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Vapo’s result more than doubled from the previous year

Vapo Group Financial Statements and Board of Directors’ report 1 May 2016–30 April 2017

The financial year in figures:


Turnover, EUR million 392.1 459.8
Comparable turnover, EUR million 392.1 398.8
Operating margin/EBITDA, EUR million 56.9 43.1
Operating profit/EBIT, EUR million 20.0 8.6
*) comparable operating profit excluding one-off items and the effect of divested businesses, EUR million 23.2 19.4
Profit/loss for the period 8.1 -4.4
Pre-tax return on invested capital 3.0 1.2
Free cash flow before taxes, EUR million 73.2 60.7
Equity ratio on 30 April 43.0 37.6
Ratio of interest-bearing net debt to operating margin 4.7 8.5
Energy peat deliveries (TWh) 10.2 10.7
Wood fuel deliveries (TWh) 3.4 3.2
Heating deliveries (TWh) 1.7 1.6
Accident frequency*                       19                       29

*) Accident frequency = number of accidents requiring a visit to occupational health services/million working hours
The figures are audited

Jyrki Vainionpää, Deputy CEO: Vapo’s result more than doubled from the previous year 

The Group’s comparable turnover for the financial year 1 May 2016–30 April 2017 was largely unchanged from the previous year, amounting to EUR 392.1 million (EUR 398.8 million). The actual turnover of the comparison year, EUR 459.8 million, included EUR 63.5 million in turnover from the sawmill business divested in early 2016.

Vapo Group’s comparable operating profit excluding one-off items and divested businesses was EUR 23.2 million (comparable operating profit EUR 19.4 million). This represented a substantial improvement compared to the previous year’s result, which was weighed down by one-off expenses of nearly EUR 10 million related to the divestment of the sawmill business and the renewal of Vapo Oy’s operating model. Peat production in Finland has fallen substantially short of the targeted volume for the past two summers due to the weather conditions, leading to higher expenses in both financial years. The Group’s profit for the financial year was EUR 8.1 million (EUR -4.4 million).

Kekkilä Group, a wholly owned subsidiary of Vapo, divested its unprofitable operations in Russia and Norway during the financial year. Losses of approximately EUR 2 million were recognised on the sale of the two businesses. The result of Kekkilä’s continuing operations was weaker than in the previous year due to the exceptionally cool spring, which delayed the start of the season.

The Group’s most significant increase in profitability was achieved by Vapo Oy’s Heat and Power business, where efficiency improvement measures enabled by the digital transformation, such as the remote control of power and heating plants, have reduced operating and maintenance costs. The business recorded turnover of EUR 8.9 million (EUR 5.3 million) for the financial year.

The Group had strong cash flow in the financial year, which will allow the company to repay the EUR 100 million bond issued in 2011 and maturing in June 2017 without the need for refinancing.

During the financial year, Vapo Oy made progress in line with the strategy confirmed by the Board of Directors in both the energy business and in new business areas. In the energy business, the objective is to evolve from a fuel supplier into a provider of energy solutions and services with higher added value, thereby improving customer satisfaction. The company’s NPS (Net Promoter Score), which is used to measure customer satisfaction annually, has risen from 1 in 2013 to 38 in the most recent financial year. In spring 2017, the company launched an extensive programme geared towards developing new services and operating models in response to customers’ business challenges. The participants in this Lean Service Creation programme include dozens of key employees of Vapo Oy as well as several customers.

The company’s second significant focus area is the development of new businesses alongside the energy business and the gardening business. In cooperation with Kekkilä Group, Vapo Fibers is developing business based on refining peat fibres, with progress being made during the past financial year in selecting the market and product segments with the highest potential. Vapo Carbons, which was first announced in October 2016, aims to launch the production of peat-based technical carbons in Finland using a new method developed by the company.

