Lassila & Tikanoja plc: Interim report 1 January - 30 June 2012

Helsinki, Finland, 2012-07-24 07:00 CEST (GLOBE NEWSWIRE) --

Net sales for the second quarter EUR 169.7 million (EUR 162.2 million); operating profit EUR 14.1 million (EUR 8.9 million); operating profit excluding non-recurring items EUR 12.1 million (EUR 9.7 million); earnings per share EUR 0.24 (EUR 0.19)
Net sales for January-June EUR 341.0 million (EUR 321.7 million); operating profit EUR 19.1 million (EUR 15.3 milion); operating profit excluding non-recurring items EUR 17.2 million (EUR 16.5 million); earnings per share EUR 0.31 (EUR 0.29)
Full-year net sales in 2012 are expected to remain at the 2011 level. Operating profit, excluding non-recurring items, is expected to remain at the 2011 level or improve slightly.


CEO PEKKA OJANPÄÄ:
“Our performance in the second quarter was in line with our expectations, and measures taken to improve profitability began to produce results.  Environmental Services primarily accounted for the increase in our operating profit excluding non-recurring items. Completion of the oil re-refinery business rearrangement will simplify the structure of our business portfolio, and provide more resources for key business development.  Implementation of key projects underway to optimise logistics, lower working capital and develop procurement operations will continue in the second half.”


GROUP NET SALES AND FINANCIAL PERFORMANCE

Second quarter
Lassila & Tikanoja’s net sales for the second quarter increased by 4.6% to EUR 169.7 million (EUR 162.2 million). Operating profit was EUR 14.1 million (EUR 8.9 million), representing 8.3% (5.5%) of net sales, and operating profit excluding non-recurring items was EUR 12.1 million (EUR 9.7 million). Earnings per share were EUR 0.24 (EUR 0.19).

Net sales grew in all divisions apart from Cleaning and Office Support Services, growth being primarily organic. Demand for waste management and process cleaning services, and for wood-based fuels in particular, perked up from the comparison period.

Profitability in the quarter improved thanks to volume growth in Environmental Services and good  performance in shutdown-related work in the industry sector. The joint venture L&T Recoil was also able to improve its profitability, and Renewable Energy Sources to halve its losses. Non-recurring compensation of EUR 0.7 million paid in accordance with the collective labour agreement taxed the profitability.

A non-recurring capital gain of EUR 4.2 million was recorded for the quarter, from the sale of holdings in the joint venture L&T Recoil Oy, and non-recurring costs totalling EUR 2.2 million from the rearrangement and efficiency enhancement measures taken in Environmental Services and in the Swedish business.

January-June
Lassila & Tikanoja’s net sales for January-June amounted to EUR 341.0 million (EUR 321.7 million); an
increase of 6.0%. Operating profit was EUR 19.1 million (EUR 15.3 million), representing 5.6% (4.8%) of net
sales, and operating profit excluding non-recurring items was EUR 17.2 million (EUR 16.5 million). Earnings per
share were EUR 0.31 (EUR 0.29).

Net sales grew in the first half, thanks to stronger demand for Environmental Services and wood-based fuels. More than half of the growth seen in the first half was organic.

Operating profit excluding non-recurring items improved slightly from the comparison period; this could be attributed to volume growth in Environmental Services and smaller fixed costs in Renewable Energy Sources. Performance in January-June was taxed by the increase seen in the first quarter in fuel and repair costs in Environmental Services, and in subcontracting and labour costs in Property Maintenance.


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

Second quarter
The division’s net sales for the second quarter were up by 5.5% to EUR 88.1 million (EUR 83.5 million). Operating profit totalled EUR 14.6 million (EUR 9.2 million) and operating profit excluding non-recurring items was EUR 11.2 million (EUR 9.2 million).

Strong demand for waste management and process cleaning services powered the division's net sales upwards. In addition, recycling volumes grew and the prices of secondary raw materials stayed at a healthy level. Growth in the quarter was primarily organic.

The division’s operating profit improved from the comparison period, thanks to volume growth in waste management services and a good performance in shutdown-related work in the industry sector. Volume growth in recycling also boosted the division's profitability. Joint venture L&T Recoil’s profitability improved as a non-scheduled maintenance shutdown of the kind that had a negative impact on performance in the comparison period was not required in this quarter.

The division’s year-on-year net sales from international operations declined slightly while operating profit remained unchanged.
 
