Weak net profit for VR in 2009

19.02.2010 11:36 News

The recession in Finland had a major impact on VR Group’s result in 2009. Freight carryings fell sharply and the growth in passenger service volumes came to a halt, resulting in a weak net profit for the Group. The operating profit for 2009 was M€ 28.9, compared to M€ 74.4 in the previous year. Net turnover totalled M€ 1399.4, a decline of 8.6 % from the previous year.

VR-Group’s Board of Directors proposes that no dividend be paid for 2009. At the beginning of 2010 VR Group’s statutory pension insurance portfolio for its personnel (VR Pension Fund section B) was transferred to Varma Mutual Pension Insurance Company. The surplus created in the transfer (M€ 13.1) does not affect VR Group’s net result, since the surplus has been transferred to VR Pension Fund section A, which was not transferred and manages the supplementary pension benefits, to build up the capital adequacy of section A.

The Group’s net result for the final quarter was better than for the previous quarters of the year. Net turnover in the fourth quarter totalled M€ 385.8 (M€ 396.5) and operating profit was M€ 17.9 (M€ 6.2). The figures for the final quarter show the impact of the savings measures carried out during the year and the improvement in VR-Track’s result from the previous year. “Although the financial position remained strong in 2009, the current level of profit is not sufficient to pay for the rolling stock investments that are unavoidable in the future,” commented VR President and CEO Mikael Aro.

Operating loss of M€ 36.7 for VR’s logistics business During 2009 VR Group’s freight carryings declined about 25 % from the previous year. VR Group’s logistics operations recorded an operating loss in 2009 of M€ 36.7. VR Cargo, which provides rail transport, had an operating loss of M€ 31.1. Towards the end of the year the decline in freight volumes evened out, but there are no signs of a rapid recovery. Growth in passenger services came to a halt and net profit halved The growth experienced by passenger rail services came to a halt in 2009 and the number of passengers was 3.4 % less than in the previous year.

Some 67.6 million journeys were made by rail in 2009. Altogether 18.5 million journeys were made in road services, an increase of 8.6 % from the previous year. The increase was due to new service routes won in the Helsinki metropolitan area. The operating profit of passenger services fell by around 50 % to M€ 29.4 (M€ 62.0). Solid year in track construction and maintenance For VR-Track, 2009 was a good year. VR-Track’s net turnover in 2009 was M€ 342.2 (M€ 340.1).

The operating profit, M€ 26.4, was slightly down on the previous year. The most important projects were on the Seinäjoki–Oulu and Lahti–Luumäki track sections and on the Talvivaara mine railway. The Talvivaara railway was completed in summer 2009. The order book for track construction and maintenance is distinctly weaker than for the previous year, so 2010 is going to be a challenging year.

VR-Track is focusing during 2010 on raising productivity and is preparing for changes in the competitive scenario. Programme of change progressing on schedule The programme of change launched by VR in August is progressing on schedule. In logistics operations, work is underway to raise efficiency in the transport system and reorganize customer service models.

In passenger services, the focus is on projects to improve customer service. Greater efficiency is being sought in administrative support functions by consolidating them in Group-level service centres. The programme of change has been carried through in cooperation with personnel. The goal of the programme of change is to improve VR Group’s profitability by some M€ 100 a year, and this requires major cost savings and at the same time growth in business. “It is essential to implement the programme of change if we are to raise profitability and the cash flow to levels that will safeguard VR’s competitive standing in the future,” stresses President and CEO Aro.

VR invests in new rail rolling stock to improve customer service During 2010 VR is beginning investments of some M€ 150 in rolling stock for rail passenger services. They will be for three different types of coaches and the contracts for them will be put out to competitive tender in compliance with EU public procurement procedures. In spring 2010 the purchase of 40 InterCity double decker InterCity coaches will be put out to competitive tender.

The IC coaches are the most popular type of coach among passengers, so VR has decided to purchase more of them. The coaches will be fitted with WLAN access, so that customers can use the Internet during their journey, as they have wished. In response to customer feedback, VR is investing in restaurant services on long-distance trains. During 2010 VR will start the process of purchasing 15 new double decker restaurant cars. Restaurant services are considered an important part of customer service at VR, in contrast to many other countries, where rail operators have given up providing restaurant services on trains. During 2010 VR will also start to purchase 12 new double decker power cars.

The power cars combine the features of a locomotive and an IC 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.

Altogether 32 new trains will enter service during 2010–2014 in commuter services in the Helsinki metropolitan area for which Helsinki Region Transport (HSL) is responsible. The trains are being purchased by Pääkaupunkiseudun Junakalusto Oy, a company owned by VR-Group Ltd and the cities of Helsinki, Vantaa, Espoo and Kauniainen. The company’s Board of Directors is examining whether the current rolling stock investments can be speeded up. Introducing the new trains will make it possible to take VR’s old commuter rolling stock out of service. The biggest problems with rolling stock have been with the old commuter trains that were mainly purchased in the 1970s. Renewing the rolling stock increases the need for extra shed capacity for servicing trains.

VR, the Finnish Transport Infrastructure Agency and HSL are looking into ways and means to increase the shed capacity at the Ilmala depot. VR has signed agreements with Pääkaupunkiseudun Junakalusto Oy for rolling stock maintenance and with Karelian Trains Oy for maintenance of the Allegro trains that are coming into service between St Petersburg and Helsinki. Prospects still uncertain Prospects for the near future remain uncertain, and it is difficult to forecast business developments in both rail and road services. At the moment there are no signs of a rapid recovery in the economy.

At the same time, the structural changes taking place in heavy industry are also having a decisive impact on VR’s business operations. VR Group’s net profit in 2010 is weakened by the 10 % increase in the track usage fee that came into force at the beginning of the year. The sole rights agreement for rail passenger services signed with the Ministry of Transport and Communications at the end of the year obliges VR to operate certain unprofitable routes at its own business risk. The problems caused by the winter weather at the start of the year and the accident in Helsinki Central Station on 4 January 2010 caused VR Group a loss in net profit of at least M€ 6 in extra costs and loss of income.

Related to: VR Group