Lassila & Tikanoja plc: Interim Report 1 January–31 March 2020

Lassila & Tikanoja plc
Stock exchange release
28 April 2020 at 8:00 a.m.

Lassila & Tikanoja plc: Interim Report 1 January–31 March 2020

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

• Net sales for the first quarter were EUR 184.4 million (198.8)
• Operating profit was EUR 2.9 million (0.7)
• Earnings per share were EUR 0.00 (0.01). Earnings per share were negatively affected by an increase in exchange differences. Exchange differences amounted to EUR -1.8 million (0.6) in the first quarter
• The decrease in net sales was mainly attributable to the Q2/2019 divestment of the L&T Korjausrakentaminen business, which is included in the figures for the comparison period
• The increase in the business segments’ operating profit was particularly due to the improved result of Facility Services Finland

Outlook for 2020, updated 24 April 2020

Full-year net sales for 2020 are expected to decrease year-on-year and operating profit is estimated to be EUR 30–40 million (40.5) excluding loss related to the discontinuation of Russian operations.

PRESIDENT AND CEO EERO HAUTANIEMI:

“Net sales in the first quarter of 2020 decreased by 7.2% year-on-year and amounted to EUR 184.4 million. The decrease in net sales was attributable to the divestment of L&T Korjausrakentaminen in the previous financial year, with its business included in the comparison figures, the winter’s low snowfall and the coronavirus epidemic towards the end of the quarter. Operating profit was EUR 2.9 million, representing a substantial increase from the comparison period (0.7). The increase in operating profit was particularly due to the improved result of Facility Services Finland. Consolidated net cash from operating activities in the first quarter was at a good level at EUR 19.6 million (22.4) and the Group’s liquidity position remained strong.

The business environment in the first quarter can be characterised as challenging due to the industrial action in the early part of the year and the coronavirus epidemic that began in March. I am satisfied with our result in these somewhat exceptional circumstances.

The majority of Lassila & Tikanoja’s net sales is generated from services such as waste management and various maintenance services, which are essential for society and companies and will continue even during the coronavirus epidemic.

Nevertheless, Lassila & Tikanoja expects the demand for services to weaken due to the restrictions imposed by the authorities as well as production restrictions implemented by customers themselves.  The epidemic will have negative effects on all of the Group’s business segments, particularly those related to the restaurant and hotel business as well as services sold to industrial customers.  The negative impact of the epidemic on the Group’s operating profit is estimated to have been EUR 0.5–1.0 million in the first quarter.

The increased sales of disinfection and cleaning services in the cleaning business have redused the negative result effects of the epidemic. During the remainder of the year, the impacts will also be mitigated by the temporary reduction of 2.6 percentage points in pension insurance payments in Finland during the period 1 May–31 December 2020 as well as the significant drop in fuel prices.

Due to the reforms in waste management carried out by the state of Russia in 2019, the implementation of waste management in the Moscow region was allocated to seven operators. As a result of this change, the area in which Lassila & Tikanoja operates was allocated to two operators. In April 2020, the company was informed that one of the two operators will start operating waste logistics in the area, which will reduce Lassila & Tikanoja’s net sales in Russia by more than half by the beginning of September. In response to the significant change in the customer situation, Lassila & Tikanoja has decided to discontinue its Russian operations in 2020. The discontinuation of the Group’s operations in Russia is estimated to have a negative effect of EUR 7-11 million on the result of Environmental services and EUR 4-8 million on Group equity in 2020. The discontinuation is not expected to have a negative effect on cash flow.

As part of Lassila & Tikanoja’s comprehensive contingency planning, the Group has conducted negotiations in its Finnish operations pursuant to the Act on Co-operation within Undertakings to enable flexible adjustments in response to declining demand. Lassila & Tikanoja’s financial position is strong and secure and the Group has taken additional measures to strengthen it.”

GROUP NET SALES AND FINANCIAL PERFORMANCE

January–March

Lassila & Tikanoja’s net sales for the first quarter amounted to EUR 184.4 million (198.8), down 7.2% year-on-year. Operating profit was EUR 2.9 million (0.7), representing 1.6% (0.4%) of net sales. Earnings per share were EUR 0.00 (0.01). Earnings per share were negatively affected by the depreciation of the Russian rouble and Swedish krona, with exchange differences totalling EUR -1.8 million (0.6) in the first quarter.

In Environmental Services, net sales declined and operating profit improved slightly year-on-year. In Industrial Services, net sales grew while operating profit declined. In Facility Services Finland, net sales declined but operating profit improved substantially year-on-year. In Facility Services Sweden, net sales and operating profit decreased year-on-year. The Group’s operating profit was improved by a gain of EUR 5.7 million recognised on the sale of property included in property, plant and equipment. Non-recurring costs totalling EUR 4.8 million were recognised during the period, including impairment related to fixed assets. The non-recurring items had a positive net effect of EUR 0.9 million on the Group’s operating profit in the first quarter. The items in question are not included in the figures of the Group’s businesses.

Financial summary

NET SALES AND OPERATING PROFIT BY DIVISION


Environmental Services

January–March
The division’s net sales for the first quarter totalled EUR 77.1 million (79.6). Operating profit grew by 2.1% year-on-year to EUR 4.7 million (4.6).


Demand for the Environmental Services division’s services was at a good level particularly during the first half of the quarter. In the market for recycled raw materials, the prices of paperboard and cardboard were on a declining trend in particular, which contributed to the decrease in net sales. In addition, the impact of the coronavirus epidemic was reflected in the division’s business to some extent, particularly in the hotel and restaurant industry. The demand for renewable energy sources remained unchanged, but the difficult weather conditions hindered the harvesting of wood from forests.

Industrial Services

January–March
The division’s net sales for the first quarter grew to EUR 20.2 million (19.0). Operating profit declined year-on-year to EUR -0.3 million (0.3).

Net sales grew due to new customer agreements for continuing services in spite of the effects on the business caused by industrial action as well as the postponement and cancellation of annual maintenance services. The decrease in operating profit was attributable to start-up costs related to new agreements, difficulties in resource allocation arising from industrial action as well as the postponement of maintenance shutdowns in the process industry resulting from the coronavirus epidemic.

Facility Services Finland

January–March
The division’s net sales for the first quarter totalled EUR 58.2 million (69.5). The decline in net sales was mainly due to the divestment of L&T Korjausrakentaminen Oy, which took place in the comparison period. The winter’s low snowfall also reduced subcontracting and net sales. Operating profit improved to EUR -1.8 million (-3.5).

Operating profit improved substantially year-on-year in all business lines. The positive development was attributable to new customer accounts as well as the improved productivity of operations, which was mainly due to the restructuring programme implemented in the final quarter of the previous year. The winter’s low snowfall also helped improve the result of the property maintenance business compared to the previous year.

Facility Services Sweden

January–March
The division’s net sales for the first quarter totalled EUR 30.3 million (32.1). Operating profit was EUR 0.2 million (0.7).

The effects of the coronavirus epidemic were clearly apparent at L&T in Sweden towards the end of the quarter. Operating profit was weighed down by a substantially higher-than-usual sickness rate and the resulting increase in subcontracting costs on the one hand and the reduced additonal sales orders in March on the other hand. The depreciation of the Swedish krona during the review period had a negative effect on euro net sales and operating profit.

FINANCING

Net cash flow from operating activities amounted to EUR 19.6 million (22.4) in January–March.  A total of EUR 6.9 million in working capital was released (EUR 12.4 million released).

At the end of the period, interest-bearing liabilities amounted to EUR 200.6 million (214.6). Net interest-bearing liabilities totalled EUR 156.9 million (169.3). The average interest rate on long-term loans excluding IFRS 16 liabilities, with interest rate hedging, was 1.3% (1.2).

Of the EUR 100.0 million commercial paper programme, EUR 20.0 million (10.0) 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.

Net financial expenses in the first quarter amounted to EUR -2.8 million (-0.4). Exchange rate changes accounted for EUR -1.8 million (0.6) of net financial expenses. Net financial expenses were 1.5% (0.2%) of net sales.The exchange rate changes were caused by the depreciation of the Russian rouble and Swedish krona.

The equity ratio was 29.3% (29.6) and the gearing rate was 95.6% (97.4). Liquid assets at the end of the period amounted to EUR 43.7 million (45.3).

DISTRIBUTION OF ASSETS

The Annual General Meeting held on 12 March 2020 resolved that a dividend of EUR 0.92 per share would be paid on the basis of the balance sheet that was adopted for the financial year 2019. The dividend, totalling EUR 35.0 million, was paid to shareholders on 23 March 2020.


CAPITAL EXPENDITURE

Gross capital expenditure in the first quarter of 2020 totalled EUR 9.0 million (9.3), consisting primarily of machine and equipment purchases and investments in information systems and buildings.
 
PERSONNEL

In the first quarter, the average number of employees converted into full-time equivalents was 7,237
(7,234). At the end of the period, Lassila & Tikanoja had 8,306 (8,728) full-time and part-time employees. Of these, 6,673 (6,995) worked in Finland and 1,633 (1,733) in other countries.

SHARES AND SHARE CAPITAL

Traded volume and price

The volume of trading in January–March, excluding the shares held by the company in Lassila & Tikanoja plc, was 4.9 million shares, which is 12.7% (4.9) of the average number of outstanding shares. The value of trading was EUR 68.3 million (28.7). The highest share price was EUR 16.76 and the lowest EUR 10.06. The closing price was EUR 11.50. At the end of the review period, the market capitalisation excluding the shares held by the company was EUR 438.2 million (549.3).

Own shares

At the end of the period, the company held 693,589 of its own shares, representing 1.8% 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 38,105,285. The average number of shares excluding the shares held by the company was 38,085,788.

Shareholders

At the end of the period, the company had 17,989 (14,506) shareholders. Nominee-registered holdings accounted for 10.4% (19.4) of the total number of shares.

Authorisations for the Board of Directors

The Annual General Meeting held on 12 March 2020 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.

RESOLUTIONS BY THE ANNUAL GENERAL MEETING
The Annual General Meeting, which was held on 12 March 2020, adopted the financial statements and consolidated financial statements for 2019 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 35.0 million, would be paid on the basis of the balance sheet adopted for the financial year 2019. It was decided that the dividend would be paid on 23 March 2020.

The Annual General Meeting confirmed the number of members of the Board of Directors as seven. 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, and Pasi Tolppanen was elected as a new member.

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 establish a permanent Shareholders’ Nomination Board. The Nomination Board shall be responsible for preparing and presenting proposals covering the remuneration and number of members of the Company’s Board of Directors as well as proposals on the members of the Board of Directors to the Annual General Meeting and, where needed, to an Extraordinary General Meeting. The Nomination Board shall also be responsible for identifying successors to existing Board members.

The resolutions of the Annual General Meeting were announced in more detail in a stock exchange release on 12 March 2020.

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, Laura Tarkka and Pasi Tolppanen. 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 Pasi Tolppanen as members. Heikki Bergholm was elected as the Chairman of the Personnel Committee and Laura Lares, Miikka Maijala and Laura Tarkka as members.

KEY EVENTS DURING THE REVIEW PERIOD

The key events are discussed in the other sections of this release.

EVENTS AFTER THE REVIEW PERIOD


On 8 April, the Group announced that it has signed a new revolving credit facility of EUR 30 million. The revolving credit facility will mature in the second quarter of 2022. The agreement includes a one-year extension option. The agreement was signed with Danske Bank.

On 24 April, the Group issued a profit warning and lowered its guidance for 2020. The Group also announced discontinuation of Russian operations. According to the updated outlook the full-year net sales for 2020 are expected to decrease year-on-year and operating profit is estimated to be EUR 30‑40 million (40.5) excluding loss related to the discontinuation of Russian operations.

NEAR-TERM RISKS AND UNCERTAINTIES

The coronavirus epidemic and the restrictive measures issued by the authorities as well as production restrictions implemented by customers themselves may lead to a significant contraction or partial suspension of our service production at customer sites. The decline in industrial volume caused by the coronavirus epidemic has a negative impact on the demand for our services and the price of secondary raw materials. The majority of Lassila & Tikanoja’s net sales is generated from services such as waste management and various cleaning and maintenance services, which are essential for society and companies and will continue even during the coronavirus epidemic. Nevertheless, Lassila & Tikanoja expects the demand for services to weaken due to the restrictions imposed by the authorities as well as production restrictions implemented by customers themselves.

Lower energy consumption reduces the price of emission rights and weakens the profitability of renewable energy sources, while decreasing oil prices have a reducing effect on our fuel costs.

Labour availability risks have been reduced in the short term but, under normal circumstances, they may limit business growth and increase production costs.

The company has several ERP system renewal projects under way. Temporary additional costs arising from the system deployment projects and establishing the operating model may weigh down the company’s result.

In response to significant change in the operating situation, Lassila & Tikanoja has decided to discontinue its Russian operations in 2020. The discontinuation of the Group’s operations in Russia is estimated to have a negative effect of EUR 7-11 million on the result and EUR 4-8 million on equity in 2020. The discontinuation is not expected to have a negative effect on cash flow.

More detailed information on Lassila & Tikanoja’s risks and risk management is provided in the 2019 Annual Report and in the Report of the Board of Directors and the consolidated financial statements.

Outlook for 2020, updated 24 April 2020

Full-year net sales for 2020 are expected to decrease year-on-year and operating profit is estimated to be EUR 30–40 million (40.5) excluding loss related to the discontinuation of Russian operations.

 Previous outlook for 2020 (29 January 2020)

Net sales in 2020 are expected to be on par with 2019 and operating profit is expected to increase compared to 2019 (EUR 40.5 million). The effect of the divestment of L&T Korjausrakentaminen Oy, EUR 4.5 million, has been deducted from the operating profit for the comparison period, which was EUR 45.0 million.

Lassila & Tikanoja will host a conference call and webcast for analysts, institutional investors and media on 28 April 2020 at 9.00 am Finnish time. The presentation material will be published on the company's website.

Finland: +358 (0)9 7479 0360
Sweden: +46 (0)8 5033 6573
UK: +44 (0)330 336 9104

Conference ID: 355124

To access the audio webcast go to: https://webcast.reloadmedia.fi/quarterlyreport/?q=280420

LASSILA & TIKANOJA OYJ

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 8,200 people. Net sales in 2019 amounted to EUR 784.3 million. L&T is listed on Nasdaq Helsinki.

Distribution:
Nasdaq Helsinki
Major media
www.lt.fi

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• LT-Interim_report_Q1_2020