Rapala VMC Corporation Annual Report 2003

Transcription

1 Rapala VMC Corporation Annual Report 2003

2 Every time we come out with some

3 Contents Group Overview Key Financial Statistics Review by President and CEO Brand Portfolio New Product Overview Marketing Overview Report of the Board of Directors Consolidated Income Statement Consolidated Balance Sheet Consolidated Statement of Cashflow Parent Company Income Statement Parent Company Balance Sheet Parent Company Statement of Cashflow Accounting Principles Notes to the Financial Statements Board of Directors Proposal to the Annual General Meeting Auditors Report Rapala VMC Group Calculation of Key Figures Corporate Governance Board of Directors Shares and Shareholders Information for Shareholders Key Events During the Financial Year Principal Group Companies thing new, it s the same old reaction.

4 Group Overview Innovative product introductions have widened the scope of the Group throughout the past year. The Group today stands firmly positioned as the only company worldwide to offer a full complement of fishing equipment under one brand. Manufacturing restructuring has streamlined processes, providing a more efficient flow to market for the Group s products. Growth continues to be an initiative at the forefront of the Group s agenda. Four primary cornerstones continue to form the foundation of the Rapala VMC Groupleading edge, low cost lure manufacturing in Europe and China, state of the art hook manufacturing in France and China and an in-house design, development and sourcing team. Strong group brands of international renown enable the introduction of new product in all market segments. An unparalleled worldwide distribution network ensures brand presence in all markets. Manufacturing/Sourcing Exclusive Distribution Partners Group Distribution Companies Shimano Distribution Companies World s Leading Brand of Premium Fishing Equipment With an estimated 50% market share in Europe and 30% share in the United States, Rapala is the world s leading brand of hard-bodied fishing lures. Rapala owns a solid position in a fragmented global lure market where only a few companies have a significant sales and market presence. RAPALA ENTERS REEL CATEGORY After five years of research and extensive field testing, a core set of Rapala spinning reels was launched to lead the 2004 new product introductions. Die cast aluminum frames and precision finishing are standard throughout the lineup. The reel introduction makes Rapala the only company to sell a full line of fishing tackle under one trusted brand name. Manufacturing, Sourcing and Distribution Through its four major factories in Europe and the Far East the Group enjoys the benefits of world-class research and development and Vääksy, Finland Pärnu, Estonia Morvillars, France Shenzhen, China manufacturing facilities. Group manufacturing is limited to lures, hooks and terminal tackle. Other group branded products are sourced from a variety of dedicated and shared resources worldwide, exclusively manufactured for the Group. A dedicated in-house product development and sourcing team works closely with third party suppliers to ensure product design, engineering and quality is commensurate with the reputation of the Group. 4

5 Key Financial Statistics * *2003 figures are based on 31 July 2003 (unaudited) figures to maintain comparability with earlier years NET SALES AND EBITDA Net sales and EBITDA have increased at an average annual rate of 13.7% and 6.4% respectively since Lower EBITDA margins in the last 3 years reflect the costs of developing into new product categories and, in 2003, a weaker US dollar. At prevailing US dollar rates management expects a return to around 20% EBITDA margins by COMPONENTS OF CASH FLOW The last two years have seen cashflow (before acquisitions, dividends and extraordinary items) of k 41million, substantially achieving the three year target of k 50 million. The 2002 year benefitted from large working capital reductions. Capital expenditure is consistently 3-4% of net sales. NET DEBT AND EQUITY In the last two years net debt levels have reduced by k 50 million from their peak of k 130 million in July Since 1999 the net debt to equity ratio has improved from a high of more than 7:1 to 1.4:1 at July EQUITY AND CAPITAL MEASURES As with EBITDA margins, 2001 marked a trough in return on capital employed and earnings per share. The last two years have shown a recovery in all measures and, in the case of equity per share and return on capital employed, to record levels. 5

6 Review by President and CEO As we embark upon the 2004 year I am pleased to report that the Group is in a strong position, both financially and competitively. Our net debt to equity ratio improved from more than 3:1 to approaching 1:1 in the space of little over two years. At the same time that we have strengthed financially we have invested to become the only company in the industry with a full range of fishing tackle products under one truly global brand. We have enjoyed considerable success in entering new product categories and accessing new channels of distribution and our wider product portfolio exposes us to greater growth opportunities than we have ever had before. The seventeen month period covered by this report was in many ways frustrating for the company, and no doubt for the industry. At the start of the period we had completed the major part of the reorganization and investment phase of our growth strategy and believed we were about to start reaping its rewards. I would categorize what transpired as a one year delay as, against a backdrop of war, disease (SARS) and a depressed US economy, trading conditions remained challenging with retail sales seemingly flat and all channels of the trade somewhat cautious. On the encouraging side though, the last five months of the period, and the early months of 2004, demonstrated that strong positive momentum is returning to our core business. There were undoubtedly some very bright spots for us in the period which I will come back to later but in a period of apparent industry stagnation we forged ahead behind the scenes to ensure that we would be ideally positioned for any upturn as soon as it presented itself. On the supply side we closed our Mexican packaging facility and redirected its operations to either Willtech in China or to our facility in Estonia. Although not a major development it nevertheless enabled us to continue to chip away at our fixed cost base which is a constant focus for us. The existence of China and Estonia in the Group s manufacturing infrastructure gives us options that we did not have until the last three years or so and, as we continue to integrate Willtech and expand what was a start-up facility in Estonia, we are able to maintain a vital combination of competitiveness, flexibility and responsiveness. Our facilities at Willtech continue to expand and are now more than three times their size when we acquired the company in This expanded capacity houses soft plastic and hybrid lure production and hook manufacturing. The Storm branded soft plastic lures made by Willtech established themselves as the number two brand in the US market in their first full year of availability and initial indications of demand (both customer and, more importantly, consumer) are very encouraging for the Storm Soft Shad which is a hybrid hard/soft plastic lure and reached retail shelves in early The hook manufacturing capability has been developed through a close liaison with VMC, the experts in the field and a member of our group since Although Willtech s initial focus has been on manufacturing the hooks it requires for its own lure production, the facilities are also being developed to support a strong retail hook program. 6

7 Review by President and CEO continued Finally, Willtech has taken in-house many component or purchased materials functions that it previously outsourced such as injection molding, metal stamping and packaging printing. These initiatives reduce development and production lead times and of course costs. Elsewhere in the Group we expanded our operations in Europe, primarily in the fast growing Eastern European markets and, with the January 2004 acquisition of Guigo Marine in France, made the first move in further developing the saltwater segment of our business. The saltwater market, for lures and accessories in particular, is very fragmented with no one brand offering a compelling product selection to either the trade or the consumer. It is in many ways similar to the general fishing accessory market in which we have been so successful since we entered it three years ago. We have identified this as an area for growth and being able to call on the vast Guigo knowledge and experience will enable us to develop a product range for this market worldwide using our existing supply infrastructure. We are reporting on a seventeen month period because we took the decision to change our fiscal year to match the calendar year. This change was made for several reasons but most notably in order to provide greater visibility of the Group s progress at an earlier stage in its financial year. Our business, and in particular our profitability, is highly seasonal with the majority of both sales and profits being recorded in the first two quarters of the calendar year. With the previous fiscal year end of 31 July it was difficult to give accurate guidance until very late in the year. Reporting on a calendar year basis we will be able to provide substantially more accurate guidance by the end of the second quarter than we were previously able to do. The challenging market situation that prevailed for much of the period meant that several of our financial targets proved to be out of reach. Combined with a significantly weakening US dollar, the consequences of this were exacerbated in our Euro reported results. However, our financing is structured to match our cashflows therefore when non-euro results and cashflow suffer in translation due to changes in exchange rates our financial position will conversely benefit as our dollar denominated liabilities reduce in Euro terms. This was the case in the 2002/3 year such that, even though we did not achieve the results and cashflows we were targeting, we still achieved our goal of improving our ratio of net debt to equity from more than 2:1 to below 1.5:1. Our improved financial position is significant. Firstly it shows the progress we have made in a short period of time as recently as July 2001 our net debt to equity ratio was close to 3.5:1. When this was communicated in our results announcement in September 2003 it was well received by the financial markets and, in combination with an apparent improvement in trading prospects, resulted in our share price increasing some 40% over the following six months. This combination of a stronger share price and an increased borrowing flexibility is a valuable tool with which to exploit any attractive acquisition opportunities that may present themselves, and to fuel further organic growth. 7

8 Review by President and CEO continued I referred earlier to some bright spots in our 2002/3 extended year. Firstly the Storm branded soft plastic lures built on their prior year introduction to become the second largest brand of such products in the US market, with an estimated 10% market share. This was achieved from a zero base only eighteen months earlier and bears testament to our combined abilities in design, development, manufacturing, market understanding and responding to the needs of our customers. Indeed, throughout a sluggish year we were continually innovative in developing promotional opportunities to the mutual benefit of ourselves and our customers such that we further enhanced our position as a preferred supplier to many. We enjoyed good success with our first introduction of rods and received a tremendous reception when we launched our first reels and rod/reel combos at the annual US trade show in July 2003 (for the 2004 season). This broadening of our product line has opened new avenues of growth for us that would not be present if we had remained more narrowly focused. The perfect example of this is the program that we developed for Target, one of the largest US mass merchant chains. We worked diligently for many months to win this business in the face of stiff competition. The combination of our product range, brand strength, logistical and financial capabilities and the ease of doing business with us won the day as we secured placement for a broad range of product in well over 1,200 stores across the US for the 2004 season. We continued to make major strides in Eastern Europe with this territory growing to over k 5 million, or close to double the prior year sales level. Again we are the supplier of choice, offering premium brands and excellent service. It is not inconceivable that this territory could double again in 2004 although our forecasts assume slightly more conservative growth. Trading conditions in our major markets seem set for a promising Core lure sales in the US market seem to be recovering from the extended hangover from our aggressive Catch of the Day discounted lure promotion in 2001 and The strong orders, in both established and newer categories, that we received during the late months of the fishing season implied that inventories in the retail and distribution channels must have been quite low and the strong start to the current year would seem to bear this out. Most other markets are also promising, with strong pre-sales seasons throughout much of the Nordic region and strong demand for our core lure products in many export markets. Driving the growth in demand, apart from the low inventory levels, is the strength of our product offering. Our rod and reel program has been well accepted (although it is limited to the North American market) and the Storm Soft Shad, a hybrid soft/hard plastic lure is creating quite a stir in the marketplace. We have strong new products in the accessory segment and across all of our traditional lure categories. We remain committed to our previously communicated strategies, albeit with a slight change in emphasis. 8

