Eltel

Quarterly Report • Jul 24, 2019

Eltel Group

Interim report January–June 2019

Stockholm, Sweden, 24 July 2019

April–June 2019

• Net sales EUR 276.0 million (295.5). Total growth -6.6% and organic growth1 in Power and Communication -6.4%
• Operative EBITA2 EUR 2.5 million (2.0) and operative EBITA margin 0.9% (0.7)
• Operating result (EBIT) EUR 2.1 million (1.6) and EBIT margin 0.8% (0.5)
• Net result EUR -2.0 million (0.2)
• Earnings per share EUR -0.01 (0.00), basic and diluted
• Cash flow from operating activities EUR 13.5 million. The comparable cash flow from operating activities before IFRS 16 impact3 was EUR 6.9 million (-14.3).

January–June 2019

• Net sales EUR 527.0 million (562.2). Total growth -6.3% and organic growth1 in Power and Communication -4.3%
• Operative EBITA2 EUR -0.5 million (-5.7) and operative EBITA margin -0.1% (-1.0)
• Operating result (EBIT) EUR -1.5 million (-8.8) and EBIT margin -0.3% (-1.6)
• Net result EUR -9.4 million (-9.3)
• Earnings per share EUR -0.06 (-0.06), basic and diluted
• Cash flow from operating activities EUR -20.3 million. The comparable cash flow from operating activities before IFRS 16 impact3 was EUR -33.7 million (-50.1).

Significant events during and after the reporting period

• On 3 April 2019, Eltel announced it will focus on the Nordic market and has initiated an evaluation of strategic alternatives for its Polish and German operations, including a potential divestment.
• On 26 June, Eltel and LFV, Air Navigation Services of Sweden, signed a letter of intent according to which Eltel will divest the business area Aviation & Security to LFV. In the letter of intent, both parties undertake to ensure a definitive agreement is signed no later than the first quarter 2020. The definitive agreement is conditional on approval by the respective party's board, the Swedish Competition Authority and the Swedish Government.

EUR million	Apr-Jun 2019	Apr-Jun 2018	Change, %	EUR million	Jan-Jun 2019	Jan-Jun 2018	Change, %
Net sales				Net sales
Power	94.7	116.0	-18.4	Power	181.6	211.8	-14.2
Communication	177.8	177.7	0.0	Communication	339.1	340.0	-0.3
Other	3.9	2.5	52.2	Other	7.0	12.1	-42.4
Total Group	276.0	295.5	-6.6	Total Group	527.0	562.2	-6.3
Operative EBITA2				Operative EBITA2
Power	2.4	2.5	-3.0	Power	-1.8	1.2	-256.3
Communication	2.1	7.2	-71.0	Communication	6.7	8.3	-19.0
Other	0.2	-3.1	105.8	Other	0.1	-6.8	101.0
Items not allocated4	-2.2	-4.5	52.2	Items not allocated4	-5.5	-8.3	33.3
Total Group	2.5	2.0	26.4	Total Group	-0.5	-5.7	90.3

EUR million	Jan-Jun 2019 Jan-Jun 2018		Change, %
Net sales
Power	181.6	211.8	-14-2
Communication	339.1	340.0	-0.3
Other	7.0	12.1	-42 4
Total Group	527.0	562.2	-6.3
Operative EBITA2
Power	-1.8	1.2	-256.3
Communication	6.7	8.3	-19.0
Other	0.1	-6.8	101.0
Items not allocated4	-5.5	-8.3	33.3
Total Group	-0.5	-5.7	90.3

1) Adjusted for divested operations and currency effects.

2) Eltel follows the profitability of segments with Operative EBITA. Please see page 22 for definitions of the key ratios.

3) See page 21 for more information on IFRS 16 impact on cash flow.

4) Items not allocated to operating segments consist of Group management function.

Comments by the CEO

In the second quarter the operative EBITA margin continued to improve compared to last year and we see that the rolling 12-months gross margin is gradually recovering. The cash flow also improved compared to last year. Lower production volumes in Communication Sweden and the expected downturn in Smart Grids negatively impacted the trend. However, on the positive side, our large projects with high risk and low margins have had stable and good production during the period.

Both Sweden and Finland face decreased volumes in Power and Communication as our large customers are reducing their investment levels and we are selective in our tendering process. The markets in general are stable but we are cautious not to enter into unprofitable projects.

In segment Power, profitability was negatively affected by the expected decline in net sales in Smart Grids and weaker performance in High Voltage compared to the previous year.

In segment Communication, Norway and Denmark continued their stable and strong performance, with sales mainly driven by Build and increased customer investments. However, Sweden is facing the opposite: lower volumes in Build and reduced investment levels from major customers. We are therefore reviewing our cost structure in general.

During the quarter, we signed a letter of intent to divest the business area Aviation & Security to LFV, Air Navigation Services of Sweden. The definitive agreement is conditional on approval by the respective party's board, the Swedish Competition Authority and the Swedish Government.

We continue to actively work on the strategic evaluation of our operations in Poland and Germany and we have made good progress during the period. We will announce our conclusions of the evaluation as it develops.

On the operational side, customer focus, flawless execution, production planning and efficiency in our operations are the main improvement areas. Together with the strategic agenda, these operational and efficiency improvements are the key elements for Eltel to continue to develop, grow and invest in the company to ensure long-term sustainable value creation for Eltel and its shareholders.

Casimir Lindholm, President & CEO

About Eltel and the Group strategy

Eltel in brief

Eltel is a leading provider of technical services for power and telecom networks. Operations are conducted in the Nordic countries, Poland and Germany within country-based organisations that have full responsibility for their financial results inside the Power and Communication segments. The Power segment provides maintenance of power grids, upgrades and project work to national transmission system operators and distribution network owners. The Communication segment provides similar services to telecom operators and other owners of communication networks.

Eltel's markets are characterised by a high concentration of customers and competitors offering similar products and services. Eltel competes mainly on price and partly on quality. The markets are regulated and typically have predictable and repetitive demand in line with each country's GDP.

Our strategy – Operational Excellence

A decision was taken in 2017 to restructure Eltel in order to focus on areas with a balanced risk level in which it has a leading market position and a high level of expertise, and in which the business model is repetitive and primarily targeted towards build, service and maintenance. Work to discontinue remaining non-strategic operations is expected to be completed in 2020.

In parallel, a strategy for existing operations has been developed, with a focus on operating profitability. The strategy, which will be implemented in 2019-2021, aims to raise the operating margin by generating customer focus, improving efficiency, measuring and tracking relevant key performance indicators, and simplifying the daily operations of our technicians. Furthermore, the focus is on improving the competence level within the organisation through various forms of training and recruitment.

This will create the foundation for sustainable growth, profitability and shareholder value.

Eltel's long-term financial targets

	Target
Annual growth	2–4%
EBITA-margin	5%
Cash conversion1	95–100% of EBITA
Leverage2	1.5–2.5x net debt/EBITDA

1) Cash conversion is calculated as operative cash flow as a percentage of EBITA. Operative cash flow is calculated as the sum of (a) operating profit (EBIT), (b) depreciation and amortisation (c) change in net working capital, less (d) net acquisition of properties, plant and equipment (CAPEX).

2) Net debt / EBITDA is calculated as net debt, which is defined as interest-bearing debt consisting of short-term and long-term liabilities less cash and cash equivalents, in relation to EBITDA.

Eltel's long-term financial target definitions exclude the IFRS 16 impacts.

