Lassila & Tikanoja plc: Interim Report 1 January - 30 September 2017

Helsinki, Finland, 2017-10-25 07:00 CEST (GLOBE NEWSWIRE) -- Lassila & Tikanoja plc
Stock exchange release
25 October 2017 at 8:00 am

Lassila & Tikanoja plc: Interim Report 1 January - 30 September 2017

- Net sales for the third quarter were EUR 175.9 million (EUR 166.0 million), operating profit was EUR 17.6 million (EUR 19.1 million) and earnings per share EUR 0.35 (EUR 0.39)
- Net sales for January-September increased by 2.3% to EUR 505.1 million (EUR 493.5 million), operating profit was EUR 32.8 million (EUR 39.9 million) and earnings per share EUR 0.65 (EUR 0.91)
- Full-year net sales in 2017 are expected to remain at the 2016 level and operating profit is expected to be below the 2016 level

CEO PEKKA OJANPÄÄ:

“Lassila & Tikanoja’s net sales for January-September increased year-on-year. The result was weaker than in the comparison period. The net sales of the Industrial Services division grew and profitability improved year-on-year thanks to strong demand. In Environmental Services, net sales were on a par with the comparison period, but profitability declined due to factors including higher fuel costs. The market position of Environmental Services has improved, particularly in the retail and industrial segments. The result of the Facility Services division continues to be weighed down by costs related to the deployment of the new ERP system. Measures to improve the profitability of the renovation business are underway and already having a positive impact. Also the result of the cleaning business has developed favourably. In accordance with our strategy, we expanded our operations in the growing Swedish market and completed the acquisition of the technical systems maintenance service provider Veolia FM AB (L&T FM AB) at the end of August. The integration process is underway and progressing as planned.”

GROUP NET SALES AND FINANCIAL PERFORMANCE

Third quarter

Lassila & Tikanoja’s net sales for the third quarter increased by 6.0% to EUR 175.9 million (EUR 166.0 million). Operating profit totalled EUR 17.6 million (EUR 19.1 million), representing 10.0% (11.5%) of net sales. Earnings per share were EUR 0.35 (EUR 0.39).

Net sales increased primarily due to the acquisition of L&T FM AB. The Industrial Services division and Facility Services division also increased their net sales. In Environmental Services, net sales were on a par with the comparison period, while the net sales of Renewable Energy Sources declined year-on-year.

Operating profit increased in Industrial Services, but the profitability of the other divisions was lower than in the previous year.

The L&T FM AB acquisition increased net sales in the third quarter by approximately EUR 8 million and had a negative effect on operating profit due to the acquisition and integration costs.

January-September

Net sales for January-September increased by 2.3% to EUR 505.1 million (EUR 493.5 million). Operating profit totalled EUR 32.8 million (EUR 39.9 million), representing 6.5% (8.1%) of net sales. Earnings per share were EUR 0.65 (EUR 0.91).

Net sales for the January-September period increased primarily due to the acquisition of L&T FM AB. Net sales also increased in Industrial Services, while the net sales of the Environmental Services division remained on a par with the previous year. The net sales of Facility Services and Renewable Energy Sources declined year-on-year.

Operating profit improved in Industrial Services. The profitability of Environmental Services, Renewable Energy Sources and Facility Services declined year-on-year. In addition to the lower profitability of business operations compared to the previous year, the operating profit was weighed down by expenses of EUR 1.1 million recognised in the second and third quarters in relation to the L&T FM AB acquisition announced in June and the integration of the acquired entity. The Group also increased its cost provisions related to the closure of landfills by EUR 0.6 million in the second quarter.

The L&T FM AB acquisition increased net sales by approximately EUR 8 million and had a negative effect on operating profit due to the acquisition and integration costs.

Financial summary
 

NET SALES AND OPERATING PROFIT BY DIVISION

Environmental Services

Third quarter
The division’s net sales for the third quarter were EUR 68.1 million (EUR 68.2 million). Operating profit totalled EUR 9.7 million (EUR 10.2 million).

The Environmental Services division’s net sales for the third quarter were on a par with the comparison period. Operating profit decreased mainly due to fuel costs being higher than in the previous year and the impact of the municipalisation of waste management on the availability and prices of secondary raw materials. The market position of Environmental Services has improved particularly in the retail and industrial segments. 

January-September
The division’s net sales for January-September amounted to EUR 198.3 million (EUR 198.2 million). Operating profit was EUR 23.3 million (EUR 24.8 million).

