Welcome to the Netel Group Q4 conference call. For the first part of the conference call, the participants will be in listen only mode. During the questions and answer session, participants are able to ask questions by dialing star five on their telephone keypad. Now, I will hand the conference over to the speakers, CEO Ove Bergkvist and CFO Peter Andersson. Please go ahead.
Welcome to our Q4 presentation. We are in critical infrastructure. We have a long-term ambition to stay in critical infrastructure, the parts where investments are going, short and long term. We are growing. We are growing organically in the quarter. We are growing through M&A. For the record, since 2010 now, when we did the MBO from Peab, we have an average growth rate of 25.6, with a strong profit growth. We have a fairly asset light business model. We buy most of the services. We have a little bit machinery ourselves, but most of the services are bought. We have a cash conversion for 2022 of 94%. Last three years, the average is 92%. We have an ambition to grow. We had growth during the year. We had 29.9%.
We did 7.5 organically. In the quarter alone, we had 37.2% growth, of which 12.6% was organic. We have a good financial position, which means that we can continue to do what we do. We divide our business, or we report our business in three business units. During the quarter, we had okay or strong demand in most countries and segments. There are only a few exceptions. If we take fixed first, and if we take the fiber part, the fixed telecom networks part first, there is strong demand in fiber rollout, or there was strong demand in fiber rollout in the quarter. In U.K., low penetration, lack of suppliers. Same in Germany, high demand, lack of suppliers. Finland is finally open up for the big push for fiber rollouts.
We have a great backlog. As promised, now we're in the sort of build out phase in Finland in the fiber network world. Demand is flat in Norway for rollout on the fiber side. We are past the peak in Sweden. Service, telecom services in the fixed networks, fairly flat. Some telcos are cutting down a little bit due to high cost. Other are ramping up. I would consider it quite flat. Infra sector within fixed, where we do water and sewage, central heating related groundwork. Strong on the municipality side, strong on the infrastructure side. Of course, there is a weakening where the property developers are holding back due to interest rates and other things. We have some exposure. The major part is still towards municipalities and government and so on.
Of course, there is less demand for new developments. We do power lines, and we do water and sewage in connection to new developments as well. Power in the quarter, good demand, good turnover, especially in Sweden. We had several new projects in the backlog, especially for transformer stations, especially for Sweden. We have, generally speaking, good demand in Norway as well. There are, of course, different demand from different network owners. We do Elvia, maybe a little bit weaker temporarily because they're holding back. Others, where we do regional networks for have high demands, so it's a little bit of a mix in Norway. Finland, we have a backlog. We are working with the backlog. There's not so many new projects, but it doesn't matter so much for us.
We do think, well, they changed the network regulation this year. The network owners are holding back. We think towards the end of next year, tenders will be out again because of course the demand to expand the power network is big in all countries. There can be temporarily shifts. The overall long-term demand is very, very high. Mobile, good quarter, strong demand, especially in Sweden. There's a mix between the different telcos. We have a good mix in our portfolio. Demand is going up. Some telcos are a little bit holding back on five year rollout. Others are really pushing for it. Overall it's good. Norway, we are switching and closing down the Telenor rollout. We are now starting up the ICE rollout. ICE is building a new network in Norway. We're one of the suppliers.
We are in transformation from, in this case, Telenor to ICE. Good situation ahead. Trends. We say the trends are strong. They are not less strong now, probably even stronger. There is, of course, electrification. It's everywhere. Yes, we need more power, but we also need more power distribution. There's gonna be more lines built. There's gonna be more cables and more transformer station. Right now, there's a big push for transformer stations. As we can see in the backlog, especially in Sweden. Digitalization, of course, and for us, that means 5G. It will happen, and it is happening with fiber rollout, especially in the large countries now, Germany and U.K. Very low penetration, they're really trying to catch up. Difficult, of course, but it will go on for many, many years.
We are in Germany, and we are in the UK, and we are building momentum. Other infrastructure, also old, needs to modernize, that needs to be expanded. We are in water and sewage, central heating. Very interesting, especially in Sweden, since this is where we started. We are trying to expand this to other countries as well. Just recently, as a sub-segment, the railway, the underground and defense, of course, there will be big investments now, and there are big investments. We have done one acquisition, so we have a little bit started those sub-segments as well. That's Elektrotjänst going taking a hold. Numbers from the quarter, we had growth 37.2%. It's of course, due to acquisitions, but there were also good organic growth in the segment, in all segments in the quarter.
