Hi, and welcome to DNB Carnegie and the Q4 conference call with Terranor. My name is Marcus Sandberg, I'm an analyst here at the bank.

I got with me Mikael Berglin, who's CEO at Terranor, and Inka Kontturi, who is CFO. I will leave the word over to you.

You will have a presentation, and then I'll come back at the end with Q&A. The floor is yours.

Thank you, Marcus. Welcome to this presentation of the interim report for quarter four for Terranor.

As Marcus said, it's the same crew as last time. It's me and Inka.

I don't think presentations are necessary. Without further ado, let's get to the head number of this presentation.

I would summarize the fourth quarter and 2025 as a strong year for Terranor. It's a very strong quarter ending a strong year.

Most of all, I think that this quarter and the full year of '25 supports that we are delivering on the strategy. It gives strength to our long-term targets.

I think we are well on our way to meet our long-term targets. As you can see on this slide, revenue, of course, growth is super strong, I would say.

I would say that EBITDA is also strong. Of course, margins, I will get back to and comment on the margins, but the combination, to us, the combination of combining growth with profit generation and cash flows, having all three of those, it supports that the strategy is really delivering.

I will come back to this, but looking at Sweden and the way they have been able to really come through this year with delivering on all those three. Of course, Denmark has a unique situation ending four contracts, moving in actually moving ending five contracts and moving into four new ones.

That is a special situation. All in all, make no mistake, dear listeners, for us, this is a really strong quarter and a strong end of the year.

Coming back to just setting the stage for what Terranor is doing, we are specialized in road operations and maintenance. For us, coming back to the strong year and the delivery of what we've seen in 2025, it is a proof of the strategy of being specialized is the real differentiator here.

I think that our ability to provide good service, good quality on the roads towards our largest clients, that is the big driver behind this. Of course, you can say that our tendering has been strong, but it's two-folded.

The growth is primarily driven by what all of the operational activities that we do in the existing contracts. The combination of both increasing activity, being able to tender to the client needs, and also winning tenders, that is the big driver.

As you can see, addressing a market of close to 80 billion, and Terranor now being, well, 3.5, 3 between 3.5 and 3.7, of course, there's a lot of headroom for us to grow into. Standing here in front of you, of course being super proud of what we have achieved, being very proud of all of the colleagues working on the road, a word of humbleness.

Of course, a lot of headroom to grow into this. We will need to constantly improve and do better.

Coming back to where I started, being specialized is a key component for that strategy going forward. We've been through seasonality, and I will comment on this because we have seen quite a season for winter in all three countries.

Inka, if you would give me just the overall picture of where we are in terms of revenue generation, I guess, and also profit generation.

Yeah. All operations, we do follow the seasonal cycle.

We have a winter season, and we do have a summer season. During the winter season, we operate more on a fixed pricing, more of the to mitigate the risk factors if we do have the hard winter.

During the summer season, we operate more on a variable pricing. Also, when the summer season starts, the extra work the volume of the extra work starts to increase towards the year-end.

This, of course, affects the cash profile and the profit the margin profile within the year when we are increasing the volumes towards the year-end.

Thank you, Inka. Just underlying and also connecting to the weather we've been experiencing.

I would talk about Sweden first because we are in Stockholm, it makes sense. What Inka says is that in the winter season with more fixed prices, Terranor's strategy is always to have the right amount of prices, the cost with us to handle the winter season.

You will never see Terranor bet on having mild winters to that extent that we cannot do the work whenever it snows. We are, first and foremost, here to deliver quality on the roads, meaning we need to have sufficient money with us.

High activity in the winter season means high revenue, but it doesn't necessarily, I would say it doesn't mean at all that we would see high margins because that is not how we tender the contracts. We have sufficient money with us to handle the winter with high activity, but the boost in margins and the profits, they will come from the things that are priced on variable prices, and that is predominantly on the summer season.

