Welcome to L&T's quarterly result webcast. The webcast is hosted by L&T's CEO, Eero Hautaniemi, and CFO, Valtteri Palin. There's an opportunity to ask questions at the end of the presentation via phone or by using the chat function. Eero, please go ahead.
Thank you, Inga. Good morning on my behalf as well, and welcome to this interim report, January-September 2023. As always, let's start with a few highlights. We did have a solid performance in pretty challenging market, and our adjusted operating profit was EUR 31.8 compared to EUR 31.3 in the comparison period. Our net cash flow was strong, and we did announce a result of our strategic review yesterday evening, and I'll come back to that later in the presentation. Let's start with net sales. Excluding Renewable Energy Sources, our net sales was pretty much flat compared to the previous year. FX, ex the Swedish krona, euro FX impact was about EUR 7 million negative to our net sales.
I'd say the highlight from net sales was a good development in Industrial Services, where we had a 7.7% growth year-on-year in the first nine months of 2023. Adjusted operating profit was slightly better, as I said earlier, and again, if we exclude the Renewable Energy Sources, the improvement was about EUR 800,000 compared to 2023. Here, our highlight is the Facility Services Finland, where the improvement was about EUR 4.7 million, but also in other business segments, we did have a very solid performance. We do have very strong seasonality in our EBIT performance, and as I've said earlier, the third quarter is the strongest, and especially after COVID-19, it has been the case that the maintenance breaks in Industrial Services are very often in the third quarter compared to the earlier situation, where they were more evenly spread throughout the year, and that shows in these numbers.
Also, if you look at the Facility Services Finland, we have had a solid improvement in the adjusted EBIT every quarter this year, and also, I'd say, in Facility Services Sweden, we are seeing now first indications that our hard work is giving results, and now we had the adjusted operating profit at the same level as it was last year. We'll dive into the segment review and start with Environmental Services. We did have very challenging conditions, as I said earlier, and especially it is a fact with Environmental Services. The construction business is very slow, and also, volumes in retail are lower than they were a year ago.
The high inflation and the slowness in general economic activity shows in the demand of recycled raw materials, and both volumes and prices are down compared to the previous year. But despite of these headwinds, I'd say we did perform quite well. We managed to get new customers, B2B customers, which has been our target, especially in producer responsibility organizations. And also, we have been quite successful in the municipalization, and we have won quite a few contracts, as the municipalization is progressing.
We also did do some efficiency measures, and they are visible already in Q3, and we will continue to be very careful and look ways to make the operations even more efficient going forward, as it looks like the market is not going to recover in the near future. In Industrial Services, good performance in all business lines. In hazardous waste, the volumes remained on good level. And our operational efficiency is very good in the hazardous waste. Also, in process cleaning, we did manage to do the staffing well and according to our plans in the third quarter, when we had a very high demand for our services.
In environmental construction, the workload has been good throughout the year, although the slowness in construction business is visible in our landfills, where we receive less material than we did last year. In Sweden, we did have a very good year last year. This year has not been quite as good, but still the performance has been very solid, and we are happy with the development of our Swedish joint venture, where we own 70% of the SVB company. In Facility Services Finland, our turnaround plan is progressing according to our plans, and the efficiency is increasing. We will continue to work on the number of efficiency initiatives we have started about a year ago.
We did end certain customer contracts, where the profitability was not at acceptable level and where we could not agree with the customer on the price level, and we will continue to do so in the future as well. But I expect that we will return to positive growth numbers in the coming quarters as we finish the cleanup of our customer portfolio. But overall, a very solid performance from our Facility Services Finland.
As I already said, in Sweden, we are maybe six months, six to nine months behind our Finnish Facility Services, but now we are starting to see the results of our turnaround program, and now the third quarter result was at the same level as previous year. Obviously, there is still a lot of work to be done in Sweden, like in Finland as well, but now it looks positive, and we expect to see the improvement to continue in the quarters to come. Yesterday we announced results of our strategic review, and in 2019, when we renewed our strategy, we raised sustainability into the center of our strategy.
