Interim Report 1 January 30 September 2012

Transcription

1 Interim Report 1 January 30 September 2012 Board of Directors 31 October 2012

2 1 VAPO OY INTERIM REPORT 1 JANUARY 30 SEPTEMBER 2012 July-September Group turnover in the July-September period was EUR million (EUR million in the same period in 2011). Operating margin (EBITDA) was EUR million, or -11.0% of turnover (EUR -1.9 million, -1.7%). The operating result was EUR million, or -22.0% of turnover (EUR million, or -37.6%). The operating result includes one-off revenues of EUR 1.0 million. Free cash flow before taxes was EUR 1.8 million (EUR million). Gross investments were EUR 10.5 million (EUR 21.3 million). Net investments were EUR 1.6 million (EUR 22.3 million). 1.4 TWh of energy peat was supplied (2.1 TWh). January-September Group turnover in the January-September period was EUR million (EUR million in the same period in 2011). Operating margin (EBITDA) was EUR 40.9 million, or 8.2% of turnover (EUR 52.3 million, 9.8%). The operating result was EUR 9.0 million, or 1.8% of turnover (EUR million, - 2.0%). The operating result includes one-off revenues of EUR 11.2 million. Free cash flow before taxes was EUR 75.1 million (EUR 51.6 million). Gross investments were EUR 35.1 million (EUR 67.4 million). Net investments were EUR 15.5 million (EUR 62.3 million). Return on invested capital before impairments was -1.8% (prev. 12 mths) (4.4%). The equity ratio on 30 September 2012 was 36.9% (35.3%). At the end of 2011 the equity ratio was 33.8%. Interest-bearing net debt on 30 September 2012 was EUR million (EUR million). Interest-bearing net debt at the end of 2011 was EUR million TWh of energy peat was supplied (13.0 TWh). The warm winter, low electricity prices and the poor production summer reduced energy peat deliveries. The rainy summer and autumn meant that peat production volumes were around 47% (60.0%) of target. Tomi Yli-Kyyny, Vapo CEO: The exceptionally poor peat production season will lead to peat shortages and the full-year operating result will be loss-making. Cash flow over the past year has been strong and during this year we have reduced net investments by EUR 46.8 million compared to the reference period and interest-bearing net debts by EUR 71.6 million since the start of the year. The summer s environmental investments were implemented as planned and these will be continued in coming years. The efficiency-enhancement programme, which is still ongoing, has achieved the planned results and the company is now moving forward.

3 2 The warm winter and low electricity market prices cut turnover by Biofuels and Bioheat by over EUR 20 million and operating profit by over EUR 5 million. The profitability of the sawmill business has also plunged since the reference period. The efficiency-enhancing programme and asset sales that the company launched a year ago and cuts in investments have alleviated the impact of the weaker operating environment. The summer peat production period was exceptionally poor. We only achieved around 47 per cent of our production target. For this reason turnover for the full year will decline significantly and the full-year result will also be loss-making. Fuel pricing will be revised for the forthcoming heating season to cover the increase in unit costs. Apart from Vapo, the poor production season will also entail problems for contractors and additional costs for customers, who will have to replace the shortfall in energy peat with more expensive fossil fuels. A series of rainy summers with poor evaporation has brought the problems of ageing production areas into sharp focus. After rain, production stops at old, lower-lying areas for much longer than at new areas. If the company is to meet customers needs even in poor weather conditions, it is essential that the permit applications made for new production areas are processed consistently and granted. We will not apply for permits for unditched bogs and therefore the granting of permits does not threaten the diversity of the peatland environment. At the moment the authorities are processing 13,000 hectares of production areas for which Vapo has applied for production permits. The peat energy in 13,000 hectares has an estimated worth to customers of over one billion euros and an employment effect of over a thousand persons. The oldest applications were submitted for processing in For the sake of the business of Vapo s customers, Vapo s existence and Finland s security of supply, bringing these into production as quickly as possible is essential. We are not expecting demand for sawn timber to pick up this year. Profitability has improved in the pellet business following reorganization measures, but the market continues to be challenging, especially in Sweden. We estimate that profitability will improve at the Kekkilä businesses this year compared to the previous year. Following a series of internal transactions, the Kekkilä businesses have become much more independent and self-sufficient in raw materials in Finland and Sweden. The acquisition, announced in August, of the garden composter and ecological toilet businesses of Lassila & Tikanoja will expand Kekkilä s product range and bring in new customers in growing markets. These businesses have an annual turnover of around EUR 4 million. Owing to the outlook for Vapo Biofuels and Vapo Wood Products, we estimate that Group turnover will be substantially below the previous year and that the full-year result will be loss-making. In the remainder of the year Vapo will continue the actions already launched to improve cash flow and profitability by improving the recycling of capital and earningsgenerating performance in all business areas. Key actions include improved stock turnaround, disposal of land areas released from production and other balance sheet items not essential to key business activities and a very thorough appraisal of investments. No compromises will be made on environmental investments, however. Cash flow has been strong over the past year and during this year we have cut net investments by EUR 46.8 million and interest-bearing net debt by EUR 71.6 million. We es-

