NCC AB (publ)

Welcome to NCC and our presentation of the fourth quarter and the full year of 2023. This will be presented by me, Thomas Karlsson, and our CFO, Susanne Littahander. And as usual, you are welcome to ask questions after our presentation. So let's start by looking at some of our key figures.

In the fourth quarter, NCC had strong orders received of 16.2 billion SEK, which brought the full year orders received to 56.8 billion, almost 7 percent higher than 2022. The order backlog at the end of the year was 53.4 billion. Net sales in the quarter was 15.6 billion, slightly lower than last year, and 56.9 billion for the full year, up compared to 2022. Operating profit was 358 million in the fourth quarter, without any profit recognition from property development. For the full year, earnings are up with an operating profit of 1.8 billion.

So this was a good year for NCC in a very mixed market. We had growing earnings and we reached our target of 16, or EPS of 16 SEK. The board proposes a dividend of 8 SEK per share, and this is driven by a couple of developments. We have consistent orders received and net sales affirming the stability in the market. We have a steady and positive earnings growth in infrastructure, growing in selected segments that we have been working with for some time now. Building Nordics, large variations between markets with Denmark as the strongest market, while Finland is the clearly slowest market. Building Sweden, solid order backlog, but lower margins on the back of price pressure in the market. And a very successful turnaround of business area industry during the year. PD, property development has been navigating a totally frozen market, focusing on letting and trying to identify viable opportunities going forward. And we had good letting in the fourth quarter. That's the summary. Meaning that we have a solid order backlog going into 2024. Book to build for the year was again above one, and that is with an increasing net sales. We had in the quarter, we had stronger earnings in three BA's. The most important thing here to recognize is that property development had no property sales in the quarter and didn't recognize any profit from that. We had the final part of a smaller land sale, but compared to last year when we recognized a large piece of property that we sold. And then the improvement in industry also continuing into the quarter, even though the winter came early this year. IT and pensions impacting other eliminations. And for the full year, the same pattern holds with infrastructure continuing to improve. Industry improving earnings for the full year with almost 400 million. Property development, lower earnings since we only had one property to recognize for the entire year. And then we had the divestment profit from the sales of subsidiary badass at leading us to a full year earnings of ,000,000. For the contracting margins, infrastructure continued to improve. And this is the 21st consecutive quarter with an improvement. And this is improvement without the one of gain from sales of very nasa. So this is the underlying business while the margins in the building business areas are more on a flat level. We met earnings per share target 16 sec, which is we're really happy about. And I'll get back to that in a little while. Because these are our financial targets at 16 sec was the target for 2023. We met it at 16.11. Now, let's remind everybody of that 16 sec is also the target going forward. This year, we were helped by one of sale of the subsidiary. But we also experienced sort of semi frozen property development market where we only recognized one project. And in the beginning of the year, going forward, we expect that the contribution to 16 sec from contracting business and industry will increase. But to meet that target in the short and medium term, we need the property transaction market to come back again. So property development can contribute to that target. Net debt target is to be stayed below two and a half times EBITDA. We are now with a wide margin below that on 0.98. And then the dividend policy, we changed that one and a half years ago to approximately 60%. The board had a discussion on what was the prudent dividend this year, considering good earnings in the year, however, helped by one of the balance sheet and came to the recommendation to the AGM of eight sec per share for a dividend that is in the lower end of the range around 60%. But it also represents a quite significant increase of the dividend and the dividend to be paid in two tranches during the year. We didn't meet the health and safety target. The LTIF4 remained flat, number of accidents decreased a little bit, but it's clear that we have more to do in this area. Talking about the market, we see still uncertainty in the market remains for large parts of the market the same we've seen last year. However, we have signs of more predictability regarding inflation, interest rates and priorities, and we have more positive signals at the same time. Office and residential market remains slow. Property market and property transaction market continues to be difficult with a very low activity. But we see a strong market for infrastructure and public buildings and large industrial development. So it's a mixed market, but with more positive signs than we've seen in a while. Forensics, and you may recognize this because this has been our focus for some time, we have more diligent project selection using our segment strength that has proven extremely valuable to us during last year, continued execution discipline in what we do and adopting resources where we need. And that has been continuously ongoing for the last couple of years. And with that, I hand over to Susanne Tanden.

