Contents Annual Report... 3 Consolidated profit and loss account 2011, IFRS Notes to the consolidated financial statements, IFRS...

Transcription

1 Annual Report 2011

2 1 Contents Annual Report... 3 Operating environment... 3 Consolidated key figures... 3 Development of business segments... 4 Turnover by segment... 4 Operating profit by segment... 4 Vapo Biofuels... 5 Vapo Bioheat... 6 Vapo Timber... 6 Vapo Environment... 7 Investment and financing... 7 Organisational changes... 8 Internal reorganisation... 8 Changes in group structure... 8 Normal seasonal variation... 9 Personnel... 9 Research and development Environmental issues Major risks and uncertainty factors Future prospects Group administration Board of Directors Supervisory Board Group management team Auditors Vapo Oy share capital and ownership Proposal by the Board of Directors for application of profits Consolidated profit and loss account 2011, IFRS Consolidated statement of comprehensive income Consolidated Balance Sheet Consolidated Cash Flow Statement Consolidated statement of changes in shareholders equity Notes to the consolidated financial statements, IFRS General information about the company Principles of preparation Segment information Geographical information Corporate acquisitions Other operating income Materials and services Other operating expenses Staff costs Depreciation and impairments Finance income and expenses Income tax Intangible assets Tangible fixed assets... 33

3 13. Shares in affiliate companies Investments classified as available for sale Non-current receivables Other non-current investments Deferred tax liabilities and assets Inventories Sales receivables and other receivables Cash assets Notes to shareholders equity Interest-bearing debts Non-current non-interest-bearing liabilities Reserves Accounts payable and other current liabilities Management of financial and product risks Fair values of financial assets and liabilities Subsidiary shares Contingent liabilities Related party transactions Parent company financial statements 2011, FAS Parent company profit and loss account Parent company balance sheet Parent company cash flow statement Notes regarding the parent company Calculation principles of key figures Group key figures Signatures Auditor s statement

4 3 Annual Report Operating environment In 2011, the turnover of the Vapo Group was million ( million in 2010) and its operating loss 41.9 million (operating profit 39.4 million). The result includes impairments of 33.7 million for pellet operations. A free cash flow before taxes was 20.5 million. Vapo s equity ratio at the end of 2011 was 33.8 % (38.3 %). Peat fuel demand was somewhat reduced owing to the warm autumn weather, fall in electricity market prices during the second half of the year, and under-production of peat, which failed to meet the summer 2011 target. A total of 16.9 TWh (18.9 TWh) of peat fuel was supplied throughout Finland. Due to the weather conditions, peat production during the season fell short of the average production figures over the past few years, while significant regional differences also prevailed. The cost-efficiency of wood fuels was reduced, by a fall in sale prices and increased freight costs, among other factors. Supply in excess of demand continued in the pellet markets, resulting in Vapo closing three of its pellet production plants in Finland, as well as reorganising production capacity within other units. The result from pellet operations before the impairments due to adjustments was million ( -6.2 milion). Cost-efficiency was further weakened by the cost of raw materials, low-level utilisation of capacity and the warm weather at the end of the year. In the saw mill industry, the cost of raw materials was high, while sale prices decreased. A decision was taken to restrict production towards the end of the year at all three Vapo Timber saw mills. The operating loss of Vapo Timber was 9.3 million (operating profit 4.7 million). In the autumn of 2011, Vapo initiated a review, with a view to an upgrade, of all of its operations. The objective is to make cost savings of more than 10 million a year, with a definitive and permanent strengthening of the cash flow. The aim is for more efficient use of capital funds and increasingly more cost-effective subcontracting, together with a general price review. In addition, Vapo will invest in reducing environmental impact in connection with its peat production. At the end of 2011, the group also commenced a strategy update, which is expected to be completed in early Consolidated key figures Turnover, million Operating margin (EBITDA), million Operating profit (EBITA), million Operating profit before impairments, million Result for the period, million Pre-tax free cash flow, million Return on invested capital % *

5 4 Return on invested capital before impairments %* Return on equity % Balance sheet total, million Shareholders equity, million Interest-bearing net debt, million Equity ratio % Gearing % Liquidity Dividend distribution, million Dividend % of the profit Avarage number of personnel * The calculation formula of key figures has changed since the previous year (see p. 58 of the notes). The consolidated result of million takes into account impairments at 37.5 million. The most significant impairment items, amounting to 33.7, consisted of adjustments in pellet production, impairments of 2.1 million in respect of five heating plants situated in Sweden in terms of heating operations, and an impairment due to the closure of the Sala plant for environmental operations, which amounts to 0.8 million. Operating loss before impairments totalled 4.5 million. Development of business segments Turnover by segment million 10-12/ /2010 Change % 1-12/ /2010 Change % 1-12/2010* Biofuels Bioheat Timber Environment Inter-segment turnover Group total Turnover of segment includes intra-group sales to other segments. * Turnover of segment excluding intra-group sales to other segments in the comparison year, Operating profit by segment million 10-12/ /2010 Muutos % 1-12/ /2010 Muutos % 1-12/2010* Biofuels Bioheat Timber Environment Other operations Group total The calculation of intra-group inter-segment transactions has been valued on the basis of market prices *The calculation of intra-group inter-segment transactions has been valued on the basis of cost prices in the comparison year 2010.

