Eltel AB (publ)

A warm welcome to this presentation of LTEL's first quarter results. My name is Alexandra Kjernlund. I am communications director at LTEL. The presentation will be held by our CEO and president, Håkan Dahlström, and our CFO, Tarja Leikas. And after the presentation, we will open up for your questions. And you are welcome to post your questions throughout the web conference, either by the telco or the web. With that, I'd like to hand over to you, Håkan and Tarja.

Thank you, Alexandra. Good morning all. I would like to start with talking a little bit about ELTIL today. We are the leading Nordic service provider in critical infrastructure. We deliver installations, upgrade and maintenance services within the area of power and communication. The area that we have been active in during 25 years is what we talk about as classic services. And here we serve a broad range of customers in the public and private sectors, from network owners and operators to the industry. During the last years, we have also established ourselves as a provider in what we call emerging services. This is services like renewable energy, energy storage, e-mobility, meaning e-charging for electrical cars and trucks, and not at least during the last two years, also data center solutions. In this area, as I talk about as emerging services, I'm really pleased to see that this area now in the first quarter has a revenue share of 23%. So with strong growth in the first quarter, our emerging services is almost a quarter. I would claim that 25 was the year that we gained momentum across all our strategic initiatives and I will show in the later part of this presentation today where we are today. But now looking a bit at the first quarter. I'm really happy to see that the year started out so strong with strong growth and significant improved profitability. The net sales development, more than 10% in organic growth or local currency, is driven by Finland. Finland had an impressive net sales development in the first quarter, mainly due to emerging services, but also very good performance in communication and power. Also, Denmark, Germany had a solid growth, more than 5%, and Sweden, Norway, more flattish on net sales. As I mentioned before, the emerging services portion of this increased from 6% a year ago to now 23%. Q1 is the 11th quarter in a row of improved profitability. This is something that I have been very consistent with, talking about every quarter we have to beat the same quarter the year before. The seasonality have a very big impact on our business, but to compare to the year before is then very important. One big contribution to this improved profitability in the first quarter is our operation in Norway. We have had issues, as you know, two years ago, one year ago in Norway, but now we have four quarters in a row with improved profitability in Norway. That now also the net sales is flattish in Norway tells me that we are most likely here now in a new trend in our operation in Norway. On the commercial side, I would like to give you two examples of important contracts that I actually think is very illustrative for the business in Hjältäl. The first one is the data center contract, 25 million euro. It's signed with the customer Hyperco, and this is about building a grid connection substation outside the data center, but connecting the data center towards the grid. The other one, a very important frame agreement that we have had with Elisa during many years. We are the main supplier to Elisa and also now we have been able to renew the contract for a new period. So 60 million euro here in a frame agreement doing service and maintenance upgrade services towards Elisa. Very important for our communication business in Finland. I would claim that we see here in the first quarter that we still are the market leading actor in the classic services, and we are now gaining more and more ground in our emerging services. So this, I would say, with the increased demand I can see from public sector, it shows us that this critical infrastructure has never been more critical, that given the world around us. And now to a bit more on the numbers, Tarja.

