Eltel AB (publ)

Good morning and happy Valentine's Day. My name is Alexandra Kjernlund. I am the communications director at LTEL. And I have the pleasure to welcome you to this webcast where we will present the results for LTEL's fourth quarter 2024. After the webcast, there will be some time for questions, and you can dial in or use the webcast for that. I'll get back with instructions later on. The results will be presented by our CEO and President, Håkan Dahlström. Good morning.

Good morning.

And our CFO, Tarja Leikas. Good morning. And with that, the stage is yours. Let's turn to the third slide.

Thank you, Alexandra. I will start with the financial highlights of the quarter. Here we can see that there's a good development on profitability, strong sales, and we are, in the end of the quarter, also reaching our leverage target. So, really happy for that. But starting with the net sales, we see that this quite slow market during the autumn, I would claim the whole autumn, led to a decrease on net sales. and mainly this is also due to our divestment of the high voltage operation in poland that you remember we did in the second quarter so when we compare the quarter to quarter this is of course one important factor organic growth in the segment were flat during the quarter and that despite this market so i actually have to say that i'm pleased that we are able to keep it up Improved gross profit, 28 million, an increase in the fourth quarter and also an increase during the full year. So that's an important step for us. And we can see that we now have a doubled adjusted EBITDA in the fourth quarter compared to last year. And here it's good to see that all units... contributes, except Norway, and it's also so that both power and communication is contributing to this. So I think that is well done of all units and happy to see that development. This means that this is the sixth quarter that we have improved year over year, the adjusted EBITDA. And this is, of course, something we intend to do. We don't believe that we are where we should be really yet. So more of this to come. In this quite slow market, I'm happy to see that we still have strong commitment from our customer base and that we also are able to expand the customer base and that they commit more and more to us. So we had a great sales, meaning that we signed a new contract during the quarter for a value of €308 million. And that has given us a very strong order book with €1,220 million in the order book when we go out of the year 2024. And as I mentioned, the leverage here, we reached two and a half. And Tarja will talk a little bit more about that in the financial section. On the right side, you can see the improvement on the adjusted EBITDA quarter by quarter. And this is, of course, for us, a very strong proof point that we are on the right track here. Going to some operational highlights from this quarter. I'm pleased to see that we have won and delivered our first best solution, and this is both in Denmark and Finland, but also so that the first utility-sized solar installation, a solar park, a sizeable one in Finland, is also delivered and up in full production. In the very end of the fourth quarter, we signed a contract with a customer, Talleri Energia, to potentially build a big solar plant. And now in the beginning of 2025, we have received notice to proceed. That means that all the conditions to do this is fulfilled and we are up running with the work in that now. It's a really important step and the next level, I would claim, in the solar area. During the fourth quarter, we signed two very important contracts with the Swedish Transport Administration. This is a very important part of the Swedish business, meaning that we have a really strong foundation with this contract that is very much about services. Together with our commitment, we have one in the telecom business, meaning that the structural costs in Sweden have a great foundation to stand on. We see similar contracts in Finland with Telia, we see in Norway with Avinor, and here's a good example how we're broadening our customer base also outside the telco sector. And we have also been able to recruit a new managing director and Ingrid Tresvold will have started this week actually in our operation in Norway. So really happy for that. And then all of these young guys you see here on the picture to the right side is so that Early Saturday morning, three weeks ago, we received a call for support from a network owner in Ireland that they had a significant problem after a heavy storm and they were now calling out in Europe for support to help them restore the electricity in the society of Ireland. And I'm really proud to see that 38 technicians volunteered and took off to support them. And we are now pleased to see that in the middle of this week, they're all back home safe after a very, very appreciated three weeks work with our friends in Ireland. So really nice to see our technicians supporting our friends out in Europe. Let's zoom out a bit and look at the full year of 24. Now when we close that, I can see that we are able to... reach organic growth at 1.8% in despite of this very slow autumn. So I must say I'm a little bit happy for that. Just the EBITDA have taken important step quarter by quarter during 24 and we are now at 10.5 million, a milestone in a way for us, but not where we really want to be. So more work to be done on profit improvement. And for the full year of 24, we were able to sign a new contract to a value of 863 million euro. So this is, of course, giving us the foundation for being a bit positive looking forward. When I zoom out and look at the Nordic, what we're doing, we talk about solar and other stuff here, but for sure, the telco sector is the largest for us and the most important customer segment we have in Eltel. And here, I could clearly see that we are by... Sure, the largest provider in the Nordic when it comes to mobile 5G technology and fiber to the homes. So really good to see that development that we are defending that position. But of course, we need to broaden the customer base also. And I see great progress in the public infra segment. And here is a handful of agreement that has been won during the year. That is, of course, important for this. In the communication area, As I mentioned, still the most important segment we have, and we have been able to renew contract of significant value also during 24. So really well done, as I see it from the different countries here. Happy for that. And then that we are able to build the new business also. And here we have a few examples from power and the renewable energy on the lower right side. And I would particularly like to point out that this agreement with Helen Electricity Network in Finland is one of those contracts that we earlier have talked about that we have profitability issues with or problem low performance. The team have, month by month, quarter by quarter, improved this. So in the end of 24, we are in a much better situation. But nevertheless, now we have a new contract for the coming years, and we will start delivering on the new contract by 1st of April. So that's also a very important milestone for us. As I said, solar parks, the first one delivered in Finland, and battery energy storage solutions, both in Denmark and Finland, both won and delivered during 2024. And this is, of course, important proof point for us and also giving fantastic experience now when we continue this development into new areas. With that, I would like to hand over to you, Tarja, and more about the numbers. Thank you.

