Neova Interim Report January–March 2023 /Fair performance in a challenging market situation

January–March 2023 in brief:

• Group turnover amounted to EUR 146.8 million (EUR 164.9 million), and comparable turnover was EUR 146.8 million (EUR 145.8 million), taking into account the transfer of the fuel wood business to an associated company.
• The operating margin (EBITDA) was EUR 10.4 million (EUR 19.7 million), or 7.1% (12.0%) of turnover
• The Group’s comparable operating margin (EBITDA) was EUR 14.7 million (EUR 20.1 million). The operating margin includes non-recurring items in the amount of EUR -4.3 million (EUR -0.4 million), mainly relating to the closure of the Bredaryd and Haukineva production sites.
• The operating result was EUR 1.4 million (EUR 13.2 million), or 1.0% (8.0%) of turnover. The operating result includes non-recurring items in the amount of EUR -7.8 million (EUR -0.4 million), mainly relating to the previously announced closure of production sites.
• Free cash flow before taxes was EUR 5.7 million (EUR -15.4 million)
• Gross investments were EUR 7.6 million (EUR 23.9 million)
• Earnings per share were EUR -95 (EUR 214)
• The ratio of interest-bearing net debt to operating margin (net debt/EBITDA) was 4.0 (0.7)
• The equity ratio was 41.1% (54.5%)
• Return on invested capital (previous 12 months): 5.1% (-0.8%)

The figures in brackets refer to the corresponding period in 2022, unless otherwise stated.

CEO Vesa Tempakka:

Price increases compensated for cost inflation in a difficult market situation

“The first quarter of 2023 was challenging for Neova Group. The late spring and clear changes in consumers’ purchasing behaviour affected the Grow&Care division’s turnover and profitability in particular. The January–March period was exceptionally warm in Finland, which meant that fuel sales volumes were also lower than in the comparison period. Price increases and cost saving measures to improve profitability helped compensate for the lower sales volumes.

The Grow&Care division’s sales in the first quarter were approximately 11% lower than in the previous year. The volume of products sold decreased substantially, but price increases partially compensated for the lower sales volume. The late spring affected sales in the Retail and Landscaping business units in particular. Kekkilä-BVB had prepared for the spring season to start in March. As it turned out, increased inventory levels and higher unit costs in production due to the lower volumes contributed to the reduced profitability of the Grow&Care division. However, Kekkilä-BVB maintained its market share, which shows that the decline in sales is indicative of difficulties in the market as a whole.

In the Fuels&Real Estate Development division, fuel delivery volumes were lower than in the comparison period due to the warm winter. The prices of energy peat and pellets were substantially higher than in the comparison period. Combined with the reduced fixed costs, this led to a substantial improvement in the division’s profitability. Neova continues to take care of fuel sufficiency during the following heating seasons.

Test runs began at the turn of the year at Neova’s Novactor activated carbon production plant in Ilomantsi. The plant is scheduled to begin commercial production during the summer”.

Financial development

The Group’s reported turnover for the first quarter of the financial year amounted to EUR 146.8 million (EUR 164.9 million). Comparable turnover was almost on a par with the previous year. The favourable development of comparable turnover was mainly attributable to the Fuels&Real Estate Development division’s energy fuel sales, with the customer sales of wood pellets and energy peat growing in spite of the relatively warm start to the year. The Grow&Care division’s sales to professional growers remained close to the previous year’s level, but sales to retail customers declined substantially year-on-year.

Similarly, the operating profit for the first quarter was strong in the energy business, but the Grow&Care division’s result was relatively modest due to the late spring. Due to cost inflation and the late arrival of spring, the Grow&Care division’s operating margin developed unfavourably compared to the corresponding period in the previous year. The Fuels&Real Estate Development division’s comparable profitability improved by five percentage points year-on-year. The Group’s reported operating margin declined significantly and amounted to EUR 10.4 million (EUR 19.7 million), with the decrease being mainly due to non-recurring costs related to the adjustment of production capacity. The Group’s comparable operating margin was also weaker than in the previous year at EUR 14.7 million (EUR 20.1 million).

The Group’s reported operating result for the first quarter of the financial year was EUR 1.4 million (EUR 13.2 million). This was also very significantly affected by the non-recurring measures taken to adjust the Grow&Care division’s production capacity. The Group’s comparable operating result was EUR 9.1 million (EUR 13.6 million).

The Group’s cash flow during the reporting period was EUR 5.7 million (EUR -15.4 million). The favourable change in cash flow was mainly due to the slowing of investments in the current economic situation.

Events after the review period 

At the beginning of April, Neova’s group company Kekkilä Oy completed the acquisition of the business operations of Dueemme Marketing. The transaction strengthens Kekkilä-BVB’s position in the professional growing media market in Italy.

On 27 April 2023, Neova announced it will incorporate the Heinola and Kotka solar power projects as separate limited liability companies. Incorporation makes it possible to find the best operating conditions and implementing parties for the projects, so that the local needs and special characteristics of each project can be taken into consideration. The aim is for the implementation of the projects to begin in 2024 and for the solar farms to feed electricity into the network in 2025. Neova Solar Laviassuo Oy in Heinola and Neova Solar Torvmossen Oy in Kotka are entirely located at former peat production areas owned by Neova Oy’s subsidiary Vapo Terra Oy.

Outlook for the remainder of the financial year, to 31 December 2023

Based on the development of demand in the first months of the year, it is expected that the uncertainty related to consumers’ purchasing behaviour, particularly with regard to Kekkilä-BVB, will continue in the market for almost the entire year. Consequently, comparable turnover is projected to decrease slightly from the previous year. The comparable operating margin is also expected to decline slightly year-on-year, mainly due to weaker demand and cost inflation.

It is expected that the Group’s operating environment will be negatively affected this year, through customers, by potential changes in the price of energy, as well as declining consumer purchasing power due to inflation and rising interest rates. 

Consolidated key figures

MEUR	1–3/2023	1–3/2022	1–12/2022
Turnover	146.8	164.9	544.9
Operating profit (EBIT)	1.4	13.2	29.2
% of turnover	1.0	8.0	5.4
Operating profit (EBIT) before impairment	-2.1	13.2	17.2
% of turnover	-1.4	8.0	3.2
Profit/loss for the period	-2.9	7.8	18.6
Operating margin (EBITDA)	10.4	19.7	46.8
+/- Change in working capital	-12.1	-12.6	48.4
– Net investments	7.4	23.3	-136.7
Free cash flow before taxes	5.7	-15.4	-41.5
Gross investments	7.6	23.9	-167.5
Return on invested capital % *	3.9	-0.8	6.4
Return on invested capital % before impairment *	5.8	2.8	3.8
Return on equity % *	2.5	-2.7	5.1
Balance sheet total	740.9	796.4	810.3
Shareholders’ equity	303.5	432.4	311.2
Interest-bearing net debt	149.6	33.0	140.0
Equity ratio %**	41.1	54.5	38.7
Interest-bearing net debt/operating margin	4.0	0.7	3.0
Gearing %	49.3	7.6	45.0
Average number of employees	940	978	958

Whole interim report.

More information:

• Vesa Tempakka, CEO, Neova, tel. 0400 726 727
• Jarmo Santala, CFO, Neova, tel. +358 40 801 9191
• Ahti Martikainen, Director of Communications and Public Affairs, Neova, tel. 040 680 4723