Rapala VMC Corporation Annual Report 2001

Transcription

1 Rapala VMC Corporation Annual Report 2001

2 It all began with a hungry Finnish guy and a carving knife. It was the 1930s when a simple fisherman made an observation of simple genius: Big fish eat little fish, especially little fish that are wounded. So begins the greatest fishing story ever told. As Lauri Rapala fished the waters of Finland s Lake Paijanne, he quietly rowed and watched. And what he saw was how hungry predator fish would dart into a school of minnows and attack the one that swam with a slightly off-center wobble. Over and over again. Lauri realized that if he could craft a lure that mimicked the movements of a wounded minnow, he could catch world were different, predators and baitfish always acted true to form. Big fish hammers wounded little fish. That s why Lauri tested each lure to make sure it swam true to the unique wounded-minnow action. It wasn t the fastest way to make a fishing lure. But it was the only way to make a Rapala. (To this day, Rapala lures are hand-tuned and tank-tested to swim perfectly right out of the box.) It s an action as distinct to a Rapala as a fingerprint is to a person. An action no other company has been able to duplicate. And so with every unforgettable trip of a lifetime, every successful Saturday afternoon with a kid at the local fishing hole, the THAT WHICH IS IRRESISTIBLE TO FISH WILL ALWAYS BE IRRESISTIBLE TO THE FISHERMAN. more fish, earn more money, and not spend time constantly baiting lines. So Lauri set to work. He whittled. Carved. And shaved. Eventually a lure began to take shape. Using a shoemaker s knife and some sandpaper, he created his first successful lure from cork in Tinfoil from chocolate bars formed the lure s outer surface. Melted photographic negatives the protective coating. But most importantly, it perfectly imitated the action of a wounded minnow. Legend has it that Lauri sometimes caught 600 pounds of fish a day with that new lure. And as word of his abundant catches spread, the lure s reputation grew. The rest, as they say, is history. The wiggle fish can t resist. As fishermen around the world began to catch more and bigger fish with Rapala s lure, it became clear that what triggered them was the lure s tantalizing wiggle and wobble. Because even though fish throughout the Rapala legend grew. And a deep-seated trust began to form between anglers and Rapala. Weekenders became hardcore. Dads became heroes. And more and more fishermen began reaching for Rapala again and again. A good day fishing. The undisputed mother of invention. For millions, success could be measured by the growing number of trophy fish caught on Rapala lures. (To this day, no other lure holds more world records.) And because we at Rapala are tightly connected to the fishing community, we know what our fellow fishermen need, and what they can t live without. Like when the Shad Rap exploded onto the scene like a surface-to-air bass hellbent on dinner. Word of the Shad Rap s amazing ability to catch fish spread like wildfire. Tackle shops sold out. Resort owners and mom-and-pop bait shops rented out Shad Raps by the day. And even by the

3 hour. (Yes, it was that good.) Twenty years later it s still one of fishing s most successful lures. Likewise, the moment Rapala introduced Fish n Fillet knives they enhanced the fishing experience for millions. Until then, fishermen had a long and grizzly history of clumsily whittling down a prized catch to something resembling a fillet of songbird. The tapered design and unique flexibility of the Fish n Fillet made filleting easier, which is why to this day they re still the number one fillet knives in the world. And so a foundation was laid. The successes of the Original Floater, Shad Rap, and Fish n Fillet were followed by other Rapala products that found their way into tackle boxes and history books. Lures like the Magnum, the Rattlin Rapala, the Fat Rap, the CountDown, the Husky Jerk, and the limited edition Tail Dancer. The legacy continues with new Rapala offerings. There s a reason more fishermen around the world put their faith in Rapala. It s a confidence that stretches through 140 countries and is validated each year by the millions of Rapala lures sold. Simply put, Rapala products make better fishermen. Nothing rushed to market, but carefully crafted from years of experience. No shortcuts. No gimmicks. No flash in the pan, next greatest things. It is a legacy of unwavering quality that can be seen in every lure, every fillet knife, every tool, and every cast of our premium monofilament line. A legacy that continues with new Rapala offerings like premium graphite rods, the world s first long casting line, more new lures, and new ways of catching more fish. Rapala continues to stand the test of time. Through the industry s ups and downs. Through the coldest cold fronts. Because through it all, one simple truth has endured. That which is irresistible to fish will always be irresistible to the fisherman. Contents Group Overview Review by President and CEO 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 Group Companies The Original Floating Rapala

4 Group Overview The size, scope and capabilities of the Rapala VMC Group have increased dramatically during the past year. Acquisitions, brand development and organic growth have elevated the group to a new level and opened the door to increased market potential. The combination of these strategic moves has positioned the group for strong future sales and profit growth. VÄÄKSY, FINLAND N. AMERICA NORMARK U.S. NORMARK CANADA VMC U.S. MANUFACTURING/R&D INVERIN, IRELAND NORMARK COMPANIES FINLAND SWEDEN DENMARK NORWAY SPAIN FRANCE ESTONIA RAPALA VMC GROUP PÄRNU, ESTONIA VMC COMPANIES FRANCE POLAND RUSSIA UKRAINE HONG KONG & CHINA DISTRIBUTION EUROPE NORMARK PARTNERS PORTUGAL SWITZERLAND UK MORVILLARS, FRANCE SHIMANO COMPANIES ITALY GERMANY NETHERLANDS LOGISTICAL SUPPORT CIUDAD ACUNA, MEXICO LOCAL IMPORTERS REST OF EUROPE SOURCING COLUMBIA, SC & CHINA REST OF WORLD RAPALA JAPAN VMC BRAZIL RAPALA LOCAL IMPORTERS JAPAN The current structure of the Rapala VMC Group represents extensive global manufacturing and distribution capabilities. The group designs, develops, manufactures and markets premium quality products under several well known brand names. In addition, the group also markets and distributes fishing, hunting and other outdoor-related products manufactured by third parties through its own subsidiaries in Canada, Western Europe, Asia and South America. Normark Ragot, France and Normark Spain shared the 2000 prize for the Best Shimano Distributor. Willtech Ltd. Factory (Shenzhen, China) The Willtech factory, accredited with ISO 9001 certification since 1999, employs more than 2,000 people in China and 30 people in the Hong Kong Headquarters, including 100 people dedicated to research and development. The Willtech businesses have been developed as OEM manufacturing operations producing fishing and gift products for worldwide distribution. VMC Corporation Factory (Morvillars, France) VMC, established in 1910, is a world leader in the manufacture of treble hooks used in sport fishing and sells hooks to more than 90 countries. It s primary manufacturing is located in Morvillars, France. VMC s market share in the worldwide treble hooks market is in excess of 50%. VMC also has ancillary operations in the manufacture of fishing line and terminal tackle and in general fishing tackle distribution. VMC s subsidiary, Waterqueen S.A., is one of the leading tackle distribution companies in France. The Willtech acquisition builds upon the Rapala VMC Group s global manufacturing capacity and competitiveness. Rapala acquired Willtech in June Manufacturing/Sourcing Exclusive Distribution Partners Group Distribution Companies Shimano Distribution Companies New Storm soft plastic lures are made by Willtech Ltd. 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. 4

5 Rapala is now active in 70% of the U.S. Fishing Market Historically, Rapala has been limited to the hardbait category within lures and around 10% of the total accessories category with filleting knives. In 2002, Rapala will participate in several new categories, including accessories, line, hooks/terminal and fishing rods (representing market potential of $580 million) ACCESSORIES LINE HOOKS/TERMINAL LURES KITS/COMBOS REELS RODS U.S. MARKET OVERVIEW BY CATEGORY 1999 WHOLESALE VALUE - $855m $80 $100 $88 $195 $158 $117 $117 HARDBAITS OTHER Estimated values in Million of US$ In the US the Rapala brand is nearly three times better known than the closest competing brand. In addition to organic growth, the Rapala brand has recently been extended beyond the lure category, with the introduction of Rapala tools, accessories, line, rods, hooks and terminal tackle. Rapala is the only brand to successfully enter several categories within the fishing industry under one brand name. According to the IGFA, more world record fish have been caught on Rapala lures than any other type of lure. Current Rapala world records include: All tackle: 31 Line class: 81 U.S. State Records (Freshwater): 6 Junior: 13 Total Current: 131 Retired: 63 Overall Rapala World Records: 194 The International Game Fish Association (IGFA) is the definitive source of world record gamefish. BRAND DEVELOPMENT PRIOR TO 1999 JAN 99 DEC 00 JAN 01 SEPT 01 JAN 02 HARD BAITS KNIVES/ACCESSORIES NEW ACCESSORIES FISHING LINE FISHING RODS HOOKS COBRANDED RETAIL HOOKS Your Best Shot At A World Record HARD BAITS SOFT PLASTIC LURES SPINNERS HARD BAITS METAL LURES Recent Acquisitions Combined with Brand Development Result in Rapid Growth. Introducing the strong Rapala brand into new, but related product categories, forms a much larger market. In addition, new product categories offer increased market potential. The Rapala brand alone, now competes in market segments offering more than six times the sales potential available in 1998 when the brand was basically limited to hard-bodied fishing lures and fillet knives. The fishing tackle trade and consumers have readily accepted the addition of new Rapala, VMC, Storm and Blue Fox products in already competitive segments. Synergies in sales, marketing and distribution will benefit the Rapala VMC Group and the fishing tackle trade. 230 lb./104.32kg, All Tackle World Record Nile Perch Caught on a Rapala Magnum, December 2000 Angler William Toth needs help with his all-tackle world record Nile Perch, hooked in Lake Nasser, Egypt December He was trolling a Rapala Firetiger Magnum when the big fish struck. Toth needed 45 minutes to land the fish. Throughout the world big fish eat little fish swimming like a Rapala. 5

