Eltel AB (publ)

Good morning and welcome to this teleconference or web conference where we will present LTEL's first quarter results. My name is Alexandra Stjernlund. I am the communications director at LTEL and here with me today to present the results is our CEO Håkan Dahlström and our CFO Tarja Leikas. Warm welcome. After the presentation, we will open up for questions. And throughout the presentation, you can submit questions either via the website or dial in via the phone conference. With that, I'd like to hand over first to you, Håkan.

Thank you, Alexandra. Also welcome from my side to this presentation from Eltel. Eltel, the leading provider of services in the Nordic in the critical infrastructure. It areas as communication and power, and it means that Eltel enables the digitalization and electrification of our society in many areas. This includes mobile communication, fiber network, private network, but also on the power side, high voltage overhead lines, substations, distribution network, but also things like street lighting. We also have become active in green energy production, including solar parks and wind parks. It doesn't end with that. We also are active in energy storage, electrification of transport and other areas like smart metering. During the first quarter, we see that many of this area are active. However, we see lower activity levels in communication than in power. And we have talked about this before. The exception, I would claim, is the Swedish market. So first quarter leaves us with improved profit. Organically, we have a net sales that is some growth, 0.6%. And this is mainly driven by our Swedish operation. The gross profit, as we are very focused at here in Eltäl, increased with 20% during the quarter. And we see that this trend that we have had continues. So during the last 12 months, their profit improvement has now become significant and we see also the result on the adjusted EBITDA and year over year we see improvement of 4.9 million so in absolute terms maybe the adjusted EBITDA is not so impressive with 900k in the first quarter but with that seasonality that we have in our industry It is a relatively strong first quarter and is the strongest first quarter for eltel in many many years. So with this we have seven consecutive quarters with improved adjusted EBITDA and we want of course to continue this trend. We also see that our financial position in general is improved. And here we have an improvement of networking capital and cash flow. This is, of course, extremely important. And we are really happy to see the improvement of cash flow being 22 million better this quarter than a year ago. This, of course, as you understand, help us also on net debt and leverage and a leverage of 2.1. I would say I have to say that I'm pleased with now in the end of the first quarter. But if we then look a little bit inside the operation to see what has happened during the first quarter, we can see here that the first solar park that we have been active in in Sweden are now in production and that is of course great. We also have finalized our delivery and our contribution to a solar park in Denmark during the quarter and the new really large project for us to establish a new solar park in Finland of the size of 129. megawatt in peak power is according to plan so very important project helping us also a good reason for the improvement of networking capital and cash flow in the first quarter where finland contributed mainly due to this project An area that is very active is the energy storage and here we can see that we during the quarter have finalized our delivery of some of our first systems both in Finland and in Denmark so that's really nice to see and also in e-mobility or electrification of transport we see high level of activities and during the quarter We had success winning a frame agreement in Sweden that I believe will be important for us going forward. But we are very active in many of these type of discussions to electrify the transport of the Nordics. Data center, a relatively new area for us, but is now starting to become visible in the order book here in the first quarter. So really nice for us to see that. And the very important broadening of our customer base, particularly towards the public infra, have gained some significant results here in the beginning of the year. So I would claim that really good start of the year, also winning contract in what I call classic business in power, but also within communication where we see that we have both new customers, improved margin and secured classic customer. As you are aware of we have issues in our operation in Norway and we have now been able to speed up the change of our Norwegian operation under the leadership of our new MD Ingrid and I'm really happy to see the start of this and we are not out of this yet but I'm convinced that we are on the right track to a much better and solid performance also in Norway. With that highlights, I would like to hand over to you, Tarja, to give us the numbers.

