Eltel AB (publ)

A warm welcome to this presentation of LTEL's second quarter results. My name is Alexandra Kjernund. I am the Communications Director at LTEL. To present the results, we have Håkan Dahlström, CEO and President of LTEL, and Tarja Leikas, CFO of LTEL. After their presentations, we will open up for your questions. And you can either post your questions via the web conference in the forum or dial in via the phone conference. And with that, I want to hand over to you, Håkan.

Thank you, Alexandra. Good morning and welcome also from my behalf. I would like to start saying a few words about ELTEL as a reminder and also for the benefit of newcomers. We divide our business in what we call classic services where ELTEL have 25 years of history. But during the last three years, we have expanded our ambition in the market with emerging services. That means in the customer dimension, as we traditionally have worked more or less only with network owners and grid owners within power and telecommunication, we, during the last three years, also addressed enterprise customers and public sector. In the middle of this, you see the business model where we have the base in service and maintenance, but as you know, also technology infrastructure needs upgrades, and those are the two main parts, meaning 72% of our net sales during 2025. On top of this, we of course help our customers to establish new infrastructure with our installations. All together, we are very happy to play a significant role in the Nordic when it comes to technical services for critical infrastructure. And I'm really happy here today to be able to come to you with a report that is the best second quarter in a decade. So for ten years ago ELTEL was something else than what we are today. So really good to see here now that we have been able to generate five and a half million euro at the level of adjusted EBITDA. A bit more than twice as much as a year ago. And this means that we now have 12 consecutive quarters where we have year over year improved our adjusted EBITDA. And this is for us priority number one. I said it so many times and I will stick to this. This is our priority. We need to improve the adjusted EBITDA and by that everything else also going to be much better. In the second quarter, Norway was the one that improved the result most, followed by Finland and Sweden. So it's good to see that three out of four segments contributed to this improvement. And I will have to say a few words about Norway here. I think it's really great to see the fifth quarters in a row. And we are coming close to 5% on adjusted EBITDA level in the Norwegian business. So Team Norway, really well done. Happy to see this turnaround actually delivering. Finland and Sweden also doing really good. And of course, I would love to have seen a top line increase also in the second quarter. But it's for us more important with EBITDA. So below more or less flat net sales, it looks like everything would be stable, but it's actually quite big movements within each segment. If I take Finland as an example, I think Team Finland makes it really good managing lower volume in communications. As you remember, the fiber to the home rollout peaked in 24. It was half of that size in 2025 and even less now during 2026. Higher volume, more activity in power. Finland is balancing this and improving margin both in communication and in power. So really good, well done. Also Sweden, where the business mix is very different. A very big portion of everything is about communication services. also telco operators are a big portion of that business of course and here sweden are able to improve in all different parts of the business on the profitability so even though flat on that say i would say that we are really happy about the result Denmark, Germany combined segment. Germany do it really well during second quarter and Denmark not. I must say that either net sales or profitability came up to my expectation in Denmark during the second quarter. We have taken actions during April to get the organization and the capacity more in balance with the backlog and order book. We hope to see effect of this later during the year. But normally in this type of situation, it takes a bit of time. Because in our business it's so important that we have a good balance between the capacity and skills we have and the order book we have. And here I would say that this is not really in balance in Denmark just now. We have to improve the sales, but I'm really happy for the activities that we have done during the second quarter. Also on the positive note, I will have to mention the cash flow. So it's great to see that we have improved cash flow in the second quarter. As you know, we have big seasonality in our business. So having a positive cash flow here in the first half is good to see. EMERGING SERVICES, AS MENTIONED, DURING THE THREE YEARS OF THE NEW STRATEGY, WE HAVE FOCUSED ON BUILDING NEW BUSINESS IN EMERGING SERVICES AND DURING THIS QUARTER IT WAS 14% OF THE NET SALES. Those of you who remember first quarter know that we had significant larger portion of emerging services, mainly solar in the first quarter. Here in the second quarter, it's data center. So it's very visible in Norway, Finland, the data center business in the second quarter. The Solar Park, Hallenvati Solar Park that we have the production and you see that on the right side here. Really happy to see the progress in this project and was a big contributor to the net sales in the first quarter. Also contribution in the second quarter but not in the same extent due to that this project come to a finalization. On the commercial side, meaning here capability to sign contract, I think that we are really happy to see the 217 million signed during the second quarter. It's not only the level, it's actually also what it consists of that is really good and make me optimistic about the future. so there is a mix in the contract portfolio that has been really good and a lot of this have been in the core business meaning that the classic service customer like ELISA, Fingrid, Global Connect is a major part here and that is building the stability in service and maintenance and upgrade So really, really important. And you also have seen that we have continued during the beginning of July to also sign contract that is not included in these 217 million. But emerging services, great progress to grid connection contract towards data center, important for us. Well done, Team Finland. And then really good development in Sweden when it comes to power sector. And we have got a decision by Vattenfall. They want to give us the contract to do service and maintenance in two regions. This decision is appealed. I have looked at it. I'm not really worried. It's, of course, always connected to a risk and a delay. So for me, it's more about the delay here. I think we still... will manage to sign this contract in the soon future. But it will be a delay. Is it two months? Is it six months? I can't say. But still very optimistic about the case as such. So taking all of this into consideration, I think that we have a really good position and the contract portfolio is in a good shape. So not really worried that the top line in the second quarter is flattish. I tend to focus at the adjusted EBITDA improvement, great, cash flow, great. But Tarja, what does the number tell you more about this?

Thank you, Håkan. Really, really happy to report the second quarter results. And like Håkan mentioned, we are pleased that our top priority, we continue to improve profitability. Group adjusted EBITDA more than doubled to 5.5 million, marking three full years. Three full years of year-on-year profitability improvement. And like mentioned, Norway was the largest contributor to the profitability improvement. Finland brought solid result and Sweden continued improving the financial performance. Net sales were 200 million, slightly below last year. However, our total contract value, like Håkan mentioned earlier, the total contract value of signed new contracts was strong, reaching 217 million during the quarter. On top of this, we were awarded of 275 million contract with Vattenfall in Sweden. This is the largest contract award to date. And due to the appeal process, we do not include this into our total contract value. Headcount is now down by 250 employees, reflecting effective scaling, portfolio adjustments and extended partner engagement. The journey towards our 5% EBITDA continued. Overall, the first half of 26 strengthened the confidence in our ability to achieve our long-term profitability target of 5%. While we still have work ahead of us, our consistent execution and focus on operational efficiency and margin discipline continue to deliver results. And then we have the segments, and first we have Finland. Now Finland, in the second quarter, Finland was 42% of LTEL Group. Finland delivered a strong operational performance and margin management. Profitability increased significantly despite slightly lower net sales and changed business mix. During second quarter, Finland signed large contracts both in classic power and communication as well as in emergency services. Adjusted EBITDA margin reached 6.2%. It is clearly above previous year's 4.1%. Finland demonstrated solid operational improvement and profitability focus. Then Sweden. Sweden was now 29% of LTEL's operations. Net sales were in line with last year. Sweden continued good development in communication service volumes. Power declined following the project closings. And as mentioned earlier, to our delight, Sweden Power was awarded with a record volume contract by Vattenfall. Sweden continued delivering stable operational performance and improved profitability despite power project closings. And then Denmark. Denmark-Germany's share of LTEL operations was now 15%. Denmark-Germany was impacted by the continued volume decline in communication as well as power grid connection bottlenecks in Denmark. Net sales and profitability remained below expectations. both below our expectations and the previous year level, despite a strong performance of German operations. As mentioned along previous quarter reporting, we have taken actions to improve efficiency and adapt the cost base to safeguard the future profitability. And then to Norway, which was a group's strongest contributor to the profitability development. Norway's share of LTEL is now 14%. and Norway outperformed both commercially and operationally. EBIT A reached 4.9% compared with previous year's negative 1.6%. Team Norway has successfully improved utilization, efficiency and commercial performance while building a more diversified customer base. The year-on-year improvement has now been sustained for a full year. Actually, you mentioned, Håkon, that it's five quarters. It's more than a full year. This is demonstrating the effectiveness of the turnaround effects. And then a brief look to our balance sheet. Networking capital remained at a healthy level. This is reflecting our disciplined payment patterns. Thank you very much. Net debt landed to 170 million, comparability adjusted, and here hybrid bond and the tax deferral repayments. The net debt amounted to 129 million, and this represents an improvement from last year's 145 million. And this is reflecting the positive impact of the last year's refinancing and the continued focus on cash and working capital management. Leverage was 3.1. End of the period, comparability adjusted leverage was 2.7 and that is compared with the previous year's 2.9. That is an improvement as well. All in all, cash flow and working capital remained healthy, reflecting continued financial discipline. And I will close with a reminder of the long-term financial targets, which we keep unchanged. Profitability, 5%. And here we have the rolling 12 months result. Now we are on the level of 3.1. Growth between 2 and 4%. Latest 12 months result here is 3.8. And leverage between 1.5 and 2.5. And latest 12 months, like mentioned earlier, 3.1. And now Håkan will continue with the strategy execution.

