Lassila & Tikanoja Oyj

Welcome to Lassila & Tikanoja's first quarter result webcast. The broadcast is hosted by Eletti's CEO Eero Hautaniemi and CFO Valtteri Palin. Questions can be asked during the broadcast by using the phone or via the chat functionality. But without further ado, Eero, the stage is yours.

Thank you, Inka. Welcome to this first quarter earnings release. Typically first quarter is the smallest quarter for Lassila and Tikanoja and this year the effect is strengthened by the slowness of Finnish economy and also the political strikes that we experienced here in Finland. In industrial services, we had a solid performance in all business lines. In environmental services, we were able to largely compensate the effects of municipalization. in finnish facility services solid performance and the turnaround is on track and in sweden we did have some challenges which was or affected especially by a loss of a large customer at the end of 23. Looking at the net sales, we can see that the slowness of Finnish economy had an effect to pretty much all of our businesses. In the industrial services, we were able to grow on the comparison period, but in all other business lines, we had a decline in the net sales. When it comes to the operating profit in environmental services, we had a decline of €500,000 in industrial services and facility services Finland. We were pretty much on par at the previous year's level and in facility services. Sweden, the first quarter was difficult. and we will strengthen our efforts to turn around the business, and I'll come back to that later during the presentation. As I said, there was a clear effect of the slowness of Finnish economy to all of our Finnish business lines, and this was especially visible in environmental services. On top of the construction industry, also other industrial customers had less demand for services. The good news is that the recyclable raw material prices stabilized, so the decline has now plateaued, and hopefully we will see later this year also an increase in the prices of recyclable raw materials. The restructuring efforts that we have now made to compensate the effect of the municipalization are well on track, and we were able to compensate most of the effect already in the first quarter. So from that perspective, the performance was good in environmental services. In industrial services, the demand remains strong in environmental construction. In hazardous waste, we did see an effect. because of the political strikes, because obviously that was mainly affecting the large industrial customers of ours, and that was visible also in the demand of services for hazardous waste. The good thing is that there were no major shifts in the planned maintenance breaks. So far, the outlook for second quarter is good and as expected. Obviously, it remains to be seen, will there be effects later in the year, but so far we have no information of any shifts in the planned maintenance breaks. We did expand our business in Sweden by acquiring PF Industry Service AB, in the Gävleborg region. And why this is important, even though the sales is rather small, it offers us a platform to grow also further north in Sweden. Currently, we have been strong in the Skåne area and southern Sweden, but now we have a foothold also in the center of Sweden that will allow organic growth, obviously we will also look for potential acquisitions to further strengthen our position in Sweden. In Facility Services Finland, the progress was steady. And the efforts that we have made continued as planned, and the result of cleaning services was strong. Also in property maintenance, the progress was good. Obviously, the conditions were quite challenging in the first quarter. This year in Finland, we did book a provision of 600,000 euros for potential additional disability pension contributions, and as we are a large employer, when such incidents happen, we carry the sort of full effect of these kind of pension liabilities. In Sweden, We did make progress on our efforts to turn around the business, but at the same time, the effect of a loss of one large customer was so big that we were not able to compensate all of that in the first quarter. As you can see from the number of employees, we have approximately 180 employees less than we had a year earlier, so we have taken pretty active measures to compensate the situation in Sweden, but more work remains to be done in Sweden. Also, we have gained certain new customer contracts, which is obviously good news, but before they are visible in our numbers, it will take a while to see how much they will be able to compensate the loss of this one large customer contract. In sustainability, we have made obviously very long-term work, and the results of that work are visible here. I'm very proud of how we have been able to reduce our carbon footprint. Compared obviously to 2020, the reduction is significant, but also compared to the last year's first quarter, there is a clear improvement. Also, I'm very happy of the work safety development. Our TRIFI has come down to 21. And as I said, the weather conditions were very challenging in first quarter this year. And despite of that, we were able to have best result ever in the first quarter. in work safety. This is a marathon and the work continues, but obviously we are happy about the very good progress we have made in this area. Also sick leaves have reduced significantly from the previous year. So overall very good performance in the sustainability area. But now let's dive a little deeper into the financials and I hand over to Valtteri.

