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RAPALA ANNUAL ACCOUNTS 2011: GOOD YEAR IN CHALLENGING BUSINESS ENVIRONMENT


February 8, 2012 - London

Rapala VMC Corporation
Stock Exchange Release
February 8, 2012 at 9.30 a.m.

  • Net sales for the quarter increased by 1% to a new fourth quarter record of 60.8 MEUR (60.4 MEUR). Net sales for the year were also an all time high at 279.5 MEUR (269.4 MEUR), increasing 4% from last year. 

  • Comparable operating profit decreased from last year to 2.4 MEUR (4.3 MEUR) for the fourth quarter and for the full year was close to last year's record level at 30.5 MEUR (31.8 MEUR). Comparable operating margin was 4.0% (7.1%) for the quarter and for the full year slightly lower than last year at 10.9% (11.8%). Reported operating profit for the fourth quarter was 3.5 MEUR (4.2 MEUR) and 30.7 MEUR (31.3 MEUR) for the full year. 

  • Net profit for the fourth quarter reduced to 1.1 MEUR (1.8 MEUR) and was 17.2 MEUR (20.7 MEUR) for the year. Earnings per share were 0.02 EUR (0.04 EUR) and 0.36 EUR (0.46 EUR) respectively. 

  • Cash flow from operating activities for the fourth quarter improved slightly to -1.6 MEUR (-2.2 MEUR) and was 15.2 MEUR (13.0 MEUR) for the full year. Gearing reached all time lows and was 67.2% (71.2%) at the end of the year. Strengthening of balance sheet is supporting future acquisition opportunities. 

  • Implementation of the Group's strategy continued throughout the year by taking several actions relating both to manufacturing and distribution activities. Fourth quarter actions included opening a distribution company in Kazakhstan and launching a webshop in the USA focusing on direct sales to US consumers. 

  • It is expected that in 2012 the net sales will increase from 2011 and the comparable operating profit is targeted to improve. 

  • Board proposes to the Annual General Meeting that a dividend of EUR 0.23 per share to be paid. This represents 64% of earning per share.
     

The attachment presents the summary of the annual review by the Board of Directors and extracts from the financial statements for 2011.

A conference call on the 2011 result will be arranged today at 2.00 p.m. Finnish time (1.00 p.m. CET). Please dial +44 (0)20 3147 4972 or +1 212 444 0891 or +358 (0)9 2310 1672 (pin code: 744345#) five minutes before the beginning of the event. A replay facility will be available for 14 days following the teleconference. The number to dial is +44 (0)20 7111 1244 (pin code: 744345#). Financial information and teleconference replay facility are available at www.rapala.com.

For further information, please contact:
Jorma Kasslin, President and Chief Executive Officer, +358 9 7562 540
Jussi Ristimäki, Chief Financial Officer, +358 9 7562 540
Olli Aho, Investor Relations, +358 9 7562 540

Distribution: NASDAQ OMX Helsinki and Main Media

Market situation and Sales

The general sentiment in the world economy changed significantly during 2011. Toward the end of the year this had some, although limited, negative impacts also on Rapala's sales. Year started on a growth trend in line with the positive expectations. Beginning of the year was supported by the good winter weathers in the Nordic countries. At the same time summer fishing season started early and lasted long in the major European markets. In North America beginning of the season was delayed, but the sales came back strong during second half of the year. In general the US consumer and retail confidence was still shadowed by the economical uncertainties, but some indications of improvement were witnessed in the end of the year. During the latter part of the year the increased uncertainties in the world economy affected some markets and product categories putting pressure on customers' financial position and creating some uncertainties to the coming season. Late beginning of winter in 2011/2012 affected sales of winter sports and winter fishing equipment both to Rapala and its customers. Regardless of the increased uncertainties Rapala's sales in 2011 reached all time record.

Net sales for fourth quarter increased by 1% from last year to a quarterly record of 60.8 MEUR (60.4 MEUR), with no material impact from the currency exchange rates compared to last year. New units contributed 0.1 MEUR net sales in the fourth quarter. Net sales for 2011 increased by 4% to annual record of 279.5 MEUR (269.4 MEUR). Changes in currency exchange rates reduced the sales 3.0 MEUR compared to last year. With comparable exchange rates and organization structure net sales increased by 2% compared to last year.

