Per Aarsleff Holding Stock

Welcome, and thank you for joining Per Aarsleff Holding Q3 Conference Call. With me today, I have Group CEO, Jesper Jacobsen; and Group CFO, Mogens Hestbæk. After the presentation, we will continue to the Q&A session where all the speakers will be available for questions. [Operator Instructions] 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 DKK 842 million, 4.5%. Absolute figures a little bit higher than last year and percentage-wise, slightly lower.

Construction segment -- the picture is from ArtiCon, the Faroe Island, ArtiCon is building a huge dry dock on the Faroe Islands. Construction segment turnover of roughly DKK 8.9 billion. EBIT result of DKK 384 million, a revenue growth of roughly 16%, where the group growth was -- is roughly 14%, but construction 16%. And we do, as said earlier this year, we do see high activity level within the construction market, especially civil engineering infrastructure projects. Femern is one of them where we have high activity. Lynetteholm projects. We do have a project on the Fehmarn Island also, which is on a high activity level. So generally busy and high activity level also with the district heating project in Greater Copenhagen.

We do still see increasing investments in projects related to critical infrastructure, growing focus on investment in defense and also, you would say, infrastructure in general. So still a lot of investments out there, still a lot of opportunities. And as we announced, we were awarded confidential critical infrastructure project just before the summer vacation with a value of more than DKK 1 billion. Yes, many opportunities out there and also within residential renovation of buildings, especially in Greater Copenhagen, we also do see a high activity level and many market opportunities. Our 3 major ongoing building projects, Mindet and Mejlbryggen in Aarhus and Terminal 3 in Copenhagen. That's -- are all 3 progressing as planned.

The North Atlantic market, especially Greenland and Iceland, also high activity to a lesser extent on the Faroe Islands. But generally, the North Atlantic market had also good market conditions. And then CG Jensen, Adserballe & Knudsen, the latest acquisition within construction is included in the figures now with effect of early June. The picture you can see on the left-hand side is the strengthening of a breakwater in Hanstholm, a breakwater that we built back in '18 to 2020. And now due to bigger water depths, deeper water depths, a part of the breakwater needs to be strengthened, and that is done by stones, granite stones and so-called Cubipods, that's the concrete elements you can see in the lower part of the picture. They are casted on our factory in Aarsleff BIZ in Poland.

Technical Solutions, the picture is from one of our district heating projects in Greater Copenhagen. Revenue or turnover of roughly DKK 3 billion and an EBIT result of DKK 167 million, corresponding to 5.4%. Growth of roughly 7% compared to the same period last year. And also we do here see high activity level within district heating. Many of the projects are done together with the Construction segment. Green transition energy and also some of our projects for the public sector, pharmaceutical sector, we do see 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, many tender opportunities out there. So still within those 3 areas, green transition, energy and infrastructure projects, we do see many, many tenders out there.

Rail, the picture is from some track works between Hoje Taastrup and Roskilde, close to Copenhagen. Revenue turnover of DKK 1.6 billion, a growth of roughly 9% compared to the same period last year. EBIT result, DKK 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, where we are busy with the electrification projects, the light rail project in Copenhagen and also our 4 to 5 contracts in Aarhus 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 and 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. But ground engineering, as we have told about -- 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 manufacture 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. The segment results, DKK 40 million, 1.3%, not on a satisfactory level, but as you can see, better than last year.

And I said, a growth of roughly 16%. 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 postponement of projects, also cancellation of some projects. And so we are a bit cautious whether those projects lying in front of us in the pipeline also will realize postponements. But the pipeline is good. It's a good ground engineering projects out there. And then Salzgitterkai, a huge key renovation project in Hamburg that we have worked on together with Hochtief for the last 1 to 2 years has now been awarded and going into Phase 2, where we are starting the execution on the projects.

