Vapo Group Interim Report 1 January–30 April 2020

Excellent development in line with the Group’s strategy during difficult economic circumstances

The first third of the year in brief: 

January–April 2020: 

• Group turnover in January–April was EUR 236.0 million (1 January–30 April 2019: EUR 235.9 million)
• The operating margin (EBITDA) was EUR 44.1 million (EUR 41.9 million), or 18.7% (17.8%) of turnover
• The operating result (EBIT) was EUR 31.7 million (EUR 29.2 million), or 13.4% (12.4%) of turnover, including EUR 0.1 million (EUR -0.4 million) in non-recurring items 
• Free cash flow before taxes was EUR 23.5 million (EUR -54.3 million)
• Gross investments were EUR -20.8 million (EUR -37.0 million).
• Earnings per share were EUR 697 (EUR 653)
• The ratio of interest-bearing net debt to operating margin (net debt/EBITDA) was 4.7 (3.6)
• The equity ratio was 41.3% (51.3%)
• Return on invested capital (ROIC, previous 12 months): -1.3% (5.4%) 

Excellent development in line with the Group’s strategy during difficult economic circumstances

The Group’s turnover in the first third of the financial year (January–April 2020) amounted to EUR 236.0 million (EUR 235.9 million in January–April 2019). The positive development of sales was mainly attributable to the Grow&Care division, which achieved significant growth in sales to retailers in particular. At the same time, the Energy division’s sales during the first reporting period of the financial year were substantially weaker than in the comparison period, mainly due to the lower demand for heating.

Financially, the first third of the year is the strongest in both of our main businesses. The early spring and growth in gardening saw the Grow&Care division’s operating margin improve substantially year-on-year. In the Energy division, Nevel, in particular, improved its profitability compared to the previous year. In the Energy division’s fuels business, however, lower demand had a negative effect on the operating margin. The Group’s overall operating margin improved slightly and amounted to EUR 44.1 million (EUR 41.9 million).

The Group’s operating result for the first third of the financial year was EUR 31.7 million (EUR 29.2 million). The comparable operating result also improved year-on-year, amounting to EUR 31.6 million (EUR 29.6 million).

The Group’s cash flow during the reporting period was EUR 23.5 million (EUR -54.3 million). The positive development of cash flow was mainly due to efficiency improvement measures with regard to the turnover of fixed assets, the improved operating margin and moderate investments. The figure for the comparison period also reflects the cash flow impact of the acquisition of the Netherlands-based BVB Substrates. 

CEO Vesa Tempakka:

“Vapo Group achieved a good result in exceptional circumstances thanks to strong sales and efficiency improvement measures”

“The first third of the year was, at the very least, satisfactory for Vapo Group in terms of both sales and profit performance, taking into account the prevailing exceptional circumstances. Turnover even increased slightly year-on-year.  The Group’s operating margin and operating result also improved in spite of a sharp decline in the sales of energy peat. The favourable development of Kekkilä-BVB’s sales and the improved efficiency of operations compensated for the deficit created by the reduced sales of energy peat. This proves that the strategic decisions made by the Group have been appropriate and the efficiency programme launched two years ago is producing good results. Thanks to strong sales and cost management, the Group’s financing position has also remained good.

The first third of the year was mixed for Vapo Group’s businesses. While the Grow&Care division’s business benefited from the warm and early spring, the warm weather had a negative impact on the energy business and fuel sales.

The early spring and consumers spending more time at home due to the pandemic accelerated the Grow&Care division’s retail sales to the home gardener segment in Sweden and Finland in particular. However, at the same time, the pandemic brought a temporary halt to sales to professional growers in Central and Southern Europe and stopped sea shipments to other continents, including China. Overall, the Grow&Care division had a good first third of the year due to retail sales. The division’s turnover grew by EUR 19 million, or 19 per cent, and the operating result improved by 60 per cent.