6 5 Vapo Biofuels The turnover of this business area in 2011 totalled million ( million). The operating loss was 18.2 million (operating profit 39.3 million), to include impairments in the sum of -33,7 million for pellet operations. Operating profit before impairments was 15.5 million. Investments for the year totalled 47.8 million ( 45.2 million). Turnover for peat energy amounted to million ( million), with a profit of 30.9 million ( 44.3 million). Peat energy supply within Finland totalled 16.9 TWh (18.9 TWh). Peat energy supply to Sweden was 1.3 TWh (1.6 TWh). Demand for peat was weakened by warm autumn and early winter as well as the significant fall in electricity stock market prices in the second half of the year. Due to the fact that peat production was below average, not all fixed prodcution costs were included as acquisition costs, but instead added to the final quarter result of Provision was made for increase in restoration costs of bogs post production by an increase of reserves in the amount of 5.8 million to 9.3 million. These reserves will cover the costs of post production conservation of waterways in terms of stress caused, landscaping and other restoration activities. Further, it was decided to invest 30 million in a three-year intensified water treatment programme. Wood fuel and energy crops generated a turnover of 74.0 million ( 66.1 million) with an operating result of -6.2 million ( -3.2 million). Supply within Finland of wood fuel amounted to 2.0 TWh (2.0 TWh) and in Sweden 1.5 TWh (1.4 TWh). On its current business formula, Vapo was unable to operate cost-effectively. Cost-effectiveness was also reduced by a fall in sale prices, increased freight costs, high price of stock, and loss in measure. The warm temperatures during the autumn, together with the delay sustained on EU decisions over national subsidies for renewable energy, also took their toll on wood fuel demand. Turnover for pellets was million ( million) and operating loss 47.2 million (operating loss 6,2 million). Operating loss in respect of pellets includes impairments at 33.7 million, directed at production plants and goodwill. In the light of the prevailing market position of supply over demand, in September 2011 the Board of Directors of Vapo decided the company would close three pellet production plants in Finland, and reorganise production capacity in the remaining units. To adjust operations onto a level equivalent to demand, production capacity was lowered from to tons. Following the recorded impairments, the assets of pellet operations amount to 87.3 million. The price of raw materials, challenging freight transport conditions prevailing in the early part of the year and insufficient utilisation of capacity increased operating costs, both in Finland as well as Sweden. The warm weather experienced towards the end of the year resulted in notably reduced sales. Pellet production by Vapo totalled tons ( tons). Turnover for environmental peat totalled 37.9 million ( 34.0 million), with an operating profit of 3,9 million ( 4.4 million). Demand for environmental peat remained at a good level, but the low stocks of raw materials and litter peat, as well as the cold weather in the start of the year, resulted in limited sales, particularly in Finland. Increased supply costs in respect of all fuels resulted in reduced cost-efficiency. Central factors leading to increased costs were the markedly risen prices of motor vehicle fuels

7 6 and longer transportation distances, particularly in terms of peat. Greater transportation distances were due to a low stock of peat and considerable regional distances between successful peat production regions, both in 2010 and Vapo Bioheat The turnover of this business area in 2011 amounted to million ( million). The operating profit was 1.0 million ( 5.0 million), including impairments of -2.1 million in respect of five heating plants situated in Sweden. Operating profit before impairments was 3.1 million. Annual investments totalled 15.0 million ( 11.7 million). Heating and steam supplied to customers totalled 1.8 TWh (1.8 TWh). Electricity sales totalled 0.3 TWh (0.3 TWh). Cost-effectiveness of heating operations was reduced due to increased fuel prices, resulting from the market conditions and poor peat production levels during the summer, as well as the warm autumn and early part of the winter, and a fall in electricity market prices in the second half of the year. Electricity consumer operations in Finland were acquired on by Forssan Energia Oy. At the same time, electricity derivative contracts were changed to correspond with the new position, and the sums realised were recorded as financial items for Vapo Oy. Having surrendered its electricity consumer operations, any electricity produced by Vapo plants, together with electricity produced by Jyväskylän Voima Oy, in which Vapo has a shareholding, is sold directly to the electricity markets. New heating plants were established for commercial use as follows: 4 in Finland, 1 in Sweden, 2 in Poland and 1 in Estonia. At the end of 2011, one heating plant was under construction in Finland, and one in Sweden. Vapo Timber Turnover in this business area in 2011 was million ( million) with the operating loss of 9.3 million (operating profit 4.7 million). Investments during the year totalled 9,5 million ( 2.5 million). Financial viability of operations was weakened as supply exceeded demand in the segment, with a fall in timber prices and a simultaenous increase in the cost of raw materials and factory costs. On average, the sale price of products fell by 7% and, accordingly, the increased transport costs of softwood logs lifted the cost to Vapo Timber of raw materials by some 6 % over the previous year. Production was curtailed at all three saw mills towards the end of In the period January to December, timber products were supplied in the quantity of m³ ( m³), being approximately 2% less than in the previous year. Timber trade in Finland in 2011 fell by one quarter, compared with Despite production cutbacks, the industry did not show any signs of timber shortage.

