Welcome to Netel Q4 report for 2024. For the first part of the conference call, the participants will be in listen-only mode. During the Q&A session, participants are able to ask questions by dialing #5 on their telephone keypad. Now I will hand the conference over to CEO and President Jeanette Reuterskiöld and CFO Fredrik Helenius. Please go ahead.
Our Finnish operation. At the same time, we have launched several efforts to enhance internal efficiency across all our processes. This includes working smarter, improving follow-ups, and allocating resources more effectively. A crucial part of this transformation is increasing digitalization in implementing new group-wide digital tools. One of the most important of these is our business system, which will soon be fully deployed across the entire group. This system will be instrumental in enabling quick analysis, providing a clear overview of our progresses, and ensuring efficient resource utilization.
We have a strong market position in Sweden and Norway, where we see significant opportunities for growth, both with our existing customers and by expanding our customer base. A larger business with an extended geographical presence also increases our ability to create synergies. During this year, we have, for example, won new and bigger contracts with Telenor, UGG, Telia, Elvia, and Vattenfall. Another milestone we are proud of is the validation of our climate targets by the Science Based Targets initiative, SBTi in December last year. This validation allows us to continue strengthening our collaborations with customer and business partners as we work together to create a more sustainable and emission-free society. Now, before I'm handing over to Fredrik for more detailed comments on the financial performance, I will, as usual, present three projects to shed some light on our operations in our three divisions.
Within Infraservices, besides water and sewage projects, we also deliver projects within civil works. For example, this project where we build a pedestrian and bicycle path undertaken by our company, Moberg, on behalf of the Swedish Transport Administration. It is a construction of 3.5 km pedestrian and bicycle path and started in 2024, and we will be completed in autumn 2025. Within Power, our power company in Norway, Nett-Tjenester, has signed a new framework agreement with Norway's leading energy company, Elvia. The agreement covers the design and installation of new control systems for Elvia's substations to a value of NOK 320 million. We deliver complete protection and control systems to existing and new substations and have total responsibility for everything from planning and material procurement to assembly, testing, and commissioning. The agreement runs for four years with an option for additional two, plus two years.
This is a large and important agreement for Netel. It provides increased volumes and extended geographical coverage, and we are proud of the in-depth cooperation we have with Elvia. We have just started in this new contract and expect to see increasing revenue during this year. This is an important step to our growth expectations we have within Power in Norway. In Telecom, our German team has won another contract with UGG for rollout of fiber networks. This contract covers the rollout of fiber to over 7,000 households in Muldestausee near Leipzig, worth EUR 50 million. The new project will start immediately, and the rollout should be completed in 2026. In June this year, we announced another contract with UGG to rollout fiber to 5,000 households in Raguhn-Jeßnitz, north of Leipzig, worth EUR 10 million. We are very proud of UGG's extended trust.
Germany is a fast-growing fiber market, and UGG is an important player with a goal to improve people's quality of life through fiber networks. UGG is a German company. It is headquartered in a Bavarian town in Ismaning. It was founded in 2020 as a joint venture between Allianz and Telefónica Group. Let's move on to our financial performance. Fredrik.
Thank you, Jeanette, and good morning, everyone. Starting with the full year 2024, we delivered 3.1% growth, almost all organically, and reached SEK 3.3 billion in total sales. We saw growth across all three divisions, with Infraservices in the lead, almost 9% growth in Infraservices, and in particular, that was during the first half year, which was on the stronger side. Margin-wise, we reported an adjusted EBITDA of 5.2%, down from 5.7% last year, as we saw lower volumes within Telecom from the U.K. and Germany, and due to Infraservices , which came down in the year-on-year comparison. However, we closed 2024 in line with the provided indication in January and with an all-time high, or the backlog of SEK 4 billion, for continuing operations.
Now, before digging into the Q4 performance, we'll walk you through the status of the process regarding Finland and the outcome of the Finnish operations, given that we, from this report and onwards, will report those operations as discontinued. As previously said, we have decided to—let's see if we can get the correct slide like that. We have decided to initiate the process of divesting the Finnish operations, and we expect to confirm closing June 2025. Once we, of course, focus on our continuing operations, the process with regards to Finland has started, and we are evaluating our alternatives to move forward. As of today, we do not have any details on a specific timeline or the evaluation, but as said, we expect to close the divestment during this year.
