Lassila & Tikanoja plc: Interim Report 1 January - 30 June 2011

Helsinki, Finland, 2011-07-26 07:00 CEST (GLOBE NEWSWIRE) --

• Net sales for the second quarter EUR 162.2 million (EUR 149.0 million); operating profit EUR 8.9 million (EUR 8.8 million); operating profit excluding non-recurring items EUR 9.7 million (EUR 11.8 million); earnings pershare EUR 0.19 (EUR 0.14)
   
• Net sales for January–June EUR 321.7 million (EUR 302.9 million); operating profit EUR 15.3 million (EUR 15.4 million); operating profit excluding non-recurring items EUR 16.5 million (EUR 19.6 million); earnings per share EUR 0.29 (EUR 0.25)
• Full-year net sales will grow slightly from 2010 and operating profit excluding non-recurring items is expected to remain at the 2010 level.

GROUP NET SALES AND FINANCIAL PERFORMANCE

Second quarter
Lassila & Tikanoja’s net sales for the second quarter increased by 8.8% to EUR 162.2 million (EUR 149.0 million). Operating profit was EUR 8.9 million (EUR 8.8 million), representing 5.5% (5.9%) of net sales, and operating profit excluding non-recurring items was EUR 9.7 million (EUR 11.8 million). Earnings per share were EUR 0.19 (EUR 0.14).

With the exception of Renewable Energy Sources, all divisions reported net sales growth, half of this growth being organic. Demand for Environmental Services increased and the work load of Property Maintenance remained healthy.

Profitability weakened from the comparison period due to a temporary rise in waste disposal costs and an increase in traffic fuel prices. A non-scheduled maintenance shutdown at L&T Recoil's plant eroded profitability. Three significant business acquisitions were concluded in the second quarter, which involved integration costs. In addition, non-recurring restructuring costs of EUR 0.8 million were recorded for the quarter.

The income tax rate for the quarter decreased following the Administrative Court’s decision on the tax deductibility of dissolution loss write-off; as a result, EUR 1.6 million of deferred tax liabilities were recognised as income. Consequently, earnings per share improved by EUR 0.04 per share.

January–June
Lassila & Tikanoja’s net sales for January–June amounted to EUR 321.7 million (EUR 302.9 million); an increase of 6.2%. Operating profit was EUR 15.3 million (EUR 15.4 million), representing 4.8% (5.1%) of net sales, and operating profit excluding non-recurring items was EUR 16.5 million (EUR 19.6 million). Earnings per share were EUR 0.29 (EUR 0.25).

Net sales growth could be attributed to the higher demand for Environmental Services, the healthy work load of Property Maintenance, and the acquisitions made in the second quarter. In the first half of the year, more than half of the growth was organic. Meanwhile, the sale of wood-based fuels failed to reach the comparison period's level due to a suspension in the payment of electricity production subsidy in the first quarter and the tough competition.

Higher salary, subcontracting and diesel oil costs eroded profitability in the first half, while in the second quarter, performance was also affected by the temporary rise in waste disposal costs as well as the integration of business acquisitions.

In the comparison period, non-recurring costs of EUR 3.0 million were recorded for the discontinuation of the wood pellet business.


Financial summary

* Breakdown of operating profit excluding non-recurring items is presented below the division reviews.


NET SALES AND FINANCIAL PERFORMANCE BY DIVISION

Environmental Services

Second quarter
The division’s net sales for the second quarter increased by 10.5% to EUR 83.5 million (EUR 75.6 million). Operating profit totalled EUR 9.2 million (EUR 10.1 million) and operating profit excluding non-recurring items was EUR 9.2 million (EUR 10.1 million).

The division's growth was primarily organic. Net sales grew particularly in waste management and process cleaning thanks to larger waste volumes and maintenance shutdown-related work. Similarly, the volumes of secondary raw materials grew from the comparison period and prices remained at a healthy level. The acquisition of Papros Oy, which was completed during the quarter, strengthened the division's position in the recycled fibre markets.

The rising costs of waste transport and final disposal as well as the non-scheduled maintenance shutdown at the L&T Recoil plant undermined the division's profitability. The catalyst change in June required a prolonged shutdown and kept production at a standstill for almost a month, which is why the joint venture's result was clearly negative. The technical reliability of the plant will be improved in connection with another maintenance-related shutdown in September.

Net sales generated by the division’s international operations remained unchanged but profitability declined slightly from the comparison period.

