Turnover increased by 7%, equity ratio exceeded 50%

Vapo Group Financial Statements and Board of Director’s Report 1 May 2017–30 April 2018 

The financial year in figures:	1 May 2017– 30 April 2018	1 May 2016– 30 April 2017
Turnover, EUR million	419.8	392.1
Operating margin/EBITDA, EUR million	61.1	56.9
Operating profit/EBIT, EUR million	26.3	20.0
*) comparable operating profit excluding one-off items and the effect of divested businesses, EUR million	26.3	23.2
Profit/loss for the period, EUR million	17.6	8.1
Earnings per share	586	271
Pre-tax return on invested capital	4.3	3.0
Free cash flow before taxes, EUR million	73.4	73.2
Equity ratio on 30 April	51.2	43.0
Ratio of interest-bearing net debt to operating margin	3.4	4.7
Energy peat deliveries (TWh)	11.4	10.2
Wood fuel deliveries (TWh)	3.3	3.0
Heating deliveries (TWh)	1.8	1.6
Accident frequency*	16	19

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

CEO Vesa Tempakka: Turnover increased by 7%, equity ratio exceeded 50% 

Vapo Group’s financial performance during the financial year 1 May 2017–30 April 2018 was fairly satisfactory. The Group’s turnover increased substantially after declining for several years. Sales of fuels, heating and electricity were significantly higher than in the comparison period. The Group’s turnover for the financial year amounted to EUR 419.8 million (EUR 392.1 million). Turnover growth was the highest in Vapo Oy (+9%) and Neova AB (+13%). Kekkilä Group’s turnover was on a par with the previous year. 

With improved profitability across all of the Group’s businesses, Vapo Group’s operating profit increased by nearly a third compared to the previous financial year. The Group’s operating result was EUR 26.3 million (EUR 20.0 million). The most significant improvement in profitability was achieved by Neova AB (including its associate Scandbio Ab), with a threefold increase in operating profit to reach EUR 5.6 million (EUR 1.5 million). The Group’s result for the financial year doubled to EUR 17.6 million (EUR 8.1 million). 

The peat production season in summer 2017 was poor and the sourcing of fuel wood was complicated by wet conditions in the autum. Previously produced buffer stocks of energy peat enabled a substantial increase in fuel sales and ensured heating deliveries to many energy customers in the spring when there was a shortage of fuel wood in the market and temperatures were exceptionally low. At the end of the heating season, Vapo’s inventory levels were lower than usual in all fuel categories. 

The reduced inventories and strong sales were reflected in strong cash flow, which was on a par with the previous year at EUR 73 million. Thanks to the strong cash flow and moderate investments, the Group was able to substantially reduce its net debt. The equity ratio increased to 51 per cent (43%) at the end of the financial year, while the ratio of net debt to operating margin was 3.4 (4.7). 

Vapo renewed its strategy and structure during the financial year. The Group abandoned the previous holding company model based on subsidiaries in different countries in favour of a new structure consisting of international divisions. The business operations are now divided into three divisions supported by the shared Supply Chain Management and Group Services functions. Going forward, the Group’s business is focused on a strategy aimed at achieving business growth in the Grow & Care division, which targets professional growers, the provision of customised energy solutions and digital services alone and with partners in the Energy division and the development of new business under the New Businesses division. Supplying energy peat will remain a central aspect of the Group’s business, but growth in the demand for peat is expected to be derived from uses other than energy. 

The aim of the changes is to improve the efficiency of the Group’s operations and accelerate its transformation in response to market needs related to food growing and the use of new technologies. The positive profit performance and stronger balance sheet also provide the Group with greater room to manoeuvre in making investments for the future. Energy is an important cornerstone for the Group.. We will ensure that our customers’ energy supply is secured well into the future. 

The Vapo Fibers project announced in 2016 has progressed to the commercialisation stage and it was transferred into the Grow & Care division because the first products are related to food plant cultivation. 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.  The environmental permit process for the project has not been completed yet. The investment decision is planned to be made later this year. 

Turnover by segment
MEUR	1–4/2018	1–4/2017	Change %	5/2017–4/2018	5/2016–4/2017	Change %
Vapo Oy	132.3	114.9	15.2	269.8	247.4	9.1
Kekkilä Group	32.3	33.5	-3.4	90.4	89.5	0.9
Neova AB	22.8	19.6	16.3	48.7	43.3	12.5
AS Tootsi Turvas	6.7	7.5	-10.2	16.8	16.0	5.0
Others	0.2	0.1	149.6	0.5	0.3	67.3
Inter-segment turnover	-2.8	-1.9	47.8	-6.3	-4.4	45.1
Total	191.6	173.7	10.3	419.8	392.1	7.1

 

Operating profit/loss by segment
MEUR	1–4/2018	1–4/2017	Change %	5/2017–4/2018	5/2016–4/2017	Change %
Vapo Oy	19.3	11.9	62.5	16.8	13.2	27.0
Kekkilä Group	1.3	-0.6	314.4	2.7	-1.1	342.6
Neova AB	3.2	1.9	67.9	3.5	0.9	304.9
AS Tootsi Turvas	0.7	1.0	-29.9	1.9	1.3	47.1
Others	-0.1	-0.2	52.4	-0.7	-0.8	9.7
Associates	2.0	1.1	78.7	2.1	0.6	250.0
Eliminations	0.5	5.4	-90.5	-0.1	5.8	-102.2
Total	26.9	20.5	31.2	26.3	20.0	31.7

 Board of Directors’ proposal for the distribution of profits 

The Board of Directors also proposes to the General Meeting that EUR 5,0 million, or EUR 166.67 per share, be paid as dividends for the financial year 1 May 2017–30 April 2018.

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. Vapo Group is also a significant producer of agricultural peat in the European market. 

Vapo’s Energy division will continue to implement measures in line with the Group’s new strategy to increase the competence of its personnel and deliver new energy solutions that make use of digitality in Finland, Sweden and Estonia, alone and with partners. The fuel market is not expected to see significant growth due to the low volume of electricity production from solid fuels. 

Vapo’s Grow&Care division’s focus during the current financial year will be on developing its product selection and increasing sales. The emphasis is on achieving growth in the professional grower business.  The Grow&Care division will continue to develop production capacity for manufacturing new products from peat fibres in cooperation with the Vapo Fibers business, which was transferred to the Grow&Care division from Vapo Group’s product development unit. 

Vapo will continue the commercialisation of new businesses in the Vapo Carbons and Vapo Ventures units. The plans for Vapo Carbons’ first pilot plant for producing technical carbons are moving ahead, and the aim is to make the investment decision within this year. The company has not yet received the environmental permits required for making the investment decision. The new businesses will not yet generate significant turnover during this financial year. 

The peat production season has begun well, but fuel wood inventories are currently at an exceptionally low level, which may create shortages in the next heating season. 

Vapo Group’s long-term success is measured in terms of its operational profitability and the following performance indicators: return on invested capital, ratio of net debt to operating margin and equity ratio. 

The figures presented in this financial statements release have been audited. 

For further information, please contact: 

• Vesa Tempakka, CEO, Vapo Oy, tel. +358 400 726 727
• Antti Koivula, Acting CFO, Vapo Oy, tel. +358 50 570 5589
• Ahti Martikainen, Director, Communications and Public Affairs, tel. +358 40 680 4723