Net sales and earnings Group

EUR million	Arp-Jun 2019	Apr-Jun 2018	Jan-Jun 2019	Jan-Jun 2018	Jan-Dec 2018
Net sales	276.0	295.5	527.0	562.2	1,188.9
Operative EBITA	2.5	2.0	-0.5	-5.7	-2.2
EBIT	2.1	1.6	-1.5	-8.8	-9.2
Net result	-2.0	0.2	-9.4	-9.3	-22.2
Key ratios
Net sales growth, %	-6.6	-10.4	-6.3	-10.4	-10.6
Currency translation effect in net sales, MEUR	-2.5	-8.6	-7.1	-16.5	-32.1
Operative EBITA margin, %	0.9	0.7	-0.1	-1.0	-0.2
Tax rate, %	-109.5	21.1	-28.9	21.0	-22.9
Earnings per share after dilution, EUR	-0.01	0.00	-0.06	-0.06	-0.15

April–June 2019

Net sales decreased 6.6% to EUR 276.0 million (295.5). Organic net sales in segment Power and Communication, adjusted for currency effects, decreased 6.4%. In Power, net sales decreased by EUR 21.4 million and in Communication net sales were relatively stable with an increase of EUR 0.1 million. Other increased by EUR 1.3 million.

Operative EBITA amounted to EUR 2.5 million (2.0). In Power, operative EBITA decreased by EUR 0.1 million. In Communication, operative EBITA decreased by EUR 5.1 million and increased in Other by EUR 3.3 million.

For further information regarding net sales and operative EBITA development, refer to the respective section on the segments.

Net items affecting comparability amounted to EUR 0.0 million (0.1).

EBIT amounted to EUR 2.1 million (1.6).

Net financial expenses amounted to EUR -3.1 million (-1.3), including EUR -0.5 million interest expense impact from IFRS16 standard.

Taxes amounted to EUR -1.0 million (-0.1).

The net result for the period was EUR -2.0 million (0.2). Earnings per share were EUR -0.01 (0.00).

January–June 2019

Net sales decreased 6.3% to EUR 527.0 million (562.2). Organic net sales in segment Power and Communication, adjusted for currency effects, decreased 4.3%. In Power, net sales decreased by EUR 30.1 million and in Communication net sales were relatively stable with a decrease of EUR 0.9 million. In line with the planned discontinuation of the businesses, Other decreased by EUR 5.1 million.

Operative EBITA amounted to EUR -0.5 million (-5.7). In Power, operative EBITA decreased by EUR 3.0 million. In Communication, operative EBITA decreased by EUR 1.6 million and increased in Other by EUR 6.9 million.

For further information regarding net sales and operative EBITA development, refer to the respective section on the segments.

Net items affecting comparability amounted to EUR 0.0 million (-2.1). The negative result last year was related to the sale of the Rail businesses in Sweden and Finland.

EBIT amounted to EUR -1.5 million (-8.8).

Net financial expenses amounted to EUR -5.9 million (-2.9), including EUR -0.9 million interest expense impact from IFRS16 standard.

Taxes amounted to EUR -2.1 million (+2.5), corresponding to an effective tax rate of -28.9% (21.0).

The net result for the period was EUR -9.4 million (-9.3). Earnings per share were EUR -0.06 (-0.06).

Net sales and EBITA – Segments

Power

EUR million	Apr-Jun 2019	Apr-Jun 2018	Jan-Jun 2019	Jan-Jun 2018	Jan-Dec 2018
Net sales	94.7	116.0	181.6	211.8	438.8
Operative EBITA	2.4	2.5	-1.8	1.2	-0.5
Number of employees	2,330	2,429	2,330	2,429	2,346
Key ratios
Net sales growth, %	-18.4	-1.9	-14.2	-4.7	-6.7
Organic growth1 , %	-18.1	-	-13.6	-	-
Currency translation effect in net sales, MEUR	-0.4	-1.5	-1.4	-2.8	-5.2
Operative EBITA margin, %	2.5	2.1	-1.0	0.5	-0.1

1) Adjusted for divested operations and currency effects.

April–June 2019

Net sales decreased by EUR 21.4 million to EUR 94.7 million (116.0), representing a decrease of 18.4%. Organic net sales, adjusted for currency effects, decreased 18.1%. Net sales decreased in all markets, but with the majority coming from the expected lower volumes in Smart Grids as well as business reduction and project phasing in High Voltage. Finland faces decreased volumes due to reduced customer investment levels.

Operative EBITA decreased to EUR 2.4 million (2.5). The operative EBITA margin was 2.5% (2.1). The decrease is coming from lower net sales in Smart Grids and weaker performance in High Voltage Germany and Poland. The decrease is compensated by improved performance in the Nordics.

January–June 2019

Net sales decreased by EUR 30.1 million to EUR 181.6 million (211.8), representing a decrease of 14.2%. Organic net sales, adjusted for currency effects, decreased 13.6%. The decrease is mainly explained by the expected lower net sales in Smart Grids as well as weather conditions and reduced customer investment volumes in Build in Finland.

Operative EBITA decreased to EUR -1.8 million (1.2). The operative EBITA margin was -1.0% (0.5). The decrease is coming from lower net sales in Smart Grids and weaker performance in High Voltage. The decrease was partly offset by improved performance in Sweden, Finland and Denmark.

Communication

EUR million	Apr-Jun 2019	Apr-Jun 2018	Jan-Jun 2019	Jan-Jun 2018	Jan-Dec 2018
Net sales	177.8	177.7	339.1	340.0	727.3
Operative EBITA	2.1	7.2	6.7	8.3	24.8
Number of employees	4,374	4,721	4,374	4,721	4,502
Key ratios
Net sales growth, %	0.0	-3.9	-0.3	-4.1	-3.9
Organic growth1 , %	1.2	-	1.4	-	-
Currency translation effect in net sales, MEUR	-2.1	-7.0	-5.7	-13.7	-26.9
Operative EBITA margin, %	1.2	4.1	2.0	2.4	3.4

1) Adjusted for divested operations and currency effects.

April–June 2019

Net sales increased by EUR 0.1 million to EUR 177.8 million (177.7), 0.0%. Organic growth, adjusted for currency effects, was 1.2%. The increase is mainly attributed to increased volumes in Norway and Denmark. The increase was offset by significantly lower net sales in Sweden due to lower volumes in Build and reduced customer investment levels.

Operative EBITA decreased to EUR 2.1 million (7.2). The operative EBITA margin was 1.2% (4.1). The decrease is explained by lower volumes, project write downs and change in the product mix in Sweden, as well as slightly weaker performance in Finland. The decrease is partly compensated by a better performance in the other markets, mainly Norway.

January–June 2019

Net sales decreased by EUR 0.9 million to EUR 339.1 million (340.0), representing a decrease of 0.3%. Organic growth, adjusted for currency effects, was 1.4%. The decline is mainly explained by a negative trend in Sweden with lower volumes in Build and reduced customer investment levels. The decline is offset primarily by Norway and Denmark.

Operative EBITA decreased to EUR 6.7 million (8.3). The operative EBITA margin was 2.0% (2.4). The decrease is explained by lower volumes and write downs in Sweden, as well as a change in the product mix, the customer portfolio and weaker performance in Finland. The decrease was partly offset by an increase in all other markets, with Norway leading the way with higher net sales, change in the product mix and efficiency improvements.

Other

EUR million	Apr-Jun 2019	Apr-Jun 2018	Jan-Jun 2019	Jan-Jun 2018	Jan-Dec 2018
Net sales	3.9	2.5	7.0	12.1	23.1
Operative EBITA	0.2	-3.1	0.1	-6.8	-11.1
Number of employees	47	187	47	187	158
Key ratios
Net sales growth, %	52.2	-90.5	-42.4	-76.5	-77.7
Operative EBITA margin, %	4.7	-122.6	1.0	-56.5	-48.2

April–June 2019

Net sales increased by EUR 1.3 million to EUR 3.9 million (2.5). Net sales relates mostly to the remaining projects in Power Transmission International, in line with the discontinuation plan.

Operative EBITA increased to EUR 0.2 million (-3.1). The operative EBITA margin was 4.7% (-122.6). The operative EBITA is in line with the planned ramp down and the results comes from closing of projects.

