Rapala VMC Oyj — Interim / Quarterly Report 2020

Jul 16, 2020

HALF YEAR REPORT H1/2020 JULY 16, 2020

RAPALA VMC CORPORATION'S HALF YEAR REPORT H1/2020: NET SALES AND PROFITABILITY DECREASED FOLLOWING THE COVID-19 PANDEMIC; SUCCESSFUL MITIGATION RESULTED IN IMPROVED OPERATING CASH FLOW AND SIGNIFICANT REDUCTION IN INVENTORIES AND NET DEBT

January-June (H1) in brief:

• o Net sales were 117.1 MEUR, down 17% from previous year (141.2). With comparable exchange rates sales were 17% down from previous year.
• o Operating profit was -0.8 MEUR (11.4).
• o Comparable operating profit® was 4.2 MEUR (12.0).
• o Earnings per share was -0.12 EUR (0.17).
• o Cash flow from operations was 13.4 MEUR (11.5).
• o Inventories were 83.5 MEUR (108.6), down 23%.
• o Net interest-bearing debt was 63.5 MEUR (104.1)
• o Short-term outlook: End-consumer demand is currently on a good level in main markets, but it is still impossible to issue a financial guidance for 2020 due to lack of visibility and significant uncertainties related to the COVID-19 pandemic.

* Excluding mark-to-market valuations of operative currency derivatives and other items affecting comparability. Other items affecting comparability include material restructuring costs, impairments, gains and losses on business combinations and disposals, insurance compensations and other non-operational items.

President and CEO Nicolas Warchalowski: "The first half of 2020 was truly exceptional as COVID-19 pandemic had a profound impact on the Group. Consequently, net sales decreased by 17% from previous year to 117.1 MEUR. Largest topline reductions came from North America and the North America our distribution centres were closed for more than one month due to governmental lockdown measures. Furthermore, mild winter weathers impacted strongly winter sports business and exit from certain Third Party distribution agreements decreased sales in the Nordic region.

Fishing as a recreational sport has gained popularity during the pandemic and fishing participation has increased in many countries during the current summer fishing season. After a significant initial negative impact on our sales, we witnessed demand from end-May onwards and recorded strong double-digit growth in sales for the month of June. Furthermore, our investments in direct e-commerce business are yielding results. European e-commerce sales for the first six months doubled from prior year and in the USA, we recorded double digit growth despite the temporary warehouse closure.

We reacted quickly to the pandemic in March and implemented a strong COVID-19 mitigation plan, where our highest priorities were safeguarding the health and safety of our team members worldwide and protecting the financial position of the Group. We implemented a rapid and forceful ramp-down with fast reduction in operating expenses, cut in purchases and implementation of watchtowers to monitor cash flow and account receivables. We successfully executed the ramp-down plan and consequently our net debt reduced from 2019 year-end by 11.1 MEUR to 63.5 MEUR. Following central purchase quota allocation and new strict sales and operations planning routines, inventory decreased by 25.1 MEUR from June 2019 to 83.5 MEUR, which is the lowest inventory value recorded in more than 10 years. Furthermore, cash flow from operations increased from previous year and was 13.4 MEUR.

Execution of our strategy and the restructuring program initiated in October 2019 has progressed fully as planned and partly accelerated during the first half of the year. The restructuring program are to increase efficiencies of operations, increase internal synergies and consequently decrease operating expenses and reduce net working capital. Leadership of European businesses has been centralized and warehouses will be consolidated to fewer locations, which will increase synergies and enable higher focus on sales growth. Another significant part of cost savings relates to Asian lure

manufacturing operations, which will be gradually ramped down in the next six months. Overall, we are very confident in our strategy and its execution in order to make our product range even more innovative to win long term with the consumers of tomorrow."

ney ligures
	H1	HT	Change	FY
MEUR	2020	2019	%	2019
Net sales	117.1	141.2	-17%	275.4
Operating profit	-0.8	11.4	-107%	13.4
% of net sales	=0.7%	8.1%		4.9%
Comparable operating profit *	4.2	12.0	-65%	17.8
% of net sales	3.6%	8.5%		6.5%
Cash flow from operations	13.4	11.5	+17%	25.9
Gearing %	43.7%	81.1%		49.2%
EPS. EUR	-0.12	0.17	-171%	0.10

* Excluding mark-to-market valuations of operative currency derivatives affecting comparability. Other items affecting comparability include material restructuring costs, impairments, gains and losses on business combinations and disposals, insurance compensations and other non-operational items.

Rapala Group presents alternative performance measures to reflect the underlying business performance and to enhance comparability between financial periods. Alternative performance measures should not be considered in isolation as a substitute for measures of performance in accordance with IFRS. Definitions and reconciliation of key figures are presented in the financial section of the release.

Market Environment

During the first haff of the year, trading conditions were significantly impacted by the COVID-19 pandemic. The pandemic started to deteriorate trading conditions in Asia to some extent in February and during the spring Europe and North America were significantly impacted. Furthermore, unexceptionally mild winter weathers in North America impacted negatively winter sports and ice fishing businesses. The Group's sales began to recover during the end of May and in June sales were already ahead of previous year in most of the Group's main markets.

Business Review January-June 2020

The Group's net sales for the first half were 17% below last year mainly driven by the direct impacts of the COVID-19 pandemic. Changes in translation exchange rates did not have a material impact on the sales and with comparable translation exchange rates, net sales were organically also down by 17% from the comparison period.

