2011-02-10 07:30:00 CET
2011-02-10 07:30:43 CET
REGULATED INFORMATION
Rapala VMC - Financial Statement Release
ANNUAL ACCOUNTS 2010: NET SALES, COMPARABLE OPERATING PROFIT AND EARNINGS PER SHARE TO ALL TIME RECORDS
Rapala VMC Corporation
Stock Exchange Release
February 10, 2011 at 8.30 a.m.
* Net sales for the fourth quarter increased by 18% compared to last year to a
quarterly record of 60.4 MEUR (IV/09: 51.4 MEUR), supported by strong sales
of winter sports equipment, good North American sales and impact of
currencies. Net sales for the full year increased to an all time record at
269.4 MEUR (I-IV/09: 234.6 MEUR), 15% increase from last year.
* Comparable operating profit, excluding non-recurring items, improved
markedly from last year and reached 4.3 MEUR (1.0 MEUR) in fourth quarter,
following the increased sales and improved margins. Comparable operating
profit for the full year reached record levels of 31.8 MEUR (23.5 MEUR), and
comparable operating margin was 11.8% (10.0%). Reported operating profit was
31.3 MEUR (22.1 MEUR) for the full year.
* Net profit for the fourth quarter improved to 1.8 MEUR (-0.8 MEUR) and to
20.7 MEUR (14.3 MEUR) for the full year. Earnings per share were 0.04 EUR (-
0.02 EUR) for the fourth quarter and full year earnings per share increased
by 48% to 0.46 EUR (0.31 EUR).
* Cash flow from operating activities in the fourth quarter dropped to -2.2
MEUR (6.0 MEUR) and was 13.0 MEUR (24.6 MEUR) for the full year period,
while focus on working capital management has gradually also turned into
securing the service levels to the customers and exploiting the sales
opportunities.
* Implementation of the Group's strategy continued during fourth quarter by
making preparations to establish new distribution operations in Mexico and
Indonesia. Projects to relocate Peltonen ski factory and Finnish
distribution operations into larger premises in Heinola and Jyväskylä
respectively proceeded and will be finalized in 2011.
* It is expected that in 2011 the net sales will increase from 2010 and also
the comparable operating margin is targeted to improve.
* Board proposes to the Annual General Meeting that a dividend of EUR 0.23 per
share to be paid. This represents 50% of earnings per share.
The attachment presents the summary of the annual review by the Board of
Directors and extracts from the financial statements for 2010.
A conference call on the 2010 result will be arranged today at 3 p.m. Finnish
time (2 p.m. CET). Please dial +44 (0)20 3147 4971 or +1 212 444 0889 or +358
(0)9 2310 1667 (pin code: 370148#) 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)20 7111 1244 (pin code: 370148#).
Financial information and teleconference replay facility are available at
www.rapala.com.
For further information, please contact:
Jorma Kasslin, President and Chief Executive Officer, +358 9 7562 540
Jussi Ristimäki, 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
Following the challenging year 2009, year 2010 started with cautious optimism.
Good winter weathers in the beginning of the year supported Rapala's sales in
the Nordic countries. Business grew strongly in Russia and other Eastern Europe
and positive signs of economic recovery were witnessed also in other countries.
In many countries strengthening of local currencies eased up the pressure on
consumer confidence, increased purchasing power and simultaneously supported the
growth of Rapala's net sales throughout the year. The latter part of the year
was again gaining benefit of the good winter sports equipment sales especially
in Finland as well as gradually improving market conditions in North America,
which the Group was able to capitalize with improved customer service.
Net sales for 2010 increased by 15% to an all time record at 269.4 MEUR (234.6
MEUR). Net change of currency movements and newly established or acquired
subsidiaries increased 2010 net sales by 16.9 MEUR and 2.6 MEUR respectively.
With comparable exchange rates and organization structure net sales increased by
7%.
Net sales of Group Fishing Products were up 10% in 2010, following steady growth
in sales of lures, success in Sufix fishing lines sales and impact of
acquisition of Dynamite Baits Ltd ("Dynamite"). Net sales of Other Group
Products increased significantly by 42%, due to booming winter sports equipment
sales and partial recovery of the gift products business. In 2010, net sales of
Third Party Products increased by 17% from last year, with strongest growth in
fishing lines and winter sports equipment.
