Alexandra Kärnlund: Eltel's presentation of our Q3 results. My name is Alexandra Kärnlund. I am Communications Director of Eltel. The presentation will be held by our CEO and President, Håkan Dahlström, and our CFO, Tarja Leikas. After the presentation, we will open up for your questions, and you can pose your questions through the webcast. Just write your question in the form, and we will pick it up. You can also dial in your questions. I will come back with instructions for that. With that, over to you, Håkan.
Håkan Dahlström: Thank you, Alexandra. Good morning, all. My name is Håkan Dahlström, and we are Eltel. Eltel, the leading Nordic service provider in critical infrastructure. That means that we do installations, we do service and maintenance, and we do upgrade of critical infrastructure. Critical infrastructure have never been as important as of today. This means that for customers like network and grid owners, for enterprise customers, for the public sector, we do corrective maintenance, we do technology modernization, and we install new infrastructure. That is in the area of telecommunication, but also power transmission, distribution, smart metering, meaning utilities. During the last three, four years, we also have expanded our addressable market into private networks, e-mobility, energy storage, solar PV, and now during the last two years, also data center solutions. The share of recurring revenue year to date is 70%.
Håkan Dahlström: That is what we mean with maintenance services, upgrade services. That is a work that never ends. We also do 30% on establishing new infrastructure. By that, I would like to go to this Q3 that is really great for us in Eltel to see that we now, for the 13 quarters in a row, have been able to improve our profitability. We are delivering the highest profitability since 2015. We also have been able, during the Q3, to win more contracts than we normally do. We land in the end of this quarter with a record high order book. On the financial side, the adjusted EBITA, as has been our priority now for these three, four years that we have been working on this strategy, we now reach 5.6% in the quarter to be compared with the 4.3 previous year.
Håkan Dahlström: Here is Finland, and the team in Finland is taking the heaviest weight, and we see Finland delivering more than 10% in the quarter. Really good to see. Tarja will come back with more detail about Finland in a minute or two. As I said, 13 consecutive quarters of improved profitability. For us, with the seasonality, as you know we have, it is most relevant to compare Q3 with Q3 previous year, and that is how we talk about improvement inside Eltel. Also good to see that the cash flow improved during the third quarter. I have to admit that I would have loved to see a better development of net sales. Overall, I would claim that this is a very strong quarter for us in Eltel. Really happy about that.
Håkan Dahlström: If you then look a little bit on that order book that I mentioned, we come up to EUR 1.7 billion, record high, to be compared with EUR 1.2 billion a year ago. The good thing is also what it consists of. It is not only the level of it is the content of the order book here. The extremely important agreement that we have been able to secure with Telenor in Norway. As you know, our Norwegian organization are mainly doing communication. More than 90% of the business in Norway is communication, and Telenor is the largest customer in that market. Now with this long-term, I would really like to emphasize that this long-term contract and partnership set up that we have been able to construct with Telenor is really important for us.
Håkan Dahlström: Now we have five years of close cooperation, and I can already see the new way of working is delivering good result for us and Telenor in that cooperation. Five years and then option of three years plus another three years. In principle, 11 years ahead of us. Really nice to see. Also equally important for our business in Denmark, we have been able to secure agreement with KONSTANT. In the same way as we have on communication, where we work on build, connect, and care, it is also the same in power. With KONSTANT, we will work with those three parts. We will build, we will connect, and we will care for the distribution network that KONSTANT has in Denmark. This is to a big extent, new money for us and a really good step for the power business in Denmark.
Håkan Dahlström: I also have to say that there is a bit of diverse development in our Nordic markets, where even though Finland creates a fantastic result in the third quarter, we are coming down on net sales, and that is mainly due to that we are on the later part of a big fiber rollout. Fiber rollout to household, we talk about fiber to the home. The peak has clearly been 2024, 2025, and during the whole of this year, but also in the end of 2025, we saw lower volume. We expect this to continue a bit going forward. This is nothing odd. I would say that this is more a normalization of the volume in classic communication towards telco operators. Great to see how the team in Finland have been able to defend and also improve margin, even though lower volume. Really good.
Håkan Dahlström: Power has not been able to compensate fully on the net sales, but together, Finland delivering a really strong result. Sweden doing really great in classic communication services, both towards operators but also towards public infra. So really strong and good margin development in Sweden. However, the decline in contribution from large project, mainly in smart metering, is not really possible to compensate for when it comes to net sales. So Sweden do great, I would claim, in the classic services. Power have lower volume and lower contribution from big project in Sweden, leaving Sweden with a decline on top line. Norway, flattish on top line. Good activity level, particularly in data center. Not really being so strong that it could create significant growth due to that their communication is in decline. And here, of course, this contract that I just mentioned, they are ahead of us.
