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Lassila & Tikanoja plc: Interim Report 1 January–30 September 2021

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Lassila & Tikanoja plc
Stock exchange release
26 October 2021 at 8:00 a.m.

Lassila & Tikanoja plc: Interim Report 1 January–30 September 2021

STRONG GROWTH IN ALL DIVISIONS

Unless otherwise mentioned, the figures in brackets refer to the corresponding period in the previous year.

  • Net sales for the third quarter amounted to EUR 198.4 million (184.8). Net sales increased by 7.4 per cent, of which 3.8 percentage points was organic growth. Adjusted operating profit was EUR 18.5 million (17.5) and operating profit was EUR 18.0 million (17.6). Earnings per share were EUR 0.37 (0.37).

  • Net sales in January–September totalled EUR 589.0 million (552.3). Adjusted operating profit was EUR 32.3 million (29.7), operating profit was EUR 32.3 million (18.3) and earnings per share were EUR 0.64 (0.30).

  • Earnings per share were positively influenced by a reduction in net financial expenses to EUR -2.5 million (-4.1). Exchange differences amounted to EUR 0.1 million (-1.3).

Outlook for the year 2021

Net sales in 2021 are estimated to grow and adjusted operating profit is estimated to be at the same level or better compared to the previous year.

PRESIDENT AND CEO EERO HAUTANIEMI:

Lassila & Tikanoja’s services saw continued strong demand in the third quarter. In July–September, net sales increased by 7.4 per cent year-on-year, with organic growth amounting to 3.8 per cent. Adjusted operating profit improved year-on-year and totalled EUR 18.5 million (17.5).

The negative impacts of the COVID-19 pandemic on customer demand and the prices of secondary raw materials continued to dissipate in the third quarter. At the same time, the costs of service production were increased by the substantial increase in diesel prices as well as worsening labour shortages.

In spite of the cost pressures, the Environmental Services and Industrial Services divisions achieved a strong result. Performance remained weak in the property maintenance and technical services business lines in Facility Services Finland. Measures to simplify the organisational structure and improve cost efficiency were initiated in these business lines in August and will be completed during the fourth quarter. The aim is to achieve cost savings of approximately EUR 3 million annually starting from 2022.

In the third quarter, the EU Commission published its new climate targets along with proposals on key actions for achieving the targets. The proposals strengthen the role of the circular economy as a driver of the green transition, thereby supporting L&T’s business. Increasingly ambitious climate targets will also guide L&T’s operations in the coming years. We already acquired 50 electric vans during the reporting period.

GROUP NET SALES AND FINANCIAL PERFORMANCE

July–September
Lassila & Tikanoja’s net sales for the third quarter amounted to EUR 198.4 million (184.8), up 7.4% year-on-year. The rate of organic growth was 3.8%. Adjusted operating profit was EUR 18.5 million (17.5), representing 9.3% (9.5%) of net sales. Operating profit was EUR 18.0 million (17.6), representing 9.1% (9.5%) of net sales. Earnings per share were EUR 0.37 (0.37).

Net sales increased in Environmental Services, Facility Services Finland and Facility Services Sweden. Net sales decreased slightly in Industrial Services. Comparable operating profit improved in Environmental Services and remained on a par with the comparison period in Facility Services Sweden. Operating profit declined in Industrial Services and Facility Services Finland.

January–September
Net sales for January–September increased by 6.6% year-on-year and amounted to EUR 589.0 million (552.3). The rate of organic growth was 5.9%. Adjusted operating profit was EUR 32.3 million (29.7), representing 5.5% (5.4%) of net sales. Operating profit was EUR 32.3 million (18.3), representing 5.5% (3.3%) of net sales. Earnings per share were EUR 0.64 (0.30).

Net sales grew across all business segments. Operating profit improved in Environmental Services, Industrial Services and Facility Services Sweden. In Facility Services Finland, operating profit was on a par with the comparison period.

