Lassila & Tikanoja plc: Interim Report 1 January - 30 September 2013

Helsinki, Finland, 2013-10-23 07:00 CEST (GLOBE NEWSWIRE) --

Net sales for the third quarter EUR 161.9 million (EUR 161.2 million); operating profit EUR 20.0 million (EUR 19.6 million); operating profit excluding non-recurring items EUR 20.1 million (EUR 19.7 million); earnings per share EUR 0.35 (EUR 0.40)
Net sales for January-September EUR 498.5 million (EUR 502.2 million); operating profit EUR 34.8 million (EUR 38.7 million); operating profit excluding non-recurring items EUR 40.3 million (EUR 36.9 million); earnings per share EUR 0.61 (EUR 0.71)
Full-year net sales in 2013 are expected to remain at the 2012 level. Operating profit, excluding non-recurring items, is expected to remain at the 2012 level or improve slightly.


CEO PEKKA OJANPÄÄ:

"In the third quarter, we were again able to improve our profitability from the comparison period and to generate a strong cash flow. Profitability was at a healthy level, particularly in Environmental Services. Financial uncertainty is continuing to have an impact on demand in the industrial sector and on material flows in the construction and retail sectors. This will hold back net sales growth."


GROUP NET SALES AND FINANCIAL PERFORMANCE

Third quarter
Lassila & Tikanoja’s net sales for the third quarter increased by 0.4% to EUR 161.9 million (EUR 161.2 million). Operating profit was EUR 20.0 million (EUR 19.6 million), and operating profit excluding non-recurring items was EUR 20.1 million (EUR 19.7 million), representing 12.4% (12.2%) of net sales. Earnings per share were EUR 0.35 (EUR 0.40).

Profitability developed favourably in the third quarter, especially in Environmental Services and Industrial Services. Fixed cost management and efficiency enhancement measures taken across the Group supported the profitability.

Comparable net sales includes EUR 0.7 million of net sales generated by the divested parts of the eco product business.

January-September
Lassila & Tikanoja’s net sales for January-September amounted to EUR 498.5 million (EUR 502.2 million); a decrease of 0.7%. Operating profit was EUR 34.8 million (EUR 38.7 million), and operating profit excluding non-recurring items was EUR 40.3 million (EUR 36.9 million), representing 8.1% (7.3%) of net sales. Earnings per share were EUR 0.61 (EUR 0.71).

Comparable net sales includes EUR 8.0 million worth of net sales generated by L&T Recoil and the divested parts of the eco product business.

The non-recurring reorganisation costs of EUR 1.0 million (EUR 2.1 million) and the EUR 5.0 million impairment on EcoStream Oy’s shares had a negative impact on operating profit. A sales gain of EUR 4.2 million on the divestment of L&T Recoil shares improved the reported operating profit in the comparison period.

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 were down by 1.4% to EUR 65.4 million (EUR 66.4 million). Operating profit totalled EUR 11.9 million (EUR 11.0 million) and operating profit excluding non-recurring items was EUR 11.9 million (EUR 11.1 million).

Profitability developed favourably in the third quarter, thanks to a strict fixed cost management and greater operational efficiency.

Comparable net sales includes EUR 0.7 million worth of net sales generated by the divested parts of the eco product business.

January-September
The Environmental Services division’s net sales for January-September amounted to EUR 192.2 million (EUR 201.0 million), showing a decrease of 4.4%. Operating profit totalled EUR 27.2 million (EUR 27.7 million) and operating profit excluding non-recurring items was EUR 27.2 million (EUR 24.0 million).

Comparable net sales includes EUR 8.0 million worth of net sales generated by L&T Recoil and the divested parts of the eco product business.

Comparable net sales remained at the comparison period's level, even though the recycling material volume declined following the slowdown in the building and retail trade sectors.  Net sales growth could be attributed to new customer contracts and positive developments in the waste management business.

Efficiency enhancement and cost control measures contributed to the increase in operating profit.