9 Review by President and CEO continued The organic growth that we have been targeting necessitated a considerable period in which product development was the dominant feature. The emphasis is now shifting to marketing and sales initiatives as we build on our first steps into all major fishing tackle categories. To accommodate this we have changed the management of our key US subsidiary which will now be more marketing than development led. We have also changed and strengthened our US sales team and will be bringing more retail experience into our future product development initiatives. Cost base containment continues to be a prime area of focus for us. The general cost of doing business is significantly greater than it was only three to five years ago, particularly as we need to keep pace with the operational and information technology advances of our sophisticated major customers. However, we have developed a worldwide manufacturing base that offers us further efficiencies which we will continue to exploit in the coming years to offset some of these increased costs. The continued deleveraging of our balance sheet has enabled us to improve our proposed dividend payout from k.05 to k.12 per share. Our strong financial position also allows us to maintain a low cost of borrowing with capacity in reserve. This places us well to exploit the acquisition opportunities that we believe will continue to present themselves. We are in the enviable position of having a stable of leading brands and an infrastructure of superior manufacturing that allows us to be quite particular in the consideration of potential acquisitions. While we are always alert to the possibility of adding additional brands of stature to our portfolio, especially in those categories where organic growth is more challenging, we will not overpay and compromise future returns. We will make sensible acquisitions of assured long-term value but the combination of strategic fit and acceptable price has to be present. In summary, we are on track with our strategic initiatives. The markets for our core products appear to be improving and we are poised for a strong performance in Jorma Kasslin President and Chief Executive Officer 9

10 Brand Portfolio No. 1 hard-bodied lure worldwide More than 30% market share in the US and more than 50% share in the European market Highest level of brand awareness in fishing lures Widely recognized as a premium/high quality brand 18 product lines, over 1,000 SKUs 4 product lines selling over 1. 5 million lures per year Each hard-bodied lure with a swimming lip is individually hand-tuned and tank- tested Consistent track record of successful product launches No. 1 treble hook worldwide Approximately 65% market share Strong retail brand awareness in Europe Major portion of sales is OEM to lure manufacturers Extremely diverse customer base worldwide Origins in the Viellard Migeon family over 200 years ago Established in early 1960 s Second most recognized hard-bodied lure brand in the US Second largest brand of soft plastic lures in the US Lures are all of plastic construction No. 5 Fishing lure brand in the US Comprehensive brand recognition throughout the US and Europe Strong complement to the Rapala brand, providing for increased retail peg space in the US Product line extension through launch of hard-bodied lures in addition to non-hard-bodied lures (e.g., spinners, spoons, jigs, plastic baits) BRAND DEVELOPMENT Rapala New Product Overview With the introduction of Rapala reels for the 2004 season, Rapala is the only brand to have a full offering of fishing tackle under one brand name fishing lures, fishing line, fishing reels, fishing rods, hooks, terminal tackle and accessories. Rapala is newly active within the last couple of years among several categories that fall outside of its traditional core categories. This provides tremendous growth opportunities for the Group. While growth categories saw focus in 2003, Rapala ensured that its core business saw innovation as well with expansion of lure families and other core categories. HARD BAITS KNIVES/ACCESSORIES NEW ACCESSORIES FISHING LINE FISHING RODS FISHING REELS HOOKS COBRANDED RETAIL HOOKS PRIOR TO 1999 JAN 99 DEC 00 JAN 01 SEPT 01 JAN 02 JAN 03 JAN 04 Rapala. Now at Target. In late 2003, Rapala entered into a partnership with Target stores in the United States to sell Rapala, Storm and Blue Fox lures and tackle. With over 1,200 locations, Target provides Rapala with enhanced distribution capabilities throughout the US through which to reach the angling consumer. HARD BAITS SOFT PLASTIC LURES FISHING RODS HYBRID HARD/SOFT PLASTIC LURES SPINNERS HARD BAITS METAL LURES Brand Strategy The launch into new categories such as Rapala reels for the 2004 season has provided incremental growth for the Group. Key strategic initiatives of the Group include: Achieve further organic growth in traditional product areas through the continued development of new products and entry into new markets and new channels of distribution. Enter and grow rapidly in other fishing tackle categories under existing Group brand names and with production by quality manufacturing resources (both in-house and external). Make acquisitions where there is a strategic fit with the existing Group that will deliver superior returns on investment. Target renewed its commitment to the fishing category and turned to Rapala because of its category presence, its full line of equipment and its ability to deliver innovative new products to meet the needs of Target s guest. 10

11 DT (Dives-To) Series has New Member of the Family The popular David Fritts designed DT series added the DT-6, which was met with rave reviews. The lure dives to 6 feet and stays there all the way back to the boat. More Colors and Sizes to Choose From The Jointed Shad Rap is going after bigger fish with a new No. 7 size and matching the predominant freshwater food source with a Walleye pattern. Down Deep Husky Jerk has a transparent glass body option with a holographic foil spine in a Purple Perch pattern. Rattlin Rapala brought back classic patterns such as the Firetiger Black Head, Chrome Blue and Tennessee Shad. Not your Grandfather s Shad Rap - Introducing the New Glass Shad Rap The legendary Shad Rap has evolved! Now created in a prismatic glass design it allows light to flow through it like its real. The chameleon-like, see -through body draws in surrounding light and bounces back the same color. The light reflects in hundreds of directions. That along withthe rattling and suspending features, turns the eye of any nearby predator. Rapala Fishing Kids and Rapala Junior Pro For the first time in Rapala s history, Rapala introduced a kids line. The Rapala Fishing Kids line is for ages 7 and under, while the Junior Pro is for Rapala utilized the same hand-crafted technology to tailor the equipment to a youngster s specific size and age. The lines not only provide age-appropriate tools to ensure a memorable fishing experience for the youth, but build loyal Rapala enthusiasts from a young age. 11

12 Rapala Spinning Reels Rapala spinning reels include a die-cast aluminum frame, stainless steel bearings and instant hook set anti-reverse, among other precision finishing features. Offered in four models with three sizes light, medium and heavy-duty plus an ultralight series. The ProGuide Lock n Grip is an exceptional landing system for getting toothy species in the boat without harm to fish or angler. 12

13 Rapala Rods Rapala s rod family expanded with the Rapala Signature Series Musky Rods and Ice Fishing Rods. Muskies are now aware of Rapala rods, not only their lures. And, those fish who felt safe under the ice in the northland are on alert. Go Anywhere You Want With a Cordless Electric Fillet Knife With two rechargeable battery packs, the cordless set provides the ease of electric filleting miles from the nearest outlet. Lock n Weigh Models for Even Larger Fish Lock n Weigh named Field & Stream s Best of the Best in the Fishing Accessory Category for Rapala introduced the Magnum Lock n Weigh featuring a 75-pound scale, and the Magnum XL Lock n Weigh with a 125-pound scale ensuring that even larger fish can be landed, weighed and released safely. TM Rapala VMC Hooks and Terminal Tackle From saltwater to freshwater in varying sizes and styles, Rapala VMC offers a complete line of hooks and terminal tackle available for every fishing application. Rapala Fishing Line Continues to Reel Em In Years of engineering and field-testing have yielded a monofilament mainstay. The true benefits can be experienced by putting it to the test on the water. 13

14 Blue Fox New Product Overview Blue Fox introduced several products into its core offering of spinners and spoons. All Blue Fox spinners are equipped with extremely sharp Rapala VMC hooks, for excellent penetration, and finished with unique holographic painted and printed patterns that are sure to get noticed. New Rattle Flash Jig n Spoon This rattling jigging spoon comes to life with a wobbly motion and a holographic eye for added realism. With a choice of hammered or holographic body, this spoon is ideal for multiple fishing conditions and a variety of species. Storm New Product Overview Storm is as alive and irreverent as ever. So much so that Storm had the audacity to introduce a hybrid that combined BOTH soft and hard plastics imagine! Storm WildEye Soft Shads take fish by surprise. Once a fish grabs onto the lure, it holds on because the feel is so real. In 2003, the roots of Storm again showed through with the reintroduction of Storm Originals components, patterns, colors and packaging that date back to Storm s roots. This re-introduction answered the call for those who grew up on Storm and became addicts. Storm is the second largest brand of soft plastic lures in the US. Panfish Spinner Jig With lifelike presentation and lots of flash, the Panfish Spinner Jig comes alive when jigging. The spinner blade and holographic foil send flashes of light through the water to attract predatory fish, Storm Ready to Rumble with New ThunderStick Rod Even tough guy Bradshaw from World Wrestling Entertainment (WWE) agrees that the new ThunderStick Rod from Storm sets the standard for toughness and durability and is ideal for those tough retrieves. Featuring Storm s signature Fast Taper yellow tip, it can also detect even the slightest nibble. Classic Patterns in the Strobe Tear Drop Spoons Classic Hammered Brass and Hammered Silver colors join the Strobe Tear Drop Spoons offering. Heavy weight of this lure allows for long casts and a fluttering retrieve. Blue Fox Firefly Floats Light Up the Water Used for night or day fishing, the Firefly Float uses side mounted line guides and casts smoothly without snagging or tangling. Perfect for the dedicated angler, the Firefly Float can be rigged as a slip float or a fixed float. 14

15 New Soft Plastics Fool Even the Most Wary Fish From head to tail, Storm soft plastics offer the attraction of live bait with the advantages of imitation. Six new distinctive lures add to Storm s collection. Storm ThunderCraw Its natural crayfish shape and wide vibrating action attract big bass, walleye and pike. With an internal rattle and six natural, translucent patterns, the new Storm ThunderCraw is a realistic attractive hard bait for freshwater species. History Repeats Itself with Storm Originals The Storm Original Series brought back the most popular Storm molds, components, patterns, colors and even the packaging. Wiggle Wart and Mag Wart were resurrected with the original molded lip. Hot N Tot returned with the original metal lips. ThunderStick, Deep ThunderStick, Jr. ThunderStick and Deep Jr. ThunderStick saw a return to their glory. 15

