Welcome to follow Inderes TV! An interview with Fondia's CEO Timo Lapi after the company's Q3 earnings report. Hi Timo!

Greetings, Juha. Nice to meet you.

Nice to meet online too. The first question is traditionally simple. Let's put the events of Q3 in a nutshell. What was essential for Fondia there?

About the events of Q3 at Fondia. We titled our release today by saying that growth continued and margin improved. And these were things that were naturally hoped for and also expected by us. This year's guidance has been that we grow our revenue and improve margin, and these two things. And then we also did, if you think in a nutshell, then.

The market has been pretty good for us lawyers in my opinion. Then again, on the other hand, as Fondia we have succeeded in taking steps forward in that market. We are not ready yet, so one cannot just be satisfied with these numbers. But the direction is right.

The direction is right. And exceptionally well my own estimates hit too, so I must be pleased with that as well. Well, the first question is about continuous services. That wasn't reported there now. In H1 they decreased, and back then we talked about good new sales, with which these will then start to improve. Are there signs of this now? Is there anything concrete you could open up regarding continuous services?

Yep, this is an important question, because continuous services are indeed our spearhead. With which we think that we specifically differentiate ourselves in the legal services market, and we think ourselves that we are the champion of continuous services in the market in Finland, the Nordic countries, and the Baltics. We then report these percentages of revenue in our interim reports or half-year report and earnings release. We don't have that here in Q1 nor in Q3. But we do monitor various variables that help estimate this.

One metric that is closely monitored is the number of new LD clients in different markets that we have, meaning Finland. Sweden. Estonia. Lithuania. The second metric we monitor is then growing current LD client accounts. Then the third metric, there are. Monitored is then the opposite, meaning the shrinking of current LD client accounts, and then the fourth is then churn, meaning the loss of LD clients.

And Q3 has been a positive quarter for us in that sense. I have seen that all these variables have moved in the right direction, that compared to the comparison period of last year we have succeeded better in the sales of new LDs. We have succeeded better in growing our current ones. We have succeeded better in defending our position against the shrinking of current ones, and then also churn has been lower. So these are leading indicators that tell me that positive development is taking place.

Then if we return to our previous chat, where we noted that back then we told that those percentages of ours, meaning continuous services out of revenue, had gone in the wrong direction. And our explanation back then was that last year wasn't as good as we had wanted, that back then it came down. It takes time before we get to mend it, so that it forms. It is a trough in turn, so. Such a data point I would have to give here. that around. If this past quarter were compared to the comparison period in the previous year, we are in roughly similar figures. Meaning back then we were heading down and now we are heading up again. Then it takes a little while before we get the whole YTD key figure to recover then. So the direction is right and the signs are positive.

So some kind of turnaround has happened there. Need to make sure still. When you talk about that turning point in your own way there, are you talking about the share of revenue or in absolute figures?

This was. This comparison to last year. Was the share of revenue. But then again these recent ones that are measured, like new clients and growing and shrinking and losses, also in absolute EUR figures, that if we measure committed revenue from this, the development has been positive.

Very good. If you look at the relatively concise report, there are. Perhaps the most interesting parts are these country-specific developments. Excellent growth from Sweden, over 20% revenue. Up. Can you break down in some way where this growth is coming from now? Is it new clients or client growth? Or possibly something else then?

Yeah, the bigger picture regarding Sweden has been such that we had. We had a difficult last year in Sweden, and the story arc of last year went so that the year started okay. Then still in 2025, and then weakening development was seen. Towards the end of the year our managing director ceased to be available, and then I went myself as interim alongside my own role last autumn, and then we had until March of this year before Victoria Svedmark was made to start as our new head in Sweden. And now this year's trend has been the opposite of last year's. Meaning then we started. We had a pretty weak first quarter in Sweden, and the second one was already stronger, and this third one. In my opinion nicely writes the same story as the second quarter, that it shows strengthening.

Where has the growth come to Sweden from? It has come both from Sweden's current clients who have increased their purchasing, and Sweden has also had a pretty good market for lawyers as well. Then the growth has also been achieved by our early-year LD sales, which then starts to feed the subsequent quarters. And we did get new clients again in turn during Q3. In Sweden as well. So this recovery has been quite broad-based there in Sweden, and we see this as a good sign so far.

