Lassila & Tikanoja Plc: Half-Year Report 1 January - 30 June 2016

- Net sales for the second quarter increased by 1.6% to EUR 166.9 million (EUR 164.2 million), operating profit was EUR 14.1 million (EUR 14.4 million) and earnings per share EUR 0.38 (EUR 0.28)
- Net sales for January-June increased by 1.9% to EUR 327.5 million (EUR 321.5 million), operating profit was EUR 20.9 million (EUR 20.9 million) and earnings per share EUR 0.52 (EUR 0.42)
- Earnings per share in the second quarter were increased by EUR 0.09 due to the company receiving a legally valid decision concerning the tax deductibility of a debt paid under a guarantee commitment related to L&T Recoil’s bankruptcy. Total taxes are reduced by EUR 3.3 million.
 - Full-year net sales and operating profit in 2016 are expected to remain at the 2015 level or improve slightly

CEO PEKKA OJANPÄÄ:

“The result for the first half of 2016 was in line with expectations in spite of the business environment remaining challenging, particularly with regard to the demand for, and prices of, recyclable raw materials. Net sales saw organic growth in Facility Services and Industrial Services. Net sales also grew due to strategically targeted acquisitions in Environmental Services and Facility Services. The company’s profitability remained at a good level considering the market situation due to previously implemented efficiency improvement measures. In line with our strategy, our focus in the prevailing market climate is on strengthening our market position and ensuring profitability and cash flow.”

GROUP NET SALES AND FINANCIAL PERFORMANCE

April - June
Lassila & Tikanoja’s net sales for the second quarter increased by 1.6% to EUR 166.9 million (EUR 164.2 million). Operating profit totalled EUR 14.1 million (EUR 14.4 million). Earnings per share were EUR 0.38 (EUR 0.28).

In the second quarter, net sales grew by 3.9% in Facility Services. Net sales grew both organically and due to acquisitions. Net sales grew by 2.5% in Environmental Services due to previous acquisitions. The net sales of Industrial Services grew by 0.3% and were on a par with the comparison period. The net sales of the Renewable Energy Sources division declined by 22.6% due to the weak demand for energy wood.

Profitability improved significantly in Facility Services. The operating profit of the Environmental Services and Industrial Services divisions was lower than in the comparison period. The operating profit of Renewable Energy Sources declined substantially.

The Group’s earnings per share was favourably affected by a legally valid decision handed down by the Administrative Court, according to which the payment of approximately EUR 16.7 million made by the company in 2014 under the L&T Recoil Oy guarantee commitment is tax-deductible. In previous financial reports, the company has treated the payment as a non-tax deductible item due to its tax deductibility not being confirmed. The decision had a favourable impact of EUR 0.09 on earnings per share.

January - June
Lassila & Tikanoja’s net sales for January - June increased by 1.9% to EUR 327.5 million (EUR 321.5 million). Operating profit was EUR 20.9 million (EUR 20.9 million), representing 6.4% (6.5%) of net sales. Earnings per share were EUR 0.52 (EUR 0.42).

During the first half of the year, net sales grew by 3.2% in Industrial Services, 3.1% in Facility Services and 2.0% Environmental Services. The net sales of the Renewable Energy Sources division declined by 10.0% year-on-year due to low demand.

Profitability improved particularly in Facility Services. The operating profit of the Environmental Services and Industrial Services divisions was lower than in the comparison period. The operating profit of Renewable Energy Sources declined substantially.

Impact of new guidance from the European Securities and Markets Authority

The new guidance issued by the European Securities and Markets Authority (ESMA) regarding Alternative Performance Measures entered into effect on 3 July 2016. Lassila & Tikanoja presents Alternative Performance Measures in addition to IFRS performance measures in order to illustrate the financial performance of its business operations and to improve comparability between reporting periods. Alternative Performance Measures should not be considered to be replacements for the performance measures defined in the IFRS standards. The new guidance on Alternative Performance Measures has no impact on the company’s reporting of performance measures.

The Alternative Performance Measures reported by the company are EVA and cash flow from operating activities per share. The calculation formulas for the performance measures are presented at the end of the half-year report.

Financial summary
 

NET SALES AND OPERATING PROFIT BY DIVISION

Environmental Services

Second quarter
The division’s net sales for the second quarter increased by 2.5% to EUR 68.2 million (EUR 66.5 million). The increase in net sales was attributable to acquisitions. Operating profit totalled EUR 9.2 million (EUR 10.8 million).

The operating profit of the Environmental Services division was decreased by the lower volume of recyclable materials at recycling plants and the continued low market prices of secondary raw materials.

January - June
The Environmental Services division’s net sales for the first half of the year increased by 2.0% to EUR 130.0 million (EUR 127.5 million). Operating profit totalled EUR 14.6 million (EUR 17.3 million).

