Lamor Corporation Oyj (LAMOR) Earnings Call Transcript

Hello, everybody, and welcome to Lamor's Half Year Financial Report Webcast. My name is Johanna Gronroos and our plan is to walk through the -- our release, which we published at 9 today. Together with me, I have our CEO, Mika Pirneskoski; and CFO, Timo Koponen. Our agenda is quite familiar to all of you who have been having a look at this webcast earlier as well. Mika will start with the operational highlights. Timo will go a bit more into details with the financials, and then we will shortly recap where we are with the strategy implementation. And closing the webcast, of course, with the most important part, questions and answers. So happy to take your questions already during our presentation. Welcome, everybody. All right. We highlighted in the release as well that our large projects contributed to good results in Q2. What would you like to raise here? Which are the projects we are talking about when we talk about this contribution?

Okay. So -- and this is once again pretty familiar to our frequent visitors in this webcast, but mainly the projects in Kuwait, where we have two large-scale remediation projects, then the port waste management technology project in Bangladesh that was published approximately a year ago. And then the enhancement of environmental preparedness capabilities in the Kingdom of Saudi Arabia, which is now in maintenance phase and Timo will share some of the good news about it. Finally, getting the invoices paid in [ Simon ] and the project finally being on the positive side. As discussed in our strategy webcast, we see quite a lot of potential in the Kingdom. The expansion plans have been made. There has been some delays in the time schedule, which is to be expected in that particular market, but we still remain quite positive about our possibilities there in the future. And then finally, the chemical plastic recycling facility that we are building in Porvoo Kilpilahti is obviously a very exciting prospect for us and then also see a great deal of potential in terms of that business.

Good. We'll come back to most of these except for Saudi Arabia later on. So let's talk a bit more about those a bit later. Then the highlights about revenue and profitability. The revenue increased significantly compared to the previous quarter. But when we have a look at the H1 figures, we still are a bit behind the previous year's figures. Any comments on that?

Yes. I mean I think we tried to communicate as clearly as possible that the start of the year will be slower than the previous year, so nothing unexpected there in Q1 results as already indicated some three months ago. Q2 was strong as expected and especially in terms of profitability, we are quite happy with the level of profit margin or the adjusted EBIT margin that we were able to generate. Of course, you can still see that if you annualize that figure, you get somewhere around the upper boundary of our guidance. I mean we are still not at our long-term profitability target, but that's mostly due to the fact that we've invested quite heavily in growing our organizational capabilities to be able to take on such large-scale projects. Then if we look at the H1 as a whole and then compare it to '22, I mean some of our investors might remember that there were two large gate environmental response incidents there in South America during the first six months of 2022. If you exclude that revenue, I mean, you could say that we've significantly grown over the first six months of the year as well in terms of our base business. So overall, quite happy with the performance in H1 this year. But still some good things to be done over the second half.

Excellent. Then we will move on to the Kuwait projects. Before Mika will go into details where we are currently with the project, we would actually like to show a video where our project manager, Manuel Fernandez is telling about the project, how it's going and what is actually ongoing there currently. So let's have a look at the video. [Presentation]

Hello, everyone. My name is Manuel Fernandez, and I am the Deputy Director of the JV Kharafi-Lamor. Today, we would like to show you the bio remediation process we are implementing in our [ SKETR Zone 1 ] project from the time the contaminated soil arrived at the treatment center until the remediation process is finished and the RTC is achieved. As you will see, this treatment center has been designed mimicking a factory with a continuous process and with different areas and activities. Please join me on this tour through our treatment center. I hope you enjoy it. Our first station is the weigh bridge at the entrance, where the data of origin of the soil excavated is collected and recorded using a barcode system. After the way reach the soil is stockpiled in the designated areas based on TPH brand, haulage distances and exploration depth in order for the soil to be ready for the bioremediation processes. It is necessary to be prepared. The first stage of this preparation is the screening and crushing to ensure that the size particle of the soil to be treated is less than 20 mm. The second stage is the addition of solid amendments directly to the dump trucks, the quantities and type of amendments have been predetermined taking into account the capacity of the Ram trucks used for this activity and also the initial TPH of the soil transported. After solid amendments have been added, it is time to lay down the soils in the bio paths in bunches of 9,000 tons. Each batch is composed of 7 bio piles of 150 meters long, 5-meter wide and 2-meter high. Once the soil is in the pile, baseline sample is taken, and we are ready to start the treatment. The treatment will last between 4 and 6 months and the main activities to be carried out during this time are the tilling and irrigation of the tiles. For this, we are using the windrow Turner, which allows us to fill the soil very efficiently and irrigated with water and other liquid amendments such as surfactant, bacterial inoculum or urea when necessary. Monitoring is also a key aspect of this period as it will give us the necessary information from the progress of the bio remediation, information needed to take the decisions that will lead us to reach the remediation target on scale. And finally, once the RTC is achieved, the soil will be removed from the parts to make room for the new batches and send to designated areas for the treated soil.

