Welcome to Netel Q2 Report for 2025. For the first part of the conference call, the participants will be in listen-only mode. During the questions and answers session, participants are able to ask questions by dialing pound key five on their telephone keypad. Now, I will hand the conference over to CEO and President Jeanette Reuterskiöld and CFO Fredrik Helenius. Please go ahead.
Good morning and welcome to our presentation of our second quarter. My name is Jeanette Reuterskiöld. I'm CEO and President of Netel. With me today, I have Fredrik Helenius, our CFO. In the second quarter, we continue to have a large proportion of projects in the startup phase across all divisions. However, telecom has increased its volumes primarily due to a positive trend in Sweden and Germany. The high proportion of project start has also negatively impacted profitability since initial activities need to be performed in our projects before we can start deliveries and invoicing. The major contracts that we are now commencing include, for example, LVS Power Stations in Norway, a new Framework Agreement with Glitre Energi Nett in Norway, an expanded Framework Agreement with Tele2 in Sweden, and fiber networks for UGG and envia TEL in Germany.
The Order Backlog continues to be strengthened and increased to SEK 4.1 billion, part of which will extend into 2027, but the vast majority comprises deliveries in 2025 and 2026. The Adjusted EBITDA margin amounted to 5.2% during the quarter, negatively impacted by the high proportion, as I said earlier, from projects in the startup phase. In infra services, sales decreased 29.8% in the quarter, compared with an unusually strong comparative quarter last year. The division has continued to capture new customers and expanded collaboration with existing ones. Step by step, we are expanding our operations geographically, which, combined with our strong local presence, provides us with a competitive edge. Within power, sales decreased 3.5% in the quarter, negatively impacted by project starts in Sweden and change of project mix. In previous years, we have had a greater share of high-margin power station projects in the project mix.
Nevertheless, the power projects that we are now delivering on have a favorable profitability over time, well in line and above our group's profitability targets. Profitability will also be positively impacted by new power station projects that we will commence during the year with project planning and will enter production phase next year, 2026. In telecom, sales increased 3% during the quarter, driven by a healthy trend in Sweden and Germany. The EBITDA margin increased to 6.7% during the quarter due to higher volumes and gradually increasing contribution from the margin-enhancing measures we carried out in Norway last year, as well as one-off effects. The one-off effects comprise the reversal of previous provisions for completed projects. We took a significant and important step in building a stronger Netel with the sale of our Finnish operations that we are operating at a loss.
We also successfully continue to expand with new and existing customers and into new geographic areas. The high proportion, as I said earlier, of products in the startup phase during the quarter has temporarily had a negative impact on both sales and profitability. However, these projects form the basis for future growth and improved earnings. We received considerable interest in our Finnish operations, and the sales process proceeded quicker than expected. Our Finnish operations and the associated losses and lack of growth have negatively impacted Netel for several years. The sale will allow us to focus our resources on our core markets in Sweden and Norway and growth markets in Germany and the UK. It represents a very significant step in establishing a stronger Netel further on.
Now I would like to present some new wins under this quarter from each division to show an example of how we deliver on our strategy. We start with Division Infra Services. They have signed a new agreement with Mälarenergi, and we extended our services with them. Mälarenergi is an important client for us, with whom we already collaborate in the power sector. Now, our colleagues at Moberg have succeeded in expanding the partnership to include two new products focused on renewable heating and water systems. Mälarenergi is owned by the City of Västerås and provides electricity, district heating, water, district cooling, and communication solutions, primarily in the Malardalen region. Our Swedish team in Division Power has successfully been awarded a new five-year Framework Agreement with E.ON in Sweden.
The agreement includes guaranteed volumes totaling SEK 330 million and covers product contracting for local networks in the areas of Örebro, Norrköping, Eastern Småland, and parts of Norrland. E.ON is one of Europe's largest energy companies, with over one million households and businesses as customers in Sweden alone. We are proud of E.ON's renewed trust, and together we are happy to continue electrifying society and meeting the energy needs of the future. Within Division Telecom, our German team has won a contract worth EUR 90 million with a significant new customer, envia TEL. envia TEL is the leading telecom operator in central Germany and part of the E.ON Group. The two-year contract gives us full responsibility, including planning, installation, documentation, and product management for the construction of a fiber network in Erzgebirge, south of Dresden.
Thanks to our solid experience in fiber networks and successfully executed projects we have done in Germany, we are now able to engage with a new major player. This is yet another proof of how we are delivering on our strategy to win new customers and expand our geographical reach. With that, let's move on to our financial performance in more detail, Fredrik.
