Lassila & Tikanoja plc: Financial Statements 1 January–31 December 2018

Lassila & Tikanoja plc
Stock exchange release
30 January 2019 at 8:00 a.m.

Lassila & Tikanoja plc: Financial Statements 1 January–31 December 2018

- Net sales for the final quarter were EUR 206.5 million (206.1), operating profit was EUR 11.7 million (11.4) and earnings per share EUR 0.23 (0.22)
- Full-year net sales increased by 13.1% to EUR 802.2 million (709.5), operating profit was EUR 47.6 million (44.0) and earnings per share EUR 0.89 (0.87)
- Full-year net sales and operating profit in 2019 are expected to be on par with 2018
- The Board of Directors proposes a dividend of EUR 0.92 per share

PRESIDENT AND CEO EERO HAUTANIEMI:

“Lassila & Tikanoja’s net sales for 2018 grew by 13% from the previous year, while operating profit increased by more than 8%. Of this growth, 3% was organic and the remainder was due to the L&T FM acquisition. Full-year net sales grew in all divisions except Facility Services. The Environmental Services division’s market position improved particularly in the retail and industrial segments. Industrial Services had a successful year, with both net sales and operating profit showing year-on-year growth thanks to new customer accounts. The net sales and operating profit of Facility Services decreased particularly due to intensified price competition in the cleaning business and the ERP system’s deployment phase. In the Technical Services division, business developed favourably, particularly in Sweden, thanks to strong demand and improved productivity. The Group’s net cash flow from operating activities improved year-on-year due to successful measures to improve the efficiency of working capital management.”

GROUP NET SALES AND FINANCIAL PERFORMANCE

October–December

Lassila & Tikanoja’s net sales for the final quarter amounted to EUR 206.5 million (206.1), up 0.2% year-on-year. Operating profit totalled EUR 11.7 million (11.4), representing 5.7% (5.5) of net sales. Earnings per share were EUR 0.23 (0.22).

Net sales grew organically compared to the previous year in Environmental Services, Industrial Services and Renewable Energy Sources. Operating profit increased in all divisions except Facility Services and Renewable Energy Sources.

Year 2018

Net sales for 2018 increased by 13.1% to EUR 802.2 million (709.5). The rate of organic growth was 3.2%. Operating profit totalled EUR 47.6 million (44.0), representing 5.9% (6.2) of net sales. Earnings per share were EUR 0.89 (0.87).

Net sales grew in all divisions except Facility Services. Operating profit increased in Industrial Services and Technical Services. 

Financial summary

NET SALES AND OPERATING PROFIT BY DIVISION

Environmental Services

October–December
The division’s net sales for the fourth quarter increased by 3.7% to EUR 68.5 million (66.0). Operating profit grew by 20.2% year-on-year and amounted to EUR 8.3 million (6.9).

Operating profit and net sales improved year-on-year due to profitability improvement measures taken earlier in the year.

Year 2018
The Environmental Services division’s net sales for 2018 amounted to EUR 270.2 million (262.8). Operating profit was EUR 31.6 million (31.6).

The division’s net sales grew and its market position improved particularly in the retail and industrial segments. Higher fuel costs compared to the previous year were covered with other measures.

Industrial Services

October–December
The division’s net sales for the final quarter grew to EUR 25.2 million (23.9). Operating profit was EUR 2.6 million (2.6).

The division’s net sales increased by 5.7%. Net sales increased particularly in the project business.

Year 2018
The Industrial Services division’s full-year net sales grew by 6.5% to EUR 96.5 million (90.7). Operating profit grew by 15.3% year-on-year and amounted to EUR 10.0 million (8.7).

The division’s net sales growth was attributable to strong demand and strengthened market position. Improvements in service development and the efficiency of operations increased operating profit and supported new customer acquisition, which was reflected in a higher market share.

Facility Services

October–December
The division’s net sales for the fourth quarter were EUR 62.1 million (70.2). Operating profit was EUR 0.0 million (1.4).

The net sales and operating profit of the cleaning business were decreased by the deployment phase of the ERP system and the loss of customers due to price competition. 

Year 2018
The Facility Services division’s net sales for 2018 amounted to EUR 257.2 million (260.6). Operating profit was EUR 5.0 million (5.2).

