2009-04-28 08:50:00 CEST
2009-04-28 08:51:19 CEST
REGULATED INFORMATION
Rapala VMC - Interim report (Q1 and Q3)
INTERIM REPORT JANUARY TO MARCH 2009 - STRONG START FOR THE YEAR
Rapala VMC Corporation
Stock Exchange Release
April 28, 2009 at 9.50 am
- Net sales for the first quarter reached last year levels at 65.0
MEUR (I/08: 65.1 MEUR).
- First quarter operating profit, excluding non-recurring items, was
supported by the results of the performance improvement initiatives
and the positive effects of foreign exchange movements and reached
10.1 MEUR (9.6 MEUR). Reported operating profit was 10.0 MEUR (10.6
MEUR).
- Net profit for the first quarter was 6.2 MEUR (6.8 MEUR). Earnings
per share were 0.15 EUR (0.16 EUR).
- Cash flow from operating activities was -19.8 MEUR (-16.3 MEUR) for
the first quarter as a result of seasonal increase in trade
receivables and inventories.
- The major working capital initiative started last November
progressed on plan and the results should start to materialize
gradually from the second quarter onwards. The general financial
situation and simultaneous working capital actions of several
customers make the initiative a bit more challenging but clear
improvement is expected by the end of the year with additional
improvement continuing in 2010.
- In the first quarter, the Group continued to implement its strategy
for profitable growth. Integration of the acquired Sufix fishing line
business proceeded on plan. Development of the manufacturing
operations in China started to materialize with clear efficiency
improvements. Several new performance improvement initiatives were
started during the quarter targeting at cost savings and increase of
productivity. Manufacturing volumes have also been adjusted to
support the ongoing working capital initiative.
- It is expected that the net sales for 2009 will be at previous year
levels. Excluding non-recurring items, the target is to maintain the
operating margin quite close to the good levels reached in 2008.
The attachment presents the interim review by the Board of Directors
as well as the accounts.
A conference call on the first quarter result will be arranged today
at 11 am Finnish time (10 am CET). Please dial +44 (0)20 7784 1038 or
+1 347 366 9564 (pin code: 122932#) five minutes before the beginning
of the event and request to be connected to Rapala teleconference. A
replay facility will be available for 14 days following the
teleconference. The number (pin code: 122932#) to dial is +44 (0)20
7806 1970. 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
Jouni Grönroos, 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
Despite the continued uncertainties and bad news regarding the world
economy, a good winter helped the first quarter market situation in
the Nordic countries. Consequently, winter sports and winter fishing
sales were up compared to last year. On the other hand, cold winter
and late spring affected negatively the net sales of fishing tackle.
Additional price increases were introduced in many countries to
compensate for the strong weakening of local currencies. In North
America, the sales were on last year levels but the strengthening of
the US dollar increased the net sales. The general market conditions
in Asia and Australia continued tight during the first quarter but
many of the Asian distribution units improved their sales from last
year.
Net sales for January to March, which traditionally is the second
best quarter due to seasonality, were on last year levels at 65.0
MEUR (2008: 65.1 MEUR). The net effect of the strengthening of the US
dollar (USD) and weakening of Russian ruble and many other currencies
increased the net sales for the first quarter by 0.4 MEUR.
Due to the changes in International Financial Reporting Standards
(IFRS 8), the Group has redefined its operating segments, which now
consist of Group Fishing Products, Other Group Products and Third
Party Products. Group Fishing Products include the following product
lines: Group Lures, Fishing Hooks, Fishing Lines and Fishing
Accessories. Other Group Products include Group manufactured and/or
branded 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.
Net sales of Group Fishing Products, supported by the sales of new
Sufix fishing lines and strengthening of USD, were up 11% from last
year and amounted to 37.4 MEUR (33.7 MEUR). Net sales of Other Group
Products decreased 21% to 3.8 MEUR (4.8 MEUR) as a result of reduced
sales of gift products and subcontracting services while sales of
winter sports equipment was strong. Net sales of Third Party Products
decreased 11% to 24.0 MEUR (26.9 MEUR) because of weakening of many
East European and Scandinavian currencies.