We continued that work in 2022, and now, in this latest revision, we clearly state that we will focus on our material businesses, which are Environmental Services and Industrial Services, and we will seek to get growth from the circular economy. At the same time, we are saying that we will evaluate strategic alternatives for Facility Services Finland and Facility Services Sweden, and all potential options will be considered, including a potential sale of the businesses. But as I said, we are now starting this evaluation, and if and when there are results, we will then obviously communicate about that.
We will shed a little bit more light on the thinking behind of the latest strategy in our Capital Markets Day, which will be held on November 23rd this year. I welcome you all to listen that online. In sustainability, we have had also very positive development. Our own CO2 emissions have developed very favorably, and they are down quite significantly from the previous year, and this is a result of the good work and systematic work we have done in all of our business lines. Also, I'd like to highlight the much improved development in sick leave percentage. It is now at the end of third quarter, 4.9%, which is almost at 2020 levels and obviously significantly better than what it was at 2021 and 2022. So also in that front, things look good. But now I hand over to Valtteri, and he will take you deeper into the financials.
Okay. Thank you, Eero, and good morning, and let's move on to financials and financing, and I start with the key figures. First, capital expenditure was EUR 46 million. It was on par with the comparison period, but the content was different. Last year, we made acquisitions of EUR 22 million, and now, this year we have invested more on heavy vehicles mainly, and also real estate, machinery, and our ICT systems. Depreciations grew lightly, and then return on equity, return on capital employed, they both improved significantly. There are a few reasons for that.
Of course, our EBIT improved, but also, now when the interest rates has increased, we have been able to keep our total interest costs on the same level than last year, or even a bit lower level. And share of our joint venture, Laania, we own 55% of the company. The result was EUR 2.5 million year to date, and in the comparison period, it was minus EUR 300. But actually, the first six months was reported above the EBIT. But anyway, the company has improved profitability significantly. Also, we were able to decrease the amount of capital employed by EUR 50 million. And so these same reasons also improved earnings per share, which improved EUR 0.12.
Balance sheet items, equity ratio is higher, it's almost 36%, and we were able to push down gearing under 80%. Net working capital, there's a certain seasonality in that it is always at the best level in Q1, and then it goes down, and at the end of Q3, it is at the lowest level. The main reason is our employee-related liabilities. Anyhow, we have improved it. It was minus EUR 28.5 million. We improved it by EUR 6 million. We have improved our payment terms, inventories, and made our invoicing process more effective. Cash flow, it was solid and strong, EUR 28 million year to date, compared to last year, EUR 1 million.
Last year, we made the acquisition, so it of course affected, but anyway, it's strong at the moment. The money used in investments was almost EUR 8 million less than in the comparison period. The debts and liquidity, IFRS 16 consolidated leasing liabilities is usually in the range of EUR 70 million-EUR 75 million. But then, interest-bearing debt were 126... EUR 126 million, almost EUR 35 million less than a year ago. We paid back the rest of the old bond in September, almost EUR 80 million, and also, we refinanced our bank loan in Q2, and the amount was EUR 10 million less. Commercial papers, we have in use EUR 10 million.
In the comparison period, EUR 50 million, and also our committed revolving credit facility, EUR 40 million, is not utilized, and also the banked overdraft limits are not in use. The cash balance was EUR 26 million. And then, loan portfolio, as I said, this year, we have paid back loans almost by EUR 30 million. It impacts positively on the interest costs, and the next refinancing is in 2026, the bank loan of EUR 40 million, and the bond, which we emitted last year, will mature in 2028. At the moment, the average interest rate is 4% compared to 2.5%, and two-thirds of our loans have a fixed interest rate. Good. And then, outlook for the year, I will give back to Eero.
Thank you, Valtteri. We keep our outlook for 2023, which is the net sales and adjusted operating profit are estimated to be at the same level as in the previous year, even though the comparison period includes the net sales from Renewable Energy Sources business in the amount of EUR 35.4 million. That was all from our presentation, and now we welcome your questions.
If you wish to ask a question, please dial star five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial star five again on your telephone keypad. The next question comes from Nikko Ruokangas from SEB. Please go ahead.
This is Nikko Ruokangas from SEB. I have a couple of questions. So, first of all, you commented that the conditions were difficult, especially in Environmental Services, and the market is not recovering in near future. So, could you comment the trends in Q3 from end to beginning? Did you see any weakening during the quarter, or was the development flat and or the demand development? And, do you expect market to weaken going forward or the demand inside?
