Vapo’ result plunged as a result of the rainy summer and recession in the building industry

The turnover of Vapo’s sawmills fell by EUR 54 million, and their operating result was weakened by EUR 28 million compared with the previous year. Demand in the sawn goods market was slow throughout 2008, and the high price of the raw material weighed on profitability. The mild winter, the scarcity of peat caused by a second consecutive weak harvesting season, and a deep fall in the demand for sawmilling products reduced Vapo’s turnover and weakened the result compared with the previous year. The result of Local Fuels was almost halved. A positive fact is that peat has maintained its position in the energy market and interest in Vapo’s fuels has increased.

In 2008, the turnover of the Vapo Group fell to EUR 631.8 million (EUR 660.6 million in 2007). The operating profit was EUR 21.1 million, i.e. 3.3 percent of the turnover (EUR 55.5 million, 8.4.0%).

At the end of 2008, the Group’s equity ratio was 42.2 percent (43.5%). The cash flow from business operations was EUR +50.6 million, and the cash flow after investments EUR +2.0 million.

The turnover of Vapo Local Fuels (peat, wood, energy crops) was EUR 207.1 million (EUR 226.0 million) and the operating profit EUR 24.6 million (EUR 39.4 million).

Owing to the mild winter and difficult storage situation, fuel peat deliveries fell to 16.7 TWh (20.3 TWh) in Finland. In Sweden the deliveries amounted to 1.3 TWh (1.7 TWh).

In Finland, wood fuel deliveries grew slightly, amounting to 2.9 TWh (2.8 TWh). The deliveries of energy crops increased to 81 GWh (50.0 GWh).

The profitability of peat was weakened by higher production costs, weaker quality and increased transportation distances.

Demand for peat has remained good. New contracts and deliveries representing 10 TWh are under negotiations. It is most unfortunate that deliveries to the customers had to be cut owing to the two successive rainy summers. In certain areas peat supplies were exhausted completely. It is important that the licensing system is developed in the future to speed up the procedure.

The turnover of Vapo Pellets was EUR 94.0 million (EUR 93.4 million). The operating loss was EUR 5.6 million (operating loss in 2007 EUR 8.7 million).

The mild winter reduced demand for pellets.  Production in Europe and imports from outside the EU grew and pressed down prices. At the same time, the high price of wood raw material caused by the scarcity of supply weakened the profitability of the business.

Vapo’s pellet deliveries amounted to 588 000 tonnes (609 000 tn).

The new pellet plant in Vilppula, capacity 110 000 tonnes, started operations at the end of July.

The turnover of Vapo Heat and Power was EUR 94.4 million (EUR 68.2 million) and operating profit EUR 4.3 million (EUR 7.9 million).

The deliveries of heat and steam increased. Also electricity sales grew. Vapo’s own energy production and deliveries remained normal. The increases in the fuel costs could not be added in full to the prices.  

The turnover of Garden and Environment was EUR 122.1 million (EUR 110.8 million) and operating profit EUR 7.0 million (EUR 8.3 million).

The turnover grew in all the business lines: Professional Growing, Home and Park, Environmental Peat, and Environmental Management. The development was especially positive in horticultural peat raw material and litter peat, although the scarcity of raw material slowed down the growth to some degree.

Vapo Timber Oy’s turnover fell to EUR 123.0 (EUR 177.2 million) and the operating loss was EUR 8.0 million (profit EUR 21.5 million in 2007).

The market situation deteriorated rapidly both in Europe and in the USA, leading to growing stocks and excess supply. Also the high price of roundwood weakened profitability.

At the beginning of July, Vapo sold its shares in Forssan Verkkopalvelut Oy to Enfia Infrastructure Oy, which will manage the distribution of electricity in the Forssa region.  The deal generated a profit of EUR 11.6 million.

To clarify and streamline the company structure of the Vapo Group, a consolidation project of the subsidiaries was launched in 2008. The aim was a “one country, one subsidiary” structure.

The ownership of Voimavasu Oy, a joint venture in which Vapo had been a partner, was transferred to Vapo.

Garden & Environment purchased two Norwegian companies, Grei Vegar Fabrikker AS (100 %) and Andoytorv AS (60 %). Kekkilä’s Danish subsidiary Kekkilä Danmark A/S was closed down.

As to the development in 2009, the outlook is unclear.  Demand for peat will continue good, but the scarcity of the stocks will limit sales and increase costs.  In the pellet market, the imbalance between supply and demand and the scarcity of raw material will hinder business. No immediate improvement is to be seen in the sawmilling industry, and reductions in production will continue at least in the first six months of the year.

If peat production is successful in summer 2009, the overall turnover of the Vapo Group is expected to recover, and the relative profitability will improve.

Additional Information: Matti Hilli, Managing Director, Vapo Oy, Tel. +358 (0)40 500 9549