Good morning and welcome to Lassila & Tikanoja January-March 2026 earnings release broadcast. My name is Eero Hautaniemi, and today with me I have Joni Sorsanen, our CFO. Today's agenda is as follows. First, we go through some highlights, both financial and operational highlights. We will take a look at the market environment in first quarter 2026. We'll dive into the efficiency and operations and sustainability. Joni will go through the financial highlights, we'll wrap up with the outlook. Obviously we are ready for your questions after the presentation. First with a few highlights.
Our net sales grew by 6% despite the challenging market environment and I'm actually very pleased to report growth like this in a typically very difficult quarter for us. Always the first quarter for us is the most difficult of the year. Our adjusted EBITDA was EUR 11.5 million, which was EUR 1.3 million less than a year ago. Our adjusted EBITDA was EUR 0.2 million compared to EUR 2.6 million a year ago. Our free cash flow was in line with the previous years if we exclude the impact from demerger-related payments and settlements. Operationally we were at the same level.
Operationally, as I mentioned already, the market environment is challenging. We did take active measures to tackle the sharp increase in diesel price, and those measures have been implemented already. Our transition service period is approaching to end, and everything is going as planned. We expect to end the transition services between Luotea and us by the end of June. Our cost efficiency program is on track. Let's go a little deeper into the net sales. As I said, our net sales grew by 6%, and organic growth was 2%. The rest obviously came through acquisitions.
This represents a nice continuation for the growth that we had in second half of 2025, a little over 5%. Overall, I'm pretty pleased how we have been able to get the growth on track towards our strategic goal, which is growth over 6%. When we look the growth through different service areas, we can see that in the waste management and recycling, the growth was only 1.2% and this came from the acquisition that we made last summer. In hazardous waste and remediation and industrial services and water treatment, we saw a very healthy growth in both these business areas.
In hazardous waste and remediation, the growth was all organic, it was over 23%. In industrial services and in water treatment, 14.3%. Largely this was organic growth. Very pleased with both of these business areas. Obviously, we do have a very challenging environment in waste management and recycling. When we look at the EBITDA development, as I said in the highlights, it was EUR 0.2 compared to EUR 2.6, quite substantially lower. There are quite logical reasons behind this decline. First of all, the overall volumes in municipal solid waste declined, this is and has been a challenge for us for quite some time already.
I was a little bit optimistic when we released our 2025 numbers, but obviously because of the crisis in the Middle East now the growth is very fragile and market doesn't look quite as good as I thought at the time. Also, because of this crisis in Middle East, the oil price has increased sharply and that affected our EBITDA by EUR 0.5 million. We have completed our ERP rollout and the depreciations are about EUR 500,000 higher in the first quarter than they were in the comparison period. Also we did see a difficult market when it comes to the treatment fees because there was oversupply of waste to be incinerated.
We expect this to be more of a temporary situation, but that did affect negatively to our first quarter profitability. Obviously behind all of this, we do have the effects of continuing municipalization. Going to the market environment. As I said, the market was more challenging than we expected a few months ago. The GDP growth is expected to be between 0.5% and 1% only when we thought earlier that it could exceed 1% to be closer to 1.5%. As I said, now it looks like it will be less than that. Overall, in Finland, the economic recovery is delayed due to this geopolitical situation.
This graph shows how the diesel price has reacted to this crisis in Middle East. As you can see that the pattern is very similar to what it was in 2022. It's a bit of a deja vu when it comes to the diesel prices and we have very good processes for situations like this. Like I said earlier, we have already implemented a very comprehensive price increases to address this abnormal situation in the market. The effect of these price increases was not at all visible in first quarter, but it will gradually come through in April and May.
We will see already partially the impact in second quarter and then full impact from third quarter onwards. This situation does affect also to the recycled material prices. It was not really visible yet at the end of March in the recycled plastic prices, but the expectation is that prices for recycled plastics will go up as a result of this oil price increase. For cardboard and paper, the price level is pretty stable. And we do expect also the prices of recycled metal to increase as a result of this sort of problems in supply of materials. I'll move on to efficiency and operations.
