Lassila & Tikanoja: Interim report 1 January - 30 June 2014

Helsinki, Finland, 2014-08-06 07:00 CEST (GLOBE NEWSWIRE) --
Lassila & Tikanoja plc                     Interim Report                    6 August 2014 8.00 am
 

Lassila & Tikanoja: Interim report 1 January - 30 June 2014

Net sales for the second quarter EUR 159.8 million (EUR 168.9 million); operating profit EUR 12.9 million (EUR 8.5 million); operating profit excluding non-recurring items EUR 13.5 million (EUR 13.4 million); earnings per share EUR 0.29 (EUR 0.14)
Net sales for January-June EUR 319.2 million (EUR 336.6 million); operating profit EUR 15.1 million (EUR 14.8 million); operating profit excluding non-recurring items EUR 20.9 million (EUR 20.2 million); earnings per share EUR -0.13 (EUR 0.26)
Lassila & Tikanoja’s net sales in 2014 are expected to remain at the 2013 level or slightly below. Operating profit excluding non-recurring items is expected to remain at the 2013 level or slightly below.

CEO PEKKA OJANPÄÄ:

“Economic recession still decreases demand in the industrial sector and material flows in the construction and retail sectors and has a negative impact on the demand for the services in the Facility Services division. Thanks to operational efficiency, the Environmental Services division’s comparable net sales and profitability improved in the first months of the year. In Industrial Services, too, we were able to grow and improve profitability during the first half of the year. In Facility Services and Renewable Energy Sources, we continued to improve the efficiency of operations in a challenging operating environment. We were able to improve the Group’s profitability year-on-year. However, due to lower demand, it will not be possible to accumulate similar net sales and operating profit during the second half of the year as we did last year.”

GROUP NET SALES AND FINANCIAL PERFORMANCE

Second quarter
Lassila & Tikanoja’s net sales for the second quarter decreased by 5.4% year-on-year, to EUR 159.8 million (EUR 168.9 million). Operating profit was EUR 12.9 million (EUR 8.5 million). Operating profit excluding non-recurring items was EUR 13.5 million (EUR 13.4 million), representing 8.4% (7.9%) of net sales. Earnings per share were EUR 0.29 (EUR 0.14).

During the second quarter, comparable net sales decreased in the Facility Services and Renewable Energy Sources divisions and remained at the 2013 level in the Environmental Services and Industrial Services divisions.

The net sales of the comparison period includes EUR 4.1 million of net sales from the Latvian business operations that were divested during the first quarter of 2014 as well as EUR 0.3 million of operating profit. Most of net sales is allocated to the Environmental Services division.

Operating profit excluding non-recurring items was at the 2013 level. During the second quarter, there were EUR 0.5 million of non-recurring expenses, mainly related to the restructuring of the customer service function.

January-June
Lassila & Tikanoja’s net sales for January-June amounted to EUR 319.2 million (EUR 336.6 million), a decrease of 5.2% year-on-year. Operating profit was EUR 15.1 million (EUR 14.8 million). Operating profit excluding non-recurring items was EUR 20.9 million (EUR 20.2 million), representing 6.5% (6.0%) of net sales. Earnings per share were EUR -0.13 (EUR 0.26).

During the first half of the year, comparable net sales decreased in the Facility Services and Renewable Energy Sources divisions and remained at the 2013 level in the Environmental Services. In the Industrial Services division net sales increased year-on-year.

The net sales of the comparison period includes EUR 5.4 million of net sales from the Latvian business operations that were divested on 13 March 2014 as well as EUR 0.3 million of operating profit. The 2013 net sales of the company includes EUR 16.6 million of net sales from the Latvian business operations as well as EUR 1.3 million of operating profit, most of which is allocated to the Environmental Services division.

The operating profit recorded for January-June includes EUR 6.4 million of non-recurring costs relating to holdings in EcoStream Oy, which has filed for bankruptcy, and to outstanding receivables from the EcoStream Group and L&T Recoil. In addition, a non-recurring capital gain of EUR 1.1 million was recognised on the Latvian business operations.

Furthermore, the Group’s net profit was affected by the EUR 16.7 million payment made under the L&T Recoil guarantee commitment and recognised in financial expenses. After the entries related to EcoStream Group’s insolvency, the company has no liabilities related to EcoStream Oy and L&T Recoil.

Financial summary

* Breakdown is presented below the division reviews.

NET SALES AND OPERATING PROFIT BY DIVISION

Environmental Services

Second quarter
The division’s net sales for the second quarter decreased by 3.7% to EUR 64.2 million (EUR 66.6 million). Comparable net sales increased by 0.9% to EUR 64.2 million. Operating profit totalled EUR 9.3 million (EUR 9.1 million) and operating profit excluding non-recurring items was EUR 9.6 million (EUR 9.1 million).

