Interim Report 1 January 30 September 2011

Transcription

1 Interim Report 1 January 30 September 2011 Board of Directors 27 October 2011

2 1 VAPO OY INTERIM REPORT 1 JANUARY 30 SEPTEMBER 2011 January-September Group turnover in the January-September period was EUR million (EUR million in the same period in 2010). In the pellet business a EUR 27.7 million writedown was booked in the third quarter. Operating earnings were EUR million, -2.2% of turnover (EUR 27.3 million, 5.3 %). Total investments amounted to EUR 67.4 million (EUR 56.0 million) and cash flow after investments EUR 42.1 million (EUR 4.3 million). Cash flow from operating activities developed positively in the January-September period due to a reduction in working capital. Earnings before taxes were EUR million (EUR 23.7 million). The equity ratio on 30 September 2011 was 35.3% (39.0%) TWh of energy peat were supplied (13.2 TWh). Due to weather conditions peat production volumes were almost 30% below target, with large regional variations. In the sawmill industry raw material prices remained high and at the same time sales prices declined. An operating earning of EUR -4.2 million was posted (operating earnings EUR 4.8 million). Group key figures 7-9/ / / / /2010 Turnover, MEUR Operating earnings, MEUR Earnings before taxes, MEUR Earnings/share, EUR Shareholders equity/share, EUR 10, , , Return on investment (ROI) % Return on equity (ROE) % Equity ratio % Gearing ratio % Interest-bearing net liabilities (at end of period), MEUR Gross investments, MEUR Employees, average 1,287 1,278 1,333 Average number of shares 30,000 30,000 30,000 30,000 30,000 Developments by business segment Turnover by segment MEUR 7-9/ /2010 Change % 1-9/ /2010 Change % 1-12/2010 Biofuels Bioheat Timber Environment Other activities Inter-segment turnover Group total

3 2 Operating profit/ loss by segment MEUR 7-9/ /2010 Change % 1-9/ /2010 Change % 1-12/2010 Biofuels Bioheat Timber Environment Other activities Disposals Group total Tomi Yli-Kyyny, Vapo CEO, on Q3 2011: The third quarter of 2011 was a disappointment as regards earnings. The turnover of the Vapo Group in the third quarter was EUR million (EUR million in the same period in 2010) with an operating earning of EUR million (EUR -3.8 million). The operating earning before EUR 27.7 million of writedowns was EUR million. Vapo s Board of Directors decided in September that the company will close three pellet plants in Finland and prepare to adjust production capacity in the remaining units in Finland, Sweden, Denmark and Poland. Adjusting production to meet demand means reducing annual capacity from around 900,000 tonnes to 500,000 tonnes. At the same time the Board decided that a writedown of at least EUR 29 million will be booked in the 2011 accounts for adjustment measures in the pellet business. Vapo booked a writedown of EUR 27.7 million in the third quarter The third quarter is in any case always the weakest for the Vapo Group both in terms of turnover and profitability. Even in normal years operating earnings are negative in the third quarter, because demand for Vapo s fuels, electricity and heat are lowest in the period. Summer holidays and maintenance dowtntime also reduce volumes in sawmill activities. In the environment business the third quarter is the second weakest. The key months for peat production, July and August, did not alter the early summer forecast, and peat production was almost 30% below the volume target. A deviation on this magnitude significantly impairs the turnover and profitability forecast for the whole year, even though the effects are not yet visible in the actual figures for the third quarter. Turnover at Vapo Timber was slightly below the previous year due to a production shutdown resulting from the investment at the Hankasalmi sawmill. Profitability at Vapo Timber declined further because higher raw material prices could not be passed on to the prices of end products. Of Vapo s business areas, turnover and profitability at Bioheat and Environment were as forecast. Vapo s new Management Team began a strategy process in the third quarter to draw up the company s strategy. The strategy will be completed by the end of the first quarter of 2012.