Håkan Dahlström: We expect some new revenue on the Telenor agreement in Q4, more so in Q1 and Q2, but then fully in Q3 of next year. So that means that in my own scenario, at least, we will have growth of significance in Norway during next year based on this. The KONSTANT agreement will come into play 1 February, and that will of course help out the situation in Denmark. As I say, Denmark and this diverse development. For Denmark, we have had a little bit of troublesome for some quarters now, also in Q3, and this is lower volume in classic communication, but also lower volume in Power. And here, I think that we have to look on ourselves.
Håkan Dahlström: We have to become better in our sales activity, being better and more successful in our sales activity due to the fact that today we have just a bit too low workload to be in balance in the Danish operation. The German part of that segment is doing really great, so really happy for the contribution from Germany. But as a segment, we are struggling in Denmark, Germany. And after Q3, we are really happy to see that the appeal has been dealt with by the court, and we have now everything in place. It is signed. We are clear with the agreement with Vattenfall, and this is the largest service and maintenance contract that Eltel Sweden have ever signed. Really important for us. And we are now starting the cooperation with Vattenfall to be able to deliver on this agreement by 1 June next year.
Håkan Dahlström: As you hear, gradually improvement and gradually more net sales based on this contract. The agreement with Telenor is our largest contract ever, and we have a really great hope and expectation on that cooperation going forward. So a really strong quarter, I would say, even though I wanted to have something else on net sales, as I believe you understand. But here we are, and I think this order book of EUR 1.7 actually is the prerequisite for a more better development also of top line. But priority one is still margin improvement.
Tarja Leikas: Yes.
Håkan Dahlström: We will stick to that. Margin improvement is number one. We need to broaden the customer base. We need to grow in emerging services. I would claim we are doing just that.
Tarja Leikas: Very good.
Håkan Dahlström: Tarja, please.
Tarja Leikas: Thank you, Håkan. I think I need Here is the right slide. Thank you, Håkan. I am delighted to report the Q3 and the year-to-date result of Eltel. During the quarter, we delivered the strongest profitability since Eltel's listing in 2015, with adjusted EBITA increasing to EUR 11 million and adjusted EBITA margin reaching 5.6%. Three of our segments improved profitability, supported by continued progress in operational excellence, commercial discipline, and execution excellence. Achieving margin expansion despite lower net sales demonstrates the strength of our transformation and the resilience of our business model. Commercial momentum was exceptionally strong, like Håkan mentioned earlier. We secured contract awards with a combined value of EUR 681 million and increased our order book to record high EUR 1.7 billion. Importantly, the majority of the new orders relate to service and maintenance contracts. This is providing a stable and predictable foundation for profitable growth.
Tarja Leikas: Telenor contract is the largest ever Eltel contract, and Vattenfall, which was signed after the period, is the largest ever contract in Sweden. To be noted, Vattenfall is not yet accounted into our order book. While net sales growth remains below our ambitions, the record-high order book and substantial contract wins give us a good position for future growth. Our focus will be on converting this strong commercial momentum into profitable delivery, same time maintaining a disciplined execution and further strengthening our cash generation across the group. For the first 9 months of 2026, talking about the year-to-date numbers now, our sales increased by 1.4%, and it is now EUR 587 million, while adjusted EBITA improved almost 60% to EUR 19.7 million. 3 of our segments delivered enhanced operational efficiency and strengthened the commercial performance. Then a bit closer look into our segments.
Tarja Leikas: First, Finland, which accounted 47% of Eltel. Here, Finland again delivered a strong profitability, the strongest in Eltel. While communication volumes continued to be affected by the normalization of the FTTH activity, strong operational execution, both in power and communication, drove the adjusted EBITA margin to 10.3%, up from last year's 8.7%. The business has adapted well into changing market conditions, that is affecting the lower fiber volumes through productivity improvements and growth in emerging services. They have increased the activity in data centers, which is quite meaningful. Our development efforts in emerging services are bearing fruits, and we have secured our first major Finnish contract to work inside data centers. Following the decline in FTTH volumes, we are adjusting the organization in Finland. This was initiated during this quarter, and we are expecting it to be completed before the year-end.
Tarja Leikas: Then we go to Sweden, which represented 26% of group net sales during the quarter. Sweden delivered another quarter of improved profitability. The adjusted EBITA increased to EUR 1.8 million, and adjusted EBITA margin improved to 3.5% from last year's 1.8%. The improvement was driven by strong performance in telecommunications, public infra, and defense sectors. While the net sales were impacted by the completion of the smart meter project, communication continued to show good momentum, and that was supported by higher activity levels and then improved margins as well. Looking ahead, after the period closing signed Vattenfall agreement, that will significantly strengthen the order book for the Swedish power business. Then we go to Denmark, Germany, which was 14% of total Eltel operations during the quarter. Here we faced a challenging quarter.
