Luotea Oyj

Good morning and welcome to Lassila and Tikanoja January-March 2026 earnings release broadcast. My name is Eero Hautaniemi and today with me I have Joni Sorsanen, our CFO. Today's agenda is as follows. First, we go through some highlights, both financial and operational highlights. Then we will take a look at the market environment in first quarter 26. Then we'll dive into the efficiency and operations and then sustainability. Then Joni will go through the financial highlights and then we'll wrap up with the outlook. And obviously we are ready for your questions after the presentation. First with a few highlights. Our net sales grew by 6% despite the challenging market environment. And I'm actually very pleased to report growth like this in typically very difficult quarter for us. So always the first quarter for us is the most difficult of the year. Our adjusted EBITDA was 11.5 million, which was 1.3 million less than a year ago. And our adjusted EBITDA was 0.2 million compared to 2.6 million a year ago. Our free cash flow was in line with the previous years if we exclude the impact from demerger related payments and settlements. So operationally we were at the same level. Operationally, as I mentioned already, the market environment is challenging, but we did take active measures to tackle the sharp increase in diesel price and those measures have been implemented already. Our transition service period is approaching to end and everything is going as planned. And we expect to end the transition services between Luotea and us by the end of June. And our cost efficiency program is on track. Then let's go a little deeper into the net sales. As I said, our net sales grew by 6% and organic growth was 2% and the rest obviously came through acquisitions. This represents a nice continuation for the growth that we had in second half of 2025, a little over 5%. So overall, I'm pretty pleased how we have been able to get the growth on track towards our strategic goal, which is growth over 6%. When we look at the growth through different service areas, we can see that in the waste management and recycling, the growth was only 1.2% and this came from the acquisition that we made last summer. But in hazardous waste and remediation and industrial services and water treatment, we saw a very healthy growth in both these business areas. In hazardous waste and remediation, the growth was all organic and it was over 23%. And in industrial services and water treatment, 14.3%. And largely, this was organic growth. So very pleased with both of these business areas. Obviously, we do have a very challenging environment in waste management and recycling. Then when we look at the EBIT A development, as I said in the highlights, it was 0.2 compared to 2.6. So quite substantially lower, but there are quite logical reasons behind this decline. First of all, the overall volumes in municipal solid waste declined and this is and has been a challenge for us for quite some time already. I was a little bit optimistic when we released our 25 numbers, but obviously because of the crisis in the Middle East now the growth is very fragile and the market doesn't look quite as good as I thought at the time. Also because of this crisis in the Middle East, the oil price has increased sharply and that affected our EBITDA by 0.5 million euros. We have completed our ERP rollout and the depreciations are about €500,000 higher in the first quarter than they were in the comparison period. And also we did saw a difficult market when it comes to the treatment fees, because there was oversupply of waste to be incinerated. We expect this to be more of a temporary situation, but that did affect negatively to our first quarter profitability. And obviously, behind all of this, we do have the effects of continuing municipalization. Going to the market environment, as I said, the market was more challenging than we expected a few months ago. The GDP growth is expected to be between 0.5 and 1% only when we thought earlier that it could exceed 1% to be closer to 1.5%. But as I said, now it looks like it will be less than that. And overall in Finland, the economic recovery is delayed due to this geopolitical situation. This graph shows how the diesel price has reacted to this crisis in the Middle East. And as you can see that the pattern is very similar to what it was in 2022. So it's a bit of a deja vu when it comes to the diesel prices. And we have very good processes for situations like this. And like I said earlier, we have already implemented very comprehensive price increases to address this abnormal situation in the market. The effect of these price increases was not at all visible in first quarter, but it will gradually come through in April and May. So we will see already partially the impact in second quarter and then full impact from third quarter onwards. This situation does affect also to the recycled material prices. It was not really visible yet at the end of March in the recycled plastic prices, but the expectation is that Prices for recycled plastics will go up as a result of this oil price increase. For cardboard and paper, the price level is pretty stable. And we do expect also the prices of recycled metal to increase as a result of this problems in supply of materials. Then I'll move on to efficiency and operations. Our fixed costs development is visible in this graph, and as you can see, it is very flat. And even though we did complete the demerger, you can see that there is no increase in fixed costs. So we have been able to offset the sort of potential increases in fixed costs with our cost efficiency measures. And the costs are flat, even though our sales have now started to grow. So eventually we expect to see the benefits of being able to keep the fixed costs at these levels or even slightly lower going forward also in the EBIT-A line. We have initiated a separate review to improve the gross margin in the waste management, and this is to offset the negative impacts I just went through that we experienced in the first quarter. And that program... as I said, has been initiated and we expect to see results of that program from second quarter this year onwards. So our ICT transformation is getting to the sort of final stages and we went live with our finance system. Also that is now in D365 environment and fully cloud-based from the beginning of May. And obviously, this is very good news. And we will start to see the benefits of this transformation gradually second quarter onwards this year. But obviously now, right now, 2026, the amortization burden is at its highest and will gradually increase. go down as the time progresses. But overall, I'm really pleased where we are with our ICT transformation and there is a big opportunity for us to improve our operational efficiency, but also more importantly, improve our customer service and reporting to our customers. Then a few highlights from a sustainability perspective. Our own carbon footprint has continued to decline as planned. So it is 4.7 compared to 4.9 a year ago in the corresponding quarter. Our carbon handprint is also going down, which is obviously not the goal. But the reason is that the amount of recycled paper has come down for years. 15, 20 years already. And in the past five years, we have lost and the market has lost almost two thirds of the recycled paper. So the decline is more than 10 percent per year and will continue. Obviously, that is partly offset by the recycled cardboard. but not to the same extent as we are losing recycled paper. And that is the main reason why our carbon handprint is going down. At the same time, our recycling rates are going up and are supporting the carbon handprint. A very positive development in work safety. Our TRIF was 16.2 and this is with big margin the best result we have ever seen and this what is sort of in the background of these good results is very good preventive work that we have done across the organization. And I'm really pleased to see these kind of levels in our work safety. Also, our customer satisfaction has remained on a good level despite the very extensive rollout of our ERP systems. And perhaps the final point we have sort of contribute to giving the opportunities to the next generation. And we are offering 250 jobs for summer employees. With this, I'd like to hand over to Joni and he will go through the financials. Joni.

Thank you, Eero. And good morning, everyone. I would like to start this section by highlighting some of the key events in the field of financials in the first quarter. As already noted in Eero's section, we had a positive development in net sales. We were growing in line with our mid-term strategic target at 6%. However, profitability was below previous year. in a seasonally slow quarter due to reasons already outlined in Eero's section. We had a stable development in financial position throughout the first quarter and the balance sheet remains strong at quarter end. Operationally, our free cash flow was in line with comparison period. If we take into account the partial demerit related one of payments and settlements. And finally, L&T's share of profit from joint venture Lania was in line with previous year at 1.7 million euros. Looking at networking capital development, networking capital at the end of the quarter was minus 21.5 million compared to minus 24.6 million, which is a change of 3.2 million year on year. It's good to note that the comparison figures are prepared on a carve-out basis. If we look at the change compared to year end, we can see NWC tying up by 8.3 million euros. And the large part of this change is due to these parcel demerger related payments. So operationally, we are fairly satisfied with the networking capital development in the first quarter. And in terms of seasonality, we expect the pattern evident in 2025 to also take place in 2026. So we expect networking capital to weaken in the second and third quarter and then again release towards the year end. Capital expenditure in the first quarter was around 4 million euros compared to 3.4 million euros in the comparison period. CAPEX consisted of investments in machinery and equipment, and to a small extent also in ICT systems. Our depreciation and amortization increased from the comparison period, partly due to these ERP-related investments, and we're at 11.8 million compared to 10.5 in Q1-25. In full year 25, our capital expenditure was around 42 million euros, also consisting of organic CAPEX of 29 and M&A CAPEX of 12.5. In terms of gas flow, as already noted, taking into account one of type of partial dementia related payments, free cash flow was in line with previous year. Here we have depicted the free cash flow bridge on a rolling 12-month basis, so from April 25 until March 26. So on a rolling 12-month basis, the company has generated adjusted EBITDA of 83 million, net cash flow from operations of 67 million, impacted by items affecting comparability around 6 million, and finally, free cash flow on a rolling 12-month basis around 34 million euros, which in relation to reported EBITDA is a conversion of around 45%. Balance sheet remains strong at quarter end. Our net debt in relation to adjusted EBITDA was 1.9, which is well in the range of 1.5 to 2.5, which is our mid-term strategic target. Net interest-bearing debt at 161.5 million, consisting or including also lease liabilities around 66 million euros. Equity ratio was practically intact compared to year end and was 35.1% and gearing also developing on a fairly stable manner compared to year end at 94.5%. Looking at the financial position, it's good to note that the first, second and third quarter of 2025 were prepared on a carve-out basis, so they do not reflect the capital and financing structure of Lassila and Tikanoja. Looking at the maturity structure of our interest-bearing liabilities, so the financial debt of the company consists of 75 million bond, which is due in 28 and a 50 million bank loan which is also due in 28 but includes a two-year extension option by which the maturity date can be moved into 2030. The company had a strong liquidity position At the end of the quarter, around 30 million euros. We had no commercial papers outstanding at reporting date. Also, the company's credit limits and account limits were totally unused at the quarter end. The average interest rate of our long-term loans was 3.2%. And finally, some other KPIs for the company in the first quarter. Our reported return on capital was 9.3%, impacted by one of our items and also covered principles, especially concerning financial year 25, because this KPI is calculated on a rolling development basis. Here we have calculated a more comparable and adjusted figures for return on capital and also for return on equity So 10.7% for return on capital and 14.4% for return on equity. And as already noted, our share of profit from Laania was on previous year's level at 1.7 million and earnings per share minus one cent. Also, when looking at the earnings per share figures, it's good to note that the 2025 due to carve out principles are not comparable with 2026. But with these words, I would like to hand over back to Eero.

