Vapo Oy Interim Report 1 May–31 August 2017

 
The first third of the year in brief:

• Group turnover in May–August was EUR 95.4 million (EUR 87.9 million in May–August 2016).
• The operating margin (EBITDA) was EUR 4.8 million (EUR 5.8 million), or 5.0% (6.5%) of turnover.
• The operating loss was EUR -10.0 million (EUR -9.0 million), or -10.5% (-10.2%) of turnover.
• Free cash flow before taxes was EUR 1.7 million (EUR 17.6 million).
• Gross investments were EUR 10.5 million (EUR 12.4 million).
• Earnings per share EUR -327 (-370)
• The Group produced a total of 9.3 million cubic metres of peat (9.5 million m³). 

Strong cash flow enabled the reduction of the balance sheet and the acceleration of the digital transformation

The Group’s turnover in the first third of the financial year (May–August 2017) amounted to EUR 95.4 million (EUR 87.9 million in May–August 2016). The turnover in the comparison period included EUR 2.3 million from Kekkilä’s operations in Norway, which were divested in March 2017. “I’m pleased with the progress we’ve made in reducing our balance sheet and debt thanks to the previous year’s strong cash flow and financing arrangements,” Tempakka says. The exceptionally cold spring and early summer meant that the Kekkilä Group’s sales to amateur growers were substantially lower than in the comparison period in both Finland and Sweden. However, the below-average temperatures increased the Group’s fuel and heating sales in all markets. Peat production in Sweden and Estonia went as planned but, in Finland, the rainy weather resulted in the peat production volume being approximately 65 per cent of the target.

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. The Group’s operating loss for the first third of the financial year was EUR -10.0 million (EUR -9.0 million). The result was reduced by Vapo Oy’s peat production volume being only some 6.7 million m³, which increased the reporting period’s costs recognised through profit and loss by EUR 4.9 million (EUR 2.0 million) due to the amount of stored peat being lower than the normal production volume. Nevertheless, Vapo Oy’s energy peat reserves remain at a good level. This ensures the reliability of deliveries in the upcoming heating season even if the winter turns out to be colder than average.

The Group’s cash flow during the reporting period amounted to EUR 1.7 million (EUR 17.6 million). The Group has made a conscious effort to enhance the inventory turnover of fuel wood and pellets, and capital was also freed up by the low peat production volume as well as fuel sales being higher than in the comparison period.

According to Vapo Oy CEO Vesa Tempakka, a rainy summer and the normal seasonal fluctuation of the business constitute a difficult combination for achieving a strong result in the first third of the financial year. “Looking at our individual businesses, I am nevertheless satisfied with how the Kekkilä Group has improved its profitability by implementing other measures. This progress has been supported by a new organisational structure as well as the growing international market,” Tempakka says.

“In the energy business, our long-term goal is to shift our focus from fuel sales to multi-year energy solutions. We have invested in new digital services related to these solutions, and these efforts are now starting to bear fruit. For example, we have brought all of our Finnish power plants under the centralised control of our operations centre located in Vantaa’s Tikkurila district, and we have already signed our first agreements with external customers. The operations centre in Vantaa is currently running two boiler plants owned by Vatajankosken Sähkö and, starting from next March, it will also operate two steam boilers owned by UPM Kalso Plywood,” Tempakka explains. “We aim to acquire more new power plant customers for our remote operations centre and introduce new digital services for use by smaller heating plants as well,” Tempakka adds. 

“In June, we repaid a EUR 100 million bond without having to refinance it. Our goal is to further reduce our balance sheet and liabilities,” Tempakka says. 

Outlook for the remainder of the financial year, to 30 April 2018 

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. Political decisions have a substantial impact on the profitability of Vapo’s business operations and its capacity to make investments. 

Vapo Group’s turnover is expected to improve year-on-year. However, this is subject to the coming winter not being exceptionally warm like the past two winters have been. The Group’s operating profit will be reduced by unsuccessful peat production in Finland, and the operating profit for the full financial year is expected to be slightly lower than in the previous year. Electricity prices are expected to remain at the current level, and new demand for solid fuels is not expected in electricity generation. The new businesses will not yet generate significant turnover during the current financial year.

Consolidated key figures
MEUR	5–8/2017	5–8/2016		5/2016 –4/2017
Turnover	95.4	87.9		392.1
Operating profit (EBIT)	-10.0	-9.0		20.0
% of turnover	-10.5	-10.2		5.1
Operating profit (EBIT) before impairments	-10.0	-8.8		22.4
% of turnover	-10.5	-10.0		5.7
Profit/loss from discontinued operations
Profit/loss for the period	-9.8	-11.0		8.1
Operating margin (EBITDA)	4.8	5.8		56.9
+/- Change in working capital	6.8	3.3		14.7
– Net investments	-9.9	8.5		1.6
Free cash flow before taxes	1.7	17.6		73.2
Gross investments	10.5	12.4		39.6
Return on invested capital % *	2.9	1.8		3.0
Return on invested capital % before impairments *	3.3	2.0		3.4
Return on equity % *	2.9	-1.3		2.6
Balance sheet total	695.9	760.6		812.4
Shareholders’ equity	329.5	276.5		339.7
Interest-bearing net debt	270.6	368.3		269.6
Equity ratio %	49.2	38.0		43.0
Interest-bearing net debt/operating margin	4.8	7.8		4.7
Gearing %	82.1	133.2		79.4
Personnel on average	801	829		776
*) Previous 12 months
**) In calculating the equity ratio, the capital loan on the balance sheet was calculated as shareholders’ equity

Turnover and operating profit for the comparison period, 5/2015–4/2016, excluding discontinued operations. 

The information presented in this Interim Report is unaudited. 

For further information, please contact:

• Vesa Tempakka, CEO, Vapo Oy, tel. +358 20 790 5999
• Suvi Kupiainen, CFO, Vapo Oy, tel. +358 20 790 5516
• Ahti Martikainen, Director, Communications and Public Affairs, Vapo Oy, tel. +358 20 790 5608

 More information www.neova-group.com/en