Partly supported by strengthening of the USD, net sales in North America
increased in 2010 by 12%. In the Nordic countries net sales increased by 8%,
especially following the growth in sales of winter sports equipment. In Rest of
the Europe the annual growth in sales was 17%, as a result of strong growth
especially in East Europe. In 2010 the net sales in Rest of the World increased
by 26%, mainly as a result of increased sales of fishing and gift products from
Group's Chinese manufacturing unit.
Financial Results and Profitability
Comparable operating profit for 2010, excluding non-recurring items, reached all
time records at 31.8 MEUR (23.5 MEUR). It was positively affected by increased
sales and consequently improved fixed cost coverage, improvement in
profitability of Group's own products and strengthening of several currencies.
Comparable operating margin for the year was 11.8% (10.0%).
Reported operating profit for 2010 was 31.3 MEUR (22.1 MEUR) including non-
recurring business acquisition and restructuring costs of 0.5 MEUR (non-
recurring net cost of 1.4 MEUR in 2009). Most of these costs relate to
acquisition of Dynamite Baits Ltd and restructuring of the Group's Hungarian
operations. Reported operating margin was 11.6% (9.4%) and return on capital
employed 15.2% (11.5%).
Key figures IV IV I-IV I-IV
MEUR 2010 2009 2010 2009
Net sales 60.4 51.4 269.4 234.6
EBITDA as reported 5.7 2.5 37.4 28.9
EBITDA excl. one-off items 5.8 2.5 37.9 29.3
Operating profit (EBIT) 4.2 0.7 31.3 22.1
EBIT excl. one-off items 4.3 1.0 31.8 23.5
In 2010 operating profit of Group Fishing Products increased by 36% compared to
last year, as a result of improved sales and profitability in lures, lines and
fishing knives. Operating profit of Other Group products quadrupled compared to
2009, especially due to the increased sales and improved profitability of winter
sports equipment. Operating profit of Third Party Products increased by 34% in
2010, with biggest increase from fishing lines.
Financial (net) expenses in 2010 were 1.8 MEUR (2.1 MEUR) including net interest
expenses of 3.1 MEUR (3.5 MEUR) and (net) currency exchange gains of 1.6 MEUR
(1.5 MEUR).
Net profit for the year increased by 45% to an all time record of 20.7 MEUR
(14.3 MEUR) and earnings per share equally to a record of 0.46 EUR (0.31 EUR).
Cash Flow and Financial Position
During 2010 the Group's focus on working capital management changed gradually
also into securing service levels to customers and exploiting sales
opportunities. Increase in sales, together with acquisition and establishment of
new subsidiaries, the ongoing change in production planning model in China and
the strengthening of most currencies against euro resulted in increase in
inventories by 17.8 MEUR from last December (4.0 MEUR decrease in 2009).
The proportion of average working capital to net sales was reduced in 2010
compared to 2009, but in absolute terms 13.0 MEUR more (2009: 3.0 MEUR less)
cash was tied into working capital in 2010. Accordingly, in 2010, cash flow from
operating activities was down to 13.0 MEUR (24.6 MEUR).
In 2010 net cash used in investing activities amounted to 13.2 MEUR (6.3 MEUR).
In addition to the normal capital expenditure of 6.2 MEUR (6.7 MEUR), the main
item was the acquisition of Dynamite with an effect of 6.1 MEUR, of which 1.3
MEUR relates to an escrow account deposit.
Due to the above, in the end of 2010, net interest-bearing debt was increased to
92.0 MEUR (Dec 2009: 79.4 MEUR). The liquidity of the Group remained good.
Equity-to-assets ratio was slightly weaker than last year at 42.6% (Dec
2009: 42.8%), as was also gearing at 71.2% (Dec 2009: 71.1%).
Strategy Implementation
The biggest step taken during 2010 in implementation of Rapala's strategy of
profitable growth was acquisition of 100% of the share capital of Dynamite, a
manufacturer of premium carp baits, having its manufacturing facilities and
offices in Nottingham, United Kingdom. In 2010, net sales of Dynamite were some
8.2 MEUR, of which 1.8 MEUR was consolidated into Rapala. Dynamite is a market
leader in UK and has a good market share in a few other European countries. Some
30% of Dynamite's 2010 sales was outside the UK. The Group aims to significantly
expand its sales to carp fishermen in the next few years by more than doubling
Dynamite's sales.
The acquisition of Dynamite makes Rapala a strong player in the European carp
fishing market, the fastest growing market in fishing throughout the Europe.