8 7 Peuravuono saw mill in Inari was sold on The new production line, installed by Hankasalmi saw mill in September 2011, formed the most significant single item of the total investments of 9.5 million ( 2.5 million). Vapo Environment Turnover of this business area in 2011 totalled million ( 93.8 million). The operating profit was 2.4 million ( 7.1 million), which takes into account impairments of -0.8 million, following closure of the Sala factory in Sweden. The profit before impairments was 3.2 million. Investments in the segment were 10.8 million ( 10.7 million). Turnover for consumer business by Kekkilä reached a total of 42,6 million ( 41.5 million). Sales in Finland were less than in the previous year, but in other Nordic countries turnover increased. Domestic garden product sales suffered, due to late arrival of spring. The most successful new products in 2011 in the brand series entitled Koti & Piha consisted of a small greenhouse, Vihervitriini, and natural fertilisers, newly introduced to the market. Turnover in the professional growing business line grew in 2011 to 24.6 million ( 22.5 million), despite the fire damage sustained on the production side. Eurajoki growth peat factory burnt down in April 2010 and, in May 2011, the screening unit of the Niib factory was partially damaged as a result of a fire. However, customer orders were secured through production reorganisation. A new growth peat plant at Eurajoki commenced its operation in April 2011, and by June the Niib plant was back to functioning almost at full capacity. Turnover for the park business line was 15.0 million ( 11.9 million). Demand developed from late spring onwards, and the largest market areas achieved better sales than in the previous year. Good progress was made both in Finland and, particularly, Sweden. Turnover for environmental management business line was 18.9 million ( 18.0 million). As is typical in this segment, the market remained stable throughout the year. The quantity of waste handled by waste processing plants and compost peat sales both increased a little over the previous year. Expansion of the Mosås plant in Sweden was initiated, with the objective of cost savings by centralising operations. For this reason, the operating result includes a deduction in value of 0.8 million in respect of the Sala plant, which is to be closed in Investment and financing Gross investment by Vapo Group amounted to a total of 94.5 million ( 80.9 million). Taking into account depreciation, the level of investment was 204 %. Investment by segment was divided as follows: Biofuels 47.8 million (50.6 %), Bioheat 15.0 million (15.9 %), Timber 9.5 million (10.1 %) and Environment 10.8 million (11.4 %). Other consolidated investments totalled 11.4 million (12.0 %). The most important investments of the year consisted of general investment in peat production and its development, a new production line in Hankasalmi, as well as heating and pellet heating plants.

9 8 Free cash flow before tax was 20.5 million ( million). Cash flow was subject to positive development in 2011, as a result of a reduction in working capital. Consolidated equity ratio at the end of the year was 33.8 % (38.3 %) and gearing ratio % (119.5 %). Interest-bearing net debt at the end of the period amounted to million ( million). Consolidated net financing costs totalled 8.3 million (net financing income 0.8 million). Net financing costs amounted to 1.2 % of turnover (0.1 %). In June 2011, Vapo issued the first bond in the history of the company, in the amount of 100 million. The term of the loan is 6 years, with the coupon interest rate of 4.25 %. Following the issue, the division of maturity of interest-bearing liabilities was significantly reduced. The loan was used to service general working capital requirements within the group. Organisational changes Operations by Vapo were reorganised at the start of 2011 into four business areas: Vapo Biofuels, Vapo Bioheat, Vapo Timber and Vapo Environment. Pellets and environmental peat operations were transferred into the Vapo Biofuels business area. Vapo Wood Products was established in early 2012, consisting of two business lines: Vapo Timber and Vapo Pellets. This change had no effect on the judicial structure of the group. The Managing Director of Vapo during its first quarter in 2011 was Matti Hilli (M.Tech.). He was replaced by Tomi Yli-Kyyny (M.Tech.), with effect from Internal reorganisation As part of group reorganisation, Vapo Oy sold its entire operations relating to composting and development of green areas to its subsidiary, Kekkilä Oy, on The shares owned by Vapo Oy in Andoy Torv A/S were acquired by Kekkilä Oy at the end of Changes in group structure In the beginning of 2011, Vapo acquired a 30 % shareholding in the timber procurement company, Harvestia Oy, which procures pine and spruce logs for Vapo s needs, as well as an increasing part of wood for energy use. In December 2011, jointly and equally with Powerflute Oyj, Vapo acquired a further 30% share in Harvestia from Myllykoski Oyj. Following the transaction, Vapo now has a 45 % shareholding in Harvestia.