At the end of the quarter, L&T sold its 50 percent holding in the joint venture L&T Recoil to the co-owner, EcoStream Oy. The sale price consisted of a EUR 10 million cash contribution and a slightly lower than 20 percent interest in EcoStream. A non-recurring capital gain of EUR 4.2 million on the arrangement was recorded for the quarter. At the same time, a non-recurring cost of EUR 2.0 million was recorded in financial expenses, consisting of interest receivable from subordinated loans granted to the joint venture.

As part of the operational enhancement programme announced on 26 April 2012, the division took actions involving a non-recurring cost of EUR 0.8 million recorded for the period, including a write-down associated with the closure of a hazardous waste treatment facility located in Tuusula.

January-June
The Environmental Services division’s net sales for January-June amounted to EUR 165.1 million (EUR 156.0
million), showing an increase of 5.9%. Operating profit totalled EUR 17.6 million (EUR 13.4 million) and
operating profit excluding non-recurring items was EUR 14.2 million (EUR 13.4 million).

The majority of growth in the division was generated by waste management services and process cleaning services required by the industry. Demand for both services perked up after a subdued first quarter. Growth was primarily organic.

Profitability in the first quarter was burdened by the increase in fuel and repair costs and weaker profitability in international operations (Latvia, Russia). In the second quarter, the volume growth in waste management services and strong performance in the shutdown-related assignments in the industrial sector drove profitability up.

Recycled raw material volumes remained healthy in the first half, as did the prices of secondary raw materials (fibres, plastics, metals).


Cleaning and Office Support Services

Second quarter
The division’s net sales for the second quarter totalled EUR 40.7 million (EUR 40.8 million), showing a decrease of 0.3%. Operating profit totalled EUR 0.2 million (EUR 1.0 million) and operating profit excluding non-recurring items was EUR 1.2 million (EUR 1.2 million).

Net sales from Finnish operations decreased somewhat from the comparison period, even though sales of commissioned assignments developed as expected. In the absence of business acquisition and integration costs that taxed the result in the comparison period, the result for Finnish operations improved.

Results from international operations remained negative due to loss-making operations in Sweden. The savings programme launched in Sweden in April will continue in the second half.

The non-recurring cost of EUR 1.0 million associated with the reorganisation of the Swedish operations eroded the division’s operating profit.

January-June
The January-June net sales of Cleaning and Office Support Services increased by 5.7% to EUR 80.0 million
(EUR 75.6 million). Operating profit totalled EUR 1.1 million (EUR 2.5 million) and operating profit excluding
non-recurring items was EUR 2.2 million (EUR 2.7 million).

Acquisitions made in the previous spring contributed to net sales growth from the comparison period. Demand for commissioned assignments remained at the previous year’s level.

Swedish operations were in the red, which taxed the division’s operating profit. The result from Finnish operations was slightly better than in the comparison period, although the increase in service prices did not fully cover the rise in labour costs.


Property Maintenance

Second quarter
The division’s net sales for the second quarter were up by 2.7% to EUR 31.7 million (EUR 30.9 million). Operating profit totalled EUR 0.8 million (EUR 0.8 million) and operating profit excluding non-recurring items was EUR 0.9 million (EUR 0.8 million).

An increase in the damage repair services workload contributed to a slight increase in the division’s net sales from the comparison period.

The quarter’s operating profit remained unchanged, thanks to production efficiency enhancement measures taken in property maintenance and tighter subcontracting cost control.

January-June
The division’s net sales for January-June were up by 3.1% to EUR 72.0 million (EUR 69.8 million). Operating
profit totalled EUR 1.5 million (EUR 2.7 million) and operating profit excluding non-recurring items was EUR 1.6
million (EUR 2.7 million).

Expansion of the damage repair service network and the resulting increase in workload contributed to the increase in the division’s net sales in the first half.

Meanwhile, operating profit declined; this could be attributed to tougher price competition than a year earlier and the increase in subcontracting and overtime costs seen in the first quarter.


Renewable Energy Sources

Second quarter
Second quarter net sales of Renewable Energy Sources (L&T Biowatti) were up by 26.0% to EUR 12.1 million
(EUR 9.6 million). The division recorded an operating loss of EUR 0.7 million (a loss of EUR 1.3 million), and
an operating loss excluding non-recurring items of EUR 0.6 million (a loss of EUR 1.3 million).

There was a marked improvement in the division’s net sales from the comparison period, due to stronger demand for wood-based fuels. However, the weak energy content of forest processed chips undermined the division’s profitability. Smaller depreciation and volume growth helped curtail operating loss from the comparison period.

