Lassila & Tikanoja plc
Stock exchange release
26 July 2023 at 8:00 a.m.
Lassila & Tikanoja plc: Half-Year Financial Report 1 January-30 June 2023
FACILITY SERVICES FINLAND CONTINUED POSITIVE DEVELOPMENT
Unless otherwise mentioned, the figures in brackets refer to the corresponding period in the previous year.
- Net sales for the second quarter were EUR 207.5 million (219.1). Net sales decreased by 5.3%, mainly due to the divestment of the renewable energy sources business in the previous financial year. Net sales excluding the renewable energy sources business were on a par with the comparison period.
- Adjusted operating profit for the second quarter was EUR 9.2 million (11.0) and operating profit was EUR 9.2 million (10.1). Earnings per share were EUR 0.21 (0.17).
- Net sales for January-June totalled EUR 400.2 million (429.5). Net sales excluding the renewable energy sources business grew by 1.6%. Adjusted operating profit was EUR 10.6 million (11.0) and operating profit was EUR 10.6 million (9.8). Earnings per share were EUR 0.24 (0.15).
- Net cash flow from operating activities after investments per share was strong at EUR 0.51 (-0.13).
- The result of Facility Services Finland improved clearly. Measures aimed at a turnaround in profitability continued in Facility Services Sweden.
Outlook for the year 2023
Net sales and adjusted operating profit in 2023 are estimated to be at the same level as in the previous year even though the comparison period includes net sales from the renewable energy sources business in the amount of EUR 35.4 million.
PRESIDENT AND CEO EERO HAUTANIEMI:
"Net sales excluding the renewable energy sources business grew in January-June by 1.6 per cent. Adjusted operating profit was EUR 10.6 million (11.0).
In the Environmental Services division, the focus was heavily on corporate customers and producer responsibility organisation customers, and their number grew during the period under review. Nevertheless, the slowing of general economic activity reduced waste volumes, particularly in the construction and retail segments. The prices of recycled raw materials were at a lower level than in the comparison period, which was reflected in the Environmental Services division mainly in the form of a decline in net sales, but also a slight decrease in operating profit.
The Industrial Services division achieved a strong result. Demand was strong in hazardous waste services and environmental construction business lines. New customer projects were started in the environmental construction business line. The business line has a strong position particularly in the market for demanding industrial soil remediation projects.
The measures initiated in Facility Services Finland in the second half of 2022 to streamline the cost structure and improve operational efficiency continued in the first half of the year and had a positive impact on the result. The rising costs caused by high inflation were, for the most part, passed on to customer prices. In the cleaning business, the efficiency of production improved and personnel turnover continued to decrease in the second quarter. In Facility Services Sweden, the effort to simplify operating models and adapt them to the changed business environment continued as planned.
The wage-related decisions made in collective bargaining processes, including the one-off items involved, increased the cost level in all divisions in Finland from May onwards, and their impact was reflected in the Group's result in the second quarter. The increased costs will be compensated by operational efficiency improvements and price increases during the second half of the year.
Net cash flow from operating activities was strong, as was the company's financial position.
The new government programme of Finland, "A strong and committed Finland," includes several provisions promoting the circular economy and waste markets. The programme specifies the role of municipalities in waste management to household waste, and the activities of municipal companies in waste markets to be more regulated than before. Environmental permit processes will be streamlined by combining Regional State Administrative Agencies (AVI) and Centres for Economic Development, Transport and the Environment (ELY centres). The government programme aims to strengthen the markets for secondary raw materials and increase the use of secondary raw materials with market-based solutions."
GROUP NET SALES AND FINANCIAL PERFORMANCE
April-June
Net sales for the second quarter amounted to EUR 207.5 million (219.1), a decrease of 5.3% year-on-year. Excluding the effect of the renewable energy sources business, net sales increased by 0.3%, and the rate of organic growth was 0.3%. Adjusted operating profit was EUR 9.2 million (11.0), representing 4.4% (5.0%) of net sales. Operating profit was EUR 9.2 million (10.1), representing 4.4% (4.6%) of net sales. Earnings per share were EUR 0.21 (0.17).
Net sales increased in Industrial Services and decreased in Environmental Services (excluding the effect of the renewable energy sources business) and Facility Services Sweden. In Facility Services Finland net sales were on a par with the comparison period. Operating profit improved in Industrial Services and Facility Services Finland and declined in Environmental Services and Facility Services Sweden. The number of sickness-related absences was lower than in the comparison period, but still higher than usual.