Looking at Terranor, in a year where we follow the strategy, you would see revenues increasing by the quarter from first quarter and ending with a very strong fourth quarter, and the same goes for margins. High activity in the first quarter will affect revenues, not necessarily affect margins, because that is not how the contracts are tendered.

Winter is more about being able to provide the services, but not losing money. I would say something about weather, if it's good or bad weather.

We need to be able to handle all sorts of weather, but if I could choose, I would say that predictable weather is better for us. A winter that is a real winter in any of the three countries will be more predictable, we can plan it.

It will also the compensation models that we have in the contracts works better when it's predictable because we are getting paid when certain circumstances occur, like it's slippery, it snows, whenever that is detected by the weather station that ultimately determines if we are compensated or not. Predictable weather is good, and not that high margins on the winter season, even though it can be high revenues.

That is, I would say, the takeaway from the seasons. Solid growth.

Inka?

Yes, another growth quarter. This time with a 29% of the growth.

The growth driver here behind the numbers is the segment Sweden. The growth is not coming only from the new contracts which we started in September.

It is coming also from the swellings, we are doing more in the base contracts. This comes to a result of the increased funding from the government, and also what we have, the Terranor attitude.

Yes, we can do, and we want to do the service. Also, the order intake was really strong, and the order intake will support the growth targets going forward.

Thank you. Of course, operational cash, being in the project-based industry, I have been here for quite some time, I think it's very strong to have growth and profitability together with cash.

It proves that what you're doing is actually earning money.

Our operations secured for the fourth quarter 201 million SEK as operational cash flow. When we are comparing this year-end to the last year-end, this year we were more on time with the completion of the works, and also we are concentrated internally to our invoicing processes to be enabled to invoice on time this year.

One might say, I'm not going to get stucked in the seasonality, but we did have a strong quarter four since winter came late in December. Especially in Sweden, we were able to do a lot of extra work, a lot of variable-priced things all the way into, I would say, mid-December.

We were doing guard rails, that is the safety structures in the middle of the road, and that is kind of unusual. That's also something that puts a boost on the Q4.

If you're comparing the last year-end, now we were on time with everything: completion, the invoicing. Last year-end, we can see the spillover effect to the first quarter.

Correct.

Yes, the earnings are stable in fourth quarter. We have 48 million as adjusted EBITDA with a 4% of the margin.

For the full year, this is a 98 million with a 3% of the margin. Yes, this is a 0.8% lower than in a prior fourth quarter.

Yes, the Terranor's road maintenance operations in Sweden, they are performing super well in fourth quarter and also throughout the year. The strong execution in the core business offsets the subsidiaries which are not performing on the targeted level.

Yes, we ended up -0.8% compared to prior quarter, but we have done the corrective actions and we have strong believe in our core business, right?

We have. I guess this is where I elaborate a little bit further on when we say strengthen the underlying profitability.

As you all know, Sweden for us is the big driver. It is the biggest market with the biggest client being Trafikverket.

Looking at Sweden, I think one cannot underline enough that the result that we see in the fourth quarter, and actually throughout the year, it is the combined efforts from colleagues throughout the operations that are willing to do the work because the client have now more funds to dispose. For us being taxpayers in Sweden and for everybody living in Sweden, this is a good thing because the underspending for years have created a bad road situation.

Now it's very obvious that our largest client and their owner wants to see safer roads, they want to see more durable roads that can bear heavier load. For a company like Terranor being specialized, it's all about whatever needs they have being the largest client, we will tend to.

Inka said before, the proof here is that we have been able to provide a lot more services within the existing contracts. I guess, Marcus, in the Q&A, I will have an opportunity to comment on the current tender season, but I will steal something from it and I will say that what we are experiencing now with higher prices is also part of this.

It's our largest client having more money to dispose and a strong need to support Swedish roads. Looking at Sweden and the I would probably I will comment on the profitability.

We have two subsidiaries: we have a trucking company called Norvia, and we have an infrastructure company called Infra. They have been struggling.

