NCC AB (publ) (NCCB) Earnings Call Transcript & Summary

Good morning, everybody, and welcome to this call concerning the news that we communicated earlier this morning. NCC is divesting our business area, NCC Industry. I'm Tomas Carlsson, CEO of the NCC Group, and I will give you the background and some more flavor on this deal. As you may remember, we decided as a part of our strategy to do a strategic review of business area Industry in the beginning of 2025. And during that year, we did a comprehensive review and also received a number of bids on the business. But in the end, we didn't think that any of the bids actually corresponded to the value that we saw in the business. So we decided to keep it, and that was the decision in February 2026. But we also said that we would start a process to make NCC Industry an independent unit owned by NCC. Hence, retaining all possibilities. We could keep it forever. We could do an IPO, we could take in a partner, or we could sell it. In the beginning of the summer this year, we received a bid from a new constellation that we thought was attractive, and it's that bid and the signing of that contract that I will talk about now. So the transaction in brief, NCC divests NCC Industry, including all operations in stone materials and asphalt within that business area. The contract values, the enterprise value for Industry is at SEK 8.2 billion. And if you deduct external debt from the company, we estimate that there will be a cash flow of approximately SEK 7 billion at closing. We will receive that payment at closing. We are doing 1 transaction, but there are 2 buyers that will split the business into 2 parts. It's Heidelberg Materials that will own the Swedish and Norwegian operations and CRH that will own the Danish and Finnish operations. This transaction is subject to regulatory approvals, actually several. But the one that we expect will take the longest time is the EU Commission. And based on the best estimates that we have been able to get from several experts, we expect that closing will be able to happen sometime in the second half of 2027. That's the transaction in brief. A little bit of information regarding NCC Industry. Asphalt, a leading position in the Nordics in asphalt and aggregates. We have operations in Denmark, Norway, Sweden, and Finland. Net sales in 2025 was SEK 12.6 billion, and earnings the same year was SEK 879 million. So that's the business area. For the NCC Group, this divestment will mean that we are a more focused and asset-light company. We will have a clear focus on the contracting business, and we will be able to spend our resources and focus on developing that business. It will be asset-light, and we will have an increased financial flexibility to continue to develop the company. Now the rationale behind this divestment. Even though the people working on our different sites, whether it's a construction or contracting site or an asphalt plant or paving site, they may look the same in the same type of hi-vis clothing and personal protection equipment. The business models are significantly different. Industry provides mainly standardized products, stone and asphalt from primarily fixed and well-defined production facilities in well-defined geographies. And it has quite a lot of fixed assets in the business, higher capital intensity in the business. While on the other hand, contracting is more of a service where we provide a project management on risk where each project has unique characteristics and are in different stages and continuously in shifting geographies and with limited or no capital employed. So very different business. And that means that we need to develop systems. We need to develop processes. We need to develop competence development for 2 very different businesses and try to run that as a group. And therefore, we have concluded that both Industry and contracting will probably have the possibility to develop better under different ownership. And NCC will be able to focus on contracting, while Industry with the new owners will be able to focus on asphalt and stone business. Financial impact on NCC, enterprise value of SEK 8.2 billion, expected positive cash flow of approximately SEK 7 billion depends a little bit on the seasonality when we close the deal. So the purchase price will be settled in cash at the closing. NCC will continue to recognize earnings from Industry until closing. But we will also start reporting the business as discontinued operations according to IFRS from the coming quarter, Q3 2026. So that's the overall financial impact for NCC. For NCC Industry, the benefits, new owners with extensive experience in asphalt and stone materials, both Heidelberg Materials and CRH are the leading companies in this industry and have a presence in roughly 50 countries each with extensive experience on how to run this business. They are investing in the Nordic region, so it will become an important part of their operations and an important part of the Northern European business, and they have a clear ambition to further develop the business. It will be a strong foundation for all the employees in the companies, for customers and for business partners to develop within this new constellation. Now the time line, and we have now signed an agreement this morning on October 7. Now we start the regulatory approval process, and we expect that to be finalized during the second half of next year. You may ask yourself why this long delay. And that's due to the fact that each local market will have to have an approval. And for asphalt and business, local markets are defined in a very small area. So there are many locations that will have to be investigated by the European Commission. It's standard in this industry. And then at closing, we will have a settlement and all of the operations will be transferred. And as I said earlier, we estimate this will happen, we expect that this will happen in the second half of 2027. Until then, Industry will continue to be a part of the NCC Group, and we will run the business as usual, and we will benefit from the earnings from the business. And with that, NCC has taken an important step to develop towards becoming a more specialized construction company with a high potential for future value creation. And with that, operator, I open up for questions.

[Operator Instructions] The first question comes from the line of Julia Sundvall from ABG.

I would like to start. The sale is expected to bring in about SEK 7 billion in cash. How do you think about the split between the capital needed in the remaining business and the potential of acquisitions and return to the shareholders?

That is, of course, a super relevant question, and that will be subject to extensive discussion before we have the cash, and I imagine also after we have the cash. But I think the most important thing now is to make sure that we close the business and get the cash. But we will come back to that at a later stage. Of course, we have the opportunity, as you are alluding to, for both investments and dividends. But how we will do that, we will come back to at a later stage.

Yes. Understood. Just a follow-up question. If you had the cash today, would you see it to be most attractive? What would be the most attractive way to use the capital if you have it today?

Since I have known that we shouldn't have it today, I have not thought about that.

Yes. Okay. And then going to another question, what group cost do you currently allocate to the industry? And how much will remain after the sale? I mean, how quickly can you remove them after the sale?

We have, there will be a process that we will start immediately on carving out the supporting functions from the NCC Group, and we expect to remove all of that cost from the NCC Group.

Can you give us any number or any flavor to that?

No, but it's corresponding to a business area of SEK 12.6 billion compared to the entire group.

Okay. And another last question for me. How much asphalt or aggregate does NCC contracting business use from industry today? And will this sale change your purchasing terms from this?

Internal sales from NCC Industry to infrastructure and building is in low single-digit percentage. So it's roughly around 2% to 3% on an annual basis, it's very low. We expect that we will maintain a business relationship with Heidelberg and CRH, but we will also have the opportunity to acquire aggregates and asphalt on the open market. And that's the way it's working in Denmark and Norway today. Sweden is actually the exception where you have your in-house asphalt and aggregates business.

[Operator Instructions] The next question comes from the line of Stefan Andersson from Danske Bank.

Yes, a couple of questions from me. Okay, 3 of them. So just to start, just to confirm what you said, you said that you would treat this as a discontinued operation from the next quarter and then you said Q3. I just want to make sure that you still see Q3 and not Q4.

No, no. Q3, absolutely. In a couple of weeks.

Perfect. And then just a little bit curious on, I mean, the price is SEK 8.2 billion, you said cash flow impact is SEK 7 billion. This SEK 1 billion in difference. Is that they take over debt? Or is there something else here that is impacting?

It's corresponding to external debt. It's mainly leasing and pension.

Perfect. And then well, saving the difficult one for last then. I'm not sure if you're going to answer this, but we touched on the proceeds here and how much that might go to dividend or something else. But I'm just curious, could you also think about doing repurchasing as an alternative dividend on the portion that might be distributed to shareholders?

I can imagine all sorts of developments. You say I can think about investments. I can think about M&A. I can think about dividend, I can think about repurchasing. But that will be an extensive discussion in the Board and in the end, also a decision from the AGM.

We now have a question from the line of Simen Mortensen from DNB Markets.