NYAB AB (OSTO:NYAB) (Q2 2026) Earnings Call Highlights: Record Backlog and Strong Revenue ...

Negative Points

• Consulting business (Dovre Solutions) continues to underperform, with a 13% revenue decline in Q2 2026 and a low operating margin of 2.1%, dragging down group profitability and delaying the achievement of the 7.5% EBIT margin target.

• Soft demand in the Norwegian offshore market and weak appetite for renewable energy investments have led to a lower order intake in the consulting segment, with a rolling 12-month book-to-bill ratio of only 0.7x.

• Free cash flow in Q2 2026 was significantly lower at EUR 1.8 million versus EUR 5.5 million a year ago, due to temporary working capital build-up and investments in machinery, which may raise concerns about short-term liquidity.

• The company's long-term financial targets (revenue growth >10% and EBIT margin >7.5%) are not expected to be met in 2025 and 2026, primarily due to the dilutive impact of the consulting acquisition, indicating a delay in achieving strategic goals.

• Seasonal patterns remain a challenge, with Q1 and Q2 being slower periods, and the company's performance is heavily dependent on the second half of the year, which introduces volatility and uncertainty in quarterly results.

• The integration and restructuring of the consulting business, including leadership changes and the establishment of operations in Sweden, are ongoing and may take time to yield the expected margin improvements, with a heavy improvement only anticipated in 2027.

Q & A Highlights

Q: What is the financial impact and reporting structure for the recently signed SEK 6.5 billion Uppsala Tramway contract, and when will the work begin? A: CEO Johan Larsson confirmed that work has already started to some extent. Interim CFO Peter Franks explained that since the project is a joint venture, NYAB will recognize its 50% share of the profit or loss through equity in associates and joint ventures, which will be reported below operating profit. The project is expected to be completed over eight years, with annual revenue contribution representing less than 10% of NYAB's total revenue. Margins are expected to be similar to the company's average civil engineering margins.

Q: Can you provide details on the EUR 600 million phase II pipeline and the timeline for converting these early-stage engagements into signed contracts? A: CFO Peter Franks clarified that the EUR 600 million pipeline includes NYAB's 50% share of the Uppsala Tramway project, which was signed after the quarter ended. CEO Johan Larsson stated that the remaining pipeline consists of projects like the Mikkeli Data Center, two SSAB contracts, and Svenska Kraftnat. He expects most of these phase I engagements to convert into phase II execution contracts during 2026, with production timelines ranging from two to four years.

Q: What drove the strong Q2 revenue growth of 19% and the improved operating margin to 5.1%? A: CFO Peter Franks attributed the growth to higher production levels, which reflected a combination of production slipping from Q1 due to the tough Nordic winter, an 18% growth in order intake over the past year, and several large infrastructure projects in Sweden with short delivery timelines moving from planning into construction. CEO Johan Larsson added that the margin improvement was driven by both a structurally favorable project mix, particularly in niche markets like railway, waterworks, and power lines, and operating leverage from higher volumes.

Q: How is the consulting business (Dovre Solutions) performing, and what is the outlook for margin improvement? A: CEO Johan Larsson acknowledged that the consulting business continues to dilute group margins, as expected following the January 2025 acquisition. The company has taken several actions, including divesting its North American operations, making leadership changes, and establishing the consulting business in Sweden. He expressed confidence in a "quite heavy margin improvement" during 2027, driven by these restructuring efforts and increased collaboration across the Nordic region.

Q: What is driving the lower free cash flow in Q2, and is the 88% cash conversion rate sustainable? A: CFO Peter Franks explained that the lower quarterly free cash flow of EUR 1.8 million reflects the weaker Q1 revenue, an increase in working capital related to inventory for an upcoming project, and extended payment terms on a strategic project. He views the working capital build as temporary. CEO Johan Larsson emphasized that the company is asset-light with low CapEx and has a history of strong cash generation, stating he aims to maintain or improve upon the 88% cash conversion rate going forward.

Q: How much of the Q2 margin improvement is from operating leverage versus a structurally more favorable project mix? A: CEO Johan Larsson stated it is a combination of both factors. He noted that Q2 is typically a "semi-slow" quarter, yet this was the strongest Q2 in the company's 13-year history. The margin improvements come from the company's outspoken goal to address higher-margin niche markets, but higher volumes also help carry overhead costs more efficiently.

Q: Is the organization sized for the volume ahead, given that headcount decreased 11% while revenue grew 19%? A: CEO Johan Larsson confirmed the organization is well-positioned. He explained that NYAB is a white-collar company with approximately 85% white-collar employees and less than 10% of total production done by its own staff. The Uppsala project will not require significant incremental hires, as the team is already in place from the planning phase. The company's asset-light model allows it to scale revenue without proportional increases in headcount or equipment.

Q: What needs to change for the Finnish business to reach a 5%-7% operating margin? A: CEO Johan Larsson stated that the 5%-7% margin target is "within reach" for Finland, which achieved a 3.1% margin in Q2. He noted that the business needs growth, which is currently occurring, and expressed hope that the annual margin target can be achieved within the coming years.

Q: Are there plans to expand data center contracts, and what margins can be expected from this segment? A: CEO Johan Larsson confirmed there is significant activity in the data center market and that NYAB is interested in securing more contracts following its first win this year. He stated that data center margins are expected to be "slightly better than the average business" because clients value quality and timely delivery highly, allowing for better pricing.

Q: Has the company considered reporting its financials in SEK instead of EUR? A: CEO Johan Larsson confirmed the topic has been discussed internally but no decision has been made. He noted that since divesting its North American operations, the company is now more purely Nordic, which makes the consideration relevant. However, there are trade-offs between the strength of a larger currency and the uncertainty of exchange rate fluctuations.

For the complete transcript of the earnings call, please refer to the full earnings call transcript .