Yes, the picture is from Aarhus, geotechnical investigations on the future Marselis -- for Marselis Tunnel that will be sent out in tender within -- I expect the next 1 to 2 years and a 1.8 kilometers tunnel that will have the effect of improving the traffic to Aarhus Harbour, especially for the trucks. Pipe Technologies, starting with the picture is from training of some of our new Canadian colleagues in Aarhus colleagues from the company, LiquiForce 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 DKK 197 million, 8.6%. So on a -- still on a high level, both activities and also the earnings, a growth of roughly 19% and -- in the opposite to ground engineering that has difficult market conditions in more countries, Pipe Technologies are seeing realizing, expecting good market conditions in basically all the countries that we are active in, strong activity level in all significant markets. And as I said earlier this year, we acquired a part of LiquiForce, a Canadian company and the works of getting people trained and getting equipment to Canada is progressing according to our plans. The picture is of Copenhagen, housing building in Copenhagen 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-time high on DKK 28.1 billion, as you can see on the graphs, 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 a run-through of the figures, 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 words 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 you can say, Anders, we need to have a good utilization ratio in our factories and there can still be -- there are still things that come in and that get postponed depending on the exact timing of the projects. And then there are some projects we are executing where it depends on how well we do it, that can either bring us to the lower end or the higher end. So we have some larger projects that we have ongoing. So it's basically project execution and digitalization of factories that will have an effect on whether it's the bottom or the upper. But we did some good -- I'd say upper is more difficult than lower, let's say.

I think we can say that. Yes.

Okay. That 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 Jensen and Adserballe & Knudsen. Are they operating as expected? Maybe some words on that.

The implementation plan that we have set out together with Jensen and Adserballe & Knudsen are progressing as planned. And I think it's not very different from what we see in Hochtief that there are many market opportunities out there in some areas more than in other areas, and that's the same then CG Jensen and Adserballe & Knudsen is seeing and especially as we spoke about earlier on this call that renovation of buildings, transformation of buildings, there we do see a lot of opportunities out there, good market conditions, maybe better than in other areas, but both CG Jensen and Adserballe & Knudsen and also Hansson & Knudsen are active in that market. So that's very positive.

And you 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 some exposure to some good market segments and also exposure to some less, we say weaker activity.

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

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 CGMT implemented?

You can say we see it as not a permanent situation. They have -- I think it's quite public known that they have some projects where they have some disputes with clients that are at the moment driving the working capital quite significant up. When those disagreements has been solved, then they will -- we expect CG Jensen [indiscernible] 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. So of course, that will drive down working capital quite considerable in the fourth quarter. So up here to CG Jensen, that will not be solved within the next month or 2, that's probably will take longer. That's our expectation, but working capital will go down in the fourth quarter to these large contracts where we have some nice down payments.

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 you 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 recuperate 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's -- 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, we -- I don't think you can say that for sure now.

But 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 Jesper said, the pharmaceutical sector is that we have some large ongoing projects that are getting closer as well to be finalized. So we need new projects to come in -- and whether we'll succeed, we'll see. But of course, there are opportunities, as we mentioned, within especially defense that could...

Could pick up. Yes.

Yes.

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

A couple of questions from my side as well. Just on the acquisitions, I note you write that you have not finalized the purchase price allocations yet. Any idea of when that will 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 off, this is a significant investment. So we just need to put that out there. And of 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's an effect to the EBIT and our guidance.

Makes sense. 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 described 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 Jesper and I have ever seen a pipeline like that. And when we discuss with new 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 an issue, as we said, how -- if there's not any precast concrete piles in them, of course, that's an issue.

But the opportunities, it's -- as Mogens said, the pipeline is really huge. And as we have never seen -- yes, repetition [indiscernible] 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. So it's a question of when will they be signed and when will execution start.

And you can say, Kristian, in Denmark and in Poland, we are very good at getting our precast piles executed in infrastructure projects. In Sweden, we are working on that and that is a huge project [indiscernible] that sooner or later execution will start. We hear that is getting more modulates. So -- but everybody takes credit, where large number of precast piles in that project and that will help our Swedish entity with factories. Germany is more of offshore wind farms that is drawing large precast concrete piles and that's an [indiscernible]. We can see that. And we are also trying to push more of our concrete piles into infrastructure [indiscernible] Germany is now conservative. In U.K., we are quite successful in fully pushing our piles for all the data centers. So that's really helping the U.K. business at the moment. So -- but yes, we still wait for this that it really kicks off.