January-June
January-June net sales of Renewable Energy Sources (L&T Biowatti) were up by 15.9% to EUR 29.7 million
(EUR 25.6 million). Operating profit amounted to EUR 0.1 million (a loss of EUR 2.0 million), and operating profit
excluding non-recurring items was EUR 0.2 million (a loss of EUR 1.6 million).

Net sales increased from the comparison period thanks to successful new sales. Despite the negative impact of chips’ weak energy content on first-half results, profitability improved thanks to smaller depreciation and a trimmer cost structure.


BREAKDOWN OF OPERATING PROFIT EXCLUDING NON-RECURRING ITEMS
 

FINANCING

Cash flows from operating activities amounted to EUR 31.6 million (EUR 31.5 million). EUR 2.4 million was released from the working capital (EUR 3.2 million).

At the end of the period, interest-bearing liabilities amounted to EUR 129.5 million (EUR 154.5 million). Net interest-bearing liabilities amounted to EUR 112.7 million, showing a decrease of EUR 14.5 million from the beginning of the year and EUR 31.3 million from the comparison period.

Net finance costs amounted to EUR 4.3 million (EUR 2.2 million) in January-June. This increase could be attributed to the non-recurring cost recognition of EUR 2.0 million on interest receivable from subordinated loans given to L&T Recoil Oy. Net finance costs were 1.3% (0.7%) of net sales.

The average interest rate on long-term loans (with interest-rate hedging) was 2.5% (3.1%). Long-term loans totalling EUR 10.7 million will mature during the rest of the year.

The equity ratio was 43.3% (42.0%) and the gearing rate 53.8 (67.6). Liquid assets at the end of the period amounted to EUR 16.7 million (EUR 10.5 million).

Of the EUR 100 million commercial paper programme, EUR 34.0 million (EUR 23.5 million) was in use at the end of the period. A cfommitted 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 15 March 2012 resolved that the profit for 2011 be placed in retained earnings and that no dividend be paid. A capital repayment of EUR 0.55 per share would be paid for the financial year 2011. The capital repayment, totalling EUR 21.3 million, was paid to the shareholders on 27 March 2012.


CAPITAL EXPENDITURE

In January-June capital expenditure totalled EUR 27.8 million (EUR 45.1 million) and was mainly comprised of machine and equipment purchases.

In the second quarter, the Environmental Services division acquired the waste management business of Sita Finland Oy in Oulu.


PERSONNEL

In January-June the average number of employees converted into full-time equivalents was 8,220 (8,228). The total number of full-time and part-time employees at the end of the period was 9,817 (10,389). Of them 7,689 (8,198) people worked in Finland and 2,128 (2,191) 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-June was 5,653,917 which is 14.6% (13.4%) of the average number of outstanding shares. The value of trading was EUR 59.1 million (EUR 68.2 million). The trading price varied between EUR 12.15 and EUR 8.59. The closing price was EUR 9.36. At the end of the period, the company held 113,305 of its own shares. The market capitalisation excluding the shares held by the company was EUR 362.1 million (EUR 467.9 million) at the end of the period.

Own shares
At the end of the period the company held 113,305 of its own shares, representing 0.3% 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 to 38,685,569 shares. The average number of shares excluding the shares held by the company totalled 38,685,569.

Share option scheme 2008
In 2008, 230,000 share option rights were issued. The exercise period in NASDAQ OMX Helsinki ended on 31 May 2012. No shares were subscribed for pursuant to the option rights.

Share-based incentive programme 2012
Lassila & Tikanoja plc’s Board of Directors decided on 14 December 2011 on a new share-based incentive programme. Rewards will be based on the EVA result of Lassila & Tikanoja group without L&T Recoil. They will be paid partly as shares and partly in cash. The part paid in cash will cover the taxes caused by the reward.  Based on the programme a maximum of 65,520 shares of the company can be granted. The company will buy the shares from the stock market. The programme covers 22 persons.

Shareholders
At the end of the period, the company had 9,525 (9,498) shareholders. Nominee-registered holdings accounted for 15.3% (12.2%) of the total number of shares.

Authorisation for the Board of Directors
The Annual General Meeting held on 15 March 2012 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.

The Board of Directors is authorised to purchase a maximum of 500,000 company shares, which is 1.3% of the total number of shares. The share issue authorisation will be effective for 18 months.

RESOLUTIONS BY THE GENERAL MEETING

The Annual General Meeting of Lassila & Tikanoja plc, which was held on 15 March 2012, adopted the financial statements for the financial year 2011 and released the members of the Board of Directors and the Presidents and CEOs from liability.

