The demand for Kekkilä-BVB’s substrate products grew strongly in Europe in all Kekkilä-BVB markets in 2020 and 2021. The most significant reason was the Covid-19 pandemic, which reduced consumer travel and increased the demand for home gardening products and food produced locally in professional greenhouses.
In 2022, the demand for growing media for professional growers and consumer products for home gardeners returned more or less to pre-pandemic levels. Over the past two years, many raw material costs and, above all, logistics costs have increased by several tens of percent. Russia’s invasion of Ukraine significantly increased the price of energy throughout Europe, which had an impact on the rise of inflation. All of these factors have had an impact on the costs for professional growers and has taken its toll on the purchasing power of consumers in all Kekkilä-BVB European markets.
Kekkilä-BVB increased product prices in 2021 and in 2022. As a rule, price increases were able to compensate partly for the increase in logistics costs and prices of raw materials. However, the cost increase in production and energy could not be fully reflected in prices.
Kekkilä-BVB’s relative profitability started decreasing towards the end of 2021 and the decline continued in 2022. The main reason for this was the decrease in the volumes of products sold, which is why the share of fixed costs increased significantly per produced unit. Due to these reasons, the current structure of production with excess capacity does not make our operations efficient enough.
As there is no recovery in sight in the market and demand situation, Kekkilä-BVB needs to ensure competitiveness through launching an Operational efficiency program seeking EUR 10 million efficiency savings during the coming year. This will be done through several projects.
As part of this efficiency program, Kekkilä-BVB has launched a preliminary study of measures that can have a rapid impact on optimizing company fixed costs in production. At this stage, the focus is on optimizing the production volumes, location of production sites and logistical costs of all growing media to meet the current and expected market demand in the next few years at the prevailing cost level. The review includes all of Kekkilä-BVB’s 14 production facilities in Finland, the Netherlands, Estonia, Germany and Sweden.
At this point, we estimate that there will be no changes to the operations in Estonia and Germany.
Based on the review already carried out, Kekkilä-BVB has initiated change negotiations regarding the initial plan to close down the operations of the Haukineva factory in Seinäjoki, Finland and to transfer production to the company’s other production facilities. All 11 employees of the production plant are subject to negotiations. In Finland, the change negotiations are expected to start on 15.2.2023.
On the basis of a review in Sweden, Kekkilä-BVB will investigate a similar procedure at the loss-making Bredaryd factory. Consultation regarding this is estimated to start by the end of February 2023. Bredaryd factory currently employs ten workers.
Investigation regarding all production plants located in the Netherlands is ongoing. Plans and eventually decisions on any necessary measures will be shared during the year 2023 when we have readiness for that.
- Ahti Martikainen, Director, Communications and Public Affairs, Neova Oy, tel. +358 40 680 4723