2007-10-25 09:01:30 CEST
2007-10-25 09:01:30 CEST
REGULATED INFORMATION
Rapala VMC - Interim report (Q1 and Q3)
INTERIM REPORT - JANUARY TO SEPTEMBER 2007
STOCK EXCHANGE RELEASE
October 25, 2007
Strong Sales and Improved Profits in the Seasonally Slow Third
Quarter
* Net sales reached a record level for the seasonally slow
third quarter and amounted to 52.0 MEUR (III/06: 49.8 MEUR). Net
sales for the first nine months were up 6% to 188.8 MEUR (I-III/06:
177.4 MEUR). Comparable nine-month net sales increased 11%.
* Third quarter operating profit increased to 2.9 MEUR (2.8
MEUR). Operating profit for the first nine months was up 23% to
25.9 MEUR (21.0 MEUR). Comparable operating profit margin,
excluding non-recurring expenses and using 2006 average exchange
rates, improved clearly both for the third quarter and nine months
as a result of increased sales and performance improvement
initiatives.
* Net result for the third quarter was 1.1 MEUR (0.4 MEUR)
and 15.5 MEUR (10.5 MEUR) for the first nine months. Earnings per
share was 0.03 EUR (0.01 EUR) for the quarter and 0.40 EUR (0.27
EUR) for January to September.
* Cash flow from operating activities increased from the
second quarter and amounted to 12.2 MEUR (10.2 MEUR). Net
interest-bearing debt decreased clearly from June to 89.5 MEUR (Dec
2006: 99.3 MEUR). Equity-to-asset ratio increased from June to
36.2% (Dec 2006: 33.4%) and gearing decreased to 98.1% (Dec 2006:
122.2%).
* A major business combination, strengthening of the
strategic distribution alliance with Shimano by establishing a
joint venture company for Russia and Ukraine, was published in
October and it will result in a capital gain of 4.8 MEUR. South
East European distribution center established with Shimano earlier
in 2007 in Hungary has already proven to be a success.
Consolidation of the French operations, ramp-up of the Russian lure
assembly factory and other performance improvement initiatives
proceeded on plan.
* In October, 889 680 new shares were issued to Shimano for 5
MEUR (5.62 EUR per share) as part of the strengthening of the
strategic alliance between the companies.
* It is expected that the Group's net sales for the financial
year 2007 will increase 7-12% from last year assuming comparable
exchange rates. With comparable exchange rates and excluding
non-recurring items, operating profit margin for 2007 is expected
to improve from 2006.
The attachment presents the interim review by the Board of Directors
as well as the accounts.
A conference call on the interim report will be arranged today at 5
pm Finnish time (4 pm CET). Please dial +44(0)207 750 9950 or
+1866 676 5870 five minutes before the beginning of the event and
request to be connected to Rapala teleconference. A replay facility
will be available for 5 working days following the teleconference.
The number (pin code: 165985#) to dial is +44 207 750 99 28.
Financial information is also available at www.rapala.com.
For further information, please contact:
Jorma Kasslin, President and Chief Executive Officer, +358 9 7562 540
Jouni Grönroos, Chief Financial Officer, +358 9 7562 540
Olli Aho, Investor Relations, +358 9 7562 540
Distribution: Helsinki Stock Exchange and Main Media
Market Situation and Sales
Market situation was quite good in many areas during the third
quarter despite of the fact that summer season did not last as long
as in 2006. Sales in the seasonally important markets like Australia
and South Africa continued to grow during the quarter. Growth
continued also in Rest of Europe where sales were up 21% for the
third quarter and 12% for the first nine months. In Nordic countries,
sales were close to last year levels for the third quarter and 4% up
for the first nine months. In North America, sales decreased 15% for
the third quarter mainly because of weakening of US dollar, bad
weather in September and timing of certain deliveries. For the first
nine months, reported net sales for North America were down 4% while
with comparable exchange rate the sales increased 4% from last year.
Third quarter net sales were up 4% from last year and amounted to
52.0 MEUR (III/06: 49.8 MEUR). Net sales for the first nine months
were up 6% and amounted 188.8 MEUR (I-III/06: 177.4 MEUR). Weakening
of the US dollar and some other currencies affected January to
September net sales negatively (-8.0 MEUR). With comparable exchange
rates, the nine month net sales were up 11%. Out of this, 1
percentage point came from the Terminator acquisition while the rest
was organic growth. All product lines except Fishing Accessories
increased their sales for both third quarter and nine months.
