Lassila & Tikanoja (Helsinki:LASTIK) Q3 2026 Earnings Call

0:00 Good morning everybody and welcome to Lasila & Tikanoja January-September 2026 earnings release. My name is Eero Hautaniemi and together with me here today is our CFO Joni Sorsanen. Here is the agenda for this morning session. First, we will go through a few highlights from first nine months and quarter three, and then we will look into The market environment, efficiency and operations, then some sustainability highlights and then Joni will go through the financials and we will wrap up with the outlook.

1:00 So a few key financial highlights from first nine months and quarter three. Our net sales grew by 4.1%. during the first nine months and totaled to 328.5 million euros and the growth came predominantly from hazardous waste and remediation businesses. Our adjusted EBITDA was 59.5 million euros, which is 4.5 million euros less than it was a year ago at the same time.

1:51 Adjusted EBITDA was 25.2 million euros when it was 31.6 million euros a year ago. Our free cash flow improved year on year on comparable basis because you may remember that our last year's figures are carve-out figures and there was sort of certain one-off type of items that sort of disturbed the picture a little bit. Operationally, As I said already, we had a very strong first nine months in the hazardous waste and especially remediation business where we saw a healthy over 20% increase over the previous year.

2:51 As you know, we have had challenging beginning of the year when it comes to the waste management and I'm happy to say that the corrective measures are yielding now results which is visible in the third quarter results. also our growth initiatives related to waste material are progressing according to the plan and especially I'm pleased with the improvements we are making in our Kerava facility and in Merikarvia facility for plastics recycling.

3:41 Both of those projects are progressing well and we will dive a little deeper into those once we release our full year numbers in the beginning of 27. So here you can see our net sales development quarter by quarter and as you can see from here in third quarter our growth over the previous year was a little less than it has been in the first two quarters of this year and the main reason is that we have reached end of active phase in two of our major environmental construction projects and that is already visible in the third quarter and it will be visible in the fourth quarter as well before hopefully we will start new bigger projects 27 This is very typical for this kind of environmental construction projects that they last a certain period and when we reach the end phase then the activity goes down and that is also visible in the net sales.

5:17 Business by business look, we can see that we have a very healthy growth in both hazardous waste and remediation, but also in the industrial services and water treatment. where in waste management the growth is much less and this is despite the fact that we have a six months effect of the acquisition we made last year for our pallet business. I will get into the reasons in a moment. But as I said in the hazardous waste and remediation we see the end phase of these two major projects. In hazardous waste as such we have seen a very steady development throughout the year and we expect that to continue also as a reminder of the year.

6:19 So the highlight or the bright spot of our Q3 was clearly the industrial services and water treatment where we saw a very healthy growth and we already reported this when we released our second quarter results that this year the timing of these planned maintenance breaks is different compared to last year and now it's visible in the numbers as well. But also I'm happy to say that we were very successful in the execution of these maintenance breaks and that also supported along with our cost savings measures and price increases the good development of our EBIT-A in the third quarter.

7:22 We still have the same headwinds as we have had throughout the year. So now at the end of third quarter, the impact of diesel prices is estimated to be five million euros negative, so quite substantial. Also, The sort of difficulties in waste to energy plants continued, which caused extra cost and sort of extra effort for us in third quarter. And then this amortization of our ERP system also affects our this year's numbers with one million euro.

8:16 But the good thing is that we can see already now that the measures that we have implemented during the second and third quarter this year are yielding results and we are very close to last year's levels already with our EBIT-A in the third quarter. Oops. Then we go to the market environment. First, a few facts about the macroeconomic situation in Finland. It's sort of a mixed bag. There are a number of things that are going to the right direction. Overall, the forecasts for GDP growth are getting stronger.

9:14 Now they are somewhere between 1.6 and 1.8 percent for 26 and 27 and we can see now that the Retail volumes have continued their gradual, not very fast, but gradual growth, which is obviously a very positive thing. But at the same time, the unemployment rates still remain very high. And this is visible in the private consumption. especially when it comes to the discretionary spending.

10:01 The highlight for construction industries is obviously the infrastructure in general but especially the data centers and I'm sure everybody has seen that there has been a number of announcements in that field and our market share is very strong when it comes to the waste management of this construction phase of these data centers. Inflation is a little bit above 2%, but obviously what is the sort of main risk and concern for us is the geopolitical situation and as it has such a big influence to the diesel prices and obviously no one knows what will happen there.

11:00 and I will go through how it looks like for us during the first nine months of this year. And here it is, as you can see that in July-September diesel prices in Finland were approximately 38% higher year on year and that is obviously a significant increase. And in September it was as high as almost 50% higher than a year earlier. We have done measures as I said, we have increased our prices actually several times during this year and we are confident that if The prices remain at these levels. We can handle the situation, but obviously this is quite extraordinary how rapid and how big the increase has been for the diesel prices.

