2017-07-21 11:00:41 CEST
2017-07-21 11:00:41 CEST
REGULATED INFORMATION
Rapala VMC - Half Year financial report
RAPALA VMC CORPORATION'S HALF YEAR REPORT H1/2017: SALES AND PROFITABILITY DOWN FROM LAST YEAR, OUTLOOK REVISED FOLLOWING CONTINUED TURMOIL IN THE MARKETS
Rapala VMC Corporation
Half year financial report
July 21, 2017 at 12:00 noon
RAPALA VMC CORPORATION'S HALF YEAR REPORT H1/2017: SALES AND PROFITABILITY DOWN
FROM LAST YEAR, OUTLOOK REVISED FOLLOWING CONTINUED TURMOIL IN THE MARKETS
This release is a summary of Rapala VMC Corporation's Half year financial report
January-June 2017. The complete report is attached to this release as a pdf-file
(Rapala VMC Corp. Half year financial report H1 2017). It is also available at
the corporate website www.rapalavmc.com.
January-June (H1) in brief:
* Net sales were 140.9 MEUR, down 2% from previous year (143.1). With
comparable exchange rates sales were 4% lower than last year.
* Operating profit was 11.0 MEUR (14.2), down 23%.
* Comparable operating profit* was 11.4 MEUR (15.6), down 27%.
* Cash flow from operations was 8.1 MEUR (6.2), up 31%.
* Gearing was 46.8% (82.9).
* Earnings per share was 0.15 EUR (0.19).
* Full year (FY) guidance updated: Full year net sales expected to be around
last year's level and comparable operating profit to be clearly below last
year's level.
President and CEO Jussi Ristimäki: "Trading conditions remained tough in key
markets for the first half of the year, which resulted in a 2% decline in sales
from last year. The sales of Group Products remained at last year's level, while
Third Party Products decreased somewhat. The positive highlights for the first
half were good sales development in carp business, ice fishing as well as
Marttiini knives.
The ongoing structural changes in the US retail market had still a negative
impact on our sales as consumers are increasingly going online. We are
responding to this by making more investments into our digital presence. Big
European markets were affected by cold and late start of the summer as well as
tighter price competition and consequently sales were lagging especially in
France.
Our profitability was down from last year following lower sales and tightening
competition. Comparable operating profit decreased only marginally in Group
Products, whereas profitability in Third Party Products was disappointing. Focus
on working capital management is yielding results and cash flow from operations
was strong and above last year's levels as inventories decreased to 99.1 MEUR.
As a result of strong cash flow, lower inventories and the successful issuance
of a hybrid bond, our net debt was record low at 71.3 MEUR. Outlook for the
whole year is cautious and our sales and profitability is expected to decrease
from last year. We are executing our strategy of improving profitability,
lightening balance sheet and improving operational performance in all our
business units. The transfer of some production phases from the lure factory in
Finland to Estonia and Russia is proceeding well and ahead of schedule."
Key figures
------------------------------------------------------
H1 H1 change FY
MEUR 2017 2016 % 2016
------------------------------------------------------
Net sales 140.9 143.1 -2% 260.6
Operating profit 11.0 14.2 -23% 7.2
% of net sales 7.8% 9.9% 2.8%
Comparable operating profit* 11.4 15.6 -27% 18.8
% of net sales 8.1% 10.9% 7.2%
Cash flow from operations 8.1 6.2 +31% 26.7
Gearing % 46.8% 82.9% 70.6%
EPS, EUR 0.15 0.19 -21% -0.08
------------------------------------------------------
* Excluding mark-to-market valuations of operative currency derivatives and
other items affecting comparability. Other items affecting comparability
include material restructuring costs, impairments, gains and losses on
business combinations and disposals, insurance compensations and other non-
operational items.
Rapala Group presents alternative performance measures to reflect the
underlying business performance and to enhance comparability between financial
periods. Alternative performance measures should not be considered in
isolation as a substitute for measures of performance in accordance with IFRS.