16 Marketing Overview Rapala strives to keep the brand at the forefront through upbeat creative messaging. Educational components are woven throughout the campaign to grow the angler s knowledge of fishing and their loyalty to Rapala products. At every turn, Rapala reinforces the methodologies behind catching fish with its products and creating an enjoyable day on the water marked a year of strategic marketing alliances. Rapala founded formal relationships with the Lund Boat Company, becoming the Official Lure of Lund Boats, as well as with the North American Membership Group, which will operate Rapala s Fishing Club. Rapala s reach grew significantly through these relationships. Rapala Fishing Club Relaunched Through North American Membership Group After 15 years in existence the Rapala Fishing Club received a face lift and relaunched as Club Rapala. Members in the new Club receive an inside look at what makes Rapala the most dominant force in fishing. They receive Club publications, sneak peeks on prototype lures, tips from Rapala Pro Staff and more. The mission of the Club remains the same - provide Rapala loyalists a venue in which to further their passion for the brand, while growing in their knowledge of fishing. Rapala offers custom imprinting of the legendary Rattlin Rapala. A logo or design can be imprinted on the lure and the lure comes with a custom box and insert. A Club in a box concept was created to sell the Club at retail. The purchase price includes membership dues for the first year and comes with two Rapala lures. The Minnesota Twins Baseball Club customized a lure to feature a player s autograph and sponsor logo. The lure attracted fans to the ballpark as the first 10,000 fans at a game received the lure. Two Legendary Brands One Unbeatable Fishing Partnership Anglers are dedicated to the brand of boat they own and the type of lure they fish. Capitalizing on this philosophy, Rapala partnered with Lund Boats to become the Official Boat of Rapala. In turn, Rapala is the Official Lure of the Lund Boat Company. Dealership Promotion New Lund boat owners receive the Fisherman s Dream package from Rapala containing Rapala tackle and accessories. The intent is to take the guesswork out of outfitting a new boat owner with the tools needed to catch fish. 16

17 Fisherman s Prayer Commercial named to ADWEEK S Best Spot Reel Rapala s Fisherman s Prayer TV spot joined the ranks of international advertising super powers Coca-Cola, Gatorade, Apple Computers, ESPN, and Microsoft in being named to ADWEEK s Best Spot Reel. Picture a group of anglers outside a classic fishing camp. They join in early morning prayers before setting out for the day. They promise to release any fish they catch, and they thank the Lord for Rapala lures. Retail Presence Rapala displays grab the attention of customers as they walk through the door. No one has to ask Where s the fishing department? Maintaining a dominating presence at retail locations remains the goal of Rapala at retail. Win the Fishing Trip of a Lifetime and you ll have Rapala to thank! The only way to enter the sweepstakes promotion is to visit a Rapala retail display. Print Advertising Trade and consumer ads not only keep the Rapala brand out front, but provide a service in informing the angling public about species of fish and how to catch them using Rapala lures. Point of sale materials aid anglers with Rapala lure selection and reinforce classic Rapala traits. Anglers buying 5 Rapala lures during the year receive a free Rapala lure by submitting their qualifying receipts. The promotion drives incremental sales, creates loyalty, and helps Rapala build a database of customer names. Grabbing the attention of anglers on the way to the water or to their favorite tackle shop Rapala s billboards are at it again!

18 Report of the Board of Directors General The 2002/3 year was a year of difficult trading conditions in certain key markets and a year of continued operational change with the closure of a Mexico logistics operation, reorganization of the key US sales team and further investment in China. All of these actions will position the Group to benefit from any upturn in the trading environment and a strong performance since July 2003 offers encouragement that the worst trading conditions may be over. Sales in 2002/3 increased 3.9% in real terms but the weakening of the US dollar (by 29% over the period but 10% in average terms) caused this to translate into a 2.4% decrease in reported Euros. The weaker dollar, in which around 40% of sales are denominated, also had a negative impact on operating profitability. Cashflow from operations at k 11.9 million was somewhat below expectations but is to some extent distorted by a late in the year build-up of inventory to support a strong order book due for delivery in January 2004 and to ensure a better in-stock position on key items. Nevertheless, the ratio of net debt to equity continued its steady improvement, ending the period at 1.49:1 compared to 2.09:1 at 31 July Although the Group did not manage to achieve all of its planned growth for the 2003 season the result is considered encouraging, given the trading environment, particularly for the Branded Business. The group is well positioned operationally, financially and in the marketplace to take advantage of the improved outlook for the industry which had manifested itself in recent months. Net sales Net sales for the period were k million compared to k million, a decrease of 2.4%. At exchange rates that prevailed in the corresponding prior period net sales would have shown an increase of 3.9%. This real sales growth of 3.9% derived from a strong performance in European Distribution (+9.8%) with other areas of the business being either slightly ahead or slightly behind prior period levels. Branded business In the core branded business net sales were 2.4% ahead of the prior year in real terms but, since much of this business is denominated in US dollars, the reported result in Euros shows an 11.0% decrease. After twelve months net sales were 1% behind the prior year at constant exchange rates but 16% growth in the last five months raised the seventeen months performance to a 2.4% overall increase. In the key US market, net sales were 3% ahead of the prior period in real terms (19% ahead in the last five months). Prior period sales included around k 3 million of non-recurring liquidations of excessive inventories and the aggressiveness of this action may have impacted consumer buying in the current period since, though the product was no longer in retail stores it in all likelihood remained in customers tackle boxes. Recent sales trends in the core lure category provide encouraging evidence that this short-term effect has run its course. The current period also saw a continued widespread and sustained caution on the part of both retailers and distributors to tie up capital in inventory in an uncertain retail market and this led to a trading environment which rendered our overall growth targets unachievable. Within individual product categories, the decline in sales was mainly experienced in Rapala branded hard lures, down 4% on a true like for like comparison with the prior year. On the positive side, the last five months saw a 12% year on year increase in sales of Rapala hardbaits, providing encouragement that the recent trends in this product area are beginning to reverse. Storm branded soft plastic lures enjoyed a 70% increase in their second year on the market, 18

19 Report of the Board of Directors continued rapidly establishing this as the second largest soft plastic brand in the US market. Accessories, another relatively new product area for us, experienced a 10% increase and our New Business department grew by 55% to k 5.3 million through a series of cross-promotional sales. Sales in the other principal markets for the branded business (ie outside the US and representing around 20% of the category) ended the period level with the prior year level at constant exchange rates (8% behind at actual exchange rates). Sales in Canada (which represents half of this overall market) have suffered from the same challenges that have beset the US market but without the benefit of the New Business initiatives that contributed to growth in the US. Export sales (Rapala, Blue Fox and Storm lures from the European factories to non-group companies worldwide) and sales in Japan together ended the period a respectable 10% ahead of the prior period in real terms (1% ahead in reported Euros). This is despite sales to certain countries (eg Russia, Ukraine and Poland) no longer being reflected as factory export sales since we now have dedicated subsidiaries in each of these countries. European distribution business Sales in the Group's European distribution businesses increased by 9.8% at constant currency rates (9.9% at actual currency rates). Sales in all countries ended the period ahead of the prior period other than Denmark and France which tracked close to the prior period levels. Both winter and spring seasons were strong throughout most of Western Europe. This was the first year of expanded and reorganized operations for our Eastern Europe organization and sales grew dramatically, albeit from a small base, by close to 40% to k 6.8 million. Favorable market conditions and stronger local market presence enabled us to achieve strong sales growth throughout Europe at improved profit margins while at the same time continuing to reduce working capital in these businesses. Other business areas VMC sales were 10% below the prior period at k 26.4 million, due mainly to lower OEM hook orders from lure manufacturers. Willtech increased sales by 32% in real terms primarily due to shipments to Group companies more than doubling compared to prior year. External sales were approximately constant with the prior period in real terms but the mix changed in favor of Group branded product rather than OEM product. Profitability Fixed costs increased by 6.0% over corresponding prior period levels at constant exchange rates, but by only 0.6% at actual exchange rates. The real net increase derived from the following sources payroll related increases (pay awards of around 3%, the strengthening of the senior management team, and costs of the management retention incentive scheme) and costs associated with expanding activities in China and Eastern Europe. The Group's operating profit before depreciation for the period was k 31.4 million (prior period k 36.3 million). The reduction in operating margin to 14.3% from 16.1% reflects the negative impact of the weaker US dollar, the proportionately higher sales of lower margin product within both the Branded Business and European Distribution and an increased fixed cost base in anticipation of future growth. The operating profit before depreciation (EBITDA) margin of 14.3% is somewhat misleading since the 17 month accounting period includes two quiet seasons for the Group which artificially depresses the margin compared to the 17-19% which is typically achieved during a typical year and indeed was management s target for the 12 months ended 31 July Depreciation and amortization of k 12.4 million was comparable to the prior period k 12.9 million since there were no acquisitions and no overall change in the depreciable asset base. Net financing income and expense includes a lower net interest expense of k 4.1 million (k 6.8 million) due to lower average base interest rates for the whole period on declining US dollar borrowings resulting from the strong cashflow of the Group over the last eighteen months. 19

20 Report of the Board of Directors continued Net foreign exchange translation (non-cash) gains were k 3.0 million compared to k 4.0 million in the prior period. Extraordinary charges of k 2.2 million after tax (prior year k 1.5 million after tax) include k 0.6 million of costs associated with the reorganization of the logistics and sales functions in North America, including the closure of the Mexican facility. Other items include retirement and severance costs (k 0.4 million) and costs associated with the strategic review in conjunction with the contemplated transaction that was terminated in January 2003 (k 0.2 million). In addition, in the current period the Group changed its accounting policy for group-wide senior management bonus plans to recognize this expense currently on an estimated basis rather than at the conclusion of a vesting period. Included in extraordinary items is k 0.9 million in respect of such bonuses which relate to the year ended July 31, 2002 and were paid during the current period. The comparable amount for the current year (k 0.8 million) is included in operating expenses. The Group s effective tax rate for the year was 21.6% (19.6%) and remains below the Finnish statutory rate due to the incidence of proportionately less taxable profits in higher rate jurisdictions and the utilization of available tax losses in higher rate jurisdictions, notably the US. Net income decreased from k 14.8 million to k 11.4 million. Earnings per share, which exclude extraordinary items, were k 0.36 (prior period k 0.43) and equity per share increased to k 1.43 (July 2002 k 1.26). Financing Net cashflow from operations was k 11.9 million (k 34.2 million). The prior period benefited from a heavy (k 9.7 million) reduction in working capital levels, which is not repeatable on an ongoing basis. In the current period working capital, most noticeably in the last five months, has increased due to higher sales, a build-up of inventory to support the strong order book for January 2004 and a conscious decision to hold more inventory of certain high volume products to ensure a better in-stock situation in the forthcoming season. Net cashflow for the period, including cash paid or debt assumed for acquisitions of k 3.0 million (k 5.2 million), was an outflow of k 5.8 million (inflow of k 15.2 million) but the translation effects of a weaker US dollar/euro exchange rate reduced net borrowings by a further k 22.5 million. Net debt reduced therefore during the period by k 16.7 million, or 17%, to k 80.3 million from k 97.0 million. This improved the net debt to equity ratio from 2.09:1 at 31 July 2002 to 1.49:1 at 31 December Capital expenditure Gross capital expenditure for the period totaled k 5.8 million (k 6.7 million) with a significant element of the expenditure due to manufacturing investments, particularly at Willtech in China, to support the continued development of the brand extension and new lure programs. Research and development Total identified research and development expenditure for the year was k 2.2 million (k 3.3 million) or 1.0% of net sales, of which k 0.5 million reflects amortization of prior years deferred costs. Personnel The Group had an average of 3,095 employees during the period (2,879). 20

