MT Højgaard Holding A/S (MTHH) Earnings Call Transcript & Summary

Welcome to MT Hojgaard's Hojgaard's Holdings Q2 2026 Presentation. This call is being recorded. [Operator Instructions]. I'll now hand it over to our speakers, CEO, Rasmus Untidt; and CFO, Dennis Norgaard. Please go ahead.

Thank you. Thank you for joining our presentation of Integer Holdings Q2 results today. I'm Rasmus Untidt, and I'm the CEO. I'm joined by CFO, Dennis Norgaard, on today's call. Before we start the presentation, we wanted to highlight the front page go to and the fact that the construction of new [indiscernible] is progressing well and has already contributed to [indiscernible] Denmark's performance in the first -- in the second quarter of the year. We will now cover the highlights of the quarter and add some detail on the order portfolio before moving on to the outlook and taking your questions. Please turn to Slide 2 for an overview of the call. Q2 was significantly impacted by a write-down on the [indiscernible] project announced in June after the joint venture partner, insert, a settlement agreement with the developer. [indiscernible] that the results for the quarter were disappointing. Looking at the underlying operations in [indiscernible] delivered solid project execution with good results in the quarter. The business unit improved earnings and profitability when adjusting for the results from joint ventures. The performance improvements delivered by [indiscernible] in recent quarters did not continue in Q2, where certain projects post challenges and resulted in write-downs efforts are being made to get the positive development back on track. [ Denmark and Petersen ] is focusing on its core activities and the ownership of [indiscernible] was transferred to novate at the end of June. [indiscernible] continue under its own name with the current management team and benefit from [indiscernible] knowledge and competencies going forward. The change will strengthen MT Hojgaard competitiveness and provide to Denmark with a solid position in South and Jutland to match the presence in the rest of Goa. We closed the divestment of Asana with in Greenland and have now completed the wind up of our international activities initiated back in October 2023. Finally, [indiscernible] a solid foundation for the coming periods. We are pleased to see growth of 22% in our order portfolio of firm and unconditional orders after a very strong performance in Q1 this year and the preceding quarters in 2025. Slide 3, please. The underlying operations and results in our largest business unit were solid but the settlement and write-down on the MT Hojgaard project resulted in unsatisfactory financial performance and a downgrade of earnings guidance in July -- in June, sorry. Looking ahead, it is positive that the segment ensured agreement on additional work and costs resulting from delays as well as a new timetable with completion and handover planned for the end of 2028. The activity level picked up pace in the second quarter after a slow start to the year because of harsh winter weather causing delayed initiation of work on some projects. Revenue was largely on par with the comparison quarter at DKK 1.6 million and 25% higher than Q1. And so here, Denmark is catching up on the postponed work from Q1 explained, while also executing swiftly and efficiently on large projects. Still, we do see several multiyear projects contributing modestly to revenue in the start-up phase as previously communicated. EBIT was affected by the write-down and came to a loss of DKK 68 million. Excluding joint ventures in [indiscernible] improved earnings by 5% to DKK 206 million. During the quarter, [indiscernible] came to ever the third training workshop to long-term customer [indiscernible] the collaboration was initiated in 2020 with an involvement and the project was delivered on time at the agreed price. After the first year of planning, the project progresses with 19,000 square meters of workshop footprint now handed over. The corporation continues indeed, where the SP is building another train workshop. The order intake was moderate at 1.3 billion in the quarter after strong order intake in previous quarters. In [indiscernible] Denmark grew the order book to 8.1 billion, and the total order portfolio to more than DKK 15 billion. This provides a very strong foundation for growth in the coming years. Let's take a look at mean Peter on Slide 4, please. [indiscernible] reported 4% lower revenue at SEK 95 million in Q2. The activity level was lower and impacted by phasing of activities as some projects were completed by others who are still in the startup phase. [indiscernible] delivered stable performance in the quarter. Earnings were impacted by challenging projects and a write-down on one large construction project, which is 80% completed as scheduled for handler in Spring 2027. [indiscernible] into several quarters of gradual improvement and EBIT was negative by 5 million in the quarter. [indiscernible] team is fully focused on regaining traction and profitability through improved processes, strengthening risk management and tight project execution. This quarter's results underline the importance of consolidating the change implemented in recent quarters to sharpen books on the core business. We are pleased that the activities in Western Denmark have been reorganized after transferring projects to Hans and the ownership of [indiscernible]. The order intake was moderate at 686 million the business unit maintained a strong order book of DKK 6.1 after quarters with higher order intake. Dennis will now provide a year-to-date overview. Please turn to Slide 5.

