Vapo Annual Report 2014 · 30 continuously operating measuring stations from Metso Automation Oy. The equipment installed by Metso monitor water ﬂow, temperature, chemical oxygen

VAP

O 1.1.2013–30.4.2014

Transparency is important for Vapo, which is why we ordered

30 continuously operating measuring stations from Metso

Automation Oy. The equipment installed by Metso monitor

water flow, temperature, chemical oxygen demand, solids,

dissolved organic carbon and its total quantity. The measuring

stations will be located around Finland at production areas of

different sizes and ages to ensure that we obtain accurate data

on the emissions into waterways from our peat production

areas. The data will be available online for the public to view

approximately 24 hours after measurement. ”The results of the

measurements have a higher than 90 per cent correlation with

laboratory measurements,” says Tiina Stenvik, Senior Manager

at Metso Automation.The measurement data can be accessed

via the Producing Peat Responsibly section on the Vapo

website. http://www.vapo.fi/producing-peat-responsibly/

Continuously operating measuring stations from Metso Automation Oy

Vapo OyP.O. Box 22, FI-40101 Jyväskylä, Finland

Yrjönkatu 42

FI-40100 Jyväskylä, Finland

Tel: +358 20 790 4000

Fax +358 20 790 5601

e-mail: [email protected]

www.vapo.com

VAPO1.1.2013–30.4.2014

We act responsibly - employ locally

Editor-In-Chief: Vapo, Ahti Martikainen, Director, Communications and Public Affairs

Design and concept: Kreab Gavin Anderson Oy

Photos: Teemu Tervo, Otto Inkiläinen, Petri Juntunen, Olli Reinikainen,

Pekka Virolainen, Tuomo Vilkkilä, Shutterstock

Printing house: Multiprint

Vapo is products, services and energy from peat and wood Vapo is a modern expert organisation that supplies peat and wood fuels to its energy

customers and produces heat and electricity from these local raw materials. The Vapo Group’s product range includes also timber by Vapo Timber and garden products and environmental

business solutions marketed under the Kekkilä and Hasselfors Garden brands.

2 CEO’S REVIEW

4

OPERATING ENVIRONMENT

Customer focus, costefficiency

and good leadership!

6 Interesting facts

8 The present and the future

10 A rewarding feeling for a job well

done

12 Up-to-date information on im-

pacts on watercourses

Vapo Oy

P.O. Box 22, FI-40101 Jyväskylä, Finland

Yrjönkatu 42


Tel: +358 20 790 4000

Fax: +358 20 790 5601

E-mail: [email protected]

www.vapo.com

Vapo 1.1.2013–30.4.2014

14 Permits are a matter of matching

the needs of the environment with

the needs of customers

18

19

Cut-away areas turn into mires

only in few decades

Land use after peat production

20 Multipurpose wetlands in

Janakkala

21 Vapo has a clear vision of water

23 Talk about peat

26 Natural purification or chemical

treatment

28 Vapo is a significant local

employer

58 FINANCIAL PERIOD IN

A NUT SHELL

60 GROUP MANAGEMENT

62 BOARD OF DIRECTORS

63 CORPORATE GOVERNANCE

67 RISK MANAGEMENT

68 FINANCIAL STATEMENTS

68 BOARD OF DIRECTORS’ REPORT

79 CONSOLIDATED FINANCIAL STATE-

MENTS

80 CONSOLIDATED BALANCE SHEET

81 CONSOLIDATED CASH FLOW

STATEMENT

82 CONSOLIDATED STATEMENT OF

CHANGES IN SHAREHOLDERS’

EQUITY

83 KEY FIGURES

84 PRINCIPLES FOR CALCULATING

KEY FIGURES

REVIEWS BUSINESS FINANCIAL STATEMENTS

The report you are holding concerns Vapo Oy’s extended financial year 1 January 2013–

30 April 2014. Because comparing the figures between financial years with differing

durations is now difficult, instead of numbers we have focused on telling you about our

operations, strategy, products and operating principles in the style of a magazine. The

underlying themes of the stories are responsibility for the environment, responsibility for

our customers as well as responsibility for employment in the areas where we operate.

Ahti Martikainen

Editor-in-chief

32 BUSINESS OPERATIONS

VAPO PEAT PRODUCTS

34 Continuous training keeps the

wheels turning

36 Hooves firmly in peat

VAPO HEAT AND POWER

38 Vapo revises the pricing of district

heating

40 Small streams make a large river

VAPO WOOD FUELS

42 Vapo believes in wood energy

4446

Vapo is a reliable partner

Energy-efficient blocks of flats

under development in Kivikko

VAPO TIMBER OY

48 Utilisation rate, lumber recovery

factor and customer service are

the cornerstones of operations

50 A sawmill creates jobs

KEKKILÄ GROUP

52 Positive vibrations in all markets

54 Growth from product

development

56 A good idea stumbles on EU

legislation

Fore

word

1Vapo 1.1.2013–30.4.2014

Annual Events 2013/2014 TAPAHTUMIA VUODELTA 2013

Peat ProductsEUR

264.2 million

OtherEUR

13.4million

Kekkilä GroupEUR

125.7 million

Heat and PowerEUR

143.9 million

Wood EnergyEUR

182.1 million

Vapo TimberEUR

179.7 million

Total

EUR 847.4 million

VAPO’S TURNOVER 1.1.2013–30.4.2014

4012

23

50Vapo is a very significant employer in many cities and municipalities

Investments in energy efficiency improve profitability Continuously operating

measurement devices ensure reliable monitoring of environmental impacts

For and against.Talk about peat

2Vapo 1.1.2013–30.4.2014

Responsible operations

mean responsibility

for the environment,

customers and local

employment

CEO’s review

CEO’S REVIEW

3Vapo 1.1.2013–30.4.2014

My apologies to readers, due

to the exceptional financial

year of 16 months, many of

the company’s key figures

are not completely com-

parable with previous or future financial years.

Vapo’s financial year was changed from the

traditional calendar year to 1 May – 30 April.

The change was made because it allows the

key factors affecting the Group’s result, namely

the peat production season and the following

heating season, to be allocated to the same

financial year. In conjunction with the change,

the company will also abandon quarterly re-

porting in favour of tertile reporting. The reason

for this change is equally straightforward.

Under the new reporting schedule, the period

from 1 May – 31 August covers practically the

entire peat production season. The two follow-

ing periods, 1 September – 31 December and

1 January – 30 April, divide the heating season

into two halves. We believe that the new

reporting schedule allows us to provide a more

comparable picture of the company’s financial

development going forward.

Good production seasonThe company entered the summer 2013 peat

production season with record low inven-

tory levels. This paved the way for the best

production season in years. In Finland, the

company extracted approximately 17 million

cubic metres of peat, slightly over 80 per cent

of the production target. Production was also

successful in Sweden and the Baltic countries.

Unfortunately, the strong production season

was followed by a record mild winter. Warm

weather, low electricity prices and, above all,

the increase in energy tax on peat that took

effect at the beginning of 2013, led to nearly

half of the total harvest remaining in stock.

In its discussion on spending limits in spring

2014, the Finnish Government decided to

cancel the additional tax increase planned

for the start of 2015, but this is not enough

to reverse the development. The increased

tax burden on peat, combined with the low

world market price of coal, inevitably leads

to the increased consumption of coal and

makes the competitive situation for peat very

challenging.

The increase in peat taxation also

had another negative consequence. Peat

taxation is linked to the harvest subsidy for

energy wood. The increase in peat taxa-

tion lowered the harvest subsidy for wood,

which resulted in weaker competitiveness for

wood energy as well. Both of these changes

caused substantial damage to Finland’s

primary domestic fuels, and energy wood

reserves are now also very high.

Vapo’s strategy has been to adjust its

pellet production capacity to correspond

with healthy market demand. During the

financial year, Vapo’s Swedish subsidiary

Neova AB and another significant pellet pro-

ducer in the Swedish market, Lantmännen

Agroenergi AB, merged their pellet produc-

tion businesses. The newly formed company

is the Scandinavian industry leader in its field.

Vapo’s stake in the new company, which has

a total turnover of just over EUR 100 million,

is exactly 50 per cent, and the business will

no longer be included in the consolidated

financial statements. The arrangement is

aimed at achieving synergies in production,

marketing as well as logistics.

The demand for pellet is recovering in

Finland, with medium-sized and even large

heating producers having built new pellet-

using units or announced plans to accelerate

the development of new units. Vapo’s aim

going forward is to sell all of the pellets it

produces in Finland to the domestic market

and to discontinue its pellet export opera-

tions, which suffer from poor profitability.

The company also has the capacity to increase

production if home market demand continues

to grow.

Vapo’s strategy is to develop the Heat and

Power business area into a second cornerstone

for the company, in addition to its fuel busi-

nesses. In recent years, the Heat and Power

business area has sold shares in associated

companies, eliminated non-core functions and

focused its operations exclusively on Finland

and Sweden. As a result, its turnover has

decreased, but our investments in energy-

efficiency have already produced good results

and we expect this business area to develop

positively going forward. As the past heating

season was exceptionally warm in both Finland

and Sweden, the positive changes made in this

area are not reflected in full in the figures. The

business area’s result was also weakened by

the low market price of electricity during the

recent financial year.

Separate strategies for Kekkilä and TimberVapo’s core businesses are its energy-related

industries. The two business areas that are not

energy-related, namely Kekkilä Oy and Vapo

Timber Oy, are directed by their own Boards of

Directors with the aim of increasing their share-

holder value.

During the financial year, Vapo Timber Oy

sold its Hankasalmi sawmill to Versowood Oy,

and it now produces sawn timber at two saw-

mills located in Nurmes and Lieksa. The export

market for sawn timber was strong in the latter

part of the financial year. Home market demand,

however, remains quite weak. The industry is

recovering, but continued recovery depends

on the domestic raw material market operating

effectively and the reliable availability of imported

wood.

Kekkilä Group, which manufactures and

markets products for professional and amateur

gardeners, carried out an internal acquisition

in 2012 to purchase production areas from

the parent company needed for its operations.

Kekkilä also expanded its product range in 2012

by acquiring Lassila & Tikanoja’s composter

and eco toilet businesses. This transaction

expanded Kekkilä’s geographic focus to Russia.

Kekkilä’s role is now to develop its own busi-

ness operations with the aim of growth as well

as a substantial improvement in profitability and

increase in shareholder value in the next few

years.

Vapo’s strategy is to develop the Heat and Power business area into a second cornerstone for the company

”

4Vapo 1.1.2013–30.4.2014

Who?

OPERATIONAL ENVIRONMENT

Biodiesel project shelvedFor several years, Vapo worked on a project

aimed at building a large biodiesel plant in

Ajos, Kemi. The project was considered so

feasible that the EU granted it a provisional

EUR 88.5 million in NER 300 support if the

construction of the plant were to begin before

the end of 2014. Unfortunately, the prelimi-

nary 2030 emissions targets announced by

the EU in January do not include separate

renewable fuel targets for traffic fuels. This

led to the uncertainty factors related to the

price of the end product growing to the extent

that it was impossible to make a sufficiently

convincing case for the project’s profitability

to the planned partners, namely distributors,

financers and technology partners. As a result,

the project was shelved until further notice in

spring 2014.

New business in cleantechVapo has decades of experience in natural

water treatment and the design and construc-

tion of natural water treatment structures. The

company has launched a project to use this

expertise, which is traditionally linked to Vapo’s

own operations, to create new business in

the rapidly growing cleantech sector. The

project was launched in summer 2013, and a

delightfully large portion of the order backlogs

are already now from customers outside the

Group.

Environmental responsibility remains a key focus areaIn recent years, Vapo’s largest area of

investment has been to make environ-

mental responsibility a core component

of its strategy. We have made good

progress in our environmental responsibil-

ity programme, and we proudly present

the programme on our website and other

contexts. We are committed to ensur-

ing that all of our peat production areas

are covered by the best available water

treatment technology by the end of 2014.

Furthermore, we will not seek produc-

tion permits for category 4 and 5 mires

that have significant nature value, and as

our most recent commitment, we have

promised that the downstream water-

course load of all of our peat production

areas opened after 2016 will be lower than

before peat production began.

In order to convince the general public of

the effectiveness of the measures we have

taken, we have increased the transparent

publication of monitoring data. The most sig-

nificant investment in this area is our order for

continuously operating measurement devices

from Metso Automation. A total of 30 of these

measurement devices will be installed, and the

output data from the first devices is already

available to the public on the Metso Automa-

tion website.

Unfortunately, the environmental invest-

ments we have made have not yet brought

any relief to our greatest problem, which is

the slow and increasingly complicated permit

process for production areas. On the contrary.

At the time of writing this review, it remains

unclear which legislation will govern permits

for peat production areas in Finland going for-

ward. The industry fears that permit processes

will be slowed down and complicated further.

A grade of C+Although the exceptionally long financial year

makes year-on-year comparisons difficult, I

can say that we have made good financial pro-

gress on multiple fronts. This financial year, all

of our business areas improved their operating

result from the comparison period, our equity

ratio is better than it has been in years, and

our debt burden has also been relieved. The

most important of our key indicators, the ratio

of operating margin to debt, has also improved

substantially.

I would like to take this opportunity to

thank all of our employees and contractor

partners and, in particular, our customers for

the positive results achieved by the supply

chain as a whole in the area of environmental

responsibility as well as in communicating

these results to decision-makers.

Tomi Yli-Kyyny

Jyrki VainionpääJyrki Vainionpää took his post as Vapo Oy’s Chief Operating Officer at the beginning of April 2014. This was a transfer from his previous position of CFO, which he took in 2011. He first joined Vapo from Nokia Corporation, where he worked since 2007 and most recently held the position of Head of Strategy Development in the Mobile Solutions business unit. Vainionpää has also worked as an investment banker in London, in corporate strategy in Pohjola Group, and as a management consultant at McKinsey & Company in Helsinki and New York.

This financial year all of our business areas improved their operating result from the comparison period

”CEO’S REVIEW

5Vapo 1.1.2013–30.4.2014

Vapo Oy’s Chief Operating Of-

ficer responsible for sales and

area operations recognises

the hard facts but believes

that success is achievable.

However, achieving success requires a sub-

stantial improvement in 1) customer focus, 2)

cost-efficiency, and 3) good leadership.

Hard factsMany people think that Vapo has a dominant

market position and can afford to be arrogant,

inefficient and lazy.

The first hard fact, however, is that we

face free competition in practically all of the

industries we operate in. Achieving success in

this competition requires us to have a strong

customer focus and cost-efficiency, which is

an essential requirement in our sector, as well

as good management.

The second hard fact is that we have a lot

of room for improvement in these three areas:

thing for Vapo to do was to have a produc-

tion-focused approach to its operations, as

production was traditionally the bottleneck

for peat sales. Today, however, the bottle-

neck is demand. This means that customer

focus and activity towards customers are

the first priorities. Changing this fundamental

approach to operations is not easy.

compared to many other operators, many

of which are smaller than us. We sometimes

make the mistake of telling ourselves that

our costs can be allowed to be higher than

those of our competitors due to our environ-

mental investments or some other reasons.

improvement with respect to the quality of

management and aspects such as occupa-

tional safety.

We have many good reasons to succeedWe have decided to become the world leader

in managing the chain from local biofuels to

energy. Taking the above-mentioned hard facts

into account, this is a considerable challenge. I

am nevertheless confident for three reasons:

1 we have succeeded before,

2 we have committed personnel with a pas-

sion for domestic energy, and

3 a network of contractors and customers

who want us to succeed.

We have succeeded before, The change

in organisational culture has been significant

when it comes to environmental issues—we

can now similarly develop our culture with

respect to customer focus, cost-efficiency

and good management. The second success

factor is strengthening our balance sheet.

The key figures in our most recent financial

statements show a tremendous improvement

compared to 2011. This required a halving of

capital expenditure, the divestment of certain

businesses, and a reduction in costs. We suc-

ceeded in a significant efficiency improvement

project at a time of dire need.

Committed personnel with a passion for

domestic energy: Jim Collins’ classic book

“Good to Great” argues that the passion

of personnel is one of the key aspects that

separates great companies from the rest.

Vapo’s personnel are highly committed and

they believe they are doing the right thing

by striving to replace fuels such as imported

Russian coal with domestic alternatives. When

I took my position as COO in April, I asked

our personnel to share with me their views on

what they can do in their positions to promote

our chosen priorities, namely customer focus,

cost-efficiency and good management. I have

now read the responses from more than a

hundred Vapo employees, and their answers

reflect not only a passion for Vapo and domes-

tic energy, but also a desire to elevate the level

of our work.

We benefit from strong support: while

Vapo is often the subject of criticism in the me-

dia, I have personally experienced strong sup-

port from customers, contractors and a large

number of Finns that want us to succeed.

What constitutes successWorking without a vision is a nightmare.

Let us hop into a time machine and take a

look at our 2018 annual report:

“In 2014, we stated we want to be the

world leader in producing energy from

local biofuels. Now, in 2018, we are close

to achieving this dream and, on our way

to this point, we exceeded our ROIC

target of 7 per cent. Today, all of our busi-

ness areas have tremendous vitality and

everyone at Vapo looks to the future with

confidence. Many have asked us what we

did right, and our answer is: Not a dra-

matic programme of transformation, but

day-to-day and systematic improvement.

We listened closely to our customers. We

grew our heating business judiciously. We

made ourselves cost-efficient and flexible

through actions both big and small. We

included our contractors in striving for

cost-efficiency, at the same time securing

their capacity for continued operation. We

gained broader support from local people

through fact-based communication, active

participation and responsible operation.

We all pulled in the same direction in our

operations and business areas, which

allowed us to achieve synergies between

our fuel and heating businesses. We in-

creased our pellet sales while maintaining

our margins and proved that forest-based

fuels can be sold profitably year after year.

Customer focus, cost-efficiency and good leadership!JYRKI VAINIONPÄÄ

6Vapo 1.1.2013–30.4.2014

Approximately 23,000 Finnish detached houses were heated with pellets. After changing an oil burner to a pellet burner, it has been calculated that in approximately 2–3 years the pellet burner will cover its own costs.

1 000 t 500 l=

A tonne of pellets has the equivalent thermal value of approximately 500 litres of oil.

23 000

In 2013 the sawmill in Lieksa produced

11,651,263 boards and planks.

1.2Laid out in one long line, this amount of timber would go 1.2 times around the world.

Total energy consumption in 2013 in Finland

Oil 23.4%

Wood fuels 24.2%

Nuclear power 18.5%

Natural gas 8.0%

Coal 10.9%

Peat 3.6%

Hydroelectric power 3.4%

Wind power 0.2%

Other and net eletricity import 7.8%

Inte

rest

ing F

acts

What does success require: 1. Customer focusA vision without work is a hallucination. Return to the

present moment and simply do what must be done in

order to succeed.

Customer focus: pick up the phone and make

calls more often, show an interest in how to improve

the customer’s profitability by providing the optimal fuel

quality; on one hand, appreciating small streams and, on

the other hand, offering solutions when customers make

major investments. Customer focus and the related ac-

tivity generates the sales margin that pays our own and

our contractors’ wages, dividends to shareholders and

investments in our future.

What success requires: 2. Cost-efficiencyWe can improve cost-efficiency by producing high-

quality peat, by being smarter about purchasing, by mini-

mising the fuel use of oil at our own facilities, by keeping

our own and our contractors’ costs in check, and by

managing cost-efficiency throughout the entire chain.

Cost-efficiency also involves simplification, eliminating

unnecessary bureaucracy and concentrating on what

really matters. The key is to find the root causes behind

costs, to highlight them to the people who have influ-

ence over them, and to eliminate the root causes behind

unnecessary costs.

What success requires: 3. Good leadershipTo me, good management means improvement in at

least three areas:

breaches of environmental permit regulations and

keeping the promises made

Good management is also a precondition for cus-

tomer focus and cost-efficiency. This is not just a chal-

lenge for managers and supervisors, as many people at

Vapo manage not only themselves, but also cooperation

partners such as contractors.


Source: Statistics Finland

7Vapo 1.1.2013–30.4.2014

There is one seedling for every human on Earth growing in Kekkilä peat every year.

Each of Metso’s continuously operating measuring stations takes 8,760 water samples per year.

8,760

The price of a load of peat is approximately

EUR 1,600

One lorry-load is equal to around

PEAT140m3

which corresponds to the annual energy

consumption of nearly four detached homes.

The corresponding distance travelled by peat is approximately

80kilometers

The average distance travelled by coal from themine to the power plant is

5,600 kilometres

10,000

Peat production directly andindirectly employs more than10,000 people in Finland.

700,000m3Vapo produces around 700,000 cubic metres of litter peat annually.

One horse requires approximately one cubic metre per month. (Horses need litter approximately 9 months out of the year)

9m3

Approximately

250,000 tonnes of pellet was produced in Finland in 2012.

In Sweden, the corresponding figure in 2012 was about

2 million

tonnes

The Swedish output would be sufficient to cover the consumption of half a million small houses.

Finland’s rate of self-sufficiency in energy

Denmark is the only country in the EU that is self-sufficient in energy.

Finland produces 34.3 per cent of its energy using renewable sources – the third-highest rate in the EU.

34.3%

The two countries ahead of Finland are Sweden (51 %) and Latvia (35.8 %).

35%

Vapo uses 90.8 per cent

domestic fuel at its power plants.

Of the energy generated by Vapo,

51.1%

comes from renewable fuels.

90.8%

Operating environment– the present and the future

The Finnish energy palette in 15 years


Energy visionsThe Ukrainian crisis made energy, and self-sufficiency in energy, an important topic of discussion in Finland and Europe in spring 2014. Finland’s Achilles’ heel is our low rate of self-suffi-ciency in energy. Nearly two thirds of our energy supply rely on imported energy. We asked the members of Parliament in Vapo Oy’s Supervisory Board to share their per-sonal visions of what the Finnish energy landscape might look like in 2030. Lower emissions and greater self-sufficiency were a common thread in their visions.

8Vapo 1.1.2013–30.4.2014

9Vapo 1.1.2013–30.4.2014

Janne Sankelo

Wood is a significant raw material

It is the year 2030. Finland is close to

being a completely circular economy.

The proportion of waste that is not

recycled is converted into energy.

Energy efficiency plays a key role in

controlling both energy prices and emissions.

Overall industrial consumption can increase,

as Finland produces goods utilised outside

its borders as well.

In electricity generation, self-sufficiency

is achieved by 2030. The security of supply

is ensured through a broad energy palette

and multiple sources of supply. The security

of supply is also supported by the European

energy grid, which improves every year. Ma-

jor investments have been made in energy

infrastructure, and advanced transfer grids

conserve energy.

In energy generation, all coal and a sig-

nificant proportion of natural gas and oil have

been replaced by peat, wood chips, solar

power and nuclear energy. Nuclear power

construction is not restricted as long as it

is done on market terms. The use of peat

has been increased substantially, with some

of it used as biofuel. Wood is a significant

raw material for a variety of products from

wood gas to biofuels and biocoal, which

are exported to replace fossil fuels. In 2030,

Finland may have reduced its fossil oil con-

sumption to approximately one third of the

current level.

In 2030, Finland has a significant export

industry in the energy sector. These exports

include energy technology solutions, services

as well as fuels. The doubling of the Clean-

tech industry creates more than 40,000 new

jobs in Finland.

Jukka Kärnä

Peat has finallyreplaced all coal

I believe that, by 2030, Finland will

be quite close to the goal of self-

sufficiency in energy. Olkiluoto will

have finally been completed, and

Hanhikivi is also online and generat-

ing electricity. Fortum has had its nuclear

power permit for a long time, and it is also

generating electricity. We have been self-

sufficient in electricity for several years, and

safely produced nuclear power has become

an export commodity.

In heating, ground source heat has taken

a major foothold in the market. The Russian

natural gas monopoly is a thing of the past

due to shale gas and the extensive use of

wood in decentralised heating production.

Peat has finally, in the 2020s, replaced all

coal and is used for both energy generation

and heating. There has been no need to

utilise category 3–5 bogs, as there is plenty

of peat in category 0–2 peatlands. Vapo’s

reputation has been definitively restored as a

result of its own substantial investments, and

peat is rightfully perceived as a fine renew-

able natural resource.

A comprehensive charging network for

electric cars has been built in Finland, and

practically all motorists drive an electric or

hybrid car. Russian oil represents only a

minimal share of traffic fuel consumption.

Bioethanol is widely used.

The use of energy has increased dramat-

ically as both Cleantech and the bioeconomy

are new cornerstones of the Finnish export

industry. The development of the Arctic re-

gion has also shifted the Finnish technology

sector into new gear, led by the offshore and

shipbuilding industries.

Antti Kaikkonen

Let us free ourselves from coal and use energy sourced from Finland!

Finland has enormous and positive

opportunities in its energy policy

between now and 2030. My party,

the Centre Party, has underlined the

importance of investing in domestic

renewable energy sources. With the right political

decisions, hard work and entrepreneurship, we

can achieve the following goals:

industry

32% to more than 60%

and our self-sufficiency in electricity generation

to 100%

renewable energy represent more than half of

the total traffic energy consumption

third of the current level

billion.

The Centre Party has drafted not only these

objectives, but also a concrete roadmap for

how they can be achieved.

Reaching these objectives requires excep-

tional cooperation, an energy agreement. Political

decision-makers, the public authorities and the

business sector should all strive to reach a joint

energy agreement that brings about much-needed

predictability to benefit businesses and individuals.

As things stand, regulations, taxes and subsidies

keep changing, which makes it more difficult

for businesses to make long-term investments.

Turning our energy balance around requires a joint

effort. It will create jobs, and instead of imported

coal and oil, we will increasingly rely on domestic

renewable energy.

10Vapo 1.1.2013–30.4.2014

A rewarding feeling for a job well done

Joni Simonen and Elina Leskinen knew very little about

Vapo when they joined the company as summer

workers to document district heating networks. After six

weeks, this large undertaking was complete and the two

summer workers were left with a rewarding feeling and a

lot to share with their friends.

Vapo recruited summer workers

in 2013 to solve a very specific

problem. According to Clas Blomberg, who is responsible

for the development of district

heating for Vapo’s Heat and Power business

area, many projects were slowed down by the

fact that district heating networks had not been

comprehensively documented in digital form.

Blueprints, pipeline maps and all other

documentation were scattered, and finding

information from manual archives was a lot

of work. Vapo wanted to take one big leap to

modernise this aspect of its operations. The

goal was to have the documentation acces-

sible for browsing and updates, for example by

using iPads at worksites.

To get the job done, Blomberg contacted

Aalto University and the Chairperson of its En-

ergy Technology Club, third-year student Elina Leskinen. Leskinen distributed information

on the job opening to fellow students, but also

expressed her own interest in the summer job.

Another student interested in the job offer

was Joni Simonen, a Master’s Degree student

at the same faculty. While Simonen had previ-

ous experience of the district heating industry

from two prior summer jobs, for Leskinen it

was her first contact with the industry. After

a round of interviews, Leskinen and Simonen

were selected from dozens of applicants.

Scanning and CADElina Leskinen describes her feelings as nerv-

ous when she was told that the online model

of the network should be completed in six

weeks.

“The start was made easier by the fact

that I was first asked to simply update the

district heating map online. In practice, this in-

volved using AutoCAD to draw lines on online

maps and updating customer address data,”

she explains.

Joni Simonen joined the company one

week after Leskinen. The big goal was to

have the entire Forssa district heating network

online. Previously, documentation such as

blueprints and information on valves and wells

was often only available in paper format.

“One interesting task was creating an

electronic tool for inspecting wells. As a result,

all wells are now online in Excel format.”

“You can see what each well contains, or

should contain, as well as when the well was

last inspected and when the next inspection

should take place. Everything was accessible

online for browsing and updating,” Simonen

says.

According to Leskinen, as the project

went on, the benefits of a digital archive

became clearer day by day. All designs that

were previously only accessible on paper are

now searchable in digital form. Old CAD blue-

prints have been updated with subsequently

installed valves and pipeline elevations, which

means that the digitally modelled network is

an accurate reflection of its physical counter-

part.

All is well that ends wellSimonen and Leskinen are both very

satisfied with their summer after six weeks

of work. They characterise the job and the

project as surprisingly motivating.

“It is difficult to think of anything nega-

tive to say. At first, resolving small problems

sometimes took some time, when everything

was new to you and your instructors and

supervisors had other work to do as well. At

the same time, the job was a great learning

“Learning and combining practice with theory were perhaps the best aspects about the job”


11Vapo 1.1.2013–30.4.2014

experience. You had to be, and were allowed

to be, independent,” Simonen explains.

“Learning and combining practice with

theory were perhaps the best aspects about

the job. It is completely different to look at a

large system from an office than to actually

visit the location and combine theory with

practice. This was very educational and I am

sure it would also be an effective approach

elsewhere,” Leskinen adds.

According to Clas Blomberg, the project

of documenting the Forssa district heating net-

work went extremely well. All of the goals set

for the summer were achieved. In the autumn

and winter, Leskinen has continued to work on

the project for other district heating networks.

While the two summer trainees knew very

little about Vapo before the summer, they both

say they would seriously consider Vapo and its

district heating business as a potential career

choice. Simonen says the organisation has a

great team spirit, with many good laughs al-

most every day. “The spirit was very positive,”

he says.

Leskinen was also impressed by the

youthful and dynamic spirit of the group. They

say they received useful and sufficient feed-

back on their work.

The two future engineers also have some

words of advice for their summer employer.

“It definitely makes sense to continue to focus

on responsibility in peat production, but other

energy forms should not be disregarded. All

of them are necessary. Then again, it makes

much more sense to burn peat than coal in

Finland,” Leskinen adds.

They also hope that Vapo will cooper-

ate more extensively with young people and

schools. Many people are not even aware of

what careers are available at Vapo. The com-

pany has already taken action on this front,

for example by arranging an evening with the

Aalto University Thermal Engineering Club to

give future engineers a chance to learn more

about Vapo’s Heat and Power business and

personnel.

