Hello, everyone, and welcome to this live webcast. My name is Casimir Lindholm, and I'm the President and Chief Executive Officer of Eltel. With me, I have our CFO, Saila Miettinen-Lähde. We will today present Eltel's Q2 report for 2021. Saila and myself will present the result. After that, we open up for questions. Throughout the presentation, you can email your questions by clicking on the envelope icon next to the presentation. With that, let's move to page three, and I will tell you a bit about Eltel's second quarter. Eltel is the Nordic market leader in infranets, founded in 2001. We are the leading Nordic field service provider within communication and power, and we operate throughout the Nordics, Poland, Germany, and Lithuania. For Eltel, sustainability is about building a strong, profitable company for the future and delivering lasting financial, social, and environmental value for our stakeholders.
In 2020, Eltel had net sales of EUR 938 million, and we currently have about 5,200 employees. Let's move to page four and look at the highlights of the second quarter. For the sixth consecutive quarter, we improved our Operating EBITDA compared to the corresponding period the year before, which is a result of staying true to our operational excellence strategy. Main contributors to the positive result were Finland, Norway, and Denmark, where in all markets we also have a good market position and overall a good market situation. We maintained our healthy levels regarding net working capital and net debt and improved return on capital employed. COVID-19 continues to impact our customers' business, basically our customers' customers' business, and we can see some postponements and delays in projects. For example, in Norway in fiber.
Overall, we are now 90% of the business in Nordics, and Nordics is a good place to be even in COVID-19 times. Being the market leader, we also took the next step in our climate work by committing to the Science Based Targets initiative, SBTi. Let's move to page five and we'll talk about how COVID-19 impacted Eltel's business. All in all, we see also in the second quarter, we see some reduced customer investments. Here I could use Norway as an example. Norway had almost a lockdown situation during the spring, and that impacted our customers' customer business. For example, 20,000 stores and all the malls were closed, so we can see some impact of that now in our volumes. That said, we think that by the end of the year, this will change and the volume is picking up month by month. Some projects have been postponed.
We can see that mainly in Poland. Some delays in our projects, partly because we are maybe lacking material. For example, in power business, there's a lack of steel and the price of steel has gone up. We can see some increase on our sick leaves, and that doesn't mean that our technicians are sick on a large scale, but on the other hand, we have a quarantine situation that impacts our sick leave rates. Let's move on to page six and talk about us taking the next step in our sustainability work. Since many years, we are committed to a number of sustainability frameworks and reporting tools that help us meet the expectations of our internal and external stakeholders. During the quarter, we committed to another one, SBTi.
Together with stakeholder dialogue and the relevant topics that is used to shape our strategic decision-making, this provides the roadmap to remain relevant as a partner, employer and investment opportunity. Being the market leader, we have taken the next step in our climate work by committing to Science-Based Targets initiative, SBTi. Committing to SBTi shows our sustainability ambition is on a high level. We are working towards setting concrete and measurable goals. We set sustainability as a business-critical part of Eltel. I'm convinced that the third-party verified goals in line with the Paris Agreement will soon become a clear customer expectation. Last but not least, committing to SBTi is at the same time building internal pride. With this, we are now moving to page seven while I hand over to Saila, who will take us through the financials of the second quarter.
Thank you, Casimir. Starting by noting that, as Casimir already mentioned, we have now seen our profitability improve for six consecutive quarters compared to the respective period the year before, which is of course good news for us. This we have accomplished despite the reduction in net sales, which also has happened. The net sales for Q2 2021 came to EUR 210 million compared to EUR 245 million last year. For the first six months of the year, our net sales amounted to EUR 392 million, which is then down from EUR 482 million the year before. The reduction in net sales primarily came as a result of divestments, which we made in Q2 2020, those being German communication and aviation security in Sweden. As also mentioned by Casimir, COVID has had an impact through decreasing customer investments and relating to project postponements.
