Welcome to Lassila & Tikanoja's Third Quarter Result Webcast. The webcast will be hosted by L&T CEO, Eero Hautaniemi, and CFO, Valtteri Palin. There's an opportunity to ask questions during the broadcast. You can either ask them via phone or type them in the chat box below your screen. Eero, please go ahead.
Thank you, Inka. Welcome also on my behalf to this January-September earnings release. Let's start with a few highlights. We had on third quarter still a solid growth in our net sales. Now, one thing to remember when you look at our third quarter numbers is that our renewable energy sources is no longer part of these reported numbers, but it is below operating profit from now on. Especially, I'm happy with the performance in our material and recycling businesses, i.e., environmental services and industrial services. Let's dive a little deeper into the net sales development. As I said, in environmental services, we no longer have the renewable energy sources numbers in these reported numbers. The net sales growth was still solid in environmental services if we exclude the renewable energy sources.
Especially in Industrial Services, our growth was very strong and I'll go to the reasons when I go a little deeper in the Industrial Services performance. In Facility Services, Finland and Sweden, some growth. In Sweden, we have to remember that the Swedish crown has weakened against euro, and that has a negative impact to the numbers. All in all, pretty much on par with last year's levels. In operating profit, we can see green bars when it comes to Environmental Services and Industrial Services. In both of these businesses, we managed to improve also our year to date adjusted operating profit compared to the last year. In Facility Services in Finland and in Sweden, the performance was poorer than what it was a year ago.
Overall, our adjusted operating profit was close to EUR 2 million, better in third quarter compared to the previous year. Here you can see the quarterly development. In these numbers, in Environmental Services, we have the renewable energy sources in these numbers in the comparison period. As you can see, after the difficult first quarter, both in Environmental Services and Industrial Services, the performance has been solid in the second and third quarter. Also in Facility Services, both in Finland and in Sweden, we are gradually improving our performance, but unfortunately not at the pace we would like to see. Let's get into the business review and start with the Environmental Services. Overall, a very, very solid performance.
As I said, now, when we exclude the renewable energy sources, the sales growth was 7% in third quarter, which is a good growth, not quite as fast growth as we have seen in the first half of the year. The reason is that we have seen now that the prices for the recycled raw materials are gradually topping or leveling off and in some fractions also coming down. That has clearly an impact to the net sales development as well. Overall, we managed to strengthen our market position. We got some new customers, and in general, the performance was very solid in the environmental services. Also, the relative profitability in third quarter was better than it was a year ago.
When we look at the first nine months figures, we can see the impact of the very weak and difficult first quarter, and therefore, the relative profitability is slightly below, but the adjusted operating profit is above last year's levels already. Industrial Services. We had an excellent third quarter in Industrial Services. All of our service lines performed well, i.e., hazardous waste, process cleaning, and environmental construction. In all of these businesses, very strong performance. In process cleaning, there was very high demand in the, let's say, end of third quarter, and we managed very well our resourcing, and I'm really pleased with the performance of Industrial Services. I'm also happy to say that the acquisition we made or the joint venture, SVB in Sweden, performed well.
The sales growth is very positive and also the operating profit is developing nicely. Overall, really good performance in Industrial Services. In Facility Services, Finland, the market is difficult. We have challenges with the availability of labor. There is also very high turnover of labor, and this is a phenomenon that has sort of happened in the entire market after the COVID. The turnover of personnel has significantly increased after the COVID period. We have taken actions to improve our processes for taking the employees in, but nevertheless, it is almost double the employee turnover compared to the comparison period last year.
Also, because of the very high inflation that we are now experiencing, it is really difficult or it has been really difficult to get the price increases through, and because of this, challenging environment where we on one hand have the shortage of labor, and on the other hand, we have a very high inflation, we have started negotiations with the unions and other actions to improve the profitability and efficiency of our business. This may also result in declining net sales next year as there is a risk that some of the customer contracts that we currently have will not continue next year. In Sweden, the situation is similar, but there is one difference between our Finnish and Swedish businesses.
In Sweden, the part of the sort of public sector tender-based business is almost half of our net sales. There, as these are multi-year contracts, it takes a long time before the indexes take the higher cost inflation into the pricing of our contracts. Also, we have had some challenges with our quality, which we are currently working on. Also we are very much focusing on simplifying the processes in Sweden to improve the efficiency and give more time to our personnel to do the additional sales for our customers. There we have fallen short from our targets. In summary, in both of our Facility Services, this current market environment is more difficult to get into the customer contracts.
