Luotea Oyj

Good morning and welcome to Lassland-Tikanoja first quarter 2025 earnings release. My name is Eero Hautaniemi. I'm the president and CEO. And together with me today, I have Joni Suorosanen, our CFO. We had a very positive start for 2025. A big improvement in facility services profitability. We had a strong cash flow and the preparations for the partial demerger and efficiency program are progressing as planned. In net sales, we had a five percent decrease in circular economy. This was mainly due to the slow economy in general, but especially in construction sector. In facility services, Finland, mild winter, reduced a lot of snow removal related work, but also we had planned actions to optimize our customer portfolio, which was reflected in slight decline of the net sales. First quarter is typically seasonally very small quarter for us, and this year was no exception. But nevertheless, we had a solid performance across the board. In circular economy business, we were on par. compared to the previous year, and this was despite, as I said, for the slow economy and very slow construction volumes in first quarter this year. In facility services, we had a big improvement in facility services Finland. This was mainly due to very good performance in property maintenance. Also, cleaning continued its very strong performance, but as I said, especially in property maintenance, systematic and consistent work that we have been doing now for a couple of years is finally showing in the numbers as well. In Sweden, despite the fact that we were still loss-making, the work that we have been doing is also becoming visible in the numbers. Here we have a little bit longer trends and few observations of these numbers. In circular economy business we have had a very stable performance over the past five years and the profitability, whether We look at the adjusted EBITDA or adjusted EBIT have remained stable. And I'm quite pleased about this when we consider that we have had during this five years period, we have had a COVID pandemic. and we have had a period of strong inflation after Russia attacked Ukraine. So overall, very solid performance in circular economy businesses. We have also added last 12 months in these graphs, so the Q1 numbers are last 12 months numbers, so not quarterly numbers, obviously. In facility services businesses, You can see that there was a slump or clearly a period of poor performance in 22, 23 and 24 as well. But the measures that we have been doing first in Facility Services Finland and more recently in Facility Services Sweden are becoming visible also in these figures, and the trend is clearly positive and going to the right direction. Also, one point to look into is the fact that the businesses are very different. Capital employed in circular economy is around 300 million euros, as it is about 40 million euros in facility services business. Let's dive into the circular economy business first. As I said, a stable performance despite the challenging business environment. We have very rarely seen as low volumes in construction related business as we have seen first quarter of this year. Hopefully, The economy starts to recover in the second half of 2025. There are some signals that we could see gradually, slowly, but gradually improving market conditions later this year, but obviously the uncertainty is on a very high level. material flows to treatment centers decreased because of the very fact that I just mentioned, and this was very much visible in all of the business lines despite or with the exception of hazardous waste business. So it was visible in environmental services, in recycling businesses, but also in environmental construction businesses where the sort of the land masses that we received to our landfills were at a very low level. Luckily, the hazardous waste business is very stable, and there we saw basically no impact to the volumes due to the economy in general. Also, we have added on this slide the trend line of our return of capital employed. And as you can see, it has developed quite nicely from 13.1 to 14.1 year on year. And this is due to the good work that we have done in the business in managing the networking capital. In facility services Finland, very strong profitability improvement in a very slow, seasonally very slow first quarter. Our revenue decreased due to the optimization of our contract portfolio, which has been ongoing for a while already, but also the mild winter had an impact to the revenue decline. Demand for digital services remained strong and there is a lot of interest amongst our customers to our sustainability related services. Our efficiency measures continued according to the plans and are clearly yielding results. I have to mention that this mild winter also helped us somewhat in the EBIT line, but mainly the improvement came from better management of our subcontractors, where we also have done long-term systematic work to improve the overall management of our our subcontracted work. Return on capital employed has developed very well. Last year, at the same time, it was 18.6%, and now, at the end of first quarter 2025, we reached 67.8%. Good performance in Facility Services Finland. In Sweden, there's still work to be done, but the turnaround progressed well in the first quarter, especially the new clients acquired at the end of 24, but also in the beginning of 25, and the ongoing profitability improvement actions provide a strong foundation for achieving a turnaround in 2025. And our measures to simplify our operating models and adjust our cost levels are continuing as planned and will continue all of this year and probably next year as well. But in general now we can see that the trend has turned and I'm optimistic that we can report improving numbers in 2025. One thing that is behind our solid EBIT performance in first quarter 2025 is the profitability improvement program that has been ongoing all of 24, started end of 23 and intensified at the end of 24. If we look at the fixed costs and compare end of 2024 to end of 2023, we can see that we were able to reduce our fixed costs by 5 million euros in one year. And now from Q4 2024 to Q1 2025, we can see a further 1 million euro improvement. And as I said, we are continuing on this path and are confident that we can yield even more results in the coming quarters. One thing we have to remember, though, we are currently in a rollout phase of our ERP systems in circular economy businesses, and that will add add to our costs, because we have a lot of extra resources helping us now, especially during the summertime, to make sure that the rollout will be successful. The demerger is progressing well. And we are on time, on schedule and on plan with our work to execute the parcel demerger in the beginning of 2026. This is obviously still subject to the decision of extraordinary shareholders meeting later this year. In sustainability, we also had a very good performance, especially I'm happy about the work safety development. Our TRIFI was 17 this year. in the first quarter, and we have continued to be very active in preventive safety measures, and that is clearly visible in these numbers. And if you look a little bit sort of Further back in 2020 to 2023, you can see that there is a step change in the level of work accidents. And this is, as I said, a result of very good and systematic preventive safety work. Also, our own CO2 emissions decreased significantly. decade came down by 23% compared to first quarter 2024. And this also was a result of our very systematic and continuous work to make changes in our fleet, to use more HVO or biodiesel and replace sort of regular diesel. Our HVO content was more than 40% in the first quarter of 2025. And if you put that into perspective, that we use about 15 million liters of diesel per year, so it is a quite significant investment that we have made to reduce our CO2 emissions. But we will continue on this path, and we take sustainability very seriously, and it is in the center of our strategy. With this, I'd like to hand over to Joni, and he will take you through the financials and give more flavor to what is behind these improved numbers.