6 Review by President and CEO In each of the last two years the Group has progressed to new highs in sales and trading profits, resulting from a combination of organic growth, acquisitions and a continuing strong US dollar. However, during that same period much more progression has taken place behind the scenes than has to date been reflected in the results. Indeed, the 2001 results reflect more the investments and expenditures that precede, and are necessary to build the platform for, a period of strong sales and profit growth, than the returns on such outlays. In November 2000, we completed the combination of our Group with VMC Pêche SA ( VMC ), a leading manufacturer of fish hooks based in France. Despite the disparity in size between ourselves and VMC, we see this very much as a combination rather than an acquisition in part because the consideration was 100% shares and in part because of the spirit of the transaction and our common vision for the future direction of the combined group, which we renamed Rapala VMC. Following the combination we welcomed two VMC directors, Christophe Viellard and Emmanuel Viellard, to the Board of the enlarged Group. The addition of the world s leading treble hook manufacturer to the Group provides us with the benefit of vertical integration since Rapala is one of the biggest volume manufacturer-consumers of hooks in the world but until now has purchased only limited quantities from VMC. More importantly the marriage of VMC technology with Rapala s brand and distribution strength provides us, through co-branding in the US, with the opportunity to take hook market share in the retail arena in addition to developing the OEM business that has traditionally been VMC s strength. Our association with VMC led us, through the extensive contacts that VMC has throughout the world among lure manufacturers, to the acquisition in June 2001 of Willtech, a China based lure manufacturer which had been developed into a leading position over the previous ten years by its owner, Mr William Ng. Willtech, employing around 2,000 people, is a growing and profitable business in its own right, primarily manufacturing own label product for major retailers. However, the real attraction to us was the significant upside that we were perhaps uniquely placed within the industry to exploit - the perfect combination of Willtech manufacturing capability in product areas in which we were currently not present, with Rapala VMC brands that could be successfully extended to such products, underpinned by our worldwide distribution strength. The first such products will be soft plastic lures which were successfully launched only one month after finalizing the acquisition. Organically, rather than through acquisition, we successfully introduced Rapala branded monofilament fishing line and a range of fishing accessories during the past year. These products were well received by the trade and reached our first year sales expectations. The accessory products quickly established the Rapala brand as the market leader in what until then had been a very fragmented category. We knew that entering the fishing line market was a rather different proposition requiring long-term commitment to the category, with a broadly marketed initial launch supported by consistently superior product and continual grass roots promotion. It was particularly gratifying to have both of the lines that comprised our limited initial launch recently be included within the top five out of 85 lines tested in a published independent study in the US. 6

7 Review by President and CEO continued For the coming year we have increased the product range in both accessories and fishing line and for the first time will be launching a range of Rapala branded fishing rods in the North American market. These products will not be available in European markets since in many of those territories we are the exclusive distributor of Shimano rods and reels. In entering other product categories with the Rapala brand we are careful to position our product range in a manner that is consistent with what the brand has represented for several decades, namely premium quality for the mass market. We do not seek to exploit niches within the market and we do not allow our reputation for quality to be compromised. We are mindful of the need to remain faithful to these values with a clear and focused brand position. Three years ago the target market for our entire US product range, which was primarily limited to hard-bodied lures and fillet knives, was no more than approximately $120 million and our share was around 35%. The new product categories that we have entered place us in a market with an estimated wholesale value in the US of around $580 million and we are only at the beginning of being able to exploit this significantly increased potential. Of course, all of this increased potential does not come without a price. The repositioning of the Group, for that is truly what it is, has occupied a significant amount of resources, both managerial and financial dating back to the time of the IPO in December The 2001 year was undoubtedly the year in which the Group results began to substantially reflect the costs of such a strategy with the major part of the benefit to start to follow only in future years. However, we believe that we have chosen a wise path that will protect and augment the future value of the Group and that will be evident in a strong improvement in performance in the 2002 year. Though our acquisitions and product extensions have been the most high profile events of the past year, our management team has also been active in several other areas crucial to the ongoing success of the Group. Our distribution companies in Europe enjoyed double digit sales growth as the benefits of the Scandinavian acquisitions made in early 2000 began to be felt in the form of stronger market positions. I have referred previously to a desire to curtail growth in this area of the Group s business, and a significant part of the sales increase derived from the prior year acquisitions rather than organic growth in the existing businesses. This part of our business is very beneficial in providing us with an automatic route to market for many of the new Group branded products that we are launching. However, there is a continuing need for us to closely address the economics of this business and ensure that tighter working capital and margin controls improve the return on capital employed. Our Japanese distribution subsidiary, which like our US distribution company markets only Group branded and not third party product, continues to grow strongly in only its second year of operation, albeit from a small base. The Japanese market is very different to the Western markets that we have traditionally catered to and the past two years have been useful in determining which specific products will be required to make a meaningful impact in a market that is dominated by domestic manufacturers. Within our manufacturing operations the past year saw the termination of all Storm lure manufacturing in Mexico. This has been transferred to our European plants in Finland and Estonia with the Mexican facility continuing to operate as a logistical support unit for our US distribution company, performing functions that until now have been outsourced to third parties. The concentration of our hard-bodied lure manufacturing within our European 7

8 Review by President and CEO continued framework enables us to avoid duplication of fixed costs, exercise more direct management control, ensure consistent quality and maximize our returns. In our US distribution company we implemented a new enterprise management system during the course of the past year. This ensures that our technological development keeps track with that of our most sophisticated customers and in addition to enabling us to manage our business more efficiently and economically will strengthen our key account relationships. Our direct to consumer e-commerce pilot was operational for six months during the past year. However, the need to limit the product offering to items peripheral to our core business and the insufficient traffic to the site led to inadequate returns on what we would have needed to invest to maintain the site. Accordingly we terminated the activity but will continue to monitor the development of web-based business and its appropriateness for our activities. Our performance is particularly pleasing in a difficult market environment, although not surprising since our business has historically shown a resilience in times of economic downturn. Several US-based manufacturers are under increasing pressure to relocate their manufacturing activities to lower cost countries, with China being the destination of choice for much of the industry. In our core lure business the Willtech acquisition places us ahead of the curve and gives us a strategic cost advantage for the future for products outside of our current range of hardbodied lures, which will remain in our equally competitive European manufacturing system. We foresee further changes within the industry and will be alert to any opportunities that this may present. However, we are at the same time extremely satisfied with the organization and structure that we have built over the last two years and believe that with no further significant change it is poised to deliver superior returns to its shareholders. Our management team remains intact. We have had no turnover at all in any key management position during the last three years and in key areas have been able to add quality individuals respected throughout the industry to help us drive the business to the next level, the threshold of which we currently find ourselves on. With regard to our financial position, in my review last year when the Group had net borrowings of EUR 107 million I informed you of our target to reduce borrowings by 50%, or around EUR 50 million, within the following four years. At the end of the first of those four years our net borrowings have increased to EUR 130 million. Virtually all of the EUR 23 million increase is attributable either to cash paid or debt assumed in connection with the VMC and Willtech transactions (EUR 14 million) or to accounting revaluations reflecting the stronger US dollar (EUR 7 million). Absent these two factors, our net borrowings increased by around EUR 2 million primarily due to temporarily reduced profitability (as we invested in developing and marketing new product areas) and higher levels of working capital. Despite this I reiterate that it remains our intention to achieve the EUR 50 million reduction in net borrowings within the remaining three of the four years that I initially set as the target. This is considerably in excess of what is required of us under our banking arrangements. This will not happen without regular and diligent attention on the part of management in every company around the Group but I believe that our prospects for strong profitable growth coupled with the ability to reduce some of the clearly excess working capital (primarily inventories) can generate this reduction in our borrowing requirements. To further emphasize this, the Board is putting in place specific bonus parameters for the coming three years that 8