10 9 Vapo sold its electricity operations to Forssan Energia Oy, a company formed by Valkeakosken Energia Oy and Sallila Energia Oy. The business was transferred to Forssan Energia Oy on Normal seasonal variation Seasonal temperature differences greatly impact sales in the Biofuels and Bioheat business areas, creating seasonal variations with operations. The cold temperatures in early 2011 were beneficial to the sale of bio fuels and heating energy, but the warm autumn and early winter 2011 reduced demand during the latter half of the year. For best results, the production of peat-based fuels and environmental products calls for minimal rainfall. Due to the weather conditions, the peat production season in the summer of 2011 remained below average, compared with the past few years. There were also exceptionally high regional climate variations during the summer months. Despite the poorer than anticipated production season, the current heating season s customer demand will be met, but the small production levels have not improved the low stock levels, prevailing for several past summers. To balance the stocks in the long term will require at least average weather conditions over the summer months, for several years, as well as sufficiently large production areas. With peat production volumes below the target, the position of environmental products was weakened even further, and low stocks continued to limit trade. Personnel Vapo Group personnel Finland Other countries Group total Personnel by segment, on average Biofuels Bioheat Timber Environment Other operations Total In 2011, Vapo Group operations in Finland, Sweden and Estonia held cooperation discussions over reorganisation and review of personnel numbers. In addition to the cost-cutting initiative published in December 2011, the company, in January 2012, commenced negotiations, pursuant to the law governing cooperation between

11 10 the employer and employees within companies, to reduce personnel costs and reorganise operations for reasons of operational and financial efficiency. The negotiations relate to the Finnish operations of Vapo Group, which has some 800 employees. The company seeks savings in personnel costs equating to around 90 man years salaries. Along with offers of transfer, Vapo aims to minimise losses to its staff by offering voluntary subsidy packages to employees who face redundancy. In 2011, Vapo Academy arranged a total lof (1 207) training days, of which 932 (477) were for Vapo personnel and 185 (730) for entrepreneurs. There was more scope for online training, and this was utilised, among others, in middle management development. Overall, the new training methods of blended learning and supervisor coaching were introduced, in which interest is expected to increase in future, and these were run side by side with training courses. One development target in staff cooperation was established as greater transparency, for instance, via the Cooperation Committee. The Cooperation Committee met five times in the course of the year. Employee representation on management level was implemented through the Supervisory Board, which has three employee representatives. Research and development Consolidated investment in research and development activities in 2011 totalled 4.4 million ( 4.4 million), amounting to 0.62 % of turnover (0.61 % ). The main research targets during the year consisted of water processing methods in peat bogs, eco-friendly peat production methods and after-care of peat production land. New technology was designed for timber harvesting and production of afforested peat land. Further, Vapo continued cooperation with Metsäliitto over their joint Bio Diesel project. Assessment of the impact of peat production on the climate was continued by way of a life cycle analysis. The impact of peat on the climate can be notably lowered by careful bog area selection and improved production methods. Vapo actively participated in international energy joint ventures through various bio energy societies and programmes, with the objective of strengthening the position of peat and other types of bio energy. Environmental issues The objectives of the environmental policy are to reduce emissions into the waterways and air, utilise natural resources in a sustainable manner, improve the efficacy of materials, minimise waste load, and create an environmentally friendly office. A three-year environmental training programme to support the environmental policy was initiated, which aims to ensure a common understanding of, and commitment to, the policy objectives, develop the environmental know-how of personnel and subcontractors, and improve the standard of dealing with issues relating to environmental care.

12 11 The group s environmental management was structured and resourced in 2011 in that, for instance, each operating segment appointed a person responsible for environmental issues. Additionally, in 2011, Vapo commenced the drafting of the Group s environmental policy. By organised activities, it is hoped to improve systematic planning, management and monitoring of environmental issues, and expand environmental responsibility to include the entire Group, also on the operations level. The environmental protection costs of Vapo Group in 2011 resulted mainly from peat production, such as maintenance of water conservation equipment (materials and subcontracting), statutory monitoring, environmental permits and assessment of environmental impact. These costs, excluding own personnel costs, totalled 17 million ( 16 million). Consolidated environmental investment was 9 million ( 9 million), consisting, in principal, of water conservation structures in connection with peat production. Peat production The proposal by a working group set up by the Ministry of Agriculture and Forestry for sustainable and responsible use of bogs and peat land as a national policy was published in In accordance with this policy, after , Vapo will establish new peat production areas only among bogs which have been trenched, or where the normal natural conditions of the bog have significantly changed. Discussions commended in the spring of 2011 with the Ministry of the Environment to exchange any bogs in their natural state, or classified as environmentally significant, owned by Vapo, for bogs which would be capable of attracting a production licence. Vapo complies with the international practice guide of EPAGMA on the responsible use of bogs and peat land. Vapo aims to reduce the adverse impact on waterways resulting from peat production and employ the best available technology in water conservation, as far as practicable. During 2011, environmental inspections were carried out by 23 inspectors at all peat production areas. Further, development projects were initiated, which are intended to expand and unify environmental monitoring and continuously analyse the waters used in production. The first device, continuously measuring solid substances and humus, was installed in December The processing of feedback on environmental issues concerning peat production was improved during Dialogue with interested parties was advanced by way of a tour bus in the summer, which visited some 40 locations, reaching more than 5000 people. A project entitled Suot nettiin [ Bogs on the Net ] was also established, with the objective of transparency in peat production. In Finland, 67 (87) environmental licence applications for peat production were made, incorporating a total of hectares (2 557 hectares) of new production area. A total of 3 (24) assessments for environmental impact resulting from peat production were initiated. Licences were obtained for new areas, covering 527 hectares (1 751 hectares). By the end of 2011, new areas of peat bogs prepared for production consisted of hectares (2 541 hectares). Total area used for peat production amounted to hectares ( hectares) hectares (1 650 hectares) of area was removed from production hectares (1 954 hectares) of land was transferred to different use, of