Thank you, Terje. Thank you. I just want to come back to you, talk a little bit about the megatrend that we see is creating a very positive future, not short-term, mid-term, but also long-term. And when it comes to digitalization, here we see the area of data center, that is the area that is most active just now. So when it comes to digitalization, I would say that... top of the activity list is data center and also transport fiber. When it comes to electrification, there is some hesitation in expansion of the grid. It's a lot of discussion and talks, but we see maybe the beginning of a more positive market in that area, with the exception of Denmark, where there is a hold on new connection to the grid. This is of course making it difficult for our Danish operation. We hope that this will be solved soon so that the work with the grid can go back to a more normal situation in Denmark. In Finland we had an impact of the investment in the grid with the new regulation that came into place in January 24. That made it really hard for us during 2024, beginning of 2025. We have seen step by step that these have come back to normal and I would say that the investment in the grid start to be normalized and hopefully during next year we will be back to the level as we saw during 2023. So positive signs there and you have seen that also in the contract award that we have been able to receive from Fingrid and other enterprises in Finland. So a bit better outlook in that area. When it comes to renewable energy, I would say that this is still an area that is quite soft or slow. Still difficulties for our customers to make the business case. So not so much... contract and we don't see the same amount of opportunity in this area now as we saw for one and a half and one year ago however during second quarter a few small indications that this might be a change of this in the coming quarters but not really any proof in the padding yet so to say Of course, that resilient is the main question for everyone that owns critical infrastructure. So here is also a lot of discussion and activities. So when we look at what progress we have in the strategy execution, we normally divide it in these three steps. And I'm happy to say here now, as we have said now a couple of times during this meeting, that the profit here, we talk about gross profit, has improved year over year, and also that yesterday EBITDA, so more than twice as much than a year ago. We have, of course, more to do. It's not so that we are settled on this level. We have to do better than this, and our structural work with improvement and optimization, both on the production side but also on the commercial side, will continue in all our segments. One part that we have extra focus on is of course to broadening the customer base and here it is the classic service portfolio where we look for new customers in the enterprise segment and in the public infra defense is one such area where we have seen great result. Also so in the second quarter here. When it comes to emerging services, we see that they come up to 14% in the second quarter. But it's lower than what we had in the first quarter when we had significant contribution from the solar park in Finland. in this now second quarter we see data center coming up and this is of course really good to see that that that is happening particular great to see and then if we compare the situation now after second quarter 26 with the situation a year ago as I normally do here we see that the pipe ... still very healthy, half and half, so to say, classic in emerging services. And we have more signed contract than we had the same quarter a year ago, and net sales is up. So even though net sales, the portion of net sales for emerging services is not at the very high level we had in the first quarter, I think some of you might remember that I indicated that also in that presentation, that this is what we could expect. But overall, I'm happy with the development. We have more to do, but there is not anything new that we have to invent. We just have to do more of what we are doing, and we have to be consistent in our execution. With that said, we would like to talk more to you about how we see the different parts of the business and give you a better insight in what is sort of inside the company. So we would like to welcome you to a capital market day in the mid of November. But more about that later, but please save the date. With that, I would like to open up for questions.

Thank you. And as mentioned, you can either post your questions in the web form, if you scroll down a bit, or you can phone in and dial pound key 5 on your phones to post a question. And we have some questions coming in via the phone conference. Let's begin with those.

The next question comes from Albin Barnevig from ABG Sundal Collier. Please go ahead.

Good morning and thank you for taking my questions. If we start off on the solid margin in Norway, what has been the main reason behind the quick margin recovery here and after the region has struggled for a while?

First, we have made heavy adjustment on the organization during the last year and also started before that. So I would say that the organization are now very much in balance. We get great utilization. So what we have to do is in line with our capacity. But we also see the beginning of effect of more more firm agenda on digitalization and automation. So I would say those two together with a broader customer base. We have had a lot of activities in emerging services that start to pay off in the data center sector. So that combined, I would say, outcome here in the second quarter.

All right. And on the flip side then, what drove the decline in profitability in Denmark and Germany more specifically perhaps? And will this segment require more restructuring measures ahead to lift profitability?

I would like to divide it then to Denmark and Germany. In Germany, I would say that we had a good quarter, strong performance in the second quarter. In country Denmark, we saw lower demand in both communication and power. And I would say that that's partly us and partly the market. So with this problem that the authorities have when they should allow people to connect to the grid, . . . . . We are struggling. And on the communication side, there is less activity, particularly on the mobile. We see some light on the fiber side, and here the contract with Global Connect is, of course, extremely important for us. So that was really welcomed.

But still, I would focus the challenges more or less to communications.

Yeah, okay, that's clear. When you talk about profitability in Finland improving despite the significant shift in the business mix, can you elaborate more on what drove this specifically and whether it's part of normal quarterly fluctuations or if you're talking about more of a structural mix shift taking place here?

see in Finland that the majority of the fiber rollout, fiber to the home, has been done. It's done a bit different in the Finnish market than what we saw earlier years in Sweden, Norway, Denmark. So we perceive that the situation is so that it has to be more densification of that fiber to the home infrastructure going forward if you look at the penetration in Finland it's much higher now but it's not at all on the level where we see Norway Sweden Denmark so it will be more fiber in the future in Finland also on the last mile side but as it has been during 25 and 26 so far it has not been volume In 24, we had massive volume in fiber to the home, visible in the penetration, but those volumes have been much lower in 25, have also had very low volume in the beginning of 26. some indications that there will be more interest going forward to invest in this, but I think we should actually more look at it as we are on the normalized level now. It might be some increase in the future, yes, but not at all what we saw during 2024.

I would like to continue that A key element in LPEL's success is the adaptability to the volume changes. And Finland is demonstrating in a really excellent way the capability to adapt. So from 4.1 to 6.2 this year, I think it's very, very good performance.

Yes.

Yeah, I agree with that. And looking across the different regions, what is the current demand picture for the legacy communications business?

I would say the Swedish market is a bit more active than Finland, Norway, Denmark. But no one expects the classic telco market to increase a lot going forward. I think we are at the level where we most likely will see the future also.

All right. And regarding your 2 to 4% growth target, even though this quarter saw weaker growth, do you think there might be upside over time to the target considering the positive development within emerging services? Or was this factored in when the target was set, if you understand what I mean?

When the rare nose sort of emerging services in the strategy at the time when the board took the decision about the target. So that decision was taken during 2021. We set a new strategy during 2023 and we are executing on that. I would claim that we show that we can execute on that strategy and that it will give positive result. Would we like it to go faster? Yes, of course. But the most important part is that we consistently improve quarter by quarter. Is there a possibility to grow faster? Yeah, we have the ambition to do that, but priority one is the adjusted EBITDA. So it's so important for us that the organization is in balance with the order book and that just had to be taken care of. And it's a never ending task for us.

Absolutely.

Yeah, that was all the questions for me. Thank you very much.

Thank you.

Okay, I think that concludes the conference, so let's switch to the web questions. I just want to add that we have a lot of questions, which is lovely, but we have talked a lot about Denmark and Norway, and there are a lot of questions resembling what we've already responded to. Please. Put the questions and we will complete, but otherwise we will focus on some other questions here. Let's begin with Kristoffer Genell from Indres. Main target, you've put an explicit 12 to 18 month timeline on reaching the 5% adjusted EBITDA target from minus negative 3.1% on a rolling basis today.

No, no, no.

No, no, that was the growth actually.

No, no, no. 3.1 is where we are on the EBIT AYs.

What has to go right for that timeline to hold? And just as importantly, what would make you formally revisit either the target or the timing?

What will have to go right is of course that we are able to execute and keep the organization in balance with the backlog because that is how we create profitability. We have to secure some new contract with the size we have, every month there is contract ending. So this is a constant work, never ending, to keep the organization in balance with the order book backlog, but also securing new commercial commitment from our customers. And that is what we have to do also going forward. I would say the good thing is that I think we have shown that we can do it and we don't need to do anything else. We don't need any miracles or R&D development or something. We just have to do what we do to do that a bit better every day. And we have to beat our own past. And I think everyone in the organization have understood that and is focused on that. We are increasing our activity in digitalization, in automation to support that development. But there is no big bang development that we are waiting for. This is a consistent improvement work that we do in a structured way, I would claim, in all our segments. So we just have to continue.

Yes. Another question from Christopher. The rate narrative has flipped from cuts to hikes and sticky inflation. For the long lead investment decisions your customers make, solar parts, grid, data centers, so forth, are you seeing decisions pushed out? And how do you distinguish a genuine structural slowdown from projects merely being postponed rather than canceled?

In data center, I think I said that a couple of minutes ago, that in data center, it is high activity level. The challenge in that area is to know which project to bet on, because there is a lot of activities, a lot of prospect, but will those actually be for real? Most of them will not. But a lot of activity, high level of activity there. Renewable energy, meaning wind parks, solar park, we don't expect to have many opportunities in that area stand alone. It will be hybrid parks, meaning energy storage together with a solar park, maybe together with a wind park. So that combination is most likely what we will see going forward. A little bit light in the tunnel in those discussions, but not as it was for one and a half a year ago or one year ago when it was a lot of activity, a high... Thank you.

Okay, another one from Christopher. In Q1, you call the impact from the U.S.-Iran conflict very minor and pointed to better indexation protection than in 2022. The conflict has since proved more prolonged. How has that very minor assessment held through Q2 on fuel, asphalt, cabling, etc.? And at what point does a longer conflict start to actually change customer behavior rather than just your input costs?

It's hard to know exactly what is causing what. The easy part is the fuel prices. You can see that we have higher fuel prices in most Nordic countries, but not in Sweden, due to tax reduction on fuel. So it's easier. We are in a much better situation when it comes to index and protection on cost increase, since we have a much better contract when it comes to this sort of index. Does customer take decision fast enough? Well, I most likely will always think that they are a little bit slow. It's hard to know how much the war is impacting, but I would say that renewable is soft or slow. Data centered, not. But I think also that The war as such and the dependency of oil is clear that it would be a benefit for the Nordics if we could reduce our dependency of that. So why wouldn't renewable energy increase? I think the incentives are here.

Christopher, I will leave your questions on Denmark, Norway and classic communication so we can move on, but thank you very much. Just reach out to us if you have more questions. Then I will turn to Olli Eloranta, Danske Bank. Perhaps a question for you then, Tarja. Could you remind us how much the remaining COVID-19 related tax deferral payment in Sweden, how much it is?

It's now over, half is left.

Okay, good.

September 27th.

Yes, September 27th. And Olli also had questions on Denmark and Norway. Well, can we expect a similar margin level in the coming quarters, referring to Norway?

I won't comment the future, but I'm sort of happy with what we have achieved in Norway and proud of the team.

Yeah, okay, thank you. Markku Moilanen on Nordea, you have questions regarding the Vattenfall appeal. We can't comment on that now as it is still under appeal. So, yes, but you also have a question. You are steadily approaching your profitability target and growth has also been positive so far this year. But what about your leverage? It hasn't really moved that much over the past year. When do you expect to reach the target wage?

Well, we are working on it. And Markku, he remembers that there is a refinancing impact. So I would say that there is improvement there as well, like I mentioned in the comments.

There was a negative working capital cash effect during Q2 following an outflow in Q1. Could you provide any color on timing effects or projects during Q2 and if the expectation is for a reversal of these in the second half year?

Well, working capital reflects the activity in the organization and so we are now on the high season and right now we are consuming working capital and towards the year end there will be the other way around. Seasonality. Seasonality.

Okay, I think actually that concludes the questions. Thank you very much for calling in and posting questions via the web. Thank you Håkan and Tarja very much. And the full report obviously as well as the recording of this webcast can be found on our website. And feel free, of course, to reach out to us anytime if you have any further questions. We will present our third quarter results on the 29th of October. And as Håkan mentioned, we also hope to see many of you in our Capital Market Day on the 17th of November. Thank you so much for tuning in. And again, thank you, Håkan and Tarja. Have a nice summer. Have a nice summer.

Thank you all.

Thank you.