Netel Holding AB (publ)

Good morning and welcome to the presentation of Natal's first quarter report 2024. I'm Jeanette Reuterskjöld, President and CEO of Natal and beside me today I have Fredrik Helenius, Natal's CFO. I know that we have many new shareholders and I would like to take the opportunity to give you a very quick high-level presentation on Natal today and give a few examples of our projects we are working on right now. Natal has been in the business for over 20 years and has established ourselves as the leader in critical infrastructures in Northern Europe. We started with telecom in 2000 and at that point all focus was on building the 3G networks. Since then we have expanded to fiber and we were a key player when Sweden built its world leading fiber coverage. This experience is a key asset to us when we now are a part of building and maintaining fiber networks in Norway, Finland, Germany and UK. Natalis also had a strong position in power markets in Sweden, Norway and Finland, where we build and maintain power and distribution stations. We also electrified the new Stockholm metro and building charging stations around Sweden. Just to mention a few of our activities. A few years ago we entered a new exciting segment, which we call Infraservices. It covers district heating, water and sewage. So far Infraservices are present in Sweden. Let me now say a few words on our markets and why we see promising opportunities in these. Climate change is probably the world's biggest issue today. To fight climate change society has to transition to electricity-driven transportation and electricity-based production. This requires heavy investments in capacity in the power networks. The introduction of more renewable energy sources such as solar panels also requires investments in the power networks. The Internet of Things, more digital applications, smart cities, etc. require greater capacity from telecom networks. In the Nordic region, expansion of the 5G network is ongoing, and 6G will be rolled out within a decade. In the UK and Germany, fiber coverage is still low, and old copper networks will be replaced with fiber. Also in Finland, the expansion of the fiber network has commenced to replace dated cable and copper networks. There is in general a vast need to modernize infrastructures in Europe. in all the areas where we are active today power fiber networks district heating water and sewage some networks in power and infra services are more than 70 years old and in urgent need of being replaced or modernized they have in short come to the end of their life cycle these three trends are of course key to Nutell and the rationale for us to continue to strengthen our position and to deliver profitable growth. Now I'd like to present some projects to you and show how we create value for our customers and society. One example for the power divisions is the municipality of Nacka which is based five kilometers southeast of central Stockholm and it's growing rapidly. Nacka is surrounded by the sea and is an attractive municipality for many. Until 2030, at least 20,000 new homes will be built and over 15,000 new workplaces will be created. This requires, of course, an expanded and reinforced electricity network. The local energy company Nacka Energi has therefore commissioned Natal to rebuild the distribution station Kolbotten in Saltsjöbo and Golfbanan in Salsjöbaden. As part of our commitment to sustainability, we will, for example, reuse existing buildings to reduce the impact on our planet. For telecom, for example, in Norway, we have a long-standing relationship with Viken Fiber, which goes back to 2010. Viken Fiber has 236 fiber customers in 50 Norwegian municipalities such as Oslo and Akershus. We have today the sole responsibility for security and readiness of the whole network of Viken Fiber. We also develop, maintain and troubleshoot the fiber network in six of in total nine zones. Now let's look into project in Infraservices. We are modernizing infrastructures in Örebro. Work is now underway on Östra Barngatan in central Örebro to build for BRT, Bus Rapid Transit buses. The new BRT system consists of express buses with their own lanes, adapted stops and high trip frequency. This means that more people can travel by public transport in the route than today. The project has started with extensive demolition and water and sewage work for the connection of the existing houses. Last year, we intensified our sustainability work with initiatives in several areas. Already in January last year, we committed to SPTI, Science Based Target Initiative. During last year, we made an in-depth screening of Scope 3 emissions and investigated how to formulate a science-based target. We are now getting closer to the point where we can apply for approval for our targets with SPTI. We have also started to prepare for the Corporate Sustainability Reporting Directive, CSRD. As part of this work, we have implemented an external support system for the collecting, quality assuring and analyzing of sustainability data. We have also carried out the double material assessment according to the new European reporting requirements, which we will present in the 2024 sustainability report. Sustainability is important for us, not only because it's driven by regulations, but also because we strongly believe it helps us to maintain our strong competitive edge in the market and strengthen our employer brand. Now let's move into the K1 results. I will start by giving some highlights from the report and then Fredrik will dig into the numbers. We report organic growth of 3.9% which is good given into the account that the first quarter was as always impacted by the fact that we have cold winters in northern Europe. When it's cold we cannot carry out work that requires ground and excavation works and the projects are therefore at standstill. Sales develop especially good though in Infraservices and Power in Sweden as well as in Telekom in Norway. Profitability improved in a quarter. We know it is a bit of an easy comparison since we had a weak first quarter last year. However, despite that we are of the opinion that profitability is developing according to our plans which is proving that our margin enhancing activities that we initiated last year is starting to come through. We continue to see strong underlying markets and we have a robust order backlog. Let me already now say that we still have to continue our work that we started last year to improve our cash flow further on. Fredrik will give you more details on that in a few minutes. Our new organization is in place and we have already started to identify new business opportunities with how we are sharing our resources and establish synergies in the organization.

