Rapala VMC Oyj — Annual Report 2015

Mar 9, 2016

==> picture [523 x 391] intentionally omitted <==

FINANCIAL STATEMENTS 2015

RAPALA VMC CORPORATION

FINANCIAL STATEMENTS 2015

INDEX

RAPALA VMC CORPORATION FINANCIAL STATEMENTS 2015

Review of the Board of Directors	2
Auditor’s Report	7
Consolidated Financial Statements, IFRS
Consolidated Income Statement	8
Consolidated Statement of Comprehensive Income	8
Consolidated Statement of Financial Position	9
Consolidated Statement of Cash Flows	10
Consolidated Statement of Changes in Equity	11
Notes to the Consolidated Financial Statements	12
Key Financial Figures
Scope of Activity and Proftability	46
Share Related Key Figures	47
Defnition of Key Figures	48
Parent Company Financial Statements, FAS
Parent Company Income Statement	49
Parent Company Balance Sheet	49
Parent Company Statement of Cash Flows	50
Parent Company Statement of Changes in Equity	50
Notes to the Parent Company Financial Statements	51
Risk Management	57
Shares and Shareholders	59
Board of Directors and Management	61

Cover photo: Perttu Saksa

RAPALA VMC CORPORATION

FINANCIAL STATEMENTS 2015

REVIEW OF THE BOARD OF DIRECTORS

REVIEW OF THE BOARD OF DIRECTORS

MARKET SITUATION AND SALES

As the Rapala Group’s direct distribution operations expand over 35 countries around the world, the market conditions varied between different regions throughout the year. In the US the economy and weathers remained very stable, which created an excellent foundation for good business. Many European countries also enjoyed favorable summer weather which helped fishing tackle sales. On the other hand the Nordic countries suffered from poor summer weather which had negative impact on the sales. The late arrival of winter affected ice fishing sales negatively in North America and the Nordic countries in the fourth quarter.

The political and economic unrest in Russia and Ukraine reflected very negatively on the respective markets. While many currencies fluctuated throughout the year, the strengthening of the US Dollar had the biggest effect on the Group’s business by supporting the US business while hurting the profitability in other countries.

Regardless of the turbulent business environment, the Group’s overall sales were stable and the comparable profitability improved.

KEY FIGURES

KEY FIGURES
EUR MILLION	2015	2014	2013
Net sales	278.2	273.2	286.6
EBITDA	28.1	30.0	33.6
Operating proft	21.0	22.9	26.1
Proft before taxes	14.2	15.7	20.6
Net proft for the period	8.1	10.2	16.1
Earnings per share	0.17	0.24	0.32
Employee beneft expenses	68.4	65.6	64.0
Average personnel for the period, persons	3 078	2 716	2 428
Research and development expenses	2.1	2.0	1.6
as a percentage of net sales, %	0.8	0.7	0.6
Net cash generated from operating activities1)	15.6	21.7	15.9
Total net cash used in investing activities1)	8.6	8.1	10.7
Net interest-bearing debt at the end of the period	108.2	99.9	96.3
Equity-to-assets ratio at the end of the period, % Debt-to-equity ratio (gearing) at the end of the period, %	44.7 77.3	44.1 73.2	44.5 71.2
Return on equity, %	5.9	7.5	11.8
	1)Restated, see		note 1

BUSINESS REVIEW

The Group’s net sales for the year were up 2%. Changes in translation exchange rates increased sales by approximately EUR 6.2 million, US Dollar and Russian Ruble impact largely offsetting each other. With comparable translation exchange rates full year net sales were at last year’s level.

North America

Overall the year 2015 was positively stable in the US, highlighted by strong new product introductions and positive development in group-branded lure and other summer fishing sales. The increase was partially offset with the loss of a distribution agency in the US market that constituted 5 MUSD sales last year, and the late arrival of winter that reduced ice fishing sales. While the strong US dollar and low fuel prices resulted in positive development in the domestic US market, the comparable sales in North America decreased slightly. The challenges in the Canadian market affected sales negatively.

Nordic

Nordic sales were up. The positive development was result of a new hunting dealership in Finland and improved fishing and hunting sales in Sweden. Winter sport sales were up in the first and fourth quarter, compared to the very low levels last year. The cold and rainy summer had a negative impact on the summer fishing sales, especially in Norway. Warm last quarter weather slowed down the ice fishing sales and replenishment orders. Denmark suffered from tough business environment throughout the year.

Rest of Europe

The economic difficulties continued in Russia, affecting the sales badly. While the Group’s operations in Russia are still profitable and healthy, the business volumes have come down to a half since the crisis started two years ago. Sales in Rest of Europe were down. Excluding Russia and Ukraine the regions comparable sales increased 3% from last year despite the challenging business environment. The increase was led by strong-performing France. Spain has been struggling with an economic crisis for years, but is now recovering. The Group has started to expand into hunting distribution in Spain and the Baltic countries, which shows positive growth.

Rest of the World

The Rest of the World sales varied geographically. The most positive development was seen in South Africa. Sales grew also in Malaysia, South Korea, Thailand, Chile and Mexico. The economic situation and business environment in Brazil was difficult. Additional challenges were seen in the Group’s performance in Australia, Japan and Indonesia. Overall comparable sales for Rest of the World were affected by currencies, but it was still above last year.

EXTERNAL NET SALES BY AREA

				COMPARABLE
EUR MILLION	2015	2014	CHANGE %	CHANGE %
North America	99.2	86.1	+15%	-1%
Nordic	56.2	54.9	+2%	+4%
Rest of Europe	86.9	98.7	-12%	-4%
Rest of the world	35.9	33.5	+7%	+3%
TOTAL	278.2	273.2	+2%	0%

2

RAPALA VMC CORPORATION

FINANCIAL STATEMENTS 2015

REVIEW OF THE BOARD OF DIRECTORS

FINANCIAL RESULTS AND PROFITABILITY

Comparable (excluding non-recurring items and mark-to-market valuations of operative currency derivatives) operating profit increased notably from last year. Changes in translation exchange rates, especially the weakening of Ruble, burdened comparable operating profit by approximately EUR 1.4 million. With comparable translation exchange rates comparable operating profit was EUR 5.9 million ahead of last year.

Comparable operating profit margin was 9.1% (7.6). Profitability was supported by stronger sales of group-branded products in USA as well as continuing recovery of the Asian manufacturing operations’ profitability, while negatively impacted by stronger US dollar lowering the margins of third party products and negative sales development in Russia.

Reported operating profit was down. Respectively reported operating profit margin was 7.6% (8.4). Reported operating profit included loss on non-recurring items of EUR 2.3 million (1.8) related to non-cash write-downs originating from the transfer of manufacturing from China to Batam, Indonesia, and costs relating to closing down Norwegian warehousing operations. Mark-to-market valuation of operative currency derivatives had a significant impact on the reported operating profit compared to last year, being EUR 2.1 million loss (3.8 gain).

Total financial (net) expenses decreased from last year’s level to EUR 6.8 million (7.2). Financial items were impacted by the net foreign exchange expenses of EUR 3.3 million loss (3.4 loss). Net interest and other financing expenses decreased from last year’s level to EUR 3.5 million (3.8).

Net profit was behind last year. Earnings per share were EUR 0.17 (0.24). Change in mark-to-market valuation of operative currency derivatives was having notable negative impact on Group’s net profit and EPS compared to last year. Income taxes were positively impacted by changes in deferred taxes and burdened by loss making units. Last year full year profit included a positive tax impact of EUR 1.0 million related to an agreement with the Finnish tax authority. The share of non-controlling interest in net profit increased from last year and totaled EUR 1.4 million (1.0).

MANAGEMENT ANALYSIS

MANAGEMENT ANALYSIS
EUR MILLION	2015	2014
Net sales as reported	278.2	273.2
EBITDA as reported	28.1	30.0
Non-recurring items	2.1	1.8
Mark-to-market valuation of derivatives	2.1	-3.8
Comparable EBITDA2)	32.3	28.0
Operating proft as reported	21.0	22.9
Reported operating proft margin, %	7.6	8.4
Non-recurring items	2.3	1.8
Mark-to-market valuation of derivatives	2.1	-3.8
Comparable operating proft2)	25.3	20.9
Comparable operating proft margin, %	9.1	7.6

SEGMENT REVIEW

Group Products

Sales of Group Products were negatively impacted by lower ice fishing sales, while supported by better sales of winter sports products. Strong campaigns and new product launches in the US supported by the strong US dollar improved the Rapala lure and VMC hook sales. The weakening Russian Ruble and economic crisis in the country continued to reduce the Group Products’ sales significantly throughout the year.

Operating profit for Group products improved from last year supported by increased sales and better profitability in the US. The profitability of the Asian manufacturing operations improved significantly in the latter half of the year.

Third Party Products

Sales of Third Party Products continued to decrease from last year. Similarly third party fishing and especially ice fishing sales were lower than last year due to losing a distribution dealership in the US. Hunting products sales increased in Finland and Sweden. The economic unrest in Russia and Ukraine caused majority of the decrease in Third Party Product sales throughout the year.

Operating profit for Third Party Products was down from last year following the reduced sales and unfavorable exchange rates’ impact on purchases.

NET SALES BY SEGMENT

NET SALES BY SEGMENT
				COMPARABLE
EUR MILLION	2015	2014	CHANGE %	CHANGE %
Group Products	184.7	171.3	+8%	+2%
Third Party Products	93.5	102.0	-8%	-4%
Eliminations	0.0	0.0
TOTAL	278.2	273.2	+2%	0%

OPERATING PROFIT BY SEGMENT

EUR MILLION	2015	2014	CHANGE %
Group Products	18.1	15.0	21%
Third Party Products	2.9	7.9	-63%
TOTAL	21.0	22.9	-8%

2) Excluding non-recurring items and mark-to-market valuations of operative currency derivatives.

3

RAPALA VMC CORPORATION

FINANCIAL STATEMENTS 2015

REVIEW OF THE BOARD OF DIRECTORS

FINANCIAL POSITION

Cash flow from operations decreased from last year’s strong levels being EUR 15.6 million (21.7). Cash flow was burdened by change in working capital driven by timing of payables. Net change in working capital amounted to EUR -3.3 million (1.5).

Inventories increased slightly by EUR 2.4 million from last December amounting to EUR 116.2 million (113.8), of which EUR 0.5 million is related to change in translation exchange rates. Increase in inventories was driven by transfer of production from China to Indonesia and challenging trading conditions resulting in lower than expected sales in various countries, which prevented the Group from achieving planned inventory reductions.

Net cash used in investing activities was at last year’s level and totaled 8.6 million (8.1). Normal operative capital expenditure was EUR 9.1 million (8.5). Investing activities included EUR 1.1 million (1.0) annual installment received related to the 2011 disposal of the gift business and the last installment of the acquisition of the Sufix brand of EUR 0.9 million (0.8).

Liquidity position of the Group was good. Undrawn committed long-term credit facilities amounted to EUR 79.9 million at the end of the period. Gearing and net interest-bearing debt increased from last year and equity-to-assets was slightly above last year’s level. Following the lower reported EBITDA and increased net interest bearing debt, the Group had agreed with its lenders on higher covenant levels for December 31, 2015 and March 31, 2016 and expects to comply with these covenant levels.

			CHANGE
EUR MILLION	2015	2014	%
Net cash generated from operating activities3)	15.6	21.7	-28%
Net interest-bearing debt at the end of the period	108.2	99.9	8%
Debt-to-equity ratio (gearing) at the end of the
period, %	77.3	73.2
Equity-to-assets ratio at the end of the period, %	44.7	44.1
	3)Restated, see		note 1

STRATEGY IMPLEMENTATION

Execution of the Rapala Group’s strategy is based on three cornerstones: brands, manufacturing and distribution, supported by strong corporate culture. During 2015 strategy implementation continued in various areas.

During the third quarter the Group announced changes in its management organization. The new management structure will put more focus on managing and improving the end-toend performance of the Group’s businesses, consolidating the reporting lines of geographical regions and increasing the coordination between the Group’s brands. The role of global supply chain management is reinforced to achieve significant reductions in the Group’s working capital levels. Planning and implementation of new actions started in the end of the year to achieve acceleration in the profitable growth strategy and improvement of the capital efficiency.

Throughout 2015 the Group put a lot of attention and resources to its Asian lure manufacturing unit in Batam, Indonesia, to develop the business and operations in order to exploit the strengths and capture the benefits of this unit. The performance of the Batam operations clearly improved during the year and further improvements in terms of production efficiencies, quality and new manufacturing techniques can still be expected in the future. The unit forms solid basis for future growth of the Group’s Storm, Luhr Jensen, Blue Fox and Williamson branded lures.

Discussions and negotiations regarding acquisitions and business combinations continued throughout the year, as the Group continues to seek also non-organic growth opportunities.

PRODUCT DEVELOPMENT

Continuous product development and consistent innovation are core competences for the Group and major contributors to the value and commercial success of the brands. This was also taken into account in the new management organization by specifically appointing a group level product development director to coordinate the Group’s lure product development and innovations on global basis.

The most important product launch in 2015 was the introduction of the new Rapala Shadow Rap lure, which together with new Rapala accessory and Sufix line products received awards in the European trade show. Introduction of new hero lures is in the pipeline and they will be released to the US market early 2016. In addition to Rapala, the Group is also putting lot of focus on Storm lures manufactured in the Batam factory.

Research and development expenses were EUR 2.1 million (2.0).

ORGANIZATION AND PERSONNEL

Average number of personnel was 3 078 (2 716), increase coming mainly from expansion of lure manufacturing operations in Batam and reduction of outsourcing in China. At the end of December, the number of personnel was 3 159 (2 822).

On September 24th, 2015 the Board of Directors made appointments and changes in the Group’s Executive Committee with immediate effect. Jussi Ristimäki was appointed as Deputy Chief Executive Officer. Aku Valta and Cyrille Viellard were appointed as new members to Executive Committee.

ENVIRONMENTAL AND CORPORATE RESPONSIBILITY

The Group’s operations are continuously developed into an even more sustainable direction to promote clean environment. Products, manufacturing processes and operating methods are developed to reduce the environmental impact throughout the products’ lifecycle. The Group seeks to replace current raw materials with more environmentally friendly substances – yet maintaining the products’ desirability. The Group develops the reporting and follow-up on environmental matters.

4

RAPALA VMC CORPORATION

FINANCIAL STATEMENTS 2015

REVIEW OF THE BOARD OF DIRECTORS

During 2015 the Group developed corporate compliance and responsibility matters, and a global Code of Conduct was introduced and implemented.

Environmental, economical and social responsibility issues are described in more detail in the Corporate Responsibility section of the corporate website (www.rapalavmc.com).

and are expected to further support Group’s profitability. Inventory and fixed cost management will be in the Group’s focus in 2016.

Assuming comparable translation exchange rates, the Group expects full year net sales and comparable operating profit (excluding non-recurring items and mark-to-market valuations of operative currency derivatives) to be above 2015 levels.

RISK MANAGEMENT

The objective of the Group’s risk management is to support the implementation of the Group’s strategy and execution of business targets. The Board evaluates the Group’s financial, operational and strategic risk position on a regular basis and establishes related policies and instructions to be implemented and coordinated by the Group management. During 2015 the Group focused on developing new internal control procedures that were implemented. The principles of the Group’s risk management are described in detail in the section Risk Management included in the consolidated financial statements.

PROPOSAL FOR PROFIT DISTRIBUTION

The Board of Directors proposes to the Annual General Meeting that a dividend of EUR 0.15 (0.20) per share is distributed from the Group’s distributable equity and any remaining distributable funds are allocated to retained earnings. At December 31, 2015 the distributable equity totalled to EUR 29.2 million.

No material changes have taken place in the Group’s financial position after the end of the financial year. The Group’s liquidity is good and the view of the Board of Directors is that the distribution of the proposed dividend will not undermine this liquidity.

GOVERNANCE AND SHARE INFORMATION

The Board updated and approved the Corporate Governance Statement that is available on corporate website.

For information on shares, shareholders, share-based payment programs and Board’s authorizations, see the section Shares and Shareholders. Related party transactions and top management remuneration are disclosed in the note 28.

SHORT-TERM OUTLOOK

The Group’s outlook for 2016 is stable.

New product introductions and low fuel prices are expected to support consumer spending on fishing tackle in the biggest market in the USA. Simultaneously the outlook for the Russian market is very uncertain. In Europe competition is expected to tighten.

The sales of winter sports and ice fishing products are partly dependent on weather conditions and 2015/2016 season has started with somewhat unfavorable conditions.

The 80 year anniversary of Rapala Lures will be celebrated with special sales and marketing campaigns.

The operations of the Batam manufacturing unit have stabilized

5

RAPALA VMC CORPORATION

FINANCIAL STATEMENTS 2015

REVIEW OF THE BOARD OF DIRECTORS

EQUITY-TO-ASSETS RATIO %

==> picture [254 x 93] intentionally omitted <==

----- Start of picture text -----

50
43.2 42.2 44.5 44.1 44.7
40
30
20
10
0
11 12 13 14 15
----- End of picture text -----

DEBT-TO-EQUITY RATIO (GEARING) %

==> picture [254 x 90] intentionally omitted <==

----- Start of picture text -----

80 71.2 73.2 77.3
67.1 65.3
60
40
20
0
11 12 13 14 15
----- End of picture text -----

NET SALES BY UNIT LOCATION

==> picture [108 x 105] intentionally omitted <==

==> picture [78 x 39] intentionally omitted <==

----- Start of picture text -----

North America 36%
Nordic 20%
Rest of Europe 31%
Rest of World 13%
----- End of picture text -----

PERSONNEL AT THE END OF THE PERIOD

==> picture [254 x 99] intentionally omitted <==

----- Start of picture text -----

3 159
3 000
2 822
2 500 2 590
2 000 1 921 2 090
1 500
1 000
500
0
11 12 13 14 15
----- End of picture text -----

DIVIDEND[1)] /SHARE, EUR

==> picture [254 x 93] intentionally omitted <==

----- Start of picture text -----

0.25
0.23 0.23 0.24
0.20 0.20
0.15 0.15
0.10
0.05
0
11 12 13 14 15 [2)]
----- End of picture text -----

DIVIDEND[1)] /EARNINGS RATIO, %

==> picture [254 x 98] intentionally omitted <==

----- Start of picture text -----

80 88.5 83.3 86.3
74.3
60 63.7
40
20
0
11 12 13 14 15 [2)]
----- End of picture text -----

NET SALES BY OPERATING SEGMENTS

EFFECTIVE DIVIDEND YIELD, %[3)]

==> picture [108 x 100] intentionally omitted <==

==> picture [98 x 19] intentionally omitted <==

----- Start of picture text -----

Group Products 66%
Third Party Products 34%
----- End of picture text -----

==> picture [254 x 95] intentionally omitted <==

----- Start of picture text -----

6
5 4.74 4.62
4 4.07 4.25
3 3.16
2
1
0
11 12 13 14 15 [2)]
----- End of picture text -----

1) For the financial years 2) Board proposal 3) Share price Dec. 31

6

RAPALA VMC CORPORATION

FINANCIAL STATEMENTS 2015

AUDITOR'S REPORT

AUDITOR’S REPORT

TO THE ANNUAL GENERAL MEETING OF RAPALA VMC CORPORATION

We have audited the accounting records, the financial statements, the report of the Board of Directors, and the administration of Rapala VMC Corporation for the year ended December 31, 2015. The financial statements comprise the consolidated statement of financial position, income statement, statement of comprehensive income, statement of changes in equity and statement of cash flows, and notes to the consolidated financial statements, as well as the parent company’s balance sheet, income statement, cash flow statement and notes to the financial statements.

RESPONSIBILITY OF THE BOARD OF DIRECTORS AND THE MANAGING DIRECTOR

The Board of Directors and the Managing Director are responsible for the preparation of consolidated financial statements that give a true and fair view in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU, as well as for the preparation of financial statements and the report of the Board of Directors that give a true and fair view in accordance with the laws and regulations governing the preparation of the financial statements and the report of the Board of Directors in Finland. The Board of Directors is responsible for the appropriate arrangement of the control of the company’s accounts and finances, and the Managing Director shall see to it that the accounts of the company are in compliance with the law and that its financial affairs have been arranged in a reliable manner.

for the purpose of expressing an opinion on the effectiveness of the company’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements and the report of the Board of Directors.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

OPINION ON THE CONSOLIDATED FINANCIAL STATEMENTS

In our opinion, the consolidated financial statements give a true and fair view of the financial position, financial performance, and cash flows of the group in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU.

OPINION ON THE COMPANY’S FINANCIAL STATEMENTS AND THE REPORT OF THE BOARD OF DIRECTORS

In our opinion, the financial statements and the report of the Board of Directors give a true and fair view of both the consolidated and the parent company’s financial performance and financial position in accordance with the laws and regulations governing the preparation of the financial statements and the report of the Board of Directors in Finland. The information in the report of the Board of Directors is consistent with the information in the financial statements.

Helsinki, March 3, 2016

AUDITOR’S RESPONSIBILITY

Our responsibility is to express an opinion on the financial statements, on the consolidated financial statements and on the report of the Board of Directors based on our audit. The Auditing Act requires that we comply with the requirements of professional ethics. We conducted our audit in accordance with good auditing practice in Finland. Good auditing practice requires that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and the report of the Board of Directors are free from material misstatement, and whether the members of the Board of Directors of the parent company or the Managing Director are guilty of an act or negligence which may result in liability in damages towards the company or have violated the Limited Liability Companies Act or the articles of association of the company.

Ernst & Young Oy

Authorized Public Accountant Firm

Mikko Rytilahti

Authorized Public Accountant

Ernst & Young Oy, Alvar Aallon katu 5 C, 00100 Helsinki

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements and the report of the Board of Directors. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation of financial statements and report of the Board of Directors that give a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not

7

RAPALA VMC CORPORATION

FINANCIAL STATEMENTS 2015

CONSOLIDATED FINANCIAL STATEMENTS, IFRS

CONSOLIDATED FINANCIAL STATEMENTS, IFRS

CONSOLIDATED INCOME STATEMENT

CONSOLIDATED INCOME STATEMENT
EUR MILLION	2015	2014	NOTE
Net sales	278.2	273.2	2
Other operating income	1.0	1.0	4
Change in inventory of fnished products and
work in progress	2.2	2.8
Production for own use	0.2	0.1
Materials and services	-133.2	-131.0	6
Employee beneft expenses	-68.4	-65.6	7
Other operating expenses	-52.3	-50.8	5
Share of results in associates andjoint ventures	0.4	0.2	13
Operating proft before depreciation
and impairments	28.1	30.0
Depreciation and impairments	-7.1	-7.1	11, 12
Operating proft	21.0	22.9
Financial income and expenses	-6.8	-7.2	9
Proft before taxes	14.2	15.7
Income taxes	-6.1	-5.5	10
NET PROFIT FOR THE PERIOD	8.1	10.2
Attributable to
Equity holders of the Company	6.7	9.2
Non-controlling interests	1.4	1.0	14
Earnings per share			30
Earnings per share, EUR	0.17	0.24
Diluted earnings per share, EUR	0.17	0.24
Weighted average number of shares,
1 000 shares	38 366	38 506
Diluted weighted average number of shares,
1 000 shares	38 366	38 506

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

EUR MILLION	2015	2014
Net proft for the period	8.1	10.2
Other comprehensive income (net of tax)1)
Change in translation diferences2)	5.5	4.7
Defned beneft plans	0.1	-0.2
Cash fow hedging2)
Changes during the period	-0.3	-0.6
Reclassifcation adjustments	0.7	0.8
Cash fow hedging total	0.4	0.2
Net investments and related hedging2)
Changes duringtheperiod	-2.9	0.1
Net investments and related hedging total	-2.9	0.1
Other comprehensive income for the period, net of tax1)	3.2	4.8
TOTAL COMPREHENSIVE INCOME FOR THE PERIOD	11.3	15.1
Attributable to
Equity holders of the Company	11.0	15.3
Non-controlling interests	0.3	-0.2

1) The income tax relating to each of the component of the other comprehensive income is disclosed in the note 10.

2) Item that may be reclassified subsequently to the statement of income.

8

RAPALA VMC CORPORATION

FINANCIAL STATEMENTS 2015

CONSOLIDATED FINANCIAL STATEMENTS, IFRS

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

EUR MILLION 2015 2014 NOTE ASSETS Non-current assets Goodwill 50.1 47.9 11 Trademarks 25.6 22.4 11 Customer relations 1.1 1.4 11 Other intangible assets 1.4 2.7 11 Land 2.0 1.8 12 Buildings and structures 8.8 7.3 12 Machinery and equipment 14.4 16.0 12 Other tangible assets 7.5 5.4 12 Advance payments and construction in progress 1.1 1.5 12 Investment in associates and joint ventures 1.5 1.0 13 Available-for-sale fnancial assets 0.3 0.3 15 Interest-bearing receivables1) 2.8 3.0 16 Non-interest-bearing receivables 0.7 1.4 16 Deferred tax assets 9.4 8.7 10 Total non-current assets 126.7 120.8 Current assets Inventories 116.2 113.8 17 Trade and other non-interest-bearing receivables 55.4 60.9 16 Income tax receivable 2.7 1.4 Interest-bearing receivables1) 1.0 1.1 16 Cash and cash equivalents1) 11.4 12.2 18 Total current assets 186.7 189.4 TOTAL ASSETS 313.4 310.3	EUR MILLION 2015 2014 NOTE
	SHAREHOLDERS’ EQUITY AND LIABILITIES Equity Share capital 3.6 3.6 Share premium fund 16.7 16.7 Fair value reserve -0.7 -1.1 Fund for invested non-restricted equity 4.9 4.9 Own shares -5.4 -5.2 Retained earnings 105.7 100.3 Net income for theperiod 6.7 9.2
	Equity attributable to equity holders of the Company 131.5 128.3 19
	Non-controlling interests 8.5 8.2 14
	Total equity 140.0 136.5
	Non-current liabilities Interest-bearing liabilities1) 58.6 72.3 24 Non-interest-bearing liabilities 1.4 2.0 25 Employee beneft obligations 2.3 2.3 20 Deferred tax liabilities 9.7 9.0 10
	Total non-current liabilities 72.0 85.5
	Current liabilities Interest-bearing liabilities1) 64.8 43.9 24 Trade and other non-interest-bearing payables 34.9 42.2 25 Income tax payable 1.7 1.4 Provisions 0.0 0.6 21
	Total current liabilities 101.5 88.2
	TOTAL SHAREHOLDERS’ EQUITY AND LIABILITIES 313.4 310.3

1) Included in net interest-bearing debt.

