Lassila & Tikanoja plc: Financial Statements 1 January–31 December 2019

Lassila & Tikanoja plc
Stock exchange release
29 January 2020 at 8:00 a.m.

Lassila & Tikanoja plc: Financial Statements 1 January–31 December 2019

Unless otherwise mentioned, the figures in brackets refer to the corresponding period in the previous year.

- Net sales for the final quarter were EUR 198.9 million (206.5), operating profit was EUR 8.9 million (11.7) and earnings per share EUR 0.16 (0.23).
- Full-year net sales were EUR 784.3 million (802.2), operating profit was EUR 45.0 million (47.6) and earnings per share EUR 0.90 (0.89).
- The decline in net sales in the fourth quarter and the year 2019 as a whole was due to the divestment of L&T Korjausrakentaminen Oy.
- Operating profit declined in the fourth quarter and for the full year due to the significantly weaker result of Facility Services Finland.
- The Board of Directors proposes a dividend of EUR 0.92 per share.

Outlook for the year 2020

Net sales in 2020 are expected to be on par with 2019 and operating profit is expected to increase compared to 2019 (EUR 40.5 million). The effect of the divestment of L&T Korjausrakentaminen Oy, EUR 4.5 million, has been deducted from the operating profit for the comparison period, which was EUR 45.0 million.

PRESIDENT AND CEO EERO HAUTANIEMI:

“Net sales for 2019 decreased by 2.2% year-on-year, while operating profit decreased by 5.5%. The decline in net sales was due to the divestment of Korjausrakentaminen Oy, and the operating profit declined due to the significantly weaker result of Facility Services Finland.  

In Environmental Services, demand remained good and operating profit increased due to the enhanced efficiency of operations and the improved result of the renewable energy sources business. In Industrial Services, the growth of the project business and new customer accounts in industrial sites compensated for the slowing down of the construction industry. However, operating profit was weighed down by industrial action among our customers in manufacturing industries during the latter part of the year, and a decrease in demand. The profitability of Facility Services Finland was significantly lower than in the previous year. In particular, costs related to the implementation of a new operating model in the technical services business weakened the full-year operating profit. Cash flow from operating activities was strong at EUR 94.5 million (90.1).

L&T’s strategy was updated in autumn 2019, at which time we also set new targets for the strategy period 2019–2024. The new strategy coincides with a period of time in which we must find solutions to major societal challenges related to combating climate change and the adequacy of virgin natural resources. As new strategic targets, we are monitoring customer satisfaction, employee satisfaction, our carbon footprint and our carbon handprint. In our operations, we pay particular attention to our carbon handprint, which refers to the positive climate impact of our business.

We implemented structural reforms in 2019 with the aim of promoting the execution of our strategy and strengthening our market position in our core businesses. We divested our renovation and damage repair services businesses and integrated the technical services business into the Facility Services division. In accordance with our strategy, we will incorporate our businesses as separate legal entities in 2020.

Our focus during the year was on improving the company’s profitability, the customer experience and the employee experience. We developed new service solutions to promote the circular economy, such as the Merikarvia plastic recycling plant, to ensure future growth.

The company’s result in 2019 was not satisfactory. Nevertheless, the changes made during the year provide a strong foundation for the implementation of the new strategy, and I look forward to 2020 with confidence.” 

GROUP NET SALES AND FINANCIAL PERFORMANCE

October–December

Lassila & Tikanoja’s net sales for the fourth quarter amounted to EUR 198.9 million (206.5). Operating profit was EUR 8.9 million (11.7), representing 4.5% (5.7) of net sales. Earnings per share were EUR 0.16 (0.23).

In Environmental Services, net sales declined and operating profit was nearly on par with the comparison period. In Industrial Services, net sales grew while operating profit declined. In Facility Services Finland and Facility Services Sweden, net sales and operating profit decreased year-on-year.
                                                                                                            
Year 2019

Net sales for the financial year 2019 decreased by 2.2% to EUR 784.3 million (802.2). Operating profit was EUR 45.0 million (47.6), representing 5.7% (5.9) of net sales. Earnings per share were EUR 0.90 (0.89).

