Neova six-month interim report January–June 2023
Heating fuel market continued to do relatively well – demand for growing media decreased in the professional growers’ segment
The timing of this year’s season made the second quarter a reasonable success, but not enough to bridge the gap left behind by the first quarter. Measures to improve profitability are being taken while the market situation continues to be unstable.
April–June 2023 in brief:
- Turnover amounted to EUR 145.6 million (EUR 169.8 million), and comparable turnover was EUR 143.7 million (EUR 159.7 million), taking the transfer of the fuel wood business to an associated company into account.
- Operating margin (EBITDA) was EUR 17.3 million (EUR 16.5 million), or 11.9% (9.7%) of turnover.
- Comparable operating margin (EBITDA) was EUR 18.3 million (EUR 16.7 million). The operating result includes non-recurring items in the amount of EUR -1.0 million (EUR -0.3 million), mainly related to the previously announced closure of production plants.
- Operating profit was EUR 8.0 million (EUR 10.8 million), or 5.5% (6.4%) of turnover, including EUR -1.0 million (EUR -0.3 million) in non-recurring items that were mainly related to the previously announced closure of production plants.
- Free cash flow before taxes was EUR 38.0 million (EUR 39.8 million).
- Earnings per share were EUR -195.2 (EUR 131.1)
January–June 2023 in brief:
- Turnover amounted to EUR 292.4 million (EUR 334.6 million), and comparable turnover was EUR 290.5 million (EUR 305.2 million), taking the transfer of the fuel wood business to an associated company into account.
- Operating margin (EBITDA) was EUR 27.7 million (EUR 36.2 million), or 9.5% (10.8%) of turnover.
- Comparable operating margin (EBITDA) was EUR 33.0 million (EUR 36.8 million). The operating result includes non-recurring items in the amount of EUR -5.3 million (EUR -0.7 million), mainly related to the previously announced closure of production plants.
- Operating profit was EUR 9.4 million (EUR 24.0 million), or 3.2% (7.2%) of turnover, including EUR -8.8 million (EUR -0.6 million) in non-recurring items that were mainly related to the previously announced closure of production plants.
- Free cash flow before taxes was EUR 43.8 million (EUR 24.4 million).
- Gross investments were EUR 15.5 million (EUR 32.3 million)
- Earnings per share were EUR -104.3 (EUR 343.3)
- The ratio of interest-bearing net debt to operating margin (net debt/EBITDA) was 3.4 (1.2)
- The equity ratio was 41.0% (45.6%)
- Return on invested capital (previous 12 months): 3.2 (0.7)
The figures in brackets refer to the corresponding period in 2022 unless otherwise stated.
CEO Vesa Tempakka:
Heating fuel market continued to do relatively well – demand for growing media decreased in the professional growers’ segment
“The second quarter of 2023 did not present any significant changes in Neova Group’s operating environment. The growing media market continued to decrease. This appears to be a long-term trend, covering products used by professional growers and home gardeners alike. This year, the late spring shortened the season for consumer and landscaping products. Profitability in the fuel market remained high during the period from April to June, similarly to the first quarter. Many customers wanted to prepare early for the upcoming heating season. This could be seen not only in demand but in higher prices in the solid fuel markets.
The Grow&Care division’s sales in the first quarter were approximately 8% lower than in the previous year. The volume of products sold fell by 15%, but price increases and cost savings helped compensate for the lower sales volume. Kekkilä-BVB has started to adjust its production volume to correspond to long-term demand. During the second quarter, Kekkilä-BVB closed its Haukineva growing media production plant in Seinäjoki in Finland and another growing media production plant in Bredaryd in Sweden. These adaptations will also be continued during the second half of the year to improve the company’s profitability and competitiveness.
The late spring shortened the sales period for the products of the Retail and Landscaping business units in particular. Kekkilä-BVB expected this year to be stronger than the year before. These expectations did not materialise, which increased stock levels and unit production costs. The wholesale of horticultural peat was significantly lower than during the comparative period.
