Lassila & Tikanoja plc: Half-Year Financial Report 1 January–30 June 2022
Lassila & Tikanoja plc
Stock exchange release
22 July 2022 at 8:00 a.m.
Lassila & Tikanoja plc: Half-Year Financial Report 1 January–30 June 2022
THE POSITIVE DEVELOPMENT OF NET SALES CONTINUED IN THE SECOND QUARTER, AND OPERATING PROFIT IMPROVED SIGNIFICANTLY COMPARED TO THE PREVIOUS QUARTER
Unless otherwise mentioned, the figures in brackets refer to the corresponding period in the previous year.
- Net sales for the second quarter were EUR 219.1 million (198.7). Net sales increased by 10.3%. Organic growth was 5.6%.
- Adjusted operating profit for the second quarter was EUR 11.0 million (10.2) and operating profit was EUR 10.1 million (10.6). Earnings per share were EUR 0.17 (0.21).
- Net sales for January–June totalled EUR 429.5 million (390.7). Adjusted operating profit was EUR 11.0 million (13.8) and operating profit was EUR 9.8 million (14.3). Cash flow from operating activities amounted to EUR 22.5 million (20.4). Earnings per share were EUR 0.15 (0.27).
- In Environmental Services and Industrial Services, the higher fuel prices were successfully passed on to customer prices through price increases carried out in February–April.
- Increased fuel prices, the generally higher cost level and sickness-related absences caused by the COVID-19 pandemic had a negative impact on profitability in the first half of the year. Facility Services in Finland and Sweden were not yet able to to pass on to customer prices the rise in costs caused by general inflation.
Outlook for the year 2022
Net sales and adjusted operating profit in 2022 are estimated to be at the same level as in the previous year.
Starting from July 1, 2022 the renewable energy sources business will no longer be consolidated to the Group net sales. The renewable energy sources business was merged with Neova Plc’s corresponding business and was given the name Laania Plc. The net sales of the renewable energy sources business in January-June were EUR 35.4 million.
PRESIDENT AND CEO EERO HAUTANIEMI:
“In the second quarter, net sales increased by 10.3 per cent year-on-year. Organic growth accounted for 5.6 percentage points.
L&T’s circular economy businesses achieved good operative results. In Environmental Services, the number of ordered services and waste volumes both continued to grow in the second quarter. The number of corporate customers grew, and the prices of, and demand for, recycled raw materials were at a good level. In Industrial Services, demand for hazardous waste services was strong in the second quarter. The recycling rate of hazardous waste was high in the first half at almost 70 per cent. In the environmental construction business, several demanding industrial construction projects and soil decontamination projects started during the period under review.
Fuel prices increased sharply in February due to the war in Ukraine, and the higher cost level was successfully passed on to customer prices in Environmental Services and Industrial Services through price increases carried out in February–April. In Facility Services in Finland and Sweden, the higher general cost level had a negative effect on the divisions’ profitability. The COVID-19 pandemic increased the number of sickness-related absences in all divisions during the first quarter. The number of sickness-related absences began to decrease in May, but the absences still weighed down the result of Facility Services Finland in the second quarter.
In May, we issued senior unsecured sustainability-linked notes in the amount of EUR 75 million. The notes will mature in May 2028. The issuance of the notes extends the average maturity of our bond portfolio and provides an incentive towards reaching our ambitious sustainability targets.”
GROUP NET SALES AND FINANCIAL PERFORMANCE
April–June
Lassila & Tikanoja’s net sales for the second quarter totalled EUR 219.1 million (198.7), an increase of 10.3% year-on-year. Organic growth was 5.6%. Adjusted operating profit was EUR 11.0 million (10.2), representing 5.0% (5.1%) of net sales. Operating profit was EUR 10.1 million (10.6), representing 4.6% (5.3%) of net sales. Earnings per share were EUR 0.17 (0.21).
Net sales increased in Environmental Services, Industrial Services and Facility Services Finland. Net sales decreased in Facility Services Sweden. Operating profit improved in Environmental Services and declined in Facility Services in Finland and Sweden. Operating profit was on a par with the comparison period in Industrial Services.
The Group’s adjusted operating profit was still negatively affected by the increase in fuel prices, the higher general cost level and the large number of sickness-related absences caused by the COVID-19 pandemic. The result for the review period was negatively affected by net financial expenses increasing to EUR -1.7 million (-1.1).