Acquisition also contributes to the Group's brand strategy and portfolio and
leverages Rapala's unique sourcing and distribution platforms. UK distribution
of Rapala's other products will be combined into the Dynamite's efficient UK
distribution system during first half of 2011.
The operations of the Group's new distribution companies in Belarus, Iceland and
China (gift products) started in the first half of 2010. During the last quarter
of the year Rapala proceeded with plans to establish own distribution operations
also in Mexico and Indonesia. Both operations are planned to start during first
half of 2011. The Group's Finnish distribution company Normark Suomi Oy and ski
manufacturer Peltonen Ski Oy proceeded with plans to relocate to larger
premises. Both relocations are planned to take place during 2011. Demand for
cross-country skis is further expected to increase as the Group's Russian
distribution company will start winter sports equipment business in 2011.
A special performance improvement initiative was carried out in the Hungarian
operations during 2010. This included e.g. relocation to new premises in
Budapest.
Working capital and cash flow management was still one of the top priorities for
the Group, but following the positive results in this field in the past two
years, the focus on inventory management has also turned into improving the
delivery performance, securing the service levels to the customers and
exploiting the sales opportunities. Work to develop the Group's supply chain,
including, among others, changes in production planning and development of
systems for purchasing and inventory management, progressed and will continue
further to 2011 with target to ensure improved service levels to customers with
relatively lower and faster turning inventory levels.
Development of organic growth in terms of extensions of current product
categories continued. New products for the season 2011 were introduced to the
market in summer and, for example, the Group's new innovative Sufix 832 fishing
line, featuring Gore fibers, has been received exceptionally well in all world
markets. As an evidence of success of the Group's product development, Rapala
received again number one position on International Game Fish Association's
(IGFA) annual listing of lures used to catch most world record fishes in 2010.
Personnel and R&D
Number of personnel increased by 2% during the year and was 2 313 (2 271) at the
year-end.
The average number of personnel increased by 3% to 2 317 (2 259).
Research and development expenses increased by 5% to 2.1 MEUR (2.0 MEUR) in
2010.
Risk Management, Internal Controls and Corporate Responsibility
The processes previously developed for internal controls and risk management
were applied and further developed in 2010. Corporate Governance section
covering these areas was updated by the Board in the end of 2010. The Board also
approved its updated Corporate Governance Statement, which will be included in
the Annual Report for 2010.
A major step in widening the reporting of corporate responsibility from
environmental responsibility to also economic and social responsibility was
taken in 2009 and this same initiative was followed in 2010. The progress made
in these areas is described in more detail in the Annual Report for 2010.
Short-term Outlook
Despite the still ongoing uncertainties in the current status and development
pace of the global economies, generally the trends in the economy seem to be
positive. The Group's business performed well during 2010. For 2011 the view on
general market situation and sentiment is therefore also positive, with no major
threats in sight assuming there are no unexpected crisis in the global financial
or political systems.
In East Europe growth of sales is expected to continue. In Western Europe market
situation is expected to be stable, while the Group's sales there will grow
following the acquisition of Dynamite and due to the Group's strong distribution
company network. In the Nordic countries beginning of the year is still
supported with the good sales of winter sports equipment and the good season is
expected to support next season's presales and autumn deliveries. The US retail
market is expected to recover, although slowly, and the Group's position in the
US market is strong. The Group's growth is further supported with establishment
of new distribution companies as well as successful launch of new products, e.g.
Sufix 832 fishing line. The Group's manufacturing units are well prepared to
meet the demand of the coming fishing season.
At the end of December 2010, the Group's order backlog was up 7% from last
December at 47.0 MEUR (43.8 MEUR).
It is expected that in 2011 the net sales will increase from 2010 and also the
comparable operating margin is targeted to improve.
Proposal for profit distribution
The Board of Directors proposes to the Annual General Meeting that a dividend of
EUR 0.23 for 2010 (2009: EUR 0.19) per share be paid from the Group's
distributable equity and that any remaining distributable funds be allocated to
retained earnings. At December 31, 2010, the parent company's distributable
equity totaled 34.7 MEUR.
No material changes have taken place in the Group's financial position after the
end of the financial year 2010. Group's liquidity is good and the view of the
Board of Directors is that the distribution of the proposed dividend will not
undermine this liquidity.
Annual Report and Annual General Meeting
The Annual Report, including Financial Statements for 2010 and Corporate
Governance Statement will be published on Rapala's website on March 14, 2011.
Annual General Meeting is planned to be held on April 5, 2011.
Helsinki, February 10, 2011
Board of Directors of Rapala VMC Corporation
INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
STATEMENT OF INCOME IV IV I-IV I-IV
MEUR 2010 2009 2010 2009
Net sales 60.4 51.4 269.4 234.6
Other operating income 0.3 0.6 0.7 1.2
Materials and services 27.5 24.0 123.9 108.4
Personnel expenses 15.8 14.2 59.1 53.8
Other costs and expenses 11.7 11.4 49.7 44.7
EBITDA 5.7 2.5 37.4 28.9
Depreciation and amortization 1.5 1.8 6.1 6.9
Operating profit (EBIT) 4.2 0.7 31.3 22.1
Financial income and expenses 0.7 1.1 1.8 2.1
Share of results in associated companies 0.0 0.0 0.0 0.0
Profit before taxes 3.5 -0.4 29.5 19.9
Income taxes 1.7 0.4 8.7 5.7
Net profit for the period 1.8 -0.8 20.7 14.3
Attributable to:
Equity holders of the Company 1.7 -0.9 18.0 12.1
Non-controlling interests 0.1 0.1 2.8 2.2
Earnings per share for profit attributable
to the equity holders of the Company:
Earnings per share, EUR (diluted = non-diluted) 0.04 0.46 0.31
-0.02
STATEMENT OF COMPREHENSIVE INCOME IV IV I-IV I-IV
MEUR 2010 2009 2010 2009
Net profit for the period 1.8 -0.8 20.7 14.3
Other comprehensive income, net of tax
Change in translation differences 2.7 1.5 7.8 1.5
Gains and losses on cash flow hedges 0.4 0.1 -1.2 -0.1
Gains and losses on hedges of net investments -0.2 0.1 -1.1 0.2
Total other comprehensive income, net of tax 2.8 1.7 5.5 1.6
Total comprehensive income for the period 4.6 1.0 26.3 15.9
Total comprehensive income attributable to:
Equity holders of the Company 4.3 0.8 23.1 13.6
Non-controlling interests 0.3 0.1 3.2 2.3
STATEMENT OF FINANCIAL POSITION Dec 31 Dec 31
MEUR 2010 2009
ASSETS
Non-current assets
Intangible assets 67.8 58.3
Property, plant and equipment 28.7 27.5
Non-current financial assets
Interest-bearing 1.7 0.5
Non-interest-bearing 9.2 8.0
107.4 94.2
Current assets
Inventories 112.2 94.4
Current financial assets
Interest-bearing 0.0 0.2
Non-interest-bearing 56.5 43.5
Cash and cash equivalents 27.9 29.0
196.6 167.0
Total assets 304.0 261.2
EQUITY AND LIABILITIES
Equity
Equity attributable to the equity holders of the Company 121.8 107.4
Non-controlling interests 7.4 4.2
129.2 111.7
Non-current liabilities
Interest-bearing 27.1 36.0
Non-interest-bearing 13.7 10.1
40.8 46.0
Current liabilities
Interest-bearing 94.6 73.1
Non-interest-bearing 39.4 30.5
134.0 103.5
Total equity and liabilities 304.0 261.2
KEY FIGURES IV IV I-IV I-IV
2010 2009 2010 2009
EBITDA margin, % 9.5% 4.8% 13.9% 12.3%
Operating profit margin, % 6.9% 1.3% 11.6% 9.4%
Return on capital employed, % 8.1% 1.4% 15.2% 11.5%
Capital employed at end of period, MEUR 221.3 191.1 221.3 191.1
Net interest-bearing debt at end of period, MEUR 92.0 79.4 92.0 79.4
Equity-to-assets ratio at end of period, % 42.6% 42.8% 42.6% 42.8%
Debt-to-equity ratio at end of period, % 71.2% 71.1% 71.2% 71.1%
Earnings per share, EUR 0.04 -0.02 0.46 0.31
Fully diluted earnings per share, EUR 0.04 -0.02 0.46 0.31
Equity per share at end of period, EUR 3.13 2.75 3.13 2.75
Average personnel for the period 2 341 2 261 2 317 2 259
Definitions of key figures in the interim report are consistent with those in
the Annual Report 2009.
