LASSILA & TIKANOJA PLC INTERIM REPORT 27 October 2009 8.00 am
LASSILA & TIKANOJA PLC INTERIM REPORT 1 JANUARY - 30 SEPTEMBER 2009
- Net sales for the third quarter EUR 140.7 million (EUR 151.2 million);
operating profit EUR 16.9 million (EUR 17.6 million); operating profit excluding
non-recurring and imputed items EUR 16.6 million (EUR 16.3 million); earnings
per share EUR 0.30 (EUR 0.31)
- Net sales for January-September EUR 434.3 million (EUR 452.9 million);
operating profit EUR 41.8 million (EUR 50.6 million); operating profit excluding
non-recurring and imputed items EUR 42.6 million (EUR 36.4 million); earnings
per share EUR 0.71 (EUR 0.99)
- Revised prospects: Full-year net sales will fall slightly from the previous
year. Meanwhile, operating profit excluding non-recurring and imputed items will
show slight improvement.
GROUP NET SALES AND FINANCIAL PERFORMANCE
Third quarter
Lassila & Tikanoja's net sales for the third quarter totalled EUR 140.7 million
(EUR 151.2 million), showing a decrease of 6.9% from the previous year.
Operating profit was EUR 16.9 million (EUR 17.6 million), representing 12.0%
(11.6%) of net sales, and operating profit excluding non-recurring and imputed
items was EUR 16.6 million (EUR 16.3 million). Earnings per share were EUR 0.30
(EUR 0.31).
Net sales for the third quarter fell from the previous year due to the sustained
low demand for wood-based fuels and the decline in raw material volumes in
recycling services. Despite the fall in net sales, profitability remained at the
previous year's level thanks to effective efficiency-boosting measures.
January-September
Nine-month net sales amounted to EUR 434.3 million (EUR 452.9 million); down by
4.1%. Operating profit was EUR 41.8 million (EUR 50.6 million), representing
9.6% (11.2%) of net sales. Operating profit excluding non-recurring and imputed
items rose to EUR 42.6 million (EUR 36.4 million). Earnings per share were EUR
0.71 (EUR 0.99). The capital gain of EUR 14.3 million from the sale of Ekokem
shares boosted the operating profit and result in the comparison period.
The decrease in net sales could be primarily attributed to the weak demand for
L&T Biowatti's wood-based fuels as well as for secondary raw materials, and
their low market prices in the first half. The net sales of Property and Office
Support Services and Industrial Services almost reached their previous year's
level.
Operating profit excluding non-recurring and imputed items saw an improvement
thanks to efficiency enhancement measures, particularly in the Finnish
operations of the Property and Office Support Services division.
Financial summary
--------------------------------------------------------------------------------
| | 7-9/ | 7-9/ | Chang | 1-9/ | 1-9/ | Change | 1-12/ |
| | 2009 | 2008 | e | 2009 | 2008 | % | 2008 |
| | | | % | | | | |
--------------------------------------------------------------------------------
| Net sales, EUR million | 140. | 151. | -6.9 | 434. | 452. | -4.1 | 606.0 |
| | 7 | 2 | | 3 | 9 | | |
--------------------------------------------------------------------------------
| Operating profit | 16.6 | 16.3 | 1.8 | 42.6 | 36.4 | 17.0 | 45.0 |
| excluding non-recurring | | | | | | | |
| and imputed items, EUR | | | | | | | |
| million* | | | | | | | |
--------------------------------------------------------------------------------
| Operating profit, EUR | 16.9 | 17.6 | -3.8 | 41.8 | 50.6 | -17.5 | 55.5 |
| million | | | | | | | |
--------------------------------------------------------------------------------
| Operating margin, % | 12.0 | 11.6 | | 9.6 | 11.2 | | 9.2 |
--------------------------------------------------------------------------------
| Profit before tax, EUR | 15.7 | 16.2 | -3.5 | 37.6 | 47.2 | -20.3 | 50.7 |
| million | | | | | | | |
--------------------------------------------------------------------------------
| Earnings per share, EUR | 0.30 | 0.31 | -3.2 | 0.71 | 0.99 | -28.3 | 1.03 |
--------------------------------------------------------------------------------
| EVA, EUR million | 8.2 | 9.7 | -15.5 | 16.6 | 28.3 | -41.3 | 25.0 |
--------------------------------------------------------------------------------
* Breakdown of operating profit excluding non-recurring and imputed items is
presented below the division reviews.
NET SALES AND FINANCIAL PERFORMANCE BY DIVISION
Environmental Services
Third quarter
The net sales of Environmental Services (waste management, recycling services,
L&T Biowatti, environmental products) in the third quarter shrank by 11.9% to
EUR 64.9 million (EUR 73.7 million). Operating profit was EUR 9.4 million (EUR
9.7 million), and operating profit excluding non-recurring and imputed items was
EUR 9.4 million (EUR 9.7 million).
