NCC Group plc

Good morning and welcome to this presentation of the second quarter and the first half year for the NCC Group. I'm Thomas Karlsson, CEO, and on this call we also have Susanne Littander, CFO. So let's start with the summary. We had a good second quarter and this is the short version on how to understand the quarter. Earnings up compared to last year by 24%, despite no profit recognition in property. The main driver behind this industry, both volumes and earnings are up. Orders received on a good level, which leads to order backlog on a healthy level. Market outlook, we think it's a strong outlook, even though it's still divided the same way that we've seen for some time now. And in the quarter, no property transactions. There are positive signs for the property transaction markets, but we haven't seen any real change yet. So let's start with orders received on a good level. Book to bill in the quarter and the rolling 12 is one. And this orders received while we are maintaining a disciplined approach to tenders, what we tender on, what we tender for, on what terms and with the right prices. And even though we think that the market is fundamentally strong, it's divided. And even though we are in segments with good demand, we see a certain amount of desperation in the market everywhere, but particularly in Sweden and Finland. Hence, companies trying to compete with very low prices. And I want to make clear that we are not participating in that. So, good orders received leading to... a healthy order backlog. And I think it's interesting to see that the order backlog has a good distribution between the business areas. Some examples of projects that we have won during the quarter. We've won a train depot in Hagalund in Solna, very close to our headquarters. Yet another refurbishing project in Denmark. And then we've won a swimming hole in Vanta in Finland. Some examples on what we are working with. Moving on to net sales. The net sales in the quarter are up. However, first half of the year is quite stable. And we see a clearly pronounced Easter effect, i.e. Easter was completely in Q1 that had a negative effect on sales in that quarter. And that was countered by an equally positive effect in the second quarter. So for the first half year on a stable level. What is not stable is the earnings. 24% up in the quarter. And if you look at this over some quarters, it's on a very good level. It's not sales of properties that's driving this increase. So what is it then? Let's look at the quarter first. We have stable earnings in infrastructure, building Nordics and building Sweden. But industry is clearly increasing in the quarter. It's pricing, it's volumes, and to an extent of lower overhead costs. PD didn't sell anything in the quarter, but they did what they could. So compared to last year's small loss, they now have a small profit. That is a net change of 67 million SEK. And Susanne will come back to other eliminations. If we move on and look at the same thing for the first half year, it's pretty much the same pattern. Industry recovering from the slower start of the year and by half year outperforming last year. PD had one large transaction last year in 2023 in the beginning of the year. While this year we only had a small transaction and that explains the difference in property development. More long term. If we look at our financial targets, we have a short and medium term. We have earnings per share target of 16 SEC. We need the property transaction market to start in order to reach that. But we also expect that the infrastructure building, Nordics buildings within the industry will contribute more to this target. And right now we are at a little bit more than 14 SEC. We have a net debt target of staying below 2.5 times EBITDA. And right now we are on 1.48. And then it's important to remember that the second quarter is the quarter where we have the lowest cash flow. Dividend policy states that we should distribute approximately 60%. The board and the AGM decided on 50%, 8 sec, and half of that has been distributed during the spring. Health and safety targets. We have health and safety targets of accident, loss in time injury frequency 4 of below 2. We are right now at 4. We are working a lot to bring that down and to make sure that we have fewer of these of accidents for many reasons and mainly because we care about the people that work in our organization and then finally market outlook the market outlook is fundamentally good It's still divided, but with many strong segments, we see a strong demand for infrastructure of all types. Of course, roads and railways, but maybe more importantly, energy generation, energy distribution, water treatment, water distribution, logistic... facilities and so on. We see a good demand for public buildings, everything from schools to defense, and we see a good demand from the industry. However, a little bit slower demand for residential homes and commercial buildings. The property transaction market remains slow. We see the same positive signs as everybody else, but we see no impact from this yet in the transaction market. And with that, I hand over to Susanne Bittander.

