GREAT SATURDAYS DON T START WITH CARTOONS. We fish. Therefore we make the world s best fishing gear. One thing s for sure.

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1 Rapala VMC Corporation Annual Report 2002

2 Picture yourself miles from the nearest electrical outlet. Darkness is just giving way to light. As you power down the motor, the snapping of windbreakers falls silent. Cold morning air gives way to a warm rush of anticipation. And through a saucer-sized opening in his tightly drawn sweatshirt hood, a pair of six-year-old eyes peers out hopefully. This is it. Graduation day. His first real, honestto-goodness fishing trip. Primed with a full tank of optimism and strong black coffee, you maneuver the boat into position. This is the spot. Soon the only sound comes from the trip of bails and the splash of lures. With each retrieve he gains a little more confidence. A little more control of his surface lure. The cadence starts to click. Tick. Tick. Tick... Kablooey. The glassy surface of the lake explodes like it s been hit with a cannonball. Sweet chaos ensues. Then almost as quickly as it began, the fight is over. And with every remaining ounce of strength, he s cradling in his arms his first big fish. The smile is real. The animation genuine. continents. (Who s got time to get down to Antarctica?) And of course, personal records. So then why is it that more fishermen are more successful using Rapala? We fish. Therefore we make the world s best fishing gear. One thing s for sure. No one has helped catch more big fish than Rapala because no one is more in tune with what catches big fish than Rapala. We have always been fishermen first. From the very beginning. Lauri Rapala didn t carve that first lure with the hopes of capturing global market share. He did it to feed his family. (And maybe to quit his day job, we imagine.) Sixty years later, our philosophy hasn t wavered. If it doesn t help catch fish, it doesn t make the cut. Sure we could slap a Rapala logo across any old thing attached to a pair of treble hooks and still sell a boatload. But instead, ours is a legacy of products that work. Consistently. Crafted from the experience that only countless hours on the water can bring to bear. Nothing rushed to market or stamped out with cookie-cutter GREAT SATURDAYS DON T START WITH CARTOONS. The dawn of another beautiful day. Nothing compares to the feeling of catching a big fish. It s a moment that sticks with you for a lifetime. The question is, how do successful fishermen go from catching a big fish to catching big fish consistently? Well, if you asked a thousand of these buoyant anglers for their secret, chances are you d get a thousand different answers. But after wading through countless theories on retrieval techniques, structure tactics, pre-dawn bite, post-dawn bite, changing weather patterns, not changing lucky undergarment patterns, one constant would surely emerge: Rapala. Because when it comes to big fish, no other lures have landed more records. State records. Provincial records. National records. World records on six indifference. And so for more than six decades this pattern of unforgettable fishing trip after unforgettable fishing trip has created more than memories. It has created an unparalleled trust between fishermen and the Rapala name. The subtle wobble that started a revolution. Through the years, nothing has proven harder for trophy fish to resist than the legendary wounded-minnow twitch, wiggle and wobble of a Rapala. It is an action as distinctive as it is lethal. (Try as they might, no other company has been able to duplicate the unique Rapala action.) And because Rapala lures are still hand-tuned and tank-tested, they swim true to form right out of the box. And run true to the precise

3 depth that they re designed to run. All of which helps take the guesswork out of fishing. From top to bottom, Rapala lures work as a carefully tuned system. A system that can unlock nature s code and trigger the strike on any given day. Under any conditions. But like any good fisherman, we always keep one eye on tomorrow morning. An evolution of the species. Call it commitment. Call it sickness. Whatever you call the thing that we have been either blessed or cursed with, it won t let us rest on successes like the Shad Rap, the Magnum, or the Original Floater (still the number one go-to lure in the world). Instead it pushes us to find more and better ways to help fishermen catch more and bigger fish in both fresh and saltwater. So once again we are introducing new lures that anglers won t be able to live without. Like our DT Series. All we can say is you might want to start clearing some mantle space, because fishing pro David Fritts already won back-to-back tournaments with the prototype. Look for more big things again this year with our lineup of premium quality graphite rods. Teamed with Rapala Long Cast, Tough, or Finesse fishing line, it s the kind of thing that s sure to keep fish awake nights. We now offer a complete line of hooks and terminal tackle. New tools and accessories like digital scales are loaded with the kind of features that make sense out on the water. And of course there are the tried and true fillet knives that taught the world how to clean fish. All told, no other brand covers the water like Rapala. The lure of the water has never been so powerful. At last count, there is exactly one thing that can make a grown man bound out of bed before his alarm. Because nothing else compares to the thrill of catching a big fish. And that s why more fishermen reach for one name over and over again. Rapala. Throughout 142 countries. To the tune of millions of lures each year. And so it goes. Day after day. Year in, year out. If there s a better way to start the weekend, we sure haven t found it. Contents Group Overview Key Financial Statistics Review by President and CEO Brand Portfolio New Product Overview Marketing Overview Report of the Board of Directors Consolidated Income Statement Consolidated Balance Sheet Consolidated Statement of Cashflow Parent Company Income Statement Parent Company Balance Sheet Parent Company Statement of Cashflow Accounting Principles Notes to the Financial Statements Board of Directors Proposal to the Annual General Meeting Auditors Report Rapala VMC Group Calculation of Key Figures Corporate Governance Board of Directors Shares and Shareholders Information for Shareholders Key Events During the Financial Year Group Companies

4 Group Overview The repositioning of the Group that has taken place through acquisition and organically over the last four years is now substantially complete. New product categories were successfully entered in 2002 and the first benefits of the growth strategy manifested themselves in the Group s improved financial performance. With the infrastructure and the organization in place the Group is positioned for consistent future sales and profit growth. DISTRIBUTION GROUP BRANDS SUPPLY US CANADA JAPAN BRAZIL FINLAND RAPALA LURES STORM HARDBAITS BLUE FOX LURES RAPALA FINLAND IRELAND ESTONIA SUBSIDIARIES PARTNERS SHIMANO IMPORTERS SWEDEN DENMARK NORWAY SPAIN FRANCE GROUP COMPANIES STORM SOFT LURES BLUE FOX LURES OTHER LURES WILLTECH HONG KONG CHINA ESTONIA POLAND RUSSIA UKRAINE MANUFACTURING/R&D HOOKS TERMINAL VMC FRANCE WILLTECH CHINA GROUP BRANDED PRODUCT PORTUGAL ITALY SWITZERLAND GERMANY UK NETHERLANDS NON-GROUP COMPANIES KNIVES LINE ACCESSORIES RODS (NO. AMERICA) FINLAND US CHINA SOURCING/R&D REST OF EUROPE REST OF WORLD OTHER FISHING HUNTING OUTDOOR THIRD PARTY PRODUCT Four primary cornerstones now form the foundation of the Rapala VMC Group - leading edge, low cost lure manufacturing in Europe and China, state of the art hook manufacturing in France and China and an in-house design, development and sourcing team. Strong group brands of international renown enable the introduction of new product in all market segments. An unparalleled worldwide distribution network ensures brand presence in all markets. Manufacturing, Sourcing and Distribution Through its four major factories in Europe and the Far East the Group enjoys the benefits of world-class research and development and manufacturing facilities, employing approximately 2,800 staff. Vääksy, Finland Pärnu, Estonia Morvillars, France Shenzhen, China Group manufacturing is limited to lures, hooks and terminal tackle. Other group branded products are sourced from a variety of dedicated and shared resources worldwide, exclusively manufactured for the Group. A dedicated inhouse product development and sourcing team works closely with third party suppliers to ensure product design, engineering and quality is commensurate with the reputation of the Group. Manufacturing/Sourcing Exclusive Distribution Partners Group Distribution Companies Shimano Distribution Companies NEW RAPALA DT (DIVES-TO) SERIES Designed by crankbait authority and Rapala Pro Angler David Fritts. The DT Series is one of the most technical lures ever built, a balsa crankbait with an internal rattle that s precision made to dive quicker to depth than other baits, and swim at that depth the duration of the retrieve. The DT Series, which debuts with 10-and 16-foot models, leads the 2003 Rapala new product introductions. 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 Key Financial Statistics NET SALES AND EBITDA Net sales and EBITDA have increased at an average annual rate of 19.8% and 13.5% respectively since EBITDA margin temporarily declined in 2001 as the Group invested in developing new product categories and aggressively liquidated excess inventories. EBITDA margins began to improve in 2002 as the early returns from the brand extension program began to be reflected in the results. For 2003 onwards management expects that EBITDA margins will revert to above 20%. COMPONENTS OF CASH FLOW The key feature of cashflow over the period is the turnaround in working capital during 2002, when levels were reduced following three years of expansion. A further reduction is planned by management during Despite higher average borrowing levels, interest costs have also decreased, particularly in 2002 as the effect of interest rate cuts began to be substantially reflected in the results and cashflows. Capital expenditure has consistently been around 3% of net sales throughout the period. NET DEBT AND EQUITY Net debt levels increased by 38% between 1999 and 2001 as the Group invested for future growth through both acquisition and organically. A weaker Euro against the US dollar also contributed to the increase in net debt levels. From a high of more than 7:1 in 1999, the net debt to equity ratio has improved to close to 2:1 at 2002 and management is targeting a ratio of around 1:1 by July EQUITY AND CAPITAL MEASURES As with EBITDA levels, 2001 marked a temporary decline in return on capital employed and earnings per share. In that year return on capital employed was impacted by the lower EBITDA margin, higher levels of working capital and the impact of the stronger US dollar on the Group s net debt. Earnings per share for 2001 was further impacted by higher interest costs and an increase in the number of shares in issue following the VMC and Willtech acquisitions. In 2002 all measures showed a strong increase as EBITDA margins improved, strong cashflow reduced working capital and lowered debt levels and interest costs declined. 5