9

RAPALA VMC CORPORATION

FINANCIAL STATEMENTS 2015

CONSOLIDATED FINANCIAL STATEMENTS, IFRS

CONSOLIDATED STATEMENT OF CASH FLOWS

		2014
EUR MILLION	2015	RESTATED1)	NOTE
Net proft for the period	8.1	10.2
Adjustments
Income taxes	6.1	5.5	10
Financial income and expenses	6.8	7.2	9
Reversal of non-cash items
Depreciation and impairments	7.1	7.1	11, 12
Exchange rate diferences	2.8	-3.5	9
Share of results in associated companies
and joint ventures	-0.4	-0.2	13
Gains/losses on disposals of intangible,
tangible assets and subsidiaries	0.1	0.5
Other items	-0.6	0.6
Total adjustments	21.8	17.1
Financial items
Interest paid	-3.5	-2.9
Interest received	0.2	0.4
Income taxes paid	-7.7	-3.7
Other fnancial items, net	-0.1	-0.9
Total Financial items	-11.1	-7.1
Change in working capital
Change in receivables	5.0	4.3
Change in inventories	-1.6	-4.9
Change in liabilities	-6.7	2.0
Total change in working capital	-3.3	1.5
Net cashgenerated from operating activities	15.6	21.7
Net cash used in investing activities
Acquisition of intangible assets	-0.4	-0.7	11
Proceeds from sale of tangible assets	0.2	0.4	12
Acquisition of tangible assets	-8.7	-7.9	12
Acquisition of Sufx trademark	-0.9	-0.8	3
Acquisition of other subsidiaries, net of cash		-0.2	3
Proceeds from disposal of Willtech Gift,
net of cash	1.1	1.0	3
Change in interest-bearingreceivables	0.0	0.0
Total net cash used in investing activities	-8.6	-8.1

		2014
EUR MILLION	2015	RESTATED1	NOTE
Net cash generated from fnancing activities
Dividends paid to parent company shareholders	-7.7	-9.2
Dividends paid to non-controlling interest		-3.6
Purchase of own shares	-0.2	-0.9
Non-current loan withdrawals	0.0	40.0
Current loan withdrawals	121.7	130.1
Non-current loan repayments	-1.7	-10.0
Current loan repayments	-120.0	-164.2
Payment of fnance lease liabilities	0.0	-0.1
Total net cash generated from fnancing activities	-7.8	-17.9
Change in cash and cash equivalents	-0.9	-4.2
Cash and cash equivalents at the beginning
of the period	12.2	16.9
Foreign exchange rate efect	0.1	-0.5
CASH AND CASH EQUIVALENTS
AT THE END OF THE PERIOD	11.4	12.2	18

1) Restated, see note 1

10

RAPALA VMC CORPORATION

FINANCIAL STATEMENTS 2015

CONSOLIDATED FINANCIAL STATEMENTS, IFRS

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

EUR MILLION	ATTRIBUTABLE TO EQUITY HOLDERS OF THE COMPANY SHARE CAPITAL SHARE PREMIUM FUND FAIR VALUE RESERVE FUND FOR INVESTED NON- RESTRICTED EQUITY OWN SHARES TRANSLATION DIFFERENCES RETAINED EARNINGS NON- CONTROLLING INTEREST TOTAL EQUITY
Equity on Jan. 1, 2014	3.6 16.7 -1.4 4.9 -4.4 -12.5 116.2 12.0 135.1
Net proft for the period Other comprehensive income1) Translation diferences Defned beneft plans Cash fow hedging Net investments and related hedging	9.2 1.0 10.2 6.0 -1.3 4.7 -0.2 -0.2 0.2 0.2 0.1 0.1
Total comprehensive income	0.2 6.1 9.0 -0.2 15.1
Purchase of own shares Dividends paid	-0.9 -0.9 -9.2 -3.6 -12.8
EQUITY ON DEC. 31, 2014	3.6 16.7 -1.1 4.9 -5.2 -6.5 116.0 8.2 136.5
Net proft for the period Other comprehensive income1) Translation diferences Defned beneft plans Cash fow hedging Net investment and related hedging	6.7 1.4 8.1 5.9 -0.3 5.5 0.1 0.1 0.4 0.4 -2.0 -0.8 -2.9
Total comprehensive income	0.4 3.8 6.7 0.3 11.3
Purchase of own shares Dividends paid	-0.2 -0.2 -7.7 -7.7
EQUITY ON DEC. 31, 2015	3.6 16.7 -0.7 4.9 -5.4 -2.6 115.0 8.5 140.0

1) Net of tax

11

RAPALA VMC CORPORATION

FINANCIAL STATEMENTS 2015

CONSOLIDATED FINANCIAL STATEMENTS, IFRS

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

ACCOUNTING PRINCIPLES 1 FOR THE CONSOLIDATED ACCOUNTS

ADOPTION OF NEW AND AMENDED STANDARDS AND INTERPRETATIONS IN 2016–2019

In 2016, the Group will adopt the following new, revised or amended standards and interpretations:

COMPANY’S BACKGROUND

Rapala VMC Corporation (“company”) is a Finnish public limited liability company organized under the laws of Finland, domiciled in Asikkala and listed on the Nasdaq Helsinki stock exchange since 1998. The parent company Rapala VMC Corporation and its subsidiaries (“the Group”) operate in some 40 countries and the company is one of the leading fishing tackle companies in the world.

The consolidated financial statements have been prepared for the accounting period of 12 months from January 1 to December 31, 2015. The Board of Directors of the company has approved these financial statements for publication at its meeting on February 8, 2016. Under Finland’s Companies Act, shareholders have the option to accept or reject the financial statements in a meeting of shareholders, which will be held after the publication of the financial statements. The meeting has also the option of changing the financial statements.

A copy of the consolidated financial statements is available at the Group’s website www.rapalavmc.com or from Mäkelänkatu 91, 00610 Helsinki, Finland.

BASIS FOR PREPARING THE CONSOLIDATED FINANCIAL STATEMENTS

The consolidated financial statements have been prepared in accordance with the International Financial Reporting Standards (IFRS), including IAS and IFRS standards as well as the SIC and IFRIC interpretations in effect on December 31, 2015. The term ‘IFRS standards’ refers to standards and interpretations which are approved and adopted by the European Union (regulation EY 1606/2002) and thus are in force in the Finnish legislation. The Group has not early adopted any new, revised or amended standards or interpretations.

The consolidated financial statements have been prepared on a historical cost basis, unless otherwise stated.

APPLIED NEW AND AMENDED STANDARDS AND INTERPRETATIONS

The Group adopted in 2015 the following revised or amended standards.

• IAS 19 Defined Benefit Plans – Employee Contributions (amendment). The amendment clarifies the requirements that relate to how contributions from employees or third parties that are linked to service should be attributed to periods of service. The amendment did not have a material impact on the Group’s consolidated financial statements.

Additionally, the IFRS standards’ annual improvement project’s amendments which have been approved for application in the EU have been taken into account in the consolidated financial statements.

• IAS 1 Presentation of Financial Statements – Disclosure Initative (amendment). The amendment obligates to assess the relevance and presentation of disclosures. The change is not expected to have a material impact on the Group’s consolidated financial statements.

• IAS 16 Property Plant and Equipment and IAS 38 Intangible Assets – Clarification of Acceptable Methods of Depreciation and Amortization (amendment). The amendments clarify that a revenue-based method is not considered to be an appropriate manifestation of consumption. The change is not expected to have a material impact on the Group’s consolidated financial statements.

• IAS 16 Property Plant and Equipment and IAS 41 Agriculture – Bearer Plants (amendment). The amendments bring bearer plants into the scope of IAS 16. The change is not expected to have a material impact on the Group’s consolidated financial statements.

• IAS 27 Separate Financial Statement – Equity Method in Separate Financial Statement (amendment). The amendments reinstate the equity method as an accounting option for investments in subsidiaries, joint ventures and associates in an entity’s separate financial statements. The change is not expected to have a material impact on the Group’s consolidated financial statements.

• IFRS 11 Joint arrangements – Accounting for Acquisitions of Interests in Joint Operations (amendment). The amendment clarifies the relationship of the standard to IFRS 3 and other relevant standards when accounting for the acquisition of an interest in a joint operation, in circumstances in which the activity of the joint operation constitutes a business. The change is not expected to have a material impact on the Group’s consolidated financial statements.

• IFRS 10 Consolidated Financial Statements, IFRS 12 Disclosures of Interest in Other Entities and IAS 28 Investments in Associates and Joint Ventures – Investment entities: Applying the Consolidation Exception (amendment). The amendment addresses the issues in relation to the exemption from consolidation for investment entities. The change is not expected to have a material impact on the Group’s consolidated financial statements. The amendment has not yet been approved for application in the EU.

In 2017 or later, the Group will adopt the following new, revised or amended standards and interpretations:

• IAS 7 Statement of Cash Flows – Disclosure Initiative (amendment, effective for annual periods beginning on or after January, 1 2017). The amendment increases the amount of disclosures related to changes in liabilities arising from financing activities. The Group investigates this new standard’s impact on the Group’s consolidated financial statements. This new standard has not yet been approved for application in the EU.

• IAS 12 Income Taxes – Recognition of Deferred Tax Assets for Unrealized Losses (amendment, effective for annual periods beginning on or after January, 1 2017). The amendment harmonizes the accounting for deferred tax assets for unrealized

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32

12

RAPALA VMC CORPORATION

FINANCIAL STATEMENTS 2015

CONSOLIDATED FINANCIAL STATEMENTS, IFRS

losses on debt instruments. The Group investigates this new standard’s impact on the Group’s consolidated financial statements. This new standard has not yet been approved for application in the EU.

• IFRS 9 Financial Instruments (new, effective for annual periods beginning on or after January 1, 2018). This new standard will replace the current standard IAS 39 Financial Instruments: Recognition and Measurement. The Group investigates this new standard’s impact on the Group’s consolidated financial statements. This new standard has not yet been approved for application in the EU.

• IFRS 15 Revenue from Contracts with Customers (new, effective for annual periods beginning on or after January, 1 2018). New standard sets a framework for recognizing revenue to depict the transfer of promised goods or services to the customer in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The change is not expected to have a material impact on the Group’s consolidated financial statements. This new standard has not yet been approved for application in the EU.

• IFRS 16 Leases (new, effective for annual periods beginning on or after January 1, 2019). The new standard specifies how to recognize, measure, present and disclose leases. The standard will have impact on the recognition of lease expenses, non-current assets and interest bearing liabilities. The Group investigates this new standard’s impact on the Group’s consolidated financial statements in more detail. This new standard has not yet been approved for application in the EU.

CONSOLIDATION PRINCIPLES

The consolidated financial statements comprise the financial statements of the company and its subsidiaries in which it has control. The control is based either to governing power established through direct or indirect holding of over 50% of the voting rights and/or control established through other means. The financial statements of the subsidiaries are prepared for the same accounting period as the company, using consistent accounting policies.

Acquired subsidiaries are accounted for using the acquisition cost method, according to which the assets and liabilities of the acquired company are measured at fair value at the date of acquisition. The excess of the consideration over the fair value of net assets acquired is recognized as goodwill. If the cost of acquisition is less than the fair value of the Group’s share of the net assets acquired, the difference is recognized directly through income statement. Goodwill on consolidation is not amortized but tested for impairment annually. Consideration includes the fair value of any contingent consideration arrangement. Also, cost directly related to acquisition were included in the cost of acquisition up to 1 January 2010. The consolidated financial statements include the results of acquired companies for the period from the completion of the acquisition. Conversely, divestments are included up to their date of sale.

Associated companies are companies where the Group holds voting rights of 20–50% and/or in which the Group has significant influence, but not control. Joint ventures are companies, over which the Group has contractually agreed to share control with another venturer. Currently associated companies and joint ventures are included in the consolidated financial statements using the equity method. Under the equity method, the Group’s share of the profit or loss of an associate or a joint venture is recognized in the consolidated income statement before operating profit.

The Group’s interest in an associated company or a joint venture is carried in the balance sheet at an amount that reflects the Group’s share of the net assets of the associate or joint venture together

with goodwill on acquisition, as amortized, less any impairment. Unrealized gains, if any, between the Group and the associated companies or joint ventures are eliminated to the extent of the Group’s ownership. Associated companies’ and joint ventures’ financial statements have been converted to correspond with the accounting principles in use in the Group. If the Group’s share of losses exceeds the carrying amount of the investment, the carrying amount is reduced to nil and any recognition of further losses ceases unless the Group has incurred obligations in respect of the associated companies or joint venture.

The investments in subsidiaries have been eliminated using the acquisition cost method. All transactions between Group companies as well as assets and liabilities, dividends and unrealized internal margins in inventories and tangible assets have been eliminated in the consolidated financial statements. Non-controlling interest is presented separately from the net profit and disclosed as a separate item in the equity in accordance with the share of the noncontrolling interest. All transactions with non-controlling interests are recorded in equity when the parent company remains in control. When the Group loses the control in a subsidiary, the remaining investment is recognized at fair value through the income statement.

FOREIGN CURRENCY TRANSACTIONS AND TRANSLATIONS

Each entity in the Group determines its own functional currency and items included in the financial statements of each entity are measured using that functional currency.

Foreign currency transactions are translated into functional currency using the exchange rates prevailing at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are retranslated at the functional currency rate of exchange ruling at the balance sheet date. Non-monetary items denominated in foreign currency, measured at fair value, are translated using the exchange rates at the date when the fair value was determined. Other non-monetary items have been translated into the functional currency using the exchange rate on the date of the transaction. Foreign exchange gains and losses for operating business items are recorded in the appropriate income statement account before operating profit. Foreign exchange gains and losses from the translation of monetary interest-bearing assets and liabilities denominated in foreign currencies are recognized in financial income and expenses. Exchange differences arising on a monetary item that forms a part of a net investment in a foreign operation are recognized in the statement of other comprehensive income and recognized in profit or loss on disposal of the foreign operation.

The consolidated financial statements are presented in euros, which is the company’s functional and reporting currency. Income statements of subsidiaries, whose functional and reporting currencies is not euro, are translated into the Group reporting currency using the average exchange rate for the year. Their balance sheets are translated using the exchange rate of balance sheet date. All exchange differences arising on the translation are entered in the statement of other comprehensive income and presented in equity. The translation differences arising from the use of the purchase method of accounting and after the date of acquisition as well as fair value changes of loans which are hedges of such investments are recognized in statement of other comprehensive income and presented in equity. On the disposal of a subsidiary, whose functional and reporting currency is not euro, the cumulative translation difference for that entity is recognized in the income statement as part of the gain or loss on the sale.

Any goodwill arising on the acquisition of a foreign company and any fair value adjustments to the carrying amounts of assets and liabilities arising on the acquisition are treated as assets and liabilities of the foreign subsidiary and translated using the

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31

32

13

RAPALA VMC CORPORATION

FINANCIAL STATEMENTS 2015

CONSOLIDATED FINANCIAL STATEMENTS, IFRS

exchange rate of balance sheet date. Goodwill and fair value adjustments arising from the acquisition prior to January 1, 2004 have been treated as assets and liabilities of the Group, i.e. in euros.

development costs that were initially recognized as an expense are not to be capitalized at a later date.

Amortization of such a product is commenced when it is available for use. Unfinished products are tested annually for impairment. Capitalized development expenses are amortized on a straight-line basis over their expected useful lives, a maximum of five years.

REVENUE RECOGNITION

Net sales comprise of consideration received less indirect sales taxes, discounts and exchange rate differences arising from sales denominated in foreign currency. Sales of goods are recognized after the significant risks and rewards of ownership of the goods have passed to the buyer and no significant uncertainties remain regarding the consideration, associated costs and possible return of goods. The costs of shipping and distributing products are included in other operating expenses. Revenues from services are recorded when the service has been performed.

Rental income arising from operating leases is accounted for on a straight-line basis over the lease terms. Royalty income is recorded according to the contents of the agreement. Interest income is recognized by the effective yield method. Dividend income is recognized when the company has acquired a right to receive the dividends.

GOODWILL

Goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of the net assets of the subsidiary, associated undertaking or joint venture acquired after January 1, 2004. Until 31.12.2009, any costs directly attributable to the business combination, such as professional fees, were included to the cost of an acquisition. From 1.1.2010 onwards, costs related to acquisitions are recognized directly to income statement. Goodwill from the combination of operations acquired prior to January 1, 2004 corresponds to the carrying amount according to the previous financial statement standards, which has been used as the assumed acquisition cost according to IFRS.

Goodwill is tested annually for impairment. For this purpose, goodwill has been allocated to cash generating units. Goodwill is measured at cost less any accumulated impairment loss, and is not amortized.

INCOME TAXES

The Group’s income tax expense includes taxes of the Group companies based on taxable profit for the period, together with tax adjustments for previous periods and the change in deferred income taxes. The income tax effects of items recognized directly in other comprehensive income are similarly recognized. The current tax expense for the financial year is calculated from the taxable profit based on the valid tax rate of each country. The tax is adjusted with possible taxes related to previous periods. The share of results in associated companies is reported in the income statement as calculated from net profit and thus including the income tax charge.

Deferred taxes are provided using the liability method, as measured with enacted tax rates, to reflect the temporary differences at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. The main temporary differences arise from the depreciation difference on tangible assets, fair valuation of net assets in acquired companies, intra-group inventory profits, defined benefit plans, inventories and other provisions, untaxed reserves and tax losses carried forward. Temporary differences are recognized as a deferred tax asset to the extent that it is probable that future taxable profits will be available, against which the deductible temporary difference can be utilized.

INTANGIBLE ASSETS

Intangible assets include customer relations, trademarks, capitalized development expenses, patents, copyrights, licenses and software. An intangible asset is recognized in the balance sheet only if it is probable that the future economic benefits that are attributable to the asset will flow to the Group, and the cost of the asset can be measured reliably. Intangible assets are stated at cost, amortized on a straight-line basis over the expected useful lives which vary from 3 to 15 years and adjusted for any impairment charges.

Trademarks and other intangible assets whose useful life is estimated to be indefinite are estimated to affect cash flow accumulation for an undefined period of time. The expected useful life for most trademarks is indefinite and therefore they are not amortized. These intangibles are measured at cost less any accumulated impairment loss and not amortized. Intangible assets with indefinite useful lives are tested for impairment annually. The valuation of intangible assets acquired in a business combination is based on fair value as at the date of acquisition.

Expected useful lives and indefinite lives of intangible assets are reviewed at each balance sheet date and, where they differ significantly from previous estimates, amortization periods are changed accordingly.

RESEARCH AND DEVELOPMENT COSTS

Research and development costs are expensed as they are incurred, unless they relate to a clearly defined project that meets certain criteria. Development costs for such projects are capitalized if they are separately identifiable and if the products are assessed to be technically feasible and commercially viable and the related future revenues are expected to exceed the aggregate deferred and future development costs and related production, selling and administrative expenses, and if adequate resources exist or will be available to complete the project. Capitalized development costs include all directly attributable material, employee benefit and testing costs necessary to prepare the asset to be capable of operating in the manner intended. Research and

TANGIBLE ASSETS

Tangible assets are stated at historical cost, amortized on a straight-line basis over the expected useful life and adjusted for any impairment charges. The valuation of tangible assets acquired in a business combination is based on fair value as at the date of acquisition. Land is not depreciated as it is deemed to have an indefinite life.

Depreciation is based on the following expected useful lives: Buildings and structures 10–25 years Machinery and equipment 5–10 years Other tangible assets 3–10 years

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32

14

RAPALA VMC CORPORATION

FINANCIAL STATEMENTS 2015

CONSOLIDATED FINANCIAL STATEMENTS, IFRS

Expected useful lives of tangible assets are reviewed at each balance sheet date and, where they differ significantly from previous estimates, depreciation periods are changed accordingly. Ordinary maintenance and repair costs are expensed as incurred. The cost of significant renewals and improvements are capitalized and depreciated over the remaining useful lives of the related assets. Gains and losses on sales and disposals are determined by comparing the received proceeds with the carrying amount and are included in the income statement in other operating income and expenses.

Depreciation of a tangible asset is discontinued when the tangible asset is classified as being held-for-sale in accordance with IFRS 5 standard Non-Current Assets Held-for-sale and Discontinued Operations.

BORROWING COSTS

Borrowing costs, that are directly attributable to the acquisition, construction or production of a qualifying asset, are capitalized as part of the cost of that asset. Other borrowing costs are expensed when incurred.

GOVERNMENT GRANTS

Government or other grants are recognized in the income statement as other operating income on a systematic basis over the periods necessary to match them with the related costs, which they are intended to compensate. Government grants relating to purchase of tangible assets are recognized as revenue on a systematic basis over the useful life of the asset when there is reasonable assurance that the grant will be received and all attaching conditions will be complied with. In the balance sheet, grants are deducted from the value of the asset they relate to. The grants are recognized to decrease depreciations over the useful life of the asset. Currently, all grants of the Group have been recognized in the income statement as other operating income.

IMPAIRMENTS OF TANGIBLE AND INTANGIBLE ASSETS

The carrying amounts of tangible and intangible assets are reviewed at each balance sheet date to determine whether there is any indication of impairment. If indication exists, the recoverable amount is measured. Indications of potential need for impairment may be for example changes in market conditions and sales prices, decisions on significant restructurings or change in profitability.

Goodwill, intangible assets with indefinite useful lives and unfinished intangible assets are in all cases tested annually. For the purposes of assessing impairment, assets are grouped at the lowest cash generating unit level for which there are separately identifiable, mainly independent, cash inflows and outflows.

An impairment loss is the amount by which the carrying amount of the assets exceeds the recoverable amount. The recoverable amount is determined by reference to discounted future net cash flows expected to be generated by the asset. Discount rate used is a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the asset. Impairment loss is immediately recognized in the income statement.

Impairment losses attributable to a cash-generating unit are used to deducting first the goodwill allocated to the cashgenerating unit and, thereafter, the other assets of the unit on an equal basis. The useful life of the asset to be depreciated is reassessed in connection with the recognition of the impairment loss. A previously recognized impairment loss is reversed only if

there has been a change in the estimates used to determine the recoverable amount. However, the reversal must not cause that the adjusted value is higher than the carrying amount that would have been determined if no impairment loss had been recognized in prior years. Impairment losses recognized for goodwill are not reversed.

ASSETS HELD-FOR-SALE

Non-current assets (or a disposal group) are classified as heldfor-sale, if their carrying amount will be recovered principally through the disposal of the assets rather than through continuing use. For this to be the case, the sale must be highly probable, the asset (or disposal group) must be available for immediate sale in its present condition subject only to terms that are usual and customary, the management must be committed to selling and the sale should be expected to qualify for recognition as a completed sale within one year from the date of classification.

Non-current assets held-for-sale (or assets included in the disposal group) are measured at the lower of carrying amount and fair value less estimated selling expenditure. After an asset has been classified as held-for-sale, it is not depreciated. If the classification criterion is not met, the classification is reversed and the asset is measured at the lower of carrying amount prior to the classification less depreciation and impairment, and recoverable amount. A non-current asset held-for-sale and assets included in the disposal group classified as held-for-sale are disclosed separately from the other asset items.

ACCOUNTING FOR LEASES

Group as a lessee

Leases of tangible assets, where the Group has substantially all the rewards and risks of ownership, are classified as finance leases. Finance leases are capitalized at the inception of the lease at the lower of the fair value of the leased asset or the estimated present value of the underlying lease payments.

Lease payments are apportioned between the finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. The corresponding rental obligations, net of finance charges, are included in interest-bearing liabilities with the interest element of the finance charge being recognized in the income statement over the lease period. Tangible assets acquired under finance lease contracts are depreciated over the shorter of the estimated useful life of the asset or lease period.

Leases of tangible assets, where the lessor retains all the risks and benefits of ownership, are classified as operating leases. Payments made there under, and under rental agreements, are expensed on a straight-line basis over the lease periods. Received incentives are deducted from the paid leases based on the time elapse of benefit.

Currently the Group does not have other arrangements that contain a lease.

Group as a lessor

Those leases under which the Group is a lessor are classified as operating leases. Leased assets are presented in the balance sheet under tangible assets according to the nature of the asset. They are depreciated over their estimated useful lives in accordance with the depreciation policy used for comparable assets in own use. Lease income is recognized in the income statement on a straight-line basis over the lease term.

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31

32

15

RAPALA VMC CORPORATION

FINANCIAL STATEMENTS 2015

CONSOLIDATED FINANCIAL STATEMENTS, IFRS

FINANCIAL ASSETS

Financial assets are classified as financial assets at fair value through profit or loss, financial assets held-to-maturity, loans and receivables, available-for-sale financial assets or as derivatives designated as hedging instruments in an effective hedge. The Group determines the classification of its financial assets after initial recognition and, where allowed and appropriate reevaluates this designation at each financial year-end. Financial assets include current and non-current assets and they can be interest-bearing or non-interest-bearing.

Financial assets at fair value through profit or loss include financial assets held-for-trading and financial assets designated upon initial recognition as at fair value through profit or loss. The Group has not applied the fair value option. Financial assets are classified as held-for-trading if they are acquired for the purpose of selling in the near term. All of the Group’s currency derivatives, which do not qualify for hedge accounting, are classified as financial assets held-for-trading. Financial assets classified as held-for-trading are measured at fair value. Unrealized and realized changes in fair value are recognized in the income statement.

Non-derivative financial assets with fixed or determinable payments and fixed maturity are classified as held-to-maturity when the Group has a positive intention and ability to hold to maturity. They are measured at amortized cost using the effective interest method.

