Review by the President and CEO
CEO Elisa Markula:
"In the third quarter VR's profitability improved, driven by growth in the number of journeys in long-distance traffic. The company’s net sales decreased by 12% year-on-year. At the same time, the profit development was slowed down by weak volumes of freight traffic and changes in city-traffic contract portfolio. Improving our profitability requires continuous determined measures to boost operational efficiency. We have had to adjust our operations in freight traffic with temporary layoffs, and negotiate with personnel to streamline our operations and intensify internal cooperation.
In long-distance traffic the number of journeys increased by 2.5% in the third quarter, compared to the previous year. The popularity of the train for business travel increased, and the train was also an increasingly popular choice for everyday journeys. Customer satisfaction with VR Long-distance Traffic – as measured by the Net Promoter Score – increased considerably year-on-year to 47 (34). Punctuality, which is a key factor in customer satisfaction, also improved from the previous year to 89 (82).
The decrease in the profitability of city traffic was affected by high cost inflation, an expired contracted traffic agreement in Sweden, and integration expenses associated with business operations in Sweden. The result is also burdened by the current low profitability of the long-term contract-traffic agreements signed before the pandemic. VR actively participates in regional competitive tendering for rail and bus traffic in Sweden and Finland.
VR’s freight-traffic volumes decreased by 29% during the quarter. The current challenging environment for heavy industry further reduced freight volumes that have already weakened as a result of the termination of Eastern traffic. It has been necessary to adjust our railway-freight operations with temporary layoffs. We are seeking profit improvement, for example, by revising our customers’ service models and pricing.
The execution of our strategy and the acceleration of our profit improvement will continue with steadfast commitment. The company is seeking EUR 250 million of profit improvement measures by 2027 that will enable the financing of our billion-euro rolling-stock investments and ensure the company’s continued competitiveness in the future. Motivated staff and effective cooperation with our extensive stakeholder network are key to the successful implementation of this strategy. Increasing the share of emissions-free rail transport requires continuous improvement in customer satisfaction. Approximately half of train delays are caused by poor rail infrastructure, therefore properly targeted and sufficient government infrastructure investments are necessary to improve the punctuality of trains. With its investments VR is increasing the speed of train Wi-Fi up to 5x by the summer of 2024. But improving the network connectivity of trains also requires telecom operators to invest in track-side network infrastructure.
VR is involved in the large-scale Digirail project, which will modernise the infrastructure of the Finnish railway-traffic control-and-safety system by 2040. The project will make it possible to increase the track capacity and number of trains on the current railway network. Digirail test runs will start on a test track this autumn. Ensuring the interoperability of new railway infrastructure systems and rolling stock is one of the most important joint measures of VR and the transport authorities.
Rail-traffic emissions account for only 1% of all traffic emissions, and 95% of our passenger trains are already electrically powered. At the start of the year we kicked off an energy-saving programme enabling our traffic and real estate to contribute even more towards energy efficiency in all our businesses. During the year we have already managed to improve the energy efficiency of train traffic by about 8%, which corresponds to the annual electricity consumption of approximately 1,500 electrically-heated single-family homes.
We support the Finnish Government in implementing the Government Programme. We are in favour of increasing competition in climate-friendly rail transport and we advocate for wide-ranging development of the public transport market as a whole. 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 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 that will allow competition to develop freely. This is in accordance with the free-competition model based on EU regulations, and 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 still under VR ownership.
I want to thank our personnel for their commitment to our strategy and our profit improvement targets. At a team we will build the sustainable VR of the future. Our values – we care, we work together, we drive improvement – guide us in getting there together."
VR Group’s Business Review for July-September 2023
VR Group’s profitability improved during the third quarter. In domestic long-distance traffic, the number of journeys increased on weekdays. The challenging business cycle for heavy industry had a negative impact on the volumes of freight traffic. In city traffic, changes in the contract portfolio weighed down the results. Strategy implementation continues towards the profit improvement targets.