6 Review by President and CEO Following two years of repositioning the Group both operationally and in its core marketplace, the 2002 year marked the first (though by no means full) manifestation of the benefits of our growth strategy as we took meaningful share of new product categories, continued to grow sales, increased profit margins after a temporary decline in 2001, and generated strongly positive cashflow following a three year period of cash consumption. It is pleasing to be able to reflect on the achievement, in large part, of substantially all of our financial targets for the 2002 year. During the course of the year, we announced a revised sales growth target of 15% and ultimately we achieved 13% in continued difficult conditions. We targeted an operating profit before depreciation (EBITDA) margin close to 20% and an operating profit margin of around 15%. We achieved 18.6% and 13.3%, compared to 17.8% and 13.0% respectively in the previous year. These measures are therefore moving in the right direction though not quite as quickly as we had anticipated. Better market conditions for our core US branded business would have seen us meet our sales growth and both of our operating profit goals. We anticipated profit for the period and earnings per share in excess of double that of the prior year and comfortably exceeded both of these goals. Perhaps our most significant target was for cashflow before acquisition payments, of i25 million. We achieved i28.2 million of net cashflow before, and i26.0 million after, acquisition payments. Our net debt was reduced a further i7.1 million by the benefit of exchange rate movements, giving an overall reduction of i33.1 million for the year. The combination of higher profits and strong cashflow led us to target an improvement in the net debt to equity ratio from 3.4:1 to close to 2.0:1. We achieved this with the ratio being 2.06:1 at the year end. Market conditions varied quite markedly between the two main geographical regions in which we operate. In Western Europe what might be termed a genuine winter season gave way to an early and warm spring. The spring season is obviously key to our main product range but the importance of a good winter season cannot be overlooked. Quite apart from the fact that in the Nordic countries we have a sizeable winter business (particularly in hunting distribution), it is important for us that our dealers enjoy a strong winter season leaving them wellpositioned to finance spring fishing inventories as early as possible. In North America, the market was generally flat with a widespread and sustained caution on the part of both retailers and distributors to tie up capital in inventory in an uncertain retail market. This led to depressed sales for many manufacturers in all but the newest must have product categories. Additionally, the US in general experienced unusually prolonged poor weather throughout the spring which impacted not just our sales but also the broader fishing tackle and outdoor markets. Weather is not normally a significant factor in our business in this market, given its diversity, but in the rare occurrence of such widespread and prolonged poor conditions as were 6

7 Review by President and CEO continued experienced this year a certain negative effect is inevitable. Finally, the longer than anticipated availability of discounted product from our 2001 inventory reduction campaign, had a bigger than expected impact on sales of regular lure product in the 2002 fiscal year, although we can confirm that substantially all of this product has sold through the retail channels as at the year end. Against this backdrop of a cautious marketplace, it was particularly gratifying to enjoy success in the continued broadening of our branded product range into new categories. We entered two new categories this year fishing rods and soft plastic lures. In addition, we expanded the accessory offering for its second year on the market. Our introductory rod offering was a relatively narrow range of items focused on the freshwater spinning segment of the market under the Rapala brand, offered only in the US and Canada. This established us as a player, albeit small at present, in the rod category and the product acceptance places us well to expand upon this base in the coming years. The Rapala branded range of accessories was first introduced in 2001 with the emphasis primarily on tools used in fishing, such as pliers, clippers, hook removers and such like. In 2002 the range was expanded with the majority of the new products focusing on measuring implements such as manual and digital scales in various configurations. The new products received the same strong retail placement and consumer acceptance that the first introduction continued to enjoy. The major success story of 2002 was the result of our combining the strengths of two of our recent acquisitions. In combining the Storm brand and the Willtech design and manufacturing capability, we were able to launch an innovative range of soft plastic lures which exceeded our expectations in terms of retail and consumer appetite. Although the product was only available for six months of the year, was not in all retail locations due to the late launch and was not always available due to demand exceeding our expectations, we estimate that this product immediately took around 5% of the total soft plastic lure category in the US market. We offered a compelling proposition to the trade and to the consumer innovative, nationally advertised product offering superior distribution and retail margins yet at highly competitive consumer prices offering the best price/value relationship in the category. This gives us an extremely solid base from which to build in the future and we have high expectations for this product range in a market which approaches the size of our traditional hardbait category. In our European Distribution business we enjoyed the happy convergence of strong sales, improved profitability and reduced working capital. We have worked hard in the past four years to strengthen our market position in certain countries and to pare down the less profitable third party products, positioning ourselves for more profitable operations. The results of this work manifested themselves strongly in 2002 but we continue to set aggressive targets for local management to further improve the returns from this business. The major changes in our manufacturing structure took place in the with the transfer of Storm manufacturing in the US and Mexico to our factories in Europe, and the addition of VMC and Willtech to the Group. In 2002 we further consolidated our manufacturing base with the closure of three smaller facilities. The activities of a small facility in France manufacturing for the domestic market were relocated to Willtech, a small hook and leader manufacturing facility, also in France, was consolidated into the main VMC facility, and the activities of a secondary packaging location in the US were relocated to Mexico and to Willtech. It is difficult to overstate the beneficial impact of Willtech on our Group and in the implementation of our strategy. At a time when the larger companies in the industry that are struggling are those that have been slow, or have failed, to react to the need to find low cost yet quality manufacturing sources, we have a captive fully operational 7

8 Review by President and CEO continued large scale operation managed by an experienced team. We have always had this for our traditional business with the Rapala European manufacturing system but Willtech has added a new dimension to our capabilities. The launch of our Storm branded soft plastics product range demonstrated the superior design and development capability and the speed of response in bringing a product from concept to market. Within one month from the completion of the acquisition we had a full range of samples, the quality and level of innovation of which enabled us to get retailers to commit placement, often after the deadline for such commitment had passed. Outside of our major product ranges Willtech s flexible manufacturing capability enables us to contemplate smaller production runs, offering tailored product with which to enter new or niche categories or respond to the unique demands of disparate geographical markets. Finally, the existence of a leading edge low cost manufacturing facility has contributed to the efficient consolidation of our smaller manufacturing and sourcing operations. In addition to the manufacturing structure changes referred to earlier, several of our European distribution companies that have for many years sourced miscellaneous lure product from various suppliers in Asia for sales in their local markets under local owned brands have now relocated the manufacture of such products to Willtech, capturing additional margin for the Group. The full benefits of the addition of VMC to the Group will take a little longer to come to fruition although we have already started to gain the vertical benefit of having a captive hook manufacturer for most of our lure products. In the longer term we are repositioning the manufacturing base to support a retail, rather than OEM, hook program that will take the VMC technology and the Rapala brand into categories within the worldwide hook market in which VMC has hitherto not been a significant player. At a time of so much expansion and investment for the future it is particularly gratifying to be able to report progress on improving our financial position considerably in excess of the targets that I communicated this time last year. We believe we have turned the corner from a period of consuming capital to one of generating significant cash and reducing the amount of capital we have invested in the business. A year ago we were targeting cash generation, excluding acquisition payments, of i50 million in the three years In 2002 alone we generated i28.2 million and in each of the next two years we expect to generate around i25 million. We believe we have one more year in which we can continue to grow the business while reducing overall working capital levels, after which we must expect working capital changes to track more closely the sales growth of the business. This will see us achieve my target with one year to spare and further improve the company s solidity ratios. It will also open the door to economically financing any further attractive expansion opportunities that may present themselves, although I have to report we are content with the Group composition that we now have and we believe we can extract significant organic growth from this base. As we enter the 2003 year we have completed the major part of the reorganization and investment phase of our strategy and are starting to reap the rewards. Perhaps it is an opportune time to revisit exactly what we are doing and why. The growth strategy that we have been following has three primary objectives: 1) to diversify beyond the Group s traditional core market of hard bodied lures (hardbaits) At the time the Group embarked upon its growth path (following the IPO in December 1998) the lure business (which was predominantly hardbaits) accounted for around 50% of Group sales but a somewhat larger share of Group profits and cashflows. As the Group pushed closer to the limits of what could be achieved in this category 8

