Luotea Oyj (LUOTEA) Earnings Call Transcript

Welcome to Lassila & Tikanoja's First Result webcast. The broadcast is hosted by L&T's CEO, Eero Hautaniemi; and CFO, Valtteri Palin. [Operator Instructions] 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 & 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 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 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 the environmental Services, we had a decline of EUR 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 price is 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 remained 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 -- so 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 out there in Gävleborg region. And why this is important even though the sales is rather small, it offers us a platform to grow also further off in Sweden. Currently, we have been strong in the [ Skane ] 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 EUR 600,000 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 this 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, a 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 [ true ] fee has come down to [ 21% ]. And as I said, the weather conditions were very challenging in the 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 EUR 11.1 million and also that includes the company we acquired from Sweden this PF Industriservice, as Eero mentioned, the company's annual net sales is around EUR 2.5 million. Depreciations were on the same level than a year ago, EUR 13.8 million. And then the joint venture, Laania, this is a renewable energy sources company, which has been now operating almost 2 years, had a strong performance. The development was good. Our share of the net result, 55% was EUR 2.1 million compared to last year, EUR 1.5 million. Capital employed decreased by a few million euros and the return on capital employed was [ EUR 9.9 million ] lower than a year ago due to the lower result. Earnings per share, EUR 0.02 negative. Then balance sheet KPIs. EBITDA ratio were above last year, vary 3.4% and now the dividends of EUR 18.7 million 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. Net working capital was EUR 38.7 million negative. As you can see, there's a certain seasonality. It was EUR 10 million less than a year ago. And the main reason for that is that we lowered the level of factoring finance by EUR 10 million. But anyway, it's on a good level still. Cash flow, a year ago, cash flow was really strong, EUR 19.2 million. Now this year, first quarter, minus EUR 9.4 million. And the main version is the factoring financing of less EUR 10 million. So basically, the cash flow was pretty much according to the company's net result close to 0. We spent EUR 11.3 million for investments. Debts and liquidity. That's increased by EUR 10 million. The reason is that we replaced this factoring financing by using commercial papers. So now we have EUR 10 million of commercial papers in use. And IFRS 16 liabilities was EUR 82 million and the cash balance EUR 28 million. 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 loans, sustainability-linked loans we have EUR 40 million. Bank loan will mature in '26 and the bond, EUR 75 million 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.

[Operator Instructions] The next question comes from Nikko Ruokangas from SEB.

This is Nikko Ruokangas from SEB. I have a couple of questions and maybe starting with general one. So you talked about the effects of low general economic activity on your performance. So where the FX in line with your expectations, are there tier-1 or has something surprised you during the quarter there or maybe fourth quarter?

No. Good question, and the performance was very much in line with our expectations with the exception on the political strikes. Obviously, we did not see those coming when we gave the outlook for the year. And maybe the 300,000 effect is a cautious one from our side, but it clearly had an effect for our large industrial customers that sort of 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 the transfer in the market trend pre-competition to municipalization to be [ actual ] between the quarters? Or do you expect some bigger factors in some quarters? And do you expect them also to be able to compensate those in the same reason like in Q1? Or do you expect some trends like that?

Well, the municipalization effect is more for this year is more the tail from last year than new municipalization this year, there are certain reasons where it happens this year as well, but mostly, it's the tail from last year. And we know quite well what the effects are. We have solid plans to -- 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. So there may be some 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.