Tornator's net sales grew by 32% - the company supported the operating conditions of Finnish forestry under exceptional circumstances
Half-year Report - Stock exchange release 24 August 2020 at 3.00 p.m.
SUMMARY 1 JAN – 30 JUNE 2020 (1 JAN – 30 JUNE 2019)
- Net sales grew by 32% to €51.2 (38.9) million, in which the share of timber deliveries* was €48.2 (37.1) million.
- The operative operating profit increased by 48% to €35.1 million (23.8) due to successful timber deliveries. The reported IFRS operating profit was €36.1 (31.1) million.
- A campaign called “Torna-meininki” facilitated proactive forest management work for Finnish contractors, to provide help in the uncertain economic situation caused by the coronavirus in 2020.
- Tornator promoted the biodiversity in its forests as Finland’s largest party engaged in prescribed burning.
- Tornator continued to purchase forestland in Finland. More than 5,000 hectares of new forests were acquired with a total investment of more than €20 million.
- The company renewed its bank loan financing, which resulted in having the majority of balance sheet loans as long-term loans. This strengthened liquidity and investment capacity.
- Comparable return on equity was 5.0% (3.2) and return on capital employed 4.8% (3.7). Equity ratio was 42.8% (40.0).
- The fair value of biological assets (forests) was €1,702.4 million (1,682.6 at 31 December 2019).
Key figures (the Group)
| H1/2020 | H1/2019 | Change, % | |
| Net sales, € million | 51.2 | 38.9 | 32% |
| Operative operating profit, € million | 35.1 | 23.8 | 48% |
| Operative operating profit, % | 68.5 | 61.1 | 12% |
| Operating profit (IFRS), € million | 36.1 | 31.1 | 16% |
| Comparable net profit, € million | 20.4 | 10.7 | 91% |
| Profit for the period (IFRS), € million | -9.8 | -20.8 | -53% |
| Comparable return on equity, % | 5.0 | 3.2 | 58% |
| Return on equity, % | -2.4 | -6.2 | -61% |
| Comparable return on capital employed, % | 4.8 | 3.7 | 30% |
| Return on capital employed, % | 5.0 | 4.8 | 4% |
| Equity ratio, % | 42.8 | 40.0 | 7% |
| Average number of personnel | 183 | 175 | 5% |
| IFRS = International Financial Reporting Standards | |||
* Timber delivery = A customer harvests marked stands and gains ownership of the timber.
Comparable key figures
In addition to the official figures calculated in accordance with IFRS, the Tornator Group uses figures that are comparable between years, to better describe the success of its operations. The comparable key figures have been calculated without fair value changes using the following formula:
| Operating profit, IFRS | 36.1 | ||
| - Change in fair value of biological assets | -1.0 | ||
| = Operative operating profit | 35.1 | ||
| Profit for the period, IFRS | -9.8 | ||
| - Change in fair value of biological assets | -1.0 | ||
| - Change in fair value of financial instruments | +38.9 | ||
| - Change in deferred taxes of above mentioned items | -7.7 | ||
| = Comparable net profit | 20.4 | ||
CEO Henrik Nieminen:
“COVID-19 presented a major test for companies’ operating models around the world. In the Finnish forest sector, uncertainty was caused not only by the pandemic, but also by labour market disturbances early in the year, and extremely wet timber harvesting conditions. Tornator’s recipe for coping with financial crises, pandemics and other major challenges has been tried and tested: customer relationships based on a long-term partnership, motivated and skilled personnel, and owners and loan financiers who value responsible forest management. Tornator’s net sales increased by 32 per cent and its operative operating profit by 48 per cent from the comparison period. Timber deliveries were planned and implemented successfully, and the price level of timber was higher than expected. Low demand in the holiday plot market, a trend that has continued for years, turned around as restrictions on international travel increased demand for both leisure homes and construction sites in Finland.
