Vapo Oy Interim Report 1 May–31 August 2018
The first third of the year in brief:
- Group turnover in May–August was EUR 90.8 million (EUR 95.4 million in May–August 2017).
- The operating margin (EBITDA) was EUR 7.3 million (EUR 4.8 million), or 8.1% (5.0%) of turnover.
- The operating loss was EUR -10.6 million (EUR -10.0 million), or -11.6% (-10.5%) of turnover.
- Free cash flow before taxes was EUR -26.5 million (EUR 1.7 million).
- Gross investments were EUR 10.6 million (EUR 1.7 million).
- Earnings per share were EUR -282 (EUR -327).
- Net debt/EBITDA: 3.7 (4.8)
- Equity ratio (%): 50.4 (49.3)
- Return on invested capital % (ROIC, previous 12 months) 4.3 (2.9)
CEO Vesa Tempakka: The new strategy is producing results
The Group’s turnover in the first third of the financial year (May–August 2018) amounted to EUR 90.8 million (EUR 95.4 million in May–August 2017). The exceptionally short gardening season meant that the Kekkilä Group’s sales to home gardeners were substantially lower than in the comparison period in both Finland and Sweden. The warm summer also reduced the Group’s fuel and heating sales in all markets.
The result for the energy business in the first third of the financial year showed a loss, as expected, as operations focused on fuel production in a period when customers’ heating demand was at its lowest. The Group’s operating loss for the first third of the financial year (May–August) was EUR -10.6 million (EUR -10.0 million). The result was negatively affected mainly by lower sales compared to the previous year, higher transport costs due to oil prices and substance depreciation arising from the good peat production season, which has a front-loaded effect on the operating result. However, the operating margin improved significantly, amounting to EUR 7.3 million (EUR 4.8 million). The result for the period was EUR -8.5 million (EUR -9.8 million). Lower net financial expenses had a positive effect on the result.
The Group’s cash flow during the reporting period amounted to EUR -26.5 million (EUR 1.7 million). After several years of low peat production, Vapo decided to take maximum advantage of the warm peat production season of summer 2018 and invested in working capital. Peat production in Finland, Estonia and Sweden even exceeded expectations, with the summer’s previously set production targets exceeded by a substantial margin in Finland and Estonia. While this is partly reflected in higher inventory levels, which has a negative effect on the Group’s key figures, the high-quality peat reserves ensure reliable fuel deliveries to customers beyond the upcoming heating season. The Group also has horticultural peat and bedding peat inventories to meet growing demand.
Vapo announced its new strategy and the structure that supports it in spring 2018. The early experiences of operating under a cross-border single company model have been positive both within the organisation and among customers. The strategy—which is aimed at growth in the international growing media business, increasing the share of services in the energy business and developing new products from peat and other natural materials—is perceived as inspiring and sustainable.
The Grow&Care division’s strategy matches several megatrends. Urbanisation and climate change are creating more demand for clean and plant-based local food. Peat’s qualities as growing media support sustainable food production and reduce water consumption in agriculture. Growing interest in well-being supports not only the professional growing business, but also more natural lifestyles. These trends will have a favourable impact on consumer demand as well as businesses related to recycling and landscaping.
The best feedback on the success of the strategy is the significant Kekkilä-BVB merger announced earlier this month and the very positive reception it has been met with in the markets.
The emphasis of the Vapo Energy division’s operations is on shifting the focus from fuels to customised energy solutions. After establishing Vapo Lämpövoima last spring, the Group now has the ability to participate in competitive bidding in the energy sector. This new operating model has also been well received by the market. The current offer book is substantially larger than in the previous years.
During the first third of the financial year, Vapo moved forward with projects aimed at producing activated carbon and new fibre products from peat. Both projects are progressing according to plan. The company is currently awaiting decisions from the authorities on environmental permits for a production plant for activated carbon.
The most significant changes in the operating environment during the review period were the substantially higher prices of emission rights and the unexpected decision to increase peat taxes. The market-based increase in the prices of emission rights leads to higher consumer prices for energy, and the recent increase in energy taxes on peat has the same effect. Both factors increase the risk related to the sufficient availability of wood suitable for processing.
One of the most important goals for this financial year is to complete the Kekkilä-BVB merger, which was announced earlier in October, during spring 2019.
Outlook for the remainder of the financial year, to 30 April 2019
Vapo Group’s turnover and profit is expected to improve year-on-year, provided that the Kekkilä-BVB merger is completed as planned at the beginning of 2019. Vapo Group’s comparable turnover is expected to be at the same level as, or slightly lower than, in the previous financial year, provided that the coming winter is normal in terms of temperature. The Group’s operating profit will be improved by successful peat production, and 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.
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Consolidated key figures |
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MEUR |
5–8/2018 |
5–8/2017 |
5/2017– |
5/2016- |
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Turnover |
90.8 |
95.4 |
419.8 |
392.1 |
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Operating profit (EBIT) |
-10.6 |
-10.0 |
26.3 |
20.0 |
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% of turnover |
-11.6 |
-10.5 |
6.3 |
5.1 |
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Operating profit (EBIT) before impairments |
-10.6 |
-10.0 |
27.2 |
22.4 |
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% of turnover |
-11.6 |
-10.5 |
6.5 |
5.7 |
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Profit/loss for the period |
-8.5 |
-9.8 |
17.6 |
8.1 |
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Operating margin (EBITDA) |
7.3 |
4.8 |
61.1 |
56.9 |
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+/- Change in working capital |
-25.2 |
6.8 |
37.6 |
14.7 |
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– Net investments |
-8.6 |
-9.9 |
-25.0 |
1.6 |
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Free cash flow before taxes |
-26.5 |
1.7 |
73.6 |
73.2 |
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Gross investments |
10.6 |
10.5 |
31.3 |
39.6 |
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Return on invested capital % * |
4.3 |
2.9 |
4.3 |
3.0 |
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Return on invested capital % before impairments * |
4.4 |
3.3 |
4.4 |
3.4 |
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Return on equity % * |
5.6 |
2.9 |
5.2 |
2.6 |
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Balance sheet total |
680.8 |
695.9 |
697.5 |
812.4 |
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Shareholders’ equity |
330.3 |
329.5 |
347.9 |
339.7 |
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Interest-bearing net debt |
233.9 |
270.6 |
206.2 |
269.6 |
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Equity ratio % |
50.4 |
49.3 |
51.2 |
43.0 |
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Interest-bearing net debt/operating margin |
3.7 |
4.8 |
3.4 |
4.7 |
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Gearing % |
70.8 |
82.1 |
59.3 |
79.4 |
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Personnel on average |
804 |
801 |
758 |
776 |
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*) Previous 12 months |
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**) In calculating the equity ratio, the capital loan on the balance sheet was calculated as shareholders’ equity |
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The information presented in this Interim Report is unaudited.
More information:
- 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 PR, Vapo Oy, tel. +358 20 790 5608