The work continuesVapo has recruited three trainees for summer

2014 to work at the Vantaa office on tasks

related to district heating network blueprint-

ing, environmental issues and heating plants.

“Trainees are motivated and enthusiastic

contributors who support the development of

Vapo’s Heat and Power business area,” says

Development Manager Jari Kymäläinen.

Clas Blomberg and Jari Kymäläinen have been

very pleased with the student cooperation.

Elina Leskinen and Joni Simonen, students in

energy technology, were tasked with model-

ling district heating networks online.

12Vapo 1.1.2013–30.4.2014

Up-to-date information on impacts on watercourses through continuous water quality monitoring

In March 2013, Vapo and Metso

Automation began continuous load

monitoring at peat production areas,

also making the results available to

the public on the Metso website at

www.metso.com/automation/ymparisto-datapalvelu. The measurements have now

been taken for long enough to evaluate the

results.

Continuous monitoring of environmental

load supplements the emissions monitoring

pursuant to environmental permit regulations

and also provides a fact-based perspective

on the debate on peat production’s impact

on watercourses. Continuous monitoring

increases understanding and reduces con-

cerns by providing transparent, independent

and reliable data on the environmental load

of peat production and making it available to

everyone. Continuous monitoring increases

the transparency of the environmental impacts

of peat production and contributes to greater

overall understanding of the big picture of

water protection. Metso implements the

service in partnership with Luode Consulting.

Luode has not only the required measurement

technology, but also extensive know-how and

experience in demanding expert duties related

to water. Metso’s service also includes the

maintenance of the measurement stations as

well as the Metso DNA information system

and reporting services.

Continuous measurement is a voluntary

investment in monitoring impacts on water-

courses, and it complements the existing

emissions monitoring programme. It also sup-

ports the verification of the accuracy of emis-

sions monitoring results for peat production.

At present, there are real-time water

quality measurement stations at 21 Vapo peat

production areas and two ditched peatland

sites. The total number of sites will increase to

33 by 2015. Calibration is already complete for

eight sites, with the calibration of the remain-

ing new sites for this year set to be completed

within approximately six months of station

installation.

The advantages of contin-uous measurement are becoming apparent“Our experiences of the first six measure-

ment sites, which have been operational

for one year, have been positive. The

results of the measurements have a higher

-

tory measurements,” says Tiina Stenvik,

Senior Manager at Metso Automation,

about the results.

The devices are used to measure water

flow, temperature, chemical oxygen demand,

dissolved organic carbon, the total quantity of

organic carbon, turbidity and solids. The device

transmits the data wirelessly for verification by

an expert, and the results are available online

for the public to view approximately 24 hours

after measurement.

Compared to traditional water sampling,

continuous measurement yields data on con-

centration and load continuously throughout

the year. New measurements are taken every

hour. This adds up to more than 8,700 meas-

urements per year, a frequency that is over 400

times higher than that of manual sampling on

average. Such a large quantity of data enables

an entirely new approach to analysing monitor-

ing results and causal relationships. A process

information system developed by Metso and

used widely in factory environments is utilised

in data processing, calculations and reporting.

Vapo placed an order with Metso Automation for 30 continuously

operating measurement stations to monitor emissions into

waterways. The results are available on the Metso Oyj website.


13Vapo 1.1.2013–30.4.2014

Current technology does not support the

continuous monitoring of all variables subject

to control under environmental permit regula-

tions. For example, nitrogen and phosphorus

concentrations at most peat production sites

are so low that they cannot be determined

using continuously operating monitoring

devices. This means that continuous measure-

ment is currently not viable as an independent

monitoring method. It must be supported by

manual water sampling, which is also used to

calibrate probes and verify the reliability of the

results.

Promising experiences from the first year of useHourly continuous monitoring provides ac-

curate information on the progress of a spring

flood. Continuous monitoring also reveals

short-term peaks in load caused by heavy rain,

which have previously been claimed to multiply

the load originating from production sites. In

2013, spring flooding accounted for half of the

year’s total load at several measurement sites

due to the large amount of snow and the fact

that the thawing occurred only after mid-April

and progressed exceptionally quickly. In spring

2014, the measurements indicate no actual

spring floods at sites in Southern Finland, with

the peaks in load occurring during the winter

months.

Despite a substantial increase in the

frequency of measurement, annual load figures

increased, at most, by approximately 50 per

cent compared to traditional sampling and

load calculations. The sites subject to continu-

ous monitoring also include production areas

at which the results of more precise meas-

urement are substantially smaller than those

obtained by using the traditional method. Due

to variation in loads from one year to the next,

it will be useful to accumulate experience over

several years and from different types of sites

before drawing final conclusions.

How measurement results should be interpreted and utilised?To sum up, both continuous measurement

and measurement based on manual sampling

indicate estimates of load that are in the same

range for all sites. Peaks in load caused by

heavy rain and excluded from traditional moni-

toring were not observed in the data.

Continuously operating measurement

stations can transmit alerts to production

personnel as necessary when measurement

values exceed agreed threshold values. This

enables, among other things, the management

of maintenance operations that involve earth

moving in a manner that minimises the load on

downstream watercourses.

New measurements are taken every hour. This adds up to more than

8,700 measurements per year

14Vapo 1.1.2013–30.4.2014

Resource Director Päivi Pero-nius’ responsibilities at Vapo

include permits for new produc-

tion areas and the construction

of the areas for production

operations after the permits are obtained. What

makes this task particularly challenging is that

you must anticipate both customer needs and

the phases of the complicated permit process

far into the future. Even when the process goes

as fast as possible, it takes years from the per-

mit application to the start of production.

According to Peronius, Vapo established

a policy in 2012 to not apply for environmen-

tal permits for peat production for category 4

and 5 peat bogs, which are bogs in the most

natural state. “As part of this promise, we have

classified the natural state of all mire basins in

which we have areas in our control. In borderline

cases, we have had our classification verified by

the Geological Survey of Finland to ensure that

we do not have pending permit applications or

make new permit applications for such areas,”

Peronius says.

This classification by natural state is based

on the Finnish National Strategy for Mires and

Peatlands and the Government decision-in-

principle on the sustainable and responsible use

and conservation of mires and peatlands, which

was made subsequently on 30 August 2012. As

such, classification by natural state is quite new.

According to the Government decision-

in-principle, classification by natural state is

primarily used in general land-use planning,

which mainly refers to zoning at the regional

level. The natural state of a mire basin is deter-

mined by its ditching and drainage situation.

The species and habitat types found in the

mire are not factored into the determination of

natural state. By definition, a mire basin is one

mire or group of mires bordered by mineral soil

or watercourses.

Permit areas becoming smallerAccording to Peronius, in recent years the

number of entirely new peatlands for which

environmental permits have been applied has

ranged from 5 to 25 per year. The number of

permit applications for new areas per year is

affected by, among other factors, the number

of pending new applications and permit review

applications, as well as the future need for

peat.

More than new permits, Peronius’ depart-

ment is kept busy by permit extensions for

existing production areas. “In recent years,

we have submitted approximately 30 permit

review applications per year for old produc-

tion areas. Where we are in control of areas

suitable for peat production that are con-

nected to or in the immediate vicinity of exist-

ing production areas, we aim to survey and

obtain permits for such areas in conjunction

with the permit review applications. There are

opportunities for extending production to such

adjacent areas at approximately 25–30% of

the peatlands for which permit review applica-

tions have been submitted.

According to Peronius, in recent years

the typical size of entirely new production

areas for which permit applications have

been submitted has been approximately 80

hectares. The size has decreased gradually

year by year. “Describing a typical area is dif-

ficult at the national level, but, in general, the

farther to the south you are, the more ditched

and smaller the areas for which permits are

sought. In northern areas where there are

plenty of peatlands, they tend to be larger

and the amount of undrained peatland can

Permits are a matter of matching the needs of the environment with the needs of customers

Acquiring and commissioning a peat production

area can take up to 15–20 years. The permit

process alone takes 4–12 years.

“During the past few years, the area covered by the new permits we have obtained has been considerably smaller than the area of our peatlands released from production”


15Vapo 1.1.2013–30.4.2014

be greater. However, in recent years, we have

also applied for environmental permits for

peat production for mires that were drainage-

have not actually been used for peat produc-

tion,” Peronius says.

Criteria vary by geographyBefore an environmental permit can be ap-

plied for, the planned area must be under the

producer’s control. “Our policy is to not apply

for environmental permits for peat production

for category 4 and 5 mires, even if we were

in control of such mires. This policy applies

throughout Finland,” Peronius says.

According to Peronius, the mires in the

south of the country for which environmental

permits are applied are typically in categories

0–2 based on their natural state. Even cat-

egory 2 mires can have ditched areas as well

as unditched areas. “At these mires, however,

the hydrological connection to the surrounding

mineral soil is entirely blocked off due to ditch-

ing around the outer edges of the mire basin,”

Peronius explains.

“We also have some applications pending

for mires in natural state category 3. Cat-

egory 3 mires are typically located in Lapland,

Northern Ostrobothnia as well as Southern

and Central Ostrobothnia. These regions have

a lot of peatlands, and in particular, they have

a larger number of category 3 type mires than

southern Finland, which means that the future

of the most valuable mire ecosystems is not

threatened in these regions,” Peronius says.

A hundred applications pendingAs of spring 2014, Vapo has pending

applications for new production areas

totalling about 7,300 hectares, divided into

approximately a hundred separate applica-

tions. This amount includes both entirely

new production areas and applications

for additional areas made in conjunction

with permit review applications for existing

production areas.

Peronius says it is more a rule than an ex-

ception that permit applications are appealed.

“Appeals are usually related to the mire’s

nature value, emissions to watercourses, and

the state of the downstream watercourse,”

Peronius explains.

There are pending permit applications

currently being processed by Regional State

Administrative Agencies, and appeals currently

being processed by the Vaasa Administra-

tive Court and the Supreme Administrative

Court. These days, decisions on environmental

permits concerning new production areas are

increasingly appealed to the Vaasa Administra-

tive Court, with further appeals frequently sub-

mitted to the Supreme Administrative Court.

According to Peronius, the number of appeals

has increased significantly in recent years.

Production area decreasing in sizePeronius says the responsible permit policy is

aimed at tackling one of Vapo’s largest chal-

lenges, which is to ensure that the company

has adequate production areas in the future.

In 2013, Vapo received a legally valid envi-

ronmental permit for a total of 1,244 hectares

of peat production areas. For a significant

16Vapo 1.1.2013–30.4.2014

proportion of this total, it took a decision by

the Vaasa Administrative Court or the Supreme

Administrative Court to make the permit legally

valid. In the first three months of 2014, legally

valid environmental permits have been granted

for new production areas at six different peat-

few years, the area covered by the new per-

mits we have obtained has been considerably

smaller than the area of our peatlands released

from production,” Peronius points out.

New production areas are needed to

replace peatlands that are released from

production due to being exhausted of peat.

In 2013, some 3,200 hectares of peatlands

were released from production. Over the same

period, approximately 1,300 hectares of new

areas were prepared for production.

A long and expensive processPreparing a mire for peat production can take

as long as 20 years. All permit processes are

based on the future energy needs of custom-

ers. The first stage involves estimating the peat

reserves contained in the peatlands in ques-

tion. “If the area is in a suitable location, the

mire meets the criteria for permit application

and the land is owned by Vapo, the next step

is research and planning. If the area is not on

land owned by Vapo, the next step is to begin

negotiations on buying or renting the land,”

Peronius explains.

This is followed by more detailed stud-

ies and land surveys to prepare adequately

precise production plans, water treatment

and conservation plans as the basis of the

permit application. This stage also includes the

necessary surveys of nature value. This stage

typically takes 1–2 years. When the plans are

completed and the necessary studies and sur-

veys have been made, the permit application is

submitted to the Regional State Administrative

Agency, which takes an average of 1–2 years

to process the application. If the permit appli-

Acquiring and commissioning a peat production area takes up to

15–20 years – The permit process alone takes 4–12 years.

Acquiring a production area, obtaining a permit and preparing the area for production takes up to 15–20 years

Evaluating Reserves,Buying orrenting land

Studiesand planning:Land survey;Production and waterconservation plan;Preparing thepermit application

Environmental permitprocessed by the Regional State Administrative Agency (RSAA)

EIA, or Environmental ImpactAssessment, for sites larger than 150 hectares (projects of this size are quite rare)

VaasaAdministrative Court

Appeals concerning RSAA

environ mental permit decisions

Almost all decisions are appealed these

days

Supreme Court

If permit is granted,preparation for production begins

3–15 yrs 1–2 yrs 1–2 yrs 1–2 yrs 1–4 yrs1–3 yrs

EIA 2–3 yrsPeatlands of sufficient sizeand verified need for peat:

Permit process begins

Includes nature value

surveys

Legally validenvironmental permitdecision

Permit preparation and processing 4–9 years, plus a potential EIA process 2–3 years

Approximately 100,000 hectares of mires have

been used for peat production.The

area of protected mires amounts to approximately

1,200,000 hectares. The aim is to further protect

100,000 hectares of mires.


17Vapo 1.1.2013–30.4.2014

cation needs to be supplemented, for example

by providing additional nature value surveys,

the process can be delayed further. Appeals

on permit decisions to the courts also extend

the process by several years. “Some permit

processes have taken as long as 10 years,”

Peronius says.

The permit process requires comprehen-

sive research and special studies, which can

be costly. Peronius says the permit applica-

tion, complete with the necessary plans

and surveys, typically cost upwards of EUR

20,000–30,000 per site. Costs are substantial-

ly affected by the nature value surveys required

for each site.

New requirementsAt the time of writing this in May 2014, the

Finnish Parliament is discussing a new legisla-

tive proposal pertaining to the location of peat

production in the future. Peronius is far from

satisfied with the potential new legislative

provisions.

“In my opinion, the proposed Section 13,

which is the provision on the location of peat

production, does not belong in the Environ-

mental Protection Act, which is classified as

legislation governing emissions. The proposed

provision is aimed at protecting species and

habitat types that are considered endangered

but not protected. The provision would make

the peat industry alone responsible for the

protection of endangered species and habitat

types. Any other use of land, or construction,

would still be permitted at such peatlands.

Only peat production would be prohibited. The

legislative provision in the draft bill is very open

to interpretation, and it would be very likely to

slow down the environmental permit process

for peat production even further,” Peronius

fears.

“In the worst case, this would lead to

consequences such as the interpretation of

the regional significance of nature value being

increasingly sought through the Supreme Ad-

ministrative Court. If the provision in question is

included in the final version of the Act, it must

be expanded on and clarified to implement the

Government’s unanimous statement regarding

the draft bill. According to the statement, the

provision should not apply to mires in natural

state categories 0–2. However, in my opinion

the proposed Section 13 should not be

included in the Environmental Protection Act

at all. The necessary protection of mire habitat

types can be managed through traditional site

protection, as before. It is a clear procedure

that also ensures compensation to land own-

ers,” Peronius says.

There must be room for responsible peat productionAccording to Peronius, peat is a domestic

natural resource, the use and production of

which provides jobs for thousands of people in

Finland. “As long as we import fossil fuels for

energy generation, I consider the use of peat

as justified and it must be allowed,” Peronius

explains.

There are currently some 60,000 hec-

tares of mires in peat production. Includ-

ing areas that have already been released

from production, the total use of mires for

peat production amounts to approximately

100,000 hectares. The area of protected

mires amounts to approximately 1,200,000

hectares, and a supplementary mire protec-

tion programme is currently under develop-

ment with the aim of protecting a further

100,000 hectares of mires. Peat production

is not about to consume all of our mires,

let alone permanently destroy mire nature,

Peronius says.

According to Peronius, water protec-

tion in peat production has for long been an

important area of focus and investment, and

these efforts have been ramped up further

in recent years. When evaluating the state

of watercourses, the focus should be on

the big picture rather than individual func-

tions. In addition to fuel use, peat is also

very significant as litter in agriculture and

animal husbandry. Approximately one tenth

of the total production volume is used as

agricultural peat. “Peat is one of our most

valuable natural resources. We must be able

to utilise it not only in the recreational use

of peatlands, but also in economic activity,

while taking environmental issues into con-

sideration,” Peronius concludes.

Preparing a mire for peat production can take as long as 20

years. All permit processes are based on the future energy

needs of customers.

18Vapo 1.1.2013–30.4.2014

In principle, the restoration of mires

is an extremely simple procedure.

The water economy of the location

must be arranged in such a way that

the water surface is as close to the

ground as possible. Paludification

will inevitably begin. The process can

be accelerated by methods such as

planting sphagnum moss and other

helophytes. This means cut-away

peatlands are surprisingly quickly

restored into mires with typical flora

and fauna.

Olli Reinikainen highlights Aitoneva

in Kihniö as an ideal case for studying mire

was produced in the area using the drag

bucket method. This involved pulling a

large bucket with cables and transporting

the wet peat on rails to dry elsewhere. The

production operations left behind drier

necks of land and open ponds.

Reinikainen says these ponds have

not been actively restored into mires, but

rather paludification has occurred through

ecological succession. Now, 50–60 years

later, the former water pools have more

than 60 centimetres of sphagnum moss

in places. Paludification has been ac-

celerated by the dried necks of land and

edges of the mire colonised by vegetation

providing helophytes with a short distance

Cut-away areas turn into mires only in few decades

to spread to bare soil and water-

covered pools, Reinikainen says.

Mire begins to regenerate in less than 10 yearsIn addition to studying new pro-

duction methods at Kihniö, Vapo

has used the location to inves-

tigate the after-use of cut-away

peatlands and the acceleration

of paludification. As an interest-

ing site for experimentation,

Reinikainen highlights a strip of

land released from peat produc-

tion in 2005 and subsequently

confined by dikes to create a pool

of water some 30 centimetres

deep. Hare’s tail cottongrass and

other sedges quickly took root

in the area, and now, nine years

later, the entire area is covered by

sedges and moss has begun to

grow at their base.

Reinikainen says this is an exam-

ple of ongoing natural succession. In

a couple of decades’ time, the area

will have developed into a mire with

vegetation similar to that of natural

mires in the area, including mosses,

dwarf shrubs and sedges, as well as

cranberry and cloudberry.

Aitoneva 2003

Aitoneva 2013


19Vapo 1.1.2013–30.4.2014

Open-minded after-use

experiment in Riihimäki

Cut-away areas released from peat production are in

high demand for various uses. This is also the case for

Sammalis tonsuo, which is located a short distance from the

city of Riihimäki. Many different parties are hoping to use the

areas released from peat production and, the area being as

large as it is, it will likely be divided between multiple uses.

One of the uses has already been implemented.

Six artificial nests for White Storks have been built in

the production area. The idea came from Tero Westerlund,

City Gardener of Riihimäki, who hopes to attract the first

White Stork broods to Finland in the next few years. Vapo

and Kekkilä implemented the project in partnership with Eltel

Networks, which erected the poles for the nests, and the

Osprey Foundation, which built the artificial nests for White

Storks.

Riku Viitanen, Production Manager at Kekkilä, believes

that all relevant parties will be taken into consideration with

regard to the after-use of cut-away areas at Sammaliston-

suo. The project to build artificial nests for White Storks is a

good example of paying attention to a comprehensive range

of stakeholder interests.

White Storks and their nests are a familiar sight in Esto-

nia. In Finland, there have been sightings of individual White

Storks and even larger flocks, but, so far, nesting has not

been successful. Storks have been seen near Riihimäki in

locations including Mallinkainen in Janakkala, Hämeenlinna,

as well as many other parts of southern Finland. Westerlund

has monitored reports of White Stork sightings on Birdlife

Finland’s online database Tiira.

The expansion of the White Stork’s nesting habitat

to Finland can involve practical obstacles, but it is only a

matter of time until White Storks nest in Finland. Sammalis-

tonsuo is one of the best bird spots in Southern Finland and

an ideal location for the White Stork, says Juhani Koivu,

Director of the Osprey Foundation.

After-use of pealands into forests, fields, wetlands or miresAfter peat production is finished, production areas are transferred

to other land use forms, which is always the responsibility of the

landowner. Vapo is responsible for the implementation of after-use of

peatlands it owns, while landowners are responsible for the after-use

of peatlands rented by Vapo. Over the history of peat production in its

current form, some 35,000 hectares of land have been released from

peat production by Vapo. Of this total, some 15,000 hectares are now

growing forests, slightly under 15,000 hectares are used for agricul-

ture, and the rest has been converted to various types of wetlands or

used for mire regeneration. Some of the released areas are currently

used as support areas for peat production, awaiting their final after-

use method.

According to Project Manager Olli Reinikainen, who works on

the after-use of cutaway areas at Vapo, the most significant factors

to consider in assessing after-use alternatives are the area’s water

resource management, topography and how rocky the ground is. –If

the area is wet after peat production is finished, the viable alternatives

are various wetlands, bird sanctuaries and paludification. If the area is

dry and the ground is quite rocky, one feasible alternative is foresta-

tion, Reinikainen says.

According to Reinikainen, dry ground with little or no rock is

highly desired for use as arable land, and there are no difficulties in

marketing such areas. On the contrary. Dry cut-away areas have very

diverse potential after-uses. According to Reinikainen, one of the

most interesting land use methods is the light aviation airfield built at

Höystösensuo in Leivonmäki. Another alternative for dry cut-away

peatlands located a suitable distance from population centres is zon-

ing for residential development.

Some 2,500 hectares of mires are released from peat production per year. In Hirvineva mire in Liminka, there is a 15-year-old birch grove with 30,500 downy birches per hectare.

20Vapo 1.1.2013–30.4.2014

Partnership projectVapo’s partners in planning the wetlands include the Finnish Wildlife

Agency, Janakkala Municipality, Vanajavesi Centre and the Häme

regional Centre for Economic Development, Transport and the Environ-

ment. The development of birdlife will be monitored in cooperation with

the Kanta-Häme Ornithological Society, which will prepare a species

calculation plan and assume responsibility for birdlife calculations. Vapo

is responsible for building the wetlands and the related expenses.

Grass is grown at the bottom of the wetlands before water is re-

leased into the pool. There is a completely natural reason for this. While

many birds eat grass and aquatic plants, invertebrates that eat grasses

are a preferred food for many bird species. Based on past experience,

planting grass attracts birds to the area.

At Hirvineva in Liminka, Vapo has built a bird sanctuary of more

than 100 hectares that today is primarily open water. In just over 10

years, a fairly strong fish stock has been built up in the lake, and the

area actually has a greater biodiversity than many natural lakes and

ponds in the region. Over a hundred different bird species have been

seen in the area, with the nesting of the Greylag Goose worth a special

mention. Röyhynsuo in Janakkala is expected to also attract a diverse

range of bird species. A bird watching tower will be built at the site for

people to watch birds without disturbing them.

From the perspective of nature, the wetlands in Janakkala are the

first step in a process that enables the restoration of the entire area into

a mire after peat production ends at the site.

Röyhynsuo in Janakkala originally had a production area of some 150

hectares. A cut-away area of 14 hectares is currently being turned into

multipurpose wetlands. The wetlands will simultaneously constitute

after-use of land released from peat production, a bird sanctuary to

support local birdlife, and a part of the production area’s water treatment

system. The vegetation in the wetlands make a substantial contribution

to water evaporation, reducing the amount of water released from the

peatlands and mitigating its overall environmental load.

The development of the wetlands began in summer 2013 with the

building of embankments around the 14-hectare area and the crea-

tion of five islets that will remain above the water surface in the finished

wetlands, supporting the spread of vegetation and providing nesting

grounds for the first birds at the location. Agricultural ash was spread

on the bottom of the future wetlands to lower the soil pH and provide

nutrients and, in spring 2014, a grass mixture was planted in the area.

The grasses are intended to bind the soil, provide nutrition for

aquatic invertebrates and landscape the wetlands. As there is no

direct outlet ditch from the wetlands, it does not add to the load on

downstream watercourses. On the contrary. The plan is to direct both

meltwater and the production area’s drainage water to the wetlands

colonised by vegetation, thereby reducing the overall emissions from the

production area. The wetlands will be used to test various things, includ-

ing the extent to which water from the production area can be diverted

to this closed circulation.

Multipurpose wetlands in Janakkala

The calcification of the subsoil

ensures the healthy growth of aquatic

plants in otherwise acidic soil.


21Vapo 1.1.2013–30.4.2014

Water as a theme – Vapo has a clear vision of water

Clean Waters has moved ahead faster than we expected. It is

already an actual business for us, and we are now working on our

first water treatment solutions for external customers.

Slightly over a year ago, Vapo began

to consider whether its extensive

water treatment expertise could be

turned into a competitive advan-

tage. After a business plan was

drafted, Clean Waters was established in autumn

2013. It is something entirely new: an internal

startup within the Group.

“It would appear that there is genuine

social demand for water treatment among

citizens as well as political decision-makers,”

says Project Director Marika Ryyppö, who is

responsible for sales and production.

The EU target is that 100 per cent of lakes

in the EU are in good or excellent ecologi-

cal condition. In Finland, this figure currently

stands at 85 per cent. Clean water is valued

and people are working for it on multiple fronts.

Clean Waters provides a comprehensive

service for cleaning natural waters. Every site

is planned and implemented using the most

suitable natural water treatment solution. The

startup’s mission is to become the most valued

improver of the condition of watercourses in

Finland within five years, and to build Clean

Waters into a success story in the water sector.

“Research and development are key ele-

ments of Clean Waters’ operations. Our aim is

to find new and even more effective solutions

for cleaning natural waters,” says Jaakko Soikkeli, Director of Research and Develop-

ment.

The foundation for the implemented solutions is the best available infor-mation Environmental responsibility has been at

the core of Vapo’s operations for several

years, and environmental investments

are an important component of the entire

Group’s business operations. Vapo spends

approximately EUR 10 million annually on

its own water treatment structures. Vapo

currently has some 600 water treatment

structures in operation at its produc-

tion areas. Over the years, the Group

has accumulated unique data, expertise

and experience, which can now be put

to use to serve other operators’ needs.

The planning of water treatment sites uti-

lises mathematical modelling. “Modelling is typi-

cally used in closed processes in industry, but it

is a new approach in managing natural waters.

In natural processes, there is a tremendous

number of factors at play. The modelling is sup-

ported by a strong understanding of the field

as well as data from similar previous projects,”

Ryyppö explains.

The ten-strong Clean Waters startup team

is led by Environmental Director Mia Suominen.

The enthusiastic and idea-rich team comprises

hydrobiologists, chemists, a limnologist, a

forestry expert, an agrologist, an agronomist,

a Master of Science in Technology, and a

Master of Science in Economics and Business

WATER SUPPLEMENT

WATER SUPPLEMENT

22Vapo 1.1.2013–30.4.2014

Administration. Its services include survey-

ing the environmental load on watercourses

and designing and building the most suitable

high-quality water treatment solution for each

site. For construction, the startup uses water

construction partners that experience has

shown to be the best at what they do.

Much like Vapo, Clean Waters also

engages in close cooperation with research

institutes on water treatment issues. Custom-

ers benefit from the latest information, which

is customised by experts to create the optimal

solution.

“We keep our eyes open to new ideas and

we utilise the results of R&D operators in the

field. We also have the opportunity to utilise

Vapo’s own production peatlands to test the

effectiveness of new ideas,” Soikkeli explains.

The startup has a strong foundation for growth within the organisationThe Clean Waters team, which operates

entrepreneurially within the Vapo Group,

has full control over its operations, fresh

and effective premises, and its own dis-

tinct brand. The credibility and resources

of a strong parent Group have helped the

new business take off quickly.

“By not having to expend effort on

finding startup funding, we have been able

to focus on our core operations. Large and

medium-sized corporations have tremen-

dous potential for creating internal startups

to foster entrepreneurial activity within the

organisation. The Corporate Entrepre-

neurship model provides opportunities

for growth and renewal to companies,”

Ryyppö says.

“Vapo’s management has realised

there is great potential in the water treat-

ment business and recognised that the

organisation has the expertise that meets

these needs. For an internal startup to be

successful, it must have full management

support,” Soikkeli adds.

The early experiences of Vapo’s first

startup are positive. The team works close-

ly together and information flows effectively.

The knowledge and expertise of the people

involved, and their commitment to creating

new business, are key preconditions for

the success of Clean Waters. “The next

idea at Vapo can be pushed forward based

on the experiences gained from the Clean

Waters startup. In a Group as large as this

one, there are always new ideas around,”

Ryyppö and Soikkeli agree.

Project Manager Marika Ryyppö and Environmental Director Mia Suominen aim

to make the cleaning of natural waters a new business for Vapo.

Clean Waters service concept:

Talk about peat

23Vapo 1.1.2013–30.4.2014

Finnish peat provides a lot of unused opportunitiesAccording to MP Pia Kauma (The National Coalition Party), Parliament

should swiftly take action for the utilisation of peat. Peat production

could have a significant role in Finnish energy production, and it would

also stimulate the Finnish economy and create new jobs.

Read more: http://www.ilkka.fi/mielipide/yleis%C3%B6lt%C3%A4/

kotimaisessa-turpeessa-on-paljon-hyodyntamattomia-mahdollisuuk-

sia-1.1564472

For peatAccording to MP Markku Eestilä (The

National Coalition Party), Finland should

utilise peat as it would provide economic

growth and improve the employment

rate. Eestilä emphasises the idea of

“Think globally, act locally.”

Source: Savon Sanomat 5 February 2013

Jokke Reimers, Merva Mikkola, Marko Knuutila and Maisa Siirala: Combustion of peat is not an optionAccording to the representatives of ELVI ry, Finnish peat is not a

good alternative to the use of coal due to its negative environmental

impact. Also, peat cannot be classified as a renewable fuel. Finland

should invest in Finnish renewable energy sources and energy tech-

nology.

Read more: http://www.espoonvihreat.fi/jokke-reimers-merva-mikko-

la-marko-knuutila-ja-maisa-siirala-turpeenpoltto-ei-ole-vaihtoehto/

Peat cannot be made renewableMP Osmo Soininvaara criticises the

advocates of using peat for energy in his

blog. To his mind, peat is not a sustainable

investment. Peat could be short-sightedly

made a sustainable raw material with po-

litical decisions, but ecologically speaking,

this would not carry far.