Our fixed costs development is visible in this graph. As you can see, it is very flat. Even though we did complete the demerger, you can see that there is no increase in fixed costs. We have been able to offset the sort of potential increases in fixed costs with our cost efficiency measures. The costs are flat even though our sales have now started to grow. Eventually we expect to see the benefits of being able to keep the fixed costs at these levels or even slightly lower going forward also in the EBITDA line.
We have initiated a separate review to improve the gross margin in the waste management, and this is to offset the negative impacts I just went through that we experienced in the first quarter. That program, as I said, has been initiated and we expect to see results of that program, from second quarter this year onwards. Our ICT transformation is getting to the sort of final stages, and we went live with our finance system. Also that is now in D365 environment and fully cloud-based from the beginning of May.
Obviously this is very good news and we will start to see the benefits of this transformation gradually second quarter onwards this year. Obviously now, right now, 2026, the amortization burden is at its highest and will gradually go down as the time progresses. Overall I'm really pleased where we are with our ICT transformation and there is a big opportunity for us to improve our operational efficiency, but also more importantly, improve our customer service and reporting to our customers. A few highlights from a sustainability perspective.
Our own carbon footprint has continued to decline as planned, so it is 4.7 compared to 4.9 a year ago in the corresponding quarter. Our carbon handprint is also going down, which is obviously not the goal. The reason is that the amount of recycled paper has come down for 15, 20 years already, and in the past five years, we have lost and the market has lost almost 2/3 of the recycled paper. The decline is more than 10% per year and will continue.
Obviously, that is partly offset by the recycled cardboard, but not to the same extent as we are losing recycled paper. That is the main reason why our carbon handprint is going down. At the same time, our recycling rates are going up and are supporting the carbon handprint. A very positive development in work safety. Our TRIF was 16.2 and this is with big margin the best result we have ever seen. This, what is sort of in the background of these good results is very good preventive work that we have done across the organization. I'm really pleased to see these kind of levels in our work safety.
Also our customer satisfaction has remained on good level despite the very extensive rollout of our ERP systems. Perhaps the final point, we have sort of contributed to giving the opportunities to next generation and we are offering 250 jobs for summer employees. With this, I'd like to hand over to Joni, and he will go through the financials. Joni.
Thank you, Eero. Good morning, everyone. I would like to start this section by highlighting some of the key events in the field of financials in the first quarter. As already noted in Eero's section, we had a positive development in net sales. We were growing in line with our midterm strategic target at 6%. However, profitability was below previous year in a seasonally slow quarter due to reasons already outlined in Eero's section. We had a stable development in financial position throughout the first quarter, and the balance sheet remained strong at quarter end. Operationally, our free cash flow was in line with comparison period if we take into account the partial demerger related one-off payments and settlements.
Finally, L&T's share of profit from joint venture Laania was in line with previous year at EUR 1.7 million. Looking at net working capital development, net working capital at the end of the quarter was EUR -21.5 million compared to EUR -24.6 million, which is a change of EUR 3.2 million year-on-year. It's good to note that the comparison figures are prepared on a carve-out basis. We look at the change compared to year-end, we can see NWC tying up by EUR 8.3 million, and the large part of this change is due to these partial demerger-related payments. Operationally, we are fairly satisfied with the net working capital development in the first quarter.
In terms of seasonality, we expect the pattern evident in 2025 to also take place in 2026. We expect net working capital to weaken in the second and third quarter, and then again release towards the year end. Capital expenditure in the first quarter was around EUR 4 million compared to EUR 3.4 million in the comparison period. CapEx consisted of investments in machinery and equipment, and to a small extent also in ICT systems. Our depreciation and amortization increased from the comparison period, partly due to these ERP-related investments, and we're at EUR 11.8 million compared to EUR 10.5 million in Q1 2025.
