Netel Holding AB (publ)

Welcome to our presentation of our Q3 results. My name is Jeanette Rytisjöld and I'm President and CEO of Netel. With me today I have as usually Fredrik Helenus, our CEO, CFO. Let me start with some highlights from the report. Net sales increased by 0.3 percent, driven by strong growth in Infra services and telecom in Norway and Finland. Infra services grew 8.4 percent and telecom 9.1 percent. Power decreased top line by over 17 percent which is reflecting to the project-driven nature of the business. In power comparative figures were impacted by the high volume of products completed in the third quarter of 23. Since the products in power are often major, sales can vary between the quarters depending on which products are completed or big deliveries of material during each period. This also has an impact on the adjusted EBITDA margin which decreased somewhat to 5.3 percent from 5.7 percent compared to the third quarter last year. However, the adjusted EBITDA margin increased from the previous quarter with 0.5 percentage points from 4.8 percent. Our order backlog continued to develop well and amounts to 4 billion SEC. The stronger order backlog is reflecting our strong position in the market and the fact that our markets are driven by the strong mega trends of electrification and digitalization as well as the need to modernize the water and sewage infrastructure. For the first nine months year to date we have increased sales with 4.1 percent with an organic growth of 3.9 percent and we have an increased adjusted EBITDA margin of 4.2 percent compared with 4.1 percent last year for the same period. During the previous year and the previous quarters we have said that we have several strategic activities ongoing to improve our business and build a stronger Natel. Some of our activities, for instance increasing operational excellence and the digitalization in our products takes time but we are on track with the -by-step improvements towards our goal to reach our midterm. Last year Q3 and Q4 closed with relatively good performance and to fully align our own expectations in relation to all our ongoing strategic processes we provide an indication for full year 24 saying that we will expect adjusted EBITDA margin to be in line with last year and we see low year on year growth due to lower volumes we have in division telecom in Germany, the UK and Sweden. In order to continue towards our financial targets in the midterm we focus as planned on our main strategic initiatives. During the past year we have implemented a series of strategic initiatives that are crucial for our future development. Among other things we have changed business systems and run important digitalization projects and we have intensified our sustainability work. In addition we have implemented organizational changes that strengthen our ability to meet the future demands and enable continued growth. These measures have been necessary to build a stronger and more sustainable business. We will grow in the markets we are established in to further strengthen our position as a leader in critical infrastructures in Northern Europe. We focus on new segments and to broaden our customer base in all divisions. It is promising to see that this strategic decision has resulted in the contract with Green Mountain data center within our power company in Norway. A good example how we grow with existing customer is the extended framework agreements we have signed with among all Telenor and Elvia this year. We focus on our internal and external sustainability footprint and are waiting for a science-based target initiative to finalize the validation of our climate targets. To reach our climate targets we will have to work much closer than today with both customers and our suppliers. The next step in our sustainability journey is to initiate those discussions. On operational excellence we continue our work with margin enhancing activities where it's needed. These activities can for example include organizational changes, ways of producing or how we execute product management. We have several digitalization products ongoing across the group to improve our quality and to increase our capability to scale up our services. During this year we have successfully implanting new business system which enables us to improve and speed up our monitoring analysts of our performance. We keep on focusing on working capital and cash flow, a work throughout all products. It starts already in the tender process up to the completion of the project. This strategic initiative involves the whole organization and everybody must understand his or her role in the chain to make sure that we can execute on the initiative successfully. And then to our most important asset, our employees. To be able to keep on growing we need to work even harder to be an attractive employer to keep our talents and we need to strengthen our employee engagements to keep attracting new talents. Just before summer as of this initiative we presented our brand REWAMP for Natel which also includes a new logo. The change is not only a visual update but a strategic shift that terrifies our role in the society and our vision for Natel. As usually I would like to highlight a few products from our three divisions to shed some light on our operations. Our colleagues at GR Markteknik have supported the municipality of Uppsala north of Stockholm with climate adaption. When Fålhagen sports field was upgraded it got a completely new function. It should be able to flood if heavy downpours occur. Most football pitches have an arch shape so that rainwater will run off them. In Uppsala they did the opposite. The surface was lowered by half a meter so that it could be a flood surface in the event of heavy downpours. In the surrounding area of the sports ground there are approximately 150 buildings and the railway area which are in the risk zone in the event of sudden skyfalls which are now protected. Next tjänst är, our company in Norway focusing on power services. Earlier this week we announced a contract with Green Mountains data center for the design and installation of power systems at the data center in Enneback, Nerozlo. We have been commissioned to install high voltage systems, cable routing and control systems. The product includes the entire system from 132 kilovolts line, the substations and terminations in the data center. The product has already started and will be completed in 2026. This is a key win to us since we made a strategic decision in the spring to expand our customer base in Norway to include industrial customers and this is the first result of our intention to expand our customer base. On behalf of our customers in Telekom we upgrade and build new masts and towers in our Swedish mountains. Everything to strengthen and secure the mobile networks in these geographies. Due to the difficult terrain we need the help of a helicopter to get to the sites both with materials, machines and our employees who will carry out the work. During these works we carry out major safety measures to ensure that no unauthorized persons in the terrain can be injured. These works are of course weather dependent as we use very strong stripes for the material to be able to fly above masts and towers heights to get as close as possible. So now Fredrik it's time to go over the figures in more detail.

