Luotea Oyj (LUOTEA) Earnings Call Transcript & Summary

Good morning, and welcome to Luotea's Q4 2025 Results Webcast. Thank you for joining us today. In this session, we will walk through our fourth quarter performance and key financials, review the full year 2025 results and take a look at Luotea's strategic direction going forward. And this time, I have to say that presenting figures is especially difficult because presentation in accordance with IFRS 5 does not reflect the profitability of continuing or discontinued operations as separate legal entities prior to the demerger. The presentation will be delivered by me together with our CFO, Mika Stirkkinen. And throughout the presentation, you can submit questions in the comment field, and we will address them in Q&A session at the end of the webcast. Let's begin. Let's go first through Q4. Group net sales decreased by 1.2%. And in Finland, sales decreased by 7.8%, partly due to a continued termination of unprofitable contracts, but also because of intensified price competition and low additional sales volumes. Many companies have ongoing cost-saving measures, which affect to our additional sales. We are not engaging in margin undercutting in our contract sales. Finland's EBITDA declined by EUR 1.6 million, of which half is explained by higher social costs and the rest of it is explained by missing profitable additional sales. In Sweden, net sales increased by 11.5%, supported by stronger additional sales. And in Sweden, economical situation is better than in Finland. Sweden's adjusted EBITA improved by EUR 0.5 million, reflecting the progress of efficiency actions implemented in line with our playbook. And the group IFRS reported EBITDA was minus EUR 0.3 million compared to EUR 1.4 million in the reference period. And Mika will explain the impact of IFRS 5 regulation on this figure. In Sweden, one large unprofitable contract ended at the end of November, and this will support our turnaround efforts during the year. And let's go to the 2025. I'm especially proud of the work of all Luotea employees in 2025. We succeeded in improving our employee and customer satisfaction in both countries. And in both countries, EBITDA improved significantly. And in the following slides, I will go through the segment-specific results and their comparisons with last year. And group net sales declined by minus 1% and group cost allocations changed due to IFRS 5, which caused an increase in reported costs. As I told you, Mika explains this. And the Board of Directors proposes a dividend of EUR 0.07 per share. And here is the figures from segments which are comparable to previous reporting. And I will start from Finland. As I said, net sales in Finland decreased partly due to a termination of unprofitable customers, fierce price competition, especially in cleaning and low level of additional sales due to customers' cost-cutting measures. And Q4 EBIT decreased by EUR 1.5 million due to half due to higher social costs and low add-on sales. And in 2025, we changed the way we accrue social security costs, which led to higher employment site cost in the comparison period. And Q4 also included one-off work accident-related costs, which were higher than in the comparison period. And the -- but the sales margin in both services remained at a good level, and we continued our efficiency improvement measures in Finland. And we also made a good new contract in Q4, which will start early 2026 and are a proof that our spearhead strategy works. And I will go that customer case through later on in this presentation. In Sweden, the customer satisfaction improved significantly, which led to better additional service sales, which are profitable in Sweden. And the efficiency improvement measures in line with our playbook continued, which led to a better adjusted operating profit. And full year adjusted EBITDA was EUR 1.1 million. And the significant and profitable customer agreement ended at the turn of November and December, which will help us turn around the result in 2026. And we were able to extend the contract with Jernhusen, which I will tell you more about in a moment. And in both countries, as I said, we were able to improve profitability, thanks to the efficiency measures. Our playbook is very clear when it comes to improving profitability, clear roles and responsibilities, a weekly management model with the right KPIs and efficient supply chain management. And in Finland, EBITA is already over our 5% EBITDA target level. And Luotea's adjusted segment operating results improved by EUR 6.3 million, and this is the end result of successful efficiency measures. And we will continue our determined work in both countries in 2026. And in Finland, the focus will be strongly on turning the business into growth and in Sweden on turning the result in accordance with our playbook. We had a clear improvement in our key employees metrics, all remain above industry average. And as I said, all our personnel-related metrics improved. Our employee satisfaction improved, and we succeeded in reducing our accident frequency by managing determined occupational safety proactive measures. And our staff turnover also dropped significantly, and we are now at the historically low turnover rates. These results are also something to be proud of. And let's go and look forward and look to our strategy. And this image summarizes Luotea strategy. I will start opening the strategy image from its foundation, our mission and our values. Our mission is to create value for people, companies and society that goes deeper than the surface. It means supporting our customers' businesses by making their everyday operations smoother. All of this is guided by our values, courage, down-to-earth attitude and collaboration. These define how we meet our customers and how we work together every day. And on the next level of the house are our success factors. We provide a full service offering that makes facility maintenance smooth and cost efficient. Our data-driven services provide real-time insights and help allocate resources precisely where they are needed. Our expertise in sustainability is reflected in our commitment to biodiversity and energy efficiency solutions. In addition, our smart services enables intelligent and climate smart energy management in buildings. When I move up to the next floor, our 4 strategic focus areas come into play. Succeeding in these areas enables our future success, and I will go through the focus areas in more detail later. And at the top of the house is our vision to navigate the way toward a smarter tomorrow. And this is the direction in which we want to take Luotea. And in the clouds, you can see the major