4 3 timate that our efficiency-enhancing measures, cuts in investments and sales of balance sheet items, among other actions, will enable us to exceed our full-year target of free cash flow of EUR 40 million before taxes. Vapo and Metsä Group previously announced plans for a joint biodiesel plant in Ajos, Kemi. In June Metsä Group announced it was withdrawing from the project. The project was deemed to be the best biodiesel plant that could be built in Finland, so if it goes ahead, it may NER 300 support from the EU. Vapo will now continue to search for operational partners and financing for the biodiesel project. We have progressed with our environmental investment programme according to plan. Vapo has previously announced that enhanced water treatment will be installed at all production bogs by the end of At the end of 2011, Vapo had a total of around 47,000 hectares in production. Of this, around 36,000 are covered by the best available technology (BAT), and 11,000 hectares had basic-level water treatment. During 2012 this area will decline by around 3,000 hectares. Production areas where enhanced water treatment cannot be installed by the end of 2014 will be taken out of production. It was also very positive that we concluded negotiations with the Ministry of the Environment on the first of the sites we have offered for conservation in Hyvinkää and Outokumpu. Vapo sold a total of 690 hectares of peatland to Metsähallitus and negotiations on other sites are progressing in a positive spirit. Consolidated key figures MEUR 7-9/ / / / /2011 Turnover Operating profit (EBITA) % of turnover Operating profit (EBITA) before impairments % of turnover Result for the period Operating margin (EBITDA) /- Change in working capital Net investments Free cash flow before taxes Gross investments Return on invested capital % * Return on invested capital % before impairments * Return on equity % * Balance sheet total Shareholders equity Interest-bearing net debt Equity ratio % Gearing % Average number of employees *) Previous 12 months

5 4 Developments by business segment Turnover by segment MEUR 7-9/ /2011 Change % 1-9/ /2011 Change % 1-12/2011 Biofuels Energy peat Wood energy and energy crops Environmental peat Others Bioheat Wood Products Timber Pellets Environment Kekkilä businesses Mustankorkea Inter-segment turnover Group total Operating result by segment MEUR 7-9/ /2011 Change % 1-9/ /2011 Change % 1-12/2011 Biofuels Energy peat Wood energy and energy crops Environmental peat Others Bioheat Wood Products Timber Pellets Environment Kekkilä businesses Mustankorkea Other operations Eliminations Group total Vapo Biofuels The turnover of the business area in the July-September period was EUR 38.3 million (EUR 44.6 million). The operating result for the period was EUR -8.2 million (EUR 1.3 million). One-off items improved the operating result by EUR 1.0 million. Gross investments totalled EUR 5.4 million (EUR 9.0 million).

