NCC AB (publ)

Good morning and welcome to this presentation of the fourth quarter and the full year of 2024 for the NCC Group. I'm Thomas Karlsson, the CEO, and with me here I have our CFO, Susanne Litander. But let's start with a short glance of the key figures.

In the fourth quarter, NCC's net sales was 20.3 billion SEK and 61.6 billion for the full year, higher than last year. Operating profit was 844 million in the quarter and 2 billion for the full year, a clear improvement versus 2023. Orders received in a quarter was 13.4 billion SEK, which resulted in the annual orders received reaching 54.7 billion. The order backlog at the end of the year was 50.7 billion.

Good morning. Welcome back. And this is the way that I think about the fourth quarter and the full year of 2024. It was a strong quarter. It was a strong year. We have an all time high earnings for three business areas and we have an exceptionally strong cash flow. All of that we will talk about in some more detail in a short while. We are reaching the target of EPS 16 sec. And for the business areas, we have a strong performance in industry throughout the year. Infrastructure on a stable level and meeting a strong demand in the market. We have record high earnings in property development in the fourth quarter. We have improved profit in building Nordics and actually an all time high for building Nordics as well, while building Sweden is weaker after an adjustment of the risk profile for finalized projects. And as a consequence of that, the board proposed a dividend to the AGM of nine SEC, which is an increase from eight and then an extra dividend of two SEC per share. That's the summary of the quarter. And overall, I'm super happy about the quarter and the year. For the year, we have stable orders received. And well worth noting here is that we maintain a very disciplined approach to tenders. But we also see a higher proportion of early involvement tenders. projects and particularly for infrastructure higher than we've seen before and they are slightly different in nature than others than earlier projects with a lower risk profile but also being order registered a little bit later than what we've been used to We have a robust order backlog of almost 51 billion. And here's some examples of projects that we have won during the year. We will refurbish the metro station in Majorstuen in Oslo. We are continuing with the second phase of the upgrade and extension of the Hagalund train depot in Sweden, just close to our office here in Solna. And then we have won yet another refurbishment project in Denmark at a value of approximately 1.3 billion, that on orders received. Net sales up, of course, impacted by the sales of and the profit recognition of three properties in property development. But also without that, we have a very healthy net sales in the quarter and the full year. EBIT is up in the quarter and as well year to date and ending at 844 million in the quarter. Now, if we look at the bridge from earnings in the fourth quarter 2023 to earnings in the fourth quarter 2024, there's a number of things that stand out. Property development, of course, industry and building Nordics driving improvement. But let's start with the negative deviation from last year. So we've talked about that. Building Sweden in the fourth quarter declined due to provisions. Now we have new management in the business area and I've asked them to take a look at the risk profile of projects that were started before the inflation 2022 and what that means with our claims for additional projects. compensation for the extraordinary price increases. And as a consequence of that, we have made a provision of approximately 250 million SEK. There's a number of important things here. First of all, it has no direct impact on cash flows. it has no material impact on the on the order backlog and it gives us a better risk profile going forward so this is an adjustment of many many projects that are mainly finalized and just to make sure that we have the correct risk profile giving us better conditions going forward. We expect gradual improvements in the underlying earnings expected for Building Sweden. Now to the increasing units, building Nordics, strong performance again in the fourth quarter, where Denmark continues to develop strongly on a strong market, but also Finland develops extremely well in a really weak market and where we have taken a lot of measures and lots of activities to improve our operational discipline in Finland. And I'm really happy with what the Finnish team are doing. And in Norway, we have good progress in the turnaround that we're doing. That's a relatively small business. So the most important here is the development in Finland and continued good earnings in Finland. Lowers received versus 2023, but that's a variation on the theme, and the theme is good. Order safety good in 2024. It was even better in 2023. Industry, again, a quarter with record high earnings, improving in the quarter, 92 millions, to an extent because of favorable weather conditions in November, but also due to better discipline with pricing, better discipline with cost, and overall better operational discipline. So we are increasing volumes, improving margins, and and increasing the earnings in the business areas. We're really happy about that for industry. And then we have property development, fantastic Q4. We have profit recognition from three transactions, two that we both sold and handed over in the quarter and one that was previously sold, but we met the threshold for letting to hand it over. So we profit recognition from three transactions. So we have transaction volumes in the quarter around four billion. And then we also sold the project that will be profit recognized later on in the years to come. Now, we had a fantastic fourth quarter, but we still see that the market for commercial property transactions remains very cautious. We really don't know if this was something that happens because we had good objects to sell or if it's a sign of something on the market. And we will see during the coming year. And then if we look at the same bridge for the full year, it's fundamentally the same explanations. The numbers are a little bit different, but we increased from 1.8 billion to a little bit more than 2 billion in the year. I'm really happy about that. And that means that we meet the EPS target for the second consecutive year, 16.1 again. So I'm really happy about that. Our financial targets, we met the earnings per share target. We have a net cash position, so we are far below the threshold for debt of lower than 2.5 times EBITDA. And then the dividend policy states that we should distribute roughly 60% of profit after tax. The board suggests to the AGM that we should increase the dividend to nine from eight. And then in addition to that, two SEC in extraordinary dividend. And that's 68% of the profit of the tax. That's the financial numbers. Let's talk a little bit about health and safety and the market. We had a positive development of the accident, the lost time injury frequency in the business. We ended the year on 3.3, which is on a really low level. But we have a target for 2026 of 2.0. That's not a given that we will get there. It's very ambitious, but we have a clear understanding on the path to get there. And then the market outlook, we have continued the same positive market outlook that we've had for some time. Good market demand in many segments like infrastructure, not only traditional infrastructure like railway and roads, but also energy generation, energy distribution, water treatment, water distribution. but also strong demand from the industry for public buildings for anything with related to um to hospitals prisons police stations but also the defense sector a more cautious market for residential and commercial offices but in general a positive market outlook and then uh In addition to what I normally say at this stage, the board decided yesterday to do a strategic review of NCC industry. Various options to be evaluated and the background is the following. The business model for industry is fundamentally different from the business model from the contracting business. where industry has a lot of capital employed for fixed assets, delivering products and services from fixed positions, that is stone and asphalt and paving services, and delivering standardized products and services. as opposed to the contracting business that is a capital light, where the projects move all the time and are in different stages and where the prime delivery is a service. We have very little internal businesses. So we see a limited number of synergies. However, we see some doubling of costs for developing of support systems and such things. So we want to do a thorough review on how to position industry for an even better development going forward. The outcome of this could range from anything that we in the end will sell the business area to that we conclude that this is the best possible combination. We will get back to that when we have some more news. And with that, I hand over to Susanne to walk you through the numbers in some more detail.

