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

Hello, everyone, and welcome to NYAB's results presentation for the second quarter and first half of 2025. NYAB has today released its interim report. And with us in this call, we have the group CEO, Johan Larsson; and the Group CFO, Klas Rewelj. My name is Erik Petersen, and I'm the VP of Corporate Affairs and the Head of Communications and Investor Relations at NYAB. During the presentation, you can write your questions to our management in the chat, and we will go through them at the end. And now to get started, I hand over to Johan, who will go through the results.

Thank you, Erik. Yes. Welcome, everybody. We have a strong first half of the year and a strong second quarter. A revenue in the quarter of EUR 135.8 million, that's an increase of 78% towards the comparison period. We have an EBIT that improves 51%. We have an EBIT margin that has, as expected, a dilution from the Dovre acquisition. Worth mentioning is that our Civil Engineering margin for the quarter improves from 5.1% to 5.3%. We have a great free cash flow of EUR 5.5 million, even better if you take into account that the Dovre acquisition has an impact of EUR 1.2 million negative. That is, of course, key to our business model, our strong free cash flow. And we have had a good order intake. We've been selective, taking the right kind of projects in the right segments and the right type and the geography we like. So we are very happy with our current order book. And the book-to-bill, still high, remaining at 1.4. So for the first half, slightly higher growth than we have in the quarter, 79%, of which the organic growth amounts to 38%. We have an EBIT of EUR 6.7 million, 61% better than first half 2024. We also have a negative impact from the Dovre transaction. The EBIT margin, 2.8%. That's minus 0.33% year-over-year, as expected. And a very strong free cash flow as mentioned, if you take into the consideration that the Dovre acquisition impacts with negative EUR 29.2 million. And the order intake for the first half, strong Q1 in line with Q2. So the order intake is up 81% year-over-year. And when it comes to the revenue split, you see that our business segments. Civil Engineering, our core business. Our Consulting volumes were very limited before the Dovre acquisition. Civil Engineering amounts to 76% in the first half of the year. Going to the second half of the year, that number will increase since Civil Engineering has its highest season in Q3 and Q4. Market segments. Energy, by far, the biggest. That volume will decrease or are expected to decrease in H2 due to the same reasons that Civil Engineering has clearly more revenues in H2 than in H1. Industrial and other, 11%, and infrastructure with 29%. And the main growth driver for the energy segment is the power network projects in Sweden. And worth mentioning, of course, is that we have a high revenue growth both in energy and infrastructure. And revenue splits. Seasonal effects are reflected in the regional split. As stated, the weight towards private sector revenue is, to a very large extent, attributable to Dovre. Regions and sectors. Sweden continued to be our biggest market. We expect that part of the whole to grow as well going forward. And we have an even split in revenue volume between Finland and Norway at the moment. And in other regions, such as Singapore and Canada, amounts to only 3% of our total volume. And the private sector versus public sector for the first half was 66% versus 34%. Over time and going forward, we will be closer to 50-50. We have very strong customers. Customers are very much needed, but exemplified here by a selection of new projects. For the Swedish Transport Administration, we won a contract widening E4 in Västerbotten, Sweden, which includes the construction of 5 bridges. That contract has a value of EUR 38 million. Skarta Energy showed us great confidence by contracting us for the construction of a battery energy storage system, BESS, at the Utajärvi Solar Park, type of project we see an increased demand on, on the market. SL, Stockholm Public Transport, hired us to do the renovation of the green line of the Stockholm subway. A long contract, perennial, which many of our contracts nowadays are, which gives good foreseeable revenue and good possibilities to plan under a strong growth phase. The value amounts to EUR 33 million. We are very happy that Aker BP signed a frame agreement extension with us. The new agreement is valid for the coming 5 years, where we mainly hire out consultants in the form of engineers, but there are also other factors there. All white collar, worth mentioning. And after the period, we finally got to sign the contract with Uppsala Tramway, a contract we actually was awarded already in 2024. But now the contract for Phase 1 is signed. The Phase 1 includes mainly projecting and planning for the next phase. And Phase 2 is expected to be signed during 2026. So growth drivers. We had an organic growth of 38% in Civil Engineering and an acquisitive growth of 41%. We have an average full-time employee increase year-over-year by 22%, and we have an average project size growth of 12%. We have a number of projects that grows with 9%. And the revenue per average full-time employee increased with 14%. If you don't recognize the figures for the revenue per average full-time employee, it's due to the Dovre acquisition. That has a completely different profile for natural reasons, different business model. And our long-term financial targets. Target number one, a revenue growth exceeding 10%. As expected, we are performing very high above our target. The outcome is 46% rolling 12 or LTM. Profitability, due to the margin dilution of the Dovre acquisition, we are down to 6.2%. Expecting it to increase over the year, especially since Civil Engineering is high season in H2, and we hope or are quite confident that we will have some smaller margin improvements also in the target company during this year. Capital structure, our goal is to have a net debt less than 1.5. At the moment, we actually have a net debt. So it's 0.31 but close to 0 then. So we have good margins there, room for maneuvers when the timing is right. And we have a goal of a direct shareholder return exceeding 35% of previous year's net profit. And we have a dividend that accumulated to 42%. So that's it for me. I hand over to Klas.