introduction i hand over to you Fredrik to comment on the numbers perfect thank you Conette and morning everyone let's take a look then at the q1 and and the numbers um seasonality will be said a couple of times today it is an important part of of our business as we are affected by the winter conditions we spend a lot of time with bids and tenders in the quarter focusing on project starts and ramping up production during this first quarter. In general, though, we had an OK performance in Q1 with a few positives and a few positions where we believe that we can improve. We produced a good growth of 4.5%, of which 3.9% is organic, with our latest acquisition then being ElektroTjänst from February last year. And we reported a total sales of 714 million. In particular, Infraservices had a strong development with several projects continuing over the year end. And actually a few projects that started with good volumes already in the first quarter. Power in Sweden is still performing well, which adds to the overall group performance, of course, and Power in Norway continues to improve. For Division Telecom, we saw better volumes within the service contracts that we have and in the business for mobile networks. And we managed to generate growth despite the lower volumes that we saw in Germany and UK. And I think it's been quite interesting actually to see and review the comments from the telecom sector or especially the mobile sector in recent reports. We are of course fully aware of the rather cautious investment climate out there. within that sector. But nevertheless, we managed to get a good start within our mobile networks in both Sweden and in Norway, and ramping up existing projects quite early in the quarter. Our backlog is reported at 3.8 billion. It's still at relatively high levels. We're around that 4 billion threshold, and we believe that we have a good situation for the year. Profitability wise then, we improved our adjusted EBITDA to 40 million or 2% compared to the 1.6% last year. And as Conette said, we are on the right track and we will continue to work for improved profitability. As for the sales, Infraservices produced a rather strong Q1. Power improved once again, but the profitability was slightly impacted by the lower volumes that we saw in Germany and UK within Telekom. Winter conditions and the startup phase of project explains the level of earnings that sort of is to be expected within the quarters as such. Q1 is a quarter with a lower margin for our business and especially this year we are simply not producing good enough contributions to cover our financial items resulting in a negative earnings per share of 0.17. This is surely a slight improvement from last year where we had minus 0.18. And in that year, we had a one-off effect of 50 million in earnings. But of course, we do expect to improve the earnings throughout the year. looking at the cash flows then and and the cash flow in q1 we of course expected to decrease significantly from from last quarter being then q4 last year however i believe that we came in a little bit weaker than expected with an operating cash flow of minus 89 million and we saw more projects in the startup phase impact in the timing of the invoicing and the cash flows and the reasons for this are basically twofold For one, in Q1, we do not generate good enough volumes or ultimately earnings to generate positive cash flows covering our financial net and taxes. And of course, secondly, given the seasonality that we have been talking about, the rather high production in Q4 and the late startup phase in Q1 is driving a working capital need. We will still work with improvements and we will continue to work with our working capital measures, evaluating possibilities to release our inflows faster. And we will work within our projects in order to increase the focus on capital, basically, and focus on how to release cash throughout this process. And by doing so, we believe that we will try to balance out the effects between the quarters in the future. We'll still see some seasonality, but I believe that we can find a better distribution. We still have a good access of capital. We have $278 million in cash at the end of the quarter, or $573 million in cash and available facilities in total. But again, as a result of the negative cash flow and the paid earnouts during the quarter, we do see an increase in net debt. and an equivalent increase in the leverage ratio being 3.1 or 2.7, then calculated according to our financial targets. However, given the good cash levels that we saw in Q4 and still relatively high cash levels, we did a repayment of debts early in this quarter of 50 million, thus lowering the interest-bearing debt on the balance sheet. If we then move on and take a look at the segment performance and our divisions, we, as previously mentioned, in general then showed a quite strong development and performance by Infraservices. Power improved significantly year on year, and Telekom showed a good growth with normal seasonality, yet with the said lower volumes in Germany and UK. Infraservices then operating in Sweden was running at a good pace in Q1 with a few projects continuing over the year end from 23 into Q1. We got a good start with a few awarded contracts and projects that were won during the quarter as well. So we delivered a strong growth for Infraservices of over 18% to 163 million, which of course then is adding to the overall performance for the group. The increased production and volume resulted in an EBITDA margin of 5.3%, which is up from 3.7 last year. Division power and the power market, of course, continues to be an interesting part for our business, and the market trends are drivers for the demand out there. Sweden and Norway delivered organic growth in the quarter and continues to add to the group performance. The year-on-year comparison here within power is of course affected by the situation in Finland last year. And with the expected lower volumes in Finland this year, we produced 228 million in sales in total for power, which basically is in line with last year. Margin or profitability-wise, we saw a total EBITDA of 9 million or 3.8%. Sweden is still performing well. Norway continues to improve from last year. And Finland, again, is running at a lower pace as expected. We are not fully satisfied with the margins in total for power, and we'll continue with the margin-enhancing measures as Gannett said previously. The third division, telecom. As mentioned, telecom grew with 3.5% in the quarter to 328 million. And this was mainly driven by the better volumes from our big service contracts in Norway and the earlier project starts within mobile networks in Sweden and in Norway. In total, Norway increased by over 15% and Sweden increased by over 12%. The lower volumes in Germany and UK continued into Q1 in line with the last few quarters. As we said during the last call that we had, we continue to work for additional volume and a more diversified customer mix. And we still do expect that we will bounce back and increase the levels again during the second half of this year. Q1 is very much about the fact that we ramp up production. We wait out the winter conditions to get going with excavations and project starts. And as such, I think that the normal seasonality is an important component to understand the profitability for telecom in the quarter. I mean, this doesn't fully explain the outcome of the margin in the quarter as such, but it adds to the understanding of why we have these lower levels. The actual outcome and the EBITDA of minus 8 billion or negative 2.4% was impacted by the lower volumes that we saw in UK and Germany. And I believe that was