The net sales of the Environmental Services division were on a par with the comparison period. The division’s operating profit for the first three quarters of the year was reduced by fuel costs being higher than in the previous year, the impact of the municipalisation of waste management on the availability of secondary raw materials and an increase of EUR 0.6 million in cost provisions related to the closure of landfills, recognised in the second quarter.

Industrial Services

Third quarter
Net sales for the third quarter were EUR 25.3 million (EUR 23.9 million). Operating profit was EUR 3.6 million (EUR 3.4 million).

Net sales and operating profit increased in hazardous waste management, sewer maintenance and process cleaning. In the environmental construction business, net sales and operating profit declined year-on-year.

January-September
The division’s net sales for January-September totalled EUR 66.8 million (EUR 60.7 million). Operating profit was EUR 6.0 million (EUR 5.2 million).

Net sales increased in all of the division’s service lines except environmental construction, which saw its net sales remain on a par with the previous year.

Operating profit increased particularly in hazardous waste management and process cleaning. The operating profit of environmental construction was lower than in the comparison period.

Facility Services

Third quarter
The Facility Services division’s net sales for the third quarter increased by 11.8% to EUR 79.9 million (EUR 71.5 million). Operating profit was EUR 5.1 million (EUR 6.1 million).

The division’s net sales increased primarily due to the acquisition of L&T FM AB. Net sales showed year-on-year growth in the cleaning business but declined in the division’s other service lines.

The operating profit of the cleaning business grew year-on-year due to previously implemented efficiency improvement measures and strong demand. The operating profit of the division’s other service lines was lower than in the comparison period. The impacts of the efficiency improvement measures in the renovation business began to show in the third quarter. The result of the property maintenance business was weighed down by costs related to the deployment of a new ERP system in the Facility Services division.

The acquisition of L&T FM AB was completed at the end of August. The integration process is moving ahead as planned and L&T FM is included in the Group’s reporting starting from the beginning of September.

January-September
The Facility Services division’s net sales for January-September amounted to EUR 222.8 million (EUR 216.5 million). Operating profit was EUR 6.0 million (EUR 10.9 million).

The division’s net sales increased primarily due to the acquisition of L&T FM AB. Net sales increased in the cleaning business. Operating profit also improved further in the cleaning business but declined in the division’s other service lines. In the renovation business, the decline in profitability was due to the weak result in the first quarter and the costs arising from the efficiency improvement measures implemented in the second quarter. In the maintenance of technical systems business, the result showed a decline due to lower demand than in the previous year. In the property maintenance business, the weaker profitability was due to the impact on profit and loss from the deployment of the new ERP system.

Renewable Energy Sources

Third quarter
The net sales of Renewable Energy Sources (L&T Biowatti) amounted to EUR 4.8 million (EUR 5.3 million) in the third quarter. Operating profit was EUR 0.0 million (EUR 0.1 million).

The division’s net sales declined year-on-year due to the weak demand for recovered fuels. The low volumes were also reflected in the operating profit.

January-September
Net sales for January-September amounted to EUR 24.2 million (EUR 25.2 million). Operating profit was EUR 0.5 million (EUR 0.8 million).

The division’s net sales and operating profit decreased year-on-year due to weaker demand in the first and third quarters.

FINANCING

Cash flow from operating activities amounted to EUR 35.9 million (EUR 33.6 million) in January-September. A total of EUR 17.3 million in working capital was committed (EUR 23.0 million committed). The amount of working capital committed in the comparison period was negatively affected by the use of a different payment practice for employment pension contributions in 2016.

At the end of the period, interest-bearing liabilities amounted to EUR 165.0 million (EUR 95.6 million).

Net interest-bearing liabilities amounted to EUR 133.1 million (EUR 65.7 million), showing an increase of EUR 94.5 million from the start of the year and an increase of EUR 67.5 million from the comparison period. To carry out the L&T FM AB acquisition, the Group took out a long-term bank loan of EUR 70 million in the third quarter.

Net financial expenses in January-September amounted to EUR 0.1 million (EUR 0.5 million). Net financial expenses were -0.0% (-0.1%) of net sales. Net financial expenses 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 1.0% (1.6%). Loans totalling EUR 21.3 million will mature during the remainder of 2017, including the short-term commercial papers currently in use.

The equity ratio was 39.8% (47.2%) and the gearing rate was 63.0 (30.7). Liquid assets at the end of the period amounted to EUR 31.9 million (EUR 30.0 million).