21 Report of the Board of Directors continued Change of year end At the extraordinary shareholders meeting in June 2003 it was resolved to change the year end of the company and the group to 31 December and to extend the current accounting period until 31 December This change was made for several reasons but most notably in order to provide greater visibility of the Group s annual progress at an earlier stage in its financial year. The adoption of a 31 December year end will also ensure that the full season is captured within the financial year, including all related cashflows such as receivables. Due to the change of year end the statutory figures presented in this report are not directly comparable between the current and prior period. Shares and shareholders On 31 December 2003 the Company had 1,186 (1,157) registered shareholders. The number of shares in issue is 37,543,458. During the financial year the share price fluctuated between k 3.60 and k 5.75, and the last quoted price of the year was k The total volume of shares traded during the year was 9,164,995 shares. The total market value of the issued shares was k million at 31 December In December 2002 the Company paid dividends of k 1.9 million, corresponding to k 0.05 per share. The dividend proposed for the current year is k 0.12 per share. Future prospects Following an extended period of challenging market conditions in its primary market the Group has emerged with strong positions in several new product categories and, in recent months, seen a consistent upturn in demand for what remains the core product for profitability and cashflow, the hard-bodied lure. The Group has made several new customer gains in the US market in both traditional and non-traditional distribution channels which will benefit the results commencing in The Group s financial position has strengthened significantly over the last two years with the net debt to equity ratio improving from 3.4:1 at 31 July 2001 to 1.49:1 at 31 December This positions the Group well to be able to exploit the apparent upturn in demand and to exploit non-organic growth opportunities after a close to three year period without any major acquisitions. The continued weakness of the US dollar against the Euro will, at prevailing rates, have a further negative impact on reported sales and margins but should be more than offset by real growth in the business. The 2004 calendar year will benefit from the first sales in new product categories (in particular reels, rod/reel combos and the hybrid Storm Soft Shad lure), strong new product introductions in existing product categories and continued development of other categories such as worldwide retail hooks and big game saltwater products for May 2004 launch. Continued fast growth in East European markets is anticipated and a lower manufacturing cost base following continued rationalization of manufacturing and logistics facilities will contribute to improved margins. Profitable growth, category expansion and strong cashflow remain at the top of management s agenda, with the financial ability to pursue attractive acquisition opportunities should they arise. 21

22 Consolidated Income Statement 17 months 12 months ended 31 December ended 31 July Notes (k 000) (i 000) Net sales 1 219, ,979 Other operating income 2 1,809 1,771 Operating expenses 3 (188,873) (141,737) Operating profit before depreciation 31,360 32,013 Depreciation on fixed assets and other capitalized expenditure 4 (12,397) (9,142) Operating profit 18,963 22,871 Financial income and expenses 5 (1,524) (2,317) Income before extraordinary items and taxes 17,439 20,554 Extraordinary items 6 (2,195) (1,464) Income before taxes 15,244 19,090 Income taxes 8 (3,763) (,4,116) Minority interest,(113),(135) Net income 12 11,368 14,839 22

23 Consolidated Balance Sheet 17 months 12 months As of 31 December As of 31 July Notes ( k 000) ( i 000) ASSETS Non-current assets INTANGIBLE ASSETS 9 Intangible rights 1,447 1,448 Goodwill 2,542 3,017 Group goodwill 39,578 49,054 Other capitalized expenditure,264,428 43,831 53,947 TANGIBLE ASSETS 9 Land and water 1,948 2,121 Buildings 7,439 8,483 Machinery and equipment 10,163 10,668 Other tangible assets 3,027 3,454 Advance payments and construction in progress,239,126 22,816 24,852 INVESTMENTS Other shares and participations 9,053,167 Other receivables,035, 31,088,198 Current assets Inventories 10 58,763 54,587 Deferred tax assets 8 1,519 1,402 Short-term receivables 11 36,399 41,369 Cash in hand and at bank 8,063 23, , ,584 TOTAL ASSETS 171, ,581 SHAREHOLDERS EQUITY AND LIABILITIES Shareholders equity 12 Share capital 3,379 3,379 Reserve fund 11,183 11,183 Retained earnings 27,858 17,741 Net income for the period 11,368 14,839 53,788 47,142 Minority interest,501,509 Liabilities Deferred tax liabilities 8 1,139,538 Long-term liabilities 14 21,078 53,773 Short-term liabilities 15 94,973 97, , ,930 TOTAL SHAREHOLDERS EQUITY AND LIABILITIES 171, ,581 23

24 Consolidated Statement of Cashflow 17 months 12 months ended 31 December ended 31 July (k 000) (i 000) Operating profit before depreciation 31,360 32,013 Change in net working capital: Decrease/(Increase) in receivables (8,014) 10,068 Decrease/(Increase) in inventories (10,754) 2,585 Increase/(Decrease) in short-term liabilities 5,114 (2,923) (13,654) 9,730 Net cash provided by operations 17,706 41,743 Interest paid (5,216) (6,079) Interest received,480,436 Income taxes paid (5,453) (2,794) Extraordinary costs paid (2,655) Net cash provided by operating activities 4,862 33,306 Cash used in investing activities: Purchases of fixed assets (6,935) (5,438) Proceeds from disposal of fixed assets 1,112 1,047 Acquisition of subsidiary companies (2,986) (2,178) Net cash used in investing activities (8,809) (6,569) Cash flows used in financing activities: Dividends paid (1,877) (751), Net cash used in financing activities (1,877) (751), Net (Decrease)/Increase in net borrowings 5,824 (25,986) Net borrowings at beginning of period 96, ,075 Effect of exchange rate changes on net borrowings (22,497) (7,093) Net borrowings at end of period 80,323 96,996 24

25 Parent Company Income Statement 17 months 12 months ended 31 December ended 31 July Notes ( k 000) (i 000) Net sales Other operating income ,189,378 19,680,107 Operating expenses 3 (24,069) (15,669) Operating profit before depreciation,498 4,118 Depreciation on fixed assets and other capitalized expenditure 4 (1,696) (1,288) Operating profit (1,198) 2,830 Financial income and expenses 5 16,106 13,522 Income before extraordinary items and taxes 14,908 16,352 Extraordinary items 6 2,820 1,850 Income before appropriations and taxes 17,728 18,202 Appropriations 7, 77 (216), Income taxes 8 (2,634) (1,939), Net income 12 15,171 16,047 25

26 Parent Company Balance Sheet As of 31 December As of 31 July Notes (k 000) (i 000) ASSETS Non-current assets INTANGIBLE ASSETS 9 Intangible rights,0,016 Other capitalized expenditure 2,804 3,414 2,804 3,430 TANGIBLE ASSETS 9 Land and water,191,220 Buildings 1,209 1,376 Machinery and equipment 2,728 2,908 Other tangible assets,044,046 Advance payments and construction in progress,175,122 4,347 4,672 INVESTMENTS Shares in subsidiaries 9, 18 55,599 53,996 Receivables from group undertakings 9, 55,108 Other shares 9, 18,040,057 55,694 54,161 Current assets Inventories 10 4,330 5,194 Short-term receivables 11 59,910 63,813 Cash in hand and at bank 1,045 9,825 65,285 78,832 TOTAL ASSETS 128, ,095 SHAREHOLDERS EQUITY AND LIABILITIES Shareholders equity 12 Share capital 3,379 3,379 Reserve fund 11,183 11,183 Retained earnings 29,840 15,670 Net income for the period 15,171 16,047 59,573 46,279 Appropriations 13,218,313 Liabilities Long-term liabilities 14 11,597 27,936 Short-term liabilities 15 56,742 66,567 68,339 94,503 TOTAL SHAREHOLDERS EQUITY AND LIABILITIES 128, ,095 26

27 Parent Company Statement of Cashflow 17 months 12 months ended 31 December ended 31 July (k 000) (i 000) Operating profit before depreciation,499 4,118 Change in net working capital: Decrease/(Increase) in receivables (7,587) 10,963 Increase in inventories,864,(611) (Decrease)/Increase in short-term liabilities (4,321).(4,146) (11,044) 6,206 Net cash provided by/(used in) operations (10,545) 10,324 Interest paid (2,800) (3,877) Interest received 3,725 4,613 Income taxes (paid)/received,(4,003),(691) Net cash provided by/(used in) operating activities (13,623) 10,369 Cash used in investing activities: Purchases of fixed assets (828),,(839) Proceeds from disposal of fixed assets,081,0 81 Acquisition of subsidiary companies (1,532) (1,960) Dividends received 9,706 8,203 Group contribution received 2,820 1,850 Net cash provided by/(used in) investing activities 10,247 7,335 Cash flows used in financing activities: Dividends paid,(1,877),(751) Net cash used in financing activities,(1,877),(751) Net (Decrease)/Increase in net borrowings 5,253 (16,953) Net borrowings at beginning of period 71,087 95,341 Effect of exchange rate changes on net borrowings (16,611) (7,301) Net borrowings at end of period 59,729 71,087 27