Our discontinued operations have not performed in line with our expectations, and we believe that, as Jeanette said, both Netel and the Finnish operations will have better opportunities by finding a new structure. Finland is, from now on, considered discontinued and reported separately in all of our statements. Finland's performance in 2024 reported in line with the indication that we provided, with SEK 241 million in sales and a net profit after tax of minus SEK 105 million. As the decision was made, we evaluated and stress-tested relevant positions, contracts, and projects, the organization in Finland, and the outcome and loss for 2024 includes what we believe to be necessary updated assumptions regarding the business to enable a successful divestment process.
This means that the fourth quarter and the full year 2024 includes additional costs with regards to the organization, the projects, other business-related activities, and also estimated costs for the transaction and ongoing process with regards to selling the operations. The divestment process has, however, not implied any adjustments to other intangibles or goodwill for the group. This is our position as of today, and as said, the financial outcome includes our estimates for the coming process as well. We will, of course, get back to you once we have additional details on the process. Now, the following slides will refer to the continuing operations, just as the report did that we published earlier today.
Looking at the financial performance for the continuing operations, the fourth and last quarter, we grew by 1.5%, driven by good development in Power in Norway and from new growing sales within Telecom in Germany and Sweden. This provided important answers for us, both for both divisions, Power and Telecom, as we continued with growth in Germany and as we turned back to growth for the Norwegian Power business. All in all, we delivered SEK 957 million in the quarter, compared to SEK 943 million last year and almost SEK 3.3 billion for the full year, as we said. During the last few months, we have had the pleasure to release contracts with, for instance, Elvia Norway and UGG in Germany, and together with other added contracts and orders in our existing agreements, we grew the order backlog to an all-time high level of just about SEK 4 billion for the continuing operations.
The underlying demand is promising, with the need for electrification, digitalization, improved infrastructure, and we believe that we have a good position with the existing order backlog, and together with additional volumes, we can enable the stepwise improvements towards our financial targets on midterm. In terms of profitability, we recorded an adjusted EBITDA of SEK 57 million, with a margin of 6% in the quarter, slightly below the 6.9% last year. The profitability was driven by strong performance from Power and Sweden, with a series of finalized projects and good margins, especially regarding substations that we saw. We did not fully manage to reach last year's margin in total, as we saw lower margins from Telecom and a few projects with lower profitability and a continued competitive market within Infraservices.
This holds for the full year 2024 as well, where we recorded SEK 169 million in adjusted EBITDA, with a margin of 5.2% compared to the 5.7% last year. We continue to believe in our process as we now enter 2025 with a stronger order backlog and continuous measures for further growth and improved profitability. Turning to cash flow, in the fourth quarter, we saw that we once again achieved the best quarter for the year, in line with the so often referred to seasonality, where we are able to close projects and finalize our invoicing towards the end of the year. We reported SEK 71 million as the operating cash flow for the group during the quarter. Telecom and Norway contributed on the positive side, as did Power and especially Sweden, where we had a good run closing profitable projects.
The cash flow in the last quarter was affected by fewer projects being finalized, and for the year-on-year comparison, we note that 2023 was very strong and benefited from the release of cash previously tied up as working capital. For the full year 2024, we delivered SEK 115 million in operating cash flow, below last year due to lower profitability levels, but also certain one-off effects, as for example, the SEK 70 million positive effect from a legal dispute in 2023. Looking at 2024 standalone, we closed the year with around 10% net working capital in relation to sales, which we believe is within expected levels for our business, and we achieved improvements within projects and increased the cash flow awareness across the group. With these levels, we believe that we are on track to reach our potential going forward as well.
