INTERIM REPORT FOR JANUARY TO JUNE 2010: RECORD NET SALES WITH STRONG PROFITABILITY AND CASH FLOW

22 juli 2010 Rapala VMC Corporation Stock Exchange Release July 22, 2010 at 9.00 a.m. * Net sales for the second quarter increased 15% from last year and reached a quarterly record level at 77.6 MEUR (II/09: 67.7 MEUR). Net sales for the first six months increased 12% to 148.4 MEUR (I-II/09: 132.9 MEUR). * Comparable operating profit improved clearly from last year and reached 12.6 MEUR (10.2 MEUR) in April to June and 24.4 MEUR (20.4 MEUR) in January to June. Comparable operating margin was up from last year and amounted to 16.2% (15.1%) for the quarter and 16.4% (15.3%) for the six-month period. Reported operating profit was 12.5 MEUR (9.4 MEUR) for the quarter and 24.2 MEUR (19.5 MEUR) for six months. * Net profit for the quarter increased 14% to 8.4 MEUR (7.4 MEUR) and to 17.5 MEUR (13.6 MEUR) for the first half of the year. * Earnings per share were clearly up and reached 0.18 EUR (0.16 EUR) for April to June and 0.40 EUR (0.31 EUR) for January to June. * The major working capital initiative progressed during the quarter. As a result, cash flow from operating activities for the second quarter improved to 20.2 MEUR (17.8 MEUR) and was 8.2 MEUR (-2.0 MEUR) for the first six months. With comparable currency rates, Group inventories are now more than 5 MEUR less than one year ago. * Implementation of the Group's strategy continued with focus on cash flow, establishment of new distribution units and performance improvement initiatives. Reducing working capital and increasing cash flow continue to be the top priorities for 2010 together with strong emphasis on sales growth, innovation and development of new products. * It is expected that both the net sales and the comparable operating margin for the full year 2010, excluding non-recurring items, will increase from 2009. The attachment presents the interim review by the Board of Directors as well as the accounts. A conference call on first quarter result will be arranged today at 3 p.m. Finnish time (2 p.m. CET). Please dial +44 (0)20 3147 4971 or +1 212 444 0889 or +358 (0)9 2310 1667 (pin code: 342985#) five minutes before the beginning of the event and request to be connected to Rapala teleconference. A replay facility will be available for 14 days following the teleconference. The number to dial is +44 (0)20 7111 1244 (pin code: 342985#). Financial information and teleconference replay facility are available at www.rapala.com. For further information, please contact: Jorma Kasslin, President and Chief Executive Officer, +358 9 7562 540 Jouni Grönroos, Chief Financial Officer, +358 9 7562 540 Olli Aho, Investor Relations, +358 9 7562 540 Distribution: NASDAQ OMX Helsinki and Main Media Market Situation and Sales Despite the uncertainty regarding the world economy, positive signs of recovery were witnessed especially in East Europe, where several countries are back to pre-recession sales growth trend. Also, market situation in Nordic countries, West Europe and Asia has stabilized and started to improve gradually. North American business environment remained on last year levels. Strengthening of several local currencies against euro and USD have eased up the pressure on consumer confidence and increased the purchase power in several markets. Net sales for the second quarter increased 15% and reached a quarterly record level at 77.6 MEUR (67.7 MEUR). In the end of June, US dollar (USD) was 13% stronger against euro than one year before but on average for the first six months it was on the same level as last year. Currencies especially in East Europe, Scandinavia, Canada, Australia and South Africa strengthened strongly against euro. The net effect of the currency movements increased the quarterly net sales by 6.3 MEUR and six-month sales by 8.1 MEUR. With comparable exchange rates, net sales increased 5% for the quarter and 6% for the first half of the year. Net sales of Group Fishing Products were up 13% for the quarter and 7% for the first half of the year as sales of all product lines increase strongly in April to June. Net sales of Other Group Products decreased 2% for April to June and increased 8% for January to June as the season for cross-country skis came to its end and subcontracting services continued to weaken. Net sales of Third Party Products were up 20% for the quarter and 19% for the first half of the year as sales of all product lines increased from last year. Net sales