13 12 which 489 hectares (1 000 hectares) was returned to the land owners. 389 hectares (160 hectares) was turned into a forest, 157 hectares (210 hectares) into fields, 34 hectares (13 hectares) into wetland, 18 hectares into bird lakes, and 4 hectares into hunting fields. Major risks and uncertainty factors A common risk factor, which significantly affects all of the operations of Vapo, is the weather. During the winter months, the temperatures affect the fuel purchases of both external and internal customers, as well as the degree of operation of our own heating plants. In the spring, the weather conditions decide the volume of sale of garden products. In the summer months, the weather impacts on the production volumes and quality of bio fuels and environmental products. Due to the weather conditions, the peat production season of summer 2011 was below average, in comparison with the previous years. For this reason, peat stocks remain low, with notable regional differences. To bring the peat stocks to an adequate level will require at least average weather conditions during the forthcoming summers, as well as sufficient production land. In terms of the future of Vapo, a notable risk factor is the obtaining of environmental licences for new peat production areas, which is becoming increasingly complicated. Vapo has decided to invest more than 30 million on environmental protection structures in peat production areas over the next three years. Currently, regulatory risks are proving to be greater than market risks, creating difficulties for investment and development in the energy sector. The competitiveness of peat energy as fuel is controlled by product taxation. The product tax of 1.90/MWh, which came into force at the start of 2011, together with emissions trading obligations, have reduced the position of peat energy in the fuel markets. The market position of peat energy is expected to weaken further when the product tax on peat energy rises to 4,90/MWh in 2013, and to 5,90/MWh in The financial viability of Vapo wood fuel operations has been poor. The ratio between the acquisition cost of timber and its resale price is difficult to control, resulting in a significant cost-efficiency risk. Vapo secured its wood fuel operations in early 2011 by amalgamating timber procurement needs for the company s wood energy and saw mills through the acquisition of a shareholding in Harvestia Oy, and subsequently increasing its shareholding at the end of Some of the Group-owned power plants fall within the sphere of the EU s emissions trading system. The Group will fulfil its emissions obligations in the period in terms of nationally distributed emission rights, free of charge, and by purchasing emission rights from the markets. Further, the Group has made provision to deal with its emissions obligations through investment in Testing Ground Facility (TGF) and Nefco Carbon Fund (NeCF). Supply over demand prevailed in pellet operations throughout Irrespective of production adjustment to correspond with demand, an operational viability risk remains. Excess supply is anticipated to continue worldwide in 2012, and production cut-backs cannot be ruled out.

14 13 Vapo Timber operates in the cycle-based saw mill industry, where, in 2011, supply of sawn timber exceeded demand within the key markets. In the light of this, sale prices fell, while the price of raw materials remained high. In order to balance the situation, production cut-backs were implemented at the end of 2011 at Vapo Timber saw mills. Vapo Timber expects production restraints to continue in 2012, owing to supply over demand, lack of availability of raw materials at reasonable prices, and reduced cost-efficiency. Further information in respect of risk factors and risk management can be found in the Notes to the Financial Statements, Annual Report, and on the website of Vapo. Future prospects Vapo Group as a whole The objective of the Group is to enhance income from capital investments, improve cash flow and strengthen the balance sheet, through a complete review of operations. Vapo will limit its investments in order to reduce indebtedness, although the planned environmental investments will not be downsized. Vapo Biofuels The factors influencing the operations and result in 2012 will be the quoted price of electricity, success of peat production during the summer of 2012, industrial operating time ratio, outdoor temperatures, as well as the effects on the demand of peat and wood energy of any decisions concerning subsidies or taxation on peat and other fuels. Water reserves in the Nordic countries are high, reducing the price of electricity as well as the volume of condensate production, and the demand for fuel by power stations. It is anticipated that, overall, the use of wood fuels by customers will increase as a consequence of the obligation to move to renewable energy, review of production subsidies for wood fuel and electricity, increased tax on fuel imports, as well as shortage of peat. Vapo is directing its wood fuel operations towards financially viable customer sectors, which may lead to a fall in turnover. In the spring of 2012, peat stocks will be low. The availability of peat during the heating season is highly dependent on a successful production season in To ensure continuity of peat production, over the next three years Vapo will invest over 30 million in water treatment and sustainable peat production. In compliance with the new policy, all peat production bogs must, for instance, employ the best available water treatment technology by the end of 2014, at the latest; Vapo will offer hectares of valuable bog area for exchange or conservation; and the water treatment systems of all peat bogs will be inspected at 2-4 week intervals. This will ensure that the water treatment systems at peat bogs will always meet the standards required by the licence conditions. The aim of Vapo Biofuels in 2012 is to enhance the segment s cash flow and costeffectiveness by a quicker turnaround of capital reserves, and improved profitability. This is sought through better cost-effeciency of the acquisition-logging-supply chain, improved circulation of stock, and more accurate stock management, both in Finland and Sweden.

