Luotea Oyj

Welcome to Lassila et Tikanoja's third quarter result webcast. The webcast will be hosted by Eletti's CEO, Eero Hautaniemi, and CFO, Valtteri Palin. There's an opportunity to ask questions during the broadcast. You can either ask them via phone or type them in the chat box below your screen. Eero, please go ahead.

Thank you, Inka. Welcome also on my behalf to this January-September earnings release. Let's start with a few highlights. We had on third quarter still solid growth in our net sales. Now one thing to remember when you look at our third quarter numbers is that our renewable energy sources is no longer part of these reported but it is below operating profit from now on. Especially, I'm happy with the performance in our material and recycling businesses, i.e. environmental services and industrial services. Let's dive a little deeper into the net sales development process. As I said, in environmental services, we no longer have the renewable energy sources numbers in these reported numbers. So the net sales growth was still solid in environmental services if we exclude the renewable energy sources. But especially in industrial services, our growth was very strong. And I'll go to the reasons when I go a little deeper in the industrial services performance. In facility services, Finland and Sweden, some growth. In Sweden, we have to remember that the Swedish crown has weakened against Euro, and that has a negative impact to the numbers. But all in all, pretty much on par with last year's levels. Then in operating profit, we can see green bars when it comes to environmental services and industrial services. So in both of these businesses, we managed to improve also our year-to-date adjusted operating profit compared to the last year. But in facility services in Finland and in Sweden, the performance was poorer than what it was a year ago. Overall our adjusted operating profit was close to 2 million euros better in third quarter compared to the previous year. Here you can see the quarterly development and in these numbers in environmental services We have the renewable energy sources in these numbers in the comparison period. But as you can see, after the difficult first quarter, both in environmental services and industrial services, the performance has been solid in the second and third quarter. Also in facility services, both in Finland and in Sweden, we are gradually improving our performance, but unfortunately not at the pace we would like to see. Then let's get into the business review and start with the environmental services. Overall, very solid performance, and as I said, now when we exclude the renewable energy sources, the sales growth was 7%. in third quarter, which is a good growth, not quite as fast growth as we have seen in the first half of the year. And the reason is that we have seen now that the prices for the recycled raw materials are gradually dropping or leveling off and in some fractions also coming down. and that has clearly an impact to the net sales development as well. But overall, we managed to strengthen our market position. We got some new customers, and in general, the performance was very solid in the environmental services. Also, the relative profitability in third quarter was better than it was a year ago, When we look at the first nine months figures, we can see the impact of the very weak and difficult first quarter and therefore the relative profitability is slightly below, but the adjusted operating profit is above last year's levels already. Then industrial services. We had excellent third quarter. in industrial services. All of our service lines performed well, i.e. hazardous waste, process cleaning, and environmental construction in all of these businesses, very strong performance. In process cleaning, there was very high demand in the let's say, end of third quarter and we managed very well our resourcing and I'm really pleased with the performance of industrial services. I'm also happy to say that the acquisition we made or the joint venture SVB in Sweden performed well. The sales growth is very positive and also the operating profit is developing nicely. So overall, really good performance in industrial services. In facility services, Finland, the market is difficult. We have challenges with the availability of labor. there is also very high turnover of labor. And this is a phenomenon that has sort of happened in the entire market after the COVID. So the turnover of personnel has significantly increased after the COVID period. We have taken actions to improve our processes for taking the employees in but nevertheless it is almost double the employee turnover compared to the comparison period last year. Also because of the very high inflation that we are now experiencing in It is really difficult, or it has been really difficult to get the price increases through. And because of this challenging environment where we, on one hand, have the shortage of labor, and on the other hand, we have very high inflation, we have started negotiations with the unions and other actions to improve the profitability and efficiency of our business. This may also result in declining net sales next year as there is a risk that some of the customer contracts that we currently have will not continue next year. In Sweden the situation is similar but there is one difference between our Finnish and Swedish businesses. In Sweden the part of the public sector tender-based business is almost half of our net sales. And there, as these are multi-year contracts, it takes a long time before the indexes take the higher cost inflation into the pricing of our contracts. Also, we have had some challenges with our quality which we are currently working on and also we are very much focusing on simplifying the processes in Sweden to improve the efficiency and give more time to our personnel to do the additional sales for our customers. There we have fallen short from our targets. In summary, in both of our facility services, this current market environment is more difficult to get into the customer contracts and therefore we have initiated several actions to improve our performance. Then moving on to some sustainability highlights. One of the bright spots in our facility services, Finland, is our energy efficiency work that we have very successfully done. And one example here is the work we have done together with Technopolis, where we have reached excellent results. And there is very high demand, obviously, with these energy prices for these type of services. Also, we have done a lot of training for our personnel, and one thing that I'd like to raise here is the diversity and inclusion workshops that we have done for our people, and they have been received very well by our managers and personnel. Perhaps the nicest thing on this page is the fact that we, again, for the second time in a row, got the platinum rating from Ecovaades, which is obviously an achievement that I'm really proud of and would like to thank all of our personnel for excellent work for achieving this very prestigious award, second time in a row. Then some sustainability numbers. Here I'd like to highlight a couple of things. First of all, our carbon handprint, which is down from the previous year, quite a bit down actually, and this is only a result of taking the renewable energy sources away from our reported numbers starting 1st of July this year. So the underlying performance is pretty much on the same level as it was last year. In our carbon footprint, and especially in our emission intensity, you can see very good development, but this is something that will change in the second half of this year as the renewable fuel distribution obligation in Finland has been changed by the Finnish government, and this change will result in much higher intensity for the second half of this year, and then next year when this still remains on these new levels, this renewable fuel distribution obligation. So in general, we are still doing the actions that we have started, and we are on track in halving our emissions. But the government actions are bringing a short bump on the road that will vanish once we get to Sort of back to normal track with also these renewable fuel distribution obligations from 2024 onwards, I hope. So this is my part, and now I will give floor to Valtteri to go through more in detail with the financials. Valtteri.

Okay, thank you, Eero, and good morning. let's move on to the financials, and I'll start with adjusted operating profit. So, as Eero mentioned, our EBIT improved in Q3. It was 20.3 million euros. Also, our EBIT improved in Q2, but the year-to-date EBIT was lower than a year ago due to the In Q1, we had this COVID-19 or micron variant and also higher diesel price, which caused extra costs of 5 million euros. We had a really strong performance in industrial services and also in environmental services. but high cost inflation affected negatively to our facility services business, both in Finland and in Sweden. Also, we have these action plans ongoing, but the effect of those has been slower than expected, but they are anyway ongoing. Then the key figures, a few highlights from here, capital expenditure, 45.8 million euros, and the share of acquisitions of 22 million euros, so the investments in current operations was 24 million euros. So it affects to our... investment level that we have made these acquisitions, but also our suppliers have had difficulties on supplying all the machine and trucks, et cetera, due to the lack of components. Then return on equity, return on investment, they are a bit lower than in the comparison period. The reason is this low Q1 result, but also our invested capital has increased by 30 million euros due to the acquisitions. Balanced KPIs, equity ratio gearing improved. They are almost on the previous year's level. Then networking capital, it was minus 22.5 million euros, so it finances our operations. It improved from the comparison period almost 13 million euros, but the reason is that we don't report renewable energy sources anymore in these figures. so the decrease was roughly 10 million euros, and the reason is that our net sales growth was 7%, so our trade receivables, un-invoiced net sales, have increased. Cash flow and investments. Cash flow was positive, 1 million euros usually increased, Our cash flow is in line with our net result, so this cash flow includes acquisitions of 13 million euros, so cash flow from operations was 14 million euros, and investments minus 38 million euros, including acquisitions also. Then interest bearing debt and liquidity. Interest bearing debts increased by 25 million euros due to the bond we issued in May of 75 million euros. The previous bond was 50 million euros. And also IFR 16 leasing, consolidated leasing liabilities are on the same level than earlier, 70 million euros. And liquid assets, 30 million euros. We have 15 million euros of commercial papers in use. And also our revolving credit facility, 40 million euros is not in use. So our liquidity position is really strong. Loan portfolio, next repayment is in 2023. In September, we will pay back the rest of the old bond. And then next possible refinancing will be in 2024, 50 million euros bank loan in September. And the maturity of this new bond is six years. And in these uncertain circumstances, it's good that 86% of our loans have fixed rate, and now the effective interest rate is 2.5%. It increased to the higher rate in our new bond. The previous one was 1.1%. Okay, and now Eero will continue with our outlook.