RAPALA VMC CORPORATION STOCK EXCHANGE RELEASE 3 AUGUST (11)

Transcription

1 RAPALA VMC CORPORATION STOCK EXCHANGE RELEASE 3 AUGUST (11) INTERIM REPORT JANUARY TO JUNE 2006 April to 2006 Result Strongly Affected by Currency Movements Second quarter net sales were up 6% from last year and amounted to 64.2 MEUR (II/05: 60.6 MEUR). Net sales for the first six months increased 14% to MEUR (I-II/05:112.3 MEUR). Comparable 6-month operating profit, excluding one-time items & foreign exchange effects, improved from Operating profit for the first half of the year, including all items, was 18.1 MEUR (19.0 MEUR). Operating profit for decreased mainly as a result of foreign exchange effects and totaled 8.1 MEUR (11.7 MEUR). Net profit for the second quarter amounted to 4.5 MEUR (8.7 MEUR) and to 10.1 MEUR (13.7 MEUR) for the first half of the year. Earnings per share (basic) was 0.11 EUR (0.23 EUR) for the quarter and 0.26 EUR (0.36 EUR) for the first six months. Net profit and earnings per share were strongly affected by foreign exchange movements. Cash flow from operating activities improved in the second quarter clearly from last year and from the first quarter. Working capital decreased moderately from March. Net interest-bearing debt decreased from March to MEUR (Dec 2005: 95.9 MEUR). Equity-to-asset ratio increased slightly to 33.1% (Dec 2005: 33.8%) and gearing decreased to 126.3% (Dec 2005: 124.1%) from March. The Group has decided to establish a factory in Russia for assembling lures. This investment is done to improve cost efficiency, to ensure availability of work force and to increase production capacity of lures. The new factory will be ready to start operations by the end of this year. The integration of the businesses acquired in 2005 and 2006 progressed on plan. It is expected that the Group s net sales for the financial year 2006 will increase with double digit percentage from Operating profit is expected to be in absolute terms above last year level but achieving the 2005 operating margin level (operating profit per net sales) will be challenging. The attachment presents the interim review by the Board of Directors as well as the accounts. A conference call concerning the second quarter interim report will be arranged today at 4 pm Finnish time (3 pm CET). To participate, please dial 5 minutes before the beginning of the event +358 (0) and request to be connected to Rapala teleconference. Rapala VMC Corporation s financial information is also available on the internet at For further information, please contact: Jorma Kasslin, President and Chief Executive Officer, Jouni Grönroos, Chief Financial Officer, Olli Aho, Investor Relations, Distribution: Helsinki Stock Exchange and Main Media

2 RAPALA VMC OYJ STOCK EXCHANGE RELEASE 3 AUGUST (11) Market Situation and Sales Sales were quite good in Europe even if they suffered from the cool spring in many countries. European sales were up 5% for the second quarter and 12% for the first six months. Sales in new markets like Asia, Africa and Australia continued its strong growth for both the second quarter and the first half of the year. On the other hand, sales in North America continued to suffer from working capital management initiatives and inventory reductions of few major customers. Even if the underlying consumer consumption was quite good, North American sales, including acquired Luhr Jensen business, remained at last year levels. Second quarter net sales were up 6% from last year and amounted to 64.2 MEUR (II/05: 60.6 MEUR). Foreign exchange movements reduced the sales by 1.0 MEUR. Net sales for the first six months increased 14% to MEUR (I-II/05:112.3 MEUR). All product lines increased their sales for the first six months. New products and catalogues for the 2007 season were introduced and well received by the fishing professionals and distributors. These new products were on display for European markets at the EFTTEX Show in and for the American and Asian market at the ICAST show in July. Financial Results Key figures EUR million II/06 II/05 I-II/06 I-II/ Net sales EBITDA Operating profit (EBIT) Profit before taxes Net profit for the period Operating profit for was 8.1 MEUR (11.7 MEUR). It was negatively affected by foreign exchange effects (1.1 MEUR) and increased integration and business development costs (1.0 MEUR). Second quarter operating profit of 2005 included a positive foreign exchange effect of 1.4 MEUR. Operating profit margin was 12.6% (19.3%) and return on capital employed 17.8% (30.4%). Operating profit for the first half of the year was 18.1 MEUR (19.0 MEUR). This decrease is mainly an outcome of foreign exchange effects (1.6 MEUR). Six-month operating profit in 2005 included a positive foreign exchange effect of 2.2 MEUR but also 0.4 MEUR more IFRS based option expenses. Increased integration costs and strong input in business development decreased the six-month operating profit in 2006 by 2.2 MEUR. Comparable 6-month profitability improved from Europe was the only geographical segment that did not increase its operating profit for the second quarter and the first six months compared to last year. This is because European factories suffered from their US dollar based trade receivables while USD weakened 8% during the six months. Operating profit for the first half of 2005 benefited from USD strengthening by 11%. Also a big part of the integration and development costs accrued in Europe. Financial expenses increased from last year as a result of higher interest rates, increased net debt and currency exchange losses. Interest expenses were 1.2 MEUR (0.7 MEUR) for the second quarter and 2.5 MEUR (1.8 MEUR) for the first six months. Currency exchange losses for April to were 0.8 MEUR (gains of 0.7 MEUR) and 1.7 MEUR (gains of 1.6 MEUR) for January to. The hedging level and effectiveness of currency hedging was improved in May. Net profit for the second quarter amounted to 4.5 MEUR (8.7 MEUR) and to 10.1 MEUR (13.7 MEUR) for the first half of the year. Earnings per share (basic) was 0.11 EUR (0.23 EUR) for the quarter and 0.26 EUR (0.36 EUR) for the first six months. Net profit and earnings per share were strongly affected by foreign exchange movements.

