Lassila & Tikanoja plc: Interim Report 1 January-30 September 2012

Helsinki, Finland, 2012-10-23 07:00 CEST (GLOBE NEWSWIRE) --


Net sales for the third quarter EUR 161.2 million (EUR 163.5 million); operating profit EUR 19.6 million (EUR 18.2 million); operating profit excluding non-recurring items EUR 19.7 million (EUR 18.2 million); earnings per share EUR 0.40 (EUR 0.32)
Net sales for January–September EUR 502.2 million (EUR 485.1 million); operating profit EUR 38.7 million (EUR 33.5 million); operating profit excluding non-recurring items EUR 36.9 million (EUR 34.7 million); earnings per share EUR 0.71 (EUR 0.62)
Group’s 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 third quarter was more or less in line with our expectations. Operating profit excluding non-recurring items picked up from the comparison period despite the economic uncertainty, which, to some extent, reflected on demand for services required by the industry. Cleaning and Office Support Services performed particularly well. Our key priority at this time is to implement the strategy announced in September, as well as key projects designed to improve our profitability.”  


GROUP NET SALES AND FINANCIAL PERFORMANCE

Third quarter
Lassila & Tikanoja’s net sales for the third quarter decreased by 1.4% to EUR 161.2 million (EUR 163.5 million). Operating profit was EUR 19.6 million (EUR 18.2 million), representing 12.2% (11.1%) of net sales, and operating profit excluding non-recurring items was EUR 19.7 million (EUR 18.2 million). Earnings per share were EUR 0.40 (EUR 0.32).

Net sales declined slightly from the comparison period, as a result of the divestment of L&T's holding in the joint venture L&T Recoil and postponed shutdown-related work in process cleaning services. Meanwhile, demand for wood-based fuels improved from the comparison period.

Following the divestment of holdings in the loss-making L&T Recoil, the Environmental Services division was able to improve its profitability, which in turn boosted the quarter's financial performance.  Successful sales of commissioned assignments in Cleaning and Office Support Services also contributed to our performance improvement. In addition, Renewable Energy Sources was able to reduce its losses compared to the comparison period.

January–September
Lassila & Tikanoja’s net sales for January–September amounted to EUR 502.2 million (EUR 485.1 million); an
increase of 3.5%. Operating profit was EUR 38.7 million (EUR 33.5 million), representing 7.7% (6.9%) of net
sales, and operating profit excluding non-recurring items was EUR 36.9 million (EUR 34.7 million). Earnings per
share were EUR 0.71 (EUR 0.62).

Net sales grew in January–September, primarily thanks to the increase in demand for Environmental Services and wood-based fuels seen in the first half.

The overall performance improvement from the comparison period could be largely attributed to the volume increase in Environmental Services, the divestment of holdings in the loss-making joint venture L&T Recoil at the end of June and the decrease in losses recorded by Renewable Energy Sources. Profitability in January–September was eroded by the non-recurring compensation of EUR 0.7 million paid in the second quarter, in accordance with the collective labour agreement and the increase in subcontracting and labour costs in Property Maintenance.

A non-recurring capital gain of EUR 4.2 million was recorded in the second quarter, from the sale of holdings in L&T Recoil Oy, and non-recurring costs totalling EUR 2.2 million from the rearrangement and efficiency enhancement measures taken in Environmental Services, Property Maintenance and in the Swedish business. The efficiency enhancement measures are expected to generate annual savings of at least EUR 4.0 million. The measures are proceeding as planned.

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

Third quarter
The division’s net sales for the third quarter were down by 3.0% to EUR 83.3 million (EUR 85.9 million). Operating profit totalled EUR 12.8 million (EUR 12.3 million) and operating profit excluding non-recurring items was EUR 12.8 million (EUR 12.3 million).

The division’s net sales fell slightly from the comparison period following the divestment of holdings in L&T Recoil in June. Some shutdown-related work in process cleaning services was postponed to October, which also taxed net sales. Waste management and recycling service volumes and the prices of secondary raw materials remained at a healthy level during the quarter. In waste management, prices of services were revised at the beginning of the period, to match higher production costs.

The division's profitability improvement from the comparison period could be attributed to the L&T Recoil divestment at the end of June.

Net sales and operating profit from international operations declined slightly from the comparison period.