During the quarter, several comprehensive service agreements were concluded in the retail trade sector. The quarter also saw the successful market launch of a new Managreen service model, which offers customers the ability to manage their environmental management agreements and the related network partners.

January–June
The Environmental Services division’s net sales for January-June amounted to EUR 156.0 million (EUR 140.2 million), showing an increase of 11.2%. Operating profit totalled EUR 13.4 million (EUR 14.5 million) and operating profit excluding non-recurring items was EUR 13.4 million (EUR 14.9 million).

The division's net sales growth was primarily organic and could be attributed to the growth of waste volumes and high demand for industrial cleaning services. There was a significant rise in the demand for and volume and prices of secondary raw materials (fibres, plastics, metals) compared to the same period last year.

Operating rates of recycling plants were lower than planned and there was a temporary increase in waste disposal related costs, which taxed profitability. A steep increase in the price of diesel oil and higher production costs also weakened the financial performance. The division had some problems adapting process cleaning services to fluctuations in demand in the first half, but extensive maintenance shutdown-related assignments in May-June were completed as planned.

Although the net sales and the operating rate of the joint venture L&T Recoil’s re-refinery improved in the first half, production reliability and base oil supply have still not reached a satisfactory level. A non-scheduled maintenance shutdown in the second quarter resulted in a clearly negative result in the first half.

The division’s net sales and operating profit from international operations declined slightly from the comparison period.

Cleaning and Office Support Services

Second quarter
The division’s net sales for the second quarter totalled EUR 40.8 million (EUR 35.7 million); an increase of 14.2%. Operating profit totalled EUR 1.0 million (EUR 2.2 million) and operating profit excluding non-recurring items was EUR 1.2 million (EUR 2.2 million).

Net sales in domestic operations grew from the comparison period, thanks largely to business acquisitions (Hansalaiset). Sales of commissioned assignments met expectations. Profitability declined from the comparison period due to a rise in the general cost level and the integration costs associated with the acquisitions. Due to the increased cost level, the division will implement price hikes in the second half.  

Net sales generated by international operations grew as a result of the acquisition (Östgöta Städ) made in Sweden. Non-recurring restructuring costs of EUR 0.2 million were recorded for Swedish operations, which limited the operating profit.

January–June
The January-June net sales of Cleaning and Office Support Services increased by 7.5% to EUR 75.6 million (EUR 70.4 million). Operating profit totalled EUR 2.5 million (EUR 3.3 million) and operating profit excluding non-recurring items was EUR 2.7 million (EUR 3.4 million).

Net sales growth in the first half could be primarily attributed to the acquisitions made in the second quarter. In Sweden, sales to new customers were successful. Sales of commissioned assignments reached the set targets.

The start-up costs of new projects and higher than expected integration costs associated with acquisitions eroded the division's profitability. In the comparison period, the EUR 0.7 million credit loss recorded for Russian operations restricted the operating profit.

Property Maintenance

Second quarter
The division’s net sales for the second quarter increased by 9.9% to EUR 30.9 million (EUR 28.1 million). Operating profit totalled EUR 0.8 million (EUR 1.1 million) and operating profit excluding non-recurring items was EUR 0.8 million (EUR 1.1 million).

All services, damage repair services in particular, were able to grow their net sales from the previous year. The work load of maintenance services for technical systems also remained healthy. Nonetheless, the division’s operating profit weakened from the comparison period due to higher production costs. Due to the increase in cost level, the division will implement price hikes in the second half.

January–June
The division’s net sales for January–June were up by 7.5% to EUR 69.8 million (EUR 64.9 million). Operating profit totalled EUR 2.7 million (EUR 3.9 million) and operating profit excluding non-recurring items was EUR 2.7 million (EUR 4.0 million).

The division’s net sales grew thanks to higher demand for maintenance services for technical systems and a stronger work load of damage repair services.  

The decrease in the division’s operating profit could be attributed to the rise in production costs and higher subcontracting and overtime costs. The profitability of commissioned assignments was weaker than a year earlier.

Renewable Energy Sources

Second quarter
Second quarter net sales of Renewable Energy Sources (L&T Biowatti) were down by 20.6% to EUR 9.6 million (EUR 12.1 million). Operating loss amounted to EUR 1.3 million (a loss of EUR 3.9 million), and operating loss excluding non-recurring items was EUR 1.3 million (a loss of EUR 0.9 million).