3 RAPALA VMC OYJ STOCK EXCHANGE RELEASE 3 AUGUST (11) Cash Flow and Financial Position Cash flow from operating activities improved in the second quarter clearly from last year and from the first quarter. Working capital decreased moderately from March in line with decrease in inventories and trade receivables. Comparable inventories (excluding the effect of acquired and started businesses) were at last year levels. Capital expenditure for the second quarter did not include any acquisition and it amounted to 1.1 MEUR (1.5 MEUR). Capital expenditure of 7.3 MEUR (3.0 MEUR) for the first half of the year included the acquisitions of the South African distributor Tatlow & Pledger and the French fishing line supplier Tortue. Net interest-bearing debt decreased from March to MEUR (Dec 2005: 95.9 MEUR). Equity-to-asset ratio increased slightly to 33.1% (Dec 2005: 33.8%) and gearing decreased to 126.3% (Dec 2005: 124.1%) from March. Strategy Implementation Rapala VMC Corporation 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. In addition to the negotiations, the focus has been on the integration of previously acquired businesses and development of organic growth. This has proceeded on plan. The manufacturing of Luhr Jensen products ended in the USA in and the first products from the Group s Chinese factory will be delivered in the end of third quarter. The integration of sales companies acquired in 2005 as well Marttiini and Peltonen manufacturing operations is almost completed. The start-up process of the new sales companies in Asia continues to proceed well and the ramp-up of the production at the new knife factory in China is almost completed. During the second quarter, the Group decided to establish a factory in Russia for assembling lures. This investment is done to improve cost efficiency, to ensure availability of work force and to increase the production capacity of lures. Similar activities are currently performed in the Group s Estonian factory. The new Russian factory will be ready to start operations by the end of this year. It will start its operations with persons but the plan is to increase the personnel gradually to 100 persons. The required capital expenditure during the second half of the year is less than 0.5 MEUR. Shareholder Agreement and Management Ownership In, Utavia S.à.r.l (Utavia) purchased shares of Rapala from De Pruines Industries (DPI). Simultaneously, Viellard Migeon & Cie and Utavia entered into a shareholders agreement with respect to their shares in Rapala. DPI is a subsidiary of Viellard Migeon & Cie. For more details, see notes. The main shareholder of Utavia is CEO Jorma Kasslin with some 43% shareholding. The other shareholders are Board members or managers of the Group. After the deal, Viellard Migeon & Cie owns directly or through its subsidiaries some 27.3% and Utavia some 4.2% of the issued share capital and voting rights of Rapala. Short-term Outlook Market outlook for the rest of 2006 looks quite stable. North America has been negatively affected by inventory reductions of few major customers but the underlying market is though quite stable. The market in Western Europe seems to remain steady and especially strong in the new markets like East Europe and Asia. Australia and South Africa are heading for their spring season, which will boost their business for the third and fourth quarter. Otherwise, the third quarter is dominated by distribution of third party products.

