Lassila & Tikanoja plc: Interim Report 1 January – 30 September 2016

- Net sales for the third quarter increased by 4.0% to EUR 166.0 million (EUR 159.6 million), operating profit was EUR 19.1 million (EUR 19.3 million) and earnings per share EUR 0.39 (EUR 0.38)
- Net sales for January–September increased by 2.6% to EUR 493.5 million (EUR 481.1 million), operating profit was EUR 39.9 million (EUR 40.2 million) and earnings per share EUR 0.91 (EUR 0.80)
- Full-year net sales and operating profit in 2016 are expected to remain at the 2015 level or improve slightly


CEO PEKKA OJANPÄÄ:

“Lassila & Tikanoja’s result for January–September was in line with our expectations. The demand for, and prices of, recyclable raw materials and solid recovered fuels are still below the long-term averages and the situation is not expected to change in the short run. The price competition of services, particularly cleaning, remained intense.
Net sales grew both organically and due to strategically targeted acquisitions. The company’s profitability remained at a good level due to previously implemented efficiency improvement measures.
In line with our strategy, our focus remains on strengthening our market position and ensuring profitability and cash flow. We will continue to improve the efficiency of our operations in order to respond to the changing business environment and to ensure our future competitiveness.


GROUP NET SALES AND FINANCIAL PERFORMANCE

Third quarter
Lassila & Tikanoja’s net sales for the third quarter increased by 4.0% to EUR 166.0 million (EUR 159.6 million). Operating profit totalled EUR 19.1 million (EUR 19.3 million). Earnings per share were EUR 0.39 (EUR 0.38).

Third quarter net sales grew by 1.3% in Facility Services and 5.4% in Environmental Services. Net sales grew both organically and due to acquisitions. The net sales of Industrial Services grew by 13.6% due to strong demand. The net sales of the Renewable Energy Sources division declined by 4.6% due to the weak demand for energy wood.

Operating profit improved significantly in Facility Services and Industrial Services. The operating profit of Environmental Services was lower than in the comparison period and the operating profit of Renewable Energy Sources showed a substantial decline.

January–September
Net sales for January–September increased by 2.6% to EUR 493.5 million (EUR 481.1 million). Operating profit was EUR 39.9 million (EUR 40.2 million), representing 8.1% (8.4%) of net sales. Earnings per share were EUR 0.91 (EUR 0.80).

During the first three quarters of the year, net sales grew by 7.0% year-on-year in Industrial Services, 3.1% in Environmental Services and 2.5% in Facility Services. The net sales of the Renewable Energy Sources division declined by 8.9% year-on-year due to the low demand for wood-based fuels.

Profitability improved particularly in Facility Services and was also higher than in the comparison period in Industrial Services. The operating profit of Environmental Services was lower than in the comparison period. The operating profit of Renewable Energy Sources showed a substantial decline.

The Group’s earnings per share was favourably affected in the second quarter by a legally valid decision handed down by the Administrative Court, according to which the payment of approximately EUR 16.7 million made by the company in 2014 under the L&T Recoil Oy guarantee commitment is tax-deductible. In previous financial reports, the company has treated the payment as a non-tax deductible item due to its tax deductibility not being confirmed. The decision had a favourable impact of EUR 0.09 on earnings per share.

Impact of new guidance from the European Securities and Markets Authority

The new guidance issued by the European Securities and Markets Authority (ESMA) regarding Alternative Performance Measures entered into effect on 3 July 2016. Lassila & Tikanoja presents Alternative Performance Measures in addition to IFRS performance measures in order to illustrate the financial performance of its business operations and to improve comparability between reporting periods. Alternative Performance Measures should not be considered to be replacements for the performance measures defined in the IFRS standards. The new guidance on Alternative Performance Measures has no impact on the company’s reporting of performance measures.

The Alternative Performance Measures reported by the company are EVA and cash flow from operating activities per share. The calculation formulas for the performance measures are presented at the end of the interim report.

Financial summary
 

NET SALES AND OPERATING PROFIT BY DIVISION

Environmental Services

Third quarter
The Environmental Services division’s net sales for the third quarter increased by 5.4% to EUR 68.2 million (EUR 64.7 million). The increase in net sales was due to acquisitions and organic growth. Operating profit totalled EUR 10.2 million (EUR 11.0 million).

The operating profit of Environmental Services was decreased by the lower volume of recyclable materials at recycling plants and the continued low market prices of secondary raw materials.

January–September
The division’s net sales for the first three quarters increased by 3.1% to EUR 198.2 million (EUR 192.2 million). Operating profit totalled EUR 24.8 million (EUR 28.4 million).

Previously completed acquisitions and stronger demand for waste management and in the construction sector in particular increased the division’s net sales.

The division’s operating profit was decreased by the lower volume of recyclable materials at recycling plants and the continued low market prices of secondary raw materials.

Industrial Services

Third quarter
The Industrial Services division’s net sales for the third quarter increased by 13.6% to EUR 23.9 million (EUR 21.0 million). Operating profit totalled EUR 3.4 million (EUR 2.9 million).

The net sales of the division’s services increased year-on-year particularly in environmental construction, and net sales also grew in sewer maintenance and process cleaning. The net sales of hazardous waste services decreased.

The operating profit of environmental construction improved significantly. Sewer maintenance and process cleaning also achieved a year-on-year increase in operating profit. Reduced demand for services led to lower operating profit for hazardous waste services.

January–September
The division’s net sales for January–September increased by 7.0% and amounted to EUR 60.7 million (EUR 56.7 million). Operating profit totalled EUR 5.2 million (EUR 5.0 million).

The division’s net sales showed an increase from the comparison period. Net sales increased in all service lines except hazardous waste.

Profitability improved particularly in environmental construction and also in sewer maintenance, but declined in process cleaning and hazardous waste services.

Facility Services

Third quarter
The Facility Services division’s net sales for the third quarter increased by 1.3% to EUR 71.5 million (EUR 70.5 million). Net sales grew both organically and due to acquisitions. Operating profit was EUR 6.1 million (EUR 4.9 million).

Net sales grew in renovation services and cleaning, but declined in property maintenance and the maintenance of technical systems.

The maintenance of technical systems business, the renovation business and the property maintenance business achieved a substantial increase in profitability following efficiency improvement measures implemented last year. The operating profit of the cleaning business declined year-on-year.

January–September
The division’s net sales for January–September increased by 2.5% and amounted to EUR 216.5 million (EUR 211.3 million). Operating profit totalled EUR 10.9 million (EUR 7.0 million).

Net sales grew in renovation services, maintenance of technical systems and cleaning, but declined in property maintenance. Net sales increased in the maintenance of technical systems business due to acquisitions.

The maintenance of technical systems business and the renovation business achieved a substantial increase in profitability following efficiency improvement measures implemented over the past year. Operating profit also increased in the cleaning business and the property maintenance business.

Renewable Energy Sources

Third quarter
The third quarter net sales of Renewable Energy Sources (L&T Biowatti) were down by 4.6% to EUR 5.3 million (EUR 5.6 million). The operating profit was EUR 0.1 million (EUR 0.6 million).

The division’s net sales and operating profit were affected by the low demand for forest energy.

January–September
The net sales of the Renewable Energy Sources division) in January–September were down by 8.9% to EUR 25.2 million (EUR 27.6 million). Operating profit totalled EUR 0.8 million (EUR 1.8 million).

The division’s net sales declined mainly due to the short heating season and the oversupply of biofuels and alternative fuels. Profitability declined year-on-year.

FINANCING

Cash flow from operating activities in the beginning of the year was affected by EUR 52 million in advance payments of employment pension contributions. Unlike in the previous year, in 2016 the entire year’s contributions were paid in January. In previous years, the payments have been made in four instalments. The change in the payment schedule will have no effect on the full-year cash flow.

Cash flow from operating activities amounted to EUR 33.6 million (EUR 60.9 million). A total of EUR 23.0 million in working capital was committed (EUR 3.4 million), with approximately EUR 10 million of this amount being related to the change in the payment schedule of employment pension contributions, and the remainder mainly consisting of increased trade receivables.

At the end of the period, interest-bearing liabilities amounted to EUR 95.6 million (EUR 99.9 million).

Net interest-bearing liabilities amounted to EUR 65.7 million (EUR 48.5 million), showing an increase of EUR 23.9 million from the beginning of the year and an increase of EUR 17.1 million from the comparison period.

Net financial expenses in January–September were EUR 0.5 million in the negative (EUR 1.2 million in the negative). Net financial expenses were 0.1% (0.2%) of net sales and they included EUR 0.7 million in exchange rate gains arising from the appreciation of the Russian rouble.

The average interest rate on long-term loans (with interest rate hedging) was 1.6% (1.5%). Long-term loans totalling EUR 31.7 million will mature during the remainder of the year.

The equity ratio was 47.2% (45.9%) and the gearing rate was 30.7 (23.3). Liquid assets at the end of the period amounted to EUR 30.0 million (EUR 51.3 million).

The EUR 100 million commercial paper programme was unused at the end of the period (EUR 0.0 million). 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 17 March 2016 resolved that a dividend of EUR 0.85 per share be paid on the basis of the balance sheet that was adopted for the financial year 2015. The dividend, totalling EUR 32.6 million, was paid to shareholders on 30 March 2016.

CAPITAL EXPENDITURE

Gross capital expenditure in the first three quarters of the year totalled EUR 27.1 million (EUR 31.2 million), consisting primarily of machine and equipment purchases, investments in information systems and acquisitions. Of the significant ongoing information system projects, the deployment of the new ERP system for Facility Services and the first deployments of new financial systems will take place in late 2016 and early 2017.

 

PERSONNEL

In January–September, the average number of employees converted into full-time equivalents was 7,278 (7,234). At the end of the period, Lassila & Tikanoja had 8,198 (8,345) full-time and part-time employees. Of these, 7,291 (7,462) worked in Finland and 907 (883) in other countries.

SHARES AND SHARE CAPITAL

Traded volume and price
The volume of trading on Nasdaq Helsinki in January–September 2016, excluding the shares held by the company in Lassila & Tikanoja plc, was 5,024,703 shares, which is 13.1% (21.0%) of the average number of outstanding shares. The value of trading was EUR 82.6 million (EUR 138.6 million). The highest share price was EUR 18.25 and the lowest EUR 14.37. The closing price was EUR 17.25. At the end of the period, the market capitalisation excluding the shares held by the company was EUR 662.0 million (EUR 693.5 million).

Own shares
At the end of the review period, the company held 420,868 of its own shares, representing 1.1% of all shares and votes.

Share capital and number of shares
The company’s registered share capital amounts to EUR 19,399,437 and the number of outstanding shares is 38,378,006. The average number of shares excluding the shares held by the company was 38,371,974.

Shareholders
At the end of the period, the company had 10,697 (9,795) shareholders. Nominee-registered holdings accounted for 17.6% (22.0%) of the total number of shares.

Authorisation for the Board of Directors
The Annual General Meeting held on 17 March 2016 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 their holders to shares.

The Board of Directors is authorised to purchase a maximum of 2,000,000 company shares (5.2% of the total number of shares). The repurchase authorisation is effective for 18 months.

The Board of Directors is authorised to decide on the issuance of new shares or shares which may be held by the company through a share issue and/or issuance of option rights or other special rights conferring entitlement to shares, referred to in Chapter 10, Section 1 of the Finnish Companies Act, so that under the authorisation, a maximum of 2,000,000 shares (5.2% of the total number of shares) may be issued and/or conveyed. The share issue authorisation is effective for 18 months.

RESOLUTIONS BY THE ANNUAL GENERAL MEETING

The Annual General Meeting, which was held on 17 March 2016, adopted the financial statements and consolidated financial statements for 2015 and released the members of the Board of Directors and the President and CEO from liability.

The Annual General Meeting resolved that a dividend of EUR 0.85 per share, totalling EUR 32.6 million, be paid on the basis of the balance sheet adopted for the financial year 2015. It was decided that the dividend be paid on 30 March 2016.

The Annual General Meeting confirmed the number of members of the Board of Directors as six. Heikki Bergholm, Eero Hautaniemi, Laura Lares, Sakari Lassila and Miikka Maijala were re-elected, and Teemu Kangas-Kärki was elected as a new member, to the Board until the end of the following Annual General Meeting.

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 17 March 2016.

BOARD OF DIRECTORS

The members of Lassila & Tikanoja plc’s Board of Directors are Heikki Bergholm, Eero Hautaniemi, Teemu Kangas-Kärki, Laura Lares, Sakari Lassila and Miikka Maijala. At its constitutive meeting after the Annual General Meeting, the Board of Directors elected Heikki Bergholm as Chairman of the Board and Eero Hautaniemi as Vice Chairman.

Eero Hautaniemi was elected as Chairman and Sakari Lassila and Teemu Kangas-Kärki as members of the Audit Committee. Heikki Bergholm was elected as the Chairman of the Personnel Committee and Miikka Maijala and Laura Lares as members of the committee.

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

On 4 January 2016, the company announced that it had concluded the repurchase of its own shares that was announced on 2 September 2015. The repurchase of the company’s own shares began on 15 September 2015 and the repurchase programme ended on 31 December 2015. The final share purchase was realised on 21 December 2015. A total of 253,406 shares were purchased during the repurchase programme. As of the conclusion of the repurchase programme, the company holds a total of 437,721 of its own shares, which corresponds to 1.1% of shares and votes.

On 3 February 2016, the company announced a change to its target range for gearing for the strategy period 2014–2018. The new range is 0–70 per cent. The previous range was 30–80 per cent. The change is based on the company’s strong cash flow as well as the need to prepare for potential acquisitions and other capital expenditure.

On 10 June 2016, the company announced that Tutu Wegelius-Lehtonen, Lic.Sc. (Tech.), has been appointed Vice President for Facility Services starting from 1 July 2016, having previously served as L&T’s Director, Supply Chain, and as a member of the Group Executive Board since February 2015.  Tomi Kontinen, B. Eng. (Logistics), was appointed Wegelius-Lehtonen’s successor as Director, Supply Chain, and member of the Group Executive Board, starting from 1 July 2016.

EVENTS AFTER THE REVIEW PERIOD

The company management is not aware of any events of material importance that might have affected the preparation of the interim report.

NEAR-TERM RISKS AND UNCERTAINTIES

Economic uncertainty may result in significant changes in the secondary raw material markets for Environmental Services and the demand for Facility Services and Industrial Services.

Low prices for fossil fuels may affect the demand of the recovered and renewable fuels produced by the company.

The company is preparing to deploy new ERP and financial management systems in late 2016 and in 2017. The deployment of the new systems may lead to temporary overlapping costs arising from changes in the operating model, which can have a negative effect on the company’s result.

More detailed information on Lassila & Tikanoja’s risks and risk management is available in the 2015 Annual Report, and in the Report of the Board of Directors and the consolidated financial statements.

OUTLOOK FOR THE YEAR 2016

Full-year net sales and operating profit in 2016 are expected to remain at the 2015 level or improve slightly.



CONDENSED FINANCIAL STATEMENTS 1 JANUARY – 30 SEPTEMBER 2016


CONSOLIDATED INCOME STATEMENT

 

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

 

CONSOLIDATED STATEMENT OF FINANCIAL POSITION