Elisa Oyj Ord A

Hello everyone and welcome to ELISA's Q2 2026 analyst conference call. I'm Vesa Sahivirta, Head of Investor Relations and here we have a very familiar team, CEO Topi Manner and CFO Kristian Pullola. We also follow the normal practice and we start with the presentation followed by the Q&A. Topi will go through the highlights of the report and Kristian will elaborate more on financials. And now we are ready to start, so I give word to Topi, please go ahead.

Thank you, Vesa, and welcome everybody to this ELISA Q2 earnings call. Let's go right down to the main points of our Q2. During Q2, revenue was effectively flat and comparable EBITDA was up by 1.4%, especially driven by successful execution of cost measures. We were still weighed down by last year's competition in terms of mobile service revenue, but that was partly offset by good progress in fixed service revenue, which grew 2.2%. The overall telecom service revenue decreased 0.7%. In international software services, the comparable organic revenue increased by 0.6%. This was largely due to the fact that customers were cautious in proceeding in their projects, given the geopolitical uncertainties and higher Eveliina Dahl, Eveliina Dahl, Eveliina Dahl, Eveliina Dahl, Eveliina Dahl, In comparable cash flow, the comparison quarter was exceptionally strong and during this quarter the cash flow was solid at 71 million euros, decreasing due to higher financial expenses and less favorable working capital development. We were happy to note that the post-pay churn normalized during the quarter, further decreasing from Q1 levels and landed at 16.7% in line with our long-term average for Q2 churn. In mobile postpaid subscriptions, we increased with 21,000, of which 15,000 subs were related to IoT and M2M. With these numbers, our market share in terms of mobile subs remained stable during the quarter as we wanted it to be. The fixed broadband subscription base is increasing nicely in this quarter with 3,500 subscriptions, and we do experience good demand, improving demand in terms of fiber business. As mentioned, our cost measures were successful during the quarter, indicating also clearly that our transformation program is proceeding according to plan. At the start of the year we moved to quarterly dividend and following that the board of directors now decided for the second installment of the dividend namely 60 cents and that will be paid to shareholders on the 29th of July. Looking into the revenue development, the revenue landed at 551 million euros. As stated, mobile services weighed down given the last year's competition. Also, divestment of Epic TV is something to note. and during the quarter we also ramped down and discontinued our public switched telephone network impacting the revenue a bit. Fixed services as stated and equipment sales were supporting the revenue growth during the quarter. We're happy to note that EBITDA margin improved during the quarter to 36.5% and the whole EBITDA landed at 201 million euros. This was driven by efficiency measures, the transformation program as stated, and then in part also by reduced sales and marketing cost. In terms of telecom service revenue, I already mentioned that we were weighed down by last year's competition in terms of mobile service revenue. It is important to note, though, that the mobile service revenue started to grow on a quarterly basis in comparing with Q1. It is also noteworthy that in Q2 last year we started the rollout of the so-called security features hard bundled with our mobile subs and we started that rollout with a large cohort of Backbook price changes and that was supporting the Q2 2025 comparison quarter in terms of mobile service revenue. In line with the quarterly growth in MSR, the RPU started to increase a bit during the quarter and landed at 24 euros. When we look at our mobile KPIs now, the key message is that they returned to normalized levels. In Q2 this year, the new sales prices actually continued to increase from Q1 and exceeded the level of Q2 last year. This was a positive development on the market. However, we need to note that on the market the share of fixed-term mobile contracts has increased significantly and that means that there is a longer time lag than previously in terms of the new sales prices moving to book. This means that, for example, if we acquire today A customer from our competitor. That customer might be moving into our book with a delay of three to four months depending on when the customer's fixed term contract ends with the previous service provider. This also means that the new sales prices impact the service revenue will come in with a delay and it will be more visible in Q4 in particular. Churn, as stated, decreased from Q1 levels and landed at 16.7%, which is a tad below our 10-year average of Q2 churn, which is 16.9%. Also the mobile sales and marketing costs including the voucher costs have been normalizing during the quarter and there was a bit of a decrease from Q1 levels. So all in all, good to see normalized levels in the mobile business in the forward-looking indicators. And in the past, with these levels, we have been able to deliver solid MSR growth. And as stated, that growth will follow with the time lag, assuming that the market stays on these normalized levels. When we look at our business segment by segment in consumer business the revenue was impacted by the divestment and the mentioned phenomenon in terms of mobile business. It was good to see support coming from fixed services and equipment sales and then the cost measures were successful in consumer business and the segment EBITDA improved with 2.1%, EBITDA margin hitting 43%. In corporate customers overall a very solid quarter revenue weighed down a bit by equipment sales and also the discontinuation of the PSTN network supported by fixed services and in digital services and in particular by high margin hybrid cloud services and data services which was encouraging to see. The cost management was successful in this segment and EBITDA improved with very solid 4.2% for that segment. In international software services in turn a more challenging quarter. Comparable revenue growth was 0.6%. Here we need to remember that Q2 is seasonally typically the weakest in ELISA industry business and overall in software industry. We did see some license deals being postponed to H2 during the quarter. However it is important to note that we did not lose any deals. Nevertheless with the new CEO Mikko Soirola we will be starting now specific measures to improve The profitability of Elisa industrial business, looking into sales, looking into boosting revenue, as well as capturing synergies on the cost side of things. In Estonia, in Estonian market, we saw solid progress, revenue increasing 3% on the back of mobile and fixed services, also some support from equipment sales. EBITDA increased by 13%, driven by the mentioned service revenue growth, and then also an accounting alignment increase. Internally in ELISA. So good work, solid progress in Estonia. We continue to be focused on implementing our strategy and now especially in terms of 5G and fiber. As stated in 5G and mobile services, we see normalized mobile indicators. Improving the outlook and with fiber business we are seeing good organic demand in fiber to the home as well as fiber to the building and then as a new category of fiber business the data center connectivity comes in offering longer term revenue support. I will come back to that in a minute. In international