Good morning, and welcome everyone to this earnings call for the interim report for our second quarter. My name is Anders Akerberg. I am the CEO of Linjemontage since 2023. I have 30-plus years of experience from the power grid industry, mainly at ABB, OEM, and EPC side, but also from the customer side at Svenska kraftnät.
Thomas Hendel, CFO, started in Linjemontage this year. As Anders, plus 30 years in my career in different segments, and also from ABB and Saab, and a lot of project-oriented business experience.
Thanks, Thomas. We are super happy to present this first interim report after the listing the 25th of September. It is really a strong report, a strong backlog, SEK 4.3 billion, up almost 5% since the same time last year. Very good gross margins in the order backlog. That is good for the future profitable growth. The revenue development is a bit lower compared to the same quarter previous year, and that is due to the fact that we started the year with a bit lower order backlog, but also reflects the different project schedules and the mixture in the portfolio. Adjusted EBITA margins up to 8.8%, which I think is really, really strong and good. Also, as I mentioned, we did the listing 25th of September. It is really, really good to build a brand for the future. So, strong figures overall.
Everything is going according to the plan and our own expectations, and that includes the revenue and the net sales. So, good start. A really, really strong and good quarter. So, we are entering into the second half of this year with a super strong position. If you look at the different segments, Sweden is still by far the largest. We have a fantastic growth opportunity in Norway, a small but dedicated team growing fast. We have 18 offices in Sweden, two offices in Oslo and Drammen. We have a Swedish branch office in Croatia with roughly 65 employees working on the Swedish market. We also have just launched an operation center in India to be able to attract further high-voltage expertise and competence, mainly engineers. We are a focused EPC dedicated to the high-voltage power grid, and that really differentiates us compared to a lot of the competitors.
A large and growing team, 425 employees, and that is really the key to this profitable growth journey. If you look at the categories, we will come back to that in the next slide and try to explain the difference between substation and transmission, but a good balance between the two categories. If you look at the revenue, substation is 56% and transmission is 44%. So, good balance, a good mix, and I think it is super important to be present in both of these categories. If you look at the bottom, it is also important to understand that we are not playing in the power production facilities, meaning nuclear power plant, wind, solar, offshore, et cetera. We are not present in the local grid either. We solely focus on the high-voltage power grid. So, really, really strong player in the high-voltage power grid, and that is also where we have the growth.
Two clear offerings, two clear categories, meaning transmission and regional substations, but also the transmission of the electricity, meaning overhead lines and cable projects. So, these are the two categories that really, really complement each other. A huge part of the Swedish grid is more than 40 years old and needs to be completely rebuilt and upgraded. In addition to that, we have the data center boom, the electrification of the industries, et cetera. So, the grids need to be expanded and increased as well. So, there are several drivers into these investments. So, it is both an urgent and a long-term need to really invest in the grid now. That combined, we expect a double-digit growth in not only Swedish, but also on other markets, mainly Norway for us. So, good growth for many, many years to come.
You can see in the number of kilometers overhead lines that is needed to be built for the next 20, 25 years. Thomas, a few words about the financials, because I think that is what everyone is interested in.
Thank you, Anders. Yes, a little bit more of deep dive into financials. As Anders said, strong order backlog. We are very happy for that, both from a volume, but also from, not the least, from a margin point of view. We have obviously increased our backlog since start of our current fiscal year very much. We have order intake of SEK 2.2 billion year-to-date versus SEK 1.5 billion last year. Very positive development in the substation area now in the projects. Transmission, a little bit lower activity. But when it comes to opportunities and new tenders, we see a very high activity in both our categories, actually, so that is good. So that is hopeful. Strong backlog, as I said. We also took an order, booked an order to a customer Ellevio in the substation area, just very, very beginning of October. Next slide, please. Revenues.