Tarja Leikas: Continued constraints in the Danish power grid and ongoing volume declines within communication negatively impacted both net sales and profitability. At the same time, smart meters delivered a really positive contribution. To address the lower activity levels, Denmark continued to adapt its cost base and implemented measures to improve operational performance. While the quarter was challenging, we also made important strategic process, and we progressed in the acquisition of the EWII's street lighting business, and then the EUR 73 million worth of agreement with KONSTANT, which will strengthen our position in the Danish power market. That will provide us a stronger platform for the future growth as well, importantly. Last but not least, we move on to Norway, which represented 13% of Eltel during the quarter. Norway continued their positive development during the quarter. They delivered another step forward in the turnaround journey.
Tarja Leikas: Adjusted EBITA increased to EUR 1 million, corresponding of a margin of 4%. That was driven by the continued improvement of operational excellence, digitalization, and resource utilization. While telecommunications volumes remained under pressure, growth in emerging services, particularly within data centers, together with disciplined execution and improved operational performance, supported the profitability improvement. A major highlight during the quarter was a long-term partnership agreement with Telenor. This is the largest contract win in Eltel history. It is a really transformational achievement for the Norwegian business. The agreement significantly strengthens the order book and provides a solid platform for sustainable profitable growth. With a stronger profitability, improved operational performance, and record high contract win, Norway is well-positioned to continue creating value and contributing to the group's growth ambitions. If you look into our profitability journey, our path towards the 5% EBITA margin continued.
Tarja Leikas: I would say that the improvement initiatives are clearly delivering results. We achieved our highest profitability since Eltel's listing year 2015, reflecting the benefits of commercial excellence, operational efficiency, and digitalization across the whole Eltel Group. Gross margin improved eight percentage points to 14.1%, and adjusted EBITA increased by 21% to EUR 11 million. Year-to-date, adjusted EBITA increased 59% to EUR 19.7 million. Importantly, we are combining higher profitability with strong commercial momentum. During the quarter, like we have mentioned earlier, we secured contract wins of more than EUR 680 million, and our order book reached a record high EUR 1.7 billion. The order book, combined with the growing share of long-term service and maintenance contracts, will provide increased visibility and support to our ambition of delivering continued profitable growth in the years ahead.
Tarja Leikas: Final slide about the balance sheet. Our financial position, cash flow, and working capital remain on a healthy level. Net working capital was -EUR 18 million. That reflects continued discipline in project management, invoicing, and collections. The net debt amounted to EUR 179 million, compared with last year's EUR 172 million. The increase is primarily reflecting the repayment of the Swedish tax deferral earlier this year. Despite the increase in net debt, our leverage continued to improve. At the end of the quarter, leverage was 3.1, compared to last year's 3.5. Here we see the profitability improvement over the past 12 months impacting. Operating cash flow in the third quarter improved significantly. That reads EUR 0.5 million, compared to -EUR 19.1 million last year. Year-to-date cash flow is impacted again by the Swedish tax deferral.
Tarja Leikas: With that, we close with the reminder of the financial targets, which we have not changed. Profitability, 5%, and now rolling 12 months, we are on the level of 3.4%.
Tarja Leikas: Growth, between 2% and 4%, and rolling 12 measures, we are on the level of 2.6. Leverage, 1.5, and between 1.5 and 2.5, and we have reached 3.1.
Tarja Leikas: With that, Håkan will continue with the strategy.
Håkan Dahlström: Yeah. Thank you, Tarja. As we normally do, we show you the progress we have in our execution of the strategy. The strategy has been now, since early 2023, to improve profit margin by operational and commercial excellence. It has been to expand our customer base in our classic service portfolio, but also to address a larger market by expanding into what we call emerging services. Now, after the Q3 of 2026, we can see that we are on adjusted EBITA level of EUR 11 million, as Tarja just mentioned, a step upwards towards last year and the very best quarter since 2015.
Håkan Dahlström: Good to see that we now have a quarter here with a margin above 5%, with this 5.6%, and also to see a very strong development in the classic service portfolio with these new orders that have not yet become net sales and revenue, but of course, it is important going forward here with this total value of EUR 680 million.
Håkan Dahlström: That is, of course, we as having EUR 800 million something in yearly net sales have, of course, a great step up in the order book with this agreement. As I said in the beginning, it is not only the value of it is actually the content here that is very strong. So really good to see. Then in emerging services, we have 13% of the net sales in the Q3 of 2026, coming a little bit down compared to last year where we had 14%. Why is it so?
Håkan Dahlström: So that during last year, we have a very big solar project in Finland that generated a great contribution to the net sales a year ago. That project has now fully been delivered, accepted by the customer. So, in Q3 of 2026, we had more or less no revenue from that. That is how it is when you do project, and that is just to accept. We look then on the share of the pipeline. As you see, we are still having almost. Well, we have half of the pipeline in the area of emerging services. Now, it has been like this for some time. Under the hood, there is a big swing from renewable energy towards data center. So even though it is 50%, it was 50% a year ago, it was, I would say, something similar even a year before that.
Håkan Dahlström: But what it actually consists of is different, where we see our opportunities in the data center segment is coming to being a very strong part of this. On the signed contract, only 3% is in emerging services. Yeah, that is, of course, reflecting the large portion of classic service contract. We are really happy for those. And then, of course, this KPI is a little bit shy this time. No drama in that. Then net sales, 13%, as I mentioned, the solar park and so. Quite natural development. I still have the view that in the end of 2027, we will have 25% of everything we do in net sales based on emerging services, and I stick to that also today. Then a little bit, we get more and more questions about data center and what that means for Eltel.
Håkan Dahlström: And I will then like to offer some type of Eltel's understanding about the structure in this, because a data center is not data center, compared to another data center, is not always the same.
Alexandra Kärnlund: Yes.
Håkan Dahlström: But depends the purpose of that data center and what does it mean as an opportunity. But this data center is a good thing for us since we can have an offset for our competence in communication, but also in power.
Håkan Dahlström: They are both needed in different parts of the data center. If we start from the outside, as you understand, there is a fiber connection, not only one, there are multiple fiber connections to a data center. It is also a power connection that most likely has a redundancy. Starting on the outside, we are in the site infrastructure area. Then you come closer to the data center, you could say that you are inside the fence, and there we have the gray space with medium voltage, some low voltage part, and substations. Here we also, as we are active in the site infrastructure, we are also active in the gray space. We have also recently been able to enter the white space, meaning that we are in that part of the data center that you could say is actually doing the computing and the storage of data.
Alexandra Kärnlund: Yeah.
Håkan Dahlström: The IT part, if you want to say so. But then we have the life cycle. As we have in all critical infrastructure, there is an installation part, there is an upgrade part, and there is a service and maintenance part. We have activities in all of those, and even larger ambition, I would claim, in all of those areas. But if we then look a little bit on, okay, where are we today? In the site infrastructure part, we have taken a strong position, meaning we are doing a lot of grid connections and connectivity infrastructure. Here are many projects that are completed or ongoing, and I would particularly highlight Finland. Really well done of our Finnish team to take this position here. On the left side, you see a few examples of that on the upper part.
Håkan Dahlström: The gray space, here we are utilizing the competence we have in power, and clearly so the Finnish team is successful here, and we work with that in a multiple data center. The white space, we have recently come into the white space in Norway and somewhat also in Finland. So we have a couple of data centers in Norway where we are very active in the white space, also in Finland. Then, of course, there are a lot of examples where we have a few people involved in data center projects, and that is not really what we are talking about here. What we mention here is where we have significant
Alexandra Kärnlund: Yeah
Håkan Dahlström: contribution to the project. But a couple or up to a handful persons, we have many, many examples. But those that we have on the right side here are more of significance. So I would say that we are able here to leveraging our Nordic scale and win this type of project in the Nordic. I think we have also proven, at least to ourselves, that we are able to have a flexible resource allocation, mobilization cross country borders, and that we are becoming quite good, actually, incorporating on the Nordic level to take this type of opportunity. But it is very important to have this local presence and that the resources and competence are local.
Håkan Dahlström: Very exciting development in the area of data centers today, and I think we will see much more of this going forward. I would like to invite you all to our Capital Markets Day. We would in this event also deep dive in data center, of course, and come closer to what we actually are doing. Here you can see the team that you will hear from in the Capital Markets Day, and we are really proud to talk about Eltel and what we see ahead of us. Please take the opportunity and register on our homepage for the Capital Markets Day at 17 November. With that, I would like to hand over to you, Alex.
Alexandra Kärnlund: Yes. Okay, time for some questions. If you wish to ask a question by phone, you just dial pound key 5 to enter the queue. You can continue to ask questions via the web. I just want to say that we have had a lot of questions.
Alexandra Kärnlund: I will not repeat questions. Just so you know, we will just deal with the one. I also want to remind you that we do not make any forward-looking statements. We can give you rough estimates of volumes picking up here and there, but we will not give you any precise numbers on that or on margins.
Alexandra Kärnlund: Let us see if we have any questions on the phone conference. I believe we do.
Operator: The next question comes from Julia Sundvall from ABG Sundal Collier. Please go ahead.
Alexandra Kärnlund: Hello, Julia.
Julia Sundvall: Yeah. Hi, and good morning. Just a few questions from my side. I would like to start on the new contracts. Can you say how much incremental revenue we should expect from the new contracts in 2027? I was particularly interested in the Telenor agreement. Is it replacing existing business, or how should we think how much it should add?
Håkan Dahlström: Mm-hmm. Okay. There is a year-over-year decline also in the need of Telenor, as it is for, I would claim, all telco operators. They invest or they use a little bit less of these type of services. So there is a yearly decline. But we come from a situation where we have had 30%, 32% of share of wallet, if we describe it like that. And what we are now seeing from today towards a year ahead of us, that we gradually will increase the share of wallet from this 30%, 32%, what it can be, to 100%. But that volume, as we are talking about 32% of something, that is having a decline of roughly 10%, 15% in a yearly run rate. So the share of wallet will go up to 100%.
Håkan Dahlström: The volume as such will have a decline, but in absolute number, it will of course mean a significant improvement and growth for our Norwegian business.
Julia Sundvall: Okay. Yeah. Understood. That is helpful. Continuing on the contracts.
Julia Sundvall: What upfront cost and capacity investment should we expect? Are they needed to deliver on the new contracts? Is it recruitment, training, et cetera, that can weigh on the margin?
Håkan Dahlström: Yeah. There is of course a ramp-up. The footprint we have in Norway is quite sufficient, so it is only on two locations that we need to have new establishment. But of course, we will recruit and we will sign agreement with subcontractors. Here, we try to be as flexible as possible in the cost structure of the obvious reason, as I just mentioned, that the underlying volume, the underlying need of these type of services, have a decline. No one believes that they are going to increase during the coming years, rather have a gradually decline. So it is important, of course, to deliver these services with a high level of flexibility in the cost structure. But, of course, it will be a ramp-up. Happy to do that. This is a fantastic opportunity for us. Absolutely. Then to stress that this is in the very core of our competencies.
Julia Sundvall: Yeah.
Håkan Dahlström: Absolutely. Yeah.
Julia Sundvall: Yeah.
Håkan Dahlström: The good thing with this type of service contract is that the work is never done.
Håkan Dahlström: There will be more.
Julia Sundvall: Yes.
Håkan Dahlström: With great customer experience, you will be able to defend the contract.
Julia Sundvall: Yeah.
Julia Sundvall: Perfect. On these contracts, is there a minimum volume commitment? Is there cost indexation or productivity requirements? If you have efficiency gains with a customer, are you taking the efficiency or do you share it with the customer, or how should we think there?
Håkan Dahlström: Yeah.
Alexandra Kärnlund: Now we go into details.
Håkan Dahlström: Yeah. It works like this. There is no volume guarantees. I do not really see the point of having volume commitment because that would also put another type of burden on us. Our boys and girls, if I say so, are local. We are a service organization. We are all over the country.
Håkan Dahlström: Even if it would be a volume guarantee, we would not know in which part of the country. So it is not really meaningful. What is meaningful is to have a close predict the future volume so that we could adjust our organization. This is how we work. We want to have a forward-looking six months, nine months discussion with the customer. What is the need? What could we expect? How should we together plan this? This is the good part with this agreement with Telenor, that even though we have worked close to our customers in the past, I have never seen this type of setup as we now are entering, where we work even closer with the customer to make sure that we do what is best for their customers, we do what is best for Eltel, and we do what is best for Telenor.
Håkan Dahlström: There is a much closer cooperation and more openness in this dialogue to do optimization when it comes to planning, digitalization, customer journey. All of this is on the table. I am quite convinced that we are going to be able to do this in a good way together.
Alexandra Kärnlund: When we announced the agreement, we were using the word partnership.
Håkan Dahlström: Yeah, because it is formulated a bit different.
Julia Sundvall: Okay, perfect. Okay. Then moving away from the contracts, I was just wondering on earnings, your lower cost on the group function this quarter, is this a temporary effect or is it something sustainable?
Tarja Leikas: I would say that the same transformation which concerns the whole group, concerns also our group. But the level that we are there, of course, everybody understand that we did make some adjustments that earlier we have been accruing too high cost, so we were correcting. As slow as we are now, we won't be going forward. But the same cost efficiency and to be really prudent with the cost applies also us on the group level.
Håkan Dahlström: Yeah.
Håkan Dahlström: The same expectation that we have on our
Tarja Leikas: Yeah
Håkan Dahlström: local segment we have.
Tarja Leikas: Yeah
Håkan Dahlström: on ourselves at group level. Yes. But Q3 was a bit lower.
Tarja Leikas: Yes.
Håkan Dahlström: Yeah.
Julia Sundvall: Okay, perfect. One last question from me. Could you say something about the cash conversion? Your operating cash improved in the quarter, but in relation to earnings, it wasn't that much better. How should we think about the working capital requirements in the new contracts, et cetera?
Tarja Leikas: In the working capital, you see, like I've mentioned several times, earlier this year, paid a Swedish tax deferral, and we are on the peak season. This is the season where we are consuming working capital. When you talk about cash conversion, you combine the profitability to the cash generation. Of course, when your profitability goes as high as ours is going, the cash conversion doesn't immediately follow. But we are satisfied with the Q3 cash generation, and the first quarter payment, of course, impacts the balance sheet.
Julia Sundvall: Okay, perfect. That was all for me. Thank you.
Alexandra Kärnlund: Thank you, Julia.
Alexandra Kärnlund: All right. We had questions from DNB Carnegie regarding the ramp-up, but I hope that you had your questions answered, Koljo one. Otherwise, you can just write again if anything is not clear. Let's turn to Nordea, Marco Moilanen.
Alexandra Kärnlund: What explains the lower working capital tie-up in Q3 compared to last year, and how do you see working capital developing in the fourth quarter?
Tarja Leikas: Well, this applies to working capital as well, that we do not give forward-looking statements. But of course, Q3 is the highest, it is the peak.
Tarja Leikas: I do not see anything particular. I would say that our working capital has been following the normal pattern, with the exception of the Swedish tax deferral.
Alexandra Kärnlund: Yeah. Follow-up question on that from Marco Moilanen. As the new Telenor and Vattenfall contracts ramp up during 2027, should we expect meaningful upfront working capital requirements?
Tarja Leikas: Not working capital, I would not say.
Alexandra Kärnlund: No.
Tarja Leikas: Of course, we will make some recruitments, but we are a service company.
Alexandra Kärnlund: Mm-hmm. Your order book is at record high level. How is the order book split between each country where we operate?
Tarja Leikas: That's something that we don't actually disclose.
Alexandra Kärnlund: No. Where are you currently seeing inflationary pressures, and could it impact your profitability in the short term? That's the first question.
Alexandra Kärnlund: Second, yeah, let's answer that one first.
Håkan Dahlström: Let's take that first.
Alexandra Kärnlund: Yeah.
Håkan Dahlström: In all contracts where it is relevant, we have indexes. This is a question in every tender discussion we have. We talk about this, what about inflation and what cost is really possible to fix and what has to be estimated, and so on. This is high up on our agenda, and we haven't forgot 2022. We don't see, as we speak, that it is significant pressure on inflation. It has been during the whole year on fuel, different development in different countries, of course. We have seen quite low level of fuel cost in Sweden, but high in the other Nordic countries. Asphalt has also gone up, but these are things that we catch on our indexes.
Håkan Dahlström: However, there is a delay, as you understand, that most contracts have a yearly adjustment towards the index, but when something happened rapidly, a war or something, then it takes a bit until we get compensated. I would say that, no, not any urgent or big question for us today. We think that our contract and the discussions we have with our customers are working well for us.
Alexandra Kärnlund: Good.
Alexandra Kärnlund: Yeah. Is the profitability of the Telenor agreement on a good level right from the start, or is it building up towards the end of the agreement?
Håkan Dahlström: No.
Tarja Leikas: No.
Håkan Dahlström: It's where it should be from start. This is not a contract that we have won based on price.
Håkan Dahlström: I would like to emphasize that. I know that that is a question that many people have said of, "What have you done to achieve this?" We have not compromised on price.
Håkan Dahlström: That was from day 1. This is about cooperation, developing together, about customers, customer's journey, national security, and a lot of important question.
Håkan Dahlström: Price is, of course, always a question.
Håkan Dahlström: We have not bought this contract.
Alexandra Kärnlund: Yeah.
Håkan Dahlström: This is margin that will support our further development.
Alexandra Kärnlund: Can you disclose what the average margin level on service and maintenance agreement is compared to project deliveries?
Håkan Dahlström: That is not really possible, but it is 70% of everything we do, so by that
Alexandra Kärnlund: Yeah
Håkan Dahlström: it is not far from. I would say that project always have a possibility to have higher margin, but it depends what type of project. Of course, data center, where the demand is increasing so rapidly now, there is an opportunity for better pricing, of course.