Third quarter is traditionally the slowest quarter in terms of sales
due to the seasonality of the fishing tackle business. This
seasonality has been mitigated by expanding the Group's sales
operations in southern hemisphere and closer to equator, including
Australia and South Africa. Also new operations in Malaysia,
Thailand, China and South-Korea balance the seasonality. The Group
has increased the sales of fishing tackle products in the seasonally
slow third quarter in these countries.
Financial Results and Profitability
III III I-III I-III I-IV
MEUR 2007 2006 2007 2006 2006
Net sales 52.0 49.8 188.8 177.4 226.6
EBITDA 4.6 4.4 29.5 25.6 28.0
Operating profit (EBIT) 2.9 2.8 25.9 21.0 21.7
Profit before taxes 1.4 1.0 22.2 14.9 14.6
Net profit for the period 1.1 0.4 15.5 10.5 11.0
Operating profit for July to September increased to 2.9 MEUR (2.8
MEUR). Even while the restructuring cost provision related to the
consolidation of French operations cannot yet be booked, third
quarter result includes 0.1 MEUR of expenses related to this action.
The result also includes a 0.4 MEUR provision for down-sizing of lure
manufacturing in Ireland. The impact of currency movements for the
quarter was -0.6 MEUR. Operating profit margin for the quarter was
5.6% (5.7%) and return on capital employed 6.4% (6.4%).
Operating profit for the first nine months was up 23% from last year
and amounted to 25.9 MEUR (21.0 MEUR). This improvement is mainly an
outcome of increased sales of fishing tackle products, a negative
goodwill from the acquisition of Terminator lure business (1.2 MEUR)
and performance improvement initiatives. The result included the
above mentioned non-recurring expenses (0.5 MEUR). In addition,
operating profit was negatively affected by the weakening of US
dollar and some other currencies (-1.2 MEUR). The result of currency
hedging related to operating profit (+0.8 MEUR) is booked in
financial expenses. Operating profit margin continued to increase,
and was 13.7% (11.8%) for first nine months. Return on capital
employed for nine months increased to 19.1% (15.9%).
Comparable operating profit and operating profit margin, excluding
all non-recurring items and using comparable exchange rates, improved
clearly for the third quarter and nine months as a result of
increased sales and performance improvement initiatives. Comparable
operating profit was 4.0 MEUR (2.9 MEUR) for the quarter and 26.3
MEUR (21.0 MEUR) for the nine months. The respective operating profit
margins were 7.5% (5.8%) and 13.4% (11.8%).
All geographical segments but Rest of the world improved their
operating profit for the first nine months. Largest improvement in
operating profit came from Rest of Europe while Rest of the world
suffered from the increased raw material prices and personnel costs.
Financial expenses (net) decreased from last year as a result of
decreased net debt and currency exchange gains. Interest expenses
(net) were 1.3 MEUR (1.4 MEUR) for the quarter and 4.2 MEUR (4.0
MEUR) for the first nine months. Currency exchange loss for July to
September was 0.2 MEUR (loss of 0.3 MEUR) and a gain of 0.7 MEUR
(loss of 2.0 MEUR) for January to September.
Net result for the third quarter was 1.1 MEUR (0.4 MEUR) and 15.5
MEUR (10.5 MEUR) for the first nine months. Earnings per share
(basic) was 0.03 EUR (0.01 EUR) for the quarter and 0.40 EUR (0.27
EUR) for the first nine months.
Cash Flow and Financial Position
Third quarter cash flow from operating activities increased from
previous year to 12.2 MEUR (10.2 MEUR). For the first nine months,
cash flow from operating activities improved clearly from last year
to 18.4 MEUR (10.1 MEUR). Improvement in cash flow resulted from
long-term working capital management. Working capital decreased
clearly from June in line with strong decrease in trade receivables.
Capital expenditure for the third quarter amounted to 1.5 MEUR (3.0
MEUR). Capital expenditure of 6.5 MEUR (10.3 MEUR) for the nine-month
period included the acquisition of the Terminator business in
January, the final payment (0.2 MEUR) for the Guigo acquisition
closed in 2004, and the first settlement (0.8 MEUR) of the final
payment of acquisition of Australian Freetime closed in 2005.
