VR Group Interim report 1 January – 31 March 2010
VR Group’s net turnover increased in the first quarter of 2010. Net turnover in the January – March period totalled M€ 309.8 (302.9) million. VR Group's operating result was a loss of M€ 22.1 (M€ -25.2) and net result of M€ -16.7 (M€ -18.6).
The net result can be regarded as satisfactory, considering that this figure includes additional costs of some M€ 11 for transport services caused by the unusually cold winter and exceptional amounts of snow. Compensation for delayed services, the rail accident at Helsinki Central Station on 4 January 2010, the increase in energy consumption and the rise in energy prices all caused extra costs. The stevedores’ strike had a smaller impact than was forecast, reducing the operating profit by an estimated M€ 1−2.
Progress was made as planned in the programme of change to improve the profitability of VR Group. The Logistics division has developed its customer service and a centralized customer service centre started operations in Kouvola. The work is progressing of consolidating the organizations of the human resources, IT and financial administration support functions into Group-level service centres. Purchasing has been consolidated to form a corporate level unit, and an extensive programme has got underway to raise efficiency in maintenance. The impact of the programme of change can be seen in terms of costs as well as increasing sales.
The net turnover, operating profit and numbers of personnel at the different business sectors are shown in separate tables.
Passenger services
The combined total number of passenger journeys for rail and road services was 23.5 (22.1) million, growth of 6.1 %. A significant factor in this increase was the start of the new bus service routes in the Greater Helsinki area at the beginning of the year. The winter weather caused problems for rail services early in the year, making it necessary from time to time to make cuts in both commuter and long-distance services, and this had a negative impact on rail passenger numbers.
Rail services
The number of passenger service journeys in the first quarter totalled 17.2 million, an increase of 0.6 %. The number of passengers in long-distance services was 3.5 million, growth of 7.6 %. The number of journeys between Finland and Russia declined 16.2 % in the three month period to 82,600.
The number of journeys in commuter services totalled 13.7 million in the quarter, a decline of 1.1 %. In the Greater Helsinki area, the number of journeys in the zone managed by Helsinki Region Transport (HSL) declined 5 %. In contrast, the number of journeys outside the HSL zone in VR’s own commuter services increased 12.6 % in the quarter.
The price of rail tickets rose by an average of 1.8 % at the beginning of January. The previous rise in prices took place on 1 January 2009.
The problems early in the year had a major impact on the punctuality of rail services. The proportion of trains arriving at their destination on schedule was 77.5 % (90.8 %) for long-distance trains and 80.6 % (96.2 %) for commuter services. Lateness is defined as delays of over five minutes for long-distance trains and three minutes for commuter trains.
During the first quarter VR had to process a higher number of claims for compensation than usual due to delays and cancellations of rail services. Customers were compensated for the inconvenience caused by the problems in rail services at the start of the year by giving a 25 % discount on all 30 day tickets for VR’s commuter and long-distance rail services purchased in March. The discount did not apply to HSL tickets for commuter services in the Greater Helsinki area.
Road services
Altogether 6.3 million journeys were made in the Group’s road services during the first quarter, an increase of 24.6 % on the previous year. The increase comes from bus services in the Greater Helsinki area, where the Group won several new service routes through competitive tendering in 2009.
The one-day strike by drivers in road services had only a small impact. Some of the service routes were operated during the strike with a less frequent service.
Logistics
Freight carryings totalled 9.6 million tonnes, increasing 4.6 % in the quarter from the previous year despite the strike in the transport sector. Volumes of freight carryings have started to rise moderately, and this situation is expected to continue in the near future.
The projects continued in Logistics relating to structural changes that aim to raise efficiency in operations and transport systems and to improve profitability.
Rail services
Freight carryings by rail in the quarter totalled 7.9 million tonnes, an increase of 3.8 % on the previous year.
Domestic carryings amounted to 5.5 million tonnes in the quarter, which is 1.0 % more than in the previous year. The largest product sector in domestic carryings was the forest industry, which saw a decline in carryings of 1.0 %. Metal industry carryings increased 9.0 % in the January – March period, and chemical industry carryings rose 12.8 %.
Freight traffic between Finland and Russia increased 11.3 % in the quarter. This figure includes Finnish exports and imports as well as transit traffic.