6 5 Turnover from energy peat in the third quarter was EUR 21.0 million (EUR 22.9 million) and the operating result was EUR -7.0 million (EUR 2.4 million). Energy peat deliveries in Finland totalled 1.3 TWh (2.0 TWh) and in Sweden 0.1 TWh (0.1 TWh). The poor production summer and the low exchange price of electricity cut demand for peat. Due to the rainy summer peat supplies were of inferior quality, which reduced profitability. Since actual peat production was 47 per cent of the target in normal conditions, the proportion of fixed production costs attributed to the acquisition of peat stocks, around EUR 8 million, will weigh on the result for the third quarter. Turnover from wood energy and energy crops in the third quarter was EUR 7.2 million (EUR 12.2 million) and the operating result was EUR -1.7 million (EUR -2.0 million). Vapo sold its wood fuels business in Sweden at the end of June, and as a result turnover fell compared to the previous year. Deliveries of wood fuels in Finland were 0.3 TWh (0.4 TWh) and in Sweden 0.1 TWh (0.2 TWh). The trend in sales prices for wood fuels combined with higher prices for raw wood chips meant that the operating result of the business remained loss-making. Due to the rainy summer, the quality of inventories deteriorated and delivery costs increased. Turnover from environmental peat in the third quarter was EUR 9.8 million (EUR 8.7 million). Operating profit was EUR 0.8 million (EUR 1.1 million). Demand for environmental peat remained at a good level, but the poor production summer increased costs and made it impossible to produce enough peat to meet demand. The turnover of the business area in the January-September period was EUR million (EUR million). The operating result for the period was EUR 23.1 million (EUR 35.6 million). The result for the year to date was impacted most by the mild weather and low electricity prices, which both contributed to lower demand for peat and wood fuels. The peat production season started late and the summer saw record rainfall levels. In the absence of long continuous periods of fine weather, peat production was low. Around 47 per cent of the target was produced. In Finland around 46 per cent of target was achieved, in Sweden 55 per cent and in the Baltic region 47 per cent. As part of the efficiency-enhancement programme designed to improve cash flow and profitability, non-core fixed assets have been sold since the start of the year to a total value of EUR 21 million. Investments have been cut by EUR 9 million compared to last year. With inventory levels low following the poor production summer, working capital has been reduced. Payment terms for accounts receivable and accounts payable have been reviewed. Vapo Bioheat The turnover of the business area in the July-September period was EUR 14.2 million (EUR 14.6 million). The operating result was EUR -7.6 million (EUR -4.8 million). Gross investments totalled EUR 1.6 million (EUR 1.7 million). The result includes a one-off sales loss of EUR -0.5 million.

7 6 Within heat sales, profitability in the third quarter was almost as forecast. One-off cost writedowns had a negative impact on the operating result. Turbine repair work at the largest power plant in Forssa meant that the plant was unable to generate electricity in August-September. With the main boiler out of service in Forssa, heating energy was mostly generated from heating oil, which increased generation costs significantly. The low market prices of electricity also weakened the profitability of electricity generation during the period at all power plants. The turnover of the business area in the January-September period was EUR 74.0 million (EUR 81.2 million). The operating result for the period was EUR -2.4 million (EUR 1.8 million). Deliveries of heat and steam to customers in the period totalled 1.2 TWh (1.2 TWh). Electricity sales were 0.1 TWh (0.2 TWh). The efficiency-enhancement programme designed to improve cash flow and profitability was continued, with disposals of non-strategic assets. The most significant single transaction was the sale of the Kuivaniemi wind park to Leppäkosken Energia Oy. Preparations for development projects to improve the energy efficiency of Bioheat s main plants in Finland were continued. Vapo Wood Products The turnover of Vapo Wood Products in the July-September period was EUR 41.6 million (EUR 45.3 million). The operating result for the period was EUR -6.0 million (EUR million). Gross investments in the third quarter were EUR 0.7 million (EUR 3.6 million). The turnover of Vapo Timber in the July-September period was EUR 26.7 million (EUR 28.3 million) and the operating result was EUR -3.6 million (EUR -4.1 million). Deliveries of sawn timber in the third quarter were 114,000 m3, which was 11 per cent less than in the same period in The turnover of the sawmill business in the January-September period was EUR 86.0 million (EUR 97.2 million) and the operating result was EUR -8.0 million (EUR -3.8 million). Compared to the same period in the previous year, raw materials prices were 2 per cent higher and selling prices on average 2 per cent lower. The turnover of Pellets in the third quarter was EUR 15.0 million (EUR 17.3 million) and the operating result was EUR -2.5 million (EUR million). Pellet deliveries totalled 80,000 tonnes (94,000 tonnes). Writedowns of EUR 27.7 million made in September 2011 weakened the result in the reference period. Pellets posted turnover EUR 72.6 million in the January-September period (EUR 75.1 million) and the operating result was EUR -5.4 million (EUR million). In the sawmill business cash flow and profitability have been improved by accelerating the recycling of capital. Fixed cost cuts and production cutbacks have also been introduced in order to reduce losses. In the pellet business, fixed costs have been reduced and stocks have been run down in Finland, Sweden and Denmark. The loss-making pellet business in Denmark has mostly been disposed of, and the objective is to dispose of it fully once existing commitments expire. Due to the positive market situation in Poland, it has been possible to increase prices.

