Jump to content

Impairments devastated Vapo’s result, Vapo increases environmental investment and initiated an improvement programme

Year 2011 in summary

  • Turnover of the Group was €705.0 million (€719.5 million in 2010).
  • Free cash flow before taxes was €20.5 million (€-11.4 million).
  • Operating loss was €41.9 million (operating profit €39.4 million), operating loss before impairments was €4.5 million.
  • The most significant one-off item was impairment in pellet operations of €33.7 million.
  • Warm autumn and the low price of electricity, the weak economic situation of the sawn timber industry, and excess supply of pellets hampered the result, particularly in the second half of the year.
  • Management launched streamlining programme to significantly improve the profitability and cash flow.
  • The Group will invest over €30 million in water treatment over the next three years. In addition, the Group will increase investment in the restoration of production areas and post-production reserve by €5.8 million, to €9.3 million.
  • Equity ratio as of 31.12.2011 was 33.8 % (38.3 %).

Impairments devastated Vapo’s result, Vapo increases environmental investment and initiated an improvement programme

The year 2011 was hard for Vapo Group. Due to the weather conditions, peat production during the summer of 2011 fell below average. The Group’s peat production was below target, although there were great regional differences in production success rates. Towards the autumn, demand for sawn goods decreased, as did the prices, and saw mill operations started to make a loss. The warm temperatures during the autumn and the low price of electricity reduced peat and wood energy sales and the sale of pellets, as well as the company’s own district heating sales. 

2001 turnover was €705.0 million, i.e., 2 % below previous year (€719.5 million in 2010). Consolidated operating losses amounted to €41.9 million (operating profit €39.4 million). Free cash flow before taxes was €20.5 million (€-11.4 million).

The principal reasons for the poor result were impairments in pellet operations, amounting to €33.7 million, owing to the closure of three pellet plants and increased operating losses in pellet operations totalling €7 million. Additionally, the cost-effectiveness of energy wood supplies weakened further. The cost-effectiveness of the trade cycle-based saw mill operations also fell from the previous year by some €14 million. The ineffectual peat production season, together with the warm autumn and early winter, reduced the result of peat energy operations by €12 million. 

For Vapo Bioheat and Vapo Environment, the year was much like the previous one, although the results for both were hampered by non-recurrent impairments.  

The consolidated profit and loss account for 2011 consisted of non-recurrent impairments in the amount of €37.5 million. Impairments of €33.7 million were attributable to pellet operations inFinlandandSweden; €2.1 million to Bioheat operations inSweden; and €0.8 million to the closure of the Seda growth peat plant inSweden. Further, the financial statements include an income effect-based reserve of nearly €6 million for post-production use and restoration of production areas. 

In December, an improvement initiative was established by Vapo, whereby the aim is to achieve an annual cost saving of more than €10 million, together with a definitive and permanent strengthening of the cash flow. As part of the initiative, the Group will also improve the application of its capital funds and subcontracting, sell any assets not requisite to its core operations, reduce investment and subcontracting, and review prices. Through cut-backs in investments and the sale of assets, cash flow in 2012 will be improved by at least €20 million, in addition to the above-mentioned cost savings. 

The Group’s objectives for the current year are to achieve a free cash flow before taxes of €40 million and an operating profit of €40 million, as well as to reduce its indebtedness by the end of 2012. Pre-conditional assumptions to realise these objectives consist of an average peat production season and relatively normal weather conditions during this winter and next autumn. It is anticipated that demand for sawn timber products will, in the minimum, remain at current levels within the key market areas, i.e.Finland,North AfricaandCentral Europe. 

Consolidated key figures:




Turnover, € million



Operating margin (EBITDA), € million



Operating profit (EBITA), € million



Operating profit before impairments, € million



Result for the period, € million



Pre-tax free cash flow, € million



Return on invested capital %



Return on invested capital before impairments %



Return on equity %



Balance sheet total, € million



Shareholders’ equity, € million



Interest-bearing net debt, € million



Equity ratio %



Gearing %






Dividend distribution, € million



Dividend % of the profit






Avarage number of personnel

1 226

1 333

Year 2011 by segment:

Vapo Biofuels 

The operations of Vapo Biofuels in 2011 inFinlandconsisted of Vapo Oy’s energy and environmental peat operations, pellet operations, wood energy and energy crops. InSweden, the operations consisted of energy wood and pellet operations by Neova Ab, a wholly owned subsidiary of Vapo and, in the Baltic region, peat-based operations were carried out by AS Tootsi Turvas, a wholly owned subsidiary of Vapo. 

Demand for Vapo Biofuels’ products – peat, wood and pellets – was good in the early part of the year, but fell notably during the autumn of 2011. Demand for environmental peat, however, remained high. Turnover for the business area was €429.3 million (€437.8 million) and operating result €-18.2 million (€39.3 million). The profit before impairments, applied to pellet operations, was €15.5 million. 

