Netel Holding AB (publ)

Welcome to Natel Q2 Report for 2025. For the first part of the conference call, the participants will be in listen-only mode. During the questions and answers session, participants are able to ask questions by dialing pound key 5 on their telephone keypad. Now I will hand the conference over to CEO and President Jeanette Ruderskild and CFO Frederick Hellenius. Please go ahead.

Good morning and welcome to our presentation of our second quarter. My name is Jeanette Reuterskjöld, I'm CEO and President of Netel. With me today I have Fredrik Helenius, our CFO. In the second quarter we continue to have a large proportion of projects in startup phase across all divisions. However, telecom has increased its volumes primarily due to positive trend in Sweden and Germany. The high proportion of product start has also negatively impacted profitability since initial activities needs to be performed in our projects before we can start deliveries and invoicing. The major contracts that we are now commencing include, for example, LVS Power Stations in Norway, a new framework agreement with GlitterNet in Norway. an expanded framework agreement with Tele2 in Sweden, and fiber networks for UGG and Enviatel in Germany. The order backlog continued to be strengthened and increased to 4.1 billion, part of which will extend into 2027, but the vast majority comprises deliveries in 2025 and 2026. The adjusted EBITDA margin amounted to 5.2% during the quarter, negatively impacted by the high proportion, as I said earlier, from products in the startup phase. In infraservices sales decreased 29.8% in the quarter compared with an unusually strong comparative quarter last year. but the division has continued to capture new customers and expanded collaboration with existing ones step by step we are expanding our operations geographically which combined with our strong local presence provide us with competitive edge within power sales decreased 3.5 percent in a quarter negatively impacted by product starts in sweden and changed of product mix in previous years we have had a greater share of high margin power station products in the product mix nevertheless the power products that we are now delivering on have a favorable profitability over time well in line with our above well in line and above our group's profitability targets Profitability will also be positively impacted by new power station products that will commence during the year with product planning and will enter production phase next year, 2026. In telecom, sales increased 3% during the quarter, driven by a healthy trend in Sweden and Germany. The EBITDA margin increased 6.7% during the quarter due to higher volumes and gradually increasing contribution from the margin-enhancing measures we carried out in Norway last year, as well as one-off effects. The one-off effects comprise the reversal of previous provisions for completed projects. We took a significant and important step in building a stronger Natel with the sale of our Finnish operations that we are operating at a loss. We also successfully continue to expand with new and existing customers and into new geographic areas. The high proportion, as I said earlier, of products in the startup phase during the quarter has temporarily had a negative impact on both sales and profitability. However, these projects form the basis for future growth and improved earnings. We received considerable interest in our Finnish operations and the sales process proceeded quicker than expected. Our Finnish operations and the associated losses and lack of growth have negatively impacted Natel for several years. The sale will allow us to focus our resources on our core markets in Sweden and Norway and growth markets in Germany and the UK. And as such represents a very significant step in establishing a stronger Natel further up. Now I would like to present some new wins under this quarter from each division to show example on how we deliver on our strategy. We start with division Infraservices. They have signed a new agreement with Mälare Energi and we extended our services with them. Mälare Energi is an important client for us with whom we already collaborate in the power sector. Now our colleagues at Moberg have succeeded in expanding the partnership to include two new products focused on renewal of heating and water systems. Mälarenergi is owned by the City of Västerås and provides electricity, district heating, water, district cooling and communication solutions, primarily in the Mälardalen region. Our Swedish team in Division Power has successfully been awarded a new five-year framework agreement with E.ON in Sweden. The agreement includes guaranteed volumes totaling 330 million SEK and covers product contracting for local networks in the areas of Örebro, Norrköping, Iston, Småland and parts of Norrland. E.ON is one of Europe's largest energy companies with over 1 million households and businesses as customers in Sweden alone. We are proud of E.ON's renewed trust and together we are helping to continue electrifying society and meeting the energy needs of the future. Within division Telekom, our German team have won a contract worth 19 million euro with a significant new customer Enviatel. Enviatel is a leading telecom operator in central Germany and part of the E.ON group. The two-year contract gives us full responsibility, including planning, installation, documentation and product management for the construction of a fiber network in Etzgebirgskreis, south of Dresden. Thanks to our solid experience in fiber networks and successfully executed products we have done in Germany, We are now able to engage with a new major player. This is yet another proof of how we are delivering on our strategy to win new customers and expand our geographical reach. And with that, let's move on to our financial performance in more detail, Fredrik.