Thank you, Thomas. So this is what we look like now. 57 billion in sales, 12,200 employees. Sweden dominates our Nordic markets with 57%. But Denmark is increasing to 22% after an increase sales with 25%. The split between our business hasn't changed that much from previous year. When it comes to net sales, at least it is actually quite the same as last as 22. Earnings, however, reflects the changes in between the business areas. And of course, infrastructure and industry has increased their share of earnings. Our capital employed has increased as we haven't divested or we haven't profit recognized any property development projects lately to 9.6 billion for the year. The segmentation strategy and the selected segments for our the strategy that our contracting in units have had has been quite successful. We can see that here for infrastructure, energy and water treatment has grown to 40% of orders received. For building Sweden, public buildings has increased to 46% of orders while offices and residential are backing. Building Nordics are having a high level of sale of orders received in public buildings as well. Slightly increasing, but other is the area that increased the most here and that's because we have a large hotel and a large industry building booked here. So infrastructure continues their improvement trajectory and Sweden and that's further boosted by the sale of buying assets. And Sweden still the dominant market with 74% of sales while also here, Denmark is increasing and is now at the same size as Norway with 13%. They had a solid orders received and they had an increased sales earnings improved and margin improved to .1% for the year. Building Sweden had orders received quite a bit lower this year compared to 2022 on the back of the fact that they had very large orders booked in 22 but also depending on the demand on residential and offices market of course. The sales increased to 14.5 billion. Earnings are on par with last year. They are depressed by impact from high cost in certain segments but also from the write downs we did last year. Building Nordics as a share on net sales Denmark has increased here as well and they are now almost 50% of the business area. They have very strong orders growth for the year and they have also solid growth in net sales. It's a bit of a mixed picture between the countries however. Denmark is growing strongly and Norway is also growing while Finland has decreased in a tougher market. Earnings are on par with 2022. There are also here variations between the countries. Denmark is delivering very strong and good numbers. We have had write downs as we've talked about Norway that are impacting Norway and Finland is adjusting their operations to come back to more normal levels. Industries volume and when it comes to asphalt volume we had a big impact by the early winter this year. In the Nordic countries we have had winter for a long time and the stone volumes are also slightly down but still holds up quite well given the market. We think the the decline is in line with what the residential market and the office market is down. So in industry the share of net sales has not changed. 55% is still in Sweden. They had good sales in a market with high price pressure. The split between the divisions here I should also mention is that stone has 27% of sales and asphalt is 73% of sales. The sales has increased in both areas both in stone and asphalt driven by the customer pricing. When it comes to earnings stone delivers very strong earnings and asphalt is returning to more normal levels and driving the improvement is primarily Denmark and Norway when it comes to asphalt. The capital employed in the business is 4.1 billion and the return is up to .9% now. Property development this shows the earnings by quarter. We had a sale or we had a profit recognition of a property in the first quarter and this quarter four we only had sales of land here in Solna and also revenue from completed projects. Rental income that is. We had good letting in the quarter nine contracts corresponding to 12,600 square meters. This is another way of looking at the letting and you can see that the letting during quarter is jumping up. The completion ratio the green line is on 75% for the total portfolio and the letting ratio is 65% also for the total portfolio. We have seven ongoing projects four completed projects we have three that are pre-sold and you can see the timing here we have Albatross in the first quarter of this year and MIMO in the fourth quarter and then Park Central in Q2 27 and as I said before operating capital employed is up to 9.6 billion now and the return is low 2.8%. So that remains segment other and elimination and I know this is difficult for everybody to predict externally parts of it is somewhat difficult for us as well as it's dependent on interest rates and inflation assumptions that we do not know about in advance. First line is our headquarter cost and subsidiaries not belonging in a BA. Here we see an increase big increase it's in the quarter it is unnormally high and for the year it's also quite high. The driver of this increase is primarily IT investments but we also have other costs that we are focusing our areas in when it comes to ESG reporting, green industry transformation as mentioning some of them. The level in the quarter is as I said not unnormally high and it cannot be used as a normal month moving forward or normal quarter moving forward. Internal gains is where we eliminate the profits in PD property development when we build and when we sell properties that reverse that provision and we have a positive impact here as we've only sold one project during the year and none in the last quarter it's quite negative this year. And when it comes to other group adjustments that's where we have accounting adjustments for IFRS mostly and this is impacted by the changes primarily in discount rates and expected return on pension fund with reduced incomes rate discounts rates again now. But overall the level is on par with previous years previous year. Financial items are fairly low or they are low and that is due to the digitalization of ongoing projects of interest. The tax rate is also low in the year it's 13% and that's because of the tax free sales of one big project in PD and also the sales of buying asset was tax free. That gives us the earnings per share of 6.11 that Thomas talked about. Cash flow in the quarter was quite good 850 million and for the year 360 million. That is driven by improved operations results operating profit has improved so has the cash flow from that and other working capital has improved and also we are helped of course by the BNAS at cash. Our corporate net debt target is to be below two and a half and as Thomas said we are on 0.98 times after this year and as you can see the net debt has increased with 2.4 billion mostly due to the fact that we continue to invest in PD and while not selling any PD properties basically. That's it from me and I hand over to you Thomas again. Thank you very much.

