Earnings call transcript: Eltel AB sees stock drop after Q2 2025 earnings

Published 24/07/2025, 09:56
 Earnings call transcript: Eltel AB sees stock drop after Q2 2025 earnings

Eltel AB reported a mixed performance for the second quarter of 2025, with net sales declining by 6.7% but improvements in gross profit and adjusted EBITDA. Despite these gains, the company’s stock price fell by 6.67% following the earnings release. This decline reflects investor concerns over the company’s increased net debt and regional sales declines in key markets like Finland and Denmark. According to InvestingPro data, the company’s current valuation suggests it may be undervalued, with a strong free cash flow yield of 31%. For deeper insights into Eltel’s valuation metrics and more exclusive tips, subscribers can access the comprehensive Pro Research Report, part of InvestingPro’s coverage of over 1,400 stocks.

Key Takeaways

  • Eltel’s net sales fell by 6.7% in Q2 2025.
  • Gross profit improved to €22.5 million, up from €21.7 million.
  • Stock price dropped by 6.67% in early trading.
  • New business ventures now account for 10% of net sales.
  • Significant contracts signed in Sweden and Finland.

Company Performance

Eltel AB’s performance in Q2 2025 highlights a challenging market environment, with a notable 6.7% decrease in net sales. However, the company managed to improve its gross profit and adjusted EBITDA, indicating operational efficiencies. The Nordic market showed mixed results, with Sweden experiencing a 15% growth in net sales, contrasting with declines in Finland and Denmark.

Financial Highlights

  • Revenue: Decreased by 6.7% year-over-year.
  • Gross Profit: €22.5 million, an increase from €21.7 million.
  • Adjusted EBITDA: Improved by €2 million.
  • Net Debt: Increased from €128 million to €145 million.
  • Leverage: Improved from 3.5 to 2.8.

Market Reaction

Eltel’s stock price reacted negatively to the earnings announcement, falling by 6.67% to €10.50. Despite recent volatility, InvestingPro data shows impressive momentum with a 75.78% return over the past six months. The stock trades at 0.84 times book value, suggesting potential value opportunity. The broader market sentiment remains cautious, given the mixed performance across the company’s geographic segments. InvestingPro subscribers have access to 10 additional key insights about Eltel’s financial health and market position.

Outlook & Guidance

Eltel aims to increase new business contributions to 20% of net sales by 2027, with a strategic focus on emerging sectors like solar PV, data centers, and energy storage. The company expects to benefit from trends in digitalization and electrification, aiming for a 5% EBIT margin. Forward guidance remains optimistic, with significant contracts expected to bolster future performance.

Executive Commentary

CEO Hakan Dahlstrom emphasized, "We have a priority in margin above volume," highlighting the company’s strategic focus on profitability. He also noted the strong underlying trends in digitalization and electrification, which are expected to drive future growth. Dahlstrom reaffirmed the company’s commitment to prioritizing margin over volume, a strategy that may reassure investors concerned about recent sales declines.

Risks and Challenges

  • Supply chain disruptions could impact project timelines and costs.
  • Market saturation in Nordic regions may limit growth opportunities.
  • Macroeconomic pressures, including inflation, could affect profitability.
  • Increased competition in renewable energy sectors poses a threat.
  • Currency fluctuations could impact financial results.

Q&A

Analysts questioned the reasons behind the sales decline and sought clarity on the company’s strategy for its Norwegian operations. Executives explained that market slowdowns were a significant factor and outlined plans to streamline operations and focus on margin improvement. Discussions also covered inventory management and strategies to achieve the EBIT margin target.

Full transcript - Eltel AB (ELTEL) Q2 2025:

Alexander Scharn Lund, Communications Director, ELTEL: Good morning and a warm welcome to this presentation of ELTEL’s results for the second quarter twenty twenty five. My name is Alexander Scharn Lund. I’m the Communications Director for ELTEL. And by my side are Hakan Dahlstrom, President and Chief Executive Officer of LTEL and Tarja Leikas, Chief Financial Officer of LTEL. Welcome.

These guys will be running the show and presenting the results to you, while I’ll be monitoring questions towards the end of the conference. And you can already now start asking your questions via the web cast or via the phone. I’ll be back with some more instructions. But with that, let’s move to the next slide and handing over to you, Hakan. And Terje?