9 Review by President and CEO continued will be more strongly tied to cashflow and net profitability than to the growth that we expect. I am confident that we can achieve the targets that we have set for ourselves within the prescribed time period. Finally, given the dependence of the Group on the US market for such a substantial proportion of its revenues and profits, I must attempt to address the potential impact of the tragic events of September 11 on our business. The general consensus of the impact is that the already weakening US economy was pushed further towards recession, with the travel and tourism industry probably worst affected. I would reiterate what I mentioned before - our business has historically shown a resilience in times of economic downturn. We believe that this is primarily because of the low cost, high value added and generally consumable nature of what has historically been our staple product the lure. It is generally one of the last things that dedicated consumers will decide not to buy, and we believe we have a large core of dedicated consumers. Furthermore our business has not historically been dependent on strong tourism activity; we generally sell products to consumers in their home areas for local use. Even though I have spent much of this review reporting to you how our business is changing, at this juncture we still retain much of our past character and our core revenues and profits will for some time continue to be primarily dependent on our branded lure sales. Of the other areas we have entered, the hook business is very much dependent on lure sales. Accessories and rods are in general higher price point items and are potentially more susceptible to consumer spending slowdowns than lures but these categories are not yet major contributors to overall Group profits. So although our businesses do not appear to be subject to the same uncertainties that affect many others, at such a time of general uncertainty it is counter-intuitive to be overly bullish regarding future prospects. However, based on information currently available to us and in our best judgment, we believe that the Group remains positioned for a year of strong sales growth and stronger profit growth. 19 October 2001 Jorma Kasslin President and Chief Executive Officer 9

10 New Product Overview Strong Growth Plans for 2002 Season 2002 new product introductions will give the Rapala VMC Group a meaningful presence in market categories in which it is not currently present. The foundation for the continued broadening of the group s product range has been established over the course of the last eighteen months, first with the expansion of the product development team in the U.S. and China and subsequently through the combination with VMC and Willtech. These initiatives have enabled the Group to expand from its historically narrow product range of lures, fish filleting knives and a limited range of accessory products into a broad range fishing tackle company with representation in most categories in the U.S. Rapala will now be active in markets with a total value of around $600 million, which is nearly six times the size of the group s traditional market. Designed by fishermen, for fishermen. The Rapala product development team keeps fingers on the pulse of anglers of the world to develop effective, marketdriven new products. The new product introductions include innovative extensions to the Rapala and Storm range of hard-bodied lures, additions to the fishing line and accessory categories, which the group entered last year, and for the first time a range of premium quality fishing rods. Winner2001 ICAST Best New Product Across five different series, all Rapala rods are premium quality, yet competitively priced. Made of the most advanced, lightweight highmodulus graphite and the latest design technology. The introduction of fishing rods is of particular importance since the retail market is estimated at $150 million in the U.S. The market is very fragmented with the largest single brand representing approximately 15% of the overall market and a substantial part of the market held by brands outside of the major companies in the category. Initial trade feedback confirms that there are strong prospects for a premium quality yet competitively priced product marketed under a brand with the strength of Rapala. ProGuide Digital Scales Weighing scales are one of many new Rapala accessories to hit the market in Custom-designed to meet the needs of today s anglers. Each Rapala accessory has features that really make sense when you re out on the water. Winner 2001 ICAST Best New Product Packaging New for 2002, Rapala Long Cast fishing line. New Long Cast Line is a key component of the Rapala Long Cast system of line, lure and fishing rods. 10

11 Premium Rapala/VMC Hooks and Terminal Tackle The creation and marketing of Rapala VMC hooks was a natural step for the merged Rapala and VMC companies. Both premier brands trusted by fishermen around the world. A complete line of hooks and terminal tackle are available for every fishing application. Rapala Fishing Lures More than 100 variations of new lure products have been launched for Including four new models. It s the most aggressive Rapala has ever been in bringing new lure products to market. In addition, the 2002 Fishing Equipment Catalog will be more widely distributed than ever before, to both the fishing trade and consumers. New Limited Edition Rapala Long Cast Minnow The aerodynamic shape of the lure combined with shifting internal weights and balsa construction makes this a long casting lure with classic Rapala swimming action. An internal weight transfer system is encapsulated within the balsa wood body of the Long Cast Minnow. The weights shift to the back of the lure for maximum casting distance. On the retrieve, the weights shift forward to provide the legendary balanced Rapala wobbling action. New Jointed Shad Rap An extension of the popular Shad Rap family, the Jointed Shad Rap is positioned as the hero lure for It s a multi-specie lure with mass market appeal. Winner 2001 Outdoor Life Gear Guide Award Voted by Outdoor Life writers as Best-of-the-Best. Rapala products have earned the trust and respect of journalists around the world. They re known to work as promised in the unpredictable outdoors. New Saltwater Skitterwalk New lures specifically designed for saltwater fishing will help Rapala gain market share in this growing segment. 11

12 New Product Overview Cover the Water with Blue Fox The Blue Fox brand has also benefited from the acquisition of Willtech Ltd. with a completely new assortment of in-line spinners. Laser holographic and hand painted finishes, stainless steel shafts, brass gears and VMC hooks are some of the features of the new Blue Fox spinners. In addition, the lures vary in swimming depth from 0 to 5 feet, allowing anglers to Cover the Water with the new line of Blue Fox Spinners. Kits from Blue Fox Offer Anglers the Lures They Want at a Great Value. The Blue Fox Cover the Water spinners, come complete with the perfect storage system. The Quick-Pick Modular Tackle System features a keystone locking method. Anglers can slide them together to match their needs. Total size and configuration possibilities are endless. Taking the World by Storm Storm lures have been positioned to complement the more expensive, better quality Rapala line of hard-bodied lures. However, Storm lures have been upgraded to include the features anglers require (e.g., sonic-welded bodies, pad printing, polycarbonate swimming lips and consistent swimming action). Additions and improvements to the Rapala and Storm line of lures have helped the Group command more shelf space and gain market share in the hardbodied lure category. Storm Special Color Program In 2002 tackle dealers have the opportunity to order custom lure colors and designs directly from the factory. This type of program is revolutionary in the industry and greatly appreciated by dealers. It allows each dealer to have a unique and exclusive Storm product to sell. 12

13 New Storm Soft Plastics Introduced at the American Sportfishing Association s annual trade show held in Las Vegas, Nevada, July 2001, the soft plastic lures were designed and manufactured by Willtech Ltd. and serve as a prime example of the capabilities of the recently acquired company. The lures feature revolutionary construction techniques, with holographic foils embedded into the bodies, built-in rattles and unique colors. Realistic lizards, crawfish, worms, grubs, squids and more comprise the lineup of the new Storm soft plastics. Natural looking eyes, tentacles, flared gills, claws, feet, etc. have captured the attention of the market. In addition, new technology comes into play with PVC material with added blocking agent for strength, salt impregnation for scent, internal rattle chambers for noise and holographic foil for extra flash. Storm is known as the contemporary, irreverent, yellow brand of the fishing industry. Bright, dynamic retail displays have been developed to showcase the new Storm soft plastic lures. Packaging, displays and advertising have been designed with a similar look and theme to create visual continuity for this new product line. 13

14 Marketing Overview The tradition of awardwinning Rapala marketing programs continues. The Magazine Publishers of America s prestigious Kelly award. For the third consecutive season, the Rapala ad campaign was selected as one of the 25 best in America. Other finalists include Nike, Absolut Vodka, Harley-Davidson and Porsche cars. In 2001, Rapala established a dedicated press relations department to handle all forms of public relations activities around the world. Extensive media coverage achieved by Rapala offers comprehensive and credible third-party endorsements that can t be achieved through advertising. In addition, aggressive business moves in recent months, such as acquisitions and new product introductions, have created abundant news for the industry. The EFFIE is presented annually by the New York based American Marketing Association in recognition of the year s most effective advertising campaigns campaigns that have delivered superior results in meeting the objectives they were designed to achieve. Past winners include Sea-Doo, Kodak, Yamaha, Sony, Schwinn and other high profile consumer brands. Measures of effectiveness include (based on FY 2000 results): Rapala VMC Group sales increased 17% Unaided brand awareness increased from 38% to 47% Rapala VMC Group profits increased 17.4% Sponsored by the American Association of Advertising Agencies, only five awards are given each year to honor excellence by a U.S. based AAAA member. Carmichael Lynch Advertising received the 4A s award based on work produced on behalf of Rapala. The Point-Of-Purchase Advertising Industry Selected the Rapala Center as best in the industry. Nearly 100 Rapala Centers are located with major U.S. retailers. The in-store displays reinforce Rapala s leadership position in the market and educate consumers on how to use Rapala products. The displays allow enough space for new Rapala fishing line, accessories, rods, hooks and terminal tackle. Rapala billboards intercept anglers on migratory routes to their favorite fishing destination or tackle shop. Marketing partnerships with key retailers help build incremental sales Reaching consumers with dynamic product displays and strong marketing messages in the retail environment, where consumers buy fishing products, gives Rapala a competitive advantage. The launch of the New Jointed Shad Rap will include extensive TV, magazine and PR support. The Rapala Trophy Dealer program rewards key dealers for meeting certain stocking levels and establishing Rapala Pro Shops. An extra effort has been put forth to establish Rapala Trophy Dealers in geographic regions that show high market potential. 14