January–June 2019

Net sales decreased by EUR 5.1 million to EUR 7.0 million (12.1), representing a decrease of 42.4%. The decline is in line with the discontinuation the businesses within Rail and Power Transmission International. The remaining net sales relates almost fully to Power Transmission International.

Operative EBITA increased to EUR 0.1 million (-6.8). The operative EBITA margin was 1.0% (-56.5). The majority of the Rail business has been discontinued with only a few projects remaining in Sweden. The discontinuation of Power Transmission International continues according to plan.

The total cost of discontinuing Power Transmission International is estimated to be somewhat lower than EUR 40 million. In total, net costs amounting to EUR 30.0 million were recorded during 1 January 2017–30 June 2019, in line with the plan. The discontinuation is expected to be finalised in 2020.

Cash flow

EUR million	Apr-Jun 2019	Apr-Jun 2018	Jan-Jun 2019	Jan-Jun 2018	Jan-Dec 2018
Cash flow from operating activities before IFRS 16 impact	6.9	-14.3	-33.7	-50.1	3.2
Movement between report lines, IFRS 16 impact	6.7	-	13.4	-	-
Cash flow from operating activities	13.5	-14.3	-20.3	-50.1	3.2
Cash flow from investing activities	-2.5	-4.5	-9.2	-8.0	-21.3
Cash flow from financing activities before IFRS 16 impact	7.8	38.0	14.3	50.2	39.1
Movement between report lines, IFRS 16 impact	-6.7	-	-13.4	-	-
Cash flow from financing activities	1.1	38.0	0.8	50.2	39.1
Net change in cash and cash equivalents	12.1	19.1	-28.6	-7.8	21.1
Cash and cash equivalents at beginning of period	12.8	6.0	53.4	32.9	32.9
Foreign exchange rate effect	0.1	0.4	0.3	0.4	-0.5
Transfer as assets held for sale	-1.5	-	-1.5	-	-
Cash and cash equivalents at end of period	23.6	25.5	23.6	25.5	53.4

Condensed consolidated statement of cash flows is presented on page 12.

April–June 2019

Cash flow from operating activities was EUR 13.5 million (-14.3). This includes result from operations after cash flow for financial items and taxes and a positive impact of EUR 4.3 million (-17.5) from change in net working capital.

Net cash flow from investing activities was EUR -2.5 million (-4.5) mainly from net capital expenditure, related to improved IT systems and replacement investments.

Cash flow from financing activities was EUR 1.1 million (38.0) including net of payment of financial lease liabilities and increase in other short-term borrowing. IFRS 16 line impact between cash flow from operating activities and financing activities was EUR 6.7 million.

January–June 2019

Cash flow from operating activities was EUR -20.3 million (-50.1). This includes an expected negative impact of EUR 33.0 million (-46.6) from change in net working capital. Cash flow has historically displayed a strong seasonal pattern, with weaker cash flow recorded during the period until the end of the third quarter due to higher production activity. Eltel's net working capital level is also impacted by working capital intensive projects, which are expected to continue to create volatility in net working capital going forward.

Net cash flow from investing activities was EUR -9.2 million (-8.0). This consists of EUR 6.6 million (6.3) net capital expenditure, mainly to improved IT systems and replacement investments, of EUR 4.2 million earn-out payment for Smart Grids in Germany (-1.7 divestment) and of EUR 1.5 million investment refund from joint ventures.

Cash flow from financing activities was EUR 0.8 million (50.2) including net of payment of financial lease liabilities and increase in other short-term borrowing. IFRS 16 line impact between cash flow from operating activities and financing activities was EUR 13.4 million.

Financial position, cash and cash equivalents

Equity at the end of the period was EUR 238.2 million (271.3) and total assets were EUR 865.7 million (820.1). The equity ratio was 28.5%. The comparable equity ratio before IFRS 16 impact was 31.6% (35.4).

At the end of the quarter, available liquidity reserves amounted to EUR 155.1 million (138.3). On the same date, EUR 90 million of Eltel's commercial paper programme was utilised.

In March 2019 Eltel agreed with its banks on certain amendments to its financial agreement that matures in Q1 2021. The new amendments include financial covenants and a plan to reduce net debt during the term. The covenant revisions relate to minimum adjusted EBITDA to be applied until the end of the transformation period (Q2 2020) and maximum net debt of EUR 120 million to be applied as from the end of Q4 2019. As from the end of Q2 2020 the original net debt/EBITDA ratio and adjusted EBITDA/net finance charges ratio are applied. The minimum liquidity covenant level remains throughout the agreement with a seasonal reduction of covenant level during the period mid-July to mid-September. In consideration for the facilitated amended loan agreement, Eltel has secured its debt obligations towards the banks by share and intragroup loan pledges and floating charges over certain assets of the Group, all on customary terms and conditions. The covenants, minimum adjusted EBITDA and maximum net debt, defined in the financial agreement are excluding IFRS 16 impact.

At the end of the quarter the commercial contract guarantees issued by banks, other financial institutions and the Parent Company amounted to EUR 313.3 million (321.8).

Interest-bearing liabilities and net debt

EUR million	30 Jun 2019	30 Jun 2018	31 Dec 2018
Interest-bearing debt in balance sheet	209.3	205.0	196.7
Leasing liabilities in balance sheet	82.9	4.5	4.1
Allocation of effective interest to periods	1.1	0.5	0.6
Less cash and cash equivalents	-23.6	-25.5	-53.4
Net debt	269.7	184.5	148.0
Less IFRS 16 leasing liabilities	-78.8	-	-
Adjusted for held for sale	-1.4	-	-
Net debt, financing agreement	189.5	184.5	148.0

Interest-bearing debt amounted to EUR 209.3 million (205.0) of which EUR 98.2 million (101.0) was non-current and EUR 111.0 million (104.0) was current. Leasing liabilities amounted to EUR 82.9 million (4.5) of which EUR 56.1 million (2.5) was non-current and EUR 26.8 million (2.0) was current. IFRS 16 impact in leasing liabilities was EUR 78.8 million, of which EUR 54.2 million was noncurrent and EUR 24.6 million current.

Other information

Long-term incentive programme (LTIP 2016)

Eltel's share-based incentive programme LTIP 2016 related to matching shares vested at the end of the quarter. In accordance with the rules of the programme, Eltel awarded 84,262 matching shares to employees covered by the programme. The shares were purchased from the market and delivered to the participants on 5 July 2019. The LTIP 2016 programme in relation to performance shares continues for one additional year and any allocation of performance shares is subject to Eltel reaching performance targets based on Eltel's EBITDA for the financial year 2019.

Risks and uncertainty factors

On 28 June 2018, Eltel received a letter from Nasdaq Stockholm where the exchange stated that it intends to request the Nasdaq Stockholm Disciplinary Committee to decide whether Eltel has breached its obligations in relation to the Nasdaq Stockholm Rulebook for Issuers. Eltel has been invited to comment upon Nasdaq Stockholm's conclusions and Eltel has responded outlining its reasons for rejecting any breach. In relation to alleged deficiencies in Eltel's internal control and accounting, the matter has been closed without further action. The matter, as it relates to alleged deficiencies in Eltel's capacity for providing information to the market during 2016 and 2017, continues. Any decision taken by the Disciplinary Committee will be made public.

On 31 October 2014, the Finnish Competition and Consumer Authority (FCCA) proposed the imposition of a fine of EUR 35 million on Eltel in the Finnish Market Court. The alleged competition law violations relates to Eltel's power transmission line construction and planning business in Finland during the period 2004–2011. Eltel claims that it did not violate competition law and therefore contested the FCCA's allegations and fine proposal to the Finnish Market Court, requesting that the case be dismissed. On 30 March 2016, the Finnish Market Court dismissed the case as timebarred. FCCA, however, filed an appeal to the Supreme Administrative Court ("SAC") and the proceedings are currently pending in the SAC.

On 10 June 2019 SAC decided to refer the interpretation of the time bar matter to the European Court of Justice ("ECJ") in Luxembourg. The time for a ruling by the ECJ is not known. More information about the FCCA-case is available in the 2018 Annual Report (page 43).

Eltel needs to improve its financial situation and reduce net debt over time. There is a risk that the covenants under the existing financing agreement are not met during the transformation period.

No further new material risks were identified during the interim period. For information regarding risks and uncertainties, please refer to Eltel's 2018 Annual Report published on 4 April 2019 which is available on Eltel's website at www.eltelgroup.com.

Future prospects

Eltel does not issue guidance.

Related party transactions

No significant transactions took place between Eltel and related parties during the period.

Seasonality

Eltel's businesses are generally characterised by seasonal patterns and cyclicality of the project business that adds volatility to net sales, EBITA and cash flow. Seasonality is normally driven by a number of factors, including weather conditions, the timing of customer order placements and completion of work phases towards the end of the month, particularly for larger projects. The Eltel Group has historically reported higher revenues and operating profit in the second half of the year. Cash flow has historically displayed a strong seasonal pattern, with weaker cash flow recorded during the period until the end of the third quarter due to higher production activity. At the end of the year, as production volumes decrease, cash flow has normally been stronger. For more details, please refer to quarterly key financial figures for the Group on page 16.

Presentation of the second quarter 2019 report

Analysts and media are invited to participate in the second quarter 2019 briefing on 24 July 2019 at 10.00 am CET where Eltel's President and CEO Casimir Lindholm and CFO Petter Traaholt will host a presentation. A live audiocast as well as the presentation will be available at www.eltelgroup.com/investors.

For further information, please contact:

Petter Traaholt, CFO Tel. +46 72 59 54 749, petter.traaholt@eltelnetworks.se

Elin Otter, Head of Communications and Investor Relations Tel. +46 72 59 54 692, elin.otter@eltelnetworks.se

Financial calendar

• Interim report January–September 2019: 7 November 2019
• Full-year report January–December 2019: 14 February 2020

Eltel AB discloses the information provided herein pursuant to the EU's Market Abuse Regulation and the Securities Markets Act. The information was submitted for publication, through the agency of the above contacts, on 24 July 2019 at 08:00 a.m. CET.

Board's assurance

The Board of Directors and CEO certify that the half-year interim report gives a true and fair presentation of the Parent Company's and Group's business, financial position and result of operations, and describes material risks and uncertainties facing the Parent Company and the companies included in the Group.

Signatures of the Board of Directors and CEO

Stockholm, Sweden, 24 July 2019

Eltel AB (publ)

Ulf Mattsson, Chairman

Mikael Aro Håkan Dahlström Gunilla Fransson Ulf Lundahl Markku Moilanen Joakim Olsson Roland Sundén Hans von Uthmann

Employee representatives: Jonny Andersson Björn Ekblom

Casimir Lindholm, President and CEO

The information in this interim report has not been reviewed by the company's auditors.

Condensed financial information

Condensed consolidated income statement

EUR million	Apr-Jun 2019	Apr-Jun 2018	Jan-Jun 2019	Jan-Jun 2018	Jan-Dec 2018
Net sales	276.0	295.5	527.0	562.2	1,188.9
Cost of sales	-250.4	-268.4	-479.5	-513.1	-1,080.5
Gross profit	25.6	27.1	47.5	49.1	108.4
Other income1	0.2	0.2	0.5	4.5	4.5
Sales and marketing expenses2	-2.6	-1.3	-4.6	-5.2	-10.1
Administrative expenses	-21.4	-25.4	-44.1	-51.0	-101.0
Other expenses1	-0.2	1.1	-1.2	-6.0	-12.2
Share of profit/loss of joint ventures	0.4	-0.1	0.4	-0.2	1.1
Operating result (EBIT)	2.1	1.6	-1.5	-8.8	-9.2
Financial income	0.0	0.1	0.1	0.1	0.4
Financial expenses	-3.1	-1.4	-6.0	-3.0	-9.2
Net financial expenses	-3.1	-1.3	-5.9	-2.9	-8.8
Result before taxes	-1.0	0.3	-7.3	-11.7	-18.0
Taxes	-1.0	-0.1	-2.1	2.5	-4.1
Net result	-2.0	0.2	-9.4	-9.3	-22.2
Attributable to:
Equity holders of the parent	-2.0	0.0	-9.7	-9.7	-23.3
Non-controlling interest	0.0	0.2	0.2	0.4	1.1
Earnings per share (EPS)
Basic, EUR	-0.01	0.00	-0.06	-0.06	-0.15
Diluted, EUR	-0.01	0.00	-0.06	-0.06	-0.15

Condensed consolidated statement of comprehensive income

EUR million	Apr-Jun 2019	Apr-Jun 2018	Jan-Jun 2019	Jan-Jun 2018	Jan-Dec 2018
Net profit for the period	-2.0	0.2	-9.4	-9.3	-22.2
Other comprehensive income:
Items that will not be reclassified to profit and loss
Revaluation of defined benefit plans, net of tax	-2.5	-2.5	-5.1	-1.4	-4.8
Items that may be subsequently reclassified to profit and loss
Cash flow hedges, net of tax	0.0	0.0	0.1	0.0	0.0
Net investment hedges, net of tax	0.5	1.8	1.3	4.4	3.0
Currency translation differences	-1.0	-2.2	-0.5	-5.9	-7.2
Total	-0.5	-0.5	0.8	-1.6	-4.2
Other comprehensive income/loss for the period, net of tax	-3.0	-2.9	-4.3	-2.9	-9.0
Total comprehensive income/loss for the period	-5.0	-2.7	-13.8	-12.2	-31.1
Total comprehensive income/loss attributable to:
Equity holders of the parent	-5.1	-2.9	-14.0	-12.6	-32.3
Non-controlling interest	0.0	0.2	0.2	0.4	1.1

Presentation of income statement has been changed for all periods. See changes in presentation on page 15 for more information.

1) The comparative year includes significant items related to divestment of Rail business: EUR 3.7 million gain from Finland and EUR 5.9 million loss from Sweden.

2) Sales and marketing expenses include Apr-Jun 2019 EUR -0.4 million (-0.5), Jan-Jun 2019 EUR -0.9 million (-1.1) and Jan-Dec 2018 EUR -2.2 million of customer relationship amortisations. In previous years amortisations were presented as a separate line.

Condensed consolidated balance sheet

EUR million	30 Jun 2019	30 Jun 2018	31 Dec 2018
ASSETS
Non-current assets
Goodwill	274.3	282.1	282.1
Intangible assets	41.2	41.3	42.8
Property, plant and equipment	29.4	26.3	30.2
Right-of-use assets	82.6	4.4	4.0
Investments in and receivable from joint ventures	0.8	0.6	1.9
Investments	0.3	0.2	0.3
Deferred tax assets	27.5	26.2	29.0
Other financial assets	35.0	-	-
Trade and other receivables	0.4	0.6	0.4
Total non-current assets	491.5	381.7	390.7
Current assets
Inventories	17.7	17.9	13.2
Other financial assets	-	35.0	35.0
Trade and other receivables	310.7	359.7	337.5
Cash and cash equivalents	23.6	25.5	53.4
Total current assets	352.0	438.0	439.2
Assets held for sale2	22.3	0.4	-
TOTAL ASSETS	865.7	820.1	829.8
EQUITY AND LIABILITIES
Equity
Shareholders' equity	230.4	263.8	244.3
Non-controlling interest	7.8	7.5	7.6
Total equity	238.2	271.3	252.0
Non-current liabilities Debt	98.2	101.0	112.3
Leasing liabilities	56.1	2.5	2.2
Liabilities to shareholders1	35.0	-	-
Retirement benefit obligations	15.8	10.2	12.8
Deferred tax liabilities	16.6	9.0	17.6
Provisions	3.0	2.5	2.6
Other non-current liabilities	0.5	0.7	0.6
Total non-current liabilities	225.2	126.0	148.1
Current liabilities
Debt	111.0	104.0	84.4
Leasing liabilities	26.8	2.0	2.0
Liabilities to shareholders1	-	35.0	35.0
Provisions	12.5	19.9	15.3
Advances received	29.2	52.7	51.7
Trade and other payables	213.8	207.9	241.4
Total current liabilities	393.3	421.5	429.8
Liabilities associated with assets held for sale2	9.0	1.3	-
Total liabilities	627.5	548.8	577.9
TOTAL EQUITY AND LIABILITIES	865.7	820.1	829.8

1) Refers to selling shareholders at the time of the listing on 6 February 2015.

