Vapo Group’s Interim report and full-year financial statements 1 May–31 December 2019

A strategically positive but financially challenging year

 

The financial year in figures:

1 May 2019–31 December 2019

1 May 2018–31 December 2018

Turnover, EUR million

             297.7

            224.9

Operating margin/EBITDA, EUR million

               37.0

              32.1

Operating result/EBIT, EUR million)

              -40.4

                4.1

Comparable operating profit excluding non-recurring items and the effect of divested businesses, EUR million

                -2.5

                2.6

Profit/loss for the period, EUR million

              -40.2

                4.2

Earnings per share

            -1,320

               138

Pre-tax return on invested capital

                -1.7

                5.1

Free cash flow before taxes, EUR million

               21.0

             -12.4

Equity ratio

               42.9

              49.5

Ratio of interest-bearing net debt to operating margin

                 4.0

                3.8

Energy peat deliveries (TWh)

                 4.4

                5.0

Wood fuel deliveries (TWh)

                 2.1

                2.0

Heating deliveries (TWh)

                 0.7

                0.6

Accident frequency*

                 6.7

                6.9


 *The figures in the Interim Report for the period 1 May–31 December 2018 are unaudited*) Accident frequency=number of accidents requiring a visit to occupational health services/million working hours

Vesa Tempakka

A strategically positive but financially challenging year 

Vapo is in the midst of the biggest and fastest change in its entire history. During the past eight-month financial year, the company began implementing three very significant changes. In October 2018, Vapo Oy subsidiary Kekkilä Oy and the Netherlands-based BVB Substrates B.V. announced a transaction that led to the formation of Europe’s leading growing media company Kekkilä-BVB Oy. Tens of integration projects were carried out during the year and the company is now ready to seek growth in the expanding global growing media market. The harmonisation of the companies’ operations took up a lot of resources from the operational management and the organisation as a whole, which is why the financial targets set for Kekkilä-BVB were not fully achieved in its first financial year after the merger. Nevertheless, the integration process itself has gone even better than expected.  Kekkilä-BVB’s goal for the new financial year is profitable growth.

Energy peat now represents less than a quarter of the Group’s total turnover, while the volumes of the wood and pellet business are growing and Kekkilä-BVB accounts for approximately half of the Group’s turnover. Kekkilä-BVB’s business is less cyclical than the energy peat business. Under these circumstances, it makes sense to change the Group’s financial year to be the calendar year. Due to this transition, the recently concluded financial year exceptionally covers only the period from 1 May 2019 to 31 December 2019.

For several years now, Vapo has engaged in research and product development to produce activated carbon from peat. Vapo made a decision regarding this second project of high strategic significance in December 2018. The Group decided to build the first activated carbon production facility in Ilomantsi. The facility will be modern and very eco-friendly. Construction of the production facility began with earth-moving operations in June, the foundation stone was laid in October and the aim is to have the facility ready for the start of production in autumn 2020, with full capacity to be reached at the beginning of 2021.

This investment also supports Vapo’s strategy of reducing its dependence on energy peat. The project to build the production facility in Ilomantsi will tie up approximately EUR 20 million in investments during the current financial year without contributing to any increase in sales.

In our communications regarding the Ilomantsi production facility, we have earlier referred to it as our first such facility. However it may well be the first of many. Once the plant meets our quality expectations and barring any significant changes in the market, we are prepared to start planning the expansion of the Ilomantsi production facility immediately as well as begin preparations for at least one new production facility either elsewhere in Finland or in Estonia or Sweden.

The third significant strategic renewal measure we took during the financial year was to bring our energy infrastructure under the newly established company Nevel in Finland, Sweden and Estonia. Our goal in this business area is to achieve growth in the Finnish market as well as Sweden, in particular. Nevel generates its turnover of approximately EUR 100 million by operating some 150 boiler plants of various sizes as well as district heating networks. Nevel’s growth strategy is based on taking advantage of the digital transformation and modern technology, scalable international operations based on the company’s special expertise and a cost-effective operating model.

We are committed to ensuring the reliable availability of fuel for our energy peat customers far into the future and, at the same time, we seek growth in wood-based fuels.

A year ago, we estimated that the demand for energy peat would be halved over a time horizon of about ten years. We are now prepared for demand to be reduced by half in just five years. In light of this assessment, we decided in December 2019 to discontinue energy peat production at about 90 production sites. This also meant a write-down of approximately EUR 28 million on our peat assets.

While the write-down meant that our result showed a loss for the financial year, it did not significantly endanger our solvency or influence our future investment plans.

Overall, the year was financially satisfactory. Our businesses did not quite reach the overall targets set for them, but efficiency improvement measures taken in the Group’s shared functions improved the comparable operating margin already in the abbreviated financial year.

The current situation is nevertheless challenging, as the new year has been exceptionally warm, which has reduced the sales of energy and fuels during the season that is usually the coldest period of the year.

Board of Directors’ proposal for the distribution of profits

The Board of Directors proposes to the General Meeting to be convened on 19 March 2020 that Vapo Oy’s result for the financial year, EUR -39,188,539.78, be recorded as a change in retained earnings, after which the distributable funds available to the General Meeting amount to EUR 144,108,435.91.

There have been no substantial changes in the company’s financial position after the end of the financial year. The Board of Directors proposes to the General Meeting that EUR 3.99 million, or EUR 133.00 per share, be paid as dividend for the financial year 1 May–31 December 2019.

Future outlook

Vapo Group is one of the world’s largest producers of energy peat and peat for growing media. The company holds an important role in ensuring Finland’s self-sufficiency in energy and the security of supply. Nevertheless, political decisions have a material impact on the profitability of nearly all of the company’s businesses and therefore affect the company’s ability to invest in higher-added-value production.

Vapo will continue to implement measures in line with its strategy to increase the competence of its personnel and achieve market-leading customer service in the local energy value chain. This includes the development of new services and comprehensive solutions for our energy customers. At the same time, the company will continue to increase the efficiency of its business processes in order to improve profitability. The demand for fossil fuels is expected to continue to decline, while the demand for bioenergy is expected to grow.

In the new financial year, the Kekkilä-BVB Group will invest in developing its product selection and the profitable growth of its international sales in the professional, consumer grower and landscaping businesses.

Vapo will continue the commercialisation of new business operations in the Carbons business as well as the researching of further new business initiatives in the Vapo Refinery business area. The construction of Carbons’ first production facility for manufacturing technical carbons is progressing as planned in Ilomantsi and it is expected to become operational in the final third of the current financial year.

The figures presented in this financial statements release have been audited.  

More information:

- Vesa Tempakka, CEO, Vapo Oy, tel. + 358 400 726 727
- Jarmo Santala, CFO, Vapo Oy, tel. +358 40 801 9191
- Ahti Martikainen, Director, Communications and Public Affairs, Vapo Oy, tel. +358 40 680 4723