Tornator’s strong performance remains steady – forest acquisitions of almost 15,000 hectares improved the company’s growth prospects

Tornator Oyj

Half-year report – stock exchange release, 20 August 2024 at 4.00 pm

Tornator’s strong performance remains steady – forest acquisitions of almost 15,000 hectares improved the company’s growth prospects

SUMMARY 1 JAN – 30 JUNE 2024 (1 JAN – 30 JUNE 2023)

• Turnover increased by 1.0% to €85.1 million (84.2). The volume of wood deliveries was slightly lower than in the comparison period, but the high demand for wood pushed up unit prices.
• The operating profit was at the same level as in the comparison period, €60.0 million (60.8). The operating profit as reported in accordance with the International Financial Reporting Standards (IFRS) was €60.8 million (131.0).
• Tornator continued to purchase forestland in Finland. Nearly 15,000 hectares of new forestland was acquired, with a total investment of almost €50 million.
• The company restored 115 hectares of peatland and burned 41 hectares of forest as part of its 10-year Biodiversity Program. 
• IFRS profit at fair value for the reporting period was €40.1 million (100.0). The change in the fair value of interest rate instruments was +€1.1 million (+2.6) before taxes. The change in the fair value of biological assets was -€0.5 million before taxes (+63.4).
• Comparable return on equity was 3.5% (4.2) and 3.7% (10.1) at fair value. The equity ratio was 60.1% (59.5).

Key figures (consolidated)

	H1/2024	H1/2023	Change, %
Net sales, € million	85.1	84.2	1 %
Operating profit (IFRS), € million	60.8	131.0	-54 %
Operating profit, %	71.5	155.5	-54 %
Profit for the period (IFRS), € million	40.1	100.0	-60 %
Return on equity, %	3.7	10.1	-64 %
Return on capital employed, %	4.2	9.3	-55 %
Equity ratio, %	60.1	59.5	1 %
Average number of personnel	187	188	-1 %
The key figures are calculated according to the International Financial Reporting Standards (IFRS).

Comparable key figures

	H1/2024	H1/2023	Change, %
Net sales, € million	85.1	84.2	1 %
Operative operating profit, € million	60.0	60.8	-1 %
Operative operating profit, %	70.5	72.2	-2 %
Comparable net profit, € million	38.3	41.3	-7 %
Comparable return on equity, %	3.5	4.2	-16 %
Comparable return on capital employed, %	4.2	4.4	-5 %

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

Operating profit, IFRS	60.8
- Change in fair value of biological assets	+0.5
- Change in fair value of provisions and and receivables    from additional wind power sales prices	-1.3
= Operative operating profit, comparable	60.0
Profit for the period, IFRS	40.1
- Change in fair value of biological assets	+0.5
- Change in fair value of provisions and long-term receivables	-1.3
- Change in fair value of financial instruments	-1.1
- Share of taxes of above mentioned items	+0.1
= Comparable net profit	38.3

CEO Henrik Nieminen:

Steady returns sustainably

For Tornator’s owners, steadiness is a virtue to strive for. Compared to many cyclical industries, forestry provides owners with reasonable and steady long-term returns with moderate risk. In addition to annual yields, sustainable forestry involves preserving the value of assets and ensuring that forests are passed on to future generations in healthy condition and able to grow. Tornator has been meeting the expectations of its owners since its beginning over two decades ago, and the first half of 2024 was no exception.  The company’s committed personnel implemented its strategy of sustainability, partnership and growth with professionalism and determination. The collaboration with our key client Stora Enso was seamless, and significant progress was made in improving operational predictability, which is important to both parties. The timber delivery progressed as planned, and thanks to joint process development, the silviculture services business reached a growth milestone, with turnover increasing by more than 50 per cent. Thanks to the efficiency of operations, there were no material changes in the company’s costs, while the interest expenses reflected the rise in market interest rates. As an important part of our growth strategy, we succeeded in acquiring almost 15,000 hectares of new forestland in Finland. Under Tornator’s ownership, these forests will qualify for double certification and the objectives of our Biodiversity Program and Climate Program. Also noteworthy is the employment effect of the purchased forestland in dispersed areas and the inflow of corporation taxes to Finland.             