Thank you Eero and good morning also on my behalf. Now moving on to financials and I will start with the key figures. Capital expenditure, we invested less than a year ago, now 11.1 million euros, and also that includes the company we acquired from Sweden, this BF Industry Service, as Eero mentioned. The company's annual net sales is around 2.5 million euros. Depreciations were on the same level than a year ago, 13.8 million euros. And then the joint venture Laania, this renewable energy sources company, which has been now operating almost two years, had a strong performance. The development was good. Our share of the net result, 55%, was 2.1 million euros compared to last year, 1.5. Capital employed decreased by a few million euros, and the return on capital employed was 9.9, lower than a year ago, due to the lower result. Earnings per share, two cents negative. Then balance sheet KPIs, equity ratio, were above last year, 33.4%. And now the dividend of 18.7 million euros has been booked as a debt in Q1 balance sheet. The dividend was paid now in April. Gearing on the same level than a year ago, 85.8%. Total number of employees decreased significantly, 560 employees. The company's net sales decreased by 4%, but also we have made actions to improve the efficiency and profitability, and it's now visible in the amount of employees. Networking capital was 38.7 million euros negative. As you can see, there's a certain seasonality. It was 10 million euros less than a year ago. And the main reason for that is that we lowered the level of factoring finance by 10 million euros. But anyway, it's on a good level still. Cash flow a year ago was really strong, 19.2 million euros. Now this year, first quarter, minus 9.4 million euros. And the main reason is the factoring financing of less than 10 million euros. So basically the cash flow was pretty much according to the company's net result, close to zero. we spent 11.3 million euros for investments. Debts and liquidity. Debts increased by 10 million euros. The reason is that we replaced this factoring financing by using commensia papers, so now we have 10 million euros of commensia papers in use and IFRS 16 liabilities was 82 million euros and the cash balance 28 million euros. And as I said, we spent the money paying dividends in the beginning of April. Then loan portfolio, no changes on this side. In Q1, the sustainability-linked loans, we have 40 million euros, bank loan will mature in 26, and the bond 75 million euros in 28. The average interest rate is the same, 4%, and the bond has fixed interest rate and the bank loan variable. And now Eero will continue with the outlook.

Thank you, Valtteri. Our outlook is unchanged for 2024. We estimate our net sales to be at the same level as previous year and operating profit to be at the same level or better compared to the previous year. Thank you. And now we are ready for your questions.

If you wish to ask a question, please dial pound key five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key six on your telephone keypad. The next question comes from Niko Ruokangas from SEB. Please go ahead.

Hello, this is Niko Ruokangas from SEB. Good morning and thank you for the presentation. I have a couple of questions and maybe starting with a general one. So you talked about the effects of low general economic activity on your firms. Were the effects in line with your expectations prior to Pier 1 or has something surprised you during the quarter or maybe post quarter?

No, good question, and the performance was very much in line with our expectations, with the exception of the political strikes. Obviously, we did not see those coming when we gave the outlook for the year. Maybe the 300,000 effect is a cautious one from our side, but it clearly had an effect for our large industrial customers that we have for both environmental services and industrial services. But overall, the big picture of economy was as expected.

All right, I understand. Then on the municipalization where you were successful with compensating the negative effects, so good. But do you expect to transfer in the market from the pre-competition to be gradual between the quarters or do you expect some deeper practice in some quarters and do you expect them also to be able to compensate those in the same rhythm like in Q1 or do you expect some kind of like that?

Well, The municipalization effect for this year is more the tale from last year than new municipalization this year. There are certain regions where it happens this year as well, but mostly it's the tale from last year. We know quite well what the effects are. We have solid plans and we will continue to work on the efficiency of the environmental services. So obviously a small part of the work was visible in the first quarter. There may be sort of small discrepancy between our efficiency measures and the actual municipalization, but in big picture for 2024, I'm quite confident that we will be able to offset the effects of the municipalization this year.

All right. Thanks. Then, then on the facility services, Sweden. So your adjusted EBIT declined as, as you also explained earlier, but you say that actions to improve continues. So how much is declining adjusted EBIT year on year was explained by this one large customer loss? And then maybe continuing on that, so that you indicated that you expect to see improvement by the end of the year. So does this mean that you expect the adjusted EBIT there to turn positive or that the adjusted EBIT decline trend stops by the end of the year?

We don't give the outlook by business segment, but mostly the difference between the first quarter of 2023 and 2024 was affected by this loss of this large customer. But at the same time, I have to say that we need to sort of strengthen our efforts and do more than we perhaps originally thought. And those measures are ongoing already. And our target is to improve the profitability of the Swedish business 2024, but we cannot give an outlook for what it will be actually for 2024.

All right, but that clarifies that for me.

We also have a few questions online. The first one is related to industrial services in Sweden. Apart from the change in fair value of SVB, why did industrial services EBITDA go down so much while revenues increased substantially?

Yeah, this relates to the different mix in the net sales compared to the previous year. So in certain business lines, the EBITDA and the margin is different, and margin and cost structure is different compared to the others within the industrial services. So this is a mix change that we had. in first quarter 24 compared to first quarter 23.

The second question is also related to Sweden about facility services Sweden now. So there's a question that says that will the sales drop in Sweden continue in coming quarters in the same magnitude and how can you turn around earnings there? You touched a little bit on this already on the previous answer, but can you clarify?

Yeah, sure. As I said during the presentation, we do have new customer contracts as well, but they are sort of in the startup phase, so the effect is not visible yet in the numbers. And when it comes to the turnaround program, I think I explained that when I answered Nikko's question earlier, so we need to expedite and strengthen our efforts to make sure that we compensate the loss of this customer.

Thank you. That was the last question online.

Excellent. Thank you very much. We wish you a nice continuation of Friday and good weekend. Thank you. Bye bye.