Welcome to Lassila & Tikanoja's Full Year Results webcast. The webcast is hosted by L&T's CEO Eero Hautaniemi and CFO Valtteri Palin. There's an opportunity to ask questions at the end of the broadcast via the phone or by using the chat functionality. Eero, the stage is yours.
Thank you, Inka. Welcome also on my behalf to this Lassila & Tikanoja 2023 earnings release. A few things. First of all, for the full year 2023, our adjusted operating profit was EUR 39 million compared to EUR 40.9 million a year before. In the background, Industrial Services performed well, when Environmental Services did have a disappointing end of the year. And also, the performance in Facility Services in Sweden was soft. Our net cash flow was very strong. It was EUR 1.33 per share compared to EUR 1.08 per share a year earlier. Our dividend proposal for the year, or the board's proposal for the annual general shareholders' meeting, is EUR 0.49 per share. In net sales, Industrial Services showed healthy growth. Also, in Sweden, we actually grew in Swedish krona, but due to the weaker Swedish krona compared to the euro, our sales in Sweden declined in euros.
Whereas in Facility Services in Finland, we declined our sales, and that was as planned because we ended some of the unprofitable customer contracts. In Environmental Services, we saw a decline, which was caused by the general weakness of the market, and especially the recycled raw material prices and volumes were down from the previous year. Adjusted operating profit. Very nice improvement in Facility Services in Finland, so our good development continued for the full year. Also, Industrial Services improved year-on-year, whereas Environmental Services and Facility Services in Sweden declined. We will go deeper into this later in the presentation. So, Environmental Services. The overall economy was challenging, which is pretty much generally known in construction, but also in other customer segments, there was clear weakness in the market. And this was visible in the prices and volumes of the recycled raw materials.
We have estimated that the impact of this was about EUR 4.5 million to our adjusted operating profit. Also, the municipalization continued. In the second half of 2023, it happened in the cities that were very important for us, namely Turku and Oulu and certain other cities. The impact of this municipalization is estimated to be for 2023 EUR -2.5 million. We did start efficiency measures already in the fourth quarter last year, and those measures are well underway. I will go to those as well later. But this municipalization, we already talked about this a couple of years ago when the new law was passed, and now it's starting to become effective. According to our estimates, about EUR 40 million of packaging waste and bio-waste has been gone under municipalization since 2022, so 2022 and 2023.
We estimate that there is further EUR 30 million that will happen in 2024 to 2026. This is sort of one part of the equation. At the same time, we have won municipal contracts. Last year, we won municipal contracts worth EUR 8 million, and that obviously then supports our net sales. The challenge for us in this municipalization is that they reduce the efficiency of our routes. We have overall more than 10,000 routes all over Finland. When we lose certain sort of customers within a specific route, then obviously the efficiency and productivity goes down. It will take some time before we can reroute all of the affected routes. So this is a big change, and in the short term, the effect is estimated to be negative for us. At the same time, as I said, we have already started efficiency measures to address this challenge.
In 2023, we will have now, based on the actions already done, about 50 white-collar employees less in Environmental Services than the year before. As I said already, we will now focus on rerouting these affected routes, and that is expected to show in our efficiency and productivity of the Environmental Services. In Industrial Services, we had a strong year in all of our business lines. We also showed healthy growth on the top line. The organic growth was 6.8%, which is very good performance under these challenging circumstances that we did have last year. Especially in environmental construction, we performed well. Also, the customer volumes in hazardous waste stayed on a healthy level, and we did succeed quite well in our resourcing in 2023 in the planned maintenance breaks that happened last year.
In Facility Services in Finland, we had a good performance throughout the year. This systematic approach to improve the efficiency and profitability shows in the numbers. And obviously, we will continue to work on this same methodology in 2024, and we are on good track in turning around the Facility Services in Finland. Also, I'm pleased to say that our digital services saw high demand in 2023 when it comes to the data-driven cleaning or energy efficiency services. In Facility Services in Sweden, the improvement projects that we started in 2023 did actually go quite well. But the overall challenging market environment showed especially or was very difficult, especially in the fourth quarter, when we saw very low demand in additional services, and that burdened our operating profit in Q4. Obviously, there's still a lot of work to be done in Sweden, and we will continue on this path.
