Lamor Corporation Oyj (LAMOR) Earnings Call Transcript & Summary

Good morning, and welcome to Lamor's Q4 webinar. My name is Tapio Pesola. And with me today, I have our CEO, Fred Larsen; our CFO, Nalle Stenman; and Johanna Gronroos, the CEO of Lamor Recycling Oil. Next, they will give you the key takeaways from our Q4 results, and Johan will give you an update on the Kilpilahti project and the circular oil business. After that, we will finish off with the Q&A as usual. So with that, I hand over to you, Fred.

Thank you very much. Good morning, everyone. My name is Fred Larsen. Been in the company since 1988, been involved in, well, almost every function that you can imagine, from project management to developing the sales network with our partners globally. Today, we'll look at '25. We started the efficiency program in Lamor successfully with EUR 2 million of savings. This will now continue this year '26. And the main important point being that we are activating the network, the global network and this way being closer to our customers. We have the new operating model that has been introduced. This is new for this forum. However, in Lamor, this has been the way that we worked successfully before. But -- So this is being implemented, and now we are moving forward with that. We have exciting times concerning the Kilpilahti plastic recycling project that is proceeding and really look forward for the concept to be ready and to be ready for taking it to selling it around the world later on. But let's move to next slide. '25 has been -- we have a stable, let's say, equipment sales. The baseline for this has been -- is good. On the service business and the bigger projects, we can -- we'd be very proud of finalizing our -- the world's largest soil remediation project being the first company to complete it. This is a massive achievement and just shows that we can, with our network perform really, really well in this kind of situations. From -- This is one of the projects that was doubtful in the beginning that we -- can we do that? But -- And I must say that as we started carefully planning it and implementing it, it showed again Lamor's strength. From this, we move on to the next exciting project, and that is the plastic recycling. So it's a good example of, again, new things that we get into. So with these words, I give the word to you, Johanna. Thank you.