Net interest-bearing debt decreased from June to 89.5 MEUR (Dec 2006:
99.3 MEUR). Equity-to-asset ratio increased to 36.2% (Dec 2006:
33.4%) and gearing decreased to 98.1% (Dec 2006: 122.2%).
Strategy Implementation - East European Distribution Alliance with
Shimano
During the third quarter, management continued discussions and
negotiations regarding acquisitions and business combinations to
further implement the Group's strategy for profitable growth. These
discussions resulted in a major business combination when Rapala and
Shimano agreed to join forces in East European distribution.
The Group has consistently aimed at developing and deepening its
fishing tackle distribution alliance with Shimano. South East
European distribution center established with Shimano earlier in 2007
in Hungary has already proven to be a success. The latest addition to
this cooperation between Rapala and Shimano was announced in October,
when the companies decided to establish a joint venture company to
manage and develop their distribution in the fastest growing market
area in the fishing tackle business including Russia and Ukraine. The
joint venture company, Rapala Shimano East Europe Oy, will be owned
50/50 by the parties and controlled by Rapala.
This transaction is expected to be completed by year-end and it will
create a capital gain of some 4.8 MEUR for Rapala. In 2008, this
joint venture is expected to increase Rapala's net sales more than 10
MEUR. After this expansion of distribution alliance with Shimano,
Rapala distributes Shimano rods and reels in South Africa and in 22
countries in Europe. In Russia, the new joint venture will also
distribute bicycle parts.
Strategy Implementation - Other Initiatives
In addition to negotiations regarding acquisitions and business
combinations, the focus on performance improvement initiatives
continued with the target to turn around the declining trend in
operating profit margin and to further improve the Group's
profitability. Development of organic growth also in terms of new
product lines, extensions of current product categories as well as
special marketing, sales and brand initiatives continued.
The consolidation of Group's French operation into one location is
proceeding on plan. The new leased premises in Morvillars have been
prepared for the consolidated operations. The move of the
distribution unit located in Bretagne has just started and the move
of the second distribution unit located in Central France is planned
to take place next summer. The third quarter included some costs
related to this consolidation but the actual restructuring provision
will be booked in the fourth quarter when discussions with personnel
and trade unions have been completed. Full effect of the changes will
be seen from the latter half of 2008 onwards.
The project to further develop the Group's European lure
manufacturing operations proceeded on plan. The ramp-up of the lure
assembly factory in Russia is proceeding, and both the number of
personnel and assembling volumes are increasing each quarter. While
assembling work from Estonia is allocated more to Russia, Estonian
factory receives more work in finalizing, testing and packaging the
products as a result of the down-sizing of operations in the Irish
lure factory. This will strengthen the Group's position as the
world's leading manufacturer of hard-bodied lures and increase
production efficiencies and capacity.
Major operational changes and improvements in the Group manufacturing
facility in China proceed on plan. The target is to enhance the
production efficiencies and shorten the lead time to restore the
profitability of the operations that has been burdened by the
increased raw material prices and personnel costs.
Most of the other performance improvement and cost cutting
initiatives have been completed. The results of these initiatives
have started to materialize gradually but the full impact of these
will be seen from the beginning of 2008 onwards.
Share Issue for Shimano
As part of the strengthening of the long-term distribution alliance,
Rapala issued 889 680 new shares to Shimano in October for the
subscription price of 5.62 EUR per share, which represents a
three-month weighted average trading price for the share. These new
shares will not give right to dividend paid from financial year
2007 and they have a lock-up period of 12 months. The funds generated
through the share issue are intended to be used to strengthen the
sales and marketing of Rapala's and Shimano's products in Europe.
Shimano now owns 2.3% of Rapala's shares.
Short-term Outlook
Shipments of the new fishing tackle products for 2008 season are
about to start. Based on orders and other market indications, the
fishing tackle market in 2008 is expected to remain quite stable in
North America and Western Europe compared to 2007 while the markets
continue to grow in East Europe, Asia and Africa. The distribution of
winter sports equipment to retail stores has just started in
Scandinavia while Australia and South Africa are in the middle of
their high season for fishing tackle sales. It is expected that the
Group's net sales for 2007 will increase 7-12% assuming comparable
exchange rates.
