Welcome to the Netel Group Q1 2022 report. Throughout the call, all participants will be in listen-only mode. Afterwards, there will be a question and answer session. Today, I'm pleased to present the CEO, Ove Bergkvist, and the CFO, Peter Andersson. Please begin your meeting.
Okay, welcome to Netel Q1 presentation. I will start on page two to give a short overview of the company, and then after a few minutes, I will jump into the numbers. Please move to page two. We are in infrastructure. We in Northern Europe have a long history of growth since 2010 until now, Q1. We have a CAGR of 23.7%. It has been profitable. The profit has been growing every year with the 19.5% in the period. We have an asset-light model. We do project, we do service, we do maintenance. We do it with lots of bought services. We buy excavation, we buy installation. We have very little production equipment ourselves, so we have a high cash conversion. Q1, 92%.
Last three years, 93% on average. We will continue to grow. We have a clear growth strategy. We are in strong segments. We are supported by strong trends. We have electrification. We are in power nets. We have digitalization. We are in fiber. We are in cable TV. We are in 5G. We have lots of old infrastructure in Europe, not to say the least, the power networks, but we are also in water and sewage, central heating, very old networks, and there is a big, big pent-up demand for reinvestment to upgrade these old networks. We are supported by strong trend. We have growth in Q1. We are 45%, of which organic growth is 16%. We support growth with acquisition. We acquire companies to strengthen our position in existing markets and segments, but we also enter markets and geography with acquisition.
This year, so far, we have done 4 acquisitions. We have a strong financial position to support our future growth. Please move to page number 3. We divide our business into three business areas. The biggest one is fixed. Here we put fixed telecom. For us, that is fiber networks. It's rollouts, it's service, it's maintenance. It's also cable TV networks. These are now being upgraded. There's lots of service on them still, and they're also being upgraded now to be able to handle the high-speed internet as well as fiber net. Here we also put our latest or newest business area. We call it Infraservices. Here we place water and sewage and central heating, which is growing now in our group. Our second segment is power. We do cables, we do lines, we do stations, transformer stations.
We do local networks, we do regional networks. With one of the latest acquisitions, we also do a little bit transmission networks. We are actually installing equipment up to 400 kilowatts. The start of Netel was mobile networks, which we still do, and we are supported by the rollout of 5G. We build the base station, we maintain base station, we put radio in, we do the towers, we do the cabling, we put fiber into the base station. We are now in Norway, Sweden, Finland, and Germany, and we are working to enter U.K. We can move to page number 5, please. Strong trends. Organic growth, our M&A strategy is supported by strong trends. We have climate change, and we get electrification with our power nets. We have digitalization, of course, and digitalization is actually driving 5G. It's driving fiber.
It's driving the upgrade of cable TV networks. We have very old infrastructure in most of Europe, and that is power net, and that is water and sewage, that's central heating. That's a big pent-up demand. They haven't been maintained for a long time. The demand is big on those networks to keep them running going forward. Of course, we have strong long trends, and we have a strong underlying demand and there are short-term problems as well, of course, challenges. There are material prices, there are late deliveries, and there are wars, of course. But the underlying demand, the long-term underlying demand is very strong in our segment. We can move to page number 7. Q1, we had 45% growth. We had 16% organic growth.
As we will see, good growth in Germany, good growth in Norway. Then we have 21.8% acquired growth, from companies we acquired last year and the beginning of this year. We have, for being in Q1, a record high backlog of SEK 3.4 billion, which is a high number for us. Can move to slide eight. We have big variations between the quarters because we are weather dependent. The Q1 is the smallest quarter for us. Therefore, volume goes up and down a little bit between Q1 and Q1, also profit. This year, we increased profit to SEK 28 million from SEK 20 million. We sustained a very high adjusted EBITDA margin, and our adjustments are cost for acquisitions and almost nothing else.
Last year, we had 4.5%, this year we have 4.5%. The year before that, we had 2.2%. It can move up and down, but 4.5% is a very strong margin in the Q1 for us. You can compare that to other companies that are actually building outside. We are impacted by season, but we're very pleased with the 4.5%. That's a very strong start of the year. It was influenced by cold weather. We were a little bit slower than we could have been. The weather would have been better and so on. A little bit slower because of the deliveries, some late deliveries, but still the trends are very strong. Business is very good, the margin is good.
We can move to slide nine, where we have Sweden, and here we have good growth. Sweden is fueled by acquisition. We have done most of the acquisition in Sweden. We have done quite a lot in power, quite a lot in water and sewage and central heating, infra services. These companies are doing well, all of them, and they are adding growth, but this is a quiet growth. We have some impact of late starts on projects, due to you know, cost increase and customers that are hesitating a little bit. The ratio of actually available tenders and project starts are quite high. There's lots and lots of tenders, but there's a little bit hesitation on actually starting projects. Still, business is good, and it's holding us back a little bit. We had good development in power.