Industrial Services

Third quarter
The division’s net sales for the third quarter totalled EUR 20.9 million (EUR 18.1 million), showing an increase of 15.4%. Operating profit totalled EUR 2.3 million (EUR 1.8 million) and operating profit excluding non-recurring items was EUR 2.6 million (EUR 1.8 million).

The division's net sales grew, primarily as a result of the increase in net sales in environmental construction.  Operating profit excluding non-recurring items rose thanks to efficiency enhancement measures and effective cost control. 

January-September
The division’s net sales for January-September totalled EUR 54.7 million (EUR 51.2 million), showing an increase of 6.7%. Operating profit totalled EUR 3.7 million (EUR 2.7 million) and operating profit excluding non-recurring items was EUR 4.0 million (EUR 3.1 million).

Net sales grew following an increase in demand for process cleaning. Demand for sewer maintenance services and environmental construction was modest at the start of the year, but improved during the summer and early autumn.

Hazardous waste services enjoyed healthy demand and strong profitability throughout the review period.

Facility Services

Third quarter
The division’s net sales for the third quarter were down by 1.5% to EUR 71.6 million (EUR 72.7 million). Operating profit totalled EUR 6.7 million (EUR 7.8 million) and operating profit excluding non-recurring items was EUR 6.7 million (EUR 7.8 million).

The major restructuring process being deployed in the division continues to affect business profitability.

January-September
The division’s net sales for January-September were down by 1.7% to EUR 220.8 million (EUR 224.7 million). Operating profit totalled EUR 10.0 million (EUR 10.5 million) and operating profit excluding non-recurring items was EUR 10.4 million (EUR 11.7 million).

The division’s net sales declined from the comparison period, due to reduced demand for damage repair services and business downsizing in Sweden.

Costs incurred from the expansion of technical systems services had a negative effect on profitability, as did weak demand for damage repair services in the first half.

The Facility Services division implemented efficiency enhancement measures to improve its profitability. Profitability improved in the cleaning business, particularly in Sweden.

The entire business segment is currently going through a major restructuring process to adapt operations to the changes in market conditions, especially in cleaning and property maintenance.

Renewable Energy Sources

Third quarter
Third quarter net sales of Renewable Energy Sources (L&T Biowatti) were down by 6.9% to EUR 7.4 million (EUR 8.0 million). The division recorded an operating loss of EUR 0.2 million (operating loss EUR 0.4 million), and an operating loss excluding non-recurring items of EUR 0.4 million (operating loss EUR 0.4 million).

The decline in net sales can be largely attributed to business downsizing in Eastern Finland.

January-September
January-September net sales of Renewable Energy Sources (L&T Biowatti) were up by 12.0% to EUR 42.2 million (EUR 37.7 million). Operating profit amounted to EUR 0.9 million (operating loss EUR 0.3 million), and operating profit excluding non-recurring items was EUR 0.5 million (operating loss EUR 0.2 million).

There was a significant improvement in the division’s net sales from the comparison period, due to strong demand for wood-based fuels.

In the first half, profitability suffered from the weaker energy content of fuels and higher logistics costs. Meanwhile, net sales growth and the efficiency improvement measures taken improved the operating profit.


BREAKDOWN OF OPERATING PROFIT EXCLUDING NON-RECURRING ITEMS
 

FINANCING

Cash flows from operating activities amounted to EUR 61.1 million (EUR 49.7 million). A total of EUR 0.5 million in working capital was tied up (EUR 6.4 million tied up).

At the end of the period, interest-bearing liabilities amounted to EUR 87.4 million (EUR 114.0 million). L&T Recoil accounted for EUR 17.7 million of the interest-bearing liabilities in the reference period. Guarantees of EUR 16.4 million given by Lassila & Tikanoja to other providers of finance for these liabilities are still in force. In addition L&T had receivables from EcoStream Group of EUR 3.3 million.

Net interest-bearing liabilities amounted to EUR 65.3 million, showing a decrease of EUR 17.0 million from the beginning of the year and EUR 37.0 million from the comparison period.