8 7 Vapo Environment The turnover of the business area in the July-September period was EUR 19.7 million (EUR 17.7 million) and the operating result was EUR -0.4 million (EUR -0.6 million). Gross investments totalled EUR 2.8 million (EUR 1.8 million). Including intra-group business transfers, gross investments were approximately EUR 18 million. The Vapo Environment business area comprises the Kekkilä businesses and Mustankorkea Oy, 55 per cent of which is owned by Vapo Oy. The Kekkilä businesses include consumer, professional grower, landscaping and environmental management activities. The turnover of the Kekkilä businesses in the third quarter was EUR 16.9 million (EUR 15.0 million). The operating result was EUR -1.0 million (EUR -1.5 million). Turnover in the consumer business in the third quarter was EUR 4.8 million (EUR 2.3 million). Turnover in the previous year was impacted by a correction to sales adjustment items. Comparable turnover was at this year s level. The turnover of the professional growing business in the third quarter was at the previous year s level at EUR 5.4 million (EUR 5.4 million). The turnover of the landscaping business in the third quarter was EUR 4.3 million (EUR 4.6 million). Turnover in the environmental management business totalled EUR 2.1 million (EUR 2.1 million). The market has been stable. The turnover of Mustankorkea Oy in the third quarter was EUR 2.8 million (EUR 2.7 million) and the operating result was EUR 0.6 million (EUR 0.9 million). The depreciation period of Mustankorkea s final storage areas has been shortened to correspond to their true estimated useable life. At an annual level, the impact of the shortening of the depreciation period on the result is around EUR 0.5 million. The turnover of the business area in the January-September period was EUR 83.9 million (EUR 83.8 million). The operating result for the period was EUR 8.4 million (EUR 4.8 million). The result includes an insurance indemnity of EUR 2.6 million for the fire at the Eurajoki garden peat plant. The operating result without the insurance indemnity was EUR 5.8 million. Also, preparations were made for increased costs for restoration of peatlands removed from production by increasing the after-use reserve by EUR 0.4 million. This reserve covers expenditure from water protection, watercourse load, landscaping and other post-production restoration measures. The efficiency-enhancement programme designed to improve cash flow and profitability was continued. Price increases have also been implemented in the Kekkilä businesses owing to substantially higher raw materials prices. The Kekkilä businesses were made more independent and self-sufficient in raw materials through the acquisition of the garden peat processing businesses of Vapo in Finland and Neova in Sweden. In Finland the purchase price of the garden peat processing business

9 8 was around EUR 5 million. The normal annual production volume of the approximately 350 production hectares acquired is around 145,000 m3. The purchase price of the approximately 680 production hectares and approximately 300,000 m3 of annual production in Sweden was around EUR 8 million. The acquisition, announced in August, of the garden composter and ecological toilet businesses of Lassila & Tikanoja will expand Kekkilä s product range and bring in new customers in growing markets. These businesses have an annual turnover of around EUR 4 million. Group Administration and other activities The impact of Group Administration and other activities on the operating result in the July- September period was EUR 1.0 million (EUR -2.7 million). In the January-September period the impact of Group Administration and other activities on the operating result was EUR -5.9 million (EUR million). Investments totalled EUR 0.1 million (EUR 9.0 million). The operating result for the first quarter of 2011 includes a loss of EUR 1.9 million on the sale of composting plants from Vapo Oy to Kekkilä Oy. Without this loss realization, the impact of other activities on the result as of 30 September 2011 was EUR million. As a result of the efficiency-enhancement programme designed to improve cash flow and profitability, costs have been cut in all Group Administration functions. In particular, IT costs have been reduced. Cash flow, investments and financing In the third quarter free cash flow before taxes was EUR 1.8 million (EUR million). Free cash flow before taxes consists of operating margin (EBITDA), change in net working capital and net investments. Operating margin (EBITDA) was EUR million (EUR -1.9 million), working capital increased by EUR 15.1 million (EUR -6.5 million) and net investments were EUR -1.6 million (EUR million). Gross investments in the July-September period were EUR 10.5 million (EUR 21.3 million), broken down into Biofuels EUR 5.4 million (EUR 10.7 million), Bioheat EUR 1.6 million (EUR 1.3 million), Wood Products EUR 0.7 million (EUR 2.7 million) and Environment EUR 2.8 million (EUR 1.8 million). In the January-September period free cash flow before taxes was EUR 75.1 million (EUR 51.6 million). Operating margin (EBITDA) was EUR 40.9 million (EUR 52.3 million), working capital increased by EUR 49.7 million (EUR 61.7 million) and net investments were EUR 15.5 million (EUR 13.9 million). In the January-September period gross investments were EUR 35.1 million (EUR 24.6 million), broken down into Biofuels EUR 21.4 million (EUR 37.6 million), Bioheat EUR 4.5 million (EUR 5.7 million), Wood Products EUR 7.5 million (EUR 7.6 million) and Environment EUR 1.7 million (EUR 7.5 million). Other Group investments were EUR 0.1 million (EUR 9.0 million).

