Tornator Oyj Half-year Financial Report
Timber delivery quantities were below target, which affected net sales
SUMMARY 1 January–30 June 2019 (1 January–30 June 2018)
- Net sales totalled €38.9 (52.1) million, in which the share of timber deliveries* was €37.1 (49.9) million. Timber deliveries totalled 1.2 (1.7) million cubic metres.
- The reported IFRS operating profit was €31.1 (28.7) million. Operative operating profit decreased by 38% to €23.8 (38.2) million.
- Comparable net profit without fair value changes was €+10.7 (+21.7) million and €-20.8 (+13.4) million with fair value changes. The differences were mainly due to changes in the fair values of both forests, €+7.3 (-9.5) million, and financial instruments €-46.8 (-0.9) million.
- Comparable return on equity was 3.2% (6.7) and return on capital employed 3.7% (6.1). Equity ratio was 40.0% (42.2).
- The fair value of biological assets (forests) was €1,473.7 million (1,451.0 at 31 December 2018).
- Tornator continued to purchase forestland in Finland and Estonia. Nearly 5,000 hectares of new forests were acquired with a total investment of more than €18 million.
- Tornator signed a binding bank loan contract (bridge loan) for €250 million, to refinance a secured bond loan at its maturity in December 2019.
- Deputy CEO Henrik Nieminen was appointed as the CEO of the company.
* Timber delivery = A customer harvests marked stands and gains ownership of the timber.
Key figures (the Group)
| H1/2019 | H1/2018 | Change, % | |
| Net sales, € million | 38.9 | 52.1 | -25 % |
| Operative operating profit, € million | 23.8 | 38.2 | -38 % |
| Operative operating profit, % | 61.1 | 73.3 | -17 % |
| Operating profit (IFRS), € million | 31.1 | 28.7 | 8 % |
| Comparable net profit, € million | 10.7 | 21.7 | -51 % |
| Profit for the period (IFRS), € million | -20.8 | 13.4 | -256 % |
| Comparable return on equity, % | 3.2 | 6.7 | -53 % |
| Return on equity, % | -6.2 | 4.1 | -250 % |
| Comparable return on capital employed, % | 3.7 | 6.1 | -40 % |
| Return on capital employed, % | 4.8 | 4.6 | 5 % |
| Equity ratio, % | 40.0 | 42.2 | -5 % |
| Average number of personnel | 175 | 183 | -4 % |
| IFRS = International Financial Reporting Standards | |||
Comparable key figures
In addition to the official figures calculated according to the IFRS, the Tornator Group uses figures that are comparable between different years, thus better describing the success of operations. The comparable key figures have been calculated without fair value changes using the following formula:
| Operating profit, IFRS | 31,1 | ||
| - Change in fair value of biological assets | -7,3 | ||
| = Operative operating profit | 23.8 | ||
| Profit for the period, IFRS | -20.8 | ||
| - Change in fair value of biological assets | -7.3 | ||
| - Change in fair value of financial instruments | +46.8 | ||
| - Change in deferred taxes of above mentioned items | -8.0 | ||
| = Comparable net profit | 10.7 | ||
CEO Henrik Nieminen:
”The first half of 2019 was challenging for Tornator. In our main business area, timber deliveries, we remained clearly behind our target of steady growth. Caution is emerging in the forest industry due to global economic uncertainty, affecting Tornator's ability to forecast timber delivery trends for the second half of 2019. Due to advance payments for timber sales, the company is generating its normal, strong cash flow, which means that its current and forecast ability to honour loan obligations, for example, is entirely normal. In terms of the big picture, demand and prices remain at a good level in all operating countries, with no collapse following last year's strong growth. The number of major forestland sales around the Baltic Sea in 2018–19, and the related sales prices, are clear signs that demand for wood is still growing in the long term. Several megatrends are fostering increased use of renewable raw materials, such as wood. With regard to mitigating climate change, the key issue is the substitution of fossil-based raw materials and products with renewable ones. Tornator is playing a major role in this respect as a source of sustainably produced, double-certified wood raw material.