software services, as stated, we will be starting specific measures to boost the revenue, take home synergies to boost profitability. In simplicity and productivity, the cost measures have been successful. Transformation program is proceeding according to the plan. We will be staying focused to implementing our initiatives related to all of these focus areas. In mobile business, 5G penetration grew during this quarter more than normally during the quarter. This was on the back of a focused sales activity. So we should not expect this 5G penetration to increase at this rate on quarters to come. As stated, in fiber business we are seeing some good momentum. The fiber subscription base continues to grow. At the beginning of July we acquired in Lapland area in Finland a fiber network provider with some 8,000 customers, a Bolton acquisition in that space. And then related to the fiber to the building, we announced A customer win, a partner win from DNA, the largest rental housing company Lumo plc having 44 000 apartments in Finland chose us as their fiber to the building provider. So good to see that progress in the fiber business. Related to the overall fixed services during the quarter, we ramped down successfully our PSTN network. That network has been serving as well for 140 years. And now customers have been moving to new technologies. For our fixed service business, this also means that now The drag of decreasing PSTN revenue will cease to exist and with that we will be having a clean sheet for fixed service revenue growth going forward. This quarter marks the start of our large-scale data center connectivity business. During the quarter, we signed first large-scale data center connectivity deals. And when we talk about large-scale data centers, we talk about newly constructed above 100 megawatt data centers. On the overall, in Finland the data center market is growing. We see more and more projects materializing and the ultimate size of the market will depend on many variables. One of them is the overall AI super cycle development and the investments of especially the hyperscalers. Electricity availability and electricity costs will be impacting the investment levels and so will the regulatory environment. But it is very clear that Finland is an attractive place for data center operators. We have an optimal climate, seismically stable land, one of the most reliable and best electricity grids in the world, low electricity prices and very developed telecom infrastructure. And we as Elisa, we have clear competitive advantages in this market. We have a strongest and widest backbone network in Finland and to and from Finland. We are the market leader with excellent capabilities to build fiber connections on time. And timely delivery is really important for the data center operators. And then of course we also have a strong track record in operating networks efficiently and reliably. So clear strengths on this category of business. And then when we look at the data center connectivity business characteristics, the way that business is emerging, as stated, the market is emerging, but it holds significant future potential for us. At the same time, it is important to note that we are focusing on data center connectivity business, meaning the fiber connections to the data center potentially supplemented by optics in some cases. And that means that that connectivity bit is only a small part of the overall data center investments that the data center operators are looking at. Based on the deals that we have now signed and based on the deals that we are now in discussions of, we see attractive capital returns. And importantly, we see attractive cash flow characteristics. We think that this will represent a notable positive EPS impact to ELISA over time. But it is important to understand that this is a long-term business. When we enter into a deal, the construction periods vary. Smaller deals might involve a construction period of some months and the larger deals include a construction period up to 24 months. So a long-term business in nature. The capex needs that will arise from these deals will be handled outside of our 12% capex to sales envelope. But let me re-emphasize that what we see is that the cash flow characteristics of the business are attractive. Going forward we do not plan to disclose individual deals in this category of business. But as stated, an emerging business opportunity that has now reached an important milestone with first large-scale data center connectivity deals being signed during the quarter. Looking into other aspects of our business, in home services during the quarter we reached a new agreement with MTV, a Finnish commercial TV company, after lengthy negotiations which also included a blackout period for our customers. Nevertheless, it's now good to see that this agreement is in place. We will be deepening the collaboration with MTV over time, also developing our offering to customers together with MTV. When we go into the corporate space, we clearly see an increased need for security solutions. During the quarter, we entered into a pilot agreement with Finnish border guard and a drone company called Sensor Fusion. testing a drone monitoring and drone jamming solution, which is an important and intriguing entry to mission critical defense business related to drones. As stated, in international software business in ELISA industry, the revenue and profitability was below our expectations due to the delays that we saw on the market. It is important to note that the order intake developed positively. and the order backlog as such was strengthened. In this part of the business going forward during this calendar year, we now expect to see revenue growth in the range of 5 to 10 percent. And as mentioned, we will be doing these specific measures to improve profitability and secure and improving profitability from last year's levels. We also had a good customer win during the quarter in Spain, Marjorance. Big Telco chose our software solutions and that demonstrates the quality and the competitiveness of the solutions that we are having in the telco space. In terms of sustainability, Time Magazine and Stadista once again selected us to the list of 100 most sustainable companies in the world. This time around we ended up on the 61st place and this was indeed third time in a row demonstrating our long-term commitment to sustainability work. And then when we go into outlook and guidance, our guidance for this year remains unchanged. So revenue, we expect to be at the same level or slightly higher than in 2025. Comparable EBITDA we expect to be within the range of 815 million euros to 845 million euros, the midpoint there being 830 million euros. In terms of assumptions related to the guidance, we now expect the telecom service revenue to grow within the range of 0 to 2%. And please note that this is related to the outlook for calendar year of 26. We do see the mobile indicators normalizing and with those indicators in the past we have been delivering solid Mobile service revenue growth, but it comes in with a delay being especially visible in Q4. And the same postponement phenomenon is visible in ELISA industry. At the same time, the totality of this means that our cost measures are progressing well. and then what is noteworthy also is that the data center connectivity opportunity will offer long-term support for the telecom service revenue development. So with that I will hand over to Kristian to cover the rest of Q2. Thank you.