10 9 Interest-bearing net debt at the end of September was EUR million (EUR million). Interest-bearing net debt at the end of 2011 was EUR million. The equity ratio at the end of September was 36.9% (35.3%) and the gearing ratio was 117.5% (123.7%). At the end of 2011 the equity ratio was 33.8% and the gearing ratio 145.8%. The Group balance sheet total was EUR million (EUR million). Changes in the organization A new Board of Directors was appointed to Kekkilä Oy on 1 August The new Board comprises four representatives of the Vapo Group and two external members. The representatives of the Vapo Group are Tomi Yli-Kyyny (Chairman), Kari Poikolainen, Ahti Martikainen and Jyrki Vainionpää. The external members are Sirpa Ojala (CEO of Digita Oy) and Tiia Tuovinen (General Counsel, Telia-Sonera). A new Board of Directors was also appointed to Timber Oy in May. The new Board comprises four representatives of the Vapo Group and one external member. The representatives of the Vapo Group are Tomi Yli-Kyyny (Chairman), Mikko Osara, Juhani Ylä-Sahra and Pasi Koivisto. The external member is Hannu Linna (CEO, Vaasan Sähkö Oy). Changes in Group structure Kekkilä Eesti began operations on 1 July The assets and employees of the Niibi plant were transferred from Tootsi Turvas to Kekkilä Eesti. Vapo Oy reached agreement on the sale Mustankorkea Oy to the City of Jyväskylä on 7 May The sale had not been confirmed by the date of publication of the Interim Report. In the consolidated balance sheet the external assets and debt of Mustankorkea Oy have been separated out into available-for-sale assets and debt in accordance with IFRS5. Seasonal fluctuation in activities The sales volumes of Biofuels and Bioheat are heavily dependent on seasonal temperature variations and electricity prices, which results in seasonal fluctuations in sales. The warm winter of 2012 and the low exchange price of electricity reduced demand for pellets, wood fuels and energy peat. A lack of rainfall is required for peat production to succeed. The conditions have meant that in both 2011 and 2012 production has been well below target, reducing stocks and weakening security of supply for future heating periods. Low inventory levels are also constricting sales of environmental products. Peat production began late. The exceptionally rainy weather in summer and autumn and the lack of continuous fine weather meant that production was low. Around 47% of the production target was achieved. This will significantly reduce peat deliveries in the forthcoming heating season. In the long term, building up buffer stocks will require average weather conditions and sufficient production areas for several production summers.

11 10 Human resources The Group employed an average of 1172 (1287) persons in the period 1-9/2012. In 2011 the Group employed an average of 1226 persons. Employees by segment, average Biofuels Bioheat Wood Products Environment Other activities Total Employees in Finland and other countries, average 1-9/ / /2011 Finland Other countries Total In January 2012 actions were launched to reduce the Vapo Group s staff costs in Finland and reorganize activities for production and financial reasons. The person work year total in the Group decreased by around 60. Following the winding-up of the outsourcing agreement between Vapo Oy and Maintpartner Oy, 75 persons transferred to the employment of Vapo Oy from 1 August Risk management The key risks to Vapo s business are set out in the 2011 accounts. The main risks to Vapo s business, operating environment and financial situation include: political tax and subsidy decisions for different fuels weather risk to peat production/ low level of buffer stocks availability of new production areas and the slow permit process customers switching to fuels competing with peat price trend of wood products/ rise in raw materials prices impact of diesel taxation and the Sulphur Emissions Directive on transport costs The following closely monitored risks have been identified as having a bearing on earnings and activities for the rest of 2012 and early 2013: success in coping with peat shortages caused by the poor summer weather the general economic uncertainty and its direct and indirect effects on Vapo s businesses, in particular the sawmill business the success of implementation of specific environmental production measures in peat production developments in wood fuel markets including regulatory changes

