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Edited Transcript of ELTEL.ST earnings conference call or presentation 7-Nov-19 9:00am GMT

Q3 2019 Eltel AB Earnings Call

BROMMA Nov 26, 2019 (Thomson StreetEvents) -- Edited Transcript of Eltel AB earnings conference call or presentation Thursday, November 7, 2019 at 9:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Casimir Lindholm

Eltel AB (publ) - President & CEO

* Petter Traaholt

Eltel AB (publ) - CFO

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Conference Call Participants

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* Matias Rautionmaa

OP Corporate Bank plc, Research Division - Analyst

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Presentation

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Operator [1]

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(technical difficulty)

(Operator Instructions) Speakers, please begin.

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Casimir Lindholm, Eltel AB (publ) - President & CEO [2]

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Good morning, everyone, and welcome to this audiocast. My name is Casimir Lindholm, and I'm the CEO of Eltel. With me, I have our CFO, Petter Traaholt. We will today present Eltel's Q3 report. I will start by going through the highlights of the third quarter on Page 3.

For the fourth consecutive quarter, we slightly improved the results compared to last year. We improved our operative EBITA margin. The rolling 12 months gross margin continues to gradually recover. Our operating cash flow was stronger compared both to last year's quarter and year-to-date.

As part of the strategic evaluation of Eltel's operations outside Nordics, we have divested our Polish Communication business, which will give a total proceeds of about EUR 12 million. A divestment of the German Communication business is ongoing, and we have concluded that we will retain the Polish and German Power business for the time being while we continue to work to increase their profitability.

In Communication, the Swedish volumes are declining even faster than we previously anticipated. Our largest Swedish customer has drastically reduced its investments levels and we adapt to the new situation. In the Power segment, we see a similar trend for High Voltage in Poland. We will need to rightsize both businesses and that will come with a cost. It is also likely to lead to a prolonged transition period for the group.

As you also have seen, Petter Traaholt, Eltel's CFO, will leave Eltel to assume a similar position for a ship management and marine service provider based in London. Petter will continue in his position until end of February 2020. The search process for his successor has started.

I now hand over to Petter as we turn to Page 4 to look at the group overall numbers.

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Petter Traaholt, Eltel AB (publ) - CFO [3]

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Thank you, Casimir. We start by looking at the overall group numbers.

Net sales decreased with 4.8% to EUR 281.8 million compared to EUR 295.9 million last year. Organic net sales in segment Power and Communication adjusted for currency effects decreased 2.9%. Net sales decreased in Power by EUR 8.9 million and in Communication by EUR 3.9 million. Other decreased by EUR 4.4 million in line with the planned discontinuation of the businesses.

Operative EBITA amounted to EUR 4.1 million compared to EUR 0.5 million last year. In Power, operative EBITA decreased by EUR 3.8 million. In Communication, operative EBITA increased by EUR 2.5 million; and increased in Other by EUR 3 million.

Items not allocated improved by EUR 1.9 million. And our operative cash flow improved by more than EUR 16 million compared to same quarter last year. We will discuss the main deviation and drivers for the financial development in each segment as we present and discuss those on the coming slides.

So let's go to Slide #5 (sic) [#6]. In segment Power, net sales decreased by EUR 8.9 million to EUR 103.1 million, representing a decrease of 7.9%. Organic net sales adjusted for currency effects decreased 7.4%. Most of decrease is coming from expected lower volumes in Smart Grids as projects in Norway and Denmark are finalized and will be closed during the year. The decrease is furthermore explained by lower activity and write-downs in Sweden and slightly lower High Voltage activity in the Nordics. The decrease is partly offset by Finland due to [new] wind power projects.

In segment Communication, net sales decreased by EUR 3.9 million to EUR 176.3 million, representing a decrease of 2.1%. Organic net sales adjusted for currency effects was minus 0.2%. The decrease is mainly attributed to the Swedish market with an accelerated volume drop during the autumn driven by reduced customer investments, write-downs and poor project execution. However, the Communication segment is facing different market conditions, and the decline was partly offset by large volume increases in Norway and Denmark. Net sales in others decreased by EUR 4.4 million to EUR 3.1 million. Net sales relates now almost fully to the remaining projects in Power Transmission International in line with the discontinuation plan.

With that, we turn to Page 7 and look at the EBITA development. In segment Power, operative EBITA decreased to minus EUR 3.6 million compared to EUR 0.2 million last year. The operative EBITA margin was minus 3.5%. The decrease is coming from write-downs in High Voltage projects in Nordics and in Poland, the lower volumes in Smart Grids compared to same period last year and lower volumes from -- and project write-downs in Sweden. Decrease was partly offset by Finland and Denmark.