Then you asked about these intra-group, cross-border services as well, that has also continued to be positive. If we had reported with our previous elimination method, Sweden's growth would have been even stronger than it looks now in percentages.

Okay, interesting. This would have actually been the next question. Generally the effects of this change in calculation method. But was it so that Sweden would have been even stronger? Finland would have been a bit stronger. And then in the Baltics this affected negatively, or better than I let you talk, so I won't.

We have noted before too that you are. You are skilled at estimating our numbers from the outside. The previous analysis went into the same category. Harri told about these numbers just now in the earnings release, and there in Sweden with our old calculation method, where these eliminations were not made from country figures, it would have been around 4 percentage points of more growth still relative to this 20 percent growth that was now reported. In Finland we would have also shown slightly faster growth and then in turn in the Baltics the other way around.

This is a settled matter now. Now we made this change and then the idea is again that we. This is now a one-off event that we need to talk about this change, because we will of course continue with this new way from now on. And what I still want to say is that as such this is a happy problem that these eliminations are being made. We are doing more and more work with EU regulation. Then if you think about typical international commercial contracts, those are things where you can increasingly think in such a way that a Finnish client is not necessarily always served by a Finnish lawyer, but a Swedish or Lithuanian lawyer can also have the exact same expertise. Or a corporate client operating in Stockholm can then be served by a colleague from Lithuania. And we want to encourage such cross-border cooperation and feel that it streamlines and brings more quality to our service. And the more these eliminations come, the happier I am.

I understand. It tells that the Baltic Sea strategy is working. To return to Sweden still, I have to ask anyway, can you comment at all on Sweden's margin development? Naturally growth surely takes it in the right direction, but perhaps about whether this is how sustainable, have recruitment plans been made already? Are expenses being taken in advance? Now into new growth as well? Where are we going?

Our medium-term financial target is the rule of twenty popularized by Inderes, meaning revenue growth percentage plus adjusted EBITDA margin. We aim for this to be at least 20 in the medium term. And at Fondia, we think that we apply it differently in different countries, and we see Sweden as an interesting growth market where our primary goal is nevertheless to grow while maintaining this rule of twenty. And that means, for example, on the recruitment front, we act more proactively in Sweden than, say, in Finland in turn. And in our last conversation, we chatted about the hires we've made. We noted that back then we had taken on several more lawyers in Sweden, and the intention is to continue in the same way. So proactive recruitment works in Sweden, and we believe it's smart to invest in growth this way there by taking on more costs, and that will then be reflected in better earnings in the future as well, when the time eventually comes to take the foot off the growth accelerator a little bit.

I understand. Shall we also briefly discuss the Baltics in this context? Have recruitments continued there? Even though the growth figure looked a bit weaker, that also partly involved this revision. Apparently. Or actually perhaps the fact that Q3. Last year we grew strongly, and since then the growth pace has stayed high there, so is that also a market you want to invest in and grow into a third pillar?

We certainly believe in the Baltics. And when you think about Baltic recruitments and growth, rather than a period of growing through recruitment, in the Baltics we have had this period of changes behind us there, and especially in Lithuania. Over there in Lithuania, our country manager changed after the summer, Lukas. Lukas Vytauskas started as Lithuania's new head and. And then again, Lukas is currently reshaping the team as well, as always happens. Then a new country manager takes over, and we believe in growth in the Baltics.

But at the same time, we must realize that if Sweden in our market is two and a half to three times the size of Finland, the Estonian market is around 20% of Finland and the Lithuanian market around 50% of Finland. Therefore, we see that it makes sense to put even more growth investments into the Swedish market and succeeding there.

That's clear. Well, let's move on to our home country, Finland. What does the overall situation look like here right now? If we think about that. I remember growth was around 5% and at a quite good level, but the market is probably providing tailwind now too. And then we have been here. In a recruiting-only-when-needed mode, so is this still true? And how do you see the development of Fondia's market share in this?

It was. Last week on Friday, Talouselämä published this latest business law review, and when following the key figures there. The general sentiment reported in the magazine regarding last year was that business lawyers had a really good year. And then relative to the atmosphere in that magazine. And on the other hand, relative to our industry numbers, we were an underperformer in Finland in 2025, and I wasn't happy when I saw that if we were the ninth largest operator in Finland measured by revenue the previous year, now we were ranked 11th. So the market had grown relatively faster than we did. And of course, last year we didn't show growth in Finland.

