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RAPALA VMC CORPORATION'S JANUARY TO SEPTEMBER 2013: SALES GROWTH CONTINUED. NET RESULT NEGATIVELY IMPACTED BY FOREIGN EXCHANGE RATES.


October 22, 2013 - London

Rapala VMC Corporation
Stock Exchange Release
October 22, 2013 at 8:30 a.m.

  • Net sales for the third quarter increased from last year by 2% to 66.6 (65.6 MEUR) and the nine-month net sales were slightly above last year's level at 223.3 MEUR (222.8 MEUR), reaching all time record sales for the quarter and the nine months. Sales were heavily burdened by foreign exchange rates. With comparable foreign exchange rates net sales increased by 9% in the third quarter and 3% during the nine months.  

  • Comparable operating profit, excluding non-recurring items and mark-to-market valuation of operative currency derivatives, declined from last year to 3.2 MEUR (3.9 MEUR) for the third quarter and to 24.4 MEUR (26.1 MEUR) for the nine-month period. Comparable operating profit margin was 4.8% (6.0%) for the quarter and 10.9% (11.7%) for the nine months.  

  • Net profit was down to -1.2 MEUR (1.3 MEUR) for the quarter and 13.2 MEUR (16.0 MEUR) for the nine months, impacted by foreign exchange movements on financial items. Earnings per share was down to -0.06 EUR (0.00 EUR) for the third quarter and was 0.25 EUR (0.31 EUR) for the nine-month period.  

  • Cash flow from operations was down from last year's at 6.7 MEUR (7.1 MEUR) for the quarter and at 14.8 MEUR (19.2 MEUR) for the nine months. Net interest bearing debt was at last year's level. Gearing was 67.7% (65.4%) and equity-to-assets ratio 43.9% (42.8%). 

  • Installation work for tripling the size of lure manufacturing operations in Batam is proceeding. The Group is currently evaluating all possibilities to speed-up the transfer of lure production from China to Batam, originally planned to be carried out gradually during next 6-9 months.  

  • Guidance remains unchanged. The Group's sales are expected to increase from last year and comparable operating profit, excluding non-recurring items and mark-to-market valuations of operative currency derivatives, to be 30 MEUR plus or minus 10%. 

The attachment presents the interim review by the Board of Directors as well as the accounts.

Contact information and conference call details are at the end of the review by the Board of Directors.

Distribution: NASDAQ OMX Helsinki ja Main Media

Market Situation and Sales

During the third quarter and the nine months Rapala Group's sales continued to develop in line with expectations again breaking sales records despite heavy negative impact from foreign exchange rates. Quarterly sales growth was driven by good performance especially in North America, Russia, France, South America and some Asian counties. Third quarter sales were supported positively by new ice fishing pre-sales program in North America. Nine months sales were positively impacted by good new product introductions, while late spring and floods in Central Europe as well as delays in shipments from suppliers impacted sales negatively. Fluctuations in foreign exchange rates and continuing economical uncertainties are increasingly starting to impact consumer behavior and trading environment in several countries, putting some retailers' financial position in constraint and thereby limiting the future visibility.

Net sales for the third quarter increased from last year by 2% to 66.6 (65.6 MEUR) and the nine month net sales were slightly above last year's level at 223.3 MEUR (222.8 MEUR). Changes in foreign exchange rates decreased quarterly sales significantly by 4.6 MEUR and nine months sales by 7.2 MEUR. With comparable foreign exchange rates net sales increased 9% in the third quarter and 3% during the nine months.

Net sales of Group Products increased by 2% from last year to 38.2 MEUR (37.5 MEUR) for the third quarter and 2% to 134.7 MEUR (132.2 MEUR) for the nine months, following strong ice fishing pre-sales and improved sales of lures and hooks. Sales of Third Party Products were up 1% to 28.5 MEUR (28.1 MEUR) for the quarter and down 2% to 88.7 MEUR (90.6 MEUR) for the nine months. Quarterly sales were supported by third party ice fishing products. Sales of both operating segments suffered from changes in foreign exchange rates and late spring.

Net sales in North America were up by 20% for the quarter and by 9% for the nine months. The growth came from strong ice fishing pre-sales and positive development in sales of Rapala lures and VMC hooks. Currencies had negative impact on quarterly and nine months sales compared to last year. With comparable exchange rates North American quarterly sales were up 29% and nine months sales 12%. The US consumer and retail sentiment continued to improve slowly. US retailers continued focusing on other sports categories than fishing and putting more emphasis on promoting their own brands.