Import and export freight carryings to and from Russia rose 6.1 %, and the total volume of these carryings was 1.7 million tonnes. Forest industry carryings from Russia to Finland recorded the biggest increase (39.3 %). The forest industry accounted for about 38 % of freight imports by rail to Finland during the quarter.
Transit freight volumes via Finland, mainly from Russia to third countries, increased 26.4 % in the quarter, to 0.7 million tonnes.
Road services
The volume of freight carried by VR’s road services totalled 1.7 million tonnes in the quarter, an increase of 8.7 % from the previous year.
Track maintenance and construction
VR-Track had a net turnover of M€ 40.3 (M€ 44.2) in the quarter. Some 80 % of net turnover comprised track construction and maintenance and material services for the Finnish Transport Agency.
The largest jobs in progress are the track renovation work on the Seinäjoki–Kokkola and Lahti– Luumäki track sections, replacing the superstructure on the Tornio-Kolari track, and the renovation of the Ilmala marshalling yard.
Investments
Capital expenditure between January and March amounted to M€ 19.6 (M€ 25.3). The main items were the renovation and alteration of passenger rolling stock and property repairs. Other capital expenditure was mainly related to normal replacement of fixed assets.
In February decisions were taken to make investments of some M€ 150 in passenger rolling stock. These will take place in the period 2011–2014 and involve acquiring 40 double decker InterCity coaches, 15 restaurant coaches and 12 power cars. The power cars combine the features of a locomotive and an InterCity passenger coach. Trains can be driven from either end without having to change the locomotive, which saves marshalling yard capacity, of which there is a shortage, especially in Helsinki. Releasing marshalling yard capacity has an impact on the entire rail service and on overall punctuality. It also improves safety in the marshalling yard, since there is less changing of locomotives and connecting of rolling stock. These investments will speed up the replacement of rolling stock and improve the level of service in passenger services.
Committed capital expenditure until 2013 totalled M€ 93.4 at the end of the period. Most of this is allocated to the renovation and new purchases of passenger rolling stock and freight wagons. Committed capital expenditure refers in this context to investment contracts that have been signed.
Financing
The Group’s cash flow from operating activities between January and March totalled M€ 2.4 (M€ 10.4). Liquidity remained good, despite the reduction in internal financing from operating activities. The Group’s net financial income was M€ 0.2 (M€ 1.0). Liquid reserves amounted to M€ 136.0 (M€ 128.2) at the end of the period.
Personnel
The average number of employees in the Group was 11,916 (12,395). The change from the previous year is mainly due to retirement. The personnel figures for the individual business sectors, and changes to them, are presented in the separate tables.
Company management
Ville Saksi took over as Managing Director of VR-Track Ltd on 1 January 2010. The company’s former Managing Director Teuvo Sivunen retired on 1 April 2010. Ville Saksi is a member of VR Group’s Board of Management.
In March VR Group established a unit for sustainability and corporate relations. This is a centralized unit responsible for planning and developing VR Group’s environmental activities and for expert duties needed by the divisions. The unit for sustainability and corporate relations belongs to the Group’s corporate staff. Otto Lehtipuu was appointed vice president in charge of the unit. He reports to President and CEO Mikael Aro.
Decisions of the AGM
The Annual General Meeting, held on 25 March, approved the financial statements for 2009 and discharged the Supervisory Board, the Board of Directors and the president and CEO from liability for the financial year. The Meeting adopted the Board’s proposal not to pay a dividend.
Matti Ahde was re-elected chairman of the Supervisory Board.
The Board of Directors remains unchanged from the end of 2009. Lauri Ratia continues as chairman of the Board of Directors and Christer Granskog, Maaret Heiskari, Lauri Ihalainen, Antti Mäkelä, Soili Suonoja, Arja Talma and Markku Tapio as ordinary members.
Authorized public accountants KPMG Oy Ab and Jorma Nurkkala, APA, were re-elected as the company’s auditors.
