Lamor Corporation Oyj (LAMOR) Earnings Call Transcript & Summary

Good morning, everybody, and welcome to Lamor's Q1 webcast. My name is Johanna Grönroos. I'm the Chief Strategy Officer at Lamor. And together with me, I have our CEO, Johan Grön; and our CFO, Vesa Leino, for the first time in this event. Welcome, everybody. We will follow the, so to say, normal agenda. Johan will start with the operational highlights. Vesa will give a financial update and tell about the guidance. I will talk a bit about strategy implementation phases. And then, of course, the important part, which is the Q&A. So happy to take your questions already during the presentation. Welcome, everybody, and then I hand over to Johan.

Thank you, Johanna. Yes. I would like to give you a slight overview of the operational highlights during Q1 and list up a couple of things that are important from our point of view and also to give you a little bit of insight of what is happening behind the scenes. Overall, I'm very pleased to say that the performance -- operational performance in the projects are proceeding very well across our portfolio, including the soil remediation project in Kuwait. I was just, last week, in Kuwait. And with my own eyes could see the soil-washing plant that is now up running and also the overall large bioremediation operation sector in in -- proceeding faster than planned overall. And then also, we have the environmental protection technology and port-based management project in Bangladesh, where the Mongla Port is being our target at the moment, and we were building up the port waste management center that is then taking care on the on-ship based, both liquid and also solid waste that is being generated, and also protecting the port in respect to potential oil spill activities. And this is, again, a new, you could say, a reference that is very important for us that we are utilizing also when talking to customers across the world about this type of activities that we can provide. The orders received EUR 16 million in Q1, which is again, a sign of also our equipment activities -- equipment sales and smaller service agreements that is now being revitalized and part of our efficiency improvement program that -- where we are trying to make sure that our -- we could say the bread and butter of our business over the history is being a -- is being solid and performing according to what we expect. The geopolitical situation, as we all know, is challenging in many of the regions where we are active. For example, in South America, you know that the political situation in many countries is challenging and also where we are active. However, for example, then in the Middle East region, unfortunately, is still a high-risk region with many unfortunate events, but this has also increased the negotiations or the number of negotiations where we are involved in being able to support the nations in this region and working together with them. We'll come back to this a little bit later on. And then, of course, the current activities then in the Middle East region, for example, in Saudi Arabia. And this is a sign of the previous bullet point also and where we have been active for several years together with a certain customer. And this, again, has created trust and also trusting that we can continue to support the customer. And this is a good sign of our mutual cooperation where we can provide environmental protection services along the coastal area of the Red Sea in Saudi Arabia. The revenue, slightly improved compared to Q1 last year. And the profitability, okay, slightly improved. We are not satisfied with this. And that is why also we have a certain efficiency program that we are embarking on and where -- as I mentioned that where also the part of the sales efficiencies very important in this program. And then, for example, in this picture, this is a very good picture where we are showing one of the same type of oil spill response vessels that is part of the package for the port -- Mongla port activity that we are building up in Bangladesh, where we have 2 similar type of vessels for the oil spill response and then also a base management vessel that are collecting the on-ship generated waste. And so that's part of the vessels that are in part in this offer. And then the soil remediation in Kuwait, that is progressing very well. Ahead of plan. And this is something that we are extremely satisfied with. And this has already served as a reference to other customers and generated sales in Oman where we have a new project coming up in soil remediation and then mimic on this in the -- not in the same scale, but, however, a very important also sign of how important the references are for bringing our business forward. And interesting insight from the discussions that we had with our customer in Kuwait is that really now then when we have both the bioremediation operations performing ahead of plan, better than anticipated. Also the soil washing operations in both sites in Kuwait, also up, running at close to the expectations already. However, slightly delayed compared to the plan, and that is also having an impact on the overall financial performance. But now, at the plant level -- and it's being called by our customers as the beast. A huge operation, and that is performing extremely well. And now the customer is considering us as a local partner with them. We are not just a vendor flying in, selling, ramping up and then disappearing. We are there to stay. And this is part of the legacy of Lamor and how we want to be seen also in the areas where we are operating. We are building up the