9 Review by President and CEO continued with one brand, it increased its dependence on the category while at the same time seeing diminishing prospects for continued growth at the same pace. While the category has existed over many decades and will continue to do so long into the future, it is nevertheless subject to temporary fluctuations in the level of consumer demand and, as a public company, we wished to minimize our exposure to temporary downturns in any one category. We are achieving this through a combination of organic growth and acquisition. 2) to capitalize on the strength of our brands The strength of one of the most valuable assets in the industry, namely the Rapala brand, enables us to at least in part achieve the objective of reducing our dependency on one particular category through organic rather than acquired growth. Rapala is one of the strongest brands in fishing tackle worldwide and in particular in the US market and research has shown consumer appetite for other Rapala branded fishing tackle items. With the Storm acquisition we have added to our stable of brands and widened the potential scope of our brand extension activities. 3) to expand the foundations on which the Group is built The Group s success is rooted in superior manufacturing as much as it is in industry-leading brands. In seeking to diversify beyond our traditional core hardbait business we wished to maintain the best balance between products manufactured by ourselves and products that are manufactured for us by third parties. To the original cornerstone which was Rapala manufacturing, we have added three more cornerstones to strengthen the foundation of the group VMC hook manufacturing, Willtech manufacturing and our US and China based design, development and sourcing team. The result of following this strategy is that today we have a much more rounded Group, operating in larger markets offering more growth potential and with less susceptibility to individual category downturns. We have invested in businesses and brands that we believe offer the potential for maintainable profitable growth over the long term, a strategy that is strengthening our competitive position, motivating our management team and offering superior security and returns to our stakeholders. The 2002 year was the first year in which the Group results and cashflow started to reflect management s efforts of the last few years but the full benefit is yet to come. We intend to continue this strategy into the future, targeting double digit sales growth in our branded business, a return of our EBITDA margins to above 20% and annual cashflow of around i25 million. 18 October 2002 Jorma Kasslin President and Chief Executive Officer 9

10 Brand Portfolio HARD BAITS KNIVES/ACCESSORIES NEW ACCESSORIES FISHING LINE FISHING RODS No. 1 hard-bodied lure worldwide More than 30% market share in the US and more than 50% share in the European market Highest level of brand awareness in fishing lures Widely recognized as a premium/high quality brand 17 product lines, over 1,000 SKUs 4 product lines selling over 1.5 million lures per year Each hard-bodied lure with a swimming lip is individually hand-tuned and tank- tested Consistent track record of successful product launches No. 1 treble hook worldwide Approximately 65% market share Strong retail brand awareness in Europe Major portion of sales is OEM to lure manufacturers Extremely diverse customer base worldwide Origins in the Viellard Migeon family over 200 years ago Established in early 1960 s Second most recognized hard-bodied lure brand in the US Full range of hard-bodied and soft plastic lures at competitive prices Strong roots in the southern US Lures are all of plastic construction Acquired by the Group in January 1999 No. 5 Fishing lure brand in the US Comprehensive brand recognition throughout the US and Europe Strong complement to the Rapala brand, providing for increased retail peg space in the US Product line extension through launch of hard-bodied lures in addition to non-hard-bodied lures (e.g., spinners, spoons, jigs, plastic baits) BRAND DEVELOPMENT PRIOR TO 1999 JAN 99 DEC 00 JAN 01 SEPT 01 JAN 02 JAN 03 Rapala New Product Overview No brand covers the water like Rapala in 2003 Innovative new lures, lure sizes and colors, rods and accessories are added to the Rapala roster to support strong growth plans for The foundation for a successful 2003 season was put in place over the course of the last three years, with the expansion of the product development team in the U.S. and China and subsequently with the combination of VMC and Willtech. Major new product introductions allow the Group to expand from its historically narrow product range of lures, fish filleting knives and limited range of accessories products. In 2003 the Group is well positioned as a broad range fishing tackle company with representation in most categories in the U.S. HOOKS COBRANDED RETAIL HOOKS HARD BAITS SOFT PLASTIC LURES SPINNERS HARD BAITS METAL LURES Brand Strategy In a short period of time the Group has begun to capitalize on the significant equity of its own brands through product launches into other categories. The Group is now active in categories that offer more than six times the market potential previously available in the US Key strategic initiatives of the Group include: Achieve further organic growth in traditional product areas through the continued development of new products and entry into new markets and new channels of distribution. Enter and grow rapidly in other fishing tackle categories under existing Group brand names and with production by quality manufacturing resources (both in-house and external). Make acquisitions where there is a strategic fit with the existing Group that will deliver superior returns on investment. 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. 10

11 Rapala is the only single brand in the U.S. market to cover multiple product categories (lures, line, rods, hooks, terminal tackle, knives and accessories). Rapala fishing rods were launched in the US in 2002 with great success. The new rods have garnered market share and earned the respect of anglers. DT (Dives-To) Series The DT Series lure is the first crankbait designed to hit a specific strike zone and stay there. This lure features precision details that make the DT the best in its class. Offered in two sizes and 12 lifelike designs. Two Tournament Class Series specialty rods have been introduced to the Rapala lineup for 2003, Saltwater In-Shore and Salmon/Steelhead Series. Skitter Walk for Freshwater The lure that has been a tremendous success for saltwater fishing has now entered the freshwater arena. The freshwater Skitter Walk works the top waters for big fish with all the features tournament professionals demand. New Colors, Patterns and Sizes New colors and lifelike patterns add even more options to the most popular Rapala lures in The legendary Shad Rap family offers a new, natural walleye pattern and bluegill pattern, two popular types of forage among predator species. Rapala Fishing Line Continues to Perform Independent tests confirm that Rapala monofilament lines perform as promised. In the June, 2002 issue of ERA, one of Europe s leading fishing magazines, Rapala line was ranked number one. In the USA, Sport Fishing Magazine tested 85 different lines, Rapala Tough came in second and Rapala Finesse, fourth in overall ratings. New Electric Fillet Knife Creates a Buzz After bringing the modern fillet knife to the fishing world years ago, Rapala has created a series of electric fillet knives designed from the ground up to be better than any currently on the market. New Lock n Weigh Lets You Land, Weigh and Release A new accessory that makes handling big species of fish a onehanded operation. The patent-pending cam-lock system uses the fish s weight to lock it into place; then the fish can be easily lifted, weighed and released. 11

12 Blue Fox New Product Overview The Blue Fox brand continues to benefit from the acquisition of Willtech with an expanded assortment of new products. In 2003, Blue Fox offers a mix of innovative, niche products that are best in their respective categories. In fact, most Blue Fox products are designed for specific applications spinners for trout, spoons for salmon, jigs for walleyes and so forth. In these niches, the Blue Fox brand excels. Innovative new spinners and spoons are Smart Like A Fox The Blue Fox brand continues to expand its spinner and spoon offerings for 2003, with new designs, upgrades and state-of-the-art manufacturing techniques from Willtech. All Blue Fox spinners and spoons are equipped with extremely sharp Rapala VMC hooks and finished with unique holographic painted and printed patterns. Expanding the Classic Line of Vibrax Spinners A staple in tackle boxes of anglers for more than a quarter century, the line of Vibrax spinners is more complete than ever before. Deep and shallow versions allow anglers to work the water like a dragnet. New Vibrax DoubleHeader A combination of the Vibrax shallow spinner and popular soft plastic body, this lure provides the best of both worlds by creating an illusion of a feeding minnow. New Strobe Spinners The new Strobe spinner features fluttering-action and chrome-plated blade that makes it run deeper than the famous line of Vibrax spinners. Recently introduced in three sizes and six color choices. Building on the Success of the Original Pixie Spoon Blue Fox is proud to introduce classic Pixie spoon styles with new holographic finishes for a variety of species and fishing techniques. New rattlin Pixie spoons mimic natural underwater sounds. The new long-casting Flash spoons combine the action and flexibility of a jigging swim bait with the high-visibility presentation of a spoon. For traditional anglers, the Strobe Tear Drop Spoons are patterned after classic, must-have spoons for a variety of fishing situations. 12