societal shifts that affect our businesses. These large-scale megatrends such as climate change, growing repair depth and urbanization increase the need for predictive maintenance, energy efficiency and intelligent facility management. Our services are designed to address these needs. And to conclude, Luotea is next-generation facility services company that navigates the way toward a smarter tomorrow. And we build services where technology and human expertise complement one another and make buildings more sustainable, smarter and more functional for their users. We want to make a deeper impact by improving our customers' everyday life. And let's go through our strategic focus areas, and I will briefly walk through this. And these focus areas guide how we allocate resources, how we develop our capabilities and how we execute our strategy. First one, high-quality and responsible services. This is the engine of our growth. We continue to strengthen our core businesses by delivering high-quality, sustainable services that meet the expectations of our customers and the evolving requirements of the market. Our aim is clear: to consistently deliver the best customer experience in the industry and to secure leadership positions in selected business segments. Second, maybe my favorite one is the efficient operating models. A major priority for us is improving efficiency, especially in Sweden, where we are executing our turnaround according to a defined playbook. We are focusing on a stronger operational discipline, harmonized ways of working and tighter cost control. These actions support margin improvement and create a scalable foundation for long-term profitability. Then the third one, we are -- Luotea is a people's business. We have over 5,000 employees, and that's what -- and we want to be the industry's best place to work. And our people are central to our success and building a unified Luotea culture remains our strategic priority. And we are investing in leadership, competence development and embedding our values across the organization. And at the same time, we are strengthening our employer brand to attract and retain the talent we need in our business growth. And fourth, digital services and AI. Technology is a core part of how we create value. We are expanding the use of AI to support daily work, and we are strengthening our position as a leader in data-driven facility services. Data-driven maintenance, data-driven cleaning, data-driven technical services should become a standard across our operations, enabling us to increase our efficiency, improve our quality and deliver more predictable outcomes for our customers. These 4 focus areas forms a coherent framework. They guide our decisions and support our ambition to operate more efficiently, grow in a disciplined way and continue leading the development of modern facility services. Let's go to customer cases, and I want to start by highlighting that we are now securing strategically important wins that clearly strengthen our position and validate our direction as a company. We have launched a comprehensive facility services agreement with covering 20 Scandic hotels which represents about 1/3 of their hotel portfolio in Finland. For us, this is a strategically meaningful win that strengthens our position in an important customer segment and demonstrates the value of our service model -- integrated service model. What makes this partnership especially important is the role of smart, our energy optimation solution. Scandic has already piloted smart with strong results and the new agreement expands its use across much larger share of their properties. Smart is at the core of our strategy, combining intelligent analytics, real-time energy optimization and data-driven insights to reduce energy consumption, emissions and life cycle costs while improving. This is exactly the kind of impact we aim to deliver for large multisite customers. Through one unified operating model, we will manage facility maintenance, technical services and energy management and indoor conditions for all 20 hotels. And this allows us to harmonize service levels, improve efficiency and bring predictability to day-to-day operations. For Scandic, the partnership supports their goal to offer a responsible and high-quality guest experience. For us, for Luotea, it enables scale benefits and operational efficiency improvements in our Finnish businesses. Strategically, this agreement shows how our capabilities in digital operations and energy management differentiates us in the Nordic market. And it deepens our collaboration with the major hospitality player, strengthens our technology-driven service offering and supports our long-term growth in integrated facility services. In summary, the Scandic partnership is a strong example how we combine technology and smart to deliver more sustainable, efficient and high-quality operations. And let me next highlight an important milestone for our Swedish businesses this quarter. We have signed a nationwide partnership with Jernhusen covering 143 properties across 45 municipalities. It is the largest procurement process in Jernhusen's 25 years history and being chosen again, as their long-term partner is a strong acknowledgment of Luotea's capabilities. For us, this agreement is strategically significant. It strengthens our position in Sweden, supports our growth ambition and directly aligns with our strategy to deliver modern, efficient and sustainable facility services at scale. What makes this partnership especially important is its scope. We will be responsible for a unified operating model that combines maintenance, technical operations and energy optimizations across the entire portfolio, and this plays directly to Luotea's strengths, data-driven operations, energy expertise and the ability to run large national networks with consistent quality. The agreement also includes ambitious requirements in areas such as circularity, reuse, climate reporting and SBTI aligned targets. These are exactly the capabilities we have been building and they differentiate Luotea clearly in the market. From a business perspective, this is a major step forward for our Swedish operations. It improves scale, strengthens efficiency and supports margin development as we harmonize processes. In short, this partnership proves that our strategy works. It deepens our presence in a key market and creates a strong platform for long-term profitable growth. And we are proud of this win and it demonstrates the trust major Nordic asset owners place in Luotea's ability to deliver smarter, more sustainable and more efficient operations. And now I will hand over to our CFO, Mika Stirkkinen.