Hakan Dahlstrom, President and Chief Executive Officer, ELTEL: Thank you. Thank you, Alexandra. Good morning, and very welcome also from my behalf. I’m delighted to see that we are able to report the eighth consecutive quarters of improved profitability. And also important is that all segments are contributing to that improved profitability.

So that’s something that I think is really important that we are consistent in this steady improvement and the structured improvement work. Starting on the top, talking a bit about net sales. It’s, of course, not great to see that the net sales decreased by close to 7% in the second quarter. Sweden is the great exception here with great growth in Sweden. And it’s good to see that both Power and Communication are contributing to the net sales development of the Swedish business.

In Finland, where we had a peak of the fiber to the home rollout last year and there’s a much lower level of activity in the fiber rollout this year, we see also a decline on the net sales. And in the Finnish market, it’s clear that the market is going from rollout to densification and more focus on multi dwelling unit for the continuation of the fiber. Also, more money is moving towards the mobile side of communication. Power, where we saw a big impact during 2024 in Finland due to the new regulation of distribution. We see some pickup of activity as we reported in the later part of 2024, and that have continued into 2025, but not to the level where we were before the new regulation.

So more activity, but I have to conclude that it was a slow quarter in the Finnish market. Norway, down 18% on net sales, as expected. The ending contract that was ended in the beginning of this year is, of course, impacting significant Norwegian business on the net sales side. Denmark, Germany, also there, very slow quarter, both in communication but also a bit in power, where the high activity level in, for example, energy storage doesn’t really can compensate for the lower activity level in communication. Going to the gross profit, it’s great to see that, that is improved and coming up to €22,500,000 compared to the twenty one point seven million last year.

And when we look at the speed of improvement here, we look at the last twelve months, and we can see that there is a good improvement in the gross profit over time. Coming down to adjusted EBITDA, we improved with €2,000,000 And that is, of course, another important step in the right direction, one of many. So that’s really nice to see. And in the last twelve months perspective, we have now reached an improvement of €12,000,000 in one year perspective. So I think that’s something that we take with us going forward.

And we’ll then look a bit more on the operational side. We see that the public sector have a higher level of activity that is positively impacting us on the net sales side, and we expect more of this going forward. During the quarter, as I said, have to be viewed as a slow quarter, We have comparatively a low TCV on €104,000,000 compared to a quite strong quarter last year where we had a significant contract summing up to more than 300,000,000 So of course, the TCV, we would love to have a higher TCV in this second quarter. But a few important contracts that I would like to highlight: two frame agreements signed in the Swedish business with E. ON.

They sum up to a value more than €40,000,000 And of course, it’s an estimate, as you understand, since it is a frame agreement. But nevertheless, it’s a very important part of the building up of the power business in Sweden. So this is something that we will start delivering on in the end of this year. But if those two contracts behave or develop as we normally see it at this time or somewhere during the third quarter next year, we will see significant revenue on that contract. But this takes time, as you understand, first, until we start delivering and then when the ramp up is done and so.

But somewhere a year from now, this will contribute nicely to the Swedish business. Data center area is an area that we have become more and more active during the last year. And here is an important contract taken in the Finnish business with Hyperco to a value of €16,000,000 And this is on the power side. So it’s about a substation and a line on 110, but also 20 kilowatt connection to that data center. Important step, great to see.

And when we look at this, what we call, new business, we see that the progress is there. It’s a steady business. We are increasing as we have predicted. And in the second quarter, we had 10% of our net sales coming from this new business. So since that part of the business have higher margin than what we have in what I call classic business, this is, of course, important, but also that we are able to attract new customers and being successful in the new market is, of course, extremely important for us.

In the end of the second quarter, we also saw refinancing of our debt portfolio, and I will ask Thadja to talk more about that in a second. But first, I will also like to mention that we, during the second quarter, appointed two Managing Directors, Klaus Elnberg, for the Swedish business and Touk Kassan for the Denmark German business. So really nice to see that the team is in place and that we are ready for taking on the future here during the autumn. But Terje, please say something more about the refinancing.

Tarja Leikas, Chief Financial Officer, ELTEL: I will. I will. And Thank like Haakon already gave a good intro, pleased to start with some words about our recent refinancing. Going forward, the cornerstones of our financing will be and already are €130,000,000 bond and €60,000,000 unutilized now unutilized revolving credit facility. We entered the bond market, and our entering to the bond market was well received.

