Good morning and welcome to Lassila & Tikanoja Capital Markets Day. My name is Eero Hautaniemi and I'm the President and CEO of Lassila & Tikanoja. Today we will have two sessions. In the morning we will cover new Lassila & Tikanoja, and in the afternoon we will dive into Luotea with Antti Niitynpää and his team. First, let's go through the strategic rationale for this proposed demerger. The goal for the demerger is, first of all, to improve the performance of both companies through a stronger management focus, accelerate both organic and inorganic growth through more efficient capital allocation, increase the attractiveness of the companies by improving transparency, and therefore increase the shareholder value. From a shareholders' perspective, it is quite simple. The current shareholders of Lassila & Tikanoja will receive one share from new Lassila & Tikanoja and one share from Luotea.
We are here today in the Capital Markets Day, and next week, Thursday, we will hold an extraordinary shareholders' meeting where the final decision will be made on this proposed demerger. The completion of the demerger will take place last day of this year, obviously, depending on the outcome of the extraordinary shareholders' meeting, and the trading with new shares will start the second day of January 2026. Okay, as I said, let's focus in the morning on Lassila & Tikanoja, circular economy leader in the Nordics. Today I will have with me presenting Antti Tervo, Senior Vice President, Growth and Operations, and Joni Sorsanen, our CFO. Together with Antti and Joni, we will take you through what Lassila & Tikanoja stands for today and why we think that the demerger will unlock a very exciting pure-play circular economy company.
We will spend the first hour on L&T's leadership position in the attractive Nordic markets and our unique platform. Then we will have our first Q&A session. Following this Q&A, we will continue with our growth strategy, our excellent financial track record, and then we will wrap up with the final Q&A session. To get you in the spirit, I'd like to show you a video that captures the vision for new Lassila & Tikanoja. The video, please.
It's here. There. And in this container. It's in ugly ducklings. In what hides behind the obvious. In them. And most definitely in you. It's potential waiting to be unleashed. And that is what we are all about. We are here to reveal the full power of the circular economy, to secure resources in balance with nature, to drive progress with our material expertise and impactful data, and to raise standards across industries. Sounds ambitious, we know. But that's the way we like it. Because the bigger the challenge, the greater the potential.
Okay. Few facts. Lassila & Tikanoja is a pure-play circular economy leader in the Nordics. What do we mean by that? Everything we do is centered around a circular economy. If we look at by service, waste management and recycling represent about 2/3 of our business. Hazardous waste and remediation about 15%, and industrial services and water treatment about 19%. By customer sector, we serve practically all industry sectors, the public sector, and households. Leader in the Nordics means that we have a clear number one position in Finland. Our market share is approximately 20%, and we have a good foothold in Sweden. In terms of numbers, our net sales 2024 was EUR 424 million. Our adjusted EBITDA was EUR 86 million, or 20% of sales. Our adjusted EBITA was EUR 44 million, or a little over 10% of sales, and our return on capital employed was 14%.
We have a profitable and highly resilient business. We are a crucial part of circular infrastructure by providing essential services for society and industry. This picture here illustrates some of these essential services within our broad offering. We'll go into our service offering more in detail later, but the key common denominators are at the top of the page. We increase recycling rate across industries. Our aim is always to increase the recycling rate of our customers, and we target a recycling rate of 70% by 2030. We produce sustainable raw materials through reuse, recycling, and different treatment and processing. We produce valuable materials and products out of waste. We eliminate harmful materials. There are a lot of harmful materials currently in the value chain that should not be there. We make sure that harmful materials are removed from circulation safely and responsibly.
Our services are essential for ensuring circularity. It is also very important how we do it. Our end-to-end offering is unique, and this is a competitive advantage. End-to-end means we cover the entire waste-to-value cycle. It all starts with integration into our customers' processes that ensure efficient sorting and treatment at the source. Collection, sorting, and recovery, treatment and processing, elimination of harmful materials, recycling and utilization as secondary materials, and finally, with best-in-class reporting and advising capabilities that provide crucial transparency for our customers. Unique in the way that no other player in Finland can offer this comprehensive end-to-end solution. It gives us several advantages. Ability to win at the waste source and hence secure stable material inflow. Access to waste, which means security of supply to our treatment and recycling processes, and ability to optimize the process.
We have a balanced portfolio, and we are equally strong at the source in handling and treatment, and we have exits for all of our materials. In summary, we have a highly synergistic offering that is valued by our customers and brings us a competitive advantage. This takes me to the next slide. As you can see here on the right-hand side, almost all of our top 15 customers use our full service offering. This evidences the relevance of our full offering and the fact that it is valued by our customers. For us at L&T , this means competitive differentiation. It enables operational efficiency and process optimization and offers us an opportunity to capture the full margin potential in the waste-to-value chain. Later on in the presentation, we will discuss how we intend to further leverage this full offering of our entire customer portfolio.
Let's look at the market. Our market is attractive and supports our strategy well. We have large and growing markets. In the next three to five years, our addressable market will amount to approximately EUR 10 billion, and the market is growing steadily at around 3% per annum. The trend is increasingly to maximize the value of waste through recycling and reuse solutions and minimize incineration and landfill. This is supported by, for example, regulation. There are landfill taxes, and there is a proposed emission trading system for waste-to-energy at EU level by 2028. Resource scarcity and drive for self-sufficiency and overall society's push for circular solutions. All of this is positive for Lassila & Tikanoja as we focus on circular solutions that benefit from these trends. I will come back to this market environment later on in my presentation more in detail.
We have a very strong financial track record. Our growth has been resilient over the past five years. This reflects our strong market position, our two-sided business model. We earn revenues both in upstream service activities when we receive the waste and then when we sell the recycled materials and products after our treatment activities. Our profitability is strong, and we have a solid track record of very stable and predictable margins. When we compare ourselves to some Finnish and international peers in the sector, our EBITA margin of 10.5% in 2024 stands out as one of the best in the sector. Going forward, our target is to accelerate growth further, which brings me to our midterm financial target. As a pure-play circular economy company following the demerger, we are stepping up our growth ambitions.
We are targeting more than 6% average annual sales growth, and we have all it takes to reach this target. We have large and growing markets. We have a unique and very competitive platform, clear growth strategy, strong cash flow, and balance sheet enabling growth investments. At the same time, we are committed to maintain our strong profitability and target EBITA of 11%. Our target is also to maintain a strong balance sheet, and our dividend policy is to pay out at least 50% of our net income. In addition to financial targets, sustainability is very important for us. We have an ambitious target to reach net zero by 2045. Already today, our handprint is positive, meaning we help our customers to reach 440,000 tons less CO2 emissions, and this equals to emissions of 77,000 Finns. I'm proud of our very strong management team.
We have a great mix of in-house experience and fresh perspectives. We have also a wealth of relevant industry expertise. In addition to Joni Sorsanen and Antti Tervo, who will be joining with me later today in the stage, we have in the audience the entire management team. We have Juha Saarinen, we have Hilppa Rautalo, Jorma Mikkonen and Eddie Särström. People here at the studio, please feel free to catch up with them during the lunch break and hear more from them. In our management team, we have all the ingredients for future success. I would like to finalize this first section by summarizing the key highlights why Lassila & Tikanoja has a compelling investment case. We are a leading player in a growing market. We have a unique platform with operations covering the full value chain.
We are well positioned for growth with a clear strategy, and we have a strong track record of growth, profitability, and cash generation. This will now take us to the next section, and we will start with the market. In this section, we will go through the market and its growth drivers, our position in the market, and required capabilities to be a leader in these markets. As I said a few minutes ago, our markets are large. Independent research estimates that the size of our market was about EUR 8.7 billion in 2024. Of this, EUR 2.5 billion was the Finnish market and EUR 6.2 billion the Swedish market. By 2029, the market is estimated to reach EUR 10.3 billion, meaning a growth rate of approximately 3% per annum.
This underlying growth is driven by three main things: real GDP and population growth, increase in recycling rates, more and more waste volumes will find new life in reuse and recycling applications, which have a higher value than incineration and landfill. Pricing, for example, a tightening blending obligation will drive the value of recycled material in the future. This is the base growth of the market. On top of this, there is an additional potential of approximately EUR 3 billion. Through technology and method development, we will see more solutions in waste-to-material, waste-to-product, reuse solutions, and growth of remediation. There is a clear trend to maximize the value of waste through recycling and reuse solutions and minimize incineration and landfill. Our solutions are within recycling, hazardous waste treatment, and remediation. We do not operate in waste-to-energy, while our hazardous waste-level landfills remain a part of our end-to-end offering.
All key market trends support our recycling and reuse solutions at the expense of incineration and landfilling. Every fraction of material is valuable for us. There are large future markets in waste-to-material and waste-to-product. Currently, incineration represents about 60% of the Finnish waste handling market, but obviously, incineration is not a solution for the future. Our recycling rates are currently about 60%, which is 20 percentage points more than the average recycling rate in Finland, with a target of 70%. The reason is obvious. There is much more value when we recycle waste-to-material and waste-to-product. Perhaps the fastest growing segment for us at the moment is remediation. Construction on industrial sites is steadily increasing in the largest cities. Regulation is tightening, and there is a growing need for two properly closed mines and landfills.
There is an increasing need to use remediation of contaminated land to enable future use, for example, in housing. Reduce the use of natural resources by utilizing industrial and production waste, as well as improve biodiversity and create carbon-binding solutions. Our ongoing projects and order book are currently worth tens of millions of euros. Let's shift gears a little bit and focus on our position in these markets. We have a strong leading position in Finland. We are either number one or number two in all of our service lines, with market shares between 14% and 23%. Most of our key competitors operate in one service line only. This goes back to my earlier point. We have a unique full offering that is a competitive advantage across service lines, and we will continue to leverage on that.
Even though we are number one or number two, we still have plenty of room to grow and increase our market share in all service lines. Our markets still remain fragmented, and we believe strong players will have an opportunity to take share organically and through acquisitions. We celebrated this year our 120th anniversary as a company. We have experience and credibility that is very hard to match. Our market is difficult to enter, and building a strong position requires significant time and expertise. We have built our position over several decades. This includes a very established brand. We are a market leader with this very strong brand, and we have very long customer relationships up to 30 years. It requires technical and regulatory expertise. We have deep expertise in complex and tailored circular solutions. It requires environmental permits.
We have a permits portfolio of more than three times our current waste volumes. It requires scale. We have a nationwide presence with a fleet of more than 1,200 vehicles and 58 sites. It requires capital investments. We have well-invested infrastructure and state-of-the-art ICT systems. To summarize this section, we operate in large markets with structural growth. We have a leading position in these fragmented markets. Our industry has high entry barriers, and it requires complex capabilities, which we have built over the decades. Next, I would like to invite Antti Tervo on stage to continue with our unique platform. Welcome, Antti.
Thank you, Eero. Good morning, everyone. My name is Antti Tervo, and I'm heading in at New L&T Tech Growth and Operations. Hey, let's have a deep dive on what we are doing in our operations. Unique platform.
What is actually unique in or at L&T? As Eero described earlier, we have a strong position in our markets where we are operating. Very important in our role is that we are closely present at customers' lives on a daily basis. We have more than 140,000 customers in diversified segments. This enables us to have access to a number of materials we can recycle and treat. We have more than 12 million pickups on a yearly basis. How we collect the materials, we enable recycling. More than 1 million tons of waste where we have access to 80% we are recycling or handling today. Again, with the treatment capability and know-how, we have also a strong understanding of how the recycled materials can be used.
We have already created a number of materials which have an end-of-way status, which is actually a status for material which used to be a waste, but it is nowadays a product. It enables us to have multiple sources where it can be used as a material for other use than it used to be before. Let's have a look more deeply, actually, at what we are having and what are the key cornerstones to create a competitive advantage in our value chain. There are four elements: end-to-end portfolio in our offering. We have a strong customer base. It is important also that we have the right competencies in the developing environment where we are working, and the assets to perform the value chain and succeed on the customer front. We will start with end-to-end offering.
What is very important, as stated earlier, is that we are very closely working with our customers, and we are able to understand the different needs in different customer segments. Based on that one, we have actually three segments we are serving. We have waste management and recycling, hazardous waste remediation, and then industrial services and water treatment. Why we also look at our services from these three angles is that all segments have certain specific areas where you need to have a special know-how. For example, in waste management and recycling, there is plastic or cardboard as a traditional waste, whereas in hazardous waste and remediation, you have more challenging hazardous materials you need to handle. Whereas in industrial services and water treatment, you are working very closely with the customers, for example, with water and liquids. Certain specific knowledge is very important.
How we actually then build and bring these segments together, we actually have the same two-side business model in all these segments. We are strong on the customer side, providing the services, and then we are recycling the materials, and we create also sales out of the materials we are recycling. Understanding industry-specific needs, that customers are also able to fulfill their sustainability targets in the future and, of course, today. We are supporting this with our data-driven approach. We are able to report more than 200 fractions of recycling rates and help customers and us to further develop business together.
On top of that, we have professional services on all these three segments that from early on, when a customer is planning a site or operation, that what should be considered that we will maximize the operation efficiency in regards of recycling, or when you are doing that during operation, or even the case when you are ending your operation, where, for example, remediation takes place. Let's then have a look more deeply at the waste management and recycling. Actually, this represents around two-thirds of our total business, more than EUR 280 million. Here, especially, the maximized recycling is our focus. We work very closely on our customer sites, providing the sorting solutions and also thoughts on how we can improve and make sure, of course, that when they are developing their own operation, we are maximizing the recycling.
We provide also digital services that we are online able to analyze where we are today, and we have also benchmarks that we can compare where we could be in different sectors. We enable together with customers improvements in those areas. There are a couple of examples of services and activities what we are doing. For example, events where we are strong or trade and logistics, which is a strong customer segment in this sector. It is very important to understand how the customers do operate and how they want to operate in the future. We provide strong logistic understanding with those 12 million pickups for those 1,200 vehicles we are having. It is very important that you are optimizing and working closely together on the market areas to optimize the routing and operation.
