Profitability of the Vapo Group normalizing

The turnover of the Vapo Group in the January-March period was EUR 222.9 million (EUR 242.4 million in January-March 2011). The drop in turnover is attributable almost entirely to warmer weather and lower market price of electricity than in the reference period, which cut demand for energy peat, energy wood, pellets and heat. Production of sawn timber was almost at the level of the reference period, but a five per cent drop in prices reduced turnover. Group operating profit was EUR 21.4 million (EUR 24.2 million). Operating profit includes one-off revenues of EUR 5.2 million.

This year, exceptionally, the heating season began only in mid-January. Because of this, energy peat deliveries by the Vapo Group were over one fifth lower than the reference period. The turnover of the Vapo Biofuels business area was EUR 111.1 million (EUR 121.5 million) and operating profit was EUR 19.7 million (EUR 22.7 million). Turnover was also reduced by the low market price of electricity, as a result of which electricity-generating energy customers hardly generated electricity from peat. Energy peat deliveries totalled 5.7 TWh (7.4 TWh). Turnover from environmental peat was at the reference period level. 

The warm weather and low electricity prices were also reflected in the turnover and profitability of the Vapo Bioheat business area. 

The turnover of Vapo Timber, which is part of the Vapo Wood Products business area, was EUR 27.0 million (EUR 30.4 million) and the operating loss was EUR 2.9 million (EUR -0.7 million). Sawn timber production was only two per cent lower than the reference period, but sawn timber sales prices dropped by five per cent. An increase in raw material prices of around 2 per cent also weighed on profitability. 

Deliveries of pellets decreased by five per cent to 217,000 tonnes and turnover decreased by 12 per cent to EUR 38.4 million (EUR 43.8 million). The price level of pellets was in decline, particularly in the Swedish market. Due to operational optimization measures, the operating loss declined in spite of the economic backdrop to EUR 1.1 million (EUR -1.6 million). 

The turnover of the Vapo Environment business increased by 10 per cent to EUR 22.8 million (EUR 20.8 million). The operating result was EUR 3.3 million (EUR 1.0 million), including an insurance indemnity of EUR 2.6 million for the fire at the Eurajoki garden peat plant. The growth in turnover was attributable especially to growth in consumer sales in Norway and Sweden.

Efficiency-enhancing measures are in progress

At the end of the year the Vapo Group launched efficiency-enhancing measures to improve profitability. Gross investments by the Group were EUR 11.0 million, i.e. less than half of the investments in the reference period (EUR 23.9 million). With fuel deliveries in the warm autumn and early winter well below the reference year, Group free cash flow was EUR 52.0 million (EUR 69.0 million). Interest-bearing net debt was EUR 373.5 million (EUR 363.7 million). At the end of 2011, net debt was EUR 416.7 million. The Group’s equity ratio was 35.6% (39.8%). At the end of 2011 equity ratio was 33.8%. 

The company employed an average of 1155 persons (1303). Staff numbers have declined due to natural wastage, and additionally the employee consultations that ended in February led to a reduction of almost 60 person work years. 

According to CEO Tomi Yli-Kyyny, the warm weather, the low market price of electricity and a weaker sawn timber cycle than in the reference period were clearly reflected in the company’s turnover and result. These overshadowed the comprehensive round of efficiency-enhancement measures. “The cost reduction decisions we have taken, the cut in investments and enhanced efficiency in the organization are designed to produce a much bigger cash flow and lasting improvement in earnings”. 

According to Yli-Kyyny, in the current year Vapo will focus especially on growing cash flow and strengthening the balance sheet by paying down debt. Moreover, the company is prepared to sell off non-core assets in order to achieve these financial targets and finance increasing environmental investments.

 Operating profit and cash flow for the full year are expected to improve clearly. Turnover and earnings for the full year will be crucially affected by the success of peat production, which is dependent on the summer weather, and the duration of the autumn heating season. 

For further information please contact:

• Tomi Yli-Kyyny, CEO, Vapo Oy, tel. +358 20 790 5605
• Jyrki Vainionpää, CFO, Vapo Oy, tel. +358 20 790 5609
• Ahti Martikainen, Director, Communications and Public Affairs, Vapo Oy, tel. +358 20 790 5608