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Loans and receivables are measured at amortized cost using the effective interest rate method less any allowance for impairment. Initially recognized amount includes directly attributable transaction costs. Gains and losses are recognized in the income statement when loans and receivables are derecognized, impaired, and through the amortization process.

Financial assets that are not classified in the preceding categories are classified as available-for-sale. When available-forsale financial assets are recognized initially, they are measured at fair value by using quoted market rates and market prices, discounted cash flow analyses and other appropriate valuation models. Certain unlisted shares for which fair values cannot be measured reliably are reported at cost less impairment. The fair value changes of available-for-sale financial assets, net of tax, are recognized as other comprehensive income. Changes in fair value are transferred from the statement of other comprehensive income to the income statement when the instrument is sold or its value has fallen so that an impairment loss has to be recognized for the instrument. Purchases and sales of available-for-sale financial assets are recognized on the trade date.

DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGE ACCOUNTING

The Group is exposed to financial risks related especially to changes in foreign currency exchange rates and interest rates for loans and borrowings. Derivative financial instruments are used, from time to time, to hedge financial risk. All derivatives are initially recognized at fair value on the date derivative contract is entered into, and are subsequently remeasured at fair value on each balance sheet date. Determination of fair values is based on quoted market prices and rates, discounting of cash flows and option valuation models. The fair values of these instruments are either computed by Bloomberg market data tool by the company or received from the respective bank. Currently, the Group does not

have embedded derivatives.

Derivatives may be designated as hedging instruments, in which case hedge accounting is applied. At the inception of a hedge relationship, the Group designates and documents the hedge relationship to which the Group wishes to apply hedge accounting and the risk management objective and strategy for undertaking the hedge. The documentation includes identification of the hedging instrument, the hedged item or transaction, the nature of the risk being hedged and how the entity will assess the effectiveness of changes in the hedging instrument’s fair value in offsetting the exposure to changes in the hedged item’s fair value or cash flows attributable to the hedged risk. Such hedges are expected to be highly effective in achieving offsetting changes in fair value or cash flows and are assessed on an ongoing basis to determine that they actually have been highly effective throughout the financial reporting periods for which they were designated. In the case hedge accounting is applied, the accounting for hedging instruments is dependent on the particular nature of the hedging relationship.

In cash flow hedges, changes in the fair value of derivative financial instruments that are designated and effective as hedges of future cash flows are recognized as other comprehensive income and the ineffective portion is recognized immediately in the income statement. Accumulated fair value changes recognized in the statement of other comprehensive income are reclassified into income statement in the period when the hedged cash flow affects income. Changes in fair value of derivative instruments are recognized in the income statement based on their nature either in the operative costs if the hedged item is an operative foreign currency transaction or as financial income or expenses, if the hedged item is a monetary transaction.

Changes of the fair value of derivative financial instruments that are designated and qualify as fair value hedges are recorded in the income statement together with the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk.

The changes in the fair values of derivatives that are designated as hedging instruments but are not accounted for according to the principles of hedge accounting are recognized in the income statement based on their nature either in the operative costs, if the hedged item is an operative transaction, or as financial income or expenses, if the hedged item is a monetary transaction.

In principal, the fair values of derivative instruments are presented in the statement of financial position under short-term or long-term non-interest bearing assets or liabilities based on their maturity. Derivative instruments that are designated and qualify as fair value hedges of monetary assets or liabilities, are presented in the same group of interest-bearing assets or liabilities as the hedged instrument.

Effective portion of changes in the fair values of foreign currency hedges used against the translation differences arising from the consolidation of net investments in foreign subsidiaries are recognized in translation differences in the statement of other comprehensive income. The ineffective portion is recognized in financial income and expenses. Accumulated fair value changes recognized in the items of other comprehensive income are reclassified into income statement if the hedged subsidiary is disposed of partially or in its entity.

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32

16

RAPALA VMC CORPORATION

FINANCIAL STATEMENTS 2015

CONSOLIDATED FINANCIAL STATEMENTS, IFRS

FINANCIAL LIABILITIES

Financial liabilities are classified into the following categories: derivatives designated as hedging instruments in an effective hedge, financial liabilities at fair value through profit or loss (including other derivatives) and financial liabilities measured at amortized cost. Financial liabilities, except derivatives, are initially recognized at the fair value of the consideration received plus directly attributable transactions costs. After initial recognition, they are subsequently measured at amortized cost using the effective interest method. Also commercial paper programs are measured at amortized cost. Gains and losses are recognized in the income statement when the liabilities are derecognized, impaired and through the amortization process.

Financial liabilities include current and non-current liabilities and they can be interest-bearing or non-interest-bearing. Contingent considerations of business combinations are classified as non-interest-bearing financial liabilities.

reversal is recognized in the statement of other comprehensive income. An impairment loss in respect of an unquoted equity instrument that is not carried at fair value, because its fair value cannot be reliably measured, cannot be reversed.

INVENTORIES

Inventories are valued at the lower of cost or net realizable value. Cost is determined by the first-in, first-out (FIFO) method or, alternatively, weighted average cost where it approximates FIFO. The cost of finished goods and work in progress comprises raw materials, direct labor, depreciation, other direct costs and related production overheads, but excludes borrowing costs. Net realizable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and the estimated costs necessary to make the sale.

TRADE RECEIVABLES

RECOGNITION AND DERECOGNITION OF FINANCIAL ASSETS AND LIABILITIES

Financial assets and liabilities, except for derivatives and available-for-sale financial assets, are recognized at the settlement date. A financial asset or a financial liability is recognized on the balance sheet only when the Group becomes a party to the contractual provisions of the financial instrument.

A financial asset is derecognized only when the contractual rights to the cash flows from the financial asset expire or when it transfers the financial asset, so that all the risks and rewards of ownership of the financial asset are substantially transferred. A financial liability or a part of a financial liability is removed from the balance sheet only when it is extinguished, that the obligation specified in the contract is discharged or cancelled or expires.

IMPAIRMENT OF FINANCIAL ASSETS

The Group assesses at each balance sheet date whether a financial asset or group of financial asset is impaired. An impairment loss in respect of loans and receivables is measured as the difference between its carrying amount, and the present value of the estimated future cash flows discounted at the original effective interest rate. An impairment loss in respect of an available-for-sale financial asset is measured as a difference between its acquisition costs and its current fair value, less any impairment loss on that financial asset previously recognized in the income statement. An impairment loss in respect of an unquoted equity instrument that is not carried at fair value, because its fair value cannot be reliably measured, is measured as the difference between the carrying amount of the financial asset and the present value of estimated future cash flows discounted at the current market rate of return for a similar financial asset.

All impairment losses are recognized in the income statement. Any cumulative loss in respect of an available-for-sale financial asset recognized previously in the items of other comprehensive income is reclassified into income statement when the asset is sold or when the impairment is permanent.

A previously recognized impairment loss is reversed if the reversal can be related objectively to an event occurring after the impairment loss was recognized. For financial assets amortized at cost and available-for-sale financial assets that are debt securities, the reversal is recognized in the income statement. For available-for-sale financial assets that are equity securities, the

Trade receivables are carried at their anticipated realizable value, which is the original invoice amount less an estimated valuation allowance. A credit loss allowance of trade receivables is made when there is objective evidence (such as significant overdue of receivables and unsuccessful dunning attempts or known financial difficulties and thus increased probability of customer insolvency) that the Group will not be able to collect all amounts due according to the original terms of the receivables. The assessment and decision for credit loss allowances is done locally in each business unit on case-by-case basis.

CASH AND CASH EQUIVALENTS

Cash and cash equivalents comprise cash in hand, deposits held at call with banks and other short-term highly liquid investments with original maturities of three months or less. Bank overdrafts are included within borrowings in current interest-bearing loans.

OWN SHARES

Own shares acquired by the Group, including directly attributable costs, are presented as a deduction from the total equity on the day of trading in the consolidated financial statements. Purchases or subsequent sales of treasury shares are presented as changes in equity.

PROVISIONS

Provisions are recognized in the balance sheet when the Group has a present legal or constructive obligation as a result of a past event, and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. Where the Group expects some or all of a provision to be reimbursed, the reimbursement is recognized as a separate asset but only when the reimbursement is virtually certain. Provisions are valued at the net present value of the expenses required to cover the obligation. The discount factor used when calculating present value is selected so that it describes the market view of the time value of the money and the risk relating to the obligation at the time of examination.

A warranty provision is recognized when a product containing a warranty clause is sold. The size of the sum involved is determined

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32

17

RAPALA VMC CORPORATION

FINANCIAL STATEMENTS 2015

CONSOLIDATED FINANCIAL STATEMENTS, IFRS

on the basis of what is known about past warranty costs. A restructuring provision is recognized when the Group has compiled a detailed restructuring plan, launched its implementation or has informed the parties concerned.

WASTE ELECTRICAL AND ELECTRONIC EQUIPMENT

The Group is a distributor of electrical equipment that falls under the EU Directive on Waste Electrical and Electronic Equipment. Expected costs are recognized as part of other operating expenses and as a current non-interest-bearing payable.

EMPLOYEE BENEFITS

Employee benefit obligations

Throughout the Group operates various pension plans in accordance with local conditions and practices. The plans are classified as either defined contribution plans or defined benefit plans. The contributions to defined contribution plans are charged to the income statement in the year to which they relate.

For defined benefit plans, costs are assessed using the projected unit credit actuarial valuation method, in which the cost of providing benefit is charged to the income statement so as to spread the regular cost over the service lives of employees in accordance with the advice of qualified actuaries who carry out a full valuation of the plan. The benefit obligation is measured as the present value of estimated future cash outflows. Defined benefit liability comprises of the present value of the defined benefit obligation less the fair value of plan assets. All actuarial gains and losses are recognized in other comprehensive income immediately as they occur. The past service cost is recognized as an expense in the income statement.

Share-based payments

Share-based payment programs are valued at fair value on the grant date and recognized as an expense in the income statement during the vesting period with a corresponding adjustment to the equity or liability. In the cash settled option program the liability is revalued at each balance sheet date with changes in fair value recognized in the income statement. The income statement effect of the share-based payments programs is recognized in employee benefit expenses.

The expense of the share-based payments determined at the grant date reflects the Group’s estimate of the number of options or share rewards that will ultimately vest. Grant date is the date at which the entity and another party agree to a share-based payment arrangement, being when the entity and the counterparty have a shared understanding of the terms and conditions of the arrangement. The options are valued at fair value using BlackScholes option-pricing model. The non-market criteria are not included in the fair value of the option but taken into account in the number of options that are assumed to vest. On a regular basis the Group reviews the assumptions made and revises its estimates of the share-based payments that are expected to be settled. The changes in the estimates are recognized in the income statement with a corresponding adjustment to the equity or liability.

When the share options are exercised, the proceeds received, net of any transaction costs, are credited in the fund for invested non-restricted equity.

EARNINGS PER SHARE

Earnings per share is calculated by dividing the net profit attributable to the shareholders of the company by the weighted average number of shares in issue during the year, excluding shares purchased by the Group and held as treasury shares, if any.

Diluted earnings per share amounts have been calculated by applying the “treasury stock” method, as if the options were exercised at the beginning of the period, or on the issuance of options, if that occurs later during the period, and as if the funds obtained thereby were used to purchase common stock at the average market price during the period. In addition to the weighted average number of shares outstanding, the denominator includes the incremental shares obtained through the assumed exercise of the options. The assumption of exercise is not reflected in earnings per share when the exercise price of the options exceeds the average market price of the shares during the period. The share options have a diluting effect only when the average market price of the share during the period exceeds the exercise price of the options.

OPERATING PROFIT

The IAS 1 (Presentation of Financial Statements) standard does not define operating profit. The Group has defined it as follows: Operating profit is the net amount arising from adding other operating income and share of results in associates and joint ventures to net sales, deducting cost of sales corrected for changes in inventories and cost of production for own use, deducting costs related to employee benefits, depreciation and possible impairments as well as other operating expenses. Foreign exchange differences and changes in the fair value of derivative financial instruments are included in operating profit in case they originate from operating business items; otherwise they are booked in financial income and expenses.

CASH FLOW STATEMENT

Presentation of statement of cash flows has been updated from the beginning of 2015 to better distinguish the three types of financial activities. Previously unrealized foreign exchange impact from elimination of internal transactions was presented separately under adjustments. Also the cash flow from derivative instruments was included fully in net cash generated from operating activities. After the change the unrealized foreign exchange impact related to the elimination of internal transactions and cash flow from derivative instruments are presented according to their nature. This resulted in changes between the three financial activities.

Cash and cash equivalents presented in the cash flow statement comprise cash in hand, deposits held at call with banks and other short-term highly liquid investments with original maturities of three months or less. Cash generated from operating activities has been reported using the indirect method. All income taxes paid during the financial year are presented in net cash generated from operating activities, unless they can be particularly allocated to net cash from (used in) investing or financing activities. Unrealized exchange gains and losses from cash and cash equivalents denominated in foreign currencies are presented on a separate row before cash and cash equivalents at the end of period, separate from cash generated from (used in) operating, investing and financing activities.

DIVIDEND

The dividend proposed by the Board of Directors is not deducted from distributable equity until approved by the Annual General Meeting of Shareholders.

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32

18

RAPALA VMC CORPORATION

FINANCIAL STATEMENTS 2015

CONSOLIDATED FINANCIAL STATEMENTS, IFRS

Comparative period has been restated and changes to previously reported figures are disclosed below:

Statement of cash fows
	2014	ADJUST-	2014
EUR MILLION	REPORTED	MENT	ADJUSTED
Net proft for the period	10.2		10.2
Adjustments
Income taxes	5.5		5.5
Financial income and expenses	7.2		7.2
Reversal of non-cash items
Depreciation and impairments	7.1		7.1
Exchange rate diferences	-3.5		-3.5
Share of results in
associated companies and joint ventures	-0.2		-0.2
Gains/losses on disposals of intangible,
tangible assets and subsidiaries	0.5		0.5
Other items	0.6		0.6
Total adjustments	17.1		17.1
Financial items
Interest paid	-2.9		-2.9
Interest received	0.4		0.4
Income taxes paid	-3.7		-3.7
Other fnancial items, net	-1.1	0.2	-0.9
Total Financial items	-7.3	0.2	-7.1
Change in working capital
Change in receivables	3.7	0.6	4.3
Change in inventories	-4.9		-4.9
Change in liabilities	2.7	-0.7	2.0
Total change in working capital	1.5	-0.1	1.5
Net cash generated
from operating activities	21.6	0.1	21.7
Net cash used in investing activities
Acquisition of intangible assets	-0.7		-0.7
Proceeds from sale of tangible assets	0.4		0.4
Acquisition of tangible assets	-7.9		-7.9
Acquisition of Sufx trademark	-0.8		-0.8
Acquisition of other subsidiaries, net of cash	-0.2		-0.2
Proceeds from disposal of Willtech Gift, net of
cash	1.0		1.0
Change in interest-bearingreceivables	0.1	-0.1	0.0
Total net cash
used in investing activities	-8.0	-0.1	-8.1
Net cash generated from fnancing activities
Dividends paid to parent company shareholders	-9.2		-9.2
Dividends paid to non-controlling interest	-3.6		-3.6
Purchase of own shares	-0.9		-0.9
Non-current loan withdrawals	40.0		40.0
Current loan withdrawals	130.1		130.1
Non-current loan repayments	-10.0		-10.0
Current loan repayments	-164.4	0.2	-164.2
Payment of fnance lease liabilities	-0.1		-0.1
Total net cash generated from fnancing activities	-18.1	0.2	-17.9
Adjustments	0.3	-0.3
Change in cash and cash equivalents	-4.2		-4.2
Cash and cash equivalents at the beginning of
the period	16.9		16.9
Foreign exchange rate efect	-0.5		-0.5
CASH AND CASH
EQUIVALENTS AT THE END OF THE PERIOD	12.2		12.2

NON-RECURRING ITEMS

In order to improve comparability between reporting periods, the Group classifies certain items as non-recurring in its financial reporting. Non-recurring items include mainly income and expenses related to restructurings of Group’s business operations, nonrecurring impairments of assets, external costs related to mergers and acquisitions and other exceptional non-recurring items which materially distort the comparability of the Group’s underlying profitability.

CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS

The preparation of the consolidated financial statements in accordance with IFRS requires management to make certain estimates and assumptions that affect the amounts recognized in the consolidated financial statements and accompanying notes. Actual results may differ from these estimates. In addition, judgment has to be exercised in applying the accounting principles of the financial statements. Management’s estimates and assumptions are based on historical experience and plausible future scenarios, which are continually evaluated. Possible changes in estimates and assumptions are recognized in the accounting period during which estimates and assumptions were fixed and in all subsequent accounting periods.

The key assumptions concerning the future and other key sources of uncertainty related to estimations at the balance sheet date, that have significant risk of causing material adjustments to the carrying amounts of assets and liabilities within the next accounting period, are discussed below.

Determining fair value of acquisitions

The fair values of acquired working capital and tangible assets were evaluated by the Group and when needed external appraisal personnel before the acquisition. The fair value of intellectual property rights (trademarks, patents and technology) and customer relations are established with discounting the related cash flows.

Impairment testing

The carrying amounts of tangible and intangible assets are reviewed at each balance sheet date to determine whether there is any indication of impairment. Goodwill, intangible assets with indefinite useful lives and unfinished tangible assets are in all cases tested annually. For the purposes of assessing impairment, assets are grouped at the lowest cash generating unit level for which there are separately identifiable, mainly independent, cash inflows and outflows. An impairment loss is the amount by which the carrying amount of the assets exceeds the recoverable amount. The recoverable amount is determined by reference to discounted future net cash flows expected to be generated by the asset. These calculations require the use of estimates.

Income taxes

The Group reviews at each balance sheet date especially the carrying amount of deferred tax assets. Deferred taxes are provided using the liability method, as measured with enacted tax rates, to reflect the temporary differences at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. The main temporary differences arise from the depreciation difference on tangible assets, fair valuation of net assets in acquired companies, intra-group inventory profits, defined benefit plans, inventories and other provisions, untaxed reserves and tax losses carried forward. Temporary differences are recognized as a deferred tax asset to the extent that it is probable that future taxable profits will be available, against which the deductible

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31

32

19

RAPALA VMC CORPORATION

FINANCIAL STATEMENTS 2015

CONSOLIDATED FINANCIAL STATEMENTS, IFRS

temporary difference can be utilized. The likelihood for the recovery of deferred tax assets from future taxable income is assessed, and to the extent the recovery is not considered likely the deferred asset is adjusted in accordance. At each balance sheet date the Group reviews whether distribution of earnings in subsidiaries is in its control and probable, and books a deferred tax accordingly.

Hyperinflation

The Group may have operations in hyperinflatory economies. The financial statements of a subsidiary whose functional currency is the currency of a hyperinflationary economy are restated in accordance of IAS 29 (Financial Reporting in Hyperinflatory Economies) in case the adjustments are material in relation to the Group’s consolidated financial statements.

Defined benefit obligations

Costs for defined benefit plans are assessed using the projected unit credit actuarial valuation method. Several statistical and other actuarial assumptions are used in calculating the expense and liability related to the plans. These factors include assumptions about the discount rate, future salary increase and annual inflation rate. Statistical information used may differ from actual results. Changes in actuarial assumptions are recognized in other comprehensive income immediately as they occur which could have a slight impact on the Group’s statement of comprehensive income.

ROUNDING OF FIGURES

The consolidated financial statements are presented in millions of euros. All figures in these accounts have been rounded. Consequently, the sum of individual figures can deviate from the presented sum figure. Key figures have been calculated using exact figures.

In the financial statements, EUR 0.0 million means the figure is less than EUR 50 000. If the amount is EUR 0, the cell is left empty.

Share-based payments

The expense of the share-based payments determined at the grant date reflects the Group’s estimate of the number of options or share rewards that will ultimately vest. Options are valued at fair value using Black-Scholes option-pricing model. Several assumptions are used in calculating the fair value of the option. These factors include dividend yield, risk free interest rate, expected life of option and personnel forfeit ratio. The nonmarket criteria are not included in the fair value of the option but taken into account in the number of options that are assumed to vest. On a regular basis the Group reviews the assumptions made and revises its estimates of the share-based payments that are expected to be settled. The changes in the estimates are recognized in the income statement.

Provisions

The timing of the recognition of a provision is based on management’s estimate of the moment when the Group has a present legal or constructive obligation, as a result of a past event, and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation.

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32

20

RAPALA VMC CORPORATION

FINANCIAL STATEMENTS 2015

CONSOLIDATED FINANCIAL STATEMENTS, IFRS

SEGMENT 2 INFORMATION

The Rapala Group is led as a whole, as an integrated chain of units engaged in manufacturing, sourcing and distributing fishing tackle equipment. The base unit of the Group’s management is a single subsidiary engaged in one or several activities within the integrated supply chain. Each subsidiary and business is represented by a member in the Executive committee. The Group does not have any structure of independently led divisions, but the Group is managed as a whole. The Group’s CEO, together with the Board is the ultimate decision maker.

Despite the integrated nature of the Group’s operations, the type and source of products being processed by the units creates difference in the Group’s management approach. There is a distinction in the strategic and operative role of the products depending on whether the product sold is being manufactured by the Group itself; whether the product is sourced by the Group externally, but sold under one of the Group’s own brands; whether the product is a third party product represented and distributed by the Group; or whether the product is part of Group’s core fishing tackle business or some supporting product category outside of fishing. This distinction between the type and source of products is the basis for the Group’s operating segments.

The Group’s operating segments are Group Fishing Products, Other Group Products and Third Party Products. Group Fishing Products and Other Group Products have been combined to reportable segment Group Products. Group Fishing Products are fishing tackle products manufactured or sourced by the Group itself and sold under the Group’s brands. Group Fishing Products include Lures and Baits, Fishing Hooks, Fishing Lines and Fishing Accessories. Other Group Products include Group manufactured and/or branded products for winter sports and some other nonfishing businesses. Third Party Products include non-Group branded fishing products and third party products for hunting, outdoor and winter sports, which are distributed by the Group utilizing the same supply channel as Group Fishing Products and Other Group Products.

The Group measures segment performance based on sales, operating profit and assets. Reported figures are consistent with IFRS accounting principles. Pricing of inter-segment transactions is based on market prices.

OPERATING SEGMENTS

2015

2015
	GROUP	THIRD PARTY	INTRA-SEGMENT	GROUP
EUR MILLION	PRODUCTS	PRODUCTS	SALES	TOTAL
Net Sales	184.7	93.5	0.0	278.2
Depreciation, amortization and impairment losses	-6.0	-1.0		-7.1
Share of results in associates and joint ventures (included in OP)	0.1	0.3		0.4
Operating Proft	18.1	2.9		21.0
Financial income and expenses				-6.8
Proft before taxes				14.2
Non-interest-bearing assets	236.5	60.2		296.7
Investment in associates and joint ventures	0.3	1.1		1.4
Unallocated interest-bearingassets				15.2
Total Assets				313.4
Investments	7.9	1.2		9.1

2014

		GROUP	THIRD PARTY	INTRA-SEGMENT	GROUP
	EUR MILLION	PRODUCTS	PRODUCTS	SALES	TOTAL
	Net Sales	171.3	102.0	0.0	273.2
	Depreciation, amortization and impairment losses	-6.2	-0.9		-7.1
	Share of results in associates and joint ventures (included in OP)	0.0	0.2		0.2
	Operating Proft	15.0	7.9		22.9
	Financial income and expenses				-7.2
	Proft before taxes				15.7
	Non-interest-bearing assets	230.2	62.7		292.9
	Investment in associates and joint ventures	0.2	0.9		1.0
	Unallocated interest-bearingassets				16.3
	Total Assets				310.3
	Investments	7.6	1.1		8.7

GEOGRAPHICAL AND GROUP-WIDE INFORMATION

The Group operates in four geographical areas which are North America, Nordic, Rest of Europe and Rest of the World. External net sales and non-current assets are presented separately in the countries which proportion is significant.

The non-current assets exclude non-current financial assets and deferred tax assets.

The Group’s customer base consists of a large number of customers in several market areas and no single customer represent by itself a significant part of the Group’s net sales.

External net sales by unit location

EUR MILLION	2015	2014
Finland	25.9	23.4
Other Nordic Countries	30.3	31.5
Nordic total	56.2	54.9
Russia	16.8	30.2
France	39.0	36.4
Other European Countries	31.1	32.0
Rest of Europe total	86.9	98.7
USA	85.3	70.0
Other North America	13.9	16.2
North America total	99.2	86.1
Rest of the World total	35.9	33.5
TOTAL	278.2	273.2

Non-current assets by unit location

EUR MILLION	2015	2014
Finland	18.2	15.7
Other Nordic Countries	3.7	6.2
Nordic total	21.8	21.9
Rest of Europe total	19.2	17.1
USA	32.4	29.9
Other North America	4.1	4.2
North America total	36.5	34.0
China (incl. Hong Kong)	27.3	25.9
Other countries	8.7	8.5
Rest of the World total	36.0	34.3
TOTAL	113.5	107.4

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32

21

RAPALA VMC CORPORATION

FINANCIAL STATEMENTS 2015

CONSOLIDATED FINANCIAL STATEMENTS, IFRS

ACQUISITIONS AND 3 DISPOSALS

CORPORATE ACQUISITIONS IN 2015

In 2015 last installment of EUR 0.9 million was paid related to Sufix trademark acquisition closed in 2008.

CORPORATE ACQUISITIONS IN 2014

In January 2014, the Group acquired 100% of the shares and voting rights of a French coarse fishing attractant manufacturer Mystic s.a.r.l.. The consideration amounted to EUR 0.2 million. The closing accounts were finalized during the first quarter of 2014 and goodwill of EUR 0.3 million was recognized. The acquisition did not have material impact on the result or financial position of the Group.

The goodwill of EUR 0.3 million for the acquisition is justified by expansion of product assortment as well as utilization of economies of scale in distribution. None of the goodwill is expected to be deductible for income tax purposes. The goodwill was tested for impairment.

