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    RAPALA VMC CORPORATION'S HALF YEAR REPORT H1/2017  605  0 Kommentare 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.




    This announcement is distributed by Nasdaq Corporate Solutions on behalf of Nasdaq Corporate Solutions clients.
    The issuer of this announcement warrants that they are solely responsible for the content, accuracy and originality of the information contained therein.
    Source: Rapala VMC Oyj via Globenewswire



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