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Vapo Oy Interim Report 1 May–31 December 2016


The second third of the year in brief: 

September–December 2016: 

  • Group turnover in September–December 2016 was EUR 130.5 million (EUR 153.1 million in September–December 2015).
  • The operating margin (EBITDA) was EUR 18.5 million (EUR 20.7 million), or 14.2% (13.5%) of turnover.
  • The operating profit (EBIT) was EUR 8.5 million (EUR 3.3 million), or 6.5% (2.2%) of turnover. The operating profit includes one-off income in the amount of EUR 0.4 million (one-off expenses of EUR 7.2 million).
  • Free cash flow before taxes was EUR -0.1 million (EUR 0.3 million).
  • Gross investments were EUR 13.9 million (EUR 13.3 million).
  • Net investments were EUR 7.2 million (EUR 12.2 million).
  • 3.8 TWh of energy peat was delivered (3.6 TWh). 

May–December 2016:

  • Group turnover in May–December 2016 was EUR 218.4 million (EUR 277.2 million in May–December 2015).
  • The operating margin (EBITDA) was EUR 24.3 million (EUR 22.4 million), or 11.1% (8.1%) of turnover.
  • The operating profit (EBIT) was EUR -0.5 million (EUR -9.5 million), or -0.2% (-3.4%) of turnover. The operating profit includes one-off income in the amount of EUR 1.4 million (one-off expenses of EUR 7.2 million).
  • The pre-tax return on invested capital (pre-tax ROIC) was 2.6% (2.4%).
  • Free cash flow before taxes was EUR 16.1 million (EUR 18.6 million).
  • Gross investments were EUR 26.2 million (EUR 26.7 million).
  • Net investments were EUR -1.3 million (EUR 11.8 million).
  • The equity ratio on 31 December 2016 was 42.7% (35.7%).
  • Interest-bearing net debt on 31 December 2016 was EUR 316.8 million (EUR 412.1 million).
  • The ratio of interest-bearing net debt to EBITDA (net debt / EBITDA) on 31 December 2016 was 7.0 (7.1).
  • 5.3 TWh of energy peat was delivered (5.5 TWh). 

Tomi Yli-Kyyny, CEO: Improving profitability enables investments in digital services to enhance the customer experience

The Group’s turnover in the second third of the financial year (September–December 2016) was EUR 130.5 million (EUR 153.1 million). The turnover in the comparison period included EUR 30.5 million in turnover from the divested sawmill business. The early winter was slightly colder than in the previous year, which was reflected in higher turnover in the energy business. Kekkilä’s sales improved year-on-year, particularly due to strong demand for products aimed at professional growers.

The Group’s operating profit for the second third of the year was EUR 8.5 million (EUR 3.3 million). The company has improved the efficiency of its operations by seeking cost savings throughout the production and supply chain, releasing funds from non-core balance sheet items and reducing the amount of capital tied up in operations by, for example, lowering inventory levels. At the end of October, the company issued a EUR 50 million hybrid bond. The funds raised were used to strengthen the company’s balance sheet and prepare for future strategic growth investments. The hybrid bond issue was well received by the market and it was oversubscribed six-fold. 

The Group’s cumulative turnover in May–December 2016 was EUR 218.4 million (EUR 277.2 million). The sawmill business accounted for EUR 58 million of the turnover in the comparison period. The cumulative operating result improved substantially from the comparison period, to EUR -0.5 million (EUR -9.5 million). The result for the comparison period includes the operating loss of the sawmill business, EUR 1.7 million, and the EUR 7.0 million write-down recognised in conjunction with the divestment of the sawmill business. The Group’s cumulative result after financial items and taxes was EUR 4.6 million (EUR -2.7 million), which includes gains from foreign exchange differences in the amount of EUR 0.9 million (EUR -1.9 million). 

The company continued to clarify its Group structure in the second third of the year. One of the most significant changes was the sale of a 45% stake in Harvestia Oy to Powerflute Oyj. The negotiations were completed during the reporting period and the transaction took effect on 2 January 2017. 

Vapo has identified its strategic focus area as enhancing the customer experience by leveraging the opportunities presented by digitalisation in customer service, delivery optimisation and marketing. During the review period, Vapo Oy carried out a complete redesign of its online store for pellet and litter products, and opened an entirely new kind of electronic service portal for district heating customers. 

