A strong third of the year in terms of sales – profitability was reduced by higher raw material and freight prices

Neova Interim Report January–August 2021

 May–August 2021 in brief: 

• Group turnover in May–August was EUR 143.0 million (1 May–31 August 2020: EUR 146.9 million)
• The Group’s comparable turnover May–August was EUR 143.0 million (EUR 128.9 million), taking into consideration the divestment of the heat and power business on 28 January 2021
• The operating margin (EBITDA) was EUR 11.6 million (EUR 14.1 million), or 8.1% (9.6%) of turnover
• The Group’s comparable operating margin (EBITDA) was EUR 12.0 million (EUR 13.8 million)
• The operating result was EUR -2.7 million (EUR -5.5 million), or -1.9% (-3.8%) of turnover, including EUR -2.4 million (EUR -0.9 million) in non-recurring items
• Free cash flow before taxes was EUR 1.5 million (EUR 25.4 million)
• Gross investments totalled EUR -14.3 million (EUR 22.6 million).
• Earnings per share were EUR -120 (EUR -387)

 January–August 2021 in brief: 

• Group turnover in January–August was EUR 370.0 million (1 January–31 August 2020: EUR 382.8 million)
• The Group’s comparable turnover in January–August was EUR 355.2 million (EUR 322.9 million), taking into consideration the divestment of the heat and power business on 28 January 2021
• The operating margin (EBITDA) was EUR 551.2 million (EUR 58.1 million), or 149.0% (15.2%) of turnover
• The Group’s comparable operating margin (EBITDA) was EUR 40.2 million (EUR 44.5 million)
• The operating result was EUR 527.7 million (EUR 26.0 million), or 142.6% (6.8%) of turnover, including EUR 505.3 million (EUR -0.9 million) in non-recurring items that were mainly related to the profit recognised on the sale of the heat and power business
• Free cash flow before taxes was EUR 438.2 million (EUR 54.9 million)
• Gross investments were EUR 65.7 million (EUR 43.4 million).
• Earnings per share were EUR 17,294 (EUR 302)
• The ratio of interest-bearing net debt to operating margin (net debt/EBITDA) was -0.1 (3.9)
• The equity ratio was 58.3% (41.8%)
• Return on invested capital % (previous 12 months): 54.6 (-1.3) 

CEO Vesa Tempakka:

“A strong third of the year in terms of sales – profitability was reduced by higher raw material and freight prices”

“The divestment of Nevel Oy, which was responsible for Neova’s heat and power business, was completed in January 2021. The enterprise value of the Nevel transaction was EUR 656 million and the Group recognised a profit of approximately EUR 500 million on the sale.

For Neova Group, the January–August period represented a continuation of the development seen in the previous year. Energy peat sales declined by a quarter compared to the previous year, while Kekkilä-BVB’s sales saw strong growth. Kekkilä-BVB’s relative profitability declined substantially due to very significant increases in raw material and freight prices, which could not be compensated by the price increases implemented by the company. The fuel wood and pellet business developed favourably and income from the sale of land areas exceeded the target by a clear margin.

For the Grow&Care division, sales in January–August exceeded expectations. Demand grew in all markets and across all product segments. The prices of raw materials – such as packaging plastic and fertilisers – have increased very rapidly this year. Prices have also increased very significantly in logistics and especially in sea freight due to factors such as the shortage of containers. In spite of implementing several price increases this year, we have not been able to pass on the rapidly rising costs to sales prices in full, especially during the second third of the year.

Energy peat sales declined by 20 per cent last year and the decline has accelerated this year.  The increase in the global market prices of natural gas and coal and the price of emission rights being at the level of EUR 60 per tonne of carbon – which in turn has led to a sharp decline in the use of energy peat – have led to higher demand for energy chips and pellets.

In the Group’s new businesses, the activated carbon production facility built in Ilomantsi, which was previously delayed due to COVID-19, proceeded to the test run phase in June, but further issues have since emerged in the start-up of the facility that need to be addressed. The Ilomantsi production facility is currently in a maintenance shutdown due to the need for corrective measures.

Neova’s previously published estimate that the use of energy peat will be halved in Finland between 2019 and 2025 has already proved to be inaccurate as it underestimates the speed at which the change is happening. According to the current estimate, the use of energy peat in Finland in 2025 will amount to approximately 1 TWh, with most of that coming from small plants, with the corresponding figure in 2019 having been about 8 TWh.