The Fuels&Real Estate Development division’s fuel delivery volumes fell short of the comparative period due to the warm winter and lower electricity prices. The price levels of energy peat and pellets were significantly higher than during the comparative period. Combined with lower fixed costs, this led to an improvement in the division’s operating margin.
Test operations at Neova’s Novactor activated carbon production plant in Ilomantsi are ending, and it is planned to transfer the plant to commercial production after the summer.
Neova has started to grow reed canary grass in an area of more than 1,000 hectares. It is mainly grown in peat production areas that are no longer in production and used as a renewable raw material in various growing media products”.
Events after the review period
On 15 August 2023, Neova announced that it will initiate cooperation negotiations and similar processes to improve its profitability and modernise its operating model regarding Neova and Kekkilä-BVB.
On 17 August 2023, Neova announced that the Finnish State and Suomen Energiavarat Oy, its shareholders, have selected new members of the company’s Supervisory Board. Antti Kangas was selected as the Chairman, Heikki Miilumäki as the Vice Chairman, and Harri Hietala, Janne Jukkola, Jari Koskela, Eero Kubin, Esko Kurvinen, Janne Laine, Piritta Rantanen and Eerikki Viljanen as members.
Outlook for the remainder of the financial year to 31 December 2023
Based on the development of demand at the beginning of the year, uncertainties are expected to continue in the markets until the end of this year. Regardless of price increases, the comparable turnover is expected to fall slightly short of the previous year’s level, mainly due to the decrease in sales volumes, while the comparable operating margin is expected to decrease, mainly as a result of Kekkilä-BVB’s market situation and general cost inflation.
It is expected that the Group’s operating environment will be negatively affected this year by the decrease in consumers’ purchasing power and potential changes in energy prices through inflation and rising interest rates.
| Consolidated key figures | |||||
| MEUR | 4–6/2023 | 4–6/2022 | 1–6/2023 | 1–6/2022 | 1–12/2022 |
| Turnover | 145.6 | 169.8 | 292.4 | 334.6 | 544.9 |
| Operating profit (EBIT) | 8.0 | 10.8 | 9.4 | 24.0 | 29.3 |
| % of turnover | 5.5 | 6.4 | 3.2 | 7.2 | 5.4 |
| Operating profit (EBIT) before impairment | 8.1 | 10.8 | 13.0 | 24.0 | 17.2 |
| % of turnover | 5.6 | 6.4 | 4.4 | 7.2 | 3.2 |
| Profit/loss for the period | 5.9 | 7.1 | 3.2 | 14.9 | 18.6 |
| Operating margin (EBITDA) | 17.3 | 16.5 | 27.7 | 36.2 | 46.8 |
| +/- Change in working capital | 15.5 | 12.8 | 3.5 | 0.2 | 48.4 |
| – Net investments | 5.2 | -10.6 | 12.6 | 12.8 | -136.7 |
| Free cash flow before taxes | 37.8 | 39.8 | 43.6 | 24.4 | -41.5 |
| Gross investments | 7.9 | 8.3 | 15.5 | 32.3 | -167.5 |
| Return on invested capital % * | 3.2 | 0.7 | 6.4 | ||
| Return on invested capital % before impairment * | 5.1 | 4.2 | 3.8 | ||
| Return on equity % * | 6.0 | -2.0 | 5.1 | ||
| Balance sheet total | 726.8 | 831.9 | 810.3 | ||
| Shareholders’ equity | 296.3 | 378.6 | 311.2 | ||
| Interest-bearing net debt | 132.3 | 61.2 | 140.0 | ||
| Equity ratio %** | 41.0 | 45.6 | 38.7 | ||
| Interest-bearing net debt/operating margin* | 3.4 | 1.2 | 3.0 | ||
| Gearing % | 44.7 | 16.2 | 45.0 | ||
| Average number of employees | 952 | 990 | 958 | ||
| *) Previous 12 months |
For further information, please contact:
▪ Vesa Tempakka, CEO, Neova, tel. +358 400 726 727
▪ Jarmo Santala, CFO, Neova, tel. +358 40 801 9191
▪ Ahti Martikainen, Director, Group Communications & Public Relations, Neova, tel. +358 40 680 4723