The AGM resolved that the profit for 2011 be placed in retained earnings and that no dividend be paid. A capital repayment of EUR 0.55 per share, as proposed by the Board of Directors, would be paid for the financial year 2011 on the basis of the balance sheet adopted. The capital repayment, totalling EUR 21.3 million, payment date was resolved to be on 27 March 2012.

The Annual General Meeting confirmed the number of the members of the Board of Directors five. The following Board members were re-elected to the Board until the end of the following AGM: Heikki Bergholm, Eero Hautaniemi, Hille Korhonen, Sakari Lassila and Miikka Maijala.

KPMG Oy Ab, Authorised Public Accountants, was elected auditor. KPMG Oy Ab has announced that it will name 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 2012.


BOARD OF DIRECTORS

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


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

In a release published on 26 April 2012 the company announced that it is launching a new operational enhancement programme to improve its profitability and to adapt operations to the current market environment.

In a release published on 2 May 2012 the company announced that Jorma Mikkonen, Vice President, Environmental Services, leaves the Group Executive Board of Lassila & Tikanoja plc.

In a release published on 8 May 2012 the company announced that Lassila & Tikanoja plc and EcoStream Oy are negotiating on a business transaction in which Lassila & Tikanoja will sell its 50 percent holding in the joint venture L&T Recoil Oy to EcoStream Oy, a co-owner.

In a release published on 25 June 2012 the company announced that it has sold its 50 percent holding in joint venture L&T Recoil Oy to the co-owner, EcoStream Oy.


NEAR-TERM UNCERTAINTIES

Economic uncertainty may cause radical changes in the Environmental Services division’s secondary raw material markets and in industrial customer relationships.

Uncertainties associated with government subsidies for renewable fuels and with their continuity could affect demand for the Renewable Energy Sources division's services.

More detailed information on L&T's risks and risk management is available in the Annual Report for 2011, in the report of the Board of Directors, and in the consolidated financial statements.

OUTLOOK FOR THE REST OF THE YEAR

Despite the economic uncertainty, the outlook for Environmental Services is, by and large, stable, but any changes in demand for industrial services may complicate operational adjustments.

The business environment for Cleaning and Office Support Services and Property Maintenance is expected to remain stable, though price competition will remain tough.

Demand for Renewable Energy Sources’ (L&T Biowatti) wood-based fuels is expected to pick up from the comparison period, and the more effective cost structure should result in profitability improvement.

Full-year net sales in 2012 are expected to remain at the 2011 level. Operating profit, excluding non-recurring items, is expected to remain at the 2011 level or improve slightly.


CONDENSED FINANCIAL STATEMENTS 1 JANUARY-30 JUNE 2012


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   
 

A = Share capital
B = Share premium reserve
C = Currency translation differences
D = Revaluation reserve
E = Hedging reserve
F = Invested unrestricted equity reserve
G = Retained earnings
H = Equity attributable to equity holders of the company
I = Non-controlling interest
J = Total equity
 

KEY FIGURES
 

ACCOUNTING POLICIES

This interim report release is in compliance with IAS 34 standard. The same accounting policies as in the annual financial statements for the year 2011 have been applied. The following new, revised or amended IFRS standards and IFRIC interpretations that have become effective in 2012 have not had an impact on the financial statements:

- IFRS 7 (amendment) Financial Instruments: Disclosures - Derecognition
- IAS 12 (amendment) Income taxes - Deferred tax
- annual improvements to IFRS.
 

The preparation of financial statements in accordance with IFRS require the management to make such estimates and assumptions that affect the carrying amounts at the balance sheet date for the assets and liabilities and the amounts of revenues and expenses. Judgements are also made in applying the accounting policies. Actual results may differ from the estimates and assumptions. 

The interim report has not been audited.


SEGMENT INFORMATION

Net sales

Operating profit

Other segment information

INCOME STATEMENT BY QUARTER
 

BUSINESS ACQUISITIONS

Business combinations in aggregate

Consideration

Recognised amounts of identifiable assets acquired and liabilities assumed

Acquisitions by Property Maintenance
- 1 January 2012, the property maintenance operations of IK Kiinteistöpalvelu Oy.
- 1 February 2012, the business of Jyvässeudun Talonmiehet Oy and Kiinteistöhuolto Markku Hyttinen Oy.

Acquisitions by Environmental Services
- 1 May 2012, the waste management business of Sita Finland Oy in Oulu.

