Welcome to the Netel Group audio cast with teleconference Q3 2022. Throughout the call, all participants will be in a listen-only mode, and afterwards, there will be a question and answer session. Today, I'm pleased to present CEO Ove Bergkvist and CFO Peter Andersson. Please begin your meeting.
Okay, thank you. We can go to the first slide or the next slide. Okay, welcome Q3 Netel Group. Let me see here. I have the wrong slide on my screen. Okay, we can go to the next slide there. Sorry. Okay. I would assume we are on the next slide. Thank you. We have continued growth this year and also in Q3. Yeah, we are calculating since 2010 here now, 12 years ago when we did a spin-out from Peab. Since 2010, we are now on 24.7% yearly annual growth, and we have profit growth of 18.9%. We keep our fairly asset-light business model. We run our own projects, but we buy quite a large part of production.
We buy excavation, we buy quite a lot of installation. We keep high cash conversion also this year. So far, we are at 93%, which is the average for the last three years. We have growth, we have a growth ambition. We have year to date. Now we are slightly above the 12-year average. We are on 26.8%. We have had this year 5.4 organic growth, 5.4%. We are combining organic growth since we are in good segments with acquisitions. We have done seven this year. We have the ambition to continue to grow. We have strong financing. We are in good places. I think we have a strong platform to continue to grow, to continue to do what we do.
We can move to the next page. Okay, next page. We are in critical infrastructure. No change there. We divide it into three business areas, fixed, power, and mobile. Fixed is the biggest. In fixed, we have two sub-areas. We have telecoms, and we have what we call infra services. In telecoms, we have fiber rollout, we have service, and we have cable TV, which is part of service. When it comes to service, we have growth now from the fairly new service agreements with Telenor and Telia in Norway. They are sort of coming in line. We are growing. Good progress. On the rollout side, we have a strong market in Germany. We have a new and strong market in the U.K. We have a good market in Norway.
We have now finally, as we speak, actually, Finland is growing, and demand is picking up, and there are lots of requests in Finland. We foresee a good market finally in Finland on fiber rollout. We have cable TV projects, and those are Telia in Norway and Tele2 in Sweden. There is high demand, lack of capacity. It should be a couple good years for cable TV upgrade in Sweden and Norway. When it comes to Infraservices, here we put water and sewage, central heating, and related civil engineering work. We started in Sweden two years ago. We now have made several acquisitions. We perform well. We have growth, we have profit, and we have ambition to actually start this up in Norway, Germany, and U.K.
We are looking for companies there to invite to Netel. Power, here we have probably the strongest trend because this is electrification. This is, of course, the strongest long-term trend. It goes up and down a little bit because this is a regulated market. The trend is good now. We have good order intake in Sweden. Order intake is picking up in Norway. We had a fairly slow second half of 2021 when it comes to orders. This is much better now, and we see good growth, and we see good results. Mobile, of course, supported by 5G. This will go on. This network switch will go on for a few more years, and then we will see what happens to the small cells. There is good business in Sweden, a little bit held back by delay in radio equipment.
We have good business in Norway. We have our contracts are ending now, so we are, as we speak, in negotiations for next year. This is very interesting, and we will see where it will go. Norway, Sweden, Germany. Norway, Sweden, Finland. This is our sort of home markets. We expanded to Germany a few years ago, and now this year we have added U.K. So far, so good. The U.K. market is as strong as the German market. Penetration is low and demand for more fiber is high. We have two companies, and they are both with good demands, and so far we have good margins in the U.K., but we have only been there for a quarter. Strong trends. Next page. Same strong trends, of course, electrification, climate change, probably the strongest trends. It will happen. It is happening.
This is driving demand in the old power networks. They are old, they can't cope, so they need to be reinvested and they need to be expanded. We do lots of transformer stations. We do cable lines as well. This will continues. It goes up and down a little bit because there are governments and there are regulations that the long-term trend is strong and it goes up and down around the strong trend. There we are confident. Digitalization, of course, can't be stopped. 5G can't be stopped. Fiber rollout can't be stopped. There will be a lot of service in those telecom networks in the future as well. We have lots of other old infrastructures, such as water and sewage and central heating, must be upgraded, must be expanded. You also have the railway.
