Earnings Call: Q4 2020

Feb 18, 2021

Thank you. Hello, everyone, and welcome to this audio chat. My name is Kasimir Lindholm. I'm the President and CEO of Airtel. With me, I have our CFO, Sara Ramirez Pinalade. We will today present Airtel's full year and Q4 report. I will start by going through the highlights of the Q4 on Page 3. Our operational performance continued to improve during the Q4, leading to a positive operating EBITDA for the full year 2020. This is a proof that we are on track with our transformation journey. Furthermore, our net working capital at year end was a very historical loan, and we were able to further reduce our net debt. We signed 5 large and important trade agreements, which confirms our position as a leading Nordic a field service company. And of course, this provides a strong platform to build on in 2021 and beyond. The investments of Communication Germany and the Swedish Business Area Aviation and Security represents half of decline in net sales for the period. COVID-nineteen also impacted net sales. I will talk more about that in a few minutes. And in December, we extended our bank agreement until mid Q1 2023. We now turn to Page 4 and look at the agreements we signed. During the Q4, we signed 5 major claim agreements. They all confirm our position as a leading Nordic field service company and gives us a strong platform for the years to come. We can see some trends in these frame rooms as we have seen in the previous ones as well, We are successful in larger contracts with larger customers. More and more of the volume is focused to the larger cities. And then on top of that, we have growth in the coming years in 5 gs. The good part of frame agreements, of course, is that it's retrograde business. We do Please over and over again from day to day, from month to month to year to year. So it's, in that sense, predictable order intake And also, the work we are doing is easier to plan. We are, for a large part, in a stable Nordic market. Going now into 2021, we have almost 90% of the net sales in Nordic countries. And also, these frame agreements are good in the sense that it's a low net working capital Business, and that will, of course, help for the cash flow in the coming years as well. Let's turn to Slide 5 and look at how COVID-nineteen impacted our business in 2020. Partly, we could see lower investment levels by certain customers. We could see Strong projects in areas where COVID-nineteen had a larger impact in the society. We could also see some delays in our project execution, either due to the fact that we were not allowed into end customer premises or if we ourselves Experience COVID-nineteen among our own staff, then of course, we have to stop and with CMC in quarantine and so forth. There were also local restrictions on different levels. I would say We were hardest hit during 2020 in Poland and Germany in this aspect. Partly also impacted, in fact, that we can move our Ukrainian workforce cross border as smooth as we have been used to. So in that sense, negative impact on mainly then the beta side. On the other side, we got favorable payment terms and releases from governments in our respective countries. So that impacted cash flow and equity capital in a positive Way. We can then move to Page 5, And that is the bubble picture explaining where we are in the large projects in High Voltage. We are looking to finalize 10 large capital intensive projects in High Voltage Kitchen Power Transmission International in 2021. These bubbles have moved a bit to the right, mostly due to COVID-nineteen. The biggest bubble, the black one is Raeshedal, and that's a large project in north of Norway. That one we have operationally finished, and that was the biggest project, and in that sense also the large which we have had in the project portfolio. So all in all, we will see in 2021 that we can Close most of these projects under the 4 last ones will be then continuous business in our Poland Polish high voltage business. So we are coming closer to the end of closing both in Financially and legally, both in Norway, the Haworth is project there and then also the projects in Africa and in Georgia. So in that sense, the exposure is going down month by month. Let's move to Page 6, sustainability. First of all, safety is always the number one priority in a company like Airtel. And we have been working systematically with a group wide program to reduce work related injuries. The lost time injury frequency rate decreased significantly from previous year to 4.9, And I'm pretty sure that we are in a market leading position with that number. It's an all time Low number for Aeoltell Group, but of course, we'll continue to strive towards a zero goal going forward. We have also been successful in reducing our carbon footprint, much thanks to improved route planning, which is, of course, is good for efficiency overall. So it's, in that sense, a win win situation. However, we are not yet satisfied, and we have created a new sustainability plan for 2021 to 2023, which will take our sustainability Work to the Next Level. With that, I now hand over to Silas to turn to Page 8, sorry. Yes. Thank you, Sagamir. So time to look at the numbers. As Casimir already mentioned, We showed a very substantial nearly $20,000,000 improvement in profitability in the 4th quarter despite the fact that our Net sales did again decline. In the last quarter of 2019, The results that we had was quite heavily impacted by overcapacity and restructuring costs in Sweden as well as write downs both in Sweden And high voltage relating to Cerro's older projects. In contrast, in 2020, our 4th quarter demonstrated Clear stabilization of our business and thereby also a positive operating EBITDA. In terms of numbers, our net sales for the quarter amounted to €279,000,000 which is 17.8% down from the $279,000,000 the year before. And clearly, the biggest impact came from the divestments Our German and Polish communication businesses as well as the Aviation and Security business from Sweden. The remainder of the decline Came mainly from the already mentioned COVID-nineteen related performance, particularly in high voltage Poland, As well as investment costs, which hit primarily Norway, but also partly Sweden. Our operative EBITA for the quarter improved to €4,000,000 from minus €14,900,000 the year before, And the operative EBITA margin thereby amounted to 2.7%. The operating results, I. E. EBIT was negative €1,900,000 and although this was still negative, This shows an improvement of nearly €2,000,000 from the year before. Cash flow Strong operating activities amounted to €51,200,000 which reflects the seasonal production build up pattern And also then the strong year end cash collection. In part, COVID-nineteen actually had a positive impact here through better payment terms that we have received from certain customers. The change in net working capital also had a positive impact on Cash flow and as already mentioned by Casimir, the net working capital was at a historic low level at the year end, and that was minus €25,100,000 With this, let's move on to Slide 9 To look at the net sales by segment for October, December. In segment Power, R and S sales for the Q4 were €84,900,000 which is 9.2% less than the year before. Organically, the decline was minus 8.7%. Again, the decrease is largely due to lower activity and the COVID-nineteen related delays primarily in high voltage and particularly in Poland. And then we So the decline due to the ramp down of projects and service operations in Sweden. Finland, by and large, Has had a good development in terms of contract expansions, however, showed a slight decline due to the completion of certain large Projects during the period. Moving on to Communications. The net sales amounted to EUR143,500,000, which shows a decrease of 21.5%. Organically, the decline was 12.5%, which again shows that the major part of the decline came from the divestments. Other factors, again, included COVID-nineteen and the loss of a large service agreement in Sweden. Also, there was a contribution by certain sizable projects in Denmark coming to an end. On a clearly positive note, we can say that we saw good volumes both in fiber and 5 gs in Finland. The other segments, we saw net sales amounting to €1,300,000 And of course, as it has been told already before, these relate to the remaining projects in Power Transmission International. Let's move now to Page 10 and look at the EBITA for the segment in this Q4. Segment Power Had an operative EBITA of minus €2,400,000 which, although still negative, is more than €9,000,000 better than the year before. And with this, the operative EBITA margin was minus 2.8%. As we already noted in connection with our 3rd quarter report, Sweden and high voltage are gradually recovering and the risks in these units are reducing. They said clearly, looking at the numbers, Their performance still remains unsatisfactory, and we need to keep on working. In smart grids, we saw quite good performance. But As we already expected, the volumes are still quite low. And Thin Mints Performed in line with previous year despite the trailing costs that we saw following the completion of 2 big build projects. In communication, the 4th quarter operative EBITA amounted to €6,400,000 which is more than €4,000,000 above the number the year before. And in that also, we had a negative $1,700,000 impact from the divestments. The operating EBITDA margin was 4.5%, which clearly also exceeds the 1.1% that we saw the year before. And looking at the countries, in Norway, the absolute level of EBITDA came down a bit due to the investment cuts that we saw in the country. However, their margins remained at a good level. And in Finland, as said, we saw good improvements in net sales and Also improved margins due to good production efficiency. And well, all this said, the biggest Improvement actually came for Sweden, although at the same time, it has to be said that Sweden is still in the early stages of its improvement and the result as such in the country is still far from our targeted levels. In other, the operative EBITA was €1,700,000 which is up from minus €600,000 in 2019. And it has to be said that rather than this improvement coming from the business itself, the increase relates to releasing these provisions after receipt Several months of payments relating to the remaining projects. This concludes the summary of the 4th quarter, And we move on to Page 11 to look at the full year figures. To start with, I think overall, it has to be said that the underlying Trends in our full year figures are quite similar to those already reported for the Q4. This says our top line for 20 2020 was €938,000,000 and showed a decline of 13.8%. Our operative EBITA improved significantly, 1,000,000 to €11,400,000 which is almost €23,000,000 better Then the minus $11,300,000 that we saw in 2019. And with this, the operative EBITA margin came to 1.2 The operating profit for the year was €24,800,000 and this included A $20,400,000 gain