Hello everyone, and welcome to this live webcast. Today we will present the result for Eltel second quarter of 2022. My name is Elin Otter, and I'm Head of Investor Relations here at Eltel. With me, I have our CEO, Casimir Lindholm, and our CFO, Saila Miettinen-Lähde. Casimir and Saila will present the result, and after that we will open up for questions. Throughout the presentation, you are able to click on the envelope icon and next to the presentation. With that, let's move to page three as I hand over the word to Casimir.
Thank you, Elin. Eltel, founded in 2001, a leading Nordic field service provider within communication and power. We operate throughout the Nordics, Poland, Germany, and Lithuania. Today, 90% of our net sales is in the Nordic countries. Net sales in 2021, EUR 812 million. Average number of employees, we are roughly now 5,000 employees. Let's move to page four and look at the highlights of the second quarter. Eltel second quarter result reflected the increase in inflation and a delayed start of the groundwork season due to the long winter. Furthermore, the previous insourcing in Denmark and a six-week-long strike among information communication technology personnel in Finland contributed to a 0.8% year-on-year decline in our net sales for the quarter. However, we saw continuous growth in Sweden and Norway, 14% and 9.6% in local currency.
Our Operative EBITA for the second quarter was hit by inflation. Some impact came also from inefficiency caused by the still related sick leave rates due to COVID-19. In July, we signed two large agreements, one in Norway and one in Denmark. I will come back to those a bit later. Of course, extremely important the win in Denmark because we believe that we can come back into the levels on net sales where we were a couple of years ago in Denmark. Let's move to page five and look at inflation more in detail. Cost increases impact our markets, as for many other companies. But we have spent a lot of time discussing and negotiating with our customers to agree on how to deal with the cost increases, mainly regarding fuel and materials.
The discussions have been positive, and we have secured agreements with most of our customers in the Nordic countries. This will partly cover the cost increases, although full recovery will not be possible. We'll continue those discussions with our customers in Poland and Norway, in the autumn and going forward. Let's move to page six and look at some of our most recent new agreements. We announced, after the quarter two, important wins. One then in Norway with Telenor, that is the 5G rollout continuing for 2023 and 2024. We continue as a market leader in that 5G rollout in Norway, so very important win. The second one is with GlobalConnect, in Denmark.
Long-term contract in fiber, and again, extremely important win so we can close the gap that we have seen, in recent quarters on net sales and come back to a healthy level of roughly EUR 100 million in net sales annually in Denmark. Really, really happy to see that win. With that, I hand over to Saila, who will take us through the numbers on page seven.
Thank you, Casimir. Yes, indeed, let's take a look at the first six-month numbers for the group. Our net sales basically were in line with last year's at EUR 392.6 million. We were, of course, hoping for growth, but now the main reason for not achieving that was indeed the six-week or 6.5-week-long strike among the ICT personnel in Finland. In segments, our Nordic countries, the net sales came down by EUR 5.2 million, and within that number, we saw, of course, the strike-induced decline in Finland and the decline in Denmark, which Casimir already mentioned, relating to the insourcing. However, mentioning again that we, on the other hand, saw healthy and good growth in Sweden and Norway.
In other business, we saw a growth of EUR 6.1 million, and that primarily came from the realization of volumes that were delayed in Poland from last year. Operative EBITA for the six months decreased to -EUR 2.0 million from EUR 3.7 million last year. Clearly the biggest main driver for this development was indeed cost increases, the inflation across all of the countries. On top of that, we saw inefficiencies across, again, countries primarily induced by the increased sick leaves due to COVID, and later in spring also due to some other forms of flu and viruses. With that, let's move on to Finland and page eight. Finland as a segment continues to operate in a good market with both fiber and 5G showing very good demand.
However, despite the good market conditions, we did see a net sales decrease by nearly EUR 10 million - EUR 130.7 million in the first six months. Again, the main reason for this was the white-collar strike among the ICT personnel. But on top of that, Finland did have a very long and hard winter, and that did delay the groundwork season all the way until April and thereby also impacted the net sales. Operative EBITA in Finland, on the other hand, did improve and amounted to EUR 3.8 million, or actually EUR 4.5 million, and that is up from EUR 3.8 million last year. In line with that, the margin also increased from 2.7% - 3.4%.
The main factors behind this improvement were the closing of certain projects within this period with improved margins, and as well then the higher than typical pension bonus payments that we've received already in Q1. I have to say that both of these events actually were more like one-offs than continuous developments. Projects are projects and individuals as such, and the pension bonus payments are a yearly event, either in Q1 or Q2. Behind these numbers and the positive improvements, we saw clearly the impacts of inflation primarily in fuel and materials, and these then offset the good performance otherwise.
