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Rapala VMC Oyj Annual Report 2020
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Annual Report
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FINANCIAL STATEMENTS 2020
RAPALA VMC
CORP.
RAPALA VMC OYJ
FINANCIAL STATEMENTS 2020
RAPALA VMC CORPORATION
FINANCIAL STATEMENTS 2020
Report of the Board of Directors 2
Key Financial Figures 6
Scope of Activity and Profitability 6
Share Related Key Figures 7
Consolidated Financial Statements, IFRS 8
Consolidated Income Statement 8
Consolidated Statement of Comprehensive Income 8
Consolidated Statement of Financial Position 9
Consolidated Statement of Cash Flows 10
Consolidated Statement of Changes in Equity 11
Notes to the Consolidated Financial Statements 12
Definitions of Key Figures 44
Parent Company Financial Statements, FAS 45
Parent Company Income Statement 45
Parent Company Balance Sheet 46
Parent Company Statement of Cash Flows 47
Notes to the Parent Company Financial Statements 48
Risk Management 54
Shares and Shareholders 56
Board of Directors and Management 58
Signatures for the Report of the Board of Directors and Financial Statements 60
Auditor's Report 61
Cover photo: Shutterstock
RAPALA VMC OYJ
FINANCIAL STATEMENTS 2020
REPORT OF THE BOARD OF DIRECTORS
REPORT OF THE BOARD OF DIRECTORS
MARKET ENVIRONMENT
2020 was an exceptional and two-folded year for the Group due to the COVID-19 pandemic. During the first half of the year, trading conditions were significantly weakened by the pandemic and the restrictions that followed. In the ramp-up period starting in June, however, trading conditions recovered quickly and the demand for fishing tackle products, as for many other outdoor products, was particularly high.
KEY FIGURES
| EUR MILLION | 2020 | 2019 | 2018 |
|---|---|---|---|
| Net sales | 261.3 | 275.4 | 262.4 |
| Operating profit before depreciation and impairments (EBITDA) | 26.2 | 26.0 | 22.4 |
| Operating profit | 10.7 | 13.4 | 14.8 |
| as a percentage of net sales, % | 4.1 | 4.9 | 5.6 |
| Comparable operating profit | 21.5 | 17.8 | 16.7 |
| as a percentage of net sales, % | 8.2 | 6.5 | 6.4 |
| Profit before taxes | 6.6 | 9.8 | 12.7 |
| Net profit (loss) for the period | 3.4 | 4.1 | 6.5 |
| Earnings per share | 0.04 | 0.10 | 0.13 |
| Employee benefit expenses | 69.4 | 71.6 | 68.8 |
| Average number of personnel, persons | 2 105 | 2 604 | 2 772 |
| Research and development expenses | 1.1 | 1.7 | 1.6 |
| as a percentage of net sales, % | 0.4 | 0.6 | 0.6 |
| Net cash generated from operating activities | 42.5 | 25.9 | 6.7 |
| Total net cash used in investing activities | 3.8 | 14.6 | 4.7 |
| Net interest-bearing debt at the end of the period | 45.2 | 74.6 | 70.3 |
| Equity-to-assets ratio at the end of the period, % | 52.5 | 52.4 | 53.2 |
| Debt-to-equity ratio (gearing) at the end of the period, % | 31.6 | 49.2 | 47.8 |
| Return on equity, % | 2.3 | 2.7 | 4.5 |
BUSINESS REVIEW
The Group's net sales for the year were 5.1% below last year with reported translation exchange rates. With comparable translation exchange rates, net sales were organically down by 2.5% from the comparison period. As expected, sales were decreased by the termination of Shimano and certain other Third Party distribution agreements. On the other hand, Group Products sales grew from 2019 despite the difficult first half of the year impacted by the COVID-19 pandemic.
North America
Sales in North America increased by 5.7% from the comparison period with reported translation exchange rates and by 8.1% with comparable translation exchange rates.
In the first half of the year, the North American market was severely hit by the pandemic and the governmental lockdowns that followed. Sales decreased heavily as the Group's distribution operations and retail customers were closed for several weeks during the spring. However, as the restrictions gradually eased,
the consumer demand in the North American market was high. Following a rapid ramp-up of the operations, the Group was able to meet the high demand, and consequently the sales witnessed solid growth from the comparison period also on the full year level.
Nordic
Sales in the Nordic market decreased by 26.5% from the comparison period. With comparable translation exchange rates sales were down by 26.1%.
The termination of Shimano and certain other Third Party distribution agreements had a significant negative impact on the sales volumes in the Nordic market. In addition, the poor winter conditions in the beginning of 2020 reduced winter sports sales. Despite the overall sales decrease, the sales of Group fishing products grew from the comparison period.
Rest of Europe
Sales in the Rest of Europe market decreased by 1.9% from the comparison period. However, with comparable translation exchange rates sales were up by 0.7% from the previous year.
During the first half of the year, the Rest of Europe market was also heavily impacted by the COVID-19 pandemic and the restrictions that followed. In the second half of the year, the demand for Group's products was very high, which converted to strong second half sales. Overall, Group Product sales in the Rest of Europe market grew, but the termination of Shimano distribution kept the sales figures on 2019 level.
Rest of the World
With comparable translation exchange rates, sales in the Rest of the World market decreased by 2.6% from the comparison period. However, with reported translation exchange rates, sales decreased by 10.8% as especially South African rand lost its value against the euro compared to the previous year.
As the other markets, Rest of the World market was hit by the COVID-19 pandemic during the first half of the year, and as the restrictions were gradually eased, sales began to recover in the second half of 2020. The sales recovery was somewhat slower than in the other markets, and consequently the market did not reach the full year sales figures of the comparison period. The termination of Shimano distribution also had a negative impact on the sales.
FINANCIAL RESULTS AND PROFITABILITY
Comparable (excluding mark-to-market valuations of operative currency derivatives and other items affecting comparability) operating profit increased by 3.7 MEUR from the comparison period. The change in translation exchange rates was negative and with comparable translation exchange rates comparative operating profit increased by 4.3 MEUR. Reported operating profit decreased by 2.7 MEUR from the previous year and the items affecting comparability had a negative impact of 10.8 MEUR (4.4) on reported operating profit.
Comparable operating profit margin was 8.2% (6.5) for the year. The increased profitability was driven by improved gross margin as the share of higher margin Group Products sales of total sales increased. Furthermore, decreased operating expenses had a significant impact on the profitability improvement from the previous year. During the first half of the year, the Group quickly reacted to the COVID-19 pandemic by implementing a forceful
RAPALA VMC OYJ
FINANCIAL STATEMENTS 2020
REPORT OF THE BOARD OF DIRECTORS
COVID-19 mitigation plan. The Group continued the tight cost control during the second half of the year even though the demand and sales increased to higher levels. As a result of the successful implementation and execution of the mitigation plan, operating expenses substantially decreased from the comparison period.
EXTERNAL NET SALES BY AREA
| EUR MILLION | 2020 | 2019 | CHANGE % | COMPARABLE CHANGE % |
|---|---|---|---|---|
| North America | 110.2 | 104.2 | 6% | +8% |
| Nordic | 41.6 | 56.6 | -27% | -26% |
| Rest of Europe | 79.8 | 81.3 | -2% | +1% |
| Rest of the World | 29.7 | 33.3 | -11% | -3% |
| TOTAL | 261.3 | 275.4 | -5% | -2% |
North America 42%
Nordic 16%
Rest of Europe 31%
Rest of the World 11%
Reported operating profit margin was 4.1% (4.9) for the year. Reported operating profit included impact of mark-to-market valuation of operative currency derivatives of -0.1 MEUR (-0.4). Net expenses of other items affecting comparability included in the reported operating profit were -10.7 MEUR (-4.0). Other items affecting comparability consisted mainly of expenses related to the restructuring of European business and ramp down of Asian lure manufacturing operations in Batam. In Europe, several distribution sites were closed or downsized as the centralized Pärnu distribution centre was set up. Furthermore, cost structure was streamlined in Europe following the Shimano exit for non-JV countries and exit of hunting business.
Total financial (net) expenses were 4.2 MEUR (3.6) for the year. Net interest and other financing expenses were 3.2 MEUR (2.5) and (net) foreign exchange expenses were 1.0 MEUR (1.1).
Net profit for the year decreased by 0.7 MEUR and was 3.4 MEUR (4.1) and earnings per share were 0.04 EUR (0.10). The share of non-controlling interest in net profit increased compared to previous year and totalled 1.0 MEUR (-0.4).
BRIDGE CALCULATION OF COMPARABLE OPERATING PROFIT
| EUR MILLION | 2020 | 2019 | CHANGE % |
|---|---|---|---|
| Operating profit | 10.7 | 13.4 | -20% |
| Items affecting comparability | |||
| Mark-to-market valuations of operative currency derivatives | 0.1 | 0.4 | |
| Other items affecting comparability | |||
| Restructurings | |||
| Management restructuring | 0.6 | 1.1 | |
| Indonesia manufacturing restructuring | 4.2 | 1.1 | |
| European restructurings | 4.6 | - | |
| Other restructurings | 1.2 | 2.1 | |
| Acquisition costs of DQC International | - | 0.8 | |
| Other items | - | -1.0 | |
| COMPARABLE OPERATING PROFIT | 21.5 | 17.8 | +21% |
SEGMENT REVIEW
Group Products
With comparable translation exchange rates, Group Products sales increased by 6.7 MEUR from the comparison period. As a result of an exceptionally strong second half of the year, Group Products sales grew substantially in the North American market, Rapala lures being the key growth category. Followed by the increased sales, the comparable operating profit for Group Products also improved from the comparison period.
Third Party Products
With comparable translation exchange rates, Third Party Products sales were 13.5 MEUR below the comparison period. As expected, the termination of Shimano distribution agreement and certain other Third Party distribution agreements had negative impacts on sales, particularly on the Nordic and Rest of Europe markets. Followed by the decreased sales, the comparable operating profit for Third Party Products was below the comparison period.
NET SALES BY OPERATING SEGMENT
| EUR MILLION | 2020 | 2019 | CHANGE % | COMPARABLE CHANGE % |
|---|---|---|---|---|
| Group Products | 187.5 | 185.2 | 1% | +4% |
| Third Party Products | 73.8 | 90.2 | -18% | -15% |
| TOTAL | 261.3 | 275.4 | -5% | -2% |
Group Products 72%
Third Party Products 28%
COMPARABLE OPERATING PROFIT BY OPERATING SEGMENT
| EUR MILLION | 2020 | 2019 | CHANGE % |
|---|---|---|---|
| Group Products | 23.4 | 19.5 | 20% |
| Third Party Products | -1.9 | -1.6 | 16% |
| TOTAL COMPARABLE OPERATING PROFIT | 21.5 | 17.8 | 21% |
| Items affecting comparability | -10.8 | -4.4 | 144% |
| TOTAL OPERATING PROFIT | 10.7 | 13.4 | -20% |
RAPALA VMC OYJ
FINANCIAL STATEMENTS 2020
REPORT OF THE BOARD OF DIRECTORS
FINANCIAL POSITION
Following a successful implementation and execution of the COVID-19 mitigation plan and stricter inventory control, cash flow from operations increased by 16.6 MEUR from the comparison period ending to a record level of 42.5 MEUR (25.9). A key driver for the record cash flow was the positive development of working capital. The impact of net change of working capital to cash flow from operations improved by 9.0 MEUR from the previous year and was 20.4 MEUR (11.4).
End of the year 2020 inventory was on record low levels at 68.8 MEUR (92.6). The impact of change in allowance on inventory was negative (1.5 MEUR) but changes in translation exchange rates on inventory were positive (4.0 MEUR). The record low year-end inventory value was driven by tight control in inventory and centralized purchase quota allocations.
The Group's COVID-19 response and mitigation plan on supply chain management was overall successful. After the quick ramp-down of operations, the Group rapidly ramped up the operations and the direct impacts of the pandemic to the Group's sourcing and own factories ended up being somewhat limited. As a result of tight control in inventories and central purchase quota allocations, finished goods purchases decreased significantly from the previous year.
Net cash used in investing activities decreased from the comparison period amounting to 3.8 MEUR (14.6). Capital expenditure was 5.0 MEUR (5.6) and disposals 1.2 MEUR (3.2). Disposals were for the most part related to sales of some manufacturing equipment and facilities.
Liquidity position of the Group was good. Undrawn committed long-term credit facilities amounted to 10.0 MEUR at the end of the year. Gearing ratio decreased significantly and equity-to-assets ratio improved slightly from last year. The Group has agreed with its lenders to temporarily change financial covenants used in its loan agreements for the periods from Q2/2020 to Q1/2021. These financial covenants include limits on the amount of indebtedness, available liquidity, EBITDA as well as gearing ratio. The Group is currently compliant with all financial covenants and expects to comply with all requirements set in the financing agreements also in the future.
Group equity includes a hybrid loan of 25.0 MEUR issued in November 2019. The accrued non-recognized interest on hybrid bond on December 31, 2020 was 1.1 MEUR (0.7). The accrued interest of EUR 1.1 million, resulting from the decision of the Board of Directors, was paid out in November 2020 and was recognized as a deduction from Group's equity.
KEY FIGURES
| EUR MILLION | 2020 | 2019 | CHANGE % |
|---|---|---|---|
| Net cash generated from operating activities | 42.5 | 25.9 | 64% |
| Net interest-bearing debt at the end of the period | 45.2 | 74.6 | -39% |
| Debt-to-equity ratio (gearing) at the end of the period, % | 31.6 | 49.2 | |
| Equity-to-assets ratio at the end of the period, % | 52.5 | 52.4 |
STRATEGY IMPLEMENTATION
The strategic target of the group is to become a solid global fishing tackle powerhouse. Current strategic actions and future capabilities aim to release all the growth potential within the company and to improve the Group's profitability. In the longer term, the goal is to become the world's largest fishing tackle company by harnessing a united company mindset; ONE RAPALA VMC culture.
The core of the Group's strategy is based on five key building blocks that are all interconnected and shared around the Group in all business units. Future strategies are built upon utilizing and capitalizing the brand portfolio, manufacturing and sourcing platform, research and development knowledge, as well as the broad sales network and strong local presence around the world. Focus and speed are in the center of the strategic decision-making process in order to enable focusing and agile actions in the competitive landscape.
Team/Culture – The first strategic building block is associated with the foundation that all business units and functions strive for togetherness as a one strong winning entity. This enables the entire Group culture to become more united, collaborative, dynamic and growth oriented. The group has restructured its central marketing and product development and innovations functions along with a new management structure to enhance decision making power in the organization, which will improve significantly effectiveness in day-to-day management.
Consumer – Focus on end-users is a critical part of the strategy. The aim is to lead the market and bring newest trends to the fishing industry by offering innovative and exciting products. The centralized marketing function is well connected with the continuously growing and digitally aware consumer base. As a result of strong strategy execution, direct-to-consumer sales via digital channels witnessed double digit growth in 2020.
Customer – Relationships with key customers and winning position in local markets are emphasized with deep customer and market know-how as well as continuously investing in all sales channels. Several organizational and management changes were made in 2020 to increase customer focus in all functions in the company.
Product development/Innovation – R&D and PD&I functions are becoming even stronger competitive advantages for the entire Group at the same as fishermen around the world demand new innovations to catch more fish. The group launched several new products during 2020 to showcase its ability to create new ideas on top of an already vast product assortment. In addition, the Group launched a new sustainability program to demonstrate its willingness to become more environmentally aware. As an example, completely led-free wobblers are planned to introduce in 2023.
Operations/Finance – The Group continues to invest in its operations to make a step-change in operational excellence, to improve working capital efficiency and profitability. The restructuring program, originally initiated in October 2019, has been carried out as planned and is close to completion. The targeted cost savings consist mainly of savings related to European business as well as the Asian lure manufacturing operations, which has been ramped down. The Group has also transferred the Nordic distribution from Malung, Sweden into one centralized warehouse in Pärnu, Estonia in November 2020. Additionally, transfer of knife manufacturing from Rovaniemi in Finland to existing manufacturing location in Väaksy, Finland, was finalized in 2020.
PRODUCT DEVELOPMENT
Continuous product development and consistent innovation are core competences for the Group and major contributors to the value and commercial success of the brands.
RAPALA VMC OYJ
FINANCIAL STATEMENTS 2020
REPORT OF THE BOARD OF DIRECTORS
Due to the COVID-19 pandemic, several fishing tackle consumer shows and Europe's most important fishing tackle trade show, EFTTEX, were cancelled. However, during the first half of the year that didn't have a significant impact on the new product launches, which were carried out on schedule and as planned. The most important launches during the first six months of the year were the introduction of X-Rap Haku – a bait designed for large predator fishing – in Europe, the release of CountDown Elite – a hard bait designed for trout fishing – in Japan and elsewhere in Asia as well as the launch of Rap-V Blade – an all-round blade bait – in North America. All new lures were well received in the regions and were introduced to all market areas globally in the right seasons.
In the second half of the year, a few key product launches were carried out in Europe starting from September. Rapala Twitchin' Rap 12 – a wooden twitchbait designed for predator fishing and Rapala Super Shadow Rap 11, a size extension to Super Shadow Rap 16 were launched just in time for the European autumn fishing season. Additionally, a new innovative lightweight softbait Storm V-Slab 08 was launched in the Nordic markets for the autumn pike season. Asia-Pacific markets focused on launching a small but feisty crankbait Rapala Shadow Rap Fat Jack 04. This lure's development was spearheaded by the Australian and Southeast Asian markets and is already proving to be a very successful and fish-catching addition in the Rapala product range. Preparations for the 2021 new item launches were well under way and 2022 range was coming together in the year's end, too.
ORGANIZATION AND PERSONNEL
Average number of personnel was 2 105 (2 604) for the full year and 2 034 (2 501) for the last six months. At the end of December, the number of personnel was 1 971 (2 304), decrease coming mainly from the ramp-down of the lure manufacturing operations in Indonesia.
Nicolas Warchalowski was appointed as President and Chief Executive Officer from March 1, 2020 onwards. Furthermore, David Neill was appointed as a member of the Executive Committee and Executive Vice President, Product Development & Innovation as of September 9, 2020 and Enrico Ravenni was appointed as a member to the Executive Committee and Executive Vice President, Head of Distribution in APAC countries and global Rods, Reels and Lines Product Development & Innovation as of October 30, 2020.
PERSONNEL AT THE END OF THE PERIOD
ENVIRONMENTAL AND CORPORATE RESPONSIBILITY
The Group's operations are continuously developed into an even more sustainable direction to promote clean environment. Products, manufacturing processes and operating methods are developed to reduce the environmental impact throughout the products' lifecycle. The Group seeks to replace current raw materials with more environmentally friendly substances – yet maintaining the products' desirability. The Group develops the reporting and follow-up on environmental matters.
Environmental, economical and social responsibility issues are described in more detail in the Corporate Responsibility section of the corporate website (www.rapalavmc.com).
RISK MANAGEMENT
The objective of the Group's risk management is to support the implementation of the Group's strategy and execution of business targets. The Board evaluates the Group's financial, operational and strategic risk position on a regular basis and establishes related policies and instructions to be implemented and coordinated by the Group management. The principles of the Group's risk management are described in detail in the section Risk Management included in the consolidated financial statements.
GOVERNANCE AND SHARE INFORMATION
The Board updated and approved the Corporate Governance Statement that is available on corporate website.
For information on shares, shareholders, share-based payment programs and Board's authorizations, see the section Shares and Shareholders. Related party transactions and top management remuneration are disclosed in the note 28.
SHORT-TERM OUTLOOK
General market outlook for fishing products in North America and Europe is positive and end-consumer demand for recreational fishing products is currently on a good level in the Group's key markets. In Europe, exit of Shimano business and termination of certain other Third Party Products businesses decreases net sales and affects consequently market visibility for 2021 for the region. Net sales for these businesses, which the Group will exit, were in the range of 30 MEUR in 2020. Additionally, the ongoing negotiations with Shimano to end the joint ownership of distribution companies in Russia, Kazakhstan, Czech, Belarus, Hungary, Romania and Croatia might have impacts on the business performance for these countries also in the Group Products segment.
The Group's supply chain, including own factories and subcontractors, is currently working robustly and fulfilling customer orders. However, uncertainties caused by the COVID-19 pandemic continue to impact and increase risks for the Group. The pandemic can impact the operating environment of the Group in various ways, including lockdowns, store closures, social distancing rules and overall change in consumer confidence. In addition, weather changes may affect the sales of the Group.
The Group expects 2021 full year comparable operating profit (excluding mark-to-market valuations of operative currency derivatives and other items affecting comparability) to be in line or above the previous year.
Short term risks and uncertainties and seasonality of the business are described in more detail in the end of this report.
PROPOSAL FOR PROFIT DISTRIBUTION
The Board of Directors proposes to the Annual General Meeting that no dividend will be paid for 2020.
RAPALA VMC OYJ
FINANCIAL STATEMENTS 2020
KEY FINANCIAL FIGURES
KEY FINANCIAL FIGURES
| 2020 | 2019 | 2018 | 2017 | 2016 | ||
|---|---|---|---|---|---|---|
| Scope of activity and profitability | ||||||
| Net sales | EUR million | 261.3 | 275.4 | 262.4 | 253.3 | 260.6 |
| Operating profit before depreciation and impairments | EUR million | 26.2 | 26.0 | 22.4 | 15.7 | 14.1 |
| as a percentage of net sales | % | 10.0 | 9.4 | 8.5 | 6.2 | 5.4 |
| Operating profit | EUR million | 10.7 | 13.4 | 14.8 | 8.9 | 7.2 |
| as a percentage of net sales | % | 4.1 | 4.9 | 5.6 | 3.5 | 2.8 |
| Profit before taxes | EUR million | 6.6 | 9.8 | 12.7 | 5.6 | 2.2 |
| as a percentage of net sales | % | 2.5 | 3.6 | 4.8 | 2.2 | 0.8 |
| Net profit for the period | EUR million | 3.4 | 4.1 | 6.5 | 2.3 | -2.0 |
| as a percentage of net sales | % | 1.3 | 1.5 | 2.5 | 0.9 | -0.8 |
| Attributable to | ||||||
| Equity holders of the Company | EUR million | 2.5 | 4.4 | 6.1 | 2.4 | -3.0 |
| Non-controlling interest | EUR million | 1.0 | -0.4 | 0.4 | 0.0 | 1.0 |
| Capital expenditure | EUR million | 5.0 | 5.6 | 6.4 | 6.0 | 8.4 |
| as a percentage of net sales | % | 1.9 | 2.0 | 2.4 | 2.4 | 3.2 |
| Research and development expenses | EUR million | 1,1 | 1.7 | 1.6 | 1.9 | 2.5 |
| as a percentage of net sales | % | 0.4 | 0.6 | 0.6 | 0.7 | 0.9 |
| Net interest-bearing debt at the end of the period | EUR million | 45.2 | 74.6 | 70.3 | 67.8 | 96.1 |
| Capital employed at the end of the period | EUR million | 188.2 | 226.2 | 217.4 | 210.5 | 232.2 |
| Return on capital employed (ROCE) | % | 5.2 | 6.0 | 6.9 | 4.0 | 3.0 |
| Return on equity (ROE) | % | 2.3 | 2.7 | 4.5 | 1.7 | -1.5 |
| Equity-to-assets ratio at the end of the period | % | 52.5 | 52.4 | 53.2 | 53.9 | 43.1 |
| Debt-to-equity ratio (gearing) at the end of the period | % | 31.6 | 49.2 | 47.8 | 47.5 | 70.6 |
| Average personnel for the period | Persons | 2 105 | 2 604 | 2 772 | 2 736 | 2 829 |
| Personnel at the end of the period | Persons | 1 971 | 2 304 | 2 651 | 2 626 | 2 751 |
NET SALES, EUR MILLION
NET PROFIT (LOSS) FOR THE PERIOD, EUR MILLION
OPERATING PROFIT (EUR MILLION), % OF NET SALES
Operating profit
Operating profit as a percentage of net sales
EQUITY-TO-ASSETS RATIO, %
RAPALA VMC OYJ
FINANCIAL STATEMENTS 2020
KEY FINANCIAL FIGURES
| 2020 | 2019 | 2018 | 2017 | 2016 | ||
|---|---|---|---|---|---|---|
| Share related key figures | ||||||
| Earnings per share | EUR | 0.04 | 0.10 | 0.13 | 0.05 | -0.08 |
| Fully diluted earnings per share | EUR | 0.04 | 0.10 | 0.13 | 0.05 | -0.08 |
| Equity per share | EUR | 2.93 | 3.16 | 3.05 | 2.89 | 3.33 |
| Dividend per share 1) | EUR | 0.0 | 0.0 | 0.06 | 0.04 | 0.10 |
| Dividend/earnings ratio 1) | % | 0.0 | 0.0 | 45.8 | 64.2 | -128.9 |
| Effective dividend yield 1) | % | 0.0 | 0.0 | 1.97 | 1.20 | 2.42 |
| Price/earnings ratio | 118.4 | 27.8 | 23.3 | 53.5 | -53.2 | |
| Share price at the end of the period | EUR | 4.36 | 2.77 | 3.05 | 3.33 | 4.13 |
| Lowest share price | EUR | 2.15 | 2.56 | 2.89 | 3.29 | 3.90 |
| Highest share price | EUR | 4.58 | 3.43 | 4.07 | 4.68 | 4.90 |
| Average share price | EUR | 3.04 | 2.88 | 3.43 | 3.72 | 4.30 |
| Number of shares traded | Shares | 6 044 245 | 4 804 467 | 1 511 411 | 4 096 349 | 2 782 154 |
| Number of shares traded of average number of shares | % | 15.68 | 12.52 | 3.94 | 10.69 | 7.26 |
| Share capital | EUR million | 3.6 | 3.6 | 3.6 | 3.6 | 3.6 |
| Dividend for the period 1) | EUR million | - | - | 2.3 | 1.5 | 3.8 |
| Year end market capitalization 2) | EUR million | 168.1 | 106.8 | 116.9 | 127.6 | 158.3 |
| Number of shares at the end of the period excluding own shares 2) | 1 000 shares | 38 548 | 38 548 | 38 323 | 38 323 | 38 323 |
| Number of own shares at the end of period | 1 000 shares | 452 | 452 | 677 | 677 | 677 |
| Weighted average number of shares 2) | 1 000 shares | 38 548 | 38 387 | 38 323 | 38 323 | 38 329 |
| Fully diluted number of shares at the end of the period 2) | 1 000 shares | 38 548 | 38 548 | 38 323 | 38 323 | 38 323 |
| Fully diluted weighted average number of shares 2) | 1 000 shares | 38 548 | 38 387 | 38 323 | 38 323 | 38 329 |
1) Year 2020 board proposal.
2) Excluding own shares.
DEBT-TO-EQUITY RATIO (GEARING), %
EARNINGS PER SHARE, EUR
DIVIDEND PER SHARE, EUR
DIVIDEND/EARNINGS RATIO, %
RAPALA VMC OYJ
FINANCIAL STATEMENTS 2020
CONSOLIDATED FINANCIAL STATEMENTS, IFRS
CONSOLIDATED FINANCIAL STATEMENTS, IFRS
CONSOLIDATED INCOME STATEMENT
| EUR MILLION | NOTE | 2020 | 2019 |
|---|---|---|---|
| Net sales | 2 | 261.3 | 275.4 |
| Other operating income | 4 | 1.6 | 2.2 |
| Change in inventory of finished products and work in progress | -17.6 | -10.7 | |
| Production for own use | 0.2 | 0.1 | |
| Materials and services | 6 | -108.0 | -120.6 |
| Employee benefit expenses | 7 | -69.4 | -71.6 |
| Other operating expenses | 5 | -41.0 | -48.6 |
| Share of results in associates and joint ventures | 13 | -0.8 | -0.2 |
| Operating profit before depreciation, amortization and impairments | 26.2 | 26.0 | |
| Depreciation, amortization and impairments | 11. 12. 27 | -15.5 | -12.6 |
| Operating profit | 10.7 | 13.4 | |
| Financial income and expenses | 9 | -4.2 | -3.6 |
| Profit before taxes | 6.6 | 9.8 | |
| Income taxes | 10 | -3.2 | -5.8 |
| NET PROFIT (LOSS) FOR THE PERIOD | 3.4 | 4.1 | |
| Attributable to | |||
| Equity holders of the parent company | 2.5 | 4.4 | |
| Non-controlling interests | 14 | 1.0 | -0.4 |
| Earnings per share for profit attributable to the equity holders of the parent company | 30 | ||
| Earnings per share, EUR | 0.04 | 0.10 | |
| Diluted earnings per share, EUR | 0.04 | 0.10 | |
| Weighted average number of shares, 1 000 shares | 38 548 | 38 387 | |
| Diluted weighted average number of shares, 1 000 shares | 38 548 | 38 387 |
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
| EUR MILLION | 2020 | 2019 |
|---|---|---|
| Net profit (loss) for the period | 3.4 | 4.1 |
| Other comprehensive income, net of tax 1) | ||
| Items that will not be reclassified to income statement | ||
| Remeasurements of defined benefit liabilities | 0.1 | -0.1 |
| Total items that will not be reclassified to income statement | 0.1 | -0.1 |
| Items that may be reclassified subsequently to income statement | ||
| Change in translation differences | -10.7 | 2.4 |
| Cashflow hedges 2) | - | 0.0 |
| Net investment hedges | -1.1 | 1.2 |
| Total items that may be reclassified subsequently to income statement | -11.8 | 3.6 |
| Other comprehensive income for the period, net of tax | -11.7 | 3.5 |
| TOTAL COMPREHENSIVE INCOME FOR THE PERIOD | -8.3 | 7.5 |
| Attributable to | ||
| Equity holders of the parent company | -8.8 | 7.8 |
| Non-controlling interests | 0.5 | -0.2 |
1) The income tax relating to each of the component of the other comprehensive income is disclosed in the note 10.