in North America increased 10% in April to June and 3% for January to June. In the Nordic countries, net sales increased 20% for the quarter and 2% for the first half of the year mainly as a result of somewhat later start of the summer season than last year and strengthening of Swedish and Norwegian crowns. Net sales in Rest of Europe were up 23% for the quarter and 19% for the first half of the year due to strong sales of fishing tackle and strengthening of currencies in East Europe and the gradual strengthening of West European market. Net sales in Rest of the world increased 45% for the quarter and 22% for the first half of the year as a result of good sales of Sufix fishing lines, improved sales in many Asian distribution companies and strengthening of currencies in Australia and South Africa. Financial Results and Profitability Comparable operating profit, excluding non-recurring items, improved clearly from last year and reached 12.6 MEUR (10.2 MEUR) in April to June and 24.4 MEUR (20.4 MEUR) in January to June. Comparable operating margin was up from last year and amounted to 16.2% (15.1%) for the quarter and 16.4% (15.3%) for the six-month period. This improvement came mainly from increased sales and strengthening of several currencies. Reported operating profit was up to 12.5 MEUR (9.4 MEUR) for the quarter and 24.2 MEUR (19.5 MEUR) for the half-year period. Reported operating profit included non-recurring restructuring costs of 0.1 MEUR for April to June and 0.2 MEUR for January to June (0.9 MEUR non-recurring costs in 2009 related mainly to impairment of tangible assets in China). Reported operating margin improved to 16.1% (13.9%) for the quarter and 16.3% (14.6%) for the six-month period. Return on capital employed improved to 24.4% (18.6%) for April to June and 23.6% (19.2%) for January to June. Key figures II II I-II I-II I-IV MEUR 2010 2009 2010 2009 2009 ------------------------------------------------------ Net sales 77.6 67.7 148.4 132.9 234.6 EBITDA as reported 14.1 11.5 27.2 23.1 28.9 EBITDA excl. one-off items 14.1 11.6 27.4 23.3 29.2 Operating profit (EBIT) 12.5 9.4 24.2 19.5 22.1 EBIT excl. one-off items 12.6 10.2 24.4 20.4 23.5 ------------------------------------------------------ Operating profit of Group Fishing Products increased 41% in the second quarter and 20% in the first half of the year as a result of good performance in all product lines. Operating profit of Other Group Products improved from red to black figures both for the quarter and six months as a result of increased sales of and profits from Group hunting and gift products and cost cutting actions done in the subcontracting services. Operating profit of Third Party Products increased 9% for April to June and 23% for January to June due to strong sales of especially fishing products and strengthened currencies. Financial (net) expenses were 0.4 MEUR (gain 0.4 MEUR) for the second quarter, including net interest expenses of 0.9 MEUR (1.0 MEUR) and (net) currency exchange gains of 0.5 MEUR (1.4 MEUR). For the first six months, financial (net) gains were 0.1 (expense 1.2 MEUR), net interest expenses 1.7 (1.9 MEUR) and (net) currency exchange gains 1.8 (0.8 MEUR). Net profit for April to June increased 14% and reached 8.4 MEUR (7.4 MEUR). Net profit for January to June increased to 17.5 MEUR (13.6 MEUR). Earnings per share were 0.18 EUR (0.16 EUR) for the second quarter and 0.40 EUR (0.31 EUR) for the first half of the year. Cash Flow and Financial Position Despite strong sales and progress in working capital management, inventories increased 3.4 MEUR from last June due to strengthening of almost all currencies against euro. In local currencies though, inventories were more than 5 MEUR below last June levels. Net change in working capital was 8.7 MEUR (6.7 MEUR) for April to June and -12.8 MEUR (-22.3 MEUR) for January to June, which contributed strongly to the improvement of cash flow. Accordingly, cash flow from operating activities improved from last year to 20.2 MEUR (17.8 MEUR) for the second quarter and to 8.2 MEUR (-2.0 MEUR) for the first half of the year. Net cash used in investing activities for the second quarter amounted to 2.7 MEUR (1.9 MEUR). In addition to the normal capital expenditure of 1.5 MEUR (1.0 MEUR) and 1.2 MEUR (1.2 MEUR) of acquisitions, it included 0.0 MEUR (0.3 MEUR) proceeds from sales of assets. Cash used in investing activities for the first half of the year amounted to 4.4 MEUR (2.4 MEUR), consisting of capital