The offering was actually significantly oversubscribed, and that reflects strong investor confidence into our outlook. In addition, we completed a tender offer for our sustainability linked hybrid bond. We accepted valid tenders worth of approximately €24,000,000 This financing package provides a stable, long term financing solution. It improves our liquidity. It provides operational flexibility and creates solid platform for the future business growth.

And then today’s main topic, second quarter results for April to June. I am delighted to report this eighth consecutive quarter of year over year profitability improvement. And in fact, profitability has been improving now for two years. In net sales, we have mixed results across segments. Segment Sweden, which represents onethree of our operations, will report major growth.

Here, we are driving group level momentum, while other segments are experiencing decline in net sales. New business is now 10% of our total net sales. And this is indicating successful diversification. Then regarding profitability, all entities showed improvement in adjusted EBITA. And here, Finland and Norway were leading the way to they were the strongest profitability gainers.

And like mentioned and highlighted in the previous slide, second quarter in June, we finalized the comprehensive refinancing of the debt portfolio. And this is now the third year in a row that we are executing our strategy. And on this following slide, we illustrate the EBITA and gross profit development. Hakan already mentioned the highlights from here. So this is the eighth consecutive quarter of year on year adjusted EBITA improvement.

And all our segments are committed and they work hard to improve the profitability of our current business. And compared to last year, we report more than CHF 12,000,000 improvement in latest twelve months adjusted EBITA. And then our segments. First, Finland. Finland is now 42% of ELTEL Group.

In the second quarter, we saw 8% decline in net sales. That is reflecting a shift in market dynamics, particularly in communications business. The outcome was expected, and the adjustments needed were already taken in the end of twenty twenty four. The fiber rollout peaked in 2024, and the pace has now slowed down, leading to lower turnover in communications. The growth in Power is being driven by new business, solar PV and data center.

These are high potential areas where we are building strong momentum. Despite the top line decline, profitability improved significantly. Adjusted EBITA rose to 3,500,000 That reflects margin improvements in both Communication and Power. And then second largest, Sweden. Sweden is now third of our operations.

And here, we are delighted to report 15% increase in net sales this quarter. That is marking the seventh consecutive quarter in growth. And communication was there are growth both in communication, especially in communication. And in communication, the driver was really robust demand from the public sector. And the Power business was fueled by new business, mainly solar PV.

And this is the thirteenth quarter that we report year on year adjusted EBITA improvement. That is a remarkable achievement. And I would say that underscores the operational discipline in Sweden. Then Denmark and Germany. This segment is now 17% of LTEL’s operations.

And here, our segment net sales declined with 9%. The primary driver was drop in Denmark’s communication business. Smart grids reported nice growth. Despite the top line decline, we achieved a profitability improvement with an adjusted EBITA margin now 4.8%. This is another step forward in our financial performance.

That is diligent financial management, ensuring cost control and margin protection. And then Norway. Norway is now 13% of our operations. And the second quarter net sales in Norway totaled million. There is a decrease of DKK6 million compared to the same period last year.

We have witnessed progress in new customer acquisition. And importantly, new business is beginning to be visible in our net sales. While still negative, EBITA improved. It improved from negative 3.1% to negative 1.6%, and that indicates that our turnaround efforts are gaining traction. Our workforce in Norway is now approximately two twenty fewer than a year ago, and that reflects the ongoing efforts to optimise the operations and align resources with the strategic priorities.

And while the challenges still remain, the underlying trends, especially in new business and margin recovery, are encouraging. We remain focused on execution and long term value creation. And then balance sheet, which faced some changes after the refinancing. Here, we report continue reporting solid progress. 25%, like I mentioned earlier, this is the third year of our strategy execution.

And in regards of net working capital, we have seen continued strength in net working capital development. It improved further from last year’s negative €54,000,000 now to negative €59,000,000 and this is demonstrating our enhanced operational efficiency. And then leverage and net debt. The finalized refinancing has impacted both leverage and net debt figures, making a direct comparison between 25,000,000 and 24,000,000 slightly less straightforward. Approximately €24,000,000 from the hybrid bond previously recorded under equity has now been reclassified as debt.

Despite this, our strong financial performance has helped offset the impact. The net debt increased moderately from €128,000,000 to 145,000,000 Similarly, leverage improved from 3.5 to 2.8. And even with the refinancing adjustment, on a comparable basis, leverage would have been 2.4%. And then my presentation is closed with the financial targets, which we haven’t changed. Our adjusted EBITA margin, 5% annual growth between 24% the leverage between 1.52.5% and then dividend subject to leverage target.