Of the EUR 100 million commercial paper programme, EUR 20 million (EUR 0.0 million) 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.

DISTRIBUTION OF ASSETS

The Annual General Meeting held on 16 March 2017 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 2016. The dividend, totalling EUR 35.3 million, was paid to shareholders on 27 March 2017.

CAPITAL EXPENDITURE

Gross capital expenditure in the first three quarters of the year totalled EUR 95.4 million (EUR 27.1 million), consisting primarily of machine and equipment purchases, investments in information systems and acquisitions. The most significant investment was the acquisition of L&T FM AB. Of the significant ongoing information system projects, the new ERP system for Facility Services was deployed in the property maintenance business during the review period. System deployment processes for other service lines are still underway.

PERSONNEL

In January-September, the average number of employees converted into full-time equivalents was 7,848 (7,278). At the end of the period, Lassila & Tikanoja had 8,892 (8,198) full-time and part-time employees. Of these, 7,328 (7,291) worked in Finland and 1,564 (907) in other countries. The changes are primarily due to the acquisition of L&T FM AB.

SHARES AND SHARE CAPITAL

Traded volume and price

The volume of trading on Nasdaq Helsinki in January-September 2017, excluding the shares held by the company in Lassila & Tikanoja plc, was 4,548,434 shares, which is 11.8% (13.1%) of the average number of outstanding shares. The value of trading was EUR 84.8 million (EUR 82.6 million). The highest share price was EUR 20.89 and the lowest EUR 17.22. The closing price was EUR 18.10. At the end of the review period, the market capitalisation excluding the shares held by the company was EUR 695.0 million (EUR 662.0 million).

Own shares

At the end of the period, the company held 400,862 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 38,398,012. The average number of shares excluding the shares held by the company was 38,393,924.

Shareholders

At the end of the period, the company had 12,050 (10,697) shareholders. Nominee-registered holdings accounted for 19.7% (17.6%) of the total number of shares.

Authorisation for the Board of Directors

The Annual General Meeting held on 16 March 2017 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.

SUMMARY OF STOCK EXCHANGE RELEASES PURSUANT TO ARTICLE 4, CHAPTER 6 OF THE SECURITIES MARKET ACT

On 13 June 2017, the company announced a change to its outlook for 2017. Full-year net sales in 2017 are expected to remain at the 2016 level and operating profit is expected to be below the 2016 level. Previously, the company had estimated that the 2017 net sales and operating profit were expected to remain at the 2016 level. The company lowered its outlook for the operating profit due to weak profitability in Facility Services and particularly in the renovation business.

On 20 June 2017, the company announced that it has signed an agreement to acquire Veolia’s facility management business in Sweden through the acquisition of 100 per cent of the shares of Veolia FM AB from Veolia Nordic AB. The company indicated that the acquisition is aimed at strengthening its presence in the Swedish facility services market by broadening its service offering in Sweden to include the maintenance of technical systems.

On 4 July 2017, the company announced that it had received a notification from Kabouter Management LCC, indicating that its holding of the shares and votes in Lassila & Tikanoja plc has risen above the threshold of 5%, to 7.53%.

EVENTS AFTER THE REVIEW PERIOD

The company management is not aware of any events of material importance that might have affected the preparation of the interim report.

NEAR-TERM RISKS AND UNCERTAINTIES

Changes in the economy may result in significant changes in the secondary raw material markets for Environmental Services and the demand for Facility Services and Industrial Services.

Changes in the prices of fossil fuels may affect the demand of the recovered and renewable fuels produced by the company.

The deployment of the company’s new ERP system, which began last year, will continue in 2017 and 2018. The deployment of the new system may lead to temporary costs arising from changes in the operating model, which can have a negative effect on the company’s result.

More detailed information on Lassila & Tikanoja’s risks and risk management is available in the 2016 Annual Report, and in the Report of the Board of Directors and the consolidated financial statements.

OUTLOOK FOR THE YEAR 2017

Lassila & Tikanoja’s full-year net sales in 2017 are expected to remain at the 2016 level and operating profit is expected to be below the 2016 level.


CONDENSED FINANCIAL STATEMENTS 1 JANUARY - 30 SEPTEMBER 2017

CONSOLIDATED INCOME STATEMENT

 

  
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
  

  

CONSOLIDATED STATEMENT OF FINANCIAL POSITION