Release Date: July 16, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Earnings increased by 24% compared to last year, despite no profit recognition in property.
- Orders received are at a good level, leading to a healthy order backlog.
- Net sales in the quarter are up, with a stable performance in the first half of the year.
- Industry segment showed strong performance with increased volumes and lower overhead costs.
- Net debt is well below the target, currently at 1.48 times EBITDA.
Negative Points
- Property transaction market remains slow with no projects sold or started in the quarter.
- Health and safety targets are not met, with the current lost time injury frequency at 4, above the target of below 2.
- Building Sweden continues to have weak profitability with a 2% EBIT margin.
- Increased competition in the market, particularly in Sweden and Finland, leading to price pressure.
- IT development costs are expected to increase by SEK40 million to SEK60 million in the coming year.
Q & A Highlights
Q: My first question is regarding industry, which had a very strong profitability in the quarter, but there are quite the large upside to your internal target of 6% for industry. What do you believe will drive this improvement and when will this be achieved?
A: (Tomas Carlsson, CEO) We are on a trajectory of continuous improvement, working with pricing, market, internal processes, and cost structure. It requires hard work and discipline over the coming quarters, improving one step at a time to reach the target.
Q: For Building Sweden, which continues to have a weak profitability at 2% EBIT margin, what will drive profitability here? Is it phasing out of old projects?
A: (Tomas Carlsson, CEO) We see more price pressure in Sweden and Finland. We maintain a high level of discipline in tendering and operations. New projects being taken on have better profitability than those in the backlog currently.
Q: Regarding property developments, you have quite some projects that are finalized but not sold yet. Do you have any update on this or a general strategy to divest these assets?
A: (Tomas Carlsson, CEO) We have discussions ongoing but nothing firm right now. Our intention is to test the market more structuredly during the fall.
Q: How does NCC handle increasing competition in the market, especially within the building area?
A: (Tomas Carlsson, CEO) We focus on segment selection, targeting projects where we have an edge in experience and knowledge. We differentiate through competence and our ability to use data to benefit our customers, avoiding participation in price wars.
Q: Within industry, volumes, especially within asphalt, were clearly higher in Q2. Should we view this as a temporary effect due to Q1 being lower?
A: (Tomas Carlsson, CEO) We have a higher order backlog than usual, indicating good momentum. While we don't give forecasts, I have a positive outlook for the rest of the year.
Q: On financial costs, you mentioned less capitalization of your projects. Should we expect similar levels for the rest of the year?
A: (Susanne Lithander, CFO) It depends on cash flow from other units, but I would suggest a slight increase in financial costs during the second half of the year.
Q: Could you say something about the magnitude of payments made in Q2 within PD due to previous units?
A: (Tomas Carlsson, CEO) Rental income balances out fixed costs for the property development organization. Positive effects this quarter include early certification of a project and small lettings in previously sold projects.
Q: Regarding IT costs within central eliminations, do you expect this level of IT costs to remain in 2025 as well?
A: (Susanne Lithander, CFO) IT costs are expected to increase by SEK40 million to SEK60 million next year.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