Net sales generated by wood-based fuels declined from the comparison period due to intense competition.  Higher collection and logistics costs also eroded profitability.

During the quarter, several new delivery agreements were signed for future heating seasons, and reorganisational measures were taken to cut fixed costs.  

In the comparison period, the non-recurring costs of EUR 3.0 million related to the discontinuation of the wood pellet business reduced the operating profit.

January–June
January–June net sales of Renewable Energy Sources (L&T Biowatti) were down by 20.5% to EUR 25.6 million (EUR 32.2 million). Operating loss amounted to EUR 2.0 million (a loss of EUR 4.8 million), and operating loss excluding non-recurring items was EUR 1.6 million (a loss of EUR 1.7 million).

In the first half of the year, power plant customers did not receive any subsidy for electricity generation from forest processed chips. As a result of the suspension in the payment of this subsidy, several power plants replaced forest processed chips with fossil fuels.

A reorganisation programme was launched in the first half to improve the division’s competitiveness. The programme involves fixed cost cuts and operational efficiency enhancement measures.


BREAKDOWN OF OPERATING PROFIT EXCLUDING NON-RECURRING ITEMS

FINANCING

Cash flows from operating activities amounted to EUR 31.5 million (EUR 30.4 million). EUR 3.2 million was released from the working capital (EUR 2.1 million).

At the end of the period, interest-bearing liabilities amounted to EUR 154.5 million (EUR 112.6 million). In the comparison period, the assets and liabilities of the joint venture L&T Recoil are presented as held-for-sale assets and related liabilities, which is why the interest-bearing liabilities associated with L&T Recoil, EUR 20.9 million, are not included in the interest-bearing liabilities in the comparison period. Net interest-bearing liabilities amounted to EUR 144.0 million, showing an increase of EUR 31.7 million from the beginning of the year.

Net finance costs in January–June amounted to EUR 2.2 million (EUR 2.0 million). Net finance costs were 0.7% (0.7%) of net sales. Long-term loans totalling EUR 13.1 million will mature during the rest of the year. The average interest rate on long-term loans (with interest-rate hedging) fell to 3.1% (3.3%) despite the rise in general interest rate level.

The equity ratio was 42.0% (43.8%) and the gearing rate 67.6 (47.5). Liquid assets at the end of the period amounted to EUR 10.5 million (EUR 14.4 million).

Of the EUR 50 million commercial paper programme, EUR 23.5 million (EUR 4.0 million) was in use. The EUR 15.0 million committed limit was not in use, as was the case in the comparison period.


DIVIDEND

The Annual General Meeting held on 17 March 2011 resolved on a dividend of EUR 0.55 per share. The dividend, totalling EUR 21.3 million, was paid to the shareholders on 29 March 2011.


CAPITAL EXPENDITURE

Capital expenditure totalled EUR 45.1 million (EUR 16.1 million), approximately half of it consisting of acquisitions.

In the first quarter, Pentti Laurila Ky and businesses of Matti Hossi Ky and PPT Luttinen Oy were acquired into Environmental Services. The business of Kestosiivous Oy was acquired into Cleaning and Office Support Services and the business of KH-Kiinteistöhuolto Oy was acquired into Property Maintenance.

In the second quarter, the Environmental Services division acquired Papros Oy and Full House Oy. The Cleaning and Office Support Services division acquired Savon Kiinteistöhuolto- ja Siivouspalvelu Oy, Varkauden Kiinteistönhoito ja Siivouspalvelu Oy, Jo-Pe Huolto Oy, Östgöta Städ Ab and WTS-Palvelut Oy. The Cleaning and Office Support Services and Property Maintenance divisions acquired the Hansalaiset Oy group including its subsidiaries.


PERSONNEL

In January–June, the average number of employees converted into full-time equivalents was 8,228 (7,522). The total number of full-time and part-time employees at the end of the period was 10,389 (9,420). Of them 8,198 (7,496) people worked in Finland and 2,191 (1,924) people in other countries.


SHARE AND SHARE CAPITAL

Traded volume and price
The volume of trading excluding the shares held by the company in Lassila & Tikanoja plc shares on NASDAQ OMX Helsinki in January–June was 5,205,262 which is 13.4% (8.8%) of the average number of outstanding shares. The value of trading was EUR 68.2 million (EUR 50.8 million). The trading price varied between EUR 11.75 and EUR 15.18. The closing price was EUR 12.08. At the end of the period, the company held 63,305 of its own shares. The market capitalisation excluding the shares held by the company was EUR 467.9 million (EUR 511.3 million) at the end of the period.