In the cleaning business, increased price competition led to the loss of customers, which decreased net sales and operating profit. The division focused on major changes in its operating model to improve its competitiveness. The deployment phase of the ERP system decreased the full-year operating profit of the cleaning business.

In the renovation business, operating profit increased year-on-year due to the improved efficiency of operations.

Technical Services

October–December
The division’s net sales for the final quarter were EUR 41.6 million (38.4). Operating profit was EUR 1.6 million (1.2) and adjusted operating profit was EUR 2.2 million (2.0).

Demand was at a good level in Technical Services in both Finland and Sweden. In the division’s Finnish operations, the deployment phase of the ERP system decreased operating profit. In Sweden, net sales and operating profit increased year-on-year.

Year 2018
The Technical Services division’s net sales for 2018 amounted to EUR 148.4 million (71.8). The increase was mainly due to the L&T FM acquisition in September 2017. Operating profit was EUR 4.5 million (1.6) and adjusted operating profit was EUR 6.8 million (2.6). 

In Sweden, business developed favourably thanks to strong demand and improved productivity. In Finland, the increase in net sales was particularly attributable to the public sector and industry. Operating profit was weighed down by the deployment phase of a new operating model and ERP system, which mainly took place in the latter part of the year.

The order book remained strong and the contract portfolio strengthened in both Finland and Sweden.

Renewable Energy Sources

October–December
The fourth quarter net sales of Renewable Energy Sources (L&T Biowatti) increased by 12.7% and amounted to EUR 12.1 million (10.7). Operating profit was EUR 0.1 million (0.2).

Net sales increased year-on-year. The energy content of fuels was at a good level compared to the corresponding period in the previous year. Operating profit declined due to higher wood procurement prices and contracting costs.

Year 2018
The full-year net sales of the Renewable Energy Sources division totalled EUR 40.7 million (34.9). Operating profit was EUR 0.0 million (EUR 0.7 million).

The market for renewable energy sources remained challenging. Operating profit was lower than in the comparison period during the early part of the year due to the low energy content of fuels caused by the large amount of rain in 2017. Operating profit was also decreased by higher wood procurement prices and contracting costs.

FINANCING

Net cash flow from operating activities amounted to EUR 90.1 million (61.8) in January–December. Net cash flow from operating activities improved year-on-year due to successful measures to improve the efficiency of working capital management. A total of EUR 9.9 million in working capital was released (EUR 10.8 million committed).

At the end of the period, interest-bearing liabilities amounted to EUR 152.2 million (165.9).

Net interest-bearing liabilities totalled EUR 97.8 million (117.9), a decrease of EUR 21.3 million from the previous quarter and EUR 20.0 million from the comparison period.

In September, the company issued senior unsecured notes in the amount of EUR 50 million, maturing in 2023. The funds from the issue were used for partial redemption of Lassila & Tikanoja’s outstanding EUR 30 million notes due 2019 and for the repayment of a EUR 20 million loan provided by Danske Bank A/S.

Net financial expenses in 2018 amounted to EUR 4.5 million (1.4), which corresponds to 0.6% (0.2) of net sales. Net financial expenses in the comparison period were substantially reduced by exchange rate gains realised from currency hedging related to the L&T FM acquisition.

The average interest rate on long-term loans (with interest rate hedging) was 1.2% (1.1). Loans totalling EUR 3.9 million will mature in 2019.

The equity ratio was 38.6% (38.6) and the gearing rate was 46.1 (54.2). Liquid assets at the end of the period amounted to EUR 54.3 million (48.1).

The EUR 100 million commercial paper programme was entirely unused at the end of the period. EUR 20 million was in use in the comparison period. A committed limit totalling EUR 30.0 million was not in use, as was the case during the comparison period.

DISTRIBUTION OF ASSETS

The Annual General Meeting held on 15 March 2018 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 2017. The dividend, totalling EUR 35.3 million, was paid to shareholders on 26 March 2018.

CAPITAL EXPENDITURE

Gross capital expenditure in 2018 totalled EUR 37.8 million (113.2), consisting primarily of machine and equipment purchases and investments in information systems. The most significant investment in the comparison period was the acquisition of L&T FM AB.
 