Thank you, Rasmus. Financial performance in the first 6 months was impacted by the write-down on the [indiscernible] project and lower activity caused by the harsh as well as the phasing of our order portfolio. Group revenue declined 12% to DKK 4.7 billion. The decline was driven by [indiscernible], we gained some traction in Q2 after a slow start to the year. EBIT was negative by DKK 10 million in the half year driven by the write-down of the [indiscernible] project in Q2 and low capacity utilization in Q1 due to the tough winter. Excluding [indiscernible], the group's EBIT margin was 3.5% compared to 4.4% in the first half year of 2025. Net financials were an expense of 7 million in the first 6 months against an expense of 13 million last year. The improvement was a result of higher interest income and lower expenses after the repayment of a subordinated loan last year. The result of continuing operation was negative by 13 million compared to a profit of 146 million last year. The loss from discontinued operation was 10 million against 20 million last year, with no impact in Q2 after completion of the winter. The net result for the year -- half year was a loss of DKK 24 million against a profit of 126 million in the first 6 months of 2025. Cash flow from operations was an outflow of 69 million after changes in working capital driven by a negative development in construction contracts in progress and declining trade payables. Cash flow to investments was an outflow of 4 million to 6 million due to the last earn-out payment related to the divestment of IS in 2021. Cash flows from financing came to an outflow of DKK 110 million, which includes dividend payment of DKK 77 million and repayment of leasing debt. The first half was impacted by a large repayment on the subordinated loan from [indiscernible], which has been repaid in full during 2025. Please turn to Slide 6. The lower earnings and changes in volume capital during the first half of the year impacted key figures and ratios significantly. The changes in working capital were driven by construction contracts in progress and decline in trade payables. Cash flow from operations declined by 184 million, as mentioned on the previous slide, and the return on invested capital declined to as invested capital increased and earnings declined. Despite the negative development, our balance sheet remains strong with net interest-bearing debt still positive at 105 million. Both business units are focused on improving working capital and ensuring disciplined capital allocation going forward. Slide 7, please. Turning our attention to [indiscernible]. The business units won final unconditional orders were 2 billion against 2.5 billion last year. Both business units maintained a selective approach to new projects to ensure a reasonable risk profile. Orders were won through tenders, partnerships, collaborations and on project development. In [indiscernible] signed an agreement for the construction of a care home and senior housing in [indiscernible] after having developed a project in-house. This is another good example of the synergies from having both development and construction competencies. The largest order signed in the quarter was an extension of the motorway in [indiscernible] for the Danish Road Director with a contract of 277 million. In Q2, [indiscernible] contributed nicely to the order intake in America and Peterson. Having previously contributed to the conversion of several network grocery shelves also has been involved in the development of a new store concept and received the first orders for conversions in this [indiscernible]. Let's turn to Slide 8. In Q2, our business units [indiscernible] orders worth of 784 million, which has not yet been contracted. When the contracts are final, these orders will be included in the order book as well. The contracts were won mainly by [indiscernible]. The largest order was a 2-phase project for a new baggage factory to support future capacity expansion in Copenhagen Airport and to be Denmark on the first phase of the [indiscernible] covering planning and design in collaboration with the airport, [indiscernible] architects. After the first phase, the intention is to enter 450 million turnkey contract for Phase 2 and the construction of baggage Factory East with expected delivery before the summer of 2030. We are especially pleased with a signing like this because it is another good example of repeat business with a long-term customer. The award underlines the good client relationship with Copenhagen Airport, as in [indiscernible] also constructed and delivered baggage Factories in 2021. In addition to this, [indiscernible] won a handful of contracts totaling a value of around 150 million. I will now hand back to Rasmus for comments on the total order portfolio and the outlook. Please turn to Slide 9.