Full year net sales of Group Fishing Products increased by 9% compared to last year, driven by good sales of fishing lines and accessories as well as new sales generated by Dynamite Baits. Net sales of Other Group Products declined by 10% in 2011, primarily due to reduced yearly sales of the gift products and reduced sales of winter sports equipment in the fourth quarter. Annual net sales of Third Party Products were at last year's level, with increased sales of third party fishing and outdoor products, while sales of third party winter sports equipment was down.

In North America in fourth quarter net sales increased by 12% from last year following the strong order book and good in-sales of new products. Full year net sales of North America increased by 1%. In local currency increase in sales was higher, but this was offset by weakening of the US Dollar, which was on average 5% weaker against euro than last year. Sales were supported by the Group's good delivery performance, high customer satisfaction and introduction of new range of winter fishing products.

In Nordic countries fourth quarter sales were down 13% compared to last year. Sales were negatively impacted by the late winter as well as restructuring of the Norwegian winter sports business. Nordic sales in 2011 increased by 1% compared to last year, mainly as a result of increased intra-group sales to other geographical areas, whereas the external sales were negatively impacted by reduced sales of winter sports and high-end hunting equipment.

Fourth quarter sales in Rest of Europe were at last year level. On annual basis net sales in Rest of Europe increased by 13% compared to last year. Increase was driven by strong sales in many East European countries and France as well as the new sales generated by Dynamite Baits. Countries impacted by the economic turbulence were Hungary and Portugal as well as Spain and Switzerland, where the sales still remained at last year level.

In Rest of World fourth quarter sales increased by 3% compared to last year. External sales increased in all markets except South Africa where the economy is suffering. In 2011 the net sales in Rest of World increased 2% compared to last year. In most of the South East Asian countries the annual growth of external sales was in double-digits, while sales of gift products and internal sales of the Asian manufacturing units was lower than last year.

Financial Results and Profitability

Comparable operating profit, excluding non-recurring items, for the fourth quarter was down from last year at 2.4 MEUR (4.3 MEUR). Comparable operating profit for 2011 was down 1.3 MEUR from last year's record level at 30.5 MEUR (31.8 MEUR). Comparable operating profit margin was 4.0% (7.1%) for the fourth quarter and for the full year slightly lower than last year at 10.9% (11.8%). The gross margin for 2011 was burdened by the inventory clearance sales, being still slightly better than in previous year, while comparable operating profit margin was lowered by increased fixed costs.

Reported operating profit for the fourth quarter was 3.5 MEUR (4.2 MEUR) and 30.7 MEUR (31.3 MEUR) for the year 2011, 0.6 MEUR down from last year. In 2011 reported operating profit included net gain of non-recurring items of 0.2 MEUR (non-recurring net costs of 0.5 MEUR in 2010). Non-recurring items included 1.5 MEUR net gain from divestment of the gift business closed during the fourth quarter and various non-recurring relocation and restructuring costs and costs relating to business acquisitions. Reported operating profit margin was 11.0% (11.6%) and return on capital employed 13.7% (15.2%).

Key figures
MEUR
IV
    2011
IV
    2010
I-IV
    2011
I-IV
    2010
Net sales 60.8 60.4 279.5 269.4
EBITDA as reported 5.5 5.7 37.7 37.4
EBITDA excl. one-off items 4.1 5.8 37.1 37.9
Operating profit (EBIT) 3.5 4.2 30.7 31.3
EBIT excl. one-off items 2.4 4.3 30.5 31.8

In 2011 reported operating profit of Group Fishing Products reduced to 19.9 MEUR (21.4 MEUR) and operating profit margin was 13.0% (15.4%). Operating profit was negatively impacted by weakening US Dollar, increased share in sales of lower margin baits and lower profitability in hooks. In 2011 operating profit of Other Group Products was up from last year at 2.5 MEUR (2.0 MEUR), following the non-recurring gain from divestment of the gift business. Comparable profitability was lower than last year due to lower profits of gift and winter sports equipment business. In 2011 operating profit of Third Party Products increased from last year to 8.4 MEUR (7.8 MEUR). Biggest contribution to the profit increase came from third party fishing products, while profitability of third party winter sports equipment declined.