15 14 Peat energy operations will free up capital by making increased efforts to dispose of any land which has been removed from production, for use, i.e. as farm land; by speeding up the sale of forest areas or wood-based raw materials; by cutting down on the preparation of new bogs for production as well as machinery investments; and by selling any bog land unsuitable for production. It is also actively sought to free up capital by revising credit terms and reducing stock purchases of spare parts and other requisites. Further, energy crop operations in Finland will be adjusted to correspond with demand. Vapo Bioheat The key aspects impacting on bio heating operations consist of the temperatures, electricity market price trends, fuel prices and availability, and the availablity of the main boilers. Demand for heating by industrial customers impacts the financial viability of operations, particularly in Sweden, where a significant proportion of turnover is derived from supplying heating to the saw mill industry. Operational objectives for 2012 are an improved cost-effectiveness and cash flow, by increasing sale prices, reducing production costs through increased efficiency, reducing fixed costs and selling unproductive or unviable stock items. These measures are already being implemented, and it is expected that the results will be visible in terms of cost-effectiveness and cash flow in the second half of Vapo Wood Products The recovery of the timber industry markets, which are based on demand, is anticipated to commence in the second quarter of 2012, provided that the economic situation in Europe starts to recover. Production cut-backs in this sector, which have prevailed since last year, have had the effect of balancing the timber product markets and stabilising sale prices, and these are likely to see a rise in the first half of The price of logs is expected to fall a little in the early part of the year. Apart from the positive price development of timber products and raw materials, key activities to improve operational cost-effectiveness and cash flow in 2012 consist of faster turnaround of stock and follow-up of receivables, and adjustment of the supply/demand ratio. The result for pellet business in 2012 will be affected by the operating time ratio of the saw mill industry, outdoor temperatures, and the impact on the demand of pellets of any subsidy or taxation decisions taken. In Europe, the biggest driving forces for demand are Great Britain and Italy, and any increase in demand in Great Britain, in particular, would diminish the excess supply levels of industrial pellets. Rising imports of consumer pellets to the domestic markets, Finland and Sweden, serve to increase excess supplies. In Finland, it is aimed to improve cash flow and financial viability in 2012 by adjusting the supply/demand ratio and increasing the share of domestic supply, while reducing unviable exports to Denmark. Cost-effectiveness will be further improved by lower production costs, as a result of the closure in 2011 of pellet production plants in Ilomantsi, Haapavesi and Kaskinen. In Sweden, the development of logistics, the distribution network and sales operations, together with a reduction in stocks of raw material and pellets, is central to improving cost-effectiveness.

16 15 Vapo Environment In terms of gardening and environmental operations, overall it is anticipated to see some positive development in 2012, and it is expected that Vapo s strong brands of Kekkilä and Hasselfors Garden will increase their market share. Cash flow and financial viability of operations will be improved by cost-cutting and product price increases. Savings are sought over the cost of logistics and raw materials, optimising transport journeys and securing raw materials within a sufficiently short distance from the production plants. Further, an operational reorganisation is underway in Finland and Sweden. Production in Sweden will be integrated into two plants, whereas one plant is scheduled to close in the autumn of In Finland, the objective is to improve operating procedures. Group administration 2011 The management bodies of Vapo Group consist of the Annual General Meeting of Vapo Oy, Supervisory Board, Board of Directors, Managing Director, and the Boards of Directors and Managing Directors of its subsidiaries. In accordance with recommendations, members of the Board of Directors of Vapo Oy form an Audit Committee and a Compensation Committee. The business of Vapo Oy is managed by business areas. The Group s Management team, appointed by the Board of Directors of Vapo Oy, will function under the supervision of the Managing Director. Board of Directors Chairman Deputy Chairman Juho Lipsanen (MSc) Managing Director Perttu Rinta Members Managing Director Risto Kantola, until Managing Director Martti Haapamäki, from Managing Director Hannu Linna Trade Director Marja-Leena Rinkineva Director Katariina Simola, until Director Marja Tuderman, from The Board of Directors met 15 times during the accounting period. The level of participation in the meetings of the Board of Directors was 97%. The Board of Directors has prepared a self-evaluation of its activities. On the Board of Directors established a Compensation Committee and an Audit Committee. The Compensation Committee in 2011 consisted of Juho Lipsanen (MSc) (Chairman) with two members, Trade Director Marja-Leena Rinkineva and Managing Director Hannu Linna. The Compensation Committee met 5 times during the year, the level of participation was 100 %.

