Nyab AB (publ) (NYAB) Earnings Call Transcript & Summary

Please go ahead.

Hello, everyone, and welcome to the presentation of NYAB's interim report for the second quarter of 2024. NYAB has released its financials this morning. And giving the presentation, we have the Group CEO, Johan Larsson; and CFO, Aku Valiaho. My name is Marko Peltonen, and I am the Director of Investor Relations at NYAB. [Operator Instructions] And now to get started, I hand over to Johan who will introduce NYAB's key figures and progress made during the first half of the year.

Thank you, Marko, and welcome all. Great day, first report as a Swedish-listed company. Very suitable that we actually have 4 records for the first half year, top line, order backlog, EBIT and cash flow is the best in NYAB history for our seasonally weakest first half. So to give a little bit more flavor to that improvement in development, suitable headline. Our revenue amounted to EUR 135.2 million for the first half, that is a year-over-year growth of 29.5%. Our EBIT, EUR 4.2 million, increased 109.4% year-over-year. And our EBIT margin, 3.1%, very good taking seasonality into consideration. It's a clear improvement from the previous year and it's an even bigger improvement than reported if you take into consideration that the comparison period benefited from the settlement of Mikkeli dispute, which had a positive effect in 2023 Q2 with EUR 3.3 million. We also improved our free cash flow amounting to EUR 12.5 million; and a record high order backlog, EUR 342.6 million, that's 36% year-over-year increase. So rolling 12 doesn't have too much effect due to our strong seasonality. We have the vast majority of both revenue and earnings in our second half, has been so since this company started a decade ago. Still, we see clear improvements. Revenue rolling 12, 11% growth from Q4 '23; EBIT, 14.4% growth, amounting to EUR 17.4 million; and the EBIT margin has improved from 5.4% to 5.6%. These improvements are really strong, considering that it's in our weakest half of the year. We also have an improvement in free cash flow, and the order backlog improved with 16.3% from Q4 '23. And our strategic progress continues. We have completed the cross-border conversion and transferred the registered office to Luleå, Sweden. And our share is now traded on Nasdaq First North Premier since June 28. We have done an acquisition, a tuck-in, Dyk & Anläggning waterworks. We completed that at the end of May. And our order backlog reached an all-time high level. And according to our strategic plan, we are increasing our average project size a bit. And we have also significant order intake after second quarter. A few of many won projects just to add some flavor of what we actually do. Huddinge municipality, we are very happy to do the Vidja etapp 2BC for them. We have other projects in conjunction with this project. It's an infrastructure project. For Trafikverket, we won dredging work with diving and other waterwork included where we are about to widen and deepen the fairway through Södertälje Canal. Trafikverket also appointed us due to our strong organization and our planning on how to execute this, in many ways, complicated project, widening a stretch of the road 261, Ekerövägen in Stockholm. And after this, the end of Q2, in July, we received an order of approximately EUR 80 million for the construction of power lines between Hedenlunda and Oxelösund to support SSAB's needs. Client is Vattenfall Eldistribution. Now since this is our first report as a Swedish-listed company, I will grasp the opportunity to thoroughly explain NYAB from a business perspective and I will trickle it down to our business model and scalability. And with that said, this won't be a recurrent slide in future reports. Many investors view us as peers to consulting and project management companies. For several reasons I don't agree, mainly from the fact that we do have that kind of work with no business risk in a subsidiary. There we have approximately 30 employees consisting of engineers, designers and project managers and where our customers in all relevant are charged per hour. However, most of our engineers and project managers, site managers, et cetera, do work in NYAB core business. Those are the lion's part of our approximately 470 employees, of which more than 70% are white collar. In our core business, consisting of the business areas, industry, energy and infrastructure, more than 50% of our revenue have fixed price and a business risk. The rest of the revenue comes from different sorts of collaborative contracts, contracts where we charge per hour and different forms of current accounts on frame agreements, et cetera. If you see our revenue per full-time employee, it's vastly much higher than any listed company who are viewed as a contractor or as a consultant or project management business. With this stated, you probably already understand that we do most of our production through suppliers, subcontractors and niche providers. Hence, it's up to us on every project in what stage we want to secure our supply and if we do it with a fixed price or else. The decision always comes from a quality and business perspective where delivery security is included. We run approximately 150 projects simultaneously in which we always have done the calculation, pricing, tendering with our own personnel and sometimes the design. And we always lead the projects with our own personnel. What this does is that it gives us low fixed cost and a low CapEx, low investment needs. And together with a strong balance sheet, we have the possibility to choose and select our projects from the perspective of what's most long-term suitable for us. We focus on owning the contract with the end client, which puts high demand on our knowledge within contract law and construction law. It also puts high demand on our engineering, planning, pricing and calculation skills and a high demand on our project management capabilities where project administration of all sorts and HSEQ is included. So in this regard, NYAB has a different setup in comparison to other public companies by delivering high-quality turnkey facilities and projects to the end client. And it's with a unique business model that enables scalability and decent margins. So there, you have the explanation of our historical track record with growth and our margins. You also see that what we do now in 2024 with our growth 30% for H1 in constant currencies, that growth comes mainly from a quite small growth in project size where average project size last year was EUR 3.5 million, and this year, it's increasing. So it will be higher, but it won't be -- it will not be above EUR 5 million. This is as good as I, in this format, can explain why we so clearly through the last 2 years has emphasized to grow without increasing our risk and that it's one of our most supporting column, and that is due to our scalability and that sets the pace for our growth. So underlying market growth are expected to remain at high levels in our core markets. In Sweden, the market turns out very fine -- nice moving upwards. If we go to where we have our strongest position up in the north, we are even up to double-digit market growth. Finnish construction industry are moving sideways from a decent level. Of course, we don't need the same volumes and market growth in Finland due to our size in Finland. And together, our addressable markets in Sweden and Finland clearly exceed SEK 400 billion. And the drivers for this are, of course, deglobalization, urbanization and the green transition. And with that said, I leave over to Aku.

Thank you. Good afternoon on my behalf also, and we can now take a closer look at our Q2 financial performance. So on the Q2, our revenue growth was approximately 17% with a limited impact from the currencies year-over-year. Main contributor to the revenue growth was energy projects, and within that business area, especially power network projects. Revenue from Sweden grew significantly year-over-year, over 37%, and that of course, then led to the higher share of our revenue being recorded from Sweden. So nowadays, it is 75% almost that is generated from Sweden. Also, the power network projects are visible in the split of public versus private sector revenue as the public sector share has increased to 61%. On a rolling 12 months basis, Sweden now represents 72% of our revenue; and public sector, 57% of our revenue. Then we had very good development in the underlying EBIT. So our EBIT margin was at 5%. And as Johan mentioned in the beginning, in the comparison period, we recorded a EUR 3.3 million positive impact from a settlement of Mikkeli dispute in Finland. So in the way, underlying EBIT margin has improved by over 4 percentage points. Mainly, the underlying EBIT improvement is a result of revenue growth combined with solid margins. And in addition, we benefited from lower PPA amortizations against the comparison period. For the H1, our net profit was at EUR 0.8 million and it was dragged by costs relating to parent company's redomiciliation and listing transfer, which amounted in total EUR 2 million, and they were booked to finance expenses. Order backlog growth was extremely strong. So we were growing 36% year-over-year. Growth was especially driven by the strong order intake in Sweden. And to be more specific, especially in the Mälardalen region, we witnessed the strongest order intake. But in addition, order intake was also good due to the Luleå municipality exercising its extension option in infrastructure maintenance contract and that was recorded to order book for the Q2. Tendering activity in Sweden has remained strong and robust and it is well above last year, while we are still experiencing some softness in Finnish market. And Q2 cash flow was pretty typical for our business. So typically, we have seasonal variation in working capital fluctuation where Q2 and Q3 our working capital is tied up and then released in Q4 and Q1. So our free cash flow for the Q2 was minus EUR 1 million. However, of course, there was a cash part paid out in conjunction of acquisition of Dyk & Anläggning. So adjusting for that, our free cash flow was basically flat. In comparison period, Mikkeli settlement contributed over EUR 9 million positive cash flow impact. So we can say that pretty much the cash flow performance year-over-year was in line. For the first half of the year, free cash flow was strong and stemming mainly from working capital changes. And we ended the Q2 in net cash position of EUR 7.2 million. Equity ratio above 73%. Net debt-to-EBITDA, minus 0.3x. And unadjusted return on capital employed for the rolling 12 months was 8.1%. So to conclude, the financial performance we can be very satisfied for the both H1 and Q2 performance. And then I hand back over to Johan.

