Lassila & Tikanoja plc: Financial Statement Release 1 January - 31 Deecember 2010

Helsinki, Finland, 2011-02-03 07:00 CET (GLOBE NEWSWIRE) --
LASSILA & TIKANOJA PLC   Financial Statements Release 3 February 2011 8.00 AM

LASSILA & TIKANOJA PLC: FINANCIAL STATEMENTS RELEASE 1 JANUARY – 31 DECEMBER 2010

• Net sales for the final quarter EUR 151.5 million (EUR 148.0 million); operating profit EUR 8.6 million (EUR 8.5 million); operating profit excluding non-recurring items EUR 9.1 million (EUR 8.7 million); earnings per share EUR 0.14 (EUR 0.14)
• Full-year net sales EUR 598.2 million (EUR 582.3 million); operating profit EUR 40.2 million (EUR 50.3 million); operating profit excluding non-recurring items EUR 45.5 million (EUR 51.3 million); earnings per share EUR 0.68 (EUR 0.85)
• The investments made in Renewable Energy Sources (L&T Biowatti) and in L&T Recoil have not generated the profits expected, and operations continued to make a loss.
• Net sales and operating profit excluding non-recurring items in 2011 are expected to remain at the 2010 level.   
• A dividend of EUR 0.55 per share is proposed.

GROUP NET SALES AND FINANCIAL PERFORMANCE

Final quarter
Lassila & Tikanoja's net sales for the final quarter increased by 2.3% to EUR 151.5 million (EUR 148.0 million). Operating profit was EUR 8.6 million (EUR 8.5 million), representing 5.6% (5.7%) of net sales, and operating profit excluding non-recurring items was EUR 9.1 million (EUR 8.7 million). Earnings per share came to EUR 0.14 (EUR 0.14).

The large number of commissioned assignments, due to heavy snowfalls in the early winter and the improved demand for Environmental Services, boosted net sales. Meanwhile, net sales for the Renewable Energy Sources division (L&T Biowatti) were below the previous year’s level.

Profitability was eroded by the higher than expected land cleaning costs associated with the Kerava recycling plant investment and the heavy snowfall in southern Finland in the early winter, which resulted in high subcontracting and overtime costs.

The 2010 financial year
Full-year net sales amounted to EUR 598.2 million (EUR 582.3 million), showing an increase of 2.7%. Operating profit was EUR 40.2 million (EUR 50.3 million), representing 6.7% (8.6%) of net sales. Operating profit excluding non-recurring items fell to EUR 45.5 million (EUR 51.3 million). Earnings per share were EUR 0.68 (EUR 0.85).

Net sales grew, thanks to the large number of commissioned and contract assignments in the property maintenance sector, caused by heavy snowfalls. The demand for Environmental Services perked up in the second half, and prices of secondary raw materials rose significantly. The Renewable Energy Sources division’s (L&T Biowatti) net sales fell below the previous year’s level, because of the low price level of fossil fuels and emission rights.

All other divisions except Property Maintenance saw their full-year operating profit excluding non-recurring items decline from the figure for the comparison period.The investments made in Renewable Energy Sources (L&T Biowatti) and in L&T Recoil have not generated the profits expected, and operations continued to make a loss. The preliminary agreement negotiated in the spring for L&T Recoil’s ownership rearrangement was cancelled.

Non-recurring restructuring costs of EUR 1.5 million and a EUR 3.4 million cost associated with the discontinuation of L&T Biowatti’s wood pellet business were recognised for the year.
 

Financial summary

* Breakdown of operating profit excluding non-recurring items is presented below the division reviews.
** Proposal by the Board of Directors


NET SALES AND FINANCIAL PERFORMANCE BY DIVISION

Environmental Services

Final quarter
The division’s net sales for the final quarter were up by 4.0%, to EUR 74.0 million (EUR 71.2 million). The operating profit was EUR 8.2 million (EUR 6.8 million), and operating profit excluding non-recurring items totalled EUR 8.2 million (EUR 6.9 million).

Net sales from domestic operations grew from the comparison period’s level, thanks to stronger demand for waste management services and higher operating rates in the industry. Net sales growth in the recycling business was fuelled by the rise in secondary raw material prices. Recycling volumes also showed growth, although more moderate than the price development.