With that, when we have the materials collected, we also keep and develop the know-how that we make sure that we will get the best output from the materials we are collecting. If we then have a look at the hazardous waste remediation overview, this represents around EUR 66 million of our net sales. Here we are coming even closer to customer needs, and also we are handling challenging materials, which we actually see as an opportunity. First of all, you need to handle materials like hazardous waste the safe way. That is very important for us. We have been developing during the years a number of solutions in this area. At the same time, we are recycling more than 60% from hazardous waste, which we are proud of, but we are not satisfied. We will see there further opportunities.
Our real aim is here to minimize the environmental impact because in industry or certain sectors, you still need some challenging materials and chemicals that you're able to produce the service or products. We can help our customers to minimize the impact. Especially the complex areas are the ones we like. We will later on in the presentation see one customer example that when an old industrial site has been remediated successfully with the customer. It really means that you need to have a chemical understanding. You need to have an operational understanding to make sure that, for example, a final industry site can be remediated as safe as possible. Again, some examples on the services what we are doing and what we can see on these pictures. It really says that we are close to customers. We have advanced recycling solutions for hazardous waste.
We have even done the first landfill projects in Finland. Taking actually raw materials out from once closed landfill, which we see as an opportunity in the future. Positive is that we have done it, not just thought about it. From hazardous waste, we look at what we are doing in industrial services and water treatment. This is around EUR 80 million of our net sales. Here, the customer environments, again, do differ at subsegment level. Whereas we provide standard services, we also concentrate to create spearhead services on subsegments. We understand what happens in the forest industry or pulp and paper factory. We understand what happens in the metal industry or what happens, for example, in big infrastructure sites which are handling, for example, water treatment. We have actually developed methods on this sector.
This area still lacks innovations that we can do better cleaning, but also making sure that the customer does not need to run the operation down, but we are able to help them during the operation. With that, we also look at carefully and try to understand as best as possible what actually materials customers are handling and doing where they also require cleaning. Another point of view is that we are doing the cleaning. We are helping the operation to run. The materials that are cut out from the operation, we know how to recycle and what to do for the materials. Here, especially, it is important that you have a fast and nationwide service. When the factory goes down, you need to have the response on nationwide present operation.
Another way around, when you are having maintenance breaks, which are very crucial, especially for the process industry, you need to have the necessary economies of scale and, how to say it, right equipment, right place, right time. That is really important to have the loyal relationship with the customers. Examples on activities what we are doing here are really coming close from the customer process, like boiler cleaning in the energy sector. We are having expertise. We have even own developed methods on that sector. We are doing mobile treatment for the water when the customer has challenges, or we are having inspection services to have a look whether the pipelines are in order or whether there is some preventive maintenance which might be required. Strong support here also from the hazardous waste because we are often dealing with the chemicals, challenging materials.
We have a substance in our hazardous waste and remediation area. There are strong actually synergies here also with that business line. If we summarize our end-to-end offering, we have spearhead services to all three segments and even the subsegments. Compare, for example, that industrial combinate. There are differences between combinates, whether it is a metal or process industry. You need to know detail what happens in these different industry sectors. Or retail. There is no one retail shop. There are different chains, and they have a little bit different demands. You need to have, of course, standard service, but you need to customize the service and develop your service towards those demands. We have a strong nationwide network which creates operational efficiency. I mentioned the example just that how, for example, industrial and water do work together with hazardous waste and remediation.
Same way, for example, if we think about hazardous waste. When you do recycling of hazardous waste, you might get out, for example, plastic. Then we have actually our traditional waste management, which is then having channels and treatment methods how to recycle plastics. These elements do support each other. As said earlier also, yes, we have a number of customers which are using more than one service, but there are actually a number of customers who are just using a small part of certain service. We have possibilities to also expand our portfolio towards customers. Doing this, it's also enabled us to capture the full margin potential. Having an offering and trying to understand the customer, of course, it's important that we know the customers and who they are. Coming to diversified portfolio, it's actually very wide for New L&T.
We have a very balanced portfolio of different segments. As said earlier, very important, we have an understanding of subsegments. There is no one retail or one industry. If we have a look, for example, customer examples, we have a number of customer examples from diversified segments. Very important is that we have also the necessary services, especially what certain subsegments do need. Also in the future, our target is that we serve multiple segments as well. That gives us a very good balanced portfolio towards the future as well. Among those 140,000 customers, just the top 20 are taking 25% of the net sales. Also reflects or combined with the diversified segments we are working gives a good base that we have a number of customers we are working with.
On the right-hand side, we can see that we have customers with even 35 years of experience on, how to say it, with us, and a number of customers more than 20 years. Our target is that all of these customers would be 35 years, and even the oldest ones would be then 50 years in the next 15 years. For us, it tells that if waste management industry has started there, that you collected waste and you put it in a landfill. Nowadays, we are recycling. We are very close to operation on a daily basis. We have been part of that track and route with our customers. That's why it's very important that we develop our actions also in the future so we will be also next many years with our key customers. We ask feedback and have a close discussion with our customers.
Our net promoter score was 46 this year, which is nice that we have seen a good development there. Where actually then customers see us succeeding or doing well, we can highlight three areas, especially the transparency and reporting. There is not any more information or work which is not documented. When we do that together with the customers, we are able to react and improve and face and also recognize challenges. Reliability and sustainability are having also strong overview and, how to say it, results from the customer point of view. That is very important. With service offering and quality, we are also doing strong. Of course, our target is to even be stronger in the future. With this, we are very humble, and that is why we are doing this feedback, how to say it, continuous basis. We are asking from the customers.
With customer satisfaction and close relationship, we have been able to also have an actually strong recurring contract base with our customers, which has been also developing in the last years. Our average contract duration is six years. Today, there are 70% of the customers who are using actually more than one service line, which tells us also that it's not just the one service line which is strong. There's also, as I said, a strong amount of customers which are using more than one service line. What is important today as well, that why we have a lot of fluctuation in the market and changes up and coming, our contract base is also inflation protected. We are able to also contract-wise and also contract structure-wise impact and also have a look if inflation will negatively impact us, also put that on the contracts as well.
The real customers, of course, do tell us how we perform. Here we have three examples, and these represent examples of nationwide service, diversified areas of business that we are able to provide. For example, in retail, Broman Group, 41 stores served in Finland. That really tells that nationwide we are able to provide standard operation with strong service offering. Hartela, construction industry, very long relationship from 2005. Today, recycling rate 70%, and even targets are to reach more. Again, every construction site or area might be a little bit different, and we are able to still have a strong recycling rate there, and we are actually trying to reach together higher rates in the future. Industrial site relationship, more than 15 years, more than 20 locations served. As an example, industry, when you look at it, the one site might be built on 2015 or 2010.
First sites in this industry case have been built in the 1930s. You are able to operate and find solutions with the customer in changing environments. From the customer front, let's have a look at who we are and look at what kind of team of professionals New L&T is having. We have today more than 2,000 professionals, almost 200, 300 professionals working at New L&T. We have a strong eNPS, so employees' net promoter score. This is very important for us because we are working closely with our customers on a daily basis. We have a lot of, how to say it, we are meeting customers every day and also looking at that capabilities to meet the challenges in the future. 2,000 training days a year, it's really important for us that we make sure that the capabilities are also developing.
Our professionals are not just one area of competence we are actually requiring. We have today chemistry. We have a biologist that we are able to provide the biodiversity solutions. We have logistics experts and so on. There is a really cross-functional competence you need because when you are doing recycling, you are actually dealing with contaminated materials. You need to have a cross-functional understanding. Our average employment duration is almost 10 years. That we respect, but with the continuous training and understanding of the market, we, of course, try to have it even higher in the future. Safety is the one key measure for us. We are dealing with hazardous materials. We are an active player in the traffic with our strong logistic network. We are today above the industry average, but our target is zero.
With 25,000 preventive actions, we try to early recognize the challenges and also improve our activities in safety. That we are able to also make sure that our operation model works very well and is transparent. We have a data-driven operation model, which is just recently renewed. To keep the customers satisfied and, of course, our own employees to manage the operation, we have gone through more than 160 processes during the last years to understand that our operation model is as efficient as possible. We have defined eight key processes, which especially are important for us across the businesses. Whether we are doing remediation, which is a kind of project business, or we are doing recycling, which is logistics and treatment, we have an IT infrastructure and operation model which supports that.
We have actually invested more than EUR 20 million to cloud-based IT infra, which is a platform towards the future. With that, its main aim, of course, is that we are able to also respond to the customer's needs, also do the strong operational efficiency in the future, help us in the decision-making, having transparent operations, and, of course, increase the scalability in case of, for example, thinking in organic cases. As earlier stated, it is very important that also IT and operation model create advantages for us. Here we have a couple of examples of how we have created advantages for ourselves with the operation model and IT. If we have a look at how the orders are coming into us, we have our own tool for customers. They can use 24/7, anytime, anywhere. 50% of our orders are coming in from there.
This is integrated to our operation model. Customers are interested today especially that when there is a pickup or when they have a change in our operation, so they can change the times when the pickup should take place and so on. We have more than 10,000 B2B customers using our solutions there. Recycling rates development, it's important that you understand what you should improve. We provide online reporting to our customers with our Ympäristönetti solution, where you can actually see where you are today yourself with 200 fractions. We have a long variety of fractions when we take all of the hazardous waste and traditional waste materials. You can see the development of the waste from that one tool. Even including industrial benchmarks, so customers can a little bit compare how they are compared with others.
This we use together also, that how we can improve recycling. From the operation model, let's jump to our infrastructure. We have looked at it, at who we are and how we operate, but it's very important to have the tools and resources to perform the operation. The nationwide presence close to customers is not just employees. It's also 500 vehicles, 170,000 collection points. We have treatment facilities all over Finland, and we have more than 50 environmental permits. If we have a look at those challenging materials, harmful materials, we have five hazardous level landfills, which are actually fulfilling the demand in all Finland. Why the permits are important is that this environmental business requires license to play. First of all, you need to follow the rules and regulations, but also enables to perform the operations and recycling you need. This is licensed work, how to say it.
All over 40 cities, we have sites today with 2,900 tons, almost 3 million tons of permits. It tells us that we have a capacity to grow. Let's have a look at three examples. First, from the fleet, how to make sure that the fleet also corresponds to requirements in the future. We look at a little bit our treatment capacity, and then we look at some experiences and real-life examples from the treatment. We have a big fleet. It's also important to understand that the power sources for the fleet usage are changing. You used to have a diesel; nowadays, you have electricity; you might have a gas. We have been one of those front runners who have been investing on this, that we know how the different technologies do develop, and we understand the life cycle, how it works, that we have efficient operations.
As I said, even today, 1/10 of our fleet is low emission, electricity or gas as an example. Our investments, there's even already 1/3 we are putting on these new technologies. When we have the fleet which is still using diesel, we are actually using more than 3 million liters of HVO, renewable fuel. We can say we are one of the biggest ones in Nordics. This really helps us to face in the future when there is a growing demand to have lower emissions. We have a roadmap actually towards 2045, like Eero presented earlier, that we actually are emission-free. We are now well on track on that. Treatment capacity. 58 sites today we are working with nationwide, making sure that when we have those 12 million pickups, we have the infrastructure to take the volume in and create materials out of those.
What comes to permits? As I said, we have a capacity three times more handling than we have today. This is not just what happens in one or overnight or a couple of months, how you develop the permit infrastructure and your site infrastructure. As an example, in northern Finland, where we created a new treatment center, it took 14 years to have the treatment site in place. Again, we have a capacity to take more materials in. We have a strong portfolio for different waste types. It's not just the one; we have 200 fractions we are treating today. The permits do not restrict our growth. Having a strong permit base and, of course, the facilities for the treatment and strong logistic network with the fleet.
Of course, the thing is how you utilize the network that you will create value out of the materials. Here are examples from three different sectors. For example, plastics. L&T has a strong and long history to recycle plastics. We have in Merikarvia a plant, and we are the B2B sector very strong in recycling plastic. Here also, together with understanding that there is not just one plastic, but there are a number of fractions, for example, which are coming in. What you try to get is as pure as possible with our sorting solutions together with the customers, you still need to understand how to get it clean and how to create a material to customers. There is not just one, how to say, plastic you provide to customers. We provide more than 100 fractions to resell for the plastic industry.
That's the one competitive advantage we are having. Hazardous waste, 60% of recycling. We can say that we are one of the front runners here. We have been developing this recycling a long time. We have three strong sites which are doing recycling, and we have a number of examples where we have created actually for hazardous waste value after treatment. We are getting industry assets as an example where we are creating new products for industry. We are taking the coolant fluids where we are creating marking materials for the forest industry, which are safe to use there. These are just a couple of examples we are having. When we look at the recycling, the first thing would be reuse. Reuse is one of the elements we have been developing lately. We have had a strong operation.
We did an inorganic move during last summer that we expanded our operation. Today, we are handling more than 4 million pallets. This strongly relates to package recycling, which is increasing, and there are also regulatory demands to increase that one. We are already involved there. We have four sites today. Just imagine in the past when you just threw the pallet away, we are today able to recycle it 10x . We keep it in a circle together with our customers. To summarize, to have a unique platform requires unique elements. We have four areas where we have competitive advantages. We have a strong offering, which we are developing all the time, and we have a spearhead for segments to succeed in a number of segments. We have loyal customers and a diversified contract base.
Today, 2,300 professionals with developing capabilities and have been able to do in the past, and that we see in the future as well. We have also a new operation model which provides us a platform to also develop and make sure that we are able to show our results to customers and develop together. This is then enabled with a strong network which enables us to grow and develop. Thank you for your attention, and I think we have a next session Q&A together with Eero.
Thank you, Antti.