Caring for the health, safety and well-being of employees lies at the heart of Tornator’s risk management. Due to the pandemic, guidance and communications were significantly increased. The company's personnel adapted to the exceptional circumstances in an exemplary manner, and investments in digitalisation and distance working facilities proved to be effective. Close contacts with customers and other contractual partners helped in the further development of processes. Naturally, the strong confidential relationships formed over the years with the financial markets are of paramount importance under exceptional circumstances. Tornator was able to execute significant financial transactions with banks in a rather turbulent financial market. The company renewed its bank loan financing, which resulted in having the majority of balance sheet loans as long-term loans. This strengthened liquidity and investment capacity.
Tornator continued forestland purchasing in Finland, acquiring more than 5,000 hectares of forestland. The first contracts on the leasing of forests were signed early in the summer. In Estonia, market prices of forestland have not allowed significant growth investments. In both Estonia and Romania, Tornator has focused on the development of existing forest assets and operations.
Tornator’s vision is to be a forerunner in the responsible use of forests. As one example of sustainability, the company launched a campaign called “Torna-meininki”, which facilitated proactive forest management work for Finnish contractors in the year affected by the coronavirus. This built faith in the idea that cooperation is the key to tackling the economic challenges posed by the virus. Moreover, in accordance with Tornator’s sustainability programme, mires were restored, prescribed burning performed, and negotiations continued to establish new nature conservation areas on land owned by the company.
The European Commission's recent proposal for an EU Biodiversity Strategy was a hot topic in public debate. For Tornator, promotion of biodiversity is a natural part of managing double certified forests. Digital tools enable the company to identify valuable habitats more accurately, and biodiversity issues play a key role in the training of personnel and contractors. Tornator engages in prescribed burning more than any other party in Finland: every year, we restore forest conditions to allow threatened species to thrive and reproduce.
Tornator plays a key role in the fight against climate change. The company's forests act as carbon sinks, provide sustainable raw materials for bioeconomy products, and contribute to maintaining social sustainability in a welfare state. From the viewpoint of combating climate change, the main objective of society must be to abandon fossil raw materials and replace non-renewable products with products based on renewable, recyclable raw materials.
Tornator’s mission is to create sustainable well-being from the forest, and the company will continue to implement its strategy with determination, with the aim of being profitably growing, competitively developing and responsibly influencing.”
Impacts of the COVID-19 pandemic
The company’s operations continued normally under the exceptional circumstances, and the pandemic had no significant negative impacts on the company's results, balance sheet or cash flows. Tornator’s net sales, operating profit and cash flow from operating activities for the reporting period improved compared to those of the comparison period. The company’s credit losses have not increased due to the pandemic, and the company does not envisage higher financial risks or a decrease in asset value
Notable events during the reporting period
Wood deliveries realized as planned, totalling approximately 1.4 million cubic metres (1.2), that is, €48.2 million (37.1). The mild winter allowed forest management work to be done earlier than normal, and the company offered contractors in Finland the opportunity to carry out proactive forestry work to alleviate the economic challenges caused by the coronavirus pandemic.
In total, the Group recorded €1.6 (1.0) million in real estate sales. Net sales of silviculture services totalled €1.4 (0.8) million.
The strong fall in market interest rates affected the fair values of Tornator’s financial instruments negatively. The profit effect since the beginning of the year was €-38.9 (-46.8) million. At the end of June, the fair value of interest rate derivatives totalled €-179.9 million (-141.1 on 31 December 2019). Market interest rates continued to fall slightly after the reporting period. The fair value of forests at the end of June was €1,702.4 million (1,682.6 on 31 December 2019).
Business environment
In Finland, timber sales were slow almost throughout the first part of the year. Total industrial wood harvesting in January–June was some 27.0 million cubic metres, which is 6.4 million cubic metres
(-19%) less than in the previous year.
