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GlobeNewswire (Europe)
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Rapala VMC Oyj: RAPALA VMC'S HALF YEAR REPORT H1/2018: SALES AND PROFITABILITY GREW FROM LAST YEAR - STRATEGY EXECUTION SHOWING RESULTS

RAPALA VMC CORPORATION'S HALF YEAR REPORT H1/2018: SALES AND PROFITABILITY GREW FROM LAST YEAR - STRATEGY EXECUTION SHOWING RESULTS

January-June (H1) in brief:

  • Net sales were 142.5 MEUR, up 1% from previous year (140.9). With comparable exchange rates sales were 6.5% higher than last year.
  • Operating profit was 15.3 MEUR (11.0), up 39%.
  • Comparable operating profit* was 15.2 MEUR (11.4), up 33%.
  • Cash flow from operations was 5.9 MEUR (8.1).
  • Gearing was 43.8% (46.8).
  • Earnings per share was 0.23 EUR (0.15), up 53%.
  • Full year guidance unchanged: Full year net sales with comparable FX rates expected to be above last year's level and comparable operating profit to exceed 15 MEUR.

President and CEO Jussi Ristimäki: "The first six months of the year developed well as our net sales and profitability grew from last year. The underlying consumer demand for our products continued to be strong in North America and after an exceptional year of 2017, our sales to retail grew strongly from last year. We were especially satisfied that Rapala lures was the biggest growth category.

Our profitability increase from last year was driven by strong sales in North America and successful performance improvement initiatives in France and Southeast Asia. Furthermore, production efficiency and footprint optimization of European lure manufacturing units contributed positively to profitability improvement. However, the Indonesian lure operations continued to have a negative profitability impact.

Execution of our strategy of improving profitability, lightening balance sheet and improving operational performance is progressing well. Ongoing lean projects and supply chain management initiatives continue to yield results. Consequently, our inventories decreased organically from last year. The strategic gradual shift from traditional marketing to digital marketing channels progressed. We opened successfully a content driven Rapala e-commerce site in Europe in May to enhance brand experience and to increase customer service. One of our strategic key priorities is to execute a profitability turnaround for the Indonesian lure operations. We have taken new actions during the year and we are determined to generate the profitability turnaround."

* Excluding mark-to-market valuations of operative currency derivatives and other items affecting comparability. Other items affecting comparability include material restructuring costs, impairments, gains and losses on business combinations and disposals, insurance compensations and other non-operational items.

Key figures

H1H1ChangeFY
MEUR20182017 %2017
Net sales142.5140.9+1%253.3
Operating profit15.311.0+39%8.9
% of net sales10.7%7.8% 3.5 %
Comparable operating profit *15.211.4+33%11.4
% of net sales10.6%8.1% 4.5 %
Cash flow from operations5.98.1-27%19.1
Gearing %43.8%46.8% 47.5 %
EPS, EUR0.230.15+53%0.05


* Excluding mark-to-market valuations of operative currency derivatives and other items affecting comparability. Other items affecting comparability include material restructuring costs, impairments, gains and losses on business combinations and disposals, insurance compensations and other non-operational items.
Rapala Group presents alternative performance measures to reflect the underlying business performance and to enhance comparability between financial periods. Alternative performance measures should not be considered in isolation as a substitute for measures of performance in accordance with IFRS. Definitions and reconciliation of key figures are presented in the financial section of the release.

Market Environment

During the first half of the year, trading conditions showed positive signs in many of the Group's markets. Despite the structural changes in the North American retail market, demand for the Group's products was strong in the area. In Europe, trading conditions continued to be very competitive. Russian market is still impacted by the economic uncertainties and changing consumer behavior.

Business Review January-June 2018

The Group's net sales for the first half of the year were 1.1% above last year. Changes in translation exchange rates had a significant negative impact on the sales and with comparable translation exchange rates, net sales were organically up by 6.5% from the comparison period.

North America

The first half of 2018 was strong in North America. Even though the US and Canadian dollars depreciated in value compared to the first half of 2017, the sales increased by 4.1% from the comparison period. With comparable translation exchange rates, the sales were up by a notable 14.7%.
The challenges the Group faced last year in North America, with two major customers entering Chapter 11, were largely overcome as the sales were successfully channeled to other retail customers. Group's products are available to consumers through all meaningful channels, including the Group's own e-commerce platform. Consequently, the North American market witnessed sales growth in most of the product categories, Rapala lures being the single biggest driver for the growth.

Nordic

The sales in the Nordic market grew slightly from the comparison period. The weakening of Swedish and Norwegian kronen hindered the growth to some extent and with comparable translation exchange rates, the sales were up by 4.1%.
Hunting sales in Sweden and winter product sales in Finland, supported by good winter, contributed positively to the area's sales. On the other hand, the sales of Marttiini knives were below last year's record-high figures, which were boosted by the Finland 100 year anniversary knives.