Therefore, we have initiated several actions to improve our performance. Moving on to some sustainability highlights. One of the bright spots in our Facility Services Finland is our energy efficiency work that we have very successfully done. And there is very high demand, obviously, with these energy prices, for these type of services. Also, we have done a lot of training for our personnel. And one thing that I'd like to raise here is the diversity and inclusion workshops that we have done for our people. And they have been received very well by our managers and personnel.
Perhaps the nicest thing on this page is the fact that we, again, for the second time in a row, got the platinum rating from EcoVadis, which is obviously an achievement that I'm really proud of and would like to thank all of our personnel for excellent work for achieving this very prestigious award a second time in a row. Some sustainability numbers. Here, I'd like to highlight a couple of things. First of all, our carbon handprint, which is down from the previous year. Quite a bit down, actually. This is only a result of taking the renewable energy sources away from our reported numbers, starting first of July this year. The underlying performance is pretty much on the same level as it was last year.
In our carbon footprint, and especially in our emission intensity, you can see very good development. This is something that will change in the second half of this year as the renewable fuel distribution obligation in Finland has been changed by the Finnish government. This change will result in much higher intensity for the second half of this year and then next year when this still remains on this new levels, this renewable fuel distribution obligation. In general, we are still doing the actions that we have started, and we are on track in halving our emissions. The government actions are bringing a short bump on the road that will vanish once we Excuse me.
Once we get to sort of back to normal track with also these, renewable fuel distribution obligations from 2024 onwards, I hope. This is my part, and now I will give floor to Valtteri to go through more in detail with the financials. Valtteri?
Okay. Thank you, Eero, and good morning. Let's move on to the financials, and I'll start with adjusted operating profit. As Eero mentioned, our EBIT improved in Q3. It was EUR 20.3 million. Also, our EBIT improved in Q2. The year-to-date EBIT was lower than a year ago due to the lower Q1. In Q1, we had this COVID-19 Omicron variant and also higher diesel price, which caused extra costs of EUR 5 million. We had a really strong performance in industrial services and also in environmental services, but the high cost inflation affected negatively to our facility services business both in Finland and in Sweden.
Also, we have these action plans ongoing, but the effect of those has been slower than expected. They are, anyway, ongoing. The key figures, few highlights from here. Capital expenditure EUR 45.8 million, and the share of acquisitions of EUR 22 million. The investments in current operations was EUR 24 million. It affects to our investment level that we have made these acquisitions, but also our suppliers have had difficulties on supplying all the machines and trucks, etc., due to the lack of components. Return on equity, return on investment, they are a bit lower than in the comparison period.
The reason is this low Q1 result, but also our invested capital has increased by EUR 30 million due to the acquisitions. Balance sheet KPIs, equity ratio, gearing improved. They are almost on the previous year's level. Net working capital was EUR -22.5 million, so it finances our operations. It improved from the comparison period almost EUR 13 million, but the reason is that we don't report renewable energy sources anymore in these figures. The decrease was roughly EUR 10 million, but the reason is that our net sales growth was 7%, so our trade receivables, uninvoiced net sales have increased. Cash flow and investments. Cash flow was positive EUR 1 million.
Usually, our cash flow is in line with our net result, so this cash flow includes acquisitions of EUR 13 million. Cash flow from operations was EUR 14 million. The investments are EUR -38 million, including acquisitions also. Interest-bearing debt and liquidity. Interest-bearing debts increased by EUR 25 million due to the bond we issued in May of EUR 75 million. The previous point was EUR 50 million. Also our IFRS 16 leasing consolidated leasing liabilities are on the same level than earlier, EUR 70 million, and liquid assets, EUR 30 million. We have EUR 15 million of commercial papers in use, and also our revolving credit facility, EUR 40 million is not in use. Our liquidity position is really strong.
Loan portfolio, next repayment is in 2023. In September, we will pay back the rest of the old bond. Next possible refinancing will be in 2024, EUR 50 million bank loan in September. The maturity of this new bond is six years. In these uncertain circumstances, it's good that 86% of our loans have fixed rate, and now the effective interest rate is 2.5%. It increased due to the higher rate in our new bond. The previous one was 1.1%. Okay, now Eero will continue with our outlook.
Thank you, Valtteri. We keep our outlook for 2022, the net sales and adjusted operating profit are estimated to be on the same level as previous year. Starting from July 1st, the renewable energy sources will no longer be consolidated to the group net sales. This business was merged together with Neova corresponding business first of July this year. But now we thank you and we are ready for your questions, so feel free to ask questions.
Operator, we are ready for questions.