January–June
Net sales for January–June totalled EUR 429.5 million (390.7), an increase of 9.9% year-on-year. Organic growth was 5.4%. Adjusted operating profit was EUR 11.0 million (13.8), representing 2.6% (3.5%) of net sales. Operating profit was EUR 9.8 million (14.3), representing 2.3% (3.7%) of net sales. Earnings per share were EUR 0.15 (0.27).
Net sales increased in Environmental Services, Industrial Services and Facility Services Finland. Net sales decreased in Facility Services Sweden. Operating profit improved in Environmental Services and declined in Facility Services in Finland and Sweden. Operating profit was on a par with the comparison period in Industrial Services.
Throughout the period under review, the Group’s adjusted operating profit was negatively affected by the increase in fuel prices, the higher general cost level and the large number of sickness-related absences caused by the COVID-19 pandemic. The result for the review period was negatively affected by net financial expenses increasing to EUR -2.7 million (-1.6).
Financial summary
| 4–6/2022 | 4–6/2021 | Change % | 1–6/2022 | 1–6/2021 | Change % | 1–12/2021 | |||||||||
| Net sales, EUR million | 219.1 | 198.7 | 10.3 | 429.5 | 390.7 | 9.9 | 812.5 | ||||||||
| Adjusted operating profit, EUR million | 11.0 | 10.2 | 8.1 | 11.0 | 13.8 | -20.1 | 42.4 | ||||||||
| Adjusted operating margin, % | 5.0 | 5.1 | 2.6 | 3.5 | 5.2 | ||||||||||
| Operating profit, EUR million | 10.1 | 10.6 | -4.3 | 9.8 | 14.3 | -31.2 | 42.2 | ||||||||
| Operating margin, % | 4.6 | 5.3 | 2.3 | 3.7 | 5.2 | ||||||||||
| EBITDA, EUR million | 24.2 | 24.1 | 0.4 | 37.7 | 40.5 | -6.9 | 95.1 | ||||||||
| EBITDA, % | 11.0 | 12.1 | 8.8 | 10.4 | 11.7 | ||||||||||
| Profit before tax, EUR million | 8.4 | 9.5 | -11.6 | 7.2 | 12.7 | -43.4 | 39.0 | ||||||||
| Earnings per share, EUR | 0.17 | 0.21 | -17.8 | 0.15 | 0.27 | -45.4 | 0.90 | ||||||||
| Net cash flow from operating activities after investments per share, EUR | 0.03 | -0.66 | 104.2 | -0.13 | -0.55 | 76.8 | 0.05 | ||||||||
| Return on equity (ROE), % | 5.6 | 11.0 | 17.1 | ||||||||||||
| Invested capital, EUR million | 431.3 | 386.1 | 11.7 | 406.0 | |||||||||||
| Return on invested capital (ROI), % | 4.7 | 7.5 | 10.8 | ||||||||||||
| Equity ratio, % | 30.1 | 31.8 | 33.7 | ||||||||||||
| Gearing, % | 102.4 | 97.9 | 79.4 | ||||||||||||
NET SALES AND OPERATING PROFIT BY DIVISION
Environmental Services
April–June
The division’s net sales for the second quarter increased to EUR 87.8 million (77.2). Operating profit rose to EUR 10.0 million (7.8).
January–June
The Environmental Services division’s net sales for the first half of the year grew to EUR 175.1 million (153.4). Operating profit was EUR 12.9 million (12.4).
In Environmental Services, the number of ordered services and waste volumes both continued to grow in the second quarter. The number of corporate customers grew and a new office was opened in Seinäjoki. The prices of, and demand for, recycled raw materials remained good.
Fuel prices rose sharply at the end of February due to the war in Ukraine. The higher fuel costs were passed on to customer prices through cost increases carried out in February–April. The COVID-19 pandemic increased the number of sickness-related absences during the first quarter. The number of sickness-related absences returned close to the normal level in May.
The merger of the Environmental Services division’s renewable energy sources business with Neova Oy’s corresponding business was approved by the Finnish Competition and Consumer Authority in April 2022. The joint venture between Lassila & Tikanoja and Neova was given the name Laania Oy and it started its operations on 1 July 2022.
In the first half of the year, the net sales of the Environmental Services division’s renewable energy sources business were EUR 35.4 million, and the operating profit was EUR 0.3 million. In 2021, the net sales of the renewable energy sources business were EUR 56.9 million, and the operating profit was EUR 0.9 million. The business will no longer be reported as part of the Environmental Services division after the second quarter of 2022. Going forward, the net profit of the joint venture will be consolidated in one line.
Industrial Services
April–June
The division’s net sales for the second quarter increased to EUR 33.7 million (26.9). Operating profit was EUR 3.3 million (3.2).
January–June
The Industrial Services division’s net sales for the first half of the year grew to EUR 56.8 million (46.5). Operating profit was EUR 3.5 million (3.4).
The Industrial Services division strengthened its position in hazardous and non-hazardous waste recycling services by acquiring Fortum’s hazardous waste SME business in Finland at the beginning of February. The takeover of the business acquired from Fortum proceeded as planned, and demand for hazardous waste services was solid in the second quarter.
In environmental construction services, several demanding industrial construction projects and soil decontamination projects started during the period under review.
The demand for process cleaning services was on a par with the comparison period in spite of annual maintenance breaks previously scheduled for the spring being postponed to later in the year due to the COVID-19 pandemic and industrial action. The changes in the scheduling of annual maintenance breaks made resource allocation more challenging. In the process cleaning business, the development of the service offering continued in the industrial and energy segments, where other cleaning methods are now offered alongside blast cleaning.
In February, Industrial Services expanded into the Swedish process cleaning services market by acquiring 70% of the shares of Sand & Vattenbläst i Tyringe AB (“SVB”), a provider of process cleaning services in Sweden. The integration of the Swedish business proceeded according to plan in the second quarter.
Fuel prices rose sharply at the end of February due to the war in Ukraine. The higher fuel costs were passed on to customer prices through cost increases carried out in February–April. The COVID-19 pandemic increased the number of sickness-related absences during the first quarter. The number of sickness-related absences returned close to the normal level in May.
Facility Services Finland
April–June
The division’s net sales for the second quarter increased to EUR 63.2 million (59.0). Operating profit decreased to EUR -1.0 million (-0.4).
January–June
The net sales of Facility Services Finland increased to EUR 131.4 million (120.2) in the first half of the year. Operating profit decreased to EUR -3.3 million (-1.7).
Especially in the cleaning business, the availability of labour declined and employee turnover increased in the second quarter. In property maintenance, production costs were increased by the higher fuel prices and general cost inflation. The increased production costs could not be fully passed on to customer prices yet. Measures to increase prices and keep rising costs in check will continue during the second half of the year.
Several new projects were launched to improve the availability of labour. Co-operation with municipal employment services and government organisations was intensified. L&T joined forces with Staffpoint to offer jobs to Ukrainian refugees. Approximately 30 Ukrainians started working at L&T’s operating locations in April–June. Job interviews were completed in relation to the recruitment of a group of employees from the Philippines for full-time cleaning work under contracts valid until further notice. The recruits will start their employment at L&T in the final quarter of 2022. Arrangements will be made for each of the persons recruited to work in Finland to have appropriate housing and the necessary personal permits and other documents.
In landscaping services in the property maintenance business, the number of customer projects related to promoting biodiversity – such as turning lawns into meadows – increased. The number of energy management projects increased.
Facility Services Sweden
April–June
The division’s net sales for the second quarter decreased to EUR 35.9 million (37.1). Operating profit declined to EUR -0.2 million (0.6). Operating profit before the amortisation of purchase price allocations of acquisitions was EUR 0.4 million (1.2).
January–June
Facility Services Sweden’s net sales for the first half of the year decreased to EUR 68.8 million (73.3). Operating profit declined to EUR -0.4 million (1.1). Operating profit before the amortisation of purchase price allocations of acquisitions was EUR 0.7 million (2.1).
Higher fuel prices and inflation increased production costs in Facility Services Sweden in April–June. As customer contracts in the Swedish business are primarily based on fixed prices, the higher prices could not be passed on to customers in the form of price increases during the first half of the year. Adaptation measures in Facility Services Sweden were initiated in the second quarter and will continue in the second half of the year.