There are many, well, we do water and sewage and central heating, but there are also other segments for the future. It's a good, strong trend. I think we are in good places. Q3, we can go to the next slide. We had growth of 26.9%. It's partly driven by organic growth in Norway, Finland, and Germany. We also, of course, have lots of acquired growth, mainly in Sweden. In fixed, we saw the biggest growth, and that's from the acquired companies in power and district heating in Sweden. It's also organic then. We have a catch-up effect in Finland. We have good growth in Norway, and that's growth in the new service contract. We have Germany then, due to the demand in fiber.
Then we have U.K. as a new segment, which also brings growth, acquired growth. Backlog is still high, SEK 3.3 billion. There we talked about it. We have in the backlog big service agreements. You win them, and then you put them into the backlog, and then you start the work. Of course, the backlog in those contracts are on decline. You win your contract again, and then you increase your backlog. Here we are actually winning business. We are more or less on the same level despite that effect. Next page, adjusted EBITDA. We have stable margins compared to last year. We are on SEK 49 million adjusted EBITA in the quarter compared to SEK 40 million last year, which is 6.3%, 6.5% last year, so same level.
We have negative effects in here, but of course, we have positive things as well. On the negative side, we have Finland. We had a late start in Finland, so now we are catching up. Since we have to sort of buy more capacity than we had to reserve, than we reserved, capacity is more expensive now, so we are catching up at lower margin, which is prices and everything has gone up, and we do more than we expect now. Norway, also late delivery, so transformer stations due to material delay. We are late, we are catching up. We have some material price increases, and we have some own problems as well. Altogether in the group, we are in the same level as last year. Earnings per share is slightly higher than 66 compared to 60 before. Sweden, next page. Strong.
We have had good development in Sweden. Overall in the acquired companies, some are very strong, some are a bit weaker, but overall strong. We have good development on the mobile side. There's good demand for 5G upgrade, even though there is a delay of mobile or radio equipment. We are mostly working with Tele2 and Telia. Both of them wants to do more, a little bit constrained, but it will be good next year as well. Revenue increase in Sweden, 33%, SEK 332 million. We have in Sweden this effect that Sweden has gone very far in fiber rollout. We are scaling down in fiber rollout, and we do the other segment. Sometimes we discuss this, but it's roughly a drop of SEK 20 million back in the quarter.
For the other segments, if you take fiber rollout away, we actually have 48% growth in Sweden. Sweden is strong in the segments we are focusing on. Fixed network, very high demand. The big part of fixed network in Sweden is water and sewage and central heating. We have quite a lot of frame agreements. We have quite a lot of municipality clients. Of course, we are a little bit exposed to new builds and so on. Of course, everyone is nervous about that, but we have quite little. We don't have too much. We think it's okay. This quarter was very good. Power, yeah, a little bit slow second half year, 2021. Now it's very strong. We are filling all the books.
We are actually increasing margins, we think, because we are increasing margins in our tenders now because there are more and more tenders, fewer and fewer competitors per tender. So it looks good. Mobile, as I said, strong demand, a little bit lack of radio equipment. Some network have radio equipment, and they build a lot. Some doesn't, so they build a little bit less now, and they plan to build next year instead. Some of them are actually saying that they will reduce CapEx, but overall, the trend is strong within mobile. We have a 120% EBITA increase. We are at SEK 22 million Q3 in Sweden. We have margins of 60% compared to 4% last year. Next page, Norway. This is all organic done in Norway. No acquisition, 14.6% organic growth.
It's driven by both a little bit catch-up in Power, but by Fixed as well. Fixed is the service contracts Telenor, Telia are picking up speed, and we also do quite a lot of upgrade on cable TV for Telia, which is a very interesting project. Power, little bit catch-up. We couldn't complete projects in Q2 due to material shortage. Now we can complete them, especially in region networks, and we have high demand on the higher voltages. Situation looks good in Power. Mobile, we are finalizing our agreements now or ending our agreements. As we speak, we are negotiating volume for next year. This is interesting, and we will see where it goes. We increased EBITA with 11%. We are at 7.6% compared to 6.5%.
It's okay, but I actually think we have higher ambition in Norway, but it's okay. It's okay. Finland, which have been a problem, it's not strong in Q3, either. What we see in Finland is gives a little bit of hope. There is consolidation. Competitors are buying each other, and there is now demand for fiber rollout. We have seen competition has announced quite substantial deals for projects. There are many tenders out now. Well, our projection is that there will be shortage of supplier in Finland for fiber the next couple of years. The boom in Finland will look like the boom in Sweden, like about 10 years ago. That's very exciting. The effect we have, we had a very cold winter in Finland. We started very late.
We are late now, especially in the power project, so we need to catch up. When you do this, you actually order new capacity now that you didn't plan for, when you actually won the business, and capacity is more expensive. We are catching up at lower margin. We are still in Finland at high demand. Again, fiber is now happening in Finland. We look forward to it. Germany market is very strong. We have growth. We had to turn over SEK 50 million, 35% growth. Demand all over in Germany is growing. There are some delays. There are bottlenecks in the market. There are bottlenecks, of course, among suppliers, but there are also bottlenecks within the network owners. They're short of staff, they're short of competence.
Yes, there are orders, but we also need to prepare projects, or they need to prepare projects. It's a little bit slow with new projects actually. The buildup will take a little bit longer time, and it's a little bit slower now than we hoped for. Demand is still the same. Demand is still strong, the backlog is the same size. We increased profit, and we are at 8%, which is okay in Germany. Our new segment, U.K., we entered the quarter. It's not a full quarter. We had to turn over SEK 24 million. It's two companies. They have a pro forma revenue of SEK 180 million. They will grow. That's the ambition. The market is good. Market is similar to Germany, similar stage, like 20% penetration.
A little bit constrained by capacity among suppliers, but also among network owners to actually get the project prepared. We have the ambition in the U.K. first to establish ourselves to grow fiber, to make money from fiber, to maybe change the position in the value chain a little bit, to have our own contract. There is also a very old infrastructure in the U.K., water and sewage, central heating and so on. We have the same ambition in the U.K. as in the other countries to widen the business, have the widest scope. So far, so good. We are looking forward to this and next year doing lots of fiber in the U.K. Acquisitions, we have done seven this year. We continue the same strategy. We are proactive. We contact companies.
We talk to lots of them. Our ambition is to be strong in selected segments in selected geographies. We build position by doing acquisitions. We look at strong companies. We invite them, so we want management to stay to work with us. We primarily look for revenues to grow revenue together than alone. Of course, we look for cost synergies, but the primary focus is on the market and to actually grow the business more. So far, so good. Most of them are performing well. Overall, the acquired companies are performing well. Next page, this is what we have done this year, seven. It's a mix of Sweden, U.K. It's a mix of Power and Infraservices. The last one we did is, or the one we did just now is, Bredablick.
This is water and sewage, and this is north of Sweden. It's a good company in an exciting part of Sweden. Looking ahead then, we have done a lot in Sweden. We are working hard in U.K., we are working hard in Germany, and particularly we are working hard in Norway. Hopefully, we can expand our M&A activity in those markets too. We have financing, and maybe Peter can say a few words on that on the next page.
We have a significant financial focus for the acquisitions. On the other hand, the cash flow in the quarter was according to plan. It was SEK 7 million, minus SEK 49 million last year.
However, we are still working with some catch-up work regarding tied up capital from the first half year, and so we're working very focused on that to get that back. The cash conversion in the quarter was 95%, and the year to date we have 93%. That is also basically according to our plans and where we should be. The net debt adjusted EBITDA ratio was 2.3, which is also below our target of 2.5. Regarding available funds, in the end of September, we had SEK 441 million available, cash of SEK 170 million and facilities SEK 271 million. We'd expect that generate the cash flow in the last quarter, which should be good in our business.
That we are paying part of purchase prices with the acquisition with shares gives us a good situation continuing the M&A agenda going forward. As Ove explained, we are working with the very interesting things. We have the possibilities to do it financially. Okay. We can move to the next page.
Thank you, Peter. I'm not completely sure which the next page is, so please move to the next page. Okay. To sum up then, we In the market long term, there are strong trends, and they will happen. There will be no change. There will be demand. It can go up and down a little bit, but long term, these are solid trends. We have good demand currently or in the quarter in almost all segments and sub-segments.