Happy to. Thank you, Håkan. I'm pleased to report our strong first quarter. We delivered both top line growth and profitability improvement. This marks, like Håkan mentioned, 11th consecutive quarter of year over year profitability improvement and the best first quarter, you didn't mention, best first quarter performance in a decade. Net sales increased over 13%, driven primarily by power business. Growth was strongest in Finland, with Sweden and Norway developing in line with targets, and Denmark and Germany exceeding targets with 5.4% growth. Overall, first quarter was strong. Adjusted EBITDA more than tripled, with Norway the largest contributor to the improvement. This followed by Finland and Sweden, and together with these, group reached 3.1 million adjusted EBITDA. Considering business seasonality, we are satisfied with the outcome. Our headcount is now down by 300 employees year on year. This reflects effective scaling, structural portfolio changes and increased use of partners. Profitability development remains the cornerstone of our strategy and we continue to make progress towards our financial goals. So the journey towards this 5% EBITDA continues, and as said, now 11th consecutive quarter with improved EBITDA. This historically strong first quarter profitability is built on both commercial and operational excellence. And you can see that here in cross profit, the margin, the cross profit is increasing as expected, but the margin reflects the service mix that we have currently. Then we look into our segments and first Finland, which share of our operations is now 42%. Our net sales show very strong 29% growth, largely due to project facings in power business area. Solar PV and data center solutions were the biggest elements here. Finland is the forerunner in ELTA's emerging services in the green energy investments. In communication, the volumes were, as we expected, lower than previous year. Adjusted EBITDA improvement continued, reaching 2.7 million. Both business areas contributed to this enhanced profitability. Here I would mention also the communications capability to adjust operations to meet the decreased demand and this is to me very notable. Finland is executing really strong commercial discipline. And then the second largest, Sweden. Sweden is now 29% of our operations. Here we are delighted for Sweden's continued growth. We recorded over 54 million euros net sales. Communication, unlike in our other segments, continued to grow. And this is from a broad spectrum of customers. Customers from telecom, public infra and defence. Power volumes declined following lower volumes in smart meters and solar PV. Our adjusted EBITDA came to 1.8 million euros. We welcome this continued profitability improvement. Sweden has a good start for year 26. Then we go to Denmark and Germany, which share of our operations is now 17%. Here we report good, solid, more than 5% growth. Net sales came to 32 million. Communication business area continues being slow in Denmark, whereas power and smart meters net sales grew significantly both in Germany and Denmark. Following Denmark's continued communication downturn, we report profitability decline. We have taken the decision to right-size the organization and operations to align with the current and future market demands. This process is ongoing and we expect the impact from this later this year. Then we go to Norway, which share of our operations is now 13%. Net sales in Norway has stabilized and we report 2% growth. We are delighted to see emerging services development, data center solutions and e-mobility growth, as well as customer base expansion are materializing in Norway. This top line stabilization has been both long waited and long developed. This demonstrates our capability to beat the traditional telecom decline. Very good. Equally delightful is the profitability development. Norway is our biggest contributor to positive first quarter EBIT development. They contributed more than 2 million euros to the improvement. Considering the seasonality of our business, this is impressive. With the rolling 12-month adjusted EBITDA being positive and the top line development, we witness a trend turn in Norway. This gives an indication of better future outcome. We are very happy for the Norwegian crew. Then, as usual, we take a look at the balance sheet. And there we have a couple of exceptional items affecting the net debt, leverage and net working capital comparability. First, last year's refinancing, the bond debt replaced the equity classified hybrid bond. And secondly, this quarter we repaid the tax deferral. Tax deferral is a COVID-19 related governmental benefit, which we received from the Swedish tax authorities back in 2023. Then networking capital, this reflects the exceptional growth and operations activity ongoing. Here we also have the tax deferral repayment, like I mentioned, that tax deferral impacts networking capital. Last year networking capital was negative 76 and now we report negative 37. Then net debt, here we report 169 million euros. If we adjust the hybrid bond, then we are on the level 144. And when we take away tax deferral payment impact to the cash, we land to 126. Last year we were on level of 104. and leverage with the same comments, we report 3.2, comparable would be 2.8, and last year we reported 2.1. And as the table shows, we have come quite far from the levels of 23 when we were on level 6.3. We are pleased to see the strategy materializing and the results becoming visible. And then the financial targets, which we keep unchanged. Adjusted EBITDA margin 5%, growth between 2 and 4%, and leverage between 1.5 and 2.5. And then Håkan will continue with the strategy.

