Lassila & Tikanoja plc: Half-Year Report 1 January – 30 June 2020

Lassila & Tikanoja plc
Stock exchange release
28 July 2020 at 8:00 a.m.

Lassila & Tikanoja plc: Half-Year Report 1 January – 30 June 2020

DECISIVE ACTIONS LIMITED THE NEGATIVE BUSINESS IMPACTS OF THE CORONAVIRUS PANDEMIC

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

• Net sales for the second quarter were EUR 183.2 million (196.2), operating profit was EUR -2.2 million (16.8). The decrease in operating profit was attributable to costs of EUR 10.8 million arising from the discontinuation of Russian operations and the EUR 5.9 million positive profit impact from the sale of L&T Korjausrakentaminen Oy recognised in the comparison period. Earnings per share were EUR -0.07 (0.37).
• Net sales for January–June were EUR 367.5 million (394.9), operating profit was EUR 0.7 million (17.6) and earnings per share were EUR -0.07 (0.38). Earnings per share were negatively affected by the costs arising from the discontinuation of Russian operations as well as an increase in exchange differences. Exchange differences amounted to EUR -1.2 million (0.6).
• Operating profit excluding Russian operations and the divestment of L&T Korjausrakentaminen was EUR 8.3 million (10.3) in April–June and EUR 10.8 million (10.6) in January–June.
• The decrease in net sales was attributable to the Q2/2019 divestment of the L&T Korjausrakentaminen business, which is included in the figures for the comparison period, and the coronavirus pandemic.
• The operating profit of Facility Services Finland improved significantly during both quarters year-on-year due to successful operational excellence and efficiency measures.

Outlook

Full-year net sales for 2020 are expected to decrease year-on-year and operating profit is estimated to be EUR 30–40 million (40.5) excluding loss related to the discontinuation of Russian operations.

PRESIDENT AND CEO EERO HAUTANIEMI:

“In the first half of 2020, the coronavirus pandemic had a negative impact on the Group’s net sales and operating profit. Net sales decreased by 6.9% year-on-year and amounted to EUR 367.5 million. The figures for the comparison period also included the L&T Korjausrakentaminen business, which was divested in the previous financial year. The Group’s operating profit in January–June, excluding Russian operations and the divestment of L&T Korjausrakentaminen, rose to EUR 10.8 million (10.6) thanks to the improved profit performance of Facility Services Finland. This was a good achievement considering the fact that the coronavirus pandemic had a negative impact of approximately EUR 4.5 million on operating profit in the first half of the year. The Group’s liquidity remained strong.

The demand for Lassila & Tikanoja’s services weakened due to the restrictions imposed by the authorities as well as production restrictions implemented by customers themselves, and the pandemic had negative impacts on all of the Group’s business segments. During the first half of the year, the negative effects of the pandemic are estimated to have been approximately EUR 12 million on the Group’s net sales and approximately EUR 4.5 million on operating profit. 

We have made determined efforts to reduce the impacts of the coronavirus pandemic on our business and to create the conditions for our operations to return to normal as quickly as possible. We have taken extensive measures to ensure the health and safety of our personnel and customers.

We introduced new digital service channels and working methods that enabled the continuation of our services and the start-up of new service agreements in spite of the restrictions on face-to-face encounters. We developed new services, such as disinfection and cleaning services in the cleaning business, whose increased sales have reduced the negative effects of the pandemic on our result.

We have successfully mitigated the financial impacts of the rapid changes in the market by adjusting our personnel resources to the reduced demand.

In response to the significant change in the operating conditions, we decided in April to discontinue our Russian operations in 2020. The discontinuation will not have negative effect on cash flow.”

GROUP NET SALES AND FINANCIAL PERFORMANCE

April–June

Lassila & Tikanoja’s net sales for the second quarter amounted to EUR 183.2 million (196.2), down 6.6% year-on-year. Operating profit was EUR -2.2 million (16.8), representing -1.2% (8.6%) of net sales. Earnings per share were EUR -0.07 (0.37).

The decrease in net sales and operating profit was attributable to the decline in demand caused by the coronavirus pandemic. The decrease in operating profit was attributable to costs of EUR 10.8 million arising from the impairment of balance sheet items in relation to the discontinuation of Russian operations. The discontinuation of Russian operations will have a negative impact of EUR 8.2 million on the Group’s equity. The decrease in operating profit was also attributable the EUR 5.9 million positive profit impact from the sale of L&T Korjausrakentaminen Oy recognised in the comparison period.  The profit impact of the coronavirus pandemic is also reduced by the temporary lowering of pension insurance contributions by 2.6 percentage points from 1 May to 31 December 2020, which had an impact of approximately EUR 0.9 million in the second quarter, as well as lower fuel prices.