Thank you, Håkan. I'm delighted to report Elta's fourth quarter and January-December result. We have a good quarter behind us. Despite flat organic growth in net sales, we were able to improve our profitability significantly. On top line, Finland and Sweden have continued to grow. In Norway, communication volume-driven decline has continued. And in Denmark, the strong growth in power wasn't quite enough to compensate the communication decline. Profitability-wise, Finland, Sweden, Denmark and other business report improvement. Eltä's fourth quarter's 5.7 million adjusted EBITDA result is more than double compared to previous year and is yet another step towards our profitability target. And with our 10.5 million full-year result, We need to go a couple of years back to see profitability comparable this year's result. Then let's take a look into our segments. First, we have Finland. Finland's share of LTL now is 48%, 45%. Here our growth exceeded 3%. The net sales engine continued to be communication, where the customer investment into fiber remained high. In power, the volumes continued to be slightly lower than previous year due to the updated market regulation. Net sales in renewables increased. The first large-scale solar park, as well as the first BEST project, were finalized. Our finished operations report major profitability improvement. Adjusted EBITDA nearly doubling to 6 million euros. We are very happy that the hard work in efficiency improvement is bearing fruit, and despite the net sales decrease in power, also power improves profitability. Resizing measures in Finland have resulted 74 persons headcount reduction. Then we take a look into our second largest segment, Sweden, which represents 26% of LTL net sales. Sweden continued to develop positively. Topline growth now fastest in LTL countries, exceeding 5%, and full year close to 7%. We are particularly happy that communication business with the advancement in public infra was a major contributor. The growth in Sweden continued being profitable growth. This was 10th consecutive quarter of positive adjusted EBITDA. Both communication and power contributed to the improved profitability. And all this with a smaller headcount than previous year. Then we take a look at Norway, which share of LTL is now 13%. The customer investments in communication continued to be low in Norway, this resulting 4 million euros decline in net sales. Activities broadening the customer base have continued, result not yet compensating the traditional customer volume decrease. Equally, our profitability declined euro-wise 1.5 million. The efficiency measures in Norway have continued, resulting now headcount reduction of approximately 200 employees. It is notable that the measures do not limit to personnel and include, for instance, the fleet. And the work around profitability improvement will continue. Then we take a look at Denmark, which share of LTEL operations is 11.5%. In Denmark, the general volume shift from communication to power has continued strong. Power grows and communications decline, the top line result being 8% decline. Profitability improvement continued. Here we report over 8% adjusted EBITDA compared to previous years, 4.6%. We are especially pleased for both communication and power contributing the improvement. And then our other business, where net sales have decreased following the June divestment of High Voltage Poland. With the divestment, we reduced our risks significantly. The divestment also leads to improved profitability and lower operating costs. Fourth quarter, we see profitability improvement of 600,000 euros. This divestment has also given us possibility to review our segment structure. And we have updated our segment structure from the beginning of this year. The operations in Denmark and Germany will be presented in one segment named Denmark et Germany. The remaining part of other business and group functions will be combined and named as group support functions. The segments are now Finland, Sweden, Denmark and Germany, and Norway. And then we complete the financial report and take a look into our balance sheet items, where we have positive news to share. In leverage, we have reached our financial target. From last year's 3.2 leverage, we go down to 2.5. We report major improvement also in our net working capital. From previous year's negative 49.8, we go down to this year's negative 61.3. Our net debt was 114 million when previous year, 100.6 million. The net debt increase is largely driven by our fleet renewal, and this knowing our sustainability commitment. Our term loan is now 4 million euros less than the previous year. And then I'd like to remind the audience Elta's unchanged financial target setting, our profitability, adjusted EBITDA margin 5%, growth, between 2 and 4 percent and leverage 1.5 to 2.5. And like we mentioned, we have reached leverage target this year. Thank you all. Okan.