Thank you.

Hakan Dahlstrom, President and Chief Executive Officer, ELTEL: Thank you, Terje. Yes. And also our strategy, in short, as we always do. The first and most important part of our strategy is, of course, to improve the efficiency and profitability in what we call the current business, the classic business where we have more than twenty, twenty five years of experience. To diverse our business, we have now in this strategy period worked a lot by broadening our customer base, and we see great result in that, But also so that we are moving into new and adjacent market.

So things where we could use the same competence, a lot of the resources we have with some minor add on, we can also address new businesses like renewable energy. And this, I will show you, as I normally do, a few numbers on the next slide. But also, the sustainability is, as we say, an integrated part of everything we do within the LTEL. And we see clearly in the customer dialogue how this becomes more and more important. The development of our concept and commercial capabilities in ELTL is an ongoing process.

Here, something that we always talk about, how to become more street smart and capable aspect of our business. So the progress then in this strategy now. Operation excellence. I think we can see here now eight quarters that we are having progress and success in the very operation excellent oriented part of our business. And it’s a lot about rightsizing, adapting the organization to the demand of today and tomorrow.

And we see that broadly in Eltesh organization today, where we have taken the actions quite early. I would claim that we, in the later part of last year, saw that the beginning of this year would be slower and have less activity level and that organization also have been adjusted accordingly. I think Finland is a good example of that. We have also increased our effort in automation and digitalization of our business. This is an area where we have not been up to date in some years, and we now try to correct that.

So this is really good and very exciting exercise that we do. The cross border collaboration in particularly new business area is important for us so that we are much faster learning and getting to the right competence level in different areas because the new business is, as we say, is new business for us and it is very expensive to do mistakes. So we, of course, do mistakes. It’s always allowed to do mistakes, but we don’t repeat them. We learn from each other and we collaborate cross border to avoid doing the same mistake twice.

On the commercial excellence side, I have talked since the later part of 2022 about that we have a new ambition, a higher ambition when it comes to all the different type of commercial questions like pricing, invoicing condition, payment conditions. And it takes, of course, time, as we have tried to explain before, to get the project and the contract portfolio transformed into the new conditions. We have talked about this before. And for a year ago, we made an update, and we also showed the same picture as you see on the right side here, showed that a year ago. And at that time, we had an estimate of that 44% of everything, all the activity that was closed during ’twenty four would have an impact with the new commercial terms.

And we landed the actual numbers very, very spot on, the 44%. Then when we now see in this beginning of this year, we see that those activities we do for digitalization and automation introducing a new ERP system and so in the operation, this give us a reason to focus harder to close down activities that has been with us for some time and try to close as many as possible to not have them with us in the next generation of our system. These have increased the amount of old project that has been closed in the 2025 in relationship to our estimate. So an updated estimate of this year is that we believe that we’re going to have 66% of all the closed projects this year impacted by the new commercial terms. However, this doesn’t mean that the speed of our improvement would be reduced, I would say rather the opposite.

So it is a benefit for us to be able to close more and more of them. So I think that during next year, we will reach the 90 that we said from the very beginning. So great progress in this, and we see also the effect in the follow-up of all our activities that everything that we have signed since late ’twenty two or ’3 has also this commercial effect, both when it comes to pricing but also invoicing and payment term. And this is, of course, positively impacting both our gross profit but also cash flow and net working capital. And as Thija told you, we reached a new level on the minus €59,000,000 here, 5,000,000 better than a year ago.

And I have to say we were quite happy last year when we were at 54 so well down by the organization there. Also this broadening the customer base. And here, I would like to put some attention at the public sector and what we call public infra, where we see in the whole Nordic that more activities is now discussed and more and more is coming ahead of us. This is, of course, partly impacted by the geopolitical turbulence that we see around us and in our society. Unfortunately.

However, it has, in the business side, a positive impact on ELTL. It’s more and more actors in the public sector that want to do business with ELTL. But in the second quarter, it was a slow quarter when it come to total contract value and net sales, with the exception of Sweden, I would say. But I’m quite happy when I read through and make analysis, talking to our sales organization in the different units about the pipeline and the way we are interacting with our customers. So I think that we have all the opportunity in the world to see a quite strong autumn here.

On the improved profitability, we talked a bit about that already, but I think it’s worth emphasizing that the gross profit, another step in the right direction. And the last twelve months development, I’m really happy foresee that we have a speed of €12,000,000 per year. So really nice to see. But also that the new and adjacent business is taking off and particularly solar PV and data centers when we look at the net sales part of this. However, when we look in the market, we see that there is also a bit of a shift from discussing about solar PV, where it seems like those who will take that type of investment decision, nowadays, they have a bit harder to get the business case together.

They start to become more and more keen to talk about energy storage instead or a complement where we both see solar and energy storage in the same solution. Data center, a very interesting area for the whole Nordic as it is so that we have a lot of energy, of course, clean energy, green energy, will make Nordic an interesting area for the global market of data center. So here, we see a perfect fit for ELTL and the data center, meaning that we have great use of our competence both in communication and in power when there is a situation where you need to establish a data center. So I think we will hear more about this going forward. But in this quarter, we had 10% of the net sales from this area.

So 10%, yes, it is 100% growth if you compare year over year. So with that said, I think we are ready to take your questions.

Alexander Scharn Lund, Communications Director, ELTEL: All right. Thank you. Thank you for a nice presentation. Thank you. We have quite a few questions coming in from the web, I think we should start with the telephone questions.

If you still want dial in, you just do that and you press 5 on your keypad. So do we have any callers online? Okay. Then let’s turn directly to the web questions. And we have four questions from Markku Moilane and Nordea.

So thank you for those. Let’s start with this one then. In Q1, sales were relatively flat year on year, but sales in Sweden grew. In Q2, with the exception of Sweden, sales go down. How should we look at the rest of the year?

Is the negative trend going to persist in these other countries? What’s the reason for the negative development? Has the competitive environment changed? Or is the focus on profitability now showing on the headline numbers? Hakan?

Hakan Dahlstrom, President and Chief Executive Officer, ELTEL: We have a priority in margin above volume. That’s the case. Absolutely, we are committed to that, and we stick to that. But I would claim that, that is not really the reason that we have a decline on the net sales in the second quarter or that it was flat in the first quarter. I think that the quarter as such has been quite slow.

We see less call offs in the frame agreement. We see less decision about contract overall. But on the net sales part, it is the lower volume in the call offs that is impacting the net sales. And I think that’s not unique for ELTL. I think this is a part of the market where we are.

It’s a bit slow or difficult market, however you would like to phrase it. To predict the future, I mean, that’s something that I normally say that’s for sure you know that you’re going to be wrong. So I will sort of try to avoid that. But I think that we see the underlying very strong trends in everything from digitalization and electrification. Data center is a very fast moving area.

So I’m optimistic, but I don’t want to promise anything about the future.

Alexander Scharn Lund, Communications Director, ELTEL: But some tailwinds, some tailwinds

Hakan Dahlstrom, President and Chief Executive Officer, ELTEL: Megatrends the give us, of course, tailwind. Absolutely, the increased interest from public sector to develop more and more resilient, more robust networks or infrastructure is, of course, good for us. We have new agreement with defense in many countries. I mean late April, we announced a defense agreement in Norway, as an example.

In the last year, we had more than two in the Swedish. Yes. So yes, it’s going in that direction.

Alexander Scharn Lund, Communications Director, ELTEL: Yes, exactly. And in line with that, we will get back to Markus’ questions. But Christoph Janel from Indres had a similar question. He asked his question is like this. NATO Allies recently agreed to raise defense spending targets from 2% to 5% of GDP by 02/1935, which will likely result in accelerating investments in critical infrastructure.

How is LTEL positioned to capture potential opportunities arising from increased defense related investments across The Nordics?

Hakan Dahlstrom, President and Chief Executive Officer, ELTEL: I would claim that we are very well positioned. In major part of our market, we have the contract in place. And in some markets, we still need to win a contract that gives sort of the platform for being a part of this. But if you take the Swedish market as an example, we have announced two very important contracts with the Swedish Defense Material Administration and the Swedish defense, the air bases, for example. So I would say that, yes, we are really well positioned.

Also, as I just mentioned, Norway, we have cooperation with defense also in Finland and Denmark, but the largest cooperation as of today is in Sweden.

