Lassila & Tikanoja plc: Half-Year Report 1 January – 30 June 2017

Lassila & Tikanoja plc
Stock Exhange Release
2 August 2017 at 8.00 am

- Net sales for the second quarter were EUR 167.2 million (EUR 166.9 million), operating profit was EUR 10.1 million (EUR 14.1 million) and earnings per share EUR 0.19 (EUR 0.38)
- Net sales for January–June increased by 0.5% to EUR 329.2 million (EUR 327.5 million), operating profit was EUR 15.2 million (EUR 20.9 million) and earnings per share EUR 0.30 (EUR 0.52)
- Full-year net sales in 2017 are expected to remain at the 2016 level and operating profit is expected to be below the 2016 level

CEO PEKKA OJANPÄÄ:

“Lassila & Tikanoja’s result for the first half of the year was weaker than expected. The Industrial Services business grew and improved its profitability year-on-year thanks to strong demand. The net sales of Environmental Services increased slightly year-on-year, but profitability declined. The result of Facility Services fell short of expectations, mainly due to the weaker-than-anticipated result in renovation business and the maintenance of technical systems as well as the expenses related to the deployment of the new ERP system. We will continue to implement our current measures to improve profitability. In line with our strategy, we will expand our service offering in the growing Swedish market by acquiring Veolia FM AB, which provides maintenance of technical systems. The acquisition will also provide opportunities for transferring special expertise from Sweden to Finland, especially in operations involving hospitals and the public sector. The acquisition is expected to be finalised during the third quarter of 2017.”  

GROUP NET SALES AND FINANCIAL PERFORMANCE

April–June

Lassila & Tikanoja’s net sales for the second quarter increased by 0.2% to EUR 167.2 million (EUR 166.9 million). Operating profit totalled EUR 10.1 million (EUR 14.1 million), representing 6.0% (8.4%) of net sales. Earnings per share were EUR 0.19 (EUR 0.38).

Net sales increased in Industrial Services and Renewable Energy Sources, but decreased year-on-year in Facility Services and Environmental Services.

Operating profit increased in Industrial Services and Renewable Energy Sources, but the profitability of Environmental Services and Facility Services was lower than in the previous year. In addition to the lower profitability of business operations compared to the previous year, the operating profit was weighed down by expenses of EUR 0.7 million recognised in the second quarter in relation to the Veolia FM AB acquisition announced in June. The Group also increased its cost provisions related to the closure of landfills by EUR 0.6 million in the second quarter.

January–June

Net sales for January–June increased by 0.5% to EUR 329.2 million (EUR 327.5 million). Operating profit totalled EUR 15.2 million (EUR 20.9 million), representing 4.6% (6.4%) of net sales. Earnings per share were EUR 0.30 (EUR 0.52).

During the first half of the year, net sales increased in Industrial Services and Environmental Services, but decreased year-on-year in Facility Services and Renewable Energy Sources.

Operating profit increased in Industrial Services, while the profitability of Environmental Services, Renewable Energy Sources and Facility Services was lower than in the comparison period.

Financial summary
 

NET SALES AND OPERATING PROFIT BY DIVISION

Environmental Services

Second quarter
The division’s net sales for the second quarter amounted to EUR 67.4 million (EUR 68.2 million). Operating profit totalled EUR 7.7 million (EUR 9.2 million).

The operating profit of Environmental Services was particularly weighed down in the second quarter by an increase of EUR 0.6 million in cost provisions related to the closure of landfills.  

January–June
Net sales for the first half of the year totalled EUR 130.3 million (EUR 130.0 million). Operating profit was EUR 13.7 million (EUR 14.6 million).

The division’s operating profit for the first half of the year was reduced by fuel costs being higher than in the previous year, the impact of municipalisation on the availability and prices of secondary raw materials and an increase in cost provisions related to the closure of landfills.

