The reporting structure change in 2016
Along with the strategy review, the Paving segment’s project-related business operations, such as earthworks, was transferred to the Infra projects segment starting from 1 January 2016.
As of the beginning of 2016, the Paving segment includes paving and mineral aggregates businesses and the Infra projects segment consists of rock engineering, earthworks and civil engineering. The reportable business segments remain unchanged: Paving; Infra projects; Building construction, Finland; and Russian operations.
The company will publish pro forma figures for 2015 according to the new reporting structure during the first quarter in 2016.
The decrease in paving’s unit prices driven by the falling price of bitumen increased demand especially in Finland. Infra projects in urban growth centres supported the demand for earthworks and mineral aggregates. In Sweden and Norway, road construction and renovation projects increased the demand for paving. In Denmark, competition is intense and the decline of public investments decreased paving volumes. In the Baltic countries, the market situation remained stable.
Net sales in January–December totalled EUR 874.5 million (907.5). Net sales by country were 45% (43) from Finland, 43% (44) from Scandinavia and 12% (13) from the Baltic countries. The operating profit was EUR 16.9 million (32.2). The decline of the operating profit was due to a weaker year-on-year result in Norway, the divestment of the road maintenance business in Norway as well as declining margins in individual earthworks projects in Finland. Paving businesses’ performance in Finland, Sweden and the Baltic countries improved year-on-year, which supported the result. Paving segment’s order book for the comparison period includes the divested road maintenance business in Norway, which explains the change. In January–December Lemminkäinen produced 6.5 million tonnes of asphalt (6.3).
Urbanisation and investments in energy infrastructure increased the demand for complex infrastructure construction. Especially in Sweden and Norway, the market is strong and there are several major projects ongoing or planned. In Finland, construction was supported by complex infrastructure construction projects in urban growth centres. In the Baltic countries, the market situation was stable.
Net sales in January–December totalled EUR 263.1 million (286.0). Net sales by country were 73% (59) from Finland, 18% (37) from Scandinavia, 5% (3) from the Baltic countries and 4% (1) from other countries. The operating profit improved and was EUR 11.8 million (7.2). The operating profit increased the most in Finland due to good project management of major projects. Profitability developed favourably also in other countries, except in Sweden, where lower year-on-year volumes weakened the result. The operating profit for the comparison period was weakened by a write-down of EUR 3 million related to a customer’s bankruptcy. Operating capital stood at EUR 1.2 million (-0.9) at the end of the period.
Building construction, Finland
The market situation in building construction remained stable during 2015. Housing production continued to focus on small apartments in urban growth centres. Housing funds are still very active and sales to investors compensated for weaker consumer sales. Commercial construction, especially outside the Helsinki metropolitan area, was at a low level.
Net sales in January–December totalled EUR 537.8 million (539.0). Net sales grew in the Helsinki metropolitan area, but decreased in other regions. The operating profit improved year-on-year, amounting to EUR 12.9 million (9.3). The result was boosted by the good performance in the Helsinki metropolitan area and the profitability improvement outside the capital region. The full-year result was weakened by expenses recognised in the second quarter, exceeding EUR 5 million comprising losses from non-strategic plot sales and provisions related to warranty repairs, among others. The result for the comparison period was burdened by an approximately EUR 4 million write-down related to an earlier consortium. However, the 2014 result was boosted by the completion of a major residential and commercial project in the Töölö Bay district in Helsinki.
In the uncertain economic situation, the number of residential start-ups was scaled down in 2015 and sale of completed units was enhanced. At the end of the review period, the number of unsold completed units was lower than in the comparison period totalling 283 (336). Operating capital decreased and stood at EUR 274.8 million (303.7).
In 2016, the number of completed residential development projects will be lower than in 2015. The majority of these projects will be completed towards the end of the year.
The operating environment in Russia remained uncertain. Consumer purchasing power has declined due to rising inflation. Competition in the housing market has intensified and loan processing times have lengthened. Construction and repair projects on major roads maintained demand for paving.
In January–December, net sales totalled EUR 136.7 million (196.1) and the operating profit was EUR 2.9 million (19.7). Changes in currency exchange rates had a negative impact of EUR -45.6 million on net sales and a negative impact of EUR -1.0 million on the operating profit compared to the corresponding period in 2014.
Net sales and the operating profit decreased. During 2015, one residential development project was completed compared to two projects in 2014, which can be seen in the lower number of units completed and sold. In addition, building construction contracting was reduced from the comparison period. In paving operations, profitability has improved due to a better contract portfolio. The segment’s full-year operating profit was reduced by a write-down related to the company’s decision to withdraw from the planned Ilmatar project. At the end of the review period, the impact of the write-down in euros was EUR 12.9 million. In order to maintain its moderate risk level, Lemminkäinen has decided, in line with its strategy, not to start new residential development projects for the time being in Russia.
At the end of the review period, the order book stood at EUR 7.0 million (86.4), consisting mostly of the paving order book. Solid housing sales have reduced the amount of operating capital, which stood at EUR 35.0 million (68.4) at the end of the period.