Good morning, everybody, and welcome to Lamor's Q3 webcast. My name is Johanna Grönroos, and together with me, as always, I have our CEO, Mika Pirneskoski, and CFO, Timo Koponen. We will walk through the operational highlights from this quarter. Mika will guide us through that part. Timo will give us a financial update, and then we will shortly discuss about the strategy review we have made and the market potential we are seeing. And then we will close the webcast with a Q&A session. Please submit your questions already now through the chat function. Happy to have your questions, and we'll answer those at the end of this webcast. Welcome, everybody. Let's start with the operational highlights, key takeaways from this quarter. We highlighted that the progress in the big projects was good.
Any specific... We'll go into details with the Kuwaiti projects. Anything else you would like to highlight what comes to the-
I mean, if you look at the revenue generation, and you look at the geographical split, it's pretty evident that a lot of the revenue is coming from the Middle East, and Africa region or market area. So Kuwaiti project, Saudi project going as planned, from Eurasia, the Bangladesh project, going also well. So from operational perspective, from profitability perspective, no surprises for us, on that front. Of course, at the same time, we were already hoping to close some deals by the end of the quarter.
Some teasers, we have there already in the text, but then again, I mean, from the underlying technology business, we got a very nice order from Asia for Inbuilt Oil Spill Response System. One of the sort of most important product segments where we have a very dominant market position, so very nice to see that order coming in. Then again, a very nice market opening in South America for water treatment solutions, so a Water Potabilization Container project there. We see a lot of potential, a lot of future prospects around that same technology portfolio for the coming quarter, as well as for 2024.
Please describe a bit more about what this water technology is all about, which we-
Yeah, so it is ultrafiltration system, so the situation in South America is pretty dire in terms of their potable water infrastructure. So they have a lot of aging municipal water treatment facilities, which are at the end of their lifetime, and this is sort of an emergency solution that could turn into a medium-term solution for them to provide the citizens or their citizens some potable water. There's some interesting industry changes ongoing, so typically both the potabilization parts or the water treatment facility itself, as well as the distribution network, has been state-owned.
There's been some privatization, especially on the water distribution part, that creates these nice opportunities as the municipal players don't get any invoicing if their water quality doesn't meet the specs stipulated in the contract, so that gives us a quite nice potential there.
Good. Something that we have not been discussing earlier. Then, we will go into details with the figures a bit later with Timo. Something that you would like to highlight when having a look at the revenue and adjusted EBITDA levels and comparing them with the comparatives?
Yeah, so if we look at the current period, roughly EUR 88 million, well, on underway to our guidance. Then if you look at the comparison period, and then that was already commented in the uncertain, so in 2022 we had those major spills, environmental incidents in South America. So if you take away the revenue from those, we are still on a very steady growth track for our basic business. So we've communicated EUR 32 million from those projects last year, so very nice growth track on our underlying business from that perspective.
Maybe Adjusted EBITDAf, and Timo is gonna talk more about that, but I mean, as you can see, as the volumes are picking up, also the profitability is increasing.
Good. Then a bit more about the progress in Kuwait. Bioremediation ongoing, really ongoing. We mentioned there are 1 million tons already treated, soil washing activity starting. Any updates?
Of course, when you go into a multi-year project with such huge volumes, I mean, 1 million ton doesn't say much, but if you take into account that one truckload is roughly 30 tons, you can do the math, so it's roughly 30-35,000 truckloads that has been treated over these past six months, more or less. The remediation performance has been very good during the month of October as well, so everything going super well there. We've already commissioned the soil washing plant for North project. For South, it is ongoing, so that's also very nice progress.
Of course, this is something that we've been waiting for a long time. I mean, we've been talking about it, but, I mean, our great performance there has created a significant potential for add-ons. And then, now in October, we already started works for additional volumes that will have approximately EUR 8 million effect on our order backlog once the contract has been signed.
... Good. Why do you think it's important to show what is happening in October, what comes to the additional volumes?
I mean, I think we've received a bit of criticism, some feedback that, okay, I mean, we talk about the great performance quite a bit, but there's very little tangible to show for that great progress. So I think this is a clear testament that it is not just hearsay, and it is just not ours... I mean, but patting ourselves in the back, but it's something concrete, and it is a realization of that.
Good. Then we had the ceremony in Porvoo, in Kilpilahti, relating to groundbreaking ceremony relating to the plastics recycling facility. How is that progressing?
Everything going very, very smoothly. I mean, of course, it is a big construction project, but we have a very experienced team. We've been able to recruit and build a great team around the project. I think we had a very successful groundbreaking ceremony. We had all the players from the value chain there. We had all of our technology partners there, so super excited about this opportunity, and can't wait to have the plant commissioned next year.
Let's repeat the strategic plan as well. Now, 10,000 kilotons in, in Kilpilahti in the first phase, how does it continue?
