Eltel Group: Interim Report January–June 2016

January–June 2016

• Net sales amounted to EUR 656.6 million (546.8), up 23.0% in local currencies, organic net sales increased by 3.2%*
• Operative EBITA amounted to EUR 8.9 million (19.2) or 1.4% of net sales (3.5)
• No items affecting comparability (-2.6)
• EBITA amounted to EUR 8.9 million (16.7) or 1.4% of net sales (3.0)
• EBIT amounted to EUR 1.7 million (10.5)
• Net financial expenses decreased to EUR -6.1 million (-9.7)
• The net result amounted to EUR -3.7 million (0.7)
• Earnings per share was EUR -0.07 (0.01)
• Operative cash flow was negative at EUR 53.1 million (-37.2), cash conversion was 68.8% on a rolling 12-month basis

April–June 2016

• Net sales amounted to EUR 369.0 million (307.8), up 22.9% in local currencies, organic net sales increased by 3.5%*
• Operative EBITA amounted to EUR 5.7 million (13.9) or 1.6% of net sales (4.5)
• EBITA amounted to EUR 5.7 million (14.0) or 1.6% of net sales (4.5)
• EBIT amounted to EUR 2.1 million (10.9)
• Net financial expenses amounted to EUR -2.4 million (-1.8)
• The net result amounted to EUR -0.1 million (8.3)
• Earnings per share was EUR -0.01 (0.13)
• Operative cash flow was negative at EUR 15.7 million (+22.7)

Unless otherwise stated, figures in brackets refer to the same period in the previous year
* Organic net sales excludes Norwegian Communication business and the Sønnico and Vete acquisitions in 2015 and U-SERV acquisition in 2016, and are presented using comparable exchange rates.

Comments by the CEO

Strong growth, but isolated performance issues affected profitability

Eltel continued to show very strong growth in the second quarter 2016. The more than 20% increase in sales was primarily driven by the past year’s acquisitions, but also by solid organic growth. Regarding new orders, it is very encouraging that these also include contracts in the power transmission sector both in the Nordics and the UK. The Communication segment continued to show a solid performance with good margin development and strong growth, even excluding the consolidated Eltel Sønnico business.

However, Group profitability for the second quarter was negatively affected by a EUR 10 million provision related to the execution of a challenging rail project in Norway, as previously announced. This event is totally unacceptable and Eltel is now taking immediate corrective actions to rectify the situation and to ensure that it does not happen again. The main root cause for the poor execution is unsatisfactory technical quality in the delivery of this project resulting in additional significant amount of corrective works. Currently, we are putting maximum effort into making necessary improvements, including additional quality and performance audits as well as managerial and process changes.

The quarter was also impacted by performance issues in certain African power projects, effects from the lower order intake in the power transmission business over the last twelve months and continued impact from the other challenging Norwegian rail project.

In parallel, we have initiated further Group initiatives with a very strong focus on operational efficiency in terms of specialisation and sharing of best practices. As a very good example of this, we have gradually changed the organisational structure of the fibre business to better support the current strong market demand. Our ongoing Group Shared Services programme – a two-year initiative to centralise our support functions and utilise best practice and add efficiency – is another good example of improvements based on The Eltel Way concept.

Our cash flow was negative during the quarter as a consequence of higher net working capital and made acquisitions. In the short term, cash flow is expected to continue to be weak compared to the good performance last year due to challenges mentioned above. However, we still see that our asset-light business model will continue to be a strength for our cash generation going forward.

In the second quarter, we have further built on our platform to reach Eltel’s targets for profitable growth in a mid- to long-term perspective. Acquisitions completed in the second quarter – Celer in Finland and U-Serv and EVB in Germany – are all examples of acquisitions that expand our local presence and add scalability of the business. In addition, we still have a good pipe-line of future potential acquisitions.

Our organic growth continues to be supported by the visible positive long-term drivers in the Infranet market. This applies to all segments and business units, especially within fibre and smart meters. Our strong market position gives us excellent opportunities to benefit from our customers’ increased investment plans that are driven by needs for the end-user and by new regulations.

During the quarter, I decided, after twelve years at Eltel, to leave my position as CEO. With the set strategy and a strong and competent management team in place, I am certain that Eltel will continue to be the forerunner in transforming the Infranet industry. The recruitment process is on-going and I will remain fully focused in my position until a successor is in place.

–Axel Hjärne, President and CEO

For further information:
Ingela Ulfves
VP – Investor Relations and Group Communications
Tel: +358 40 311 3009, ingela.ulfves@eltelnetworks.com 

This information is information that Eltel AB is obliged to make public pursuant to the EU Market Abuse Regulation and the Securities Markets Act. The information was submitted for publication, through the agency of the contact person set out above, at 08.00 CET on 19 August 2016.

About Eltel
Eltel is a leading European provider of technical services for critical infrastructure networks – Infranets – in the segments of Power, Communication and Transport & Security, with operations throughout the Nordic and Baltic regions, Poland, Germany, the United Kingdom and Africa. 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 loyal and growing customer base of large network owners. In 2015 Eltel net sales amounted to EUR 1,255 million. The current number of employees is approximately 9,600. Since February 2015, Eltel AB is listed on Nasdaq Stockholm.