Demand in the recycling business was reduced by the decrease in the volume of recyclable materials, due to the market conditions. Demand developed favourably in waste management and Russian operations.

The net sales of the comparison period includes EUR 3.0 million of net sales from the Latvian business operations that were divested during the first quarter of 2014.

Profitability improved due to operational efficiency measures.

January-June
The Environmental Services division’s net sales for January-June amounted to EUR 125.1 million (EUR 126.8 million), showing a decrease of 1.4%. Comparable net sales increased by 1.6% to EUR 123.0 million. Operating profit totalled EUR 15.9 million (EUR 15.3 million) and operating profit excluding non-recurring items was EUR 16.2 million (EUR 15.3 million).

Demand in the recycling business was affected negatively by the decrease in the volume of recyclable materials, due to the market conditions. Demand developed favourably in waste management and Russian operations.

The net sales of the comparison period includes EUR 3.9 million of net sales from the Latvian business operations that were divested on 13 March 2014.

Profitability developed favourably, thanks to improved operational efficiency.

Industrial Services

Second quarter
The division’s net sales for the second quarter totalled EUR 19.7 million (EUR 20.0 million), showing a decrease of 1.5%. Operating profit totalled EUR 1.9 million (EUR 1.9 million) and operating profit excluding non-recurring items was EUR 2.0 million (EUR 1.9 million).

Demand for process cleaning was strong. In all other service lines the net sales was slightly below the 2013 level.

Operating profit excluding non-recurring items improved slightly, particularly as a result of the good profitability of hazardous waste services.

January-June
The Industrial Services division’s net sales for January-June totalled EUR 35.7 million (EUR 33.7 million), showing an increase of 5.8%. Operating profit totalled EUR 1.8 million (EUR 1.4 million) and operating profit excluding non-recurring items was EUR 1.9 million (EUR 1.4 million).

Net sales increased in all of the division’s service lines, first and foremost thanks to good demand in the first quarter.

The division was able to improve the profitability of its operations as a result of efficiency improvement measures and increasing volume.

Facility Services

Second quarter
The division’s net sales for the second quarter were down by 6.9% to EUR 68.3 million (EUR 73.4 million). Operating profit totalled EUR 2.1 million (EUR 2.8 million). Operating profit excluding non-recurring items was EUR 2.2 million (EUR 2.9 million).

The division’s net sales declined year-on-year, due to business downsizing in Sweden and low demand for damage repair services. In addition, net sales was impacted by weaker demand for services in the cleaning and property maintenance businesses.

The profitability of the division was weakened by lower demand for services in the cleaning and property maintenance businesses and by the weak profitability of damage repair services. Property maintenance was able to improve its profitability year-on-year.

January-June
The Facility Services division’s net sales for January-June decreased by 7.9% to EUR 137.4 million (EUR 149.2 million). Operating profit totalled EUR 2.6 million (EUR 3.3 million). Operating profit excluding non-recurring items was EUR 2.8 million (EUR 3.7 million).

The division’s net sales declined year-on-year, due to business downsizing in Sweden and lower than normal demand for seasonal work in property maintenance during the first months of the year.

The profitability of the division was weakened by lower demand for services in the cleaning and property maintenance businesses and by the weak profitability of damage repair services.

Demand for the services of the division has declined, which has decreased both the net sales and the profitability of the division. The entire division is undergoing a major reorganisation process in order to adapt operations to the changes in market conditions. This affects the profitability of business. The benefits of the process will gradually start to materialise in the second half of 2014.

Renewable Energy Sources

Second quarter
Second quarter net sales of Renewable Energy Sources (L&T Biowatti) were down by 21.1% to EUR 10.3 million (EUR 13.0 million). Operating profit totalled EUR 0.3 million (EUR 0.1 million) and operating profit excluding non-recurring items was EUR 0.3 million (operating loss EUR 0.1 million).

The decrease in net sales could mostly be attributed to the short heating season and the downsizing of operations in Eastern Finland. As a result of efficiency improvement measures, profitability improved year-on-year.

January-June
January-June net sales of Renewable Energy Sources (L&T Biowatti) were down by 24.9% to EUR 26.1 million (EUR 34.8 million). Operating profit totalled EUR 1.1 million (EUR 1.1 million) and operating profit excluding non-recurring items was EUR 1.1 million (EUR 0.9 million).

The decrease in net sales could mostly be attributed to the short heating season and the downsizing of operations in Eastern Finland. As a result of efficiency improvement measures, relative profitability improved year-on-year.
 
BREAKDOWN OF OPERATING PROFIT EXCLUDING NON-RECURRING ITEMS
 

FINANCING

Cash flows from operating activities amounted to EUR 27.3 million (EUR 44.4 million). A total of EUR 6.8 million in working capital was committed (EUR 9.7 million released). The principal reason behind working capital commitment was the increase in trade receivables.

