Profit warning: Lassila & Tikanoja plc lowers its guidance for 2020 due to the shutdown of Russian operations and the coronavirus epidemic

Lassila & Tikanoja plc

Inside information

24 April 2020 at 8:00

Profit warning: Lassila & Tikanoja plc lowers its guidance for 2020 due to the shutdown of Russian operations and the coronavirus epidemic

Lassila & Tikanoja plc is changing its guidance for 2020 due to the discontinuation of Russian operations and the coronavirus epidemic.

The new outlook:

Full-year net sales for 2020 are expected to decrease year-on-year and operating profit is estimated to be EUR 30–40 million (40.5) excluding loss related to the discontinuation of Russian operations.

Due to the reforms in waste management carried out by the state of Russia in 2019, the implementation of waste management in the Moscow region was allocated to seven operators. As a result of this change, the area in which Lassila & Tikanoja operates was allocated to two operators. In April 2020, the company was informed that one of the two operators will start operating waste logistics in the area, which will reduce Lassila & Tikanoja’s net sales in Russia by more than half by the beginning of September. In response to the significant change in the customer situation, Lassila & Tikanoja has decided to discontinue its Russian operations in 2020. The discontinuation of the Group’s operations in Russia is estimated to have a negative effect of EUR 7-11 million on the result and EUR 4-8 million on equity in 2020. The discontinuation is not expected to have a negative effect on cash flow.

According to preliminary figures, Lassila & Tikanoja’s net sales for the first quarter of 2020 amounted to EUR 184.4 million (198.8). The decline in net sales was attributable to the divestment of L&T Korjausrakentaminen in the previous financial year, with its business included in the comparison figures, and the effects of the coronavirus epidemic towards the end of the quarter. Preliminary operating profit was EUR 2.9 million, which was substantially higher than in the comparison period (0.7). The increase in operating profit was mainly due to the improved financial performance of Facility Services Finland. With good net cash flow from operating activities amounting to EUR 19.4 million (22.4), the company’s liquidity position remained strong in the first quarter.

The coronavirus epidemic has thus not so far affected Lassila & Tikanoja’s capacity to deliver services to its customers. As part of Lassila & Tikanoja’s comprehensive contingency planning the Group has conducted negotiations in its Finnish operations pursuant to the Act on Co-operation within Undertakings to enable flexible adjustments in response to declining demand. It is of utmost importance for Lassila &Tikanoja to protect the health and safety of employees, customers and partners, help customers cope with the exceptional circumstances and ensure the continuity of the Group’s business.

The coronavirus epidemic is estimated to have a negative effect on the net sales and operating profit of all of Lassila & Tikanoja’s business segments, with the impacts falling especially on the second quarter.

In the Environmental Services division, the effects of the epidemic on service demand have been minor so far. If the industrial production volumes are affected by the prolongation of the epidemic, this will have a negative impact on the quantities and prices of secondary raw materials.

In the Industrial Services division, customers have responded to the epidemic by postponing maintenance operations to later in the year or limiting their scope. The demand for services that are critical for customers’ industrial operations has remained good. Potential industrial production restrictions would affect the demand for maintenance services and have an impact on net sales due to a lower volume of waste.

Among the customers of Facility Services Finland, the restrictive measures imposed by the authorities have particularly targeted schools, day-care centres, education institutions, restaurants and logistics companies. At the same time, however, the epidemic has increased the demand for special hygiene services, which has partially compensated for the lower demand for other services.

There has been a considerable increase in the sickness rate at Lassila & Tikanoja’s operations in Sweden after the middle of March, which has increased production costs. As the Swedish business focuses particularly on the hospital segment, the restrictive measures imposed by the authorities do not have a significant impact on the demand for services.

The company’s long-term financial targets remain unchanged.

The previous outlook, published in the financial statements bulletin on 29 January 2020, was:

Net sales in 2020 are expected to be on par with 2019 and operating profit is expected to increase compared to 2019 (EUR 40.5 million). The effect of the divestment of L&T Korjausrakentaminen Oy, EUR 4.5 million, has been deducted from the operating profit for the comparison period, which was EUR 45.0 million.

LASSILA & TIKANOJA Plc

Eero Hautaniemi

Toimitusjohtaja

Additional information:

Eero Hautaniemi, President and CEO, tel. 0 

Valtteri Palin, CFO, tel.

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, for example, looking after the work ability of our personnel and also offering jobs to those who are struggling to find employment. L&T operates in Finland, Sweden and Russia. L&T employs 8,200 people. Net sales in 2019 amounted to EUR 784.3 million. L&T is listed on Nasdaq Helsinki.