I'm expecting improving results from Facility Services in Sweden in 2024. On the sustainability front, we did have quite a few positive things. We announced our Net zero target, and our Scope 1 and 2 emissions declined by 9.5%, which is a very good result. This was due to the systematic work that we have done in all of our business lines. We did have an increased focus in Scope 3, so our supply chain, and we laid a foundation for further work in 2023. Obviously, there is still a lot of work to be done in supply chain for 2024 and years to come. When it comes to the employees, we had a lot of focus on training.
When it comes to code of conduct, information security, work safety, etc., overall, we trained, on average, all of our employees with 7.6 hours, which is double the amount we did training a year before. Biodiversity is an important thing and an increasingly important trend when it comes to our customers as well. And there we also did very good groundwork. I'd like to raise the fact that we did 8.7 hectares of meadow restoration projects together with our customers in 2023. And this is a concrete example of the kind of services that we can offer to our customers. And here are the sustainability results in the form of a scorecard. As you can see, our recycling rate went down, and this is due to the same fact that I talked about in connection with Environmental Services.
So overall, the volumes of recycled materials went down in 2023, and this is also visible in our carbon handprint, which came down. Our activities have not gotten worse, so we are doing even more than what we have done before. But obviously, the volumes do have a big impact on these carbon handprint figures and recycling rates. And obviously, if and when the market recovers, I'm expecting to see an improvement in these numbers as well. But now I hand over to Valtteri to dive deeper into the financials.
Okay, thank you, Eero, and good morning, everyone. I will talk about financials and financing, and I start with the key figures. First, capital expenditure. They were EUR 61 million, EUR 3 million more than in 2022, but there were no acquisitions made in 2023, and the share of acquisitions in 2022 was almost EUR 22 million.
So we invested more in our current operations, mainly in heavy fleet, real estates, but also more than EUR 10 million in ICT systems renewal. Depreciations were almost on the same level than a year ago, EUR 57 million. Then a few words about our joint venture, Laania. The company was combined with Neova's similar business 18 months ago. It started operating in June 2022. We are really happy and pleased about the development of the company and the profitability. In 2023, our share, 55% of the net result, was EUR 3.6 million compared to 0.7. That's only six months, but the first six months were in 2022 almost on that same level, so the profitability improvement is significant. Capital employed went down by almost or more than EUR 10 million, and return on capital employed was almost on the same level than a year ago.
It was 10.3%. Earnings per share, EUR 0.79. As Eero mentioned, the proposal for the AGM is that the dividend will be EUR 0.49, and in total, that is EUR 18.7 million. It would be paid in the beginning of April. Balance sheet KPIs improved. Equity ratio is almost 37%, and the gearing is now under 70%. Net working capital. We made actions to improve net working capital, more efficient invoicing, payment terms, managing inventories. So it was EUR -47.6 million. It improved by EUR 10 million. When it's negative, it means that it finances our operations. The main reason for that is that we have roughly 8,000 employees, and there are salary-related liabilities in the balance sheet. Cash flow. We have had a really strong cash flow in 2022 and 2023.
Now, the cash flow after investments was EUR 51 million, EUR 10 million stronger than a year ago, but there were no acquisitions made in 2023. Also, investments growth was a bit more than EUR 10 million. Then moving on to interest-bearing debt and liquidity. The development on this side has been good. These IFRS 16 consolidated leasing liabilities have been in the range of EUR 70 million-EUR 80 million. There are no changes on that side. But then when you look at the interest-bearing debt, they were EUR 116 million. And when you compare it to the end of 2022, we repaid almost EUR 30 million loans back. Cash position, EUR 33 million. And there are no commercial papers in use. And also, the revolving credit facility of EUR 40 million is not utilized. So the cash position and liquidity is strong. Maturity structure, loan portfolio.