The business combinations are accounted for by applying the acquisition method. The fair value of intellectual property rights is established using the relief from royalty method. The fair value of customer relationships is established with the income approach based on the future economic returns from the customers over their useful lives.

In 2014 EUR 0.8 million was paid related to Sufix trademark acquisition closed in 2008.

CORPORATE DISPOSALS IN 2015

In December 2015 the Group received a yearly installment of EUR 1.1 million relating to the disposal of the gift business in 2011.

CORPORATE DISPOSALS IN 2014

In December 2011 the Group sold 100% of the shares of Willtech Gift Ltd (“Willtech Gift “). Part of the consideration was settled by a guaranteed interest bearing promissory note that matures at the latest in 2016. The third installment of the promissory note was received in December 2014. Impact on the Group cash flow was EUR 1.0 million.

OTHER OPERATING 4 INCOME

EUR MILLION	2015	2014
Royalty income	0.3	0.3
Rental income	0.1	0.1
Scrap sales	0.1	0.0
Gains from sale of intangible and tangible assets	0.0	0.1
Other income	0.5	0.4
TOTAL	1.0	1.0

OTHER OPERATING 5 EXPENSES

EUR MILLION	2015	2014
Selling and marketing expenses	-12.5	-11.5
Rents paid	-8.1	-8.3
Freight out	-5.9	-5.9
Maintenance and utility expenses	-6.0	-5.8
Traveling expenses	-4.3	-4.3
Sales commissions	-3.9	-3.9
Consulting expenses	-2.0	-2.0
IT and telecommunication	-2.5	-2.1
Auditors' fees and services	-0.8	-0.9
Currency derivatives	2.0	4.8
Losses on sale of tangible and intangible assets	-0.1	-0.6
Other expenses	-8.3	-10.2
TOTAL	-52.3	-50.8

AUDITORS’ FEES AND SERVICES

AUDITORS’ FEES AND SERVICES
EUR MILLION	2015	2014
Audit fees	-0.8	-0.9
Fees for tax services	0.0	0.0
Other fees	0.0	0.0
TOTAL	-0.8	-0.9

NON-RECURRING INCOME AND EXPENSES INCLUDED IN OPERATING PROFIT

	OPERATING PROFIT
	EUR MILLION	2015	2014
	Closure of Chinese lure manufacturing1)	-1.7	-1.7
	Closing down of Norwegian warehouse operations	-0.5
	Other restructuring costs		0.0
	Other non-recurringitems		-0.1
	Total included in EBITDA	-2.1	-1.8
	Non-recurring impairments	-0.1
	TOTAL INCLUDED IN OPERATING PROFIT	-2.3	-1.8

1) The Group classifies all exceptional income and expenses related to the closure of China manufacturing that are not related to normal business operation as non-recurring, primarily consisting of write-offs and one-off costs related to restructuring.

Non-recurring income is included in other operating income in the consolidated income statement. Non-recurring expenses are included in other operating expenses, employee benefit expenses and depreciation and impairments.

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32

22

RAPALA VMC CORPORATION

FINANCIAL STATEMENTS 2015

CONSOLIDATED FINANCIAL STATEMENTS, IFRS

MATERIALS AND 6 SERVICES

EUR MILLION	2015	2014
Materials, goods and supplies Purchases during the period	-131.5	-129.3
Change in inventory	-0.3	2.1
External services	-1.5	-3.8
TOTAL	-133.2	-131.0

RESEARCH AND DEVELOPMENT 8 EXPENSES

Net profit for the period includes research and development expenses of EUR 2.1 million recognized as an expense in 2015 (2014: EUR 2.0 million). Group has not capitalized research and development costs.

EMPLOYEE BENEFIT 7 EXPENSES

EUR MILLION	2015	2014
Wages and salaries	-54.3	-52.4
Pension costs - defned contribution plans	-4.5	-4.2
Pension costs - defned beneft plans	-0.2	-0.2
Other long-term employee benefts	-0.1	-0.2
Other personnel expenses	-9.3	-8.7
TOTAL	-68.4	-65.6

The employee benefit expenses in 2014 included EUR 0.2 million employee related restructuring expenses. For more details on employee benefits for top management and possible share-based incentive plans, see notes 28 and 29.

AVERAGE PERSONNEL

AVERAGE PERSONNEL
PERSONS	2015	2014
North America	126	134
Nordic	377	386
Rest of Europe	853	839
Rest of the World	1 722	1 357
TOTAL	3 078	2 716

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 316 7 8

32

23

RAPALA VMC CORPORATION

FINANCIAL STATEMENTS 2015

CONSOLIDATED FINANCIAL STATEMENTS, IFRS

FINANCIAL INCOME 9 AND EXPENSES

EUR MILLION	2015	2014
Foreign exchange gains and losses
From fnancial assets	5.8	5.1
From fnancial liabilities measured at amortized cost	-8.0	-9.7
Interest and other fnancial income
Interest income from loans and receivables	0.3	0.3
Other fnancial income	0.0	0.1
Interest and other fnancial expenses
Interest expense on fnancial liabilities measured at amortized cost	-2.9	-2.8
Interest rate derivatives - non-hedge accounted	-0.3	-0.5
Currency derivatives - non-hedge accounted	-1.0	1.2
Other fnancial expenses	-0.6	-0.9
TOTAL	-6.8	-7.2

RECOGNIZED IN THE STATEMENT OF OTHER COMPREHENSIVE INCOME

RECOGNIZED IN THE STATEMENT OF OTHER COMPREHENSIVE INCOME
EUR MILLION	2015	2014
Change in fair value of interest rate derivatives - hedge accounted, net of tax	0.4	0.2
Gains and losses on hedges of net investments, net of tax	-2.9	0.1
TOTAL	-2.4	0.3

EXCHANGE GAINS AND LOSSES IN THE INCOME STATEMENT

EUR MILLION	2015	2014
In net sales	2.2	1.4
In purchases	-1.7	-2.7
In other operating expenses
Currency derivatives, non-hedge accounted	2.0	4.8
TOTAL	2.5	3.5

INCOME 10 TAXES

INCOME TAXES IN THE INCOME STATEMENT

EUR MILLION	2015	2014
Income taxes	-6.5	-5.5
Deferred taxes	0.4	0.0
TOTAL	-6.1	-5.5

INCOME TAX RECONCILIATION

INCOME TAX RECONCILIATION
EUR MILLION	2015	2014
Income taxes at Finnish corporate tax rate (20%)	-2.8	-3.1
Efect of diferent tax rates in foreign subsidiaries	-2.1	-2.2
Non-deductible expenses and tax exempt income	0.5	1.8
Foreign withholding taxes	-0.8	-0.4
Losses for which no deferred tax beneft is recognized	-1.0	-2.5
Taxes for prior years	0.2	1.0
Changes in the carrying amounts of deferred tax assets and liabilities from prior years	-0.1	-0.1
Impact of the changes in the tax rates on deferred tax balances	0.0	0.0
Other items	0.1	0.0
INCOME TAXES IN THE INCOME STATEMENT	-6.1	-5.5

TAX EFFECTS RELATING TO EACH COMPONENT OF OTHER COMPREHENSIVE INCOME

2015

2015
	BEFORE	TAX EXPENSE/
EUR MILLION	TAX	BENEFIT	NET OF TAX
Change in translation diferences	5.5			5.5
Employee benefts	0.1	0.0		0.1
Cash fow hedging	0.6	-0.1		0.4
Net investment and related hedging	-2.7	-0.2		-2.9
TOTAL	3.4	-0.3		3.2

2014

Gains and losses of derivatives designed as cash flow hedges are presented together with the hedged instrument , if hedge accounting is applied: -0.8 million (2014: EUR -0.8 million) is recognized in interest expenses.

Gains and losses of derivatives designed as fair value hedges are presented together with the hedged instrument, if hedge accounting is applied: EUR +1.3 million (2014: EUR +1.6 million) is recognized in foreign exchanges gains and losses.

2014
	BEFORE	TAX EXPENSE/
EUR MILLION	TAX	BENEFIT	NET OF TAX
Change in translation diferences	4.7			4.7
Employee benefts	-0.3	0.1		-0.2
Cash fow hedging	0.3	-0.1		0.2
Net investment and related hedging	0.1	0.0		0.1
TOTAL	4.8	0.1		4.8

In 2015, interest rate derivatives designed as cash flow hedges, which fulfill IAS 39 effectiveness requirements, had an effect of EUR -0.1 million (2014: EUR 0.0 million) in the financial income and expenses of income statement.

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32

24

RAPALA VMC CORPORATION

FINANCIAL STATEMENTS 2015

CONSOLIDATED FINANCIAL STATEMENTS, IFRS

MOVEMENT OF DEFERRED TAXES

2015

2015
		INCOME		TRANSLATION
EUR MILLION	JAN. 1	STATEMENT	EQUITY	DIFFERENCES	DEC. 31
Tax losses and credits carried forward	1.3	0.4		-0.1	1.6
Provisions	0.1	0.0		0.0	0.1
Employee benefts	0.6	0.1	0.0	0.0	0.7
Depreciation diference	0.1	0.0		0.0	0.1
Efect of consolidation and eliminations	5.1	0.2		0.3	5.5
Other temporary diferences	1.7	-0.2	-0.1	0.1	1.5
TOTAL DEFERRED TAX ASSETS	9.0	0.4	-0.1	0.3	9.6
Depreciation diference and other untaxed reserves	3.2	-2.2		0.3	1.2
Inventory	2.5	0.0		0.3	2.7
Fair value adjustments for acquired net assets	3.3	-0.6		0.1	2.8
Other temporary diferences	0.3	2.8		0.1	3.2
TOTAL DEFERRED TAX LIABILITIES	9.3	0.0		0.7	10.0
NET DEFERRED TAX ASSET	-0.3	0.4	-0.1	-0.3	-0.4
2014
		INCOME		TRANSLATION
EUR MILLION	JAN. 1	STATEMENT	EQUITY	DIFFERENCES	DEC. 31
Tax losses and credits carried forward	2.0	-0.6		0.0	1.3
Provisions	0.2	-0.1		0.0	0.1
Employee benefts	0.5	0.0	0.1	0.0	0.6
Depreciation diference	0.1	0.0		0.0	0.1
Efect of consolidation and eliminations	4.2	0.6		0.3	5.1
Other temporary diferences	1.5	0.2	-0.1	0.1	1.7
TOTAL DEFERRED TAX ASSETS	8.5	0.1	0.0	0.3	9.0
Depreciation diference and other untaxed reserves	2.8	0.1		0.3	3.2
Inventory	2.0	0.2		0.3	2.5
Fair value adjustments for acquired net assets	3.2	0.0		0.1	3.3
Other temporary diferences	0.5	-0.1		0.0	0.3
DEFERRED TAX LIABILITIES	8.5	0.1		0.7	9.3
NET DEFERRED TAX ASSET	0.1	0.0	0.0	-0.4	-0.3

Deferred taxes have been reported as a net balance according to IAS 12. As of December 31, 2015, the Group had tax losses carried forward of EUR 30.9 million (2014: EUR 26.9 million), for which deferred tax assets have not been recognized in the consolidated financial statements because the realization of the tax benefit is not probable. EUR 24.5 million of these tax losses will expire during the next five years (2014: EUR 21.7 million).

Deferred tax liability on undistributed earnings of subsidiaries has not been recognized in the consolidated balance sheet because distribution of the earnings is in the control of the Group and such distribution is not probable within the foreseeable future.

The consolidated balance sheet includes deferred tax assets of EUR 1.5 million (2014: EUR 1.1 million) in subsidiaries, which have generated losses in financial year 2015 or 2014. The recognition of these assets is based on result estimates, which indicate that the realization of these deferred tax assets is probable.

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32

25

RAPALA VMC CORPORATION

FINANCIAL STATEMENTS 2015

CONSOLIDATED FINANCIAL STATEMENTS, IFRS

INTANGIBLE 11 ASSETS

2015

2015
				OTHER
		CUSTOMER		INTANGIBLE
EUR MILLION	TRADEMARKS	RELATIONS	GOODWILL	ASSETS	TOTAL
Acquisition cost Jan. 1	22.9	4.1	47.9	7.6	82.5
Additions				0.4	0.4
Disposals				-0.3	-0.3
Reclassifcations1)	2.0			-1.7	0.4
Translation diferences	1.6	0.2	2.2	0.1	4.1
ACQUISITION COST DEC. 31	26.5	4.2	50.1	6.2	87.0
Accumulated amortization Jan. 1	-0.5	-2.6		-4.9	-8.1
Disposals				0.3	0.3
Reclassifcations1)	-0.3	0.0		0.3	0.0
Amortization during the period		-0.4		-0.5	-0.9
Impairments	-0.1				-0.1
Translation diferences	0.0	-0.1		0.0	-0.1
ACCUMULATED AMORTIZATION DEC. 31	-0.9	-3.1		-4.8	-8.9
CARRYING VALUE JAN. 1	22.4	1.4	47.9	2.7	74.4
CARRYING VALUE DEC. 31	25.6	1.1	50.1	1.4	78.2
2014
				OTHER
		CUSTOMER		INTANGIBLE
EUR MILLION	TRADEMARKS	RELATIONS	GOODWILL	ASSETS	TOTAL
Acquisition cost Jan. 1	21.5	3.8	44.9	7.1	77.2
Additions				0.6	0.6
Acquisitions (see note 3)	0.0		0.3		0.3
Disposals				-0.1	-0.1
Reclassifcations			0.2	-0.2
Translation diferences	1.5	0.3	2.5	0.2	4.4
ACQUISITION COST DEC. 31	22.9	4.1	47.9	7.6	82.5
Accumulated amortization Jan. 1	-0.5	-2.1		-4.5	-7.2
Disposals				0.1	0.1
Amortization during the period		-0.4		-0.4	-0.8
Translation diferences	0.0	-0.2		0.0	-0.2
ACCUMULATED AMORTIZATION DEC. 31	-0.5	-2.6		-4.9	-8.1
CARRYING VALUE JAN. 1	20.9	1.7	44.9	2.6	70.0
CARRYING VALUE DEC. 31	22.4	1.4	47.9	2.7	74.4

1) Includes reclassifications between intangible and tangible assets.

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31

32

26

RAPALA VMC CORPORATION

FINANCIAL STATEMENTS 2015

CONSOLIDATED FINANCIAL STATEMENTS, IFRS

GOODWILL AND TRADEMARKS WITH INDEFINITE LIVES BY BUSINESS SEGMENTS

	GROUP	OTHER	THIRD
	FISHING	GROUP	PARTY
EUR MILLION	PRODUCTS	PRODUCTS	PRODUCTS	TOTAL
2015
Goodwill	48.2	0.0	1.9	50.1
Trademarks with indefnite lives	25.1		0.5	25.6
Discount rate, %	8.9	8.9	9.6
2014
Goodwill	45.9	0.0	2.0	47.9
Trademarks with indefnite lives	21.8	0.1	0.5	22.4
Discount rate, %	9.0	9.0	9.8

IMPAIRMENT TESTING OF GOODWILL AND TRADEMARKS WITH INDEFINITE LIVES

The Group is led as a whole and not organized nor managed in independent divisions. Most of the units are also strongly interlinked i.e. some units do not have a sales or a production organization or some other functions or operations needed to operate on a stand-alone basis. However, according to IFRS, the lowest cash-generating unit (CGU) cannot be larger than an operating segment in the Group’s segment reporting. As a consequence, goodwill and trademarks with indefinite lives are tested on the operating segment level.

The recoverable amount of the CGU is determined based on value-in-use calculations. Cash flow projections, which were used in these calculations, were based on most recent 5-year financial forecasts prepared by the management and approved by the Board. The estimated sales and production volumes are derived from the utilization of existing property, plant and equipment. The most important assumptions on which management has based its cash flow projections are the sales and gross margins. Discount rate is the weighted average pre-tax cost of capital (WACC) which is defined for each cash-generating unit separately. The components of WACC are the risk-free yield rate, market risk premium, industry specific beta, cost of debt, and target capital structure. In the impairment tests prepared in 2015 and 2014, the growth rate used to extrapolate the cash flow beyond the five-year period is 0%. As a result of the performed impairment tests, no impairment losses have been recognized in 2015 or 2014.

Key assumptions

Sales – The Group’s estimated sales are based on present and future product assortment and utilization of distribution and manufacturing capacity. In addition, estimated sales are based on long-term growth of industry and further implementation of Group’s strategic objectives.

EBITDA margin – The Group’s estimated EBITDA margin, operating profit before depreciation and impairments compared to net sales, is based on past years actual margins and management’s view on sales and gross margin development. The increase in general cost level has also been taken into account in the development of EBITDA margin.

Discount rate – Discount rate is the weighted average pretax cost of capital (WACC). Weighted average cost of capital represents the total cost of Group’s equity and debt taken into account specific risks related to assets.

Growth rate – Compared to historical sales growth development, management has been conservative in determining the growth rate for impairment purposes.

Sensitivity analysis

The key sensitivity factors for the impairment test are the estimated EBITDA margin and the discount rate. According to the Group’s management in the main business segments Group Fishing Products and Third Party Products no probable change in any of the key sensitivity factors would lead to a situation where the carrying amount would exceed the recoverable amount. Even if the discount rate would be 4,3 percentage points higher or EBITDA 33 percentage lower than used in the management’s estimates, it would not lead to an impairment loss in these main cash generating units.

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32

27

RAPALA VMC CORPORATION

FINANCIAL STATEMENTS 2015

CONSOLIDATED FINANCIAL STATEMENTS, IFRS

TANGIBLE 12 ASSETS

2015

2015
				OTHER	ADVANCE PAYMENTS
		BUILDINGS AND	MACHINERY	TANGIBLE	AND CONSTRUCTION
EUR MILLION	LAND	STRUCTURES	AND EQUIPMENT	ASSETS	IN PROGRESS	TOTAL
Acquisition cost Jan. 1	1.8	23.8	58.6	15.0	1.5	100.8
Additions	0.1	2.2	2.1	2.8	1.5	8.7
Disposals			-0.1	-1.1		-1.3
Reclassifcations1)		0.0	-4.9	6.1	-1.9	-0.7
Translation diferences	0.0	0.1	0.7	0.4	0.0	1.3
ACQUISITION COST DEC. 31	2.0	26.1	56.3	23.3	1.1	108.7
Accumulated depreciation Jan. 1		-16.5	-42.6	-9.7		-68.8
Disposals			0.1	0.8		1.0
Reclassifcations1)		0.0	4.5	-4.5		0.0
Depreciation during the period		-0.7	-3.3	-2.0		-6.0
Translation diferences		-0.1	-0.5	-0.3		-1.0
ACCUMULATED DEPRECIATION DEC. 31		-17.2	-41.9	-15.7		-74.9
CARRYING VALUE JAN. 1	1.8	7.3	16.0	5.4	1.5	32.0
CARRYING VALUE DEC. 31	2.0	8.8	14.4	7.5	1.1	33.9

2014

2014
				OTHER	ADVANCE PAYMENTS
		BUILDINGS AND	MACHINERY	TANGIBLE	AND CONSTRUCTION
EUR MILLION	LAND	STRUCTURES	AND EQUIPMENT	ASSETS	IN PROGRESS	TOTAL
Acquisition cost Jan. 1	1.8	22.9	55.3	13.7	1.7	95.3
Additions	0.0	0.4	3.2	2.1	1.7	7.5
Acquisitions (see note 3)		0.0	0.0	0.0		0.1
Disposals			-1.9	-1.8	0.0	-3.8
Reclassifcations		0.2	1.2	0.4	-1.8
Translation diferences	0.1	0.2	0.8	0.6	0.0	1.7
ACQUISITION COST DEC. 31	1.8	23.8	58.6	15.0	1.5	100.8
Accumulated depreciation Jan. 1		-15.5	-40.2	-9.1		-64.7
Acquisitions (see note 3)		0.0	0.0	0.0		-0.1
Disposals			1.7	1.2		2.9
Reclassifcations		0.0	0.1	-0.1
Depreciation during the period		-0.8	-3.9	-1.6		-6.3
Impairment		0.0	0.0	0.0		-0.1
Translation diferences		-0.1	-0.4	-0.1		-0.6
ACCUMULATED DEPRECIATION DEC. 31		-16.5	-42.7	-9.7		-68.8
CARRYING VALUE JAN. 1	1.8	7.4	15.1	4.6	1.7	30.6
CARRYING VALUE DEC. 31	1.8	7.3	16.0	5.4	1.5	32.0

1) Includes reclassifications between intangible and tangible assets.

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32

28

RAPALA VMC CORPORATION

FINANCIAL STATEMENTS 2015

CONSOLIDATED FINANCIAL STATEMENTS, IFRS

Assets leased by finance lease agreements

		2015		2014
	MACHINERY	OTHER	MACHINERY	OTHER
	AND	TANGIBLE	AND	TANGIBLE
EUR MILLION	EQUIPMENT	ASSETS	EQUIPMENT	ASSETS
Carrying value Jan. 1	0.0	0.0	0.1	0.1
Additions		0.1
Disposals		0.0
Reclassifcations		0.0
Depreciation during the period		0.0	0.0	0.0
Translation diferences	0.0	0.0	0.0	0.0
CARRYING VALUE DEC. 31	0.0	0.0	0.0	0.0
Accumulated depreciation Dec. 31	-0.3	0.0	-0.3	-0.1
ACQUISITION COST DEC. 31	0.3	0.1	0.3	0.1

INVESTMENTS IN ASSOCIATES 13 AND JOINT VENTURES

The Group has a 50% interest in unlisted Shimano Normark UK Ltd domiciled in United Kingdom to distribute Rapala Group and Shimano products in the UK on an exclusive basis. The entity is deemed to fulfill the criteria of a joint venture and is therefore consolidated using the equity method. The carrying amount does not include goodwill or impairments.

The Group has a 33.3% interest in unlisted Lanimo Oü domiciled in Estonia. Its main activity is producing leather-haberdashery. The carrying amount does not include goodwill or impairments. Lanimo Oü’s figures are based on the information for the period ending on September 30, due to differences in reporting time schedule. Information for the financial period ending on December 31, 2014 is the following: assets EUR 0.1 million, liabilities EUR 0.1 million, sales EUR 0.2 million and profit EUR 0.0 million.

EUR MILLION	2015	2014
Acquisition cost Jan. 1	1.0	0.8
Share of proft/loss1)	0.4	0.2
Translation diferences	0.1	0.1
ACQUISITION COST DEC. 31	1.5	1.0

1) 2014 figure includes an adjustment for previous periods

14[ MATERIAL PARTLY OWNED SUBSIDIARIES]

Rapala Group includes one company, where non-controlling interest is material based on Group’s consolidated net profit for the period. Group owns 50% of AO Normark domiciled in Russia. The other 50% is owned by Shimano Inc. AO Normark distributes Rapala Group’s and Shimano’s products in Russia. Rapala Group has control over the company, based on operative leadership model and a shareholder contract, which gives majority of the voting power to Rapala in the board of a holding company directly owning AO Normark. The company is treated as a subsidiary and fully consolidated to the figures of Rapala Group.

Financial information below is based on AO Normark’s reported figures before intra-Group eliminations.

	PROFIT (LOSS)	ALLOCATED	EQUITY	BELONGING
	TO NON-CONTROLLING		TO NON-CONTROLLING
		INTERESTS		INTERESTS
EUR MILLION	2015	2014	2015	2014
AO Normark	0.9	2.0	3.2	2.7
Other partly-owned subsidiaries	0.5	-1.0	5.3	5.6
TOTAL	1.4	1.0	8.5	8.2

Summarized financial information

AO Normark

	AO Normark
	EUR MILLION	2015	2014
	Net sales	17.5	31.5
	Purchases and other expenses	-15.0	-27.0
	Depreciation	-0.1	-0.1
	Interest income and expenses	-0.6	-0.5
	Net proft for the period	1.8	4.0
	Comprehensive income for the period	1.8	4.0
	Non-current assets	0.3	0.2
	Current assets	9.0	10.8
	Non-current liabilities	0.3	2.6
	Current liabilities	2.6	3.1
	Equity	6.4	5.4
	Cash fows from operating activities	2.0	4.9
	Cash fows from investing activities	-0.1	-0.1
	Cash fows from fnancing activities	-2.9	-3.5

Information on associates and joint ventures

		SHIMANO
	NORMARK UK LTD		LANIMO OÜ
EUR MILLION	2015	2014	2015	2014
Net sales	13.4	11.4	0.1	0.2
Purchases and other expenses	-12.5	-10.6	-0.1	-0.1
Depreciation	-0.1	-0.1	0.0	0.0
Interest income and expenses	0.0	0.0	0.0	0.0
Net proft for the period	0.8	0.7	0.0	0.0
Comprehensive income for the period	0.8	0.7	0.0	0.0
Non-current assets	0.1	0.1	0.0	0.0
Current assets	3.9	3.2	0.1	0.1
Of which cash and cash equivalents	2.8	2.2	0.0	0.0
Non-current liabilities			0.0	0.0
Of which fnancial liabilities			0.0	0.0
Current liabilities	1.0	1.2	0.0	0.1
Net assets of associate/ joint venture	3.0	2.1	0.0	0.0
Net assets belonging to Rapala Group	1.5	1.0	0.0	0.0

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32

29

RAPALA VMC CORPORATION

FINANCIAL STATEMENTS 2015

CONSOLIDATED FINANCIAL STATEMENTS, IFRS

AVAILABLE-FOR-SALE 15 FINANCIAL ASSETS

EUR MILLION	2015	2014
Carrying value Jan. 1	0.3	0.3
Disposals	0.0
Translation diferences	0.0	0.0
CARRYING VALUE DEC. 31	0.3	0.3

Available-for-sale financial assets comprise of unlisted shares. The most significant is As Oy Tahkon Eagle.