North America

Sales in North America were 17% down from the comparison period with reported translation exchange rates and 19% with comparable translation exchange rates due to the US and Canadian dollars compared to the first half of 2019.

The sales decrease was mostly driven by the COVID-19 pandemic and consequential governmental lockdowns that affected the Group's distribution centres in North America. However, sales began to recover again in May after the lockdown period. Despite the temporary closure of the distribution centre in the USA, e-commerce sales in North America grew strongly.

Nordic

Sales in the Nordic market decreased from the comparison period by 28%. With comparable translation exchange rates sales were down by 27% from the first half of 2019.

The Group's distribution units were operating throughout the first half of the year, but COVID-19 pandemic had a negative impact on retail and customer demand. In addition, poor winter conditions as well as changes in certain Third Party distribution agreements reduced sales in the Nordic market. However, the beginning of the summer fishing season was strong and consequently Group Fishing sales ended up being higher than in the first half of 2019.

Rest of Europe

With reported translation exchange rates, the sales in Rest of Europe were 9% below the comparison period. With comparable translation exchange rates, sales were also down by 9% compared to the first half of 2019.

Governmental lockdown measures had a significant impact on the region, which consequently had a negative impact on the Group's sales. The governmental restrictions were particularly heavy in some of the region's biggest markets in France, Russia and Spain. Furthermore, the upcoming changes in Third Party rod and reel distribution decreased sales from the comparison period.

Rest of the World

Sales in Rest of the World decreased from the comparison period by 18% with reported currencies and by 13% using comparable translation exchange rates.

COVID-19 pandemic started to impact sales already in the East Asian markets. Following the governmental business closures and other lockdown measures, the impacts gradually spread to other parts of the Rest of the World market area during the spring. Sales slowly began to recover in May and in June sales exceeded the level of June 2019. Despite the recovery, some of the markets in the region are still heavily impacted by the pandemic.

	HT	HT	Change	Comparable	FY
MEUR	2020	2019	%	change %	2019
North America	40.4	48.6	-17%	-19%	104.2
Nordic	22.3	30.9	-28%	-27%	56.6
Rest of Europe	41.6/	45.9	-9%	-9%	81.3
Rest of the World	12.8	15.7	-18% -	-13%	33.3
lotal	117 1	141.2	-17%	-17%	275.4

External net sales by area

Financial Results and Profitability

Comparable (excluding mark-to-market valuations of operative currency derivatives and other items affecting comparability) operating profit decreased by 7.8 MEUR from the comparison period. The change in translation exchange rates did not have a material impact on operating profit. Reported operating profit decreased by 12.2 MEUR from the previous year and the items affecting comparability had a negative impact of 5.0 MEUR (0.6) on reported operating profit.

Comparable operating profit margin was 3.6% (8.5) for the first half. The decreased profitability compared to the first half of 2019 was mainly driven by lower sales, which were heavily impacted by the COVID-19 pandemic. Furthermore, exceptionally mild winter conditions had a negative impact on sales and profitability. However, the Group did react quickly to the pandemic by implementing a forceful COVID-19 mitigation plan to protect its financial position. As a result of the successful implementation of the mitigation plan, operating expenses decreased from the comparison period.

Reported operating profit margin was -0.7% (8.1) for the first half. Reported operating profit included impact of mark-to-market valuation of operative currency derivatives of -0.1 MEUR (-0.3). Net expenses of other items affecting comparability included in the reported operating profit were 4.9 MEUR (0.2). Other items affecting comparability consisted mainly of expenses related to the ramp down of Asian lure manufacturing operations.

Total financial (net) expenses were 1.9 MEUR (1.3) for the first half of the year. Net interest and other financing expenses were 1.6 MEUR (1.2) and (net) foreign exchange expenses were 0.3 MEUR (0.1).

Net profit for the first half decreased by 11.2 MEUR and was -3.8 MEUR (7.4) and earnings per share were -0.12 EUR (0.17). The share of non-controlling interest in net profit was at the same level compared to previous year and totalled 0.4 MEUR (0.4).

Key figures

	H1	HT	Change	FY
MEUR	2020	2019	%	2019
Net sales	117 1	141.2	-17% /	275.4
Operating profit	-0.8	11.4	-107%	13.4
Comparable operating profit * 1	4.2	12.07	-65%	17.8
Net profit	-3.8	7.4	-151%	4.1

* Excluding mark-to-market valuations of operative currency derivatives and other items affecting comparability. Other items affecting comparability include material restructuring costs, impairments, gains and losses on business combinations and disposals, insurance compensations and other non-operational items.

Bridge calculation of comparable operating profit

	H1	HJ	Change	FY
MEUR	2020	2019	%	2019
Operating profit	-0.8	11.4	-107%	13.4
Mark-to-market valuations of operative currency derivatives	0.1	0.3		0.4
Other items affecting comparability	4.9	0.2		4.0
Comparable operating profit	4.2	12.0	-65%	17.8

More detailed bridge of comparable operating profit and definitions and reconciliation of key figures are presented in the financial section of the release.

Segment Review

Group Products

With comparable translation exchange rates, Group Products sales decreased by 16.9 MEUR from the comparison period. Although the summer fishing season began strongly in many of the Group's key markets, the overall impact of the COVID-19 pandemic pulled Group Products sales below the first half of 2019. Followed by the lower sales, the comparable operating profit for Group Products was also below the comparison period.

