NCC AB (publ)

Good morning, everybody, and welcome to this presentation of the second quarter earnings for the NC Group. I'm Thomas Karlsson, CEO, and with me here today I also have Susanne Littander, our CFO. And if we move on to the highlights of the quarter, this is the way I think about it. This is a consistent good performance of the group. higher higher earnings and in particular higher margins for all business areas if we look at the business areas we have higher orders received in building sweden which is good industry continued strong performance and demand for asphalt in particular infrastructure solid development overall building nordics a good performance driven by denmark and then finally Property development and given the current market conditions for office letting, I think we have fair letting in the quarter for the group. If we move on to earnings, we see a good development in contracting business and in industry. That means that we have higher earnings in the quarter. We also have higher margins in business. in all of the business areas, which I think is really encouraging development that we see. Before we move on to orders received, I'd like to take a moment to talk a little bit about strategic development that we've been working with for some time. uh we have increased our share of early involvement projects where we see that the projects are getting larger and more complex and we see that sophisticated customers can benefit from the value that we provide by involving us at early stages that means We do not order register quite a lot in the beginning and in many cases we have orders received coming in continuously over the projects. But it's part of what I mean when I say that we have a good demand overall. We have a significantly higher value of early involvement projects than we've had before, even though it's not reflected in the order backlog. Here are some examples. You might have seen that we communicated that we will collaborate with SSAB on the large part of the steel mill in Luleå, Sweden. As you can see, the building is quite long. It's actually measured in kilometers, not in meters. But we also have other projects. We will work together with Transkraftnät for transformation stations, GEES, for metropolitan areas in Stockholm. All of them, they were out for tender earlier this year. And then we are continuing with the third phase of the hospital in Olo and the early involvement that has been ongoing for many years. These are just some examples. That brings us to orders received. On a good level, booked bill on the first half year is one. As I've said many times, it's important not to focus too much on the orders received in a quarter or even in two consecutive quarters, because The nature of our projects are so large so they can have an heavy impact, but overall good development for orders of sale, which brings us to an healthy order backlog in line with strategic priorities. We have negative impact year on year from the strengthened SEC. It really doesn't matter since both our costs and revenue are in local currency, but when we translate it to SEC, it looks like this. Overall, we have a much better quality in the order backlog than we had a couple of years ago. So moving on to some examples on orders received this quarter. This is not by any means the largest, but interesting projects. We won 14 asphalt agreements in Norway of a combined value of 750 million. And as you might have seen, we have continued to win asphalt projects in Norway in the beginning of this quarter. We are redeveloping an office building, Metallum, in Esbo Finland for about half a billion. And then we have just agreed on A new police station in Örnsköldsvig in Sweden for slightly below half a billion. A couple of examples of orders received this quarter. Moving on. Sales. We've had the continued discipline approach in selecting projects, particularly in even more pronounced so in Sweden and Finland, which is reflected a little bit in the sales, but I'm happy with the way it's developing. And we've also removed the part of property development, which gives the time series unnecessarily lumpy image moving on from sales to our key financial targets as you know earnings per share the target short and medium term is to reach or um over 16 sec we are right now on the rolling 12 basis on 15.6 and as i've said on many times we are dependent on a contribution from the property market and sales of property real estate to actually get to reach 16 SEC, but we are expecting a higher contribution from contracting and industry business areas, and that's what we're seeing. Net debt should be lower than 2.5 times the EBITDA. We are way below that, 0.53. I'm sure Susanne will talk a little bit more about that. And the dividend policy, roughly 60% of profit after tax. And the AGM decided on 9 plus 2 of extraordinary dividend, of which 4.5 plus 2 has been distributed, and the remaining 4.5 will be distributed this fall. Health and safety developing in a positive direction. We are now at 2.9 well on our way to our really ambitious goal of 2.0, but the positive development for the group. And then finally the market outlook in general. We continue to experience general good market demand. divided market, but we see a particularly strong demand for infrastructure in a broad sense, not only roads and railways, but water distribution, water treatment, electricity generation, electricity distribution, but also industrial and public buildings. We see hospitals, police stations, defense, prisons, that type of buildings. Strong demand for asphalt and stone. And then, as we've said for quite some time now, commercial properties remain slow. And with that, I hand over to Susanne Mittander.

