Neova Interim Report January–August 2022
A strong third of the year in terms of sales – operational profitability was reduced by higher raw material and freight prices
May–August 2022 in brief:
- Group turnover in May–August was EUR 162.8 million (EUR 143.0 million)
- The operating margin (EBITDA) was EUR 19.8 million (EUR 11.6 million), or 12.1% (8.1%) of turnover
- The Group’s comparable operating margin (EBITDA) was EUR 21.5 million (EUR 12.0 million)
- The operating result was EUR 5.2 million (EUR -2.7 million), or 3.2% (-1.9%) of turnover, including EUR -1.7 million (EUR -2.4 million) in non-recurring items
- Free cash flow before taxes was EUR -44.3 million (EUR 1.5 million)
- Gross investments totalled EUR -88.5 million (EUR -14.3 million), consisting mainly of acquisitions
- Earnings per share were EUR -60 (EUR -120)
January–August 2022 in brief:
- Group turnover in January–August was EUR 393.1 million (EUR 370.0 million)
- The Group’s comparable turnover in January–August was EUR 393.1 million (EUR 355.2 million), taking into consideration the divestment of the heat and power business on 28 January 2021, representing year-on-year growth of 11%
- The operating margin (EBITDA) was EUR 46.6 million (EUR 551.2 million), or 11.8% (149.0%) of turnover
- The Group’s comparable operating margin (EBITDA) was EUR 47.0 million (EUR 40.2 million)
- The operating result was EUR 25.2 million (EUR 527.7 million), or 6.4% (142.6%) of turnover, including EUR -0.4 million (EUR 505.3 million) in non-recurring items, with the non-recurring items in the comparison period being mainly related to the profit recognised on the sale of the heat and power business
- Free cash flow before taxes was EUR -41.9 million (EUR 438.2 million)
- Gross investments totalled EUR -116.0 million (EUR -65.7 million)
- Earnings per share were EUR 248 (EUR 17,294)
- The ratio of interest-bearing net debt to operating margin (net debt/EBITDA) was 3.0 (-0.1)
- The equity ratio was 39.7% (58.3%)
- Return on invested capital % (previous 12 months): 2.0 (54.6)
Figures in brackets refer to the corresponding period in 2021, unless otherwise stated.
Positive development of sales in growing media and biofuels, weaker operational profitability
The Group’s reported turnover in the second third of the financial year (May–August 2022) amounted to EUR 162.8 million (May–August 2021: EUR 143.0 million). Turnover developed very favourably, exceeding the comparison period (May–August 2021) by 14 per cent. The positive development of sales was mainly attributable to the Grow&Care division, which achieved substantial growth in sales to professional growers in particular. Fuel sales in the Fuels&Real Estate Development division also developed very favourably.
In terms of profit performance, the second third of the year was challenging for the Grow&Care business mainly due to the increased costs of raw materials, freight and materials. In the Fuels&Real Estate Development division, comparable profitability improved substantially year-on-year thanks to the increased demand for energy fuels. The successful hedging of electricity prices also had a significant positive effect on the result. The Group’s reported operating margin improved to EUR 19.8 million (EUR 11.6 million). The Group’s comparable operating margin was also higher than in the previous year at EUR 21.5 million (EUR 12.0 million).
The Group’s reported operating result for the second third of the financial year (May–August) was EUR 5.2 million (EUR -2.7 million). The Group’s cash flow during the reporting period amounted to EUR -44.3 million (EUR 1.5 million). The negative development of cash flow was mainly attributable to acquisitions made in the second third of the year.
CEO Vesa Tempakka:
“Neova Group had a strong third of the year thanks to good sales performance – rising freight and raw material costs had a negative effect on profitability”
“Neova Group completed two significant projects in the second third of the year. The merger of Neova Oy’s and Lassila Tikanoja plc’s energy wood businesses was completed. The joint venture, named Laania Oy, started its operations on 1 July 2022. Neova owns 45 per cent of the company. Also on 1 July 2022, Neova acquired the 30 per cent minority stake in Kekkilä-BVB held by Nielson Belegging en Beheer B.V., making Kekkilä-BVB Oy a wholly owned subsidiary of Neova Oy.
Neova Group’s business performance in January–August improved year-on-year in terms of both sales and the profitability of operations. Group turnover increased by 14%, mainly due to price increases. Both operating margin and operating profit improved significantly.
The spillover effects of the war in Ukraine on energy prices and logistics costs, for example, have had a rather exceptional impact on the Group’s divisions. The Grow&Care division has suffered from significantly higher logistics costs, which the division has not been able to fully pass on to prices. In the Fuels&Real Estate Development division, sales and profitability improved significantly due to higher energy fuel sales and the change in the fair value of electricity derivatives.
In the Grow&Care division, the January–August period was slightly weaker than expected. The gardening season was shorter than usual due to the late spring. In addition, higher interest rates, accelerating inflation and the uncertainty created by the war in Ukraine have had an impact on the purchasing behaviour of consumers in particular. The prices of energy and natural gas – which is important for professional growers in Central Europe, in particular – have increased manifold, which has had a negative impact on the profitability and purchasing power of many customers, reducing purchasing volumes throughout the first eight months of the year.
The total sales of the Grow&Care division increased by 16% year-on-year. This growth was almost entirely attributable to price increases. Among the Grow&Care division’s expenses, logistics costs increased the most, and these increases could not be fully passed on to selling prices. During the first eight months of the year, the division’s logistics costs were nearly EUR 20 million higher than in the comparison period. Raw material costs have also risen, with the prices of fertilisers, for example, increasing by nearly 20% compared to last year.
