Lassila & Tikanoja plc: Half-Year Report 1 January – 30 June 2018

Lassila & Tikanoja plc
Stock exchange release
31 July 2018 at 8:00 a.m.


Lassila & Tikanoja plc: Half-Year Report 1 January – 30 June 2018

- Net sales for the second quarter were EUR 203.0 million (166.7), operating profit was EUR 12.6 million (10.0) and earnings per share EUR 0.23 (0.19)
- Net sales for January–June increased by 21.8% to EUR 399.4 million (328.0), operating profit was EUR 16.4 million (15.1) and earnings per share EUR 0.29 (0.30)
- Full-year net sales and operating profit in 2018 are expected to increase compared to 2017

CEO PEKKA OJANPÄÄ:

“Lassila & Tikanoja’s net sales for January–June increased by 22% year-on-year, with organic growth exceeding 5%. Operating profit grew by more than 8% year-on-year. Business developed favourably particularly in Facility Services, Technical Services and Industrial Services. In Facility Services, the result of the renovation business improved in particular. In Technical Services, the development of operations in Sweden was especially positive. In Industrial Services, demand remained strong and operating profit improved substantially year-on-year. In Environmental Services, profitability improvement measures had a positive impact on operations and operating profit increased year-on-year in the second quarter. We will continue to strengthen our market position and improve our profitability in accordance with our strategy.”

GROUP NET SALES AND FINANCIAL PERFORMANCE
April–June

Lassila & Tikanoja’s net sales for the second quarter amounted to EUR 203.0 million (166.7), up 21.8% year-on-year. The rate of organic growth was 6.0%. Operating profit totalled EUR 12.6 million (10.0), representing 6.2% (6.0) of net sales. Earnings per share were EUR 0.23 (0.19).

Organic growth in net sales was achieved in all divisions, particularly in Industrial Services, Technical Services and Renewable Energy Sources.

Operating profit improved year-on-year in all divisions except Renewable Energy Sources.

January–June

Net sales for January–June increased by 21.8% to EUR 399.4 million (328.0). Operating profit totalled EUR 16.4 million (15.1), representing 4.1% (4.6) of net sales. Earnings per share were EUR 0.29 (0.30).

Net sales grew in all divisions during the first half of the year.

Operating profit increased in Facility Services, Industrial Services and Technical Services.

Financial summary

NET SALES AND OPERATING PROFIT BY DIVISION

Environmental Services


Second quarter
The division’s net sales for the second quarter increased to EUR 69.3 million (66.8). Operating profit was EUR 8.4 million (8.3).

New customers in the retail and industrial segments compensated for the impact of municipalisation on operating profit. Profitability improvement measures introduced in the first quarter had a favourable impact on the result.

January–June
The Environmental Services division’s net sales for the first half of the year amounted to EUR 132.1 million (129.1). Operating profit was EUR 12.8 million (14.7).

Operating profit was weighed down by the impact of municipalisation as well as fuel costs and subcontracting expenses being higher than in the previous year.

Industrial Services

Second quarter
The division’s net sales for the second quarter increased by 11.1% to EUR 26.3 million (23.6). Operating profit was EUR 3.3 million (2.7).

Faster growth than the market average and efficiency of operations boosted operating profit in the hazardous waste management, process cleaning and environmental construction businesses.

January–June
The net sales of the Industrial Services division grew by 9.5% in January–June and amounted to EUR 45.4 million (41.5). Operating profit increased by 47.5% year-on-year and amounted to EUR 3.7 million (2.5).

Net sales and operating profit increased during the first half of the year across all of the division’s service lines except for sewer maintenance. The result of the environmental construction business improved substantially year-on-year.

Facility Services

Second quarter
The division’s net sales for the second quarter increased by 4.4% to EUR 66.0 million (63.2). Operating profit grew to EUR 1.4 million (0.5).

Net sales increased in all of the division’s service lines. Operating profit improved substantially in the renovation business. 


January–June
The net sales of the Facility Services division amounted to EUR 131.9 million (126.5) in January–June. Operating profit was EUR 0.9 million (-0.5).

Net sales increased in the property maintenance and renovation businesses. In the cleaning business, net sales and operating profit were reduced by preparations for the deployment of the ERP system.

Technical Services

Second quarter
The division’s net sales for the second quarter amounted to EUR 35.6 million (8.6). Operating profit was EUR 0.6 million (-0.1) and operating profit adjusted for purchase price allocation amortisation was EUR 1.2 million (0.0).

Demand for the division’s services was strong and operating profit was at a good level, particularly in Sweden. Preparations for the deployment of the new ERP system are continuing in the Technical Services division in Finland.

January–June
The Technical Services division’s net sales for January–June totalled EUR 72.0 million (17.0). Operating profit was EUR 1.3 million (0.0) and operating profit adjusted for purchase price allocation amortisation was EUR 2.5 million (0.1). 