In full year 2025, our capital expenditure was around EUR 42 million, also consisting of organic CapEx of EUR 29 and M&A CapEx of EUR 12.5. In terms of cash flow, as already noted, taking into account the one-off type of partial demerger-related payments, free cash flow was in line with previous year. Here we have depicted the free cash flow bridge on a rolling 12-month basis, from April 2025 until March 2026. On a rolling 12-month basis, the company has generated adjusted EBITDA of EUR 83 million, net cash flow from operations of EUR 67 million, impacted by items affecting comparability around EUR 6 million. Finally, free cash flow on a rolling 12-month basis around EUR 34 million, which in relation to reported EBITDA is a conversion of around 45%.
Balance sheet remains strong at quarter end. Our net debt in relation to adjusted EBITDA was 1.9, which is well in the range of 1.5-2.5, which is our midterm strategic target. Net interest-bearing debt at EUR 161.5 million, consisting or including also lease liabilities around EUR 66 million. Equity ratio was practically intact compared to year end and was at 35.1%, and gearing also developing on a fairly stable manner compared to year end at 94.5%. Looking at the financial position, it's good to note that the first, second, and third quarter of 2025 were prepared on a carve-out basis, so they do not reflect the capital and financing structure of Lassila & Tikanoja. Looking at the maturity structure of our interest-bearing liabilities.
The financial debt of the company consists of EUR 75 million bond, which is due in 2028, and a EUR 50 million bank loan, which is also due in 2028 but includes a two-year extension option, by which the maturity date can be moved into 2030. The company had a strong liquidity position at the end of the quarter, around EUR 30 million. We had no commercial papers outstanding at reporting date. Also, the company's credit limits and account limits were totally unused at the quarter end. The average interest rate of our long-term loans was 3.2%. Finally, some KPIs, other KPIs for the company in the first quarter.
Our reported return on capital was 9.3%, impacted by one-off items and also carve-out principles, especially concerning financial year 2025, because this KPI is calculated on a rolling 12-month basis. Here we have calculated a more comparable and adjusted figures for return on capital and also for return on equity. 10.7% for return on capital and 14.4% for return on equity. As already noted, our share of profit from Laania was on previous year's level at EUR 1.7 million, and earnings per share EUR -0.01. Also, when looking at the earnings per share figures, it's good to note that the 2025, due to carve-out principles, are not comparable with 2026. With these words, I would like to hand over back to Eero.
Thank you, Joni. Our outlook for 2026, which is unchanged. We estimate our net sales to be between EUR 420 million and EUR 450 million and adjusted EBITDA to be between EUR 38 million and EUR 44 million. With this, we'd like to hand over it to you and we are ready for your questions.
If you wish to ask a question please dial star five on your telephone keypad to enter the queue. If you wish to withdraw your question please dial star five again on your telephone keypad. The next question comes from Nikko Ruokangas from SEB. Please go ahead.
Hello, this is Nikko Ruokangas from SEB. Thank you for the presentation. I have a couple of questions, and I'd like to go one by one and starting with the outlook you discussed as the last topic now. You, Eero, highlighted in the beginning that the market doesn't look as strong as it did in February when you reported your Q4 earnings. How worried are you regarding your guidance this year now, given the comments on weakened markets? Are the improvement actions you are taking enough to offset these market challenges?
Yes, that is a fair and good question. Yes, we strongly believe that our actions are sufficient and we are quite confident that we will reach this outlook.
All right. Good. You highlighted higher waste treatment fees, which you also highlighted that will be temporary. Can you explain the background a bit? Did you see these higher waste treatment fees already in the beginning of this year, or was this a surprise? How big was this impact and how temporary do you expect them to be?
Yes. Again, a good question. There's been a, let's say, a quite a bit of fluctuation in this, especially this relates to the incinerated waste. If we go back to 2022 when the Russian border was closed and nothing was coming from Russia to Finland, there was a shortage of all sorts of material that could produce heat. Then that situation has normalized, and there has been a sort of increasing import of waste to Finland as you probably have noted from media as well.