Thank you, Fred. Yes, I would like to give you an update on the circular oil business and how that has now been -- how that is proceeding inside our company and also that how it's related to the market overall, what are the key stakeholders. And then also a glimpse about our, let's say, target for developing this further, what are the next steps. The first line that we are now starting up in Kilpilahti is a proof of, you could say, the oil quality and the technology that we can proceed -- that we can produce according to the specifications that we've set together with the feedstock supplier and also the off taker. That would then go as a raw material into plastics production. And that's a very important point. We are not producing, I mean, biofuel or anything like that. It's a chemical that will go into the plastics production. So let's take a glimpse on the market and how that is emerging around what we call the circular oil. There are 3 different things that are important here that -- how we see the demand side, then the usage of the circular oil and also that what is the strategic positioning of a project like this for -- in respect to the national, let's say, view. Chemical recycling demand for the product overall. If we are looking at what is now being set up in EU regarding demand for a circular oil product that is, let's say, producing oil out of based plastics and how that is used. So consumer-based plastics from food packaging, from different type of packaging materials that is then circled back into oil and then into the plastic again as a raw material. According to the, let's say, the strategic targets that have been set up in Europe, by 2030, there's a demand for 2.6 million tonnes of circular oil in Europe for the plastics production. That means that there's a significant demand increase from the level today, that is roughly 200,000 tonnes. So it's a very small amount. We have also looked at the, let's say, the capacity that is being built in Europe and also in North America, and that is adding up to a part of it, but there is still quite a step to get up to the -- according to the demand side from the regulations that are being set up, that would be close to or at 2.6 million. And then going further from that. The target is not 2030. It's the circulation demands at 2060. That is the ultimate goal. So the demand is developing fast, and it's established on the market, and that is something that needs to be met up to. So the demand is there. The product itself, 80% today is used as -- of the recycled plastics is produced in mechanical recycling. And those type of grades or the quality of that type of material cannot be used for more demanding products where you have taste, you have smell, you have other things that are putting demands, very high demands on, for example, food packaging or very demanding plastic products, for example, for car production or something like that. So there are more stringent demands from the plastic products where this type of oil would be used as a blended product, and that is setting also the target or setting a demand for a product that is more refined than just mechanically recycled, and that's where the chemical recycling comes in. Then together with the Plastic Industry Association in Finland, they have also nailed down that what is the impact of this kind of a production in -- when it's up running at 4 lines in Kilpilahti. And there's a substantial impact also on the national level in respect to strategic circular economy investments. And what they say is that there is -- that Kilpilahti will deliver at least EUR 100 million annual benefit to Finland. And this is just one small national impact that we are talking about. Let's then look at -- or we could look at the other European countries and the impact in that sense. So the impact also on national level is significant. Then what we've said also earlier is that we have developed the -- let's say, the circular oil as a value chain from cradle to oil, that is then being used in consumer packaging, for example, of consumer products that has a high demand on the product itself that -- or the raw material that we are producing. So this is not a one, let's say, piece in the puzzle. We've looked at the whole value chain from the raw material until the end product. And that is something that we've set up, let's say, quality requirements, let's say, the logistics and everything that is connected to this part. So it's not just the process itself. It's the value chain that has been developed. Let's take a look at the -- our piece in the puzzle, so the concept plant that we are building up now in Kilpilahti. We are talking about the first line. We are talking about the concept plant. We are talking about 4 lines. But the idea is really here that we are setting up the plant. The first stage in the plant is that we are starting up now by the end of this quarter, the first drops out of the first production line with taking into account the full value chain and then producing -- ramping up that first line towards producing the quality oil of the highest specification out of the 3 different levels that we have. Pyrolysis process. As you see here, it's everything from the raw material all the way to how to deal with the logistics of the oil, storing the oil, how to deal with the off gas that is being produced, that is then used as a source to produce our own electricity in the plant up to a self-sufficiency of 60% with the first line. And this infrastructure is now set up also for hosting 3 more lines. And that's the idea here that the wrap is for 3 additional lines, altogether 4. The fourth line will require an expansion of the building, but the infrastructure is set up for the 4 lines. So that's important to take into account. And then if you take a look inside the plant, we are receiving material. We are adjusting the material so it can be fed into the pyrolysis process. The adjustment is doing -- is being done with the pre-processing in the pre-processing hole with a shredder that is producing then certain size, moisture content of the material that is then being fed into the main process hole. And here you can see a picture of the reactor. We don't show the whole process. That is still something that we keep as our own knowledge at this point. And this is then being refined towards a final circular oil that is then being transported to the -- to our off taker that is Shell. The idea of the whole concept that we are setting up is that the first product line is the proof of quality that we can produce the right quality of the oil. Then the 3 additional lines in the first concept plant is then the proof of the scale. So the volume can be reached for the -- in this kind of a concept plant. And this is something that we then will -- that is the blueprint that we are then using, copy pasting -- well, maybe copy pasting is a little bit wrong word, but still that this is the concept that we will take then into our global network and developing the further, let's say, the portfolio of plants producing this type of material. We are -- at this point, when we are talking about the first production line, that's then 100% Lamor ownership in respect to that plant. That -- We are now in negotiations about the 3 additional lines, financing of the 3 additional lines and then also for building the portfolio of production plants, that is the next step. This is -- This part is ongoing. Then when we are talking about moving into, let's say, how to commercialize this, we are talking about setting up the first plant or the first production line. And what we are doing at the moment is that we are in constant dialogue with the Finnish Safety and Chemicals Agency, providing them with documentation, information that they can evaluate what has been set up so far and what is the situation throughout the, let's say, the commissioning phase. And then giving us the final, let's say, approval or clearance that there is no challenges to start up the -- let's say, feeding the material into the process. And this plan at the moment is that by end of Q1, the first oil will be produced at the plant in Kilpilahti. And when we are starting up the first production line, we are starting the ramp-up towards the capacity of the first production line. We have put a modest target regarding the ramp-up, which then will be seen when we are ramping up that how fast it will take. But targeting 80% capacity, which is a quite normal target during the first 6 months. It can be a steep start-up or there are usually some challenges in the ramping -- ramp-up stage, but producing oil from Q1 -- end of Q1 this year. Ongoing negotiations with potential partners for the additional lines. We're talking about the financing or -- and to scale then the concept that we are building up. We're not talking about other partners. It's really the financing or the ownership structure of the next steps. So this is where we are at this point. And now I would like to move over to Nalle and the financial highlights.