We have good development in telecom on the back of 5G. We had a good profit development. We have good margins in the quarter, slightly lower than last year, but last year was very good. Last year, we also had much more fiber, and we talked about that before. Fiber is on a decline in Sweden. Fiber has historically been very profitable. Still, this is a good, very good quarter in Sweden. Norway, high organic growth. We won last year big service agreement with Telia and Telenor. This year, we will see full year effects from those, and that explains the growth. We have a good margin, actually, 5.9% in a quarter in Norway in Q1 is very good. We had 8.3% last year, but last year we ended a few extremely profitable projects.
We didn't do that this year. 5.9% is a good margin in Norway for Q1. We are still in a ramp up phase in those service agreements. We have a little bit more staff than we have volume actually, because volume should actually increase even more. We are still in a ramp up phase, and that costs a little bit still. We still have ramp up costs in the service agreement. Margins are strong, growth is strong. Norway looks really exciting for this year. Page 11, Finland, our smallest of the established countries. We have growth mostly from power.
There is a certain lack of components on the telecom side because here we work with customer that has Nokia networks, and then Nokia is from our perspective more impacted than Ericsson from the Ukraine crisis. A little bit shortage on material. Here we have actually negative impacts from price increases on material. Here we have old frame agreements, and we are still buying material on those old agreements, old prices, since we haven't been able to buy materials earlier. We have a few -SEK million effect from material prices in Finland. This is the major effect we have in the quarter. We can move to page 12, Germany. We established Germany greenfield a few years ago. It's people from Sweden, it's people from Germany. It's 100% organic.
We have good growth, and we will have good growth this year. We had good growth last year. Revenue was increasing 7.6%. EBITDA was increasing as well. We have 8.1% margin in the quarter. It's a very strong margin. We haven't changed our perspective on Germany. We will have as good margin this year as last year, and this will be our most profitable country. Germany is looking really strong, and we are filling up the backlog, and we are prioritizing how much we can actually bring in, and if we should bring in new customers or not. That depends on how quick we can build our own organization. Germany, really strong. Page 13, summary of the segments. Good growth in all segments, especially good growth, the organic growth in Norway and Germany.
Sweden, heavy growth, but that's from acquisitions. Business areas, also strong, all of them. Power is strong, mobile is strong, fixed is strong. Not the least from Infraservices, where we have good development within the acquired company in water and sewage and central heating. We have so far very good margin. So far we have compensated us for material price increases. Of course, there are risks. Prices can increase more. It's a daily work to discuss this with customer and try to get the compensation we are entitled to. There are new bids where you increase prices, and then it's up to competition to say how much they wanna increase prices and so on. There are also potential effects from actually delayed projects and delayed deliveries and actually customer hesitating.
We haven't seen much of it, we have to admit that those are risks going forward. Then again, trends are very strong. Even if you see those effects, business can be good anyhow. 14 acquisitions. We do acquisition to strengthen our positions or to enter new segments or new business areas. Most of the companies we approach proactively, so we do long lists, and we are actively approaching companies continuously. We only acquire strong companies. We have a decentralized model, so we acquire only companies where we have management who wants to participate and build a strong Netel, and we look for revenue synergies. Of course, we do purchasing synergies also, but we think we can be stronger on the commercial side.
For instance, we can now easily offer national frame agreements on the power side in Sweden through our acquired companies. We have all the competence and references needed. We buy strong companies. Almost all of them has higher margins than ourselves, and we buy a decent multiple. This year so far, we have bought 4 companies. The first one, JR Markteknik and Täby Maskin, is really one company. Water and sewage, central heating in and around Stockholm, Uppsala, and so on. A healthy party's frame agreements, water and sewage in Uppsala, water and sewage with Vattenfall. Good start of the year. We're pleased so far. Good margins. Eltek Entreprenad, that installation on transmission networks, a high voltage. This is our first high voltage company, so they do installations in stations up to 400 kW. A small company, but it's a good start.
Also good demand. They will also have a good year, because this is part of the network where there is really a need for reinvestment and expansions. Elcenter in Södertälje, also installation, it's charging stations, it's streetlights, it's solar panels and so on. A small local company, but it's also a good start in that segment. Then just recently, we acquired Karlskoga Mark within water and sewage and central heating, and they have frame agreement in and around Karlskoga. Most of the revenue is frame agreement and very, very healthy margins. We will do more. Peter will explain a little bit how we look on financing.
