Per Aarsleff Holding A/S (PAALB) Earnings Call Transcript & Summary

Welcome, and thank you for joining Per Aarsleff Holding Q3 Conference Call. With me today, I have group CEO, Jesper [ Christien ] Jacobsen; and Group CFO, Mogens Hestbæk. [Operator Instructions]. The call details will also be disclosed on the final Q&A slide. The conference call will be recorded and published on aarsleff.com. The call is scheduled to last 45 minutes. Please be aware the presentation contains forward-looking statements subject to uncertainties. Over to you, Jesper.

Thank you, and welcome to all of you for this Q3 presentation. Starting with the overall figures, turnover of DKK 18.9 billion. And as you can see, roughly 37% turnover outside Denmark corresponding to around DKK 7 billion. First 9 months with a turnover as expected and satisfactory EBIT landing on [ 842 ] in 4.5%, absolutely gets a little bit higher than last year and percentage-wise, slightly, slightly lower. Construction segment, the picture is from ArtiCon, the very island ArtiCon is building a huge dry dock on the very island. Construction segment turnover of roughly DKK 8.9 billion. EBIT result of DKK 384 million revenue growth of roughly 16% where the group growth was -- is roughly 14%, but constructed 16%. And we do, as said earlier this year, we do see a high activity level within the construction market, especially civil engineering infrastructure projects, [indiscernible] is one of them where we had high activity [indiscernible] projects. We do have a project on the [indiscernible] also, which is on a high activity level. So generally, [indiscernible] and high it level also with the district heating project in Greater [indiscernible]. We do still see increasing investments in projects related to critical infrastructure, growing focus on investment in defense. And also, you could say, infrastructure in general. So still a lot of investments out there, still a lot of opportunities. And as we announced, we was awarded confidential critical infrastructure product just before the summer the case with a value of more than DKK 1 billion. Yes. Many opportunities out there and also within residential renovation of buildings, especially in greater crop taken, we also do see a high activity level and many market opportunities. Our 3 major ongoing building products, [indiscernible] in [ Aus ] and Terminal 3 in Copenhagen and are all 3 progressing as planned. The North Atlantic market, especially Greenland and Iceland also high activity to a lesser extent on the very Islands. But generally, the North Atlantic market had also good market conditions. And then [indiscernible], the latest acquisition within construction is included in the figures now with the effect of early June. The big -- sorry, the picture you can see on the left-hand side is a strengthening of a brake water in [ Hanston brake model ] that we built back in '18 to 2020. And now due to bigger water dips, deeper water dips, part of the breakwater needs to be strengthened and then it's done by stones, granite stones and so-called [ QB ] pots, that's the concrete elements you can see in the lower part of the picture. They are casted on our factory in [indiscernible] in [indiscernible] in Poland. Technical Solutions, the picture is from one of our district heating projects, Greater Copenhagen. Revenue or turnover of roughly DKK 3 billion and EBIT result of DKK 167 million corresponding to 5.4%. And growth of roughly 7% compared to the same period last year and also do -- we do here see high activity level within district heating. Many of the projects are done together the construction segment, green transition, energy and also some of our projects for the public sector. Pharmaceutical sector, we do see a high activity level, although that we do expect, especially for the pharmaceutical sector, pharmaceutical industry, a more normalized activity level going forward. Yes. And as said, also in the Construction segment, good market conditions, mainly tender opportunities out there. So still within those 3 areas, green transition, energy and infrastructure projects, we do see many, many tenders out there. Rate. The picture is from some track works between [indiscernible] close to Copenhagen. Revenue turnover of DKK 1.6 billion growth of roughly 9% compared to the same period last year. EBIT result, EUR 54 million, 3.4%, roughly at the same level as last year. And again, as we have said earlier -- on earlier conference call this year, the activity level and the earnings are mostly driven by the activities in Denmark. There we base with the electrification projects, the light rail project in Copenhagen and also our 4 to 5 contracts in [indiscernible] Central railway station there we are busy and have high activity. The market conditions in Denmark are still pretty good going forward. Actually also both in Norway, Sweden, but there we are more careful, cautious about how much we take in as we have spoken about. We have been through a so-called turnaround, both in Norway and Sweden over the last years, and we want to be sure that we do not take too much orders in that we cannot organize probably. And yes, the picture you can see is from a relatively huge contract that we have recently been awarded the central station in Copenhagen to be renovated a contract that has been awarded to both railway and [indiscernible]. But still relatively good market conditions, especially in Denmark and also Norway and Sweden. Then to ground engineering, the only segment out of 5 that is not performing as planned. 4 out of 5 segments are actually performing as planned or better on ground engineering as we have to spoken about earlier this year where we have had most uncertainty is still expecting difficult market conditions in more countries. The utilization of our factories, precast bile factories is still on a relatively low level. Poland, Sweden and U.K. is performing on a satisfactory level, and we are having a turnover revenue of DKK 3 billion, growth of roughly 16% compared to the same period last year, segment results. DKK 40 million, 1.3% not on a satisfactory level, but as you can see, better than last year. And I said the growth of pro -- but the demand for especially the precast piles is still on a low level in more countries, meaning, as I said before, low capacity utilization, especially in the factories. The market conditions out there are pretty good. There's a huge pipeline of interesting projects more projects that are interesting for both the construction segment and ground engineering. But we are still a bit cautious. As we have said on earlier conference call, we have seen postponements projects, also cancellation of some projects and so we are a bit cautious with those projects lying in front of us in the pipeline also with -- will realize postponements. But the pipeline is good. It's a good ground engineering projects out there. And then Salzgitterkai, huge key renovation project in Hamburg, the work done together [indiscernible] last 1 to 2 years has now been awarded and going into Phase II, where we are starting the execution on the projects. Yes, the picture is from [indiscernible], geotechnical investigations on the future machines [indiscernible] turnoff, that will be sent out in center within -- I expect the next 1 to 2 years. And at 1.8 kilometers tunnel that we have the effect of improving the traffic to our [indiscernible] harbor especially for the trucks. Yes. IP technologies, starting with the picture is from training of some of our new Canadian colleagues in [indiscernible] colleagues from the company's [indiscernible] reforms that we acquired earlier this year, where we have had several people in Denmark to start training of our equipment. Revenue, roughly DKK 2.3 billion EBIT result of 197 8.6%. So on -- still on a high level, both activities and also the earnings growth of roughly 19%. And the opposite to ground any gearing that has difficult market conditions in more countries, type technologies are seeing, realizing expecting good market conditions in basically all the countries that we are actually in a strong activity level in all significant markets. And as I said earlier this year, we acquired a part of LiquiForce Canadian company and the works of getting people trained and getting equipment to Canada is progressing according to our plans. The [indiscernible] is of Copenhagen, housing building in open built back in the early 30s where we are renovating all the interior pipes in the building. Order backlog, order intake, starting with order backlog, all times high on DKK 28.1 billion, as you can see on the graph, strong in almost all segments, and the order intake is close to DKK 21 billion for the first 9 months. If we look at Q3 alone, more than DKK 8 billion in order intake, so strong order intake and strong order backlog and basically also in most of the 5 segments. And then to guidance for this year unchanged compared to what we have communicated earlier. Revenue growth, 12% to 15% and an EBIT margin between 5% and 5.3%. That was gone through of the of the biggest, and then we can go over to question and answers.