operations, staying close to the customer, generating new opportunities together with the customer as we go along. So bioremediation, ahead of plan. And soil washing up -- now in operation and will for sure be a very important asset for us and also to support the customer in -- going forward and being a part of helping out the subcontractors and reaching their targets. Then another important step milestone that we've achieved during the Q1 is the chemical recycling of plastics and the site that we are building up the -- let's say, the proof of concept site that we are building up in Porvoo or in Kilpilahti at the moment, where now we reached the step that, for example, you can see in the picture here, where we are installing some of the pretreatment equipment in the facility. And that is being assembled on site at the moment and the building overall is ramped up. And we are looking forward to start up the production of oil during the latter part of second half of 2024. So this will -- then when we are at full stage, of course, first proof of concept. And then when we are at the medium term, leading to a 40,000-tonne waste material capacity being fed to this facility. And then longer term, then reaching for the Lamor portfolio, up to 100,000 tonnes. And now you could say that the value chain for supporting this kind of operations is also in place. We have the feedstock arrangement or agreement, is now signed with Remeo, and that will then make sure that we have the supply of the plastic waste to the facility in place. And then we have the now ramping up the facilities itself and then the offtake agreement with Shell, that will then utilize the oil that we are recovering and for their own. So a great start of the year and a good example of how we built up the value chain in respect to chemical recycling of plastics. And the first then proof of concept plant with then including both the building and the processing part and the partners throughout the value chain. Some other highlights throughout the year, the pictures here, the top picture from Ecuador where we are working with an oil spill and where we've been in the -- together with the customers and the organizations that are responsible for the arrangements of this where we are working on with them. And then the bottom picture, which we are very proud of that we have now ramped up the, let's say, European Maritime Safety Association's stockpile or center for supporting the North Sea oil spill prevention type of activities. And this is now the second this kind of facility that we're building up together with EMSA. We have the stockpile in outside Porvoo. That is then the Northern Baltic Sea stockpile. And now the stockpile for the North Sea then in -- outside of -- or actually in Werkendam in the Netherlands. So a great step forward and a good sign of how closely we are to supporting the actors, making sure that our sea areas are safe and sound, and ready to be utilized going forward. And it's not only a stockpile, we are supporting the organization with trainings, with drills and so on. So it's a very active cooperation between our team and the EMSA organization. And as I mentioned earlier, also regarding Oman. This is, again, a very important step also that we are showing that -- the reference that we built up in Kuwait can be utilized to give the trust to the customer that we know what we are doing in respect to soil remediation in large scale and also in smaller scale. And this was a very fast track arrangement after the customer visited the site until they make the decision and went ahead. And it's not only -- we are involved in remediation tender processes very actively in Latin America, in Africa and, of course, also in Middle East. And 3 smaller oil spill response operations, as I mentioned in Ecuador and then also in Peru during Q1. And we are very proud also with how we've now been able to show that strengthening the OSR equipment sales capabilities. It's really, really can, on a relatively short term, show that we can secure the base in respect to equipment sales. That is again a very important statement towards the customers to that, that we are close to them and we have trustable equipment, and also very capable sales personnel that are out in the field and supporting the customers on day-to-day discussions, and also technical personnel that also be able to support them in making sure that the equipment is being used in the best possible way. And as I said also that we are not satisfied with the profitability level. And that's why we now introduced during Q1 on efficiency. You could say more of an efficiency improvement program that is going from the sales activities throughout the organization, where we are identifying areas that need to be further improved and that is ongoing and we will return to that later on in -- throughout the year. So these are some of the highlights what has been happening during Q1. As you see, it's been a very lively Q1. And one thing that was not mentioned here is also that the negotiations is ongoing in several large projects. They have not vanished anywhere. And we are pushing them forward as fast as possible, and we hope to be back with that information as we proceed shortly. Since I mentioned Kuwait several times, I would like to share with you a short video as a latest update on what is happening in Kuwait in a very artistic way that is being then worked on together with our project team in Kuwait. And let's take a look at it and enjoy the world record that we achieved in respect to bioremediation at SKETR zone 1 in Kuwait. So let's take a look at the video. [Presentation]

