Vapo Oy interim report 1 may–31 august 2016

The first third of the year in brief:

• Group turnover in the May–August period was EUR 87.9 million (EUR 124.1 million in the same period in 2015).
• The operating margin (EBITDA) was EUR 5.8 million (EUR 1.7 million), or 6.5% (1.3%) of turnover.
• The operating profit was EUR -9.0 million (EUR -12.8 million), or -10.2% (-10.3%) of turnover. The operating profit includes one-off income in the amount of EUR 1.0 million (EUR 0.0 million).
• Free cash flow before taxes was EUR 17.6 million (EUR 18.4 million).
• Gross investments were EUR 12.4 million (EUR 13.4 million).
• The Group produced a total of 9.1 million cubic metres of peat (10.6 million m³).

Tomi Yli-Kyyny, CEO: Vapo is growing new business based on its peat expertise

The Group’s turnover in the first third of the financial year (May–August) amounted to EUR 87.9 million (EUR 124.1 million). Kekkilä Group’s products for gardeners and professional growers accounted for approximately 40 per cent of turnover, with the peak sales season falling in early summer. The year-on-year decrease in turnover is largely attributable to Vapo Oy’s divestment of its sawmills in North Karelia in January 2016. The sawmills represented EUR 27.5 million in turnover in the comparison period. 

The result for the energy business in the first third of the financial year showed a loss, as expected, as operations focused on fuel production in a period when customers’ heating demand was at its lowest. For Kekkilä Group, the first third of the financial year is always strongest with regard to the operating result. The company’s operating result for the reporting period showed year-on-year growth of 47% and amounted to EUR 2.5 million. The entire Vapo Group’s operating result was EUR -9.0 million (EUR -12.8 million). The result was weighed down by Vapo Oy’s peat production volume in Finland totalling only about eight million cubic metres, or approximately 65 per cent of the production target for the season. In Estonia, the production target was half of the previous years’ volume due to strong inventory levels, and 80 per cent of the target was achieved. In Sweden, peat production volumes were in line with the plans. 

The Group’s cash flow in the reporting period was significantly positive at EUR 17.6 million (EUR 18.4 million). Peat production volume being below the target strengthened cash flow, with less capital tied up in reserves than anticipated. Vapo Oy’s current fuel stockpiles correspond to approximately 21 months’ heating demand, ensuring that customers’ fuel requirements in the upcoming heating season can be met under all circumstances. 

During the review period, the company implemented its strategy by expanding its business operations based on local solid fuels. Vapo Oy’s Estonian subsidiary AS Tootsi Turvas and the municipality of Ridala signed an agreement in June by which the company expanded its district heating business. The annual heating sales amount to approximately 8 GWh. In August, Vapo Oy and the municipality of Ristijärvi signed an agreement on supplying heating to the municipality’s district heating network. Vapo will invest in a new heating plant, assume responsibility for its operation and sell the heat to Ristijärvi municipality.  Vapo Oy also signed an agreement with Luoto municipality on building a heating plant and district heating network. Local solid fuels will be the primary fuel used at each of the three new sites.

Peat is a domestic and highly diverse natural material. Vapo Oy’s Vapo Ventures development unit expands the Group’s business operations based on peat resources beyond the energy sector. The aim is to refine peat into new ecologically sustainable products that create new jobs and enable the company’s continued success in the future.

An urban wetland implemented by Vapo Clean Waters Oy, the first of the development unit’s ventures to be incorporated, to treat drainage waters and improve the condition of natural waterways in the Jyväskylä area received a good amount of attention and visibility at the inauguration ceremony for the Eerolanpuro wetland in August. Last spring, the company also announced the Vapo Fibers business, which provides many different industrial segments with natural fibre solutions that take advantage of peat’s excellent physiological attributes. 