Thank you, Thomas. And here are the highlights in our contracting units again. Infrastructure shows solid performance and have a good demand situation. Building Nordic's good performance is driven by Denmark. Building Sweden had a really strong order intake in this quarter and Green Industry Transformation signed their third contract and this time with SSAB. We have a solid and healthy order backlog in all our contracting units in line with the 12 months of rolling sales. And we have, as Thomas already explained, many projects in early phases that we have not yet converted into order booking. And the book to bill on 12-month rolling was one. In the contracting units we had slightly lower net sales but the margins improved across all three units in the quarter and on rolling 12 months both sales and margins are very stable. We move on to business area industry and they continue their strong overall development and earnings are on a good level with improved margins. The asphalt demand is also fueled by increased funding for the road maintenance. The volumes slightly higher in the asphalt business, while our stone materials business had lower volumes, but that had little impact on our performance due to a much better product mix. And again, earnings and margin increased. And on rolling 12, the margin is now up to 4.7%. The capital employed is lower, mainly due to lower accounts receivable in the quarter, but improved working with the working capital in the business area. And the return has gone up to almost 14%. Property development, and as Thomas said, considering the challenging office market, the letting in the quarter is okay. During the quarter, no projects were profit recognized, and we started no new projects. So we have nine projects in our portfolio, of which six are unsold and completed, and three are sold and ongoing. Earnings was close to zero in the quarter and lower than quarter two last year due to the fact that we had less rental income from the divested good properties we sold last year. We also had additional sales on previously sold properties last year, which explains why we are so much lower this year. Capital employed has decreased also due to the divestments of the three properties in the end of last year. And the return is now up to 7.1%. The letting in the quarter was okay. considering the commercial market with five contracts and 3,700 square meters let. And this made the letting ratio go up to 81% for the total portfolio and the completion rate show for our total portfolio was 64%. And that brings us to the segment other end eliminations. And here the EBIT in the quarter is 50 million less negative than last year. And this is explained by the first row here, lower cost for group common function. And that is mainly due to the timing of the cost for our investments in digitalization and IT platform that we have talked about previously. The decrease or the improvement is also explained by an increased accounting adjustments for pensions. And internal gains are negative as we are building on our property projects and we had no profit recognitions in the quarter. So the segments added up to an EBIT of 649. Our financial net was 46 million, which is more than previous year, in spite of the lower corporate net debt. And this is due to the fact that we can't capitalize as much of the cost, the financial cost on our property projects as they are completed. And our tax rate increased to 23%, also due to that we have no profit recognition. Gives us a net profit of 467 million with an EPS of 4.8 kronor. Our cash flow is seasonally negative in the second quarter as industries start up their business here in this quarter. The cash flow before financing is better from all areas within operating activities. Better earnings, less property investments and less negative effect from working capital. We do have higher investments and that comes from machinery and equipment in our industry business. Our corporate net debt is 2 billion lower than last year due to the divested properties in the end of last year. And our net debt TBTA target, as Thomas said, is to be below 2.5 times and we have lots of headroom at a ratio of 0.53 after Q2. And with that, I hand back to you, Thomas. Thank you, Sand.

And with that, the only thing that remains is for me to sum up this quarter. Overall, a solid quarter, good and increasing earnings, increasing margins, good orders received and a healthy backlog. Particularly, I'd like to point out that we have an increased number of early involvement projects, large and complex projects, good demand in contracting and industry. And the strategic review of the business area industry is coming along according to plan. And we expect that that process will be finalized before the end of the year. 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 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 mode 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 Shirvanpur Kevan from SEB. Please go ahead.

Thank you and good morning. I have firstly a question on industry. So this was once again a quarter with strong profitability. And my question is, how far do you believe that you are from reaching this internal target of 6% EBIT?

Good morning. We think it's definitely within reach. What actually determines quite a lot of that is the weather in November. Since this has impacted heavily on the utilization over the year, it's fundamentally the weather in November that will decide.

Okay. And maybe could you quantify the impact from this increased state funding? Is this a margin driver or it's only volume?

Well, it is both because the marginal volumes increases our earnings margins. Okay. So increased volumes increases margins and earnings margins.

Okay, good. And also a question on this early involvement projects. Do you have any type of indicative potential order values for this early involvement projects?

No, we don't. For several reasons. One is that it's a something between us and our customers. Second is that we are actually co-creating the projects to a large extent together with our customers. It depends a bit on the choice that our customers do. In the end, they will be orders received, but we do not at this point want to quantify that. But as you can see, it's quite kind of large projects that I gave examples on, and we have more than that, more of those. Yeah, that's good. And also just one... It's significant.

Okay. And I have one final question, and that is on the property development. So you know how close to 7 billion in the completed projects? How do you see on the conditions for disposing any of these assets this year? Do you have any discussions that are currently ongoing?

We are sounding the market continuously, but the transaction market is slow, and particularly if you want to get the fair value for the real estate. I can't really say that. I can't give you a probability on that, because at this point last year, I didn't think that I thought the same thing, but all of a sudden you find someone that is interested. So I couldn't really tell, but it is slow.

Okay, and just one final here, and that is that you mentioned that you have this quite significant headroom to your NetDev EBTA policy, and in Q1 you mentioned that you were to some extent serving the markets for potential acquisitions. Do you have anything here to share about this?

Yeah, we still are and we'll continue to do that for the foreseeable future. But I think I was pretty clear on that a lot of things has to fall in place before you do an acquisition. We wanted to start signaling to potential sellers that we are interested in. But before we find, you know, there has to be a buyer and a seller, but there also has to be a business fit. There has to be a cultural fit. There has to be quite a lot of things in place. So it will probably take some time, but we are actively pursuing that opportunities for M&A.

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

As a reminder, if you wish to register for questions, please press star and one on your telephone. We now have a question from the line of Eric Granström from DNB Carnegie. Please go ahead, sir.

Thank you and good morning. Most of the questions have been asked and answered, but I'll have a follow up on the early involvement projects Thomas, when you talk about the fact that it's a larger part of NCC today and probably a larger part of the backlog going forward, should we also expect that you will report your EBIT and profits more back-end loaded within the contracting operations going forward because of this? Or do you see this smoothing out in terms of the way that you recognize your EBIT?

Yeah. That's a tricky question. The way I think about it is this. We are now in a transition period where we have more early involvement projects for all our business areas. Over time, that should smoothen out because in the end, it's converted into orders received. So that's the way I think about it. How long time that will take? I really don't know. The projects are large and complex, and you have to have an understanding for the fact that our customers have quite long decision-making periods over these early phases.

Okay, but the simple fact that they are quite large projects should mean that you tend to recognize those at a later stage, meaning that The risks associated with taking on these kind of projects are usually larger as well.

I would say that they are usually smaller. The risks should be, we will all recognize them when we have a clear understanding of what the projects are, and we've had an opportunity to work for an extended period together with our customers, understanding really what the projects are. So as a general rule, the risks should be smaller.

Okay, very good. Thank you. Those were my questions.

There are no more questions at this time from the phone. Back over to you.

And no written questions. So with that, Susanne and I will thank you for listening in to this presentation and have a continued fantastic Tuesday. Thank you very much. Talk to you later.