NCC AB (publ)

Good morning, everybody, and welcome to this presentation of the first quarter 2025 for the NCC Group. I'm Thomas Karlsson, the CEO of the company, and with me here today, I have Susanne Litander, our CFO. And first, some key figures for the group. But the way to think about the quarter is this, it's the stable performance, seasonally slow as always and good overall demand. Sales and EBIT very stable, good orders received, high orders received in Building Sweden. In industry, we have a very clear pronounced seasonality, but we have a strong demand in the industry business. Infrastructure solid with good demand and continued profit development in building Nordics. Property development has not recognized any sales of properties this quarter, and we will point that out to guide you through the presentation going forward. Orders received, book-to-bill won on a rolling 12 basis and won almost one billion higher than last year. So good orders received for the group. Solid order backlog. However, and I think this is important because it's very pronounced this quarter, The strengthening Swedish krona has a negative impact on the overall order backlog. In reality, this doesn't matter because it's order backlog in local currency that will be generate revenues in local currencies with cost in local currencies. But when we translate it to Swedish krona, it has an effect of quite significant effect in the quarter and has had that both positive and negative earlier quarters as well. In the quarter, we received a number of large projects. Here are three projects from different business areas, all 600 million SEK, reinforcement European route, E10 in Sweden, expansion of district heating in Copenhagen, and a new school and sports facility in Stockholm, in the Stockholm area. Net sales are seasonally slow, as every year, in line with 2024. Now, the way we recognize revenue in the group, we do percentage of completion for most of the business, but for property development, we do a completed project property revenue recognition. So we've highlighted the proportion of revenue each quarter that belongs to property development. And when we do that, you can see that it's very stable over the first quarter of the last couple of years. EBIT, seasonally low, again, as always. We have a certain impact of earnings recognitions from property development. So, to make it easier for you, we've made this slide highlighting the contracting and industry earnings quarter by quarter, and you can clearly see the seasonal pattern in earnings for the contracting in an industry business where we have the percentage of completion profit recognition. Our financial targets, we reiterate the 16 SEC earnings per share target, short and medium term. We are at 15.63. The difference from the full year is the absence of the sold property that we did last year, first quarter. We have a very low net debt compared to our target. And as we reported in the report for the full year in the fourth quarter, the board suggests a dividend increase to nine SEC. and an extraordinary dividend of two to be distributed 4.5 in the spring and 4.5 in the autumn, and the extraordinary to be distributed together with the first tranche of the dividend. Sustainability target, some news. We actually reached our 2030 target of 60% CO2 reduction, scope one, two, already last year. So we have a new target for CO2 reductions going to 75% reduction by 2030. And then we have, we reiterate the target of scope three of 50%. health and safety. We have a target to reduce all types of accidents, but with an increased focus on eliminating serious accidents and fatal accidents. We have met the CO2 reduction target quite well, and we now have a revised target of 1.3 kilo per sec. Target for Scope 3, we are progressing quite well for ready-mix concrete, asphalt and steel reinforcement. Steel actually already reaching the target. Not so much for transportation services. The increase in emissions from transportation is driven by the removal of the emission reduction obligation in Sweden, totally. And for health and safety, we are developing well towards our goal of 2.0 2026. We are now at 2.8. That's actually the lowest accent frequency rate that we've recorded since we started measuring in a very systematic way. and finally before i hand over to susan we have a continued positive market outlook good market demand and positive outlook for key contracting segments that's for example water treatment of all sorts water distribution energy generation, energy distribution, but also healthcare, schools, security buildings. Particularly strong demand for infrastructure of all sorts and public buildings. Solid demand for asphalt and stone, and we see that several of the administrations in the Nordic region are communicating that they will have an increased effort of maintenance of the road systems. commercial property and residential markets remain slow. And with that, I hand over to Susanne.