2) Assets held for sale include Polish and German communication business on 30 June 2019 and Norwegian rail business on 30 June 2018.

Condensed consolidated statement of cash flows

EUR million	Jan-Jun 2019	Jan-Jun 2018	Jan-Dec 2018
Cash flow from operating activities
Operating result (EBIT)	-1.5	-8.8	-9.2
Adjustments:
Depreciation and amortisation	21.6	6.8	14.3
Gain/loss on sales of assets and business	-0.1	2.2	2.1
Defined benefit pension plans	-1.8	-1.9	-3.8
Other non-cash adjustments	0.2	1.3	3.0
Cash flow from operations before interests, taxes and changes in working capital	18.5	-0.4	6.4
Interest and other financial expenses paid, net	-5.4	-2.3	-7.4
Income taxes paid	-0.4	-0.9	-2.7
Total financial expenses and taxes	-5.8	-3.1	-10.1
Changes in working capital:
Trade and other receivables	16.5	-9.0	15.2
Trade and other payables	-44.3	-29.2	-4.5
Inventories	-5.2	-8.3	-3.9
Changes in working capital	-33.0	-46.6	6.8
Net cash from operating activities	-20.3	-50.1	3.2
Cash flow from investing activities
Purchases of property, plant and equipment (PPE), net	-6.6	-6.3	-18.6
Acquisition of business, net of cash and cash equivalents	-4.2	-	-
Investments in joint ventures	-	-	-0.1
Investments refund from joint ventures	1.5	-	-
Disposal of business	-	-1.7	-2.6
Net cash from investing activities	-9.2	-8.0	-21.3
Cash flow from financing activities
Proceeds from short-term financial liabilities	31.4	61.2	89.7
Payments of short-term borrowings	-13.5	-11.0	-49.2
Payments of financial liabilities	-3.4	-	-
Payments of/proceeds from lease liabilities	-14.2	-0.1	-0.5
Dividends to non-controlling interest	-	-	-0.5
Change in non-liquid financial assets	0.5	0.1	-0.4
Net cash from financing activities	0.8	50.2	39.1
Net change in cash and cash equivalents	-28.6	-7.8	21.1
Cash and cash equivalents at beginning of period	53.4	32.9	32.9
Foreign exchange rate effect	0.3	0.4	-0.5
Transfer as assets held for sale	-1.5	-	-
Cash and cash equivalents at end of period	23.6	25.5	53.4

See page 21 for more information about IFRS 16 impact on cash flow statement.

Condensed consolidated statement of changes in equity

EUR million	Share capital	Other paid-in capital	Accumulated losses	Revaluation of defined benefit plans, net of tax	Hedging reserve	Currency translation	Total	Non-controlling interest	Total equity
Equity at 1 Jan 2019	158.0	491.6	-349.5	-32.2	10.4	-34.1	244.3	7.6	252.0
Total comprehensive income for the period	-	-	-9.7	-5.1	1.4	-0.5	-14.0	0.2	-13.8
Transactions with owners:
Equity-settled share based payment	-	-	0.0	-	-	-	0.0	-	0.0
Proceeds from shares issued	0.9	-0.9	-	-	-	-	-	-	-
Total transaction with owners	0.9	-0.9	0.0	-	-	-	0.0	-	0.0
Equity at 30 Jun 2019	158.8	490.8	-359.1	-37.3	11.7	-34.6	230.4	7.8	238.2

EUR million	Share capital	Other paid-in capital	Accumulated losses	Revaluation of defined benefit plans, net of tax	Hedging reserve	Currency translation	Total	Non-controlling interest	Total equity
Equity at 1 Jan 2018	158.4	491.1	-325.6	-27.4	7.4	-26.9	277.1	7.0	284.1
IFRS 15 opening balance adjustments, net of tax	-	-	-0.6	-	-	-	-0.6	-	-0.6
Total comprehensive income for the period	-	-	-9.7	-1.4	4.3	-5.9	-12.6	0.4	-12.2
Transactions with owners:
Equity-settled share based payment	-	-	0.0	-	-	-	0.0	-	0.0
Total transaction with owners	-	-	0.0	-	-	-	0.0	-	0.0
Equity at 30 Jun 2018	158.4	491.1	-335.9	-28.8	11.7	-32.8	263.8	7.5	271.3

EUR million	Share capital	Other paid-in capital	Accumulated losses	Revaluation of defined benefit plans, net of tax	Hedging reserve	Currency translation	Total	Non-controlling interest	Total equity
Equity at 1 Jan 2018	158.4	491.1	-325.6	-27.4	7.4	-26.9	277.1	7.0	284.1
IFRS 15 opening balance adjustments, net of tax	-	-	-0.6	-	-	-	-0.6	-	-0.6
Total comprehensive income for the period	-		-23.3	-4.8	3.0	-7.2	-32.2	1.1	-31.1
Transactions with owners:
Equity-settled share based payment	-	-	0.0	-	-	-	0.0	-	0.0
Proceeds from shares issued	-	0.0	-	-	-	-	0.0	-	0.0
Share capital reduction and reclassification	-0.5	0.5	-	-	-	-	-	-	-
Dividends paid to non controlling interests	-	-	-	-	-	-	-	-0.5	-0.5
Total transaction with owners	-0.5	0.5	0.0	-	-	-	0.0	-0.5	-0.5
Equity at 31 Dec 2018	158.0	491.6	-349.5	-32.2	10.4	-34.1	244.3	7.6	252.0

Notes to the condensed consolidated interim financial statements

Accounting principles

This interim report has been prepared in accordance with IAS 34 Interim Financial Reporting. The accounting principles adopted are the same with those of the Group's annual financial statements for the year ended 31 December 2018 except for IFRS 16 Leases effective from 1 January 2019 as described below. The Parent company does not apply IFRS 16 in accordance with the exception in RFR2.

IFRS 16 Leases (effective from 1 January 2019) replaces IAS 17 Leases, and related interpretations. IFRS 16 introduces a single, on-balance sheet lease accounting model for lessees. A lessee recognises a right-of-use asset representing its right to use the underlying asset and a lease liability representing its obligation to make lease payments. There are optional exemptions of shortterm leases and leases of low-value items, which Eltel has chosen to apply. Under IAS 17, Eltel recognised operating lease expense on a straight-line basis over the term of the lease and recognised assets (prepaid leasing fees) and liabilities (accrued leasing fees) only to the extent there was timing differences between actual lease payments and the expense recognised. IFRS 16 replaces the operating lease expense with depreciation charge for right-of-use assets and interest expense for lease liabilities reported under financing expenses. The depreciation for right-of-use assets is presented in the same income statement line (function of expense) as the earlier operative lease expense.

Eltel applies the modified retrospective method with no restatement of comparative information. At initial application the amount of right-of-use assets has been determined as equal to the lease liabilities and restoration cost provision reported in the balance sheet as of 31 December 2018. Eltel has recognised following opening balance adjustments due to transition to the new standard:

• Right-of-use assets EUR 89.6 million and
• Leasing liabilities and restoration cost provision EUR 89.6 million.