There was a short summary about how we are doing in Kuwait and how does it look like. It's easier to believe it when you see it in life, I can tell you. All right. Let's move on to the financial update, and Vesa will the stage. A couple of questions to Vesa. If we have a look at this picture, which we have been looking at for a long period of time, already quarterly development of revenue and adjusted EBIT, it is changing from 1 quarter to another. How would you describe where we are currently and how to compare it with the previous performance?

Thanks, Johanna. So I think the way to look at this is that, well, just to repeat, as Johan said and as you see here, the revenue for Q1 this year was EUR 24 million. And there is positive development from Q1 last year. And that's, of course, also a good signal and good sign. The EBIT was positive, but reasonably low. So adjusted EBIT margin being 2% is, again, something that we are not really satisfied. I think the good thing in that EBIT percentage, though, is that we have costs in control. And EBIT was clearly driven by lower revenue than what was in the previous quarters. And I think that's like, structurally, there is nothing that we are worried about. But this is just kind of -- driver is the revenue level for the first quarter profitability.

Then if we move on to the order intake and order backlog, a slight increase now for orders received in Q1, something that you would like to highlight.

Yes. Again, I think this is something that good to tell how I think this should be read and how I read this. So first of all, at the end of Q4, order backlog was EUR 124 million. So we came down from that. That's just as a notice. And the backlog was EUR 118 million in the end of Q1 now. And of course, this is a trend that we are heavily working on to like the change, but the size of the order backlog is also slightly dependent on the structure of the business and how long projects you have, et cetera, which we come back to later in the equipment business side. But the orders received in the first quarter were EUR 16 million. And if you actually look at the last year, not by a huge margin, but this is a higher order intake than we had in any single quarter during the last year. And the full year '23 order intake was EUR 44 million. So in that sense also, I think we are, one could say, going to the right direction.

Good highlights about these figures.

Yes. You can see the numbers. I think -- like 2 highlights. So just to repeat that the quarter or year-on-year development, i.e., between comparison Q1 '23 and now this quarter, all the development was, in a sense, positive. So we are going to the right direction, if you just compare to the comparable quarter last year. But I still want to repeat that the profitability, we are not happy with. But again, like I said, the costs are in control. We have the efficiency program or operational efficiency improvements under work, and that will focus on operational efficiency improvements. But because of the nature of those things, we expect that they do have positive impact also, also to this profitability. So I think that's, in a way, the way I'm looking at these numbers now.

Then we introduced a new split relating to product lines in Q4 last year. And going forward, now planning to introduce these figures from the revenue point of view to the market as well. Product line solutions split, highlights there?

Yes. I mean if you just look at pure numbers, so in the year-end webcast, you told about the annual total yearly splits. And if you look at the product line split, the environmental protection was 47% and remediation and restoration 45%. So reasonably kind of a big change there. Of course, time -- space is different or timing is different. The other one is annual. This is quarterly. And then on the solution split side, the equipment revenue was 31% in the full last year. But maybe, Johanna, it's a responsible for our strategy, so how would you -- would you read something special about this?