Acquisitions in Sweden and UK contributed. Finland, Norway, Sweden, UK, and Germany all had organic growth. We had good overall. We had very good order intake, backlog was growing to SEK 3.7 billion. SEK 350 million, roughly, increase of the backlog. We saw strong push for within the power segment. We had a few good stations. There are many stations in Sweden that we're gonna build this year. We had, as promised, the fiber market, the fiber rollout in Finland is taking off. We did or we've done a deal with Valo, EUR 40 million. It's gonna be built over four years, there's more business to be made. We had a deal with ice. We're gonna help them to build 5G in Norway.
In the UK, we have some reshuffling in the, in the customer portfolio, to get it a little bit more, more customers. One of the deals we announced was GoFibre, GBP 10 million in Scotland. Very promising. Good order backlog. We increased the EBITDA with 13.6% to SEK 75 million. Margins were down from 9.2% to 7.6%. We had strong development in Sweden. We also had contribution from Germany. The drop is due to Finland and Norway, and I will return to that when we get to Finland and Norway. Earning per share were up to SEK 1 compared to SEK 0.20 last year. If I start then with the segment, and we can look a little bit at the development here.
If I start with Sweden was very strong. Strong Q4, revenue up 53% to SEK 481 million. Plus organic growth within mobile. Lots of work within five-year rollout. Good work. Some telcos are actually expanding, others are holding back, Overall, it's very strong. Good performance within water and sewage, central heating from the acquired companies. Very strong quarter. We did one acquisition of Elektrotjänst. It's power installation within the railway, within underground, and within defense. We think that's very interesting and it gives us a position, better standing, which we can develop further within those sub-segments. Fixed, we have water and sewage, there was very good development, or there is very good development within municipalities and so on.
Of course, new builds for private property developers are weakening, but overall, there is okay demand still. We have the bigger part is towards municipalities, the smaller part is toward private property developers. Power, good quarter, but I think the most, the best part with power in the quarter was actually building up the backlog. Lots of power stations for transformer stations. Good orders. Mobile, overall high level of five year rollout, which continues, and EBITDA increased with 57.6%. We kept our 10.8% in Sweden, yeah, couldn't wish for more in Sweden from Q4. Norway, mixed situation, I would say. We, yes, we are growing to SEK 327 million, 12.2%. We had growth within fixed, and we had growth within power.
Fixed network is mainly growing because we are building a service business in Norway. We are doing FTTH rollout, but we, looking ahead, we want to expand our service business in fixed telecom, and we are. We also then, within FTTH rollout, we signed a deal with Telenor, so we're now part of their rollout contract. We haven't been there before. Telenor is one of the network owners that are pushing FTTH in Norway. We also announced a contract with Viken Fiber on service. We have Viken Fiber, but this is a little bit more than we had before, and it's a long contract, and we're happy to keep it. I think it's a sign that we are actually doing good service in Norway. Power was growing. We did some interesting project. Mobile lower volume. We are in transition.
We are closing down the Telenor project, and we are starting up the ice rollout. ice is a complete new network in Norway. We had a low EBITA, SEK 12 million compared to SEK 47 million last year, and this is impacted by power. A few projects that didn't close as good as they should, so we have lower margin on the power side. Partly because of the project itself, partly because of high material cost, and partly because of delays. We are also a little bit transforming because we are pushing for more service in Norway. We have now big volumes. They have been ramping up during the year. We are in a startup phase, and here we work to get a few more percentage out of them to get to the profit level we want to be, and we are not at that situation right now.
The EBITA margin was 3.7% against a very high 16.2% last year. It should definitely be somewhere in between there. Finland, we have talked about throughout the year. Revenue was up in the quarter. This is a catch-up effect. We had a very slow start, very long winter, very hard ground conditions, the year has been a catch-up, especially within fiber rollout and power. Which means that the services we should have bought in Q2, we had to buy in Q4, and of course, those are much more expensive now, and the catch-up in itself is much more inefficient. Poor year, a rush year in Finland.
However, the good part was the end of the year because the market of fiber rollout is taking off, we do consider that as a good market, a profitable market, we decided to go for Valo, and we signed a contract for EUR 40 million. We are really looking forward now to see what we can do in 2023 and onwards. Yes, the quarter was influenced by Finland, minus six compared to two, still the big effect was Norway in the quarter. Germany. Revenue up 25.5%, which we consider a low number. The market is growing. There's a lack of suppliers. There's a low penetration on the fiber side. We are building momentum, which also could be said as we are a little bit in transition.
We have our E.ON customer, very strong, big volumes, good way of working together because we have been working for a long time. We are now closing the first projects, and we are starting up the second phase of the big projects and of course, the old one is running at high speed and the new one at a little bit lower speed. We are building momentum in those. Can be a little bit lower for some months, some quarters. Our other big customer have problems. We have frame agreements, but the projects are not ready to be issued, so we have decided to actually bring in another big customer. We just signed a deal with UGGiga, which is Telefónica and Allianz, the insurance company, who has a joint venture to build fiber for EUR 5 billion in Germany.
We have started with them, southwest of Berlin, and of course, it will take some time to ramp up, but we think this is an excellent opportunity. We are in transition, and we are building momentum, and we are sure that we will be back with good growth numbers and good profit. Profit is 12% in the quarter, which is a high number. Yeah, for Germany, we, this is where we should be. A little bit the same story in the UK. We are just new in the UK. We did two small acquisitions, so the revenue number is now small in the quarter. Yes, it's SEK 1 million, and it's 4.4%. Would it have been SEK 2 million? It would have been 9%.
One quarter, not too much to comment. There is a very good momentum in U.K. We are internally merging the two companies. We are renaming to Netel. We are reshuffling a little bit in the customer portfolio. We go from basically one customer to four customers. GoFibre is new. It has started, we are generating good volumes and good profits. We are also ramping up in Scotland with BT through CSA. Takes a little bit of time, there is a big lack of supplier. We are confident that we will do big volumes throughout the year. A little bit the same situation. We are in transition, momentum is really building up. Very much looking forward to the year in the U.K.
I leave for you, Peter, to comment the financial situation.
Thank you. During 2022, we had a record high turnover of 3.1 billion, which we are happy about. We also had a very strong growth, 29.9%, of which 7.5% was organic and 22.4% through acquisitions and some effects. We are very happy about that. It's, we continue the strong growth. Our financial position is also solid. We are under the target of 2.5 in relation net debt and them adjusted EBITDA ex leasing. We end up at 2.4. We are under that, which we're also happy about. We have a lot of available cash and facilities.
At the end of the year, we had SEK 664 million, which means that we can do a lot of things going forward, which is also according to our plan. Regarding our cash flow, we ended in a negative of SEK 72 million for the year, which it's lower than expected. We are working with several measures to release cash in our businesses, especially in Germany, where we are strengthening our back office, as well as working with the clients for more efficient invoicing processes there, and also looking at payment solutions. Also in Norway, like you has said, we are working in this frame agreements also to do more efficient way to work with invoicing and to get the release of cash there.
We also have an settlement with a big client there for in one frame agreement that should have been done before the end of the year. It didn't materialize, but it will be soon. That is also things that will be better for our cash flow. We are doing a lot of things, and we are looking quite positive to have improvements here. Also the backlog, as Ove said, it's record high, which is also good, which we are looking positive for 2023 and forward. Nothing more.
Okay. Thank you, Peter. Just a few words on acquisitions, and we continue the same strategy. We do acquisition to build positions in countries and segments and sub-segments where we want to be. We invite strong companies, strong management, profitable companies that have something we don't have, a position, customer, knowledge. They should really add strength to Netel. We have done one acquisition this year. This is Elektrotjänst i Katrineholm. Here we get a foothold into well, this is power, this is the railway, this is the underground, and this is defense, and these are sub-segments we are not in. This would be very interesting to see where we can take it because investments are going into these segments, and investments will go into these segments. The work itself is quite similar to what we do, but it's different segments.