The figures for these acquired businesses are stated in aggregate, because none of them is of material importance when considered separately. Fair values have been determined as of the time the acquisition was realised. No business operations have been divested as a consequence of any acquisition. All acquisitions have been paid for in cash. With share acquisitions, L&T was able to gain 100% of the voting rights. The conditional consideration is tied to the transfer of the customer contracts to Lassila & Tikanoja plc, and the estimates of the fair values of considerations were determined on the basis of probability-weighted final acquisition price. The estimates for the conditional consideration have not changed between the time of acquisition and the balance sheet date. Trade and other receivables have been recorded at fair value at the time of acquisition. Individual acquisition prices have not been itemised because none of them is of material importance when considered separately. Profit for the period includes changes allocated to acquisition prices amounting to EUR 150 thousand.

By net sales, the largest acquisition was the business of Jyvässeudun Talonmiehet Oy (EUR 858 thousand).

It is not possible to itemise the effects of the acquired businesses on the consolidated net sales and profit for the period, because L&T integrates its acquisitions into the current business operations as quickly as possible to gain synergy benefits.

The accounting policy concerning business combinations is presented in Annual Report under Note 2 of the consolidated financial statements and under Summary on significant accounting policies.


CHANGES IN INTANGIBLE ASSETS

CHANGES IN PROPERTY, PLANT AND EQUIPMENT

CAPITAL COMMITMENTS
 

 
RELATED-PARTY TRANSACTIONS
(Joint ventures)

CONTINGENT LIABILITIES

Securities for own commitments

Other securities are security deposits.
 

Operating lease liabilities

Liabilities associated with derivative agreements

Interest rate and currency swaps
 

* The interest rate and currency swaps are used to hedge cash flow related to a floating rate loan, and hedge accounting under IAS 39 has been applied to it. The hedges have been effective, and the changes in the fair values are shown in the consolidated statement of comprehensive income for the period. On the balance sheet date, the value of foreign currency loans was EUR 0.1 million positive. The fair values of the swap contracts are based on the market data at the balance sheet date.

** Hedge accounting under IAS 39 has not been applied to these interest rate swaps. Changes in fair values
have been recognised in finance income and costs.

Commodity derivatives

Commodity derivative contracts were concluded, for hedging of future diesel oil purchases. IAS 39 -compliant hedge accounting will be applied to these contracts, and the effective change in fair value will be recognised in the hedging reserve within equity. The fair values of commodity derivatives are based on market prices at the balance sheet date.

Currency derivatives

Hedge accounting under IAS 39 has not been applied to forward contracts. Changes in fair values have been recognised in finance income and costs.


CALCULATION OF KEY FIGURES  

Earnings per share:
profit attributable to equity holders of the parent company / adjusted average basic number of shares

Earnings per share, diluted:
profit attributable to equity holders of the parent company / adjusted average diluted number of shares

Cash flows from operating activities/share:
cash flow from operating activities as in the statement of cash flows / adjusted average number of shares

EVA:
operating profit - cost calculated on invested capital (average of four quarters)
WACC 2011: 7.7% and WACC 2012: 7.1%

Equity per share:
equity attributable to equity holders of the parent company / adjusted basic number of shares at end of period

Return on equity, % (ROE):
(profit for the period / equity (average)) x 100

Return on investment, % (ROI):
(profit before tax + finance costs) / (total equity and liabilities - non-interest-bearing liabilities (average)) x 100

Equity ratio, %:
equity / (total equity and liabilities - advances received) x 100

Gearing, %:
net interest-bearing liabilities / equity x 100

Net interest-bearing liabilities:
interest-bearing liabilities - liquid assets

Operating profit excluding non-recurring items:
operating profit +/- non-recurring items


Helsinki, 23 July 2012

LASSILA & TIKANOJA PLC
Board of Directors


Pekka Ojanpää
President and CEO

For additional information please contact:
Pekka Ojanpää, President and CEO, tel. +358 10 636 2810,
Ville Rantala, CFO, tel. +358 50 385 1442 or
Keijo Keränen, Head of Treasury & IR, tel. +358 50 385 6957.


Lassila & Tikanoja specialises in environmental management and property and plant support services. L&T is a significant supplier of wood-based biofuels, recovered fuels and recycled raw materials. With operations in Finland, Sweden, Latvia and Russia, L&T employs 10,000 persons. Net sales in 2011 amounted to EUR 652 million. L&T is listed on NASDAQ OMX Helsinki.

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www.lassila-tikanoja.com