15 rapala.com Emerging markets represent significant growth potential. The internet allows fishermen from around the world to access the latest news from Rapala and daily fishing tips from the Rapala Pro Staff. Aggressive Catch of the Day promotions Designed to build incremental sales and increase market share the Catch of the Day theme provides the Rapala sales force with frequent opportunities to meet with customers in the trade and offers the trade and consumers with frequent opportunities to buy promotional goods from Rapala. Each promotion is designed to achieve a specific objective (e.g., generate trial of new product, accelerate sales of slow moving product, take advantage of a competitive weakness, etc.) Rapala Pro Staff member, Mike Gofron celebrates victory in the Pro Walleye Tour Championship, September Mike s key to success... the new Rapala Jointed Shad Rap and Rapala Tail Dancer. A network of high profile anglers increases the level of Rapala brand exposure at key fishing events, establishes credibility for Rapala products, adds to the flow of new product development ideas and provides fieldtesting capabilities. Rapala unites with other category leading super brands to form cross promotions. Marketing partnerships with leading consumer brands help raise the profile of the Rapala brand among a broader market of consumers. In addition, cross promotions with non-competing brands leverage budgets and build incremental sales. In addition, a dedicated business development team has been put in place to further leverage the Rapala brand via licensing, sales of peripheral items and to gain new outlets of distribution. Unaided - Favorite Brand of Fishing Lure 21% Rapala teaches the world to fish with Top-To-Bottom educational materials. In 2002, a complete Top-To-Bottom educational marketing campaign will help introduce new products, support core products and teach anglers when, where and how to use Rapala products. Teaching anglers how to be successful with our products creates loyalty and repeat sales. The Rapala brand often appears in large and unsuspecting venues. High impact brand messages generate consumer awareness and reinforce Rapala s leadership position. 8% 8% 7% 7% 5% RAPALA BOMBER NORMAN BANDIT EXCALIBUR STORM Source: 2001 Bass Club Digest Subscriber Survey, U.S. Aggressive marketing campaigns combined with products that perform as promised, keep the Rapala brand top-ofmind among anglers. In addition to having high levels of brand awareness, research indicates consumers perceive Rapala as a premium brand and their number one choice for future lure purchases. 15

16 Report of the Board of Directors General In 2000/01 the Group once again achieved record sales and trading profits, with increases of 30.4% and 5.5% respectively; a satisfying performance in the face of sometimes difficult retail conditions and in a year of transition and investment for the future. The Group has deliberately continued to invest in the development of incremental future business streams as part of its long-term strategy of maintaining and broadening its pre-eminent market position. Inevitably in following such a course, there is a period of investment and expenditure in advance of the expected returns. The past year has been such a period, with expenditure in product development, marketing and initial inventory building to support the new ventures. This has temporarily suppressed the rate of growth in profits to a level below that enjoyed in net sales. Furthermore, initial action taken to reduce working capital levels in the existing businesses, in particular liquidating older and slower moving inventories, resulted in temporarily lower margins on certain products. These factors combined to reduce the Group s operating profit before depreciation margin to below 20% (17.8% compared to 22.0% in the prior year) but since these causes are temporary in nature the margin is expected to revert to in excess of 20% in the 2001/02 year. Overall, the Group is on track with all of its strategic initiatives and is poised for further strong development in sales and, in particular, profitability. Net sales Net sales for the year were EUR million compared to EUR million in the prior year, an increase of 30.4%. Sales growth derived from three main elements - organic growth in the principal existing businesses (10.4%), the inclusion of VMC for eight months and Willtech for one month (14.6%) and the impact of foreign exchange rate changes, primarily the US dollar strengthening against the Euro (5.4%). Group branded products The North American market is the core market for the Group s branded products, typically representing around 80% of lure sales and being the primary area of focus for the initial launch of Rapala branded accessories and fishing line. Net sales increased by 20.2% (8.6% on a constant currency basis). This performance was fuelled by the first significant sales of accessories, new lure products and fishing line, and also the liquidation of certain slower-moving inventory items. Excluding the impact of these, the recurring business tracked slightly below prior year levels, nevertheless an encouraging performance given the continuing concerns in the general retail environment in the US. It also stresses the importance of new product to the maintenance of sales growth and the crucial need for continued investment in extending our product offering, which we have been committed to over the last eighteen months. Retail sell through of our product at major US customers was up between 5% and 10% on average. Coupling the sell-through rate at retail with our sales experience into the retail and distribution channels gives reason to believe 16

17 Report of the Board of Directors continued that inventories in the distribution channels are slightly lighter than at the end of the prior year which should augur well for the coming year. Direct export sales of fishing lures increased by 16.7% (9.8% at constant currency rates) as our Japanese operations become more established and the Storm brand is spread throughout a wider distribution network than previously. European distribution businesses Sales in the Group s European distribution businesses increased by 12.0% compared to the prior year from EUR 56.4 million to EUR 63.2 million with little impact from changes in exchange rates. Growth was recorded in all countries, with the majority of the increase being in the Nordic region through the benefit of the prior year addition of distribution lines from Sini Guldmann and S-Vapen. Businesses acquired during the year VMC contributed sales of EUR 16.7 million in its first eight months within the Group and Willtech sales were EUR 0.4 million for the one month since acquisition. Profitability Fixed costs increased by 41.1% over corresponding prior year levels (36.3% at constant currency rates). This net increase derives from three main areas the impact of current year acquisitions (VMC and Willtech, together 19.1%), the impact of development and marketing costs to generate future revenue streams (7.9%), and general increases in the recurring business (9.3%). The 9.3% increase in fixed costs in the recurring business includes a higher cost base within Nordic and Japanese distribution, reflecting acquisitions or start-ups in the prior year (3.3%), the full year impact of the US management team which was expanded during the previous year to take the business forward in this key market (1.6%), and certain non-recurring costs related to the closure of Storm manufacturing in Mexico (0.9%). Excluding each of these, the underlying growth in fixed costs on a comparable basis to the prior year is 3.5%. The Group s operating profit before depreciation for the year was EUR 27.1 million (prior year EUR 25.7 million). The operating margin of 17.8% (22.0%) reflects the stronger growth in the lower margin European distribution businesses but more significantly a certain delay between the incurrence of costs and the generation of revenues in the new business areas. In the current year approximately EUR 3.1 million of fixed costs are attributable to the new business areas in the US, mainly the investment in product development and marketing for new product lines and the commencement of amortization of previously deferred development costs. These costs are being either recognized as incurred (EUR 2.5 million of the total costs) or amortized over 2-3 years (EUR 0.6 million), but will benefit revenues over a longer period. The revenues associated with these areas in the current year were EUR 4.2 million, hence the temporary negative impact on operating margins. Net financing income and expense includes net interest expense of EUR 9.5 million (EUR 7.4 million) due to higher average base interest rates for the first part of the year on higher US dollar borrowings. Higher borrowings result from the assumption of VMC debt, part of the acquisition consideration for Willtech and higher working capital levels. Net foreign exchange translation (non-cash) losses were EUR 4.2 million compared to EUR 1.4 million (restated) in the prior year reflecting the strengthening of the US dollar against the Euro during the year. 17

18 Report of the Board of Directors continued Extraordinary items in the prior year consisted of the cumulative impact of the change in accounting policy for foreign exchange translation differences to the start of that fiscal year, partially offset by certain non-recurring costs associated with the closure of Storm manufacturing activities in Oklahoma. Profit before reserves and taxes was EUR 6.0 million (EUR 12.8 million) since increases in depreciation and interest costs (due to acquisitions and higher working capital levels), combined with higher foreign exchange translation losses and the non-recurrence of net extraordinary income, exceeded the increase in trading profits. The Group s effective tax rate decreased from 30.5% in the prior year to an abnormally low 12.1% in the current year. This is primarily due to the major portion of the Group s current year taxable profits being recorded in lower tax rate jurisdictions with profitability in the higher rate jurisdictions (in particular the US) being temporarily depressed since these jurisdictions have primarily incurred the development and marketing expenditure, and temporarily reduced distribution margins referred to earlier in this report. On an ongoing basis the Group s effective tax rate is expected to revert to around 27%. Net profit for the period was EUR 5.4 million (EUR 9.2 million). Earnings per share, which exclude extraordinary items, were EUR 0.16 (prior year EUR 0.25) and equity per share increased to EUR 1.01 (prior year EUR 0.72). Financing Net cashflow provided by operations (before capital expenditure) was EUR 12.9 million (EUR 21.1 million). The reduction is entirely due to growth in working capital levels, primarily inventories to support the entry into new business areas and receivables following the stronger fourth quarter sales. Operating cashflow in the final quarter was strong at EUR 15.8 million (EUR 14.6 million) as the Group started its program for reducing inventory levels. Net cash outflow for the year, including cash paid or debt assumed for acquisitions of EUR 14.0 million (EUR 4.9 million), was EUR 16.1 million (EUR 2.0 million net cash inflow) but due to the translation effects of exchange rate changes net borrowings increased by a further EUR 7.4 million. Capital expenditure Gross capital expenditure for the year totaled EUR 4.0 million (EUR 3.6 million) with the major part of the expenditure due to the ongoing implementation of a new enterprise management computer system in the US and manufacturing investments to support the brand extension and new lure programs. Research and development Total identified research and development expenditure for the year was EUR 2.5 million (EUR 1.4 million) or 1.7% of net sales. The amount of such expenditure recognized in the income statement for the year was EUR 2.2 million (EUR 0.7 million). 18

19 Report of the Board of Directors continued Personnel The Group had an average of 1,248 employees during the period (859). The increase principally reflects the combination with VMC in December At the year end the Group had 2,807 employees (874). The increase reflects the combination with VMC and the acquisition of Willtech. Group structure On 15 November 2000 the Group acquired a 99.9% stake in VMC Pêche SA. On 29 June 2001 the Group acquired 100% of Willtech Industrial Limited. All acquisitions and combinations are consolidated into the Group s results as from the effective date of the transaction. Shares and shareholders On July 31, 2001 the Company had 946 (916) registered shareholders. The number of shares in issue is 37,543,458. During the financial year the share price fluctuated between EUR 3.90 and EUR 5.80, and the last quoted price of the year was EUR The total volume of shares traded during the year was 4,136,865 shares. The total market value of the issued shares was EUR million at July 31, In December 2000 the Company paid dividends of EUR 0.7 million, corresponding to EUR 0.02 per share. Future prospects Against a backdrop of difficult market conditions, and bearing in mind the impact of the development efforts in new product areas, the trading results for the year are in line with expectations. The second half year saw the first significant contribution of the Group s brand extension products and justified the conviction that the Rapala brand could support entry into non-traditional product areas. The enlargement of the Group s sphere of activities through the addition of VMC and Willtech and the internal development of products in other categories has enabled the Group to expand from its historically narrow product range of lures, fish filleting knives and a limited range of accessory products towards a broad range fishing tackle company with representation in most categories. The Group has grown quickly, and inevitably encountered the temporary strains that this places on an organization and its balance sheet. The 2000/01 year was something of a crossroads in the development of the Group, during which period a temporary decline in margins and cashflow was a necessary precursor to fuel the future growth in both of these measures. The Group is now positioned on a different growth track which should see strong double digit increases in sales and trading profits in the next financial year, despite our expectation that market conditions will remain challenging. 19

20 Consolidated Income Statement Year ended 31 July Notes (1000 EUR) (1000 EUR) Net sales 1 152, ,931 Other operating income 2 1,169,655 Operating expenses 3 (126,550) (91,924) Operating profit before depreciation 27,086 25,662 Depreciation on fixed assets and other capitalized expenditure 4 (7,193) (5,635) Operating profit 19,893 20,027 Financial income and expenses 5 (13,894) (9,182) Income before extraordinary items and taxes 5,999 10,845 Extraordinary items 6,00 1,985 Income before taxes 5,999 12,830 Income taxes 8 (726) (3,915) Minority interest,132,288 Net income 12 5,405 9,203 20

21 Consolidated Balance Sheet As of 31 July Notes (1000 EUR) (1000 EUR) ASSETS Non-current assets INTANGIBLE ASSETS 9 Intangible rights 1,338,723 Goodwill 3,566 3,674 Group goodwill 56,040 40,105 Other capitalized expenditure,653,718 61,597 45,220 TANGIBLE ASSETS 9 Land and water 2,211 1,981 Buildings 8,876 6,549 Machinery and equipment 10,930 5,889 Other tangible assets 3,266,894 Advance payments and construction in progress,325,864 25,608 16,177 INVESTMENTS Other shares and participations 9,125,220 Other receivables, 50, 25,175,245 Current assets Inventories 10 60,273 43,169 Deferred tax assets 8 1,375 3,089 Short-term receivables 11 55,555 43,237 Cash in hand and at bank 15,656 12, , ,479 TOTAL ASSETS 220, ,121 SHAREHOLDERS EQUITY AND LIABILITIES Shareholders equity 12 Share capital 3,379 2,835 Reserve fund 11,183 Retained earnings 17,901 10,626 Net income for the period 5,405 9,203 37,868 22,664 Minority interest,147,229 Liabilities Deferred tax liabilities 8,356 2,365 Long-term liabilities 14 72,988 73,442 Short-term liabilities ,880 65, , ,228 TOTAL SHAREHOLDERS EQUITY AND LIABILITIES 220, ,121 21

22 Consolidated Statement of Cashflow Year ended 31 July (1000 EUR) (1000 EUR) Operating profit before depreciation 27,086 25,662 Change in net working capital: Increase in receivables (3,812) (3,233) Increase in inventories (6,744) 0(,663) Decrease in short-term liabilities (3,635) 0(,715) (14,191) (4,611) Net cash provided by operations 12,895 21,051 Interest paid (9,878) (7,448) Interest received,495,708 Income taxes paid (1,556) (3,305) Net cash provided by operating activities 1,956 11,006 Cash used in investing activities: Purchases of fixed assets (4,026) (3,581) Proceeds from disposal of fixed assets,627 Acquisition of subsidiary companies (13,951) (4,881) Net cash used in investing activities (17,350) (8,462) Cash flows used in financing activities: Dividends paid (724), (,530) Net cash used in financing activities (724), (,530) Net (Decrease)/Increase in net borrowings 16,118 (2,014) Net borrowings at beginning of period 106,571 94,400 Effect of exchange rate changes on net borrowings 7,386 14,185 Net borrowings at end of period 130, ,571 22

23 Parent Company Income Statement Year ended 31 July Notes (1000 EUR) (1000 EUR) Net sales Other operating income ,986,336 17,666,204 Operating expenses 3 (16,982) (13,648) Operating profit before depreciation 5,340 4,222 Depreciation on fixed assets and other capitalized expenditure 4 (1,243) (1,175) Operating profit 4,097 3,047 Financial income and expenses 5 (3,894) (3,008) Income before extraordinary items and taxes,203,039 Extraordinary items 6 1,424 1,430 Income before appropriations and taxes 1,627 1,469 Appropriations 7,266,393 Income taxes 8,(788),013 Net income 12 1,105 1,875 23

24 Parent Company Balance Sheet As of 31 July Notes (1000 EUR) (1000 EUR) ASSETS Non-current assets INTANGIBLE ASSETS 9 Intangible rights,031,046 Other capitalized expenditure 3,860 4,183 3,891 4,229 TANGIBLE ASSETS 9 Land and water,220,220 Buildings 1,499 1,432 Machinery and equipment 2,813 2,326 Other tangible assets,046,046 Advance payments and construction in progress,160,801 4,738 4,825 INVESTMENTS Shares in subsidiaries 9, 18 52,144 21,382 Receivables from group undertakings 1,619 1,769 Other shares 9, 18,057,052 53,820 23,203 Current assets Inventories 10 4,583 4,005 Short-term receivables 11 76,200 59,658 Cash in hand and at bank 5,769 3,241 86,552 66,904 TOTAL ASSETS 149,001 99,161 SHAREHOLDERS EQUITY AND LIABILITIES Shareholders equity 12 Share capital 3,379 2,835 Reserve fund 11,183,00 Retained earnings 15,316 14,164 Net income for the period 1,105 1,875 30,983 18,874 Appropriations 13,096,362 Liabilities Long-term liabilities 14 39,170 38,024 Short-term liabilities 15 78,752 41, ,922 79,925 TOTAL SHAREHOLDERS EQUITY AND LIABILITIES 149,001 99,161 24

25 Parent Company Statement of Cashflow Year ended 31 July (1000 EUR) (1000 EUR) Operating profit before depreciation 5,340 4,222 Change in net working capital: Increase in receivables (14,092) (11,606) (Increase)/Decrease in inventories,(579),526 Increase in short-term liabilities,460,327 (14,211) (10,753) Net cash used by operations (8,871) (6,531) Interest paid (6,641) (4,474) Interest received 3,528 2,393 Income taxes paid,338,(288) Net cash used by operating activities (11,646) (8,900) Cash used in investing activities: Purchases of fixed assets,(818) (1,461) Proceeds from disposal of fixed assets,00,009 Acquisition of subsidiary companies (6,387) (1,568) Dividends received 3,311 2,965 Group contribution received 1,424 1,430 Net cash provided by/(used in) investing activities (2,470) 1,375 Cash flows used in financing activities: Dividends paid,(724) (530), Net cash used in financing activities,(724) (530), Net Increase in net borrowings 14,840 8,055 Net borrowings at beginning of period 74,040 58,494 Effect of exchange rate changes on net borrowings 6,461 7,491 Net borrowings at end of period 95,341 74,040 25