13 Storm New Product Overview New Soft Plastic Baits Take the Industry by Storm Anglers and fish agree Storm s soft plastics are hot. Since introducing soft plastic lures in the spring of 2002, demand in the market has exceeded expectations. Suspending WildEye Swim Shad The world s first suspending soft plastic lure take the popular Swim Shad Series to a whole new level. The combination of unique product designs and features, ready-to-fish rigging materials and instructions, eyecatching packaging, aggressive marketing, attractive distribution and retail margins and competitive retail pricing have captured meaningful market share in the first season. For 2003, Storm is fueling the fire with more than 300 new SKUs of soft plastics. All Storm soft plastic baits have holographic foil inserts, salt impregnated bodies and premium Rapala VMC black nickel hooks. WildEye Finesse Minnow Designed for finesse fishing techniques. A natural extension and perfect complement to the Storm soft plastic lineup. Leading outdoor publication, Field & Stream, chose Storm WildEye Swim Shads as the Best New Product of WildEye Rattle Shrimp It s unique jointed design imitates a live shrimp. Features an internal rattle, comes prerigged and ready for saltwater. New Storm Hopper Popper A floating grasshopper lookalike with an internal rattle and cupped lip for incredible popping action is irresistible to many species of game fish. New Storm Thunder Dog The saltwater hero of topwater lures, the Thunder Dog is long-casting with two internal rattles for a unique, rhythmic cadence and smooth, translucent body for a distinct flash on the water. The second most recognized hard-bodied lure brand in the US. Storm lures have been positioned to complement the more expensive, premium Rapala line of balsa hardbodied lures. Storm is known as the contempo-rary, irreverent brand of the industry. Bright yellow packaging and displays have become known as the trademark of this dynamic brand. In addition to new sizes and color extensions for the most popular lures, Storm is introducing new hard-bodied lure families for 2003 as well. 13

14 Marketing Overview The tradition of award-winning marketing programs continues. Building on what has been a history of helping our customers catch fish with our products, Rapala has launched the most energetic, farreaching, and pervasive educational program in company history. The campaign encompasses all aspects of our communications efforts. It covers every lure in our lineup, plus our new products, like rods, line, hooks, knives and accessories. The fundamental premise: If we teach our customers how to catch more fish with our products, they will have more fun and success. They will tell their fishing friends. From this comes loyalty and repeat sales. U.S. Industry Outreach Campaign The Recreational Boating and Fishing Foundation (RBFF) has launched a 5-year marketing campaign ( ) with the goal to increase participation among nonanglers. A $40 million investment is being made over the period of the campaign. Benchmark tracking studies indicate positive results and participation from the 140+ million people who have been exposed to the marketing efforts thus far. New Rapala Tackle Box Guide A new retail item for 2003 and comprehensive guide to Rapala running depths. The Tackle Box Guide includes trolling and casting dive curves, lure-tospecies selector and helpful fishing tips and techniques from the Rapala pro staff. Ground-Breaking Video/DVD Top anglers share their secrets on how to catch more freshwater and saltwater game fish with Rapala lures. In a huge initiative, a state-of-the-art, 3-hour, digital video epic will be released to the fishing tackle trade in the spring of The video series covers the water with how to information from all Rapala lure categories, effective angling techniques using Rapala lures and a variety of applications for most major freshwater and saltwater species of game fish. From novice to expert this is required viewing for all anglers. Rapala lures are known to catch big fish. In fact, according to the International Game Fish Association (IGFA) more world record fish have been caught on Rapala lures than any other type of lure. Rapala billboards intercept anglers on migratory routes to their favorite tackle shop or fishing destination. 14

15 Print advertising, like these back covers of recent magazines, teaches anglers how to catch fish with Rapala lures. Special emphasis is given to the core of the Rapala product line. As new lures are introduced, it s important the classic Rapala products do not become overshadowed or obsoleted. The Rapala RapUp keeps the fishing tackle trade up-to-date with the latest developments of the Rapala VMC Group in the U.S. Published bi-monthly, the publication is distributed among the sales force, customers in the trade, journalists and other key stakeholders. The DT Crankbait Leads Rapala 2003 New Product Launches The DT Series will receive unprecedented marketing support in Extensive TV and print advertising, in-store displays and public relations support will create awareness and demand for this new product. A special promotional pack is designed to separate the new DT lures from other products in the retail environment. In addition, the promo pack communicates product features, educates the consumer on how to use the lure and provides a valuable endorsement from the lure s designer, Rapala pro angler David Fritts. 15

16 Report of the Board of Directors General In 2001/02 the Group continued to implement its growth strategy, increasing sales and trading profits by 13% and 18% respectively from the prior year s already record levels in the face of continued cautious market conditions in the key US market. Product launches in new categories were well received by consumers as the Group continued its brand extension program. Profitability levels began what is expected to be a steady increase following a temporary reduction in 2000/01 when investments in new product categories and inventory liquidations depressed the operating profit before depreciation margin to below 20% for the first time. The margin improved to 18.6% and with more favorable market conditions would have returned to the 20% threshold that management has targeted for the ongoing operations. The year was a turnaround year for cashflow as the cash-consuming growth initiatives of the previous three years began to generate returns on the funds invested. Working capital funding in particular experienced an improvement of i23.9 million as an increase of i14.2 million in the prior year was reversed into a i9.7 million reduction in the current year. Net debt levels reduced by 25% from i130.1 million to i97.0 million. The Group has continued its positive momentum with financial results starting to reflect the investments and management effort of the last three years. This positions the Group well for continued growth in sales and profits. Net sales Net sales for the year were i172.0 million compared to i152.5 million in the prior year, an increase of 12.8%. Sales growth derived from organic growth in the principal existing businesses (4.1%) and the full year inclusion of VMC and Willtech (10.2%), partially offset by the impact of foreign exchange rate changes, primarily the US dollar weakening against the Euro (-1.5%). Branded business In the core branded businesses, the most challenging area this year, net sales were level with the prior year at constant exchange rates (3.4% below prior year at actual exchange rates). In the key US market, cumulative net sales were a disappointing 2.0% ahead of the prior year, although currency fluctuations eradicated this increase in Euros. The factors behind this performance are several. Firstly, a widespread and sustained caution on the part of both retailers and distributors to tie up capital in inventory in an uncertain retail market led to depressed sales in all but the newest must have product categories. Secondly, as part of the Group s initiative to reduce the amount of capital tied in inventories it was particularly aggressive during the 2001 calendar year in liquidating excess or slow moving lure inventories at reduced margins. This product remained available at the retail level for longer than was anticipated and therefore had a longer than expected impact on sales of regular lure product in the current fiscal year. Finally, the US in general experienced unusually prolonged poor weather throughout the spring which impacted not just the company s sales but also the broader fishing tackle and outdoor markets. Weather is not normally a significant factor in this business but in the rare occurrence of such widespread and prolonged poor conditions as were experienced this year a certain negative effect is inevitable. 16

17 Report of the Board of Directors continued In terms of product categories, the decline in sales was mainly experienced in lures (as explained above) and fishing line (following the initial filling of the distribution pipeline last year). Product introductions in other categories have been well accepted with sales of i13.4 million in the US compared to i4.3 million for the full year last year. Particularly pleasing was the success of Storm branded soft plastic lures, manufactured by Willtech, which achieved sales of i3.6 million despite late availability and limited first year retail placement due to a later launch date than is normal for new product. Sales in the other principal markets for the branded business (ie outside the US and representing around 20% of the category) ended the year 9% behind the prior year level at constant exchange rates (14% behind at actual exchange rates). Sales in Canada (which represents half of this overall market) have suffered from the same challenges that have beset the US market and did well to anniversary the sales level of the prior year which itself had reflected tremendous growth. Export sales (Rapala, Blue Fox and Storm lures from the factories to non-group companies worldwide) and sales in Japan together ended the year 19% behind the prior year due to changes in the channels of distribution in certain markets. European distribution business Sales in the Group's European distribution businesses increased by 9.6% at constant currency rates (9.1% at actual currency rates). The Nordic region enjoyed a strong winter season and good early spring that provided an 11% increase in sales. France and Spain both enjoyed sales increases of 13% with strong growth in Rapala, Shimano and Storm products. Management s stated intention has been to curtail growth in these generally lower margin businesses but favorable market conditions and stronger local market presence enabled the Group to achieve strong sales growth at improved profit margins while at the same time significantly reducing working capital. Impact of prior year acquisitions VMC contributed sales of i23.1 million in its first full year in the Group (compared to i17.3 million for the eight months for which it was consolidated in the prior year). Net third party sales showed a 4% like for like increase (for the common period of the two years) although overall sales growth (including intercompany sales) of 10% demonstrates the value to VMC of being part of the wider Rapala group. Willtech third party sales were i10.1 million for the year with a further i4.1 million of sales being made to group companies (primarily soft plastic lures under the Storm brand). Profitability Fixed costs increased by 10.1% over corresponding prior year levels at constant exchange rates (8.7% at actual exchange rates). This net increase derives from three main areas the full year impact of prior year acquisitions (VMC and Willtech, together 11.4%), the five incremental months of US and China product development costs (1.9%) and a reduction in like for like fixed costs of 3.2%. The reduction in like for like fixed costs reflects the results of a successful Group-wide drive to contain costs without compromising the operational or market position of any Group company. The Group's operating profit before depreciation for the year was i32.0 million (prior year i27.1 million). The improvement in operating margin to 18.6% (17.8%) reflects cost savings achieved and a lower level of discounted lure sales in the current year. Management s target had been to revert to closer to a 20% margin but the shortfall against expectations in the higher margin Branded Business rendered this impossible before the 2003 year. 17

