Eltel Group: Interim report January – September 2017

July – September 2017

  • Group net sales decreased to EUR 328.0 million (356.2), mainly as a result of the discontinuation of non-core operations and unprofitable contracts
  • Net sales in the Core business, including segment Power and segment Communication, decreased 1.8% to EUR 298.6 million (304.0)
  • Discontinuation and ramp down of non-core operations in Other led to a planned net sales decrease of 42.3% to EUR 30.4 million (52.8)
  • Group operative EBITA amounted to EUR 3.1 million (7.8)*
  • EBIT amounted to EUR -2.8 million (4.1) including EUR -0.7 million in items affecting comparability**
  • Net result amounted to EUR -11.0 million (1.9)
  • Earnings per share were EUR -0.07 (0.01)
  • Operative cash flow was EUR -25.6 million (22.6)
  • EUR 110.6 million in bank term loans repaid

January – September 2017

  • Group net sales decreased to EUR 955.7 million (1,012.7), mainly as a result of the discontinuation of non-core operations and unprofitable contracts
  • Net sales in the Core business, including segment Power and segment Communication, increased 0.8% to EUR 863.0 million (856.5)
  • Discontinuation of non-core operations in Other led to a planned net sales decrease of 40.3% to EUR 94.1 million (157.7)
  • Group operative EBITA amounted to EUR -27.7 million (16.7)*
  • EBIT amounted to EUR -185.9 million (5.9) including a goodwill impairment of EUR 149.4 million
  • Net result amounted to EUR -196.9 million (-1.8)
  • Earnings per share were EUR -1.61 (-0.02)
  • Operative cash flow was EUR -102.7 million (-30.5)

Unless otherwise stated, figures in brackets refer to the same period in the preceding year
* Items not allocated to segments consist of the Group management function including development projects
** loss on sale of business

Jul-Sep 2017 Jul-Sep 2016 Change, % Jan-Sep 2017 Jan-Sep 2016 Change, %
Net sales Net sales
Core* 298.6 304.0 -1.8 Core* 863.0 856.5 0.8
Power 117.5 126.0 -6.7 Power 339.7 345.7 -1.7
Communication 181.1 178.0 1.7 Communication 523.3 510.8 2.5
Other 30.4 52.8 -42.3 Other 94.1 157.7 -40.3
Total Group 328.0 356.2 -7.9 Total Group 955.7 1,012.7 -5.6
Operative EBITA** Operative EBITA**
Core* 12.3 12.5 -1.7 Core* 22.5 35.5 -36.6
Power 0.9 2.6 -66.5 Power 0.2 12.3 -98.3
Communication 11.4 9.9 15.1 Communication 22.3 23.2 -3.9
Other -6.0 -1.1 n/a Other -38.5 -11.7 n/a
Items not allocated -3.3 -3.6 10.4 Items not allocated -11.6 -7.1 -64.5
Total Group 3.1 7.8 -60.7 Total Group -27.7 16.7 -265.5

* Core includes segments Power and Communication
** Please see page 20 for definitions of the key ratios

Comments by the CEO

Stable performance for Communication but weak result for Power

The work aimed at restructuring and streamlining operations continued during the quarter. Our change strategy is largely about developing a stable platform – based on the principles of efficiency, clear governance and internal control – at the same time as we are divesting or discontinuing operations where we are not competitive, where profitability is low or where the risks are high. In the third quarter, we were in the midst of the transformation process, which will continue for the remainder of 2017 and throughout 2018.

Sales for Eltel’s Core business were, despite the above measures, almost in line with last year and in the third quarter amounted to more than EUR 298 million, mainly due to the stable performance for segment Communication. However, segment Power’s performance was weak, which was primarily a result of continued challenges for projects with a fixed price, though part of the explanation can also be found in short-term challenges in the transmission market. In the longer term, market conditions for Power are however attractive with expected healthy growth. In the quarter, the market for segment Communication continued to mainly be driven by the roll out of fibre and offers favourable business opportunities as a consequence of the technology shift from fixed to mobile solutions.

Operative EBITA in the Core business amounted to EUR 12.3 million during the third quarter, which was in line with the same period previous year, despite costs for streamlining as well as margin adjustments and impairment losses for projects. Taken together, this means the EBITA margin was 4.1%.

Work continued during the quarter identifying synergies in segment Communication, where we are integrating the fixed and mobile business units and Aviation and Security, as well as in segment Power, where we have merged distribution and transmission operations. These measures will improve our competitiveness in the long-term, but have a negative short-term impact on earnings due to costs for implementing the changes. In the first nine months, approximately 40% of the year-on-year deviation in operative EBITA for segment Power was related to restructuring costs, including costs for discontinuation of operations such as the substation business in Germany. 40% is explained by impairment losses and margin adjustments in projects and 20% by lower sales.

The process of divesting and discontinuing non-core operations is progressing well. In July, we signed an agreement to divest the loss-making business in Latvia and in August to divest our operations in Estonia. In September, we signed a letter of intent to divest Power Transmission International. The total financial impact of the divestment is expected to be lower than the estimated ramp down cost of EUR 40 million, assuming that the transaction is completed. Moreover, in the second quarter we divested the unprofitable part of the communication business in Poland and discontinued the communication business in the UK. Total net sales in these operations for the January–September 2017 period amounted to EUR 61.5 million (110.8) and the operative EBITA was EUR -29.8 million (-6.5).

The process of divesting or closing down other non-core operations is proceeding as planned.

It is very satisfying that, despite our focus on change, we are frequently reminded that we are able to provide good deliveries to our customers, which is reflected in a high level of customer satisfaction. I can clearly see how hard and dedicated work by our employees is producing results, which is creating a solid foundation for our work moving forward.

The ongoing transformation is a prerequisite for creating a stable and profitable platform. This will enable us to develop and roll out a new strategy for Eltel, to secure long-term growth, profitability and shareholder value. Strategy to be presented in 2018.

-Håkan Kirstein, President and CEO

For further information, please contact:

Håkan Kirstein, CEO
tel. +46 72 23 06 944, hakan.kirstein@eltelnetworks.se

Petter Traaholt, CFO
tel. +46 72 59 54 749, petter.traaholt@eltelnetworks.se

Eltel AB discloses the information provided herein pursuant to the EU’s Market Abuse Regulation and the Securities Markets Act. The information was submitted for publication, through the agency of the above contacts, on 2 November 2017 at 08:00 a.m. CET.

About Eltel

Eltel is a leading Northern European provider of technical services for critical infrastructure networks – Infranets – in the segments of Power, Communication and Other, with operations throughout the Nordics, Poland and Germany. Eltel provides a broad and integrated range of services, spanning from maintenance and upgrade services to project deliveries. Eltel has a diverse contract portfolio and a loyal and growing customer base of large network owners. In 2016, Eltel net sales amounted to EUR 1.4 billion. The current number of employees is approximately 8,400. Since February 2015, Eltel AB is listed on Nasdaq Stockholm.

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Thomas Rebermark +46 72 230 6945

thomas.rebermark@eltelnetworks.se