No other way around it. If we were to adjust the Swedish segment for the losses that have been accumulated in Norvia and Infra, we would be in a very good, strong place, meaning profit margin-wise.

I will guide and say that looking only at the core business in Sweden, I feel confident to very confident that 5% EBIT margin is well within reach. That being said, over a 12-month period, coming back to you would not see that materializing in first quarter, but over a 12-month period since that is how we tender the contracts.

Sweden being very strong, and it's a combined effort of everybody working in the contracts. Finland has its challenges.

We have been open and transparent about Finland having a cost situation with legacy contracts starting first and foremost, '21, '22, and '23. They all run with five years, meaning that we have time to address the situation.

Most of the contracts are expiring '27 and '28. What we have done in this quarter, yes, we have put aside provisions to handle the risk, but we have also been proactive in addressing the situation with the largest client.

We strongly believe that we should be compensated for the cost, especially the cost occurred due to unforeseen circumstances, like the war in Ukraine. Looking at Denmark, Denmark had strong revenues in the fourth quarter.

A lot of that activity that leads up to revenues comes or actually came from within the contracts. You might know that for all of the state contracts, five out of five expired at New Year's, then four out of five started in our way of looking at it, in way better terms than the contracts were that expired.

With a lot of activity going on that were inside the contract, which also makes a lot of sense because when you expire when you run when it comes to an termination, all these contracts, it's very crucial for the client to secure that everything, all of the obligations are met within the contracts. A lot of activities in the fourth quarter just to meet the expectations and obligations in the contracts.

We I have guided on this before, and I will say that Denmark is moving into a significantly better area for '26. High-level financial targets and having both rear-view mirror look at where how have we produced or performed.

As you can see, growth is, of course, way above. We have set a target of 8%, and it's crucial to understand that that goes for the entire group.

If we were to single out the ability, potential that Sweden has, we would be more forward-leaning than 8%. I also expect Sweden to be the big driver in this, it's nothing out of the ordinary.

I think that when it comes to strategy, setting out as being specialized, this fourth quarter is the proof that we are on the right track, and I feel confident we feel confident that we are doing good stuff here. Profitability-wise, I've commented on it.

If we were to single out Sweden and the core business in Sweden, and also it makes up for over 60% of the revenues, we would have a higher EBITDA margin. Now we are on good track to reach the 5%.

We remain strong in our belief that 5% is well within reach in the short-term span. Dividend, well, not really my question, but I was in the room when the board suggested it.

I think for a CEO, it's always up to the owners, up to the board how they want to handle the money in the company. Being the company here, well, we don't have a huge investment need.

That is not how we run Terranor. We run it lean, low CapEx needs, and also very strong operational cash flows coming in from last year.

Those two components, good cash flow, not a significant investment need, together with the fact that we came to market saying that this will be a dividend case purely out of those two objects. I think this is also proof of the strategy.

From my perspective, it's not my question, but I think it proves the strategy. Good.

Leverage, yeah, like I just said, no huge CapEx need. We will run it low, slim balance sheet.

I think 150 towards 2.5, that is the target, is also a strong number. Coming back to the key investment highlights of Terranor, well, it will be a summarize of what we went through.

I think looking at '25, the specialization, being able to tend to client needs, to whatever is road operations and maintenance related, we will not go completely off the chart and do other stuff. If anything, the '25 performance supports that we are on the right track being specialized.

We do have a market that is continuously growing. We have a good, strong relation with the largest client, I would definitely say Trafikverket, with their demands for better, safer roads.

We I think I cannot underline it enough, the ability to combine growth with profitability and also cash flow, and on top of everything, being able to pay back to the owners. I think that is the key components here.

With that, Marcus?

Thank you very much for the presentation. I've some questions from the line as well.

I'll start out with maybe on top line before going to the margins. 29% growth, very, very good growth.