12:10 There is a certain delay. when implementing these price increases. So typically it is from two to six months and the full effect of all of the measures that we have done this year is visible then from the beginning of 2027. But already we will see a bigger impact in Q4 as well. I already referred to this earlier. So here you can see the Finnish retail industry rolling 12 months average. So there is increasing activity. It sort of started very sort of in a very modest way end of last year but really we can see now that the direction is right and the consumption is going up but obviously the speed of this recovery is not very fast, so hopefully we will see also the consumer confidence and employment rates going up, which will then boost the consumption and that then will be very visible for us as well, especially in the waste management.

13:44 The price development of certain recycled materials are stable. So even though the oil prices are very high, we don't see sort of corresponding development in the recycled plastics yet. But obviously it is typical that the plastic prices sort of follow The oil price development at some point and that is what we expect also to happen if the oil prices remain this high than in happening in 27. But we'll see what happens. Then a few comments about efficiency and operations.

14:36 We have done a number of measures to sort of adjust our fixed cost base. First of all, as you remember, we went through the demerger in 25 and started as a sort of standalone company beginning of this year which sort of brought a certain extra burden for our fixed costs and obviously the difficult market situation sort of added to our challenge but as you can see from this graph we have been now able to do measures that are effective and our fixed cost base is coming down and at the same time we have still sort of for the first nine months over four percent growth of our revenues so our sort of increased efficiency should start the yielding results once we we will see a a little healthier development in the market Then finally a few words about sustainability.

16:00 Overall very positive development in our all key areas. Our carbon footprint actually increased from previous year for the first time in several years. And the reason behind that is that we have reduced temporarily the use of HVO in our diesel purchases because of the these extreme high prices but obviously once the situation normalizes we'll resume to very active use of HVO. Our carbon handprint actually increased which is a very very nice development and our work safety is at very good level.

16:53 and I already mentioned in the beginning of the presentation that we have done a lot of development to increase our capabilities to do recycling of plastics and one thing in the market that sort of supports these activities is that we have now launched as a first player in the Finnish market a project to phase out the separate collection of energy waste. Energy waste is typically sort of a mixed waste containing plastics, cardboard and paper and obviously all of those materials are recyclable and therefore it makes all the sense in the world to start recycling more of those materials.

17:50 With this, I'd like to hand over to Joni and he will go through now the financials for the first nine months of this year. Joni.

18:06 Thank you Eero and good morning everyone. I will go through the normal set of financials, starting with a few highlights for the first nine months. Obviously, as Eero already noted, a clear highlight of the quarter was the fact that our profitability almost reached the level of previous year after a challenging first half of this year. So we were able to narrow the gap thanks to our corrective measures and also the performance of our industrial services or process cleaning business. Secondly, as we noted in connection with the second quarter result publishing, we expected the leverage to improve or the balance sheet to improve towards the year end and that's exactly what happened in the third quarter so financial position strengthened as a result of profitability and cash flow positive profitability and cash flow development adjusted for comparability free cash flow improved year on year for the third quarter and also for the first nine months And finally, share of net profit from our joint venture Laania was at the level of previous year.

19:37 Looking at networking capital, we saw a seasonal and expected development in the third quarter. Networking capital was minus 6.4 million in line with previous year. Looking at the development in the first nine months, we can see a strong tying up of capital around 23 million compared to 22 million in the previous year. Of note is that this year was impacted by this demerger related one of payments amounting to almost 6 million. And in terms of seasonality, we expect the development to improve towards the year end, just like it did in the previous year. Looking at the third quarter development, some items affecting networking capital were, for example, the busy annual maintenance break season in the process cleaning business and also the holiday pay accruals or personal related liabilities.

20:49 Capital expenditure for the first nine months was 16 million, somewhat below the organic capital expenditure in previous year. And looking at the investments, those consisted primarily of investments in machinery and equipment. And as already noted, our depreciation and amortization have increased year on year around 2 million euros in the first nine months, half of which is due to the ERP related investment. In 2025, total capital expenditure was around 42 million euros, including around 12.5 million of acquisitions.

21:41 Here we have illustrated on the left hand side the company's free cash flow profile but starting first with the first nine months development of this year our free cash flow for January-September was 8.4 million decreasing from 15.6 million however affected by this already mentioned one of payments to Luotea totaling 6 million and also affected by the fact that the previous year's cash flow do not include payments related to financing loans nor tax-related payments. So adjusted for these comparability issues, we can report that the free cash flow improved from previous year.

22:35 On a rolling 12-month basis, the company is generating around 64 million euros of operating cash flow and 34 million euros of free cash flow, which is operational cash flow after investments. As already mentioned, financial position strengthened across the board. In the third quarter, net debt in relation to adjusted EBDA was 2.0 compared to 2.1 at the end of second quarter. Equity ratio was 33.9% and gearing ratio 96.8%. It's good to note that as for financial position, the previous year figures are not comparable due to carve out principles. So that's why we have started the time series here from the year end 25.

23:42 Our maturity structure of interest bearing debt remains intact compared to the second quarter. Our financial or interest bearing liabilities excluding IFRS 16 was at 135 million consisting of commercial papers of 10 million outstanding notes of 75 million and bank loan worth 50 million Cash and cash equivalents 36 million at the end of the period and all the company's credit limits and committed facilities were unused at the end of the quarter.