It's already there, yeah.
Now we are ready for your questions, and Lilja will join us on the stage, and she will go through the questions we get online.
Good morning, everyone.
Nikko, go ahead.
Right. Nikko Ruokangas from SEB.
Sorry, yeah. Thank you.
Nikko Ruokangas from SEB, thank you for the presentations so far. I have a couple of questions related to the growth you are targeting. First of all, do your growth targets include also acquisitions? If they do, could you kind of discuss a bit how much of organic growth are you assuming there?
That's an excellent question, Nikko, and I will cover that in the next session if you are patient. In the last session today, we will go deeper into the growth, and maybe if I don't answer to your question, then we can come back to this in the last Q&A session. Is that okay?
Yes, that sounds good. I would have also a couple of other questions also related to maybe acquisitions and so on, but I then save those to the later stage. Maybe on kind of you discussed the things you were kind of going through the more than 100 processes when you discussed about the IT infrastructure and how you can improve the efficiency. How have they been already visible in your numbers, and do you see kind of a room to get bigger benefits out of the improved efficiency going forward?
Yeah, very good question. If I first reply on high level, and then Antti will go more into details as he knows them better. On a high level, this big project has been very visible, especially in 2025 when we have had the rollout. We had in waste management and recycling and for hazardous waste, we had four waves of rollout, and for process cleaning and environmental services, we had two waves.
Three waves.
Three waves, yes. We had extra costs in 2025. We had to have extra resources, and obviously this type of huge rollout requires some extra help from consultants as well as our partners. Obviously that was not the end goal for this. There are many benefits that we expect to see in the future. Many are around sort of how we can better service our customers, but also we expect to see increased efficiency gradually now starting 2026 onwards. Maybe Antti, if you can open a little bit more in detail, sort of what does it mean in practice going forward?
Yeah. Maybe as Eero just said, while we have different waves, we have also approached the operation model such that where we have a logistic and treatment business and where we have a project business. We have certain segments in our operation model which especially support these different subsegments what we are actually operating. We have a common platform, but then we have the, how to say, industry-specific activities where we, of course, target to also create operational excellence. Both, of course, that we are more cost-efficient and we are using our resources as efficient as possible. Again, which is also very important, we are working closely with the customer, that we are creating advantage, that we are together with the customer able to react, that they are able to improve their operational efficiency.
That way improve our own service pricing and also able to serve for them. Two angles, cost efficiency, but also the better customer service output.
Perhaps one final thing is, as Antti showed in the picture, we have one data platform from which we can now extract data, and it is with those tools that we have already in place, and hopefully we have even better tools going forward, we can really provide very transparent reporting for our customers, and no one else in the industry has such capabilities as we do now.
Okay, thank you. I'll touch upon acquisitions slightly as you mentioned the pallet business acquisition this year. You can discuss about this and also more generally. Could you talk about how do you run those integration processes when acquiring these kind of businesses, and then also how do you make sure that you get everything out of the acquisition in terms of synergies?
That's a very good question. As L&T has done acquisitions in the past as well, we have actually a process how we do the integration, and we follow the process we are having. Of course, the one thing that we will take the operation on hand very well and keep the customers satisfied. We have also planned together that how we can improve the operation to the future to create the value add on the market. For example, pallet business where we are today will see opportunities in the future. It is that how we with combined actually efforts we can be strong in our customer front.
We also have cost synergies, which is clearly the case in many of our acquisitions because recently we have done, let's say, smaller bolt-on type of acquisitions that then enable future growth, and it is by design like that because the integration for us is quite easy, and in the future even more easy with our new ICT platform. We quite often, if not always, look for companies where we can have synergies when we integrate them into our operations.
All right, good. Thank you. That's all from me at this point.
Thank you.
There is one question online.
Okay.
How much can you grow in each service line without investment to capacity? What is the investment pipeline horizon?
Yeah, we will come back to that later in the presentation, but maybe a high-level answer. Our overall growth ambition is more than 6%, and in all of these areas, we believe we can grow more than 6%. The investments required, obviously, organically, if we just think of sort of replacement type of investments, it is not huge. It is less than our depreciation, but obviously we want to, on top of that, make sort of organic growth investments, and I will come back to that later in the presentation, and then acquisitions. It can vary depending on whether we are successful on one year in an investment or whether we can or we do a bigger sort of organic growth investment on a certain year.
No more questions online. There.
Hi, Joona Harjama from OP Markets. Thank you for the presentations. I have a few questions. Firstly, about the 11% EBITDA target for the New L&T. One could argue that the target is not very ambitious if compared to your historical performance, and also considering that you have been operating in very low or very weak macro environments. Can you give us any color of setting that level of profit margin target?
Yes. Excellent question. Thank you. It needs to be looked at in combination with our growth target. As you said, we have been able to reach almost that level of profitability already in not so good market, but at the same time, we are now targeting to grow twice the market sort of growth, underlying growth. Obviously, that will require investments into people, into sort of operations and our facilities, and potentially acquisitions as well, and they will not immediately yield benefits for us. Therefore, together, the more than 6% growth and 11% adjusted EBITDA target, I think, is a pretty reasonable target for any company.
Thank you. Thank you for the very good breakdown of the structure of your different business lines. You mentioned that you have broad presence in both downstream and upstream, but could you summarize us kind of the sales structure in different parts of the value chain? How large a share of revenues come from upstream and also from the downstream?
I'll let Antti take a crack on that, but we do not have exact figures, but maybe Antti can give some light on that.
Yeah. As Eero said, we do not open that in detail, but of course, how we see where we are going, and we have seen actually in recent years that whereas we have a strong presence in service, more actually important is coming the reselling and the treatment element. Also, when we are coming to remediation, where actually you are not just providing the remediation service, you are providing the recycling of the materials from the remediation site, so it is part of the project itself. That is increasing. Coming more and more, more actually significant in the future. Thank you. Third one from me, coming a bit from the long-term outlook to shorter period.
We know that the municipalization of the waste collection is coming, and I think you have commented earlier that it will bring some headwinds in 2026 and 2027, but do you have any comments from this perspective?
Yes. It's not coming. It is affecting already, and it has been affecting us, I'd say, more for the past two years already. It will impact our operations 2026, 2027, and perhaps even 2028. What is then the impact? It is difficult to say because it is negative, that we know. How much negative it is, we don't know exactly because it very much depends on how successful we are in those tenders for the municipal sort of logistics contracts, but also the dynamic impact it has to the market. We have already seen this year increasingly that small players are exiting the market, and there is a consolidation happening. The market is shifting as we speak, so very difficult to say what is the exact impact.
It is definitely going to be negative for the coming years, but not hugely negative, and we can, to a large extent, offset that with cost efficiency measures.
Thank you. All from me.
There is first at the back.
Thanks. [Antti Koskelo] from Danske. Maybe a more general question about the market growth and what that means for you guys. I mean, obviously, at least some part of that is increasing recycling, less incineration, which I believe probably means that the kind of marginal cost of the last material or taking that away from the streams is going to be higher than for the existing materials. Does it mean that there is also more value for you guys in those, say, new streams in a way? Does it require more CapEx for that growth?
Yeah, I'll say high level first, and then you can complement. There is perhaps a little bit more cost, but I'd say the more important fact is that our customers request us to take more value out of the material, and that is what Antti was talking pretty well about. We really need to understand our customers' processes and their needs. Yes, it will require perhaps more investments in our treatment facilities, but at the same time, it is kind of a market demand that we have to meet. Antti, if you continue.
Yeah, yeah, please. If we take from there that there's one thing is that you are able to recycle more and get more out of the material. There's one thing that you, of course, try to get as pure as possible at source. That's very important when we provide solutions. You maximize the capability to use it different places at the end of the chain, so resell for a number of places. Element of the value is also developing that we have a look at how the industry is developing. You need to use more and more recyclable materials in your final products. That's the one what we see that in the future, if we look at towards years ahead, even increasing demand for recycled materials, which then also probably increases the value as well for the recycled materials.
We will keep the materials on a cycle more and more in the future.
Maybe what I'm trying to get at is that when the tasks get more challenging, do you see better margin for you?
Yes, we do and we don't. It depends on the fraction, but there is what we believe in, and some of this still needs to be sort of proven to be a fact that there is going to be increasing blending obligations for various raw materials, and then there will be more value in the recycled material. In recycled plastics, the sort of prices have gone up and down, and it really depends very much on kind of how much supply is there from virgin material. Nowadays, the prices from our perspective could be higher than what they are right now. They're still okay, but they could and should be higher.
All right, thank you.
Rauli from Inderes, hi. A couple of questions from me as well. Firstly, you mentioned you want to increase cross-selling time. I was just wondering how does it look from your customer's perspective across your service lines? That kind of are they the same or different people or departments buying? I would imagine that normal waste and hazardous waste could be the same, but maybe in industrial services is being bought by somebody else in the company. How does that impact your cross-selling efforts?
Yeah. Excellent question. If we look at that, yes, that's right. Traditionally, if you look at traditional hazardous waste, yes. Actually, when you are suing or you are having a need for sanction, that's also waste actually. You need to report, and actually there is not any more waste you shouldn't report as a customer. Actually, when we come to remediation and side streams, they are also waste, how to say that source. You are able to provide the whole. That's the idea of our end-to-end offering, that we are actually knowing the source and actually what to do and treat. That's why we are also having a number of industrial customers which are actually, we have cases where they are using basically all our service lines today.
Of course, where we address now that we will expand the portfolio, more subsegments of the customer to reach better cross-selling in the future.
Maybe if you answer kind of how we have restructured our sales.
Yeah, that's fine.
From that perspective, I think that's what you're aware of.
Yeah, maybe that as well, yeah, from the customer's perspective, also from your, yes.
Yes. Coming to that, if we have the offering in place, we support that with actually our sales. We have segment sales. When we look at the process industry, when we look at trade and logistics, when we look at construction, we have actually one sales which is providing actually the sales towards these segments. Maybe what I am saying is that, as I said, there's a two-sided point of view that you need to have offering also to enable sales. That's the way we are doing from both angles.
Okay, okay, clear. Then secondly, you often mentioned that the regulation is driving the kind of growth into market and increasing demand, which I believe is of course true, but is there any kind of game changers in the pipeline on the regulations since your market growth estimates is still like quite steady 3% per annum? That does not look like there is any big changes as such coming. Is there anything potentially coming from the regulation side that could impact the market growth outlook?
Yeah, I don't think there is a single game changer that is coming, but all the sort of new regulation is by large favorable for us. The big things are this blending obligation, the emission trading system. Like now we're receiving a lot of waste in Finland from Italy and some other southern European countries because Germany put a tax on incineration of waste to energy. Finland starts to be the last sort of tax haven in Europe for waste to energy. Probably that will end at some point even in Finland at the latest 2028 when we are part of the EU regulation in this.
There are things all the time, and obviously the next version of our national waste law is under preparation, and at the moment we are optimistic that there are a number of things that will also sort of make it more clear what is sort of the free market and what is the household waste that belongs to the municipal waste companies.
Yes, thanks.
There's still one question here.
Hello, Nikko Ruokangas from SEB. Follow up on the profitability question and target you already discussed. As said, you have almost already reached the profitability target, but the growth investments are now kind of a reason why you are not targeting for higher. How much do the growth and profitability target go hand in hand, meaning that to reach the profitability target, do you also need to reach the sales growth target?
Not necessarily, but we need to grow to be able to maintain this high profitability. That's clear. We don't need to absolutely grow more than 6% every year to get 11% EBITDA. We can and we will increase our cost efficiency going forward as well, but there is a limit how much cost you can squeeze out of the operation. Growth, top line growth is really essential for us going forward. It's been a difficult period for us these past couple of years when the market has been flat or even declining. This is not the way to go forward.
All right, understand. Thanks.
Okay.
No more.
No more questions there online. Did we have a coffee break?
Yep.
Okay, good. Thank you. Let's have a coffee break and continue after that. Welcome back. Hopefully you had some coffee also there behind the lines. This section is about growth. We have three pillars for growth. The first one is about strengthening our position in the current services market. This means that we are aiming to do more cross-selling and upselling. The second one is to do geographical expansion in Sweden. As I said earlier, the Swedish market is more than double the size of the Finnish market and hence offers great growth opportunities for us. The third area, as discussed earlier, waste to material and waste to product solutions mean much higher value for us. Therefore, that is a big opportunity for us going forward. In this pillar, we also look into the possibilities of remediation.
To reach our targeted growth of more than 6%, we need to support these three growth pillars with organic investments and selective acquisitions. Our unique service offering enables great upselling and cross-selling opportunities. Even though almost all of our largest customers use our full service portfolio, that is not yet the case in a small and medium-sized segment. As you can see from this picture, almost 80% of our current customers do not use all of our services to the extent possible. As Antti said earlier, they are using maybe two of our service lines, but they do not use to the extent they could. We have a very strong presence with our industrial customers. They predominantly use our full service portfolio. As I said, at the same time, this is not the case with many of the other customer segments.
If we look at construction, currently about 75% of our sales to the construction sector is around waste management and recycling. Only 25% is around remediation or process cleaning and water handling. There are currently huge land masses handled in construction, and we have capabilities and facilities to do much more, like storaging and mixing various types of masses and very efficient solutions to remediate even very highly contaminated soil. Our small and medium-sized customers do not use our services as much as they could because they are very focused on buying single transactions. We can do much better work in educating them of all of our different services, but more importantly, we need to make it as easy as possible for our small and medium-sized customers to buy more from us by digitalizing the ordering and customer service processes even more going forward.
