Good morning and welcome to this update from NCC. My name is Tomas Carlsson, and I'm the CEO, and with me here on the call, I also have Susanne Lithander, our CFO. This morning, we issued an earnings update for the NCC Group. Let me break this down for you. After my short presentation, there will be opportunities for questions. The highlights for today goes like this. In the asphalt business, we are experiencing a really strong headwind due to cost increases, primarily from energy, but also from other costs. As an effect of that, we also see lower volumes bought by our customers. As a consequence, we expect the business area Industry to report a zero EBIT earnings for the full year 2022.
For the contracting units, we experience margin pressure due to the inflation. This is mostly well managed in the business. However, in Sweden, we will see, unrelated to the inflation, we are making a write-down of SEK 120 million, related to a few residential projects. Let me emphasize that this is not due to inflation, but to poor project management. These two, Industry and Building Sweden, has an impact for the full year earnings, as well for the third quarter earnings. In property development, we have a project or sales of land that we have previously communicated that we would recognize profit in the third quarter this year. Due to purely administrative reasons, this will be moved to either quarter four this year or quarter one.
Overall for the group, we expect good cash flow, and we are planning to continue the share buyback program for the group this year. A little bit more detail on business area Industry. We have increased costs to our customers to compensate for the increasing prices. We have not managed to do that completely, and primarily this is energy cost. We have leveraged the potential of our customers, meaning indexation, compensation, renegotiations, et cetera. We have not, nevertheless, managed to compensate for increased costs. Sweden is less impacted by the cost increase due to more asphalt plants running on biofuel with a more stable cost level. Volumes impacted since July.
We clearly see the decline in volumes from July, most pronounced in Denmark and Norway, not as much in Sweden. On top of this cost development, due to several reasons, we need to have additional pension payment for the business area Industry, and this will be a cost for the quarter and for the rest of the year. Most important, their earnings in the business area are expected to be around zero for the full year and compared to what the normal pattern is, the largest impact would be in the third quarter. Building Sweden, we have the Q1 through Q3 earnings impacted by write-down of SEK 120 million related to a few residential projects in the Stockholm area.
This is not related to cost increases, but to project management and risk management in the projects. In general, we see margin pressure in the same way as we saw in the second quarter for all contracting units, but in general, well managed. Property development, not impacting the overall earnings, but this is a phasing question. Profit recognition for land sales close to our headquarters in Solna, postponed from the third quarter this year to either fourth quarter this year or the first quarter next year. This is purely for administrative reasons for Swedish authorities. Finally, we expect cash flow to remain strong, and therefore we will continue with our share buyback program.
Per September 23rd, NCC owned 7,127,463 B shares compared to slightly more than 10 million that we are allowed to own. We remain with our target of EPS 16 SEK for the full year next year. Before we open up for questions, remember that we have our interim report for the third quarter and for year to date, January-September 2022, will be presented on November 1st. A report released around 7:10 A.M., and the presentation and call at 9:00 A.M. With that, operator, we open up for questions.
We will now begin the question-and-answer session. Anyone who wishes to ask a question may press star and one on the touchtone telephone. You will hear a tone to confirm that you have entered a queue. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use only handsets when asking a question. Anyone with a question may press star and one at this time. The first question comes from Markus Henriksson from ABG. Please go ahead.
Thank you very much. A question on the margin pressure in the contracting units. You mentioned that you handle it well, but have you seen any change in direction for the worse or for the better for post early July? Or do you see a similar situation as you highlighted in Q2?
Overall, I would say we have pretty much the same situation as we saw in Q2. The one big outstanding item is energy, impacting a lot of the business and most clearly pronounced for industry.
Very clear. Thank you for that. Also a bit on the industry and asphalt. Could you elaborate a bit on the volume decline? As you mentioned, it's driven by soaring energy costs. But could you dive a bit more into the demand side, if there is anything else, or how the energy price increases are affecting your and your clients' behavior?
Well, we will get back to that in the third quarter, but what we can see that overall the decrease is most pronounced in Denmark and Norway, starting in July, and it's on a significant level. We don't know whether this is due to our price increases or the market changing, overall yet.
Thank you. Those were my questions.
Thank you.
The next question comes from Martin Lindgren from Dagens Industri. Please go ahead.