There you go. Thank you, Tarja. Thank you. Yes, I would like to start talking a little bit about the megatrends that we see is driving the demand of Elktel's long-term development here. So I assume that we all are aware of the digitalization of the society, the electrification, the climate change. We have not solved the challenge with the climate yet. It's rather going the opposite way as of today. and the geopolitical situation in the world is still very troublesome. All of those four megatrends are actually increasing the opportunities for eltäl. If I start with the digitalization, Here we see that during the last one and a half, two years, it has been a really significant expansion in the area of data centers and connectivity. We see also in the electrification, how the power, the demand on the power grid, both from this type of new energy solutions, but also data center, but also the electrification of the industry, that that is driving the demand on the grid. A good opportunity for us in Eltäl. Also e-charging, meaning the electrification of all transport, is also impacting here. The climate change will of course continue to push the need of renewable energy and the energy storage as such. I will just give you a little bit of a flavor here. What are we talking about? I would claim that Denmark, that are ahead of the rest of the Nordic when it comes to solar energy, wind energy, even within Denmark and the other Nordic countries, we see that most likely we will have twice as much capacity of solar and energy storage in three to four years' time from now. Someone has to build that. El-Tel is a good alternative for that. In the geopolitical dimension, we see a lot more interest in building resilience and robustness in the infrastructure, both on the power side, but primarily on the communication network. So more transport network and more actions to make the network resilient. So I would claim that critical infrastructure is more critical in the Nordic areas today than ever. In our strategy, we have three cornerstones, I would claim. First, improve the profit margin by operational and commercial excellence in the classic business. The classic business will be the largest part of our business also in the future. But to have the development of top line and margin, we also need to address a broader market. Here we say that we will expand the customer base of our classic services and the third part of the strategy to significantly take business in a new part, new for Eltäl since three years ago in the area of what we talk about as emerging services, where we have wind, solar, data center, private network, e-mobility. So to give you a bit of a flavor how we are doing in those areas out of today. We see now that the gross profit has improved to 22.9 million. We see that the adjusted EBITDA by Operation Excellent and Commercial Excellent have now in the first quarter reached above 3 million euro. First quarter is impacted by the seasonality, of course. So this is not our strongest quarter, rather the opposite. So I'm quite pleased to see that the last year's almost one million euro in result now is beaten. We are above three. Custom expansion, yes, I would say public infra is the area that shows the most interest of our services of today if we compare to historical situation. We have significant contract value assigned during the quarter and the order book is at the healthy level. To give you a little bit flavor on this customer expansion, I would say that For three years ago, the top five customers of Eltäl represented more than 50% of our revenue. And now in the end of the first quarter, 26, we see that the top five customers are at the level of 40% of our revenue. So a broader customer base that I think is also good for us in the future. Then in the emerging services, as mentioned a couple of times today, we are happy for that, that 23% of our revenues are within these emerging services to be compared towards 6% for a year ago. Also, the portion of new contract is good in this area. And why do we think this is good? Yeah, of course, it helps us building the business, but it's also so that on bottom line, we have a stronger margin in emerging services than we have in the classic services. When we look at the signed contract, We also see here that we have a recent development in net sales. Now, when we are at the level of 23, we will see that this is a real impact on our business. I would like to expand a little bit about data centers. We see a flat development of the net sales in Norway. I would claim mainly due to the good development in Norway when it comes to the data center. Not only data centers, but also data center. When I take information and data points from different sources, I see that the installed base in data centers in the Nordic is somewhere between 2,000 and 2,500 megawatt. But looking at the planned capacity for the coming four, five years, we see 20,000 megawatt. So a significant increase and build out. I would assume that a portion larger than 50% of this would actually be built based with the purpose to do artificial intelligence. When you do that, you have to install GPUs. The average lifetime, the expected lifetime of the GPUs that are installed today is somewhere between three and four years. So what that means is that the service and maintenance work in the future will be here within the data centers. So first, we will see starting yesterday, a very strong development in build out of data center in the Nordic. And here Eltel will be active both on the outside with grid connection, fiber to the site and so on, but also on the inside in the data center where we work on rack and stack, but also to upgrade and do service maintenance on the installed equipment. So here is examples of companies that we work with in this area today. And as I said, this is one of the reasons that I see a good development in Norway and that I am optimistic about the trend there. But we are active in all the Nordic market in this area and just want to connect also back to the new contract with Hyperco of 25 million. So a lot here and more to be done. But with that, I would like to summarize and say that ELTEL of today is a different ELTEL than from three years ago. Today, we are addressing a broader market, a broader customer base, and we show consistent profit improvement. With that, I would like to go over to Q&A.