28 Accounting Principles PRINCIPLES OF CONSOLIDATION Scope of consolidation The consolidated financial statements present the financial position and results of operations of the parent company and those companies in which the parent company held directly or indirectly more than 50% of the voting power at the end of the parent company s financial year. The results of subsidiaries acquired or sold during the period are included in the consolidated financial statements from the date of purchase or up to the date of the sale. Consolidation method Transactions between group companies and internal margins in inventories have been eliminated in the consolidated financial statements. Shareholdings in group companies have been eliminated by deducting the fair value of the subsidiary s net assets acquired at the date of acquisition from the acquisition cost of its shares. The difference between acquisition cost and the fair value of the subsidiary s net assets at the date of acquisition has been shown as goodwill. In certain countries, tax legislation allows allocations to be made to untaxed reserves. These allocations are not subject to taxation on condition that the corresponding deductions have also been made in the accounts. In the consolidated financial statements, the yearly allocations reserves as well as the difference between the depreciation according to plan and depreciation accepted by tax laws have been included within net income, excluding the change in the associated deferred tax liability. The deferred tax liability is determined from the accumulation of untaxed reserves. The accumulation of untaxed reserves, excluding the associated deferred tax liability, is included in shareholders equity in the Consolidated Balance Sheet. The deferred tax liabilities and deferred tax assets of Group companies caused by timing differences between income and corresponding taxable revenue as well as between expenses and corresponding tax deductible expenditure are shown in the Balance Sheet and Income Statement as a separate item in taxes on a prudent basis. Taxes shown in the Consolidated Income Statement include income taxes to be paid on the basis of local tax legislations as well as the effect of the yearly change in the deferred tax liability and deferred tax assets, determined by using current tax rates. Conversion of Foreign Subsidiary Financial Statements For the purposes of inclusion in the consolidated financial statements, the balance sheets of foreign subsidiaries are translated into Euros at the exchange rates prevailing at the balance sheet date. The income statements of foreign subsidiaries are translated at the average exchange rates for the financial year. The resulting net translation adjustments are recorded in non-restricted equity. FOREIGN CURRENCY ITEMS AND EXCHANGE RATE DIFFERENCES Foreign currency transactions are translated into local currency using the exchange rate prevailing at the date of the transaction. At the balance sheet date, assets and liabilities denominated in foreign currencies are translated at the rates of exchange prevailing at that date. The resulting translation gains or losses, both realized and unrealized, are recognized in the income statement unless they relate to borrowings denominated in foreign currencies which have a maturity of greater than twelve months from the balance sheet date, in which case they are recorded in the balance sheet within current assets (cumulative net losses) or current liabilities (cumulative net gains). REVENUE RECOGNITION Revenue from goods sold and services rendered is recognized when all significant risks associated with the relevant goods or service are transferred to the buyer and no significant uncertainties remain regarding the consideration, associated costs and possible return of goods. Net sales is comprised of gross billings less discounts and excise tax. 28

29 Accounting Principles continued RESEARCH AND DEVELOPMENT COSTS Research costs are expensed as incurred. Development costs are generally expensed as incurred unless they relate to clearly defined projects to enter new business segments in which the Group is not currently active other than through distribution on behalf of third parties. Development costs for such projects are capitalized if they are separately identifiable and if the Group assesses the products to be technically feasible and commercially viable, expects that related revenues will exceed the aggregate of 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 are amortized by the straight line method over a maximum of five years. INVENTORIES Inventories are recorded at the lower of cost and net realizable value, calculated on a first-in, first-out basis. The cost of finished goods and work-in-progress includes direct materials, wages and salaries plus social costs, and other direct costs. Inventories are shown net of a reserve for obsolete or slow-moving inventories. FIXED ASSETS Fixed assets, tangible and intangible, are recorded at historical cost less accumulated depreciation. Depreciation is recorded on a straight-line basis over the estimated useful life of an asset or through the date of disposal. Land and water areas are not depreciated. The estimated useful economic lives of fixed assets are as follows: Intangible assets, excluding goodwill Goodwill Buildings Machinery and equipment Other tangible fixed assets 3-8 years years 20 years 5-10 years 3-10 years Goodwill, the excess of the cost over the fair value of the net assets of an acquired business, is amortized by the straight-line method over a maximum period of 20 years. The directors consider that an amortization period of this length is justified by the strength and longevity of the group s principal brands, which have been long established in consumer markets which have shown little susceptibility to changing demand patterns. PENSION COSTS All of the Group s pension arrangements are of a defined contribution nature, with the majority being local statutory arrangements. Pension costs are funded as incurred. STATEMENT OF CASH FLOW Changes in financial position are presented as cash flows classified by operating, investing and financing activities. Cash flows of foreign subsidiary companies are converted to Euros at the average exchange rates for the financial year. ADOPTION OF INTERNATIONAL FINANCIAL REPORTING STANDARDS The Group will prepare its consolidated financial statements in accordance with applicable International Financial Reporting Standards (IFRS) commencing 1 January Interim financial statements during 2004 will not be published under IFRS but the Group will have procedures in place to gather this information for use as comparative information once IFRS are adopted in

30 Notes to the Financial Statements Group Parent Company (k 000) (i 000) (k 000) (i 000) 1. NET SALES Net sales by business area Trade 129, ,256,478,420 Production 90,299 65,723 22,717 18,786 Other 00,00 00,00,,994, , ,979 24,189 19,680 Net sales by market area Finland 31,525 18,922 1,450 1,074 North America 67,796 66,056 11,790 7,895 Other markets 120,103 87,001 10,949 10, , ,979 24,189 19, OTHER OPERATING INCOME Rents received,139,069,103,069 Other,670 1,702,275, 38,809 1,771,378, OPERATING EXPENSES (Increase)/Decrease in stocks of finished products (11,453) 2,688,786,(509) Production for own use (149), (100),,(71),(46) Raw materials and services: Purchases during the financial year 95,950 64,891 8,872 6,620 (Increase)/Decrease in inventory of raw materials,(103) (1,468), 78,(101) External services 3,105 1,805,046, 31 87,350 67,816 9,711 5,995 Staff expenses: Wages and salaries 42,719 31,038 7,859 5,432 Pension expenses 2,960 2,089 1,233,815 Other social security expenses 6,970 6,495,630,535 52,649 39,622 9,722 6,782 Other operating expenses 48,874 34,229 4,636 2, , ,737 24,069 15,669 Voluntary staff expenses are recorded under other operating expenses. Average number of personnel 3,095 2,879,192,215, 30

31 Notes to the Financial Statements continued Group Parent Company (k 000) (i 000) (k 000) (i 000) 4. DEPRECIATION Depreciation according to plan Intangible rights,317,287,016,015 Goodwill,270,202,00,00 Other capitalized expenditure,160,463,628,446 Buildings 1,081,723,226,169 Machinery and equipment 3,830 2,795,826,658 Other,920,403,00,00 6,578 4,873 1,696 1,288 Group goodwill 5,819 4,269 12,397 9, FINANCIAL INCOME AND EXPENSES Dividend income from group companies,00,00 9,685 8,197 Dividend income for third parties 00,0 21,006,021,006 Other interest and financial income: Interest income from group companies,00,00 2,748 3,202 Interest income from third parties,524,491, 68,129 Foreign exchange gains 16,182 15,239 18,254 17,805 Other financial income,140, 85,00,00 Interest and other financial expenses: Interest expense to third parties (4,671) (5,761) (2,464) (3,485) Foreign exchange losses (13,144) (12,249) (11,768) (12,263) Other financial expenses,(576) (128), 0(438),(69) (1,524) (2,317) 16,106 13, EXTRAORDINARY ITEMS Group contribution received,00,00 2,820 1,850 Closure of manufacturing facilities, 699 1,089,00,00 Adjustment of inventory evaluation at 31 July 2001,00 1,260,00,00 Change in accounting policy for senior management bonuses 1,180,0 0,00,00 Severance and retirement costs 2,468,00,00,00 Strategic review expenses 2,280,00,00,00 Other 2,239,00,00,00 2,866 2,349 2,820 1,850 Taxes on extraordinary items,(671) (885),,00,0 2,195 1,464,00,0 7. APPROPRIATIONS Change in accelerated depreciation Buildings,108,(54) Machinery and equipment,(31),(162),,77,(216) 31

32 Notes to the Financial Statements continued Group Parent Company (k 000) (i 000) (k 000) (i 000) 8. INCOME TAXES Income taxes for the financial year (4,620),(4,022) (2,501),00(1,985) Change in deferred taxes,718,(155),00, 00 Taxes from previous financial years,0139,61,0(133),46 (3,763),(4,116) (2,634),(1,939) Change in deferred taxes arises from: Appropriations,601 (182) Consolidation measures, ,718,(155) Deferred tax assets and liabilities Deferred tax assets and liabilities of the parent company are not presented in the company s Balance Sheet. Deferred tax assets arising from consolidation measures 1,519 1,402 Deferred tax liabilities arising from appropriations 1,139, NON-CURRENT ASSETS Intangible rights Acquisition cost, beginning of period 2,252 1,855,124, 124 Increase 523,417,00,00 Decrease,,(207),,00,00 Translation adjustments,00,(20),00,00 2,568 2,252,124, 124 Accumulated depreciation,(1,121),(804),(124), (108) Book value, end of period 1,447 1,448,0,016 Goodwill Acquisition cost, beginning of period 4,907 5,254 Translation adjustments,(205),(347) 4,702 4,907 Accumulated depreciation (2,160) (1,890) Book value, end of period 2,542 3,017 32

33 Notes to the Financial Statements continued Group Parent Company (k 000) (i 000) (k 000) (i 000) 9. NON-CURRENT ASSETS continued Group Goodwill Acquisition cost, beginning of period 90,971 93,688 Increase,418,00 Decrease,,(393) Translation adjustments (4,075) (2,324) Accumulated depreciation 87,314 (47,736) 90,971 (41,917) Book value, end of period 39,578 49,054 Other capitalized expenditure Acquisition cost, beginning of period 5,194 4,956 7,284 7,284 Increase,024,00, Decrease,(39),00,00,00 Translation adjustments, 11,238,00,00 Accumulated depreciation 5,190 (4,926) 5,194 (4,766) 7,302 (4,498) 7,284 (3,870) Book value, end of period,264,428 2,804 3,414 Land and water Acquisition cost, beginning of period 2,121 2,211,220,220 Increase Decrease, 42,,(31),00,00,001,00,00,00 Translation adjustments,(184),(90), (30),00 Book value, end of period 1,948 2,121,191,220 Buildings Acquisition cost, beginning of period 13,353 13,023 3,733 3,687 Increase Decrease,964,,633,(87),,059,00, 46,00 Translation adjustments (927),,(216)),00,00 Accumulated depreciation 13,390 (5,951) 13,353 (4,870) 3,792 (2,583) 3,733 (2,357) Book value, end of period 7,439 8,483 1,209 1,376 Machinery and equipment Acquisition cost, beginning of period 29,698 27,165 10,966 10,213 Increase 4,829 3,715,710,784 Decrease Translation adjustments (1,816),(312),(606) (576),,(64),00 00 (31),00 Accumulated depreciation 33,023 (22,860) 29,698 (19,030) 11,612 (8,884) 10,966 (8,058) Book value, end of period 10,163 10,668 2,728 2,908 Other tangible assets Acquisition cost, beginning of period 3,857 3,266,046,046 Increase 1,585,440,00,00 Decreases,(944),(126),00,00 Translation adjustments,(148), 277,0 (2),00 Accumulated depreciation 4,350 (1,323) 3,857,(403),044,00,046,00 Book value, end of period 3,027 3,454,044,046 33

34 Notes to the Financial Statements continued Group Parent Company (k 000) (i 000) (k 000) (i 000) 9. NON-CURRENT ASSETS continued Advance payments and construction in progress Acquisition cost, beginning of period,126,325,122,160 Increase,113,00,053,0 Decrease,00,(199),00,(38) Book value, end of period,239,126,175,122 Shares in subsidiaries Acquisition cost, beginning of period 53,996 52,144 Increase 1,603 1,962 Decrease,00,(110) Book value, end of period 55,599 53,996 Receivables from group undertakings Book value, beginning of period,00 1,619 Increase,00,(1,619) Book value, end of period,00, Other shares Acquisition cost, beginning of period,167,125,057,057 Increase,021, 42,005,00 Decreases,(135),00,, (22),00 Book value, end of period, 53,167,040,057 Other receivables Book value, beginning of period,031,050,108, 113 Increase, 4,00,,002,00 Decrease,, (19),(55),0 (5) Book value, end of period,035,031, 55, INVENTORIES Raw materials and consumables 4,818 6,342 1,740 1,812 Work in progress 3,043 2,951 1,906 2,398 Finished products/goods 50,902 45,294,684,984 58,763 54,587 4,330 5,194 34

35 Notes to the Financial Statements continued Group Parent Company (k 000) (i 000) (k 000) (i 000) 11. RECEIVABLES Short-term receivables Trade receivables 26,997 31,097,347,184 Loan receivables,427,424, 20,455 Other receivables 6,000 2,589,133,0 1 Prepaid expenses and accrued income 2,975 7,259,252 1,036 Receivables from group companies Trade receivables,00,00 6,352 8,549 Loan receivables,00,00 48,839 46,420 Other Receivables,00,00,519,467 Prepaid expenses and accrued income,00,00 3,448 6,701 36,399 41,369 59,910 63, SHAREHOLDERS EQUITY Share capital, beginning and end of period 3,379 3,379 3,379 3,379 Reserve fund, beginning and end of period 11,183 11,183 11,183 11,183 Retained earnings, beginning of period 32,580 23,306 31,717 16,421 Translation difference (2,845) (4,721),00,00 Dividends distributed (1,877),,(751) (1,877),(751) Change in accounting policy of subsidiary,00 (115),,00,00 Net income for the period 11,368 14,839 15,171 16,047 Retained earnings, end of period 39,226 32,580 45,011 31,717 DISTRIBUTABLE EQUITY Retained earnings 27,858 17,741 29,840 15,670 Profit for the financial period 11,368 14,839 15,171 16,047 Reserve fund, 0, 0, 0, 0 39,226 32,580 45,011 31,717 Share of accelerated depreciation allocated to shareholders equity,277,159 Parent company share capital by share type No. EUR No. EUR 1 vote per share 37,543,458 3,378,911 37,543,458 3,378,911 35

36 Notes to the Financial Statements continued Group Parent Company (k 000) (i 000) (k 000) (i 000) 13. APPROPRIATIONS Accelerated depreciation,218, LONG-TERM LIABILITIES Loans from credit institutions 16,163 47,414 6,846 21,803 Other loans 4,915 6,359 4,751 6,133 21,078 53,773 11,597 27, SHORT-TERM LIABILITIES Loans from credit institutions 72,223 72,808 53,928 59,109 Advances received,147,021,036, 4 Trade payables 9,118 5,498,286,279 Accrued liabilities and deferred income 6,317 9,221 2,314 4,197 Other current liabilities 7,168 10,071, 2,554 Liabilities to group companies Trade payables,00,00,178,346 Accrued liabilities and deferred income,00,00,,078 94,973 97,619 56,742 66,567 36

37 Notes to the Financial Statements continued Group Parent Company (k 000) (i 000) (k 000) (i 000) 16. INFORMATION RELATED TO ADMINISTRATION MEMBERS OF GROUP COMPANIES Salaries and remuneration to members of administrative bodies Group company Presidents and members of the Board of Directors 4,095 2,278,312,221 Management pension commitments Pension arrangements have been made, on a defined contribution basis, for some directors of the group companies. The arrangements will enable them to retire on a pension from the age of 55 years at the earliest. 17. GUARANTEES Guarantees for own and group companies Pledged shares, book value,00,00,045,045 Pledged deposits,019,021,00,00 Mortgages on moveable assets 11,490 11,793 5,895 5,895 Mortgages on real estate 6,786 6,786 6,030 6,030 Guarantees,860,860,00,00 Leasing commitments, one year 1,844 2,024,025,024 Leasing commitments, payable later 7,300 4,689,024,00 Guarantees on behalf of third parties Pledged deposits,0,022,00,022 Guarantees,176,211,00,035 Total guarantees Pledged shares, book value,00,00,045,045 Pledged deposits,019,043,00,022 Mortgages on moveable assets 11,490 11,793 5,895 5,895 Mortgages on real estate 6,786 6,786 6,030 6,030 Guarantees 1,036 1,071,00, 35 Leasing commitments, one year 1,844 2,024,025,024 Leasing commitments, payable later 7,300 4,689,024,0 28,475 26,406 12,019 12,051 Contingent Liabilities Open positions under forward currency contracts: Principal amount,990 10,901,990 10,901 Inherent loss,464 1,443,464 1,443 The company from time to time enters into forward currency contracts to partially hedge US dollar denominated revenues received in Europe. 37

38 Notes to the Financial Statements continued 18. SHARES AND HOLDINGS IN OTHER COMPANIES Group Parent company Profit/loss in Group Group equity Nominal Book most recent Acc. holding voting interest Holding Holding value value fiscal year Closing period Subsidiary companies Country % % 1000 EUR % number 1000 EUR Currency 1000 EUR 1000 EUR Date months Rapire Teo Ireland , , EUR,045 5,526 NC Holdings I, Inc. USA (27,775) 100,623 2 USD 9,177 (3,395) Normark Corporation USA ,119,539 Normark Innovations, Inc. USA 80 80, (1,094) (324), Ensambles Deportivos S.A. Mexico 81 81,0 (57) (163), Normark Inc. Canada ,817 1,155 Normark Sport Ltd. UK (1,432), 027 Normark Scandinavia Ab Sweden , ,000 2,000 SEK 6,649, 515 Normark Trading Ab Sweden ,023,008 Normark A/S Norway ,00,00 Normark Denmark A/S Denmark ,000,471 Rapala B.V. Holland , , EUR 1,674 1,445 Normark B.V. Holland , (72),(18) Normark Tracker Marine B.V. Holland ,(117),(12) Rapala Holding France SA France , , EUR,772 (120) Normark Ragot SA France ,404,369 Nautisme SA France ,(447), (46) Normark Corporation SA Spain , , EUR,883,339 Normark Sport Finland Oy Finland , , EUR,163,106 Normark Suomi Oy Finland ,579,00,00,740 KL Teho Oy Finland , ,600 1,692 EUR 2,620,066 Rapala Eesti As Estonia , ,100 1,055 EEK,279, 097 Normark Eesti Oü Estonia ,050,,00,,015 Elbe Normark A/S Norway ,546 98,1,034 1,050 NOK 2,568 (387), Rapala Japan KK Ltd. Japan ,0(129) 100,200 10,000 JPY,079,(43) VMC Pêche SA France , , EUR 5,222, 30 Waterqueen France France ,0(310) (769), VMC Waterqueen Poland Poland , , PLN,059,(32) Cannelle Pêche France France ,0(154) (154),0 Elite International France France ,(163) (121),0 V.M.C. Russia Russia ,284,196 V.M.C. Do Brasil Brasil , ,153 1,341 BRL,163 (144), V.M.C. Waterqueen Ukraine Ukraine , (13),0 2 V.M.C. Inc USA USA ,762,087 Willtech Industrial Ltd. Hong Kong ,897 99,099 HKD 25,000, 27 Willtech (PRC) Ltd. China ,725,000 5,598, Rapala Fishco AG Switzerland ,0 (58) 100 1, CHF,246 (307), UAB Normark Lithuania 82 82,0 (14) 82,041,,0(17) Total 49,080 55,599 11,306 Associated companies Kiinteistö Oy Bringhaga Finland 24 24,056 24,029,0,0(1) 31/12/ Other shares held by parent company Kanavagolf Vääksy Oy Finland,0 1,0 4 Asikkalan Matkailu Oy Finland,03,002,0 1 Other shares Finland,,018,006 Total,011 Other shares total, 40 38

39 Board of Directors Proposal to the Annual General Meeting The Group s distributable equity according to the consolidated balance sheet is i million. The parent company s distributable equity is i million. The Board of Directors proposes that a dividend of i0.12 be paid on each of the 37,543,458 shares for a total of i4,505,215 and that the remaining i million be retained and carried forward. Vääksy, 17 February 2004 Eero Makkonen Hardy McLain Jan-Henrik Schauman Chairman of the Board of Directors Member of the Board Member of the Board Manjit Dale Jorma Kasslin Emmanuel Viellard Member of the Board Member of the Board Member of the Board President and CEO Christophe Viellard Member of the Board King Ming (William) Ng Member of the Board Auditors Report To the shareholders of Rapala VMC Corporation We have audited the accounting, the financial statements and the administration of Rapala VMC Corporation as of and for the 17-month period ended 31 December The financial statements, which include the report of the Board of Directors, consolidated and parent company income statements, balance sheets and notes to the financial statements, have been prepared by the Board of Directors and the Managing Director. Based on our audit we express an opinion on these financial statements and on the administration of the parent company. We have conducted our audit in accordance with Finnish Standards on Auditing. Those standards require that we perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management as well as evaluating the overall financial statement presentation. The purpose of our audit of the administration is to examine that the members of the Board of Directors and the Managing Director have legally complied with the rules of the Finnish Companies Act. In our opinion, the financial statements have been prepared in accordance with the Finnish Accounting Act and other rules and regulations governing the preparation of financial statements in Finland. The financial statements give a true and fair view, as defined in the Accounting Act, of both the consolidated and parent company s result of operations as well as of the financial position. The financial statements with the consolidated financial statements can be adopted and the members of the Board of Directors and the Managing Director of the parent company can be discharged from liability for the period audited by us. The proposal by the Board of Directors regarding the distribution of retained earnings is in compliance with the Finnish Companies Act. Helsinki, 17 February 2004 Ernst & Young Oy Authorised Public Accounting Firm Pekka Luoma Authorised Public Accountant 39