Thank you, Topi, and good day also from my behalf. In Q2, group revenue was essentially flat year on year at 551 million euros. Within that, we saw expected mixed effects. Mobile services, the Epic TV divestment, consumer digital services as well as the traditional fixed PSTN continue to weigh on the top line, while fixed services, equipment sales and energy software services supported revenue. Despite the slightly decline in revenue, comparable EBIT increased by €3 million to €201 million and the EBITDA margin improved to 36.5% from the 35.8% in last year. The main driver here was really the operating cost savings, which came both from the ongoing transformation program as well as from and Discipline Cost Controls more broadly. Comparable EPS increased from €2.59 from €0.57 and all in all we delivered solid profitability and better EBITDA margins even with the slight revenue decline. When it comes to the second half development, we did see positive development in the mobile indicators in Q2, as Topi discussed. However, as said, the financial impact will be coming in with a lag and will be especially visible only in Q4. This will have an impact on the normal seasonality that we have seen over the years. Where Q3 EBITDA has been stronger than Q4, this is not going to be expected this year. Q4 is expected to be stronger this year. CapEx for the quarter was 72 million, down from 76 million last year. The allocation was very consistent with our strategy. Main investment areas remaining 5G coverage expansion, fiber build-out and IT systems that support simplification, customer experience and productivity. Some part of the fiber capex was implemented through the JV that we established last year. You might recall from Q1 that we emphasized strict CapEx discipline and focus on technology leadership. That approach continues. We are investing where we see clear long-term value and attractive returns while avoiding discretionary and low return spend, especially lowering CapEx for older technologies and older systems. All in all, we are maintaining disciplined investment levels while funding infrastructure and IT that underpin the future growth. Comparable cash flow in Q2 was solid at 71 million euros, down from an exceptionally strong 130 million euros in the prior year quarter, which represents a 37% decline. There are three main drivers behind this. First, lower capex compared to last year was a positive for cash flow. Second, higher paid interest costs weighed on cash flow, reflecting both higher interest rate environment as well as the fact that we this year paid a larger portion of the whole year interest costs in Q2. And then thirdly, and most importantly, networking capital development was less favorable than in Q2 2025. and that quarter benefited from very strong positive networking capital movements especially on payables. In Q1, we highlighted that net working capital had developed positively for five consecutive quarters. In Q2, we saw flat development. We continue to focus on working capital efficiency and managing interest costs to support cash flow in the second half and beyond. All in all, solid cash conversion in a tougher comparison quarter, with room to improve in working capital and a normalized cash interest impact going forward. Our capital structure remains efficient and clearly within our target ranges. Net debt at the end of the quarter was slightly down from the year end. Net debt to comparable EBITDA was at 1.8 times which is well inside our target range of one and a half to two times. Equity ratio was 39.1 percent above our minimum target of 35. We have a well-balanced maturity profile with bonds, loans and undrawn revolving credit facilities As indicated earlier this year, we are focusing on proactively refinancing our 27 maturities to maintain cost efficient and diversified funding. Both S&P and Moody's reconfirmed our strong investment grade ratings during Q2. Return ratios remain at good levels. Return on equity and return on invested capital are both running in the high teens, consistent with our ambition to deliver industry-leading returns through strict capex discipline and strong focus on cash flow. All in all, Elisa's balance sheet is strong, our leverage is comfortable within targets, and we are well positioned to continue investing in growth, paying dividends, and maintaining solid returns to shareholders. With that, I hand back the call to Vesa for Q&A.

