Interim Report 1 January – 31 March 2009 

5 May 2009  8.00 am

 Interim Report Q109

- Net sales EUR 146.4 million (EUR 147.3 million)
- Operating profit EUR 10.0 million (EUR 22.8 million)
- Operating profit excluding non-recurring and imputed items EUR 11.2 million (EUR 8.8 million)
- Earnings per share EUR 0.16 (EUR 0.51)
- Full-year net sales and operating profit excluding non-recurring and imputed items are expected to reach the previous year’s level. 


GROUP NET SALES AND FINANCIAL PERFORMANCE

Lassila & Tikanoja’s net sales for the first quarter totalled EUR 146.4 million (EUR 147.3 million). Operating profit amounted to EUR 10.0 million (EUR 22.8 million), representing 6.8% (15.5%) of net sales. Operating profit excluding non-recurring and imputed items was EUR 11.2 million (EUR 8.8 million). Earnings per share were EUR 0.16 (EUR 0.51). The capital gain of EUR 14.3 million from the sale of Ekokem shares boosted the operating profit and earnings in the comparison period.

Net sales and operating profit improved in Property and Office Support Services and in Industrial Services while net sales and profitability of Environmental Services declined from the comparison period. The sustained low prices of secondary raw materials and low demand continued to erode the financial performance of recycling services, and L&T Biowatti’s performance was burdened by the lower operating rates in the forest industry and weaker demand for wood-based biofuels.

A non-recurring restructuring expense of EUR 1.2 million arising from production efficiency enhancement measures to adapt operation and costs to the current market situation, was recorded for the first quarter.

Financial summary

* Breakdown of operating profit excluding non-recurring and imputed items is presented at the end of the explanatory statement.


NET SALES AND FINANCIAL PERFORMANCE BY DIVISION

Environmental Services

The net sales of Environmental Services (waste management, recycling services, L&T Biowatti, environmental products) in the first quarter amounted to EUR 72.3 million (EUR 75.5 million), a decline of 4.2%. The operating profit was EUR 6.8 million (EUR 8.4 million). Operating profit excluding non-recurring and imputed items was EUR 7.7 million (EUR 8.4 million).

Net sales and profitability of waste management remained at the same level as last year.

The net sales and profitability of recycling services declined, primarily due to shrinking volumes of recyclable waste materials. Demand for recovered fuels and recycled wood chips picked up in the first quarter but low market prices and weak demand for secondary raw materials (plastics, fibres, metals) persisted.

Construction of added capacity at the Kerava recycling plant continued. The new recycled timber unit will be completed in the second quarter. The investment programme for further construction has been changed: the next stage will be a combined plant comprising a combined recycling plant for construction and trade and industry waste, which will be completed in 2010. Consequently, the investment will be smaller than originally estimated.

L&T Biowatti failed to reach its targets due to lower operating rates in the forest industry and lower harvesting volumes. Demand for biofuels was lower than expected in the first quarter. This decline in demand can be attributed to low electricity production volumes and the low price of emission rights, combined with the falling prices of coal and oil. The forestry service organisation set up to boost energy wood procurement became fully operative in January.

Measures to enhance production efficiency continued in the international operations of Environmental Services, and profitability remained good.

Property and Office Support Services

The net sales of Property and Office Support Services (property maintenance and cleaning services) grew by 3.2% to EUR 61.1 million (EUR 59.3 million) in the first quarter. The operating profit was EUR 3.4 million (EUR 1.6 million), and operating profit excluding non-recurring and imputed items was EUR 3.6 million (EUR 1.6 million).

In , net sales grew, particularly in property maintenance, and additional services sold well regardless of the economic turbulence. In the damage repair services business, which was transferred from the Industrial Services division, sizeable projects arose in this quarter. The division’s performance in improved, thanks to production efficiency improvement measures and fixed cost cuts.

Net sales from and declined primarily as a result of the weakening of the Swedish krona and the Russian rouble, while net sales from grew. The Russian and Latvian operations posted a positive result. Although the result from the Swedish operations improved, operations continued to make a loss. In , the reorganisation programme designed to improve profitability will continue. The Russian cleaning services were awarded a certificate for compliance with the ISO 9001 quality standards at the end of the quarter.

