INTERIM REPORT FOR JANUARY TO SEPTEMBER 2009
(Thomson Reuters ONE) - Rapala VMC CorporationStock Exchange ReleaseOctober 23, 2009 at 9.30 a.m.Major cash flow improvement as a result of strong execution ofworking capital management- Net sales for the third quarter were 50.2 MEUR (III/08: 52.7 MEUR).Net sales for the first nine months decreased to 183.1 MEUR(I-III/08:192.1 MEUR).- Operating profit for July to September, excluding non-recurringitems, was affected by the decrease in sales and especially negativecurrency movements in Scandinavia and East Europe and totaled 2.0MEUR (3.6 MEUR). Comparable operating profit for the nine-monthperiod was 22.4 MEUR (27.4 MEUR). Reported operating profit was 1.9MEUR (3.6 MEUR) for the quarter and 21.4 MEUR (28.1 MEUR) for thefirst nine months of the year.- Net profit for the third quarter was 1.5 MEUR (2.0 MEUR) and 15.1MEUR (18.2 MEUR) for the first nine months of the year. Earnings pershare were 0.02 EUR (0.03 EUR) for July to September and 0.33 EUR(0.40 EUR) for January to September.- The major working capital initiative started last Novemberprogressed and the positive results continued to increase during thethird quarter. Accordingly, the cash flow from operating activitiesfor the third quarter improved clearly to 20.6 MEUR (14.0 MEUR) andwas 18.6 MEUR (3.8 MEUR) for the first nine months. Additionalimprovements are expected to materialize during the fourth quarterand in 2010.- Implementation of the Group's strategy for profitable growthcontinued with set-up of new distribution companies in Romania,Belarus and China as well as performance improvement initiatives inChina and Hungary.- Orders for Group branded lures have increased strongly and theGroup lure manufacturing facilities in Europe and China are currentlyrunning at full capacity.- It is expected that the net sales for 2009 will be somewhat belowthe level of 2008.- Due to the prioritization of cash flow and reduction of inventoryover profitability as well as weakening of several currencies, thecomparable operating margin for 2009 is expected to be in the rangeof 10-12%. Improvement of cash flow remains the top priority in theGroup while strong emphasis on innovation and development of newproducts continues.The attachment presents the interim review by the Board of Directorsas well as the accounts.A conference call on the third quarter result will be arranged todayat 3 p.m. Finnish time (2 p.m. CET). Please dial +44 (0)20 7784 1038or +1 347 366 9564 (pin code: 247330#) five minutes before thebeginning of the event and request to be connected to Rapalateleconference. A replay facility will be available for 14 daysfollowing the teleconference. The number (pin code: 247330#) to dialis +44 (0)20 7111 1244. Financial information and teleconferencereplay facility are available at www.rapala.com.For further information, please contact:Jorma Kasslin, President and Chief Executive Officer, +358 9 7562 540Jouni Grönroos, Chief Financial Officer, +358 9 7562 540Olli Aho, Investor Relations, +358 9 7562 540Distribution: NASDAQ OMX Helsinki and Main MediaMarket Situation and SalesWhile the general market situation has not changed a lot, newpositive signs have been witnessed in several countries. In NorthAmerica and Europe, there are signs of increasing business activity.In North America, orders for especially lures have increased to arecord level. There are positive indications also in the East Europebut their effect on Group net sales is strongly diluted by theweakening of local currencies. Sales in Baltic countries continuedpoor as a result of the credit crisis and bad economic situation. Thegeneral market conditions in Asia continued tight during the thirdquarter but increased business activity was recorded especially inSouth East Asia and Australia.Net sales for July to September, which is seasonally a slow quarter,were below last year levels at 50.2 MEUR (2008: 52.7 MEUR). Net salesfor the first nine months were 183.1 MEUR (192.1 MEUR). For thequarter, US dollar (USD) was close to last year levels butstrengthened for the nine-month period. The net effect of thestrengthening of USD and weakening of many East European currenciesas well as Swedish and Norwegian crowns decreased the net sales forthe third quarter by 2.4 MEUR and 3.6 MEUR for the first nine months.Net sales of Group Fishing Products were up 8% for the third quarterand 7% for the first nine months of the year. Net sales of OtherGroup Products decreased more than half for the quarter and more thanone third for the nine-month period as a result of reduced sales ofgift products and subcontracting services. Net sales of Third PartyProducts decreased 6% for July to September and 12% for January toSeptember mainly because of the weakening