Luotea (Helsinki:LUOTEA) Q3 2026 Earnings Call

0:00 Good morning and welcome to Luotea's Q3 2026 results webcast. Thank you for joining us today. In this session, we will review our third quarter performance and key financial results and take a look at Luotea's strategic direction going forward. I will deliver the presentation together with our CFO Mika Stirkkinen and throughout the presentation you can submit questions in the comment field and we will address them in a Q&A session at the end of the webcast. I will start with some highlights from the third quarter. In Q3 our group net sales increased by 0.4% from third quarter last year. Our adjusted EBITDA was 5.7 million up by 0.8 million in the corresponding quarter last year.

0:54 The improvement in profitability was driven by our efficiency measures including lower personal and ICT costs. In addition, the positive development in Sweden continued. Moving to our guidance. It was changed in September. For 2026, adjusted EBIT A is expected to be better than the adjusted EBIT A 7 million in 2025. As part of the execution of Luotea's strategy, we have launched a strategic development initiative to accelerate the evolution of our data-driven services. We will continue to enhance our existing offerings while also building new capabilities including data-driven property maintenance, a new data-driven operating model.

1:42 In addition, we have decided to launch an ERP upgrade program and together our investments in data-driven services and ERP upgrade will strengthen Luotea's competitiveness, support profitable growth and create a strong foundation for long-term value creation. And finally, good customer interest continues to support Luotea Smarti growth. We will take today closer look at Luotea Smarti later in this presentation. On this slide, we see development of Luotea's net sales and adjusted EBIT-A. In third quarter of 2026, our group net sales were 84.2 million euros, up by 0.3 million from corresponding quarter 2025.

2:32 The group adjusted every day increased by 0.8 million and is now 5.7 million and we can be really satisfied with this improvement. Looking more closely at our businesses, net sales grew by 6% in Sweden and by 2% in property maintenance and technical services in Finland and at the same time cleaning and support services in Finland performed below our expectations with net sales declining by six percent compared with the previous year. Next, let's take a closer look at our performance in Finland. On this slide we see the development in net sales and adjusted EBITDA from our operations in Finland. The sales were 53.3 million euros in the third quarter, down by 1.6 million from the corresponding quarter in 2025.

3:27 and adjusted EBITDA decreased by 0.9 million and was now 4 million euros. Our revenue development in the third quarter reflected the polarized market. Cleaning and support services continued to face a challenging market environment, affecting both contract sales and additional sales. And at the same time property maintenance services revenue grew, supported by strong growth in add-on sales. And competition in the cleaning market remained intense. The number and value of tenders were high, but price competition was particularly strong for large public contracts. And as I have said earlier, we have not been willing to compromise our margins. Add-on sales outside contract space services in cleaning and support services also remained below the comparison period, largely due to our customers' cost-saving measures.

4:25 To improve our financials in Finland, we continue measures to strengthen our operational performance, especially in cleaning and support services. Then, moving on to Sweden, we continue to see positive development. The good news from Sweden is also that our new country manager, Rikard Nyrén, will be able to start already on 16th November. I believe that under his leadership we will be able to sharpen our execution and significantly increase the pace of progress. Revenue increased by 1.8 million from the corresponding quarter last year from 29.1 million to 30.9 million. The growth was mainly driven by add-on sales outside contract sales and by new private sector contracts.

5:14 Revenue increased even though a significant public sector contract was still in effect during the comparison period. We are also seeing progress in profitability. Adjusted EBITDA improved to 0.5 million from 0.4 million a year ago. The improvement was supported by higher revenue, our efficiency measures and improved contract portfolio. Our positive earnings trend continued for seventh consecutive quarter, although the improvement was below our expectations. Under the leadership of our new CEO in Sweden, We will place a strong focus on operational efficiency to achieve our target profitability level.

6:01 And those were the key figures from Q3. And Mika will continue with the financials in more detail shortly. But before that, I will say a few words about our strategy and data-driven services. First, let's look at our simplified strategy one-pager. Our strategy and 2028 targets remained unchanged, but we have clarified our strategic priorities. Our strategy is built around four focus areas. Data-driven services, efficient operating models, best place to work, and sustainability frontrunner. The key change is a stronger focus on data-driven services. Now, let's have a closer look on the future of our data-driven services.

6:49 As part of the execution of our strategy, we have launched a development initiative to take our data-driven services to the next level. Internally we call this initiative our game changer and this response responds to evolving customer expectation for more comprehensive and intelligent property services that better meet their needs which we see as an important opportunity for Luotea. We are expanding the use of data-driven cleaning and developing new services including data-driven property maintenance. In addition, we are building new data-driven operating model with the help of our new upgraded ERP.

7:34 Our goal is to combine data, technology and the expertise of our people in a way that improves customer experience, makes our operations more efficient and creates more value for our customers. Let's now take a closer look at Luotea Smartti, our data-driven energy management service. which I've been telling you several times. And as of September 2026, Luotea Smarty managed more than 3.1 million square meters of customer properties in Finland. I say again, 3.1 million square meters of customer properties in Finland. And the portfolio covers a broad range of properties.