4 3 Changes in the organization Vapo s new CEO, Tomi Yli-Kyyny, M.Sc. (Eng.), took over on 1 April The CEO in the first quarter of 2011 was Matti Hilli, M.Sc. (Eng.). The composition of the Management Team of the Vapo Group from 1 August 2011 has been as follows: Tomi Yli-Kyyny, Chief Executive Officer, Chairman of the Management Team Esa Koivula, Business Area Director, Vapo Biofuels Pasi Koivisto, Business Area Director, Vapo Bioheat Juha Hakala, Business Area Director, Vapo Timber Petri Alava, Business Area Director, Vapo Environment Matti Puuronen, Director, Vapo Baltic and Polish Operations Juhani Ylä-Sahra, Director, Scandinavian Operations Ahti Martikainen, Director, Communications and Public Affairs Pirjo Nikkilä, Director, Human Resources Kari Poikolainen, Chief Legal Counsel Mia Suominen, Environmental Director Asko Dahlbom, Chief Financial Officer to Jyrki Vainionpää, Chief Financial Officer from Vapo s pellet business, within the Vapo Biofuels business area, will become an independent product line within Vapo Timber at the start of At the same time, the Vapo Timber business area will be renamed Vapo Wood Products, comprising two businesses: Vapo Timber and Vapo Pellets. The change does not affect the Group s legal structure. Natural seasonal fluctuation in activities The sales volumes of Biofuels and Bioheat are heavily dependent on seasonal temperature variations, which result in seasonal fluctuations in sales. Temperatures so far in 2011 have been favourable for sales of biofuels and heat, and demand for products has been good. The production of peat-based fuels and environmental products succeeds best when there is little rainfall. Due to the weather conditions, the summer 2011 peat production period was below the average harvest in previous years. Despite the summer being warm, the long dry spells essential for peat production were few and far between, so that production was almost 30% below target. There were also exceptionally large regional variations in the weather this summer. Despite a weaker than forecast production period, customer supply contracts in the new heating season will be fulfilled, but the production period did not improve the low inventory levels following previous production summers. In the long term, rebuilding buffer stocks will require favourable weather conditions and sufficient production areas for a period of several production summers.

5 4 The situation is weakest is environmental peat, where the summer s below-target production did not alleviate the low inventory levels, which will continue to constrain sales of environmental products. Key business developments Vapo Biofuels The turnover of the business area in the January-September period was EUR million (EUR million). An operating earning of EUR -4.5 million was posted for the period (EUR 27.9 million). Operating earning before writedowns was EUR 23.2 million. Investments in the year to date totalled EUR 37.6 million (EUR 34.7 million). Delivery costs rose for all fuels, which weighed on profitability. The main factors behind the higher costs were significantly higher engine fuel prices and longer transport distances, especially for peat. The longer distances travelled are due to low peat stock levels and large regional divergences in the success of peat production in both 2010 and Turnover from energy peat amounted to EUR 148 million (EUR 138 million), with operating profit of EUR 31.8 million (EUR 28.7 million). Demand for peat remained good throughout the first half. The cold winter months increased heating fuel requirements. The capacity utilization rate in industry using peat as a fuel was high, and high electricity prices meant that more electricity was generated in condensing power stations from fuel peat. Belowtarget peat production in summer 2011, lower exchange electricity prices and the warm early autumn reduced peat deliveries in the third quarter. Energy peat deliveries in Finland totalled 13.0 TWh (13.2 TWh) in January-September In Sweden, energy peat deliveries amounted to 0.9 TWh (1.0 TWh). Turnover from wood energy and energy crops in the year to date amounted to EUR 44 million (EUR 38 million), with an operating earning of EUR -3.6 million (EUR -1.8 million). Deliveries of wood fuels in Finland totalled 1.4 TWh (1.5 TWh) and in Sweden 1.0 TWh (0.9 TWh). Delays in the EU processing of national subsidy decisions for renewable energy slowed demand growth in forest fuels. With peat production below target, demand for wood has increased in the third quarter. A combination of lower sales prices and higher supply costs weighed on profitability. Turnover from pellets amounted to EUR 70 million (EUR 68 million), with an operating earning of EUR million (EUR -1.1 million). The operating loss in pellets includes a EUR 27.7 million writedown for adjusting production capacity to demand; the loss before writedowns was EUR -9.4 million. There is still significant oversupply in European pellet markets. Falling sales prices have made the Swedish and Danish consumer markets challenging. The raw material price level, challenging haulage conditions in the cold winter and a low capacity utilization rate raised production costs, both in Finland and Sweden. Vapo produced a total of 395,000 tonnes of pellets (389,000 tonnes). Turnover from environmental peat amounted to EUR 28 million (EUR 24 million), with an operating profit of EUR 4.5 million (EUR 4.4 million). Demand for environmental peat held up well, but low raw material and litter peat stocks and the cold weather early in the year constrained sales, especially in Finland.