Industrial Services

Second quarter
The division’s net sales for the second quarter increased by 13.2% to EUR 23.6 million (EUR 20.9 million). Operating profit increased by 19.7% to EUR 2.6 million (EUR 2.1 million).

Net sales grew across all of the division’s service lines, particularly in environmental construction and sewer maintenance.

Operating profit increased in hazardous waste management and process cleaning but declined in environmental construction.

January–June
The net sales of the Industrial Services division grew by 12.7% in January–June and amounted to EUR 41.5 million (EUR 36.8 million). Operating profit was EUR 2.4 million (EUR 1.8 million).

Net sales grew across all of the division’s service lines during the first half of the year. Operating profit increased in hazardous waste management and process cleaning.

Facility Services

Second quarter
The division’s net sales for the second quarter were down by 1.9% to EUR 71.4 million (EUR 72.8 million). Operating profit totalled EUR 1.1 million (EUR 3.7 million).

Net sales decreased in the renovation business and the maintenance of technical systems. The net sales of the cleaning business and the property maintenance business remained on a par with the comparison period.

The operating profit of the cleaning business grew year-on-year due to previously implemented efficiency improvement measures. The operating profit of the division’s other service lines declined. The decrease in profitability was attributable to the operational efficiency of the maintenance of technical systems business being weaker than in the comparison period and, in particular, the expenses arising from efficiency improvement measures in the renovation business, which reduced the service line’s operating profit in the second quarter. The result of the property maintenance business was weighed down by the deployment of a new ERP system in the Facility Services division.

January–June
The Facility Services division’s operating profit in January–June was EUR 142.9 million (EUR 145.0 million). Operating profit totalled EUR 0.9 million (EUR 4.9 million).

The division’s net sales increased during the first half of the year in the renovation business and the cleaning business. Profitability improved in the cleaning business but declined in the division’s other service lines. In the renovation business, the decline in profitability was due to the weak result in the first quarter and the costs arising from the efficiency improvement measures implemented in the second quarter. In the maintenance of technical systems business, the result showed a decline due to profitability being lower than in the previous year. In the property maintenance business, the weaker profitability was due to the impact on profit and loss from the deployment of the new ERP system.

Renewable Energy Sources

Second quarter
The second quarter net sales of Renewable Energy Sources (L&T Biowatti) amounted to EUR 7.3 million (EUR 7.0 million). Operating profit totalled EUR 0.2 million (EUR 0.0 million). The increase was mainly due to the improved energy content of fuel deliveries.

The division’s net sales and operating profit increased compared to the previous year.

January–June
The net sales of the Renewable Energy Sources division totalled EUR 19.4 million (EUR 19.8 million) in January–June. Operating profit was EUR 0.5 million (EUR 0.7 million).

The division’s net sales and operating profit decreased year-on-year due to weaker demand in the first quarter.

FINANCING

Cash flow from operating activities amounted to EUR 22.3 million (EUR 4.5 million) in the first half of the year. A total of EUR 6.4 million in working capital was committed (EUR 27.2 million committed). The amount of working capital in the comparison period was increased by a different payment practice for employment pension contributions in 2016.

At the end of the period, interest-bearing liabilities amounted to EUR 111.0 million (EUR 103.8 million).

Net interest-bearing liabilities amounted to EUR 70.8 million (EUR 87.5 million), showing an increase of EUR 32.2 million from the beginning of the year and a decrease of EUR 16.6 million from the comparison period.

Net financial expenses in January–June amounted to EUR 0.6 million (EUR 0.1 million), including EUR 0.7 million in positive change in the fair value of currency hedges. Net financial expenses were 0.2% (0.0%) of net sales. The net financial expenses in the comparison period included EUR 0.7 million in exchange rate gains arising from the appreciation of the Russian rouble.

The average interest rate on long-term loans (with interest rate hedging) was 1.1% (1.5%). Loans totalling EUR 41.3 million will mature in 2017, including the short-term commercial papers currently in use.

The equity ratio was 43.5% (44.1%) and the gearing rate was 35.6 (43.9). Liquid assets at the end of the period amounted to EUR 40.2 million (EUR 16.3 million).

