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transcript
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: firstname.surname@vapo.fi
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
FI-40100 Jyväskylä, Finland
Tel: +358 20 790 4000
Fax: +358 20 790 5601
E-mail: firstname.surname@vapo.fi
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.
OPERATIONAL ENVIRONMENT
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
OPERATING ENVIRONMENT
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”
OPERATIONAL ENVIRONMENT
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.
OPERATIONAL ENVIRONMENT
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”
OPERATIONAL ENVIRONMENT
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.
OPERATIONAL ENVIRONMENT
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
OPERATING ENVIRONMENT
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.
OPERATING ENVIRONMENT
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
Vapo is a reliable partner
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
With Vapo since 2008
Suvi Kupiainen
M.Sc. (Econ. & Bus. Adm.)
Chief Financial Officer
With Vapo since 2011
Markus HassinenBusiness Area Director, Vapo Heat and Power
With Vapo since 2011
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
With Vapo since 2011
Kari Poikolainen
Master of Laws
Matti Puuronen(Eng.)
Managing Director, AS Tootsi Turvas
Torbjörn Claesson(Eng.)
Managing Director, Neova AB
With Vapo since 2007
Jyrki VainionpääChief Operating Officer. With Vapo since 2011
Petri AlavaManaging Director, Kekkilä Oy
With Vapo since 2005
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
CORPORATE GOVERNANCE
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
CORPORATE GOVERNANCE
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
CORPORATE GOVERNANCE
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
BOARD OF DIRECTORS’ REPORT
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
extended financial year 1 January 2013 – 30
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
BOARD OF DIRECTORS’ REPORT
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
extended financial year 1 January 2013 – 30
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.
BOARD OF DIRECTORS’ REPORT
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
BOARD OF DIRECTORS’ REPORT
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
BOARD OF DIRECTORS’ REPORT
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
BOARD OF DIRECTORS’ REPORT
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.
BOARD OF DIRECTORS’ REPORT
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
BOARD OF DIRECTORS’ REPORT
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’ REPORT
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
BOARD OF DIRECTORS’ REPORT
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
FINANCIAL STATEMENTS
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
FINANCIAL STATEMENTS
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.
FINANCIAL STATEMENTS
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
FINANCIAL STATEMENTS
84Vapo 1.1.2013–30.4.2014
FINANCIAL STATEMENTS
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
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
FI-40100 Jyväskylä, Finland
Tel: +358 20 790 4000
Fax: +358 20 790 5601
E-mail: firstname.surname@vapo.fi
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
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: firstname.surname@vapo.fi
www.vapo.com
VAPO1.1.2013–30.4.2014
We act responsibly - employ locally