6 5 Vapo Bioheat The turnover of the business area in the January-September period was EUR 78.9 million (EUR 68.1 million). Operating profit amounted to EUR 5.1 million (EUR 3.3 million). Investments in the year to date totalled EUR 5.7 million (EUR 10.6 million). Deliveries of heat and steam to customers in the year to date totalled 1233 GWh (1239 GWh). Electricity sales amounted to 244 GWh (222 GWh). The factors affecting growth in turnover were the high market prices of electricity and electricity products in the first quarter and higher heating sales prices. Following a deal made in December 2011, the electricity sales business in Finland was transferred to Forssan Energia Oy on 1 April At the same time electricity derivative contracts were brought in line with the new situation and the resultant earnings were booked under the financial items of Vapo Oy. Now that Vapo no longer sells electricity to consumers, the electricity generated by Vapo s own plants and the partnership electricity purchased from Jyväskylän Voima Oy are sold directly on the electricity markets. Five new heating plants were taken into commercial use in Finland and one in Sweden and Poland. One heating plants is under construction in Finland, and one in Sweden. Vapo currently has a total of 145 heating plants. Vapo Timber The turnover of the business area in the January-September period was EUR 97.2 million (101.1 million). The operating result was EUR -4.2 million (EUR 4.8 million). Investments in the year to date totalled EUR 7.6 million (EUR 0.5 million). Reduced demand in the key European market caused by increased supplies of sawn timber combined with a weaker economic outlook led to a decline in sawn timber sales prices in the third quarter. A narrowing of the price differential between sawn timber and logs and higher factory costs resulted in poor profitability in the business. Delivery volumes of sawn timber, at 424,000 m³, were 4% up on the previous year, but average sales prices dropped by 5%. Timber availability clearly picked up following a difficult start to the year. Stumpage prices were higher in the first half of 2011, but declined somewhat in August. Given the market outlook, prices are still very high, however. The new sawing line at Hankasalmi sawmill commissioned in September accounted for the bulk of the business areas investments of EUR 7.6 million (EUR 0.5 million) in the year to date.

7 6 Vapo Environment The turnover of the business area in the January-September period was EUR 83.1 million (EUR 77.5 million). Operating profit amounted to EUR 4.8 million (EUR 6.0 million). Investments by the business area in the year to date totalled EUR 7.5 million (EUR 7.9 million). In the consumer business turnover in the first nine months totalled EUR 38.3 million (EUR 36.7 million). In Finland, sales were below last year s level, but turnover grew in the other Nordic countries. The late start to spring affected demand for garden products, as a result of which the summer garden season was shorter than hoped for. The most successful product launches in the Home & Garden range in spring 2011 were Green Vitrine and a new range of organic fertilizers. Demand continued to develop positively in the professional growing business, with total turnover in the year to date of EUR 19.6 million (EUR 17.6 million). The fire at the Eurajoki horticultural peat plant in April 2010 and the partial destruction of the screening unit at the Niibi plant by fire in May 2011 constrained sales of professional growing products in the first nine months and weighed on profitability. Customer deliveries were met despite the fire damage by re-organizing production. The new horticultural peat plant in Eurajoki reached normal capacity in April 2011 and the Niibi plant was operating at near-full capacity in June. Sales in the landscaping business in the year to date totalled EUR 11.1 million (EUR 9.8 million). Demand developed positively after the late spring and in the major market areas turnover was ahead of the previous year. Developments have been positive in Finland and especially in Sweden. To some extent, however, the very rainy autumn and uncertainty over the general economic situation have affected autumn sales levels. Sales in the environmental management business in the first nine months totalled EUR 14.2 million (EUR 13.5 million). As usual for the sector, the market remained stable throughout the year to date. Waste volumes processed at the plants and compost sales have been slighter higher than the previous year. Human resources The Group employed an average of 1287 persons in the January-September period (1278). At the end of 2010 the total Group headcount was Employees by segment, average 1-9/ /2010 Biofuels Bioheat Timber Environment Other activities Total