STATEMENT OF CASH FLOWS IV IV I-IV I-IV
MEUR 2010 2009 2010 2009
Net profit for the period 1.8 -0.8 20.7 14.3
Adjustments to net profit for the period * 4.0 2.9 17.4 14.7
Financial items and taxes paid and received -2.7 -1.6 -12.1 -7.4
Change in working capital -5.2 5.6 -13.0 3.0
Net cash generated from operating activities -2.2 6.0 13.0 24.6
Investments -1.7 -2.4 -6.2 -6.7
Proceeds from sales of assets 0.2 0.9 0.3 2.6
Dynamite Baits acquisition, net of cash -0.1 - -4.8 -
Sufix brand acquisition - - -1.2 -1.1
Ultrabite brand acquisition - -0.9 - -0.9
Acquisition of other subsidiaries, net of cash - - 0.0 -0.1
Change in interest-bearing receivables 0.0 -0.1 -1.3 -0.1
Net cash used in investing activities -1.6 -2.6 -13.2 -6.3
Dividends paid - - -7.4 -7.5
Net funding -0.4 -12.1 6.0 -12.8
Purchase of own shares -0.2 -0.1 -1.1 -0.6
Net cash generated from financing activities -0.7 -12.1 -2.5 -20.8
Adjustments 0.1 1.3 -0.5 0.8
Change in cash and cash equivalents -4.4 -7.3 -3.2 -1.7
Cash & cash equivalents at the beginning of the period 31.6 36.3 29.0 30.6
Foreign exchange rate effect 0.7 0.0 2.2 0.1
Cash and cash equivalents at the end of the period 27.9 29.0 27.9 29.0
* Includes reversal of non-cash items, income taxes and financial income and
expenses.
STATEMENT OF CHANGES IN EQUITY
Attributable to equity holders of the Company
Cumul. Fund for Non-
Share Fair trans- invested Re- contr-
pre- value lation non-rest- Own tained olling
Share mium re- diffe- ricted sha- earn- inte- Total
MEUR capital fund serve rences equity res ings rests equity
Equity on Jan 1, 2009 3.6 16.7 -0.3 -13.8 4.9 -0.9 91.5 1.9 103.7
Comprehensive - - -0.1 1.5 - - 12.1 2.3 15.9
income*
Purchase of own - - - - - -0.6 - - -0.6
shares
Dividends paid - - - - - - -7.5 - -7.5
Share based payment - - - - - - 0.1 - 0.1
Other changes - - - - - - 0.0 0.0 0.0
Equity on Dec 3.6 16.7 -0.3 -12.3 4.9 -1.4 96.3 4.2 111.7
31, 2009
Equity on Jan 3.6 16.7 -0.3 -12.3 4.9 -1.4 96.3 4.2 111.7
1, 2010
Comprehensive - - -1.2 6.3 - - 18.0 3.2 26.3
income*
Purchase of own - - - - - -1.1 - - -1.1
shares
Dividends paid - - - - - - -7.4 - -7.4
Share based payment - - - - - - -0.1 - -0.1
Other changes - - - - - - 0.0 - 0.0
Equity on Dec 3.6 16.7 -1.5 -6.0 4.9 -2.5 106.7 7.4 129.2
31, 2010
* For the period (net of tax)
SEGMENT INFORMATION*
MEUR IV IV I-IV I-IV
Net Sales by Operating Segment 2010 2009 2010 2009
Group Fishing Products 29.4 26.7 139.5 126.8
Other Group Products 10.4 6.3 25.2 17.8
Third Party Products 21.0 18.7 105.6 90.6
Intra-Group (Other Group Products) -0.3 -0.2 -0.9 -0.6
Total 60.4 51.4 269.4 234.6
Operating Profit by Operating Segment
Group Fishing Products 4.0 1.5 21.4 15.7
Other Group Products 0.3 0.3 2.0 0.5
Third Party Products -0.2 -1.2 7.8 5.8
Total 4.2 0.7 31.3 22.1
Dec 31 Dec 31
Assets by Operating Segment 2010 2009
Group Fishing Products 190.5 159.6
Other Group Products 12.7 10.2
Third Party Products 71.1 61.9
Intra-Group (Other Group Products) - 0.0
Non-interest-bearing assets total 274.3 231.6
Unallocated interest-bearing assets 29.7 29.6
Total assets 304.0 261.2
Liabilities by Operating Segment
Group Fishing Products 35.1 30.8
Other Group Products 2.9 2.5
Third Party Products 15.1 7.2
Intra-Group (Group Fishing Products) - 0.0
Non-interest-bearing liabilities total 53.1 40.5
Unallocated interest-bearing liabilities 121.7 109.1
Total liabilities 174.8 149.6
IV IV I-IV I-IV
Net Sales by Area** 2010 2009 2010 2009
North America 16.7 13.1 68.5 61.1
Nordic 24.9 23.2 110.4 102.0
Rest of Europe 19.2 17.4 104.6 89.7
Rest of the world 14.8 13.7 69.6 55.3
Intra-Group -15.3 -15.9 -83.8 -73.5
Total 60.4 51.4 269.4 234.6
* The operating segments include the following product lines: Group Fishing
Products include Group Lures, Fishing Hooks, Fishing Lines and Fishing
Accessories, Other Group Products include Group manufactured and/or branded gift
products and products for winter sports and some other businesses and Third
Party Products include non-Group branded fishing products and third party
products for hunting, outdoor and winter sports.