Performance improvement and cost cutting initiatives are being
implemented to further improve the Group profitability. Business
development and integration expenses and start-up costs, excluding
non-recurring costs for the consolidation of operations in France,
are not expected to exceed the comparable costs in 2006. With
comparable exchange rates and excluding non-recurring items, full
year operating profit margin is expected to improve from 2006.
Investments and development initiatives implemented since 2005 will
continue to capitalize during the coming months and full effect will
be seen from the latter half of 2008 onwards.
Group management continues planning and negotiations regarding
further acquisitions and business combinations to implement the
Group's strategy. The project to manage working capital will also
continue.
Fourth quarter interim report and annual accounts for 2007 will be
published on February 5, 2008.
Helsinki, October 25, 2007
Board of Directors of Rapala VMC Corporation
CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
CONSOLIDATED INCOME STATEMENT III III I-III I-III I-IV
MEUR 2007 2006 2007 2006 2006
Net sales 52.0 49.8 188.8 177.4 226.6
Other operating income 0.3 0.2 1.2 0.5 1.5
Cost of sales 30.1 29.0 104.6 98.6 128.3
Other costs and expenses 17.7 16.6 55.9 53.6 71.9
EBITDA 4.6 4.4 29.5 25.6 28.0
Depreciation 1.7 1.5 3.6 4.7 6.3
Operating profit (EBIT) 2.9 2.8 25.9 21.0 21.7
Financial income and expenses 1.5 1.8 3.7 6.0 7.1
Share of results in associated companies 0.0 0.0 0.0 0.0 0.0
Profit before taxes 1.4 1.0 22.2 14.9 14.6
Income taxes 0.3 0.6 6.7 4.4 3.6
Net profit for the period 1.1 0.4 15.5 10.5 11.0
Attributable to:
Equity holders of the Company 1.0 0.3 15.3 10.4 10.8
Minority interest 0.1 0.1 0.2 0.2 0.2
Earnings per share for profit
attributable
to the equity holders of the Company:
Earnings per share, EUR (diluted =
non-diluted) 0.03 0.01 0.40 0.27 0.28
CONSOLIDATED STATEMENT OF CASH FLOWS III III I-III I-III I-IV
MEUR 2007 2006 2007 2006 2006
Net profit for the period 1.1 0.4 15.5 10.5 11.0
Adjustments to net profit for the period
* 3.6 3.1 14.1 16.4 19.2
Financial items and taxes paid and
received -3.7 -3.5 -8.0 -8.6 -12.1
Change in working capital 11.2 10.2 -3.2 -8.3 -8.1
Net cash generated from operating
activities 12.2 10.2 18.4 10.1 10.0
Investments -1.6 -2.1 -4.8 -4.5 -7.2
Proceeds from sales of assets 0.1 0.0 0.4 0.5 0.6
Acquisition of subsidiaries, net of cash 0.0 -0.9 -2.7 -6.2 -8.3
Proceeds from disposal of subsidiaries,
net of cash 0.0 0.0 0.5 0.0 0.0
Change in loans receivable 0.0 0.0 0.0 0.0 0.2
Net cash used in investing activities -1.5 -3.0 -6.5 -10.3 -14.7
Dividends paid 0.0 0.0 -4.6 -4.2 -4.2
Net funding -15.8 -8.1 -6.1 8.1 14.7
Proceeds from share subscriptions 0.0 0.0 0.0 0.4 0.4
Net cash generated from financing
activities -15.8 -8.1 -10.7 4.2 10.9
Adjustments -0.2 0.0 0.0 0.0 0.0
Change in cash and cash equivalents -5.3 -0.9 1.3 4.0 6.2
Cash & cash equivalents at the beginning
of the period 30.9 23.3 24.4 19.2 19.2
Foreign exchange rate effect -0.2 0.3 -0.4 -0.6 -1.0
Cash and cash equivalents at the end of
the period 25.3 22.7 25.3 22.7 24.4
* Includes reversal of non-cash items, income taxes and financial
income and expenses.