Håkan Dahlström: I would say that the more mature, the more commoditized a market is, no surprise, it is harder to improve margin. With that said, there is a reason why we look so much at emerging services.
Tarja Leikas: Then again, our selection criteria of the projects, it is equal, so we do not favor something.
Alexandra Kärnlund: Mm-hmm. Okay.
Tarja Leikas: It is a criteria.
Alexandra Kärnlund: Yes. Different topic. Perhaps for you, Tarja. Can you remind us what was the remaining amount of the Swedish tax deferrals, and what was the repayment schedule of those?
Tarja Leikas: Yeah. We have now paid half, and half is left, and the capital amount is EUR 14 million.
Håkan Dahlström: It is going to be repaid in September 2027.
Tarja Leikas: Yes, sorry.
Håkan Dahlström: I think that was also the plan.
Tarja Leikas: Yes.
Håkan Dahlström: March 26, September 27.
Tarja Leikas: Yes.
Håkan Dahlström: Half done. Half to do.
Alexandra Kärnlund: Okay.
Håkan Dahlström: Yes.
Alexandra Kärnlund: Thank you. Then we have some questions from Christoffer at Inderes. Gross margin improved to 14.5% from 13.3%, despite sales falling 6%. How would you split that improvement between pricing and indexation, business mix, and your own cost actions?
Alexandra Kärnlund: Are the frame agreements that you have renewed this year on much better terms than the ones they replaced?
Håkan Dahlström: Mm-hmm. I do not have numbers for you to split like that. I would say that our commercial questions are equally important as the operational improvement. So we work on the daily task to make sure that now here, before the weekend, everyone should know what they should do next week. Everybody should have a great understanding of what type of material do they need, where should they be, what is the task. That is what a weekly plan is, of course, important for us. That is one part of this. But we also have to take the discussion with customers, partners about the commercial question, equally important. I think we, over the last four years, have seen it exactly like this, that there is at least 50% of the improvement coming from the commercial dimension and close to 50% on our internal operation.
Håkan Dahlström: But at least 50% of it is commercial dimension.
Tarja Leikas: Here, I would stress the whole Eltel corporate culture. That it is within our nature that depending on which organization level you are placed, you carry your own share. The distribution of the profitability and profit requirements, if you are on a project level, you are responsible for the project profitability. When you are responsible for the customer, then it is the customer profitability, and so forth. We all carry our share.
Tarja Leikas: That is very much one of the key ingredients of our operation.
Alexandra Kärnlund: Then we have a number of questions related to our segments. In Denmark-
Alexandra Kärnlund: as the current organization has now right-sized for the volumes that we see. Okay, it is a twofold question. Can we expect a second round of measures needed?
Håkan Dahlström: As we see today, no.
Håkan Dahlström: But then you cannot really be 100% sure about the future, but we believe that we have taken the action needed to adjust to the market demand of today.
Håkan Dahlström: Now our Danish team have focused on being more successful in the sales activity, farming and hunting of new customer commitment.
Tarja Leikas: Knowing, think about Danish team.
Tarja Leikas: Finland, Sweden, Norway, shining, and then they are facing difficulties. I am absolutely certain that they are geared up.
Alexandra Kärnlund: Yes, hang in there.
Alexandra Kärnlund: On that note, in Finland, you have started adjusting the organization after the decline in fiber to the home volumes.
Håkan Dahlström: Yep.
Alexandra Kärnlund: To be completed before year-end. How large is the adjustment in terms of people and restructuring costs? Should we expect those costs in Q4 as items affecting comparability?
Håkan Dahlström: Yeah. There is no significant cost in this, and you should expect it in Q4. We are talking about something less than 40 of our colleagues that are impacted.
Håkan Dahlström: That is mainly, as you say, communication, but we also look on general overhead and see what we can do to become even more competitive.
Tarja Leikas: We plan on taking the cost on the Q4.
Håkan Dahlström: Yeah, on the Q4.
Håkan Dahlström: But I think this is just how it has to be done, this is just one example of what we are talking about when we talk about operational efficiency, commercial efficiency. We see the decline, we take measures, we just want to do this upfront, not being late.
Håkan Dahlström: And I think the Finnish team is doing this in a very good way.
Tarja Leikas: And in our business, it is most important to be proactive.
Alexandra Kärnlund: Yes. But on that note then-
Alexandra Kärnlund: how do you make sure that you keep the capacity you need for the data center work and the Finnish grid investments you expect to pick up next year?
Tarja Leikas: We are professional.