Perfect. Morning, everyone. Thank you, Jeanette. The financial performance during the quarter, the second quarter, is impacted by the seasonality and the project lifecycle where we have been focusing on startups with new projects and new clients. We are moving forward within telecom and new areas and increased opportunities utilizing the new service agreements, especially with Telenor in Norway. We are working with new clients and projects in Germany. Within power, we have expanded into new areas in Norway and focusing on new projects with planning and permitting in the Swedish markets. This phase and the project mix, with relatively fewer projects running at full speed, generating our top line and revenue growth, especially the bigger power substations that we have seen previously, impacted the total top line during this quarter.
However, we are pleased with the continuous work to increase the Order Backlog and enabling the necessary profitable volumes for our stepwise improvements over time. We delivered sales of SEK 789 million in the quarter with a negative growth of 7.7%, and we recorded approximately SEK 1.5 billion in sales year to date, just below last year. We note that the negative impacts from FX effects have impacted the total negative growth, but telecom continued to deliver growth from Germany and grew as a division in the quarter despite the focus on new starts in Norway and in Sweden. Power closed just below last year with good momentum in Norway and continued focus on the new project starts, as we said in Sweden.
Infra Services, with a continued competitive landscape, was trailing with almost 30% as we did not run as many projects at full speed as we did during the same quarter last year. We continue to position ourselves in the local markets for Infra Services for additional profitable projects ahead. While we continue to ramp up our production and focus on starting many new projects, we have achieved several interesting wins and new contracts during this quarter, growing the Order Backlog to SEK 4.1 billion. Our underlying markets and demand continue to provide opportunities. During July, we have, as Jeanette mentioned, communicated an additional SEK 300 million contract for power in Sweden. Overall, we believe that we have a fairly good position for 2025 and the coming years.
Out of the SEK 4.1 billion in total backlog, we estimate that we have around SEK 1.5 billion for the final six months of 2025. The profitability in the quarter increased from Q1 in line with the seasonality pattern, but with the relatively lower volume that we saw from the project startups, we are slightly behind the profitability from last year. We are currently in a build-up phase with many new long-term opportunities. With that focus, we don't yet generate the higher revenues with additional contributions to the margins. The Adjusted EBITDA was SEK 41 million, or 5.2% after adjustments with regards to the transaction costs for the finished divestments. Telecom contributed with high margins as we continue to improve from our enhancing activities and increased volumes in Sweden and Germany.
Power and Infra Services closed with slightly lower margins in comparison to last year due to the current phase of the projects. With the growing Order Backlog and gradual improvements from, as mentioned, for instance, better and more efficient solutions within Telecom and measures implemented during last year, we continue to work with the increased profitability over time. The impact from new projects and ramping up our production today are expected to generate positive possibilities going forward. The relatively lower profit in absolute terms in the quarter implied an earnings per share of SEK 0.11. The cash flow for the quarter also reflects the capital need when we ramp up production and focusing on project startups. The operating cash flow was SEK -62 million in the quarter compared to SEK 41 million last year, with high levels of ongoing production triggering cash inflows.
During the first two quarters of 2025, we have continued to see the need for working capital in general when we engage in new activities and projects. The outcome from our invoicing in late Q1 and during Q2 was on the lower side for us to close Q2 on or with positive outcomes. During June, the last month of the quarter, we reached additional milestones in our production and noted increased levels of invoicing up to approximately SEK 270 million. We believe that we have provided quite a good understanding of our business and the capital need, where the seasonality is an important characteristic for our business, as we always must reach certain achievements before we are entitled to invoice and bearing costs during that time. In addition to the seasonality, the project mix and the current phase of our production adds additional understanding to the capital need.
Power is a very good example during the first six months during 2025. Last year, we benefited from many substation projects running at a good speed with good revenues and good cash flows with beneficial payment schedules. During 2025, the start of new projects, including substations, implies that we have both lower volume activities with planning and permitting, cash outflows when we ramp up production, and a need for a bit of time before we reach relevant levels of our own invoicing. We tend to see a higher capital need within telecom due to the relatively tougher terms and conditions within those projects. The operating cash flow for 2025 is quite evenly distributed and with tied-up capital throughout our divisions, given the overall production phase that we have and the start of many new opportunities across our business.