Finland, because Finland has a lot of power business, was of course also more dependent on the said materials than many of our other markets, and therefore the inflation on materials was a particular hit in Finland. With that, let's move to page nine for segment Sweden. In Sweden, we saw the net sales come to EUR 93.3 million the first six months, and this is up from EUR 85.7 million last year. We're of course happy to note that the growth that we saw in Q1 also continued in Q2. In local currency, the growth percentage actually was 12.2%. Again, a very healthy and good number. The driver for the growth was partly the smart metering projects that we have in Sweden that are already now up and running and performing also very well.
We're particularly pleased to note that also communication business at large, which is the main driver of Sweden overall, was also showing growth. Operative EBITA in Sweden did improve from previous year, but unfortunately we are still in the negative numbers and for the first six months we arrived at EUR -2.2 million. The results was negatively impacted by the cost associated with our One Eltel efficiency program, which we're foreseeing to improve the productivity going forward, as well as then still some old projects where we had to make negative margin adjustments during the period. The common theme of cost increases and high cyclical rates also did contribute.
However, overall, if you look at the lower right-hand graph on Operative EBITA margin development in Sweden, you can see the clear trend upwards, and we of course are working hard to maintain that trend. With that, let's move to page 10 for segment Norway. Like in Sweden, we also saw healthy growth in Norway, and we saw the net sales increase from EUR 76 million last year - EUR 88 million for the first six months this year. In local currency, that growth amounts to 13.3%. The improvement is clearly the result of increased demand by our customers for fiber and 5G. The volumes in those were lacking last year, primarily due to the pandemic. As said, now the investments are returning to healthy levels and that we're happy to see also impacting our top line.
Operative EBITA in Norway unfortunately did not develop equally well and decreased to EUR 2.7 million or 3.1% in margin. The main contributors for this development were a change in business mix, also costs associated with the change, as well as then the common themes of cyclical rates and inflation. Let's now move on to page 11 and look at Denmark. In Denmark, net sales did decrease by nearly 30% to EUR 35.6 million for the first half year. As you know, the decrease was very much expected and mainly resulted from the partial insourcing of an agreement by a major customer. Beyond this insourcing, the net sales were also impacted by a slower than anticipated ramp-up of certain new quite sizable agreements as such.
While it is clear that we're not happy with this development, but we are much more pleased to note the GlobalConnect strategic collaboration that Casimir already described, which we foresee helping us substantially in regaining the growth mode in Denmark. The operative EBITA in Denmark amounted to EUR 0.1 million for six months and primarily this reflects the low volumes that still prevail in the country. Let's now move to page 12 and look at other business. In other business, our net sales actually did increase year-on-year by EUR 6.1 million - EUR 49.1 million, and as already mentioned, the main cause for this was the realization of delayed volumes in Poland from last year.
In Eltel Germany, we saw the net sales remain on steady level at similar levels as last year. For Operative EBITA, we saw a loss of -EUR 2.5 million, and within that we saw the margin in Germany remain on a very good high level. However, unfortunately, the losses in Poland did more than offset the German performance. As already mentioned, the cost inflation in Poland was quite substantial, and particularly impacted steel and fuel and furthermore, due to the war in Ukraine, we have also had to resort to alternative sourcing of materials as well as subcontracting, which has made the challenges in the country even more prevalent.
As Casimir mentioned, we are taking actions to combat the inflation also in Poland, but within the country it appears that all of the processes to negotiate such compensation are quite lengthy, and we can unfortunately not be certain of positive outcomes. With this, finally, let's still take a look at our leverage and net debt development on page 13. Our leverage tends to be seasonally variable and as usual it now also reflected an increase in leverage quarter on quarter from quarter one to quarter two, with the high season in production and capital tie-up within that. Compared to last year, we were on exactly the same level at 3.3.
Our net debt, which we have been working hard over the last years to reduce, further reduced to EUR 131 million from EUR 143 million last year, and with that we can state that, yes, our balance sheet remains on a healthy level and we naturally keep on working hard to remain on healthy levels despite the prevailing impacts of, for example, inflation. With this, the financial section is completed, and I will now hand it back to Casimir, and we can move on to slide 14.
Thank you, Saila. We can move directly to page 15 and talk about financial targets. Our financial targets are intact for 2025. Group operative EBITDA margin 5%. We seek an annual growth in the Nordics from 2022 onwards between 2% and 4%. As Saila mentioned, the balance sheet items clearly important also going forward and keep the leverage on a healthy level. With that, we can move to page 16 and look at our deliverables. The transformation journey that's been going on for four or five years is completed to a large extent, and we're focusing on increasing market share in the Nordics, organic growth, as we have seen examples of now in Denmark with the new contract.
Also looking at extending our portfolio from one country to another, and pursuing M&As in the future. Of course, sustainability important also going forward. We have taken a lot of good steps in the right direction within both safety and sustainability as a whole. We can move to page 17 and open up for any questions that you might have.
Thank you, Casimir and Saila. As I said in the beginning of the presentation, you can email your questions by clicking on the mail icon next to the presentation. We have actually received some questions already, so I will start with a few ones from Max Backe at ABGSC. In Finland, how much did the closing of certain projects improve the margins? And should we expect a similar impact in coming quarters, or was it isolated to Q2?
I think I refer to what Saila said already previously, that these were largely one-off items in individual projects in Finland. In that sense, likely in a Q2 happening.
Okay. Thank you. Could you elaborate on the secured agreements with most of your customers to recover parts of the cost increases? Is it possible to quantify the margin impact? And when will agreements become effective, and do they support profitability?
Yeah, that's a very good question. Yes, we spent a lot of time in the second quarter agreeing and negotiating with customers. These agreements are in place now in Finland, Sweden, and Denmark. They vary from case to case and customer to customer, but I think we are well covered in these three countries. We are continuing that work in Norway with our main customers there, and then in Poland going forward. As Saila mentioned before, more uncertain regarding the development in the Polish market as such. Quantifying the impact of inflation for the first half of the year is around EUR 4 million, the impact of inflation as we see it.
We look at the second half of the year, and we think it will be on a similar level because the contracts that we've made during the second quarter are all already in place to a large extent.
Thank you. Strong organic growth in Sweden and Norway. What are your expectations on the two segments going ahead?
In Sweden, the growth is mainly due to the smart metering projects that are up and running and doing well. That will, of course, continue for two-three years going forward because those are long-term contracts. In Norway, we had a weaker net sales year last year, and now we're back to good levels in fiber. The mix as such has changed a bit, like Saila said, in Norway, so that has impacted then the margin because the projects are smaller in size, particularly in fiber. We are changing partly the mix, the product mix, and that requires some recruitment and training and that impacts the cost side and then the margin in Norway. Both countries have good opportunities to continue on the growth path.
Adding Denmark into that growth path is, of course, very positive.
Speaking of Denmark, is it possible to say what the organic sales growth was if adjusting for the insourced agreement in Q2 last year? Well, basically, how is the underlying market developing?
Going back a bit in history, a couple of years ago, we were on a EUR 100 million net sales level in Denmark, and then due to the insourcing, we came down to below EUR 90 million. We have said that the target is to close that gap and get back to the EUR 100 million level in net sales in Denmark. With the wins that we have now in the order book, this one, the new one, and a couple of other ones that we won in the first quarter, I think we are in good position to get back to that EUR 100 million level entering into 2023.
On the cost side, we can clearly see that we have a too high fixed cost level at the moment in Denmark, and we need to get up and beyond EUR 100 million to get back to the good profitable level that we were in 2019 and 2020 in Denmark.
Thank you. We have a few questions, both from Max Backe at ABGSC, but also from Robin Nyberg at Carnegie. Any updates on High Voltage Poland and the situation there?
No, unfortunately not. We have not been able to sell the asset due to partly also the situation with the neighboring country of Ukraine and the turbulence in the Polish market. That work continues and I think Håkan as the new CEO will then come back to this question later on this year and see what alternatives we have for our business in Poland.
Okay. We have received a question from Mr. Jussi Koskinen. Do you have any comments related to the development of the underlying profitability in Eltel?
Not as such. I mean, I refer to discussion here around inflation. Of course, we have a history of four negative years, then two positive years. I think we could have continued on that or increasing the EBITDA margin also this year. Of course, hit by inflation, that is not possible anymore. Inflation, I mean, is the main impact. We said here before that it was roughly EUR 4 million for the first half of the year, and we expect it to be on a similar level for the second half of the year, given the fact that we have agreed with most of our customers regarding indexes in our contracts and frame agreements.
That's where we are at the moment, and that was the main reason why we took out the guidance for this year after the first quarter.
Robin Nyberg from Carnegie, he wonders, for how long do you expect to see headwinds from the inflation?
I mean, in the cases we don't have indexes or agreements in place with our customers, those are then, to a large extent, updated after the first quarter next year. To be fully covered for inflation, then we need agreements still in Norway and Poland. That is, of course, up to discussions and negotiations with those local customers. I think we have done a good job in Finland, Sweden, and Denmark, but still work to be done in Norway and Poland.
Okay. We have reached the final question, and it comes from Joonas Ilvonen at Evli. Have you seen any market changes in the M&A market during the past six months or so? Absolute valuation levels must be down by some amount, but what's your view on multiples and now that inflation seems to be a big challenge?
Well, we have seen some activities mainly in Finland over the last quarters regarding M&As, and those are then in the process with the local authorities, competition authorities. Of course, interesting to follow those in the third and fourth quarter. I don't have any comments around valuations. I mean, following the market as such, probably some adjustments will take place, but no direct comment on multiples as such.
Okay. Thank you. There are no further questions, so this concludes the call. Please continue to follow us and feel free to reach out to me if you have any further questions. We do present our Q3 report on November 2nd, and hopefully, you will be able to join that presentation as well. Until then, stay safe. Have a great rest of the summer, and thanks for joining.