12 11 the oversupply situation in wood pellets and profitability in the wood pellet business the success of measures to improve the profitability of Vapo s businesses managing fuel costs in our own energy generation Special measures to reduce risks to property will be continued. Risk assessments will be carried out in line with the damage risk management programme for The steps recommended in the risk assessments will be implemented and the implementation will be monitored. Outlook for the future Vapo Group as a whole It is likely that the target of EUR 40 million in free cash flow (before taxes) for the full year will be exceeded. The result for the final quarter is expected to be loss-making owing to the forecast operating loss at Biofuels and Vapo Wood Products. The first half of 2013 is expected to show a profit. The Group s objective is to improve the return on invested capital and cash flow and to strengthen the balance sheet by re-organizing activities. Vapo will limit investments in order to reduce debt accumulation, but planned environmental investments will not be cut. Vapo Biofuels The poor peat production summer will significantly reduce peat deliveries in the forthcoming heating season. Not enough peat was produced to satisfy demand, as a result of which power and heating plants that use peat will have to replace peat with alternative fuels. Owing to the peat shortage, usage of wood and other biomass and coal will increase at yearend. The peat shortage will continue until the start of the summer 2013 production season. Demand for environmental peat clearly exceeds supply. For this reason demand was concentrated in the third quarter and turnover in the remainder of the year and the first half of 2013 will be lower than the reference period. Since actual peat production was 47 per cent of the target in normal conditions, the proportion of fixed production costs attributed to the acquisition of peat stocks, around EUR 12 million, will weigh on the result for the remainder of the year. The factors affecting activities and earnings in 2013 are the success of the summer s peat production, the availability of new peat production areas, the utilization rate in industry, the outside temperature and the way in which decisions taken regarding the subsidization and taxation treatment of peat affect demand for peat and wood. Customers overall usage of wood fuels is expected to increase due to a package of renewable energy obligations, support for usage of forest-based fuels and changes to electricity generation subsidies, higher taxation on imported fuels and a shortage of peat. Vapo will direct its wood fuel activities at profitable customer segments, which may mean a drop in turnover.

13 12 In order to ensure the continuity of peat production, Vapo will invest over EUR 30 million in water treatment and sustainable peat production this year and the next two years. Under this new policy, amongst other measures, the best water treatment standards will be installed at all our production bogs by the end of 2014 at the latest, and Vapo will offer to exchange or protect 2300 hectares of valuable peatlands. In September negotiations were successfully completed with the Ministry of the Environment on a transaction for the first bogs with significant natural values. Since May 2012 the water treatment systems at all production bogs have been inspected at 2-4 week intervals. This ensures that the water protection systems at peatlands are constantly functioning. The objective is to further improve cash flow and profitability, inter alia by accelerating the recycling of capital. The route to this is improved cost-efficiency in the wood fuels procurement-chipping-customer delivery chain, better stock turnaround and monitoring of stock levels. In the energy peat business, capital tied up in the business will be released by selling areas released from production inter alia for arable farming, by accelerating sales of forest holdings and industrial roundwood, by cutting investments and selling land areas unsuitable for production. Steps to be taken to reduce the capital tied up in activities will include amending payment terms and reducing stock purchases of spare parts and supplies. Also, the energy crop business in Finland will be scaled back in line with demand. The pricing of fuels the upcoming heating season will be reviewed, so that they even partly cover the rise in unit costs caused by low production. Vapo Bioheat The key factors affecting the earnings of the Bioheat business include the trend in electricity market prices, the prices, availability and quality of fuels as well as the availability of main boilers. Conditions, especially the outside temperature, directly affect the volumes of district heat supplied and thereby the profitability of the heating business in the final quarter. The failure of peat production in summer 2012 means that plants will not have sufficient amounts of high-quality peat fuel available for the forthcoming heating season. Replacing peat with more expensive wood fuels, oil and coal will impair the profitability of heat generation in the next two quarters. Demand for heat by industrial customers is affected by cyclical fluctuations in the economy. At the time of writing, some industrial customers have signalled production cutbacks, which will reduce these customers heating needs. The objective of the business for the remainder of 2012 is to ensure positive cash flow and improve profitability despite the difficult fuel situation. Efforts will continue in the final quarter to sell off assets that do not fit the new strategy. Investments to improve energy efficiency and plants earnings ability will be partially implemented in the final quarter. It is planned to implement the majority of development investments in 2013 and 2014 and these will begin to be reflected in earnings in the second half of Vapo Wood Products Vapo Timber continues to suffer from the weak economic situation in Europe, which has reduced demand for sawn timber and kept selling prices low. But raw materials prices have remained high relative to market prices, which has increased costs. In order to improve cash flow and profitability, sawmill activities will be cut back in the remainder of the