26 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. 26

27 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. The value of the consideration paid for the purchase of the shares of VMC Pêche was determined to be equal to the fair value of the net assets received. This treatment was adopted as permitted under Finnish GAAP for a transaction in which the consideration consists entirely of shares. 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. 27

28 Notes to the Financial Statements Group Parent Company (1000 EUR) (1000 EUR) (1000 EUR) (1000 EUR) 1. NET SALES Net sales by business area Trade 141, ,971,428,472 Production 10,955 8,960 20,931 16,786 Other 00,00, 00,00,,627, , ,931 21,986 17,666 Net sales by market area Finland 17,271 17,070,792,387 North America 63,824 53,741 5,904 2,595 Other markets 71,372 46,120 15,290 14, , ,931 21,986 17, OTHER OPERATING INCOME Rents received,079,,069,079,069 Other 1,090,586,257,0135 1,169,655,336, OPERATING EXPENSES (Increase)/Decrease in stocks of finished products (6,729) (6,000),(318), 216 Production for own use, (71),(54),(46),(54) Raw materials and services Purchases during the financial year 64,025 51,063 7,354 4,570 (Increase)/Decrease in inventory of raw materials,732 1,243 (261),,313 External services 1,812,352, 58,119 59,769 46,604 6,787 5,164 Staff expenses: Wages and salaries 25,638 17,951 5,655 4,915 Pension expenses 1,888 1,453,891,615 Other social security expenses 5,145 2,690,533,540 32,671 22,094 7,079 6,070 Other operating expenses 34,110 23,226 3,116 2, ,550 91,924 16,982 13,648 Voluntary staff expenses are recorded under other operating expenses. Average number of personnel 1,248, 859,237,,

29 Notes to the Financial Statements continued Group Parent Company (1000 EUR) (1000 EUR) (1000 EUR) (1000 EUR) 4. DEPRECIATION Depreciation according to plan Intangible rights,162,052,015,015 Goodwill,407,180,00,00 Other capitalized expenditure,455,434,440,428 Buildings,541,417,152,124 Machinery and equipment 2,403 1,846,636,608 3,968 2,929 1,243 1,175 Group goodwill 3,225 2,706 7,193 5, FINANCIAL INCOME AND EXPENSES Dividend income from group companies,00,00 3,311 4,588 Other interest and financial income: Interest income from group companies,00,00 3,281 2,373 Interest income from third parties,547,620,098,075 Foreign exchange gains 2,746 1,421 2,689 5,315 Other financial income,111,014,00,00 Interest and other financial expenses: Interest expense to group companies,00,00,00,00 Interest expense to third parties (10,011) (7,961) (6,323) (4,865) Foreign exchange losses (7,001) (2,825) (6,697) (10,401) Other financial expenses (286),,(451) (253),,(93) (13,894) (9,182) (3,894) (3,008) 6. EXTRAORDINARY ITEMS Impact of changed accounting practice,00 2,509,00,00 Group contribution received,00,00 1,430 1,430 Other extraordinary items,00,(524),0(6),00,00 1,985 1,424 1, APPROPRIATIONS Change in accelerated depreciation Buildings,071,044 Machinery and equipment,195,349,266,393 29

30 Notes to the Financial Statements continued Group Parent Company (1000 EUR) (1000 EUR) (1000 EUR) (1000 EUR) 8. INCOME TAXES Income taxes for the financial year,(480) (3,647),00,00 Change in deferred taxes,295 (281),,00,00 Taxes from previous financial years,(541),013,(788),013,(726) (3,915),(788),013 Change in deferred taxes arises from: Appropriations 2,009 (2,031) Consolidation measures (1,714) 1,750,295 (281), 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 1,375 3,089 Deferred tax liabilities arising from appropriations,356 2, NON-CURRENT ASSETS Intangible rights Acquisition cost, beginning of period 1,078,803, 124,124 Increase,893,169,00,00 Decrease,(11),(14),00,00 Translation adjustments,(105),120,00,00 1,855 1,078, 124,124 Accumulated depreciation,(517) (355),, (93),(78) Book value, 31 July 1,338,723,031,046 Goodwill Acquisition cost, beginning of period 4,955 3,564 Increase,174,829 Translation adjustments,125,562 5,254 4,955 Accumulated depreciation (1,688) (1,281) Book value, 31 July 3,566 3,674 30

31 Notes to the Financial Statements continued Group Parent Company (1000 EUR) (1000 EUR) (1000 EUR) (1000 EUR) 9. NON-CURRENT ASSETS continued Group Goodwill Acquisition cost, beginning of period 74,528 70,558 Increase 17,890,384 Translation adjustments 1,270 3,586 93,688 74,528 Accumulated depreciation (37,648) (34,423) Book value, 31 July 56,040 40,105 Other capitalized expenditure Acquisition cost, beginning of period 4,566 4,978 7,167 7,165 Increase,117,033,117,002 Decrease,00 (1,108),00,00 Translation adjustments,273,663,00,00 4,956 4,566 7,284 7,167 Accumulated depreciation (4,303) (3,848) (3,424) (2,984) Book value, 31 July,653,718 3,860 4,183 Land and water Acquisition cost, beginning of period 1,981 1,794,220,220 Increase,00,00,00,00 Translation adjustments,230,187,00,00 Book value, 31 July 2,211 1,981,220,220 Buildings Acquisition cost, beginning of period 10,155 9,144 3,446 3,371 Increase 3,617 1,108,241,075 Decrease,(153),00,00,00 Translation adjustments,(596),(97),00,00 13,023 10,155 3,687 3,446 Accumulated depreciation (4,147) (3,606) (2,188) (2,014) Book value, 31 July 8,876 6,549 1,499 1,432 Machinery and equipment Acquisition cost, beginning of period 19,721 17,758 9,112 8,385 Increase 9,701 2,763 1,101,727 Decrease (1,953),(342),00,00 Translation adjustments (304),,(458),00,00 27,165 19,721 10,213 9,112 Accumulated depreciation (16,235) (13,832) (7,400) (6,786) Book value, 31 July 10,930 5,889 2,813 2,326 Other tangible assets Acquisition cost, beginning of period,894,132,046,046 Increase 2,372,762,00,00 Book value, 31 July 3,266,894,046,046 31

32 Notes to the Financial Statements continued Group Parent Company (1000 EUR) (1000 EUR) (1000 EUR) (1000 EUR) 9. NON-CURRENT ASSETS continued Advance payments and construction in progress Acquisition cost, beginning of period,864,164,801,164 Increase,00,700,00,637 Decrease,(539),00,(641),00 Book value, 31 July,325,864,160,801 Shares in subsidiaries Acquisition cost, beginning of period 21,382 19,869 Increase 30,820 1,513 Decrease, (58),00 Book value, 31 July 52,144 21,382 Receivables from group undertakings Book value, beginning of period 1,769 1,713 Increase,(150),056 Book value, 31 July 1,619 1,769 Other shares Acquisition cost, beginning of period,220,057,052,052 Increase,00,163,005,00 Decreases,(95),00,00,00 Book value, 31 July,125,220,057,052 Other receivables Book value, beginning of period,025,042 Translation adjustments,025,(17) Book value, 31 July,050, INVENTORIES Raw materials and consumables 5,563 3,483 1,708 1,450 Work in progress 4,348 2,855 2,215 2,106 Finished products/goods 50,362 36,831,660,449 60,273 43,169 4,583 4,005 32

33 Notes to the Financial Statements continued Group Parent Company (1000 EUR) (1000 EUR) (1000 EUR) (1000 EUR) 11. RECEIVABLES Short-term receivables Trade receivables 35,685 25,440,200,285 Loan receivables,827 1,368,561,393 Other receivables 3,658 1,605,037,028 Prepaid expenses and accrued income 15,385 14,824 2,267 2,154 Receivables from group companies Trade receivables,00,00 9,119 5,210 Loan receivables,00,00 45,864 41,234 Prepaid expenses and accrued income,00,00 18,152 10,354 55,555 43,237 76,200 59, SHAREHOLDERS EQUITY Share capital, beginning of period 2,835 2,649 2,835 2,649 Transfer from reserve fund,00,186,,00,186 New shares issued,544,,00,544,,00 Share capital, 31 July 3,379 2,835 3,379 2,835 Reserve fund, beginning of period,00,109,00,109 Transfer to share capital,00,(109),00,(109) Premium on new shares issued 11,183,,00 11,183,,00 Reserve fund, 31 July 11,183,00 11,183,00 Retained earnings, beginning of period 19,829 9,706 16,039 14,771 Translation difference (1,204) 1,527,00,00 Transfer to share capital,00,(77),00,(77) Dividends distributed,(724),(530),(724) (530), Net income for the period 5,405 9,203 1,105 1,875 Retained earnings, 31 July 23,306 19,829 16,420 16,039 Share of accelerated depreciation allocated to shareholders equity,587 1,063 Parent company share capital by share type No. EUR No. EUR 1 vote per share 37,543,458 3,378,911 31,498,150 2,834,834 33