Of the EUR 100 million commercial paper programme, EUR 40 million (EUR 10.0 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 16 March 2017 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 2016. The dividend, totalling EUR 35.3 million, was paid to shareholders on 27 March 2017.


CAPITAL EXPENDITURE

Gross capital expenditure in the first half of the year totalled EUR 20.6 million (EUR 18.7 million), consisting primarily of machine and equipment purchases, investments in information systems and acquisitions. Of the significant ongoing information system projects, the new ERP system for Facility Services was deployed in the property maintenance business in the first half of 2017. The deployments in other service lines continue.

PERSONNEL

In the second quarter, the average number of employees converted into full-time equivalents was 6,942 (6,961). At the end of the period, Lassila & Tikanoja had 8,512 (8,631) full-time and part-time employees. Of these, 7,549 (7,758) worked in Finland and 963 (873) in other countries.

SHARES AND SHARE CAPITAL

Traded volume and price

The volume of trading on Nasdaq Helsinki in January–June 2017, excluding the shares held by the company in Lassila & Tikanoja plc, was 3,455,513 shares, which is 9.0% (9.6%) of the average number of outstanding shares. The value of trading was EUR 64.2 million (EUR 59.4 million). The highest share price was EUR 19.36 and the lowest EUR 17.22. The closing price was EUR 18.41. At the end of the review period, the market capitalisation excluding the shares held by the company was EUR 706.9 million (EUR 639.0 million).

Own shares

At the end of the period, the company held 400,862 of its own shares, representing 1.0% 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 38,398,012. The average number of shares excluding the shares held by the company was 38,391,847.

Shareholders

At the end of the period, the company had 12,064 (10,515) shareholders. Nominee-registered holdings accounted for 18.6% (17.3%) of the total number of shares.

Authorisation for the Board of Directors

The Annual General Meeting held on 16 March 2017 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 share issue authorisation is effective for 18 months.

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.

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

On 13 June 2017, the company announced a change to its outlook for 2017. Full-year net sales in 2017 are expected to remain at the 2016 level and operating profit is expected to be below the 2016 level. Previously, the company had estimated that the 2017 net sales and operating profit were expected to remain at the 2016 level. The company lowered its outlook for the operating profit due to weak profitability in Facility Services and particularly in the renovation business.

On 20 June 2017, the company announced that it has signed an agreement to acquire Veolia’s facility management business in Sweden through the acquisition of 100 per cent of the shares of Veolia FM AB from Veolia Nordic AB. The company indicated that the acquisition is aimed at strengthening its presence in the Swedish facility services market by broadening its service offering in Sweden to include the maintenance of technical systems. The acquisition is expected to be finalised during the third quarter of 2017.

EVENTS AFTER THE REVIEW PERIOD

On 4 July 2017, the company announced that it has received a notification from Kabouter Management, LLC according to which its holding in Lassila & Tikanoja had incresed above 5% to 7.53%.

NEAR-TERM RISKS AND UNCERTAINTIES

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

Changes in the prices of fossil fuels may affect the demand of the recovered and renewable fuels produced by the company.

The deployment of the company’s new ERP system, which began last year, will continue in 2017 and 2018. The deployment of the new system may lead to temporary costs arising from changes in the operating model, which can have a negative effect on the company’s result.

More detailed information on Lassila & Tikanoja’s risks and risk management is available in the 2016 Annual Report, and in the Report of the Board of Directors and the consolidated financial statements.

OUTLOOK FOR THE YEAR 2017

Lassila & Tikanoja’s full-year net sales in 2017 are expected to remain at the 2016 level and operating profit is expected to be below the 2016 level.


CONDENSED FINANCIAL STATEMENTS 1 JANUARY – 30 JUNE 2017

CONSOLIDATED INCOME STATEMENT
 

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
 

CONSOLIDATED STATEMENT OF FINANCIAL POSITION