Lassila & Tikanoja plc: Interim Report 1 January – 30 September 2018

Lassila & Tikanoja plc
Stock exchange release
25 October 2018 at 8:00 a.m.

Lassila & Tikanoja plc: Interim Report 1 January – 30 September 2018

- Net sales for the third quarter were EUR 196.3 million (175.4), operating profit was EUR 19.6 million (17.6) and earnings per share EUR 0.37 (0.35)
- Net sales for January–September increased by 18.3% to EUR 595.7 million (503.4), operating profit was EUR 35.9 million (32.6) and earnings per share EUR 0.66 (0.65)
- Full-year net sales and operating profit in 2018 are expected to increase compared to 2017

CEO PEKKA OJANPÄÄ:

“The positive development of Lassila & Tikanoja’s business continued in the third quarter. Net sales and operating profit grew by over 11% compared to the previous year. Net sales and operating profit grew year-on-year in Environmental Services, Industrial Services, Technical Services and Renewable Energy Sources. In the Facility Services division, operating profit increased in the renovation business and the property maintenance business, but the net sales and operating profit of the cleaning business were decreased by ERP system deployment phase. The Technical Services division’s business has developed well in both Sweden and Finland. Cash flow has also improved significantly during the year. We will continue to focus on strengthening our market position and improving our profitability in accordance with our strategy.”

GROUP NET SALES AND FINANCIAL PERFORMANCE

July–September

Lassila & Tikanoja’s net sales for the third quarter amounted to EUR 196.3 million (175.4), up 11.9% year-on-year. The rate of organic growth was 2.8%. Operating profit totalled EUR 19.6 million (17.6), representing 10.0% (10.0) of net sales. Earnings per share were EUR 0.37 (0.35).

Organic growth in net sales was achieved in all divisions except Facility Services. Organic growth was particularly strong in Technical Systems, Renewable Energy Sources and Environmental Services.

Operating profit increased year-on-year in all divisions except Facility Services.

January–September

Net sales for January–September increased by 18.3% to EUR 595.7 million (503.4). Operating profit totalled EUR 35.9 million (32.6), representing 6.0% (6.5) of net sales. Earnings per share were EUR 0.66 (0.65).

Growth in net sales was achieved in all divisions in January–September. Operating profit increased in Industrial Services, Facility Services and Technical Services. 
 
Financial summary

NET SALES AND OPERATING PROFIT BY DIVISION

Environmental Services

July–September
The division’s net sales for the third quarter increased by 2.9% to EUR 69.6 million (67.6). Operating profit was EUR 10.6 million (10.1).

Operating profit and net sales increased year-on-year. Higher subcontracting costs and fuel prices led to increased costs, but new customers and profitability improvement measures compensated for the impact of the higher costs.

January–September
The division’s net sales for January–September amounted to EUR 201.7 million (196.7). Operating profit was EUR 23.4 million (24.8).

Operating profit was decreased by increased waste processing costs as well as higher fuel costs and subcontracting expenses compared to the previous year.

Industrial Services

July–September
The division’s net sales for the third quarter grew to EUR 25.9 million (25.3). Operating profit was EUR 3.7 million (3.6).

Net sales increased particularly in the environmental construction business. The division’s net sales and operating profit grew thanks to strong demand.

January–September
The Industrial Services division’s net sales for January–September increased by 6.7% and amounted to EUR 71.3 million (66.8). Operating profit grew by 20.8% year-on-year and amounted to EUR 7.4 million (6.1).

Net sales grew thanks to new customers and strong demand. The increase in operating profit was attributable to improved operational efficiency and better project management.

Facility Services

July–September
The division’s net sales for the third quarter were EUR 63.2 million (63.9). Operating profit was EUR 4.1 million (4.3).

Net sales and operating profit increased year-on-year in the property maintenance business and the renovation business. The net sales and operating profit of the cleaning business were decreased by ERP system deployment phase.

January–September
The Facility Services division’s net sales for January–September amounted to EUR 195.1 million (190.5). Operating profit grew by 31.5% year-on-year and amounted to EUR 5.0 million (3.8).

Net sales increased year-on-year in the renovation and property maintenance businesses. The net sales and the operating profit of the cleaning business was decreased by ERP system deployment phase.

Technical Services

July–September
The division’s net sales for the third quarter were EUR 34.8 million (16.4). The increase was mainly attributable to an acquisition made in Sweden. Operating profit was EUR 1.6 million (0.4) and adjusted operating profit was EUR 2.1 million (0.5).

Net sales and operating profit developed well in both Sweden and Finland.

January–September
Technical Services division’s net sales for January–September amounted to EUR 106.8 million (33.4). Operating profit was EUR 2.9 million (0.5) and adjusted operating profit was EUR 4.6 million (0.6). 

The demand for the division’s services remained strong and the integration of L&T FM has continued as planned. The deployment of the new ERP system is progressing according to plan in the division’s Finnish operations.

Renewable Energy Sources

July–September
The third quarter net sales of Renewable Energy Sources (L&T Biowatti) increased by 15.2% and amounted to EUR 5.5 million (4.8). Operating profit was EUR 0.1 million (0.0).

Net sales and operating profit increased year-on-year. Delivery volumes and the energy content of fuels were at a good level.

January–September
The net sales of the Renewable Energy Sources division totalled EUR 28.6 million (24.2) in January–September. Operating profit was EUR -0.1 million (0.5).

Net sales grew year-on-year thanks to strong demand and new customer accounts. Operating profit was lower than in the comparison period due to higher production costs and the weak energy content of fuels delivered in the first half of the year.

FINANCING

Cash flow from operating activities amounted to EUR 50.5 million (35.9) in January–September. A total of EUR 4.8 million in working capital was committed (EUR 17.3 million).

At the end of the period, interest-bearing liabilities amounted to EUR 149.7 million (165.0).

In September Lassila & Tikanoja plc issued senior unsecured notes in the amount of 50 million euros. The notes are due 2023. The funds were used for partial redemption of the Company's outstanding EUR 30 million notes due 2019 and for repayment of an EUR 20 million loan provided by Danske Bank A/S.

Net interest-bearing liabilities amounted to EUR 119.1 million (133.1), showing an increase of EUR 1.3 million from the start of the year and a decrease of EUR 14.0 million from the comparison period. Net financial expenses in January–September amounted to EUR 3.4 million (0.1). Net financial expenses were 0.6% (0.0) 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% (1.0). Loans totalling EUR 1.3 million will mature during the remainder of 2018.

The equity ratio was 38.5% (39.1) and the gearing rate was 58.5 (63.3). Liquid assets at the end of the period amounted to EUR 30.6 million (31.9).

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 January–September totalled EUR 21.6 million (97.3), 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. Of the significant ongoing information system projects, the deployment of the new ERP system continued in the Technical Services division and in the Facility Services division’s cleaning and support services business.

PERSONNEL

In the third quarter, the average number of employees converted into full-time equivalents was 7,841 (7,848). At the end of the period, Lassila & Tikanoja had 8,467 (8,892) full-time and part-time employees. Of these, 6,863 (7,328) worked in Finland and 1,604 (1,564) in other countries.

SHARES AND SHARE CAPITAL

Traded volume and price

The volume of trading on Nasdaq Helsinki in January–September, excluding the shares held by the company in Lassila & Tikanoja plc, was 3,434,500 shares, which is 8.9% (11.8) of the average number of outstanding shares. The value of trading was EUR 59.5 million (84.8). The highest share price was EUR 20.0 and the lowest EUR 15.52. The closing price was EUR 16.20. At the end of the review period, the market capitalisation excluding the shares held by the company was EUR 622.2 million (695.0).

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 38,404,478.

Shareholders

At the end of the period, the company had 12,786 (12,050) shareholders. Nominee-registered holdings accounted for 19.8% (19.7) 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 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.

KEY EVENTS DURING THE REVIEW PERIOD

On 3 August,  Lassila & Tikanoja announced a change in the company’s President and CEO. Pekka Ojanpää will 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%.

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

Challenges related to the availability of labour may increase production costs and slow down the growth of net sales.

The company is continuing the deployment of a new ERP system. The deployment phase of the new system may lead to temporary overlapping 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 2017 Annual Report, and in the Report of the Board of Directors and the consolidated financial statements.

OUTLOOK FOR THE YEAR 2018

Lassila & Tikanoja’s net sales and operating profit in 2018 are expected to be above the 2017 levels.

CONDENSED FINANCIAL STATEMENTS 1 JANUARY – 30 SEPTEMBER 2018

CONSOLIDATED INCOME STATEMENT