34 Notes to the Financial Statements continued Group Parent Company (1000 EUR) (1000 EUR) (1000 EUR) (1000 EUR) 13. APPROPRIATIONS Accelerated depreciation,096, LONG-TERM LIABILITIES Loans from credit institutions 66,021 73,442 32,271 38,024 Other loans 6,967,00 6,899,00 72,988 73,442 39,170 38, SHORT-TERM LIABILITIES Loans from credit institutions 79,710 46,113 68,839 39,257 Advances received,043,034,161,017 Trade payables 8,125 6,123,550,497 Accrued liabilities and deferred income 5,148 6,896 8,425 1,823 Other current liabilities 15,854 6,255,00,00 Liabilities to group companies Trade payables,00,00,764,253 Accrued liabilities and deferred income,00,00,013, ,880 65,421 78,752 41,901 34

35 Notes to the Financial Statements continued Group Parent Company (1000 EUR) (1000 EUR) (1000 EUR) (1000 EUR) 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 1,718 1,280,196,00 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,023,024,00,00 Mortgages on moveable assets 12,106 12,222 5,895 5,895 Mortgages on real estate 6,786 6,786 6,030 6,030 Guarantees,859,102,766,00 Leasing commitments 1,580 1,596,024,00 Guarantees on behalf of third parties Pledged deposits,032,032,032,032 Guarantees,212,212,035,035 Total guarantees Pledged shares, book value,00,00,045,045 Pledged deposits,055,056,032,032 Mortgages on moveable assets 12,106 12,222 5,895 5,895 Mortgages on real estate 6,786 6,786 6,030 6,030 Guarantees 1,071,314,801,035 Leasing commitments 1,580 1,596,024,00 21,598 20,974 12,827 12,037 Contingent Liabilities Open positions under forward currency contracts: Principal amount 19,854 8,380 19,854 8,380 Inherent loss,(119) (1,245),(119) (1,245) The company from time to time enters into forward currency contracts to partially hedge US dollar denominated revenues received in Europe. 35

36 Notes to the Financial Statements continued 18. SHARES AND HOLDINGS IN OTHER COMPANIES Group Parent company Profit/loss in Group Group equity Book most recent Acc. holding voting interest Holding Holding Nominal value fiscal year Closing period Subsidiary companies Country % % 1000 EUR % number value Currency 1000 EUR 1000 EUR Date months Rapire Teo Ireland , , ,327 FIM,045 11,140 NC Holdings I, Inc. USA (32,490) 100, ,562 USD 9,177 (3,081) Normark Corporation USA ,175,744 Normark Innovations, Inc. USA (882), (613), Ensambles Deportivos S.A. Mexico 81 81,017,007 Normark Inc. Canada ,892,995 Normark Sport Ltd. UK (1,697),(151) Normark Scandinavia Ab Sweden , ,000 2,000,000 SEK 4,449,161 Normark Trading Ab Sweden ,014,001 Normark A/S Norway ,00,00 Normark Denmark A/S Denmark 67 67, 811,(99) Rapala B.V. Holland , ,043 43,000 NLG 1,674,034 Normark B.V. Holland , (43),(19) Normark Tracker Marine B.V. Holland , (95),(13) Rapala Holding France SA France , ,000 65,000,000 FRF,771,(32) Normark Ragot SA France ,575,123 S.I.P.P. SARL France ,(66),(15) Normark Corporation SA Spain , ,000 62,000,000 ESP,883,060 Normark Sport Finland Oy Finland , ,000 1,000,000 FIM,163,021 Normark Suomi Oy Finland , 718,,,060 KL Teho Oy Finland , ,600 10,060,000 FIM 2,620,031 Rapala Eesti As Estonia , ,100 1,055,000 EEK,279,(110) Normark Eesti Oü Estonia , 023,,,,021 Elbe Normark A/S Norway 91 91,864 91, ,000 NOK 1,433,217 Rapala Japan KK Ltd. Japan ,00(2) 100,200 10,000,000 JPY,079,015 VMC Pêche SA France , ,549 5,855,000 FRF 5,222,284 Waterqueen France France , 210,384 WMC Waterqueen Angelzubehör Germany ,00,00 VMC Waterqueen Poland Poland ,309,072 Aquaco France France ,00,0(2) Cannelle Pêche France France ,037,041 Elite International France France ,0(4),073 V.M.C. Russia Russia ,005,049 V.M.C. Do Brasil Brasil ,0(67),015 V.M.C. Waterqueen UK UK , (72),00 V.M.C. Waterqueen Ukrainia Ukrainia ,069,011 V.M.C. Inc USA USA ,887,126 Willtech Industrial Ltd. Hong Kong ,446 99, HKD 25,349 (122), Willtech (PRC) Ltd. China (244) (244)000,, Total 52,144 10,184 Associated companies Kiinteistö Oy Bringhaga Finland 24 24,057 24,029,013 31/12/ Other shares held by parent company Resenär Oy Finland , FIM,022 Other shares Finland,,020,006 Total,028 Other shares total 52,201 36

37 Board of Directors Proposal to the Annual General Meeting The Group s distributable equity according to the consolidated balance sheet is EUR million. The parent company s distributable equity is EUR million. The Board of Directors proposes that a dividend of EUR 0.02 be paid on each of the 37,543,458 shares for a total of EUR 750,869 and that the remaining EUR 354,405 be retained and carried forward. Vääksy, 20 September 2001 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 Auditors Report To the shareholders of Rapala VMC Corporation We have audited the accounting, the financial statements, the consolidated financial statements and the corporate governance of Rapala VMC Corporation for the period 1 August July 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 corporate governance. 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 corporate governance is to examine that the members of the Board of Directors and the Managing Director have legally complied with the rules of the 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. 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 distributable equity is in compliance with the Companies Act. Vääksy, 22 October 2001 Tilintarkastajien Oy - Ernst & Young Authorized Public Accounting Firm Pekka Luoma Authorized Public Accountant 37

38 Rapala VMC Group Key financial ratios * Net sales 1000 EUR 152, ,931 99, ,154 95,193 Operating profit before depreciation 1000 EUR 27,086 25,662 21,905 25,333 22,664 as a percentage of net sales % Operating profit 1000 EUR 19,893 20,027 17,050 20,625 19,564 as a percentage of net sales % Income before extraordinary items and taxes 1000 EUR 5,999 10,845 9,044 15,051 12,388 as a percentage of net sales % Income before taxes and minority interests 1000 EUR 5,999 12,830 8,347 15,174 12,361 as a percentage of net sales % Net income 1000 EUR 5,405 9,203 6,810 11,377 8,905 as a percentage of net sales % Gross investments in fixed assets 1000 EUR 4,026 3,581 2,845 1,564 1,381 as a percentage of net sales % Research and development expenditure 1000 EUR 2,526 1, as a percentage of net sales % Personnel, year average 1, Shareholders equity 1000 EUR 37,868 22,664 12,464 17,586 21,269 Balance sheet 1000 EUR 220, , , , ,727 Return on equity % Return on investment % Equity ratio % Key share ratios Earnings per share EUR Dividend per share EUR 0.02** Dividend earnings % 12.5** Effective dividend yield % 0.47** Price / earnings ratio Equity per share EUR Share Price Trading 31 July EUR Trading low EUR Trading high EUR Average share price EUR Shares Traded Number of shares traded 4,136,865 5,099,225 3,089,241 Number of shares traded % of all shares % Share capital 1000 EUR 3,379 2,835 2, Year end market capitalization 1000 EUR 161, , ,381 Dividend 1000 EUR 751** ,932 16,230 Number of shares 37,543,458 31,498,150 31,498,150 3,149,815 3,149,815 * In order to facilitate comparability of the financial statements over the two year period presented, the consolidated financial statements present the combined financial position and results of operations on a pro forma basis as at the end of and for those periods during which the Rapala Group did not have legal ownership of NC Holdings I Inc. ** proposed 38

39 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 Proposed dividend per share Earnings per share Shareholders equity in balance sheet (excluding minority interest) Number of shares 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

40 Corporate Governance The operation of Rapala VMC Group s Board of Directors and the Company s administrative practices are largely in compliance with the corporate governance guidelines 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 seven members: the Group s President, the President of VMC Pêche and five expert members not primarily employed by the Group. Board members are elected by the Annual General Meeting, which generally takes place in December. According to the Articles of Association the Annual General Meeting shall convene annually before the end of December. 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 15 times. Board meetings usually take place at the Group s 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 14 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. 40