14 13 year in all production units and stocks will not be built up unnecessarily. Cost savings will be sought out through a production efficiency programme and new investments in automation. Earnings in the pellet business in the final quarter will be affected by the cost trend in raw materials and how the temperature affects overall demand. In the final quarter the Swedish pellet business will still be burdened by expensive raw material supply contracts dating from the previous contract period. In Finland, steps will be taken to improve the cash flow and profitability of the pellet business by adjusting production to the demand level in the home market. There are signals of growth in the Finnish market, especially to substitute oil with pellets in heat generation. Profitability will be boosted by lower production costs resulting from the closure of the Ilomantsi, Haapavesi and Kaskinen pellet plants in In Sweden, production has been stopped indefinitely at the Forsnäs pellet plan to bring production volumes into balance with domestic demand. In Sweden, improvements to logistics, the distribution network and sales as well as lowering raw material prices are among the key measures to improve profitability. Vapo Environment In the Kekkilä businesses the remainder of the year is expected to go to plan and profitability for the full year is expected to be an improvement on the previous year. The range will be expanded around the strong Kekkilä and Hasselfors Garden brand names. Cash flow and profitability will be improved by centralizing manufacturing activity, reducing fixed costs and improving logistics, procurement and the recycling of working capital. The annualized effect of centralized manufacturing and reduced fixed costs will be around EUR 1 million from This includes the savings from reductions in Finland and Sweden, where one plant will be closed in autumn Vantaa, 31 October 2012 Vapo Oy Board of Directors For further information please contact Tomi Yli-Kyyny, CEO tel Jyrki Vainionpää, CFO tel Ahti Martikainen, Director, Communications and Public Affairs tel

15 14 Interim Report tables The Interim Report of Vapo Oy was drawn up in accordance with IAS 34 Interim Financial Reporting standards. Complying with IFRS standards in the preparation of an Interim Report requires Group management to make estimates and assumptions. These estimates and assumptions have a bearing on the value of balance sheet items, the disclosure of contingent assets and liabilities, and the amounts of reported revenues and expenses. Although the estimates are accurate to the best of the management s knowledge, actual results may differ from the estimates. The estimates used in this Interim Report are the same as those used in the 2011 Financial Statements. The information presented in this Interim Report is unaudited.

16 15 Consolidated statement of comprehensive income MEUR 7-9/ /2011 Change % 1-9/ /2011 Change % 1-12/2011 TURNOVER % % Other operating income % % 9.8 Share of associated company results % % -0.2 Operating expenses % % Depreciation % % Writedowns % % OPERATING PROFIT % % Financial income % % 13.4 Financial expenses % % PROFIT/LOSS BEFORE TAXES % % Income tax % % 11.1 PROFIT/LOSS FOR THE PERIOD % % OTHER COMPREHENSIVE INCOME ITEMS: Translation differences from foreign units Available-for-sale investments Taxes due on other comprehensive income items Other comprehensive income items for the period after taxes TOTAL COMPREHENSIVE INCOME FOR THE PERIOD Distribution of profit for the period: To parent company shareholders To non-controlling shareholders Distribution of comprehensive income for the period: To parent company shareholders To non-controlling shareholders Earnings per share calculated from profits due to parent company shareholders Earnings/share, EUR Average number of shares 30,000 30,000 30,000 30,000 30,000