Perfect. Morning, everyone. Thank you, Jeanette. Financial performance during the second quarter is impacted by the seasonality and the project lifecycle where we have been focusing on startups with new projects and new clients. We are moving forward within telecom and new areas and increased opportunities utilizing on the new service agreements, especially with Telenor in Norway. We are working with new clients and projects in Germany. Within power we have expanded into new areas in Norway and focusing on new projects with planning and permitting in the Swedish markets. This phase and the project mix with relatively fewer projects running at full speed generating our top line and revenue growth, especially the bigger power substations that we have seen previously, impacted a total top line during this quarter. However, we are pleased with the continuous work to increase the order backlog and enabling the necessary profitable volumes for our stepwise improvements over time. We delivered sales of 789 million in the quarter with a negative growth of 7.7% and we recorded approximately 1.5 billion in sales year to date, just below last year. We note that the negative impact from FX Translation has impacted the total negative growth, but Telekom continued to deliver growth from Germany and grew as a division in the quarter despite the focus on the new starts in Norway and in Sweden. Power closed just below last year with good momentum in Norway and continued focus on the new project starts as we said in Sweden. And Infraservices with a continued competitive landscape was trailing with almost 30% as we did not run as many projects at full speed as we did during the same quarter last year. We continue to position ourselves in the local markets for Infraservices for additional and profitable projects ahead. While we continue to ramp up our production and focus on starting many new projects, we have achieved several interesting wins and new contracts during this quarter, growing the order backlog to 4.1 billion. Our underlying markets and demand continue to provide opportunities. And during July, we have, as Gannett mentioned, communicated an additional 300 million contract for power in Sweden. And overall, we believe that we have a fairly good position for 2025 and the coming years. Out of the 4.1 billion in total backlog, we estimate that we have around 1.5 billion for the final six months of 2025. The profitability in the quarter increased from Q1 in line with the seasonality pattern, but with the relatively lower volume that we saw from the project startups, we are slightly behind the profitability from last year. We are currently in a build-up phase with many new long-term opportunities and with that focus we don't yet generate the higher revenues with additional contributions to the margins. The adjusted EBITDA was 4 to 1 million or 5.2% after adjustments with regards to the transaction costs for the finished divestments. Telekom contributed with high margins as we continue to improve from our enhancing activities and increased volumes in Sweden and Germany. Power and infraservices closed with slightly lower margins in comparison to last year due to the current phase of the projects. With the growing order backlog and gradual improvements from, as mentioned, for instance, better and more efficient solutions within telecom and measures implemented during last year, we continue to work with the increased profitability over time. And the impact from new projects and ramping up our production today are expected to generate positive possibilities going forward. The relatively lower profit in absolute terms in the quarter implied an unexpected share of 0.11. The cash flow for the quarter also reflects the capital need when we ramp up production and focusing on project startups. The operating cash flow was minus 62 million in the quarter compared to 41 million last year with high levels of ongoing production triggering cash inflows. during the the first two quarters of 25 we have continued to see the need for working capital in general when we engage in new activities and projects and the outcome from our invoicing in late q1 and during q2 was on the lower side for us to close q2 on on or with positive positive outcomes During June, on the other hand, the last month of the quarter, we reached additional milestones in our production and noted increased levels of invoicing up to approximately 270 million. We believe that we have provided quite a good understanding of our business and the capital need, where the seasonality is an important characteristic for our business, as we always much reach certain achievements before we are entitled to invoice and bearing costs during that time. But in addition to the seasonality, the project mix and the current phase of our production adds additional understanding to the capital need. And power is a very good example during the first six months during 2025. Last year, we benefited from many substation projects running at a good speed with good revenues and good cash flows with beneficial payment schedules. So during 2025, the start of new projects, including substations, implies that we have both lower volume activities with planning and permitting, cash outflows when we ramp up production and a need for a bit of time before we reach relevant levels of our own invoicing. We tend to see a higher capital need within telecom due to the relatively tougher terms and conditions within those projects, but the operating cash flow for 2025 is quite evenly distributed and with tied up capital throughout our divisions, given the overall production phase that we have and the start of many new opportunities across our business. As a consequence of ramping up the production and starting these new projects, we increased the level of accrued sales or work in progress on our balance sheet and enhanced the net working capital. And we are around 13% of working capital in relation to sales in comparison to 