The market prices for wood have stabilised since the price spike in 2018. The price level of sawlogs has remained at the same level as at the end of last year, which was around 5% lower than in the first half of 2019. The price of pulpwood has increased during the first half of the year, and the average price level was close to the price level in the comparison period.
Demand for holiday plots picked up for the first time in a long period. Demand for forest estates by forest funds and other forestland investors continued to be very high, while supply lagged significantly behind.
In Estonia, demand for wood was normal, but the wet winter made weather conditions exceptionally challenging for harvesting. No major change has occurred in the market prices of wood since the beginning of the year. In the forestland market, the price level was very high, as demand clearly exceeded supply.
In Romania, demand for wood was normal and prices were at the previous year’s level. The forest estate markets were subdued.
Finance
The Group’s financial position remained good and cash flow from operating activities was €22.3 (10.0) million. The largest single item affecting the change in cash flow from operating activities was income tax, which totalled €+3.2 million in the reporting period, and €-3.4 in the comparison period. Annual variation in cash flow from income taxes is mainly attributable to changes in the fair value of derivatives which affects the taxable profit.
The Group’s net financial expenses in January–June were €-48.7 (-57.7) million. Interest-bearing liabilities totalled €644.5 million (648.2 on 31 December 2019), of which €549.6 million (1.0 on 31 December 2019) were long-term and €94.9 million (647.2 on 31 December 2019) were short-term.
The company has used interest rate derivatives to hedge against market interest rate changes. The change in the fair value of debt and derivatives was €38.9 million negative (€46.8 million negative). In the reporting period, the change in the fair value concerned only derivatives; the change in the value of derivatives during the comparison period was €-48.7 million and the change in the value of loans, €+2.0 million. In the change of the fair value of derivatives, the share of accrued interest booked on interest expenses was €+0.0 (+4.6) million.
During the reporting period, Tornator’s net cash flow from investing activities was €-23.5 (-19.3) million. Net cash flow from financing activities was €-2.7 (+4.8) million. Cash and cash equivalents and liquid investments on 30 June 2020 were €17.8 million (20.8 on 31 December 2019). In addition, the company has a revolving credit facility totalling €100 million, available in full, and a commercial paper program totalling €300 million, of which €270 million is available for issue. The company also has a bank account overdraft limit of €10 million.
During the reporting period, Tornator agreed on a green bank loan package of €350 million, which will mature in 2025 and 2026. In addition, Tornator agreed on €100 million in bank loan financing, which will mature in 2022 and a one year extension to the binding bank loan contract (bridge loan) taken out last year to refinance a secured bond loan at its maturity in December 2019.
Estimate of future development
The global megatrends, such as climate change and population growth, are further expected to increase demand for sustainably produced renewable wood raw material in the long term. Owing to the prevailing uncertainty (such as COVID-19, the trade war, the US presidential election and Brexit), temporary pressure may be placed on timber demand and felling. If the global economy slows down more than expected, forest industry production may contract, with potential negative impacts on timber delivery volumes and the company’s net sales.
The situation in the forestland market is expected to remain similar to the first half. Improved demand in plot sales is expected to continue for the remainder of the year. Silvicultural work will be continued according to the normal annual cycle and the fertilisation programme, and development projects for the digital roadmap will be carried out as planned. The annual update of the fair value of forest will be carried out in accordance with the situation as of September.
The company estimates that its debt service capacity will remain stable for the remainder of the year.