Yes. Thank you, Håkan. And yes, I am delighted to report on LTEL's first quarter results for January, March, marking the seventh, like you said, seventh consecutive quarter of year over year profitability improvement. Our net sales declined by almost 4%, mainly due to the impact of last year's divestment of high-voltage Poland. However, organic growth was 0.6%, with notable growth in Sweden, the growth rate was 6.5%. Regarding profitability, our adjusted EBITDA improved by nearly 5 million, reaching a positive 0.9 million. And Norway was the only unit to experience a decline in profitability. I would say that overall, our first quarter was strong. Profitability improvement remains the cornerstone of our strategy and the progress in strategy execution is evident. Given the strong seasonality of our business, we are satisfied with the first quarter's positive result. And in fact, it has been a decade since LTEL achieved this outcome. The next slide is something new that we haven't shown you before, and it illustrates our profitability development during the new strategy execution period. The implementation of our current strategy began in the first quarter of 2023. These graphs illustrate the development over the time. Retrospectively, the turning point was the second quarter of 2023. As expected, gross profit reacted more rapidly, while EBITDA improvement took a bit longer. During past year, we have seen more than 8 million improvement in LTM last 12 months gross profit and more than 12 million increase in latest 12 months adjusted EBITDA. I would say quite nice graphs. Yeah. Next, we will take a closer look at our segments. And I think we should go to Finland first. Finland accounts 37% of our operations. Our net sales here declined a bit, 300,000. we experienced strong growth in power driven by a green energy investment but faced lower volumes in communication compared to previous year adjusted ebit a improved by 2 million euros reaching 1.7 million both business areas in finland contributed to this enhanced profitability and then second largest Sweden is 31% of LTL operations after the first quarter. And we are pleased to report that Sweden has continued in its growth path. Public infrastructure driven growth in communication has been particularly welcome. Solar investments have driven power growth and compensating for lower smart grids volumes compared to last year. We did record over 50 million euros in net sales, reflecting a strong 6.5% growth compared to last year. Adjusted EBIT tripled now to 1.5 million euros. This is the 12th consecutive quarter for Sweden to have a year-over-year profitability improvement. Then we have our new segment, Denmark at Germany, which accounts 18% of LTL operations. Here we see modest growth in net sales, totalling to 30.5 million euros. Communication in Denmark declined, whereas power grew in both Germany, but especially in Denmark, I have to say. In this newly established segment, we report significant profitability improvement. Adjusted EBITDA nearly doubled, reaching 7.9%. This is the highest in the entire LTL group. And this is an excellent result for our newly established segment. And then we have Norway, which now represents 14% of our operations. Net sales decline in Norway has continued, now negative 7.4% in local currency. And this development is in line with our expectation, and it's reflecting the further reduced investments in traditional telecommunication customers. Our operations remained unprofitable with adjusted EBITDA at negative 1.8 million. Towards the end of the quarter, we did see some improvement. But our performance improvement actions will continue in Norway. And then we have our balance sheet items. And here we have taken a bit longer perspective as well. We illustrate the new strategy execution period again. And this 2025 marks the third year on our new strategy execution. All balance sheet items show significant improvement, reflecting our strengthened financial position. we report major improvement in leverage from 6.3 in first quarter 23 to 3.5 in 24 and now a healthy 2.1 net debt was close to 160 million first quarter 23 115 million euros last year and now we are reporting 104 million euros in net debt notably cash flow from operations increased by more than 22 million The net working capital development is equally positive. In first quarter 23, it was negative 5 million, last year negative 59 million and now negative 76 million euros. We are very pleased to see our strategy materializing and results steadily becoming visible. And then it's time to remind us about our financial targets, which we keep unchanged. First, profitability. Group adjusted EBITDA margin, 5%, growth between 2 and 4, and leverage 1.5 to 2.5, and dividend payout subject to leverage target. As I mentioned, leverage resulted in a 2.1 outcome this quarter. And just like previous quarter, we have successfully reached our leverage target. And now Håkan will continue with the strategy theme.

Thank you, Tarja. Yes, our strategy in short, as we say, first priority for us is, of course, to improve efficiency and profitability in our core business. And that is what we also see good result of here in the quarter, I would claim. And the good thing is that we see this in both business areas, Tarja is mentioning. So both in communication and power, we see good improvement. And of course, we have the exception of Norway. We also see that the customer base, we have a need of broadening our customer base to be able to deal better with the seasonality in our industry, but also to improve the utilization overall. And this is something that I can say we are doing quite well. And public infra is the area that we have gained the most success within. And we will continue exploring that customer segment. In new and adjacent markets as new renewable energy. Here we have the solar park, here we have the energy storage, we have new things like electrification of transport, private network and so on. Also data center starts to become an area for us in this year. We see that in our revenue, and you will see that on the next slide. So this strategy has now been for us for two years, and I would claim that we see the impact in our business. On gross profit level, as mentioned before, we are now at 22.2 million in the first quarter, 20% up. Last 12 months, we have improved our adjusted EBITDA with more than €12 million. That in combination with improved cash flow and networking capital, I will claim, show that we are on the way. The customer base, public infra, as I mentioned, and for the seasonality, a decent total contract value in the quarter with 145.7 million. And I will also claim that the content of those contracts are as we have in our strategy. So we are doing those services with those customers that we have selected. And this leave us with a solid order book of 1.3 billion euro. The growth in new and adjacent market is visible here on the right side, where you could see that during the quarter, 6% of our net sales come from these new areas. And we see that we have reason to believe that this will increase in the future since 17% of the contract that we signed during the quarter came from this new and adjacent. And also our pipeline have a solid portion of these new areas. And when we now look at where we are in the first quarter 25, compare that to the first quarter 24, meaning one year into the strategy compared to two years into the strategy. We see that the revenue now is on 6% versus 2% for a year ago and also the TCV is now the 17 in relationship to the 6% that we had a year ago. So to me this proves that we are gaining more and more value out of the new strategy. So with that, I would say that I think we are taking an important step towards a solid financial performance with this first quarter. We are not yet where we want to be, but this is one milestone on that path. With that, I would say that we have concluded our presentation and over to you, Alexander.