January–September
The Environmental Services division’s net sales for January–September amounted to EUR 248.4 million (EUR 241.9 million), showing an increase of 2.7%. Operating profit totalled EUR 30.4 million (EUR 25.7 million) and
operating profit excluding non-recurring items was EUR 27.1 million (EUR 25.7 million).

Waste management services and the healthy demand for industrial services were the key drivers of net sales growth in January–September. Towards the end of the period, shutdown-related work in process cleaning in particular were again affected by postponements. Waste volumes and the prices of secondary raw materials (fibres, plastics, metals) remained robust throughout the period.

The division’s profitability rose following the sale of L&T Recoil, which, together with production efficiency boosting measures, pushed operating profit up. Performance was taxed by the increase seen in the first half in fuel and repair costs, as well as weaker profitability in international operations.

At the end of the second 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 second 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.

Cleaning and Office Support Services

Third quarter
The division’s net sales for the third quarter totalled EUR 41.3 million (EUR 41.5 million), showing a decrease of 0.5%. Operating profit totalled EUR 4.5 million (EUR 3.7 million) and operating profit excluding non-recurring items was EUR 4.5 million (EUR 3.7 million).

Net sales in domestic operations remained at almost the previous year’s level. Despite price competition, the division was able to raise its profitability year-on-year thanks to successful sales of commissioned assignments and fixed cost management.

Net sales from international operations remained unchanged, while the financial result improved slightly thanks to higher profitability in Swedish operations.

January–September
The January–September net sales of Cleaning and Office Support Services increased by 3.5% to EUR 121.3 million (EUR 117.2 million). Operating profit totalled EUR 5.6 million (EUR 6.2 million) and operating profit excluding non-recurring items was EUR 6.7 million (EUR 6.4 million).

The division’s year-on-year net sales grew slightly as a result of acquisitions made in the spring 2011. Demand for commissioned assignments was healthy throughout the period.

The division's operating profit rose from the comparison period, thanks to a good performance in commissioned assignments. In the first half, profitability was adversely affected by the loss-making operations in Sweden and higher labour costs, which were not fully set off by service price hikes.
The non-recurring cost of EUR 1.0 million recorded in the second quarter for the reorganisation of the Swedish operations eroded the division’s operating profit.

Property Maintenance

Third quarter
The division’s net sales for the third quarter were up by 0.1% to EUR 31.4 million (EUR 31.3 million). Operating profit totalled EUR 3.3 million (EUR 3.6 million) and operating profit excluding non-recurring items was EUR 3.3 million (EUR 3.6 million).

A strong workload in maintenance services for technical systems raised net sales to the comparison period’s level.

The division’s operating profit decreased slightly from the comparison period, since the commissioned assignments in damage repair services were less in size. Meanwhile, the profitability of property maintenance and maintenance services for technical systems improved, thanks to production efficiency enhancement measures.

In damage repair services, new co-operation agreements were signed with insurance companies during the quarter, which will strengthen L&T’s market position in the future and provide a steadier workload.

January–September
The division’s net sales for January–September were up by 2.2% to EUR 103.4 million (EUR 101.1 million). Operating profit totalled EUR 4.8 million (EUR 6.3 million) and operating profit excluding non-recurring items was EUR 4.9 million (EUR 6.3 million).

Expansion of the damage repair service network and the increase in workload contributed to the year-on-year increase in the division’s net sales.

Increasingly tight price competition in property maintenance and the rise in subcontracting and overtime costs in the first half eroded the division’s operating profit.

Renewable Energy Sources

Third quarter
Third quarter net sales of Renewable Energy Sources (L&T Biowatti) were up by 10.6% to EUR 8.0 million
(EUR 7.2 million). The division recorded an operating loss of EUR 0.4 million (a loss of EUR 1.1 million), and
an operating loss excluding non-recurring items of EUR 0.4 million (a loss of EUR 1.1 million).

Volume growth boosted net sales, even though the warm and rainy weather in the early autumn dampened demand and taxed the energy content of forest processed chips. Problems in peat production will raise the competitiveness of wood-based fuels in the coming heating season. Smaller depreciation helped curtail the division’s operating loss.


January–September
January–September net sales of Renewable Energy Sources (L&T Biowatti) were up by 14.7% to EUR 37.7 million (EUR 32.8 million). Operating loss amounted to EUR 0.3 million (a loss of EUR 3.1 million), and operating loss excluding non-recurring items was EUR 0.2 million (a loss of EUR 2.7 million).