Decisions of the Annual General Meeting
The Annual General Meeting of Tornator Oyj, held on 9 March 2020, decided that dividend be paid as proposed by the Board of Directors: €6.0 per share, totalling €30 million. In accordance with the prudence principle, in the Spring the Board of Directors assessed the overall economic uncertainty caused by the COVID-19 pandemic, and decided to postpone the payment of dividends. The Board set a new dividend payment date of 1 September 2020 in the meeting held on 24 August 2020. The AGM approved the financial statements for 2019 and discharged the members of the Board of Directors and the CEO from liability. In addition, Deloitte Oy were elected as auditors. The AGM elected the following members and deputies to the new Board of Directors:
| Ordinary member | Deputy member |
| Mikko Koivusalo | Markus Aho |
| Erkko Ryynänen | Tomi Viia |
| Jorma Länsitalo | Jari Suvanto |
| Mikko Mursula | Ilja Ripatti |
Organisation of the Board of Directors
On 9 March 2020, the new Board of Directors elected Mikko Koivusalo as Chairman and Mikko Mursula as Vice Chairman. In addition to these two Board members, Erkko Ryynänen was elected as a member of the Remuneration Committee, which reports to the Board. On the Oversight Committee that oversees significant agreements between the company and the shareholders, the Board elected Mikko Mursula as Chairman, Mikko Koivusalo and Erkko Ryynänen as members and Jorma Länsitalo as a deputy member.
The minutes of the Annual General Meeting are available in full on the company’s website at www.tornator.fi/en/investors/
Notable events after the end of the reporting period
No notable events occurred after the end of the reporting period.
Major shareholders, 30 June 2020
| Shareholder | % |
| Stora Enso Oyj | 41.00 % |
| Ilmarinen Mutual Pension Insurance Company | 23.13 % |
| Varma Mutual Pension Insurance Company | 15.33 % |
| OP Henkivakuutus Oy | 5.21 % |
| OP-Forest Owner Fund | 5.00 % |
| OP-Eläkesäätiö | 4.16 % |
| Veritas Pension Insurance | 2.50 % |
| Finnair Pension Foundation | 2.18 % |
| Riffu Oy | 0.75 % |
| Danilostock Oy | 0.75 % |
| Total | 100.00 % |
Appendices: Half-year Report, 1 January–30 June 2020
The Half-year Report is also available on the company's website at www.tornator.fi/en/investors/
For further information, please contact:
Chief Executive Officer (CEO) Henrik Nieminen, tel. +358 (0)40 869 7613
Chief Financial Officer (CFO) Antti Siirtola, tel. +358 (0)40 773 0975
www.tornator.fi
Tornator is a leading company specialised in sustainable forestry in Europe. It owns forests in Finland, Estonia and Romania. In 2019, the Group’s net sales were some €106 million, and the balance sheet value was about €1.8 billion. The Group has around 180 employees. Tornator's own employees, and other companies and their employees working on its forestland, add up to around 1,000 person/years of employment. The owners of the parent company are Finnish, mainly institutional investors. Tornator's mission is to generate sustainable well-being from forests.
Tables - Condensed half-year financial statements
| Condensed consolidated income statement | |||
| €’000 | 30 June 2020 | 30 June 2019 | 31 Dec 2019 |
| (unaudited) | (unaudited) | (audited) | |
| Net sales | 51,216 | 38,872 | 105,823 |
| Other operating income | 1,922 | 1,895 | 5,718 |
| Change in inventories of finished goods and work in progress | -405 | -773 | -1,428 |
| Materials and services | -8,935 | -7,143 | -17,217 |
| Personnel expenses | -4,136 | -4,366 | -9,065 |