Definitions and reconciliation of key figures are presented in the financial
section of the release.
Market Environment
Trading conditions remain challenging. Especially in the US consumers are
increasingly shifting into digital channels, which affects the retail business
structures and some of the Group's biggest customers are in financial distress.
The changes have a negative effect on sales in the marketplace, but the Group
has largely been able to recover the lost sales from other channels in the US.
In Europe, cold and late start of the summer coupled with increased price
competition in certain product categories has impacted sales.
Business Review January-June 2017
The Group's net sales for the first half of the year were slightly below last
year. Changes in translation exchange rates increased sales by approximately
3.2 MEUR. With comparable translation exchange rates, net sales were down 4%
from last year for the half year.
North America
With comparable exchange rates, sales in North America were at last year's
level. The sales in Canada were above last year's level due to successful sales
campaigns. The retail landscape in the US is going through a structural change
as traditional retail business is giving way to e-commerce. This has caused
turmoil early in the year, but the market is slowly stabilizing. The first half
of the year's sales in the US were affected by financial difficulties of a few
bigger customers. However, sales to other retail channels increased in the
second quarter, and lost sales have largely been recovered. Despite these
changes in the trade, the Group is expected to have kept its market share as the
whole fishing tackle business is hit by the same challenges. Strengthening of
the US dollar had a positive impact on the region's sales.
Nordic
In the Nordic countries, the sales were below last year's level, affected by
lower hunting sales in Denmark and a challenging second quarter in Finland
caused by cold spring and late start of the summer season. The Group's knife
factory Marttiini showed strong growth supported by the Finland 100 Anniversary
Knife sales. Sales in Norway and Sweden grew from last year, but were hindered
by some third party supply problems and late deliveries.
Rest of Europe
The first half year sales were below last year's level, hurt by the continuing
challenges in the region's biggest markets, Russia and France. While the Russian
ruble has strengthened, having a positive impact on the regions EUR-nominated
sales, it has not materialized into higher consumer demand. The demand is
shifting into more low-end products which has a direct effect on the sales. In
France, the sales were below last year's level, impacted by tightening
competition and general consumer uncertainties. Following product portfolio
changes, the sales in Poland were below last year. Business grew in the UK
following the change in business model and Portugal also showed positive growth
trends. After a slow start of the year in the Baltic countries, the sales grew
in the second quarter supported by special campaigns.
Rest of the World
With comparable exchange rates, the sales for the region were below last year's
level, mainly affected by a decrease in sales in Thailand, where the market is
suffering. The sales in South Africa were above last year's level, supported by
new hunting and outdoor business and sales to Middle East and North Africa. In
Australia, after a good start of the year, outsourcing of the warehouse
operations temporarily affected the sales negatively. In South Korea the sales
grew in the second quarter after a slow start of the year, and brought the first
half of the year's sales above last year. Currency exchange rate changes,
especially South African Rand, had a positive impact on the regions sales.
External net sales by area
------------------------------------------------------
H1 H1 change Comparable FY
MEUR 2017 2016 % change % 2016
------------------------------------------------------
North America 47.6 46.4 +3% +0% 91.3
Nordic 31.8 33.3 -5% -4% 55.3
Rest of Europe 45.8 48.0 -5% -8% 81.3
Rest of the World 15.7 15.3 +3% -2% 32.7
Total 140.9 143.1 -2% -4% 260.6
------------------------------------------------------
------------------------------------------------------
Q2 Q2 change Comparable FY
MEUR 2017 2016 % change % 2016
------------------------------------------------------
North America 24.0 22.9 +5% +4% 91.3
Nordic 15.9 18.4 -14% -13% 55.3
Rest of Europe 23.3 24.0 -3% -5% 81.3
Rest of the World 8.1 8.1 0% -4% 32.7
Total 71.4 73.4 -3% -4% 260.6
------------------------------------------------------
Financial Results and Profitability
Comparable (excluding mark-to-market valuations of operative currency
derivatives and other items affecting comparability) and reported operating
profit decreased from last year for the first half of the year. Changes in
translation exchange rates increased operating profit by approximately 0.6 MEUR.
With comparable translation exchange rates comparable operating profit was 4.8
MEUR behind last year's level.
Comparable operating profit margin was 8.1% (10.9) for the six months. The
decline in the half year profitability was primarily driven by lower sales in
key markets and reduced gross margin. Group's lure manufacturing units'
profitability was hurt by lower volumes, some production disturbances and the
transfer of certain production phases out from Finland. Profitability was
further negatively impacted by allowances on receivables. Group's fixed costs
were stable compared to last year despite some new fixed costs in strategic
development areas.
Respectively reported operating profit margin was 7.8% (9.9). Reported operating
profit included loss of mark-to-market valuation of operative currency
derivatives of 0.1 MEUR (0.9). Net expenses of other items affecting
comparability included in the reported operating profit were 0.3 MEUR (0.5),
related to restructurings in Finland and France as well as an insurance
compensation in the first half of 2017. In 2016 items affecting comparability
included restructuring costs in Southeast Asia distribution and France.
Total financial (net) expenses were 1.8 MEUR (2.8) for the first half. Net
interest and other financing expenses were 1.2 MEUR (1.7). Compared to last year
financial items were impacted less by (net) foreign exchange expenses of 0.7
MEUR (1.1).
Net profit for the six months was below last year's level and earnings per share
were 0.15 EUR (0.19). The share of non-controlling interest in net profit
decreased from last year and totaled 0.1 MEUR (0.8) mainly due to challenges in
Russia.
Key figures
-------------------------------------------------------------------------------
H1 H1 change FY
MEUR 2017 2016 % 2016
-------------------------------------------------------------------------------
Net sales 140.9 143.1 -2% 260.6
Operating profit 11.0 14.2 -23% 7.2
Comparable operating profit * 11.4 15.6 -27% 18.8
Net profit 6.0 8.2 -27% -2.0
-------------------------------------------------------------------------------
* Excluding mark-to-market valuations of operative currency derivatives and
other items affecting comparability. Other items affecting comparability
include material restructuring costs, impairments, gains and losses on
business combinations and disposals, insurance compensations and other non-
operational items.
Bridge calculation of comparable operating profit
-------------------------------------------------------------------------------
H1 H1 change FY
MEUR 2017 2016 % 2016
-------------------------------------------------------------------------------
Operating profit 11.0 14.2 -23% 7.2
Mark-to-market valuations of
operative currency derivatives 0.1 0.9 -89% 1.6
Other items affecting comparability 0.3 0.5 -40% 10.0
Comparable operating profit 11.4 15.6 -27% 18.8
-------------------------------------------------------------------------------
More detailed bridge of comparable operating profit and definitions and
reconciliation of key figures are presented in the financial section of the
release.
Segment Review
Group Products
With comparable exchange rates, sales of Group Products were below last year's
level.
Group fishing product sales were below last year's level in North America for
the first half of the year, but Q2 sales exceeded last year's level. Winter
fishing products benefited from good winter conditions and the sales were higher
than last year, especially in the US.
Sales of other group products were up from last year. The sales of hunting
products were supported by increased Marttiini knife sales. Winter sport
products' sales were also up from last year.
Operating profit for Group Products declined compared to last year. Operating
profit was burdened by lower sales, which reduced profits at distribution and
profitability at manufacturing level.
Third Party Products
The sales of Third Party Products on the first half of the year were below last
year's level.
Third party fishing product sales were behind last year, reduced by the loss of
a product category in Poland as well as the challenging market situation
affecting sales especially in Russia and France. Tightened price competition and
poor spring and early summer weathers in Russia and northern Europe further
decreased the sales of third party fishing products.
Operating profit for Third Party Products was below last year's level burdened
by lower sales and increased price competition which had a negative impact on
margins.