Okay. Thank you, Tomas. Let's move on then with the contracting units and the update for the quarter. We did have a bit lower order intake in the quarter, but we continue to have an order backlog well in line with the 12 months of net sales or above. When it comes to infrastructure, as Thomas already mentioned, we do have a very large number of projects in early phases with our customers that we do not see in the order backlog yet. And overall for the contracting units, they have a stable net sales in the quarter. For infrastructure, the net sales increased. And the earnings are on the same level as previous year. Building Nordics increased earnings and margin in the quarter, driven by improvements in Denmark and Norway. And for Building Sweden, as mentioned, we have the risk provision made for risks in the portfolio, the risk evaluation that we have made in the portfolio for mainly concerning old, or not old, but closed projects, finalized projects, or in late stages projects that will not impact the backlog or future margin as much. Moving on to the full year for 2024, the segment splits that we see is for infrastructure, energy and water treatment has grown, it is up to 31%, and also railway has grown and those two together makes up for almost 60% of sales. Building Nordics, we see increases in public buildings as well as in refurbishment, very strong development in both, making up for almost 60% there as well. Public buildings in Sweden has also increased up to 37%. And it is amazing that it actually ended on the exact same percentage as for Nordics. Infrastructure for the year. We can see that Sweden is still the dominant market with 70%. However, Denmark is increasing and is now up to 17%. They had an increased order intake as well as net sales for the year. And they have a very stable underlying profit and margin if you exclude the divestment made of Bain Asset last year, or 2023. We should remember also that the margin in infrastructure is severely impacted by high volumes this year of old civil projects that we recognize at zero margin. For building Nordics, Denmark is increasing its share of net sales. They're up to 52% now, and the tough market in Finland has made Finland decline. They had lower orders received for the year, and as Thomas already said, but in 2023, they had exceptional order intake in both Denmark and Norway. So Denmark and Norway are down for 24%. while Finland is actually growing in 2024. They have improved profits driven by Denmark and Finland, and as Thomas said, all-time high. Billing Sweden had slightly orders and net sales down for the year. The profit level is also down due to the risk evaluation and the provisions following that. And the fourth contracting unit, Green Industry Transformation. We really don't have any news there, so this is the same slide as in Q3. NCC Industry, as we've said already, continued their strong delivery in the quarter. They have all-time high earnings and the operational discipline pays off. Earnings are up almost 50% year on year. Also worth noting is that the return on capital employed, they have a target of 12% and they delivered 14%, really well done. The capital employed is down slightly to 3.8 billion. The volumes are up in both asphalt and stone. And the asphalt is also slightly impacted by the longer season for the year, or the quarter, actually. Sales and earnings are up, and the good discipline pays off here as well, as we've talked about several times now. The share of net sales continues to be over 50% in Sweden, And the split between stone and asphalt is 25% to stone and 75% to asphalt when it comes to net sales. Property development. In the quarter, Thomas just said, three projects profit recognized. one new project started eight we have eight offices in the portfolio and we had higher letting in the quarter we signed nine new contracts they had record profit in the quarter and the year and we sold or we profit recognized four profit projects during the year The capital employed thanks to those sales went down to 7.9 billion and they have a return on 7.6%. They had a really high letting in the quarter. They have letting of 50,000 square meters. But that is, of course, driven by the new project Yrket with 52,000 square meters. But we have a good higher letting ratio of 77% compared to a completion ratio of 64%. And we have eight projects in the portfolio. Five are completed, not sold, and three are ongoing. And of those, two are pre-sold. And finally, we come to other end elimination, which is have a better result in the quarter, but a lower result for the full year. On the first line, we have the group common cost and the cost for the new business area. And the increase in the cost there is driven by our IT development, but also to some extent the new business area. Next line is eliminations of internal gains is where we eliminate the profits while we build our PD projects. We eliminate the construction, the contracting margin. And since we have recognized four projects for the year and three in the quarter, we have a strong positive impact on this line. Next line is pension adjustments that we do for IFRS. That is positive due to the fact that we have had a really good return on our pension fund for the year. And that brings us to the lines below, earnings or EBIT, and our financial net has increased substantially. 65 million in the quarter and 170 almost for the full year. And that is driven by the fact that we've had more completed projects in our portfolio. Hence, we cannot capitalize our interests. And also, we've had a higher average debt during the year with higher interest. And our tax... Level is at 16% due to the sales of three projects for the quarter. Bringing us to almost exactly the same level as last year, 1571 and 16.1 in EPS. We had a very strong cash flow, to say the least, 4.6 billion in the quarter and almost 4 billion for the year. For the quarter, it's driven by, on top of the property sales, improved earnings, but also a very much improved working capital. For the year, it's driven by earnings and the property project sales. And last, our net debt has gone to a net cash position, which of course creates good flexibility for us. And as Thomas said, we are well in line and below our net debt to EBITDA target to be below two and a half times. And with that, back to you, Thomas. Thank you, Susanne.