**Geographical sales information has been prepared on source basis i.e. based on
the location of the business unit. Each area shows the sales 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.
KEY FIGURES BY QUARTERS I II III IV I-IV I II III IV I-IV
MEUR 2009 2009 2009 2009 2009 2010 2010 2010 2010 2010
Net sales 65.2 67.7 50.2 51.4 234.6 70.8 77.6 60.6 60.4 269.4
EBITDA 11.6 11.5 3.3 2.5 28.9 13.1 14.1 4.5 5.7 37.4
Operating profit 10.0 9.4 1.9 0.7 22.1 11.7 12.5 2.9 4.2 31.3
Profit before taxes 8.5 9.8 2.1 -0.4 19.9 12.1 12.1 1.7 3.5 29.5
Net profit for the period 6.2 7.4 1.5 -0.8 14.3 9.1 8.4 1.4 1.8 20.7
NOTES TO THE INCOME STATEMENT AND FINANCIAL POSITION
The financial statement figures included in this release are unaudited.
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 2009, except for the adoption of the new or
amended standards and interpretations. Adoption of the amended standards IFRS 3
(Business Combinations) and IAS 27 (Consolidated and Separate Financial
Statements) had impact on accounting of non-controlling interest and amount of
goodwill booked. Costs related to acquisitions have been recognized in income
statement and conditional purchase prices have been assessed at a fair market
value, and a later change shall be recognized in income statement. Adoption of
amendments of IFRS 2 and IAS 39 as well as the new interpretations, IFRIC 17 and
IFRIC 18 did not result in any changes in the accounting principles that would
have affected the information presented in this interim report.
Use of estimates and rounding of figures
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.
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-December 2010. Material events after the end of the interim period, if
any, have been discussed in the interim review by the Board of Directors.
Inventories
On December 31, 2010, the book value of inventories included a provision for net
realizable value of 3.0 MEUR (3.0 MEUR).
Impact of acquisitions on the consolidated financial statements
In February 2010, Rapala purchased a 10% share of the Group's Hungarian
distribution company. This acquisition raised Rapala's ownership to 66.6%.
Acquisition has no significant impact on the Group's consolidated financial
statements.
On August 27th, Rapala acquired 100% of the share capital of UK based Dynamite
Baits Ltd ("Dynamite"), a manufacturer of boilies, groundbaits, liquid
attractants, pellets and bagged particle baits for sport fishing. The total
consideration for the deal is some 5.3 MGBP (some 6.5 MEUR). The total
consideration is subject to realization of contingent consideration. Dynamite
has its own efficient distribution system in the UK securing deliveries directly
to some 1 200 sales outlets. Its products enjoy an excellent reputation for
catching fish. The acquisition of Dynamite brings Rapala into an important
segment of the bait market in which it has not been represented before.
Acquisition of Dynamite contributed 1.8 MEUR to the I-IV/2010 net sales and -0.3
MEUR to the net profit for the year. If this acquisition had taken place at the
beginning of the year, it would have contributed 8.2 MEUR to the I-IV/2010 net
sales and 0.2 MEUR to the net profit for the year.
Acquisitions by December 31, 2010 Seller's
Fair carrying
MEUR value amount
Cash and cash equivalents and interest-bearing assets 0.2 0.2
Inventories 1.4 1.4
Trade and other non-interest-bearing receivables 1.2 1.2
Intangible assets 6.4 -
Tangible assets 0.5 0.5
Trade and other non-interest-bearing payables -1.7 -1.7
Interest-bearing liabilities -0.7 -0.7
Deferred tax liability (net) -1.6 0.2
Non-controlling interest 0.0 -
Fair value of acquired net assets 5.6 1.0
MEUR 2010
Cash paid during financial year 5.0
Cash to be paid later 1) 1.3
Contingent consideration 0.2
Total purchase consideration 6.5
Goodwill 0.9
Cash paid for the acquisitions 5.0
Cash and cash equivalents acquired -0.2
Net cash flow 4.8
1) Paid to an escrow account.