Thank you, Håkan and Tarja. And so with that said, you are very welcome to ask questions. And if you're calling in through the web conference, you you pound key five. Do we have any questions from the teleco? Yes, we do. Welcome.

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

Yes, hello. I'd like to start off with a question on Finland and the very strong organic growth. Can you just elaborate on if this was driven by any one particular larger project or anything that was of an exceptional nature? Because I'm assuming it's not the growth rate that you are able to replicate going forward.

Adrian, I catch the first part and then I think your voice faded away, but the first part about organic growth. In Finland, there is a main part of this coming from new energy in emerging services. We have earlier talked about the Hallenvakti project and here we are happy to see that we are now above 100 megawatt of the 129 that we should deliver later this summer and this project is a significant contributor to the growth in finland we are in line with the plan or a little bit ahead maybe of the plan there So that is one of the largest contributor to the growth in Finland. But overall, I would say that the whole power part in Finland is doing really well on net sales. Denmark, Germany is also a broad net sales growth in the power segment.

But I guess we can say that we don't expect 29% growth throughout the year.

Although that we don't give... I think we should remember that Sweden had a significant growth in the fourth quarter. Now in the first quarter it was Finland.

Sweden had a good growth in the fourth quarter. You said Finland.

But your second part, Adrian, could you repeat that, please?

I think you answered... Thank you very much. I'll continue. Also, you talked about the right-side thing of the organization at Denmark and Germany. Are you able to put the number on the cost reductions you're looking at and perhaps a rough timeline of the implementation as well?

I would limit that to Denmark. I wasn't referring to Germany.

I was talking about... We are happy with the development in Germany. The scope is Denmark. We don't have any number for you today on the cost reduction. We have initiated the process and those who are impacted

about this they know about it early this week we will come back in second quarter to tell you more about the numbers and we are not talking about just head count reduction we are talking about operations as well so we need to meet the current and future market demand

services businesses since it's now getting to be a quite big part of the total business. And of course, there are many different end markets lumped into that. Can you, I guess, give some indication of where the different end markets stand now and what are actually your biggest exposures within that?

The biggest portion of this growth in emerging services is by Finland. And here we see this solar park that we have talked about as the largest contributor.

In the past.

Yeah, both this quarter and I think in the autumn.

Okay, so is it fair to say solar is the biggest contributor biggest end market within emerging services then?

Up to today it is Solar PV that is the biggest contributor from here and going forward we see that data center will gain more and more momentum and we expect that to be the the largest area when we summarize 2026 I think we would see data center as the largest.

Okay, and the final one from my end. You mentioned the gross margin coming down a bit and that reflects the service mix. So can you mention a bit what the positives and the negatives are in the mix and I guess how we should think about mix effects in general moving forward?

In the emerging services we have stronger EBITDA but we have lower gross profit. So our cost structure is very different. And I think if you see the size of our organization today versus three years ago, we are at the same level of net sales, but we have significant more flexibility in our cost structure so we work much more with partners subcontractors and have a smaller portion of our own employees and this is particularly visible in the emerging services so that would also mean that we have less need of overhead and support for those activities and that is why you see this development in the gross profit okay that's

very helpful thank you and then in that case that's all for me so thanks okay bye-bye

Okay, I believe that we have no more questions from the telephone conference, so let's turn to the questions that have come in through the web. And we'll start with Christopher from Indres. We start in the outside world. Which input materials do you see as most exposed to the current macro backdrop following the US-Iran conflict? And how has your procurement approach evolved since 2022, for instance, through longer term supply agreements or inventory buffers that provide a runway before spot price moves flow through?