In Sweden, as one of the key segments, we lost a large service agreement mainly relating to copper networks, which are being ramped down. This, of course, had an impact compared to last year. This all said, whilst the overall net sales came down, we are very pleased to note that growth in Finland has continued. On our Operative EBITA, the second quarter again showed clear progress in our transformation. For the quarter, our EBITA amounted to EUR 4.4 million with a margin of 2.1%. For the first six months of the year, the Operative EBITA came to EUR 3.7 million, representing a margin of 1.2%. The biggest contributors to the positive results wer e segments Norway, Denmark, and Finland. On the negative side, last year's divestments had an impact of EUR -1.2 million.
If you look at the lower graph on this side, you can see that our Operative EBITA on a rolling 12 months basis has now continuously increased since Q4 2019. We're of course working hard to maintain this trend also going forward. Let's now move to page eight and look at segment Finland. Sorry. Apologies, my mouse is lost somewhere. I'm awfully sorry. This is a bit of a technical problem for me at this end.
Maybe I can go to Finland, Sweden.
Yep.
Norway and Denmark.
Now I've got it. Sorry.
Okay.
It was due to the presentation on a different scale. Again, very sorry about this delay. In terms of Finland, as said, the segment showed improved net sales, and second quarter was 2% up to EUR 79.8 million. For the first half year, we were 2.5% up to EUR 140.6 million. This growth came from a strong market position in communication, where we are very happy to see good demand both in fiber and 5G. Operative EBITA in Finland improved substantially compared to last year and was EUR 3.1 million for Q2 and EUR 3.8 million for the first six months. Here, as more or less across the board in the Nordic countries, we're seeing the work on operational excellence paying off, and we can say that good productivity, improved project management, and cost control are all significant drivers for the better result.
For Finland, in addition, we had a write-down relating to some certain power projects, which of course then impacted last year's comparative result. Let's now move on to page nine and look at segment Sweden. In Sweden, our net sales in Q2 amounted to EUR 44.6 million, and for January, June to EUR 85.7 million. This shows that the decline in net sales continued, which reflects partly the loss of the large service agreement that was already mentioned. On the other hand, the divestment of the aviation security business area.
On Operative EBITA, we came to EUR -1.6 million in Sweden for Q2 and EUR -2.4 million for the first six months. The negative result partly came from a write-down of an older power project, and the decline compared to last year was further enlarged by the positive one-off of EUR 0.9 million that we recorded in Q2 2020.
All in all, we have to say that Sweden is still in a restructuring phase, and as such, shows declining sales and is, as we see, also still impacted by some old unprofitable projects. All this said, we can also say that the risk level in Sweden has already been reduced, and we're starting to see positive signs in cash flow and net working capital. With this, we're also accelerating our work on efficiency and profitability, which we then hope to see impacts of in the future quarters. Relating to Sweden, perhaps a note on a risk site relating to the fact that there may be a risk of goodwill impairment in the latter half of the year.
Our goodwill was first allocated to countries in 2018. Since then, we have seen a substantial marketplace development for the negative in Sweden relating to the reduction in maintenance of copper networks and slowdown in building fiber. As we have previously noted in our annual reports, the goodwill in Sweden is sensitive. We're currently assessing the situation and will then come to decisions later parts of the year. Let's now move to page 10 for segment Norway. In Norway, our net sales for the quarter amounted to EUR 42.1 million and for January to June to EUR 76 million. The development compared to last year was negative, largely due to decrease and delays in customer investments, and those, as Casimir already mentioned, are largely due to COVID-19.
Now in the midst of summer, it may be hard to remember, but we also were impacted by quite a harsh winter in the early months of the year. Also the ramp-up of the new Telenor frame agreement had some impact. For Operative EBITA, Norway remains on very healthy levels despite the decrease in net sales and EBITA for the second quarter was EUR 2.7 million with a margin of 6.4%. In January to June, this came to EUR 3.9 million with a 5.1% margins. Again, reasons for the stable margins do include the good work on operational efficiency, and also successful right sizing to match the net sales. With this, let's now move on to page 11 for Denmark. For Denmark, net sales amounted to EUR 24.6 million for the second quarter and EUR 15.8 million for the first six months.
The decline compared to last year comes primarily from the completion of a large communication project, as well as somewhat lower fiber volumes overall, with the fiber volumes last year having been on quite a high level. In terms of profitability, the second quarter was indeed somewhat exceptionally good for Denmark. The Operative EBITA amounted to EUR 2.6 million with a margin of 10.5%. For January to June, the corresponding figures were EUR 3.9 million and 7.7%. Whilst we see that Denmark has successfully worked on its project management and also has a better project portfolio at the moment, we also need to note that the second quarter results also was positively impacted by EUR 0.8 million with what could be called a one-off relating to a partial insourcing of business by a major customer and indeed, events relating to the ending of this relationship.
Going forward, the insourcing unfortunately will then have somewhat of an impact relating to net sales. With this, let's go to page 12 and look at other business. Before commenting other business as such, I would like to point out, as actually came across already from Casimir Lindholm, that our country segments, Finland, Sweden, Norway and Denmark, already contributed to more than 90% of the net sales in the first half of 2021, 91% to be exact. This again shows the continued progress of our strategy and the Nordic focus. This leaves for other business 9% of net sales, which for the first half year amounted to EUR 43 million. In this, we saw positive development, particularly in Smart Grids Germany, but unfortunately High Voltage and especially in Poland continued to have challenges.
The divestment of the German communication business in Q2 2020 also of course had somewhat an impact in comparison to the year before. Operative EBITA for the first half year was EUR -1.4 million, and in this, Smart Grids Germany and Power Transmission International had positive contributions, whereas the continued difficulties in High Voltage Poland brought the results, unfortunately, still to the negative side. If you look at our bubble picture to the right, you can now see that we have reached operational completion of four major projects, those marked in gray. However, this said, several of the Polish High Voltage projects still have been pushed somewhat forward. We do, however, anticipate that we will be able to complete the majority of them still during the course of this year, and thus then further reducing the risks related to them.
Finally, let's take a look at some of our development trends on the following page. The leverage, which now is around the level of two to three has come down substantially, and we're of course happy about that. If you look at the minor increase between Q1 and Q2, that primarily reflects seasonal variation in our business. On net debt, we have reached a good level at EUR 88 million, excluding the licenses, sorry, our leasing liabilities. On the ROCE, or the return on operative capital employed, we can see a continuous trend upwards, reflecting partly, of course, the improving results, but also the low levels of capital that we use. At the end of Q2, we landed at 16.8% with ROCE. This completes the financial part of the presentation. With this, I then hand the word back to Casimir.
Thank you, Saila. We can move directly to page 15 and have a look at our financial targets. These are our financial targets. We are making constant progress towards the 5% Operating EBITDA, and we are fulfilling the leverage target. During the turnaround, we have focused on improving our profitability and control environment, as well as getting our balance sheet on a healthy level, and we have been successful doing this. With this on track, the next step is to reverse the downturn in net sales and reach our long-term financial target of 2%-4% annual growth in the Nordics from 2022 onwards. We are pursuing different organic growth opportunities in the different Nordic countries, and expanding our portfolio and by shaping our offering to the market.
While doing so, we are also preparing for potential future acquisitions and we clearly see a potential regarding consolidation of this industry in the Nordics. Having said that, we're still on our transformation journey, focusing on here and now, and deliver what we're supposed to deliver in 2021. We can move to page 16 to look at our deliverables. We are halfway or even more than halfway through the journey. Everything that we have gone through today supports the fact that the operational excellence focus and the Nordic focus has been a success, and we're delivering better and better results. That's all good. Maybe one point that we haven't talked about today is basically how we have managed in COVID-19 times regarding customer and customer base. We have focused a lot around our quality.
We have improved that a lot during the last couple of years, and we have focused around our main frame agreements and customers because it has been a bit challenging in COVID-19 times to gain new customers and approach new customer segments. Hopefully, that changes now when we're going to the next phase and of course, supported by potential M&As going forward and from 2022 onwards. We can now move to the next page. The focus areas are the same. We have had special attention around our tendering process. As we can see, the control environment has improved, but also the tendering process as such has improved. We have been selective in that. The organizational changes have taken place during the last couple of years.
