Lassila & Tikanoja plc: Interim Report 1 January–31 March 2020

Lassila & Tikanoja plc
Stock exchange release
28 April 2020 at 8:00 a.m.Lassila & Tikanoja plc: Interim Report 1 January–31 March 2020Unless otherwise mentioned, the figures in brackets refer to the corresponding period in the previous year.Net sales for the first quarter were EUR 184.4 million (198.8)Operating profit was EUR 2.9 million (0.7)Earnings per share were EUR 0.00 (0.01). Earnings per share were negatively affected by an increase in exchange differences. Exchange differences amounted to EUR -1.8 million (0.6) in the first quarterThe decrease in net sales was mainly attributable to the Q2/2019 divestment of the L&T Korjausrakentaminen business, which is included in the figures for the comparison periodThe increase in the business segments’ operating profit was particularly due to the improved result of Facility Services FinlandOutlook for 2020, updated 24 April 2020Full-year net sales for 2020 are expected to decrease year-on-year and operating profit is estimated to be EUR 30–40 million (40.5) excluding loss related to the discontinuation of Russian operations.
PRESIDENT AND CEO EERO HAUTANIEMI:“Net sales in the first quarter of 2020 decreased by 7.2% year-on-year and amounted to EUR 184.4 million. The decrease in net sales was attributable to the divestment of L&T Korjausrakentaminen in the previous financial year, with its business included in the comparison figures, the winter’s low snowfall and the coronavirus epidemic towards the end of the quarter. Operating profit was EUR 2.9 million, representing a substantial increase from the comparison period (0.7). The increase in operating profit was particularly due to the improved result of Facility Services Finland. Consolidated net cash from operating activities in the first quarter was at a good level at EUR 19.6 million (22.4) and the Group’s liquidity position remained strong.The business environment in the first quarter can be characterised as challenging due to the industrial action in the early part of the year and the coronavirus epidemic that began in March. I am satisfied with our result in these somewhat exceptional circumstances.The majority of Lassila & Tikanoja’s net sales is generated from services such as waste management and various maintenance services, which are essential for society and companies and will continue even during the coronavirus epidemic.Nevertheless, Lassila & Tikanoja expects the demand for services to weaken due to the restrictions imposed by the authorities as well as production restrictions implemented by customers themselves.  The epidemic will have negative effects on all of the Group’s business segments, particularly those related to the restaurant and hotel business as well as services sold to industrial customers.  The negative impact of the epidemic on the Group’s operating profit is estimated to have been EUR 0.5–1.0 million in the first quarter.The increased sales of disinfection and cleaning services in the cleaning business have redused the negative result effects of the epidemic. During the remainder of the year, the impacts will also be mitigated by the temporary reduction of 2.6 percentage points in pension insurance payments in Finland during the period 1 May–31 December 2020 as well as the significant drop in fuel prices.Due to the reforms in waste management carried out by the state of Russia in 2019, the implementation of waste management in the Moscow region was allocated to seven operators. As a result of this change, the area in which Lassila & Tikanoja operates was allocated to two operators. In April 2020, the company was informed that one of the two operators will start operating waste logistics in the area, which will reduce Lassila & Tikanoja’s net sales in Russia by more than half by the beginning of September. In response to the significant change in the customer situation, Lassila & Tikanoja has decided to discontinue its Russian operations in 2020. The discontinuation of the Group’s operations in Russia is estimated to have a negative effect of EUR 7-11 million on the result of Environmental services and EUR 4-8 million on Group equity in 2020. The discontinuation is not expected to