The result for the interim period was affected positively by the fair value of EUR 1.3 million of an interest rate swap being recognised in financial items due to termination of the interest rate swap. In addition, the result for the second quarter was affected positively by L&T's EUR 0.7 million share of the profit of the joint venture Laania Oy.
January-June
Net sales for January-June amounted to EUR 400.2 million (429.5), a decrease of 6.8% year-on-year. Excluding the effect of the renewable energy sources business, net sales increased by 1.6%, and the rate of organic growth was 1.3%. Adjusted operating profit was EUR 10.6 million (11.0), representing 2.7% (2.6%) of net sales. Operating profit was EUR 10.6 million (9.8), representing 2.7% (2.3%) of net sales. Earnings per share were EUR 0.24 (0.15).
Net sales increased in Industrial Services ja decreased in Facility Services Finland. Net sales were on a par with the comparison period in Environmental Services (excluding the effect of the renewable energy sources business) and Facility Services Sweden. Operating profit improved in Industrial Services and Facility Services Finland, and declined in Environmental Services and Facility Services Sweden. The number of sickness-related absences was lower than in the comparison period, but still higher than usual.
The result for the interim period was affected positively by the fair value of EUR 1.3 million of an interest rate swap being recognised in financial items due to termination of the interest rate swap. The result for the review period was also affected positively by L&T's EUR 2.2 million share of the profit of the joint venture Laania Oy.
Financial summary
| 4-6/2023 | 4-6/2022 | Change % | 1-6/2023 | 1-6/2022 | Change % | 1-12/2022 | |
| Net sales, EUR million | 207.5 | 219.1 | -5.3 | 400.2 | 429.5 | -6.8 | 844.1 |
| Adjusted operating profit, EUR million | 9.2 | 11.0 | -16.8 | 10.6 | 11.0 | -3.7 | 40.9 |
| Adjusted operating margin, % | 4.4 | 5.0 | 2.7 | 2.6 | 4.8 | ||
| Operating profit, EUR million | 9.2 | 10.1 | -9.2 | 10.6 | 9.8 | 8.1 | 42.9 |
| Operating margin, % | 4.4 | 4.6 | 2.7 | 2.3 | 5.1 | ||
| EBITDA, EUR million | 23.2 | 24.2 | -4.2 | 38.6 | 37.7 | 2.4 | 98.3 |
| EBITDA, % | 11.2 | 11.0 | 9.6 | 8.8 | 11.6 | ||
| Earnings per share, EUR | 0.21 | 0.17 | 26.3 | 0.24 | 0.15 | 63.8 | 0.83 |
| Net cash flow from operating activities after investments per share, EUR | 0.00 | 0.03 | -83.2 | 0.51 | -0.13 | 1.08 | |
| Return on equity (ROE), % | 8.7 | 5.6 | 14.6 | ||||
| Capital employed, EUR million | 416.9 | 431.3 | -3.3 | 437.2 | |||
| Return on capital employed (ROCE), %1 | 11.5 | 9.3 | 10.4 | ||||
| Equity ratio, %1 | 33.4 | 30.6 | 34.3 | ||||
| Gearing, % | 86.7 | 102.4 | 75.9 |
1 The figures for the first half of 2022 have been adjusted. More detailed information on the restatements is provided in the section on key figures in this half-year financial report.
NET SALES AND OPERATING PROFIT BY DIVISION
Environmental Services
April-June
The division's net sales for the second quarter decreased to EUR 74.4 million (87.8). Operating profit was EUR 8.5 million (10.0). Excluding the effect of the renewable energy sources
business, net sales decreased by 2.0%.
January-June
The Environmental Services division's net sales for the first half of the year decreased to EUR 140.7 million (175.1). Operating profit was EUR 11.8 million (12.9). Excluding the effect of the renewable energy sources business, net sales were on a par with the comparison period. The renewable energy sources business was reported as a part of the Environmental Services division until the end of the second quarter of 2022.
The focus of the Environmental Services division is heavily on corporate customers and producer responsibility organisation customers, and their number grew during the period under review. The slowing of general economic activity led to a decrease in waste volumes. Waste streams decreased particularly in the construction and retail segments. The demand and prices of recycled raw materials were at a low level. The market for household waste management open to free competition continued to decline due to the amendments to the Waste Act that entered into effect in 2021.
There is a significant systems renewal project under way in Environmental Services, which will also include the deployment of a new ERP system. The systems renewal project will be reflected in higher fixed costs in the division throughout the year. Industrial action in the transport sector made resource allocation more difficult, and increased overtime led to higher costs in the first quarter. The new collective agreement in the transport sector, and the one-off items involved, increased personnel expenses in the second quarter.
Industrial Services
April-June
The division's net sales for the second quarter increased to EUR 38.0 million (33.7). Operating profit was EUR 3.9 million (3.3).
January-June
The Industrial Services division's net sales for the first half of the year grew to EUR 64.1 million (56.8). Operating profit was EUR 4.0 million (3.5).
In Industrial Services, the hazardous waste business line saw strong demand. In the environmental construction business line, demand remained high and work on new customer sites started. The business line has a strong position particularly in the market for demanding industrial soil remediation projects. In the process cleaning business in Sweden, demand was lower when compared to the high level seen in the comparison period. The new collective agreement in Finland in the transport sector, and the one-off items involved, increased personnel expenses in the second quarter.
Facility Services Finland
April-June
The division's net sales for the second quarter were on a par with the comparison period at EUR 62.7 million (63.2). Operating profit was EUR -0.0 million (-1.0).
January-June
The net sales of Facility Services Finland for the first half of the year decreased to EUR 129.8 million (131.4). Operating profit improved to EUR 0.2 million (-3.3).
Unprofitable customer agreements ended in Facility Services Finland during the period under review. The measures initiated in the second half of 2022 to streamline the cost structure and improve operational efficiency continued in the first half of the year. In the cleaning business, the efficiency of production improved and personnel turnover continued to decrease in the second quarter. The rising costs caused by high inflation were, for the most part, passed on to customer prices. The increase in costs caused by the wage-related decisions reached in collective bargaining processes will be compensated by operational efficiency improvements and price increases by the end of the year.
Facility Services Sweden
April-June
The division's net sales for the second quarter decreased to EUR 33.8 million (35.9). Operating profit declined to EUR -2.0 million (-0.2). Operating profit before the amortisation of purchase price allocations of acquisitions was EUR -1.7 million (0.4).
January-June
The net sales of Facility Services Sweden amounted to EUR 68.3 million (68.8) during the first half of the year. Operating profit declined to EUR -3.0 million (-0.4). Operating profit before the amortisation of purchase price allocations of acquisitions was EUR -2.4 million (0.7).
Customer agreements in the Swedish business are mostly fixed-price contracts, and the division has not been able to pass on the increased production costs to customers in the form of price increases. The division has a programme under way to simplify operating models and adapt them to the changed business environment. The results are expected to become visible by the end of year 2024.
FINANCING
Net cash flow from operating activities amounted to EUR 38.5 million (22.5) in the first half of the year. Net cash flow after investments amounted to EUR 19.3 million (-4.9). In the comparison period, net cash flow after investments was reduced by acquisitions, which had a total impact of approximately EUR 13 million. A total of EUR 1.4 million in working capital was released (EUR 8.7 million committed).
At the end of the review period, interest-bearing liabilities amounted to EUR 209.6 million (234.8). Net interest-bearing liabilities totalled EUR 179.7 million (201.2). The average interest rate on long-term loans, excluding lease liabilities, with interest rate hedging, was 3.4% (2.4%). In the second quarter, the company refinanced a EUR 50 million bank loan that would have matured in the third quarter of 2024. The new bank loan totalling EUR 40 million will mature in the third quarter of 2026. In addition to the usual financial covenants, the new bank loan is linked to sustainability targets, namely L&T's carbon footprint and total recordable injury frequency. The interest rate swap used by the company to convert part of the EUR 50 million bank loan into a fixed interest loan was terminated in conjunction with the refinancing of the bank loan. The fair value of the interest rate swap, EUR 1.3 million, was recognised in financial income during the review period.
The EUR 100.0 million commercial paper programme was unused at the end of the review period (EUR 20.0 million in use). The account limit totalling EUR 10.0 million and the committed credit limit totalling EUR 40.0 million were not in use, as was the case in the comparison period.
Net financial expenses amounted to EUR -2.3 million (-2.7). Net financial expenses increased due to the rising general interest rate level, which was compensated by the fair value of EUR 1.3 million of an interest rate swap being recognised in financial items due to termination of the interest rate swap. The effect of exchange rate changes on net financial expenses was EUR -0.1 million (-0.1). Net financial expenses were 0.6% (0.6%) of net sales.