Total financial (net) expenses increased significantly in 2011 and amounted to 5.5 MEUR (1.8 MEUR). The increase was primarily due to 3.3 MEUR negative change in (net) currency exchange expenses, which amounted to 1.8 MEUR (net gain 1.6 MEUR in 2010). Net interest and other financial expenses increased modestly to 3.7 MEUR (3.4 MEUR).

Net profit for the year and earnings per share decreased from last year's record levels to 17.2 MEUR (20.7 MEUR) and 0.36 EUR (0.46 EUR) respectively, impacted by increased effective tax rate and share of non-controlling interest in net result.

Cash Flow and Financial Position

In 2011 cash flow from operations improved from last year to 15.2 MEUR (13.0 MEUR) and was -1.6 MEUR (-2.2 MEUR) for the fourth quarter. Compared to last year, while net profit for the year was lower, positive cash flow impact came from the change in inventories and accounts receivable. Cash flow impact of net change in working capital was -7.3 MEUR (-13.0 MEUR) for the year and -1.6 MEUR (-5.2 MEUR) for the fourth quarter. Year-end inventories amounted to 115.5 MEUR (112.2 MEUR). The Group's inventories were at unsatisfactory high-levels throughout the year, but were not on the same increasing trend as they were especially in the end of last year.

Net cash used in investing activities was down to 9.6 MEUR (13.2 MEUR) for the year, due to smaller business acquisitions.

In the end of 2011 net interest-bearing debt reduced to 91.2 MEUR (Dec 2010: 92.0 MEUR) and was impacted by divestment of the gift business. Equity-to-assets ratio improved to 43.2% (Dec 2010: 42.6%). In line with increased equity and reduced net debt, Group's balance sheet strengthened further and gearing was at all time lows at 67.2% (71.2%).

Strategy Implementation

Implementation of Rapala's strategy continued during 2011 by taking actions relating to both manufacturing and distribution activities.

The European distribution cooperation with Shimano was deepened in the UK by establishing a true 50:50 joint venture company to distribute products of both Rapala and Shimano to this fishing tackle market, which is one of the biggest in Europe.

Also in the UK Rapala concluded a deal to acquire Advanced Carp Equipment Ltd ("ACE"), a company engaged in design and sales of equipment and accessories for carp fishing. ACE will form the platform for Rapala's fast entry into these product categories in the UK and in Europe. Acquisition of ACE is a continuum to the year 2010 acquisition of Dynamite Baits Ltd, leading manufacturer of carp baits.

In order to secure access to cost competitive production resources also in the future, Rapala made a decision to open new lure and hook manufacturing units on Batam Island in Indonesia in 2011. At first stage the operation will employ some 200-250 people and run parallel to the Group's Chinese manufacturing operations. Possibilities to expand the operations in Batam further will be studied once the first stage is successfully implemented.

In December 2011 Rapala sold its non-core Chinese gift manufacturing business to its largest customer French Pylones SAS, releasing funds and resources for developing the core fishing tackle business.

New distribution companies started operations in Mexico, Indonesia and Kazakhstan during 2011. In Kazakhstan the business is operated under the jointly owned Russian distribution company. Special performance improvement initiatives were carried out in the Norwegian and Australian distribution companies.

During the fourth quarter Rapala USA opened B2C webshop targeted solely to US consumers. The webshop enables Rapala to offer full range of its products to consumers.

Finnish distribution company Normark Suomi Oy and ski manufacturer Peltonen Ski Oy relocated into new larger premises during 2011, enabling better distribution efficiencies and larger production volumes and efficiencies.

Working capital and cash flow management was still one of the top priorities for the Group. Net cash flow from operating activities improved from last year, but inventory levels are still far from desired levels. Changes in the Group's manufacturing units to provide better flexibility towards the distribution units are gradually bearing fruit, and work to reduce the inventory levels and develop the Group's internal supply chain will continue further to 2012.

Development of organic growth in terms of extensions of current product categories continued. New products for the season 2012 were introduced to the market in summer and were received well by the markets.