40 Rapala VMC Group Key financial ratios Net sales 1000 EUR 219, , , ,931 99,954 Operating profit before depreciation 1000 EUR 31,360 32,013 27,086 25,662 21,905 as a percentage of net sales % Operating profit 1000 EUR 18,963 22,871 19,893 20,027 17,050 as a percentage of net sales % Income before extraordinary items and taxes 1000 EUR 17,439 20,554 5,999 10,845 9,044 as a percentage of net sales % Income before taxes and minority interests 1000 EUR 15,244 19,090 5,999 12,830 8,347 as a percentage of net sales % Net income 1000 EUR 11,368 14,839 5,405 9,203 6,810 as a percentage of net sales % Gross investments in fixed assets 1000 EUR 6,935 5,438 4,026 3,581 2,845 as a percentage of net sales % Research and development expenditure 1000 EUR 2,171 3,259 2,526 1, as a percentage of net sales % Personnel, year average 3,095 2,879 1, Shareholders equity 1000 EUR 53,788 47,142 37,868 22,664 12,464 Balance sheet 1000 EUR 171, , , , ,124 Return on equity % Return on investment % Equity ratio % Key share ratios Earnings per share EUR Dividend per share EUR 0.12* Dividend earnings % 33.5* Effective dividend yield % 2.2* Price / earnings ratio Equity per share EUR Share Price Trading, end of period EUR Trading low EUR Trading high EUR Average share price EUR Shares Traded Number of shares traded 9,164,995 9,048,064 4,136,865 5,099,225 3,089,241 Number of shares traded % of all shares % Share capital 1000 EUR 3,379 3,379 3,379 2,835 2,649 Year end market capitalization 1000 EUR 204, , , , ,381 Dividend 1000 EUR 4,505* 1, Number of shares 37,543,458 37,543,458 37,543,458 31,498,150 31,498,150 * proposed 40

41 Calculation of Key Figures Return on equity: Income before extraordinary items - taxes (excluding taxes on extraordinary items) x 100 Equity + minority interest (average during the period) Return on investment: Equity ratio: Earnings per share: Dividend earnings Equity per share: Effective dividend yield: Price earnings ratio: Year-end market capitalization: Average number of personnel: Income before extraordinary items + interest paid + other financing cost Total amount of equity and liabilities - non-interest bearing debts (average during the period) Shareholders equity + minority interest Total amount of equity and liabilities - advance payments received Income before extraordinary items - minority interest - taxes (excluding taxes on extraordinary items) Weighted average number of shares during the period Proposed dividend per share Earnings per share Shareholders equity in balance sheet (excluding minority interest) Number of shares at end of period Dividend per share Share price at the end of financial year Share price at the end of financial year Earnings per share Number of shares multiplied by the share price at the end of the year Calculated as average of monthly averages x 100 x 100 x

42 Corporate Governance The operation of Rapala VMC Group s Board of Directors and the Company s administrative practices are substantially in compliance with the corporate governance guidelines currently in force for the administration of listed companies as recommended by the Helsinki Exchanges, and prepared jointly by the Finnish Central Chamber of Commerce and the Confederation of Industry and Employers. The duties and responsibilities of the Board of Directors The Board of Directors duties and responsibilities are principally based on the Finnish Companies Act and the Company s Articles of Association. All matters of key importance to the Group are decided on by the Board of Directors. These include appointment of the President and CEO, approval and confirmation of strategic guidelines, approval of quarterly and annual financial reports, business plans, annual budgets, and press releases as well as deciding on major investments and disposals. Election and terms of Board members The Articles of Association provide that the Group s Board consists of no less than five and no more than ten members. The current board comprises eight members: the Group s President, the President of Willtech Industrial Ltd. and six expert members not primarily employed by the Group. Board members are elected by the Annual General Meeting, which henceforth will generally take place in April. The term of a Board member is until the date of the next Annual General Meeting. The Board of Directors elects a Chairman to serve until the date of the next Annual General Meeting. During the financial year the board met 17 times. Board meetings take place in Helsinki and at the Group s other offices when the board is visiting Group companies. President The President is appointed by the Board of Directors. Since 1998 Mr Jorma Kasslin has acted as the Company s President and Chief Executive Officer and as a member of the Board. Business organization and responsibilities The Rapala VMC Group comprises the Parent Company and manufacturing and distribution subsidiaries. All of these subsidiaries report to the parent company. Responsibility for the management and direction of these subsidiaries rests with each company s Board of Directors which typically comprises the subsidiary s President, the Group President, CFO and Company Counsel. In addition they have management teams of their own. Product distribution is organized through sales companies which the Group has in 16 countries. In other countries independent importers and distributors undertake product distribution. In line with Group strategy, the objective is that the group sales companies and major independent distributors distribute the Group s full range of products unless local market circumstances dictate otherwise. Remuneration Committee The Board of Directors has appointed a Remuneration Committee that is chaired by the Chairman of the Board, Mr Eero Makkonen. Its members are drawn from the company s non-executive directors and currently consist of Mr Jan-Henrik Schauman and Mr Emmanuel Viellard. 42

43 Corporate Governance continued Committee members appointments run concurrently with a directors term as a member of the Board of Directors. The Committee s tasks include approval of the remuneration and employment policies applied to the company s senior management, including terms of employment contracts, remuneration and benefit levels and bonus arrangements. The Committee is charged with ensuring that the remuneration scheme is consistent with the company s goals. Insider register In February 2000 Rapala VMC Group adopted a set of guidelines on insider shareholdings based on the new regulations on insider shareholdings prepared by the Helsinki exchanges. The Group s guidelines on insider shareholdings follow to a great extent the principles of the current regulations on insider shareholdings prepared by the Helsinki exchanges. Audit Ernst & Young is responsible for the audit of the majority of Group companies globally. The auditors of Rapala VMC Corporation, Ernst & Young Oy, are responsible for instructing and co-ordinating the audit in all Group companies. The auditor in charge of the audit of Rapala VMC Corporation is Pekka Luoma. The fact that the group has no separate internal audit function of its own is reflected in the scope and content of the audit. Board of Directors The current members of the Board of Directors are: Eero Makkonen (Chairman) B.Sc. Eng. Year of birth: 1946 Shareholding: 11,000 Jorma Kasslin (Managing Director, Group President and Chief Executive Officer) M.Sc. (Eng.) Year of birth: 1953 Shareholding: 34,000 Hardy McLain B.A. MBA Year of birth: 1953 Managing Director and Partner CVC Capital Partners Europe Ltd Shareholding: 0 Manjit Dale M.A. (Econ.) Year of birth: 1965 Founding Partner TDR Capital Shareholding: 0 Jan-Henrik Schauman M. Sc. (Econ.) MBA Year of birth: 1945 Shareholding: 3,200 Christophe Viellard Diploma ESCP Year of birth: 1942 President VMC Pêche SA Shareholding: 0 Emmanuel Viellard B.A. CPA Year of birth: 1963 Vice Chairman and Executive Vice President of Lisi Industries Shareholding: 0 King Ming (William) Ng B.Sc. Eng. Year of birth: 1962 Managing Director of Willtech Industrial Ltd. Shareholding: 0 43

44 Shares and Shareholders Shares and Voting Rights Rapala VMC Oyj s minimum share capital is i2.835 million and its maximum authorized share capital is i million, within which limits the share capital may be increased or decreased without amending the Articles of Association. On December 31, 2003 the share capital fully paid and reported in the Trade Register was i3.379 million. The book value of a share is i0.09. The number of shares is 37,543,458. Each share is entitled to one vote. 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. Authorizations Excluding the Share Option program of 2000 and 2003 the Board has used no unused authorizations to issue shares or other securities. The 2002 Annual General Meeting authorized the Board to issue a maximum of 7,500,000 shares which would have increased the share capital by k 675,000. This authorization expired in December 2003 with no shares having been issued. The Board will propose to the 2004 Annual General Meeting to renew this authorization. Option Schemes for Management In January 2004 the exercise period for the 1,574,901 options issued under the 1998 Share Option Program expired. The following option schemes are currently in place for senior and middle management and for the board of directors. The 2000 Share Option Program 1,000,000 options were issued to 80 managers, 500,000 exercisable between 15 October 2004 and 31 January 2006 and 500,000 exercisable between 15 October 2005 and 31 January 2006, at an exercise price of i7 per share. The 2003 Share Option Program 1,000,000 options were authorized by the June 2003 Extraordinary Shareholders Meeting. 500,000 options are exercisable between 31 March 2005 and 31 March 2007 at an exercise price of k 4.80 per share. 500,000 options are exercisable between 31 March 2006 and 31 March 2008 at an exercise price which is the higher of i4.80 and the trade weighted average price of the Rapala VMC share on the Helsinki Exchanges in March The 2000 and 2003 programs represent a 5.3% interest in the company s outstanding shares. Trading and Performance of the Company s Shares Rapala VMC s shares, symbol RAP1V, are quoted on HEX Ltd, Helsinki Securities and Derivatives Exchanges (previously Helsinki Stock Exchange). The 2003 closing price on 31 December was i5.45. The highest price in 2002/03 was i5.75, the average price was i4.36, and the lowest price was i3.60. The share price rose 38% in the seventeen month period ended 31 December, The All-share HEX index rose 13% during the same period. 9,164,995 Rapala VMC shares were traded on HEX Helsinki Exchanges during 2002/03. This represents 24.4 % of all shares. At the end of the year the market capitalization of the outstanding shares was i204.6 million. Earnings per share was i0.36 (2002: i0.43). 44

