Netel Holding AB (publ) (NETEL) Earnings Call Transcript & Summary

Welcome to Netel Q2 Report for 2026. [Operator Instructions] Now I will hand the conference over to CEO and President, Jeanette Reuterskiöld; and CFO, Fredrik Helenius. Please go ahead.

Good morning, and welcome to our presentation of our second quarter's results. My name is Jeanette Reuterskiöld, and I'm President and CEO of Netel. And with me, I have as usual Fredrik Helenius, our CFO. During today's presentation, I will start by running through the key developments in the second quarter as well as information about announced intended merger with Infrea. I will also give you a market update and highlights from our recent business wins in the quarter, and Fredrik will then, as usual, go through the financials in more detail before I make a short summary, and we open up for questions. Netel's performance in the second quarter followed the normal seasonal pattern with increased product volumes and improved revenue compared with the first quarter. Net sales declined in both second quarter and year-to-date compared with prior year, while adjusted EBITA and adjusted EBITA margin also decreased. In the second quarter, net sales amounted to SEK 725 million compared with SEK 775 million last year, and adjusted EBITA declined to SEK 24 million from SEK 39 million. Year-to-date, net sales amounted to SEK 1.3 billion compared with SEK 1.45 billion, while adjusted EBITA decreased to SEK 34 million from SEK 61 million, corresponding to an adjusted EBITA margin of 2.6% compared with 4.2%. Activity remains high, particularly within Infraservices and Power supported by strong demand from investments in critical infrastructure. At the same time, Telecom continues to be affected by lower volumes. Although a new customers and flexible business model helped mitigate the impact. The order backlog amounts to SEK 3.7 billion, including SEK 1.2 billion to be completed this year and is characterized by good profitability. Together with our continued focus on efficiency, commercial discipline and selective growth this provides a solid foundation for the second half of the year. We are continuing to deliver on our strategy of growing with both new and existing customers. An important success factor is that we operate across 3 segments, Infraservices, Power and Telecom which gives us a broader market exposure, increased flexibility and more opportunities to meet our customers' needs. The proposed merger with Infrea is an important strategic step that will strengthen the new combined company's position and create a new leading Northern European infrastructure service company with an annual revenue of approximately SEK 5 billion. Expected closing of the merger is scheduled for the fourth quarter and until then, Netel operates as a stand-alone company, and we maintain the outlook for growth and margin improvement for the full year '26. On the 15th June, the Board of Netel and Infrea jointly announced our intent to merge the companies with Netel as the absorbing party. The merger will create a leading Northern European company for infrastructure services, with a total revenue, as I said, of around SEK 5 billion and over 1,200 employees. This new group will also generate significant synergies and strategic advantages as the companies complement each other. In terms of service offering and customer exposure, operating partly distinct geographical markets. We have strengthened our financial position since prior to the merger, the Board of Netel intends to resolve on a fully secured rights issue of approximately SEK 127 million and to propose an over-allotment issue of up to SEK 75 million, which will contribute to balanced combined capital structure. The rights issue is fully secured through subscription commitments with 78%, SEK 99 million, to existing shareholders and 22%, SEK 28 million, to new investors being main shareholders of Infrea. The new share issues by Netel and Infrea's well-capitalized balance sheet will have to provide the new group a balanced capital structure. In summary, the proposed merger strengthens the new company to a strategic position by creating a broader, more diversified and financially resilient group. The combined company will have an improved product portfolio complementary capabilities and strong geographic footprint, supporting both larger contract wins and higher volume of smaller projects. In addition, expected cost synergies increased scale and clearer organization provides a solid foundation for improved profitability and a smooth integration with a strong employee proposition. In connection with the completion of the merger, I will hand over to Martin Reinholdsson, currently CEO of Infrea, as CEO for the new group. Fredrik Helenius will remain in his role as CFO. This merger gives a combined company with a strong foundation and creates a well-positioned company with the scale, capabilities and financial resilience to continue growing profitably. Our preliminary timetable for the merger forward is now in July, the merger prospectus will be published. And in August, we will conduct extraordinary general meetings of Netel and Infrea. And we expect in the fourth quarter that SCRO, the Swedish Company's Registration Office, Bolagsverket, registers the merger. You can find complete information about the merger at our website, and you see the link in the presentation. Now I would like to present some new wins and market update under this quarter from each division to show example of how we deliver on our strategy. Infraservices is also following the seasonal pattern with increased project volumes in the quarter. At the same time, we are carrying out a restructuring regarding a subsidiary that was acquired '22, where we intend to finalize the projects and close the business. In parallel, we're building up a new region within Netel Infra East. Netel Infra East has over the past 6 months, built up an order backlog of approximately SEK 75 million. Excluding the effects from the company being wound up, Infra Services shows good underlying profitability with an EBITA margin of 4% in the quarter. The growth of nearly 18% in the quarter compared to last year is a clear effect of our competitiveness and our ability to deliver quality in our customers' projects. Last year, Infraservices worked purposefully with both cost adjustment and establishing central functions for risk management and product calculation, among other things. These features were put in place at the end of the year and have developed efficient internal processes. We are taking advantage of this now that we see a high and increasing activity in many attractive local markets. In the quarter, we have presented 2 new customers, Familjebostäder and Uppsala Skolfastigheter. In the Power segment, Norway continues to deliver strong growth, following an increase of 40% last year with growth of 20% in the quarter and around 8% for the first half of the year. In Sweden, negotiations are also underway for many new and exciting projects. During the quarter, we launched several new products with customers such as E.ON, Elvia and Swedavia. The contract with Swedavia, a new customer for us is for a project worth approximately SEK 40 million. We have overall responsibility from the design phase through the completed construction, including the delivery and installation of high and low voltage switchgear backup power solutions and several new power stations. This major assignment is a testament to our expertise and ability to deliver future-proof solutions for critical products. Over the past year, Netel has been building up a targeted industrial initiative in the Power segment, both in Norway and Sweden. The initiative is being carried out in coordination between the Norwegian and the Swedish organizations and is intended to strengthen our position in customer segments where, in the past, our present has been more limited. Through selective recruitments, we have brought in specialized expertise and market knowledge that allow us to offer a broader range of services to customers with comprehensive needs for electrification, capacity and resilience. This initiative is targeted at such customer as industrial companies defense-related operations, public sector entities and other larger customers. This industrial initiative complements our established power business. and enables a more diversified customer base, a stronger market position and improved conditions for long-term profitable growth. In telecom, we see clear effects of lower volumes in both mobile and fixed networks. The Telecom market is undergoing a transformation, whereby our traditional customers are moving from hardware installation to service and maintenance. This means that our customers are reducing their investments which we have noted in all 3 of our geographic markets with volumes and our profitability falling in the quarter. However, we can adapt to this decline in volume more easily due to our flexible business model with a high share of subcontracting in our Telecom products. We see a top line with reduced sales of 21% in the first half of the year. Our strategy to win new customers in the Telecom segment is successful. And we have, for example, won contracts with the Swedish Transport Administration and the property company Stångåstaden during the second quarter. This work continues but will not fully compensate this year for the declining volumes of our traditional customers. However, our flexible business model will help to reduce the impact of the volume loss. Our 2 larger new agreements with the Swedish Transport Administration of framework agreements and cover the design and construction of telecom master towers for the new European railway communication system. The agreements are 3 years with the possibility of extension until 2030 and an estimated value of just over SEK 130 million by 2030. Both the design and the construction of the masts and towers are currently underway. So let's move on to our financial performance in more detail, Fredrik.