Thank you, Johanna. Welcome, everybody, and good morning to our financial highlights for 2025. So we start by our profitability for last year. So it remains stable from -- compared to 2024. So what we did was we did a EUR 6.5 million adjusted EBIT with a margin of 7.3%, which was percentage-wise much higher than previous year. However, unfortunately, our turnover dropped from EUR 114.4 million to EUR 90.2 million. That had mainly to do with the timing of our big orders -- big service orders, which unfortunately did not really happen. And at the same time, our big service orders were -- are coming towards the end. So the volume on those orders or those projects are coming down. And we are, of course, confident that we are getting new ones. But last year, we did not get bigger ones new. So that affected the revenue pretty much. But as a whole, we are happy with the percentage of the profit, and that is the target also for the management in the future to improve the profitability, which you will see in the coming slides. How the revenue was split. So like I mentioned, our service projects were smaller and less, and the equipment then again was on a normal high level. Therefore, our equipment portion has grown here in the middle compared to the service portion. And if we look at the, what we call product portfolio, our environmental protection complete this time 70% of last year's turnover and remediation and restoration, only a smaller portion. And then the material recycling, we got our project in Bangladesh is coming to an end. And we are expecting the next orders in this field coming, but they have not -- we have not received them yet. So our -- that portion has come down to only 2%. For the areas, the one who grew was Eurasia and our America region. Our biggest is still our Middle East and Africa, but it has come down a little bit as a proportion. So we are quite evenly across the globe now with our business. Next, I would like to show you an important slide in our focus area, which is working capital and cash flow. And here, if you look at the left, what has happened with our working capital. So since Q3 in 2024, we had a big improvement in working capital, mainly from our Kuwait operation, but also other projects. After that, we have had a steadily release of working capital until now Q4, and this has allowed us to continue with our investment projects. So if you go to the right-hand side of the slide, we have the cash flow. So the cash flow in the last quarter of this year was -- net cash flow was EUR 11 million, and the full year was EUR 13 million. And the key drivers here was -- for the net cash flow was the Middle East -- projects in Middle East and Asia, like in Kuwait. Our financial position is -- our equity ratio is relatively good, 35.4%. Net gearing was 86%, so a little bit on the high side, but not too much. Our investments in the last quarter for the -- mainly the Kilpilahti was EUR 7.7 million, which is on the same level or similar level as was in 2025 last quarter. Our investment in the full year was EUR 21 million, which is then again a little bit more but similar level as 2024. And of course, majority of this has gone to our facilities in Kilpilahti that Johan presented just a few moments ago. For the order intake, so our order intake for the year was on EUR 77.5 million level, which mainly consisted of equipment and smaller services in environmental protection. And it's on a similar level that it was in 2024. And last quarter orders was EUR 12.4 million. And -- But as you can see clearly on the graph, so because of our big service orders are coming towards and -- towards the end, and we are still fighting for new orders in the -- and we are confident they are coming, but our order backlog or order book has been reducing, which, of course, then brings us to a situation where next year is -- we are starting with a little bit of a bigger -- smaller order book. Then to the following slide, I would like to talk a little bit about our guidance for 2026. So we have to take -- keep in mind that the order book has -- is a little bit on a reduced level. However, for the market, we are confident that the environmental protection and environment is high on our agenda for most of the countries in the world. There have been, of course, some ups and downs, but the long trend is clear that the environment is important for everybody. So we remain confident with our long-term view that our market is a growing market. And with our broad offering and global network, we shall see many opportunities for us. But then again, I want to remind