[Operator Instructions]. And the first question will be from Anders Preetzmann from Danske Bank.

I have a few. If we start with the implied Q4 results here on the guidance. Of course, relatively wide margin range for the ground engineering segment? And I would suspect with only 1 month left of Q4 here. I would assume that you have pretty good visibility. So can you maybe just put some more on what would need to happen for you to end in either side of the margin range here for ground engineering.

As we have said earlier, and I think that's still the case out of the 5 segments, ground engineering, you would say, is a segment where we through the year have indicated the biggest uncertainty. And I think we can still say that that's still the case. We are more certain about the other 4 segments. And that's why we maintain a pretty -- I think you said wide range in EBIT.

So they'll say, a, we need a very good utilization in our factories and there can still be a lot of things that could come in and get [indiscernible] depending on the exact timing of the projects, and then there are some projects we are executing, it depends on how well we do it that can bring us to the lower end or the higher end. So we have some larger projects that we are ongoing. So it's basically product execution and digitalization of the factories that will have effect on whether it's the bottom or [indiscernible]. But we did some good [indiscernible] more difficult than lower, let's say I think we could say about that.

Okay. It is also what I would expect. Okay, perfect. If I may move on to a question on M&A. Maybe if you can put some words on the integration process of the recent acquisition of [ CG ] [indiscernible], are they operating as expected? Maybe some words on that.

The implementation, the implementation plan that we have set out together with gets well [indiscernible] are progressing as planned. And I think it's not very different from what we from what we see in Aarsleff that there are many market opportunities out there in some areas more than in other areas, and that's the same than that [indiscernible] as well occlusion is seeing. And it's basically, as we spoke about earlier on this call that renovation of buildings, transformation of buildings, there we do see a lot of opportunities now that good market conditions, maybe better than in other areas, but both signs and some occlusions and also hands on inclusion are actually in that market.

So that's very positive to say on the other hand, they have an exposure to construction of new buildings, and that's where we have a weak market, still see a weak market. So exposure to some good market segments and also exposure to some less, obviously, weaker activity.

It's not very different to what we see in Aarsleff.

Okay. And you mentioned specifically in the report that your working capital is going up due to the acquisition here where should we expect that to end for the full year? Is this a new run rate for the group with [ CGIC ] implemented?