Industrial Services

The net sales of Industrial Services (hazardous waste management, industrial solutions, wastewater services, L&T Recoil) were up by 8.5% to EUR 14.9 million in the first quarter (EUR 13.7 million). Operating profit was EUR 0.3 million (EUR -0.9 million), and operating profit excluding non-recurring and imputed items was EUR 0.4 million (EUR -0.6 million).

The division’s net sales grew and profitability improved thanks to major project-type assignments in the first quarter. Moreover, hazardous waste volumes dropped sharply during the first quarter. Operating rate fluctuations in the industry presented a major challenge to production adjustment efforts.

Demand for wastewater services in the first quarter was weaker than anticipated but returned to normal towards the end of the period. New industrial partnerships were launched in industrial solutions.

Costs associated with the storage of raw materials for the L&T Recoil re-refinery and the start-up of operations burdened the financial performance. The ramp-up of the production will begin in May.


FINANCING

At the end of the period, interest-bearing liabilities amounted to EUR 70.9 million more than a year earlier. Net interest-bearing liabilities, totalling EUR 116.2 million, increased by EUR 28.7 million from the comparison period and decreased by EUR 4.3 million from the beginning of the year.

Net finance costs amounted to EUR 1.7 million (EUR 1.1 million). They increased as a result of the growth in the interest-bearing liabilities. An expense of EUR 0.1 million (EUR 0.1 million) arising from changes in the fair values of interest rate swaps was recognised in the finance costs. Net finance costs were 1.2% (0.7%) of net sales and 16.9% (4.8%) of operating profit.

A total of EUR 0.4 million arising from the interest rate swaps to which hedge accounting under IAS 39 is applied, was recognised as a decrease in equity.

The equity ratio was 37.1% (48.8%) and the gearing rate 61.4 (42.1). In order to strengthen liquidity, the company increased its liquid assets by drawing new loans towards the end of the year 2008 and in the beginning of 2009. At the end of the period the amount of liquid assets exceeded that of the comparison period by EUR 42.2 million. This year’s Annual General Meeting was held already in March. At the end of the period dividends, totalling EUR 21.3 million, were therefore included in non-interest-bearing liabilities this year while they were included in equity in the comparison period. In the first quarter two long-term loans were drawn, a pension institution loan of EUR 14 million and a loan of EUR 10 million granted by the Nordic Investment Bank for the extension of the Kerava recycling plant. 

Cash flows from operating activities amounted to EUR 15.7 million (EUR 11.6 million), and EUR 2.6 million were tied up in the working capital (EUR 1.6 million).
 

DIVIDEND

The Annual General Meeting held on 24 March 2009 resolved on a dividend of EUR 0.55 per share. The dividend, totalling EUR 21.3 million, was paid to the shareholders on 3 April 2009.


CAPITAL EXPENDITURE

Capital expenditure totalled EUR 12.3 million (EUR 14.1 million). The largest construction projects were L&T Recoil re-refinery and the extension of the Kerava recycling plant.


PERSONNEL

In January-March, the average number of employees converted into full-time equivalents was 8,069 (7,936). At the end of the period, the total number of full-time and part-time employees was 9,112 (9,532). Of them 7,001 (7,077) people worked in and 2,111 (2,455) people in other countries.


SHARE AND SHARE CAPITAL

Traded volume and price
The volume of trading in Lassila & Tikanoja plc shares on NASDAQ OMX Helsinki from January through March was 1,424,322, which is 3.7% (12.1%) of the average number of shares. The value of trading was EUR 15.3 million (EUR 88.9 million). The trading price varied between EUR 9.40 and EUR 12.09. The closing price was EUR 9.42. The market capitalisation was EUR 365.5 (EUR 698.3 million) at the end of the period.

Share capital
The company’s registered share capital amounts to EUR 19,399,437, and the number of the shares to 38,798,874 shares.

Share option scheme 2005
In 2005, 600,000 share option rights were issued, each entitling its holder to subscribe for one share of Lassila & Tikanoja plc. In the beginning of the exercise period, 25 key persons held 162,000 2005A options and 32 key persons held 176,000 2005B options. 38 key persons hold 203,000 options. L&T Advance Oy, a wholly-owned subsidiary of Lassila & Tikanoja plc, holds 8,000 2005A options, 24,000 2005B options and 27,000 options and these options will not be exercised.  

