VR Group Half-year Report 1 January – 30 June 2023

VR-Group Plc, Half-year Report, 30 August 2023 at 10:15 a.m. EEST 

VR Group Half-year Report 1 January – 30 June 2023

VR Group’s profitability improved as the number of journeys in VR Long-distance Traffic grew and exceeded the pre-pandemic level, largely thanks to leisure travel. The profitability of VR City Traffic was still negatively affected by the terms of long-term agreements, changes in the inflation environment, and acquisition-related integration costs. In VR Transpoint, the weakening business cycle in the industrial sector and the effects of the discontinuation of Eastern traffic led to a decline in net sales. VR is committed to support the Finnish Government in implementing the Government Programme and to promote the growth of the rail market through infrastructure investments and increased competition.

April-June 2023 (Q2):

• The Group’s net sales increased by 30.0% to EUR 312.7 (240.6) million.
• Comparable net sales without the effects of the business acquisition in Sweden completed on 1 July 2022 increased by 4.0% to EUR 250.3 million.
• Comparable operating result (EBIT) was EUR 15.7 (5.4) million or 5.0% (2.3%) of net sales.
• Operating result (EBIT) was EUR 4.2 (-39.9) million, or 1.3% (-16.6%) of net sales.
• Cash flow from operating activities was EUR 55.4 (56.3) million.
• The number of journeys on long-distance trains increased by 12.4% in April-June, to 3.8 (3.4) million journeys.
• Railway transport volumes in freight traffic decreased by -15.9% and amounted to 6.0 (7.1) million tonnes.

January-June 2023 (H1):

• The Group´s net sales increased by 39.1% to EUR 615.6 (442.7) million.
• Comparable net sales without the effects of the business acquisition in Sweden completed on 1 July 2022 increased by 9.0% to EUR 482.6 million.
• Comparable operating result (EBIT) was EUR 15.4 (-19.5) million or 2.5 % (-4.4 %) of net sales.
• Operating result (EBIT) was EUR 7.0 (-64.8) million or 1.1 % (-14.6 %) of net sales.
• Cash flow from operating activities was EUR 83.6 (59.3) million.
• The number of journeys on long-distance trains increased by 28.4% to 7.2 (5.6) million journeys.
• The railway transport volumes of VR Transpoint decreased by -20.2% and amounted to 11.8 (14.9) million tonnes.
• VR invested into procuring new rolling stock for night train traffic from Škoda Transtech Ltd. The value of the equipment acquisition is approximately EUR 50 million.
• VR's business structure was renewed as of 1 January 2023 and business segments are VR Long-distance Traffic, VR City Traffic and VR Transpoint.

Key figures	4-6/2023	4-6/2022	1-6/2023	1-6/2022	1-12/2022
Net sales, M€	312.7	240.6	615.6	442.7	1,107.0
Comparable EBITDA, MEUR*	60.6	32.0	109.5	42.7	149.0
% of net sales	19.4	13.3	17.8	9.6	13.5
Operating result (EBIT), MEUR	4.2	-39.9	7.0	-64.8	-58.4
% of net sales	1.3	-16.6	1.1	-14.6	-5.3
Comparable operating result (EBIT), MEUR*	15.7	5.4	15.4	-19.5	6.0
% of net sales	5.0	2.3	2.5	-4.4	0.5
Net profit/loss for the period, MEUR	0.2	-22.5	0.8	-37.5	-47.4
Cash flow from operating activities, MEUR	55.4	56.3	83.6	59.3	179.9
Investments, MEUR	42.5	44.6	79.2	74.8	219.8
Capital invested at the end of the period, MEUR	1,784.4	1,873.3	1,784.4	1,873.3	1,862.5
Return on capital employed (ROCE), %	1.8	-5.0	1.4	-4.2	-1.6
Comparable return on capital employed, %	4.3	5.8	2.4	1.2	2.0
Return on equity (ROE), %	0.1	-7.0	0.1	-5.8	-3.7
Net interest-bearing debt at the end of the period, MEUR	379.1	274.1	379.1	274.1	341.9
Gearing, %	31.1	21.4	31.1	21.4	27.4
Number of personnel at end of period	7,870	5,848	7,870	5,848	7,821
* VR Group presents comparable EBITDA and comparable operating result (EBIT) as an alternative performance indicators. The aim of comparable performance indicators is to improve comparability between reporting periods.
Comparable EBITDA uses same definitions of items affecting comparability as comparable EBIT. The calculation formulas for the figures are disclosed in VR Group’s Annual Report for 2022.
The figures are unaudited.
The comparative figures in brackets refer to the corresponding time period in the previous year, unless otherwise stated.
VR Group acquired the Swedish bus and rail operator Arriva Sverige. The transaction was completed on 1 July 2022 and the company’s name was changed to VR Sverige AB.

CEO Elisa Markula:

“VR’s comparable net sales increased by 4% in the second quarter, as the number of domestic long-distance journeys increased. Reported net sales grew by 30%, accelerated by the acquisition carried out in Sweden. Our overall profitability improved thanks to the growth of long-distance traffic, but the negative impacts in the operating environment reduced the result of both city traffic and logistics. We are still in the early stages of pursuing our profit improvement target, and the successful execution of our strategy requires continuous measures to improve the efficiency of operations and achieve closer cooperation across our business units.