That we are excited about this. We're excited that they decided to go to Netel because this is an attractive company that many of our competitors would like to invite as well. They decided to come to us. We're happy about that. We did seven acquisitions with a turnover of roughly SEK 500 million, similar to 2021. Two in the UK, which we're very happy, and we are building a position and momentum is building up. We will continue to push for more turnover and more profit in the UK, of course. The rest are in Sweden. To sum up the quarter and the year-end, long-term demand in power, in telecoms, in water and sewage, other infrastructure is strong. Investments will go in critical infrastructure.
They are flowing in now, and they will continue to flow into these segments. Long-term, of course, there are ups and downs, but the trend is strong. We have good demands in most, not all, but in most segments where we are. We have a strong growth during the year, 29.9%, of which seven and a half was organic. We have a good and strong backlog of SEK 3.7 billion with a roughly SEK 400 million increase in Q4 we have announced quite strategically important new projects like fiber in Finland, like Ice in Norway, and like transformer stations in Sweden, quite a few of them.
We have a strong financial position. We have measure, as Peter told about, we have measures ongoing to make it even stronger and to release more cash according to our targets. We have an M&A strategy. It's supported by financing. We have a pipeline, and there are strong candidates. That was it for this presentation.
If you wish to ask a question, please dial star five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial star five again on your telephone keypad. The next question comes from Gustav Berneblad from Nordea. Please go ahead.
Good morning, everyone. Just a couple of questions here, starting off with Finland. When do you think you will have worked through sort of this cost overrun and are coming out on the other side, would you say?
I think the catch-up phase should be over. The negative effect from catch-up, which means that you have to do a lot in a short time and you get less efficient, it should be over. I think the overall profitability is not strong in this project, but it will go up, and then we will have additional profit from the fiber project. That's our strategy because they should be better. Now these are in planning phase. When winter is over, we should actually start to generate the big turnover because turnover is generated when you start to dig and install. Power will be better, not super good, but we think the aim is actually to have sort of decent profit within fiber. That's our strategy. This year.
Yeah. Okay, perfect. Sort of on the fiber there in Finland, is it possible to assume similar levels as in Germany, or should we assume sort of lower margins there?
I would assume lower, but I would assume decent. I think the push in Germany and UK. I mean, the push in Finland is high, but it's twice as high in Germany and UK because they're even further behind in penetration.
Oh, okay. Perfect. Then if we sort of ask the same question in Norway, I see some struggles there on, especially some cost pressure, when do you sort of expect this to be through?
I expect us to have a little bit of a journey on the service side, because it's a big service organization now, and you need to move it, and you need to sort of take percentage by percentage. I actually would expect us to have good work to be done throughout the year, to get to the margins we want to be. I mean, we have margins, but not the margins we would like to have them. On the power side, it was a very special year. This is Netel. Always very profitable, but not this year. It's cost increases. It's a few poor projects. There I would expect them to be better. I expect them, or maybe I hope, but I actually expect them to be better this year.
I should see some improvements from Netel this year just by not having a bad year because it's a very good company. It's very competent, and if customers are coming with order, then it should be better.
Should we expect sort of a gradual increase then throughout the year or?
I think that would be the best. Absolutely.
Yeah. Okay. Perfect. It feels like the activity level has really picked up in the last month. You have released several new contracts, et cetera. Are there any markets you're really seeing a material sort of shift in demand, or is the wind more just blowing in your direction now or?
I think transformer stations in Sweden were bit weak one and a half years ago. There was very few tenders, and the price level went down. We didn't win much, and the ones we won was actually 2%-3% lower. Those transformer stations are delivered this year, so you see a good margin here. You don't see it, but we see it. A good margin this year, but not super good. Now there is many more tenders. Prices are going up, and we are winning much more. That's really changing. When we come to UK and Germany, I think it's, we are new. The market has been there for some time, but there is a big push to really do more. The telecoms, I think maybe...
Well, you guys, you know more about telecom companies than we, but it's a mixed picture. Some of them are actually holding back. Some of them are really want to build. I think you know who they are because we read about it in the papers. I think they're sort of damaged by high costs for different things like power and so on. Overall, okay, because we have more than one telco customer to do 5G with.
Perfect. Then sort of moving to Germany here and the new fiber contract with the Allianz, how big is this sort of contract? Also, do you expect this, your relationship to expand, and maybe you can get additional contracts or how do you view it?
No. Yes on all of those. We haven't released it, but it's like the first phase is like SEK 70-80 million, something like that. Then you start to build, and then, I mean, they have enormous volume. If you perform, there's gonna be more. The tricky thing with fiber is always that you have to build it very quick, much faster than in the power networks. The customer isn't really ready. We are not really ready. Well, you want it to be a very short startup phase, but normally it's a very long startup phase with all the permits and so on. We are in that phase, and therefore I sort of call it building momentum.
We are preparing to sort of, for these projects, we can get up to speed. With the old, with Eadis, in the old project, speed is very, very high, but we have worked together for a few years now. Very frustrating, but this is, we have to get through this. This is what we have to do, is just fight to get speed up in these projects. I don't know. They build for EUR 5 billion in Germany, so of course this is volume.
Yeah. Okay. Interesting. Just the last one here on Germany. We've talked a little bit about bottlenecks that, you know, that subsidies are there and everyone wants to build, but it's taking additional time. Are you seeing an improvement from Q3 now and starting 2023?
Not with the other big customer, not at all. You, you get the project, and then you start, and then you realize, okay, well, you said that all permits are here, but they're not. All of a sudden you are standing still, and this is very damaging. When you work some time with the customer and all of a sudden all the permits are there and you can just produce them, then, you know, the speed is very high and profits are very, very high. Where you can miss out on profit is this, that the project isn't prepared. You, there is a stop all the time. We, we are fighting to get into those situation where speed is very high and, you know, money is flowing in.
And we know we can get there, but it can take some time, and you can get a slightly weaker quarter or what have you, but, you know, momentum is building up, and we will push, and we will continue, and we will get there.
All right. Sounds good. I think that was all for me. Thank you.
The next question comes from Karl- Johan Bonnevier from DNB. Please go ahead.
Good morning, Ove and Peter. A lot of good answers already, but if you, if you sum up everything that you talked about here earlier, when you look at 2023, do you see your financial targets being well within reach to get back to those?
They are. Yes, they are within reach, but there are things we need to do. Things need to happen. It's not, it will not happen by itself. We need to push for these, well, very strong growth opportunities. They are not only growth opportunities, they are sort of profit opportunities. We also have some issues, and we talked about Norway, and we need to percentage by percentage, we need to improve that as well. Work needs to be done, and we need to fix it, but we can absolutely manage. Absolutely.
On Finland, it definitely sounds like you believe that you're gonna be back to profit in 2023 if nothing strange happens.
You know, I should be at least.
At least neutralize the loss also if you look at 2022.
I should deliver first and talk then. I shouldn't talk because we have failed so many years in Finland. If you just ask me and what my feeling is that I'm positive about it, but I know, you know, I know it's Finland, and I know that we have to deliver before we talk.
Cautiously optimistic, that seems to be a good phrase for everybody these days. That's what I should interpret it.
Yeah.
Peter, just to understand the working capital release, because obviously we want to see you to have as much acquisition firepower as possible. How do you see that playing out during 2023, the release? Is that front-end loaded or back-end loaded?
We have where we have some work to do is in Germany. To strengthen the back office there because it's more complicated to get an invoice to the client approved and send it. We also need to find efficient, more efficient processes there with the client. There is a big possibility in Germany, but it will take some time to release it. We have also some more, let me say, certain positions, for example, a settlement with a big client in telecom for which we are agreed about. It's just we have to get it in on the final agreement. That will of course affect something quite quickly when that happens. We have also an arbitration that will be settled in April.
That could also generate, hopefully quite a lot of cash in. Of course, we should see a quite good improvement during 2023. Otherwise, it's very disappointing if we should not do it because the 2022 was not good cash flow-wise, we should have a good year. A mix. Some things will show up early on the year. I think, gradually in Germany, we have growth as well, we have to think about that, we have new customers, and we have to take on those challenges, and we have to sort it out. If we say, "Okay, we can't have a new customer, we can't have a new project because we don't exactly know how we're going to sort out in," that's wrong.