Third Party Products

With comparable translation exchange rates, Third Party Products sales were 7.2 MEUR below the comparison period. COVID-19 pandemic impacted Third Party Products sales negatively. In addition, certain changes in Third Party distribution agreements decreased sales in the Nordic market and the upcoming changes in third party rod and reel distribution more broadly in the Group. Followed by the decreased sales, the comparable operating profit for Third Party Products was below the comparison period.

Net sales by segment

	H1	HJ	Change	Comparable	FY
MEUR	2020	2019	%	change %	2019
Group Products	78.3	95.2	-18%	-18%	185.2
Third Party Products	38.8	46.0	-16%	-14%	90.2
Total	117.17	141.2	-17%	-17% /	275.4

Comparable operating profit by segment

	H1	H1	Change	FY
MEUR	2020	2019	%	2019
Group Products	4.3	11.7	-63%	19.5
Third Party Products	-0.1	0.2	-150%	-1.6
Comparable operating profit	4.2	12.0	-65%	17.8
Items affecting comparability	-5.0	-0.6		-4.4
Operating profit / loss	-0.8	11.4/	-107%	13.4

Financial Position

As a result of a successful implementation of the COVID-19 mitigation plan, cash flow from operations increased by 1.9 MEUR from the comparison period being 13.4 MEUR (11.5). Key driver for the improved cash flow from operations was the favorable development of working capital. The impact of net change of working capital to cash flow from operations increased 6.2 MEUR from previous year and was 5.9 MEUR (-0.3).

End of June 2020 inventory was 83.5 MEUR (108.6). The impact of change in allowance on inventory and changes in translation exchange rates on inventory was neutral. The improvement of the inventory value resulted from tight inventory and purchase control, which was a crucial part of the COVID-19 mitigation plan.

The Group's COVID-19 response and mitigation plan on supply chain management was overall successful. The direct impacts of the pandemic to the Group's sourcing and own factories were limited. As a result of decreased demand, finished goods purchases decreased in the first six months of the year compared to last year and factory capacities were reduced via temporary layoffs and furloughs.

Net cash used in investing activities decreased from the level of the comparison period amounting to 1.6 MEUR (2.8). Capital expenditure was 2.0 MEUR (3.5) and disposals 0.4 MEUR (0.7). Disposals were related to sales of some manufacturing equipment.

Liquidity position of the Group was good. Undrawn committed long-term credit facilities amounted to 49.9 MEUR at the end of the period. Gearing ratio decreased significantly and equity-to-assets ratio strengthened from last year. The Group has agreed with its lenders to temporarily change financial covenants used in its loan agreements for the periods from Q2/2020 to Q1/2021. The new financial covenants include limits on the amount of indebtedness, available liquidity, EBITDA as well as gearing ratio. The Group is currently compliant with all financial covenants and expects to comply with all requirements set in the financing agreements also in the future. As a result of successful COVID-19 mitigation, cash balance included excess cash at the end of the period, which will decrease in the next months as short-term commercial paper loans will mature.

Group equity includes a hybrid bond of 25.0 MEUR issued in November 2019. The accrued nonrecognized interest on hybrid bond at June 30, 2020 was 0.5 MEUR (0.6).

	H1	HJ	Change	FY
MEUR	2020	2019	%	2019
Cash flow from operations	13.4	11.5	+17%	25.9
Net interest-bearing debt at end of period	63.5	104.1	-39%	74.6
Gearing % 1)	43.7%	81.1%		49.2%
Equity-to-assets ratio at end of period, %	45.9%	40.4%		52.4%

Key figures

Definitions and reconciliation of key figures are presented in the financial section of the release.

Strategy Implementation

The strategic target of the Group is to build a solid financial and operational platform for growth. The Group is taking determined actions to improve its profitability and working capital efficiency as well as to improve operational performance. In longer term, the target is to return to a more aggressive growth track.

The Group's existing assets and capabilities form the foundation for future strategies, both in short and long term. Future strategies are built upon utilizing and capitalizing the brand portfolio, manufacturing and sourcing platform, research and development knowledge, as well as the broad distribution network and strong local presence around the world supporting the sales of Group's own and selected synergistic Third Party products.

The execution of the group strategy is progressing as planned. Several organic growth projects are ongoing utilizing deep market and customer understanding. Special focus has been set to leverage the Group's global innovation power to address growing product categories and niches within fishing. After acquiring 49% ownership in DQC Internation, known as "13 Fishing", the Group has entered the rod and reel business with a worldwide approach. The Group will invest outside USA in marketing and product development of 13 Fishing products to serve fishermen and retailers in the best possible manner. After the changes made in 2019 in distribution agreements with Shimano, the Group will also focus on growth in the large European fishing tackle markets in Germany, United Kingdom, Italy and Benelux countries, previously served by Shimano.

The Group initiated in October 2019 a restructuring program, which aims at increasing efficiencies of operations, increase internal synergies and consequently decreasing expenses and reducing net working capital. Execution of the program has developed fully as planned and accelerated with focus on direct consumer e-commerce sales, tighter inventory management, centralized purchase quotas and new sales and operations planning routines. The targeted cost savings consist mainly of savings related to European business as well as the Asian lure manufacturing operations, which will be gradually ramped

down in the next six months. In relation to the ramp-down of the Indonesian factory, in total 4.0 MEUR of expenses were booked as other items affecting comparability in the first half of the year.

In order to increase the efficiency of global manufacturing operations, lean projects are ongoing in several factories, and a new chapter in Rapala history has now been entered to increase the focus in manufacturing units on product innovation to leverage strong Group capabilities and top worldwide brands. In the first six months of 2020 assembly of ice augers was centralized to the manufacturing hub in Estonia. Additionally, transfer of knife manufacturing from Rovaniemi in Finland to existing manufacturing location in Vääksy, Finland, started in the spring. Further investments will be made to the hub in Pärnu, Estonia, to increase groupwide synergies and utilization of strong local knowhow in operational excellence.

The Group has made investments in group-wide common IT systems and resources to increase efficiencies and enable better end supply chain and product management. The Group has also increased sales and marketing investments towards digital channels and direct consumer contacts in order to exploit these opportunities stronger in the future. Increasing proportion of Group's products sales is reaching consumers through digital channels, either by e-tailers, or Group's own e-commerce platform.

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.

Due to the COVID-19 pandemic, several fishing tackle consumer shows and Europe's most important fishing tackle trade show, EFTTEX, were cancelled. However, during the first half of the year that didn't have a significant impact on the new product launches, which were carried out on schedule and as planned. The most important launches during the first six months of the year were the introduction of X-Rap Haku - a bait designed for large predator fishing - in Europe, the release of CountDown Elite - a hard bait designed for trout fishing – in Japan and elsewhere in Asia as well as the launch of Rap-V Blade - an all-round blade bait - in North America. All new lures were well received in the regions and will be introduced to all market areas globally in the right seasons.

Preparations for the 2020 second half and 2021 new item launches were well under way.

Organization and Personnel

Average number of personnel was 2 179 (2 751) for the first half of the year. At the end of June, the number of personnel was 2 051 (2 768). The decrease of personnel was mostly related to the ramp down of Asian lure manufacturing operations.

The Board of Directors of Rapala VMC Corporation appointed on February 12, 2020 Nicolas Warchalowski as the new President and Chief Executive Officer of Rapala VMC Corporation. He started at Rapala on March 1, 2020.

Short-term Outlook and Risks

The Group withdrew its guidance for 2020 on March 26, 2020 due to lack of visibility caused by the COVID-19 pandemic. End-consumer demand for recreational fishing products is currently on a good level in the Group's key markets. The Group's supply chain, including own factories and subcontractors, is currently working robustly and fulfilling customer orders. However, there is still lack of visibility caused by direct and indirect impacts of the COVID-19 pandemic in the Group's key markets. Furthermore, several risks have arisen from the pandemic for the year. Daily new infections of COVID-19 have lately increased in the United States and risks for a second wave in Europe and Asia have

increased. Furthermore, potential lockdown measures could have a significant impact either on the Group's operations or customers' retail shops. As a result, it is still impossible to issue a financial guidance for 2020.

Short term risks and uncertainties and seasonality of the business are described in the end of this report.

Other significant events

Annual General Meeting

The Annual General Meeting (AGM) kept on March 26, 2020 approved the Board of Director's proposal that no dividend is paid. A separate stock exchange release on the AGM has been given, and up to date information on the Board's authorizations and other decisions of the AGM are available also on the corporate website.

Helsinki, July 16, 2020

Board of Directors of Rapala VMC Corporation

For further information, please contact:

Nicolas Warchalowski, President and Chief Executive Officer, +358 9 7562 540 Jan-Elof Cavander, Chief Financial Officer, +358 9 7562 540 Olli Aho, Investor Relations, +358 9 7562 540

A conference call on the first half year result will be arranged on Friday July 17, 2020 at 10:00 a.m. Finnish time (8:00 a.m UK time). Please dial +44 (0)330 336 9401 or +1 929 477 0338 or +358 (0)9 7479 0359 (pin code: 615325) five minutes before the beginning of the event. A replay facility will be available for 14 days following the teleconference. The number to dial is +44 (0)207 660 0134 (pin code: 7783083). Financial information and teleconference replay facility are available at www.rapalavmc.com.

INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

STATEMENT OF INCOME	H1	H1	FY
MEUR	2020	2019	2019
Net sales	117.1	141.2	275.4
Other operating income	0.5	0.5	2.2
Materials and services	57.7	63.6	131.2
Personnel expenses	32.8	35.9	71.6
Other costs and expenses	19.5	24.4	48.6
Share of results in associates	-0.8	0.0	-0.2
Depreciation, amortization and impairments	7.6	6.3	12.6
Operating profit (EBIT)	-0.8	11.4	13.4
Financial income and expenses	1.9	1.3	3.6
Profit before taxes	-2.7	10.1	9.8
Income taxes	1.1	2.7	5.8
Net profit for the period	-3.8	7.4	4.1
Attributable to:
Equity holders of the company	-4.2	7.0	4.4
Non-controlling interests	0.4	0.4	-0.4
Earnings per share for profit attributable to the equity holders of the company: Earnings per share, EUR (diluted = non-diluted)	-0.12	0.17	0.10
STATEMENT OF COMPREHENSIVE INCOME MEUR	H1 2020	HT 2019	FY 2019
Net profit for the period
Other comprehensive income, net of tax	-3.8	7.4	4.1
Change in translation differences *	-2.1	1.2	2.4
Gains and losses on cash flow hedges *	0.0	0.0	0.0
Gains and losses on hedges of net investments*	-0.7	0.6	1.2
Actuarial gains (losses) on defined benefit plan	0.0	0.0	-0.1
Total other comprehensive income, net of tax	-2.7	1.8	3.5
Total comprehensive income for the period	-6.5	9.3	7.5
Total comprehensive income attributable to:
Equity holders of the Company	-6.7	8.6	7.8
Non-controlling interests	0.2	0.7	-0.2

