Vapo Group Interim Report 1 May–31 December 2018

 

The second tertile of the year in brief:

September–December 2018:

• Group turnover in September–December 2018 was EUR 134.1 million (EUR 132.6 million in September–December 2017)
• The operating margin (EBITDA) was EUR 24.8 million (EUR 19.5 million), or 18.5% (14.7%) of turnover
• The operating profit (EBIT) was EUR 14.6 million (EUR 9.4 million), or 10.9% (7.1%) of turnover, including EUR 0.2 million (EUR 2.1 million) of non-recurring income
• Earnings per share were EUR 420 (EUR 234)
• Free cash flow before taxes was EUR 15.0 million (EUR 11.4 million)
• Investments were EUR 16.9 million (EUR 11.3 million)

May–December 2018:

• Group turnover in May–December 2018 was EUR 224.9 million (EUR 227.9 million in May–December 2017)
• The operating margin (EBITDA) was EUR 32.1 million (EUR 24.3 million), or 14.3% (10.7%) of turnover
• The operating result (EBIT) was EUR 4.1 million (EUR -0.6 million), or 1.8% (-0.2%) of turnover, including EUR 1.5 million (EUR 2.5 million) of non-recurring income
• Earnings per share were EUR 138 (EUR -93)
• The pre-tax return on invested capital (pre-tax ROIC) was 5.1% (3.1%)
• Free cash flow before taxes was EUR -12.4 million (EUR 13.0 million)
• Investments were EUR 27.5 million (EUR 21.8 million)
• The equity ratio on 31 December 2018 was 49.5% (47.5%)
• Interest-bearing net debt on 31 December 2018 was EUR 260.9 million (EUR 266.2 million)
• The ratio of interest-bearing net debt to operating margin (net debt/EBITDA) on 31 December 2018 was 3.8 (4.7)

Good progress in strategy execution and improved profitability

The Group’s turnover in the second tertile of the financial year (September–December 2018) amounted to EUR 134.1 million (EUR 132.6 million in September–December 2017). Turnover developed favourably during the period particularly in the energy business. Growth in sales was mainly derived from the strong demand for biofuels. The sales of land areas released from production were carried out as planned.

In terms of profit performance, the second tertile of the financial year was a good period for almost all of our businesses. The Group’s operating profit in during the second tertile of the financial year (September–December) was EUR 14.6 million (EUR 9.4 million). Profit was boosted by a year-on-year increase in sales as well as successful peat production, which improved profitability through a substantial reduction in unit costs in production operations. The successful production season was a particularly significant factor in the improved operating margin. The operating margin was EUR 24.8 million (EUR 19.5 million). Profit for the period was EUR 12.7 million (EUR 7.0 million).

The Group’s cash flow during the reporting period amounted to EUR 15.0 million (EUR 11.4 million). The improvement in cash flow was enabled by the improved operating margin and moderate investments.

CEO Vesa Tempakka:

“Vapo Group’s renewal is progressing in line with our strategy – the significance of energy peat is decreasing”

“The Group’s operational activities were at least satisfactory in all business areas. Our profitability has improved and we have kept costs under control in spite of significant new investments.

During the exceptionally dry summer of 2018, we decided to produce energy peat for our stockpiles at an amount that slightly exceeds the near-term requirements. This decision had the short-term effect of increasing our balance sheet and reducing cash flow, but it improved our delivery reliability — which is important for our customers — and increased potential future cash flows. Our goal remains to decrease working capital and reduce debt, although the Group’s transformation and expansion into new business areas will increase investments in the next few years.

The new organisational structure consisting of international divisions, implemented at the beginning of May, and enhancing the Group’s shared functions have proved to be an effective way of putting the new business strategy into action.

A year ago, we defined our objectives as strengthening our position in the international growing media market, developing new refined products using our peat resources and shifting the focus of our energy business from fuels to energy solutions and services. We have moved towards each of these goals and our progress has been even faster than expected in some of them.

