CEO Outlook

President and CEO Eero Hautaniemi in Interim Report Q1 2024

"The high interest rates, along with the decrease in industrial production and the weak market situation in the construction industry, combined with political strikes in Finland, had a negative impact on the L&T service demand in the first quarter. In the first quarter, net sales decreased by 4.0% and adjusted operating profit was EUR 0.0 million (1.4). The impact of the political strikes on L&T’s result was approximately EUR 0.3 million negative.

In Environmental Services, the economic recession and political strikes reduced the demand of recycling and waste management services while the market share of the division strengthened slightly. The demand and prices of recycled raw materials stabilised during the first quarter. The municipalisation of the collection of packaging waste from housing properties continued, but the measures initiated in the fourth quarter of 2023 to improve the efficiency and profitability of operations largely compensated for the impact of municipalisation.

Net sales increased in Industrial Services. Political strikes in Finland weakened the demand in the Hazardous waste business line to a small extent, and some process cleaning work was postponed from the first quarter to the second quarter. The process cleaning business in Sweden was expanded to the Gävleborg region through an acquisition in line with the strategy. Industrial Services currently has approximately 100 employees in Sweden, and process cleaning services are offered in southern and central Sweden.

In Facility Services Finland and Facility Services Sweden, measures are under way to improve the efficiency of operations and streamline the cost structure. The result of the Facility Services Finland for the first quarter was negatively affected by provisions of EUR 0.6 million booked for potential disability pension contributions. The result of the Facility Services Finland Cleaning business line improved year-on-year. In Facility Services Sweden, a significant customer relationship ended in the end of 2023, and the loss of that significant account was not fully compensated by new customer accounts during the review period.

The Group reduced its factoring financing by EUR 10 million as planned which reduced cash flow after investments in the first quarter. The company’s financial position is strong."

President and CEO Eero Hautaniemi in Financial Statements Release 2023

“Net sales for 2023 amounted to EUR 802.1 million (844.1). The comparison period included EUR 35.4 million of net sales from the renewable energy sources business. Adjusted operating profit was EUR 39.0 million (40.9). Net cash flow from operating activities was strong at EUR 93.6 million (71.8), as was the Group’s financial position. In 2023, the increase in production costs affected all of L&T’s divisions, as did the labour market decisions reached in the late spring, which included one-off items.

In the Environmental Services division, the decline in general economic activity was reflected in lower waste volumes and the prices of recycled raw materials throughout the year. The decrease in the prices and volumes of recycled raw materials burdened the net sales of the division and had a negative effect of EUR 4.5 million on the operating profit.

The Finnish Waste Act was amended in July 2021. Under the reform, municipalities take on a larger role in organising the collection of packaging material waste and biowaste from housing properties. As a consequence of the reform, L&T’s direct customer agreements with residential properties on the separate collection of packaging waste and biowaste are transferred to municipalities for competitive bidding gradually between 1 July 2022 and 1 July 2025.

As a result of municipalisation, EUR 40 million of the value of the Finnish waste management market was moved out of the scope of free competition to municipal waste companies during 2022-2023. The effects of this change were fully visible on the division starting from the latter half of 2023. L&T estimates that based on decisions made by the end of year 2023, a further EUR 30 million will be moved out of the scope of free competition to municipal waste companies between 2024 and 2026.

In the latter half of the year, the collection of packaging waste from residential properties was transferred to municipal waste companies in several geographical areas that are significant to L&T. L&T participates in the competitive tendering of municipal contracts. During 2023 competitive tendering of municipal contracts is estimated to have amounted to EUR 15-20 million and the Group won municipal contracts amounting to EUR 8 million. Nevertheless, the change transferred the ownership of the waste material collected from these residential properties, decreased additional sales and reduced the efficiency of L&T’s waste collection logistics increasing production costs. The change had a total negative impact of approximately EUR 2.5 million on operating profit in 2023.

L&T aims to compensate for the impacts of municipalisation by growing the corporate customer business and continuing to improve the efficiency of operations during the next three years. In the division, measures to improve operational efficiency and profitability were initiated during the latter half of the year. The employment relationship of approximately 50 salaried employees are terminated as a result of change negotiations and other jointly agreed measures latest by the end of the first quarter of 2024.

The Industrial Services division achieved a good result. Net sales increased in all of the division’s business lines. We carried out several large projects in the market for demanding industrial soil remediation projects in particular. Business operations in Sweden developed favorably despite the challenging market environment.