I see that we are now. We have now returned to a path of moderate growth. In Fondia's strategy. If we talked about the rule of twenty earlier and the fact that Sweden's task is to weight growth in that. In terms of the Sweden trend. In Finland, we believe in slightly more moderate growth than in Sweden, but at the same time this rule of twenty, which was thus revenue. Revenue growth percentage plus adjusted EBITDA. Growth percentage. It can be applied in different ways. Weighting growth at the expense of profitability. Or vice versa. So Finland's task is then to ensure that we have a profitability that allows us to finance all these growth initiatives of ours. And that in turn leads to the fact that, for example, in Finland we do not recruit proactively in the same way, but instead recruit more as needed. Then again as new customers are won. If we think.

Moving on to Finland, perhaps through these strategic initiatives. How would you describe the progress now, for instance, in terms of practically increasing efficiency or raising billing rates with this? Perhaps it could yield that. Well, revenue grew faster than headcount presumably in Finland as well, so that's the right direction. But how would you yourself describe the success in this process and what measures might be coming up?

I would describe it such that in this regard too the direction is right, meaning our revenue per lawyer has increased. However, I am not satisfied with the level we are currently at. And this is a theme we've probably chatted about before, but since it's on my mind every day, I'll take the liberty of talking about it a bit here.

After all, we operate largely on fixed costs. The largest cost form. Naturally personnel costs, followed by premises and then IT and after that all sorts of other things. And then when we manage to grow our revenue, the additional revenue drops almost purely straight down to the EBITDA line. And then if you think about it, our revenue actually consists of the number of lawyers. Multiplied by the billable client work hours that the lawyer does. Multiplied by the hourly rate. We are still quite heavily in the hourly rate model across all law firms.

Even though we experience pressure elsewhere, a rough formula like this written on a napkin says that every minute we get every Fondia lawyer to do more client work on every working day means around 100,000 euros in our revenue and through that almost the same amount straight to the EBITDA line. And I certainly see that we don't even need to lengthen our workdays there to be able to do 15 minutes more work for the client per day or half an hour or anything. And then if one were to calculate from this, we'd be at a million and a half or three million, and relative to that, this productivity development of ours has been quite modest so far. This is something we work on every single day. It involves new tools we operate with, but it also involves more ambitious management than before. In expert work then.

What would you say is the biggest resistance in its own way to managing to capture those minutes more? What is slowing down this process of moving forward? Many investors would surely hope right now that progress would be faster.

The absolute fastest route to happiness here is being able to weed out waste. What happens? If we think about a lawyer's workday. I have myself done client work as a fellow lawyer throughout my career, and it's very familiar to me. So.

If you think about a person who would do lawyer work all day, coming to work in the morning and then by lunchtime some client work has been done and then more is done in the afternoon. And sometimes a day comes along where you were at work for eight hours, but only three hours accumulated into such work. Time entries that are then made from small streams for many different clients typically during the day. And on another workday there were six. And there are two phenomena here that affect this a lot.

The first is purely such time-recording discipline, meaning these time-recording practices, did I record my morning work before I went to lunch, and on the other hand did I record the whole day's work before I then went home. Sounds simple. That it would always happen. Then in practice people are such that when we are busy, it might get left undone. And then if you only do that recording on Friday of the week, starting to try to remember everything I did this week, some things get forgotten, and that is disastrous for us in that it shows heavily in profitability.

And then the second thing is also related simply to people's way of operating. Many people are critical of their own professional skills, and they might have done three hours of work in the morning and then lunch. Another thinks whether some more skilled lawyer might have done this perhaps in two hours. And can I log all those three hours as client work? Or do I put two to the client, one to studying? And this is again something we must be able to manage better. It's quite enough for us that we get this waste removed, then the company's numbers could look very different. Of course I know that I'm not the only person who knows this, and many have tried before. It is tough, everyday action by which culture is developed alongside such things, there are no direct shortcuts.

That it is. Well, slow and steady wins the race hopefully. You mentioned a little bit about the market, that the lawyers' market is good. I understand there is a really good amount of M&A activity and transactions in the mid-market at the moment. Has the good momentum in separate assignments from the beginning of the year continued? And on the other hand, what can you comment now regarding Q4, since quotation requests or similar have surely been made there?