17 16 Consolidated balance sheet MEUR ASSETS LONG-TERM ASSETS Intangible assets Goodwill Land and water areas Buildings and structures Machinery and equipment Other tangible assets Investments in progress Investments Long-term receivables Deferred tax asset LONG-TERM ASSETS CURRENT ASSETS Inventories Other receivables Cash on hand and bank balances CURRENT ASSETS AVAILABLE-FOR-SALE ASSETS 9.4 ASSETS SHAREHOLDERS EQUITY AND LIABILITIES SHAREHOLDERS EQUITY Parent company shareholders share of shareholders equity Non-controlling shareholders SHAREHOLDERS EQUITY LONG-TERM LIABILITIES Deferred tax liability Long-term interest-bearing liabilities Long-term non-interest-bearing liabilities Long-term provisions LONG-TERM LIABILITIES CURRENT LIABILITIES Current interest-bearing liabilities Current non-interest-bearing liabilities CURRENT LIABILITIES AVAILABLE-FOR-SALE DEBT 4.2 SHAREHOLDERS EQUITY AND LIABILITIES

18 17 Statement of change in Group shareholders equity MEUR Equity capital Fair value fund Other funds Translation differences Retained earnings Total Noncontrolling shareholders SHAREHOLDERS EQUITY Changes in shareholders equity Distribution of dividend Comprehensive earnings for the period, total Other changes SHAREHOLDERS EQUITY TOTAL TOTAL MEUR Equity capital Fair value fund Other funds Translation differences Retained earnings Total Noncontrolling shareholders SHAREHOLDERS EQUITY Changes in shareholders equity Distribution of dividend Comprehensive earnings for the period, total Other changes SHAREHOLDERS EQUITY TOTAL TOTAL

19 18 Condensed consolidated cash flow statement MEUR 7-9/ / / / /2011 Cash flow from operating activities Profit/loss for the period Adjustments to the result for the period Change in working capital Cash flow from operating activities before financial items and taxes Net financial expenses Taxes paid on operating activities Cash flow from operating activities Cash flow from investing activities Investments in tangible and intangible assets Proceeds from disposal of tangible and intangible assets Associated company shares purchased Shares in subsidiaries sold Proceeds from disposal of other investments Changes in loans receivable Dividends received Cash flow from investing activities Cash flow before financing Cash flow from financing activities Change in long-term loans and other financing items Dividends paid Cash flow from financing activities Change in cash and cash equivalents Cash and cash equivalents opening balance Change in cash and cash equivalents Effect of changes in exchange rates Cash and cash equivalents at end of period

20 19 Notes to the Interim Report SEGMENT DATA 7-9/2012 MEUR Biofuels Bioheat Wood Products Environment Other activities Disposals Group total External turnover Internal turnover Turnover External turnover 0.6 Income taxes 4.9 Result for the period Investments Depreciation SEGMENT DATA 1-9/2012 MEUR Biofuels Bioheat Wood Products Segment operating profit/loss Financial income and expenses Environment Other activities Disposals Group total External turnover Internal turnover Turnover Segment operating profit/loss Financial income and expenses External turnover -3.3 Income taxes -1.8 Result for the period 3.9 Investments Depreciation SEGMENT DATA 1-12/2011 MEUR Biofuels Bioheat Wood Products Environment Other activities Disposals External turnover Internal turnover Turnover Segment operating profit/loss Financial income and expenses External turnover -8.3 Income taxes 11.1 Result for the period Group total Investments Depreciation Impairments

21 20 COLLATERAL, CONTINGENT COMMITMENTS AND OTHER LIABILITIES MEUR Collateral Liabilities for own commitments Mortgages Guarantees Total Financial leasing and other rental liabilities Financial leasing liabilities Due in present financial period Due in future financial periods Other rental liabilities Due in present financial period Due in future financial periods Total The Group has rented machinery and equipment, vehicles and IT equipment. Most of the agreements concern leased production machinery and equipment with a capital value of EUR 20.8 million on the closing date. There are no agreements in the acquisition period. The duration of the rental agreements is 10 years. The agreements include an option, but not an obligation, to continue the agreement after the original ending date. Guarantees given on behalf of others Guarantees Contingent commitments on behalf of associated companies Guarantees DERIVATIVE CONTRACTS MEUR Nominal value Nominal value Nominal value Market value Market value Market value Interest rate derivatives Currency derivatives Commodity derivatives Nominal value, total Market value, total