Rest of Europe

With comparable translation exchange rates, the sales in Rest of Europe were 0.4% above the comparison period. Mainly the declined Russian ruble, however, pulled the reported sales 2.0% below the level of last year.
Overall, the area suffered from the market conditions in Russia, where reduced purchase power and increased cross-border internet trade have changed the consumer behavior and impacted local business negatively. The biggest market France grew from last year and Poland as well as Romania witnessed strong sales growth.

Rest of the World

With comparable translation exchange rates, the sales in Rest of the World grew 6.1% from the comparison period. However, as most of the market's currencies depreciated against euro, euro-denominated sales were around the level of the comparison period.
Hunting business in South-Africa contributed positively to the Rest of the World market growth. The successful turnaround in South-East Asia also had a positive impact on the sales - Thailand, Malaysia and Indonesia all witnessed strong growth during the first half of the year.

External net sales by area

H1H1ChangeComparable
change %
FY
MEUR20182017%2017
North America49.647.6+4%+15%89.4
Nordic32.331.8+2%+4%54.3
Rest of Europe44.945.8-2%0%77.6
Rest of the World15.715.70%+6%31.9
Total142.5140.9+1%+7%253.3

Financial Results and Profitability

Comparable (excluding mark-to-market valuations of operative currency derivatives and other items affecting comparability) operating profit increased by 3.8 MEUR (33%) from the comparison period. The effect of translation exchange rates was negative and with comparable translation exchange rates, comparable operating profit increased by 4.3 MEUR from last year. Reported operating profit increased by 4.3 MEUR from last year and the items affecting comparability had a positive impact of 0.1 MEUR (-0.4) on reported operating profit.

Comparable operating profit margin was 10.6% (8.1) for the first half. Sales growth in North America and Southeast Asia, especially on Rapala lures, combined with fixed costs control generated the profitability growth. Additionally, performance improvement initiatives in France and European lure manufacturing had a positive impact on profitability, while Indonesian lure factory is still having a negative impact on the Group's performance.

Reported operating profit margin was 10.7% (7.8) for the first half. Reported operating profit included profit of mark-to-market valuation of operative currency derivatives of 0.3 MEUR (-0.1). Net expenses of other items affecting comparability included in the reported operating profit were 0.1 MEUR (0.3). Other items affecting comparability included a gain on sale of a real estate and some restructuring costs.

Total financial (net) expenses were 1.2 MEUR (1.8) for the first half. Net interest and other financing expenses were 0.8 MEUR (1.2) and (net) foreign exchange expenses were 0.4 MEUR (0.7).

Net profit for the first half increased by 62% and was 9.7 MEUR (6.0) and earnings per share were 0.23 EUR (0.15). The share of non-controlling interest in net profit increased by 0.2 MEUR from last year and totalled 0.3 MEUR (0.1).

Key figures

H1H1ChangeFY
MEUR20182017%2017
Net sales142.5140.9+1%253.3
Operating profit15.311.0+39%8.9
Comparable operating profit *15.211.4+33%11.4
Net profit9.76.0+62%2.3
* Excluding mark-to-market valuations of operative currency derivatives and other items affecting comparability.
Other items affecting comparability include material restructuring costs, impairments, gains and losses on business
combinations and disposals, insurance compensations and other non-operational items.

Bridge calculation of comparable operating profit

H1H1ChangeFY
MEUR20182017%2017
Operating profit15.311.0+39%8.9
Mark-to-market valuations of operative currency derivatives-0.30.1-400%0.3
Other items affecting comparability0.10.3-67%2.3
Comparable operating profit15.211.4+33%11.4
More detailed bridge of comparable operating profit and definitions and reconciliation of key figures are presented in
the financial section of the release.

Segment Review

Group Products

While reported sales of Group Products were negatively impacted especially by weakened US dollar, with comparable translation exchange rates, sales of Group Products were above the comparison period. The increased sales were mostly driven by Rapala lures. Furthermore, fishing lines, hooks and winter sports products increased sales from last year. Sales of hunting knives were below the comparison period due to extraordinary high sales of Finland 100 years anniversary knives last year.

Driven by the increased sales, the comparable operating profit for the Group Products was above the comparison period. Operating profit was still negatively impacted by the Indonesian lure factory, even though the results were slightly better than last year.

Third Party Products

With comparable translation exchange rates, the sales of Third Party Products were above last year. Increased sales were driven by the expansion of hunting distribution business. In addition, third party rod and reel business grew in many markets in Europe.
Following the strong sales, comparable operating profit for Third Party Products was above the comparison period.