The good momentum on the side of separate assignments has continued for us and then, to my knowledge, across the whole market as well. Lawyers are having a pretty good year right now, and it's positive that we are receiving quotation requests. If you think about who we do separate assignments for, naturally closest to us are our ongoing services customers. A customer who buys in-house legal department services from Fondia and wants to acquire another company, for example, finds it easy to contact us, and we do it for this ongoing services customer as a separate assignment.

But then we also get them through direct inbound channels. Then various financing rounds are also fished for from the market with active sales. Business transactions. Um, Fondia's lawyers act in arbitration proceedings both as lawyers and then as arbitrators in turn, more traditional lawyer work like this, and we have a healthy amount. At the moment it feels like there are quotation requests.

Then in the same breath I want to say that I also read financial papers about how those interest rates are developing, and I am aware that sentiments can then change quite quickly in the market too. So it doesn't show terribly far into the future regarding these separate assignments. But right now I think the market outlook looks good as we head towards the end of the year.

If we think about your full-year guidance, you are certainly on track, but it still requires a good performance. From Q4, which is clearly your most important quarter. We already got a bit of a feel for the fact that there are requests for proposals. Perhaps previously there were. That is always how this year has gone. How confident are you at the moment that Q4 will also be better than or at least on par with the comparison period?

If I base my situational awareness on the internal makeup of Q3, on what happened during those three months, it went such that August started a bit more quietly than sometimes before. It may be that we are already starting to see the effect of us in Finland and across the Nordics placing more emphasis on our summer holidays in August than previously. But indeed, August started a bit more quietly, and then, on the other hand, September was quite encouraging. And then if you think about this encouraging September, I think it gives us the right to expect that we would then have quite good operating conditions during the rest of the year as well. I would expect an operating environment like September's to now replicate itself in October and November. Typically good working time for lawyers. December is a game of two halves. The good side is that clients generally want all projects ready before the Christmas holidays, so more work gets done then. But then in the same breath. On the other hand, our own people's Christmas leaves start pressing in. But I expect a quite decent Q4 for us.

Fair enough. Of course, you cannot comment on that too precisely just for us here. Let's move on to personnel and customer satisfaction. You published fresh figures earlier. Let's start with the weaker one, meaning personnel satisfaction, as eNPS dropped to fourteen. Not a dramatic drop now, but the level leaves a lot to be desired. And this is, after all, one of the key projects of your strategy. Unless I am mistaken. How would you describe this, and what reasons can be found behind it? You probably would have wanted to show a positive trend here as well.

I would have. I am now serving as Fondia's CEO for the second time in my life. The first time was 16 years earlier than this. The second one began during that first CEO period. According to the Great Place to Work survey, we were the best employer in Europe in the legal services industry, and that is something I would like to be creating.

And now during this second period last year, we then saw an eNPS figure that I thought was weak. And then I must say that when it was even weaker this year, it certainly woke me up. I would have expected development in the other direction, and I am not satisfied with the level we are at. I have then had to think about it quite a bit.

In itself, that figure has done its job in that it has set the thought process in motion, and without me trying to make excuses here, I do want to mention some phenomenon behind it, that basically all this time that I have now been back at Fondia, we have consciously wanted to change our corporate culture, and we ourselves talk about how we have long been a high care organization here, which we want to be in the future too, but we want to be high care, high performance. We believe that at the same time we can care for our people, we can also be more demanding in, say, the amount of client work per day. Since we know that it fits in quite well. And at the same time as we have been more demanding of ourselves. Here at Fondia we have changed IT systems and trained people to use them. And this kind of change always causes discomfort.

And then when I further consider that we report these personnel satisfaction reviews to the market, and specifically this eNPS figure. And then we have dozens of other metrics there, so from those other metrics you can find trends going in the right direction. Which this NPS was not? They give me encouragement. And I myself believe that we are doing the right things. We must give it time. Then, on the other hand, for them to also show up in it. As an increase in the eNPS number. But I am not proud of it at all. The number, let's be quite honest. Here as we talk.