expenditure of 3.3 MEUR (2.5 MEUR) and 1.2 MEUR (1.2 MEUR) of acquisitions, 0.1 MEUR (1.3 MEUR) proceeds from sales of assets and 0.0 MEUR (0.1 MEUR) change in interest-bearing receivables. Net interest-bearing debt increased seasonally to 90.4 MEUR (Dec 2009: 79.4 MEUR) as cash was tied mainly in working capital. Comparing to June 2009, net interest-bearing debt decreased 10.6 MEUR. The liquidity of the Group remained good. Equity-to-assets ratio weakened seasonally to 41.3% from December but improved from June 2009 (Dec 2009: 42.8% and June 2009: 37.5%). Gearing improved from both December and June 2009 and reached an all-time record low level for the second quarter at 70.0% (Dec 2009: 71.1% and June 2009: 91.4%). Strategy Implementation Implementation of the Group's strategy for profitable growth continued during the second quarter with emphasis on continuing the positive development in cash flow, developing new distribution units to support future growth and implementing performance improvement initiatives. The results of the major working capital initiative to reduce inventories and improve cash flow progressed and contributed to the positive cash flow. Work to develop the Group supply chain to shorten the lead-times, lower the inventories and further improve the service levels to customers, progressed and will continue throughout 2010 and further to 2011. The newly established Chinese gift distribution company started its operations in April and a new distribution unit was established to Belarus in June. These units will further expand and strengthen the Group distribution network. In addition, the Group continued several other performance improvement initiatives like the restructuring of Hungarian distribution operations. Also development of organic growth in terms of extensions of current product categories as well as special marketing, sales and brand initiatives continued. New products for the season 2011 were introduced to the market in the major fishing tackle shows in June in Europe and in July in the USA. The Group's new revolutionary Sufix 832 fishing line, developed in cooperation with Gore, the maker of famous gore-tex fabrics, was awarded the Best Fishing Line at the US ICAST fishing tackle show in mid-July. Several discussions and negotiations regarding acquisitions and business combinations continued during the quarter. Short-term Outlook The general market situation continues to be cautiously optimistic. In East Europe, the market has continued the strong growth that started in the first quarter and also Nordic countries, West European and Asian markets have started to pick-up gradually. North American market development continues to be quite flat with some monthly ups and downs, which will most likely continue to affect the ordering behavior of some customers and maintain the need for quick deliveries and short lead-times. At the end of June 2010, the Group's order backlog was up 47% from last June at 33.2 MEUR. It is expected that both the net sales and the comparable operating margin for the full year 2010, excluding non-recurring items, will increase from 2009. While the Group continues to implement its strategy for profitable growth, reducing working capital and increasing cash flow continue to be the top priorities for 2010 together with strong emphasis on sales development, innovation and development of new products. Third quarter interim report will be published on October 21. Helsinki, July 22, 2010 Board of Directors of Rapala VMC Corporation INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) STATEMENT OF INCOME II II I-II I-II I-IV MEUR 2010 2009 2010 2009 2009 --------------------------------------------------------------------------- Net sales 77.6 67.7 148.4 132.9 234.6 Other operating income 0.1 0.3 0.2 0.4 1.2 Materials and services 36.4 31.1 67.7 59.7 108.4 Personnel expenses 14.8 13.3 29.2 27.1 53.8 Other costs and expenses 12.4 12.0 24.5 23.4 44.7 ---------------------------- EBITDA 14.1 11.5 27.2 23.1 28.9 Depreciation and amortization 1.6 2.1 3.0 3.6 6.9 ---------------------------- Operating profit (EBIT) 12.5 9.4 24.2 19.5 22.1 Financial income and expenses 0.4 -0.4 -0.1 1.2 2.1 Share of results in associated companies 0.0 0.0 0.0 0.0 0.0 ---------------------------- Profit before taxes 12.1 9.8 24.2 18.3 19.9 Income taxes 3.7 2.4 6.7 4.7 5.7 ---------------------------- Net profit for the period 8.4 7.4 17.5 13.6 14.3 Attributable to: Equity holders of the Company 7.2 6.2 15.8 