Netel Holding AB

Welcome to our presentation of our Q3 results. My name is Jeanette Reuterskjöld 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. NetSafe increased by 0.3% driven by strong growth in infraservices and telecom in Norway and Finland. Infraservices grew 8.4% and Telecom 9.1%. Power decreased top line by over 17%, which is reflecting to the project-driven nature of the business. In power, comparative figures were impacted by the high volume of projects completed in the third quarter of 2023. 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% from 5.7% 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 SEK. The stronger order backlog is reflecting our strong position in the market and the fact that our markets are driven by the strong megatrends 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 year and the previous quarters we have said that we have several strategic activities ongoing to improve our business and build a stronger netel Some of our activities, for instance, increasing operational excellence and the digitalization in our products, take time. But we are on track with the step-by-step improvements towards our goal to reach our financial targets on mid-term. 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 mid-term, 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 on 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 their 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 implanted a new business system, which enabled us to improve and speed up our monitoring analysis of our performance. We keep on focusing on working capital and cash flow, and work throughout all projects. 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 engagement to keep attracting new talent. Just before summer, as of this initiative, we presented our brand revamp for Nettel, which also includes a new logo. The change is not only a visual update, but a strategic shift that clarifies our role in the society and our vision for Nettel. As usually, I would like to highlight a few products from our three divisions to shed some light on our operations. Our colleagues at JR Markteknik have supported the municipality of Uppsala, north of Stockholm, with climate adaptions. When Folhagen 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 flawed 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. Nettjänster, 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 Eneback, near Oslo. We have been commissioned to install high voltage systems, cable routing and control systems. The product includes the entire system from 132 kilovolt lines the substations and terminations in the data center. The project 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 long stripes for the material to be able to fly above mast 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, Conette. Looking at our financial performance in the third quarter, starting with the top line, then we grew by 0.3%, driven by continued strong development within Infraservices in Sweden and by the telecom 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 FX 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 Conette 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 electrification, digitalization, modernized grids, and overall the improved infrastructure. Profitability wise, we recorded an adjusted EBITDA of 47 million or 5.3% 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 4.2%. And that's compared with 4.1% 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 4.2%, as we said. 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 step-by-step improvements across our business. We are working with a broad and 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, during the third quarter, continuing considerations or earnouts were confirmed and paid, and we have now paid almost 100 million during this year. We expect to pay approximately 40 million during the rest of 2024 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 close look at the performance across our divisions, Infraservices continues to add organic growth and delivered 8.4% 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 the closing of some less profitable projects in the quarter. resulting in an EBITDA of 14 million or 6.5% 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 notice 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 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 Conette said, really happy to release the newly won contract in Norway as a new strategic initiative towards industries. Margin or profitability-wise for power, we saw a total EBITDA of 8 million or 3.5% compared to the 25 million last year. And that's impacted by the lower volume, especially in Norway. and the Finnish power of 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%. They 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 development 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 both 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 biggest service volumes. And I noticed just now that it seems to be a small, small typo on the slide, given that Germany and UK seems to have switch 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, Danica.

Yes, thank you. Our strategic plan and activities to build a stronger Natel 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 digitalization projects. 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 take 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, whose daily work strengthens their health capabilities and creates long-term value on a step-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.