Rapala VMC Corporation
Financial Statement Release
February 9, 2021 at 4:00 p.m.
RAPALA VMC CORPORATION'S ANNUAL ACCOUNTS 2020: COMPARABLE OPERATING PROFIT GREW FROM LAST YEAR DESPITE THE COVID-19 PANDEMIC; SUCCESSFULL AND FORCEFUL ACTIONS LED TO SIGNIFICANT REDUCTION IN INVENTORIES AND STRONG OPERATING CASH FLOW
January-December (FY) in brief:
- Net sales were 261.3 MEUR, down 5% from previous year (275.4). Organically sales were 2% lower than last year.
- Operating profit was 10.7 MEUR (13.4).
- Comparable operating profit* was 21.5 MEUR (17.8).
- Cash flow from operations was 42.5 MEUR (25.9).
- Net profit for the period was 3.4 MEUR (4.1).
- Earnings per share was 0.04 EUR (0.10).
- 2021 guidance: Full year comparable operating profit to be in line or above the previous year.
- The Board of Directors proposes to the Annual General Meeting that no dividend is paid for 2020.
July-December (H2) in brief:
- Net sales were 144.2 MEUR, up 7% from previous year (134.2). With comparable exchange rates sales were 13% higher than last year.
- Operating profit was 11.6 MEUR (2.0).
- Comparable operating profit* was 17.3 MEUR (5.8).
- Cash flow from operations was 29.1 MEUR (14.4).
- Net profit for the period was 7.2 MEUR (-3.4).
- Earnings per share was 0.16 EUR (-0.06).
* 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.
President and CEO Nicolas Warchalowski: "We achieved great results in a truly exceptional year and consequently comparable operating profit improved from 17.8 MEUR to 21.5 MEUR at the same time when we increased operating cash flow from 25.9 MEUR to 42.5 MEUR. In addition to these improved financial results, we made great leaps in our strategy execution and finalized for the most parts the restructuring program initiated in October 2019. Key highlights were the ramp-down of Asian lure manufacturing operations and establishing a new centralized distribution centre to Estonia, which enabled continued decrease in our warehouse footprint on our way to more centralized and simplified operating model. As importantly, the renewed organizational structure and fewer management layers will make us much more growth oriented and increase drastically decision-making speed.
In 2020, net sales decreased by 2% to 261.3 MEUR from the previous year using comparable FX rates as a result of changes in the Third Party Products business. Focus to Group Products yielded results and sales for the segment grew by 4% from the previous year using comparable FX rates. A positive highlight from 2020 was also the strong double-digit growth in our e-commerce business, which proves that our investments in direct-to-consumer business are paying off.
We reacted quickly to the COVID-19 pandemic in the first quarter and implemented a strong mitigation plan, where our highest priorities were safeguarding the health and safety of our team members worldwide and protecting the financial position of the Group. We implemented a rapid and forceful ramp-down with fast cut in purchases and implementation of watchtowers to monitor cash flow and account receivables. We continued all these activities in the ramp-up period as well and achieved great results especially in inventory management. Consequently, our inventory dropped by 23.8 MEUR from December 2019 to 68.8 MEUR in December 2020, which is the lowest inventory value recorded in more than a decade.
Our key priorities in 2021 are to continue and accelerate our growth journey in the core business and start the new Okuma rod and reel business in Europe. We are very proud that Okuma is now one of our flagship brands and are fully dedicated to make significant investments in Europe to lift Okuma to the leading rod and reel brand in the future in the European market. In 2021, we will also benefit from the positive momentum in the industry as fishing is one of the few COVID safe activities.
In our ONE RAPALA VMC strategy we continue to build a united team culture to release all the potential within our worldwide organization and strong brand portfolio. We will considerably increase focus in customers and consumers and are committed to bring new innovative products to the market. Furthermore, we will strengthen our operational and financial platform to enable improved working capital management and cost efficiency. I'm very confident in our team and our ability to execute our ONE RAPALA VMC business plan and aim to lift Rapala VMC to #1 position in the market region-by-region and category-by-category."