We have a 12-year average growth of 24.7%. We did 26.8% year to date. We have a margin-adjusted EBITA in Q3, which is in line with last year, despite that there are negative effects, there are cost increases, there are delays, but we managed to keep it on the same level. We have an active M&A agenda, we have financing, and we have a good candidate. Yes, things go up and down a little bit, but the trends are strong, and the long-term trends are very strong. That's it for Q3. Thank you.
Thank you. Ladies and gentlemen, if you do wish to ask a question, please press zero followed by the one on your telephone keypad. If you wish to withdraw your question, you may do so by pressing zero followed by the two. Once again, to register for a question, please press zero followed by the one on your telephone keypad. There will be a brief pause while questions are being registered. Thank you. Our first question comes from Karl- Johan Bonnevier from DNB Markets. Please go ahead. Your line is open.
Yes. Good morning, Ove and Peter. Good seeing the catch-up in Q3 and a couple of questions relating to different things here. First looking at the contract delays you talked about, doesn't sound like it's some sort of inflationary recessionary risk that the clients are doing yet or is that the wrong way of interpreting what you're saying? Sounds more like it's still delays are coming out of maybe lack of material or something. Is it or is there a general perception that you feel is happening in the market as things are changing now?
Not a general perception. I think we have the biggest delays of actually customers issuing new projects are in the fiber markets like Germany and the U.K., and those markets will not stop. They are subsidized, and they will build. I think it's a lack of capacity and competence on the customer side because they're also expanding business. They are hiring lots of new people, and they're trying to sort of get their act together.
Looking at U.K. and Germany, how do you see the opportunity for your own scaling of the operation? Or, are you able to basically do what you are requested to do at this stage, or are there limitation on your own execution as well?
Right now it's not because we expected more. We expected much more in Germany. Germany is good, but we expected more. The reason is that we don't get enough new projects in the frame agreement, so the backlogs are really big. In Germany, we have what we need. We're trying to build. We talk to more customers, which is very strange given the market situation. In U.K., we've just started. Our plan is actually to expand capacity by bringing people over, fiber people, over from Norway and Sweden. It's in progress. I think hopefully, we will be capacity constrained quite soon, but not right now.
Obviously interesting with the move into the U.K., and I clearly see the opportunity here, at least with all the kind of broadband offers you get in your mailbox all the time here. How do you see the opportunity of moving your operation from Northern England, maybe south, and then spreading across other segments, I'll say, in the market? Is it a little wait and see from your point of view, given that you are new to the market and figuring out, say, that you have the right foundation, or do you dare to, say, be more ambitious already at this stage?
I think U.K. and Germany is completely different in this aspect. I mean, if you wanna expand in Germany and you want to find a new company, you need to go and look and convince people. In the U.K., I mean, you get so many requests from companies and partners and what have you to do things and to buy things. For now, we really want to sort of get in control of our fiber business. We need to expand it, and we want to position it sort of subcontractor, main contractor, get the right mix in. Then one or two quarters away, our ambition is to, within a few years to be, have a wider scope. I mean, we learned the lesson.
We know we built Sweden, we built Norway, we know where we need to go, and this is the same ambition. I can't exactly say the timescale because it depends a little bit on what we learn along the way. Can go quick, can take a little bit longer time, but the ambition is there and we will do it.
It's still, as you alluded to, it's still, say, getting to the position you want to in your current framework here in the U.K. is basically just quarters away, so it's not years away in that respect.
I think, I mean, we're very positive as always.
Yeah
Sort of first quarter next year, I think we'll be happy about what we have done in the U.K. I hope we have get it into shape. We have field production, and we are turning out good margins and good cash. We have a lot of freedom to do things now.
When you look at the new segments that you have ventured into in Sweden, do you see that, say, the kind of operating model that you have worked with works there? Or is it a big difference when you're getting into these segments that you need more, say, assets on your balance sheets and more own employees to be able to cater for the demand that you're getting there?