The number of journeys in our long-distance traffic increased by over 12% to 3.8 (3.4) million journeys. At the beginning of the year, VR had transferred the VAT reduction directly to customer prices, and the end of the discount at the end of April surprised some of our customers, as ticket prices rose by ten per cent from the beginning of May. However, customer satisfaction of VR’s Long-distance Traffic – as measured by the Net Promoter Score – increased year-on-year and was 8 (41). Punctuality, which is a key factor in customer satisfaction, improved from the previous year and was 87.3 (83.3).

The weak result of the VR City Traffic was attributable to high inflation and the current low profitability of the long-term agreements signed before the pandemic. Index increases to these agreements will have a delayed effect on the profitability of operations. Integration expenses associated with the acquisition carried out in July 2022 also had a negative effect on the segment’s result. In city traffic in Sweden, net sales and profitability will decline compared to last year due to some of the existing agreements expiring and the new agreements not starting until late 2023. VR actively participates in regional competitive tendering for rail and bus contract traffic in Sweden and Finland.

The volumes of our freight transport decreased by 15% due to the weakening of our customers’ business cycles and the discontinuation of Eastern traffic last year. We are in the process of revising our customers’ service models and pricing. Our freight transport business is significantly dependent on the business cycles in the industrial sector, and the weakened business cycle will continue to have a negative impact on transport volumes. We have had to adjust our railway freight operations with temporary lay-offs.

The foundation for our new strategy is a values-based corporate culture, with highly motivated personnel playing a key role in successful strategy execution. We will continue to develop our services and pricing, as well as improve the customer experience, to increase the popularity of train traffic as we move towards a more sustainable future. In city traffic, we seek growth through the continued electrification of our bus services and by participating in competitive tendering for contract traffic in Sweden and Finland. 

VR is seeking EUR 250 million profit improvement measures by 2027 that will enable the financing of its billion-euro rolling stock investments and ensure the company’s continued competitiveness in the future. We will improve our profitability by further developing our commercial models and operational efficiency, improving the efficiency of our sourcing procurement and conducting critical assessments of our fixed costs.

We launched an energy efficiency programme for both traffic operations and real estate at the turn of the year, and we are continuing to implement measures under the programme in all of our business segments. Our efforts to reduce energy consumption improved the energy efficiency of train traffic by approximately 7% in the first half of 2023, corresponding to the annual electricity consumption of approximately 1,000 electrically heated single-family homes.

VR is committed to supporting the Finnish Government in implementing the Government Programme. We are in favour of increasing competition in climate-friendly rail transport, as well as the wide-ranging development of the public transport market as a whole. The Swedish model for organizing the rail transport has proved to be an effective solution over the long term. Adequate and appropriately targeted infrastructure investments and the reduction of the maintenance backlog are the most important prerequisites for the growth of rail traffic, increased competition and the achievement of the emission reduction targets for the transport sector. The fastest way to increase competition is to develop regional contract traffic in passenger train operations by enabling municipalities and joint municipal authorities to organise contract traffic. A public rolling stock company that would lease equipment for publicly funded rail transport, as mentioned in the Government Programme, would contribute to the development of the rail transport market. Long-distance traffic and freight traffic must continue on market terms, which will allow competition to develop freely, in accordance with the free competition model based on EU regulations, without the need for public funding. We will focus on our core business as a service company in logistics and passenger traffic, and our aim is to divest station properties and other rail infrastructure that is still under VR’s ownership.

I want to thank our personnel for their commitment to our shared journey of discovering our values. Our values – we care, we work together, we drive improvement – guide us forward and enable the successful execution of our strategy. “

Outlook for the current year

VR expects that the comparable operating profit (EBIT) for 2023 will improve compared to 2022.

The general economic situation in Finland is clouded by the weakened business cycle in the industrial sector, high inflation, rising interest rates and low consumer confidence in the economy. Industrial order books and export volumes have also shrunk as global demand has declined. The economic situation is significantly reflected in VR’s business operations, profitability and near-term outlook. High inflation and the weakened business cycle in heavy industry, in particular, have a negative impact on VR’s profitability.

VR discontinued its Eastern freight traffic completely in 2022 due to Russia’s war of aggression, which will reduce total volumes of rail logistics again this year. The weakened business cycle in heavy industry in Finland has reduced transport volumes since the second quarter of the year. VR expects domestic transport volumes to decrease in 2023 compared to the previous year. Previously, domestic transport volumes were expected to increase in 2023.

Train travel has recovered after the COVID-19 pandemic eased. Nevertheless, the pandemic has changed the way people work and, as a result, their mobility patterns. Remote work has become increasingly common, and travel demand has been driven by leisure travel. The total number of long-distance journeys is expected to increase from the previous year. This increase will mainly take place in the early part of the year, as the pandemic reduced travel volumes particularly in early 2022. In city traffic in Sweden, net sales and profitability will decline compared to 2022 due to some of the existing agreements expiring and the new agreements not starting until late 2023.

VR-Group Plc 

Board of Directors 

  

More information: 

VR Group Media Desk, tel. +358 (0)29 434 7123 

 

Attachments: VR Group Half-year Report, 1 January–30 June 2023 (pdf)