If I start with the equipment, I would actually say that the aim is really to keep the equipment sales and revenue higher going forward as well. It is dependent on how the deliveries are taking place. We know that a huge equipment delivery took place last year for Bangladesh. It's still ongoing, but it impacted heavily that is treated as a equipment delivery, even though it's a really large project. So that's impacting the split, overall, I would say that the equipment sale is something that we put our efforts heavily now on as well to keep the base up and running on top of the big service projects, which are, of course, in our focus going forward. And product line split, agreed, there is a slight difference. And these are differing from quarter-to-quarter. That's how it is for the product lines as well. There are smaller spills going on, which are part of the environmental protection and have been provided already in Q1. And then, of course, the activities in Kuwait, which are heavily impacting the remediation, restoration part impacts also this split. So for instance, the soil washing, starting with full scale only in the latter part of Q1 impacts this split as well.

Good. And then if you look at the market areas split so in Q1, actually, Americas was, how should I say, raising its head. So for the full year last year, Americas share of revenue was 15%, and now it's 25%. So there's a sizable change there. And Johan talked about the activity levels and discussions with customers and so on. I think this is visible especially in Americas and tangible here in this number. And this seems to continue which is a very nice trend in that region. And then on the other hand, then Middle East, Africa. In Saudi Arabia, we had some vessel of hired weeks. So we expand the vessels that we are using in those projects, were not on hire, which then impacted the revenue, especially in MEAF to some extent.

Good. Employees?

Yes. I mean very shortly so. End of last year, the employee or the head count was 840, and now it's come down by roughly 100. And there is simply one clear explanation to this, which is that in the end of last year in Latin America, we had one resource heavy cleaning project ongoing and that was now completed during the Q1 and that reduced the headcount or it actually took headcount of [ 107% ], and those are no longer in this headcount.

Good. Then about the working capital remaining on a high level.

That's true. And so the net working capital in the end of last year was EUR 62 million, now it's EUR 77 million, increase of EUR 15 million, which is a lot. And there's basically 2 key drivers there. So one is that I said here also the work in Kuwait is actually proceeding faster than the related invoicing, which is increasing the contract assets.. Also then now we mentioned or Johan mentioned that those 2 soil washing plants are in full operation in Kuwait, which is great. We did expect them to be in full operation in early part of the quarter. And now that actually happened towards the latter part of the quarter, and that's another key driver and key impact for this growth still. Net cash flow, negative EUR 13 million. Actually, this was driven by the increase in the net working capital so net cash flow Q4 was [ EUR 2 million ] positive. So that's more or less the delta there. And then when it comes to the financial position, comparing to Q1 '23, what's happened in between is in August, the EUR 25 million green bond, which kind of changed the level setting of these equity ratios and net gearing, and that's visible in these numbers as well. All in all, I think one needs to remember there is a reason many of these elements here are called assets. And of course, the reason is that it's money that we expect to get and receive and we have high confidence that, that will happen. Naturally, we would prefer to have it on our bank account than in our cash to then use it in the best possible way for future projects. But that will happen. And what did happen during the Q1, in the end of the year, we talked about and told about some challenges in the Saudi Arabia, especially in the process related to how the invoices are circulating and this kind of process issues, if you like, related to payments. I think there was very good progress there on that side during Q1, which basically means that now in this kind of business circulations, payment process circulations and related things, we are more or less back to, should I say, regions stand at now.

Then guidance. No changes with the guidance published mid-February. Anything you would like to highlight here?

I mean, that's unfortunately it. So there is no reason to change. If you start from the revenue guidance, that's the right guidance at the moment. There is no reason to think differently. And then unfortunately, the same applies also to the visibility for the project. So projects and therefore, the profitability. So that's the main reason why the guidance is as set for this year.

Good. Then before moving to the Q&A, let's have a quick look on -- I guess, both Johan and Vesa have been referring to the next leap already during their presentations. What it means? It means that we are doing everything to go back to the growth mode, so to say, increasing revenue and then doing it with a profitable mode. And we discussed this through really quickly last time, I guess. So what we are doing now, we are setting even more clear goals and targets for each and every one of us, following up how we are dealing and doing with those targets and goals. So first of all, concentrating on guided and controlled growth, both when it comes to sales activities, efficiency in deliveries and making sure that the sales is also taking place with high enough margin, so to say, and then making sure that the processes are working efficiently and as they should work. Then we are ready for the market expansion starting from the existing markets. Of course, we are already, today, heavily working with market expansion this year as well. But really making sure that where we already are in those countries, we expand our operations in those countries as defined in our strategy. And then the market scalability is then the next step, making sure that we have -- we can repeat our business and we can scale up the global business even more. And how we run this, we call it, program. we have defined persons who are running. There are 6 different work streams. They are heavily interrelated with each other, and all of them are working towards profitable growth going forward. First of all, order intake, which must be, of course, with good margins and increasing our revenue so heavily sales related, making sure we have correct people in the tendering phases, both in the area organization and also in our technical sales, so that we have the best possible team making sure we have a good tender in place. Business line capability is something that we are putting even more efforts on. So we must be sure that we have the best technical capabilities, best way of both in the tendering phase and then in the delivery phase, supporting the efficient process execution. And then we move on to the delivery and supply chain management. We've been talking a lot about efficiency and making sure we do everything in a right way. Delivery has, of course, a huge impact there -- impacting our profitability, impacting also our possibilities to win the market. Cash flow. Vesa already talked a lot about our current status when it comes to the working capital. We are working heavily on that to make sure that we use our funds efficiently. And then, of course, keeping the capital structure such continuously that we are able to win new projects as well. Everything is about people. So right people in the right places and competent people committed to work for Lamor in the longer term, that's something that is really in our core. And not only efficiency and doing the right things, it's also about promoting our culture, our way of working and making sure that we have -- everybody knows what to do and enjoys what they are doing. And I would say that all of these create our brand. What we are, we have increased in size heavily, and we are well known in the strategic markets. But at the same time, we need to work to make sure that everybody knows Lamor as a brand that has a certain kind of portfolio where we have the greatest references and heavily working on that part as well to attract people, to work with us, to attract investors and then, of course, to attract the customers to work together with us on top of partners.

I think that this is -- we've already seen some signs that in respect to the more structured way of working throughout the organization. It's not just one area. It's throughout this work streams that we have now identified and very tangible things that are being done. There's no revolutionary things. It's tangible things that needs to be put in place. And really proud of the work that we are doing today...

More things happening continuously, that's maybe the good thing here. All right. Then we move on to Q&A. Vesa, would you please join us as well. And I'll be the one, who will present the questions. I have the easiest part.

All right. Let's start with the Middle East Africa performance for Q1. Could you talk us through the drivers for a 33% decline in revenues from the Middle East and Africa compared to Q4? And how should we think about the development during the rest of '24?

Well, if I start from the numbers, so like I said, there was actually a collision of the vessels in Saudi Arabia, and that's the reason that they were not going to hire for a while. So that's -- there are those -- that kind of real and tangible operational issues that caused some decline. There was also like quite heavy Q4 in some of the operations, which then impacted Q4 from a revenue point of view being slightly lower. And I don't know if you want to, Johan, talk more about the operational level and what -- go ahead. Exactly.

And performance overall...

Yes. I think that the performance overall operational that we've been very successful throughout the year. But there are certain things that we now have been focusing on making sure that we, for example, the cash collection and other areas that need to be put in place as we go along. So I think that, that is the main reasons. We are very proud also with the guys that they've been now looking, for example, in Africa. We revitalized the agent network in Africa, for example, that is now starting also to see -- to show signs that we are improving and that's then focusing mostly on the equipment sales. But otherwise, operationally well, but we still have some work to do in respect to making sure that the cash collection is as sufficient as possible.

Yes. And maybe one more thing, by the way, to mention about the actual numbers. So in [indiscernible], there was a reasonably heavy equipment delivery phase during Q4, which also, to some extent, I can't say peaked Q4 numbers, but had a bit of kind of a higher Q4 as a starting point there.