Yes. Let's open up for questions. But first, of course, thank you, Joakim. It must have been quite a nice first quarter to present. Yes. Good. So let's see if we have any questions on the telephone conference. To ask a question, you just press pound key five on your telephone. I believe we have a quarter waiting.

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

Good morning. A couple of questions from my end. I'd like to start off with just to clarify, were there any impacts during the first quarter from the widespread worker strikes in Finland? And if so, are you able to quantify that effect?

Were you asking about strikes?

Yes, the Finnish strikes that we saw in Q1, did they impact you in any way in your operations?

No impact that was visible in operations, no.

Okay, perfect. And then on the Norwegian business, the one sort of still lagging behind, are there still extra costs to take for resizing there? And what kind of OPEX savings are also left to realize in coming quarters?

We have 600K in the restructuring cost in the first quarter. We don't foresee more of that ahead of us. We believe we have now during April taken all the actions that we need to adjust the organization towards the situation we see in the market ahead of us. so we are not out of the woods yet absolutely not but i think we we don't expect any significant cost from that right sizing yeah i would say so that like you said in april we have finalized so there might be some slippage from march to april but nothing major and then on the savings side how much is left to realize and q2 and beyond i don't have such a number for you

Understood. Then just a question on the decision to merge the Danish and German segments. Can you just walk us through the rationale? Is that mainly just a reporting thing or will it have big impacts on the actual operational side of the business?

For us it is a simplification. We have now the same management for Denmark and Germany. The scope of our German business is smart metering. We have the same business in Denmark and we believe that by combining Denmark and Germany we could have more leverage on our Danish management and we could see some operational synergies between the two.

Okay, that's clear, thank you. You showed us the clear lift in profitability and part of that of course is divesting the Polish high voltage business. Are there any remaining units in the current operations that are clearly underperforming where you perhaps don't see a quick fix to the profitability levels and where a divestment might be the best solution?

No, we don't see any such unit. Okay, perfect.

And then a final one from me. I mean, on capital allocation, we've not seen dividends for quite some time, but now, as you showed, the leverage is trending down quite significantly, and we might be nearing a point where dividends become more relevant. So I guess the question becomes, how low does leverage have to go for you to feel comfortable starting to pay out dividends again?

We have no such level or number for you today. Just some general reflections.

Do you feel like you are nearing a point where dividends could be relevant?

It's, of course, a target we have to provide dividends. Shareholder value is our first priority, of course. But as you know, the situation in Norway is not clear or sorted out to a satisfying level. We have more work to do in all our segments, I would claim. We are seeing a very positive development. Yes, absolutely. The strategy works for us. Yes, I'm happy to see that all business areas is contributing to the improvement. But you also see that the absolute level is still lower than what we want to be. so we believe that we have a bit more to do by operation excellence commercial excellence gaining new contract in new areas and with that improved margin in our operation but of course it is with great pleasure that we see that we are at 2.1 yes okay i understand that in that case that's all for me so thank you thank you thank you adrian thank you adrian do we have anyone else

Calling in? No? All right. Then we have actually quite a few questions coming in online. We have Olli Eloranta from Danske Bank. Could you please elaborate what were the drivers behind the strong operating cash flow and working capital releases in Q1? Operating cash flow has typically been negative in the first quarter. Was there some positive one-off impacts?

No, we don't see any... Of course, there are major projects starting. They might have some impact. But overall, we are talking about the general profitability improvement and enhanced processes. Because networking capital is a reflect of the processes. So it is the whole organization working towards the profitability improvement. Would you like to add something?