Alexander Scharn Lund, Communications Director, ELTEL: Some in Norway, you say, and back to Marko in Nordea. How should we think about Norway business? You mentioned that the restructuring program was finalized during the quarter. The cost level now sustainable given your expectation of sales development in the country?

Hakan Dahlstrom, President and Chief Executive Officer, ELTEL: Can you Yes. I will claim that it is and that we have done what we should do on the cost side. Focus is since some time now turning towards the net sales and the sort of the revenue side of the equation. So for sure, Norway going forward is all about new business, new contracts, broadening the customer base. But the commercial aspect is what will have our attention going forward in Norway.

The cost side, we have dealt with.

Alexander Scharn Lund, Communications Director, ELTEL: Good. I believe we have a question coming in on the phone conference. So should we take that now? The next question comes from Adrian Gelani from ABG Sundal Collier. Please go ahead.

Good morning, Adrian.

Adrian Gelani, Analyst, ABG Sundal Collier: Good morning. Couple of questions from my end. I guess, first of all, on the comments you make with some sort of customers delaying investment decisions due to higher uncertainty, would you say that’s a general effect you see over the whole business? Or is that something that’s more clear in certain customer groups or geographies?

Hakan Dahlstrom, President and Chief Executive Officer, ELTEL: I would say that it’s broadly. So maybe the telco operators are not so impacted. Here, we see that there is more a long trend where you see Finland has one development where sort of the fiber to the home rollout came later than the other Nordic countries. But now that has peaked during last year. We see more for densification, MDUs and more money going towards mobile.

And this is not so impacted by this decision making. I would say the telco operators are taking the decision as we expect them to do. Also, the dialogue with them is very good. In other Nordic countries, there is more and more interest of the fiber partly, I would believe, partly by the interest in public infra to have a more resilient and more robust infrastructure. So we see more money going towards fiber, and that is, of course, good for us.

But this takes time from that. There is sort of discussions until it is net sales.

Adrian Gelani, Analyst, ABG Sundal Collier: Okay. Makes sense. And then just on the Danish and Germany or the new segment. I guess how has the merging of Denmark and Germany gone? Have there been any operational hiccups?

And if so, are those will those continue? Or has it been a smooth integration?

Hakan Dahlstrom, President and Chief Executive Officer, ELTEL: This has not been sort of an extremely strong integration. Germany is operating as one unit within Denmark, Germany. We have still that management in place there. The German business is very much about smart grid. We have also smart grid business in Denmark, so it is very easy to understand each other.

And I would say that this has gone very well. We see the synergies and opportunity to learn and develop together. So I’m very optimistic about that. And you also see the margin that they fit together, so to say.

Adrian Gelani, Analyst, ABG Sundal Collier: Okay. Yes. And then perhaps more for Tharia on the leverage ratio. I understand that leverage coming up is more of an accounting thing if the hybrid bond was booked as equity. But can you give some comments on with the new setup, how when you sort of expect to be back within the leverage target again?

Tarja Leikas, Chief Financial Officer, ELTEL: Well, the driver is the financial performance. And as we improve our financial performance, we improve also leverage. And this is a priority going forward. Yes, we will have more focus on top line, but the priority is profitability.

Adrian Gelani, Analyst, ABG Sundal Collier: Okay. Any comments you can make about cash conversion in the upcoming quarters? Or are you No.

Tarja Leikas, Chief Financial Officer, ELTEL: Nice try, Adrian, but no.

Adrian Gelani, Analyst, ABG Sundal Collier: Okay. Understand. I have one final one. You mentioned in Norway that the cost side is more or less done, and now it’s more about improving the revenue side. And given that the communications side, which has been your strongest side in Norway historically, given that, that’s still weak, what do you see is going to sort of replace that mainly?

Hakan Dahlstrom, President and Chief Executive Officer, ELTEL: Well, it’s market in Norway is not so different than the other Nordic market, and we believe in the Nordic market and the Norwegian market. So we talk about broadening the customer base. What we have done for, for less, one big customer in Norway, we can, of course, do that for many more customers. So this broadening of the customer base is extremely important in Norway. We, of course, have some discussions also about when is it right timing to start thinking about power in Norway.

Today, we do very, very, very small activities in power in Norway. So I would say our Norwegian business of today is communication. But at a certain point, when we think that is right, we will most likely also make a move towards power also in Norway as we do in the other countries. But first, get back on a decent profitability, broadening the customer base, then we could start thinking about something new. But we will do the homework on profitability first.