2) Specification on cash flow hedges, see note 19.
RAPALA VMC OYJ
FINANCIAL STATEMENTS 2020
CONSOLIDATED FINANCIAL STATEMENTS, IFRS
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
| EUR MILLION | NOTE | 2020 | 2019 |
|---|---|---|---|
| ASSETS | |||
| Non-current assets | |||
| Goodwill | 11 | 47.0 | 49.1 |
| Other intangible assets | 11 | 24.2 | 26.4 |
| Tangible assets | 12 | 22.6 | 26.9 |
| Right-of-use-assets | 27 | 10.4 | 13.3 |
| Investments in associates and joint ventures | 13 | 3.4 | 4.2 |
| Other shares | 15 | 0.2 | 0.2 |
| Interest-bearing receivables | 16 | 7.2 | 7.8 |
| Non-interest-bearing receivables | 16 | 0.2 | 0.2 |
| Deferred tax assets | 10 | 7.8 | 4.6 |
| Total non-current assets | 123.1 | 132.8 | |
| Current assets | |||
| Inventories | 17 | 68.8 | 92.6 |
| Trade and other non-interest-bearing receivables | 16 | 51.9 | 49.9 |
| Income tax receivables | 10 | 1.1 | 1.9 |
| Cash and cash equivalents | 18 | 27.9 | 12.3 |
| Total current assets | 149.8 | 156.7 | |
| TOTAL ASSETS | 272.9 | 289.5 | |
| SHAREHOLDERS' EQUITY AND LIABILITIES | |||
| Equity | |||
| Share capital | 3.6 | 3.6 | |
| Share premium fund | 16.7 | 16.7 | |
| Hedging fund | 0.0 | 0.0 | |
| Fund for invested non-restricted equity | 4.9 | 4.9 | |
| Own shares | -4.9 | -4.9 | |
| Translation differences | -18.9 | -7.6 | |
| Retained earnings | 111.4 | 109.2 | |
| Equity attributable to equity holders of the parent company | 19 | 112.8 | 121.9 |
| Non-controlling interests | 14 | 5.2 | 4.6 |
| Hybrid bond | 19 | 25.0 | 25.0 |
| Total equity | 143.0 | 151.6 | |
| Non-current liabilities | |||
| Interest-bearing liabilities | 24 | 52.7 | 46.0 |
| Non-interest-bearing liabilities | 25 | 0.1 | 0.1 |
| Right-of-use liabilities | 22, 24 | 8.0 | 9.0 |
| Employee benefit obligations | 20 | 3.5 | 2.9 |
| Deferred tax liabilities | 10 | 5.0 | 5.4 |
| Provisions | 21 | 0.1 | 0.1 |
| Total non-current liabilities | 69.4 | 63.5 | |
| Current liabilities | |||
| Interest-bearing liabilities | 24 | 15.1 | 35.3 |
| Trade and other non-interest-bearing payables | 25 | 37.8 | 33.8 |
| Right-of-use liabilities | 22, 24 | 4.5 | 4.4 |
| Income tax payables | 10 | 1.9 | 0.4 |
| Provisions | 21 | 1.3 | 0.6 |
| Total current liabilities | 60.5 | 74.4 | |
| TOTAL SHAREHOLDERS' EQUITY AND LIABILITIES | 272.9 | 289.5 |
RAPALA VMC OYJ
FINANCIAL STATEMENTS 2020
CONSOLIDATED FINANCIAL STATEMENTS, IFRS
CONSOLIDATED STATEMENT OF CASH FLOWS
| EUR MILLION | NOTE | 2020 | 2019 |
|---|---|---|---|
| Net profit for the period | 3.4 | 4.1 | |
| Adjustments | |||
| Income taxes | 10 | 3.2 | 5.8 |
| Financial income and expenses | 9 | 4.2 | 3.6 |
| Reversal of non-cash items | |||
| Depreciation and impairments | 11, 12, 27 | 15.5 | 12.6 |
| Share based payments | 7, 29 | 0.8 | 0.0 |
| Exchange rate differences | 0.1 | 0.5 | |
| Share of results in associated companies and joint ventures | 13 | 0.8 | 0.2 |
| Gains/losses on disposals of intangible, tangible assets and subsidiaries | -0.1 | -0.5 | |
| Other items | 1.8 | -3.7 | |
| Total adjustments | 26.2 | 18.4 | |
| Financial items | |||
| Interest paid | -3.0 | -2.8 | |
| Interest received | 0.3 | 0.8 | |
| Income taxes paid | -4.3 | -5.5 | |
| Other financial items. net | -0.5 | -0.5 | |
| Total Financial items | -7.6 | -7.9 | |
| Change in working capital | |||
| Change in receivables | -6.1 | 3.9 | |
| Change in inventories | 20.8 | 11.2 | |
| Change in liabilities | 5.8 | -3.6 | |
| Total change in working capital | 20.4 | 11.4 | |
| Net cash generated from operating activities | 42.5 | 25.9 | |
| Net cash used in investing activities | |||
| Acquisition of intangible assets | 11 | -0.4 | -0.5 |
| Proceeds from sale of tangible assets | 12 | 1.2 | 3.2 |
| Acquisition of tangible assets | 12 | -4.6 | -5.1 |
| Acquisition of DQC International | 13 | - | -4.4 |
| Change in interest-bearing receivables | 0.0 | -7.8 | |
| Total net cash used in investing activities | -3.8 | -14.6 | |
| Net cash generated from financing activities | |||
| Dividends paid to parent company shareholders | - | -2.3 | |
| Dividends paid to non-controlling interest | - | -1.0 | |
| Directed issue of own shares | - | 0.7 | |
| Non-current loan withdrawals | 9.4 | 41.0 | |
| Current loan withdrawals | 48.5 | 66.7 | |
| Non-current loan repayments | - | 0.0 | |
| Current loan repayments | -71.1 | -110.5 | |
| Payments of right-of-use liabilities | -5.5 | -6.1 | |
| Hybrid bond | -1.3 | -1.6 | |
| Total net cash generated from financing activities | -20.0 | -13.2 | |
| Change in cash and cash equivalents | 18.8 | -1.9 | |
| Cash and cash equivalents at the beginning of the period | 12.3 | 13.4 | |
| Foreign exchange rate effect | -3.1 | 0.8 | |
| CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD | 18 | 27.9 | 12.3 |
RAPALA VMC OYJ
FINANCIAL STATEMENTS 2020
CONSOLIDATED FINANCIAL STATEMENTS, IFRS
CHANGES IN LIABILITIES INCLUDED CASH FLOW FROM FINANCING ACTIVITIES
| Liabilities Jan 1, 2020 | 81.2 |
|---|---|
| Drawdowns | 57.9 |
| Repayments | -71.0 |
| Other changes | -0.4 |
| Liabilities Dec 31, 2020 | 67.8 |
| Drawdowns and repayments of loans in statement of cash flows, net | |
| Drawdowns and repayments of loans | -13.1 |
| Derivatives and other realized foreign exchange on financial activities | -0.1 |
| Drawdowns and repayments of loans, net | -13.2 |
*Unrealized foreign exchange differences from loans are not included in cash flow statement.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
| ATTRIBUTABLE TO EQUITY HOLDERS OF THE COMPANY | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| EUR MILLION | SHARE CAPITAL | SHARE PREMIUM FUND | HEDGING FUND | FUND FOR INVESTED NON-RESTRICTED EQUITY | OWN SHARES | TRANSLATION DIFFERENCES | RETAINED EARNINGS | NON-CONTROLLING INTEREST | HYBRID BOND | TOTAL EQUITY |
| EQUITY ON JAN 1, 2019 | 3.6 | 16.7 | 0.0 | 4.9 | -5.6 | -11.2 | 108.6 | 5.1 | 25.0 | 147.1 |
| Net profit for the period | 4.4 | -0.4 | 4.1 | |||||||
| Other comprehensive income 1) | ||||||||||
| Translation differences | 2.3 | 0.1 | 2.4 | |||||||
| Defined benefit plans | -0.1 | -0.1 | ||||||||
| Cash flow hedging | 0.0 | 0.0 | ||||||||
| Net investment hedges | 1.2 | 1.2 | ||||||||
| Total comprehensive income | 0.0 | 3.5 | 4.3 | -0.2 | 7.5 | |||||
| Directed issue of own shares | 0.7 | 0.7 | ||||||||
| Dividends paid | -2.3 | -1.0 | -3.3 | |||||||
| Issuance of hybrid bond | 25.0 | 25.0 | ||||||||
| Repayment of hybrid bond | -25.0 | -25.0 | ||||||||
| Hybrid bond expenses | -1.3 | -1.3 | ||||||||
| Sale of subsidiary | 0.2 | 0.7 | 0.9 | |||||||
| Share based payments | 0.0 | 0.0 | ||||||||
| EQUITY ON DEC 31, 2019 | 3.6 | 16.7 | 0.0 | 4.9 | -4.9 | -7.6 | 109.2 | 4.6 | 25.0 | 151.6 |
| Net profit for the period | 2.5 | 1.0 | 3.4 | |||||||
| Other comprehensive income 1) | ||||||||||
| Translation differences | -10.2 | -0.4 | -10.7 | |||||||
| Defined benefit plans | 0.1 | 0.1 | ||||||||
| Net investment hedges | -1.1 | -1.1 | ||||||||
| Total comprehensive income | -11.3 | 2.5 | 0.5 | -8.3 | ||||||
| Hybrid bond expenses | -1.1 | -1.1 | ||||||||
| Share based payments | 0.7 | 0.0 | 0.8 | |||||||
| EQUITY ON DEC 31, 2020 | 3.6 | 16.7 | 0.0 | 4.9 | -4.9 | -18.9 | 111.4 | 5.2 | 25.0 | 143.0 |
1) Net of tax.
RAPALA VMC OYJ
FINANCIAL STATEMENTS 2020
CONSOLIDATED FINANCIAL STATEMENTS, IFRS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1 ACCOUNTING PRINCIPLES FOR THE CONSOLIDATED ACCOUNTS
COMPANY'S BACKGROUND
Rapala VMC Corporation ("company") is a Finnish public limited liability company organized under the laws of Finland, domiciled in Asikkala and listed on the Nasdaq Helsinki stock exchange since 1998. The parent company Rapala VMC Corporation and its subsidiaries ("the Group") operate in some 40 countries and the company is one of the leading fishing tackle companies in the world.
The consolidated financial statements have been prepared for the accounting period of 12 months from January 1 to December 31, 2020. The Board of Directors of the company has approved these financial statements for publication at its meeting on February 9, 2021. Under Finland's Companies Act, shareholders have the option to accept or reject the financial statements in a meeting of shareholders, which will be held after the publication of the financial statements. The meeting has also the option of changing the financial statements.
A copy of the consolidated financial statements is available at the Group's website www.rapalavmc.com or from Mäkelänkatu 91, 00610 Helsinki, Finland.
BASIS FOR PREPARING THE CONSOLIDATED FINANCIAL STATEMENTS
The consolidated financial statements have been prepared in accordance with the International Financial Reporting Standards (IFRS), including IAS and IFRS standards as well as the SIC and IFRIC interpretations in effect on December 31, 2020. The term 'IFRS standards' refers to standards and interpretations which are approved and adopted by the European Union (regulation EY 1606/2002) and thus are in force in the Finnish legislation. The Group has not early adopted any new, revised or amended standards or interpretations.
The consolidated financial statements have been prepared on a historical cost basis, unless otherwise stated.
APPLIED NEW AND AMENDED STANDARDS AND INTERPRETATIONS
In 2020, the Group has adopted the following amended standards issued by the IASB.
Amendments to IFRS 3 Business Combinations (effective for financial periods beginning on or after 1 January 2020). The amendments are intended to assist entities to determine whether a transaction should be accounted for as a business combination or as an asset acquisition. The amendments clarify the minimum requirements for a business, remove the assessment of whether market participants are capable of replacing any missing elements, add guidance to help entities assess whether an acquired process is substantive, narrow the definitions of the consolidated financial statements.
Amendments to IAS 1 Presentation of Financial Statements and IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors (effective for financial periods beginning on or after 1 January 2020). The purpose of the amendments is to align the definition of 'material' across the standards and to clarify certain aspects of the definition. The amendments clarify that materiality will depend on the nature or magnitude of information, or both. The amendments have no impact on the consolidated financial statements.
Amendments to IFRS 9 Financial Instruments, IAS 39 Financial Instruments: Recognition and Measurement, and IFRS 7 Financial Instruments: Disclosures (effective for financial periods beginning on or after 1 January 2020). These amendments provide certain reliefs in connection with interest rate benchmark reform. The reliefs relate to hedge accounting and have the effect that IBOR reform should not generally cause hedge accounting to terminate. Any hedge ineffectiveness should continue to be recorded in the statement of income. The amendments do not have a significant impact on the consolidated financial statements.
Amendment to IFRS 16 Leases Covid-19-Related Rent Concessions (effective for financial periods beginning on or after 1 June 2020). The amendment introduces an optional practical expedient that simplifies how a lessee accounts for rent concessions that are a direct consequence of the COVID-19 pandemic. A lessee that applies the practical expedient is not required to assess whether eligible rent concessions are lease modifications when the criteria presented in the amendment are met. The amendment does not have a significant impact on the consolidated financial statements.
In 2021 or later, the Group will adopt the following new or amended standards issued by the IASB.
Amendments to IAS 1 Presentation of Financial Statements* (effective for financial periods beginning on or after 1 January 2022). The amendments clarify that liabilities are classified as either current or non-current, depending on the rights that exist at the end of the reporting period. Classification is unaffected by the expectations of the entity or events after the reporting date. The amendments will have no impact on the consolidated financial statements.
Amendments to IAS 37: Provisions, Contingent Liabilities and Contingent Assets* (effective for financial periods beginning on or after 1 January 2022). The amendments specify which costs an entity needs to include when assessing whether a contract is onerous or loss-making. The amendments are intended to provide clarity and help to ensure consistent application of the standard. The amendments apply a directly related cost approach. The costs that relate directly to a contract to provide goods or services include both incremental costs and an allocation of costs directly related to contract activities. Judgement will be required in determining which costs are directly related to contract activities. The amendments are not expected to have a significant impact on the consolidated financial statements.
Amendments to IAS 16: Property, Plant and Equipment* (effective for financial periods beginning on or after 1 January 2022). The amendments prohibit entities from deducting from the cost of an item of property, plant and equipment, any proceeds of the sale
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RAPALA VMC OYJ
FINANCIAL STATEMENTS 2020
CONSOLIDATED FINANCIAL STATEMENTS, IFRS
of items produced while bringing that asset to the location and condition necessary for it to be capable of operating in the manner intended by the management. The proceeds from selling such items and the costs of producing those items are recognised in the statement of income. The amendments will have no impact on the consolidated financial statements.
IFRS 17 Insurance Contracts* (effective for financial periods beginning on or after 1 January 2023). IFRS 17 applies to all types of insurance contracts (direct insurance and re-insurance) regardless of the type of entities that issue them, as well as to certain guarantees and financial instruments with discretionary participation features. The overall objective is to provide a consistent accounting model for insurance contracts. The impact is under review within the Group.
- Not yet endorsed for use by the European Union as of 31 December 2020
CONSOLIDATION PRINCIPLES
The consolidated financial statements comprise the financial statements of the company and its subsidiaries in which it has control. The control is based either to governing power established through direct or indirect holding of over 50% of the voting rights and/or control established through other means. The financial statements of the subsidiaries are prepared for the same accounting period as the company, using consistent accounting policies.
Acquired subsidiaries are accounted for using the acquisition cost method, according to which the assets and liabilities of the acquired company are measured at fair value at the date of acquisition. The excess of the consideration over the fair value of net assets acquired is recognized as goodwill. If the cost of acquisition is less than the fair value of the Group's share of the net assets acquired, the difference is recognized directly through income statement. Goodwill on consolidation is not amortized but tested for impairment annually. Consideration includes the fair value of any contingent consideration arrangement. Also, cost directly related to acquisition were included in the cost of acquisition up to 1 January 2010. The consolidated financial statements include the results of acquired companies for the period from the completion of the acquisition. Conversely, divestments are included up to their date of sale.
Associated companies are companies where the Group holds voting rights of 20–50% and/or in which the Group has significant influence, but not control. Joint ventures are companies, over which the Group has contractually agreed to share control with another venturer. Currently associated companies and joint ventures are included in the consolidated financial statements using the equity method. Under the equity method, the Group's share of the profit or loss of an associate or a joint venture is recognized in the consolidated income statement before operating profit.
The Group's interest in an associated company or a joint venture is carried in the balance sheet at an amount that reflects the Group's share of the net assets of the associate or joint venture together with goodwill on acquisition, as amortized, less any impairment. Unrealized gains, if any, between the Group and the associated companies or joint ventures are eliminated to the extent of the Group's ownership. Associated companies' and joint ventures' financial statements have been converted to correspond with the accounting principles in use in the Group. If the Group's share of losses exceeds the carrying amount of the investment, the carrying amount is reduced to nil and any recognition of further losses ceases unless the Group has incurred obligations in respect of the associated companies or joint venture.
The investments in subsidiaries have been eliminated using the acquisition cost method. All transactions between Group companies as well as assets and liabilities, dividends and unrealized internal margins in inventories and tangible assets have been eliminated in the consolidated financial statements. Non-controlling interest is presented separately from the net profit and disclosed as a separate item in the equity in accordance with the share of the non-controlling interest. All transactions with non-controlling interests are recorded in equity when the parent company remains in control. When the Group loses the control in a subsidiary, the remaining investment is recognized at fair value through the income statement.
FOREIGN CURRENCY TRANSACTIONS AND TRANSLATIONS
Each entity in the Group determines its own functional currency and items included in the financial statements of each entity are measured using that functional currency.
Foreign currency transactions are translated into functional currency using the exchange rates prevailing at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are retranslated at the functional currency rate of exchange ruling at the balance sheet date. Non-monetary items denominated in foreign currency, measured at fair value, are translated using the exchange rates at the date when the fair value was determined. Other non-monetary items have been translated into the functional currency using the exchange rate on the date of the transaction. Foreign exchange gains and losses for operating business items are recorded in the appropriate income statement account before operating profit. Foreign exchange gains and losses from the translation of monetary interest-bearing assets and liabilities denominated in foreign currencies are recognized in financial income and expenses. Exchange differences arising on a monetary item that forms a part of a net investment in a foreign operation are recognized in the statement of other comprehensive income and recognized in profit or loss on disposal of the foreign operation.
The consolidated financial statements are presented in euros, which is the company's functional and reporting currency. Income statements of subsidiaries, whose functional and reporting currencies is not euro, are translated into the Group reporting currency using the average exchange rate for the year. Their balance sheets are translated using the exchange rate of balance sheet date. All exchange differences arising on the translation are entered in the statement of other comprehensive income and presented in equity. The translation differences arising from the use of the purchase method of accounting and after the date of acquisition as well as fair value changes of loans which are hedges of such investments are recognized in statement of other comprehensive income and presented in equity. On the disposal of a subsidiary, whose functional and reporting currency is not euro, the cumulative translation difference for that entity is recognized in the income statement as part of the gain or loss on the sale.
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RAPALA VMC OYJ
FINANCIAL STATEMENTS 2020
CONSOLIDATED FINANCIAL STATEMENTS, IFRS
Any goodwill arising on the acquisition of a foreign company and any fair value adjustments to the carrying amounts of assets and liabilities arising on the acquisition are treated as assets and liabilities of the foreign subsidiary and translated using the exchange rate of balance sheet date. Goodwill and fair value adjustments arising from the acquisition prior to January 1, 2004 have been treated as assets and liabilities of the Group, i.e. in euros.
REVENUE RECOGNITION
Net sales comprise of consideration received less indirect sales taxes, discounts and exchange rate differences arising from sales denominated in foreign currency. Sales of goods are recognized after the significant risks and rewards of ownership of the goods have passed to the buyer and no significant uncertainties remain regarding the consideration, associated costs and possible return of goods. The costs of shipping and distributing products are included in other operating expenses. Revenues from services are recorded when the service has been performed.
Rental income arising from operating leases is accounted for on a straight-line basis over the lease terms. Royalty income is recorded according to the contents of the agreement. Interest income is recognized by the effective yield method. Dividend income is recognized when the company has acquired a right to receive the dividends.
INCOME TAXES
The Group's income tax expense includes taxes of the Group companies based on taxable profit for the period, together with tax adjustments for previous periods and the change in deferred income taxes. The income tax effects of items recognized directly in other comprehensive income are similarly recognized. The current tax expense for the financial year is calculated from the taxable profit based on the valid tax rate of each country. The tax is adjusted with possible taxes related to previous periods. The share of results in associated companies is reported in the income statement as calculated from net profit and thus including the income tax charge.
Deferred taxes are provided using the liability method, as measured with enacted tax rates, to reflect the temporary differences at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. The main temporary differences arise from the depreciation difference on tangible assets, fair valuation of net assets in acquired companies, intra-group inventory profits, defined benefit plans, inventory allowances and other provisions, untaxed reserves and tax losses carried forward. Temporary differences are recognized as a deferred tax asset to the extent that it is probable that future taxable profits will be available, against which the deductible temporary difference can be utilized.
RESEARCH AND DEVELOPMENT COSTS
Research and development costs are expensed as they are incurred, unless they relate to a clearly defined project that meets certain criteria. Development costs for such projects are capitalized if they are separately identifiable and if the products are assessed to be technically feasible and commercially viable and the related future revenues are expected to exceed the aggregate deferred and future development costs and related production, selling and administrative expenses, and if adequate resources exist or will be available to complete the project. Capitalized development costs include all directly attributable material, employee benefit and testing costs necessary to prepare the asset to be capable of operating in the manner intended. Research and development costs that were initially recognized as an expense are not to be capitalized at a later date.
Amortization of such a product is commenced when it is available for use. Unfinished products are tested annually for impairment. Capitalized development expenses are amortized on a straight-line basis over their expected useful lives, a maximum of five years.
GOODWILL
Goodwill represents the excess of the cost of an acquisition over the fair value of the Group's share of the net assets of the subsidiary, associated undertaking or joint venture acquired after January 1, 2004. Until December 31, 2009, any costs directly attributable to the business combination, such as professional fees, were included to the cost of an acquisition. From January 1, 2010 onwards, costs related to acquisitions are recognized directly to income statement. Goodwill from the combination of operations acquired prior to January 1, 2004 corresponds to the carrying amount according to the previous financial statement standards, which has been used as the assumed acquisition cost according to IFRS.
Goodwill is tested annually for impairment. For this purpose, goodwill has been allocated to cash generating units. Goodwill is measured at cost less any accumulated impairment loss, and is not amortized.
INTANGIBLE ASSETS
Intangible assets include customer relations, trademarks, capitalized development expenses, patents, copyrights, licenses and software. An intangible asset is recognized in the balance sheet only if it is probable that the future economic benefits that are attributable to the asset will flow to the Group, and the cost of the asset can be measured reliably. Intangible assets are stated at cost, amortized on a straight-line basis over the expected useful lives which vary from 3 to 15 years and adjusted for any impairment charges.
Trademarks and other intangible assets whose useful life is estimated to be indefinite are estimated to affect cash flow accumulation for an undefined period of time. The expected useful life for most trademarks is indefinite and therefore they are not amortized. These intangibles are measured at cost less any accumulated impairment loss and not amortized. Intangible assets with indefinite useful lives are tested for impairment annually. The valuation of intangible assets acquired in a business combination is based on fair value as at the date of acquisition.
Expected useful lives and indefinite lives of intangible assets are reviewed at each balance sheet date and, where they differ significantly from previous estimates, amortization periods are changed accordingly.
TANGIBLE ASSETS
Tangible assets are stated at historical cost, amortized on a straight-line basis over the expected useful life and adjusted for any impairment charges. The valuation of tangible assets acquired in a business combination is based on fair value as at the date of acquisition. Land is not depreciated as it is deemed to have an indefinite life.
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RAPALA VMC OYJ
FINANCIAL STATEMENTS 2020
CONSOLIDATED FINANCIAL STATEMENTS, IFRS
Depreciation is based on the following expected useful lives:
Buildings and structures 10–25 years
Machinery and equipment 5–10 years
Other tangible assets 3–10 years
Expected useful lives of tangible assets are reviewed at each balance sheet date and, where they differ significantly from previous estimates, depreciation periods are changed accordingly. Ordinary maintenance and repair costs are expensed as incurred. The cost of significant renewals and improvements are capitalized and depreciated over the remaining useful lives of the related assets. Gains and losses on sales and disposals are determined by comparing the received proceeds with the carrying amount and are included in the income statement in other operating income and expenses.
Depreciation of a tangible asset is discontinued when the tangible asset is classified as being held-for-sale in accordance with IFRS 5 standard Non-Current Assets Held-for-sale and Discontinued Operations.
BORROWING COSTS
Borrowing costs, that are directly attributable to the acquisition, construction or production of a qualifying asset, are capitalized as part of the cost of that asset. Other borrowing costs are expensed when incurred.
ACCOUNTING TREATMENT OF GOVERNMENT GRANTS (IAS 20) DUE TO COVID-19
As a response to the COVID-19 pandemic, governments around the world implemented support measures to help businesses and economies. Government assistance comes in many forms and therefore Rapala VMC Corporation has specified its accounting policy concerning grants received.
The Group recognizes a government grant or subsidy when there is reasonable assurance that it will comply with all conditions attached and the grant will be received. Government grants are recognised in statement of income over the periods in which Group recognises the expenses which the grants are intended to compensate. However, the accounting treatment for grants depends on nature and type of the grant.
Due to the COVID-19 situation, Rapala VMC Corporation has received 1.4 MEUR of governmental subsidies related to salaries and other personnel expenses, which are shown as deduction of personnel expenses in statement of income. These subsidies concern typically a period of a few months during 2020. In some countries there are terms and conditions related to the subsidies which prohibit redundancies of employees during the subsidized period.
General business subsidies received amount to 0.6 MEUR. These are shown as other income in statement of income. Generally, there are no significant terms and conditions for receiving the subsidies. However, in some countries there are certain restrictions of cross-border money transfers related to receiving the subsidies, but these do not have major impacts on Group's normal practices.
The Group has been granted government-backed loans which amount to 12.2 MEUR and for which the terms differ from market-based terms. The Group accounts for the benefit of government-backed loans at a below-market interest rate as a government grant. The difference between the fair value of the loan on initial recognition and the amount received is accrued and recognized as grant in other operating income. This totaled to EUR 0.2 million.
Additionally, rent reliefs of 0.1 MEUR have been received. These are granted by private lessors and are therefore outside of the scope of IAS 20. These concerns rent contracts treated according to IFRS 16 and impacts are therefore shown accordingly, as minor deductions in depreciations and financial expenses in statement of income. These are also reflected in right-of-use assets and right-of-use liabilities in statement of financial position.
Impairment assessment was immediately performed due to COVID-19 outbreak and there was no indication that assets may be impaired.