Net sales by segment

H1H1ChangeComparableFY
MEUR20182017%change %2017
Group Products94.594.90%+6%168.8
Third Party Products48.045.9+5%+8%84.5
Total142.5140.9+1%+7%253.3

Comparable operating profit by segment

H1H1ChangeFY
MEUR20182017%2017
Group Products14.011.5+22%13.0
Third Party Products1.2-0.1+1300%-1.6
Comparable operating profit15.211.4+33%11.4
Items affecting comparability0.1-0.4+125%-2.6
Operating profit / loss15.311.0+39%8.9

Financial Position

Despite the improved profitability, cash flow from operations decreased by 2.1 MEUR from the comparison period being 5.9 MEUR (8.1). The impact of net change of working capital to cash flow from operations was -9.7 MEUR (-2.6) as cash was tied to inventories following the sales growth.

Compared to last year, inventory levels were lower and June inventory value was 96.7 MEUR (99.1). Excluding the impact of allowance on inventories and translation exchange rates, the organic decrease of inventories was 1.9 MEUR.

Net cash used in investing activities was on the level of the comparison period amounting to 2.6 MEUR (2.6). Capital expenditure, consisting mostly of normal operative capital expenditure, was 3.4 MEUR (2.7) and disposals 0.7 MEUR (0.1). The disposals of 0.7 MEUR were related to a sale of real estate and sales of some manufacturing equipment.

Liquidity position of the Group was good. Undrawn committed long-term credit facilities amounted to 59.9 MEUR at the end of the period. Gearing ratio decreased and equity-to-assets ratio improved from last year. Following higher profitability, leverage level (ratio between net interest-bearing debt and reported EBITDA) stayed below covenant levels and the Group is compliant with all financial covenants.
Group equity includes a hybrid loan of 25 MEUR issued in May 2017. The interest paid on the hybrid loan resulting from the decision to pay dividends, totalling 1.3 MEUR, less tax, is recognised as a deduction from Group's equity.

Key figures

H1H1ChangeFY
MEUR20182017%2017
Cash flow from operations5.98.1-27%19.1
Net interest-bearing debt at end of period66.171.3-7%67.8
Gearing %43.8%46.8% 47.5%
Equity-to-assets ratio at end of period, %52.5%50.1% 53.9%
Definitions and reconciliation of key figures are presented in the financial section of the release.

Strategy Implementation

The Group updated its strategy in February 2017. Following the conclusions of the strategy update, in order to build a solid financial and operational platform for long term growth, the Group's primary focus in the coming years will be on capturing organic growth opportunities in the fishing tackle business. The Group will also take determined actions to improve its profitability, lighten balance sheet and improve operational performance. In longer term, the target is to return to a more aggressive growth track and actively seek synergistic growth opportunities also outside the fishing tackle business.

The Group's existing assets and capabilities form the foundation for future strategies, both in short and long term. Future strategies are built upon utilizing and capitalizing the brand portfolio, manufacturing and sourcing platform, research and development knowledge, as well as the broad distribution network and strong local presence all around the world supporting the sales of Group's own and selected synergistic third party products.

The execution of the updated strategy is progressing on all levels in the Group. Several organic growth projects are ongoing in all businesses utilizing deep market and customer understanding. Special focus has been set to leverage Group's global innovation power to address growing product categories and niches within fishing.

Significant focus and resources are allocated to streamline internal supply chains and to develop sales and operations planning to achieve lower group-wide inventories and improved service levels. Additionally, lean projects are ongoing in several factories. One of the key projects is to execute a sustainable profitability turnaround for the Indonesian lure operations. Certain low performing product categories are being outsourced and further make/buy considerations are done to increase the profitability.

The Group has made investments in group-wide common IT systems and resources to increase efficiencies and enable better end-to-end supply chain and product management. The Group has also increased sales and marketing investments towards digital channels and direct consumer contacts in order to exploit these opportunities stronger in the future. Leveraging the experiences from Group's US e-commerce platform, a content driven Rapala e-commerce website was successfully launched in European Union in May to promote the Rapala-brand and offer improved customer experience.

Product Development

Continuous product development and consistent innovation are core competences for the Group and major contributors to the value and commercial success of the brands. The Group has reorganized and boosted its lure product development procedure by centralizing the research and development know-how and key resources to one location in Finland that serves both the European and Asian lure manufacturing units.

Product development cycles are getting shorter which allows faster reaction to market needs and developing trends. Product launch schedules are more flexible and can be better adjusted to target specific markets' seasons.

The most important product launches in the first half of year were a European-wide coordinated launch of a series of new pike lures, which started in January in France and reached its full year sales targets already in the first six months. Sufix 131 G-Core braided line was launched at the European Fishing Tackle Trade Exhibition in June, where it was voted the Best New Braided Line. The new Rapala Super Shadow Rap lure - part of the new pike series - received the Best New Hard Bait award. Rapala X-Rap Peto and Storm R.I.P. Spinnerbait were named Runner-Ups in their own categories.