The right-of-use assets consist mainly of leases of premises and vehicles. The IFRS 16 standard requires use of estimates for valuating contracts that are valid until further notice. Eltel has estimated the length of these contracts based on expected usage in current business operations. This has considerable impact in the amount of right-of-use assets and leasing liabilities for premises. The right-of-use assets and leasing liabilities are presented as separate lines in the balance sheet.

In income statement IFRS 16 resulted in a minor positive impact on operating profit and slight increase in the financial costs.

From 1 January 2019 onwards, the lease payments in the cash flow are divided to interest expense in the cash flow from operating activities and amortisation of lease liability in the cash flow from financing activities. In the comparative periods the payments were fully included in the cash flow from operating activities. Therefore, the cash flow from operating activities increases and cash flow from financing activities decreases. IFRS 16 has no impact on total cash flow.

The new IFRS standards and amendments effective for the first time for 2020 financial year or later are not expected to have any material impact on Group's financial statements.

Changes in presentation in 2019

Eltel has made the following changes in presentation:

Income statement: Amortisation and impairment of acquisition-related intangible assets were previously presented as a separate line. From 1 January 2019 onwards they are included in function of expense lines. As a result, Operating result before acquisition-related amortisations (EBITA) is not presented. Comparative period presentation is changed accordingly.

Balance sheet: Right-of-use assets and leasing liabilities according to IFRS 16 have been added as separate lines in the balance sheet. Previous finance lease assets and liabilities under IAS 17 are presented in these new lines for comparative periods. Previously these were presented in Property, plant and equipment (PPE) and non-current and current debt.

Key figures

Key figures for the period

EUR million	Apr-Jun 2019	Apr-Jun 2018	Jan-Jun 2019	Jan-Jun 2018	Jan-Dec 2018	Rolling 12-month
Net sales	276.0	295.5	527.0	562.2	1,188.9	1,153.7
Net sales growth, %	-6.6	-10.4	-6.3	-10.4	-10.6	-8.8
Operative EBITA	2.5	2.0	-0.5	-5.7	-2.2	2.9
Operative EBITA margin, %	0.9	0.7	-0.1	-1.0	-0.2	0.3
Items affecting comparability	-	0.1	-	-2.1	-4.8	-2.8
EBITDA	12.7	4.8	20.1	-2.0	5.1	27.3
Operating result (EBIT)	2.1	1.6	-1.5	-8.8	-9.2	-1.9
EBIT margin, %	0.8	0.5	-0.3	-1.6	-0.8	-0.2
Result after financial items	-1.0	0.3	-7.3	-11.7	-18.0	-13.6
Net result for the period	-2.0	0.2	-9.4	-9.3	-22.2	-22.3
Earnings per share EUR, basic and diluted	-0.01	0.00	-0.06	-0.06	-0.15	-0.15
Return on equity (ROE), %1,2	-8.8	-9.7	-8.8	-9.7	-8.3	-8.8
Net working capital2	66.8	91.9	66.8	91.9	39.9	66.8
Operative cash flow	14.4	-17.3	-19.4	-54.9	-6.6	28.9
Number of personnel, end of period	7,128	7,680	7,128	7,680	7,376	7,128

Quarterly key figures

EUR million	Apr-Jun 2019	Jan-Mar 2019	Oct-Dec 2018	Jul-Sep 2018	Apr-Jun 2018	Jan-Mar 2018
Net sales	276.0	251.0	330.9	295.9	295.5	266.6
Net sales growth, %	-6.6	-5.9	-11.6	-9.8	-10.4	-10.5
Operative EBITA	2.5	-3.0	2.9	0.5	2.0	-7.6
Operative EBITA margin, %	0.9	-1.2	0.9	0.2	0.7	-2.9
Items affecting comparability	-	-	-2.8	-	0.1	-2.2
EBITDA	12.7	7.5	3.2	3.9	4.8	-6.9
Operating result (EBIT)	2.1	-3.6	-0.2	-0.2	1.6	-10.4
EBIT margin, %	0.8	-1.4	-0.1	-0.1	0.5	-3.9
Result after financial items	-1.0	-6.4	-2.8	-3.5	0.3	-12.0
Net result for the period	-2.0	-7.4	-3.3	-9.6	0.2	-9.5
Earnings per share EUR, basic and diluted	-0.01	-0.05	-0.02	-0.06	0.00	-0.06
Return on equity (ROE), %1,2	-8.8	-7.8	-8.3	-9.5	-9.7	-23.0
Net working capital2	66.8	74.8	39.9	109.3	91.9	75.1
Operative cash flow	14.4	-33.8	66.4	-18.2	-17.3	-37.6
Number of personnel, end of period	7,128	7,180	7,376	7,490	7,680	7,605

1) Calculated on a rolling 12-month basis.

2) Assets and liabilities held for sale are not included (on 30 June 2019 Polish and German communication business and on 30 June 2018 Norwegian rail business).

Please see page 22 for definitions of the key ratios.

Net sales by segment

EUR million	Apr-Jun 2019	Apr-Jun 2018	Jan-Jun 2019	Jan-Jun 2018	Jan-Dec 2018
Power
Net sales (external)	94.6	115.9	181.6	211.2	438.8
Inter-segment sales	0.0	0.1	0.0	0.6	0.1
Communication
Net sales (external)	177.5	177.1	338.4	338.9	727.0
Inter-segment sales	0.3	0.6	0.7	1.2	0.3
Other
Net sales (external)	3.9	2.5	7.0	12.1	23.1
Elimination of sales between segments	-0.3	-0.8	-0.8	-1.7	-0.4
Net sales, total	276.0	295.5	527.0	562.2	1,188.9

Net sales by geographical area

EUR million	Apr-Jun 2019	Apr-Jun 2018	Jan-Jun 2019	Jan-Jun 2018	Jan-Dec 2018
Sweden	78.3	88.8	157.3	178.9	359.8
Finland	66.8	68.9	118.2	126.0	275.8
Norway	59.6	67.6	110.0	126.0	258.9
Denmark	26.1	21.2	51.5	42.6	101.1
Poland	21.7	25.1	48.1	42.9	98.2
Germany	19.1	21.9	33.6	39.0	76.2
Other countries	4.3	2.1	8.2	6.8	19.0
Net sales, total	276.0	295.5	527.0	562.2	1,188.9

Net sales by service split

EUR million	Apr-Jun 2019	Apr-Jun 2018	Jan-Jun 2019	Jan-Jun 2018	Jan-Dec 2018
Power
Project delivery	48.6	66.4	101.4	120.6	262.2
Upgrade services	34.4	38.6	55.2	62.4	120.2
Maintenance	15.5	13.3	31.5	32.4	65.2
Internal net sales and fx adjustments	-3.8	-2.2	-6.4	-3.7	-8.8
Total Power	94.7	116.0	181.6	211.8	438.8
Communication
Project delivery	6.0	14.6	13.1	20.4	42.1
Upgrade services	134.0	117.4	244.7	228.0	460.7
Maintenance	47.7	56.7	101.5	109.7	266.1
Internal net sales and fx adjustments	-9.9	-11.1	-20.1	-18.1	-41.5
Total Communication	177.8	177.7	339.1	340.0	727.3
Other
Project delivery	3.9	4.2	7.2	11.4	22.4
Maintenance	-	-1.7	-0.2	0.6	0.5
Internal net sales and fx adjustments	-	-	-	-	0.2
Total Other	3.9	2.5	7.0	12.1	23.1
Elimination of sales between segments	-0.3	-0.8	-0.8	-1.7	-0.4
Total	276.0	295.5	527.0	562.2	1,188.9

Reconciliation of segment results

EUR million	Apr-Jun 2019	Apr-Jun 2018	Jan-Jun 2019	Jan-Jun 2018	Jan-Dec 2018
Operative EBITA by segment
Power	2.4	2.5	-1.8	1.2	-0.5
Communication	2.1	7.2	6.7	8.3	24.8
Other	0.2	-3.1	0.1	-6.8	-11.1
Items not allocated to operating segments1	-2.2	-4.5	-5.5	-8.3	-15.4
Operative EBITA, Group	2.5	2.0	-0.5	-5.7	-2.2
Earn-out adjustment	-	0.2	-	0.2	-2.6
Gain on sale of business	-	-	-	3.7	3.7
Loss on sale of business and assets held for sale	-	-0.1	-	-6.0	-6.0
Total items affecting comparability in EBITA2	-	0.1	-	-2.1	-4.8
Amortisation of acquisition-related intangible asset	-0.4	-0.5	-0.9	-1.1	-2.2
Operating result (EBIT)	2.1	1.6	-1.5	-8.8	-9.2
Financial expenses, net	-3.1	-1.3	-5.9	-2.9	-8.8
Result before taxes	-1.0	0.3	-7.3	-11.7	-18.0

1) Items not allocated to operating segments consist of Group management function.