Net sales in North America increased 12% as a result of strengthening
of the USD while the sales in local currencies were at last year
levels. In the Nordic countries, net sales increased 17% due to good
winter sports and winter fishing sales. Weakening of many East
European currencies resulted in the fall of net sales in Rest of
Europe by 14%. Net sales in Rest of the World were 21% above last
year as a result of the new sales of Sufix products, good performance
in many Asian distribution units and strengthening of USD.
Financial Results and Profitability
First quarter operating profit, excluding non-recurring items, was
supported by the results of the performance improvement initiatives
and the positive effects of foreign exchange movements, and reached
10.1 MEUR (9.6 MEUR). Operating margin, excluding non-recurring
items, was 15.5% (14.7%). Due to the increased inventory levels, the
foreign exchange effect on purchases hits the cost of goods sold on
average almost one year after the actual change in the currencies.
Key Figures I I I-IV
MEUR 2009 2008 2008
Net sales 65.0 65.1 243.0
EBITDA as reported 11.6 12.2 37.5
EBITDA excl. one-off items 11.7 11.2 36.7
Operating profit as reported 10.0 10.6 31.3
Operating profit excl. one-offs 10.1 9.6 30.5
Reported operating profit was 6% behind last year at 10.0 MEUR (10.6
MEUR) and operating margin decreased to 15.5% (16.3%) due to the
non-recurring (net) gain in 2008 result. Return on capital employed
was 19.3% (22.8%).
Operating profit of Group Fishing Products increased 42% from last
year as a result of increased sales and positive effect from currency
movements and reached 7.8 MEUR (5.5 MEUR). Operating profit of Other
Group Products dropped to 0.1 MEUR (1.6 MEUR) as a result of reduced
subcontracting sales and the 1.3 MEUR non-recurring gain recorded in
2008. Operating profit of Third Party Products decreased to 2.2 MEUR
(3.5 MEUR) due to negative currency movements and reduced sales.
Financial (net) expenses were 1.6 MEUR (1.3 MEUR). Net interest
expenses were 0.9 MEUR (1.4 MEUR) and (net) currency exchange losses
0.6 MEUR (0.1 MEUR gain).
Net profit for the first quarter decreased to 6.2 MEUR (6.8 MEUR).
Minority interest decreased to 0.2 MEUR (0.5 MEUR). Earnings per
share were 0.15 EUR (0.16 EUR).
Cash Flow and Financial Position
Cash flow from operating activities decreased from last year as a
result of increased working capital and amounted to -19.8 MEUR (-16.3
MEUR). The growth in working capital came from trade receivables and
inventories that increased seasonally but were also up from last
March.
The major working capital initiative started last November progressed
during the first quarter on plan and the results should start to
materialize gradually from the second quarter onwards. The general
economic situation and simultaneous working capital actions of
several customers make the initiative a bit more challenging but
clear improvement is expected by the end of the year with additional
improvement continuing in 2010. This initiative includes a wide
variety of actions to develop the Group supply chains, change ways of
working in production planning and internal order management and to
implement IT systems to support the new processes.
Cash used in investing activities amounted to 0.5 MEUR (2.0 MEUR). In
addition to normal capital expenditure of 1.5 MEUR (1.7 MEUR), it
included 1.0 MEUR proceeds from sale of assets (0.1 MEUR).
Net interest-bearing debt increased seasonally but was also up from
last March at 112.3 MEUR (Dec 2008: 89.5 MEUR) due to higher level of
working capital. The liquidity of the Group remained good throughout
the quarter. Equity-to-assets ratio was 35.3% (Dec 2008: 38.0%) and
gearing 101.7% (Dec 2008: 86.4%). Both ratios weakened slightly from
March 2008.
Strategy Implementation - Growth
During the first quarter, the management continued discussions and
negotiations regarding acquisitions and business combinations to
further implement the Group's strategy for profitable growth.
Development of organic growth also in terms of extensions of current
product categories as well as special marketing, sales, and brand
initiatives continued.
Integration of the new Sufix business acquired in 2008 progressed on
plan and sales of Sufix fishing lines have had a strong start. Rapala
aims to expand its fishing line sales in the next 2-3 years to above
20 MEUR. The strategic long-term target is to increase the fishing
line sales to 30-40 MEUR and gain a significant market share of the
global fishing line business. In 2008, the sales of Group-branded
fishing lines were some 5 MEUR. In addition, Rapala sold some third
party fishing lines.
The sales of the new Trigger X products with fish pheromones have
started well with selected distribution channels. These new products
will be offered later on to a wider distribution in line with the
ongoing increase of production capacity.
Strategy Implementation - Profitability
Strong emphasis on performance improvement initiatives continued in
the first quarter of 2009. Several new performance improvement
initiatives were started targeting at cost savings and increase of
productivity.
The performance improvement initiatives at the Group's manufacturing
facilities in China proceeded with major operational changes. As a
result of streamlining the operations, increasing subcontracting and
cutting the capacity to more quickly adjust to and, more accurately
meet the market requirements, the Group has reduced the headcount in
China by some 2 100 persons since March 2008. Further development and
fine-tuning of the new operating model in the Chinese manufacturing
operations will continue during the second and third quarter of 2009.
The consolidation of the French operations will be finalized when the
hook distributor VMC Europe completes its move into joint premises
during summer 2009 but benefits from the restructuring have already
started to materialize. After all relocations have been completed and
the new organisation is fully operational, the annual savings in
France are expected to reach 1-2 MEUR.
Total headcount in the end of March was at 2 393 (March 2008: 4 692),
down almost 50% from the same time last year. This decrease results
mainly from the changes in the operating model in the Group Chinese
manufacturing unit but consolidation of French operations,
restructuring of European lure manufacturing and adjusting
manufacturing volumes to support ongoing working capital project have
also resulted in a further reduction of almost 200 employees. At the
same time, new personnel have been recruited to the new Sufix
business and few distribution units.
Short-term Outlook
Since the beginning of the year, there has been no material change in
the market situation and outlook for 2009, which remains challenging.
The slowdown and uncertainty in North America and European economies
as well as in many Asian countries are expected to continue during
the coming months. Fishing tackle business has typically been quite
non-cyclical during recessions, which together with the Group's
strong brands and distribution power raises cautious optimism even in
the current market situation. In the history, fishermen and
fisherwomen have continued their activity even in uncertain economic
times and, therefore, the healthy demand for the Group products is
expected to continue also in 2009.
Despite this challenging market situation, it is expected that the
net sales for 2009 will be at previous year levels. Excluding
non-recurring items, the target is to maintain the operating margin
quite close to the good levels reached in 2008.
While the Group continues to implement its strategy for profitable
growth, reducing working capital and increasing cash flow from
operating activities will be one of the key themes in 2009 together
with the finalization of the ongoing performance improvement
initiatives and integration of the new fishing line business.
Second quarter interim report will be published on July 24.
Helsinki, April 28, 2009
Board of Directors of Rapala VMC Corporation
INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
INCOME STATEMENT I I I-IV
MEUR 2009 2008 2008
Net sales 65.0 65.1 243.0
Other operating income 0.4 1.5 3.1
Cost of sales 35.5 34.7 135.3
Other costs and expenses 18.3 19.8 73.2
EBITDA 11.6 12.2 37.5
Depreciation and amortization 1.5 1.6 6.2
Operating profit 10.0 10.6 31.3
Finance income and expenses 1.6 1.3 4.8
Share of results in associates 0.0 0.0 0.0
Profit before taxes 8.5 9.3 26.5
Income taxes 2.3 2.5 7.3
Net profit for the period 6.2 6.8 19.2
Attributable to:
Equity holders of the Company 6.0 6.3 17.7
Minority interest 0.2 0.5 1.6
Earnings per share for profit attributable
to the equity holders of the Company:
Earnings per share, EUR (diluted = non-diluted) 0.15 0.16 0.45
STATEMENT OF COMPREHENSIVE INCOME I I I-IV
MEUR 2009 2008 2008
Net profit for the period 6.2 6.8 19.2
Other comprehensive income
Exchange differences on translating foreign
operations 1.6 -3.6 -1.2
Cash flow hedges -0.1 -0.2 -0.2
Hedges of net investments -0.9 -0.1 -2.8
Available-for-sale financial assets - - -0.1
Total other comprehensive income, net of tax 0.6 -3.8 -4.3
Total comprehensive income for the period 6.7 3.0 14.9
Total comprehensive income attributable to:
Equity holders of the Company 6.6 2.5 13.4
Minority interest 0.1 0.5 1.6
STATEMENT OF FINANCIAL POSITION Mar 31 Mar 31 Dec 31
MEUR 2009 2008 2008
ASSETS
Non-current assets
Intangible assets 58.9 49.4 57.6
Property, plant and equipment 28.7 27.8 28.7
Non-current financial assets
Interest-bearing 0.5 0.6 0.5
Non-interest-bearing 8.5 7.6 7.7 96.6 85.4 94.6
Current assets
Inventories 112.3 89.0 98.4
Current financial assets
Interest-bearing 0.4 0.1 0.4
Non-interest-bearing 72.8 75.1 49.5
Cash and cash equivalents 30.8 24.9 30.6
216.4 189.1 178.9
Assets classified as held-for-sale - 0.5 -
Total assets 313.0 275.0 273.4
EQUITY AND LIABILITIES
Equity
Equity attributable to the equity holders of the
Company 108.3 98.6 101.7
Minority interest 2.0 1.2 1.9
110.4 99.8 103.7
Non-current liabilities
Interest-bearing 44.0 48.6 42.8
Non-interest-bearing 11.0 6.7 10.5
55.0 55.2 53.3
Current liabilities
Interest-bearing 100.1 73.5 78.1
Non-interest-bearing 47.5 46.4 38.3
147.5 119.9 116.4
Total equity and liabilities 313.0 275.0 273.4
KEY FIGURES I I I-IV
2009 2008 2008
EBITDA margin, % 17.8% 18.8% 15.5%
Operating profit margin, % 15.5% 16.3% 12.9%
Return on capital employed, % 19.3% 22.8% 16.9%
Capital employed at end of period, MEUR 222.7 196.3 193.2
Net interest-bearing debt at end of period, MEUR 112.3 96.5 89.5
Equity-to-assets ratio at end of period, % 35.3% 36.3% 38.0%
Debt-to-equity ratio at end of period, % 101.7% 96.7% 86.4%
Earnings per share, EUR 0.15 0.16 0.45
Fully diluted earnings per share, EUR 0.15 0.16 0.45
Equity per share at end of period, EUR 2.76 2.50 2.59
Average personnel for the period 2 446 4 398 4 143
I I I-IV
STATEMENT OF CASH FLOWS MEUR 2009 2008 2008
Net profit for the period 6.2 6.8 19.2
Adjustments to net profit for the period * 5.2 5.0 13.0
Financial items and taxes paid and received -2.2 -2.8 -14.0
Change in working capital -29.0 -25.3 -12.7
Net cash generated from operating activities -19.8 -16.3 5.4
Investments -1.5 -1.7 -7.1
Proceeds from sales of assets 1.0 0.1 2.2
Sufix brand acquisition - - -1.5
Acquisition of subsidiaries, net of cash - -0.3 -0.5
Change in interest-bearing receivables 0.0 0.0 0.0
Net cash used in investing activities -0.5 -2.0 -6.8
Dividends paid - - -6.9
Net funding 20.1 16.7 11.9
Purchase of own shares 0.0 - -0.9
Net cash generated from financing activities 20.1 16.7 4.1
Adjustments 0.2 -0.2 0.9
Change in cash and cash equivalents 0.0 -1.8 3.6
Cash & cash equivalents at the beginning of the
period 30.6 27.3 27.3
Foreign exchange rate effect 0.3 -0.7 -0.4
Cash and cash equivalents at the end of the period 30.8 24.9 30.6
* 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
Share Fair trans- invested Re- Mino-
pre- value lation non-rest- Own tained rity
Share mium re- diffe- ricted sha- earn- inte- Total
capital fund serve rences equity res ings rest equity
Equity on Jan
1, 2008 3.6 16.7 0.0 -9.8 4.9 - 80.6 0.9 96.9
Comprehensive
income* - - -0.2 -3.6 - - 6.3 0.5 3.0
Share based
payment - - - - - - 0.1 - 0.1
Other changes - - - - - - 0.0 -0.2 -0.2
Equity on Mar
31, 2008 3.6 16.7 -0.2 -13.4 4.9 - 87.1 1.2 99.8
Equity on Jan
1, 2009 3.6 16.7 -0.3 -13.8 4.9 -0.9 91.5 1.9 103.7
Comprehensive
Income* - - -0.1 0.7 - - 6.0 0.1 6.7
Purchase of
own shares - - - - - -0.0 - - -0.0
Equity on Mar
31, 2009 3.6 16.7 -0.3 -13.0 4.9 -0.9 97.5 2.0 110.4
* For the period (net of tax)
SEGMENT INFORMATION* I I I-IV
MEUR 2009 2008 2008
Net Sales by Operating Segment
Group Fishing Products 37.4 33.7 120.4
Other Group Products 3.8 4.8 22.7
Third Party Products 24.0 26.9 100.7
Intra-Group -0.1 -0.3 -0.9
Total 65.0 65.1 243.0
Operating Profit by Operating Segment
Group Fishing Products 7.8 5.5 19.1
Other Group Products 0.1 1.6 2.2
Third Party Products 2.2 3.5 10.0
Total 10.0 10.6 31.3
Mar 31
Assets by Operating Segment Mar 31 2009 2008 Dec 31 2008
Group Fishing Products 184.9 157.1 167.5
Other Group Products 10.7 12.3 9.3
Third Party Products 85.7 80.1 65.3
Intra-Group -0.1 -0.1 -0.1
Total non-interest-bearing assets 281.2 249.4 242.0
Unallocated interest-bearing assets 31.8 25.6 31.4
Total assets 313.0 275.0 273.4
Liabilities by Operating Segment
Group Fishing Products 33.3 29.9 30.1
Other Group Products 2.1 3.9 2.6
Third Party Products 23.1 19.4 16.1
Intra-Group -0,1 -0.1 -0.1
Non-interest-bearing liabilities total 58.5 53.1 48.8
Unallocated interest-bearing liabilities 144.1 122.1 121.0
Total liabilities 202.6 175.2 169.7
I I I-IV
MEUR 2009 2008 2008
Net Sales by Area**
North America 19.5 17.4 57.5
Nordic 35.8 30.6 105.9
Rest of Europe 25.5 29.7 101.3
Rest of the world 16.2 13.4 54.3
Intra-Group -32.0 -25.9 -76.0
Total 65.0 65.1 243.0
* The new operating segments (IFRS 8) 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 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
MEUR 2008 2008 2008 2008 2008 2009
Net sales 65.1 74.2 52.7 50.9 243.0 65.0
EBITDA 12.2 15.4 5.2 4.8 37.5 11.6
Operating profit (EBIT) 10.6 13.8 3.6 3.2 31.3 10.0
Profit before taxes 9.3 12.8 2.6 1.9 26.5 8.5
Net profit for the period 6.8 9.4 2.0 1.0 19.2 6.2
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 2008, except
for the adoption of the new or amended standards and interpretations.
Adoption of the amended standard IAS 1 affected the presentation of
Group's consolidated financial statements, especially the
consolidated income statement and the statement of changes in equity.
Adoption of IFRS 8 changed the presentation of segment information.
Adoption of IAS 23, IAS 32, IFRS 2 and IAS 39/IFRS 7 as well as the
new interpretation IFRIC 13 did not result in any changes in the
accounting principles that would have affected the information
presented in this interim report.
Definition of key figures
Definitions of key figures used in the interim report are consistent
with those used in the Annual Report 2008.
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-March 2009. 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 March 31, 2009, the book value of inventories differed from its
net realizable value by 2.4 MEUR (2.3 MEUR at March 31, 2008 and 2.4
MEUR at December 31, 2008).
Assets held-for-sale and sale of assets in 2008
As part of the consolidation of French operations, Rapala sold few
warehouses and office buildings in France in 2008. This resulted in a
capital gain of 1.4 MEUR in 2008.
Non-recurring income and expenses included in
operating profit I I I-IV
MEUR 2009 2008 2008
Consolidation of French operations - -0.1 -0.1
Closure of Irish lure factory -0.1 - 0.0
Sale of French warehouse and office building - 1.3 1.4
Other restructuring costs - -0.2 -0.3
Other non-recurring items - - -0.2
Total -0.1 1.0 0.8
Commitments Mar 31 Mar 31 Dec 31
MEUR 2009 2008 2008
On own behalf
Business mortgage 16.1 16.1 16.1
Guarantees 0.3 0.6 0.3
Minimum future lease payments on operating
leases 9.9 9.2 11.3
Related party
transactions Rents Other
MEUR Purchases paid expenses Receivables Payables
I 2009
Associated company
Lanimo Oü 0.1 - - 0.0 -
Entity with
significant influence
over the Group* - 0.0 0.0 0.0 -
Management - 0.0 0.0 - -
I 2008
Associated company
Lanimo Oü - - - 0.0 -
Entity with
significant influence
over the Group - 0.1 0.0 0.0 -
Management 0.0 0.0 - 0.0 -
I-IV 2008
Associated company
Lanimo Oü 0.1 - - 0.0 -
Entity with
significant influence
over the Group* - 0.2 0.1 0.0 0.0
Management* - 0.2 0.0 0.0 0.0
* Lease agreement for the real estate for the consolidated operations
in France and a service fee.
Open derivatives Nominal Positive fair Negative fair Net fair
MEUR amount values values values
March 31, 2009
Foreign currency
forwards 4.9 0.4 - 0.4
Interest rate swaps 124.5 0.1 0.5 -0.5
Total 129.4 0.5 0.5 0.0
March 31, 2008
Foreign currency
forwards 9.5 - 0.5 -0.5
Interest rate swaps 14.4 0.0 0.4 -0.4
Total 23.9 0.0 0.9 -0.9
Dec 31, 2008
Foreign currency
forwards 7.2 0.3 - 0.3
Interest rate swaps 14.1 0.0 0.4 -0.4
Total 21.3 0.3 0.4 -0.1
Group's financial risks and hedging principles are described in
detail in the Annual Report 2008.
Share-based payments
The Group had two separate share-based payment programs in place on
March 31, 2009: one stock option program and one synthetic option
program settled in cash. Terms and conditions of the option program
are described in detail in the Annual Report 2008. 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 programs in
place is 1.4 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
counterparty have a shared understanding of the terms and conditions
of the arrangement. Regarding the option programs in place, 454 750
share options (2004B) were granted on June 8, 2004, 46 250 share
options (2004B) on February 14, 2006 and 978 500 synthetic options
(2006A and 2006B) on December 14, 2006. On March 31, 2009, the
exercise period for the 2004A stock option program expired. 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 6.14 EUR and the 2006B synthetic option program
is exercisable between March 31, 2010 and March 31, 2012 at an
exercise price of 6.14 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 increased operating profit
with 0.3 MEUR in January-December 2008, reduced operating profit by
0.2 MEUR in Jan-Mar 2008 and reduced operating profit 0.1 MEUR in
Jan-Mar 2009 mainly due to change in fair value of synthetic option
program.