Well, you are probably proud of the customer satisfaction figure. NPS 82. However, I will turn this into a negative as well. Are you too nice to the clients? And wouldn't this mean that if they are this satisfied, you could possibly issue some additional invoicing or even price increases.

This NPS. Sorry, this NPS figure. Well, Juha, a number-oriented analyst like you is interested in the fact that, in addition to us receiving happy news in the form of that improved figure, it is also based on a significantly larger sample than last year. So we can think that it is an even more reliable number than last year's, and that has certainly brought us joy, and we see that we are succeeding in our customer service.

I believe that our service concept contributes admirably here. The most important thing is still, however. Trust is created between people, whatever is used. The success factor today.

And then regarding this pricing power calculation. If I may, I could tell you that. You see, from my attorney days I remember when I was a young lawyer at one firm, and then there was a very experienced attorney who said in the Monday meetings, well, let me tell you. Far too few people complain about our invoices, and that was it. A sign that we are too cheap. And I could state the same for Fondia, that it is extremely rare for us to receive complaints that our invoices would be a negative surprise.

Then on the other hand, in terms of scale, and once again, if you look at that Talouselämä lawyer table. It was published in last Friday's magazine, and one of the key figures there is revenue per lawyer. It shows that we are indeed quite a bit cheaper than the traditional market. And we want to be, in part. But part of that is again probably inefficiency that we need to fix.

Wasn't it nice that we managed to turn this figure a bit negative as well?

I always believe in the bad news is good news kind of thinking, that when you dig and find problems, you can improve the business through that. So this was a good feed in that direction.

Well, at this stage, of course, investors are already interested in the outlook for next year. You certainly have that important Q4 ahead of you, but you can surely already outline the drivers for it as well. You do have this rule of twenty target. Is next year the year when you will realistically be able to reach or achieve it on a full-year level?

Assuming that Q4 goes according to our expectations, we will certainly start next year from stronger positions than we started this year. And then besides the numbers, we have done a lot of such foundational improvement work. Here we have reshaped our organization, we have put new tools into use and so on, done strategy work, sought a clearer direction, and I believe those are things that will give us a better start.

Then this rule of twenty itself. Of course, showing revenue growth is always harder the higher the level you start from. And on the other hand, we have managed to steer profitability development in a positive direction throughout this year. From these ingredients I believe we could brew such a soup for next year that I would say the rule of twenty could be achieved as early as next year. It is. It is challenging for us, but it could be possible. I don't. I am not giving this as guidance for next year, but I note that this medium-term financial target is intended to be achieved.

That is clear. Are there any negative drivers that you would currently see, if you think about this year and then next year, because fundamentally it currently looks like things are moving in the right direction. But are there some clear brakes that might potentially come up?

A lot of people are talking right now, of course, about the technology transformation in our industry, about what AI is going to do to lawyers? I myself too. In my legal work I actively use nowadays pretty much in everything I do. These modern tools, mostly Legora which we use as our main tool, and one negative driver that we currently see is that although employment law, for example, is one field where we clearly see there are certain things we used to be asked for advice on, but people don't ask anymore today. And we believe that one of the underlying reasons is that clients' HR management is serving themselves with the help of AI.

Then on the other hand, we see that when they contact us, the client has already thought about the matter to a certain point. Some with Copilot, some with Cloud, and some with whatever. Most of the time it moves things in the right direction, but sometimes it feels like it would be easier to start from a blank slate than from this AI-generated piece. So work is changing in that regard.

If I were to bring in another perspective, I have myself been involved in interviews interviewing the general counsels of companies, and there we recognize a phenomenon where artificial intelligence makes it so easy to produce all kinds of documentation in the organization, and it is being created much more than ever before. However, artificial intelligence cannot take responsibility for the work done, so a responsible person is needed and it is sent to the company's own lawyer. Asking whether you could read through this and say that it is okay, and these various policies, agreements, and others are increasing. And then these in-house counsels have more work than ever, which in turn creates opportunities for us.

But I would say that this first side of artificial intelligence is one such braking factor, that there are some things that will disappear as a market, but it will be replaced by something new. Then what is the second thing? Of course, then if the rise in interest rates were to continue from here, if it starts to brake M&A activity, changes in companies, and so on, that could be something that would then have a braking effect on our services as well.

Surely so. Thank you for these comments and good luck in the future!

Thank you, Juha.