17 16 In 2011, the Audit Committee was formed of Managing Director Perttu Rinta (Chairman) with two members, Managing Director Martti Haapamäki and Director Marja Tuderman. The Audit Committee met 6 times, the level of participation was 100 %. Supervisory Board Chairman Deputy Chairman Members Juha Korkeaoja, Agronomist Heikki Miilumäki, Doctor of Technology Hannu Hoskonen, Silvicultural Advisor Mikko Hentinen, Managing Director since Mats Nylund, Member of Parliament Raimo Piirainen, Member of Parliament Eero Kubin, Head of Customer Services Esko Kurvinen, Member of Parliament Kauko Rauhansalo, Counsellor, until Simo Salmelin, Provincial Councillor Marjo Matikainen-Kallström, Member of Parliament Personnel representatives and deputies on the Supervisory Board Heikki Salorinne, timber felling and saw mill staff (Rauno Valkendorff) Ilpo Viinamäki, peat industry staff (Seppo Ala-Aho) Tommi Pihlajasalo, senior administrative staff (Matti Koljonen) The Supervisory Board met 4 times during the accounting period. The level of participation was 100 %. Group management team Tomi Yli-Kyyny, Managing Director Pasi Koivisto, Business Area Director, Biofuels Markus Hassinen, Development Director and Business Area Director, Bioheat Juha Hakala, Business Area Director, Timber Petri Alava, Business Area Director, Environment Matti Puuronen, Director, Baltic and Poland Operations Juhani Ylä-Sahra, Director, Scandinavian Operations Jyrki Vainionpää, Chief Financial Officer Kari Poikolainen, Chief Legal Counsel Pirjo Nikkilä, Head of Personnel Mia Suominen, Environmental Director Ahti Martikainen, Director, Communication and Public Affairs

18 17 Auditors Deloitte & Touche Oy, authorised public accountants. Principal auditor Tapani Vuopala, authorised public accountant. Vapo Oy share capital and ownership Vapo Oy has issued one series of shares. It consists of shares, with a nominal value of per share. One share entitles the bearer to one vote at the shareholders meeting, and all shares are subject to an equal dividend. At the end of 2011, the share capital of Vapo Oy amounted to Vapo Oy is a company owned by the Finnish State and Suomen Energiavarat Oy. Finnish State holds 50.1 % of the shares ( shares) and Suomen Energiavarat Oy 49.9 % ( shares). Proposal by the Board of Directors for application of profits It is proposed by the Board of Directors that the loss for the period by Vapo Oy, amounting to 6,300,383.89, be recorded as a deduction on operating profits, pursuant to which the sum of 178,728, will be available for distribution at the shareholders meeting. It is proposed not to distribute a dividend for the period.

19 18 Consolidated profit and loss account 2011, IFRS Consolidated statement of comprehensive income EUR 1000 Note TURNOVER Change in stocks of finished goods Production for own use Other operating income Share of results of affiliated companies Materials and services Expenses arising from staff benefits Depreciation Impairments Impairment of goodwill Other operating expenses Operating profit Financing income Financing expenses Profit before tax Income tax PROFIT FOR THE PERIOD OTHER COMPREHENSIVE INCOME ITEMS: Currency conversion 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 COMPERHENSIVE INCOME FOR THE PERIOD Attribution of profit for the period: To parent company shareholders To non-controlling shareholders Attribution of comprehensive income for the period: To parent company shareholders To non-controlling shareholders Earnings per share, calculated from profits attributable to parent company shareholders Earnings per share Average number of shares:

20 19 Consolidated Balance Sheet EUR 1000 Note ASSETS Non-current assets Intangible assets Goodwill Tangible assets Shares in affiliate companies Available for sale investments Non-current sales and other receivables Other non-current investments Deferred tax assets Non-current assets total Current assets Inventories Sales and other receivables Income tax receivables Cash in hand and at banks Current assets total Non-current assets available for sale ASSETS TOTAL SHAREHOLDERS EQUITY AND LIABILITIES Shareholders equity Share capital Fair value fund and other funds Conversion differences Accrued profits Equity attributable to owners of the parent company Non-controlling shareholders Shareholders equity total Non-current liabilities Deferred tax liabilities Non-current interest-bearing liabilities Other non-current liabilities Reserves Non-current liabilities total Current liabilities Current interest-bearing liabilities Accounts payable and other liabilities Income tax liabilities Reserves Current liabilities total SHAREHOLDERS EQUITY AND LIABILITIES TOTAL