of many East European andScandinavian currencies and reduced sales of higher price categoryproducts like fishing electronics and expensive reels while the salesof winter sports equipment was up both for the quarter and thenine-month period.Net sales in North America increased 3% for the third quarter and 12%for the first nine months of the year as a result of increasedbusiness activity and strengthening of the USD. In the Nordiccountries, third quarter net sales decreased 23% as a result ofreduced distribution volumes of especially hunting products anddecrease in factory sales of fishing products to support the workingcapital initiative as well as weakening of Swedish and Norwegiancrowns. Accordingly, the nine-month net sales in Nordics were down10%. Net sales in Rest of Europe were down by 4% for the quarter and13% for the nine-month period mainly due to weakened currencies inEast Europe. Measured in local currencies, the net sales of Rest ofEurope increased in the third quarter. Net sales in Rest of the Worlddecreased 6% in July to September but were still up 5% for January toSeptember mainly as a result of the new sales of Sufix products.Financial Results and ProfitabilityOperating profit for the third quarter, excluding non-recurringitems, was affected by the decrease in sales and especially negativecurrency movements in Scandinavia and East Europe and reached 2.0MEUR (3.6 MEUR). Profitability was also affected by sales campaignsin several countries to reduce inventories as part of the ongoingworking capital project. Comparable operating margin for the thirdquarter was 4.0% (6.8%).Reported operating profit for the third quarter was 1.9 MEUR (3.6MEUR) including non-recurring costs of 0.1 MEUR. Reported three-monthoperating margin was 3.8% (6.8%) and return on capital employed 4.0%(7.7%).Key figures III III I-III I-III I-IVMEUR 2009 2008 2009 2008 2008Net sales 50.2 52.7 183.1 192.1 243.0EBITDA as reported 3.3 5.2 26.4 32.7 37.5EBITDA excl. one-off items 3.4 5.2 26.7 32.0 36.7Operating profit as reported 1.9 3.6 21.4 28.1 31.3Operating profit excl. one-offs 2.0 3.6 22.4 27.4 30.5Comparable operating profit for the first nine months was down as aresult of decrease in sales, stock-clearance sales and negativecurrency movements and reached 22.4 MEUR (27.4 MEUR). On the otherhand, fixed costs for the 9-month period were down 5% as a result ofseveral performance improvement initiatives carried out during thelast two years. Operating margin, excluding non-recurring items,decreased to 12.2% (14.3%).Reported operating profit for the first nine months amounted to 21.4MEUR (28.1 MEUR) including 1.0 MEUR of non-recurring costs andwrite-downs. Operating profit for January to September in 2008included 0.7 MEUR (net) non-recurring gains. Reported nine-monthoperating margin was 11.7% (14.6%) and return on capital employed14.7% (20.1%).Operating profit of Group Fishing Products decreased strongly for thethird quarter as a result of weakening of many currencies andstock-clearance sales and was 8% below last year level for the firstnine months. Operating profit of Other Group Products fell close tobreak-even for both for the quarter and for the nine-month period asa result of the major drop in sales of gift products andsubcontracting services. Operating profit of Third Party Productsdecreased 6% for July to September and 37% for January to Septemberdue to negative currency movements and reduced sales.Financial (net) expenses were positive 0.1 MEUR (expense of 1.0 MEUR)for the third quarter. Net interest expenses were down to 0.8 MEUR(1.3 MEUR) and the (net) currency exchange gains booked in financialitems were 0.9 MEUR (0.3 MEUR). For the first nine months financial(net) expenses were 1.0 MEUR (3.4 MEUR), net interest expenses 2.7MEUR (4.1 MEUR) and (net) currency exchange gains 1.7 MEUR (0.8MEUR).Net profit decreased for the third quarter to 1.5 MEUR (2.0 MEUR) andfor the first nine months of the year to 15.1 MEUR (18.2 MEUR).Earnings per share were 0.02 EUR (0.03 EUR) for July to September and0.33 EUR (0.40 EUR) for January to September.Cash Flow and Financial PositionThe major working capital initiative started last November progressedand the positive results continued to increase during the thirdquarter. Accordingly, the cash flow from operating activities for thethird quarter increased clearly to 20.6 MEUR (14.0 MEUR) and was 18.6MEUR (3.8 MEUR) for the first nine months. Additional improvementsare expected to materialize during the fourth quarter and in 2010.As a result of the strong execution of working capital management,inventories decreased 6.8 MEUR in the third quarter and, non-interestbearing assets, mainly trade receivables, decreased 15.5 MEUR. TheGroup's working capital project