Thank you, Aku. Yes, something that's important to us that we always measure our performance against our long-term financial targets. There are 4 of them. First one, annual revenue growth exceeding 10%. This -- for this year, we have a growth reported of 29.5%. Doesn't bear too much effect due to our seasonality, meaning that we are a much bigger company revenue-wise and earning-wise second half of the year, but we are close to that target already. We will, for sure, manage to succeed when it comes to our annual revenue growth. EBIT margin exceeding 7.5%, next goal. Historically, we have had quite a easy time reaching that. Last year, we didn't. We ended up with 5.4% EBIT mainly due to macroeconomic circumstances of different reasons. You all know them, we live in the same world. EBIT margin is improving and it's really good to see that the EBIT margin improves and comes through with 0.2% even if it's in H1. So we move in the right direction for that long-term financial target. Net debt below 1.5x EBITDA. We have a negative net debt, so we have a very strong both cash position and a very strong balance sheet. So looking good. And dividend. With this CapEx-light, asset-light business with quite good margins, we have decided to be able to have a dividend exceeding 35% of net profit. And last year, we had 62% in ordinary repayment -- or dividend and 109% in total to an extra dividend. So that's about our long-term financial targets. And to summon it all, our game is not too different from football: you win the game in the second half. After first half, we are in a very good condition. It looks good, but the important second half needs to be played. And we continued to execute and deliver with revenue growth of 30%. And we actually more than doubled our reported EBIT for H1 2024, and that is reported EBIT. So if you take Mikkeli into consideration, it's even further improvement on that. And our order backlog has reached all-time high levels with new large projects in energy and infrastructure sectors according to our plan. So it's very satisfying. And we are well positioned to seize growth opportunities with our explained business model and strong balance sheet. And of course, we are very happy that the completion of the cross-border conversion and listing transfer are done and it enables an increased focus on our core business and developing the company. So that's it for me. Thank you for listening.

Thank you, Johan. Thank you, Aku. Now let's move on to the questions we have received. Can you give some color on the tendering process for the big Vattenfall order that you won? What were the key reasons behind we ended up winning?

Yes, the key reason in this case was, of course, a combination of quality, efficiency and price.

Then can you break down what industry segments are driving increase in order backlog?

Yes. I would say that the energy, what's related to the green transition. If we talk about Finnish state Fingrid and Svenska kraftnät, their needed investments and all other power headline owners and such are our main driver. Then you have a big driver within infrastructure. We need to improve our infrastructure and the industry are doing loads of investment in both Finland and Sweden. So that are the main drivers. If you want to go a bit higher above it, it comes to the 3 megatrends that drives investments. And there, you have the urbanization who creates a demand for new infrastructure, new electricity and so on. And you have the green transition, we need new infrastructure for electricity and energy and we need new sources for it. And you have the deglobalization where you have upcoming in auto investments and securing supply chains and so on from industry, making sure that they invest and take care of rare earth metals and such. So overall, it's those 3 megatrends that drives the investments.

Next question. Do you expect tendering activity to increase further during the second half? And what markets are you seeing the strongest acceleration?

