Vapo's Annual Report 2010
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Annual Report 2010 Vapo is the leading supplier and developer of bioenergy in Finland and in the Baltic Sea region. Vapo is a modern, expert organisation that uses peat, wood fuels and agri biomass to produce energy responsibly, supp- lies timber and offers environmental business solutions. Vapo is an impor- tant part of the local energy infrastructure. The parent company Vapo Oy is owned by the Finnish state (50.1%) and Suomen Energiavarat Oy (49.9%). Content Vapo’s year 2010 . 1 Business areas . 8 Corporate responsibility . 22 Vapo Local Fuels . 9 Economic responsibility . 23 Operating environment . 2 Vapo Pellets . 11 Social responsibility . 25 Vapo’s strategy . 4 Vapo Heat and Power . 13 Environmental responsibility . 26 Managing Director’s review . 6 Vapo Garden and Environment . 15 Vapo Timber . 17 Corporate Governance . 30 Production and Logistics . 19 Board of Directors and Research and development . 21 management . .34 Risk management . 36 Financial statements . 38 Board of Directors’ report . 38 Consolidated profit and loss statement . 45 Consolidated balance sheet . 46 Consolidated cash flow statement . 47 Consolidated statement of changes in shareholders’ equity . 48 Group key figures 2006–2010 Vapo’s year 2010 2010, the year of growth The demand for local fuels (peat and wood) remained at a good level throughout the year. Peat production in summer 2010 was in line with the long term average, but adequate har- vesting areas will be required in coming years to rebuild inventory levels. Vapo strengthened its wood energy business. Pellet overproduction continued on the European market, which led to restrictions on produc- tion. The energy tax reform will improve the competitive position for pellets in coming years. The Heat and Power business area grew as planned. The growth of consumer and landscaping activities was limited by cutbacks in the construc- tion industry. The new Home and Garden product range increased sales in Finland and Sweden, which improved the results of the Garden and Environment business area. Demand was up in the Professional Growing business line, although low inventory levels of raw mate- rial had an impact on deliveries. Vapo Timber’s operating result turned positive as a result of increased timber prices and deliv- ery volumes despite growing roundwood prices and restrictions on production towards the end of the year. Key figures 2010 EUR million 2010 2009 2008 2007 2006 Turnover 719.5 573.7 631.8 660.6 600.9 growth, % 25.4 –9.2 –4.4 9.9 14.7 Operating profit 39.1 38.0 21.1 55.5 53.8 % of turnover 5.4 6.6 3.3 8.4 9 Equity ratio, % 38.3 39.5 42.2 43.5 47.3 Gross investments 80.9 80.9 83.8 111.6 69.1 Average amount of personnel 1,333 1,451 1,780 1,828 1,891 Turnover, EUR million Operating profit, EUR Personel by business area million 720 56 661 632 601 574 Local fuels 384 38 38 39 21 % Pellets 226 31 % Heat and Power 152 21 Garden and Environment 342 24 % Timber 219 14 % Total 1,333 11 % 06 07 08 09 10 06 07 08 09 10 Vapo’s Annual Report 2010 1 Operating environment operating environment EU one step closer to cleaner energy production Peat production has a great significance for regional policy in Finland. Challenging targets for additional use of wood cannot be met without peat. Subsidy and tax poli- cies should ensure that peat is prioritised above imported fossil fuels in all situations. The implementation of the EU’s RES directive on renewable energy proceeded in 2010. The directive obliges member states to reduce their carbon dioxide emissions and increase the share of renewable energy of the total end use of energy. Targets are specific to every country. Finland’s share of renew- able energy use is 38%. The increase is 9.5 percentage points from 2005 levels. The share of renewable energy in liquid fuels for transportation is 10%. Finland has set its own target of 20%. Targets have been jointly set in EU but each country can independently choose the way to meet them. National plans were presented to the Commission in 2010. Wood is Finland’s primary solution to the EU’s require- ment to increase the use of renewable energy, and the plan is to triple the use of forest energy from the current level in 2020. Forest chips are to replace 25 TWh of coal, peat and other fuels. A total of 7 TWh will be used for producing liquid fuels for transportation. In Finland, there are plans to build three to four new wood-operated biofuel plants in order to meet the targets. Possible investment grants will have a great effect on getting building permits. The majority of the forest chip material required is to come