Yeah, if we sort of try to find one-offs, I think we can mention the Talleri project with the advanced payment helping us a bit in this situation. But overall, I would say like you, Talia, that this is something that we talk a lot about in the organization, a lot of focus on this. And I would claim that understanding and awareness of the importance of this area have increased during the last two years. So I think that's well done by the organization.

Yeah, and I would say that when we have some projects kind of contributing, then we have some projects that are like... So I wouldn't pinpoint any of our operations.

Okay, great. Kristoffer Jannel from Indres has a few questions. Q1 2025 marked the seventh quarter in a row where Altel improved its profitability on a year-on-year basis. What do you view as the biggest risk for LTEL to lose this momentum? And conversely, what could, in your view, accelerate this momentum even further going forward?

A very, very big portion of our business is based on frame agreement with the most well-known companies in communication and in power. If they feel that their business is becoming soft They normally react by reducing the investment and activity level in things like what we are doing. Even though most part of our business is services and more ticket oriented, the top of that, there is a portion that is more project oriented. And those type of investment can be postponed if our customer feels that their business starts to become soft. So, of course, if the hesitation in the market becomes even worse, I believe that we will also see effect of that, even if we are not directly impacted by the turmoil in the world of today. I think we are not totally independent either. We have to realize that when customer becomes hesitant, the decision makings take longer time. But we haven't seen much of that yet and we hope that we're going to be able to continue keeping up the volume as we have today. And one activity that we have to improve our resistance against this is of course the focus at public infra.

Yeah. And along those lines and on the topic of risks, Kristoffer further asks, over 90% of your revenue comes from the Nordic region and the majority of your suppliers are based in Europe. But could you just comment on the impact that you have seen or expect on ELTA's operations due to current economic turmoil and escalating tariff trade barrier events? How has it affected the demand picture?

I think there is a bit longer time for our customers to take big investment decision. That's one part of it. We also see that the price level of material and there is in green energy production, if we try to describe it like that, but it's things like transformers solar panels that sort of equipment the pricing of that can of course be impacted in the future if this continues and also the supply chain what what is happening in the world we are we are dependent on import of this sort of equipment even though as i said most of it is from europe and our businesses to very largest and in the nordic there is part of the material that is used in this type of project and also in our service activity that is imported for, for example, for Asia or China. So, yes, we missed to answer the second part of his first question. What can actually accelerate this?

Yes, yes.

And I think a part of this is, of course, if we see that this if there will be an increase in the green energy. I think that is something that would benefit us a lot. But we also see if it is about electrification, about transport, or if it is production of green energy like solar, wind, all of this can, of course, help us to accelerate the improvement.

And I would also add that I think our customers and in our market, we are more and more aware of the meaning of the critical infrastructure in general.

Yeah, absolutely.

Yeah, very much needed today. Another question from Kristoffer. The fiber to the home business was a strong driver of revenue growth in Finland during 2024. Is the lower demand in Q1 just a bump in the overall growth trajectory or the beginning of a demand shift in this area?

We are prepared for that it is a reduction in general terms of the demand. The fiber rollout in Finland came a bit later than the rest of the Nordic, but I would claim that the peak was most likely during 24. We have decent volume this year, absolutely. It will be volume ahead of us. But just now, I would say that the penetration rate of fiber to the home in Finland have reached such a point that we have reason to believe that the peak of that rollout has been.

Okay. A final question from Christopher. The profitability and cash flow were particularly strong for a first quarter. Could you first elaborate on the very strong profitability improvement this quarter year on year and then touch on the favorable working capital development, which combined with the profitability improvement significantly improved cash flow in the quarter year on year? And then as a follower, could we expect this kind of profitability and cash flows for a first quarter going forward?

The underlying things that is driving this is that operation excellence, commercial excellence in both business area in three out of our four segment have delivered during this quarter. We are still expecting Norway to catch up. But I would say happy with this activity in Finland, Sweden, Denmark, Germany. And we see 2 million improved contribution from Finland, 1 million from Sweden and 1 million from Denmark, Germany. And that is done by Operation Excellence, Commercial Excellence. So I think I'm happy for that. Yeah, we need to get Norway on track also.

We have been working on winter scoping, but we cannot escape the seasonality. We have the winter for seasons, it doesn't change, but we have been working on it.

And that marks the last question. So all in all, good first quarter. We present our Q2 report, second quarter report on July 24th, and hopefully you'll be able to join us then as well. And feel free, of course, to reach out to us. Meanwhile, if you have any further questions, all the material from this presentation, the webcast and the presentation will be available on our website shortly. Thank you, Håkan. Thank you, Tarja.

Thank you so much.

And thank you for watching.