8:22 Offices represent the largest share, followed by retail premises, Logistics and warehousing properties. Today, Luotea Smarty used to manage 6% of all office properties in Finland, and that's quite a lot. And this gives us a strong insight into energy performance of properties across Finland, as well as how they should be operated to achieve the best possible energy efficiency. Our data also allows us to identify which systems deliver the best results. And as I mentioned, this data is valuable to our customers and may also open up new business opportunities to Luotea to us. And across these different types of properties, Luotea Smarty enables data-driven management of indoor climate and energy use.

9:14 and it works with the building's existing management system using predictive and dynamic optimization to continuously improve performance. And we see a really strong potential for Luotea Smartti. Its broad customer base and the data it generates enables us to develop the service further, expand it to different properties and markets, and create new value-adding services for our customers. I hope this gave you a clearer idea about our strategy and especially Luotea Smarty service and how we plan to execute it. But now on to our financials and guidance and I will hand over to our CFO, Mika Stirkkinen.

10:02 Thank you, Antti. I'm happy to report that adjusted EBITDA improved by 0.7 million in Q3 versus last year. And as you can see, rolling 12-month adjusted EBITDA now exceeds 18 million euros. Next, let's look at our cash flow for the first nine months of the year. Cash flow before changes in networking capital was 13.3 million euros. The change in networking capital was 9.7 million negative, partly due to seasonality. We expect the change in networking capital to turn positive in Q4.

10:48 Net financial items and income taxes paid amounted to 2.7 million negative. Cash flow from investments was 1 million negative. Altogether, operating and investment cash flows amounted to 0.1 million euros negative. During the first nine months, we repaid the 5 million euro term loan, paid 2.7 million euros in dividends and made 4.5 million euro in lease payments. Altogether, financing cash flows were 12.2 million euros negative. Next, let's turn to capital structure.

11:36 Our balance sheet remains very strong. At the end of the quarter, we had 3.5 million in cash, no outstanding bank loans, and 12.5 million in IFRS 16 lease liabilities. Altogether, our net debt stood at 9 million. As mentioned earlier, adjusted EBITDA for the last 12 months stood at 18.1 million, resulting in a net debt to adjusted EBITDA ratio of 0.5. In addition to our cash position, we have a fully undrawn 15 million euro revolving credit facility. Next, let's turn to our financial targets.

12:25 Our financial targets remain unchanged. We are targeting 4-5% revenue growth over the medium term. Our EBITDA margin target is 5% over the medium term. Our cash conversion target is above 90%, meaning that operating free cash flow is expected to be more than 90% of EBITDA. And our dividend policy is to pay dividends corresponding to at least 50% of net profit. Next, let's turn to our guidance. We updated our guidance on September 11, and it is as follows. In 2026, adjusted EBITDA is expected to be better than the adjusted EBITDA, which was 7 million euros in 2025.

13:17 And now it is time for your questions.

13:26 Hello, my name is Anu-Maria Vaalamaa and I'm the Communications and Marketing Director at Luotea and I'll be moderating today's Q&A. And today we have received four questions and all the questions come from Valtteri Rossi, Danske Bank. So let's start with the first question. Where is the growth coming from in Sweden? Large or small customers, customer segments maybe? The growth comes from... Medium and large size customers and in a commercial sector from mostly from the new commercial sector customers.

14:06 Okay, and the next two questions considers cleaning. So the first question goes, how do you aim to further improve efficiency and margins in Finnish cleaning? One of the most important measures to improve efficiency and profitability in cleaning Finland is a centralized workforce management team. We have 1.5 million employees. But it is this kind of work, scheduled work in cleaning in a year. And if we save, for example, one minute of every work piece in future, so it's 1.5 million more profitability for us.

14:59 So with the centralized workforce management, I'm sure that we will improve the profitability of Cleaning Finland.

15:07 Okay, so when do you expect competition and price pressure to ease in Finnish cleaning market? I think within two years when the economic starts rising in Finland and the turnover of employees will increase. So with those two effects, I think the price competition will be easier in the future. So when personal turnover increases, so It will help when the economics start rising and it will help also.

15:39 Okay. And then the last question. Can you quantify seasonality effects on Q3 profitability and how should we think about Q4 profit outlook?

15:51 Do you want to answer? Maybe I answer it. We don't guide Q4 separately, so our investors and analysts need to rely on the full year guidance, which is that we expect the adjusted EBITDA to be better than 2025 adjusted EBITDA. Okay, thanks. Sorry, one more question. We haven't disclosed our brackets, what better means, but what I can say is that better in our kind of internal definitions, 0.1 million is not better, 0.1 million is equal than last year. So better means a bit more than 0.1 million better.

16:41 Okay, thank you. So these were all the questions for today. Thank you. And thank you for questions and taking the time to join today's webcast. And we appreciate your interest in Luote and your continued engagement with us. Our next webcast will take place in February 2027, when we will review the fourth quarter and the whole year. And we look forward to updating you then. And thank you all and have a good day. Thank you.