21 20 Consolidated Cash Flow Statement EUR Operating cash flow Result for the period Adjustments to the result for the period Depreciation and impairments Share of affiliate companies results, profit (-) / loss (+) Finance income and expenses Income tax Other adjustments Adjustments to the result for the period total Change in working capital Decrease/increase in inventories Decrease/increase in sales and other receivables Decrease/increase in accounts payable and other liabilities Decrease/increase in reserves Change in working capital total Interest paid Interest received Other financial items Taxes paid Operating cash flow Investment cash flow Investment in tangible and intangible assets Proceeds from sale of intangible and tangible assets Acquisition of subsidiary shares -23 Sale of subsidiary shares 35 Acquisition of affiliate company shares Sale of affiliate company shares 65 Purchase of other investments -3 Sale of other investments Increase in borrowing Proceeds from loan receivables Dividends received Investment cash flow Financing cash flow Increase (+) /decrease (-)in current loans Withdrawal of funds from non-current loans Repayment of non-current loans Repayment of finance lease liabilities Dividends paid Financing cash flow

22 21 Change in cash assets Cash assets at beginning of the accounting period Change in cash assets Effect of foreign exchange rate changes Cash assets at the end of accounting period Corporate reorganisation cash assets 50 Consolidated statement of changes in shareholders equity EUR 1000 Share capital Fair value fund Other reserves Conversion difference Retained earnings Total Noncontrolling interests SHAREHOLDERS EQUITY Changes in shareholders equity Distribution of dividends Joint ventures 0 0 Increased shareholding in subsidiaries Total comprehensive income Other changes Imputed taxes Other changes SHAREHOLDERS EQUITY Total EUR 1000 Share capital Fair value fund Other reserves Conversion difference Retained earnings Total Noncontrolling interests SHAREHOLDERS EQUITY Changes in shareholders equity Distribution of dividends Joint ventures 0 0 Transfers between items 0 0 Total comprehensive income Other changes Imputed taxes Other changes SHAREHOLDERS EQUITY Total Notes to the consolidated financial statements, IFRS General information about the company Vapo Group is a supplier of local and renewable fuels, bio electricity, bio heating and environmental operations solutions, operating in the Baltic region. Vapo Group includes four operating segments: Vapo Biofuels, Vapo Bioheating, Vapo Timber and Vapo Environment. Vapo has subsidiaries both in Finland and overseas. The parent company of the group, Vapo Oy, is a Finnish limited company, incorporated in Finland and

23 22 domiciled in the town of Jyväskylä. The address of the registered office is Vapo Oy, Yrjönkatu 42, PL 22, Jyväskylä. The company s website can be found at The Board of Directors of Vapo Oy, at its meeting on , has approved the publication of these financial statements. Pursuant to the Companies Act in Finland, governing limited liability companies, shareholders may either approve or reject the financial statements at the first shareholders meeting following publication. The shareholders meeting may also vote to have the financial statements revised. A copy of the consolidated financial statements may be obtained online at or from the head office of the parent company. 1. Principles of preparation 1.1 General The consolidated accounts of Vapo Oy have been prepared in accordance with International Financial Reporting Standards (IFRS), approved by the EU, applying the IAS and IFRS standards, and SIC and IFRIC interpretation, current on Vapo Group adopted IFRS reporting standards in the beginning of Until then, the group s accounts were prepared in accordance with Finnish Accounting Standards (FAS). The notes to the consolidated financial statements also comply with the requirements of the Finnish accounting and company acts which complement the IFRS regulations. The profit and loss statement data is presented in thousands of euros is are based on the original acquisition costs, unless stated otherwise in the principles of consolidation. For presentation purposes, individual figures and totals have been rounded up to the nearest thousand, resulting in rounding-up differences in the calculations. All of the information presented in the accounts of Vapo Group is based upon continuing operations Princinples of consolidation The group financial statements consist of the financial statements of the ultimate parent company, Vapo Oy, and any subsidiaries in which the the parent company holds voting rights in excess of 50%, or which are otherwise controlled by the parent company. Piipsan Turve Oy, in which Vapo s holding is 48%, has been consolidated as a subsidiary in the consolidated profit and loss statements. Affiliate companies in which Vapo controls 20 50% of the share votes, and in which Vapo has considerable influence but no absolute control, have been consolidated using the capital share method. The consolidated financial statements do not include Biokraft Oy, which has been consolidated in the Metsäliitto Cooperative s profit and loss statements. Acquired subsidiaries have been consolidated in the consolidated financial statements from the date on which the Group acquired control. Group companies mutual share ownerships have been eliminated using the acquisition cost method. The acquisition cost has been allocated to the acquired company s assets and debts at their fair value at the time of the acquisition, where a reliable figure could be determined. For these allocations, imputed taxes have been estimated at the current tax rate and the remainder has been entered in the balance sheet as goodwill. The Group s internal business transactions, receivables, debts, unrealised margins and internal distribution of profit are not included in the consolidated financial statements. The profit for the period is distributed between the parent company s owners and minority shareholders. The share of non-controlling shareholders is also presented as a separate item as part of shareholders equity 1.3. Summary of key principles of calculation Application of the new IFRS standards or IFRIC interpretation The new standards which came into force in 2011 are not applicable to Vapo Group. Use of estimates in financial statements