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

Helsinki, Finland, 2011-10-25 07:00 CEST (GLOBE NEWSWIRE) --

• Net sales for the third quarter EUR 163.5 million (EUR 143.8 million); operating profit EUR 18.2 million (EUR 16.3 million); operating profit excluding non-recurring items EUR 18.2 million (EUR 16.8 million); earnings per share EUR 0.32 (EUR 0.28)
• Net sales for January–September EUR 485.1 million (EUR 446.7 million); operating profit EUR 33.5 million (EUR 31.7 million); operating profit excluding non-recurring items EUR 34.7 million (EUR 36.4 million); earnings per share EUR 0.62 (EUR 0.54)
• 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

Third quarter
Lassila & Tikanoja's net sales for the third quarter increased by 13.7% to EUR 163.5 million (EUR 143.8 million). Operating profit was EUR 18.2 million (EUR 16.3 million), representing 11.1% (11.3%) of net sales, and operating profit excluding non-recurring items was EUR 18.2 million (EUR 16.8 million). Earnings per share were EUR 0.32 (EUR 0.28).

With the exception of Renewable Energy Sources, all divisions reported net sales growth, approximately half of this growth being organic. Increased waste and recycling volumes and the sustained healthy workload in Property Maintenance prompted demand. In the cleaning business, growth was generated by acquisitions.

The year-on-year improvement in operating profit could be primarily attributed to increased demand for Environmental Services and Property Maintenance, as well as cost cuts in the Renewable Energy Sources division. The joint venture L&T Recoil was also able to reduce its losses.

January–September
Lassila & Tikanoja’s net sales for January–September amounted to EUR 485.1 million (EUR 446.7 million); an increase of 8.6%. Operating profit was EUR 33.5 million (EUR 31.7 million), representing 6.9% (7.1%) of net sales, and operating profit excluding non-recurring items was EUR 34.7 million (EUR 36.4 million). Earnings per share were EUR 0.62 (EUR 0.54).

Net sales grew in January–September as demand for environmental services and industrial cleaning services perked up. The workload for Property Maintenance also remained strong throughout the period. In addition, the acquisitions made in the first half boosted net sales. Meanwhile the sale of wood-based fuels failed to reach the comparison period’s level, due to their weak competitiveness.

Higher salary, subcontracting and fuel costs as well as the temporary rise in waste disposal costs eroded profitability in January–September.

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

The income tax rate for the first half 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.

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

Third quarter
The division’s net sales for the third quarter increased by 13.3% to EUR 85.9 million (EUR 75.8 million). Operating profit amounted to EUR 12.3 million (EUR 10.9 million), and operating profit excluding non-recurring items was EUR 12.3 million (EUR 10.9 million).

All services were able to grow their net sales from the comparison period, thanks to higher waste volumes and the healthy demand for secondary raw materials as well as their positive price development, even though the prices of recycled materials began to decline towards the end of the period. Demand for seasonal industrial cleaning services perked up, contributing to the division’s net sales growth. In waste management, prices of services were revised at the beginning of the period to match higher production costs.

The division’s operating profit rose from the comparison period, largely thanks to volume growth and price hikes. The joint venture L&T Recoil was able to reduce its losses, which also improved profitability. A scheduled maintenance shutdown at the L&T Recoil plant, performed to raise capacity and operating efficiency, kept production at a standstill for a month. The start-up process commenced at the end of the period.

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

January–September
The Environmental Services division’s net sales for January-September grew by 12.0% to EUR 241.9 million (EUR 216.0 million). Operating profit amounted to EUR 25.7 million (EUR 25.5 million), and operating profit excluding non-recurring items was EUR 25.7 million (EUR 25.8 million).

The division's net sales growth was primarily organic and could be attributed to the increase in waste volumes and healthy demand for industrial cleaning services. Similarly, the volumes and price level of secondary raw materials improved significantly from the comparison period, even though price development levelled off and took a downward turn towards the end of the period. The acquisition of Papros Oy in the second quarter strengthened the division’s position in the recycled fibre markets.

In the first half, profitability was affected by lower than planned operating rates of recycling plants, a temporary increase in waste disposal costs, and increased production costs. The division did not entirely succeed in adapting its process cleaning services to fluctuations in demand, but extensive maintenance shutdown-related assignments in the summer months were completed as planned.