that for the divisions and the q1 numbers and i think that connect will share a few words regarding some ongoing activities yes thank you frederick we will continue to further strengthen our position as a leader in critical infrastructure in northern europe and to do that we will focus this year on our sustainability work and continue with our margin enhancing activities both in norway and finland Our digitalization project is ongoing across the group to improve our way of working and to be more efficient. We are monitoring the development in the UK and Germany closely with the goal to increase volumes there during this year. And of course, ongoing focus on working capital and cash flow, as you mentioned, Fredrik. That's, of course, very important for us. So with that said, we will now open up for your questions.

If you wish to ask a question, please dial pound key 5 on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key 6 on your telephone keypad. The next question comes from Gustav Bernablad from Nordia. Please go ahead.

Yes, good morning. It's Gustav here from Nordea. Just a couple of questions here. Given sort of the delayed winter and so forth, is there a risk that you now have to sort of try to catch up with these lost volumes during the year or could this weigh on the profitability and so forth? What are you seeing here?

Actually not. We don't see that right now. We are prepared for ramping up and we have already started that in several areas where it's possible. So during this time, I think I would say that we are prepared to ramp up with the volumes that are expected for us now.

Okay great and then I mean sort of new reporting now also looking at the infra services seems to be quite healthy margins despite sort of being impacted by the winter and so forth and I would suppose I mean looking sort of at last year you were at the margin of nine percent for 2023 would you say that this is sort of a good proxy also for the full year margin or how should we think here?

We don't estimate on the margins division by division. But in the end, we have worked really hard during last autumn to be in a very high competition, which is this right now in infra services. And we had been able to keep the levels and the margins that we expect and want to have for this kind of services.

okay we shouldn't expect sort of these margins to be so extraordinary or or so or these are they I wouldn't say that oh okay and then so if we look at telecom I mean you you gave a lot of color there and I mean you also comment on a better age too I mean is it only Germany and the UK that is sort of pressuring this segment would you say

In telecom, if we see what's affecting this quarter in margins and in volumes, that's Germany, UK, that will, of course, be where we expect to increase our volumes. And of course, with that, our margins. But we also expect to see that Norway and Sweden and Finland will increase their volumes in the second half this year.

Looking at Germany and UK, can you say anything? How's your visibility there? Should we expect a pickup in 2024?

We are expecting and working for increasing volumes and we expect to see the result of that in the second half this year.