12.1 12.1 Non-controlling interests 1.1 1.3 1.7 1.5 2.2 Earnings per share for profit attributable to the equity holders of the Company: Earnings per share, EUR (diluted = non-diluted) 0.18 0.16 0.40 0.31 0.31 STATEMENT OF COMPREHENSIVE INCOME II II I-II I-II I-IV MEUR 2010 2009 2010 2009 2009 ---------------------------------------------------------------------- Net profit for the period 8.4 7.4 17.5 13.6 14.3 ------------------------- Other comprehensive income, net of tax Change in translation differences 6.1 -1.3 11.6 0.2 1.5 Gains and losses on cash flow hedges -0.6 0.4 -1.6 0.4 -0.1 Gains and losses on hedges of net investments -1.3 1.0 -2.2 0.1 0.2 ------------------------- Total other comprehensive income, net of tax 4.2 0.2 7.8 0.7 1.6 ------------------------- Total comprehensive income for the period 12.5 7.6 25.4 14.3 15.9 Total comprehensive income attributable to: Equity holders of the Company 11.3 6.2 23.3 12.8 13.6 Non-controlling interests 1.2 1.4 2.0 1.5 2.3 STATEMENT OF FINANCIAL POSITION June 30 June 30 Dec 31 MEUR 2010 2009 2009 ------------------------------------------------------------------------------- ASSETS Non-current assets Intangible assets 63.1 57.6 58.3 Property, plant and equipment 29.3 26.8 27.5 Non-current financial assets   Interest-bearing 0.4 1.0 0.5   Non-interest-bearing 9.4 7.5 8.0 -----------------------   102.3 92.9 94.2 Current assets Inventories 106.6 103.2 94.4 Current financial assets   Interest-bearing 0.5 0.1 0.2   Non-interest-bearing 63.6 58.2 43.5 Cash and cash equivalents 39.7 40.6 29.0 -----------------------   210.5 202.0 167.0 Assets classified as held-for-sale - 0.3 - Total assets 312.8 295.2 261.2 EQUITY AND LIABILITIES Equity Equity attributable to the equity holders of the Company 122.9 107.0 107.4 Non-controlling interests 6.3 3.5 4.2 -----------------------   129.2 110.5 111.7 Non-current liabilities Interest-bearing 39.1 43.8 36.0 Non-interest-bearing 10.9 10.0 10.1 -----------------------   50.0 53.8 46.0 Current liabilities Interest-bearing 92.0 98.8 73.1 Non-interest-bearing 41.7 32.1 30.5 -----------------------   133.7 130.9 103.5 Total equity and liabilities 312.8 295.2 261.2 KEY FIGURES II II I-II I-II I-IV   2010 2009 2010 2009 2009 ------------------------------------------------------------------------------ EBITDA margin, % 18.2% 17.1% 18.3% 17.4% 12.3% Operating profit margin, % 16.1% 13.9% 16.3% 14.6% 9.4% Return on capital employed, % 24.4% 18.6% 23.6% 19.2% 11.5% Capital employed at end of period, MEUR 219.6 211.5 219.6 211.5 191.1 Net interest-bearing debt at end of period, MEUR 90.4 101.0 90.4 101.0 79.4 Equity-to-assets ratio at end of period, % 41.3% 37.5% 41.3% 37.5% 42.8% Debt-to-equity ratio at end of period, % 70.0% 91.4% 70.0% 91.4% 71.1% Earnings per share, EUR 0.18 0.16 0.40 0.31 0.31 Fully diluted earnings per share, EUR 0.18 0.16 0.40 0.31 0.31 Equity per share at end of period, EUR 3.15 2.73 3.15 2.73 2.75 Average personnel for the period 2 214 2 447 2 250 2 449 2 259 ------------------------------------------------------------------------------ Definitions of key figures in the interim report are consistent with those in the Annual Report 2009. STATEMENT OF CASH FLOWS II II I-II I-II I-IV MEUR 2010 2009 2010 2009 2009 -------------------------------------------------------------------------------- Net profit for the period 8.4 7.4 17.5 13.6 14.3 Adjustments to net profit for the period * 5.8 4.9 9.4 10.1 14.7 Financial items and taxes paid and received -2.7 -1.3 -6.0 -3.5 -7.4 Change in working capital 8.7 6.7 -12.8 -22.3 3.0 -------------------------------------------------------------------------------- Net cash generated from operating activities 20.2 17.8 8.2 -2.0 24.6 Investments -1.5 -1.0 -3.3 -2.5 -6.7 Proceeds from sales of assets 0.0 0.3 0.1 1.3 2.6 Sufix brand acquisition -1.2 -1.1 -1.2 -1.1 -1.1 Ultrabite brand acquisition - - - - -0.9 Acquisition of subsidiaries, net of cash 0.0 -0.1 0.0 -0.1 -0.1 Change in interest-bearing receivables 0.0 -0.1 0.0 -0.1 -0.1 -------------------------------------------------------------------------------- Net cash used in investing activities -2.7 -1.9 -4.4 -2.4 -6.3 Dividends paid -7.4 -7.5 -7.4 -7.5 -7.5 Net funding 2.6 1.9 12.5 22.0 -12.8 Purchase of own shares -0.4 - -0.5 0.0 -0.6 -------------------------------------------------------------------------------- Net cash generated from financing activities -5.3 -5.6 4.6 14.5 -20.8 Adjustments -0.4 -0.3 -1.0 -0.1 0.8 Change in cash and cash