Thank you and I will quickly wrap this up. First I want to remind everybody that we have an AGM coming up on April 9th. We will be in the same way like last year we will be at the Space Conference Center in Stockholm close to Sergietors Torg. More information will be published later no later than four weeks ahead of the AGM and the annual report will be published the latest on March 19th actually 2024 not 2023 so 2024. So in summary increased earnings for the year for the NCC Group we reached the EPS target of 16 SEC and I'm really happy about that. We have a dividend proposal on the prudent side of eight SEC per share. We have really strong orders received both for the quarter and for the full year. We still have a mixed picture with strong parts and more challenging parts in the market. Property market development is decisive on what will happen for the full year 2024 and then we have continued significant uncertainty about the impact from current economic climate residential and commercial properties most exposed to this going forward. So with this operator we open up for questions.

We now begin the question and answer session. Anyone wish to ask a question may press star and one on their telephone. You will get a tone to confirm that you have entered the queue. If you wish to remove yourself from the question queue you may press star and two. Participants are requested to use only handsets while asking a question. Anyone who has a question may press star and one at this time. The first question comes from the please go ahead.

Good morning Thomas, Susanne and Maria. A few questions from my side. Let's start off with the property development. Are there any ongoing sales processes?

We have several ongoing discussions.

Okay and do you expect some news regarding that during the next couple of quarters or what's the timeline?

We'll get back to that when we get back to that.

Not a very surprising answer. Moving over to capital employ then in property development. Is that a constraint, the high level on new starts or how do you think about starting new projects?

Well yes we have strict rules or guidelines for when we start new projects and we have said that we now are really asking for clear exits to start new projects and also some other areas that

we look at. It might be worthwhile noting that it's not primarily the balance sheet that prevents us from starting new projects. It's the uncertainty of whether it will be a good deal or not. What we're asking for now is that we're asking for a higher degree of pre-let and we want to see a clear path to exit before we would start anything new. Exactly like we did with the Parc Central last year when we started that in Gothenburg. Then we would like to see somewhat smaller projects that would be easier to start than really large ones.

Thank you and regarding property development you mentioned a capital gain on land sales and the EBIT in the quarter was positive despite no major sales. Should we expect that PD even without divestments would be in the black considering the net operating income, the management portfolio generates? Assuming you don't say it. On

a low black level yes.

And then on orders, orders received for the year 2023 grew despite a fairly challenging construction market based on the tundering activity that you see here. Should we expect that order intake should be similar or close to current levels or did you gain market share on in tundering during 2023?

There are several dimensions to that question. The first one is that we experience roughly the same type of demand now compared to what we've experienced during 2023. So we don't see any changes in that. The second dimension is that due to the nature of our type of projects you cannot predict what will happen in any given quarter and as I always said you shouldn't read too much into any given quarters. It depends a little bit on when our customers decides to actually start a project or not but we see the type of demand and then we see continuous, we are into a large number of projects in early phases that we haven't ordered registered yet but they tend to and they have always tended to take some time before they actually mature but we have a very good transformation rate.