18 Report of the Board of Directors continued Depreciation and amortization increased to i9.2 million from i7.2 million. The increase is roughly equally attributable to a higher depreciable tangible fixed asset base and to goodwill associated with the Willtech acquisition. Net financing income and expense includes net interest expense of i5.3 million (i9.5 million) due to lower average base interest rates for the whole year on declining US dollar borrowings resulting from the strong cashflow of the Group. Net foreign exchange translation (non-cash) gains were i3.0 million compared to losses of i4.2 million in the prior year reflecting the weakening of the US dollar against the Euro during the current year compared to a movement in the opposite direction in the prior year. Extraordinary charges of i2.3 million (i1.5 million after tax) comprise two items. Closure costs associated with three of the Group s smaller manufacturing facilities were i0.7 million (net). These were a small lure manufacturing facility in France (whose activities have been relocated to Willtech), a small hook and leader manufacturing facility, also in France, which has been consolidated into the main VMC facility, and a secondary packaging location in the US whose activities have been relocated to Mexico and to Willtech. i0.8 million (net) has also been recorded as an adjustment to inaccurately estimated prior year inventory values. This inaccuracy arose due to initial problems following the changeover of accounting and reporting systems in the US, which problems were resolved during the current year. The Group s effective tax rate for the year was 20.0% (12.1%) and remains below the Finnish statutory rate due to the incidence of proportionately less taxable profits in higher rate jurisdictions and the utilization of available tax losses in higher rate jurisdictions, notably the US. Net income increased from i5.4 million to i14.8 million. Earnings per share, which exclude extraordinary items, were i0.43 (prior year i0.16) and equity per share increased to i1.26 (prior year i1.05). Financing Net cashflow from operations improved very significantly to i37.4 million (i9.5 million). The improvement is in large part due to a heavy reduction in working capital levels, with a i23.9 million improvement to an inflow of i9.7 million compared to an outflow of i14.2 million. This was management s first priority for the year and it is pleasing to be able to report such a high level of success. Net cashflow for the year, including cash paid or debt assumed for acquisitions of i2.2 million (i14.0 million), was i26.0 million (i16.1 million net cash outlow) and with the translation effects of a weaker US dollar/euro exchange rate net borrowings decreased by a further i7.1 million. Net debt reduced during the year by 25% to i97.0 million from i130.1 million. This improved the net debt to equity ratio from 3.4:1 to 2.1:1. 18

19 Report of the Board of Directors continued Capital expenditure Gross capital expenditure for the year totaled i5.4 million (i4.0 million) with a significant element of the expenditure due to manufacturing investments, particularly at Willtech in China, to support the continued development of the brand extension and new lure programs. Research and development Total identified research and development expenditure for the year was i3.3 million (i2.5 million) or 1.9 % of net sales, of which i0.4 million reflects amortization of prior years deferred costs. Personnel The Group had an average of 2,879 employees during the period (1,248). The increase principally reflects the full year inclusion of VMC and Willtech. Shares and shareholders On July 31, 2002 the Company had 1,157 (946) registered shareholders. The number of shares in issue is 37,543,458. During the financial year the share price fluctuated between i2.55 and i4.83, and the last quoted price of the year was i3.95. The total volume of shares traded during the year was 9,048,064 shares. The total market value of the issued shares was i148.3 million at July 31, In December 2001 the Company paid dividends of i0.8 million, corresponding to i0.02 per share. The dividend proposed for the current year is i0.05 per share. Future prospects The 2002 year provided demonstrable evidence that both the Rapala and Storm brands are of sufficient stature to support entry into non-traditional product areas not just in the US but throughout most major markets in the world. In the coming year the Group will build on this position and will also maintain a keen focus on developing its historical core Rapala lure and VMC hook businesses which underpin the profitability and cashflow of the entire Group. The strongest and most profitable growth in 2003 is expected to derive from the extension of the Storm soft plastic product range and from the wider placement that it is already known it will receive at retail levels in the US. Consumer appetite for these products upon their launch in 2002 exceeded management s expectations and it was a challenge to keep retailers in stock with the product. To respond to this demand and to the widening of the range the manufacturing space at Willtech has already been increased by 80% within the first year since the acquisition. The Group will continue to control its cost base and optimize the allocation of Group manufacturing between its facilities worldwide. Following a year of very strong cashflow in 2002 the Group will not rest on its laurels but rather will push for further reductions, particularly in inventories. A year ago management targeted to generate i50 million of cashflow within three years, excluding acquisition payments. Based on this year s performance that timeframe has been reduced by one year and the goal is expected to be achieved by July

20 Consolidated Income Statement Year ended 31 July Notes (k 000) (i 000) Net sales 1 171, ,467 Other operating income 2 1,771 1,169 Operating expenses 3 (141,737) (126,550) Operating profit before depreciation 32,013 27,086 Depreciation on fixed assets and other capitalized expenditure 4 (9,142) (7,193) Operating profit 22,871 19,893 Financial income and expenses 5 (2,317) (13,894) Income before extraordinary items and taxes 20,554 5,999 Extraordinary items 6 (1,464),00 Income before taxes 19,090 5,999 Income taxes 8 (4,116) (,726) Minority interest,(135),132 Net income 12 14,839 5,405 20

21 Consolidated Balance Sheet As of 31 July Notes ( k 000) ( i 000) ASSETS Non-current assets INTANGIBLE ASSETS 9 Intangible rights 1,448 1,338 Goodwill 3,017 3,566 Group goodwill 49,054 56,040 Other capitalized expenditure,428,653 53,947 61,597 TANGIBLE ASSETS 9 Land and water 2,121 2,211 Buildings 8,483 8,876 Machinery and equipment 10,542 10,930 Other tangible assets 3,580 3,266 Advance payments and construction in progress,126,325 24,852 25,608 INVESTMENTS Other shares and participations 9,167,125 Other receivables,031, 50,198,175 Current assets Inventories 10 54,587 60,273 Deferred tax assets 8 1,402 1,375 Short-term receivables 11 41,369 55,555 Cash in hand and at bank 23,226 15, , ,859 TOTAL ASSETS 199, ,239 SHAREHOLDERS EQUITY AND LIABILITIES Shareholders equity 12 Share capital 3,379 3,379 Reserve fund 11,183 11,183 Retained earnings 17,741 17,901 Net income for the period 14,839 5,405 47,142 37,868 Minority interest,509,147 Liabilities Deferred tax liabilities 8,538,356 Long-term liabilities 14 53,773 72,988 Short-term liabilities 15 97, , , ,224 TOTAL SHAREHOLDERS EQUITY AND LIABILITIES 199, ,239 21

22 Consolidated Statement of Cashflow Year ended 31 July (k 000) (i 000) Operating profit before depreciation 32,013 27,086 Change in net working capital: Decrease/(Increase) in receivables 10,068 (3,812) Decrease/(Increase) in inventories 2,585 (6,744) Decrease in short-term liabilities (2,923) (3,635) 9,730 (14,191) Net cash provided by operations 41,743 12,895 Interest paid (6,079) (9,878) Interest received,436,495 Income taxes paid (2,794) (1,556) Net cash provided by operating activities 33,306 1,956 Cash used in investing activities: Purchases of fixed assets (5,438) (4,026) Proceeds from disposal of fixed assets 1,047,627 Acquisition of subsidiary companies (2,178) (13,951) Net cash used in investing activities (6,569) (17,350) Cash flows used in financing activities: Dividends paid,(751) (724), Net cash used in financing activities,(751) (724), Net (Decrease)/Increase in net borrowings (25,986) 16,118 Net borrowings at beginning of period 130, ,571 Effect of exchange rate changes on net borrowings (7,093) 7,386 Net borrowings at end of period 96, ,075 22

23 Parent Company Income Statement Year ended 31 July Notes ( k 000) (i 000) Net sales Other operating income ,680,107 21,986,336 Operating expenses 3 (15,669) (16,982) Operating profit before depreciation 4,118 5,340 Depreciation on fixed assets and other capitalized expenditure 4 (1,288) (1,243) Operating profit 2,830 4,097 Financial income and expenses 5 13,522 (3,894) Income before extraordinary items and taxes 16,352,203 Extraordinary items 6 1,850 1,424 Income before appropriations and taxes 18,202 1,627 Appropriations 7,(216),266 Income taxes 8 (1,939),(788) Net income 12 16,047 1,105 23