CONSOLIDATED BALANCE SHEET Sept 30 Sept 30 Dec 31
MEUR 2007 2006 2006
ASSETS
Non-current assets
Intangible assets 52.1 54.7 53.3
Property, plant and equipment 29.0 29.8 29.4
Non-current financial assets
Interest-bearing 0.6 0.6 0.6
Non-interest-bearing 7.2 5.8 6.3
88.9 91.0 89.6
Current assets
Inventories 80.7 75.3 73.0
Current financial assets
Interest-bearing 0.0 0.0 0.2
Non-interest-bearing 57.4 51.5 56.5
Cash and cash equivalents 25.3 22.7 24.4
163.4 149.5 154.0
Total assets 252.2 240.5 243.6
EQUITY AND LIABILITIES
Equity
Equity attributable to the equity holders of
the Company 90.5 82.3 80.7
Minority interest 0.7 0.5 0.6
91.2 82.7 81.3
Non-current liabilities
Interest-bearing 60.3 49.1 64.6
Non-interest-bearing 5.7 4.7 6.6 66.0 53.8 71.1
Current liabilities
Interest-bearing 55.2 72.6 59.9
Non-interest-bearing 39.9 31.3 31.3
95.1 103.9 91.2
Total equity and liabilities 252.2 240.5 243.6
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.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Attributable to equity holders of the
Company
Share Fair Cumulative
Share premium value translation Retained Minority Total
MEUR capital fund reserve differences earnings interest equity
Equity on Jan 1,
2006 * 3.5 16.3 - -4.5 60.0 0.2 75.4
Change in
translation
differences - - - -0.2 - - -0.2
Net income
recognized
directly in equity - - - -0.2 - - -0.2
Net profit for the
period - - - - 10.4 0.2 10.5
Total recognized
income and
expenses - - - -0.2 10.4 0.2 10.3
Dividends paid - - - - -4.2 - -4.2
Shares subscribed
with options 0.0 0.4 - - - - 0.4
Stock option
program - - - - 0.6 - 0.6
Other changes - - - - 0.1 0.1 0.3
Equity on Sept 30,
2006 * 3.5 16.7 - -4.8 66.9 0.5 82.7
Equity on Jan 1,
2007 3.5 16.7 0.1 -7.1 67.6 0.6 81.3
Change in
translation
differences - - - -1.7 - - -1.7
Net investments in
a foreign
subsidiaries - - - 0.4 - - 0.4
Fair value gains
on
available-for-sale
investments, net
of tax - - 0.0 - - - 0.0
Net income
recognized
directly in equity - - 0.0 -1.3 - - -1.3
Net profit for the
period - - - - 15.3 0.2 15.5
Total recognized
income and
expenses - - 0.0 -1.3 15.3 0.2 14.3
Dividends paid - - - - -4.6 - -4.6
Shares subscribed
with options 0.0 0.0 - - - - 0.0
Stock option
program - - - - 0.3 - 0.3
Other changes - - - - 0.0 0.0 0.0
Equity on Sept 30,
2007 3.5 16.7 0.1 -8.4 78.6 0.7 91.2
* Note: Jan 1, 2006 and Sept 30, 2006 comparables have been changed.
See notes to the income statement and balance sheet for more details.