* Item that may be reclassified subsequently to the statement of income

STATEMENT OF FINANCIAL POSITION	Jun 30	Jun 30	Dec 31
MEUR	2020	2019	2019
ASSETS
Non-current assets
Intangible assets	74.3	74.8	75.5
Property, plant and equipment	24.3	29.5	26.9
Right-of-use assets	11.9	12.3	13.3
Non-current assets
Interest-bearing	7.8	0.0	7.8
Non-interest-bearing	8.5	6.0	9.2
	126.9	122.7	132.8
Current assets
Inventories	83.5	108.6	92.6
Current assets
Interest-bearing
Non-interest-bearing	56.2	61.4	51.8
Cash and cash equivalents	50.0	24.7	12.3
	189.7	194.7	156.7
Total assets	316.6	317.4	289.5
EQUITY AND LIABILITIES
Equity
Equity attributable to the equity holders of the company	115.3	122.4	121.9
Non-controlling interests	4.9	5.8	4.6
Hybrid bond	25.0		25.0
	145.2	128.3	151.6
Non-current liabilities
Interest-bearing	46.0	51.0	46.0
Non-interest-bearing	9.7	7.9	8.5
Lease liabilities	7.6	7.4	9.0
	63.2	66.3	63.5
Current liabilities
Interest-bearing	63.2	65.3	35.3
Non-interest-bearing	40.4	52.4	34.7
Lease liabilities	4.6	5.0	4.4
	108.2	122.8	74.4
Total equity and liabilities	316.6	317.4	289.5

STATEMENT OF CASH FLOWS	H1	HT	FY
MEUR	2020	2019	2019
Net profit for the period	-3.8	7.4	4.1
Adjustments to net profit for the period *	13.8	8.8	18.4
Financial items and taxes paid and received	-2.5	-4.3	-7.9
Change in working capital	5.9	-0.3	11.4
Net cash generated from operating activities	13.4	11.5	25.9
Investments	-2.0	-3.5	-5.6
Proceeds from sales of assets	0.4	0.7	3.2
Acquisition of associated company DQC International			-4.4
Change in interest-bearing receivables		0.0	-7.8
Net cash used in investing activities	-1.6	-2.8	-14.6
Dividends paid to parent company's shareholders		-1.1	-2.3
Dividends paid to non-controlling interests			-1.0
Net funding	29.3	33.3	-2.8
Change in lease liabilities	-2.9	-3.0	-6.1
Hybrid bond		-26.3	-1.6
Directed issue of own shares			0.7
Net cash generated from financing activities	26.5	2.9	-13.2
Change in cash and cash equivalents	38.2	11.6	-1.9
Cash & cash equivalents at the beginning of the period	12.3	13.4	13.4
Foreign exchange rate effect	-0.5	-0.3	0.8
Cash and cash equivalents at the end of the period	50.0	24.7	12.3

* Includes reversal of non-cash items, income taxes and financial income and expenses.

Changes in liabilities included in net funding

MEUR
Liabilities Jan 1, 2020	81.3
Drawdowns	62.9
Repayments	-34.6
Unrealized foreign exchange differences *
Liabilities Jun 30, 2020	109.2

Net funding

Drawdowns and repayments trom loans	28.3
Derivatives and other realized foreign exchange on tinancial activities
Net funding	29.3

*Unrealized foreign exchange differences from loans are not included in cash flow statement

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

Attributable to equity holders

	Attimulable to equilty nolders of the Company
MEUR	capital ರಿ ﻟ ha S	premium hare fund S	fund dging ರ H	invested n-restricted und for uity O ed U E	S are sh wn 0	S ranslation ifference p	S earning ed etain ﮐﺎ	controlling sts ರಿ on- ﻟ ರಿ nt N	nd bo rid 0 Hy	lotal equity
Equity on Jan 1, 2019	3.6	16.7	0.0	4.9	-5.6	-11.2	108.6	5.1	25.0	147.1
Comprehensive income *			0.0			1.6	7.1	0.7		9.3
Dividends							-2.3			-2.3
Hybrid bond									-25.0	-25.0
Hybrid bond expenses*							-1.1			-1.1
Share option program							0.2	0.0		0.3
Equity on Jun 30, 2019	3.6	16.7	0.0	4.9	-5.6	-9.7	112.5	5.8		128.3
Equity on Jan 1, 2020	3.6	16.7	0.0	4.9	-4.9	-7.6	109.2	4.6	25.0	151.6
Comprehensive income™						-2.5	-4.2	0.2		-6.5
Share option program							0.1	0.0		0.1
Equity on Jun 30, 2020	3.6	16.7	0.0	4.9	-4.9	-10.0	105.1	4.9	25.0	145.2

* For the period, (net of tax)

NOTES TO THE INCOME STATEMENT AND FINANCIAL POSITION

The financial information included in this financial statement release is unaudited. This financial statement release has been prepared in accordance with IAS 34 (Interim Financial Reporting).

Apart from the changes in accounting principles stated below, the accounting principles adopted in the preparation of this report are consistent with those used in the preparation of the financial statements 2019.

As required by IAS 34, the nature and effect of these changes on the accounting policies followed by the Group are disclosed below.

