Luotea Oyj

Good morning and welcome to Lassilan Tikanoja earnings release for the first half of 2025. We have a little bit of a special combo here today with me. So I have Joni Suorsanen, our CFO, and then Antti Niitympää, head of our facility services business, here with me today. Good morning. Good morning. Yes. Well done. OK, so today we have two sections in our presentation. First, we will go through normal earnings release and we will have our first Q&A session after that. And then the second section or second half of the presentation will be focused on the partial demerger process and a little bit of the description of the new companies, and then there will be another Q&A session after that section. So two sessions, and I will stop then after the normal earnings release. Good, but let's go and then Joni and Antti will join me for their sections of the presentation. So a few highlights from the first half of 2025. We had very solid performance in circular economy and very nice improvement in facility services Finland. Strong sustainability performance. Our customer satisfaction reached an all-time high. NPS, so very good performance there. And then obviously the big news of today, that our board of directors approved the demerger plan to separate the circular economy business operations in the new publicly listed company. But I will get back to all of this later in the presentation. Net sales. Overall, our net sales declined still in second quarter, but less than in Q1. And after the first six months, we are some 3% behind previous year. Reasons are more or less the same as they were in the first quarter. In circular economy, The depressed general economic situation in Finland affected us, especially in the construction sector. In facility services Finland, lower contract portfolio due to discontinuation of the loss-making contracts. And in facility services Sweden, we actually did see sales growth. And that was due to the new customer contracts we got at the end of last year and also a slight support from a stronger Swedish crown. But mainly the growth really came from or through these new customer contracts. When it comes to adjusted operating profit overall, a very strong performance for the whole company. Our adjusted operating profit was 17.6 million. this year compared to 12.7 million a year ago, so almost a 5 million euros improvement, meaning close to 40% improvement on the comparison period. As I said, a very stable performance in circular economy and main improvement came from facility services, Finland, but also Sweden improved, even though it still was loss making in the first half of this year. If we take a little longer perspective and look at the development from the past five years, we can see that the performance in circular economy has been very stable. Whereas in facility services, we can now see that the turnaround is actually taking place, as we have indicated earlier. Last 12 months, end of June already, shows that the adjusted EBIT was 8 million euros, which is 2.3% in the facility services and clearly looking much better than in the past years. Then I'll move on to the segment information and in a circular economy business, as I said, solid performance despite the challenging conditions and the relative profitability remained stable year on year. Our efficiency improvement measures were visible in the profitability. This also means that we were able to defend our margins. And this is obviously very important because hopefully we will see some growth in the market also in the future. And it is important to be able to sort of maintain the price level. Annual maintenance breaks in the industrial sector were carried out as planned and resourcing was successful. In hazardous waste business, the performance was very much in line with the comparison period. The weak economic situation did affect our environmental construction business. We got less land masses than earlier, but I'm really happy to see that we have been quite successful with our project sales. We also mentioned in our interim report that there is a very large project that we are doing for Uulid and Harjavalta. that will continue quite some while from here on, but also in other projects, we have been quite successful. So our project portfolio in environmental construction looks very promising. In facility services, Finland, strong profitability improvement in January, June. And the revenue decrease came in the first quarter because of the mild winter, but also because of the planned optimization of our contract portfolio. The demand for our digital services has remained strong and we expect that to remain strong in the future. It obviously brings growth by itself, but then more importantly it also increases our customer loyalty and helps us to sell also the basic services. So we're very happy with the development of our new digital services. Our efficiency measures continued successfully, as you can see from the numbers. Especially this was the case in property maintenance. Obviously these are sort of long-term programs and we will continue to execute these programs and I'm optimistic that we can see even better profitability in facility services in the future. Already the improvement is almost a little over 4 million euros, which is more than 200% over the previous year. And our adjusted operating margin now after the first six months of this year was 5.4%, which is on a good level even compared to our peers. In facility services Sweden, The turnaround is happening. We are on the right path. but the operations were still loss making in the first six months. We will continue our efforts and based on these new customer contracts and sort of ongoing efficiency programs, I am optimistic that we will see improvement in the facility services in Sweden in the second half of this year. One thing that is behind in the good performance, especially in the circular economy, is the fact that our fixed cost base has decreased due to the active efforts that we have done. And the pace is approximately one million euros per quarter. And this was despite the fact that we had about half a million extra cost in circular economy due to the rollout of our ERP system. We expect that there will be about the same amount in the second half of this year. We have rolled out about two thirds of our sites into the ERP system, so one third left. But obviously there is still some bug fixing and other things to do. So that's why we expect there will be still some extra cost and extra personnel in the second half of this year. Our sustainability work has also been successful. And perhaps a couple of highlights from the first six months. Our own carbon footprint decreased by 22%. compared to 2024, a similar period. And this is an excellent achievement. And it is because of the very sort of systematic development we have done now for several years. We have replaced some of our diesel fleet with biogas trucks. We have further increased our use of biodiesel, and also we have trained our personnel to drive more economically, and all of this is supporting us in achieving this target. Also, the customer satisfaction reached all-time high, as I said in the beginning already, and our NPS was 41 this spring, which is really good. Now, I think it is Joni's turn to go through the financials.