Thank you, Tarja. Thank you very much. And then just remind all of us about our strategy and in very short, the most important part in the strategy is to improve our efficiency. and profitability in the current business, meaning the core business of Eltäl. And this is of course, a big portion of this is also on the commercial side, it's operation excellent, but also commercial questions like pricing, invoicing and payment condition and all of this. We also have the ambition here to broaden the customer base. We have mentioned that a few times today, and this is a significant part of the work we are doing. And then on top of this, enabled by the core business we have and the great competence there is in Eltell, we have possibility to build new and adjacent market. And here, as example, we have talked today about solar and BES, but there is also other units in that or other areas in that. So then looking a little bit how we are doing on this most important part of the strategy. On the improved profitability, we can see that we now year on year have 21% improvement in gross profit. And the largest improvement is in power services Finland, even though they are pushed on net sales due to the regulation. There's a change of regulation that we have talked about in a previous quarterly report. And this has impacted the net sales over the year of 24. But despite that, I'm happy to see that the team is delivering better profitability. And it's actually so that the profitability improvement are visible in all different segments in communication except Norway. So this is giving us confidence that we are on the right track and we will continue this work, of course. I mentioned before six consecutive quarters with year-on-year improvement and the leverage in line with our target. Coming to the customer base, as mentioned, the order book is strong and we are now happy to see 1,220 million euro in the order book. Part of this is, of course, in our new adjacent market, and that part for 24 has been 13%. So I can see here that we are able to convert the pipeline into contract and contract into revenue, even though the revenue size of 24 is 4%. But we also know that this will take some time. But happy to see that we have revenue of 31 million during last year. in this new and adjacent market. The signed contract value in new and adjacent market is 111 million euro and that is of course giving us a reason to be optimistic about 2025. Then a little bit more meat on the bones in one of these cases. In the very end of 24, we got a conditional contract with the customer Tallri Energia. This is about building a solar plant in Finland. It's a big one. It's 129. megawatt in peak so the size of this if you try to visualize this is 270 soccer fields that's the surface that this park will cover and this commitment that we have here is to build an overhead line a grid connection and a substation together with the solar park so really perfect fit for our Finnish power organization, and this will generate power and energy to roughly 18,000 households. Great to see. So the construction has already started and you can see on the right side a picture from the field where we have de-cut the trees, the trees the area and now the team is on a high intensity in the work there to get this done because all of these have to be done up running by mid of 2026. So this is a turnkey contract, perfect fit for us, being able to help the customer with everything from overhead line to the solar park and everything in between. So very exciting to follow this project. And this is the single largest order that we have received for our business in Finland. With that, Alexandra, I think we are ready to take questions.

Yes. Thank you, Håkan and Tarja. We have a few questions coming in through the webcast. But before that, I would like to see if we have any questions on the phone. If you want to ask a question via the phone, please dial pound key five on your telephone keypad. I think we have one, right?

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

Yes, hello. I would like to just first of all ask a question on the contract terms for the annual contracts, because presumably we are around the point where many of the annual contracts are being rolled over onto the new terms. So can you give us some update on when those will happen and what kind of price increases you're pushing for in those negotiations.

When you say annual contract, I'm not 100% sure what you mean, Adrian. In all our frame agreements, there is sort of three or four years commitment, and then there is one or two years options, and this is something that then is a negotiation dependent on what exactly that contract says. Some of the contracts have... already this cleared out from the beginning what the conditions are and some contracts are a bit more open but i don't see any drama in this this is business as usual and we we see that our our ambition or pricing as we have had now for two years is working well for us okay understood uh and

I was perhaps referring to the type of contracts that are from the older business where you have the annual indexation clauses. What we can expect from those?

