Lassila & Tikanoja plc: Interim Report 1 January - 31 March 2011

Helsinki. Finland, 2011-04-27 07:00 CEST (GLOBE NEWSWIRE) --

• Net sales for the first quarter EUR 159.5 million (EUR 153.9 million)
• Operating profit EUR 6.5 million (EUR 6.6 million)
• Operating profit excluding non-recurring items EUR 6.8 million (EUR 7.8 million)
• Earnings per share EUR 0.10 (EUR 0.11)
• Full-year net sales will grow slightly from 2010 and operating profit excluding non-recurring items is expected to remain at the 2010 level. Previous estimate: Net sales and operating profit excluding non-recurring items in 2011 are expected to remain at the 2010 level.

GROUP NET SALES AND FINANCIAL PERFORMANCE

Lassila & Tikanoja’s net sales for the first quarter increased by 3.6% to EUR 159.5 million (EUR 153.9 million). Operating profit was EUR 6.5 million (EUR 6.6 million), representing 4.1% (4.3%) of net sales, and operating profit excluding non-recurring items was EUR 6.8 million (EUR 7.8 million). Earnings per share were EUR 0.10 (EUR 0.11).

Environmental Services and Property Maintenance saw their net sales grow from the comparison period. Meanwhile lower volumes of wood-based fuels were supplied than a year earlier due to a suspension in the payment of power plants’ electricity production subsidy.

High salary, subcontracting and repair costs as well as the increase in the price of diesel oil and price competition eroded profitability. The joint venture L&T Recoil’s operating profit improved significantly from the comparison period.

Financial summary

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


NET SALES AND FINANCIAL PERFORMANCE BY DIVISION

Environmental Services

The division’s net sales for the first quarter were up by 12.1% to EUR 72.4 million (EUR 64.6 million). Operating profit totalled EUR 4.2 million (EUR 4.4 million) and operating profit excluding non-recurring items was EUR 4.2 million (EUR 4.8 million).

Waste management services and the joint venture L&T Recoil boosted the Environmental Services division's net sales growth. In addition, the prices of secondary raw materials (fibres, plastics, metals) rose significantly.

Lower-than-expected operating rates of recycling plants, the steep increase in the price of diesel oil and the higher salary, subcontracting and repair costs undermined profitability. The division was unable to adapt the process cleaning and waste water services operations to fluctuations in demand. Special attention will be paid to project work planning. 

Although the operating rate of the joint venture L&T Recoil’s re-refinery improved, production reliability and base oil supply still haven’t reached a satisfactory level. Action will be taken in connection with the maintenance-related shutdown in August to improve technical reliability. The joint venture’s operating result for the quarter saw a major improvement from the comparison period and showed a slight profit.

The net sales and profitability of the Environmental Services division’s international operations declined from the comparison period, largely due to the competitive situation in Latvia.

Cleaning and Office Support Services

The division’s net sales for the first quarter totalled EUR 34.9 million (EUR 34.7 million), showing an increase of 0.5%. Operating profit totalled EUR 1.5 million (EUR 1.0 million) and operating profit excluding non-recurring items was EUR 1.5 million (EUR 1.2 million).

Net sales in domestic operations remained at the previous year’s level. In Sweden, sales to new customers were successful.

The EUR 0.7 million credit loss recorded for Russian operations taxed the operating profit for the comparison period. The start-up costs of new projects in Finland burdened the operating profit more than a year earlier.

Property Maintenance

The division’s net sales for the first quarter were up by 5.6% to EUR 38.9 million (EUR 36.9 million). Operating profit totalled EUR 1.9 million (EUR 2.8 million) and operating profit excluding non-recurring items was EUR 1.9 million (EUR 2.9 million).

The healthy work load for damage repair services and the stronger demand for maintenance services for technical systems boosted the division’s net sales.

The decrease in operating profit could be attributed to the demanding winter weather conditions, which raised the division’s subcontracting and overtime costs. Due to the price competition, the profitability of snow-related commissioned assignments was weaker than a year earlier.

Renewable Energy Sources

First quarter net sales of Renewable Energy Sources (L&T Biowatti) were down by 20.4% to EUR 16.0 million (EUR 20.1 million). The division recorded an operating loss of EUR 0.7 million (a loss of EUR 0.9 million), and an operating loss excluding non-recurring items of EUR 0.4 million (a loss of EUR 0.9 million).

The suspension in the payment of the electricity production subsidy weakened the demand for wood-based fuels from the comparison period. As a result, several power plant customers used fossil fuels for energy production instead of renewable energy sources. Payment of the subsidy re-commenced at the end of the period.

The division’s competitiveness will be improved by a reorganisation programme involving fixed cost cuts and operational efficiency enhancement, and by sales price hikes. 


BREAKDOWN OF OPERATING PROFIT EXCLUDING NON-RECURRING ITEMS

FINANCING

Cash flows from operating activities amounted to EUR 10.5 million (EUR 13.9 million). EUR 1.9 million was tied up in the working capital (EUR 0.4 million).

At the end of the period, interest-bearing liabilities amounted to EUR 141.8 million (EUR 139.1 million). Net interest-bearing liabilities amounted to EUR 132.0 million, showing an increase of EUR 25.8 million from the comparison period.

Net finance costs in January–March amounted to EUR 1.1 million which is on a par with the amount of the comparison period. Net finance costs were 0.7% (0.7%) of net sales. Long-term loans totalling EUR 17.3 million will mature during the rest of the year. The average interest rate of loans (with interest rate hedging) was 3.2% (3.3%).

