Lassila & Tikanoja plc: Interim Report 1 January – 31 March 2019

Lassila & Tikanoja plc
Stock exchange release
26 April 2019 at 8:00 a.m.

Lassila & Tikanoja plc: Interim Report 1 January – 31 March 2019

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

- Net sales for the first quarter were EUR 198.8 million (196.5)
- Operating profit was EUR 0.7 million (3.7)
- Earnings per share were EUR 0.01 (0.06)
- Full-year net sales and operating profit in 2019 are expected to be on par with 2018.
The outlook does not take into account the impact of the divestment of L&T Korjausrakentaminen Oy.

The Group signed an agreement on the sale of L&T Korjausrakentaminen Oy on 12 April 2019. When completed, the sale will have a non-recurring positive impact of approximately EUR 4.5 million on the Group’s operating profit in 2019. The sale will be completed before the end of the second quarter. 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 net sales for the first quarter increased by 1.2% year-on-year and amounted to EUR 198.8 million. Operating profit was EUR 0.7 million, which was substantially lower than in the comparison period (3.7).

In the Environmental Services division, net sales and operating profit grew thanks to good demand, particularly in the retail and industrial segments. The net sales and operating profit of the Industrial Services and Facility Services Sweden were on par with the previous year.

The operating profit of the Facility Services Finland was weighed down by problems related to the implementation of the new operating model in technical services that were, for the most part, resolved by the end of February. In the property maintenance business, the high snowfall during the winter increased net sales but weakened operating profit.

We will continue to enhance the Group’s production and processes as well as improve our profitability.”

GROUP NET SALES AND FINANCIAL PERFORMANCE

January–March

Lassila & Tikanoja’s net sales for the first quarter amounted to EUR 198.8 million (196.5), up 1.2% year-on-year. Operating profit totalled EUR 0.7 million (3.7), representing 0.4% (1.9) of net sales. Earnings per share were EUR 0.01 (0.06).

Operating profit was lower than in the comparison period particularly in Facility Services Finland.

Financial summary

NET SALES AND OPERATING PROFIT BY DIVISION

January–March

Environmental Services

The division’s net sales for the first quarter increased by 3.4% to EUR 79.6 million (77.0). Operating profit grew by 3.3% year-on-year to EUR 4.6 million (4.5).

Demand remained good particularly in the retail and industrial segments. Labour and subcontracting costs were increased by a shortage of drivers and challenging weather conditions, and fuel costs were also higher than in the comparison period.

In the renewable energy sources business, wood delivery volumes were at a good level, which increased the service line’s net sales and operating profit.

Industrial Services

The division’s net sales for the first quarter amounted to EUR 19.0 million (19.2). Operating profit was EUR 0.3 million (0.4).

Demand remained good particularly in the project business. Projects were postponed due to challenging weather conditions particularly in Northern Finland, which reduced the operating profit for the review period.

Facility Services Finland

The division’s net sales for the first quarter increased by 1.2% to EUR 69.5 million (68.6). Operating profit was EUR -3.5 million (-0.6).

The operating profit being substantially lower than in the comparison period was mainly due to the problems related to the implementation of the new operating model in technical services business in Finland. In the property maintenance business, the high snowfall during the winter increased net sales but weakened operating profit. In addition, the contract portfolio of the cleaning business was lower than in the comparison period, which had a negative impact on net sales as well as operating profit.

Facility Services Sweden

The division’s net sales for the first quarter amounted to EUR 32.1 million (33.3). Operating profit was EUR 0.7 million (0.7).

The demand for the maintenance of technical systems increased in Sweden particularly in the municipal sector, but sales growth was slowed by problems related to the availability of labour.

FINANCING

Net cash flow from operating activities amounted to EUR 22.4 million (14.1) in January–March. A total of EUR 12.4 million (3.1) in working capital was released. The working capital on the balance sheet decreased by EUR 2.8 million due to that L&T Korjausrakentaminen Oy is treated as one asset item on the balance sheet according to IFRS 5. The asset is presented on the balance sheet as one item under non-current asset available for sale. 

At the end of the period, interest-bearing liabilities amounted to EUR 214.6 million (177.8).

Net interest-bearing liabilities totalled EUR 169.3 million (141.8). This represents an increase of EUR 71.5 million from the start of the year and EUR 27.5 million from the comparison period.

Net financial expenses in the first quarter amounted to EUR 0.4 million (0.9) Net financial expenses were 1.0% (0.4%) of net sales.

The average interest rate on long-term loans (with interest rate hedging) was 1.1% (1.1%). Loans totalling EUR 13.9 million will mature in 2019, including the short-term commercial papers currently in use. The long-term loans do not include the liabilities reported in accordance with IFRS 16.

The equity ratio was 30.1% (33.5%) and the gearing rate was 95.5% (78.5%). Liquid assets at the end of the period amounted to EUR 45.4 million (36.0). The equity ratio was negatively affected by the entry into force of IFRS 16 at the beginning of 2019.

Of the EUR 100 million commercial paper programme, EUR 10 million (30.0) 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.

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 contributed to the increase in interest-bearing liabilities and had a negative impact on the gearing ratio and equity ratio. The Group issued a separate release on the effects of the transition on 25 April 2019.

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 in the first quarter of 2019 totalled EUR 9.3 million (8.2), consisting primarily of machine and equipment purchases as well as investments in information systems and buildings.
 
PERSONNEL

In the first quarter, the average number of employees converted into full-time equivalents was 7,234 (7,497). At the end of the period, Lassila & Tikanoja had 8,728 (8,513) full-time and part-time employees. Of these, 6,995 (6,883) worked in Finland and 1,733 (1,630) in other countries.

SHARES AND SHARE CAPITAL

Traded volume and price

The volume of trading on Nasdaq Helsinki in January–March, excluding the shares held by the company in Lassila & Tikanoja plc, was 1,885,071 shares, which is 4.9% (4.1) of the average number of outstanding shares. The value of trading was EUR 28.7 million (33.3). The highest share price was EUR 16.40 and the lowest EUR 14.20. The closing price was EUR 14.30. At the end of the review period, the market capitalisation excluding the shares held by the company was EUR 549.3 million (647.4).

Own shares

At the end of the period, the company held 382,763 of its own shares, representing 1.0% 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 38,416,111. The average number of shares excluding the shares held by the company was 38,408,893.

Shareholders

At the end of the period, the company had 14,506 (12,793) shareholders. Nominee-registered holdings accounted for 19.4% (19.4) 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 authorisation is effective for 18 months.

RESOLUTIONS BY THE ANNUAL GENERAL MEETING

The Annual General Meeting, which was held on 14 March 2018, adopted the financial statements and consolidated financial statements for 2018 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 0.92 per share, totalling EUR 35.3 million, be paid on the basis of the balance sheet adopted for the financial year 2018. It was decided that the dividend be paid on 25 March 2019.

The Annual General Meeting confirmed the number of members of the Board of Directors as six. Heikki Bergholm, Teemu Kangas-Kärki, Laura Lares, Sakari Lassila, Miikka Maijala and Laura Tarkka were re-elected 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 Leenakaisa Winberg, Authorised Public Accountant, as its principal auditor.

The Annual General Meeting resolved to amend Articles 6, 13, 4 and 12 of the company’s Articles of Association. Following the amendment, Article 6 reads as follows: ”An Authorised Public Accountants Organisation shall be elected as the Company’s auditor. The auditor shall designate an Authorised Public Accountant having principal responsibility. The term of the auditor shall be the financial year of the Company and the duties of the auditor expire at the end of the first Annual General Meeting of Shareholders following the election.”  At the same time, Article 13, Point 9, concerning matters to be handled by the Annual General Meeting, was amended to correspond to the new wording of Article 6. Furthermore, Article 4 of the Articles of Association was amended so that the following provision concerning the upper age limit of the members of the Board of Directors was removed: “No person who is 70 years of age or older can be elected to the Board of Directors”, and Article 12 was amended so that the following provision concerning voting limitation was removed: “At the General Meeting of Shareholders, no shareholder may cast more than one fifth (1/5) of the total number of votes represented at the General Meeting of Shareholders.”

The resolutions of the Annual General Meeting were announced in more detail in a stock exchange release on 14 March 2019.

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. Tutu Wegelius-Lehtonen, who had previously been in charge of the Facility Services division, was announced to have left the company on 25 February 2019.

EVENTS AFTER THE REVIEW PERIOD

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.

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 on 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

All of Lassila & Tikanoja’s divisions, except Facility Services Finland, have a good outlook for 2019. The net sales and operating profit of Facility Services Finland are expected to decrease compared to 2018 due to costs related to the implementation of the new operating model and decrease in the division’s contract base.

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

The previous outlook, published on 30 January 2019, was:
All of Lassila & Tikanoja’s divisions except Facility Services have a good outlook for 2019. Net sales and operating profit of Facility Services are expected to decrease compared to 2018 due to costs related to implementation of the new operating model and decrease in the division’s contract base.
Lassila & Tikanoja’s full-year net sales and operating profit in 2019 are expected to be on par with 2018.

CONDENSED FINANCIAL STATEMENTS 1 JANUARY – 31 MARCH 2019

CONSOLIDATED INCOME STATEMENT