The division’s profitability was taxed by machinery repair costs that were higher than in the comparison period, and the higher than expected land cleaning costs associated with the Kerava recycling plant. Compensation was paid by the City of Kerava for the early hand-over of the leased land areas. The net increase in operating profit excluding non-recurring items that resulted from the arrangements in Kerava was EUR 0.6 million.

The reliability of operations at joint venture L&T Recoil’s plant improved, thanks to the repair investments conducted in the early autumn. Higher demand and the rising global market prices for oil pushed the price of the plant’s end product, base oil, into an upward turn. Nevertheless, the final quarter’s operating profit excluding non‑recurring items remained in the red.

The 2010 financial year
The Environmental Services division’s net sales for 2010 grew by 2.0%, to EUR 290.0 million (EUR 284.2 million). Operating profit totalled EUR 33.7 million (EUR 36.0 million), and operating profit excluding non‑recurring items was EUR 34.0 million (EUR 36.7 million).

Waste volumes grew, thanks to recovery in industrial operations and construction. Similarly, the demand for secondary raw materials picked up from the previous year’s level and their price took a marked upward turn. Demand for process cleaning and hazardous waste services perked up after a time of sluggish demand in the first half, and partnership agreements were signed with industrial clients.

The exceptionally heavy snowfall seen in the course of the year strained waste management production efficiency and decreased the demand for industrial services in the first half. In the comparison period, major project-based assignments boosted net sales and improved profitability.

The second stage of the Kerava recycling plant's investment programme was completed. A new combined recycling plant for construction waste and trade and industrial waste was introduced at the start of the year, resulting in an increase in the recovery rate of the waste processed at the Kerava plant.

Joint venture L&T Recoil's re-refinery experienced some technical problems,and an investment shutdown was carried out at the plant in August–September, which helped improve the plant’s reliability. L&T Recoil’s full-year operating loss stands at EUR 3.6 million (a loss of EUR 3.8 million). In the final quarter, losses shrank from the comparison period.

Net sales for international operations remained at the previous year's level, and profitability improved. The challenging market conditions in Latvia have held back business development. The first recycling facility was introduced in Russia.

Cleaning and Office Support Services

Final quarter
The Cleaning and Office Support Services division's net sales for the final quarter fell by 3.1%, to EUR 34.6 million (EUR 35.7 million). The operating profit was EUR 0.2 million (EUR 1.7 million), and operating profit excluding non-recurring items came to EUR 0.3 million (EUR 1.8 million).

Net sales from domestic operations fell slightly from the previous year’s level, withnew project start-up costs weakening profitability.

Net sales from international operations were at the comparison period’s level. The operating profit excluding non‑recurring items continued to be negative.

The 2010 financial year
The division's net sales for 2010 fell by 1.9%, to EUR 140.6 million (EUR 143.3 million). Operating profit totalled EUR 7.5 million (EUR 10.3 million), and operating profit excluding non-recurring items was EUR 8.0 million (EUR 10.6 million).

Both net sales from Finnish operations and profitability declined from the comparison period’s level as a result of fierce price competition. Despite the challenging market conditions, sales of commissioned assignments remained at the 2009 level.Net sales from international operations were at the comparison period’s level. The operating profit excluding non-recurring items continued to be negative even though Swedish operations were able to cut their losses. 

A credit loss of EUR 0.7 million was recognised in Russia in the first half, and the business was divested at the end of the third quarter.

Property Maintenance

Final quarter
The division’s net sales for the final quarter were up by 22.3%, to EUR 31.6 million (EUR 25.8 million). The operating profit was EUR 0.6 million (EUR 1.1 million), and operating profit excluding non-recurring items was EUR 0.6 million (EUR 1.1 million).

The division’s significant increase in net sales from the comparison period could be attributed to the commissioned assignments brought about by the exceptionally heavy snowfall in the second half. The order book for maintenance services for technical systems and for damage repair services remained healthy.

Higher subcontracting and overtime costs eroded the division’s profitability.

The 2010 financial year
The division's net sales for 2010 totalled EUR 123.5 million (EUR 100.2 million); an increase of 23.3%. Its operating profit was EUR 7.8 million (EUR 7.4 million), and operating profit excluding non-recurring items was EUR 7.9 million (EUR 7.5 million).

