Netel Holding AB (publ)

Welcome to our presentation of quarter two. My name is Conette Reiterskjöld and I'm president and CEO of Netel. With me today I have Fredrik Helenes, our CFO. As part of our drive for renewal and innovation, I'm proud to present our brand, Facelift, which also includes the new logo. The change is not just a visual update, but a strategic move that clarifies our role in society and our vision for the future. With the new visual identity, we want to convey how Netel connects the world. By building a modernising critical infrastructure in Northern Europe, we are a driving force in creating a more connected and sustainable future. The brand lift is one important piece of the puzzle in the overall picture of Netel. It is a strategic initiative to develop Netel as a stronger and more sustainable company. In the beginning of the year, we changed our organisation from country-wise to the division. Infraservices, Power and Telecom. It has already given us synergy effects, for example in resource planning and how we approach our global customers. We see that we easier than before learn and develop from each other between the countries and in the divisions. We also see that we easier can communicate what we can offer and deliver. And now our Q2 highlights. We have a good organic growth in all divisions of 7.7%. 13% increase from Infraservices, 4% from Power and 7% from Telecom. We especially see strong development in Infraservices and Power in Sweden and from Telecom in Norway and Finland. Adjusted EBITDA has been impacted from low volumes for Telecom in UK, Germany and Sweden. Overall, we had a large proportion of projects in the start-up phase, which is normal for this season and that normally has effects on our margin and cash flow. We continue to grow our order backlog of 4.2 billion within all divisions. With a growth of nearly 8% organically, an adjusted EBITDA of .8% and a growing order backlog of 4.2 billion provides us positive signs for our ongoing initiatives to improve our financial performance. We also see that we now have a good split between our divisions and that we are focused in Northern Europe where we have Telecom in all our countries and Power in Sweden, Norway and Finland and Infraservices in Sweden. And now I will give you three examples of products from our divisions Infraservices, Power and Telecom in order to present and elaborate our products and daily operations. As part of Kallskoga Municipalities sustainability commitment, the quality of water and sewage supply is now being ensured. Natels contract is to build water and sewage systems for 60 properties where we are lying pipes through the lake and in the soil to reach all the 60 properties. Our customer is Kallskoga Energi & Miljö and we are happy to continue our cooperation together. Production is ongoing and our work should be finished in the spring of 2025. The work is being done by our company KMA, Kallskoga Mark, a company within the TEL with a strong local position in Infraservices. Nettjänster, our company in Norway focusing on Power Services, is delivering on its biggest project ever. Nettjänster is constructing the switching station that will supply Google's new data center in Telemark with electricity. Lede is the client and one of Norway's largest network owners and we appreciate the opportunity for Nettjänster to carry out the work as a turnkey contractor. And be responsible for planning, board construction, assembly, product management, testing and commissioning. Planning for the project started immediately after the contract was signed in April 2023. The switching station is scheduled to be ready for operation in October 2024 and the data center will be operational in 2026. All relay boards are designed, built and tested in our premises in Fredrikstad. Nettjänster has also chosen to process about 150 tons of steam in Norway. In this way we contribute to local and national value creation. While at the same time gives us a unique opportunity to follow up on deliveries and quickly make changes if necessary. Nettäl in Norway has signed a new three-year frame agreement with TeleNor covering operation, maintenance and expansion of fiber networks. This agreement is larger than the current we had for four years in terms of geography and areas of operation. Our first framework agreement with TeleNor in Norway was signed in 2021 and the new agreement will start in 2025. Nettäl has built up a local organization that now can take advantage of the larger volumes that we see for 2025 in this new agreement. We are happy that TeleNor, such a large and important player in telecom, yet again chooses Nettäl as a supplier. It is proof that we stand for quality, competence and reliability. And now it's time to hand over to you Fredrik to go through our financial performance in more detail.

