Elisa Oyj

XMUN:EIA

Good morning, everyone, and welcome to Elisa's Third Quarter 2026 Conference Call. We have a very familiar team here. I'm Vesa Sahivirta, Head of Investor Relations. And here together with me are CEO, Topi Manner; and CFO, Kristian Pullola.

We start with the presentation followed by Q&A. And in Q&A, we appreciate that you will limit your questions to one due to our time constraints. We had a hard stop at 1 p.m., Finnish time, 11 a.m. London time. Thank you for understanding that. But now let's get started. So I give word to Topi, please. Go ahead.

Thank you, Vesa, and hello, everybody. Welcome to this Q3 earnings call. And as stated, let's get right down to business so that we have time for questions. So the Q3 highlights, revenue was flat during the quarter, comparable EBITDA down by 1.8% against the strong comparison of Q3 '25. Telecom service revenue decreased by 1.3%, driven by mobile service revenue decline of 2.3%. At the same time, fixed service revenue grew with 1.6%. In international software services, we had a good quarter. Comparable revenue increased with roughly 11%.

In Finland, the postpaid churn increased to 18.7%, which is the long-term average churn of Q3 during the last 10 years. Mobile postpaid subscriptions decreased by some 16,000, while the M2M and IoT base grew with some 10,000. On the fixed broadband subscription base, we saw a strong growth of more than 20,000 subscriptions, both in FTTH as well as in FTTB. The transformation program is proceeding according to plan, as we have communicated previously. And during the quarter, we carried out operating model changes in our consumer business and initiated a similar process in international software services, all being part of the transformation that we are going through.

Our Board of Directors decided on the third installment of the dividend, namely EUR 0.60 to be paid on 4th of November '26. During the quarter, mobile recovery continued at a more moderate pace. The revenue, as stated, was flat. The increases within the revenue number were driven by international software services, fixed services as well as equipment sales, while mobile services and to some extent, consumer digital were decreasing and then also discontinuation of the landline copper, the PSTN network, during the quarter after 140 years of service decreased the revenue with some EUR 2 million, and that same impact was also seen in the EBITDA number.

EBITDA was pulled towards the better direction by the outcome of the transformation program. And as stated, the PSTN also decreased the EBITDA with the EUR 2 million I mentioned. In terms of telecom service revenue, we are still being weighed down by last year's mobile competition and many mobile subscriptions being fixed for 12 months with low price points. However, during the quarter, we saw the mobile service revenue edge up slightly on Q-on-Q basis. The upsell of 5G continues and is an underlying driver for mobile service revenue.

ARPU was flat. And as mentioned, churn ended up being 18.7%. When we look into the mobile KPIs more closely, starting from the upper right-hand corner, the net sales prices on a Q-on-Q basis decreased a bit, reflecting seasonality and as mentioned, slightly increased competition. However, it is important to note that the new sales prices were higher than they were in Q3 last year. And actually, they were higher than we saw all through the 4 quarters of 2025.

Churn, 18.7%, as stated, reflects the 10-year average of Q3 churn and mobile sales and marketing costs were stable within the composition of marketing and sales costs, we saw some changes, decreased cost around vouchers and kickbacks driven by our value-based actions on the market. And at the same time, we invested a bit more to sales force on the market and thus the stable development in sales and marketing costs.

The segment results were mixed. Consumer customers were weighed down by last year's competition, as mentioned and also the discontinuation of the PSTN network had a slight impact on Consumer segment. Corporate segment had clearly a more challenging quarter. When interpreting the results of Corporate segment, it should be noted that the discontinuation of the PSTN business impacted Corporate segment with the EUR 2 million negative that was mentioned. Also during last year's Q3, we had some bigger deals, and we did not have corresponding similar deals during this quarter, reflecting sort of a normal quarterly fluctuation.

In International Software Services, as stated, return to growth was the theme of Q3 with comparable organic growth at roughly 11% and EBITDA change upwards of EUR 2 million. We see very solid progress in Estonia. The revenue increased with 5%. We are seeing EBITDA increase on a quarterly basis, even better increase on a year-to-date basis, and we see the customer numbers improving positively in Estonia, while the churn is down on a Q-on-Q basis. So very solid progress in Estonia.

Looking into strategy just briefly, as witnessed by the numbers, we are being challenged in terms of growth as we speak. But looking into '27 and looking into telecom services of '27, we see that our entry point to '27 will be better than it was for this year. And on the fiber space, in the fixed services, we will have a new growth opportunity related to data center connectivity that is clearly tangible and growing quite rapidly on top of the FTTH and FTTP demand that we see on the market.

In Elisa Industriq, we initiated an operating model change that will be resulting in a significant improvement of profitability in that business during '27. And then we will certainly continue with continuous improvement efforts around productivity and efficiency, thus progressing with our strategy implementation. Looking into 5G upsales, that clearly continued in a trend-like fashion as before. As of now, our 5G penetration stands at 61% with 3% pickup during the quarter.

Strong fiber growth, I already mentioned. In the home services -- perhaps the most notable development during the quarter was that we renewed our contract, a long-term contract with MTV, a Finnish commercial TV company, and brought their streaming service, Katsomo+, to our Elisa Viihde, Elisa Entertainment customers as a very tangible customer benefit. On corporate and IT and cyber businesses, we won some good deals. Kempower is one of the examples, a Finnish international company.

And also in Estonia, during the quarter, we acquired PRO IT, a small IT firm. And with that, we are strengthening our IT offering for corporates in the Estonian market. Then in international software services, the main headline is that we initiated the operating model change. During the quarter, after a slow Q2, we saw activity picking up in the software space, and we were very happy to receive several major orders from new global customers, including 3 leading chipmakers globally in the semicon industry. These deals had a small impact on Q3 revenue. But most importantly, these deals will be supportive of the revenue going forward, especially going into 2027.

With the operating model change, we are planning to integrate our individual software businesses within Elisa Industriq fully into one Elisa Industriq. And in the course of doing so, we will be realizing efficiencies. And now the respective processes in each of the countries have been started, and we are well on our way in terms of the implementation. The operating model change is planned -- is targeting a significant improvement in profitability for the full year of 2027.

As part of the operating model change, we are planning to introduce 2 business areas within Elisa Industriq, one being manufacturing and the other being critical infrastructure, where we are serving telecommunications and energy industries. We expect in Elisa Industriq that the organic revenue for the full year will be within the bracket of 5% to 10%. And as stated, going forward, we expect to see gradual improvement in EBITDA in this part of the business.

Data centers and data center connectivity business is now rapidly expanding in Finland. Finland is experiencing a data center boom. During September alone, data center investment in the order of magnitude of tens of billions were announced in the country. The most notable was Google's announcement of them investing EUR 13 billion during the course of next 2 years to data centers in Finland. And we are very happy that Google has been choosing us as their main partner in building data center connectivity, high-capacity, reliable connectivity for all of their 4 data center campuses in Finland.

As an indication of the market size, the Finnish electricity grid operator, Fingrid, has now been forming electricity contracts with data centers that would amount to 5 gigawatts of capacity once realized. And this is indeed an indication of the potential size of the market in the coming years. Our year-to-date cumulative order intake in this part of the business now amounts to approximately EUR 100 million. And as stated, this order book has been building very rapidly. The orders mainly came in during the third quarter.

Going forward, we will also look into other types of opportunities within the data center space, looking into optics, looking into managed services with campus-ready service packages and thereby exploring adjacent opportunities in this space as well. While the revenue recognition related to data centers will commence mainly from '28 onwards once the construction of the connections has been completed, it is important to note that the cash flow characteristics of this business are positive.

During the quarter, we spent on CapEx related to data center connectivity. But for the full year, given the advanced payments of customers, we expect positive net cash flow. And some words about the AI-RAN partnership with Nokia and NVIDIA. In March, we announced that we are looking into a proof of concept together with Nokia and NVIDIA around AI-RAN. And now we are moving to implementation in this one. As one sign of this collaboration and closer cooperation, especially with NVIDIA, we launched a beta version of our Moontalk AIRI Personal real-time AI assistant, which is using NVIDIA's Nemotron open models and distributed infrastructure in terms of compute -- distributed sovereign infrastructure in terms of compute.

And now we are looking closely into this. We are developing further solutions together with Nokia and NVIDIA, and we expect to see very soon announcements related to even closer collaboration around AI-RAN. And then finally, just to wrap up, our outlook and guidance for the year remains unchanged. While we see slightly increased competition in the mobile space, we are targeting to be well within the guidance range in terms of comparable EBITDA. With that, I will hand over to Kristian to go through his part of the presentation. Thank you.

Thank you, Topi. Let me take you through the financial performance. In Q3, group revenue was flat on a year-on-year basis at EUR 561 million. Within that, we continue to see the expected mix shift, mobile services, consumer digital services and the discontinuation of the traditional fixed PSTN weighing on revenues, while international software services, equipment sales and fixed services supporting growth. Comparable EBITDA was EUR 210 million, down by 1.8% or approximately EUR 4 million from last year.

The transformation program continued to support productivity. However, the benefits did not fully offset the impact from lower telecom service revenue and the discontinuation of the PSTN business. Below EBITDA, higher depreciation and slightly higher net financial expenses also weighed on earnings. Comparable earnings per share were EUR 0.59 compared to EUR 0.64 last year. As Topi explained, the mobile recovery is continuing but at a more moderate pace. The impact of the improved net sales is coming through with a delay and will be more visible in '27.

Our focus remains on improving service revenue development and delivering transformation benefits while maintaining disciplined cost control and looking actively for opportunities to improve earnings. Moving to investments. CapEx, excluding licenses, lease arrangements and acquisitions, was EUR 77 million in Q3 compared to EUR 65 million last year. This represented approximately 14% of quarterly revenue. The key point is that year-to-date CapEx, excluding data center investments, remains in line with our guidance of 12% of revenue. Just a reminder, the 12% guidance for CapEx is valid for CapEx, excluding licenses, lease arrangements, acquisitions and data center investments.

The CapEx allocation remains consistent with our strategy. Our main investment areas are 5G coverage expansion, fiber build-out and IT systems that support consumer experience and productivity. Alongside these established investment areas, data center connectivity provides additional growth opportunities. As Topi said, the year-to-date order intake was approximately EUR 100 million, mainly being secured during the third quarter.

We assess these opportunities together with their investment requirements and cash flow profile, and we expect positive net cash flow from the data center connectivity for the full year. And when we talk about net cash here, we take into account both the CapEx as well as the inflows, including the advanced payments received. We will not provide exact CapEx numbers on a quarterly basis for the data center investments due to competitive reasons. However, we will report this number on an annual basis in conjunction with our full year results.

All in all, we are maintaining investment discipline while funding the infrastructure and capabilities that underpin future growth. Turning to cash flow. Comparable cash flow in Q3 was solid at EUR 160 million (sic) [ EUR 116 million ] compared to EUR 125 million last year, a decline of approximately 7%. There were 3 main drivers behind the development. First, lower EBITDA reduced cash generation. Second, higher CapEx and higher paid financial expenses weighed on CapEx. Third, working capital provided a positive offset, contributing approximately EUR 20 million compared to EUR 6 million last year. So working capital supported the quarter but did not fully compensate the lower EBITDA and investments and financial expenses.

Our priorities remain unchanged: maintain investment discipline, manage net working capital actively and improve the conversion of earnings to cash. All in all, Q3 delivered solid cash generation while improving the year-to-date cash flow performance remains an important focus. And as said, we expect positive net cash flow from the data center connectivity opportunities for the full year with inflows mainly coming during the fourth quarter.

Finally, on capital structure and returns. Net debt at the end of September was EUR 1.5 billion, slightly above the year-end level. Net debt-to-EBITDA was 1.9x, within our target of 1.5x to 2x. The equity ratio was 38%, above the minimum target of 35%. Our capital structure, therefore, remains within our financial targets. On financing, we progressed on the proactive refinancing discussed last quarter. In August, we signed a committed EUR 300 million credit facility to cover the bond maturing in '27. The facility matures in '29 and was fully undrawn at the end of September.

This gives us flexibility in managing the upcoming maturities with committed financing already in place. Return ratios are at good levels. The comparable return on equity was 28.3% and the return on investment was 17.4% for the first 9 months. All in all, our balance sheet remains solid. Refinancing for the '28 bond is secured, and we continue to focus on disciplined investment, cash generation and returns to shareholders. With that, I'll hand back to Vesa for Q&A.

Thank you, Kristian. And now we move on to Q&A part. And could we have the first question from the conference call lines.

Thank you, Andrew, for the question. So starting with the first one related to the mobile market. So first of all, when we look at the competitive situation in Q3, we need to remember that the normal seasonal pattern with the back-to-school campaigning and so forth is that there is typically more competition in Q3. So seasonality is one factor in this. What we saw, especially in the early part of Q3 is more campaigning on consumer space where one of the competitors did not use pricing that much, but more vouchers. And that was the backdrop for our comment of slightly increasing competition.

In the corporate space, the other competitor is being quite active at this point of time. And these are basically amounting to the comments that we had on mobile market development. Now if I look at the developments within Q3, September has been calmer in terms of the competitive situation. And now it remains to be seen that how that will be carrying out and carrying through the Q4, which is typically the most active campaigning period of the year.

And then related to the macro question, the macro backdrop is improving in Finland. The GDP forecast of the country have been upgraded lately. So there are underlying positives in that one. And then the data center boom that the country is experiencing certainly will be an add-on to the macro picture. And I think that the most significant impact of the data center investments to us are actually indirect and coming through to the improved outlook of the economy, thereby improving the demand both from consumers as well as corporates.

Having said that, the data center connectivity business is an important growth area for us, as stated with the order book of EUR 100 million and possible additional opportunities related to managed services and other businesses. So we do see the macro improving. We expect that to continue during '27 despite the risks that the global economy has related to energy prices related to rising long-term rates and things like that. We see early signs of our corporate sales pipeline improving. We don't think that, that will be impacting our numbers during this year. But going into latter part of second half of last year -- second half of next year, then we expect to see more impact on the back of the improving economy.

I said it remains to be seen how the market develops during the Q4 on that one. When it comes to our telecom service revenue indications, the range from 0% to 2%, it is clear that we will be at the lower end of that range.

Thank you, Andrew. We want to remind you that please limit your questions to one, so we have some time constraints today. Thank you.

Maybe I can start on the EBITDA development and then Topi can comment on the use of vouchers. So again, I think the way to look at the EBITDA development in the quarter is that while revenue was flat, the mix shift in revenue was still towards lower-margin revenue from higher-margin revenue. So that creates a headwind that is then caught up by the cost improvements that we had from the transformation program. And then within the sales and marketing, we have been shifting investment from vouchers to sales activities. And that's, in a way, why that development on a year-on-year basis is flat compared to where we started off beginning of last year.

But really, the revenue shift created a hole that needed to be filled with cost savings. And then, of course, some of the cost savings we have, as we said, invested into growth and some of that has also been then offset by inflation during the year.

And then on the use of vouchers on the market. So our understanding is that during this year, we have been the player on the market who has been clearly using the least the vouchers as witnessed by the development of our sales and marketing costs. And during the summer, we initiated value-based actions on our mobile services, and we clearly limited the usage of vouchers at that point of time. And I think that based on our observations, that has led to the market reducing the vouchers to some extent, although there is one competitor on the market who has clearly been very active on that space still.

Yes. Clearly, the somewhat increased competition on mobile creates a headwind for that. But as Topi said, we still target to get there by being disciplined on cost and by looking at additional opportunities to drive earnings during the last quarter of the year.

So I'll start with the dividend policy part and then Kristian can complement with the cash flow characteristics that we are seeing. So I mean, in short, our dividend policy stays intact. And the continuously improving dividend is and has been part of our story. And therefore, we understand that the dividend is important for our shareholders, and thus, the comment is that the dividend policy is intact.

And clearly, we have focused on cash now during the last quarter. As I said, some of the inflows related to the data center opportunity are mainly coming in during Q4. We will actively look at what can be improved when it comes to net working capital and cash convergence in general is focused on across the organization. In addition to that, I've said now maybe a couple of quarters in a row already that we are also looking at in what areas could we release capital from our business that can then be reinvested into growth areas. And that releasing capital will improve all of the ratios that we have related to related to cash. And that continues to be also a focused area during the fourth quarter. And all of this is done to be able to secure what Topi said from a dividend policy point of view.

Thank you. So this is an important focus in our company at this present time. And as stated, that process has started during the Q3 and will continue with higher volumes in Q4. We don't disclose further information on that one due to competitive reasons at this present time. So suffice it to say that when we are renewing the contracts that we did for 12 months last year, those campaigns, we are clearly seeing at present time, a notable pickup in the average price along the lines of the current market prices. And the way we are approaching the customers in this is that we are doing A/B testing of various offers and bundles all the time.

And we are offering value-added services to customers together with the mobile sub in order to make sure that we get to keep the customers with higher price points. This is ongoing management in the company and something that we optimize on daily and weekly basis as we speak, as we move forward. And in doing so, we, of course, constantly keep eye on the churn and then competitor actions. And that is the sort of ongoing management of this operation.

Yes. So I said, when we look at the profitability of Elisa Industriq at this point of time, we are not happy with the profitability level and EBITDA level. And until so far, when we have been acquiring software companies, we have been integrating those companies partly but not fully. And with the operating model change that we have now initiated and we are planning, we will be integrating the software companies fully to one Elisa Industriq business. And in the course of doing so, we will be realizing efficiencies. That means headcount reduction. That means once we go through with the planning, that is likely to mean reduction of sites in Elisa Industriq.

Product development synergies are part of the plan, simplification of the product portfolio, definitely synergies in general and admin parts of the Elisa Industriq. And further, we will be doing investments on sales management and sales pipeline management, the go-to-market motion in order to accelerate growth. And all of this sums up to a significant profitability increase that is foreseeable for '27 coming especially from the cost side of Elisa Industriq.

Then when we look at now the revenue momentum in Q3, that is clearly picking up. And as stated, we are very happy to see the customer wins that are significant. The customers are large global entities who have been selecting our software for their whole production footprint for all of their fabs. And then that is something that will certainly support the revenue going into 2027. So lots to be done in Elisa Industriq, but encouraging progress during the quarter.

Maybe on the one-time items. Given that we are still in the planning phase, some of the one-time items were recorded in Q3, but there is more to come related to the planned savings here.

There would be both elements in these deals that we would be talking about. But clearly, the SaaS share of the revenue is increasing also with the new deals.

Maybe I'll make it easy here. So on the contracts, we will not, for competitive reasons, be able to discuss that. However, your general trend is well understood and also something that we are seeing. I think on the order book on the data center side, we are talking about orders that take some time to implement through the CapEx that is required. Thus, the revenue impact is only expected to materially start in 2028. And they are long-term contracts that the data center operators are expecting from us because they will -- they want to have certainty of connectivity operations for their data centers.

Well, I mean, there would be, of course, many angles to this discussion, but let me start one sort of recent phenomenon, and that is that some large companies, including JPMorgan Chase and Citigroup in the banking sector, they have been clearly stating that they won't be allowing AI agents to transact on behalf of their customers. And if we look at our sort of mobile postpaid product in Finland, that mobile postpaid product is also closely associated with identification standards like mobile ID. And mobile ID, in turn, enables customers to transact in the online space quite freely.

So that means that when we look at our postpaid product, it is really important for us also to know our customer and know with whom we are dealing with. And that is something that we will be taking into consideration going forward. So that's one angle to the discussion. Having said that, when you look at the channels in Finland in terms of especially the mobile sales -- the predominant channels are telephone channel and physical online shops. Web shop does play a role, but it is the third biggest channel at this point of time.

And as stated in accordance with what Kristian just stated that the general trend on the market is more towards individual pricing and differentiated by the customer. So this is also something that we can manage within the channel setup that we are currently having. So that's second angle to this discussion. The third is that clearly, us as well as all other players on the market, we need to work on differentiating our services and also improving the customer loyalty. And we, as the only player on our market, have a loyalty program to our customers. And we certainly want to strengthen that program going forward in order to improve the customer retention.

Can you repeat the question? I didn't catch the beginning.

Yes. I think that in domestic digital services, the entertainment services, streaming services are probably the biggest part of that and then also the IT services on the corporate side. So we are basically seeing flat revenue growth in the entertainment services as we speak. In the IT services on the corporate side, on the back of the improved sales pipeline that we are currently seeing, as I mentioned, related to the macro question of Andrew, then we are seeing more activity, and we hope to see revenue growth in that business going into '27 and going into the later parts of first half of '27.

So 2 final questions.

For the question. No, it does not reflect a shift in the strategy. I mean there has been quarterly fluctuation in this one. And during this quarter, the net add development also reflected especially one of the competitors using vouchers quite a bit in their campaigning. And at the same time, we initiated value-based actions to reduce the use of vouchers. So this is fluctuating from one quarter to another. We have been investing into sales force in mobile currently, and we are seeing nice pickups in the net adds on the corporate -- corporate side if we look at the year-to-date numbers of this year. So that means that we, going forward, want to keep our market share as the market leader. But for the time being, also given the repricing activity with the ending contracts from last year, we have adopted these value-based measures, as mentioned.

Okay, let's take the final question.

So again, as Topi said in the prepared remarks, clearly, the recent trends in mobile is creating a headwind, but our target is to operate well within the range. So no update there. Maybe the thing to keep in mind when thinking about this is that Q4 last time -- last year was the most intense competitive quarter. And as a result of that, maybe a slightly easier compare than some of the other ones we've had this year.

Thank you. And also thank you for keeping the schedule as planned. All right. Thank you for participating, and we hope you a nice report season going forward. Thank you.

Thank you very much for participating.

Thank you. Bye-bye.