A larger contract portfolio and the commissioned assignments resulting from the year’s exceptionally cold and snowy weather boosted the division's net sales, bringing them above the previous year’s level.

The order book for damage repair services remained healthy throughout the year. Service contracts were renewed, and new partnership agreements with insurance companies were signed. The demand for maintenance services for technical systems improved, particularly toward year-end 2010, following growth in the construction industry.

Operating profit excluding non-recurring items improved as a consequence of net sales growth and management of fixed costs.

Renewable Energy Sources

Final quarter
Final-quarter net sales for Renewable Energy Sources (L&T Biowatti) were down by 13.8%, to EUR 15.3 million (EUR 17.7 million). The division recorded an operating loss of EUR 0.4 million (a loss of EUR 0.3 million), and an operating profit excluding non-recurring items of EUR 0.0 million (a loss of EUR 0.3 million).

The division’s net sales declined even though cold weather at the year’s end spurred the demand for wood‑based fuels. The low prices of fossil fuels and emission rights restricted demand.

The 2010 financial year
The Renewable Energy Sources division’s net sales for 2010 were down by 14.1%, to EUR 55.1 million (EUR 64.1 million). The operating loss totalled EUR 6.6 million (a loss of EUR 1.0 million), and the operating loss excluding non-recurring items totalled EUR 3.1 million (a loss of EUR 0.6 million).

Both demand for wood-based fuels and their competitiveness declined from the comparison period’s level because of the low prices of emission rights and fossil fuels (peat, coal, and oil). Profitability improved toward year-end 2010 because of the cold weather and measures to improve production efficiency.

A decision was made to discontinue the wood pellet business, as a result of the unfavourable market conditions and the poor availability of raw materials. A non-recurring expense of EUR 3.4 million was recognised for the discontinuation.


BREAKDOWN OF OPERATING PROFIT EXCLUDING NON-RECURRING ITEMS

FINANCING

Cash flows from operating activities amounted to EUR 63.8 million (EUR 66.2 million). EUR 2.2 million was tied up in the working capital (EUR 12.0 million).

At the end of the period, interest-bearing liabilities amounted to EUR 126.8 million (EUR 143.9 million). Net interest-bearing liabilities amounted to EUR 112.3 million, showing a decrease of EUR 4.0 million from the turn of the year. New long-term loans were not taken out in 2010.

Long-term loans totalling EUR 22.2 million will mature in 2011. The average interest rate of loans (with interest rate hedging)was 3.3% (3.2%).

Net finance costs amounted to EUR 4.2 million which is EUR 1.0 million below the amount of the comparison period. Net finance costs were 0.7% (0.9%) of net sales.

In 2010, a total of EUR 0.2 million (EUR -0.3 million) arising from the changes in the fair values of interest rate swaps to which hedge accounting under IAS 39 is applied was recognised in other comprehensive income, after tax.

The equity ratio was 46.5% (44.1%) and the gearing rate 50.3 (53.5). Liquid assets at the end of the period amounted to EUR 14.5 million (EUR 27.6 million).

Of the EUR 50 million commercial paper programme, EUR 5.0 million (EUR 0.0 million) was in use. The EUR 15.0 million committed limit, renewed in June for two years, was not in use, as was the case in the comparison period.


DIVIDEND

The Annual General Meeting held on 31 March 2010 resolved on a dividend of EUR 0.55 per share. The dividend, totalling EUR 21.3 million, was paid to the shareholders on 14 April 2010.


CAPITAL EXPENDITURE

Capital expenditure totalled EUR 39.3 million (EUR 44.9 million). The most significant construction project was the Kerava combined recycling plant, whichwas introduced for production use at year end.

In the second quarter, the property maintenance services business of Kiinteistöpalvelu Oy Hollola was acquired into Property and Office Support Services. The net sales of the acquired business totalled EUR 1.6 million. In the final quarter, Säkkivaihto Oy was acquired into Environmental Services. The net sales of the acquired business totalled EUR 1.1 million.


PERSONNEL

The average number of employees converted into full-time equivalents was 7,835 (8,113). The total number of full-time and part-time employees at the end of the period was 8,732 (8,743). Of them 6,849 (6,762) people worked in Finland and 1,883 (1,981) people in other countries.