Thank you, Antti, and good morning also from my side. I will give some more details on the financials and the guidance. It's very rare for a CFO to start with his or her presentation stating that the presentation in accordance with IFRS doesn't reflect the profitability of the operations properly. So this is highly unusual. So if you look at the reported result, which is absolutely high of EUR 161 million in real life, that doesn't reflect any true financial performance, nor does the result for the discontinued operations. The closest resemblance to truth is the EUR 1.2 million, but neither does that tell a true story of the result of Luotea. That is due to the IFRS 5, which resulted in group costs being artificially high in the reported figures. Should you be interested in how we have come up with these figures, please read the notes section in the financial statements release. Now when you have a look at our -- the breakdown of our results. So the nearest or the best figure to look at our figures, which gives the best picture of the performance is the adjusted EBITDA of the segments of Finland and Sweden together, i.e., EUR 9.9 million. The effect of the IFRS 5 on group costs was EUR 2.9 million. And as stated, that was artificially high. We state that going forward, that figure will be lower. That is forecasted to be lower in '26. If you look at the rest of the result, the PPA amortization, that is -- that will be over by 2028, i.e., the current amortizations. Then items affecting comparability, those are likely lower in 2026. And then additionally, finance net is forecasted to be lower in 2026 due to the fact that we expect to generate cash flow and our net debt will end being net debt and we turn highly likely to net cash position. When you look at the reported group adjusted EBITDA for the year that we reported EUR 7 million a year ago, that was EUR 1.2 million, the difference being EUR 5.8 million. As stated earlier, the more realistic figure for the year was EUR 9.9 million, i.e., the sum of segments, Finland and Sweden together. Over there, the improvement was EUR 6.3 million from a year ago, i.e., clear and steady improvement during the year. There was a minor dip in the real performance. That was due to the statutory social costs in Q4. That includes occupational accident insurance impact, and that impact was EUR 0.7 million. That was partly due to the accrual difference during the year. Then on the left-hand side, the IFRS 5 impact was even bigger than a year ago, EUR 0.5 million bigger. So that lowered the reported adjusted EBITDA by EUR 0.5 million. Overall, we can say that the playbook worked during the year. We can say that Sweden improved, but it's clear to all of us that there still is work to be done in Sweden. Going forward, during this year, it is clear that the partial demerger is now finalized. We can forget that. We can focus on the business. That doesn't affect Antti's job. It doesn't affect my job. It doesn't affect the other management team people's daily operations. Another guidance for the '26 is that the group cost -- reported group costs are forecasted to be lower. And being an independent facility services company clearly has its benefits. We can truly focus on the facility services, not on any other business. On the capital structure, we -- our capital structure is very strong. Our cash position at the end of the year was EUR 15.7 million. Then we have a bank loan of EUR 5 million and then IFRS 16 interest-bearing liabilities of EUR 14.8 million. Totaling of net debt is EUR 4.1 million. And then when you compare this EUR 4.1 million to our adjusted EBITDA, that gives us the ratio of 0.2 of net debt to adjusted EBITDA. That's a really, really, really strong figure. And then on top of the cash, we have a revolving credit facility of EUR 10 million, which is fully unutilized at the moment. We are a company with a solid and strong EBITDA. the full year figure was EUR 17.3 million. It improved from last year's EUR 11.8 million. We don't report cash flow figures due to this demerger. But here, you can see an indicative cash flow after investments based on the P&L figures. So our adjusted EBITDA for the year was EUR 17.3 million. Our investments, EUR 1.3 million, naturally negative. Finance net EUR 0.7 million and then tax of EUR 1.1 million. All these sum to indicative cash flow after investments, excluding net working capital impact of EUR 14.2 million. Here are our financial targets presented in the Capital Markets Day in November. And as you might remember, our dividend policy is to distribute at least half of the net profit as dividends. Our official net result per share was EUR 0.03, and we -- our dividend proposal is EUR 0.07 or the Board's proposal to the AGM. And our guidance states that the adjusted EBITDA in 2026 is expected to be better or materially better than the adjusted EBITDA of EUR 7 million in 2025. Thank you. This was my part of the presentation.

