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Neova Interim Report January–September 2023

Neova Interim Report January–September 2023

The third quarter remained difficult due to the market situation. Demand for growing media, in particular, fell from the previous year. New measures aiming to improve profitability were published during the quarter, but their impact had not yet materialised during this reporting period. Demand for fuel during the third quarter remained lower than in the previous year.

July–September 2023 in brief:

  • Group turnover was EUR 81.1 million (EUR 86.6 million).
  • The operating margin (EBITDA) was EUR -0.1 million (EUR 2.1 million), or -0.1% (2.4%) of turnover.
  • The comparable operating margin (EBITDA) was EUR 1.1 million (EUR 5.3 million). EBITDA included non-recurring items in the amount of EUR -1.2 million (EUR -3.1 million).
  • The operating loss was EUR -9.0 million (EUR -5.3 million), or 11.1% (6.1%) of turnover, including EUR -1.1 million (EUR -3.1 million) in non-recurring items.
  • Free cash flow before taxes was EUR -2.7 million (EUR -80.2 million).

January–September 2023 in brief:

  • Group turnover amounted to EUR 373.5 million (EUR 421.3 million), and comparable turnover was EUR 373.5 million (EUR 393.0 million), taking the transfer of the fuel wood business to an associated company into account.
  • The operating margin (EBITDA) was EUR 27.7 million (EUR 38.3 million), or 7.4% (9.1%) of turnover.
  • The comparable operating margin (EBITDA) was EUR 34.2 million (EUR 42.0 million). EBITDA included non-recurring items in the amount of EUR -6.5 million (EUR -3.9 million), mainly related to the previously announced closure of production plants.
  • Operating profit was EUR 0.5 million (EUR 18.7 million), or 0.1% (4.4%) of turnover, including EUR -10.0 million (EUR -1.9 million) in non-recurring items that were mainly related to the previously announced closure of production plants.
  • Free cash flow before taxes was EUR 15.6 million (EUR -55.8 million).
  • Gross investments were EUR 25.1 million (EUR 136.6 million).
  • Earnings per share were EUR -108.1 (EUR -55.1).
  • The ratio of interest-bearing net debt to operating margin (net debt/EBITDA) was 3.7 (2.9).
  • Return on invested capital (previous 12 months): 2.6 (1.0).

The figures in brackets refer to the corresponding period in 2022 unless otherwise stated.

CEO Vesa Tempakka:

The appeal of the heating fuel market was no longer able to compensate for decreasing demand in the growing media markets

The operating environment during the third quarter of 2023 did not cause any changes in the situation, which has already persisted for several quarters now. The growing media market continued to decrease, and there were no signs of a market recovery. The consumer market showed a particularly significant downward trend during the third quarter. The landscaping market was at the comparative quarter’s level, while the market for professional growers decreased slightly. The third quarter is typically the slowest of the year in fuel markets. However, the approaching winter and uncertainties in international energy markets had a positive impact on customer behaviour and the accrual of orders.

The Grow&Care division’s sales in the third quarter were approximately 1% lower than in the previous year. However, the decrease of almost 10% in the volume of sold products is a better indicator of the market situation. The cost savings achieved during the first part of the year served to slightly offset the decreased sales volume, while prices could not be increased to any significant extent in this market situation. Kekkilä-BVB already took measures in spring to adapt its production volumes to lower demand. During the second quarter, Kekkilä-BVB closed its Haukineva growing media production plant in Finland and another growing media production plant in Bredaryd in Sweden. In August, Neova and Kekkilä-BVB initiated additional efficiency measures in eight operating countries to improve the company’s profitability by EUR 30 million during 2023 and 2024. Of this amount, some EUR 10 million will be achieved by cutting personnel costs, and EUR 20 million through other efficiency measures.

In the Fuels&Real Estate Development division, fuel delivery volumes were lower than in the comparative period. The price levels of energy peat and pellets were significantly higher than during the comparative period. Combined with lower fixed costs, this led to an improvement in the division’s operating margin.