Net sales by segment
--------------------------------------------------------
H1 H1 change Comparable FY
MEUR 2017 2016 % change % 2016
--------------------------------------------------------
Group Products 94.9 95.0 0 % -2 % 172.1
Third Party Products 45.9 48.1 -5 % -8 % 88.5
Eliminations
Total 140.9 143.1 -2% -4% 260.6
--------------------------------------------------------
-------------------------------------------------------
Q2 Q2 change Comparable FY
MEUR 2017 2016 % change % 2016
-------------------------------------------------------
Group Products 47.4 47.8 -1% -1% 172.1
Third Party Products 24.0 25.7 -7% -9% 88.5
Eliminations
Total 71.4 73.4 -3% -4% 260.6
-------------------------------------------------------
Comparable operating profit by segment
-----------------------------------------------------
H1 H1 change FY
MEUR 2017 2016 % 2016
-----------------------------------------------------
Group Products 11.5 12.0 -4% 17.4
Third Party Products -0.1 3.6 -103% 1.4
-----------------------------------------------------
Comparable operating profit 11.4 15.6 -27% 18.8
Items affecting comparability -0.4 -1.4 -71% -11.6
Operating profit 11.0 14.2 -23% 7.2
-----------------------------------------------------
Financial Position
Cash flow from operations increased from last year being 8.1 MEUR (6.2) for the
six months supported by decrease in inventories and timing of trade payables.
Net change in working capital amounted to -2.6 MEUR (-7.3).
Despite lower sales than anticipated, inventories decreased by 18.9 MEUR from
last June amounting to 99.1 MEUR (118.1), of which 0.7 MEUR is related to change
in translation exchange rates. Excluding the impact of allowance on inventories
and translation exchange rates, the organic decrease of inventories was 10.3
MEUR. The inventory reduction is driven by the ongoing focus on working capital
management and various supply chain initiatives.
Net cash used in investing activities decreased significantly from last year's
level and totaled 2.6 MEUR (4.8) for the first half of the year consisting
mainly of normal operative capital expenditure. Last year's higher capital
expenditure were driven by investments in the Indonesian manufacturing
operations as well as extension of the hook factory in France.
Liquidity position of the Group was good. Undrawn committed long-term credit
facilities amounted to 59.9 MEUR at the end of the period. Following the
successful issuance of 25.0 MEUR hybrid bond, gearing and net interest-bearing
debt decreased significantly from last year and equity-to-assets ratio increased
notably. Leverage level (ratio between net interest bearing debt and reported
EBITDA) decreased significantly and the Group is compliant with all financial
covenants.
Key figures
-------------------------------------------------------------------------------
H1 H1 change FY
MEUR 2017 2016 % 2016
-------------------------------------------------------------------------------
Cash flow from operations 8.1 6.2 +31% 26.7
Net interest-bearing debt at end
of period 71.3 115.8 -38% 96.1
Gearing % 46.8% 82.9% 70.6%
Equity-to-assets ratio at end of
period, % 50.1% 43.6% 43.1%
-------------------------------------------------------------------------------
Definitions and reconciliation of key figures are presented in the financial
section of the release.
Strategy Implementation
The Group updated its strategy in February 2017. Following the conclusions of
the strategy update, in order to build solid financial and operational platform
for long term growth, the Group's primary focus in the coming three years will
be on capturing organic growth opportunities in the fishing tackle business. The
Group will also take determined actions to improve its profitability, lighten
balance sheet and improve operational performance. In longer term the target is
to return to more aggressive growth track and actively seek synergistic growth
opportunities also outside fishing tackle business.
The Group's existing assets and capabilities form the foundation for future
strategies, both in short and long term. Future strategies are built upon
utilizing and capitalizing the brand portfolio, own manufacturing platform,
research and development knowledge, as well as the broad distribution network
and strong local presence all around the world supporting the sales of Group's
own and selected synergistic third party products.
The execution of the updated strategy has started on all levels in the Group.
Several organic growth projects are ongoing in all businesses utilizing deep
market and customer understanding. Special focus has been set to leverage our
global innovation power to serve growing product categories and niches within
fishing.
