Lemminkäinen shows year-on-year growth

Third quarter figures at Finnish contractor Lemminkäinen show that order inflow was up to €362.2 million, from €351.4 million for the same period a year earlier, and nine-month results showed a rise to €1.21 billion from €1.13 billion.

Its order book at the end of the third quarter was also up, at €1.45 billion, compared to €1.41 billion 12 months earlier.

The company is planning a merger with YIT, with Lemminkäinen being absorbed into its fellow Finnish contractor.

Operating profit for the third quarter amounted to €48.7 million, 7.8% of net sales, compared to €42.8 million, or 8.0% of net sales in the third quarter of 2016.

Lemminkäinen pointed out that the operating profit included €1.0 million transaction costs related to the planned combining with YIT.

For the January to September 2017 period, operating profit was reported to be €31.7 million, 2.4% of net sales, in contrast to €32.6, or 2.7% of net sales last year.

The operating profit includes €3.4 million compensation paid by Lemminkäinen related to the Helsinki Court of Appeal’s decision regarding breach of the Finnish environmental protection law and €2.8 million transaction costs related to the planned combining of Lemminkäinen and YIT.

Finland segment

Lemminkäinen’s president and CEO Casimir Lindholm said, “In the third quarter, our net sales and operating profit grew year-on-year, driven by the good performance of the building construction, Finland segment.

“In infra projects, lower operating profit was mainly due to the weaker margins in individual projects in Finland and the Baltic countries. In Russian operations, our order book is on a satisfactory level, but reaching our financial targets after the recent strategy change will still take some time.”

He added, “In paving, despite the good performance in Finland, the segment suffered from poor profitability in Scandinavia caused by intense price competition as well as our weak operative performance.”

He said the company’s financial position had improved year-on-year.

“Our interest-bearing debt is now less than €200 million. Our equity ratio is 32.9% and our gearing is 47.2%, if hybrid bonds were treated as debt.”

He said the order book was “relatively strong”, adding that after the reporting period the company signed a new agreement with Stockholm Vatten worth approximately €30 million for the rock engineering work in Henriksdal wastewater treatment plant in Stockholm, Sweden.

“The market outlook in our main market area remains positive, which should support our growth targets.

“On 12 September, the planned merger of Lemminkäinen and YIT took an important step forward, as the extraordinary general meetings of Lemminkäinen and YIT approved the plan to combine the two companies.”

He pointed out that the completion of the merger was still subject to merger control approvals from competition authorities, but added, “We have started to plan the integration together with YIT.”

At the end of September, The Finnish Competition & Consumer Authority (FCCA) said that it had initiated further proceedings concerning the combining of the two companies. The FCCA can approve the merger as such, attach conditions to the approval or request that the Finnish Market Court prohibit the merger. According to the Finnish Competition Act, the subsequent proceedings may not take longer than three months. Lemminkäinen said that as a result of the FCCA decision, it was more likely that the merger would be completed on 1 January, 2018, at the earliest.

Markets

Looking forward at its markets, Lemminkäinen said that in Finland, the total volume of construction was expected to grow in 2017. Residential construction overall was estimated to remain at a good level, although investor demand was expected to decline somewhat from the high levels witnessed in 2016.

Non-residential construction was estimated to remain stable, thanks to individual major projects and public sector works. Renovation was expected to grow moderately as a result of increasing urbanisation and public sector works.

Infrastructure construction was expected to grow approximately 2% in 2017. It said the government’s decisions regarding transport projects in the General Government Fiscal Plan, as well as major cities’ investments in infrastructure, were improving the outlook for both paving and infrastructure projects.

The state’s planned investments in basic road maintenance are expected to keep demand stable for paving in 2017. Demand for infrastructure projects was being maintained by complex projects in urban growth centres and industrial investments, but the competition was said to be intense.

In Norway and Sweden, Lemminkäinen said that infrastructure construction was boosted by multi-year, state-funded traffic infrastructure development programmes. In both countries, infrastructure construction was expected to grow in 2017.

It reported that large-scale road and railway projects were ongoing or planned near urban growth centres in Sweden and Norway, which it said would increase demand for infrastructure projects and paving. In addition, Norway, especially, is investing in the development and renewal of energy production, it said.

In Denmark, demand for paving was expected to decline as public investments in road infrastructure were decreasing.

Lemminkäinen said that in Russia, economic growth was at a low level. The fluctuations in the price of oil were reflected in the currency exchange rate. It said that in negotiated contracting in building construction, price competition was high but the reliability of the builder had become a competitive advantage. Construction and repair projects on major roads are expected to maintain demand for paving, the company said.

In the Baltic countries, the volume of infrastructure construction has started to grow, it added.