Luotea Oyj

Welcome to L&T's quarterly result webcast. The webcast is hosted by L&T's CEO Eero Hautaniemi and CFO Valtteri Palin. There's an opportunity to ask questions at the end of the presentation via phone or by using the chat function. Eero, please go ahead.

Thank you, Inka. Good morning on my behalf as well and welcome to this interim report January-September 2023. As always, let's start with a few highlights. We did have a solid performance in pretty challenging market and our adjusted operating profit was 31.8 compared to 31.3 in the comparison period. Our net cash flow was strong and we did announce a result of our strategic review yesterday evening and I'll come back to that later in the presentation. Let's start with net sales. Excluding renewable energy sources, our net sales was pretty much flat compared to the previous year. FX, the Swedish Crown Euro FX impact was about 7 million negative to our net sales. I'd say the highlight from NetSales was good development in industrial services where we had 7.7% growth year on year in the first nine months of 2023. Adjusted operating profit was slightly better, as I said earlier. And again, if we exclude the renewable energy sources, the improvement was about 800,000 euros compared to 23. Here, our highlight is the facility services Finland, where the improvement was about 4.7 million euros, but also in other business segments, we did have a very solid performance. We do have very strong seasonality in our EBIT performance. And as I've said earlier, the third quarter is the strongest. And especially after COVID-19, it has been the case that the maintenance breaks in industrial services are very often in the third quarter compared to the earlier situation where they were more evenly spread throughout the year, and that shows in these numbers. Also, if you look at the facility services Finland, we have had a solid improvement in the adjusted EBIT every quarter this year, and also, I'd say, in facility services Sweden, We are seeing now first indications that our hard work is giving results, and now we had the adjusted operating profit at the same level as it was last year. Then we'll dive into the segment review and start with environmental services. We did have very challenging conditions, as I said earlier, and especially it is a fact with environmental services. The construction business is very slow and also volumes in retail are lower than they were a year ago. and the high inflation and the slowness in general economic activity shows in the demand of recycled raw materials, and both volumes and prices are down compared to the previous year. But despite of these headwinds, I'd say we did perform quite well. We managed to get new customers, B2B customers, which has been our target, especially in producer responsibility organizations, and also we have been quite successful in the municipalization and we have won quite a few contracts as the municipalization is progressing. We also did do some efficiency measures and they are visible already in Q3 and we will continue to be very careful and look ways to make the operations even more efficient going forward as it looks like the market is not going to recover in the near future. In industrial services, good performance in all business lines. In hazardous waste, the volumes remained on good level and our operational efficiency is very good in the hazardous waste. Also in process cleaning, we did manage to do the staffing well and according to our plans in the third quarter when we had a very high demand for our services. In environmental construction, The workload has been good throughout the year, although the slowness in construction business is visible in our landfills where we receive less material than we did last year. In Sweden, we did have a very good year last year. This year has not been quite as good, but still the performance has been very solid and we are happy with the development of our Swedish joint venture where we own 70% of the SVB company. In Facility Services Finland, our turnaround plan is progressing according to our plans and the efficiency is increasing and we will continue to work on the number of efficiency initiatives we have started about a year ago. We did end certain customer contracts where the profitability was not at acceptable level and where we could not agree with the customer on the price level. And we will continue to do so in the future as well. But I expect that we will return to positive growth numbers in the coming quarters as we finish the cleanup of our customer portfolio. But overall, a very solid performance from our facility services Finland. And as I already said, in Sweden, we are maybe six months, six to nine months behind our Finnish facility services. But now we are starting to see the results of our projects. turnaround program and now the third quarter result was at the same level as previous year. Obviously there is still a lot of work to be done in Sweden, like in Finland as well, but now it looks positive and we expect to see the improvement to continue in the quarters to come. Yesterday, we announced results of our strategic review. And in 2019, when we renewed our strategy, we raised sustainability into the center of our strategy. We continued that work in 22. And now in this latest revision, we clearly state that we will focus on our material businesses, which are environmental services and industrial services, and we will seek to get growth from the circular economy. At the same time, we are saying that we will evaluate strategic alternatives for Facility Services Finland and Facility Services Sweden and all potential options will be considered, including potential sale of the businesses. But as I said, we are now starting this evaluation and if and when there are results, we will then obviously communicate about that. We will shed a little bit more light on the thinking behind the latest strategy in our Capital Markets Day, which will be held on November 23rd this year. So I welcome you all to listen to that online. In sustainability, we have had also very positive development. Our own CO2 emissions have developed very favorably and they are down quite significantly from the previous year. And this is a result of the good work and systematic work we have done in all of our business lines. Also, I'd like to highlight the much improved development in sick leave percentage. It is now at the end of third quarter, 4.9%, which is almost at 2020 levels and obviously significantly better than what it was at 21 and 22. So also in that front, things look good. But now I hand over to Valtteri and he will take you deeper into the financials.

Okay, thank you, Eero, and good morning. And let's move on to financials and financing. And I'll start with the key figures. First, capital expenditure was 46 million euros. It was on par with the comparison period, but the content was different last year. We made acquisitions of 22 million euros. and now this year we have invested more on heavy vehicles mainly, and also real estate, machinery, and our ICT systems. Depreciations grew lightly, and then return on equity, return on capital employed, they both improved significantly, There are a few reasons for that. Of course, our EBIT improved, but also now when the interest rates have increased, we have been able to keep our total interest costs on the same level than last year, or even a bit lower level. And share of our joint venture, Laania, we own 55% of the company. The result was 2.5 million euros year-to-date. And in the comparison period, it was minus 300. But actually, the first six months was reported above the EBIT. But anyway, the company has improved profitability significantly. Also, we were able to decrease the amount of capital employed by 15 million euros. And so the same reasons also improved earnings per share, which improved 12 cents. Balance sheet items, equity ratio is higher, it's almost 36%, and we were able to push down gearing under 80%. Networking capital, there's a certain seasonality in that it is always at the best level in Q1 and then it goes down and at the end of Q3 it is at the lowest level. The main reason is our employee-related liabilities. Anyhow, we have improved it. It was minus 28.5 million euros. We improved it by 6 million euros. We have improved our payment terms, inventories, and made our invoicing process more effective. Cash flow, it was solid and strong, 28 million euros year-to-date compared to last year, 1 million euros. Last year we made the acquisition, so it of course affected, but anyway, it's strong at the moment. And the money used in... Investments was almost 8 million euros less than in the comparison period. Debts and liquidity, IFR 16, consolidated leasing liabilities is usually in the range of 75 million euros, but then interest bearing debt were 126 million euros, almost 35 million euros less than a year ago. We paid back the rest of the old bond in September, almost 18 million euros, and also we refinanced our bank loan in Q2, and the amount was 10 million euros less. Commercial papers we have in use 10 million euros, in the comparison period 15 million euros and also our committed revolving credit facility 40 million euros is not utilized and also the banked overdraft limits are not in use. The gas balance was 26 million euros. And then loan portfolio, as I said, this year we have paid back loans almost by 30 million euros. It impacts positively on the interest costs. And next refinancing is in 2026, the bank loan of 40 million euros and the bond which we emitted last year will mature in 2028. At the moment, the average interest rate is 4% compared to 2.5% and two-thirds of our loans have a fixed interest rate. Good, and then outlook for the year, I will give back to Eero.