from the divestment of the German Communication and Aviation and Security. Our cash flow from operating activities was $49,400,000 and this included a change in net working capital of Almost $70,000,000 And as already noted, the net working capital at year end was at minus 25,000,000 Finally, one of our key targets in our financial transition clearly has been to improve our balance sheet. And at year end, our net debt was at €67,400,000 which is down by €36,000,000 from €124,000,000 the year before. I think we can say that we're quite proud of this development, which clearly shows that we have now reached healthy levels in our debt. I will now move on to Slide 12 to look at net sales by segment. In Segment Power, our net sales for the year were €329,800,000 which is €12,700,000 less than the year 4. And in line with our strategy, part of the decrease clearly comes from the reducing Two big capital intensive projects. As Kanima already mentioned, for example, this is the big Norwegian Horizon Valley Projects being completed operationally in November and remaining or other big projects are coming to an end during the course of this year. Other key factors, again, repeating myself, relate to COVID-nineteen and Ramstone in Sweden. It's Margaret. Again, volumes were still low as expected with certain old projects coming to an end. And the new project in Sweden still remains in its early stages, meaning that it didn't really yet impact the net sales. In Finland, we continue to be the market leader and saw a net sales increase thanks to both Growth in both projects as well as then contract expansions. In Communications, net sales amounted to €549,900,000 showing a decrease of 14.8%. Organically, The decline was 4.5%, which again shows that the divestments played a big part, impacting €59,600,000 on the negative side. The full year net sales in Sweden and Norway was clearly driven by Similar factors as in the Q4, with Sweden suffering from low volumes partly due to loss of the service Same agreement in both countries being actually impacted by reduced customer investments. And on top of that, in Norway, the foreign exchange Rates get a negative $70,000,000 impact. And then the decline that we saw was Luckily, partly offset by the high fiber and 5 gs volume commitment and also increased volumes in Denmark. In other, the net sales amounted to $13,300,000 and again related to the remaining Power Transmission and International projects. Let's now move on to Page 13 and look at our EBITA development by segment. In 2020, our operative EBITA in Power was negative €9,500,000 which is, However, dollars 8,000,000 better than last year or the year before, and the operative EBITA margin came to minus 2.9%. Through the year, we can say that our focus has been on risk reduction and improved control, and we are seeing those Actions now impacting positively both Sweden and High Voltage. But as said, the results still remain negative, which Shows that we still have a long way to go. And while Finland still also had a series of challenges during the year, It never really shows positive productivity development along with a reduced risk level. In communication, operating EBITA for the year amounted to EUR 24,400,000 showing a EUR 6,300,000 increase From 2019, the effect of the divestments in this figure was minus 4,700,000 And the operating EBITA margin was 4.1%. As in Q4, Norway continues to deliver good margins for the full year also, but we already mentioned the decreased volume due to COVID related Investment cuts by customers. And then, yes, the FX effect also Impact is the actual operative EBITA. On a positive note, Finland did improve its profitability True volume growth and better production efficiency and Denmark was largely in line with 2019, however, slightly falling behind the second half of the year partly due to a write down that we already reported in the Q3. Year on year, the biggest improvement, again, in operating EBITA came from Sweden, which as already noted, still is far from being at the targeted levels and needs to keep on working to improve the profitability. In other, the remaining power transmission international projects shows an operating EBITA of €4,500,000 versus minus €800,000 the year before. And as already noted, we target to ramp down the remainder of the TBA projects during the course of 2021. This concludes the summary of our financial performance In the year and this as it happens is the very last time that we reported Power and Communications as the segments. And we will, from now on, as we already reported in late 2020, Report a new segment structure based on the 4 Nordic countries. So let's take a look at the new structure on Page 14. As already mentioned, the New segments will be the 4 Nordic countries of Cement, Sweden, Norway and Denmark, with the remainder of the business being Airtel. What is outside segments in other business? More precisely, in each of the country segments, we will report all Power and Communications business in the respective countries, while other business includes operations in high voltage, Market Germany, Lithuania and whatever is left of PowerFest Mission International and Rail Operations. All in all, this other business has less than 15% of the operations at present, and the volume of these We'll also continue declining as we move forward with our Nordic strategy. The divested Polish and German communication businesses are in other business until their divestments in Q4 2019 and Q2 2020, respectively. Let's now move on to Page 15 to take a look at the new segment split in net sales. As you can see from these graphs, on the left side, the current reporting structure And on the right side, the new reporting structure. You will notice that the new country sequence will be reporting A more evenly split between the segments. And the new segments also do reflect the Airtel organizational structure Better than the previous ones. And with this, we do believe that the change reduces complexity. It is also a more balanced way of reporting and also more transparent in terms of our operations throughout the group. And with this, we do believe that while I said it follows more closely our operational setup, But we do believe that this also benefits the shareholders and other invested or interested stakeholders. And on the phone on Page 16, we will briefly show the graphs how the net sales and EBITA graphs look like with the old and new structures. Again, as already noted for net sales, These graphs clearly paint a picture where the segment sizes, respectively, And compared to each other, are much more evenly split. And also with this, this gives a more transparent picture of the operations at large. These graphs basically sort of summarize real data with the new structures both from 2019 and 2020. And let's still take a brief look at Page 17, where we show a glimpse of how the segment reporting page will look like in Q1 2021 and onwards. On the right hand side, like I said, there are some little picture snapshots of the reporting pages for each segment. In this case, the examples come from Finland and Sweden. And the information that we will cover on these pages going forward will include then net sales Net sales growth percentage, operating EBITA, operating EBITA margin, number of employees, Also, net sales split between power and communication, I. E, the old segment and commentary on deviations From the comparative period. Obviously, this is still something that is pending, and you will see the results of this Change more thoroughly in after the Q1, but this is just to show to start with where we are headed in our reporting. And this concludes the financial part of our presentation. And with this, I will now give the word back to Casimir. Thank you, Shaila. We can move directly to Page 19, and I look at where we are on our transformation journey. So in 2021, we will focus a lot around operational excellence and improve the margins. That is priority 1. At the same time, we are focusing on upselling to our existing customer base And of course, implementing all the payment agreements that we have won in 2020 to make it as good as possible. And we'll continue to restructure non performing business, including potential divestments. So in 2021, as mentioned before, Most of our ongoing projects and businesses outside the Nordics, Except for high voltage toll and will be closed down during 2021. So that is where the focus is now short and of course, continue to strengthen the financial position of the company. When this is done, then from 2022 onwards, we'll focus on investing in sustainable profitable growth, partly through organic growth and partly through possible M and A. So we are, in that sense, roughly halfway through the journey and getting closer to fulfilling the Nordic strategy. This then we can move to Slide 20 and look at the focus areas. There is nothing new in this. You have seen it before. Lots of focus on the operations. And then as mentioned before, to take care of The last projects we have outside the Nordics and also focus on closing Financial and Legal Units Outside the Nordic Acceptance portfolio and where we focus on a turnaround internally. So at the end of the day, when we do this, of course, profitability increases, Quality increases and also the customer satisfaction is going in the right direction. So we can see Already now, a lot of positive movements indicate the eyes that we follow internally. Let's move to Page 3Q1. We have gone quite a long way with our turnaround and what just happened within Aeoltell over the Last couple of years, we have improved the control of the business, and we have continued good market situation in the Nordics, driven by fiber and 5 gs on the communications side, but also cabling, for example, in Finland, in power. And this gives me the confidence to say that we will further strengthen our performance going forward. Highlighting this, we are introducing financial guidance for the year, stating that we foresee our operating EBITDA margin for 2021 to improve from 2020. Let's move through Page 22, and let's look at the updated group targets. Encouraged by the progress made and also looking at the market, we have updated our targets for key financial indicators and aim to achieve them by the end of 2023. And those are group EBITDA margin 5%, Annual growth in the Nordics from 2022 onwards between 2% and 4%. The leverage target is Unchanged and, of course, the real NPL subject to leverage targets achieved going forward. And with that, we'll move to Page 23 and open up for any questions that you might have. Thank Airtel. Airtel. There'll be a brief pause now whilst we register any questions. Okay. There seems to be no questions from the phone at this time. So I'll hand back to our speakers for the closing comments. Okay. If there are no questions, we will end this call. And thank you for joining and thank you for And if there are any questions later on, please don't hesitate to be in contact with us. Thank you very much. Thank you.