The equity ratio was 33.4% (30.6%) and the gearing ratio was 86.7% (102.4%). The Group's total equity was EUR 207.3 million (196.5). Translation differences caused by the depreciation of the Swedish krona affected equity by EUR -3.9 million. Cash and cash equivalents at the end of the period amounted to EUR 29.9 million (33.6).
DIVIDEND DISTRIBUTION
The Annual General Meeting held on 23 March 2023 resolved that a dividend of EUR 0.47 per share, totalling EUR 17.9 million, be paid on the basis of the balance sheet that was adopted for the financial year 2022. The dividend was paid to shareholders on 3 April 2023.
CAPITAL EXPENDITURE
Gross capital expenditure for the first half of the year totalled EUR 31.8 million (35.7). The capital expenditure consisted primarily of machine and equipment purchases, as well as investments in information systems. Acquisitions accounted for approximately EUR 21 million of the gross capital expenditure in the comparison period.
SUSTAINABILITY
Environmental responsibility
Climate benefits for customers created by L&T
| H1/2023 | H1/2022 | 2022 | Target | |
| Carbon handprint (tCO2e) | -230,800 | -269,900 | -534,500 | growth faster than net sales |
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 solid recovered fuels.
The carbon handprint of the renewable energy sources business and the joint venture Laania is not reported as part of L&T's carbon handprint for 2022.
Recycling rate and material recovery
H1/2023 | H1/2022 | 2022 | Target | Target to be achieved by | |
| Recycling rate of material flows managed by L&T, % | 57.2 | 57.4 | 59.4 | 70 | 2030 |
The recycling rate is the weighted average of L&T's customers' recycling rates. It also includes materials that cannot yet be recycled. To increase the reuse and recycling rate, L&T actively looks for new material streams whose refining rate the company can increase. Reporting covers municipal waste collected from corporate customers, hazardous waste, industrial waste and construction waste in Finland. Slurry, contaminated soil and ash are excluded from reporting.
Progress towards science-based emission reduction targets, using 2018 as the baseline
| H1/2023 | H1/2022 | 2022 | Target | Target to be achieved by | |
| Carbon footprint (tCO2e) | 15,200 | 17,000 | 34,200 | 24,400 | 2030 |
L&T's strategic objective is to halve the carbon footprint of its operations by 2030, using 2018 as the baseline, 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. Transport operations account for 95 per cent of the emissions generated by L&T's own operations. The use of renewable fuels increased significantly in the first half of 2023, particularly in the Industrial Services division's fleet of heavy vehicles.
The fuel distribution obligation in Finland was adjusted in 2022 by reducing the biofuel component by 7.5 percentage points. The change was not taken into account in the emissions calculations reported in L&T's annual report published in March 2023, as Statistics Finland had not yet updated its fuel classification data in accordance with the change. Statistics Finland published the updated fuel classification data later in spring 2023, and they have been taken into account in the emission calculations in this report.
Social responsibility
Total recordable injury frequency (TRIF)
| H1/2023 | H1/2022 | 2022 | Target | Target to be achieved by | |
Total recordable injury frequency | 22 | 24 | 23 | 15 | 2030 |
L&T eliminates safety hazards and improves its own safety as well as the safety of customers and other stakeholders through effective proactive measures, such as risk assessments, safety observations, Safety Walks and occupational safety sessions.
Well-being at work
| H1/2023 | H1/2022 | 2022 | Target | Target to be achieved by | |
| Occupational health rate (proportion of employees with no sickness-related absences) | 54 | 51 | 40 | 57 | 2026 |
| Sickness-related absences (%) | 5.3 | 5.8 | 5.6 | 4 | 2030 |
The objective of L&T's personnel policies and plans is to ensure that the number, competence and retention of personnel are at the level required for effective performance. For a labour-intensive company, employees' ability to work and function and maintain it throughout their careers until retirement on old-age pension is important.
Current issues related to sustainability
The company has started preparing for the implementation of the EU's sustainability reporting standards. L&T has begun to conduct a double materiality assessment, and the aim is to complete it before the end of 2023.
PERSONNEL
In January-June, the average number of employees converted into full-time equivalents was 6,891 (7,098). At the end of the review period, L&T had 9,124 (9,099) full-time and part-time employees. Of these, 7,753 (7,680) worked in Finland and 1,371 (1,419) in Sweden.
SHARES AND SHARE CAPITAL
Traded volume and price
The volume of trading in L&T's shares in January-June was 3.1 million shares, which is 8.0% (18.3%) of the average number of outstanding shares. The value of trading was EUR 32.3 million (79.3). The highest share price was EUR 11.84 and the lowest EUR 9.85. The closing price was EUR 9.97. At the end of the review period, the market capitalisation excluding the shares held by the company was EUR 380.4 million (409.7).
Own shares
At the end of the period, the company held 644,772 of its own shares, representing 1.7% of all shares and votes.
Share capital and number of shares
The company's registered share capital was EUR 19,399,437 and the number of outstanding shares was 38,154,102 at the end of the period. The average number of shares excluding the shares held by the company was 38,123,940.
Shareholders
At the end of the review period, the company had 25,121 (23,894) shareholders. Nominee-registered holdings accounted for 9.3% (8.1%) of the total number of shares.
Notifications on major holdings
On 26 June 2023, Lassila & Tikanoja plc received a notification indicating that Mandatum Life Insurance Company Limited's shareholding in Lassila & Tikanoja fell below the 5% threshold on 26 June 2023.
Authorisations for the Board of Directors
The Annual General Meeting held on 23 March 2023 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 that 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 of Lassila & Tikanoja plc was held on 23 March 2023. The resolutions of the Annual General Meeting were announced in more detail in a stock exchange release on 23 March 2023.
BOARD OF DIRECTORS
The members of Lassila & Tikanoja plc's Board of Directors are Teemu Kangas-Kärki, Laura Lares, Sakari Lassila, Jukka Leinonen, Anni Ronkainen and Pasi Tolppanen. Lassila & Tikanoja plc's Annual General Meeting held on 23 March 2023 elected Jukka Leinonen as the Chairman of the Board and Sakari Lassila as the Vice Chairman.
In its constitutive meeting held after the Annual General Meeting, the Board of Directors elected the members of the Audit Committee and the Personnel and Sustainability Committee from amongst its members. Sakari Lassila (Chairman), Teemu Kangas-Kärki and Anni Ronkainen were elected to the Audit Committee. Jukka Leinonen (Chairman), Laura Lares and Pasi Tolppanen were elected to the Personnel and Sustainability Committee.
CHANGES IN THE GROUP EXECUTIVE BOARD
On 31 March 2023, the company announced that Tina Hellstadius, the Senior Vice President for Facility Services Sweden, will leave Lassila & Tikanoja on 31 March 2023.
On 18 April 2023, the company announced that Mikko Taipale (Master of Laws) has been appointed Senior Vice President, Facility Services Sweden and a member of the Group Executive Board effective from 19 April 2023.
NEAR-TERM RISKS AND UNCERTAINTIES
General economic uncertainty may affect the level of economic activity among customers, which may reduce the demand for L&T's services.
Higher costs, such as the rising prices of fuel and energy and potential interest rate hikes may have a negative impact on the company's financial performance.
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.
Production costs may be increased by challenges related to employee turnover and labour availability.
The geopolitical situation involves continued uncertainty due to Russia's war of aggression. The indirect impacts on overall economic activity in Finland and Sweden may have a negative impact on net sales and profit.
The Group company Lassila & Tikanoja FM AB is a claimant and a defendant in legal proceedings in Sweden concerning unpaid receivables invoiced from a former customer of the Group. In June 2022, Lassila & Tikanoja FM AB took legal action in the District Court of Solna against the former customer company of L&T, demanding payment of approximately SEK 18 million for unpaid receivables. In March 2023, the former L&T customer company in question rejected Lassila & Tikanoja FM AB's claims and the payment obligation, and brought a counterclaim demanding compensation totalling approximately SEK 102 million from Lassila & Tikanoja FM AB. The dispute is still pending. Lassila & Tikanoja considers the counterclaim to be without merit.
More detailed information on Lassila & Tikanoja's risks and risk management will be provided in the 2022 Annual Review and in the Report by the Board of Directors and the consolidated financial statements.
Helsinki, 25 July 2023
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, manufacturing sites 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 approximately 8,300 people. Net sales in 2022 amounted to EUR 844.1 million. L&T is listed on Nasdaq Helsinki.
Distribution:
Nasdaq Helsinki
Major media
www.lt.fi