Thank you. And this is the short update for our four contracting units. We have solid infrastructure performance and the demand situation is good. Building Nordics continue to improve and develop positively when it comes to profits. We have very strong orders received in Building Sweden. And in Green Industry Transformation, we've signed a new long-term cooperation contract with LKAB regarding their sorting plant. We have a solid order backlog as Thomas just said and the book to build in the quarter was 1.3. Both building units have a backlog well above 12 months of sales. Infrastructure a bit below 12 months sales but that's pretty much very normal variation in their business. Sales and earnings are on par with last year. And infrastructure shows increased sales, net sales. Earnings and margin are on the same level as previous year. Building Nordics increase in both net sales, earnings, and margin, and all three countries contribute with earnings improvements. Building Sweden slightly lowers sales, but in spite of that, they keep their margin level and earnings on the same level. The summary of industry is that seasonally slow quarter means that there are always a negative quarter the first quarter. The good order intake was very good. And as Thomas mentioned, we see increased funding for road maintenance that can drive additional demand for asphalt. When it comes to volumes, the first quarter was very normal. Insignificant volumes for asphalt, as usual. Slight increase when it comes to stone material. The earnings, the EBIT level for industry was pretty much exact the same as last year in the first quarter. Capital employed improved, however, down with almost 400 million. That's due to lower property, plant and equipment and also lower short-term liabilities. The return on the capital employment was 14.2% and well above the target of 12%. The summary for property development is that we have no projects profit recognized in the quarter. We have started one new project in Finland, Clean Tech. All in all, we have nine projects in the portfolio and the letting in the quarter was high. And as we've mentioned before, last year we had a recognition in earnings of one property in Göteborg, Albatross. This year we have 10 million in earnings, which is a positive result thanks to the fact that we have property management of our completed projects that we have still. The capital employed is down 1.8 billion, thanks to the divestment of the properties towards the end of last year. And the return is 7.1%. Letting in the quarter was high, primarily driven or mainly driven by the start of the Cleantech project in Finland, which is 95% let already at start. We have a completion ratio of 60% and a letting ratio of 79%. And this is the whole portfolio and you can clearly see the timeline where we have the expected timing of the profit recognition of the three ongoing projects. All in all nine properties, six are completed and unsold down to the right in the corner and the three ongoing that are sold to the left. In segment other end elimination, the earnings level is pretty much on the same level as last year. The first item there and the third when it comes to group cost and pension and accounting adjustments. is pretty much in line with last year the difference here and the negative difference is from elimination of internal gains and this row here is where we eliminate the profits for in property development during the building phase so it's the the the profit for the building unit And since we haven't so divested any properties this quarter, it's negative compared to last year when we did divest a property. And that's when we reverse that provision or the elimination and get a positive effect. So that explains the difference. So in our income statement the segments contribute with negative minus or minus 170 million. Our financial net is 5 million lower than last year and that's due to our much lower net debt, corporate net debt. Our calculated tax rate is 22% and earnings per share is 1.39 in the quarter and 15.63 on rolling 12. Cash flow is seasonally low and the cash flow from operating activities significantly down from last year. And that's explained completely by the fact that we did divest a property or we profit recognized the property in the first quarter of last year, which we didn't do this year. We also have low investing activities and that's explained by lower capex in machinery, basically all of it in industry. And that is more of a timing issue. And our corporate net debt is much lower. It is 377 million compared with 2.5 billion last year. And our target, as we know, is to be below 2.5 times when it comes to net debt to EBITDA. And we are at 0.14, as Thomas already pointed out. And with that, I will hand it back to you. Thank you very much.

Thank you. And before I talk about the regular stuff that I talk about at this point, I will introduce a little piece of news. We've had some discussions about capital allocation since we have a really strong balance sheet, which means that we are now ready to announce that we are ready to do selective M&A for the NCC Group. We are financially strong, we have a strong balance sheet. We have been working for several years now on a scalable operational model for the group. We have a robust organization. And we will be targeting companies in contracting. that would complement our current operations. We are primarily looking for companies above a certain size, i.e. organizations that are used to work in a larger structure with common working methods, systems and processes. However, we anticipate that this will take a little bit of time because finding the right acquisition target takes some time. There are many stars that needs to be aligned to do it right. But we want to be clear on this is where we see that we're heading. And with that, I want to remind everybody that we have an AGM coming up on May 7th, and that will take place at Hotel at Six in the center of Stockholm. And before we open up for questions, in summary, a solid quarter with seasonal patterns, good orders received, strong demand in contracting and industry, operational and financial readiness for M&A, and a very positive development in health and safety. And with that, operator, I open up for questions.