Peat production in Finlandduring the summer 2011 fell almost 30 % short of the target, due to the weather conditions. Production in Swedenand in the Baltic region succeeded almost as planned. Overall, the Group produced 20.7 million m3 (24.4 million m3) of peat, of which the volume produced in Finland was 17.7 million m3 (20.1 million m3). The share of environmental peat of the whole production was approximately 3 million m3, i.e. almost 15 %. 

Turnover in respect of energy peat was €209.3 million (€222.7 million), with an operating profit of €30.9 million (€44.3 million). Energy peat supply inFinlandtotalled 16.9 TWh (18.9 TWh) and in Sweden 1.3 TWh (1.6 TWh). Demand for energy peat was reduced by the warm autumn weather and low electricity price, as a consequence of which, at the end of the year, there was no peat-generated condensing electricity production. Cost-effectiveness was also reduced as, due to the low production levels, fixed costs burdened financial viability during the final quarter more than usual.  

Turnover for environmental peat operations amounted to €37.9 million (€34.0 million) and operating profit to €3.9 million (€4.4 million). 

Turnover for wood energy and energy crops was €74.0 million (€66.1 million), with an operating result of €-6,2 million (€-3.2 million). The main reasons behind financial inviability were in the high acquisition cost of the existing wood stocks, compared with the sale price, and increased cargo transportation costs. Energy wood supply exceeds demand both inFinlandandSweden, and the cost-effectiveness of the sector is poor. Therefore, the company has cut down on its energy wood business inSweden, and will also downsize this activity inFinland. 

There is no change predicted in the near future to the supply in excess of demand position in the pellet markets, or in respect of the falling price trend in Sweden and Central Europe’s export markets, and so the company decided in October to cut down production and close, among others, three pellet plants in Finland. The company’s production capacity will be adjusted to correspond with demand, from the previous 900 000 tons to 500 000 tons. Turnover for pellet operations was €108.1 million (€115.0 million) with an operating result of €-47.2 million (€-6.2 million). 

Vapo Bioheat 

Turnover for this business area was €110.6 million (€105.7 million) with an operating profit of €1.0 million (€5.0 million), following impairments applied to the Swedish operations in the amount of €2.1 million. Supply of heating and electricity to customers totalled 1.8 TWh (1.8 TWh), with electricity sales volumes totalling 0.3 TWh (0,3 TWh). Vapo Bioheat owns 6 power plants and 151 heating plants inFinland,Sweden,EstoniaandPoland. Of these, 8 were opened in 2011. 

Vapo Timber 

The business area of Vapo Timber incorporates saw mills in Hankasalmi, Lieksa Kevätniemi and Nurmes. Of the total production by Vapo Timber, approximately one third is sold inFinland, one third is exported toNorth Africaand theMiddle East, and the remainder exported mainly toCentral EuropeandGreat Britain. In the course of the year, Vapo disposed of its Peuravuono saw mill operations, situated in theprovince of Inari.

The year 2011 was challenging for the sawn timber industry. The cost of raw materials rose by 6 %  in the course of the year, and the average sale price fell by 7 %. The cost-effectiveness of saw mills fell towards the end of the year and, in December, production cut-backs were introduced at two saw mills. Demand was reduced inFinlandby the modest rate of construction and, in the spring, the unrest inNorth Africa, as well as the financial crisis prevailing in Europethroughout the year. 

Turnover for this business area was €121.3 million (€135.4 million), with an operating loss of €9.3 million (operating profit €7 million). The total supplies of sawn goods amounted to 533 000 m3 (538 000 m3). In the course of the year, a significant new production line investment was made by Hankasalmi saw mill, which will improve the efficiency and cost-effectiveness of the operational area going forward.


Vapo Environment


Vapo Environment, inFinland, consists of Kekkilä Oy and the compost production company, Mustankorkea Oy. The business area’s products are sold inSwedenand other Nordic countries under the brand name ofHasselforsGarden. The operations incorporate garden products for consumers, professional farmers and landscapists, as well as compost-producing environmental management. 

The Vapo Environment business area exports to some 60 countries. Around 40 % of turnover is derived from consumer business, 25 % from professional growing business, some 15 % from environmental management and approximately 15 % from park business.


Turnover for Vapo Environment was €101.9 million (€93.8 million), with an operating profit of €2.4 million (€7.1 million) following impairments at €0.8 million. The reduction in cost-effectiveness was mainly due to increased competition within the Finnish consumer markets, rise in costs, and additional administration costs resulting from the production plant fires in Eurajoki in 2010 andNiib,Estonia, in the spring of 2011. Production was temporarily transferred to other plants, resulting in additional costs, but enabled all crucial customer orders to be met during the spring season.


Turnover by segment

€ Million




Change %





















Inter-segment turnover





Group total






Segment turnover includes internal sales to other segments.

Operating result by segment

€ Million




Change %





















Other operations





Group total






The calculation of intra-group inter-segment transactions has been valued on the basis of market prices



Investment and financing


Gross investment by Vapo Group amounted to a total of €94.5 million (€80.9 million). Around half of the investment was directed at the acquisition of peat production land and preparation for production. Other significant investments during the year consisted of a new production line installation, at a cost of nearly €10 million, at Vapo’s Hankasalmi saw mill, 8 new heating and pellet heating plants at a total cost of some €10 million, and an investment of €5 million to complete the Eurajoki growth peat production plant. 


In December, Vapo Oy increased its shareholding in the timber procurement company, Harvestia Oy, from the previous 30 percent to 45 percent.


In June 2011, Vapo issued the first bond in its corporate history. The nominal value of the loan is €100 million, with the coupon interest rate of 4.25 %. The bond was well-received in the markets and, as a result of the issue, the maturity division of interest-bearing liabilities was significantly extended.



Management and personnel


CEO of Vapo, for the first quarter, was Matti Hilli (M.Tech.). His successor is Tomi Yli-Kyyny (M.Tech.).


In 2011, Vapo Group’s employees, on average, totalled 1 226 persons (1 333). The volume of personnel based inFinlandwas 783 (833), and overseas 443 (500).


Events after the financial period


In the beginning of 2012, the Vapo Timber business area was renamed as Vapo Wood Products. Simultaneously, Vapo Pellets was moved from the Vapo Biofuels business area into an independent business line, under Vapo Wood Products. This reorganisation will not affect the judicial structure of the Group.


In addition to the cost-cutting initiative published in December 2011, the company, in January 2012, commenced negotiations, pursuant to the law governing cooperation between the employer and employees within companies, to reduce personnel costs for reasons of operational and financial efficiency. The negotiations involve Vapo Group’s operations inFinland, which has some 800 employees, in total.


Overall, the company seeks savings in personnel costs equating to around 90 man years’ salaries. Along with offers of transfer, Vapo aims to minimise losses to its staff by offering voluntary subsidy packages to employees who face redundancy. The negotiations are expected to conclude by the end of February.


CEO Tomi Yli-Kyyny’s comments about the financial statements


”The first half of 2011 did not yet show the structural vulnerability of Vapo Group to the weather conditions or the trade cycle. The extended cold spell in the spring maintained energy demand at a high level, and there was no encumbrance, at that stage, over the slump in the sawn timber industry. The poor peat production season in the summer, supply in excess of demand of pellet and energy wood, recession in the sawn timber products market, and an exceptionally warm autumn forced the company to reconsider its strategy and improvement measures with an entirely fresh approach,” said Tomi Yli-Kyyny, CEO.


”Once the problems were identified, the company carried out the necessary and essential impairments, and implemented measures to improve cost-effectiveness and cash flow.  I am fully confident that the results of the company will be turned around, towards a positive outlook, in the course of this year. This is the second biggest challenge facing the company. The biggest challenge, without a doubt, is the company’s reputation over environmental issues,” Mr Yli-Kyyny said.


According to Mr Yli-Kyyny, the development of the company’s environmental responsibility, quickly and openly, to a world-class standard, is the best and only way to ensure continued availability of energy peat to our customers in the future. In December, Vapo published an initiative whereby it will invest, over the next three years, €30 million in improved water treatment systems, as well as establishing a procedure for exchanging bogs with a high environmental value or selling the bogs for conservation purposes, improving the monitoring of water treatment in its production areas, and increasing openness and interaction with all interested parties.


”The December initiative is a highly significant change in the company’s operating policy, and it will be implemented as planned”, says Mr Yli-Kyyny.



”Even though we are faced with enormous economic challenges and must cut down on a number of growth investments, we have decided that we will not hold back over environment-related investments. In fact, to the contrary. The latest accounts include an additional reserve of nearly €6 million, which will be invested in the restoration of bogs removed from production. The reserve will be utilised by restoring bogs post-production e.g. back into bogland, wetland or bird lakes”, states Yli-Kyyny. ”The reserve is connected with the commitment made in December, and will see all of Vapo’s production bogs within the scope of best water treatment practice by the end of 2014. Any bogs where the installation of upgraded technology is not possible will be removed from peat production, restored or utilised post-production in some other way, as quickly as possible. The need for restoration is also emphasised by the natural life cycle of peat land due for removal from production, totalling some 2 500 hectares”, Mr Yli-Kyyny states.


Further information:

– CEO, Tomi Yli-Kyyny, Vapo Oy, tel. 020 790 5605

– CFO, Jyrki Vainionpää, Vapo Oy, tel. 020 790 5609

– Director, Media and Public Relations, Ahti Martikainen, Vapo Oy, tel. 020 790 5608