The net sales of waste management remained at the same level as last year and
profitability rose as a result of improvements in cost-efficiency. In the
recycling services business, net sales declined due to shrinking volumes of raw
materials but profitability improved thanks to the recovering of the price level
of secondary raw materials as well as production efficiency enhancement
measures.
At the Kerava recycling plant, the new recycled timber unit was brought on line
and the construction of additional capacity continued.
L&T Biowatti recorded a considerable decrease in net sales due to the continued
weak demand for wood-based fuels. Factors contributing to the weak demand
included the lower operating rates in the industry and the low wholesale price
of electricity. Furthermore, the industrial use of sawdust was considerably
lower than generally in the summer season. Energy wood procurement proceeded
according to plans, resulting in a significant increase in raw material stocks.
The international operations of Environmental Services continued to show a
healthy profitability thanks to production efficiency improvement measures.
January-September
Environmental Services' net sales for January-September decreased by 7.8% to EUR
208.3 million (EUR 225.9 million). Operating profit was EUR 25.2 million (EUR
26.3 million), and operating profit excluding non-recurring and imputed items
was EUR 26.4 million (EUR 26.3 million).
In waste management, net sales remained at the previous year's level despite the
reduction in waste volumes resulting particularly from the slowdown in new
construction. Active renovation operations, however, helped to offset the
decline in waste volumes. Cost-efficiency contributed to the profitability
improvement in the waste management business.
The market prices of secondary raw materials (plastics, fibres, metals) and
their demand remained low in the first half, but showed slight improvement in
the third quarter. The investment programme covering the construction of
additional capacity at the Kerava recycling plant was cut. The second stage of
the investment involves the construction of a combined plant that will be able
to handle both construction waste and trade and industrial waste. The plant is
scheduled to be completed in autumn 2010.
The demand for biofuels supplied by L&T Biowatti decreased sharply, particularly
as a result of the lower wholesale price of electricity and lower operating
rates in the forest industry, and the profitability declined. The price of
emission rights continued to be low, which eroded the competitiveness of
wood-based fuels against coal and oil. A forestry services organisation focusing
on energy wood procurement launched operations in January and was able to exceed
its procurement targets during the period. The Luumäki pellet plant was closed
in May.
In April, waste management operations in Russia were extended to cover the city
of Noginsk. The construction of a recycling plant in Dubna began with completion
scheduled for the first half next year. In Latvia, the growing uncertainty of
the country's economy posed challenges for business development, but at the same
time it has improved the availability of labour and lowered labour costs.
Net sales for environmental products declined while profitability remained at a
good level.
Property and Office Support Services
Third quarter
The net sales of Property and Office Support Services (property maintenance and
cleaning services) amounted to EUR 60.0 million (EUR 60.1 million) in the third
quarter. The operating profit grew to EUR 7.2 million (EUR 5.0 million), and
operating profit excluding non-recurring and imputed items was EUR 7.3 million
(EUR 5.0 million).
Net sales from Finnish operations showed slight growth from the previous year,
and the sales of additional services in the summer were successful. Efficiency
boosting measures improved profitability.
Net sales from international operations declined from last year primarily as a
result of the weakening of the Swedish krona and the Russian rouble. In response
to growing economic uncertainty, customers have downsized their cleaning
services programmes, particularly in Latvia. The result from international
operations improved and showed a small profit.
January-September
The January-September net sales of Property and Office Support Services totalled
EUR 181.7 million (EUR 180.4 million). Operating profit grew to EUR 14.9 million
(EUR 7.9 million). Operating profit excluding non-recurring and imputed items
was EUR 15.2 million (EUR 7.8 million).
Contract revenue in Finland in both product lines reached the previous year's
level despite tough competition. Additional services sold well even though the
slowdown in construction reflected on the demand for maintenance services for
technical systems. A few sizeable damage repair projects were carried out in the
first half, ensuring a constant workflow. New partnership agreements were signed
with insurance companies.
Efficiency improvement measures continued, resulting in a significant
improvement in profitability. Prolonged economic uncertainty resulted in
considerably lower employee turnover, particularly in cleaning services, which
also helped raise production efficiency.
Loss from international operations decreased. The Russian and Latvian operations
recorded a positive result. In Sweden, the reorganisation programme proceeded as
planned and targets were met, but operations continued to make a loss. In March,
the Russian cleaning services were awarded a certificate for compliance with the
ISO 9001 quality standards.
Industrial Services
Third quarter
The net sales of Industrial Services (hazardous waste management, industrial
solutions, wastewater services, L&T Recoil) were down by 7.3% to EUR 17.7
million (EUR 19.1 million). Operating profit was EUR 1.4 million (EUR 3.5
million), and operating profit excluding non-recurring and imputed items was EUR
1.0 million (EUR 2.2 million).
The division's net sales fell due to lower operating rates in the industry and a
decrease in hazardous waste volumes. Profitability of the hazardous waste
management and industrial solutions business was boosted by improvements in
waste sorting efficiency and in the waste recovery rate. Considering the market
environment, operational adjustment measures were successful even though the
organisational changes associated with divisional combinations caused some
disruptions, particularly in the production control of waste water services.