In segment Communication, operative EBITA increased to EUR 9.4 million compared to EUR 6.8 million last year. The operative EBITA margin was 5.3%. The increase is mainly explained by improved performance in Norway due to increased net sales, products mix and efficiency measures. Finland, Denmark, Germany and Poland also contributed to the improved profitability, while Sweden had a negative effect on the result due to the large volume drops and write-downs on projects. Given the large decrease in Swedish market, we are currently restructuring the business in Sweden.

In Other, operative EBITA increased (sic) [increased to] minus 0.2% -- sorry, EUR 0.2 million compared to minus EUR 3.2 million last year. The operative EBITA margin was minus 6.5%. The operative EBITA is in line with the planned ramp-down and the result comes from closing of those projects.

With that, I will turn the word back to Casimir.

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Casimir Lindholm, Eltel AB (publ) - President & CEO [4]

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Thank you, Petter. Let's turn to Page 8 to conclude today's presentation. In our daily operations, we continue to make improvements in both Power and Communication segments. We are improving the quality of deliveries and services, particularly to our largest customers. We can see improved control, deliveries and operations coming from our operational excellence strategy. The results will come with a delayed effect. We will continue to focus on our daily operations, especially secure a tender process, ensure we have the right people in right place, ensure we implement and execute our contracts the right way, continuously improve our production and resource planning and training both of leaders and also technicians.

We will continue to evaluate our existing portfolio, including the intended divestment of Aviation & Security in Sweden as well as the German Communication business. We will restructure both the Swedish Communication business and the Polish High Voltage business in order to improve profitability. We will also continue to strengthen our balance sheet. These actions items will lead to Eltel strengthening its position as the #1 Nordic player with a high customer satisfaction, lower risk and fewer capital-intensive projects going forward, improved cash flow generation and lower net debt.

After this, we are now moving to Page 9. In the long-term strategy and in long-term plan, we have no changes, except that we now need to show agility in the new market situation in Sweden, and thus we are restructuring the business in Sweden and High Voltage Poland due to the volume changes that we have seen during third quarter.

Now let's move to Slide 10 and open for any questions that you might have.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And we have a question from the line of Matias Rautionmaa from OP Corporate Bank.

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Matias Rautionmaa, OP Corporate Bank plc, Research Division - Analyst [2]

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I would like to ask what has actually changed that you said that the transition is now prolonged. Could you elaborate by how much a delay?

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Casimir Lindholm, Eltel AB (publ) - President & CEO [3]

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Basically, the new situation in Sweden and in Poland means that our biggest customers in both countries have declined volumes towards us, which means that we need to adapt to the new situation and restructure those businesses then in Sweden and Poland. So I will say that's the main change that we have seen partly now in Q3 and then in forecast for those volumes going forward. So that is prolonging in that sense the whole transition and turnaround period.

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Matias Rautionmaa, OP Corporate Bank plc, Research Division - Analyst [4]

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Okay. Then a follow-up. Does this compromise your effort to push the net debt below EUR 120 million by the end of Q4 this year?

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Casimir Lindholm, Eltel AB (publ) - President & CEO [5]

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No, no, no. That work continues, and it's not -- the volume decrease in Sweden and Poland doesn't affect that.

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Matias Rautionmaa, OP Corporate Bank plc, Research Division - Analyst [6]

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Okay. And even though that you have now decided to keep the Power business in Poland and Germany.

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Casimir Lindholm, Eltel AB (publ) - President & CEO [7]

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Our target is still to be below the EUR 120 million by the end of the year.

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Matias Rautionmaa, OP Corporate Bank plc, Research Division - Analyst [8]

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Okay. Very good. And then last one, do you see more write-downs coming in -- particularly in Power business in future?

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Casimir Lindholm, Eltel AB (publ) - President & CEO [9]

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I mean we evaluate all the projects and all our businesses going forward. The situation is mainly in Sweden, that part of our Power business will be ramped down during next year, Q1 and Q2. Most of the projects that we have in High Voltage are going towards the end and will -- they will all be finished by end of next year. And the same goes regarding our High Voltage projects in Africa. They will all end by Q4 next year. So there is no changes into those processes and those projects, and the time schedule is the same as before. In other words, after 2020, we'll only have High Voltage business then in Poland and in Finland and then a small, small, small business in Germany regarding High Voltage.

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Operator [10]

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(Operator Instructions) And as there are no further questions, I'll hand it back to the speaker.

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Casimir Lindholm, Eltel AB (publ) - President & CEO [11]

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Okay. Thank you for participating in the call, and we are now ending this session. Thanks a lot.

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Petter Traaholt, Eltel AB (publ) - CFO [12]

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Thank you.

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Operator [13]

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This now concludes our conference call. Thank you all for attending. You may now disconnect your lines.