If you wish to ask a question, please dial star five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial star five again on your telephone keypad. If you are using speakerphone, please make sure your mute function is turned off. Voice prompt on phone line will indicate when your line is open. Please state your name before your question. The next question comes from Pasi Väisänen from Nordea Markets. Please go ahead.
Great. Thanks. This is Pasi from Nordea. Hopefully you can hear me.
Yes.
I have two questions from my side. To start with, regarding to Industrial Services in the third quarter. The EBIT margin was something close to 18% on the quarter. What would be the kind of expectations going forward? Are we still now speaking about 9%-10% annual run rate for the operations, or have there been something kind of permanent changes which actually would lead to a kind of higher expectations than 9%-10% going forward? Is this some kind of only a one-off item in the third quarter, or what should we expect on the run rate going forward? The second question is related to Environmental Services and the fuel price.
Maybe you have actually already seen that, according to media sources, diesel fuel is going to end in Europe. Just when looking at the kind of what would be the cost or profitability effect to your operations, especially in Environmental Services. What were the amounts you are using in diesel fuel and when you expect this kind of fuel price and pressure to be visible on your earnings, or are you able to offset it fully and in timely manner with the price increases? Thanks.
Yes. First of all, thank you, Pasi, for these questions. The industrial services, so right now, I think we have a little bit special circumstances as the COVID postponed some of the maintenance breaks to the third quarter, and there was very high workload now on the third quarter. Also the mix of services that we were providing in the third quarter resulted in, I would say, exceptionally high relative profitability. We did not have any one-off items as such in these numbers, but I do not expect these type of levels to continue in the future. We're returning closer to 10%, maybe now we are more above 10% than below 10%.
Obviously the general market conditions will then have an effect on also our relative profitability. Should we head into a recession, then that would obviously have a negative impact to our industrial services as well. This other question about the diesel price. We use, as we have earlier said, close to 15 million liters of diesel per year. There are a couple of things that affect that. We have steadily increased the content of HVO. The biodiesel, and that is because we want to halve our own carbon footprint. That, in a way, increases our cost to some extent because it is more expensive than regular diesel.
So far we have been able to get the price increases through, and hopefully that will be the case also in the future. Obviously, there are no guarantees, but I believe that to a large extent our customers understand the situation if there is indeed again an increase in the diesel prices that we can get it into the prices as the diesel is such a big component of our costs.
Few questions from the chat box. The first one would be: Do you have any threshold for the sales guidance? Is the over 7% growth you had year to date more than at last year's level?
Well, as we have said here, the renewable energy sources are no longer part of our reported numbers. Typically there, the fourth quarter is a big sales quarter. Therefore, we have considered our outlook and given this outlook.
Thank you. The next question: How long will it take until prices in Facility Services are raised to satisfactory levels? Will there be price adjustment clauses in contracts for the future?
Well, first of all, we do have already in most of our contracts actually some kind of a price adjustment clause. It is not just not sort of functioning as it should. In many cases, it is more related to labor cost in Sweden especially, and its effect is very slow in Finland as well. There has been caps in those price increases, which obviously are too low in this type of very abnormal situation. What I predict will happen is that we will have a number of contracts ending in the coming months, as we probably will not reach an agreement with our customers on the price increases necessary.
Therefore the sales development, especially in property maintenance and technical services, will probably be negative in the near future. In the longer term, this is necessary to make our portfolio healthier as the conditions have changed so dramatically.
There's a second question related to Facility Services. What is the long-term margin potential in Facility Services Sweden and Finland, and when do you expect to get there?
Yeah. Well, I was hoping that we would be there already by the end of next year. Unfortunately, I'm not quite as optimistic now because the market conditions are clearly very difficult right now. As it looks like, next spring and next winter will not be easier compared to where we are right now. Perhaps the shortage of labor will get better, hopefully next spring onwards, but that remains to be seen. In general, all of this or a lot is dependent on how we can get price increases through to our customers and while doing that, how big sort of negative impact that will have to our net sales. It will probably take a little longer than we were hoping, so probably more likely to happen in 2024.
All right. Thank you. There's one more question to go. Can you give an indication how much of the growth was price increases and how much was volume?
No, we have not reported that number, so I cannot give that.
Thank you. That was all.
Thank you very much. Any other questions online?
As a reminder, if you wish to ask a question, please dial star five on your telephone keypad.
No more questions. Thank you very much. As always, we are available for you should you want to have one-on-one discussion with Valtteri and myself. We wish you a good weekend. Thanks. Bye-bye.