the timing of these large service projects has been challenging in 2025 and will remain challenging also in 2026. This year, we will have 2 main focuses. So we want to ramp-up efficiently the Kilpilahti, that was presented today, and we are also streamlining our organization. We are getting our cost structure in a more agile position, and we are focusing on right sales cases. So that means that we will continue to implement our EUR 8 million for 2026, the efficiency program that Fred, our CEO, mentioned about, and we will change our operating model to a more agile -- not that we expect that we wouldn't be growing. So we have -- we are thinking about profitable growth. That is our new term. So we are thinking a profitable growth, but we are scaling our fixed cost to also be made possible to adjust to a variation in turnover. And our business is quite cyclical because of the big projects. So it's important to -- also in a cycle where the turnover is smaller to be profitable. So that is the key word for us. For the revenue, as you can see here, we are now giving you a little bit of a more guidance than previously. We are talking about an EUR 80 million to EUR 92 million range. And last year or 2025, we have EUR 90.2 million. The turnover and -- but even with the lower range, we still expect that we can reach 2025 profitability figures. And this has to do with the efficiencies we are doing, the saving program we are doing, the -- making the organization more agile and efficient and taking -- concentrating on profitable projects and improving our project deliveries. So we are confident that even with a lower -- even if we would land on the lower side of the turnover rate, we still will remain better profitable than before. And of course, the opposite, if we land on the higher range, we will definitely exceed last year. And for the -- our recycler oil part, we will start the production. We will have turnover. We will have some results, but it will still remain limited compared to the, what we call older side of our business. So here is the main parts of the guidance. So range of EUR 80 million to EUR 92 million and -- on the turnover and better than last year's profit and the higher we go in the range of turnover, the more we will be over the EUR 6.5 million from last year. So that is a short for the guidance. Just talking about this, our new operating model enable more flexibility and agility. So as we mentioned many times before, we have the EUR 8 million program, so we should realize it in -- we are targeting to realize it in full in 2026. 2025, we already realized approximately EUR 2 million of it, meaning that will carry over to this year. So that cost structure has been done, and it actually will be more than EUR 2 million for this year. But on top of that, we will adjust the -- mainly the fixed cost structure and also some variable costs to reach to EUR 8 million target set for 2026. We are continuing our focus on our working capital, and we are targeting also looking at our partner model in circular oil business, not to be so heavy on the capital side of the business because Lamor has always been in the past a very light -- capital-light operation, and that is our target for the future as well. So flexible alignment of cost according to our turnover -- expected turnover. We scale up when the business goes up, we scale down when the business is not up and therefore, remain to our -- with the profitability. Enable profitable growth with lower required capital investment is our main target. So of course, Kilpilahti has been a different story from this one, but we will continue with a different model in the recycled oil business in the future. Here, just a little bit more repetition of where we -- what we have already told you about the EUR 8 million, where does it come? So we achieved EUR 2 million in 2025. And where do we see it coming? Well, it's a reduction in the use of external services, sourcing and delivery efficiencies, organizational optimization globally, and I think we have already sent out today some press releases regarding this one and the overall improvements in cost efficiency. So this sounds quite general, but we have very, very detailed internal plans going on for this one. And we are confident that the EUR 2 million was reached last year, the EUR 80 million we shall achieve this year and therefore, improve our profitability even in lower turnover levels, might that be. Okay. Thank you. And I will hand over to Fred, our CEO, for the last takeaways before the Q&A session. Thank you, Fred. And there, I will turn myself out.