IMPAIRMENTS OF TANGIBLE AND INTANGIBLE ASSETS
The carrying amounts of tangible and intangible assets are reviewed at each balance sheet date to determine whether there is any indication of impairment. If indication exists, the recoverable amount is measured. Indications of potential need for impairment may be for example changes in market conditions and sales prices, decisions on significant restructurings or change in profitability.
Goodwill, intangible assets with indefinite useful lives and unfinished intangible assets are in all cases tested annually. For the purposes of assessing impairment, assets are grouped at the lowest cash generating unit level for which there are separately identifiable, mainly independent, cash inflows and outflows.
An impairment loss is the amount by which the carrying amount of the assets exceeds the recoverable amount. The recoverable amount is determined by reference to discounted future net cash flows expected to be generated by the asset. Discount rate used is a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the asset. Impairment loss is immediately recognized in the income statement.
Impairment losses attributable to a cash-generating unit are used to deducting first the goodwill allocated to the cash-generating unit and, thereafter, the other assets of the unit on an equal basis. The useful life of the asset to be depreciated is reassessed in connection with the recognition of the impairment loss. A previously recognized impairment loss is reversed only if there has been a change in the estimates used to determine the recoverable amount. However, the reversal must not cause that the adjusted value is higher than the carrying amount that would have been determined if no impairment loss had been recognized in prior years. Impairment losses recognized for goodwill are not reversed.
ACCOUNTING FOR LEASES
Group as a lessee
Group's capitalised lease agreements consist mainly of buildings as production facilities, office premises and warehouses, also the Group has several vehicle lease agreements. The Group recognises a right-of-use (ROU) asset and a right-of-use liabilities at the commencement of the lease. At the commencement date, a right-of-use asset as defined by IFRS 16 is measured at cost. The Group applies the two available exemptions, which relate to short-term contracts, in which the lease term is less than 12 months, or low-value assets, which are expensed to other operating expenses.
The nominal right-of-use liabilities is initially measured at the present value of the lease payments over the lease term. The lease payments are discounted using the lessee's incremental borrowing rate. The incremental borrowing rates used are relevant interbank rates and the Group's internal finance margins. The incremental borrowing rates are currency specific.
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RAPALA VMC OYJ
FINANCIAL STATEMENTS 2020
CONSOLIDATED FINANCIAL STATEMENTS, IFRS
The initial measurement of the lease payments does not include possible variable elements. Variable lease payments not included in the initial measurement of the right-of-use liabilities are recognised directly in the statement of income. The lease term is the non-cancellable period of the lease plus period covered by an option to extend or option to terminate if the lessee is reasonably certain to exercise the extension option. Management judgment based on realistic estimates is used when determining the lease term, especially concerning lease agreements containing termination and purchase options and lease agreements with indefinite lease terms.
Subsequently, the right-of-use assets are measured at initial measurement less accumulated depreciation and impairment losses. The right-of-use assets are depreciated and interest on right-of-use liabilities recognised in the statement of income over the lease term. The right-of-use liabilities are subsequently measured at initial recognition less occurring lease payments that are allocated to the principal.
Lease payments are presented as repayments of liabilities and related interest expenses. The lease payments are presented in the cash flow from financing activities and the interest related to leases are presented in the cash flow from operating activities. Lease payments related to short-term leases, low-value assets and variable payments are presented in the cash flow from operating activities. Modifications to lease agreements may result in adjustments to existing right-of-use assets and lease liabilities. A gain or loss arising from a modification and a termination of a lease agreement is recognised in other operating income or other operating expenses in the statement of income.
Group as a lessor
IFRS 16 did not modify substantially how a lessor recognizes lease agreements. Those leases under which the Group is a lessor are classified as operating leases. Leased assets are presented in the balance sheet under tangible assets according to the nature of the asset. They are depreciated over their estimated useful lives in accordance with the depreciation policy used for comparable assets in own use. Lease income is recognized in the income statement on a straight-line basis over the lease term. The Group acting as a lessor is not material to the Group consolidated financial statements.
FINANCIAL ASSETS
Financial assets are initially measured at fair value at trade date. Subsequently, financial assets are classified and measured at amortized cost, at fair value through other comprehensive income, or at fair value through profit and loss.
Financial assets are measured at amortized cost when business model is hold-to-collect and cash flows are solely payments of principal and interest. Financial assets at amortized cost include non-derivative financial assets such as cash and cash equivalents, trade receivables and loan receivables.
Loan and trade receivables are measured at amortized cost using the effective interest rate method less any expected credit losses. Initially recognized amount includes directly attributable transaction costs. Gains and losses are recognized in the income statement when loans and receivables are derecognized, impaired, and through the amortization process.
Financial assets measured at fair value through profit and loss are assets which are derivatives not in hedge accounting.
Financial assets measured at fair value through other comprehensive income are equity instruments where entity has done an irrevocable election at initial recognition for particular investments in equity instruments that would otherwise be measured at fair value through profit or loss.
Impairment of financial assets is assessed regularly and when the carrying value exceeds the fair value or recoverable value of discounted cash flows, appropriate impairment is recognized in the income statement.
For trade receivables Rapala applies IFRS 9 expected credit loss assessment. See note 22.
DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGE ACCOUNTING
When hedge accounting is applied it is fulfilled according to IFRS 9. The Group is exposed to financial risks related especially to changes in foreign currency exchange rates and interest rates for loans and borrowings. Derivative financial instruments are used, from time to time, to hedge financial risk. All derivatives are initially recognized at fair value on the date derivative contract is entered into, and are subsequently remeasured at fair value on each balance sheet date. Determination of fair values is based on quoted market prices and rates, discounting of cash flows and option valuation models. The fair values of these instruments are received from the respective bank or calculated to match the current market price. Currently, the Group does not have embedded derivatives.
Derivatives may be designated as hedging instruments, in which case hedge accounting is applied. At the inception of a hedge relationship, the Group designates and documents the hedge relationship to which the Group wishes to apply hedge accounting and the risk management objective and strategy for undertaking the hedge. The documentation includes identification of the hedging instrument, the hedged item or transaction, the nature of the risk being hedged and how the entity will assess the effectiveness of changes in the hedging instrument's fair value in offsetting the exposure to changes in the hedged item's fair value or cash flows attributable to the hedged risk. Such hedges are expected to be highly effective in achieving offsetting changes in fair value or cash flows and are assessed on an ongoing basis to determine that they actually have been highly effective throughout the financial reporting periods for which they were designated. In the case hedge accounting is applied, the accounting for hedging instruments is dependent on the particular nature of the hedging relationship.
In cash flow hedges, changes in the fair value of derivative financial instruments that are designated and effective as hedges of future cash flows are recognized as other comprehensive income and the ineffective portion is recognized immediately in the income statement. Accumulated fair value changes recognized in the statement of other comprehensive income are reclassified into income statement in the period when the hedged cash flow affects income. Changes in fair value of derivative instruments are recognized in the income statement based on their nature either in the operative costs if the hedged item is an operative foreign currency transaction or as financial income or expenses, if the hedged item is a monetary transaction.
Changes of the fair value of derivative financial instruments that are designated and qualify as fair value hedges are recorded in the
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RAPALA VMC OYJ
FINANCIAL STATEMENTS 2020
CONSOLIDATED FINANCIAL STATEMENTS, IFRS
income statement together with the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk.
The changes in the fair values of derivatives that are designated as hedging instruments but are not accounted for according to the principles of hedge accounting are recognized in the income statement based on their nature either in the operative costs, if the hedged item is an operative transaction, or as financial income or expenses, if the hedged item is a monetary transaction.
In principal, the fair values of derivative instruments are presented in the statement of financial position under short-term or long-term non-interest bearing assets or liabilities based on their maturity. Derivative instruments that are designated and qualify as fair value hedges of monetary assets or liabilities, are presented in the same group of interest-bearing assets or liabilities as the hedged instrument.
Effective portion of changes in the fair values of foreign currency hedges used against the translation differences arising from the consolidation of net investments in foreign subsidiaries are recognized in translation differences in the statement of other comprehensive income. The ineffective portion is recognized in financial income and expenses. Accumulated fair value changes recognized in the items of other comprehensive income are reclassified into income statement if the hedged subsidiary is disposed of partially or in its entity.
FINANCIAL LIABILITIES
Financial liabilities are initially recognized at fair value at trade date. After initial recognition, the financial liabilities are subsequently measured and categorized at amortized cost, at fair value through profit and loss, or as derivatives designated at hedging instruments in an effective hedge. Financial liabilities, except derivatives, are initially recognized at the fair value of the consideration received plus directly attributable transactions costs. After initial recognition, they are subsequently measured at amortized cost using the effective interest method. Also commercial paper programs are measured at amortized cost. Gains and losses are recognized in the income statement when the liabilities are derecognized, impaired and through the amortization process.
Financial liabilities include current and non-current liabilities and they can be interest-bearing or non-interest-bearing. Contingent considerations of business combinations are classified as non-interest-bearing financial liabilities.
RECOGNITION AND DERECOGNITION OF FINANCIAL ASSETS AND LIABILITIES
Financial assets and liabilities are recognized at trade date. A financial asset or a financial liability is recognized on the balance sheet only when the Group becomes a party to the contractual provisions of the financial instrument.
A financial asset is derecognized only when the contractual rights to the cash flows from the financial asset expire or when it transfers the financial asset, so that all the risks and rewards of ownership of the financial asset are substantially transferred. A financial liability or a part of a financial liability is removed from the balance sheet only when it is extinguished, that the obligation specified in the contract is discharged or cancelled or expires.
INVENTORIES
Inventories are valued at the lower of cost or net realizable value. Cost is determined by the first-in, first-out (FIFO) method or, alternatively, weighted average cost where it approximates FIFO. The cost of finished goods and work in progress comprises raw materials, direct labor, depreciation, other direct costs and related production overheads, but excludes borrowing costs. Net realizable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and the estimated costs necessary to make the sale. Inventories are presented net of net realizable value allowance recognized for obsolete and slow-moving inventories.
TRADE RECEIVABLES
Trade receivables are carried at their anticipated realizable value, which is the original invoice amount less an estimated valuation allowance. A credit loss allowance of trade receivables is made when there is objective evidence (such as significant overdue of receivables and unsuccessful dunning attempts or known financial difficulties and thus increased probability of customer insolvency) that the Group will not be able to collect all amounts due according to the original terms of the receivables. The assessment and decision for credit loss allowances is done locally in each business unit on case-by-case basis.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents comprise cash in hand, deposits held at call with banks and other short-term highly liquid investments with original maturities of three months or less. Bank overdrafts are included within borrowings in current interest-bearing loans.
HYBRID BOND
A hybrid bond is an instrument which is presented under equity in the consolidated financial statements. A hybrid bond is subordinated to the company's other debt obligations, but has seniority over other equity items. The yield on a hybrid bond is paid if the Group distributes a dividend. If no dividend is distributed, the Group will make a separate decision on whether to pay the yield. Unpaid yields are accumulated. The holders of a hybrid bond do not possess the same rights as shareholders concerning control or voting at General Meetings of shareholders.
OWN SHARES
Own shares acquired by the Group, including directly attributable costs, are presented as a deduction from the total equity on the day of trading in the consolidated financial statements. Purchases or subsequent sales of treasury shares are presented as changes in equity.
PROVISIONS
Provisions are recognized in the balance sheet when the Group has a present legal or constructive obligation as a result of a past event, and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation.
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RAPALA VMC OYJ
FINANCIAL STATEMENTS 2020
CONSOLIDATED FINANCIAL STATEMENTS, IFRS
Where the Group expects some or all of a provision to be reimbursed, the reimbursement is recognized as a separate asset but only when the reimbursement is virtually certain. Provisions are valued at the net present value of the expenses required to cover the obligation. The discount factor used when calculating present value is selected so that it describes the market view of the time value of the money and the risk relating to the obligation at the time of examination.
A warranty provision is recognized when a product containing a warranty clause is sold. The size of the sum involved is determined on the basis of what is known about past warranty costs. A restructuring provision is recognized when the Group has compiled a detailed restructuring plan, launched its implementation or has informed the parties concerned.
WASTE ELECTRICAL AND ELECTRONIC EQUIPMENT
The Group is a distributor of electrical equipment that falls under the EU Directive on Waste Electrical and Electronic Equipment. Expected costs are recognized as part of other operating expenses and as a current non-interest-bearing payable.
EMPLOYEE BENEFITS
Employee benefit obligations
Throughout the Group operates various pension plans in accordance with local conditions and practices. The plans are classified as either defined contribution plans or defined benefit plans. The contributions to defined contribution plans are charged to the income statement in the year to which they relate.
For defined benefit plans, costs are assessed using the projected unit credit actuarial valuation method, in which the cost of providing benefit is charged to the income statement so as to spread the regular cost over the service lives of employees in accordance with the advice of qualified actuaries who carry out a full valuation of the plan. The benefit obligation is measured as the present value of estimated future cash outflows. Defined benefit liability comprises of the present value of the defined benefit obligation less the fair value of plan assets. All actuarial gains and losses are recognized in other comprehensive income immediately as they occur. The past service cost is recognized as an expense in the income statement.
Share-based payments
Share-based payment programs are valued at fair value on the grant date and recognized as an expense in the income statement during the vesting period with a corresponding adjustment to the equity or liability. In the cash settled option program the liability is revalued at each balance sheet date with changes in fair value recognized in the income statement. The income statement effect of the share-based payments programs is recognized in employee benefit expenses.
The expense of the share-based payments determined at the grant date reflects the Group's estimate of the number of options or share rewards that will ultimately vest. Grant date is the date at which the entity and another party agree to a share-based payment arrangement, being when the entity and the counterparty have a shared understanding of the terms and conditions of the arrangement. The options are valued at fair value using Black-Scholes option-pricing model. The non-market criteria are not included in the fair value of the option but taken into account in the number of options that are assumed to vest. On a regular basis the Group reviews the assumptions made and revises its estimates of the share-based payments that are expected to be settled. The changes in the estimates are recognized in the income statement with a corresponding adjustment to the equity or liability.
When the share options are exercised, the proceeds received, net of any transaction costs, are credited in the fund for invested non-restricted equity.
DIVIDEND
The dividend proposed by the Board of Directors is not deducted from distributable equity until approved by the Annual General Meeting of Shareholders.
EARNINGS PER SHARE
Earnings per share is calculated by dividing the net profit attributable to the shareholders of the company by the weighted average number of shares in issue during the year, excluding shares purchased by the Group and held as treasury shares, if any.
Diluted earnings per share amounts have been calculated by applying the "treasury stock" method, as if the options were exercised at the beginning of the period, or on the issuance of options, if that occurs later during the period, and as if the funds obtained thereby were used to purchase common stock at the average market price during the period. In addition to the weighted average number of shares outstanding, the denominator includes the incremental shares obtained through the assumed exercise of the options. The assumption of exercise is not reflected in earnings per share when the exercise price of the options exceeds the average market price of the shares during the period. The share options have a diluting effect only when the average market price of the share during the period exceeds the exercise price of the options.
OPERATING PROFIT
The IAS 1 (Presentation of Financial Statements) standard does not define operating profit. The Group has defined it as follows: Operating profit is the net amount arising from adding other operating income and share of results in associates and joint ventures to net sales, deducting cost of sales corrected for changes in inventories and cost of production for own use, deducting costs related to employee benefits, depreciation and possible impairments as well as other operating expenses. Foreign exchange differences and changes in the fair value of derivative financial instruments are included in operating profit in case they originate from operative business items; otherwise they are booked in financial income and expenses.
CASH FLOW STATEMENT
Cash and cash equivalents presented in the cash flow statement comprise cash in hand, deposits held at call with banks and other short-term highly liquid investments with original maturities of three months or less. Cash generated from operating activities has been reported using the indirect method. All income taxes paid during the financial year are presented in Net cash generated from operating activities, unless they can be particularly allocated to net cash from (used in) investing or financing
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RAPALA VMC OYJ
FINANCIAL STATEMENTS 2020
CONSOLIDATED FINANCIAL STATEMENTS, IFRS
activities. Unrealized exchange gains and losses from cash and cash equivalents denominated in foreign currencies are presented on a separate row before cash and cash equivalents at the end of period, separate from cash generated from (used in) operating, investing and financing activities.
COMPARABLE OPERATING PROFIT AND ITEMS AFFECTING COMPARABILITY
In order to reflect the underlying business performance and to enhance comparability between financial periods, the Group presents alternative performance measures. Comparable operating profit is operating profit excluding mark-to-market valuations of operative currency derivatives and other items affecting comparability, which include material restructuring costs, impairments, gains and losses on business combinations and disposals, insurance compensations and other non-operational items. Alternative performance measures should not be considered in isolation as a substitute for measures of performance in accordance with IFRS.
CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS
The preparation of the consolidated financial statements in accordance with IFRS requires management to make certain estimates and assumptions that affect the amounts recognized in the consolidated financial statements and accompanying notes. Actual results may differ from these estimates. In addition, judgment has to be exercised in applying the accounting principles of the financial statements. Management's estimates and assumptions are based on historical experience and plausible future scenarios, which are continually evaluated. Possible changes in estimates and assumptions are recognized in the accounting period during which estimates and assumptions were fixed and in all subsequent accounting periods.
The key assumptions concerning the future and other key sources of uncertainty related to estimations at the balance sheet date, that have significant risk of causing material adjustments to the carrying amounts of assets and liabilities within the next accounting period, are discussed below.
Determining fair value of acquisitions
The fair values of acquired working capital and tangible assets were evaluated by the Group and when needed external appraisal personnel before the acquisition. The fair value of intellectual property rights (trademarks, patents and technology) and customer relations are established with discounting the related cash flows.
Impairment testing
The carrying amounts of tangible and intangible assets are reviewed at each balance sheet date to determine whether there is any indication of impairment. Goodwill, intangible assets with indefinite useful lives and unfinished tangible assets are in all cases tested annually. For the purposes of assessing impairment, assets are grouped at the lowest cash generating unit level for which there are separately identifiable, mainly independent, cash inflows and outflows. An impairment loss is the amount by which the carrying amount of the assets exceeds the recoverable amount. The recoverable amount is determined by reference to discounted future net cash flows expected to be generated by the asset. These calculations require the use of estimates.
Income taxes
The Group reviews at each balance sheet date especially the carrying amount of deferred tax assets. Deferred taxes are measured with enacted tax rates, to reflect the temporary differences at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. The main temporary differences arise from the depreciation difference on tangible assets, fair valuation of net assets in acquired companies, intra-group inventory profits, defined benefit plans, provisions, untaxed reserves and tax losses carried forward. Temporary differences are recognized as a deferred tax asset to the extent that it is probable that future taxable profits will be available, against which the deductible temporary difference can be utilized. The likelihood for the recovery of deferred tax assets from future taxable income is assessed, and to the extent the recovery is not considered likely the deferred asset is adjusted in accordance. At each balance sheet date the Group reviews whether distribution of earnings in subsidiaries is in its control and probable, and books a deferred tax accordingly.
Defined benefit obligations
Costs for defined benefit plans are assessed using the projected unit credit actuarial valuation method. Several statistical and other actuarial assumptions are used in calculating the expense and liability related to the plans. These factors include assumptions about the discount rate, future salary increase and annual inflation rate. Statistical information used may differ from actual results. Changes in actuarial assumptions are recognized in other comprehensive income immediately as they occur which could have a slight impact on the Group's statement of comprehensive income.
Provisions
The timing of the recognition of a provision is based on management's estimate of the moment when the Group has a present legal or constructive obligation, as a result of a past event, and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation.
Hyperinflation
The Group may have operations in hyperinflatory economies. The financial statements of a subsidiary whose functional currency is the currency of a hyperinflationary economy are restated in accordance of IAS 29 (Financial Reporting in Hyperinflatory Economies) in case the adjustments are material in relation to the Group's consolidated financial statements.
ROUNDING OF FIGURES
The consolidated financial statements are presented in millions of euros. All figures in these accounts have been rounded. Consequently, the sum of individual figures can deviate from the presented sum figure. Key figures have been calculated using exact figures.
In the financial statements, EUR 0.0 million means the figure is less than EUR 50 000. If the amount is EUR 0, the cell is left empty.
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RAPALA VMC OYJ
FINANCIAL STATEMENTS 2020
CONSOLIDATED FINANCIAL STATEMENTS, IFRS
2 SEGMENT INFORMATION
The Rapala Group is led as a whole, as an integrated chain of units engaged in manufacturing, sourcing and distributing of mainly fishing tackle equipment as well as hunting, outdoor and winter sports equipment. The base unit of the Group's management is a single subsidiary engaged in one or several activities within the integrated supply chain. Each subsidiary and business is represented by a member in the Executive committee. The Group does not have any structure of independently led divisions, but the Group is managed as a whole. The Group's CEO, together with the Board is the ultimate decision maker.
Despite the integrated nature of the Group's operations, the type and source of products being processed by the units creates difference in the Group's management approach. There is a distinction in the strategic and operative role of the products depending on whether the product sold is being manufactured by the Group itself; whether the product is sourced by the Group externally, but sold under one of the Group's own brands; whether the product is a third party product represented and distributed by the Group; or whether the product is part of Group's core fishing tackle business or some supporting product category outside of fishing. This distinction between the type and source of products is the basis for the Group's operating segments.
The Group's operating segments are Group Fishing Products, Other Group Products and Third Party Products. Group Fishing Products and Other Group Products have been combined to reportable segment Group Products. Group Fishing Products are fishing tackle products manufactured or sourced by the Group itself and sold under the Group's brands. Group Fishing Products include Lures and Baits, Fishing Hooks, Fishing Lines and Fishing Accessories. Other Group Products include Group manufactured and/or branded products for winter sports and some other non-fishing businesses. Third Party Products include non-Group branded fishing products and third party products for hunting, outdoor and winter sports, which are distributed by the Group utilizing the same supply channel as Group Fishing Products and Other Group Products.
The Group has changed the measurements of segment performance by excluding items affecting comparability from operating profit. The Group measures segment performance based on sales, comparable operating profit and assets. Comparable operating profit is adjusted by mark-to-market valuations of operative currency derivatives and other items affecting comparability including material restructuring costs, impairments, gains and losses on business combinations and disposals, insurance compensations and other non-operational items. Definitions of the alternative performance measures are presented in Definitions of Key Figures on page 44. All the other segment reporting is consistent with IFRS accounting principles. Reportable segments are consistent with those in the financial statements 2019.
Pricing of inter-segment transactions is based on market prices.
REPORTABLE SEGMENTS
2020
| EUR MILLION | GROUP PRODUCTS | THIRD PARTY PRODUCTS | TOTAL REPORTABLE SEGMENTS |
|---|---|---|---|
| Net Sales | 187.5 | 73.8 | 261.3 |
| Depreciation, amortization and impairment losses | -11.9 | -3.5 | -15.5 |
| Share of results in associates and joint ventures (included in OP) | 0.0 | -0.8 | -0.8 |
| Comparable operating profit | 23.4 | -1.9 | 21.5 |
| Segment assets | |||
| Non-interest-bearing assets | 212.7 | 21.7 | 234.4 |
| Investments in associates and joint ventures | 0.0 | 3.4 | 3.4 |
| Total segment assets | 212.7 | 25.1 | 237.8 |
| Investments | 4.7 | 0.3 | 5.0 |
2019
| EUR MILLION | GROUP PRODUCTS | THIRD PARTY PRODUCTS | TOTAL REPORTABLE SEGMENTS |
|---|---|---|---|
| Net Sales | 185.2 | 90.2 | 275.4 |
| Depreciation, amortization and impairment losses | -9.9 | -2.7 | -12.6 |
| Share of results in associates and joint ventures (included in OP) | 0.0 | -0.2 | -0.2 |
| Comparable operating profit | 19.5 | -1.6 | 17.8 |
| Segment assets | |||
| Non-interest-bearing assets | 219.8 | 45.4 | 265.2 |
| Investments in associates and joint ventures | 0.0 | 4.2 | 4.2 |
| Total segment assets | 219.8 | 49.6 | 269.4 |
| Investments | 5.1 | 0.6 | 5.6 |
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RAPALA VMC OYJ
FINANCIAL STATEMENTS 2020
CONSOLIDATED FINANCIAL STATEMENTS, IFRS
RECONCILIATIONS
| EUR MILLION | 2020 | 2019 |
|---|---|---|
| Net sales | ||
| Total sales for reportable segments | 261.3 | 275.4 |
| Group net sales | 261.3 | 275.4 |
| Comparable operating profit | ||
| Total comparable operating profit for reportable segments | 21.5 | 17.8 |
| Mark-to-market valuations of operative currency derivatives | -0.1 | -0.4 |
| Other items affecting comparability | -10.7 | -4.0 |
| Group total operating profit | 10.7 | 13.4 |
| Group financial income and expenses | -4.2 | -3.6 |
| Group profit before taxes | 6.6 | 9.8 |
| Other items affecting comparability | ||
| Restructurings | ||
| Management restructuring | -0.6 | -1.1 |
| European restructurings | -4.6 | - |
| Indonesia manufacturing restructurings | -4.2 | -1.1 |
| Other restructurings | -1.2 | -2.1 |
| Acquisition costs of DQC International | - | -0.8 |
| Other items | - | 1.0 |
| Total other items affecting comparability | -10.7 | -4.0 |
| Assets | ||
| Total assets for reportable segments | 237.8 | 269.4 |
| Unallocated interest-bearing assets | 35.1 | 20.1 |
| Group total assets | 272.9 | 289.5 |
GEOGRAPHICAL AND GROUP-WIDE INFORMATION
The Group operates in four geographical areas which are North America, Nordic, Rest of Europe and Rest of the World. External net sales and non-current assets are presented separately in the countries which proportion is significant.
The non-current assets exclude non-current financial assets and deferred tax assets.
The Group's customer base consists of a large number of customers in several market areas and no single customer represent by itself a significant part of the Group's net sales.
External net sales by unit location
| EUR MILLION | 2020 | 2019 |
|---|---|---|
| Finland | 21.2 | 27.7 |
| Other Nordic Countries | 20.4 | 28.9 |
| Nordic total | 41.6 | 56.6 |
| Russia | 12.7 | 12.0 |
| France | 37.2 | 37.3 |
| Other European Countries | 29.9 | 32.0 |
| Rest of Europe total | 79.8 | 81.3 |
| USA | 96.8 | 91.6 |
| Other North America | 13.4 | 12.6 |
| North America total | 110.2 | 104.2 |
| Rest of the World total | 29.7 | 33.3 |
| TOTAL | 261.3 | 275.4 |
Non-current assets by unit location
| EUR MILLION | 2020 | 2019 |
|---|---|---|
| Finland | 21.3 | 23.2 |
| Other Nordic Countries | 1.9 | 4.6 |
| Nordic total | 23.2 | 27.8 |
| Rest of Europe total | 21.6 | 21.3 |
| USA | 30.2 | 32.8 |
| Other North America | 2.8 | 3.6 |
| North America total | 33.0 | 36.5 |
| China (incl. Hong Kong) | 26.5 | 27.5 |
| Other countries | 3.6 | 6.9 |
| Rest of the World total | 30.0 | 34.4 |
| TOTAL | 107.8 | 119.9 |
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RAPALA VMC OYJ
FINANCIAL STATEMENTS 2020
CONSOLIDATED FINANCIAL STATEMENTS, IFRS
ACQUISITIONS AND DIVESTMENTS
ACQUISITIONS IN 2020
No acquisitions were carried out in 2020.
ACQUISITIONS IN 2019
ASSOCIATED COMPANY ACQUISITION
On September 18, 2019, Rapala VMC concluded definitive agreements to acquire in total 49% of the share capital of the Florida-based DQC International Corp, known especially in the USA for its 13 Fishing-branded rods and reels. For more details on the associated companies, see note 13.
DIVESTMENTS IN 2020
No divestments were carried out in 2020.
DIVESTMENTS IN 2019
On 23 December, Rapala VMC divested 100% of the shares of its Ukrainian subsidiary VMC-WaterQueen Ukraine to a private Ukrainian company. VMC-WaterQueen Ukraine is a distribution company. The sale did not have a significant impact of Rapala VMC Corporation's financial position or result during 2019.
OTHER OPERATING INCOME
| EUR MILLION | 2020 | 2019 |
|---|---|---|
| Royalty income | 0.2 | 0.2 |
| Rental income | 0.1 | 0.5 |
| Business cost support for COVID-19 | 0.6 | - |
| Gains from sale of intangible and tangible assets | 0.1 | 1.0 |
| Insurance compensations | 0.0 | 0.1 |
| Other income | 0.5 | 0.4 |
| TOTAL | 1.6 | 2.2 |
OTHER OPERATING EXPENSES
| EUR MILLION | 2020 | 2019 |
|---|---|---|
| Selling and marketing expenses | -7.8 | -11.5 |
| Rents paid | -0.9 | -1.0 |
| Freight out | -6.2 | -6.1 |
| Maintenance and utility expenses | -5.9 | -5.7 |
| Traveling expenses | -2.1 | -4.1 |
| Sales commissions | -3.6 | -4.3 |
| Consulting expenses | -1.4 | -2.1 |
| IT and telecommunication | -2.8 | -2.7 |
| Auditors' fees and services | -0.9 | -0.8 |
| Outsourced logistics | -1.1 | -0.9 |
| Currency derivatives | 0.4 | 0.3 |
| Losses on sale of tangible and intangible assets | - | -0.5 |
| Other expenses | -8.7 | -9.3 |
| TOTAL | -41.0 | -48.6 |
AUDITORS' FEES AND SERVICES
| EUR MILLION | 2020 | 2019 |
|---|---|---|
| Audit fees | -0.7 | -0.7 |
| Fees for tax services | -0.2 | -0.1 |
| Non-audit fees | 0.0 | 0.0 |
| TOTAL | -0.9 | -0.8 |
MATERIALS AND SERVICES
| EUR MILLION | 2020 | 2019 |
|---|---|---|
| Materials, goods and supplies | ||
| Purchases during the period | -104.5 | -121.6 |
| Change in inventory | -2.1 | 2.6 |
| External services | -1.4 | -1.7 |
| TOTAL | -108.0 | -120.6 |
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RAPALA VMC OYJ
FINANCIAL STATEMENTS 2020
CONSOLIDATED FINANCIAL STATEMENTS, IFRS
7 EMPLOYEE BENEFIT EXPENSES
| EUR MILLION | 2020 | 2019 |
|---|---|---|
| Wages and salaries | -54.9 | -57.8 |
| Pension costs - defined contribution plans | -4.0 | -4.2 |
| Pension costs - defined benefit plans | -1.6 | -0.4 |
| Other long-term employee benefits | -0.1 | -0.1 |
| Option programs to be settled in shares | -0.8 | 0.0 |
| Other personnel expenses | -8.1 | -9.1 |
| TOTAL | -69.4 | -71.6 |
The employee benefit expenses in 2020 included EUR 2.8 million employee related restructuring expenses (2019: EUR 2.3 million). For more details on employee benefits for top management and possible share-based incentive plans, see notes 28 and 29.
AVERAGE PERSONNEL
| PERSONS | 2020 | 2019 |
|---|---|---|
| North America | 130 | 129 |
| Nordic | 330 | 348 |
| Rest of Europe | 860 | 859 |
| Rest of the World | 785 | 1 268 |
| TOTAL | 2 105 | 2 604 |
8 RESEARCH AND DEVELOPMENT EXPENSES
Net profit for the period includes research and development expenses of EUR 1.1 million recognized as an expense in 2020 (2019: EUR 1.7 million). Group has not capitalized development costs.
FINANCIAL INCOME AND EXPENSES
| EUR MILLION | 2020 | 2019 |
|---|---|---|
| Foreign exchange gains and losses | ||
| From financial assets | -4.4 | 2.6 |
| From financial liabilities measured at amortized cost | 2.7 | -3.4 |
| From right-of-use liabilities | -0.1 | 0.0 |
| Interest and other financial income | ||
| Interest income from financial assets measured at amortized cost | 0.6 | 0.8 |
| Change in fair value of interest rate derivatives - hedge accounted | - | 0.0 |
| Interest rate derivatives - non-hedge accounted | 0.8 | 0.0 |
| Other financial income | 0.0 | 0.0 |
| Interest and other financial expenses | ||
| Interest expense on financial liabilities measured at amortized cost | -2.2 | -2.0 |
| Interest rate derivatives - non-hedge accounted | -0.1 | -0.4 |
| Interest expenses on right-of-use liabilities | -0.4 | -0.5 |
| Other financial expenses | -1.1 | -0.9 |
| TOTAL | -4.2 | -3.6 |
RECOGNIZED IN THE STATEMENT OF OTHER COMPREHENSIVE INCOME
| EUR MILLION | 2020 | 2019 |
|---|---|---|
| Change in fair value of interest rate derivatives - hedge accounted, net of tax | - | 0.0 |
| Gains and losses on hedges of net investments, net of tax | -1.1 | 1.2 |
| TOTAL | -1.1 | 1.2 |
EXCHANGE GAINS AND LOSSES IN OPERATING PROFIT
| EUR MILLION | 2020 | 2019 |
|---|---|---|
| In net sales | 0.3 | 0.3 |
| In purchases | -0.5 | -0.1 |
| In other operating expenses | ||
| Currency derivatives, non-hedge accounted | 0.4 | 0.3 |
| TOTAL | 0.2 | 0.5 |
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23
RAPALA VMC OYJ
FINANCIAL STATEMENTS 2020
CONSOLIDATED FINANCIAL STATEMENTS, IFRS
INCOME TAXES
INCOME TAXES IN THE INCOME STATEMENT
| EUR MILLION | 2020 | 2019 |
|---|---|---|
| Income taxes | -6.2 | -4.8 |
| Deferred taxes | 3.0 | -1.0 |
| TOTAL | -3.2 | -5.8 |
INCOME TAX RECONCILIATION
| EUR MILLION | 2020 | 2019 |
|---|---|---|
| Profit before taxes | 6.6 | 9.8 |
| Income taxes at Finnish statutory tax rate (20%) | -1.3 | -2.0 |
| Difference between Finnish and foreign rates | -0.3 | -0.1 |
| Prior year income taxes | -0.1 | -1.0 |
| Foreign withholding taxes | -0.0 | -0.2 |
| Effect of deferred taxes not recognized | -1.0 | -2.3 |
| Benefit arising from previously unrecognized deferred tax assets | 0.4 | 0.1 |
| Effect of changes of tax rates | -0.0 | 0.1 |
| Other items | -0.8 | -0.4 |
| INCOME TAXES IN THE INCOME STATEMENT | -3.2 | -5.8 |
TAXES IN OTHER COMPREHENSIVE INCOME
2020
| EUR MILLION | BEFORE TAX | TAX EXPENSE/BENEFIT | NET OF TAX |
|---|---|---|---|
| Translation differences | -10.7 | -10.7 | |
| Remeasurements of defined benefit liabilities | 0.0 | 0.0 | 0.1 |
| Cash flow hedges | |||
| Net investment hedges | -1.3 | 0.2 | -1.1 |
| TOTAL | -11.9 | 0.2 | -11.7 |
2019
| EUR MILLION | BEFORE TAX | TAX EXPENSE/BENEFIT | NET OF TAX |
|---|---|---|---|
| Translation differences | 2.4 | 2.4 | |
| Remeasurements of defined benefit liabilities | -0.2 | 0.0 | -0.1 |
| Net investment hedges | 1.3 | 0.0 | 1.2 |
| TOTAL | 3.5 | 0.0 | 3.5 |
DEFERRED TAXES
| EUR MILLION | 2020 | 2019 |
|---|---|---|
| Tax losses and credits carried forward | 3.1 | 1.4 |
| Provisions | 1.3 | 0.8 |
| Employee benefits | 0.6 | 0.6 |
| Depreciation difference | 1.0 | 0.1 |
| Inventories | 2.5 | 3.2 |
| Other temporary differences | 0.2 | 0.0 |
| Total | 8.7 | 6.0 |
| Offset against deferred tax liabilities | -0.9 | -1.4 |
| TOTAL DEFERRED TAX ASSETS | 7.8 | 4.6 |
| Depreciation difference and other untaxed reserves | 1.9 | 2.6 |
| Fair value allocations for acquired net assets | 3.9 | 4.1 |
| Other temporary differences | 0.0 | 0.2 |
| Total | 5.8 | 6.8 |
| Offset against deferred tax assets | -0.9 | -1.4 |
| TOTAL DEFERRED TAX LIABILITIES | 5.0 | 5.4 |
| NET DEFERRED TAX ASSETS (+) / LIABILITIES (-) | 2.8 | -0.8 |
MOVEMENT IN THE NET DEFERRED TAX BALANCE
| EUR MILLION | 2020 | 2019 |
|---|---|---|
| Net deferred tax assets (+) and liabilities (-) at Jan 1 | -0,8 | -0,1 |
| Recognized in income statement | 3,0 | -1,0 |
| Recognized in other comprehensive income | 0,2 | 0,0 |
| Recognized in equity | 0,3 | 0,0 |
| Translation differences | 0,2 | 0,3 |
| NET DEFERRED TAX ASSETS (+) AND LIABILITIES (-) DEC 31 | 2,8 | -0,8 |
Deferred taxes have been reported as a net balance according to IAS 12. As of December 31, 2020, the Group had tax losses carried forward of EUR 29.2 million (2019: EUR 29.5 million), for which deferred tax assets have not been recognized in the consolidated financial statements because the realization of the tax benefit is not probable. EUR 0.1 million of these tax losses will expire during the next five years (2019: EUR 0.9 million).
Deferred tax liability on undistributed earnings of subsidiaries has not been recognized in the consolidated balance sheet because distribution of the earnings is in the control of the Group and such distribution is not probable within the foreseeable future.
The consolidated balance sheet includes deferred tax assets of EUR 2.7 million (2019: EUR 0.9 million) in group companies, which have generated losses in financial year 2020 or 2019. The recognition of these assets is based on profit estimates, which indicate that the realization of these deferred tax assets is probable.
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24
RAPALA VMC OYJ
FINANCIAL STATEMENTS 2020
CONSOLIDATED FINANCIAL STATEMENTS, IFRS
11
INTANGIBLE ASSETS
2020
| EUR MILLION | GOODWILL | TRADEMARKS | CUSTOMER RELATIONS | OTHER INTANGIBLE ASSETS | TOTAL |
|---|---|---|---|---|---|
| Acquisition cost Jan 1 | 49.1 | 25.2 | 4.0 | 8.4 | 86.7 |
| Additions | 0.4 | 0.4 | |||
| Disposals | 0.0 | 0.0 | |||
| Reclassifications 1) | 0.2 | 0.2 | |||
| Translation differences | -2.1 | -1.3 | -0.3 | -0.1 | -3.8 |
| ACQUISITION COST DEC 31 | 47.0 | 23.8 | 3.8 | 8.8 | 83.4 |
| Accumulated amortization Jan 1 | -0.9 | -3.6 | -6.7 | -11.2 | |
| Disposals | 0.0 | 0.0 | |||
| Reclassifications 1) | - | - | |||
| Amortization during the period | -0.1 | -0.5 | -0.6 | ||
| Translation differences | 0.0 | 0.2 | 0.1 | 0.3 | |
| ACCUMULATED AMORTIZATION DEC 31 | -0.9 | -3.5 | -7.9 | -12.2 | |
| CARRYING VALUE JAN 1 | 49.1 | 24.2 | 0.4 | 1.7 | 75.5 |
| CARRYING VALUE DEC 31 | 47.0 | 23.0 | 0.3 | 1.0 | 71.2 |
2019
| EUR MILLION | GOODWILL | TRADEMARKS | CUSTOMER RELATIONS | OTHER INTANGIBLE ASSETS | TOTAL |
|---|---|---|---|---|---|
| Acquisition cost Jan 1 | 48.5 | 24.6 | 3.9 | 8.3 | 85.3 |
| Additions | 0.5 | 0.5 | |||
| Disposals | 0.0 | -0.4 | -0.5 | ||
| Reclassifications 2) | 0.0 | 0.0 | |||
| Translation differences | 0.6 | 0.6 | 0.1 | 0.0 | 1.3 |
| ACQUISITION COST DEC 31 | 49.1 | 25.2 | 4.0 | 8.4 | 86.7 |
| Accumulated amortization Jan 1 | -0.9 | -3.4 | -6.6 | -10.9 | |
| Disposals | 0.4 | 0.4 | |||
| Reclassifications 1) | 0.0 | 0.0 | |||
| Amortization during the period | -0.1 | -0.5 | -0.7 | ||
| Translation differences | 0.0 | -0.1 | 0.0 | -0.1 | |
| ACCUMULATED AMORTIZATION DEC 31 | -0.9 | -3.6 | -6.7 | -11.2 | |
| CARRYING VALUE JAN 1 | 48.5 | 23.7 | 0.6 | 1.7 | 74.5 |
| CARRYING VALUE DEC 31 | 49.1 | 24.2 | 0.4 | 1.7 | 75.5 |
1) Includes reclassifications between intangible and tangible assets.
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RAPALA VMC OYJ
FINANCIAL STATEMENTS 2020
CONSOLIDATED FINANCIAL STATEMENTS, IFRS
GOODWILL AND TRADEMARKS WITH INDEFINITE LIVES BY BUSINESS SEGMENTS
| EUR MILLION | GROUP FISHING PRODUCTS | OTHER GROUP PRODUCTS | THIRD PARTY PRODUCTS | TOTAL |
|---|---|---|---|---|
| 2020 | ||||
| Goodwill | 45.4 | 0.1 | 1.6 | 47.0 |
| Trademarks with indefinite lives | 22.5 | 0.4 | 23.0 | |
| Discount rate, % | 9.2 | 9.2 | 11.0 | |
| 2019 | ||||
| Goodwill | 47.3 | 0.0 | 1.8 | 49.1 |
| Trademarks with indefinite lives | 23.8 | 0.4 | 24.2 | |
| Discount rate, % | 8.0 | 8.0 | 6.3 |
IMPAIRMENT TESTING OF GOODWILL AND TRADEMARKS WITH INDEFINITE LIVES
The Group is led as a whole and not organized nor managed in independent divisions. Most of the units are also strongly interlinked i.e. some units do not have a sales or a production organization or some other functions or operations needed to operate on a stand-alone basis. However, according to IFRS, the lowest cash-generating unit (CGU) cannot be larger than an operating segment in the Group's segment reporting. As a consequence, goodwill and trademarks with indefinite lives are tested on the operating segment level. Impairment assessment was immediately performed due to COVID-19 outbreak and there was no indication that assets may be impaired.
The recoverable amount of the CGU is determined based on value-in-use calculations. Cash flow projections, which were used in these calculations, were based on most recent 5-year financial forecasts prepared by the management and approved by the Board. The estimated sales and production volumes are derived from the utilization of existing property, plant and equipment. The most important assumptions on which management has based its cash flow projections are the sales and profitability. Discount rate is the weighted average pre-tax cost of capital (WACC) which is defined for each cash-generating unit separately. The components of WACC are the risk-free yield rate, market risk premium, industry specific beta, cost of debt, and target capital structure. In the impairment tests prepared in 2020 and 2019, the growth rate used to extrapolate the cash flow beyond the five-year period is 0%. As a result of the performed impairment tests, no impairment losses have been recognized in 2020 or 2019.
Key assumptions
Sales – The Group's estimated sales are based on present and future product assortment and utilization of distribution and manufacturing capacity. In addition, estimated sales are based on long-term growth of industry and further implementation of Group's strategic objectives.
EBITDA margin – The Group's estimated EBITDA margin, operating profit before depreciation and impairments compared to net sales, is based on past years actual margins and management's view on sales and gross margin development. The increase in general cost level has also been taken into account in the development of EBITDA margin.
Discount rate – Discount rate is the weighted average pre-tax cost of capital (WACC). Weighted average cost of capital represents the total cost of Group's equity and debt taken into account specific risks related to assets.
Growth rate – Compared to historical sales growth development, management has been conservative in determining the growth rate for impairment purposes.
Sensitivity analysis
The key sensitivity factors for the impairment test are the estimated EBITDA margin and the discount rate. According to the Group's management in the main business segments Group Fishing Products and Third Party Products no probable change in any of the key sensitivity factors would lead to a situation where the carrying amount would exceed the recoverable amount. Even if the discount rate would be 11.0 percentage points higher in Group Fishing Products and 13.0 percentage points in Third Party Products or EBITDA 42.0 percentage lower than used in the management's estimates in Group Fishing Products and 67.0 percentage points in Third Party Products, it would not lead to an impairment loss in these main cash generating units.
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26
RAPALA VMC OYJ
FINANCIAL STATEMENTS 2020
CONSOLIDATED FINANCIAL STATEMENTS, IFRS
12 TANGIBLE ASSETS
2020
| EUR MILLION | LAND | BUILDINGS AND STRUCTURES | MACHINERY AND EQUIPMENT | OTHER TANGIBLE ASSETS | ADVANCE PAYMENTS AND CONSTRUCTION IN PROGRESS | TOTAL |
|---|---|---|---|---|---|---|
| Acquisition cost Jan 1 | 2.0 | 26.3 | 60.6 | 22.1 | 1.2 | 112.2 |
| Additions | 0.2 | 1.4 | 0.9 | 2.0 | 4.6 | |
| Disposals | -0.2 | -0.7 | -1.4 | -2.3 | ||
| Reclassifications 1) | 0.1 | 1.0 | 0.2 | -1.4 | -0.2 | |
| Translation differences | -0.1 | -0.7 | -1.0 | -1.3 | -0.5 | -3.6 |
| ACQUISITION COST DEC 31 | 1.9 | 25.7 | 61.2 | 20.5 | 1.3 | 110.6 |
| Accumulated depreciation Jan 1 | -18.3 | -49.8 | -17.2 | -85.2 | ||
| Disposals | 0.2 | 0.4 | 1.1 | 1.7 | ||
| Reclassifications 1) | 0.0 | 0.0 | 0.0 | |||
| Depreciation during the period | -0.8 | -2.9 | -2.8 | -6.5 | ||
| Impairments | -0.2 | -0.2 | ||||
| Translation differences | 0.4 | 0.7 | 1.1 | 2.2 | ||
| ACCUMULATED DEPRECIATION DEC 31 | -18.4 | -51.7 | -17.9 | -88.0 | ||
| CARRYING VALUE JAN 1 | 2.0 | 8.1 | 10.8 | 4.9 | 1.2 | 26.9 |
| CARRYING VALUE DEC 31 | 1.9 | 7.3 | 9.5 | 2.6 | 1.3 | 22.6 |
2019
| EUR MILLION | LAND | BUILDINGS AND STRUCTURES | MACHINERY AND EQUIPMENT | OTHER TANGIBLE ASSETS | ADVANCE PAYMENTS AND CONSTRUCTION IN PROGRESS | TOTAL |
|---|---|---|---|---|---|---|
| Acquisition cost Jan 1 | 1.9 | 27.4 | 59.5 | 23.2 | 0.9 | 113.0 |
| Additions | 0.2 | 2.0 | 1.2 | 1.6 | 5.1 | |
| Disposals | -2.0 | -2.2 | -3.0 | -7.2 | ||
| Reclassifications 1) | 0.4 | 0.7 | 0.1 | -1.3 | -0.1 | |
| Translation differences | 0.1 | 0.4 | 0.6 | 0.6 | -0.1 | 1.5 |
| ACQUISITION COST DEC 31 | 2.0 | 26.3 | 60.6 | 22.1 | 1.2 | 112.2 |
| Accumulated depreciation Jan 1 | -18.4 | -48.2 | -16.8 | -83.4 | ||
| Disposals | 1.2 | 1.9 | 1.8 | 4.8 | ||
| Reclassifications 1) | 0.0 | 0.0 | 0.0 | |||
| Depreciation during the period | -0.8 | -3.0 | -1.7 | -5.5 | ||
| Impairments | 0.0 | 0.0 | 0.0 | |||
| Translation differences | -0.2 | -0.4 | -0.4 | -1.0 | ||
| ACCUMULATED DEPRECIATION DEC 31 | -18.3 | -49.8 | -17.2 | -85.2 | ||
| CARRYING VALUE JAN 1 | 1.9 | 9.0 | 11.3 | 6.4 | 0.9 | 29.5 |
| CARRYING VALUE DEC 31 | 2.0 | 8.1 | 10.8 | 4.9 | 1.2 | 26.9 |
1) Includes reclassifications between intangible and tangible assets and inventories.
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RAPALA VMC OYJ
FINANCIAL STATEMENTS 2020
CONSOLIDATED FINANCIAL STATEMENTS, IFRS
13 INVESTMENTS IN ASSOCIATES AND JOINT VENTURES
The Group acquired 49% of the share capital and voting rights of DQC International Corp, an unlisted company domiciled in the USA. DQC International Corp, known especially in the USA for its 13 Fishing-branded rods and reels on September 18, 2019.
The Group has a 33.3% interest in associate Lanimo Où, an unlisted company domiciled in Estonia. Its main activity is producing leather-haberdashery. The carrying amount does not include goodwill or impairments. Lanimo Où's figures are based on the information for the period ending on September 30, due to differences in reporting time schedule. Information for the financial period ending on December 31, 2019 is the following: assets EUR 0.1 million, liabilities EUR 0.1 million, sales EUR 0.2 million and profit EUR -0.0 million.
Associated companies are consolidated according to the equity method.
| EUR MILLION | 2020 | 2019 |
|---|---|---|
| Acquisition cost Jan 1 | 4.2 | 0.0 |
| Increase | 0.1 | 4.4 |
| Share of profit/loss | -0.8 | -0.2 |
| ACQUISITION COST DEC 31 | 3.4 | 4.2 |
Information on associates and joint ventures
| MILJ. EUR | LANIMO OÜ | DQC INTERNATIONAL CORP. | ||
|---|---|---|---|---|
| 2020 | 2019 | 2020 | 2019 | |
| Net sales | 0.1 | 0.2 | 12.6 | 6.2 |
| Purchases and other expenses | -0.1 | -0.2 | -9.4 | -6.5 |
| Depreciation | 0.0 | 0.0 | -0.7 | 0.0 |
| Interest income and expenses | 0.0 | 0.0 | -4.0 | -0.2 |
| Net profit for the period | 0.0 | 0.0 | -1.4 | -0.5 |
| Non-current assets | 0.0 | 0.0 | 1.9 | 1.6 |
| Current assets | 0.1 | 0.1 | 6.5 | 7.4 |
| Of which cash and cash equivalents | 0.0 | 0.0 | 0.0 | 0.1 |
| Non-current liabilities | 0.0 | 0.0 | 10.3 | 10.1 |
| Of which financial liabilities | 0.0 | 0.0 | - | - |
| Current liabilities | 0.0 | 0.0 | 1.5 | 1.1 |
| Net assets of associate/ joint venture | 0.0 | 0.0 | -3.5 | -2.2 |
| Net assets belonging to Rapala Group | 0.0 | 0.0 | -1.7 | -0.7 |
14 MATERIAL PARTLY OWNED SUBSIDIARIES
Rapala Group includes one company, where non-controlling interest is material based on Group's consolidated net profit for the period. Group owns 50% of AO Normark domiciled in Russia. The other 50% is owned by Shimano Inc. AO Normark distributes Rapala Group's and Shimano's products in Russia. Rapala Group has control over the company, based on operative leadership model and a shareholder contract, which gives majority of the voting power to Rapala in the board of a holding company directly owning AO Normark. The company is treated as a subsidiary and fully consolidated to the figures of Rapala Group.
Financial information below is based on AO Normark's reported figures before intra-Group eliminations.
| EUR MILLION | PROFIT (LOSS) ALLOCATED TO NON-CONTROLLING INTERESTS | EQUITY BELONGING TO NON-CONTROLLING INTERESTS | ||
|---|---|---|---|---|
| 2020 | 2019 | 2020 | 2019 | |
| AO Normark | 0.7 | 0.5 | 1.8 | 1.5 |
| Other partly-owned subsidiaries | 0.2 | -0.9 | 3.4 | 3.2 |
| TOTAL | 1.0 | -0.4 | 5.2 | 4.6 |
Summarized financial information
AO Normark
| EUR MILLION | 2020 | 2019 |
|---|---|---|
| Net sales | 12.2 | 11.8 |
| Purchases and other expenses | -10.2 | -9.9 |
| Depreciation | -0.5 | -0.7 |
| Interest income and expenses | -0.1 | -0.2 |
| Net profit for the period | 1.4 | 1.0 |
| Non-current assets | 0.2 | 0.2 |
| Current assets | 4.5 | 4.9 |
| Non-current liabilities | 0.2 | 0.1 |
| Current liabilities | 0.9 | 2.1 |
| Equity | 3.6 | 2.9 |
| Cash flows from operating activities | 3.0 | 1.1 |
| Cash flows from investing activities | -0.6 | 0.1 |
| Cash flows from financing activities | -1.0 | -2.0 |
15 OTHER SHARES
| EUR MILLION | 2020 | 2019 |
|---|---|---|
| Carrying value Jan 1 | 0.2 | 0.3 |
| Translation differences | 0.0 | 0.0 |
| CARRYING VALUE DEC 31 | 0.2 | 0.2 |
Other shares comprise of unlisted shares. The most significant is As Oy Tahkon Eagle.
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28
RAPALA VMC OYJ
FINANCIAL STATEMENTS 2020
CONSOLIDATED FINANCIAL STATEMENTS, IFRS
16 RECEIVABLES
| EUR MILLION | 2020 | 2019 |
|---|---|---|
| Non-current receivables | ||
| Interest-bearing | ||
| Loan receivables | 7.2 | 7.8 |
| Other interest-bearing receivables | 0.0 | 0.0 |
| Non-interest-bearing | ||
| Trade receivables | 0.0 | 0.0 |
| Derivatives | - | 0.0 |
| Other receivables | 0.1 | 0.2 |
| Current receivables | ||
| Non-interest-bearing | ||
| Trade receivables | 43.5 | 43.1 |
| Derivatives | 0.2 | 0.3 |
| VAT receivable | 1.4 | 1.1 |
| Other prepaid expenses and accrued income | 3.5 | 2.9 |
| Other receivables | 3.3 | 2.4 |
| TOTAL | 59.2 | 57.9 |
Fair values of financial assets are presented in the note 23.
The average interest rate of non-current loan receivables was 4.87% (2019: 4.78%).
ALLOWANCES BOOKED FOR TRADE RECEIVABLES
| EUR MILLION | 2020 | 2019 |
|---|---|---|
| Allowance for trade receivables Jan 1 | 2.0 | 2.7 |
| Additions | 2.2 | 1.1 |
| Deductions | -0.3 | -1.4 |
| Recovery | -0.7 | -0.4 |
| Translation differences | -0.1 | 0.1 |
| ALLOWANCE FOR TRADE RECEIVABLES DEC 31 | 3.1 | 2.0 |
In most cases allowances are determined individually, when there is objective evidence (such as significant overdue of receivables and unsuccessful dunning attempts or known financial difficulties and thus increased probability of customer insolvency) that the Group will not be able to collect all amounts due according to the original terms of the receivables.
17 INVENTORIES
| EUR MILLION | 2020 | 2019 |
|---|---|---|
| Raw material | 12.0 | 14.7 |
| Work in progress | 8.4 | 9.2 |
| Finished products | 55.6 | 77.4 |
| Net realizable value allowance | -7.2 | -8.6 |
| TOTAL | 68.8 | 92.6 |
18 CASH AND CASH EQUIVALENTS
| EUR MILLION | 2020 | 2019 |
|---|---|---|
| Cash at bank and in hand | 27.9 | 12.3 |
| TOTAL | 27.9 | 12.3 |
19 SHARE CAPITAL AND EQUITY FUNDS
| EUR MILLION | 2020 | 2019 |
|---|---|---|
| Share capital Jan 1 | 3.6 | 3.6 |
| SHARE CAPITAL DEC 31 | 3.6 | 3.6 |
| Share premium fund Jan 1 | 16.7 | 16.7 |
| SHARE PREMIUM FUND DEC 31 | 16.7 | 16.7 |
| Hedging fund Jan 1 | - | 0.0 |
| Cash flow hedges, fair value gains and losses during the year | - | 0.0 |
| HEDGING FUND DEC 31 | - | 0.0 |
| Fund for invested non-restricted equity Jan 1 | 4.9 | 4.9 |
| FUND FOR INVESTED NON-RESTRICTED EQUITY DEC 31 | 4.9 | 4.9 |
SHARES AND SHARE CAPITAL
| SHARES | 2020 | 2019 |
|---|---|---|
| Number of shares Jan 1 | 39 000 000 | 39 000 000 |
| NUMBER OF SHARES DEC 31 | 39 000 000 | 39 000 000 |
| Own shares Jan 1 | 452 208 | 677 208 |
| Directed issue of own shares | - | -225 000 |
| OWN SHARES DEC 31 | 452 208 | 452 208 |
On December 31, 2020, the share capital fully paid and reported in the Trade Register was EUR 3.6 million and the total number of shares was 39 000 000.