24 Parent Company Balance Sheet As of 31 July Notes (k 000) (i 000) ASSETS Non-current assets INTANGIBLE ASSETS 9 Intangible rights,016,031 Other capitalized expenditure 3,414 3,860 3,430 3,891 TANGIBLE ASSETS 9 Land and water,220,220 Buildings 1,376 1,499 Machinery and equipment 2,908 2,813 Other tangible assets,046,046 Advance payments and construction in progress,122,160 4,672 4,738 INVESTMENTS Shares in subsidiaries 9, 18 53,996 52,144 Receivables from group undertakings,104 1,619 Other shares 9, 18,061,057 54,161 53,820 Current assets Inventories 10 5,194 4,583 Short-term receivables 11 63,813 76,200 Cash in hand and at bank 9,825 5,769 78,832 86,552 TOTAL ASSETS 141, ,001 SHAREHOLDERS EQUITY AND LIABILITIES Shareholders equity 12 Share capital 3,379 3,379 Reserve fund 11,183 11,183 Retained earnings 15,670 15,316 Net income for the period 16,047 1,105 46,279 30,983 Appropriations 13,313,096 Liabilities Long-term liabilities 14 27,936 39,170 Short-term liabilities 15 66,567 78,752 94, ,922 TOTAL SHAREHOLDERS EQUITY AND LIABILITIES 141, ,001 24

25 Parent Company Statement of Cashflow Year ended 31 July (k 000) (i 000) Operating profit before depreciation 4,118 5,340 Change in net working capital: Decrease/(Increase) in receivables 10,963 (14,092) Increase in inventories,(611),(579) (Decrease)/Increase in short-term liabilities (4,146),460 6,206 (14,211) Net cash provided by/(used in) operations 10,324 (8,871) Interest paid (3,877) (6,641) Interest received 4,613 3,528 Income taxes (paid)/received,(691),338 Net cash provided by/(used in) operating activities 10,369 (4,646) Cash used in investing activities: Purchases of fixed assets (839),,(818) Proceeds from disposal of fixed assets,081,00 Acquisition of subsidiary companies (1,960) (6,387) Dividends received 8,203 3,311 Group contribution received 1,850 1,424 Net cash provided by/(used in) investing activities 7,335 (2,470) Cash flows used in financing activities: Dividends paid,(751),(724) Net cash used in financing activities,(751),(724) Net (Decrease)/Increase in net borrowings (16,953) 14,840 Net borrowings at beginning of period 95,341 74,040 Effect of exchange rate changes on net borrowings (7,301) 6,461 Net borrowings at end of period 71,087 95,341 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. 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 (k 000) (i 000) (k 000) (i 000) 1. NET SALES Net sales by business area Trade 106, ,512,420,428 Production 65,723 10,955 18,786 20,931 Other 00,00 00,00,,474, , ,467 19,680 21,986 Net sales by market area Finland 18,922 17,271 1,074,792 North America 66,056 63,824 7,895 5,904 Other markets 87,001 71,372 10,711 15, , ,467 19,680 21, OTHER OPERATING INCOME Rents received,069,079,069,079 Other 1,702 1,090,038,257 1,771 1,169,107, OPERATING EXPENSES (Increase)/Decrease in stocks of finished products 2,688 (6,729),(509),(318) Production for own use (100),, (71),(046),(46) Raw materials and services: Purchases during the financial year 64,891 64,025 6,620 7,354 (Increase)/Decrease in inventory of raw materials (1,468),732,(101),(261) External services 1,805 1,812,031, 58 67,816 59,769 5,995 6,787 Staff expenses: Wages and salaries 31,038 25,638 5,432 5,655 Pension expenses 2,089 1,888,815,891 Other social security expenses 6,495 5,145,535,533 39,622 32,671 6,782 7,079 Other operating expenses 34,299 34,110 2,892 3, , ,550 15,669 16,982 Voluntary staff expenses are recorded under other operating expenses. Average number of personnel 2,879 1,248,215,237, 28

29 Notes to the Financial Statements continued Group Parent Company (k 000) (i 000) (k 000) (i 000) 4. DEPRECIATION Depreciation according to plan Intangible rights,287,162,015,015 Goodwill,202,407,00,00 Other capitalized expenditure,463,455,446,440 Buildings,723,541,169,152 Machinery and equipment 3,198 2,403,658,636 4,873 3,968 1,288 1,243 Group goodwill 4,269 3,225 9,142 7, FINANCIAL INCOME AND EXPENSES Dividend income from group companies,00,00 8,197 3,311 Dividend income for third parties 00,00 6,00,006,00 Other interest and financial income: Interest income from group companies,00,00 3,202 3,281 Interest income from third parties,491,547,129,098 Foreign exchange gains 15,239 2,746 17,805 2,689 Other financial income,085,111,00,00 Interest and other financial expenses: Interest expense to third parties (5,761) (10,011) (3,485) (6,323) Foreign exchange losses (12,249) (7,001) (12,263) (6,697) Other financial expenses,(128) (286),,0(69),(253) (2,317) (13,894) 13,522 (3,894) 6. EXTRAORDINARY ITEMS Group contribution received,00,00 1,850 1,430 Closure of manufacturing facilities 1,089,00,00,00 Adjustment of inventory evaluation at 31 July ,260,00,00,00 Tax on extraordinary items,(885),00,00,00 Other extraordinary items,00,00,00,0(6) 1,464,00 1,850 1, APPROPRIATIONS Change in accelerated depreciation Buildings,(54),071 Machinery and equipment,(162),195,(216),266 29

30 Notes to the Financial Statements continued Group Parent Company (k 000) (i 000) (k 000) (i 000) 8. INCOME TAXES Income taxes for the financial year (4,022),(480) (1,985),00 Change in deferred taxes,(155),295,00, 00 Taxes from previous financial years,061,(541),046,(788) (4,116),(726) (1,939),(788) Change in deferred taxes arises from: Appropriations,(182) 2,009 Consolidation measures,027 (1,714),(155),295 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 1,402 1,375 Deferred tax liabilities arising from appropriations 538, NON-CURRENT ASSETS Intangible rights Acquisition cost, beginning of period 1,855 1,078,124, 124 Increase 417,893,00,00 Decrease,00,(011),00,00 Translation adjustments,(020),(105),00,00 2,252 1,855,124, 124 Accumulated depreciation,(804),(517),(108), (093) Book value, 31 July 1,448 1,338,016,031 Goodwill Acquisition cost, beginning of period 5,254 4,955 Increase,00,174 Translation adjustments,(347),125 4,907 5,254 Accumulated depreciation (1,890) (1,688) Book value, 31 July 3,017 3,566 30

31 Notes to the Financial Statements continued Group Parent Company (k 000) (i 000) (k 000) (i 000) 9. NON-CURRENT ASSETS continued Group Goodwill Acquisition cost, beginning of period 93,688 74,528 Increase,00 17,890 Decrease (393),,00 Translation adjustments (2,324) 1,270 90,971 93,688 Accumulated depreciation (41,917) (37,648) Book value, 31 July 49,054 56,040 Other capitalized expenditure Acquisition cost, beginning of period 4,956 4,566 7,284 7,167 Increase,00,117,00,117 Decrease,00,00,00,00 Translation adjustments,238,273,00,00 5,194 4,956 7,284 7,284 Accumulated depreciation (4,766) (4,303) (3,870) (3,424) Book value, 31 July,428,653 3,414 3,860 Land and water Acquisition cost, beginning of period 2,211 1,981,220,220 Increase,00,00,00,00 Translation adjustments,(090),230,00,00 Book value, 31 July 2,121 2,211,220,220 Buildings Acquisition cost, beginning of period 13,023 10,155 3,687 3,446 Increase,633 3,617,046,241 Decrease,(087) (153),,00,00 Translation adjustments,(216),(596)),00,00 13,353 13,023 3,733 3,687 Accumulated depreciation (4,870) (4,147) (2,357) (2,188) Book value, 31 July 8,483 8,876 1,376 1,499 Machinery and equipment Acquisition cost, beginning of period 27,165 19,721 10,213 9,112 Increase 3,715 9,701,784 1,101 Decrease (732), (1,953),(031),00 Translation adjustments (173), (304),,00,00 30,101 27,165 10,966 10,213 Accumulated depreciation (19,433) (16,235) (8,058) (7,400) Book value, 31 July 10,542 10,930 2,908 2,813 Other tangible assets Acquisition cost, beginning of period 3,266,894,046,046 Increase,314 2,372,00,00 Book value, 31 July 3,580 3,266,046,046 31

32 Notes to the Financial Statements continued Group Parent Company (k 000) (i 000) (k 000) (i 000) 9. NON-CURRENT ASSETS continued Advance payments and construction in progress Acquisition cost, beginning of period,325,864,160,801 Increase,00,00,00,046 Decrease,(199),(539),(038),(641) Book value, 31 July,126,325,122,160 Shares in subsidiaries Acquisition cost, beginning of period 52,144 21,382 Increase 1,962 30,820 Decrease,(110),(058) Book value, 31 July 53,996 52,144 Receivables from group undertakings Book value, beginning of period 1,619 1,769 Increase (1,619),(150) Book value, 31 July,00 1,619 Other shares Acquisition cost, beginning of period,125,220,057,052 Increase,042,00,004,005 Decreases,00,(095),00,00 Book value, 31 July,167, 125,061,057 Other receivables Book value, beginning of period,050,025 Translation adjustments,(019),025 Book value, 31 July,031, INVENTORIES Raw materials and consumables 6,342 5,563 1,812 1,708 Work in progress 2,951 4,348 2,398 2,215 Finished products/goods 45,294 50,362,984,660 54,587 60,273 5,194 4,583 32

33 Notes to the Financial Statements continued Group Parent Company (k 000) (i 000) (k 000) (i 000) 11. RECEIVABLES Short-term receivables Trade receivables 31,097 35,685,184,200 Loan receivables,424,827,455,561 Other receivables 2,589 3,658,001,037 Prepaid expenses and accrued income 7,259 15,385 1,036 2,267 Receivables from group companies Trade receivables,00,00 8,549 9,119 Loan receivables,00,00 46,420 45,864 Other Receivables,00,00,467 2,795 Prepaid expenses and accrued income,00,00 6,701 15,357 41,369 55,555 63,813 76, SHAREHOLDERS EQUITY Share capital, beginning of period 3,379 2,835 3,379 2,835 New shares issued,00,544,00,544 Share capital, 31 July 3,379 3,379 3,379 3,379 Reserve fund, beginning of period 11,183,00 11,183,00 Premium on new shares issued,00 11,183,00 11,183 Reserve fund, 31 July 11,183 11,183 11,183 11,183 Retained earnings, beginning of period 23,306 19,829 16,421 16,040 Translation difference (4,721) (1,204),00,00 Transfer to share capital,00,00,00 c Dividends distributed (751),,(724),(751),(724) Change in accounting policy of subsidiary,(093),00,00,00 Net income for the period 14,839 5,405 16,047 1,105 Retained earnings, 31 July 32,580 23,306 31,717 16,421 Share of accelerated depreciation allocated to shareholders equity,159,587 Parent company share capital by share type No. EUR No. EUR 1 vote per share 37,543,458 3,378,911 37,543,458 3,378,911 33

34 Notes to the Financial Statements continued Group Parent Company (k 000) (i 000) (k 000) (i 000) 13. APPROPRIATIONS Accelerated depreciation,313, LONG-TERM LIABILITIES Loans from credit institutions 47,414 66,021 21,803 32,271 Other loans 6,359 6,967 6,133 6,899 53,773 72,988 27,936 39, SHORT-TERM LIABILITIES Loans from credit institutions 72,808 79,710 59,109 68,839 Advances received,021,043,004,161 Trade payables 5,498 8,125,279,550 Accrued liabilities and deferred income 9,221 5,148 4,197 2,676 Other current liabilities 10,071 15,854 2,554 5,749 Liabilities to group companies Trade payables,00,00,346,764 Accrued liabilities and deferred income,00,00,078,013 97, ,880 66,567 78,752 34

35 Notes to the Financial Statements continued Group Parent Company (k 000) (i 000) (k 000) (i 000) 16. INFORMATION RELATED TO ADMINISTRATION MEMBERS OF GROUP COMPANIES Salaries and remuneration to members of administrative bodies Group company Presidents and members of the Board of Directors 2,278 1,718,221,196 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,021,023,00,00 Mortgages on moveable assets 11,793 12,106 5,895 5,895 Mortgages on real estate 6,786 6,786 6,030 6,030 Guarantees,860,859,00,766 Leasing commitments 6,713 1,580,024,024 Guarantees on behalf of third parties Pledged deposits,022,032,022,032 Guarantees,211,212,035,035 Total guarantees Pledged shares, book value,00,00,045,045 Pledged deposits,043,055,022,032 Mortgages on moveable assets 11,793 12,106 5,895 5,895 Mortgages on real estate 6,786 6,786 6,030 6,030 Guarantees 1,071 1,071,035,801 Leasing commitments 6,713 1,580,024,024 26,406 21,598 12,051 12,827 Contingent Liabilities Open positions under forward currency contracts: Principal amount 10,901 19,854 10,901 19,854 Inherent loss 1,443,(119) 1,443,(119) 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 8,007 NC Holdings I, Inc. USA (32,076) 100, ,562 USD 9,177 (2,729) Normark Corporation USA ,411 (367), Normark Innovations, Inc. USA 80 80, (1,124) (442), Ensambles Deportivos S.A. Mexico 81 81,0 75,085 Normark Inc. Canada ,943,863 Normark Sport Ltd. UK (1,693), 021 Normark Scandinavia Ab Sweden , ,000 2,000,000 SEK 6,650,055 Normark Trading Ab Sweden ,014,00 Normark A/S Norway ,00,00 Normark Denmark A/S Denmark 67 67, 687,212 Rapala B.V. Holland , ,043 43,000 NLG 1,674,(18) Normark B.V. Holland , (54),(11) Normark Tracker Marine B.V. Holland ,(105),(10) Rapala Holding France SA France , ,000 65,000,000 FRF,771,119 Normark Ragot SA France ,035,460 S.I.P.P. SARL France ,(401) (336), Normark Corporation SA Spain , ,000 62,000,000 ESP,883,172 Normark Sport Finland Oy Finland , ,000 1,000,000 FIM,163,,0(3) Normark Suomi Oy Finland ,838,00,00,120 KL Teho Oy Finland , ,600 10,060,000 FIM 2,620,027 Rapala Eesti As Estonia , ,100 1,055,000 EEK,279,0(11) Normark Eesti Oü Estonia ,035,,00,,012 Elbe Normark A/S Norway ,522 91, ,000 NOK 1,433,480 Rapala Japan KK Ltd. Japan ,0(101) 100,200 10,000,000 JPY,079 (102), VMC Pêche SA France , ,549 5,855,000 FRF 5,222,123 Waterqueen France France ,459,249 WMC Waterqueen Angelzubehör Germany ,00,00 VMC Waterqueen Poland Poland ,365,046 Aquaco France France ,001,00 Cannelle Pêche France France ,00,0(37) Elite International France France ,(36),0(29) V.M.C. Russia Russia , 118,129 V.M.C. Do Brasil Brasil ,0061,(61) V.M.C. Waterqueen UK UK , (71),00 V.M.C. Waterqueen Ukraine Ukraine ,076,018 V.M.C. Inc USA USA ,067,027 Willtech Industrial Ltd. Hong Kong ,547 99, HKD 25,000,362 Willtech (PRC) Ltd. China ,661,000 3,197, Total 53,996 10,628 Associated companies Kiinteistö Oy Bringhaga Finland 24 24,057 24,029,0,0(2) 31/12/ Other shares held by parent company Resenär Oy Finland 19,028 18,022 Asikkalan Matkailu Oy Finland,03,002,0 4 Other shares Finland,,020,006 Total,032 Other shares total 54,057 36

37 Board of Directors Proposal to the Annual General Meeting The Group s distributable equity according to the consolidated balance sheet is i million. The parent company s distributable equity is i million. The Board of Directors proposes that a dividend of i0.05 be paid on each of the 37,543,458 shares for a total of i1,877,173 and that the remaining i16,047,092 be retained and carried forward. Vääksy, 20 September 2002 Eero Makkonen Hardy McLain Jan-Henrik Schauman Chairman of the Board of Directors Member of the Board Member of the Board Manjit Dale Jorma Kasslin Emmanuel Viellard Member of the Board Member of the Board Member of the Board President and CEO Christophe Viellard Member of the Board King Ming (William) Ng Member of the Board Auditors Report To the shareholders of Rapala VMC Corporation We have audited the accounting, the financial statements, the consolidated financial statements and the administration of Rapala VMC Corporation for the year ended 31 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 the parent company s administration. We have conducted our audit in accordance with Finnish Standards on Auditing. Those standards require that we perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining on a test basis evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management as well as evaluating the overall financial statement presentation. The purpose of our audit of the administration is to examine that the members of the Board of Directors and the Managing Director have legally complied with the rules of the Finnish Companies Act. In our opinion the financial statements have been prepared in accordance with the Finnish Accounting Act and other rules and regulations governing the preparation of financial statements in Finland. The financial statements give a true and fair view, as defined in the Accounting Act, of both the consolidated and parent company s result of operations as well as of the financial position. The financial statements with the consolidated financial statements can be adopted and the members of the Board of Directors and the Managing Director of the parent company can be discharged from liability for the period audited by us. The proposal by the Board of Directors regarding the distributable equity is in compliance with the Finnish Companies Act. Vääksy, 22 November 2002 Ernst & Young Oy Authorized Public Accounting Firm Pekka Luoma Authorized Public Accountant 37

38 Rapala VMC Group Key financial ratios Net sales 1000 EUR 171, , ,931 99, ,154 Operating profit before depreciation 1000 EUR 32,013 27,086 25,662 21,905 25,333 as a percentage of net sales % Operating profit 1000 EUR 22,871 19,893 20,027 17,050 20,625 as a percentage of net sales % Income before extraordinary items and taxes 1000 EUR 20,554 5,999 10,845 9,044 15,051 as a percentage of net sales % Income before taxes and minority interests 1000 EUR 19,090 5,999 12,830 8,347 15,174 as a percentage of net sales % Net income 1000 EUR 14,839 5,405 9,203 6,810 11,377 as a percentage of net sales % Gross investments in fixed assets 1000 EUR 5,438 4,026 3,581 2,845 1,564 as a percentage of net sales % Research and development expenditure 1000 EUR 3,259 2,526 1, as a percentage of net sales % Personnel, year average 2,879 1, Shareholders equity 1000 EUR 47,142 37,868 22,664 12,464 17,586 Balance sheet 1000 EUR 199, , , , ,946 Return on equity % Return on investment % Equity ratio % Key share ratios Earnings per share EUR Dividend per share EUR 0.05* Dividend earnings % 11.6* Effective dividend yield % 1.3* 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 9,048,064 4,136,865 5,099,225 3,089,241 Number of shares traded % of all shares % Share capital 1000 EUR 3,379 3,379 2,835 2, Year end market capitalization 1000 EUR 148, , , ,381 Dividend 1000 EUR 1,877* ,932 Number of shares 37,543,458 37,543,458 31,498,150 31,498,150 3,149,815 * 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 eight members: the Group s President, the President of VMC Pêche, the President of Willtech Industrial Ltd. 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 10 times. Board meetings take place in Helsinki and at the Group s other offices when the board is visiting Group companies. President The President is appointed by the Board of Directors. Since 1998 Mr Jorma Kasslin has acted as the Company s President and Chief Executive Officer and as a member of the Board. Business organization and responsibilities The Rapala VMC Group comprises the Parent Company and manufacturing and distribution subsidiaries. All of these subsidiaries report to the parent company. Responsibility for the management and direction of these subsidiaries rests with each company s Board of Directors which typically comprises the subsidiary s President, the Group President, CFO and Company Counsel. In addition they have management teams of their own. Product distribution is organized through sales companies which the Group has in 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, Ernst & Young Oy, are responsible for instructing and co-ordinating the audit in all Group companies. The auditor in charge of the audit of Rapala VMC Corporation is Pekka Luoma. The fact that the group has no separate internal audit function of its own is reflected in the scope and content of the audit. Board of Directors The current members of the Board of Directors are: Eero Makkonen (Chairman) B.Sc. Eng. Year of birth: 1946 Shareholding: 11,000 Jorma Kasslin (Managing Director, Group President and Chief Executive Officer) M.Sc. (Eng.) Year of birth: 1953 Shareholding: 34,000 Jan-Henrik Schauman M. Sc. (Econ.) MBA Year of birth: 1945 Shareholding: 3,200 Emmanuel Viellard B.A. CPA Year of birth: 1963 Vice Chairman and Executive Vice President of Lisi 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 Founding Partner TDR Capital Shareholding: 0 Christophe Viellard Diploma ESCP Year of birth: 1942 President VMC Pêche SA Shareholding: 0 King Ming (William) Ng B.Sc. Eng. Year of birth: 1962 Managing Director of Willtech Industrial Ltd. Shareholding: 1,438,688 41

42 Shares and Shareholders Shares and Voting Rights Rapala VMC Oyj s minimum share capital is i2.835 million and its maximum authorized share capital is i million, within which limits the share capital may be increased or decreased without amending the Articles of Association. On July 31, 2002 the share capital fully paid and reported in the Trade Register was i3.379 million. The book value of a share is i0.09. The number of shares is 37,543,458. Each share is entitled to one vote. Shareholder Register The shares of the company belong to the Book Entry Securities System. Shareholders should notify the particular register holding their Book Entry Account about changes in address or account numbers for payment of dividends and other matters related to ownership of shares. Authorizations 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 i540,000. 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 i531,000. A maximum of 5,900,000 new shares may be offered for subscription. 5 December, 2001 the Board was authorized to decide on an increase of the share capital by a maximum of i675,000. A maximum of 7,500,000 new shares may be offered for subscription. Pursuant to the authorizations the Board has increased the share capital as follows: 14 November, 2000 i423, by issuing 4,706,620 shares. 28 June, 2001 i120, 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 2002 closing price on July 31 was i3.95. The highest price in 2001/02 was i4.83, the average price was i3.79, and the lowest price was i2.55. The share price fell 8 % in the twelve months period ended July 31, The All-share HEX index fell % during the same period. 9,048,064 Rapala VMC shares were traded on HEX Helsinki Exchanges during 2001/02. This represents % of all shares. At the end of the year the market capitalization of the outstanding shares was i148.3 million. Earnings per share was i0.43 (2001: i0.16). Share Ownership At the end of 2001/02 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 i0.05 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 2002/03 is on page

43 Shares and Shareholders continued 10 biggest shareholders according to the share register at 31 July 2002 Amount of shares Percentage Percentage 10 biggest shareholders (x1000) of shares % of votes % Rapala Normark N.V. 13, Viellard Migeon & Cie 6, Odin Norden Odin Finland LEL Työeläkekassa Fim Forte Sijoitusrahasto Sijoitusrahasto Gyllenberg Finlandia Gyllenberg small firm fund Fim Fenno Sijoitusrahasto Op-Tuotto Sijoitusrahasto Hallintarekisteröidyt 12, Other 1, , Percentage Percentage Shareholders by shareholder category of shares % of votes % Companies Financial institutions Public institutions Non-Profit institutions Individuals Foreign Total Shareholders of Rapala VMC Group according to the amount of shares owned at 31 July 2002 Number of Number of Shares shareholders % shares % , , , , ,001-10, , ,001-1,000, , ,000, ,191, Total 1, ,543, Amount of shares owned by the members of the Board of Directors or CEO at 31 July 2002 Amount of shares 1,486,888 % of shares 3.96 % of votes

44 Information for Shareholders In 2002/2003 the interim reports will be published as follows: Interim report for the period 1 August October 2002, on 4 December Interim report for the period 1 August January 2003, on 5 March Interim report for the period 1 August April 2003, on 4 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.hillberg@rapala.fi. 44

45 Key Events During the Financial Year January 2002 The first shipments of Storm branded soft plastic lures, manufactured by Willtech, reach retail stores and are immediately well received by consumers. Rapala branded fishing rods also reach stores as the Group s brand extension program continues to develop. 22 April 2002 The following management appointments are announced: Mr Christophe Viellard, a member of the Board of Directors of Rapala VMC Oyj and Director of Hook Division is appointed as an Executive Board Member. Mr Stanislas de Castelnau, previously a Director of the VMC hook factory in Morvillars, France is appointed as Director of Hook Division. Mr Hannu Murtonen, previously Managing Director of Normark Suomi Oy, the Group s Finnish distribution company, is appointed Group East-European Distribution Director responsible for group distribution companies in Russia, Poland, Estonia and Ukraine and for development of the distribution organization for group products in other East-European countries. Mr Pekka Kotiaho joined the Group on 15 march 2002 and is appointed Group Northern European Distribution Director responsible for Normark Suomi Oy (Finland), Normark Scandinavia Ab (Sweden), Elbe Normark A/S (Norway) and Normark Denmark AS (Denmark). Mr Saku Kulmala, previously Sales Director of Normark Suomi Oy, is appointed Managing Director of Normark Suomi Oy. May 2002 At the annual US sales meeting the Group announces the expansion of its product range for the 2003 fishing tackle season. These include innovative extensions to the Rapala, Storm and Blue Fox range of hard, soft plastic and metal lures, and additions to the fishing line, rod and accessory categories which the Group recently entered. 45

46 Rapala VMC Oyj Tehtaantie 2 Box Vääksy FINLAND Tel: Fax: Rapala B.V. Avenue Emile Demot 19 B-1000 BRUSSELS BELGIUM Tel: Fax: Normark Suomi Oy Box Korpilahti FINLAND Tel: Fax: Normark Scandinavia AB Hamnplan Uppsala SWEDEN Tel: Fax: Normark Scandinavia AB Torsgärdet Box Malung SWEDEN Tel: Fax: Normark Corporation Yellow Circle Drive Minnetonka, MN USA Tel: Fax: KL-Teho Oy Box Korpilahti FINLAND Tel: Fax: Normark Inc Phillip Murray Avenue Oshawa, Ontario L1J 6Z9 CANADA Tel: Fax: Rapire Teo Inverin Co. Galway IRELAND Tel: Fax: Normark Denmark AS Endelaverej Randers DENMARK Tel: Fax: Group Companies 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 Oakcrest Avenue #10 Saint Paul, MN USA Tel: Fax: Willtech Industrial Ltd. Unit A, 10/F Block 2 Kwai Tak Industrial Centre No Kwai Tak St. Kwai Chung N.T. HONG KONG Tel: Fax: Willtech (PRC) Ltd. Schenzhen 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 Never be the guy who forgets the Rapalas. The Legendary Finnish Minnow.