Net sales increased from the comparison period thanks to successful new sales.Profitability also improved thanks to smaller depreciation and a trimmer cost structure. Chips’ weak energy content had a negative impact on first-half results.


BREAKDOWN OF OPERATING PROFIT EXCLUDING NON-RECURRING ITEMS

FINANCING

Cash flows from operating activities amounted to EUR 49.7 million (EUR 45.2 million). EUR 6.4 million was tied up in the working capital (EUR 9.4 million tied up).

At the end of the period, interest-bearing liabilities amounted to EUR 114.0 million (EUR 153.6 million). L&T Recoil accounted for EUR 18.6 million of the interest-bearing liabilities in the comparison period. Net interest-bearing liabilities amounted to EUR 102.3 million, showing a decrease of EUR 24.9 million from the beginning of the year and EUR 39.4 million from the comparison period.
Net finance costs amounted to EUR 4.9 million (EUR 3.5 million) in January–September. 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 in the second quarter. Net finance costs were 1.0% (0.7%) of net sales.

The average interest rate on long-term loans (with interest-rate hedging) was 2.4% (3.1%). Long-term loans totalling EUR 7.2 million will mature during the rest of the year.

The equity ratio was 47.5% (43.4%) and the gearing rate 45.1 (63.5). Liquid assets at the end of the period amounted to EUR 11.7 million (EUR 12.0 million).

Of the EUR 100 million commercial paper programme, EUR 22.0 million (EUR 27 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 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–September capital expenditure totalled EUR 36.3 million (EUR 55.7 million) and was mainly comprised of machine and equipment purchases.

PERSONNEL

In January–September the average number of employees converted into full-time equivalents was 8,504 (8,614). The total number of full-time and part-time employees at the end of the period was 9,101 (9,648). Of them 7,078 (7,565) people worked in Finland and 2,023 (2,083) 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–September was 7,967,973 which is 20.6 % (19.9%) of the average number of outstanding shares. The value of trading was EUR 82.4 million (EUR 94.8 million). The trading price varied between EUR 12.15 and EUR 8.59. The closing price was EUR 10.60. The market capitalisation excluding the shares held by the company was EUR 410.1 million (EUR 408.1 million) at the end of the period.

Own shares
At the end of the period the company held 106,810 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 38,692,064 shares. The average number of shares excluding the shares held by the company totalled 38,687,133.

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 9,411 (9,489) shareholders. Nominee-registered holdings accounted for 16.7% (13.3%) 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 7 September 2012 the company announced its new strategy. The core businesses of the new clarified portfolio are environmental, industrial and facility services. From 1 January 2013, L&T’s reporting segments are Environmental Services, Industrial Services, Facility Services, and Renewable Energy Sources. The new financial targets are: organic growth over 5%, return on investment (ROI) 20%, operating profit 9% and gearing 30–80%.

In a release published on 7 September 2012 the company announced changes in company’s management. Petri Salermo (QBA, born 1970) has been appointed Vice President, Environmental Services effective from 1 January 2013, Ville Rantala (M.Sc. Econ., born 1971) has been appointed Vice President, Industrial Services effective from 1 January 2013 and Petri Myllyniemi (M.Sc. Econ.; B.Sc. Eng., born 1964) has been appointed Vice President, Facility Services, effective from 7 January 2013. For the time being, Juha Simola and Henri Turunen will continue to act as the Vice Presidents of the current Property Maintenance and Cleaning and Office Support Services divisions and as members of the Group Executive Board.

In a release published on 14 September 2012 the company announced it is hosting a Capital Markets Day. The aim of the day was to present L&T’s new strategy.


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 outlook for Cleaning and Office Support Services and for Property Maintenance is stable.

Demand for Renewable Energy Sources’ (L&T Biowatti) wood-based fuels will pick up from the comparison period, and with a more effective cost structure in place, operating profit will improve.

Group’s 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 SEPTEMBER 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   

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 0.9 million negative. 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, 22 October 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. With operations in Finland, Sweden, Latvia and Russia, L&T employs 9,100 persons. Net sales in 2011 amounted to EUR 652 million. L&T is listed on NASDAQ OMX Helsinki.

Distribution:
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www.lassila-tikanoja.com