There is a difference. We will have more assets. We will have more own people. We will not go to sort of a full own asset and full own people model. It will be a mix, but the more we take on the sort of more assets and more people we will get. For instance now. It's not a bad thing. It's not necessarily a bad thing because for instance, now we have a small company in Söderköping, El-Center, which we bought. They do elinstallation. They do electric vehicles, they do solar panels, they do street lighting in the local market in like Norrköping and those. If you want to do that, and if you want to do service-based, you need to have own staff and it's really difficult to get hold of it.
You need to have your own service van. We have opportunities to expand that. It's very profitable. It's a good market. Yes, it doesn't 100% align with our base business model, but it's good business. We don't stop.
Sounds very logical. Looking at the fiscal year so far, obviously you were to some extent falling behind a little in the first half. Now you see to be able to catch up here in Q3. Do you still see that you're able, say, during Q4 to get up to what you hoped for in this year by the kind of work you're doing for the moment?
I think Q4 can be good. I'm not so sure that Q4 can be. It needs to be much better than last year to reach the full year last year, so to say. We don't know. I'm you know, lots of things are happening. Maybe I was a little bit more confident when we reported last quarter than I am now. It has to do with price increases, it has to do a little bit with business mix, it has to do a little bit with customer mix. I mean, we have basically full speed everywhere. If we get all the way to our sort of targets or not, I don't know.
Phrase it like this, if you don't get to your target this year, it's because the things line into next year rather than are lost in that respect, so.
I think it's due to not the second half year. It's due to a little bit the first half year. It's not due to sort of bad trends second half year. I think we're going to leave the year with sort of good trends. I think so, but I mean, you never know.
Peter, you alluded to strong cash flow in normal season, strong cash flow in Q4. Is there anything we should take with us in looking at working capital release this year that might also slide into next year due to this pattern or?
We have the catch up from the first half year that we are working very focused on. Some of that was lagging behind, some it's more structural based due to the type of customers and contracts. Part of it is of course that we have to get it back. We're working with it. It looks good. Hopefully we get much back during the last quarter, but we cannot say that we're gonna do everything. We are working focused with it. It looks pretty good. In our business, the last quarter is where we have the big cash release normally. If you have to look at
There's no reason to believe anything else for this year, basically?
No.
Excellent.
We believe it will be good. Yeah.
Noticing that your net debt for the moment is close to your financial target or just below your financial target of 2.5. It doesn't sound like that is holding you back looking for acquisition targets for the moment or have you slowed a little trying to delay the closing of deals due to that at this stage?
The year is almost finished, but we're gonna have hopefully a good Q4. Cash-wise, that will help us net that twice. We are continuing to work. If we do something more this year, we will see, or it will be on the other side of the year.
If you look at the acquisition pipeline as it stands today, is that as strong as it, the thing you have delivered so far during this year, which has been quite exceptional?
Probably, yes. Probably. We don't know. We have a quite high hit rate in Sweden. The hit rate is, I mean, completion rate is a little bit lower in the other countries, so it's a little bit. Yeah. We have good candidates, but I can't say what the completion rate is.
It's always. We meet a lot of companies and some we end quite quickly in one way or another, and some we go very far and we don't go to the end. It's a mix of it.
U.K. is a little bit new because they don't need to look. People are coming to you.
You guys are an active market with a lot of advisors in. Yeah, it's different, like Ove said. In Germany it's more family companies.
Yeah.
You have to really meet them, and it's difficult to get the meetings, and it takes a longer time. We are working on that also, so.
These are board things that it will be easier now because there are less buyers out. So if you know what you want to do and if you sort of want to try to take on companies given the situation, then it's likely. We will see. We haven't seen that yet.
No. That was my final question really, because you seem to be able to find very well-managed company at very decent multiples and, I guess you allude to that, we might even see even better opportunities going forward, so.
I mean, there's a logic for it, but we haven't sort of seen it in practice yet.
Oh. Excellent. Thank you very much and all the best out there.
Thank you.
Thank you.
Thank you. Another reminder, if you wish to register for a question, please press zero followed by the one on your telephone keypad. There will be a brief pause while questions are being registered. Thank you. There appear to be no further questions. I'll return the conference back to you, speakers.
Thank you very much. I think we're done. Thank you for Q3. Looking forward to Q4. Thank you.
Thank you.
Thank you. This does conclude today's conference call. Thank you all for attending. You may now disconnect your lines.