Last summer’s peat production proceeded very well until midsummer, after which weather conditions became less favourable in all Neova’s production countries, with overall peat production falling slightly short of the total goal. The volume of horticultural peat is sufficient to meet next year’s needs, while demand for energy and sod peat will probably exceed their supply.

Neova has started to grow reed canary grass in an area of more than 1,000 hectares. It is mainly grown in peat production areas that are no longer in production and used as a renewable raw material in various growing media products. Currently, growing trials are in progress with several professional growers to test the usability and mixing ratios of reed canary grass in industrial-scale greenhouses. Decisions on the next season’s growing area will be made based on these trials.

Kekkilä-BVB’s goal is to double the volume of recycled and renewable materials used in growing media by 2027.

The commissioning of Novactor’s production plant in Ilomantsi started during the third quarter.

Events after the review period 

On 24 October 2023, Neova announced that it had completed the cooperation negotiations and similar processes in eight of its operating countries, resulting in the reduction of 85 positions globally and causing significant changes in the tasks of 70 employees. The company seeks to improve its operational efficiency by roughly EUR 30 million during 2023 and 2024.

During the cooperation negotiations and similar processes, the modernisation of Kekkilä-BVB’s operating model and organisation, which aims to improve its efficiency was processed. In the new operating model, Kekkilä-BVB’s operations are divided into four business areas: Central Europe, which covers operations in Central Europe; Nordics, which covers the Nordic and Baltic markets; Global, which covers global operations; and Materials, which covers the wholesale of horticultural peat and sales of bedding materials. The new model slims down the organisation, accelerates decision making, and better addresses customer needs in different markets. The new organisation and operating model will enter into force on 1 January 2024.

Outlook for the remainder of the financial year to 31 December 2023

Based on the development of demand at the beginning of the year, uncertainties are expected to continue in the markets until the end of this year. Regardless of price increases, the comparable turnover is expected to fall short of the previous year’s level, mainly due to the decrease in sales volumes, while the comparable operating margin is expected to decrease, mainly as a result of Kekkilä-BVB’s market situation and general cost inflation. In the fuel business, demand is expected to remain high.

It is expected that the decrease in consumers’ purchasing power through inflation and rising interest rates will have a significant negative impact on the Group’s operating environment this year. This will also cause delays in new project investments made by our professional grower customers.

Consolidated key figures     
EUR million7–9/20237–9/20221–9/20231–9/20221–12/2022
Operating profit/loss (EBIT)-9.0-5.30.518.729.2
% of turnover-11.1-
Operating profit/loss (EBIT) before impairment-0.9-
% of turnover-1.1-
Comparable operating profit/loss (EBIT)-7.9-2.110.520.620.4
Profit/loss for the period-7.312.3-3.32.618.6
Operating margin (EBITDA)-
Comparable operating margin (EBITDA)1.15.334.242.052.1
+/- Change in working capital6.819.510.219.848.4
   – Net investments9.4101.922.2114.7-136.7
Free cash flow before taxes-2.7-80.215.6-55.8-41.5
Gross investments9.6104.425.1136.6167.5
Return on invested capital % *
Return on invested capital % before impairment *
Return on equity % *  -
Total assets  701.9737.7810.3
Shareholders’ equity  291.3294.1311.2
Interest-bearing net debt  135.2145.8140.0
Equity-to-assets ratio %**  41.740.038.7
Interest-bearing net debt/EBITDA
Gearing %  46.449.645.0
Average number of employees  950969958
*) Previous 12 months     

More information:
      ▪ Vesa Tempakka, CEO, Neova, tel. +358 40 072 6727
      ▪ Jarmo Santala, CFO, Neova, tel. +358 40 801 9191
      ▪ Ahti Martikainen, Director of Communications and Public Affairs, Neova, tel. +358 40 680 4723