Yes. Compared to 2022, the recycled raw material market was weaker, but Q4, we expect it to be pretty much on the same level as it was a year ago, see. So we expect the weakening to sort of even out in Q4. And obviously, it is very difficult to say what happens in 2024 at this stage, but we do not see any signs of rapid or actually any kind of improvement in the recycled raw material prices, at least in the first half of 2024.
When it comes to the customers, the construction will probably continue to go down as the starting on the new projects is still coming down, and we don't see a quick recovery there either. But in the other segments, we think that the market will continue as it is right now, but we do not see any signs of improvement in the other segments either.
All right. Great. So these other segments also, that's just the other divisions?
Other segments, other customer segments. So, construction, as I said, will probably still go down, but others will probably remain at the same level, roughly.
Yeah. Yeah. Okay, thanks. Then, you have made some price increases, so where all those impacts of those price increases you have made this year already in the numbers, or should we expect more to come in Q4? And, and if we should, so in which divisions do you expect price increase impact still the most?
Well, we continuously review our costs and what is then the impact to our prices, and if appropriate, we will make price increases. I cannot comment which segments that would be the case, but we will continuously review the situation and we'll make price increases accordingly.
Yes. Understood. Then I know that you will discuss this more in the Capital Markets Day, but I'm not sure whether you could comment shortly your announcement from yesterday, so about the kind of growth opportunities in the circular economy business and maybe timing of when you will enter the new growth path.
Timing, I cannot comment any more compared to what we commented in the release, but in the... As we have said already earlier, we see a possibility to move forward in the value chain of various recycled raw material fractions. We see a pretty potential market in remediation and industrial side streams. But as I said, we will get deeper into this in our Capital Markets Day. But overall, we see the circular economy and the future of our material business is quite positive in the longer run.
Yes, I understand. Then final one from me. So, as you told that the Laania has performed quite much better this year compared to last year, so, do you expect Laania to continue also this level of, of profitability going forward, of course, taking the seasonality into account?
In general, the market for Laania is very favorable, and we don't see any weakening of those market conditions in the near future.
All right. Sounds good. Thank you. That's all from me.
Thank you.
The next question comes from Rauli Juva from Inderes. Please go ahead.
Yeah. Hi, it's Rauli from Inderes here. Actually, just mostly a more technical question on the numbers. You mentioned the compensation and some one-off amortization related to the ERP systems. And if I look, did I look right that those were not treated as non-recurring items? Is it so that the net impact is still quite marginal in the result?
Yes. The P&L impact is marginal.
Yeah. Okay. And your underlying depreciation is pretty much unchanged, so the hike in those is just this one-off thing?
Yeah.
Yeah. Good. Okay. Then one maybe a bit more business-related thing regarding Sweden. You commented that you're now on a good track and should continue on that, but could you tell a bit more if there has been... Has the progress been any slower or faster than you expected in the beginning of the year? And have you identified any kind of structural obstacles that would hinder you to get back to the profitability levels you were a few years back?
Yes. Well, let's say the number of things we need to improve in our Swedish business is pretty big, and therefore, the impact to become visible will take some time. So we will have to improve on quite a few areas. In general, I would say we are progressing more or less according to the plan, but the structural issue that we have in the Swedish business has not gone anywhere. So the fact that a big part of our business is tied to public tenders and it is very slow process to get the margins to the levels they were earlier, as the index clauses are very, very tight, and the cost inflation has been very rapid. So that is still working against us. But things that we can control are progressing more or less according to the plans.
Yeah. Okay. And do you see a connection kind of in the delivering the profit turnaround and this strategic evaluation with potential sale, or kind of meaning that do you want to achieve first the profitability to return to better levels before you will you would be considering to sell the business?
Well, I will have to repeat what we say, that we have now started the strategic review, and we estimate that to be completed by the end of next year.
Yeah, that's clear. All right, that's, that's all for me. Thank you.
There are no further questions, but as always, we are certainly available for one-to-one discussions if you so wish so. Thank you very much, and we wish you a nice continuation of the week. Thank you. Bye-bye.