2) Items affecting comparability in EBITA include EUR 3.7 million positive impact from sale of the Finnish rail operations and EUR 5.9 million negative impact from sale of the Swedish rail operations.

Net working capital (NWC) and operative capital employed

EUR million	30 Jun 2019	30 Jun 2018	31 Dec 2018
Inventories	17.7	17.9	13.2
Trade and other receivables	310.7	359.7	337.5
Provisions	-15.5	-22.4	-17.9
Advances received	-29.2	-52.7	-51.7
Trade and other payables	-213.8	-207.9	-241.4
Other1	-3.1	-2.5	0.2
Net working capital	66.8	91.9	39.9
Intangible assets excluding acquisition-related allocations	10.9	8.2	10.6
Property, plant and equipment	29.4	26.3	30.2
Right-of-use assets	82.6	4.4	4.0
Operative capital employed	189.6	130.8	84.7

1) Includes adjustments for non-NWC items included in above receivable and payables lines, mainly for derivative valuations, contingent consideration from acquisitions and income tax liabilities and NWC items included in other balance sheet lines.

Assets and liabilities held for sale are not included (on 30 June 2019 Polish and German communication business and on 30 June 2018 Norwegian rail business).

Contract balances

EUR million	30 Jun 2019	30 Jun 2018	31 Dec 2018
Trade receivables	135.4	134.7	144.0
Contract assets	148.1	195.8	163.8
Total	283.5	330.6	307.8
Advances received	29.2	52.7	51.7

Trade receivables and contract assets are included in the trade and other receivable line in the above net working capital table. Advances received represent contract liabilities.

Acquisitions, disposals and assets held for sale

January–June 2019

During January-June 2019 there were no acquisitions or disposals, but following announcements were made:

• On 3 April 2019, Eltel announced that it will focus on the Nordic market and has initiated a strategic evaluation of the company's operations outside the Nordics, including a potential divestment. The evaluation is initiated and a potential divestment of operations in Poland and Germany may take place during 2019 and 2020.
• On 26 June, Eltel and LFV, Air Navigation Services of Sweden, signed a letter of intent according to which Eltel will divest the business area Aviation & Security to LFV. In the letter of intent, both parties undertake to ensure a definitive agreement is signed no later than the first quarter 2020. The definitive agreement is conditional on approval by the respective party's board, the Swedish Competition Authority and the Swedish Government.

At the reporting date, the Polish and German communication business is presented as assets held for sale. At the reporting date, none of the other operations under the strategic evaluation or under the letter of intent meet the criteria for either held-for-sale presentation or presentation as discontinued operation.

January–June 2018

During January-June 2018 there were no acquisitions.

During January-June 2018, Eltel divested its non-core rail operations in Finland, Denmark and Sweden. The net impact of the divestments on EBIT was EUR -2.2 million, which was recorded during the first quarter of 2018.

• The purchase price of the Finnish rail operations amounted EUR 8.5 million deducted by the cash generated from these operations during September 2017–January 2018. The transaction had a positive impact on Group EBIT of EUR 3.7 million and positive cash flow of EUR 6.3 million in the first quarter of 2018.
• The sale of the Swedish rail operations had a negative impact of EUR 5.9 million on EBIT and a negative cash flow effect of EUR 5.7 million in the first quarter of 2018.
• The divested Danish rail operations had a negative impact of EUR 0.5 million, which was recognised in the fourth quarter of 2017 and a negative cash flow effect of EUR 2.4 million in the first quarter of 2018.

In July 2018, Eltel signed an agreement to divest its Norwegian rail operations and presented the assets and liabilities relating to these business operations as assets held for sale on 30 June 2018.

Assets and liabilities held for sale

EUR million	30 Jun 2019	30 Jun 2018
Assets
Goodwill and other intangible assets	6.8	-
Property, plant and equipment	1.5	0.3
Right-of-use assets (IFRS 16)	2.4	-
Deferred tax assets	0.3	-
Trade receivables and other assets	9.8	0.1
Cash and cash equivalents	1.5	-
Total assets held for sale	22.3	0.4
Liabilites
Leasing liabilities (IFRS 16)	2.4	-
Deferred tax liabilities	0.9	-
Advances received	1.5	-
Trade and other liabilities	4.2	1.3
Total liabilities held for sale	9.0	1.3

Deferred taxes

EUR million	30 Jun 2019	30 Jun 2018	31 Dec 2018
Deferred tax assets	27.5	26.2	29.0
Deferred tax liabilities	-16.6	-9.0	-17.6
Sum	10.9	17.2	11.5

In December 2018, gross amount of EUR 21.0 million (21.3) deferred tax assets was recognised for losses carried forward, of which EUR 10.3 million (10.8) related to operations in Sweden. The tax losses relate to identifiable causes that are unlikely to recur. During 2016 and 2017 Eltel has incurred significant one-off costs in Sweden mainly relating to Rail and Power transmission international businesses, that are being disposed or ramped down. The continuing business operations are profitable and deferred tax asset recognised for losses carried forward are expected to be utilised against taxable profits in the foreseeable future.

Derivative financial instruments

	30 Jun 2019		30 Jun 2018			31 Dec 2018
EUR million	Nominal values	Net fair values		Nominal values	Net fair values		Nominal values	Net fair values
Interest rate derivatives	23.1	0.0	1)	22.4	0.0	3)	22.8	0.0	5)
Foreign exchange rate derivatives	62.5	-0.5		62.2	0.6	4)	61.7	-0.4	6)
Embedded derivatives	0.7	0.1		13.9	1.1		7.8	0.7
Commodity derivatives	0.5	-0.1	2)	-	-		0.6	-0.1	7)
Total	86.7	-0.5		98.6	1.7		92.9	0.2

Designated as cash flow hedge 1) EUR -0.2 million 2) EUR -0.1 million 3) EUR -0.4 million 4) EUR 0.0 million 5) EUR -0.3 million 6) EUR 0.0 million 7) EUR -0.1 million. Financial assets recognised at fair value through profit and loss comprise solely derivatives. Fair values of the derivative instruments are based on observable market values (level 2 observable input information) at balance sheet date. Eltel considers the carrying amounts of these financial instruments to be reasonable approximations of their fair values, because the changes in the market interest rates are reflected in the future interest flows within a short period.