RECEIVABLES

16

EUR MILLION	2015	2014
Non-current receivables
Interest-bearing
Loan receivables	0.9	1.8
Derivatives	1.9	1.2
Other interest-bearing receivables	0.0	0.0
Non-interest-bearing
Trade receivables	0.4	0.5
Derivatives	0.2	0.7
Other receivables	0.2	0.2
Current receivables
Interest-bearing
Loan receivables	1.0	1.1
Non-interest-bearing
Trade receivables	46.7	50.7
Derivatives	1.7	3.5
VAT receivable	2.3	1.6
Other prepaid expenses and accrued income	2.5	2.6
Other receivables	2.3	2.4
TOTAL	60.0	66.5

ALLOWANCES BOOKED FOR TRADE RECEIVABLES

EUR MILLION	2015	2014
Allowance for trade receivables Jan. 1	2.5	3.1
Additions	0.6	1.0
Deductions	-0.7	-1.2
Recovery	-0.2	-0.3
Translation diferences	0.0	0.0
ALLOWANCE FOR TRADE RECEIVABLES DEC. 31	2.2	2.5

In most cases allowances are determined individually, when there is objective evidence (such as significant overdue of receivables and unsuccessful dunning attempts or known financial difficulties and thus increased probability of customer insolvency) that the Group will not be able to collect all amounts due according to the original terms of the receivables. Allowances have not been made on other receivables.

INVENTORIES 17

EUR MILLION	2015	2014
Raw material	15.0	13.9
Work in progress	11.3	9.8
Finished products	95.2	94.2
Net realizable value provisions	-5.3	-4.1
TOTAL	116.2	113.8

CASH AND CASH 18 EQUIVALENTS

EUR MILLION	2015	2014
Cash at bank and in hand	11.2	11.9
Short-term deposits	0.2	0.3
TOTAL	11.4	12.2

Fair values of financial assets are presented in the note 23.

The average interest rate of non-current loan receivables was 5.03% (2014: 5.06%). The average interest rate of current loan receivables at December 31, 2015 was 3.90% (2014: 4.03%).

1 2 3 4 5 6 7 8 9 10 11 12 13 14 11 5 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31

32

30

RAPALA VMC CORPORATION

FINANCIAL STATEMENTS 2015

CONSOLIDATED FINANCIAL STATEMENTS, IFRS

EQUITY ATTRIBUTABLE 19 TO SHAREHOLDERS

EUR MILLION	2015	2014
Share capital Jan. 1	3.6	3.6
SHARE CAPITAL DEC. 31	3.6	3.6
Share premium fund Jan. 1	16.7	16.7
SHARE PREMIUM FUND DEC. 31	16.7	16.7
Fair value reserve Jan. 1	-1.1	-1.4
Gains and losses on cash fow hedges, net of tax	0.4	0.2
FAIR VALUE RESERVE DEC. 31	-0.7	-1.1
Fund for invested non-restricted equity Jan. 1	4.9	4.9
FUND FOR INVESTED NON-RESTRICTED EQUITY DEC. 31	4.9	4.9
Own shares Jan. 1	-5.2	-4.4
Purchase of own shares	-0.2	-0.9
OWN SHARES DEC. 31	-5.4	-5.2
Retained earnings Jan. 1	109.5	103.7
Defned beneft plans	0.1	-0.2
Translation diferences	5.9	6.0
Net investments and related hedges, net of tax	-2.0	0.1
Dividends paid	-7.7	-9.2
Net income for the period	6.7	9.2
RETAINED EARNINGS DEC. 31	112.4	109.5
EQUITY ATTRIBUTABLE TO SHAREHOLDERS TOTAL	131.5	128.3

DIVIDENDS

The dividend paid for 2014 was EUR 0.20 per share, totaling EUR 7.7 million. A dividend of EUR 0.15 per share, a total of EUR 5.8 million, is proposed for the Annual General Meeting of Shareholders to be held on April 1, 2016. This dividend payable is not reflected in the financial statements for 2015.

SHARES AND SHARE CAPITAL

SHARES AND SHARE CAPITAL
SHARES	2015	2014
Number of shares Jan. 1	39 000 000	39 468 449
Cancellation		-468 449
NUMBER OF SHARES JAN. 31	39 000 000	39 000 000
Own shares Jan. 1	606 807	907 308
Cancellation		-468 449
Purchase of own shares	32 864	167 948
OWN SHARES JAN. 31	639 671	606 807

On December 31, 2015, the share capital fully paid and reported in the Trade Register was EUR 3.6 million and the total number of shares was 39 000 000. For more information on shares and share capital, see the section Shares and Shareholders.

BOARD’S AUTHORIZATIONS

For information on the Board’s authorizations and acquisition of own shares, see section Shares and Shareholders.

SHARE BASED PAYMENTS

For more details on share based payments, see note 29.

In those cases where option rights were granted during the period when the old Finnish Companies Act (September 29, 1978/734) was in force, the proceeds received for option-based share subscriptions, net of any transaction costs, have been credited to share capital (nominal value) and share premium fund. The fund for invested non-restricted equity includes other investments of equity nature and subscription prices for shares to the extent that it is specifically not to be credited to share capital. The payments received for share subscriptions based on the options granted after the entry into force (September 1, 2006) of the new Finnish Companies Act (21 July 2006/624) are fully recognized in the fund for invested non-restricted equity.

Translation differences contain exchange differences arising from the currency translation of foreign subsidiaries’ financial state-ments and exchange differences arising from a monetary item that forms part of a net investment in a foreign company. Translation differences also contain fair value changes from hedging the net investment in foreign companies where this meets the conditions for hedge accounting. Fair value reserve includes movements in the fair values of available-for-sale financial assets and derivative instruments used for cash flow hedging. Own shares acquired by the Group, including directly attributable costs, are presented as a deduction from the total equity in the consolidated financial statements.

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31

32

31

RAPALA VMC CORPORATION

FINANCIAL STATEMENTS 2015

CONSOLIDATED FINANCIAL STATEMENTS, IFRS

EMPLOYEE BENEFIT 20 OBLIGATIONS

Most of the Group’s pension plans are defined contribution plans. The Group has defined benefit pension plans in France and in some Rest of the World countries. The plans in Rest of the World countries are immaterial as a whole. The retirement benefits are determined based on salary and period of employment. These obligations are unfunded. The Group has no other post-employment benefit obligations. The pension security of the personnel of the Group’s Finnish companies is arranged under the Finnish statutory employee pension plan (TYEL) through an external pension insurance company. Employee benefit obligations also include a long-term profit-sharing payable to the employees in France and in some Rest of the World countries.

EXPENSES RECOGNIZED IN THE INCOME STATEMENT

EUR MILLION	2015	2014
Current service cost	-0.2	-0.3
Interest cost	0.0	-0.1
TOTAL	-0.3	-0.3

AMOUNTS RECOGNIZED IN THE BALANCE SHEET

EUR MILLION	2015	2014
Rest of Europe	2.1	2.1
Rest of the World	0.2	0.2
PRESENT VALUE OF UNFUNDED OBLIGATIONS	2.3	2.3

BALANCE SHEET RECONCILIATION

BALANCE SHEET RECONCILIATION
EUR MILLION	2015	2014
Obligations Jan. 1	2.3	1.9
Current service cost	0.2	0.3
Interest cost	0.0	0.1
Actuarial gains and losses
Changes in fnancial assumptions	-0.1	0.3
Changes in experience assumptions	0.0	0.0
Efect of any curtailments or settlements	-0.2	-0.2
Translation diferences	0.0	0.0
OBLIGATIONS DEC. 31	2.3	2.3

ASSUMPTIONS

Rest of Europe

	Rest of Europe
	%	2015	2014
	Discount rate	2.0	1.8
	Future salary increase	2.6	2.6
	Annual infation rate	2.0	2.0
	Rest of the World
	%	2015	2014
	Discount rate	4.0	3.1 - 4.0
	Future salary increase	7.0	7.0

The discount rate and the future salary increase are identified as significant actuarial assumptions. Changes in these assumptions do not cause material impact on the net defined benefit obligation.

The Group expects that threre will be no contributions to its defined benefit pension plans in 2016.

PROVISIONS

21

EUR MILLION	2015	2014
Restructuring provisions
Provisions Jan. 1	0.5
Additions		0.5
Utilized provisions	-0.5
PROVISIONS DEC. 31		0.5
Other provisions
Provisions Jan. 1	0.1	0.1
Additions	0.0
Utilized provisions	-0.2
Translation diferences	0.0	0.0
PROVISIONS DEC. 31	0.0	0.1
Current	0.0	0.6
TOTAL PROVISIONS	0.0	0.6

The following payments are expected contributions to be made in the future years out of the defined benefit plan obligation.

EUR MILLION	2015	2014
Within one year	0.1	0.1
1–5 years	0.2	0.3
5–10 years	0.5	0.5
Later than 10 years	1.5	1.5
TOTAL	2.3	2.3

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 2 00 21 22 23 24 25 26 27 28 29 30 3121 32

32

RAPALA VMC CORPORATION

FINANCIAL STATEMENTS 2015

CONSOLIDATED FINANCIAL STATEMENTS, IFRS

FINANCIAL RISK MANAGEMENT AND 22 DERIVATIVE FINANCIAL INSTRUMENTS

The main objective of the Group’s financial risk management is to reduce the impacts of price fluctuations in financial markets and other factors of uncertainty on earnings, cash flows and balance sheet, as well as to ensure sufficient liquidity. The Board has approved the Group’s risk management principles and CEO is responsible, together with the Group’s finance management, for development and implementation of financial risk management procedures.

In 2015, the Group continued to develop its risk management processes. Group Risk Management, consisting of the CFO and Group Treasurer, review financial risks on regular basis to manage Group’s financial risk position and decide on necessary actions to manage financial risks. Global economy and financial markets were in uncertain conditions in 2015 and Group Risk Management continued monitoring and management of foreign exchange, interest rate, liquidity and counterparties’ solvency risks.

Financial risks consist of market risks, credit and default risks and liquidity risks. This note also presents the Group’s capital management.

MARKET RISKS

The Group’s market risks are mainly caused by changes in foreign exchange and interest rates. These changes may have a significant impact on the Group’s earnings, cash flows and balance sheet. The Group is also exposed to market price changes of certain raw materials, mainly metals and plastics, which are priced on commodity markets.

1. Foreign exchange risk

Foreign currency risk is the risk that the fair value or future cash flows will fluctuate because of changes in foreign exchange rates. The Group’s exposure to the risk of changes in foreign exchange rates relates primarily to the Group’s operating activities, when revenue or expense is denominated in a foreign currency, financing, when debt is denominated in a foreign currency, and the Group’s net investments in foreign subsidiaries.

The Group’s foreign exchange risk is managed by the business units and Group Risk Management in accordance with the Foreign Exchange Risk management policy approved by the Board of Directors.

Foreign exchange transaction risk

Foreign exchange transaction exposure arises when an operating unit has commercial or financial transactions and payments in other than its own functional currency, and when related cash inflow and outflow amounts are not equal or non-current.

As a result of sales and purchases in foreign currencies as well as operations in several jurisdictions, the Group has foreign currency denominated receivables and payables that are exposed to movements in foreign exchange rates. Income and expenses within different currencies net each other out to some extent, creating thus an effective natural hedge. The remaining, estimated 12-15 month net exposure is then systematically hedged by using derivative instruments. Depending on whether foreign currency monetary receivables and payables relate to sales and purchases or financial items, the foreign exchange gains /losses

are recognized in the income statement either above or below operating profit.

The Group has also intra-group loans denominated in currencies that exposes the Group to currency risk that is not fully eliminated on consolidation. In order to hedge currency risk arising from intra-group loans, part of the Group’s external financing is denominated in foreign currencies. Depending on whether these loans are classified as net investments on foreign operations or loan receivables, the foreign exchange gains / losses are recognized in the Other comprehensive income or income statement.

Business units are responsible for forecasting net foreign cash flows and do most of their currency hedging transactions with the Group’s parent company. Group Risk Management is responsible for monitoring the Group’s consolidated currency risk exposure and when needed, enters into derivative transactions with group external counterparties.

Derivative instruments that are used for hedging purposes are mainly short term and include forward contracts, option contracts and structured instruments. Because the Group does not apply hedge accounting on currency derivatives, the P&L effect arising from fair value changes of derivative instruments is recognized partly or entirely in different financial periods than exchange rate gains and losses arising from the hedged cash flows.

In 2015 currency derivatives that are used for operative hedging purposes had an income statement effect of EUR 2.0 million (2014: EUR 4.8 million). Fair values and nominal values of currency derivatives are summarized under section 4. Derivatives.

At the end of 2015 and 2014 the following currencies represent a significant portion of the currency mix in the outstanding financial instruments:

Transaction risk position

2015
EUR MILLION	USD	JPY	RUB	SEK
Transaction risk and hedging
Transaction exposure	-27.8	-4.7	0.3	1.0
Hedges1)	10.5	1.7	-3.7	-2.8
2014
EUR MILLION	USD	JPY	RUB	SEK
Transaction risk and hedging
Transaction exposure	-30.4	-4.4	2.9	0.4
Hedges1)	12.5	3.8	-8.1	-5.1

1) Currency derivatives are used to hedge both transaction risks and translation risks. Hence the derivatives and transaction risks can’t be netted to a net position.

Foreign exchange translation risk

The group is exposed to currency translation risk through it’s investments in foreign subsidiaries, joint ventures and associated companies with equities’ denominated in foreign currencies. The most significant translation exposures are in USD, HKD, IDR, CAD and RUB, which comprise approximately 77.8 % of the total translation exposure. In the Group consolidation equity changes resulting from movements in foreign exchange rates are presented

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32

33

RAPALA VMC CORPORATION

FINANCIAL STATEMENTS 2015

CONSOLIDATED FINANCIAL STATEMENTS, IFRS

as translation differences within the equity.

The Group Risk Management monitors regularly the amounts of net investments denominated in foreign currencies and when needed, enters into hedging transactions in order to reduce the volatility in equity in the consolidated balance sheet. During 2015 the Group did not hedge any equity exposure.

The total non-euro denominated equity excluding net income for the period of the Group’s subsidiaries and associated companies was EUR 142.4 million as of December 31, 2015 (2014: EUR 117.1 million). The exposures are summarized in the following table.

Group translation exposure	2015	2014
	NET	NET
EUR MILLION	INVESTMENTS	INVESTMENTS
USD	48.5	33.0
HKD	34.1	29.4
IDR	15.7	7.3
CAD	7.2	12.4
RUB	5.4	3.0
TOTAL	110.9	85.1

2. Interest rate risk

Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Group’s exposure to the risk of changes in market interest rates relates primarily to the Group’s long-term debt obligations with floating interest rates. The Group’s interestbearing liabilities have mainly an interest period length shorter than one year.

The Group’s funding, and consequently also interest rate risk, is managed centrally by the Group’s parent company. Interest rate risk, covering cash flow and fair value risk, is analyzed regurarly by the Group Risk Management who is also responsible of taking the actions needed to change the Group’s risk position. These actions include changing the currency split of the external loan portfolio, selection between different sources of financing, changing the interest rate duration as well as entering into transactions in derivative financial instruments.

Derivative instruments that are used for hedging purposes consist of interest rate swaps, where the Group pays fixed rate interest and receives a variable rate interest. As at December 31, 2015 the Group had interest rate swaps designated as cash flow hedges in accordance with IAS 39. Fair values and nominal values of interest rate swaps are presented under section 4. Derivatives.

Sensitivity analysis

The effect of a 10% weakening of USD, RUB, IDR, SEK, CAD (against euro) in euro based on the following assumptions and factors:

• The sensitivity analysis is based on change of value in a single analyzed currency and assumes other variables (including values of other currencies) to remain unchanged. The connections possibly prevailing between some currencies are not taken into account.

• The sensitivity is analyzed against balance sheet conversion rates prevailing at December 31, 2015.

• The analysis includes the effect of income statement transactions made in the analyzed currency between January 1 and December 31 in Group companies, whose functional currency is other than the analyzed currency (so called transaction impact) as well as in Group companies, whose functional currency equals to the analyzed currency (so called translation impact). The analysis takes into account the currency forward contracts in place at December 31. The sensitivity analysis of income statement transactions excludes Group’s internal items as these net out.

• The sensitivity analysis includes the effect of the translation of subsidiaries’ equity as per December 31 in subsidiaries, whose reporting currency equals to the analyzed currency.

• Below are analyzed the effect of most relevant currencies.

Group transaction risk

2015
EUR MILLION	USD	RUB	IDR	SEK	CAD
Operating proft	0.4	-1.1	0.8	-1.1	-0.6
Equity2)	-4.8	-0.5	-1.6	-0.1	-0.7
2014
EUR MILLION	USD	RUB	IDR	SEK	CAD
Operating proft	0.1	-1.7	-0.7	-0.5	-0.8
Equity2)	-3.3	-0.3	0.7	-0.4	-1.2

Sensitivity analysis

Below is presented the effect of liabilities with variable interest rate and interest rate swaps on net income and equity if there was a 1% increase in interest rates. The sensitivity analysis is based on following assumptions and factors:

• All other variables, in particular foreign exchange rates, are assumed to remain unchanged.

• The sensitivity is analyzed against interest rates applicable on December 31, 2015.

• The sensitivity analysis includes the liabilities and interest rate swaps with variable interest rate in force on Dec. 31.

		2015		2014
	NET INCOME	EQUITY (NET	NET INCOME	EQUITY (NET
EUR MILLION	(NET OF TAX)	OF TAX)3)	(NET OF TAX)	OF TAX)3)
Loans from fnancial institutions
with variable interest rate	-0.8	0.9	-1.0	2.2
Commercial paper program with
variable interest rate	-0.5		-0.2

3) Without the effect of net income.

3. Other market price risks

The Group purchases certain raw-materials, which are priced on global financial markets. These include commodity metals such as copper, zinc and lead, and certain plastics. The value of these purchases is relatively low and actions regarding the management of price risk are decided on and performed locally in each manufacturing unit. Group Risk Management also monitors the development of these raw-material prices. The Group does not currently hedge commodity price risk.

The amount of the Group’s investments in available-for-sale financial assets is insignificant and consists of investments in real estate and other unquoted shares for which reliable market values are not obtainable.

2) Without the effect of net income.

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32

34

RAPALA VMC CORPORATION

FINANCIAL STATEMENTS 2015

CONSOLIDATED FINANCIAL STATEMENTS, IFRS

4. Derivatives

The Group uses derivative instruments, such as forward contracts, option contracts, swaps and structured instruments, to manage foreign exchange risk and interest rate risk in accordance with the guidelines set by the The Group’s Risk Management policy.

Foreign currency derivatives, consisting of forward contracts, option contracts and structured instruments, are used to reduce the uncertainty in the fair value of future cash flows that is created by changes in foreign exchange rates. The fair values of the foreign currency derivatives that do not qualify as hedging instruments in accordance with IAS 39, are recognized based on their nature either in operative costs, if the hedge item is an operative transaction, or in financial income and expenses, if the hedged item is a monetary transaction. Because hedge accounting is not applied, the P&L effect arising from foreign currency derivatives is recognized partly or entirely in different financial period than exchange rate gains and losses arising from the hedged cash flows.

Interest rate derivatives, consisting of interest rate swaps, are used to reduce the volatility of interest expenses in the income statement and to adjust the duration of the debt portfolio. Part of the interest rate derivative contracts have been designated as hedging instruments in cash flow and fair value hedging and are accounted for accordingly depending if hedge accounting is applied.

Cash flow hedges

The effective portion of the changes in the fair value of the derivative financial instruments that are designated as and qualify for cash flow hedges are recognized in other comprehensive income. Any gain or loss relating to the ineffective portion is recognized immediately in the income statement in financial income or expenses. Amounts accumulated in other comprehensive income are recycled in the income statement in the periods when the hedged item affects the income statement. Interest element of interest rate swaps hedging variable rate interest-bearing liabilities is recognized in the income statement within financial income or expenses.

In 2015, the amount of the ineffective portion that was recognized in the financial income and expenses of income statement was EUR -0.1 million (2014: EUR 0.0 million). Testing for effectiveness of the hedging relationship is conducted on a monthly basis.

LIQUIDITY RISK

Liquidity risk is defined as financial distress or extraordinarily high financing cost arising due to a shortage of liquid funds in a situation where outstanding debt needs to be refinanced or where business conditions unexpectedly deteriorate and require financing. Transactional liquidity risk is defined as the risk of executing a financial transaction below fair market value, or not being able to execute the transaction at all, within a specific period of time.

The objective of liquidity risk management is to maintain sufficient liquidity, and to ensure that it is available fast enough without endangering its value, in order to avoid uncertainty related to financial distress at all times.

Generally, the seasonality of the Group’s cash flow is fairly predictable and Group Treasury monitors Group’s liquidity position using the cash pooling system as well as monthly cash flow and liquidity reporting.

The Group’s interest bearing funding is mainly managed centrally by the Group Treasury. The Group seeks to reduce liquidity and refinancing risks with balanced maturity profile of loans as well as by keeping sufficient amount of credit lines available. The Group has a EUR 80 million domestic commercial paper program, which together with Group’s credit limits is utilized to balance the seasonality of the Group’s cash flow. The size and maturity of issued commercial papers is decided by Group Treasury, based on forecasted cash flows, status of commercial paper markets and applicable interest rates. The renewal of commercial papers upon maturity creates certain liquidity risk, which is managed by maintaining sufficient other liquidity reserves available at the maturity dates. During 2015 the commercial paper program was used actively as part of Group funding and competitively priced debt was acquired through this market.

Group’s loan facilities, which were renegotiated in 2014, include ordinary gearing ratios and net debt to EBITDA ratio covenants. The Board and Group management are monitoring the fulfillment of the bank covenants on a monthly basis. The Group has agreed with its financiers higher acceptable ratio for net debt to EBITDA ratio for the end of 2015 and first quarter of 2016.

Major part of the Group’s credit limits is part of the Group’s loan facilities renewed in 2014. Below are presented the Group’s unutilized credit limits as of December 31, 2015. Group’s domestic commercial paper program not sold at December 31, 2015 was EUR 33.0 million (2014 EUR 59.0 million).

Following tables summarizes the nominal values and fair values of the Group’s derivative instruments as at December 31, 2015.

Committed unutilized credit facilities

		2015		2014
	NOMINAL	FAIR	NOMINAL	FAIR
EUR MILLION	VALUE	VALUE	VALUE	VALUE
Derivative fnancial instruments designed as cash fow hedges
Interest rate swaps, 1 to 5years	58.9	-0.4	61.4	-0.4
TOTAL	58.9	-0.4	61.4	-0.4
Derivative fnancial
instruments designed as cash fow and fair value hedges
Cross currencyswaps, 1 to 5years	15.0	1.3	20.0	0.1
TOTAL	15.0	1.3	20.0	0.1
Non-hedge accounting derivative fnancial instruments
Interest rate swaps, 1 to 5 years	20.0	-0.4	20.0	-0.4
Currency forwards, less than 12 months	70.9	1.6	67.4	2.3
Currencyforwards, 1 to 5years			7.3	0.7
TOTAL	90.9	1.2	94.6	2.6

Committed unutilized credit facilities
EUR MILLION	2015	2014
Overdraft facilities, expiring within one year	24.1	12.7
Revolvingcredit facility, expiringbeyond oneyear	79.9	73.4
TOTAL	104.0	86.1

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32

35

RAPALA VMC CORPORATION

FINANCIAL STATEMENTS 2015

CONSOLIDATED FINANCIAL STATEMENTS, IFRS

Maturity of the group’s financial liabilities

The following are the contractual maturities of financial liabilities, including the possible interest payments.

2015
	CARRYING	FINANCIAL	CONTRACTUAL					2020
EUR MILLION	VALUE	LIABILITIES4)	CASH FLOWS	2016	2017	2018	2019	ONWARDS	TOTAL
Interest-bearing liabilities
Loans from fnancial institutions	76.3	76.3	79.8	19.2	27.1	17.4	16.2		79.8
Commercial paper program	47.0	47.0	47.0	47.0					47.0
Finance lease	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0
Non-interest-bearing liabilities
Trade and other non-interest-bearing payables	34.7	16.6	16.6	16.6					16.6
Derivative liabilities and receivables
Interest rate and currency derivatives, hedge accounted	-0.9	-0.9	-0.7	0.6	-1.2	0.0	0.0		-0.7
Interest rate derivatives, non-hedge accounted	0.4	0.4	0.4	0.2	0.2				0.4
Currency derivatives, non-hedge accounted	-1.6	-1.6	-1.6	-1.6					-1.6
TOTAL	156.0	137.8	141.6	82.0	26.1	17.4	16.2	0.0	141.6
2014
	CARRYING	FINANCIAL	CONTRACTUAL					2019
EUR MILLION	VALUE	LIABILITIES4)	CASH FLOWS	2015	2016	2017	2018	ONWARDS	TOTAL
Interest-bearing liabilities
Loans from fnancial institutions	95.2	95.2	99.3	24.1	11.0	15.8	15.7	32.5	99.3
Commercial paper program	21.0	21.0	21.0	21.0					21.0
Finance lease	0.0	0.0	0.0	0.0					0.0
Other interest-bearing liabilities	0.0	0.0	0.0	0.0					0.0
Non-interest-bearing liabilities
Trade and other non-interest-bearing payables	41.1	20.8	20.8	20.8					20.8
Derivative liabilities and receivables
Interest rate and currency derivatives, hedge accounted	0.3	0.3	0.6	0.4	0.4	-0.2	0.0	0.0	0.6
Interest rate derivatives, non-hedge accounted	0.4	0.4	0.5	0.2	0.2	0.1			0.5
Currency derivatives, non-hedge accounted	-3.0	-3.0	-3.0	-2.3	-0.7				-3.0
TOTAL	155.0	134.6	139.2	64.2	10.9	15.7	15.7	32.5	139.2

4) The proportion of the carrying values which are classified as financial liabilities according to IAS 39.

CREDIT AND DEFAULT RISK

Credit risk is the risk that a counterparty will not meet its obligations under a financial instrument or customer contract, leading to a financial loss. The Group is exposed to credit risk from its operating activities (primarily trade receivables) and from its financing activities, including deposits with banks and financial institutions, foreign exchange transactions and other financial instruments. The maximum exposure to credit risk is limited to the carrying value of the financial assets as included in the consolidated statement of financial position. The carrying value of financial assets is disclosed in note 23.