Yeah, as expected, we have good visibility in our backlog. As expected, we were lower than corresponding quarter last year, but it is actually according to our plan, to our own expectations. We have basically no delays in our project execution whatsoever, so it is going well. Net sales decreased quarter-over-quarter with 16%. We have a good foundation for coming growth going forward. Also, now, as I said, substation is strong at the moment, but that over time, that changes, actually. Sometimes, in some quarters, it could be as strong in transmission and vice versa. This is very natural in our project business that you will see quarterly variations, and now this is our first quarter, obviously, in the listed environment, so you will get to learn us a bit, but we have a good foundation for a continuous growth eventually.
Next slide, please. Very happy to report back on the EBITA margin for the quarter. The adjusted EBITA margin of 8.8% is higher than corresponding quarter last year, and it is also a little bit higher than we have on the 12 months rolling average. The first quarter year-to-date, two first quarters, sorry, we have a 9.9%. That is strong, and that is good. We have good favorable product mix, and we have, as I said, good execution, no delays in our commitments and milestones. We continue the investments in our organization as a preparation for the IPO. Obviously, we have strengthened both operations and functions, and we will continue to develop our organization to be prepared in a good way for the profitable growth.
We have, as items affecting comparability, we have high quarter in now, but now we are fading out, obviously, after the IPO of these kind of IAC costs. You will see that adjusted and the EBITA reported will be closer to each other going forward. Next slide, please. Anders back.
Good, Thomas. Thanks. Sweden, we see the project execution really continues according to the plan. As Thomas mentioned, no delays or slippages in the project. A strong activity, and healthy profitability. Also, as you mentioned, Thomas, it is a high visibility. We are confident in the margins going forward. We also see a high activity on the market side with a lot of tender that we are working with, and we see a lot more tenders also coming later fall and winter. So, really strong activity, both on the project execution side, but also on the market side. On other markets, which is mainly the Norwegian market, we scale up, ramp up that organization, and it is going according to the plan. It is picking up with higher activity on the market side in Norway, as well, and higher than we have seen before, so it is really an increasing market.
When it comes to the export projects, that will really be done case by case and on a very selective basis, mainly together with other large Swedish suppliers.
I am coming back here on profit and loss a little bit more in detail. The items affecting comparability we already mentioned. Both the other operating income and the financial net is actually impacted by some currency effects, so that is what you see there. It is a minor impact. Then we have the tax rate of 22%, which is reflecting the profit and the country distribution of the profit in the group, basically, and an EPS then of 0.57 in the quarter. Next slide, please. Very strong cash flow. We have an asset-light business model, as we normally state, and that is really where we are, and we have a good balance between our contract assets and our contract liabilities, meaning that is the key for having a good cash generation.
We have a good, strong financial positions, which also, of course, in combination with our strong backlog, is a good foundation for continued growth. We have a net asset situation, meaning the negative net debt is where we have a net cash situation, net asset situation. It is very good. Solid cash conversion about 1.0 from EBITA, which is good, and we had an operating working capital decreasing. I talked about the asset-light model, very limited part is CapEx in this company. What we tie up in capital is actually the working capital in the projects. Also, a very competitive level when it comes to return on capital employed, and on a 12-month rolling basis, we are around 36%, which is very good. Anders, targets.
Yes, absolutely. These are the targets that we have communicated to the market. Considering the strong order intake the first six months, SEK 2.2 billion, and additionally, those SEK 200 million we press released in the beginning of October, and with a strong order backlog, we are confident that we will actually reach these targets. Good start for the first six months this year. For the quarter, we are actually even above on the profitability. Strong financial position, and our dividend policy is 25%. I think these targets really provide a clear framework of how we intend to develop Linjemontage going forward the next few years. Confident and a good start of the year. To try to summarize this, it is really a great start, the first six months, SEK 2.2 billion plus SEK 200 million in orders received. Strong order backlog of SEK 4.3 billion-SEK 4.4 billion, with healthy margins.
The revenue development, I know that there will be some questions around that, but we are confident, as it is exactly according to our own expectations and the plan that we have. The same quarter last year was super strong. It is a bit lower this year, but that is depending on the order backlog of the start of this year, but also the project mix and the timing of the projects, and the revenue recognition. We are confident in that as well, since it is according to the plan and the expectations. Profitability is really, really good, and that also depends on the project mix for this quarter. As Thomas mentioned, a strong financial position going forward, and that will really support our long-term ambitions.