Adrian Gelani, Analyst, ABG Sundal Collier: Okay. Understood. In that case, that’s all for me. So thank you.

Hakan Dahlstrom, President and Chief Executive Officer, ELTEL: You, Adrian.

Alexander Scharn Lund, Communications Director, ELTEL: Thank Adrian. Okay. Going back to the battery question of questions from Nordea. A reflection from Markku Moilainen on inventories. Your inventories have increased despite sales coming down.

Are you preparing for some project start ups with inventory buildup? Or what explains the

Tarja Leikas, Chief Financial Officer, ELTEL: growth? That is a normal timing topic. We have a couple of major projects that are now building inventory, but there’s no drama there.

Alexander Scharn Lund, Communications Director, ELTEL: Okay. Okay. And final question from Nordea. Do you have some targets for new business in the midterm? How large in the midterm?

How large the new business is going to be by 02/1930? So short and long

Tarja Leikas, Chief Financial Officer, ELTEL: like that.

Hakan Dahlstrom, President and Chief Executive Officer, ELTEL: Yes. But 02/1930, I don’t have sort of that type of outlook. But when we look at our strategy, we talk about three years. And when we looked at the strategy in the beginning of this year and made an update, we have that view that we’re going to be able to have 20% of our business in the new and adjacent business in the end of that strategy period. So that would be like in the end of twenty twenty seven, we believe that the size of new business will be 20% or something above that.

Alexander Scharn Lund, Communications Director, ELTEL: Okay. Thank you. And then we have a couple of questions more questions from Kristoffer Janelle, Indres. Working capital tie ups were quite high for second quarter. Would you say that this is a timing issue considering the strong release in Q1?

Or have you experienced any delays in projects?

Tarja Leikas, Chief Financial Officer, ELTEL: No, this is normal fluctuations. So this has not been a topic within the organization.

Alexander Scharn Lund, Communications Director, ELTEL: Okay.

Hakan Dahlstrom, President and Chief Executive Officer, ELTEL: It’s more our seasonality. Yes.

Alexander Scharn Lund, Communications Director, ELTEL: Could you elaborate on the revenue decline in Finland this quarter, considering the short term tailwinds from the Thaleri Energia project, the solar PV project in Finland? Are you noticing reduced investments from customers in general? Or are the fiber to the home volumes coming down faster than anticipated?

Hakan Dahlstrom, President and Chief Executive Officer, ELTEL: Well, it is driven by the lower volume in fiber to the home. But if you go back and in the report, you can see on Page 25 where we report the revenue per different quarters. And there, you could see that we had, don’t shoot me now, but I think SEK 62,000,000 in revenue in Finland first quarter twenty twenty four, and then we did SEK 92,000,000 in the second quarter, so 50% up from first quarter to second in the Finnish business. That was driven by fiber to the home and the peak in fiber to the home during last year. Now when we compare the second quarter of this year with those €92,000,000 last year, to me, it is not a big surprise that there is a decline.

You also see at the size of the organization, the Finnish organization of today is roughly 200% less than we were a year ago. So in the autumn, we saw that this will happen on the volume. We adjusted the organization. We have prepared for that lower volume. And due to that, also Finland is doing better on profitability this year than last year.

But the reason that it is a decline, yes, it’s the fiber to the home, is absolutely majority of that. So we still do fiber to the home in Finland, absolutely. But ’twenty four, it was an exceptional

Adrian Gelani, Analyst, ABG Sundal Collier: with

Hakan Dahlstrom, President and Chief Executive Officer, ELTEL: really high volume and revenue.

Alexander Scharn Lund, Communications Director, ELTEL: And moving to Denmark and Germany, the Denmark and Germany segment. What were the main factors behind the quarter over quarter margin decline in that segment, especially given its historically stable performance between Q1 and Q2?

Hakan Dahlstrom, President and Chief Executive Officer, ELTEL: Q1 and Q2?

Tarja Leikas, Chief Financial Officer, ELTEL: Well, but in Denmark,

Hakan Dahlstrom, President and Chief Executive Officer, ELTEL: We it’s this one off in Denmark in the first quarter this year. So I would say that the first quarter 25% stronger than we expected, and we see an effect of that now in the second quarter.

Alexander Scharn Lund, Communications Director, ELTEL: So And in Q1 and Q2 twenty twenty four, there was a different segment structure, too.

Hakan Dahlstrom, President and Chief Executive Officer, ELTEL: Yes. 2024 is another thing.

Alexander Scharn Lund, Communications Director, ELTEL: Because that was the historical stable performance between Q1 and Q2, but the fact is that the segment structure was different. No, but we have restated

Tarja Leikas, Chief Financial Officer, ELTEL: that.

Hakan Dahlstrom, President and Chief Executive Officer, ELTEL: We have restated that also on Page 25.

Alexander Scharn Lund, Communications Director, ELTEL: Okay. Page 25. Good page So to that’s turn

Hakan Dahlstrom, President and Chief Executive Officer, ELTEL: well spotted, Ben. But this is no, the only thing that comes to mind for me is that we had an exceptional strong margin in Denmark during Q1 twenty twenty five.

Alexander Scharn Lund, Communications Director, ELTEL: And finally, a question from Beros from LFDE. Good morning, Beros. As you mentioned, in your markets, tailwinds seem quite strong, but organic growth is still very difficult. What are the main explanations? Problem of offer, commercial strategy, pricing, competitive landscape?

That’s the first question. Yes, maybe we should take that first, and then he has a question regarding the EBIT margin target. But that’s

Hakan Dahlstrom, President and Chief Executive Officer, ELTEL: But we have a very broad business, and it would be to sort of to simplify too much to just say one reason here. I think we see many different. In some areas, like the classic business,

Adrian Gelani, Analyst, ABG Sundal Collier: we

Hakan Dahlstrom, President and Chief Executive Officer, ELTEL: see that the telco operators have, during the last one point five years or something, used less money in investment, and that is impacting us, of course. Then you have the whole spectrum up to new green energy or renewable energy where the decision makings have become difficult for our customer. So there, we perceive delay. And of course, if you then go to areas like distribution in power, like I mentioned before, the regulation in Finland that came in packed started by January 24. That made it difficult for the distributor in Finland to do investment.

We saw a lot of money go away, and they have slowly coming back. Now when they start coming back, there is quite fierce price competition on those few cases that are coming back. We stay cool in this, and we have our priorities very clear. We will go for margin and not volume, and we stick to that. I have a very strong confidence in that the power business will be very good, will be very solid.

You just have to stay out of problem. And that’s for sure, they stay cool in these procurement processes. It will come opportunities. I’m not worried about that.

Alexander Scharn Lund, Communications Director, ELTEL: And a final question from Jose. Regarding your 5% EBIT margin target, could you give us some more colors about the main drivers of this improvement? And when do you target to reach this 5%?

Hakan Dahlstrom, President and Chief Executive Officer, ELTEL: We have an internal time plan for this that we have said that we will not communicate that externally. But we have divided the task, how to reach the 5%. Each country manager have their own portion of that. And we see that this is, as you could read in our strategy, this is the biggest contributor is profit improvement by operation and commercial excellence in our Classic business. There is no reason why we wouldn’t be able to reach our target only by that parameter, but we also want to diverse our business by broadening the customer base.

This is also an opportunity for us to gain margin, have better commercial terms. So that’s also a contributor. And then the third, new business. We need new business for securing our business long term, and they are also an opportunity to have higher margin, better cash flow. One part of that is that we would have more material.

So if I make two examples, two extreme, you have an energy storage solution, very big portion of that value in that contract is about material where we are able to have an add on margin on that. The opposite is a classic telco installation where the telco operators are buying more or less all material, and we get sort of we have a possibility to charge for our time, time and tool in our fleet, but that’s more or less it. So very small impact by material in that part, the opposite, energy storage, and then you have all the other areas that we are doing in between. So the more new business we do, the more contribution we get from material, but also higher margin in our time that we spend on the project, world activities. So efficiency and commercial excellence, diverse customer base and new businesses, and they will contribute in that order.

Alexander Scharn Lund, Communications Director, ELTEL: Yes. Great. I hope that clarifies a bit for you. So I think we have concluded the call with that question. And so I would like to thank you, Hakan and Tharia.

Thank you. And thank you for watching and listening. We will present our third quarter results on October 30. So I hope you will join us then. But feel, of course, free to reach out meanwhile to any one of us if you have any questions.

Thank you.

Hakan Dahlstrom, President and Chief Executive Officer, ELTEL: Thank you very much.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

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