Lassila & Tikanoja plc: Interim Report 1 January – 30 September 2019

Lassila & Tikanoja plc
Stock exchange release
24 October 2019 at 8:00 a.m.

Lassila & Tikanoja plc: Interim Report 1 January – 30 September 2019

Unless otherwise mentioned, the figures in brackets refer to the corresponding period in the previous year.

- Net sales for the third quarter were EUR 190.5 million (196.3), operating profit was EUR 18.5 million (19.6) and earnings per share EUR 0.36 (0.37).
- Net sales for January–September were EUR 585.4 million (595.7), operating profit was EUR 36.1 million (35.9) and earnings per share EUR 0.74 (0.66).
- The decline in net sales was mainly due to the divestment of L&T Korjausrakentaminen Oy.
- Lassila & Tikanoja’s full-year net sales in 2019 are expected to be on par with 2018 and operating profit is expected to be below 2018 level. The outlook does not take into account the impact of the divestment of L&T Korjausrakentaminen Oy.

The sale of the entire share capital of L&T Korjausrakentaminen Oy to Recover Nordic Group was finalised on 30 April 2019. The sale is estimated to have a positive impact of approximately EUR 4.5 million on the Group’s operating profit in 2019. L&T Korjausrakentaminen Oy’s net sales in 2018 amounted to EUR 35.0 million and its operating profit was EUR 0.7 million.

PRESIDENT AND CEO EERO HAUTANIEMI:

“Lassila & Tikanoja’s business developed positively in January–September excluding Facility Services Finland. Operating profit increased year-on-year in Environmental Services, Industrial Services and Facility Services Sweden.

In Facility Services Finland, operating profit was weighed down by costs related to the implementation of a new operating model in technical services business. Cleaning business developed favourably due to new customer accounts in the third quarter.

In Environmental Services, strong demand in retail and industrial segments as well as in renewable energy sources compensated for the impact of municipalisation on net sales. The measures taken to improve the efficiency of production also had a positive impact on operating profit. In Industrial Services, strong demand at industrial sites increased net sales and operating profit year-on-year.

Cash flow from operating activities remained strong. During the remainder of the year, we will focus on establishing the new operating model in Facility Services Finland and improving the division’s profitability.”

GROUP NET SALES AND FINANCIAL PERFORMANCE

July–September

Lassila & Tikanoja’s net sales for the third quarter amounted to EUR 190.5 million (196.3). Operating profit was EUR 18.5 million (19.6), representing 9.7% (10.0) of net sales. Earnings per share were EUR 0.36 (0.37).

Net sales and operating profit improved year-on-year in Environmental Services and Industrial Services. The operating profit of Facility Services Sweden also improved slightly compared to the corresponding period last year. The net sales and operating profit of Facility Services Finland declined significantly year-on-year.
                                                                                                            
January–September

Net sales in January–September totalled EUR 585.4 million (595.7). Operating profit amounted to EUR 36.1 million (35.9), representing 6.2% (6.0) of net sales. The divestment of L&T Korjausrakentaminen Oy had an effect of EUR 5.1 million on operating profit. Excluding the effect of the divestment of L&T Korjausrakentaminen Oy, the Group’s operating profit in January-September would have amounted to EUR 31.0 million. Earnings per share were EUR 0.74 (0.66). Lower financial expenses and taxes compared to the corresponding period last year contributed to the year-on-year improvement in earnings per share. 

A capital gain of EUR 6.7 million was recognised in the second quarter on the divestment of L&T Korjausrakentaminen Oy. Taking the other effects of the divestment into account, the transaction is estimated to have an effect of EUR 4.5 million on the full financial year 2019.

Operating profit decreased significantly year-on-year in Facility Services Finland. Operating profit increased year-on-year in Environmental Services, Industrial Services and Facility Services Sweden.

Financial summary

NET SALES AND OPERATING PROFIT BY DIVISION


Environmental Services

July–September
The division’s net sales for the third quarter were EUR 75.0 million (74.7). Operating profit grew by 4.6% year-on-year and amounted to EUR 11.2 million (10.7).