A capital gain of EUR 7.0 million was recognised on the divestment of the shares in L&T Korjausrakentaminen Oy. Taking the other impacts of the divestment into account, the transaction had an effect of EUR 4.5 million on operating profit for the financial year.

Financial summary

NET SALES AND OPERATING PROFIT BY DIVISION


Environmental Services

October–December
The division’s net sales for the final quarter were EUR 79.8 million (80.3). Operating profit remained nearly on par with the comparison period at EUR 8.2 million (8.3).

Net sales decreased slightly year-on-year due to the lower prices of recycled raw materials, such as fibres and metals. Operating profit was nearly unchanged from the comparison period due to measures taken to enhance the efficiency of production operations. Demand remained good in the retail and industrial segments.

Year 2019
The Environmental Services division’s net sales for 2019 amounted to EUR 311.2 million (309.4). Operating profit grew by 3.8% to EUR 32.8 million (31.6).

Demand remained good particularly in the retail and industrial segments. Labour and subcontracting costs were increased by a shortage of drivers and the challenging weather conditions during the first quarter. Nevertheless, operating profit increased due to the enhanced efficiency of operations and the improved result of the renewable energy sources business.

Industrial Services

October–December
The division’s net sales for the final quarter grew to EUR 26.0 million (25.2). Operating profit declined year-on-year and amounted to EUR 1.9 million (2.6).

Net sales increased due to growth in the project business and sewer maintenance services. The decline in operating profit was attributable to industrial action, the postponement of annual maintenance services and a decline in industrial demand due to the weaker market conditions.

Year 2019
The Industrial Services division’s net sales amounted to EUR 98.9 million (96.5). Operating profit was EUR 9.9 million (10.0).

The demand for services was strong almost throughout the year. In the latter part of the year, industrial demand was affected by the increased uncertainty in the world economy as well as industrial action. The slowing down of the construction sector was compensated by the increased project business and new customer accounts in industrial sites. The division’s profitability remained at a good level.

Facility Services Finland

October–December
The division’s net sales amounted to EUR 59.4 million (66.4). The decline in net sales was due to the divestment of L&T Korjausrakentaminen Oy.

Operating profit was EUR -1.3 million (0.0). The year-on-year decline in operating profit was due to the implementation of a new operating model in the technical services business as well as costs associated with the efficiency improvement and restructuring programme implemented in the fourth quarter across the division. The cleaning business developed favourably thanks to new customer accounts and improved productivity.

Year 2019
The Facility Services Finland division’s net sales for the full year totalled EUR 249.1 million (269.6). The decline in net sales was due to the divestment of L&T Korjausrakentaminen Oy. Operating profit was EUR -4.1 million (5.2) excluding the effect of the divestment of L&T Korjausrakentaminen Oy.

The substantial year-on-year decline in operating profit was mainly due to costs related to the implementation of a new operating model in the technical services business, the contract portfolio of the property maintenance business being lower than in the comparison period as well as costs associated with the efficiency improvement and restructuring programme implemented in the fourth quarter.

Facility Services Sweden

October–December
The division’s net sales for the final quarter were EUR 35.8 million (36.6). Operating profit was EUR 0.9 million (1.6).

Cost saving measures in the health care and municipal sectors had a negative impact on part of the Swedish market for technical services. Facility Services Sweden implemented organisational reforms and a cost savings programme in the fourth quarter.

Year 2019
The Facility Services Sweden division’s net sales for 2019 amounted to EUR 131.8 million (134.0). Operating profit was EUR 3.8 million (4.2). Measured in SEK, net sales increased by 1.1%.

The demand for technical services increased in Sweden, but sales growth was slowed by problems related to the availability of labour. Facility Services Sweden implemented organisational reforms and a cost savings programme in the fourth quarter. Measured in SEK, the operating profit of the technical services business in Sweden was on par with the comparison period, while the operating profit of the cleaning business declined year-on-year.

FINANCING

In 2019, cash flow from operating activities amounted to EUR 94.5 million (90.1). A total of EUR 14.2 million in working capital was released (EUR 9.9 million released).

Interest-bearing liabilities on the balance sheet were increased by approximately EUR 53.8 million by the entry into force of IFRS 16 at the beginning of 2019. This had a negative effect on the gearing rate as well as the equity ratio. The Group issued a separate release on the effects of the transition on 25 April 2019.

At the end of the year, interest-bearing liabilities amounted to EUR 177.4 million (152.2). Net interest-bearing liabilities totalled EUR 135.6 million (97.8). Net interest-bearing liabilities increased by EUR 37.8 million year-on-year due to the entry into force of IFRS 16. Loans totalling EUR 3.9 million matured in 2019. In August 2019, the Group made an early repayment of a loan of EUR 25 million that was originally set to mature in 2020. The average interest rate on long-term loans excluding IFRS 16 liabilities, with interest rate hedging, was 1.3% (1.2).

Net financial expenses in 2019 amounted to EUR -3.0 million (-4.5). The entry into force of IFRS 16 increased financial expenses, while exchange rate fluctuations reduced them. Net financial expenses were 0.4% (0.6%) of net sales.

The equity ratio was 35.6% (38.1) and the gearing rate was 66.8% (46.8). Liquid assets at the end of the year amounted to EUR 41.8 million (54.3). The equity ratio was negatively affected by the entry into force of IFRS 16 at the beginning of 2019.

DISTRIBUTION OF ASSETS

The Annual General Meeting held on 14 March 2019 resolved that a dividend of EUR 0.92 per share be paid on the basis of the balance sheet that was adopted for the financial year 2018. The dividend, totalling EUR 35.3 million, was paid to shareholders on 25 March 2019.


CAPITAL EXPENDITURE

Gross capital expenditure for 2019 totalled EUR 46.1 million (37.8), consisting primarily of machine and equipment purchases as well as investments in information systems and buildings.
 
PERSONNEL

In the fourth quarter, the average number of employees converted into full-time equivalents was 7,308
(7,566). At the end of the period, Lassila & Tikanoja had 8,207 (8,600) full-time and part-time employees. Of these, 6,479 (6,871) worked in Finland and 1,728 (1,729) in other countries.

PROPOSAL FOR THE DISTRIBUTION OF ASSETS

According to the financial statements, Lassila & Tikanoja plc's unrestricted equity amounts to EUR 89,944,979.49, with the operating profit for the period representing EUR 28,156,635.13 of this total. There were no substantial changes in the financial standing of the company after the end of the period, and the solvency test referred to in Chapter 13, Section 2 of the Companies Act does not affect the amount of distributable assets.

The Board of Directors proposes to the Annual General Meeting that a dividend of EUR 0.92 per share be paid for the financial year 2019. The dividend is paid to shareholders included in the company shareholder register maintained by Euroclear Finland Oy on the record date, 16 March 2020. The Board proposes to the Annual General Meeting that the dividend be paid on 23 March 2020.

No dividend shall be paid on shares held by the company on the record date of 16 March 2020.

On the day the proposal for the distribution of assets was made, the number of shares entitling to dividend was 38,094,466, which means the total amount of the dividend would be EUR 35,046,908.72. Earnings per share amounted to EUR 0.90. The proposed dividend, EUR 0.92 per share, is 101.7% of the earnings per share.

L&T’s Annual Report, which includes the report by the Board of Directors and the financial statements for 2019, will be published in week 8 at www.lt.fi/annualreport2019.


SHARES AND SHARE CAPITAL

Traded volume and price

The volume of trading on Nasdaq Helsinki in 2019, excluding the shares held by the company in Lassila & Tikanoja plc, was 8,172,082 shares, which is 21.3% (13.0) of the average number of outstanding shares. The value of trading was EUR 122.3 million (83.8). The highest share price was EUR 16.40 and the lowest EUR 12.92. The closing price was EUR 15.74. At the end of the review period, the market capitalisation excluding the shares held by the company was EUR 599.6 million (574.6).

Own shares

At the end of the period, the company held 704,408 of its own shares, representing 1.8% 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 38,094,466. The average number of shares excluding the shares held by the company was 38,354,267.

Shareholders

At the end of the period, the company had 15,524 (13,207) shareholders. Nominee-registered holdings accounted for 12.0% (19.5) of the total number of shares.