We will now begin the question and answer session. Anyone who wishes to ask a question may press STA and 1 on the 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 STA and 2. Questioners on the phone are requested to disable the loudspeaker mode while asking a question. Anyone who has a question may press STA and 1 at this time. The first question comes from Kivan Shirvanpur from SEB. Please go ahead.

Yes, thanks and good morning. I have a couple of questions. I could maybe start with this M&A that you talked about. Roughly, how large investment volumes would you be able to make, given your balance sheet?

Well, you know what our balance sheet is. We're really not letting that limit our thinking at this moment, but we have to find a rational acquisition target. So I really don't think that that's our primary focus right now. But we have quite a lot of space.

Okay, and also regarding the financials, you have this very large cash position of 2 billion, which means that you also have quite high financial income in the quarter. Could you maybe give any type of guidance on how you will put this cash position into use near term? Are you making any type of debt amortization or investments, or how would this change going forward?

Short term, we are not going to amortize any debts. We have amortized or will amortize also a billion of our bonds. But otherwise, we have a very clear policy how we are allowed to invest our liquidity. So that's driven by that, basically. We have very high levels of liquidity demand. a short notice we have to have so we don't invest it in any type of long term, very short term and according to our treasury policy.

And maybe it's also worthwhile pointing out that second quarter is the most cash negative quarter that we have as a seasonal pattern when the business increases.

Yeah, we're going to use a lot of it both for starting up industry in the second quarter and also the dividend payout.

Okay, good. And also, just a question regarding building Nordics in Sweden. We see that margins are improving somewhat, but they remain a bit under pressure. Could you maybe elaborate how the phasing out of older projects is impacting profitability, and how will the phasing out of these older projects impact profitability?

It's actually going quite well. But even for building, there's a clear seasonality pattern where the first quarter is weaker than other quarters. So, you know, this is pretty much on a normal level where we should expect it to be. So we see a clear improvement in margins for both building business areas.

Okay, so there's some type of minor gradual positive impact?

Absolutely, and several of the projects that we had issues with last year have already been finalized.

Okay, and just one final question, if you maybe could give an update on this completed unsold property project. You now have six completed projects that are unsold.

Well, the property transaction market remains slow. We were quite successful in selling a number of projects last year, but I don't think it was a sign of a changed market. We happened to be very successful and we worked hard to do that. We continue to work hard to sell further or more of the finalized projects. But you never know. You have to wait until the right buyer is there. So we really don't know. But we will sell them as soon as we find the right buyer.

Do you have any ongoing dialogues with buyers?

We always have ongoing dialogues.

Okay, good. Those are my questions. Thank you.

The next question comes from Stefan Henderson from Danske Bank. Please go ahead.

Thank you. A few questions from me then. First on the industry division and the progress there when it comes to your evaluation of potentially divesting that business.

Well, hi Stefan. Well, it's proceeding according to plan. We have quite a lot of interest in the business. But I think it's important to recognize, first of all, we have estimated that this will take most of the year or maybe the full year. Second is that we will have a very diligent review to make sure that we understand whether there's someone else out there that puts a higher value to the industry business than we do. If not, then we will keep it. So it's still, you know, both solutions are still possible. But we have no new tangible news at this point.

And if you look at operation, with that kind of change coming, I would imagine that the employees and management would be Do you see any impact of that in the operation?

No. I think we have a very good reaction in the business area. It's pretty much business as usual. It's a small team involved. I think people are confident in that we will find either the solution that we have now where we operate the industry or a better one.

And my final question on that is, I mean, looking at the last three quarters of last year, you had a phenomenal development, especially from the asphalt business, and I know Finland helped with some extra contributions there. Given that weather was very favorable in Q1, and that positive trend last year, I had expected a little bit of a smaller loss, I must say. Do you have any comments on that? Is it just that nothing really... What I'm trying to fish for is, was it a one-off, the very positive development you had during the Q2 to Q4 last year.