Russia’s invasion of Ukraine has had a major impact on the energy sector. Imports of electricity, natural gas, energy chips and pellets from Russia have ended, which has increased the demand for domestic wood and peat, led to higher volatility in electricity prices and driven prices higher for all types of fuels.
In November last year, Neova Group decided to discontinue the production of milled energy peat in Finland. The company had to reverse this decision in March 2022 when energy peat was again incorporated into fuel stockpiles and it became apparent that the additional production of energy peat would be necessary, especially for Eastern Finland due to its dependence on imported wood.
The summer’s peat production season was weak due to the late spring and high rainfall. Consequently, Neova’s peat production volume in Finland was only 65% of the target, and the amount of energy peat produced only came to slightly over 1.5 TWh. Neova’s existing peat reserves are sufficient for the company to deliver the same amount of peat to its customers during the upcoming heating season as it has done in previous seasons, but energy peat reserves will be practically exhausted by spring 2023. In spite of this, energy peat sales in January–August were slightly lower than in the comparison period.
The profit performance of the Fuels&Real Estate Development division was exceptionally good. This was underpinned by higher fuel prices, exceptional energy peat sales to the National Emergency Supply Agency, successful hedging against electricity price increases, and land sales that progressed according to plan.
In the New Businesses segment, the rebuilding of the furnace at the activated carbon production plant in Ilomantsi has progressed according to plan, and test production at the plant is scheduled to begin at the turn of the year.
In the Group’s operations outside Finland, horticultural peat production exceeded targets in both Estonia and Sweden, ensuring the availability of Kekkilä-BVB’s raw materials for the next season. To ensure the success of energy peat production, Neova has already started to restore peat production areas and acquire contractors for next summer’s peat production season. Nevertheless, Neova’s energy peat delivery capacity for the next heating season will be lower than before by several million cubic metres. This will lead to problems in the 2023–2024 heating season barring a broader recovery of domestic peat production and fuel wood acquisition.
There is a need for a programme that extends beyond the current term of government, supports energy peat users and prevents unreasonable increases in district heating prices as well as the increased burning of commercial timber.”
Events after the review period
On 4 October 2022, Neova Oy announced that its Finnish business operations related to the security of supply and real estate development will be centralised in a newly established company named Vapo Terra Oy, which is expected to start its operations on 1 January 2023.
Outlook for the remainder of the financial year, to 31 December 2022
The development seen in the Group’s businesses in the first third of the year is expected to continue largely unchanged during the financial year. Comparable turnover is expected to increase somewhat from the previous year, and the comparable operating margin is expected to remain on prior year level or decline slightly due to cost inflation. While the development of the COVID-19 pandemic is still difficult to predict, the Group has prepared various alternative scenarios pertaining to the potential development of the pandemic.
The prices of Neova’s key raw materials have increased significantly due to geopolitical uncertainty. This has affected not only the costs of raw materials but also their availability. The uncertainty and risks arising from the geopolitical situation – including previously imposed sanctions, potential additional sanctions and counter-sanctions and their consequences – may have an impact on the Group’s operating environment.
Neova is considering a transition to quarterly reporting starting from the beginning of next year.
| Consolidated key figures | |||||
| MEUR | 5–8/ 2022 | 5–8/ 2021 | 1–8/ 2022 | 1–8/ 2021 | 1–12/ 2021 |
| Sales | 162.8 | 143.0 | 393.1 | 370.0 | 514.6 |
| Operating profit (EBIT) | 5.2 | -2.7 | 25.2 | 527.7 | 511.2 |
| % of turnover | 3.2 | -1.9 | 6.4 | 142.6 | 99.3 |
| Operating profit (EBIT) before impairment | 5.2 | -2.7 | 25.2 | 527.8 | 527.6 |
| % of turnover | 3.2 | -1.9 | 6.4 | 142.6 | 102.5 |
| Profit/loss for the period | -0.6 | -2.6 | 11.6 | 522.5 | 501.5 |
| Operating margin (EBITDA) | 19.8 | 11.6 | 46.6 | 551.2 | 562.8 |
| +/- Change in working capital | 20.6 | 3.1 | 5.8 | -51.4 | -51.1 |
| – Net investments | -85.7 | -13.3 | -95.4 | -61.5 | -77.7 |
| Free cash flow before taxes | -44.3 | 1.5 | -41.9 | 438.2 | 434.0 |
| Gross investments | 88.5 | 14.3 | -116.0 | -65.7 | -84.6 |
| Return on invested capital % * | 2.0 | 54.6 | 73.1 | ||
| Return on invested capital % before impairment * | 5.5 | 68.4 | 75.4 | ||
| Return on equity % * | -2.2 | 76.0 | 108.9 | ||
| Balance sheet total | 770.3 | 826.3 | 780.9 | ||
| Shareholders’ equity | 303.9 | 478.1 | 425.9 | ||
| Interest-bearing net debt | 140.1 | -30.3 | 11.2 | ||
| Equity ratio % | 39.7 | 58.3 | 55.2 | ||
| Interest-bearing net debt/operating margin | 3.0 | -0.1 | 0.0 | ||
| Gearing % | 46.1 | -6.3 | 2.6 | ||
| Average number of employees | 974 | 936 | 922 | ||
| *) Previous 12 months |
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 +358 40 680 4723