During the financial year, the Finnish Government published an ambitious national energy and climate strategy aimed at international leadership. Vapo supports the implementation of this strategy; for example, the company will play a significant role in Finland achieving 55 per cent self-sufficiency in energy by 2030 and increasing the share of renewable energy to more than 50 per cent. Among other things, the successful implementation of the strategy depends on heating and power production with very high energy efficiency and superior operating efficiency, along with district heating, remaining at the current level. This appears very challenging due to the low electricity prices and I believe that a twofold response is needed: firstly, industry operators must leverage all of the potential benefits of the modernisation and digitisation of production. Vapo is highly committed to this and, in addition to enhancing the efficiency of its power plants through measures such as remote control, the company can also offer its expertise and economies of scale to other operators. Secondly, in addition to actions taken within the industry, achieving this target requires a predictable and long-term energy policy and, above all, that the competitiveness of the domestic fuels used in CHP production is not reduced. 

Turnover by segment   
MEUR 1–4/2017       1–4/2016     Change %           5/2016–4/2017      5/2015–4/2016       Change %         
Vapo Oy 114.9 117.3 -2.1 247.4 257.0 -3.7
Vapo Timber Oy 0.0 5.5 -100.0 0.0 63.5 -100.0
Kekkilä Group 33.5 34.9 -4.2 89.5 87.9 1.8
Neova AB 19.6 21.5 -8.9 43.3 47.8 -9.4
AS Tootsi Turvas 7.5 5.9 26.6 16.0 13.0 23.2
Others 0.1 0.0  – 0.3 0.0 1,964.2
Inter-segment turnover -1.9 -2.6 28.9 -4.4 -9.4 53.5
Total 173.7 182.6 -4.9 392.1 459.8 -14.7


Operating profit/loss by segment
MEUR 1–4/2017    1–4/2016    Change %    5/2016–4/2017    5/2015–4/2016 Change %     
Vapo Oy 11.9 6.6 79.3 13.2 7.4 78.0
Vapo Timber Oy 0.0 -0.6 100.0 0.0 -2.2 100.0
Kekkilä Group -0.6 0.6 -199.2 -1.1 -1.3 13.9
Neova AB 1.9 2.6 -26.3 0.9 1.7 -48.7
AS Tootsi Turvas 1.0 0.3 216.2 1.3 1.1 20.2
Others -0.2 0.3 -166.6 -0.8 0.2 -420.7
Associates 1.1 2.2 -50.5 0.6 1.4 -57.4
Eliminations 5.4 6.0 -10.2 5.8 0.3 1,746.9
Total 20.5 18.1 13.2 20.0 8.6 131.2

Board of Directors’ proposal for the

The Board of Directors proposes to the General Meeting that EUR 4.0 million, which is EUR 133.33 per share, be paid as dividends for the financial year 1 May 2016–30 April 2017.

Future outlook

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 will continue to implement measures in line with its strategy to increase the competence of its personnel and achieve market-leading customer service in the local energy value chain. This includes the development of new services and comprehensive solutions for our energy customers. At the same time, the company will continue to increase the efficiency of its business processes in order to improve profitability.  Vapo wants to lead its industry with respect to the speed of its digital transformation. Combined with a diverse selection of products and services, highly competent personnel and a comprehensive service network, this will increase the company’s competitiveness.  The fuel market is not expected to see significant growth due to the low volume of electricity production from solid fuels.

In the new financial year, Kekkilä Group will invest in developing its product selection and increasing its sales in the consumer, professional grower and landscaping businesses. Kekkilä will continue to develop production capacity for the manufacturing of peat fibres in partnership with the Vapo Fibers business.

The restructuring measures implemented by Vapo Group in recent years to eliminate unprofitable units will enable the company to engage in more profitable business operations in the upcoming financial year.

Vapo will continue the commercialisation of new business operations in the Vapo Carbons and Vapo Fibers businesses as well as researching of further new business initiatives in the Vapo Ventures business area. The plans for Vapo Carbon’s first pilot plant for producing technical carbons are moving ahead, and the location of the plant will be decided during the upcoming financial year. The new businesses will not yet generate significant turnover during the upcoming financial year.