FINANCING
Cash flow from operating activities amounted to EUR 22.5 million (20.4) in the first half of the year. Net cash flow from operating and investing activities amounted to EUR -4.9 million (-21.0). Net cash flow after investments was reduced by acquisitions, which had a total impact of approximately EUR 13 million (approximately 18). A total of EUR 8.7 million in working capital was committed (EUR 11.6 million committed).
At the end of the period, interest-bearing liabilities amounted to EUR 234.8 million (198.6). Net interest-bearing liabilities totalled EUR 201.2 million (183.6). The average interest rate on long-term loans, excluding IFRS 16 liabilities, with interest rate hedging, was 2.4% (1.3).
Of the EUR 100.0 million commercial paper programme, EUR 20.0 million (25.0) was in use at the end of the period. A committed credit limit totalling EUR 40.0 million was not in use, as was the case in the comparison period. The Group signed a credit limit linked to responsibility targets during the review period. The credit limit will mature in the first quarter of 2025. The company issued senior unsecured sustainability-linked notes in the amount of EUR 75 million in May. The new notes will mature in the second quarter of 2028 and bear fixed annual interest at the rate of 3.375 per cent.
Net financial expenses amounted to EUR -2.7 million (-1.6). The increase in net financial expenses was attributable to higher interest-bearing liabilities due to acquisitions, bond redemption costs totalling EUR 0.3 million and the higher general interest rate level. The effect of exchange rate changes on net financial expenses was EUR -0.1 million (0.0). Net financial expenses were 0.6% (0.4) of net sales.
The equity ratio was 30.1% (31.8) and the gearing ratio was 102.4% (97.9). Cash and cash equivalents at the end of the period amounted to EUR 33.6 million (14.9). Overdue trade receivables and credit losses have not increased as a result of the COVID-19 pandemic or the war in Ukraine.
DISTRIBUTION OF ASSETS
The Annual General Meeting held on 17 March 2022 resolved that a dividend of EUR 0.46 per share, totalling EUR 17.5 million, be paid on the basis of the balance sheet that was adopted for the financial year 2021. The dividend was paid to shareholders on 28 March 2022.
CAPITAL EXPENDITURE
Gross capital expenditure for the first half of the year came to EUR 35.7 million (40.2). Acquisitions accounted for approximately EUR 21 million of the capital expenditure (approximately EUR 21 million). Other capital expenditure consisted 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
| H1/2022 | H1/2021 | 2021 | Target | Target to be achieved by | |
| Carbon handprint (tCO2e) | 604,000 | 579,000 | 1,100,000 | 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 biofuels and solid recovered fuels.
Recycling rate and material recovery
| H1/2022 | H1/2021 | 2021 | Target | Target to be achieved by | |
| Recycling rate of material flows managed by L&T (%) | 57.4 | 59 | 58.4 | 60 | 2024 |
The recycling rate is the weighted average of our customers’ recycling rates. It also includes materials that cannot be recycled at present. To increase our reuse and recycling rate, we actively look for new material streams whose refining rate we 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
| H1/2022 | H1/2021 | 2021 | Target | Target to be achieved by | |
| Carbon footprint (tCO2e) | 16,400 | 18,500 | 37,800 | | |
| Carbon footprint intensity (gCO2e/km) | 670 | 780 | 767 | 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. The carbon footprint during the review period was affected among other things by the change in the renewable fuel distribution obligation, which lowered diesel emissions in particular.
Social responsibility
Overall accident frequency
| H1/2022 | H1/2021 | 2021 | Target | Target to be achieved by | |
| Overall accident frequency (TRIF) | 24 | 24 | 24 | 20 | 2024 |
L&T eliminates 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
| H1/2022 | H1/2021 | 2021 | Target | Target to be achieved by | |
| Occupational health rate (proportion of employees with no sickness-related absences) | 51 | 66 | 45 | 45 | 2024 |
| Sickness-related absences (%) | 5.8 | 4.6 | 5.0 | 4.5 | 2024 |
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. The COVID-19 pandemic significantly increased employees’ sickness-related absence during the first quarter in all divisions. Sickness-related absences declined in the second quarter but were still on a level higher than normal.