On the last part, no, we don't buy any cables in any volume to storage. What we do is that when it comes to procurement, have won the contract, we discuss with the customer in what pacing we will source the material to make sure that the risk for the project is as low as possible. So it might be that we have binding offers on price that is a bit longer, or that we buy them a little bit ahead of the actual time that we need the material. But this has to be discussed with the customer so that we have a reasonable cash flow in the activities. We can't sort of finance the project in the way that we would buy all the material in the beginning and then use it later on. That would not fly. But together with customer, we find a way to do something that reduce the risk in the project. When it comes to the situation of today, what already has happened, as you all are aware of, is of course that price of fuel has gone up, but also asphalt, and we see now price of cables coming up. For the first quarter, I would say that we have very minor impact. If it will be a larger impact in the future, yes, maybe we are then more protected than in the past with our index in the contract. But also so that when this happened, we immediately initiated dialogues with the largest customer to discuss how we could have fuel compensation, for example, or how we could be compensated for higher price on cabling. So this is something we are very active on. It's impossible to predict exactly what it will mean for the future, but I would say that we are in a much better situation and more on our toes today than we were in 2022.

But what I would comment here is that our own subcontractors, us and our customers, we are in this together. So it's a joint effort when we face situations like we are now facing.

A question from Christopher regarding our gross margin. Gross margin declined to 12% despite the strong revenue growth. Can you bridge this? Is it a project mix? solar PV data centers carrying over gross margin, or is the contract repricing benefit not yet flowing through to gross margin?

I think Christopher is a bit too eager there because he's referring to margin, the margin percentage, because the margin itself that was improving, but that is simply the service mix. So it's It's not that it's declining, but the mix is different. So the expectation is different as well. And Håkan elaborated that earlier already.

Finland, the 60 million euro ELISA frame agreement announced yesterday. Is this incremental to existing ELISA volumes, a renewal at similar economics or a renewal at improved terms?

This is somewhat expanding our share of wallet towards ELISA. So we will do somewhat bigger portion towards ELISA. But the largest portion of this is things that we have been doing in the past for some years. So it's a prolongation or a renewable of a frame agreement into a new time period. but with a bit broader geographic scope that we have from tomorrow and that we haven't had in the past.

But it's a new framework agreement.

Yes, but we have delivered the same services to ELISA for many years. It's a new contract with a bit larger geographic scope than what we have had in the past.

Okay, good. Back still in Finland. How much of Finland's 29 growth is project-driven, Halla-Varti data centers, et cetera, versus underlying run rate services growth? And what's the implied revenue cliff once Halla-Varti completes the remaining 24 megawatt capacity build? That we haven't been disclosing. Thank you. We have some questions also from Markku. I was expecting that. And it's a very similar question regarding gross profit. So I hope that you are happy with the answer. Otherwise, just feel free to reach out to us, Markku. If we exclude the tax deferral payment, operating cash flow was weaker compared to last year's Q1. What is explaining this and how do you see cash flow developing in the coming quarters?

Well, the seasonality of course impacts and then the phasing of the projects. I repeat what I have said earlier that cash and cash flow and networking capital management, that's the cornerstone. And in today's world, even more significant. So that remains the core of our financial operations. So we continue working. But the first quarter, I don't see anything exceptional. I have listed many exceptional items there. But other than that, the increased volumes, the business activity, perhaps early spring, all that. But nothing really significant. Nothing that I would like to add.

And the last question for Markku, regards segment Denmark and Germany. Profitability in Denmark and Germany declined from the comparison period, partly due to weaker sales mix. How do you see the sales mix developing in the coming quarter? Should we expect this weaker profitability to continue or to improve? Let's comment on the mix.

It has been pressure on the communication side for quite a long time. We saw that already in the autumn. And we have no reason to believe that that would change so significantly. So we would have now to take the action to adjust our cost structure and our organization towards how we see the year of 26. And I think we are doing that in a very good order. The power business is still developing very nicely, so I expect this to continue. Can we continue compensating fully as we did in Q1 for the declining communication? It's still to be seen, but I think we have a good momentum in the communication business in Denmark. Germany continues to deliver. So we have to adjust on the communication side and make sure that we have the cost structure that we could carry.

And I mentioned in my comments that the ongoing actions in Denmark is to meet the future demand.

And that was actually the final question. So this will conclude the call. The full report, of course, as well as a recording of this webcast is available on our website. We will present our second quarter results on the 21st of July. Hopefully you will join us then as well. Feel free to reach out to us in the meantime if you have any further questions. Thank you, Håkan. And thank you, Tarja.

Thank you for listening.

Thank you for participating in today's call.