Earnings per share	Apr-Jun 2019	Apr-Jun 2018	Jan-Jun 2019	Jan-Jun 2018	Jan-Dec 2018
Net result attributable to equity holders of the parent	-2.0	0.0	-9.7	-9.7	-23.3
Weighted average number of common shares, basic	156,649,081	156,560,595	156,649,081	156,560,595	156,603,262
Weighted average number of common shares, diluted	156,912,635	156,756,376	156,874,524	156,722,464	156,795,867
Earnings per share EUR, basic	-0.01	0.00	-0.06	-0.06	-0.15
Earnings per share EUR, diluted	-0.01	0.00	-0.06	-0.06	-0.15

Leasing

Right-of-use assets

	Machinery and
EUR million	Buildings	equipment	Total
Transfer of IAS 17 finance lease assets from PPE	-	4.0	4.0
IFRS 16 opening balance adjustment	49.3	40.3	89.6
1 Jan 2019	49.3	44.3	93.6
Additions	1.9	3.7	5.6
Depreciations	-5.9	-8.9	-14.8
Transfer to assets held for sale	-0.6	-1.9	-2.4
Translation differences	-0.3	0.9	0.7
30 Jun 2019	44.5	38.1	82.6

Leasing liabilities

EUR million	Non-current	Current	Total
Transfer of IAS 17 finance lease liability from debt	2.2	2.0	4.1
IFRS 16 opening balance adjustment	61.8	27.1	89.0
1 Jan 2019	64.0	29.1	93.1
Changes during the period	-6.5	-1.3	-7.8
Transfer to assets held for sale	-1.4	-1.0	-2.4
30 Jun 2019	56.1	26.8	82.9

Cash flow EUR million Apr-Jun 2019 Apr-Jun 2018 Jan-Jun 2019 Jan-Jun 2018 Jan-Dec 2018 Cash flow from operating activities before IFRS 16 impact 6.9 -14.3 -33.7 -50.1 3.2 Movement between report lines: IFRS 16 impact on operating result (EBIT) 0.1 - 0.2 - - IFRS 16 impact on depreciation and amortisation 7.0 - 14.1 - - IFRS 16 impact on interests and other financial expenses paid -0.5 - -0.9 - - Total IFRS 16 impact on cash flow from operating activities 6.7 - 13.4 - - Cash flow from operating activities 13.5 -14.3 -20.3 -50.1 3.2 Cash flow from investing activities -2.5 -4.5 -9.2 -8.0 -21.3 Cash flow from financing activities before IFRS 16 impact 7.8 38.0 14.3 50.2 39.1 IFRS 16 impact on payments of/proceeds from lease liabilities -6.7 - -13.4 - - Cash flow from financing activities 1.1 38.0 0.8 50.2 39.1

Cash flow from operating activities and cash flow from financing activities are impacted by IFRS 16. From 1 January 2019 onwards, the lease payments in the cash flow are divided to interest expense in the cash flow from operating activities and amortisation of lease liability in the cash flow from financing activities. In the comparative periods the payments were fully included in the cash flow from operating activities. Therefore, the cash flow from operating activities increases and cash flow from financing activities decreases. IFRS 16 has no impact on total cash flow.

Definitions and key ratios

Eltel applies ESMA's (European Securities and Markets Authority) guidelines for alternative performance measures (APM). In addition to the financial measures defined in IFRS, certain key figures, which qualify as alternative performance measures (APMs) are presented to reflect the underlying business performance, facilitate analysis of the Group's development as followed by Group Management and enhance comparability from period to period. The definition of these key figures is presented below and relevant information enabling reconciliations to IFRS measures can be found in connection with relevant parts of the report. These APMs should not be considered as a substitute for measures in accordance with IFRS.

IFRS key ratios
	Net result attributable to equity holders of the parent
Earnings per share (EPS)	Weighted average number of ordinary shares
Alternative performance measures (APMs)
Operative EBITA	Operating result before acquisition-related amortisations and items affecting comparability
Items affecting comparability	Items for specific events which management does not consider to form part of the ongoing operative business
Operative cash flow	EBIT + depreciation and amortisation + change in net working capital – net purchase of PPE
	(capex)
Cash conversion, %1	Operative cash flow x 100 EBITA
	Total equity x 100
Equity ratio, %	Total assets - advances received
Net debt	Interest-bearing debt (excluding shareholder loans) - cash and cash equivalents
Operative capital employed	Net working capital + Intangible assets excluding goodwill and acquisition-related allocations
	+ Property, plant and equipment
Return on equity (ROE), %1	Net result x 100
	Total equity (average over the reporting period)
Net working capital	Net of inventories, trade and other receivables, provisions, advances received and trade
	and other payables, excluding items in these balance sheet items that are not considered to
	form part of operative working capital: derivative valuations, contingent consideration from acquisitions and income tax liabilities.
Committed order backlog	The total value of committed orders received but not yet recognised as sales

1) Calculated on a rolling 12-month basis.

Parent Company

Eltel AB owns and governs the shares related to the Eltel Group. The operational and strategic management functions of the Group are centralised to Eltel AB. The Company has no operative business activities and its risks are mainly attributable to the activities of its subsidiaries.

Parent Company income statement

EUR million	Apr-Jun 2019	Apr-Jun 2018	Jan-Jun 2019	Jan-Jun 2018	Jan-Dec 2018
Net sales	1.2	-	1.2	-	3.8
Administrative income and expenses	-3.5	-3.8	-5.3	-6.1	-11.9
Operating result	-2.4	-3.8	-4.1	-6.1	-8.1
Interest and other financial income	5.3	4.1	9.2	8.2	16.3
Interest and other financial expenses	-0.7	-0.5	-1.5	-0.9	-1.9
Net financial items	4.6	3.6	7.8	7.3	14.4
Result after financial items	2.2	-0.2	3.7	1.2	6.3
Group contributions given	-	-	-	-	-6.2
Taxes	-	0.3	-	-	-0.1
Net result	2.2	0.1	3.7	1.2	0.0

Parent Company balance sheet

EUR million	30 Jun 2019	30 Jun 2018	31 Dec 2018
ASSETS
Shares in Group companies	68.3	68.3	68.3
Long-term loans receivable from Group companies1	478.1	320.4	328.3
Other financial asset	35.0	-	-
Intangible assets	0.1	0.1	0.1
Deferred tax assets	0.5	0.7	0.6
Total non-current assets	582.0	389.5	397.2
Trade and other receivables	1.5	1.3	4.4
Cash pool receivable1	-	134.0	135.5
Other financial asset	-	35.0	35.0
Cash and cash equivalents	0.2	0.0	0.0
Total current assets	1.7	170.2	174.9
TOTAL ASSETS	583.7	559.7	572.1
EQUITY AND LIABILITIES
Total equity	447.9	445.2	444.1
Liabilities to shareholders	35.0	-	-
Total non-current liabilities	35.0	-	-
Debt	89.4	75.8	83.3
Liabilities to shareholders	-	35.0	35.0
Liabilities to Group companies	9.0	0.2	7.8
Trade and other payables	2.4	3.5	1.9
Total current liabilities	100.8	114.5	128.1
Total liabilities	135.8	114.5	128.1
TOTAL EQUITY AND LIABILITIES	583.7	559.7	572.1

In March 2019 Eltel agreed with its banks on certain amendments to its existing financial agreement that matures in Q1 2021. Eltel has secured its debt obligations towards the banks by share and intragroup loan pledges and floating charges over certain assets of the Group, all on customary terms and conditions.

1) In Q2 2019 cash pool receivables were converted to long-term loans receivable from Group companies.

Equity

EUR million	1 Jan 2019	Proceeds from shares issued	Hedging reserve, net of tax	Equity-settled share-based payment	Net result	30 Jun 2019
Share capital	158.0	0.9	-	-	-	158.8
Statutory reserve	0.5	-	-	-	-	0.5
Non-restricted equity	285.6	-0.9	0.1	0.1	3.7	288.6
Total	444.1	-	0.1	0.1	3.7	447.9

Eltel AB

Visiting address: Adolfsbergsvägen 13, Bromma POB 126 23, SE-112 92 Stockholm, SWEDEN Corp. id no. 556728-6652

tel. +46 8 585 376 00 info@eltelnetworks.com www.eltelgroup.com www.eltelnetworks.com