Yes, we rearrange, and we even are setting up our own back office in Serbia now with very skilled telecom people that can really offload our project managers. I mean, there's solid initiatives going, but it takes some time, and we're building up a structure that will work long time. It's more than words. We're actually doing things to improve it.
When you look at how you manage the, say, the delivery and work with subcontractors during 2022, is there some new markets where you found, say, an opportunity to source good subcontractors compared to before? Or is it basically the same base that you continue to work with?
We have worked to find more suppliers for 5G installation in Sweden, and we have a few new sources from different countries. We have traditionally worked with a Czech supplier, and we still do, but we need more because we could do more if we had more. Like Tele2 wants to build a lot, and this. Well, I think we're sort of the biggest there now. Then we find a few new ones, and then you need to bring them in, you need to work with them to sort of make sure that they deliver quality. You need to spend time with them, and when you've done that, you sort of, you can let them go. We are in that process.
In Germany, we have enough actually because we sort of expected more growth, and we have lined up enough suppliers in Germany. UK, we are bringing in. You maybe not believe this, but we are bringing in fiber people from Norway and Sweden, and they can make money in UK. We have a person that's been working with us in Sweden for 20, I mean, for as many years. He's been through the complete fiber boom in Sweden, and we are using these people actually in the UK. We add some value or quite a lot of value in the UK. The company we bought were sort of not a full turnkey supplier, but now we are a full turnkey supplier almost because we are bringing new resources. We are building something there.
When you look at all the areas you've managed to add to your portfolio through acquisitions during 2022, where do you see the best kind of opportunities in 2023?
No, I see. I mean, there will be a fight, there will be struggle, there will be mistakes, but I will, I'm really looking forward to UK. I will be fighting Finland, I wish them some success. I'm really looking forward to fiber in Finland. Maybe not the biggest opportunity, mentally, it's a big opportunity. We have the whole transformer station side in Sweden, which is, I mean, it's much stronger than we would have guessed a year ago. I think you're soon gonna see that Vattenfall and E.ON, they're gonna have one or two bidders on their stations, not more than that.
When you look at the new areas, that you get in through Elektrotjänst i Katrineholm and I guess Bredbyn and the other ones in the sewage area. Is that a more stable business in local arenas that you would be capturing there?
It's a mix. If you work on the railway, this is a national business, so you have to be prepared to travel because projects are moving around, and they are. Maybe that's the challenge because you need to find that type of staff who wants to move around. There are a few such companies. Can be much more. We have to learn. I've seen the sector before, and I know there are companies out there making good money in that exactly that sector. Well, you have NVBS, for instance, a Rolfhäll company, which I used to be in the board. So I know it's a profitable business. They also work in the defense. You also have to move around, very sticky projects. Well, Tunnelbanan, of course, you don't have to move around because it's in Stockholm.
The water and sewage is local business. There we have our local companies, they are strong. Almost all of them are strong now, they had a super year in 2022. One of them actually switched to property development, and of course, that needs to be replaced with something else.
Was that a large chunk of their business?
This is JR in Stockholm. It's roughly half of it. They have a turnover of a little bit more than SEK 200 million.
If you look at, say, the infrastructure they represent in equipment and personnel, is that pretty flexible as you see it? Or is it, is there a limitation what you can use the skill set for?
No, they're quite flexible, but they still have overhead because they have management, and they have project management, and they have rent and so on. It's gonna hurt the margin if they can't get the volume, but it's not gonna be a catastrophe.
Excellent.
We're looking for other projects. These are all projects, but maybe you have to travel a little bit more, and maybe you have to do a little bit... Of course, competition is higher in those other projects now.
When you look at, you earlier alluded to that you might be encouraged to try to widen the base in Germany with the new clients coming in on the fiber side. Is that enough, or are you still contemplating the getting into the other segments as well in Germany?
We are. Watch out for our press release.
Excellent. No, no, it's. I like that kind of pre-marketing. Thank you very much, and good luck out there.
Thank you.
There are no more phone questions at this time, so I hand the conference back to the speakers for any written questions.
Thank you all. Thank you for your questions. I think we've gone through it all, also with all the questions and the answers, I think we covered it, and we have nothing more to add. Thank you for listening, and see you again after Q1. Thank you.
Thank you.