The rate of organic growth in net sales was 10.5% during the first half of the year. Net sales and operating profit developed particularly favourably in the Technical Services division’s Swedish operations.

Renewable Energy Sources

Second quarter
The second quarter net sales of Renewable Energy Sources (L&T Biowatti) increased by 15.5% and amounted to EUR 8.4 million (7.3). Operating profit was EUR -0.3 million (0.2).

Net sales increased in the second quarter thanks to strong demand. Operating profit decreased year-on-year due to higher production costs and the weak energy content of delivered fuels.

January–June
The net sales of the Renewable Energy Sources division totalled EUR 23.1 million (19.4) in January–June. Operating profit was EUR -0.2 million (0.5).

Net sales grew year-on-year thanks to strong demand and new customer accounts. Operating profit was lower than in the comparison period due to higher production costs and the weak energy content of delivered fuels. The energy content of fuels improved towards the end of the period.

FINANCING

Cash flow from operating activities amounted to EUR 32.6 million (22.3) in the first half of the year. A total of EUR 4.3 million in working capital was released. In the comparison period, EUR 6.4 million in working capital was committed.

At the end of the period, interest-bearing liabilities amounted to EUR 166.6 million (111.0).

Net interest-bearing liabilities amounted to EUR 131.8 million (70.8), showing an increase of EUR 13.9 million from the start of the year and EUR 61.0 million from the comparison period due to the acquisition made in Sweden in August 2017.

Net financial expenses in January–June amounted to EUR 2.0 million (0.6). The increase was due to unrealised exchange rate losses and higher debt service costs. Net financial expenses in the comparison period included EUR 0.7 million in positive change in the fair value of currency hedges. Net financial expenses were -0.5% (-0.2) of net sales.

The average interest rate on long-term loans (with interest rate hedging) was 1.1% (1.1). Loans totalling EUR 21.3 million will mature in 2018, including the short-term commercial papers currently in use.

The equity ratio was 35.1% (42.7) and the gearing rate was 70.0 (35.8). Liquid assets at the end of the period amounted to EUR 34.8 million (40.2).

Of the EUR 100.0 million commercial paper programme, EUR 20.0 million (40.0) 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 during the comparison period.

DISTRIBUTION OF ASSETS

The Annual General Meeting held on 15 March 2018 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 2017. The dividend, totalling EUR 35.3 million, was paid to shareholders on 26 March 2018.

CAPITAL EXPENDITURE

Gross capital expenditure in the first half of the year totalled EUR 15.4 million (21.9), consisting primarily of machine and equipment purchases and investments in information systems. Of the significant ongoing information system projects, the deployment of the new ERP system continued in the Technical Services division and in the Facility Services division’s cleaning and support services business.

PERSONNEL

In the second quarter, the average number of employees converted into full-time equivalents was 7,646 (6,942). At the end of the period, Lassila & Tikanoja had 9,122 (8,512) full-time and part-time employees. Of these, 7,492 (7,549) worked in Finland and 1,630 (963) in other countries. The amount of personnel increased year-on-year in Sweden due to an acquisition made in August 2017.



SHARES AND SHARE CAPITAL

Traded volume and price

The volume of trading on Nasdaq Helsinki in January–June, excluding the shares held by the company in Lassila & Tikanoja plc, was 2,497,008 shares, which is 6.5% (9.0) of the average number of outstanding shares. The value of trading was EUR 48.7 million (64.2). The highest share price was EUR 20.0 and the lowest EUR 15.52. The closing price was EUR 16.46. At the end of the review period, the market capitalisation excluding the shares held by the company was EUR 632.2 million (706.9).

Own shares

At the end of the period, the company held 392,952 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 38,405,922. The average number of shares excluding the shares held by the company was 38,403,743.

Shareholders

At the end of the period, the company had 12,738 (12,064) shareholders. Nominee-registered holdings accounted for 19.6% (18.6) of the total number of shares.

Authorisation for the Board of Directors

The Annual General Meeting held on 15 March 2018 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.

KEY EVENTS DURING THE REVIEW PERIOD

On 24 April, the company published key financial figures adjusted according to the IFRS 9 and IFRS 15 standards as well as comparison data for the 2017 financial year according to the new segment structure. 

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

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

The company is continuing the deployment of a new ERP system. The deployment of the new system 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 Lassila & Tikanoja’s risks and risk management is available in the 2017 Annual Report, and in the Report of the Board of Directors and the consolidated financial statements.

OUTLOOK FOR THE YEAR 2018

Lassila & Tikanoja’s net sales and operating profit in 2018 are expected to be above the 2017 levels.

CONDENSED FINANCIAL STATEMENTS 1 JANUARY – 30 JUNE 2018

CONSOLIDATED INCOME STATEMENT

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME