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Lassila & Tikanoja Oyj
5/3/2023
Welcome to Lassila & Tikanoja's first quarter result webcast. The webcast is hosted by Eletti's CEO Eero Hautaniemi and CFO Valtteri Palin. There's an opportunity to ask questions after the presentation via phone or by typing your question to the chat box below. Thank you very much. Eero, please go ahead.
Thank you, Inka. Welcome also on my behalf to this first quarter earnings release. Few highlights. We had a good start for the year. Especially, I'm happy for the facility services Finland's performance in the first quarter compared to the previous year. We actually made a positive EBIT on the first quarter, which is typically a very challenging quarter for especially property maintenance. Also, our net cash flow from operating activities after investments was 50 cents compared to minus 16 cents previous year. When we look at the Topline development. We can see that in environmental services, industrial services and facility services, Sweden, we had growth. But as planned in facility services, Finland, our net sales declined somewhat. And this was due to the fact that we terminated as we communicated last year, some unprofitable contracts. And we do not expect our sales to grow in facility services this year because of the same fact. We did win some new contracts and overall the performance was good, but the amount of terminated contracts is bigger, at least currently, than the new contracts. Then moving on to adjusted operating profit. In environmental services, a nice increase. In industrial services, pretty much in line with last year. And as I said, in facility services, Finland, a clear improvement from the previous year. In Facility Services Sweden our challenge is continued and I'll get deeper into those during the presentation. From this quarterly presentation, you can see that the first quarter typically is seasonally the weakest for us. And considering that, I'd say that in general, we had a pretty solid performance. In industrial services especially, the first quarter is typically challenging, and now when we had SVB for a full quarter in our numbers, we could also see the difficult January in these numbers in industrial services. In environmental services, our sales activities were good, and we managed to win some new targeted customers, and I'm quite pleased about that. In general, the winter conditions were challenging, but not quite as challenging as they were in the previous year. Also, the sick leave percent was lower in 23 compared to 22. And that helped us obviously to plan and run the operations. At the same time, we did have the strike from the AKT, which is the Transportation Employees Union, and that affected negatively to our performance during the month when we had the strike. Also, the recyclable raw material prices, as we communicated in Q4, they started to decline and now the decline has leveled off. So the raw material prices were pretty stable compared to where they were in the beginning of the year and as we all know right now there are a little bit gray clouds in overall economy and we do not expect a rapid turnaround in the material prices. Especially in the construction, the market is very slow and that does affect to our business as well this year. But despite of this headwind, I'm expecting a solid performance from environmental services in 2023. Industrial services hazardous waste volumes were still on normal level in first quarter and especially in environmental construction we had a very good start for the year and our order book is full and we have projects for the remainder of the year in the environmental construction. In process cleaning There was snow quite late. still in April, and that affected a little bit sewer maintenance projects, but also there were very few planned maintenance breaks in Q1, as we expected. And like previous year, we expect the third quarter to be the main quarter when we see the maintenance breaks and also the highest turnover in industrial services. Overall, the performance was solid and I'm quite pleased with the start of the year also in industrial services. As I said in the beginning, the highlight for our first quarter was Facility Services Finland. And I could say finally, we can see now the results of the hard work we have been doing in facility services to turn around the financial performance. Obviously there is still work to be done, but now it does look good. And the projects we have ongoing are proceeding according to the plans. And we expect a clearly better year in 23 compared to the previous year. We also managed to pass on the inflation to our prices, at least most of them, and that also helps us in 2023 to offset the salary increases, which were quite high, especially for the cleaning workers this year, and therefore It was an important thing to make sure that we get the price increases accepted by the customers. In Facility Services Sweden, we did start work to simplify the operations and increase the efficiency already, end of last year, and the work intensified and continued. in the first quarter, and the first projects are ongoing as we speak, and others will start in the second quarter, and we do expect to see improving performance also in Sweden within the next 18 months. But in Sweden, the issues are a little bit different and perhaps more deep-rooted, and therefore it will require hard work from our entire Swedish organization to turn around the business. But the plans are solid, and I'm confident that we will see improving performance in Sweden as well within the next 18 months. Then a few highlights from sustainability. Last year we did have a dip in our customer satisfaction and I'm pleased to report that this year's or this spring's survey resulted with much better scores and the improvement was five points and was now 31. Even though this is better, actually quite a lot better than it was last fall, there is still work to be done and we have actions ongoing to improve our quality, but also to improve our customer service and hence the customer satisfaction. Few other sustainability highlights. Our own operations carbon footprint continued to go down, and this was due to very good work in all of our businesses. And as you can see, there is a decline from 8,500 equivalent tons to 7,500. And this is a quite significant improvement. And as I said, a result of a very broad-based work in all of our businesses. Also, our work safety developed nicely. In first quarter, our TRIFI was 23 and the rolling 12 months TRIFI was 22, which is the best performance ever. And this was due to a very good proactive and preventive work that we have done in all of our businesses and across the organization. Also, the sick leave percent declined to 5.6, but obviously 5.6 is still fairly high compared to our targets and I would say normal levels, which should be either at five or preferably below five. But with this, I hand over to our CFO Valtteri, and he will go more deeper into the financials. Go ahead, Valtteri.
Thank you Eero and good morning. Let's move on to the numbers and financing. I will start with the adjusted operating profit. Operating profit was 1.4 million euros compared to last year's zero. As Eero mentioned, we had a solid first quarter in industrial services and in environmental services and a big improvement in result in facility services Finland. So the project to improve the profitability is now. impacting well. The EBIT in facilities in Sweden decreased, but we have a similar approach ongoing, and as Zero said, we are waiting or expecting it to have an effect during the next 18 months. The strikes had a little negative impact on the result, but on the other hand, a lower sickness rate had a positive impact on the result, but basically there were no one-off items or surprises in the Q1 result. In the comparison period, there is renewable energy sources, EBIT, but now when we combined the joint venture with a similar business, it's now reported under the EBIT, and it was 1.5 million euros, our share of the net result of the company. Key figures, a few highlights from here. Investments were 13.8 million euros. Last year, 28.5, but it included acquisitions of 21 million euros. In this year, first quarter, no acquisitions were made. Return of On equity return on capital employed, they both improved. Our capital employed increased by 9 million euros. We were able to decrease the amount of capital in our operations, but our cash balance was 25 million euros more than in the comparison period. Equity ratio and gearing, balance sheet KPIs, they both improved. We paid the dividend from a company's bank account at the end of March, 18 million euros. It was paid to the shareholders the 3rd of April. Networking capital was 49.5 million euros. It had a positive effect on the cash flow in the first quarter of 12 million euros and also it improved from the comparison period by 3 million euros. Our inventory is increased, but we were able to decrease or lower the amount of trade receivables and unimposed net sales. So, cash flow 19.2 million euros. After the investments, it was really good, 50 cents per share. And the net investment, cash used in net investments was 8 million euros. In the comparison period, the cash flow was minus 6 million euros due to the acquisitions we made. Interest clearing debt and liquidity, there's no changes on this side. The bank loans were 144 million euros and the IFRS leasing liabilities 75 million euros, cash in the bank account 48 million euros. and also we don't have any commercial papers in use and also the revolving credit facility is unutilized. Then loan portfolio, no changes on this side either. We will pay the rest of the old bond in September, 18 million euros, and the 50 million euros bank loan will mature next year in August, and the bond which we emitted last year in May will mature in 28. Average effective interest rate was 2.8%. It increased in the comparison period. It was 1.1%. And now when the inflation is higher, there might be more increases in interest rates. It's good that 86% of our loans have a fixed interest rate. Good. And now I hand over to Eero.
Thank you, Valtteri. And we keep our outlook for 23 unchanged, which means that net sales and adjusted operating profit are estimated to be at the same level as in the previous year, even though the comparison period includes the net sales from renewable energy sources business, which was about 35 million euros. Thank you. And now we are ready for your questions.
If you wish to ask a question, please dial star five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial star five again on your telephone keypad. The next question comes from Niko Ruokangas from SEB. Please go ahead.
Hello, this is Niko Ruokangas from SEB. I have a couple of questions. So first of all, you mentioned that the strikes created challenges in some of your divisions in Q1. So how big was this effect from these strikes?
Not significant altogether. less than a million, clearly. All right, thanks.
Then you mentioned that you expect effects of your efficiency program in Sweden to realize during the next 18 months. So could you describe the steps during this 18-month period?
The basic structure is similar to what we have done now in Finland. We have done very careful planning. It consists of several different sub-projects, where we have a person responsible for each area. As I said, Partly the project is in place already and effective. So we are working on the projects and partly we are still finalizing the sub-projects and they will start on the second quarter. And gradually we expect to see the improving performance in our Swedish numbers, like we have seen in Finland.
All right. So the effect will be gradual during this year. Great. Then one last question. So your capex was higher than last year if we exclude the acquisitions. So what are your expectations for this year? I understand the ID interest and so on. But do you expect a similar kind of run rate going forward?
One of the reasons why we have higher capex beginning of this year is the fact that we were unable to get all the trucks that we ordered last year. There are still very long lead times for especially special trucks and special equipment. And it really depends kind of when do we receive all the trucks and machinery that we order. So that is one thing. But this year, as you mentioned, one part is the IT investment, which will be very high. this year. So overall, we expect our investments, excluding acquisitions, to be higher this year than they were last year.
All right. I understand. Thanks. That's all from me.
And there are no other questions.
There were no other questions, so I thank you all for joining us in this Q1 earnings release, and I wish you very nice rest of the week. Thank you very much. Bye-bye.