Eltel Group: Full-year report January–December 2017

October–December 2017

• Group net sales decreased 3.3% to EUR 374.2 million (387.1), mainly as a result of divestments and on-going discontinuation of non-core operations and unprofitable contracts, in line with the transformation strategy

• Net sales in the Core business, including segment Power and segment Communication, decreased 3.0% to EUR 338.5 million (348.9). The decrease is mainly explained by divestments of operations in Latvia and Estonia, termination of the UK business and divestment of part of the Polish operations

• Adjusted for divested and discontinued operations net sales in the Core business increased 1.9%

• Discontinuation and ramp down of non-core operations in Other led to a planned net sales decrease of 9.5% to EUR 35.3 million (39.0)

• Group operative EBITA* amounted to EUR 2.2 million (-14.6)

• EBIT amounted to EUR 1.2 million (-73.2) including EUR -0.4 million in items affecting comparability**

• Net result amounted to EUR -7.7 million (-80.3)

• Earnings per share were EUR -0.05 (-0.77)

• Operative cash flow was EUR 43.0 million (22.5)

January–December 2017

• Group net sales decreased 5.0% to EUR 1,329.9 million (1,399.8), mainly as a result of divestments and on-going discontinuation of non-core operations and unprofitable contracts, in line with the transformation strategy

• Net sales in the Core business, including segment Power and segment Communication, decreased 0.3% to EUR 1,201.5 million (1,205.4). The decrease is mainly explained by divestments of operations in Latvia and Estonia, termination of the UK business and divestment part of the Polish operations

• Adjusted for divested and discontinued operations net sales in the Core business increased 2.7%

• Discontinuation of non-core operations in Other led to a planned net sales decrease of 34.2% to EUR 129.4 million (196.7)

• Group operative EBITA* amounted to EUR -25.5 million (2.1)

• EBIT amounted to EUR -184.6 million (-67.4) including a goodwill impairment of EUR 149.4 million related to operations within segment Power and Other

• Net result amounted to EUR -204.6 million (-82.2)

• Earnings per share were EUR -1.56 (-0.79)

• Operative cash flow was EUR -59.7 million (-8.0)

• The Board proposes that no dividend be paid for the year 2017

Unless otherwise stated, figures in brackets refer to the same period in the preceding year
* Items not allocated to segments consist of the Group management function including development projects
** loss on sale and acquisition of business

* Core includes segments Power and Communication
** Please see page 21 for definitions of the key ratios

Comments by the CEO

Stable progress despite high rate of change

The high rate of change continued in the fourth quarter, in order to create stability and a platform for profitable growth. Despite our on-going change process, the Core business maintained its stable progress. Net sales increased by 2.7% for the full year and 1.9% for the fourth quarter, adjusted for operations divested and discontinued during 2017.

Operative EBITA in the Core business was for 2017 reduced by write-offs and cost provisions in certain unprofitable High Voltage projects in the Nordics and Services in Sweden, related to projects that started in the period 2014–2016. These operations represent only a marginal portion of the Core business, but the contracts signed in these years have generated substantial losses. We have progressively replaced the individuals previously responsible for these activities, reinforced governance and expect to have discontinued or completed most of these projects by year-end 2018. Fourth-quarter operative EBITA decreased by EUR 4 million as a result of the above effects, to just less than EUR 12 million, and by some EUR 17 million to EUR 34 million for the full year. Overall, progress meant that the EBITA margin amounted to 3.5% for the fourth quarter and 2.9% for the full year.

Segment Communication maintained its stable progress, achieving the same net sales in the fourth quarter as in the corresponding period of the previous year. For the full year, sales increased somewhat, despite the UK operation being discontinued, and the divested operation in Poland having a negative impact on net sales. Sales increased in all countries mainly as an effect of the roll out of fibre, where the technology migration from fixed to mobile solutions is creating good business opportunities for segment Communication. Operative EBITA was down marginally year on year in the fourth quarter, and in 2017. There is good potential to improve utilisation, and with it profitability going forward, which is being addressed by a range of activities, including investment in automated dispatch systems.

Within segment Power, the high growth continued in Smart Grids, while overall net sales for the segment decreased   in the fourth quarter and for the full year. The reasons are that sales in the Build and Services and High Voltage operations were down somewhat, and that our operations in Latvia and Estonia were divested in the third quarter. In the fourth quarter, we continued working on actions in the aforementioned older, low-margin projects. The variance in operative EBITA in segment Power in 2017 compared to the previous year was approximately 35% related to restructuring expenses including ramp down costs and 65% explained by impairment losses and margin adjustments on projects. The restructuring measures are expected to continue in 2018. However, market conditions going forward for Power are strong in the coming years, with expected high growth and profitability once unprofitable older projects conclude.

As we have improved control over our operations and most of the sales of non-core businesses are complete, we are shifting focus on getting even closer to the Core business by creating an organisation that is closer to customers with clear-cut local responsibility. We transferred from the current centralised organisation with business units to a country- and market-focused organisation within the Core business effective 15 February 2018. We are reducing the number of management levels and implementing full profit centre responsibility within the segments Power and Communication in each country, and in the two solution areas (Smart Grid and High Voltage) within segment Power, with enhanced corporate governance and clear operational frameworks. In 2018, we will also be investing in actions to improve operational efficiency, enhance our customer offering and raise competence levels through our organisation.

Of the divestments we announced in February 2017, only the final phases in the ramp down of Power Transmission International (PTI) and divestments of the small-scale operations within Rail in Sweden and Norway remain. We signed an agreement to divest our loss-making business in Latvia in July, and to divest our operation in Estonia in August. We signed a letter of intent to divest PTI in September. The closure of PTI is going faster than planned, and we estimate the total financial effect to be somewhat lower than the previously estimated ramp down expenses of EUR 40 million – regardless of whether we divest or discontinue PTI. In the second quarter, we also signed an agreement to divest the unprofitable part of our communication operations in Poland, and completed the closure of our communication business in the UK. We also signed an agreement to sell our Rail business in Finland and Denmark in the fourth quarter.

Stable management and long-term strategy

Much of our Group management has been changed in the year. The new management team is highly committed to execute Eltel’s transformation into sustainable and profitable growth. During 2018, all colleagues in the group will jointly continue Eltel’s transformation, while continuing to deliver high quality for our customers. In addition, we will present a long-term strategy in the year to ensure sustainable growth, profitability and shareholder value.

Håkan Kirstein, President and CEO

For further information, please contact:

Håkan Kirstein, CEO
tel. +46 72 23 06 944, hakan.kirstein@eltelnetworks.se 

Petter Traaholt, CFO
tel. +46 72 59 54 749, petter.traaholt@eltelnetworks.se

Eltel AB discloses the information provided herein pursuant to the EU’s Market Abuse Regulation and the Securities Markets Act. The information was submitted for publication, through the agency of the above contacts, on 22 February 2018 at 08:00 a.m. CET.

About Eltel
Eltel is a leading Northern European provider of technical services for critical infrastructure networks – Infranets – in the segments of Power, Communication and Other, with operations throughout the Nordics, Poland and Germany. Eltel provides a broad and integrated range of services, spanning from maintenance and upgrade services to project deliveries. Eltel has a diverse contract portfolio and a growing customer base of large network owners. In 2017, Eltel’s net sales amounted to EUR 1.3 billion. The current number of employees is approximately 8,000. Since 2015, Eltel AB is listed on Nasdaq Stockholm.