Thank you. We believe that we have a good financial situation going forward, in order to support further acquisitions. However, in the quarter, we have a negative cash flow of SEK 85 million, but it's mainly due to seasonality effects and projects in final phases and high production in Germany, Norway, and Finland. On our businesses, we have this seasonality effects, and we during the year, we expect a good cash flow. It will come in the later part of the year normally. That is something to take with you. We have a good cash conversion. We have a light business model, which also gives us possibilities for using the cash doing acquisitions, which is a big focus, as you understand.
We have a net debt to adjusted EBITDA of 1.9, which is also well below our target of 2.5. It gives us possibilities going forward. We have 180 million approximately in cash, and we have 125 million in credit facilities that we can use, so we have SEK 300 million at the moment. As we expect for the year, we're gonna have a good cash flow. It's not impossible that we will also expand our credit facilities if we find good opportunities for M&As. That is basically it. I think we have a strong situation for the financial situation, and we're looking very positive for the rest of the year. Can you go to the next?
Okay, we can move to final conclusions slide, please. To sum up, we are well-positioned for continued profitable growth. The market is strong, the trends are strong, and these are long-term trends. We have a track record of growth. We have 23.7% in 2010. All of it has been profitable. We had strong growth in Q1. We made good profits. We have an active M&A agenda. It's proactive, and right now we have extra focus. We have done a lot in Sweden. Now we have extra focus on Norway, Germany, and U.K. U.K. is quite new, so we hope to be successful in the U.K. as well. That was it for the presentation. Thank you. We should open up to questions.
Thank you. If you do wish to ask a question via the telephones, please press zero-one on your telephone keypad. If you wish to withdraw your question, you may do so by pressing zero-two to cancel. Our first question comes from the line of Victor Hansen of Nordea. Please go ahead.
Thank you, operator. Good morning, Ove and Peter. Firstly, I'm wondering if you could quantify the negative sales effect from lacking components which you mentioned.
We could not. It's not too big, actually. There are some delays in invoicing because you can't complete projects. It's marginal, actually, but there is a risk going forward, I would say.
Okay, understood. In Sweden, you mentioned for Infraservices that the pandemic impacted project starts. Was this due to sick leave or anything else, and that this project now started? Finally, if you could also expand on what level of project values we are talking about here.
When it comes to infrastructure services in Sweden, so far this year, we are producing on good levels. We have handed in a tremendous amount of bids, but the customer has been slow awarding the projects. The ratio now of outstanding tenders and awarded tenders is very high. There's nothing wrong with the number of tenders. It's just that it's very slow to actually get them. If we get them, and if we get a fraction of what we have outstanding, the year will be excellent. We're in the middle of the bidding season, so there is uncertainty.
Yeah. On the ongoing cost inflation.
Yeah. Quite frankly, not a lot, actually. Much better than last year. We had in Norway a little bit, actually, but because you had Omicron in the beginning. When Omicron disappeared, we have very little sick leave.
Some inflation.
Inflation is an everyday discussion with customer because you have rights. You have actually rights to compensate yourself for some of it or most of it. That's an ongoing discussion in ongoing projects. When you place a bid for a new project, when you win it, then you try to make the time between you win it and the time between you order the material zero to nothing. So you try to avoid the risk. There are some risks, and price can go up and down. So far, we have effect in Finland. SEK a couple million in Finland on material. In an old frame agreement that we won maybe 2019, we couldn't buy everything, or we didn't buy everything, and now we bought it, so it costed us a few million SEK.
Yeah. Understood. Yes. And then finally here, are you seeing higher M&A multiples within power-related companies recently, due to the vast CapEx programs that are coming?
No, we don't. We have more focus on Norway than on Sweden now, and we see higher multiples in Norway than in Sweden, I have to say, maybe one multiple higher. But then, I mean, there aren't so many large power companies left. I mean, Elvia and Cirkel, which we acquired, that was really good acquisitions because they are quite big, relatively speaking. Now we look at Norway, and we're gonna look in U.K., hopefully later on, and we are looking in Germany on the power side. We are very well positioned in Sweden on the power side. We cover Sweden quite well, actually. We very much look forward to organic growth on power in Sweden, where we have made the last acquisitions in infrastructure services in Sweden.
It's now about off base, I think.
That's interesting. Thank you for the answers.
Our next question comes from the line of Karl-Johan Bonnevier of DNB Markets. Please go ahead.
Yes. Good morning, Ove and Peter. Congratulations to the strong growth to the start of the year. That's, it's impressive numbers coming through. Just to pick up a little on your comments that you made most recently here on the outstanding tenders to the rewarded tenders. Do you have any idea why, say, your customers are acting like this for the moment? Or do you think it's something that could release soon? Or is it something that maybe could drag on for some time yet?
