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2020-07-16

RAPALA VMC CORPORATION’S HALF YEAR REPORT H1/2020: NET SALES AND PROFITABILITY DECREASED FOLLOWING THE COVID-19 PANDEMIC; SUCCESSFUL MITIGATION RESULTED IN IMPROVED OPERATING CASH FLOW AND SIGNIFICANT REDUCTION IN INVENTORIES AND NET DEBT

Rapala VMC Corporation
Half Year Financial Report
July 16, 2020 at 5:00 p.m.

RAPALA VMC CORPORATION’S HALF YEAR REPORT H1/2020: NET SALES AND PROFITABILITY DECREASED FOLLOWING THE COVID-19 PANDEMIC; SUCCESSFUL MITIGATION RESULTED IN IMPROVED OPERATING CASH FLOW AND SIGNIFICANT REDUCTION IN INVENTORIES AND NET DEBT

January-June (H1) in brief:

  • Net sales were 117.1 MEUR, down 17% from previous year (141.2). With comparable exchange rates sales were 17% down from previous year.
  • Operating profit was -0.8 MEUR (11.4).
  • Comparable operating profit* was 4.2 MEUR (12.0).
  • Earnings per share was -0.12 EUR (0.17).
  • Cash flow from operations was 13.4 MEUR (11.5).
  • Inventories were 83.5 MEUR (108.6), down 23%.
  • Net interest-bearing debt was 63.5 MEUR (104.1)
  • Short-term outlook: End-consumer demand is currently on a good level in main markets, but it is still impossible to issue a financial guidance for 2020 due to lack of visibility and significant uncertainties related to the COVID-19 pandemic.

* 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.

President and CEO Nicolas Warchalowski: “The first half of 2020 was truly exceptional as COVID-19 pandemic had a profound impact on the Group. Consequently, net sales decreased by 17% from previous year to 117.1 MEUR. Largest topline reductions came from North America and the Nordic region. In North America our distribution centres were closed for more than one month due to governmental lockdown measures. Furthermore, mild winter weathers impacted strongly winter sports business and exit from certain Third Party distribution agreements decreased sales in the Nordic region.

Fishing as a recreational sport has gained popularity during the pandemic and fishing participation has increased in many countries during the current summer fishing season. After a significant initial negative impact on our sales, we witnessed increased demand from end-May onwards and recorded strong double-digit growth in sales for the month of June. Furthermore, our investments in direct e-commerce business are yielding results. European e-commerce sales for the first six months doubled from prior year and in the USA, we recorded double digit growth despite the temporary warehouse closure.

We reacted quickly to the pandemic in March and implemented a strong COVID-19 mitigation plan, where our highest priorities were safeguarding the health and safety of our team members worldwide and protecting the financial position of the Group. We implemented a rapid and forceful ramp-down with fast reduction in operating expenses, cut in purchases and implementation of watchtowers to monitor cash flow and account receivables. We successfully executed the ramp-down plan and consequently our net debt reduced from 2019 year-end by 11.1 MEUR to 63.5 MEUR. Following central purchase quota allocation and new strict sales and operations planning routines, inventory decreased by 25.1 MEUR from June 2019 to 83.5 MEUR, which is the lowest inventory value recorded in more than 10 years. Furthermore, cash flow from operations increased from previous year and was 13.4 MEUR.

Execution of our strategy and the restructuring program initiated in October 2019 has progressed fully as planned and partly accelerated during the first half of the year. The objectives of the restructuring program are to increase efficiencies of operations, increase internal synergies and consequently decrease operating expenses and reduce net working capital. Leadership of European businesses has been centralized and warehouses will be consolidated to fewer locations, which will increase synergies and enable higher focus on sales growth. Another significant part of cost savings relates to Asian lure manufacturing operations, which will be gradually ramped down in the next six months. Overall, we are very confident in our strategy and its execution in order to make our product range even more innovative to win long term with the consumers of tomorrow.”

Key figures

  H1 H1 Change FY
MEUR 2020 2019   % 2019
Net sales 117.1 141.2 -17% 275.4
Operating profit -0.8 11.4 -107% 13.4
% of net sales -0.7% 8.1%   4.9%
Comparable operating profit * 4.2 12.0 -65% 17.8
% of net sales 3.6% 8.5%   6.5%
Cash flow from operations 13.4 11.5 +17% 25.9
Gearing % 43.7% 81.1%   49.2%
EPS, EUR -0.12 0.17 -171% 0.10


* 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

During the first half of the year, trading conditions were significantly impacted by the COVID-19 pandemic. The pandemic started to deteriorate trading conditions in Asia to some extent in February and during the spring Europe and North America were significantly impacted. Furthermore, unexceptionally mild winter weathers in Nordics and North America impacted negatively winter sports and ice fishing businesses. The Group’s sales began to recover during the end of May and in June sales were already ahead of previous year in most of the Group’s main markets.

Business Review January–June 2020

The Group’s net sales...

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