Hello, and welcome to the second quarterly report for Eltel, where we'll go through the results. My name is Elin Otter, I'm Head of Investor Relations here at Eltel. With me today, I have our President and Chief Executive Officer, Håkan Dahlström, and our Chief Financial Officer, Saila Miettinen-Lähde. Saila and Håkan will go through the presentation, and we will open up for questions after that. Throughout the presentation, you will be able to ask questions either through the webcast or via the phone conference. With that, I'm handing over to you, Håkan, as we turn to slide three.
Thank you, Elin. Good morning, and welcome. The highlight from the second quarter of 2023 is that we had a net sales that in reported currency is flat towards comparable quarter previous year. However, it's a great development in the local currency in the segment. We have a growth above 8% and 5% for the group. That is, of course something that we are really happy about. We see that this is driven by a strong telecom market in Finland, also in power transmission, Denmark and Sweden. Here, there is a very troublesome development in Norway with a significant drop in net sales. We also see that our sales efforts are paying off. We are able to sign more contract or higher value in contract this year than before.
Also happy with the outcome of total contract value signed during the quarter with EUR 164 million. The disappointment during second quarter was very much about EBITDA margin, where we landed at -0.7%, and that is weaker than the year before. However, a minor improvement from firs quarter, and adjusted EBITDA in our segment landed at 1.1%. Also that, a weaker than before, quarter before. The root cause of this is the challenge that we got in fourth quarter of last year, that we talked about in the previous report, and the cost-saving program has been completed in the end of Q1. We see gradually improvement from this program, but for second quarter, we are carrying significant cost from those challenges that we have in Power Services, Finland and Norway.
This is very much about a mismatch between the capacity we have and the day-by-day demand in our frame agreement, particularly in Norway. The good thing here is that we see a strong performance in Denmark, and really happy to see how they, during the last 12 months, have really come out of the issues that was for 1.5 years ago in Denmark, but now showing strong performance in Denmark. Also Sweden have a good development and also the progress in the improvement are good to see. As you're aware of, we have been hurt quite significantly by inflation during the last 12-18 months, and we now start to see some positive effect of this index. It's of course so that we still have inflation, meaning cost increases in everything we need, but it doesn't get worse.
The index is covering a main part of this now, and that is good, of course. We also see that the volume is a part, maybe even larger part than the index in driving top line. Thinking of this, the margin is, of course, a disappointment, but overall, I'm quite optimistic about the development mid-term and long-term in Eltel. I see that we do great stuff, the activities we have, and we have started with in our new strategy. That is actually working for us, and I look forward to see more concrete result of this. You know, the turnaround and a better situation starts, of course, with sales.
We see that we have been able to increase the value of the contract signed, EUR 164 million, as I mentioned, in the second quarter, to be compared with EUR 65 million for a year ago. Even better, I would claim, is that when we look at the last twelve months, we have been able to sign new contract to an estimated value of EUR 1 billion. That would give us, if we look at a book-to-bill number for this, that will give us a little bit more than 1.2 book-to-bill. This is, of course, something that underline and is the reason why I'm positive mid-term and long-term about the development.
With this said, as you know, we have frame agreement to a very, very large extent in our contract portfolio. The expected value of a contract is something that is just an estimate. There is no volume commitment. We are very dependent on the actually call-offs from this frame agreement. Here, I would say that the most uncertain areas that we have here is to what extent the telecom operators will, during the later part of this year, use those frame agreement for those investment. It's obvious to what volume we will be able to deliver during the second half year. What we can do is, of course, to develop ourself and improve our capability. This is something that we have a lot focus on, particularly on the commercial development.
How we sell, what type of opportunity we are going for, how we qualify, and how we calculate, and how we do pricing. I would like to underline, just pricing here, very important today and going forward, that we are generating prerequisite in our contract for a higher gross margin going forward. On the lower part, you see some contract we will not talk about them today, that we have during the second quarter, one, and also one very important contract for us with Fingrid in Finland just after the quarter. Really nice to see how that contract portfolio is developing, but as you know, sales, and then we have to deliver, and we have more to do when it come to the margin. With that, I would like to hand over to Saila, to go through the numbers and the development in each unit.
Please, Saila.
Thank you, Håkan. Let's go back to some of the numbers that Håkan already for the group highlighted. Indeed, we were reasonably happy with the top-line development and the sales efforts bearing fruit, with the net sales for the first half year increasing by 1% to EUR 396 and a half million. As we were quite substantially hurt by the currency exchange movements, particularly in Sweden and Norway, that means that in local currencies, the growth actually was quite healthy at 5.6%. Even more so in our Nordic segments, our key markets, the organic growth was actually closer to 8%, at 7.8%, to be exact.
In other business, which represents some 10% of our overall revenues, the net sales declines slightly by EUR 6.2 million. That is in line with the development in, particularly in Poland, where we have changed the scope to smaller projects and also increasingly services. As Håkan already mentioned, the profitability was not something that we can be very proud of as of yet. With that, the first half year adjusted EBITA came to -7 million EUR, and decreased by 5 million EUR from last year. The margin for the group at that number was -1.8%.