8 7 Employees in Finland and other countries 1-9/ /2010 Finland Other countries Total Investments and financing Investments in the first nine months amounted to EUR 67.4 million (EUR 56.0 million), broken down into Biofuels (EUR 37.6 million), Bioheat (EUR 5.7 million), Timber (EUR 7.6 million) and Environment (EUR 7.5 million). Other investments by the Group totalled EUR 9.0 million. Cash flow from operating activities developed positively in the January-September period on reduced working capital and amounted to EUR million (EUR 55.2 million). Cash flow after investments was EUR 42.1 million (EUR 4.3 million). At the end of September, interest-bearing net liabilities stood at EUR million (EUR million). At the end of 2010, interest-bearing net liabilities stood at EUR million. The equity ratio at the end of September was 35.3% (39.0%) and the gearing ratio was 123.7% (114.9%). The Group balance sheet total was EUR million (EUR million). On 15 June 2011 Vapo Oy successfully issued the first bond in its history, totalling EUR 100 million. The duration is six years with a coupon of 4.25 per cent. The bond will finance the Group s general working capital requirements. At the closing of the interim accounts, EUR 38.6 million of the loan taken out at the end of June was invested, which if used to amortize loans would have increased the equity ratio from 35.3 per cent to 36.8 per cent. Risk management The key risks to Vapo s business are set out in the 2010 accounts. The main risks to Vapo s business, operating environment and financial situation include: the tax treatment / reduction in use of energy peat weather risk to peat production/ low level of buffer stocks image of peat/ environmental impacts/ availability of new production areas and permits price trend of timber/ rise in raw materials prices

9 8 The following closely monitored risks have been identified as having a bearing on earnings at the year-end and next year: the general economic uncertainty and its direct and indirect effects on Vapo s businesses regional differences in the sufficiency of peat stocks developments in wood fuel markets the ongoing oversupply situation in wood pellets and profitability in the wood pellet business the effect of temperatures in the forthcoming winter on the volumes of fuels and energy supplied by Vapo the success of measures to improve the profitability of Vapo s businesses Last year there were a number of fires at Group plants. The extent of the damages has led to special measures being taken to reduce risks to property. Risk assessments will be carried out more frequently, the recommended steps will be implemented and the implementation will be monitored. Outlook for the future Vapo Biofuels The key factors affecting activities and earnings for the remainder of 2011 are the exchange price of electricity, the industrial capacity utilization rate, outside temperatures and the way in which decisions made regarding the taxation of peat and other fuels will impact demand for peat and wood. Water reserves in the Nordic countries are well above their average level, which is reducing the price of electricity and the amount of electricity generated in condensing power plants as well as fuel requirements. With peat production below normal levels, fixed production costs cannot be fully absorbed into investment costs, and will weigh on earnings in the final quarter. The package of renewable energy obligations together with higher taxation on imported fuels will increase customers overall usage of domestic-origin biofuels. Peat production last summer was below target in Western and Central Finland. Peat stocks will be very low in spring The availability of peat for the heating season will be strongly dependent on the success of the 2012 production season. There is still oversupply in the pellet business in European markets, as a result of which production may have to be cut back at some production plants. Earnings at Vapo s peat business will be weaker than previously forecast and will be clearly loss-making. The oversupply situation in Europe is estimated to last several years. In the longer term demand is expected to increase due to the EU s energy policy stance. The priority for Vapo in the pellet business going forward is to focus on the Finnish and Swedish markets. The aim in future will be to sell the pellets produced in each country on the local pellet market, either as fuel or heat. The efficiency measures underway will clearly improve profitability in the pellet business.

