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Rapala issues European warning

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Rapala has warned that the political turbulence in Russia and Ukraine could have repercussions throughout Europe.

Despite reporting that it had managed to claw back some business lost earlier in the year, Rapala has warned that the political turbulence in Russia and Ukraine could have repercussions on its business across Europe.

The Finnish-based group reported that its net sales for the third quarter (July to September) were up 2% to €67.8 million (2013: €66.6 million), helping it achieve a record operating profit of €5.7 million (€2.6 million) – a 119% increase.

President and CEO, Jorma Kasslin, told investors: “While 2014 is overall challenging, in the third quarter we have managed to recover some of the business we lost previously. In the US, sales developed well after a difficult beginning of the summer season and were also strong in many European and rest of the world countries. Shipping of ice fishing products also started well, supporting the third quarter.

“However, the political turbulence is disturbing our business in Russia as well as the major movements in currencies.”

Kasslin said that the Russia-Ukraine situation is ‘still a concern’ for these markets and the escalation of the crisis may have ‘negative impacts’ on customer consumption even more widely in Europe.

Kasslin also said that the transfer of production from China to Batam Island has badly burdened Rapala’s profitability this year, but he added: “Now we expect the worst to be behind us and the unit to have a positive effect on our profitability in the fourth quarter.”

Rapala currently employs more than 1,000 people at its Indonesian factory following the withdrawal from China, where its presence is now limited to sourcing raw materials, components and finished goods from third party vendors as well as distribution activities.

With comparable exchange rates from last year, net sales would have grown by 5% instead of the 2% reported, costing the group around €2 million.

Rapala’s region-by-region business review highlights:

North America
General economy and consumer sentiment continued gradual improvement. Sales with comparable rates were up 16%, supported by a good start to the ice fishing season and recovery of business from the second quarter.

Nordic countries
With comparable rates net sales were 1% above last year. Quarterly sales negatively hit by decline in winter sports sales, suppliers’ delivery problems, and some slowdown in fishing tackle sales.

Rest of Europe
Down 2% with comparable rates. Excluding performance in Russian and Ukraine markets, sales increased 7%, assuming comparable rates. Business continues to develop well in France, as well as Hungary and Spain where the economies are showing a cautious recovery.

Rest of the world
Despite volume growth, net sales declined due to the effects of currency fluctuations, particularly the South African Rand. Business developed well in Asian and Latin countries as well as South Africa. Business conditions tough in Australia and Japan affected by economic instability and extreme weather.

For the year-to-date, sales are 5% down on last year at €211.7 million (€223.3 million) and operating profit reduced by 12% from €24.6 million last year to €21.7 million.

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