Thank you, Johan. Hello, everybody. Yes. We'll take a little deep dive into our quarterly revenue development then. The second quarter revenue was, as mentioned, EUR 135.8 million, and that is representing a growth year-on-year of 78%. The organic growth component was a full 43%, and that is mainly driven by high activity in our projects on the Swedish market. The quarterly year-on-year acquisitive effect, 35%, driven by the Dovre revenue. That revenue, fully in line with earlier communication and our expectation also for the second quarter. Dovre revenue doesn't have the seasonal variations but all these minor variations related to in-quarter calendar effects. I think worth highlighting here is our rolling 12-month performance with revenue now above EUR 450 million, growing rapidly at the rate of 46% year-on-year for the group. Profitability. Second quarter operating profit was as mentioned, EUR 5.7 million, representing an increase of 51%. Net of the additional IFRS items, the Dovre business contributed to quarterly operating profit positively with EUR 0.5 million. The organic EBIT increase remaining was derived through revenue growth, combined with stable and positive project margins. The operating margin calculated to 4.2%. And the reduction, as Johan mentioned, versus the comparison period 2024 is explained in full by the consolidation of Dovre. The second quarter net profit was EUR 4.2 million, and that represents a full 196% increase versus 2024, where those numbers were adversely impacted by the domiciliation costs in the level of EUR 1.6 million. Also here, we highlight our rolling 12 months LTM performance. Operating profit rounded to EUR 28 million, representing a growth of 61%. Moving to financial position. Free cash flow for the second quarter was positive EUR 5.5 million, and that is then compared to minus EUR 1 million for the same period last year. The Dovre acquisition closing accounts were agreed during the quarter and an additional EUR 1.2 million was paid, making the total consideration EUR 29.1 million. Following this, the positive free cash flow and also dividend payment in the quarter, EUR 7.1 million. The ending net debt balance was EUR 10.4 million positive, as Johan noted, giving a net debt-to-EBITDA ratio of 0.31. Worth noting is that the Dovre acquisition bridge loan was repaid in full at the end of the second quarter. Also here, I would like to highlight some rolling 12-month performance, adjusted for the Dovre acquisition consideration. Free cash flow rolling 12 was positive EUR 34.6 million, and that represents a full 103% in cash conversion in relation to EBITDA. Further, return on capital employed, 13.3% compared to 8.1% last year. Taking a deeper look at Civil Engineering, meaning our legacy NYAB business for construction projects currently on Swedish and Finnish markets. For Civil Engineering, the market activity remained high and the tender volumes that we currently have is well above last year's level. Order intake grew with 22% to EUR 162.9 million, representing a quarterly book-to-bill ratio of 1.5 to revenue. During the quarter, we secured several attractive infrastructure projects. Total order backlog increased with 14% during the quarter and ended at EUR 424.7 million, and that is a 25% increase over last year. Our market scope currently remains Sweden and Finland, and the current backlog is well diversified, we believe, between market segments as well as sectors, public and private. The Civil Engineering quarterly revenue grew with a full 43% to EUR 107.5 million. Well noted that we saw and reported revenue growth both in Sweden and in Finland. The segment's operating margin, 5.3%, is an improvement over 5.1% last year. And for the segment, the rolling 12-month margin closed at 7.4%. Increased cross-border project collaboration supported the revenue and profit growth for Finland. The Swedish organization expanded following the much higher activity in demand and volumes. Segment costs therefore increased, giving periodic quarterly negative scaling, thus holding back profit and margin development somewhat. In the coming seasonal strong second half year, we will manage for sure this to secure margins on target. Our new Consulting business with obviously the acquired Dovre business, combined with our Sitema operations since before in Finland. Consulting revenue was EUR 28.5 million with an operating margin of 2.9%. This was fully in line with expectation in previous communication and as well as first quarter performance. We see a positive development in Norway and also are having an increased focus on profitability for the business as total. With reported order value and right book-to-bill ratio, a larger volume of new project assignment is therefore needed to demonstrate tangible business growth for this segment. Market and project activity was high in the oil and gas, while renewable energy sector remained slow. We continued with good projects of the synergy integration with increased strategic clarity and cooperation on different levels of the organization. So that was the end of the financial section there for me. And over to Johan again to summarize.

Yes. Great. Thank you, Klas. Before I summarize, just correcting myself, referring to Page 8 or Slide 8. It refers to H1, the figures when it comes to revenue per average full-time employee. So the consultants are, of course, excluded. Yes. Well, so we sum up a strong performance in the quarter and year-to-date. The market conditions in our core geographies are developing positively yet there are differences. Great possibilities when Finland picks up. There's a high activity in Sweden across all our market segments. Civil Engineering have performed well. We have had a high growth and improved our margin for like the sixth consecutive quarter or something in that order. So very pleased with that. Still that is our core business, and being able to handle that during a real strong growth phase is of great importance. We had a stable performance in Consulting. Very happy that we can -- by the time of the report, after close to half a year, as owners of Dovre, we can state that we have gotten what we paid for. There are no negative surprises, and the improvement work is ongoing. Order intake growth and order backlog is on a record high level, very important, also expected since we are going more towards bigger contracts, perennial contracts. Several strategic project wins, particularly in infrastructure that has their high season in H2, so looking forward to go into H2. And of course, the Phase 1 of the Uppsala Tramway signed after the end of the quarter is a very exciting contract for us. We are looking forward to perform together with our client and partner there. So we are very well positioned, better positioned than ever heading into the second half of the year. And then we, of course, have the Board's decision to transfer our listing to Nasdaq Stockholm main market, aligns very well with the development of the company, of our core business, our type of clients and contracts. So really looking forward to that.

Okay. Thank you very much, Johan, and thank you very much, Klas, for the presentations. So let's now move on to the questions.

So we take them one by one. First question. You have now signed the collaborative agreement for Phase 1, Uppsala Tramway that refers to. Can you elaborate on what gives you confidence that NYAB also can secure the Phase 2?

Yes. Well, it's a natural part of our business. We have, of course, been assigned the contract due to their trust and confidence in us. We have a good talk and great knowledge within the area. And just to go by statistics, when it's public procurement and you secure Phase 1, it's extremely rare that you are not the partner for Phase 2. But of course, we have to prove ourselves and do, as always, a great job with a lot of quality.

Okay. Next question. You have gained good traction within the broader energy sector with several power network project wins over the last years. But how do you view the outlook specifically for the renewable energy segment? Do you expect investments to pick up soon? Or will current economic and geopolitical headwinds delay that recovery?