Net sales and operating profit increased year-on-year. Measures taken to improve the efficiency of production had a positive impact on operating profit. Demand for new circular economy services and renewable energy sources was at a good level.

January–September
The Environmental Services division’s net sales for January–September amounted to EUR 231.5 million (229.1). Operating profit grew by 5.5% to EUR 24.6 million (23.3).

Strong demand in the retail and industrial segments as well as renewable energy sources compensated for the impact of municipalisation on net sales. Operating profit increased due to the improved efficiency of operations. Labour and subcontracting costs as well as fuel costs were higher than in the comparison period.

Industrial Services

July–September
The division’s net sales for the third quarter totalled EUR 27.7 million (25.9). Operating profit was EUR 4.4 million (3.7).

Demand was at a good level and the third quarter was strong particularly with respect to industrial sites and the project business.

January–September
The Industrial Services division’s net sales for January–September were EUR 72.8 million (71.3). Operating profit was EUR 8.0 million (7.4).

The slowing down of the construction sector was compensated by new customer accounts in industrial sites and the project business.

Facility Services Finland

July–September
The division’s net sales amounted to EUR 59.0 million (65.9). The decline in net sales was mainly due to the divestment of L&T Korjausrakentaminen Oy. Operating profit was EUR 2.8 million (4.4).

Operating profit declined year-on-year due to the smaller contract portfolio in property maintenance business and the costs related to the implementation of a new operating model in technical services business. The cleaning business developed favourably thanks to new customer accounts.

January–September
The net sales of Facility Services Finland were EUR 189.8 million (203.2) in January–September. The decline in net sales was mainly due to the divestment of L&T Korjausrakentaminen Oy. Operating profit was EUR -2.7 million (5.2).

The operating profit being substantially lower than in the comparison period was mainly due to costs related to the implementation of a new operating model in technical services business and the contract portfolio of the property maintenance business being lower than in the corresponding period last year.

Facility Services Sweden

July–September
The division’s net sales for the third quarter were EUR 30.5 million (31.6). Operating profit was EUR 1.4 million (1.3).

The demand for technical services remained strong in the municipal and hospital sectors as well as in the commercial segment, but the competition has become more intense. The measures taken to improve the efficiency of production had a positive impact on operating profit.

January–September
The net sales of Facility Services Sweden totalled EUR 96.0 million (97.4) in January–September. Operating profit was EUR 2.9 million (2.6). In Swedish crownes the net sales grew by 1.5%.

The demand for technical services increased in Sweden, but sales growth was slowed by problems related to the availability of labour. The profitability of the cleaning business improved towards the end of the period.

FINANCING

Cash flow from operating activities amounted to EUR 57.5 million (53.2) in the first three quarters of the year. A total of EUR 1.5 million (4.8) in working capital was committed.

Interest-bearing liabilities on the balance sheet were increased by approximately EUR 53.8 million by the entry into force of IFRS 16 at the beginning of 2019. This had a negative effect on the gearing ratio and equity ratio. The Group issued a separate release on the effects of the transition on 25 April 2019.

At the end of the period, interest-bearing liabilities amounted to EUR 175.2 million (149.7). Net interest-bearing liabilities totalled EUR 155.4 million (119.1). This represents an increase of EUR 57.6 million from the start of the year and EUR 36.3 million from the comparison period. In August 2019, the company made an early repayment of a loan of EUR 25 million that was originally set to mature in 2020. The long-term loans do not include commercial papers or the liabilities reported in accordance with IFRS 16. The average interest rate on long-term loans (with interest rate hedging) was 1.3% (1.2%).

Net financial expenses in January–September amounted to EUR 2.3 million (3.4). The entry into force of IFRS 16 increased financial expenses, while exchange rate fluctuations reduced them. Net financial expenses were 0.4% (0.6%) of net sales.

The equity ratio was 36.3% (38.5%) and the gearing rate was 76.8% (58.5%). Liquid assets at the end of the period amounted to EUR 19.7 million (30.6). The equity ratio was negatively affected by the entry into force of IFRS 16 at the beginning of 2019.

The EUR 100 million commercial paper programme was entirely unused at the end of the period. The commercial paper programme was also unused in the corresponding period last year. 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 14 March 2019 resolved that a dividend of EUR 0.92 per share be paid on the basis of the balance sheet that was adopted for the financial year 2018. The dividend, totalling EUR 35.3 million, was paid to shareholders on 25 March 2019.


CAPITAL EXPENDITURE

Gross capital expenditure totalled EUR 33.2 million (21.6), consisting primarily of machine and equipment purchases as well as investments in information systems and buildings.
 
PERSONNEL

In the third quarter, the average number of employees converted into full-time equivalents was 7,365 (7,465). At the end of the period, Lassila & Tikanoja had 8,414 (8,467) full-time and part-time employees. Of these, 6,662 (6,863) worked in Finland and 1,752 (1,604) in other countries.


SHARES AND SHARE CAPITAL

Traded volume and price

The volume of trading on Nasdaq Helsinki in January–September, excluding the shares held by the company in Lassila & Tikanoja plc, was 4,049,899 shares, which is 10.5% (8.9) of the average number of outstanding shares. The value of trading was EUR 58.9 million (59.5). The highest share price was EUR 16.40 and the lowest EUR 12.92. The closing price was EUR 13.56. At the end of the review period, the market capitalisation excluding the shares held by the company was EUR 520.4 million (622.2).

Own shares

The Board of Directors of Lassila & Tikanoja plc resolved on 10 September 2019 to start repurchasing the company’s own shares. According to the Board’s resolution, the repurchasing may continue until the end of the year. A total of 37,527 shares were repurchased between 10 September and the end of the period under review.

At the end of the period, the company held 421,482 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 was 38,377,392 at the end of the period. The average number of shares excluding the shares held by the company was 38,411,905.

Shareholders

At the end of the period, the company had 15,085 (12,786) shareholders. Nominee-registered holdings accounted for 18.3% (19.8) of the total number of shares.

Authorisation for the Board of Directors

The Annual General Meeting held on 14 March 2019 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 a 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.

BOARD OF DIRECTORS

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

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

KEY EVENTS DURING THE REVIEW PERIOD

On 26 February, the Group announced that it had clarified its segment structure effective from 1 January 2019. Lassila & Tikanoja’s new structure consists of four reporting segments: Environmental Services, Industrial Services, Facility Services Finland and Facility Services Sweden. The Group also announced changes to the Group Executive Board: Tuomas Mäkipeska was appointed as Vice President, Facility Services Finland effective from 26 February 2019. Erik Sundström was appointed as Vice President, Facility Services Sweden and a member of the Group Executive Board. Juha Jaatinen was appointed as acting Group CFO and a member of the Group Executive Board. The Group’s General Counsel Sirpa Huopalainen was also appointed as a member of the Group Executive Board. On 25 February 2019, it was announced that Tutu Wegelius-Lehtonen, who had previously been in charge of the Facility Services division, had left the company.

On 15 April, the Group announced it has decided to divest its ownership of L&T Korjausrakentaminen Oy. The new owner of the subsidiary, which operates in the field of damage repair and renovation services, is Recover Nordic Group. The agreement was signed on 12 April 2019.

On 25 April, the company published comparison figures according to the new segment structure for the 2018 financial year as well as an opening balance sheet adjusted to reflect the effects of the adoption of IFRS 16.

On 13 May, the company announced that HR Director and member of the Group Executive Board Kirsi Matero had resigned from Lassila & Tikanoja to pursue new challenges outside the company during the autumn. Until a new HR Director takes up the post, Director of Corporate Relations and Responsibility Jorma Mikkonen will be in charge of the duties of HR Director in addition to his regular duties.

On 12 July, the company issued a profit warning and lowered its outlook for 2019. Full-year net sales in 2019 are expected to be on par with 2018 and operating profit is expected to be below 2018 level. The outlook does not take into account the impact of the divestment of L&T Korjausrakentaminen Oy.

On 26 July, Valtteri Palin, M.Sc. (Econ.), was appointed Chief Financial Officer and member of the Group Executive Board of Lassila & Tikanoja plc effective from 1 August 2019. Juha Jaatinen, who served as acting CFO, left the company on 31 July 2019 as planned.

On 10 September, based on the authorisation granted by the Annual General Meeting of 14 March 2019, the Board of Directors of Lassila & Tikanoja plc resolved to start repurchasing the company’s own shares. The maximum amount of shares to be repurchased is 600,000 shares, which corresponds to approximately 1.5 per cent of the total number of issued shares. The maximum amount allocated to repurchasing the shares is EUR 9 million.

EVENTS AFTER THE REVIEW PERIOD


On 1 October 2019, the company announced that Master of Laws (trained at the bench) Hilppa Rautpalo has been appointed as the Director of Human Resources and as a member of the Group Executive Board. She will take up her post by 1 January 2020 at the latest.

NEAR-TERM RISKS AND UNCERTAINTIES

Challenges related to the availability of labour may increase production costs and slow down the growth of net sales.

A decline in the volume of the construction industry and a slowing down of investment growth may have an unfavourable effect on the Group’s operations and business growth and lead to lower profitability.  In addition, market price development for emission rights, secondary raw materials or oil products may have a negative impact on the company’s business environment.

Temporary additional costs arising from establishing the operating model related to the new ERP system may weigh down the company’s result.

More detailed information on Lassila & Tikanoja’s risks and risk management is available in the 2018 Annual Report, and in the Report of the Board of Directors and the consolidated financial statements.

OUTLOOK FOR THE YEAR 2019

Lassila & Tikanoja’s full-year net sales in 2019 are expected to be on par with 2018 and operating profit is expected to be below 2018 level. The outlook does not take into account the impact of the divestment of L&T Korjausrakentaminen Oy.

CALCULATION OF KEY FIGURES

Earnings per share:
profit attributable to equity holders of the parent company / adjusted average
basic number of shares

Diluted earnings per share:
profit attributable to equity holders of the parent company / adjusted average
diluted number of shares

Cash flow from operating activities/share:
cash flow from operating activities as in the statement of cash flow / adjusted average
basic number of shares

EVA:
operating profit - cost calculated on invested capital (average of four quarters)
WACC 2019: 6.55% and 2018: 6.60%

EBITDA: operating profit + depreciation + impairment

Equity per share:
profit attributable to equity holders of the parent company / adjusted basic
number of shares at end of period

Return on equity, % (ROE):
(profit for the period / equity (average)) x 100

Invested capital: equity + interest-bearing financial liabilities

Return on invested capital, % (ROI):
(pre-tax profit/loss + financial expenses) / Equity + interest-bearing financial liabilities (average of the beginning of the period and the end of the period) x 100

Equity ratio, %:
equity / (total equity and liabilities - advances received) x 100

Gearing, %:
net interest-bearing liabilities / equity x 100

Net interest-bearing liabilities:
interest-bearing liabilities - liquid assets

Helsinki, 24 October 2019

LASSILA & TIKANOJA PLC
Board of Directors

Eero Hautaniemi
President and CEO

For additional information, please contact:
Eero Hautaniemi, President and CEO, tel. +358 10 636 2810
Valtteri Palin, CFO, tel. +358 40 734 7749

Lassila & Tikanoja is a service company that is putting the circular economy into practice. Together with our customers, we keep materials and properties in productive use for as long as possible and we enhance the use of raw materials and energy. We help our customers maintain the value of their properties and materials while protecting the environment. We achieve this by delivering responsible and sustainable service solutions that make the daily lives of our customers easier. We operate in Finland,  Sweden, and Russia. L&T employs 8,600 people. Net sales in 2018 amounted to EUR 802.2 million. L&T is listed on Nasdaq Helsinki.

Distribution:
Nasdaq Helsinki
Major media
www.lt.fi

Attachment

• LT-interim-report-Q3-2019-final