4 RAPALA VMC CORPORATION STOCK EXCHANGE RELEASE 3 AUGUST (11) Including the completed acquisitions, it is expected that the Group s net sales for 2006 will increase with double digit percentage from The profitability of the Group s ongoing operations continues to be good. Implementing the growth strategy and integration of acquired businesses has increased the fixed costs and this will continue. Also depreciations will be above 2005 levels. Therefore, operating profit is expected to be in absolute terms above last year level but achieving the 2005 operating margin level (operating profit per net sales) will be challenging. The full benefit of the completed acquisitions will materialize from 2007 onward. The project to reduce working capital will continue. The target is to see an improvement on ongoing operations while the new acquisitions and start-ups will tie additional working capital. Group management continues planning and negotiations regarding further acquisitions and business combinations to implement the Group s strategy. The third quarter interim report will be published on November 2. Helsinki, August 3, 2006 Board of Directors of Rapala VMC Corporation

5 RAPALA VMC CORPORATION STOCK EXCHANGE RELEASE 3 AUGUST (11) CONSOLIDATED FINANCIAL STATEMENTS (unaudited) INCOME STATEMENT EUR million Sales Other operating income Cost of sales Other costs and expenses EBITDA Depreciation Operating profit (EBIT) Financial income and expenses Profit before taxes Income taxes Net profit for the period Dec Attributable to: Equity holders of the Company Minority interest Earnings per share for profit attributable to the equity holders of the Company: Earnings per share, EUR Earnings per share, EUR - diluted STATEMENT OF CASH FLOWS Dec EUR million Net profit for the period Adjustments Change in working capital Net cash generated from operating activities Net cash used in investing activities Cash flow before financing activities Net cash generated from financing activities Adjustments Change in cash and cash equivalents

6 RAPALA VMC CORPORATION STOCK EXCHANGE RELEASE 3 AUGUST (11) BALANCE SHEET Dec 31 EUR million ASSETS Non-current assets Intangible assets Property, plant and equipment Non-current financial assets Interest-bearing Non interest-bearing Current assets Inventories Current financial assets Interest-bearing Non interest-bearing Cash and cash equivalents Total assets EQUITY AND LIABILITIES Equity Equity attributable to the equity holders of the Company Minority interest Non-current liabilities Interest-bearing Non interest-bearing Current liabilities Interest-bearing Non interest-bearing Total equity and liabilities

7 RAPALA VMC CORPORATION STOCK EXCHANGE RELEASE 3 AUGUST (11) CONSOLIDATED STATEMENT OF CHANGES IN EQUITY Attributable to equity holders of the Company Share Cumulative Share premium translation Retained Minority Total EUR million capital fund differences earnings interest equity Equity on January 1, Change in translation differences Net profit for the financial year Total recognized income and expenses Private offering Dividends paid Shares subscribed with options Stock option program Other changes Equity on December 31, Change in translation differences Net profit for the period Total recognized income and expenses Dividends paid Shares subscribed with options Stock option program Other changes Equity on 30,

8 RAPALA VMC CORPORATION STOCK EXCHANGE RELEASE 3 AUGUST (11) KEY FIGURES EBITDA margin, % 15.1% 21.6% 16.7% 19.4% 13.7% Operating profit margin, % 12.6% 19.3% 14.2% 16.9% 11.3% Return on capital employed, % 17.8% 30.4% 19.9% 24.7% 14.1% Capital employed at end of period, MEUR Net interest-bearing debt at end of period, MEUR Equity-to-assets ratio at end of period, % 33.1% 33.7% 33.1% 33.7% 33.8% Debt-to-equity ratio at end of period, % 126.3% 119.5% 126.3% 119.5% 124.1% Dec Earnings per share, EUR Average number of shares outstanding (1000) Fully diluted earnings per share, EUR Fully diluted average number of shares (1000) Equity per share at end of period, EUR Number of shares outstanding at end of period (1000) Average personnel for the period KEY FIGURES BY QUARTERS EUR million I/05 II/05 III/05 IV/ I/06 II/06 Net sales EBITDA Operating profit (EBIT) Profit before taxes Net profit for the period

9 RAPALA VMC CORPORATION STOCK EXCHANGE RELEASE 3 AUGUST (11) SEGMENT INFORMATION* Dec EUR million Net Sales by Area* North America Europe Rest of the world Intra Group Total Operating Profit by Area* North America Europe Rest of the world Intra Group Total Net Sales by Product line** Lures Fishing Hooks Fishing Accessories Third Party Fishing Products Other Products and Distribution Intra Group Total *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 and Distribution include non-group branded (third party) products for hunting, outdoor and winter sports and Group branded products for winter sports and some other businesses.

10 RAPALA VMC CORPORATION STOCK EXCHANGE RELEASE 3 AUGUST (11) OPEN CURRENCY DERIVATIVES Dec 31 EUR million Net fair values Contract amount COMMITMENTS Dec 31 EUR million Mortgages and pledges To secure borrowings of Group companies Guarantees To secure borrowings of Group companies On behalf of other parties Minimum future lease payments on operating leases NOTES TO THE INCOME STATEMENT AND BALANCE SHEET Share-based payments The terms and conditions of the option program are described in detail in the annual report The options are valued at fair value on the grant date by using the Black-Scholes-Merton option-pricing model. The total estimated value of the program is EUR 4.3 million. This value is recognized as an expense in the income statement during the vesting periods. 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. Grant date for the option program was 8, Vesting period is the period during which all the specified vesting conditions of a share-based payment arrangement are to be satisfied. The vesting 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 and for 2004B from March 31, 2008 to March 31, Applying of IFRS 2 has reduced operating profit with 1.5 MEUR in 2005, 0.9 MEUR in 2005 and 0.5 in Shares and share capital Based on this authorization given by the Annual General Meeting in April 2006, the Board can decide on an increase of the share capital by a maximum of euros in one or more issues of new shares within one year from the Annual General Meeting. A maximum of new shares each with a counter book value of 0.09 euro may be offered for subscription new Rapala shares where subscribed with 2003A option rights in March The share capital increased with EUR and the subscriptions were registered in the Trade Register on March 3, 2006 and listed on the main list of the Helsinki Stock Exchange on March 6, As a result of the share capital increase the company s share capital is EUR and the number of shares on March 31, A further shares may still be subscribed with the 2003A option rights by 31 March 2007 at the latest.

11 RAPALA VMC CORPORATION STOCK EXCHANGE RELEASE 3 AUGUST (11) 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 EUR and the number of shares by a maximum of 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 six months shares ( shares) were traded. The shares traded at a high of 6.75 EUR and a low of 5.60 EUR during the period. The closing share price at the end of the period was 6.14 EUR. Shareholder Agreement Viellard Migeon & Cie and Utavia S.à.r.l (Utavia) entered into a shareholders agreement on 29, 2006 with respect to their shares in Rapala VMC Corporation, and the shareholders of Utavia have agreed to be bound by the said shareholders agreement. The main shareholder of Utavia is the CEO of Rapala, Jorma Kasslin, with approximately 43% shareholding. The other shareholders are board members or managers of the Group. In total, Utavia has some 40 shareholders. On 29, 2006 Utavia purchased from De Pruines Industries shares representing approximately 4.17% of the issued share capital and voting rights in Rapala. De Pruines Industries is a subsidiary of Viellard Migeon & Cie. After the deal, Viellard Migeon & Cie owns directly or through its subsidiaries approximately 27.3% of the issued share capital and voting rights of Rapala. In the shareholders agreement Utavia has undertaken to vote in Rapala s general meetings of shareholders in favour of the resolutions approved and/or submitted by Viellard Migeon & Cie and authorised Viellard Migeon & Cie to exercise the voting rights attached to the Rapala shares held by it. Utavia has undertaken not to sell more than 50% of the shares it owns in Rapala during the period of first two years after the execution of the shareholders agreement. Viellard Migeon & Cie has a right of first refusal to any shares sold by Utavia. The parties to the shareholders agreement undertake to use and exercise the votes that they control at the general meetings of shareholders of Rapala so that two persons designated by Viellard Migeon & Cie and one person designated by Utavia (the first person to be appointed being Jorma Kasslin in this respect) are appointed as members of the Board. The parties to the shareholders agreement have agreed to support Jorma Kasslin as the CEO of Rapala for a period of three years from the execution of the shareholders agreement and election of Emmanuel Viellard as the chairman of the Board during the same period. 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.