Production start-up at the joint venture L&T Recoil's re-refinery for used
lubricating oil began. Transition to production phase has been further delayed,
which has increased the loss of the joint venture. The objective is to reach
production stage by the end of the year.
A non-recurring sales gain of EUR 0.4 million from the soil washing services
business divested last year was recorded for the quarter.
January-September
The January-September net sales of Industrial Services amounted to EUR 50.1
million (EUR 51.0 million). Operating profit was EUR 3.4 million (EUR 3.7
million), and operating profit excluding non-recurring and imputed items was EUR
3.1 million (EUR 3.8 million).
The low operating rates in the industry had the expected impact on Industrial
Services, particularly on hazardous waste volumes. Maintenance service volumes
decreased as the financial uncertainty prolonged, and rapid fluctuation in
demand continued. Similarly, the demand for recovered fuels remained low during
the whole period.
The division, except for wastewater services and L&T Recoil, was nevertheless
able to improve its profitability thanks to successful production efficiency
enhancement measures. In addition, large individual projects were carried out in
the first half. New industrial partnerships were launched in industrial
solutions in the first half.
Transition to production phase of the joint venture L&T Recoil's re-refinery has
not proceeded as planned. The production target set for this year will not be
reached. The objective is to reach production phase by the end of the year.
BREAKDOWN OF OPERATING PROFIT EXCLUDING NON-RECURRING AND IMPUTED ITEMS
--------------------------------------------------------------------------------
| EUR million | 7-9/ | 7-9/ | 1-9/ | 1-9/ | 1-12/ |
| | 2009 | 2008 | 2009 | 2008 | 2008 |
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
| Operating profit | 16.9 | 17.6 | 41.8 | 50.6 | 55.5 |
--------------------------------------------------------------------------------
| Non-recurring items | | | | | |
--------------------------------------------------------------------------------
| Impairment loss on goodwill of | | | | | 3.1 |
| business in Sweden | | | | | |
--------------------------------------------------------------------------------
| Discontinuation of soil washing | -0.4 | | -0.4 | | 2.6 |
| services | | | | | |
--------------------------------------------------------------------------------
| Loss on sale of business in Norway | | | | | 1.1 |
--------------------------------------------------------------------------------
| Gain on sale of the shares of Ekokem | | | | -14.3 | -14.3 |
--------------------------------------------------------------------------------
| Oil derivatives | | -1.3 | | 0.1 | -3.0 |
--------------------------------------------------------------------------------
| Restructuring expenses | 0.2 | | 1.4 | | |
--------------------------------------------------------------------------------
| Discontinuation of wood pellet | -0.1 | | 0.3 | | |
| production in Luumäki | | | | | |
--------------------------------------------------------------------------------
| Refund of supplementary insurance | | | -0.5 | | |
| fund of former Lassila & Tikanoja | | | | | |
--------------------------------------------------------------------------------
| Operating profit excluding | 16.6 | 16.3 | 42.6 | 36.4 | 45.0 |
| non-recurring and imputed items | | | | | |
--------------------------------------------------------------------------------
FINANCING
At the end of the period, interest-bearing liabilities amounted to EUR 17.8
million more than a year earlier. Net interest-bearing liabilities, totalling
EUR 129.3 million, increased by EUR 11.6 million from the comparison period and
by EUR 8.7 million from the beginning of the year.
The amount of net finance costs in the third quarter was below that of the
comparison period by EUR 0.1 million while in January-September the amount
exceeded that of the comparison period by EUR 0.7 million. Interest expenses
decreased by EUR 0.4 million in the third quarter and increased by EUR 0.2
million in January-September. The decrease in the third quarter resulted from
the decline in the interest rate level and the decrease in the interest-bearing
liabilities, though the amount of the liabilities exceeded that of the
comparison period. Net finance costs were 1.0% (0.8%) of net sales and 10.0%
(6.8%) of operating profit.
In January-September, a total of EUR -0.4 million (less than EUR -0.1 million)
arising from the changes in the fair values of interest rate swaps to which
hedge accounting under IAS 39 is applied was recognised in other comprehensive
income, after tax.
In January-September, new long-term loans totalling EUR 24.0 million were drawn
and a total of EUR 19.0 million of short-term loans were converted into
long-term loans. EUR 24.2 million were repaid. During the last three months of
the year, repayments of long-term loans totalling EUR 5.0 million (EUR 4.2
million) will fall due. At 30 September, the weighted average of effective
interest rates of long-term loans was 3.1% (5.4%). At the end of the period, the
amount of liquid assets was EUR 21.0 million (EUR 14.9 million). A committed
limit of EUR 15.0 million was not in use.