The operating profit of Facility Services Finland improved significantly in 2023. Measures to streamline the cost structure and improve operational efficiency continued. Progress was achieved in digitalisation with the number of sites within the scope of data-driven cleaning increasing in 2023. In building technology services, the demand for energy efficiency services increased during the period under review.

The customer agreements in Facility Services Sweden are mostly fixed-price contracts, and the division has not been able to pass the increased production costs on to customer prices. The division has a programme under way to simplify operating models and adapt them to the changed business environment. The results are expected to become visible by the end of 2024.

In October 2023, Lassila & Tikanoja plc’s Board of Directors approved the company’s renewed strategy. Under the renewed strategy, the Environmental Services and Industrial Services divisions will seek new growth especially by focusing on business opportunities related to the circular economy of materials. Growth will be sought through organic development and potential selective acquisitions. In connection with the strategy review, the Board of Directors decided to evaluate the strategic alternatives for Facility Services Finland and Facility Services Sweden as part of the company’s business portfolio development. The sale of operations is one possible option. This strategic evaluation progressed according to plan in the fourth quarter.”

President and CEO Eero Hautaniemi in Interim Report Q3 2023

“Net sales excluding the renewable energy sources business were on a par with the comparison period. Adjusted operating profit was EUR 31.8 million (31.3). Profit performance was solid in spite of the challenging business cycle.

In the Environmental Services division, the focus was heavily on B2B customers and producer responsibility organisation customers, whose number grew in the third quarter. The division improved its position in municipal contracts for waste management.

In the Industrial Services division, demand was stable in hazardous waste services and environmental construction. In process cleaning, the demand for annual maintenance break related work was strong, and significant new customer accounts were won in that business line.

The general level of economic activity continued to decline during the period under review. This reduced waste volumes particularly in the construction and retail segments. The prices and demand for recycled raw materials were lower than in the comparison period, which had a negative impact on net sales and profit in Environmental Services and Industrial Services. Improvements in operational efficiency largely compensated for the weaker market conditions.

The measures initiated in Facility Services Finland in the second half of 2022 to streamline the cost structure and improve operational efficiency continued and had a positive effect on the result. In Facility Services Sweden, the effort to simplify operating models and adapt them to the changed business environment continued according to plan.

Net cash flow from operating activities was strong, as was the company’s financial position.”

Information:

President and CEO Eero Hautaniemi in Half-Year Report H1 2023

“Net sales excluding the renewable energy sources business grew in January–June by 1.6 per cent. Adjusted operating profit was EUR 10.6 million (11.0).

In the Environmental Services division, the focus was heavily on corporate customers and producer responsibility organisation customers, and their number grew during the period under review. Nevertheless, the slowing of general economic activity reduced waste volumes, particularly in the construction and retail segments. The prices of recycled raw materials were at a lower level than in the comparison period, which was reflected in the Environmental Services division mainly in the form of a decline in net sales, but also a slight decrease in operating profit.

The Industrial Services division achieved a strong result. Demand was strong in hazardous waste services and environmental construction business lines. New customer projects were started in the environmental construction business line. The business line has a strong position particularly in the market for demanding industrial soil remediation projects.

The measures initiated in Facility Services Finland in the second half of 2022 to streamline the cost structure and improve operational efficiency continued in the first half of the year and had a positive impact on the result. The rising costs caused by high inflation were, for the most part, passed on to customer prices. In the cleaning business, the efficiency of production improved and personnel turnover continued to decrease in the second quarter. In Facility Services Sweden, the effort to simplify operating models and adapt them to the changed business environment continued as planned.

The wage-related decisions made in collective bargaining processes, including the one-off items involved, increased the cost level in all divisions in Finland from May onwards, and their impact was reflected in the Group’s result in the second quarter. The increased costs will be compensated by operational efficiency improvements and price increases during the second half of the year.

Net cash flow from operating activities was strong, as was the company’s financial position.

The new government programme of Finland, "A strong and committed Finland," includes several provisions promoting the circular economy and waste markets. The programme specifies the role of municipalities in waste management to household waste, and the activities of municipal companies in waste markets to be more regulated than before. Environmental permit processes will be streamlined by combining Regional State Administrative Agencies (AVI) and Centres for Economic Development, Transport and the Environment (ELY centres). The government programme aims to strengthen the markets for secondary raw materials and increase the use of secondary raw materials with market-based solutions.”