have a negative effect on cash flow.As part of Lassila & Tikanoja’s comprehensive contingency planning, the Group has conducted negotiations in its Finnish operations pursuant to the Act on Co-operation within Undertakings to enable flexible adjustments in response to declining demand. Lassila & Tikanoja’s financial position is strong and secure and the Group has taken additional measures to strengthen it.”GROUP NET SALES AND FINANCIAL PERFORMANCELassila & Tikanoja’s net sales for the first quarter amounted to EUR 184.4 million (198.8), down 7.2% year-on-year. Operating profit was EUR 2.9 million (0.7), representing 1.6% (0.4%) of net sales. Earnings per share were EUR 0.00 (0.01). Earnings per share were negatively affected by the depreciation of the Russian rouble and Swedish krona, with exchange differences totalling EUR -1.8 million (0.6) in the first quarter.In Environmental Services, net sales declined and operating profit improved slightly year-on-year. In Industrial Services, net sales grew while operating profit declined. In Facility Services Finland, net sales declined but operating profit improved substantially year-on-year. In Facility Services Sweden, net sales and operating profit decreased year-on-year. The Group’s operating profit was improved by a gain of EUR 5.7 million recognised on the sale of property included in property, plant and equipment. Non-recurring costs totalling EUR 4.8 million were recognised during the period, including impairment related to fixed assets. The non-recurring items had a positive net effect of EUR 0.9 million on the Group’s operating profit in the first quarter. The items in question are not included in the figures of the Group’s businesses.Financial summary
NET SALES AND OPERATING PROFIT BY DIVISIONIndustrial ServicesJanuary–March
The division’s net sales for the first quarter grew to EUR 20.2 million (19.0). Operating profit declined year-on-year to EUR -0.3 million (0.3).Facility Services FinlandJanuary–March
The division’s net sales for the first quarter totalled EUR 58.2 million (69.5). The decline in net sales was mainly due to the divestment of L&T Korjausrakentaminen Oy, which took place in the comparison period. The winter’s low snowfall also reduced subcontracting and net sales. Operating profit improved to EUR -1.8 million (-3.5).Operating profit improved substantially year-on-year in all business lines. The positive development was attributable to new customer accounts as well as the improved productivity of operations, which was mainly due to the restructuring programme implemented in the final quarter of the previous year. The winter’s low snowfall also helped improve the result of the property maintenance business compared to the previous year.Facility Services SwedenJanuary–March
The division’s net sales for the first quarter totalled EUR 30.3 million (32.1). Operating profit was EUR 0.2 million (0.7).The effects of the coronavirus epidemic were clearly apparent at L&T in Sweden towards the end of the quarter. Operating profit was weighed down by a substantially higher-than-usual sickness rate and the resulting increase in subcontracting costs on the one hand and the reduced additonal sales orders in March on the other hand. The depreciation of the Swedish krona during the review period had a negative effect on euro net sales and operating profit.At the end of the period, interest-bearing liabilities amounted to EUR 200.6 million (214.6). Net interest-bearing liabilities totalled EUR 156.9 million (169.3). The average interest rate on long-term loans excluding IFRS 16 liabilities, with interest rate hedging, was 1.3% (1.2).Of the EUR 100.0 million commercial paper programme, EUR 20.0 million (10.0) 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.Net financial expenses in the first quarter amounted to EUR -2.8 million (-0.4). Exchange rate changes accounted for EUR -1.8 million (0.6) of net financial expenses. Net financial expenses were 1.5% (0.2%) of net sales.The exchange rate changes were caused by the depreciation of the Russian rouble and Swedish krona.The equity ratio was 29.3% (29.6) and the gearing rate was 95.6% (97.4). Liquid assets at the end of the period amounted to EUR 43.7 million (45.3).