10% last quarter or 12% end of June last year. The higher working capital and negative operating cash flow implies a higher net debt position and we increase the leverage ratio to 3.4 times. As we enter periods at year end, whether we finalize production to a greater extent and have a higher relative level of client invoices being sent, we expect to see the contrary, meaning that we lower the working capital and benefit from the cash conversion that we have in our operations, and we'll see better cash flows. We have a very limited capex need within our business, And we do not foresee any substantial impact from other investing activities. And with that, we do expect to deleverage from the current position towards the year end. Before we move on to the divisions, we have a few additional words on the outcome from the finished divestment. And as previously mentioned by Connett, we decided to initiate the process of the divestment during year end and now completed the transaction with a simultaneous signing and closing end of June. We are pleased with the process managing a closing before the summer and while the transaction had limited effects on the financial position, the overall profit from the discontinued operations as reported in the second quarter, including effects from the actual transaction amounted to 20 million in the quarter or 16 million year to date. We have a small but settled purchase price. We have reported approximately 9 million as transaction costs, and we report minus 2 million as the cash flow effects from the transaction, and that's referring to the sold cash balances in the finished operation. With this transaction in the books, we will free up our resources and continue to focus on core and growth markets and execute on our strategies, both on short and long term. If we then move on to the segments and our divisions and looking at the performance across them, Infraservices delivered sales of 157 million and decreased with almost 30% against again a very good comparable quarter last year where we saw additional projects running at full speed. And vice versa this year had fewer projects continuing since last year and focus on the start for new ones. We also noted a bit slower pace on the start for new projects, with more expected volumes being moved to future periods. But more importantly, we continue to work with existing clients and expanding on longstanding corporations, evaluating new possibilities and possible clients and geographies, in addition to the continued strong local presence, where we still manage to win interesting projects despite the competitive landscape. Profitability for Infraservices. We noted an EBITDA of 6 million or 3.6%. The lower volume and slower pace in the start for the new projects implied a decrease from last year margins. And hence, we will continue to execute on the order backlog in addition to expanding on new possibilities in order to get back on volume and ultimately on profit and margins. It is a slow start for the first six months, but with partially a new organization in place, we do look forward to evaluate our opportunities ahead. Within Power, we note a continuous growth from our Norwegian business as we increase production towards new clients and new areas. Sweden decreased from last year as the current start of new projects and relatively few substations running at the same rate of completion. And that implied focus on lower volume activities with less material deliveries and production costs generating our top line. In total power generated 268 million in sales compared to 277 million last year and Norway continued to contribute with both our power service contracts that we have as well as from projects and we are looking forward to continue the promising start of entering South Norway as well as evaluating the industry segment. In the quarter power delivered a decreased profitability of 8 million in Nibbeta and a 3% margin. The margin is still impacted by costs in relation to our expansion in new regions and with new clients and also due to the project mix as we have said with fewer substations running at the same speed as we saw during the same time during 24. Those projects have historically been providing our higher margins and as we bring the current projects that we now start up to speed we expect to realize better volumes and increase profitability. The demand and the underlying markets within power provide good opportunities, and our current projects and the existing order backlog are set to deliver a good long-term profitability for Natel. In telecom we continue to increase speed since Q1 with projects in several of our markets. The division delivered 364 million in sales in the quarter and grew with 3% with important contributions from Germany and from Sweden. And we continue to evaluate the progress as we increase production with our service agreements in Norway. expanding into new geographies and onboarding new teams utilizing on biggest bigger order volumes and implementing new efficiency tools naturally takes a bit of time but we expect to continue the development throughout this year and really realize additional additional potentials in line with that and as we have said previously we expect to improve not only only our our volume for for telecom and tell but especially the margins We were not satisfied with the 1% margin during 2024, and hence the EBITDA for telecom in the second quarter this year of 24 million, or 6.7%, showcased important contributions from efficiency measures and new projects. The EBITDA includes one-time effects, as Jeanette mentioned as well, from reversals of previous reservations or provisions from finalized projects, and that amounts to approximately 10 million. but the underlying operations continues to gradually improve. Telecom remains as our biggest division, and we will continue to find ways to leverage on the order backlog and new contracts, increasing the probability over 12 months also for this division.