As Antti showed, we have already very good systems, but there are clearly improvements that we can make for them going forward based on our data platform and our new ICT solutions. A concrete example of upselling and cross-selling is our process cleaning business. Obviously, we have years of experience of very high quality and safe solutions for several different customer segments, like metal, forest, chemical, energy, construction, and infrastructure industry. Our know-how and equipment in high-pressure cleaning and sandblasting are state-of-the-art. We are investing increasingly into service method development, like blast cleaning, no-man entry solutions like robotics and drones, and new and more safe and efficient ways of meeting the ever-increasing customer needs. The second growth pillar is that we entered the Swedish market early 2022 by acquiring 70% of SVB.
Since then, we have together with our colleagues in SVB grown the operations organically and with bolt-on investment to more than double. We are roughly around EUR 20 million now in Sweden. As I said, the market in Sweden is more than double compared to Finland, and in coming years, we'd like to continue to grow our operations. Our plan is to continue to leverage our know-how in special methods like blast cleaning and support the growth with expertise sharing between Finland and Sweden. We will also evaluate possibilities to enter hazardous waste and remediation and waste management and recycling markets at some point in the future in Sweden. Third pillar is how do we integrate further in the value chain. As we have gone through, we have approximately 1 million tons of material going through our hands every year.
Our goal is to get much more value out of this material flow. At the same time, technology development is not straightforward, and it is sometimes very complex and requires time. Most recently, we have investigated chemical recycling of plastics and biochar, both of which we think have huge potential going forward. As of now, we have not found yet a sort of industrial scale solutions that would be viable for us. This is an area we are continuing to invest in and expect to be able to publish concrete developments in the coming years. Another example of integration further in the value chain is our remediation business.
There is an increasing need for remediation of more and more polluted sites as urbanization continues, and industrial sites and power plants are making space for housing in the city centers in the growth areas like Helsinki region, Tampere, Turku, etc. Antti already mentioned this, and I think this is a great example of what we can do. This is a very recent example of what we have successfully done in the area of remediation. We just finished a very large project in Vaasa for our customer Kemira. We remediated contaminated soil of an old factory area and restored the site landfill to meet the very strict environmental safety standards. As per Kemira's request, we created a meadow on the restored landfill. In our R&D study done together with research institutions, the meadow was evaluated to have a high ecological state.
This serves as an example of how biodiversity actions can be incorporated into the industrial environment. Very big project with very good outcomes. Our growth ambitions will be supported with selected and targeted acquisitions. We have a solid track record in executing successfully acquisitions that offer basis for further organic growth. Most recently, we have discussed about this SVB already and then the pallet recycling business acquisition in Finland. These kinds of bolt-on acquisitions are very good for us because we have long experience in integrating acquisitions, and we have a very good platform to integrate these into. As a summary, we have a very large market with healthy underlying growth.
We have a unique end-to-end service offering and leading position in this fragmented market, on top of which we have identified three clear growth pillars: upselling and cross-selling, expanding our operations in very large Swedish markets, and integration further in the value chain with waste-to-value solutions and remediation. All of this will be supported with organic and inorganic growth investments. That was the end of the growth section, and now I'd like to hand over to Joni, and he will go through the financials. Welcome, Joni.
Thank you, Eero. Thank you, and good morning, everyone. My name is Joni Sorsanen, and I work as a CFO at the current L&T Group. It is my pleasure to present to you the key financial highlights of New L&T together with how we drive financial excellence going forward.
In this presentation, I will also tell you about our high-level profit growth plan, and I will end this session by repeating our midterm strategic targets. Our carved financials for the past three years demonstrate stable net sales development with solid profitability. The company generates net sales around EUR 420 million with around 10% adjusted EBITA margin. Our EBITDA stands at around EUR 86 million, of which around 45% can be translated into free cash flow. I will tell you more about our cash flow profile later in the presentation. Another key financial highlight I would like to emphasize is our decent 14% return on capital employed in 2024. Let's start by looking at our revenue streams. We provide mission-critical services that can withstand economic fluctuations.
68% of our revenue comes from long-term contracts, and within this category, we have, for example, our long-term contracts in waste management, hazardous waste, and sewer maintenance services. 16% of our sales come from so-called add-on sales, which are also recurring in nature. This category includes, for example, our process cleaning services. Finally, the remainder 16% comes from, for example, remediation projects as well as sale of recycling equipment and sale of recycled materials. What is interesting about L&T 's net sales profile is that we have both sides of the trade. Our position allows us to generate revenue in upstream through collection and treatment of waste, and also in downstream through sale of recycled materials. Another way to look at net sales is by service type. 66%, so two-thirds of our net sales come from waste management and recycling services.
15% comes from hazardous waste and remediation services, and the rest 19% from industrial services and water treatment services. If we look at our net sales growth in the past three years, we can say that it has been somewhat moderate. However, if we look at growth within these different service lines, we can see that, for example, hazardous waste and remediation services, as well as industrial services, have grown on a decent pace, around 3%-5% annually. However, within waste management and recycling services, we've been affected by municipalization of the residential waste collection, which, by the way, nowadays represents less than 10% of our net sales. However, within the waste management services, we have seen decent growth within our B2B customers, as well as within the producer responsibility organizations. Now, having completed the revenue deep dives, let's turn our focus on cost base.
Obviously, we know very well our cost structure, and we know how to drive cost efficiency going forward. The single most important cost category for us is the employee benefit expenses, around EUR 140 million annually. This includes both variable and fixed costs. If we look at our employee base, we have around 2,300 employees, 600 of which are white-collar employees and 1,700 of which are blue-collar employees. The second largest category is materials and services, which is variable in nature completely. This includes, for example, materials, subcontracting services, and waste treatment fees. Finally, our other operating expenses have various line items, the most important of which are related to our fleet. For example, fuel expenses, EUR 23 million annually, and repair and maintenance expenses, EUR 22 million annually.
Overall, we believe we are in a good position to leverage operating leverage when the market starts to support us in the future. This is especially true for the construction industry, which is at the moment on a very low level in Finland. Overall, we have a strong track record of well-protected margins. Here we have presented you the carved numbers for the past three financial years, but those of you who have followed us for a longer period of time would remember that if we would include here, for example, 2020, when the COVID-19 pandemic broke out, this picture would not change dramatically, which showcases the strong, profitable business we have. However, even though we think that we are among the most profitable ones in the industry and within our peer group, we still believe we have room for improvement. How are we going to do it?
In this picture, I would like to draw your attention first to the growth plan, which is set to provide the strongest absolute profit growth for us going forward. Eero just presented you with the three-pillar growth plan, but also within this growth plan category, we have operating leverage. We think that we have the capacity to take in more revenue without increasing our fixed cost. This will support us when the market starts to recover. Also important for us is to have tangible operational excellence actions in place to offset some of the headwinds already mentioned here, for example, municipalization, the demerger, the synergies, as well as increasing ERP or increased ERP costs and amortization. Within operational excellence, we have tangible actions.
For example, within procurement, we have a strong procurement team working with annual spend of EUR 200 million-EUR 250 million every day working towards achieving savings for the company. Moving on to capital expenditure then. The company has a fairly stable need for annual maintenance capital expenditure ranging between EUR 20 million-EUR 25 million annually. These relate mostly to our fleet, but also to our facilities. If you look at the graph here, we can see that the dark blue bar has been fairly stable, representing the annual maintenance CapEx need. What has happened in 2023 and 2024? We have invested in our state-of-the-art IT system, around EUR 20 million, and also included in the light blue bars, we have investments in special municipal contract-related fleet. Now we have talked about revenue, costs, and capital expenditure.
Let's have a look at what this all means in terms of cash flow. Here we have provided you with an illustration of how our EBITDA translates into free cash flow. If we start from EBITDA of EUR 86 million in 2024, we deduct our maintenance CapEx of EUR 20 million- EUR 25 million, our annual lease expenditure of EUR 15 million. We hopefully add change in net working capital. We seek to release net working capital on an annual basis, and then we deduct interest expenses and taxes. We end up having around 45% of our EBITDA. In absolute terms, EUR 40 million as free cash flow. This is the amount we can invest in growth, both organic and inorganic growth, but also we can use this to distribute funds to our shareholders. This EUR 40 million we can invest without increasing our leverage.
Obviously, when we think about different growth initiatives, we need to make sure that these initiatives meet our internal hurdle rates so that we make sure that we create shareholder value in the long term. Moving on to return on capital, which is a really important KPI for us internally. L&T is a fairly capital-intensive business. In 2024, we employed around EUR 320 million. Just as we have presented stable profit development, we can also report stable returns on capital, ranging between 12%-14%. Our return on equity on a pro forma basis at the end of September amounted to 15.3%. An aspect that has not been touched so far in this CMD is our joint venture, Lania, which is 55% owned by us.
If we look at finance year 2024, our share of Lania's net profit was EUR 3.6 million, which in relation to the book value of our investment was around 20% return. The book value of Lania's shares is around EUR 18 million in our balance sheet. We believe we have a strong balance sheet that gives us strategic flexibility going forward. After completing the refinancing in June 2025, we have no immediate refinancing needs. Our financial debt consists of two elements: our outstanding notes of EUR 75 million, which is due in 2028, and our bank loan of EUR 50 million, which is due in 2030, assuming the utilization of a two-year extension option. Overall, through our stable and resilient track record in financials, we believe we have strong debt capacity to execute on our growth strategy.
Also, we believe we are eligible for financing in the eyes of the debt investors. This all means that we can, in addition to this EUR 40 million free cash flow, also put our balance sheet in use when driving our growth initiatives. To conclude this section, I would like to repeat our midterm strategic goals. As already has been discussed, our target is to grow more than 6% on an annual basis in the midterm, which we think is three to five years. In combination with the growth target, we are set to reach EBITA margin of 11%. We want to keep our balance sheet healthy, and our leverage ratio is we want that to maintain between 1.5% and 2.5%.
Before moving to the Q&A session, I would like to point out our dividend policy, which is to distribute more than or at least 50% of our net income as dividends. Thank you.
Thank you, Joni. As in the previous session, Lilja has the online questions, but let's start with the questions you may have here locally.
Yes, Nikko Ruokangas from SEB again. I have a couple of questions, and I'll go one by one. Starting with the acquisitions, I already almost asked about earlier. Could you now discuss a bit? Do you see that it is easier for you to make acquisitions or focus on acquisitions as a pure circular economy company? Do you think that that could kind of lead to accelerate the pace of acquisitions going forward?
I hope so.
At least we have a much clearer focus now, and we have a process how we screen potential acquisition targets. We have internally a team that is actively working on that. The sort of the focus will help us to screen more targets. Now that we can allocate all of our also resources from balance sheet perspective to these acquisitions, I believe we will be able to accelerate our growth through M&A as well. Obviously, like always the case with M&A, you need a seller and you need a buyer and you need the price for that to happen. No guarantees, but at least now it feels good. We have screened a lot of companies already this fall, and we have a sort of healthy funnel of potential targets.
Okay, sounds good.
The other source of growth or where do you see market share gains of upselling and cross-selling? How much have those actions contributed to your sales or sales growth in the past couple of years? Now, as you are kind of including those as one of your growth pillars, are you expecting the pace of cross-selling and upselling to remain the same as earlier, or are you expecting acceleration in those actions?
I'm expecting acceleration, but Antti can answer this because he has to deliver well.
Yeah, yeah. Maybe related to response earlier to question a little bit the same topic that I said. We have offering to different segments. We have a segment sales where we concentrate on these segments and especially subsegments. What we have also proved lately is that we work closely with our Swedish operation as well.
We have certain common customers in Finland and Sweden. We have been able to bring actually services from Finland, like the blast cleaning services, where we help the boilers to recover faster than ever, how to say it. That is what we are doing. Again, there is an opportunity there. What is also an element of the cross-selling is that when we have now the one sales approach towards the different segments and subsegments, we are able to better transform our, of course, own knowledge, but also develop the activities towards the customer demands. Like this blast cleaning. Another example I would take, for example, water treatment. We have more demanding requirements in Sweden today, for example, how you need to clean the water. We have experience there in a mobile treatment. We have brought that competence to Finland.
We are able to provide that service in Finland today. How to say it? We support each other.
Okay, thanks. Last one from me and related to costs. Joni already touched this a bit, but what is the cost you expect to see from operating as an independent company compared to the time before this demerger project? Does your profitability target and kind of this demerger mean that we should see at least lower or even lower profitability next year and then kind of accelerating after that?
Obviously, running two independent listed companies is more expensive than running one. There will be certain demerger disinergies. However, we can see that now that we have two separate businesses, we can tailor our administration to serve both in a, so to speak, fit for purpose way.
We are quite confident we can mitigate the demerger disinergies through efficiency measures going forward. I would not expect the cost base to increase as a result.
All right, thank you. That's all from me.
Maybe with the addition to what Joni said, there is going to be a transition period around six months maximum where we will see clearly additional cost when we before we have sort of fully independent sort of systems, especially in the area of finance where we're going to have some of these transitional services. They are not huge, but there will be some cost in the first months of 2026.
Joona Harjama from OP again. You have quite ambitious growth targets, so I would like to ask what do you see as kind of the main risks of not reaching the target? Secondly, is there any headroom for disappointments?
I mean, do you kind of need to tick all the boxes to reach the 6% growth?
Let's say the biggest risk, at least from my perspective, is the macroeconomic environment. If the market in Finland and in Sweden remains as tough as it has been last year and this year, it will be challenging. No question about that. We are assuming that the market will normalize and there will be at least sort of 1%-2% GDP growth in the market. We do expect the construction sector to sort of get back alive because right now, especially in sort of the housing area, nothing is happening. On the other hand, the infrastructure market is very hot and we can see that in our remediation business, but that is not enough to offset the huge drop in the construction.
There is a certain assumption of sort of more normal GDP growth behind this 6% growth target.
Thank you.
Thanks. [Antti Koskelo] from Danske. You showed the three business units or segments and the growth in 2022 to 2024. Could you a little bit discuss about the profitability in those three segments? I'm not asking for a number, but just kind of get an idea if there's a big difference.