Significant focus and resources have been allocated to streamline internal
supply chains and to develop better sales and operations planning to achieve
lower group-wide inventories. Additionally, lean projects are ongoing in several
factories. Transfer of certain production phases from Finland to Estonia and
Russia is developing ahead of schedule. Following the codetermination
negotiations, a total of 50 persons were laid off from the lure factory and head
office. The annual cost savings will be around 1.5 MEUR, which will materialize
from 2018 onwards.
The Group is investing in group-wide common IT systems to increase efficiencies
and enable better end-to-end supply chain and product management. The Group is
also making increased investments towards digital channels in order to exploit
these opportunities stronger in the future.
The Group will organize a capital markets day during Q4 of 2017 to elaborate the
updated strategy and its execution.
Product Development
Continuous product development and consistent innovation are core competences
for the Group and major contributors to the value and commercial success of the
brands. The Group has reorganized and boosted its lure product development
procedure by centralizing the product development know-how and key resources to
one location in Finland that serves both the European and Asian lure
manufacturing units.
Product development cycles are getting shorter which allows faster reaction to
market needs and developing trends. Product launch schedules are more flexible
and can be better adjusted to target specific markets' seasons.
The most important product launches in the first half of year were a globally
coordinated launch of Storm 360 GT Searchbait in January and the June
introduction of Sufix Advance fishing line at the European Fishing Tackle Trade
Exhibition, where the line received the Best New Monofilament award. Further
introductions of hero lure categories were prepared for the US trade show ICAST
in July.
Organization and Personnel
Average number of personnel was 2 786 (2 921) for the first half of the year. At
the end of June, the number of personnel was 2 754 (2 760).
Jan-Elof Cavander was appointed as Chief Financial Officer and member of the
executive committee as of June 30, 2017.
Short-term Outlook and Risks
Following the continued market turmoil and structural changes especially in the
US, the outlook for the full year is cautious. The market situation in the US is
however expected to slowly stabilize and the Group sees continued consumer
demand for its products via old and new channels. For example preorders for ice
fishing products are significantly up from last year in the US. In Europe, the
price competition in certain product categories has increased and this will
continue to affect the second half of the year. The Russian market is still
expected to be under pressure impacted by general low consumer demand. Increased
political risks arising from North Korea affect consumer markets in South Korea
and Japan.
The Group has launched various strategic initiatives to boost organic growth and
improve cost and capital efficiency as well as operational performance in the
future. These initiatives will trigger some additional expenses and investments
in 2017.
Following the decreased sales in key markets and tightened price competition the
Group specifies its outlook. The profitability of the second half of the year is
expected to be lower than last year. The Group expects full year net sales to be
around last year's level and comparable operating profit (excluding mark-to-
market valuations of operative currency derivatives and other items affecting
comparability) to be clearly below last year's level. Previous outlook expected
net sales to be above last year's level and comparable operating profit below
last year's level.
Short term risks and uncertainties and seasonality of the business are described
in more detail in the end of this half year report. Third quarter Trading Report
2017 will be published on October 27, 2017.
Helsinki, July 21, 2017
Board of Directors of Rapala VMC Corporation
For further information, please contact:
Jussi Ristimäki, President and Chief Executive Officer, +358 9 7562 540
Jan-Elof Cavander, Chief Financial Officer, +358 9 7562 540
Olli Aho, Investor Relations, +358 9 7562 540
A conference call on the first half year result will be arranged today at 2:00
p.m. Finnish time (1:00 p.m. CET). Please dial +44 (0)330 336 9104 or
+1 719 325 2340 or +358 (0)9 7479 0360 (pin code: 454332) five minutes before
the beginning of the event. A replay facility will be available for 14 days
following the teleconference. The number to dial is +44 (0)207 984 7568 or
+1 719 457 0820 or +358 (0)9 8171 0562 (pin code: 1922703). Financial
information and teleconference replay facility are available at
www.rapalavmc.com.
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