Discussions and negotiations regarding other acquisitions and business combinations continued also during 2011. Rapala is a key player in the fishing tackle industry with a recognized global distribution network and it has a good access to any discussions concerning industry consolidation or other business expansion possibilities. Strengthening of the Group's balance sheet further supports such initiatives.

Short-term Outlook

The negative changes in the sentiment of the economy globally and especially in Europe during latter part of the year increased the uncertainty concerning retail and consumer demand. Despite these uncertainties expectations for the coming year are optimistic.

There are promising signs of accelerating recovery in the USA and Rapala's position with major US customers is currently very good. There is also good progress in coming summer season's presales in several markets.

The late start of winter season 2011/2012 as well as the divestment of the gift business will have some reducing impact on the Group's net sales and the continuing inventory cleaning initiatives may pressure the profitability, while at same time performance improvement initiatives in various units are expected to show results.

It is expected that in 2012 the net sales will increase from 2011 and the comparable operating profit is targeted to improve.

Proposal for profit distribution

The Board of Directors proposes to the Annual General Meeting that a dividend of EUR 0.23 for 2011 (2010: EUR 0.23) per share be paid from the Group's distributable equity and that any remaining distributable funds be allocated to retained earnings. At December 31, 2011, the parent company's distributable equity totaled 24.4 MEUR.

No material changes have taken place in the Group's financial position after the end of the financial year 2011. Group's liquidity is good and the view of the Board of Directors is that the distribution of the proposed dividend will not undermine this liquidity.

Annual Report and Annual General Meeting

The Annual Report, including Financial Statements for 2011 and Corporate Governance Statement will be published in week 12. Annual General Meeting is planned to be held on April 11, 2012.

Helsinki, February 8, 2012

Board of Directors of Rapala VMC Corporation

INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

STATEMENT OF INCOME
MEUR
IV
    2011
IV
    2010
I-IV
    2011
I-IV
    2010
Net sales 60.8 60.4 279.5 269.4
Other operating income 2.3 0.3 2.9 0.7
Materials and services 28.6 27.5 129.0 123.9
Personnel expenses 16.3 15.8 62.4 59.1
Other costs and expenses 12.7 11.7 53.3 49.7
Share of results in associates and joint ventures -0.1 0.0 -0.1 0.0
EBITDA 5.5 5.7 37.7 37.4
Depreciation, amortization and impairments 1.9 1.5 7.0 6.1
Operating profit (EBIT) 3.5 4.2 30.7 31.3
Financial income and expenses 1.0 0.7 5.5 1.8
Profit before taxes 2.5 3.5 25.2 29.5
Income taxes 1.5 1.7 8.0 8.7
Net profit for the period 1.1 1.8 17.2 20.7
Attributable to:
Equity holders of the Company 0.9 1.7 14.0 18.0
Non-controlling interests 0.2 0.1 3.2 2.8
Earnings per share for profit attributable
to the equity holders of the Company
Earnings per share, EUR (diluted = non-diluted) 0.02 0.04 0.36 0.46

STATEMENT OF COMPREHENSIVE INCOME
MEUR
IV
    2011
IV
    2010
I-IV
    2011
I-IV
    2010
Net profit for the period 1.1 1.8 17.2 20.7
Other comprehensive income, net of tax
Change in translation differences 4.9 2.7 2.0 7.8
Gains and losses on cash flow hedges 0.0 0.4 -0.1 -1.2
Gains and losses on hedges of net investments -0.4 -0.2 -0.4 -1.1
Total other comprehensive income, net of tax 4.5 2.8 1.5 5.5
Total comprehensive income for the period 5.6 4.6 18.7 26.3
Total comprehensive income attributable to:
Equity holders of the Company 5.2 4.3 15.8 23.1
Non-controlling interests 0.4 0.3 2.9 3.2