The equity ratio was 43.3% (44.9%) and the gearing rate 61.2 (57.3). Cash flows
from operating activities amounted to EUR 45.9 million (EUR 41.8 million). EUR
16.5 million were tied up in the working capital (EUR 8.5 million). The high
amount of working capital at the end of September was mainly attributable to
increase in the inventories of L&T Biowatti.
DIVIDEND
The Annual General Meeting held on 24 March 2009 resolved on a dividend of EUR
0.55 per share. The dividend, totalling EUR 21.3 million, was paid to the
shareholders on 3 April 2009.
CAPITAL EXPENDITURE
Capital expenditure totalled EUR 34.1 million (EUR 52.2 million). The largest
construction projects were L&T Recoil re-refinery and the extension of the
Kerava recycling plant.
In the second quarter, the property maintenance services business of
Valkeakosken Talohuolto Ky was acquired into Property and Office Support
Services. The net sales of the acquired business totalled EUR 0.7 million.
In the beginning of June, the business of Environmental Services' unit in Virrat
was sold.
PERSONNEL
In January-September, the average number of employees converted into full-time
equivalents was 8,254 (8,177). At the end of the period, the total number of
full-time and part-time employees was 9,101 (9,625). Of them 6,885 (7,326)
people worked in Finland and 2,216 (2,299) people in other countries.
NEW DIVISIONS
As of 1 June 2009, Lassila & Tikanoja's business operations were regrouped into
three divisions: Environmental Services, Property and Office Support Services
and Renewable Energy Sources (L&T Biowatti). The Industrial Services division
was combined with the Environmental Services division.
By the regrouping L&T aims at a more cost-efficient and customer orientated
operating model. The combining of the organisations of Environmental Services
and Industrial Services allows more efficient use of resources.
The company's internal reporting, as well as the segments reported externally,
will be changed to reflect the new divisions at the beginning of 2010. In 2009,
the financial reporting segments are Environmental Services, Property and Office
Support Services and Industrial Services.
SHARE AND SHARE CAPITAL
Traded volume and price
The volume of trading in Lassila & Tikanoja plc shares on NASDAQ OMX Helsinki
from January through September was 8,512,836, which is 21.9 % (39.6 %) of the
average number of shares. The value of trading was EUR 102.1 million (EUR 261.4
million). The trading price varied between EUR 9.16 and EUR 17.19. The closing
price was EUR 16.40. During the review period the company repurchased 30,000 own
shares. The market capitalisation was EUR 635.8 million (EUR 535.4 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 the shares to 38,798,874 shares. In January-September, the average number of
shares excluding the shares held by the company totalled 38,784,537.
Share option scheme 2005
In 2005, 600,000 share option rights were issued, each entitling its holder to
subscribe for one share of Lassila & Tikanoja plc. In the beginning of the
exercise period, 32 key persons held 176,000 2005B options. 37 key persons hold
200,000 2005C options. L&T Advance Oy, a wholly-owned subsidiary of Lassila &
Tikanoja plc, holds 24,000 2005B options and 30,000 2005C options and these
options will not be exercised.
The exercise price for the 2005B options is EUR 16.98 and for 2005C options EUR
26.87. The exercise period for 2005B options is 3 November 2008 to 31 May 2010,
and for 2005C options 2 November 2009 to 31 May 2011. The exercise period for
the 2005A options ended on 29 May 2009.
As a result of the exercise of the outstanding 2005 share options, the number of
shares may increase by a maximum of 376,000 new shares, which is 1.0% of the
current number of shares. The 2005B options have been listed on NASDAQ OMX
Helsinki since 2 January 2009.
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. 38 key persons hold 199,000
options and L&T Advance Oy 31,000 options.
The exercise price for the 2008 options is EUR 16.27. 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 will be 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 199,000 new shares, which is 0.5% of the current number
of shares.
Share-based incentive programme
Lassila & Tikanoja plc's Board of Directors decided at a meeting held 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. Potential rewards to be paid for the year 2009
will be based on the EVA result of Lassila & Tikanoja group. Potential rewards
will be paid partly as shares and partly in cash. The proportion paid in cash
will cover taxes arising from the reward. In the starting phase the programme
covers 28 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 7,245 (5,978) shareholders.
Nominee-registered holdings accounted for 9.3% (10.7%) of the total number of
shares.
Notifications on major holdings
On 30 April 2009, Ilmarinen Mutual Pension Insurance Company announced that its
holding of the shares and votes in Lassila & Tikanoja plc had fallen to 7.6%.
On 12 May 2009, OP-Pohjola Group announced that its holding of the shares and
votes in Lassila & Tikanoja plc had risen to 5.2%.
On 7 August 2009, OP-Pohjola Group announced that its holding of the shares and
votes in Lassila & Tikanoja plc had fallen to 4.7%.
Authorisation for the Board of Directors
The Annual General Meeting held on 24 March 2009 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.
The Board of Directors is not authorised to launch a convertible bond or share
option rights.