For more information on shares and share capital, see the section Shares and Shareholders.
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29
RAPALA VMC OYJ
FINANCIAL STATEMENTS 2020
CONSOLIDATED FINANCIAL STATEMENTS, IFRS
EQUITY FUNDS
Share premium fund includes the premiums received on exercise of share options and other share issues under the old Finnish Companies Act. Fund for invested non-restricted equity includes subscription prices for shares to the extent that it is specifically not to be credited to share capital and other types of equity investments.
Translation differences contain exchange differences arising from the currency translation of foreign subsidiaries' financial statements and exchange differences arising from monetary items that form part of net investments in foreign companies. Hedging fund includes movements in the fair values of derivative instruments used for cash flow hedging.
HYBRID BOND
On 31 May 2019, Group redeemed its hybrid loan of 25 MEUR, issued in May 2017, following the permitting conditions of the bond. Accrued interest 1.3 MEUR was paid out in May 2019, resulting from the decision to pay dividends, and was recognized as a deduction from Group's equity.
In November 2019, the Group issued a new EUR 25 million hybrid bond, which is classified as equity with no maturity date and subordinated to other debt obligations. The bond bears a fixed interest rate of 5.25 per cent per annum until November 13, 2021. The Group is entitled to redeem the hybrid bond after 2 years. The interest on hybrid bond is paid if the Annual General Meeting decides to pay a dividend or in other ways to distribute capital to shareholders. If a dividend is not paid the Group has the right to decide on the possible payment of interest at its own discretion. Non-payable interest accumulates and is disclosed as off-balance sheet commitment. The hybrid bond does not confer to its holders the rights of a shareholder and does not dilute the holdings of the current shareholders. According to IAS 33, interest accrued in local books has been taken into account as an expense in earnings per share calculation as described in calculation of key figures. The accrued non-recognised interest on hybrid bond at December 31, 2020 was EUR 1.1 million (0.7). The accrued interest of EUR 1.1 million, resulting from the decision of the Board of Directors, was paid out in November 2020 and was recognized as a deduction from Group's equity.
DIVIDENDS
No dividend was paid for 2019. The Board of Directors proposes to the Annual General Meeting of Shareholders to be held on March 25, 2021 that no dividend will be paid for 2020 either.
BOARD'S AUTHORIZATIONS
For information on the Board's authorizations and acquisition of own shares, see section Shares and Shareholders.
20 EMPLOYEE BENEFIT OBLIGATIONS
Most of the Group's pension plans are defined contribution plans. The Group has defined benefit pension plans in France and in some Rest of the World countries. The plans in Rest of the World countries are immaterial as a whole. The retirement benefits are determined based on salary and period of employment. These obligations are unfunded. The Group has no other post-employment benefit obligations. The pension security of the personnel of the Group's Finnish companies is arranged under the Finnish statutory employee pension plan (TYEL) through an external pension insurance company. Employee benefit obligations also include a long-term profit-sharing payable to the employees in France and in some Rest of the World countries.
EXPENSES RECOGNIZED IN THE INCOME STATEMENT
| EUR MILLION | 2020 | 2019 |
|---|---|---|
| Current service cost | -0.2 | -0.2 |
| Interest cost | 0.0 | -0.1 |
| TOTAL | -0.3 | -0.3 |
AMOUNTS RECOGNIZED IN THE BALANCE SHEET
| EUR MILLION | 2020 | 2019 |
|---|---|---|
| Rest of Europe | 2.2 | 2.3 |
| Rest of the World | 1.3 | 0.6 |
| PRESENT VALUE OF UNFUNDED OBLIGATIONS | 3.5 | 2.9 |
BALANCE SHEET RECONCILIATION
| EUR MILLION | 2020 | 2019 |
|---|---|---|
| Obligations Jan 1 | 2.9 | 2.7 |
| Current service cost | 0.3 | 0.3 |
| Interest cost | 0.0 | 0.1 |
| Actuarial gains and losses | ||
| Changes in demographic assumptions | 0.0 | 0.0 |
| Changes in financial assumptions | 0.1 | 0.2 |
| Changes in experience assumptions | -0.1 | 0.0 |
| Effect of any curtailments or settlements | -0.1 | -0.1 |
| Translation differences | 0.4 | -0.1 |
| OBLIGATIONS DEC 31 | 3.5 | 2.9 |
The following payments are expected contributions to be made in the future years out of the defined benefit plan obligation.
| EUR MILLION | 2020 | 2019 |
|---|---|---|
| Within one year | 0.1 | 0.1 |
| 1-5 years | 0.3 | 0.2 |
| 5-10 years | 0.8 | 0.6 |
| Later than 10 years | 2.4 | 2.0 |
| TOTAL | 3.5 | 2.9 |
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RAPALA VMC OYJ
FINANCIAL STATEMENTS 2020
CONSOLIDATED FINANCIAL STATEMENTS, IFRS
ASSUMPTIONS
| Rest of Europe | ||
|---|---|---|
| % | 2020 | 2019 |
| Discount rate | 0.4 | 0.7 |
| Future salary increase | 2.5-3.0 | 3.0 |
| Annual inflation rate | 1.8 | 1.8 |
| Rest of the World | ||
| --- | --- | --- |
| % | 2020 | 2019 |
| Discount rate | 1.4-7.8 | 3.0-8.0 |
| Future salary increase | 8.0 | 8.0 |
The discount rate and the future salary increase are identified as significant actuarial assumptions. Changes in these assumptions do not cause material impact on the net defined benefit obligation.
The Group expects to pay EUR 0.1 million as contributions to its defined benefit pension plans in 2021.
21 PROVISIONS
| EUR MILLION | 2020 | 2019 |
|---|---|---|
| Warranty provisions | ||
| Provisions Jan 1 | - | - |
| Additions | 0.3 | - |
| WARRANTY PROVISIONS DEC 31 | 0.3 | - |
| Other provisions | ||
| Provisions Jan 1 | 0.6 | 0.2 |
| Additions | 0.8 | 0.5 |
| Utilized provisions | -0.5 | - |
| OTHER PROVISIONS DEC 31 | 1.0 | 0.6 |
| Non-current | 0.1 | 0.2 |
| Current | 1.3 | 0.5 |
| TOTAL PROVISIONS | 1.4 | 0.6 |
22 FINANCIAL RISK MANAGEMENT AND DERIVATIVE FINANCIAL INSTRUMENTS
The main objective of the Group's financial risk management is to reduce the impacts of price fluctuations in financial markets and other factors of uncertainty on earnings, cash flows and balance sheet, as well as to ensure sufficient liquidity. The Board has approved the Group's risk management principles and CEO is responsible, together with the Chief Financial Officer, for development and implementation of financial risk management procedures.
Group Risk Management review financial risks on regular basis to manage Group's financial risk position and decide on necessary actions to manage financial risks. Group Risk Management continued monitoring and management of foreign exchange, interest rate, liquidity and counterparties' solvency risks.
Financial risks consist of market risks, credit and default risks and liquidity risks. This note also presents the Group's capital management.
MARKET RISKS
The Group's market risks are mainly caused by changes in foreign exchange and interest rates. These changes may have a significant impact on the Group's earnings, cash flows and balance sheet. The Group is also exposed to market price changes of certain raw materials, mainly metals and plastics, which are priced on commodity markets.
1. Foreign exchange risk
Foreign currency risk is the risk that the fair value or future cash flows will fluctuate because of changes in foreign exchange rates. The Group's exposure to the risk of changes in foreign exchange rates relates primarily to the Group's operating activities, when revenue or expense is denominated in a foreign currency, financing, when debt is denominated in a foreign currency, and the Group's net investments in foreign subsidiaries.
The Group's foreign exchange risk is managed by the business units and Group Risk Management in accordance with the Foreign Exchange Risk Management policy approved by the Board of Directors.
Foreign exchange transaction risk
Foreign exchange transaction exposure arises when an operating unit has commercial or financial transactions and payments in other than its own functional currency, and when related cash inflow and outflow amounts are not equal or noncurrent.
As a result of sales and purchases in foreign currencies as well as operations in several jurisdictions, the Group has foreign currency denominated receivables and payables that are exposed to movements in foreign exchange rates. Income and expenses within different currencies net each other out to some extent, creating thus an effective natural hedge. The remaining, estimated 12-15 month commercial net exposure is then systematically hedged by using derivative instruments. Depending on whether foreign currency monetary receivables and payables relate to sales and purchases or financial items, the foreign exchange gains and losses are recognized in the income statement either above or below operating profit.
The Group has also intra-group loans denominated in currencies that exposes the Group to currency risk that is not fully eliminated on consolidation. In order to hedge currency risk arising from intra-group loans, part of the Group's external financing is denominated in foreign currencies. Depending on whether these loans are classified as net investments on foreign operations or loan receivables, the foreign exchange gains and losses are recognized in the other comprehensive income or income statement. The connections possibly prevailing between different currencies are not taken into account, e.g. US dollar and Honk Kong dollar are considered as separate currencies in this analysis.
Business units are responsible for forecasting net foreign cash flows and do most of their currency hedging transactions with the Group's parent company. Group Risk Management is responsible for monitoring the Group's consolidated currency risk exposure and when needed, enters into derivative transactions with group external counterparties.
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RAPALA VMC OYJ
FINANCIAL STATEMENTS 2020
CONSOLIDATED FINANCIAL STATEMENTS, IFRS
Derivative instruments that are used for hedging purposes are mainly short term and can include forward contracts, option contracts and structured instruments. Because the Group does not apply hedge accounting on currency derivatives, the income statement effect arising from fair value changes of derivative instruments is recognized partly or entirely in different financial periods than exchange rate gains and losses arising from the hedged cash flows.
In 2020 currency derivatives that are used for operative hedging purposes had an income statement effect of EUR 0.4 million (2019: EUR 0.3 million). Fair values and nominal values of currency derivatives are summarized under section 4. Derivatives.
At the end of 2020 and 2019 the following currencies represent a significant portion of the currency mix in the outstanding financial instruments:
Transaction risk position
2020
| EUR MILLION | USD | RUB | IDR | CAD | ZAR |
|---|---|---|---|---|---|
| Transaction risk and hedging | |||||
| Transaction exposure | 6.2 | 11.8 | 1.4 | 8.7 | 5.8 |
| Hedges 1) | -3.9 | -2.7 | -0.8 | -2.4 | -2.1 |
2019
| EUR MILLION | USD | RUB | IDR | CAD | ZAR |
|---|---|---|---|---|---|
| Transaction risk and hedging | |||||
| Transaction exposure | -19.5 | 11.3 | -9.1 | 7.3 | 8.2 |
| Hedges 1) | 14.0 | -4.3 | 3.5 | -3.1 | -2.6 |
1) Currency derivatives are used to hedge both transaction risks and translation risks. Hence the derivatives and transaction risks cannot be netted to a net position.
Foreign exchange translation risk
The group is exposed to currency translation risk through its investments in foreign subsidiaries, joint ventures and associated companies with equities' denominated in foreign currencies. The most significant translation exposures are in USD, HKD, IDR, SEK and CAD, which comprise approximately 84.1% of the total translation exposure. In the Group consolidation equity changes resulting from movements in foreign exchange rates are presented as translation differences within the equity.
The Group Risk Management monitors regularly the amounts of net investments denominated in foreign currencies and when needed, enters into hedging transactions in order to reduce the volatility in equity in the consolidated balance sheet. During 2020 the Group did not hedge any equity exposure.
The total non-euro denominated equity excluding net income of the Group's subsidiaries and associated companies was EUR 139.4 million as of December 31, 2020 (2019: EUR 173.2 million). The exposures are summarized in the following table.
| Group translation exposure | 2020 | 2019 |
|---|---|---|
| EUR MILLION | NET INVESTMENTS | NET INVESTMENTS |
| USD | 84.5 | 107.2 |
| HKD | 12.2 | 16.6 |
| IDR | 9.4 | 11.5 |
| SEK | 5.9 | 5.7 |
| CAD | 5.3 | 5.2 |
| TOTAL | 117.3 | 146.2 |
Sensitivity analysis
Sensitivity analysis is based on the following assumptions and factors:
- The sensitivity analysis is based on change of value in a single analyzed currency and assumes other variables (including values of other currencies) to remain unchanged. The connections possibly prevailing between some currencies are not taken into account.
- The sensitivity is analyzed against balance sheet conversion rates prevailing at December 31, 2020.
- The analysis includes the effect of income statement transactions made in the analyzed currency between January 1 and December 31 in Group companies, whose functional currency is other than the analyzed currency (so called transaction impact) as well as in Group companies, whose functional currency equals to the analyzed currency (so called translation impact). The analysis takes into account the currency forward contracts in place at December 31. The sensitivity analysis of income statement transactions excludes Group's internal items as these net out.
- The sensitivity analysis includes the effect of the translation of subsidiaries' equity as per December 31 in subsidiaries, whose reporting currency equals to the analyzed currency.
Group transaction risk sensitivity analysis
The effect of a 10% weakening of most significant foreign currencies (against euro) in euros:
2020
| EUR MILLION | USD | RUB | IDR | CAD | ZAR |
|---|---|---|---|---|---|
| Operating profit | -2.6 | -0.8 | 1.3 | -1.1 | -0.3 |
| Equity 2) | -8.5 | -0.3 | -0.9 | -0.5 | -0.3 |
2019
| EUR MILLION | USD | RUB | IDR | CAD | ZAR |
|---|---|---|---|---|---|
| Operating profit | -0.7 | -0.8 | 1.2 | -0.9 | -0.4 |
| Equity 2) | -10.7 | -0.3 | -1.2 | -0.5 | -0.4 |
2) Without the effect of net income.
2. Interest rate risk
Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Group's exposure to the risk of changes in market interest rates relates primarily to the Group's long-term debt obligations with floating interest rates. The Group's interest-bearing liabilities have mainly an interest period length shorter than one year.
The Group's funding, and consequently also interest rate risk, is managed centrally by the Group's parent company. Interest rate risk, covering cash flow and fair value risk, is analyzed regularly by the Group Risk Management who is also responsible of taking the actions needed to change the Group's risk position. These actions include changing the currency split of the external loan portfolio, selection between different sources of financing, changing the interest rate duration as well as entering into transactions in derivative financial instruments.
Derivative instruments that are used for hedging purposes consist of interest rate swaps, where the Group pays fixed rate
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RAPALA VMC OYJ
FINANCIAL STATEMENTS 2020
CONSOLIDATED FINANCIAL STATEMENTS, IFRS
interest and receives a variable rate interest. Fair values and nominal values of interest rate swaps are presented under section 4. Derivatives.
Interest rate sensitivity analysis
Below is presented the effect of liabilities with variable interest rate and interest rate swaps on net income and equity if there was a 1 percentage point increase in interest rates. The sensitivity analysis is based on following assumptions and factors:
- All other variables, in particular foreign exchange rates, are assumed to remain unchanged.
- The sensitivity is analyzed against interest rates applicable on December 31.
- The sensitivity analysis includes the liabilities and interest rate swaps with variable interest rate in force on December 31.
| EUR MILLION | 2020 | 2019 | ||
|---|---|---|---|---|
| NET INCOME (NET OF TAX) | EQUITY (NET OF TAX) a | NET INCOME (NET OF TAX) | EQUITY (NET OF TAX) a | |
| Loans with variable interest rate | 0.1 | - | -0.3 | 0.0 |
a Without the effect of net income.
3. Other market price risks
The Group purchases certain raw-materials, which are priced on global financial markets. These include commodity metals such as copper, zinc and lead, and certain plastics. The value of these purchases is relatively low and actions regarding the management of price risk are decided on an performed locally in each manufacturing unit. Group Risk Management also monitors the development of these raw-material prices. The Group does not currently hedge commodity price risk.
The amount of the Group's investments in available-for-sale financial assets is insignificant and consists of investments in real estate and other unquoted shares for which reliable market values are not obtainable.
4. Derivatives
The Group uses derivative instruments, such as forward contracts, option contracts, interest rate swaps and structured instruments, to manage foreign exchange and interest rate risk in accordance with the guidelines set by the The Group's Risk Management policy.
Foreign currency derivatives, consisting of forward contracts, option contracts and structured instruments, are used to reduce the uncertainty in the fair value of future cash flows that is created by changes in foreign exchange rates. The fair values of the foreign currency derivatives that do not qualify as hedging instruments in accordance with IFRS 9, are recognized based on their nature either in operative costs, if the hedge item is an operative transaction, or in financial income and expenses, if the hedged item is a monetary transaction. Because hedge accounting is not applied, the P&L effect arising from foreign currency derivatives is recognized partly or entirely in different financial period than exchange rate gains and losses arising from the hedged cash flows.
Interest rate derivatives, consisting of interest rate swaps, are used to reduce the volatility of interest expenses in the income statement and to adjust the duration of the debt portfolio.
Cash flow hedges
Following tables summarizes the nominal values and fair values of the Group's derivative instruments as at December 31, 2020.
| EUR MILLION | 2020 | 2019 | ||
|---|---|---|---|---|
| NOMINAL VALUE | FAIR VALUE | NOMINAL VALUE | FAIR VALUE | |
| Non-hedge accounting derivative financial instruments | ||||
| Interest rate swaps, less than 12 months | 16.0 | -0.1 | - | - |
| Interest rate swaps, 1 to 5 years | 5.0 | -0.1 | 21.0 | -0.1 |
| Currency forwards, less than 12 months | 26.9 | -0.2 | 48.3 | -0.4 |
| TOTAL | 47.9 | -0.3 | 69.3 | -0.5 |
LIQUIDITY RISK
Liquidity risk is defined as financial distress or extraordinarily high financing cost arising due to a shortage of liquid funds in a situation where outstanding debt needs to be refinanced or where business conditions unexpectedly deteriorate and require financing. Transactional liquidity risk is defined as the risk of executing a financial transaction below fair market value, or not being able to execute the transaction at all, within a specific period of time.
The objective of liquidity risk management is to maintain sufficient liquidity, and to ensure that it is available fast enough without endangering its value, in order to avoid uncertainty related to financial distress at all times.
Generally, the seasonality of the Group's cash flow is fairly predictable and Group Treasury monitors Group's liquidity position using the cash pooling system as well as regular cash flow and liquidity reporting.
The Group's interest bearing funding is mainly managed centrally by the Group Treasury. The Group seeks to reduce liquidity and refinancing risks with balanced maturity profile of loans as well as by keeping sufficient amount of credit lines available. The Group has a EUR 80 million domestic commercial paper program, which together with Group's credit limits is utilized to balance the seasonality of the Group's cash flow. The size and maturity of issued commercial papers is decided by Group Treasury, based on forecasted cash flows, status of commercial paper markets and applicable interest rates. The renewal of commercial papers upon maturity creates certain liquidity risk, which is managed by maintaining sufficient other liquidity reserves available at the maturity dates. During 2020 the commercial paper program was used as part of Group funding and competitively priced debt was acquired through this market.
The Group has agreed with its lenders to temporarily change financial covenants used in its loan agreements for the periods from Q2/2020 to Q1/2021. These financial covenants include limits on the amount of indebtedness, available liquidity, EBITDA as well as gearing ratio. The Group is currently compliant with all financial covenants and expects to comply with all requirements set in the financing agreements also in the future.
Below are presented the Group's unutilized credit limits as of December 31, 2020. Group's domestic commercial paper program not sold at December 31, 2020 was EUR 80.0 million (2019 EUR 55.0 million).
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33
RAPALA VMC OYJ
FINANCIAL STATEMENTS 2020
CONSOLIDATED FINANCIAL STATEMENTS, IFRS
Committed unutilized credit facilities
| EUR MILLION | 2020 | 2019 |
| --- | --- | --- |
| Overdraft facilities, expiring within one year | 18.6 | 19.1 |
| Revolving credit facility, expiring within one year | 49.9 | 30.0 |
| Revolving credit facility, expiring beyond one year | 10.0 | 29.9 |
| TOTAL | 78.5 | 79.1 |
CREDIT AND DEFAULT RISK
Credit risk is the risk that a counterparty will not meet its obligations under a financial instrument or customer contract, leading to a financial loss. The Group is exposed to credit risk from its operating activities (primarily trade receivables) and from its financing activities, including deposits with banks and financial institutions, foreign exchange transactions and other financial instruments. The maximum exposure to credit risk is limited to the carrying value of the financial assets as included in the consolidated statement of financial position. The carrying value of financial assets is disclosed in note 23.
The Group follows actively credit and default risks associated with customers and other counterparties. The Group's credit and default risk portfolio did not significantly change during the course of the financial period. The proportional amount of Group's trade receivables which are past due, decreased moderately from 2019. Net allowance for credit losses related to trade receivables increased by EUR 1.0 million from 2019.
Maturity of the group's financial liabilities
The following are the contractual maturities of financial liabilities, including the possible interest payments.
2020
| EUR MILLION | CARRYING VALUE | FINANCIAL LIABILITIES a) | CONTRACTUAL CASH FLOWS | 2021 | 2022 | 2023 | 2024 ONWARDS | TOTAL |
| --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Interest-bearing liabilities | | | | | | | | |
| Loans from financial institutions | 67.8 | 67.8 | 70.3 | 16.4 | 26.7 | 10.2 | 17.0 | 70.3 |
| Right-of-use liabilities | 12.5 | 12.5 | | | | | | |
| Non-interest-bearing liabilities | | | | | | | | |
| Trade and other non-interest-bearing payables | 37.3 | 13.2 | 13.2 | 13.2 | | | | 13.2 |
| Derivative liabilities and receivables | | | | | | | | |
| Interest rate derivatives, non-hedge accounted | 0.1 | 0.1 | 0.1 | 0.1 | 0.0 | 0.0 | 0.0 | 0.1 |
| Currency derivatives, non-hedge accounted | 0.2 | 0.2 | | | | | | |
| TOTAL | 117.9 | 93.8 | 83.6 | 29.7 | 26.7 | 10.2 | 17.0 | 83.6 |
2019
| EUR MILLION | CARRYING VALUE | FINANCIAL LIABILITIES a) | CONTRACTUAL CASH FLOWS | 2020 | 2021 | 2022 | 2023 ONWARDS | TOTAL |
| --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Interest-bearing liabilities | | | | | | | | |
| Loans from financial institutions | 56.2 | 56.2 | 59.1 | 11.1 | 6.2 | 26.6 | 15.2 | 59.1 |
| Commercial paper program | 25.0 | 25.0 | 25.0 | 25.0 | | | | 25.0 |
| Right-of-use liabilities | 13.5 | 13.5 | 13.3 | 4.4 | 3.0 | 2.0 | 3.9 | 13.3 |
| Non-interest-bearing liabilities | | | | | | | | |
| Trade and other non-interest-bearing payables | 33.0 | 10.9 | 10.9 | 10.9 | | | | 10.9 |
| Derivative liabilities and receivables | | | | | | | | |
| Interest rate derivatives, non-hedge accounted | 0.1 | 0.1 | 0.1 | 0.1 | 0.0 | 0.0 | 0.0 | 0.1 |
| Currency derivatives, non-hedge accounted | 0.4 | 0.4 | 0.4 | 0.4 | | | | 0.4 |
| TOTAL | 128.2 | 106.1 | 108.9 | 51.9 | 9.3 | 28.6 | 19.1 | 108.9 |
a) The proportion of the carrying values which are classified as financial liabilities according to IFRS 9.
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RAPALA VMC OYJ
FINANCIAL STATEMENTS 2020
CONSOLIDATED FINANCIAL STATEMENTS, IFRS
Business related credit risk
The Group's accounts receivables are generated by a large number of customers worldwide and do not include any significant concentrations of credit risk by customer or by geographical area.
The management of credit risk is allocated to each operative business unit. Before providing credit to any new customer, background checks are carried out. Cash, advance payments and letters of credit are also applied with new and existing customers. Each business unit is responsible for setting credit limits and monitoring its credit customers' financial situation. Customers' payment behavior is monitored regularly and delays in payments can trigger payment reminders, stopping the shipments, requirements for advance payments for future shipments and eventually legal collection procedures. In significant cases, business units consult with the Group's finance management before taking final decisions. In exceptional cases, payment terms may be renegotiated.
Group recognizes credit loss of trade receivables by applying simplified approach of expected credit loss according to IFRS 9, which uses a lifetime expected loss allowance. Group has estimated based on previous year's credit losses by aging category and nature as well as macroeconomic outlook in the near future, the expected credit loss provision. Trade receivables are monitored in client segment and location information.
Estimate on expected credit losses is based on management's best judgement.
More information on allowance for trade receivables is presented in note 16.
In the table below is presented analysis of trade receivables that were past due but not impaired.
Analysis of trade receivables that were past due, but not impaired
| EUR MILLION | 2020 | 2019 |
|---|---|---|
| Neither past due nor impaired | 35.3 | 33.4 |
| Past due but not impaired | ||
| Less than 1 month | 5.0 | 4.7 |
| 1-3 months | 1.9 | 2.8 |
| 3-6 months | 0.9 | 1.8 |
| Over 6 months | 0.3 | 0.5 |
| TOTAL | 43.5 | 43.2 |
Trade loss provision from expected credit loss model
| % | 2020 |
|---|---|
| Neither past due or impaired | 0.2 |
| Past due but not impaired | |
| Less than 1 month | 0.9 |
| 1-3 months | 6.0 |
| 3-6 months | 11.0 |
| Over 6 months | 20-100 |
Financial credit risk
Financial instruments contain an element of risk resulting from changes in market price of such instruments due to counterparties becoming less creditworthy or risk of loss due to counterparties being unable to meet their obligations. This risk is measured and monitored centrally by the Group Risk Management.
Financial credit risk is managed actively by limiting counterparties to a sufficient number of major banks and financial institutions and monitoring the credit worthiness and exposure size continuously as well as through entering into collateral agreements with certain counterparties. The Group reduces credit risk by executing treasury transactions only with approved counterparties. All significant counterparties are rated with the minimum counterparty credit rating requirement being BBB (S&P). Foreign subsidiaries may have bank accounts in unrated financial institutions. In order to decrease credit risk associated with local banks used by subsidiaries in foreign countries, the subsidiaries are required to deposit their excess cash balances with the Group Treasury on an ongoing basis.
Group's all investments related to liquidity management are made in liquid instruments with low credit risk. For instance, the Group does not have investments in commercial papers.
CAPITAL MANAGEMENT
The objective of the Group's capital management is to ensure that it maintains healthy capital ratios in order to support its business and to maximize shareholder value.
The Group manages its capital structure and makes adjustments to it taking into account changes in economic conditions and requirements of strategy implementation. To maintain or develop the capital structure, the Group may adjust the dividend payments and repayments of capital to shareholders by buying back shares, issue new shares and/or increase/decrease the amount of borrowings.
Group's objective for capital management is to keep:
- Gearing ratio below 150% and
- Net interest-bearing debt to EBITDA (rolling 12 months) below 3.8.
The Group capital structure is reviewed by the Board regularly.
The achievement of the objectives for capital management are presented in the table below.
For definitions of key figures, see page 44.
| TARGET | 2020 | 2019 | |
|---|---|---|---|
| Gearing, % | below 150% | 31.6 | 49.2 |
| Net interest-bearing debt to EBITDA | below 3.8 | 1.7 | 2.9 |
Definitions of the alternative performance measures are presented on page 44.