Perfect. Thank you, Jeanette. And good morning, everyone. For those of you that have been listening into our conference calls and read our previous reports, I guess, that the seasonality in our business is likely viewed as a recurring theme. But Certainly, it is explaining very much about the expected progress between the quarters. The second quarter here added around 26% in comparison to the first 3 months of the year. And the net sales in the quarter decreased slightly on the year-on-year comparison and amounted to SEK 725 million. With a stronger NOK, we noted positive contributions from the FX, but the contributors in general are the Infraservices operations with an additional SEK 30 million in the quarter and continuous growth from our Norwegian power business. The transformation in the telecom market, however, with operators providing significantly lower rollout volumes continue to impact net sales negatively as communicated and the Telecom division decreased sales with 22% obviously impacting the overall top line for the group. The backlog amounts to SEK 3.7 billion end of June, down slightly from last year and the previous quarter. However, including important additions with new clients we have Swedavia and others as referred to by Jeanette. The backlog end of June implies a slightly lower order intake in the quarter, but during the year, we have benefited from a strong contributor -- our strong contributors within Power and especially in Norway. And as recently communicated, we have now also added important wins within both Infraservices and Telecom during the second quarter, adding light on the necessary volumes to continuously support our process for improved financial performance and margin growth. We view the markets, especially within Infra and power to be characterized by high activity, and we have been and are currently reviewing calculating and submitting many bids for new interesting opportunities. With the reported backlog of SEK 3.7 billion in total, we now have around SEK 1.2 billion to be produced during the second half of '26. As Jeanette said, we maintain our guidance for growth and especially improved profitability for '26. And we view the remaining volume to add to reach that guidance to be balanced and in line with expectations for a second half year. The adjusted EBITA in the quarter amounted to SEK 24 million, slightly below last year, in line with our communication regarding the first 6 months of the transition here in '26. The power operations in Norway continues with a strong momentum and many good performances, increasing the profitability for the group. Just as we said, during Q1, we continue to believe that our seasonal patterns will be visible and that we do expect that a stronger H2 will contribute to the overall improvement for this year. The intended merger with Infrea has implied additional costs recognized during this quarter. The adjustments of SEK 27 million in total in the quarter included SEK 9 million regarding the ongoing merger process. The complete information regarding the process and the costs in relation to both the share issues and the merger will be communicated in connection with the prospectus registration and obviously, the EGM notices. In addition to the adjustments for the costs related to the merger, we have also adjusted for restructuring activities, including SEK 11 million regarding the closing of the operations within one subsidiary in the Infraservice division. With these fairly high level of adjustments in this quarter, we note a negative EPS of SEK 0.63 but again, we have now started H2, and we look forward to continue the development and progress during the remaining part of '26, adding new interesting projects and again, improving our overall performance. The operating cash flow in the second quarter was minus SEK 31 million. And just as in Q1, this was in general in line with our expected seasonal pattern. Where we need working capital during the early phases of the projects and whilst ramping up the production. The cash flow is slightly improved from last year, but the first 6 months are very similar. June and the end of this quarter, however, provided very important answers to us, where we noticed increased invoicing of approximately SEK 300 million in total for that particular month. That further supports our view that we will note improved cash flows throughout the year and that the cash flow release during the second half of the year or particularly in Q4 will be visible once again. Liquidity-wise, we have SEK 228 million in available funds and we are fully compliant and well in line with our financing agreements. An important addition regarding the financing agreements is that we, in this report, account for short-term debt as our agreement runs with a maturity end of June '27. But as we communicated in connection with the intended merger with Infrea, we have a secured financing ensuring long-term financing upon the completion of the merger during the fourth quarter in '26. Turning to the division-specific financials. Infraservices reported sales of SEK 184 million in the quarter with a growth of 17.6%. We note important contributions from both ongoing and newly won projects and agreements after the start-up phase of long winter during Q1. As said previously, we still need to add additional projects and volumes for the yearly production on our way to improve financial performance. However, this is, again, viewed as a fairly normal current trading of the Infraservices business, where we typically have relatively shorter projects and projects with lower volumes being but started and finalized intra-year. The EBITA for Infraservices in total amounted to minus SEK 3 million or minus 1.4%. However, this then includes the previously mentioned SEK 11 million adjusted for at group level. Excluding these effects, infra service performs quite well and showcased an EBITA margin of approximately 4% with healthy projects in an active market. Our new operations the operations that will replace the business currently under closing has during the first 6 months, already added approximately SEK 75 million in new order volumes. The high activity in the market is still to be viewed in the light of high competition but the need for our services will remain in both the short and long term. Within Power, we reported sales of SEK 269 million, a growth of 0.5% in the quarter and an EBITA of SEK 4 million or 1.5% EBITA margin. As discussed during Q1, we are still working on the transition with Sweden trailing last year. We are winning new projects and ramping up production. Norway once again turned to growth from the short-term negative development in the first quarter this year. Now growing more than 20% and utilizing on the momentum in that region provided by the positive project achievements they have managed to provide during the last couple of quarters. We continue to win interesting contracts. Now we're once again also in Sweden with the recent additions with E.ON and continue to work for the full transition for the Power operations. Market activities within Power remains good, enabling additional growth and continued focus on client and sector diversification where the focused strategy within the industry segment is viewed as both important and positive for the development in 2027 and onwards. Looking at Telecom. As I said previously, the transformation of the Telecom markets with operators providing lower rollout volumes impacted our net sales and profits negatively in the first quarter and continuously here in the second. This transformation is visible in all 3 geographical markets: Sweden, Norway and Germany, yet we partly mitigate these effects from ongoing frame agreements, good performances from our German team and their operations and through the important wins with new clients such as [ Skolfastigheter ] in Sweden. Our Telecom division generated SEK 272 million in sales in the quarter. That's down 22% from last year with an EBITA of SEK 6 million. translating into a margin of 2.3%. We continue to work on our cost savings and improved performances across Telecom in order to support the transition with improved financials. Though when reviewing in the second quarter in '26 and the year-on-year development, one needs to consider that last year was positively impacted by the one-off effects that we saw last year from the reversal of previous provisions for closed projects. Rollout volumes within fixed and mobile networks are significantly lower, but our strategy aims at identifying and working on new opportunities in addition to traditional volumes within the Telecom sector. I believe there are and will be a need for our skill teams and expertise in Germany for the prolonged rollout of fiber networks and within the Nordics for the industries within the defense and public sectors and other parts of the overall Telecom market. All in all, I think that we present a second quarter well in line with our previous comments and seasonality, and we continue to allocate our resources, focusing on the expected improvements during H2. In addition, of course, we very much look forward to the intended share issues and merger with Infrea from which we will gain several advantages with improved financial stability. The process of the merger is currently focused on prospectus work streams and expected EGMs end of August before the expected closing of these transactions during the fourth quarter '26. And I believe that sums up the financials, and we can jump back to you Jeanette and listen to a few closing comments.