All right. It was really interesting to see how it looks like in Kuwait in our treatment areas. At least to me, it looks amazing. It looks in real life, amazing as well. Starting with what we are really doing there, repeating it once more, what other activities we are doing?

And I think the sort of headline of the videos says we are restoring the Kuwaiti treasure. So cleaning up the final aftermath of the Gulf War in 1991. What's happened up until today, I mean, it is an amazing achievement from our team. I mean we started with UXO work so mapping out any unexploded ordinance there in the treatment areas. After that, we really did the site soil characterization, meaning that we did the analysis of all the contamination in the area, tried to estimate the volume of soil to be treated. And then after that, started the transportation of the treatment center that can also be seen in the video. And then in the treatment center, we do two types of remediation activities. One is the bio remediation or biological cleanup that was shown in the video and then the other one is mechanical cleaning for which we have soil washing unit in both of the treatment centers. And that's basically it. And once it's clean, then it's being returned to the original areas.

And about the current status, where we are, how much we have treated as tonnages currently?

The numbers are so large that it's hard to even imagine. I mean, we've now transported almost 2 million tons of contaminated soil. Soils in the treatment areas a bit more in the north and a bit less in the south, so a bit above 1 million in the North and a bit less than 1 million in the South. So that really tells the huge size of the project. Then in terms of remediation activities, I mean, we've already been able to achieve an RTC remediation target criteria for approximately EUR 0.5 million ton of soil. So 25% of all the soil that been transported has already been cleaned up. So even though Manuel says that it's going to take 4 to 6 months to complete the cycle. I mean, we've been a bit more successful in the beginning. We had some help from the environment. It wasn't as hot in the early days of the treatment cycle as it typically is Kuwait during that time of the year. Now it's going to be interesting to see how our technology performs during the summer month when the temperate can reach up to [ 50% ] and that might cause some issues with the bacteria.

What is the key for being successful in a project like this? Why can't we tell the story now where we are?

Yes. And I think Manuel put it quite nicely in his speech. I mean what we've tried to do is to create a factory like set up, I mean, having a really well-designed process to treat the soil. So it is a continuous process from the moment it's been excavated. And each part of the process has been designed in mind of the remediation activity. So for example, when you do excavation on site, they could be the across the oil layer which is mostly asphalt seam very heavy hydrocarbons, which is impossible to bio remediate. So you need to be quite careful in removing that layer before you take it through crushing and screening. Otherwise, you are creating a lot of contamination that can be applied can't be remediated with the bioprocess, for example. Then again, I mean, having different levels of contamination in separate bio piles of course, means that for the less contaminated soil the treatment process is faster, which means that we'll be able to use more of the capacity of the treatment center in a shorter period of time. For example, we had the average contamination a bit higher mixing the source of different contamination levels.

Manuel was presenting the project there, the Project Director. Any other comments about the team and how it has been created?

I mean, amazing. Like I said, amazing performance from the team it's not the culture, for example, not the easiest environment for us Fins or Western Europeans. I mean cultural differences are huge. Having a local partner having to sort of try to get two teams from different backgrounds working seamlessly together in our partners' expertise in civil construction, heavy machinery work and then our expertise is then looking on environmental solutions. So getting everything in line and really getting the team to work towards the same goal, which is to achieve the best possible remediation results. So amazing performance from the members of our team, Lamor team there in Kuwait, but also from the team members of our JV partner.

Exactly. We've been talking about the other possibilities in Kuwait. Any updates on those?

Yes. I mean, like we already highlighted in the release that, unfortunately, we weren't chosen to be the main contractor for the SKETR-2. The price competition was really tight and discussions after the tender award shows that some of the contractors entered with no intention of making money in the project, just to keep them relevant in this particular market in Kuwait. Having said that, I mean, we see quite a lot of potential as working in the second phase. If we, for example, look at the other remediation technology, the soil washing part, we are in a leading position on that front. We've made the investments in the capacity there in Kuwait. And we expect that -- those two pieces of equipment having also future business regardless of whether we are the main contractor or not. Then again, if we look at our bio remediation performance at the moment then -- and the efficiency from both commercial and technical perspective, I mean we strongly do believe that this is not the end of it and could be a very good possibility to work also in the second phase.

All right. Let's move on then to the plastics initiative. Facility progressing as planned, as we told in the release, working together with Resiclo Oy, what are the highlights for that project? Of course, not contributing revenue yet, but what other things working there...