In Environmental Services, net sales decreased year-on-year and operating profit declined significantly due to costs of EUR 10.8 million recognised in relation to the discontinuation of Russian operations. Excluding the effect of Russian operations, the operating profit of Environmental Services decreased slightly year-on-year. In Facility Services Finland, net sales declined but operating profit improved substantially year-on-year. In Industrial Services, net sales and operating profit decreased year-on-year. In Facility Services Sweden, net sales were on a par with the comparison period, while operating profit decreased year-on-year.

January–June

Net sales for January–June amounted to EUR 367.5 million (394.9), down 6.9% year-on-year. Operating profit was EUR 0.7 million (17.6), representing 0.2% (4.4%) of net sales. Earnings per share were EUR -0.07 (0.38).

The negative effects of the coronavirus pandemic are estimated to have been approximately EUR 12 million on the Group’s net sales and approximately EUR 4.5 million on operating profit.

In Environmental Services, net sales decreased year-on-year and operating profit declined significantly due to costs of EUR 10.8 million recognised in relation to the discontinuation of Russian operations. Excluding the effect of Russian operations, the operating profit of Environmental Services decreased slightly year-on-year. In Facility Services Finland, net sales declined but operating profit improved substantially year-on-year. In Industrial Services, net sales and operating profit decreased year-on-year. In Facility Services Sweden, net sales and operating profit decreased year-on-year.

The Group’s operating profit was improved by a gain of EUR 5.7 million recognised in the first quarter on the sale of property included in property, plant and equipment. Non-recurring costs totalling EUR 4.8 million were recognised during the first quarter, including impairment related to fixed assets. The non-recurring items had a positive net effect of EUR 0.9 million on the Group’s operating profit. The items in question are not included in the figures of the business segments. Net profit was negatively affected by the depreciation of the Russian rouble and Swedish krona. Exchange differences amounted to EUR -1.2 million (0.6).

Financial summary

                  
NET SALES AND OPERATING PROFIT BY DIVISION


Environmental Services

April–June
The division’s net sales for the second quarter decreased to EUR 71.9 million (76.8). Operating profit declined year-on-year to EUR -2.6 million (8.8) due to costs of EUR 10.8 million recognised in relation to the discontinuation of Russian operations. Excluding Russia, the Environmental Services division’s net sales for the second quarter decreased to EUR 69.9 million (74.3), while operating profit declined slightly year-on-year and amounted to EUR 7.9 million (8.1).

January–June
The Environmental Services division’s net sales for the first half of the year decreased to EUR 149.0 million (156.4). Operating profit declined year-on-year to EUR 2.1 million (13.4) due to costs of EUR 10.8 million recognised in relation to the discontinuation of Russian operations. Excluding Russia, the Environmental Services division’s net sales for the first half of the year decreased to EUR 144.6 million (151.6), while operating profit was on a par with the comparison period at EUR 12.2 million (12.3).


The coronavirus pandemic reduced the Environmental Services division’s service volume. The decline in volume from corporate customers was mitigated by an increase in e-commerce packaging volumes. Demand remained at the normal level in the household segment. Net sales and operating profit were negatively affected by the decreased prices and volumes of secondary raw materials compared to the reference period.  Service demand improved towards the end of the period and is expected to gradually return to normal during the second half of the year.

Industrial Services

April–June
The division’s net sales for the second quarter decreased to EUR 23.4 million (26.2). Operating profit declined year-on-year and amounted to EUR 1.3 million (3.3).

January–June
The Industrial Services division’s net sales for the first half of the year decreased to EUR 43.7 million (45.2). Operating profit declined year-on-year and amounted to EUR 1.0 million (3.7).

In Industrial Services, there were substantial and unpredictable fluctuations in demand during the review period due to the coronavirus pandemic. Industrial action, production adjustment measures taken by customers and the postponement of maintenance breaks to later in the year had a negative effect on net sales and operating profit. The division strengthened its market position in the first half of the year thanks to new customer agreements, and demand is expected to return to normal during the second half of the year.

Facility Services Finland

April–June
The division’s net sales for the second quarter decreased to EUR 56.7 million (61.3). Operating profit improved substantially year-on-year and amounted to EUR -0.4 million (-2.0).

January–June
The net sales of Facility Services Finland decreased to EUR 114.9 million (130.8) during the first half of the year. Operating profit improved substantially year-on-year and amounted to EUR -2.2 million (-5.5).

The decline in net sales was due to the divestment of L&T Korjausrakentaminen during the comparison period. Facility Services Finland was able to adjust its resources appropriately in response to the fluctuations in demand caused by the coronavirus pandemic. The negative business impacts of the coronavirus pandemic were fairly minor thanks to successful sales, improved customer satisfaction and active service development.

Operating profit improved substantially year-on-year in all service branches thanks to efficiency improvement measures and the market position was strengthened.

Facility Services Sweden

April–June
The division’s net sales for the second quarter amounted to EUR 32.7 million (33.4). Operating profit declined year-on-year and amounted to EUR 0.3 million (0.8).

January–June
The net sales of Facility Services Sweden amounted to EUR 63.1 million (65.5) during the first half of the year. Operating profit declined year-on-year and was EUR 0.5 million (1.5).

The effects of the coronavirus pandemic were clearly apparent in Sweden in March–May. Operating profit during the review period was weighed down by a substantially higher-than-usual sickness rate and the resulting increase in subcontracting costs on the one hand and the reduced additional sales orders of certain customer accounts on the other hand. The Swedish state’s support measures for businesses partially compensated for the impacts of the coronavirus pandemic starting from the beginning of May. The substantial decline in additional sales orders and caution amongst customers nevertheless had a negative impact on business operations.

FINANCING

Net cash flow from operating activities amounted to EUR 14.6 million (34.5) in the first half of the year.  A total of EUR 3.4 million in working capital was committed (EUR 11.5 million released). Cash flow in the comparison period was increased by the sale of L&T Korjausrakentaminen Oy. Cash flow during the review period was improved by the sale of property included in property, plant and equipment and reduced by a planned increase in inventories (EUR 7.6 million) and the timing of pension contributions at the end of the quarter (EUR 6.7 million).

At the end of the period, interest-bearing liabilities amounted to EUR 194.8 million (202.5). Net interest-bearing liabilities totalled EUR 166.5 million (157.6). The average interest rate on long-term loans excluding IFRS 16 liabilities, with interest rate hedging, was 1.3% (1.2).

Of the EUR 100.0 million commercial paper programme, EUR 15.0 million (0.0) was in use at the end of the period. A committed credit limit totalling EUR 30.0 million was not in use, as was the case in the comparison period. The Group renewed the credit limit during the review period. The newly signed credit facility will mature in the second quarter of 2022.

Net financial expenses in the first half of the year amounted to EUR -3.1 million (-1.4). Exchange rate changes accounted for EUR -1.2 million (0.6) of net financial expenses. Net financial expenses were 0.9% (0.3%) of net sales. The exchange rate changes were caused by the depreciation of the Russian rouble and Swedish krona.

The equity ratio was 30.5% (31.9) and the gearing rate was 99.4% (84.6). Liquid assets at the end of the period amounted to EUR 28.3 million (44.9).  The company has taken measures to ensure its liquidity in response to the coronavirus pandemic. Overdue trade receivables and credit losses have not increased during the pandemic.

DISTRIBUTION OF ASSETS

The Annual General Meeting held on 12 March 2020 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 2019. The dividend, totalling EUR 35.0 million, was paid to shareholders on 23 March 2020.

CAPITAL EXPENDITURE

Gross capital expenditure in the first half of the year totalled EUR 22.0 million (21.7), consisting primarily of machine and equipment purchases as well as investments in information systems and buildings. During the review period, we invested in the construction of strategically important final disposal locations and critically evaluated replacement investments due to the market uncertainty caused by the coronavirus pandemic.

 
PERSONNEL

In the first half of the year, the average number of employees converted into full-time equivalents was 7,132
(7,122). At the end of the period, we had 8,501 (9,077) full-time and part-time employees. Of these, 6,918 (7,318) worked in Finland and 1,583 (1,759) in other countries.

The first half of 2020 was exceptional due to the coronavirus pandemic also from the perspective of the Group’s personnel. We worked together to ensure safe working conditions and personal protective equipment for employees as well as a smooth transition to remote work for those whose work allow it. Employee well-being has been supported in a number of ways, including a dedicated coronavirus helpline and digital discussion services that help employees cope with the mental strain caused by the situation.

In March, negotiations concerning temporary layoffs were held in Finnish operations pursuant to Chapter 8 of the Act on Co-operation within Undertakings due to the impact of the coronavirus pandemic. In addition, second negotiations were held in May concerning temporary layoffs in Facility Services business pursuant to Chapter 8 of the Act on Co-operation within Undertakings. Following the aforementioned negotiations, employees from Lassila & Tikanoja’s Finnish operations have been temporarily laid off and the duration of the layoffs varies by employee. At the end of the review period, the total number of laid-off employees throughout the Group was approximately 365.


SHARES AND SHARE CAPITAL

Traded volume and price

The volume of trading in the first half of the year, excluding the shares held by the company in Lassila & Tikanoja plc, was 7.6 million shares, which is 20.0% (7.9) of the average number of outstanding shares. The value of trading was EUR 103.7 million (45.2). The highest share price was EUR 16.76 and the lowest EUR 10.06. The closing price was EUR 13.08. At the end of the review period, the market capitalisation excluding the shares held by the company was EUR 498.4 million (551.7).