Read more: http://www.soininvaara.

fi/2013/04/26/8848/

While the use of peat would strengthen Finland’s energy

self-sufficiency and create new jobs, critics talk about

the environmental impacts of peat production and the

very slow rate of regeneration of mires.

10 000 Peat production employs directly and indirectly more than 10,000 people in Finland.

24Vapo 1.1.2013–30.4.2014

Energy policy, if anything, calls for a long-term

approach. Even that is not always enough

without an in-depth understanding of the laws

and regulations governing energy markets. En-

ergy policy has gone the way of the old Finnish

proverb: when you flee from a wolf, you run

into a bear.

The Finnish Government’s goal has

been a controlled shutdown of peat use.

For the Greens, in particular, peat has been

a Big Bad Wolf that we must rid ourselves

of. Originally, one third of peat production

was intended to be shut down by 2030.

Now it appears that the target has

already been reached. Increasing peat taxa-

tion and the slow rate of granting new peat

production permits has reduced production,

with some contractors choosing to pack up

shop.

This has led to the Big Bad Wolf be-

ing replaced by a bear. The use of coal in

electricity and heating production in Finland

grew by more than one third last year, while

the competitiveness of domestic fuels was

weakened. Some biofuel plants have com-

pletely given up on using wood chips and

peat, switching to coal exclusively.

Finnish wood and peat has been

replaced by coal mined beyond the Ural

mountains, giving rise to foreign exchange

costs of EUR 0.5 billion. Coal is even being

hauled to inland cities.

The increased taxation on peat does

not alone explain the avalanche of coal to

Finland. The use of coal has increased to

a worrying extent throughout Europe. This

is due to the energy policy decisions of a

number of different countries as well as the

weak economic cycle, which has lowered

the price of emissions rights. The situation

is also affected by the shale gas revolution

in the United States, which has substantially

reduced the price of coal.

In its discussion on spending limits, the

Finnish Government cancelled the peat

tax hike planned for the start of next year.

Stop the avalanche of black coalESS EDITORIAL 18 April 2014

According to Jyrki Peisa, Managing Director

of the Bioenergy Association of Finland, the

decision to cancel the tax hike did little to

improve the situation regarding peat and

wood chips. He calls for wood chip subsi-

dies and peat taxation to be restored to the

2012 levels, which would seem to be a sen-

sible decision in the current circumstances.

In 2012, the tax on peat used for heating

hour. At the beginning of last year, the tax

The problem is that, under current leg-

islation, subsidies for wood chips must be

reduced if peat taxes are increased, and vice

versa. This link between peat taxation and

wood chip subsidies is practically impossible

to eliminate, as it results from EU Directives.

The Government has backed off on two

major reform projects, so why not also turn

their coats when it comes to peat taxa-

tion? When the Government Programme

was drafted, no-one could have predicted

the growth of the shale gas market and the

decrease in the world market price of coal.

Then again, there is no need for coat

turning. The Government can simply base

its decision on the energy policy package of

2010. The policy package emphasises that

the competitiveness of peat compared to

coal will be secured.

Naaraksensuo peat permit worries the residents of the area (Juvan Lehti 8 August 2013)

The permit granted by the Supreme Administrative Court to Vapo to harvest

peat on Naaraksensuo arouses concerns. Both the residents of the area and

the municipality of Juva object to the permit, issued following a long legal

process.

They are concerned over the contamination of the area. According to the

residents and the municipality, the 12-hectare Naaraksensuo area is too small

for harvesting peat. Vapo is looking at the new production area as a more

extensive entity.

WATER SUPPLEMENT

25Vapo 1.1.2013–30.4.2014

“Dialogue works, but there is still room for improvement” (VapoViesti 13 March 2014)

Minister of the Environment Ville Niinistö

presented his estimate of the development

of Vapo’s environmental responsibility at the

Vapon Suunta 11-12-13 seminar. Niinistö

thanked Vapo for implementing environmental

responsibility commitments and stated that

Vapo is an example to the entire industry as

it aims to improve water protection and take

significant natural values into account in its

environmental permit applications.

“It is important not to downplay the

environmental impact of peat production

but to acknowledge one’s own share of

environmental impacts and take corrective

action,” Niinistö said.

Niinistö also thanked Vapo for preven-

tive measures and proactive water impact

measurements. Vapo received positive

feedback on the development of self-mon-

itoring, emissions monitoring programme,

active search for improvements and informing

about deviations during problems.

Vapo was criticised for still having applica-

tions concerning undrained bogs in the permit

process, even though the company declares

that it is shifting peat production out of bogs

in natural state.

Niinistö further emphasised that the aim

is not to replace peat with coal. However,

according to the Government’s energy policy,

decreasing the energy use of peat is inevita-

ble.

“This is due to reasons of profitabity alone,

as emission trading significantly increases the

costs of energy sources that cause climate

emissions.”

According to Niinistö, there will be enough

production area for peat for purposes other

than use as energy in the future as well, and

he is not willing to restrict its use.

Crazy for peat(Iltalehti 17 December 2013)

How would it sound if Finland could save EUR 4 billion per year for the next 25 years?

According to VTT’s advisor Antti Kivimaa, who admits being

crazy for peat, the solution can be found in peat. Finland pays

to Kivimaa, this could be cut in half by increasing Finnish peat

production.

Peat has a bad reputation due to its carbon dioxide emis-

sions. However, according to a survey of the greenhouse gas

emissions of peatlands, emissions from bogs in natural state

differ significantly from the emissions of high-emission bogs.

Emissions from peat could be reduced to less than 66 percent

of the emissions of coal by utilising this data.

Utilising peat would be an interim period during which

there would be time for developing greener energy production.

In addition to the savings, increasing the peat industry

would provide employment for 30,000 people.

Vapo aims to improve environmental monitoring(Yle News 13 June 2013)

Vapo is commencing an environmental impact

monitoring pilot in a peat production area in Kitee.

The company aims to improve the monitoring of

the water impacts of production areas by using

new technology.

Vapo has ordered a service consisting of 30

continuously operating water quality measuring

stations, their servicing and maintenance as well

as certified measurement results from the metal

industry group Metso.

The aim is for all of the stations to be opera-

tional in summer 2015.

26Vapo 1.1.2013–30.4.2014

Natural methodsNatural purification methods are always the

preferred choice in water treatment in peat

production. The methods utilise nature’s own

mechanisms, known as ecosystem services,

to reduce the load on watercourses.

Overland flow areas are primarily estab-

lished in new production areas. Vegetation

fields and open water wetlands have usually

been established in areas released from peat

production to complement the water treatment

of old production areas. Natural purification

methods are used to remove solids, nutrients

and iron from leachates.

Chemical treatment is a special method

used in the purification of leachates from peat

production. The use of chemical treatment

must be considered on a case-by-case basis

according to the characteristics of the area

and the receiving watercourse. The method is

used to remove solids, nutrients and the humic

matter that gives bog water its brown colour.

Natural methods usually achieve a suf-

ficient result.

The benefits of natural purification methods With respect to substances that carry an

environmental load, the water from peat

production pales in comparison to actual

waste water. Water from peat production

also does not contain substances that are

foreign to aquatic nature. In principle, it is

the same water that would flow off the bog

even without any peat production activity.

Natural waters are well suited to natural

purification methods that do not radically

alter the water’s original composition.

Humus is a natural part of the water ecosys-

tem in Finnish inland waters. The water-

courses that leachates from peat produc-

tion are channelled to typically have a high

natural humus content due to their location

in flow areas dominated by bogs.

As peat production takes place in a natural

environment, not all aspects of it can be

comprehensively standardised. For this rea-

son, methods designed for process industry,

such as chemical treatment, are as a rule

not well suited for peat production.

Chemical treatment is a challenging and ex-

pensive special method that requires com-

plex dosing equipment and the excavation

of substantial basin structures. The chemical

treatment method also requires special

expertise and continuous monitoring, and

is sensitive to disturbances. Chemicals and

equipment malfunctions also constitute ad-

ditional environmental risks.

Several diversion ditches may lead out of a

single peat bog. Directing water to a single

channel for chemical treatment is not always

economically feasible and, in many cases, is

not sensible due to environmental reasons.

Examples of excessively strict permit conditions in relation to purification efficiencyThe environmental protection guidelines for

peat production, which were updated in 2013,

specify the following purification efficiency

targets in relation to the initial concentration

levels of the water being treated. The targets

are for the final water treatment structures at

new production areas:

Solid matter 50%

Total phosphorus 50%

Total nitrogen 20%

Many environmental permits for peat pro-

duction also specify binding efficiency targets.

However, efficiency targets may be problem-

atic if the water that enters the water treatment

structure in question has low concentrations of

the substances concerned. The targets take

into consideration neither natural variation in

the quality of bog water nor the purification

achieved in preceding water treatment struc-

tures (such as drainage ditch structures that

retain solid matter, and sedimentation basins).

Achieving a high rate of purification ef-

ficiency is not easy, or sensible, when the con-

centration levels are low to begin with. If the

efficiency targets are not met, the continuation

of operations may be conditional on improving

the efficiency of water treatment. Using current

technology, this often means implementing

chemical treatment methods.

It would be more reasonable to instead

specify average concentration levels for lea-

chates originating from peat production areas

on a case-by-case basis depending on what is

achievable using the planned water treatment

method. When working with natural methods

and processes, there is bound to be variation

between production areas and from one year

to the next. For this reason, the specified limits

should not be excessively strict. The function-

ing of water treatment solutions should also

be given time to become established after

construction before permit regulations take

effect.

Natural purification or chemical treatment?

- To which situation each method is suited, when chemical

purification is needed, and what changes to nature may result from

chemical purification?

WATER SUPPLEMENT

27Vapo 1.1.2013–30.4.2014

Definitions

WetlandsA general term for a land area that is saturated with

water at least seasonally. Bogs, wet depressions,

coastal areas and ponds are all wetlands. Overland

flow areas, vegetation fields and pond-like open water

treatment methods are also all wetlands. However, in

peat production terminology, the term wetlands usu-

ally refers to open water wetlands.

Overland flow areaBounded natural or ditched peatlands in which

leachates are purified by natural processes as they

percolate through the topmost layer of vegetation and

peat.

Vegetation fieldA water treatment method typically established at the

bottom of an old peat production area. The area can

be left to be colonised by vegetation, but usually it is

sown with plants such as reed canary grass or willow.

Open water wetlandsA structurally basinlike water treatment method with a

permanent open water surface. The structure typically

has alternating areas of deep and shallow water. The

area is usually left to be naturally colonised by vegeta-

tion. Open water wetlands are a multipurpose solution

that not only purify water, but also increase biodiver-

sity and provide recreational opportunities.

Chemical treatmentThe chemical purification of leachates is based on the

ability of chemicals (generally iron compounds) added

to the water to form deposits of substances dissolved

in the water, which facilitates their removal by sedi-

mentation. Chemical treatment requires a complex

dosing plant, a chemical storage container and the

construction of substantial treatment basins and water

channelling systems.

28Vapo 1.1.2013–30.4.2014

Vapo is significant local employer

Peat provides a living for many

The production, transport and

power plant use of energy peat

have a significant regional em-

ployment effect. In Satakunta

alone, the use of peat and other

domestic fuels provides jobs, directly and

indirectly, to hundreds of people. One such

employer is Pori Energia Oy.

In Pori Energia Oy’s supply chain, the

production and transport of peat employ 120

people directly and a further 80 people indi-

rectly in other parts of the supply chain. When

you include the combustion of wood chips and

industrial wood scraps, the employment effect

increases to 300 jobs.

– The jobs provided by Pori Energia Oy

naturally boost the fortunes of many other local

businesses as well, says Timo Mäki, the Pro-

duction Director responsible for the company’s

district heating and energy production.

At the national level, energy peat provides

a living for 10,000–11,000 Finns, of whom

approximately 5,000 work in production and

transport. The remaining jobs are in power

plants, peat harvesting machine maintenance

and spare parts services.

Including wood chips and industrial wood

scraps in the calculations, the employment ef-

fect of biofuels is estimated at 16,000 jobs.

The employment effect of peat and

biofuels is made even more significant by the

fact that there is a limited number of other

jobs available in places where production

operations are located. If the jobs related to

the extraction of peat were to be lost, it would

be quite difficult to find alternative livelihoods.

Changes in the price competitiveness of

biofuels quickly affect employment figures in

municipalities where production operations

take place.

There are two power plants in Pori Pori Energia Oy’s Aittaluoto power plant is

near the city centre. The second is the Kaanaa

power plant in Meri-Pori, near Yyteri Beach.

It is owned by Porin Prosessivoima Oy, a

subsidiary of Pohjolan Voima, and operated by

Pori Energia. Peat is used at both of the two

power plants. Combined, they use one million

cubic metres, or 10,000 truckloads, per year.

– Our boilers burn peat and wood-based

materials at an almost even ratio. The employ-

ment effects of the different fuels are therefore

also quite even. Measured in terms of energy

output, our consumption of peat and wood

chips is approximately one terawatt-hour each.

Process industries use a large proportion

of the energy produced by the two power

plants. Its stable price is a matter of critical

importance to businesses competing in the

global market.

Pori Energia primarily sources its peat from

Honkajoki and Karvia in Northern Satakunta,

and from further away in Southern Ostroboth-

nia. These are areas in which other jobs are

hard to find. For a long time, peat had a stable

effect on the price of district heating. However,

recent government policies in the form of tax

VAPO EMPLOYS

29Vapo 1.1.2013–30.4.2014

increases and more complicated permit pro-

cesses have begun to undermine this stability.

According to energy companies, the use

of domestic peat has declined substantially in

recent times. Taxes on peat have more than

doubled since the beginning of 2013. Permits

for new production areas have not been issued

at an adequate rate, and there is a logjam of

permit applications in the administration. This

has led to a need to replace peat with coal,

as more peatlands are released from produc-

tion at a rate many times higher than the rate

at which they are replaced by new production

areas.

If implemented, the proposed new

Environmental Protection Act would further

complicate the process of obtaining peat per-

mits, thus creating increased pressure to move

to fossil fuels. With respect to energy peat,

the current Finnish government has a stated

aim of implementing a controlled reduction in

the use of peat. From the perspective of the

energy industry, the situation is quite dire. If the

current trend continues, peat production will

Peat production employs over 10,000 FinnsAccording to a calculation by VTT Technical Research Centre of Finland commissioned by the Bioenergy Asso-ciation of Finland, the use of peat directly and indirectly employs more than 10,000 Finns. In a good year, energy peat also generates EUR 0.5 billion in cash flow for the national economy.

The concern is that the energy tax on peat already has a dramatically negative effect on peat’s competitive-ness in relation to coal, while the tax revenue generated is only a fraction of the positive impacts of peat-related jobs. Peat production creates vital jobs in sparsely populated and remote areas where there is a shortage of industries providing employment.

decline from 22.5 TWh to 11 TWh by the year

2020.

– Increasing peat prices and stricter permit

procedures will absolutely have an effect on

employment, as we saw a couple of years ago

when there was an exceptionally poor year

for peat. The alternative is imported coal. If

taxes on peat are increased, coal becomes a

cheaper option than peat, Timo Mäki explains.

Both of the power plants in Pori have two

boilers, one of which is suitable for burning

coal. They also have experience of using them

for just that. Peat was replaced entirely by coal

in autumn 2012 and the subsequent spring,

when peat availability was low.

– The tone of the public discussion has

changed recently, with greater emphasis on

issues such as the security of supply and the

significance of domestic raw materials. It has

been noted that peat and wood chips are not

affected by the international crises that cause

fluctuations in the prices of imported fuels,

Mäki says.

Vapo’s South-West Finland peat produc-

tion region includes the Pirkanmaa, Satakunta

and Varsinais-Suomi regions. Peat is an impor-

tant source of livelihood alongside agriculture.

One third of the area’s peat production

goes to Pori Energia Oy’s power plants.

– Peat production has the highest em-

ployment effect in the summer from May to

August. During that season, the operations

and related transportation employ nearly 450

people. However, peat is delivered to power

plants throughout the year, which means

that the employment effect of the rest of the

supply chain is more constant, says Jussi Kankainen, Operations Manager for Vapo’s

South-West Finland operating region.

To be more exact, during the produc-

tion season in the summer months, there are

more than 300 people working in production

jobs, which is equal to approximately 135

man-years. Transport employs approximately

100 people throughout the year. Loading

and preparation work employs well over ten

people.

The employment effect of peat and biofuels is made even more significant by the fact that there is a limited number of other jobs available in places where production operations are located.

30Vapo 1.1.2013–30.4.2014

– The high season for deliveries to power

plants are the coldest time of the year, from

December to March. In the summer, the

transport frequency is reduced somewhat.

Peat production is handled by an external

contract entrepreneur, but Vapo directs,

monitors and supervises production. Vapo

has approximately 24 employees of its own in

production and logistics jobs in the South-

West Finland operating area, says Kankainen.

The employment effect kicks in well

before actual production at a site begins.

Peat production areas must be acquired,

permits obtained, and the area is planned

and prepared. The process generally takes

5–10 years depending on the size and other

attributes of the area. When the area is ready

for production operations, the preparation

function hands it over to the production

function.

– Contracting and machine work is

contracted out to external entrepreneurs. In

practice, production operations include the

maintenance of peat production areas and

environmental structures, producing peat

in different areas using different methods,

managing roads in the area, and maintain-

ing locations where peat is stacked and later

maintaining the finished stacks themselves.

Logistics processes include the prepara-

tion of stacks, loading peat in vehicles for

transport, delivering peat to power plants and

post-production work at storage sites.

– In addition to production contractors,

we extensively use services provided by vari-

ous earth-moving companies. They, in turn,

use the services of local machine companies

and other service providers that support their

operations, so the effect is quite far-reaching.

At the national level, peat extraction

provides employment to approximately 3,000

people. They are mobile work machine entre-

preneurs and company employees.

– During the summer production season,

when it’s all hands on deck, the number

of production workers rises to 4,000, says

Hannu Salo, Regional Manager responsible

for peat operations at the Bioenergy Associa-

tion of Finland.

Studies carried out by both VTT Techni-

cal Research Centre of Finland and Pel-

lervo Economic Research PTT confirm the

significance of energy peat and wood chips

to regional employment.

– Transporting peat from the production

site to power plants requires another group

of professionals. When you include them, the

direct employment effect of peat production

is about 5,000 man-years. My own unofficial

estimate is that peat’s employment effect at

the power plant end is at least 150–170 man-

years, Salo adds.

Energy peat has a significant employ-

ment effect throughout Finland, but especially

in the peatland-rich regions of Ostrobothnia,

Northern Ostrobothnia and Lapland. Com-

pared to energy peat, the employment effect

of wood chips is more evenly divided across

the country.

For mobile work machine entrepreneurs,

finding qualified workers at the start of the

peat season is a challenge, as learning the job

and how to handle the machines takes time.

– It would be advantageous for mobile

work machine entrepreneurs if the same

workers could be employed in the produc-

tion and logistics chain during the winter. This

would set the stage for a flying start in the

spring, when the production season is at its

best.

Peat, wood chips and industrial wood

scraps employ approximately 16,000 people

in total. Adding to that industrial residual liq-

uor, biogases, bioliquids and small-scale use

of wood, the employment effect of biofuels is

even greater.

Other jobs are hard to find Harri Heinola, Managing Director of Harri Heinola Oy, a business that extracts peat in Honkajoki’s Satamakeidas district, Isojoki and Merikarvia, knows how difficult it is to find other jobs in these rural areas.

– At my company, peat extraction em-ploys 5–10 people depending on the time of year. We also have a partner network comprised of nine subcontractors. When you include them, the supply chain’s em-ployment effect is about 30 people. Some of these are permanent employees, while others are employed on a short-term basis. On top of those figures, you have transport from the production areas to power plants, Heinola adds.

For the peat production season in the summer, his company hires students who receive training in both how to use the machines as well as fire safety. Various ma-chines are used, and for each of them, the new recruits learn the potential sources of fire. Key aspects of the production site, such as rocky areas, are also reviewed. Heinola’s aim is to employ the same workers for several summers.

– We get new employees every year. Vapo provides useful training materials for introducing new recruits to peat extraction work and also organises driving permit training. The rest of the introductory training is the contractor’s responsibility. Our goal is not to hire too many completely new faces in the same year, Heinola says.

The significance of environmental issues is highlighted more and more, which means that the entire team must be fully committed to managing environmental mat-ters in the best possible way.

Harri Heinola has done contracting work with his own machines for about twenty years. Before that, he worked as a driver, starting in his teens. He also has a farm and earns additional income from small-scale earth-moving operations.

– There is some competition, but this work requires professional know-how and local expertise, which means that the com-petitive landscape doesn’t change much over time. Peat quality and fire safety are key issues. Contracts are usually for periods of 3–5 years, Heinola adds.

VAPO EMPLOYS

31Vapo 1.1.2013–30.4.2014

Municipality Taxable salary Withholding Net wage

JYVÄSKYLÄ

HANKASALMI –615,513.06

LIEKSA –578,171.71

NURMES 1,713,663.13 –402,365.18 1,164,103.10

SEINÄJOKI 1,425,381.54 –353,723.20

HELSINKI –426,364.58 675,280.87

OULU

ESPOO

PARKANO 875,240.01 551,881.31

VANTAA –223,164.62 412,612.50

SIIKALATVA 660,827.76 –177,227.33

KUOPIO

SALO 350,623.66

KIHNIÖ 541,168.18 –140,648.82 343,204.64

EURA –112,710.15 334,146.46

JALASJÄRVI 461,587.66 –102,801.23 322,853.24

LAUKAA

LAPPEENRANTA 443,372.10 –137,011.56

FORSSA –112,220.36

SOTKAMO 426,671.58 276,507.80

Province Taxable salary withholding

ETELÄ-KARJALA 521,204 158,237

ETELÄ-POHJANMAA 717,712

ETELÄ-SAVO

KAINUU 244,731

KANTA-HÄME 1,242,157 324,683

KESKI-POHJANMAA 140,738 37,783

KESKI-SUOMI 3,252,546

KYMENLAAKSO 125,554 31,075

LAPPI 355,245

PIRKANMAA 555,635

POHJANMAA 135,788

POHJOIS-KARJALA 4,667,638 1,142,664

POHJOIS-POHJANMAA 3,107,526 774,757

POHJOIS-SAVO 1,482,872

PÄIJÄT-HÄME 210,243

SATAKUNTA

UUSIMAA 4,237,717 1,383,052

VARSINAIS-SUOMI

Total 36,518,359 10,071,385

Benefits to home region

State-owned companies are required to

determine their tax footprint. The Vapo

Group’s tax footprint reflects the significant

employment effect of the company and the

peat industry: income taxes, property taxes

and employer contributions paid for the 2013

– The majority of the total tax amount of

to peat. However, the actual tax revenue

based on peat extraction is substantially larg-

er. This is because the vast majority of peat

is extracted by contractors. Their share is not

included in the taxes and employer contribu-

tions paid by Vapo. Those amounts are only

in their own financial statements, explains

Sari Koivu, Financial Manager at Vapo Oy.

The total wages and salaries paid by the

Group in 2013 amounted to nearly EUR 37

million. Withholding taxes from the Group’s

personnel paid to the state coffers in 2013

totalled just over EUR 10 million.

A significant proportion of the total wage

bill of EUR 37 million – nearly a third, or over

EUR 11 million – benefited the Central Finland

region. The main factors behind this are the

location of the Group’s head office in Jyväsky-

lä, and Vapo Timber’s Hankasalmi sawmill.

– Thanks to Vapo Timber’s sawmills in

Lieksa and Nurmes, the total wages paid to

people in North Karelia amounted to more

than EUR 4.6 million. In the Uusimaa region,

which is where Vapo’s Heat and Power busi-

ness area is headquartered, the total wages

paid amounted to more than EUR 4 million,

Sari Koivu adds.

Salaries, TOP 20 municipalities Salaries and taxes by province

32Vapo 1.1.2013–30.4.2014

Vapo´s Business areas

Heat and PowerVapo’s Heat and Power business area produces heat, steam and

electricity for customers in Finland, Sweden and the Baltic coun-

tries. During the past financial year, the Polish heating business

operations were discontinued.

The business area is responsible for operating nine power

plants, 140 heating plants and 20 district heating networks. The

electricity generated by the power plants is sold to the Nordic

Electricity Exchange. The business area generates approximately 2

TWh of energy annually.

The operations are based on utilising local fuels and providing

energy produced from local fuels to meet the needs of local cus-

tomers. Of the heat, steam and electricity produced by the Heat

and Power business area, more than half is produced from wood

fuels, a third from peat, and the rest from other fuels.

Wood FuelsThe Wood Fuels business area is responsible for purchasing

forest fuels and supplying them to customers, selling forest

industry by-products to energy customers and for use as

industrial raw materials, as well as pellet production.

Vapo purchases forest fuel raw materials through its own

purchasing organisation across Finland, with the exception of

the Southeastern and Eastern regions, in which Harvestia Oy

is responsible for the purchasing of wood raw materials. The

company purchases and supplies customers with forest fuels

corresponding to a total of approximately 1.5 TWh per year.

About half of this quantity is used by Vapo’s own power and

heating plants.

Forest industry by-products are primarily acquired from

the Group’s own sawmills at an amount corresponding to

approximately 0.5 TWh per year, and they are sold for fuel use

primarily to power and heating plants, but also for use as raw

material in the wood processing industry.

The Wood Fuels business area has five pellet factories

in Finland, located in Kärsämäki, Seinäjoki, Turenki, Vilppula

and Ylistaro. The raw materials used to produce pellets are

primarily by-products from the sawmill and wood processing

industries, mainly sawdust and dry cutter chips.

Vapo is the leading supplier and developer of bioenergy in Finland, Sweden and Estonia. Vapo is a modern expert organisation that responsibly produces energy from sources including peat and wood fuels, and supplies sawn timber and environmental business solutions. Vapo is an important part of the local energy infrastructure in its market area.

BUSINESS AREAS

33Vapo 1.1.2013–30.4.2014

Peat ProductsThe Peat Products business area is responsible for the plan-

ning and development of peat production, as well as the permit

processes related to production areas and the planning of the

after-use of cut-away areas released from peat production.

Actual peat production and logistics services are outsourced

to subcontractors.

All of Vapo Oy’s business areas have a joint regional field

organisation set up for customer relations, with Finland divided

into six customer areas. The customer areas are responsible for

selling and supplying customers with fuels and heating in their

respective areas.

The areas are formed to correspond with the natural produc-

tion and transport areas of the products and services sold, and

enable local decision-making and the development of close

long-term relationships with customers, subcontractors, authori-

ties, decision-makers, non-governmental organisations and other

co-operation partners in each area.

In addition to Finland, Vapo Group also produces and mar-

kets energy and environmental peat in Sweden and Estonia. In

Sweden, production is managed by Neova AB, and in Estonia,

AS Tootsi Turvas, both of which are wholly owned subsidiaries of

Vapo Oy.

Kekkilä GroupKekkilä Group was made a more independent entity under Vapo

Group on 31 December 2012, with Kekkilä Oy acquiring shares

in companies related to its business operations from Vapo Group

subsidiaries AS Tootsi Turvas, Neova AB and Vapo Oy. At the

beginning of the 2012 financial year, Kekkilä Oy acquired from

Vapo Oy shares in Andoytorv AS entitling it to a 60% stake in the

company. After the share transactions, all of Kekkilä’s business

operations are under Kekkilä Group as of 31 December 2012.

The past financial year and the financial statements prepared on

it on 30 April 2014 were Kekkilä Group’s first in its current form.

Kekkilä Oy is a wholly owned subsidiary of Vapo Oy.

Kekkilä Group is the Nordic market leader in garden soil,

fertiliser and mulches. The company operates under the Kek-

kilä brand in Finland, Europe and Russia. In Sweden, Norway

and Denmark, the products are marketed under the Hasselfors

Garden brand.

The Group develops, produces and markets high-end garden

soils, plant fertilisers and mulches as well as home garden and

yard construction products for amateur and professional growers

and landscapers. The operations are divided into three business

areas: Home, Park and Professional Growing.

Kekkilä expanded its operations and improved its raw mate-

rial self-sufficiency by making two separate acquisitions two years

ago. At the time, it purchased Lassila & Tikanoja’s garden com-

poster and ecological toilet businesses and the peat production

areas it requires for its operations from the parent group.

Kekkilä Group is comprised of five companies: Kekkilä Oy

(Finland), Hasselfors Garden AB (Sweden), Hasselfors Garden A/S

(Norway), Kekkilä Eesti (Estonia) and Kekkilä RUS (Russia).

Vapo Timber OyVapo Timber Oy, a wholly owned subsidiary of Vapo Oy, is

a well-known supplier of pine and spruce sawn timber in its

main markets in Finland, Western and Southern Europe, and

North Africa. The company currently produces sawn timber

at two sawmills in Finland, located in Lieksa and Nurmes.

Vapo Timber’s product range includes basic sawn goods as

well as custom and special products to meet the needs of

the construction and furniture industries. In late 2013, Vapo

Timber Oy sold its Hankasalmi sawmill to Versowood Oy.

34Vapo 1.1.2013–30.4.2014

Juha Koskiniemi, Director of Supply

Chain Management for Vapo Peat

Products, has always been interested

in training-related matters. He recalls

the first time he served as a trainer as

a 15-year-old in the volunteer fire department.

When he was 17 years old, he provided fire

safety training at a peat production area, where

he had a summer job as a driver.

“A long road has since brought me to

my current position, in which training plays a

surprisingly significant role. You may not always

realise it, seeing as how peat is extracted from

the field using peat production machinery and

delivered to customers using lorries, as we

have been doing for decades.”

“Nevertheless, in today’s world, once-

acquired skills are not sufficient in either peat

production areas or behind the wheel of a peat

delivery vehicle. There are many aspects of

these jobs that create a need for continuous

training. At Vapo, we continuously develop our

production and supply process. There are also

legislative changes, feedback from our entre-

preneurs, as well as Group-wide guidelines,

such as new environmental initiatives, that

require training,” he says.

Hundreds of participants in trainingTo ensure that new information and changes

are understood, Vapo uses a large-scale train-

ing programme that runs systematically all year

VAPO PEAT PRODUCTS

Continuous training keeps the wheels turning

The customer receives the right kind of peat at the right time

when Vapo’s production and supply chain works effectively.

This is ensured by, among other things, continuous training for

entrepreneurs and Vapo’s own personnel.

and practical activities. One of the most sig-

nificant changes was incorporating the regular

monitoring and reporting of the condition of

water protection structures into the work of

peat entrepreneurs.

“In 2013, an important theme in training

was, besides environmental issues, restor-

ing quality after a record-poor production

season in 2012. The organisation is moving

toward the 2014 production season with

the same priorities. The change in the

market situation and increase in reserves

put further emphasis on the management

of quality.”

“Another important development for us

is the roll-out of MobiPeat, our new system

for collecting data on quantity and quality in

production operations. Preparations for the

roll-out of the new application, which can be

accessed by mobile devices, began in the

training programme for 2013, and we have

now really begun to implement it with our

production entrepreneurs,” Koskiniemi says.

He adds that training is simply about the

distribution of information, but also about

foresight and taking steps to prepare for

various contingencies, even surprising ones.

Interaction with, and between, production

and transportation entrepreneurs is also an

integral part of training.

round. In production operations, it applies to

some 300 entrepreneurs and more than 1,000

employees that work for them.

On the supply chain side, training extends

to some 100 entrepreneurs and their nearly

400 employees, as well as 100 Vapo employ-

ees throughout the chain. The total number of

training days is in the hundreds.

The subjects and themes vary from one

year to the next. Koskiniemi says that, much

like in other aspects of peat production, having

patience and a long-term approach is es-

sential. Topics must be introduced in bite-sized

pieces: “there is no point in going after quick

wins.”

“Due to the nature of our operations, we

take things one season at a time, but, on the

other hand, we must also be able to look one

year ahead to know what aspects we must

influence right now, and what we must react

to. This allows us to highlight the right things

in training. It is an ongoing process of sensing

what the future will bring.”

Focus on quality and environ mental issuesEnvironmental issues have been highlighted

in training since the early 2000s. In recent

years, they have been the subject of particular

emphasis on the production side. You can say

that they have become part of the manage-

ment of operations with regard to both training

Turvetuotanto työllistää 10 000 suomalaistaBioenergia ry:n tilaaman VTT:n laskelman

mukaan turpeen käyttö työllistää suoraan

tai välillisesti yli 10 000 suomalaista.

Hyvänä vuonna energiaturve tuottaa myös

puolen miljardin euron kassavirran kansan-

taloudelle.

Huolena on, että turpeen energiavero rasit-

taa jo nyt dramaattisesti turpeen kilpai-

lukykyä suhteessa kivihiileen, mutta tuottaa

valtion kassaan vain murto-osan turpeen

työpaikkojen positiivisista vaikutuksista.

Turvetuotanto tuo elintärkeitä työpaikkoja

haja-asutusalueille ja syrjäseuduille, missä

muita työllistäviä aloja on niukasti.

35Vapo 1.1.2013–30.4.2014

Health products from peatThe therapeutic peat used in Vainio Lifestyle skincare products is a natural Finnish product extracted by hand from peat bogs. The peat is ground into a fine, consistent mass.

The therapeutic effect of peat is based on the bioactive ingredients it contains, which have the ability to permeate the skin and remove waste. The high temperature of a peat bath accelerates the circulation of blood and activates metabolism. It binds rheumatoid factors, improves hormonal action and promotes cell regeneration. Therapeutic peat is not known to have an allergenic effect.

In Central Europe, peat has been used in spa treatments for centuries.

700,000 cubic metres litter peatLitter peat is slightly decomposed, light-coloured sphagnum

peat. One cubic metre of peat binds 600–800 litres of liquid,

which makes it an excellent litter for animals. Peat also pre-

vents the growth and spread of many harmful bacteria, and it

improves animal comfort and health. Litter peat can also be

spread on fields as fertiliser after its initial use .

Vapo produces some 700,000 cubic metres of litter peat

annually for use with dairy cattle, beef cattle, sows, pigs,

poultry and horses.

Planned increase in peat taxation for 2015 will not be implementedIn 2011, the Finnish Government decided to increase the energy tax on peat to EUR 4.90 per megawatt hour from the beginning of 2013, and to EUR 5.90 per megawatt hour from the beginning of 2015. However, in the Government discussion on spending limits in March 2014, the tax hike planned for 2015 was cancelled. The decision is expected to also increase the competitiveness of domestic wood chips, as an increase in peat taxation would reduce subsidies for wood chips. The news indicates that the Government’s decisions are moving taxes and subsidies in a significantly more sustainable direction from an environmental perspective.

The value of peat by region in Finland is EUR 814,7 billion in total.

If peat tax was restored to the 2012 level (EUR 1.9/MWh), the annual tax revenue generated to the State would be approximately EUR 100 million.

Vapo extracted 17.3 million cubic metres of peat in 2013.

36Vapo 1.1.2013–30.4.2014

The equestrian village in Orimat-

tila is home to more than 200

horses, and Teemu Okkolin has

run a stable in the village for over

ten years. Okkolin currently has

30 coaching horses in his stable, one of which

is the handsomely maned Finnhorse stallion

Turbo-Urpoold stallion has already racked up nearly EUR

100,000 in winnings

– He’s a fine Finnhorse. You won’t find many

as good as this one, Okkolin says with pride.

Okkolin himself is also one of the top names

in the sport both as a harness racer and a

he surprised everyone by placing second in the

Kuninkuusravit championship contest with Yllin

Kyllin, a young mare, despite being up against

experienced veterans of the sport.

Like most private entrepreneurs, Okkolin

works long days. His job description covers

“everything you can possibly do with horses”,

such as feeding, training, cleaning stalls and

shoeing. Okkolin travels to harness races every

weekend, getting to know the country and its

service stations intimately along the way.

– Horses are both my job and my hobby. I

spend all my time with them.

Okkolin has worked with Vapo for nearly

ten years, using peat as the litter for his horse

stalls the entire time. Prior to that, he also used

sawdust.

– The key for me is that peat is absorbent

and environmentally friendly. Discarding used

peat is much easier compared to other types

of litter.

The litter used at the bottom of the stall

has an effect on the horse’s overall well-being.

Okkolin says the most important health-related

characteristic of peat is that it creates less dust

than other types of litter. At many stables, the

horses spend the majority of the day indoors.

Air quality is therefore very important. Racehors-

es are endurance athletes, so their lungs must

be in optimal condition. A dry stall also supports

the health of the horse’s feet

According to research, as well as Okkolin’s

own first-hand experience, peat binds the am-

monia evaporating from urine better than any

other litter. The stalls are cleaned of droppings

daily. Every couple of weeks, a local gardening

business picks up the used peat from the stable

and refines it into composting soil.

Hooves firmly in peat

High-quality litter is an essential part of a horse’s well-being. Orimattila-based stable entrepreneur, harness racing trainer and harness racer Teemu Okkolin has used peat as the litter at his stable for several years.

Okkolin says every stable entrepreneur

should carefully consider how peat is stored and

discarded. Okkolin orders peat in quantities of

50 cubic metres, which is enough for about two

months. In the summer, less peat is used as

the horses spend more time outdoors and the

younger ones are out on summer pastures. Ok-

kolin has built a shelter behind the stable to store

peat year-round, protected from rain.

When a new load is delivered, Okkolin gives

feedback to Vapo on the quality of the peat:

how dark it is, its dampness and whether there

is material such as small bits of wood in it. In

addition to horse stables, Vapo sells peat for use

as litter for dairy cattle, beef cattle and poultry.

Peat is suitable for all types of drying as well as

absorbing urine and sludge.

– For use as horse litter, the lighter the peat

the better.

Okkolin says peat represents a large part of

the upkeep cost of a horse, but not the largest

part.

– Peat is more expensive to buy, but in the

long run, it is cheaper than other types of litter –

especially at the quantities I order.

Okkolin wholeheartedly recommends peat

as litter for all stable managers, although many

are somewhat put off by its dark colour. The dark

dust from peat is more noticeable than the dust

from lighter-coloured litter.

– Especially in the spring, it takes more

cleaning. In wet weather, peat turns into sludge

quite easily. But that is about the extent of its

negative aspects.

– In all my years of using peat as litter, I have

not come across a horse for which it would not

be suitable, and I have seen quite a few.

VAPO PEAT PRODUCTS

37Vapo 1.1.2013–30.4.2014

There are already approximately 15,000 horse stables, and the number continues to grow. Horse management provides employment to about 15,000 people.

Litter peatKeeps the ammonia concentration of indoor air in the stable low

Needed in lower quantities than other types of litter

Does not contain mould dust

Sources: Environmental guide for stables

(Jansson-Saarijärvi 2010), Finnish Ministry of

the Environment hand-out

121: Environmental protection guide for horse

stables (2013).

Amount of horses incrases by appr.

2.000every year

PEATIS supreme litter

38Vapo 1.1.2013–30.4.2014

Vapo revises the pricing of district heating

Vapo is looking to ensure fair treatment to its customers by introducing a new pricing model. Further objectives include ensuring the competitiveness of district heating and the continued provision of good customer service.

We want to ensure that

district heating will always

be the most competitive

form of heating. That can

be achieved by investing

in energy efficiency and customer-focused

operations,” says Markus Hassinen, Director

of Vapo’s Heat and Power business area.

The most recent indication of this is a

multi-million euro investment in a flue gas

scrubber at the Forssa power plant. Opera-

tions are also being continuously developed in

other locations.

District heating is a significant source of

jobs, and it also has substantial advantages

from the environmental perspective.

“At Vapo, we use half wood, half peat for

heating generation. This mixture has lower CO2

emissions compared to generating an equal

amount of heat by natural gas, for instance,”

Hassinen points out.

Although district heating remains the most

competitive method of producing heating for a

district heating network, increasing fuel prices

and taxation have posed significant challenges

after the turn of the century.

“The Finnish tax on peat was raised from

as of 1 January 2013. There were plans to

megawatt-hour at the start of this year, but

that decision was fortunately reversed,” says

Jari Kymäläinen, Director of Business Devel-

opment for Vapo’s Heat and Power business

area.

The slow permit processes for new peat

production areas are also reflected in costs.

“A further concern we have at present is

the new Finnish Environmental Protection Act.

If the legislation is implemented as drafted,

the permit process for peat production can be

complicated further, which would weaken the

competitiveness of domestic fuels,” Hassinen

adds.

Vapo works closely with customers to

determine how to handle the transfer of heat-

ing as efficiently as possible. The operation

of the customer’s district heating equipment

significantly affects the functioning of the

network, which means it has an impact on the

competitiveness of district heating.

Customers can also influence heating use

through consumption habits, insulation and

building automation.

“In the future, opportunities for flexibility

in customer consumption will play a larger

role as building automation systems become

more common. Heat consumption can be

transferred from the most expensive winter-

time hours to the cheaper hours,” Kymäläinen

explains.

In order to ensure the equal treatment of

all district heating customers, Vapo has intro-

duced a new district heating pricing model, a

hybrid tariff. Customers whose primary form

of heating is not district heating often want to

have district heating additionally in use during

the coldest time of the year. Going forward,

they will pay a higher price for this proportion

than those who use district heating as their

primary form of heating.

As wood and peat are not enough to

cover the full requirement for district heating

generation in the winter season, oil or gas is

used as a district heating fuel during the peak

months. Their prices are substantially higher

than those of domestic solid fuels.

Selling district heating at the same price

to all buyers would create an unfair situation:

those who pay for the full capacity would

effectively be subsidising those who invest in

alternative forms of heating but continue to

utilise district heating in the winter.

Seasonal pricing has been used to some

extent in Finland. Seasonal pricing takes into

account the fact that fuels and heating genera-

tion methods vary depending on the season,

but all users nevertheless pay the same aver-

age price.

“This means that a seasonal tariff for

district heating does not solve the same

problem as a hybrid tariff, because it does not

VAPO HEAT AND POWER

CO2 emissions in

energy industry are expected to decrease by 2050

39Vapo 1.1.2013–30.4.2014

Reutilising power plant wasteEach year Vapo’s energy production

plants generate approximately 15,000

tonnes of ash, which is their largest waste

item. However, some ash makes for good

material for earthwork and can also be

suitable for use as fertiliser in agriculture

and forestry. Vapo has taken active steps

to improve the utilisation rate of ash from

its power plants. The final disposal of the

ash depends on the fuel used. As Vapo’s

power plants burn peat and wood almost

exclusively, the resulting ash is often

suitable for reutilisation. The ash created

when oil is burnt, however, is always unre-

coverable waste. The target is to have 37

per cent of ash reutilised in 2014.

Making data more comparableFive Vapo power plants have implemented Syncron Tech’s new SyncPower monitoring system for production planning and moni-toring their operational economy. The new system will make data more illustrative and comparable by harmonising the power plants’ data analysis and presentation. The monitoring system is directly connected to other systems, which improves the efficiency of Vapo’s operations. The system is used by plant operators, power plant managers as well as development and maintenance personnel.

take production costs into account at the right

proportions,” Hassinen says.

According to Hassinen, when considering

alternative forms of heating, such as ground

source heat, it is important to be aware of the

full lifecycle costs involved.

“Many customers put in undersized

ground source heat equipment due to the

electrical power requirements involved.

Increasing the capacity of the electricity con-

nection can be a substantial added expense.

Some also plan to save money by using dis-

trict heating as a parallel form of heating during

the peak season. The hybrid pricing system

gives customers a firm foundation for making

carefully considered decisions.”

When the hybrid pricing model becomes

more commonly used in Finland, many cus-

tomers who have invested in ground source

heat may realise their decision was made on

insufficient grounds.

Vapo is also continuously monitoring new

technologies to satisfy customer demand for

heating.

Investments in energy efficiency in Forssa

The power plant in Forssa is set for

its largest investments since it was

first built. The plant’s original electrosta-

tic precipitator will be replaced, and a new

flue gas scrubber will be installed to scrub flue

gases generated during combustion and capture

their heat. The new scrubber will decrease the power

plant’s particle and sulphur emissions and reduce oil

consumption, thereby improving its annual operating

efficiency. The investments will ensure that the power plant

provides the residents of Forssa with district heating at more

stable prices and with lower environmental emissions.

A warm but domestically powered February February 2014 was the warmest since

1990, with the average temperature some

6–8 degrees Celsius warmer than the

long-term average. The warm weather

naturally had a negative effect on the result

of the Heat and Power business area.

Vapo runs its heating and power plants

as cost-effectively as possible. For this

reason, even though February was warmer

than average, you can also say that it was

domestically inexpensive. In mild tempera-

tures, more domestic fuels and less oil are

burned, which partly compensates for the

lower sales.

37 % utilisation

40Vapo 1.1.2013–30.4.2014

Small streams make a large river

Heat and Power business area did not make any prominent acquisitions during the year. Nevertheless, operating profit grew and profitability improved. The key to this was the systematic implementation of subprojects to improve energy efficiency, operational quality and environmental responsibility.

Vapo Oy is Finland’s third-largest

producer of heat and power

that uses primarily domestic fu-

els. Vapo Oy’s Heat and Power

business area is responsible

for the Group’s energy business, which had

a turnover of slightly over EUR 100 million in

2013. The Heat and Power business area is

a strong local operator that serves customers

by providing optimal energy solutions utilising

local biofuels in Finland, Sweden and the Baltic

region. It is responsible for the operation of

Vapo’s six power plants generating heat and

power and the district heating networks con-

nected to them, and for optimising and devel-

oping the Group’s energy business. The power

plants are located in Forssa, Salo, Lieksa,

Ilomantsi, Sotkamo and Haapavesi. Vapo also

owns and operates a total of 20 district heat-

ing networks and 140 heating plants that use

peat, wood and pellet to provide heating to in-

dustrial customers, large-scale properties and

district heating networks. In addition to that

Vapo remote-operates its customers power

plants in Järvelä, Renko and Vilppula. Vapo

produces some 2 terawatt hours of energy for

the market, which corresponds to the annual

heating consumption of more than 100,000

detached homes.

Small streams make a large riverThe Heat and Power business area did not

make any prominent acquisitions during the

year. Nevertheless, operating profit grew and

profitability improved. The key to this was the

systematic implementation of subprojects to

improve energy efficiency, operational quality

and environmental responsibility.

According to Jouko Latvakangas, Main-

tenance and Project Director for the business

area, the key is the systematic development

of operating and maintenance functions at

power plants and improving their usability. This

may sound simple, but with six larger power

plants and about 140 smaller boiler plants

concerned, the effort involves a considerable

degree of difficulty.

As examples of individual measures im-

plemented, Latvakangas mentions improving

the efficiency, and completing the roll-out, of

an information system for plant maintenance

to ensure that the benefits of the system are

reaped at all plants. Other subprojects include

better implementation of spare parts main-

tenance and services, and most importantly,

training to improve the usability and optimal

operation of the plants. Training has been

provided to both Vapo’s own personnel as

well as operators that work for the company

on a contract basis. All of these measures are

aimed at improving plant performance, in other

words, to generate more heat and power with

VAPO HEAT AND POWER

41Vapo 1.1.2013–30.4.2014

less fuel. This is what energy efficiency is in

practice, Latvakangas says.

According to Development Manager Jari Kymäläinen, improving the basic perfor-

mance and capacity of the plants creates

the foundation for sensible investments in

improving efficiency. One example is the flue

gas scrubber investment at the Forssa power

plant, which was prepared in 2013 and will be

implemented in summer 2014.

Improving the way we run our plants is

how we do production planning. We investi-

gate how the plants can be run in an optimal

manner in different conditions. Optimal use

methods are modelled in the production plan-

ning system, allowing plant operators to moni-

tor the right indicators to maintain the highest

possible operating efficiency, Kymäläinen says.

Minimising oil useAccording to Latvakangas, at the smaller

heating and pellet plants, improvements in

efficiency come from even smaller streams.

We have reviewed all of our plants with our

regional organisation. This means that every

plant has been systematically monitored and

surveyed to ensure, for instance, that expen-

sive imported oil is only used when absolutely

necessary, and that domestic fuels are used

to the greatest extent possible. It is like the

German principle of confidence being good,

but control even better. Latvakangas says the

results are plain to see.

Digital networkAccording to Kymäläinen, in summer 2013

the business area began to document district

heating networks in digital form, and the goal

is to have all networks modelled digitally by the

end of 2014. After this, network management

can be consolidated in a centralised manage-

ment system, ensuring that we have consist-

ent best practices in use at each location,

Kymäläinen explains.

Kymäläinen also highlights one area that is

deserving of special attention. We have made

All of the subprojects mentioned above are prepara-

tions for a two-year main project of building a cen-

tralised remote control room in Vantaa. Latvakangas

says the goal is to have the control room completed

by the summer, with the first shifts at the first power

plants under centralised control by autumn 2014.

The project involves improving the technical

capacity of the plants to reach a level that allows

them to be controlled in a centralised manner, while

also training control room and plant personnel and

building the control room itself.

The long-term goal is to have both large power

plants and smaller heating plants remotely controlled

as comprehensively as possible. Operations that are

legally required to be handled on location, and other

functions for which local operation makes sense,

will still be handled locally. These functions typically

include stand-by arrangements, proactive mainte-

nance and acute maintenance and repairs.

Latvakangas and Kymäläinen are both confi-

dent that investing in competence and technology

will improve results. By selecting the most capable

people to run the remote control room and spread-

ing best practices for plant operation and fuel use,

we can create small streams that together make up

a large river for improving our profitability, the two

men assert.

Preparations for remote control

great leaps in the area of environmental respon-

sibility. We have set ambitious goals for our op-

erations in the area of environmental responsi-

bility, strengthened our resources and improved

the systematic monitoring of this area to ensure

that we know we operate responsibly and with

high quality at every location. In the event of

any surprises, our new operating method and

monitoring systems allow us to take corrective

action very quickly, Kymäläinen says.

According to Latvakangas, a related de-

velopment project is the business area’s focus

on occupational safety. We have launched

a programme of continuous improvement in

this area. The programme applies to our own

personnel as well as subcontractors. I believe

the programme has contributed to the fact that

our most recent serious workplace accident

occurred in spring 2013. The only target we

should even consider in this area is zero ac-

cidents, Latvakangas says.

Systematic implementation of subprojects

improves energy efficiency, operational

quality and environmental responsibility.

In the future, many major power plants and smaller heating plants

will be remotely monitored from Vantaa, says Jari Kymäläinen.

VAPO WOOD FUELS

42Vapo 1.1.2013–30.4.2014

Vapo believes in wood energyAccording to preliminary data provided by Statistics Finland, wood energy represented 24 per cent of the total energy consumption of Finland in 2013.

Vapo Oy is, by far Finland’s largest pellet producer

43Vapo 1.1.2013–30.4.2014

According to preliminary

data provided by Statistics

Finland, wood energy rep-

resented 24 per cent of the

total energy consumption of

Finland in 2013. According to Juhani Ylä-Sahra, Director of Vapo Oy’s Wood Fuels

business area, supplying wood energy

to the company’s own power plants and

external customers is a core business for

the company.

The Wood Fuels business area is respon-

sible for purchasing forest fuels and supplying

them to customers, selling forest industry

by-products to energy customers, as well as

pellet production in Finland.

According to Ylä-Sahra, Vapo’s strategy

is to be one of the key operators in this field in

Finland. “We currently supply just under one

million cubic metres of fuel wood to our cus-

tomers, but we have the capacity to increase

volume in line with demand. However, the key

is to ensure profitability, and we are not seek-

ing growth for growth’s sake,” Ylä-Sahra adds.

“Wood fuels, like peat are local in nature

and transporting of these fuels long distances

is not sensible. Pellet has instead much higher

energyintensity what enables also longer

transportation distances. We source and sup-

ply forest fuels throughout Finland, through our

own purchasing organisation in certain areas,

and via Vapo’s affiliate Harvestia Oy in the East

and Southeast,” Ylä-Sahra says.

Vapo Oy is by far the largest pellet

producer in Finland. Vapo has five pellet

factories in Finland, located in Kärsämäki,

Seinäjoki, Turenki, Vilppula and Ylistaro. The

raw materials used to produce pellets are pri-

marily by-products from the sawmill and wood

processing industries, mainly sawdust and dry

cutter chips. The factories have a combined

production capacity of approximately 250,000

tonnes. In 2013, Vapo supplied a total of

160,000 tonnes of pellet to the Finnish market,

of which households represented approximately

30,000 tonnes. In recent years, pellet has grown

in popularity among medium-large and large

heating plants.

According to Ylä-Sahra, pellet’s advantages

include that it is a domestic fuel, emission-free,

uniform in quality and easy to store. Extensively

automated pellet heating plants are quick to

build and have lower investment costs than

traditional solid fuel heating plants. As pellets

have a high energy content, transporting them

is economical even over long distances. Pellet

heating is competitive, particularly as a replace-

ment for imported fossil fuels such as natural

gas and oil.

Vapo currently exports some tens of thou-

sands of tonnes of pellet, primarily to Sweden

and Denmark, but Ylä-Sahra says the aim going

forward is to sell the entire pellet supply to the

domestic market:

“Pellet demand has been on the increase

in Finland, and we expect to sell all of our

production capacity to the domestic market

within a few years. We also have the capacity

to increase the production volume of our cur-

rent factories, which means that there will be

no shortage of domestic pellet even if demand

were to increase substantially,” Ylä-Sahra con-

cludes.

The carbon dioxide balance of pellet heating is

30 kg/MWhnatural gas = 108 kg/MWh

oil heating = 267 kg/MWh

electric heating = 274 kg/MWh

(The carbon dioxide balance of pellet

includes also emissions from transportation

delivers and manufacturing.)

[ www.pellettienergia.fi ]

In 2013 Vapo supplied a total of 160,000 tonnes of pellet to the Finnish market

VAPO WOOD FUELS

44Vapo 1.1.2013–30.4.2014

A customer relationship of over 50 yearsVapo Oy has supplied fuels to Ähtärin Energia

the companies signed a five-year fuel sup-

ply agreement that ensures the continued

covers milled peat, wood chips, stump chips,

wood pellet and peat pellet. Milled peat is

the most important of these fuels by volume,

accounting for 70–80 per cent of the total.

The combined annual volume is 40 GWh. The

value of the agreement is approximately EUR

4 million over its five-year term.

According to Mika Säynäjäkangas,

Area Manager at Vapo Oy, Ähtäri sets a great

example in the use of domestic energy. The

fuels used at the heating plant are supplied

from locations only 20–25 kilometres away on

average. Fuel production provides employ-

ment to numerous entrepreneurs in the area.

Ähtäri locals Hannu and Janne Viinikka are

involved in the entire supply chain. They pro-

duce milled peat as well as sod peat at the

Mäkikylänsuo peatlands and also use their

own transport vehicles to deliver fuel peat to

the Ähtäri heating plant.

The main facility in Ähtäri has 4 and 5

MW fluidised bed combustion boilers. A

second delivery destination is a pellet heating

plant in the Inha industrial district with a 0.3

MW boiler and an annual consumption rate of

700–800 MWh of wood pellet per year. The


pellet is supplied by the pellet factories in the

Haukineva and Ylistaro districts of Seinäjoki.

With fuel deliveries now having been made

smoothly and successfully for five decades, we

asked the customer to summarise their per-

spective when the new agreement was signed.

In the words of Ilkka Kajander: “I value the fuel

supplier’s reliability and strong reputation in this

field.”

Wood pellet replacing natural gas in NokiaIn April 2014, Vapo Oy and Leppäkosken

Lämpö Oy signed an agreement on supplying

wood pellet to a 6 MW pellet heating plant un-

der construction in Nokia. Vapo’s pellet deliver-

ies will cover approximately half of the total fuel

requirement of the Leppäkoski plant. Construc-

tion of the heating plant began in April, and the

facility will be commissioned in late summer

2014. In Nokia, emission-free pellet energy will

replace natural gas. The recently signed agree-

ment is one of Vapo’s largest individual pellet

contracts. The pellet for the Nokia heating plant

will be primarily supplied by Vapo’s pellet fac-

tory in Vilppula.

According to Pasi Rantonen, Area

Manager at Vapo Oy, the agreement further

strengthens domestic pellet demand, which has

seen strong growth in recent years. Rantonen

says many energy plants are planning similar

investments to use pellet to replace imported

fuels in base load, peak load and reserve power

plants.

Milled peat is the most important of these fuels by volume, accounting for 70–80 per cent of the total.

In Nokia, emission-free pellet energy will replace natural gas. The recently

signed agreement is one of Vapo’s largest individual pellet contracts.

Energy companies have a great responsibility for ensuring

that their customers have access to heating, warm water

and electricity under all circumstances. Reliability is the most

important requirement for a fuel supplier. This has traditionally

been a key strength of Vapo.

45Vapo 1.1.2013–30.4.2014

Tampereen Energiantuotanto Oy is creating alternatives for fossil fuel consumptionTampereen Energiantuotanto Oy is creat-

ing alternatives for fossil fuel consumption.

Finland’s largest pellet firing facility, a 33 MW

heating plant in Sarankulma, was commis-

MW plant that will utilise wood chips will be

completed in Tampere’s Hervanta district

next year.

– With these investments, we respond

to climate policy challenges and prepare to

ensure the availability of energy under all

conditions. Decision-makers do not always

recognise the significance of self-sufficiency

and the security of supply, says Antti-Jussi Halminen, the company’s Managing Direc-

tor.

Halminen is the Chairman of the Do-

mestic Fuels Department under the National

Emergency Supply Agency. At present, nearly

70 per cent of Tampere’s energy supply is

based on imported energy, namely fossil

natural gas, which is far from ideal from the

perspective of the security of supply.

The security of supply in exceptional

circumstances and the related reserves and

supply chains for wood chips, pellet and peat

are built over a long period of time. If they do

not function on a normal day, they will also

not function in a crisis. The security of supply

perspective has seen policy-makers begin to

advocate the increased use of wood, but they

have forgotten about domestic peat, which

benefits from excellent storability.

– Imagine that a storm results in roads

being blocked off by fallen trees, and wood

can no longer be transported from forests to

power plants. In such a scenario, peat stored

for the power plant’s use is an excellent fuel,

Halminen explains.

There are weaknesses when it comes

to the security of supply, one of which is the

availability of peat. Old peat extraction areas

are becoming exhausted and environmental

permits for opening new production areas are

difficult to come by.

– In spring 2013, the company’s Naisten-

lahti power plant had concerns about running

out of peat. The only alternative would have

been to increase the use of natural gas and

oil. Wood was not an option: in the old boiler,

wood can only account for half of the fuel

mixture at most, Halminen adds.

Unit 2 at the Naistenlahti power plant uses

a mixture of 50–60 per cent peat and 40–50

per cent wood. The annual consumption of

milled peat is equal to approximately 600–700

GWh.

Matti Valli

The Finlands largest pellet firing facility

33 MW heating plant was completed in Tampere Sarankulma

46Vapo 1.1.2013–30.4.2014

New blocks of flats currently under

construction in Helsinki’s Etelä-

Kivikko district have a particular

emphasis on energy-efficiency.

The first buildings will be com-

pleted this spring. The solutions used in the

buildings are focused on conserving electricity.

HOne notable feature of the buildings is

that none of the flats have their own saunas.

Instead, there are communal saunas heated

by pellets. Every flat also has a pellet fireplace.

The man behind the idea is Markku Hainari, Director of TA-Rakennuttaja Oy, the project’s

developer.

“I had the opportunity to learn about Vapo’s

production over 10 years ago. At the time, pellet

production was entirely new. The idea of using

pellet in Finnish residential buildings instead of

electricity stayed in my head. I am very pleased

that we now finally have the chance to carry out

a project that makes this idea a reality.”

Pellet fireplaces are used in Finland to some

extent in detached houses, but these are the

first blocks of flats in Finland that will have pellet

fireplaces in every flat.

As the buildings are connected to the

district heating network, it did not make sense

to use pellets for the heating system as a whole.

For this reason, the primary functions of the

pellet fireplaces are to provide supplementary

heat and create a pleasant atmosphere in the

homes.

Pellet-heated sauna stoves are very rare

in Finland, even in detached houses, which

makes this project in Etelä-Kivikko a leader in

this regard.

“We were lucky to receive valuable as-

sistance in matters related to the sauna and

the pellet-heated stove from the director of

the Culture Sauna project, architect Tuomas Toivonen,” Hainari says.

The Etelä-Kivikko development particularly

attracts people that have ecological views and

value energy efficiency. For Reija Tyrjä, who

will move to the area in May, the two most

important buying criteria were location and

energy conservation.

“My two adult children and their families

live close to my new home. I thought it would

be convenient to live close enough to them

that my grandchildren can easily come visit

me, or I can go visit them.”

Supporting and using domestic biofuel is

also an important consideration for Tyrjä.

“The pellet-heated communal sauna and

the pellet fireplace sounded like great ideas

when I read about them. I never thought I

could have a fireplace in a flat in the city.”

Pellet heating itself is not new to her. She

Joutsa, which she has rented to her daughter.

“The house originally had oil heating,

which turned out to be expensive. I had it

replaced with a pellet heating system about

six years ago. I have been very happy with it,

which explains why the pellet fireplace and

pellet-heated sauna stove were important fac-

tors in my buying decision,” she adds.

Energy-efficient blocks of flats under development in Kivikko

Etelä-Kivikko district in East Helsinki is the site of a development of

energy-efficient residential buildings of national significance. Pellet has

never been used on this scale before in Finland in blocks of flats.

The energy conservation solutions at the Etelä-Kivikko project are not restricted to the use of pellet“All of the flats are heated by water under-

floor heating connected to the district heating

network. The efficiency of electricity consump-

tion has been improved by technical building

services, such as the away switch that scales

down ventilation when no-one is at home. The

dishwashers are connected to hot rather than

cold water, which means that water is heated by

district heating rather than locally by using elec-

tricity. The choices of home appliances prioritise

energy-efficient products that conserve electric-

ity. Energy-efficient LED light bulbs are used for

general lighting, and the outlets for car heating

are controlled by temperature instead of time,”

explains Mikael Lönnroth, Project Manager at

TA-Rakennuttajat.

The residents have meters and displays in

their flats that allow them to monitor electricity

and water consumption in real time.

VTT Technical Research Centre of Finland

has prepared preliminary calculations on the

project that indicate that the chosen solutions

combined can result in savings in electricity of

up to 50 per cent.

“Monitoring and follow-up is very important

in pilot projects such as this one. We will moni-

tor actual energy savings and the users’ experi-

ences of the convenience of the systems for a

minimum of one year,” Lönnroth says.

The committee that oversees and steers the

project includes the City of Helsinki, Helsingin

Energia, Vapo Oy and TA-Rakennuttaja Oy.

VAPO WOOD FUELS

47Vapo 1.1.2013–30.4.2014

VVapo Oy’s subsidiary Neova AB and Lantmännen Group are merging their pellet

businesses. The newly formed company will be the market leader in wood pellet

production in Sweden with a turnover of approximately SEK 1 billion (slightly over

EUR 100 million) and some 160 employees. Each of the two merger partners will

own 50 per cent of the company.

The company is the market leader in Sweden and a strong challenger in the Baltic

region, the markets of which have significant potential for growth. Pellet demand

is expected to increase significantly throughout Europe.

Vapo Oy’s subsidiary Neova AB and Lantmännen Group are merging their pellet businesses.

The newest public sauna in Helsinki is located in the very centre of city, but still in peaceful location. The main source of heating is gigantic stove firig wood pellets.

In early summer 2013, work was completed on an ecologically heated waterfront sauna at Hakaniemi Market Square in Helsinki. Designed by architect and designer couple Tuomas Toivonen and Nene Tsuboi, this public sauna that offers cultural experiences is heated by pellets. The once-warmed sauna stove, which weighs some 5,000 kilogrammes, is lit 3–4 hours prior to use and put out before customers enter the sauna. When the sauna is no longer used, the waste heat and after-heat are used to heat up the rest of the facilities. The stove can also be traditionally heated by wood, but the evenly burning pellet is ideal for heating a large public sauna for several hours..The Culture Sauna is heated

by wood pellets

Vapo’s domestic wood pellet sales up 24 per cent year-on-year

Vapo sold 134 thousand tonnes of wood pel-

lets in 2013. Growth is expected to continue in

2014 at a rate of approximately 10–15 per cent.

Several energy companies are investing in pellet

boilers for use during the peak demand season

for district heating in the winter as well as low

output generation in the summer. For example,

an energy company in Tampere has invested in a

pellet boiler for which Vapo supplies the pellets.

A district heating plant in Nokia will also begin

to use pellet to a significant degree in heating

production next season. Even with increased

demand, there are plenty of pellets to go around.

Vapo’s pellet production capacity is large enough

to double its domestic sales.

48Vapo 1.1.2013–30.4.2014

Utilisation rate, lumber recovery factor and customer service are the cornerstones of operations

Karelian logsLogs at the Lieksa sawmill sometimes have small traces of history in them. Tree trunks may have metal objects embedded in them, such as nails, screws and even wartime bullets and shrapnel. As metal objects can damage the blades of sawmills and customers’ planes, logs pass through a metal detector before processing. Logs that may contain metal are then examined using a handheld metal detector, and any embedded metal objects are removed. Logs that are in good condition are then returned to the sorting process, while logs that are ruined by the extraction of the metal end up in the digester.

VAPO TIMBER

The sawmill business is known

for having a high sensitivity to

economic cycles, but according

to Juhani Ylä-Sahra, Direc-

tor of Vapo’s sawmill and wood

fuel businesses, one fact remains true in good

times and bad: A sawmill that is not running

will only produce a loss. Another truth is that

as long as raw material constitutes by far the

largest cost item in producing sawn timber, it is

essential that expensive raw material is utilised

to the greatest extent possible. When you

combine that with flexible customer service,

you have the preconditions for successful

operations in place.

According to Ylä-Sahra, the utilisation rate

measures the degree to which production

capacity is being utilised, while the lumber re-

covery factor indicates how much sawn timber

is obtained from one cubic metre of wood.

“We work hard to efficiently produce pre-

cisely the type of timber that each customer

needs for their own operations,” Ylä-Sahra

says. “It isn’t that complicated. Customers

value a few simple things. They want quick

responses to their enquiries, they want the

quality of the product to meet the agreed

standards, and they want deliveries to be on

time. We obtain further added value from the

raw material we use, which is high-quality

Nordic wood that is highly appreciated in the

global market,” Ylä-Sahra explains.

Sales and production must work seam-

lessly together to ensure customer satisfac-

tion, production efficiency and the economical

use of raw material. “This is something we

have been quite successful in, and I consider

it to be one of our key strengths,” Ylä-Sahra

says.

Savo-Karelia region. Some raw material is also

imported from Russia, although the quantities

have been low in recent years due to various

export restrictions. “The undisturbed operation

of the roundwood markets, including the option

of importing raw material from Russia, are ba-

sic conditions for our operations and our ability

to meet customer demand going forward,”

Ylä-Sahra says.

The sawmills utilise wood to a very high de-

gree. Half of the input volume is converted into

sawn timber, with the remainder becoming raw

material for the pulp industry, or wood fuel for

generating heating and electricity. By-products

are an integral component of the economics

of a sawmill. They are also an important part

of the increasing use of renewable fuels in

Finland.

Export covers

70%of Vapo Timber Oy’s production

Vapo Timber Oy currently has sawmills in

Nurmes and Lieksa. In late 2013, the company

sold its Hankasalmi sawmill to Versowood Oy.

The Lieksa sawmill has a capacity of 250,000

cubic metres of spruce timber, while the Nur-

mes sawmill has a capacity of 210,000 cubic

metres of pine timber. “Both the domestic

market and our export markets currently have

a high level of activity, and we are running our

two sawmills at full capacity,” Ylä-Sahra adds.

Approximately 70 per cent of the produc-

tion capacity of Vapo Timber Oy’s sawmills is

exported. The most important export markets

are the United Kingdom, Germany and North

Africa, but exports to the Far East have also

grown.

Wood for Vapo Timber’s sawmills is sup-

plied by Harvestia Oy, an affiliate of Vapo,

which sources the majority of its wood in the

49Vapo 1.1.2013–30.4.2014

Sawn goods play significant role in Finland’s exports

“It is essential to our customers to get sawn timber suitable for their purposes from a reliable supplier.”

Despite the mild winter, a record quan-

tity of domestic wood was felled in the

early part of 2014. According to the

Central Union of Agricultural Produ-

cers and Forest Owners, the transac-

tion volume for wood is also one third

higher than in the previous year. In-

dustry and sawmills bought more than

12 million cubic metres of wood in

the early part of the year, which is the

largest volume since 2007. The growth

is supported by factories operating

at a good and constant level due to

wood prices having been stable for

a long time. The improved availabi-

lity of raw material is also reflected

at Vapo Timber’s sawmills in Lieksa

and Nurmes. Log volumes have

grown to record highs during the

spring, and the production of sawn

timber has kept sawmill personnel

busy.

Finnish timber is highly valuedNorth Karelian pine and spruce are valuable

sawn timber due to their high quality. Trees in

the region grow slowly, which makes the annual

growth increment small. This is ideal for produc-

ing firm and durable sawn timber, the attributes

of which are valued by professionals ranging from

Japanese builders to Italian carpenters. Vapo

Timber’s sawn timber is supplied to Europe, Africa,

Asia and Finland, to customers such as produc-

ers of prefabricated homes, door and window

manufacturers, and furniture makers. The finished

products include the frameworks of buildings,

terraces, playgrounds and even wooden boxes for

potatoes.

Det Norske Veritas has issued a Programme for the Endorsement of Forest Certification, or PEFC, to Vapo’s Wood Energy business area. The certificate applies to the purchase and sale of commercial timber.

Certification verifies to customers that the origin of the wood is known, and that the wood is sourced from sites that follow the principles of sustainable forestry in logging and managing forest nature.

50Vapo 1.1.2013–30.4.2014

One sawmill job creates several other jobs.

This makes Vapo Timber’s Kevätniemi

sawmill a significant local employer.

Vapo Timber´s sawmill in

Kevätniemi is a landmark in

Lieksa. It has provided work

and income to area residents

The sawmill currently has approximately 50

employees on its payroll, but that is only part

of the big picture. Sawmill operations today

are a highly networked activity that involves a

variety of operators.

“The employment effect of the sawmill

itself is as high as 70 man-years. In addition

to our own employees, there are about 10

outside employees in maintenance operations

at the sawmill and another 10 in machine

contracting. We also purchase services such

as machining, which add up to approximately

one man-year annually,” says Jani Lopperi, Production Manager at the Kevätniemi sawmill.

Logs to the sawmillThe Kevätniemi sawmill’s wood purchasing

and log transport employ roughly the same

number of people as the actual sawmill

operations. According to Harvestia Oy, which

is responsible for wood purchasing, there are

20 harvesting chains in operation to harvest

wood for the Kevätniemi sawmill. The felling

machines and grinders employ some 80

people in total. The wood is transported from

the forests to the sawmill on 27 timber trucks,

which employ 57 drivers.

Wood purchasing for the Kevätniemi

sawmill also provides full-time employment to

one purchasing manager at Harvestia Oy, and

the wood supplied to the sawmill from the sur-

rounding areas also involves about 10 timber

buyers. There is also one transport manager

and one harvesting manager responsible for

the organisation and volume management of

timber deliveries.

“It is difficult to say exactly what propor-

tion of the work performed can be allocated to

wood delivered to the Kevätniemi sawmill, as

some of the timber also goes to other facilities.

Kevätniemi does, however, represent a very

substantial share,” says Liisa Viikari, Marketing

and Communications Manager at Harvestia Oy.

Sawn timber and by-products out into the worldAfter sawing, there is still work to be done

in the form of transporting sawn timber and

by-products to users. According to Production

Manager Jani Lopperi, the employment effect of

this phase can be estimated on the basis of the

number of trucks departing the sawmill.

“During busy periods we have well over 10

truckloads of sawn timber leaving the sawmill,

and an almost equal amount of by-products in

the form of sawdust, wood chips and bark. If

you add all that up, the employment effect is an

estimated 15-20 man-years,” he says.

VAPO TIMBER

A sawmill creates jobs

51Vapo 1.1.2013–30.4.2014

However, not all by-products need to be

transported very far. Some are used for energy

generation at Vapo’s Lieksa heating plant, which

generates heating for both the Lieksa district

heating network and the Kevätniemi sawmill.

Wood represents approximately 60 per cent of

the heating plant’s fuel consumption, with the

majority coming from the Kevätniemi sawmill.

Sawmill generates millions for the regionJani Lopperi points out that the sawmill’s signifi-

cance to the area cannot be determined purely

on the basis of its direct employment effect.

Indirect employment, stumpage revenue, self-

employed persons’ pension insurance contribu-

tions and tax revenue also benefit the area.

In Lieksa alone, Harvestia Oy concludes an

average of 170 timber purchases with private

forest owners per year. This translates to ap-

proximately EUR 3.5 million in revenue for forest

owners.

Through the Saimaa Canal to the world marketsThe Saimaa Canal has provided the sawn timber products of Vapo Tim-

ber with a direct route from Eastern Finland to Central Europe for several

decades. Today, this transportation route is utilised to the greatest extent

possible.

Using the Saimaa Canal for transportation is cost-effective and envi-

ronmentally friendly. Matti Hyvönen, Logistics Manager at Vapo Timber,

says the Canal has given industry in Eastern Finland an advantage that

has maintained the competitiveness of its products in the European

markets.

“These days, environmental factors are also very significant in the

choice of transportation method. Our customers have a keen interest in

the carbon footprint of our supply chain, and we measure it continuously.

The carbon dioxide emissions from inland water traffic are approximately

30g per tonne-kilometre, whereas the corresponding figure for a modern

lorry is 110–160g.”

Vapo has consolidated its transportation through the Saimaa Canal at

the Port of Joensuu, from where a ship loaded with Vapo’s goods de-

parts once every month or month and a half, usually destined for the UK

or France. The shipping of Vapo’s products through the Saimaa Canal is

likely to continue, as the European Sulphur Directive that will enter into

force at the beginning of 2015 will improve the competitiveness of the

Saimaa route compared to coastal ports.

“The ships in Saimaa already use a low-sulphur fuel. The new Directive

will not have an impact on costs here. It is also clear that, in the future,

the EU’s tax policy will increase the popularity of marine transport due to

it being the most environmentally friendly alternative,” Hyvönen adds

Kevätniemi is part of Lieksa’s identity.Esko Lehto, Town Manager of Lieksa, confirms that the Kevätniemi sawmill is important to Lieksa and local residents. It is one of the town’s significant industrial employers.

“It’s very important that the sawmill has successfully renewed itself through the years and stayed with the times. Success has required a lot of work, and as a traditional industrial town, Lieksa aims to provide the best possible conditions for it.

Lehto adds that the significance of the Kevätniemi sawmill to the town of Lieksa is not only related to its economic impact. After operating in the town for over a century, the sawmill has become part of the identity of the town and its residents.

“Everyone here knows Kevätniemi. Many have worked there themselves, or at least they have a family member or acquaintance that earned a living from the sawmill. This has made it an integral part of the town and its people,” he says

52Vapo 1.1.2013–30.4.2014

For Kekkilä Group, the length

of the spring season is the

difference between good

and bad years, especially

in consumer products.

Comparing financial years

is impossible considering that the recently

concluded financial year included two

spring seasons. For this reason, this inter-

view will focus on longer-term trends and

the prospects of different markets.

According to CEO Petri Alava, the

company went into the financial year with

low inventory after the weak peat summer of

2012. “The rainy summer led to peat scarcity,

which in turn meant higher raw material costs

and careful quality control.” The increase in

raw material costs was reflected in all of our

business areas, namely consumer prod-

ucts, professional growing and landscaping

products,” Alava says. Winter 2013 continued

exceptionally long into the spring, which meant

a fairly short consumer season.

A turnaround in summer 2013According to Alava, there was a positive

turnaround in all markets and business areas

in summer 2013. “Raw material production

was successful in all of our markets and we

launched new products. By spring 2014, the

most significant source of uncertainty was the

extent to which the good raw material situa-

tion among all refiners would affect market de-

mand and price competition,” Alava explains.

“We prepared very well for customer

negotiations during the autumn period and the

subsequent peak sales season. Spring 2014

was very successful for us in all of our mar-

kets,” Alava says. “We received a further boost

from the early spring in Sweden and Norway,

which made March part of the peak season

in both consumer products and landscaping.

Even in Finland, the season began at the end

of March, which is one month earlier than in

the previous year.

Positive vibrations in all marketsKekkilä seeks growth in the South American and Asian markets.

“In landscaping, which is our Park busi-

ness area, we have seen a positive trend over

several years of our operations in Sweden,”

Alava adds. “Nevertheless, the figures for

the financial year show a substantial one-

off expense associated with the sale of our

unprofitable Swedish composting unit. This

item only has a negative effect on the recently

concluded financial year, and the divestment

will improve out key figures going forward. Our

profitability trend in Finland has also bottomed

out and began to improve and, despite the

slowdown in construction and landscaping, we

have actually done quite well,” Alava says.

A similar turnover has also taken place

in the Professional Growing business area.

“The start of the year was difficult in terms of

both demand and profitability, but things are

improving now,” Alava explains.

Investments in Asia and China“When times were tight in our home markets,

we turned our focus more to the rapidly grow-

KEKKILÄ GROUP

53Vapo 1.1.2013–30.4.2014

Kekkilä is also involved in the development of a new

certification system for responsibly produced peat (RPP).

The aim is to create a pan-European certificate that can

only be obtained by producing peat in an environmen-

tally responsible manner. Kekkilä is on the RPP Board of

Directors as a representative of the European Peat and

Growing Media Association (EPAGMA) to work on the

development and implementation of the system. The

certification system is currently being tested with the aim

of implementing it in late 2014.

Kekkilä for professional growersKekkilä’s professional growing business consists

of the global sales of peat-based garden sub-

strates aimed at greenhouse farmers in particular.

In total, Kekkilä Group’s products were sold to 67

countries during the financial year. Products for

professional growers are produced at the Group’s

factories in Finland, Estonia and Sweden. Kek-

kilä’s garden substrates are used to grow over

seven billion seedlings per year, or one seedling

for every human inhabitant of Earth.

Kekkilä for consumersKekkilä’s consumer business consists of the

sale of gardening products for home garden-

ers in Finland, Sweden, Norway, Denmark,

the Baltic countries and Russia. The direct

customers are primarily comprised of retail

chains and private gardening product retail-

ers, although the products themselves are

aimed at individual gardening enthusiasts.

The product range includes soil and fertiliser

products, also available in organic vari-

ants, as well as mulches, sand and border

stones. The Home & Garden product family

shrub supports to stylish garden sheds. The

products are suitable for both garden and

balcony growers. The latest products aimed

at consumers are composters and ecologi-

cal toilets.

Responsibly produced

A short season

ing South American and Asian markets. In

these markets, we have invested in product

development, products as well as distribu-

tion channels, as our goal is to become a

significant player in these growing markets,”

Alava says.

According to Alava, Kekkilä has increased,

and will continue to increase, its investments in

developing special products for these markets.

The company believes that markets such as

food production in Asia and sapling growing in

South America have potential for substantial

growth, even in the longer term.

The consumer is kingIn the current economic situation, there is no

automatic growth in the consumer segment in

any Nordic market. According to Alava, Kekkilä

nevertheless wants to see its consumer busi-

ness grow. “We still believe that growth can be

achieved through skilled work with customers

in different distribution channels, by launch-

ing new and interesting products targeted at

demanding consumers, and by taking good

care of our brand,” he says.

To illustrate this approach, he highlights

two product groups that have been assigned

higher growth targets than other categories.

“Special soil products are a very important

product category for our consumer customers.

We have developed, and are introducing to

the market, new soil products, the market-

ing of which is focused on making it easy for

consumers to buy precisely the product that

suits their needs,” Alava explains.

Another product category that will be

expanded substantially is composting-based

toilet solutions. As in any other product group,

it is not enough that the product is good and

inexpensive. “Buyers want stylish, ecologi-

cal and highly functional solutions, and that

is what we will be introducing to the market,”

Alava promises.

“In addition to development projects in dif-

ferent business areas, we are also implement-

ing a joint programme with our parent group to

improve the cost-efficiency and quality of our

operations. The project is aimed at achieving

an annual efficiency improvement of EUR 2

million.” According to Alava, the key compo-

nents of the programme are improving general

productivity, minimising and better utilising

waste and by-product streams in production,

optimising the maintenance of production fa-

cilities, and better capacity management. “The

results are already beginning to show. All in all,

the future looks bright in our different business

areas and markets,” Alava concludes.

The peak season for the consumer business is April–May. Approximately half of the entire season’s sales volume is accumulated during this two-month period.

54Vapo 1.1.2013–30.4.2014

Research and development pursues future growth

The aim is to improve the use properties of

the products for consumers and make the

work of retailers easier

Ensuring the quality and produc-

tion ability of the entire operat-

ing chain in all conditions is a

significant development area for

Kekkilä Group. The investments

have resulted in a clear decrease in quality

deviations, which can be seen as improved

customer satisfaction, says Tiia Kujanpää,

Brand and Portfolio Director at Kekkilä Group.

In order to ensure uniform quality, all Kekkilä

Group countries have adopted a new common

quality management system.

According to Kujanpää, Kekkilä has

significantly increased its R&D investments

in its largest product category, soil products

for consumers and new growing solutions.

”The aim is to improve the use properties of

the products for consumers and make the

work of retailers easier by adding even more

unambiguous information on the purpose of

use of each special soil on the packaging,” Ku-

janpää says. According to Kujanpää, another

significant area of product development is

next-generation composting ecological toilet

products whose demand is growing clearly

in consumer markets. Consumers appreciate

eco-friendliness and recyclable materials.

According to Kujanpää, essential aspects

of the development of recyclable materials

include the utilisation of materials from byprod-

ucts of the raw material industry as materials

to supplement garden substrates.

South America and the Far East are

extremely promising market areas in the

professional growing business. However, these

markets require products that have been re-

searched and tested well in advance to ensure

that they will optimally serve the growers of

special plants in the local conditions. Regard-

less of whether they are growing eucalyptus or

salad, Kujanpää says.

According to Kujanpää, cooperation with

gardening schools and companies that use

Kekkilä Group’s products is a new interest-

ing area. “In this area, business development

has been continued by creating service and

product concepts for urban and balcony

gardening for consumer customers with Aalto

University and by developing a new type of

food growing-based offering for construction

companies to use in new residential projects,”

Kujanpää says.

KEKKILÄ GROUP

55Vapo 1.1.2013–30.4.2014

Kekkilä Organic fertilizer is a plant-based fertilizer that is

suitable for any home, garden and balcony plants.

Composter latrine is an exquisite and

clean solution for year-round use.

The Kekkilä Raised Grow Box is suitable for

growing herbs, vegetables, strawberries and

summertime flowers on balconies and terraces.

56Vapo 1.1.2013–30.4.2014

Many people have won-

dered why the biodiesel

plant project planned

for Ajos in Kemi is not

moving forward. Why is it

so difficult to find funding and developers for

such a good idea? This is the short history

of a project that has truly had its ups and

downs. The project is currently frozen, but

could it still be resurrected? That depends on

legislation and the price of crude oil.

Producing liquid fuel from coal or natural

gas, known as the Fischer-Tropsch process,

was developed in Germany. The functionality

of the process was proved in exceptionally

challenging conditions during the Second

World War by the German as well as the Jap-

anese military, which both produced transport

fuel from coal. A more recent example is

South Africa, which produced its own liquid

fuel from natural gas during the embargo.

In the early 2000s, studies began in Fin-

land to determine whether we could produce

transport fuel from wood and peat, resources

that we have plenty of. The process involves

the gasification of wood or peat, followed

by the gas being cleaned to create synthe-

sis gas comprised of hydrogen and carbon

monoxide. The clean synthesis gas is then

converted into high-quality diesel fuel using

the Fischer-Tropsch method.

Renewable or non-renewable?Aivan At the beginning of the 2000s, the

EU classified peat as a slowly renewable

biofuel. If this classification were still in effect,

peat and wood would still be converted into

diesel at multiple plants in Finland today. In

2002, the Grand Committee of the Finnish

Parliament discussed whether or not peat is

renewable. The vote following the discus-

sion was even, resulting in this trivial decision

being made by drawing lots. The outcome

of chance was that peat is not renewable

and therefore not within the scope of various

automatic subsidies for renewable energy.

At the time, work was only just begin-

ning on developing calculation formulae for

determining the criteria biofuels should meet.

In 2006, the drafting of these various sets

of criteria reached the conclusion that if the

emissions from a biomass fuel were at least

35 per cent lower than those of a transport

fuel produced from crude oil, the fuel would

qualify as environmentally friendly biodiesel.

This was the situation in 2007, the year

Vapo and Metsäliitto launched a joint bio-

diesel project. The aim was to bring together

existing technologies in a new way, patent

the innovation and then produce biofuel for

transportation using peat, pine oil and pruned

energy wood trunk as raw material.

Aiming to build the first second-generation biofuel plant in the Baltic Sea regionThe biofuel project moved ahead in spite

of the European Parliament Committee on

Industry, Research and Energy rejecting Fin-

land’s efforts to reclassify peat as renewable

energy in 2008. At the time, it was calculated

that if peat was collected from ditched peat-

lands and the lifecycle period was 300 years,

the criteria would be satisfied.

Metsäliitto and Vapo began a preliminary

on this basis. The aim at the time was that

the investment decision on constructing the

plant could even be made during 2010. The

search for a suitable location began, and

environmental impact assessments were

initiated in Kemi and Äänekoski in Finland,

Jönköping in Sweden, and Kunda in Estonia.

The goal was to produce biofuel from peat

collected from ditched peatlands and from

various forest-based energy waste including

pine oil and reed canary grass.

Kemi selected as the locationIn the end, peat was eliminated from the list

of planned raw materials as it did not meet

the new EU criteria for biofuels. Regardless of

this setback, Metsäliitto and Vapo continued

to move ahead with the project via Forest

BtL, a joint project in which each party held

a 50 per cent stake. BtL is short for “From

Biomass to Liquid”.

The advantages of the joint project

between Metsäliitto and Vapo were consid-

A good idea stumbles on EU legislation

In the early 2000s, studies began in Finland to determine

whether we could produce transport fuel from wood and

peat, resources that we have plenty of.

BIODIESEL PROJECT

57Vapo 1.1.2013–30.4.2014

ered to be its technological excellence and

the fact that it did not need to be supported

by a completed pulp plant, a combined power

and heating plant or other source of energy,

but instead could be built anywhere as an

independent unit, with a concept that could be

easily duplicated. The Ministry of Employment

and the Economy chose the project as one of

three Finnish projects for which NER300 fund-

ing was sought from the EU.

In July 2011, the project had reached the

stage where Ajos in Kemi was selected as the

plant’s location. The plans at the time were for

a EUR 500 million project that would produce

some 100,000 tonnes of high-quality biodiesel

annually for use as transport fuel in all weather

conditions, including cold winters. The fin-

ished plant would employ approximately 200

people, with many more employed during the

construction stage.

Finland has committed to the target of

20 per cent of transport fuels being from

renewable sources by 2020. The requirement

for renewable biodiesel amounts to some

400,000 tonnes. As the Kemi plant would not

use raw material that is in competition with

the food chain, the end product would be ad-

vanced biodiesel subject to “double counting”,

allowing the Ajos plant to meet half of Finland’s

requirement for renewable diesel in 2020. The

oil market being a global market, the potential

market area for the Ajos plant was the entire

Baltic Sea region. However, the project’s

implementation was contingent on receiving

EU subsidies.

Metsä Group pulls outIn June 2012, Metsä Group carried out an

overall assessment of its investments and de-

cided it would not invest in this fairly substan-

tial project. According to Metsä Group, there

was no single reason for the decision related

to the project itself, but rather, the decision

was due to the Group wanting to focus on

other investment targets.

As the project planning for the Ajos

plant in Kemi had progressed quite far, Vapo

decided to continue the project on its own.

Potential EU subsidies were still considered

a crucial factor in the project. The view held

at the time was that, if the subsidies were

granted, the project would attract both oper-

ating partners as well as financers.

In August 2012, the EU’s decision was

that Vapo’s project was deemed the best in

its category, and it was awarded a subsidy

of EUR 88.5 million. The subsidy would be

paid against production. As Metsä Group’s

withdrawal from the project eliminated certain

raw materials, such as pine oil, from the

plans, the project plans were changed to

specify three gasification units instead of two

in order to secure the production capacity

required for the subsidy. This also resulted

in the plant investment increasing from EUR

500 million to EUR 700 million.

Anchor investors neededWhile Vapo was putting the final touches on

the project plans and presenting the project

to potential industrial partners, financers and

distributors, it awaited the EU’s final decision

on what category the end product would be

classified in based on the raw material used.

In the case of an end product for which

demand and pricing is determined by politi-

cal decision-making, it is highly significant

whether the end product’s raw material is

classified in the advanced waste-based

category, or the first-generation category,

which includes raw materials such as palm oil.

If the end product, based on the raw material

used, is classified in the advanced category,

the value of the annual production capacity is

EUR 200 million higher.

This categorisation is affected by legisla-

tion currently being drafted in the EU related

to land use changes in fuel production. This

ILUC (Indirect Land Use Change) issue and

the related political uncertainty has severely

complicated efforts to find anchor investors

and end product buyers for the project. The

approval of the Directive has been prolonged,

and it is currently impossible to estimate when,

and with what content, the Directive will be

discussed again by the European Parliament.

In January 2014, the European Com-

mission published its new 2030 climate and

energy policy framework. The main principle is

that, at the EU level, the target is a reduction

baseline. The framework does not give any

indication of whether binding EU-level obliga-

tions for biofuel use will be set post-2020.

Finland has announced it will retain its national

biofuel obligation, but nevertheless, the market

potential of the biodiesel produced at Ajos

shrank from over 20 million tonnes (total de-

mand in the EU) to 400,000 tonnes (demand

in Finland), which the existing market capacity

can meet many times over.

In this uncertain political decision-making

environment, investors, financers and end

product buyers were not prepared to bear the

legislative risk related to end product demand

and pricing, and were therefore not prepared

to conclude binding long-term agreements.

As Vapo itself does not have the resources to

carry out the investment, it decided to freeze

the project in February 2014.

The Ministry of Employment and the Economy chose the project as one of three Finnish projects for which NER300 funding was sought from the EU.

58Vapo 1.1.2013–30.4.2014

Financial period in short Target for Equity ratio was reached and target for cash flow was exseeded.

Low production of peat in summer 2012 ruined the possibility to reach the

EBITDA-target

Key figures 5/2013–4/2014

Milj. euroa 2009 2010 2011 2012 5/13–4/14 FY2014

Turnover 573.7 705.0 596.2 847.4

Operating margin EBITDA 76.4 52.2 76.6 110.9

% of turnover 13.3 12.7 5.6 8.0 12.8 13.1

Operating profit EBITA 41.2 –44.3 24.4 50.1

% of turnover 6.1 5.7 –6.3 1.4 4.1 5.9

Operating profit (EBITA) before impairments 35.0 47.5 28.2 53.9

% of turnover 6.1 6.6 –1.0 1.5 4.7 6.4

Pre-tax free cash flow –21.6 –11.4 20.5 64.2 19.4 54.2

Return of invested capital (ROIC) % 5.4 5.7 –,6.1 1.4 3.6 3.9Return of investment capital (ROIC) before impairments% 5.4 6.6 1.4 4.2 4.4

Equity ratio % 37.5 33.3 39.4 39.4

Gross investments 48.0 65.0

Average number of personnel 1,451 1,333 1,226 1,154 1,091Depreciations / net sales % 7.2 6.1 6.6 6.4 6.9 6.4

x1/

+

09 10 11 12

5.46.6

–0.9

4.2

1.4

5/13

04/14

09 10 11 12 13

6.1 6.6

–1.0

1.5

5/13

04/14

4.7

09 10 11 12

13.3 12.7

5.6

8.0

12.8

5/13

04/14

09 10 11 12

25 2523

19

24

5/13

04/14

09 10 11 12

0.90

1.000.97

0.920.90

5/13

04/14

09 10 11 12

7.2

6.16.6 6.4

6.9

5/13

04/14

09 10 11 12

88

7580

88 87

5/13

04/14

-

Pre-tax ROIC %

Operating profit %

Capital turnover

Net working capital %

Depreciation %

Fixed assets %

EBITDA %

Return on invested capital

depends on the operating profit

of the operating profit rate is the

operating margin ratio (EBITDA

13.1%), as depreciations (6.4%)

have remained largely unchanged

from one year to the next. The

capital turnover rate is affected by

the amount of net working capital,

such as receivables and inventories

(21.7%), and fixed assets (85.8%),

such as machinery and equipment.

Return on invested capital (ROIC) before impairments, %

FINANCIAL PERIOD IN SHORT

59Vapo 1.1.2013–30.4.2014

Return on invested capital (ROIC) before impairment %

Equity ratio %

Return on invested capital (ROIC) is the main indicator

of profitability in Vapo’s capital-intensive industries as it

takes invested capital into account in addition to operat-

ing profit. ROIC reflects the company’s ability to create

shareholder value, meaning that it should be higher than

the weighted average cost of capital (WACC). Vapo’s

WACC is approximately 7%. ROIC has not reached the

target level in recent years. At the end of the 2014 finan-

Equity ratio measures a company’s solvency and toler-

ance for losses and indicates the extent to which the

company’s assets are financed by equity. Due to nega-

tive cash flow, Vapo’s operations have been financed by

debt, which has led to a considerably weakened equity

ratio in 2008–2011. The efficiency improvement pro-

gramme implemented by the Group in recent years has

strengthened cash flow, reduced debt and improved the

financial year.

Operating profit (EBITA) before impairment, EUR million

Operating profit shows the profitability of business op-

erations and largely determines the return on invested

capital, among other things. EBITA before impairment

over a 12-month period has fluctuated between EUR

a mean value of EUR 22.0 million. Fluctuations are

caused in particular by the dependence on weather in

the peat and heat business and the cyclical nature of

sawmill operations.

09 10 11 12

05/1304/14

35.0

47.5

28.2

9.8

–6.9

09 10 11 12

05/1304/14

5.46.6

1.4

4.2

–0.9

Pre-tax free cash flow, EUR million

Pre-tax free cash flow illustrates changes in invested capital in ad-

was primarily due to investments clearly exceeding depreciation.

In 2011, cash flow was positive as net working capital and re-

ceivables in particular decreased significantly. In 2012, cash flow

improved as the result of reductions in investments, divestment

of non-core fixed assets and a decrease in working capital. In the

2014 financial year, the Group continued to divest non-core busi-

nesses and assets and minimised all investments except invest-

ments in the protection of waterways. A further factor contributing

to the strong positive cash flow was the good operating margin

level.

09 10 11 12

05/1304/14–21.6

–11.4

64.2

19.420.5

09 10 11 12

05/1304/14

39.1 37.5 36.9 39.433.3

60Vapo 1.1.2013–30.4.2014

Vapo Group Management

VAPO´S MANAGEMENT AND BOARD OF DIRECTORS

Managing Director Tomi Yli-Kyyny,

Chairman

With Vapo since 2011

Pasi KoivistoBusiness Area Director, Vapo Peat Products


Suvi Kupiainen

M.Sc. (Econ. & Bus. Adm.)

Chief Financial Officer


Markus HassinenBusiness Area Director, Vapo Heat and Power


Juhani Ylä-SahraBusiness Area Director, Wood Energy

Managing Director, Vapo Timber Oy

61Vapo 1.1.2013–30.4.2014

Mia SuominenScience (Agriculture and Forestry)

Environmental Director. With Vapo since 2006

Ahti MartikainenDirector, Communications and Public Affairs. With Vapo since 2011

Pirjo NikkiläPsychology), Director, Human Resources


Kari Poikolainen

Master of Laws

Matti Puuronen(Eng.)

Managing Director, AS Tootsi Turvas

Torbjörn Claesson(Eng.)

Managing Director, Neova AB


Jyrki VainionpääChief Operating Officer. With Vapo since 2011

Petri AlavaManaging Director, Kekkilä Oy


62Vapo 1.1.2013–30.4.2014

Members of the Board of Directors

Chairman of the Board of DirectorsJuho Lipsanen

Relevant concurrent positions of trust: Ilmatar Windpower Oyj, Chairman of the

Board; Nestor Cables Oy, Chairman of the

Board; Raskone Oy, Chairman of the Board;

Setera Oy, Chairman of the Board; Aidon Oy,

Board Member; A-lehdet Oy, Board Member;

Coronaria Hoitoketju Oy, Board Member;

Helsingin Pörssiklubi, Board Member; Isku

Oy, Board Member; Marva Group, Board

Member

Recent work history: TeliaSonera Finland,

President 2005–2008; Alma Media, President

ABB Automation, CFO; ABB New Ventures,

President

Vapo Oy, Chairman of the Board of Directors

2008–

Chairman of the Remuneration Committee

2008–

Vice Chairman of the Board of DirectorsPerttu RintaCommercial Counsellor,

Managing Director, Suur-Savon Sähkö Oy

Relevant concurrent positions of trust: Alma Media Oyj, Board Member; Energiateollisuus ry, Board Member; Kymppivoima Oy, Board Member; Järvi-

Suomen Voima Oy, Vice Chairman of the

Board; Suur-Savon Sähkötyö Oy, Chairman

of the Board; Ilkka-Yhtymä Oyj, Vice

Chairman of the Supervisory Board

Vice Chairman of Vapo’s Board of Directors

Chairman of the Audit Committee 2011–

Members

Risto KantolaManaging Director, Keskusosuuskunta Oulun

Seudun Sähkö

Relevant concurrent positions of trust: Eltel Networks Pohjoinen Oy, Board Member;

Svartisen Holding AS, Board Member;

Eastern Norge Svartisen AS, Board Member;

Kymppivoima Oy, Board Member;

Kymppivoima Hydro Oy, Board Member;

Voimapato Oy, Board Member; Rapid Power

Oy, Board Member; Oulun Seudun Sähkö

Verkkopalvelut Oy, Chairman of the Board;

Pohjois-Suomen Voima Oy, Chairman of the

Board

2013-

Member of the Remuneration Committee

2013–

Minna Pajumaa,(Econ.), CEFA

Senior Financial Specialist, Prime Minister’s

Office

Relevant concurrent positions of trust: Suomen Lauttaliikenne Oy, Board Member;

Easy Km Oy, Board Member

Relevant work experience: HSH Nordbank

AG, Client Executive, 2004–2008;HSH

Nordbank AG, Project Manager, 2002–2004;

-

sentative Singapore,

Assistant Regional Representative Hong

Kong and other tasks

Board Member at Vapo 2013–

Member of the Audit Committee 2013–

Arto SutinenManaging Director, Oulun Sähkönmyynti Oy

Relevant concurrent positions of trust: Yli-Iin Sähkö Oy, Board Member; Oulun

Energia Urakointi Oy, Board Member; Liiken-

nevirta Oy, Board Member; Haukiputaan

Energia Oy, Vice Chairman of the Board

Relevant work experience: Oulun Energia Group, Business Area Director 2013-; Oulun Energia Group, Director of Business

development and communication 2011–;

Sulake customer magazine, Chief editor

2010–; Oulun Energia Group, Director of

Finance and administration; Oulun Energia,

Business controller

Member of Vapo’s Board of Directors 2012–

Member of the Remuneration Committee

2012–

Marja Tuderman,(Eng.), CEFA

Director Green Resources AS

Relevant work experience: UPM Vice Presi-

dent Environmental Affairs and CSR; Vice

President Investor Relations

Member of Vapo’s Board of Directors 2011–

Member of the Audit Committee 2011–

The Members of the Board of Directors do

not own shares in Vapo.

VAPO´S MANAGEMENT AND BOARD OF DIRECTORS

Board of Directors

63Vapo 1.1.2013–30.4.2014

Vapo Oy is a Finnish non-listed joint-stock

company which complies with the Finnish

Limited Liability Companies Act, and its Arti-

cles of Association and Shareholders’ Agree-

ment in its decision-making and manage-

ment. In addition, Vapo Oy complies with the

recommendation of the Finnish Ownership

Steering Department in Corporate Govern-

ance matters in publicly owned and affiliated

companies and, where applicable, the

Finnish Corporate Governance Code 2010

issued by the Securities Market Association.

The Vapo Group’s administrative bodies

are the general meeting of shareholders, the

Supervisory Board, the Board of Directors,

the Chief Executive Officer and the boards

and managing directors of its subsidiaries.

Vapo Oy’s Board of Directors appoints the

members of the boards of directors of its

subsidiaries and other Group companies.

The management of the Vapo Group aims to

use straightforward solutions.

The operations of Vapo Oy’s business

areas (Peat Products, Wood Energy, Heat

and Power) are managed by the directors of

each division, who report to Vapo Oy’s Chief

Executive Officer. The operational manage-

ment of Kekkilä Oy, Vapo Timber Oy, Neova

AB and AS Tootsi Turvas is the responsi-

bility of the respective managing directors

of these subsidiaries, who report to the

company’s Board of Directors (in Estonia, to

the Supervisory Board of AS Tootsi Turvas).

The Chief Executive Officer of Vapo Oy acts

as the chairman of these boards of directors.

Apart from the Group companies where

Vapo Oy’s Chief Executive Officer acts as a

Board member, the chairman of the Board of

Directors is Vapo Oy’s Business Area Director

or the managing director of the subsidiary to

whose business the company’s operations

are most closely associated.

Corporate Governance

General meeting of shareholdersThe highest decision-making body in the

Vapo Group is Vapo Oy’s general meeting

of shareholders. In accordance with the

Articles of Association, the General Meeting

is convened by registered letter to the

shareholders sent to the address in the share

register no later than eight days before the

meeting.

The issues discussed by the Annual

General Meeting include the following:

Adopting the financial statements and

consolidated financial statements

Decision on distributable assets

Determining the number of members of

the Supervisory Board and the Board of

Directors and their election

Discharging the members of the Supervi-

sory Board and the Board of Directors as

well as the Chief Executive Officer from

liability

Election of the auditor

Deciding on the remuneration payable to

members of the Supervisory Board, the

Board of Directors and the auditors

The Annual General Meeting was held in

shareholders’ representatives, the Chairman

of Vapo’s Board of Directors and Vapo’s Chief

Executive Officer were present.

An Extraordinary General Meeting held

company’s financial year to 1 May – 30 April

and further decided to extend the financial

year that began on 1 January 2013 until 30

April 2014. In conjunction with the change,

the company will abandon quarterly reporting

in favour of thrice-yearly reporting.

Supervisory BoardVapo Oy has a Supervisory Board consisting

of a minimum of eight and a maximum of

ten members elected by the Annual General

Meeting for a term of one year, and three

employee representatives elected by the

personnel for a term of two years.

The tasks of the Supervisory Board are:

To supervise the administration of the

company carried out by the Board of

Directors and the Chief Executive Officer

To issue a statement to the Annual General

Meeting on the Statement of Accounts

and Auditor’s Report

To provide instructions to the Board of

Directors on matters that have far-reaching

consequences and involve important

primary issues

To issue a statement to the general

meeting of shareholders on matters where

the Finnish Limited Liability Companies Act

requires a statement by the Supervisory

Board

The Supervisory Board convened five

times during the financial year 1 January

2013–30 April 2014. The average attendance

rate was 78%.

At the Annual General Meeting of 2013,

the following persons were elected as

members of the Supervisory Board:

Pentti Oinonen, Member of Parliament, Chairman

Heikki Miilumäki, D.Sc. (Tech.) h.c., Deputy Chairman

Mikko Hentinen, Managing Director

Antti Kaikkonen, Member of Parliament

Eero Kubin, Customer Manager, Professor

Esko Kurvinen, Member of Parliament

Jukka Kärnä, Member of Parliament

Janne Sankelo, Member of Parliament

Simo Salmelin, Provincial Counsellor (hon.)

Anni Sinnemäki, Member of Parliament

CORPORATE GOVERNANCE

64Vapo 1.1.2013–30.4.2014

Deciding on major investments by the

Group companies, other long-term

expenses, assignments of property and

financing arrangements according to set

budgets given in euros

Deciding on significant expansions and

reductions of operations

The Board of Directors annually monitors

and assesses its work internally.

The Board of Directors convened 20 times

during the extended financial year 1 January

2013–30 April 2014. The average attendance

The Board of Directors after the Annual

General Meeting of 2013 was:

Chairman of the Board of Directors

Commercial Counsellor, Deputy Chairman of the Board of Directors

Managing Director

CEFA, Senior Financial Specialist

member

member

Additional information on the members of

the Board of Directors can be found on page

62.

All members of the Board of Directors are

independent of the company.

Remuneration of the Board of DirectorsIn accordance with the resolutions of the

Annual General Meeting of 2013, members

of the Supervisory Board are paid monthly

remuneration and a fee for each meeting.

The Chairman of the Board of Directors was

paid EUR 2,750, the Deputy Chairman EUR

month. A meeting fee of EUR 500 is paid for

both Board and Board committee meetings.

Travel costs are reimbursed on presentation

of a receipt.

CommitteesThe Board of Directors appoints two perma-

nent Committees from among its number:

the Audit Committee and the Compensation

Committee.

Audit Committee in the financial year 1 January 2013–30 April 2014The task of the Audit Committee is to

prepare, direct and evaluate financial

reporting and audit as well as internal

audits and risk management, legal risks

and internal control systems. The Audit

Committee is comprised of three members

appointed by the Board of Directors from

among its number. The members of the Audit

Committee in the financial year 1 January

2013–30 April 2014 were:

Managing Director Perttu Rinta, Chairman

Managing Director Martti Haapamäki,

Minna Pajumaa, Senior Financial Specialist, as

Director Marja Tuderman, member

The Audit Committee convened 6 times

during the financial year 1 January 2013–30

April 2014, and the average attendance rate

was 88%.

Compensation CommitteeThe task of the Compensation Committee

is to propose a management salary and

remuneration system to the Board of Direc-

tors and prepare any significant organisation

and appointment issues. The Compensation

Committee is comprised of three members

appointed by the Board of Directors from

among its number. The members during the

financial year 1 January 2013–30 April 2014

were:

Juho Lipsanen, M.Sc. (Econ.), Chairman

March 2013

Arto Sutinen, Managing Director

Compensation of the Supervisory BoardIn accordance with the resolutions of the

Annual General Meeting of 2013, members

of the Supervisory Board are paid a fee for

each meeting. The Chairman receives EUR

800, the Deputy Chairman EUR 600 and the

other members EUR 500 per meeting. Travel

costs are reimbursed on presentation of a

receipt.

Board of DirectorsVapo Oy’s Board of Directors is respon-

sible for managing and supervising Vapo in

accordance with the Finnish Limited Liability

Companies Act, the company’s Articles of

Association, the Board’s Standing Orders

and the shareholders’ instructions. Vapo’s

Board of Directors comprises a minimum

of four and a maximum of eight members

elected by the Annual General Meeting for a

term of one year. The Chairman is elected by

the Annual General Meeting.

The Board of Directors follows a ratified

agenda with the following main points:

Preparing the matters to be submitted to

general meetings of shareholders and the

Supervisory Board

Defining and ratifying the long-term goals

and strategies of the Group and its busi-

ness areas

Approving the operational, investment and

financial plans for the business areas for

the current financial period and monitoring

the reporting related to the plans

Seeing to the accounting of the Group,

including the policies applied in the prepa-

ration of the financial statements

Creating the necessary organisational

structure and appointing the Chief Execu-

tive Officer, the Group’s Business Area

Directors and the Directors of the Group

Support units, as well as deciding on their

remuneration

Approving the operational policies and

monitoring their implementation

Organising internal auditing

Acquisitions and related practices


65Vapo 1.1.2013–30.4.2014

The Compensation Committee convened

7 times during the financial year 1 January

2013–30 April 2014, and the average attend-

ance rate was 100%.

Chief Executive OfficerThe Chief Executive Officer makes deci-

sions both independently and supported by

Vapo Oy’s management team / the Group

management within the limits of the powers

laid down by the Finnish Limited Liability

Companies Act and by the Board of Direc-

tors, and prepares proposals to be submitted

to Vapo Oy’s Board of Directors.

The tasks of the Chief Executive Officer

include:

The day-to-day management of the

company and the Group in accord-

ance with the Articles of Association, the

Finnish Limited Liability Companies Act

and instructions issued by the Board of

Directors

Reporting to the Board of Directors and

the Supervisory Board

Responsibility for the preparation of the

Group’s strategy and business plans and

presenting them to the Board of Directors

for approval

Informing the Board of Directors of the

company’s operations and financial posi-

tion on a regular basis

Presenting matters to be decided on to the

Board of Directors, unless this is delegated

to the Business Area Director concerned

Presenting matters to be dealt with by the

Board Committees

Vapo Oy’s management teamVapo Oy has a management team appointed

by Vapo Oy’s Board of Directors, supporting

the Chief Executive Officer in his work. Its

tasks are:

Deciding on investments and acquisitions

within the limits of authority approved by

the Board of Directors.

Ensuring that the decisions made by the

governing bodies are implemented in an

appropriate manner in the organisation.

Assisting Vapo Oy’s Chief Executive Officer

in preparing for Vapo Oy’s Board meetings

and investigating all matters which the

Chief Executive Officer has ordered it to

investigate.

Actively promoting cooperation between

the Business Areas and agreeing on joint

principles and development measures in

Group management.

The management team convenes at least

twice a month as summoned by the Chief

Executive Officer.

Vapo Oy’s management team

on 30 April 2014

Tomi Yli-Kyyny, Chief Executive Officer

Pasi Koivisto, Business Area Director, Vapo Peat Products

Markus Hassinen, Business Area Director, Vapo Heat and Power

Juhani Ylä-Sahra, Business Area Director, Vapo Wood Fuels

Jyrki Vainionpää, Chief Operating Officer, Finland

Ahti Martikainen, Director, Communications and Public Affairs

Pirjo Nikkilä, Director, Human Resources

Kari Poikolainen, Chief Legal Counsel

Mia Suominen, Environmental Director

Suvi Kupiainen, Chief Financial Officer

Remuneration of senior managementThe Board of Directors decides on the salary

and remuneration policy for the Group’s

senior management. CEO Tomi Yli-Kyyny’s

monthly salary including fringe benefits is

EUR 27,704. It was agreed in 2013 that, in

addition to monthly salaries, an incentive

bonus of up to 20–40% of the annual salary

may be paid to the CEO, members of the

Group Management Team and certain Busi-

ness Area Directors. In accordance with the

decision of the Board of Directors, the main

principles used to determine this incentive

bonus are linked to Vapo Group’s profit and

cash flow.

The CEO’s period of notice is six months if

he is dismissed by the Board of Directors, in

addition to which he is entitled to compensa-

tion corresponding to 12 months’ salary. If

the Chief Executive Officer resigns, the period

of notice is six months.

The CEO is entitled to retire at the age of

63.

The total salary paid to CEO Tomi Yli-

1 January 2013–30 April 2014, including

EUR 50,000 incentive bonuses from previous

fiscal year.

During the financial year 1 January

2013–30 April 2014, the Group Manage-

ment Team (excluding the CEO) was paid a

total of EUR 1,660,871 in salaries and other

remuneration. Based on the results reported

in the interim report prepared at the end of

2013, bonuses may be paid to individual

Management Team members according to

each one’s personal score card results.

Members of the Group’s management,

including the Chief Executive Officer, are

covered by the pension scheme provided

by the Employees’ Pensions Act. In addition

to this, members of Vapo Oy’s Management

Team are entitled to a defined contribution

collective supplementary pension insurance

to which Vapo contributes an amount equiva-

lent to 10% of their total annual salary (12

x monthly salary) excluding bonuses every

year. The company has an agreement with a

pension insurance company on said supple-

mentary pension rights.

The remuneration paid to external

members of the boards of directors of the

subsidiaries is determined by Vapo Oy’s

Board of Directors. Members of the board

of directors of the subsidiaries employed

by Vapo are not usually paid separately for

their membership. Members of the boards of

directors of affiliates or subsidiaries who are

employed by Vapo can be paid a fee when it

is justifiable to ensure equality between them

and the other members. The principles for

the fees are agreed upon by Vapo Oy’s Board

of Directors, and the Board of Directors


66Vapo 1.1.2013–30.4.2014

issues a recommendation concerning remu-

neration for review by the general meeting of

shareholders of the company in question.

The company does not have share option

plans.

Remuneration of personnel During the financial year 1 January 2013–30

April 2014, the company personnel were not

paid incentive bonuses on the basis of results

for 2012, except for certain personal sales

and environmental bonuses. Based on the

results reported in the interim report prepared

at the end of 2013, bonuses were paid to

individual Management Team members

according to each one’s personal score card

results at a total amount of EUR 1,231,757.

Internal controlThe aim of internal control is to ensure that

the Group companies operate in an effective

and profitable way so that the information

given is reliable and that regulations and

operating principles are observed.

Operations are managed and monitored

on a monthly basis, primarily by business

area and secondarily by company. Reviewing

the financial period under way and rolling

monthly forecasts is an essential component

of the control and monitoring process.

At the Group level, the control activities

are managed by the Chief Financial Officer

(CFO), at the level of companies by the

managing directors and at the level of busi-

ness areas by the management of the busi-

ness areas. The implementation of control is

the responsibility of controllers appointed for

the business areas and companies in ques-

tion operating under the CFO who, together

with the managing directors and operational

management, see to business transactions

being entered in the systems in a timely

manner and reported appropriately and effi-

ciently, complying with the separately issued

Group guidelines on the content of internal

control and reporting.

Internal auditThe internal audit function independently

and objectively assesses and ensures the

appropriateness and functionality of the

Group’s internal control system, appropriate-

ness and efficiency of the functions, reliability

of financial information and reporting as well

as compliance with rules, operating principles

and guidelines, and it provides the organisa-

tion with added value also by providing

consultation on these matters.

The internal audit reports are distrib-

uted to the Chief Executive Officer and the

Audit Committee who, if necessary, report

to the Board of Directors on separate

audits. Internal audit gives an account of its

observations to the entire Board of Directors

once a year, and it submits a summary of

its observations and an inspection plan for

the next six months to the Audit Committee

twice a year.

Vapo has a Director of Corporate

Audit who may employ external auditing

resources, if necessary. The Group’s auditor

and Director of Corporate Audit ensure

the compatibility of their respective audit

measures.

Risk managementThe aim of risk management is to identify,

measure and manage risks that may threaten

the company’s operations and the attainment

of objectives if they materialise, or open new

opportunities.

Risk management is part of normal busi-

ness activities, and all directors and persons

included in their organisations are responsible

for it. The development and implementation

of the Group’s risk management process and

the coordination of risk management activi-

ties are the responsibility of the Risk Manage-

ment Board, consisting of the Chief Legal

Counsel (CLC) as the chairman, the Chief

Financial Officer (CFO), Director of Corporate

Audit (CIC), two appointed members from

the business functions and the Group’s Risk

Manager as members. The Group has a

Risk Manager who reports to the Chief Legal

Counsel and the Risk Management Board,

and also acts as Compliance Officer.

The approach to risk management is

broad and aims to comprehensively identify

and manage risks. Risks are analysed

particularly carefully in strategic planning,

target-setting and in investment and project

plans. The operational management of the

companies and business functions is respon-

sible for reporting risks to the Risk Manage-

ment Board using the agreed reporting tools.

The Risk Management Board reports to Vapo

Oy’s Chief Executive Officer, Group manage-

ment, the Audit Committee and the Board of

Directors.

The main risks threatening the Group’s

diverse operations and the ways to prepare

for these risks are reported in the annual

reports published by the Group companies.

For additional information on risk manage-

ment, see page 67 (refer to risk management

section).

AuditThe Group’s audit is organised so that the

parent company’s Authorised Public Auditors

appointed by the general meeting of share-

holders carries out its audit through its own

global organisation throughout the Group.

The appointed firm of auditors is Deloitte &

Touche Oy, Authorised Public Auditors, with

Tapani Vuopala (APA) as the principal auditor.

The auditor is appointed annually by the

general meeting of shareholders in accord-

ance with the Articles of Association. Bids

for the auditing contract were requested in

during the financial year 1 January 2013–30

April 2014.

A more detailed description of Vapo

Group’s governance and management can

be found on Vapo’s website at: http://www.

vapo.fi/konserni/toimintaperiaatteet


67Vapo 1.1.2013–30.4.2014

Organisation of risk managementThe managing directors of the subsidiaries

and the directors of Vapo Oy’s business

functions are responsible for implementing

risk management according to plans and in

a way that benefits the business opera-

tions. The development of the Group’s risk

management process and the coordination

of risk management activities are the respon-

sibility of the Risk Management Board and

the Group’s Risk Manager. The subsidiaries’

managing directors and directors of business

Risk management

operations at Vapo Oy regularly report the

key risks related to their business to the

Group’s Risk Management Board. The Risk

Management Board reports the risks further

to the Group management, the Managing

Director, the Audit Committee and the Board

of Directors.

The members of the Risk Management

Board that supervises risk management work

are the Chief Legal Counsel (chair), the CFO,

Director of Corporate Audit, two appointed

persons from the business functions and

the Group’s Risk Manager. The Group has

a Risk Manager who reports to the Chief

Legal Counsel and the Risk Management

Board, and also acts as Compliance Officer.

During the financial year 1 January 2013–30

April 2014, the Risk Management Forum

convened a total of 20 times.

The most notable risks of Vapo Group and

its business areas are presented as a part of

Board of Directors Report, beginning from

page 75.

RISK MANAGEMENT

Responsibility according to CG:

Board of Directors

Audit Committee

CEO / Managing directors,

Subsidiary Boards

Compliance Function

A) BUSINESS RISKS

Strategic risks

Annual risks

Project risks

D) FINANCE AND DERI-VATE RISKS

C) DAMAGE AND HAZARD RISKS

B) OPERATIVE RISKS

RISK MANAGEMENT POLICY

Risk Management Forum

Vapo Risk Management

Risk Manager & Compliance Officer

Risk Management Forum (RHF)

Gives tools for risk analysis and harmonizes

risk management operations and reporting

Handles reported risks, gives statements and

reports forward to management

Gives statements about investment and risks

of investments for approval meetings (boards,

management teams)

Insurance

Safety Expert

Risk Management Development Program 2011–2016 (for damage and operative risks) and risk surveys (insurance company/broker/Vapo)

Production sites and offices

Risk analysis, risk management actions and responsibilities are done and determined within the businesses;

As a part of the strategy, budgeting, project planning and annual

reporting processes

CFO / Group Treasury

Risk analysis of finance

and derivate functions

Coordinates, supports, gives expert services, develops, makes summaries.