1.3 MEUR of the total consideration has been paid to an escrow account and will
be released to sellers in 3 years.
The contingent consideration requires acquired company Dynamite Baits to receive
a tax benefit of 0.2 MEUR based on preliminary tax calculations. Consideration
will be paid to sellers when the tax benefit is finally confirmed, approximately
in year 2012. The discounted value of the contingent consideration 0.2 MEUR was
estimated by applying the income approach assuming a discount rate of 1%.
The transaction costs of 0.2 MEUR have been expensed and are included in the
other operating expenses in the income statement and treated as a non-recurring
item.
Acquired companies are accounted for using the purchase method of accounting,
which involves allocating the cost of the business combination to the fair value
of the assets acquired and liabilities and contingent liabilities assumed at the
date of acquisition.
The fair value of acquired intellectual property rights is established with the
estimated discounted royalty payments. Determination of fair value is the market
based estimated royalty rate (normalized net cash flow), that an external party
would be willing to pay for the license contract. The fair value of customer
relations is established based on the estimated duration of customer
relationship (average minimum duration) and discounted net cash flows of present
customer relationships.
The goodwill of 2010 (0.9 MEUR) resulted from acquiring Dynamite. Goodwill is
justified by expansion of product assortment and market coverage as well as
utilization of economies of scale in production, sourcing and distribution. The
goodwill has been tested for impairment.
None of the goodwill is expected to be deductible for income tax purposes.
Non-recurring income and expenses included in operating IV IV I-IV I-IV
profit
MEUR 2010 2009 2010 2009
Sale of Hong Kong office premises - 0.5 - 0.5
Restructuring of Chinese manufacturing operations * - -0.3 - -0.4
Consolidation of French operations - - - 0.0
Closure of Irish lure factory - - - -0.1
Costs related to business acquisitions - - -0.2 -
Restructuring of Hungarian operations -0.0 - -0.2 -
Other restructuring costs -0.1 -0.2 -0.1 -0.4
Other non-recurring items -0.0 -0.1 -0.1 -0.1
Total included in EBITDA -0.1 0.0 -0.5 -0.3
Non-recurring impairment of non-current assets in China -0.0 - -0.0 -0.7
Non-recurring impairment of non-current assets in Hungary - -0.3 - -0.3
Total included in operating profit -0.1 -0.4 -0.5 -1.4
* Includes redundancy and other costs as well as gains and losses from the sale
of fixed assets.
Commitments Dec 31 Dec 31
MEUR 2010 2009
On own behalf
Business mortgage 16.1 16.1
Guarantees 0.1 0.2
Minimum future lease payments on operating leases 9.3 10.3
Related party transactions Rents Other
MEUR Purchases paid expenses Receivables Payables
I-IV 2010
Associated company Lanimo Oü 0.1 - - 0.0 -
Entity with significant influence - 0.2 0.1 0.0 -
over the Group*
Management - 0.3 - 0.0 0.1
I-IV 2009
Associated company Lanimo Oü 0.1 - - 0.0 -
Entity with significant influence - 0.2 0.1 0.0 -
over the Group*
Management - 0.3 0.0 0.0 0.0
* Lease agreement for the real estate for the consolidated operations in France
and a service fee.
Open derivatives Positive fair Negative fair Net fair
Nominal amount values values values
MEUR
December 31, 2010
Foreign currency options 9.1 0.0 0.3 -0.3
and forwards
Interest rate swaps 86.3 - 2.0 -2.0
Total 95.4 0.0 2.3 -2.3
Dec 31, 2009
Foreign currency options 7.1 0.1 - 0.1
Interest rate swaps 98.0 0.0 0.5 -0.5
Total 105.0 0.2 0.5 -0.3
The Group's financial risks and hedging principles are described in detail in
the Annual Report 2009.
Share-based payments
The Group had one share-based payment program in place on December 31, 2010: a
synthetic option program settled in cash. On March 31, 2010, the exercise period
for options issued under the Share Option Program 2004B expired, and the 2009
Share Reward Program ended on December 31, 2010.