Closing 2024 also meant that we paid the remaining earnouts, and in total, we recorded an outflow of SEK 124 million from earnouts during the year. Effectively, we remain above our capital structure target on net leverage, being around 2.8 times in comparison to the target of 2.5, but we continue to have solid liquidity and will continuously focus on cash flow activities to gain advantages and improve our financial position. If we take a look at the performance across our divisions, Infraservices delivered sales of SEK 238 million in the quarter, just below last year. For the full year, Infraservices contributed to the growth for the full year volume with SEK 844 million in sales, up with almost 9%.
As previously mentioned, the profitability within Infraservices was negatively impacted by some less profitable projects in the quarter, and as we still notice relatively high competition within our markets, we recorded an EBITDA of SEK 14 million or 5.9% compared to 11.7% last year. For the full year 2024, we delivered a 6.4% margin, below last year, where we saw very good performances across the entire division and year and a very strong Q4. We believe that we have good opportunities for Infraservices as well as our other divisions, and we continue to evaluate our new orders on the basis of our midterm financial targets. Within Power, we produced sales of SEK 317 million in the quarter, with a growth of 3.2%. Norway increased the production within both our Power service contracts as well as from projects and stations, and added to the division's growth in total.
Sweden, on the other hand, managed to finalize projects with better margins, which resulted in an EBITDA of SEK 37 million in the quarter and a margin of 11.6%. With a strong delivery here in Q4, we closed the year at just above SEK 1 billion in sales and with improved profitability to 7.6%. Power remains as a very interesting market, with key drivers being digitalization trends and the need to increase access and capacity across our power systems, and we are happy to recognize the growth for Norway in the quarter as we have released recently one contract with important customers and previously within the industry sector as a new strategic initiative. Q4 marked the end to two profitable years for the division with good performances, so we are looking to add additional volumes going forward to the order backlog and try to utilize on the momentum in the underlying markets.
Telecom delivered SEK 402 million in sales in the quarter and continued with growth despite lower yearly volumes from our growth markets. While the U.K. remained on the low side, Germany continued with growth for the second quarter in a row and added important volumes to the division, partially from the new contracts, as we previously mentioned with UGG. Sweden closed the year with good progress, especially within mobile networks, as the swap of certain equipment was to be finalized before year-end, and for the full year 2024, Telecom showed growth and remained slightly above SEK 1.4 billion. The EBITDA of 0.5% or SEK 2 million in the quarter was negatively impacted by lower volumes in the U.K. We are not satisfied with the SEK 14 million or 1% margin for the full year 2024, and as previously stated, our focus on increased margin remains.
However, as we now see new volumes and the growth in Germany, we are implementing new tools for efficiency within our biggest service contracts in Norway and have interesting opportunities in Sweden. We share the view of the true importance to increase the profitability and expect a stepwise improvement going forward. Telecom is our biggest division today with almost 45% of sales, and we aim to leverage on our order backlog today and new contracts in order to increase our profitability going forward. Finally, 2024 implied a lot of activities, as previously described by Jeanette, where we have been working with actions for a new organization, both in terms of structure and personnel, actions to increase efficiency. We have seen new customers and increased geographical presence. Again, this resulted in an overall organic growth of 3% and adjusted EBITDA of 5.2 and a cash flow from operations of SEK 115 million.
Now, leaving 2024 and having our eyes on 2025, we entered the year with a solid order backlog of SEK 4 billion, out of which more than half refers to 2025, and we entered 2025 with continuous measures for further growth. Improved profitability is key, but we further know that we have the ability to generate healthy cash flows, and with our earnouts paid, we can continue and increase our focus on the balance sheet, monitoring our net leverage position, evaluate necessary debt levels for our business. We need to continue to improve our financial stability, and with market rates continuing to improve, we can gain advantages and together with better projects and profitability levels, reach our financial targets in midterm. We certainly have a lot to do and look forward to 2025, and with that, I believe that we are ready for some final remarks from your side, Jeanette.
Yes, thank you, Fredrik, for this in-depth presentation. I will finalize today with the presentation with some concluding remarks on our growth strategy and how we build a stronger Netel forward. We have a clear strategy and plan for how we will grow and improve our profitability step by step. As we said earlier, we operate in markets that are driven by strong megatrends. We have a strong position in these markets, and we are therefore very well positioned to continue growing and creating value. Our strategy to succeed is divided into three areas: growth, operational excellency, and our talents. We see clear opportunities to grow with our existing customers in all geographic areas, as we have proven under 2024. We have long-standing relationships with many of our customers, and we now know that we managed to exceed their expectations.