STATEMENT OF FINANCIAL POSITION
MEUR
   Dec 31
2011
   Dec 31
2010
ASSETS
Non-current assets
Intangible assets 68.0 67.8
Property, plant and equipment 28.5 28.7
Non-current financial assets
Interest-bearing 7.6 1.7
Non-interest-bearing 9.1 9.2
113.2 107.4
Current assets
Inventories 115.5 112.2
Current financial assets
Interest-bearing 1.6 0.0
Non-interest-bearing 55.0 56.5
Cash and cash equivalents 28.9 27.9
201.0 196.6
Assets classified as held-for-sale 0.3 -
Total assets 314.5 304.0
EQUITY AND LIABILITIES
Equity
Equity attributable to the equity holders of the Company 128.6 121.8
Non-controlling interests 7.2 7.4
135.8 129.2
Non-current liabilities
Interest-bearing 12.7 27.1
Non-interest-bearing 13.5 13.7
26.2 40.8
Current liabilities
Interest-bearing 116.6 94.6
Non-interest-bearing 35.9 39.4
152.5 134.0
Total equity and liabilities 314.5 304.0

KEY FIGURES IV
    2011
IV
    2010
I-IV
    2011
I-IV
    2010
EBITDA margin, % 9.0% 9.5% 13.5% 13.9%
Operating profit margin, % 5.8% 6.9% 11.0% 11.6%
Return on capital employed, % 6.3% 8.1% 13.7% 15.2%
Capital employed at end of period, MEUR 227.0 221.3 227.0 221.3
Net interest-bearing debt at end of period, MEUR 91.2 92.0 91.2 92.0
Equity-to-assets ratio at end of period, % 43.2% 42.6% 43.2% 42.6%
Debt-to-equity ratio at end of period, % 67.2% 71.2% 67.2% 71.2%
Earnings per share, EUR 0.02 0.04 0.36 0.46
Fully diluted earnings per share, EUR 0.02 0.04 0.36 0.46
Equity per share at end of period, EUR 3.30 3.13 3.30 3.13
Average personnel for the period 2 223 2 341 2 208 2 317

Definitions of key figures in the interim report are consistent with those in the Annual Report 2010.

STATEMENT OF CASH FLOWS
MEUR
IV
   2011
IV
   2010
I-IV
   2011
I-IV
   2010
Net profit for the period 1.1 1.8 17.2 20.7
Adjustments to net profit for the period * 2.2 4.0 17.6 17.4
Financial items and taxes paid and received -3.3 -2.7 -12.3 -12.1
Change in working capital -1.6 -5.2 -7.3 -13.0
Net cash generated from operating activities -1.6 -2.2 15.2 13.0
Investments -2.7 -1.7 -8.4 -6.2
Proceeds from sales of assets 0.3 0.2 0.7 0.3
Acquisition of joint venture Shimano Normark UK 0.5 - -1.5 -
Dynamite Baits acquisition, net of cash -0.1 -0.1 -0.1 -4.8
Sufix brand acquisition - - -0.7 -1.2
Acquisition of other subsidiaries, net of cash - 0.0 0.0 0.0
Proceeds from disposal of subsidiaries, net of cash 0.6 - 0.6 -
Change in interest-bearing receivables 0.0 0.0 0.0 -1.3
Net cash used in investing activities -1.4 -1.6 -9.6 -13.2
Dividends paid to parent company's shareholders - - -9.0 -7.4
Dividends paid to non-controlling interest -0.1 - -2.9 -
Net funding -0.8 -0.4 6.7 6.0
Purchase of own shares -0.1 -0.2 -0.1 -1.1
Net cash generated from financing activities -1.0 -0.7 -5.2 -2.5
Adjustments 1.1 0.1 0.4 -0.5
Change in cash and cash equivalents -2.9 -4.4 0.8 -3.2
Cash & cash equivalents at the beginning of the period 31.5 31.6 27.9 29.0
Foreign exchange rate effect 0.3 0.7 0.2 2.2
Cash and cash equivalents at the end of the period 28.9 27.9 28.9 27.9