includes a wide variety of actions,i.e. to develop the Group's internal and external supply chains,change ways of working in production planning and internal ordermanagement and to implement supporting IT systems to facilitate thecurrent and new processes. After a pilot project, the managementdecided in September to implement a global logistics software tosupport the working capital and supply chain management.Cash used in investing activities amounted to 1.3 MEUR (1.6 MEUR) forthe third quarter. In addition to the normal capital expenditure of1.7 MEUR (1.6 MEUR) and 0.0 MEUR (1.4 MEUR) of acquisitions, itincluded 0.4 MEUR (1.6 MEUR) proceeds from sales of assets. Net cashused in investing activities for the nine-month period was 3.7 MEUR(4.9 MEUR), including capital expenditure of 4.3 MEUR (4.8 MEUR),acquisitions of 1.2 MEUR (1.8 MEUR) and 1.7 MEUR (1.6 MEUR) proceedsfrom sales of assets.Net interest-bearing debt was down from last September at 83.3 MEUR(Dec 2008: 89.5 MEUR) as cash was released from working capital. Theliquidity of the Group remained good and even improved during thequarter. Equity-to-assets ratio improved from last September andreached 41.4% (Dec 2008: 38.0%). Also gearing was better than in lastSeptember at 75.2% (Dec 2008: 86.4%).Strategy Implementation - GrowthDuring the third quarter, the management continued discussions andnegotiations regarding acquisitions and business combinations tofurther implement the Group's strategy for profitable growth.Development of organic growth also in terms of extensions of currentproduct categories as well as special marketing, sales and brandinitiatives continued.The process to establish a distribution company in Romania to supportthe sales growth in South East Europe continued and the company wasregistered in October. The new distribution company is fullyoperational by the end of the year.The Group also started the process to establish a distributioncompany in Belarus to support the sales growth in the country. Untilnow, products to Belarus markets have been supplied from varioussurrounding countries.The process to set-up a company in China to distribute Group's giftproducts in this very quickly growing market was initiated in thethird quarter. This distribution company will be fully operational inthe beginning of 2010.Integration of the Sufix business acquired in 2008 progressed on planand will be completed by the end of the year.Strategy Implementation - ProfitabilityStrong emphasis on performance improvement initiatives continued inthe third quarter while the benefits from the ongoing and finalizedinitiatives continued to capitalize.The performance improvement initiative started in the second quarterin Hungary progressed on plan. The aim of the project is to ensurecontinuous leadership in the fast growing South East European marketas well as improved financial performance and reduced workingcapital.The performance improvement initiatives at the Group's manufacturingfacilities in China continued. As a result of streamlining theoperations, increasing subcontracting and cutting the capacity tomore quickly adjust to and, more accurately meet the marketrequirements, the Group has reduced the headcount in Chinaconsiderably. Further development and fine-tuning of the newoperating model in the Chinese manufacturing operations will continueduring the coming months.In Hong Kong, the Group signed the agreement to sell its officepremises as part of the restructuring of operations in China. Theheadquarters of Chinese manufacturing operations will move intosmaller leased premises by the end of the fourth quarter when thesale transaction is expected to be closed. When completed, the Groupwill record a 0.5 MEUR non-recurring gain on the deal.A major supply chain and logistics initiative, started during thesecond quarter, to shorten the lead times, lower the inventories and,further improve the service levels to customers, has been expanded tocover the Group's manufacturing and distribution units globally.Total Group headcount at the end of September was 1 976, down 44%from September 2008. This major reduction results mainly from thechanges in the operating model in the Chinese manufacturing.Short-term OutlookWhile the general market situation has not changed a lot during 2009,new positive signs have recently been witnessed in several countries.In addition to increased business activity, American SportfishingAssociation just announced that the sales of US fishing licenses wereup 8% for the first half of 2009. It is though expected that thegeneral uncertainty in the world economy will still continue duringthe coming months. This will most likely continue to affect theordering behavior of many customers and maintain the need for