Perfect. Thank you Connett. Looking at our financial performance in the third quarter, starting with the top line then we grew by .3% driven by continued strong development within Infraservices in Sweden and by the Telekom business in Norway with the growing service business we have there together with Finland actually with the fiber rollout and the ongoing projects within that sector. Adjusted for the effects in the quarter our growth was organically 2.8%. Power came in on the lower side in the quarter showcasing the project driven nature of our business as Connett mentioned with variations between quarters depending on project starts and completions, production timing, material deliveries and other project drivers in our business. This was exemplified by the power business in Norway in the third quarter where we closed July and August a bit lower than we as we saw fewer projects coming to an end and a slight shift in volumes given adjustments to project timetables and material deliveries. In general however we consider this to be moved volumes rather than lost ones. Nevertheless we managed to get just above 890 million in the quarter or 2.5 billion with 4% growth for the first nine months. The order backlog at the end of September continues to be above 4 billion and we continue to be cautious when evaluating the value and duration of our order backlog but we believe that we do have a good position and a healthy order backlog for the coming quarters and we continue to focus on the market trends and the underlying demand for the electrification, digitalization, modernized grids and overall the improved infrastructure. Profitability wise we recorded an adjusted EBITDA of 47 million or .3% in the quarter. So that's overall in line with the expected seasonality we often refer to and for the first nine months we recorded an adjusted EBITDA of 106 million or .2% and that's compared with .1% last year. The relatively lower profitability in the quarter was evidently affected by the lower pace and volume from the power division but we have also ended some less profitable projects within the Infraservices division. Telecom on the other hand improved its profitability and we continue to work for new and additional volumes in the UK and in Germany and we are still looking forward to the full start in the Swedish Defense Material Administration contract. For the nine month period we reported an adjusted EBITDA of .2% as we said and as also stated in the report we expect to close 24 in line with the previous year margin wise. As said during our previous quarters this year we are determined and focused on our -by-step improvements across our business. We are working with a broadened customer base, we're working with new strategic initiatives, a new organizational structure and restructurings within our units and across the group to increase the financial control and our project management. To some extent this implies a few investments and the adjustments in the quarter refer to costs related to these restructurings within financial control and organizational changes but we still believe in our process and we expect to improve towards the financial targets in the midterm. If we turn and look at the cash flow we saw that we continue to improve the cash flow from operating activities and in the quarter we report 47 million as operating cash flow for the group. Again and as we went on about during our last quarter the seasonality is evident in our business but the efforts on improving project liquidity and the working capital continues to show positive outcomes and we are happy with the 47 million in this quarter. The networking capital in relation to LTM sales is around 10% now end of September. That's down from approximately 11% when we closed the second quarter. In addition the or during the third quarter continuing considerations or earnouts were confirmed and paid and we have now paid almost 100 millions during this year. We expect to pay approximately 40 million during rest of 24 in relation to the remaining earnouts on the balance sheet and as a result we remain above our capital structure target on net leverage but the access to capital also remains stable over 500 million. We will continue to focus on our financial position and continue our work with the relevant measures and work together with our stakeholders to improve the current debt position and our cash management structure. If we take a closer look at the performance across our divisions, Infraservices continues to add organic growth and deliver .4% growth in the quarter reaching 220 million. We notice added competition within several areas but we are still fairly well positioned in our local markets. And as previously mentioned the profitability within Infraservices was negatively impacted by closing of some less profitable projects in the quarter resulting in an able to have 40 million or .5% compared to 9% last year. Infraservices continues though to add to our group performance given the LTM margins and the current order backlog and we continue to follow the market developments and I noticed that we saw good market conditions the last year during this time. Within Power we produced 236 million in the quarter which is down from 286 million last year. We noticed negative growth in Norway as we saw fewer projects coming to an end and in comparison to last year a slight shift in volumes given adjustments to project timetables and material deliveries. As said before this is mainly considered to be moved volumes and not lost ones and Power remains as a very interesting market with key drivers being the digitalization trends and the need to increase access and capacity across the energy sector. And we were as Gannett said really happy to release the Newly Worn Contract in Norway as a new strategic initiative towards industries. Margin or profitability wise for Power we saw a total limit of 8 million or .5% compared to the 25 million last year and that's impacted by the lower volume especially in Norway and the Finnish Power business which is continuing with a lower pace as expected and was still loss making. Telecom delivered 437 million in sales in the quarter and grew organically by 9%. The continued better volumes from our service agreements in Norway and the fiber rollouts in Finland resulted in good growth for Telecom as a division. But even though we are on the move with our works within the Swedish defense industry and new projects in Germany we continue to look forward to increase our production within these areas together with the forthcoming developments in the UK. In the beginning of the year we expected to see increased volumes from UK and Germany during H2 but we are yet to fully start the production in our new agreements in Germany and still need to improve the order backlog within these regions. The improved EBITDA margin was 3% or 13 million in the quarter for Telecom and our focus on increased margin remains as we continue with the digitalization project in Norway where we see possible improvements as the production capacity can increase and where we should be able to continue to adopt and utilize on the bigger service volumes. And I noticed just now that it seems to be a small small typo in the on the slide given that Germany and UK seems to have switched places for the 12-month figures so we'll make sure to keep an updated report on the website if that also holds for the report. All right before we open up for any potential questions I think that we will again refer to a few key takeaways so I'll hand over back to you then.