10 9 Vapo Bioheat Temperatures will be the key factor affecting year-end earnings. Fuel costs will rise. Vapo Timber The ongoing uncertainty in the economy and the clear drop in demand in the second half of 2011 further clouds the full-year outlook for Timber. The unfavourable price relationship between sawn timber and logs and the weak market situation will mean that full-year earnings will be clearly loss-making. Bringing costs into line will be essential in the final quarter. Raw material availability is not expected to limit production for the remainder of the year. Vapo Environment In the Garden and Environment business it is anticipated that the overall market will develop positively in 2012 and that Vapo s strong brands Kekkilä and Hasselfors Garden will add profitable market share outside their home markets. Vapo Group as a whole It is anticipated that full-year operating for the Vapo Group for 2011 will be negative owing to the writedown in the Pellets business, the challenging peat production season and weak earnings at Timber. The Group s objective is to systematically improve return on investment and cash flow and to strengthen the balance sheet by improving efficiency across all activities. The effect of measures to improve cash flow will only be visible in the figures for 2012, however. The low equity ratio (35%) will limit investments, but environmental investments will not be compromised. Helsinki, 27 October 2011 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

11 10 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 2010 Financial Statements. The information presented in this Interim Report is unaudited.

12 11 Consolidated statement of comprehensive income MEUR 7-9/ / / /2010 Change % 1-12/2010 TURNOVER % Other operating income Operating expenses Depreciation and writedowns OPERATING PROFIT % 39.1 Financial income Financial expenses Share of associated company results PROFIT/LOSS BEFORE TAXES % 40.2 Income tax PROFIT/LOSS FOR THE PERIOD % 30.1 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 -1, Average number of shares 30,000 30,000 30,000 30,000 30,000

13 12 Consolidated balance sheet MEUR ASSETS LONG-TERM ASSETS Intangible assets Goodwill Tangible assets 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 LONG-TERM ASSETS 0.7 ASSETS SHAREHOLDERS EQUITY AND LIABILITIES SHAREHOLDERS EQUITY Parent company shareholders share of shareholders equity Minority share 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 Short-term provisions CURRENT LIABILITIES SHAREHOLDERS EQUITY AND LIABILITIES

14 13 Statement of change in Group shareholders equity MEUR Equity capital Fair value fund Other funds Translation differences Retained earnings Total Noncontrolling shareholders TOTAL SHAREHOLDERS EQUITY Changes in shareholders equity Distribution of dividend Comprehensive earnings for the period, total Other changes SHAREHOLDERS EQUITY TOTAL MEUR Equity capital Fair value fund Other funds Translation differences Retained earnings Total Noncontrolling shareholders TOTAL SHAREHOLDERS EQUITY Changes in shareholders equity Distribution of dividend Comprehensive earnings for the period, total Other changes SHAREHOLDERS EQUITY TOTAL

15 14 Condensed consolidated cash flow statement MEUR 1-9/ / /2010 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 -5.6 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 Net 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

16 15 Notes to the interim report SEGMENT DATA MEUR Biofuels Bioheat Timber Environment Other activities Disposals Group total External turnover Internal turnover Turnover Segment operating profit/loss Financial income and expenses Share of associated company results Income taxes 5.4 Result for the period 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 29.6 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 3.5

17 16 DERIVATIVE CONTRACTS MEUR Nominal value Nominal value Nominal value Market value Market value Market value Interest rate derivatives Currency derivatives Electricity derivatives Nominal value, total Market value, total