Perfect. Thank you, Nett. Good morning everyone. Looking at our sales and the development within our divisions, we were actually after a fairly slow start in the beginning of the quarter. But we started to pick up speed with both new and ongoing projects from May and onwards. And we generated a total growth of .7% in Q2 and reached 927 million in sales or over 1.6 billion for the first six months. We of course value the development with .7% organic growth and we are pleased to see that we showed growth across all of the three divisions. Our division Infraservices has a good momentum with the ongoing projects and they are now operating within the high production season. Power continues with a good performance, especially in Sweden. And Telecom managed to produce growth with contributions from the increasingly growing service business in Norway. The fiber rollout in Finland is ongoing and even if our volumes are quite modest at the moment, our projects and fiberworks continues to add growth to the Telecom business as such. A few relatively big one contracts were released during the quarter and that resulted in an order backlog of 4.2 billion end of June. And as we have said many times before, we continue to be cautious when we evaluate the value and duration of our backlog. But we believe that we currently have a fairly good position and that roughly 1.5 billion out of those 4.2 refers to the second half year, this year or 2024. Profitability wise then, we recorded an adjusted EPSDA of 44 million or .8% in the quarter. And in line with the overall performance in Q2, we continue to improve on the group level and increase both in absolute and relative terms. For the first half year or the first six months, we recorded an adjusted EPSDA of 58 million or .6% and that's then compared to the 51 million last year or .3% then. The momentum in new services as described as our highest margin division at the moment and the continued development within power contributed to us. While we see that there is still room for improvements within Telecom in line with the aforementioned enhancing activities that we are working with. A second quarter for Netel's business is always affected by seasonality and the timing for when we can ramp up our projects to full speed. But nevertheless, we continue to focus on improvements and work with our activities for increased digitalization and efficiency processes as well as an improved client mix. Bottom line then, we improved our earnings per share to 0.22 SEC from the low 0.07 last year. If we turn to the cash flow, we see that in line with the performance for sales and profitability, we improved the cash flow from operating activities to 38 million in the quarter from 29 last year. And as we went on about during our last quarter, the seasonality is of course evident in our business, but the progress of the invoicing capacity and our efforts on improving our project liquidity continues to show positive signs. And we are happy to see the outcome of these 38 million in this second quarter. And speaking of the seasonality, and just to quickly recap on that for those of you who may not know our business in detail or Netel in detail, a second quarter where we often ramp up our production and we start new projects and use capital to grow and to get the work done, we usually see the corresponding effects on our cash flow. Our cash flow and the capital is needed in the operations when we ramp up. And very often we're not entitled to invoice until we have produced, for instance, it could be X number of meters or completed certain milestones within the project. And yeah, as such, we tend to see the majority of our cash flows coming at the end of the project life and especially in the fourth quarter of the year where projects tend to finalize. Alternative solutions and ways of improving are still ongoing key initiatives. We continuously evaluate our positions. In Q1, we amortized 50 million of our debt and paid 30 million in Continent Considerations or EARNouts. And now in the second quarter, we have paid an additional 35 million. Our access to capital remains stable above the 500 million level, but the leverage ratio in accordance with our medium term capital structure targets amounts to 2.8 times, which is slightly above the target level, which is below 2.5. We still have remaining EARNouts and those will be in general paid during the second half of year 24. And we will continue to focus on improving our debt position and work with our cash management structure in order to add headroom to the capital target going forward. By doing so, and in combination with the expectations for lower market rates, we will, of course, over time also be able to improve our financial net items in the P&L. Quick comment then on the work in capital in relation to LTIM sales. We are around 11% end of June, which is down from 12% in Q1. If we then take a closer look at the performance across our divisions, we have InfraServices and they delivered a strong quarter with organic growth of .8% to 223 million and an EBITDA margin of .6% or 17 million. We are fairly well positioned in our local markets and as described by Connet with the example project for KMAB, for instance, and despite the market conditions and increased competitions, we have a good order situation for the division as such. InfraServices continues to add to our group performance and that's visualized by the 8.7 margin last four months. So once again, a good performance for InfraServices and from our InfraServices team. Moving over to division power, we note additional growth and slight improvements from last year. Sweden delivered double digit growth organically and together with Norway, our power business provided a contribution to the quarter. The year on year comparison within power is of course still affected by Finland, but despite the lower volumes in that region, power produced 301 million sales in total in the quarter with the growth of 4.2%. And again, that's organically just as for the other divisions in this quarter. Margin or profitability wise, we saw a total EBITDA of 14 million or 4.6%. That's an increase from the Mali 7 million last year. Norway continues to improve and Finland then again is running at the lower pace. Power as a market remains as a very interesting one and the trends or megatrends if you will, continues to drive the demand. We have the electrification and digitalization trends and there is an immense need to increase both the access and capacity across our power systems. We now in Q2 got back from the top line from Q1 and we improved the margin performance for the division once again. But going forward, we will continue to focus on the ongoing initiatives and navigate in the market to find our way to utilize on the increased demand out there. Our third and biggest division, Telecom, delivered almost 400 million in sales in the quarter and grew organically by 6.7%. The continued better volumes from our service agreements in Norway and the fiber role in Finland resulted in a good growth for Telecom as a division. But the production starts with the Swedish FMV and have been moved to the H2 24 and thus Sweden closed on the low side together with the lower volumes from UK and Germany as we talked about before. EBITDA of .2% or 9 million in the quarter brought Telecom back to break even for the six month period. Profitability just as our top line was slightly impacted by the moved and lower volumes in the mentioned regions. All in all, I think that we managed to improve from last year. We now have visibility as well on the new volumes in Germany and the envisaged production start towards Swedish FMV going forward here during the second half year. Again, our focus on initiatives with our margin enhancing activities continue, especially then in Norway where we see the possibilities to increase production capacity with the new agreements and where we should be able to adopt and utilize on the bigger service volumes going forward. And I believe on that topic, Annette, initiatives, that you will share a few key takeaways. Yes,

thank you, Fredrik. We have three ongoing strategic initiatives that we are working with to be able to reach our financial targets on midterm. First initiative is to continue to grow on the markets we are established in to further strengthen our position as a leader in critical infrastructure in Northern Europe. We are focused on new segments and to broaden our customer base in all divisions. We focus on our internal and external sustainability footprint and we have submitted our application for SPTI targets one week ago. That will push our own commitment and activities. To reach our targets with SPTI, we need to work much closer than today with our customers and with our suppliers to be able to reach the goals we have set up for NETEL. We look forward to do this journey together. Our second initiative is operational excellence. We are still working with margin enhancing activities where it's needed. These activities can be organizational changes, way of producing and how we perform in product management, for example. We have started several digitalization products across the group to be able to deliver higher quality and be able to scale up our services. We keep our focus on working capital and cash flow that starts already in our tender processes to the completion of the product. It involves the whole organization and everybody has an important role in this work. And finally, our most important initiative, our talents. To be able to keep on growing, we need to work even harder as an employer to keep our talent and we need to strengthen our employee engagement to keep on attracting new talent. So with that said, Fredrik, we are now done with our presentation of quarter two and we are now ready for questions.

There are no more questions at this time, so I hand the conference back to the speakers for any closing comments. The next question comes from Carl Johan Bonnevier from DNB Markets. Please go ahead.

Yes, good morning, Kjell-Nettan Fredrik. First, congratulations to Solid Start to the year for you and even as I guess it's the second half of this, the delivery as you pointed out a couple of times. Just on that, looking at the backlog that you have for the moment, how much of that do you see is going to be for delivery in this year as it looks for the moment?

Yes, as Fredrik said earlier, we are around 1.5 billion for this year in the order backlog of 4.2.

And with that as a base, what kind of, do you see 2024 being a growth year for you?

You know, as always, we don't give any estimates for the full year, but we are working with our strategic initiatives to improve our financial performance and we can see a good development the first half year here. So we will keep on working with our activities and step by step we will improve our financial performance.

And Fredrik, on the cash flow, looking at releasing working capital, do you see you making any progress on getting a full release during the second half of the year?

We, as you say, we are continuing to work with our cash flow and the working capital especially. So we have our seasonality in the business. It's valid to assume that we will see a cash flow in the fourth quarter this year as well. And we are working hard to make sure that we maintain our focus on receiving the money that we are entitled to.