Okay, thank you. Okay, for some more details then around our contracting units, we start with the business areas around that. Infrastructure had strong order booking in the quarter, driven by a couple of large projects, like the submarine dock in Bergen, Norway, the decking of Göta tunnel in Göteborg, and some large additional orders on ongoing projects. Both our building units are lower than the second quarter of last year, and we continue, however, to have a very solid order backlog in all of our contracting units, well above or in line with 12 months of net sales. The book to bill for contracting was 0.9%. Our project portfolio in contracting is driven by public investments and careful segment selection. The largest segment for infrastructure is energy and water treatment. And the large increase that we see in roads and railway is driven by the Breivika project in Norway and some really large additional orders in ongoing projects. For the building units, the largest segments are refurbishment and public buildings. The large part of other buildings in Sweden is explained by a couple of industrial buildings and a train depot. Net sales and earnings show stability. Net sales increased in infrastructure. Earnings and margins are on par with or improved compared to Q2 of last year. And on rolling 12, we can see the margins here for the contracting units as well. And infrastructure continues to improve. Building Nordics is back on the right trajectory. And building Sweden is stable on a challenging market. And finally, our new business area, Green Industry Transformation, where we have the management team in place and the initial team. And we have signed a strategic collaboration agreement with LKAB. Moving on to industry that had a very strong quarter and were up on all KPIs, basically. Orders received net sales and earnings. They had a very strong start of the season, obviously. Successful have they been in their implementation of turnaround activities. The volumes are higher in both asphalt and stone materials compared to the last year's second quarter. And earnings are up 30% driven by increased volumes in asphalt and increased volumes and prices in stone material, but also lower overhead costs. Stone material are showing really strong performance for the first half of the year. Capital employed is a bit lower than last year, 4.85 billion, and the return has gone up to 9.7%. Property development, they still have a challenging market situation. We have 10 projects in the portfolio and they are all office buildings. During the quarter, we had no projects sold or started. We signed four new letting agree contracts, all of them in MIMO. The letting in the quarter was slow with only the four contracts I just mentioned in MIMO, 3,300 square meters, which makes the letting go up to 71% for that particular project. The letting in our total portfolio is 72%. And for the completed projects, it's 82%. Completion ratio for our total portfolio just happened to be also 82%. Earnings was up 30 million or was 30 million up 67 million. And the improvement compared to last year is due to increased rental income in our completed projects and additional revenue from certification of a previously profit recognized project. Capital employed is up to 9.9 billion with really low returns. We have, as I said, 10 projects in our portfolio. And on the timeline, you have the two ongoing and sold projects, MIMO and Parc Central. And they're expected to be profit recognized in Q4 for MIMO and 2027 for Parc Central. We also have two unsold projects that are ongoing. And we have six completed unsold projects. And now we come to the segment other and elimination. EBIT in the quarter is 40 million below last year. And that's explained by the first row in this table where you have the common group cost. The cost increase is driven by continued investment and modernization of our IT platforms and our applications. The IT development stands for approximately 30% of common group costs and is expected to increase additionally 40 to 60 million in the coming year. The cost level is usually equal between the first and second half of the year with some variations, but with a clearly lower cost level in the third quarter due to the vacation period. And also green industry transformation. They stand for slightly less than 10% on the cost on this row. The rest of the income statement, we have the segments bringing us to 623 in operating profit. Our financial net is 34 million euros. And the increase from previous year is due to higher corporate net debt, higher interest costs and less capitalization of interest in property development as we have more completed properties now. Our tax rate has increased to 20% also due to fewer sales of properties. And our cash flow. is seasonally negative as industries start up their business in the second quarter, which draw a lot of working capital. Cash flow before financing, however, is better than last year due to better earnings, less property investments, and a lower negative effect from working capital. We also have lower capital expenditure primarily in industry compared to last year. And our net debt is on the same level as last year, 3.4 billion. And our net debt target is to be below 2.5 times. And we are below that, as Thomas showed, at 1.48 after first quarter. Back to you, Thomas.

Thank you, Susanne. And with that, the only thing that remains is for me to wrap up this presentation. Remember this, good quarter financing, earnings up 24%, good orders received while maintaining operational discipline. Industry has a strong quarter. Other business areas are stable on a good level. Property transaction market remains slow, but we have a fundamentally positive outlook for the market, even though the market remains divided. And with that, operator, we open up for questions.