Thank you, Joni. And then our outlook for 2026, which is unchanged. So we estimate our net sales to be between 420 and 450 million euros and adjusted EBITDA to be between 38 and 44 million euros. But with this, we'd like to hand over to you and we are ready for your questions.

If you wish to ask a question, please dial star five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial star five again 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'd like to go one by one. and starting with outlook you discussed uh as the last topic now so you are highlighted uh in the beginning that the market doesn't look as strong as it did in in february when you reported your q4 earnings so how worried are you regarding your kindness this year now um given the comments on on weakness markets and and then Are the improvement actions you are taking enough to offset these market challenges?

Yes, that is a fair and good question. Yes, we strongly believe that our actions are sufficient and we are quite confident that we will reach this outlook.

All right, good. Then You highlight it. which you also highlighted that will be temporary. So can you explain the background a bit? Did you see these higher waste treatment fees already in the beginning of this year? Or was this a surprise? And then how big was this impact and how temporary do you expect them to be?

Yes. Again, a good question. So there has been a... let's say quite a bit of fluctuation in this, especially this relates to the incinerated waste. And if we go back to 22 when the Russian border was closed and nothing was coming from Russia to Finland, there was a shortage of sort of all sorts of material that could produce heat and then that situation has normalized and there has been a sort of increasing import of waste to Finland, as you probably have noted from media as well. And then on top of that, winter, not this winter, but the previous winter was very warm and many of the sort of district heating companies were stocking up different type of material that they could use to produce energy and heating and this has sort of the import the warm winter earlier and sort of the overall market situation has led to sort of little bit of imbalance in the market and that has sort of caused a bit of a peak in the gate fees and When I talk about temporary, I mean that in general, nothing has changed. There is serious overcapacity of incineration in Finland. It is estimated to be somewhere between 30 to 40 percent. That can be partly offset by the import, but we don't expect that to be sort of a permanent solution. And we expect the gate fees in the long run to go down. But as I said, there are sort of temporary fluctuations in the market and that does affect us as well. And for the most part, it was not a surprise to us. There were certain elements that were perhaps a little bit of a surprise, but not to a large extent.

Okay, thanks. That was a good explanation. And if you compare it to higher fuel costs impact year on year, so which one the higher fuel costs and these fees had bigger negative impact to you in Q1.

Well, obviously we didn't open in the report the impact of this, but I would say that this was also in the range of several hundreds of thousands, so it was not insignificant compared to 2025. But as I said, we had anticipated most of that already when we made our plans for 2026.

Okay, fair enough. Good. Then I still have a question on your sales. Especially water treatment sales growth was strong, but you didn't open that much organic growth drivers there. So can you give some color on that?

Yeah. We had... very good demand for our process cleaning services in first quarter and also the execution of these projects was very good. So that is the main reason. There were certain certain customers that perhaps typically don't have as much demand for our services as they did in 2026 all right so it was not kind of a timing impact between quarters that much but but there were some kind of external and good items well Yes and no. I think we have been successful also in the customer front and sort of getting a wider customer base, which obviously helps us when there is demand to win those projects and execute them well. So it is not sort of extraordinary from that perspective.

Yes, and that's a good sign. Good. Then one last for me on costs regarding the demerger. So did you have any kind of extra costs which you didn't adjust for in E-Bit A regarding the demerger or other kind of costs that will go away soon if you exclude the costs you highlighted regarding the ERP renewables?

Well, obviously, as I said, we still had sort of the rollouts for our finance system, our consolidation system, our customer support system. So we did have sort of the... the final parts of our ICT transformation taking place in first quarter and still a little bit in the second quarter. So I would expect that we have a little bit of sort of extra cost around that but when it comes to the demerger related things then we have tried to sort of take them out from the operational results so from that perspective I'd say that the adjusted EBITDA is clean but we do have extra cost as we are sort of finalizing this ERP transformation journey. And as I said in the presentation, we expect to be there by the end of June this year. And we will start seeing the efficiencies gradually coming in in the coming quarters this year.

All right. Good. Thank you for the explanation. And thank you. That's all from me.

Thanks, Nikko. There are no more questions at this time.

There is a question online, so Kaika will read it.

Yes, we have a few questions. First one. How big of a headwind do you expect from higher diesel prices in Q2?

Impossible to say. Sorry. So obviously, we have taken the measures to offset the sort of the diesel prices as we have experienced them now. We do not expect this to be over in weeks, but it probably will take months. Let's see what happens, but obviously it's impossible to predict when it ends.

Okay, second one. How big share of the increase in diesel price you believe you can pass on to customers?

Well, it is a combination of efficiency measures and price increases, but As I showed in the graph from 22, we have very good processes to manage these kind of exceptional situations. So I'd expect us to be able to reach our outlook, as said, and handle the situation with price increases and efficiency measures.

Then next one. How confident are you that the price increases and cost-efficiency measures now being implemented will be enough to restore profitability during the rest of this year? And when should investors expect to see a clear margin recovery?

Well... As I have already said during this webcast, so we keep our outlook and we are confident that we will reach it. And that probably answers the substance of the question.

Then last one, aside from the higher full prices, was there any negative surprises in Q1 result compared to your expectations in the beginning of the year?

Well, I think I already answered to that question as well. So I have nothing to add beyond what I've already gone through. But thank you for the very good questions. Seems like there are no more questions. So we thank you for your interest to Lasse Lantikanoja and wish you a nice continuation of the day. Thanks. Bye bye. Thank you. Bye.