Reka reports double-digit growth despite raw material, labor headwinds

HYVINKAA, Finland—Reka Industrial P.L.C. has posted double-digit growth in annual sales and earnings (EBITDA) for 2021, amid raw material and COVID-induced labor headwinds.

The Finnish group, previously known as Neo Industrial, reported a 20-percent year-on-year increase in earnings (EBITDA) to $12.3 million (€11.3 million), on 31 percent higher sales of $172 million.

The growth was mainly driven by significant increases in the group's cable and rubber industries, Reka announced Feb. 24.

Reka linked 60 percent of the turnover increase in the cable business to rising metal prices, while customer order volumes grew strongly in the rubber segment.

Reka Rubber, which was acquired in June 2020, reported a 31.5-percent year-on-year increase in sales to $13 million in the second half of 2021, compared to the same period the year before. For the full year, the segment posted total sales of $26.8 million.

Burdened by staff turnover in Poland, overtime, express freight, as well as increased logistics costs, segment earnings rose 103 percent to $435,000 for the second half of the year. For the full year, earnings came in at $1.6 million, Reka said.

According to the Finnish group, the increase in freight costs from the Far East burdened earnings by $248,000.

Reka also said that despite offering overtime and temporary labor, delivery capacity was poor, especially for Polish hose production.

"Production volumes have been increased, but customer order volumes have grown even faster," it added.

To solve the situation, Reka said it will be increasing hose production capacity, debottleneck process points and streamlining production processes.

"Changes in production (will) also improve the personnel situation," said the manufacturer, adding that the measures will be completed in stages during January-May.

Furthermore, Reka said COVID-19 caused "additional costs and delivery delays" as personnel were on sick leave more than the usual average.

In particular, Reka said the high staff turnover and sick-leave rates at its Polish rubber plant required "active and multi-channel recruitment and measures to manage absences."

The pandemic also impacted material procurement in both Reka industries.

"Most of the materials have been procured on time, but the shortage of raw materials, components and partly containers has brought additional work and challenges to procurement," it said.

In terms of outlook, Reka said 2022 earnings is expected to remain at the same level or improve, provided that the pandemic and the geopolitical situation will not "substantially affect" the company's capability to deliver.

"The financial situation in euro area and political uncertainties may have effects on purchase amount of the customers in rubber business as well (as on) the start of new projects," said the group.

In terms of demand, Reka said the rubber industry has a strong position in its selected market segments.

Order volumes, it said, have continued to grow especially in construction equipment.