The decline in the demand for energy peat was already reflected clearly in the Group’s peat production this past summer. The Group’s total peat production amounted to just under five million cubic metres, with energy peat representing approximately 20 per cent of the total. The uncontrolled decline in the demand for, and production of, energy peat has had very negative impacts on Neova’s subcontracting chains. The sector is still waiting for the compensation promised in response to the structural changes.” 

Significant events during the second third of the year

The result for the financial year 2021 will be significantly improved by the non-recurring profit of EUR 507.9 million related to the sale of the subsidiary Nevel. The expenses associated with the transaction were mostly recognised in the final third of 2020.

The effect of Nevel Group’s figures on the comparison figures for the period 5–8/2020 was EUR +18.0 million on turnover, EUR -0.9 million on the operating result and EUR +167.2 million on the balance sheet total.

The effect of Nevel Group’s figures on the comparison figures for full financial year 2020 was EUR +93.3 million on turnover, EUR +18.4 million on the operating result and EUR +217.7 million on the balance sheet total. 

During the comparison period 5–8/2020, the Group recognised write-downs on tangible assets in the amount of EUR 0.2 million. During the comparison period 1–12/2020, the Group recognised write-downs on intangible assets in the amount of EUR 0.97 million and write-downs on tangible assets in the amount of EUR 101.82 million. 

In accordance with the decision of the Extraordinary General Meeting, a dividend of EUR 8,333.33 per

share (EUR 250 million in total) was paid for the interim financial period that ended on 30 April 2021. The dividend payment date was 30 June 2021. 

Events after the review period

On 5 October 2021, Neova Oy announced that it will redeem the outstanding share of EUR 29.9 million of the hybrid bond issued on 8 November 2016. The redemption will be made on 8 November 2021.

On 5 October 2021, Neova Oy announced it will map out strategic options for its wood business in Finland and Estonia.

On 12 October 2021, Neova published news on its website regarding a maintenance shutdown at the Ilomantsi activated carbon production facility, resulting in production being suspended for the time being. During test production, damage was detected in the activation furnace that could pose a safety risk. Neova has not yet formally taken delivery of the production facility. Analysing the damage and its root causes is expected to take several weeks. The supplier of the production facility will subsequently prepare a repair plan and carry out the necessary repairs.  The start of the commercial production will be delayed.

Outlook for the remainder of the financial year, to 31 December 2021 

In the Group’s current businesses, the positive development of demand is expected to continue through the remainder of the year. Consequently, comparable turnover is expected to increase somewhat from the previous year, while the comparable operating margin is expected to decrease somewhat from the previous year due to increased logistics and raw material costs. 

With respect to the COVID-19 pandemic, the Group has prepared various alternative scenarios pertaining to the potential development of the pandemic.

Consolidated key figures
MEUR	5–8/2021	5–8/2020	1–8/2021	1–8/2020	1–12/2020
Turnover	143.0	146.9	370.0	382.8	544.9
Operating profit (EBIT)	-2.7	-5.5	527.7	26.0	-95.3
% of turnover	-1.9	-3.8	142.6	6.8	-17.5
Operating profit (EBIT) before impairment	-2.7	-5.5	527.8	26.3	7.4
% of turnover	-1.9	-3.8	142.6	6.9	1.4
Profit/loss for the period	-2.6	-10.3	522.5	13.6	-108.1
Operating margin (EBITDA)	11.6	14.1	551.2	58.1	53.8
+/- Change in working capital	3.1	28.8	-51.4	29.6	44.8
– Net investments	-13.3	-17.5	-61.5	-32.7	-59.1
Free cash flow before taxes	1.5	25.4	438.2	54.9	39.6
Gross investments	14.3	-22.6	-65.7	-43.4	-76.6
Return on invested capital % *			54.6	-1.3	-14.0
Return on invested capital % before impairment *			68.4	4.4	1.1
Return on equity % *			76.0	-5.2	-34.8
Balance sheet total			826.3	805.5	758.4
Shareholders’ equity			478.1	331.0	213.5
Interest-bearing net debt			-30.3	298.4	327.7
Equity ratio %**			58.3	41.8	28.7
Interest-bearing net debt/operating margin			-0.1	3.9	6.1
Gearing %			-6.3	90.1	156.4
Average number of employees			936	1,037	1,031
*) Previous 12 months
**) In calculating the equity ratio, the capital loan on the balance sheet was calculated as shareholders’ equity

For further information, please contact: 

• Vesa Tempakka, Neova CEO, tel. +358 40 072 6727
• Jarmo Santala, Neova CFO, tel. +358 40 801 9191
• Ahti Martikainen, Neova’s Director of Communications and Public Affairs 040 680 4723