The transaction we announced in October with the Dutch company BVB Substrates was finalised shortly after the end of the review period. The company created by the merger, Kekkilä-BVB Oy, is the European leader in its industry and it exports products to more than 80 countries. The merger also means that the Grow&Care division’s turnover will represent nearly half of the Group’s total turnover in the future.

The Energy division and Vapo Lämpövoima Ky, which was established in partnership with OP Group in spring 2018, have both invested in the area of customized energy solutions according to our strategy.

We announced an investment of very high strategic significance right at the end of the calendar year. We will build the first production facility for producing activated carbons from peat in Ilomantsi in eastern Finland.

All of the measures mentioned above are intended to increase the non-energy use of peat, which will ensure Vapo Group’s profit performance in our changing operating environment. The decisions that have already been made will lead to a decline in the share of the Group’s turnover represented by energy peat sales. We estimate it will account for approximately 20% of total turnover in the next financial year, compared to 25% in the current financial year. However, we do want to maintain and grow our sales of peat and other local fuels to our customers, and our aim is to primarily reduce our dependence on energy peat by increasing our turnover from other businesses,” says CEO Vesa Tempakka.

Outlook for the remainder of the financial year, to 30 April 2019

Vapo Group is one of the world’s largest producers of energy peat and environmental peat. The company holds an important role in ensuring Finland’s self-sufficiency in energy and the security of supply. Political decisions have a substantial impact on the profitability of Vapo’s business operations and its capacity to make investments.

Vapo Group’s comparable turnover is estimated to be at the same level as, or slightly lower than, in the previous financial year, provided that the normal winter conditions continue and the coming spring is not exceptionally warm. The Group’s operating profit will be improved by the successful peat production of the previous summer. The comparable operating profit for the full financial year is expected to be on a par with the previous year or slightly higher. The new businesses will not yet generate significant turnover during the current financial year.

Consolidated key figures
MEUR	9–12/2018	9–12/2017	5–12/2018	5–12/2017	5/2017–4/2018
Turnover	134.1	132.6	224.9	227.9	419.8
Operating profit (EBIT)	14.6	9.4	4.1	-0.6	26.3
% of turnover	10.9	7.1	1.8	-0.2	6.3
Operating profit (EBIT) before impairments	14.6	9.4	4.1	-0.6	27.2
% of turnover	10.9	7.1	1.8	-0.2	6.5
Profit/loss for the period	12.7	7.0	4.2	-2.8	17.6
Operating margin (EBITDA)	24.8	19.5	32.1	24.3	61.1
+/- Change in working capital	0.6	0.7	-24.6	7.6	37.6
– Net investments	-10.4	-8.9	-19.9	-18.8	-25.0
Free cash flow before taxes	15.0	11.4	-12.4	13.0	73.6
Investments	-16.9	-11.3	-27.5	-21.8	-31.3
Return on invested capital % *			5.1	3.1	4.3
Return on invested capital % before impairments *			5.3	3.5	4.4
Return on equity % *			7.2	3.6	5.2
Balance sheet total			716.5	723.4	697.5
Shareholders’ equity			340.5	329.3	347.9
Interest-bearing net debt			260.9	266.2	206.2
Equity ratio %			49.5	47.5	51.2
Interest-bearing net debt/operating margin			3.8	4.7	3.4
Gearing %			76.6	80.9	59.3
Personnel on average			773	764	758
*) Previous 12 months
**) In calculating the equity ratio, the capital loan on the balance sheet was calculated as shareholders’ equity

The information presented in this Interim Report is unaudited.

For further information, please contact:

• Vesa Tempakka, CEO, Vapo Oy, tel. +358 20 790 5999
• Jarmo Santala, CFO, Vapo Oy, tel. +358 20 790 5991
• Ahti Martikainen, Director, Communications and Public Affairs, Vapo Oy, tel. +358 20 790 5608

 

Full Interim Report from this link.