Tornator supports biodiversity

The outlook for timber demand is good. There are many uses for renewable, sustainably produced raw material, and the demand for wood products is being driven by several megatrends. The use of forests is also being widely discussed. In Finland, the European Union’s recent Nature Restoration Regulation was a hot topic in various media. Tornator’s position is clear: we support the EU’s objectives to restore nature and safeguard biodiversity. Environmental and sustainability principles are not in conflict with each other, and different uses of forests can be reconciled in the commercial forests we manage. Tornator’s own Biodiversity Program for the 2021–2030 period includes many impactful restoration objectives, such as restoring marshland and habitats. The degree of achievement of these objectives will be measured and progress will be reported regularly. For example, the three-year project set up to protect running waters by Tornator, WWF and Stora Enso was again fruitful in various ways, in stream restoration, for example.

Supply chain development: a major priority

In terms of social responsibility, it is essential to take care of working conditions throughout the value chain. In the big picture, we identify challenges in the use of foreign labour, especially in the case of less experienced contractors and subcontractors. This is why increasing the ethical sustainability of the contracting chain is one of our key priorities. We train and help contractors to meet their employer obligations, and have, for example, developed multilingual silviculture and occupational-safety manuals and online courses for foreign workers. As a client, we closely monitor the supply chain and tackle any problems that we become aware of. We value the work of the Regional State Administrative Agency in promoting legal protection, fundamental rights and fair and safe working environments. Without foreign labour, the forestry sector will not survive. Combating climate change requires healthy, well-managed forests, and Finnish resources are no longer sufficient to cope with this huge workload. Operators in many other sectors have reached the same conclusion. However, the client must take overall responsibility for ethical treatment of workers, regardless of whether they are Finnish or foreign.    

Renewable energy and digital development

During the first half of the year, Tornator once again signed several land lease agreements with energy operators for the development of wind and solar power. As a major landowner, Tornator is well placed to diversify its revenue streams while contributing to the green transition. Digital development has made Tornator’s silviculture operations more efficient and improved risk management. The company has created a number of applications for large-scale forest ownership, both in-house and with consultancy partners. These include applications for road management, remote sensing of the need for tending of seedling stands, and biodiversity monitoring. Training in the use of AI is provided extensively to all personnel. 

Good relations with financial markets

To finance growth, Tornator has established and maintained good and diversified relationships with financiers. At the Capital Markets Day events and one-to-one meetings, Tornator has ensured that up-to-date information and views are communicated both to credit banks and debt capital investors. To reduce the market risk related to the timing of maturities, the company prepares for significant refinancing of loans well in advance. Thanks to interest rate hedges, changes in market interest rates do not fully affect the company’s financing cost.  

Investing in personnel

Thanks to its profitable growth in recent years, Tornator has been able to recruit many new forestry professionals for various positions. Along with the forestland itself, skilled personnel are the company’s most valuable asset, of which we want to take the best possible care. One important part of our growth strategy is personal growth, and projects related to improving well-being at work aim to continuously enhance the motivation, competence and job satisfaction of our personnel. In addition to the previous economic and environmental criteria, the long-term monetary incentive scheme was complemented by a social responsibility criterion, measured by the personnel’s satisfaction with the company (employer net promoter score, eNPS).    

Good outlook for the rest of the year

Tornator’s prospects for the remainder of 2024 look promising. Demand and prices for timber will remain good, and the company has secured cash flows through a long-term binding timber sales agreement. All of Tornator’s personnel have shown that they are motivated and capable of managing the company’s forests responsibly and with the highest degree of professionalism. Tornator is entering the final stretch of the current strategy period on a firm footing, and the success of the new strategy period will be ensured by involving all the personnel in its preparation. Tornator’s vision is challenging but rewarding: we want to be the forerunner in responsible use of forests.     

Effects of the war in Ukraine

Russia’s invasion of Ukraine and the consequent general economic instability did not have any major negative impact on Tornator’s performance, balance sheet or cash flows. Tornator’s turnover and operating profit were historically high during the reporting period. Cash flow from operating activities was also good. The company has not experienced an increase in credit losses or financial risks, nor a decrease in the value of its assets. The contractors used by Tornator have found replacement labour for the Ukrainian seasonal workers, so the forest management operations have not been jeopardised. We have facilitated aid deliveries to Ukrainians suffering from the Russian invasion through our Romanian subsidiary, and we will continue this support for as long as necessary.

Notable events during the reporting period

Timber deliveries were well realised at approximately 1.5 million cubic metres (1.7) and €76.7 million (79.0). The improved outlook for the forestry industry, the raw material needs of the energy sector, and the decrease in imported wood on the market have increased the demand and price of renewable wood raw material. Thanks to excellent customer collaboration, the timber harvesting went smoothly, and the silviculture services business took a leap forward.   