Before I wrap this up, let me remind you about the AGM. It will this year take place on May the 7th. The location is Hotel at Six in Stockholm, and we will provide more information closer to the AGM. And the annual report will be published at the latest on April 15th this year. So that's the AGM. And in summary, then, a great quarter and a strong year. I'm really happy about it. Record high cash flows. Record high earnings in property development, industry and building Nordics. We have a general positive market outlook for 2025 and we have a high financial flexibility. And with that, operator, I open up for questions.

Ladies and gentlemen, we will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their telephone. You will hear 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. Questioners on the phone are requested to disable the loudspeaker boat while asking a question. Anyone who has a question may press star and one at this time. The first question comes from the line of Srivantoon Kivan from SCB. Please go ahead.

Yes, thank you and good morning. I could maybe start with building Sweden. You made this one off here and you say that earnings will gradually improve. Could you maybe say something about how gradual this improvement will be and maybe to what extent?

Good morning. Well, that depends a bit on several factors. I will not give you a quantification of that, but we improve it underlying from where we are now. We expect it to improve over the the coming years but you know as always um it takes some time before you get uh as a major improvement in the order backlog of of a construction company so i'm going i have to disappoint you with no quantification there okay and maybe on the industry also profitability looks quite strong

Does it contain any type of one-off items, or would you say that this is a recurring or representative earnings?

This is representative earnings, but it was helped by the favorable weather in November, as always. We always look out for warm and dry in November, and we had quite a lot of that this year.

Yeah, and also another question on industry. You say that one of the alternatives is to divest the division, but what could you say that the other alternatives are?

Well, there's a range of alternatives, ranging from a pure player divestment where we sell the business area to someone, and the other end of the spectrum is that we keep it. In between those two, there are several options, but let's see what comes out from this review.

Okay, good. And I have just one final question here on capital allocation. So you now have a net cash position following the very strong cash flow and you made this extraordinary dividend and now you also open up for divestment of industry. What can you say about your different types of alternatives here? Will you invest in more property projects or do you see potential for acquisitions or maybe buybacks or further dividends?

All of the above is possible and more. So, I mean, we're looking at several ways to... I mean, the... We have a strong position now, and then we have two quarters with seasonally low cash flows because of the nature of the industry, but we will be in a good place. And then we're looking at what should we do with the industry to increase shareholder value and to promote the opportunity for both industry and for contracting to develop and be better businesses. and then we're looking at all of what you talked about you know we could think uh talk about uh everything from from buybacks to uh to m a but we haven't decided anything yet and we will get back to that once we get there okay very good those were my questions thank you thank you the next question comes from the line of simon morgeson from dmb markets please go ahead

Thank you. First of all, congratulations with the good results and the good sales. My questions are very similar to the first speaker, but I have one follow-up on the Swedish property write-downs or the construction write-downs of €250 million. And just wondering how this impact and what level you have of zero margin orders in the backlog in the Swedish operations?