Vice chairmen of Supervisory Board and Board of Directors, Board committees
At its meeting following the Annual General Meeting, the Supervisory Board elected Eero Akaan-Penttilä as its vice chairman. The Board of Directors, at its constitutive meeting, elected Christer Granskog to continue as its vice chairman. The Board of Directors has two committees, the Appointment and Remuneration Committee and the Audit Committee. The Board elected Lauri Ratia as chairman and Christer Granskog, Soili Suonoja and Markku Tapio as members of the Appointment and Remuneration Committee. The Board elected Arja Talma as chairman and Maaret Heiskari, Lauri Ihalainen and Antti Mäkelä as members of the Audit Committee
Major events and events after end of period
On 4 January 2010 an accident occurred at Helsinki Central Station in which four carriages of a train that had been pushed by a locomotive from the Ilmala depot separated from the rest of the train after it had stopped. The carriages started to move since the track sloped down towards the station, collided with the buffers at the end of the platform and then went on into the structures of a hotel building causing material damage to the property and rolling stock. No one was injured in the accident. The Accident Investigation Board Finland issued a statement about the causes of the accident on 18 January 2010, which stated that the initial cause of the accident had been that the coupling link between the carriages had come undone and the brakes on the four carriages had been disengaged. The Accident Investigation Board Finland is still studying the incident and the final report on the causes of the accident should be completed around the end of 2010. VR revised its safety guidelines immediately after the incident. The damage is estimated at some M€ 2. VR Group has asset and liability insurance.
Challenging weather conditions caused exceptional disruptions to rail services early in the year, making it necessary to cut services especially in commuter services in the Greater Helsinki area. The goal was to ensure a smooth flow of traffic and prevent services coming to a complete standstill. VR and the Finnish Transport Agency, which is responsible for the rail network and station information systems, set up a joint working group to examine means to ensure that traffic flows smoothly even in awkward conditions. It was for example looking for new solutions for de-icing trains and examining means and initiating action to provide a better information service for customers. The working group is continuing its work.
Statutory employee negotiations began in January 2010 at Transpoint Oy Ab affecting all office personnel and were concluded on 15 February 2010. These resulted in the need to reduce personnel by 29 people.
A strike by stevedores brought Finland’s ports to a standstill in March, which had a significant impact on freight traffic at the ports. However, the effect on VR was smaller than had been feared, weakening the operating profit by an estimated M€ 1−2.
Since the middle of April the ash cloud from the volcanic eruption in Iceland has caused the air space to be closed to air traffic on several occasions in a large part of Europe. This has had an impact on passenger services, where demand especially for international journeys but also for long-distance domestic services has risen considerably. Rolling stock has been added to trains to meet the extra demand.
The harsh winter has caused a record amount of frost damage, especially on the main railway line to the north. Because of the frost damage, the Finnish Transport Agency, which is responsible for the rail network, has imposed speed restrictions to ensure safe travel, and these lengthen journey times. Speed restrictions have been imposed on about 850 kilometres of track, compared with less than one kilometre in 2009.
An accident involving a commuter train occurred on 26 April 2010 at Helsinki Central Station in which the final unit in the train was derailed. No-one was injured, but the derailment caused extensive damage to the track and to electrical equipment. Several tracks were out of use while the area where the accident occurred was cleared and repaired, and VR had to make special arrangements for commuter and long-distance services. The Accident Investigation Board Finland is looking into the cause of the derailment. Initial information indicates that the derailment occurred because a track point was changed under the train.
Prospects to the year end
The recession that began with the international financial crisis continues in Finland, even though the growth forecasts for Finland have been raised. The structural changes currently going on in industry have a fundamental impact on freight services. The outlook for freight services in the near future is uncertain, although it has become somewhat easier to forecast developments in operations. At present there are still no still signs of a rapid recovery, but there are more signs of positive developments. It is estimated that the volume of carryings and net turnover for freight services in 2010 will be slightly higher than in 2009.
The number of journeys in passenger services is expected to exceed the 2009 figures thanks to the new service routes in road services in the Greater Helsinki area. Rail services are however expected to remain at the same level as in 2009, despite the strong performance in long-distance services early in the year. Forecasting changes in passenger services is difficult.
Most of the track maintenance work is that ordered by the Finnish Transport Agency. During 2010 the biggest jobs, upgrading the Seinäjoki−Oulu and Lahti−Luumäki track sections that began in 2008, are continuing. The order book for track construction and maintenance is however turning out to be smaller than expected, and the figures for 2010 are expected to fall below those for 2009.
VR-Group Ltd
Board of Directors
The figures in the interim report are not audited.
The net result can be regarded as satisfactory, considering that this figure includes additional costs of some M€ 11 for transport services caused by the unusually cold winter and exceptional amounts of snow. Compensation for delayed services, the rail accident at Helsinki Central Station on 4 January 2010, the increase in energy consumption and the rise in energy prices all caused extra costs. The stevedores’ strike had a smaller impact than was forecast, reducing the operating profit by an estimated M€ 1−2.
Progress was made as planned in the programme of change to improve the profitability of VR Group. The Logistics division has developed its customer service and a centralized customer service centre started operations in Kouvola. The work is progressing of consolidating the organizations of the human resources, IT and financial administration support functions into Group-level service centres. Purchasing has been consolidated to form a corporate level unit, and an extensive programme has got underway to raise efficiency in maintenance. The impact of the programme of change can be seen in terms of costs as well as increasing sales.
The net turnover, operating profit and numbers of personnel at the different business sectors are shown in separate tables.
Passenger services
The combined total number of passenger journeys for rail and road services was 23.5 (22.1) million, growth of 6.1 %. A significant factor in this increase was the start of the new bus service routes in the Greater Helsinki area at the beginning of the year. The winter weather caused problems for rail services early in the year, making it necessary from time to time to make cuts in both commuter and long-distance services, and this had a negative impact on rail passenger numbers.
Rail services
The number of passenger service journeys in the first quarter totalled 17.2 million, an increase of 0.6 %. The number of passengers in long-distance services was 3.5 million, growth of 7.6 %. The number of journeys between Finland and Russia declined 16.2 % in the three month period to 82,600.
The number of journeys in commuter services totalled 13.7 million in the quarter, a decline of 1.1 %. In the Greater Helsinki area, the number of journeys in the zone managed by Helsinki Region Transport (HSL) declined 5 %. In contrast, the number of journeys outside the HSL zone in VR’s own commuter services increased 12.6 % in the quarter.
The price of rail tickets rose by an average of 1.8 % at the beginning of January. The previous rise in prices took place on 1 January 2009.
The problems early in the year had a major impact on the punctuality of rail services. The proportion of trains arriving at their destination on schedule was 77.5 % (90.8 %) for long-distance trains and 80.6 % (96.2 %) for commuter services. Lateness is defined as delays of over five minutes for long-distance trains and three minutes for commuter trains.
During the first quarter VR had to process a higher number of claims for compensation than usual due to delays and cancellations of rail services. Customers were compensated for the inconvenience caused by the problems in rail services at the start of the year by giving a 25 % discount on all 30 day tickets for VR’s commuter and long-distance rail services purchased in March. The discount did not apply to HSL tickets for commuter services in the Greater Helsinki area.
Road services
Altogether 6.3 million journeys were made in the Group’s road services during the first quarter, an increase of 24.6 % on the previous year. The increase comes from bus services in the Greater Helsinki area, where the Group won several new service routes through competitive tendering in 2009.
The one-day strike by drivers in road services had only a small impact. Some of the service routes were operated during the strike with a less frequent service.
Logistics
Freight carryings totalled 9.6 million tonnes, increasing 4.6 % in the quarter from the previous year despite the strike in the transport sector. Volumes of freight carryings have started to rise moderately, and this situation is expected to continue in the near future.
The projects continued in Logistics relating to structural changes that aim to raise efficiency in operations and transport systems and to improve profitability.
Rail services
Freight carryings by rail in the quarter totalled 7.9 million tonnes, an increase of 3.8 % on the previous year.
Domestic carryings amounted to 5.5 million tonnes in the quarter, which is 1.0 % more than in the previous year. The largest product sector in domestic carryings was the forest industry, which saw a decline in carryings of 1.0 %. Metal industry carryings increased 9.0 % in the January – March period, and chemical industry carryings rose 12.8 %.
Freight traffic between Finland and Russia increased 11.3 % in the quarter. This figure includes Finnish exports and imports as well as transit traffic.
Import and export freight carryings to and from Russia rose 6.1 %, and the total volume of these carryings was 1.7 million tonnes. Forest industry carryings from Russia to Finland recorded the biggest increase (39.3 %). The forest industry accounted for about 38 % of freight imports by rail to Finland during the quarter.
Transit freight volumes via Finland, mainly from Russia to third countries, increased 26.4 % in the quarter, to 0.7 million tonnes.
Road services
The volume of freight carried by VR’s road services totalled 1.7 million tonnes in the quarter, an increase of 8.7 % from the previous year.
Track maintenance and construction
VR-Track had a net turnover of M€ 40.3 (M€ 44.2) in the quarter. Some 80 % of net turnover comprised track construction and maintenance and material services for the Finnish Transport Agency.
The largest jobs in progress are the track renovation work on the Seinäjoki–Kokkola and Lahti– Luumäki track sections, replacing the superstructure on the Tornio-Kolari track, and the renovation of the Ilmala marshalling yard.
Investments
Capital expenditure between January and March amounted to M€ 19.6 (M€ 25.3). The main items were the renovation and alteration of passenger rolling stock and property repairs. Other capital expenditure was mainly related to normal replacement of fixed assets.
In February decisions were taken to make investments of some M€ 150 in passenger rolling stock. These will take place in the period 2011–2014 and involve acquiring 40 double decker InterCity coaches, 15 restaurant coaches and 12 power cars. The power cars combine the features of a locomotive and an InterCity passenger coach. Trains can be driven from either end without having to change the locomotive, which saves marshalling yard capacity, of which there is a shortage, especially in Helsinki. Releasing marshalling yard capacity has an impact on the entire rail service and on overall punctuality. It also improves safety in the marshalling yard, since there is less changing of locomotives and connecting of rolling stock. These investments will speed up the replacement of rolling stock and improve the level of service in passenger services.
Committed capital expenditure until 2013 totalled M€ 93.4 at the end of the period. Most of this is allocated to the renovation and new purchases of passenger rolling stock and freight wagons. Committed capital expenditure refers in this context to investment contracts that have been signed.
Financing
The Group’s cash flow from operating activities between January and March totalled M€ 2.4 (M€ 10.4). Liquidity remained good, despite the reduction in internal financing from operating activities. The Group’s net financial income was M€ 0.2 (M€ 1.0). Liquid reserves amounted to M€ 136.0 (M€ 128.2) at the end of the period.
Personnel
The average number of employees in the Group was 11,916 (12,395). The change from the previous year is mainly due to retirement. The personnel figures for the individual business sectors, and changes to them, are presented in the separate tables.
Company management
Ville Saksi took over as Managing Director of VR-Track Ltd on 1 January 2010. The company’s former Managing Director Teuvo Sivunen retired on 1 April 2010. Ville Saksi is a member of VR Group’s Board of Management.
In March VR Group established a unit for sustainability and corporate relations. This is a centralized unit responsible for planning and developing VR Group’s environmental activities and for expert duties needed by the divisions. The unit for sustainability and corporate relations belongs to the Group’s corporate staff. Otto Lehtipuu was appointed vice president in charge of the unit. He reports to President and CEO Mikael Aro.
Decisions of the AGM
The Annual General Meeting, held on 25 March, approved the financial statements for 2009 and discharged the Supervisory Board, the Board of Directors and the president and CEO from liability for the financial year. The Meeting adopted the Board’s proposal not to pay a dividend.
Matti Ahde was re-elected chairman of the Supervisory Board.
The Board of Directors remains unchanged from the end of 2009. Lauri Ratia continues as chairman of the Board of Directors and Christer Granskog, Maaret Heiskari, Lauri Ihalainen, Antti Mäkelä, Soili Suonoja, Arja Talma and Markku Tapio as ordinary members.
Authorized public accountants KPMG Oy Ab and Jorma Nurkkala, APA, were re-elected as the company’s auditors.
