Luotea Oyj

Welcome to Lassila and Tikanoja's full year results webcast. The webcast is hosted by Elletti's CEO Eero Hautaniemi and CFO Valtteri Paliin. There's an opportunity to ask questions at the end of the broadcast via the phone or by using the chat functionality. Eero, the stage is yours.

Thank you Inka. Welcome also on my behalf to this Lassila and Tikanoja 2023 earnings release. A few things, first of all, for the full year 2023. Our adjusted operating profit was 39 million compared to 40.9 million a year before. In the background, industrial services performed well. when environmental services did have a disappointing end of the year, and also the performance in facility services in Sweden was soft. Our net cash flow was very strong. It was 1.33 euros per share compared to 1.08 euros per share a year earlier. Our dividend proposal for the year or the board's proposal for the annual general shareholders meeting is 49 cents per share. In net sales, industrial services showed healthy growth. Also in Sweden, we actually grew in Swedish crowns, but due to the weaker Swedish crown compared to the Euro. Our sales in Sweden declined in Euros. Where in facility services Finland, we declined our sales and that was as planned because we ended some of the unprofitable customer contracts. In environmental services, we saw a decline which was caused by the general weakness of the market and especially the recycled raw material prices and volumes were down from the previous year. Adjusted operating profit. Very nice improvement in facility services in Finland, so our good development continued for the full year. Also, industrial services improved year on year, whereas environmental services and facility services in Sweden declined. We will go deeper into this later in the presentation. So industrial, sorry, environmental services. The overall economy was challenging, which is pretty much generally known in construction, but also in other customer segments, there were clear weaknesses in the market. And this was visible in the prices and volumes of the recycled raw materials. And we have estimated that the impact of this was about 4.5 million euros to our adjusted operating profit. Also, the municipalization continued. And in the second half of 23, it happened in the cities that were very important for us, namely Turku and Oulu and certain other cities. And the impact of this municipalization is estimated to be for 23 minus 2.5 million euros. We did start efficiency measures already fourth quarter last year, and those measures are well underway. I will go to those as well later. But this municipalization, We already talked about this a couple of years ago when the new law was passed, and now it's starting to become effective. According to our estimates, About 40 million euros of packaging waste and bio-waste has been gone under municipalization since 22, so 22 and 23, and we estimate that there is a further 30 million that will happen 24 to 26. This is sort of one part of the equation. At the same time, we have won municipal contracts. Last year, we won municipal contracts worth €8 million, and that obviously then supports our net sales. The challenge for us in this municipalization is that they reduce the efficiency of our routes. We have overall more than 10,000 routes all over Finland and when we lose certain sort of customers within a specific route, then obviously the efficiency and productivity goes down and it will take some time before we can reroute all of the affected routes. So this is a big change and in the short term the effect is estimated to be negative for us. At the same time, as I said, we have already started efficiency measures to address this challenge and in 2023 we will have now based on the actions already done, about 50 white-collar employees less in environmental services than a year before. And as I said already, we will now focus on rerouting these affected routes, and that is expected to show in our efficiency and productivity of the environmental services. In industrial services, we had a strong year in all of our business lines. We also showed healthy growth on the top line. So the organic growth was 6.8%, which is very good performance under these challenging circumstances that we did have last year. Especially in environmental construction, we performed well. Also, the customer volumes in hazardous waste stayed on a healthy level, and we did succeed quite well in our resourcing in 2023 in the planned maintenance breaks that happened last year. In Facility Services Finland, we had a good performance throughout the year. The systematic approach to improve the efficiency and profitability shows in the numbers and obviously we will continue to work on this same methodology in 2024 and we are on good track in turning around the facility services Finland. Also, I'm pleased to say that our digital services saw high demand in 2023 when it comes to the data-driven cleaning or energy efficiency services. In facility services, Sweden The improvement projects that we started in 2023 did actually go quite well, but the overall challenging market environment showed especially or was very difficult especially in the fourth quarter when we saw a very low demand in additional services and that burdened our operating profit in Q4. Obviously there's still a lot of work to be done in Sweden, and we will continue on this path. And I'm expecting improving results from Facility Services Sweden in 2024. On sustainability front, we did have quite a few positive things. we announced our net zero target and our scope one and two emissions declined by 9.5%, which is a very good result. And this was due to the systematic work that we have done in all of our business lines. We did have increased focus in scope three, So our supply chain, and we laid a foundation for further work in 2023. Obviously, there is still a lot of work to be done in supply chain for 24 years to come. When it comes to the employees, we had a lot of focus on training. when it comes to code of conduct information security work safety etc overall we trained on average all of our employees with 7.6 hours which is double the amount we did training a year before Biodiversity is an important thing and an increasingly important trend when it comes to our customers as well. And there we also did very good groundwork. I'd like to raise the fact that we did 8.7 hectares of meadow restoration projects together with our customers in 2023. And this is a concrete example of the kind of services that we can offer to our customers. And here are the sustainability results in the form of a scorecard. As you can see, our recycling rate went down and this is due to the same fact that I talked about in connection with environmental services. So overall, the volumes of recycled materials went down in 2023. And this is also visible in our carbon handprint, which came down. Our activities have not gotten worse, so we are doing even more than what we have done before, but obviously the volumes do have a big impact to these carbon handprint figures and recycling rates, and obviously if and when the market recovers, I'm expecting to see an improvement in these numbers as well. But now I hand over to Valtteri to dive deeper into the financials.