Then on top of that, winter, not this winter, but the previous winter was very warm and many of the sort of district heating companies were stocking up different type of material that they could use to produce energy and heating. This has sort of the import, the warm winter earlier and sort of the overall market situation has led to sort of little bit of imbalance in the market and that has sort of caused a bit of a peak in the gate fees. When I talk about temporary, I mean that in general nothing has changed. There is serious overcapacity of incineration in Finland.
It is estimated to be somewhere between 30%-40% that can be partly offset by the, by the import. We don't expect that to be sort of a permanent solution. We expect the gate fees in the longer run to go down. As I said, there are sort of temporary fluctuations in the market and that does affect us as well. For the most part it was not a surprise to us. There were certain elements that were perhaps a little bit of a surprise, but not to large extent.
Okay. Thanks. That was a good explanation. If you compare to higher fuel costs impact year-on-year, which one, the higher fuel costs or the gate fees had bigger negative impact to you in Q1?
Well, obviously we didn't open in the report the impact of this. I would say that this was also in the range of several hundreds of thousands. It was not insignificant compared to 2025. As I said, we had anticipated most of that already when we made our plans for 2026.
Okay, fair enough. Good. I still have a question on your sales and especially water treatment sales growth was strong, but you didn't open that much the organic growth drivers there. Can you give some color on that?
Yeah. We had very good demand for our process cleaning services in first quarter, and also the execution of these projects was very good. That is the main reason there were certain customers that perhaps typically don't have as much demand for our services as they did in 2026.
All right. It was not kind of a timing impact between quarters that much but there were some kind of extraordinary good items.
Well, yes and no. I think we have been successful also in the customer front and sort of getting a wider customer base, which obviously helps us when there is demand to win those projects and execute them well. It is not sort of extraordinary from that perspective.
Yes, that's a good sign. Good. One last from me on costs regarding the demerger. Did you have any kind of extra costs which you didn't adjust for in adjusted EBITDA regarding the demerger or other kind of costs that will go away soon if you exclude the costs you highlighted regarding the ERP renewals?
Obviously, as I said, we still had sort of the rollouts for our finance system, our consolidation system, our customer support system. We did have sort of the final parts of our ICT transformation taking place in first quarter and still a little bit in the second quarter. I would expect that we have a little bit of sort of extra cost around that. When it comes to the demerger related things, we have tried to sort of take them out from the operational results. From that perspective, I'd say that the adjusted EBITDA is clean. We do have extra cost as we are sort of finalizing this ERP transformation journey.
As I said in the presentation, we expect to be there by the end of June this year. We will start seeing the efficiencies gradually coming in in the coming quarters this year.
All right. Good. Thank you for the explanation, and thank you. That's all from me.
Thanks, Nikko.
There are no more questions at this time.
There is a question on online, so Kaika will read it.
Yes, we have few questions. First one: How big of a headwind you expect from higher diesel prices in Q2?
Impossible to say. Sorry. Obviously we have taken the measures to offset the sort of the diesel prices as we have experienced them now and we do not expect this to be over in weeks, but it probably will take months. Let's see what happens. Obviously it's impossible to predict when it ends.
Okay, second one. How big a share of the increase in diesel price you believe you can pass on to customers?
It is a combination of efficiency measures and price increases. As I showed in the graph from 2022, we have very good processes to manage these kind of exceptional situations. I'd expect us to be able to reach our outlook as said, and handle the situation with price increases and efficiency measures.
Next one. How confident are you that the price increases and cost efficiency measures now being implemented will be enough to restore profitability during the rest of this year? When should investor expect to see a clear margin recovery?
As I have already said during this webcast, so we keep our outlook and we are confident that we will reach it. That probably answers the substance of the question.
Last one. Aside from the higher fuel prices, was there any negative surprises in Q1 result compared to your expectations in the beginning of the year?
I think I already answered to that question as well, so I have nothing to add beyond what I've already gone through. Thank you for the very good questions. Seems like there are no more questions, so we thank you for your interest to Lassila & Tikanoja and wish you a nice continuation of the day. Thanks. Bye-bye.
Thank you. Bye.