However, again, the segments did fare better, with the first half-year margin being 0, and actually separating the second quarter alone, it was actually positive at slightly over 1%. Let's take a look at indeed, our key markets and the segments. For Finland, as you can also see from the top right-hand corner graph, the net sales on a rolling 12-month basis have been increasing quite nicely. The net sales increase for the first half-year at 14.4% is very satisfying indeed. We can thank that number for a very active fiber market in Finland, an increase in volume coming from there, but also power transmission generating good volumes.
The adjusted EBITA has taken a turn for the worse, as we did already note half a year ago, for the time being, with the adjusted EBITA for the first six months coming to minus EUR 1.5 million. That basically contains very stable and profitable operations in communication. As we have already noted, we have had challenges in Power Services with certain unfavorable contracts, as well as then cost increases. We have been taking mitigating actions for those, and as Håkan noted, we do expect to see gradual improvement, although we cannot promise any sudden overnight changes here. Moving on to Sweden. Indeed, Sweden has, in the past, been more challenging, but now already for some year and a half, almost two, we have certainly seen much more positive development.
In fact, net sales in Sweden actually have been increasing for 7 consecutive quarters year-over-year, and profitability has shown positive black figures for adjusted EBITA for 4 quarters in a row. That we are all, of course, very happy about, and to be more exact, net sales increased by 6.8% in the first six months, and in local currency, again, the growth was even more substantial at more than 16%. With that, net sales in euros came to more or less exactly EUR 100 million. Out of that, the currency effect indeed was nearly -EUR 9 million.
The growth, as we already have indicated previously, comes both from communication as markets, we're particularly happy to say that communication at large, which is the majority of Swedish business, has grown even more strongly, in the first half year, in 2023. Adjusted EBITA for the first six months came to EUR 1.4 million, that's quite an increase from minus EUR 2.2 last year. That is also very visible from the graph on the lower right-hand corner, where the steepness of the curve is indeed satisfying to us. Apart from the volume increases, bringing out the profitability increases as well. We also note that operational improvements are bearing fruit as well.
We were telling about the One Eltel program last year. Now we are starting to see the benefits from that. Going to Norway. Indeed, as already noted by Håkan, we unfortunately have seen quite substantial net sales drop in Norway due to lack of investments by our key customers. With that, we saw the net sales for the first 6 months come to EUR 64.7 million, down from EUR 88 million last year. There, too, however, the currency effect was quite strong, at more than negative EUR 9 million. Percentage-wise, yes, negative numbers, but far less than the 30% that you would see in EUR. Adjusted EBITA decreased to minus EUR 2.4 million for the first 6 months, shows the overcapacity and reduced efficiency that comes from the decreased volumes.
We already did a fairly sizable restructuring effort in Q1 in Norway, reducing personnel by 100 people, reducing number of vehicles, premises, and so on. Given the current situation and seeing the volume, that further actions indeed will be needed during the second half of this year. Moving on to Denmark. Denmark, indeed, still last year, was suffering from the loss of a key account previously, but now we're very, very happy to see that indeed, that hole has been climbed out of, net sales have been increasing very strongly by 21.4% over last year's first six months to EUR 43.3 million. That comes primarily from larger volumes in ongoing contracts. However, sales efforts in Denmark also are very strong, and we are gaining new contracts and new customers there alike.
Adjusted EBITA, also very strong performance, and reaching EUR 2.5 million for the first six months, and indeed, quite healthy margin at 5%, 5.7% also. What I think we can be particularly happy about is that the good performance does not come from one factor only, but rather a sort of overall good performance, involving not only increased volumes, but also operational improvements, as well as then, indeed, successful higher pricing. Moving on to other business, which indeed, like I said, represents roughly 10% of our net sales and came down to EUR 43 million for the first six months. Primarily, the decrease came from High Voltage Poland, where we, as said, are focusing on smaller projects and services these days, and reducing risk thereby.
Adjusted EBITA actually improved, but was still negative at EUR -1.9 million, and in High Voltage Poland, also, the losses did reduce to EUR -3.2 million. In Smart Grids Germany, we continue to see healthy margins, however, do have to note that they were reduced from previous years', very high margins due to primarily cost increases in personnel. Also, we need to note that there will be some changes in the marketplace in the fourth quarter of this year, meaning that the authorities have induced a stop in certain gas adjustment works, which will unfortunately mean that the margins in Germany during the last six months of the year will not be able to improve substantially.
Looking briefly at our balance sheet, you may recall that we actually improved the position by issuing a EUR 25 million hybrid bond in April, and that, of course, being classified as equity in IFRS, does not show a net debt. Net debt, as such, is, as you can see from the graph, moving seasonally, but then this year, at the end of June, we ended up at EUR 142 million, which is EUR 10 million higher than last year at the same time. Leverage, unfortunately, has been rising over the last year, reflecting the issues we have had in profitability. In Q2, we ended up slightly over 6, which is roughly in line with Q1, but actually ever so slightly lower than what we saw, at the end of March.