The Group follows actively credit and default risks associated with customers and other counterparties. The Group’s credit and default risk portfolio did not significantly change during the course of the financial period. The proportional amount of Group’s

trade receivables which are past due, remained almost at same level as in 2014. Net allowance for credit losses related to trade receivables decreased moderately from 2014.

Business related credit risk

The Group’s accounts receivables are generated by a large number of customers worldwide and do not include any significant concentrations of credit risk by customer or by geographical area.

The management of credit risk is allocated to each operative business unit. Before providing credit to any new customer, background checks are carried out. Cash, advance payments and letters of credit are also applied with new and existing customers. Each business unit is

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32

36

RAPALA VMC CORPORATION

FINANCIAL STATEMENTS 2015

CONSOLIDATED FINANCIAL STATEMENTS, IFRS

responsible for setting credit limits and monitoring it’s credit customers’ financial situation. Customers’ payment behavior is monitored regularly and delays in payments can trigger payment reminders, stopping the shipments, requirements for advance payments for future shipments and eventually legal collection procedures. In significant cases, business units consult with the Group CFO before taking final decisions. In exceptional cases, payment terms may be renegotiated.

The group recognizes an impairment loss on trade receivables when there is objective evidence that the Group will not be able to collect amounts due according to the original terms of the receivable. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganization, and default in payments are considered as indicators that a trade receivable is impaired. No allowance is recognized on trade receivables that are past due, when solvency of the customer is considered solid. The assessment and decision of recognition of an impairment loss is taken locally in each business unit on case-by-case basis.

More information on allowance for trade receivables is presented in note 16.

In the table below is presented analysis of trade receivables that were past due but not impaired.

Analysis of trade receivables that were past due but not impaired

not impaired
EUR MILLION	2015	2014
Neither past due or impaired	36.7	40.0
Past due but not impaired
Less than 1 month	4.3	4.9
1-3 months	3.1	2.8
3-6 months	1.4	1.7
Over 6 months	1.5	1.7
TOTAL	47.0	51.1

CAPITAL MANAGEMENT

Rapala Group’s strategic objective is profitable growth. The objective of the Group’s capital management is to ensure that it maintains healthy capital ratios in order to support its business and to maximize shareholder value.

The Group manages its capital structure and makes adjustments to it taking into account changes in economic conditions and requirements of strategy implementation. To maintain or develop the capital structure, the Group may adjust the dividend payments and repayments of capital to shareholders by buying back shares, issue new shares and/or increase/decrease the amount of borrowings.

Group’s objective for capital management is to keep:

1. Gearing ratio below 150% and

2. Net interest-bearing debt to EBITDA (rolling 12 months) below 3.8.

The Group capital structure is reviewed by the Board regularly. The Group is not subject to externally imposed capital requirements other than the financial covenants set by the banks, which are derived from the above mentioned key figures. For more information on financial covenants set by the banks, see section on liquidity risks. The Group has temporarily higher net interest-bearing debt to EBITDA , but the Group’s objective is to reach the above target during 2016. The Group had agreed with its lenders on higher covenant levels for December 31, 2015 and March 31, 2016 and expects to comply with these covenant levels.

The achievements of the objectives are presented in the table below.

For definitions of key figures, see page 48.

	TARGET	2015	2014
Gearing %	below 150%	77.3	73.2
Net interest-bearing debt to EBITDA	below 3.8	3.9	3.3

Financial credit risk

Financial instruments contain an element of risk resulting from changes in market price of such instruments due to counterparties becoming less creditworthy or risk of loss due to counterparties being unable to meet their obligations. This risk is measured and monitored centrally by the Group Risk Management.

Financial credit risk is managed actively by limiting counterparties to a sufficient number of major banks and financial institutions and monitoring the credit worthiness and exposure size continuously as well as through entering into collateral agreements with certain counterparties. The Group reduces credit risk by executing treasury transactions only with approved counterparties. All significant counterparties are rated with the minimum counterparty credit rating requirement being BBB (S&P). Foreign subsidiaries may have bank accounts in unrated financial institutions. In order to decrease credit risk associated with local banks used by subsidiaries in foreign countries, the subsidiaries are required to deposit their excess cash balances with the Group Treasury on an ongoing basis.

Group’s all investments related to liquidity management are made in liquid instruments with low credit risk. For instance, the Group does not have investments in commercial papers.

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32

37

RAPALA VMC CORPORATION

FINANCIAL STATEMENTS 2015

CONSOLIDATED FINANCIAL STATEMENTS, IFRS

FINANCIAL ASSETS AND LIABILITIES BY 23 CATEGORIES AND FAIR VALUES

			2015			2014
		FINANCIAL	FAIR VALUE OF		FINANCIAL	FAIR VALUE OF
	CARRYING	ASSETS AND	FINANCIAL ASSETS AND		ASSETS AND	FINANCIAL ASSETS AND
EUR MILLION	VALUE	LIABILITIES 1)	LIABILITIES 1)	CARRYING VALUE	LIABILITIES1)	LIABILITIES1)	NOTE
FINANCIAL ASSETS
Loans and receivables2)
Non-current fnancial assets
Loan receivables	0.9	0.9	0.9	1.8	1.8	1.8	16
Other interest-bearing receivables	0.0	0.0	0.0	0.0	0.0	0.0	16
Non-interest-bearing receivables	0.5	0.4	0.4	0.7	0.5	0.5	16
Current fnancial assets
Cash and cash equivalents	11.4	11.4	11.4	12.2	12.2	12.2	18
Loan receivables	1.0	1.0	1.0	1.1	1.1	1.1	16
Trade and other non-interest-bearing receivables	53.8	46.7	46.7	57.4	50.7	50.7	16
Available-for-sale fnancial assets
Available-for-sale investments	0.3	0.3	0.3	0.3	0.3	0.3	15
Financial assets at fair value through income
statement - held-for-trading
Currency derivatives - non-hedge accounted	1.8	1.8	1.8	4.2	4.2	4.2	16, 22
Hedge accounted derivatives
Currency derivatives - fair value hedges	1.9	1.9	1.9	1.2	1.2	1.2	16, 22
FINANCIAL LIABILITIES
Financial liabilities at fair value through income
statement - held-for-trading
Interest rate and currency derivatives -
non-hedge accounted	0.6	0.6	0.6	1.6	1.6	1.6	22, 25
Hedge accounted derivatives
Interest rate derivatives - cash fow hedges	1.0	1.0	1.0	1.4	1.4	1.4	22, 25
Financial liabilities measured at amortized cost2)
Non-current fnancial liabilities
Loans from fnancial institutions	58.5	58.5	58.7	72.3	72.3	72.7	24
Finance lease	0.0	0.0	0.0				24
Other non-interest-bearing liabilities	0.1	0.1	0.1	0.1	0.1	0.1	25
Current fnancial liabilities
Loans from fnancial institutions	17.8	17.8	17.8	22.9	22.9	22.9	24
Commercial paper program	47.0	47.0	47.0	21.0	21.0	21.0	24
Pension loans							24
Finance lease	0.0	0.0	0.0	0.0	0.0	0.0	24
Other interest-bearing liabilities				0.0	0.0	0.0	24
Trade and other non-interest-bearing payables	34.6	16.6	16.6	41.0	20.8	20.8	25

1) The proportion of the carrying value which is classified as financial assets and liabilities according to IAS 39.

2) Fair value hierarchy level 2.

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31

32

38

RAPALA VMC CORPORATION

FINANCIAL STATEMENTS 2015

CONSOLIDATED FINANCIAL STATEMENTS, IFRS

FAIR VALUE HIERARCHY OF THE FINANCIAL ASSETS AND LIABILITIES MEASURED AT FAIR VALUE

				2015				2014
EUR MILLION	TOTAL	LEVEL 1	LEVEL 2	LEVEL 3	TOTAL	LEVEL 1	LEVEL 2	LEVEL 3
FINANCIAL ASSETS AT FAIR VALUE
Available-for-sale fnancial assets
Available-for-sale investments	0.3			0.3	0.3			0.3
Financial assets at fair value through income
statement - held-for-trading
Currency derivatives - non-hedge accounted	1.8		1.8		4.2		4.2
Hedge accounted derivatives
Currency derivatives - fair value hedges	1.9		1.9		1.2		1.2
TOTAL	4.0		3.7	0.3	5.7		5.4	0.3
FINANCIAL LIABILITIES AT FAIR VALUE
Financial liabilities at fair value through income
statement - held-for-trading
Currency and interest derivatives -
non-hedge accounted	0.6		0.6		1.6		1.6
Hedge accounted derivatives
Interest rate derivatives - cash fow hedges	1.0		1.0		1.4		1.4
TOTAL	1.6		1.6		3.1		3.1

FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES

Fair value hierarchy levels

The fair values of the financial assets and liabilities on the hierarchy level 1 are based on quoted market prices of similar financial instruments traded in an active market. Currently there are no financial instruments on level 1.

The fair values of the financial assets and liabilities on the hierarchy level 2 are based on other price information than quoted market prices for a significant part of the valuation. This information is supported by observable market inputs either directly (i.e. prices) or indirectly (i.e. derived from prices).

The fair values of the financial assets and liabilities on the hierarchy level 3 are calculated using a valuation technique based on assumptions that are not supported by available observable market data. For example management estimates are utilized in generally accepted valuation models of the financial instruments on the Level 3.

The fair value hierarchy level, into which the entire financial asset or liability is classified, is determined based on the lowesthierarchy-level information being significant for the valuation of that particular financial asset or liability. The significance of the information is estimated considering the financial asset or liability in its entirety.

No significant transfers between the hierarchy levels took place during the financial period.

Finance leases

The fair value of finance lease liabilities corresponds to their book value. The fair value of finance leases is based on discounted future cash flows. The discount rate used corresponds to that applied to similar finance leases.

Current financial assets and liabilities

Due to their short maturity, the fair value of current financial assets and liabilities is regarded as corresponding to their original carrying amount.

Non-current financial assets

The fair value of non-current financial assets is based on discounted future cash flows. The discount rate used corresponds to the market rate on the balance sheet date.

Non-current interest-bearing liabilities

On December 31, 2015, 27.8% (2014: 21.9%) of non-current loans based on floating rates was connected to one-month euribor, libor or similar and the rest to maximum six-month euribor, libor or similar. Therefore, the fair value of non-current loans based on floating rates is regarded as equaling their book value. A part of non-current loans on floating rates is hedged with separate interest rate derivatives which are described in note 22. The fair value of non-current loans on fixed rates is based on discounted future cash flows. The discount rate used corresponds to the market rate on the balance sheet date.

Available-for-sale investments

Available-for-sale investments comprise of unlisted shares that are measured at fair value. Certain unlisted shares for which fair values cannot be measured reliably are measured at cost less possible impairment.

Non-current non-interest-bearing liabilities

Contingent considerations of business combinations and other acquisitions are recognized at fair value on the date of acquisition. Determination of fair values is based on discounted future cash flows.

Derivatives

All derivatives are initially recognized at fair value on the date derivative contract is entered into, and are subsequently remeasured at fair value on each balance sheet date.

Determination of fair values is based on quoted market prices and rates, discounting of cash flows and option valuation models.

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32

39

RAPALA VMC CORPORATION

FINANCIAL STATEMENTS 2015

CONSOLIDATED FINANCIAL STATEMENTS, IFRS

INTEREST-BEARING 24 LIABILITIES

	AVERAGE INTEREST
EUR MILLION	RATE 2015, %1)	2015	2014
Non-current interest-bearing liabilities
Loans from fnancial institutions	2.05	58.5	72.3
Finance lease	6.45	0.0
Current interest-bearing liabilities
Loans from fnancial institutions	2.47	2.4	12.6
Current portion of non-current loans from fnancial institututions	1.42	15.5	10.3
Commercial paper program	0.59	47.0	21.0
Pension loans
Finance lease	6.34	0.0	0.0
Other current liabilities			0.0
TOTAL		123.4	116.2

1) Some of the loans are subject to interest rate swaps. Average interest rates are calculated without the effect of the interest rate swaps. More information in note 22.

Fair values of financial liabilities are presented in the note 23.

INTEREST-BEARING LIABILITIES BY CURRENCY

		2015		2014
	NON-		NON-
EUR MILLION	CURRENT	CURRENT	CURRENT	CURRENT
Loans from fnancial institutions
EUR	22.3	14.1	34.5	14.1
USD	19.3	3.4	21.8	3.3
GBP	16.9		15.9	5.3
AUD	0.1	0.0	0.0	0.0
ZAR		0.3		0.2
Pension loans and commercial
paper program
EUR		47.0		21.0
Finance lease
GBP				0.0
Other	0.0	0.0		0.0
TOTAL	58.6	64.8	72.3	43.9

FINANCE LEASE

FINANCE LEASE
		2015		2014
	MINIMUM	PRESENT	MINIMUM	PRESENT
	LEASE	VALUE OF	LEASE	VALUE OF
EUR MILLION	PAYMENTS	PAYMENTS	PAYMENTS	PAYMENTS
Within one year	0.0	0.0	0.0	0.0
1–3 years	0.0	0.0	0.0	0.0
3-5 years	0.0	0.0
TOTAL MINIMUM LEASE
PAYMENTS	0.0	0.0	0.1	0.1
Less future fnance charges	0.0		0.0
PRESENT VALUE OF MINIMUM
LEASE PAYMENTS	0.0	0.0	0.1	0.1

NON-INTEREST-BEARING 25 LIABILITIES

EUR MILLION	2015	2014
Non-current non-interest-bearing liabilities
Derivatives	1.3	1.9
Other non-current liabilities	0.1	0.1
Current non-interest-bearing liabilities
Trade payables	16.6	20.8
Accrued employee-related expenses	9.7	9.2
VAT payable	1.0	1.5
Derivatives	0.2	1.2
Advances received	0.5	0.5
Other accrued expenses and deferred income	5.9	6.4
Other current liabilities	1.0	2.7
TOTAL	36.3	44.2

Other non-current non-interest-bearing liabilities include contingent considerations of business combinations and other acquisitions on the date of acquisition.

Fair values of financial liabilities are presented in the note 23.

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31

32

40

RAPALA VMC CORPORATION

FINANCIAL STATEMENTS 2015

CONSOLIDATED FINANCIAL STATEMENTS, IFRS

COMMITMENTS AND 26 CONTINGENCIES

Since Normark Sport Finland Oy, a 100% owned subsidiary of Rapala VMC Corporation, is the legal shareholder of the distribution joint venture with Shimano, the parent company has guaranteed to Shimano the fulfillment of its subsidiary’s obligations related to the joint venture. Group’s lease commitments are presented in note 27.

DISPUTES AND LITIGATIONS

In 2013 the Group received a decision from the Supreme Administrative Court concerning the decision made by Finnish tax authorities in 2007 to adjust the parent company’s taxation in years 2004-2005. The process to amend the parent company’s taxation in years 2006-2013 following the decision of the Supreme Administrative Court was finalized during 2014, subsequently the mutual agreement process (MAP) between the tax authorities based on the tax treaty between Finland and Estonia was finalized during the financial year. The outcome did not have any impact on the tax position of the Group.

The Group’s management does not have knowledge of any open disputes or litigations, which would have a significant impact on the company’s financial position.

LEASE 27 CONTRACTS

THE GROUP AS A LESSEE

Future minimum rental payable under non-cancellable operating lease commitments

EUR MILLION	2015	2014
Within one year	4.7	5.2
1–3 years	5.7	5.9
3–5 years	2.8	3.8
Later than 5 years	1.2	1.5
TOTAL	14.4	16.4

The Group leases offices, warehouses and manufacturing facilities under several non-cancellable operating leases. The leases have varying terms and lengths, some of which may contain renewal options.

THE GROUP AS A LESSOR

Future minimum rental receivable under non-cancellable operating leases

operating leases
EUR MILLION	2015	2014
Within one year	0.0	0.1
TOTAL	0.0	0.1

Some of the offices and warehouses that are currently not used by the Group are leased to external parties. The leases have varying terms and lenghts, some of which may contain renewal options.

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32

41

RAPALA VMC CORPORATION

FINANCIAL STATEMENTS 2015

CONSOLIDATED FINANCIAL STATEMENTS, IFRS

RELATED PARTY 28 TRANSACTIONS

The Group’s related parties include subsidiaries, associates, management and entities with significant influence. Subsidiaries owned directly or indirectly by the parent company as well as associates and foreign branches are listed in note 32. Related party transactions between Group companies have been eliminated. Entities with significant influence are specified in section ‘Shares and Shareholders’.

TRANSACTIONS AND BALANCES WITH RELATED PARTIES

EUR MILLION	SALES AND OTHER INCOME	PURCHASES	PAID RENTS	OTHER EXPENSES	RECEIVABLES	PAYABLES
2015
Joint venture Shimano Normark UK Ltd.	3.6			0.0	0.1
Associated company Lanimo Oü	0.0	0.1			0.0
Entity with signifcant infuence over the Group1)			0.2	0.1	0.0
Management			0.2	0.0		0.0
2014
Joint venture Shimano Normark UK Ltd.	3.2				0.1	0.0
Associated company Lanimo Oü	0.0	0.1			0.0
Entity with signifcant infuence over the Group1)			0.2	0.1	0.0	0.0
Management			0.3		0.0	0.0

1) Lease agreement for the real estate for the consolidated operations in France and a service fee. Entity with significant influence is Viellard Migeon & Cie, who’s shareholding alone and together with its subsidiary is presented in section ’Shares and Shareholders’.

EMPLOYEE BENEFITS FOR TOP MANAGEMENT

EUR MILLION	2015	2014
Salaries and other short-term employee benefts	-3.6	-3.3
TOTAL	-3.6	-3.3

Top management consists of members of the Board of Directors, CEO and other members of the Executive Committee. There were no changes in the Board of Directors members during the year. On September 24th, 2015 Aku Valta and Cyrille Viellard were appointed as new members to Executive Committee.

On December 31, 2015, the members of the Board and the Executive Committee held directly a total of 3 000 Company shares (on December 31, 2014: 3 000). Top management owned 0.0% (0.0%) of the issued share capital and voting rights of the company on December 31, 2015.

In 2015 and 2014, no share-based incentive plans were granted to top management. For more information on share-based payments, see note 29 and the section ‘Shares and Shareholders’. Details of top management shareholdings are given in the section ‘Board and Management’.

The Group’s business transactions or outstanding balances with top management or close members of their family are presented in the table ‘Transactions and balances with related parties’.

EMPLOYEE BENEFITS FOR CHIEF EXECUTIVE OFFICER

EMPLOYEE BENEFITS FOR CHIEF EXECUTIVE	OFFICER
EUR MILLION	2015	2014
Salaries and other short-term employee benefts2)	-0.5	-0.7
TOTAL	-0.5	-0.7

300 000 as personal supplementary pension insurance policy. CEO is also entitled to a profit bonus according to the principles of the Group’s senior management bonus scheme. His bonus paid in 2015 totaled EUR 110 433 accruing from year 2014. Bonus accrued for 2015 amounted to EUR 74 384. The CEO’s pension security is not arranged under the statutory Finnish contribution based employee pension plan. Therefore in addition to the annual salary, CEO was paid in 2015 EUR 53 410 to arrange a pension security corresponding to the Finnish statutory employee pension plan. The retirement age corresponds to the Finnish employee pension plan. In addition, CEO has the right to receive further compensation of EUR 8 400 annually to be placed in a voluntary pension scheme or a similar arrangement. Being a member of the board, the CEO is entitled to the same compensation as the other board members, which totals to EUR 45 000 for the year 2015.

The company shall give notice at any time or using 24 months notice period and CEO shall give notice 3 or 6 months prior to terminating the service contract. The term of notice is dependent on the cause for termination of employment. If the service agreement is terminated by the company without cause, CEO is entitled to severance compensation corresponding to 24 months’ salary (excluding profit bonuses).

EMPLOYEE BENEFITS FOR OTHER MEMBERS OF THE EXECUTIVE COMMITTEE

EUR MILLION	2015	2014
Salaries and other short-term employee benefts3)	-2.7	-2.3
TOTAL	-2.7	-2.3

3) 2015 employee benefits include new members’ full year salaries and employee benefits.

2) Excluding compensation for being a member of the Board which is presented in section employee benefits for Board of Directors.

In 2015, CEO’s annual base salary and benefits amounted to EUR 355 960, of which EUR 55 960 was paid in cash and EUR

In addition to the monthly salary members of the Executive Committee participate in the Group’s senior management bonus scheme. The amount and payment of the bonus requires that the result and cash flow targets are achieved. If the targets are not achieved, payment of bonus is fully at the discretion of the Board

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32

42

RAPALA VMC CORPORATION

FINANCIAL STATEMENTS 2015

CONSOLIDATED FINANCIAL STATEMENTS, IFRS

of Directors. Bonuses awarded under the scheme are paid in two installments, the first when the audited results for the relevant financial year are known and the second after a predetermined vesting period of a few months, to encourage retention of senior management.

EMPLOYEE BENEFITS FOR BOARD OF DIRECTORS

EUR MILLION	2015	2014
Salaries and other short-term employee benefts	-0.4	-0.4
TOTAL	-0.4	-0.4

EVENTS AFTER THE BALANCE 31 SHEET DATE

The Group has no knowledge of any significant events after the balance sheet date that would have a material impact on the financial statements for 2015. Material events after the balance sheet date have been discussed in the Review of the Board of Directors.

Chairman of the Board is paid an annual remuneration of EUR 100 000 and other Members of the Board of Directors an annual remuneration of EUR 45 000. The members of the Remuneration Committee do not receive further compensation. Members of the Board of Directors are reimbursed for travel expenses following the company’s traveling compensation principles. Members of the Board of Directors were paid a total of EUR 370 000 for their work on the Board of Directors and the Remuneration Committee in the financial year 2015 (2014: EUR 370 000).

SHARE-BASED 29 PAYMENTS

During the period the Group did not have any share-based incentive programs.

EARNINGS PER 30 SHARE

	2015	2014
Net proft for the period attributable to the equity holders of the Company, EUR million	6.7	9.2
Weighted average number of shares, 1 000 shares	38 366	38 506
Diluted weighted average number of shares, 1 000 shares	38 366	38 506
Earnings per share, EUR	0.17	0.24
Diluted earnings per share, EUR	0.17	0.24

For more details on the calculation of earnings per share, see accounting principles for the consolidated accounts.