Okay, thank you Eero and good morning everyone. I will talk about the financials, financing, and I start with the key figures. First, capital expenditure. They were 61 million euros. 3 million euros more than in 2022, but there were no acquisitions made in 2023, and the share of acquisitions in 2022 was almost 22 million euros. So we invested more in our current operations, mainly in heavy fleet, real estates, but also more than 10 million euros in ICT systems renewal. Depreciations were almost on the same level than a year ago, 57 million euros. And then a few words about our joint venture, Laania. The company was combined with Nelva's similar business 18 months ago. It started operating in June 2022. And we are really happy and pleased about the development of the company and the profitability. In 23, our share, 55% of the net result was 3.6 million euros compared to 0.7. That's only six months, but the first six months were in 22 almost on that same level. So the profitability improvement is significant. Capital employed went down by almost more than 10 million euros and return on capital employed was almost on the same level than a year ago. It was 10.3%. Earnings per share, 79 cents, and as Eero mentioned, the proposal for the AGM is that the dividend will be 49 cents, and in total that is 18.7 million euros, and it would be paid in the beginning of April. Balanced KPIs improved. Equity ratio is almost 37%, and the gearing is now under 70%. Then, networking capital. We made actions to improve networking capital, more efficient invoicing, payment terms, managing inventories. So it was 47.6 million euros negative. It improved by 10 million euros. And when it's negative, it means that it finances our operations. And the main reason for that is that we have roughly 8000 employees and they are salary related liabilities in the balance sheet. Cash flow, we have had really strong cash flow in 2022 and 2023. Now the cash flow after investments was 51 million euros, 10 million euros, stronger than a year ago, but there were no acquisitions made in 2023. Also, investment growth was a bit more than 10 million euros. Then moving on to interest bearing debt and liquidity, the development on this side has been good. These IFRS 16 consolidated leasing liabilities have been in the range of 70 to 80 million euros. changes on that side. But then when we look at the interest bearing debt, they were 160 million euros. And when you compare it to end of 2022, we repaid almost 30 million euros loans back. Cash position 33 million euros and there are no commercial papers in use and also the revolving credit facility of 40 million euros is not utilized. So the cash position and liquidity is strong. Maturity structure, loan portfolio, there are no changes in Q4. As mentioned, we repaid 28 million euros loans back in 2023, so it decreases the interest costs. And the next repayment will be in 2026, 40 million euros bank loan, and then the bond will mature in 2028. Both these loans are sustainability linked, as is the revolving credit facility as well. Average interest rate increased. Now it's in 23, it was 4.0% compared to two and a half and 65% of the loans have fixed interest rate. Then a few words about the ICT investments. So we have had a project ongoing that we will modernize basically the whole ICT infrastructure we have. By the end of 2019, Facility Services Finland ERP system renewal was completed. Also, Facility Services Sweden ERP system renewal was completed in 2022. We have also renewed our this administration systems in HR and finance and then the biggest change is in environmental services and industrial services renewal of these ERP systems they should be completed by the end of 2024, but there will be a few modules which will be completed in 2025. But the main work will be done and the whole infrastructure is modernized by the end of this year. We have invested a lot of money into this. In 2021, the capex was 4 million euros per year, 22, seven and a half million euros and 23, more than 10 million euros. Also, in 2024 there will be heavy investment, but then the costs will go down. And in addition to that, we have also booked consultant costs, project people costs, our own staff work costs into this system, renewals directly into the P&L, which have, of course, negative impact, and those costs will go down as well. Then this was my part and now I give back to Eero.