Temperatures during the January–April period were nearly 20 per cent higher than the long-term average, and this was clearly reflected in the key figures of the Energy division. The division’s turnover totalled EUR 121 million, down by about 15 per cent year-on-year. This was mainly due to a 17 per cent decline in the sales of energy peat (in GWh). Sales of fuel wood and pellets grew and profitability improved. It appears that energy peat is being replaced by wood fuels at an accelerating rate. Thanks to tight cost control and efficiency improvement measures, the division’s operating result was EUR 5.6 million, or about 20 per cent, lower than in the comparison period. The operating result of the energy peat business declined significantly, by EUR 7 million, year-on-year.

Over a period of two years, Vapo’s sales of energy peat have declined by three million cubic metres, or nearly one-third. At this rate, the use of energy peat will be halved by 2025, which means that no further government policy measures are needed to accelerate the reduction of the use of energy peat.

The warm weather during the early months of the year was also reflected favourably in the progress of construction of the activated carbon production facility in Ilomantsi. The crisis created by the pandemic has affected the availability of materials and labour at times, causing slight delays in the completion of the production facility. Nevertheless, the production plant is still expected to be in use by the end of the year.  Among Vapo’s divisions, New Businesses was the most affected by the coronavirus crisis and the resulting travel restrictions. International cooperation as well as product development and testing cannot be conducted normally using remote connections alone.

In June, Vapo began to map out strategic options for the heat and power businesses incorporated as Nevel Oy. In addition to Finland, Nevel operates in Sweden and Estonia. Nevel owns and operates a total of over 130 power plants and approximately 40 district heating networks. Nevel’s annual turnover is approximately EUR 100 million and it employs around 130 experts. The company generates approximately 1.7 TWh of energy per year.

Vapo regularly investigates and evaluates options for its main business areas in accordance with its strategy. No strategic options have been ruled out in advance.” 

Outlook for the remainder of the financial year, to 31 December 2020 

In a change to what was previously announced, Vapo Group does not issue an outlook statement for the current financial period, coinciding with the calendar year 2020, as predicting the development of the COVID-19 pandemic is currently very difficult. The Group has prepared various alternative scenarios pertaining to the pandemic.

 

Consolidated key figures
MEUR	1–4/2020	1–4/2019	5–12/2019	5/2018–4/2019
Turnover	236.0	235.9	297.7	460.8
Operating profit (EBIT)	31.7	29.2	-40.4	33.3
% of turnover	13.4	12.4	-13.6	7.2
Operating profit (EBIT) before impairment	31.7	29.4	-1.5	33.5
% of turnover	13.5	12.5	-0.5	7.3
Profit/loss for the period	23.9	20.9	-40.2	25.2
Operating margin (EBITDA)	44.1	41.9	37.0	74.1
+/- Change in working capital	-5.4	-63.7	10.3	-45.7
– Net investments	-15.2	-32.6	-26.3	-50.7
Free cash flow before taxes	23.5	-54.3	21.0	-22.3
Gross investments	-20.8	-37.0	-42.8	-62.7
Return on invested capital % *	-1.3	5.4	-1.7	5.4
Return on invested capital % before impairment *	4.4	5.4	4.1	5.4
Return on equity % *	-2.2	6.7	-5.1	7.0
Balance sheet total	888.4	805.8	828.5	805.8
Shareholders’ equity	363.3	404.0	348.5	404.0
Interest-bearing net debt	294.9	265.6	315.2	265.6
Equity ratio %	41.3	51.3	42.9	51.3
Interest-bearing net debt/operating margin	4.7	3.6	4.0	3.6
Gearing %	81.2	65.8	90.4	65.8
Average number of employees	1,009	1,008	1,020	869
*) 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, CEO, Vapo Oy, tel. +358 40 072 6727
• Jarmo Santala, CFO, Vapo Oy, tel. +358 40 801 9191
• Ahti Martikainen, Director, Group Communications & Public Relations, Vapo Oy, tel. +358 40 680 4723