Vice chairmen of Supervisory Board and Board of Directors, Board committees
At its meeting following the Annual General Meeting, the Supervisory Board elected Eero Akaan-Penttilä as its vice chairman. The Board of Directors, at its constitutive meeting, elected Christer Granskog to continue as its vice chairman. The Board of Directors has two committees, the Appointment and Remuneration Committee and the Audit Committee. The Board elected Lauri Ratia as chairman and Christer Granskog, Soili Suonoja and Markku Tapio as members of the Appointment and Remuneration Committee. The Board elected Arja Talma as chairman and Maaret Heiskari, Lauri Ihalainen and Antti Mäkelä as members of the Audit Committee
Major events and events after end of period
On 4 January 2010 an accident occurred at Helsinki Central Station in which four carriages of a train that had been pushed by a locomotive from the Ilmala depot separated from the rest of the train after it had stopped. The carriages started to move since the track sloped down towards the station, collided with the buffers at the end of the platform and then went on into the structures of a hotel building causing material damage to the property and rolling stock. No one was injured in the accident. The Accident Investigation Board Finland issued a statement about the causes of the accident on 18 January 2010, which stated that the initial cause of the accident had been that the coupling link between the carriages had come undone and the brakes on the four carriages had been disengaged. The Accident Investigation Board Finland is still studying the incident and the final report on the causes of the accident should be completed around the end of 2010. VR revised its safety guidelines immediately after the incident. The damage is estimated at some M€ 2. VR Group has asset and liability insurance.
Challenging weather conditions caused exceptional disruptions to rail services early in the year, making it necessary to cut services especially in commuter services in the Greater Helsinki area. The goal was to ensure a smooth flow of traffic and prevent services coming to a complete standstill. VR and the Finnish Transport Agency, which is responsible for the rail network and station information systems, set up a joint working group to examine means to ensure that traffic flows smoothly even in awkward conditions. It was for example looking for new solutions for de-icing trains and examining means and initiating action to provide a better information service for customers. The working group is continuing its work.
Statutory employee negotiations began in January 2010 at Transpoint Oy Ab affecting all office personnel and were concluded on 15 February 2010. These resulted in the need to reduce personnel by 29 people.
A strike by stevedores brought Finland’s ports to a standstill in March, which had a significant impact on freight traffic at the ports. However, the effect on VR was smaller than had been feared, weakening the operating profit by an estimated M€ 1−2.
Since the middle of April the ash cloud from the volcanic eruption in Iceland has caused the air space to be closed to air traffic on several occasions in a large part of Europe. This has had an impact on passenger services, where demand especially for international journeys but also for long-distance domestic services has risen considerably. Rolling stock has been added to trains to meet the extra demand.
The harsh winter has caused a record amount of frost damage, especially on the main railway line to the north. Because of the frost damage, the Finnish Transport Agency, which is responsible for the rail network, has imposed speed restrictions to ensure safe travel, and these lengthen journey times. Speed restrictions have been imposed on about 850 kilometres of track, compared with less than one kilometre in 2009.
An accident involving a commuter train occurred on 26 April 2010 at Helsinki Central Station in which the final unit in the train was derailed. No-one was injured, but the derailment caused extensive damage to the track and to electrical equipment. Several tracks were out of use while the area where the accident occurred was cleared and repaired, and VR had to make special arrangements for commuter and long-distance services. The Accident Investigation Board Finland is looking into the cause of the derailment. Initial information indicates that the derailment occurred because a track point was changed under the train.
Prospects to the year end
The recession that began with the international financial crisis continues in Finland, even though the growth forecasts for Finland have been raised. The structural changes currently going on in industry have a fundamental impact on freight services. The outlook for freight services in the near future is uncertain, although it has become somewhat easier to forecast developments in operations. At present there are still no still signs of a rapid recovery, but there are more signs of positive developments. It is estimated that the volume of carryings and net turnover for freight services in 2010 will be slightly higher than in 2009.
The number of journeys in passenger services is expected to exceed the 2009 figures thanks to the new service routes in road services in the Greater Helsinki area. Rail services are however expected to remain at the same level as in 2009, despite the strong performance in long-distance services early in the year. Forecasting changes in passenger services is difficult.
Most of the track maintenance work is that ordered by the Finnish Transport Agency. During 2010 the biggest jobs, upgrading the Seinäjoki−Oulu and Lahti−Luumäki track sections that began in 2008, are continuing. The order book for track construction and maintenance is however turning out to be smaller than expected, and the figures for 2010 are expected to fall below those for 2009.
VR-Group Ltd
Board of Directors
The figures in the interim report are not audited.
[Interim Report] [, 189 KB]