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

Yes. Basically, fourth quarter looks good here, and -- but we have seen that before. We have a good fourth quarter and then suddenly first quarter is weak again. So we would like to see more than 1 quarter before we say now we are past this weak market in some of the 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.

There you say that's -- when we combine the figures, that was the prognosis is saying. 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.

Yes. So basically, it's in the Construction segment, but there are also some in the rail and some in that where [indiscernible] is part and there's also some Grounding Engineering part. So it's really...

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

[Operator Instructions]

The next question will be from the line of Sebastian Grave from Nordea.

I have a few. Maybe starting on the Construction segment. So not a quite steep step-up in profitability here from last quarter. I know this is also a strong seasonal quarter. However, as I recall, you've previously hinted that you see some tailwind from project timings here in the H2. So to what extent has project timings helped the quarter here? And to what extent should we expect similar in Q4 and beyond?

So there are some effect of project timing. So we have started to be more positive on the final result on some of our projects, and that's increasing in our Q4. So we are getting closer to finalizing these projects here in Q4. So as we always do, we start slowly to write up the margin when we get close to finalization.

Okay. And will you finalize these big projects in Q4? Will there also be some spillover into Q1 next year?

There are some spillover.

Yes. Some spillover into next year. But it's not a lot.

Okay. So mainly Q4. Okay. That's clear. And then circling back to -- similar to as my colleagues, circling back to the Ground Engineering segment. I mean, not performing as planned, and it feels like it's been a recurring topic for some while. And you say pipeline is good. Order intake also looks solid and revenue recognition is also, yes, solid here in the quarter. When should we expect you guys to come back to anything close to sort of the historical profitability in the Ground Engineering segment? So you have this medium-term target, call it 6.5%. Is that not next year, but the year after? Or what should -- how should we think of you or your ability to achieve that target given what you're looking into now?

The good thing is Ground Engineering is it can certainly -- can very quickly come back if we get more activity on precast factories. As we see it right now, we -- as we said, the pipeline is good. We clearly expect improvement next year. I think it will probably be too early to reach the 6.5%. It's not impossible if suddenly the market covered a lot of precast piles. But as we sit right now, it will probably more be 2 to 3 years out before we start hitting where we should be.

But next year seems to be much better than this year.

There are positive signs. Denmark looks good. Germany looks like improving. U.K. looks okay. So Poland looks okay. So -- and Sweden, there are also positive signs, although the weaker Norway is a bit more mixed, let's say, like that, but partly positive signs also in Norway. So if all that starts to materialize, then we clearly expect a better result next year and then let's see in 2 years' time or 3 years' time. But the good thing is it can come very quickly due to the good margin on -- when we have full activity on the pile factory.

It's one of the segments, both Pipe Technologies and Ground Engineering is, you could say, the 2 out of 5 segments where we normally have short visibility. So that's why we say that it can quickly shift.

And then Sebastian, we have not really talked much about it, but to be fair also to Ground Engineering, the diesel -- the price on diesel is not helping us. In Ground Engineering, we have very large machines that consumes a lot of...

It basically affects the whole group.

It's whole group and especially in Ground Engineering and Pipe Technology. And basically, we are absorbing that in the figures we are guiding.

Okay. Okay. No, that's -- on that note, maybe could you talk around what you're currently seeing in terms of the impact on profitability from higher diesel prices. Previously, as I recall, it was mainly in the Pipe Tech, but as you say, also a bit in Ground Engineering. So maybe if you could talk broadly around what kind of effects you're seeing and how we should expect that to pan out in the coming quarters?

