CEO Outlook

President and CEO Eero Hautaniemi in Interim Report Q3 2024

“Net sales for the third quarter amounted to EUR 192.3 million (200.9). Adjusted operating profit was EUR 20.0 million (21.2). The business operations in Finland achieved a solid result despite the challenging business environment.

In Environmental Services, the challenging business environment was reflected in the demand for recycling and waste management services throughout the review period. The division's market share remained strong in corporate and producer responsibility organisation customers. The efficiency improvement measures implemented in the first half of the year have successfully adapted the costs of service production to the current market situation.

In Industrial Services, the hazardous waste business line saw strong demand. In the process cleaning business line, the annual maintenance breaks were carried out as planned and resourcing was successful. In the environmental construction business line, two extensive soil remediation projects were successfully completed. The weak economic situation in the construction customer segment was reflected in a decrease in the volumes of material flows delivered to the material treatment centres.

In Facility Services Finland, all business lines achieved a better result than in the comparison period, and the division's operating profit improved. Measures to streamline the cost structure continued during the period under review. The number of employees in the division has decreased by more than 600 people compared to the comparison period. In Facility Services Sweden, a significant customer relationship ended in late 2023, and the loss of that significant account was not fully offset by new customer accounts during the review period. The division has a programme under way to simplify operating models and adapt the cost level. The number of employees in the division has decreased by approximately 120 compared to the comparison period.

L&T’s key sustainability indicators, carbon footprint and total recordable incident frequency developed favourably.

We launched work to renew our operating model in accordance with the strategy updated in autumn 2023, and the new Group Executive Board started its work at the beginning of the third quarter. The aim of the measures is to support the growth of circular economy business operations by intensifying cooperation between Environmental Services and Industrial Services and improving the efficiency of business operations.

In autumn 2023, the Board of Directors of Lassila & Tikanoja decided, in connection with their strategy review, to evaluate the strategic alternatives for the Facility Services Finland and Facility Services Sweden divisions as part of the development of the business portfolio. The strategic review continued during the review period.”

Information:

President and CEO Eero Hautaniemi in Half-Year Report H1 2024

"Net sales in January–June totalled EUR 384.2 million (400.2). The challenging business environment and the political strikes in Finland in the first quarter had a negative impact on the demand for L&T’s services. Adjusted operating profit grew to EUR 12.7 million (10.6). Operating profit improved in Industrial Services and Facility Services Finland.

In Environmental Services, the challenging business environment and the political strikes in Finland in the first quarter, reduced the demand for recycling and waste management services. The demand and price level of recycled raw materials stabilised in the first quarter and remained stable in the second 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. Our position in municipal contracts strengthened.

Demand was strong in all of the Industrial Services division’s business lines. Political strikes in Finland postponed maintenance and other services from the first quarter to the second quarter. However, annual maintenance breaks in industry were carried out to the planned extent during the period under review and resourcing of the projects was successful. In Sweden, the Industrial Services division expanded to the Gävleborg region through an acquisition.

In Facility Services Finland, all business lines achieved a better result than in the comparison period. Measures to streamline the cost structure continued and the division's operating profit improved. In Facility Services Sweden, a significant customer relationship ended in late 2023, and the loss of that significant account was not fully offset by new customer accounts during the review period. The division has a programme under way to simplify operating models and adapt them to the changed business environment. The results of the programme are expected to become visible by the end of 2024.

In the customer satisfaction survey conducted in Finland in April, all divisions improved their results and customer satisfaction (NPS) was at a high level, being above 40 in both circular economy businesses. Occupational safety also improved and the total recordable incident frequency (TRIF) decreased by two points year-on-year, which is a significant achievement.

In line with the strategy that was updated in autumn 2023, we began the renewal of our operating model in May and changed the composition of the Group Executive Board. The aim of the measures is to support the growth of circular economy businesses.

The new operating model will be built on L&T’s existing strengths. Environmental Services and Industrial Services have a broad shared customer base and they operate in different parts of the same material value chains. Closer cooperation will make it possible to respond to customer needs more flexibly and increase material value more efficiently. Stronger cooperation between the divisions and Group functions will provide a foundation for more efficient operations.

In autumn 2023, the Board of Directors of Lassila & Tikanoja decided, in connection with the strategy update, to evaluate the strategic alternatives for the Facility Services Finland and Facility Services Sweden divisions as part of the development of the business portfolio. This strategic assessment continued as planned in the first half of the year.”

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.”