Current issues related to sustainability
In May, Lassila & Tikanoja launched a Sustainability-Linked Bond Framework and subsequently issued new fixed rate notes under it. In the framework, the financial characteristics of notes are linked to the achievement of two Sustainability Performance Targets, namely reducing GHG emissions from L&T’s own operations (Scope 1 and 2) and contractors’ fuel consumption for transportation (Scope 3).
The Sustainability-Linked Bond Framework was reviewed by Sustainalytics, a second opinion provider, confirming the alignment with the Sustainability-Linked Bond Principles published by ICMA. Sustainalytics found that the Sustainability Performance Targets in the framework are ambitious and the related Key Performance Indicators are strong, also due to the direct emission target having been validated by the Science Based Target initiative (SBTi).
Lassila & Tikanoja is one of 10 Finnish companies selected for a pilot programme coordinated by FIBS and Sitra to test the Science Based Targets Network’s guidance concerning science-based nature targets. The new guidance that is currently in development responds to companies’ need for practical tools to support genuinely impactful and comparable nature efforts. The companies selected for the pilot will get to try setting nature targets with the help of the guidance as well as influence the final guidance by providing feedback on their experiences during the pilot.
L&T joined the Green Deal agreement on construction plastics. The aim of the Green Deal is to accelerate the circular economy for construction plastics through concrete measures. L&T made a commitment to increase the separate collection of plastic film and to develop plastic-related processing technologies to promote reuse and closed loops.
PERSONNEL
In the first half of the year, the average number of employees converted into full-time equivalents was 7,098 (6,846). At the end of the period, L&T had 9,099 (8,737) full-time and part-time employees. Of these, 7,680 (7,314) worked in Finland and 1,419 (1,423) in Sweden.
SHARES AND SHARE CAPITAL
Traded volume and price
The volume of trading in L&T’s shares in January–June was 7.0 million shares, which is 18.3% (16.2) of the average number of outstanding shares. The value of trading was EUR 79.3 million (89.6). The highest share price was EUR 13.62 and the lowest EUR 9.75. The closing price was EUR 10.74. At the end of the review period, the market capitalisation excluding the shares held by the company was EUR 409.7 million (539.7).
Own shares
At the end of the period, the company held 653,256 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 38,145,618 at the end of the period. The average number of shares excluding the shares held by the company was 38,135,705.
Shareholders
At the end of the period, the company had 23,894 (23,533) shareholders. Nominee-registered holdings accounted for 8.1% (9.3%) of the total number of shares.
Authorisations for the Board of Directors
The Annual General Meeting held on 17 March 2022 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 was held on 17 March 2022. The resolutions of the Annual General Meeting were announced in more detail in a stock exchange release on 17 March 2022.
BOARD OF DIRECTORS
The members of Lassila & Tikanoja plc’s Board of Directors are 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 Jukka Leinonen 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 and Laura Tarkka as the members of the committee. The Board elected Jukka Leinonen as the Chairman of the Personnel and Sustainability Committee, with Laura Tarkka and Pasi Tolppanen as the members of the committee.
EVENTS AFTER THE REVIEW PERIOD
The merger of the Environmental Services division’s renewable energy sources business with Neova Oy’s corresponding business was approved by the Finnish Competition and Consumer Authority in April 2022. The joint venture between Lassila & Tikanoja and Neova was given the name Laania Oy and it started its operations on 1 July 2022.
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 still expected to cause disruptions in service production during 2022. More contagious variants of COVID-19 may lead to increased sickness-related absences in the future, which can cause disruptions in L&T’s service production and increase costs.
As the company has no operations or holdings in Russia, Belarus or Ukraine, and there are no significant Russian-owned companies in the customer base, the immediate effects of the war in Ukraine will be minor. However, indirect impacts on overall economic activity in Finland and Sweden may have a negative impact on net sales and profit.
Higher costs, especially fuel prices, may have a negative impact on the company’s financial performance. 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.
Potential interest rate hikes may increase the company’s interest costs.
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 2021 Annual Report and in the Report of the Board of Directors and the consolidated financial statements.
Helsinki, 21 July 2022
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 8,171 people. In 2021, the company’s net sales amounted to EUR 812.5 million. L&T is listed on Nasdaq Helsinki.
Distribution:
Nasdaq Helsinki
Major media
www.lt.fi
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