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RAPALA VMC OYJ
FINANCIAL STATEMENTS 2020
CONSOLIDATED FINANCIAL STATEMENTS, IFRS
FINANCIAL ASSETS AND LIABILITIES
BY CATEGORIES AND FAIR VALUES
| EUR MILLION | NOTE | CARRYING VALUE | 2020 | 2019 FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES¹⁾ | ||
|---|---|---|---|---|---|---|
| FINANCIAL ASSETS AND LIABILITIES²⁾ | FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES³⁾ | CARRYING VALUE | ||||
| FINANCIAL ASSETS | ||||||
| Financial liabilities measured at amortized cost²⁾ | ||||||
| Non-current financial assets | ||||||
| Loan receivables | 16 | 7.2 | 7.2 | 7.2 | 7.8 | 7.8 |
| Other interest-bearing receivables | 16 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 |
| Trade and other non-interest-bearing receivables | 16 | 0.2 | 0.0 | 0.0 | 0.2 | 0.0 |
| Current financial assets | ||||||
| Cash and cash equivalents | 18 | 27.9 | 27.9 | 27.9 | 12.3 | 12.3 |
| Trade and other non-interest-bearing receivables | 16 | 51.7 | 43.5 | 43.5 | 49.6 | 43.1 |
| Fair value through other comprehensive income | ||||||
| Other shares | 15 | 0.2 | 0.2 | 0.2 | 0.2 | 0.2 |
| Financial assets at fair value through income statement | ||||||
| Currency and interest derivatives - non-hedge accounted | 16, 22 | 0.2 | 0.2 | 0.2 | 0.3 | 0.3 |
| FINANCIAL LIABILITIES | ||||||
| Financial liabilities at fair value through income statement | ||||||
| Interest rate and currency derivatives - non-hedge accounted | 22, 25 | 0.5 | 0.5 | 0.5 | 0.9 | 0.9 |
| Financial liabilities measured at amortized cost²⁾ | ||||||
| Non-current financial liabilities | ||||||
| Loans from financial institutions | 24 | 52.7 | 52.7 | 52.7 | 46.0 | 46.0 |
| Other non-interest-bearing liabilities | 25 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 |
| Current financial liabilities | ||||||
| Loans from financial institutions | 24 | 15.1 | 15.1 | 15.1 | 10.2 | 10.2 |
| Commercial paper program | 24 | 25.0 | 25.0 | |||
| Trade and other non-interest-bearing payables | 25 | 37.3 | 13.2 | 13.2 | 33.0 | 10.9 |
¹⁾ The proportion of the carrying value which is classified as financial assets and liabilities according to IFRS 9.
²⁾ Fair value hierarchy level 2.
FAIR VALUE HIERARCHY OF THE FINANCIAL ASSETS AND LIABILITIES MEASURED AT FAIR VALUE
| EUR MILLION | TOTAL | 2020 | 2019 | ||||
|---|---|---|---|---|---|---|---|
| LEVEL 1 | LEVEL 2 | LEVEL 3 | TOTAL | LEVEL 1 | |||
| FINANCIAL ASSETS AT FAIR VALUE | |||||||
| Fair value through other comprehensive income | |||||||
| Other shares | 0.2 | 0.2 | 0.2 | 0.2 | |||
| Financial assets at fair value through income statement | |||||||
| Currency and interest derivatives - non-hedge accounted | 0.2 | 0.2 | 0.3 | 0.3 | |||
| TOTAL | 0.4 | 0.2 | 0.2 | 0.6 | 0.3 | ||
| FINANCIAL LIABILITIES AT FAIR VALUE | |||||||
| Financial liabilities at fair value through income statement | |||||||
| Currency and interest derivatives - non-hedge accounted | 0.5 | 0.5 | 0.9 | 0.9 | |||
| TOTAL | 0.5 | 0.5 | 0.9 | 0.9 |
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36
RAPALA VMC OYJ
FINANCIAL STATEMENTS 2020
CONSOLIDATED FINANCIAL STATEMENTS, IFRS
FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES
Fair value hierarchy levels
The fair values of the financial assets and liabilities on the hierarchy level 1 are based on quoted market prices of similar financial instruments traded in an active market. Currently there are no financial instruments on level 1.
The fair values of the financial assets and liabilities on the hierarchy level 2 are based on other price information than quoted market prices for a significant part of the valuation. This information is supported by observable market inputs either directly (i.e. prices) or indirectly (i.e. derived from prices).
The fair values of the financial assets and liabilities on the hierarchy level 3 are calculated using a valuation technique based on assumptions that are not supported by available observable market data. For example management estimates are utilized in generally accepted valuation models of the financial instruments on the Level 3.
The fair value hierarchy level, into which the entire financial asset or liability is classified, is determined based on the lowest-hierarchy-level information being significant for the valuation of that particular financial asset or liability. The significance of the information is estimated considering the financial asset or liability in its entirety.
No significant transfers between the hierarchy levels took place during the financial period.
Other shares
Other shares comprise of unlisted shares that are measured at fair value. Certain unlisted shares for which fair values cannot be measured reliably are measured at cost less possible impairment.
Derivatives
All derivatives are initially recognized at fair value on the date derivative contract is entered into, and are subsequently remeasured at fair value on each balance sheet date. Determination of fair values is based on quoted market prices and rates, discounting of cash flows and option valuation models.
Current financial assets and liabilities
Due to their short maturity, the fair value of current financial assets and liabilities is regarded as corresponding to their original carrying amount.
Non-current financial assets
The fair value of non-current financial assets is based on discounted future cash flows. The discount rate used corresponds to the market rate on the balance sheet date.
Non-current interest-bearing liabilities
On December 31, 2020, 0.0% (2019: 0.0%) of non-current loans based on floating rates was connected to one-month euribor, libor or similar and the rest to maximum six-month euribor, libor or similar. Therefore, the fair value of non-current loans based on floating rates is regarded as equaling their book value. A part of non-current loans on floating rates is hedged with separate interest rate derivatives which are described in note 22. The fair value of non-current loans on fixed rates is based on discounted future cash flows. The discount rate used corresponds to the market rate on the balance sheet date.
Non-current non-interest-bearing liabilities
Contingent considerations of business combinations and other acquisitions are recognized at fair value on the date of acquisition. Determination of fair values is based on discounted future cash flows.
21 INTEREST-BEARING LIABILITIES
| EUR MILLION | AVERAGE INTEREST RATE 2020, % 1) | 2020 | 2019 |
|---|---|---|---|
| Non-current interest-bearing liabilities | |||
| Loans from financial institutions | 2.46 | 52.7 | 46.0 |
| Right-of-use liabilities | 1.85 | 8.0 | 9.0 |
| Current interest-bearing liabilities | |||
| Loans from financial institutions | 2.10 | 4.7 | 5.2 |
| Current portion of non-current loans from financial institutions | 3.44 | 10.3 | 5.0 |
| Commercial paper program | 25.0 | ||
| Right-of-use liabilities | 3.08 | 4.5 | 4.4 |
| TOTAL | 80.3 | 94.7 |
1) Average interest rates are calculated without the effect of the interest rate swaps. More information in note 22.
Fair values of financial liabilities are presented in the note 23.
INTEREST-BEARING LIABILITIES BY CURRENCY
| EUR MILLION | NON-CURRENT | 2020 CURRENT | NON-CURRENT | 2019 CURRENT |
|---|---|---|---|---|
| Loans from financial institutions | ||||
| EUR | 52.9 | 14.2 | 46.0 | 6.9 |
| USD | 2.1 | |||
| ZAR | 0.8 | 1.2 | ||
| Commercial paper program | ||||
| EUR | 25.0 | |||
| TOTAL | 52.9 | 15.0 | 46.0 | 35.3 |
22 NON-INTEREST-BEARING LIABILITIES
| EUR MILLION | 2020 | 2019 |
|---|---|---|
| Non-current non-interest-bearing liabilities | ||
| Derivatives | 0.1 | 0.1 |
| Other non-current liabilities | 0.0 | 0.0 |
| Current non-interest-bearing liabilities | ||
| Trade payables | 13.2 | 10.9 |
| Accrued employee-related expenses | 12.2 | 10.5 |
| Other accrued expenses and deferred income | 6.9 | 6.9 |
| Derivatives | 0.4 | 0.8 |
| Advances received | 0.5 | 0.4 |
| VAT payable | 2.4 | 1.7 |
| Other current liabilities | 2.1 | 2.6 |
| TOTAL | 37.8 | 33.9 |
Other non-current non-interest-bearing liabilities include contingent considerations of business combinations and other acquisitions on the date of acquisition. Fair values of financial liabilities are presented in the note 23.
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RAPALA VMC OYJ
FINANCIAL STATEMENTS 2020
CONSOLIDATED FINANCIAL STATEMENTS, IFRS
26 COMMITMENTS AND CONTINGENCIES
Since Normark Logistics Europe Oy, a 100% owned subsidiary of Rapala VMC Corporation, is the legal shareholder of the distribution joint venture with Shimano, the parent company has guaranteed to Shimano the fulfillment of its subsidiary's obligations related to the joint venture.
Group's lease commitments are presented in note 27.
DISPUTES AND LITIGATIONS
The Group's management does not have knowledge of any open disputes or litigations, which would have a significant impact on the company's financial position.
27 LEASE CONTRACTS
RIGHT-OF-USE ASSETS
2020
| EUR MILLION | LAND AND BUILDINGS | OTHER ASSETS | TOTAL |
|---|---|---|---|
| Acquisition cost Jan 1 | 18.1 | 1.5 | 19.6 |
| Additions | 5.2 | 0.6 | 5.8 |
| Disposals | -1.1 | 0.0 | -1.1 |
| Translation differences | -0.9 | 0.0 | -0.9 |
| ACQUISITION COST DEC 31 | 21.4 | 2.0 | 23.3 |
| Accumulated depreciations Jan 1 | -5.6 | -0.6 | -6.2 |
| Disposals | 0.3 | - | 0.3 |
| Impairments | -1.8 | - | -1.8 |
| Depreciations during the period | -5.1 | -0.5 | -5.7 |
| Translation differences | 0.4 | 0.0 | 0.5 |
| ACCUMULATED DEPRECIATIONS DEC 31 | -11.8 | -1.1 | -12.9 |
| CARRYING VALUE JAN 1 | 12.5 | 0.9 | 13.3 |
| CARRYING VALUE DEC 31 | 9.6 | 0.9 | 10.4 |
2019
| EUR MILLION | LAND AND BUILDINGS | OTHER ASSETS | TOTAL |
|---|---|---|---|
| Acquisition cost Jan 1 | - | - | - |
| Additions | 18.2 | 1.5 | 19.6 |
| Disposals | -0.1 | 0.0 | -0.1 |
| Translation differences | 0.1 | 0.0 | 0.1 |
| ACQUISITION COST DEC 31 | 18.1 | 1.5 | 19.6 |
| Accumulated depreciations Jan 1 | - | - | - |
| Disposals | 0.0 | - | 0.0 |
| Depreciations during the period | -5.6 | -0.6 | -6.2 |
| Translation differences | 0.0 | 0.0 | 0.0 |
| ACCUMULATED DEPRECIATIONS DEC 31 | -5.6 | -0.6 | -6.2 |
| CARRYING VALUE JAN 1 | - | - | - |
| CARRYING VALUE DEC 31 | 12.5 | 0.9 | 13.3 |
Group's most material right-of-use assets capitalised consist of buildings as production facilities, offices and warehouses. Right-of-use asset section other assets consists mainly of vehicles.
OFF-BALANCE SHEET LEASE COMMITMENTS
| EUR MILLION | 2020 | 2019 |
|---|---|---|
| The group as a lessee | ||
| Minimum future lease payments on leases | 0.4 | 0.6 |
| TOTAL | 0.4 | 0.6 |
The non-cancellable lease agreements include short-term and other lease contracts that are not included in right-of-use liabilities. Other rents include IT equipment leases, that are not material.
OFF-BALANCE SHEET LEASE ASSETS
| EUR MILLION | 2020 | 2019 |
|---|---|---|
| The group as a lessor | ||
| Future minimum rental receivable under non-cancellable leases | - | 0.2 |
| TOTAL | - | 0.2 |
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RAPALA VMC OYJ
FINANCIAL STATEMENTS 2020
CONSOLIDATED FINANCIAL STATEMENTS, IFRS
28 RELATED PARTY TRANSACTIONS
The Group's related parties include members of the Board, CEO, members of the Executive Committee, family members of the above-mentioned individuals, entities controlled by the above-mentioned individuals, Rapala VMC Corporation's subsidiaries, associated companies and joint ventures and entities with significant influence. Subsidiaries owned directly or indirectly by the parent company as well as associates and foreign branches are listed in note 32. Related party transactions between Group companies have been eliminated. Entities with significant influence are specified in section 'Shares and Shareholders'.
TRANSACTIONS AND BALANCES WITH RELATED PARTIES
| EUR MILLION | SALES AND OTHER INCOME | PURCHASES | PAID RENTS | OTHER EXPENSES | RECEIVABLES | PAYABLES |
|---|---|---|---|---|---|---|
| 2020 | ||||||
| DQC International Corp. | 7.1 | -0.5 | 6.5 | |||
| Associated company Lanimo Oü | 0.0 | -0.1 | 0.1 | |||
| Entity with significant influence over the Group^{1)} | -0.2 | 0.0 | 0.0 | |||
| Management | 0.0 | -0.3 | 0.0 | 0.6 | 0.0 | |
| 2019 | ||||||
| DQC International Corp. | 0.4 | -0.2 | 7.1 | |||
| Associated company Lanimo Oü | 0.0 | 0.0 | ||||
| Entity with significant influence over the Group^{1)} | -0.2 | -0.1 | 0.0 | |||
| Management | 0.0 | -0.4 | 0.0 | 0.7 | 0.0 |
1) Lease agreement for the real estate for the consolidated operations in France and a service fee. Entity with significant influence is Viellard Migeon & Cie, who's shareholding alone and together with its subsidiary is presented in section 'Shares and Shareholders'.
EMPLOYEE BENEFITS FOR TOP MANAGEMENT
| EUR MILLION | 2020 | 2019 |
|---|---|---|
| Salaries and other employee benefits | -5.4 | -3.7 |
| TOTAL | -5.4 | -3.7 |
Top management consists of members of the Board of Directors, CEO and other members of the Executive Committee.
On December 31, 2020, the members of the Board and the Executive Committee held (shares and share-based rights of each member and corporations over which he/she exercises control in the company and its group companies) a total of 112 678 Rapala VMC Corporation shares (on December 31, 2019: 110 678). Top management owned 0.3% (0.3%) of the issued share capital and voting rights of the company on December 31, 2019. Details of top management shareholdings are given in the section 'Board and Management'.
In 2018 share-based long-term incentive plans were granted to the CEO and other members of the executive committee. Salaries and other employee benefits include a provision for share-based incentives in total of EUR 0.7 million for 2020. Details of the long-term incentive plan are given in the section 'Shared-based payments'.
The Group's business transactions or outstanding balances with top management or close members of their family are presented in the table 'Transactions and balances with related parties'.
EMPLOYEE BENEFITS FOR CHIEF EXECUTIVE OFFICER
| EUR MILLION | 2020 | 2019 |
|---|---|---|
| Salaries and other employee benefits | ||
| Nicolas Warchalowski, CEO starting from Mar 1, 2020 | -0.6 | - |
| Louis d'Alançon, CEO from Sep 27, 2019 to Mar 1, 2020^{2)} | -0.1 | -0.1 |
| Jussi Ristimäki, CEO until Sep 26, 2019 | - | -0.4 |
| TOTAL | -0.7 | -0.4 |
2) Excluding compensation for being a member of the Board which is presented in section employee benefits for Board of Directors.
In 2020 annual base salary and benefits as CEO amounted to EUR 231 274. Nicolas Warchalowski was also entitled to a profit bonus according to the principles of the Group's senior management bonus scheme. His bonus accrued in 2020 totaled EUR 0.2 million. His pension security was arranged under the statutory Finnish contribution based employee pension plan.
Louis d'Alançon was paid in 2020 under the CEO agreement in total a compensation of EUR 0.1 million. He did not have any pension agreement and his termination time was 1 month.
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39
RAPALA VMC OYJ
FINANCIAL STATEMENTS 2020
CONSOLIDATED FINANCIAL STATEMENTS, IFRS
EMPLOYEE BENEFITS FOR OTHER MEMBERS OF THE EXECUTIVE COMMITTEE
| EUR MILLION | 2020 | 2019 |
|---|---|---|
| Salaries and other employee benefits | -4.4 | -2.9 |
| TOTAL | -4.4 | -2.9 |
In addition to the monthly salary, CEO and other members of the Executive Committee participate in the Group's senior management bonus scheme. The amount and payment of the bonus requires that the financial and strategic targets are achieved. If the targets are not achieved, payment of bonus is fully at the discretion of the Board of Directors. Bonuses awarded under the scheme are paid in two installments, the first when the audited results for the relevant financial year are known and the second after a predetermined vesting period, to encourage retention of senior management. Principally the bonus can be no more than 100 percent of the annual salary. In 2020, salaries and other employee benefits included a provision for share-based incentives in total of EUR 0.7 million.
EMPLOYEE BENEFITS FOR BOARD OF DIRECTORS
| EUR MILLION | 2020 | 2019 |
|---|---|---|
| Salaries and other employee benefits | ||
| Louis d'Alançon, Chairman of the Board | -0.1 | -0.1 |
| Other Board members | -0.2 | -0.2 |
| TOTAL | -0.3 | -0.3 |
In 2020, the annual fee to the Chairman of the Board was EUR 80 000 and the fee to other Board members was EUR 30 000. In addition a reward of EUR 1 000 was paid of a Board or its Committee meeting. Members of the Board are reimbursed for travel expenses corresponding to the corporation's traveling compensation principles. Louis d'Alançon had as the CEO of the Group a separate CEO agreement, which remuneration is presented under the employee benefits to the CEO.
26 SHARE-BASED PAYMENTS
The Board of Directors of Rapala VMC Corporation approved on February 16th 2018 a new Performance Share Plan for the Group key employees. The aim of the new plan is to align the objectives of the shareholders and the key employees in order to increase the value of the Company in the long-term, to retain the key employees at the Company, and to offer them a competitive reward plan that is based on earning and accumulating the Company's shares.
Performance Share Plan 2018-2020 includes one three-year performance period, calendar years 2018-2020. The potential reward from the performance period will be based on the Group's financial performance criteria which will be measured during the financial year 2020 and the Company's share price criterion which will be measured during a measurement period of forty (40) consecutive trading days in November-December 2020. The Board of Directors may also resolve on other 40 trading day measurement periods. The financial performance criteria for the performance period are the Group Product Sales in 2020, the Group's Comparable Earnings before Interest and Taxes margin in 2020 (EBIT %) and the Group's Average Working Capital Ratio in 2020.
A significant proportion of the reward allocations of the CEO and other members of the Executive Committee of the Group will be dependent on their personal investments in the Company shares and share ownership of the shares acquired through such investments.
SHARE BASED INCENTIVES
| Plan | Long-Term Incentive Plan |
|---|---|
| Type | SHARE |
| Instrument | PSP Earning Period 2018-2020 |
| Issuing date | 16.2.2018 |
| Initial amount, pcs | 900 000 |
| Dividend adjustment | No |
| Grant date | 9.3.2018 |
| Beginning of earning period | 1.1.2018 |
| End of earning period | 31.12.2020 |
| End of restriction period | 30.4.2021 |
| Performance criteria | Total share return, Group product sales, EBIT margin in 2020, Group's average working capital ratio in 2020 |
| Maximum contractual life, years | 3.1 |
| Remaining contractual life, years | 0.3 |
| Number of persons at the end of the reporting year | 28 |
| Payment method | Cash & Equity |
| Changes during the period 2020 | PSP Earning Period 2018-2020 |
| Outstanding at the beginning of the reporting period Jan 1 | 629 500 |
| Changes during the period | |
| Granted | 0 |
| Forfeited | 56 500 |
| Excercised | 0 |
| Expired | 0 |
| Outstanding at the end of the period Dec 31 | 573 000 |
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40
RAPALA VMC OYJ
FINANCIAL STATEMENTS 2020
CONSOLIDATED FINANCIAL STATEMENTS, IFRS
FAIR VALUE DETERMINATION
The fair value of share based incentives have been determined at grant date and the fair value is expensed until vesting. The pricing of the share based incentives granted during the period was determined by the following inputs and had the following effect:
Effect of Share-based Incentives on the result and financial position during the period
| Expenses for the financial year, share-based payments | 0.8 |
|---|---|
| Expenses for the financial year, share-based payments, equity-settled | 0.6 |
| Liabilities arising from share-based payments Dec 31, 2020 | 0.2 |
| Future cash payment to be paid to the tax authorities from share-based payments, estimated at the end of the period | 1.2 |
30 EARNINGS PER SHARE
| 2020 | 2019 | |
|---|---|---|
| Net profit for the period attributable to the equity holders of the parent company, EUR million | 2.5 | 4.4 |
| Accrued interest on the hybrid bond | -1.1 | -0.7 |
| Tax effect | 0.2 | 0.1 |
| Net effect | -0.8 | -0.6 |
| 1.6 | 3.8 | |
| Weighted average number of shares, 1000 shares | 38 548 | 38 387 |
| Diluted weighted average number of shares, 1000 shares | 38 548 | 38 387 |
| Earnings per share, EUR | 0.04 | 0.10 |
| Diluted earnings per share, EUR | 0.04 | 0.10 |
Earnings per share are calculated by dividing the profit for the period attributable to the parent company's shareholders less the tax-adjusted interest on hybrid bond by the weighted average number of shares outstanding during the financial period. The outstanding shares do not include treasury shares held by the Group. For more details on the calculation of earnings per share, see accounting principles for the consolidated accounts.
31 EVENTS AFTER THE BALANCE SHEET DATE
The Group has no knowledge of any significant events after the balance sheet date that would have a material impact on the financial statements for 2020.
In January 27, 2021 Rapala VMC Corporation announced to have agreed with Okuma Fishing Tackle Co Ltd that Okuma will transfer to Rapala VMC its European and Russian trademarks and associated intangible assets against a consideration of 8 million USD. Simultaneously Rapala VMC and Okuma have agreed to conclude a supply agreement to buy Okuma branded reels and rods from Okuma. Rapala will commence with the sales of Okuma products to some extent in selected European countries in 2021, but the large scale European wide and Russian launch of Okuma brand will occur in 2022.
Okuma, known worldwide for its high-quality rods and reels, is a Taiwan based company established some 30 years ago by Mr. Charles Chang. The company has manufacturing facilities and R&D centers in Taiwan and China. Okuma has fully owned distribution companies in USA and Japan. Okuma has won Best in Category awards at many recent industry's ICAST and EFTTEX show's and is generally recognized as one of the top players in the global rod and reel business. Okuma's current sales in Europe and Russia through distributors at wholesale value in Europe and Russia exceeds slightly 10 million EUR.
It was also announced that Rapala VMC will initiate negotiations with Shimano Europe BV to end the distribution of Shimano branded products and joint ownership of Rapala VMC distribution companies situated in Russia, Kazakhstan, Czech, Belarus, Hungary, Romania and Croatia.
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41
RAPALA VMC OYJ
FINANCIAL STATEMENTS 2020
CONSOLIDATED FINANCIAL STATEMENTS, IFRS
32 GROUP COMPANIES
| SUBSIDIARIES BY GEOGRAPHICAL AREA | COUNTRY | GROUP HOLDING (%) | NATURE OF ACTIVITY |
|---|---|---|---|
| Nordic | |||
| Normark Denmark A/S | * | Denmark | 100 Distribution |
| KL-Teho Oy | * | Finland | 100 Manufacturing |
| Marttiini Oy | * | Finland | 100 Manufacturing |
| Normark Logistics Europe Oy | * | Finland | 100 Sourcing |
| Normark Suomi Oy | Finland | 100 Distribution | |
| Peltonen Ski Oy | Finland | 100 Manufacturing | |
| Rapala Shimano East Europe Oy | 1) | Finland | 50 Administration |
| Rapala VMC Iceland ehf | * | Iceland | 100 Distribution |
| Normark Norway AS | * | Norway | 100 Distribution |
| Remen Slukfabrik AS | Norway | 100 Administration | |
| Vangen AS | Norway | 100 Administration | |
| Normark Scandinavia AB | * | Sweden | 100 Distribution |
| Rest of Europe | |||
| FLLC Normark | 1) | Belarus | 50 Distribution |
| Ltd. Normark-Bel | Belarus | 100 Distribution | |
| Rapala Finance N.V. | * | Belgium | 100 Administration |
| Normark Adriatik D.o.o. | Croatia | 66.6 Distribution | |
| Normark S.r.o. | 1) | Czech Republic | 50 Distribution |
| Marttiini Oü | Estonia | 100 Manufacturing | |
| Normark Eesti Oü | Estonia | 100 Distribution | |
| Rapala Eesti AS | * | Estonia | 100 Manufacturing |
| Mystic s.a.r.l. | France | 100 Manufacturing | |
| Normark France SAS | * | France | 100 Distribution |
| VMC Pêche SA | * | France | 100 Manufacturing |
| Normark Deutschland Gmbh | Germany | 100 Distribution | |
| Normark Hungary Ltd | * | Hungary | 66.6 Distribution |
| Normark Italia S.R.L. | Italy | 100 Distribution | |
| Normark Kazakhstan LLP | 1) | Kazakhstan | 50 Distribution |
| SIA Normark Latvia | Latvia | 100 Distribution | |
| Normark UAB | Lithuania | 100 Distribution | |
| Rapala B.V. | * | Netherlands | 100 Administration |
| Normark Polska Sp.z.o.o. | * | Poland | 100 Distribution |
| Normark Portugal SA | Portugal | 100 Distribution | |
| SC Normark Sport Romania S.r.l. | Romania | 66.6 Distribution | |
| AO Normark | 1) | Russia | 50 Distribution |
| Normark LLC | Russia | 100 Distribution | |
| OOO Raptech | * | Russia | 100 Manufacturing |
| Normark Spain SA | * | Spain | 100 Distribution |
| Rapala-Fishco AG | * | Switzerland | 100 Distribution |
| Normark UK Sport Ltd. | UK | 100 Distribution | |
| Dynamite Baits Ltd. | * | UK | 100 Manufacturing |
| Normark Fishing Ltd. | UK | 100 Administration | |
| VMC-Water Queen Ukraine | 1) | Ukraine | 50 Distribution |
| North America | |||
| Normark Inc. | Canada | 100 Distribution | |
| NC Holdings Inc. | * | USA | 100 Administration |
| Normark Corporation | USA | 100 Distribution | |
| Normark Innovations, Inc. | USA | 100 Sourcing | |
| VMC Inc. | USA | 100 Distribution |
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RAPALA VMC OYJ
FINANCIAL STATEMENTS 2020
CONSOLIDATED FINANCIAL STATEMENTS, IFRS
| SUBSIDIARIES BY GEOGRAPHICAL AREA | COUNTRY | GROUP HOLDING (%) | NATURE OF ACTIVITY |
|---|---|---|---|
| Rest of the World | |||
| Rapala VMC Australia Pty Ltd | * | Australia | 100 |
| Rapala V.M.C. Do Brazil | * | Brazil | 100 |
| Normark Chile Ltd | Chile | 100 | |
| Rapala VMC China Co. | * | China | 100 |
| Rapala VMC (ShenZhen) Ltd | China | 100 | |
| Willtech (PRC) Ltd. | Hong Kong | 100 | |
| PT Rapala Indonesia | * | Indonesia | 100 |
| PT Rapala VMC Batam | Indonesia | 100 | |
| PT VMC Fishing Tackle Indonesia | Indonesia | 100 | |
| Rapala Japan K.K. | * | Japan | 100 |
| Rapala VMC (Asia Pacific) Sdn Bhd. | * | Malaysia | 100 |
| Rapala VMC Mexico S. de R.L. de C.V | Mexico | 100 | |
| Normark Africa (Pty) Ltd. | * | South Africa | 100 |
| Rapala VMC Korea Co., Ltd | * | South Korea | 100 |
| Rapala VMC Singapore Pte. Ltd. | Singapore | 100 | |
| Rapala VMC (Thailand) Co., Ltd. | * | Thailand | 100 |
| Rapala MENA FZE | United Arab Emirates | 100 | |
| ASSOCIATED COMPANIES AND JOINT VENTURES | COUNTRY | GROUP HOLDING (%) | NATURE OF ACTIVITY |
| Lanimo Où | Estonia | 33.3 | |
| DQC International Corp. | USA | 49 |
FOREIGN BRANCHES
Rapala VMC (Hong Kong) Ltd, branch office in Taiwan
Normark S.r.o., branch office in Slovak Republic
1) Controlled by the Rapala Group.
* Shares owned by the parent company.
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RAPALA VMC OYJ
FINANCIAL STATEMENTS 2020
DEFINITIONS OF KEY FIGURES
DEFINITIONS OF KEY FIGURES
Operating profit before depreciation and impairments (EBITDA)
= Operating profit + depreciation and impairments
Items affecting comparability
= Change in mark-to-market valuations of operative currency derivatives +/- other items affecting comparability
Other items affecting comparability
= Restructuring costs + impairments +/- gains and losses on business combinations and disposals - insurance compensations +/- other non-operational items
Comparable operating profit
= Operating profit +/- change in mark-to-market valuations of operative currency derivatives +/- other items affecting comparability
Net interest-bearing debt
= Total interest-bearing liabilities - total interest-bearing assets - cash and cash equivalents
Capital employed (average for the period)
= Total equity (average for the period) + net interest-bearing debt (average for the period)
Working capital
= Inventories + total non-interest-bearing assets - total non-interest-bearing liabilities
Total non-interest-bearing assets
= Total assets - interest-bearing assets - intangible and tangible assets - assets classified as held-for-sale
Total non-interest-bearing liabilities
= Total liabilities - interest-bearing liabilities
Net interest-bearing debt to EBITDA
= Net interest-bearing debt
Operating profit before depreciation and impairments
Return on capital employed (ROCE), %
= Operating profit x 100
Capital employed (average for the period)
Return on equity (ROE), %
= Net profit (loss) for the period x 100
Total equity (average for the period)
Debt-to-equity ratio (Gearing), %
= Net interest-bearing liabilities x 100
Total equity
Equity-to-assets ratio, %
= Total equity x 100
Total shareholders' equity and liabilities - advances received
Earnings per share, EUR
= Net profit for the period attributable to the equity holders of the parent Company - hybrid capital accrued unrecognised interests after tax
Adjusted weighted average number of shares
Dividend per share, EUR
= Dividend for the period
Adjusted number of shares at the end of the period
Dividend/earnings ratio, %
= Dividend for the period x 100
Net profit for the period attributable to the equity holders of the parent Company
Equity per share, EUR
= Equity attributable to equity holders of the parent Company
Adjusted number of shares at the end of the period
Effective dividend yield, %
= Dividend per share x 100
Adjusted share price at the end of the period
Price/earnings ratio
= Adjusted share price at the end of the period
Earnings per share
Average share price, EUR
= EUR amount traded during the period
Adjusted number of shares traded during the period
Year-end market capitalization, EUR
= Number of shares at the end of the period, excluding own shares x share price at the end of the period
Average number of personnel
= Calculated as average of monthly end personnel amounts
44
RAPALA VMC OYJ
FINANCIAL STATEMENTS 2020
PARENT COMPANY FINANCIAL STATEMENTS, FAS
PARENT COMPANY FINANCIAL STATEMENTS, FAS
PARENT COMPANY INCOME STATEMENT
| EUR | NOTE | 2020 | 2019 |
|---|---|---|---|
| Net sales | 2 | 33 316 496 | 29 518 413 |
| Other operating income | 3 | 1 714 629 | 288 693 |
| Change in inventory of finished products and work in progress | -1 179 223 | 420 043 | |
| Production for own use | 186 188 | 97 871 | |
| Materials and services | 5 | -16 399 490 | -14 487 586 |
| Employee benefit expenses | 6 | -10 054 765 | -8 732 861 |
| Other operating expenses | 4 | -9 914 597 | -6 148 402 |
| Operating profit before depreciation and impairments | -2 330 762 | 956 170 | |
| Depreciation and impairments | 7 | -1 123 859 | -1 185 898 |
| Operating profit | -3 454 621 | -229 728 | |
| Financial income and expenses | 8 | 9 663 710 | 2 954 485 |
| Profit before appropriations and taxes | 6 209 090 | 2 724 756 | |
| Appropriations | 9 | 170 120 | 2 284 889 |
| Income taxes | 10 | -16 188 | -17 999 |
| NET PROFIT FOR THE PERIOD | 6 363 022 | 4 991 646 |
RAPALA VMC OYJ
FINANCIAL STATEMENTS 2020
PARENT COMPANY FINANCIAL STATEMENTS, FAS
PARENT COMPANY BALANCE SHEET
ASSETS
| EUR | NOTE | 2020 | 2019 |
|---|---|---|---|
| Non-current assets | |||
| Intangible assets | 11 | 71 001 | 116 341 |
| Tangible assets | 12 | 4 471 809 | 4 672 683 |
| Investments | 13 | 151 336 603 | 179 162 203 |
| Interest-bearing receivables | 15 | 26 724 797 | 16 997 844 |
| Non-interest-bearing receivables | 15 | 409 464 | 367 011 |
| Total non-current assets | 183 013 675 | 201 316 082 | |
| Current assets | |||
| Inventories | 14 | 4 878 516 | 6 054 781 |
| Current financial assets | |||
| Interest-bearing | 15 | 25 151 567 | 20 361 581 |
| Non-interest-bearing | 15 | 7 353 803 | 7 560 098 |
| Cash and cash equivalents | 2 245 787 | 305 064 | |
| Total current assets | 39 629 674 | 34 281 525 | |
| TOTAL ASSETS | 222 643 349 | 235 597 607 |
SHAREHOLDERS' EQUITY AND LIABILITIES
| EUR | NOTE | 2020 | 2019 |
|---|---|---|---|
| Shareholders' equity | |||
| Share capital | 3 552 160 | 3 552 160 | |
| Share premium fund | 16 680 961 | 16 680 961 | |
| Fair value reserve | - | - | |
| Fund for invested non-restricted equity | 4 914 371 | 4 914 371 | |
| Own shares | -4 889 643 | -4 889 643 | |
| Retained earnings | 23 682 123 | 18 690 477 | |
| Net income for the period | 6 363 022 | 4 991 646 | |
| Total shareholders' equity | 16 | 50 302 995 | 43 939 972 |
| Appropriations | 888 484 | 1 058 604 | |
| Provisions | 468 839 | 203 596 | |
| Non-current liabilities | |||
| Interest-bearing | 66 000 000 | 78 800 000 | |
| Non-interest-bearing | 51 868 | 90 241 | |
| Total non-current liabilities | 17 | 66 051 868 | 78 890 241 |
| Current liabilities | |||
| Interest-bearing | 91 727 949 | 105 275 226 | |
| Non-interest-bearing | 13 203 214 | 6 229 968 | |
| Total current liabilities | 17 | 104 931 164 | 111 505 194 |
| TOTAL SHAREHOLDERS' EQUITY AND LIABILITIES | 222 643 349 | 235 597 607 |
RAPALA VMC OYJ
FINANCIAL STATEMENTS 2020
PARENT COMPANY FINANCIAL STATEMENTS, FAS
PARENT COMPANY STATEMENT OF CASH FLOWS
| EUR THOUSAND | NOTE | 2020 | 2019 |
|---|---|---|---|
| Net profit for the period | 6 363 | 4 992 | |
| Adjustments | |||
| Income taxes | 10 | 16 | 18 |
| Financial income and expenses | 8 | -9 664 | -2 954 |
| Reversal of non-cash items | |||
| Depreciation and impairments | 7 | 1 124 | 1 186 |
| Other items | -86 | -2 089 | |
| Total adjustments | -8 609 | -3 838 | |
| Financial items | |||
| Interest paid | -3 190 | -3 479 | |
| Interest received | 615 | 1 552 | |
| Income taxes paid/received | 10 | -18 | 31 |
| Other financial items, net | -122 | 40 | |
| Total financial items | -2 715 | -1 856 | |
| Change in working capital | |||
| Change in receivables | -1 727 | 4 | |
| Change in inventories | 916 | 33 | |
| Change in liabilities | 7 408 | -141 | |
| Total change in working capital | 6 598 | -103 | |
| Net cash generated from operating activities | 1 637 | -806 | |
| Net cash used in investing activities | |||
| Purchases of intangible assets | 11 | -23 | - |
| Proceeds from sale of tangible assets | 120 | 513 | |
| Purchases of tangible assets | 12 | -919 | -1 260 |
| Disposals of other shares | 13 | - | 47 |
| Investments to associates | 13 | - | -4 387 |
| Investments to subsidiaries | 13 | -5 855 | - |
| Dissolution of subsidiary | 267 | - | |
| Change in interest-bearing receivables | -736 | 164 | |
| Dividends received | 8 | 24 346 | 6 017 |
| Total net cash used in investing activities | 17 200 | 1 094 | |
| Net cash generated from financing activities | |||
| Dividends paid | - | -2 306 | |
| Directed issue of own shares | - | 663 | |
| Hybrid bond | -1 314 | - | |
| Loan withdrawals | 61 198 | 108 917 | |
| Loan repayments | -76 967 | -109 817 | |
| Group contributions received | 2 010 | 2 105 | |
| Total net cash generated from financing activities | -15 073 | -2 013 | |
| Change in cash and cash equivalents | 3 764 | -1 724 | |
| Cash and cash equivalents at the beginning of the period | 305 | 1 579 | |
| Foreign exchange rate effect | -1 823 | 450 | |
| CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD | 2 246 | 305 |
RAPALA VMC OYJ
FINANCIAL STATEMENTS 2020
PARENT COMPANY FINANCIAL STATEMENTS, FAS
NOTES TO THE PARENT COMPANY FINANCIAL STATEMENTS
1 ACCOUNTING PRINCIPLES
The financial statements of Rapala VMC Oyj have been prepared according to Finnish Accounting Standards (FAS).
Foreign currency transactions
Monetary assets and liabilities denominated in foreign currencies are translated into euros using the exchange rates at the balance sheet date and exchange differences arising from translation are recognized in the income statement.
Revenue recognition
Sales of goods and services are recognized on accrual basis when the significant risks related to goods and services sold have passed to the buyer and it is not probable that the client would return the goods. Net sales comprise of gross sales less cash discounts and sales taxes.
Research and development costs
Research and development costs are expensed as they are incurred, unless they clearly relate to developing new business areas. Such development costs are capitalized if they are separately identifiable and if the products are assessed to be technically feasible and commercially viable and the related future revenues are expected to exceed the accrued and future development costs and related production, selling and administrative expenses, and other possible costs related to the project.
Capitalized development expenses are amortized on a straight-line basis over their expected useful lives, a maximum of five years.
Inventories
Inventories are valued at the lower of cost or net realizable value using the first-in, first-out (FIFO) method. The cost of finished goods and work in progress comprises of raw materials, direct labor costs including social costs and other direct costs. Inventories are shown net of a reserve for obsolete or slow-moving inventories.
Tangible and intangible assets
Tangible and intangible assets are stated at historical cost excluding accumulated depreciation according to plan. Planned depreciation is based on historical cost and expected useful life.
Land is not depreciated. Depreciation is based on the following expected useful lives:
| Intangible assets | 3–15 years |
|---|---|
| Buildings | 10–20 years |
| Machinery and equipment | 5–10 years |
| Other tangible assets | 3–10 years |
Pension arrangements
All of the company's pension arrangements are defined contribution plans, with the majority being local statutory arrangements. Pension costs are expensed as incurred.
Valuation of financial derivatives
All derivatives are initially recognized at fair value on the date derivative contract is entered into, and are subsequently remeasured at fair value on each balance sheet date. Fair value of standard foreign currency forwards are determined by discounting the future nominal cash flows with relevant interest rates and then converting the discounted cash flows to the foreign currency using spot rates. Determination of fair values of other derivative instruments are based on quoted market prices and rates, discounting of cash flows and option valuation models. The fair values of these instruments are received from the respective bank or calculated to match the current market price.
In cash flow hedges, changes in the fair value of derivative financial instruments that are designated and effective as hedges of future cash flows are recognized directly in equity and the ineffective portion is recognized immediately in the income statement as well as the change in fair value of the contracts that are not designated to hedge accounting.
Own shares
Own shares acquired by the company, including directly attributable costs, are presented as a deduction from the total equity on the day of trading. Purchases or subsequent sales of treasury shares are presented as changes in equity.
Cash flow statement
Changes in financial position are presented as cash flows from operating, investing and financing activities.
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RAPALA VMC OYJ
FINANCIAL STATEMENTS 2020
PARENT COMPANY FINANCIAL STATEMENTS, FAS
2 NET SALES
| EUR THOUSAND | 2020 | 2019 |
|---|---|---|
| By destination | ||
| North America | 20 288 | 16 186 |
| Nordic | 1 475 | 2 955 |
| Rest of Europe | 9 154 | 7 571 |
| Rest of the World | 2 400 | 2 807 |
| TOTAL | 33 316 | 29 518 |
The parent company’s net sales consist of Lure Business which is included in Group Products in the consolidated operating segment reporting.
3 OTHER OPERATING INCOME
| EUR THOUSAND | 2020 | 2019 |
|---|---|---|
| Rental income | 24 | 22 |
| Insurance compensation | - | 126 |
| Business cost support for COVID-19 | 389 | - |
| Subsidiary dissolution result | 1 163 | - |
| Gains from sale of intangible and tangible assets | 104 | 141 |
| Other income | 35 | - |
| TOTAL | 1 715 | 289 |
4 OTHER OPERATING EXPENSES
| EUR THOUSAND | 2020 | 2019 |
|---|---|---|
| Maintenance | -974 | -922 |
| Selling and marketing expenses | -875 | -733 |
| Traveling expenses | -220 | -573 |
| IT and telecommunication | -600 | -632 |
| Rents paid | -388 | -525 |
| Auditors fees and services | -202 | -163 |
| Freight | -159 | -108 |
| Sales commissions | -32 | -82 |
| Losses on disposals of intangible and tangible assets | - | -13 |
| Currency derivatives | 374 | 312 |
| Other expenses | -6 839 | -2 710 |
| TOTAL | -9 915 | -6 148 |
AUDITORS' FEES AND SERVICES
| EUR THOUSAND | 2020 | 2019 |
|---|---|---|
| Audit fees | -202 | -163 |
| TOTAL | -202 | -163 |
6 MATERIALS AND SERVICES
| EUR THOUSAND | 2020 | 2019 |
|---|---|---|
| Materials, goods and supplies | ||
| Purchases during the financial year | -16 374 | -14 049 |
| Change in inventory | 3 | -402 |
| External services | -29 | -37 |
| TOTAL | -16 399 | -14 488 |
6 EMPLOYEE BENEFIT EXPENSES
| EUR THOUSAND | 2020 | 2019 |
|---|---|---|
| Wages and salaries | -8 521 | -7 449 |
| Pension costs | -1 262 | -1 164 |
| Other personnel expenses | -271 | -119 |
| TOTAL | -10 055 | -8 733 |
| Average personnel for the period | 118 | 114 |
The remuneration of the Board of Directors amounted to EUR 304 thousand (2019: EUR 324 thousand).
7 DEPRECIATION AND IMPAIRMENTS
| EUR THOUSAND | 2020 | 2019 |
|---|---|---|
| Depreciation of intangible assets | ||
| Trademarks | -1 | -85 |
| Other intangible assets | -68 | -127 |
| Depreciation of tangible assets | ||
| Buildings | -80 | -63 |
| Machinery and equipment | -740 | -781 |
| Other tangible assets | -62 | -129 |
| Impairments | -174 | - |
| TOTAL | -1 124 | -1 186 |
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49
RAPALA VMC OYJ
FINANCIAL STATEMENTS 2020
PARENT COMPANY FINANCIAL STATEMENTS, FAS
8 FINANCIAL INCOME AND EXPENSES
| EUR THOUSAND | 2020 | 2019 |
|---|---|---|
| Dividend income | 24 346 | 6 017 |
| Foreign exchange gains | 3 748 | 6 595 |
| Foreign exchange losses | -4 435 | -6 499 |
| Impairment losses | ||
| Investments in Group companies | -5 855 | - |
| Non-current loan receivables | -5 362 | - |
| Interest and other financial income | ||
| Interest income | 931 | 1 695 |
| Other financial income | 1 037 | 370 |
| Interest and other financial expenses | ||
| Interest expenses | -3 891 | -3 904 |
| Other financial expenses | -857 | -1 321 |
| TOTAL | 9 664 | 2 954 |
FINANCIAL INCOME AND EXPENSES FROM AND TO SUBSIDIARIES
| EUR THOUSAND | 2020 | 2019 |
|---|---|---|
| Dividend income from subsidiaries | 24 346 | 6 017 |
| Interest and other financial income | ||
| Interest income | 759 | 1 110 |
| Other financial income | 227 | 297 |
| Interest and other financial expenses | ||
| Interest expenses | -531 | -1 324 |
| TOTAL | 24 802 | 6 100 |
TRANSLATION DIFFERENCES RECOGNIZED IN THE INCOME STATEMENT
| EUR THOUSAND | 2020 | 2019 |
|---|---|---|
| Translation differences recognized in net sales | 99 | 414 |
| Translation differences included in purchases and other expenses | 23 | 48 |
| Foreign exchange gains and losses in financial income and expenses | -686 | 96 |
| TOTAL | -564 | 557 |
9 EXTRAORDINARY ITEMS
| EUR THOUSAND | 2020 | 2019 |
|---|---|---|
| Change in depreciation difference | 170 | 275 |
| Group contribution | - | 2 010 |
| TOTAL | 170 | 2 285 |
CHANGE IN DEPRECIATION DIFFERENCE
| EUR THOUSAND | 2020 | 2019 |
|---|---|---|
| Intangible assets | 35 | 83 |
| Buildings | -1 | -27 |
| Machinery and equipment | 137 | 218 |
| TOTAL | 170 | 275 |
10 INCOME TAXES
| EUR THOUSAND | 2020 | 2019 |
|---|---|---|
| Income taxes | -18 | -18 |
| Taxes from previous financial years | 2 | - |
| INCOME TAXES IN THE INCOME STATEMENT | -16 | -18 |
Deferred tax assets and liabilities of the parent company are not presented in the parent company's balance sheet.
11 INTANGIBLE ASSETS
| 2020 | TRADE-MARKS | OTHER INTANGIBLE ASSETS | ADVANCE PAYMENTS AND CONSTRUCTION IN PROGRESS | TOTAL |
|---|---|---|---|---|
| Acquisition cost Jan. 1 | 930 | 2 425 | 3 355 | |
| Additions | 23 | 23 | ||
| Impairments | -174 | -174 | ||
| Reclassifications | 174 | 174 | ||
| ACQUISITION COST DEC 31 | 930 | 2 448 | 3 378 | |
| Accumulated amortization Jan 1 | -927 | -2 312 | -3 239 | |
| Amortization during the period | -1 | -68 | -69 | |
| ACCUMULATED AMORTIZATION DEC 31 | -928 | -2 380 | -3 308 | |
| Book value Jan 1 | 3 | 113 | 116 | |
| Book value Dec 31 | 2 | 68 | 71 | |
| 2019 | TRADE-MARKS | OTHER INTANGIBLE ASSETS | ADVANCE PAYMENTS AND CONSTRUCTION IN PROGRESS | TOTAL |
| --- | --- | --- | --- | --- |
| Acquisition cost Jan 1 | 930 | 2 380 | 3 310 | |
| Reclassifications | 45 | 45 | ||
| ACQUISITION COST DEC 31 | 930 | 2 425 | 3 355 | |
| Accumulated amortization Jan 1 | -842 | -2 185 | -3 026 | |
| Amortization during the period | -85 | -127 | -213 | |
| ACCUMULATED AMORTIZATION DEC 31 | -927 | -2 312 | -3 239 | |
| Book value Jan 1 | 88 | 195 | 283 | |
| Book value Dec 31 | 3 | 113 | 116 |
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RAPALA VMC OYJ
FINANCIAL STATEMENTS 2020
PARENT COMPANY FINANCIAL STATEMENTS, FAS
12 TANGIBLE ASSETS
2020
| EUR THOUSAND | LAND | BUILDINGS | MACHINERY AND EQUIPMENT | OTHER TANGIBLE ASSETS | ADVANCE PAYMENTS AND CONSTRUCTION IN PROGRESS | TOTAL |
|---|---|---|---|---|---|---|
| Acquisition cost Jan 1 | 106 | 4 927 | 19 854 | 1 641 | 602 | 27 130 |
| Additions | 156 | 39 | 724 | 919 | ||
| Disposals | -65 | -65 | ||||
| Reclassifications | 40 | 540 | 18 | -772 | -174 | |
| ACQUISITION COST DEC 31 | 106 | 4 967 | 20 550 | 1 698 | 489 | 27 810 |
| Accumulated depreciation Jan 1 | -4 188 | -16 880 | -1 390 | -22 457 | ||
| Depreciation during the period | -80 | -740 | -62 | -881 | ||
| ACCUMULATED DEPRECIATION DEC 31 | -4 268 | -17 619 | -1 452 | -23 339 | ||
| Book value Jan 1 | 106 | 739 | 2 974 | 251 | 602 | 4 673 |
| Book value Dec 31 | 106 | 699 | 2 931 | 246 | 489 | 4 472 |
2019
| EUR THOUSAND | LAND | BUILDINGS | MACHINERY AND EQUIPMENT | OTHER TANGIBLE ASSETS | ADVANCE PAYMENTS AND CONSTRUCTION IN PROGRESS | TOTAL |
|---|---|---|---|---|---|---|
| Acquisition cost Jan 1 | 106 | 4 691 | 19 523 | 1 613 | 359 | 26 293 |
| Additions | 86 | 116 | 1 058 | 1 260 | ||
| Disposals | -50 | -88 | -239 | -377 | ||
| Reclassifications | 235 | 295 | -576 | -45 | ||
| ACQUISITION COST DEC 31 | 106 | 4 927 | 19 854 | 1 641 | 602 | 27 130 |
| Accumulated depreciation Jan 1 | -4 125 | -16 098 | -1 261 | -21 484 | ||
| Depreciation during the period | -63 | -781 | -129 | -973 | ||
| ACCUMULATED DEPRECIATION DEC 31 | -4 188 | -16 880 | -1 390 | -22 457 | ||
| Book value Jan 1 | 106 | 566 | 3 425 | 352 | 359 | 4 808 |
| Book value Dec 31 | 106 | 739 | 2 974 | 251 | 602 | 4 673 |
13 INVESTMENTS
2020
| EUR THOUSAND | SHAREHOLDINGS IN SUBSIDIARIES | SHARES IN ASSOCIATES | OTHER SHARES | TOTAL |
|---|---|---|---|---|
| Book value Jan 1 | 174 593 | 4 387 | 181 | 179 162 |
| Additions | 5 855 | 5 855 | ||
| Disposals | -27 825 | -27 825 | ||
| Impairments | -5 855 | -5 855 | ||
| BOOK VALUE DEC 31 | 146 769 | 4 387 | 181 | 151 337 |
2019
| EUR THOUSAND | SHAREHOLDINGS IN SUBSIDIARIES | SHARES IN ASSOCIATES | OTHER SHARES | TOTAL |
|---|---|---|---|---|
| Book value Jan 1 | 174 593 | 228 | 174 821 | |
| Additions | 4 387 | 4 387 | ||
| Disposals | -47 | -47 | ||
| BOOK VALUE DEC 31 | 174 593 | 4 387 | 181 | 179 162 |
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RAPALA VMC OYJ
FINANCIAL STATEMENTS 2020
PARENT COMPANY FINANCIAL STATEMENTS, FAS
14 INVENTORIES
| EUR THOUSAND | 2020 | 2019 |
|---|---|---|
| Raw material | 245 | 242 |
| Work in progress | 2 096 | 2 177 |
| Finished products | 2 538 | 3 636 |
| TOTAL | 4 879 | 6 055 |
15 RECEIVABLES
| EUR THOUSAND | 2020 | 2019 |
|---|---|---|
| Non-current receivables | ||
| Interest-bearing | ||
| Loan receivables | 26 725 | 16 998 |
| Non-interest-bearing | ||
| Derivatives | - | 7 |
| Other receivables | 409 | 360 |
| Current receivables | ||
| Interest-bearing | ||
| Loan receivables | 25 152 | 20 362 |
| Non-interest-bearing | ||
| Trade receivables | 4 220 | 2 565 |
| Prepaid expenses and accrued income | 663 | 2 480 |
| Other receivables | 2 275 | 2 192 |
| Derivatives | 196 | 323 |
| TOTAL | 59 640 | 45 287 |
RECEIVABLES FROM SUBSIDIARIES
| EUR THOUSAND | 2020 | 2019 |
|---|---|---|
| Non-current receivables | ||
| Interest-bearing | ||
| Loan receivables | 26 105 | 16 321 |
| Current receivables | ||
| Interest-bearing | ||
| Loan receivables | 25 152 | 20 362 |
| Non-interest-bearing | ||
| Trade receivables | 4 194 | 2 548 |
| Prepaid expenses and accrued income | 255 | 2 010 |
| Other receivables | 2 275 | 2 192 |
| TOTAL | 57 982 | 43 432 |
16 SHAREHOLDERS' EQUITY
| EUR THOUSAND | 2020 | 2019 |
|---|---|---|
| Share capital Jan 1 | 3 552 | 3 552 |
| SHARE CAPITAL DEC 31 | 3 552 | 3 552 |
| Share premium fund Jan 1 | 16 681 | 16 681 |
| SHARE PREMIUM FUND DEC 31 | 16 681 | 16 681 |
| Fair value reserve Jan 1 | - | 16 |
| Gains and losses on cash flow hedges | - | -16 |
| FAIR VALUE RESERVE DEC 31 | - | - |
| Fund for invested non-restricted equity Jan 1 | 4 914 | 4 914 |
| FUND FOR INVESTED NON-RESTRICTED EQUITY DEC 31 | 4 914 | 4 914 |
| Own shares Jan 1 | -4 890 | -5 553 |
| Directed issue of own shares | - | 663 |
| OWN SHARES DEC 31 | -4 890 | -4 890 |
| Retained earnings Jan 1 | 23 682 | 20 997 |
| Dividends paid | - | -2 306 |
| RETAINED EARNINGS DEC 31 | 23 682 | 18 690 |
| Net income for the period | 6 363 | 4 992 |
| TOTAL SHAREHOLDERS' EQUITY | 50 303 | 43 940 |
DISTRIBUTABLE FUNDS
| EUR | 2020 | 2019 |
|---|---|---|
| Fund for invested non-restricted equity | 4 914 371 | 4 914 371 |
| Retained earnings | 23 682 123 | 18 690 477 |
| Own shares | -4 889 643 | -4 889 643 |
| Net income for the period | 6 363 022 | 4 991 646 |
| TOTAL DISTRIBUTABLE FUNDS | 30 069 874 | 23 706 851 |
PARENT COMPANY SHARE CAPITAL
| 2020 | 2019 | |
|---|---|---|
| Shares | 39 000 000 | 39 000 000 |
| EUR | 3 510 000 | 3 510 000 |
Each share is entitled to one vote. Information on Board's authorizations and own shares is available in the section Shares and shareholders.
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RAPALA VMC OYJ
FINANCIAL STATEMENTS 2020
PARENT COMPANY FINANCIAL STATEMENTS, FAS
17 LIABILITIES
| EUR THOUSAND | 2020 | 2019 |
|---|---|---|
| Non-current liabilities | ||
| Interest-bearing | ||
| Loans from financial institutions | 41 000 | 46 000 |
| Hybrid bond | - | 25 000 |
| Other non-current liabilities | - | 7 800 |
| Non-interest-bearing | ||
| Derivatives | 52 | 90 |
| Current liabilities | ||
| Interest-bearing | ||
| Loans from financial institutions | 13 835 | 8 188 |
| Hybrid bond | 25 000 | - |
| Commercial paper program | - | 25 000 |
| Other current liabilities | 77 893 | 72 087 |
| Non-interest-bearing | ||
| Derivatives | 438 | 762 |
| Advances received | 1 | 1 |
| Trade payables | 4 258 | 2 358 |
| Accrued liabilities and deferred income | 8 507 | 3 109 |
| TOTAL | 170 983 | 190 395 |
LIABILITIES TO SUBSIDIARIES
| EUR THOUSAND | 2020 | 2019 |
|---|---|---|
| Non-current liabilities | ||
| Interest-bearing | ||
| Other non-current liabilities | - | 7 800 |
| Current liabilities | ||
| Interest-bearing | ||
| Other non-current liabilities | 77 893 | 72 087 |
| Non-interest-bearing | ||
| Trade payables | 3 769 | 1 709 |
| TOTAL | 86 116 | 81 702 |
All loans included in non-current liabilities mature in less than 5 years.
18 LEASE CONTRACTS
PARENT COMPANY AS A LESSEE
Repayment schedule of non-cancellable operating lease commitments
| EUR THOUSAND | 2020 | 2019 |
|---|---|---|
| Within one year | 464 | 289 |
| 1-3 years | 547 | 778 |
| TOTAL | 1 011 | 1 067 |
19 COMMITMENTS AND CONTINGENCIES
COMMITMENTS
| EUR THOUSAND | 2020 | 2019 |
|---|---|---|
| On own behalf and on behalf of subsidiaries | ||
| Guarantees | 2 481 | 3 814 |
| TOTAL | 2 481 | 3 814 |
Guarantees consist of subsidiaries' lease agreements and of other guarantees given on behalf of subsidiaries. The company's loan facilities are unsecured and include normal financial covenants.