Good. Then a question relating to Ukraine. Would it be possible to use Lamor's existing technology to clean up the soil in Ukraine?

Yes. I mean the operations that we have in -- now in place in Kuwait that we're doing, we are looking at on explosives, for example, that needs to be removed before starting to do the really clean-up operations. And this is something that we are also looking into what could be our opportunity going ahead. But still the situation is what it is. So no further progress as now. But I would say that the capability to work in a similar way and the situation is similar. There's a lot of land masses that cannot be used, for example, for agricultural use at the moment. They are heavily affected by different type of substances that are harmful for the soil. So that's our expertise. We've shown what we can do in Kuwait and also in other areas throughout the world, for example, in Amazonas and so on. So this is -- I would say that activity as it is, is bread and butter for us. And unfortunately, the situation is very dreadful and so we are free to help and looking into that already also.

Then tender processes. How are the larger tender processes you have talked about earlier? How are they proceeding? And has any of these processes where Lamor has participated, completed during Q1?

I mean tender processes are being completed. And if we are talking about the equipment and also smaller service projects that have shown a positive trend. But unfortunately, the larger service projects, we are still in negotiation phase in many different areas of the world. And that continues. We are very eager to finalize them, and there are signs that things are moving ahead, and that's one of the things that we showed in the presentation to also regarding Saudi Arabia. But we have not completed them, but the negotiations are extremely...

All right. Then coming to Saudi Arabia. What are the potential next steps in shoreline agreement in Saudi Arabia that will end now in September after the extension we talked about today? And what is the level of confidence of the renewal of this agreement?

I mean, we are an integral part of protecting the shoreline in Saudi Arabia at the moment. We have 3 different bases along the Western coast of -- or the Red Sea coast of Saudi Arabia. And we know that there are several incidents in that area that have been happening during Q1. We have been responding to those incidents, not officially -- official incidents, but then -- anyhow, so there are active operations ongoing there. And we are an integral part of that protection of the coastline. We -- the customer households drawn upon the potential to extend the current contract that is now ending in mid of the year with -- in the contract, it was stated that the 4 months in extension of the contract is possible in the current contract, and they were taking that option. And of course, that they are planning for the future. There are very hectic planning going on from the customer point of view. And we are integral part of the system at the moment, and we are not for sure giving up that role so easily. Confidence level, let's stay at this point that we are close to the customer. We are part of the negotiations, and we have the extension -- the shorter extension. And now looking forward to being -- continue to be a part of this work going forward.

Excellent. Then about the spills in Latin America, do you expect further revenues from the oil spill response operations in Latin America, which we have been participating now in Q1?

It's very hard to forecast this kind of events. We have resources. We have a structure in place to be able to fast respond to similar type of events. And that is something that we will continue with. We will -- we want to stay close to the customers. We want to be part of this setup for quickly being able to respond to events like the oil spills that now has been unfortunately happened in this region during the latter part of last year and then beginning of this year. So this is something the way we want to be present and support. And when these events -- I mean how do you say, emerge, then we are closed by and ready to be part of the operations.

Good. Then last question to Vesa. Why invoicing in Kuwait is lacking behind? Anything you can do about this in the future?

Yes. So I mean, there's -- like I said -- well I talked about Saudi Arabia, but that's the same in Kuwait as well. And how to describe that, there are, of course, some local practicalities that we are also, you could say, limited with. And then we have found the right ways to support clearing those as efficiently as possible. And there's been some further local support and some changes in the way we process those things and documentation required, et cetera, which is actually really heavy for our standards. So there's been activities ongoing and taken to improve it. But that's -- it is basically clearing those obstacles for things to proceed and then having the right connections to the different steps of the invoice approval process.

And maybe to summarize it, we do it in a structured way and that's something that really has been done.

Excellent. Good. Thank you for the good questions, and thank you for the answers as well. And thank you for all who are listening.

Thank you.

Thank you.