PROPOSAL FOR THE DISTRIBUTION OF PROFIT

According to the financial statements, Lassila & Tikanoja plc’s distributable assets amount to EUR 71,211,992.73of which EUR 37,665,785.66 constitutes profit for the financial period. There were no substantial changes in the financial standing of the company after the end of the financial 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 General Meeting of Shareholders that distributable assets be used as follows:

A dividend of EUR 0.55 will be paid on each share. On the day when the distribution of profit was proposed, the number of shares conferring entitlement to receive dividend totalled 38,738,116 shares, on which the total dividend payment would be EUR 21,305,963.80. No dividend shall be paid on shares held by the company on the dividend payment record date.

In accordance with the resolution of the Board of Directors, the record date is 22 March 2011. The Board of
Directors proposes to the Annual General Meeting to be held on 17 March 2011 that the dividend be paid on 29 March 2011.

Earnings per share amounted to EUR 0.68. The proposed dividend is 81.4% of the earnings per share.


NEW DIVISIONS

The company’s internal reporting, as well as the segments reported externally, were changed to reflect the new divisions (Environmental Services, Property and Office Support Services and Renewable Energy Sources (L&T Biowatti)) at the beginning of 2010.

As of 1 July 2010, Property and Office Support Services was divided into two divisions: Cleaning and Office Support Services and Property Maintenance. The company’s financial reporting segments reflect the new divisions as of 1 July 2010. The financial reporting segments are Environmental Services, Cleaning and Office Support Services, Property Maintenance and Renewable Energy Sources (L&T Biowatti).


SHARE AND SHARE CAPITAL

Traded volume and price
The volume of trading excluding the shares held by the company in Lassila & Tikanoja plc shares on NASDAQ OMX Helsinki in 2010 was 7,736,454, which is 20.0% (25.9%) of the average number of outstanding shares. The value of trading was EUR 111.1 million (EUR 126.9 million). The trading price varied between EUR 12.85 and EUR 16.20. The closing price was EUR 14.73. The company holds 60,758 own shares. The market capitalisation excluding the shares held by the company was EUR 570.6 million (EUR 619.9 million) at the end of the period.

Share capital and number of shares
The company’s registered share capital amounts to EUR 19,399,437, and the number of outstanding shares to 38,738,116 shares. The average number of shares excluding the shares held by the company totalled 38,748,649.

Share option scheme 2005
In 2005, 600,000 share option rights were issued, each entitling its holder to subscribe for one share of Lassila & Tikanoja plc. In the beginning of the exercise period, 37 key persons held 200,000 2005C options. L&T Advance Oy, a wholly-owned subsidiary of Lassila & Tikanoja plc, holds 30,000 2005C options and these options will not be exercised. The exercise period for the 2005A has ended on 29 May 2009 and for the 2005B options on 31 May 2010.

The exercise price for the 2005C options is EUR 26.87. The exercise periodfor 2005C options is 2 November 2009 to 31 May 2011.

As a result of the exercise of the outstanding 2005 share options, the number of shares may increase by a maximum of 200,000 new shares, which is 0.5% of the current number of shares. The 2005C options have been listed on NASDAQ OMX Helsinki since 2 November 2009.

Share option scheme 2008
In 2008, 230,000 share option rights were issued, each entitling its holder to subscribe for one share of Lassila & Tikanoja plc. 33 key persons hold 168,000 options and L&T Advance Oy 62,000 options.

The exercise price is EUR 16.27. The exercise price of the share options shall, as per the dividend record date, be reduced by the amount of dividend which exceeds 70% of the profit per share for the financial period to which the dividend applies. However, only such dividends whose distribution has been agreed upon after the option pricing period and which have been distributed prior to the share subscription are deducted from the subscription price. The exercise price shall, however, always amount to at least EUR 0.01. The exercise period will be from 1 November 2010 to 31 May 2012.

As a result of the exercise of the outstanding 2008 share options, the number of shares may increase by a maximum of 168,000 new shares, which is 0.4% of the current number of shares. The 2008 options have been listed on NASDAQ OMX Helsinki since 1 November 2010.