Previously completed acquisitions and stronger demand for services in the construction sector contributed to increased net sales in the recycling business and the division as a whole.

The division’s operating profit was decreased by the lower volume of recyclable materials at recycling plants and the continued low market prices of secondary raw materials.

Industrial Services

Second quarter
The division’s net sales for the second quarter increased by 0.3% to EUR 20.9 million (EUR 20.8 million). Operating profit totalled EUR 2.1 million (EUR 2.5 million).

The net sales of the division’s services showed a year-on-year increase in environmental construction and sewer maintenance, but declined in hazardous waste services and process cleaning.

Reduced demand for services led to lower operating profit for hazardous waste services. Operating profit also declined in process cleaning. Sewer maintenance and environmental construction achieved a year-on-year increase in operating profit.

January - June
The Industrial Services division’s net sales for January - June increased by 3.2% to EUR 36.8 million (EUR 35.7 million).Operating profit totalled EUR 1.8 million (EUR 2.1 million).

The division’s net sales for the first half of the year showed an increase from the comparison period. Net sales increased in all service lines except hazardous waste.

Profitability declined in hazardous waste and process cleaning, but improved in environmental construction and sewer maintenance.

Facility Services

Second quarter
The division’s net sales for the second quarter increased by 3.9% to EUR 72.8 million (EUR 70.1 million). Net sales grew both organically and due to acquisitions. Operating profit totalled EUR 3.7 million (EUR 1.8 million).

Net sales grew in renovation services, maintenance of technical systems and cleaning, but declined in property maintenance. Net sales increased in the maintenance of technical systems business due to acquisitions.

The maintenance of technical systems business and the renovation business achieved a substantial increase in profitability following efficiency improvement measures implemented over the past year. The profitability of the cleaning business was weighed down by intense price competition.

January - June
The Facility Services division’s net sales for January - June increased by 3.1% and amounted to EUR 145.0 million (EUR 140.7 million). Operating profit totalled EUR 4.9 million (EUR 2.1 million).

Net sales grew in renovation services, maintenance of technical systems and cleaning, but declined in property maintenance. Net sales increased in the maintenance of technical systems business due to acquisitions.

The maintenance of technical systems business and the renovation business achieved a substantial increase in profitability following efficiency improvement measures implemented over the past year. The profitability of the cleaning business was weighed down by intense price competition.

Renewable Energy Sources

Second quarter
The second quarter net sales of Renewable Energy Sources (L&T Biowatti) were down by 22.6% to EUR 7.0 million (EUR 9.1 million). Operating profit was EUR 0.0 million (EUR 0.5 million).

The division’s net sales and operating profit were affected by the weak demand for forest energy.

January - June
The net sales of the Renewable Energy Sources division (L&T Biowatti) in January - June were down by 10.0% to EUR 19.8 million (EUR 22.0 million). Operating profit totalled EUR 0.7 million (EUR 1.2 million).

The division’s net sales declined mainly due to the short heating season and the challenging market situation for biofuels. Profitability declined year-on-year.

FINANCING

Cash flow from operating activities in the first half of the year was affected by EUR 52 million in advance
payments of employment pension contributions. Unlike in the previous year, in 2016 the entire year’s contributions were paid in January. In previous years, the payments were made
in four instalments. The change in the payment schedule will have no effect on the full-year cash flow.

Cash flow from operating activities amounted to EUR 4.5 million (EUR 37.6 million). A total of EUR 27.2 million in working capital was committed (EUR 1.0 million released), with approximately EUR 23 million of this amount being related to the change in the payment schedule of employment pension contributions. 

At the end of the period, interest-bearing liabilities amounted to EUR 103.8 million (EUR 101.1 million).

Net interest-bearing liabilities amounted to EUR 87.5 million (EUR 60.5 million), showing an increase of EUR 45.7 million from the beginning of the year and an increase of EUR 27.0 million from the comparison period.

Net financial expenses in January - June were EUR 0.1 million in the negative (EUR 0.2 million). Net financial expenses were 0.0% (0.1%) of net sales.

The average interest rate on long-term loans (with interest rate hedging) was 1.5% (1.5%). Long-term loans totalling EUR 31.3 million will mature during the remainder of the year.

The equity ratio was 44.1% (43.4%) and the gearing rate was 43.9 (31.1). Liquid assets at the end of the period amounted to EUR 16.3 million (EUR 40.6 million).

Of the EUR 100 million commercial paper programme, EUR 10 million (EUR 0.0 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 17 March 2016 resolved that a dividend of EUR 0.85 per share be paid on the basis of the balance sheet that was adopted for the financial year 2015. The dividend, totalling EUR 32.6 million, was paid to shareholders on 30 March 2016.