24:27 The average interest rate of our long-term loans was around 3.4%. To conclude this section, a few more key performance indicators for the first nine months. Our reported return on capital was 8% and return on equity 8.2%. However, again reminding you that the figures are compiled on a rolling 12-month basis and that's why those have been impacted by the carve-out figures of 25. and that's why we have calculated here also a more illustrative figures for the return on capital and adjusted for items affecting comparability and certain carve-out principles return on capital was around 10% and return on equity around 13% and finally earnings per share For the first nine months 36 euro cents.

25:38 And with these words I will hand back to Eero.

25:42 Thank you, Joni. Why don't you stay here so we can answer the questions. But first, the outlook for this year is that we expect or estimate the net sales to be between 420 and 450 million euros and adjusted EBITDA to be between 33 and 38 million euros. So with this, we conclude our presentation and we are ready for your questions. If you wish to ask a question, please dial pound key 5 on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key 6 on your telephone keypad.

26:33 The next question comes from Niko Ruokingas from SEB. Please go ahead.

26:39 Hello, this is Nika Rogens from SEB. Thank you for the presentation. I have two questions and I'd like to go one by one. And starting with the hazardous waste and remediation projects, which you highlighted, you have two projects reaching the final stages of their lifetimes now impacting Q3 and also expected to impact Q4 sales. And you also said that you hope to get new projects for 27, even bigger ones. So can you kind of open those hopes behind how is your pipeline looking for, and do you have any concrete potential projects there waiting, or is this kind of a more general view for next year?

27:34 Thank you, Nikko. Yes, we have clear prospects, but these kind of projects, they sort of vary between projects starting from one million euros up to more than 10 million euros and we have identified several of these these type of projects and then obviously it is dependent on how successful we are in the tender process whether we win and get the project or not but there are projects and we are participating in the tender process of those projects and historically we have been successful, obviously not in all of them, but in number of them and that's what we are hoping to happen in in 27 as well.

28:42 Okay, so it sounds like the market fundamentals still remain attractive.

28:47 Yes, that is correct.

28:50 Good, thank you. Then The second one on your comment that you expect the adjusted EBIT A to reach last year's level in A2 unless diesel costs increase significantly. And when you mentioned this first time in July, so you all did at that point, mentioned that unless the diesel prices are significantly impacted now the diesel price is up from from summer's levels so can you open a bit does this mean that you have taken kind of further actions to offset those compared to what you were planning for in the summer or does it make it more risky whether you will reach that target level

29:40 Yeah that again excellent question and good observation. We have taken additional measures and they seem to be effective so we were able to cope up until these levels where we are now and you know should they go even higher then obviously we will try to sort of do additional measures but our current measures are sort of sufficient for the levels we reached in September which are record high in the sort of near-term history

30:29 I understand. And maybe a continuation on that. Are these measures, if they're other than kind of price increases, so are they sort of measures which will be impacting also or supporting also after 26 or is it kind of, does it include measures that are kind of age to 26 specific?

30:51 Yeah, it sort of contains measures that are related to the prices, so price increases and surcharges, but then there are programs ongoing there is a specific program in the waste management sort of addressing the operational efficiency of our waste management and we have number of streams there and some of them are already yielding results but we do expect more results to come in the fourth quarter but especially in in 2027 from that program then as I went through we have a number of measures to address our fixed costs and fixed cost base and Those are already yielding results this year and probably will yield some more results in 2027.

32:13 So we are going through sort of all possible sources of either increased efficiency or then higher sales prices to sort of address this quite difficult market conditions that we have experienced this year.

32:40 Okay, thank you for opening this helped a lot. Thank you. This is all from me. There are no more questions at this time on phone. So I hand the conference back to the speakers.

32:59 Excellent. Thank you for There is a few questions from online. Do you think you are now better to offset the hike in diesel pricing in September compared to the one in March, which hit your Q2? Have you been able to change the contract structures to pass through fuel costs more swiftly?

33:26 That is an excellent question. We have sort of already done price increases. We have implemented surcharges to certain contracts and we are faster to react now to the changes in diesel price than we were at the beginning of the year. But as we said in the presentation, there is still a certain delay depending on customer group. It may vary from two months up to even six months. We have tens of thousands of contracts, so we cannot change all of those contracts at once, but we can react faster than we could at the beginning of the year.

34:27 How does the situation look regarding to the gate fees in the waste management business? Any normalization in sight going into 2027?

34:40 Very good question. What we now think is that the normalization at least for the next 12 months 12 to 18 months is going to be on these higher level that we have now experienced this year and we have made changes accordingly to what we charge from our customers but also we are working as I said to Nikko a few minutes ago we are working with the efficiency of our operations at the waste management to also sort of increase our operational efficiency and and flexibility to sort of address this what we sort of think is that is new normal in in the gate fee situation in the longer term however We still know for a fact that there is overcapacity in the waste to energy market in Finland and at some point that should be sort of reflected in the gate fees.

36:05 No more questions. Thank you. Thank you very much. Okay. With this, we thank you all for listening to our presentation and wish you a very nice continuation of the week. Thank you. Bye bye. Thank you. Bye.