Key figures
| H2 | H2 | Change | FY | FY | Change | |
| MEUR | 2020 | 2019 | % | 2020 | 2019 | % |
| Net sales | 144.2 | 134.2 | +7% | 261.3 | 275.4 | -5% |
| Operating profit/loss | 11.6 | 2.0 | +480% | 10.7 | 13.4 | -20% |
| % of net sales | 8.0% | 1.5% | 4.1% | 4.9% | ||
| Comparable operating profit * | 17.3 | 5.8 | +198% | 21.5 | 17.8 | +21% |
| % of net sales | 12.0% | 4.4% | 8.2% | 6.5% | ||
| Cash flow from operations | 29.1 | 14.4 | +102% | 42.5 | 25.9 | +64% |
| Gearing % | 31.6% | 49.2% | 31.6% | 49.2% | ||
| EPS, EUR | 0.16 | -0.06 | +350% | 0.04 | 0.10 | -63% |
* 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
2020 was an exceptional and two-folded year for the Group due to the COVID-19 pandemic. During the first half of the year, trading conditions were significantly weakened by the pandemic and the restrictions that followed. In the ramp-up period starting in June, however, trading conditions recovered quickly and the demand for fishing tackle products, as for many other outdoor products, was particularly high.
Business Review January-December 2020
The Group's net sales for the year were 5.1% below last year with reported translation exchange rates. With comparable translation exchange rates, net sales were organically down by 2.5% from the comparison period. As expected, sales were decreased by the termination of Shimano and certain other Third Party distribution agreements. On the other hand, Group Products sales grew from 2019 despite the difficult first half of the year impacted by the COVID-19 pandemic.
North America
Sales in North America increased by 5.7% from the comparison period with reported translation exchange rates and by 8.1% with comparable translation exchange rates.
In the first half of the year, the North American market was severely hit by the pandemic and the governmental lockdowns that followed. Sales decreased heavily as the Group's distribution operations and retail customers were closed for several weeks during the spring. However, as the restrictions gradually eased, the consumer demand in the North American market was high. Following a rapid ramp-up of the operations, the Group was able to meet the high demand, and consequently the sales witnessed solid growth from the comparison period also on the full year level.
Nordic
Sales in the Nordic market decreased by 26.5% from the comparison period. With comparable translation exchange rates sales were down by 26.1%.
The termination of Shimano and certain other Third Party distribution agreements had a significant negative impact on the sales volumes in the Nordic market. In addition, the poor winter conditions in the beginning of 2020 reduced winter sports sales. Despite the overall sales decrease, the sales of Group fishing products grew from the comparison period.
Rest of Europe
Sales in the Rest of Europe market decreased by 1.9% from the comparison period. However, with comparable translation exchange rates sales were up by 0.7% from the previous year.
During the first half of the year, the Rest of Europe market was also heavily impacted by the COVID-19 pandemic and the restrictions that followed. In the second half of the year, the demand for Group's products was very high, which converted to strong second half sales. Overall, Group Product sales in the Rest of Europe market grew, but the termination of Shimano distribution kept the sales figures on 2019 level.
Rest of the World
With comparable translation exchange rates, sales in the Rest of the World market decreased by 2.6% from the comparison period. However, with reported translation exchange rates, sales decreased by 10.8% as especially South African rand lost its value against the euro compared to the previous year.
As the other markets, Rest of the World market was hit by the COVID-19 pandemic during the first half of the year, and as the restrictions were gradually eased, sales began to recover in the second half of 2020. The sales recovery was somewhat slower than in the other markets, and consequently the market did not reach the full year sales figures of the comparison period. The termination of Shimano distribution also had a negative impact on the sales.
External Net Sales by Area
| FY | FY | Change | Comparable | |
| MEUR | 2020 | 2019 | % | change % |
| North America | 110.2 | 104.2 | +6% | +8% |
| Nordic | 41.6 | 56.6 | -27% | -26% |
| Rest of Europe | 79.8 | 81.3 | -2% | +1% |
| Rest of the World | 29.7 | 33.3 | -11% | -3% |
| Total | 261.3 | 275.4 | -5% | -2% |
| H2 | H2 | Change | Comparable | |
| MEUR | 2020 | 2019 | % | change % |
| North America | 69.8 | 55.6 | +26% | +33% |
| Nordic | 19.3 | 25.7 | -25% | -25% |
| Rest of Europe | 38.2 | 35.3 | +8% | +13% |
| Rest of the World | 16.9 | 17.6 | -4% | +7% |
| Total | 144.2 | 134.2 | +7% | +13% |
Financial Results and Profitability
Comparable (excluding mark-to-market valuations of operative currency derivatives and other items affecting comparability) operating profit increased by 3.7 MEUR from the comparison period. The change in translation exchange rates was negative and with comparable translation exchange rates comparative operating profit increased by 4.3 MEUR. Reported operating profit decreased by 2.7 MEUR from the previous year and the items affecting comparability had a negative impact of 10.8 MEUR (4.4) on reported operating profit.
Comparable operating profit margin was 8.2% (6.5) for the year. The increased profitability was driven by improved gross margin as the share of higher margin Group Products sales of total sales increased. Furthermore, decreased operating expenses had a significant impact on the profitability improvement from the previous year. During the first half of the year, the Group quickly reacted to the COVID-19 pandemic by implementing a forceful COVID-19 mitigation plan. The Group continued the tight cost control during the second half of the year even though the demand and sales increased to higher levels. As a result of the successful implementation and execution of the mitigation plan, operating expenses substantially decreased from the comparison period.
Reported operating profit margin was 4.1% (4.9) for the year. Reported operating profit included impact of mark-to-market valuation of operative currency derivatives of -0.1 MEUR (-0.4). Net expenses of other items affecting comparability included in the reported operating profit were -10.7 MEUR (-4.0). Other items affecting comparability consisted mainly of expenses related to the restructuring of European business and ramp down of Asian lure manufacturing operations in Batam. In Europe, several distribution sites were closed or downsized as the centralized Pärnu distribution centre was set up. Furthermore, cost structure was streamlined in Europe following the Shimano exit for non-JV countries and exit of hunting business.
Total financial (net) expenses were 4.2 MEUR (3.6) for the year. Net interest and other financing expenses were 3.2 MEUR (2.5) and (net) foreign exchange expenses were 1.0 MEUR (1.1).
Net profit for the year decreased by 0.7 MEUR and was 3.4 MEUR (4.1) and earnings per share were 0.04 EUR (0.10). The share of non-controlling interest in net profit increased compared to previous year and totalled 1.0 MEUR (-0.4).
Key figures
| H2 | H2 | Change | FY | FY | Change | |
| MEUR | 2020 | 2019 | % | 2020 | 2019 | % |
| Net sales | 144.2 | 134.2 | +7% | 261.3 | 275.4 | -5% |
| Operating profit / loss | 11.6 | 2.0 | +480% | 10.7 | 13.4 | -20% |
| Comparable operating profit * | 17.3 | 5.8 | +198% | 21.5 | 17.8 | +21% |
| Net profit / loss | 7.2 | -3.4 | +313% | 3.4 | 4.1 | -17% |
| * 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
| H2 | H2 | Change | FY | FY | Change | |
| MEUR | 2020 | 2019 | % | 2020 | 2019 | % |
| Operating profit/loss | 11.6 | 2.0 | +480% | 10.7 | 13.4 | -20% |
| Mark-to-market valuations of operative currency derivatives | 0.0 | 0.1 | 0.1 | 0.4 | ||
| Other items affecting comparability | 5.7 | 3.8 | 10.7 | 4.0 | ||
| Comparable operating profit | 17.3 | 5.8 | +198% | 21.5 | 17.8 | +21% |
| 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
With comparable translation exchange rates, Group Products sales increased by 6.7 MEUR from the comparison period. As a result of an exceptionally strong second half of the year, Group Products sales grew substantially in the North American market, Rapala lures being the key growth category. Followed by the increased sales, the comparable operating profit for Group Products also improved from the comparison period.