We therefore have the competitiveness to be able to grow with existing customers by winning contracts that can encompass both larger geographical areas and new areas of responsibility. We have also identified the opportunity to enter new customer segments, not least in Power, where we have begun to approach the industrial sector in 2024. This opens up new existing opportunities that we are approaching step by step. With our customer base of large, well-established, both listed and publicly owned companies, we know that sustainability is an important competitive advantage. More and more of our customers and also suppliers want to work even closer so that together we can contribute to a more sustainable society. Our activities in the area of sustainability are therefore an important and competitive advantage and also a step in building a stronger Netel forward. The second area is operational excellency.
We have already covered in the presentation, and we are pleased with the progress we have made in 2024. The activities to improve operational excellency aim to both strengthen our offering to customers and improve internal efficiency. These initiatives often go hand in hand. For example, a more effective risk management in our products not only benefits our own profitability, but also means that the customer can benefit from us delivering with good quality, in time, and within budget. Last, but for us most important, we must secure that we have the best talents in the industry. There is a competition for talent, and we are working focused to build our employee brand with the goal of keeping and developing our employees and attracting new talents. These strategic initiatives lay the foundation for a stronger and more sustainable Netel.
We are confident that we have a clear, well-developed plan that we will continue to deliver on. With this, we open up for questions, and as you know, you can either call in to us or mail questions through the webcast.
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 on your telephone keypad. The next question comes from Gustav Berneblad from Nordea. Please go ahead.
Yes, good morning. It's Gustav here from Nordea. Maybe just to start off here, I mean, looking at the order bookings, it seems to have accelerated up 12% quarter-over-quarter. Would you say that this is a consequence of more projects coming out on the market, or are you taking market shares, or what's your view here?
Yeah, on our point of view, we actually are taking market positions, especially in the Power segment, but as well actually in Telecom with the new agreement, for example, with Telenor in Norway, and also with the new contracts with UGG in Germany. I would say a lot of it is that we are expanding in geographical and with other services as well.
Okay, interesting. If we look at the order backlog today, are you seeing the share of projects related to Power becoming sort of a larger share or larger percent of the backlog? Would you say that this is likely to drive a favorable mix here going forward?
Yeah, I would say in Telecom, the kind of contracts we have there in the service agreements, they are often very big and for many years.
Normally, that proportion in the order backlog is coming from Telecom, but we see an increase in the order backlog as well in Power and Infraservices.
Okay, perfect. Then looking at the margin here in Power, it looks to be surprisingly strong here in the quarter. Would you say that this is abnormally high for this quarter, or is there a reason to think that this segment is boosted somehow, or should we sort of extrapolate this?
The margins for Power in the fourth quarter is mainly driven by the very strong ending from the Swedish performance and the closing of several substation projects that we managed to close out with exceptionally good margins. We value this quarter as a very strong one for us, if that answers your question, Gustav.
Yeah, definitely. Thanks. Just the last one here, sorry.
The margin in Infraservices looks to have taken a quite big hit year-over-year, and you comment on finalization of lower margin projects, but can you just explain here, is this cost overruns for these projects, or did you take them initially at lower margins, or what can you say here?
No, I would say that it is a competitive market for us, but we always go in with our contracts in line with our financial targets. It is, if we compare to 2022 or 2021, more competitive for us to win projects if we compare the profitability that we have had in division Infra. For these products, the contracts are okay, but we have some problems managed some of them, which ended up with a lower margin.
Yeah, okay, perfect. Thank you very much. That's all for me.
Thank you.
Thank you, Gustav.
The next question comes from Karl-Johan Bonnevier from DNB Markets. Please go ahead.
Yes, good morning, Jeanette and Fredrik. Coming back to just getting some more color on the backlog, is it possible you could divide it up a little between the areas of geographies so we feel what is driving the big move there?
Yes, as I said earlier, we have a strong backlog, and within Telecom, it's normally unusual that we have big contracts for many years, which are reflected in the order backlog, of course, with that. We have seen stronger development for the order backlog also within Power. We see in Infraservices, we have more contracts that are smaller and normally for one year ahead. You could more or less see the order backlog as a comparison on the sizes of our divisions.
Excellent. Given that you have struggled a little on the profitability in the service contract, and I think you earlier normally alluded to, Jeanette, that the order backlog was supporting your margin targets of 7%. Is that still true, or should we have maybe a lower profitability kind of assumption for the backlog?
No, that's still true. We have expanded a new agreement with framework agreements, for example, in Telecom then in Norway with, for us, better contract, both increase in geographic area and services provided in that contract. We expect it step by step to improve our margin in those contracts.
As you know, I told you, the contract we go into, they are for many years, and it's very important to us that all the new contracts that we have taken last year and so forward is that we are matching our financial targets on midterm then. We expect step-by-step improvement.
Excellent. Fredrik, I think you mentioned that more than half of the backlog is supposed to be delivered during the current year. Do you see the room when you look at, say, other opportunities in the year, kind of things to then come up to your level of growth ambitions that you have in your financial targets of around 10% per year? Is there nothing going on in the pipeline and in the market for you to deliver a growth here, or is that too ambitious?
I mean, we believe that our position entering the year now is good. Of course, this is a natural part of our business. We have a lot of single-year contracts. Infraservices usually are working with a lot of tenders during the early parts of the year, and the very same contracts usually end towards the end of the year. Given the order backlog of above SEK 4 billion today, out of which we say that more than half refers to 2025, we see that we have good opportunities for our business, but we still have to continue to evaluate new alternatives and win new contracts for 2025 as well.
On that basis, is it Infraservices where you have the biggest, say, hold to maybe find orders for and work for during this year, or is it spread over all areas?
Yeah, I would say that Infraservices, we still see that in 2025, it will be a competitive market, but we are expecting that it would be an increasing market due to the housing projects, especially now in Sweden, maybe we'll start more housing building. We expect a bit of a in the end of the year anyway. For us in the markets we are, we see more or less the same situation that we had 2024 as 2025. We will continue with the same strategy that we have done in 2024 with new one contracts. We are strong in the markets we are. We are expecting that we also can improve our capability to run the product as well as to increase our margin for Infraservices this year.
Excellent. Fredrik, just a couple of questions on the cash flow as well. Good highlighting the impact of Finland on the cash flow. Was that backend loaded during the year, or was that evenly spread out over the year? Because I couldn't really make up the Q4 numbers on the reported levels on cash flow.
Yeah, we present the cash flow from both the entire group, given that cash flow is, I understand it's a bit tricky to back out. We present the cash flow for the continuing operations and for discontinued operations in the report. You have all the numbers there you want. Finland provided for the year almost SEK -60 million in operating cash flow. That was, in general, spread out throughout the year, but it was backloaded towards the second half year. I think that we saw up to SEK -8 million in the fourth quarter.
When you look at weighting that the operation is disposed of and leaves you, is it that as soon as similar kind of SEK 15 million-SEK 20 million kind of then negative operating cash flow coming out of that? Or have you neutralized it?
Sorry, take that again, Karl-Johan. Do you refer to the—
No, no, if you look at Finland still being part of the group, obviously, until you dispose of it, or it's an agreement, is it fair to assume that it's going to be a burden of SEK 10 million-SEK 15 million on the cash flow basis over the quarters that you still have it?
I mean, that all depends on the process going forward. We have made our assumption and estimates now for the cost base for the selling process. Potential impact cash flow-wise also depends on the potential transaction going forward.
It is hard for us to comment on today.
Also on the cash flow, are you now finalized, say, the last of the acquisition payments that you have?
Yeah, so we paid SEK 125 million almost during 2024, and we are now down with our earnouts, which means that we have another situation looking forward, and we will continue with our cash flow activities and continuously increase the cash flow awareness across the group, making sure that we get the needed action that we want to have within our projects.