Thank you, Kristian. And now we move on to Q&A part and we ask first question from the conference call lines, please.

Please go ahead.

Hello, everyone. I had two questions. Apologies, the first one is a little wordy, but just wanted to dig in on your telecom revenue growth visibility. So just to check, it looks like or sounds like the downgrade on your guidance for telecom revenue growth this year is due to seeing a greater degree of these 12-month fixed-term contracts that were signed during the second half of 2025. Evelina Dahl, Kati Nyman, Stuart Wells, Timo Katajisto, Topi Manner and if you are now confident, can you tell us if that mobile service revenue growth could come in positively in the third quarter of 26 or do we have to wait until the fourth quarter? So it's just a question around the visibility that you have on what's going on in the market and your confidence now guide to that improvement in the back end of the year. And then the second question is much shorter. It's just on the IFS growth. Are you totally sure that the lower revenue growth you're seeing is not at all structural in terms of headwinds and is all macro related? Just wondering if there's a risk here that you're just missing out on some AI related revenues as your customers reallocate spend towards that and that's just not being spent with you. Thank you.

Thank you, Andrew. So if Kristian, you start with the first one and I follow with the second.

Yeah, so on the TSR, so there has been a bigger lag impact from the competitive environment than what we anticipated and modeled at the beginning of the year. And that is why we updated the This year's outlook for revenue growth there. So the positive impact from the market stabilization and the price increases that we have seen will be more visible in Q4 and not as much visible in Q3.

And to add to that, I think that the market phenomenon in this one has been that on the whole market, all players included, it seems that the share of fixed term contracts has been increasing quite a bit. Share with competitors is something that they do not disclose and have not disclosed. So this has been sort of an unknown factor to all players on the market. And now the empirical evidence points to the share of the fixed-term contracts being clearly increased on the overall market, increasing the time lag that we are seeing in this part of business. But eventually, with the normalized levels of mobile indicators, the revenue will follow. Related to the industrial part of the business, whether the revenue slowing down is structural, we are of course observing this very, very closely and we are listening to our customers very, very closely in this one. And we do not see AI-related impacts in this one. We are dealing with mission-critical software for our customers, be that telecom software or be that industrial automation software. And with that, we have a clear moat in our software business. The delays that we have now experienced with the license revenue are clearly related to more practical matters like production, customers, projects related to investing in new production facilities being postponed. We do not see deals being lost and that is important to note related to your question.

Thanks both of you. Just a quick follow-up on the surprise of the amount of the fixed contracts. I understand that you don't see the contracts signed by your competitors, Surely you saw the amount of fixed-term contracts you guys were signing and your commercial offices, etc., know what's going on in the market and where the competition is. So I understand there's a change in market dynamics, but given that there's been some volatility in market dynamics, how confident are you that you have a firm grip on The tariff structures, etc., that are being signed by your competitors now, given that so much of the price engagement in Finland is below the counter. Just trying to gauge that degree of confidence that investors can have in that fourth quarter improvement.

Eveliina Dahl, Topi Manner That is clear as such. What we do see now is that the important indicators in mobile business are normalizing, as you saw from our presentation. And therefore, we do have a line of sight to clearly improving MSR going forward. Thank you. Q4. Thanks.

The next question comes from Paul Sidney from Barenburg. Please go ahead.

Oh, that's great. Thank you. Good morning, everyone. I also have two questions, please. First one really following up from Andrew's question on Finnish Mobile. You've made it clear in the past few quarters that it's not acceptable for you to lose market share. And I just wondered, have you seen the competition back off because of this stance over the past few quarters? Is that why the market environment has improved, because you've taken this stance and pushed back on promotional activity? And do you intend this stance from Alisa to continue going forward, or would you consider giving the market a bit more room to breathe, is the first question. And then, just secondly, I was intrigued by the fibre acquisition. and even in Lapland. It's obviously very small, 8,000 customers, but you've seen the regional fiber players starting to really struggle given that they really lack scale and if there are opportunities going forward to make more of these bolt acquisitions that are obviously very value-creating. Thank you.