Just the last one here. If we look at the backlog, of course, I understand that there is a lot of timing effects and so forth, but it looks to be down sequentially from Q4 by 6%. Are you seeing any change in underlying demand to the negative?

I wouldn't say that. Both in power and infraservices, I would say that a lot of tenders is coming out. now to be purchased before summer, and that's a normal seasonality for the tenders. So I would say we feel a good market in all three of our divisions, actually.

All right, perfect. Thank you. That's all for me.

Thank you. The next question comes from Carl Johan Bonnevier from DNB Markets. Please go ahead.

Yes, good morning, Senator Frederick. Continuing on the order backlog question, of the remaining order backlog, the 3.8 million, how much is supposed to be delivered during this year?

We expect to have around 2 billion this year. As you know, we have a cautious approach in our order backlog, but around that, over 2 billion this year.

Excellent. And when you look at that, that part obviously builds up a good foundation for the development in the year. So how do you see this year coming out towards your financial targets?

We won't give any estimate for the year, but as I said earlier, we are in the process of improving our profitability step by step, and we maintain our financial goal on the midterm.

So somewhere, taking that maybe a little more detailed, would you expect, say, a growth rate similar to last year? And would you, say, expect then, say, on the margin ending up somewhere between what you delivered last year and the margin target? Is that a good base assumption?

I think, Carl-Johan, that we started the year now with Q1 with a fairly good growth being organic. And I believe that we, as Conrad said, we will continue to improve our possibilities step by step, approaching the financial goals on mid-term.

Okay, I'll satisfy myself with that. Then just on the working capital question, how do you see the seasonality pattern, say, for the rest of this year? Is this also a Q4 release kind of things we are looking at, or should we expect a release already in Q2, Q3?

I mean, of course, it's evident that we have this Q4 release in our business. That's just how our projects work and how we produce our volumes. But again, I think that we can improve the situation. We can work for better releases throughout the year as well. So, yeah, I think that's our goal here, to try to work with our measures and release cash also in Q2 and Q3 to a greater extent than we have made in general in the past.

So hopefully year NOTA's back-end load is at 2023 then.

We will work with our measures to try to increase the cash flow throughout the year.

Excellent. Thank you very much and all the best out there.

Thank you.

As a reminder, if you wish to ask a question, please dial pound key 5 on your telephone keypad. The next question comes from Krzysztof Okaliska from Keplicevro. Please go ahead.

Good morning. Thank you for taking my question. You mentioned some more margin-enhancing measures to be introduced in Norway and Finland. Can you please provide some color as to what these might be and the trend of them going forward?

Yes, for example, in Norway with Telekom, we are now launching a new business system for our work there to be more efficient for all the line, for the production line and also for the invoicing and to be more efficient in our line of work. And in power, we are still working, of course, to increase our volumes products with different kind of customers as well. And it's also to be more efficient in how we project manage our products there. And that's in no way. And in Finland, of course, we are working hard to finalize the product with the power customer that we have there to minimize the cost as much as we can to be efficient there as well.

So thank you. And if we turn to the UK and Germany and the fiber rollout, I mean, to me, it seems like that is firing on all cylinders if we're talking about the markets in general. So maybe you can talk to us about why don't you see your top line growing year on year and why do you have confidence in its picking up in H2?

Yes, in UK, as we have said earlier, when we started there, we were a subcontractor instead of working directly to our fiber network customers. And we are now moving into work with both as a subcontractor when it's suitable but also to start working with the fiber networks owners. And of course, that takes quite a bit of time to build up the relation and to win these kind of products. But we are certain that we are working and doing what we should do now, what we can control. But we can also see it's been quite different climates in the UK actually now. It's been a lot of consolidation of the fiber networks owners and a bit decreased of how much volume in products they have started for last year and a bit into this year. But we are confident and we are working and doing I have a lot of discussions, so we are looking forward to see the results of that in the second half year in the UK.

Yeah, and as Kenneth said, we are in a few discussions, but I think it's important again to understand that these are quite big contracts and the processes take quite a bit of time to finalize. So we will work hard to secure our volume, but we have to value the customers, we have to value the market and understand that this just To some extent, it's still a new market for many players in these regions. Okay, thank you.

There are no more phone questions at this time, so I hand the conference back to the speakers for any written questions and closing comments.

As we can see for now, no further questions. So we thank you all for listening in today and we hope to see you all back for our second report in the 12th of July. Thank you.