Lassila & Tikanoja Oyj : Interim Report Q3 2021 (pdf)

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
						Target to be
		1-9/2021	2020	Target	achieved by
					growth faster
Carbon handprint (tCO2e)		751,000		1,230,000	2024
		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 biofuels and solid recovered fuels.

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

						Target to be
		1-9/2021	2020	Target	achieved by
Carbon footprint (tCO2e)
	27,700		36,700
Carbon footprint intensity		763		818	476	2030
(gCO2e/km)

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
				Interim target
	1-9/2021		Interim	to be achieved
		2020	target	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.