There are no changes in Q4. As mentioned, we repaid EUR 28 million loans back in 2023, so it decreases the interest costs. The next repayment will be in 2026, EUR 40 million bank loan. Then the bond will mature in 2028. Both these loans are sustainability-linked, as is the revolving credit facility as well. Average interest rate increased. Now, in 2023, it was 4.0% compared to 2.5. And 65% of the loans have fixed interest rates. A few words about the ICT investments. So we have had a project ongoing that we will modernize basically the whole ICT infrastructure we have. By the end of 2019, Facility Services Finland ERP system renewal was completed. Also, Facility Services Sweden ERP system renewal was completed in 2022. We have also renewed our administrative systems in HR and finance.
Then the biggest change is in Environmental Services and Industrial Services renewal of these ERP systems. They should be completed by the end of 2024. Most part, there will be a few modules, which will be completed in 2025. The main work will be done, and the whole infrastructure is modernized by the end of this year. We have invested a lot of money into this. In 2021, the CapEx was EUR 4 million per year. In 2022, EUR 7.5 million. And in 2023, more than EUR 10 million. Also, in 2024, there will be heavy investment, but then the costs will go down. In addition to that, we have also booked consultant costs, project people costs, our own staff work costs into these system renewals directly into the P&L, which have, of course, negative impacts. Those costs will go down as well.
Then this was my part, and now I give back to Eero.
Thank you, Valtteri. And then we go to the outlook for 2024. At the moment, we do not see any improvement in the general market conditions. So we expect the demand to be on a low level. But despite that, as I said in the presentation earlier, we have a number of actions ongoing in Environmental Services to sort of improve our performance after the weak fourth quarter and to offset the implications of this municipalization. And also, in Facility Services in both Finland and Sweden, we continue our journey with this systematic improvement program in both of the businesses. And that gives us confidence that our adjusted operating profit would be at the same level or better than 2023.
In net sales, we expect that to be on the same level as 2023 due to the challenging market conditions. Thank you. That was our presentation, and now we're ready for your questions.
If you wish to ask a question, please dial pound key five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key six on your telephone keypad. The next question comes from Nikko Roukangas from SEB. Please go ahead.
Hello. This is Nikko Roukangas from SEB. Thank you for the presentation. I have a couple of questions. So first, starting with the guidance you just described. So you expect EBIT to be flat or improve in 2024. So what is the variable there for giving wider range than in 2023? So in what scenario the EBIT will grow, and what is the scenario for flat EBIT?
Could you just comment a little bit?
I think I commented that already. So right now, the market recovery does not look probable, at least in the first part of 2024. But I'm doubtful that we will see much recovery in all of 2024. And obviously, assuming that we are successful in these programs that we have ongoing to offset the negative impact of the municipalization and, let's say, difficult market conditions, then it could be that the adjusted operating profit improves. But then if the market conditions are worse or if, for some reason, our efforts are not as successful as planned, then it might be on the same level. I don't think I can open that more.
No, I think that gave good clarity. Thanks. Then on Environmental Services, you already discussed it a bit, but the EBIT there weakened clearly in Q4. So in 2024, could you give us some kind of tools for the development, or what kind of do you expect this kind of weak trend, what was visible in Q4, to continue next year or given your actions to improve profitability, but also the weak market?
Yes. As I said, I don't expect any support from the market in general for Environmental Services or any other of our business lines. So the thinking is that the price levels and the volumes of recycled materials will be on this, let's say, lower than normal or average level. What happened in Q4, on top of the challenging market conditions, was that we saw kind of the full effect of this municipalization of the packaging waste and biowaste in markets that are very important for us.