KEY FIGURES BY QUARTERS I II III IV I-IV I II III
MEUR 2006 2006 2006 2006 2006 2007 2007 2007
Net sales 63.4 64.2 49.8 49.2 226.6 63.4 73.4 52.0
EBITDA 11.6 9.7 4.4 2.4 28.0 12.3 12.6 4.6
Operating profit (EBIT) 10.0 8.1 2.8 0.7 21.7 12.0 11.0 2.9
Profit before taxes 7.8 6.1 1.0 -0.3 14.6 11.0 9.8 1.4
Net profit for the period 5.7 4.5 0.4 0.5 11.0 7.7 6.7 1.1
KEY FIGURES III III I-III I-III I-IV
2007 2006 2007 2006 2006
EBITDA margin, % 8.8% 8.8% 15.6% 14.5% 12.4%
Operating profit margin, % 5.6% 5.7% 13.7% 11.8% 9.6%
Return on capital employed, % 6.4% 6.4% 19.1% 15.9% 12.3%
Capital employed at end of period,MEUR 180.7 181.2 180.7 181.2 180.6
Net interest-bearing debt at end
of period, MEUR 89.5 98.4 89.5 98.4 99.3
Equity-to-assets ratio at end of
period, % 36.2% 34.4% 36.2% 34.4% 33.4%
Debt-to-equity ratio at end of
period, % 98.1% 118.9% 98.1% 118.9% 122.2%
Earnings per share, EUR 0.03 0.01 0.40 0.27 0.28
Average number of shares
outstanding (1000) 38 579 38 576 38 578 38 562 38 565
Fully diluted earnings per share,
EUR 0.03 0.01 0.40 0.27 0.28
Fully diluted average number of
shares (1000) 38 579 38 625 38 578 38 611 38 609
Equity per share at end of period,
EUR 2.34 2.13 2.34 2.13 2.09
Number of shares outstanding at
end of period (1000) 38 579 38 576 38 579 38 576 38 576
Average personnel for the period 4 510 3 907 4 574 3 942 3 987
SEGMENT INFORMATION** III III I-III I-III I-IV
MEUR 2007 2006 2007 2006 2006
Net Sales by Area**
North America 11.6 13.6 53.3 55.3 69.7
Nordic 19.6 19.9 75.1 72.2 94.2
Rest of Europe 19.6 16.2 72.8 65.0 83.0
Rest of the world 16.0 12.0 46.6 32.0 43.7
Intra-Group -14.7 -12.0 -59.0 -47.1 -64.0
Total 52.0 49.8 188.8 177.4 226.6
Operating Profit by Area**
North America 0.5 0.7 6.5 5.2 6.4
Nordic -0.4 0.6 7.2 6.4 6.9
Rest of Europe 1.1 -0.1 8.7 6.2 7.0
Rest of the world 1.2 1.2 2.7 3.7 2.8
Intra-Group 0.5 0.4 0.8 -0.5 -1.4
Total 2.9 2.8 25.9 21.0 21.7
Net Sales by Product line***
Lures 14.4 12.4 62.9 56.9 73.0
Fishing Hooks 3.9 3.0 13.2 11.4 14.8
Fishing Accessories 7.2 9.3 29.7 31.9 45.8
Third Party Fishing Products 14.1 13.5 52.1 49.6 53.5
Other 13.2 12.3 33.6 29.8 42.4
Intra-Group -0.8 -0.6 -2.7 -2.2 -2.9
Total 52.0 49.8 188.8 177.4 226.6
** 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 consist of Group branded
fishing tackle products. Third Party Fishing Products consist of
non-Group branded fishing products, mostly rods and reels. Other
Products consist of non-Group branded (third party) products for
hunting, outdoor and winter sports and Group branded products for
winter sports and some other businesses.
NOTES TO THE INCOME STATEMENT AND BALANCE SHEET
This interim report has been prepared in accordance with IAS 34
(Interim Financial Reporting). The accounting principles adopted in
the preparation of the interim report are consistent with those
followed in the preparation of the Group's Annual Financial
Statements 2006, except for the adoption of new interpretations:
IFRIC 8 (Scope of IFRS 2), IFRIC 9 (Reassessment of Embedded
Derivatives) and IFRIC 10 (Interim Financial Reporting and
Impairment). Adoption of these interpretations did not result in any
changes in the accounting principles that would have affected the
information presented in this report.
Use of estimates
Complying with the IFRS standards 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.
Definition of key figures
The definitions of key figures used in the interim report are
consistent with those used in the Group's Annual Financial Statements
2006.
Changes in comparable figures
Comparable figures were changed at year end 2006. For more
information on the changes and effects see Annual Report 2006.
Events after the end of the interim period
The Group has no knowledge of any significant events after the end of
the interim period that would have a material impact on the financial
statements for January-September 2007. Material events after the end
of the interim period, if any, have been discussed in the interim
review by the Board of Directors.
Inventories
At September 30, 2007, the book value of inventories differed from
its net realizable value by 0.7 MEUR (0.2 MEUR at September 30, 2006
and 1.0 MEUR at December 31, 2006).
Hedging of net investments in foreign subsidiaries
During the first quarter of 2007, the Group started to partially
hedge its net investments in USD, AUD, JPY and NOK currency
denominated foreign subsidiaries using equivalent currency loans. The
Group plans to start to partially hedge its net investment in SEK
currency denominated foreign subsidiaries during the next nine
months. Hedging relationships are treated according to IAS 39 as
effective hedges of a net investment in a foreign subsidiary, which
means that the effective portion of foreign exchange effect on these
loans is recorded directly in equity.
Open currency derivatives
Sept 30 Sept 30 Dec 31
MEUR 2007 2006 2006
Net fair values -0.1 0.0 0.0
Contract amount 2.0 1.0 1.0
Commitments
Sept 30 Sept 30 Dec 31
MEUR 2007 2006 2006
Mortgages and pledgesOn own behalf 16.2 44.0 17.6
Guarantees
On own behalf 2.1 0.8 1.1
On behalf of other parties 0.8 0.7 0.6
Minimum future lease payments on operating
leases 11.2 9.3 12.6
Related party transactions
EUR million Purchases Rents paid Assets Liabilities
I-III 2007
Associated company Lanimo Oü 0.1 - - 0.1
Entity with significant
influence over the Group * - 0.0 0.0 -
I-III 2006
Associated company Lanimo Oü 0.1 - - 0.1
I-IV 2006
Associated company Lanimo Oü 0.1 - - 0.1
* Lease agreement for the real estate for the consolidated operations
in Morvillars, France.
Non-recurring income and expenses in operating profit
III III I-III I-III I-IV
MEUR 2007 2006 2007 2006 2006
Gains/losses on disposals of intangible
and tangible assets and subsidiaries - 0.0 0.4 0.0 -0.1
Excess of Group's interest in the net fair
value of acquired net assets over cost - - 1.2 - -
Restructuring costs -0.5 - -0.9 0.0 -0.2
Start-up costs - - - - -0.1
Other 0.0 - 0.1 - -
Total -0.5 0.0 0.8 0.0 -0.4
Impact of acquisitions and disposals on the consolidated financial
statements
In January, Rapala acquired the fishing tackle business of Outdoor
Innovations LLC and Horizon Lures LP, USA based manufacturers and
distributors of Terminator branded spinnerbaits and other fishing
lures. The deal included patents for the use of nickel titanium wire
in fishing lures, trademarks, customer lists, inventories and trade
receivables.
In April, Rapala acquired 10% minority stake of Rapala's Hungarian
distribution company, Rapala Eurohold Ltd ("Rapala Eurohold"), from
Mr Agh Senior. Acquisition raised Rapala's ownership to 80%. In May,
Rapala and Shimano, one of the leading manufacturers of rods and
reels worldwide, strengthened their distribution alliance in Hungary
and South-East Europe. Shimano subscribed a 33.4% shareholding in
Rapala Eurohold. Rapala's ownership is now 56.6% and the Managing
Director of Rapala Eurohold, Mr Agh Jr, has the remaining 10%
ownership.
Also in February and April, Rapala made a 0.2 MEUR final payment of
the Guigo acquisition closed in 2004 and in May a 0.8 MEUR first
settlement of final payment of the Freetime acquisition closed in
2005.
Acquisitions by Sept 30, 2007 Seller's
Fair carrying
MEUR value amount
Working capital 2.6 2.6
Intangible assets 0.7 0.1
Tangible assets 0.1 0.1
Deferred tax liability -0.1 0.0
Fair value of acquired net assets 3.2 2.8
MEUR I-III 2007
Cash paid 1.5
Cash to be paid 0.4
Payment of the Freetime acquisition closed in 2005 0.8
Final payment of the Guigo acquisition closed in
2004 0.2
Cost associated with the acquisition 0.1
Total purchase consideration 3.0
Excess of Group's interest in the net fair value of
acquired net assets over cost -1.2
Goodwill 0.1
Net -1.2
Cash paid for the acquisitions 2.7
Cash and cash equivalents acquired 0.0
Net cash flow 2.7
Partial disposals of subsidiaries by Sept 30, 2007
Share of disposed goodwill 0.2
Share of disposed minority interest 0.0
Gain on disposals 0.4
Total consideration 0.5
Consideration received in cash 0.5
Share-based payments
The Group has three separate share-based payment programs: two stock
option programs and one synthetic option program settled in cash.
Terms and conditions of the option program are described in detail in
the Annual Financial Report 2006. The options are valued at fair
value on the grant date by using the Black-Scholes option-pricing
model. The total estimated value of the program is 5.4 MEUR.