equivalents 11.8 10.0 7.3 10.0 -1.7 Cash & cash equivalents at the beginning of the period 26.0 30.8 29.0 30.6 30.6 Foreign exchange rate effect 1.9 -0.3 3.4 0.0 0.1 -------------------------------------------------------------------------------- Cash and cash equivalents at the end of the period 39.7 40.6 39.7 40.6 29.0 * Includes reversal of non-cash items, income taxes and financial income and expenses. STATEMENT OF CHANGES IN EQUITY          Attributable to equity holders of the Company ---------------------------------------------------------------         Cumul. Fund for     Non-     Share Fair trans-  invested   Re- contr-     pre- value lation non-rest- Own tained olling   Share mium re- diffe- ricted sha- earn- inte- Total MEUR capital fund serve rences equity res ings rests equity -------------------------------------------------------------------------------- Equity on Jan 1, 2009 3.6 16.7 -0.3 -13.8 4.9 -0.9 91.5 1.9 103.7 -------------------------------------------------------------------------------- Comprehensive income* - - 0.4 0.3 - - 12.1 1.5 14.3 Purchase of own shares - - - - - 0.0 - - 0.0 Dividends paid - - - - - - -7.5 - -7.5 -------------------------------------------------------------------------------- Equity on June 30, 2009 3.6 16.7 0.1 -13.5 4.9 -0.9 96.2 3.5 110.5 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- Equity on Jan 1, 2010 3.6 16.7 -0.3 -12.3 4.9 -1.4 96.3 4.2 111.7 -------------------------------------------------------------------------------- Comprehensive income* - - -1.6 9.1 - - 15.8 2.0 25.4 Purchase of own shares - - - - - -0.5 - - -0.5 Dividends paid - - - - - - -7.4 - -7.4 Share option program - - - - - - 0.1 - 0.1 -------------------------------------------------------------------------------- Equity on June 30, 2010 3.6 16.7 -1.9 -3.2 4.9 -1.9 104.8 6.3 129.2 -------------------------------------------------------------------------------- * For the period (net of tax) SEGMENT INFORMATION* MEUR II II I-II I-II I-IV Net Sales by Operating Segment 2010 2009 2010 2009 2009 ----------------------------------------------------------------- Group Fishing Products 42.7 37.9 80.4 75.1 126.8 Other Group Products 4.0 4.1 9.0 8.3 17.8 Third Party Products 31.1 25.9 59.4 49.8 90.6 Intra-Group (Other Group Products) -0.2 -0.2 -0.4 -0.3 -0.6 ----------------------------------------------------------------- Total 77.6 67.7 148.4 132.9 234.6 Operating Profit by Operating Segment ----------------------------------------------------------------- Group Fishing Products 8.6 6.1 16.7 13.9 15.7 Other Group Products 0.1 -0.2 0.6 -0.1 0.5 Third Party Products 3.8 3.5 6.9 5.6 5.8 ----------------------------------------------------------------- Total 12.5 9.4 24.2 19.5 22.1   June 30 June 30 Dec 31 Assets by Operating Segment 2010 2009 2009 --------------------------------------------------------------- Group Fishing Products 186.0 165.5 159.6 Other Group Products 10.5 9.1 10.2 Third Party Products 75.6 79.1 61.9 Intra-Group (Other Group Products) - -0.1 0.0 --------------------------------------------------------------- Non-interest bearing assets total 272.1 253.6 231.6 Unallocated interest-bearing assets 40.7 41.7 29.6 --------------------------------------------------------------- Total assets 312.8 295.2 261.2 Liabilities by Operating Segment --------------------------------------------------------------- Group Fishing Products 35.4 27.3 30.8 Other Group Products 2.3 4.6 2.5 Third Party Products 14.8 10.3 7.2 Intra-Group (Group Fishing Products) - -0.1 0.0 --------------------------------------------------------------- Non-interest bearing liabilities total 52.6 42.0 40.5 Unallocated interest-bearing liabilities 131.1 142.7 109.1 --------------------------------------------------------------- Total liabilities 183.7 184.7 149.6   II II I-II I-II I-IV Net Sales by Area** 2010 2009 2010 2009 2009 ------------------------------------------------- North America 20.1 18.3 39.1 37.8 61.1 Nordic 31.6 26.4 63.7 62.2 102.0 Rest of Europe 31.9 25.9 61.0 51.4 89.7 Rest of the world 18.4 12.7 35.4 29.0 55.3 Intra-Group -24.4 -15.6 -50.9 -47.6 -73.5 ------------------------------------------------- Total 77.6 67.7 148.4 132.9 234.6 * The operating segments include the following product lines: Group Fishing Products include Group Lures, Fishing Hooks, Fishing Lines and Fishing Accessories, Other Group Products include Group manufactured and/or branded gift products and products for winter sports and some other