In the comparison period, operating profit was improved by the temporary lowering of pension insurance contributions by 2.6 percentage points from 1 May to 31 December 2020, which had a positive impact of approximately EUR 3.8 million in 2020. The result for the period was positively influenced by a reduction in net financial expenses to EUR -2.5 million (-4.1). Exchange differences had an impact of EUR +0.1 million (-1.3) on financial expenses.

Financial summary

7–9/2021

7–9/2020

Change %

1–9/2021

1–9/2020

Change %

2020

Net sales, EUR million

198.4

184.8

7.4

589.0

552.3

6.6

751.9

Adjusted operating profit, EUR million

18.5

17.5

5.6

32.3

29.7

8.5

39.7

Adjusted operating margin, %

9.3

9.5

5.5

5.4

5.3

Operating profit, EUR million

18.0

17.6

2.0

32.3

18.3

76.3

28.2

Operating margin, %

9.1

9.5

5.5

3.3

3.8

EBITDA, EUR million

31.4

30.4

3.4

71.9

61.7

16.7

85.2

EBITDA, %

15.8

16.4

12.2

11.2

11.3

Profit before tax, EUR million

17.1

16.7

2.8

29.8

14.2

110.0

23.3

Earnings per share, EUR

0.37

0.37

-1.3

0.64

0.30

113.2

0.50

Net cash flow from operating activities after investments per share, EUR

0.05

0.15

-65.9

-0.50

0.53

-194.3

1.15

EVA, EUR million

11.2

11.5

-2.6

12.9

-0.1

3.7

Return on equity (ROE), %

16.5

7.9

9.6

Invested capital, EUR million

410.0

372.5

10.1

379.2

Return on invested capital (ROI), %

10.9

6.6

7.5

Equity ratio, %

33.1

32.2

33.0

Gearing, %

92.6

89.3

70.9


NET SALES AND OPERATING PROFIT BY DIVISION

Environmental Services

July–September
The division’s net sales for the third quarter increased to EUR 77.2 million (67.5). Operating profit was EUR 10.3 million (10.3) and comparable operating profit exluding Russia was EUR 10.3 million (10.0).

January–September
The Environmental Services division’s net sales grew to EUR 230.7 million (216.5). Operating profit increased year-on-year and amounted to EUR 22.7 million (12.4). The comparison figure includes costs of EUR 10.4 million recognised in relation to the discontinuation of Russian operations. Excluding Russia, the operating profit of Environmental Services improved to EUR 22.7 million (22.2).

Organic growth strengthened in Environmental Services in the third quarter. Demand for separately ordered services as well as the prices of and demand for recycled raw materials returned to pre-pandemic levels. The number of corporate customers increased because of active sales to new customers. The Sihvari Oy acquisition strengthened the Environmental Services division’s market position in the SME customer segment. Production costs were increased by higher fuel prices. In the recycled paper, logistics expenses were increased by the continued contraction in domestic demand.

Industrial Services

July–September
The division’s net sales for the third quarter decreased to EUR 29.8 million (30.6). Operating profit declined to EUR 4.1 million (4.5).

January–September
The Industrial Services division’s net sales grew to EUR 76.4 million (74.2). Operating profit improved year-on-year and amounted to EUR 7.5 million (5.6).

The Industrial Services division strengthened its market position in process cleaning and in hazardous waste. New customer agreements were also signed in the chemical industry, for example. Due to the COVID-19 pandemic, some of the annual maintenance projects originally planned for earlier in the year were postponed to the third quarter. The overlap of annual maintenance projects in the third quarter made resource optimisation more difficult and increased production costs due to increased subcontracting. In the project business, some of the construction projects planned for earlier in the year were also postponed due to the pandemic, which made resource allocation more difficult and increased costs.

Facility Services Finland

July–September
The division’s net sales for the third quarter grew to EUR 59.9 million (56.9). Operating profit was EUR 2.9 million (3.6).

January–September
The net sales of Facility Services Finland grew to EUR 180.1 million (171.7). Operating profit declined year-on-year to EUR 1.2 million (1.3).

Good development continued in the cleaning business, with the division strengthening its market position particularly in the food industry and retail services. The number of customer sites included in the More sustainable cleaning development programme increased by 170 in July–September. Performance remained weak in property maintenance and technical services. Measures to improve cost efficiency and simplify the organisational structure were initiated in these business lines in August and will be completed during the fourth quarter. The aim is to achieve cost savings of approximately EUR 3 million annually starting from 2022.

Facility Services Sweden

July–September
The division’s net sales for the third quarter increased to EUR 32.7 million (31.5). Operating profit was EUR 1.5 million (1.5).

January–September
The net sales of Facility Services Sweden grew to EUR 106.0 million (94.5). Operating profit improved year-on-year and amounted to EUR 2.5 million (2.0).

The COVID-19 pandemic situation in Sweden continued to improve and the division’s market share developed favourably in the hospital customer segment. The COVID-19 pandemic continued to have a negative impact on the demand for additional services among customers in the municipal sector.

FINANCING

Net cash flow from operating and investing activities amounted to EUR -19.1 million (20.3) in the reporting period. A total of EUR 27.3 million in working capital was committed (EUR 12.4 million committed). Working capital was increased by the growth of customer receivables due to higher net sales as well as a reduction in trade payables and other liabilities. Cash flow was reduced by acquisitions, which had a total impact of approximately EUR 23 million. Cash flow in the comparison period was favourably impacted by the sale of property included in property, plant and equipment.

At the end of the period, interest-bearing liabilities amounted to EUR 208.8 million (191.4). Net interest-bearing liabilities totalled EUR 186.4 million (161.7). The average interest rate on long-term loans excluding IFRS 16 liabilities, with interest rate hedging, was 1.1% (1.3%).

Of the EUR 100.0 million commercial paper programme, EUR 10.0 million (15.0) was in use at the end of the period. A committed credit limit totalling EUR 30 million was not in use, as was the case in the comparison period. The Group took out a bank loan of EUR 25 million in the third quarter to finance acquisitions.

Net financial expenses in the first three quarters of the year amounted to EUR -2.5 million (-4.1). The impact of exchange rate changes on net financial expenses was EUR 0.1 million (-1.3). Net financial expenses were -0.4% (-0.7%) of net sales.

The equity ratio was 33.1% (32.2%) and the gearing rate was 92.6% (89.3%). Liquid assets at the end of the period amounted to EUR 22.4 million (29.8). Overdue trade receivables and credit losses have not increased during the pandemic.


DISTRIBUTION OF ASSETS

The Annual General Meeting held on 18 March 2021 resolved that a dividend of EUR 0.40 per share be paid on the basis of the balance sheet that was adopted for the financial year 2020. The dividend, totalling EUR 15.2 million, was paid to shareholders on 29 March 2021.

CAPITAL EXPENDITURE

Gross capital expenditure for the reporting period amounted to EUR 54.0 million (32.8). Acquisitions accounted for approximately EUR 23 million of the capital expenditure. Other capital expenditure consisting primarily of machine and equipment purchases as well as investments in information systems and buildings.

SUSTAINABILITY

Environmental responsibility

Climate benefits for customers created by L&T

1–9/2021

2020

Target

Target to be achieved by

Carbon handprint (tCO2e)

751,000

1,230,000

growth faster than net sales

2024

The carbon handprint illustrates the climate benefits of a product, process or service, i.e. the emission reduction potential for the user. L&T’s carbon handprint reduces the customer’s carbon footprint. Our services generated emission reductions for customers through, for example, customers replacing virgin raw materials with secondary raw materials and fossil fuels with biofuels and solid recovered fuels.

Progress towards science-based emission reduction targets, using 2018 as the baseline

1–9/2021

2020

Target

Target to be achieved by

Carbon footprint (tCO2e)

27,700

36,700



Carbon footprint intensity (gCO2e/km)

763

818

476

2030

L&T’s strategic objective is to halve the carbon footprint of its operations by 2030 and to reduce the indirect emissions generated by its supply chain. The emission reduction target set by L&T has been validated by the Science Based Targets initiative. The achievement of this objective will be promoted by switching to zero-emission transport technologies and fuels and by opting for renewable energy at L&T’s properties. In the third quarter, we purchased 50 new electric vans for our business operations in Sweden.

Social responsibility

Overall accident frequency


1–9/2021

2020

Interim target

Interim target to be achieved by

Overall accident frequency (TRIF)

23

24

20

2024

We use effective proactive measures – such as risk assessments, safety observations, Safety Walks and occupational safety sessions – to improve our safety as well as the safety of our customers and other stakeholders, while also eliminating risk factors.

Well-being at work



1–9/2021

2020

Interim target

Interim target to be achieved by

Occupational health rate (proportion of employees with no sickness-related absences)



55

50

45

2024



Sickness-related absences (%)



4.7



4.7



4.5



2024

In January-September, the sickness rate among employees was one percentage point higher than in the comparison period and the occupational health rate stayed on the same level, 55 per cent (55%).

Current issues related to sustainability

Lassila & Tikanoja achieved its highest-ever score in the trust and reputation survey conducted by T-Media that was published in September. The reputation score was 3.53, with 5 being the highest score and 1 being the lowest.

The guidelines set out to mitigate the COVID-19 pandemic – such as the remote work recommendation for office workers, maintaining safe distances to others and wearing face masks at L&T’s operating locations – remained in effect until the end of the third quarter.

PERSONNEL

In the first three quarters of the year, the average number of employees converted into full-time equivalents was 7,202 (7,249). At the end of the period, L&T had 8,729 (8,440) full-time and part-time employees. Of these, 7,362 (6,930) worked in Finland and 1,367 (1,510) in other countries.

SHARES AND SHARE CAPITAL

Traded volume and price

The volume of trading during the first half of the year was 8.0 million shares, which is 21.0% (24.0%) of the average number of outstanding shares. The value of trading was EUR 115.9 million (123.8). The highest share price was EUR 16.10 and the lowest EUR 13.40. The closing price was EUR 13.62. At the end of the review period, the market capitalisation excluding the shares held by the company was EUR 519.1 million (493.8).

Own shares

At the end of the period, the company held 686,396 of its own shares, representing 1.8% 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 38,112,478. The average number of shares excluding the shares held by the company was 38,110,918.

Shareholders

At the end of the period, the company had 23,166 (18,964) shareholders. Nominee-registered holdings accounted for 9.1% (10.4%) of the total number of shares.

Authorisations for the Board of Directors

The Annual General Meeting held on 18 March 2021 authorised Lassila & Tikanoja plc’s Board of Directors to decide 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 authorisation is effective for 18 months.

RESOLUTIONS BY THE ANNUAL GENERAL MEETING
The Annual General Meeting, which was held on 18 March 2021, adopted the financial statements and consolidated financial statements for 2020, released the members of the Board of Directors and the President and CEO from liability and approved the Remuneration Report for the Governing Bodies.
The Annual General Meeting resolved that a dividend of EUR 0.40 per share, totalling EUR 15.2 million, be paid on the basis of the balance sheet adopted for the financial year 2020. It was decided that the dividend be paid on 29 March 2021.
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, Laura Tarkka and Pasi Tolppanen were re-elected to the Board until the end of the following Annual General Meeting, and Jukka Leinonen 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 resolutions of the Annual General Meeting were announced in more detail in a stock exchange release on 18 March 2021.

BOARD OF DIRECTORS

The members of Lassila & Tikanoja plc’s Board of Directors are Heikki Bergholm, Teemu Kangas-Kärki, Laura Lares, Sakari Lassila, Jukka Leinonen, Laura Tarkka and Pasi Tolppanen. 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, Laura Lares and Jukka Leinonen as members. Heikki Bergholm was elected as the Chairman of the Personnel Committee and Laura Tarkka and Pasi Tolppanen as members.

Long-term targets

In October, the board of directors at Lassila & Tikanoja plc approved the updated targets for strategy period 2022-2026 and decided on the continuing implementation of the Group strategy. The Group financial targets remain the same for the strategy period. The sustainability and stakeholder targets were updated to provide a more transparent view to the progress of the strategy and the target levels were set on a higher level.