At the end of the period, interest-bearing liabilities amounted to EUR 100.7 million (EUR 89.0 million).

Net interest-bearing liabilities amounted to EUR 80.2 million, showing an increase of EUR 15.8 million from the beginning of the year and an increase of EUR 6.3 million year-on-year.

Net financial expenses in January-June amounted to EUR 17.6 million (EUR 1.0 million). Net financial expenses were 5.5% (0.3%) of net sales. The increase in net financial expenses was mostly due to the EUR 16.7 million payment made under the L&T Recoil Oy guarantee commitment. 

The average interest rate on long-term loans (with interest-rate hedging) was 1.7% (2.2%). Long-term loans totalling EUR 4.9 million will mature during the rest of the year.

The equity ratio was 43.2% (47.3%) and the gearing rate was 42.9 (33.9). Liquid assets at the end of the period amounted to EUR 20.5 million (EUR 15.1 million).

Of the EUR 100 million commercial paper programme, EUR 30.0 million (EUR 15.0 million) was in use at the end of the period. A committed limit totalling EUR 30.0 million was not in use, as was the case in the comparison period.

DISTRIBUTION OF ASSETS

The Annual General Meeting held on 19 March 2014 resolved that a dividend of EUR 0.50 per share be paid on the basis of the balance sheet that was adopted for the financial year 2013. The dividend, totalling EUR 19.4 million, was paid to shareholders on 31 March 2014.

CAPITAL EXPENDITURE

In January-June 2014, gross capital expenditure totalled EUR 20.3 million (EUR 16.7 million), consisting mainly of machine and equipment purchases and small targeted acquisitions.

PERSONNEL

In January-June, the average number of employees converted into full-time equivalents was 7,658 (8,002). At the end of the period, Lassila & Tikanoja had 8,451 (9,567) full-time and part-time employees. Of these, 7,610 (7,689) worked in Finland and 841 (1,965) in other countries. The number of employees working in other countries was mainly decreased by the divestment of the Latvian business operations.

SHARE AND SHARE CAPITAL

Traded volume and price
The volume of trading on NASDAQ OMX Helsinki in January-June 2014, excluding the shares held by the company in Lassila & Tikanoja plc, was 4,581,862 shares, which is 11.8% (9.8%) of the average number of outstanding shares. The value of trading was EUR 66.3 million (EUR 49.5 million). The trading price varied between EUR 13.77 and EUR 15.84. The closing price was EUR 15.05. At the end of the period, the market capitalisation excluding the shares held by the company was EUR 583.1 million (EUR 518.7 million).

Own shares
At the end of the period, the company held 51,409 of its own shares, representing 0.1% of all shares and votes.

Share capital and number of shares
The company’s registered share capital amounts to EUR 19,399,437 and the number of outstanding shares is 38,747,465. The average number of shares excluding the shares held by the company was 38,732,811.

Share-based incentive programme 2014
On 18 December 2013, Lassila & Tikanoja plc’s Board of Directors decided on a new share-based incentive programme for 2014 as part of the key personnel’s incentive and commitment system. The earnings period of the programme began on 1 January 2014 and ends on 31 December 2014. Any rewards to be paid for 2014 will be based on the Group’s EVA result. Possible rewards will be paid partly as shares and partly in cash. A maximum of 39,105 Lassila & Tikanoja plc shares may be paid out under the programme. The programme covers 10 persons.

Shareholders
At the end of the period, the company had 9,645 (9,485) shareholders. Nominee-registered holdings accounted for 18.3% (17.9%) of the total number of shares.

Authorisation for the Board of Directors
The Annual General Meeting held on 19 March 2014 authorised Lassila & Tikanoja plc’s Board of Directors to make decisions on the repurchase of the company’s own shares using the company’s unrestricted equity. In addition, the Annual General Meeting authorised the Board of Directors to decide on the share issue and the issuance of special rights entitling to shares.

The Board of Directors is authorised to purchase a maximum of 2,000,000 company shares (5.2% of the total number of shares). The repurchase authorisation is effective for 18 months.

The Board of Directors is authorised to decide on the issuance of new shares or shares possibly held by the company through a share issue and/or issuance of option rights or other special rights entitling to shares, referred to in Chapter 10, Section 1 of the Finnish Companies Act, so that under the authorisation a maximum of 2,000,000 shares (5.2% of the total number of shares) may be issued and/or conveyed. The share issue authorisation is effective for 18 months.

RESOLUTIONS BY THE ANNUAL GENERAL MEETING

The Annual General Meeting, which was held on 19 March 2014, adopted the financial statements and consolidated financial statements for 2013 and released the members of the Board of Directors and the President and CEO from liability.