Net finance costs in January-September amounted to EUR 2.1 million (EUR 4.9 million). Net finance costs were 0.4% (1.0%) of net sales. Net financial costs decreased, largely due to the EUR 2.0 million write-down on receivables from a subordinated loan in the comparison period.

The average interest rate on long-term loans (with interest-rate hedging) was 2.2% (2.4%). Long-term loans totalling EUR 10.1 million will mature during the rest of the year.

The equity ratio was 50.2% (47.5%) and the gearing rate 28.1 (45.1). Liquid assets at the end of the period amounted to EUR 22.1 million (EUR 11.7 million).

Of the EUR 100 million commercial paper programme, EUR 20.0 million (EUR 22.0 million) was in use at the end of the period. A committed limit totalling EUR 30.0 million was not in use, as was the case in the comparison period.


DISTRIBUTION OF ASSETS

The Annual General Meeting held on 12 March 2013 resolved that the profit for 2012 be placed in retained earnings and that no dividend be paid. A capital repayment of EUR 0.60 per share was paid for the financial year 2012. The capital repayment, totalling EUR 23.2 million, was paid to the shareholders on 22 March 2013.


CAPITAL EXPENDITURE

Capital expenditure for January-September totalled EUR 23.7 million (EUR 36.3 million) and was mainly comprised of machine and equipment purchases.


PERSONNEL

In January-September the average number of employees converted into full-time equivalents was 8,298 (8,504). The total number of full-time and part-time employees at the end of the period was 9,017 (9,101). Of them 7,133 (7,078) people worked in Finland and 1,884 (2,023) 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 5,428,265 which is 14.0% (20.6%) of the average number of outstanding shares. The value of trading was EUR 72.8 million (EUR 82.4 million). The trading price varied between EUR 11.60 and EUR 15.25. The closing price was EUR 15.08. The market capitalisation excluding the shares held by the company was EUR 583.7 million (EUR 410.1 million) at the end of the period.

Own shares
At the end of the period the company held 92,247 of its own share shares, representing 0.2% of all shares and votes.

Share capital and number of shares
The company’s registered share capital amounts to EUR 19,399,437, and the number of outstanding shares to 38,706,627 shares. The average number of shares excluding the shares held by the company totalled 38,703,026.

Share-based incentive programme 2013
Lassila & Tikanoja plc’s Board of Directors decided on 17 December 2012 on a new share-based incentive programme. The programme’s earnings period began on 1 January 2013 and ends on 31 December 2013. Potential rewards to be paid for the year 2013 will be based on the EVA result of Lassila & Tikanoja group. Potential rewards will be paid partly as shares and partly in cash. A maximum total of 53,300 Lassila & Tikanoja plc shares may be paid out on the basis of the programme. The programme covers 10 persons.

Shareholders
At the end of the period, the company had 9,204 (9,411) shareholders. Nominee-registered holdings accounted for 19.6% (16.7%) of the total number of shares.

Authorisation for the Board of Directors
The Annual General Meeting held on 12 March 2013 authorised Lassila & Tikanoja plc’s Board of Directors to make decisions on the repurchase of the company’s own shares using the company’s unrestricted equity. In addition, the Annual General Meeting authorised the Board of Directors to decide on the share issue and the issuance of special rights entitling to shares.

The Board of Directors is authorised to purchase 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.

The Board of Directors is authorised to decide on issuance of new shares or shares possibly held by the Company through share issue and/or issuance of option rights or other special rights entitling to shares, referred to in Chapter 10, Section 1 of the Finnish Companies Act, so that by virtue of the authorisation altogether 500,000 shares, which is 1.3% of the total number of shares, may be issued and/or conveyed at the maximum. The share issue authorisation will be effective for 18 months.


RESOLUTIONS BY THE GENERAL MEETING

The Annual General Meeting of Lassila & Tikanoja plc, which was held on 12 March 2013, adopted the financial statements for the financial year 2012 and released the members of the Board of Directors and the President and CEO from liability.

The AGM resolved that the profit for 2012 be placed in retained earnings and that no dividend be paid. A capital repayment of EUR 0.60 per share, as proposed by the Board of Directors, was paid for the financial year 2012 on the basis of the balance sheet adopted. The capital repayment, totalling EUR 23.2 million, payment date was on 22 March 2013.

The Annual General Meeting confirmed the number of the members of the Board of Directors five. The following Board members were re-elected to the Board until the end of the following AGM: Heikki Bergholm, Eero Hautaniemi, Hille Korhonen, Sakari Lassila and Miikka Maijala.

KPMG Oy Ab, Authorised Public Accountants, was elected auditor. KPMG Oy Ab named Lasse Holopainen, Authorised Public Accountant, as its principal auditor.

The resolutions of the Annual General Meeting were announced in more detail in a stock exchange release on 12 March 2013.


BOARD OF DIRECTORS

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


SUMMARY OF STOCK EXCHANGE RELEASES PURSUANT TO ARTICLE 4, CHAPTER 6 OF THE SECURITIES MARKETS ACT

In a release published on 25 March 2013, the company announced the comparable figures for 2012 based on the new business structure.

In a release published on 9 April 2013, the company announced that as part of EcoStream Oy’s capital arrangements, Lassila & Tikanoja plc subscribed for EcoStream Oy shares for a total of EUR 2.0 million on 8 April 2013. The subscription price was EUR 3.00 per share. This subscription was financed through a conversion of Lassila & Tikanoja’s remaining sale price receivable from the L&T Recoil Oy divestment, EUR 2.0 million, into EcoStream Oy shares. Consequently, the arrangement had no direct impact on cash flow. Following this arrangement and EcoStream Oy’s other capital arrangements, Lassila & Tikanoja’s ownership in EcoStream Oy fell to approximately 16.4 per cent.

In connection with the arrangement, Lassila & Tikanoja’s Board of Directors decided on a write-down of all shares held by Lassila & Tikanoja plc to EUR 3.00 per share. As a result of this write-down, the company will record an impairment of EUR 5.1 million on EcoStream Oy’s shares for the second quarter.

After the write-down, the balance sheet value of the EcoStream shares held by L&T will be approximately EUR 3.6 million.

The impairment will be treated as a non-recurring cost item, with no impact on cash flow.

In a release published on 1 July 2013, the company announced that the consideration of charges relating to L&T's overtime investigation was complete. The police investigation and the consideration of charges were aimed at the overtime work of 25 of L&T's property maintenance employees. On the basis of the consideration of charges, the District Prosecutor for Helsinki has decided to press charges against 21 former and current management staff at Lassila & Tikanoja, including Pekka Ojanpää, President and CEO since 1 November 2011.

In a release published on 23 September 2013, in conjunction with the Capital Markets Day, the company announced that its financial targets for the year 2016 remain unchanged. The theme of the Capital Markets Day was: “L&T moving from re-structuring to profitable growth”.


NEAR-TERM RISKS AND UNCERTAINTIES

Economic uncertainty may cause major changes in the Environmental Services division’s secondary raw material markets and in the Industrial Services division’s demand.

Uncertainties associated with government subsidies for renewable fuels and with their continuity could affect demand for the Renewable Energy Sources division's services.

L&T's liabilities in EcoStream Group amount to EUR 23.3 million, of which EUR 16.4 million have an impact on cash flow. The EUR 16.4 million guarantee given by L&T to other financiers on L&T Recoil Oy's bank loans is still in effect. Furthermore, L&T has outstanding receivables from the EcoStream Group totalling EUR 3.3 million, and holds EcoStream Oy shares worth EUR 3.6 million.

More detailed information on L&T's risks and risk management is available in the Annual Report for 2012, in the report of the Board of Directors, and in the consolidated financial statements.


OUTLOOK FOR THE REST OF THE YEAR

Full-year net sales in 2013 are expected to remain at the 2012 level. Operating profit, excluding non-recurring items, is expected to remain at the 2012 level or improve slightly.

CONDENSED FINANCIAL STATEMENTS 1 JANUARY-30 SEPTEMBER 2013

CONSOLIDATED INCOME STATEMENT
 

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
 

CONSOLIDATED STATEMENT OF FINANCIAL POSITION