businesses and Third Party Products include non-Group branded fishing products and third party products for hunting, outdoor and winter sports. **Geographical sales information has been prepared on source basis i.e. based on the location of the business unit. Each area shows the sales generated in that area excluding intra-Group transaction within that area, which have been eliminated. Intra-Group line includes the eliminations of intra-Group transactions between geographical areas. KEY FIGURES BY QUARTERS I II III IV I-IV I II MEUR 2009 2009 2009 2009 2009 2010 2010 ------------------------------------------------------------- Net sales 65.2 67.7 50.2 51.4 234.6 70.8 77.6 EBITDA 11.6 11.5 3.3 2.5 28.9 13.1 14.1 Operating profit 10.0 9.4 1.9 0.7 22.1 11.7 12.5 Profit before taxes 8.5 9.8 2.1 -0.4 19.9 12.1 12.1 Net profit for the period 6.2 7.4 1.5 -0.8 14.3 9.1 8.4 ------------------------------------------------------------- NOTES TO THE INCOME STATEMENT AND FINANCIAL POSITION The financial statement figures included in this release are unaudited. This report has been prepared in accordance with IAS 34. Accounting principles adopted in the preparation of this report are consistent with those used in the preparation of the Annual Report 2009, except for the adoption of the new or amended standards and interpretations. Adoption of the amended standards IFRS 3 (Business Combinations) and IAS 27 (Consolidated and Separate Financial Statements) had impact on accounting of minority interest and will have significant impact on the future business combinations. Adoption of amendments of IFRS 2 and IAS 39 as well as the new interpretations, IFRIC 17 and IFRIC 18 did not result in any changes in the accounting principles that would have affected the information presented in this interim report. 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 interim period The Group has no knowledge of any significant events after the end of the interim period that would have a material impact on the financial statements for January-June 2010. Material events after the end of the interim period, if any, have been discussed in the interim review by the Board of Directors. Inventories On June 30, 2010, the book value of inventories included a provision for net realizable value of 2.8 MEUR (2.2 MEUR at June 30, 2009 and 3.0 MEUR at December 31, 2009). Impact of acquisitions on the consolidated financial statements In February 2010, Rapala purchased a 10% minority stake of the Group's Hungarian distribution company. This acquisition raised Rapala's ownership to 66.6%. Acquisition has no significant impact on the Group's consolidated financial statements. Non-recurring income and expenses included in operating profit II II I-II I-II I-IV MEUR 2010 2009 2010 2009 2009 -------------------------------------------------------------------------------- Sale of Hong Kong office premises - - - - 0.5 Restructuring of Chinese manufacturing operations * - 0.0 - 0.0 -0.4 Consolidation of French operations - 0.0 - 0.0 0.0 Closure of Irish lure factory - 0.0 - -0.1 -0.1 Other restructuring costs -0.1 0.0 -0.2 0.0 -0.4 Other non-recurring items - - - - -0.1 -------------------------------------------------------------------------------- Total included in EBITDA -0.1 -0.1 -0.2 -0.2 -0.3 -------------------------------------------------------------------------------- Non-recurring impairment of non-current assets in China - -0.7 - -0.7 -0.7 Non-recurring impairment of non-current assets in Hungary - - - - -0.3 -------------------------------------------------------------------------------- Total included in operating profit -0.1 -0.8 -0.2 -0.9 -1.4 * Includes redundancy and other costs as well as gains and losses from the sale of fixed assets. Commitments June 30 June 30 Dec 31 MEUR 2010 2009 2009 ------------------------------------------------------------------------ On own behalf Business mortgage 16.1 16.1 16.1 Guarantees 0.2 0.7 0.2 Minimum future lease payments on operating leases 9.9 9.9 10.3 ------------------------------------------------------------------------ Related party transactions   Rents Other MEUR Purchases  paid  expenses Receivables Payables -------------------------------------------------------------------------------- I-II 2010 Associated company Lanimo Oü 0.1 - - 0.0 - Entity with significant influence over the Group* - 0.1 0.0 0.0 0.0 Management - 0.1 - 0.0 0.0 I-II 2009 Associated company Lanimo Oü 0.1 - - 0.0 - Entity with significant influence over the Group* - 0.1 0.0 0.0 0.0 Management - 0.1 0.0 - 0.0 I-IV 2009 Associated company Lanimo Oü 0.1 - - 0.0 - Entity with significant influence over the Group* - 0.2 0.1 0.0 - Management - 0.3 0.0 0.0 0.0 -------------------------------------------------------------------------------- * Lease agreement for the real estate for the consolidated operations in France and a service fee. Open derivatives Positive fair Negative fair Net fair MEUR Nominal amount values values values -------------------------------------------------------------------------------- June 30, 2010 Foreign currency forwards 3.5 0.5 0.0 0.5 Interest rate swaps 89.1 - 2.6 -2.6 Total 92.5 0.5 2.6 -2.1 June 30, 2009 Foreign currency forwards 2.6 0.1 0.0 0.0 Interest rate swaps 140.4 0.4 0.3 0.1 Total 143.1 0.5 0.3 0.1 Dec 31, 2009 Foreign currency forwards 7.1 0.1 - 0.1 Interest rate swaps 98.0 0.0 0.5 -0.5 Total 105.0 0.2 0.5 -0.3 -------------------------------------------------------------------------------- Group's financial risks and hedging principles are described in detail in the Annual Report 2009. Share-based payments The Group had two separate share-based payment programs in place on June 30, 2010: one synthetic option program settled in cash and one share reward program settled in shares. On March 31, 2010, the exercise period for the 2004B stock option program expired. The IFRS accounting effect on operating profit was -0.0 MEUR (-0.1 MEUR) for the first half of the year and -0.3 MEUR for the financial year 2009. Terms and conditions of the share-based payment programs are described in detail in the Annual Report 2009. Shares and share capital Based on authorization given by the Annual General Meeting in April 2007, the Board can decide to issue shares through issuance of shares, options or special rights entitling to shares in one or more issues. The number of new shares to be issued including the shares to be obtained under options or special rights shall be no more than 10 000 000 shares. This authorization includes the right for the Board to resolve on all terms and conditions of the issuance of new shares, options and special rights entitling to shares, including issuance in deviation from the shareholders' preemptive rights. This authorization is in force for a period of 5 years from the resolution by the Annual General Meeting. The Board is also authorized to resolve to repurchase a maximum of 2 000 000 shares by using funds in the unrestricted equity. This amount of shares corresponds to less than 10% of all shares of the company. The shares will be repurchased through public trading arranged by NASDAQ OMX Helsinki at the market price of the acquisition date. The shares will be acquired and paid in pursuance of the rules of NASDAQ OMX Helsinki and applicable rules regarding the payment period and other terms of the payment. This authorization is effective until the end of the next Annual General Meeting. On June 30, 2010, the share capital fully paid and reported in the Trade Register was 3.6 MEUR and the total number of shares was 39 468 449. The average number of shares in January-June 2010 was 39 468 449. On February 4, 2010, the Board decided to continue buying back own shares in accordance with the authorization granted by the Annual General Meeting on April 7, 2009. The repurchasing of shares ended on March 31, 2010 when Rapala held 368 144 own shares. Based on the Board's decision on April 27, 2010 and authorization granted by the Annual General Meeting on April 14, 2010 the repurchasing of own shares continued until June 30, 2010 when Rapala held 440 394 own shares, representing 1.1% of the total number and the total voting rights of Rapala shares. The average price for the repurchased own shares in January-June 2010 was 5.45 EUR. During the first six months of 2010, 7 112 018 shares (3 006 603) were traded. The shares traded at a high of EUR 5.93 EUR and a low of 4.80 EUR during the period. The closing share price at the end of the period was 5.64 EUR. Short term risks and uncertainties The objective of Rapala's risk management is to support the implementation of the Group's strategy and execution of business targets. The importance of risk management has increased when Rapala has continued to expand its operations. Accordingly, Group management also continued to develop risk management practices and internal controls during 2009. Detailed description of Group's strategic, operative and financial risks and risk management principles