In March 2009, Rapala announced that its Board had approved a new
share-based incentive plan (Plan) for the Group's key personnel. The
aim of the Plan is to combine the objectives of the shareholders and
the key personnel in order to increase the value of the Company, to
commit the key personnel to the Company, and to offer them a
competitive reward plan based on holding the Company shares. The Plan
includes one earning period, which commenced on January 1, 2009 and
will end on December 31, 2010. The potential reward from the Plan
will be based on the Rapala's earnings per share (EPS) in 2010. The
potential reward from the Plan will be paid as the Company's shares
in 2011. The target group of the Plan consists of some 20-40 key
employees. The gross rewards to be paid on the basis of the Plan will
correspond to the value of a maximum total of 200 000 Rapala shares.
The grant date for the Plan was not before the end of March 2009 and,
accordingly, it has not had any impact on operating profit.
Shares and share capital
Based on authorization given by the Annual General Meeting in April
2008, 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 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 Annual General
Meeting.
On March 31, 2009, 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 January-March 2009 was 39
468 449. On February 6, 2009 the Board decided to continue buying
back own shares in accordance with the authorization granted by the
Annual General Meeting on April 3, 2008. The repurchasing of shares
ended on March 30, 2009. At March 31, 2009 Rapala held 221 936 of its
own shares, representing 0.6% of the total number of Rapala shares
and the total voting rights. The average price for the repurchased
own shares in January-March 2009 was EUR 3.82.
As a result of the share subscriptions with the 2004B stock option
program, and if all stock options are fully exercised, the Group's
share capital may still be increased by a maximum of 39 780 EUR and
the number of shares by a maximum of 442 000 shares. The shares that
can be subscribed with these stock options correspond to 1.1% of the
Company's shares and voting rights.
During the first quarter of 2009, 1 133 539 shares (1 141 649 shares)
were traded. The shares traded at a high of 4.11 EUR and a low of
3.50 EUR during the period. The closing share price at the end of the
period was 3.95 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 fast. Accordingly, Group
management has continued to develop risk management practices and
this work continues also in 2009. Detailed description of Group's
strategic, operative and financial risks and risk management
principles are included in the Annual Report 2008, see
www.rapala.com.
Due to the nature of the fishing tackle business and the geographical
scope of Group's operations, Group's deliveries and sales as well as
operating profit have traditionally been seasonally stronger in the
first half of the financial year compared to the second half. In 2008
even if more than 40% of the net sales were generated during the
second half of the year, almost 80% of the operating profit was still
generated in the first six months. In 2009, deliveries to customers
have started mostly according to plan, without any material operative
problems in the supply chain.
Group's sales are also to some extent affected by the weather. In
several areas, the current winter season has turned out to be longer
than last year, which has supported the sales of winter sports
equipment but simultaneously delayed the beginning of summer season
sales. Consequently, the inventory levels of summer fishing products
are in the end March to some extent higher than anticipated.
Accordingly, the importance of reducing inventory levels and working
capital in general is very high in order not to breach the bank
covenant on cash flow to debt service. This covenant is measured on a
quarterly basis and its minimum requirement increases from the end of
March to the end of June 2009. Due to the ongoing working capital
initiatives, the Company considers it reasonable to meet this
ambitious target.
Even if 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. While continuing,
these uncertainties may also affect the amount retailers invest in
advertising and promotions, which may affect consumer spending at
least temporarily. 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 Group's sales and operations is spreading
the market risks caused by the current uncertainties in the global
economy. Already in 2007, the Group started initiatives to improve
the performance of its own operations and actively monitors the
performance of its customers and other counterparties. Especially,
the importance of cash collection and credit risk management has
increased and this may affect sales to some customers.
Group's sales and profitability are impacted by the changes in
foreign exchange rates, especially US dollar. 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 in accordance to IAS 39, also the
change in fair value of these unrealized currency hedging agreements
have an impact on the Group's operating profit. In some countries,
the local currency weakened dramatically during the second half of
last year. This weakening has been taken into account in price
setting but it is still uncertain how this will impact consumer
behavior.
The integration of the new Sufix-fishing line business to the Group's
distribution network in 27 countries has progressed well but will
still require special attention of the management.
No significant changes are identified in the Group's strategic risks
or business environment.
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