| Depreciation and amortisation | -1,564 | -1,543 | -3,183 |
| Other operating expenses | -2,995 | -3,171 | -5,961 |
| Change in fair value of biological assets and harvesting | 982 | 7,312 | 189,910 |
| Operating profit | 36,085 | 31,085 | 264,599 |
| Financial income | 139 | 112 | 199 |
| Financial expenses | -9,919 | -11,057 | -22,559 |
| Change in fair value of financial instruments | -38,891 | -46,752 | -46,993 |
| Net financial items | -48,670 | -57,697 | -69,354 |
| Profit before tax | -12,585 | -26,612 | 195,245 |
| Income taxes | 3,129 | 7,546 | 373 |
| Change in deferred taxes | -330 | -1,744 | -30,846 |
| Profit for the period | -9,786 | -20,811 | 164,772 |
| Distribution: | |||
| To shareholders of the parent company | -9,786 | -20,811 | 164,772 |
| Consolidated statement of comprehensive income | |||
| Profit for the period | -9,786 | -20,811 | 164,772 |
| Other comprehensive income for the period after taxes: | |||
| Items not recognised later through profit and loss | |||
| Items derived from the redefinition of net defined benefit costs (or asset items) | 0 | 0 | 29 |
| Items that may later be recognised through profit and loss | |||
| Translation difference | -449 | -581 | -980 |
| Comprehensive income for the period total | -10,235 | -21,392 | 163,821 |
| Distribution: | |||
| To shareholders of the parent company | -10,235 | -21,392 | 163,821 |
| Condensed consolidated balance sheet | |||
| €’000 | 30 June 2020 | 30 June 2019 | 31 Dec 2019 |
| (unaudited) | (unaudited) | (audited) | |
| ASSETS | |||
| Non-current assets | |||
| Intangible assets | 1,639 | 1,703 | 1,800 |
| Property, plant and equipment | 111,102 | 105,139 | 109,398 |
| Right-of-use assets | 2,109 | 1,961 | 2,284 |
| Biological assets | 1,702,406 | 1,473,665 | 1,682,631 |
| Other investments | 111 | 111 | 111 |
| Non-current assets total | 1,817,367 | 1,582,580 | 1,796,224 |
| Current assets | |||
| Inventories | 47 | 98 | 51 |
| Trade and other receivables | 24,230 | 26,232 | 21,913 |
| Derivatives | 0 | 5,597 | 0 |
| Investments in unlisted securities | 3,023 | 1,221 | 2,161 |
| Cash and cash equivalents | 14,810 | 9,434 | 18,651 |
| Current assets total | 42,110 | 42,581 | 42,775 |
| TOTAL ASSETS | 1,859,477 | 1,625,161 | 1,838,999 |
| EQUITY AND LIABILITIES | |||
| Equity attributable to shareholders of the parent company | |||
| Share capital | 50,000 | 50,000 | 50,000 |
| Other equity | 741,060 | 596,083 | 781,296 |
| Total equity | 791,060 | 646,083 | 831,296 |
| Non-current liabilities | |||
| Deferred tax liabilities | 192,370 | 162,931 | 192,041 |
| Financial liabilities | 549,566 | 293,001 | 1,003 |
| Derivatives | 179,911 | 140,530 | 141,059 |
| Lease liabilities | 1,839 | 1,733 | 1,965 |
| Other non-current liabilities | 183 | 229 | 183 |
| Non-current liabilities total | 923,869 | 598,423 | 336,250 |
| Current liabilities | |||
| Financial liabilities | 94,914 | 336,075 | 647,181 |
| Lease liabilities | 330 | 247 | 340 |
| Trade and other payables | 49,303 | 44,333 | 23,933 |
| Current liabilities total | 144,548 | 380,655 | 671,453 |
| Total liabilities | 1,068,417 | 979,078 | 1,007,704 |
| TOTAL EQUITY AND LIABILITIES | 1,859,477 | 1,625,161 | 1,838,999 |
| Statement of changes in equity | |||||
| €’000 | Share Capital | Share premium | Translation difference | Retained earnings | Total equity |
| Equity 1 January 2020 | 50 000 | 29 995 | -9 576 | 760 877 | 831 296 |
| Comprehensive income | |||||
| Profit for the period | -9 786 | -9 786 | |||
| Other items of comprehensive income (after taxes) | |||||