Okay. Thank you. So all in all, we have heard about the -- from Nalle and Johan about these things. Just to focus, Lamor is a long-term company. We -- Now we'll make sure that we are profitable in all circumstances, as mentioned, and that we streamline our organization based on the market that we are in. And for the next year, as we have mentioned, the most important thing is now with getting the circular oil business up and running and seeing the few -- the first [indiscernible] there to proof of concept. So focus on business, do it efficiently, and that will be the key takeaways. From this, I'll pass over to Tapio. Thank you on behalf of myself. Thank you.

Thank you, Fred, Nalle and Johan. Okay. We are now getting ready to start the Q&A, and I can already see some questions here on the line. So feel free to keep posting more during the Q&A. We have time now still for questions. So just a second -- sorry, the wrong slide. So the first question, I suppose, many of these actually are maybe Nalle for you, but let's see if Fred and Johan also comment on some of these. So first question, let's take that from Olli Eloranta regarding Kilpilahti and revenue projections for this year. So what do you expect -- what would you say we expect in terms of revenue contribution from Kilpilahti? What kind of figures are assumed in the guidance?

So for the first half of the year will be very limited. And for the second half of the year, we're talking about a few million of euros. I'm not giving exactly, but of course, we are not talking about what we have been presenting for full year, full -- because the factory will be hopefully up and running fully in the end of the year, but -- towards the end of the year, but we have some few millions of euros.

Okay. And then still similar questions regarding EBIT and cash flow from Kilpilahti. So what would you say we expect in terms of EBIT contribution H1, H2 and then cash flow, how does it go during ramp-up?

For the EBIT, it will turn a little bit profit in the end of the year. On those millions, I said that will be made in H2. And for the cash flow, of course, we still have some way to go with the investment part. So that will, of course -- if you take into account the investments, so it will still take some money. But if you look at the operation, it will be about breakeven or meaning it doesn't bring yet cash or -- by the full year -- for the full year. Second half, yes. First half, no. So it will be about 0.

Still sticking to Kilpilahti. So then obviously, CapEx estimates are something that investors are interested about. I suppose the full year will be dependent on future decisions, but can you comment something or give some flavor on the remaining investments for the first line?

Okay. As we have said, the -- we have not said how much is the first line investment, and we remain with that. But the full plant was -- the guidance was EUR 60 million to EUR 70 million, and first line is substantially more than half of that. The next 3 lines will only be adding -- mainly only adding 3 production lines, the facilities there, like Johan said, for all 4 lines. So as you can see, we had about EUR 20 million each year previously for 2024 and '25 capital investment. Not all was for Kilpilahti, but taking that into account, most of the investment has been done. Johan presented the picture. You can see the machinery is there, the walls and the roofs are there, equipment are there. So there is some million still to be invested this year, but it is considerably less than it has been for this first line, what it has been for the previous 2 years.

Then sticking to investments regarding Kilpilahti. So can you comment on how we are viewing the options for financing the additional 3 production lines at Kilpilahti?

Well, I can -- I have to take an umbrella approach here. So we are at the moment, as we have been discussing with our banks and financial partners, and it covers the Kilpilahti's remaining parts. It covers the bond, which is maturing in the fall. It covers the other working capital needs. So we are in discussions on this. But as I said, for the Kilpilahti portion, Kilpilahti is mainly done. And as you can see, the reduction in our working capital, you can see also where it come from. And the remaining portion is covered in the negotiations with our financial partners and banks. So that is the target. Of course, we have some running cash flow, which is helping out as well, but we are -- it's covering that in our financial negotiations, that's for the whole group.

Then we have a couple of different -- there's a few questions on guidance, outlook, long-term financial targets. But maybe there's a specific question on the tax burden in Q4, there was -- in Q4, there was a heavy tax burden, is what Antti Koskivuo is commenting here on. So can you elaborate a bit?

Yes. This has to do with the prudence of our -- in our reporting. So we had -- in our tax assets, we had some withholding taxes, which are from South America, which are in a position as a last to be used in Finnish tax law. And some of them were going to be expired in 2027 as a prudent approach we took a little bit down them so that -- we saw that there is a possibility that we could not utilize them. It's not sure. So as long as we get profitable and we are able to use it, we can take it back, but that is a prudent approach to take the -- so it's not paid taxes. It is withholding taxes, which we have had as a tax asset all along for years. And this year, we decided that maybe a prudent approach is to scale and take them down. And in case we can utilize them, there will be a positive news for everybody.

Excellent. Still some time for a few questions. So then let's move over to the guidance and outlook. Well, maybe first, there was a question from about Q4 performance, so slightly lower than expected. What was behind the lower Q4 performance? I suppose the transition in Kuwait project was one part of that, that we mentioned in the report, but what could you comment on that and other factors behind Q4 revenue performance?

Well, we had -- as you also saw in the orders, so we were hoping and expecting some orders to come, which we could already have recognized some of the turnover. They were unfortunately delayed. So that was -- we have taken into account that we would have got some of the bigger ones. Already last year, we did not. So that's accounting for the rest. You mentioned already the transition period, whereas actually good and bad. So we got an extension, which was great. So our jewel, Kuwait, we were rewarded of good work, but this transition period meant that the work actually switch a little bit of the location and also the amount of material we were -- we are cleaning up was not there for that moment, and that took down the turnover. So yes, both the jewel in Kuwait and orders that we were hoping and expecting, did not materialize yet. So those combined, I would say, would be the biggest.