We talked a little bit about the drivers of the growth, but I think it's encouraging to hear that it's not only the new contracts coming in, but that it's more. What you're saying is really that you're already seeing the extra funds, the impact from that.

Mm. For sure.

It doesn't come it's not just flying through the air and you get it for free. You need to work for it.

Coming back to what I said, the entire strategy or the entire strategy, but a one-stop shop, Terranor being a one-stop shop for all the needs that our client have when it comes to road operations and maintenance, that is a big driver. Secondly, I didn't mention it before, but the idea of us having the state contracts, but also being the ability to move into adjacent municipalities, moving to local markets.

More looking at the entire geography that we are within and tending to all of the needs. First and foremost, the state contracts, that's the backbone of the company.

The relationship we have with Trafikverket and that you what you point out that we have been able to do more within those contracts, that is the big driver.

Then, I guess, moving on to the margin, which I think is 29% growth, but still a decline in margin. We saw, and we talked a little bit about it, but if we try to summarize just to frame it, the positive and negative factors here, where the positive factors was the growth and the higher prices and the more swellings, and then you have Norvia and Infra in Sweden, and then you had Denmark and Finland, which were both kind of underperforming, if you use that word.

Is it anything else? Then we can get into the details in each area.

No, I think those are the key drivers. I wouldn't hesitate to say that Denmark and Finland have been underperforming since the target is 5%.

Then again, Finland have legacy contracts. It's not a quick turnaround.

We've been transparent about it. It will take time to mend that situation.

Denmark, on the other hand, of course, very different terms in the contracts that expired towards the ones that are starting now. Then again, I would not see a huge reaction in margins for Denmark in the first quarter because Denmark is also affected by seasonality, and Denmark has had winter where we are really strong in sweeping, doing friction work, and that is not possible when it's 2 dm of snow.

For a full year in Denmark, yes, we are strong in our belief that margins will be better, but you would not see, the same goes for Sweden, you will not see the big jump in the first quarter. Yes, Marcus, you are correct in your analysis.

Maybe starting with Sweden, because I think we'll need to dig into each of these areas, and starting with Sweden, is it possible at all to quantify the Norvia and Infra, would you like not to do that? That's the first question.

The second is, when should we expect for these losses or low performance in Norvia and Infra to normalize, to neutralize?

I have said before, we have said before that Infra is now embedded into Terranor AB. We will still do light infra work, but we will do it, if you ask me, the way it should have been done, close to the road, everything that is road operations and maintenance and that encumbers infra work.

Fine, good. We need that.

We will have to provide that for the client. That is what we're doing.

When it comes to Infra, I would say it will cease after New Year's because then everything has been restructured, reorganized. When it comes to Norvia, we are in the midst of a restructuring program.

We've had restructuring effects that we have adjusted for in the fourth quarter, but we also had operational losses. I guided before and said in Q1 this will turn around.

Hopefully in '26, we will be profitable. All of the actions that we are taking now, and those are severe actions, they are doing a lot of things.

You ask me what is the effect for '25, and I do not want to single out the number. That is true.

I will answer it in a different way and say adjusted for that, looking at the core business in Sweden, we will be well above the 5% margin. Sweden as the core business is in a really good place.

Now it's about for us to remedy the situations that we have had in the subsidiaries, and we are doing a lot of things, and I hope we'll see it already in the first quarter.

Then moving on to Finland, and we'll come back to a couple of questions which will involve Sweden later on, but looking at Finland, you have negotiations with your customers. How are those progressing?

I will answer it in this way. Finland and the road operations and maintenance market are made up of few contractors.

My belief is that Terranor serves a purpose in Finland doing this service. We've always looked upon it as strategically important for us to be in this market.

To your question, I think that the discussion is everybody is looking for a win-win situation. It's early days.

I think what we have done in the fourth quarter that is very strong is that we have taken a proactive stance.

We will not,

how should I put it, we will not continue a dialogue that doesn't lead to a firm effect. For us, it's better to have a decisive yes, no, where are we.