Yeah, if I start from the fiber part, I think that the regional fiber players are open to discussions related to consolidation and we see fiber assets at play on the market. We have strict conditions for value creation and for geographical location, but if we see assets on the market that are are meeting our strict criteria, then we are willing to do similar Polton acquisitions that we did in Lapland in this case. And then, could you please repeat the mobile service question so that I'm completely sure that what was your main point related to that?

Yeah, sure. It's just that you've made it very clear that you're not prepared to lose market share and heavily push back in the second half of last year on the competition that you faced. But I was just wondering, do you think that the improvement we're seeing is because you push back? And is that a stance you expect to continue going forward?

Of course the overall market dynamic is an equation of all the actions that all players are taking on the market. I think that what is worthwhile to note in this regard is that we do not see the mobile virtual network operators having a big impact on the market. So the competitive dynamic has been especially a dynamic between the three established players on the market. When it comes to market shares, when you look at the postpaid mobile subs during this quarter, consumer and corporate included, our market shares were stable. So we are keeping our market shares. Clearly, The market has returned to normalized levels. At least in our case, we have not seen competitors disclosing their numbers of Q2 yet. But the bottom line is that when we look at our mobile indicators, no matter whether we look at new sales price, whether we look at churn or whether we look at sales and marketing costs, Whether we look at the net ads, we see normalized levels. And of course, that is very encouraging. That's great. Thank you.

Could I just have a quick follow-up, please? You mentioned returns when you're talking about acquisitions, and clearly the data center projects have got to make an acceptable return. Have you disclosed or could you give us an idea about what the hurdle rate is for these projects and acquisitions?

So we will make sure that the capital returns are attractive and cash flow profile is attractive. Nothing more to add there.

Perfect. Appreciate your time. Thank you.

The next question comes from Andre Kabysik from UBS. Please go ahead.

Yes, good morning, everyone. Thank you for the presentation. I have also got two questions, please. One also on the especially mobile service revenues. We're coming from, I guess, a bit of the opposite angle. So what we know is that last year, the competitive environment started deteriorating in the third quarter, then was the worst in the fourth quarter. What we also know is that a lot of the people who got on promotions at that time had these promotions for 12 months and after 12 months they should be kind of rolling off of these discounts onto regular pricing. I think previously you expected something like a three-month lag in terms of the kind of full pricing to ARPU translation due to these contractual issues that you pointed out. Now you seem to be more in line with the pair saying that's going to be a bit longer than that and I think all of that is clear. But at the same time you're flagging that there is an expected improvement in 4Q26 and this is where I struggle to understand the situation a bit because If the worst promotions were given in 4Q25 and there is, as you say, something like a four-month delay in terms of when you sign the contract up until when the pricing is actually effective, Then shouldn't it mean that 3Q26 is when things deteriorate further, given this lag, then the impact of those 12 months promotions actually lasts for a year and only mid-2027 is when ARPUs start to really pick up again as people roll off of these promotions. So I guess I'm just confused with... with kind of trying to put all of those pieces of information together, if you can help me out, please.

Yeah, if we decompose that a bit, first of all, if we look at the price levels of new sales as of now, we are on significantly higher levels than we were during the most fierce campaigning in Q3 and Q last year. So there's a big difference. And that, of course, if that moves even partly to the price level of those fixed term contracts being renewed during the fall of this year, then that will be very supportive of Q3. of Q4 mobile service revenue. So that is something that we need to keep in mind. I think that the time lag especially comes from this one-time effect of Our share of fixed term contracts as well as competitor's share of fixed term contracts rapidly increasing during the fall of last year. And that also means that the overall volume of number transfers between competitors on the Finnish market during the first half has been a little lower and therefore the weight is smaller in terms of impacting the MSR when it comes to new sales.

Thank you, Topi. So I guess what you're saying is that the step down from the promotional activity will be in the base kind of 3Q, but then the underlying trends, which are still the healthy kind of 4G to 5G upsell and so forth, will eventually kind of be the higher impact and overall a positive one, combining those two things together, starting for Q. And then as we progress in 2027, potentially best case scenario You continue to have the positive underlying trends and as people roll off these kind of 12-month discounts with that for whatever month delay, there should be a double positive starting kind of say mid or like 2Q27 or something, mid-27. So is that roughly the correct understanding?