Vapo Oy’s enhanced pellet services offer consumer customers a more flexible and cost-efficient way to order and buy high-quality Finnish pellets. The new electronic service portal for district heating customers is based on hourly consumption data, which facilitates the provision of real-time property-specific consumption information. The portal makes it possible for district heating customers to optimise their district heating use and compare their consumption data against benchmarks such as the previous heating season, the budget or other similar properties. 

The most significant regulations and obligations that are in the decision stage at the EU level and affect Vapo Oy’s operating environment are the LCP BREF document related to large combustion plants (over 50 MW) and agreeing on the sustainability criteria concerning the energy use of wood in the next emissions trading period. In spite of the efforts of Finland and Finnish companies that use biofuels, the LCP BREF document (Large Combustion Plant Best Available Technique Reference Document) proposes substantially tougher limits on emissions arising from the combustion of biomass and peat. The use of domestic fuels is being promoted at the EU level, and it seems likely that countries that produce coal will have less strict emissions limits on their domestic brown coal, while Finland, Ireland and Sweden would not be granted a similar relaxation of emissions limits on domestic peat and wood. According to an estimate by Pöyry, this would result in hundreds of millions of euros in additional costs for Finland. 

The sustainability criteria governing the energy use of wood, on the other hand, are not expected to be subject to significant changes. The energy use of wood in solid fuel plants and as raw material for transport fuels will continue under the existing terms in the next emissions trading period. 

The Finnish Government published its energy and climate strategy to 2030 during the review period. In line with the Government Programme, the strategy states that Finland’s goal is to increase its self-sufficiency in energy to the current level of approximately one third to 55% by 2030, with the share of renewable energy rising to 50% during the same time frame. The strategy enables the continued energy use of peat at the current scale in the coming years. 

Study proves that peat production has not had an impact on sedimentation in Lake Martinjärvi 

The Geological Survey of Finland, the University of Jyväskylä and the University of Turku conducted a joint project to study sediment accumulation at the bottom of Lake Martinjärvi in Keuruu, Central Finland, in order to evaluate the impact of peat production on waterways. To identify the impacts of peat production, the researchers also took sediment samples from the neighbouring Lake Iso Kivijärvi. There is no peat production in its catchment area, but its sediments provide a record of other factors that have affected sedimentation in the lake’s catchment area. 

In contrast to what has been suggested in public debate, no massive impacts of peat production were observed in Lake Martinjärvi. Based on dating, the rate of increase in the thickness of sediment deposits has been quite similar in the two lakes. The increase in Cs-137 concentration caused by the Chernobyl fallout was found in gyttja at the depth of approximately 7–8 cm at all of the coring locations in Lake Martinjärvi. Americium 241 measurements from both lakes confirmed that the peak cesium concentrations have not migrated. This indicates that there has been no recent accumulation of several metres of sediment at the coring locations, as some have suggested. 

The recent accumulation of carbon and dry matter was also compared with long-term reference values for the same series of core samples at each of the two lakes. This was done to ensure that the natural rate of sedimentation at the coring locations has not distorted the results. Both lakes showed a recent increase in the rate of carbon and dry matter accumulation. In Lake Iso Kivijärvi, which served as the reference lake in the study, the rate of sedimentation had increased slightly faster than in Lake Martinjärvi. 

The study was published in the German scientific journal Environmental Earth Sciences.

Read more: Consolidated key figures

Outlook for the remainder of the financial year, to 30 April 2017 

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 turnover will be lower than in the previous financial year due to the divestment of the sawmill business. Of the turnover of EUR 460 million in the comparison period, the sawmill business represented EUR 63.5 million. The Group’s profitability is expected to improve due to the increased efficiency brought about by restructuring measures in the energy business and Kekkilä Group. The fuel market is not expected to see significant growth due to the low volume of electricity production from solid fuels. The new businesses will not yet generate significant turnover during the current financial year. 

For further information, please contact: 

Tomi Yli-Kyyny, CEO, Vapo Oy, tel. +358 20 790 5605

Suvi Kupiainen, CFO, Vapo Oy, tel. +358 20 790 5516

Ahti Martikainen, Director, Communications and Public Affairs, Vapo Oy, tel. +358 20 790 5608