During the first half of the year, we continued our growth investments in Finland and Estonia. We acquired a total of over 5,000 hectares of new forestland. Our reputation as a reliable, competitive and responsible buyer has clearly increased the number of direct contacts from forest owners. People value the ease of doing business with Tornator's experienced employees. Naturally, transparent and competitive, commission-free pricing is a major factor in successful transactions. As a new business activity, Tornator now offers forest owners the opportunity to lease forest to Tornator on the basis of long-term lease contracts. This is a new way of maintaining contact with inherited assets without needing to engage in forest management, while gaining an easy and reliable source of steady rental income.
In line with our responsibility programme, we engaged in mire restoration, prescribed burning and the establishment of conservation areas on more than 200 hectares of our land.
In the spring, Tornator signed a binding bank loan contract for €250 million, to refinance a secured bond loan upon its maturity in December 2019. In addition, Tornator may simultaneously utilise both a €100 million revolving credit facility and a €200 million commercial paper programme at its own discretion. These changes will increase Tornator's capacity to implement its growth strategy.
The focus areas of Tornator's new strategy period 2019–21 are as follows: profitably growing, competitively developing and responsibly influencing. We have identified three change themes and special priorities based on these strategic goals: digitalisation, services and our brand. We have reinforced our organisation and arranged training to enable our deeper understanding and development of these themes in particular. The purpose of the new strategy is to take Tornator closer to achieving its vision: "Tornator – The forerunner in responsible use of forests".
Notable events during the reporting period
Timber deliveries were considerably below last year's record figure, at some 1.2 (1.7) million cubic metres, or €37.1 (49.9) million. Due to extra harvesting as a consequence of snow damage in our forests in 2018, we are undertaking somewhat more silvicultural work than normal. However, all such work was performed according to plan during the spring.
In total, the Group recorded €1.0 (1.3) million in real estate net sales. Net sales of silviculture services totalled €0.8 (0.9) 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 €-46.8 (-0.9) million. At the end of June, the fair value of interest rate derivatives totalled €-134.9 million (-90.9 on 31 December 2018). Market interest rates continued to fall after the reporting period. The fair value of forests at the end of June was €1,473.7 million (1,451.0 on 31 December 2018).
Business environment
In Finland, wood trade was lively in January–March, but stabilized during the spring. Total industrial wood harvesting in January–June was some 33.4 million cubic metres, which is 1.0 million cubic metres (-3%) less than in the previous year.
The wood market stabilization was partly reflected also in wood prices. In January–June, the average prices of sawlogs were slightly lower than during the same period in the previous year, whereas those of pulpwood were slightly higher.
Demand for leisure building plots was modest. Demand for forest estates by forest funds and other forestland investors continued to be very high, while supply lagged significantly behind.
In Estonia, wood demand was normal and market prices for wood decreased slightly from the peaks of the previous year. The forest estate markets showed signs of overheating, with demand clearly exceeding supply.
In Romania too, demand for wood was normal and prices were slightly lower than the record levels of 2018. The forest estate market was quiet.
Finance
The financial position of the Group remained good and cash flow from operations was €10.0 (32.8) million. The single largest item affecting cash flow was income tax, which totalled €-3.4 million in the reporting period, and €+7.4 in the comparison period due to the refund of pre-paid taxes from 2017. The Group’s net financial expenses in January–June were €-57.7 (-12.0) million. Interest-bearing liabilities totalled €629.1 million (611.0 on 31 December 2018), of which €293.0 million (258.1 on 31 December 2018) were long-term and €336.1 million (352.9 on 31 December 2018) 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 €46.8 million negative (€0.9 million negative), including €-48.7 (-2.8) million for derivatives and €+2.0 (+2.0) million for long-term loans. In the change in the fair value of derivatives, the share of accrued interest booked on interest expenses was €+4.6 (+3.9) million.
During the reporting period, Tornator’s net cash flow from investing activities was €-19.3 (-19.9) million. Net cash flow from financing activities was €+5.0 (-13.5) million. Liquid investments and cash and cash equivalents on 30 June 2019 were €10.7 million (15.0 on 31 December 2018). In addition, the company has a commercial paper program and a revolving credit facility totalling €220 million as available financing, and a €10 million bank account overdraft.
During the reporting period, Tornator signed a binding bank loan contract (bridge loan) for €250 million, to refinance a secured bond loan at its maturity in December 2019.
Estimate of future development
Wood demand and harvesting will face challenges in the second half, due to increased uncertainty in the operating environment. A stronger-than-forecasted slowdown in the global economy could cause a contraction in forest industry production and a negative impact on wood delivery volumes and Tornator's net sales.
The situation in the forest estate market is expected to remain similar to the first half. Real estate sales will probably remain subdued.
Silvicultural work will be continued according to the normal annual cycle and the fertilisation programme will be carried out as planned.
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 7 March 2019, decided that dividend be paid as proposed by the Board of Directors: €7.0 per share, totalling €35 million. The AGM approved the financial statements for 2018 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 | Ari Mäkinen |
| Jari Suominen | Jari Suvanto |
| Mikko Mursula | Ilja Ripatti |
Organisation of the Board of Directors
On 7 March 2019, 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. Regarding the Oversight Committee which oversees agreements between the company and the shareholders, Mikko Mursula was elected Chairman, Mikko Koivusalo and Erkko Ryynänen as members, and Jari Suominen 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.
Changes in management
Henrik Nieminen (MSc (Econ); eMBA), the Deputy CEO of Tornator Oyj, was appointed as the new CEO as of 17 June 2019. Mr Nieminen has served as Tornator's Chief Financial Officer (CFO) since the company was founded in 2002. By mutual agreement, the Board of Directors and the former CEO, Sixten Sunabacka, resolved that Mr Sunabacka would vacate the position of CEO and continue with Tornator as Senior Adviser until the end of the year. Tornator's Financial Controller, Antti Siirtola (MSc (Econ)), was appointed as Tornator’s new Chief Financial Officer (CFO) and a member of the Management Group, with effect from 1 July 2019. Mr Siirtola has been working for the company since 2013, and before joining Tornator Siirtola worked as Authorised Public Accountant auditor with EY.
Heikki Penttinen (MSc (Econ)) was appointed Tornator's new Director of Development and a member of the Management Group on 14 March 2019. Mr Penttinen's responsibilities include development and digitalisation. Before joining Tornator, Mr Penttinen served in roles such as head of CGI's virtual and mobile solutions unit. Antero Luhtio, Director, Real Estate, left Tornator at his own request on 31 March 2019.
Notable events after the end of the reporting period
No notable events occurred after the end of the reporting period.
Major shareholders, 30 June 2019
| 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% |
Attachements: Half-year report 1 Januay - 30 June 2019
Half-year report is also available at our website www.tornator.fi/en
For further information please contact:
CEO Henrik Nieminen, tel. +358 40 869 7613
CFO Antti Siirtola, tel. +358 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 2018, the Group’s net sales were some €113 million, and the balance sheet value was about €1.6 billion. The Group has about 180 employees. In total, its forests directly provide work for the company’s employees as well as contractors and their staff worth some 1,000 person-years. The parent company’s shareholders are Finnish investors, mostly institutions. Tornator’s mission is “generating sustainable well-being from the forest”.
Tables
Condensed consolidated income statement
| €’000 | 1 Jan - 30 Jun 2019 | 1 Jan - 30 Jun 2018 | 1 Jan – 31 Dec 2018 |
| (unaudited) | (unaudited) | (audited) | |
| Net sales | 38,872 | 52,096 | 112,825 |
| Other operating income | 1,895 | 1,535 | 6,567 |
| Change in inventories of finished goods and work in progress | -773 | -576 | -998 |
| Materials and services | -7,143 | -6,676 | -16,975 |
| Personnel expenses | -4,366 | -3,886 | -8,447 |
| Depreciation and amortisation | -1,543 | -1,673 | -3,094 |
| Other operating expenses | -3,171 | -2,656 | -5,979 |
| Change in fair value of biological assets and harvesting | 7,312 | -9,458 | 32,576 |
| Operating profit | 31,085 | 28,706 | 116,475 |
| Financial income | 112 | 93 | 180 |
| Financial expenses | -11,057 | -11,251 | -22,726 |
| Change in fair value of financial instruments | -46,752 | -865 | -1,613 |
| Net financial items | -57,697 | -12,023 | -24,159 |
| Profit before tax | -26,612 | 16,683 | 92,317 |
| Income taxes | 7,546 | -431 | -3,062 |
| Change in deferred taxes | -1,744 | -2,887 | -10,373 |
| Profit for the period | -20,811 | 13,365 | 78,881 |
| Distribution: | |||
| To shareholders of the parent company | -20,811 | 13,365 | 78,881 |
Consolidated statement of comprehensive income | |||
| Profit for the period | -20,811 | 13,365 | 78,881 |
| 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 | 21 |
| Items that may later be recognised through profit and loss | |||
| Translation difference | -581 | -45 | -49 |
| Investments in unlisted securities | 0 | 1 | 1 |
| Comprehensive income for the period total | -21,392 | 13,321 | 78,853 |
| Distribution: | |||
| To shareholders of the parent company | -21,392 | 13,321 | 78,853 |
Condensed consolidated balance sheet
| €’000 | 30 June 2019 | 30 June 2018 | 31 Dec 2018 |
| (unaudited) | (unaudited) | (audited) | |
| ASSETS | |||
| Non-current assets | |||
| Intangible assets | 1,703 | 1,995 | 1,944 |
| Property, plant and equipment | 107,100 | 99,919 | 103,734 |
| Biological assets | 1,473,665 | 1,378,068 | 1,450,960 |
| Derivatives | 0 | 8,822 | 0 |
| Other investments | 111 | 111 | 111 |
| Non-current assets total | 1,582,580 | 1,488,914 | 1,556,749 |
| Current assets | |||
| Inventories | 98 | 254 | 436 |
| Trade and other receivables | 26,232 | 12,792 | 15,534 |
| Derivatives | 5,597 | 0 | 3,285 |
| Investments in unlisted securities | 1,221 | 2,608 | 1,042 |
| Cash and cash equivalents | 9,434 | 13,199 | 13,957 |
| Current assets total | 42,581 | 28,853 | 34,255 |
| TOTAL ASSETS | 1,625,161 | 1,517,768 | 1,591,004 |
| EQUITY AND LIABILITIES | |||
| Equity attributable to shareholders of the parent company | |||
| Share capital | 50,000 | 50,000 | 50,000 |
| Other equity | 596,083 | 586,942 | 652,475 |
| Total equity | 646,083 | 636,942 | 702,475 |
| Non-current liabilities | |||
| Deferred tax liabilities | 162,931 | 153,696 | 161,187 |
| Financial liabilities | 293,001 | 517,737 | 258,130 |
| Derivatives | 140,530 | 92,980 | 93,014 |
| Lease liabilities | 1,733 | 0 | 0 |
| Other non-current liabilities | 229 | 265 | 229 |
| Non-current liabilities total | 598,423 | 764,678 | 512,560 |
| Current liabilities | |||
| Financial liabilities | 336,075 | 94,440 | 352,862 |
| Derivatives | 0 | 0 | 1,127 |
| Lease liabilities | 247 | 0 | 0 |
| Trade and other payables | 44,333 | 21,708 | 21,981 |
| Current liabilities total | 380,655 | 116,148 | 375,970 |
| Total liabilities | 979,078 | 880,826 | 888,530 |
| TOTAL EQUITY AND LIABILITIES | 1,625,161 | 1,517,768 | 1,591,004 |
Statement of changes in equity
| €’000 | Share capital | Share Premium | Translation difference | Fair value reserve | Retained earnings | Total |