| Translation difference | -449 | -449 | |||
| Comprehensive income for the period | 0 | 0 | -449 | -9 786 | -10 235 |
| Transactions with shareholders | |||||
| Dividends | -30 000 | -30 000 | |||
| Total transactions with shareholders | 0 | 0 | 0 | -30 000 | -30 000 |
| Equity 30 June 2020 (unaudited) | 50 000 | 29 995 | -10 025 | 721 090 | 791 060 |
| Equity 1 January 2019 | 50 000 | 29 995 | -8 597 | 631 076 | 702 475 |
| Comprehensive income | |||||
| Profit for the period | -20 811 | -20 811 | |||
| Other items of comprehensive income (after taxes) | |||||
| Translation difference | -581 | -581 | |||
| Comprehensive income for the period | 0 | 0 | -581 | -20 811 | -21 392 |
| Transactions with shareholders | |||||
| Dividends | -35 000 | -35 000 | |||
| Total transactions with shareholders | 0 | 0 | 0 | -35 000 | -35 000 |
| Equity 30 June 2019 (unaudited) | 50 000 | 29 995 | -9 178 | 575 265 | 646 083 |
| Equity 1 January 2019 | 50 000 | 29 995 | -8 597 | 631 076 | 702 475 |
| Comprehensive income | |||||
| Profit for the period | 164 772 | 164 772 | |||
| Transfers between items | 0 | ||||
| Other items of comprehensive income (after taxes) | |||||
| Remeasurement of net defined benefit liability (or asset) | 29 | 29 | |||
| Translation difference | -980 | -980 | |||
| Comprehensive income for the period | 0 | 0 | -980 | 164 801 | 163 821 |
| Transactions with shareholders | |||||
| Dividends | -35 000 | -35 000 | |||
| Total transactions with shareholders | -35 000 | -35 000 | |||
| Equity 31 December 2019 | 50 000 | 29 995 | -9 576 | 760 877 | 831 296 |
| Condensed statement of cash flows | |||
| €’000 | 1 Jan - 30 Jun 2020 | 1 Jan - 30 Jun 2019 | 1 Jan – 31 Dec 2019 |
| Cash flow from operating activities | |||
| Cash receipts from customers | 46 385 | 38 679 | 107 720 |
| Proceeds from sale of tangible assets | 1 642 | 980 | 2 744 |
| Cash receipts from other operating income | 1 671 | 1 931 | 5 719 |
| Cash paid to suppliers and employees | -19 320 | -16 789 | -31 786 |
| Cash flow from operating activities before financial items and taxes | 30 378 | 24 801 | 84 397 |
| Interest paid and other financial expenses | -11 331 | -11 597 | -22 728 |
| Interest received | 139 | 112 | 199 |
| Cash flow from income taxes | 3 160 | -3 364 | -8 983 |
| Net cash flow from operating activities | 22 346 | 9 952 | 52 884 |
| Cash flow from investing activities | |||
| Investments in biological assets | -19 469 | -16 280 | -43 561 |
| Investments in tangible assets, forestland | -2 414 | -2 012 | -5 384 |
| Investments in other tangible and intangible assets | -740 | -815 | -3 238 |
| Investments in unlisted securities | -871 | -179 | -1 117 |
| Net cash flow from investing activities | -23 494 | -19 286 | -53 299 |
| Cash flow from financing activities | |||
| Withdrawal of long-term loans | 300 000 | 35 000 | 0 |
| Repayment of long-term loans | -38 | -38 | -52 |
| Withdrawal of short-term loans | 0 | 0 | 295 000 |
| Repayment of short-term loans | -302 500 | -15 000 | -254 500 |
| Repayment of leasing liabilities | -143 | -124 | -305 |
| Dividends paid | 0 | -15 000 | -35 000 |
| Net cash flow from financing activities | -2 682 | 4 839 | 5 143 |
| Net increase/decrease in cash and cash equivalents | -3 830 | -4 495 | 4 728 |
| Cash and cash equivalents at beginning of period | 18 651 | 13 957 | 13 957 |
| Effect of exchange rate changes on cash and cash equivalents | -12 | -29 | -35 |
| Cash and cash equivalents at end of period | 14 809 | 9 434 | 18 651 |
Attachment
