Eltel AB (publ) (ELTEL) Earnings Call Transcript & Summary

Hi, I am Jerker Salokivi, Evli Research team. I'm joined today by the CEO of Eltel, Mr. Casimir Lindholm. Welcome Casimir.

Thank you.

So Eltel released its Q1 report today. Could you give us a summary of results, please?

Yes. We have been building now a platform for the growth over the last 3 to 4 years and happy to see that we were able to achieve growth in Q1, and mainly in Sweden and Norway, roughly 7% in Sweden and over 20% growth in Norway. So from that perspective, it's good. We are back on the growth path for the first time since 2017, actually. So that was good. Then from a result perspective, Finland started in a good and stable way. And then in Sweden, we saw some challenges in all the power projects. And then, I'll come back to different reasons in the respective countries later on. Again, Norway stable start to the year and good volumes. And then Denmark, on the other hand, challenges with the top line in segment. Other, Germany continue on a good path. And then we saw challenges regarding margins in Poland.

Okay. Yes, in Europe you mentioned that you had some challenges in margins, and I think there were maybe a couple of them. So could you maybe walk us through those factors?

Yes. Of course, the Q1 was affected by pretty rough winter conditions that we, of course, knew about already when we communicated Q4 and 2021. That was mainly hitting Finland and Sweden, and of course, northern parts of Norway. The other part that we flagged in the Q4 and 2021 results were COVID-19. And that also had a negative impact on us during the first quarter. Sick leave rates almost double what we are used to during a normal winter period in Q1. So those 2 elements we knew of and then they had a negative impact on us. Then the third element is inflation. And inflation started late last year, so that was also a thing that we were prepared for. But then, of course, it escalated quite dramatically after 24th of February when the war in Ukraine started. So that had an impact mainly in March, then in mainly fuel prices in our business. But going forward, it will affect us even in a broader way than we saw in Q1.

Okay. Could you may be open up a bit of those impacts of how does it [ concluded ] how does it affect 2Q and maybe going forward? What do we expect to see?

Yes. The first effects of inflation, we can see if we split it into communication and power. In our communication business, of course, fuel prices is the main one. And we have 2,800 cars within the group. So that is, of course, immediate effect. The other part in communication is asphalt prices that's connected, of course, to bitumen and to oil prices. Then on the power side, I would say that the main effect is steel prices and of course, other materials like cables and concrete and so forth. Then I would say then our Polish business is the one that has been affected the most, and that is, of course, because of the closeness to the Ukrainian border. All in all, in the infra and construction sector, there were more than 370,000 Ukrainian workers and roughly 40% of them went back to Ukraine when war started. And of course, that affects the subcontractor market and availability of resources. So going forward, the main topic will be inflation and how to protect ourselves against inflation and how to maneuver around in a new market. And we are in discussions and negotiations with our customers around compensation for the inflation. And that has taken part over the last weeks and will continue in May. So that is what we are doing. And then, of course, looking for different sourcing alternatives and different -- and new markets regarding, for example, steel because both Ukraine, Belarus and Russia, of course, are a big -- have big steel producers.

Well, if you postponed your long-term financial targets by 2 years. I assume it has quite a lot to do with earlier mentioned items, but could you maybe kind of talk us through what has changed and then what steps you need to take going forward?

Yes. Yes. So we removed the guidance for 2022 because of these reasons regarding inflations -- and inflation and impact on our business. And it is difficult to guide in these market circumstances. Then regarding mid-term targets, 2023, we've postpone those by 2 years. And the main reason is the same, it's inflation and assuming that we have a longer-lasting conflict in Ukraine, and we believe that the inflation is here to stay for at least a while going forward. And then on top of inflation, of course, to reach the 5% in 2025, then but Finland is to continue on the good path. We need to turn around the business in Sweden and supported by smart metering project, I think that's fully doable. And of course, Norway needs to continue on the good path where they are now. In Denmark, we need top line growth because last year, we lost one contract due to in-sourcing and we need to come back on a EUR 100 million net sales level in Denmark to support the overall EBITA margin on group level. Germany leads to continue on a good path. And main thing is to turn Poland at least plus/minus 0 business, which was the way it was heading then until the inflation. There was a new challenge basically and the lack of resources in the Polish market, as mentioned before.

Okay. So I'd like to thank you for giving us an update on Eltel's business and walking us through the Q1 results, and we look forward to hearing more from you in future. Thank you.

Thank you very much.