Accounting treatment of government grants (IAS 20) due to COVID-19

As a response to the COVID-19 pandemic, governments around implemented support measures to help businesses and economies. Government assistance comes in many forms and therefore Rapala VMC Corporation has specified its accounting policy concerning grants received.

The Group recognizes a government grant or subsidy when there is reasonable assurance that it will comply with all conditions attached and the grant will be received. Government grants are recognised in statement of income over the periods in which Group recognises which the grants are intended to compensate. However, the accounting treatment for grants depends on nature and type of the grant.

Due to the COVID-19 situation, Rapala VMC Corporation has received 1.3 MEUR of governmental subsidies related to salaries and other personnel expenses, which are shown as deduction of personnel expenses in statement of income. These subsidies concern typically a period of a few months during 2020. In some countries there are terms and conditions related to the subsidies which prohibit redundancies of employees during the subsidized period.

General business subsidies received amount to 0.2 MEUR. These are shown as other income in statement of income. Generally, there are no significant terms and conditions for receiving the subsidies. However, in some countries there are certain restrictions of cross-border money transfers related to receiving the subsidies, but these don't have major impacts on Group's normal practices.

The Group has been granted government-backed loans which amount to 12.2 MEUR and for which the terms differ from market-based terms. The Group accounts for the benefit of government-backed loans at a below-market interest rate as a government grant. The difference between the fair value of the loan on initial recognition and the amount received is accrued and recognized as grant in other operating income. This amounted in June to EUR 44 thousand.

Additionally, rent reliefs of 0.1 MEUR have been received. These are granted by private lessors and are therefore outside of the scope of IAS 20. These concern rent contracts treated according to IFRS 16 and impacts are therefore shown accordingly, as minor deductions and financial expenses in statement of income. These are also reflected in right-of-use assets and lease liabilities in statement of financial position.

Impairment assessment has been performed due to COVID-19 situation and there was no indication that assets may be impaired.

Use of estimates and rounding of figures

Complying with IFRS in preparing financial statements requires the management to make estimates and assumptions. Such estimates affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the amounts of revenues and expenses. Although these estimates are based on the management's best knowledge of current events and actions, actual results may differ from these estimates.

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.

Events after the end of the half year period

The Group has no knowledge of any significant events after the end of the reporting period that would have a material impact on the financial statements for January-June 2020. Material events after the end of the half year period, if any, have been discussed in the commentary section of the Board of Directors.

Acquisitions

There have not been any acquisitions or divestments during the first half of the year.

Key figures	H1 2020	H1 2019	FY 2019
EBITDA, % of net sales	5.8%	12.5%	9.4%
Operating profit, % of net sales	-0.7%	8.1%	4.9%
Return on capital employed, %	-0.8%	10.2%	6.0%
Capital employed at end of period, MEUR	208.7	232.4	226.2
Net interest-bearing debt at end of period, MEUR	63.5	104.1	74.6
Equity-to-assets ratio at end of period, %	45.9%	40.4%	52.4%
Debt-to-equity ratio at end of period, %	43.7%	81.1%	49.2%
Earnings per share, EUR (diluted = non-diluted)	-0.12	0.17	0.10
Equity per share at end of period, EUR	2.99	3.20	3.16
Average personnel for the period	2 179	2 751	2 604

Definitions and reconciliation of key figures are presented in the financial section.

Key figures by half year	HJ	H2	HT	H2	HT
MEUR	2018	2018	2019	2019	2020
Net sales	142.5	119.9	141.2	134.2	117.1
EBITDA	18.5	3.9	17.7	8.3	6.8
Operating profit	15.3	-0.5	11.4	2.0	-0.8
Profit before taxes	14.1	-1.4	10.1	-0.3	-2.7
Net profit for the period	9.7	-3.2	7.4	-3.4	-3.8

Bridge calculation of comparable operating profit		HJ	HT	Change	FY
MEUR		2020	2019	%	2019
Operating profit/loss		-0.8	11.4	-107%	13.4
Items affecting comparability
Mark-to-market valuations of operative currency derivatives		0.1	0.3		0.4
Other items affecting comparability
Restructurings
Management restructuring		0.3			1.1
Restructuring of Asian lure manufacturing operations		4.0			1.1
Other restructurings		0.6	0.2		2.1
Acquisition expenses of DQC International Corp.					0.8
Other items					-1 -0
Comparable operating profit		4.2	12.0	-65%	17.8
Segment information
MEUR	H1		HT		FY
Net sales by operating segment	2020		2019		2019
Group Products	78.3		95.2		185.2
Third Party Products	38.8		46.0		90.2
Total	117.1		141.2		275.4
Operating profit by operating segment
Group Products	4.3		11.7		19.5
Third Party Products	-0.1		0.2		-1.6
Comparable operating profit	4.2		12.0		17.8
Items affecting comparability	-5.0		-0.6		-4.4
Operating Profit	-0.8		11.4		13.4

Assets by operating segment	Jun 30	Jun 30	Dec 31
MEUR	2020	2019	2019
Group Products 1)	218.1	224.7	219.8
Third Party Products ²)	40.6	68.0	49.6
Non-interest-bearing assets total	258.7	292.7	269.4
Unallocated interest-bearing assets	57.9	24.7	20.1
Total assets	316.6	317.4	289.5

4)Includes IFRS 16 right-of-use assets 8.8 MEUR (7.9) . 2) Includes IFRS right-of-use assets 3.2 MEUR (4.4).

External net sales by area	HT	HT	FY
MEUR	2020	2019	2019
North America	40.4	48.6	104.2
Nordic	22.3	30.9	56.6
Rest of Europe	41.6	45.9	81.3
Rest of the world	12.8	15.7	33.3
Total	117.1	141.2	275.4

Commitments MEUR								Jun 30 2020	Jun 30 2019	Dec 31 2019
Minimum future lease payments other than IFRS 16
leases								0.4	0.5	0.6
l								AA AAAA . FIF

The accrued non-recognized interest on hybrid bond at June 30, 2020 is EUR 0.5 million (0.6).

	Sales			Other
Related party transactions	and other	Pur-	Rents	expen-	Recei-	Paya-
MEUR	income	chases	paid	ses	vables	bles
H1 2020
Associated company DQC
International Corp.	2.8	0.2			7.1
Associated company Lanimo Ou		0.1
Entity with significant influence over
the Group*			0.1	0.1	0.0
Management	0.0		0.1	0.0	0.7	0.1
H1 2019
Associated company Lanimo Ou	0.0	0.0
Entity with significant influence over the
Group*			0.1	0.1	0.0
Management			0.1	0.0		0.1
FY 2019
Associated company DQC International
Corp.	0.4	0.2			7.1
Associated company Lanimo Oü	0.0	0.0
Entity with significant influence over the
Group®			0.2	0.1	0.0
Management	0.0		0.4	0.0	0.7	0.0

* Lease agreement for the real estate for the consolidated operations in France and a service fee.

		H1		HJ		FY
Open derivatives		2020		2019		2019
	Nominal		Fair Nominal		Fair Nominal	Fair
MEUR	Value	Value	Value	Value	Value	Value
Non-hedge accounting derivative financial instruments
Interest rate swaps, 1 to 5 years	21.0	-0.1	21.0	-0.2	21.0	-0.1
Currency derivatives, less than 12 months	40.7	-0.5	44.3	-0.2	48.3	-0.4
Total	61.7	-0.6	65.3	-0.4	69.3	-0.5

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

Changes in unrealized market valuations for operative foreign currency derivatives

	H1	HJ	FY >
	2020	2019 -	2019
Included in operating profit	-0-1	-0.3 -	-0.4

Operative foreign currency derivatives that are marked on reporting date cause timing differences between the changes in derivatives' fair values and hedged operative transactions. Changes in fair values for derivatives designated to hedge future cash flow but are not according to the principles of hedge accounting, impact the Group's operating profit for the accounting period. The changes in unrealized valuations include both valuations of derivatives that will realize in the future periods as well as reversal of previously accumulated value of derivatives that realized in the accounting period.

Fair values of financial instruments		Jun 30		Jun 30		Dec 31
		2020		2019		2019
	Carrying	Fair	Carrying	Fair	Carrying	Fair
MEUR	value	value	value	value	value	value
Assets
Other Shares (level 3)	0.2	0.2	0.3	0.3	0.2	0.2
Derivatives (level 2)	0.2	0.2	0.4	0.4	0.3	0.3
Total	0.5	0.5	0.7	0.7	0.6	0.6
Liabilities
Non-current interest-bearing liabilities
(excl. derivatives)	46.0	46.0	51.0	50.9	46.0	46.0
Derivatives (level 2)	0.8	0-8	0.8	0.8	0.9	0.9
Total	46.8	46.8	51.8	51.7	46.8	46.8

Fair values of other financial instruments do not differ materially from their carrying value.

Shares and share capital

The Annual General Meeting (AGM) kept on March 26, 2020 approved the Board of Director's proposal that no dividend is paid. A separate stock exchange release on the decisions of the AGM has been given, and up to date information on the Board's authorizations and other decisions of the AGM are available also on the corporate website.

Share related key figures	Jun 30	Jun 30
	2020	2019
Number of shares	39 000 000	39 000 000
Number of shares, average	39 000 000	39 000 000
Number of treasury shares	452 208	677 208
Number of treasury shares, %	1.2%	1.7%
Number of outstanding shares	38 547 792	38 322 792
Number of shares traded, YTD	2 661 417	1 864 602
Share price, EUR	2.61	3.02
Highest share price, YTD, EUR	3.43	3.43
Lowest share price, YTD, EUR	2.15	2.85
Average price of treasury shares, all time, EUR	4.95	5.08

Short term risks and uncertainties

The objective of Rapala VMC Corporation's risk management is to support implementation of the Group's strategy and execution of business targets. Group management continuously develops its risk management practices and internal controls. Detailed descriptions of the Group's strategic, operative and financial risks as well as risk management principles are included in the Financial Statements 2019.

Due to the nature of the fishing tackle business and the geographical scope of the Group's operations, the business has traditionally stronger in the first half of the year compared to the second half. Weathers impact consumer demand and may have impact on the Group's sales for current and following seasons. However, the weather risk is diversified as the Group has a wide geographical footprint and sells products both for summer and winter seasons.

The biggest deliveries for peak seasons are concentrated into relatively short time periods, and hence a well-functioning supply chain is required. The uncertainties in future demand as well as the length of the Group's supply chain increases complexity in supply chain management. Delays in shipments from internal or external suppliers or unexpected changes in customer demand may lead to shortages and lost sales or excess inventories and subsequent clearance sales with lower margins.

The Group's credit facilities include some profitability, net debt and equity related financial covenants, which are actively monitored. The Group expects to continue to fulfill the requirements of its lenders. Liquidity and refinancing risks are well under control, but higher level puts pressure on the Group's financing costs.