At the beginning of October, Vapo Oy announced Vapo Carbons, the latest new business developed by the Ventures unit. Technical carbons have a wide variety of applications in several different sectors, such as the rubber, pigment and plastic industries. The size of the global market is approximately EUR 40 billion and it has grown at an annual rate of about 10 per cent in recent years. Vapo Carbons now aims to rapidly enter the growing international market for technical carbon and refined carbon products. Carbons aims to start its first production facility for manufacturing technical carbon from peat in 2019.

 The Finnish government decided to revise its state ownership policy in the spring, making it possible for the state’s ownership in Vapo to be reduced to 33.4 per cent. Vapo will, nevertheless, remain a company that represents a strategic interest for the state.

Consolidated key figures
MEUR	5–8/2016	5–8/2015	5/2015–4/2016	5/2014–4/2015
Turnover	87.9	124.1	459.8	486.9
Operating profit (EBIT)	-9.0	-12.8	8.6	36.9
% of turnover	-10.2	-10.3	1.9	7.6
Operating profit (EBIT) before impairments	-8.8	-12.8	9.4	37.6
% of turnover	-10.0	-10.3	2.1	7.7
Profit/loss for the period	-11.0	-11.8	-4.4	19.8
Operating margin (EBITDA)	5.8	1.7	43.1	74.7
+/- Change in working capital	3.3	16.3	39.6	-32.7
– Net investments	8.5	0.4	4.5	-67.1
Free cash flow before taxes	17.6	18.4	87.2	-25.1
Gross investments	12.4	13.4	38.5	88.4
Return on invested capital % *	1.8	3.9	1.2	5.4
Return on invested capital % before impairments *	2.0	4.0	1.4	5.5
Return on equity % *	-1.3	5.0	-1.5	6.6
Balance sheet total	760.6	825.3	795.0	838.2
Shareholders’ equity	276.5	292.5	288.2	304.4
Interest-bearing net debt	368.3	395.3	366.6	393.1
Equity ratio %**	38.0	37.0	37.6	37.8
Interest-bearing net debt/operating margin	7.8	6.3	8.5	5.3
Gearing %	133.2	135.2	127.2	128.7
Average number of employees	829	1007	914	961

 

*) Previous 12 months

**) In calculating the equity ratio, the capital loan on the balance sheet was calculated as shareholders’ equity   

 

Turnover by segment
MEUR	5–8/2016	5-8/2015	Change %	5/2015-4/2016	5/2014-4/2015
Vapo Oy	42.3	53.0	-20.3	257.0	251.9
Vapo Timber Oy	0.0	27.5	-100.0	63.5	89.0
Kekkilä Group	35.4	34.2	3.5	87.9	87.1
Neova AB	8.3	9.1	-8.5	47.8	48.9
AS Tootsi Turvas	3.0	3.2	-5.5	13.0	12.9
Others	0.1	0.0	1,008.4	0.0	7.8
Inter-segment turnover	-1.1	-2.8	60.6	-9.4	-10.8
Total	87.9	124.1	-29.2	459.8	486.9

 

Operating profit/loss by segment
MEUR	5–8/2016	5-8/2015	Change %	5/2015-4/2016	5/2014-4/2015
Vapo Oy	-7.8	-11.5	32.1	7.4	49.1
Vapo Timber Oy	0.0	-0.8	100.0	-2.2	0.8
Kekkilä Group	2.5	1.7	46.5	-1.3	1.1
Neova AB	-2.1	-1.5	-42.6	1.7	1.0
AS Tootsi Turvas	0.1	0.3	-80.4	1.1	1.6
Others	-0.3	0.0	-579.8	0.2	0.9
Associates	-1.5	-1.0	-48.8	1.4	2.2
Eliminations	0.2	0.2	15.3	0.3	-19.8
Total	-9.0	-12.8	29.7	8.6	36.9

 For further information, please contact:

 Tomi Yli-Kyyny, CEO, Vapo Oy, tel. +358 20 790 5605

Suvi Kupiainen, CFO, Vapo Oy, tel. +358 20 790 5516