Each contract has their own indexes dependent on the business mix. If there is more material, there are indexes that are correlated to that. But this is something that is happening all the time. There is not a certain date that this is happening more or less than any other period of the year. Many of these have sort of a yearly update, as you say, and then they are measured up to November. So the outcome of that will be implemented here in the beginning of this year. But we think that they work well and they are covering our cost increase. Yes.

Okay, understood. And then just diving into the segments a bit. In Finland, you previously talked about two big contracts that sort of had these profitability issues. And I believe you mentioned that one of them is out of the books as of 1st of April. Can you give us an update on the other one? Is that still on the books and for how long if that's the case?

Yeah, that's still with us and will be so during the whole 25 and a bit into 26.

Okay, thank you. And then in Norway, seems to be the biggest problem area right now. Do you feel you've done what's needed on the downsizing front in Norway, or could it be the case that there's still more restructuring measures to go?

We still have things to do when it comes to fleet and that sort of thing. I think we have come to the level of size in the organization that is in line with what we see in the forecasting from our customers and how we read the market so the actions are done but we will have a bit of a tail in the cost of this it doesn't happen overnight so to say when we do downsizing so the activities are done the costs have a bit of tail into the first quarter So we don't see the full effect of this until, I would say, the later part of second quarter. But month by month, the cost is reduced due to less cost of staff. But we also have fleet, as you know, and tools and sites. But we are looking at all of this, of course.

Okay, makes sense. And then just on the costs in the group functions, I mean, they have... grown a bit from 9 million euros roughly in 2023 to 11 and 24 were there any sort of one-off restructuring costs at the on the group function level as well or that were of a one-off character or is this sort of the new run rate yeah no this is not a new run rate we had the divestment of the high voltage operation in poland as a one-off that is impacting those numbers okay okay And I guess a final one from me on the new businesses now that you're sort of starting to to sign bigger contracts and you showed the pipeline was roughly 50-50. How much of that do you think can come through already in 2025? So how much of revenue roughly can be from new businesses in 2025?

I don't have any guidance like that for you, but I have been very transparent showing you the pipeline, one contract and the revenue. for some quarters now we will continue on that but i think you could see how pipeline is converted into contract and contract converted into revenue but of course it takes one year until tcv becomes revenue yeah and i agree i think that the charts are very transparent but it's always worth asking for more info of course yeah

I guess that was all for me, so thank you for taking my questions.

Thank you, Adrian.

All right, no further questions on the phone. So we have a few questions coming in online. Håkan, can you elaborate on a high level the degree of diversification within your current backlog across business segments, country units, sectors, what's in there?

I would say that we have a very healthy mix in the backlog, in the order book. There is some areas where we have a need of more contract, of course, and some areas are sort of in a much better situation um overall i would say that the situation is very good i'm very confident positive when i look at the order book and see what what the team have achieved during last year so i think it it's uh yeah it's a strong order book i don't see any uh Big hiccups or problem. I would love to see a broader customer base in Norway. That's for sure. I see also that we have been able to catch the potential in power in Finland, in Sweden, in Denmark. Can we do more? Most likely we can. I see public infra coming up strong, particularly Sweden, but we would love to see a bit more public infra in other countries. We see that there is a very nice and good potential in data centers. This is something that we would address more going forward.

Along those lines, the second question, and these are questions from our analyst, Kristoffer Jennelen in Indres, by the way. How do you see the demand outlook, like you were starting with, across LTEL's country units? And what are the key revenue drivers, challenges each unit face going into 2025?

We see an increase in power. I believe that there is a lack of resources in the society when it comes to meeting the need to rebuild and strengthen the grid overall, both on transmission and distribution network, but then also this new energy solution like we have talked about best today solar I believe that we not during 25 maybe but after 25 I will also expect to see an increase in wind all of this is of course also taking resources and here we see that there is lack of resources in market meaning that the demand is higher than the supply in the communication area my perception is that in the telco community or the customer segment of telecommunication operators here we see a small decline in in demand but that is compensated by an increased demand from public infra So we see more and more activity partly driven by the NATO membership, partly driven by the situation in Europe with the security situation and the war we have in Europe. So we believe that this demand will be here for quite a long time. And we see that that compensate for the lower demand in telecommunication.

Yeah. And a third question from Christopher. I know that you were referring a little bit to wait and see markets in your comment in the report. Yeah. Now, the Swedish Riksbank and ECB have cut their policy rates by 100 basic points. and 50 basic points respectively since your last earnings report. Have you noticed that previous hesitation within new and adjacent market, particularly within renewables, have started to shift in Q1? Or do you see a strong year for the renewable segment in 2025 on the back of these lower interest rates? On a high level again then.