Own shares
At the end of the period Lassila & Tikanoja plc held 30,000 of its own shares
which represent 0.1% of shares and votes. The shares were repurchased based on
the authorisation given by the Annual General Meeting on 20-26 May 2009 at a
total price of EUR 356 thousand.
RESOLUTIONS BY THE ANNUAL GENERAL MEETING
The Annual General Meeting of Lassila & Tikanoja plc, which was held on 24 March
2009, adopted the financial statements for the financial year 2008 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, a total of EUR 21.3 million, as
proposed by the Board of Directors, be paid for the financial year 2008. The
dividend payment date was resolved to be 3 April 2009.
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,
Juhani Lassila and Juhani Maijala. Hille Korhonen was elected as a new member
for the same term.
PricewaterhouseCoopers Oy, Authorised Public Accountants, were elected auditors
with Heikki Lassila, Authorised Public Accountant, acting as Principal Auditor.
The Annual General Meeting approved the Board's proposals to amend article 11 of
the Articles of Association and to authorise the Board of Directors to
repurchase the company's own shares and to issue shares.
The resolutions of the Annual General Meeting were announced in more detail in a
stock exchange release on 25 March 2009.
BOARD OF DIRECTORS
The members of the Board of Directors are Heikki Bergholm, Eero Hautaniemi,
Matti Kavetvuo, Hille Korhonen, Juhani Lassila and Juhani Maijala. In its
constitutive meeting the Board re-elected Juhani Maijala as Chairman of the
Board and Juhani Lassila as Vice Chairman. The Board decided to establish an
audit committee. From among its members, the Board elected Juhani Lassila as
chairman and Eero Hautaniemi and Hille Korhonen as members of the audit
committee.
SUMMARY OF STOCK EXCHANGE RELEASES PURSUANT TO ARTICLE 7, CHAPTER 2 OF THE
SECURITIES MARKETS ACT
In a release published on 25 March 2009, the company announced that Lassila &
Tikanoja plc's Board of Directors decided on a share-based incentive programme.
More details of the programme are given above in the chapter Share and share
capital.
In a release published on 12 May 2009, the company announced that as of 1 June
2009 its business operations will be regrouped into three divisions:
Environmental Services, Property and Office Support Services and Renewable
Energy Sources (L&T Biowatti). The Industrial Services division will be combined
to the Environmental Services division. The company's internal reporting, as
well as the segments reported externally, will be changed to reflect the new
divisions at the beginning of 2010.
In a release published on 4 September 2009, the company announced that as of
that date Director Arto Nivalainen leaves the Group Executive team of Lassila &
Tikanoja plc. He will continue in the company until 31 August 2010. Nivalainen
is responsible for certain development and investment projects and continues as
a member of the Board of Directors of L&T Biowatti Oy. L&T's Group Executives
are: Jorma Mikkonen, Vice President, Environmental Services; Anna-Maija
Apajalahti, Vice President, Property and Office Support Services; Laura Aarnio,
Accounting Director; Kimmo Huhtimo, Director responsible for product and process
development, marketing communications and Contact Centre; Inkeri Puputti, HR
Director; Ville Rantala, CFO.
NEAR-TERM UNCERTAINTIES
A prolonged economic recession may reduce transport and recycling volumes and
the number of assignments. The market price instability of secondary raw
materials and low demand could have a negative effect on the profitability of
recycling services. Rapid fluctuations in demand for services purchased by the
industry and the lowering operating rates may hamper the planning and
implementation of work.
If the operating rate target set for L&T Recoil's production will not be reached
, this will have a pronounced impact on Industrial Services' performance. The
division's result will also decline if the price of crude oil falls, because the
price of base oil follows crude oil price developments with a slight delay.
Sustained low operating rates in the forest industry will hamper L&T Biowatti's
procurement of by-products for raw material. The low prices of coal and oil will
undermine the competitiveness of wood-based fuels. Similarly, the low wholesale
price of electricity will weaken demand.
The uncertain outlook of the Latvian economy and more intense competition may
prove detrimental to the profitability of Riga's waste management business.
If the H1N1 influenza epidemic expands further, potential consequences include
higher sick day costs and production disruptions, which could weaken financial
performance.
More detailed information on L&T's risks and risk management is available in the
Annual Report 2008 in the Board of Directors' Report and consolidated financial
statements.
PROSPECTS FOR THE REST OF THE YEAR
In the Environmental Services division, waste material collection and recycling
volumes are expected to remain stable towards the year-end. The demand and
market prices of secondary raw materials are expected to recover at a moderate
rate.
Demand for L&T Biowatti's wood-based fuels will grow as the heating season
begins, but the low operating rates in the industry and the low wholesale price
of electricity translate into weaker demand than in the same period a year
earlier. Furthermore, the low price of emission rights will undermine the
competitiveness of wood-based fuels. L&T Biowatti's operations will be adapted
to the weaker demand.
In the Property and Office Support Services, outlook for the remainder of the
year is stable. The customers' tight economies have resulted in increased
competitive bidding and will probably reduce orders for additional services.
Low industrial operating rates will keep hazardous waste volumes low for the
rest of the year and reduce demand for maintenance work. Measures to adjust
production to the lower demand in the winter season will continue.
Full-year net sales will fall slightly from the previous year. Meanwhile,
operating profit excluding non-recurring and imputed items will show slight
improvement.
Prospects have been revised from the previous interim report, which stated as
follows: “Full-year net sales are expected to reach the previous year's level
and full-year operating profit, excluding non-recurring and imputed items, is
expected to reach the same level or show slight improvement. This requires that
production operations will be launched at the L&T Recoil plant in the early
autumn.“
CONDENSED FINANCIAL STATEMENTS 1 JANUARY-30 SEPTEMBER 2009
CONSOLIDATED INCOME STATEMENT
--------------------------------------------------------------------------------
| EUR 1000 | 7-9/ | 7-9/ | 1-9/ | 1-9/ | 1-12/ |
| | 2009 | 2008 | 2009 | 2008 | 2008 |
--------------------------------------------------------------------------------
| | | | | | |
--------------------------------------------------------------------------------
| Net sales | 140 739 | 151 243 | 434 265 | 452 938 | 605 996 |
--------------------------------------------------------------------------------
| Cost of goods sold | -117 | -129 | -373 212 | -396 | -533 681 |
| | 933 | 016 | | 756 | |
--------------------------------------------------------------------------------
| Gross profit | 22 806 | 22 227 | 61 053 | 56 182 | 72 315 |
--------------------------------------------------------------------------------
| Other operating income | 652 | 2 016 | 1 996 | 17 888 | 21 708 |
--------------------------------------------------------------------------------
| Selling and marketing | -3 028 | -3 491 | -10 794 | -11 711 | -16 228 |
| costs | | | | | |
--------------------------------------------------------------------------------
| Administrative expenses | -3 006 | -2 941 | -8 538 | -9 232 | -12 105 |
--------------------------------------------------------------------------------
| Other operating | -515 | -228 | -1 957 | -2 510 | -7 102 |
| expenses | | | | | |
--------------------------------------------------------------------------------
| Goodwill impairment | | | | | -3 090 |
--------------------------------------------------------------------------------
| Operating profit | 16 909 | 17 583 | 41 760 | 50 617 | 55 498 |
--------------------------------------------------------------------------------
| Finance income | 237 | 373 | 1 066 | 1 189 | 1 931 |
--------------------------------------------------------------------------------
| Finance costs | -1 479 | -1 719 | -5 226 | -4 625 | -6 737 |
--------------------------------------------------------------------------------
| Profit before tax | 15 667 | 16 237 | 37 600 | 47 181 | 50 692 |
--------------------------------------------------------------------------------
| Income tax expense | -4 152 | -4 303 | -9 964 | -8 745 | -10 724 |
--------------------------------------------------------------------------------
| Profit for the period | 11 515 | 11 934 | 27 636 | 38 436 | 39 968 |
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
| Attributable to: | | | | | |
--------------------------------------------------------------------------------
| Equity holders of the | 11 509 | 11 929 | 27 629 | 38 432 | 39 969 |
| company | | | | | |
--------------------------------------------------------------------------------
| Minority interest | 6 | 5 | 7 | 4 | -1 |
--------------------------------------------------------------------------------
Earnings per share for profit attributable to the equity holders of the company:
--------------------------------------------------------------------------------
| Basic earnings per | 0.30 | 0.31 | 0.71 | 0.99 | 1.03 |
| share, EUR | | | | | |
--------------------------------------------------------------------------------
| Diluted earnings per | 0.30 | 0.31 | 0.71 | 0.99 | 1.03 |
| share, EUR | | | | | |
--------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
--------------------------------------------------------------------------------
| EUR 1000 | 7-9/ | 7-9/ | 1-9/ | 1-9/ | 1-12/ |
| | 2009 | 2008 | 2009 | 2008 | 2008 |
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
| Profit for the period | 11 515 | 11 934 | 27 636 | 38 436 | 39 968 |
--------------------------------------------------------------------------------
| Other comprehensive | | | | | |
| income, after tax | | | | | |
--------------------------------------------------------------------------------
| Hedging reserve, change in | -106 | -417 | -441 | -46 | -972 |
| fair value | | | | | |
--------------------------------------------------------------------------------
| Current available-for-sale | | | | | |
| investments | | | | | |
--------------------------------------------------------------------------------
| Gains in the period | -17 | 4 | -24 | 5 | 29 |
--------------------------------------------------------------------------------
| Reclassification | | | | -14 238 | -14 238 |
| adjustments | | | | | |
--------------------------------------------------------------------------------
| Current available-for-sale | -17 | 4 | -24 | -14 233 | -14 209 |
| investments | | | | | |
--------------------------------------------------------------------------------
| Currency translation | 146 | -278 | 124 | -535 | -1 862 |
| differences | | | | | |
--------------------------------------------------------------------------------
| Other comprehensive | 23 | -691 | -341 | -14 814 | -17 043 |
| income, after tax | | | | | |
--------------------------------------------------------------------------------
| Total comprehensive | 11 538 | 11 243 | 27 295 | 23 622 | 22 925 |
| income, after tax | | | | | |
--------------------------------------------------------------------------------
| Attributable to: | | | | |
--------------------------------------------------------------------------------
| Equity holders of the | 11 533 | 11 268 | 27 299 | 23 620 | 22 950 |
| company | | | | | |
--------------------------------------------------------------------------------
| Minority interest | 5 | -25 | -4 | 2 | -25 |
--------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
--------------------------------------------------------------------------------
| EUR 1000 | 9/2009 | 9/2008 | 12/2008 |
--------------------------------------------------------------------------------
| | | | |
--------------------------------------------------------------------------------
| ASSETS | | | |
--------------------------------------------------------------------------------
| | | | |
--------------------------------------------------------------------------------
| Non-current assets | | | |
--------------------------------------------------------------------------------
| Intangible assets | | | |
--------------------------------------------------------------------------------
| Goodwill | 115 814 | 119 498 | 115 451 |
--------------------------------------------------------------------------------
| Customer contracts arising from | 6 052 | 6 692 | 7 346 |
| acquisitions | | | |
--------------------------------------------------------------------------------
| Agreements on prohibition of | 11 691 | 13 520 | 13 270 |
| competition | | | |
--------------------------------------------------------------------------------
| Other intangible assets arising from | 3 685 | 5 869 | 5 158 |
| business acquisitions | | | |
--------------------------------------------------------------------------------
| Other intangible assets | 13 187 | 12 270 | 11 402 |
--------------------------------------------------------------------------------
| | 150 429 | 157 849 | 152 627 |
--------------------------------------------------------------------------------
| Property, plant and equipment | | | |
--------------------------------------------------------------------------------
| Land | 4 015 | 3 690 | 3 832 |
--------------------------------------------------------------------------------
| Buildings and constructions | 70 581 | 38 218 | 43 958 |
--------------------------------------------------------------------------------
| Machinery and equipment | 113 958 | 109 693 | 113 851 |
--------------------------------------------------------------------------------
| Other | 81 | 114 | 78 |
--------------------------------------------------------------------------------
| Advance payments and construction in | 13 460 | 26 582 | 35 433 |
| progress | | | |
--------------------------------------------------------------------------------
| | 202 095 | 178 297 | 197 152 |
--------------------------------------------------------------------------------
| Other non-current assets | | | |
--------------------------------------------------------------------------------
| Available-for-sale investments | 522 | 502 | 502 |
--------------------------------------------------------------------------------
| Finance lease receivables | 4 567 | 4 827 | 4 694 |
--------------------------------------------------------------------------------
| Deferred income tax assets | 1 736 | 1 373 | 945 |
--------------------------------------------------------------------------------
| Other receivables | 626 | 644 | 689 |
--------------------------------------------------------------------------------
| | 7 451 | 7 346 | 6 830 |
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
| Total non-current assets | 359 975 | 343 492 | 356 609 |
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
| Current assets | | | |
--------------------------------------------------------------------------------
| Inventories | 29 274 | 17 261 | 18 827 |
--------------------------------------------------------------------------------
| Trade and other receivables | 83 031 | 84 827 | 74 634 |
--------------------------------------------------------------------------------
| Derivative receivables | | 1 069 | 112 |
--------------------------------------------------------------------------------
| Advance payments | 1 747 | 2 994 | 986 |
--------------------------------------------------------------------------------
| Available-for-sale investments | 10 989 | 5 988 | 20 368 |
--------------------------------------------------------------------------------
| Cash and cash equivalents | 10 004 | 8 883 | 6 149 |
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
| Total current assets | 135 045 | 121 022 | 121 076 |
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
| TOTAL ASSETS | 495 020 | 464 514 | 477 685 |
--------------------------------------------------------------------------------
| EUR 1000 | 9/2009 | 9/2008 | 12/2008 |
--------------------------------------------------------------------------------
| | | | |
--------------------------------------------------------------------------------
| EQUITY AND LIABILITIES | | | |
--------------------------------------------------------------------------------
| | | | |
--------------------------------------------------------------------------------
| Equity | | | |
--------------------------------------------------------------------------------
| Equity attributable to equity holders | | | |
| of the company | | | |
--------------------------------------------------------------------------------
| Share capital | 19 399 | 19 399 | 19 399 |
--------------------------------------------------------------------------------
| Share premium reserve | 50 673 | 50 673 | 50 673 |
--------------------------------------------------------------------------------
| Other reserves | -3 294 | -757 | -2 964 |
--------------------------------------------------------------------------------
| Retained earnings | 116 773 | 97 556 | 97 799 |
--------------------------------------------------------------------------------
| Profit for the period | 27 629 | 38 432 | 39 969 |
--------------------------------------------------------------------------------
| | 211 180 | 205 303 | 204 876 |
--------------------------------------------------------------------------------
| Minority interest | 158 | 189 | 162 |
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
| Total equity | 211 338 | 205 492 | 205 038 |