I would just, as you can probably imagine, we do not disclose the exact profitability figures, but the differences between the service lines are not too big. Basically, the financial profiles of all of these three segments are more or less the same. We have exactly the same targets internally for all of these service lines.
All right, thanks. That's clear. Second one on capital allocation.
Could you give us kind of an idea how you think about M&A growth investments and dividends? What's the kind of rough split in your minds for the coming three years or whatever?
Yeah, if I start with dividends, the target is to pay at least 50% of the net profit. If the sort of past performance is a sort of indication of future, then obviously that would mean around EUR 20 million or a little less would go to dividends. That leaves EUR 20 million+ for growth investments, either organic or inorganic. Both of them are very interesting. We have interesting projects around the further integration in the value chain. We also have a healthy funnel of potential acquisition targets. Both of them are going to require funds for us to be able to execute them.
I don't know, Antti, if you want to add.
I think you more or less said that. Especially when we look at, of course, the organic projects, that's how they will improve our capacity and also our capability. We both look at the inorganic cases as well. For example, the case example related to Sweden. Yes, there was, how to say, the expansion in Sweden, but it also brought us competence in certain treatment areas, which we are now scaling in Finland. The other way around, we are scaling from Finland boiler knowledge and know-how, what we are doing. That's maybe the angle that we analyze as well.
Obviously, you know, these kind of new technologies like chemical recycling of plastics, you can't do that with single millions, but it requires more like tens of millions, even when we decide to go that route. There may be years when we invest much more than sort of the free cash flow. On average, that is kind of the split we're thinking.
All right, thank you.
Yes, you discussed already two years ago in the CMD a lot about kind of looking into the new fractions and increasing the waste-to-value business. Nothing concrete really happened since that. Has that been a disappointment to you? Is this slower progress than you have expected? What are the main kind of hurdles you have faced that kind of had led to you to maybe discontinue some of the streams you have had?
Maybe we have not discontinued the streams, but certainly the sort of maturity of the technology was and is not where we would like it to be. The industrial scale solutions just do not exist at the moment. We are not a sort of a technology startup. We will not take something to try if it works. We want to see that it works, and then we can buy the technology and use it. We are not a startup. I do not know, Antti, what is your thinking?
Likewise, and maybe add on there that once we also look at the technologies, we look at the source as well to ensure that you have the material, because this is a recycling, it is kind of a small scale process industry. That is to understand the same way.
It is important that you do the pilots and look at it together with the customers as well. Maybe one thing to do if we look at two years past, and like Eero said it earlier today, that actually in the remediation business, which is also kind of a recycling element, because we are recycling the soils and we have created the biodiversity service around that one. There we have been actually growing. Segments where we have had these economic challenges in Finland and Sweden, and we have found out also segments where there is growth, and we have invested, and we have also succeeded on those sectors.
All right, thanks.
Online questions? Here are a couple. Good. Are you happy with the NPS of 46%? Is that a problem concerning growth, and how is it going to be improved? Maybe Antti, you can answer that.
Yeah, first of all, excellent question. Our ultimate goal is, of course, that would be 100%, of course. We have a variance there, so we have customers who are extremely satisfied with our service. We have areas that we have some room to improve. On average, of course, close to 50%, it is a good level, but we are not satisfied. We try to improve it. Especially, of course, we address areas where we see some levels which are below the average. We will approach those personally and manage those. Of course, where we have a higher than average, our aim is to keep it. Our long-term target is actually around 60%, what we are looking at in the next years. We are not there yet.
What is your competitive advantage in the Swedish market? How is the competitive landscape?
Actually, we have a couple of advantages. First of all, the areas where we operate, we are strong, and we are able to serve the customers in those geographical areas. Then we have a strong understanding of the heavy industry and process industry in Sweden today. We are able to serve the customers, and we know their environment. We are able to support from Finland with our method and product development, our operation there. The other way around, they are able to support us, like I mentioned, to mobile water, where the Swedish market is further than Finland. Actually, those three elements are what we are having: geographical, method, and, of course, the customer knowledge as well.
Three areas where it's good to build also the future, because the one aim why we went to the process cleaning, and we have brought some new services there that we are close to the customer. It enables us in the future when we are looking at the market development and our presence there, that we are already close to customers.
I have to say that Jonas, who is heading our Swedish operations, he really knows the business. I mean, this fall, a few nights, he was doing high pressure cleaning himself. He is an expert. He really knows what it means to do it well and what the needs are there. Customer intimacy at the highest level, I would say.
One more. How does inflation affect the growth figures?
That's a good question.
I think the future projections are around 2% inflation, also in line with the European Union or the central bank's target. Obviously, if it turns out to be 2%, that will, of course, drive our sales growth at the same pace. Do you have something to add?
No.
No more from online.
Okay. More questions here? If not, we want to thank you for listening in and thank you for very good questions. Also thank you for Antti and Joni. With this, we will now go for a lunch break. Thank you very much.
Thank you.
Bye-bye.
Thank you. Bye-bye.
Welcome. Welcome to share this important moment for our company. As nominated CEO of Luotea, I want to start with something clear. We are here to raise the standard of facility services.
Our name itself, Luotea, speaks to this ambition: to guide, to lead, and to be a partner our customers and employees can count on. We don't just maintain buildings; we make value beyond the surface. We build on trust, innovation, and commitment to create smarter, more efficient, and more sustainable properties. We enhance their value and improve the everyday experience of people who use them. With me today is a group of Luotea's professionals whose expertise represents the strength of our organization. They each bring deep competence in their areas, and together they reflect the capability and drive that enable Luotea to deliver on its promise. You will hear shortly from them. Together we are building a stronger, more future-ready Luotea. Let's begin. Our goal today is to give you a clear picture of why Luotea is a compelling investment and how we are positioning ourselves for sustainable growth.
We'll start with an introduction to Luotea as an investment. With our business leaders, we'll cover our position in large and resilient growth markets, how our operating model enables growth, and the strength of our customer relationship through a repositioned contract portfolio. The first session will end up in a 15-minute Q&A, followed by a short break. In the second part, we'll focus on the execution of our strategy, our profitability playbook, how we are accelerating our growth journey, and our financial trajectory going forward. In the end, we'll have another Q&A session, and we'll wrap up no later than 14:30. I'm happy to introduce an experienced group of colleagues who will share Luotea's story with me today. Together, we bring strong expertise and deep understanding of business management and growth. I personally have a 30-year career in facility services with the last 12 years at L&T.
Since August 2021, I've been responsible for Facility Services Finland, and from June 2024, also responsible for Facility Services Sweden. Our speakers today are our nominated CFO, Mika Stirkkinen, and Business Directors, Erja Heiskanen and Jani Lindström. They will introduce themselves in more detail later in this session. We start by going through Luotea as an investment. Our goal is to enhance property value and end-user experience. Customer expectations are evolving across three key areas: quality, sustainability, and cost efficiency. First, the quality is increasingly important. Hygiene, indoor climate, and well-maintained outdoor areas are critical, and competition for tenants raises demand for higher service standards. Secondly, sustainability is at core. Clients expect continuous monitoring, reporting, and support for carbon neutrality targets. We deliver sustainable facility services for the whole value chain, smart AI-driven energy efficiency services, and sustainability advisory to meet these needs.
Third, cost efficiency saves decisions. Energy efficiency and inflation and financing costs directly impact profitability. Our data-driven services and advanced energy management help optimize these costs. Through these solutions, we create value for property owners and end users alike. We have services throughout the facility services value chain. Next, I want to show you a short film that captures what Luotea stands for. Our work is often invisible, yet our impact is felt everywhere. You will see here concretely shown by our own employees how the work we do creates conditions for people and businesses to thrive. The value we bring goes beyond what is visible. For us, it is crucial that people who use the facilities can concentrate on what is essential for them. Let us take a look.
You experience our work wherever things run smoothly, in the performance of facilities and in comfort of spaces and services, where we extend a building lifecycle, improve energy efficiency, and protect biodiversity. When everything flows effortlessly, it often goes unnoticed, and that's just how it should be. You may notice clean spaces and seamless operations, yet the difference we make goes far beyond the surface. It's the kind of effortlessness that shows in new growth-driving opportunities for our customers. What we achieve together and the impact we have on the people and companies we work for is truly meaningful. It builds trust, which guides us all towards a smarter and better tomorrow. Luotea, value beyond the surface.
Yes. Let's go to the facility services market. Facility services is a EUR 12 billion business in Finland and Sweden, and it's growing faster than GDP.
These services are recurring services which are not highly vulnerable to economic ups and downs. This is also an asset-like business which can be scaled without heavy investments. There are many drivers that create opportunities for us, and we have everything it takes to create strong and profitable growth in the market. First of all, we have an extensive portfolio and market presence which enables cross-sell opportunities. Only under 5% of our customers buy all our services, so there is a significant opportunity for growth. We have also a unique spearhead service portfolio that supports the growth of our core services. Our playbook is a significant opportunity to profitably improve, especially in Sweden. Luotea is one of the largest players in facility services in Finland and Sweden, and the business is significant also standalone.
In Finland, we are third largest, and in Sweden also, we have a solid position and strong market presence. Both markets have lots of room for growth, especially Sweden. We have an extensive presence in both countries. We operate nationwide and in the whole property value services value chain, cleaning and support services, property maintenance, and technical services. We aim to be a responsible long-term partner that supports our customers' sustainability goals across the entire lifecycle of their facilities. In cleaning Finland, our profitability and customer satisfaction is best in Nordic countries. Finland's EBITA is over 6% from the nine months, and that represents industry lead, and that we can be very proud of. In Sweden, the turnaround is ongoing, and our knowledge from previous experience of executing the playbook is strong. We know that this will also be a success.
You can already see first signs about turnaround when Sweden's Q3 was positive this year. Of course, I'm proud of that work, Mikko's team's work also. Let's interact with our management team. Our team has all the ingredients you need to succeed. The team possesses diverse expertise in facility services operations, leadership in people-intensive sectors, digitalization, and data-driven services, as well as occupational safety management, which is complemented by strong financial competence in a publicly listed company environment. Also, our team has extensive expertise in business operations of our target customer segments. Our team members also have lots of experience in management team positions in different companies. All our management team members are here, and you can have discussions with them in the break. This is as a reminder.
We communicated our financial targets earlier this year, and you will hear about these more when our CFO, Mika Stirkkinen, goes through in detail later on in this presentation. I will not go those through, but just as a reminder. Before we dive deeper into the details of our strategy and growth drivers, let me start with the key investment highlights that define Luotea's story. First, we operate in large and resilient growth markets, markets where demand is stable and long-term fundamentals are strong. Second, we have a differentiated position through our spearhead offerings, which not only drive growth but also strengthen the customer relationship. Third, our customer base is diversified and sticky, which is supported by a healthy contract portfolio that provides visibility and stability. Fourth, we are focused on margin expansion in Sweden through an improved operating model.
Our contracted business model enables high cash generation and attractive capital returns. Finally, we see significant upside from leveraging our large customer base and innovation-enabled solutions. These six points are the foundation of everything you will hear today. They connect directly to the themes we'll cover: growth through spearhead services, outsourcing opportunities, margin improvement through proven playbook. Together, they show why Luotea is positioned not just for growth, but for sustainable and profitable growth over the long term. This is why Luotea represents a compelling investment case: strong markets, a differentiated strategy, and clear levers for value creation. Next, I will go through these levers. Something about this large market, which is growing faster than GDP, also about the visibility and resilience which this market has grown through the business cycles, and also about digitalization and tightening regulation, which favors especially large players.
As you can see, the facility services industry has been growing for the past almost 20 years, even in difficult times such as financial crises, euro crises, and COVID-19. Our services are necessity services, and this will not change. For example, COVID era was a good example when services continued, even there were shutdowns in the offices and so on. The average growth over the past 20 years has been 4.8%, while at the same time, GDP has grown by an average of 2.8%. The market is large, and there are strong market drivers. Let's go through those. In this slide, we want to talk about the growth numbers and drivers. As you saw, the growth has been faster than GDP, and also market will grow steadily.
Here are the market drivers: energy consumption regulation, digitalization and automatization, buildings are becoming increasingly technical, and regulations are tightening, and maintenance backlog, which by the way is EUR 77 billion in Finland and relevant to us, roughly EUR 3 billion-EUR 5 billion, and then the public sector outsourcing. We will talk more about these drivers later on this presentation. As you can see, both markets will grow steadily in the future also. Both Finnish and Swedish facility services markets are growing steadily, as I already said, driven by key factors: increased outsourcing, expanding floor space, and rising median spend. The markets are growing in a stable and predictable way in both countries. The Finnish market is roughly a EUR 7.4 billion market, and Swedish at roughly the same level, but we do not have the same kind of property maintenance in Sweden as in Finland.
If you put property maintenance on top of that, the Swedish market is almost twice as big as the Finnish market. This provides a solid foundation for our strategy and investment returns. The market is growing steadily. There are 11,500 companies in the property services or facility services sector in Finland and 20,000 in Sweden. The market in both countries is fragmented, but there is room for bigger companies like us. We will call later these drivers that support big companies. We are, as Luotea is, among the leading players in the fragmented market with strong positions in critical sectors. This creates a solid platform for organic growth and strategic acquisitions. In Finland, we are the third largest and in property services, fifth largest in Finland.
As you can see, there are only three to four companies which can provide full services in the market, which is really important in outsourcing cases in the future. Luotea's diversified presence across segments and strong sector focus provides resilience and growth potential. Yes. As the regulatory landscape changes rapidly, our role becomes clear. We help our customers navigate this environment with transparency, concrete actions, and reliable data. Energy efficiency requirements, 2030 sustainability targets, and different reporting frameworks will reshape how properties are managed. For many organizations, this means new obligations across the entire value chain, from energy use to emissions to social responsibility. Our approach is straightforward. We provide the data, the tools, and the services that allow our customers to comply, improve, and make decisions based on facts.