Thank you. Hello, Tomas. I wonder if you could elaborate a little bit about the poor project management and risk management in the residential projects and also specify what residential projects in the Stockholm area these are and who are the customers. What has actually happened?
The last two questions I will not answer because that's privileged information relating to our customer relationships. I can't answer that. We have over the last 4 years been working hard on having a better system for processing risk and project management. This is within one department in Stockholm, where they have not been compliant to our system, and they have agreed to contract conditions and the pricing model that is most according to what, where we want, how we want to work. I have to stress that it's emphasized that it's even more important to work with project management and have a process for that.
What are you gonna do to make them abide to your system? Is there anyone who will have to leave the company?
We have made a number of changes to the organization, but we have a long list of activities to make sure that people understand. We have not been able to use this project specifically yet, but as of this morning, we have been more open internally on what we expect from the organization.
You say you made some changes to the organization. Has someone left the company due to this poor project management?
We've made changes to the organization. The detail on what we have done is information for the company.
Okay, thank you. I'll get back in line.
Yeah. Thank you.
As a reminder, if you wish to register for a question, please press star and one. The next question comes from Erik Granström from Carnegie. Please go ahead.
Thank you. I had a question on industry, where normally in the seasonal pattern is that obviously Q3 is stronger than Q4. You already guide indirectly for Q4, giving us the expected full year numbers. Do you expect the seasonal pattern between Q3 and Q4 to hold up, meaning that Q4 should be a weaker quarter in terms of earnings versus Q3, or is it the fact that since July you've had these impacts in primarily Denmark and Norway, meaning that Q3 should take the brunt of the effects also on the back of changes to the pensions?
Good morning, Erik. You're absolutely correct. Q3 is normally a very strong quarter. We will have most of the impact in this quarter, since this is related to product forecasts and the way we account for asphalt. I expect the general pattern to hold, but to be less pronounced and most of the impact compared to what you could expect will happen in the third quarter.
Okay. Thank you. Regarding the increased payments within the Swedish operation to the pension funds, what is the effect of that in Q3 for EBIT? What is the net effect? Because I assume that you will have a negative impact obviously on EBIT, but that should also mean that the overall debt comes down, which means that you must eliminate something somewhere.
For the full year, we expect it to be about SEK 100 million almost. Yes, you're correct in your statement that it will impact industry, but it will also impact other eliminations with a positive effect of the same amount. Overall it's a zero effect on the group.
Okay. The overall EBIT effect for the year will be zero due to the changes in pension. It will just be weighing on industry but have a zero effect on the group.
Yes. Yes.
Okay. Thank you. Those were my questions.
Thank you.
There are no more questions at this time. We have a couple of questions from the web. The first question is regarding energy costs. Are the energy cost increases also related to diesel, and do we have index clauses regarding that?
They are related to all sorts of energy, most pronounced connected to oil and oil related products, but also gas, but also electricity as all sorts of energy. We have normally not index clauses related to energy the same way as we have too, for example, bitumen.
I have a couple of questions from DNB.
Can I add one more thing? I think it's important also to recognize that energy prices has an impact on transportation. Since asphalt and stone materials account for a large portion of the short distance haul in the Scandinavian countries, this is also important for transportation.
I have a question regarding if this news today will impact the dividend policy and dividend per share for 2022. Will there be an adjustment for one-off losses or not?
We expect cash flow to remain strong. This will not impact dividend policy. As for the dividend for 2020 paid in during next year, that's a question for the board to recommend to the AGM.
I have another question regarding industry, and if the costs that we're seeing now, the higher costs, if they are, one-offs for this year, i.e., will we be able to pass them on in prices to customers for next year's contracts?
I mean, we always have an intention to have, you know, cost covered by our revenue. This will be factored in for tenders given to our customers starting early next year.
A final question from the web regarding the Building Sweden contracts. Are they completed or on their way to be completed? If not, can we expect further impairments?
They will end in August next year, so it's almost one year left with a number of different stages. We've tried to have as a realistic view on this as possible and make sure that we have room for further changes.
Those are the questions from the web.
Thank you very much.
Any further questions from the phone? Not so far, madam.
Thank you for calling in. If you have any further questions, please contact Maria Grimberg, Head of Communication, or Tove Stål, Head of Presentations. Thank you very much.