DISTRIBUTION OF ASSETSRESOLUTIONS BY THE ANNUAL GENERAL MEETING
The Annual General Meeting, which was held on 12 March 2020, adopted the financial statements and consolidated financial statements for 2019 and released the members of the Board of Directors and the President and CEO from liability.The Annual General Meeting resolved that a dividend of EUR 0.92 per share, totalling EUR 35.0 million, would be paid on the basis of the balance sheet adopted for the financial year 2019. It was decided that the dividend would be paid on 23 March 2020.The Annual General Meeting confirmed the number of members of the Board of Directors as seven. Heikki Bergholm, Teemu Kangas-Kärki, Laura Lares, Sakari Lassila, Miikka Maijala and Laura Tarkka were re-elected to the Board until the end of the following Annual General Meeting, and Pasi Tolppanen was elected as a new member.KPMG Oy Ab, Authorised Public Accountants, was elected auditor. KPMG Oy Ab named Leenakaisa Winberg, Authorised Public Accountant, as its principal auditor.The Annual General Meeting resolved to establish a permanent Shareholders’ Nomination Board. The Nomination Board shall be responsible for preparing and presenting proposals covering the remuneration and number of members of the Company’s Board of Directors as well as proposals on the members of the Board of Directors to the Annual General Meeting and, where needed, to an Extraordinary General Meeting. The Nomination Board shall also be responsible for identifying successors to existing Board members.The resolutions of the Annual General Meeting were announced in more detail in a stock exchange release on 12 March 2020.BOARD OF DIRECTORSKEY EVENTS DURING THE REVIEW PERIODThe key events are discussed in the other sections of this release.EVENTS AFTER THE REVIEW PERIODOn 24 April, the Group issued a profit warning and lowered its guidance for 2020. The Group also announced discontinuation of Russian operations. According to the updated outlook the full-year net sales for 2020 are expected to decrease year-on-year and operating profit is estimated to be EUR 30‑40 million (40.5) excluding loss related to the discontinuation of Russian operations.Lower energy consumption reduces the price of emission rights and weakens the profitability of renewable energy sources, while decreasing oil prices have a reducing effect on our fuel costs.Labour availability risks have been reduced in the short term but, under normal circumstances, they may limit business growth and increase production costs.The company has several ERP system renewal projects under way. Temporary additional costs arising from the system deployment projects and establishing the operating model may weigh down the company’s result.In response to significant change in the operating situation, Lassila & Tikanoja has decided to discontinue its Russian operations in 2020. The discontinuation of the Group’s operations in Russia is estimated to have a negative effect of EUR 7-11 million on the result and EUR 4-8 million on equity in 2020. The discontinuation is not expected to have a negative effect on cash flow.More detailed information on Lassila & Tikanoja’s risks and risk management is provided in the 2019 Annual Report and in the Report of the Board of Directors and the consolidated financial statements.Outlook for 2020, updated 24 April 2020Full-year net sales for 2020 are expected to decrease year-on-year and operating profit is estimated to be EUR 30–40 million (40.5) excluding loss related to the discontinuation of Russian operations. Previous outlook for 2020 (29 January 2020)Net sales in 2020 are expected to be on par with 2019 and operating profit is expected to increase compared to 2019 (EUR 40.5 million). The effect of the divestment of L&T Korjausrakentaminen Oy, EUR 4.5 million, has been deducted from the operating profit for the comparison period, which was EUR 45.0 million.Lassila & Tikanoja will host a conference call and webcast for analysts, institutional investors and media on 28 April 2020 at 9.00 am Finnish time. The presentation material will be published on the company’s website.Conference ID: 355124LASSILA & TIKANOJA OYJBoard of DirectorsEero Hautaniemi
President and CEOFor additional information, please contact:
Eero Hautaniemi, President and CEO, tel. +358 10 636 2810
Valtteri Palin, CFO, tel. +358 40 734 7749Lassila & Tikanoja is a service company that is putting the circular economy into practice. Together with
our customers, we keep materials and properties in productive use for as long as possible and we enhance the use of raw materials and energy. We help our customers maintain the value of their properties and materials while protecting the environment. We achieve this by delivering responsible and sustainable service solutions that make the daily lives of our customers easier. We operate in Finland, Sweden, and Russia. L&T employs 8,200 people. Net sales in 2019 amounted to EUR 784.3 million. L&T is listed on Nasdaq Helsinki.Distribution:
Nasdaq Helsinki
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