quickdeliveries and short lead-times.Due to this challenging market situation and the weakening of manycurrencies in countries where the Group operates, it is expected thatthe net sales for 2009 will be somewhat below 2008 level. Due to theprioritization of cash flow and reduction of inventory overprofitability as well as weakening of several currencies, thecomparable operating margin for 2009 is expected to be in the rangeof 10-12%.While the Group continues to implement its strategy for profitablegrowth, reducing working capital and increasing cash flow fromoperating activities continue to be the top priority for the next fewmonths together with the finalization of the ongoing performanceimprovement initiatives. Also strong emphasis on innovation anddevelopment of new products continues.At the end of September 2009, the Group's order backlog was down 1%from last September to 26.8 MEUR (Dec. 2008: 34.5 MEUR). Orders forGroup branded lures have though increased clearly and the Group luremanufacturing facilities in Europe and China are currently running atfull capacity.The fourth quarter interim report and annual accounts 2009 will bepublished on February 4.Helsinki, October 23, 2009Board of Directors of Rapala VMC CorporationINTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)INCOME STATEMENT III III I-III I-III I-IVMEUR 2009 2008 2009 2008 2008Net sales 50.2 52.7 183.1 192.1 243.0Other operating income 0.2 0.5 0.6 2.3 3.1Cost of sales 30.4 31.0 104.0 105.7 135.3Other costs and expenses 16.6 17.0 53.3 56.0 73.2EBITDA 3.3 5.2 26.4 32.7 37.5Depreciation and amortization 1.4 1.6 5.0 4.7 6.2Operating profit 1.9 3.6 21.4 28.1 31.3Finance income and expenses -0.1 1.0 1.0 3.4 4.8Share of results in associates 0.0 0.0 0.0 0.0 0.0Profit before taxes 2.1 2.6 20.3 24.6 26.5Income taxes 0.6 0.6 5.3 6.4 7.3Net profit for the period 1.5 2.0 15.1 18.2 19.2Attributable to:Equity holders of the Company 0.8 1.2 13.0 15.8 17.7Minority interest 0.6 0.7 2.1 2.4 1.6Earnings per share for profitattributableto the equity holders of the Company:Earnings per share, EUR (diluted =non-diluted) 0.02 0.03 0.33 0.40 0.45STATEMENT OF COMPREHENSIVE INCOME III III I-III I-III I-IVMEUR 2009 2008 2009 2008 2008Net profit for the period 1.5 2.0 15.1 18.2 19.2Other comprehensive income, net of tax:Change in translation differences -0.3 3.3 0.0 0.3 -1.2Gains and losses on cash flow hedges -0.6 0.0 -0.2 -0.1 -0.2Gains and losses on hedges of netinvestments 0.0 -1.3 0.1 -1.4 -2.8Fair value gains on available-for-saleinvestments - - - - -0.1Total other comprehensive income, net oftax -0.9 2.0 -0.1 -1.2 -4.3Total comprehensive income for theperiod 0.6 4.0 14.9 17.0 14.9Total comprehensive income attributableto:Equity holders of the Company 0.0 3.3 12.8 14.6 13.4Minority interest 0.6 0.7 2.2 2.4 1.6STATEMENT OF FINANCIAL POSITION Sept 30 Sept 30 Dec 31MEUR 2009 2008 2008ASSETSNon-current assetsIntangible assets 56.8 57.5 57.6Property, plant and equipment 27.0 28.8 28.7Non-current financial assets Interest-bearing 0.4 0.6 0.5 Non-interest-bearing 7.2 7.7 7.7 91.3 94.6 94.6Current assetsInventories 96.3 93.3 98.4Current financial assets Interest-bearing 0.0 0.4 0.4 Non-interest-bearing 43.7 55.2 49.5Cash and cash equivalents 36.3 27.0 30.6 176.3 175.9 178.9Assets classified as held-for-sale 0.3 - -Total assets 267.9 270.5 273.4EQUITY AND LIABILITIESEquityEquity attributable to the equity holders ofthe Company 106.6 103.3 101.7Minority interest 4.1 3.1 1.9 110.7 106.3 103.7Non-current liabilitiesInterest-bearing 43.9 48.8 42.8Non-interest-bearing 9.8 9.8 10.5 53.7 58.7 53.3Current liabilitiesInterest-bearing 76.2 68.1 78.1Non-interest-bearing 27.3 37.4 38.3 103.5 105.5 116.4Total equity and liabilities 267.9 270.5 273.4KEY FIGURES III III I-III I-III I-IV 2009 2008 2009 2008 2008EBITDA margin, % 6.6% 9.8% 14.4% 17.0% 15.5%Operating profit margin, % 3.8% 6.8% 11.7% 14.6% 12.9%Return on capital employed, % 4.0% 7.7% 14.7% 20.1% 16.9%Capital employed at end of period, MEUR 194.0 195.3 194.0 195.3 193.2Net interest-bearing debt at end ofperiod, MEUR 83.3 89.0 83.3 89.0 89.5Equity-to-assets ratio at end ofperiod, % 41.4% 39.4% 41.4% 39.4% 38.0%Debt-to-equity ratio at end of period,% 75.2% 83.7% 75.2% 83.7% 86.4%Earnings per share, EUR 0.02 0.03 0.33 0.40 0.45Fully diluted earnings per share, EUR 0.02 0.03 0.33 0.40 0.45Equity per share at end of period, EUR 2.73 2.62 2.73 2.62 2.59Average personnel for the period 2 356 4 477 2 263 4 374 4 143Definitions of key figures used in the interim report are consistentwith those used in the Annual Report 2008.STATEMENT OF CASH III I-IIIFLOWS III 2008 2009 I-III I-IV MEUR 2009 2008 2008 Net profit for the period 1.5 2.0 15.1 18.2 19.2 Adjustments to net profit for the period * 1.7 1.5 11.8 10.2 13.0 Financial items and taxes paid and received -2.3 -3.0 -5.8 -9.3 -14.0 Change in working capital 19.7 13.5 -2.6 -15.2 -12.7 Net cash generated from operating activities 20.6 14.0 18.6 3.8 5.4 Investments -1.7 -1.6 -4.3 -4.8 -7.1 Proceeds from sales of assets 0.4 1.6 1.7 1.6 2.2 Sufix brand acquisition - -1.4 -1.1 -1.4 -1.5 Acquisition of subsidiaries, net of cash - 0.0 -0.1 -0.4 -0.5 Change in interest-bearing receivables 0.1 -0.1 0.0 0.0 0.0 Net cash used in investing activities -1.3 -1.6 -3.7 -4.9 -6.8 Dividends paid 0.0 - -7.5 -6.9 -6.9 Net funding -22.8 -10.5 -0.8 7.8 11.9 Purchase of own shares -0.4 -0.3 -0.5 -0.5 -0.9 Net cash generated from financing activities -23.2 -10.7 -8.7 0.3 4.1 Adjustments -0.5 0.9 -0.6 0.3 0.9 Change in cash and cash equivalents -4.4 2.6 5.6 -0.4 3.6 Cash & cash equivalents at the beginning of the period 40.6 23.8 30.6 27.3 27.3 Foreign exchange rate effect 0.1 0.6 0.1 0.1 -0.4 Cash and cash equivalents at the end of the period 36.3 27.0 36.3 27.0 30.6* Includes reversal of non-cash items, income taxes and financialincome and expenses.STATEMENT OF CHANGES IN EQUITY Attributable to equity holders of the Company Cumul. Fund for Share Fair trans- invested Re- Mino- pre- value lation non-rest- Own tained rity Share mium re- diffe- ricted sha- earn- inte- Total capital fund serve rences equity res ings rest equityEquity on Jan1, 2008 3.6 16.7 0.0 -9.8 4.9 - 80.6 0.9 96.9Comprehensiveincome* - - -0.1 -1.1 - - 15.8 2.4 17.0Purchase ofown shares - - - - - -0.5 - - -0.5Dividendspaid - - - - - - -6.9 - -6.9Share basedpayment - - - - - - 0.1 - 0.1Other changes - - - - - - 0.0 -0.2 -0.3Equity onSept 30, 2008 3.6 16.7 -0.1 -10.9 4.9 -0.5 89.6 3.1 106.3Equity on Jan1, 2009 3.6 16.7 -0.3 -13.8 4.9 -0.9 91.5 1.9 103.7ComprehensiveIncome* - - -0.2 0.0 - - 13.0 2.2 14.9Purchase ofown shares - - - - - -0.5 - - -0.5Dividendspaid - - - - - - -7.5 - -7.5Share basedpayment - - - - - - 0.1 - 0.1Equity onSept 30, 2009 3.6 16.7 -0.5 -13.8 4.9 -1.3 97.1 4.1 110.7* For the period (net of tax)SEGMENT INFORMATION* III III I-III I-III I-IVNet Sales by Operating Segment 2009 2008 2009 2008 2008Group Fishing Products 25.2 23.4 100.5 93.8 120.4Other Group Products 2.8 5.8 10.5 16.2 22.7Third Party Products 22.4 23.8 72.5 82.8 100.7Intra-Group -0.1 -0.2 -0.4 -0.6 -0.9Total 50.2 52.7 183.1 192.1 243.0Operating Profit by Operating SegmentGroup Fishing Products 0.4 1.7 14.3 15.6 19.7Other Group Products 0.1 0.3 0.0 1.2 1.3Third Party Products 1.5 1.6 7.1 11.2 10.4Total 1.9 3.6 21.4 28.1 31.3 Sept 30 Sept 30 Dec. 31Assets by Operating Segment 2009 2008 2008Group Fishing Products 151.6 165.2 167.5Other Group Products 10.8 12.4 9.3Third Party Products 68.9 65.0 65.3Intra-Group -0.1 -0.1 -0.1Non-interest bearing assets total 231.2 242.5 242.0Unallocated interest-bearing assets 36.8 28.0 31.4Total assets 267.9 270.5 273.4Liabilities by Operating SegmentGroup Fishing Products 24.4 33.7 30.1Other Group Products 3.6 1.8 2.6Third Party Products 9.2 11.9 16.1Intra-Group -0.1 -0.1 -0.1Non-interest bearing liabilities total 37.1 47.2 48.8Unallocated interest-bearing liabilities 120.0 116.9 121.0Total liabilities 157.2 164.1 169.7Net Sales by Area** III III I-III I-III I-IVMEUR 2009 2008 2009 2008 2008North America 10.2 9.9 48.0 42.7 57.5Nordic 16.7 21.6 78.9 87.4 105.9Rest of Europe 20.9 21.7 72.3 83.3 101.3Rest of the world 12.5 13.3 41.5 39.7 54.3Intra-Group -10.0 -13.8 -57.6 -60.9 -76.0Total 50.2 52.7 183.1 192.1 243.0* The new operating segments (IFRS 8) include the following productlines: Group Fishing Products include Group Lures, Fishing Hooks,Fishing Lines and Fishing Accessories, Other Group Products includeGroup manufactured and/or branded products for winter sports and someother businesses and Third Party Products include non-Group brandedfishing products and third party products for hunting, outdoor andwinter sports.**Geographical sales information has been prepared on source basisi.e. based on the location of the business unit. Each area shows thesales generated in that area excluding intra-Group transaction withinthat area, which have been eliminated. Intra-Group line includes theeliminations of intra-Group transactions between geographical areas.KEY FIGURES BY QUARTERS I II III IV I-IV I II IIIMEUR 2008 2008 2008 2008 2008 2009 2009 2009Net sales 65.1 74.2 52.7 50.9 243.0 65.2 67.7 50.2EBITDA 12.2 15.4 5.2 4.8 37.5 11.6 11.5 3.3Operating profit 10.6 13.8 3.6 3.2 31.3 10.0 9.4 1.9Profit before taxes 9.3 12.8 2.6 1.9 26.5 8.5 9.8 2.1Net profit for the period 6.8 9.4 2.0 1.0 19.2 6.2 7.4 1.5NOTES TO THE INCOME STATEMENT AND FINANCIAL POSITIONThe financial statement figures included in this release areunaudited.This report has been prepared in accordance with IAS 34. Accountingprinciples adopted in the preparation of this report are consistentwith those used in the preparation of the Annual Report 2008, exceptfor the adoption of the new or amended standards and interpretations.Adoption of the amended standard IAS 1 affected the presentation ofGroup's consolidated financial statements, especially theconsolidated income statement and the statement of changes in equity.Adoption of IFRS 8 changed the presentation of segment information.Adoption of IAS 23, IAS 32, IFRS 2 and IAS 39/IFRS 7 as well as thenew interpretations, IFRIC 13, IFRIC 15 and IFRIC 16 did not resultin any changes in the accounting principles that would have affectedthe information presented in this interim report.Use of estimates and rounding of figuresComplying with IFRS in preparing financial statements requires themanagement to make estimates and assumptions. Such estimates affectthe reported amounts of assets and liabilities, the disclosure ofcontingent assets and liabilities, and the amounts of revenues andexpenses. Although these estimates are based on the management's bestknowledge of current events and actions, actual results may differfrom these estimates.All figures in these accounts have been rounded. Consequently the sumof individual figures can deviate from the presented sum figure. Keyfigures have been calculated using exact figures.Events after the end of the interim periodThe Group has no knowledge of any significant events after the end ofthe interim period that would have a material impact on the financialstatements for January-September 2009. Material events after the endof the interim period, if any, have been discussed in the interimreview by the Board of Directors.InventoriesAt September 30, 2009, the book value of inventories differed fromits net realizable value by 2.4 MEUR (2.0 MEUR at September 30, 2008and 2.4 MEUR at December 31, 2008).Assets held-for-sale and sale of assetsAs part of the consolidation of French operations, Rapala sold fewwarehouses and office buildings in France in 2008. This resulted in acapital gain of 1.4 MEUR in 2008. Rapala is in the process ofdisposing its old office premises in Hong Kong, which are recognizedas assets held-for-sale in September 2009.Non-recurring income and expenses includedin operating profit III III I-III I-III I-IVMEUR 2009 2008 2009 2008 2008Consolidation of French operations - -0.1 0.0 -0.2 -0.1Closure of Irish lure factory 0.0 - -0.1 0.0 0.0Sale of French warehouse and officebuilding - 0.2 - 1.4 1.4Other restructuring costs -0.2 0.0 -0.3 -0.2 -0.3Other non-recurring items - - - -0.2 -0.2Total included in EBITDA -0.1 0.0 -0.3 0.7 0.8Non-recurring impairment of tangibleassets in China - - -0.7 - -Total included in operating profit -0.1 0.0 -1.0 0.7 0.8Commitments Sept 30 Sept 30 Dec 31MEUR 2009 2008 2008On own behalfBusiness mortgage 16.1 16.1 16.1Guarantees 0.7 0.5 0.3Minimum future lease payments on operatingleases 10.4 9.9 11.3Related partytransactions Rents OtherMEUR Purchases paid expenses Receivables PayablesI-III 2009Associated companyLanimo Oü 0.1 - - 0.0 -Entity withsignificant influenceover the Group* - 0.1 0.0 0.0 -Management - 0.2 0.0 - 0.0I-III 2008Associated companyLanimo Oü 0.1 - - 0.0 -Entity withsignificant influenceover the Group - 0.1 0.0 0.0 -Management - 0.1 0.0 - 0.0I-IV 2008Associated companyLanimo Oü 0.1 - - 0.0 -Entity withsignificant influenceover the Group* - 0.2 0.1 0.0 0.0Management* - 0.2 0.0 0.0 0.0* Lease agreement for the real estate for the consolidated operationsin France and a service fee.Open derivatives Nominal Positive fair Negative fair Net fairMEUR amount values values valuesSept 30, 2009Foreign currencyforwards 1.9 0.0 0.0 0.0Interest rate swaps 138.5 0.0 0.7 -0.7Total 140.4 0.0 0.7 -0.7Sept 30, 2008Foreign currencyforwards 7.9 0.4 - 0.4Interest rate swaps 13.8 0.0 0.2 -0.2Total 21.7 0.4 0.2 0.2Dec 31, 2008Foreign currencyforwards 7.2 0.3 - 0.3Interest rate swaps 14.1 0.0 0.4 -0.4Total 21.3 0.3 0.4 -0.1Group's financial risks and hedging principles are described indetail in the Annual Report 2008.Share-based paymentsThe Group had three separate share-based payment programs in place onSeptember 30, 2009: one stock option program, one synthetic optionprogram settled in cash and one share reward program settled inshares.Share-based payment programs are valued at fair value on the grantdate and recognized as an expense in the income statement during thevesting period with a corresponding adjustment to the equity orliability. Grant date is the date at which the entity and anotherparty agree to a share-based payment arrangement, being when theentity and the counterparty have a shared understanding of the termsand conditions of the arrangement.Options are valued at fair value on the