The Annual General Meeting resolved that a dividend of EUR 0.50 per share, totalling EUR 19.4 million, be paid on the basis of the balance sheet to be adopted for the financial year 2013. It was decided that the dividend be paid on 31 March 2014.

The Annual General Meeting confirmed the number of members of the Board of Directors as six. Heikki Bergholm, Eero Hautaniemi, Hille Korhonen, Sakari Lassila and Miikka Maijala were re-elected and Laura Lares was elected as a new member to the Board until the end of the following Annual General Meeting.

KPGM Oy Ab, Authorised Public Accountants, was elected auditor. KPMG Oy Ab named Lasse Holopainen, Authorised Public Accountant, as its principal auditor.

The resolutions of the Annual General Meeting were announced in more detail in a stock exchange release on 19 March 2014.

BOARD OF DIRECTORS

The members of Lassila & Tikanoja plc’s Board of Directors are Heikki Bergholm, Eero Hautaniemi, Hille Korhonen, Laura Lares, Sakari Lassila and Miikka Maijala. At its organising meeting held after the Annual General Meeting, the Board of Directors elected Heikki Bergholm as Chairman of the Board and Eero Hautaniemi as Vice Chairman.

Eero Hautaniemi was elected as Chairman and Sakari Lassila and Laura Lares as members of the audit committee. Heikki Bergholm was elected as Chairman and Hille Korhonen and Miikka Maijala as members of the remuneration committee.

SUMMARY OF STOCK EXCHANGE RELEASES PURSUANT TO ARTICLE 4, CHAPTER 6 OF THE SECURITIES MARKET ACT

In a release published on 3 March 2014, the company announced that Lassila & Tikanoja and Bioinvest SIA have signed an agreement on the sale of L&T’s business operations in Latvia to Bioinvest SIA. In a release published on 13 March 2014, the company announced that the divestment of the business operations had been completed. The total net sales of the divested business operations amount to approximately EUR 16 million, most of which is allocated to the Environmental Services division. As a result of the divestment, approximately 950 employees transferred to Bioinvest.

In a release published on 21 March 2014, the company announced that it had been informed that the financiers of the EcoStream Group had called in a loan granted to L&T Recoil Oy, part of the EcoStream Group. In addition, the company announced that it had received a claim from the financing banks to pay approximately EUR 16.7 million on the basis of a loan guarantee commitment associated with L&T Recoil Oy’s loans.

Lassila & Tikanoja’s total risk associated with the EcoStream Group, including the above guarantee commitment, is approximately EUR 23.4 million as announced earlier. Of this amount, the above guarantee commitment of approximately EUR 16.7 million has an effect on cash flow.

On 30 April 2014, the company announced that it had received information according to which the District Prosecutor for Helsinki had decided to drop the charges against the company’s President and CEO Pekka Ojanpää and eight other current and former members of Lassila & Tikanoja’s management staff who were accused of offences related to occupational health and safety and working hours legislation. The corporate fine and claim for advantage received remained in force against the company.

EVENTS AFTER THE REVIEW PERIOD

On 3 July 2014, the company published a press release announcing that the Helsinki District Court has exonerated Lassila & Tikanoja from summary penal orders related to overtime work offences. The corporate fine claim presented by the prosecutor was dropped and the Finnish State was obligated to compensate the company for the legal costs of the case. According to the Court, the guidelines and monitoring systems of the company have been adequate and the safety or health of the employees had not been jeopardised.
 
The District Court considered five of the company’s current or former supervisors to be guilty of offences related to working hours legislation. Three of them were sentenced to pay 8-15 unit fines and two were left without a sentence by reason of the triviality of the criminal act.

On 1 August 2014, the company announced a change to its outlook. Lassila & Tikanoja’s net sales in 2014 are expected to remain at the 2013 level or slightly below. Operating profit excluding non-recurring items is expected to remain at the 2013 level or slightly below.

Previously, the company estimated that comparable net sales in 2014 would remain at the 2013 level and operating profit excluding non-recurring items would remain at the 2013 level or improve slightly.

NEAR-TERM RISKS AND UNCERTAINTIES

Economic uncertainty may result in major changes in Environmental Services’ secondary raw material markets and in demand for Facility Services and Industrial Services.

Uncertainties associated with government subsidies for renewable fuels and with the continuity of such subsidies may affect demand for the services of Renewable Energy Sources.

More detailed information on L&T’s risks and risk management is available in the Annual Report for 2013, in the Report of the Board of Directors and in the consolidated financial statements.

OUTLOOK FOR THE REST OF THE YEAR

Lassila & Tikanoja’s net sales in 2014 are expected to remain at the 2013 level or slightly below. Operating profit excluding non-recurring items is expected to remain at the 2013 level or slightly below.

CONDENSED FINANCIAL STATEMENTS 1 JANUARY - 30 JUNE 2014

CONSOLIDATED INCOME STATEMENT
 

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME