Amer Sports reported net sales of €284.7 million ($388 mm) were at last year’s level of €285.1 million ($456 mm). In local currencies, net sales decreased by 6%. Sales in Winter and Outdoor increased by 2% and in Ball Sports by 4%. The net loss in the period was €23.2 million ($32 mm) against a loss of €11.4 million ($18 mm) a year ago.
Net sales of Fitness decreased by 15%. In local currency terms, Winter and Outdoor sales were at last year’s level, Ball Sports sales decreased by 4% and Fitness sales decreased by 23%. Net sales by business segment were as follows: Winter and Outdoor 37%, Ball Sports 48% and Fitness 15%.
The split of net sales by geographical segment was as follows: the Americas 49%, EMEA 38% and Asia Pacific 13%. Sales in the Americas and EMEA were at last year’s level and increased 6% in Asia Pacific. In local currency terms, net sales decreased 12% in the Americas, increased by 2% in EMEA and decreased 4% in Asia Pacific.
The Group’s EBIT showed a deficit of €29.4 million ($40 mm) versus a deficit of €7.8 million ($12 mm). The weakened result reflects more challenging market conditions, particularly in the U.S. Last year’s result includes a capital gain of €13 million ($19 mm) from selling the company’s corporate headquarters building.
Roger Talermo, president and CEO, said, ""Market conditions in the sporting goods industry during the second quarter remained as difficult as during the start of the year. The US market continued to suffer more than the European market and in general, there is less demand for high-ticket items. This was evident in both our Fitness and Golf businesses that saw the largest sales decline within Amer Sports.
"Then again, the demand for low-ticket items has remained healthy. We managed to improve our strong growth rate during the second quarter in our Apparel and Footwear business. Our pre-orders in Winter Sports Equipment for the next season are at last year’s level thanks to market share gains in Europe.
"It’s evident that in the current challenging times, we have to continue to adjust our structure in order to protect our bottom line. I’m convinced that we can create substantial efficiency gains by further reorganizing and developing our global sales and channel management and by developing our global supply chain and IT platforms. A new management model was introduced in June in order to ensure a successful execution of this next step in our strategy.
"As we have stated earlier, our key priority in 2009 is on strengthening our balance sheet, and in order to achieve this we are ready to consider all necessary measures. Our programs in reducing inventories and receivables are progressing as planned."
First Half Results
In the first half, Amer Sports net sales of €640.0 million were off a bit from last year H1 sales of €648.1 million. In local currencies, net sales decreased by 7% for the half.
Net sales by business segment were as follows: Winter and Outdoor 42%, Ball Sports 44% and Fitness 14%. Winter and Outdoor sales increased by 2% and were at last year’s level in Ball Sports. Net sales of Fitness decreased by 15%. In local currency terms, Winter and Outdoor net sales were at last year’s level, Ball Sports decreased by 6% and Fitness decreased by 24%.
The split of net sales by geographical segment was as follows: the Americas 47%, EMEA 42% and Asia Pacific 11%. Sales decreased in the Americas by 4%, were at last year’s level in EMEA and increased 7% in Asia Pacific. In local currency terms, net sales decreased by 14% in the Americas, increased by 2% in EMEA and decreased by 2% in Asia Pacific.
The Group’s EBIT for the first half was a loss of €36.3 million versus a deficit of €7.8 million. The weakened result reflects more challenging market conditions particularly in the US. Last year’s result includes a capital gain of €13 million from selling the company’s corporate headquarters building.
The first half net loss was €34 million against a loss of €16.6 million.
In January-June, Winter and Outdoor’s net sales were at last year’s level in local currency terms. The breakdown of net sales was as follows: Apparel and Footwear 49%, Winter Sports Equipment 18%, Cycling 19% and Sports Instruments 14%. The Americas accounted for 22%, EMEA for 67% and Asia Pacific for 11% of net sales. Sales in local currencies were down 10% in both in the Americas and Asia Pacific, and were up 7% in EMEA.
The EBIT loss of €40.1 million improved by 4% in local currencies and compared with a year-ago loss of €41.3 million.
The second quarter is dominated by the Apparel and Footwear business. In local currencies, Apparel and Footwear sales grew by 20% in the review period, the growth being driven particularly by Salomon. The order book for the fall/winter season is now complete, indicating a slower pace than in the first half of the year. Inventory management continues to improve according to targets.
The second quarter is not material for Winter Sports Equipment sales as all focus is on order intake for the next season. Its sales declined by 12% in local currencies in the review period. Pre-orders in Winter Sports Equipment for the next season are at last year’s level, with strength in cross-country skiing and protectives.
Regionally, North America continues to underperform while most key European markets show healthy progress in orders. The operating expenses continue to track down as planned.
Bicycle component manufacturer Mavic’s deliveries started to stabilize after a very low start for the year. The capacity constraints in high-end wheels continued to negatively impact both the sales and margins. The R-SYS recall is now almost complete. The customer feedback on the execution of the recall has been positive. Mavic’s sales declined by 15% in local currencies.
Net sales of Sports Instruments were below last year’s level. In local currencies, sales decreased by 12%. Net sales declined particularly in the US and in the diving category globally. However, the training and outdoor categories were at last year’s level despite the difficult market environment. During the second quarter, Suunto launched new products in both watch and in diving categories. The products have been well received by the trade. New cost savings initiatives have been made in order to adjust Suunto’s cost base to the current market conditions.
In local currency terms
In January-June, Ball Sports’ net sales of €278.6 million were at last year’s level. In local currency terms, the net sales declined by 6%. The breakdown of net sales was as follows: Racquet Sports 46%, Team Sports 39% and Golf 15%. Of the net sales, the Americas generated 63%, EMEA 24% and Asia Pacific 13%. In a local currencies, the Americas and EMEA declined by 9% and 4%, respectively. Asia Pacific grew by 11%.
The EBIT of €18.9 million (vs. €27.0 a year ago) declined by 36% versus last year in local currencies driven by volume declines and margin pressures. The unfavorable margin development is the result of challenging economic environment and consumer shift to the value product mix.
In local currencies, the Racquet Sports business declined by 3%. In local currencies terms, Americas declined by 11%, EMEA declined by 2%, and Asia Pacific grew by 15%. The growth in Asia Pacific is driven by the expanded distribution in China and a strengthening position in the badminton throughout the region. Racquet Sports continues to focus on market share development as the #1 brand.
In local currencies, Team Sports declined by 3%. Asia grew by 30% in local currencies. The EMEA and the Americas declined by 12% and 4%, respectively. 85% of the Team Sports business is performed in the US. Therefore, the overall net sales for Team Sports are being heavily impacted by the economic recession. In the current environment, the Team Sports sales mix has shifted towards national retailers offset by softness in the specialty segment as consumers gravitate to more value price points.
The Golf business saw a 20% decline versus the previous year in local currencies. The net sales declines by region are the Americas 29%, EMEA 9% and Asia Pacific 20%. Based upon market data, golf has suffered more from changes in consumer behavior than the other categories in Ball Sports. The golf industry has reacted aggressively with new pricing and promotions.
In local currency terms
In January-June, Fitness’ net sales declined by 24% in local currencies to €90.4 million. The Americas accounted for 74%, EMEA for 18%, and Asia Pacific for 8% of net sales. In local currency terms, sales were down 26% in the Americas, 14% in EMEA and 27% in Asia Pacific.
EBIT decreased to a loss of €5.6 million against a profit of €3.3 million due to the significant fall in sales and lower gross margins, resulting from a lower capacity utilization rate and pricing pressure. Precor will continue to focus on cost savings to return to profitability.
The market situation is unchanged since the first quarter of the year with the general economic climate being the largest driver of Precor’s performance.
The commercial business decline is driven by tight credit markets which are making it more difficult for small customers to lease equipment. Reports from customers suggest that gym membership has not declined dramatically; however, clubs are seeing reduced revenue due to lower spending by members on extra services such as personal training. This revenue shortfall is driving a "wait and see" attitude toward new equipment purchases as clubs are looking to reduce expenses. Additionally, many customers are putting new projects on hold which is restricting the available business to replacement sales rather than the new facility sales that have driven the industry in the last few years. Price competition between manufacturers has remained fierce.
Consumer sales are affected by both the overall withdrawal from discretionary spending by many families and by a significant reduction in the number of specialty dealers compared to the prior year. The distribution lost to the bankruptcy of two major dealers
has not been replaced with a similar number of specialty fitness stores. In June, Precor began equipment programs with Costco and Amazon.com to broaden the reach of Precor’s consumer products.
Construction is underway on a new strength equipment production facility in North Carolina. This facility will provide needed capacity for the recently launched strength product lines and it will reduce manufacturing costs.
CAPITAL EXPENDITURE
The Group’s capital expenditure on fixed assets totaled €15.1 million versus €15.4 a year ago. The Group’s depreciation was €16.8 million against €17.2 million.
RESEARCH AND DEVELOPMENT
€26.4 million was invested in research and development, representing 4.1% of net sales, compared with €28.2 a year ago.
FINANCIAL POSITION AND CASH FLOW
Amer Sports’ interest bearing liabilities at the end of June were €556.6 million against €537.1 million, consisting of short-term debt of €144.0 million and long-term debt of €412.6 million. Liquid assets amounted to €23.8 million (vs. €29.2 million) at the end of the period. The Group’s net debt was €532.8 million (vs. €507.9 million). Amer Sports’ total unused committed credit facilities amounted to €150 million.
Amer Sports has a €325 million committed revolving credit facility, maturing in 2011 and 2012, of which €235 million has been used. Furthermore, the company has, as of January 1, 2009, committed revolving credit facilities of €60 million maturing in 2010.
Amer Sports long-term debt consists of €75 million private placement bond maturing in 2011, U.S. $100 million loan as a part of the originally €575 million loan syndicate of 2005, maturing in 2011 and 2012, and a €28.6 million pension loan.
Short-term financing is mainly raised with a domestic commercial paper program, of which €135.9 million had been used at the end of June.
In March, Amer Sports Corporation issued a €60 million hybrid bond in order to strengthen the Group’s capital structure and to repay existing debt. The coupon rate of the bond is 12.0% per annum. The bond has no maturity but the company may call the bond after three years. A hybrid bond is a bond that is subordinated to the company’s other debt obligations and will be treated as equity in the IFRS financial statements. The hybrid bond holding does not confer the right to vote at shareholder meetings and will not dilute the holdings of the current shareholders.
The equity ratio at the end of June was 37.3% (31.9%) and gearing was 103% (114%).
Net cash flow from operating activities after interest and taxes was €58.7 million (vs. €94.4 million). Net cash flow from investing activities was a negative €15.6 million versus a positive €10.7 million a year ago.
PERSONNEL
At the end of June, the Group employed 6,387 people (6,273). The Group employed an average of 6,300 people (6,294) during the review period. The increase is due to the acquisition of the Bulgarian production facility in 2008 (486 employees) and other insourcing activities.
NEW MANAGEMENT MODEL
Amer Sports Corporation reorganized its management model by creating one group-wide Amer Sports management team. The purpose of the new Executive Board is to strengthen the development and consistent execution of Amer Sports Corporate strategy across all business areas and regions, driving group integration, common goals and the Group’s overall performance.
The following new members were appointed to the Executive Board: Jean-Marc Pambet, President of Apparel and Footwear, Bernard Millaud, President of Cycling and Terhi Heikkinen, Senior Vice President Human Resources. Due to the change, the Amer Sports Executive Team ceased to exist.
Amer Sports Executive Board members are as of June 16, 2009:
Roger Talermo, President and CEO
Pekka Paalanne, Executive Vice President and CFO
Thomas Ehrnrooth, Senior Vice President Sales and Channel
Management
Vincent Wauters, Senior Vice President Supply Chain and Information
Technology
Terhi Heikkinen, Senior Vice President Human Resources
Chris Considine, President of Ball Sports
Paul Byrne, President of Fitness Equipment
Juha Pinomaa, President of Sports Instruments
Michael Schineis, President of Winter Sports Equipment
Jean-Marc Pambet, President of Apparel and Footwear
Bernard Millaud, President of Cycling
OUTLOOK FOR 2009
Amer Sports’ market outlook has not materially changed during the second quarter and the market will remain challenging during the rest of the year. Amer Sports’ EBIT for the full-year 2009 will be below last year’s level. The expected improvement in Winter Sports Equipment due to previously implemented cost efficiency measures is more than offset by weakness in Amer Sports’ other businesses. (On June 17, 2009 Amer Sports announced that its full-year result will weaken from last
year.)