Maybe rather than confirming your kind of thinking, maybe the way to think about this is that the lag on transfers is actually longer than the lag on renewals. And that's in a way maybe the dynamic to reflect here. And so when it comes to renewing the one-year contracts that that were entered into last year there will not be a similar lag there as there was when we had transfers to us some of which were fixed term contract transfers so they didn't kick in at sales they only kicked in you know when those contracts ended and that's what is creating this dynamic where we are feeling the headwind now and there will be a tailwind then going into the second half especially visible in Q4.

Okay, thank you. And if I may, a second question. Just on the flow-through of the cost savings, I think on a net base, I think we're seeing that on a growth basis. If I kind of break things out, obviously, like in the past two quarters, you had high single-digit million savings over your employee costs, and I guess some underlying cost savings in other areas, including the commercial costs. But the net translation into positive EBITDA growth on a stable top line is still pretty limited. So I was just trying to understand if that is primarily the responsibility of the top line in terms of the dilution of these efficiency gains, or is there something else going on maybe under the hood in terms of reinvestment, et cetera, that we cannot really kind of appreciate from the outside?

Maybe a couple of dynamics.

First of all, when we talked about 40 million cost savings, that was across the board, kind of capex and opex. And, you know, clearly the opex is more visible in the P&L. Yes, there is an element of reinvestment here also. And, you know, the The flow through to EBITDA from those cost savings is impacted by the headwinds that we are seeing from the revenue line. So it is in a way a mixture of all of the above that you listed. But the program is on track. You know, most of the savings are in. And in that sense, that has been a great help when it comes to being able to grow EBITDA both in Q1 and Q2, even in this revenue environment.

I appreciate that. Thank you.

The next question comes from Frederick Lithell from Handelsbanken. Please go ahead.

Thank you very much. Thank you for taking my questions. I have a few small detailed questions. The PTSN that you're closing down, do you foresee any further costs relating to that in coming quarters or you have everything behind you now in terms of cost or do you have any write-offs or something to do on old equipment would be interesting to hear. The second question on data centers and your investments, I appreciate you are I'm careful on the return metrics and all that stuff, but can you give us some timeline on when you do your CAPEX work and when you foresee your positive cash flow to contribute to the group? What's the time lag between those two? Thank you.

On the PSTN, you know, this is now kind of materially behind us. So, you know, it will not be a drag to our revenue compare anymore in a similar way as it has during the ramp-up period. And, you know, the material parts of the costs have been booked. And we are now against those kind of provisions, dismantling some of the air cables and so on. So I do think that... Don't expect us to refer a lot to that anymore as we go forward. When it comes to the data centers, I will not give you much more detail. I will only repeat what we said earlier, that the overall return Capital returns and the cash flow profile from those deals is attractive. And again, when we say that, we look at both inflows and outflows. Then we made a separate statement that the outflows when it relates to capex will be done outside of the 12% capex envelope that we have. But the cash flow attractive comment refers to both inflows and outflows.

Okay, perfect. Thank you.

The next question comes from Artem Beletsky from SEB. Please go ahead.

Yes, good afternoon and thank you for taking my questions. I will actually ask one by one those and maybe the first one I just wanted to double check comment that was made actually by Kristian earlier at the call. So do you really expect that the EBITDA in Q4 will be higher compared to Q3 this year? Because I think looking at the historical seasonality, so The difference has been opposite roughly by close to 10 million euros. Q3 always been better. So is this year really so much Q4 loaded in terms of growth outlook?

Good remarks. That is what I said. So that was the intention of the communication. Q4 is, as we see it, given the dynamics this year, going to be better than Q3. And in the past, it's been the other way around.

Okay, very good. And maybe then the second question was relating to some nice first deals what you have done around data centers. And maybe in terms of business opportunity, could you provide Could you somehow frame it? So you mentioned about deals covering at least 100 megawatt capacity, data center investments. So how much this type of projects could contribute to your revenue? So what is the business opportunity? And maybe the other general phenomenon what we see on Finnish data center market is that Many of these mega projects are actually built over a long period of time and in many, many phases. So how it works in terms of connectivity capex being done, is everything done basically upfront or Are those investments also gradual over a longer time period in this bigger project?

If I start with the overall sort of business dynamics and then Kristian, you can come in with the CapEx timing. So what we do need to acknowledge is that this market related to data centers is emerging. As stated, it holds significant future potential for us. The business is very, very long-term of nature. We see long deals on the market, up to 15 years of contracts after a construction period. So the long-term nature of the business really needs to be acknowledged. And therefore, I mean, our bottom line in the communication is that when we frame it, we see attractive capital returns. We see attractive cash flow characteristics. And over time, we see notable gains. EPS support for ELISA. And that is where we are in this one. As we will have more deals, when we learn more about the market, then certainly we will be specifying our view in this one. This quarter marks the start of this large-scale contact center connectivity business for us with the first deals being signed.

And I think just on the CapEx profile of each deal, as Topi said, you know, early days, I'm sure every deal will be somewhat different. So we actually don't have enough data points to be able to say what will this typically look like. Other than, as said, we think, you know, these are deals that are attractive both from capital returns and cash flow point of view. And maybe with that, let's move on. And I would like to ask people to limit themselves to one question only so that we get through the queue on time here.

Thank you.

The next question comes from Felix Henriksen from Nordia. Please go ahead.

Hi, guys. Thanks for taking my question. I will use my one question on cost efficiency matters. I think on top of the 40 million savings program you've also communicated that you see incremental opportunities to improve efficiency relating to AI. So can you sort of provide an update on how that progress is going and how successfully have you been implementing AI into your operations and hence gain additional potential cost savings avenues? Thank you.

Kristian can follow on the operations bit. Generally related to the AI, I would like to emphasize that the way we look at AI is that we see a growth opportunity. We can leverage AI in digital services, in software business, in connectivity business to generate growth, profitable growth. and then certainly we will look into all the usual suspects related to improving productivity, automating processes, looking into AI assisted coding and then we are already a technology frontrunner globally in network automation and we are moving forward toward Autonomous networks gradually with the help of sophisticated AI tools. So the long-term picture is that we do see upside in this one.

And I think when it comes to maturity, we are at different maturity levels in different parts of the organization. When it comes to leveraging AI for running the networks efficiently, we are very much mature. When it comes to some process areas, it's early days and we have put in fundamental building blocks to be able to leverage that going forward. In that sense, I don't think it's that different from what you see in the market in general. I do see that this is a big opportunity that will give Elisa a lever over the long term, and we are working on it in a focused manner.

Very good. Thank you.

The next question comes from Andreas Jolson from DNB Carnegie. Please go ahead.

Good afternoon. Thank you for taking my question back to these fixed contracts. I would like to know what makes you confident that when these fixed contracts that was taken last year in the sort of competition bonanza, when they expire, How confident are you that that will not trigger new increased competition and higher churn? Just understanding, because there is little room now for you to be able to reach the more long-term target of revenue growth above 4%. So just trying to understand how you model this going forward.

Thank you. As stated, the mobile indicators have normalized already. When you look at the forward-looking indicators, there has been a notable change on the market already. When we look at the new sales levels, As of now in Q2 and compared to last fall there is a big difference as one of our investor presentation slides indicates. Competition bonanza, as you referred to last fall, was a market phenomenon. So that means that all of the players on the market have a lot of fixed term contracts to renew. So everybody will be busy first and foremost taking care of their own customer base. And then I think that when we look at the market now, we see sort of a stable environment in terms of competition dynamics. So that is reassuring related to your question.

Thank you.

The next question comes from Sami Sarkamis from Dansky Bank Markets. Please go ahead.

Hi, my question would be on the dispute with MTV. What financial impacts should we assume from this? And I'm sort of thinking impacts on future revenues, costs, and then customer churn.

The one word answer would be neutral. We are happy to have the renewed contract with MTV as of now. We will be deepening our collaboration with them. We will be coming forward with new offerings to customers over time. That's where we are currently. When you look at the financial impact during the course of this year and beyond, it will be neutral. We did receive customer feedback during the blackout. I'm sure MTV did as well. But when we look at our journey numbers in our entertainment services and so forth, we do not see a big impact. Neutral is the answer.

Okay, thanks.

The next question comes from Eje Soni from JP Morgan. Please go ahead.

Hi guys, thanks for taking the question. Just a quick one on ISS EBITDA growth. I think As people have mentioned previously, maybe structurally the double digit growth is becoming more challenging. Does this make it more difficult to materially step up your EBITDA here? When I look at H1 OPEX for ISS, it was up 6% and revenue users are lagging this. So I just wanted to understand your outlook here for EBITDA growth in this business.

What we will need to remember related to the software business that software business with the license income is inherently more volatile than our classic telco business. So that's one aspect to keep in mind. Another one is that Q2 typically in software business is seasonally the weakest. So we do see a way forward to improve our EBITDA gradually. Eveliina Dahl, Timo Katajisto, Topi Manner As mentioned, we will be doing specific measures to boost the revenue in industry as well as take home synergies in terms of cost.

Great, thank you.

The next question comes from Ulrik Raeth from Bernstein. Please go ahead.