The exercise price for the 2005A options is EUR 14.22, for 2005B options EUR 16.98 and for options EUR 26.87. The exercise period for 2005A options is 2 November 2007 to 29 May 2009, for 2005B options 3 November 2008 to 31 May 2010, and for options 2 November 2009 to 31 May 2011.

The outstanding options issued under the share option plan 2005 entitle their holders to subscribe for a maximum of 1.4% of the current number of shares. The 2005A options have been listed on NASDAQ OMX Helsinki since 2 November 2007 and 2005B options since 2 January 2009.

Share option scheme 2008
In 2008, 230,000 share option rights were issued, each entitling its holder to subscribe for one share of Lassila & Tikanoja plc. 39 key persons hold 202,000 options and L&T Advance Oy 28,000 options.

The exercise price for the 2008 options is EUR 16.27. The exercise price of the share options shall, as per the dividend record date, be reduced by the amount of dividend which exceeds 70% of the profit per share for the financial period to which the dividend applies. However, only such dividends whose distribution has been agreed upon after the option pricing period and which have been distributed prior to the share subscription are deducted from the subscription price. The exercise price shall, however, always amount to at least EUR 0.01. The exercise period will be from 1 November 2010 to 31 May 2012.

As a result of the exercise of the outstanding 2008 share options, the number of shares may increase by a maximum of 202,000 new shares, which is 0.5% of the current number of shares.

Share-based incentive programme
Lassila & Tikanoja plc’s Board of Directors decided at a meeting held on 24 March 2009 on a share-based incentive programme. The programme includes three earnings periods one year each, of which the first one began on 1 January 2009 and the last one ends on 31 December 2011. The basis for the determination of the reward is decided annually. Potential rewards to be paid for the year 2009 will be based on the EVA result of Lassila & Tikanoja group. Potential rewards will be paid during the year following each earnings period partly as shares and partly in cash. The proportion paid in cash will cover taxes arising from the reward. In the starting phase the programme covers 28 persons.

A maximum total of 180,000 Lassila & Tikanoja plc shares may be paid out on the basis of the programme. The shares will be obtained in public trading, and therefore the incentive programme will have no diluting effect on the share value.

Shareholders
At the end of the financial period, the company had 6,476 (5,263) shareholders. Nominee-registered holdings accounted for 8.7% (11.3%) of the total number of shares.

Notifications on major holdings
On 30 April 2009, Ilmarinen Mutual Pension Insurance Company announced that its holding of the shares and votes in Lassila & Tikanoja plc had fallen to 7.6%.

Authorisation for the Board of Directors
The Annual General Meeting held on 24 March 2009 authorised Lassila & Tikanoja plc’s Board of Directors to make decisions on the repurchase of the company’s own shares using the company’s unrestricted equity and on the issuance of these shares. Shares will be repurchased otherwise than in proportion to the existing shareholdings of the company’s shareholders in public trading on the NASDAQ OMX Helsinki Ltd at the market price quoted at the time of the repurchase.

The Board of Directors is authorised to repurchase and transfer a maximum of 500,000 company shares,  which is 1.3% of the total number of shares. The repurchase authorisation will be effective for 18 months and the share issue authorisation for four years. The Board has not exercised these authorisations during the review period.

The Board of Directors is not authorised to launch a convertible bond or share option rights.


RESOLUTIONS BY THE ANNUAL GENERAL MEETING

The Annual General Meeting of Lassila & Tikanoja plc, which was held on 24 March 2009, adopted the financial statements for the financial year 2008 and released the members of the Board of Directors and the President and CEO from liability. The AGM resolved that a dividend of EUR 0.55, a total of EUR 21.3 million, as proposed by the Board of Directors, be paid for the financial year 2008. The dividend payment date was resolved to be 3 April 2009.

The Annual General Meeting confirmed the number of the members of the Board of Directors six. The following Board members were re-elected to the Board until the end of the following AGM: Heikki Bergholm, Eero Hautaniemi, Matti Kavetvuo, Juhani Lassila and Juhani Maijala. Hille Korhonen was elected as a new member for the same term.

PricewaterhouseCoopers Oy, Authorised Public Accountants, were elected auditors with Heikki Lassila, Authorised Public Accountant, acting as Principal Auditor.

The Annual General Meeting approved the Board’s proposals to amend article 11 of the Articles of Association and to authorise the Board of Directors to repurchase the company’s own shares and to issue shares.

The resolutions of the Annual General Meeting were announced in more detail in a stock exchange release on 25 March 2009.


BOARD OF DIRECTORS

The members of the Board of Directors are Heikki Bergholm, Eero Hautaniemi, Matti Kavetvuo, Hille Korhonen, Juhani Lassila and Juhani Maijala. In its constitutive meeting the Board re-elected Juhani Maijala as Chairman of the Board and Juhani Lassila as Vice Chairman. The Board decided to establish an audit committee. From among its members, the Board elected Juhani Lassila as chairman and Eero Hautaniemi and Hille Korhonen as members of the audit committee.


SUMMARY OF STOCK EXCHANGE RELEASES PURSUANT TO ARTICLE 7, CHAPTER 2 OF THE SECURITIES MARKETS ACT

In a release published on 25 March 2009, the company announced that Lassila & Tikanoja plc’s Board of Directors decided at a meeting held on 24 March 2009 on a share-based incentive programme. The programme includes three earnings periods one year each, of which the first one began on 1 January 2009 and the last one ends on 31 December 2011. The basis for the determination of the reward is decided annually. Potential rewards to be paid for the year 2009 will be based on the EVA result of Lassila & Tikanoja group. Potential rewards will be paid during the year following each earnings period partly as shares and partly in cash. The proportion paid in cash will cover taxes arising from the reward. In the starting phase the programme covers 28 persons.

A maximum total of 180,000 Lassila & Tikanoja plc shares may be paid out on the basis of the programme. The shares will be obtained in public trading, and therefore the incentive programme will have no diluting effect on the share value.


NEAR-TERM UNCERTAINTIES

A deeper and prolonged economic recession may reduce transport and recycling volumes and the number of commissioned assignments. Indeed, the slowdown in the construction business has already translated into lower construction waste volumes. If the market price instability of secondary raw materials persists and demand remains low, this will have a negative effect on the profitability of recycling services. Rapid fluctuations in demand for services purchased by the industry may hamper the planning and implementation of work.

Delays in the ramp-up of L&T Recoil plant may affect the Industrial Services division’s operating profit. Operating profit will also decline if the price of crude oil stays at the current low level, because the price of base oil follows crude oil price developments with a delay.

If the operating rate in the forest industry continues to be low, this may hamper L&T Biowatti’s procurement of by-products for raw material. The availability of raw material required for pellet production has deteriorated and prices are high. At the moment, imported pellets are considerably cheaper than pellets produced in .

The uncertain outlook of the Latvian economy and more intense competition may prove detrimental to the profitability of ’s waste management business.


PROSPECTS FOR THE REST OF THE YEAR

Although the markets in which L&T primarily operates are low-cyclical, the economic recession is impacting on demand for L&T’s services.

Waste material transport and recycling volumes are expected to decline further towards the year-end. Meanwhile, secondary raw materials are expected to be affected by weak demand and low market prices over the next few months. Operating rates in the forest industry continue to be low, which will affect L&T Biowatti’s raw material procurement. At the same time, low fossil fuel prices will restrict wood-based biofuel demand and pricing.

Property and Office Support Services will continue to experience fierce competition and increased competitive bidding. The economic uncertainty will hold back new and additional sales, and the number of services will be reduced when contracts are renewed.

The Industrial Services division’s market conditions are expected to remain challenging throughout the year. However, as in the previous years, demand is expected to pick up after the first quarter. Lower operating rates in the industry will reduce hazardous waste volumes and rapid fluctuations in demand will make the identification of the correct production adjustment measures difficult.

Full-year net sales and operating profit excluding non-recurring and imputed items are expected to reach the previous year’s level. This requires success in the adaptation of operations and costs as well as the start-up of the operation of L&T Recoil according to plan.

BREAKDOWN OF OPERATING PROFIT EXCLUDING NON-RECURRING AND IMPUTED ITEMS

CONDENSED FINANCIAL STATEMENTS 1 JANUARY–31 MARCH 2009
 
ACCOUNTING POLICIES

This interim financial report is in compliance with IAS 34 Interim Financial Reporting standard. The same accounting policies as in the annual financial statements for the year 2008 have been applied. These interim financial statements have been prepared in accordance with the IFRS standards and interpretations as adopted by the EU.

The following new standards and amendments to standards that have become effective in 2009 have had an impact on the financial statements in this interim financial report:

IFRS 8 Operating Segments
The IFRS 8 Operating Segments standard has replaced the Segment Reporting standard (IAS 14). IFRS 8 requires that segment information is prepared under the management approach. Segment information shall be presented on the same basis as that used for internal reporting provided to the management and using the accounting policies applied in that reporting. The adoption of IFRS 8 does not impose any significant changes on L&T’s segment reporting as the previous segment reporting was based on the internal reporting structure. The internal reporting is consistent with the IFRS-standards. The reportable segments have remained unchanged, but a change has been made between Property and Office Support Services and Industrial Services, because damage repair services were transferred to Property and Office Support Services. To the rest of the segment information, to the basis of segment division and to the measurement of profit or loss the same principles have been applied as in the annual financial statements. As previously, operating profit is used as a measure of a segment’s profit or loss. However, unlike in previous interim reports, the segments’ net sales are divided into external net sales and inter-division net sales and a reconciliation of operating profit to the consolidated profit before tax is presented. The adoption of the standard will result in changes in the notes to the financial statements for the financial year as well.

IAS 1 (Amendment) Presentation of Financial Statements
The revised standard has changed the presentation of the income statement and the statement of changes in equity. According to the revised standard, only owner changes in equity are presented in the statement of changes in equity. Changes in equity during the period resulting from transactions and other events other than those changes resulting from transactions with owners in their capacity as owners, are presented in a statement of comprehensive income. The income statement may be presented in a single statement of comprehensive income or in two statements. L&T has adopted two separate statements: a separate income statement displaying components of profit or loss and a second statement beginning with profit or loss and displaying components of other comprehensive income. The titles of two statements have changed: the balance sheet is now referred to as ‘statement of financial position’ and the cash flow statement as ‘statement of cash flows’.
 
Income tax expense is based on the estimated average annual income tax rate.

The preparation of financial statements in accordance with IFRS require the management to make such estimates and assumptions that affect the carrying amounts at the balance sheet date for the assets and liabilities and the amounts of revenues and expenses. Judgements are also made in applying the accounting policies. Actual results may differ from the estimates and assumptions. 

The interim financial statements have not been audited.

CONSOLIDATED INCOME STATEMENT

Earnings per share for profit attributable to the equity holders of the company:

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

Breakdown of income tax is presented in the notes under ‘Tax effects of components of other comprehensive income’.

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

 CONSOLIDATED STATEMENT OF CASH FLOWS

Liquid assets

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY   

KEY FIGURES

SEGMENT INFORMATION

As of  2009, damage repair services was transferred from Industrial Services into Property and Office Support Services. Comparative figures have been restated accordingly.

NET SALES

OPERATING PROFIT

OTHER SEGMENT INFORMATION

INCOME STATEMENT BY QUARTER

TAX EFFECTS OF COMPONENTS OF OTHER COMPREHENSIVE INCOME

BUSINESS ACQUISITIONS
No business acquisitions were made during the review period.


CHANGES IN INTANGIBLE ASSETS

CHANGES IN PROPERTY, PLANT AND EQUIPMENT

CAPITAL COMMITMENTS

RELATED-PARTY TRANSACTIONS
(Joint ventures)

CONTINGENT LIABILITIES

Securities for own commitments

Other securities are security deposits.
The Group has given no pledges, mortgages or guarantees on behalf of outsiders.

Operating lease liabilities

Derivative financial instruments
Interest rate swaps

* Hedge accounting under IAS 39 has not been applied to these interest rate swaps. Changes in fair values have been recognised in finance income and costs.
** The interest rate swaps are used to hedge cash flow related to a floating rate loan, and hedge accounting under IAS 39 has been applied to it. The hedges have been effective, and the total change in the fair values has been recognised in the hedging reserve under equity.

Currency derivatives

Hedge accounting under IAS 39 has not been applied to the currency derivatives. Changes in fair values have been recognised in finance income and costs.

Oil derivatives