As a consequence of ramping up the production and starting these new projects, we increased the level of accrued sales or work in progress on our balance sheet and enhanced the net working capital. We are around 13% of working capital in relation to sales in comparison to 10% last quarter or 12% end of June last year. The higher working capital and negative operating cash flow implies a higher net debt position, and we increased the leverage ratio to 3.4 times. As we enter periods at year end, whether we finalize production to a greater extent and have a higher relative level of client invoices being sent, we expect to see the contrary, meaning that we lower the working capital and benefit from the cash conversion that we have in our operations, and we'll see better cash flows.
We have a very limited CapEx need within our business, and we do not foresee any substantial impact from other investing activities. With that, we do expect to deleverage from the current position towards the year end. Before we move on to the divisions, we have a few additional words on the outcome from the finished divestment. As previously mentioned by Jeanette, we decided to initiate the process of the divestment during year end and now completed the transaction with a simultaneous signing and closing end of June. We are pleased with the process managing a closing before the summer. While the transaction had limited effects on the financial position, the overall profit from the discontinued operations, as reported in the second quarter, including effects from the actual transaction, amounts to SEK 20 million in the quarter or SEK 16 million year to date.
We have a small but settled purchase price. We have reported approximately SEK 9 million as transaction costs, and we report SEK -2 million as the cash flow effect from the transaction, and that's referring to the sold cash balances in the finished operation. With this transaction in the books, we will free up our resources and continue to focus on core and growth markets and execute on our strategies both on short and long term. If we then move on to the segments in our divisions and look at the performance across them, Infra Services delivered sales of SEK 157 million and decreased with almost 30% against, again, a very good comparable quarter last year where we saw additional projects running at full speed. This year had fewer projects continuing since last year and focused on the start for new ones.
We also noted a bit slower pace on the start for new projects with more expected volumes being moved to future periods. More importantly, we continue to work with existing clients and expand on longstanding corporations, evaluating new possibilities and possible clients and geographies in addition to the continued strong local presence where we still manage to win interesting projects despite the competitive landscape. Profitability for Infra Services, we noted an EBITDA of SEK 6 million or 3.6%. The lower volume and slower pace in the start for the new projects implied a decrease from last year margins. We will continue to execute on the Order Backlog in addition to expanding on new possibilities in order to get back on volume and ultimately on profit and margins.
It is a slow start for the first six months, but with a partly new organization in place, we do look forward to evaluating our opportunities ahead. Within Power, we note a continuous growth from our Norwegian business as we increase production towards new clients and new areas. Sweden decreased from last year as the current start of new projects and relatively few substations running at the same rate of completion. That implied focus on lower volume activities with less material deliveries and production costs generating our top line. In total, Power generated SEK 268 million in sales compared to SEK 277 million last year. Norway continued to contribute with both our Power service contracts that we have, as well as some projects. We are looking forward to continue the promising start of entering South Norway as well as evaluating the industry segment.
In the quarter, Power delivered a decreased profitability of SEK 8 million in EBITDA and a 3% margin. The margin is still impacted by cost in relation to our expansion in new regions and with new clients, and also due to the project mix, as we have said, with fewer substations running at the same speed as we saw during the same time during 2024. Those projects have historically been providing our higher margins. As we bring the current projects that we now start up to speed, we expect to realize better volumes and increase profitability. The demand and the underlying markets within Power provide good opportunities. Our current projects and the existing Order Backlog are set to deliver a good long-term profitability for Netel. In Telecom, we continue to increase speed since Q1 with projects in several of our markets.
The division delivered SEK 364 million in sales in the quarter and grew with 3% with important contributions from Germany and from Sweden. We continue to evaluate the progress as we increase production with our service agreements in Norway. Expanding into new geographies and onboarding new teams, utilizing bigger order volumes and implementing new efficiency tools naturally takes a bit of time. We expect to continue the development throughout this year and realize additional potentials. In line with that, and as we have said previously, we expect to improve not only our volume for Telecom and Netel, but especially the margins. We were not satisfied with the 1% margin during 2024, and hence the EBITDA for Telecom in the second quarter this year of SEK 24 million or 6.7% showcased important contributions from efficiency measures and new projects.
The EBITDA includes one-time effects, as Jeanette mentioned as well, from reversals of previous reservations or provisions from finalized projects, and that amounts to approximately SEK 10 million. The underlying operations continue to gradually improve. Telecom remains as our biggest division, and we will continue to find ways to leverage on the Order Backlog and new contracts, increasing the profitability over 12 months also for this division.
Thank you very much for that presentation, Fredrik. I will finalize today's presentation with some concluding remarks. We operate in markets that are driven by the strong critical infrastructure megatrends of electrification, digitalization, and modernization of water and sewage systems. We hold a strong position in these attractive markets. I am confident in our ability to grow profitably, and we will do that by growing together with our customers by delivering on our contracts every day. Netel celebrates 25 years this year. We started our operations in telecom and have over the years developed our businesses in power and infra services as well. Through both acquisitions and the ability to grow organically, we have managed to develop our business over the years.
