Eltel Group: Interim report January–March 2018

January–March 2018

• Group net sales decreased 10.5% to EUR 266.6 million (297.8), mainly as a result of divestments and on-going discontinuation of non-core operations, in line with the transformation strategy

• Net sales in the Core business, including segment Power and segment Communication, decreased 5.6% to EUR 258.0 million (273.4). The decrease is mainly explained by divestments of operations in Poland and the Baltics

• Net sales in the Core business adjusted for divested operations and currency effects increased 1.6%

• Discontinuation of non-core operations in Other led to a planned net sales decrease of 61.2% to EUR 9.5 million (24.6), in line with the transformation strategy

• Group operative EBITA* amounted to EUR -7.6 million (-9.7)

• EBIT amounted to EUR -10.4 million (-159.8)

• Net result amounted to EUR -9.5 million (-161.4)

• Earnings per share were EUR -0.06 (-1.53)

• Operative cash flow was EUR -37.6 million (-66.4)

• Decision in January 2018 to implement country-based organisation for segments Power and Communication – expected reduction of cost level approximately EUR 3 million annualised from 2019

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

Significant events after the end of the reporting period

• Casimir Lindholm was appointed as Eltel’s new President and CEO effective 1 September 2018. He will succeed Håkan Kirstein, who will leave his role after having finalised the first phase of the transformation strategy. Håkan Kirstein will remain in his position as President & CEO until Casimir Lindholm starts.

• The Board of Directors has come to the conclusion that it is not commercially justified to initiate a damages claim against the former CEO and Chairman or to pursue actions to recover damages against previous Directors or sellers due to disclosure of information during the company’s initial public offering in 2015.

* Core includes segments Power and Communication
** Please see page 18 for definitions of the key ratios

Comments by the CEO

Operational focus to increase efficiency

In the first quarter, we entered the second phase of the transformation process we initiated a year ago, after completing basically all the structural changes we decided on in February 2017. This means the focus now moves fully to operational improvements in our Core business.

We executed a reorganisation in a short period during the first quarter of 2018, designed to reduce the number of management levels, enhance transparency and reduce administration expenses. We expect that in the first stage, these actions will reduce our expenses by some EUR 3 million annualised from 2019. Group-wide restructuring costs of the corresponding amount will be charged in 2018, of which some one-third was charged to the first quarter. We see further potential in savings at country level, as we begin stage 2.

Adjusted for divested operations and currency changes, net sales of our Core business increased by 1.6% in the first quarter. Operative EBITA was down by EUR 4.4 million to EUR -0.2 million. The negative deviation was mainly caused by restructuring measures, very challenging weather conditions, resulting in delayed projects, and low capacity utilisation in parts of our business.

EUR 2.6 million of the earnings variance relates to segment Communication. Half of the variance is explained by delayed projects in Norway resulting from harsh weather conditions, which caused low capacity utilisation. However, there is a substantial order backlog in Norway, and projects gradually commenced late in the quarter. Additionally, recently signed major contracts in Finland involved ramp-up costs for new capacity and staff training. Furthermore, the efficiency of our Swedish business was somewhat lower than in the previous year.

EUR 1.8 million of the earnings variance relates to segment Power, of which about half consists of restructuring costs and the in 2017 reported margin adjustments in older contracts, which will reach completion during 2018. One quarter is because of lower volumes in Finland, due to an altered product mix. The remaining variance is a result of lower capacity utilisation in Poland and Finland. Smart Grids performed very positively, with sales almost doubling, with high profitability.

For the remainder of 2018, the focus will be on reducing costs, increasing capacity utilisation and improving processes   in our Core business to improve our adaptability. Each operational unit is now executing action plans to improve capacity utilisation. We are also gradually improving our organisation and various management functions, thus laying the foundation for a more operational focus going forward. Our work continues at full speed, and as part of this process, I will be handing over to Casimir Lindholm as new CEO on 1 September 2018.

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 4 May 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 7,600. Since 2015, Eltel AB is listed on Nasdaq Stockholm.