Thank you, Dennis. At the end of the half year, our total order portfolio amounted to 24.7 billion. This was an increase of 7% from last year and the highest level to date. The value of final unconditional orders increased by 22% to DKK 14.2 billion after the high order intake in the first quarter of this year and throughout last year. The order book will be broadly distributed across segments, product sizes and geography. 26% of the book is compromised and comprised of projects from construction partnerships and other collaborations. The construction from waters, but not yet contracted orders was 5.4 billion as several projects have been converted to pain orders over the last 12 months. This part of the order portfolio includes large infrastructure projects with early involvement for DSV, [indiscernible] the airport. In addition, the estimated value of future assignments and construction partnerships was 4.6 billion. Finally, orders in joint ventures made up 0.5 billion. The total order portfolio is around 2.5x our expected annual revenue, providing a robust base for the coming years will explore that further with a few comments on phasing of the order portfolio on Slide 10, please. The record high order portfolio with several multiyear projects ensures a good activity level and earnings potential in the coming years. At the same time, it enables our business units to remain selective in tenders and reduce longer-term risk. And finally, it provides a better foundation for broadcasting and attracting skilled people who want to contribute to existing projects. The graph provides an overview of the phasing of our order portfolio and some of the multiyear contracts until 2030. Some of these projects are converging into far models, but production will cover a period of 3 to 5 years or even longer. These projects will generate significant revenue as activity picks up from 2027 and 2028, supporting our focus on improved quality of earnings. For now, let's turn to Slide 11 and the outlook for this year. We are maintaining the guidance issued in early June after the [indiscernible] tunnel settlement of revenue is still expected to stabilize within the range of 10 million to 10.5 billion, driven by increasing activity in the second half of the year. Order coverage increased to 91% at the end of June, it is all moves on par with last year after a slow start to the year. We have seen good project execution and catch up on the strong work across projects in Q2 and good progress is being made of some of the recently won contracts, including the construction of [indiscernible] to the [indiscernible]. We still expect the large stage projects in our portfolio to contribute to revenue and earnings from 2027 and 2028 as production begins. [indiscernible] is strong profit is projected between 225 million and 275 million after the write-down mentioned before. Adjusted for the impact of the write-down, the earnings outlook is still on par with 2025 levels. The guidance is based on Integer generating higher growth in the second half of the year and [indiscernible] completing a land sale before the turn of the year. Financial expenses and loss from discontinued operations are expected to be lower than last year. And there is basis for the net profit to decline less than the operating profit in 2026. This concludes today's presentation. We will now turn to Slide 12 and the Q&A session. Operator. Please go ahead.

[Operator Instructions]. Our first question comes from the line of Kristian Tornoe from SEB.

Thank you. I have a lot of questions. First one goes to [indiscernible]. And really just a clarification. Because you talk about challenges to certain projects, and then you also talked about a write-down on one new build project. So maybe just clarification and now we're talking one or more projects and please in perspective.

Yes. Thank you for the question. This is Rasmus. The main issue relates to a new build project that is approximately 80% complete and scheduled for handover in spring 2027. The project has previously resulted in some write-downs, but the new management team has identified a need for an additional write-down. And that's what we have recognized in Q2, but the majority of the majority of the write-down is related to this one project that is coke. Of course, we have a portfolio of projects where you have small mines and some small pluses, but the main project is this new build project. It's a project that was initiated in 2019 and has had multiple phases and deliver those. And now we are close to the end. And unfortunately, we have seen some -- yes, some identified some write-downs.

Okay. And this specific project, is that -- I mean, something which would be in scope of what you would take in today in [indiscernible].

No, it would not. This project would suit in the [indiscernible] Denmark much better today. But back in 2019, it was a different story.

Sure. I understand that. Then along the same line. Now you also highlight that new management has reviewed this. And as we know, you changed the CEO of [indiscernible] long ago. But you also did the same [indiscernible] Denmark. So I mean there might be investors here fearing that there is more sort of review ongoing from both new CEOs. And then which could essentially trigger more of these kind of write-downs, any sort of reflection of that concern there.

That's not the case. I can say that's not the case. However, Denmark has a very, very solid, stable and strong core business. We have communicated where there was an issue, and I will say [indiscernible] we are not -- yes, we are not in a process in reviewing all the projects. So that's not an issue.

And then the order intake for in [indiscernible] is something you described it as moderated, it's a bit on the low side. I know all I say is volatile, but maybe just some comments on what we should read into that and how you see the market right now for that business specifically?

We are very conservative. We like to have growth, but before we can profitable growth, we need to have a profit, and that's our focus. So we are conservative when we are bidding on projects. And that's why we didn't take in [indiscernible] is not higher. We are not aggressive in any way. EPS also have a good order backlog. So if you look at that 1 and also see the Q1 order intake, which was fairly high. I would say year-to-date, it's still decent. Priority number one in England [indiscernible] is profitability.

Understood. That's quite clear. And then the last one for me is just on the working capital, which has increased fairly substantially here in the first half. And also the key reason your cash flow is negative. So what has driven this? And what do you expect should happen in the second half of the year?

It's obviously mainly driven by the construction contracts in progress and there are some, let's say, moving parts on some of these open items, which we expect to be settled in Q2. So we -- I don't expect it to be negative as a general item going forward. Let's put it that way.

But do you plan for a positive cash contribution from net working capital in the second half of the year?