Håkan Dahlström: Well, it is of course a new area.
Håkan Dahlström: A new area comes with new challenges, new experience. That is why it is also great fun. If we would know everything, it would be quite boring. We do this with a lot of expectation to have fun and great development in that new segment. That will also come with some surprises, of course. When this is so new for us, even though when we talk about this with our customers or internally, the precise work is not so different from what we have done for many years. It is the context in which it is done. It is a mega data center establishment, and very few people have that experience. But the different works part tasks is not so different. We have done substations, we have done medium voltage design. This is not new. We have, of course, installed servers and racks and cabling in many other circumstances.
Håkan Dahlström: Okay, this is a new context. They have some new conditions or prerequisites that you have to live up to, but it is not so that it is completely different. We pay attention to this, and we try to do this with as low risk as possible. I think that is the way forward for us, in controlled steps, expand in this area, but be very well aware of the risk because this is time-critical activities. There is no possibility to have delays.
Tarja Leikas: Eltel home turf is critical infrastructure, and that is a huge responsibility. So when we take measures, when we drive the business, we carry our responsibility. We need to be there.
Alexandra Kärnlund: I would also like to add to Christoffer's question here that we share knowledge, capacity, knowledge, experience, expertise across the countries.
Håkan Dahlström: Yes, of course. Independent where we are working in the value chain, the customer has, in most cases, a larger footprint than one country. For them, they have one project in Norway, they might have one in Sweden, one in Finland, one in Denmark, or multiple. It is, of course, important for us to share the knowledge and share the experience on everything from what does it actually mean, the demand they have, and how to solve the different tasks, because there is, like if you take the HSE area, higher demand than what most project we have seen before, and then how do we meet that expectation? Of course, great opportunity, and we send colleagues from different country to those project where we have.
Håkan Dahlström: If we have a project in one country, we try to send people from two other countries to be a part of that, so we could, by moving feet, we are sharing experience and knowledge.
Alexandra Kärnlund: Good. Then a question regarding Sweden. Power sales in Sweden more than halved after the smart metering projects closed.
Håkan Dahlström: Yep.
Alexandra Kärnlund: The Vattenfall agreement only starts in June 2027.
Håkan Dahlström: Yep.
Alexandra Kärnlund: What do you expect to fill Swedish power until then? Should we expect it to stay at roughly this level until Vattenfall starts?
Håkan Dahlström: We have more customers. It is not only Vattenfall, even if it can sound like that today. We are happy to work for many of the big company in the energy sector of Sweden, and we, of course, have ambition to do more with them.
Alexandra Kärnlund: Yeah.
Håkan Dahlström: When it comes to the Vattenfall agreement, yes, then it is 1 June. We have E.ON, we have Ellevio, we have many energy company we work with, so yes.
Alexandra Kärnlund: Yep. Okay, and the final question from Christoffer. You reiterated that you are confident in reaching the 5% adjusted EBITA target on an unchanged timeline. On a rolling 12-month basis, you are at 3.4 today. Given that next year's start-up costs fall mainly in the seasonal weaker H1, is a full year 5% realistic already in 2027 as you see it, or is it likely to happen later?
Håkan Dahlström: Yeah, I still stand by my statement from 26 February that we will reach the 5% within 12 to 18 months, yes.
Alexandra Kärnlund: Yes.
Håkan Dahlström: That is how I see it.
Alexandra Kärnlund: There was actually a few follow-up questions here, too. Can you give us a sense of the size of the combined start-up cost for Telenor, KONSTANT, and Vattenfall, and how they are spread between Q4 and the H1? No, we cannot, Christoffer.
Tarja Leikas: No.
Alexandra Kärnlund: No. Let me just double check that we do not have any other questions coming in. One last question, sorry. How do you expect working capital to develop as you start up a couple of new large contracts in 2027? Maybe we have covered that.
Tarja Leikas: Yeah.
Alexandra Kärnlund: I believe we have. Yes. Thank you. I believe that was the end of our questions. The full report, obviously, as well as the recording of this webcast and the presentation, of course, are available on Eltel's website. Of course, feel free to reach out to us at any time if you have any further questions. Just want to remind you, as Håkan mentioned already, we hope that you will like to join Eltel's Capital Markets Day on 17 November. When it comes to our next report, we will present our Q4 report on 12 February, and we hope that you will join us then as well. Thank you so much, Håkan, and thank you, Tarja.
Tarja Leikas: Thank you.
Alexandra Kärnlund: Thanks to-
Håkan Dahlström: Thank you.
Alexandra Kärnlund: Thanks to all of you participating in today's call.
Operator: The host has ended this call. Goodbye.