Own shares

At the end of the period, the company held 693,589 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 38,105,285. The average number of shares excluding the shares held by the company was 38,100,673.

Shareholders

At the end of the period, the company had 18,668 (14,745) shareholders. Nominee-registered holdings accounted for 10.1% (19.4) of the total number of shares.

Authorisations for the Board of Directors

The Annual General Meeting held on 12 March 2020 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 12 March 2020, adopted the financial statements and consolidated financial statements for 2019 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 35.0 million, be paid on the basis of the balance sheet adopted for the financial year 2019. It was decided that the dividend be paid on 23 March 2020.

The Annual General Meeting confirmed the number of members of the Board of Directors as seven. 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, and Pasi Tolppanen was elected as a new member.

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 establish a permanent Shareholders’ Nomination Board. The Nomination Board shall be responsible for preparing and presenting proposals covering the remuneration and number of members of the Company’s Board of Directors as well as proposals on the members of the Board of Directors to the Annual General Meeting and, where needed, to an Extraordinary General Meeting. The Nomination Board shall also be responsible for identifying successors to existing Board members.

The resolutions of the Annual General Meeting were announced in more detail in a stock exchange release on 12 March 2020.

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, Laura Tarkka and Pasi Tolppanen. 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 Pasi Tolppanen as members. Heikki Bergholm was elected as the Chairman of the Personnel Committee and Laura Lares, Miikka Maijala and Laura Tarkka as members.

KEY EVENTS DURING THE REVIEW PERIOD

On 8 April, the Group announced that it has signed a new revolving credit facility of EUR 30 million. The revolving credit facility will mature in the second quarter of 2022. The agreement includes a one-year extension option. The agreement was signed with Danske Bank.

On 24 April, the company issued a profit warning, lowered its outlook for 2020 and announced the discontinuation of Russian operations. According to the updated outlook, full-year net sales for 2020 are expected to decrease year-on-year and operating profit is estimated to be EUR 30–40 million (40.5) excluding loss related to the discontinuation of Russian operations.

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

The measures and recommendations issued by the authorities to restrict the coronavirus pandemic and the resulting customer-specific production restrictions are expected to cause disruptions in service production throughout the remainder of the year, although the gradual lifting of the restrictions imposed by the authorities has begun to normalise service demand.

The economic uncertainty caused by the pandemic is still reflected in the demand for industrial services and makes it difficult to predict. Maintenance breaks in industry have been postponed from the spring to later in the year due to the coronavirus. If the maintenance breaks are not carried out during the remainder of the year, it will have a significant impact on the demand for and the result of process cleaning services.

The decline in industrial volumes caused by the coronavirus pandemic has reduced the demand for, and prices of secondary raw materials, which may have a negative effect on the profitability of recycling services.

Lower energy consumption reduces the price of emission rights and may weaken the profitability of renewable energy sources. Decreasing oil prices reduce fuel costs but, at the same time, they have a negative effect on the prices of oil-based secondary raw materials, such as recycled plastic and regenerated lubricants.

Labour availability risks have been reduced in the short term but, under normal circumstances, they may limit business growth and increase production costs.

The company has several ERP system renewal projects under way. Temporary additional costs arising from system deployments and establishing the operating model may weigh down the company’s result.

The Large Taxpayers Office proposes in an initial audit report that EUR 1.1 million in waste tax would be payable for 2018. The company’s view is that the tax authorities’ proposal is unfounded. The matter is still under review.

More detailed information on Lassila & Tikanoja’s risks and risk management is 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

Full-year net sales for 2020 are expected to decrease year-on-year and operating profit is estimated to be EUR 30–40 million (40.5) excluding loss related to the discontinuation of Russian operations.

LASSILA & TIKANOJA PLC

Board of Directors
Eero Hautaniemi
President and CEO

For additional information, please contact:
Eero Hautaniemi, President and CEO, tel. +358 10 636 2810
Valtteri Palin, CFO, tel. +358 40 734 7749

Lassila & Tikanoja is a service company that is putting the circular economy into practice. Together with our customers, we keep materials and properties in productive use for as long as possible and we enhance the use of raw materials and energy. This is to create more value with the circular economy for our customers, personnel and society in a broader sense. Achieving this also means growth in value for our shareholders. Our objective is to continuously grow our actions’ carbon handprint, our positive effect on the climate. We assume our social responsibility by, for example, looking after the work ability of our personnel and also offering jobs to those who are struggling to find employment. L&T operates in Finland, Sweden and Russia. L&T employs 8,200 people. Net sales in 2019 amounted to EUR 784.3 million. L&T is listed on Nasdaq Helsinki.

Distribution:
Nasdaq Helsinki
Major media
www.lt.fi

Attachment

• LT-Half-Year_Result_2020_EN_Final