So the good thing in Pipe Tech is a good market, and that gives us more power to raise our prices. And as you said, it's really mainly in Denmark, we have frame contracts. There are some in Sweden and Norway, but really in Denmark, here, we will get a full indexation. That will take some time. But in some of our main markets in Germany, it's short-term contracts. So within 3 months, we can increase our prices. So of course, we have done that already, and that will start help the results late this quarter maybe and then next quarter. And Ground Engineering is a bit the same as short-term contracts. So of course, maybe we have not been in [ QP ] free. looking in hindsight, we have probably affected because it's short-term contracts, some of them. But of course, we can use the new diesel oil price in our pricing. And then in the Construction segment, it's indexation. So it takes some time before it go through an indexation, but we also have some risk allocation in those that can absorb some of it.

But to be honest, all 5 segments do have machines that use diesel. So it affects all 5 segments.

Yes.

That's very clear.

Being absorbed in the figures that we have guided.

And I think the past has shown that we are able to pass it on, maybe not in the short term, but in the medium term, we are able to get it passed on to our clients.

Yes. So if diesel prices, knock on wood, stay roughly the same as they are now, you should, all else being equal, see some tailwind in terms of profitability next year when we compare to this year?

And in some segments more than that.

But in principle, yes.

Yes. That's very clear. And then my just last question. Can you just confirm if I heard correctly, Mogens, that you are to receive some quite hefty down payments here in the fourth quarter. So fourth quarter is shaping up to be a very strong cash flow quarter. Is that correct?

Yes. I think so. Yes, that's correct. So everything else being equal, we will get an unusual amount of advanced payments in the fourth quarter. So if we can keep the rest at the same level, it will improve quite significant.

That's great. Sounds good.

And we have a follow-up from Anders Preetzmann from Danske Bank.

I just have a question on the Northern Atlantic. Maybe if you can put some words on what you're currently seeing in Greenland, Iceland and the Faroe Islands. My impression is also that the activity has been pretty strong here. So what capacity you're looking into? So yes, an update would be appreciated.

So let's start with the most positive. In Iceland, we really see strong market. There's a lot of interesting opportunities, and we have also been winning quite a lot this year. So it's a very strong market and some very -- especially fish farms, land-based fish farms, we see infrastructure projects. hydro plants, we won one and there's a big one coming out. So really [indiscernible] left bridges. So we really like the Icelandic market at the moment, and we have also good execution up there. So positive on Iceland. Greenland, we secured quite a few large projects a year to 2 years ago. There's not a lot of money at the moment in the municipalities or the government up there. So they will need some more funding from Denmark to -- if they had to kick up some projects. But we see now the defense projects are coming out, and it's the Danish defense that have projects in the pipeline. It's U.S. defense base that have projects in the pipeline coming out.

So it's always a question about timing when it comes to defense. It's always difficult about the timing, but we can see we are in a very, very strong position for these defense projects that are in the pipeline up in Greenland. Faroe Islands, a bit more mixed picture. Infrastructure, we don't see much at the moment. There's a huge demand for housing. And when those projects will kick off, that's a question. But we see housing-related projects will come out here. We also see defense projects both in Faroe Island and in Iceland. There's a harbor in Iceland. There is radar system in Faroe Island, so it will. But Iceland will be the main driver here in the coming years, defense in [ Weland ] and then housing in Faroe Island.

All right. Very insightful. So just a follow-up on that. And maybe I remember wrong here, but -- would you still be able to -- so it sounds like Iceland is a good market right now in the Northern Atlantic. And you have a strategy of sort of bringing your staff from, say, the Faroe Islands, they would be able to work on Iceland as well. Would you be able to transfer them over there or...

Yes. There would be, and they are very interested in that. So that's a backup plan. So I don't see a capacity issue in Iceland at the moment. Of course, it could change. We are also bringing in Danish capabilities, and we are using our facility down in Poland for things. So we have things that, for example, Wicotec Kirkebjerg is now supporting on the big hospital project we signed this year up there. So -- and there's a bridge project where we bring in Danish people.

More tools we can bring into...

So basically, Anders, we of course, we shift our people around to where we see the best market opportunities, where can we get the best price and the best conditions.

This now concludes the Q&A, and I will hand it back to Jesper for closing remarks.

Thank you. Thank you for listening, and thank you for the interest in our company, and thanks for good questions. And I hope you will have a continuous good day. Thank you for now from Mogens and I.

Thank you.