I mean, this is really speculation. Some of the customers are not yet in good shape after corona. It's a little bit sort of, yeah, bad shape within the customers. They are not in order. They're still working from home and so on. Some of it. Some of it is of course okay, the bids we get is actually higher than we expected because material cost is higher. What are we gonna do now? We need to think a little bit. I think that's a bigger explanation actually. But then again, I mean, this is power, this is water and sewage. You have to invest. There is some. I looked at Skanska this morning. There is some of this is related to housing as well, and there you might have another story.
I do think it's actually cost-driven. It takes a little bit of time to make the decision now because it maybe it's above your budget, and maybe it's above what you thought it was gonna be, and everyone is actually increasing prices.
It's basically adjusting to the new reality. If you look back at your knowledge about this industry historically, how long can you delay these kind of things before you really need to get started? I guess if they delay the tenders and awarding them too long, I guess they also risk to end up in even higher inflation situations.
Hey, Mike. It's partly municipalities, and it's large infrastructure owners like Vattenfall and E.ON and those, and they should have a longer cycle, investment cycle. I mean, Vattenfall, they stopped investing when energy prices was low because they didn't get any cash in. Now energy prices are high. I mean, we are very positive, but there is a risk that it will take time, of course. We don't think so. We think that if just half of this will be awarded, then it will be good.
Sounds promising, Ove. I'm still trying to learn your quarterly and seasonal profile for the moment. If you look at the Q1 development and your full year targets, when you look at operating margin, how working capital should look towards sales and so on, is there anything happening for the moment that should change that view of 7% margin and working capital to slightly below 10%?
No. I mean, maybe working capital. Let's say we are in a phase where uncertainty remains, and then you need to buy everything early. So you buy more things early. So maybe you have to compromise. I mean, you have to compromise and say, "We need to buy. We need to use cash to reduce risk." I don't know how much that is, but it's definitely a risk. We don't think so, but it's a risk. The 7%, we—I mean, we haven't changed that at all.
No, working capital, we should be in the range of between 9% and 12% because it will fluctuate between the quarters. If you look at the pro forma sales LTM, then we should be 9%-12%.
Where are we now, Peter?
At the moment, we are at 11%.
Pro forma?
Yeah.
Excellent. No, no, that's clear.
We have a working capital buildup in Q1.
Yeah. When we look at acquisitions, this looks like you're finding very attractive niche operators with good margin profiles. Looking at multiples, you still don't seem to pay up for them. I notice you make use of also trying to tie them in with getting involved in your shares from the start. Is that a part of the modus operandi also going forward that you feel?
Yeah. That's a requirement. We try to make them wanting to be part of Netel. Of course, they want some money up front, but if they like to be part of this, if they see sort of this is the great future, this is an entrepreneurial company which is very decentralized, this is where we wanna be, then it shouldn't be too difficult for them to invest. Between 20% and 30% is reasonable. Take some time to convince, of course, but if you can't convince them, then we don't do the deal.
I see for the first time, I've heard you mention U.K. market entry before, but I think it's the first time I see it also in print in the report. What's your ambition going into the U.K.?
Ambition is that we're still very confident in fiber. I mean, we know it inside out. We have a great organization in Norway. I mean, the Swedish organization went to Germany partly. That was a success story, actually. Now we're thinking to do the same with the Norwegian organization, part of it. It's actually Edward the head of Norway who is running the U.K. initiative. We will start with fiber because we're so confident. There is good multiple, and there is very strong growth. It will be good business. We should rapidly get our second leg as well. We start with fiber. That's the plan here now in the U.K.
I also saw you mention, say, more involvement in Norway and Germany. What are you looking for there?
Norway, we look still for power, and we look to build water and sewage as well. We lack that leg in Norway. We're trying as hard as we can. Germany, we look to strengthen our fiber business, but we would rather prioritize the second leg, like water and sewage, central heating, gas or power. You can find combination of that as well. We have good opportunities. You never know if you conclude them before you actually conclude them. We have great hopes.
Sounds promising. Thank you very much.
May I remind everyone that if you would like to ask a question, please press zero one on your telephone keypads. There are no further questions on the telephones at this time. Please go ahead, speakers.
Yes, we do have a question from the website. The question is, we're hearing from peers that several projects starting in Germany apparently were delayed due to COVID in the Q1 . Despite the strong growth in Germany in the Q1 , was it still a bit muted?
No, not for us. I wouldn't say that given our situation. We have E.ON, E.ON is a customer, and we have Deutsche Telekom. We are starting up a few projects, but, most of the revenue in Q1 was from ongoing projects, and it's full speed. There is lots of opportunities, and Germany is really building fiber. Really. The race is on.
Okay, thank you. We have no further questions from the website.
There are no further questions on the telephone lines. Please go ahead, speakers.
Okay. I think we have summed up. I think we're ready with the Q1 presentation. Thank you.
Thank you.