This is mainly concerning already finalized projects, so it will not have a material impact on the order backlog and the business going forward, other than that we will have a better risk profile going forward.

And then the comments of the gradual improvement, what does that then reflect if you don't have any zero product orders in the backlog?

That we are aiming for the 3.5 target for the business area as well.

Okay. Just also the comment on the net financials where you stated you have more completed assets. which means that the net financing is not capitalized at the moment. But what you can say about this going forward, because now you don't have the debt situation anymore, but you could still have some property lending. Could you just give us some impact on what to expect for 2025?

Well, we don't give forecasts, as you know. But, of course, since we've sold off three projects previously, we will continue to have debt for the five that we keep on our books?

On that note, I think it's important to recognize that we are not separating the debt that we have for for the properties from the rest of the debt that we have. So we finance our operations for everything, through cash flow and borrowing and whatnot. So, you know, it's not really that easy to separate.

Okay, thank you. That was all my questions.

As a reminder, if you wish to ask a question, please press star and 1. The next question comes from the line of Stefan Andersson from Danske Bank. Please go ahead.

Thank you. A couple of questions on the industry evaluation there. I fully respect that you want to come back with the information, but on the other hand, you have also announced that you are doing this, so I guess we have to ask something here. If you look at who could buy this, could you know the industry well? In my world, PIAB would be an interesting party, but they couldn't buy Sweden. They could look at the parts. What kind of other buyers could you see is number one. Number two, could you see yourself splitting it all up and selling country by country? And then the third question is, how do you say there's no connections to the other operations? Do you have gravel pits in the industry division, or are the gravel pits somewhere else? I know Payab regards that as a core asset for their construction business. Do you have a different view? And then the final question on that is, is this just a strategic overview, or does the price you could get for the business play in at all?

That was several questions. I'll try to sort them out. First of all, I'd like to highlight that we have not made up our mind on where we've landed with this review. So it could be that we keep it or that we divest it. It's possible. But we are going to reach out to both industrial players as well as financial players in Europe and in the US primarily. So we're going to reach out to a broad universe of potential buyers to really try to understand that. Second is that we look at the industry as one unit since there are significant synergies between the stone business and the asphalt business. And we think that you would lose value if you separated those two. So we're looking at it as one unit and and the three countries plus the stone business in Finland together. So our starting point is that we will look at this as one unit. Third is that the gravel or quarry or aggregate business is definitely a part of industry and all those assets are in that business area. I think I covered everything. Did I miss something, Stefan?

I mean, don't you see that as a core asset for the construction business, to have the gravel pits close to where you operate?

We see it as a core asset for the industry business, for asphalt, not for construction, since the access to the aggregates is determined by the local geography. And there's a market for that type of materials. And then you said it's a pure strategic review, or is the price a part of how we act? I would say those are connected, because if we see more value in the asset than any buyer do, then we will keep it.

Perfect. Thank you. That was very good. Thank you for answering that. Then On the PD business, you surprised quite a lot. I mean, you've been very cautious towards the market when it comes to transactions for many quarters now, and then you managed to close quite a few deals here. So that's very good, I guess. Sorry, put it this way. Do you see any opportunities to start new projects in the near time you start one in the quarter? And secondly, looking at the discussions you have now, do you think you can close further divestments during the first half of 2025?

We see opportunities to start new businesses going forward or in the short near future. But we continue to be cautious in the same way that we've been for a long time. We want to have a high degree of pre-let and we want to see a clear path to the exit. So that's the criteria, that's how we started yrket and we see a couple of opportunities of that for 2025 or actually for first and second quarter of this year. And the second question is regarding the transaction. market. Now, we really don't see any clear sign that it has opened up. It should open up. The interest rates are going down. And it should be easier to do the type of transactions we did in Q4. But we really don't know. And I maintain a cautious position. I'm really happy with the the the transactions we did in in in q4 we managed to get a good price we had managed to recognize a good profit we managed to to let office space in the right positions but it's going to be lots of uncertainty in the in the coming year perfect thank you that's that's all my questions ladies and gentlemen

That was the last question. I would now like to turn the conference back over to Thomas Karlsson for any closing remarks.

Thank you very much. I think we have some questions from the web as well.

Yes, so one question from Nordea. I think it relates to Building Sweden. So how large a share of the order backlog is before 2022 and is not finalized and entails a risk of further provisions?

A non-material share.

Thank you. And then we have a couple of questions related to industry, but I think we have actually touched upon all of them, and we can talk to Jonas Slätterånga om fastidiettssverige later on as well.

Thank you. Very good. Thank you for listening in to this presentation of the fourth quarter and the full year of 2024 for the NCC group. And have a continued good morning and good day. Thank you all.