are included in the Annual Report 2009. Due to the nature of the fishing tackle business and the geographical scope of Group's operations, Group's deliveries and sales as well as operating profit have traditionally been seasonally stronger in the first half of the financial year compared to the second half. The biggest deliveries are concentrated into relatively short time period which requires proper functioning of Group's supply chain. In 2010, deliveries to customers have proceeded mostly according to plan and without any material problems in the supply chain. A major supply chain and logistics initiative started in 2009 to shorten the lead-times and further improve the service levels to customers continues in 2010. Group's sales are also to some extent affected by weather. Strong winter can support the sales of winter sports equipment but simultaneously delay the beginning of the coming summer fishing season, which could negatively affect the sales and inventory levels. In 2010, the spring started in most markets close to normal time and sales of fishing tackle to retailers have proceeded well. Year 2009 was characterized by initiatives to improve cash flow and reduce inventory levels, even at the risk of losing some profit margin, and these initiatives continue in 2010. Cautious purchasing could result in shortage of some products if the demand exceeds the estimates. The Group renegotiated its bank covenants during the second quarter of 2009 and as one of the results has now more flexibility to the most critical cash flow covenant also for 2010 and onwards. Even if the fishing tackle business has traditionally not been strongly influenced by the increased uncertainties and downturns in the general economic climate, this may influence, at least for a short while, the sales of fishing tackle when retailers reduce their inventory levels and face financial challenges. Also quick and strong increases in living expenses and uncertainties concerning employment may temporarily affect consumer spending also in fishing tackle, even though historically the underlying consumer demand has proven to be fairly solid. The truly global nature of Group's sales and operations is spreading the market risks caused by the current uncertainties concerning the recovery of the global economy. Despite positive signals received since the second half of 2009, the Group is still cautiously monitoring the development in the various markets, as the W-effect of the economies can't be fully ruled out yet.  Due to these uncertainties in future demand and the length of Group's internal supply chain, the supply chain management is balancing between risk of shortages and risk of excess production and consequent excess inventories in the Group. Also the importance of cash collection and credit risk management has increased and this may affect sales to some customers. Group's sales and profitability are impacted by the changes in foreign exchange rates, especially US dollar and other currencies connected to it. Group is actively monitoring the currency position and risks and using e.g. foreign currency nominated loans to manage the natural hedging. In order to fix the exchange rate of some of the future USD-nominated purchases, the Group has entered into currency hedging agreements. As the Group is not applying hedge accounting in accordance with IAS 39, also the change in fair value of these unrealized currency hedging agreements has an impact on the Group's operating profit. The strengthening of Chinese renmimbi, which started in June, together with the recent strengthening of US dollar is putting pressure on Group's costs. The Group is closely monitoring the situation and considering possibility and feasibility of price increases and hedging actions. The market prices of some commodity raw materials have started to increase again and this may also put pressure on pricing of some products in the future. No significant changes are identified in the Group's strategic risks or business environment. [HUG#1433311] StockExchangeRelease_Q22010: http://hugin.info/120091/R/1433311/379177.pdf This announcement is distributed by Thomson Reuters on behalf of Thomson Reuters clients. The owner of this announcement warrants that: (i) the releases contained herein are protected by copyright and other applicable laws; and (ii) they are solely responsible for the content, accuracy and originality of the information contained therein. Source: Rapala VMC Oyj via Thomson Reuters ONE