grant date by using theBlack-Scholes option-pricing model. Regarding the option programs inplace, 454 750 share options (2004B) were granted on June 8, 2004,46 250 share options (2004B) on February 14, 2006 and 978 500synthetic options (2006A and 2006B) on December 14, 2006. On March31, 2009, the exercise period for the 2004A stock option programexpired. The 2004B stock option program is exercisable between March31, 2008 and March 31, 2010 at an exercise price of 6.09 EUR, the2006A synthetic option program is exercisable between March 31, 2009and March 31, 2011 at an exercise price of 6.14 EUR and the 2006Bsynthetic option program is exercisable between March 31, 2010 andMarch 31, 2012 at an exercise price of 5.95 EUR. The exercise priceshave been reduced by the amount of dividends distributed after thesubscription period for option rights has ended and before thecommencement of the subscription period. Terms and conditions of theoption programs are described in detail in the Annual Report 2008.In March 2009, Rapala announced that its Board had approved a newshare-based incentive plan (Plan) for the Group's key personnel. Theaim of the Plan is to combine the objectives of the shareholders andthe key personnel in order to increase the value of the Company, tocommit the key personnel to the Company, and to offer them acompetitive reward plan based on holding the Company shares. The Planincludes one earning period, which commenced on January 1, 2009 andwill end on December 31, 2010. The potential reward from the Planwill be based on the Rapala's earnings per share (EPS) in 2010. Thepotential reward from the Plan will be paid as the Company's sharesin 2011. The target group of the Plan consists of 50 key employees.The gross rewards to be paid on the basis of the Plan will correspondto the value of a maximum total of 200 000 Rapala shares.The IFRS accounting effect on operating profit was -0.1 MEUR (0.0MEUR) for the first quarter and -0.2 MEUR (+0.2 MEUR) for the firstnine months. The effect was +0.3 MEUR for the financial year 2008.Shares and share capitalBased on authorization given by the Annual General Meeting in April2007, the Board can decide to issue shares through issuance ofshares, options or special rights entitling to shares in one or moreissues. The number of new shares to be issued including the shares tobe obtained under options or special rights shall be no more than 10000 000 shares. This authorization includes the right for the Boardto resolve on all terms and conditions of the issuance of new shares,options and special rights entitling to shares, including issuance indeviation from the shareholders' preemptive rights. Thisauthorization is in force for a period of 5 years from the resolutionby the Annual General Meeting. The Board is also authorized toresolve to repurchase a maximum of 2 000 000 shares by using funds inthe unrestricted equity. This amount of shares corresponds to lessthan 10% of all shares of the company. The shares will be repurchasedthrough public trading arranged by NASDAQ OMX Helsinki at the marketprice of the acquisition date. The shares will be acquired and paidin pursuance of the rules of NASDAQ OMX Helsinki and applicable rulesregarding the payment period and other terms of the payment. Thisauthorization is effective until the end of the next Annual GeneralMeeting.On September 30, 2009, the share capital fully paid and reported inthe Trade Register was 3.6 MEUR and the total number of shares was 39468 449. The average number of shares in January-September 2009 was39 468 449. On February 6, 2009 the Board decided to continue buyingback own shares in accordance with the authorization granted by theAnnual General Meeting on April 3, 2008. The repurchasing of sharesended on March 30, 2009 when Rapala held 221 936 own shares. Based onthe Board's decision on July 24, 2009 the repurchasing of own sharescontinued until September 18, 2009. On September 30, 2009 Rapala held321 867 of its own shares, representing 0.8% of the total number ofRapala shares and the total voting rights. The average price for therepurchased own shares in January-September 2009 was EUR 4.23.As a result of the share subscriptions with the 2004B stock optionprogram, and if all stock options are fully exercised, the Group'sshare capital may still be increased by a maximum of 38 970 EUR andthe number of shares by a maximum of 433 000 shares. The shares thatcan be subscribed with these stock options correspond to 1.1% of theCompany's shares and voting rights.During the nine months of 2009, 1 556 882 shares (2 860 408) weretraded. The shares traded at a high of 5.16 EUR and a low of 3.50 EURduring the period. The closing share price at the end of the periodwas 4.58 EUR.Short term risks