Share capital and number of shares
The company’s registered share capital amounts to EUR 19,399,437, and the number of outstanding shares to 38,735,569 shares. The average number of shares excluding the shares held by the company totalled 38,736,835.

Share option scheme 2005
In 2005, 600,000 share option rights were issued. The exercise period for the 2005A options ended on 29 May 2009, for the 2005B options on 31 May 2010 and for the 2005C options on 31 May 2011.

Share option scheme 2008
In 2008, 230,000 share option rights were issued, each entitling its holder to subscribe for one share of Lassila & Tikanoja plc. 33 key persons hold 168,000 options and L&T Advance Oy 62,000 options.

The exercise price is EUR 16.20. It was reduced by EUR 0.07 as of 22 March 2011. The exercise price of the share options shall, as per the dividend record date, be reduced by the amount of dividend which exceeds 70% of the profit per share for the financial period to which the dividend applies. However, only such dividends whose distribution has been agreed upon after the option pricing period and which have been distributed prior to the share subscription are deducted from the subscription price. The exercise price shall, however, always amount to at least EUR 0.01. The exercise period is from 1 November 2010 to 31 May 2012.

As a result of the exercise of the outstanding 2008 share options, the number of shares may increase by a maximum of 168,000 new shares, which is 0.4% of the current number of shares. The 2008 options have been listed on NASDAQ OMX Helsinki since 1 November 2010.

Share-based incentive programme
Lassila & Tikanoja plc’s Board of Directors decided on 24 March 2009 on a share-based incentive programme. The programme includes three earnings periods one year each, of which the first one began on 1 January 2009 and the last one ends on 31 December 2011. The basis for the determination of the reward is decided annually. Rewards to be paid for the year 2011 will be based on the EVA result of Lassila & Tikanoja group. They will be paid partly as shares and partly in cash. The proportion paid in cash will cover taxes arising from the reward. The programme covers 23 persons.

A maximum total of 180,000 Lassila & Tikanoja plc shares may be paid out on the basis of the programme. The shares will be obtained in public trading, and therefore the incentive programme will have no diluting effect on the share value.

Shareholders
At the end of the financial period, the company had 9,498 (8,439) shareholders. Nominee-registered holdings accounted for 12.2% (10.3%) of the total number of shares.

Authorisation for the Board of Directors
The Annual General Meeting held on 31 March 2010 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 and on the issuance of these shares. Shares will be repurchased otherwise than in proportion to the existing shareholdings of the company’s shareholders in public trading on the NASDAQ OMX Helsinki Ltd at the market price quoted at the time of the repurchase.

The Board of Directors is authorised to repurchase and transfer a maximum of 500,000 company shares, which is 1.3% of the total number of shares. The repurchase authorisation will be effective for 18 months and the share issue authorisation for four years. These authorisations revoke the authorisation for the repurchase of the company’s own shares and the authorisation to issue shares issued by the Annual General Meeting 2009.

The Board of Directors is not authorised to launch a convertible bond or share option rights.

Own shares
On 5 April 2011, a total of 2,547 shares of Lassila & Tikanoja plc were returned to the company free of consideration, by virtue of the terms of the share-based incentive programme of 2009. At the end of the period, the company held 63,305 of its own shares, representing 0.2% of all shares and votes.


RESOLUTIONS BY THE ANNUAL GENERAL MEETING

The Annual General Meeting of Lassila & Tikanoja plc, which was held on 17 March 2011, adopted the financial statements for the financial year 2010 and released the members of the Board of Directors and the President and CEO from liability. The AGM resolved that a dividend of EUR 0.55 per share, a total of EUR 21.3 million, as proposed by the Board of Directors, be paid for the financial year 2010. The dividend payment date was resolved to be 29 March 2011.

The Annual General Meeting confirmed the number of the members of the Board of Directors six. The following Board members were re-elected to the Board until the end of the following AGM: Heikki Bergholm, Eero Hautaniemi, Matti Kavetvuo, Hille Korhonen and Miikka Maijala. Sakari Lassila was elected as a new member for the same term.

PricewaterhouseCoopers Oy, Authorised Public Accountants, was elected auditor.

