Vapo Group Interim Report 1 January–31 August 2020

Kekkilä-BVB’s strong sales compensated for the significant decline in fuel sales

The second third of the year in brief: 

May–August 2020 

• Group turnover in May–August 2020 was EUR 146.9 million (EUR 134.2 million)
• The operating margin (EBITDA) was EUR 14.0 million (EUR 18.4 million), or 9.5% (13.7%) of turnover
• The operating result (EBIT) was EUR -5.5 million (EUR -5.3 million), or -3.8% (-4.0%) of turnover, including EUR -0.4 million (EUR 4.3 million) in non-recurring items
• Earnings per share were EUR -387 (EUR -267)
• Free cash flow before taxes was EUR 25.2 million (EUR 14.7 million).
• Gross investments totalled EUR 22.6 million (EUR 11.2 million), with the most significant individual investment being made in the Ilomantsi activated carbon production facility 

January–August 2020 

• Group turnover in January–August 2020 was EUR 382.8 million (EUR 370.1 million)
• The operating margin (EBITDA) was EUR 58.1 million (EUR 60.3 million), or 15.2% (16.3%) of turnover
• The operating result (EBIT) was EUR 26.2 million (EUR 23.8 million), or 6.8% (6.4%) of turnover, including EUR -3.0 million (EUR 5.8 million) in non-recurring items
• Earnings per share were EUR 310 (EUR 387)
• Return on invested capital (ROIC) was -1.3% (5.9%)
• Free cash flow before taxes was EUR 54.9 million (EUR 10.8 million).
• Gross investments were EUR 43.4 million (EUR 48.2 million)
• The equity ratio on 31 August 2020 was 41.8% (48.8%)
• The ratio of interest-bearing net debt to operating margin (net debt/EBITDA) on 31 August 2020 was 3.9 (3.5) 

CEO Vesa Tempakka:

“Kekkilä-BVB’s strong sales compensated for the significant decline in fuel sales” 

“January–August was an exceptionally mixed period for Vapo Group. The sales of energy peat declined very sharply, but the strong growth in the sales of Kekkilä-BVB’s consumer products – accelerated by the COVID-19 pandemic – compensated for the drop in fuel sales.

Overall, the Grow&Care division performed very well in January–August. The professional grower segment initially suffered from the COVID-19 pandemic to some extent, mainly due to global logistics challenges and a temporary halt in the demand for cut flowers, for example. On the consumer side, however, the demand for gardening products grew thanks to the early spring and, in particular, people spending more time at home during the pandemic. Consumers’ spending on making their homes more pleasant and attractive was reflected in an exceptional uptick in demand in all markets. The demand for unrefined raw material for growing media was also higher than in the comparison period.

The sales of energy peat declined by nearly 20 per cent year-on-year. The warm weather reduced the demand for wood fuels and the decreased price of natural gas reduced the demand for pellets. While the warm weather also had an unfavourable impact on Nevel’s sales, its profitability improved year-on-year thanks to efficiency improvement measures.

In the New Businesses division, COVID-19 has delayed the construction of the activated carbon production facility and the pandemic-related travel restrictions created difficulties in international product development and testing activities.

Vapo has previously estimated that the use of energy peat will be halved in Finland by 2025, but it now seems that the change is happening even faster. Feedback received from customers indicates that the use of energy peat will decline at a substantially faster rate by 2025. In light of this development, the decision made in the Finnish Government’s budget proposal negotiations to nearly double the energy taxes on peat effective from 1 January 2021 will directly and indirectly complicate Vapo’s business environment to a very significant degree.

The controlled reduction of the use of energy peat appears to have changed to an uncontrolled decline, which will unfortunately be manifested in growing challenges in the subcontractor network.  For Vapo Group, this rapid change is very challenging with regard to the sustainability of the Group’s cash flow and balance sheet in circumstances where the goal is to achieve a controlled reduction in the dependence on energy peat while simultaneously investing in higher added-value products made from peat.”

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

Vapo Group does not issue a profit guidance for the financial year 2020 due to the significant changes in the operating environment. In June, Vapo also announced it is mapping out strategic options for its heat and power businesses incorporated as Nevel.

 

Consolidated key figures
MEUR	5–8/2020	5–8/2019	1–8/2020	5–12/2019
Turnover	146.9	134.2	382.8	297.7
Operating profit (EBIT)	-5.5	-5.3	26.2	-40.4
% of turnover	-3.8	-4.0	6.8	-13.6
Operating profit (EBIT) before impairment	-5.5	-5.3	26.3	-1.5
% of turnover	-3.7	-4.0	6.9	-0.5
Profit/loss for the period	-10.3	-7.9	13.6	-40.2
Operating margin (EBITDA)	14.0	18.4	58.1	37.0
+/- Change in working capital	28.7	4.1	29.6	10.3
– Net investments	-17.5	-7.8	-32.7	-26.3
Free cash flow before taxes	25.2	14.7	54.9	21.0
Gross investments	-22.6	-11.2	-43.4	-42.8
Return on invested capital % *		5.9	-1.3	-1.7
Return on invested capital % before impairment *		5.9	4.4	4.1
Return on equity % *		6.9	-5.2	-5.1
Balance sheet total		824.6	805.5	828.5
Shareholders’ equity		396.0	331.0	348.5
Interest-bearing net debt		299.9	298.4	315.2
Equity ratio %**		48.8	41.8	42.9
Interest-bearing net debt/operating margin		3.5	3.9	4.0
Gearing %		75.7	90.1	90.4
Average number of employees		1,089	1,037	1,050
*) Previous 12 months
**) In calculating the equity ratio, the capital loan on the balance sheet was calculated as shareholders’ equity
The figures for the previous financial year are for the period 5–12/2019 due to a change in the Group’s financial year

The information presented in this interim report is unaudited

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