Yeah, I think it takes a bit of time until the effect reaches us. But I think you're on something here. Most likely this will happen. And particularly when the interest rate went up, it became very difficult for the wind cases. It was obvious that they couldn't get the business case together. And all of those discussions were put on hold. We hope that the interest rate has now come down to a level where those are going to be picked up again. But that has not happened yet.

This has been something that we have mentioned in our webcasts earlier, that there has been delayed customer decision-making. The person asking was referring only to Sweden. Sweden is a quarter of our business. Yes, in Sweden also, but especially in Finland we saw delayed decision-making.

Yeah, let's hope it will pick up shortly. Last question from Christopher. And this is regarding the Tullery energy ideal that you were talking about.

Yeah.

Can you provide some more details on the key financials and risk aspects of this solar park project, including payment terms, revenue split, 25-26, price adjustment mechanism for material costs, FX, risk distribution in case of cost increases or delays, and expected margins?

What I can say is that the contract is milestones-based, giving us the right to invoice when we have reached certain milestones, but also so that there is a mechanism in the contract that make it sort of cash flow positive for us since it's a big portion of material in this and we are not financing those materials. This is built into the contract. We're happy for that. I think the whole contract is very balanced and good. built between two parties. And I think that discussion has been very fruitful and good. So I'm not super worried about this contract. It's for us normal conditions. We're happy for the milestones, happy for the invoicing conditions we have there. Since we will be ready with this in the mid of 26 a majority of the revenue will come 25.

Yeah, to be continued. Yes. And Martin has a question. Have all unprofitable orders now matured? How do you ensure that new orders deliver profitable margins? When will you update your financial targets? Should we start with those because there is one more question.

We have no new information about financial targets. We have the 5% adjusted EBITDA as our target. We have the 2-4% growth and 1.5-2.5% in leverage. That's what we have and we have no forecasting when we either would reach them or when we will update them. But I see that since we increased our commercial ambition, as I have chosen to phrase it, we see that that has an effect on all our orders. And the portion of these sort of new contracts and new commercial terms is growing month per month, of course. But as you know, we have four years frame agreement, more or less an average on four years. So it would take some time until everything is based on this. I think we see this when we follow the gross profit that this is actually working and we are getting there. Yes, it takes some time. Absolutely. But I would claim that we now, quarter by quarter, have been able to show you that we are on the right track.

And what can be done to lower your cost base? Your admin costs are around 10% of sales. And how will you handle the increased costs from the hybrid loan in 2026?

Leave the hybrid loan to you and say that this is a never-ending story of course to work with our cost structure and this is something that we continuously work on we try to All the classic steps here from benchmarking and so on. So a tight follow-up and question the way we are working, discussing that internally. Can we find a smarter way? Can we use new technology? What can we automate? And so on. I think we are taking the normal measurements to improve the profitability there. Are we where we want to be? No, not yet. Absolutely not. But this is high up on our agenda, I would claim.

Just to comment, the hybrid loan has been with us now a year and a half and the costs are part of our financial planning. So I don't see any change in that.

Okay. Asla had a similar question regarding the EBITDA of 5%. I think we answered that. But you also have a question regarding Norway. How long will Norway take to be turned around?

That's a good question. We are not prepared to give any forecast of that today. We have now Ingrid in place since Monday this week and she has had a very intensive first week, I can promise you, together with the Norwegian team and they are now sort of dealing with a challenge to turn this around. I would claim that the downsizing of roughly 200 roles in the Norwegian organization is an important step that has been executed. Yes, we will have a tail of cost from that also coming into this year. But the actions are done and more has to be done in many dimensions. And Ingrid and the team is on that. I'm, of course, talking with them frequently about this and following this so we could do this together. But I don't really have a time plan for you that we are prepared to share.

I can only say that Ingrid and the team, they sounded really determined earlier this week.

Yeah.

Yeah.

High activity level for sure when it comes to sales. I believe there are no more questions, so that means that we have reached the final question and this will then conclude the call. The full report, obviously, as well as the recording of this webcast and the presentation are available on our website, ltrnetworks.com. We will present our Q1 report on the 30th of April. So hopefully you will join us then as well. Feel free to reach out to us in the meantime, of course, if you have any further questions. So thank you, Håkan and Tarja.

Thank you, Alexandra.

And thank you for participating in today's call.