So, of course, there needs to be some optimization done once the facility has been completed and the process has been commissioned. So hopefully by the end of next year, we'll be able to tell more about the actual step to reach the 40-ton capacity here in Finland. Then again, we are evaluating the strategic locations for the next steps to reach our 100-kiloton project portfolio by the end of the strategy period. So exciting times ahead.
Good. Then there has been quite a many events during this quarter as well. We raised the green bond in August. We continued with announcing that we aim to transfer to Nasdaq Helsinki main market still during this year. And we did review the strategy implementation status as well. How are these combined together?
I mean, combined may be a strong statement, but of course,
Or linked.
Yeah, linked. I think the green bond is a very important step in our debt capital market path. First time issuance is always the hardest one, so it's super nice to see that over with. And the pipeline that we see, the opportunities that we see are something that we really believe in, so of course, this instrument will help us in our strategy implementation path. Then if we look at the main market transfer, we've received a bit of commentary on the current marketplace from some of the investors. So we do believe that the transfer will support our long-term value creation for our investors.
And we, of course, also hope that the liquidity of the share will be better in the new marketplace. And, of course, it is not a magic trick or magic bullet. We need to really, really work on our IR work. We really need to work on our business, but we believe that it's a better platform for us, considering the future growth path that we see.
Excellent. Good. Let's then deep dive to the financials a bit more with Timo. So starting with the quarterly development of revenue and Adjusted EBITDA, a bit below compared to the comparison period, and Adjusted EBITDA margin on 9%, what would you like to highlight from this development?
No, yeah, obviously, as Mika already mentioned, the quarter was very much dominated by the large orders in Kuwait and in Bangladesh. Then, comparison year on year, obviously, we are in a product business, and where the revenue recognition always falls, it's a bit of a gamble. But, as it was mentioned operationally, nothing super exciting happening. Things progressed as planned. Then, when it comes to the Adjusted EBITDA number, very much on par, and we can see that, when the volume grows, then also the profitability picks up. The scale, as we have discussed earlier, is working.
To be precise, actually, the Adjusted EBITDA, EBITDA margin should be 9.6. There's one digit missing, but nevertheless, the ballpark is the same.
Good. Then order backlog. Total order backlog is now EUR 146 million, and orders received during this year, EUR 34 million. What about that?
No, yeah, starting from the orders received, we are very delighted to see that the underlying base business is going well. Those two very interesting orders Mika mentioned are in there and more expected, as also was mentioned. Maybe from the order backlog, of course, regarding the end of 2023, one key finding is that we have still some EUR 34 million to be delivered and revenue recognized for this year, which of course gives a good guidance, then how to bridge to the full year numbers. And as said, the sales funnel still remains solid and the game is on, so to say.
Good. Then highlighting maybe we talked quite a lot about the revenue and profitability levels. Earnings per share, quite modest. Why is that?
Yeah, a good point. And that obviously relates to the Russian impairment we now finalized in this quarter. So after this, everything related Russia has been fully written off, and that relates to the remaining part of the associated company share, as well as the subsidiary there we had. So that's the single answer for the EPS.
Orders received covered as well. Then, a topic we always cover as well is the amount of employees. Quite a significantly higher compared to last year. Explanations there-
Yeah
... needed once again.
Not surprisingly, that obviously relates to the Kuwaiti operational pickup. We can see from the year-end number 2022, that it started growing more or less a year ago, and has been growing up until the full operational capacity has been reached. So that's the single answer once again.
Good. Anything else you would like to highlight from the key figures?
Nothing, nothing we would not have discussed already. So, all in all, quarter was very much as planned.
Good. Then the revenue split. We've been talking about quite a lot about the, the changes in how the revenue is split between the areas, so Americas, Eurasia, and Middle East and Africa. Now, of course, Middle East and Africa is really the, the biggest one, significantly different from last year. How would you describe the reasons behind why does the split look like this for this year?
No, no, this is once again very logical to the other communication we have. The large projects that are now dominating are driving this. Maybe, of course, the one big change comparing year ago is the big fall in Americas. We had an environmental incident as already discussed early part of 2022, which kind of made America look bigger than it has been traditionally. And now, this year it has to be said that we were expecting more from there, but it has been a challenging year for Americas all in all, mainly due to the political situation in many of the key countries. A lot of elections and decision-making really stalling.
Good. Solutions split. We now mentioned that the equipment sales is also, so to say, that is the part where the orders are received. Do you see any changes going forward when it comes to the service and equipment split?
Yeah, of course, all depends in which order this next large orders or orders received will be taken. But I mean, all in all, this is very much in line what we have said for a couple of years already, that we see really the growth coming from the services side, and this is as it should be.
Good. Net working capital, high numbers here still, I would say. Kuwaiti projects, of course, being one of the explanations, but could you walk through what is behind this, this, how this is evolving?
