Tornator’s net sales increased by 15% – strategic contracts improved competitiveness

Half-year report – released in Finnish on 24 August 2021 at 8.00 am

SUMMARY 1 JAN – 30 JUNE 2021 (1 JAN – 30 JUNE 2020)      

• Net sales increased by 15 per cent to €58.7 million (51.2). Timber deliveries* accounted for €49.8 million (48.2).
• The reported IFRS operating profit was €42.7 (36.1) million. Adjusted operating profit improved by 17 per cent to €40.9 million (35.1) thanks to increase in land sales and sales of silvicultural services.
• The company began to provide silviculture services to Stora Enso customers throughout Finland. The companies also renewed their long-term framework agreement for timber sales and agreed on cooperation in forest research and development.
• The company rearranged its bank loan and interest rate hedging agreements, resulting in lower interest expenses and longer average maturity of its loan portfolio. 
• Tornator continued to purchase forestland in Finland. Nearly 4,000 hectares of new forests were acquired, with a total investment of more than EUR 20 million.
• The IFRS profit for the period at fair value was €58.5 million, the effect of the change in the value of growing stock being €+1.0 million and in interest rate instruments €-37.5 million before taxes.
• Comparable return on equity was 5.8% (5.0) and, at fair value, 12.6% (-2.4). The equity ratio was 46.6% (42.8).

Key figures (group)

The key figures were calculated according to the International Financial Reporting Standards (IFRS).

* Timber delivery = Once the customer has felled the stands marked for cutting it has bought, ownership of the timber is transferred to the buyer

Comparable key figures

In addition to official key figures calculated in accordance with IFRS, Tornator Group uses comparable key figures that are calculated without changes in fair value. The figures are comparable between years and therefore describe better the success of operations. The figures are calculated as follows:

CEO Henrik Nieminen:
“Tornator continued to perform well in a favourable market environment; the first half of the year was the best in the company’s history. General uncertainty caused by the Covid-19 pandemic did not affect the timber market, and a global increase in the demand for timber products reflected rather positively on the entire forest sector. Tornator’s net sales increased by 15 per cent and its operative operating profit by 17 per cent from the comparison period. Timber delivery planning and implementation were extremely successful thanks to the suitably cold winter. Expansion of our silviculture services got off to a good start, and the plot market continued on a positive path. There was increased interest in leasing land areas needed for wind power development.  

In addition to the agreement on the expansion of the silviculture services, Tornator renewed its long-term timber sales agreement with its main customer, Stora Enso. This agreement ensures Tornator a steady cash flow well into the future. Tornator also rearranged its bank loan and interest rate hedging agreements, resulting in lower interest expenses and longer average maturity of its loan portfolio. Thanks to all these strategic-level agreements, the company is in a solid and stable position to take steps to reach its long-term targets in terms of financial, social and ecological sustainability.

Tornator continued forestland purchasing in Finland, acquiring more than 4,000 hectares of forestland. There is an increased interest in forest leasing, and Tornator signed a few new agreements. The market prices were high for forestland in Estonia, so no new growth investments were made there. In both Estonia and Romania, Tornator focused on the development of existing forest assets and operations.

Tornator invested a lot in its primary capital, its personnel, through staff development and improved wellbeing at work. The personnel took an active part in creating the new strategy by means of a training programme and workshops. The company was preparing for changes in working life and for the creation of the “new normal” after the pandemic by asking all employees to share their experiences during this exceptional period. According to the survey, some sort of hybrid model is the best way for most to continue working once the situation returns to normal.       

Tornator’s vision is to be a forerunner in the responsible use of forests. The company continued, in line with its responsibility programme, with mire restoration and prescribed burning and negotiated about the establishment of new nature conservation areas on land owned by the company

The company is following the debate about forests both at EU level and in the countries it operates. Tornator’s view about the role of forests in terms of climate change is clear: forests are the solution, not the problem. The company always plans its operations with the health and growth of the forests in mind. Forestry based on research data and decades of experience ensures the health of the forests, carbon sequestration and production of a renewable raw material to replace fossil raw materials. Tornator is committed to ensuring biodiversity, and indeed was preparing in the first part of the year a new, ambitious biodiversity programme for 2021–2030. The programme will be published to everyone in a webinar in August, on the eve of the Finnish Nature Day.     

Tornator’s mission is to generate sustainable well-being from forests. The company is preparing for the remaining part of the year from a good position, supported by good partnerships and agreements that improve its competitiveness.

Impacts of the COVID-19 pandemic

The company continued to operate 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 and operative operating profit were historically high during the reporting period. Cash flow from operating activities without a one-time payment from partial termination of derivative contracts was healthy. 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 were as planned, totalling approximately 1.5 million cubic metres (1.4), that is, €49.8 million (48.2). Thanks to a frosty winter, timber harvesting went smoothly, and a global increase in demand for timber products ensured that the wood processing industry had an interest in buying timber.

In total, the group recorded €5.3 (1.6) million in real estate net sales. Net sales of silviculture services totalled €3.6 (1.4) million. Other income increased to €3.3 million (1.9).

The increase in market interest rates affected the fair values of Tornator’s financial instruments positively. The profit effect since the beginning of the year was €+37.5 (-38.9) million. The company also cancelled part of its interest rate hedging during the reporting period, which reduced the derivatives’ negative fair value by about €62 million and increased the company’s interest-bearing bank loans. At the end of June, the fair value of interest rate derivatives totalled €-74.8 million (-174.4 on 31 December 2020). Long-term market interest rates have fallen since the reporting period, which has reduced the fair value of interest rate derivatives. The fair value of forests at the end of June was €1,858.2 million (1,841.2 on 31 December 2020).

Business environment

A global increase in demand for timber products pushed the prices of both sawn timber and pulp. High demand in the US and China increased stumpage prices in Finland, Estonia and Romania. Forest damage in Canada and Central Europe turned the tables, and the previous oversupply of timber became a scarcity of fresh, undamaged timber, as already predicted. In Finland timber sales were strong throughout the first half of the year. Total industrial wood harvesting in January–June was some 32.3 million cubic metres, which is 5.3 million cubic metres (+20%) more than in the previous year.

The market prices of timber exceeded the previous record levels of 2018, but the prices have come down somewhat after the end of the reporting period. During the first half of the year, the price of sawlogs was about 10% higher than a year ago, and that of pulpwood about 7%.

Demand for holiday plots continued to be high. Demand for forest estates by forest funds and other forestland investors continued to be very high, while supply lagged significantly behind.

Demand for timber was on the increase in Estonia, and the winter harvesting weather was very favourable after many poor winters. Timber market prices increased sharply compared to the situation at the start of the year. In the forestland market, the price level was very high, as demand clearly exceeded supply. 

In Romania, demand for and the price level of timber increased year on year. The forest estate markets were subdued. 

Finance

The group’s financial position remained good. The reported cash flow from operating activities, according to IFRS, was €-38.9 million (22.3) and the cash flow from operating activities without a one-off payment for cancellation of derivatives was €23.0 (22.3).

The group’s net financial expenses in January–June were €+28.6 (-48.7) million. Interest-bearing liabilities totalled €748.4 million (688.5 on 31 December 2020), of which €748.4 million (673.5 on 31 December 2020) were long-term and €0.0 million (15.0 on 31 December 2020) were short-term.   

The company has used interest rate derivatives to hedge against market interest rate changes. The value change of derivatives recognised through profit and loss was €37.5 million positive (€38.9 million negative) and the change in accrued interest entered under interest expenses in relation to the fair value change of derivatives was €+0.2 million (0.0). Tornator rearranged its interest rate derivatives during the reporting period by terminating part of the existing agreements and replacing them with new, long-term interest rate swaps, effective in 2028. As a result of this, Tornator’s annual financial expenses are considerably reduced, the negative fair value of derivatives decreased and the nominal amount of interest-bearing debt increased. In addition to this, hedged long-term fixed interest rates, hedged with derivatives, decreased significantly.

During the reporting period, Tornator’s net cash flow from investing activities was €-19.9 (-23.5) million. Net cash flow from financing activities was €+19.8 (-2.7) million. Available-for-sale financial assets and cash and cash equivalents on 30 June 2021 were €23.6 million (63.8 on 31 December 2020).  The group has a €10 million bank account limit and a committed revolving credit facility of €100 million, none of which has been withdrawn. Tornator’s €300 million commercial paper programme was also fully available on the reporting date.

During the reporting period, Tornator agreed on a green bank loan package of €150 million, which will mature in 2028. Part of the new bank loan was used for the early prepayment of a €75 million bank loan maturing in the spring of 2022, further improving the maturity structure of Tornator’s loan portfolio.

An estimate of future development

Tornator expects demand for timber to remain high in the long term. Sustainable forestry and measures taken to secure biodiversity put the company in a good position to offer the market renewable wood raw material also in the future. Any changes in the global economy or, for example, forest processing regulations may affect Tornator’s felling volumes in the future.

The situation in the forestland market is expected to remain similar to the first half. High 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.

Tornator estimates that its cash flow and debt service capacity will remain stable for the rest of the year. The company will update its long-term annual cut plan in the autumn, and the annual fair value update of its forests will be carried out in the final quarter. 

Decisions of the Annual General Meeting

The Annual General Meeting of Tornator Oyj, held on 11 March 2021, decided that dividend be paid as proposed by the Board of Directors: €8.0 per share, totalling €40 million. The AGM approved the financial statements for 2020 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:

Organisation of the Board of Directors

On 11 March 2021, the new Board of Directors elected Mikko Koivusalo as Chairman and Mikko Mursula as Vice Chairman. In addition to these two Board members, Tuomas Virtala 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 Tuomas Virtala 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 2021

   
 The Half-year Report is also available on the company's website at www.tornator.fi. 

For further information, please contact:
Chief Executive Officer (CEO) Henrik Nieminen, tel. +358 40 869 7613
Chief Financial Officer (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 2020, the group’s net sales were some €118 million, and the balance sheet value was about €2.0 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.

Condensed half-year financial statements

Condensed consolidated income statement

Condensed consolidated balance sheet

  
    
Statement of changes in equity

    
Condensed statement of cash flows

Attachment

• Tornator Half-year Report 30 June 2021