Yes thank you. Our strategic plan and activities to build a strong NLTEL is on track. We are improving our customer base and we are at full speed till the end of the year to complete most of our our digitalization products. Increasing our operational excellence within product management will always be a key process to develop and ensure that we have the right systems to work with continuous improvements of how we run our products. Many of our current activities takes time and I'm proud of the progress we have made so far especially in attracting new customers and strengthening the relationship with our existing partners. This progress is the result of the expertise and the commitment of our employees. This daily work strengthens the -by-step basis. So with that said Fredrik we have come to the end of our Q3 presentation and are now ready to take questions.

If you wish to ask a question please dial pound key five on your telephone keypad to enter the Q. If you wish to withdraw your question please dial pound key six on your telephone keypad. The next question comes from Gustav Bernablad from Nordea. Please go ahead.

Yes good morning it's Gustav here from Nordea. Maybe just to start off here in the in the power division is it possible to give some indication of how much of the lower margin of 510 basis point here year over year that is driven by by sort of volumes and how much is driven by the power division in Finland would you say?

Yeah as we as we say for for the power division I don't think that we will go into details in terms of the the the splits down to towards the segments being countries but we are of course affected by the lower volume. We come down quite a bit almost 20 percent in volume per hour and that doesn't give us the the coverage for our cost as we as we were to expect. So both those items are key drivers for the lower margin for power this quarter.

Yeah okay that's fair but then I mean you you have previously commented on sort of if we go into geographies Finland returning to black numbers for the full year and I don't know if I interpret you wrong but are we seeing a step backwards are you taking a step backwards from that statement or?