Our intelligent property systems, conditioning monitoring, and energy optimization and maintenance services create a verifiable data foundation that supports both operational efficiency and regulatory reporting. Also, this form of public procurement legislation creates opportunities when well-being areas and municipalities are forced to put their services out to tender more extensively. Let's go to the outsourcing potential. Future outsourcing of well-being service counties and municipalities will bring significant growth opportunities in this roughly EUR 1.5 billion-EUR 3 billion market. We believe that with our help, these operators will be able to save by outsourcing their services roughly 30%-50% of the current level. The start of these outsourcings has been talked about for a long time, and they have been waited for. There are now ongoing projects that strengthen our belief that outsourcing has really begun.
We have already won tenders, for example, in Kuopio sote area and some other parts of Finland also. It is unfortunate that when discussing financial difficulties, the leaders of the well-being counties focus on nurse layoffs and facility crossers rather than mentioning that outsourcing of support services could be a great opportunity for them to save money. As I said, it has been under consideration for several years, but there are no developments now that indicate the implementation is imminent. We saw here four ongoing cases right now, which creates us a significant opportunity to grow. Let's go to the trends then. The trends in the industry support the big players, and we are very well positioned in this situation. Sustainability. Customer report requirements have increased and will continue to increase significantly.
With our sustainability program and modern reporting portal, we can easily meet the current and future needs of our customers. Energy efficiency regulation brings us opportunities, and we will tell more about those later. Digitalization and automatization also favor big companies that can invest in innovative solutions. In outsourcing, it's important to be able to produce comprehensive service solutions for customers. As I said, there are only three to four companies which can provide that. Large companies such as us are able to provide these services, and three to four, those there are. Small companies struggle to meet this demand. Here is a sum up as a reminder before we move forward. This is a large growing market that exceeds the GDP growth. Strong visibility and resilience. The market has strong visibility and resilience through business cycles.
Trends favor big players like digitalization and tightening of regulation. Okay, let's go then to the operating model. Our Business Director, Jani, will explain why we are uniquely positioned in the facility services market. Jani, welcome.
Thank you, Antti. Good afternoon on my behalf as well. My name is Jani Lindström, and I'm running property services in Finland. I have been in the company for the last three and a half years now. My previous experience comes from different service operations and service businesses, such as home care services, staffing, and logistics. Now I'm here to introduce you to our operating model. I will start by introducing how our operations are organized. We operate through three integrated service areas. We have cleaning and support services, we have property maintenance, and we have technical services.
These services are inherently synergistic, as they all support the property and its end users in a unified and value-adding way. Within these services and service areas, we have developed so-called strategy spearhead offering, which includes data-driven services such as data-driven cleaning. We also have sustainability services and then energy efficiency services. These spearhead services, they are all powered by data, and they are designed to simplify our customers' daily operations while enhancing the long-term value of their properties. They are also quite effective. They are effective entry points, especially into new customer acquisition. Because once they are implemented, we can expand into our core services. Our unique position will build on these four areas that you can see over here. We will go through each by each, and I will start by explaining the opportunities in cross-selling.
We offer a wide and synergistic range of services, which are designed to extend property's lifecycle, increase asset value, and enhance the end user's experience. As I mentioned earlier, our portfolio includes both core services and strategy spearhead services. What is really interesting is that currently less than 5% of our customers utilize our full service portfolio. This actually gives us a significant opportunity for cross-selling. Basically, there are three ways to do cross-selling. One is that we can enter the customer relationship through spearhead services, such as data-driven cleaning, and then later on expand into our core services. On the other hand, we may begin with a core service such as cleaning, and then later on grow horizontally across our portfolio.
A third cross-selling path is cross-border expansion, where we start with the customer relationship, for example, in Finland, and then extend it to their operations in Sweden. This slide here, I have one case example regarding our integrated facility services. This one is with Valmet, and Valmet is a global technology company based in Finland, and they provide process technologies, automation services, and also services for the pulp, paper, and energy industries. Our collaboration with Valmet is a strong example of how a comprehensive service solution can support customer value creation. Our collaboration began in 2014 with cleaning and property maintenance services, and over the years, the service scope has deepened significantly. Today, we operate across seven sites, and the service scope has expanded to include our full portfolio.
The most recent additions are data-driven cleaning and Smarty Automation System, which are the ones from the spearhead offering. This broad service offering enables strong customer retention and also opens up new development opportunities. This Valmet case illustrates how starting with the core services can lead to long-term strategy partnership, which is built on trust, performance, and also continuous improvement. We have a next section here. In this section, I will go a little thoroughly through our service line and the services that they are covering. Like I mentioned, we have three main service lines: cleaning and support services, technical services, and property maintenance services. Let's start with the cleaning and support services. This one is the largest business line that we are currently having.
The majority of revenue is generated through maintenance cleaning, which is based on long-term service contracts, which also ensures a stable and recurring income stream. Our support services include a wide range of tailored solutions. Most common offerings are assistance services, reception services, and also retail-related support functions, such as trolley collection and bottle return machine maintenance. In the field of food hygiene, we are number one player in both countries, Finland and Sweden. We are a really important partner for the food industry. This also reflects our strong expertise and trusted position in a highly regulated sector. Our data-driven cleaning model allows us to optimize cleaning operations based on actual usage. For example, we clean restrooms only when they have been used. It is really important because this kind of approach improves efficiency without compromising the quality.
All these services are covered by a comprehensive sustainability-focused cleaning program, which ensures responsible operations across the board. Below this slide, you can see the expected market growth, which is around EUR 400 million by the year 2028. The market is quite attractive. The next service line is property maintenance. Offering is also here quite broad, and it is designed to meet our customers' needs. We manage outdoor areas year-round, including winter maintenance, such as blowing, sanding, and manual snow removal. During the summer, our specialized green care units ensure that our customers' green spaces thrive. In indoor services, we take care of scheduled annual maintenance tasks and also support our customers in their everyday property-related matters. Most of the property maintenance revenue is recurring contract sales, which provides us a stable and predictable income stream with only minimal seasonal fluctuation.
Our largest segments, you can see on the right side of the slide, are retail, logistics, housing, and also the public sector. The expected market growth is around EUR 300 million by the year 2028. The third business area, which is technical services, covers maintenance, repairs, installations, and also modernizations. The core of our offering consists of HVAC services and electricity services, which are supported by specialized teams in automation, fire safety, and cooling. We also have an energy efficiency center, which is located in Kuopio, Finland. This center enables us to access customers' building automation systems and allows us to perform real-time optimizations to improve energy performance. It is like manual work, which is done from Kuopio.
To support this, we have developed our own Smarty Automation System, which can be integrated seamlessly into existing building automation infrastructure. Smarty operates proactively. It can execute countless micro-optimizations and continuously enhance energy efficiency. On top of that, we also have a team of approximately 25 energy efficiency experts who conduct energy audits and provide tailored recommendations to our customers. Largest segments in technical services are retail, logistics, public sector, and forest industry. Also in Sweden, we have an extremely strong position in the healthcare sector. Below on this slide, you can see the expected market growth, which is around EUR 700 million by the year 2028. Quite a good growth opportunity and attractive market. Now it is my time to move on, and my dear colleague Erja will continue with the spearhead offering.
Yes, thank you, Jani.
My name is Erja Heiskanen, and I have been with the company for nine years. Since 2021, I have been leading cleaning and support services in Finland, driving service development, enhancing customer experience, and guiding teams toward excellence. I am happy to dive into our spearhead offering. We have strong spearhead services. They firstly offer high growth rates, and secondly open doors for the growth of our core services. Our spearhead service portfolio creates impact by combining data-driven services, energy efficiency, and sustainability advisory. Data-driven services put action where it matters most. Every step is visible, measurable, and more efficient. Data-driven property maintenance is one of our latest innovations. The idea is simple: perform maintenance based on actual usage instead of a fixed calendar view. Some tasks are done more often, others less, entirely according to need.
Sensor data enables precise and timely maintenance visits while real-time reporting, in the same way as in data-driven cleaning, which we have been using for several years. Smarty, which is an intelligent energy management system, transforms properties into energy-efficient spaces without compromising comfort. Together with our customers, we make sustainability real. Shared roadmaps set the direction, and we deliver results side by side. Spearhead services are important to us, and we have customers in these areas. Examples of them are listed below, and I will showcase some of them later on. The spearhead offering creates significant benefits for both customers and Luotea. Maintenance expenses are reduced, helping customers save money. Energy usage is optimized to improve efficiency and sustainability. Green financing options are available to support eco-friendly investments. Property value increases, making the asset more attractive and profitable.
The results speak for themselves: significant savings in maintenance costs and property energy usage. For Luotea, for us, the benefits are equally strong. Sales have increased, and we have gained new profitable customers. Customer loyalty has improved, driving long-term success. Our spearhead approach delivers over 5x EBIT compared to conventional offering and achieves an NPS score above 50 among spearhead customers. This is how we create synergy, value, and sustainability together. Next, I will share a few reference cases that highlight the real-world impact of our spearhead services. These examples demonstrate how our solution translates strategy into measurable results, delivering cost savings, improving efficiency, and supporting sustainability goals. By showcasing proven success stories, we aim to illustrate the tangible value we bring to our customers and the competitive advance these services create. The first case is data-driven cleaning, which is in use at Vaisala Vantaa buildings.
Vaisala is the world's leading measurement technology company, enabling climate action. Their smart solutions help optimize resource use, accelerate the energy transition, and safeguard the safety and well-being of people and societies around the globe. Vaisala needs flexible services because cleaning requirements change and their allocation varies. Maintaining cleaning quality was a priority. Costs needed to be optimized. By using data on space utilization, cleaning can be targeted precisely and at the right time. The customer appreciates the one-partner model for facility services. The second case is Technopolis, which demonstrates the broad potential of energy management across multiple countries. Technopolis is an expert in work environments, working flexibly and efficient office spaces, along with related services. Technopolis operates 14 campuses and hosts 1,200 companies and 35,000 employees across four countries in Europe.
Over the years, our energy-efficient management solution has enabled significant operational cost savings in electricity and heating while maintaining optimal indoor conditions. Our energy experts have worked closely with the customer, and we have also integrated our Smarty solutions, and these both together have generated significant results. This is why the use of Smarty has been expanded to dozens of buildings and across all four countries: Finland, Sweden, Norway, and Luxembourg. Our collaboration continues, and Technopolis is recognized by the Ministry of Economics for its energy efficiency in Finland. The next case is Meira. Meira produces coffee and seasoning products for both consumers and professionals in the heart of Helsinki, Vallila. Meira has the will, capability, and determination to innovate. The company is already 100 years old, and its goal is to thrive for the next 100 years. Meera's climate strategy is a great example of our sustainability services.
Our shared journey began in 2019 with an energy audit, continued with utilizing coffee waste from production for biogas, and then optimizing energy use, creating a climate strategy and putting it into action. Our journey continues with goals set all the way to 2028. Meira emphasizes that the cooperation has been high-level, customer-oriented, and forward-looking. We have played a key role in both creating and executing the strategy. Let us look in more detail at how our personnel is the most valuable asset of our company. Our greatest, I would like to underline, greatest strength is our people: 5,000 facility service professionals in Finland and Sweden. We have created a leadership model unlike any other, built to empower every individual. Everyone knows their role, understands their goals, and sees how they work makes a difference.
We review progress in daily and weekly team meetings, measure success with clear metrics, and set achievable targets. We have also recruited employees from abroad. Strong employee satisfaction is important to us and a competitive factor that will help us to continue to attract the best talent. Together, we turn ambition into action and results into pride. We have succeeded in improving employee satisfaction and making work safer. Our accident rate is below the industry average, and every team member is required to report safety observations not only once, but throughout the year. Personnel turnover is lower than industry benchmarks. Every week, supervisors meet or call their team members because without that care, work could feel lonely and unimportant. Many of our employees work on sites without colleagues, so leadership truly matters, and the support of a supervisor makes a real difference.
As shown, we have strengths that give us a unique position in the market. Next, Antti will return to the States to present about our consumer and contract portfolio and profitability playbook in more detail.
Thank you, Erja. Okay. Let's start by looking into our contract portfolio and then continue to the profitability. Let's go through first our diversified and low-risk customer base, then continue to the contracted business model with long customer tenures and end up with the optimized contract portfolio with high-value customer focus. Our customer base is highly diversified and low-risk, which is a key strength of our business model. With over 6,000 customers, we are not dependent on any single client. The top 20 customers account for 39% of our revenue, and we have maintained relationships with them for more than 10 years on average. This demonstrates trust and long-term commitment.
In addition, the biggest customer spend has grown strongly with the 9.3% gap between 2018 and 2024, reflecting the increasing value of our services. Our portfolio includes some of Finland's leading companies and organizations such as Posti, Kesko, Vaisala, City of Espoo, and Neste, reinforcing our position in the premium segments. Our revenue model is highly resilient, driven by long-term contracted services. Between 2019-2024, 94%-98% of our revenues have been recurring in nature, with the majority coming from long-term agreements. In 2024, we have approximately 14,000 active contracts, and our average customer relationship length exceeds five years, which demonstrates strong customer loyalty and stickiness. 97% of our services are recurring nature services, and this stability provides predictability and reduces volatility in our revenue streams.
Okay, that was about the customer portfolio. Next we would like to show a bit deeper how we have concentrated to our profitability. Over the past few years, we have successfully executed a turnaround in our Finnish operations, as you have noticed from our reports, and results really speak for themselves. In cleaning services, EBIT margins have steadily improved from around 2% in 2019 to approximately 8% by mid-2025. Property maintenance has shown an even more dramatic recovery. Starting from a negative margin of about minus 6% in 2022, we are now clearly at the positive level, and strong development will continue. This improvement reflects disciplined execution, cost optimization, and operational excellence. Sweden is currently in the early stages of this similar turnaround. While margins remain negative today, we have a clear roadmap and expect gradual improvement as we apply the same proven playbook.
The Swedish operations represent a significant opportunity for value creation, and we are confident in our ability to replicate the success we have had in Finland. As I told you earlier, and you have noticed, the Q3 in Sweden was positive in 2025. What is Luotea's approach to profitability, and what is our playbook, and what is inside of the playbook? Our playbook is a proven and repeatable model which delivers sustainable results. The first two steps are internal actions: getting management leadership and roles and responsibilities in order, and then the next two steps are external actions: securing procurement agreements and channels, and improving the health of our contract portfolio. After these steps, we have the license to sell and grow. This disciplined approach enables us to maintain strong margins while scaling operations. It is a playbook we can replicate across the market.
We have executed this, and Jani and Erja will tell you more about this. They will come now back to the States. Firstly, Erja, I shall pass to you the States to present the first step.
Thank you, Antti. The first step is a weekly management model where management is based on KPIs and ensuring efficiency in the coming weeks. The KPI management model extends to all levels of the organization so that management progresses like a waterfall. Clear goals and metrics provide confidence for decision-making. Role-specific dashboards keep everyone focused on what matters most and make communication efficient and transparent. Supervisors hold frequent short team meetings with a fixed agenda to ensure focus. Our Kiito ERP system offers a unique planning tool and real-time status updates. Supervisors also coach their teams, and best practices are actively shared because collaboration drives success.
The second step is clear roles and responsibilities. Everyone must have clear role-specific goals and a role description. We have chosen to reduce team sizes and streamline management layers. We have eliminated three organizational layers from nine to six. Fewer organizational levels mean faster communication and quicker implementation of change. Messages flow better in both directions. At the same time, we invested in frontline leadership and significantly increased the number of first-level supervisors. The average team size has decreased from 80 plus colleagues to 16. Smaller teams allow supervisors to connect more often and more meaningfully with their people. The supervisors truly know each team member as an individual, connect with them personally, and lead with confidence and care, creating a stronger, more motivated team. At the core is strong leadership. This may sound soft, but it's absolutely essential to the business. Support functions play a critical role.
They provide expertise, tools, and guidance that enable frontline teams to focus on delivering value. Their mission is clear: simplify processes, enhance efficiency, and ensure business-driven solutions that make everyday work smoother and smarter. Now, Jani will step to step number three.
Thank you, Erja. Okay, now it's time for step number three, which is procurement. When it comes to our turnaround, one of the key drivers has been changes in our procurement strategy. We have centralized material purchases and reduced the number of suppliers by 22%. In addition, we have renegotiated our subcontracting terms and shifted subcontracted work to in-house teams. This has generated significant cost savings for us. At the same time, the share of procurement cost has decreased by three percentage points. There is also another benefit.
When we have brought work in-house, we have also strengthened quality control, which in turn has improved our customer experience. The financial impact is clear. Our profitability has improved, and also the net working capital has improved significantly. There is also another critical factor when improving profitability, and that is active customer portfolio management. We identified several low-margin contracts, and we initiated renegotiations. When negotiations were unsuccessful, we had to terminate agreements. I want to underline that our primary approach has always been to seek solutions that our collaboration could continue, either by improving our own operational performance or adjusting pricing. The result of this disciplined portfolio management has been encouraging. Average contract margin has increased by nine percentage points, and the contract length still remains at a healthy level, and we have achieved a 67% hit rate in contract renewals.
This improvement strengthened both profitability and also long-term customer relationship. We have step number five, which is growth. Strong service quality and customer communication are the foundation of our long-lasting customer retention. Building on this, we actively find upselling opportunities with existing customers. Upselling is actually really important because it's not only driving revenue growth, but it's also strengthening relationships by showing our commitment and continuous improvement for our customers. In new customer acquisition, it's essential that we remain on our selected segments and core services. This disciplined approach allows us to build the needed capabilities required by each segment. Also, this kind of approach keeps our operations efficient. For new business development, we leverage our strategy, spearhead services, as discussed earlier.
If I try to summarize this playbook steps from one to four, like Erja mentioned, we started by renewing our operating model and did some changes in our weekly management models. We also did changes in our organization. We reduced layers. We also smaller the team sizes and clarified the roles and responsibilities. Like I mentioned, we changed our procurement strategy. We reduced material suppliers, and we also shifted subcontracted work to in-house work. At the same time, we did active customer portfolio management. We renegotiated low-margin contracts. What I try to tell you is that we have done a lot of job, and now the dirty job is done finally, and it's time for the growth. After a short Q&A session, Antti will continue and tell you more about the future growth opportunities, and there's a lot of them.
Now it's time for the Q&A session. Antti, would you like to join us on the stage?
Thank you, Jani. All right.
Hello, this is Nikko Ruokangas from SEB. Thank you for the presentation so far. I could continue on the last topic you discussed and the five steps you are taking to reach the turnaround and improve profitability. Could you discuss that, in which phases are you currently in Sweden and also in Finland where you need to do these kinds of actions? What factors do you see to be the biggest challenges in each of the businesses you need to solve to reach similar profitability like you have done in cleaning in Finland?
Yes, thank you for a good question. We are at early stages in Sweden right now, but if we have five steps, I think we have done roughly three steps.
We have cleared the roles and responsibilities and the management systems. We have renewed our procurement system and also started to grow with the spare head services a little bit. I think we have done the first three steps, and the Q3 shows that we are on the right track. Of course, the Swedish customer contract portfolio is slightly different from Finland, and it needs to have heavier actions to make a turnaround in Sweden, but we have done quite a lot there.
Okay, do you see a chance that we will see a big number of customer contracts in Sweden that will be not continued going forward as you progress in this?
No, no, no. I can't see any customer agreements terminations in Sweden. One of our biggest hospital segment contracts will end at the end of this month.
After that, I don't see any heavy terminations of customer contracts anymore because those needed ones have been done already.
Okay, I understand. On another topic, on the spare head services you showed, which have been profitable to you, how big a share of sales do they cover currently in Finland, and how has that share developed over the couple of last years?
If you would like to wait, I will go to that topic later on in this presentation. Within two years, it has increased from 1% to 3% of our turnover. 10% of our customers currently purchase spare head services. I will go to that later on.
Yeah, I understand. One last question from me. You illustrated the competitive landscape in the beginning of the presentation.
How do you view how aggressive is the competition in Finland and Sweden in different business lines, and how has that developed over the couple of past years?
Would you like to, Jani and Erja, comment on your own business lines?
Yes, I can start with cleaning and support services. Of course, competition is hard, and also price competition is hard at the moment. I think that we have data-driven cleaning as an answer for those.
Is this something that you feel you are clearly ahead of the competition?
Yes, I really feel that.
On my side as well, the price competition is quite fierce. Perhaps probably all players right now face it. We have to have really competitive efficiency and operation models that, and also the solutions that we offer for our customers. That is the answer for this, and we will do it.
There's no doubt about it.
In Sweden, it's not so fierce as in Finland, but still, there is lots of competition. From the last few cases, I have seen that we have seen that there is something else than also only price, which affects the decisions of customers. It is quite promising in the Swedish markets.
All right, thanks. That's all from me at this point.
Joona Harjama from OP Markets. Thank you for the presentation. I have a few questions. Starting with the turnaround in Finland. You have done a great turnaround at EBIT level. Could you give us any kind of ballpark of what has been the split between termination or renegotiation of the unprofitable contracts and, on the other hand, your own actions to improve efficiency? Do you have any kind of rough split or estimate of that?
If I rough, my thinking is that 70% of our turnaround is from efficiency measures, and then 30% is about termination of contracts.
Okay, thank you. Perhaps related to the kind of fact that the inflation shock we saw in 2022 clearly had a negative impact on your agreements with fixed pricing. Have you been able to include, for example, some indexation clauses for new agreements after 2022? What has been kind of your approach to this one?
I think almost all our customers include index clauses, so some other clauses regarding the price increases. Okay, okay. I do not see problems to increase prices in customer contracts in Finland.
Okay, thank you. Third one, about the kind of market-level growth you showed in the presentation.
What is the dynamics behind the fact that the estimated growth is a bit lower than what it has been between 2018 and 2023? Is it mainly the inflation or?
Yeah.
Okay. Yeah, that's all from me. Thanks.
Hi, Waltteri Rossi from Danske Bank. First of all, thanks for the presentation. About the Sweden business, you mentioned that one contract that will end by the end of this month. How much is that contract worth? Also considering that, do you expect Sweden to grow in sales next year?
We expect to have quite a small growth next year in Sweden. Nothing special. I can't go into the details of that contract, but that's one of the biggest hospital contracts in Sweden. With the understanding of the fact that we lost that contract, or actually we terminated the contract, we still can grow in Sweden next year.
Okay, great, thanks. Still about Sweden. Maybe you can't answer, but I'll ask still. The problematic or unprofitable contract base, how much is that worth in total today? Is there a risk of other contracts turning unprofitable going forward as happened in 2024?
You guessed right. I can't answer that, but I don't see any problems in because we have now renewed our operating model, and of course there can be some, for example, if new COVID comes or new inflation rises rapidly, so there can be problems. Because of the fact that we renewed our operating model and renewed our roles and responsibilities and management system, I don't see any more of that kind of big risks to that one big customer turns to unprofitable.
Okay. Still about those contracts that have been, let's say, problematic.
Can you clarify, is there some unprofitable contracts still in the books?
Not at the gross margin level.
Okay. And those contracts, what's the maturity of those contracts on average?
Those are valid roughly four to five years still.
Okay. Maybe last one for now. The midterm definition in your targets, can you define that more specifically?
To 2028.
Great. Thank you.
Minttu.
Hi, Rauli from Inderes. You showed the historic development of the market being kind of growing above GDP, but looking at your numbers, at least for the last 10 years, the organic growth has been negative. What explains your underperformance historically?
First of all, if I look 10 years ago, it's plus 2.2% if we put Finland and Sweden together.
Yeah, but organically it's negative.
Yeah. We have been terminated our unprofitable customers, and that's the main reason.
Okay.
What's the kind of, obviously those contracts hopefully weren't unprofitable when you entered them initially. What's the historic problem that the contract has turned unprofitable, and how can that be avoided going forward?
I won't go into the history about the reasons because it's not a good way to blame predecessors. We have now a good operation model and playbook, which makes at least me sure that we can have a profitable business in the future also. We can show from Finnish numbers that we have turned around this Finnish business profitability. We believe that it will continue in the future.
Okay, thanks. Did I understand right that most of the numbers, I'm looking especially at Slide 45, with the split to long-term contracts and add-on services, that was only for Finland, these numbers?
Yeah.
Yeah.
Can you say something about how's that in Sweden?
I think necessity services, the part of business is quite a lot at the same level, but the contract is roughly 30%, and the add-on related to the contract is roughly 65% or 68%.
Yeah, okay, okay. Great. That's all for me, thanks.
Maybe we will have some questions, and our Branden Communication Director, Minttu, will come and tell us some questions from the web.
Yeah, we have a couple of questions online also. Firstly, let's start with the spare head. So how does the spare head offering concretely accelerate growth?
Jani or Erja, would you like to answer?
I can answer. First of all, our spare head services are data-driven services, energy efficiency, and also sustainability advisory. And these are good services for our customers. They are going to save money, they are efficient, they are transparent.
It is also so that they drive our core businesses.
The re is also a question concerning the data-driven cleaning. Does it reduce the revenue?
It is possible in some cases, some individual cases, but we think that market is very attractive for that kind of services, so we do not have any concerns about that.
There is a question about the spare heads and how it is commercialized. Is there a plan for that or?
I can also answer about that. I think that it is by standalone offering and also part of our facility services.
Okay.
I would like to add that they are really important for our customers because they usually solve some concrete problems that they are currently having. For example, sustainability requirements, reporting or something like that, and also these energy efficiency services, they reduce cost levels.
Our Smarty Automation helps customers and their properties to increase energy class of the properties, which will also increase the value of the properties. They are really important services, and that is why they are easy to implement, and then we can continue with other services after that.
Thank you. There is a question about the synergies between different business segments, what kind of synergies there are and how they are utilized.
I mentioned in my presentation that these service lines are synergistic, and it comes from the customer-wise that they all support the same property, same end customers. From the customer point of view, there are a lot of synergies, but also operations-wise, for example, between property maintenance and cleaning, we already use the same employees, which gives us flexibility. Also, it helps the employees.
If we have part-time working employees, they can get extra hours from other businesses. Both operations-wise and commercial-wise, there are synergies between business lines.
Thank you. Last questions. There are two which kind of cover the cross-selling. There is a question that you said that the customers appreciate one partner model, but you still have a big potential in cross-selling between business areas. Why is that, that there is potential, but customers think that one partner model is the best one? Why is the potential not utilized?
I think it's because we mentioned in the profitability playbook that we had done a lot of this turnaround job so far, and we haven't focused so much on cross-selling, and that must be one reason.
In some cases, it's true that customers want to divide and have several operators, but because the requirements, especially from a sustainability point of view, are tightening, it's quite difficult to do all the reports, all the needed reports, and probably that will also accelerate that customers want to have bigger players and only one supplier.
There is the last question, at least for now. Can you give a concrete example of a cross-selling situation?
Like this Valmet case was one cross-selling option that we have started with one services and then expanded the portfolio. Now it's a full portfolio included there. That's one good option that comes to my mind at first. There are also similar options that we start with one service. Usually, it's like cleaning, property maintenance, or technical services, and after that, we can grow across the portfolio horizontally.
There are also examples how we started with one spare head service, and after that, we managed to expand into a full-service portfolio. Both ways work.
Okay, thank you. This is the end of the Q&A, and we will have a short break.
Is it 10 minutes?
Ten minutes. Let's continue.
Have a 10-minute break.
Yeah, 1:52. Yeah.