We have successfully delivered on our strategy and continue to strengthen our positions in our markets by growing with new and existing customers, with focus on our core markets in Sweden and Norway and the growth markets in the UK and Germany. Every day, I receive proof of the strength Netel has in all our competent and motivated employees who have managed to increase our Order Backlog to SEK 4.1 million. We have a sharp team with a common clear goal to make us even stronger. Overall, this quarter, to sum it up, as we said, we took a significant and important step with the sale of our Finnish operations that were operating at a loss. We also successfully continue to expand with new and existing customers and into new geographic areas.
The high proportion of our projects in startup phase during the quarter has, as we said, temporarily had a negative impact on both sales and profitability. However, these projects form the basis for future growth and improved earnings in order to deliver on our financial targets. With that, we open up for questions.
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We have Karl-Johan Bonnevier from DNB Carnegie.
Yes, good morning, Jeanette and Fredrik. A lot of moving parts in this quarter, obviously, and good indications of going into the second half. If we try to digest a couple of them. First, looking at the reversal you did in the telecom division, just to give some color for it, when did you say account conservatively for this project, if you put it like that? If you're looking at the timing effects, so we can understand the comparison a little better when this was really creative, if you put it like that.
We always work with updated estimates and assumptions on the projects. As you say, trying to be conservative on our judgments when we do our study to the estimated margins, ultimately then using that margin as the base for generating or calculating the revenues using the percentage of completion. During these times, we have our provisions when needed. This time, when we had finalized the production and had finalized projects, we didn't have the need for those provisions. This time had a reversal which was slightly bigger than we usually see. That's why we want to point that out, that we have these one-off effects of approximately SEK 10 million. That's been sort of put in as a provision during the last periods of time, meaning a couple of quarters back, so during 2024 and 2025.
Excellent. Thank you for that. Looking at telecom going forward, you point out that now the Norwegian service operation seems to be on a firmer footing. Is that the right way of interpreting it?
I think that we get important versus from all the processes that were put in place during 2024. A lot of efficiency measures regarding systems, regarding the organization. We have onboarded additional teams. I think that they added approximately 40 team members for the service organization in new areas just recently. Obviously, we have several ongoing processes for the division, especially then in Norway for these bigger service contracts. We start to see important answers and expect to continue to realize the potentials, as we said, now during the coming quarters as well.
Excellent. Switching over to infra, obviously a slow start to this year when you're looking at the year-on-year comparison. Do I interpret it right when you talk about the backlog and the effect going into the second half, that that might be even a catch-up to deliver something similar to 2024 for the full year?
Yeah, I think that we have a good Order Backlog now for the remaining six months. As we said, we estimate that we have roughly SEK 1.5 million in total out of the SEK 4.1 million in backlog. Naturally, Infra Services has part in that volume as well. As we say, it was a tough start now for the first six months for the Infra Services division, but we do expect to have a ramp-up in production and start delivering on those volumes and see an increase from the production that we have seen now for the first six months.
When you, for the total group, look at the outlook straight for the second half and then for the full year, do you feel that your new financial target, looking at growth margin, are within reach, so to say, for also this year?
Yeah, we still see that we estimate that we will ramp up our production in the second half year to reach our financial target. Our new financial targets also allow us better to show that there could be changes in our business due to what kind of product mix we have. We estimate that we will reach our financial target this year. We have had a bit lower than expected volumes. A lot of products were delayed in the first half year, but we expect to deliver on them the second half this year.
That's excellent. Jeanette, on that note, obviously now going into a high production period, do you see any limitation on the resource side that you connected to your subsidiaries, looking at the equipment and staffing?
No, we have from the beginning, we had planned a bit slightly higher revenue for the first year. We are equipped with the resources in our organization and ready to ramp up the production for the second half of this year. We are ready to produce in our teams.
That's perfect. Looking at what you see as ongoing project discussions, outstanding RFPs, and these kinds of things, looking for new business, how do you see that today, maybe compared to six or 12 months ago?
I would say we see a strong market still. It has been some delays, even for tenders the first half year. A lot of tenders have come out now in all divisions just before summer as well. We see a strong market even further on. It has been some delays from our customers as well. They expected to go out with more products in the beginning of the year, but it has been some delays for them as well.
Excellent. Thank you very much and all the best out there.
Thank you.