For the next quarters, we will just continue to focus on the project execution and the machine that we have in place to deliver according to the plan, trying to attract and recruit even more high-voltage expertise and competence into the company, and make sure that the team that we have remains in place. I think that is we will make sure that we have a profitable growth in both Sweden and Norway going forward. By that, I think we open up for a Q&A session.
If you wish to ask a question, please dial pound key five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key six on your telephone keypad. The next question comes from Alexander Siljeström from Pareto Securities. Please go ahead.
Good morning, guys. A couple of questions from my side. Starting off with the order book. Could you talk about how the order book margin has developed here in Q2 versus Q1?
Yes, it has actually improved even further. We continuously improve the gross margins in the order backlog.
Okay, cool. Would it be possible to quantify that as well?
Not. Hello, Alex. It's Thomas here. No, we do not guide this specifically or have that in detail, but we have, as the pattern, as you might have seen in presentations before the IPO, we normally have margin improvements in the majority of our projects in the backlog, and that was happened also in the reassessment this quarter.
Okay. Gotcha. Then maybe just following up on the order book. Could you talk a little bit about the tendering pipeline here for the rest of the year? What do you see in the market, and how does the split look between transmission and substations?
Yeah, absolutely. It is super high activity on the market side, and that is in both categories, substations and transmission. A lot of tenders that we are working with right now, and there is a lot more coming out fall and winter here. So, high activity, and that goes for both our segments, both the Swedish market and for other markets, mainly Norway then. So, high activity, and it is increasing a lot on the Norwegian market as well. High pipeline. We expect double-digit growth on the market for the next few years, and that is reflected in the tender pipeline as well.
Yeah, that sounds reassuring. Then maybe just a final one from my side, just on the margins, solid margin development here despite the top-line contracting. Wondering if you can walk us through the main drivers here. I guess mix is a big part of it, but yeah, if you could bridge the margin development, that would be very helpful.
At the moment, we have a little bit more of substation in projects in the backlog than when we normally have. But that is, as we, I think, we touched a bit upon it in the presentation, that normally it changes over time for us, and we have a strength that we have both of the categories. But I would say that it is rather when we have a high portion of these high-complex, larger projects, where that is where we can have a better leverage on the margin, and that goes both for substation and transmission. So, the larger complexity, normally we handle that, and if we handle that in a good way from a risk perspective, we can have a little bit higher margins, and that is what we see at the moment.
Okay, that is very clear. I will jump back in line. Thanks for answering my questions.
Thank you.
As a reminder, if you wish to ask a question, please dial pound key 5 on your telephone keypad. The next question comes from Julia Sundvall from ABGSC. Please go ahead.
Yes. Hi, and good morning, Anders and Thomas. A few questions from my side. I would like to start with the order backlog and turning it into sales. How do you expect the larger projects to turn into sales the second half of the year?
Some part of that order intake will be revenue this year, but the delivery times are like two, three, four years, so that will be spread out over time.
Yeah. If I can add, is also that we, as you might know, we have a percentage of completion as our revenue recognition method, which means that we have pretty continuous revenue recognition. But in terms of larger deliveries, et cetera, where we have more of a cost build-up, those periods we have also higher revenue. So, from a timeframe, the largest projects, the longest projects are up to three, four years for us. Typically, the first year, a little bit lower on revenue recognition than the others.
Yep. Sounds reasonable. Please, could you elaborate a little bit more on the visibility supporting your confidence in the target?
The visibility is really, really high. Svenska kraftnät, for example, they publish on their homepage all upcoming tenders. So, we can clearly see that it is already a high activity, but it will increase even further. The same goes for a lot of the customers, the investment. I mean, this is critical infrastructure, really long term, it is long processes, so it is really clear how the market will develop.
Yeah. Do you expect your order backlog to be sufficient, or how much more does it have to grow for you to reach the target? Can you elaborate a little bit more on that?
Absolutely. Our target is to grow in line with the market, meaning double-digit growth. By doing that, we will reach those financial targets. We are confident, and this is really going according to the plan and our expectations so far.
Yeah. Perfect. A little bit more on the Norwegian business. How is it going, and what is your priorities here?
It is really to grow the team, since the market is picking up quite dramatically now in Norway. The intention is to grow the team with high-voltage competence and expertise, in the same way as we have done in the Swedish team. Market is growing fast, and we need to grow the team. That is one of the reasons why the IPO was so important, excuse me, important for us, to build the brand and to be able to attract and recruit even more talent to our team. That is the main priority. Grow the team and make sure we have the same kind of execution machine in place in Norway as we have on the Swedish market.
Yeah. Are you on track on your plan here, or behind, or front, or how should we think?
No, it sounds strange maybe, but everything is actually going more or less according to the plan, both in Sweden and in other markets. It is going really, really well.
Okay, perfect. One last question from me. On the cash flow, how do you expect the working capital requirement to develop with the larger projects?
Normally, we try to have a contractual payment milestone, so we continue to have a positive cash flow throughout the projects. Usually, you could expect that we, in the growth mode, we might tie up a little bit more working capital, but as we also have a heavy advance, advances from customers, we normally balance that act. I would say that we are normally working capital percent of revenues, we are almost zero or maximum 4% or 5%, and that is the range you could model going forward as well.
Okay, perfect. That was all from my side. Very clear. Thank you.
Thank you.
The next question comes from Alexander Siljeström from Pareto Securities. Please go ahead.
Yeah. Just a follow-up from my side on Norway. Was profitable in Q1, but now posted a small loss. Just how should we think about margins here? Is that only reflecting seasonality in Q2, looking at the seasonal pattern in your slide deck?
Yeah. We are still in the phase, we are in a startup phase, you can almost say, in Norway still. So we have some projects in execution, obviously, as we have the backlog, but you shouldn't take that as a very negative sign in the quarter. We are in a startup phase. We see now, which we cannot talk too much about, but we see a lot of tender activity now, and we are also broadening our offering in Norway, not only to go for substations. So, don't take it as too negative. But it's a small number, but you are right, it has been slightly negative.
Yeah. Understood. Thank you very much.
There are no more phone questions at this time, so I hand the conference back to the speakers for any written questions and closing comments.
Yes, I think we had a written question here. Winter weather. How much does winter weather affect revenue and profitability? I would say more or less nothing. The only season effect we might have is during the summer break, where some of the sites are put on hold for a few weeks. Normally, winter really doesn't affect us. Long-term, milder winters can be an issue, with softer grounds and pulling all the material to the different sites, but that's really long term. So we have no issues with working during winter weather. Next question was Svenska kraftnät Strategic Partnership. Can you say anything on the next round of Svenska kraftnät Strategic Partnership procurement? Like, when would you expect the next tendering round to be concluded and the award announced?
That is also published on the Swedish grid homepage, and it's coming three, four more partnering projects during fall and winter, and maybe early spring. So there are several more projects that are coming out. Large ones. If you have any further questions, please go ahead and send them at ir@linjemontage.se. Final slide. The message, the power grid facing a lot of challenges. The grid is old, needs to be rebuilt. We need to invest. This is really a long-term, both urgent and long-term need to invest in the grid. Electrification of industries, data center boom, et cetera. The grid needs to be expanded. To be able to do that, this requires high-voltage expertise, competence, a lot of skilled engineers with experience from this to manage these quite complex deliveries. At Linjemontage, we have that team, the largest pool of talent on the market.
We also have this 30-plus years of experience with more than 2,500 projects that we have executed in a very good way. This really puts us in a strong position to capture the market with the double-digit growth market. It's looking really, really good for Linjemontage, and we are confident in reaching the midterm targets that we have communicated to the market. Thank you very much for listening.