* 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
MEUR Share
capital
Share
pre-
mium
fund
Fair
value
re-
serve
Cumul.
trans-
lation
diffe-
rences
Fund for
invested
non-rest-
ricted
equity
Own
sha-
res
Re-
tained
earn-
ings
Non-
contr-
olling
inte-
rests
Total
equity
Equity on Jan 1, 2010 3.6 16.7 -0.3 -12.3 4.9 -1.4 96.3 4.2 111.7
Comprehensive income* - - -1.2 6.3 - - 18.0 3.2 26.3
Purchase of own shares - - - - - -1.1 - - -1.1
Dividends paid - - - - - - -7.4 - -7.4
Share based payment - - - - - - -0.1 - -0.1
Equity on Dec 31, 2010 3.6 16.7 -1.5 -6.0 4.9 -2.5 106.7 7.4 129.2
Equity on Jan 1, 2011 3.6 16.7 -1.5 -6.0 4.9 -2.5 106.7 7.4 129.2
Comprehensive income* - - -0.1 1.9 - - 14.0 2.9 18.7
Purchase of own shares - - - - - -0.1 - - -0.1
Dividends paid - - - - - - -9.0 -3.2 -12.1
Other changes - - - - - - - 0.0 0.0
Equity on Dec 31, 2011 3.6 16.7 -1.6 -4.1 4.9 -2.6 111.8 7.2 135.8

* For the period (net of tax)

SEGMENT INFORMATION*

MEUR
Net Sales by Operating Segment
IV
    2011
IV
    2010
I-IV
    2011
I-IV
    2010
Group Fishing Products 33.0 29.4 152.3 139.5
Other Group Products 7.3 10.4 22.8 25.2
Third Party Products 20.6 21.0 105.0 105.6
Intra-Group (Other Group Products) -0.2 -0.3 -0.7 -0.9
Total 60.8 60.4 279.5 269.4
Operating Profit by Operating Segment
Group Fishing Products 1.8 4.0 19.9 21.4
Other Group Products 1.8 0.3 2.5 2.0
Third Party Products -0.1 -0.2 8.4 7.8
Total 3.5 4.2 30.7 31.3

Assets by Operating Segment     Dec 31
2011
    Dec 31
2010
Group Fishing Products 195.5 190.5
Other Group Products 12.2 12.7
Third Party Products 68.8 71.1
Intra-Group (Other Group Products) 0.0 -
Non-interest-bearing assets total 276.5 274.3
Unallocated interest-bearing assets 38.1 29.7
Total assets 314.5 304.0
Liabilities by Operating Segment
Group Fishing Products 32.5 35.1
Other Group Products 2.5 2.9
Third Party Products 14.5 15.1
Intra-Group (Group Fishing Products) 0.0 -
Non-interest-bearing liabilities total 49.5 53.1
Unallocated interest-bearing liabilities 129.3 121.7
Total liabilities 178.8 174.8

Net Sales by Area** IV
    2011
IV
    2010
I-IV
    2011
I-IV
    2010
North America 18.7 16.7 69.2 68.5
Nordic 21.7 24.9 111.9 110.4
Rest of Europe 19.2 19.2 117.8 104.6
Rest of the world 15.3 14.8 70.8 69.6
Intra-Group -14.1 -15.3 -90.2 -83.8
Total 60.8 60.4 279.5 269.4


* The operating segments include the following product lines: Group Fishing Products include Group Lures, Fishing Hooks, Fishing Lines and Fishing Accessories, Other Group Products include Group manufactured and/or branded gift products and products for winter sports and some other businesses and Third Party Products include non-Group branded fishing products and third party products for hunting, outdoor and winter sports.

**Geographical sales information has been prepared on source basis i.e. based on the location of the business unit. Each area shows the sales generated in that area excluding intra-Group transaction within that area, which have been eliminated. Intra-Group line includes the eliminations of intra-Group transactions between geographical areas.

KEY FIGURES BY QUARTERS
MEUR
I
 2010
II
 2010
III
 2010
IV
 2010
I-IV
 2010
I
 2011
II
 2011
III
 2011
IV
2011
I-IV
2011
Net sales 70.8 77.6 60.6 60.4 269.4 74.7 80.9 63.0 60.8 279.5
EBITDA 13.1 14.1 4.5 5.7 37.4 13.7 14.4 4.1 5.5 37.7
Operating profit 11.7 12.5 2.9 4.2 31.3 12.1 12.8 2.3 3.5 30.7
Profit before taxes 12.1 12.1 1.7 3.5 29.5 11.1 11.3 0.3 2.5 25.2
Net profit for the period 9.1 8.4 1.4 1.8 20.7 7.9 8.0 0.2 1.1 17.2

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

GlobeNewswire

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