Since Normark Logistics Europe Oy, a 100% owned subsidiary of Rapala VMC Corporation, is the legal shareholder of the distribution joint venture with Shimano Inc., the parent company has guaranteed to Shimano the fulfillment of its subsidiary's obligations related to the joint venture.
20 DERIVATIVES
| EUR THOUSAND | 2020 | 2019 |
|---|---|---|
| Currency derivatives with bank | ||
| Fair value | -178 | -439 |
| Nominal value | 26 907 | 48 252 |
| Interest rate derivatives | ||
| Fair value | -116 | -83 |
| Nominal value | 21 000 | 21 000 |
In 2020, changes in fair value of currency derivatives had an income statement effect of EUR 262 thousand (2019: EUR -1 041 thousand) and interest rate derivatives EUR -33 thousand (2019: EUR -41 thousand).
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RAPALA VMC OYJ
FINANCIAL STATEMENTS 2020
RISK MANAGEMENT
RISK MANAGEMENT
The objective of Rapala VMC Corporation's risk management is to support the implementation of the Group's strategy and execution of business targets. This is done by monitoring and mitigating the related threats and risks and simultaneously identifying and managing opportunities.
APPROACH TO RISK MANAGEMENT
The Board evaluates the Group's financial, operational and strategic risk position regularly and establishes related policies and instructions to be implemented and coordinated by Group management. The daily risk management activities are primarily delegated to the management of business units.
Risk management continued to receive management attention in 2020. The focus of Group level risk management in 2020 was on foreign exchange risk management as well as risk management activities on liquidity, interest rate and hazard risks. Other emphasized areas were account receivables, Group wide insurance programs and strategic supply chain management.
Below is a summary of key strategic, operational and financial risks as well as the main actions to mitigate these risks.
STRATEGIC RISKS
Sport fishing is a form of leisure hobby and the Group's products are competing against a wide range of other hobbies. The Group is promoting the attractiveness of sport fishing through active sales and marketing as well as brand management. By utilizing its unique research and development processes and resources, the Group is constantly developing new products to meet consumer needs and creating new needs for the consumers.
Brand portfolio and corporate reputation are among the most valuable intangible assets of the Group. The Rapala Group is actively managing its brands and their identity and securing that the value of the brands or corporate reputation are not jeopardized or violated by any means. The Group's brands are also legally protected.
Consumers relate the Group's brands to high quality, unique fishing experience, special functional features and trustworthy distribution channel. Consumers are able to differentiate illegal copy products and they don't constitute a strategic threat for the Group. The Group protects vigorously its intellectual property rights and acts against illegal copiers and distributors.
Sport fishing is dependent on availability of fresh fishing waters for fishes to live and breed. Pollution and potential environmental catastrophes are concerns for the Group. The Rapala Group is actively promoting initiatives to enhance environmental protection and increasing preparedness to comply with continuously tightening environmental regulations by taking steps to reduce environmental impacts of its operations and products. The Group is also acting in the forefront to develop products, e.g. catch-and-release equipment, to comply with fish protection initiatives. For more details on environmental actions, see the "Corporate Responsibility and Sustainable Development" report available on corporate website (www.rapalavmc.com).
The Group faces competition in all markets where its products are sold. Due to the uniquely wide distribution network, the Group's geographical market risk is truly globally spread, evening out seasonal and local market fluctuations.
The Rapala Group has a limited amount of global competitors. The biggest competitors have significant power in their home markets, but globally the geographical scope of their operations is smaller. The Group's global distribution network is unique in the. Within each market, the Group's competitors are often local fishing tackle producers and distributors operating with a limited range of products and narrow geographical scope. In some countries, competition is created by fishing tackle retailers selling private label products. Cross-border internet sales is an increasing trend and could cause some price erosion. Established fishing tackle brands' expansion into new product categories is also creating competition in some product segments. The strength of the Group's product development and brand portfolio, as well as flexibility to serve different markets with market-specific products ranges, is essential in succeeding in market competition.
The Group's production is spread out in several countries. Some of these countries have higher political risks but simultaneously provide access to competitive labor cost. The Group monitors country risks and costs and is actively seeking ways to manage the risk of rising production and distribution costs.
Manufacturing of sport fishing products is not dependent on any proprietary manufacturing technologies or patents. The Group's manufacturing units are actively monitoring the development of generic manufacturing technologies and considering different production applications.
Distribution of third party fishing and outdoor products creates a material part of the Group's sales. Making new distribution agreements or terminating old agreements or changes in product offering made by the principal may affect sales and profitability of Third Party Products. The Group has several
RAPALA VMC OYJ
FINANCIAL STATEMENTS 2020
RISK MANAGEMENT
factories and various raw material and finished good suppliers. Different factories produce for the most part separate product categories and the Group is not critically dependent on any single product or raw material supplier.
The Group's customer base is geographically and quantitatively well diversified. Customers are mostly country-specific and not operating globally. The Group is not critically dependent on any single customer: even the biggest single customer represents moderate share of the Group's net sales. The Group is not largely engaged in direct consumer retailing. This is not considered to be a risk as consumer demand is largely driven by brand consciousness and alternative routes to market can be established when needed.
The Board evaluates the Group's strategic risks annually and the Group management continuously monitors changes in the business environment. Strategic risk management in local jurisdictions is delegated to the management of each business unit.
OPERATIONAL AND HAZARD RISKS
The fishing tackle business has traditionally been relatively resilient to increased uncertainties and downturns in the general economic climate. The truly global nature of the Group's sales and operations spreads the market risks caused by uncertainties in the global economy.
The underlying consumer demand for the Group's products is seasonal and also impacted by unforeseeable factors such as weather. To offset and balance the seasonality, the Group is engaged in production and distribution of winter fishing and winter sports equipment. To mitigate the effects of seasonality, the Group is also operating with own distribution in the southern hemisphere and is developing its production planning to better respond to changes in the market demand.
Due to the seasonality in demand, the Group's product shipments concentrate annually to relatively short time periods, where supply problems could endanger the sales of the season. Similarly, lower than expected sales volumes may lead to excess inventories, as it is difficult to cancel committed orders within short notice.
There is a high level of dependency between the Group's manufacturing and distribution units and interruption at earlier stage of the supply chain could have knock-on effects throughout the rest of the Group. The importance of proper order forecasting and production planning has increased. The related risks are managed with high level of co-operation between manufacturing
and distribution units, safety stocks and extensive insurance coverage. The Group-wide supply chain and logistics initiatives continued in 2020 and mitigated these risks relating to operational efficiencies.
The Group's sales prices are primarily fixed annually or biannually, normally before each season. Sudden changes in raw material prices or foreign exchange rates may have significant impact on costs of some products. The Group aims to push increases in costs to the sales prices immediately or during a period of time. The Group's market risks and mitigation actions are analyzed in more detail in the section "Financial Risks" and in note 22 to the consolidated financial statements.
In respect of manufacturing activities, the Group is not critically dependent on any single external production factor supplier. Availability of competent production labor is essential and the Group aims to maintain good employer reputation and labor relations.
There are significant dependencies between the Group's manufacturing units, which could cause supply challenges e.g. in case of fire or other hazard. Such hazard could lead to property damages but also to business interruption losses throughout the supply chain. Therefore, the Group emphasizes hazard risk management. The Group has together with its property and business interruption insurer continued to conduct annually hazard prevention reviews to Group's key factories and distribution warehouses. Group management has also continued to maintain risk awareness throughout the organization.
The Group constantly develops its global insurance programs, which cover most of the Group companies. Global insurance policies, which take into account the Group's interdependency, are in place for property damage and business interruption, transportation as well as general and product liability. The Group has increased its focus also on mitigating fraud risk.
The Board evaluates the Group's operational risks at least once a year. Group management monitors and coordinates the continuous management of operational risks, which is the responsibility of the management of each business unit.
FINANCIAL RISKS
The Group's financial risks consist of market risks, credit and default risks and liquidity risks. The Board evaluates financial risks during the year and Group management monitors and manages them continuously. Financial risks are discussed in detail in note 22 of the consolidated financial statements.
RAPALA VMC OYJ
FINANCIAL STATEMENTS 2020
SHARES AND SHAREHOLDERS
SHARES AND SHAREHOLDERS
Rapala VMC Corporation's shares have been traded on the Nasdaq Helsinki since 1998. In 2020, the shares traded between EUR 4.58 and EUR 2.15 with an average price of EUR 3.04.
Shares and Voting Rights
On December 31, 2020, the share capital fully paid and reported in the Trade Register was EUR 3 552 160.41 and the total number of shares was 39 000 000. The average number of shares during the financial year was 39 000 000. Each share is entitled to one vote.
There were no changes in the share capital in 2020.
Board's Authorizations
The AGM on 23 March, 2020 authorized the Board of Directors to resolve to repurchase a maximum of 2 000 000 own shares by using funds in the unrestricted equity. The proposed number of shares corresponds to less than 10 per cent of all shares in the company. The shares may be repurchased to develop the company's capital structure. In addition, the shares may be repurchased to finance or carry out business acquisitions or other arrangements, to settle the company's equity-based incentive plans, to be transferred for other purposes, or to be cancelled. The shares may be repurchased in deviation from the proportion of the shares held by the shareholders. The shares will be repurchased through public trading arranged by NASDAQ Helsinki Oy at the market price of the acquisition date. The shares will be acquired and paid in pursuance of the rules of NASDAQ Helsinki Oy and applicable rules regarding the payment period and other terms of the payment. The authorization is in force until the end of the next Annual General Meeting, however, no longer than until June 30, 2021.
The AGM on 29 March, 2018 authorized the Board of Directors to decide on a share issue and the issue of special rights entitling to shares as defined in §1 of Chapter 10 of the Companies Act, against or without consideration, as follows. By virtue of the authorization the Board is entitled to issue up to 5 000 000 shares corresponding to approximately 12.8 per cent of all current shares. Except for issuing of option rights or special rights entitling to shares, the authorization can also be used for incentive arrangements for the management and key persons, however, not more than 900 000 shares in total. The Board would decide on all terms and conditions of share issues and the issues of special rights. The authorization covers both the issuance of new shares and the transfer of own shares. A share issue or the issue of special rights may be executed in deviation of the shareholders pre-emptive rights to subscribe for new shares. This authorization shall be effective until March 29, 2021.
Own Shares
In 2020, no own shares were repurchased. At the end of December 2020, the company held 452 208 own shares, representing 1.2% of the total number and the total voting rights of shares. The average share price of all repurchased own shares held by the company was EUR 4.95.
Shareholder Register
The shares of the company belong to the Book Entry Securities System. Shareholders should notify the particular register holding their Book Entry Account about changes in address or account numbers for payment of dividends and other matters related to ownership of shares.
Share-Based Incentive Plans
The Board of Directors of Rapala VMC Corporation approved on February 16th 2018 a new Performance Share Plan for the Group key employees. The aim of the new plan is to align the objectives of the shareholders and the key employees in order to increase the value of the Company in the long-term, to retain the key employees at the Company, and to offer them a competitive reward plan that is based on earning and accumulating the Company's shares.
A significant proportion of the reward allocations of the CEO and other members of the Executive Committee of the Group will be dependent on their personal investments in the Company shares and share ownership of the shares acquired through such investments. Details of Share-Based Incentive plans are given on note 29.
Management Shareholding
On December 31, 2019, the members of the Board and the Executive Committee held directly a total of 112 678 company shares and corresponding to 0.3% of all shares and voting rights. Details of management shareholdings are given on pages 58-59.
Trading and Performance of the Company's Shares
The company share (RAP1V) is quoted on the Nasdaq Helsinki. The closing price on December 31, 2020 was EUR 4.36. The highest price in 2020 was EUR 4.58, the lowest price EUR 2.15 and the average price EUR 3.04. A total 6 044 245 company's shares were traded in 2020. This represents 15.5% of all shares on December 31, 2020.
At the end of 2020, the market capitalization of all outstanding shares, excluding own shares, was EUR 168.1 million. Earnings per share (basic) were EUR 0.04 (EUR 0.10 in 2019). For more share related key figures see page 7.
Dividend
The Board proposes to the AGM that no dividend is paid for the 2020.
56
RAPALA VMC OYJ
FINANCIAL STATEMENTS 2020
SHARES AND SHAREHOLDERS
PRINCIPAL SHAREHOLDERS ON DECEMBER 31, 2020
| SHAREHOLDERS | NUMBER OF SHARES | % |
|---|---|---|
| Viellard Migeon & Cie | 15 000 088 | 38.5 |
| Sofina S.A. | 7 500 000 | 19.2 |
| Nordea Funds | 4 807 575 | 12.3 |
| The State Pension Fund | 1 290 000 | 3.3 |
| Shimano Singapore Private Limited | 889 680 | 2.3 |
| Taaleritehdas Funds | 570 000 | 1.5 |
| Ilmarinen Mutual Pension Insurance | 292 007 | 0.7 |
| Coble James Jay | 225 000 | 0.6 |
| Elo Mutual Pension Insurance | 155 000 | 0.4 |
| Säästöpankki Funds | 125 000 | 0.3 |
| Rapala VMC Oyj (own shares) | 452 208 | 1.2 |
| Other shareholders total | 7 693 442 | 19.7 |
| TOTAL NUMBER OF SHARES | 39 000 000 | 100.0 |
- Viellard Migeon & Cie's holds together with its subsidiary De Pruines Industries 15 105 398 shares, representing 38.7% of total number and the total voting rights of shares.
SHAREHOLDERS BY CATEGORY ON DECEMBER 31, 2020
| SHAREHOLDER CATEGORY | NUMBER OF SHARES | % |
|---|---|---|
| Private and public corporations | 1 324 359 | 3.4 |
| Financial and insurance companies | 5 963 412 | 15.3 |
| Public institutions | 1 737 307 | 4.5 |
| Non-profit organizations | 47 612 | 0.1 |
| Individuals | 2 950 364 | 7.6 |
| International shareholders | 23 567 917 | 60.4 |
| Administrative registrations | 3 409 029 | 8.7 |
| TOTAL | 39 000 000 | 100.0 |
SHARE PRICE IN 2020, %
SHARE PRICE DEVELOPMENT IN 2016–2020, EUR
DISTRIBUTION OF SHAREHOLDING ON DECEMBER 31, 2020
| NUMBER OF SHARES | NUMBER OF SHAREHOLDERS | % | TOTAL SHARES | % |
|---|---|---|---|---|
| 1 - 100 | 1 908 | 38.9 | 95 467 | 0.2 |
| 101 -500 | 1 785 | 36.4 | 490 213 | 1.3 |
| 501 - 1 000 | 622 | 12.7 | 505 997 | 1.3 |
| 1 001 - 10 000 | 513 | 10.5 | 1 356 212 | 3.5 |
| 10 001 - 1 000 000 | 75 | 1.5 | 4 697 556 | 12.0 |
| 1 000 001 - | 6 | 0.1 | 31 854 555 | 81.7 |
| TOTAL | 4 909 | 100.0 | 39 000 000 | 100.0 |
Number of shares includes 452 208 own shares held by the parent company.
57
RAPALA VMC OYJ
FINANCIAL STATEMENTS 2020
BOARD OF DIRECTORS AND MANAGEMENT
BOARD OF DIRECTORS AND MANAGEMENT
BOARD OF DIRECTORS
LOUIS D'ALANÇON
Chairman of the Board since 2018
Board member since 2017
M.Sc. Civil Engineering, Major in Economy and Finance
Year of birth: 1959
Shareholding*: 7 700
JORMA KASSLIN
Board member since 1998
Chairman of the Board 2016-2018
M.Sc. (Eng.)
Year of birth: 1953
Shareholding*: 26 878
EMMANUEL VIELLARD
Board member since 2000
Chairman of the Board 2005-2016
President of Viellard Migeon & Cie
CEO of LISI
MBA, CPA
Year of birth: 1963
Shareholding*: 2 000
MARC SPEECKAERT
Board member since 2005
MBA
Year of birth: 1951
Shareholding*: 4 500
JULIA AUBERTIN
Board member since 2014
M.Sc. (EDHEC)
Year of birth: 1979
Shareholding*: -
VESA LUHTANEN
Board member since March 25, 2020
L-Fashion Group Oy, Managing Director / CEO
Bachelor of Science in Business Administration
Year of birth: 1961
Shareholding*: -
- Shares and share-based rights of each member and corporations over which he/she exercises control in the company and its group companies.
58
RAPALA VMC OYJ
FINANCIAL STATEMENTS 2020
BOARD OF DIRECTORS AND MANAGEMENT
EXECUTIVE COMMITTEE
Rapala VMC Corporation announced change of CEO on February 12, 2020. Nicolas Warchalowski was appointed as the company's new President and CEO starting from March 1, 2020. Nicolas Warchalowski succeeded Louis d'Alançon, who acted as President and CEO since September 27, 2019. David Neill was appointed as Executive Vice President, Product Development & Innovation starting from September 9, 2020 and Enrico Ravenni Executive Vice President, Executive Vice President, Head of Distribution in APAC countries and Global Rods, Reels and Lines Product starting from October 30, 2020.
NICOLAS WARCHALOWSKI
President and Chief Executive Officer since March 1, 2020
Executive Committee member since March 1, 2020
Chairman of the Executive Committee since March 1, 2020
M.Sc. in Business and Economics
Year of birth: 1971
Shareholding*: -
OLLI AHO
Executive Vice President, General Counsel, Investor Relations and Secretary of the Board
Executive Committee member since 1998
Master of Laws
Year of birth: 1959
Shareholding*: 10 100
STANISLAS DE CASTELNAU
Executive Vice President, Head of Operations
Executive Committee member since 2002
Engineer
Year of birth: 1963
Shareholding*: 8 000
TOM MACKIN
Executive Vice President, Distribution and Brands in North America
Executive Committee member since 2007
Bachelor of Fine Arts
Year of birth: 1961
Shareholding*: 3 000
LARS OLLBERG
Chief Operating Officer
Executive Committee member since 2008
Vocational Qualification in Business and Administration
Year of birth: 1956
Shareholding*: 10 100
VICTOR SKVORTSOV
Executive Vice President Distribution in Russia, Belarus, Kazakhstan
Executive Committee member since 2013
Engineer
Year of birth: 1962
Shareholding*: 10 100
CYRILLE VIELLARD
Executive Vice President of VMC Peche
Executive Committee member since 2015
MBA, ESSEC
Year of birth: 1977
Shareholding*: 10 100
ARTO NYGREN
Executive Vice President, Lure Manufacturing
Executive Committee member since 2017
Bachelor's degree in Mechanical Engineering
Year of birth: 1965
Shareholding*: 10 100
JAN-ELOF CAVANDER
Chief Financial Officer
Executive Committee member since 2017
Master of Science (Technology)
Year of birth: 1985
Shareholding*: 10 100
JEAN-PHILIPPE NICOLLE
Executive Vice President, Head of European Distribution
Executive Committee member since 2020
Executive MBA, Business School ICS, Paris and CPA
Year of birth: 1968
Shareholding*: -
DAVID NEILL
Executive Vice President, Product Development & Innovation
Executive Committee member since September 9, 2020
Bachelor of Commerce
Year of birth: 1973
Shareholding*: -
ENRICO RAVENNI
Executive Vice President, Head of Distribution in APAC countries and Global Rods, Reels and Lines Product Development & Innovation
Executive Committee member since October 30, 2020
Year of birth: 1966
Shareholding*: -
- Shares and share-based rights of each member and corporations over which he/she exercises control in the company and its group companies.
59
RAPALA VMC OYJ
SIGNATURES FOR THE REPORT OF THE BOARD OF DIRECTORS AND FINANCIAL STATEMENTS
SIGNATURES FOR THE REPORT OF THE BOARD OF DIRECTORS AND FINANCIAL STATEMENTS
Helsinki, February 9, 2021
Louis d'Alançon,
Chairman of the Board
Emma Kasslin
Vesa Luhtanen
Enmanuel Viellard
Marc Speeckaert
Julia Aubertin
Nicolas Warchalowski,
President and CEO
THE AUDITOR'S NOTE
A report on the audit performed has been issued today.
Helsinki, March 2, 2021
Ernst & Young Oy
Authorized Public Accountant Firm
Mikko Rytilahti
Authorized Public Accountant
60
RAPALA VMC OYJ
FINANCIAL STATEMENTS 2020
AUDITOR'S REPORT
AUDITOR'S REPORT
TRANSLATION OF THE FINNISH ORIGINAL
TO THE ANNUAL GENERAL MEETING OF RAPALA VMC OYJ
REPORT ON THE AUDIT OF FINANCIAL STATEMENTS
OPINION
We have audited the financial statements of Rapala VMC Oyj (business identity code 1016238-8) for the year ended 31 December, 2020. The financial statements comprise the consolidated balance sheet, income statement, statement of comprehensive income, statement of changes in equity, statement of cash flows and notes, including a summary of significant accounting policies, as well as the parent company's balance sheet, income statement, statement of cash flows and notes.
In our opinion
- the consolidated financial statements give a true and fair view of the group's financial position as well as its financial performance and its cash flows in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU.
- the financial statements give a true and fair view of the parent company's financial performance and financial position in accordance with the laws and regulations governing the preparation of financial statements in Finland and comply with statutory requirements.
Our opinion is consistent with the additional report submitted to the Board of Directors.
BASIS FOR OPINION
We conducted our audit in accordance with good auditing practice in Finland. Our responsibilities under good auditing practice are further described in the Auditor's Responsibilities for the Audit of Financial Statements section of our report.
We are independent of the parent company and of the group companies in accordance with the ethical requirements that are applicable in Finland and are relevant to our audit, and we have fulfilled our other ethical responsibilities in accordance with these requirements.
In our best knowledge and understanding, the non-audit services that we have provided to the parent company and group companies are in compliance with laws and regulations applicable in Finland regarding these services, and we have not provided any prohibited non-audit services referred to in Article 5(1) of regulation (EU) 537/2014. The non-audit services that we have provided have been disclosed in note 5 to the consolidated financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
KEY AUDIT MATTERS
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
We have fulfilled the responsibilities described in the Auditor's responsibilities for the audit of the financial statements section of our report, including in relation to these matters. Accordingly, our audit included the performance of procedures designed to respond to our assessment of the risks of material misstatement of the financial statements. The results of our audit procedures, including the procedures performed to address the matters below, provide the basis for our audit opinion on the accompanying financial statements.
We have also addressed the risk of management override of internal controls. This includes consideration of whether there was evidence of management bias that represented a risk of material misstatement due to fraud.
Revenue Recognition
Refer to accounting principles for the consolidated accounts and note 2 (Segment information).
The Group focuses on revenue as a key performance measure which could create the incentive for revenue to be recognized before the customer obtains control of the goods or services in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. Due to the subsidiaries being relatively independent management may also have an opportunity to overstate revenues.
Proper revenue recognition was determined to be a key audit matter and a significant risk of material misstatement referred to in EU Regulation No 537/2014 point (c) of Article 10(2).
Our audit procedures to address the risk of material misstatement relating to revenue recognition, which was considered to be a significant risk, included, among others:
- Assessing the Group's accounting policies over revenue recognition and assessing compliance with applicable accounting standards.
- Testing of the Group's controls over correct timing of revenue recognition. These controls comprised of a combination of transaction level prevent controls and detect controls.
- We tested the cutoff of revenue with analytical procedures supplemented with tests on a transaction level either side of the balance sheet date as well as credit notes prepared after the balance sheet date.
- Considering the Group's disclosures in respect of revenues
RAPALA VMC OYJ
FINANCIAL STATEMENTS 2020
AUDITOR'S REPORT
Valuation of goodwill and intangible assets
Refer to accounting principles for the consolidated accounts and note 11 (Intangible assets).
At the balance sheet date, the value of goodwill and intangibles amounted to 71,2 M€ (75,5 M€) representing 26,1 % (26,1 %) of the total assets.
Procedures regarding management's annual impairment test were significant to our audit because the test imposes estimates. The Group management use assumptions in respect of future market and economic conditions such as revenue and margin developments.
Our audit procedures included among others:
- Involvement of EY valuation specialists to assist us in evaluating methodologies, impairment calculations and underlying assumptions applied by the management in impairment testing.
- Testing of the mathematical accuracy of the impairment calculations.
- We focused on how much recoverable amounts exceed the carrying amounts of cash-generating units and whether any reasonably possible change in assumptions could cause the carrying amount to exceed its recoverable amount.
- We also assessed the adequacy of the Group's disclosures in note 11 (Intangible assets) in the financial statements about the assumptions to which the outcome of the impairment tests were more sensitive.
Valuation of inventories
Refer to accounting principles for the consolidated accounts and note 17 (Inventories).
Inventories are valued at the lower of cost or net realizable value. Inventories are presented net of an impairment loss recognized for obsolete and slow-moving inventories. At the balance sheet date, the total value of inventory and related provision for obsolete goods amounted to 76,0 M€ and 7,2 M€, respectively (net 68,8 M€).
Valuation of inventories was a key audit matter because the carrying value of inventories and related provisions are material to the financial statements, and because valuation of inventories requires management judgment relating to future sales and the level of provision for obsolete goods.
Our audit procedures included among others:
- Assessing the Group's accounting policies regarding inventory allowances and assessing compliance with applicable accounting standards.
- Evaluating, amongst others, the analyses and assessments made by management with respect to obsolete and slow-moving inventories, the expected demand and market value related to the items.
- Assessing the adequacy of the Group's disclosures in notes 17 (Inventories) in the financial statements.
RESPONSIBILITIES OF THE BOARD OF DIRECTORS AND THE MANAGING DIRECTOR FOR THE FINANCIAL STATEMENTS
The Board of Directors and the Managing Director are responsible for the preparation of consolidated financial statements that give a true and fair view in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU, and of financial statements that give a true and fair view in accordance with the laws and regulations governing the preparation of financial statements in Finland and comply with statutory requirements. The Board of Directors and the Managing Director are also responsible for such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the Board of Directors and the Managing Director are responsible for assessing the parent company's and the group's ability to continue as going concern, disclosing, as applicable, matters relating to going concern and using the going concern basis of accounting. The financial statements are prepared using the going concern basis of accounting unless there is an intention to liquidate the parent company or the group or cease operations, or there is no realistic alternative but to do so.
AUDITOR'S RESPONSIBILITIES FOR THE AUDIT OF FINANCIAL STATEMENTS
Our objectives are to obtain reasonable assurance on whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with good auditing practice will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements.
As part of an audit in accordance with good auditing practice, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:
- Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
- Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the parent company's or the group's internal control.
- Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.
- Conclude on the appropriateness of the Board of Directors' and the Managing Director's use of the going concern basis of accounting and based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the parent company's or the group's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor's report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit
RAPALA VMC OYJ
FINANCIAL STATEMENTS 2020
AUDITOR'S REPORT
evidence obtained up to the date of our auditor's report. However, future events or conditions may cause the parent company or the group to cease to continue as a going concern.
- Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events so that the financial statements give a true and fair view.
- Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.
We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.
From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor's report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.
OTHER REPORTING REQUIREMENTS
Information on our audit engagement
We were first appointed as auditors by the Annual General Meeting on 5.4.1995, and our appointment represents a total period of uninterrupted engagement of 26 years. Rapala VMC Oyj has been a public interest entity since 4.12.1998.
Other information
The Board of Directors and the Managing Director are responsible for the other information. The other information comprises the report of the Board of Directors and the information included in the Annual Report, but does not include the financial statements and our auditor's report thereon. We have obtained the report of the Board of Directors prior to the date of this auditor's report, and the Annual Report is expected to be made available to us after that date.
Our opinion on the financial statements does not cover the other information.
In connection with our audit of the financial statements, our responsibility is to read the other information identified above and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. With respect to report of the Board of Directors, our responsibility also includes considering whether the report of the Board of Directors has been prepared in accordance with the applicable laws and regulations.
In our opinion, the information in the report of the Board of Directors is consistent with the information in the financial statements and the report of the Board of Directors has been prepared in accordance with the applicable laws and regulations.
If, based on the work we have performed on the other information that we obtained prior to the date of this auditor's report, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.
Helsinki, March 2, 2021
Ernst & Young Oy
Authorized Public Accountant Firm
Mikko Rytilahti
Authorized Public Accountant
CONTACTS
RAPALA VMC CORPORATION
Mäkelänkatu 91
FI-00610 HELSINKI
FINLAND
OLLI AHO
Company Counsel and Investor Relations
Tel: +358 9 7562 540
E-mail: [email protected]
www.rapalavmc.com