Thank you, Fredrik. And I will finalize today's presentation with some concluding remarks. Netel operates in sectors that are crucial for a more resilient society. electrification, digitalization and the need to modernize aging infrastructures makes our role increasingly important. As I previously emphasized, the competitiveness of the future is not just about growth, but about the ability to build robustness over time. With strong expertise long-term customer relationships and a flexible business model, Netel is well positioned to grow profitability and create long-term value. For the full year '26, we expect growth and especially margin improvement, given the savings measures we did last year and during this year and the market conditions we see today. The process of merging our Swedish operating companies is proceeding as planned. The first 7 applications have been filed with the Swedish Company's Registration Office, Bolagsverket. And we expect the companies involved to merge after the summer. The remaining companies are expected to merge in the fourth quarter. Our plan for when we enter '27 is to have one single operating company for Netel's business activities in Sweden rather than 14 companies. This is one of the key measures in our savings program, which will lower our costs around SEK 15 million to SEK 25 million with full effect next year. As we said earlier, 2026 is a transition year for Netel. And over the past years, we have taken important steps to restructure and strengthen the company, creating a more focused, efficient and resilient organization. I would like to extend a sincere thank you to all our committed employees who have contributed to this journey with dedication and commitment. Thanks to your efforts, Netel is now fully prepared for the proposed merger with Infrea and for the next step in our development. Together, creating a larger and stronger new company positioned as a leading player within critical infrastructure services. And now we are ready to open up for any questions.