Thank you, Eero. Yes, as Eero already mentioned, the company had a strong first half of 2025 and as a result of strengthening profitability and improved cash flow, we can report improving key financial metrics almost across the board. Also we can see at the end of the second quarter strong financial position and decrease in net interest bearing debt compared to June 2024. In June we also refinanced part of our long-term debt and I will provide details later in the presentation. We also prepared ourselves for the demerger that was announced today as part of this refinancing process. All right, starting with networking capital. We fell short of previous year's level in networking capital, amounting to minus 29 million euros at the end of second quarter. That is a four million change year on year. And if we look at the performance in the first half of 2025, we can see that net working capital has been tied up by 17 million euros compared to 14 million in previous year. And looking at our segments, we can see that facility services in total, so combining Finland and Sweden, performed in a stable manner compared to previous year. While in a circular economy, we can see networking capital tying up as a result of normal seasonal variation. And as you can see from the graphs, we expect networking capital to follow the annual pattern or quarterly pattern we have seen in previous years. So we expect networking capital to be released towards the end of the year. Capital expenditure was somewhat below previous year. However, the composition of Capital expenditure was somewhat different compared to previous year. In June 2025, we completed the acquisition of Steena Recycling's pallet business, which was investment of approximately 8 million euros. Looking at organic investments, we can see a decrease of more than 7 million euros year on year. And here we can clearly see the decrease in ICT. related investments. And related to this ERP rollout, it's good to note, just like Eero already mentioned, that now we are booking the rollout costs as operating costs instead of capitalizing them. And we have also during the quarter started the amortization of this ERP investment. So that's why our depreciation and amortization expected to increase going forward. Cash flow wise, free cash flow improved by 6 million euros compared to H1-24. We can see that operating cash flow was somewhat below previous year in the first six months, mainly as a result of change in networking capital explained Previously, however, investments were on a lower level compared to previous year, and that's why, as already noted, January-June cash flow somewhat above previous year. On a rolling 12-month basis, we can see that free cash flow at the end of June 25 was around 47 million euros, compared to 41 million at the end of in 2024. Financial position remains strong at the end of the second quarter. Looking at gearing development, we can see that the paid out dividends in April and also the acquisition of this pallet business affected gearing at the end of the second quarter. However, we can see a slight improvement compared to end of Q2 2024. Net interest bearing debt amounted to 178 million euros at the end of the second quarter. That is a decrease of almost 17 million year on year. And today we have announced the the merger plan, according to which this 178 million would be divided between Luotea, which is the facility services company, and New Lassilan and Tikanoja company, so that Luotea would be almost net debt free, while the circular economy company, i.e. New Lassilan Tikanoja, would carry 174 million out of this net interest-bearing debt of 178 million. But more information on the balance sheet split can be found from the demerger plan announced today. As I already noted, we refinanced part of our long-term debt in June, and the first part of the refinancing was was this term loan of 40 million euros, which was set to mature in Q2 26. And now, according to this new agreement, which is three years plus two year extension option, we are moving the 40 million term loan to mature in 2030, assuming that the two year extension option will be utilized. Secondly, agreed revolving credit facilities for both companies. And if the demerger takes place, New Lassila Tikanoja would have a revolving credit facility of 40 million, while Luotea would have a similar type of facility, but the amount would be 10 million euros. Also, we have today announced the consent solicitation process for our outstanding notes amounting to 75 million euros. And in the demerger process, we have prepared ourselves through a bridge facility of 80 million euros. If the note holders wish to exercise their right to redeem, their bond holding through the merger put option. And finally, if we use this bridge facility of 80 million euros, that will be automatically converted into this 35 million term loan. And also want to highlight here that as we stated in Q1, result disclosure, our aim is to move these outstanding notes to New Lassila Tikanoja, which is the circular economy company. More information on the consent solicitation process can be found from the separate stock exchange release. Return on capital employed continue to improve and amounting to 4.9% at the end of the second quarter. It's good to note that in the reported return on capital employed, the outcome is affected by year end 24 goodwill impairment, for example. So here we have also calculated the adjusted return on capital employed, assuming that these items affecting comparative would have not taken place. And there we can see that adjusted return on capital employed amounted to 11.9% at the end of the second quarter. Segment wise, both circular economy business and especially facility services, Finland business can report improving return on capital, especially Facility Services Finland reporting strong return on capital employed development in June, amounting to 78% already. And finally, we can report strong earnings per share growth $0.30 in January-June compared to $0.16 in January-June last year, almost doubling year on year. And net free cash flow per share in the first half, $0.06 compared to minus $0.10 at the end of, or in H1-25. Okay, this is This was the financing section, and then Eero will continue with guidance.

Yes. Don't run away, Joni, if there is the Q&A session. So, yes, our outlook for 2025 remains unchanged, so the net sales 2025 are estimated to be at the same level as in previous year and adjusted operating profit is estimated to be at the same level or better compared to the previous year. As I said, we stop here now and open the lines for your questions regarding the first half report of 2025. And after this session, then we will focus on the demerger.