Okay. Then the final question is on guidance assumptions and then long-term financial targets. So regarding the 2026 guidance, that was the range we gave out, so EUR 80 million to EUR 92 million in revenue. What would you say is included in terms of significant new project wins? So are we expecting or assuming significant new project wins, larger ones in the 2026 guidance?

Of course, we are expecting some wins of new orders because you see that our order book is EUR 61 million, out of which maybe 2/3 are a little bit more than that. EUR 45 million, EUR 46 million is for this year. So of course, we are expecting some wins. But we have taken a little bit more conservative approach. You might notice in how we give our guidance. And therefore, so we are not -- we are expecting our sales to improve, but we are not taking any big forward leaps here. And we are expecting in that guidance to be on a similar order level than previous year, and we are actually in that guidance, but we are targeting much higher.

Yes. So as mentioned, a bit more cautious than in the guidance. There's an additional question maybe then what is behind that sort of -- is it market environment, softer demand or tough competition? Is this maybe for [indiscernible] or Nalle, whichever of you wants to comment on what's behind the sort of softness?

Okay. So 2 things. We have noticed that you have been not happy with also our guidance sometimes. So now we are taking a more conservative approach and hopefully achieving it and even exceeding it sometime. And the second issue is that the market remains similar as last year. We're hoping, of course, that it would get better. But at the same time, we are thinking that our company will be more efficient with the new model. So we are confident with the guidance, but we also want to be prudent and give you a realistic picture that how this year could end up with. And we will, of course -- if we see some positive signs, we will also be maybe giving some positive news about that, but that comes that time when we see some profitability.

Okay. Then let's take the final question before we conclude on long-term financial targets. So as investors and viewers noticed, we put out a release on the long-term financial targets. They were updated with the focus on profitable growth. So there's a question now that revenue is no longer specifically listed as part of the targets, what should the investors imply or understand this to mean in terms of our long-term growth ambitions? So do you want to, Fred, comment on it?

Yes. Well, the main thing with Lamor is that we have a basic business that is quite stable. There can -- there's always bigger projects where we have to ramp-up and also be able to scale down efficiently. So this is why we are doing these changes. And -- questions?

Yes. Well, just the other question is that we are not giving up -- I'm assuming we are not giving up growth. So it's just a focus on profitability.

But anyway, because the profitability is really, really where we need to be. At any circumstances, we need to be profitable. That's just how we [indiscernible].

And I can continue with that, that in our business, as you have seen, we go -- we actually, depending on the big projects, we go quite high up and we can come down more towards our normal business. It doesn't make any real sense to say that in that year, we will reach to EUR 100 million -- for instance, EUR 70 million in 2027. It is not a real target. It can happen. It can happen and it can be the next year we are going for profitable growth and a bigger project can take us there. Is it in 2027? Is the question or 2028? But the time to put it to 2027, maybe it's not. But the Board is reconsidering this one. So in that sense, it's not -- profitable growth is not out, but the main focus should be on the 3 remaining ones, which Tapio can repeat. But those are on our EBIT, 14% EBIT. Those are on -- more on profitable growth. They are based on that we are able to give dividends out to our shareholders, which is important for shareholders, and they are more on profitability and efficiency than on turnover. It's not a means or ends the turnover that has to be. But we will be growing, but which year, how much, it depends on the big projects.

So growth, but profitable growth. That is the #1 thing.

That is the key.

Okay. With that, I think we will conclude this Q4 webinar. I thank everyone for joining us today. I thank the presenters, and we look forward to talking to you again. The next -- just a second, I'll see if I can change the slide. So just commenting that you also noticed the release about our financial reporting. So the next report will come out in July with our half year financial report. So that is that. Thank you for joining us and look forward to talking to you again.

Thank you, everybody.

Bye-bye. Thank you.