Yeah, yeah. I think in July, August, what we said was that we are expecting the trend to turn in H2. We still expect that to happen. Once again, although it has not been written out, when the payments come in from, for example, from Kuwait, it's a bit of a lottery that which side of the month end they will fall. Once again, that fell on the wrong side, so to say, and this, of course, has a significant effect also on the numbers here, because this is the month-end snapshot.
Now that the soil remediation operation will be in full swing, and we are submitting the treated soil, which then kicks off and accelerates the invoicing as well, the picture will change quite a bit going forward. Other than that, obviously, not too happy about the negative numbers there. If eliminating kind of this one of the transaction and financial costs related mainly to the bond and the tax payments in Latin America, the operations were more or less cash neutral. And I said, this is going to be the turning point as we see going forward.
Financial position continues to be strong. Anything about the equity ratio net gearing that you want-
Now, net gearing, of course, raising up since the bond issuance, but when looking at it now from the balance sheet point of view, and everybody can see that we used a lot of that money to repay the short-term loans. And now it looks healthy in that sense that it's more non-current than current. And obviously, that is more than-
... aligned with our strategy, strategic growth as well, that we have now financing fixed for a couple years to come at least. And also the equity ratio tells the same story, that we have repaid the shorter loans instead.
Good. Guidance unchanged for 2023, with the background assumptions unchanged as well. Anything that you would like to add?
No, basically, the header says it, if our view on this year is unchanged. We while still shooting the revenue to be in the range of EUR 120 million-135 million, as well as the adjusted EBITDA being in the range of EUR 8 million-11 million. So no reason to revise that.
Good. All right, then, a couple of words about the strategy review and how the market actually looks like currently. We start with the world and what do we do, kind of picture, which is slightly updated compared to the previous one. The message has not changed. We still work together with customers and our partner network. We want to be globally local, so really, really be working locally with a global network. And what we are trying to solve is the climate change, resource scarcity, and decreasing biodiversity, creating positive impact with the solutions. Earlier, we had only environmental protection and material recycling as the main business lines presented on these presentations. Now, remediation restoration has been included. Why is that?
So if we look at the split between environmental protection, remediation and restoration, material recycling, I mean, I mean, we can clearly see that the demand for remediation restoration services solutions is... it's increasing significantly. I mean, there is a lot of legacy. There is a lot of potential in that segment, so we want to highlight that these solution lines really reflect also the market potential that we see. And then again, I mean, you could say that, I mean, soil remediation is, in a sense, recycling. You bring the soil to life, but then again, material recycling typically is seen as a different activity. So we just wanted to highlight that the business that we do is also highlighted in the way we tell the story from the business line perspective.
Good. Then a couple of words about the, about the potential, market potential out there. Here we can see, an example of polluted areas, globally. How would you describe the situation?
I mean, it's not good. Let's put it that way. I mean, if you look at the use of land since the Industrial Revolution, very little has been done to really remediate and restore the old industrial areas, I mean, even on a global scale. Now, with this urbanization trend, I mean, population growth, I mean, cities are becoming large, and some of these industrial areas are still located within, you know, vicinity of the infrastructure there. I mean, we see a lot more work to be done over the next few years.
Then again, if we go from the more developed countries to what the more developing countries, there we see the trend that, I mean, the contamination that has been stored there is now starting to affect some of the scarce groundwater resources. So the driver in these developing, developing markets is a little bit different from that of the developed markets. But then again, I mean, especially the trend of biodiversity picking up, people have a lot more understanding of what this sort of contamination in soil does to not only the ecosystem, but potentially to human health. So we see quite a lot of potential on this remediation part on a global scale.
Good. And an important linkage is that when the areas are cleaned, then it impacts the climate change as well. So positively, decreasing the climate change. Then about the plastics market, here we have a couple of figures. How would you describe the situation about the plastics recycling and our role in that?
I mean, if we start with the big numbers, I mean, 8.3 billion tons of plastic waste generated during the lifetime of plastics, and only 9% of that having been recycled. If we look at the current plastic production on a yearly basis, I mean, it's estimated to be, like, 350 million tons, expected to increase up to 500 million tons by 2050. Hopefully, a lot of that growth will come from recycled feedstock, possibly some biomaterials as well. But this is a very key aspect on our way to net zero that we can somehow replace the virgin fossil fuel raw material for plastics production. And mechanical recycling being one of the solutions, and then chemical recycling being the other part of it.
Of course, it's a huge challenge that starts from the packaging manufacturers and goes all the way to the petrochemical industry, who's then producing the raw material for these packaging manufacturers.
Then, just shortly, a couple of, so to say, fine-tunings have been made on this picture. The big, big picture and message remains exactly the same. When you compare this with the potential you just described, what would you like to highlight?
Very, I mean, as we decided, just to rephrase, some of the strategic targets here, I mean, very much on what we do, what we see in our day-to-day work, 3 new strategic countries, I mean, advancing pretty nicely there. 5 new projects, as Timo had already in his slide, the sales funnel is extremely strong, so hoping to close those earlier than later. And then again, the plastic recycling portfolio representing a huge untapped potential for us. It is a market, I mean, we saw the estimate that the whole plastics recycling market is gonna be $120 billion by 2030. It's been estimated that chemical recycling will be roughly $50 billion of that, so huge untapped potential.
I mean, our offtake agreement with Shell is a great testament to the potential that even the large players see in this industry. So very confident of the targets, and no revision needed at this stage.
Good. Thank you for your comments and reviews, and then we go to the Q&A session. There are quite a many questions, so let's dig into those. Could you give a rough indication of how much of the EUR 110 million that remains in the backlog for revenues beyond 2023 is for 2024? How do we define that?
We will define that more closely when we come out with the full year 2023 numbers, as well as the guidance for 2024. So I would leave something there as well.
Good. Then a couple of questions about how good visibility you have to the timelines in the participated tender processes. What do we know about them?
I mean, I would say that the visibility is pretty good, but the forecastability is not on the same level. So, of course, I mean, most of the tender processes have documented deadlines and documented dates, but there is a lot of variability in how the tender processes move forward. So, visibility is good, but forecastability is not so great.
Then maybe question to Timo, delays in tender processes and impacts on guidance. If we assume that Lamor would not win any of the tenders during 2023, do you see risk in the guidance figures?
No, obviously, what we have said in the disclaimer part, those new orders are still having some effect, but the window is really closing, we pretty much need to start to have all everything in-house that we are going to deliver this year. So some minor effect, but nothing major.
Then, about the subcontracting, new contract in Kuwait or to-be contract in Kuwait, what kind of margin we should expect from that project, and what will be the project length?
We haven't disclosed the margins for individual contracts, but very much aligned with our long-term financial targets from profitability perspective. And in terms of duration, it depends on the speed of treatment. We've designed 2 cycles there, so depending on the speed of treatments, we'll see. But something between year and 2.
Do you see any further potential for further subcontracting in Kuwait?
I mean, I think we discussed this in the previous webcast as well. South Project 2 has been awarded. We are the number one performing contractor in the first phase, both in north and south. A lot of interest in using the know-how that we've created during the project there. I mean, a lot of interest in the technology that we've developed during the preparatory phase. So, a lot of potential in extending the soil washing activities, besides the current contract, so, a lot of nice development there in Kuwait.
Then again, I mean, the third phase upcoming, some seed projects upcoming there in Kuwait as well. I believe that we will have a future there for the next 10-15 years.
Then a couple of questions actually relating to the current crisis in the Middle East. Could it escalate to the countries we are working? How do we see the situation?
I mean, I'm no political expert, so I think my guess is as good as anyone's. So I'm just sticking to commenting what I've seen so far. I mean, in our key markets there in the Middle East, we haven't felt the effects at this stage. But, of course, if the crisis escalates in the region, it could have an effect, but so far, we haven't seen any effect on our business.
When reviewing the strategy, did you see any possible risks that could impact the long-term targets and how we are progressing with the strategy implementation?
Of course, I mean, we identified quite a few risks, and I think one of the risks has realized this year in South America, which is the political situation, the political instability there. This is something that we see, we've seen it for some time now. It seems that things are progressing in the right direction. I mean, if you look at Ecuador, for example, the worst-case scenario didn't take place there. Of course, there are risks. I mean, we are a growth company. A growth company comes with risks. I mean, our operating area, strategic markets could be seen as risky.
The crisis in Israel might have an effect in the Middle East, but outside of that risk in the Middle East, we are quite confident of the situation there and the strong demand from the client side that we're seeing.
Good. One more question about the revenue growth. How would you describe the growth if we would exclude the environmental incident that was included in the revenue for last year?
No, yeah, year-end or year-to-date numbers, a year ago was at 99 point something, roughly EUR 100 million, and because at EUR 32 million has been flagged to be because of those incidents, so that would take us to EUR 70 million. So, then, what is it? 80-88 or 70. It is a steady growth as it was discussed.
Good. Is there any specific opportunity that you would like to highlight when it comes to the soil remediation?
I mean, there are various opportunities that we've identified, but nothing in particular at this moment that we could disclose apart from the opportunity there in Kuwait. Of course, if you look at our strategic markets, the potential that we see goes quite nicely hand-in-hand, so South America, a lot of prospects in all of the key markets, Ecuador, Peru, Chile.
Good. That was all, no further questions from the audience. Thank you for your questions. Thank you for your time. If you want to have a more detailed view on the Q3 results, please visit our investor site, and then I will thank you, Mika and Timo, for this webcast.
Thank you.
Thank you.