I see your question. The way I would put it is, why didn't we start production earlier since it was warm and dry? The thing is this, it's very hard to plan for good weather. You never know that that will happen in the winter. It happens that we had a warm and dry winter. But the winter season is planned for maintenance of all the equipment. That requires a certain time. If we, with a very high degree of certainty, would know that spring would come three weeks earlier, we could plan for that. But the seasonal pattern tends to be the same year after year. We plan for a certain start of production. So a favorable weather situation in the winter doesn't really impact. What has more impact in how long did we actually operate the plant and equipment last year? Because then if we operate them for a long time, they require more maintenance than if we ended earlier. So spring is very hard to actually get the benefit from a warm and and dry season. That's the total opposite compared to the fall, because then the operations are in full swing. And if, you know, a little bit simplified, if November is warm and dry, that has a very positive marginal effect for the for the business. That's the way that was last year and the way it has been as long as I can remember.

Perfect. Thanks. Great. And then just follow up on the M&A there. Could you maybe indicate what, I mean, you talk about larger entities, but what kind of size are we talking about ballpark in billions in revenues that you would look for?

At least a couple.

Yeah, okay. And do you have targets already identified?

We have an ID.

Okay, good. Then my two last questions on pricing in general. I mean, we see a little bit of a mixed market in Sweden where quite a few of the smaller players are suffering, probably because of their dependence on residential construction. And the bigger ones seem to be doing fairly okay, like you guys. But if you look at pricing, do you see competition coming from beneath on the smaller guys trying to move up a little bit to catch more of that part? Or how do you see the pricing in tenders at the moment?

We see that the market situation is the toughest in Sweden and Finland. So let's talk about Sweden and Finland, because that's where you actually are alluding to. And we see for certain types of projects with a higher degree of complexity and size and expertise knowledge, no, we don't see that. On smaller and not that complex project, we see a certain degree of desperation from smaller and mid-sized competitions and pricing very low. We try very hard to stay away from that because that's in the long term, that would be good for our business. So we try to maintain a high degree of discipline in the business.

And then my last question is actually material and the cost there and the strength of the Swedish Krona. In general, do you see that you could benefit any of actually a little bit of lower price on the inputs?

That could be a case. That's one of the possible scenarios we have. We have an abundance of scenarios of what could happen with, you know, everything from tariffs to uncertainty in the global economy to strengthening Corona and whatnot. And we can see both positive and negative scenarios. And the one that you mentioned is one. We'll see what happens. Thank you. Thank you.

As a reminder, if you wish to register for a question, please press the N1 on your telephone. The next question comes from Erik Randström from Carnegie. Please go ahead.

Thank you. Good morning. I had two questions. One relates to property development. Do you think that you have enough for sale within property development to contribute enough to reach the EPS target for this year?

Well, what we've said is that to reach the EPS target this year, in the same way as we did last year, we need to have, you know, a more normalized property transaction contributing. And the market is still very muted, so that's not a certainty. But we're trying very hard to sell a couple of the finalized projects. But we don't know if that is going to happen.

Okay, but it is still the fact that your portfolio in itself is ready to contribute enough. It's more whether or not you're successful enough in divesting it. Absolutely. Okay, thank you. And then finally, and that's probably a follow up as well on this M&A activity. When you're talking about the size of these companies that you're looking at, I get the impression that these are more companies that you consider to be sort of smaller competitors rather than pure bolt-on acquisitions. Is that the way to look at it?

That's not the way that I look at it.

Could you perhaps explain the way that you look at it?

I was waiting for that follow-up, Erik. No, the way I look at it, we try to find ways that we can strengthen our current business. We're looking at businesses that operate in a similar way that we do, and that's why we talk about the certain size and where the organization is used to working with processes and systems. But we would, of course, prefer to see where they are adding on to our know-how on everything from water treatment to defense installations or hospitals or schools or whatnot, where we have our strength. So we would like it to complement our business.

Okay. And usually this means that you have some sort of relationship with the majority of these potential acquisitions, meaning that they could perhaps be subcontractors in larger projects. And the fact that you already have some sort of relationship with these companies, is that the correct way to look at it? Or are you simply looking at something that might be out there for sale that just happens to be within the right segment?

The first part of your reasoning, I think that's taking the speculation a bit too far. It could be the case, but it could also be other solutions. And then we'll try to stay away from things that just happens to come by. We need to be clearer on the fit and how we will be strengthened by it.

Okay, thank you. Those were my questions today.

Very good. Thank you, Erik.

Ladies and gentlemen, there are no more questions from the phone.

Okay. If we have no more questions, thank you for listening in to this presentation of the first quarter for the NCC Group. And have a continued good day. Thank you.