Third Party Products
With comparable translation exchange rates, Third Party Products sales were 13.5 MEUR below the comparison period. As expected, the termination of Shimano distribution agreement and certain other Third Party distribution agreements had negative impacts on sales, particularly on the Nordic and Rest of Europe markets. Followed by the decreased sales, the comparable operating profit for Third Party Products was below the comparison period.
Net Sales by Segment
| FY | FY | Change | Comparable | ||
| MEUR | 2020 | 2019 | % | change % | |
| Group Products | 187.5 | 185.2 | +1% | +4% | |
| Third Party Products | 73.8 | 90.2 | -18% | -15% | |
| Total | 261.3 | 275.4 | -5% | -2% | |
| H2 | H2 | Change | Comparable | ||
| MEUR | 2020 | 2019 | % | change % | |
| Group Products | 109.2 | 89.9 | +21% | +28% | |
| Third Party Products | 35.0 | 44.3 | -21% | -17% | |
| Total | 144.2 | 134.2 | +7% | +13% | |
Comparable operating profit by Segment
| H2 | H2 | Change | FY | FY | Change | |
| MEUR | 2020 | 2019 | % | 2020 | 2019 | % |
| Group Products | 19.1 | 7.7 | +148% | 23.4 | 19.5 | +20% |
| Third Party Products | -1.8 | -1.9 | +6% | -1.9 | -1.6 | -19% |
| Comparable operating profit | 17.3 | 5.8 | +198% | 21.5 | 17.8 | +21% |
| Items affecting comparability | -5.7 | -3.9 | -49% | -10.8 | -4.4 | -144% |
| Operating profit / loss | 11.6 | 2.0 | +480% | 10.7 | 13.4 | -20% |
Financial Position
Following a successful implementation and execution of the COVID-19 mitigation plan and stricter inventory control, cash flow from operations increased by 16.6 MEUR from the comparison period ending to a record level of 42.5 MEUR (25.9). A key driver for the record cash flow was the positive development of working capital. The impact of net change of working capital to cash flow from operations improved by 9.0 MEUR from the previous year and was 20.4 MEUR (11.4).
End of the year 2020 inventory was on record low levels at 68.8 MEUR (92.6). The impact of change in allowance on inventory was negative (1.5 MEUR) but changes in translation exchange rates on inventory were positive (4.0 MEUR). The record low year-end inventory value was driven by tight control in inventory and centralized purchase quota allocations.
The Group's COVID-19 response and mitigation plan on supply chain management was overall successful. After the quick ramp-down of operations, the Group rapidly ramped up the operations and the direct impacts of the pandemic to the Group's sourcing and own factories ended up being somewhat limited. As a result of tight control in inventories and central purchase quota allocations, finished goods purchases decreased significantly from the previous year.
Net cash used in investing activities decreased from the comparison period amounting to 3.8 MEUR (14.6). Capital expenditure was 5.0 MEUR (5.6) and disposals 1.2 MEUR (3.2). Disposals were for the most part related to sales of some manufacturing equipment and facilities.
Liquidity position of the Group was good. Undrawn committed long-term credit facilities amounted to 10.0 MEUR at the end of the year. Gearing ratio decreased significantly and equity-to-assets ratio improved slightly from last year. The Group has agreed with its lenders to temporarily change financial covenants used in its loan agreements for the periods from Q2/2020 to Q1/2021. These financial covenants include limits on the amount of indebtedness, available liquidity, EBITDA as well as gearing ratio. The Group is currently compliant with all financial covenants and expects to comply with all requirements set in the financing agreements also in the future.