Although the net sales and the operating rate of the joint venture L&T Recoil’s re-refinery improved from the comparison period, production reliability and base oil supply have still not reached a satisfactory level. Losses in January–September were smaller than in the comparison period, even though maintenance shutdowns in the second and third quarter taxed the joint venture’s profitability.
 
The division’s net sales from international operations remained unchanged but operating profit declined slightly from the comparison period.

Several comprehensive service agreements were concluded in the retail trade sector in the first half. A new Managreen service model was successfully launched on the market. This concept offers customers the ability to manage their environmental management agreements and the related network partners.

Cleaning and Office Support Services

Third quarter
The division’s net sales for the third quarter totalled EUR 41.5 million (EUR 35.7 million); an increase of 16.5%. Operating profit amounted to EUR 3.7 million (EUR 4.1 million), and operating profit excluding non-recurring items was EUR 3.7 million (EUR 4.3 million).

The division’s net sales growth could be primarily attributed to acquisitions made in the first half (Hansalaiset in Finland and Östgöta Städ in Sweden). Furthermore, commissioned assignments in Finland sold better than a year earlier.

The division’s operating profit fell from the comparison period, due to the integration costs associated with acquisitions, price competition and higher production costs. In response to the rise in costs, the division implemented price increases at the end of the quarter.

January–September
The division's net sales for January–September grew by 10.5% to EUR 117.2 million (EUR 106.0 million). Operating profit amounted to EUR 6.2 million (EUR 7.3 million), and operating profit excluding non-recurring items was EUR 6.4 million (EUR 7.7 million).

Net sales growth from the comparison period could largely be attributed to acquisitions made in the first half. Sales of commissioned assignments perked up. In Sweden, sales to new customers remained stable in January–September.

Start-up costs of new projects in the first half and the higher than expected integration costs associated with the acquisitions made in the second quarter had a negative impact on the division's profitability.

In the comparison period, the EUR 0.7 million credit loss recorded for Russian operations weakened the operating profit.

Property Maintenance

Third quarter
The division's net sales for the third quarter increased by 16.3% to EUR 31.3 million (EUR 26.9 million). Operating profit amounted to EUR 3.6 million (EUR 3.3 million), and operating profit excluding non-recurring items was EUR 3.6 million (EUR 3.3 million).

All of the division's services saw their net sales improve from the comparison period. Successful sales efforts in maintenance services for technical systems and the strong workload in damage repair services contributed to a marked increase in demand. 

Operating profit increased slightly from the comparison period, although the rise in production costs eroded the profitability of property maintenance. To offset higher costs, the division implemented price increases at the end of the quarter.

January–September
The Property Maintenance division’s net sales for January–September grew by 10.1% to EUR 101.1 million (EUR 91.9 million). Operating profit amounted to EUR 6.3 million (EUR 7.1 million), and operating profit excluding non-recurring items was EUR 6.3 million (EUR 7.2 million).

The division’s net sales grew from the comparison period thanks to successful sales of commissioned assignments of property maintenance and the strong workload in maintenance services for technical systems and damage repair services. Heavy snowfall in the first half and more extensive partnerships with insurance companies helped boost sales of commissioned assignments.

Higher production and overtime costs taxed the division's operating profit. The profitability of commissioned assignments was also weaker than a year earlier.

Renewable Energy Sources

Third quarter
Third-quarter net sales of Renewable Energy Sources (L&T Biowatti) were down by 5.3% to EUR 7.2 million (EUR 7.6 million). Operating loss amounted to EUR 1.1 million (a loss of EUR 1.4 million), and operating loss excluding non-recurring items was EUR 1.1 million (a loss of EUR 1.4 million).

Demand for wood-based fuels remained weak due to intense competition. The warm autumn and extended maintenance shutdowns at power plants restricted demand.

A fixed cost cut regime helped decrease the division’s losses from the comparison period, although profitability was negatively affected by the weakened demand, higher subcontracting costs and the EUR 0.2 million credit loss recorded for the period. During the quarter, several new contracts were signed for future heating seasons.

January–September
January–September net sales of Renewable Energy Sources (L&T Biowatti) were down by 17.6% to EUR 32.8 million (EUR 39.8 million). Operating loss amounted to EUR 3.1 million (a loss of EUR 6.2 million), and operating loss excluding non-recurring items was EUR 2.7 million (a loss of EUR 3.2 million).