The equity ratio was 42.4% (40.3%) and the gearing rate 63.9 (52.9). Liquid assets at the end of the period amounted to EUR 9.8 million (EUR 32.9 million). The dividend, totalling EUR 21.3 million, was paid at the end of the period. In the comparison period the dividend was paid in the second quarter.

Of the EUR 50 million commercial paper programme, EUR 25.0 million (EUR 0.0 million) was in use. The EUR 15.0 million committed limit was not in use, as was the case in the comparison period.


DIVIDEND

The Annual General Meeting held on 17 March 2011 resolved on a dividend of EUR 0.55 per share. The dividend, totalling EUR 21.3 million, was paid to the shareholders on 29 March 2011.


CAPITAL EXPENDITURE

Capital expenditure totalled EUR 12.9 million (EUR 5.5 million), approximately half of it consisting of acquisitions.

In the first quarter, Pentti Laurila Ky and businesses of Matti Hossi Ky and PPT Luttinen Oy were acquired into Environmental Services. The business of Kestosiivous Oy was acquired into Cleaning and Office Support Services and the business of KH-Kiinteistöhuolto Oy was acquired into Property Maintenance.


PERSONNEL

In January–March, the average number of employees converted into full-time equivalents was 7,520 (7,668). The total number of full-time and part-time employees at the end of the period was 8,725 (8,599). Of them 6,989 (6,723) people worked in Finland and 1,736 (1,876) people in other countries.


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 January–March was 3,301,780 which is 8.5% (3.7%) of the average number of outstanding shares. The value of trading was EUR 44.1 million (EUR 22.3 million). The trading price varied between EUR 12.40 and EUR 15.18. The closing price was EUR 12.70. At the end of the period, the company held 60,758 of its own shares. The market capitalisation excluding the shares held by the company was EUR 492.0 million (EUR 598.9 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 38,738,116.

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 26.80 as of 22 March 2011. The exercise period for 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 16.20. It was reduced by EUR 0.07 as of 22 March 2011. 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 is 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 2011 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 9,665 (7,668) shareholders. Nominee-registered holdings accounted for 11.2% (9.3%) 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.


RESOLUTIONS BY THE ANNUAL GENERAL MEETING

The Annual General Meeting of Lassila & Tikanoja plc, which was held on 17 March 2011, adopted the financial statements for the financial year 2010 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 per share, a total of EUR 21.3 million, as proposed by the Board of Directors, be paid for the financial year 2010. The dividend payment date was resolved to be 29 March 2011.

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 Miikka Maijala. Sakari Lassila was elected as a new member for the same term.

PricewaterhouseCoopers Oy, Authorised Public Accountants, was elected auditor.

The Annual General Meeting resolved on decreasing the share premium reserve by EUR 50,672,564.52 by transferring all the funds in the share premium reserve to the unrestricted equity reserve. The resolution was not registered at the appointed time and therefore the arrangement cannot be implemented.

The resolutions of the Annual General Meeting were announced in more detail in a stock exchange release on 17 March 2011.


BOARD OF DIRECTORS

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

From among its members, the Board elected Eero Hautaniemi as Chairman and Sakari Lassila and Miikka Maijala as members of the audit committee. Heikki Bergholm was elected as Chairman of the remuneration committee and Matti Kavetvuo and Hille Korhonen as members of the committee.


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

In a release published on 22 March 2011, the company announced that M.Sc. (Econ.) Ville Rantala has been appointed as Managing Director of L&T Biowatti Oy and Vice President, Renewable Energy Sources division, as of 22 March 2011. Rantala will also continue as CFO of Lassila & Tikanoja plc. He will report to Jari Sarjo, President and CEO. Tomi Salo, Managing Director of L&T Biowatti, will not continue in the company.

In a release published on 5 April 2011, the company announced that a total of 2,547 shares of Lassila & Tikanoja plc have been returned to the company free of consideration, by virtue of the terms of the share-based incentive programme of 2009. The current total number of own shares held by Lassila & Tikanoja plc is 63,305, the returned shares included.


NEAR-TERM UNCERTAINTIES

L&T Recoil’s production has not yet fully stabilised, and any further disturbances in the plant’s production could have a negative effect on the Environmental Services division’s performance. End-product and raw material price fluctuations would have a major effect on L&T Recoil’s performance.

The government support for renewable fuels will have a positive effect on the demand for wood-based fuels in the future, but with some delay. Changes in the prices of emission rights will 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 REST OF THE YEAR

Higher operating rates in the industry will increase waste volumes and the demand for process cleaning and polluted soil and materials utilisation. Higher prices of secondary raw materials and a rise in waste tax improve the outlook for the recycling business.

The production reliability of L&T Recoil's facility will affect the Environmental Services division’s profitability. Raising the operating rate of the facility and improving the supply of base oil continue to be the key priorities.

The markets for Cleaning and Office Support Services and for Property Maintenance are expected to remain challenging, and the fierce price competition is expected to continue.

The demand for L&T Biowatti's wood-based fuels is expected to strengthen. The government support measures targeting renewable fuels will have a positive effect on the demand for wood-based fuels and on their price level in the second half.

The net sales will grow more than estimated previously due to the acquisitions.

Full-year net sales will grow slightly from 2010 and operating profit excluding non-recurring items is expected to remain at the 2010 level. Previous estimate: 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 MARCH 2011

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

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY