Eltel AB (publ)

A warm welcome to this presentation of LTEL's third quarter. My name is Alexandra Kjernlund. I am the communications director of LTEL. To present the results, we have our CFO, Tarja Leikas, and our CEO and president, Håkan Dahlström. And after the presentations, we will open up for questions. And you can already start asking your questions. You can ask them throughout the presentation by posting them in the chat field. With that, I'd like to hand over to you, Håkan.

Thank you, Alexandra. Good morning, all. Looking at the third quarter, we see solid growth in net sales driven by Finland and Sweden. But we also see an improved and strong adjusted EBITDA, also driven by Finland and Sweden. So we reach a net sales of 210 million euro to be compared with 213 million last year. But when we compare to last year, we need to remember that the high voltage business in poland that we divested during the first half of this year contributed with net sales of 11.8 million during the third quarter last year so that's the background why the growth in the company in the third quarter is four percent when we compare the same scope What I'm happy about is to see that the gross profit continues to improve, also in the third quarter. And summarizing, we see here that this quarter is the best ever, if we look at ELTEL with what I call the current scope. So since 2015 somewhere, we haven't had this amount of profit on adjusted EBITDA. So with that, I see that we now have delivered five consecutive quarters with year on year adjusted EBITDA improvement. So this is, of course, something that we are proud of and that we have the intention to keep. So in the segment, we see that adjusted EBITDA is improved to 9.8 million to be compared to last year's 6.8. So this is good to see that despite that we have headwind and struggles in Norway that continues also in the third quarter, the segment as such delivered 3 million better. On the sales side, I have to say that we are a bit shy. We had 135.7 million to compare 170 last year. But we also recognize that the second quarter was a bit stronger than usually. But nevertheless, a bit shy, I have to say. So that leads us to an order book that had a decrease down to 1.1 billion euro to be compared with 1.2 before. But last 12 months, cash flow has improved in all segments. And this is, of course, something that is high up on our agenda and a very strong focus for us. Other highlights during the third quarter. I would like to point here at the new contract with Hellen, an energy company in Helsinki. Here, this is one of those areas that we have had struggle with during 2023 and 2024 due to poor profitability. Now we have been able to regain this contract and it will come into play starting in April next year. And this is a very important step in the profit improvement work that our Finnish organization are doing. Also in Sweden, we have the third agreement now with the Swedish Armed Forces. And this is also a very good step in our broadening the customer base and build new segment for us. Otherwise, on the market, we see particularly high interest in the battery energy service solutions, where people are asking for a lot of information, a lot of initiatives in the market, and we have been able to secure a few new contracts. And I will do a little bit of a deep dive in this area at the end of the presentation today. But generally speaking, in our new and adjacent business, we see that all Nordic countries are taking new initiatives and that they are doing successfully. So in all solar, BES, e-mobility, we see that the total contract value is coming up. It's really great to see. However, we also have to recognize that there is a delay in customer decision making. I think this is mainly due to the interest rate, and we see that particularly in new energy areas like solar, that decision is pushed forward. And even though we have handshaked large projects, it has not really materialized. So we have to continue the development of our organization, both to enable the strategy execution that we think we have good progress in, but also that we have to adapt to the market dynamics and a bit of hesitation in the market just now. So our financial targets, they remain the same, but the previously stated timeframe of this that we have formulated, like by the end of 2025, that we now have removed. With that, I would like to hand over to you, Tarja, and the numbers.

Thank you. Thank you, Håkan. I'm delighted to report Eltäl's third quarter and January-September result. We have a great quarter behind us. Our organic net sales grew 4%. On the upper right table, you can see the country-specific contributions. Sweden leading the pack with over 9 million euros growth. Finland contributing with almost 5 million euros, quarter growth. In Denmark, we had a quiet quarter in net sales following previous quarters, early closings of the projects. Last quarter, Denmark reported a staggering over 20% growth. In the lower right table, we open the adjusted EBIT-A contributions. Profitability-wise, Finland and Sweden, together with other business, led the profitability improvement. Eltel's third quarter result is the strongest ever with current scope. This result was in line with our own expectation and is yet another step towards our long-term profitability target. Then we take a look at the segments, and as usual, Finland being the first. Finland's share of LTL Group is 42%. Here, our growth was close to 5%. The net sales engines were communication and it's fiber to the home projects. In power, Finland experienced volume decline due to updated market regulation. Also, like Håkan mentioned in his opening words, there were delayed customer decision-making in Finland and it caused some uncertainty. The profitability improved significantly, 52%, and came to 7.3 million euros. Finland has been working and continues working towards efficiency improvement. And then Sweden, which represents a quarter of Eltel net sales. In Sweden we had a very strong quarter. Net sales grew 19% in local currency, this largely driven by successful project closings. In regards of Sweden top line, we are delighted about the customer base expansion. Expansion in industry sectors, public and public infra and defense. I said Sweden delivered a solid quarter, two million euros adjusted EBIT A, largely driven by successful project closings. And then Norway. which share now of LTL business is 14%. In Norway, we have made an active decision to focus on margins rather than volumes. There is some positive development in Norway in the form of new business. This has not been enough to compensate the low investment levels of fibre and 5G. Our net sales decreased 10% in local currency this quarter. Equally, our profitability decreased with 1.4 million euros. In Norway, we are executing a restructuring program. The restructuring will have an impact on personnel, locations and fleet. The estimated value of items affecting comparability is 3.8 million euros, mostly fleet, but also compensations to personnel. Then we take a look at Denmark. Denmark's share of LTEL operations is 11%. Here, our net sales declined 9%, partly due to previous quarter's significant project closings. Previous quarter growth was 18%. Year-to-date, Denmark shows approximately 2% growth. And despite the net sales decline, Denmark succeeded in defending the margin. Adjusted EBITDA margin remained on the same level as previous year. And then other business with share of total is decreasing after the June divestment of high voltage Poland. Quartal net sales decreased almost 12 million and came to 12.2 million euros. The remaining other business entities are SmartBridge Germany, Lithuania and the closing activities of Power Transmission International. Other business profitability improved and came to half a million euros. We will now close the final result, taking a look at the balance sheet items, where we have leverage, net debt and net working capital. In leverage and net working capital, we report major improvement. Leverage is down from previous year's 5.4, now to 3.5, and net working capital from last year's negative 15.5 to this year's negative 33.5 million. Then, our improved profitability brought us stronger cash flow. Advanced payments and accounts payables are on lower level than previous year. This leading to slightly elevated credit facilities usage. Also, leasing debt is now five millions higher due to the fleet renewal. This resulting to higher than previous year's net debt. And lastly, we take a look at Elta's financial target setting. Here we removed year 2025 and otherwise kept target setting unchanged. Our profitability group adjusted EBITDA margin 5%, annual growth between 2 and 4%, the leverage 1.5 to 2.5, and then dividend payout naturally subject to leverage target. And now Håkon continues with the strategy topics.

Thank you, Tarja. Thank you. So, our strategy in short. It's very much about improved efficiency and profitability of the current business. And here it's both the operation excellent, but also the commercial terms, like price, invoicing condition and payment conditions. We also see a need in the strategy to broaden the customer base, and this is very much the focus together with the profit improvement. Then, of course, we have dedicated resources to grow in new and adjacent markets, such as renewable energy and public infrastructure. We also see the need of integrating sustainability in all parts of our offerings and operations. And this is also something that is more and more visible in the customer dialogues on the daily basis. We also have a need to develop our concept and commercial capabilities, and here I would claim that we as Eltel are more proactive today, more customer-oriented, more outgoing towards customers, taking more discussions around future potential and future business than we have been in the past. And this is great to see this change of our behavior and our culture in the company. We also see a bit of a progress here, and I will touch base on a few of these parts here. As visible in this third quarter, you can see the improved profitability, and our gross profit has increased year-to-date with 26%. I think that's great to see. The adjusted EBITDA has improved in all segments except Norway. On group level, this gives us five consecutive quarter with a year-on-year adjusted EBITDA improvement. And this is, of course, a trend that we want to keep and stick to. It's also so that when we look at the last 12 months, we can see an improved cash flow in all segments driven by this adjusted EBITDA improvement. We also see that the second part of our strategy about broadening the customer base, here we have progress, but as I mentioned in the beginning, we see also that the order book have declined slightly during this quarter and the 11% of The portion of everything we have saw that is in the new and adjacent market is 11% of the total contract value. This is something that where you see more and more activities and you see also the pipeline on the right side here that there is a half, 50% of the pipeline is now about new and adjacent business. We see that particularly the area's battery energy storage system is a area that is very active just now in the market. And if we look at that, what is this about? I will start a little bit talking about the market where we have seen now for a couple of years that the need of this type of solutions have increased. And why so? It's so that when the share of renewable energy is coming up, it becomes more and more difficult to keep the frequency in the grid on the right level. So one activity to do this is of course to take out load from the grid, but another part is to inject power, meaning energy, from solutions like battery. And this has become a very attractive market. Here it's a role for us to take as a turnkey solution provider, meaning that we will help our customers with everything from design and planning this type of solution to make them operational by commissioning the solution. So here, all areas except Norway are very active in this. The market in Norway have not really taken off yet, but there is significant discussions in Denmark, Finland, Sweden. And for us, Denmark is paving the way, where we, during this quarter, have signed two turnkey contracts, and we have two since before. But also active activities, maybe particularly in Finland. With that, we finalize the presentation and go over to questions.

Yes. Thank you, Tarja and Håkan. Thank you. Very good. If you have any questions and you'd like to ask them verbally in the telephone conference, then just please press the pound key followed by five on your telephone keypad. So do we have any questions from the teleconference?

The next question comes from Adrian Jelani from ABG Sundal Collier. Please go ahead.

Hey, Adrian. Hello. Hello, hello. I'd like to start off with a question on the margin target of 5% EBITDA. You say that this will not be reached by the end of 2025, but you'd still decide to keep the target intact. So can you provide any sort of updated timeline for when you expect to reach that?

As we judge the market situation here and now, it's not realistic to reach the 5% adjusted EBITDA target by the end of 2025. But I don't have another time frame for you to communicate or to say today. We will reach the target, but I don't have a time.

But can we assume that if we assume a normalized market conditions the year after, then that target should be doable for you?

Yes, I think when we come back to a more normal market condition, I think we have the target in reach, yes. But I believe that the market we are active in has also been impacted, particularly the last two quarters with the interest rate, where we see that our customers are postponing or a bit hesitant to start new initiatives.

Understood. Then on Finland specifically, Finland is already above 7% this quarter on EBITDA, and of course there's some negative seasonality to account for going into Q4 and Q1, but if we sort of exclude seasonality effects, do you think that the margin level in this quarter is something you can defend in Finland, or is this an abnormally strong quarter?

We have a seasonality during the year, meaning that the third quarter is our strongest quarter and the first quarter is our weakest. That has been like that many years. And I believe that as long as we have reasonable the same business mix as of today, we will have that pattern also going forward. So it's great to see Finland delivering this in the third quarter. We have to recognize the seasonality effect on that. But of course, we will continue the work also in Finland. It's not so that we are done. We still have need to improve our operations also in Finland.

Yeah, absolutely. And then on Norway, regarding the restructuring expense in Norway, are you able to quantify the savings effect from that and also when that will come into effect?

The restructuring program is larger than 200 roles, but it's also a major adjustment of our fleet and locations, meaning that we reduce the number of sites and the sites we keep, we reduce those in size. This will continue during the rest of this year, and I don't have a number for you what yearly savings that would be, but we believe that we will be in line with the market demand here in first quarter.

Okay, understood. So you expect Norway to also be positive on a beta level from the first quarter? No, I don't. Apart from seasonality in Q1, but for next year if we say that?

We don't give any forward-looking statements like that, but the first quarter is the weakest quarter. And we have to recognize that this restructuring will be finalized here at the end of this year. So we don't expect a strong first quarter from Norway, no.

And then a final one from my end. regarding working capital that actually you saw quite a build-up during or compared to Q2 at least. Can you sort of mention if this was a temporary effect and if we should expect a reversal on working capital for Q4?

Working capital is the area that I've always stressed that that is the active, really active part of our financial management. And this quarter, where we report, I mentioned in the presentation that the accounts payable, where there were... on a lower level than previous year. But I would say that that's normal fluctuation. But in our line of business, the negative working capital is a key. And we have kept that for quite a long now. And we continue with the same pattern going forward. But obviously there are fluctuations, intramont and quarter, but I don't have anything particular to report there.

Okay, understood. In that case, that was all from me, so thank you for taking my questions.

Thank you, Adrian. Do we have... No other questions on the phone. Okay, then we have a couple of questions who come in online. And we have three questions from Apelie Pusimo in Indres. So let's start with the first one. Regarding Norway, do you see any positive drivers for demand in Norway in short term? For instance, like the next 12 months? And if yes, what are these?

They are mainly in the new areas. We see that we are becoming more and more into discussions around data center, but also solar and charging infrastructure. So those areas, I would say, is most active. Data center, charging, and also solar solutions.

Okay, maybe in line with that, but if you could elaborate even further then. How do you see the overall outlook for the renewable energy from your perspective?

Yeah. We see that the whole segment is impacted in the third quarter from the interest rate, but we, as everybody else, expect the interest rate to come down. How quick the activities will come up in terms, it's very difficult for us to say, but for sure we believe that we have seen the beginning of the end of this hesitation that has been in this area. So there is Particularly if we not think about Norway, look at other countries, it is very much about BES in the third quarter. We believe this will not come into Norway short term. But as I mentioned, data center, charging, solar, but also high quality communication solution for the public sector is also an area where we see increased interest.

And the need for energy is endless. Sweden reported nice growth numbers in Q3. Is the growth in the solid foundation for the coming quarter years as well? Or were there some larger projects in Q3?

Yeah, we have, I would say, a mixed bag here. We have a few projects that we have been able to finalize earlier than what we had planned. So that gives an effect in the third quarter, both on net sales and profitability. But overall, I would say that Sweden is doing quite nicely, both in communication and power.

Okay, good. Thank you, Apeli, from Indras. And then we have a question from Olli Eloranta, Danske Bank. Maybe for you, Tarja. Could you comment on your liquidity position? Your available liquidity reserves, 47.6 million euro, is lower than your current interest bearing death, 86 million euro, excluding leases. Do you see any liquidity risk here and do you have plans to improve your liquidity position?

In the presentation, I mentioned that our advances received and accounts payable were on a lower level in third quarter. I see that as a normal fluctuation. At the same time, I mentioned the stronger cash flow from the operations in the form of profitability improvement. Liquidity is a key. Cash flow management is the key. We continue the way we have been. Okay.

Thank you. So there doesn't seem to be any more questions online and no further questions on the telephone conference. Okay, thank you. Then we will end this presentation. Thank you, Håkan. Thank you, Tarja. And we will release our Q4 report on February 14th, 2025. Hope to see you then. Goodbye for now.

Thank you.

Thank you.