As mentioned before, all in all, I think we have changed roughly 30% of district managers and more than 30% of team managers. That change has been part of changing processes, changing partly culture, but also part of course, of the fact that we have been decreasing in net sales. A lot of focus on implementation, execution of both frame agreements and contracts. That has paid off. The production planning has improved. Still potential there, I think we saw it this year also in Q1 that the winter planning was executed in a very good way. We have invested more and more in training. Also part of implementation of frame agreements is training. Again, upselling to the existing customer base and making sure that we deliver what we have promised on a day-to-day basis has been very important during the last two, three years.
Going forward, we are the number one player in this industry. We want to strengthen that position even further. We are, as mentioned before here, more than 90% of the volume is now in the Nordics, but we still have less than 10 outside, and we're focusing there on closing those operations down in a professional way. Also looking at potential divestments in those businesses outside the Nordics, but that program has come quite far compared to where we were a couple of years ago. A lot of special attention to the Polish High Voltage business so that we can turn that around going forward. Again, operational excellence is on the agenda every day, so that is something that we'll continue to focus on. Those are the focus areas, and the targets are clear.
Improve still the profitability, the quality, customer satisfaction and employee engagement as well, and of course, at the end of the cash generation. We are improving in all these areas, but still work to be done to get to the next level. With that said, we can move to the next page. We have come quite a long way on our turnaround. Much has happened within Eltel over the past years. We have improved the control of the business, and we have continued our good market position, and especially driven on the communication side by fiber and 5G. That gives us confidence to say that we will further strengthen our performance going forward, and the financial guidance for the year remains the same. We foresee our Operating EBITDA margin for 2021 to improve from 2020.
With that conclusion, we will move to page 19 and open up for any questions that you might have.
Thank you, Casimir and Saila, for this presentation. As Casimir said in the beginning, you can email questions by clicking on the mail icon next to the presentation. We have indeed already received some questions. I will start with a few from Robin Nyberg at Carnegie. When do you expect to reverse the negative trend in net sales?
As mentioned today, we're preparing different initiatives and also conducting some initiatives already regarding organic growth in all four Nordic countries. That is one way of doing it. The other part is potential M&As. We have said from 2022 onwards, M&As is a possible part of our operations. There is activity in the market already today. We are preparing for that next step, but more likely to happen in 2022 and onwards.
Okay. You mentioned some older unprofitable contract in Sweden. When are these projects ending?
We have a few, less than a handful of those projects left, both on power and communication. The power ones, a few larger ones there, ending during the first half of next year. We are moving towards the end of that work with the old projects. Looking forward, we are not entering into similar projects in the future. Let's say in three, four quarters, those projects are ending.
Okay. Another one on Sweden from Robin. Could you please repeat what you said about the potential goodwill writedown in Sweden? I think that's for you, Saila.
Yes. What I mentioned was that indeed, the goodwill that we have in the group has been allocated to country units in 2018 based on the situation of the time. Since then, what has happened in Sweden is that the marketplace relating to volumes, whether relating to maintenance of copper networks or the building of new fiber networks, has decreased. Along with that, of course, that has impacted our business. Because of that situation, we have already in the annual reports of 2019 and 2020, said that the goodwill that has, like I said, already in 2018 allocated to Sweden is somewhat sensitive to impairment. Now we're assessing our, so to say, business expectations going forward and also what we then potentially foresee in terms of developments in the marketplace for the coming years and then take further decisions on the potential impairment of goodwill.
As said, that will be further assessed over the next few months, and we will come back to that latest in Q4.
Thank you. Casimir, for you maybe. We mentioned a partial insourcing of business by a major customer in Denmark. Could you elaborate on this? Do you see more deals being insourced?
Yes. This happened in Denmark. It's roughly 10% of our business in Denmark. I haven't seen an insourcing in this business, in this industry for the last 10 to 15 years, so we were as surprised as you are now. I think it happened for political reasons on the customer's side. That is something quite unique, and again, I haven't seen it for 10 to 15 years. On the contrary, this business and industry was started through outsourcings. At the same time, we have seen a handful of outsourcing where we have been taking part in smaller outsourcing. I would say quite unique situation, and a local one in Denmark that happened during the spring.