The Annual General Meeting resolved on decreasing the share premium reserve by EUR 50,672,564.52 by transferring all the funds in the share premium reserve to the unrestricted equity reserve. The resolution was not registered at the appointed time and therefore the arrangement cannot be implemented.

The resolutions of the Annual General Meeting were announced in more detail in a stock exchange release on 17 March 2011.


BOARD OF DIRECTORS

The members of the Board of Directors are Heikki Bergholm, Eero Hautaniemi, Matti Kavetvuo, Hille Korhonen, Sakari Lassila and Miikka Maijala. In its constitutive meeting the Board elected Heikki Bergholm as Chairman of the Board and Matti Kavetvuo as Vice Chairman.

From among its members, the Board elected Eero Hautaniemi as Chairman and Sakari Lassila and Miikka Maijala as members of the audit committee. Heikki Bergholm was elected as Chairman of the remuneration committee and Matti Kavetvuo and Hille Korhonen as members of the committee.


CHANGES IN THE MANAGEMENT OF THE COMPANY

The Board of Directors of Lassila & Tikanoja plc has appointed Pekka Ojanpää as President and CEO of the company. Mr Ojanpää will assume his position as Lassila & Tikanoja’s President and CEO on 13 December 2011 at the latest. Ville Rantala, CFO of Lassila & Tikanoja, has been appointed as acting President and CEO as of 13 June.


SUMMARY OF STOCK EXCHANGE RELEASES PURSUANT TO ARTICLE 7, CHAPTER 2 OF THE SECURITIES MARKETS ACT

In a release published on 22 March 2011, the company announced that M.Sc. (Econ.) Ville Rantala has been appointed as Managing Director of L&T Biowatti Oy and Vice President, Renewable Energy Sources division, as of 22 March 2011. Rantala will also continue as CFO of Lassila & Tikanoja plc. He will report to Jari Sarjo, President and CEO. Tomi Salo, Managing Director of L&T Biowatti, will not continue in the company.

In a release published on 5 April 2011, the company announced that a total of 2,547 shares of Lassila & Tikanoja plc have been returned to the company free of consideration, by virtue of the terms of the share-based incentive programme of 2009.

In a release published on 13 June 2011, the company announced that the Board of Directors of Lassila & Tikanoja plc has appointed Pekka Ojanpää as President and CEO. Pekka Ojanpää acts as President of Kemira’s Municipal & Industrial segment. He previously worked as President of the Kemira Performance Chemicals business area, and has held various executive positions at Nokia Corporation. Mr Ojanpää will assume his position as Lassila & Tikanoja’s President and CEO on 13 December 2011 at the latest.

The Board of Directors and Jari Sarjo, former President and CEO, have jointly agreed that Sarjo will leave his position as President and CEO immediately. Ville Rantala, CFO of Lassila & Tikanoja, has been appointed as acting President and CEO as of 13 June.


NEAR-TERM UNCERTAINTIES

General economic uncertainty may cause radical price changes in the secondary raw material markets of the Environmental Services division.

Succeeding in the integration of the acquisitions concluded in the second quarter will affect the performance in the second half.

L&T Recoil’s production has not fully stabilised, and any further disturbances in the plant’s production could have a negative effect on the Environmental Services division’s performance. End-product and raw material price fluctuations would have a major effect on L&T Recoil’s performance.

The government support for renewable fuels will have a positive effect on the demand for wood-based fuels in the future, but with some delay. Changes in the prices of emission rights will affect the competitiveness of L&T Biowatti's wood-based fuels.

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


PROSPECTS FOR THE REST OF THE YEAR

In the Environmental Services division, the outlook for the remainder of the year is largely stable. The secondary raw material price development and the operational reliability of L&T Recoil’s plant after the maintenance shutdown in September will affect the division’s profitability. In response to the rise in costs, the division will implement price increases.

The markets for Cleaning and Office Support Services and for Property Maintenance are expected to grow slowly. In response to the rise in costs, the divisions will implement price increases.

The demand for L&T Biowatti's wood-based fuels is expected to strengthen. A dynamic electricity generation subsidy for wood-based fuels was introduced at the beginning of July.

Full-year net sales will grow slightly from 2010 and operating profit excluding non-recurring items is expected to remain at the 2010 level.


CONDENSED FINANCIAL STATEMENTS 1 JANUARY–30 JUNE 2011


CONSOLIDATED INCOME STATEMENT

Earnings per share for profit attributable to the equity holders of the company:

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME