Sluggish sales of third-party products distributed by Rapala VMC in Europe hit the Finnish-based group's revenues for the first half of the year. The company's sales edged down by 1 percent from the year-ago period to €141.2 million, or by 2 percent in constant currencies. Operating earnings tumbled by 25 percent to €11.4 million.
Aside from a decline in third-party products sales in the Nordics and Western European countries, the management also blamed the drop on a shift of some sales in North America from the first half to the second half of the year.
Nevertheless, there were some positive highlights during the period, including good sales development in the winter sports business as well as growing sales and profitability in Russia, after many years of turmoil in the market.
The most important product initiative in the first half of year was a coordinated European-wide launch of a series of saltwater lures, which started in January in France and covered both Rapala-branded hard baits and Storm-branded soft plastics.
By region, in North America, sales were down by 2 percent to €48.6 million in reported terms and by 7 percent in constant currencies following the appreciation of the U.S. and Canadian dollars as compared to the first half of 2018. The decrease in sales was largely due to delivery issues of ice fishing products at the beginning of the year as well as the desire of a major local retail client to receive delivery in the second half of the year.
In the Nordic countries, Rapala's sales were down by 4 percent to €30.9 million in reported terms and by 3 percent in constant currencies. Finland was a highlight, as the good trend in winter sports product sales continued, leading to double-digit growth in this segment. However, the group recorded weak hunting sales in Denmark and sluggish overall sales in Norway, where sales of third-party products tumbled.
In the Rest of Europe region, revenues improved by 2 percent to €45.9 million, or by 3 percent at comparable exchange rates. Sales in France, the biggest market, remained flat. Russia, on the other hand, was able to grow despite the challenging economic situation. The Baltic countries and many of the Eastern European markets also experienced strong growth.
In Rest of the World, revenues remained flat at €15.7 million, but inched up by 1 percent in constant currencies, with a positive contribution from South-Africa as well as the Latin American markets. Thailand, on the other hand, recorded declining sales due to a discontinued distribution agreement.
Overall, revenues generated by the company's own products advanced by 1 percent to €95.2 million. They declined in the Nordic countries and North America but went up in the Rest of Europe as well as in Rest of the World. Meanwhile, the group's revenues from the sale of third-party products dropped by 4 percent to €46.0 million, due to forthcoming changes in the distribution of third-party rods and reels. Third-party hunting and winter sports items performed well.
Overall, the company's operating profit margin declined by 2.6 percentage points to 8.1 percent, while the Ebitda margin lost 0.5 percentage points to 12.5 percent. Net profit tumbled by 23.7 percent to €7.4 million.
As previously reported, Rapala has agreed to terminate many of its distribution agreements with Shimano across Europe and in South Africa by 2020. The company said that one of its key near-term strategic priorities is to accelerate the global development of the rod and reel category. As we have already reported, it recently announced that it will become the distributor outside the U.S. for the 13 Fishing brand of rods and reels, after acquiring a 49 percent stake in the company. The group is looking to sell more of its own products in large European fishing tackle markets in Germany, the U.K., Italy and Benelux.
Rapala is keeping its guidance unchanged for the full 2019 financial year. It expects increased profitability for the second half of the year, mostly driven by postponed sales to certain key accounts as well as better profitability from the company's lure factory in Indonesia.