CAPITAL EXPENDITURE

Gross capital expenditure in the first half of the year totalled EUR 18.7 million (EUR 17.5 million), consisting primarily of machine and equipment purchases, investments in information systems and acquisitions. Of the significant ongoing information system projects, the deployment of the new ERP system for Facility Services and the first deployments of new financial systems will take place in late 2016 and early 2017.

PERSONNEL

In January - June, the average number of employees converted into full-time equivalents was 6,961 (6,894). At the end of the period, Lassila & Tikanoja had 8,631 (8,615) full-time and part-time employees. Of these, 7,758 (7,716) worked in Finland and 873 (899) in other countries.

SHARES AND SHARE CAPITAL

Traded volume and price
The volume of trading on Nasdaq Helsinki in January - June 2016, excluding the shares held by the company in Lassila & Tikanoja plc, was 3,665,544 shares, which is 9.6% (14.6%) of the average number of outstanding shares. The value of trading was EUR 59.4 million (EUR 96.4 million). The highest share price was EUR 18.25 and the lowest EUR 14.37. The closing price was EUR 16.65. At the end of the period, the market capitalisation excluding the shares held by the company was EUR 639.0 million (EUR 595.1 million).

Own shares
At the end of the period, the company held 420,868 of its own shares, representing 1.1% 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 38,378,006. The average number of shares excluding the shares held by the company was 38,371,974.

Shareholders
At the end of the period, the company had 10,515 (9,915) shareholders. Nominee-registered holdings accounted for 17.3% (18.3%) of the total number of shares.

Authorisation for the Board of Directors
The Annual General Meeting held on 17 March 2016 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 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 share issue authorisation is effective for 18 months.

RESOLUTIONS BY THE ANNUAL GENERAL MEETING

The Annual General Meeting, which was held on 17 March 2016, adopted the financial statements and consolidated financial statements for 2015 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 0.85 per share, totalling EUR 32.6 million, be paid on the basis of the balance sheet adopted for the financial year 2015. It was decided that the dividend be paid on 30 March 2016.

The Annual General Meeting confirmed the number of members of the Board of Directors as six. Heikki Bergholm, Eero Hautaniemi, Laura Lares, Sakari Lassila and Miikka Maijala were re-elected, and Teemu Kangas-Kärki was elected as a new member, 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 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 17 March 2016.

BOARD OF DIRECTORS

The members of Lassila & Tikanoja plc’s Board of Directors are Heikki Bergholm, Eero Hautaniemi, Teemu Kangas-Kärki, Laura Lares, Sakari Lassila and Miikka Maijala. At its constitutive meeting 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 Teemu Kangas-Kärki as members of the Audit Committee. Heikki Bergholm was elected as the Chairman of the Personnel Committee and Miikka Maijala and Laura Lares as members of the committee.

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

On 4 January 2016, the company announced that it had concluded the repurchase of its own shares that was announced on 2 September 2015. The repurchase of the company’s own shares began on 15 September 2015 and the repurchase programme ended on 31 December 2015. The final share purchase was realised on 21 December 2015. A total of 253,406 shares were purchased during the repurchase programme. As of the conclusion of the repurchase programme, the company holds a total of 437,721 of its own shares, which corresponds to 1.1% of shares and votes.

On 3 February 2016, the company announced a change to its target range for gearing for the strategy period 2014 - 2018. The new range is 0 - 70 per cent. The previous range was 30 - 80 per cent. The change is based on the company’s strong cash flow as well as the need to prepare for potential acquisitions and other capital expenditure.

On 10 June 2016, the company announced that Tutu Wegelius-Lehtonen, Lic.Sc. (Tech.), has been appointed Vice President for Facility Services starting from 1 July 2016, having previously served as L&T’s Director, Supply Chain, and as a member of the Group Executive Board since February 2015.  Tomi Kontinen, B. Eng. (Logistics), was appointed Wegelius-Lehtonen’s successor as Director, Supply Chain, and member of the Group Executive Board, starting from 1 July 2016.

EVENTS AFTER THE REVIEW PERIOD

The company management is not aware of any events of material importance that might have affected the preparation of the half-year report.

NEAR-TERM RISKS AND UNCERTAINTIES

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

Low prices for fossil fuels may affect the demand of the recovered and renewable fuels produced by the company.

The company is preparing to deploy new ERP and financial management systems in late 2016 and early 2017. The deployment of the new systems may lead to temporary overlapping costs arising from changes in the operating model, which can have a negative effect on the company’s result.

More detailed information on L&T’s risks and risk management is available in the 2015 Annual Report, and in the Report of the Board of Directors and the consolidated financial statements.

OUTLOOK FOR THE YEAR 2016

Full-year net sales and operating profit in 2016 are expected to remain at the 2015 level or improve slightly.


CONDENSED FINANCIAL STATEMENTS 1 JANUARY - 30 JUNE 2016


CONSOLIDATED INCOME STATEMENT
 

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
 

CONSOLIDATED STATEMENT OF FINANCIAL POSITION