We see -- I would say that we see both within infrastructure and energy. We see an increasing demand, especially in Sweden, a bit more slowness in Finland who has a much more volatile economy. But we know that when it changes up, it goes fast in Finland. But our tendering business is ongoing all year around. So there are a lot of interesting projects in the pipe of different sizes.

Okay. Then a question about the Finnish market. When do you expect it to start growing at a faster rate again?

That's a super good question, and if I knew it, I would be a very rich man. But guessing about the market is always hard. But I would say that we already, in some sectors, see some positive signs, but we're not there yet. So I would bet that we will have at least more months with lower activity than what's good, at least 12 months more. And within the energy sector, I believe it will be even longer than that actually. That's my best guesstimation.

And given your net cash position, could you rank what you see as the most interesting and attractive capital allocation options?

Well, then we touch M&A strategy, I would say. And when it comes to our M&A activities, that's also constantly ongoing. We took a smaller break during the redomiciliation, delisting and new listing in Sweden, but now it's up and running again. So we know how to run companies and we know this industry, and there are loads of interesting target to roughly fair prices for us. So I would say that's where the money will be allocated. But make no mistake, we need a very strong cash position for the business model we have, so we never get squeezed. We will also need an increased working capital with our growth.

Then we have a question that conversion of Finnish shares into Swedish shares has been slow in some banks. Would you do anything to speed up the processes?

I'm sorry, we really can't. That's totally out of our hands. It's up to every custodian bank who have different routines and settings and so on. And I have just heard like secondhand information that immediately for some custodian banks, 3 days for some, 1 week for some and a month or more for some. That's like all I know and I'm, of course, sorry for that, but I can't have any effect whatsoever on it. I wish I could.

Yes. And we have advised all our shareholders to contact their custodian banks in questions related to the shares conversion because there are so many technical differences, so those banks can give the best answer. Then about our financial guidance. It is noted that after H1, we are quite clearly ahead of last year regarding revenue and operating profit, and also order backlog is way above last year's level. But still you reaffirm your guidance in which you expect revenue and operating profit to increase from last year, which is rather broad verbal guidance. Could you give a little bit more color how the guidance should be interpreted? That is, for example, do you have more positive guidance levels such as increase significantly, et cetera, or is the current guidance also the highest one.

No, I would say that, first of all, there's a difference in practice between Finnish market and Swedish market. And related to that, I would say that there are, of course, no limits in exceeding revenue or exceeding EBIT. But what gives the best guidance for this year when we're sort of stuck between Finnish routines and Swedish routines, I would say look at our long-term financial targets. Those are the ones we are executing against.

Then you mentioned in the report that during Q2 you decided not to participate in Skarta Energy's commenced funding round, and thus, your ownership diluted to 27% from 34%. However, you participated in the financing round in Q1. So what has changed? And how is the strategic review regarding Skarta Energy developing overall?

Yes. Of course, a lot happens within a quarter or so. Aku knows this business a lot better than I do, so he can gladly answer this question.

Yes, of course, yes. So first of all, of course, strategic reviews take time. And whenever we proceed on time, we get more educated and we can make more informed decisions. That is one thing. Then it's also good to understand that in the Q1, we didn't fully participate in all funding rounds. So that is also one aspect. But when taking some thoughts around this Q2 activities we did may be the good indicator also for the future.

Then we have one last question, and that is that could you estimate the time period when you would be moving to Stockholm stock exchanges mainly?

Well, no, I can't really say. We know that we chose to be on First North Premier, which is a step-up from First North in Helsinki -- Premier that is. But we know that the best environment for us with the heavy profitable growth, we have -- we're just about to scale it up further where M&A or a strategic part of our growth plan and an important part, we want to be in an environment that is optimal for our core business development. So that's actually why we decided on First North Premier. So I can't say when the timing is right for main list, but I will say that it would surprise me if it's within the next coming 2 years. It will be further away than that is my best belief now. But it's not my decision. I don't own it. I view it from a CEO operative point of view.

Okay. Now we have gone through all the questions in the chat. So we thank everyone for participating, and see you next time.

Thanks.

Thank you.