45 Shares and Shareholders continued Share Ownership At the end of 2003 the non-finland held stake of the share capital was %. The percentage of shares registered in the name of a nominee was %. For further information about ownership see page 45. Dividend The Board of Directors proposes to the AGM that a dividend of i0.12 per share will be paid. Investor Information Rapala VMC has an investor relations Internet website on which is published in real time all company releases in English. The address of the Internet site is The financial information calendar for 2004 is on page biggest shareholders according to the share register at 31 December 2003 Amount of shares Percentage Percentage 10 biggest shareholders (x1000) of shares % of votes % Rapala Normark N.V. 13, Viellard Migeon & Cie 6, Odin Norden Odin Finland Fim Fenno Sijoitusrahasto Fim Forte Sijoitusrahasto Gyllenberg small firm fund Op-Suomi Kasvu Sijoitusrahasto Sijoitusrahasto Gyllenberg Finlandia Etera Keskinäinen eläkevakuutusyhtiö Administrative registrations 12, Other 1, , Percentage Percentage Shareholders by shareholder category of shares % of votes % Companies Financial institutions Public institutions Non-Profit institutions Individuals Foreign Total Shareholders of Rapala VMC Group according to the amount of shares owned at 31 December 2003 Number of Number of Shares shareholders % shares % , , , , ,001-10, , ,001-1,000, , ,000, ,097, Total 1, ,543, Amount of shares owned by the members of the Board of Directors or CEO at 31 December 2003 Amount of shares 48,200 % of shares 0.1 % of votes

46 Information for Shareholders In 2004 the interim reports will be published as follows: Interim report for the period 1 January March 2004, on 13 May Interim report for the period 1 January June 2004, on 12 August Interim report for the period 1 January September 2004, on 11 November The reports will be published at 10:00 am Finnish time and will be immediately available on the Internet at Also, an international teleconference will be arranged on each day of publication at 4:00 pm. Finnish time. Financial publications (in English and Finnish) may be ordered from: Rapala VMC Oyj, Investor Relations, PO Box 19, FIN VÄÄKSY, tel , fax , paivi.hillberg@rapala.fi. 46

47 Key Events During the Financial Year March 2003 The Group establishes a distribution company in Lithuania, continuing its expansion into Eastern European markets. May 2003 At the annual US sales meeting the Group announces the expansion of its product range for the 2004 fishing tackle season. These include innovative extensions to all product categories under the Rapala, Storm and Blue Fox brands, including the first of its kind hybrid hard/soft lure under the Storm brand. June 2003 The Group s accounting year is changed to the calendar year, with the current accounting period being extended by 5 months to effect the transition. A new share option scheme authorizes 1,000,000 new options for management and the board of directors. July 2003 At the annual US trade show the group announces a further expansion of its product range for the 2004 fishing tackle season. The launch of Rapala branded reels and rod/reel combos is well received by the trade. Mr Mika Mahlamaki is appointed Managing Director of Rapala VMC do Brazil, the Group s Brazilian distribution company. September 2003 The Group enters into an agreement to supply all branches of Target Stores, one of the largest mass retailers in the US, with an assorted range of product commencing in the 2004 season. October 2003 Mr Tom Mackin is appointed President of Normark Corporation, the Group s US marketing and distribution company. 47

48 Principal Group Companies Rapala VMC Oyj Tehtaantie 2 Box Vääksy FINLAND Tel: Fax: Rapala B.V. Avenue Emile Demot 19 B-1000 BRUSSELS BELGIUM Tel: Fax: Normark Suomi Oy Box Korpilahti FINLAND Tel: Fax: Normark Scandinavia AB Hamnplan Uppsala SWEDEN Tel: Fax: Normark Scandinavia AB Torsgärdet Box Malung SWEDEN Tel: Fax: Normark Corporation Yellow Circle Drive Minnetonka, MN USA Tel: Fax: KL-Teho Oy Box Korpilahti FINLAND Tel: Fax: Normark Inc Phillip Murray Avenue Oshawa, Ontario L1J 6Z9 CANADA Tel: Fax: Rapire Teo Inverin Co. Galway IRELAND Tel: Fax: Normark Denmark AS Endelavevej Randers DENMARK Tel: Fax: Rapala Japan Ltd Sakusai-Cho Kishiwada-Shi Osaka, JAPAN Tel: Fax: Rapala Holding France S.A. Ragot Normark France S.A.S. Nautisme S.A. B.P Loudeac Cedex FRANCE Tel: Fax: Normark Spain S.A. C/Isla Alegranza, S/N, Naves S.S. De Los Reyes (Madrid), SPAIN Tel: Fax: Normark Eesti A/S Instituudi Tee Harku ESTONIA Tel: Fax: Rapala Eesti A/S Lao Pärnu ESTONIA Tel: Fax: Elbe Normark A/S Grini Naeringspark 3 PO Box Österås NORWAY Tel: Fax: Normark Innovations, Inc. 400 Northeast Drive Suite A Columbia, SC USA Tel: Fax: VMC Pêche S.A Morvillars FRANCE Tel: Fax: VMC Europe Méziré FRANCE Tel: Fax: Waterqueen S.A. Z.I. Sud. Chalon sur Saône- BP # Saint Marcel FRANCE Tel: Fax: VMC Waterqueen UKRAINA 68 Rue Sosury KIEV UKRAINA Tel: Fax: Guigo Marine 9 Avenue du 11 Novembre ANTIBES FRANCE Tel: Fax: Elite International 3, Rue Henri Bosselin Feignies FRANCE Tel: Fax : Normark East Europe VMC Normark Polska SP.Z.O.O. Ul. Dluga Lomianki POLAND Tel: Fax: Normark Russia 5/10 Gostinichnaya Street Moscow RUSSIA Tel: Fax: Rapala-Fishco AG Werkstrasse RÜKI/ZH SWITZERLAND Tel: Fax: VMC Inc Oakcrest Avenue #10 Saint Paul, MN USA Tel: Fax: Willtech Industrial Ltd. Unit A, 10/F Block 2 Kwai Tak Industrial Centre No Kwai Tak St. Kwai Chung N.T. HONG KONG Tel: Fax: Willtech (PRC) Ltd. Schenzhen Buji Kong Tang Woo Tang Kong Village CHINA Tel: Fax: Certain statements in this report are forward-looking and are based on management s expectations at the time made. Therefore, they involve risks and uncertainties and are subject to change due to changes in general economic conditions or industry conditions. Rapala VMC Corporation, incorporated under the laws of the Republic of Finland, is listed on the Helsinki Stock Exchange (HEX Helsinki Exchanges), Finland.

49 Never be the guy who forgets the Rapalas. The Legendary Finnish Minnow.

50 Rapala. The naked truth. You and a buddy are in a boat, each throwing minnow lures toward shore and cranking them back. Both of you are fishing. But only one is catching. I don t get it, whines The Great Unslimed. My lure looks just like yours. It even weighs the same as yours. You smile knowingly and cast again. With the first crank you feel it. The subtle, whispered vibration that makes the rod tip shiver, and sends the slightest hint of electricity down to the rod handle. Somewhere below the surface, your lure has taken on a life of its own. Suddenly, as quick as it began, the trembling stops. Bam! You heave back on the rod and the surface erupts with another five-lb. threat to your buddy s masculinity. With a thumb full of bass you start working the hooks out, waiting for the inevitable question, and now here it comes. Hey, uh, you got any more of those? Balsa. It s what s for dinner. Never has the old saying It s what s inside that counts rung more true than with Rapala fishing lures. Because what s inside most Rapalas is balsa, the magical wood that has had fish and fisherman alike completely hooked for over sixty years. It all started when a simple Finnish commercial fisherman named Lauri Rapala was faced with a crisis. He desperately needed to feed his family, and needed a better way to catch fish. To make a long story short, that crisis gave birth to the legendary Original Rapala. The lure with the twitch, quiver and wobble so lifelike, so effective, that tackle shops rented the few they could actually get their hands on for $25.00 a day. In searching for the perfect luremaking material, Lauri first tried cedar. For a while he used pine bark. But he soon learned only lures made of balsa wood allowed for the subtle, delicate movement he was looking for. Why balsa? (( )) It s extremely light, Lures made of yet regarded as the balsa land on the surface with strongest wood for the slightest plop. The real commotion happens its weight. With seconds later. any other wood, the

51 lure would be at least three times heavier. The lighter balsa makes the Even a battlescarred Rapala will still work, lure action more since balsa wood does not rot or natural. Move your decompose when exposed to water. rod tip just a little bit. The lure makes an immediate movement because it s so sensitive. Yet it can stand up to the meanest, toothiest critters in the water. A little harder to make. A lot easier to catch fish. Over the years cheaper, easy-to-make plastic versions of Lauri Rapala s balsa wood lures have been introduced. But while such duplication may be the sincerest form of flattery, it makes for very disappointing lures. A plastic lure of the same shape and weight requires much more energy to move, and the action is heavier and unnatural by comparison. Since balsa wood is not the simplest or cheapest material to work with, only Rapala, out of all other lure manufacturers, took the trouble to design the one-of-a-kind, custom equipment required to make While other lures may look like a Rapala, the comparison ends there. Only balsa, with its light weight, strength and extreme sensitivity, provides the kind of action that is still causing jaws to drop all over the fishing world. perfect balsa lures every time. But it s all worth it. As millions of sore-lipped lunkers now know, it takes balsa to bring life to the lure. More hands on, means more fish on. No other lure in the world is made with more attention to detail and human touch than a balsa Rapala. The process begins at the mill, where the highest-grade wood is carefully selected. Since wood is a natural material, the core is heavier than the edges so each block of balsa is carefully weighed and then separated. Certain lures are made with the light stuff, others with medium, others with heavy, so they stay consistent. Then each block of wood goes to a custom lathe, which brings out the shape of the body. More precision cuts are made. Next, a groove is cut in the belly for the wire, and any cavities needed for the weights are created. Wire is then inserted into the body, the weights are glued or set in place, and if a foil body is part of the design, it s laid in place by hand. At this point, even the finishing touches The day Lauri Rapala carved his first lure, he knew to keep the tail as light as possible. Which is why he chose balsa. The tail of a similarly shaped, same-weight plastic lure typically weighs up to ten times more, making it sluggish. But then a lure that s too light won t cast well. To remedy, Rapala adds weight to the belly of the lure, which increases casting distance, but also gives the lure perfect balance, and makes the tail lighter still. complement the unique properties of balsa. Each lure is coated with up to 12 ultra-thin layers of lacquer, which increase the wood s strength without adding any weight. Sure it s a whole lot of work. But cutting corners is for widgits. Not fishing. Hand-tuned, tank-tested. Last but not least, every single balsa lure is tied to a short rod and tank tested, so it s ready to be fished right out of the box. On the first cast, it lands lightly upon the water, barely noticeable. Then, with the turnof a crank handle, the little wooden minnow wiggles, wobbles and swims its way into the hearts of fishermen the world over.

52 rapala.com 2003 Rapala VMC Corporation Rapala VMC (RAPIV) is a public company listed Printed in Finland by Markprint, 2003 on the Helsinki Securities and Derivatives Exchanges