Thank you for the good questions. Welcome back, and thanks again for good questions. Next, we go to our growth journey and what we will do in the future to be able to grow. As we have told in recent years, our true focus has been strongly on improving the health of our contract portfolio, which has led into the termination of unprofitable customers and contracts. This, in turn, has negatively impacted our net sales.
Our portfolio is healthy, and we firmly believe that we are very well positioned to grow in the future. Our goal is to grow faster than market by leveraging our spearhead services that also boost the growth of our core businesses. This is in our own hands and our most important source of growth. In our core services, cross-selling also has significant potential when under 5% of our customers buy all our services. Outsourcing will increase significantly due to a situation in municipalities and well-being service counties in the future, as I said, but it is not in our hands whether they are going to outsource or not outsource. Growth in core services accelerated by spearhead services is our most important thing.
Of course, we have the possibility to accelerate our growth with entering new segments, for example, the data centers, which are growing fast in Finland right now, and of course, growth with selected acquisitions in the future. Our business is built on strong core services, which provide stability and scale. They form the backbone of our operations and enable cross-selling opportunities. Growth is driven by spearhead services, which leverage innovation and sustainability trends. Data-driven services utilize AI and analytics for cleaning and property maintenance. Energy services focus on energy efficiency, energy management, and small energy renovation projects, while sustainability services deliver expert solutions for biodiversity and greenfield projects. This combination of a solid core and innovative spearhead services positions us to capture new opportunities and deliver long-term growth.
This slide illustrates why spare head services are a critical growth driver for us and for our businesses, and why their potential remains largely untapped. When customers adopt spare head services, their spending on core services increases significantly, on average by 20%-30%. In practical terms, this means moving from a baseline of 1.0 to 1.3 after implementation. This is not just incremental revenue; it strengthens customer relationships and boosts profitability. What is even more compelling is how early we are in this journey. In 2022, spare head services represented only 0%-1% of total revenue. Today, we are at 2%-3%, as I said in the question and answer session. That is a clear indicator of a significant runway ahead. It is promising to see that the share of customers purchasing spare head services is growing strongly. We see two strong growth levers.
First is deepening penetration with existing customers, adding spare head services, and increasing their overall spend. Second, attracting new customers, where spare head offerings differentiate us and accelerate onboarding. In short, spare head services are not just an add-on; they are a powerful accelerator for growth across our portfolio. They multiply customers' value and open a substantial opportunity for us in the coming years. This slide demonstrates the significant market opportunity we see in outsourcing and support services, an estimated EUR 3 billion market. The drivers behind this opportunity are clear. Strategic customers are increasingly outsourcing manual support services, and the core pressures in public and healthcare sectors are accelerating this trend. At the same time, well-being counties are outsourcing more tasks, creating strong demand for value-accretive solutions. For us, there are two major areas.
First is our strategic customers' outsource potential in manual support services, where our target is EUR 5 million-EUR 20 million. The second one is that we participate in well-being counties' outsourcing tenders, where our target is EUR 30 million-EUR 40 million. Our offering spans multiple environments: commercial, industrial, offices, and social and healthcare. In short, this is a fast-growing market where we have the capabilities and the scale to capture a significant share. By focusing on strategic customers and high-demand segments, we are very well positioned to unlock this EUR 3 billion potential. Over the past few years, I say it again, we have focused on improving the health of our contract portfolio, which meant exiting unprofitable agreements. Today, our portfolio is strong, and we are ready to accelerate the growth. It comes from three growth drivers. The first one is a strong foothold in focus industries.
We operate in resilient sectors such as social and health, industry and food, public sector, infrastructure, trade and logistics, and offices. These industries provide a solid base for expansion. We develop our strengths and competencies in these sectors to win markets faster than competitors. Of course, spearhead services are in a crucial role in this. The second one is cross-sell potential. We have told that about several times in this presentation, but it is a huge opportunity for us. As we said, less than 5%. Customers
use all our service lines. This represents a major opportunity to increase penetration and grow revenue through cross-selling, cleaning, property maintenance, and technical services. The third one is cross-border best practice sharing. As Jani told, the healthcare sector is really strong and the hospital sector in Sweden, and we are getting better and better all the time in that sector, and even it's becoming profitable and more profitable all the time, which is good. When social well-being counties will start their tender processes in hospitals, for example, that whose case, which I talked about, we have lots of practices and expertise which we can learn in Sweden, so it's really important for us. That will improve also efficiency, enhance service quality, and accelerate growth in both markets.
We already see now we have cases where we sell services both to Finland and to Sweden at the same time. As we highlighted in the beginning, our growth is based on above-market growth through spare of services and systematic cross-sell, upside in public sector outsourcing and support services of strategic customers, and thirdly, leveraging strong foothold and cross-border expertise for growth in focus industries. Now you will meet our new CFO, Mika Stirkkinen, who will present to you our financials. Welcome, Mika.
Thank you, Antti. My name is Mika Stirkkinen, and I'm the nominated CFO of Luotea. This is my second week on the job, and I can say that I have been really impressed by the work what my colleagues have done during the past couple of years to change the course of the company. This is especially highlighted with the clear improvement of the performance in Finland, where in Q3 the EBITDA margin exceeded 6% on a rolling 12-month basis. Within our industry, that is a top-of-the-class performance. Since 2022, when we add Finland and Sweden together, we have improved our EBITDA margin by three percentage points, a major improvement of performance. One can say that our playbook has worked very well. Luotea starts its journey as an independent company with a very strong balance sheet.
The IFRS net debt, i.e., including the lease liabilities, stands at EUR 3 million, and the net debt to adjusted EBITDA ratio is only 0.2. Additionally, our cash conversion is and has been really strong. That naturally supports our debt ratios as well as our ability to pay dividends going forward. In terms of revenue, we are currently a EUR 350 million company. Finland represents 2/3 and Sweden 1/3 of the company. In Finland, the positive development has been quite amazing. Three years ago, EBITDA was zero, and now in the latest quarterly report, the last 12-month EBITDA was EUR 14 million. During that time period, EBITDA margin has improved by more than 6 percentage points. In Sweden, the performance has been more bumpy, but also there the execution of the playbook is starting to bear fruit.
In Q3, the last 12-month EBITDA margin was almost three percentage points higher than in 2024. As said, in Finland, the performance has been strong. Jani and Erja went through the five steps of the playbook. The results of step number four are visible in the chart on the left. The quality of our contract portfolio has improved materially. As you can see, the amount of low sales margin contracts have clearly declined, while the amount of high sales margin contracts have increased by almost 3% per annum. These and other measures, other steps of the playbook, have resulted in the EUR 14 million improvement in EBITDA. In Finland, the return on capital is almost absurd, the last reported number being 75%.
All in all, in Finland, Luotea is ready for growth with the elements Antti just highlighted: spearheads, growth in core services, outsourcing needs by well-being counties, new segments, and carefully selected bolt-on M&A. In Sweden, Luotea is a couple of years behind Finland, both in terms of finalizing the execution of the playbook and in terms of financial performance. A while ago, we lost a key customer in Sweden. That naturally created a drop in revenue. Excluding that particular contract, our revenue has been growing during the past few years. Turnarounds take time, but after a while, results follow the action. This year, the actions are witnessed by the financials. In Q3, the quarterly EBITDA was back in black, and the last 12-month EBITDA margin was up by almost three percentage points, and the year-to-date revenue was up by 8% versus last year.
These figures are evidence of the fact that the Swedish operation is moving towards annual break-even figures. In Finland, the cost improvement results have been really strong. These are visible in the table on the left-hand side of the slide. The fleet and facility costs have been cut by 10%-15%, and the joint impact of these two has resulted in a margin improvement of approximately one percentage point. To me, the most impressive achievement is in the personal costs, where we cut our subcontracting costs by 30%, and at the same time, we were able to lower the variable personal expenses. As Erja told earlier, this has been achieved while improving employee net promoter score and quality of our services. This demonstrates the very successful execution of steps one and two of the playbook.
Diligently executing the same playbook in Sweden, while still sharpening our activities in Finland, are our means to reaching our midterm EBITDA target of over 5%. Luotea is a truly asset-light company. Our net working capital is negative, and our CapEx has been very low. During the last couple of years, both the net working capital and CapEx have been trending to the right direction. These two drivers contribute to a strong cash flow and to a strong cash conversion. Since 2022, our free operating cash flow has grown from less than EUR 1 million to EUR 14 million. That is a really strong track record. This strong cash flow allows us to pay dividends of at least 50% of the net profit. Additionally, the strong cash flow allows us to invest in the future growth by developing new products, by expanding the customer base, and by investing in our digital spearheads.
Overall, our strong cash flow provides us with financial flexibility, together with the strong balance sheet. Our IFRS debt liabilities are in total EUR 17 million, cash amounts to EUR 14 million, and hence the IFRS net debt is EUR 3 million. Combined with the strong adjusted EBITDA of EUR 20 million, this all translates to a really, really solid debt ratio. Our IFRS net debt to adjusted EBITDA is only 0.2. To support our liquidity, we have additionally a revolving credit facility of EUR 10 million. That particular facility is currently fully undrawn. The strong balance sheet naturally supports our financial targets, which are presented here. Number one, revenue growth. We are targeting revenue growth of 45%, and as said earlier, this is a higher growth than the GDP growth. Number two, profitability. Our profitability metric is EBITDA, and the target is to exceed 5% in the midterm.
Number three, cash flow. Our cash flow metric is cash conversion, and in the midterm, our target is to exceed 90% of EBITDA. Four, dividend policy. Our dividend policy is to pay at least 50% of the net profit as dividends. This was a look at our financials, and now I will hand over to Antti.
Thank you, Mika. Now there is time for questions for the second part of the presentation.
Hello, this is Nikko Ruokangas from SEB. Thank you also for the second part of the presentation. I have a couple of questions, and starting with the sales growth target you just showed in the last slide. Given that you have the turnaround project ongoing, should we expect that the sales growth is not the one you are focusing on in the near term, and hence the sales growth will be slower in the beginning of the strategic period?
Our first priority is to make a turnaround in Sweden and also to growth in Finland, but maybe we cannot achieve the target in the first year at least.
Understand. Makes sense. Another question maybe with a little bit similar theme. You mentioned bolt-on acquisitions and potential for those. Are you open for acquisitions already as of now, or do you want to see the turnaround progressing first before heading in the acquisition path?
We want to do turnaround in Sweden before we do acquisitions. Within the strategic midterm to 2028, that time we believe that we have made turnaround in Sweden, and then we can make acquisitions. Before acquisitions comes, when the turnaround in Sweden is done.
Understand. Thanks. That's all for me.
Joona Harjama from OP Markets. I have a question regarding the EBITDA margin target. In Finland, you have reached a margin clearly above the target, and you aim to increase high profitability per services and also expect to do the turnaround in Sweden. My question is, do you expect margins in Finland to stabilize at a somewhat lower level than you have, for example, LTM numbers done, or do you expect that Sweden profitability will be structurally below 5% during the upcoming years?
Yeah. I had to say that our target in Sweden is also 5%, but it takes time. In Finland, the cleaning is at a really high level, but there is room for improvement in property services. We will improve the property services profitability in Finland, keep the profitability in cleaning, and turnaround in Sweden. When we hit the 5% target in Sweden, it takes time. I can't say the timetable, but it takes time.
We don't disclose the timing of the Swedish turnaround.
Got it. Thank you. That's all from me.
Hi, Waltteri Rossi from Danske Bank. Quick question about the outsourcing opportunity. What's the timing of that market emergence? How will that market start to develop over the next few years?
As I said, we see implications that those tender processes have started, for example, that house case has gone forward and the process is continuing. When it will start totally and the well-being counties will outsource most of their services, I think within the next three years it will happen. There is also some NDA cases in well-being counties which strengthen our belief that the outsourcing has really begun.
Thank you.
Minttu, is there any questions online?
Yes, there are some. Firstly, there is a question about the expected one-off costs concerning separation and the IT carve-out.
There are naturally some costs related to being a separate company. There are some natural ones. We are a separate listed company. That's a kind of a recurring. There are one-offs like there's a new brand, Luotea, so we need to do some activities related to that. That's maybe the big one on the one-offs. There are these costs related to the actual demerger.
Thank you. There is a question about the contracts, that how does the company ensure that it won't make any unprofitable contracts in the future?
Yes, we have developed our processes in sales and in production. Especially in sales, we have a much better process how we decide in what cases we go in and what not, and then how we calculate the prices and so on, and how we make approvals for offers to the customers. We have developed our processes quite a lot.
Thank you. There is a question about the outsourcing, that what are the key competencies to succeed in the public outsourcing tendering?
I think you must have outsourcing experience. You must have experience of outsourcing, and you must show some cases that you need to show up some references, of course. The second thing is that you have a comprehensive service offering to the service counties when they outsource their services.
Thank you. One about expanding, are there any plans of expanding to other countries than Sweden?
No, our focus is to grow in Finland and to make a turnaround in Sweden and no other plans. Expanding. As Jani said, we have already Smarty Service connected to Norway and Luxembourg, so we can expand our services in Smarty in other countries without expanding to those countries the traditional way.
Thank you. Okay, that was all from online.
Okay. Thank you for great questions, and let's circle to the beginning and remind ourselves about the key investment highlights. As we wrap up, we began by showing you the fundamentals that define Luotea 's story. Large and resilient growth markets, differentiated position through spearhead offerings, a diversified and sticky customer base which we have, margin expansion through an improved operating model, high cash generation and attractive returns, and significant upside from leveraging our scale and innovation. Everything we discussed today connects back to these six points. They are the foundation of our strategy and the reason Luotea represents a compelling investment case. Strong markets, a clear and differentiating strategy, a proven track record of leading profitability which will enable growth. As we now conclude, I hope you can sense our excitement about the journey ahead.
We believe that everything we have shared today demonstrates why Luotea is a compelling investment case for the long term. Thank you for your time and interest. Thank you.