And when you look at, you highlighted quite a good market outlook forecast out there for basically all the segments. You're seeing good growth in all segments as it is. Where do you see your own limitation in-house when you're talking about your final kind of comments, Janet, on looking at talent needs and operational excellence needs? Where can you find the biggest growth opportunities for the moment that you can execute on?

Yes, of course, it's for us. One thing is to keep our talent and attract new ones. But it's also that we have a good collaboration with our suppliers and subcontractors that we have in our products because we are not only running a lot of our products. Of course, we have the product management, but we are working with subcontractors. So we have to build up even more collaboration with the subcontractors and keep on recruiting good new talents, of course. That's the easiest way for us to keep on growing this good progress we have with organic growth.

And when you look at the different segments, would you say it would be easier for you in the traditional telecom segment to beat it up further than maybe in the infra and power segment at this stage?

I would say we have a good market for both the infrastructure and power and telecom, of course. And we have been working for a while and still are working to increase our volumes, for example, in Germany and the UK, of course. And in telecom with fiber roller products, the revenue and the sales amount are often big projects, if I put it that way. So that could, for telecom, increase, of course, the volumes there. But we see a good market for infra services further on and for power. As Pradeep said, it's very important that we are in this good market that we choose the products that are good for us and our organization and companies.

Excellent. Thank you for the extra color and all the best out there.

Thank you. The next question comes from Christopher Karlisgaard from Kepler Chuvriaks. Please go ahead.

Hey, good morning, guys. Thank you for taking my question and congrats on that solid set of Q2 numbers, right? May I dig into the Finland telecom line a bit? Maybe you said, but could you please let us explain to us why it was so good in Q2? I mean, it was a significant sequential and year on year improvement. Maybe there was some phasing in there. Maybe you can help us understand that one.

Yes, for Finland in telecom, we nearly had 100 percent higher revenue in the fiber rollout products that we started, actually. This time last year. So we have ramped up the volume there. So that's the reason why Finland is looking good for telecom. But for power, as you can see, the revenue is decreasing as planned for the products that we are finishing for the big power. And that's the number one client we have in Finland. So that's why we keep on. We have said that our goal this year, of course, is to have Finland as a whole in black figures in the end of this year.

Thank you. And if we stay on the telecom side, we have seen a nice contract win in Germany. But in the UK, that was a third quarter on the spin. That was significant revenue declines. So I think you said that you have been more confident that age two is going to be better. Could you please let us know where you are at the moment?

Yes, it was very nice that finally it had taken quite a long, long time for us to increase our sales in Germany. But we are now happy to present our new customer, UGG. We have done a pilot project with them during the last year to get to know each other and how we should work further on. So we are naturally hoping for more volumes there further on with this client. And for UK, we are working with several different kinds of clients to increase our volumes there. And for us, it's a strategic decision to be in the UK and to ramp up the volumes also in the UK.

Thank you. And maybe the last one on telecom. We know that the margin was a bit low in the quarter due to, as you said, lower volumes in some markets, right? But if we are looking at the mediums long term, is a reason why telecom should have a margin lower than infra and power?

As I said, we don't give any estimate for the full year, but we are in telecom. We are working with a lot of projects, margin enhancing products activities to increase our margin. And of course, our goal is to have telecom the sector in line with our financial targets on midterm.

And maybe a last one on sustainability, which you mentioned as a key strategic initiative. Do you feel like you need to up the game in this space to be able to win more deals? Or in other words, I mean, is it something that is requested by customers?

Yes, that's what we see right now. And we see increased in our tenders that they are asking us as a supplier how we can help them to reach their goals on SBI. So I think this is really important, of course, because we want to contribute to our own footprint, of course. But also, I think we have to be set up the game for us as well, together with our clients to be a professional partner.

Understood. Thank you so much.

There are no more questions at this time. So I hand the conference back to the speakers for any closing comments.

Thank you all for listening in and we hope to see you all back for our presentation of quarter three, the 25th of October. And we wish you a nice summer.

Thank you, everyone.

Thank you.