Eltel Group: Full-year report January–December 2019

October–December 2019

• Net sales EUR 278.9 million (330.9). Total growth -15.7% and organic growth¹ in Power and Communication -10.9%
• Operative EBITA² EUR -14.9 million (2.9) and operative EBITA margin -5.3% (0.9)
• Operating result (EBIT) EUR -13.7 million (-0.2) and EBIT margin -4.9% (-0.1)
• Net result EUR -11.8 million (-3.3)
• Earnings per share EUR -0.08 (-0.02), basic and diluted
• Cash flow from operating activities EUR 65.0 million. The comparable cash flow from operating activities before IFRS 16 impact³ was EUR 59.5 million (70.0).

January–December 2019

• Net sales EUR 1,087.6 million (1,188.9). Total growth -8.5% and organic growth¹ in Power and Communication -6.0%
• Operative EBITA² EUR -11.3 million (-2.2) and operative EBITA margin -1.0% (-0.2)
• Operating result (EBIT) EUR -11.2 million (-9.2) and EBIT margin -1.0% (-0.8)
• Net result EUR -25.1 million (-22.2)
• Earnings per share EUR -0.17 (-0.15), basic and diluted
• Cash flow from operating activities EUR 51.4 million. The comparable cash flow from operating activities before IFRS 16 impact³ was EUR 25.7 million (3.2).

Significant events during and after the fourth quarter

• During Q4, Eltel focused on divestments, cash collection and milestone invoicing that led to a reduction of the net debt by EUR 67.6 million.
• Reduced volumes, including temporary overcapacity, in Communication Sweden and reduced volumes in Power Smart Grids impacted operative EBITA negatively with about EUR 8.4 million compared to previous year.
• On 5 December 2019, it was announced that Saila Miettinen-Lähde has been appointed new Chief Financial Officer of Eltel and member of the Group Management Team. Saila assumes her position on 1 March 2020 and succeeds Petter Traaholt who will leave Eltel to assume the position as CFO at V.Group.
• On 22 January 2020, Eltel signed an agreement to divest its German Communication business to Circet Group. The total consideration of the transaction is about EUR 19 million and net positive result of approximately EUR 13 million on Group EBIT. The transaction is expected to close at the end of the first quarter of 2020.
• On 13 February 2020, Eltel agreed with its banks on amendments to its existing financial agreement. The amendments include covenants aligned with financial expectations for 2020.

1. Adjusted for divested operations and currency effects.
2. Eltel follows the profitability of segments with Operative EBITA. Please see page 22 for definitions of the key ratios.
3. See page 21 for more information on IFRS 16 impact on cash flow.
4. Items not allocated to operating segments consist of Group management and support function.

Comments by the CEO

Entering the quarter, we had a clear ambition to lower the net debt of the company. I am pleased to see that we had a very strong cash flow during the period and thereby were able to reduce our net debt by EUR 67.6 million for the quarter, and EUR 24.2 million for the full-year. The operative cash flow for 2019, before the IFRS16 impact, was EUR 25.7 million, a significant improvement compared to EUR 3.2 million in 2018 and EUR -65.2 million in 2017.

Eltel’s quarterly result is nonetheless negative due to three main reasons: lower net sales, restructuring costs and project revisions.

As anticipated, net sales during the quarter decreased for High Voltage Poland, Smart Grids and Communication Sweden, while Communication Norway and Denmark continued to improve revenues thanks to increased market shares. The project write-downs and provisions mainly relate to Communication Sweden and High Voltage.

In Power, the High Voltage project write-downs are mainly related to one large project in Norway and a handful of projects in Poland. We focused on milestone invoicing in High Voltage Poland during the quarter and will continue the customer dialogue regarding compensation for project delays out of Eltel’s control. Our efforts to reduce the capital tied up, particularly in Poland, paid off and we managed to release EUR 33.4 million from these projects. In order to reduce the exposure towards larger projects, we updated the strategy in High Voltage Poland. As part of this strategy change and turn-around of the Polish operations, we have made management changes and the restructuring of the business is ongoing.

Like in the third quarter, the large volume drop from a main customer in Communication Sweden continued to impact the result negatively. The reduced net sales led to overcapacity and restructuring costs, which burdened the result. Write downs and margin revisions also impacted the result negatively. Going into 2020, we have rightsized the Swedish organisation to current and expected volumes. Looking at the full-year, the volume reduction and related costs, including restructuring in Sweden, negatively impacted the result by more than EUR 13 million.

Despite the challenging situation, I would like to point out that there are large parts of the company that are performing significantly better in 2019 compared with previous year. In Power, during the second half of 2019, Finland improved its net sales and EBITA due to enhanced performance and continuous selective tendering. In Communication we see a strong market both in Norway and Denmark where we have increased net sales and operative EBITA substantially compared with previous year.

In segment Other, we have delivered according to our plan made in 2017 and all Other projects will be closed by the end of 2020.

When reflecting upon 2019, I am grateful for the dedication of our employees and all that we have accomplished during this challenging year. We were able to deliver on many areas within our new strategy:

• Improved cash flow and reduced net debt
• Improved quality of deliveries and services towards our customers
• Increased focus on the Nordic markets
• Restructured the Swedish Power and Communication businesses
• Divested the Polish Communication business

In 2020, we will continue focus on increasing Nordic market share with key customers and our operational excellence strategy in order to increase our productivity and profitability.

In January 2020, we signed an agreement to divest the German Communication business. The planned divestment of business area Aviation & Security in Sweden is proceeding according to plan, as both parties have undertaken to ensure a definitive agreement is signed during the first quarter 2020. These actions will further strengthen our balance sheet and lower the net debt level of the company.

Casimir Lindholm, President & CEO

For further information, please contact:
Petter Traaholt, CFO
Tel. +46 72 59 54 749, petter.traaholt@eltelnetworks.se

Elin Otter, Director, Communications and Investor Relations
Tel. +46 72 59 54 692, elin.otter@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 14 February 2020 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, integrated range of services from maintenance and upgrade services to project deliveries. Eltel has a diverse contract portfolio and a growing customer base of large network owners. In 2019, Eltel had annual sales of EUR 1.1 billion. The total number of employees currently stands at around 6,700. Eltel AB has been listed on Nasdaq Stockholm since 2015.