Risk Management in Vapo Group

68Vapo 1.1.2013–30.4.2014

Consolidated key figures

MEUR 1–4/2014 1–4/2013 1/2013–4/2014 1–12/2012 1–12/2011

Turnover 230.7 251.2 847.4 705.0

Operating profit (EBITA) 18.4 24.3 50.1 –44.3

% of turnover 8.0 5.9 1.4 –6.3

Operating profit (EBITA) before impairments 21.5 53.9

% of turnover 9.3 4.7 6.4 1.5 –1.0

Result for the period 5.4 18.8 22.4 6.1 –41.5

Operating margin (EBITDA) 32.1 36.6 110.9 52.2

+/- Change in working capital 18.4 8.7 –27.5 62.1

- Net investments 6.6 3.7 –29.1 –81.2

Free cash flow before taxes 57.1 54.2 64.2 20.5

Gross investments 17.8 4.2 65.0 48.0

Return on invested capital % * 3.9 1.4 –6.1

Return on invested capital % before impairments * 4.4 1.4

Return on equity % * 1.2 2.1 –12.8

Balance sheet total 786.9 801.7 862.8

Shareholders’ equity 298.6 288.5

Interest-bearing net debt 329.0 416.7

Equity ratio % 39.4 33.3

Interest-bearing net debt/operating margin 4.4 6.8 10.5

Gearing % 110.3 123.4 145.8

Average number of employees 1,091 1,154 1,226

*) Previous 12 months

Board of Directors’ report

BOARD OF DIRECTORS’ REPORT

69Vapo 1.1.2013–30.4.2014

Operating environmentVapo’s past financial year was exceptionally

16 months long, encompassing the period

from 1 January 2013 to 30 April 2014. The

comparison figures are from the 12-month

audited Financial Statements for 1

January–31 December 2012. In future, the

Group’s financial year will be 1 May–30 April.

Vapo Group will report its results every four

months. The reporting periods will be 1

May–31 August, 1 September–31 December

and 1 January–30 April.

Financial year in figures:Group turnover in the financial year 1

January 2013–30 April 2014 was EUR

January–31 December 2012).

million, or 13.1% of turnover (EUR 52.2

million, 7.5%).

The operating result was EUR 50.1 million,

1.4%). The operating result includes

15.3 million).

The pre-tax return on invested capital

(1.4%).

Free cash flow before taxes was EUR 54.2

million (EUR 64.2 million).

Gross investments were EUR 65.0 million,

ratio to depreciation 1.2 (EUR 48.0 million,

1.1).

0.6).

The equity ratio on 30 April 2014 was

Interest-bearing net debt on 30 April 2014

The ratio of interest-bearing net debt to

operating margin (net debt / EBITDA,

previous 12 months) on 30 April 2014 was

4.4 (6.8).

(14.8 TWh).

The Group’s main focus throughout the

financial year was on improving its efficiency

by selling non-core assets, cutting costs,

increasing working capital turnover and

cutting all investments except those related

to reducing the load on watercourses caused

by peat production.

Peat production in summer 2013 started

early in the spring and was successful as a

whole. Clearly more than 80 per cent of the

peat production target was achieved and

the quality was good. In all, Vapo Group’s

peat production in Finland amounted to 17.3

million cubic metres.

Demand for energy peat was exceptionally

low in autumn 2013 and spring 2014. Under-

lying reasons include the fact that the past

heating season was unusually warm. During

this period, only January was in line with the

normal long-term heating need.

The factors that reduced demand for

energy peat more significantly than outdoor

temperatures resulted from the energy tax

on peat that increased on 1 January 2013

and the low market price for electricity. Due

to these reasons, peat was replaced by

coal to a significant extent and hardly any

condensing power was produced from peat.

In its discussion on spending limits in March

2014, the Finnish Government cancelled

the peat tax increase in 2015, but this is

not enough to improve the competitiveness

of peat. Due to successful production and

decreased demand, Vapo had more than

seven TWh of energy peat stocked in Finland

at the end of the financial year.

Energy peat deliveries during the financial

important challenges facing the peat industry

at the moment are the decrease in produc-

tion areas due to the slow and increasingly

difficult permit application process as well

as clear decrease in competitiveness that

resulted from the energy tax increase.

There was oversupply of fuel wood and

the price level remained unsatisfactory. Vapo

Oy’s delivery volumes were at the same level

as in the previous year. Thanks to efficiency-

enhancing measures, profitability of opera-

tions improved and as a whole, operations

showed a profit.

No major changes occurred in the pellet

market. Domestic demand is picking up

especially due to larger heating plant invest-

ments. In the export markets, the price level

is still very unsatisfactory.

In the sawn timber market, the demand

in Finland is still low but in the main export

markets, that is: Europe and North Africa,

demand has increased. Despite the sale of

the Hankasalmi sawmill in January 2014, the

volume of sawn timber deliveries in the first

months of the year was at the same level

year-on-year. During the last months of the

financial year, Vapo Timber Oy’s profitability

turned positive for the first time in several

years.

The past financial year included two

springtime horticultural seasons. Due to the

late arrival of the spring, the spring 2013

was exceptionally short, whereas the spring

2014 started unusually early, especially in

Sweden. The economic recession in Finland

has decreased demand in the consumer

segment. However, in Sweden demand has

developed positively. As for our professional

growing business products, competition has

further intensified in all market areas.

Peat ProductsThe business area includes the energy and

environmental peat business operations in

Finland, Sweden and the Baltic countries.

The turnover of the Peat Products busi-

ness area in the extended financial year 1

January 2013–30 April 2014 was EUR 264.2

million (EUR 220.5 million in 1 January–31

December 2012). The operating result for

the period was EUR 56.8 million (EUR 32.4

million). The operating result includes one-off

items of EUR 8.0 million. Gross investments

totalled EUR 38.6 million (EUR 25.4 million).

The energy peat tax increase from EUR


70Vapo 1.1.2013–30.4.2014

of 2013 decreased demand by nearly a third.

Turnover from energy peat was EUR 235.5

million (EUR 183.2 million) and the operating

result was EUR 52.1 million (EUR 32.0

TWh (14.8 TWh). Of this, deliveries in Finland

were 14.1 TWh (13.0 TWh), in Sweden 1.4

TWh (1.3 TWh) and in the Baltic countries 0.4

TWh (0.5 TWh). Illustrative of the decrease in

the demand for energy peat is that the finan-

cial year reported here includes 1.5 heating

seasons whereas the reference period

includes one heating season.

Turnover from environmental peat was

operating result was EUR 4.7 million (EUR

3.7 million).

When compared to the previous season,

peat production in summer 2013 was

successful as a whole, which improved the

operating result and, following a difficult

season last year, there is now a sufficient

amount of high-quality energy and environ-

mental peat available. Investments focused

mainly on improving water treatment systems

and on upgrading production areas and

production machinery.

Wood FuelsThe business area includes the forest fuel

and pellet business operations in Finland,

Sweden, Estonia, Poland and Denmark.

The turnover of the business area in the

extended financial year 1 January 2013–30

April 2014 was EUR 182.1 million (EUR

165.4 million in 1 January–31 December

2012). The operating result for the period

was EUR 2.8 million (EUR –8.1 million). The

operating result includes one-off items of

EUR –0.4 million (EUR 3.4 million). Gross

million).

Turnover from forest fuels and sawmill

(EUR 65.2 million) and the operating result

GWh of forest fuels were sold (3,183 GWh).

(2,222 GWh) and in the Baltic countries and

Turnover from pellets was EUR 113.0

million (EUR 100.2 million) and the operating

result was EUR 1.5 million (EUR –5.4 million).

The Group’s pellet deliveries totalled 603,000

tonnes (560,000 tonnes). Pellet sales during

the financial year spread among the market

areas as follows: 221,000 tonnes/1,060 GWh

were sold in Finland (146,000 tonnes/701

GWh) and 333,000 tonnes/1,600 GWh in

Sweden (230,000 tonnes/1,100 GWh). In

Poland, pellet sales were 13,000 tonnes

(61,000 tonnes) and in Denmark, 36,000

tonnes (123,000 tonnes). When peat pellets

were included within the scope of peat taxa-

tion, their demand plummeted in Finland.

In Finland, demand for wood fuels is

increasing as energy companies are starting

to use renewable fuels to an increasing

extent. Nevertheless, there are major regional

variations in demand and its growth. In the

Nordic countries, the consumer segment

is not growing whereas growth can be

expected in the large-customer segment and

industrial heat production.

In Sweden, the pellet business operations

of Lantmännen Agroenergi AB and Vapo’s

subsidiary Neova AB were transferred into

a jointly owned company. The joint venture

started its operations in June 2014.

Heat and PowerThe business area has operations in Finland,

Sweden and the Baltic countries. During the

past financial year, the Polish heating busi-

ness operations were discontinued.

The turnover of the business area in the

extended financial year 1 January 2013 – 30

105.5 million in 1 January – 31 December

2012). The operating result for the period

operating result includes one-off items of

EUR –2.5 million (EUR –3.0 million). Gross

investments totalled EUR 15.1 million (EUR

7.0 million).

The exceptionally warm winter 2013–2014

reduced demand for heat and steam.

Deliveries of heat and steam to customers

sales were 172 GWh (112 GWh). In Finland,

a total of 1,676 GWh of heat and steam

electricity was sold (112 GWh). In Sweden,

supplied (475 GWh) and in the Baltic coun-

tries, 37 GWh (27 GWh).

Of the heat, steam and electricity

produced by the business area, 56% (53%)

were produced from wood fuels, 33% (32%)

from peat and 11% (14%) from other fuels.

The peat tax increase and the lowering of

wood chip production subsidies that took

place in Finland in 2013 increased the cost

level and created pressure to raise the prices

of heat and steam. For their part, the low

electricity prices impaired profitability.

Kekkilä GroupKekkilä operates in the international market

and the companies have production in

Finland, Sweden, Estonia and Norway.

The turnover of the Kekkilä Group in the


April 2014 was EUR 125.7 million (pro

2012, unaudited). The operating result for

the period was EUR 1.8 million (pro forma:

EUR 3.8 million). The operating result

includes one-off items of EUR –1.7 million

the reference period in 2012 includes a EUR

2.6 million insurance indemnity for the fire at

the Eurajoki agricultural peat plant and an

increase of EUR 0.4 million in the peatland

after-use reserve. The establishment of the

Kekkilä Group generated allocated goodwill,

and depreciations related to this allocated

goodwill impair the result for the period by

EUR 1.5 million (EUR 0.0 million). Gross

investments totalled EUR 6.3 million (EUR

During the financial year, the turnover

of the consumer business was EUR 65.1

million (EUR 43.7 million), the turnover of the

million (EUR 26.2 million), the turnover of the

landscaping business was EUR 15.1 million


71Vapo 1.1.2013–30.4.2014

environmental management business was

EUR 7.8 million (EUR 8.1 million).

The extended financial year includes two

consumer business sales seasons, which

increases the relative turnover and operating

result when compared to a 12-month finan-

cial year. The 2013 horticultural season in

consumer markets was exceptionally short,

which decreased turnover. In spring 2014,

the season was unusually early, and conse-

quently, some of the turnover that is normally

generated in May was already generated in

March–April.

At the beginning of the financial year, the

price of peat raw material was exception-

ally high due to the poor peat production

situation in summer 2012. Peat production in

summer 2013 was more successful, which

has contributed to offsetting the increase

in product costs caused by the previous

season. In the Norwegian consumer market,

profitability is being eroded by import of

finished products and raw peat from Sweden

and Estonia.

Vapo Timber OyAfter Vapo Timber Oy sold the business

operations, fixed assets and inventories of

the Hankasalmi sawmill unit to Versowood

Oy on 1 January 2014, Vapo Timber Oy’s

business operations include the Kevätniemi

and Nurmes sawmills. All of the Hankasalmi

sawmill’s personnel transferred to the new

owner with unchanged terms of employment.

Vapo Timber Oy’s turnover in the extended

financial year 1 January 2013 – 30 April 2014

in 1 January – 31 December 2012). The

operating result for the period was EUR –5.2

million (EUR 1.0 million). Gross investments

Deliveries of sawn timber in the period

from January 2013 to April 2014 were 3).

In Finland, the demand for sawn timber is

still low, but the fact that construction activity

in Europe is picking up and demand in the

North African market has remained stable

predicts an improvement in the result of the

sawmill business. However, this requires the

continuation of problem-free raw material

supply with regard to both domestic timber

and timber imported from Russia.

Other activitiesThe impact of group administration and other

business activities on the operating result

of the extended financial year 1 January

2013 – 30 April 2014 was EUR –17.0 million

(EUR –6.7 million in 1 January – 31 December

2012). The operating result includes one-off

items of EUR –7.0 million (EUR –0.7 million).

Gross investments totalled EUR 3.7 million

(EUR 0.7 million).

The targets set in the EU’s climate and

energy strategy did not contain targets for

renewable traffic fuels. Consequently, Vapo

Oy’s Board of Directors decided to interrupt

the preparations for the Kemi biodiesel

project in February 2014. The impact of

Forest BtL Oy on the result of the period was

EUR –5.5 million (EUR –0.6 million).

Mustankorkea Oy’s turnover in the


million in 1 January – 31 December 2012)

(EUR 2.1 million).

Cash flow, investments and financingFree cash flow before taxes was EUR 54.2

million (EUR 64.2 million). The operating

52.2 million), and working capital increased,

reducing cash flow by EUR 27.5 million (in

2012, working capital decreased by EUR

Gross investments in the past financial

year were EUR 65.0 million or 120 per cent

of the amount of depreciation (EUR 48.0

million, 114%). The year’s most significant

investments were related to reducing emis-

sions to watercourses by peat production.

The gross investments are broken down as

follows: the Peat Products business area

EUR 38.6 million, the Wood Fuels business

area EUR 1.3 million, the Heat and Power

business area EUR 15.1 million, Vapo Timber

Oy EUR 3.2 million and the Kekkilä Group

EUR 6.3 million. Other investments by the

Group were EUR 3.7 million.

Interest-bearing net debt at the end of the

includes a EUR 5 million convertible bond

issued by Vapo’s subsidiary. The ratio of

interest-bearing net debt to operating margin

(net debt/EBITDA) on 30 April 2014 was

4.4 (6.8 on 31 December 2012). Short-term

(EUR 124.2 million). The equity ratio at the

gearing ratio was 110.3 per cent (123.4%).

The consolidated balance sheet total was

net financing items were EUR –17.2 million

(EUR –6.4 million). Net financing items

were 2.0 per cent of turnover (1.0%).

Changes in the organisationThe new operating model was adopted at

the beginning of the financial year 2013. In

the new organisation, Vapo Oy has three

business areas: Vapo Peat Products, headed

by Pasi Koivisto, Vapo Wood Fuels, headed

by Juhani Ylä-Sahra, and Vapo Heat and

Power, headed by Markus Hassinen.

Jyrki Vainionpää was appointed Vapo Oy’s

Chief Operating Officer as of 1 April 2014.

He is responsible for Vapo Oy’s regional

organisation. Vainionpää is also a member

of Vapo Oy’s Management Team. Before his

current position, he worked as Vapo Oy’s

Chief Financial Officer.

Suvi Kupiainen was appointed Vapo Oy’s

Chief Financial Officer as of 1 April 2014. She

is also a member of Vapo Oy’s Management

Team. Kupiainen joined Vapo from Vapo

Timber Oy.


72Vapo 1.1.2013–30.4.2014

Developments by business segment

Turnover by segmentMEUR 1–4/2014 1–4/2013 Change % 1/2013–4/2014 1–12/2012 Change %

Peat Products 77.7 –12.7 264.2 220.5

Energy peat 75.2 80.7 –6.8 235.5 183.2 28.5

Environmental peat 8.7 8.3 4.7 34.9 37.2 –6.3

Wood Fuels 47.9 182.1 165.4 10.1

Forest fuels 18.6 21.5 –13.2 69.5 65.2 6.5

Pellets 29.3 41.7 113.0 100.2 12.8

Heat and Power 42.5 48.5 –12.3 143.9 105.5 36.4

Kekkilä Group 35.7 30.0 125.7 36.5

Vapo Timber 40.6 38.3 6.0 179.7 112.5

Others 2.8 2.8 –0.3 13.4 36.1

Forest BtL 0.0 0.0 0.0 0.0 0.0 0.0

Mustankorkea 2.8 2.8 –0.3 13.4 36.1

Group administration & shared by businesses 0.0 0.0 0.0 0.0 0.0 0.0

Inter-segment turnover –16.6 –20.3 18.1 –61.6 –16.3

Total 230.7 251.2 –8.2 847.4

Turnover by segment includes internal sales to other segments.

Operating result by segmentMEUR 1–4/2014 1–4/2013 Change % 1/2013–4/2014 1–12/2012 Change %

Peat Products 16.7 20.8 – 56.8 32.4

Energy peat 16.1 –18.6 52.1 32.0 12.5

Environmental peat 0.6 1.0 –40.8 4.7 3.7

Wood Fuels 2.8 0.7 306.3 2.8 –8.1

Forest fuels 1.5 0.2 544.3 1.2 –2.7

Pellets 1.3 0.5 1.5 –5.4 103.8

Heat and Power 4.7 7.0 –33.2 9.3 –0.6

Kekkilä Group 1.7 0.8 1.8 3.8 –

Vapo Timber Oy 0.6 –3.1 118.8 –5.2 – 47.2

Others –8.2 –3.1 – –17.0 –6.7 –

Forest BtL –4.1 –0.5 –702.1 –5.5 –0.6 –

Mustankorkea 0.7 0.2 227.8 2.9 2.1 7.0

Group administration & shared by businesses –4.8 –2.8 –74.8 –14.4 –8.2 –16.8

Eliminations 0.2 1.1 – 1.6 –0.8 286.5

Total 18.4 24.3 –24.3 50.1 246.0


73Vapo 1.1.2013–30.4.2014

Changes in the Group structure and internal restructuringIn February 2014, Vapo Oy’s Board of Direc-

tors decided to interrupt the preparations for

the Kemi biodiesel project, and Forest BtL

Oy’s operations have been interrupted.

The merger of Neova AB’s wood pellet

business operations and Lantmännen Agro-

energi AB, a company operating in Sweden

and Latvia, was set out in February 2014 and

approved by the EU’s competition authorities

in May 2014. The company started its opera-

tions at the beginning of June 2014. In future,

the result of the joint venture will be included

in Vapo’s financial statements as an associ-

ated company.

In January 2014, Vapo Timber Oy sold the

Hankasalmi sawmill to Versowood Oy.

In November, Vapo Oy sold Seda AS, its

Latvian subsidiary, to Kalloveen BVBA, a

Belgian/Dutch company. Seda AS is one of

the largest producers of agricultural peat in

Latvia.

In Norway, Hasselfors Garden AS acquired

Høstekompaniet DA, a limited partner-

ship owning peat production rights, with

an agreement signed on 17 October 2013.

of the company and Andøytorv AS one per

cent of the company. The company acquired

has peat production rights to a total area of

22 hectares.

On 3 October 2013, the Group’s Swedish

subsidiary Neova AB acquired Brostorps-

mossen AB, a company owning peat

production rights. The company acquired has

peat production rights to a total area of 225

hectares.

On 1 March 2013, Vapo Oy turned the

Salo power plant into an independent

company, Salon Energiatuotanto Oy.

In May 2012, Vapo Oy agreed the sale of

Mustankorkea Oy to the City of Jyväskylä. On

the consolidated balance sheet, the external

assets and debts of Mustankorkea Oy have

been separated out as assets and available-

for-sale assets and debts in line with IFRS.

The transaction has been appealed and it

has not yet been concluded.

In line with the Group’s strategic policies,

Vapo Oy has decided to withdraw from the

Polish market and has placed its subsidiary

Vapo SP zo.o. in liquidation in January 2014.

Change in the financial year In October, the Extraordinary General

Meeting approved the proposal about

changing the financial year and extending the

current financial year to a 16-month period

ending on 30 April 2014. The financial year

will change from the current calendar year to

the period 1 May – 30 April and the company

will also move from quarterly reporting to

tertial reporting. Thanks to the change in the

financial year, production in the core busi-

nesses, production costs and the proceeds

from products and services sold are now

allocated to the same financial year, which

clarifies operative and financial management

of operations.

In future, the first tertial of the year will

begin on 1 May and end on 31 August.

This period includes peat production and

preparations for the heating season. The

second tertial of the year (1 September – 31

December) and the third tertial of the year (1

January – 30 April) cover the heating season.

This change in the financial year and the

tertial reporting support the seasonal fluctua-

tions in the businesses.

Natural seasonal fluctuation in activitiesThe sales volumes of the Peat Products

and Heat and Power business areas are

heavily dependent on seasonal tempera-

tures. Changes in the weather also have a

significant impact on the Kekkilä Group’s

consumer business in the consumer sector.

This results in seasonal fluctuations in sales.

The warm weather during the financial year

and low electricity prices have decreased

demand for district heat, energy peat and

electricity. The Kekkilä Group’s result is

improved by the fact that there were two

consumer business sales seasons in the

same financial year.

Thanks to good weather conditions, the

start of peat production was record-breaking

early in April.

Personnel On 30 April 2014, Vapo Group employed

December 2012).

As of the beginning of 2013, the codeter-

mination committees have worked as follows:

Vapo Group’s codetermination committee

discusses matters that concern the entire

Group, and company-specific matters are

discussed in Vapo Oy’s, Timber Oy’s and

Kekkilä Oy’s own codetermination commit-

tees. During the financial year 1 January

2013 – 30 April 2014, the Group’s codeter-

mination committee convened three times

and the company-specific codetermination

committees convened two times each.

The Supervisory Board, in which the

personnel has three representatives,

convened five times during the financial year.

Vapo Oy sold its equipment production

unit in Haukineva, Seinäjoki to Peatmax Oy

of Tampere in October 2013. Of the unit’s 15

employees, 13 transferred to Peatmax Oy

with unchanged terms of employment.

In January 2014, Vapo Oy sold Vapo

Timber Oy’s Hankasalmi sawmill to

sawmill transferred to the new owner with

unchanged terms of employment.

Research and developmentThe Group’s research and development

investments during the financial year from

1 January 2013 to 30 April 2014 amounted

to EUR 7.3 million (EUR 2.1 million), which

equates to 0.8 per cent of turnover (0.3%).

During the financial year, Vapo participated

in the SulKa, SuHE and TASO projects

related to improving the effectiveness of

water treatment in peat production. The three

projects began in 2011. The SulKa project

studied how emissions into waterways

are formed and investigated new ways of

managing them. The SuHE project looked

for techniques to quickly detect and reduce

acidic water pollution resulting from the

acidification of sulphate soils. The national

TASO project studied water conservation

measures in peat production and forestry

and monitored their effectiveness. Vapo


74Vapo 1.1.2013–30.4.2014

also participated in the BioTar project to look

for new biological surveying techniques for

monitoring the use of peatlands. All of these

projects are in the final report phase and are

scheduled to conclude in March–June 2014.

The project partners included, among

others, VTT Technical Research Centre

of Finland, the Finnish Forest Research

Institute, the Universities of Oulu, Joensuu

and Jyväskylä, Åbo Akademi University,

the Finnish Environment Institute as well as

consulting agencies in the field. In addi-

tion to Vapo, funding for the projects was

provided by the Ministry of the Environment,

the Ministry of Agriculture and Forestry, the

Ministry of Employment and the Economy,

and the Regional Council of Central Finland.

Vapo also participated in a humic water

project implemented by VTT Technical

Research Centre of Finland and aimed at

developing techniques for treating humic

water in peatlands using soil minerals. The

project began in 2012 and will conclude by

the end of 2014.

The TUMO project, which began in 2012

and is fully funded by Vapo, continued during

the financial year. The project concerns the

expansion of the monitoring of peat produc-

tion and the introduction of continuous meas-

uring technology. In June 2013, Vapo signed

an agreement with Metso Automation for the

installation, maintenance and output reporting

of 30 measurement stations. Vapo’s goal is

to have 30 automatic measurement devices

installed by the end of 2015. The data from

the first devices installed is already accessible

on the Metso website.

In autumn 2013, Vapo launched the Clean

Waters project, which is aimed at creating

new business for the company in the area of

cleaning natural waters. The business idea is

based on the unique water quality data accu-

mulated by Vapo, as well as the utilisation of

its expertise and experience related to water

conservation solutions. Clean Waters offers

expert, planning, construction and mainte-

nance services in the area of natural water

treatment solutions to reduce emissions into

waterways. The potential customers include

peat production, forestry and agriculture,

mining and municipalities. The first external

assignments began at forestry sites in early

2014. The vision of the Clean Waters project

is to become the most valued improver of the

condition of watercourses in Finland within

five years.

In 2012, the EU granted funding under its

NER300 programme for renewable energy for

Vapo’s biodiesel project. Forest BtL Oy, which

was established for the purpose of imple-

menting the project, continued to plan the

biodiesel plant in Ajos, Kemi in 2013. In 2013,

the principal technologies were acquired and

the planning for the final FEED phase began,

along with environmental permit processes.

The aim was to conclude the planning stage

by spring 2014 to make the final investment

decision. After the construction of the facility,

the Ajos plant would have been in production

by the end of 2016 with an annual capacity

of 150,000 tonnes, which would have repre-

sented a significant proportion of the biofuel

production for the Finnish transport sector.

The search for operating partners and

external funding providers continued during

the financial year. There was a great deal of

interest in the project, but concluding binding

and long-term agreements become more

difficult as the uncertainty in the operating

environment increased. Uncertainty was

created by, among other things, the extended

drafting process of the EU’s renewable

fuel regulations, which was expected to be

concluded at the end of 2014 at the earliest.

Furthermore, the EU 2030 climate and energy

targets announced in January 2014 did not

include minimum targets for the renewable

component of transport fuels after 2020.

For these reasons, the Board of Directors of

Vapo Oy decided in February 2014 to freeze

the project planning for the biodiesel plant in

Ajos, Kemi.

Environmental responsibilityIn the financial year from 1 January 2013

to 30 April 2014, Vapo continued to make

investments in improving the level of environ-

mental responsibility in peat production.

Measures to improve the effectiveness of

water treatment (BAT) were implemented at

26 sites. By the end of the financial year, Best

Available Techniques had been introduced at

53 per cent of the 11,400 hectares that were

previously under basic-level water treatment.

Construction was in progress for a further

2,640 hectares. For production areas totalling

approximately 2,000 hectares, the decision

was made to discontinue production due to

the lack of profitability of investments. The

aim is to implement enhanced water treat-

ment at all peat production areas by the end

of 2014.

Self-initiated environmental impact inspec-

tions continued with increased intensity.

Contractors inspected water treatment

structures in two-week intervals during the

production season. In addition to this, the

company’s 20 inspectors regularly inspected

all production areas. Centres for Economic

Development, Transport and the Environment

(ELY Centres) carry out inspections in four-

year intervals. In 2013, inspections by the

authorities were carried out at approximately

one hundred production sites.

Vapo continued to sell peat bogs of high

natural value for protection purposes. Nego-

tiations were held with the Ministry of the

Environment and Metsähallitus. Since 2011,

Vapo has offered more than 2,300 hectares

of peat bogs for exchange or protection.

By the end of the financial year, agreements

had been reached concerning ten bogs

amounting to approximately 2,130 hectares

in total. The negotiations will continue.

As part of its permit policy, Vapo is

committed to only applying for new produc-

tion permits for ditched peatlands. A further

commitment made by Vapo is that all new

production areas opened after 2016 will

have a lower solid and humus load on

downstream watercourses than before peat

production. The aim is to transfer produc-

tion areas to other land use methods or have

them restored as quickly as possible after

they are released from peat production. To

follow through on these commitments, Vapo

launched the Clean Water and Monitoring


75Vapo 1.1.2013–30.4.2014

100 projects involving the monitoring of the

impacts of new production areas on water-

courses at approximately 100 sites before

the potential start of peat production. Land

use plans were prepared for 7,200 hectares

of land, with measures implemented at 2,400

hectares of this total.

Also during the financial year, Vapo began

Logistics Environmental Safety Card training

targeted at Vapo’s loading and transport

entrepreneurs and in-house logistics staff.

The training has thus far been completed by

more than 100 persons. The training is part

of Vapo’s three-year environmental training

programme 2012–2014.

The Group’s environmental invest-

ments amounted to EUR 21.4 million (EUR

improving the effectiveness of water protec-

tion structures at peat production areas.

Excluding Vapo’s own personnel’s input,

environmental protection costs for the period

amounted to EUR 26.1 million (EUR 18.6

million). The costs primarily consisted of peat

production costs, such as the maintenance

of water protection structures and environ-

mental load monitoring.

Active production areas in Finland

amounted to 43,000 hectares in summer

2013 (43,700 ha in summer 2012). A total

of 1,242 hectares of new peatlands became

ready for production by the end of the

financial year (1,122 ha). Peatlands released

from production during the financial year

assigned for new forms of land use, of which

hectares (242 ha) were assigned for foresta-

143 hectares (113 ha) for building wetland

habitats for birds. A total of 1,217 hectares

(630 ha) of land was returned to landowners.

Vapo has an aftercare reserve for the costs

resulting from the rehabilitation of decommis-

sioned production areas, which covers the

costs of water protection measures, water

rehabilitation, landscaping and other restora-

tion measures after decommissioning.

Vapo Group’s personnel 1 January 2013–30 April 2014, on average

1/2013–4/2014 1–12/2012

Finland 759 770

Other countries 332 384

Total 1,091 1,154

Employees by segment, average

1/2013–4/2014 1–12/2012

Peat Products 305 328

Wood Fuels 149

Heat and Power 108 115

Kekkilä Group 227 217

Vapo Timber Oy 170 185

Others 132 140

Total 1,091 1,154

Notable risks and uncertainty factors

RegulationThe uncertainty associated with securing

environmental permits is a significant risk

from the perspective of Vapo’s peat busi-

ness and Finland’s self-sufficiency in energy.

This risk, which has already materialised

to an extent, prevents and slows down the

commissioning of peat production areas

to adequately meet customer needs. The

shortfall compared to requirements is around

2,000 hectares annually. In order to improve

the situation with respect to securing permits,

Vapo has adopted enhanced measures to

minimise environmental impacts as well as

implemented broader and more precise

emissions monitoring. The goal is that public

debate on emissions can be based on quan-

titative facts. In accordance with the mire and

peatland strategy approved by the Finnish

government, Vapo applies for environmental

permits and opens new production areas

only in peatlands where the natural state

has been altered, meaning forest-ditched

peatlands. The pending amendment to the

Environmental Protection Act includes a

provision on natural value, which, if enacted

as law, will further complicate the process of

securing peatlands for peat production. Vapo

will continue the implementation of its EUR

30 million investment programme, investing

in environmental protection structures and

more effective water treatment at its peat

production areas.