from small wood i.e. first thinning of young forest. Finland is planning to increase the share of wind power in its energy production to 6 TWh in 2020. Heat pump energy should also rise to 8 TWh. The share of pellet is 2 TWh. The use of biofuels for transportation will be 6 TWh in 2020. National support for use of renewable energy Increase in the use of renewable energy sources is not possi- ble without national support measures. A small wood energy subsidy that will be used for energy will be introduced in order to increase the supply of small wood. It will be paid for energy wood harvested at young forest management and first thinning sites. The use of forest chips is encouraged by subsidising the production of forest chip electricity. Small CHP plants have a feed-in tariff which ensures the use of biofuels instead of fossil fuels. In future, KEMERA supported subsidies will be granted in order to enhance wood produc- tion and protect biodiversity in forests. 2 Vapo’s Annual Report 2010 Finland has a big potential source of renewable energy, where the goal is to maintain peat as a competitive option in pellets, which is nearly unused. Finland has top-quality pellet energy production. production on a European level, but most of the pellet pro- Peat has even quality and high calorific value. The mix- duced is exported. We hope that pellets will have a subsidy ture of peat and wood has better combustion properties than solution which makes it possible to significantly increase their wood alone. Vapo has renewed its organisation to adapt to use. the increased share of wood in fuel production and deliveries. Taxation of fossil fuels, such as coal, oil and natural gas, One of the biggest, if not the biggest, current challenge was increased as a part of a subsidy package for renewable of peat production is to include new production sites into the energy. Peat is not considered a renewable energy under production process. Out of the nearly 10 million hectares of the RES directive even though the EU does not define it as peatland in Finland, only less than 0.7% or 70,000 hectares is fossil either but it is in a class of its own between renewable used for peat production. To replace sites no longer used for and fossil energy. Peat’s emissions factor, however, defines production and to meet the needs of rising demand, 58,000 its impact on climate as comparable with that of coal. As a hectares of additional peatland are needed by 2020. Even result, the tax raise for fossil fuels now applies also to energy if permits were received for all this land and it was used for peat which earlier was tax-free. Taxation of natural gas and production, the share of land in peat production would still peat will gradually rise to the set level by 2016. By increasing remain under 2% of all peatlands. taxation of energy on the basis of emissions, consumption is Peat production is sensitive to weather conditions. This steered towards low-emission fuels. risk can be reduced by having sufficient number of produc- tion sites which ensures that even short periods of good Peat is a reliable and local fuel weather provides an adequate outcome. The permit process The emissions factor and taxation decision coming into effect must be clearer and faster. The peatland strategy work group next year weaken peat’s position as a fuel. However, peat is set by the Ministry of Agriculture and Forestry will hopefully still a reliable, local fuel which supplements wood in many improve the situation. The expectation is that the guidelines ways. Peat can ensure the supply of fuel in all situations. The suggested by the work group will help to reach compromises peat industry is a significant employer and therefore has in relation to different uses of peatland, both protection and great regional importance in Finland. The status of peat has production. n been recognised in the national energy and climate strategy Vapo’s Annual Report 2010 3 Vapo’s strategy New organisation, new situation At the beginning of 2011, Vapo will adapt its business and auxiliary operations to corre- spond the changing market situation as the demand for energy peat will go down and the demand for wood fuel will rise. Vapo’s new areas of business are Vapo Biofuels, Vapo Bioheat, Vapo Environment and Vapo Timber. Pellets and environmental peat were trans- ferred to Biofuels. The result of 2010 will be reported in accordance with the old organisa- tional model. The changes in organisation resulted in the auxiliary opera- The water course load caused by other forms of land use can tion of Production being moved from under a centralised be dozens of times greater than that of peat production.