Vapo sheds 400,000 tonnes of pellets

The company says that the market outlook for the pellet business has continued to weaken in
key customer segments and markets. The excess capacity situation that
has continued for a long time, combined with increased imports to
Europe, has reduced the market price to a level that often does
not cover production and transportation costs.
 
Since 2000
Vapo has invested almost EUR 90 million in pellet production.
Investments were based on expectation that renewable energy sources
would quickly replace fossil fuels.  Demand for pellets and the business
environment, including subsidies and tax policy, have not met company
expectations. Vapo has exported its over supply of pellet production from
Finland to Scandinavian and Central European markets, even though the
export business has been unprofitable.  From its beginning, pellet
production has generated cumulative loss of appr. EUR 40 million to
Vapo.
 
As the market outlook for the pellet business does not
show any improvement in near future, Vapo has decided to close down it
pellet plants in Ilomantsi, Haapavesi and Kaskinen in Finland. Vapo is
also going to abandon its port facilities in Riga and is preparing to
adjust its production capacity in Sweden.  In the past few years, the
production plants to be closed down in Finland have operated at less
than 30% capacity.  Vapo is preparing to make a write off at least EUR
29 million in the financial statements for the current year. In addition
to the plants to be closed down, Vapo will make write-offs to the
remaining pellet plants and the rest of the pellet infrastructure. As
the personnel of Vapo’s pellet plants in Finland have been outsourced to
Maintpartner, the close-down will not have direct impact on Vapo’s
personnel. The number of personnel of the mills to be closed down has
been 19.
 
After the reorganisation, Vapo will have pellet plants
in Kärsämäki, Ylistaro, Turenki, Haukineva and Vilppula in Finland, in
Forsnäs, Främlingshem, Vaggeryd and Ljusne in Sweden, in Slubice in
Poland and in Vildbjerg in Denmark. As the result of the adaptation
measures, Vapo’s annual pellet production capacity will
decrease from 900 000 tonnes to appr. 500 000 tonnes. Vapo’s pellet
production in the current year will be about 500 000 tonnes, or an average of just over 45,000 tonnes per plant, reflecting a scale much smaller than the pellet importers it competes with. The annual
turnover from pellet production at the current volume level is appr. EUR
90 million.
 
According to Vapo’s CEO, Tomi Yli-Kyyny, these
measures are necessary to improve Vapo’s profitability.  “In terms of
production capacity, Vapo is an indisputable market leader in Finland,
but the decrease in the world market prices and increase in the
production costs left us no alternative.  In line with our strategy,
Vapo will continue to invest also in bioenergy and pellets will be part
of our bioenergy portfolio offered to our customers”, Tomi Yli-Kyyny
states