And I think what we are missing there is the release that we gave out in May, we're able to secure the funding, the capital loan from the Finnish climate fund. So we have the full funding now in place for the project. It took a little bit longer than expected to close the funding to the structure of the joint venture. But then again, I mean, finally, it's been achieved and now we are really able to increase the speed of progress there. We received building permit for our site, and then we are about to commence construction activities there on the site. We estimate commissioning around mid-'24, so commissioning means that there will be the first drops of oil coming out of the facility. And as a result of this sort of closing round of funding. I mean, we also increased our participation in the project to 70% from the 55% that it was earlier. So all in all, a very positive development also on that project. And what we see both from the feedstock perspective and looking at the value chain as a whole, there seems to be a lot of positive tailwind in terms of the feedstock available. I mean a lot of companies are realizing that incineration really not -- it's not an alternative for increasing the recycling rate of waste plastic. And then again, on the other and the offtake very strong demand, very strong interest for the end products. So overall, the business case looks super strong.

Good. There is a strategic plan for us relating to chemical recycling of plastics. Maybe repeating that and highlighting what is the plan around there?

Yes. I mean, 40 ton (sic) [ 40,000 ton ] capacity here in Finland -- we communicated earlier that we strongly believe in distributed liquefaction infrastructure. That is still something that is on top of our mind, meaning that we would probably have two facilities here in Finland. Then we can now doing a bit more analysis on the CapEx but on produced, it could be that each unit should be a little bit larger than previously anticipated, but that's something that we'll figure out in the years to come. Then again, this facility here in Finland is supposed to act as the blueprint for our global expansion and our target is to have a portfolio of 200,000 tons by 2030. And one of our strategic goals also is to have a project portfolio of 100,000 tons by the end of '26. So those are the big numbers, definitely a super interesting business opportunity. And one of the things that I like the most about our business.

One more question before we move on. Why did we end up in doing plastics recycling?

That's not a short answer.

You need to make it short.

And the way we started looking at this is from the environmental hazard perspective, I mean, looking at the waste plastic in the water bodies globally and the increased significance of that. We've been manufacturing oil spill response equipment, oil collection equipment for the past 40 years. The technology is rather similar. But from our initial idea of combating the pollution in the rivers and in the oceans. I mean, it became increasingly obvious that it is not a business opportunity as a stand-alone principle, but you need to combine it with land-based collection and liquefaction of existing waste plastic. So that has pivot in a new direction and we strongly still believe that it is of great importance to have the water bodies clean as well. But from a business perspective, we do believe that this route is the only sustainable one.

And still, the mission is, let's clean the world, fully linked to that as well. Then shortly about the Bangladesh project. We had visitors in Porvoo a couple of weeks ago. Having a look at where we stand with the equipment, any updates about that?

Yes. I mean, project moving forward as planned. I mean, there was a delegation of high government officials from Bangladesh here a couple of weeks ago, they came to do the inspection mostly for the spill recovery equipment, but they also visited the shipyards producing the vessels. So all in all, a very nice visit and long-awaited visit. But the project is moving forward as expected and hopefully, it will create some more business for us there in Bangladesh.

All right. Good. Thank you for the operations update. Then we move on to the financial update going a bit more into details about where we are financial perspective. Mika already touched upon the revenue and EBIT -- adjusted EBIT will come back to that a bit later. Maybe one of the questions relating to earnings per share. It looks completely different if we compare it with the previous year figure. Why is that? What is the reason behind?

Now obviously, we have had -- starting with the quarter, we have an extremely strong quarter behind us, as Mika said, and also that is taking us year-to-date on a very high -- good level in terms of the EPS when, for example, comparing it to last year same period. And a couple of reasons, of course, when we look at what's remaining below the EBIT line, financial costs, we haven't had kind of a similar kind of impact on a ForEx exchange items this year and also some of the tax planning issues we have been concluding end of last year are now [ referring ] to that.

Excellent. We will go into details with the orders received, but I guess we should highlight it here as well. The amount of orders received is quite modest both in Q2 and in H1. Any comments about that?

Yes. We have disclosed that already in Q1 and now repeated the kind of base business order flow goes pretty decently, but the issue is now that we haven't got any large service orders in this period. And similarly, any big technology orders haven't hit this period. But as we have referred, the sales pipeline is very, very good looking and that, of course, remains to be the main focus for the remainder of the year.

Good. Then one more question about the employee amount. We see fluctuation there when we have a look at these figures as well. What is increasing the amount of employees now during this quarter and the first half?

This year, there's a single answer and that's equity projects, which are now reaching the full capacity of full production, and we have prepared the -- also the employee employees to be resources to be much better with the full setup.

Good. Then -- about the revenue development and the profitability development, adjusted EBIT now for Q2, 11 percentage lacking behind if we have a look at the first half year, percentage? Any specific comments on top of what Mika already mentioned.