| Equity 1 January 2019 | 50,000 | 29,995 | -8,597 | 0 | 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 | 0 | -20,811 | -21,392 |
| Transactions with shareholders | ||||||
| Dividends | -35,000 | -35,000 | ||||
| Total transactions with shareholders | 0 | 0 | 0 | 0 | -35,000 | -35,000 |
| Equity 30 June 2019 | 50,000 | 29,995 | -9,178 | 0 | 575,265 | 646,083 |
| Equity 1 January 2018 | 50,000 | 29,995 | -8,547 | -157 | 580,830 | 652,121 |
| Comprehensive income | ||||||
| Profit for the period | -20,811 | -20,811 | ||||
| Other items of comprehensive income (after taxes) | ||||||
| Translation difference | -45 | -45 | ||||
| Investments in unlisted securities | 1 | 1 | ||||
| Comprehensive income for the period | 0 | 0 | -45 | 1 | 13,365 | 13,321 |
| Transactions with shareholders | ||||||
| Dividends paid | -28,500 | -28,500 | ||||
| Total transactions with shareholders | 0 | 0 | 0 | -28,500 | -28,500 | |
| Equity 30 June 2018 | 50,000 | 29,995 | -8,547 | -156 | 565,695 | 636,942 |
| Equity 1 January 2018 | 50,000 | 29,995 | -8,547 | -157 | 580,830 | 652,121 |
| Comprehensive income | ||||||
| Profit for the period | 78,881 | 78,881 | ||||
| Transfers between items | 156 | -156 | 0 | |||
| Other items of comprehensive income (after taxes) | ||||||
| Remeasurement of net defined benefit liability (or asset) | 21 | 21 | ||||
| Translation difference | -49 | -49 | ||||
| Investments in unlisted securities | 1 | 1 | ||||
| Comprehensive income for the period | 0 | 0 | -49 | 157 | 78,746 | 78,853 |
| Transactions with shareholders | ||||||
| Dividends paid | -28,500 | -28,500 | ||||
| Total transactions with shareholders | -28,500 | -28,500 | ||||
| Equity 31 December 2018 | 50,000 | 29,995 | -8,597 | 0 | 631,076 | 702,475 |
Condensed consolidated cash flow statement
| €’000 | 1 Jan - 30 Jun 2019 | 1 Jan - 30 Jun 2018 | 1 Jan – 31 Dec 2018 |
| (unaudited) | (unaudited) | (audited) | |
| Cash flow from operating activities | |||
| Cash receipts from customers | 38,679 | 47,232 | 102,690 |
| Proceeds from sale of tangible assets | 980 | 1,336 | 3,547 |
| Cash receipts from other operating income | 1,931 | 1,792 | 6,753 |
| Cash paid to suppliers and employees | -16,789 | -13,976 | -30,646 |
| Cash flow from operating activities before financial items and taxes | 24,801 | 36,384 | 82,344 |
| Interest paid and other financial expenses | -11,597 | -11,261 | -21,903 |
| Interest received | 112 | 93 | 180 |
| Income taxes paid | -3,364 | 7,565 | 7,470 |
| Net cash flow from operating activities | 9,952 | 32,782 | 68,092 |
| Cash flow from investing activities | |||
| Investments in biological assets | -16,280 | -16,550 | -47,882 |
| Investments in tangible assets, forestland | -2,012 | -2,045 | -5,918 |
| Investments in other tangible and intangible assets | -815 | -681 | -2,051 |
| Investments in associates and other investments | 0 | -3 | -3 |
| Investments in unlisted securities | -179 | -670 | 0 |
| Proceeds from sale of unlisted securities | 0 | 0 | 896 |
| Net cash flow from investing activities | -19,286 | -19,948 | -54,958 |
| Cash flow from financing activities | |||
| Withdrawal of long-term loans | 35,000 | 25,000 | 25,000 |
| Repayment of long-term loans | -38 | -33 | -4,575 |
| Repayment of short-term loans | -15,000 | -10,000 | -5,000 |
| Repayment of leasing liabilities | -124 | ||
| Dividends paid | -15,000 | -28,500 | -28,500 |
| Net cash flow from financing activities | 4,839 | -13,533 | -13,075 |
| Net increase/decrease in cash and cash equivalents | -4,495 | -700 | 58 |
| Cash and cash equivalents at beginning of period | 13,957 | 13,901 | 13,901 |
| Effect of exchange rate changes on cash and cash equivalents | -29 | -2 | -2 |
| Cash and cash equivalents at end of period | 9,434 | 13,199 | 13,957 |
Attachment