Thank you. Now we have a question from Joonas Ilvonen at Evli. Any particular Nordic market where you have lately seen an increase in M&A candidates available for sale?
I think we have seen activity in all Nordic markets during the last 18 months on different levels. I think that will continue. Of course, we have to take into consideration the potential and the fact that we are a market leader in communication in all four countries and in power in Finland. That we need to also evaluate if these potential targets are valid for us or not, being the market leader. All in all, quite high activity in all Nordic markets. I would say especially in Finland, Sweden and also Denmark. Especially Finland and Sweden.
Thank you. Another question from Karl-Johan Bonnevier from DNB Markets. When targeting returning to organic growth, which sub-market do you see as the most promising? We mean countries. Do you have any signs of that in the order backlog already?
I think for growth now with the existing business that we have, 5G is one good example where we see that both Finland and Norway and Denmark are increasing the 5G volumes. Sweden a bit behind. That is one example where we see more potential for volume going forward for the next couple of years at least. We are looking at indoor solutions, for example, traffic lighting and so forth, where we see potential as well. Regarding the market as such, I would say that both Finland and Norway and Denmark are in a good place because they are supported by 5G and fiber. On the other hand, Sweden has already gone through the fiber peak as we have discussed before. On top of that, 5G is a bit delayed in Sweden. That's the status right now.
When we look at potential and M&A opportunities, it is quite clear that we have to look at our portfolio regarding communication and power in the respective countries and what kind of position we want to take going forward. That is one element to it. Of course, we have to look at the local organization. That the local organization is ready for M&A and that we are as a company as well. That work is ongoing and we are getting more and more active internally regarding potential M&As for the future. It's more a question of looking at the right opportunities and picking the right objects to look at closer. As always with M&As, they don't happen every week or every month, but clear activity in the market.
Okay. I think we have reached the final question now from Mr. Jussi Koskinen. How would you estimate COVID-19 total EBIT impact during the first half year?
I guess that's the most difficult question we have received today. I would say, let's use a couple of examples. I think one way of looking at it is if you compare our Norwegian net sales figures from last year in Q1 and Q2, then you compare it to this year. There are three elements into that. One is, of course, there was a harsh winter this year, and there was not that last year. That's maybe one third and one third is the fact that we're implementing a large frame agreement. Always when you do that, you have a startup phase that is a bit slower than the running phase. Then the third element, maybe one third could be COVID-19 in that sense that we have seen postponed investments. That is one way of looking at it.
Looking at pure financials, we can see that during COVID-19, our sick leave rate has gone up 1% or 2%. That is, of course, lost time and lost money for us. On the other hand, the normal sick leave has decreased a couple of percentage as well. That means that with these lockdown situations and the cautious way of working, the normal sick leave is lower and the quarantine and COVID sick leave is higher. I think if we stay on a high level, that's the way we look at it and that's how we have analyzed it internally. The main impact is, I would say if we take out the normal sick leave and the increased COVID-19 sick leave, that is ± 0.
The main impact is the postponed projects and investments. The good part is that we are quite comfortable that they are coming, but they are coming a bit late.
Okay.
That was the most academic answer I could find on a short notice.
All right. We did get another question during your answer. It's from Max Backman at ABG. Norway was down 18% organically, but positive development in June. The main reason for decline was reduced volume from customers, largely due to COVID-19. What should we expect from Norway in Q3?
I think, like we said earlier, we see that the volumes are picking up. The slow start in Q1 and Q2 was these three elements that I just referred to. It's a question of how fast will they pick up, and then the penetration. We can't control that. It's about the penetration and sales rate from our customers towards the end customers. That is really the factor here, that when does the volume come. Hopefully it picks up when we're getting closer to the year-end.
Good. All right. Now there are no further questions. Handing over back to you, Casimir.
Okay. Thanks a lot for listening and thanks a lot for good questions and a good dialogue again. Hopefully we see and meet each other in this forum also regarding Q3 or before that, and hopefully physically, sooner or later. Thanks a lot.
Thank you.