In Nordic counties, sales were down by 7% for the quarter and down by 4% for the nine months. Quarterly sales were negatively impacted by slow sales in Sweden, delayed winter sport equipment deliveries from suppliers and foreign exchange rates. With comparable exchange rates quarterly sales were down 4%. Nine months sales were also impacted by delayed start of summer fishing season and delayed deliveries of suppliers for summer fishing.

Third quarter net sales in Rest of Europe decreased by 1% and nine months sales by 2%. Sales continued strong in France and Russia, although in Russia and Eastern Europe sales and consumer sentiment were increasingly stressed by weakening of currencies and economical uncertainties. Nine months sales in Central Europe were impacted by late spring and floods. With comparable exchange rates quarterly sales were up by 4% and nine months sales were at last year's level. Macro-economic situation continued to burden sales in Spain and Hungary and in the UK difficult market conditions and increasing competition was impacting sales negatively. The restructuring of operations in Switzerland continued.  

In Rest of the World sales decreased by 11% for the quarter and by 3% for the nine months burdened by foreign exchange rates, especially weakening of South African Rand, Australian Dollar and Japanese Yen. With comparable exchange rates quarterly sales were up 4% and nine months sales up 7%. Sales were supported by the new distribution company in Chile and good sales in Latin America as well as in some Asian countries. South Africa continues to suffer from macro-economic uncertainties and weakening of the currency.

Financial Results and Profitability

Comparable operating profit, excluding non-recurring items and mark-to-market valuation of operative currency derivatives, declined from last year to 3.2 MEUR (3.9 MEUR) for the third quarter and to 24.4 MEUR (26.1 MEUR) for the nine-month period. Comparable operating profit margin was 4.8% (6.0%) for the quarter and 10.9% (11.7%) for the nine months. Third quarter profitability was supported by strong sales in North America and foreign exchange rate benefit on purchases. However, simultaneously quarterly profitability was burdened by negative gross margin impact of change in product and customer mix, increased fixed costs and costs related to ramping up the operations in Batam. Nine months profitability was stressed by late start of summer fishing season, foreign exchange rates and impact of inventory reduction initiatives, latter impacting especially first quarter profitability.

Key figures III III I-III I-III I-IV
MEUR   2013   2012   2013   2012   2012
Net sales 66.6 65.6 223.3 222.8 290.7
EBITDA as reported 4.5 5.4 29.9 30.7 32.7
Comparable EBITDA* 4.9 5.6 29.5 31.1 33.8
Operating profit (EBIT) 2.6 3.7 24.6 25.7 25.9
Comparable EBIT* 3.2 3.9 24.4 26.1 27.1
* Excluding non-recurring items and mark-to-market valuations of operative currency derivatives.

Reported operating profit was 2.6 MEUR (3.7 MEUR) for the quarter and 24.6 MEUR (25.7 MEUR) for the nine months. Reported operating margin was 3.9% (5.6%) and 11.0% (11.5%) respectively. Reported operating profit included net loss of non-recurring items of 0.2 MEUR (0.3 MEUR) for the quarter and 0.4 MEUR (0.3 MEUR) for the nine months consisting mainly of restructuring costs in Switzerland. Reported operating profit included mark-to-market valuation of operative currency derivatives of 0.4 MEUR loss (0.1 MEUR gain) for the quarter and 0.6 MEUR gain (0.1 MEUR loss) for the nine months.

Operating profit for Group Products stayed in last year's level in the third quarter amounting to 2.1 MEUR (2.1 MEUR) and increased from last year to 17.4 MEUR (16.8 MEUR) in the nine-month period supported by increased sales, while negatively affected by setting up the second phase of lure production in Batam. Operating profit for Third Party Products decreased to 0.5 MEUR (1.5 MEUR) in the third quarter and 7.2 MEUR (8.8 MEUR) in the nine months burdened by change in product mix. Nine months profitability of both operating segments suffered from late spring and inventory clearances.

Total financial (net) expenses were above last year's level at 3.0 MEUR (1.7 MEUR) for the quarter and 5.2 MEUR (2.9 MEUR) for the nine months. Net interest and other financing expenses were 1.0 MEUR (1.3 MEUR) for the quarter and 2.8 MEUR (3.1 MEUR) for the nine months. A significant negative impact in financial items resulted from the (net) foreign exchange expenses of 1.9 MEUR (0.5 MEUR) for the quarter and 2.3 MEUR (0.2 MEUR gain) for the nine-month period. These were in particular caused by sharp weakening of the Indonesian Rupiah, which on the other hand will have positive impact on the labor costs of the new Batam manufacturing units.

Due to lower operating profit and increased financial foreign exchange expenses and income taxes net profit for the quarter decreased to -1.2 MEUR (1.3 MEUR) and 13.2 MEUR (16.0 MEUR) for the nine months. Earnings per share for the third quarter turned negative amounting to -0.06 EUR (0.00 EUR) and was 0.25 EUR (0.31 EUR) for the nine-month period.

Cash Flow and Financial Position

Cash flow from operations was down from last year's at 6.7 MEUR (7.1 MEUR) for the quarter and at 14.8 MEUR (19.2 MEUR) for the nine months. Third quarter cash flow was impacted by lower profitability and working capital required by earlier start of the ice fishing business. Simultaneously, third quarter cash flow benefitted from timing of cash flows between second and third quarter impacted by late start of summer fishing season.

The Group's inventory levels continued to develop positively. Inventories decreased by 7.8 MEUR from September 2012 to 112.8 MEUR (120.6 MEUR), even if the ice fishing business was tying more inventories in the third quarter than last year. On comparable basis, taking into account decreasing impact of foreign exchange rate movements and increasing impacts of the additional ice fishing inventory in USA and new business units, inventories reduced net of 6.3 MEUR from September 2012.

Net cash used in investing activities was 3.0 MEUR (1.6 MEUR) for the third quarter and 7.4 MEUR (12.3 MEUR) for the nine-month period. Operative capital expenditure was 3.0 MEUR (1.3 MEUR) for the quarter and 6.9 MEUR (5.5 MEUR) for the nine months due to expanding lure manufacturing operations in Batam and setting up new ice drill manufacturing unit in Finland. 2012 nine months investing activities include acquisition of the assets of Strike Master Corporation and Mora Ice brand with total of 6.4 MEUR and proceeds from the sale of a real estate in Finland of 0.3 MEUR.

The liquidity position of the Group was good. Following the increased focus on cash management, cash and cash equivalents reduced to 24.2 MEUR (32.0 MEUR) and undrawn committed long-term credit facilities amounted to 75.0 MEUR at the end of the period. Net interest-bearing debt was at last year's levels at 93.1 MEUR (93.0 MEUR) in the end of September. Gearing was slightly higher at 67.7% (65.4%) and equity-to-assets ratio improved to 43.9% (42.8%).

Strategy Implementation

Execution of Rapala Group's strategy of profitable growth is based on three cornerstones: brands, manufacturing and distribution, supported by strong corporate culture. In 2013 strategy implementation will continue in various areas.

To strengthen its position in global ice drill business, the Group made a decision to establish own ice drill manufacturing operations in Korpilahti, Finland. Preparations to start the operations are proceeding according to plans. Installation of equipment and machinery begins in October, with a target to gradually start the manufacturing by the end of the year.

The first phase of setting up lure production in Batam was technically finalized during second quarter and bulk of the products planned to be transferred from China at the first phase have been transferred. The second phase of the project for tripling the size of lure manufacturing operations in Batam is proceeding. Additional machinery is being installed, new personnel is being trained and production of some new product categories has already started. Streamlining the production process and supply chain as well as rationalization of the product range is continuing. Lure production was originally planned to be gradually transferred from China during next 6-9 months, but in order to minimize the negative impacts of running two parallel manufacturing operations, the Group is currently evaluating all possibilities to speed-up the transfer.

The establishment of new VMC hook manufacturing unit in Batam was finalized during the first quarter and the production volumes are increasing. The unit is offering flexible production at good quality level and new products are being added to the production range.

During first quarter the Group increased its ownership in Peltonen cross country ski factory to 100%. Previously Group's ownership was 90%. The restructuring of Group's distribution company in Switzerland is proceeding.

Working capital and cash flow management was still one of the top priorities of the Group, and the Group continues to work to reduce the inventory levels. A new initiative has been launched to co-ordinate the purchasing and supply chain of certain third party products sourced from Asia and North America. Group's key personnel is subject to a share based incentive plan, connected to Group's inventory levels in the year-end.

Production and shipments of new products for summer season 2014 started during third quarter, including the Rapala Scatter Rap lure family, which was successfully launched this summer in USA and now expanded to other markets. Development of new products for future seasons is proceeding well.

Discussions and negotiations regarding acquisitions and business combinations continued during third quarter of 2013.

Short-term Outlook

In general the Group's sales in the first nine months have developed well, without any major problems. Changes in foreign exchange rates have and will impact the Group's sales and profitability negatively this year and this together with continuing economic turbulence causes increasing uncertainties in several markets, which reduces the short-term visibility.

The Group's sales of ice fishing products for coming season has started positively and earlier than last year and the order book is still strong. The Group's fourth quarter and full year sales will be dependent on success of sales of this product category, which is also influenced by external factors such as the weather and timing of year-end shipments.

Expanding the lure manufacturing operations in Batam and setting up new ice drill manufacturing unit in Finland will generate some additional expenditure, while profitability of few other underperforming units is expected to improve from last year.

The guidance for 2013 remains unchanged. The Group's sales are expected to increase from last year and comparable operating profit, excluding non-recurring items and mark-to-market valuations of operative currency derivatives, to be 30 MEUR plus or minus 10%.

Short term risks and uncertainties are described in more detail in the end of this release.

Fourth quarter interim report and annual accounts 2013 will be published on February 6, 2014.

Helsinki, October 22, 2013

Board of Directors of Rapala VMC Corporation

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

A conference call on the quarter result will be arranged today at 2:00 p.m. Finnish time (1:00 p.m. CET). Please dial +44 (0)20 3147 4971 or +1 212 444 0889 or +358 (0)9 2310 1667 (pin code: 677172#) 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: 677172#). Financial information and teleconference replay facility are available at www.rapalavmc.com.

INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

STATEMENT OF INCOME III III I-III I-III I-IV
MEUR   2013   2012   2013   2012   2012
Net sales 66.6 65.6 223.3 222.8 290.7
Other operating income 0.1 0.2 0.4 0.7 1.3
Materials and services 33.1 32.3 104.3 104.9 140.7
Personnel expenses 15.6 15.1 48.5 46.8 62.6
Other costs and expenses 13.4 13.0 40.7 41.0 55.8
Share of results in associates and joint ventures -0.1 0.0 -0.2 -0.1 -0.3
EBITDA 4.5 5.4 29.9 30.7 32.7
Depreciation, amortization and impairments 1.9 1.7 5.3 5.1 6.8
Operating profit (EBIT) 2.6 3.7 24.6 25.7 25.9
Financial income and expenses 3.0 1.7 5.2 2.9 4.9
Profit before taxes -0.4 1.9 19.4 22.8 21.0
Income taxes 0.8 0.6 6.3 6.7 7.1
Net profit for the period -1.2 1.3 13.2 16.0 14.0
Attributable to:
Equity holders of the company -2.4 0.0 9.5 12.2 10.1
Non-controlling interests 1.1 1.3 3.6 3.8 3.8
Earnings per share for profit attributable
to the equity holders of the company:
Earnings per share, EUR (diluted = non-diluted) -0.06 0.00 0.25 0.31 0.26

STATEMENT OF COMPREHENSIVE INCOME III III I-III I-III I-IV
MEUR 2013 2012 2013 2012   2012
Net profit for the period -1.2 1.3 13.2 16.0 14.0
Other comprehensive income, net of tax
Change in translation differences* -1.7 -0.5 -4.6 1.6 -0.3
Gains and losses on cash flow hedges* 0.1 -0.1 0.8 -0.7 -0.6
Gains and losses on hedges of net investments* 0.0 0.2 -0.1 0.1 0.2
Actuarial gains (losses) on defined benefit plan - - - - -0.3
Total other comprehensive income, net of tax -1.6 -0.4 -3.9 1.0 -1.0
Total comprehensive income for the period -2.8 0.9 9.3 17.0 12.9
Total comprehensive income attributable to:
Equity holders of the Company -3.8 -0.5 6.3 13.2 9.2
Non-controlling interests 0.9 1.4 2.9 3.8 3.7
* Item that may be reclassified subsequently to the statement of income

STATEMENT OF FINANCIAL POSITION Sept 30 Sept 30 Dec 31
MEUR 2013 2012 2012
ASSETS
Non-current assets
Intangible assets 70.6 73.2 72.6
Property, plant and equipment 30.1 28.9 29.3
Non-current assets
Interest-bearing 3.4 7.1 3.7
Non-interest-bearing 10.3 11.8 11.4
114.4 121.0 117.1
Current assets
Inventories 112.8 120.6 110.6
Current assets
Interest-bearing 1.1 1.1 2.5
Non-interest-bearing 60.9 57.4 58.5
Cash and cash equivalents 24.4 32.0 38.2
199.2 211.1 209.7
Assets classified as held-for-sale - 0.3 -
Total assets 313.6 332.4 326.8
EQUITY AND LIABILITIES
Equity
Equity attributable to the equity holders of the company 125.3 132.8 128.3
Non-controlling interests 12.3 9.4 9.4
137.6 142.2 137.7
Non-current liabilities
Interest-bearing 52.6 76.7 78.7
Non-interest-bearing 13.8 17.5 15.6
66.4 94.3 94.3
Current liabilities
Interest-bearing 69.4 56.5 55.5
Non-interest-bearing 40.1 39.5 39.3
109.6 95.9 94.8
Total equity and liabilities 313.6 332.4 326.8

III III I-III I-III I-IV
KEY FIGURES   2013   2012   2013   2012   2012
EBITDA margin, % 6.8% 8.2% 13.4% 13.8% 11.2%
Operating profit margin, % 3.9% 5.6% 11.0% 11.5% 8.9%
Return on capital employed, % 4.4% 6.2% 14.3% 14.8% 11.4%
Capital employed at end of period, MEUR 230.8 235.2 230.8 235.2 227.5
Net interest-bearing debt at end of period, MEUR 93.1 93.0 93.1 93.0 89.9
Equity-to-assets ratio at end of period, % 43.9% 42.8% 43.9% 42.8% 42.2%
Debt-to-equity ratio at end of period, % 67.7% 65.4% 67.7% 65.4% 65.3%
Earnings per share, EUR (diluted = non-diluted) -0.06 0.00 0.25 0.31 0.26
Equity per share at end of period, EUR 3.25 3.42 3.25 3.42 3.31
Average personnel for the period 2 291 2 070 2 347 2 081 2 127
Definitions of key figures are consistent with those in the financial statement 2012.

STATEMENT OF CASH FLOWS III III I-III I-III I-IV
MEUR   2013   2012   2013   2012   2012
Net profit for the period -1.2 1.3 13.2 16.0 14.0
Adjustments to net profit for the period * 7.0 4.6 17.9 15.4 20.6
Financial items and taxes paid and received -4.2 -4.2 -8.3 -10.6 -13.6
Change in working capital 5.1 5.3 -8.0 -1.5 4.2
Net cash generated from operating activities 6.7 7.1 14.8 19.2 25.2
Investments -3.0 -1.3 -6.9 -5.5 -7.7
Proceeds from sales of assets 0.0 0.1 0.2 0.7 0.8
Sufix brand acquisition - - -0.7 -0.8 -0.8
Strikemaster and Mora Ice acquisitions - -0.3 - -6.7 -6.7
Acquisition of other subsidiaries, net of cash - 0.0 0.0 0.0 0.0
Proceeds from disposal of subsidiaries, net of cash - - - - 0.8
Change in interest-bearing receivables 0.0 0.0 0.0 0.0 0.0
Net cash used in investing activities -3.0 -1.6 -7.4 -12.3 -13.6
Dividends paid to parent company's shareholders - - -8.9 -8.9 -8.9
Dividends paid to non-controlling interest - - - -1.5 -1.6
Net funding -7.0 -17.8 -11.5 7.1 9.1
Purchase of own shares -0.3 -0.2 -0.8 -0.3 -0.7
Net cash generated from financing activities -7.3 -18.0 -21.2 -3.6 -2.2
Adjustments 0.3 -0.2 1.4 0.0 0.2
Change in cash and cash equivalents -3.3 -12.7 -12.6 3.4 9.6
Cash & cash equivalents at the beginning of the period 28.1 45.0 38.2 28.9 28.9
Foreign exchange rate effect -0.4 -0.3 -1.2 -0.3 -0.4
Cash and cash equivalents at the end of the period 24.4 32.0 24.4 32.0 38.2
* Includes reversal of non-cash items, income taxes and financial income and expenses.

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

Attributable to equity holders of the company
Cumul. Fund for Non-
Share Fair trans- invested Re- contr-
pre- value lation non-rest- Own tained olling
Share mium re- diffe- ricted sha- earn- inte- Total
MEUR capital fund serve rences equity res ings rests equity
Equity on Jan 1, 2012 3.6 16.7 -1.6 -4.1 4.9 -2.6 111.8 7.2 135.8
Impact of new standards - - - - - - -0.1 - -0.1
Restated balance 3.6 16.7 -1.6 -4.1 4.9 -2.6 111.7 7.2 135.7
Comprehensive income * - - -0.7 1.7 - - 12.2 3.8 17.0
Purchase of own shares - - - - - -0.3 - - -0.3
Dividends - - - - - - -8.9 -1.5 -10.4
Share based payment - - - - - - 0.1 - 0.1
Other changes - - - - - - - 0.0 0.0
Equity on Sep 30, 2012 3.6 16.7 <

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