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Edited Transcript of ELTEL.ST earnings conference call or presentation 24-Jul-19 8:00am GMT

Q2 2019 Eltel AB Earnings Call

BROMMA Jul 25, 2019 (Thomson StreetEvents) -- Edited Transcript of Eltel AB earnings conference call or presentation Wednesday, July 24, 2019 at 8:00:00am 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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Presentation

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Operator [1]

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Ladies and gentlemen, welcome to the Eltel audiocast with teleconference Q2 2019 call. Today, I'm pleased to present CEO, Casimir Lindholm; and CFO, Petter Traaholt. (Operator Instructions) Speakers, please begin.

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

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Hello. Good morning, everyone, and welcome to this audiocast. My name is Casimir Lindholm, and I am the CEO of Eltel. With me, I have our CFO, Petter Traaholt. We will today present Eltel's Q2 report. I will start by going through the highlights in the first (sic) [second] quarter on Page 3.

Overall, we are proceeding according to plan. We are EUR 5 million better during the first 6 months compared to last year. We also had an internal goal to have a positive result after 6 -- the first 6 months, and we were very close to achieving that.

We are also improving the cash flow. We had a positive cash flow during Q2, and that is a very good sign. It's a very good sign in any turnaround and then it's a sign that we are doing the right things.

In June, we signed a letter of intent to divest Aviation & Security to the Air Navigation Services of Sweden. The definitive agreement is conditional on approval by the respective parties' board, the Swedish Competition Authority and the Swedish government.

This process was not something that Eltel was active in. We were approached by the Swedish authorities, and that process started from their side. We will most likely have a signing of this agreement then during the first quarter next year.

The strategic evaluation of our Polish and German operations continued during the second quarter, and we were active in that process, and we will announce our conclusions of these evaluations as they develop.

I will now hand over to Petter to take you through the financials.

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

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Thank you, Casimir. We're now turning to Page 4, and we will start looking at the overall numbers for the group and then further on in the coming slides dive into the business segments.

Group net sales decreased 6.6% to EUR 276 million compared to EUR 295.5 million last year. Organic net sales in Segment Power and Communication adjusted for currency effect decreased 6.4%. In Power, net sales decreased by EUR 21.4 million; and in Communication, net sales were more or less on the same level as last year at had a slight increase of EUR 0.1 million. Other increased by EUR 1.3 million.

Operative EBITA amounted to EUR 2.5 million against EUR 2 million last year. In Power, operative EBITA decreased by EUR 0.1 million. And in Communication, operative EBITA decreased by EUR 5.1 million, and increased in Other by EUR 3.3 million.

Lastly, and as Casimir alluded to in his opening speech, the operative cash flow was positive with EUR 6.9 million during the quarter compared to minus EUR 14.3 million last year, not taking into account IFRS 16.

We will focus on the main deviation and the drivers for the financial development in each segment as we present and discuss those on the coming slides.

Let's turn to Page 5. We continue to include this slide looking at the 12 months rolling operative EBITA margin development, illustrating the effects of group initiatives of delevering risk since Q1 2017. And the business, as we have earlier said, to gradually improve quarter by quarter. As we remember, the graph turned positive first time since 2016 in Q1 this year, and the trend is continuing to be positive.

We will now turn to Page 6 and look at the net sales development in the segments. In Segment Power, net sales decreased by EUR 21.4 million to EUR 94.7 million compared to EUR 116 million last year, representing a decrease of 18.4%. Organic net sales adjusted for currency effects decreased 18.1%.

Net sales decreased in all major markets, but the major deviation was coming from the expected lower volumes in Smart Grids as well as the business reduction in project phasing in High Voltage. Finland also faced decreased volumes due to reduced customer investment levels during the quarter.

In Segment Communication, net sales increased by EUR 0.1 million to EUR 177.8 million and had a net stable organic growth at 0.1%. Organic growth adjusted for currency effects was 1.2%. The increase is mainly attributable to the increased volumes in Norway and Denmark. The increase was offset by significant lower level net sales in Sweden due to lower volumes in Build and reduced customer investment levels.

In Other, net sales increased by EUR 1.3 million to EUR 3.9 million compared to EUR 2.5 million last year. Net sales relates mostly to remaining projects in Power Transmission International in line with the discontinuation plan.

Let's turn to Page 7 and look more in depth on the EBITA development.

In Segment Power, operative EBITA decreased to EUR 2.4 million compared to EUR 2.5 million last year. The operative EBITA margin was 2.5% compared to 2.1% last year. The decrease is coming from lower net sales in Smart Grids and weaker performance in High Voltage Germany and Poland. The decrease is compensated by improved performance in the Nordics.

In Segment Communication, operative EBITA decreased to EUR 2.1 million compared to EUR 7.2 million last year. The operative EBITA margin was 1.2% compared to 4.1% last year. The decrease is mainly explained by lower volumes in project write-downs in Sweden as well as slightly weaker performance in Finland. The decrease is partly compensated by better performance in other markets, mainly in Norway.

In Other, operative EBITA increased to EUR 0.2 million compared to minus EUR 3.1 million last year. The operative EBITA margin was 4.7% against minus 122.6% last year. The operative EBITA is in line with the planned ramp-down and the result comes from closing of 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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Thanks, Petter. Let's turn to Page #8. As earlier communicated, we are focusing on the operational side of the business, making sure that we are entering into right contracts with the right margins and then the right risk level and the right cash flow.

We are still, in some areas, looking at the organization and in some areas changing managers. A lot of focus on implementation and execution of our contract and projects. And we'll work with these areas also going forward, especially production planning and trading in all parts of the organization.

On top of this, as mentioned before, the evaluation of the strategic alternatives for the Polish and German operations continues, and we'll do so during the rest of 2019. And on top of this, then we signed a letter of intent regarding divestment of Aviation & Security. And as mentioned before, this is a process that will likely continue until Q1 2020.

The target is to become the one -- #1 Nordic player, not only regarding net sales but also regarding quality in the market, in the Nordics. And also, of course, get back to a level that all the KPIs, the central KPIs, are on a good level.

This is only possible through high customer satisfaction. We are working a lot regarding the quality, and this relates towards our biggest customers. To do that, we need to engage people who know what to do and when, and of course, that they're rewarded in a good way.

We are lowering all the time every month the risk of the company. We are not entering into new big high-risk projects. We are going more and more towards a service company, away from big projects.

Cash generation is very important. As -- and as you can see in the Q2, we are able to have a positive cash flow, which is not that common in this business and in the company's history as such. So that's a good sign. But it's doable also in high production months.

And then getting back to the things that we have communicated earlier regarding our ambitions to take down the net debt substantially is on the agenda, and that work will continue during 2019.

Last but not least, we are now turning to Page 9, and the long-term plan unchanged. We are in the box in the middle, and that is the focus: It's to prioritize the core operational improvements and to strengthen the financial position of Eltel going forward. Those 2 topics remain the key focus areas also going forward.

Now we are moving to Slide 10 and open up for any questions that you might have.

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Operator [5]

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(Operator Instructions) We haven't received any questions at this point, so I'll hand back to you, gentlemen.

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Casimir Lindholm, Eltel AB (publ) - President & CEO [6]

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If we have no further questions this morning, I'd like to thank you for participation and wish you a good summer and holidays when they come. Thank you.

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Operator [7]

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Ladies and gentlemen, thank you for your attendance. This call has been concluded. You may disconnect.