The regulatory risk has made investments

and the long-term development of the energy

sector more difficult. The Finnish tax on fuel

the beginning of 2013. The tax increase has

contributed to a decrease in the demand

for peat and an increase in the use of coal.

As a result, the government has decided

against implementing the further tax increase

of EUR 1.00/MWh that was planned for the

beginning of 2015. It is clear that cancel-

ling the additional tax increase is not an

adequate measure to ensure that there is

demand for domestic fuels, as the previously

implemented tax increases that reduce the

demand for peat will remain in effect.

The sustainability criteria of solid wood-

based fuels are being evaluated in the EU

and Finland. Depending on the content of

future regulations, they will represent a threat

to the usage of wood-based fuels.


76Vapo 1.1.2013–30.4.2014

Market risksVapo’s sawmill, pellet, wood fuel and elec-

tricity generation businesses are subject to

significant market risks both in terms of the

prices and volumes of the end product and

the price and availability of raw materials.

The European economic situation,

which affects the demand for sawn timber,

remained weak. There have been signs of

recovery since the second half of 2013,

which saw the utilisation rates of sawmills

improve. The market shares of Finnish

sawmills have not increased, while Swedish

sawmills have improved their market shares

primarily as a result of the depreciation of

the Swedish krona since spring 2013. Vapo

Group’s risks associated with the sawmill

business were reduced as a result of the sale

of the Hankasalmi sawmill at the beginning

of 2014. Vapo Timber Oy’s two remaining

sawmills successfully increased their oper-

ating efficiency during winter 2013–2014,

while also reducing their sensitivity to

short-term market changes by optimising

their production according to the market

conditions for different types of wood. As the

new financial year begins on 1 May 2014, the

situation in the sawn timber market remains

challenging.

Oversupply in the European pellet market

continued despite the continued moderate

growth of pellet use in 2013. Vapo’s deliv-

eries to major pellet customers grew from the

previous year, and some new plants using

pellet were commissioned.

The company has sought to manage the

profitability risk of wood fuels by developing

its customer relationship management.

Particular emphasis was placed on improving

fuel quality and reducing quality-based losses

caused by storage.

The market price and Finnish regional price

of electricity remained low in 2013 and early

2014. This has weakened the demand for the

fuels provided by Vapo, while also keeping

profitability low for electricity generation at

the company’s own power plants. During the

period under review, Vapo updated its risk

policies for electricity trading relating to both

procurement and generation. The company

aims to improve the profitability of electricity

generation at its own power plants through

careful production planning and forecasting,

as well as the active hedging of sales and

sales prices.

Weather risksWeather is a risk that has extensive effects

on Vapo’s business. In the winter, tempera-

ture influences fuel purchases by external

and internal customers and the utilisation

rates of the Group’s own heat and power

plants. In the spring, weather conditions are

crucial for the sales volume of the garden

trade. During the summer, the effects of

weather concern the production volumes

and quality of wood fuels and environmental

products.

Peat reserves were at a record low level

in spring 2013 after the failed production

season of 2012, and the company was not

capable of supplying peat to customers in

the spring at a volume equal to demand. In

the 2013 production season, the develop-

ment of production volume was actively

communicated to customers. As a whole,

peat production in summer 2013 was

successful, but there was considerable

regional variation. The short spring season

2013 led to below-forecast sales of Kekkilä’s

horticultural products, which could not be

made up in the remainder of the year.

Vapo’s most significant risk in the financial

year beginning in May 2014 remains the

weather risk, which affects both peat produc-

tion in the summer and the demand for peat

in winter 2014–2015. Increasing the basic

stock of peat in geographically appropriate

locations requires favourable weather condi-

tions during the production season and

sufficient production areas. The realisation

of the weather risk associated with peat

production would also impair the profitability

of Vapo’s peat contractors. This would make

it considerably more difficult to obtain new

contractors as previous contractors exit the

market, which could also have long-term

effects in the form of lost industry expertise.

Measures to mitigate the impacts of the

weather risk in peat production remain under

development.

Damage risksDamage risks include occupational safety

risk, property risk, interruption risk and

environmental risk. Vapo aims to prevent

damage risks through proactive risk manage-

ment measures and by reacting quickly to

any observed hazards. Risks that cannot

be managed by the company’s own actions

are insured where possible. In the area of

occupational safety, the goal is to continu-

ously promote occupational safety culture

throughout the organisation; for example, by

implementing extensive occupational safety

training for personnel.

Vapo Group continued the “Damage

risk development programme 2011–2016”

in 2013 in cooperation with the insurance

company and insurance broker. The main

objective of the development programme is

to improve awareness of existing damage

risks associated with the production plants

and outlets, preventing the realisation of

detected risks and increase general safety at

Vapo Group. Kekkilä’s “Make your workplace

safe” project was also continued in 2013,

with the aim of increasing general safety

and minimising damage risks within Kekkilä

Group. In Kekkilä, particular focus has been

put on product and customer quality with

the aim of ensuring high operational quality

throughout the supply chain.

Financing and commodity risks The company’s operations are exposed to

diverse financial risks. The primary aim of

financial risk management is to minimise the

negative effects of market prices of curren-

cies and interest rates related to operation

on the Group’s profit and cash flow as well

as ensure the liquidity of the Group. The

main financial risks are currency and interest

rate risk. The Group treasury, guided by

the financial policy ratified by the Board of

Directors, is responsible for identifying and

managing financial risks. The Group’s risk


77Vapo 1.1.2013–30.4.2014

management tools include currency deriva-

tives and options, currency swaps, foreign

currency loans, interest rate swaps and

diverse commodity derivatives.

Future outlook

Vapo Group as a whole Turnover for the current financial year, 1

May 2014 – 30 April 2015, is expected to

decrease compared to previous periods due

to changes in Group structure, but efficiency

programmes currently being implemented

by the Group are estimated to lead to an

improvement in the Group’s result. Vapo is

focusing on strengthening its cash flow while

still proceeding with environmental protection

investments as planned.

Peat ProductsDemand for peat has weakened due to

the low price of competing fuels, especially

coal, and increased peat taxation. Factors

affecting turnover and earnings for the finan-

cial year from 1 May 2014 to 30 April 2015

include the extent to which Vapo succeeds

in reconciling demand and supply region-

ally, electricity prices, the utilisation rate in

industry, external temperatures and the effect

of subsidy and taxation decisions affecting

peat and other fuels. Weather conditions

have a considerable impact not only on the

demand for peat, but also the success of

logistics, particularly during the mud season

and peak demand, when the equipment

capacity is fully utilised.

There is good-quality peat at all of our

customer regions at the start of the current

production season, which improves our

preparation for the upcoming heating season

and boosts our delivery reliability.

Wood FuelsThe use of wood fuels in Finland is expected

to continue to grow. There is a strong supply

of both forest fuels and sawmill by-products

in the market.

In the pellet business, the Vapo Group’s

operations will be more strongly focused on

the Finnish market after the Swedish pellet

business was transferred to an affiliated

company that is jointly owned by Vapo and

Lantmännen Agroenergi AB.

Heat and PowerIn the Heat and Power business area, past

and future investments in energy efficiency

and increasing the share of domestic fuels

will improve profitability towards the end of

the current financial year.

Kekkilä GroupKekkilä Group’s operating margin and cash

flow are expected to develop positively.

Growth will be sought by improving the

efficiency of internal functions and providing

customer-focused solutions in the interna-

tional markets.

Vapo Timber OyThe recovery of the sawn timber market that

began in 2013 has continued through the

early part of 2014. The demand for sawn

timber is expected to remain at a moderate

level at least until the end of the year.

However, the European market development

of spruce sawn timber, in particular, involves

significant uncertainty factors.

Group administration 1 January 2013 – 30 April 2014The Vapo Group’s administrative bodies

are the general meeting of shareholders,

the Supervisory Board, the Board of

Directors, the CEO and the boards and

managing directors of its subsidiaries.

Vapo Oy’s Board of Directors appoints the

Audit Committee and the Compensation

Committee from among its number based on

recommendations.

The CEO supervises the Group Manage-

ment Team, which is appointed by the

Board of Directors of Vapo Oy. The Group

Management Team consists of the members

of Vapo Oy’s Management Team as well as

the Managing Directors of Vapo Timber Oy,

Kekkilä Oy, AS Tootsi Turvas and Neova AB.


Board of Directors on 30 April 2014Chairman Juho Lipsanen, MSc (Economics)

Deputy Chairman Perttu Rinta, Managing Director

Members

2013

Arto Sutinen, Managing Director

Marja Tuderman, Director

The Board of Directors convened 20 times during the extended financial year. The attendance

2013. During the financial year, the Compensation Committee was composed of Juho Lipsanen,

78Vapo 1.1.2013–30.4.2014

The Compensation Committee convened 7

times during the financial year and had an

attendance rate of 100%. During the financial

year, the Audit Committee was composed of

Perttu Rinta, Managing Director, as chairman

and Martti Haapamäki, Managing Director

Supervisory Board on 30 April 2014Chairman Pentti Oinonen, Member of Parliament

Deputy Chairman Heikki Miilumäki, DSc (Technology) (h.c.)

Members Mikko Hentinen, Commercial Counsellor (hon.)

Antti Kaikkonen, Member of Parliament

Eero Kubin, Professor

Esko Kurvinen, Member of Parliament

Jukka Kärnä, Member of Parliament

Simo Salmelin, Provincial Counsellor (hon.)

Janne Sankelo, Member of Parliament

Anni Sinnemäki, Member of Parliament

Personnel representatives and their deputies in the Supervisory Board as of 1 July 2012

Timo Oksa, energy sector workers (Ari Tielinen)

Tommi Pihlajasalo, senior office workers (Matti Koljonen), until

31 December 2013

Matti Koljonen, senior office workers (Teija Lehtonen), as of 1

January 2013

Heikki Salorinne, forest and sawmill workers (Rauno

Valkendorff)

The Supervisory Board convened five times during the financial year.

The attendance rate was 78%.

Vapo Oy’s Management Team on 30 April 2014Tomi Yli-Kyyny, CEO

Pasi Koivisto, Business Area Director, Peat Products

Markus Hassinen, Business Area Director, Heat and Power

Juhani Ylä-Sahra, Business Area Director, Wood Fuels

Jyrki Vainionpää, COO

Suvi Kupiainen, CFO

Ahti Martikainen, Director, Communications and Public Affairs

Pirjo Nikkilä, Director, Human Resources

Kari Poikolainen, Chief Legal Counsel

Mia Suominen, Environmental Director


Marja Tuderman, Director, as members. The

Audit Committee convened 6 times and had

an attendance rate of 88%.

Auditors on 30 April 2014Vapo’s auditors were DHS Audit Part-

ners Oy, with Tapani Vuopala (APA) as the

auditor-in-charge.

Vapo Oy’s share capital and shareholdersVapo Oy has one class of shares. The total

number of shares is 30,000, and each share

has a book value of EUR 1,681.88. Each

share entitles its holder to one vote at the

General Meeting, and all shares carry the

same dividends. Vapo Oy’s share capital

amounted to EUR 50,456,000 on 30 April

2014.

Vapo Oy is a joint venture of the Finnish

State and Suomen Energiavarat Oy. The

Finnish State holds 50.1% of the shares

(15,030 shares) and Suomen Energiavarat Oy

Board of Directors’ proposal for the distribution of profitsThe Board of Directors proposes to the

General Meeting to be convened on 27

August 2014 that Vapo Oy’s profit for the

financial year, EUR 24,588,435.51, be added

to retained earnings, after which the distribut-

able funds available to the General Meeting

The Board of Directors also proposes to

the General Meeting that EUR 12.0 million,

i.e. EUR 400 per share, be paid as dividends

for the financial year from 1 January 2013 to

30 April 2014.

79Vapo 1.1.2013–30.4.2014

EUR 1,000 Note1.1.2013–30.4.2014 1.1.–31.12.2012

TURNOVER 2 847,393

Change in stock levels of finished and unfinished products 15,180 –43,438

Production for own use 2,979 4,421

Other operating income 5 21,474 25,236

Share of affiliate companies’ results –2,767 –453

Materials and services 6 –453,315

Expenses arising from staff benefits 7 –86,474 –62,622

Depreciation 8 –54,186

Impairments 8 –3,845 –458

Impairment of goodwill 8 –1,598 –162

Other operating expenses –234,778 –185,270

OPERATING PROFIT 50,062

Financial income 10 6,836

Financial expenses 10 –23,995

PROFIT/LOSS BEFORE TAXES 32,904 2,785

Income taxes 11 –10,480

PROFIT/LOSS FOR THE PERIOD 22,423 6,081

OTHER COMPREHENSIVE INCOME ITEMS:

Translation differences from foreign units –1,508 827

TOTAL COMPREHENSIVE INCOME FOR THE PERIOD 20,915

Distribution of profit for the period:

To parent company shareholders 20,477 5,280

To non-controlling shareholders 1,947 801

22,423 6,081

Distribution of comprehensive income for the period:

To parent company shareholders 19,035 6,081

To non-controlling shareholders 1,880 827

20,915

Earnings per share calculated from profits due to parent company shareholders

Earnings/share, EUR 683 176

Average number of shares 30,000 30,000

Consolidated statement of comprehensive income

Consolidated Financial Statements 2014, IFRS

FINANCIAL STATEMENTS

80Vapo 1.1.2013–30.4.2014

EUR 1,000 Note 30 April 201431 December

2012

ASSETS

Long-term assets

Intangible assets 12 10,743 11,735

Goodwill 12 10,060 11,886

Land and water areas 13 44,415 45,553

Buildings and structures 13 55,720 76,013

Machinery and equipment 13 125,289 156,623

Other tangible assets 13 181,068

Pending acquisitions 13 59,377 40,540

Shares in affiliate companies 14 3,934 6,707

Available-for-sale investments 15 7,621 1,005

Long-term sales and other receivables 16 10,899

Other long-term investments 17 346 665

Deferred tax assets 18 1,884

Long-term assets total 511,356

Current assets

Inventories 140,132 137,788

Sales and other receivables 20 97,938

Income tax receivables 803 518

Cash on hand and bank balances 21 303 8,674

Current assets total 239,176 246,272

Available-for-sale assets 3 36,396

ASSETS TOTAL 786,929 801,662

SHAREHOLDERS’ EQUITY AND LIABILITIES

Shareholders’ equity

Share capital 50,456 50,456

Fair value fund and other funds 30,152

Translation differences –1,565 –123

Retained earnings 214,601 204,218

Parent company shareholders’ share of shareholders’ equity 293,645 284,487

Non-controlling shareholders 4,987

Shareholders’ equity total 22 298,632 288,455

Long-term liabilities

Deferred tax liability 17 16,377 20,260

Long-term interest-bearing liabilities 23 248,270 244,070

Other long-term liabilities 24 3,933 4,571

Long-term provisions 25 17,606 18,456

Long-term liabilities total 286,185 287,356

Current liabilities

Current interest-bearing liabilities 23 91,969 124,165

Accounts payable and other debts 26 84,054

Income tax liability 12,058 365

Short-term liabilities total 188,081 221,504

Available-for-sale interest-bearing and non-interest-bearing debt 3 14,030 4,347

SHAREHOLDERS’ EQUITY AND LIABILITIES TOTAL 786,929 801,662

Consolidated balance sheet


81Vapo 1.1.2013–30.4.2014

EUR 1,000 30 April 201431 December

2012

Cash flow from operating activities

Profit/loss for the period 22,423 6,081

Adjustments to the result for the period

Depreciation and impairments 59,629

Share of affiliated companies’ profit (–) / loss (+) 2,767 453

Financial income and expenses 17,159 6,382

Income taxes 10,480

Other adjustments –3,766 –13,346

Adjustments to the profit/loss for the period total 86,269 32,782

Change in working capital

Increase/decrease in inventories –18,046 38,166

Increase/decrease in sales receivables and other receivables –9,552 14,061

Increase/decrease in accounts payable and other debts –3,107

Change in provisions –768 1,150

Change in working capital total –31,473

Interest paid –9,200 –10,103

Interest received 490 385

Other financial items –1,451 –4,242

Taxes paid –2,707 3,553

Cash flow from operating activities 64,352 72,585

Cash flow from investing activities

Investments in tangible and intangible assets –64,328

Proceeds from disposal of tangible and intangible assets 29,254

Subsidiary shares bought –752

Subsidiary shares sold 11,000

Affiliated companies’ shares bought

Affiliated companies’ shares sold

Other investments –7,272

Proceeds from disposal of other investments 1,388 7,833

Loans granted –7,582

Repayments of loans receivable 314

Dividends received 13 864

Cash flow from investing activities –37,964 –8,175

Cash flow from financing activities

Increase (+) / decrease (–) in short-term loans –13,802 4,408

Proceeds from long-term loans 104,484

Repayment of long-term loans –113,740 –60,326

Repayment of finance lease liabilities –1,341 –401

Dividends paid –11,265 –810

Cash flow from financing activities –35,662

Change in cash and cash equivalents –9,275 7,281

Cash and cash equivalents opening balance 8,674 2,603

Change in cash and cash equivalents –9,275 7,281

Effect of changes in exchange rates 900 –1,213

Cash and cash equivalents at end of period 303 8,674

Cash and cash equivalents related to mergers and acquisitions –5 –3

Consolidated cash flow statement


82Vapo 1.1.2013–30.4.2014

EUR 1,000 Share capitalFair value

fund Other fundsTranslation differences

Retained earnings Total

Non-controlling

shareholders Total

SHAREHOLDERS’ EQUITY 1.1.2013 50,456 0 –124 204,218 284,486 288,454

Changes in shareholders’ equity

Dividend distribution –10,000 –10,000 –860 –10,860

Total comprehensive income –1,441 1,880

Other changes

Imputed taxes 15 15 15

Other changes 218 –110 108 108

SHAREHOLDERS’ EQUITY 30.4.2014 50,456 0 30,153 –1,565 214,603 293,645 4,987 298,632

EUR 1,000 Share capitalFair value

fund Other fundsTranslation differences

Retained earnings Total

Non-controlling

shareholders Total

SHAREHOLDERS’ EQUITY 1.1.2012 50,456 0 4,355

Changes in shareholders’ equity

Dividend distribution 0 –1,215 –1,215

Total comprehensive income 802 5,280 6,082 801 6,883

Other changes

Imputed taxes –751 –751 –751

Other changes 162 4,088 4,250 26 4,276

SHAREHOLDERS’ EQUITY 31.12.2012 50,456 0 29,936 –123 204,218 284,487 3,967 288,455

Consolidated statement of changes in shareholders’ equity

Notes to the consolidated financial statements, IFRSCompanyThe Vapo Group is a supplier of local and

renewable fuels, bioelectricity and bioheat,

and environmental business solutions in the

Baltic Sea region.

The Vapo Group consists of four busi-

ness areas: Vapo Peat Products, Vapo Heat

and Power, Vapo Wood Fuels and Kekkilä

Group. The Group has subsidiaries in Finland

and other countries.

The parent company, Vapo Oy, is a Finnish

company established in compliance with

Finnish laws, domiciled in Jyväskylä at the

registered address Vapo Oy, Yrjönkatu 42,

P.O.Box 22, 40101 Jyväskylä, Finland. The

company website is available at www.vapo.fi.

The Board of Directors of Vapo Oy

approved these financial statements for

publication at its meeting on 16 June 2014.

According to the Finnish Companies Act,

shareholders are entitled to either approve

or dismiss the financial statements at the

General Meeting of Shareholders following

their publication. The General Meeting is also

entitled to vote on a revision of the financial

statements.

A copy of the consolidated financial state-

ments is available at www.vapo.fi or from the

head office of the parent company.


During the past financial period, Vapo Group revised its measurement

principles for peat inventories. The calculation of the normal production

rate and cost items capitalised in inventories were specified further. In

addition, it was decided to capitalise fixed peat production expenses

only during the production season (April–November), as work carried

out during the winter mainly serves sales logistics.

Because previously adopted financial statements have not been

adjusted, the impact of the changes in shareholders’ equity is seen in

the retained earnings value of the opening balance sheet of 1 January

2012. The change in the comparison financial period 2012 is thereby

recorded through the statement of comprehensive income statement.

In the calculation of shareholders’ equity above, the cumulative retained

earnings of the 2012 opening balance sheet have been adjusted by EUR

–6,502,600 and the comprehensive income for the 2012 financial period

has been adjusted by EUR 3,320,700.

The effect of the change in the measurement principle on the profit

for the comparison financial periods and difference in retained earnings

compared to the previously reported figures is presented in the table below:

EUR 1,000 Result for the periodOpening balance of cumulative

retained earnings

–2,812,7

2010 1,807,1

2011 –4,103,2

2012 3,320,7 –6,502,6

The comparison data has been adjusted

in the table of key figures at the end of the

financial statements.

Change in the accounting policy for inventories concerning prior periods

83Vapo 1.1.2013–30.4.2014

MEUR 2010 2011 2012 04/2014

Turnover 573.7 705.0 847.4

Growth % 25.4 –2.0 –7.4 29.8

Operating margin (EBITDA) 76.4 52.2 110.9

% of turnover 13.3 12.7 5.6 8.0 13.1

Depreciation –41.4 –46.2 –42.0 –54.2

Impairments –0.1 –6.3 –37.5 –0.6 –3.8

Operating profit EBITA 41.2 –44.3 50.1

% of turnover 6.1 5.7 –6.3 1.4 5.9

Operating profit before impairment 35.0 47.5 53.9

% of turnover 6.1 6.6 –1.0 1.5 6.4

Net financial items 0.8 –8.3 –6.4 –17.2

Profit/loss before taxes 25.5 42.0 –52.6 2.8 32.9

Taxes –7.2 –10.1 11.1 3.3 –10.5

Result for the period 18.4 –41.5 6.1 22.4

Return on invested capital % 5.4 5.7 –6.1 1.4 3.9

Return on invested capital before impairment % 5.4 6.6 1.4 4.4

Restricted capital on average 721.7 726.8 677.4 669.8

Turnover of restricted capital (turnover/restricted capital on average) 1.0 1.0 1.0 0.9

Average working capital 145.8 181.7 164.1 122.8 129.1

Average working capital % of turnover 25.4 25.3 23.3 18.8 21.7

Restricted capital at the end of the year 703.7 770.3 705.7 651.5

Working capital at the end of the year 183.2 211.1 110.1 137.6

Gross investments 48.0 65.0

% of turnover 14.1 11.2 13.4 7.4 7.7

Gross investments / depreciation 2.0 1.8 2.0 1.1 1.2

Operating margin 76.4 52.2 110.9

+/- Change in working capital –28.3 –28.0 62.1 –27.5

- Net investments –74.6 –81.2 –29.1

Free cash flow before taxes –21.6 –11.4 20.5 64.2 54.2

Balance sheet total 862.8 801.7 786.9

Shareholders’ equity 320.6 338.7 288.5 298.6

Shareholders’ equity (average) 318.0 333.4 324.8 299.2

Interest-bearing debt 370.0 422.2 422.8 368.2 340.2

Interest-bearing net debt 364.3 414.8 416.7 329.0

Equity ratio % 37.5 33.3 39.4

Gearing % 111.6 145.8 123.4 110.3

Interest-bearing net debt/operating margin 4.8 4.6 10.5 6.8 4.4

Liquidity 1.3 1.5 1.3 1.1 1.3

Return on equity % 5.8 –12.8 2.1 1.2

Dividend distribution 12.0 15.0 0.0 10.0 0.0

Dividend % of profit * 68.3 48.7 0.0 0.0

Personnel on average 1,451 1,333 1,226 1,154 1,091

Key figures per share

Number of shares 30,000 30, 000 30,000 30,000 30,000

Earnings/share. EUR * 585 1,027 0 176 683

Shareholders’ equity/share. EUR 10,543 9,763

Dividend/share. EUR 400 500 0 333 0


84Vapo 1.1.2013–30.4.2014


Principles for calculating key figures

The principles for calculating key figures have been amended: Average balance sheet values have been calculated as the full-year average (5 points) instead of the previous average of opening and closing

balance sheet. The calculation formula of invested capital has been amended.

EBITDA = Operating profit + Depreciations and impairment +/–Shares of associated companies’ results

Working capital = Inventories + Non-interest-bearing receivables of businesses – Non-interest-bearing debt

Restricted capital = Division Investments + working capital

Turnover of restricted capital =Turnover rolling 12 months

Restricted capital (on average)

Return on invested capital % (ROIC) =Operating profit rolling 12 months

× 100Restricted capital (on average)

Return on equity % =Profit before taxes rolling 12 months – income tax

× 100(Shareholders’ equity + minority interest) on average

Liquidity =Short-term on-interest bearing receivables

Short-term non-interest-bearing liabilities

Equity ratio % =Shareholders’ equity + minority interest

× 100Balance sheet total – Advances received

Interest-bearing net debt = Interest-bearing debt – Interest-bearing loans receivable – Cash and cash equivalents

Gearing % =Interest-bearing net debt

× 100Shareholders’ equity + minority interest

Free cash flow before taxes = EBITDA +/– Change in working capital – net investments

Earnings/share =Profit attributable to owners of the parent company

Number of shares

Shareholders’ equity / share =Parent company’s shareholders’ equity

Number of shares

Dividend /share =Distribution of dividend for the financial period

Number of shares

Dividend / profit % =Dividend / share

× 100Earnings / share

Editor-In-Chief: Vapo, Ahti Martikainen, Director, Communications and Public Affairs

Design and concept: Kreab Gavin Anderson Oy

Photos: Teemu Tervo, Otto Inkiläinen, Petri Juntunen, Olli Reinikainen,

Pekka Virolainen, Tuomo Vilkkilä, Shutterstock

Printing house: Multiprint

Vapo is products, services and energy from peat and wood Vapo is a modern expert organisation that supplies peat and wood fuels to its energy

customers and produces heat and electricity from these local raw materials. The Vapo Group’s product range includes also timber by Vapo Timber and garden products and environmental

business solutions marketed under the Kekkilä and Hasselfors Garden brands.

2 CEO’S REVIEW

4


Customer focus, costefficiency

and good leadership!

6 Interesting facts

8 The present and the future

10 A rewarding feeling for a job well

done

12 Up-to-date information on im-

pacts on watercourses

Vapo Oy

P.O. Box 22, FI-40101 Jyväskylä, Finland

Yrjönkatu 42


Tel: +358 20 790 4000

Fax: +358 20 790 5601

E-mail: [email protected]

www.vapo.com

Vapo 1.1.2013–30.4.2014

14 Permits are a matter of matching

the needs of the environment with

the needs of customers

18

19

Cut-away areas turn into mires

only in few decades

Land use after peat production

20 Multipurpose wetlands in

Janakkala

21 Vapo has a clear vision of water

23 Talk about peat

26 Natural purification or chemical

treatment

28 Vapo is a significant local

employer

58 FINANCIAL PERIOD IN

A NUT SHELL

60 GROUP MANAGEMENT

62 BOARD OF DIRECTORS

63 CORPORATE GOVERNANCE

67 RISK MANAGEMENT

68 FINANCIAL STATEMENTS

68 BOARD OF DIRECTORS’ REPORT

79 CONSOLIDATED FINANCIAL STATE-

MENTS

80 CONSOLIDATED BALANCE SHEET

81 CONSOLIDATED CASH FLOW

STATEMENT

82 CONSOLIDATED STATEMENT OF

CHANGES IN SHAREHOLDERS’

EQUITY

83 KEY FIGURES

84 PRINCIPLES FOR CALCULATING

KEY FIGURES

REVIEWS BUSINESS FINANCIAL STATEMENTS

The report you are holding concerns Vapo Oy’s extended financial year 1 January 2013–

30 April 2014. Because comparing the figures between financial years with differing

durations is now difficult, instead of numbers we have focused on telling you about our

operations, strategy, products and operating principles in the style of a magazine. The

underlying themes of the stories are responsibility for the environment, responsibility for

our customers as well as responsibility for employment in the areas where we operate.

Ahti Martikainen

Editor-in-chief

32 BUSINESS OPERATIONS

VAPO PEAT PRODUCTS

34 Continuous training keeps the

wheels turning

36 Hooves firmly in peat

VAPO HEAT AND POWER

38 Vapo revises the pricing of district

heating

40 Small streams make a large river

VAPO WOOD FUELS

42 Vapo believes in wood energy

4446


Energy-efficient blocks of flats

under development in Kivikko

VAPO TIMBER OY

48 Utilisation rate, lumber recovery

factor and customer service are

the cornerstones of operations

50 A sawmill creates jobs

KEKKILÄ GROUP

52 Positive vibrations in all markets

54 Growth from product

development

56 A good idea stumbles on EU

legislation

Fore

word

VAP

O 1.1.2013–30.4.2014

Transparency is important for Vapo, which is why we ordered

30 continuously operating measuring stations from Metso

Automation Oy. The equipment installed by Metso monitor

water flow, temperature, chemical oxygen demand, solids,

dissolved organic carbon and its total quantity. The measuring

stations will be located around Finland at production areas of

different sizes and ages to ensure that we obtain accurate data

on the emissions into waterways from our peat production

areas. The data will be available online for the public to view

approximately 24 hours after measurement. ”The results of the

measurements have a higher than 90 per cent correlation with

laboratory measurements,” says Tiina Stenvik, Senior Manager

at Metso Automation.The measurement data can be accessed

via the Producing Peat Responsibly section on the Vapo

website. http://www.vapo.fi/producing-peat-responsibly/

Continuously operating measuring stations from Metso Automation Oy

Vapo OyP.O. Box 22, FI-40101 Jyväskylä, Finland

Yrjönkatu 42


Tel: +358 20 790 4000

Fax +358 20 790 5601

e-mail: [email protected]

www.vapo.com

VAPO1.1.2013–30.4.2014

We act responsibly - employ locally

Documents

Vapo Annual Report 2014 · 30 continuously operating measuring stations from Metso Automation Oy. The equipment installed by Metso monitor water ﬂow, temperature, chemical oxygen