Perfect and then my final question really regarding a central elimination cost you mentioned you gave us some color on the impact in the fourth quarter but moving forward excluding the effects on pensions is that 180 for the full year representative of or where it should be a note excluding pension barriers?

No, what I said is that the quarter this past quarter Q4 is high and you cannot use that as you cannot just prolong that into the coming quarters and I don't think you can use the 180 for the total either as the right level of going forward because it's so dependent upon the adjustments in IFRS.

With you but regarding the IT investments that were part of the reason for the high cost in the quarter are those IT investments continuing into 2024?

Yes they are continuing in 2024 and for several years ahead.

Okay thank you that's all my questions.

The next question comes from the line of Markus Lennriksson with ABG please go ahead.

Thank you very much good morning everyone three questions from me first of you highlight the price pressure within the building divisions could you highlight in what type of orders and what geography you mentioned Finland is a weak market but where do you see the most price pressure in what type of orders?

Finland absolutely and what we see is that we see more mixed market now than what we had a couple of years ago and we see lower demand for residential buildings so what has happened is that small and medium-sized companies has developed the capabilities for residential building and now when the demand is low for that they are trying to to expand into other types of residential type of houses and in that market we see in some projects we see very low price levels we emphasize that we continue to be very selective and we continue to be very disciplined in how we operate in that market and this is what you typically see when the residential market goes down and as you've seen several of our PSS also announced write-downs in projects of this time recently.

Thank you for that and it's quite clear that the order or the backlog have declined in in building Sweden for example is it fair to assume that building will continue to see a decline in in order intake year over year if the current situation persists?

Well that's one possible scenario that you can have but we also see good demand in other types of buildings like public buildings and industry so it's not entirely sure that that will happen but if the if the choice is between maintaining discipline and accepting lower order intake or just going with the flow right now we will always choose the disciplined approach.

Very clear thank you then you continue to highlight the legacy projects I guess in the write-downs you did last year in building Sweden when do you expect those legacy projects to be completed when do we stop seeing diluted margins from them?

Well most of them are actually already finalized what we see now is more of a general price pressure that is more that's more important driver right now.

Okay so limited or or clear effect in the quarter but all else equal what we've seen in the last two quarters should not be translated into into next year but possibly price pressure. Exactly. So could we get any help there are you continuing to see a decline in margins or have these legacy projects as you say they are completed most of them so now we should see slight improvement all else equal?

Yeah all else equal I think that you should expect slight improvement and slight being the operative word here and it will take some time and

it you last question if you were to be able to devise some or all of the completed property assets during 2024 or or if we take into 2025 as well what would be the key focuses for capital allocation in NCC for the next two to say four years?

I think that's a hypothetical that goes way too far and has too too many potential answers.

Could we get some?

Well we have the same opportunity as everybody else when you if you would get more excess cash.

All right thank you those were my questions.

Thank you very much.

The reminder if you wish to register for a question please press start one on your telephone. Next question is from the line of Stefan Andersson with Danske Bank please go ahead.

Thank you I just wanted to follow up here sorry for listening poorly maybe but I think you said on talking about the EPS of 16 going forward you I understood you were a little bit cautious of because of property development but just if you could repeat there you said that you expect an increased contribution from infrastructure and industry if I heard correctly was it also building or how did you split that sorry?

You heard pretty much correctly I said contracting which is building and the infrastructure together so we expect that we will gradually have a larger contribution from contracting that is infrastructure building Sweden building Nordics and industry but we need contribution from property development to reach the full 16.

Perfect thank you and then sorry for repeating here maybe but if you you talk about price pressure in building would you say that the orders that the orders that you are receiving at the moment are diluting the margin on the order backlog a little bit is that how we should read that as it's offsetting some of the easing from the legacy project?

Not right now but they have been for for some time during 2023.

Okay great thank you that's all for me.

Thank you. A normal question at this time.

And we have no questions online so if we don't have any further questions let me remind you of the upcoming AGM more more information will follow and also let me remind you of that we think this was a good year for NCC we increased our earnings we met our EPS target we had strong orders received and the board has proposed eight SEC per share as the dividend which is a quite significant increase while still prudent. What we see going forward is a continued mixed picture with lots of uncertainty but with more positive data points going forward. Thank you all and look forward to meeting you. Thank you. Thank you.