You can say we see as not a permanent situation. They have, I think, it's quite probably known that they have some projects where they have some disputes clients that are at the moment driving the working capital quite significant up. When those -- yes. This agreement has been solved. So then they will -- we expect [indiscernible] if to come down to the group level. And we also have signed some significant contracts here in June, July, where there is some significant -- very significant down payment of course, that will drive down working capital quite considerable in the fourth quarter. So up here to [indiscernible], that will not be solved within the next month or 2, that's probably will take longer, that's our expectation, but the working capital will go down in the fourth quarter due to these large contracts where we have some nice down payment.

Okay. A question on Technical Solutions. You mentioned that market opportunities here are generally returning to a more normalized level. And looking at the order intake of recent quarters in Technical Solutions, as you see it right now, would it not be reasonable to expect that next year will post negative revenue growth year-over-year in Technical Solutions? Or are there some significant orders here that you would be able to [ recurate ] in the coming quarters to also drive growth for next year?

What I tried to say was that within the pharmaceutical industry, we do expect a more normalized level that we have seen in the last 4 to 5 years, especially for one of the players in the pharmaceutical industry. But there are opportunities out there. And as you also can see in the other segments that it -- the order intake differs from quarter-to-quarter. And it's correct that in the third quarter, the order intake has not been too high in Technical Solutions and whether that will continue -- I don't think you could say that for sure now.

Of course, we have 2 large hospital projects, and we will -- they are getting closer and closer to being finalized. So we will have less revenue on those 2 specific contracts next year than this year -- and also as percent of pharmaceutical sector is that we have some large ongoing parties that are getting closer as well to be in [indiscernible] line. So we need new parts to come in and whether we will succeed is. But of course, there are opportunities, as we said, within especially defense that could -- could pick up the [indiscernible].

The next question will be from the line of Kristian Tornøe from SEB.

A couple of questions from my side as well. Just on the acquisitions, I note you're right that you have not finalized the purchase price allocation yet. Any idea of when that would be done. And obviously, since you are guiding on EBIT, could that potentially impact your guidance? I know it's a technicality, but still.

No, Kristian. It will be finalized here in the fourth quarter, basically, our auditors has not signed off yet. So that's why we are saying it's still ongoing. We have included what we think is the right thing in our third quarter report. But before the auditor has signed up, this is a significant investment. So we just need to put that out there. [indiscernible] course. There's also -- we are integrating them now. If something pops up, of course, that could also affect it. But I don't expect anything material to change. And so I will be surprised if there is an effect to the EBIT in our guidance.

Good. Great. And then just on ground engineering again. So obviously downgraded the margins twice. But still, I sense some optimism in the outlook when you describe ground engineering. So maybe help us understand what needs to happen for the performance in that segment to turn around?

I think the pipeline we have -- I don't think yes I have ever seen highlight that and when we see we discussed the garner management, we are saying, you need to choose because you cannot follow all those needs. So the pipeline there. So it's a question about when will it materialize? And then there's issues we said how if there's not any precast concrete piles in them, of course, that's an issue.

But the opportunity is that it's, as [indiscernible] the pipeline is really huge. And as we have never seen, yes, a repetition for [indiscernible] that we have never seen for the last many, many years, such a pipeline of interesting infrastructure projects where there's a lot of ground engineering works in. So it's a question of when will they be signed and when will execution start.

And you will say, Kristian, in Denmark and in Poland, we are very good at getting our biggest part secure infrastructure projects. In Sweden, we are working on that, and there is a huge portion in that sooner or later, when execution will start. We will hear that it's getting more and more delayed. So -- but everybody expects quite a large number of precast files passing that project, and that will help our Swedish entity, the factories -- Germany is more the onshore wind farms that is strong large precast [ combis ] farms, and that's an increasing market. We can see that -- and we are also trying to push more of our concrete parts into infrastructure bridges. And but that's not -- Germany is not conservative. In U.K., we are quite successful in fully pushing our piles for all the data centers. So that will help in the U.K. business at the moment. So -- but yes. We still wait for this that really kicks off.

It's a catch-up effect that we are missing.

Yes. Basically, fourth quarter looks good here. And where we have seen that before, we have a good call and then certainly in the first quarter, this week again. So we would like to see more than 1 quarter before we say now, we are pass this weak market and the other countries.

Understood. That makes sense. And then just the last one from my side. Obviously, the implied guidance on margin for Q4 points to a fairly strong margin. So maybe if you can just elaborate on your comfort on why the last quarter should be so strong.

Yes, you say that's when we combine the figures, that what the [indiscernible] is saying. We have -- we have a number of contracts that are coming to an end and some of them are going better than expected. And that's a part of the explanation that there will be an improvement of the result of more than one project.

So especially [indiscernible] [ Construction ] segment as also some in the mail and some that we are too is part and there's also some ground in being a part. So it's really --

Yes, have been taken in EBIT-wise carefully. And yes, they're all progressing and going better as planned.