Netel Holding AB (publ)

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.

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 Bernerblad from Nordea. Please go ahead.

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

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

Okay that's fair but then I mean 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?

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 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 the power segment but for the whole for Finland we are going for black figures.

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 it something else that is driving this

We always have variations between quarters or in relation to decisionality that we have. But we do see the start 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 impact the seasonally strong Q4 or should we still expect the working capital release as we usually do or see in Q4?

I don't think that we can comment on the expectations in terms of the improvements with regards to the working capital initiatives that we're working with. Those are ongoing and we will continue with that. Then again, as you say, we will, of course, expect a cash flow given the seasonality that we have now when we enter the fourth quarter.

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 it's driving lower prices, or what is impacting this, would you say?

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

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, Jeanette and Fredrik. On the indication for 2024 that you're now giving, how well covered 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 your question, Carl-Johan.

And when you look at the quarterly development, when you're looking at the less profitable projects closed in infra, you 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 maybe the project margins into some doubt in some cases?

As we said earlier, we see a higher competition in the infrastructure market, but we still go for our own business in line with our financial targets, and infrastructure will contribute. And there could always be a risk in our products, of course. And during the summer, we ended some projects that we needed to have additional resources the effect was that we had to decrease the margin in those projects.

And if you look at the overall backlog, the 4 billion, so to say, that you feel still supports your 7% ambition on the margin side when you look at it in normal kind of delivery considerations and so on.

Yeah, we have added comments before on the fact that we aim to get and to tender for projects that can add to our financial performance towards the financial targets in mid-term. 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 order backlog.

And when you now look at the project delays that you described, or production startup basically coming later, 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 and then project slides and you have cost overrun 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 on maybe Swedish Telekom and the German side when it comes to WEM? Is that more of a 2025 question now than 2024?

Yeah, more 2025 than 2024. But as you said during the presentation, we have started a project for the Swedish defense industry. We have started projects in Germany with our new clients. So, I mean, 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 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 earnouts, the additional 40 million you are talking about, is that the end of the earnouts or is there something more coming in 25 as you see it?

I've 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 just sorry if I missed it, but did you the non-recurring items that you charge in the quarter? What was those related to? And then also maybe how you see that item developing from from here on?

Yeah, so as we have been talking about a lot now, we have several initiatives ongoing. And as we said, we have a few investments and 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 new business systems. And the organization will change with an updated management in a few subsidiaries.

And looking Q4 into 2025, are there more costs coming to relate to the same thing?

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

Excellent. 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 5 on your telephone keypad. The next question comes from Krzysztof Okaluska from Kepler-Ciwriaks. Please go ahead.

Good morning, guys. Thank you for taking my questions. If I may start on the revenue trend here. I think that you mentioned quite a lot in your prepared remarks that you saw fewer 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, then maybe a higher degree of product 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 Natel.

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 when we close out 24.

Thank you. And if we 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-enhancing 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 7% mid-term target.

Yeah, I mean, we continue to focus on the journey that we have been talking about now for the last quarters.

uh 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 um may i just ask on the uk we see that sales are down 35 year to date quite despite the quite strong push for five rollouts in the country so try to understand here what is uh 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 the whole, we continue with this process and we expect nothing else than to achieve what we want now for the times coming forward.

And we are now working 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 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 customer and different kind of negotiations and contracts discussions. That is a big difference between working with public or state-owned customers than to commercial companies. So that's more of that, but we don't see any margin decrease in those kind of products.

Thank you. Maybe the 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? This is about right-sizing the organization. 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 digitization products for our telecom services in Norway. The business there is a lot of orders 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 the system we have been using was a lot of manual administration, and it was very hard for us to really actually have a good overview of the business, to know where are we maybe losing money or time, et cetera, et cetera. 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 margins there, because we see a big potential of that. But for this year, it's been, of course, a lot of work to set this 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.

So thank you and goodbye. And we'll 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.