Increased uncertainties and downturns in the general economic climate may influence the sales of fishing tackle, when retailers reduce their inventory levels and face financial challenges. Also, quick and strong increases in living expenses or sudden fluctuations in foreign exchange rates may temporarily affect consumer spending. However, the underlying consumer demand has historically proven to be fairly solid. Political tensions may have negative effects on the Group's business and geopolitical development is followed closely.

The global nature of the Group's sales and operations diversifies market risks. The Group is cautiously monitoring the development both in global macro economy as well as in the various local markets it operates in. While Group's customer base is generally diversified, changes in retail landscape may have impact on purchase behavior of customers. New distribution agreements, termination of old agreements or changes in product offering made by the principal may affect sales and profitability of Third Party Products. Cash collection and credit risk management is high on the agenda of local management and this may affect sales to some customers. Quality of the accounts receivables is monitored closely.

The COVID-19 pandemic has increased risks for the Group. The direct impacts of the pandemic or its counter may affect the Group's ability to operate and run its manufacturing sites or distribution centres. Furthermore, potential lockdown measures may also impact the Group's clientele. The Group has introduced new safety measure in its operations to protect health and safety of its employees as well as to protect continuation of its operations.

The Group's sales and profitability are impacted by the changes in foreign exchange rates and the risks are monitored actively. To fix the exchange rates of future foreign exchange denominated sales and purchases as well as financial assets and liabilities, the Group has entered into several currency hedging agreements according to the foreign exchange risk management policy set by the Board of Directors. As the Group is not applying hedge accounting in accordance to IFRS 9, the unrealized markto-market valuations of operative currency hedging agreements have an impact on the Group's reported operating profit. Some of Group's currency positions are not possible to be hedged, and therefore may have impact on the Group's net result. The Group is closely monitoring market development as well as its cost structure and considering possibility of price increases, hedging and cost rationalization.

No significant changes are identified in the Group's strategic risks or business environment with the exception of increased risks related to the COVID-19 pandemic.

Definitions of key figures

Operating profit before depreciation and impairments (EBITDA)	Operating profit + depreciation and impairments
ltems affecting comparability	Change in mark-to-market valuations of operative currency derivatives +/- other items affecting comparability
Other items affecting comparability	Restructuring costs + impairments +/- gains and losses on business combinations and disposals - insurance compensations +/- other non-operational items
Comparable operating profit	Operating profit +/- change in mark-to-market valuations of operative currency derivatives +/- other items affecting comparability
Net interest-bearing debt	Total interest-bearing liabilities - total interest- bearing assets - cash and cash equivalents
Capital employed (average for the period)	Total equity (average for the period) + net interest- bearing debt (average for the period)
Working capital	Inventories + total non-interest-bearing assets - total non-interest-bearing liabilities
Total non-interest-bearing assets	Total assets - interest-bearing assets - intangible and tangible assets - assets classified as held-for- sale
Total non-interest-bearing liabilities	Total liabilities - interest-bearing liabilities
Return on capital employed (ROCE), %	Operating profit (full-year adjusted) x 100 Capital employed (average for the period)
Debt-to-equity ratio (Gearing), %	Net interest-bearing debt x 100 Total equity
Equity-to-assets ratio, %	Total equity x 100 Total equity and liabilities - advances received
Earnings per share, EUR	Net profit for the period attributable to the equity holders of the parent company - hybrid capital accrued unrecognised interest after tax
Equity per share, EUR	Adjusted weighted average number of shares Equity attributable to equity holders of the parent company
Average number of personnel	Adjusted number of shares at the end of the period Calculated as average of month end personnel amounts

Reconciliation of key figures to IFRS	H1	HT	FY
MEUR	2020	2019	2019
ltems affecting comparability
Change in mark-to-market valuations of operative
derivatives	0.1	0.3	0.4
Other items affecting comparability	4.9	0.2	4.0
Items affecting comparability	5.0	0.6	4.4
Other items affecting comparability		0.2	4.3
Restructuring costs	4.9		0.8
Acquisition expenses of DQC International Corp.			-1.0
Other non-operational items
Other items affecting comparability	4.9	0.2	4.0
Capital employed (average for the period)
Total equity (average for the period)	148-4	137.7	149.3
Net interest-bearing debt (average for the period)	69.0	87.2	72.5
Capital employed (average for the period)	217.4	224.9	221.8
Return on capital employed (ROCE), %
Operating profit (full-year adjusted)	-1.7	22.8	13.4
Capital employed (average for the period)	217.4	224.9	221.8
Return on capital employed (ROCE), %	-0.8%	10.2%	6.0%
Equity-to-assets ratio, %
Total equity	145.2	128.3	151.6
Total equity and liabilities	316.6	317.4	289.5
Advances received	0.4	0.2	0.4
Equity-to-assets ratio, %	45.9%	40.4%	52.4%
Earnings per share, EUR
Net profit for the period attributable to the equity
holders of the parent company	-4.2	7.0	4.4
Hybrid capital accrued unrecognised interests after tax	-0.5	-0.6	-0.6
Adjusted weighted average number of shares	38 547 792	38 322 792	38 387 341
Earnings per share, EUR	-0.12	0.17	0.10
Equity per share, EUR
Equity attributable to equity holders of the
parent company	115.3	122.4	121.9
Adjusted number of shares at the end of the period	38 547 792	38 322 792	38 547 792
Equity per share, EUR	2.99	3.20	3.16