Thank you Eero and good morning everyone. As Eero already mentioned, we had in many ways a positive start for this financial year. Firstly, we were able to generate strong cash flow in a seasonally slow first quarter. We were able to improve our free cash flow by 16 million euros. Secondly, we were able to hold on to our solid financial position And also we can see a clear decrease in net interest bearing debt amounting to 32 million euros year on year. Also, thanks to both strengthened profitability and cash flow, we can see overall a clear improvement in our key financial indicators. If we start by looking at net working capital, we are relatively satisfied with the performance of the first quarter. We were almost able to hold on to the excellent net working capital at the end of the financial year 24. So we only tied up capital by 2 million compared to 9 million in the first quarter of 24. And this better networking capital performance is thanks to our facility services businesses, both in Finland and Sweden. And in terms of balance sheet, we can see a clear decrease in our trade receivables year on year. In terms of capital expenditure, Our investments in the first quarter amounted to 4 million euros compared to 11 million euros in the first quarter of 24. And also in the comparison period, we had a small acquisition of P&F industry service amounting to 2 million euros. Here it's good to note that we ourselves expected a slightly higher investment figure for the first quarter, and that's why we have disclosed that approximately 4 billion euros of investments were postponed to the further quarters. Also, it's good to note that, as we said in the financial statements bulletin in 2024, we expect ICT-related investments to decrease in this year, However, as Eero already noted, this ERP system rollout related costs, we recognize in P&L instead of capitalizing them in the balance sheet. And depreciation, amortization practically on the same level compared to previous year, almost 14 million euros. And as we have many times already noted, cash flow generation was particularly positive in the first quarter. We were able to generate 16 million more free cash flow compared to previous quarter and 9 million of this improvement came from operating cash flow and 7 million from cash flow from investments. And here we have drawn a rolling 12-month trend graph, and we can see that during the last 12 months, we have generated approximately 57 million euros of free cash flow through components of 90 million of operating cash flow and minus 33 million of cash flow from investments. And if we compare our operating cash flow to our EBITDA, we can see strong cash conversion of 96%, which is a relatively good achievement considering our current level of net finance costs and taxes included in operating cash flow. As already said, we continue to have a strong financial position at the end of Q1. However, we can see that the metric is slightly decreasing compared to Year end 24, good to note that we have recognized dividends for financial year 24 in Q1 numbers, so around 50 cents per share, which means 19 million euros in absolute terms. Also, our liquidity position strong at the end of first quarter, 36 million euros compared to 28 in the comparison period. Also, decrease of 32 million in net interest-bearing debt compared to previous year. Basically, we have no change in our maturity structure of long-term loans. We will be refinancing the bank loan of 40 million during this first half of 2025. And as we have now, during the first quarter, carefully assessed the financial structure of our demerging entities, our preliminary estimate is that the 75 million bond will be transferred to demerging entity, in other words, circular economy entity. if the demerger takes place according to our plan. Looking at our effective interest rate, we can see decrease year on year along with market interest rates. And that's why we expect the net finance costs to improve year on year during this financial year. And return on capital, as Eero said, we can see strong improvement, especially in facility services Finland year on year. Also circular economy business able to improve return on capital year on year. And if we look at the graph, we can see that the improvement comes both from improvement in capital efficiency as well as operating margin. Here it's good to note that the goodwill impairment that we recognized in the last quarter of 24 is burdening the reported return on capital figures. If we adjust both income statement and balance sheet, we can see also strong improvement in adjusted terms in return on capital for the whole group. And finally, to conclude this section, Obviously, we are also reporting improving earnings per share, 9 cents compared to minus 2 cents in the comparison period, and also in terms of cash flow or free cash flow per share, we can see clear improvement from minus 25 cents to plus 17 cents year on year. And with these words, I will hand over back to Eero, who will continue with the guidance.