Financial targets

Measure

Target

Net Sales Growth, %

5 %

Return on Invested Capital, %

15 %

Gearing, %

Below 125 %

Sustainability and stakeholder targets

Measure

Target

Net Promoter Score, NPS

> 50 by 2026

Employee Net Promoter Score, eNPS

> 50 by 2026

Carbon handprint

growth faster than net sales

Carbon footprint

-50% by 2030 in comparison to 2018

Sustainability and stakeholder measures are reported as part of the Group quarterly and annual reporting. Lassila & Tikanoja does not consider the long term targets as guidance for any fiscal year.

KEY EVENTS DURING THE REVIEW PERIOD

On 27 July, 2021 the company issued a positive profit warning and updated its net sales outlook for 2021. Net sales in 2021 are estimated to grow and adjusted operating profit is estimated to be at the same level or better compared to the previous year.

On 30 July, 2021 Antti Niitynpää (eMBA) was appointed Senior Vice President, Facility Services Finland and a member of the Group Executive Board effective from 30 July 2021. His predecessor Tuomas Mäkipeska has resigned and continued his career outside the company.

On 17 September, 2021 the company announced the composition of Lassila & Tikanoja plc’s Nomination Board. Lassila & Tikanoja plc’s three largest shareholders that are entitled to appoint a representative to Lassila & Tikanoja plc’s Shareholders’ Nomination Board are a group of shareholders (Chemec Oy, CH-Polymers Oy, Maijala Eeva, Maijala Hannele, Maijala Heikki, Maijala Juhani, Maijala Juuso, Maijala Miikka, Maijala Mikko, Maijala Roope and Maijala Tuula), Mandatum Life Insurance Company Limited and the Evald ja Hilda Nissin Säätiö foundation. These shareholders have appointed Miikka Maijala, Patrick Lapveteläinen and Juhani Lassila as their representatives in Lassila & Tikanoja’s Nomination Board. The Chairman of Lassila & Tikanoja plc’s Board of Directors, Heikki Bergholm, acts as the fourth member of the Nomination Board. The Chairman of the Nomination Board is Patrick Lapveteläinen.

EVENTS AFTER THE REVIEW PERIOD

The company’s management is not aware of any events of material importance after the review period that might have affected the preparation of this release.


NEAR-TERM RISKS AND UNCERTAINTIES

The measures and recommendations issued by the authorities to restrict the COVID-19 pandemic and the resulting customer-specific production restrictions and adjustment measures are expected to potentially cause disruptions in service production during 2021.

Fluctuations in the price of oil influence both fuel costs and the prices of oil-based secondary raw materials, such as recycled plastic and regenerated lubricants.

The company has several ERP system renewal projects under way. Temporary additional costs arising from system deployments and establishing the operating model may weigh down the company’s result.

Challenges related to the availability of labour may increase production costs.

More detailed information on Lassila & Tikanoja’s risks and risk management will be provided in the 2020 Annual Report and in the Report of the Board of Directors and the consolidated financial statements.

Outlook for the year 2021

Net sales in 2021 are estimated to grow and adjusted operating profit is estimated to be at the same level or better compared to the previous year.

Helsinki, 25 October 2021

LASSILA & TIKANOJA PLC

Board of Directors
Eero Hautaniemi
President and CEO

For additional information, please contact:
Eero Hautaniemi, President and CEO, tel. +358 10 636 2810
Valtteri Palin, CFO, tel. +358 40 734 7749

Lassila & 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. This is to create more value with the circular economy for our customers, personnel and society in a broader sense. Achieving this also means growth in value for our shareholders. Our objective is to continuously grow our actions’ carbon handprint, our positive effect on the climate. We assume our social responsibility by looking after the work ability of our personnel as well as offering jobs to those who are struggling to find employment, for example. With operations in Finland and Sweden, L&T employs 8,100 people. Net sales in 2020 amounted to EUR 751.9 million. L&T is listed on Nasdaq Helsinki.

Distribution:
Nasdaq Helsinki
Major media
www.lt.fi

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