Share-based payment programs are valued at fair value on the grant
date and recognized as an expense in the income statement during the
vesting period with a corresponding adjustment to the equity or
liability.
Grant date is the date at which the entity and another party agree to
a share-based payment arrangement, being when the entity and the
counter party have a shared understanding of the terms and conditions
of the arrangement. 1 909 500 share option where granted on June 8,
2004, 92 500 share options on February 14, 2006 and 978 500 synthetic
options on December 14, 2006. On March 31, 2007, the exercise period
for the 2003A stock option program expired. All 500 000 shares were
subscribed. The 2003B stock option program is exercisable between
March 31, 2006 and March 31, 2008 at an exercise price of 6.02 EUR
per share, the 2004A stock option program is exercisable between
March 31, 2007 to March 31, 2009 at an exercise price of 5.96 EUR per
share, the 2004B stock option program is exercisable between March
31, 2008 and March 31, 2010 at an exercise price of 6.09 EUR, the
2006A synthetic option program is exercisable between March 31, 2009
and March 31, 2011 at an exercise price of 6.32 EUR and the 2006B
synthetic option program is exercisable between March 31, 2010 and
March 31, 2012 at an exercise price of 6.32 EUR. The exercise prices
have been reduced by the amount of dividends distributed after the
subscription period for option rights has ended and before the
commencement of the subscription period. Applying of IFRS 2 reduced
operating profit with 0.9 MEUR in 2006, 0.6 MEUR in January-September
2006 and 0.7 MEUR in January-September 2007.
Shares and share capital
Based on authorization given by the Annual General Meeting in April
2007, the Board can decide to issue shares through issuance of
shares, options or special rights entitling to shares in one or more
issues. The number of new shares to be issued including the shares to
be obtained under options or special rights shall be no more than 10
000 000 shares. This authorization includes the right for the Board
to resolve on all terms and conditions of the issuance of new shares,
options and special rights entitling to shares, including issuance in
deviation from the shareholders' preemptive rights. This
authorization is in force for a period of 5 years from the resolution
by the Annual General Meeting. The Board is also authorized to
resolve to repurchase a maximum of 2 000 000 shares. This amount of
shares corresponds to less than 10% of all shares of the company.
This authorization is in force until September 30, 2008.
2 500 new shares where subscribed with 2003A option rights in March
2007. The share capital increased with 225.00 EUR and the
subscriptions were registered in the Trade Register on April 4, 2007
and listed on the main list of the Helsinki Stock Exchange on April
5, 2007. As a result of the share capital increase the company's
share capital was 3 472 089.21 EUR and the number of shares 38 578
769 on September 30, 2007. All 500 000 shares have now been
subscribed with 2003A option rights. Each share (RAP1V) is entitled
to one vote.
889 680 new shares were issued to Shimano on October 12 for the
subscription price of 5.62 EUR per share, which represents a
three-month weighted average trading price for the share from June 27
to September 27. These new shares will not give right to dividend
paid from financial year 2007 and they have a lock-up period of 12
months. The number of outstanding shares after this issues is
39 468 449. From the subscription price 80 071.20 EUR will be
recorded in the share capital, which will increase to 3 552 160.41
EUR. Trading with the new shares is expected to commence at the end
of October.
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 121 830
EUR and the number of shares by a maximum of 1 353 668 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 9 months 6 658 155 shares (9 604 221 shares) were
traded. The shares traded at a high of 6.27 EUR and a low of 5.40 EUR
during the period. The closing share price at the end of the period
was 5.65 EUR.
Business risks and seasonality of the business
Rapala currently operates in 29 countries in all major continents.
There are no signs of significant changes in markets or fishing
tackle business as such due to new product launches, product category
introductions or competitor actions. Group's customers are acting
mainly in local markets, consisting mainly of mass retailers offering
a wide range of products and specialized fishing tackle and outdoor
retailers. Group's sales and operating profit have traditionally been
quite seasonal due to the geographic location of the Group operations
and the seasonality of the fishing tackle business. The seasonality
has been slightly mitigated in the last two years through the
acquisitions of distribution companies on the southern hemisphere.
For more information on the Group's financial risk and risk
management see Annual Report 2006 on www.rapala.com.
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