Excellent. Looking at the working capital situation at the end of the year, do you see opportunities for further releases there, or are we now in more of a stable situation? I think that we will always have things to work on.
I think that the level of awareness regarding cash flow can still increase in our tender processes, in our projects, in our finalization phases in the projects. This is something that will continue to be key for us, as it gives us the most important answers on our progress in the projects and the business. I mean, the focus will remain, and we expect that we will still have things to work on. For instance, we have seen now within Telecom, which has been a rather tougher market for us in terms of cash flow, that we have managed to get better terms. We have managed to get sort of front-loaded invoicing processes in some of our Telecom projects. That is additions into what we have seen in the past.
We will continue on that ambition and try to decrease the needed level for working capital in our business.
Excellent. When I look at 2025, is it true to say that it is really the profitability drive that you're talking about that is also going to be the driver of the cash flow rather than some other items then?
Yeah, as we said, profitability is key. We need to improve our profitability. Our focus is on how we can improve our profitability, and we expect to leverage on the order backlog. Again, we have to continue to work on our ambition with regarding to working capital items and other cash flow activities as well.
Excellent. Thank you very much, and all the best out there.
Thank you.
Thank you.
The next question comes from Kristoffer Carleskär from Kepler Cheuvreux. Please go ahead.
Good morning, guys.
Thanks for taking my question. I'll start with an M&A topic. In light of you deciding to divest Finland, how should we think about your M&A strategy going forward? Is it like a step back from the M&A scene, and you're not having that part of the toolbox to expand operations? Maybe you can weave in that if there is still M&A in your toolbox. Is that rather in-market consolidation, or would you look for new markets?
In our long strategy, of course, M&A is an important activity for us further on. For now, our main strategy is to focus on our financial stability and financial platform to be able to continue with M&A. On the long term, it would be a value for Netel in our strategy to work with M&A. We have our ears out and always look for potential on long term.
For now, our strategy is to get our financial stability within.
Yeah, I certainly agree. I mean, Finland is a business-driven decision. Strategically, M&A will continue to be an important part for Netel in terms of growth in the longer term. We need to increase and have our focus on our financial stability and consider the effects and the opportunities that we have today on our balance sheet.
Understood. Okay. Going back to the, you mentioned profitability quite a few times today. If we look at the EBITDA margin profile of your different divisions, it's quite, what do you say, very different profiles in Q4. We see, for example, Power having a massive quarter, right? Can you talk to us about what is like the sustainable levels and the different profiles or like Infra, Power, Telecom in terms of margin? Is there reason to believe that one should be much higher than the other?
No, I think our aim is to have all our three divisions on our financial target levels. We are, as we have said earlier, we have a product-driven, especially within Power and Infraservices, product-driven contracts, which could make between the quarters and year in that way as well, fluctuate margin results during that. Our main target is that we should get our divisions on our financial target levels. It is going to be, as you can see, for Telecom, which is our biggest, it is a step-by-step journey for us.
Thank you. Just to build on that, you have mentioned margin-enhancing measures today. I had some technical problems dialing, so maybe I missed this and apologies in that case. Could you please elaborate a bit what you have done or what you're doing to actually expand your margins?
Yeah, it always starts with the contracts. Our new contracts have another position than our old contracts have had. It takes time to deliver on the contracts and go into new ones. Of course, when we start these big new contracts, it always is a bit of also delay before we can see the result of them as well, both on the revenue and on the margin. We always have some cost in the beginning and so forth. I would say we can see the development from there.
Got it. Maybe last one on the U.K. I mean, it's another four quarters. Could you talk to us about the game plan to get back to growth? What's the market situation?
Are you winning any contracts or is competition just too harsh at the moment?
I would say U.K., it's been a bit harsh for us, but we also have changed our strategy, what kind of contracts and also customer base for us, what would be good for our organization in U.K. It has been a transformative year as well in U.K. considering customer base. We are looking forward further on to present the development there in the U.K. For our part there, it's been a change of customer base, I would say.
Okay.
Thank you.
Thank you.
Thank you.