Further introductions of hero lure categories were prepared for the US trade show ICAST in July.

Organization and Personnel

Average number of personnel was 2 811 (2 786) for the first half of the year. At the end of June, the number of personnel was 2 798 (2 754).

Short-term Outlook and Risks

For the first six months, the Group witnessed growth in all regions from last year in local currencies. The Group continues to see healthy consumer demand for its products via old and new sales channels in North America despite the ongoing evolvement of retail business. In Europe, the price competition in certain product categories has increased and the markets continue to be very competitive.

Presales of winter fishing equipment in USA have been strong and the overall outlook for North America is positive for the second half of the year. The outlook and visibility for Europe is somewhat cautious as the market environment remains challenging in certain markets.

The Group has launched various strategic initiatives to boost organic growth and to improve cost and capital efficiency as well as operational performance in the future. These initiatives will continue to trigger some additional expenses and investments in 2018.

The Group expects full year net sales with comparable FX rates to be above last year's level and comparable operating profit (excluding mark-to-market valuations of operative currency derivatives and other items affecting comparability) to exceed 15 MEUR. The guidance remains unchanged from February 16, 2018.

Short term risks and uncertainties and seasonality of the business are described in more detail in the end of this report.

Other significant events

Annual General Meeting

The Annual General Meeting (AGM) kept on March 29, 2018 approved the Board of Director's proposal that a dividend of EUR 0.04 per share is paid. The dividend will be paid in two instalments, 0.02 euro each. The first instalment 0.8 MEUR was paid on April 11, 2018. The Board of Directors will in its meeting scheduled for October 30, 2018 decide on the dividend record date and the payment date of the second instalment. The dividend record date for the second instalment would then be November 1, 2018 and the dividend payment date November 8, 2018. A separate stock exchange release on the decisions of the AGM has been given, and up to date information on the Board's authorizations and other decisions of the AGM are available also on the corporate website.

New Share-based Long-term Incentive Plan for Group's key employees

On February 16, 2018 the Group announced that the Board of Directors of Rapala VMC Corporation has approved a new Performance Share Plan for the Group key employees. The aim of the new plan is to align the objectives of the shareholders and the key employees in order to increase the value of the Company in the long-term, to retain the key employees at the Company, and to offer them a competitive reward plan that is based on earning and accumulating the Company's shares. The new plan is directed to approximately 40 people, including the CEO and other members of the Executive Committee of the Group.
The new Performance Share Plan 2018-2020 includes one three-year performance period, calendar years 2018-2020. The potential reward from the performance period will be based on the Group's financial performance criteria which will be measured during the financial year 2020 and the Company's share price criterion which will be measured during a measurement period of forty (40) consecutive trading days in November-December 2020. The Board of Directors may also resolve on other 40 trading day measurement periods. The financial performance criteria for the performance period are the Group Product sales in 2020, the Group's Comparable Earnings before Interest and Taxes margin in 2020 (EBIT %) and the Group's Average Working Capital Ratio in 2020.
The rewards to be paid on the basis of the plan correspond to the value of an approximate maximum total of 900,000 Rapala VMC Corporation shares including also the proportion to be paid in cash. The potential rewards from the performance period 2018-2020 will be paid partly in the Company's shares and partly in cash in 2021. The cash proportion is intended to cover taxes and tax-related costs arising from the reward to the participant. As a rule, no reward will be paid, if a participant's employment or service ends before the reward payment.
A significant proportion of the reward allocations of the CEO and other members of the Executive Committee of the Group will be dependent on their personal investments in the Company shares and share ownership of the shares acquired through such investments.


Helsinki, July 20, 2018

Board of Directors of Rapala VMC Corporation

For further information, please contact:

Jussi Ristimäki, President and Chief Executive Officer, +358 9 7562 540
Jan-Elof Cavander, Chief Financial Officer, +358 9 7562 540
Olli Aho, Investor Relations, +358 9 7562 540

A conference call on the first half year result will be arranged today at 1:00 p.m. Finnish time (12:00 noon CET). Please dial +44 (0)330 336 9104 or +1 323 794 2095 or +358 (0)9 7479 0360 (pin code: 181750) five minutes before the beginning of the event. A replay facility will be available for 14 days following the teleconference. The number to dial is +44 (0)207 660 0134 or +1 719 457 0820 or +358 (0)9 8171 0562 (pin code: 1336915). Financial information and teleconference replay facility are available at www.rapalavmc.com.

Attachment

  • Rapala VMC Corporation - Half Year Report H1 2018 (https://prlibrary-eu.nasdaq.com/Resource/Download/2895d0d9-3353-4152-9d82-5a439b20d352)
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