The competitiveness of wood-based fuels in January–September was weak. 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, several power plants replaced forest processed chips with fossil fuels. Furthermore, warm weather in the early autumn curbed demand for forest processed chips. Besides lower demand, profitability in the first half was also eroded by higher collection and logistics costs.

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

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


BREAKDOWN OF OPERATING PROFIT EXCLUDING NON-RECURRING ITEMS
 

FINANCING

Cash flows from operating activities amounted to EUR 45.2 million (EUR 42.9 million). EUR 9.4 million was tied up in the working capital (EUR 8.2 million).

At the end of the period, interest-bearing liabilities amounted to EUR 153.6 million (EUR 133.2 million). Net interest-bearing liabilities amounted to EUR 141.7 million, showing an increase of EUR 29.4 million from the beginning of the year.

Net finance costs in January–September amounted to EUR 3.5 million (EUR 3.2 million). Net finance costs were 0.7% (0.7%) of net sales. Long-term loans totalling EUR 7.6 million will mature during the rest of the year. The average interest rate on long-term loans (with interest-rate hedging) was 3.1% (3.2%).

The equity ratio was 43.4% (45.6%) and the gearing rate 63.5 (55.2). Liquid assets at the end of the period amounted to EUR 12.0 million (EUR 13.4 million).

The commercial paper programme was expanded to EUR 100 million (previously EUR 50 million) during the third quarter. Of the commercial paper programme, EUR 27 million (EUR 6.0 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 55.7 million (EUR 26.9 million), about half of this consisting of acquisitions. Some equipment purchases were also made.

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 the Property Maintenance divisions acquired the Hansalaiset Oy group including its subsidiaries.

No acquisitions were made in the third quarter. After the period, the Environmental Services division acquired Paraisten Puhtaanapito Oy.


PERSONNEL

In January–September, the average number of employees converted into full-time equivalents was 8,614 (7,798). The total number of full-time and part-time employees at the end of the period was 9,648 (8,550). Of them 7,565 (6,855) people worked in Finland and 2,083 (1,695) 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–September was 7,696,885 which is 19.9% (12.8%) of the average number of outstanding shares. The value of trading was EUR 94.8 million (EUR 71.8 million). The trading price varied between EUR 9.49 and EUR 15.18. The closing price was EUR 10.55. At the end of the period, the company held 113,305 of its own shares. The market capitalisation excluding the shares held by the company was EUR 408.1 million (EUR 538.1 million) at the end of the period.

Own shares
At the end of the period, the company held 113,305 of its own shares, representing 0.3% of all shares and votes. Based on the authorisation given by the Annual General Meeting 2010, the company repurchased 50,000 shares in the period from 12 September to 23 September 2011 at a total acquisition cost of EUR 0.5 million. 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.

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 38,685,569 shares. The average number of shares excluding the shares held by the company totalled 38,734,155.

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.

Shareholders
At the end of the financial period, the company had 9,489 (8,890) shareholders. Nominee-registered holdings accounted for 13.3% (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.

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

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


RESOLUTIONS BY THE GENERAL MEETINGS

The Extraordinary General Meeting of Lassila & Tikanoja plc, which was held on 8 September 2011, resolved on decreasing the share premium reserve of the balance sheet at 31 December 2010 by EUR 50,672,564.52 by transferring all the funds in the share premium reserve to the unrestricted equity reserve. The resolutions of the Extraordinary General Meeting were announced in more detail in a stock exchange release on 8 September 2011.

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 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. 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, agreed that Sarjo will leave his position as President and CEO immediately. Ville Rantala, CFO of Lassila & Tikanoja, was appointed as acting President and CEO as of 13 June.


NEAR-TERM UNCERTAINTIES

Economic uncertainty may cause radical price changes in the Environmental Services division’s secondary raw material markets.

Any disturbances in L&T Recoil plant’s production could have a negative effect on the Environmental Services division’s performance. End-product and raw material price fluctuations would also have a major effect on L&T Recoil’s performance.

The situation regarding government subsidies to renewable fuels continues to be unclear. Changes in the prices of emission rights will affect the competitiveness of L&T Biowatti's wood-based fuels in heat generation.

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 will affect the division’s profitability for the remainder of the year.

The outlook for Cleaning and Office Support Services and for Property Maintenance is stable for the remainder of the year.

Demand for L&T Biowatti's wood-based fuels is expected to reach the comparison period’s level.

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 SEPTEMBER 2011


CONSOLIDATED INCOME STATEMENT
 

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

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME