Lassila & Tikanoja plc: Half-Year Report 1 January – 30 June 2019

Lassila & Tikanoja plc
Stock exchange release
26 July 2019 at 8:00 a.m.

Lassila & Tikanoja plc: Half-Year Report 1 January – 30 June 2019

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

- Net sales for the second quarter were EUR 196.2 million (203.0), operating profit was EUR 16.8 million (12.6) and earnings per share EUR 0.37 (0.23).
- Net sales for January–June were EUR 394.9 million (399.4), operating profit was EUR 17.6 million (16.4) and earnings per share EUR 0.38 (0.29).
- The decline in net sales in the second quarter was mainly due to the divestment of L&T Korjausrakentaminen Oy, and operating profit increased as a result of the divestment.

Outlook for 2019, updated on 12 July 2019:

Lassila & Tikanoja’s 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.

The sale of the entire share capital of L&T Korjausrakentaminen Oy to Recover Nordic Group was finalised on 30 April 2019. The sale is estimated to have a positive impact of approximately EUR 4.5 million on the Group’s operating profit in 2019. L&T Korjausrakentaminen Oy’s net sales in 2018 amounted to EUR 35.0 million and its operating profit was EUR 0.7 million.

PRESIDENT AND CEO EERO HAUTANIEMI:

“The net sales of Lassila & Tikanoja’s continuing operations were on par with the comparison period in January–June, but operating profit decreased year-on-year. The operating profit of Facility Services Finland was weighed down by a decrease in the contract base and costs related to the implementation of a new operating model in the technical services business.

In the Environmental Services division, operating profit grew thanks to good demand, particularly in the retail and industrial segments. The net sales and operating profit of the Industrial Services division were on par with the previous year. The operating profit of Facility Services Sweden increased year-on-year thanks to strong demand.

Cash flow from the operating activities continued improving in January-June. In the second half of the year, we will focus on establishing the new operating model in Facility Services Finland.”

GROUP NET SALES AND FINANCIAL PERFORMANCE

April–June

Lassila & Tikanoja’s net sales for the second quarter amounted to EUR 196.2 million (203.0). Operating profit totalled EUR 16.8 million (12.6), representing 8.6% (6.2) of net sales. Earnings per share were EUR 0.37 (0.23).

The consolidated operating profit increased year-on-year due to the divestment of L&T Korjausrakentaminen Oy. A capital gain of EUR 6.7 million was recognised on the transaction. Taking the other effects of the divestment into account, the transaction had a positive impact of EUR 5.9 million in April–June. The impact on the full financial year is estimated to be approximately EUR 4.5 million. Excluding the effect of the divestment of L&T Korjausrakentaminen Oy, the Group’s operating profit in January–June 2019 would have amounted to EUR 10.9 million.

Net sales and operating profit improved year-on-year in Facility Services Sweden. In Environmental Services, net sales were on par with the comparison period, while operating profit increased year-on-year. In Industrial Services, net sales and operating profit were on par with the comparison period. In Facility Services Finland, net sales were on par with the comparison period, but operating profit decreased significantly year-on-year.

January–June

Net sales in January–June totalled EUR 394.9 million (399.4). Operating profit amounted to EUR 17.6 million (16.4), representing 4.4% (4.1) of net sales. The divestment of L&T Korjausrakentaminen Oy had an effect of EUR 5.9 million on operating profit. Earnings per share were EUR 0.38 (0.29).

A capital gain of EUR 6.7 million was recognised on the divestment of L&T Korjausrakentaminen Oy. Taking the other effects of the divestment into account, the transaction is estimated to have an effect of EUR 4.5 million on the full financial year 2019.

The net sales of the Group’s continuing operations were on par with the previous year. Operating profit decreased significantly year-on-year in Facility Services Finland. Operating profit increased year-on-year in Environmental Services and Facility Services Sweden.

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 76.8 million (77.4). Operating profit grew by 8.1% year-on-year and amounted to EUR 8.8 million (8.1).

Operating profit increased year-on-year particularly in renewable energy sources and in Russia.

January–June
The Environmental Services division’s net sales for the first half of the year amounted to EUR 156.4 million (154.4). Operating profit grew by 6.4% to EUR 13.4 million (12.6).

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. Fuel costs were higher than in the comparison period. Operating profit increased due to the enhanced efficiency of operations and the improved result of the division’s Russian operations and the renewable energy sources business.

Industrial Services

Second quarter
The division’s net sales for the second quarter amounted to EUR 26.2 million (26.3). Operating profit was EUR 3.3 million (3.3).

Demand was at a good level and the second quarter was strong particularly with respect to industrial sites and sewer maintenance services thanks to new customer accounts.

January–June
The Industrial Services division’s net sales for January–June totalled EUR 45.2 million (45.4). Operating profit was on par with the previous year at EUR 3.7 million (3.7).

The slow down of the construction sector was compensated by new customer accounts in industrial sites and the project business, which saw good demand. The challenging weather conditions during the late winter and early spring meant that the profit for the period remained largely unchanged from the previous year.