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32

43

RAPALA VMC CORPORATION

FINANCIAL STATEMENTS 2015

CONSOLIDATED FINANCIAL STATEMENTS, IFRS

GROUP 32 COMPANIES

SUBSIDIARIES BY			GROUP	NATURE OF
GEOGRAPHICAL AREA		COUNTRY	HOLDING (%)	ACTIVITY
Nordic
Normark Denmark A/S	*	Denmark	100	Distribution
KL-Teho Oy	*	Finland	100	Manufacturing
Marttiini Oy	*	Finland	100	Manufacturing
Normark Sport Finland Oy	*	Finland	100	Sourcing
Normark Suomi Oy		Finland	100	Distribution
Peltonen Ski Oy		Finland	100	Manufacturing
Rapala Shimano East Europe Oy	1)	Finland	50	Administration
Rapala VMC Iceland ehf	*	Iceland	100	Distribution
Normark Norway AS	*	Norway	100	Distribution
Remen Slukfabrikk AS		Norway	100	Administration
Vangen AS		Norway	100	Administration
Mora Ice AB	*	Sweden	100	Sourcing
Normark Scandinavia AB	*	Sweden	100	Distribution
Rest of Europe
FLLC Normark	1)	Belarus	50	Distribution
Rapala Europe Finance N.V.	*2)	Belgium	100	Administration
Rapala Finance N.V.	*	Belgium	100	Administration
Normark S.r.o.	1)	Czech Republic	50	Distribution
Marttiini Oü		Estonia	100	Manufacturing
Normark Eesti Oü		Estonia	100	Distribution
Rapala Eesti AS	*	Estonia	100	Manufacturing
Mystic s.a.r.l.		France	100	Manufacturing
Rapala France SAS	*	France	100	Distribution
VMC Péche SA	*	France	100	Manufacturing
Normark Hungary Ltd	*	Hungary	66.6	Distribution
SIA Normark Latvia		Latvia	100	Distribution
Normark UAB		Lithuania	100	Distribution
Rapala B.V.	*	Netherlands	100	Administration
Normark Polska Sp.z.o.o.	*	Poland	100	Distribution
Normark Portugal SA		Portugal	100	Distribution
SC Normark Sport Romania S.r.l.		Romania	66.6	Distribution
OOO Raptech	*	Russia	100	Manufacturing
AO Normark	1)	Russia	50	Distribution
Normark Spain SA	*	Spain	100	Distribution
Rapala-Fishco AG	*	Switzerland	100	Distribution
ACE Ltd.		UK	100	Administration
Dynamite Baits Ltd.	*	UK	100	Manufacturing
Normark Sport Ltd.		UK	100	Administration
VMC-Water Queen Ukraine	1)	Ukraine	50	Distribution
North America
Normark Inc.		Canada	100	Distribution
NC Holdings Inc.	*	USA	100	Administration
Normark Corporation		USA	100	Distribution
Normark Innovations, Inc.		USA	100	Sourcing
VMC Inc.		USA	100	Distribution

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31

32

44

RAPALA VMC CORPORATION

FINANCIAL STATEMENTS 2015

CONSOLIDATED FINANCIAL STATEMENTS, IFRS

SUBSIDIARIES BY			GROUP	NATURE OF
GEOGRAPHICAL AREA		COUNTRY	HOLDING (%)	ACTIVITY
Rest of the World
Rapala VMC Australia Pty Ltd	*	Australia	100	Distribution
Rapala V.M.C. Do Brazil	*	Brazil	100	Distribution
Normark Chile Ltd		Chile	100	Distribution
Kentec Gift (Shenzhen) Ltd		China	100	Distribution
Rapala VMC China Co.	*	China	100	Distribution
Rapala VMC (ShenZhen) Ltd		China	100	Manufacturing
Willtech (PRC) Ltd.		Hong Kong	100	Sourcing
PT Rapala Indonesia	*	Indonesia	100	Distribution
PT Rapala VMC Batam		Indonesia	100	Manufacturing
PT VMC Fishing Tackle Indonesia		Indonesia	100	Manufacturing
Rapala Japan K.K.	*	Japan	100	Distribution
Normark Kazakhstan LLP	1)	Kazakhstan	50	Distribution
Rapala VMC (Asia Pacifc) Sdn Bhd.	*	Malaysia	100	Distribution
Rapala VMC Mexico S. de R.L. de C.V		Mexico	100	Distribution
Rapala VMC South-Africa Distribu- tors Pty Ltd.	*	South Africa	70	Distribution
Rapala VMC Korea Co., Ltd	*	South Korea	100	Distribution
Rapala VMC Singapore Pte. Ltd.		Singapore	100	Administration
Rapala VMC (Thailand) Co., Ltd.	*	Thailand	100	Distribution
ASSOCIATED COMPANIES			GROUP	NATURE OF
AND JOINT VENTURES		COUNTRY	HOLDING (%)	ACTIVITY
Shimano Normark UK Ltd.	*	UK	50	Distribution
Lanimo Oü		Estonia	33.3	Manufacturing

FOREIGN BRANCHES

Rapala VMC (Hong Kong) Ltd, branch office in Taiwan Normark S.r.o., branch office in Slovak Republic

1) Controlled by the Rapala Group 2) Established in 2015

• Shares owned by the parent company

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31

32

45

RAPALA VMC CORPORATION

FINANCIAL STATEMENTS 2015

KEY FINANCIAL FIGURES

KEY FINANCIAL FIGURES

		2015	2014	2013	2012	2011
Scope of activity and proftability
Net sales	EUR million	278.2	273.2	286.6	290.7	279.5
Operating proft before depreciation and impairments	EUR million	28.1	30.0	33.6	32.7	37.7
as a percentage of net sales	%	10.1	11.0	11.7	11.2	13.5
Operating proft	EUR million	21.0	22.9	26.1	25.9	30.7
as a percentage of net sales	%	7.6	8.4	9.1	8.9	11.0
Proft before taxes	EUR million	14.2	15.7	20.6	21.0	25.2
as a percentage of net sales	%	5.1	5.8	7.2	7.2	9.0
Net proft for the period	EUR million	8.1	10.2	16.1	14.0	17.2
as a percentage of net sales	%	2.9	3.7	5.6	4.8	6.2
Attributable to
Equity holders of the Company	EUR million	6.7	9.2	12.5	10.1	14.0
Non-controlling interest	EUR million	1.4	1.0	3.6	3.8	3.2
Capital expenditure	EUR million	9.1	8.7	10.7	14.4	10.0
as a percentage of net sales	%	3.3	3.2	3.7	5.0	3.6
Research and development expenses	EUR million	2.1	2.0	1.6	2.0	2.1
as a percentage of net sales	%	0.8	0.7	0.6	0.7	0.7
Net interest-bearing debt at the end of the period	EUR million	108.2	99.9	96.3	89.9	91.1
Capital employed at the end of the period	EUR million	248.1	236.5	231.4	227.5	226.9
Return on capital employed (ROCE)	%	8.7	9.8	11.4	11.4	13.8
Return on equity (ROE)	%	5.9	7.5	11.8	10.2	13.0
Equity-to-assets ratio at the end of the period	%	44.7	44.1	44.5	42.2	43.2
Debt-to-equity ratio (gearing) at the end of the period	%	77.3	73.2	71.2	65.3	67.1
Average personnel for the period	Persons	3 078	2 716	2 428	2 127	2 208
Personnel at the end of the period	Persons	3 159	2 822	2 590	2 090	1 921

NET SALES, EUR MILLION

OPERATING PROFIT MARGIN, %

==> picture [254 x 94] intentionally omitted <==

----- Start of picture text -----

300 279.5 290.7 286.6 273.2 278.2
250
200
150
100
50
0
11 12 13 14 15
----- End of picture text -----

==> picture [254 x 94] intentionally omitted <==

----- Start of picture text -----

12
11.0
10
8.9 9.1
8.4
8 7.6
6
4
2
0
11 12 13 14 15
----- End of picture text -----

OPERATING PROFIT, EUR MILLION

PROFIT BEFORE TAXES, EUR MILLION

==> picture [254 x 95] intentionally omitted <==

----- Start of picture text -----

35
30.7
30
25.9 26.1
25 22.9
21.0
20
15
10
5
0
11 12 13 14 15
----- End of picture text -----

==> picture [254 x 96] intentionally omitted <==

----- Start of picture text -----

25 25.2
21.0 20.6
20
15.7
15 14.2
10
5
0
11 12 13 14 15
----- End of picture text -----

46

RAPALA VMC CORPORATION

FINANCIAL STATEMENTS 2015

KEY FINANCIAL FIGURES

		2015	2014	2013	2012	2011
Share related key fgures
Earnings per share	EUR	0.17	0.24	0.32	0.26	0.36
Fully diluted earnings per share	EUR	0.17	0.24	0.32	0.26	0.36
Equity per share	EUR	3.43	3.34	3.19	3.32	3.30
Dividend per share1)	EUR	0.15	0.20	0.24	0.23	0.23
Dividend/earnings ratio1)	%	86.3	83.3	74.3	88.5	63.7
Efective dividend yield1)	%	3.16	4.25	4.62	4.74	4.07
Price/earnings ratio		27.3	19.6	16.1	18.7	15.7
Share price at the end of the period	EUR	4.74	4.71	5.20	4.85	5.65
Lowest share price	EUR	4.57	4.69	4.56	4.52	4.86
Highest share price	EUR	5.85	6.00	5.50	6.50	7.38
Average share price	EUR	5.11	5.17	4.88	5.50	6.23
Number of shares traded	Shares	2 074 690	1 065 880	3 122 353	5 679 621	6 479 735
Number of shares traded of average number of shares	%	5.41	2.77	8.08	14.61	16.65
Share capital	EUR million	3.6	3.6	3.6	3.6	3.6
Dividend for the period1)	EUR million	5.8	7.7	9.3	8.9	8.9
Year end market capitalization2)	EUR million	181.8	180.8	200.5	188.0	219.9
Number of shares at the end of the period excluding own shares2)	1 000 shares	38 360	38 393	38 561	38 767	38 916
Number of own shares at the end of period	1 000 shares	640	607	907	701	552
Weighted average number of shares2)	1 000 shares	38 366	38 506	38 660	38 885	38 928
Fully diluted number of shares at the end of the period2)	1 000 shares	38 360	38 393	38 561	38 767	38 916
Fully diluted weighted average number of shares2)	1 000 shares	38 366	38 506	38 660	38 885	38 928

1) Year 2015 board proposal. 2) Excluding own shares.

EARNINGS PER SHARE, EUR

==> picture [254 x 89] intentionally omitted <==

----- Start of picture text -----

0.4
0.36
0.32
0.3
0.26
0.24
0.2
0.17
0.1
0
11 12 13 14 15
----- End of picture text -----

DIVIDEND/EARNINGS RATIO, %

==> picture [254 x 99] intentionally omitted <==

----- Start of picture text -----

88.5 83.3 86.3
80
74.3
60 63.7
40
20
0
11 12 13 14 15
----- End of picture text -----

DIVIDEND PER SHARE, EUR

EQUITY PER SHARE, EUR

==> picture [254 x 94] intentionally omitted <==

----- Start of picture text -----

0.25 0.23 0.23 0.24
0.20 0.20
0.15 0.15
0.10
0.05
0
11 12 13 14 15
----- End of picture text -----

==> picture [254 x 92] intentionally omitted <==

----- Start of picture text -----

4
3 3.30 3.31 3.19 3.34 3.43
2
1
0
11 12 13 14 15
----- End of picture text -----

47

RAPALA VMC CORPORATION

FINANCIAL STATEMENTS 2015

KEY FINANCIAL FIGURES

DEFINITION OF KEY FIGURES

Operating profit before depreciation and impairments (EBITDA) = Operating profit + depreciation and impairments

Net interest-bearing debt = Capital employed = Working capital = Total non-interest-bearing assets = Total non-interest-bearing liabilities = Net interest-bearing debt to EBITDA = Return on capital employed (ROCE), % = Return on equity (ROE), % = Debt-to-equity ratio (Gearing), % = Equity-to-assets ratio, % = Earnings per share, EUR = Dividend per share, EUR = Dividend/earnings ratio, % = Equity per share, EUR = Efective dividend yield, % = Price/earnings ratio = Average share price, EUR = Year-end market capitalization, EUR = Average number of personnel =

Total interest-bearing liabilities - total interest-bearing assets Total equity + net interest-bearing liabilities Inventories + total non-interest-bearing assets - total non-interest-bearing liabilities Total assets - interest-bearing assets - intangible and tangible assets - assets classifed as held-for-sale Total liabilities - interest-bearing liabilities Net interest-bearingdebt Operating proft before depreciation and impairments Operating proft x 100 Capital employed (average for the period) Netproft for theperiod x 100 Total equity (average for the period) Net interest-bearingliabilities x 100

Total equity Total equityx 100 Total shareholders' equity and liabilities - advances received Netproft for theperiod attributable to the equityholders of the Company Adjusted weighted average number of shares Dividend for theperiod Adjusted number of shares at the end of the period Dividend for theperiod x 100 Net proft for the period attributable to the equity holders of the Company Equityattributable to equityholders of the Company Adjusted number of shares at the end of the period Dividendper share x 100 Adjusted share price at the end of the period Adjusted shareprice at the end of theperiod Earnings per share EUR amount traded duringtheperiod Adjusted number of shares traded during the period Number of shares at the end of the period, exluding own shares x share price at the end of the period Calculated as average of monthly end personnel amounts

48

RAPALA VMC CORPORATION

FINANCIAL STATEMENTS 2015

PARENT COMPANY FINANCIAL STATEMENTS, FAS

PARENT COMPANY FINANCIAL STATEMENTS, FAS

PARENT COMPANY INCOME STATEMENT

PARENT COMPANY BALANCE SHEET

ASSETS

EUR	2015	2014	NOTE
Net sales	31 694 302	32 985 612	2
Other operating income	114 096	27 838	3
Change in inventory of fnished
products and work in progress	461 538	-805 454
Production for own use	157 516	80 551
Materials and services	-11 978 615	-12 426 657	5
Employee beneft expenses	-8 646 927	-8 725 266	6
Other operating expenses	-1 867 196	-1 015 050	4
Operating proft before depreciation
and impairments	9 934 715	10 121 573
Depreciation and impairments	-1 244 087	-1 163 661	7
Operating proft	8 690 627	8 957 912
Financial income and expenses	11 845 902	-8 695 911	8
Proft before extraordinary items	20 536 529	262 001
Extraordinary items		900 000	9
Proft before appropriations and taxes	20 536 529	1 162 001
Appropriations	-158 110	-72 698	10
Income taxes	-66 463	801 258	11
NET PROFIT FOR THE PERIOD	20 311 956	1 890 562

ASSETS
EUR	2015	2014	NOTE
Non-current assets
Intangible assets	854 868	539 536	12
Tangible assets	6 289 099	6 663 740	13
Investments	174 976 608	180 234 386	14
Interest-bearing receivables	15 477 948	3 788 133	16
Non-interest-bearingreceivables	186 328	2 391 091	16
Total non-current assets	197 784 851	193 616 886
Current assets
Inventories	6 815 290	6 532 531	15
Current fnancial assets
Interest-bearing	25 620 798	26 325 910	16
Non-interest-bearing	8 769 015	12 202 817	16
Cash and cash equivalents	63 400	255 604
Total current assets	41 268 502	45 316 862
TOTAL ASSETS	239 053 353	238 933 748

SHAREHOLDERS’ EQUITY AND LIABILITIES

EUR	2015	2014	NOTE
Shareholders' equity
Share capital	3 552 160	3 552 160
Share premium fund	16 680 961	16 680 961
Fair value reserve	-874 141	-1 433 036
Fund for invested non-restricted equity	4 914 371	4 914 371
Own shares	-5 392 359	-5 220 639
Retained earnings	10 198 535	15 980 038
Net income for theperiod	20 311 956	1 890 562
Total shareholders' equity	49 391 483	36 364 417
Appropriations	1 495 036	1 336 926
Non-current liabilities
Interest-bearing	66 432 052	73 637 901
Non-interest-bearing	1 430 308	1 969 813
Total non-current liabilities	67 862 360	75 607 714	17
Current liabilities
Interest-bearing	115 981 641	97 258 774
Non-interest-bearing	4 322 832	28 365 917
Total current liabilities	120 304 473	125 624 690	17
TOTAL SHAREHOLDERS’ EQUITY
AND LIABILITIES	239 053 353	238 933 748

49

RAPALA VMC CORPORATION

FINANCIAL STATEMENTS 2015

PARENT COMPANY FINANCIAL STATEMENTS, FAS

PARENT COMPANY STATEMENT OF CASH FLOWS

		2014
EUR THOUSAND	2015	RESTATED1)	NOTE
Net proft for the period	20 312	1 891
Adjustments
Income taxes	66	-801	11
Financial income and expenses	-11 846	8 695	8
Reversal of non-cash items
Depreciation and impairments	1 244	1 163	7
Other items	2 400	-4 946
Total adjustments	-8 136	4 112
Financial items
Interest paid	-3 699	-3 081
Interest received	585	1 093
Income taxes paid	-568	1 933
Other fnancial items, net	127	-592
Total fnancial items	-3 555	-647
Change in working capital
Change in receivables	2 242	3 142
Change in inventories	-283	573
Change in liabilities	-22 722	-3 789
Total change in working capital	-20 763	-74
Net cash generated from operating activities	-12 143	5 281
Net cash used in investing activities
Purchases of intangible assets	-127	-16	12
Proceeds from sale of tangible assets	53	66	13
Purchases of tangible assets	-1 101	-1 389	13
Investments to subsidiaries
and acquisitions of subsidiaries	-545	-272	14
Disposal of subsidiaries	4		14
Repayment of capital	563		14
Change in interest-bearing receivables	-8 099	-10 876
Dividends received	27 001	1	8
Total net cash used in investing activities	17 750	-12 486
Net cash generated from fnancing activities
Dividends paid	-7 672	-9 248
Purchase of own shares	-172	-860
Loan withdrawals	121 889	196 889
Loan repayments	-120 888	-181 602
Groupcontributions received	900	1 000
Total net cash generated from fnancing activities	-5 943	6 179
Change in cash and cash equivalents	-336	-1 026
Cash and cash equivalents at the beginning
of the period	256	1 077
Foreign exchange rate efect	143	205
CASH AND CASH EQUIVALENTS
AT THE END OF THE PERIOD	63	256

PARENT COMPANY STATEMENT OF CHANGES IN EQUITY

EUR	2015	2014
Share capital Jan. 1	3 552 160	3 552 160
SHARE CAPITAL DEC. 31	3 552 160	3 552 160
Sharepremium fund Jan. 1	16 680 961	16 680 961
SHARE PREMIUM FUND DEC. 31	16 680 961	16 680 961
Fair value reserve Jan. 1	-1 433 036	-1 694 767
Gains and losses on cash fow hedges	558 895	261 731
FAIR VALUE RESERVE DEC. 31	-874 141	-1 433 036
Fund for invested non-restricted equityJan. 1	4 914 371	4 914 371
FUND FOR INVESTED NON- RESTRICTED
EQUITY DEC. 31	4 914 371	4 914 371
Own shares Jan. 1	-5 220 639	-4 360 358
Purchase of own shares	-171 720	-860 281
OWN SHARES DEC. 31	-5 392 359	-5 220 639
Retained earnings Jan. 1	17 870 601	25 228 340
Dividends paid	-7 672 066	-9 248 302
Net income for theperiod	20 311 956	1 890 562
RETAINED EARNINGS DEC. 31	30 510 491	17 870 600

DISTRIBUTABLE EQUITY

DISTRIBUTABLE EQUITY
EUR	2015	2014
Distributable funds
Retained earnings	17 870 601	25 228 340
Dividends paid	-7 672 066	-9 248 302
Purchase of own shares	-5 392 359	-5 220 639
Gains and losses on cash fow hedges	-874 141	-1 433 036
Net income for theperiod	20 311 956	1 890 562
DISTRIBUTABLE EARNINGS	24 243 991	11 216 925
Other distributable equity
Fund for invested non-restricted equity	4 914 371	4 914 371
TOTAL DISTRIBUTABLE EQUITY	29 158 362	16 131 296
PARENT COMPANY SHARE CAPITAL
	2015	2014
Shares	39 000 000	39 000 000
EUR	3 510 000	3 510 000

Each share is entitled to one vote. Info on Board’s authorizations and own shares is available in the section Shares and Shareholders.

1) Comparative period restated, see Group note 1

50

RAPALA VMC CORPORATION

FINANCIAL STATEMENTS 2015

PARENT COMPANY FINANCIAL STATEMENTS, FAS

NOTES TO THE PARENT COMPANY FINANCIAL STATEMENTS

ACCOUNTING 1 PRINCIPLES

The financial statements of Rapala VMC Corporation have been prepared according to Finnish Accounting Standards (FAS).

Foreign currency transactions

Monetary assets and liabilities denominated in foreign currencies are translated into euros using the exchange rates at the balance sheet date and exchange differences arising from translation are recognized in the income statement.

Revenue recognition

Sales of goods and services are recognized on accrual basis when the significant risks related to goods and services sold have passed to the buyer and it is not probable that the client would return the goods. Net sales comprise of gross sales less cash discounts and sales taxes.

Valuation of financial derivatives

All derivatives are initially recognized at fair value on the date derivative contract is entered into, and are subsequently remeasured at fair value on each balance sheet date. Fair value of standard foreign currency forwards are determined by discounting the future nominal cash flows with relevant interest rates and then converting the discounted cash flows to the foreign currency using spot rates. Determination of fair values of other derivative instruments are based on quoted market prices and rates, discounting of cash flows and option valuation models. The fair values of these instruments are either computed by Bloomberg market data tool by the company or received from the respective bank.

In cash flow hedges, changes in the fair value of derivative financial instruments that are designated and effective as hedges of future cash flows are recognized directly in equity and the ineffective portion is recognized immediately in the income statement as well as the change in fair value of the contracts that are not designated to hedge accounting.

Research and development costs

Research and development costs are expensed as they are incurred, unless they clearly relate to developing new business areas. Such development costs are capitalized if they are separately identifiable and if the products are assessed to be technically feasible and commercially viable and the related future revenues are expected to exceed the accrued and future development costs and related production, selling and administrative expenses, and other possible costs related to the project.

Own shares

Own shares acquired by the company, including directly attributable costs, are presented as a deduction from the total equity on the day of trading. Purchases or subsequent sales of treasury shares are presented as changes in equity.

Cash flow statement

Changes in financial position are presented as cash flows from operating, investing and financing activities.

Capitalized development expenses are amortized on a straightline basis over their expected useful lives, a maximum of five years.

Inventories

Inventories are valued at the lower of cost or net realizable value using the first-in, first-out (FIFO) method. The cost of finished goods and work in progress comprises of raw materials, direct labor costs including social costs and other direct costs. Inventories are shown net of a reserve for obsolete or slow-moving inventories.

Tangible and intangible assets

Tangible and intangible assets are stated at historical cost excluding accumulated depreciation according to plan. Planned depreciation is based on historical cost and expected useful life.

Land is not depreciated. Depreciation is based on the following expected useful lives:

Intangible assets 3–15 years Buildings 10–20 years Machinery and equipment 5–10 years Other tangible assets 3–10 years

Pension arrangements

All of the company’s pension arrangements are defined contribution plans, with the majority being local statutory arrangements. Pension costs are expensed as incurred.

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

51

RAPALA VMC CORPORATION

FINANCIAL STATEMENTS 2015

PARENT COMPANY FINANCIAL STATEMENTS, FAS

NET 2 SALES

EUR THOUSAND	2015	2014
By destination
North America	18 942	17 382
Nordic	2 811	2 632
Rest of Europe	5 906	8 854
Rest of the World	4 035	4 118
TOTAL	31 694	32 986

The parent company’s net sales consist of Lure Business which is included in Group Products in the consolidated operating segment reporting.

OTHER OPERATING 3 INCOME

EUR THOUSAND	2015	2014
Rental income	21	20
Compensation from disputes	66
Gains from sale of intangible and tangible assets	20
Other income	8	8
TOTAL	114	28

OTHER OPERATING 4 EXPENSES

EUR THOUSAND	2015	2014
Maintenance	-1 441	-1 362
Selling and marketing expenses	-788	-723
Traveling expenses	-525	-481
IT and telecommunication	-486	-354
Rents paid	-402	-275
Auditors fees and services	-120	-105
Freight	-76	-75
Sales commissions	-54	-87
Losses on disposals of
intangible and tangible assets	-3	-21
Currency derivatives	4 600	4 643
Other expenses	-2 573	-2 174
TOTAL	-1 867	-1 015

MATERIALS AND 5 SERVICES

EUR THOUSAND	2015	2014
Materials, goods and supplies
Purchases during the fnancial year	-11 774	-12 614
Change in inventory	-179	232
External services	-25	-45
TOTAL	-11 979	-12 427

EMPLOYEE BENEFIT 6 EXPENSES

EUR THOUSAND	2015	2014
Wages and salaries	-6 953	-7 076
Pension costs	-1 231	-1 173
Other personnel expenses	-462	-476
TOTAL	-8 647	-8 725
Average personnel for the period	156	158

The remuneration of the Board of Directors amounted to EUR 370 thousand (2014: EUR 370 thousand).

DEPRECIATION AND 7 IMPAIRMENTS

EUR THOUSAND	2015	2014
Amortization of intangible assets
Trademarks	-92	-92
Other intangible assets	-94	-53
Depreciation of tangible assets
Buildings	-103	-135
Machinery and equipment	-841	-801
Other tangible assets	-114	-82
TOTAL	-1 244	-1 164

AUDITORS’ FEES AND SERVICES

EUR THOUSAND	2015	2014
Audit fees	-120	-105
TOTAL	-120	-105

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 204 5 6 7

52

RAPALA VMC CORPORATION

FINANCIAL STATEMENTS 2015

PARENT COMPANY FINANCIAL STATEMENTS, FAS

FINANCIAL INCOME 8 AND EXPENSES

INCOME 11 TAXES

EUR THOUSAND	2015	2014
Dividend income	27 001	1
Foreign exchange gains	6 338	4 864
Foreign exchange losses	-12 565	-13 093
Impairment losses
Investments in Group companies	-5 233
Non-current loan receivables	-1 675
Interest and other fnancial income
Interest income	1 376	877
Other fnancial income	1 550	2 833
Interest and other fnancial expenses
Interest expenses	-3 378	-3 032
Other fnancial expenses	-1 567	-1 147
TOTAL	11 846	-8 696

INCOME TAXES IN THE INCOME STATEMENT

EUR THOUSAND	2015	2014
Income taxes on extraordinary items		-180
Income taxes on operating activities	-63	-46
Taxes from previous fnancial years	-4	1 027
TOTAL	-66	801

Deferred tax assets and liabilities of the parent company are not presented in the parent company’s balance sheet.

INTANGIBLE 12 ASSETS

FINANCIAL INCOME AND EXPENSES FROM AND TO SUBSIDIARIES

EUR THOUSAND	2015	2014
Dividend income from subsidiaries	27 000
Impairment losses
Investments in Group companies	-5 233
Non-current loan receivables	-1 675
Interest and other fnancial income
Interest income	1 356	873
Other fnancial income	212	205
Interest and other fnancial expenses
Interest expenses	-274	-271
TOTAL	21 386	807

2015

2015
		OTHER
		INTANGIBLE
EUR THOUSAND	TRADEMARKS	ASSETS	TOTAL
Acquisition cost Jan. 1	924	1 780	2 704
Additions		127	127
Reclassifcations		374	374
ACQUISITION COST DEC. 31	924	2 282	3 206
Accumulated amortization Jan. 1	-470	-1 695	-2 165
Amortization during the period	-92	-94	-186
ACCUMULATED AMORTIZATION DEC. 31	-563	-1 789	-2 352
Book value Jan. 1	454	85	539
Book value Dec. 31	361	493	854

TRANSLATION DIFFERENCES RECOGNIZED IN THE INCOME STATEMENT

			Book value Dec 31	361	493	854
EUR THOUSAND	2015	2014	.
Translation diferences recognized in net sales	1 023	814	2014
Translation diferences included in purchases and other expenses	40	12			OTHER INTANGIBLE
Foreign exchange gains and losses in fnancial			EUR THOUSAND	TRADEMARKS	ASSETS	TOTAL
income and expenses	-6 227	-8 229
			Acquisition cost Jan. 1	924	1 765	2 689
TOTAL	-5 164	-7 402	Additions		16	16
EXTRAORDINARY 9 ITEMS			ACQUISITION COST DEC. 31 Accumulated amortization Jan. 1	924 -378	1 780 -1 642	2 704 -2 020
			Amortization during the period	-92	-53	-145
EUR THOUSAND	2015	2014
			ACCUMULATED AMORTIZATION DEC. 31	-470	-1 695	-2 165
Group contributions received		900
			Book value Jan. 1	546	122	669
TOTAL		900
			Book value Dec. 31	454	85	539

10

APPROPRIATIONS

EUR THOUSAND	2015	2014
Change in depreciation diference
Intangible assets	-36	21
Buildings	12	39
Machinery and equipment	-134	-133
TOTAL	-158	-73

1 2 3 4 5 6 7 8 9 10 11 8 9 10 11 12 13 14 15 16 17 18 19 20

53

RAPALA VMC CORPORATION

FINANCIAL STATEMENTS 2015

PARENT COMPANY FINANCIAL STATEMENTS, FAS

TANGIBLE 13 ASSETS

2015

2015
					ADVANCE PAYMENTS
			MACHINERY	OTHER TANGIBLE	AND CONSTRUCTION
EUR THOUSAND	LAND	BUILDINGS	AND EQUIPMENT	ASSETS	IN PROGRESS	TOTAL
Acquisition cost Jan. 1	106	4 646	17 123	1 504	849	24 227
Additions		16	145	121	836	1 118
Disposals			-12	-118		-130
Reclassifcations		17	877	28	-1 296	-374
ACQUISITION COST DEC. 31	106	4 679	18 132	1 536	389	24 842
Accumulated depreciation Jan. 1		-3 841	-12 849	-873		-17 563
Disposals				68		68
Depreciation during the period		-103	-841	-114		-1 058
ACCUMULATED DEPRECIATION DEC. 31		-3 944	-13 690	-919		-18 553
Book value Jan. 1	106	805	4 273	630	849	6 664
Book value Dec. 31	106	735	4 442	617	389	6 289

2014

2014
					ADVANCE PAYMENTS
			MACHINERY	OTHER TANGIBLE	AND CONSTRUCTION
EUR THOUSAND	LAND	BUILDINGS	AND EQUIPMENT	ASSETS	IN PROGRESS	TOTAL
Acquisition cost Jan. 1	106	4 532	16 561	1 316	411	22 925
Additions		6	91		1 285	1 382
Disposals				-65	-24	-88
Reclassifcations		108	471	252	-823	8
ACQUISITION COST DEC. 31	106	4 646	17 123	1 504	849	24 227
Accumulated depreciation Jan. 1		-3 706	-12 048	-791		-16 545
Depreciation during the period		-135	-801	-82		-1 018
ACCUMULATED DEPRECIATION DEC. 31		-3 841	-12 849	-873		-17 563
Book value Jan. 1	106	826	4 513	525	411	6 380
Book value Dec. 31	106	805	4 273	630	849	6 664

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

54

RAPALA VMC CORPORATION

FINANCIAL STATEMENTS 2015

PARENT COMPANY FINANCIAL STATEMENTS, FAS

14

INVESTMENTS

2015
	SHAREHOLDINGS	HOLDINGS IN	AVAILABLE-FOR-SALE
EUR THOUSAND	IN SUBSIDIARIES	JOINT VENTURES	INVESTMENTS	TOTAL
Book value Jan. 1	178 388	1 612	234	180 234
Additions	545			545
Disposals	0		-6	-6
Repayment of capital	-563			-563
Impairment losses	-5 233			-5 233
BOOK VALUE DEC. 31	173 136	1 612	228	174 976
2014
	SHAREHOLDINGS	HOLDINGS IN	AVAILABLE-FOR-SALE
EUR THOUSAND	IN SUBSIDIARIES	JOINT VENTURES	INVESTMENTS	TOTAL
Book value Jan. 1	178 116	1 612	234	179 962
Additions	273			273
BOOK VALUE DEC. 31	178 388	1 612	234	180 234

15

INVENTORIES

EUR THOUSAND	2015	2014
Raw material	2 073	2 252
Work in progress	3 101	3 147
Finished products	1 641	1 133
TOTAL	6 815	6 533

16

RECEIVABLES

EUR THOUSAND	2015	2014
Non-current receivables
Interest-bearing
Loan receivables	13 611	2 627
Derivatives	1 867	1 162
Non-interest-bearing
Derivatives	186	727
Other receivables		1 664
Current receivables
Interest-bearing
Loan receivables	25 621	26 326
Non-interest-bearing
Trade receivables	3 300	6 295
Prepaid expenses and accrued income	1 172	798
Other receivables	2 642	1 603
Derivatives	1 656	3 507
TOTAL	50 054	44 708

RECEIVABLES FROM SUBSIDIARIES

RECEIVABLES FROM SUBSIDIARIES
EUR THOUSAND	2015	2014
Non-current receivables
Interest-bearing
Loan receivables	13 611	2 627
Non-interest-bearing
Other receivables		1 664
Current receivables
Interest-bearing
Loan receivables	25 621	26 326
Non-interest-bearing
Trade receivables	3 289	6 180
Prepaid expenses and accrued income	13	24
Other receivables	2 642	1 603
TOTAL	45 175	38 424

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

55

RAPALA VMC CORPORATION

FINANCIAL STATEMENTS 2015

PARENT COMPANY FINANCIAL STATEMENTS, FAS

LIABILITIES

17

EUR THOUSAND	2015	2014
Non-current liabilities
Interest-bearing
Loans from fnancial institutions	58 632	72 688
Other non-current liabilities	7 800	950
Non-interest-bearing
Other liabilities	103	97
Derivatives	1 327	1 873
Current liabilities
Interest-bearing
Loans from fnancial institutions	16 681	21 805
Commercial paper program	47 000	21 000
Other current liabilities	52 300	54 453
Non-interest-bearing
Derivatives	308	1 288
Advances received		6
Trade payables	1 672	24 228
Accrued liabilities and deferred income	2 343	2 844
TOTAL	188 167	201 232

LEASE 18 CONTRACTS

PARENT COMPANY AS A LESSEE

Repayment schedule of non-cancellable operating lease commitments

lease commitments
EUR THOUSAND	2015	2014
Within one year	374	380
1-3 years	844	1055
3-5 years	3	231
TOTAL	1221	1666

COMMITMENTS AND 19 CONTINGENCIES

COMMITMENTS

COMMITMENTS
EUR THOUSAND	2015	2014
On own behalf and on behalf of subsidiaries
Guarantees	4 661	6 517
TOTAL	4 661	6 517

LIABILITIES TO SUBSIDIARIES

LIABILITIES TO SUBSIDIARIES
EUR THOUSAND	2015	2014
Non-current liabilities
Interest-bearing
Other non-current liabilities	7 800	950
Current liabilities
Interest-bearing
Other non-current liabilities	52 300	54 453
Non-interest-bearing
Trade payables	788	23 232
Accrued liabilities and deferred income	12	3
TOTAL	60 900	78 639

All loans included in non-current liabilities mature in less than 5 years.

Guarantees consist of subsidiaries’ lease agreements and of other guarantees given on behalf of subsidiaries. The company’s loan facilities are unsecured and include normal financial covenants.

Since Normark Sport Finland Oy, a 100% owned subsidiary of Rapala VMC Corporation, is the legal shareholder of the distribution joint venture with Shimano Inc., the parent company has guaranteed to Shimano the fulfillment of its subsidiary’s obligations related to the joint venture.

DERIVATIVES

20

EUR THOUSAND	2015	2014
Currency derivatives with bank
Fair value	1 598	3 029
Nominal value	70 940	74 650
Currency derivatives with subsidiaries
Fair value	19	-85
Nominal value	2 777	659
Interest rate derivatives
Fair value	540	-711
Nominal value	93 905	101 436

In 2015, currency derivatives had an income statement effect of EUR -1 412 thousand (2014: EUR 2 936 thousand) and interest rate derivatives 692 thousand (2014: EUR 1 064 thousand). Hedge accounting is applied for some of the interest rate derivatives, and the change in fair value of interest rate derivative under hedge accounting has been directly booked to fair value reserve in equity.

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

56

RAPALA VMC CORPORATION

FINANCIAL STATEMENTS 2015

RISK MANAGEMENT

RISK MANAGEMENT

The objective of Rapala VMC Corporation’s risk management is to support the implementation of the Group’s strategy and execution of business targets. This is done by monitoring and mitigating the related threats and risks and simultaneously identifying and managing opportunities.

APPROACH TO RISK MANAGEMENT

The Board evaluates the Group’s financial, operational and strategic risk position regularly and establishes related policies and instructions to be implemented and coordinated by Group management. The daily risk management activities are primarily delegated to the management of business units.

The importance of risk management has increased as the Group has continued to expand its operations. Risk management continued to receive management attention in 2015. The focus of Group level risk management in 2015 was on foreign exchange risk management as well as risk management activities on liquidity, interest rate and hazard risks. Other emphasized areas were Group wide insurance programs and strategic supply chain management.

Below is a summary of key strategic, operational and financial risks as well as the main actions to mitigate these risks.

STRATEGIC RISKS

Sport fishing is a form of leisure hobby and the Group’s products are competing against a wide range of other hobbies. The Group is promoting the attractiveness of sport fishing through active sales and marketing as well as brand management. By utilizing its unique research and development processes and resources, the Group is constantly developing new products to meet consumer needs and creating new needs for the consumers.

Brand portfolio and corporate reputation are among the most valuable intangible assets of the Group. The Rapala Group is actively managing its brands and their identity and securing that the value of the brands or corporate reputation are not jeopardized or violated by any means. The Group’s brands are also legally protected. During 2015 the Group developed corporate compliance and responsibility matters and a global Code of Conduct was introduced.

Consumers relate the Group’s brands to high quality, unique fishing experience, special functional features and trustworthy distribution channel. Consumers are able to differentiate illegal copy products and they don’t constitute a strategic threat for the Group. The Group protects vigorously its intellectual property rights and acts against illegal copiers and distributors.

Sport fishing is dependent on availability of fresh fishing waters for fishes to live and breed. Pollution and potential environmental catastrophes are concerns for the Group. The Rapala Group is actively promoting initiatives to enhance environmental protection and increasing preparedness to comply with continuously tightening environmental regulations by taking steps to reduce the environmental impacts of its operations and products. The Group is also acting in the forefront to develop products, e.g. catch-and-release equipment, to comply with fish protection initiatives. For more details on environmental actions, see the “Corporate Responsibility and Sustainable Development” report available on corporate website (www.rapalavmc.com).

The Rapala Group has a limited amount of global competitors. The biggest competitors have significant power in their home markets, but globally the geographical scope of their operations is smaller. The Group’s global distribution network is unique in the industry and difficult to imitate. Within each market, the Group’s competitors are often local fishing tackle producers and distributors operating with a limited range of products and narrow geographical scope.

In some countries, competition is created by fishing tackle retailers selling private label products. Cross-border internet sales is an increasing trend and could cause some price erosion. Established fishing tackle brands’ expansion into new product categories is also creating competition in some product segments. The strength of the Group’s product development and brand portfolio, as well as flexibility to serve different markets with market-specific products ranges, is essential in succeeding in market competition.

The Group’s production is spread out in several countries. Some of these countries have higher political risks but simultaneously provide access to competitive labor cost. The Group monitors the country risks and costs and is actively seeking ways to manage the risk of rising production and distribution costs. The establishment of the world’s biggest lure factory in Batam, Indonesia, will secure moderate production costs for the Group in the future.

Manufacturing of sport fishing products is not dependent on any proprietary manufacturing technologies or patents. The Group’s manufacturing units are actively monitoring the development of generic manufacturing technologies and considering different production applications.

Distribution of third party fishing and outdoor products creates a material part of the Group’s sales. Due to the geographical spread and multitude of the existing and potential suppliers, the Group is not critically dependent on any single product or raw material supplier. The Group’s strategic partnerships with Shimano (for the distribution of mainly rods and reels) and Yao I (the producer of Group’s Sufix fishing lines) have proven to be successes.

The Group’s customer base is geographically and quantitatively well diversified. Customers are mostly country-specific and not operating globally. The Group is not critically dependent on any single customer: even the biggest single customer represents around 5 % of the Group’s net sales. The Group is not largely engaged in direct consumer retailing. This is not considered to be a risk as consumer demand is largely driven by brand consciousness and alternative routes to market can be established when needed.

Rapala Group is expanding through organic growth as well as mergers and acquisitions. Careful target selection, proper due diligence process and post-merger integration have been and will be key issues in securing that the expansion initiatives are successful and in line with the Group’s strategic objective of profitable growth.

The Board evaluates the Group’s strategic risks annually as part of the strategy process and the Group management continuously monitors changes in the business environment. Local strategic risk management in local jurisdictions is delegated to the management of each business unit.

The Group faces competition in all markets where its products are sold. Due to the uniquely wide distribution network, the Group’s geographical market risk is truly globally spread, evening out seasonal and local market fluctuations.

57

RAPALA VMC CORPORATION

FINANCIAL STATEMENTS 2015

RISK MANAGEMENT

OPERATIONAL AND HAZARD RISKS

The fishing tackle business has traditionally been relatively resilient to increased uncertainties and downturns in the general economic climate. The truly global nature of the Group’s sales and operations spreads the market risks caused by uncertainties in the global economy.

The underlying consumer demand for the Group’s products is seasonal and also impacted by unforeseeable factors such as weather. To offset and balance the seasonality, the Group is engaged in production and distribution of winter fishing and winter sports equipment. To mitigate the effects of seasonality, the Group has also expanded its own distribution network to the southern hemisphere and is developing its production planning to better respond to changes in the market demand.

Due to the seasonality in demand, the Group’s product shipments concentrate annually to relatively short time periods, where supply problems could endanger the sales of the season. Similarly, lower than expected sales volumes may lead to excess inventories, as it is difficult to cancel committed orders within short notice.

There is a high level of dependency between the Group’s manufacturing and distribution units and interruption at earlier stage of the supply chain could have knock-on effects throughout the rest of the Group. The importance of proper order forecasting and production planning has increased. The related risks are managed with high level of co-operation between manufacturing and distribution units, safety stocks and extensive insurance coverage. The Group-wide supply chain and logistics initiatives continued in 2015 and mitigated these risks relating to operational efficiencies.

business interruption insurer continued to conduct annually several hazard prevention reviews to Group’s key factories and distribution warehouses. Group management has also continued to build risk awareness throughout the organization.

The Group constantly develops its global insurance programs, which cover most of the Group companies. Global insurance policies, which take into account the Group’s interdependency, are in place for property damage and business interruption, transportation as well as general and product liability. The Group has increased its focus on mitigating fraud risk by widening the utilization of Group monitored cash pools and in 2015 the Group implemented a global Code of Conduct and internal control procedures.

The Board evaluates the Group’s operational risks at least once a year as part of operational plans and budgets. Group management monitors and coordinates the continuous management of operational risks, which is the responsibility of the management of each business unit.

FINANCIAL RISKS

The Group’s financial risks consist of market risks, credit and default risks and liquidity risks. The Board evaluates financial risks several times during the year and Group management monitors and manages them continuously. Financial risks are discussed in detail, as required by IFRS 7, in note 22 of the consolidated financial statements.

The Group’s sales prices are primarily fixed annually or biannually, normally before each season. Sudden changes in raw material prices or foreign exchange rates may have significant impact on costs of some products. The Group aims to push increases in costs to the sales prices immediately or during a period of time. The Group’s market risks and mitigation actions are analyzed in more detail in the section “Financial Risks” and in note 22 to the consolidated financial statements.

In respect of manufacturing activities, the Group is not critically dependent on any single external production factor supplier. Availability of competent production labor is essential and the Group aims to maintain good employer reputation and labor relations.

There are significant dependencies between the Group’s manufacturing units, which could cause supply challenges e.g. in case of fire or other hazard. Such hazard could lead to property damages but also to business interruption losses throughout the supply chain. Therefore, the Group emphasizes hazard risk management. The Group has together with its property and

58

RAPALA VMC CORPORATION

FINANCIAL STATEMENTS 2015

SHARES AND SHAREHOLDERS

SHARES AND SHAREHOLDERS

Rapala VMC Corporation’s shares have been traded on the Nasdaq Helsinki since 1998. In 2015, the shares traded between EUR 4.57 and 5.85 with an average price of EUR 5.11.

Shares and Voting Rights

On December 31, 2015, the share capital fully paid and reported in the Trade Register was EUR 3 552 160.41 and the total number of shares was 39 000 000. The average number of shares during the financial year was 39 000 000. Each share is entitled to one vote.

There were no changes in the share capital in 2015.

In the beginning of the financial year 2014, the total number of shares was 39 468 449. On April 10, 2014 the Board decided to cancel 468 449 treasury shares. The cancellation did not have an effect on the share capital. The cancellation was registered with the Trade Register on April 28, 2014. After the cancellation, in the beginning of the financial year 2015 the number of Rapala VMC Corporation’s shares was 39 000 000. The average number of shares during the financial year 2014 was 39 151 030.

Board’s Authorizations

The issuance of New Shares, Transfer of the Company’s Own Shares and the Issuance of Options and Special Rights

The Annual General Meeting (AGM) authorized the Board to decide on the issuance of new shares, transfer of the company’s own shares and the issuance of options and special rights entitling to shares referred to in Chapter 10 Section 1 of the Companies Act.

The amount of new shares which may be issued or transferred by the Board of Directors by one or several decision shall not exceed 10 000 000 shares. The new shares may be issued and the company’s own shares may be transferred against payment or without payment. The Board of Directors is furthermore authorized to issue options and special rights referred to in Chapter 10 Section 1 of the Companies Act for the holder to receive new shares or the company’s own shares against payment. The amount of shares which may be issued or transferred based on the option and special rights are included in the above mentioned aggregate numbers of shares.

The new shares and the options and special rights referred to in Chapter 10 Section 1 of the Companies Act may be issued and the company’s own shares transferred to the shareholders in proportion to their current shareholdings in the company or in deviation from the shareholders’ pre-emptive rights by way of a directed issue if there is a weighty financial reason for the company to do so. The deviation from the shareholders’ preemptive rights may be carried out for example in order to develop the company’s capital structure, in order to finance or carry out acquisitions, investments or other business transactions, or in order to use the shares for incentive schemes. A directed share issue may be executed without payment only if there is an especially weighty financial reason for the company to do so, taking the interests of all shareholders into account.

The Board of Directors decides on all other matters related to the issuance of shares and special rights entitling to shares referred to in Chapter 10 Section 1 of the Companies Act. The authorization is effective until March 31, 2017.

to develop the company’s capital structure. In addition, the shares may be repurchased to finance or carry out business acquisitions or other arrangements, to settle the company’s equity-based incentive plans, to be transferred for other purposes, or to be cancelled. The shares may be repurchased in deviation from the proportion of the shares held by the shareholders. The shares will be repurchased through public trading arranged by Nasdaq Helsinki Oy at the market price of the acquisition date. The shares will be acquired and paid in pursuance of the rules of Nasdaq Helsinki Oy and applicable rules regarding the payment period and other terms of the payment. The authorization is in force until the end of the next Annual General Meeting, however, no longer than until June 30, 2016.

Own Shares

In accordance with the authorization granted by the AGM, a total of 32 864 shares were repurchased in 2015 at the average price of EUR 5.23. At the end of December 2015, the company held 639 671 own shares, representing 1.6% of the total number and the total voting rights of shares. The average share price of all repurchased own shares held by the company was EUR 5.13.

Shareholder Register

The shares of the company belong to the Book Entry Securities System. Shareholders should notify the particular register holding their Book Entry Account about changes in address or account numbers for payment of dividends and other matters related to ownership of shares.

Share-Based Incentive Plans

In 2015, no new share-based incentive plans were granted and there are no plans in place.

Management Shareholding

On December 31, 2015, the members of the Board and the Executive Committee held directly a total of 3 000 company shares and corresponding to 0.0% of all shares and voting rights. Details of management shareholdings are given on page 61.

Trading and Performance of the Company’s Shares

The company share (RAP1V) is quoted on the Nasdaq Helsinki. The 2015 closing price on December 31 was EUR 4.74. The highest price in 2015 was EUR 5.85, the lowest price EUR 4.57 and the average price EUR 5.11. A total 2 074 690 company’s shares were traded in 2015. This represents 5.3% of all shares on December 31, 2015.

At the end of 2015, the market capitalization of all outstanding shares, excluding own shares, was EUR 181.8 million. Earnings per share (basic) were EUR 0.17 (EUR 0.24 in 2014). For more share related key figures see page 47.

Dividend

The Board proposes to the AGM that a dividend of EUR 0.15 per share will be paid for the financial year 2015.

Share Repurchases

The AGM authorized the Board to resolve to repurchase a maximum of 2 000 000 own shares by using funds in the unrestricted equity. The proposed number of shares corresponds to less than 10 per cent of all shares in the company. The shares may be repurchased

59

RAPALA VMC CORPORATION

FINANCIAL STATEMENTS 2015

SHARES AND SHAREHOLDERS

PRINCIPAL SHAREHOLDERS ON DECEMBER 31, 2015

SHAREHOLDERS	NUMBER OF SHARES	%
Viellard Migeon & Cie	13 219 038	33.9
Sofna S.A.	7 500 000	19.2
Nordea Funds	4 138 906	10.6
Odin Funds	1 355 200	3.5
The State Pension Fund	1 290 000	3.3
Shimano Singapore Private Limited	889 680	2.3
Taaleritehdas Funds	650 000	1.7
Ilmarinen pension insurance company	408 899	1.0
Tapiola Funds	375 200	1.0
Evli Funds	255 000	0.7
Rapala VMC Corporation (own shares)	639 671	1.6
Other shareholders total	8 278 406	21.2
TOTAL NUMBER OF SHARES	39 000 000	100.0

• Viellard Migeon & Cie’s holds together with its subsidiary De Pruines Industries 13 324 348 shares, representing 34.2% of total number and the total voting rights of shares.

SHAREHOLDERS BY CATEGORY ON DECEMBER 31, 2015

SHAREHOLDER CATEGORY	NUMBER OF SHARES	%
Private and public corporations	1 680 774	4.3
Financial and insurance companies	5 014 535	12.9
Public institutions	1 854 199	4.8
Non-proft organizations	64 255	0.2
Individuals	1 937 934	5.0
International shareholders	23 075 028	59.2
Administrative registrations	5 373 275	13.8
TOTAL	39 000 000	100.0

DISTRIBUTION OF SHAREHOLDING ON DECEMBER 31, 2015

	NUMBER OF		TOTAL
NUMBER OF SHARES	SHAREHOLDERS	%	SHARES	%
1 - 100	1 097	31.9	71 490	0.2
101 -500	1 481	43.1	413 322	1.1
501 - 1 000	466	13.5	381 233	1.0
1 001 - 10 000	343	10.0	937 834	2.4
10 001 - 1 000 000	45	1.3	5 060 279	13.0
1 000 001 -	8	0.2	32 135 842	82.4
TOTAL	3 440	100.0	39 000 000	100.0

SHARE PRICE DEVELOPMENT IN 2011–2015, EUR

==> picture [261 x 134] intentionally omitted <==

----- Start of picture text -----

7.5
7.0
6.5
6.0
5.5
5.0
4.5
4.0
3.5
3.0
2.5
12/10 12/11 12/12 12/13 12/14 12/15
----- End of picture text -----

SHARE PRICE IN 2015, %

==> picture [260 x 215] intentionally omitted <==

----- Start of picture text -----

140
130
120
110
100
90
80
70
60
11/14 01/15 03/15 05/15 07/15 09/15 11/15
Rapala VMC Corporation
OMX Nordic Mid Cap
----- End of picture text -----

60

RAPALA VMC CORPORATION

FINANCIAL STATEMENTS 2015

BOARD OF DIRECTORS AND MANAGEMENT

BOARD OF DIRECTORS AND MANAGEMENT

BOARD OF DIRECTORS

EMMANUEL VIELLARD

Chairman

Chairman of the Board since 2005 President of Viellard Migeon & Cie Vice Chairman and Executive Vice President of Lisi Industries B.A., CPA Year of birth: 1963 Shareholding and options*: -

JUSSI RISTIMÄKI

Deputy CEO, Chief Financial Officer (CFO), Distribution in Nordics, South Africa and Eastern Europe, excl. Russia, Overall Supply Chain and Working Capital Management

Executive Committee member since 2010 Shareholding and options*: -

OLLI AHO

Executive Vice President Company Counsel, Investor Relations, Secretary of the Board

Executive Committee member since 1998 Shareholding and options*: -

JORMA KASSLIN

President and Chief Executive Officer (CEO)

Board member since 1998 M.Sc. (Eng.) Year of birth: 1953 Shareholding and options*: -

EERO MAKKONEN

Board member since 1998 Chairman of the Board 1999–2005 B.Sc. (Eng.) Year of birth: 1946 Shareholding and options*: -

JAN-HENRIK SCHAUMAN

Board member since 1999 M.Sc. (Econ.), MBA Year of birth: 1945 Shareholding and options*: -

JUHANI PEHKONEN

Executive Vice President Lure Manufacturing and Product Development

Executive Committee member since 1998 Shareholding and options*: -

STANISLAS DE CASTELNAU

Executive Vice President Hook and Carp Business, Distribution in France and Switzerland, Group Manufacturing Excellence

Executive Committee member since 2002 Shareholding and options*: -

TOM MACKIN

Executive Vice President Distribution and Brands in

North America

Executive Committee member since 2007 Shareholding: 3 000 Options: -

CHRISTOPHE VIELLARD

Board member since 2000 Chairman of Viellard Migeon & Cie Diploma ESCP Year of birth: 1942 Shareholding and options*: -

MARC SPEECKAERT

Board member since 2005 Managing Director of Sofina MBA Year of birth: 1951 Shareholding and options*: -

LARS OLLBERG

Executive Vice President Accessory and Outdoor Business, APAC & ME Distribution

Executive Committee member since 2008 Shareholding and options*: -

VICTOR SKVORTSOV

Executive Vice President Distribution in Russia, Belarus, Kazakhstan

Executive Committee member since 2013 Shareholding and options*: -

CYRILLE VIELLARD

JULIA AUBERTIN

Board member since 2014 Deputy Managing Director, Good Goût Babyfood M.Sc. (EDHEC) Year of birth 1979 Shareholding and options*: -

Executive Vice President Supply Chain Management, Shimano Partnership Co-ordination

Executive Committee member since September 24th, 2015 Shareholding and options*: -

AKU VALTA

Executive Vice President - International Lure Sales & Brands

EXECUTIVE COMMITTEE

Executive Committee member since September 24th, 2015 Shareholding and options*: -

JORMA KASSLIN

President and Chief Executive Officer (CEO)

Executive Committee member since 1998 See information in section “Board of Directors”

*Shareholdings and options on December 31, 2015.

61

CONTACTS

RAPALA VMC CORPORATION Mäkelänkatu 91 FI-00610 HELSINKI FINLAND

JUSSI RISTIMÄKI

Deputy CEO, Chief Financial Officer Tel: +358 9 7562 5435 E-mail: jussi.ristimaki@rapala.fi

OLLI AHO Company Counsel and Investor Relations Tel: +358 9 7562 540 E-mail: olli.aho@rapala.fi

www.rapalavmc.com