The turnover of silviculture services increased to €6.6 million (4.2). In total, the group recorded €1.9 million (1.0) in real estate turnover. Other income totalled €2.9 million (2.1).

The impact on profit of the changes in the fair value of interest rate instruments was +€1.1 million (+2.6) from the beginning of the year. At the end of June, the fair value of interest rate derivatives was positive by €36.6 million (31 December 2023: +35.5). The fair value of forests at the end of June was €3,490.7 million (31 December 2023: 3,455.5)

Business environment 

At the beginning of the year, a global increase in demand for timber products pushed up the prices of both sawn timber and pulp. Approximately 29.4 million cubic metres of industrial wood was felled in Finland during the period between January and June. The felling volume was slightly less than in the corresponding period in 2023 (30.3 million m³).

The improved outlook for the forestry industry, the raw material needs of the energy sector, and the absence of imported wood from Russia in the market have led to a positive development in timber prices. Market prices for timber have risen to record highs since the beginning of the year. The average price of sawlogs in the period between January and June has been on average 5% higher than in the previous year, and the price of pulpwood log has been around 15% higher than in the previous year.

Demand for leisure building plots was modest. For forestland, supply continued to be lower than demand, although price increases were more moderate than in recent years.  

In Estonia, the price level of timber fell clearly from the previous year. Prices in the forestland market remained high.  

In Romania, the price level of timber fell clearly from the previous year. The forestland markets were quiet. 

Finance

The group’s financial position remained good, and cash flow from operations before financial items was €34.8 million (47.5).

The group’s net financing expenses during the period between January and June were -€11.9 (-8.5) million. Tornator’s interest-bearing liabilities amounted to €954.9 million (31 December 2023: 947.7), of which long-term liabilities amounted to €649.4 million (31 December 2023: 849.0) and current liabilities to €305.5 million (31 December 2023: 98.8).  

In the period under review, the net cash flow impact of the company’s investments was -€21.3 million (-50.7). Cash flow from financing activities was -€28.2 million (+19.3). Liquid financial assets and cash and cash equivalents on 30 June 2024 amounted to €7.4 million (31 December 2023: 40.5).  The company’s bank account has an overdraft limit of €10 million, and the company also has a committed revolving credit facility of €200 million, available for withdrawal in full on the date of reporting. On the date of reporting, €107 million of Tornator’s €300-million commercial paper programme is in use.

Estimate of future development

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

The forest industry is expected to continue its positive performance, and the demand for timber is expected to remain good. Market prices for timber are expected to remain at the current level, at least for the short term. In the forestland market, prices are likely to remain at the level of the early part of the year. Silviculture will be continued according to the normal annual cycle, and development projects for the digital roadmap will be carried out as planned.

Decisions of the Annual General Meeting

The Annual General Meeting of Tornator Oyj, held on 8 March 2024, decided to distribute a dividend of no more than €7.0 per share, totalling €35 million, as proposed by the Board of Directors. In addition, the Annual General Meeting authorised the Board of Directors to decide on an additional dividend of the same amount during the remainder of 2024. No decision on the distribution of the additional dividend has been taken by the date of reporting. The Annual General Meeting approved the financial statements for the financial period 2023 and discharged the members of the Board of Directors and the CEO from liability. Furthermore, PricewaterhouseCoopers was elected as the auditor. The Annual General Meeting elected the following members and deputy members to the new Board of Directors:

Ordinary member	Deputy member
Hanna Kaskela	Sampsa Ratia
Tuomas Virtala	Erkko Ryynänen
Seppo Toikka	Jari Suvanto
Esko Torsti	Ilja Ripatti

Organisation of the Board of Directors

On 8 March 2024, the new board elected Esko Torsti as the chairperson and Hanna Kaskela as the deputy chairperson. Tuomas Virtala was elected as a member of the Remuneration Committee in addition to the aforementioned two persons. The committee reports to the board. Hanna Kaskela was elected as the chairperson of the Oversight Committee, while Esko Torsti and Tuomas Virtala were elected as members and Seppo Toikka as a deputy member.

The minutes of the Annual General Meeting are available in full on the company’s website at www.tornator.fi/en/investors.

Notable events after the end of the reporting period

No notable events took place after the end of the reporting period.  