Authorisations for the Board of Directors

The Annual General Meeting held on 14 March 2019 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 a share issue and the issuance of special rights entitling their holders 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 which may be held by the company through a share issue and/or issuance of option rights or other special rights conferring entitlement 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 authorisation is effective for 18 months.

RESOLUTIONS BY THE ANNUAL GENERAL MEETING

The Annual General Meeting, which was held on 14 March 2019, adopted the financial statements and consolidated financial statements for 2018 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 0.92 per share, totalling EUR 35.3 million, be paid on the basis of the balance sheet adopted for the financial year 2018. It was decided that the dividend be paid on 25 March 2019.

The Annual General Meeting confirmed the number of members of the Board of Directors as six. Heikki Bergholm, Teemu Kangas-Kärki, Laura Lares, Sakari Lassila, Miikka Maijala and Laura Tarkka were re-elected to the Board until the end of the following Annual General Meeting.

KPMG Oy Ab, Authorised Public Accountants, was elected auditor. KPMG Oy Ab named Leenakaisa Winberg, Authorised Public Accountant, as its principal auditor.

The Annual General Meeting resolved to amend Articles 6, 13, 4 and 12 of the company’s Articles of Association. Following the amendment, Article 6 reads as follows: ”An Authorised Public Accountants Organisation shall be elected as the Company’s auditor. The auditor shall designate an Authorised Public Accountant having principal responsibility. The term of the auditor shall be the financial year of the Company and the duties of the auditor expire at the end of the first Annual General Meeting of Shareholders following the election.” At the same time, Article 13, Point 9, concerning matters to be handled by the Annual General Meeting, was amended to correspond to the new wording of Article 6. Furthermore, Article 4 of the Articles of Association was amended so that the following provision concerning the upper age limit of the members of the Board of Directors was removed: “No person who is 70 years of age or older can be elected to the Board of Directors”, and Article 12 was amended so that the following provision concerning voting limitation was removed: “At the General Meeting of Shareholders, no shareholder may cast more than one fifth (1/5) of the total number of votes represented at the General Meeting of Shareholders.”

The resolutions of the Annual General Meeting were announced in more detail in a stock exchange release on 14 March 2019.

BOARD OF DIRECTORS

The members of Lassila & Tikanoja plc’s Board of Directors are Heikki Bergholm, Teemu Kangas-Kärki, Laura Lares, Sakari Lassila, Miikka Maijala and Laura Tarkka. At its constitutive meeting after the Annual General Meeting, the Board of Directors elected Heikki Bergholm as Chairman of the Board and Sakari Lassila as Vice Chairman.

Sakari Lassila was elected as the Chairman of the Audit Committee and Teemu Kangas-Kärki and Laura Tarkka as members. Heikki Bergholm was elected as the Chairman of the Personnel Committee and Laura Lares and Miikka Maijala as members.

LASSILA & TIKANOJA PLC’S UPDATED STRATEGY AND LONG-TERM FINANCIAL TARGETS

In October, Lassila & Tikanoja plc’s Board of Directors approved the company’s updated strategy and targets for the strategy period 2019-2024. The new strategy coincides with a period of time in which we must find solutions to important questions related to sustainability and combating climate change. With the updated strategy, Creating More Value with the Circular Economy, Lassila & Tikanoja contributes to finding solutions to these questions.

The company’s strategy is to support the customers’ responsibility, create excellent customer experiences and develop the best services in the industry. The company brings new solutions for the circular economy to help combat climate change and promote social responsibility in society through employment. The company aims for rapid growth in businesses that promote sustainable development with its unique competence in the circular economy. The company pursues organic growth and invests in the markets of the future.


Financial targets:

The following long-term responsibility and stakeholder targets will be pursued alongside the financial targets:

The realisation of the long-term responsibility and stakeholder targets will be monitored as part of the company’s annual reporting starting from 2020.

Lassila & Tikanoja does not consider the long-term financial targets as market guidance for any year.

KEY EVENTS DURING THE REVIEW PERIOD

On 26 February, the Group announced that it had clarified its segment structure effective from 1 January 2019. Lassila & Tikanoja’s new structure consists of four reporting segments: Environmental Services, Industrial Services, Facility Services Finland and Facility Services Sweden. The Group also announced changes to the Group Executive Board: Tuomas Mäkipeska was appointed as Vice President, Facility Services Finland effective from 26 February 2019. Erik Sundström was appointed as Vice President, Facility Services Sweden and a member of the Group Executive Board. Juha Jaatinen was appointed as acting Group CFO and a member of the Group Executive Board. The Group’s General Counsel Sirpa Huopalainen was also appointed as a member of the Group Executive Board. On 25 February 2019, it was announced that Tutu Wegelius-Lehtonen, who had previously been in charge of the Facility Services division, had left the company.

On 15 April, the Group announced it has decided to divest its ownership of L&T Korjausrakentaminen Oy. The new owner of the subsidiary, which operates in the field of damage repair and renovation services, is Recover Nordic Group. The agreement was signed on 12 April 2019.

On 25 April, the company published comparison figures according to the new segment structure for the 2018 financial year as well as an opening balance sheet adjusted to reflect the effects of the adoption of IFRS 16.

On 13 May, the company announced that HR Director and member of the Group Executive Board Kirsi Matero had resigned from Lassila & Tikanoja to pursue new challenges outside the company during the autumn. Until a new HR Director takes up the post, Director of Corporate Relations and Responsibility Jorma Mikkonen will be in charge of the duties of HR Director in addition to his regular duties.

On 12 July, the company issued a profit warning and lowered its outlook for 2019. Full-year net sales in 2019 are expected to be on par with 2018 and operating profit is expected to be below 2018 level. The outlook does not take into account the impact of the divestment of L&T Korjausrakentaminen Oy.

On 26 July, Valtteri Palin, M.Sc. (Econ.), was appointed Chief Financial Officer and member of the Group Executive Board of Lassila & Tikanoja plc effective from 1 August 2019. Juha Jaatinen, who served as acting CFO, left the company on 31 July 2019 as planned.

On 10 September, based on the authorisation granted by the Annual General Meeting of 14 March 2019, the Board of Directors of Lassila & Tikanoja plc resolved to start repurchasing the company’s own shares. The maximum amount of shares to be repurchased is 600,000 shares, which corresponds to approximately 1.5 per cent of the total number of issued shares. The maximum amount allocated to repurchasing the shares is EUR 9 million.

On 1 October 2019, the company announced that Master of Laws (trained at the bench) Hilppa Rautpalo has been appointed as the Director of Human Resources and as a member of the Group Executive Board.

On 24 October, the company announced that the Board of Directors has approved the company’s updated strategy and targets for the strategy period 2019–2024. Long-term sustainability and stakeholder targets were also highlighted alongside the financial targets. The targets will be monitored as part of the company’s annual reporting starting from 2020.

EVENTS AFTER THE REVIEW PERIOD

The company’s management is not aware of any events of material importance after the review period that might have affected the preparation of the financial statements release.
 

NEAR-TERM RISKS AND UNCERTAINTIES

Challenges related to the availability of labour may increase production costs and slow down the growth of net sales.

Labour market disturbances in manufacturing industries may affect Lassila & Tikanoja’s net sales and profitability.

A decline in the volume of the construction industry and a slowing down of investment growth may have an unfavourable effect on the Group’s operations and business growth and lead to lower profitability.  In addition, market price development for emission rights, secondary raw materials or oil products may have a negative impact on the company’s business environment.

Temporary additional costs arising from establishing the operating model related to the new ERP system may weigh down on the company’s result.

More detailed information on Lassila & Tikanoja’s risks and risk management will be provided in the 2019 Annual Report and in the Report of the Board of Directors and the consolidated financial statements.

Outlook for the year 2020

Net sales in 2020 are expected to be on par with 2019 and operating profit is expected to increase compared to 2019 (EUR 40.5 million). The effect of the divestment of L&T Korjausrakentaminen Oy, EUR 4.5 million, has been deducted from the operating profit for the comparison period, which was EUR 45.0 million.

Attachment

• LT_financialstatements_Q42019