Lemminkäinen interim report 1 January - 30 June 2013

LEMMINKÄINEN CORPORATION INTERIM REPORT 8 AUGUST 2013 AT 8:00 A.M.

LEMMINKÄINEN INTERIM REPORT 1 JAN - 30 JUNE 2013:
Profitability challenges especially in international operations; Lemminkäinen to cut costs by EUR 30 million

January - June 2013 (1 - 6/2012)

- Net sales for the first half of the year fell by 6% and totalled EUR 827.6 million (882.4).
-
On 30 June 2013, the order book was EUR 2,085.1 million (1,931.2). Most of the increase in the order book originated from International Operations. Projects attributable to 2013 account for 52 (53) per cent of the order book.
- Operating profit weakened and totalled EUR -50.7 million (-13.9) with an operating margin of -6.1% (-1.6). The losses derived from the delayed start of the paving season, low number of housing completion and various one-offs.
- Pre-tax profit was EUR -62.4 million (-22.3).
-
Earnings per share were EUR -2.63 (-0.90).
-
Cash flow from operations totalled EUR -78.2 million (9.2). Factors influencing cash flows included especially the weak result of the review period and changes in working capital.
-
The equity ratio stood at 29.2% (31.2) and gearing at 108.6% (91.7).
-
Interest-bearing liabilities increased by 30%, totalling EUR 494.5 million (381.6) at the end of the review period. Interest-bearing net debt totalled EUR 405.2 million (348.9).

April - June 2013 (4 - 6/2012)

- Second-quarter net sales fell by 8% and totalled EUR 521.2 million (567.0).
-
Operating profit noticeably weakened and totalled EUR -12.4 million (7.7) with an operating margin of -2.4% (1.4).
-
Pre-tax profit was EUR -19.3 million (2.0).
-
Earnings per share were EUR -0.91 (0.12).
-
Cash flow from operations totalled EUR -53.8 million (-26.4).

Profit guidance for 2013

On the basis of the order book and the short-term outlook for demand, net sales in 2013 are expected to be on a par with 2012. Operating profit for 2013 is expected to fall short of 2012. In 2012, Lemminkäinen's net sales totalled EUR 2,268 million and its operating profit amounted to EUR 50 million. Since the beginning of the year, Lemminkäinen has revised its profit guidance for 2013 on 19 April 2013 and on 18 July 2013.

Key figures

IFRS, EUR million 1-6/
2013
1-6/
2012
Change   4-6/
2013
4-6/
2012
Change 1-12/
2012
Net sales 827.6 882.4 -6%   521.2 567.0 -8% 2,267.6
Operating profit   -50.7 -13.9 over 100   -12.4 7.7   50.4
Operating margin, % -6.1 -1.6     -2.4 1.4   2.2
Pre-tax profit -62.4 -22.3 over 100   -19.3 2.0   29.1
Profit from continuing operations -48.9 -19.0 over 100   -16.7 1.0   20.4
Profit from discontinued operations   2.5       2.4   5.7
Gain on sale from discontinued operations (after taxes)              
18.0
Profit for the period -48.9 -16.5 over 100   -16.7 3.5   44.1
Basic earnings per share, EUR                
   From continuing operations -2.63 -1.02 over 100   -0.91 0.00   0.83
   From discontinued operations   0.12       0.12   1.21
   From the profit for the period -2.63 -0.90 over 100   -0.91 0.12   2.04
Cash flow from operations -78.2 9.2     -53.8 -26.4   57.8

 

Business functions divested in 2012 are categorised as discontinued operations. On 28 September 2012, Lemminkäinen sold the entire share capital of Lemminkäinen Rakennustuotteet Oy, which comprised the company's concrete business. The transaction price was EUR 55 million, from which Lemminkäinen recognised pre-tax gain on sale of EUR 17.3 million, primarily in the third quarter of 2012. 
 

IFRS, EUR million 30 June 2013 30 June 2012 Change 31 December 2012
Order book, EUR million 2,085.1 1,931.2 8% 1,443.9
Balance sheet total, EUR million 1,461.8 1,389.7 5% 1,303.5
Interest-bearing net debt, EUR million 405.2 348.9 16% 277.3
Equity ratio, % 29.2 31.2   37.2
Gearing, % 108.6 91.7   62.8
Return on investment (rolling 12 months), % 5.7 8.4   10.8


President & CEO's view

"Lemminkäinen's result for the first half of the year was poor across the Group, but the main profitability challenges lie in our international operations," says Timo Kohtamäki, President and CEO. "The single most significant reason behind the negative result was the delayed start of the season in paving and mineral aggregates by 4 to 12 weeks in all our operating countries. Our cost structure in the paving business, and above all labour cost, were too heavy for the H1 business volume. In residential development and construction, the number of housing units completed was exceptionally low. Furthermore, we had one-offs worth over EUR 10 million related to the efficiency improvement measures in Norway as well as the telecommunications network business."

"Though the EUR 50 million efficiency programme launched in 2011 focusing on the Finnish operations has proceeded as planned, it is evident that the measures are not sufficient. We must continue to streamline our cost structure to decrease the impact of seasonality, and to improve our competitiveness."

The goal is to cut the cost structure by EUR 30 million. The decisions will be implemented in 2013, and the full impact of the measures is expected to materialize from the second-half of 2014 onwards. The EUR 30 million plan includes the EUR 10 million savings potential published in May 2013.

"We will continue to increase the use of subcontracting and outsourcing. We will also conclude the measures to significantly reduce the number of regional units in Finland and Norway. Unavoidably this will also require adjusting the number of employees to the business volume."

Lemminkäinen estimates that the personnel impact of the measures is about 500 men-year. The adjustment measures will affect the entire Lemminkäinen Group in all its operating countries.

"Scandinavia and Russia have the biggest growth and profitability improvement potential for us. To ensure the successful implementation of the efficiency measures and to speed up profitable growth, we have strengthened the management of our international operations," Kohtamäki says.

Market outlook

The general market situation in construction has weakened; in Finland, the total volume of construction is expected to decrease this year. Infrastructure construction is declining for the third year in a row, and this trend is not expected to change significantly in the next few years without support from the state. Sales of new apartments will focus more intensely on the Helsinki metropolitan area and urban growth centres. Low interest rates are maintaining demand for housing, but demand development is slowed down by stricter loan terms and higher interest rate margins applied by banks. In St Petersburg, Russia, demand for comfort-class apartments is still strong, and demand for infrastructure construction is boosted by several road projects across Russia. In Sweden and Norway, the growing infrastructure market is attracting new players from all across Europe, and particularly in paving and rock engineering, competition for projects is intense. 

Briefing

A Finnish-language briefing for analysts and the media will be held at 1:00 p.m. on Thursday, 8 August at Lemminkäinen's head office. The street address is Salmisaarenaukio 2, Helsinki, Finland. The President & CEO Timo Kohtamäki will present the Interim Report. Presentation materials are available in Finnish and English on the company's website, www.lemminkainen.com.

Financial Reports for 2013

The Interim Reports and Financial Statements Bulletin for 2013 will be published as follows:

7 November 2013          Interim Report, 1 Jan - 30 Sept 2013
7 February 2014            Financial Statements Bulletin 2013

LEMMINKÄINEN CORPORATION
Corporate Communications

ADDITIONAL INFORMATION:
Timo Kohtamäki, President & CEO, tel. +358 (0)2071 53263
Robert Öhman, CFO, tel. +358 (0)2071 53515
Katri Sundström, Vice President, Investor Relations, tel. +358 (0)2071 54813

APPENDICES:
Interim Report, 1 Jan - 30 June 2013
Interim Report, tabulated section

DISTRIBUTION:
NASDAQ OMX Helsinki
Key media
www.lemminkainen.com

Lemminkäinen Group operates in all areas of the construction sector. The Group's business segments are building construction, infrastructure construction, technical building services and international operations. Net sales in 2012 were about EUR 2.3 billion, of which international operations accounted for roughly 40 per cent. The Group employs an average of 8,200 people. Lemminkäinen Corporation's share is quoted on NASDAQ OMX Nordic Exchange Helsinki Ltd. www.lemminkainen.com