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Rapala's Q1 2006 Report: Sales Growth and Profitability

This report outlines the strong sales and profitability for Rapala in Q1 2006, as well as the implementation of their business strategy and integration of new businesses. The report also provides an outlook for the rest of the year, discussing the company's performance in different geographical segments and their focus on working capital management.

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Rapala's Q1 2006 Report: Sales Growth and Profitability

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  1. Q1 Interim Report 2006 May 4, 2006

  2. Changes in Group Business Organization Q1 2006 In Brief Sales and Profitability Cashflow & Working Capital Strategy Implementation Outlook for 2006 AGENDA

  3. REST OF EUROPE REST OF WORLD MALAYSIA CZECH REPUBLIC PORTUGAL LOCAL IMPORTERS SHIMANO OWN DISTRIBUTION OWN GROUP BRANDS SOFTBAITS STORM OTHER LURES BLUE FOX LUHR JENSEN HARDBAITS RAPALA Supply SPINNERS BLUE FOX WILLTECH HONG KONG CHINA THIRD PARTY SUPPLIERS OWN R&D AND MANUFACTURING OR SOURCING SOURCE PRODUCT 2006 CHANGES IN GROUP BUSINESS ORGANIZATION FINLAND ESTONIA USA SWEDEN POLAND CANADA ITALY DENMARK RUSSIA JAPAN GERMANY NORWAY UKRAINE BRAZIL NETHERLANDS Tortue FRANCE LITHUANIA Distribution BELGIUM SPAIN LATVIA AUSTRALIA SWITZERLAND CHINA HUNGARY THAILAND SOUTH AFRICA Group Brands SOURCING R&D MANUFACTURING AND R&D HOOKS & TERMINAL TACKLE KNIVES CX SKIS KNIVES ACCESSORIES LINE RODS&REELS SHIMANO OTHER FISHING HUNTING OUTDOOR STORM VMC FRANCE WILLTECH CHINA MARTTIINI FINLAND, ESTONIA & CHINA PELTONEN FINLAND FINLAND RAPALA FINLAND IRELAND ESTONIA USA CHINA Slide 3

  4. Q1 2006 IN BRIEF • Q1 2006 was driven by strong sales and good profitability • Group’s strategy implementation andintegration of new businessesprogressed • Outlook for 2006: strong growth continues – net sales up in double digit percentage

  5. NET SALES BY QUARTER • Q1 2006 sales increased 23%from last year. Sales increasedin allgeographical and businesssegments. 6.4 MEUR from businesses acquired during the last 12 month • The fishing tackle market was stable in Western Europe while the market growth continued strong in Eastern Europe and Asia. • North American market was somewhat affected by working capital management initiatives and inventory reductions of few major customers. • In Australia and South-Africa the summer season came to its end with good sales for the first quarter of 2006.

  6. OPERATING PROFIT & EBITDA BY QUARTER • Operating profit for Q1 improved 37% and was 10.0 MEUR (7.3 MEUR). • Operating profit margin was at 15.8% (14.1%) and ROCE 21.7% (19.3%). • Benefit from increased sales volumes, good summer season in Australia & South Africa, good winter season in North Europe and the strengthening of USD. New Asian sales companies started in 2005 all made a positive operating profit in the first quarter of 2006. • Positive developments out-weighted development and integration costs. • All geographical segments increased their operating profit for the first quarter. • Financialexpensesincreased:higherinterestrates,increasednetdebt,fxlosses-0.9(+0.9) • Net profit was 5.7 MEUR (5.1 MEUR) and earning per share was 0.15 EUR (0.14 EUR).

  7. CASHFLOW AND WORKING CAPITAL • Cash flow from operating activities was below last year level while the inventories and especially trade receivables increased seasonally. • Inventories excluding new businesses increased 4.1 MEUR from December. • Capital expenditure, including acquisitions, amounted to 6.2 MEUR (1.5 MEUR). • Net debt increased to 112.7 MEUR (Dec 2005: 95.9 MEUR) • Equity-to-asset ratio decreased slightly to 32.8% (Dec 2005: 33.8%) and gearing increased to 134.0% (Dec 2005: 124.1%) - both improved from the first quarter of 2005. • Group’s management continues focus on working capital management in 2006.

  8. STRATEGY IMPLEMENTATION IN Q1 2006 • Rapala’s strategic objective isprofitable growth, founded on 3 established strenghts: • A unique manufacturing and sourcing platform (China and Europe) • A leading global distribution network in fishing tackle industry • A strong brand portfolio with several leading brands • During the first quarter, the Group closed two acquisitions: • The French fishing line supplierTortue was closed in January. • Annual net sales some 2 MEUR • Tortue is a good addition to the Group’s fishing line portfolio and strengthens the market share especially in France. • The acquisition of the South African fishing tackle distributorTatlow & Pledger was closed in February. • Annual net sales above 6 MEUR, Group ownership 70% • Tatlow & Pledger, now Rapala VMC South-Africa, contributes to the Group’s big game fishing business as one of the world’s key markets in this segment. • It also expanded the Group’s distribution geographically and opened distribution channels for Group products to several African countries.

  9. STRATEGY IMPLEMENTATION IN Q1 2006 • The integration of the acquired businesses has progressed on plan. • Most of the machinery from the Luhr Jensen acquisition has been shipped from USA to China and the production in China will commence during the second half of 2006. • The acquired sales companies (Australia, Hungary, Switzerland) have been integrated to the Group’s distribution network and are now an integral part of it. • The integration of Marttiini-Rapala knives manufacturing has also progressed and the ramp-up of production at the new Chinese knife manufacturing plant is nearing its completion. • The distribution of Peltonen cross country ski’s and some other winter sport equipment had a good start in Norway and Mr. Terje Langli, the former head of Norway’s national ski waxing team, joined Rapala to support the Group’s winter sports distribution. • The start-up process of the new sales companies in Asia has proceeded on plan. • All of them i.e. Malaysia, Thailand and China reported a positive EBITDA in Q1. • The Chinese sales company has opened sales offices already to four locations.

  10. The market outlook for the rest of 2006 looks quite stable. North America has been somewhat affected by working capital management initiatives and inventory reductions of few major customers while the market in Western Europe seems to remain steady and especially strong in East Europe and Asia. Australia and Africa are heading for the winter season, which will seasonally slow down their business for few months. Including the completed acquisitions, it is expected that the Group’s net sales for the financial year 2006 will increase with double digit percentage from 2005. The growth rate is though expected to be less than the one for the first quarter. The profitability of the Group’s ongoing operations continues to be good. Due to acquisitions, development and integration costs, depreciations and interest expenses, will be above 2005 levels. Operating profit is expected to be in absolute terms above last year level but achieving the 2005 operating margin level (operating profit per net sales) will be challenging. The project to reduce working capital, especially inventories, and to improve cash flow from operations will continue. The target is to see an improvement on ongoing operations while the new acquisitions and start-ups will tie additional working capital. The launch of Rapala’s new products for season 2007 will take place during the second quarter. These include the Group’s first products that contain Ultrabite, the pheromone based fish attractant developed by CEFAS governmental laboratories in the UK The second quarter interim report will be published on August 3. OUTLOOK FOR 2006

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