No we are still going for black figures for Finland as a whole but we still see profit loss in the power projects in Finland but as we announced earlier this year we now see that our organization in Finland within power are ready to to to go for new products so we have recruited a new business unit manager in Finland for the power segment to be able to increase our volumes now further on in in the power segment but for the whole for for Finland we we are going for black figures.

Yeah okay perfect and then I mean looking at the working capital here in the quarter I mean is this basically driven by the initiatives you have taken or sort of implemented or is this something else that is driving this?

We always have variations between quarters and with or in relation to the seasonality that we have but we do see the start off of these initiatives we do see that we work closely together within our projects in tender processes and focusing on these items a lot more so I would say that we are now starting to see slight effects from this and this is something that we will of course continue to do going forward.

Perfect should we expect this to sort of impact the seasonally strong Q4 or should we still expect the working capital release as we usually do or see in Q4 here?

Yeah I don't think that we can that we can comment on sort of the expectations in terms of the improvements we took us to the working capital initiatives that we're working with though those are ongoing and we will continue with that then again as you say we will of course expect a cash flow given this seasonality that we have and now when we enter the fourth quarter.

Yeah okay perfect and then just the last one here could you give a little bit more I mean you comment on lower profitable projects in Infra services and I think you have said before that you're seeing increased competition is that still the case and is it that is driving lower prices or what is impacting this would you say?

We won't comment on all the details in this specific project but mainly it mainly refers this to additional that we had to take additional resources in the products that we ended now after the summer to be able to deliver on the projects on time and we see a higher competition as we have said earlier from last year but we still align our business in Infra services with our financial targets on midterm and we see that Infra services will contribute to reach them.

Yeah okay got it thank you very much that was all for me.

The next question comes from Carl Johan Bonnevier from DNB Markets please go ahead.

Yes good morning Jonathan and Fredrik on the indication for 2024 that you're now giving how well covered that is that in the order backlog if you try to bridge that for us?

Yeah I mean we have not provided the indication for the year and we say that we have a fairly healthy order backlog for the coming quarters so I think that that adds up to the answer to question Carl Johan.

And when you look at the quarterly development when you are looking at the less profitable projects are closed in Infra to look at the order backlog do you feel secure about the margin that you have in that or does the delays that you need to now see in projects also put the maybe the project margins into some doubt in some cases?

As we said earlier we see a higher competition in the Infra service market but we are we our we still go for our own business in line with our financial targets and we Infra services will contribute and they're all they could always be a risk in our products of course and during the summer we ended some products that we needed to have additional resources that the effect was that we had to decrease the margin in those products.

And if you look at the overall backlog the four billion so to say then that you still support your seven percent ambition on the margin side when you look at it the in normal kind of delivery considerations and so on.

Yeah I mean we have added comments before on the fact that we aim to get entertainment for projects that can add to our financial performance towards the financial targets in midterm and then considering the order backlog as a whole we're still as you are fully aware of using the cautious approach for future periods in the valuation of

the project. And when you now look at the the project delays that you described or production startup basically coming later you you feel you are secure so to say from an inflation point of view with those delays as well so you are not taking on the risk giving guaranteed prices that and then project slides and you have cost overruns from that perspective.

We don't see that this shift in volumes has any major impact on the risk perspective within these projects.

Good to hear and how do you see say facing or maybe Swedish telecom and the German side when it comes to to when is that more of a 2020 2025 question now than 2024 or?

Yeah more more 2025 than 2024 but as you said and now during the presentation we have started projects for the Swedish defense industry. We have started projects in Germany with our new clients and I'm sorry we we are in the progress but we did expect a bit more when we entered 24 than in comparison to what we see today so we expect to to continue to ramp up the production and increase those volumes going forward.

I guess that's fine given that it's new clients to you so when you look at the urn now see the additional 40 million you are talking about is that the the end of the urn out or is there something more coming in 25 as you see it?