Thank you very much for that presentation, Fredrik. I will finalize today's presentation with some concluding remarks. We operate in markets that are driven by the strong critical infrastructure megatrends of electrification, digitalization and modernization of water and sewage systems. And we hold a strong position in these attractive markets. I am confident in our ability to grow profitably. And we will do that by growing together with our customers by delivering on our contracts every day. Natel celebrates 25 years this year. We started our operations in telecom and have over the years developed our business in power and infra services as well. Through both acquisitions and the ability to grow organically, we have managed to develop our business over the years. We have successfully delivered on our strategy and continue to strengthen our positions in our markets by growing with new and existing customers with focus on our core markets in Sweden and Norway and the growth markets in UK and Germany. Every day I receive proof of the strength Natal has in all our competent and motivated employees who has managed to increase our order backlog to 4.1 million SEK. We have a sharp team with a common clear goal to make us even stronger. Overall, this quarter, to sum it up, as we said, we took a significant and important step with the sale of our finished operations that were operating at last. We also successfully continue to expand with new and existing customers and into new geographic areas. The high proportion of our projects in startup phase during the quarter has, as we said, temporarily had a negative impact on both sales and profitability. However, these projects form the basis for future growth and improved earnings in order to deliver on our financial targets. And with that, we open up for 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.

And we have Carl-Johan Bonnevier from DNB Carnegie. yes good morning and frederick uh a lot of moving parts in this quarter obviously and the good indications of going into the second half but if you try to digest a couple of them first looking at the reversal you did in in the telecoms area just to give some color for it when did you say

account conservatively for this project if you put it like that if you're looking at the timing effect so we can understand the comparison a little better from when we when this was really created if you put it like that you know we we always uh work with with updated estimates and assumptions on the projects and as you say um trying to be conservative on on our judgments when it really goes to the to the estimated margins uh ultimately then using um using that margins as the base for generating or calculating the revenues using the percentage of completion and during these times we have our provisions when needed and this time When we had finalized the production and have finalized projects, we didn't have the need for those provisions and this time had a reversal which was slightly bigger than we usually see. And that's why we want to point that out that we have these one-off effects of approximately 10 million. And that's been sort of put in the asset provision during the last periods of time, meaning a couple of quarters

back so during 24 and 25. excellent thank you for that and looking at a telecom going forward you point out that now the the norwegian service operation seems to be uh on the on a firmer footing is that the right right way of interpreting it

I think that we that we get imported answers from the from the all the processes that were put in place during 24 a lot of efficiency measures regarding systems regarding the organization we have onboarded additional teams I think that they they added approximately 40 team members for the service organization organization in new areas just recently so obviously we have several ongoing processes for the division and especially then in Norway for these bigger service contracts. But we start to see important answers and expect to continue to realize the potentials as we said now during the coming quarters as well.

Excellent. Switching over to infra, obviously a slow start to this year when you're looking at the year-on-year comparison. But do I interpret it right when you talk about the backlog and the effect going into the second half that that might be even a catch up to deliver something similar to 2024 for the full year?

Yeah, I think that we have a good order backlog now for the remaining six months. As we said, we estimate that we have roughly 1.5 million in total out of the 4.1 in backlog. And naturally, InfraServices has parts in that volume as well. As you say, it was a tough start now for the first six months for the InfraServices division. but we do expect to have a ramp up in production and start delivering on those volumes and see an increase from the production that we have seen now for the first six months.

And when you for the total group look at the outlook straight for the second half and then for the full year, Do you feel that your new financial target looking at growth margin are within reach, so to say, for also this year?

Yeah, we still see that we estimate that we will ramp up our production the second half year to reach our financial target. And our new financial targets also allows us better to show that it could be changes in our business due to what kind of product mix we have. But we estimate that we will reach our financial target this year. We have had a bit lower than expected volumes. A lot of products were delayed in the first half year, but we expect to deliver on them the second half this year.

Excellent. And Jeanette, on that note, obviously now going into a high production period, do you see any limitation on the resource side that you can access through your subsidized looking at the equipment and staffing?

No, we have from the beginning, we had planned a slightly higher revenue for the first year. So we are equipped with the resources in our organization and ready to ramp up the production for the second half of this year then. So we are ready to produce in our teams.

Sounds perfect. And looking at what you see as ongoing project discussions, outstandings, RFPs and these kind of things looking for new business, how do you see that today maybe compared to six or 12 months ago?

I would say we see a strong market still, but it has been some delays even for tenders the first half year. But a lot of tenders has come out now in all divisions just before summer as well. So we see a strong market even further on. But it has been some delays from our customers as well. They expected to go out with more products in the beginning of the year, but it has been some delays for them as well.

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

Thank you.