Yes. I would say that there is a market. It's a slow market. And best guess at the moment is that there will be a slow market for another couple of years. It doesn't hurt us in any way because we're not niche or specialized or need that market, per se, to perform. So we do projects that are related more into power headlines and grids and cabling and stuff like that with our energy competencies.

Next question. A broad recovery of the Finnish market is yet to be materialized, yet you managed to grow 32% during Q2. Would attribute this primarily to a relatively easy comparable or that NYAB is able to do much better than the market as a whole?

Yes. Well, I don't like bragging, but our performance are clearly better than the market as a whole, no matter what you measure, it doesn't -- if it's cash flow, if it's EBIT margin, if it's growth and so on. So of course, we are performing better than the market as a whole. But you also have the fact that we can work cross-border in a way that gives us a flexibility our competitors doesn't have. We are formated to view the market as a whole. Internally, we don't really view it as countries. We have to report it that way. But that is contributing.

I think fully agree. And I think that, that not only helps our growth and financial performance in the quarter but it also is in line with our strategic development, aligning the businesses in different countries, making us stronger going ahead. So I think that is well noted.

Yes. And then again, it's a very strong performance for our Finnish organization. So give them the right market sentiment with the right market conditions and you will have vast improvements from these already good figures.

So next question. The Consulting segment saw flat growth in Q2 compared to pro forma with near focus remaining on profitability. With that in mind, how have this effort progressed during the quarter? And where have you seen notable margin improvements? And where is there still work to be done?

Yes. We expected a flat growth. We got a flat growth. And our near-term focus is on profitability, and the profitability comes from all sources you can mention. But efficiency, it comes from collaboration and synergies with NYAB's existing business. We have had our first consultants in Sweden, which was a blank on the chart of Dovre. And of course, we are tendering and bidding with clients and such. So the notable margin improvements are not seen in H1 whatsoever. We make a small margin improvement between Q1 and Q2 of 0.1%, and that's what you can see. But as stated, just as NYAB as a whole and our culture, we don't want to be any middle performer. We want to be one of the best within the industries and the segments we address. So -- and all I can say for now is that the work is ongoing, it looks good, and I like our position.

Thank you. Next question. A key driver of NYAB's overall growth is to increase the average project size, which has increased from around EUR 3.5 million in '23 to over EUR 4 million today. What do you see as a realistic target for average project size over the next 3 to 5 years without materially increasing the risk profile of the business?

Yes. The question is a bit too narrow. So you have to take in like the mix of contract types and such. But since our volumes of collaborative contracts increases and we have a lot of frame agreements with a lower risk profile and such, I would say that with the bigger perennial contracts that we both have secured recently and what the clients want from us, where we have close relations like heavy Swedish-based industry and such, my best guess is that if we do the job right, which we plan and intend to do, and we have the right mix, we could have an average project size of closer to EUR 10 million in a couple of years to come, something in that region without increasing the risk.

So next question. The reported EBIT margin came in at a healthy level. But would you say that the sustained high growth rate during the quarter continues to make margin optimization a bit more challenging at the moment? Or are there any timing-related effects during the quarter?

There are timing effects. We are growing at a really high level. And also, as we mentioned, the market activity demand is also developing in a strong way. We have to do that work and we're doing it. And when you do that work, you need people and resources. So we've added that, in particular in Sweden, which I think has an impact on the periodic cost development. So yes, there will be. I think going ahead, now it's coming, the second half year, which is typically and will be our high-volume quarter for revenue. So -- and we will manage the cost, of course, taking care of it. And our performance is always focused on having good project performance with our client and stable margin there, too. So I think that will always be the key for us to also have an EBIT margin.

Yes. Yes, and as we have stated earlier, our like best case scenario is that we have, over time, a growth in the region of 30%. And naturally, when we are clearly higher than that, you get more exposed to timing effects, delays on big contracts and like everything. So of course, there are initial costs before you have revenues. So taking that into consideration, we should maybe be even more happy than we show with our performance and results in H1.