Major shareholders, 30 June 2024

Shareholder	%
Stora Enso Oyj	41,00 %
Keskinäinen eläkevakuutusyhtiö Ilmarinen	23,13 %
Keskinäinen työeläkevakuutusyhtiö Varma	15,33 %
OP Henkivakuutus Oy	6,25 %
OP-Metsänomistaja -erikoissijoitusrahasto	5,00 %
OP-Eläkesäätiö	2,08 %
Pensionsförsäkringsaktiebolaget Veritas	2,50 %
Finnairin Eläkesäätiö	2,18 %
Pohjola Vakuutus Oy	1,04 %
Riffu Oy	0,75 %
Danilostock Oy	0,75 %
Total	100,00 %

For further information, please contact:

Chief Executive Officer (CEO) Henrik Nieminen, tel. +358 40 869 7613
Chief Financial Officer (CFO) Antti Siirtola, tel. +358 40 773 0975
www.tornator.fi/en

Tornator is a leader in sustainable forestry in Europe. It owns forests in Finland, Estonia and Romania. In 2023, the group’s turnover was approximately €195 million, and the balance sheet value was about €3.6 billion. The group has around 190 employees. Tornator’s own employees, and other companies and their employees working on its forestland, add up to around 1,600 person-years of employment. The owners of the parent company are Finnish, mainly institutional investors. Tornator’s mission is to generate sustainable wellbeing from forests.

Tables – Condensed half-year financial statements

Condensed Consolidated Income Statement

EUR thousand		30 June 2024		30 June 2023		31 Dec 2023
		(unaudited)		(unaudited)		(audited)
Net sales		85,056		84,204		194,895
Other operating income		3,269		4,391		4,895
Change in fair value of biological assets and harvesting		-498		63,420		295,747
Change in inventories of finished goods and work in progress		-459		-254		-544
Materials and services		-14,513		-12,437		-35,357
Personnel expenses		-5,692		-5,584		-11,036
Depreciation and amortisation		-1,674		-1,653		8,447
Reversal of impairment				3,400
Other operating expenses		-4,684		-4,528		-14,160
Operating profit		60,805		130,959		442,888
Financial income		4,994		982		6,392
Financial expenses		-18,039		-12,088		-30,039
Change in fair value of financial instruments		1,111		2,636		-5,534
Net financial items		-11,934		-8,470		-29,181
Profit before tax		48,871		122,490		413,708
Income taxes		-9,019		-9,510		-19,163
Change in deferred taxes		269		-13,004		-53,900
Profit for the period		40,121		99,976		340,644
Distribution:
To shareholders of the parent company		40,121		99,976		340,644
Consolidated statement of comprehensive income
Profit for the period		40,121		99,976		340,644
Other comprehensive income for the period after taxes:
Items not recognised later through profit and loss
Other items of comprehensive income (after taxes)						-2
Items that may later be recognised through profit and loss
Translation difference		-14		-29		-135
Revaluation of forest land		-11,796		2,137		-57,088
Comprehensive income for the period total		28,311		102,084		283,419
Distribution:
To shareholders of the parent company		28,311		102,084		283,419
Condensed consolidated balance sheet
EUR thousand	30 June 2024		30 June 2023		31 Dec 2023
	(unaudited)		(unaudited)		(audited)
ASSETS
Non-current assets
Forest assets	3,490,743		3,219,492		3,455,543
Biological assets	3,183,580		2,844,251		3,139,184
Bare land	307,163		375,242		316,358
Other property, plant and equipment	15,805		15,737		16,306
Intangible assets	2,307		1,734		2,331
Right-of-use assets	1,606		1,820		1,818
Derivatives	36,632		43,692		35,516
Other investments	111		111		111
Non-current receivables	17,679		10,447		17,385
Non-current assets total	3,564,884		3,293,034		3,529,010
Current assets
Inventories	67		90		55
Accounts receivable and other receivables	48,516		62,139		30,572
Investments			932		30,567
Cash and cash equivalents	7,368		5,604		40,500
Current assets total	55,951		68,765		101,694
Total assets	3,620,835		3,361,799		3,630,705
EQUITY AND LIABILITIES
Equity attributable to shareholders of the parent company
Share capital	50,000		50,000		50,000
Other equity	2,118,577		1,943,931		2,125,266
Total equity	2,168,577		1,993,931		2,175,266
Liabilities
Non-current liabilities
Deferred tax liabilities	455,322		433,361		458,541
Financial liabilities	649,432		799,103		848,959
Lease liabilities	1,399		1,578		1,565
Other non-current liabilities	148		186		148
Non-current liabilities total	1,106,301		1,234,228		1,309,212
Current liabilities
Financial liabilities	305,484		98,351		98,771
Accounts payable and other payables	28,672		23,025		33,460
Income tax liabilities	611		1,646		1,829
Lease liabilities	320		340		357
Provisions	10,871		10,278		11,810
Current liabilities total	345,958		133,640		146,227
Total liabilities	1,452,258		1,367,868		1,455,439
Total equity and liabilities	3,620,835		3,361,799		3,630,705

Statement of changes in equity

EUR thousand	Share capital	Share premium	Translation difference	Revaluation reserve	Retained earnings	Total equity
Equity 1 January 2024	50.000	29,995	-11,012	154,336	1,951,946	2,175,265
Comprehensive income
Profit for the period					40,121	40,121
Other items of comprehensive income (after taxes)
Revaluation of forest land				-11,796		-11,796
Translation difference			-14			-14
Comprehensive income for the period			-14	-11,796	40,121	28,311
Transactions with shareholders
Dividends paid					-35,000	-35,000
Total transactions with shareholders					-35,000	-35,000
Equity 30 June 2024 (unaudited)	50,000	29,995	-11,026	142,541	1,957,067	2,168,577
Equity 1 January 2023	50,000	29,995	-10,877	211,424	1,671,304	1,951,847
Comprehensive income
Profit for the period					99,976	99,976
Other items of comprehensive income (after taxes)
Translation difference			-29			-29
Comprehensive income for the period			-29	2,137	99,976	102,084
Transactions with shareholders
Dividends paid					-60,000	-60,000
Total transactions with shareholders					-60,000.0	-60,000.0
Equity 30 June 2023 (unaudited)	50,000	29,995	-10,906	213,562	1,711,280	1,993,931
Equity 1 January 2023	50,000	29,995	-10,877	211,424	1,671,304	1,951,847
Comprehensive income
Profit for the period					340,644	340,644
Other items of comprehensive income (after taxes)
Revaluation of forest land				-57,088		-57,088
Items derived from the redefinition of net defined benefit liability (or asset items)					-2	-2
Translation difference			-135			-135
Comprehensive income for the period			-135	-57,088	340,642	283,419
Transactions with shareholders
Dividends paid					-60,000	-60,000
Total transactions with shareholders					-60,000.0	-60,000.0
Equity on 31 Dec 2023	50,000	29,995	-11,012	154,336	1,951,946	2,175,265

Condensed statement of cash flows
EUR thousand	1 Jan - 30 Jun 2024	1 Jan - 30 Jun 2023	1 Jan – 31 Dec 2023
Cash flow from operating activities
Cash receipts from transactions in forestry	65,539	72,113	199,773
Cash receipts from transactions in land sales	1,859	968	1,828
Cash receipts from other operating income	4,080	3,152	6,096
Cash paid to suppliers and employees	-36,642	-28,737	-49,792
Cash flow from operating activities before financial items and taxes	34,836	47,496	157,904
Interest paid, interest-bearing debt	-11,902	-8,536	-24,990
Interest received		-142	-264
Other financial expenses	-1,223	-1,016	-2,916
Interest received, operating activities	1,698	788	2,728
Interest received, derivatives	3,251		3,226
Income taxes	-10,237	-20,783	-30,102
Cash flow from operating activities	16,423	17,807	105,585
Cash flow from investing activities
Investments in biological assets	-45,312	-43,872	-106,786
Investments in tangible assets, forestland	-5,600	-5,422	-13,198
Investments in other tangible and intangible assets	-964	-868	-3,508
Investments in money market investments		-576	-30,212
Proceeds from sale of money market investments	30,567
Cash flow from investing activities	-21,310	-50,738	-153,704
Cash flow from financing activities
Withdrawal of long-term loans			100,001
Withdrawal of short-term loans	6,933	79,485	29,754
Repayment of leasing liabilities	-178	-174	-353
Dividends paid	-35,000	-60,000	-60,000
Cash flow from financing activities	-28,244	19,311	69,402
Net increase/decrease in cash and cash equivalents	-33,132	-13,620	21,284
Cash and cash equivalents at beginning of period	40,500	19,244	19,244
Effect of exchange rate changes on cash and cash equivalents	-1	-21	-28
Cash and cash equivalents at end of period	7,368	5,604	40,500

Attachment

• Tornator Oyj Half-year report 30 June 2024