The IFRS accounting effect on operating profit was -0.1 MEUR (-0.1 MEUR) for the
fourth quarter and +0.1 MEUR (-0.3 MEUR) for the financial year 2010 due to
change in fair value of programs and change in non-market criteria. Terms and
conditions of the share-based payment programs are described in detail in the
Annual Report 2009.
Shares and share capital
Based on authorization given by the Annual General Meeting (AGM) 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 AGM. 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 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 AGM.
On December 31, 2010, 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 2010 was 39 468 449. On February 4, 2010, the Board decided
to continue buying back own shares in accordance with the authorization granted
by the AGM on April 7, 2009. The repurchasing of shares started on February
15, 2010 and ended on March 31, 2010 when Rapala held 368 144 own shares. Based
on the authorization of the AGM held on April 14, 2010 the repurchasing of own
shares continued from May 3 to June 30, from August 2 to September 30 and from
November 1 to December 31, 2010. At the end of December 2010, Rapala held
540 198 own shares, representing 1.4% of the total number and the total voting
rights of Rapala shares. The average price for the repurchased own shares in
January-December 2010 was EUR 5.72. The average share price of all repurchased
own shares held by Rapala was EUR 4.71.
During the year 2010, 4 051 489 shares (3 138 597) were traded at a high of
6.86 EUR and a low of 4.80 EUR. The closing share price at the end of the period
was 6.86 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.
Accordingly, Group management also continued to develop risk management
practices and internal controls during 2010. Detailed description of the Group's
strategic, operative and financial risks and risk management principles are
included in the Annual Report 2009 and will be updated in the Annual Report
2010.
Due to the nature of the fishing tackle business and the geographical scope of
the Group's operations, business has traditionally been seasonally stronger in
the first half of the financial year compared to the second half. In 2010, 55%
of net sales and 77% of operating profit was generated in the first half of the
year. The biggest deliveries for both summer and winter seasons are concentrated
into relatively short time-periods, which require proper functioning of the
supply chain. The Group's sales are also to some extent affected by weather. In
Nordic countries good winter weathers have boosted the sales of winter sports
equipment, but simultaneously may delay the beginning of next summer fishing
season and put time pressure on manufacturing of next winter season's equipment.
A major supply chain and logistics initiative to improve Group's inventory turns
and shorten the factory lead-times continues in 2011. Before fully implemented,
this initiative may temporarily have negative impact on the Group's inventory
levels. In 2009 and 2010 the Group has paid close attention to improving cash
flow and reducing inventory levels. Increasing focus has now also been given to
securing the service levels to customers, which may also require additional
inventories.
The increased sales and accordingly increased working capital levels have put
pressure on the cash flow covenant of the Group's financing facilities.
Covenants are monitored closely on a monthly basis. In the end of 2010 the
Group negotiated with its banks commitments to waive the cash flow covenant for
the first quarter of 2011.
Even though 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 when retailers reduce their inventory levels and face financial
challenges. Also quick and strong increases in living expenses and uncertainties
concerning employment may temporarily affect consumer spending also in fishing
tackle, even though historically the underlying consumer demand has proven to be
fairly solid.
The truly global nature of the Group's sales and operations is spreading the
market risks caused by the still ongoing uncertainties concerning the recovery
of the global economy. Even though development trends seem to have slowly turned
positive, the Group is still cautiously monitoring the development in the
various markets. Due to these uncertainties in future demand and the length of
the Group's internal supply chain, the supply chain management is balancing
between risk of shortages and risk of excess production and purchasing and
consequent excess inventories in the Group. Also the importance of cash
collection and credit risk management has increased and this may affect sales to
some customers.
The Group's sales and profitability are impacted by the changes in foreign
exchange rates, especially US dollar and other currencies connected to it. The
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 some of the future USD-nominated purchases, the Group has
entered into currency hedging agreements. As the Group is not applying hedge
accounting to currency hedging agreements in accordance with IAS 39, the change
in fair value of these unrealized currency hedging agreements has an impact on
the Group's operating profit. The continuing strengthening of Chinese renminbi
together with possible future strengthening of US dollar is putting pressure on
costs. The Group is closely monitoring the situation and considering possibility
and feasibility of price increases and hedging actions.
The market prices of some commodity raw materials have started to increase again
and this together with other inflation trends would put pressure on pricing of
some products in the future.
No significant changes are identified in the Group's strategic risks or business
environment.
[HUG#1487269]
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