Vapo Group will recognize write-downs totaling appr. EUR 102 million for this year. The most significant reason for the write-downs is the faster-than-anticipated decline of the demand for energy peat in Finland. EUR 80 million of the write-downs is allocated to the closure of production sites and particularly the peat substance of the energy peat production sites subject to closure, which are no longer financially viable to produce. The rest of the write-downs are allocated to the previously undepreciated infrastructure of the production sites subject to closure, primarily roads and water treatment systems.
In 2019, the demand for Vapo’s energy peat in Finland declined by 20 per cent compared to the previous year. The rate of decline has remained the same this year, and forecasts indicate that this trend will continue. Vapo produced energy peat at appr 300 production sites in Finland in 2019 and over 150 production sites in 2020. Next year, the plan is to have less than 50 energy peat production sites in operation. The Group estimates that, in 2025, Vapo’s energy peat production volume will be only 30 per cent of the production volume in 2019. In 2020, Vapo Group’s own use of energy peat, i.e. sales of energy peat to Nevel Oy, will be well under 10 per cent of Vapo’s total sales of energy peat.
Vapo to commence a cost saving programme in Finland
Vapo Oy will commence a cost saving programme in Finland. The target is to achieve total cost savings of EUR 25 million during next two, three years in the energy peat production organisation in Finland, in Fuel operations and the Group’s support functions. As one part of the cost saving programme, the Group will commence a negotiation procedure for financial and production reasons pursuant to the Act on Co-operation within Undertakings in the SCM organisation, which is in charge of energy peat production, in Fuel operations and in the Group’s support functions. The negotiations concern a total of 182 employees. The negotiations are estimated to lead to a reduction of 25 person-work-years at most. The negotiations will begin on 23 November 2020, and they are expected to last beyond the turn of the year. The degree to which the necessary reductions in employment can be achieved through retirements, natural attrition and redeployment within the Group will be assessed as the negotiations progress.
According to CEO Vesa Tempakka, the speed of the decline in the demand for energy peat has taken everyone by surprise. As production volumes decrease, the unit costs of production rise sharply. Barring measures to improve competitiveness, this could compromise other areas of operation in addition to energy peat production. “We will do everything we can to reduce the pressure on our personnel by continuing to seek savings in all areas of our operations. Over a period of two years, we have improved the Group’s operational efficiency by about EUR 30 million. Unfortunately, this is not enough, and we need to ensure our short-term competitiveness in order to operate profitably in the long run,” Tempakka says.
Tempakka notes that Vapo is not alone in facing the consequences of the phasing out of energy peat. It is important that support measures by the EU and the Finnish Government are aimed at the industry as a whole and the subcontracting chain in particular. “Over the course of a couple of years, the number of jobs lost in the industry will be tens of times higher than the number of jobs lost within Vapo’s organisation due to the reduction in energy peat production,” Tempakka adds.
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