I have roughly 60 million in the balance sheet today so we expect to pay additional 40 million now in Q4 which means that we have. Yeah exactly yeah

excellent and yes I'm sorry if I missed it but did you the non-recurring items that you charged in the quarter what was those related to and then also maybe how you see that item developing from from here on?

Yeah so we as we have been talking about a lot now we have several initiatives ongoing and and as we said we have a few investments in costs related to those initiatives so the items affecting comparability of roughly 10 million that we have in the quarter reflects on those processes so we are taking adjustments or items affecting comparability regarding the restructurings of our complete financial control and the development of of new business systems and the organizational change with an updated management in a few subsidiaries.

And looking Q4 into 2025 are there more cost confidence coming to rate related to the same

we don't have any any foreseeable major items affecting comparability coming now in the fourth quarter now.

Thank you very much and all the best out there.

Thank you.

Thank you.

As a reminder if you wish to ask a question please dial pound key five on your telephone keypad. The next question comes from Christopher from Kepler. Please go ahead.

Good morning guys and thank you for taking my questions. If I may start on the on the revenue trend here I think that you mentioned quite a lot in your prepared remarks that is you saw few projects concluding in the quarter leading to the softer revenue growth. I'm just trying to understand if there is a facing element here that we should expect than maybe a higher degree of period closures going forward and therefore a much better trend for example in Q4.

There is no decision about that right now but we wanted to provide a better understanding of our ongoing strategic processes that we are running right now in order to build a stronger netel.

Yeah we have provided the indication now for the fourth quarter so that gives you a good feel for the expected revenue stream and profitability now when we close out 24.

Thank you and you can move to the margin here. A little disappointing here as we can see also in the market reaction today despite I mean growing revenue and you having introduced margin housing measures over the last year so I'm just trying to understand how you can assuage investor concerns of you actually being able to return to that seven percent midterm target.

Yeah I mean we continue to focus on the journey that we have been talking about now for the last quarters. With all these initiatives ongoing our intention is still to continue our improvements going forward and as we say in the indication we keep our financial targets in the midterm.

Okay thank you. May I just ask on the UK we see that sales are down 35 percent year to date despite the quite strong push for fiber rollouts in the country. So I'm trying to understand here what is the difficulty for you? Is it that competition is so stiff that you cannot win contracts or is it something that you are still working on the organization like an internal thing?

It's always a full scope question when you look for additional volume like we do. So our focus right now is to get the volume that we want to search for the projects that we need and the projects that we want and this has taken a bit of time and we still are in the need to add target order backlog for the UK business. But as for the group in a whole we continue with this process and we expect nothing else than to achieve what we want now for the times coming forward.

Yeah and we are what we are now working for in the UK because it is a good market as you said but for us it's a shift of customer base that is needed for us that's more suitable for our organization we have in the UK.

Okay thank you and on the congrats on the green mountain data center project can you just tell us now that you're moving into a new type of customers do you need to fight very hard on that margin to make inroads?

No we don't see any difference in the margins for those kind of products but it's a different kind of a customer and this different kind of negotiations and contracts discussions. That is a big difference between working with public or state or customers than to commercial so that's more of that but we don't see any margin decrease in those kind of products.

Okay thank you and maybe last one from me you were talking about digitalization and a new common business system here to improve margins just help us understand how is this going to improve the margins it's about right sizing the organization this is about opening up for new revenue streams and maybe also a timeline where we are and what we can expect going forward.

For example we have a huge digitalization products for our telecom services in Norway and that's the quite the business there is a lot of orders that's needed and we need to have an effective system to have control of when we send out who we sent out and also the invoicing process when we have delivered on those orders. So and the system we have been using was a lot of manual administration and it was very hard for us to really actually see have a good overview of the business to know where are we maybe losing money or time etc etc we are not as effective as we can be. So that is for us a key issue actually to really get control of that business to be competitive in the long run and to increase our we see a big potential of that but for this year it's been of course a lot of work to set the system on pace but it's on track and so far it's running really well that's one example.

Okay thank you guys thank you

thank you

Thank

you and goodbye and we see you next time for our quarter four in the 7th of February. Looking forward to see you all then.

All right thank you for listening guys. Bye

bye.