and uncertaintiesThe objective of Rapala's risk management is to support theimplementation of the Group's strategy and execution of businesstargets. The importance of risk management has increased when Rapalahas continued to expand its operations fast. Accordingly, Groupmanagement has continued to develop risk management practices andthis work continues also in 2009. Detailed description of Group'sstrategic, operative and financial risks and risk managementprinciples are included in the Annual Report 2008, seewww.rapala.com.Due to the nature of the fishing tackle business and the geographicalscope of Group's operations, Group's deliveries and sales as well asoperating profit have traditionally been seasonally stronger in thefirst half of the financial year compared to the second half. In 2008even if more than 40% of the net sales were generated during thesecond half of the year, almost 80% of the operating profit was stillgenerated in the first six months. In the first half of 2009,deliveries to customers realized mostly according to plan. A majorsupply chain and logistics initiative was started in the secondquarter to shorten the lead times and further improve the servicelevels to customers.Group's sales are also to some extent affected by the weather. Inseveral areas, last winter season was longer than previously. Thissupported the sales of winter sports equipment but simultaneouslydelayed the beginning of the summer season sales, which led to higherthan anticipated inventory levels in the end of March. During thesecond and third quarter, inventory levels started to decrease mostlyas a result of the major ongoing working capital initiative. Furtherreduction of inventory levels, even at the risk of losing some profitmargin, and improvement of cash flow remains a top priority in theGroup. The Group renegotiated its bank covenants during the secondquarter and as one of the results has now more flexibility to themost critical cash flow covenant especially for the rest of the yearbut partly also going forward.Even if the fishing tackle business has traditionally not beenstrongly influenced by the increased uncertainties and downturns inthe general economic climate, this may influence, at least for ashort while, the sales of fishing tackle when retailers reduce theirinventory levels and face financial challenges. While continuing,these uncertainties may also affect the amount retailers invest inadvertising and promotions, which may affect consumer spending atleast temporarily. Also quick and strong increases in living expensesand uncertainties concerning employment may temporarily affectconsumer spending also in fishing tackle, even though historicallythe underlying consumer demand has proven to be fairly solid.The truly global nature of Group's sales and operations is spreadingthe market risks caused by the current uncertainties in the globaleconomy. Despite some positive signals received during the thirdquarter, the Group is still cautiously monitoring the development inthe various markets in order to avoid hasty conclusions. Especially,the importance of cash collection and credit risk management hasincreased and this may affect sales to some customers.Group's sales and profitability are impacted by the changes inforeign exchange rates, especially US dollar. Group is activelymonitoring the currency position and risks and using e.g. foreigncurrency nominated loans to manage the natural hedging. In order tofix the exchange rate of some of the future USD-nominated purchases,the Group has entered into currency hedging agreements. As the Groupis not applying hedge accounting in accordance to IAS 39, also thechange in fair value of these unrealized currency hedging agreementshave an impact on the Group's operating profit. In some countries andespecially in Eastern Europe, the local currency weakeneddramatically during the second half of last year. This weakening wastaken into account in price setting, which has together with thegeneral economic downturn somewhat negatively impacted the number ofunits sold in these countries. The market price of some commodity rawmaterials have started to increase again and this may put pressure onpricing of some products in the future.The integration of the new Sufix fishing line business to the Group'sdistribution network in 27 countries has progressed well but willstill require special attention of the management.No significant changes are identified in the Group's strategic risksor business environment.http://hugin.info/120091/R/1349572/325261.pdfThis announcement was originally distributed by Hugin. The issuer is solely responsible for the content of this announcement.
Datum: 23.10.2009 - 08:31 Uhr
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