Facility Services Finland

Second quarter
The net sales from the continuing operations of Facility Services Finland amounted to EUR 61.3 million (68.7). The decline in net sales was mainly attributable to the divestment of L&T Korjausrakentaminen Oy. Operating profit was EUR -2.0 million (1.4).

Operating profit declined year-on-year due to the smaller contract portfolio and the costs related to the implementation of a new operating model in the technical services business.

January–June
The net sales of the Facility Services Finland division totalled EUR 130.8 million (137.3) in January–June. The decline in net sales was mainly attributable to the divestment of L&T Korjausrakentaminen Oy. Operating profit was EUR -5.5 million (0.8).

The operating profit being substantially lower than in the comparison period was mainly due to costs related to the implementation of a new operating model in the technical services business. In the property maintenance business, the high snowfall increased net sales but reduced operating profit in the first quarter. In the cleaning business and in property maintenance, the contract portfolio was lower than in the comparison period, which had a negative impact on net sales as well as operating profit.

Facility Services Sweden

Second quarter
The division’s net sales for the second quarter amounted to EUR 33.4 million (32.4). Operating profit was EUR 0.8 million (0.6).

The demand for technical services remained strong, particularly in the municipal and hospital sectors. 

January–June
The net sales of Facility Services Sweden amounted to EUR 65.5 million (65.7) during the first half of the year. Operating profit was EUR 1.5 million (1.4).

The demand for technical services increased in the municipal sector in Sweden, but sales growth was slowed by problems related to the availability of labour.

FINANCING

Cash flow from operating activities amounted to EUR 41.6 million (34.3) in the first half of the year. A total of EUR 11.5 million (4.3) in working capital was 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 period, interest-bearing liabilities amounted to EUR 202.5 million (166.6).
Net interest-bearing liabilities totalled EUR 157.6 million (131.8). This represents an increase of EUR 59.7 million from the start of the year and EUR 25.8 million from the comparison period.
Net financial expenses in January–June amounted to EUR 1.4 million (2.0). Net financial expenses were 0.3% (0.5%) of net sales.

The average interest rate on long-term loans (with interest rate hedging) was 1.2% (1.1%). Loans totalling EUR 3.0 million will mature in 2019. The average interest rate on long-term loans does not take into account commercial papers or the liabilities reported in accordance with IFRS 16.

The equity ratio was 32.4% (35.1%) and the gearing rate was 83.0% (70.0%). Liquid assets at the end of the period amounted to EUR 44.9 million (34.8). The equity ratio was negatively affected by the entry into force of IFRS 16 at the beginning of 2019.

The EUR 100 million commercial paper programme was entirely unused at the end of the period. EUR 20 million was in use in the comparison 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 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 in the first half of the year totalled EUR 21.7 million (15.4), consisting primarily of machine and equipment purchases as well as investments in information systems and buildings.
 
PERSONNEL

In the second quarter, the average number of employees converted into full-time equivalents was 7,122 (7,646). At the end of the period, Lassila & Tikanoja had 9,077 (9,122) full-time and part-time employees. Of these, 7,318 (7,492) worked in Finland and 1,759 (1,630) in other countries.


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 3,035,783 shares, which is 7.9% (6.5) of the average number of outstanding shares. The value of trading was EUR 45.2 million (48.7). The highest share price was EUR 16.40 and the lowest EUR 13.28. The closing price was EUR 14.36. At the end of the review period, the market capitalisation excluding the shares held by the company was EUR 551.7 million (632.2).

Own shares

At the end of the period, the company held 382,763 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 38,416,111. The average number of shares excluding the shares held by the company was 38,412,522.

Shareholders

At the end of the period, the company had 14,745 (12,739) shareholders. Nominee-registered holdings accounted for 19.4% (19.6) of the total number of shares.

Authorisation 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.

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 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 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, 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.

EVENTS AFTER THE REVIEW PERIOD


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.

NEAR-TERM RISKS AND UNCERTAINTIES

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

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 the company’s result.

More detailed information on Lassila & Tikanoja’s risks and risk management is available in the 2018 Annual Report, and in the Report of the Board of Directors and the consolidated financial statements.

OUTLOOK FOR 2019, updated on 12 July 2019

Lassila & Tikanoja’s 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.

Previous outlook for 2019 (26 April 2019):
All of Lassila & Tikanoja’s divisions, except Facility Services Finland, have a good outlook for 2019. The net sales and operating profit of Facility Services Finland are expected to decrease compared to 2018 due to costs related to the implementation of the new operating model and decrease in the division’s contract base.
Lassila & Tikanoja’s full-year net sales and operating profit in 2019 are expected to be on par with 2018. The outlook does not take into account the impact of the divestment of L&T Korjausrakentaminen Oy.

CONDENSED FINANCIAL STATEMENTS 1 JANUARY – 30 JUNE 2019

CONSOLIDATED INCOME STATEMENT