Lassila & Tikanoja plc: Interim Report 1 January–31 March 2024

Lassila & Tikanoja plc
Stock exchange release
26 April 2024 at 8:00 a.m.

Lassila & Tikanoja plc: Interim Report 1 January–31 March 2024

STABLE RESULT IN THE FINNISH DIVISIONS – FACILITY SERVICES SWEDEN DID NOT MEET EXPECTATIONS

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

• Net sales for the first quarter were EUR 185.0 million (192.7). Net sales decreased by 4.0%. The decline in net sales was due to the weak economic environment.
• Adjusted operating profit was EUR 0.0 million (1.4) and operating profit was EUR -1.7 million (1.4). Earnings per share were EUR -0.02 (0.03).
• Net cash flow from operating activities after investments was EUR -9.4 million (19.2) and net cash flow from operating activities after investments per share was EUR -0.25 (0.50). Net cash flow was negatively impacted by the reduction in factoring.

Outlook for the year 2024

Net sales in 2024 are estimated to be at the same level as in the previous year, and operating profit is estimated to be at the same level or better compared to the previous year. 

PRESIDENT AND CEO EERO HAUTANIEMI:

"The high interest rates, along with the decrease in industrial production and the weak market situation in the construction industry, combined with political strikes in Finland, had a negative impact on the L&T service demand in the first quarter. In the first quarter, net sales decreased by 4.0% and adjusted operating profit was EUR 0.0 million (1.4). The impact of the political strikes on L&T’s result was approximately EUR 0.3 million negative.

In Environmental Services, the economic recession and political strikes reduced the demand of recycling and waste management services while the market share of the division strengthened slightly. The demand and prices of recycled raw materials stabilised during the first quarter. The municipalisation of the collection of packaging waste from housing properties continued, but the measures initiated in the fourth quarter of 2023 to improve the efficiency and profitability of operations largely compensated for the impact of municipalisation.

Net sales increased in Industrial Services. Political strikes in Finland weakened the demand in the Hazardous waste business line to a small extent, and some process cleaning work was postponed from the first quarter to the second quarter. The process cleaning business in Sweden was expanded to the Gävleborg region through an acquisition in line with the strategy. Industrial Services currently has approximately 100 employees in Sweden, and process cleaning services are offered in southern and central Sweden.

In Facility Services Finland and Facility Services Sweden, measures are under way to improve the efficiency of operations and streamline the cost structure. The result of the Facility Services Finland for the first quarter was negatively affected by provisions of EUR 0.6 million booked for potential disability pension contributions. The result of the Facility Services Finland Cleaning business line improved year-on-year. In Facility Services Sweden, a significant customer relationship ended in the end of 2023, and the loss of that significant account was not fully compensated by new customer accounts during the review period.

The Group reduced its factoring financing by EUR 10 million as planned which reduced cash flow after investments in the first quarter. The company’s financial position is strong."

GROUP NET SALES AND FINANCIAL PERFORMANCE

January–March
Net sales for the first quarter amounted to EUR 185.0 million (192.7), representing a year-on-year decrease of 4.0%. The organic decrease in net sales was 4.1%. Adjusted operating profit was EUR 0.0 million (1.4), representing 0.0% (0.7%) of net sales. Operating profit was EUR -1.7 million (1.4), representing -0.9% (0.7%) of net sales. Earnings per share were EUR -0.02 (0.03).

Net sales increased in Industrial Services and decreased in the other divisions. Operating profit declined in each division.

The result for the review period was negatively affected by net financial expenses rising to EUR -1.8 million (-1.6). The result for the period was affected positively by L&T’s EUR 2.1 million (1.5) share of the profit of the joint venture Laania Oy.

Financial summary

	1–3/2024	1–3/2023	Change %	1–12/2023
Net sales, EUR million	185.0	192.7	-4.0	802.1
Adjusted operating profit, EUR million	0.0	1.4	-98.6	39.0
Adjusted operating margin, %	0.0	0.7		4.9
Operating profit, EUR million	-1.7	1.4		38.4
Operating margin, %	-0.9	0.7		4.8
EBITDA, EUR million	12.1	15.4	-21.7	95.8
EBITDA, %	6.5	8.0		11.9
Earnings per share, EUR	-0.02	0.03		0.79
Net cash flow from operating activities after investments per share, EUR	-0.25	0.50		1.33
Return on equity (ROE), %	-1.4	2.2		13.3
Capital employed, EUR million	418.5	421.8	-0.8	425.9
Return on capital employed (ROCE), %	9.9	11.4		10.3
Equity ratio, %	33.4	32.7		36.8
Gearing, %	85.8	84.5		69.3

NET SALES AND OPERATING PROFIT BY DIVISION


Environmental Services

January–March
The division’s net sales for the first quarter decreased to EUR 65.4 million (66.3). Operating profit was EUR 2.7 million (3.2).

In Environmental Services, the economic recession and political strikes reduced the demand of recycling and waste management services while the market share of the division strengthened slightly. The demand and prices of recycled raw materials stabilised during the first quarter.  The municipalisation of the collection of packaging waste from housing properties continued, but the measures initiated in the fourth quarter of 2023 to improve the efficiency and profitability of operations largely compensated for the impact of municipalisation.  

Industrial Services

January–March
The division’s net sales for the first quarter increased to EUR 28.1 million (26.1). Adjusted operating profit was EUR -0.1 million (0.1). Operating profit was EUR -0.4 million (0.1). Operating profit was reduced by a change of EUR 0.2 million in the fair value of a consideration related to the acquisition of Sand & Vattenbläst i Tyringe AB (“SVB”) (no change in the comparison period). The change in fair value is related to the impact of the expansion of the business on the expected growing EBITDA level.

Demand remained strong in the Environmental construction business line. Political strikes in Finland weakened the demand in the Hazardous waste business line to a small extent, and some process cleaning services were postponed from the first quarter to the second quarter. Thus far, there have been no changes to the timing or scope of annual maintenance services that would affect L&T's business operations.

The process cleaning business of the Industrial Services division was expanded in Sweden to the Gävleborg region through an acquisition that was completed on 1 February 2024. L&T acquired the entire share capital of PF Industriservice AB, which provides process cleaning services. PF Industriservice had net sales of approximately EUR 2.5 million in the most recent financial year, and it has approximately seven employees. PF Industriservice offers various process cleaning services to customers in the forest industry, energy sector and construction industry. Following the acquisition, the Industrial Services division has approximately 100 employees in Sweden, and process cleaning services are offered to industrial customers in southern and central Sweden.

Facility Services Finland

January–March
The division's net sales for the first quarter amounted to EUR 63.3 million (67.1). Operating profit was EUR -0.1 million (0.2).

Unprofitable customer agreements ended in Facility Services Finland during the period under review. Measures to streamline the cost structure continued. The result of the cleaning business line was stronger than in the comparison period. The demand for data-driven cleaning services grew. In the Facility Services Finland, provisions of EUR 0.6 million (0.4) were booked for potential disability pension contributions in the first quarter.

Facility Services Sweden

January–March
The division's net sales for the first quarter decreased to EUR 29.5 million (34.5). Operating profit was EUR -2.1 million (-1.0). Operating profit before the amortisation of purchase price allocations of acquisitions was EUR -1.8 million (-0.7).

Customer agreements in the Swedish business are mostly fixed-price contracts, and the division has not been able to pass the increased production costs on to customer prices. A significant customer relationship ended in the division in the end of 2023, and the loss of that account was not fully compensated by new customer accounts during the review period. 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 2024.

FINANCING

Net cash flow from operating activities in the first quarter of 2024 amounted to EUR 1.9 million (26.8). Net cash flow after investments totalled EUR -9.4 million (19.2). The company reduced its factoring by EUR 10 million as planned. This reduced cash flow after investments in the first quarter. At the end of the period under review, factoring totalled approximately EUR 12.5 million (17.2). Net cash flow after investments for the review period was reduced by acquisitions, which had a total impact of approximately EUR 1.2 million. A total of EUR 6.2 million in working capital was committed (EUR 8.9 million released). 

At the end of the review period, interest-bearing liabilities amounted to EUR 208.3 million (219.0). Net interest-bearing liabilities totalled EUR 180.3 million (171.4). The average interest rate on long-term loans, excluding lease liabilities, with interest rate hedging, was 4.0% (2.8%). The company had no interest rate swaps at the end of the review period.

Of the EUR 100.0 million commercial paper programme, EUR 10.0 million was in use at the end of the review period (unused in the comparative period). 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 -1.8 million (-1.6). The effect of discounting of environmental provisions decreased the net financial expenses by EUR 0.3 (-0.0) million. The effect of exchange rate changes on net financial expenses was EUR -0.0 million (-0.0). Net financial expenses were 1.0% (0.8%) of net sales.

The equity ratio was 33.4% (32.7%) and the gearing ratio was 85.8% (84.5%). The Group’s total equity was EUR 210.2 million (202.8). Equity was reduced by dividends of EUR 18.7 million distributed for the financial year 2023. In accordance with the resolution of the Annual General Meeting held on 21 March 2024, the dividends were paid to shareholders on 3 April 2024. Translation differences caused by changes in the exchange rate of the Swedish krona affected equity by EUR -2.4 million. Cash and cash equivalents amounted to EUR 28.0 million (47.6) at the end of the review period.

DIVIDEND DISTRIBUTION

The Annual General Meeting held on 21 March 2024 resolved that a dividend of EUR 0.49 per share, totalling EUR 18.7 million, be paid on the basis of the balance sheet that was adopted for the financial year 2023. The dividend was paid to shareholders on 3 April 2024.

CAPITAL EXPENDITURE

Gross capital expenditure for the first quarter of 2024 totalled EUR 11.1 million (13.8). The capital expenditure consisted primarily of machine and equipment purchases, as well as investments in information systems. Acquisitions accounted for approximately EUR 2 million of the gross capital expenditure (0).

SUSTAINABILITY

In February, Lassila & Tikanoja published its Annual Review 2023, which includes a sustainability report in accordance with the Global Reporting Standard (GRI) as well as a report on risks and opportunities related to climate change in line with the Task Force on Climate-related Financial Disclosures (TCFD) recommendations.

Progress towards sustainability targets

Indicator	1–3/2024	1–3/2023	2023	Target	Target to be achieved by
ENVIRONMENTAL RESPONSIBILITY
Carbon handprint (tCO2e) i.e. emissions prevented	-115,200	-126,500	-453,000	growth faster than net sales
Carbon footprint (tCO2e) Scope 1&2	6,900	8,000	31,200	24,400	2030
SOCIAL RESPONSIBILITY
Total recordable incident frequency	21	26	23	15	2030
Sickness-related absences (%)	5.5	6.5	5.1	4	2030

PERSONNEL

In the first quarter of 2024, the average number of employees converted into full-time equivalents was 6,305 (6,611). At the end of the review period, L&T had 7,686 (8,244) full-time and part-time employees.

Number of employees at the end of the review period	1–3/2024	1–3/2023	2023
Group	7,686	8,244	8,159
Finland	6,482	6,875	6,891
Sweden	1,204	1,369	1,268
Environmental Services	1,534	1,554	1,576
Industrial Services	680	627	679
Facility Services Finland	4,257	4,654	4,603
Facility Services Sweden	1,103	1,289	1,187
Group administration and other	112	120	114

SHARES AND SHARE CAPITAL

Traded volume and price

The volume of trading in L&T’s shares in January–March was 2.1 million shares, which is 5.5% (5.3%) of the average number of outstanding shares. The value of trading was EUR 19.6 million (21.9). The highest share price was EUR 10.36 and the lowest EUR 8.52. The closing price was EUR 8.80. At the end of the review period, the market capitalisation excluding the shares held by the company was EUR 335.9 million (385.3).

Own shares

At the end of the period, the company held 623,273 of its own shares, representing 1.6% of all shares and votes.

Share capital and number of shares

The company’s registered share capital amounts to EUR 19,399,437 and the number of outstanding shares was 38,175,601 at the end of the period. The average number of shares excluding the shares held by the company was 38,140,636 shares.

Shareholders

At the end of the review period, the company had 25,255 (25,228) shareholders. Nominee-registered holdings accounted for 8.7% (8.5%) of the total number of shares.

Authorisations for the Board of Directors

The Annual General Meeting held on 21 March 2024 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 of Lassila & Tikanoja plc, which was held on 21 March 2024, adopted the financial statements and consolidated financial statements for the financial year 2023, discharged the members of the Board of Directors and the President and CEO from liability and adopted the remuneration report and remuneration policy for the company’s governing bodies. The Annual General Meeting resolved on the use of the profit shown on the balance sheet and the payment of dividend, the composition and remuneration of the Board of Directors, the election and remuneration of the auditor, the adoption and remuneration of the sustainability auditor, and authorising the Board of Directors to decide on the repurchase of the company’s own shares and on a share issue and the issuance of special rights entitling to shares.

The Annual General Meeting resolved that a dividend of EUR 0.49 per share be paid on the basis of the balance sheet adopted for the financial year 2023. It was decided that the dividend be paid on 3 April 2024.

The Annual General Meeting confirmed the number of members of the Board of Directors as seven (7) in accordance with the proposal of the Shareholders’ Nomination Board. Teemu Kangas-Kärki, Laura Lares, Sakari Lassila, Jukka Leinonen, Anni Ronkainen and Pasi Tolppanen were re-elected, and Juuso Maijala was elected as a new member to the Board until the end of the following Annual General Meeting. Jukka Leinonen was elected as the Chairman of the Board and Sakari Lassila was elected as the Vice Chairman.

The Annual General Meeting elected PricewaterhouseCoopers Oy, Authorised Public Accountants, as the company’s auditor. PricewaterhouseCoopers Oy has announced that it will name Samuli Perälä, Authorised Public Accountant, as the principal auditor. In addition, the company’s auditor was adopted also as the company’s sustainability auditor to audit the sustainability report for the financial year 2024.

The resolutions of the Annual General Meeting were announced in more detail in a stock exchange release on 21 March 2024.

BOARD OF DIRECTORS

The members of Lassila & Tikanoja plc’s Board of Directors are Teemu Kangas-Kärki, Laura Lares, Sakari Lassila, Jukka Leinonen, Juuso Maijala, Anni Ronkainen and Pasi Tolppanen. Lassila & Tikanoja plc’s Annual General Meeting held on 21 March 2024 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, Juuso Maijala 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.

EVENTS AFTER THE FINANCIAL PERIOD

On 8 April 2024, Lassila & Tikanoja announced that Juha Saarinen (M.Sc. Tech) has been appointed as Chief Purchasing Officer (CPO) and a member of the Group Executive Board effective from 1 August 2024. Saarinen joins L&T from Kamux plc, where he has served as Chief Purchasing Officer.

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 changes in interest rates may have an impact on the company’s financial performance.

The Finnish Waste Act was amended in July 2021. Under the reforms to the Waste Act, municipalities take on a larger role in organising the collection of packaging materials and biowaste from housing properties. As a consequence of the reform, L&T’s direct customer agreements with housing properties on the separate collection of packaging waste and biowaste will be transferred to municipalities for competitive bidding gradually between 1 July 2022 and 1 July 2025. L&T estimates that, as a result of municipalisation, approximately EUR 30 million of the Finnish waste management market will be moved out of the scope of free competition between 2024 and 2026. L&T participates in the competitive tendering of municipal contracts and is a significant operator in municipal contracts. Nevertheless, L&T estimates that the overall impact of the change will be negative for the company.

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 for unpaid receivables. At the end of the financial year, the amount of receivables on the company’s balance sheet was approximately EUR 1.5 million. The former L&T customer company in question has rejected Lassila & Tikanoja FM AB’s claims and the payment obligation, and brought a counterclaim demanding compensation totalling approximately SEK 144 million from Lassila & Tikanoja FM AB. The dispute is still pending. Lassila & Tikanoja considers the counterclaim to be without merit and has not recognised any provisions in relation to it.

More detailed information on Lassila & Tikanoja’s risks and risk management will be provided in the 2023 Annual Review and in the Report by the Board of Directors and the consolidated financial statements.

Helsinki, 25 April 2024

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 8,160 people. Net sales in 2023 amounted to EUR 802.1 million. L&T is listed on Nasdaq Helsinki.

Distribution:
Nasdaq Helsinki
Major media
www.lt.fi/en/

Attachment

• LT-interim report Q1 2024

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