Thanks very much. I want to go back to the data center investments there. These are very big projects for the people building them. So I would assume that they're quite keen to get some help with the financing. Is there anything unusual in the contract structures that you're negotiating in terms of risk sharing, in terms of payment schedules, anything of that sort that would make The connectivity business in the data center is fundamentally different to, I don't know, connecting a big building, a new building or anything of that sort. Is there anything that you're faced with in these negotiations that is actually different from the normal connectivity business? Thank you.

Yes, I would maybe say rather the opposite. And what I mean with that is that the data center investments for the investor and the operator are huge investments. And for those, I'm sure they are having financing discussions with the vendors that provide and the majority of the CAPEX going in. The connectivity part is relatively small, but it's super critical for being able to operate the data center and because of that they want Thank you very much. that we have been seeing when it comes to contract terms and so on. So I think we are in a good position here because they need us, they see our strengths and our portion out of the totality is a relatively small portion.

Very clear, thanks.

The next question comes from Abhilash Mohapatra from BNP Paribas. Please go ahead.

Yes, hello, good morning, and thanks for taking my question. I had a question around dividends and cash flows, please. I guess if we look at recent years and if you see a comparable cash flow and then sort of strip out positive working capital impact, you've not really covered your dividend payments in recent years. and this year again in H1 you mentioned the working cap headwind but again X working capital also cash flow is basically flat year on year if you compare H1 this year versus H1 last year so cash flow hasn't really grown on an underlying basis. In this context we'd just be interested to hear your thoughts on how you think about your dividend growth going forward are you just sort of comfortable Do you think it's important to have the dividends covered by underlying cash generation? Thank you.

So again, I think we have a strong focus on driving cash flow. The reason why we have been able to pay somewhat higher dividends than what the earnings would have allowed for is because of the strong cash flow. And I don't see that there is any change in that dynamics And that's how we're going to continue to manage the business and also generate the ability to continue to pay dividends. So I'm not sure I fully understand where you're coming from with the question.

Just to reconfirm, I mean, our dividend policy is intact and we see also levers in our disposal to positively impact cash flow.

Okay, thank you. Just to clarify, can you maybe give us any color around working capital, please? I mean, last year, it was quite a big positive boost, I think around 45 million euros for the full year, which was more than 10% of your final sort of cash flow for last year. This year, we've seen a reversal during Q2. How do you sort of see that evolving through? The second half of the year, please, when it comes to working capital.

So first of all, we didn't see a reversal in networking capital during Q2. We saw flat development in Q2, so we didn't get the exceptional benefit that we saw in Q2 last year, but development was still stable. I've talked about this now each quarter that We've done a lot of work on inventories. That's from where the majority of benefits have been coming from. I do see further opportunities for us to improve on both the payables as well as on the receivables side. So in that sense, we'll continue to work on those levers. When it comes to the operating cash flow, then when it comes to Thank you very much.

The next question comes from Max Findley from Rothschild and Company. Please go ahead.

Hi, thank you for taking the time to speak to us today. My question is regarding ISS. I wonder whether M&A has contributed to the deterioration in organic performance and if too much M&A has left the division a bit unwieldy and unsuitable. At the front of my mind are the acquisitions made in 2024, especially the large Sedapta acquisition. Any colour you can provide on the performance of these businesses acquired in 2024 would be really useful as they were quite material to the growth of the division. And would you also be open to further disposals of non-core ISS assets? So I guess the non-telco operations of ISS. Thank you.

When we look at the M&A in general in ISS and SEDAPTA acquisition in particular, we do not see causality between and the current postponement of deals that is driven by geopolitical and economic uncertainties. We are happy with the acquisitions and we are well on our way in terms of integrating them. That's where we are related to that question. If your latter part of your question was pointing to whether we would be open to Bolton acquisitions in ISS space going forward, the answer would be yes. If we have a clear strategic fit and we see a value creation possibility, Then we are ready to allocate some capital to Bolton acquisitions in ISS. But we are clearly in the Bolton category in that space.

And maybe just tackling your question on, you know, are we are we kind of pruning the portfolio? I would say that that is the mandate of Mikko to see that, OK, it's always optimal. There might be kind of certain elements that don't belong there and there might be certain needs to do both on. So it kind of goes both ways. But the kind of the bulk is correct and something for us to leverage in a more synergistic manner going forward. Yes.

There are no more questions at this time, so I hand the conference back to the speakers.

Yes, thank you and thank you for all your questions. Unfortunately, we couldn't take more questions during the Q&A session because of the time restrictions here. But now we wish you all a very, very nice summertime and until the next event. Thank you. Bye-bye. Thank you. Bye-bye.