41 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 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, Tilintarkastajien Oy - Ernst & Young, 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 Chairman of Skanska Oy Shareholding: 6,000 Jorma Kasslin (Managing Director, Group President and Chief Executive Officer M.Sc. (Eng.) Year of birth: 1953 Shareholding: 6,000 Jan-Henrik Schauman M. Sc. (Econ.) MBA Year of birth: 1945 Shareholding: 1,400 Emmanuel Viellard B.A. CPA Year of birth: 1963 Vice Chairman and Executive Vice President of GFI Industries Shareholding: 0 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 Partner DB Capital Partners Shareholding: 0 Christophe Viellard Diploma ESCP Year of birth: 1942 President VMC Pêche SA Shareholding: 0 41

42 Shares and Shareholders Shares and Voting Rights Rapala VMC Oyj s minimum share capital is EUR million and its maximum authorized share capital is EUR million, within which limits the share capital may be increased or decreased without amending the Articles of Association. On July 31, 2000 the share capital fully paid and reported in the Trade Register was EUR million. The book value of a share is EUR 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 The Board has following authorizations to issue shares: Share Option Program of 1998 Share Option Program of June, 2000 the Board was authorized to decide on an increase of the share capital by a maximum of EUR 540,000. A maximum of 6,000,000 new shares may be offered for subscription. 4 December, 2000 the Board was authorized to decide on an increase of the share capital by a maximum of EUR 531,000. A maximum of 5,900,000 new shares may be offered for subscription. Pursuant to the authorizations the Board has increased the share capital as follows: 14 November, 2000 EUR 423, by issuing 4,706,620 shares. 28 June, 2001 EUR 120, by issuing 1,338,688 shares. Option Schemes for Management In 1998 a Share Option Program for senior and middle management was put in place. In all 59 managers received options, exercisable on or after October In 2000 a Share Option Program for senior and middle management was put in place. In all 80 managers received options, exercisable on or after October The program represents a 7.6% 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 2001 closing price on July 31 was EUR The highest price in 2000/01 was EUR 5.80, the average price was EUR 4.72, and the lowest price was EUR The share price fell 25 % in the twelve months period ended July 31, The All-share HEX index fell % during the same period. 4,136,865 Rapala VMC shares were traded on HEX Helsinki Exchanges during 2000/01. This represents % of all shares. At the end of the year the market capitalization of the outstanding shares was EUR million. Earnings per share was EUR 0.16 (2000: EUR 0.25). Share Ownership At the end of 2000/01 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 43. Dividend The Board of Directors proposes to the AGM that a dividend of EUR 0.02 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 2000/01 is on page

43 Shares and Shareholders continued 10 biggest shareholders according to the share register at 31 July 2001 Amount of shares Percentage Percentage 10 biggest shareholders (x1000) of shares % of votes % Rapala Normark N.V. 13, Viellard Migeon & Cie 5, LEL Työeläkekassa Keskinäinen vakuutusyhtiö Eläke-Fennia Hakapaino Oy Enskilda Securities Ab Helsingforsfilial Sijoitusrahasto Gyllenberg small firm Herlin Antti Esiintyvien taiteilijoiden E-Kassa Hämmäinen Heikki Hallintarekisteröidyt 17, Other , 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 July 2001 Number of Number of Shares shareholders % shares % , , , , ,001-10, , ,001-1,000, , ,000, ,857, Total ,543, Amount of shares owned by the members of the Board of Directors or CEO at 31 July 2001 Amount of shares 13,400 % of shares 0.04 % of votes

44 Information for Shareholders In 2001/2002 the interim reports will be published as follows: Interim report for the period 1 August October 2001, on 5 December Interim report for the period 1 August January 2002, on 6 March Interim report for the period 1 August April 2002, on 5 June 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.loippo@rapala.fi. 44

45 Key Events During the Financial Year 15 November 2000 The combination with VMC, the leading treble hook manufacturer in the world, is completed. Rapala issues 4,706,620 shares, representing 13% of the enlarged share capital of the Group, in exchange for 99.99% of the shares of VMC Pêche S.A. 21 December 2000 Rapala Normark Corporation changes its name to Rapala VMC Corporation. December 2000 The first shipments of Rapala branded line and fishing accessories are made in the US. The culmination of almost one year of design and development work, this represents the first significant extension of the Rapala brand into other fishing tackle categories since the introduction of the Fish n Fillet knives in January 2001 The following management appointments are announced: Mr Steve Greer, previously Group Chief Financial Officer and US Chief Operating Officer, is appointed Group Deputy Managing Director and Chief Financial Officer. Mr Bruce Brown, previously Vice President of Product Development in the US, is appointed President of the Group s US subsidiary, Normark Corporation. Mr Juhani Pehkonen, previously Director of Manufacturing, is appointed Director of Lure Division. Mr Aku Valta, formerly the Group s Asian area sales manager, is appointed export sales manager for Storm lures. The Group also establishes a dedicated Accessory Division. Mr Lars Ollberg, formerly the Group s export sales manager for Storm lures, is appointed Director of Sales and Marketing - Accessory Division, with responsibility for worldwide sales excluding North America. 28 May 2001 At the annual US sales meeting the Group announces the expansion of its product range for the 2002 fishing tackle season. These include innovative extensions to the Rapala, Storm and Blue Fox range of lures, additions to the fishing line and accessory categories which the Group entered in the prior year and, for the first time, a range of premium quality fishing rods. 29 June 2001 The Group acquires Willtech Industries Limited ( Willtech ), a Hong Kong and China based manufacturer of fishing lures and giftware. The initial consideration is 1,338,688 shares and $5 million cash, together valued at $10 million, with a further $5-11 million to be paid depending on future performance. 11 July 2001 At the annual ICAST fishing tackle trade show the Group reveals a new range of Storm branded soft plastic lures (to be manufactured by Willtech) and Rapala VMC co-branded retail hooks. Rapala wins Best of Show awards for the rods and for fishing line packaging. 45

46 Rapala VMC Oyj Tehtaantie 2 Box Vääksy FINLAND Tel: Fax: Rapala Normark 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 Endelaverej Randers DENMARK Tel: Fax: Group Companies Rapala B.V. Normark B.V. MeesPierson Trmst Box am Rotterdam NETHERLANDS Tel: Fax: Rapala Japan Ltd Sakusai-Cho Kishiwada-Shi Osaka, JAPAN Tel: Fax: Rapala Holding France S.A. Normark Ragot S.A. S.I.P.P. Sarl B.P. 482 F Loudeac Cedex FRANCE Tel: Fax: Normark Corporation 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 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: Cannelle Pêche S.A. ZA Saint Aubin BP. # Les Ponts de Cé FRANCE Tel: Fax: Elite International 3, Rue Henri Bosselin Feignies FRANCE Tel: Fax : VMC Waterqueen Polska Ul. Dluga Lomianki POLAND Tel: Fax: VMC Waterqueen ZAO Supermarché «Novii Kolisei» 16 Olimpiiskii prospect Moscow RUSSIA Tel./Fax: VMC Pêche do Brasil Ltda. Rua Cassio Martins Vilaça No. 74 Pacaembú Sao Paulo CEP BRASIL Tel./Fax: VMC Inc Oakcreat 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 Buju Kong Tang Woo Tan 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. 46

47 2001 Rapala Skitter Walk Skitter Pop Skitter Prop Topwater Topwater Topwater Original Floater Runs Topwater - 7 feet Jointed Runs Topwater - 9 feet Long Cast Minnow Shallow Shad Rap CountDown Runs 1-5 feet Runs 2-10 feet Runs 2-13 feet Shad Rap Runs 2-14 feet Magnum Floater Runs 3-11 feet Tail Dancer Fat Rap Husky Jerk Runs 3-12 feet Runs 3-18 feet Runs 4-8 feet Shad Rap RS Runs 4-10 feet Super Shad Rap Jointed Shad Rap Runs 5-9 feet Runs 6-8 feet Rattlin Rapala Variable depths CountDown Magnum Down Deep Husky Jerk Down Deep Rattlin Fat Rap Runs 9-25 feet Runs feet Runs feet Balanced Jigging Variable depths How to Choose the Right Rapala to Catch More Fish. Each Rapala lure has been designed as a tool for a specific fishing application. How you use each Rapala lure will vary depending upon fishing conditions. Some days fish feed on the surface and a topwater lure is the key to success. Other days, they re suspending or feeding on the bottom and a sinking or deep diving lure will be the right strategy. Therefore, as conditions vary, your strategy must vary in an effort to locate fish. No matter where they are, top-to-bottom, use this graph to choose the right Rapala and catch more fish. Many factors like line weight & trolling/retrieve speed effect lure swimming depth. Depths indicated are the range of depths that a lure family swims under optimum conditions. See packaged lures for specific size depth ranges. 47

48 rapala.com 2001 Rapala VMC Corporation Printed in Finland by Markprint, 2001