Thank you, Antti and Mika. My name is Minttu Vilander, and I'm the Brand and Communications Director here at Luotea, and I will be asking the questions that you sent online. There are a couple of questions. And firstly, from Waltteri Rossi from Danske Bank asks, do you expect sales to decline in Sweden 2026? And how about in Finland?

In Sweden, I expect the sales to be roughly at the same level. And in Finland, I really believe that we will have increasing sales in Finland.

What can you do to improve profitability this year?

We have a strong focus on the sales margin at a very kind of detailed level in a region-by-region level. We follow that very meticulously. On top of that, we -- one of our objective and key results for the year is the fixed costs. So the fixed costs are under the loop. We follow that very closely. Then another one is the is the customer satisfaction. We see that whenever the customer satisfaction increases, our add-on sales increases, and there are proof of that in Sweden during Q4.

Exactly. And most of the improvement in our profitability will come from Sweden, and we have clear KPIs how we manage the business on a weekly basis.

Thank you. Then there is another question from Waltteri Rossi. How do you know that you were able to maintain the market shares?

We have a rough study of the current market share and how the facility services industry grows in Finland and Sweden. And of course, we know our own growth rate. So that's the way to calculate it.

Thank you. Then there was a topic also about the Jernhusen contract. And there is a question, how much will the contract generate sales?

We won't publish those specific customer sales figures.

Thank you. Then there is a question about the dividend that why is the dividend so low?

We had a thorough discussion in the Board meeting on the dividend. It's a combination because, as I stated earlier, the result or the official result is very weird to be frank. So it's a combination of the being higher than net profit. At the same time, it takes into account the true underlying profitability. But then due to the fact that we didn't post any official net profit, so we needed to take care of the balance sheet as well. So that was one of the underlying factors. So -- but in the end, the EUR 0.07 per share was a kind of a unanimous decision by the Board.

Thank you. Then a question about the revenue. So how much the revenue decline is due to the terminating unprofitable contracts? And also continued question about how big was the loss from the terminated contract in Sweden 2025?

I won't answer that Sweden customer, as I said, we won't publish those figures. But in my section, I said that roughly half of the net sales decline came from the terminating unprofitable customers and half of it by lower additional sales levels. And that's roughly the scale.

Thank you. Then there is a question about the services and especially from the strategy part of the presentation. So according to the report, demand for data-driven cleaning services and AI-assisted energy efficiency services continued to be strong. What are these services in practice? And how do they affect demand for cleaning services or your profitability?

The AI-driven energy management services, energy optimation for customers. We connect customer facilities automation to our energy saving center in Kuopio. Then we have the smart AI machine between those energy management services center and the customers' automation, which tunes the automation thousands of times per day and helps customers to save in energy costs. And roughly, we can save about 20% to 25% of energy expenses from customers. So it's quite good service for the customers. Then data-driven cleaning, for example, is that we don't clear according to the service instructions, but we clean according how the facility has been used, for example, how meeting rooms has been used and how much toilets have been used and so on. So we can -- the cleaner can do decisions how he cleans on a daily basis with data, and it will save -- it will be -- it is much more efficient, and that's the reason why it's cost saving also to customer.

Thank you. There is also a specific question concerning the same services is that are these innovative services used mainly in Finland?

Yes. At the moment, but we are expanding those services currently to Sweden also. As I -- what I told you about Jernhusen contract, we will expand smart to Jernhusen contract in Sweden in the future.

Thank you. Then there is the last question at least now. According to the report, adjusted EBITDA for 2026 is estimated to grow or increase significantly. What is Luotea's definition of significantly growing guidance ...

We don't disclose those exact euro amounts.

Thank you. That was all the questions that I have. We are ready to close.

Thank you for your questions and for taking the time to join today's webcast. We appreciate your interest in Luotea and your continued engagement with us. Our next webcast will take place in May 2026. And then we will review the first quarter as an independent company following the demerger. And we look forward to updating you then. Thank you, and have a good day.