PERSONNEL

In the fourth quarter, the average number of employees converted into full-time equivalents was 7,566 (7,875). At the end of the period, Lassila & Tikanoja had 8,600 (8,663) full-time and part-time employees. Of these, 6,871 (7,041) worked in Finland and 1,729 (1,622) in other countries.

PROPOSAL FOR THE DISTRIBUTION OF ASSETS

According to the financial statements, Lassila & Tikanoja plc's unrestricted equity amounts to EUR 102, 070,534.52, with the operating profit for the period representing EUR 34,330,916.99 of this total. There were no substantial changes in the financial standing of the company after the end of the period, and the solvency test referred to in Chapter 13, Section 2 of the Companies Act does not affect the amount of distributable assets.

The Board of Directors proposes to the Annual General Meeting that a dividend of EUR 0.92 per share be paid for the financial year 2018. The dividend is paid to shareholders included in the company shareholder register maintained by Euroclear Finland Oy on the record date, 18 March 2019. The Board proposes to the Annual General Meeting that the dividend be paid on 25 March 2019.

No dividend shall be paid on shares held by the company on the record date of 18 March 2019.

On the day the proposal for the distribution of assets was made, the number of shares entitling to dividend was 38,405,922, which means the total amount of the dividend would be EUR 35,333,448.24. Earnings per share amounted to EUR 0.89. The proposed dividend, EUR 0.92 per share, is 103.7% of the earnings per share.

L&T’s Annual Report, which includes the report by the Board of Directors and the financial statements for 2018, will be published in week 8 at www.lt.fi/vuosikertomus2018.

SHARES AND SHARE CAPITAL

Traded volume and price

The volume of trading on Nasdaq Helsinki in January–December, excluding the shares held by the company in Lassila & Tikanoja plc, was 4,994,631 shares, which is 13.0% (14.3) of the average number of outstanding shares. The value of trading was EUR 83.8 million (101.6). The highest share price was EUR 20.0 and the lowest EUR 14.34. The closing price was EUR 14.96. At the end of the review period, the market capitalisation excluding the shares held by the company was EUR 574.6 million (693.5).

Own shares

At the end of the period, the company held 392,952 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 38,405,922. The average number of shares excluding the shares held by the company was 38,404,842.

Shareholders

At the end of the period, the company had 13,207 (12,208) shareholders. Nominee-registered holdings accounted for 19.5% (19.5) of the total number of shares.

Authorisation for the Board of Directors

The Annual General Meeting held on 15 March 2018 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 15 March 2018, adopted the financial statements and consolidated financial statements for 2017 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 2017. It was decided that the dividend be paid on 26 March 2018.

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 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 15 March 2018.

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 24 April, the company published key financial figures adjusted according to the IFRS 9 and IFRS 15 standards as well as comparison data for the 2017 financial year according to the new segment structure. 

On 3 August, Lassila & Tikanoja announced a change in the company’s President and CEO. Pekka Ojanpää was to leave his post as the company’s President and CEO on 3 February 2019 at the latest to become the President and CEO of Suominen Corporation.

On 31 August, Lassila & Tikanoja announced it is considering the issuance of new fixed rate notes. The company also announced a voluntary tender offer for its outstanding notes maturing in 2019.

On 7 September, the company announced the issuance of EUR 50 million notes due 2023.

On 12 September, the company announced the final tender offer results of the 2019 notes. The aggregate nominal amount of the 2019 notes validly tendered by the noteholders for purchase pursuant to the tender offer was EUR 27,000,000.

On 17 September, the company published the listing prospectus of its EUR 50 million notes. The new notes mature on 17 September 2023, bear fixed annual interest at the rate of 1.250% and have an issue price of 99.534%.

On 15 November, the company announced that Eero Hautaniemi, M.Sc. (Econ.) had been appointed as President and CEO starting from 1 January 2019.

On 24 November, the company announced that President and CEO Pekka Ojanpää had died in an aviation accident. CFO Tuomas Mäkipeska was appointed as the interim President and CEO.

EVENTS AFTER THE REVIEW PERIOD

The company’s management is not aware of any events of material importance after the review period that might have affected the preparation of the financial statements release.

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, which will be published in week 8, 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 have 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 DECEMBER 2018

CONSOLIDATED INCOME STATEMENT