).
Management analysis I-III/ I-III/ I-III/ I-III/
MEUR 2008 2007 2008 2007
Net sales as Operating profit as
reported 192.1 188.8 reported 28.1 25.9
Foreign exchange Non-recurring items
effects 9.4 - (net) -0.7 -0.8
Foreign exchange
Comparable net sales 201.5 188.8 effects 1.0 -
Comparable operating
profit 28.4 25.1
Operating margin as Comparable operating
reported 14.6% 13.7% margin 14.1% 13.3%
Nordic countries and Rest of Europe improved their operating profit
both for the third quarter and the first nine 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 gains. Profitability of Rest of the world
suffered mainly from the weakened US dollar and South African rand as
well as decreased sales in few Asian countries. Operating profit of
North America suffered from the reduced sales and increased purchase
prices.
Financial income and expenses were below last year. Net interest
expenses were 1.3 MEUR (1.3 MEUR) for the third quarter and 4.1 MEUR
(4.2 MEUR) for the first nine months. Currency exchange gains were
0.3 MEUR (-0.2 MEUR) for the third quarter and 0.8 MEUR (0.7 MEUR)
for the first nine months.
Net profit increased to 2.0 MEUR (1.1 MEUR) for the third quarter and
to 18.2 MEUR (15.5 MEUR) for nine months. As a result of Shimano's
minority share in the Eastern European distribution joint venture,
the earnings per share was on last year levels at 0.03 EUR (0.03 EUR)
for the quarter and 0.40 EUR (0.40 EUR) for the first nine months.
Cash Flow and Financial Position
Cash flow from operating activities increased in the third quarter
from last year. Working capital increased from last year and December
2007 as new inventories for Shimano distribution in East Europe tied
additional capital. Inventories increased also in the USA as a result
of the decline in sales and the fishing line inventories bought in
July from Sufix North America. Trade receivables increased less than
sales.
Cash used in investing activities amounted to 1.6 MEUR (1.5 MEUR) for
the third quarter and 4.9 MEUR (6.5 MEUR) for the nine months
including 1.4 MEUR as the first installment of the Sufix fishing line
brand bought in July as well as proceeds from sale of assets.
Net interest-bearing debt decreased clearly from June to 89.0 MEUR
(Dec 2007: 80.2 MEUR). The first repayments of the term-loans taken
in 2006 were executed in the beginning of October. During 2008, the
Group has improved its cash management by introducing international
cash pooling, and the liquidity of the Group continues to be good
despite of the strong weakening of the commercial paper market.
Equity-to-assets ratio increased from June to 39.4% (Dec 2007: 38.2%)
and gearing decreased from June to 83.7% (Dec 2007: 82.8%) - both
ratios improved also from September 2007.
Strategy Implementation - Growth
During the third quarter, management continued discussions and
negotiations regarding acquisitions and business combinations to
implement the Group's strategy for profitable growth. 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 July, Rapala and Yao I Co Ltd ("Yao I"), one of the leading
manufacturers of fishing line in the world having its operations in
Taiwan and China, concluded an exclusive supply agreement for the
supply of fishing lines. In connection to this arrangement, Yao I
sold its Sufix brand, including all intangible assets relating to
Sufix branded and other fishing line business (excluding
manufacturing related) to Rapala.
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 acquired the Sufix branded fishing line inventory
from Sufix North America. In the USA, Rapala has now distributed the
Sufix fishing lines from the end of July. Transfer of Sufix business
to Group companies around the world is proceeding on plan and the
shipments of 2009 products are about to start through the Group
distribution network.
Rapala aims to expand its fishing line sales in the next few years to
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 businesses,
is 10 MUSD and will be paid over the next seven years.
Strategic distribution alliance with Shimano continued 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 has started to distribute Shimano fishing tackle through its
joint venture distribution company in Czech Republic in September, as
well as through its sales office in Slovakia. Another new step in
this cooperation took also place in September when Shimano started to
distribute Rapala's products in the UK.
During the third quarter, the Group opened a new sales office in
Khabarovsk, Russia, to reach new customers in this area and to
accelerate the growth in the market. After this addition, the Group
has now eight regional sales offices in Russia. In Thailand, the
Group increased its shareholding in its local distribution company
from 80% to 100%.
Strategy Implementation - Profitability
Strong emphasis on performance improvement initiatives continued
during the quarter.
After closing the lure manufacturing operations in Ireland in April
and ramping up the lure assembly in Sortavala, Russia, the Group's
European lure manufacturing restructuring project is now completed
and has started to contribute to the financial performance of the
Group. The next step is to increase volumes in the Russian factory in
line with the market demand.
The consolidation of France operations proceeded and the moves of
distribution unit Waterqueen and fishing line supplier Tortue to
Morvillars were completed during the quarter. The consolidation will
be finalized when the hook distributor VMC Europe completes its move
into joint premises latest next summer. 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.
Also the performance improvement initiatives at the Group's
manufacturing facilities in China proceeded on plan. The physical
separation of fishing tackle and gift businesses into separate
premises and organizations has made it possible to strongly and
quickly develop processes separately for these two business lines. As
a result of streamlining the operations, increasing the use of
subcontracted parts and cutting the capacity to more quickly adjust
to and more accurately meet the market requirements, the Group has
been able to reduce the headcount in China by some 1000 persons since
June. Improvements in production planning system and related new
processes are expected to be implemented by the end of the year to
reach the full benefits of the ongoing development initiative.
Smaller performance improvement initiatives implemented since 2007
have already started to improve the Group's financial performance.
Short-term Outlook
Market outlook for the rest of 2008 continues to look challenging.
The slowdown and uncertainty in the US economy is expected to affect
the sales in North America in the coming months too. European fishing
tackle markets will move again into more active period of trade
towards the end of the fourth quarter when shipments of products for
the 2009 season starts. The peak trade season has started in
Australia and South Africa. The shipments of winter fishing and
winter sports products in Finland and Norway started in September and
will continue in the fourth quarter. Due to the past two weak winter
seasons in Nordic countries, the retailers of winter sports
equipments are expected to be cautious in their orders before the
weather conditions are known.
Despite the challenging market conditions, the profitability of the
Group's ongoing operations continues to be good. Special initiatives
have been and will be implemented to further improve the
profitability.
It is expected that the Group's net sales for the financial year 2008
will increase 5-10% from 2007 assuming comparable exchange rates.
With comparable exchange rates and excluding non-recurring items, the
operating margin for 2008 is expected to improve from 2007. If the US
dollar stays at current levels or strengthens, it will affect
positively the reported net sales and operating profit for the fourth
quarter.
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,
while new inventories are built for the new Sufix fishing lines.
Price increases for 2009 season have mostly been agreed already but
due to the increased uncertainties in the world economy, it is too
early to give an accurate guidance for next year. It is though
expected, as previously in history, that the fishermen and
fisherwomen will continue their activity even in uncertain economic
times and, therefore, the healthy demand for the Group products is
expected to continue also in 2009. More accurate guidance for 2009
will be given in February, when the full year and fourth quarter
interim report for 2008 is published.
More detailed schedule for financial reporting in 2009 will be
published in November.
Helsinki, October 22, 2008
Board of Directors of Rapala VMC Corporation
INTERIM CONDENCED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
CONSOLIDATED INCOME STATEMENT III III I-III I-III I-IV
MEUR 2008 2007 2008 2007 2007
Net sales 52.7 52.0 192.1 188.8 242.5
Other operating income 0.5 0.3 2.3 1.2 6.7
Cost of sales 31.0 30.1 105.7 104.6 135.8
Other costs and expenses 17.0 17.7 56.0 55.9 79.6
EBITDA 5.2 4.6 32.7 29.5 33.8
Depreciation 1.6 1.7 4.7 3.6 5.4
Operating profit (EBIT) 3.6 2.9 28.1 25.9 28.3
Financial income and expenses 1.0 1.5 3.4 3.7 5.0
Share of results in associated companies 0.0 0.0 0.0 0.0 0.0
Profit before taxes 2.6 1.4 24.6 22.2 23.3
Income taxes 0.6 0.3 6.4 6.7 5.8
Net profit for the period 2.0 1.1 18.2 15.5 17.5
Attributable to:
Equity holders of the Company 1.2 1.0 15.8 15.3 17.3
Minority interest 0.7 0.1 2.4 0.2 0.3
Earnings per share for profit
attributable
to the equity holders of the Company:
Earnings per share, EUR (diluted =
non-diluted) 0.03 0.03 0.40 0.40 0.45
CONSOLIDATED CASH FLOW STATEMENT III III I-III I-III I-IV
MEUR 2008 2007 2008 2007 2007
Net profit for the period 2.0 1.1 18.2 15.5 17.5
Adjustments to net profit for the
period * 1.5 3.6 10.2 14.1 14.8
Financial items and taxes paid and
received -3.0 -3.7 -9.3 -8.0 -11.1
Change in working capital 13.5 11.2 -15.2 -3.2 -3.1
Net cash generated from operating
activities 14.0 12.2 3.8 18.4 18.2
Investments -1.6 -1.6 -4.8 -4.8 -7.2
Proceeds from sales of assets 1.6 0.1 1.6 0.4 0.4
Sufix brand acquisition -1.4 - -1.4 - -
Acquisition of subsidiaries, net of
cash 0.0 - -0.4 -2.7 -2.7
Proceeds from disposal of subsidiaries,
net of cash - - - 0.5 5.9
Change in interest-bearing receivables -0.1 0.0 0.0 0.0 -0.1
Net cash used in investing activities -1.6 -1.5 -4.9 -6.5 -3.7
Dividends paid - - -6.9 -4.6 -4.6
Net funding -10.5 -15.8 7.8 -6.1 -11.5
Purchase of own shares -0.3 - -0.5 - -
Proceeds from share subscriptions - - - 0.0 5.0
Net cash generated from financing
activities -10.7 -15.8 0.3 -10.7 -11.1
Adjustments 0.9 -0.2 0.3 0.0 0.4
Change in cash and cash equivalents 2.6 -5.3 -0.4 1.3 3.8
Cash & cash equivalents at the
beginning of the period 23.8 30.9 27.3 24.4 24.4
Foreign exchange rate effect 0.6 -0.2 0.1 -0.4 -0.9
Cash and cash equivalents at the end of
the period 27.0 25.3 27.0 25.3 27.3
* Includes reversal of non-cash items, income taxes and financial
income and expenses.
CONSOLIDATED BALANCE SHEET Sept 30 Sept 30 Dec 31
MEUR 2008 2007 2007
ASSETS
Non-current assets
Intangible assets 57.5 52.1 51.1
Property, plant and equipment 28.8 29.0 28.4
Non-current financial assets
Interest-bearing 0.6 0.6 0.6
Non-interest-bearing 7.7 7.2 8.0
94.6 88.9 88.1
Current assets
Inventories 93.3 80.7 84.3
Current financial assets
Interest-bearing 0.4 0.0 0.1
Non-interest-bearing 55.2 57.4 52.8
Cash and cash equivalents 27.0 25.3 27.3
175.9 163.4 164.6
Assets classified as held-for-sale - - 0.9
Total assets 270.5 252.2 253.7
EQUITY AND LIABILITIES
Equity
Equity attributable to the equity holders
of the Company 103.3 90.5 96.0
Minority interest 3.1 0.7 0.9
106.3 91.2 96.9
Non-current liabilities
Interest-bearing 48.8 60.3 49.8
Non-interest-bearing 9.8 5.7 6.4
58.7 66.0 56.3
Current liabilities
Interest-bearing 68.1 55.2 58.4
Non-interest-bearing 37.4 39.9 42.0
105.5 95.1 100.5
Total equity and liabilities 270.5 252.2 253.7
KEY FIGURES III III I-III I-III I-IV
2008 2007 2008 2007 2007
EBITDA margin, % 9.8% 8.8% 17.0% 15.6% 13.9%
Operating profit margin, % 6.8% 5.6% 14.6% 13.7% 11.7%
Return on capital employed, % 7.7% 6.4% 20.1% 19.1% 15.9%
Capital employed at end of period, MEUR 195.3 180.7 195.3 180.7 177.1
Net interest-bearing debt at end of
period, MEUR 89.0 89.5 89.0 89.5 80.2
Equity-to-assets ratio at end of
period, % 39.4% 36.2% 39.4% 36.2% 38.2%
Debt-to-equity ratio at end of period,
% 83.7% 98.1% 83.7% 98.1% 82.8%
Earnings per share, EUR 0.03 0.03 0.40 0.40 0.45
Fully diluted earnings per share, EUR 0.03 0.03 0.40 0.40 0.45
Equity per share at end of period, EUR 2.62 2.34 2.62 2.34 2.43
Average personnel for the period 4 477 4 510 4 374 4 574 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 - - - -1.7 - - - - -1.7
Gains and losses
on hedges of net
investments - - - 0.4 - - - - 0.4
Fair value gains
on
available-for-sale
investments, net
of tax - - 0.0 - - - - - 0.0
Net income
recognized
directly in equity - - 0.0 -1.3 - - - - -1.3
Net profit for the
period - - - - - - 15.3 0.2 15.5
Total recognized
income and
expenses - - 0.0 -1.3 - - 15.3 0.2 14.3
Dividends paid - - - - - - -4.6 - -4.6
Shares subscribed
with options 0.0 0.0 - - - - - - 0.0
Share option
program - - - - - - 0.3 - 0.3
Other changes - - - - - - 0.0 0.0 0.0
Equity on Sept 30,
2007 3.5 16.7 0.1 -8.4 - - 78.6 0.7 91.2
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 - - - 0.3 - - - - 0.3
Gains and losses
on cash flow
hedges - - -0.1 - - - - - -0.1
Gains and losses
on hedges of net
investments - - - -1.4 - - - - -1.4
Net income
recognized
directly in equity - - -0.1 -1.1 - - - - -1.2
Net profit for the
period - - - - - - 15.8 2.4 18.2
Total recognized
income and
expenses - - -0.1 -1.1 - - 15.8 2.4 17.1
Purchase of own
shares - - - - - -0.5 - - -0.5
Dividends paid - - - - - - -6.9 - -6.9
Share option
program - - - - - - 0.1 - 0.1
Other changes - - - - - - 0.0 -0.2 -0.3
Equity on Sept 30,
2008 3.6 16.7 -0.1 -10.9 4.9 -0.5 89.6 3.1 106.3
SEGMENT INFORMATION** III III I-III I-III I-IV
MEUR 2008 2007 2008 2007 2007
Net Sales by Area**
North America 9.9 11.6 42.7 53.3 66.7
Nordic 21.6 19.6 87.4 75.1 96.0
Rest of Europe 21.7 19.6 83.3 72.8 92.1
Rest of the world 13.3 16.0 39.7 46.6 62.9
Intra-Group -13.8 -14.7 -60.9 -59.0 -75.2
Total 52.7 52.0 192.1 188.8 242.5
Operating Profit by Area**
North America -0.1 0.5 2.7 6.5 7.5
Nordic 1.3 -0.4 8.8 7.2 12.5
Rest of Europe 1.3 1.1 14.1 8.7 3.4
Rest of the world 0.9 1.2 2.5 2.7 5.4
Intra-Group 0.2 0.5 0.0 0.8 -0.3
Total 3.6 2.9 28.1 25.9 28.3
Net Sales by Product Line***
Lures 12.1 14.4 52.1 62.9 73.9
Fishing Hooks 3.1 3.9 10.9 13.2 16.9
Fishing Accessories 8.4 7.2 32.3 29.7 43.5
Third Party Fishing Products 16.4 14.1 61.5 52.1 63.4
Other Products 13.4 13.2 37.4 33.6 47.8
Intra-Group -0.6 -0.8 -2.2 -2.7 -3.2
Total 52.7 52.0 192.1 188.8 242.5
** 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 III
MEUR 2007 2007 2007 2007 2007 2008 2008 2008
Net sales 63.4 73.4 52.0 53.7 242.5 65.1 74.2 52.7
EBITDA 12.3 12.6 4.6 4.3 33.8 12.2 15.4 5.2
Operating profit (EBIT) 12.0 11.0 2.9 2.4 28.3 10.6 13.8 3.6
Profit before taxes 11.0 9.8 1.4 1.1 23.3 9.3 12.8 2.6
Net profit for the period 7.7 6.7 1.1 2.0 17.5 6.8 9.4 2.0
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.
Definition of key figures
Definitions of key figures used in the interim report are consistent
with those used in the Annual Report 2007.
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.
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-September 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 September 30, 2008, the book value of inventories differed from
its net realizable value by 2.0 MEUR (0.7 MEUR at September 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. In
September 2008, Rapala also signed a sale agreement for the building
in Loudeac. This resulted in a capital gain of 0.2 MEUR.
Acquisition of Sufix brand
On July 10, 2008, 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,
concluded an exclusive supply agreement for the supply of fishing
lines. In connection with this arrangement, Yao I sold its Sufix
brand, including all intangible assets relating to Sufix branded and
other fishing line business (excluding manufacturing related), to
Rapala. The consideration for the Sufix brand, including all
intangible assets relating to Sufix branded and other fishing line
business, is 10 MUSD and will be paid over the next seven years. In
addition, Rapala paid 1.7 MUSD for Sufix fishing line inventories in
the USA.
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,
ownership in the Lithuanian distribution company from 82% to 100% in
March 2008 and ownership in the distribution company in Thailand from
80% to 100% in September 2008. These acquisitions do not have a
material impact on the Group's financial statements for
January-September 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.
Commitments Sept 30 Sept 30 Dec 31
MEUR 2008 2007 2007
On own behalf
Business mortgage 16.1 16.2 16.1
Guarantees 2.6 2.1 3.1
On behalf of other parties
Guarantees 4.1 0.8 0.6
Minimum future lease payments
on operating leases 9.9 11.2 9.5
Related party
transactions Rents Other
MEUR Purchases paid expenses Receivables Payables
I-III 2008
Associated company
Lanimo Oü 0.1 - - 0.0 -
Entity with
significant
influence over the
Group* - 0.1 0.0 0.0 -
Management - 0.1 0.0 - 0.0
I-III 2007
Associated company
Lanimo Oü 0.1 - - - 0.1
Entity with
significant
influence over the
Group - 0.0 0.0 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.
Open derivatives
Nominal Positive fair Negative fair Net fair
MEUR amount values values values
September 30, 2008
Foreign currency
forwards 7.9 0.4 - 0.4
Interest rate swaps 13.8 0.0 0.2 -0.2
Total 21.7 0.4 0.2 0.2
September 30, 2007
Foreign currency
forwards 2.0 - 0.1 -0.1
Total 2.0 - 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
III III I-III I-III 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 -0.1 -0.2 -0.1 -2.8
Closure of Irish lure factory - - 0.0 - -1.1
Sale of French warehouse and office
building 0.2 - 1.4 - -
Other disposals of assets 0.0 0.0 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 1.2 1.0
Other restructuring costs 0.0 -0.4 -0.2 -0.8 -1.0
Other non-recurring items - 0.0 -0.2 0.1 0.1
Total 0.0 -0.5 0.7 0.8 1.6
Share-based payments
The Group had two separate share-based payment programs in place on
September 30, 2008: one stock option program 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 in
place is 2.4 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 were 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 0.7 MEUR in Jan-September 2007,
and increased operating profit with 0.2 in Jan-September 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 NASDAQ OMX Helsinki at the market price of the
acquisition date. The shares will be acquired and paid in pursuance
of the rules of NASDAQ OMX 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 September 30, 2008, 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 January-September 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
September 30, 2008. At September 30, 2008 Rapala held 123 200 of its
own shares, representing 0.3% of the total number of Rapala shares
and the total voting rights.
As a result of the share subscriptions with the 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 nine months 2 860 408 shares (6 658 155 shares) were
traded. The shares traded at a high of 5.65 EUR and a low of 3.60 EUR
during the period. The closing share price at the end of the period
was 3.66 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 will probably 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. During 2008, the increased fuel
prices have affected fishermen's spending to some extent especially
in North America.
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.
Group progresses in taking over the Sufix-fishing line distribution
to its 28 distribution companies, which requires special attention of
the management.
No significant changes are identified in the Group's strategic risks
or business environment.