Share-based incentive programme
Lassila & Tikanoja plc’s Board of Directors decided on 24 March 2009 on a share-based incentive programme. The programme includes three earnings periods one year each, of which the first one began on 1 January 2009 and the last one ends on 31 December 2011. The basis for the determination of the reward is decided annually. Rewards to be paid for the year 2010 will be based on the EVA result of Lassila & Tikanoja group. They will be paid partly as shares and partly in cash. The proportion paid in cash will cover taxes arising from the reward.The programme covers 23 persons.

A maximum total of 180,000 Lassila & Tikanoja plc shares may be paid out on the basis of the programme. The shares will be obtained in public trading, and therefore the incentive programme will have no diluting effect on the share value.

Shareholders
At the end of the financial period, the company had 9,151 (7,595) shareholders. Nominee-registered holdings accounted for 12.2% (9.2%) of the total number of shares.

Authorisation for the Board of Directors
The Annual General Meeting held on 31 March 2010 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 and on the issuance of these shares. Shares will be repurchased otherwise than in proportion to the existing shareholdings of the company’s shareholders in public trading on the NASDAQ OMX Helsinki Ltd at the market price quoted at the time of the repurchase.

The Board of Directors is authorised to repurchase and transfer a maximum of 500,000 company shares, which is 1.3% of the total number of shares. The repurchase authorisation will be effective for 18 months and the share issue authorisation for four years. These authorisations revoke the authorisation for the repurchase of the company’s own shares and the authorisation to issue shares issued by the Annual General Meeting 2009.

The Board of Directors is not authorised to launch a convertible bond or share option rights.

Own shares
At the end of the period, the company held 60,758 of its own shares, representing 0.2% of all shares and votes. Based on the authorisation given by the Annual General Meeting, the company repurchased 80,000 shares in the period from 17 May to 2 June 2010 at a total acquisition cost of EUR 1.1 million. On 25 May 2010, the Board of Directors decided on a directed bonus issue involving the issue, in which a total of 49,242 shares held by the company were issued to the company’s key personnel on 4 June 2010, as a part of the rewards for the year 2009 of the share-based incentive programme.


RESOLUTIONS BY THE ANNUAL GENERAL MEETING

The Annual General Meeting of Lassila & Tikanoja plc, which was held on 31 March 2010, adopted the financial statements for the financial year 2009 and released the members of the Board of Directors and the President and CEO from liability. The AGM resolved that a dividend of EUR 0.55, a total of EUR 21.3 million, as proposed by the Board of Directors, be paid for the financial year 2009. The dividend payment date was resolved to be 14 April 2010.

The Annual General Meeting confirmed the number of the members of the Board of Directors six. The following Board members were re-elected to the Board until the end of the following AGM: Heikki Bergholm, Eero Hautaniemi, Matti Kavetvuo, Hille Korhonen and Juhani Lassila. Miikka Maijala was elected as a new member for the same term.

PricewaterhouseCoopers Oy, Authorised Public Accountants, were elected auditors.

The Annual General Meeting approved the Board’s proposals to amend article 11 of the Articles of Association and to authorise the Board of Directors to repurchase the company’s own shares and to issue shares.

The resolutions of the Annual General Meeting were announced in more detail in a stock exchange release on 31 March 2010.


BOARD OF DIRECTORS

The members of the Board of Directors are Heikki Bergholm, Eero Hautaniemi, Matti Kavetvuo, Hille Korhonen, Juhani Lassila and Miikka Maijala. In its constitutive meeting the Board elected Matti Kavetvuo as Chairman of the Board and Juhani Lassila as Vice Chairman.

From among its members, the Board elected Juhani Lassila as Chairman and Eero Hautaniemi and Miikka Maijala as members of the audit committee.

The Board decided to establish a remuneration committee. From among its members, the Board elected Matti Kavetvuo as Chairman and Heikki Bergholm and Hille Korhonen as members of the remuneration committee.


SUMMARY OF STOCK EXCHANGE RELEASES PURSUANT TO ARTICLE 7, CHAPTER 2 OF THE SECURITIES MARKETS ACT

In a release published on 25 January 2010, the company announced that it has concluded statutory employer-employee negotiations which began on 8 December 2009. As a result of these negotiations, L&T will reduce 110 salaried employee positions in Finland. The reductions will be realised partly through natural attrition. The reductions form part of the measures currently undertaken in order to reduce fixed costs and to adapt business activities to meet current and future market situation.