[Operator Instructions] The next question comes from Karl-Johan Bonnevier from DNB Carnegie.

A couple of questions, If I may. First, looking at the company that you are now doing the IIC for the completion of the company you talked about acquiring in 2022 that you are now, say, winding up, I understand it, rather than closing projects. So could you describe what has changed your wording around that operation and the risk for further kind of extra cost to come for closing it?

Well, we look forward to winding up the operations, as Jeanette said, we intend to close that business down. And in parallel, we have now started up the new operations within the so-called Netel Infra East. During the first 6 months of that -- those new operations, we have managed to win and bid for SEK 75 million in volumes. And that work will continue throughout '26, and we expect to be done with the -- with most parts of this transition during this year for the full calendar.

So no more -- you don't see any more costs related to that process, so to say, that will come as an IRC or incurred in normal kind of setup?

Well, we still have a few ongoing projects in that company. As of today, this is where we stand. Then we look forward to finalize that process and continue with the development and increase the scope for the new business within Netel Infrea.

And if I remember correctly, didn't you reserve for those projects during last year already? Or is this something new that is happening? Or is it just my interpretation that has been wrong.

Yes, we had -- this is one of the subsidiaries that we took some write-downs for during the fall of '25. We did have provisions and buffers for some of these projects. Now we're looking to close the remaining parts of the ongoing projects and the business. And these are the extra costs that have occurred here during the first 6 months and particularly in Q2 for '26. And we still have a few ongoing projects, as I said, that we will finalize during the remaining part of '26 and a few projects that will take place and run over to '27. But our expectation is that during '26, we will be done with both the effects and the company in all material aspects.

Excellent. Thank you very much for the extra granularity on the order backlog as well, the SEK 1.2 billion that you see now coming to become the invoice during this year. Do you feel that the SEK 500 million gap or SEK 450 million, SEK 500 million gap you have to show growth for the year is really a feasible kind of target to find?

Yes. If we look at the first 6 months, I think that we said during our previous conference hearing that we added approximately SEK 400 million from the volume that we had during the year-end report from 2025 to the Q1 report in '26. We have now an additional order intake if you sort of hold the backlog for us. We don't present order intake as a figure for us, but that implies that we have more than SEK 200 million here in the second quarter as well. So yes, as we said during the call, I think that the remaining volume that we need in order to achieve growth as the target is balanced and is viewed as a normal course of business for us during and a very active market and during sort of a bid season that we have been in and that we will enter into once again here, starting right after the summer vacations.

Thank you also for all the good comments about the healthy market. And when you look at it, there seems to be a lot of projects that are in tender for the moment out there for the moment. And as you alluded to earlier, quite a competitive environment going for those orders. Do you see with the -- with so many of the network owners now trying to add capacity and build things maybe a little more near term that we are now coming into an environment where you -- where we have a slightly more healthy also pricing environment for going for those contracts?

Yes. I think it's still a competitive business because when it's increasing markets, a lot of entrepreneurs, construction companies want to be a part of it, of course. But we see a big shift actually from the increasing bid season this year compared to last year. and we expect that it will be a more normalized situation at least from next year through the competitiveness in the products. Because it's also a resource capacity questions for all of us who is in the market for those. So I expect that we will see a better situation coming up next year.

Yes. I guess, resources must be tight given, say, what is happening out there for the month. Do you feel you can get the sub-suppliers, you need still and secure what you need to deliver on the projects you're involved in?

Yes. I think we have a good combination with our own employees and a long-term relationship with other subcontractors we, for many years, worked with. So that is actually not difficult for us in this situation, we are now. We have the capacity to take on increasing volumes further on. We need to, of course, work with that. So we always have good relationships to be able to grow.