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
| Liabilities | | | |
--------------------------------------------------------------------------------
| Non-current liabilities | | | |
--------------------------------------------------------------------------------
| Deferred income tax liabilities | 33 233 | 29 952 | 32 898 |
--------------------------------------------------------------------------------
| Pension obligations | 673 | 632 | 674 |
--------------------------------------------------------------------------------
| Long-term provisions | 2 011 | 1 128 | 1 741 |
--------------------------------------------------------------------------------
| Long-term borrowings | 131 025 | 78 425 | 102 487 |
--------------------------------------------------------------------------------
| Other liabilities | 1 592 | 870 | 1 083 |
--------------------------------------------------------------------------------
| | 168 534 | 111 007 | 138 883 |
--------------------------------------------------------------------------------
| Current liabilities | | | |
--------------------------------------------------------------------------------
| Short-term borrowings | 19 247 | 54 092 | 44 569 |
--------------------------------------------------------------------------------
| Trade and other payables | 92 295 | 92 601 | 88 298 |
--------------------------------------------------------------------------------
| Derivative liabilities | 1 205 | 1 078 | 610 |
--------------------------------------------------------------------------------
| Tax liabilities | 2 320 | 244 | 273 |
--------------------------------------------------------------------------------
| Short-term provisions | 81 | | 14 |
--------------------------------------------------------------------------------
| | 115 148 | 148 015 | 133 764 |
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
| Total liabilities | 283 682 | 259 022 | 272 647 |
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
| TOTAL EQUITY AND LIABILITIES | 495 020 | 464 514 | 477 685 |
--------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF CASH FLOWS
--------------------------------------------------------------------------------
| EUR 1000 | 9/2009 | 9/2008 | 12/2008 |
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
| Cash flows from operating activities | | | |
--------------------------------------------------------------------------------
| Profit for the period | 27 636 | 38 436 | 39 968 |
--------------------------------------------------------------------------------
| Adjustments | | | |
--------------------------------------------------------------------------------
| Income tax expense | 9 964 | 8 745 | 10 724 |
--------------------------------------------------------------------------------
| Depreciation, amortisation and impairment | 29 916 | 28 067 | 40 985 |
--------------------------------------------------------------------------------
| Finance income and costs | 4 160 | 3 436 | 4 806 |
--------------------------------------------------------------------------------
| Oil derivatives | | 81 | -2 221 |
--------------------------------------------------------------------------------
| Gain on sale of shares | | -14 258 | -14 258 |
--------------------------------------------------------------------------------
| Discontinued operations | | | 2 616 |
--------------------------------------------------------------------------------
| Other | 953 | -906 | 444 |
--------------------------------------------------------------------------------
| Net cash generated from operating | 72 629 | 63 601 | 83 064 |
| activities before change in working | | | |
| capital | | | |
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
| Change in working capital | | | |
--------------------------------------------------------------------------------
| Change in trade and other receivables | -11 312 | -14 113 | 3 502 |
--------------------------------------------------------------------------------
| Change in inventories | -10 456 | -2 925 | -4 492 |
--------------------------------------------------------------------------------
| Change in trade and other payables | 5 275 | 8 525 | 3 152 |
--------------------------------------------------------------------------------
| Change in working capital | -16 493 | -8 513 | 2 162 |
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
| Interest paid | -5 398 | -3 554 | -5 953 |
--------------------------------------------------------------------------------
| Interest received | 1 289 | 1 093 | 1 867 |
--------------------------------------------------------------------------------
| Income tax paid | -6 091 | -10 858 | -10 716 |
--------------------------------------------------------------------------------
| Net cash from operating activities | 45 936 | 41 769 | 70 424 |
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
| Cash flows from investing activities | | | |
--------------------------------------------------------------------------------
| Acquisition of subsidiaries and | -320 | -420 | -4 298 |
| businesses, net of cash acquired | | | |
--------------------------------------------------------------------------------
| Proceeds from sale of subsidiaries and | 197 | | 23 |
| businesses, net of sold cash | | | |
--------------------------------------------------------------------------------
| Purchases of property, plant and | -34 185 | -53 285 | -77 542 |
| equipment and intangible assets | | | |
--------------------------------------------------------------------------------
| Proceeds from sale of property, plant and | 1 506 | 1 734 | 789 |
| equipment and intangible assets | | | |
--------------------------------------------------------------------------------
| Purchases of available-for-sale | -48 | -110 | -200 |
| investments | | | |
--------------------------------------------------------------------------------
| Change in other non-current receivables | 67 | -6 | -11 |
--------------------------------------------------------------------------------
| Proceeds from sale of available-for-sale | 24 | 16 813 | 16 867 |
| investments | | | |
--------------------------------------