Group equity includes a hybrid loan of 25.0 MEUR issued in November 2019. The accrued non-recognized interest on hybrid bond on December 31, 2020 was 1.1 MEUR (0.7). The accrued interest of EUR 1.3 million, resulting from the decision of the Board of Directors, was paid out in November 2020 and was recognized as a deduction from Group's equity.
Key figures
| H2 | H2 | Change | FY | FY | Change | ||
| MEUR | 2020 | 2019 | % | 2020 | 2019 | % | |
| Cash flow from operations | 29.1 | 14.4 | +102% | 42.5 | 25.9 | +64% | |
| Net interest-bearing debt at end of period | 45.2 | 74.6 | -39% | 45.2 | 74.6 | -39% | |
| Gearing % | 31.6% | 49.2% | 31.6% | 49.2% | |||
| Equity-to-assets ratio at end of period, % | 52.5% | 52.4% | 52.5% | 52.4% | |||
| Definitions and reconciliation of key figures are presented in the financial section of the release. | |||||||
Strategy Implementation
The strategic target of the group is to become a solid global fishing tackle powerhouse. Current strategic actions and future capabilities aim to release all the growth potential within the company and to improve the Group's profitability. In the longer term, the goal is to become the world's largest fishing tackle company by harnessing a united company mindset; ONE RAPALA VMC culture.
The core of the Group's strategy is based on five key building blocks that are all interconnected and shared around the Group in all business units. Future strategies are built upon utilizing and capitalizing the brand portfolio, manufacturing and sourcing platform, research and development knowledge, as well as the broad sales network and strong local presence around the world. Focus and speed are in the center of the strategic decision-making process in order to enable focusing and agile actions in the competitive landscape.
Team/Culture - The first strategic building block is associated with the foundation that all business units and functions strive for togetherness as a one strong winning entity. This enables the entire Group culture to become more united, collaborative, dynamic and growth oriented. The group has restructured its central marketing and product development and innovations functions along with a new management structure to enhance decision making power in the organization, which will improve significantly effectiveness in day-to-day management.
Consumer - Focus on end-users is a critical part of the strategy. The aim is to lead the market and bring newest trends to the the fishing industry by offering innovative and exciting products. The centralized marketing function is well connected with the continuously growing and digitally aware consumer base. As a result of strong strategy execution, direct-to-consumer sales via digital channels witnessed double digit growth in 2020.
Customer - Relationships with key customers and winning position in local markets are emphasized with deep customer and market know-how as well as continuously investing in all sales channels. Several organizational and management changes were made in 2020 to increase customer focus in all functions in the company.
Product development/Innovation - R&D and PD&I functions are becoming even stronger competitive advantages for the entire Group at the same as fishermen around the world demand new innovations to catch more fish. The group launched several new products during 2020 to showcase its ability to create new ideas on top of an already vast product assortment. In addition, the Group launched a new sustainability program to demonstrate its willingness to become more environmentally aware. As an example, completely led-free wobblers are planned to introduce in 2023.
Operations/Finance - The Group continues to invest in its operations to make a step-change in operational excellence, to improve working capital efficiency and profitability. The restructuring program, originally initiated in October 2019, has been carried out as planned and is close to completion. The targeted cost savings consist mainly of savings related to European business as well as the Asian lure manufacturing operations, which has been ramped down. The Group has also transferred the Nordic distribution from Malung, Sweden into one centralized warehouse in Pärnu, Estonia in November 2020. Additionally, transfer of knife manufacturing from Rovaniemi in Finland to existing manufacturing location in Vääksy, Finland, was finalized in 2020.
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.
Due to the COVID-19 pandemic, several fishing tackle consumer shows and Europe's most important fishing tackle trade show, EFTTEX, were cancelled. However, during the first half of the year that didn't have a significant impact on the new product launches, which were carried out on schedule and as planned. The most important launches during the first six months of the year were the introduction of X-Rap Haku - a bait designed for large predator fishing - in Europe, the release of CountDown Elite - a hard bait designed for trout fishing - in Japan and elsewhere in Asia as well as the launch of Rap-V Blade - an all-round blade bait - in North America. All new lures were well received in the regions and were introduced to all market areas globally in the right seasons.
In the second half of the year, a few key product launches were carried out in Europe starting from September. Rapala Twitchin' Rap 12 - a wooden twitchbait designed for predator fishing and Rapala Super Shadow Rap 11, a size extension to Super Shadow Rap 16 were launched just in time for the European autumn fishing season. Additionally, a new innovative lightweight softbait Storm V-Slab 08 was launched in the Nordic markets for the autumn pike season. Asia-Pacific markets focused on launching a small but feisty crankbait Rapala Shadow Rap Fat Jack 04. This lure's development was spearheaded by the Australian and Southeast Asian markets and is already proving to be a very successful and fish-catching addition in the Rapala product range. Preparations for the 2021 new item launches were well under way and 2022 range was coming together in the year's end, too.
Organization and Personnel
Average number of personnel was 2 105 (2 604) for the full year and 2 034 (2 501) for the last six months. At the end of December, the number of personnel was 1 971 (2 304), decrease coming mainly from the ramp-down of the lure manufacturing operations in Indonesia.
Nicolas Warchalowski was appointed as President and Chief Executive Officer from March 1, 2020 onwards. Furthermore, David Neill was appointed as a member of the Executive Committee and Executive Vice President, Product Development & Innovation as of September 9, 2020 and Enrico Ravenni was appointed as a member to the Executive Committee and Executive Vice President, Head of Distribution in APAC countries and global Rods, Reels and Lines Product Development & Innovation as of October 30, 2020.
Short-term Outlook and Risks
General market outlook for fishing products in North America and Europe is positive and end-consumer demand for recreational fishing products is currently on a good level in the Group's key markets. In Europe, exit of Shimano business and termination of certain other Third Party Products businesses decreases net sales and affects consequently market visibility for 2021 for the region. Net sales for these businesses, which the Group will exit, were in the range of 30 MEUR in 2020. Additionally, the ongoing negotiations with Shimano to end the joint ownership of distribution companies in Russia, Kazakhstan, Czech, Belarus, Hungary, Romania and Croatia might have impacts on the business performance for these countries also in the Group Products segment.
The Group's supply chain, including own factories and subcontractors, is currently working robustly and fulfilling customer orders. However, uncertainties caused by the COVID-19 pandemic continue to impact and increase risks for the Group. The pandemic can impact the operating environment of the Group in various ways, including lockdowns, store closures, social distancing rules and overall change in consumer confidence. In addition, weather changes may affect the sales of the Group.
The Group expects 2021 full year comparable operating profit (excluding mark-to-market valuations of operative currency derivatives and other items affecting comparability) to be in line or above the previous year.
Short term risks and uncertainties and seasonality of the business are described in more detail in the end of this report.
Proposal for profit distribution
The Board of Directors proposes to the Annual General Meeting that no dividend will be paid for 2020.
Financial Statements and Annual General Meeting
Financial Statements for 2020 and Corporate Governance Statement will be published in the beginning of week 9 commencing on March 1, 2021. Annual General Meeting is planned to be held on March 25, 2021.
Half Year Financial Report 2021 will be published on July 15, 2021.
Helsinki, February 9, 2021
Board of Directors of Rapala VMC Corporation
For further information, please contact:
Nicolas Warchalowski, 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 financial year result will be arranged on February 10, 2021 at 11:00 a.m. Finnish time.
Attachment
- Rapala VMC Corporation, Financial Statement Release, February 9, 2021 (https://ml-eu.globenewswire.com/Resource/Download/989969f7-9a78-49da-96dd-efb6747341d0)
