Eltel Group: Interim Report January–June 2016

January–June 2016

  · Net sales amounted to EUR 656.6 million (546.8), up 23.0% in local
currencies, organic net sales increased by 3.2%*
  · Operative EBITA amounted to EUR 8.9 million (19.2) or 1.4% of net sales
(3.5)
  · No items affecting comparability (-2.6)
  · EBITA amounted to EUR 8.9 million (16.7) or 1.4% of net sales (3.0)
  · EBIT amounted to EUR 1.7 million (10.5)
  · Net financial expenses decreased to EUR -6.1 million (-9.7)
  · The net result amounted to EUR -3.7 million (0.7)
  · Earnings per share was EUR -0.07 (0.01)
  · Operative cash flow was negative at EUR 53.1 million (-37.2), cash
conversion was 68.8% on a rolling 12-month basis

April–June 2016

  · Net sales amounted to EUR 369.0 million (307.8), up 22.9% in local
currencies, organic net sales increased by 3.5%*
  · Operative EBITA amounted to EUR 5.7 million (13.9) or 1.6% of net sales
(4.5)
  · EBITA amounted to EUR 5.7 million (14.0) or 1.6% of net sales (4.5)
  · EBIT amounted to EUR 2.1 million (10.9)
  · Net financial expenses amounted to EUR -2.4 million (-1.8)
  · The net result amounted to EUR -0.1 million (8.3)
  · Earnings per share was EUR -0.01 (0.13)
  · Operative cash flow was negative at EUR 15.7 million (+22.7)

Unless otherwise stated, figures in brackets refer to the same period in the
previous year
* Organic net sales excludes Norwegian Communication business and the Sønnico
and Vete acquisitions in 2015 and U-SERV acquisition in 2016, and are presented
using comparable exchange rates.

Comments by the CEO

Strong growth, but isolated performance issues affected profitability

Eltel continued to show very strong growth in the second quarter 2016. The more
than 20% increase in sales was primarily driven by the past year’s acquisitions,
but also by solid organic growth. Regarding new orders, it is very encouraging
that these also include contracts in the power transmission sector both in the
Nordics and the UK. The Communication segment continued to show a solid
performance with good margin development and strong growth, even excluding the
consolidated Eltel Sønnico business.

However, Group profitability for the second quarter was negatively affected by a
EUR 10 million provision related to the execution of a challenging rail project
in Norway, as previously announced. This event is totally unacceptable and Eltel
is now taking immediate corrective actions to rectify the situation and to
ensure that it does not happen again. The main root cause for the poor execution
is unsatisfactory technical quality in the delivery of this project resulting in
additional significant amount of corrective works. Currently, we are putting
maximum effort into making necessary improvements, including additional quality
and performance audits as well as managerial and process changes.

The quarter was also impacted by performance issues in certain African power
projects, effects from the lower order intake in the power transmission business
over the last twelve months and continued impact from the other challenging
Norwegian rail project.

In parallel, we have initiated further Group initiatives with a very strong
focus on operational efficiency in terms of specialisation and sharing of best
practices. As a very good example of this, we have gradually changed the
organisational structure of the fibre business to better support the current
strong market demand. Our ongoing Group Shared Services programme – a two-year
initiative to centralise our support functions and utilise best practice and add
efficiency – is another good example of improvements based on The Eltel Way
concept.

Our cash flow was negative during the quarter as a consequence of higher net
working capital and made acquisitions. In the short term, cash flow is expected
to continue to be weak compared to the good performance last year due to
challenges mentioned above. However, we still see that our asset-light business
model will continue to be a strength for our cash generation going forward.

In the second quarter, we have further built on our platform to reach Eltel’s
targets for profitable growth in a mid- to long-term perspective. Acquisitions
completed in the second quarter – Celer in Finland and U-Serv and EVB in Germany
– are all examples of acquisitions that expand our local presence and add
scalability of the business. In addition, we still have a good pipe-line of
future potential acquisitions.

Our organic growth continues to be supported by the visible positive long-term
drivers in the Infranet market. This applies to all segments and business units,
especially within fibre and smart meters. Our strong market position gives us
excellent opportunities to benefit from our customers’ increased investment
plans that are driven by needs for the end-user and by new regulations.

During the quarter, I decided, after twelve years at Eltel, to leave my position
as CEO. With the set strategy and a strong and competent management team in
place, I am certain that Eltel will continue to be the forerunner in
transforming the Infranet industry. The recruitment process is on-going and I
will remain fully focused in my position until a successor is in place.

–Axel Hjärne, President and CEO

For further information:
Ingela Ulfves
VP – Investor Relations and Group Communications
Tel: +358 40 311 3009, ingela.ulfves@eltelnetworks.com

This information is information that Eltel AB is obliged to make public pursuant
to the EU Market Abuse Regulation and the Securities Markets Act. The
information was submitted for publication, through the agency of the contact
person set out above, at 08.00 CET on 19 August 2016.

About Eltel
Eltel is a leading European provider of technical services for critical
infrastructure networks – Infranets – in the segments of Power, Communication
and Transport & Security, with operations throughout the Nordic and Baltic
regions, Poland, Germany, the United Kingdom and Africa. Eltel provides a broad
and integrated range of services, spanning from maintenance and upgrade services
to project deliveries. Eltel has a diverse contract portfolio and a loyal and
growing customer base of large network owners. In 2015 Eltel net sales amounted
to EUR 1,255 million. The current number of employees is approximately 9,600.
Since February 2015, Eltel AB is listed on Nasdaq Stockholm.