As we, at the same time, had to start the municipal contracts that we won in the tendering process that happened when the municipalization took place in, say, early 2023 and then was effective in late summer in 2023, then there is a delay for getting the productivity to the level it should be in all of our routes. As I said, we have more than 10,000 routes overall in Finland. In Environmental Services, we have more than 800 heavy vehicles, and we have a lot of drivers. That is quite a puzzle to make sure that the route efficiency is where it should be. That will take some time before we get there. But obviously, we're working on that.
And also, the fact is that in these market conditions, we need to be extra careful that our fixed costs are as lean as possible. And as I said in the presentation, we have already taken actions to, let's say, right-size the organization to reflect the current market reality.
I understand. Thanks. Then on Facility Services, you expect positive impact from Facility Services Sweden improvement actions to be visible by the end of 2024. So does that indicate that you should be at healthy or at least healthier profitability run rate by that, or do you expect to reach break even in Sweden before that already?
Well, I'm expecting the profitability to be healthier, but I do not want to give guidance by business segments. So the fact is that we actually performed very well in the projects that we had in our turnaround program in Sweden.
But at the same time, the general market conditions were very difficult. And we did get negative surprises due to that, to our performance in 2023. I'd say that we have better control on things now in Sweden, and we have already worked on these turnaround programs for several months. So I expect to see better results in general in 2024. But I don't want to give any outlook for the Swedish Facility Services.
Yeah, I understand. Then still short questions on effects of strikes in Finland. How do you see them affecting you?
It's difficult to say at the moment. So far, the impact has been sort of not significant. But no one knows how long and at what extent the strikes will continue as we get into spring 2024. So I guess it remains to be seen. But yes, there have been negative things due to these strikes.
We're working very hard to make sure that there is as little harm as possible to our customers due to these strikes. Obviously, it is not making our work easier in these challenging conditions.
I understand. One final from me about the IT project that Valtteri discussed earlier. What has been the P&L impact in 2023? And do you expect similar kind of P&L impact also in 2024 and then to decline in 2025, like with capital expenditure?
Yeah, we don't give that specific number out, but we have clearly over 50 people working on these projects currently. You can then estimate based on that what might be the cost because we don't capitalize any of the work that we are doing internally for these projects. Yes, we do expect the costs to go down starting 2025.
All right. That's clear. Thank you. That's all from me.
Thank you.
There are no more questions at this time, so I hand the conference back to the speakers. There are still a few questions on the chat. The first one is: How far has the turnaround on Facility Services progressed, and how much further progress on margins can we expect for Finland?
The same goes for Finland as for Sweden. I don't want to give out an outlook for a business segment. Let's say that, especially in the property maintenance, we have still quite a bit of room for improvement. What we managed to do in 2023, we managed to make our customer portfolio much healthier. We also were able to increase our efficiency quite a bit. As I said, especially in property maintenance, we still have a way to go.
Obviously, it would be good to win some new customer contracts because our target is not to decline in this business but grow. 2024 is a year when we focus on finding new healthy customer contracts for Facility Services Finland.
Thank you. Then the second question: Can you say something about the profitability of the tendered municipal waste contracts you won? How will profitability for Environmental Services look like in the longer term?
Yes. No, I cannot say anything specific regarding the profitability of the municipal contracts. In general, I can say that the profitability of these contracts in the tendering process is lower than when we have a contract-based business. That is one factor behind the EUR 2.5 million decline in the profitability that we saw. The other factor is what I already described, that the productivity has gone down, hopefully temporarily.
We have now actions to offset that. In general, for Environmental Services, we will sort of go through this wave of municipalization. We will adjust our operations and increase efficiency and go through the rerouting to make sure that the productivity is at the desired level. As we published our updated strategy in the fall, our aim is to move further in the value chain and hence sort of move into new areas of business in environmental and Industrial Services. Obviously, we have already had and will continue to have more focus on B2B business, where the profitability is on a sustainable and healthy level.
Thank you, Eero. That was the last question.
Thank you very much. Have a good continuation of the day and good weekend. Bye-bye.