Net working capital is something that we pay a lot of attention to optimize the cash flow, and are happy to note that we maintain a negative number in net working capital at -EUR 2.4 at the end of June. With this, I will hand it back to Håkan.
Thank you, Saila. This describe our group financial targets. We have had them for some years, and we just today like to confirm that they are still our targets, and we see improvement in areas like particularly growth, as you saw today. Between 2% and 4% annual growth. We are above that in local currency. We should just get that also in reported currency. Believe that we have that within reach. On adjusted EBITA, we have more to do, as you see, and also on the leverage that Saila just showed. This is our target. We confirm them again, and we are working towards them with our strategy, that our new strategy that we set in the beginning of this year. We are seeing progress.
We are doing the right things on all of this, I would claim. There is, of course, much more to be done, and we expect the outcome of this to be visible in mid-term going forward. There are still, our solution to the weak profitability, as you see. I am convinced that we do the right things within Eltel, and we have the skills to be an important player in this shift in the society when it come to digitalization and electrification, and increased new use of renewable energy. We see that so many wants to discuss these type of solutions with Eltel, and I'm hoping that we're gonna do our part of this shift of society.
More to be done, more to be delivered, particularly on profit, but quite happy for the development so far, even though the situation here and today on profit is challenging, of course. By that, I think we are ready for taking some questions.
Well, thank you, Håkan and Saila, for your presentations. As said in the beginning of this call, you can either pose questions through the webcast or through the phone line. Let's start with the phone conference.
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Okay, let's start with a few questions from the webcast. This question comes from Mr. Jose Koskinen. Eltel's financial targets by end of 2025, group-adjusted EBITDA margin, annual growth leverage, and net debt. Are these financial targets still valid? I know you touched upon that, but how realistic do you feel they are? Is it a probability to achieve those targets?
I would say that they are challenged, challenging, but, yes, they are reachable. Yes, they are still valid.
Clear. The next questions comes from Marco Moilanen at Nordea, and he actually has four different questions, so let's start with the first one. Regarding Norway, you highlighted that you will initiate further capacity adjustment actions. Can you discuss about this a bit more, and can we expect to see some one-off costs as a result?
I would say it's a little bit too early for us to describe that change in detail. It's just that, as you all can see, there is a need, and action will be taken. We don't have anything more than that to communicate today.
Can you discuss about the profitability level of your current order backlog? When can we expect to see positive adjusted EBITDA for the whole group?
What we can see is that in the contract portfolio we have, we have stronger and stronger gross margin quarter by quarter. The development, as we have talked about now for half a year or something a little bit more than that we have increased ambition when it come to gross margin and EBITDA in all new sale cases. We see that that is also paying off in the portfolio contract. We also see that that is also what we can deliver on. Up to now, this has sort of been shot down by the challenges we have in Norway and Power Services Finland. That's sort of something that we would see gradually improvement from, and when that comes, we're also gonna see a much stronger development on profit for the group. I don't have any dates for you, no.
Can you discuss about your view on H2 outlook?
Mm-hmm.
Does the weak Power Services project in Finland continue to burden the result, and do you expect to see continued improvement in Sweden and Denmark?
If we talk about sort a little bit headwind and tailwind, there is a healthy demand as we speak in, I would claim, more or less all frame agreement and all customer relationship that we have. If that is something that can continue over the second half, and here it's very difficult to predict, we read, of course, what every sort of said about our customers. We talk to them. We have different processes for forecasting together with them. If we look at the history, it has changed quite rapidly and with some short notice also, like fourth quarter last year. It would be quite sort of unwise, I would claim, to be 100% sure about how this demand will continue during the second half, but we have no indication today that it would go down.
That says that we have the contract portfolio, we have the organization we need, we have the skills, the resources to continue the growth. Also, that improvement can continue. We are very vulnerable towards a reduction in call-offs in the frame agreement, and if there is any sector that I'm more worried about, it is the telco. In power, I think that the volume are more stable, and the demand is so significant there. I'm not so worried about that. It is more the volume in telco that might surprise us and hurt us during the second half. Gradual improvement is what we expect from Power Services. We also, as we have tried to say today, will do some more actions in Norway.
I can't go in detail what that would be today, but happy to talk about that later on.
You have some EUR 100 million in short-term maturities, including leases, and EUR 55 million in cash at the moment. Do you see any liquidity risks there? Can you elaborate what is included in short-term debt besides the leases?
Short-term debt, of course, there are partial maturities in the term loan that we have already agreed quite a long time ago, no surprises assumed there. Leases, of course, is a very sort of ongoing portfolio, quite steady, actually slightly reducing portfolio with the restructuring charge. We're not expecting any issues or problems from there. Yes, of course, given the first half of the year having been challenging for us, liquidity is something that we have to watch carefully. I would keep it at that.
Mm-hmm. Okay. Well, that was the final call, or question from the, from the webcast. Do we have?
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That concludes the call.
Mm-hmm.
For participating today, I will just remind you that we will present our third quarter on the second of November. Hopefully, you will join us then as well. In the meantime, feel free to reach out to me if you have any further questions. With that, thank you for calling in.
Mm-hmm. Thank you.
Thank you.