In a release published on 1 April 2010, the company announced that, as of 1 July 2010, Property and Office Support Services are to be divided into two divisions: Cleaning and Office Support Services and Property Maintenance. The company’s financial reporting segments will be changed to reflect the new divisions as of 1 July 2010.

In a release published on 29 April 2010, the company announced that Lassila & Tikanoja plc and EcoStream Oy have signed a preliminary agreement on a business arrangement based on which Lassila & Tikanoja will sell its 50 percent holding in the joint venture L&T Recoil Oy to EcoStream, a co-owner. The transaction related to the preliminary agreement was intended to be completed by the end of June 2010. In a release published on 22 June 2010, the company announced that the time given to the transaction has been extended and the transaction is intended to be completed by the end of September 2010. In a release published on 1 October 2010, the company announced that the reorganisation of the business will be cancelled as financing needed for the transaction by EcoStream could not be completed as agreed in the preliminary agreement. Therefore, the preliminary agreement expired.

In a release published on 26 May 2010, the company announced that L&T Biowatti Oy, a subsidiary of Lassila & Tikanoja plc, will discontinue its wood pellet business. Construction of a pellet plant in Suonenjoki, Finland, is almost completed but market situation and difficulties in availability of suitable raw material have postponed the start-up of the plant. The construction of the plant will not be completed.

In a release published on 31 August 2010, the company announced that Laura Aarnio, Accounting Director, leaves the Group Executive team of Lassila & Tikanoja plc. She took up other duties within the company.

In a release published on 18 October 2010, the company announced that the full-year operating profit excluding non-recurring items is estimated to be slightly lower than in the previous year. Previously the company estimated that the full-year financial performance will remain at the same level as in 2009.
Full-year net sales are estimated to remain at the 2009 level as estimated previously.

In a release published on 29 December 2010, the company announced that the Group Executive team will be renamed the Group Executive Board and some functions organised at company level will be transferred to the divisions. At the same time, the company announced that Kimmo Huhtimo, Director, leaves the Group Executive team. He will take up the responsibility for customer-related strategic programmes and projects in the company.

In a release published on 14 January 2011, the company announced that its full-year operating profit excluding non-recurring items declined more than anticipated earlier compared to the year 2009. Previously the company estimated that the full-year financial performance will be slightly lower than in the year 2009.


NEAR-TERM UNCERTAINTIES

If the operating rate target set for L&T Recoil’s production is not reached, this will have a negative impact on the Environmental Services division’s performance. End-product price fluctuations and changes in the availability of raw material would have a major effect on L&T Recoil’s performance.

The planned government support for renewable fuels should have a positive effect on the demand for wood‑based fuels but with some delay, and with its extend depending on these measures’ scope and level. Sustained low prices of emission rights may adversely affect the competitiveness of L&T Biowatti's wood‑based fuels.

More detailed information on L&T's risks and risk management is available in the Annual Report, in the report of the Board of Directors, and in the consolidated financial statements.


PROSPECTS FOR THE YEAR 2011

The outlook for the Environmental Services division's waste management services and recycling business for 2011 has improved. Rising operating rates in the industry are expected to increase waste volumes and the demand for process cleaning and material recovery solutions. Higher prices of secondary raw materials and a rise in waste tax improve the outlook for the recycling business.

The markets for Cleaning and Office Support Services and for Property Maintenance are expected to remain challenging.

Demand for L&T Biowatti’s wood-based fuels is expected to remain moderate. The positive effect of the planned government support measures related to renewable fuels is forecast to materialise in the second half.

Net sales and operating profit excluding non-recurring items in 2011 are expected to remain at the 2010 level.   

 
CONDENSED FINANCIAL STATEMENTS 1 JANUARY–31 DECEMBER 2010

CONSOLIDATED INCOME STATEMENT

Earnings per share for profit attributable to the equity holders of the company:

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

CONSOLIDATED STATEMENT OF FINANCIAL POSITION 

CONSOLIDATED STATEMENT OF CASH FLOWS