Okay, thanks, Joni. Good, and the outlook for 2025 is unchanged, and the net sales in 2025 are estimated to be at the same level as in the previous year, and adjusted operating profit is estimated to be at the same level or better compared to the previous year. And with this, we conclude our presentation 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. Thank you for the presentation. I have a couple of questions and I'll go one by one. And I'm starting with the strong improvement in facility services. Finland, you showed So do you think that this level of earnings is sustainable? And then on the other hand, do you still see room to improve?

Yes, I do believe that it is sustainable. As I said, and as you know, we have worked a long time to turn around the facility services in Finland, and there are a lot of individual actions and improvements that we have managed to come through or get through. Therefore, I have strong confidence that the profitability improvement is on solid ground. And to your second question, yes, I believe that there is room for further improvement in Facility Services Finland. So overall, our business performance is in good shape. Our quality of services has improved. It is visible in the most recent net promoter score measurement that we just did, and the customer satisfaction is on a higher level. And also the work safety has improved, which tells about the sort of quality of our daily work and the processes. And in general, there are many ways through which we have been able to improve the efficiency. And there are still, as I said, certain things that we can improve on. So overall, I'm quite confident on the performance of Facility Services Finland.

I understand. Thanks. You highlighted the big market interest in circular economy in Q1. So, was there any change in market environment compared to, for example, Q4 in Q1? And then, have you seen changes in industrial market activity after the trade war escalation in the beginning of Q2?

Yes. If I compare the first quarter of 2025 to the first quarter of 2024, in the beginning of 24 we still saw sort of certain construction projects that had not been finalized in at that time and now as the sort of new projects have not started I think we are at the bottom of the curve in the construction sector in general. And this isn't a surprise that this is the situation as we speak. But regarding the other part of your question, there has been certain positive signs, not very big yet, but certain positive things that we can see in some prices of the recycled materials. I'd say that there are slight positive signals, but it is too early to say whether that is a trend or whether this will sort of change. And as all of you know, the uncertainty in the market is on high level at this point. I'd say that it's not all dark right now, that there are some positive signals as well, but time will tell if that is sustainable.

Yes, I understand. Let's hope that the positive signals will materialize. Then did you have, if you compare that to a year-on-year basis, did you have impacts from the municipalization now in Q1 compared to Q1 last year?

Yeah, there were still 24 and it will continue, 25, 26 and 27 at least, there will be new municipalities that will be going through this wave of municipalization and That is obviously behind of our profitability improvement and efficiency measures. And as we were hopefully able to present here today, our measures have been efficient and we are able to compensate for that change that is still ongoing in the market. So there was some impact of that in Q1. Last year, the municipalization was less. strong than in 2023, but it will continue, as I said, this year, next year and the year after. And that's why we're doing these actions. And I think they will be sufficient and we will be able to offset the impact of the municipalization.

Yes, I understand. Then the last question from me and regarding the ERV, you already slightly touched upon. So, as you mentioned, this will add extra costs on P&L to you. So, where these extra costs, either on operating costs or depreciations, were they visible now in Q1, or do you expect more materials after Q1?

They were visible in Q1 already. There will be perhaps slightly more in Q2 and Q3, as we have a lot of seasonal workers to help us to get through this rollout. It's a huge effort and well, things are going well and there are sort of normal things that one would expect in rollout of this magnitude, but still it is a huge effort and therefore we will be seeing extra costs, but Hopefully we are able to compensate for that with the other actions that we have done in reducing our fixed costs and increasing our efficiency.

Yes, I understand. That's all from me. Thank you.

Thank you very much, Nikko.

There are no more questions at this time, so I hand the conference back to the speakers for any closing comments.

Thank you. Are there any questions online? No, there are no questions online either. Okay. There were no questions online, so I thank you very much for listening in and wish you a very good continuation of the day. Thanks very much. Bye-bye. Thank you.