Lassila & Tikanoja plc: Interim Report 1 January–30 September 2022
Lassila & Tikanoja plc
Stock exchange release
27 October 2022 at 8:00 a.m.
Lassila & Tikanoja plc: Interim Report 1 January–30 September 2022
POSITIVE DEVELOPMENT IN NET SALES AND ADJUSTED OPERATING PROFIT
Unless otherwise mentioned, the figures in brackets refer to the corresponding period in the previous year.
- Net sales for the third quarter were EUR 204.4 million (198.4). Net sales increased by 3.1%. Net sales growth excluding the renewable energy sources business was 7.0%. Organic growth was 3.7%.
- Adjusted operating profit for the third quarter was EUR 20.3 million (18.5) and operating profit was EUR 20.2 million (18.0). Earnings per share were EUR 0.38 (0.37).
- Industrial Services had a strong quarter, with the division’s net sales growing to EUR 38.9 million (29.8) and operating profit amounting to EUR 7.0 million (4.1).
- In Environmental Services, the number of corporate customers continued to grow, and the demand for recycled raw materials remained at a good level.
- In Facility Services in Finland and Sweden, the higher general cost level had a negative effect on the divisions’ profitability. Both divisions have programmes under way to simplify and increase the efficiency of their operating models.
- Net sales for January–September totalled EUR 634.0 million (589.0). Adjusted operating profit was EUR 31.3 million (32.3) and operating profit was EUR 30.0 million (32.3). Net cash flow from operating activities amounted to EUR 38.7 million (31.3). Earnings per share were EUR 0.53 (0.64).
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 1 July 2022, the renewable energy sources business is no longer included in consolidated net sales. The business was merged with Neova’s corresponding business to create Laania Plc. In the first half of the year, the net sales of L&T’s renewable energy sources business amounted to EUR 35.4 million.
PRESIDENT AND CEO EERO HAUTANIEMI:
“Net sales and adjusted operating profit developed favourably in the third quarter. Net sales increased by 7 per cent year-on-year, excluding the effect of the renewable energy sources business, and adjusted operating profit was EUR 20.3 million (18.5). Net cash flow from operating activities was good, as was the company’s financial position. This provides the company with a strong position in a business environment characterised by exceptional uncertainty.
Our circular economy businesses achieved a good operating result. In the Industrial Services division, all business lines developed favourably. In hazardous waste business, demand remained at a good level, and the resource allocation of annual maintenance breaks in the process cleaning business was successful. In Environmental Services, the number of corporate customers continued to grow, and the demand for recycled raw materials remained at a good level.
In Facility Services in Finland and Sweden, the higher general cost level and worsening shortage of labour had a negative effect on the divisions’ profit performance. In addition to inflation, the result of Facility Services Sweden was affected by the weaker-than-expected sales of additional services. Both divisions have programmes under way to simplify and increase the efficiency of their operating models.
We received international recognition for our sustainability efforts. EcoVadis, a leading ratings platform for assessing sustainability, awarded the highest possible Platinum rating to L&T in its assessment. This means we are in the top 1% of the 90,000 companies analysed by EcoVadis.
L&T’s businesses are not particularly sensitive to economic cycles. Nevertheless, inflation and rising interest rates create uncertainty, and the overall level of economic activity affects the demand for the company’s services.”
GROUP NET SALES AND FINANCIAL PERFORMANCE
July–September
Lassila & Tikanoja’s net sales for the third quarter totalled EUR 204.4 million (198.4), an increase of 3.1% year-on-year. Net sales growth excluding the effect of the renewable energy sources
business was 7.0%. Organic growth was 3.7%. Adjusted operating profit was EUR 20.3 million (18.5), representing 9.9% (9.3%) of net sales. Operating profit was EUR 20.2 million (18.0), representing 9.9% (9.1%) of net sales. Earnings per share were EUR 0.38 (0.37).
Net sales grew in Industrial Services, Facility Services Finland and Environmental Services, excluding the effect of the renewable energy sources business. Net sales decreased in Facility Services Sweden. Operating profit improved in Environmental Services and Industrial Services, and declined in Facility Services in Finland and Sweden.
The Group’s adjusted operating profit was still affected by the higher general cost level. The result for the review period was negatively affected by net financial expenses rising to EUR -1.6 million (-0.8).
January–September
Net sales for January–September totalled EUR 634.0 million (589.0), an increase of 7.6% year-on-year. Net sales growth excluding the effect of the renewable energy sources business was 9.0%. Organic growth was 4.8%. Adjusted operating profit was EUR 31.3 million (32.3), representing 4.9% (5.5%) of net sales. Operating profit was EUR 30.0 million (32.3), representing 4.7% (5.5%) of net sales. Earnings per share were EUR 0.53 (0.64).
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 Industrial Services, and declined in Facility Services in Finland and Sweden.
Throughout the period under review, the Group’s adjusted operating profit was negatively affected by the higher general cost level. In the first half of the year, the Group’s adjusted operating profit was also negatively affected by increased fuel prices 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 rising to EUR -4.2 million (-2.5).
Financial summary
| 7–9/2022 | 7–9/2021 | Change % | 1–9/2022 | 1–9/2021 | Change % | 1–12/2021 | |
| Net sales, EUR million | 204.4 | 198.4 | 3.1 | 634.0 | 589.0 | 7.6 | 812.5 |
| Adjusted operating profit, EUR million | 20.3 | 18.5 | 9.8 | 31.3 | 32.3 | -3.0 | 42.4 |
| Adjusted operating margin, % | 9.9 | 9.3 | 4.9 | 5.5 | 5.2 | ||
| Operating profit, EUR million | 20.2 | 18.0 | 12.2 | 30.0 | 32.3 | -7.0 | 42.2 |
| Operating margin, % | 9.9 | 9.1 | 4.7 | 5.5 | 5.2 | ||
| EBITDA, EUR million | 34.1 | 31.4 | 8.5 | 71.8 | 71.9 | -0.2 | 95.1 |
| EBITDA, % | 16.7 | 15.8 | 11.3 | 12.2 | 11.7 | ||
| Profit before tax, EUR million | 18.4 | 17.1 | 7.3 | 25.6 | 29.8 | -14.3 | 39.0 |
| Earnings per share, EUR | 0.38 | 0.37 | 4.7 | 0.53 | 0.64 | -16.7 | 0.90 |
| Net cash flow from operating activities after investments per share, EUR | 0.15 | 0.05 | 203.6 | 0.03 | -0.50 | 105.0 | 0.05 |
| Return on equity (ROE), % | 12.9 | 16.5 | 17.1 | ||||
| Invested capital, EUR million | 440.1 | 410.0 | 7.3 | 406.0 | |||
| Return on invested capital (ROI), % | 9.4 | 10.9 | 10.8 | ||||
| Equity ratio, % | 32.7 | 33.1 | 33.7 | ||||
| Gearing, % | 95.0 | 92.6 | 79.4 |
NET SALES AND OPERATING PROFIT BY DIVISION
Environmental Services
July–September
The division’s net sales for the third quarter decreased to EUR 75.0 million (77.2). Operating profit rose to EUR 11.1 million (10.3). Excluding the renewable energy sources business, the net sales of the Environmental Services division amounted to EUR 75.0 million (70.1) and operating profit was EUR 11.1 million (10.2).
January–September
The Environmental Services division’s net sales for January–September rose to EUR 250.1 million (230.7). Operating profit was EUR 24.1 million (22.7). Excluding the renewable energy sources business, the net sales of the Environmental Services division amounted to EUR 216.0 million (194.2) and operating profit was EUR 23.8 million (22.3).
The number of corporate customers continued to grow in the third quarter in Environmental Services. The prices of recycled raw materials returned to normal after being at an exceptionally high level earlier in the year, and demand remained good.
The Environmental Services division’s renewable energy sources business was merged with Neova Oy’s corresponding business, and the joint venture Laania started its operations on 1 July 2022.
In the first half of the year, the net sales of the renewable energy sources business was EUR 35.4 million, and the operating profit was EUR 0.3 million. In the financial year 2021, the net sales of the renewable energy sources business was EUR 56.9 million, and the operating profit was EUR 0.9 million. The business is no longer reported as part of the Environmental Services division after the second quarter of 2022. L&T’s share of the net profit of the joint venture is consolidated in one line below operating profit.
Industrial Services
July–September
The division’s net sales for the third quarter grew to EUR 38.9 million (29.8). Operating profit was EUR 7.0 million (4.1).
January–September
The Industrial Services division’s net sales for January–September grew to EUR 95.7 million (76.4). Operating profit was EUR 10.4 million (7.5).
All of the Industrial Services division’s business lines developed favourably in the third quarter. In hazardous waste business, demand remained at a good level. In the environmental construction business, several demanding industrial maintenance projects and soil decontamination projects were under way. Due to the COVID-19 pandemic and industrial disputes, annual maintenance breaks for industrial customers were postponed from early 2022 to the autumn. In the process cleaning business, the resource allocation of annual maintenance breaks during the autumn was successful. Several successful industrial water treatment projects were carried out in the process cleaning business in Sweden.
Facility Services Finland
July–September
The division’s net sales for the third quarter increased to EUR 60.2 million (59.9). Operating profit declined to EUR 2.0 million (2.9).
January–September
The net sales of Facility Services Finland grew to EUR 191.7 million (180.1) in January–September. Operating profit declined to EUR -1.3 million (1.2).
In the cleaning business, challenges associated with the availability of labour continued, and employee turnover increased in the third quarter. In the property maintenance business, the higher production costs caused by general cost inflation could not be fully passed on to customer prices. The demand for energy management projects was strong.
Measures were continued in the Facility Services Finland division to improve operational efficiency and profitability. The progress of the improvement measures was slower than expected due to the challenging business environment. Change negotiations are under way in the division on local and business line level, which may lead to changes in job descriptions and duties as well as redundancies concerning 83 salaried employees and 78 employees at most.
Facility Services Sweden
July–September
The division’s net sales for the third quarter decreased to EUR 31.9 million (32.7). Operating profit declined to EUR 0.2 million (1.5). Operating profit before the amortisation of purchase price allocations of acquisitions was EUR 0.7 million (2.0).
January–September
The net sales of Facility Services Sweden decreased to EUR 100.7 million (106.0) in January–September. Operating profit declined to EUR -0.1 million (2.5). Operating profit before the amortisation of purchase price allocations of acquisitions was EUR 1.4 million (4.1).
Production costs in the Facility Services Sweden division were increased by general cost inflation in the third quarter. The increased production costs could not be passed on to customers in the form of price increases. The result of Facility Services Sweden was affected not only by inflation but also the weaker-than-expected sales of additional services. Efforts continued in the third quarter to simplify operating models and adapt them to the rapidly changing business environment.
FINANCING
Net cash flow from operating activities amounted to EUR 38.7 million (31.3) in January–September. Net cash flow from operating activities after investments amounted to EUR 1.0 million (-19.1). Net cash flow after investments was reduced by acquisitions, which had a total impact of approximately EUR 13 million (approximately EUR 23 million). A total of EUR 22.3 million in working capital was committed (EUR 27.3 million committed).
At the end of the period, interest-bearing liabilities amounted to EUR 229.6 million (208.8). Net interest-bearing liabilities totalled EUR 199.9 million (186.4). The average interest rate on long-term loans, excluding IFRS 16 liabilities, with interest rate hedging, was 2.5% (1.1%). Of the company’s floating rate loans totalling EUR 50 million, EUR 30 million have been converted into fixed rate loans by means of an interest rate swap.
Of the EUR 100.0 million commercial paper programme, EUR 15.0 million (10.0) 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 in May 2022. 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 -4.2 million (-2.5). The increase in net financial expenses was attributable to higher interest-bearing liabilities due to acquisitions, an expense of EUR 0.3 million associated with the redemption of a bond, and the higher general interest rate level. The effect of exchange rate changes on net financial expenses was EUR -0.2 million (0.1). Net financial expenses were 0.7% (0.4%) of net sales.
The equity ratio was 32.7% (33.1%) and the gearing ratio was 95.0% (92.6%). The Group’s total equity was EUR 210.5 million (201.2). Translation differences affected equity by EUR -4.1 million and changes in the fair value of hedging instruments by EUR 1.2 million. Cash and cash equivalents at the end of the period amounted to EUR 29.7 million (22.4). 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
In January–September, gross capital expenditure totalled EUR 45.8 million (54.0). Acquisitions accounted for approximately EUR 22 million of the capital expenditure (approximately EUR 27 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
| 1–9/2022 | 1–9/2021 | 2021 | Target | Target to be achieved by | |
| Carbon handprint (tCO2e) | 388,000 | 752,000 | 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. The carbon handprint of the renewable energy sources business will no longer be reported as part of L&T Group after the second quarter of 2022. The carbon handprint of the renewable energy sources business was 370,000 in January-September 2021.
Progress towards science-based emission reduction targets, using 2018 as the baseline
| 1–9/2022 | 1–9/2021 | 2021 | Target | Target to be achieved by | |
| Carbon footprint (tCO2e) | 24 200 | 27 700 | 37,800 | | |
| Carbon footprint intensity (gCO2e/km) | 661 | 763 | 767 | 476 | 2030 |
L&T’s strategic objective is to halve the carbon footprint of its operations from the 2018 level 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 January-September was affected by, among other factors, the change in the fuel distribution obligation 1 January, 2022 in Finland, which lowered diesel emissions in particular. In Finland the fuel distribution obligation was lowered by 7.5 percentage points in 8 July, 2022, which will increase the emissions of L&T’ fleet during the latter half of 2022 significantly.
Social responsibility
Overall accident frequency
1–9/2022 | 1–9/2021 | 2021 | Target | Target to be achieved by | |
Overall accident frequency (TRIF) | 23 | 23 | 24 | 19 | 2026 |
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
| 1–9/2022 | 1–9/2021 | 2021 | Target | Target to be achieved by | |
| Occupational health rate (proportion of employees with no sickness-related absences) | 47 | 55 | 45 | 57 | 2026 |
| Sickness-related absences (%) | 5,5 | 4,6 | 5.0 | 4.3 | 2026 |
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 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 it was still higher than normal in June. The sickness-related absences during the third quarter were at a normal level.
Current issues related to sustainability
EcoVadis, an international platform for rating corporate sustainability, awarded a Platinum rating to Lassila & Tikanoja. Only 1% of the approximately 90,000 companies assessed by EcoVadis achieve a Platinum rating.
The renewable fuel distribution obligation in Finland was reduced by 7.5 percentage points in July. The change significantly increases transport emissions in Finland and will also have an impact on L&T’s transport emissions in 2022. L&T has taken significant action to reduce emissions. For example, the Group has increased the share of renewable diesel and continued to purchase low-emission vehicles.
PERSONNEL
In January–September, the average number of employees converted into full-time equivalents was 7,382 (7,202). At the end of the period, L&T had 8,637 (8,729) full-time and part-time employees. Of these, 7,251 (7,362) worked in Finland and 1,386 (1,367) in Sweden.
SHARES AND SHARE CAPITAL
Traded volume and price
The volume of trading in L&T’s shares in January–September was 8.0 million shares, which is 20.9% (21.0%) of the average number of outstanding shares. The value of trading was EUR 89.9 million (115.9). The highest share price was EUR 13.62 and the lowest EUR 9.72. 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 380.3 million (519.1).
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 38,139,045.
Shareholders
At the end of the period, the company had 23,944 (23,166) shareholders. Nominee-registered holdings accounted for 8.2% (9.1%) 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
Lassila & Tikanoja’s 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.
The company announced the composition of Lassila & Tikanoja plc’s Nomination Board on 9 September 2022. Lassila & Tikanoja plc’s three largest shareholders, which 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), the Evald ja Hilda Nissin Säätiö foundation, and Mandatum Life Insurance Company Limited. These shareholders have appointed Miikka Maijala, Juhani Lassila and Patrick Lapveteläinen as their representatives in Lassila & Tikanoja’s Nomination Board. The Chairman of Lassila & Tikanoja plc’s Board of Directors, Jukka Leinonen, acts as the fourth member of the Nomination Board. The Chairman of the Nomination Board is Patrick Lapveteläinen.
Long-term targets
In September, Lassila & Tikanoja plc’s Board of Directors approved the Group’s targets for the strategy period 2023–2026 and decided on the continuing implementation of the Group’s strategy. The financial targets and the sustainability and stakeholder targets for the strategy period were unchanged.
Financial targets
| Measure | Target |
| Annual growth in net sales, % | 5% |
| Return on investment, % (ROI) | 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 financial targets as guidance for any fiscal year.
EVENTS AFTER THE REVIEW PERIOD
The company management is not aware of any events of material importance that
might have affected the preparation of the interim report.
NEAR-TERM RISKS AND UNCERTAINTIES
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.
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. COVID-19 may lead to increased sickness-related absences, 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.
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, 26 October 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/en
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