Now we presented what we think is a fair view on the compensation. We have legal support for it, and we feel strongly that this is a good case.

I said, we're early days in the discussions, but I do believe that everybody is in favor of a win-win situation.

You talked about the contracts structure, the rolling over of the contracts will mostly be done in '27 and '28. Is it anything in '26, and is the majority in '28 or is it mixed or is the majority in '27?

Two contracts expire in '26, merely two. Those are in the discussions, but I would definitely say that '26 is not a problem for us.

'27 comes the majority of the contracts. Five contracts in '27, four contracts in '28.

That is the situation.

Then there's this question about the ceiling exposure that you have in some contracts in Finland. What's the situation with that, and are you fully covered for that?

Inka can talk about provisions or accruals, but I don't think we will not single out. Of course, everybody understands that we are following accounting principles.

We have the our auditors with us. We are doing everything by the book.

From our point of view, we have sufficient provisions with us. It has taken a toll on the margins for '26, oh sorry, for '25, because in our way of looking at it, yes, we have a risk, and that is connected to the cost for these legacy contracts.

We have made provisions for it. That is what you do in a project-based business.

We have put forward the claims towards the clients.

Moving on to Denmark. We talked about in Q3 that, and also looking at the level of both revenues and earnings that you have seen, we went into Q3 getting less extra work than you had expected or that they had communicated that they would do.

I assume this has continued in Q4, the same kind of pattern.

It has. Coming back to what I said, finishing these are large contracts with a lot of things that need that is our obligations.

I can understand that our client, their focus has been on let's make sure that Terranor finish all of the contracts in a good manner. That is also good for us.

We need to maintain, of course, a good relationship, but also being a provider of quality services. We didn't get the extra work outside of the contract to the extent that we hoped for.

Activity being high also proves that there are client needs and we are able to provide for those services. However, we cannot affect terms in contracts that were set four years ago.

That is the situation.

Maybe related to that, because we're also going into a situation in Sweden where you have, well, you just had a lot of contracts which were being, which expired in September,

and

then you have more contracts. Do you see the same thing in Sweden as well, or is it more of a Danish issue?

No, I guess we see it in the Swedish contracts as well. Whenever contracts are expiring, a lot of focus goes towards securitizing documents, all of that.

Let me phrase it as it of course, it's tougher, harder to get a real boost of extra work in a contract that is expiring. I think that's it also goes to your ability to plan, because extra work takes a lot of planning.

We if we know that something is expiring, and that goes for the client's behavior as well. Yeah.

Denmark being special with five out of five contracts expiring at the same time, so that we haven't seen in Sweden.

Then maybe to make because before we go to tendering season and the ongoing situation in Sweden, the winter, just to come back to that, because it's a very common question. If I get you right, the winter season being the way it is right now, because obviously the worry is that there has been a lot of winter, and hence a lot of snow, and hence you will see a pressure on the margin from that in Q1.

If I understand you right, and then correct me if I'm wrong, but there has been a lot of winter, but it's predictable, meaning that you will get paid, and hence you will get that will protect earnings rather than if it would have been an on and off, then it would have been more at risk. Is that the right way to think about it?

I really, really would like to give a definite, one-fits-all answer. Unfortunately, that is not the case.

I will try to be as clear as I possibly can. In the contracts, we price some 100, 100-plus line items.

It's everything from grass cutting to tree cutting to fixing potholes to safety barriers, and of course, weather situations. We are pricing whenever it snows, and snow comes in various shapes and forms: it comes snow with wind, snow with slippery, and everything in between.

We price all these line items. Since we cannot affect weather, we put a lot on fixed prices in winter to mitigate the downside that if we have a very hard winter with lots of snow, we will lose money.

The objective for the winter is to provide the services, not necessarily make a lot of money on it. We would be too expensive, if you ask me.

We try to mitigate the downside by having enough money with us. Then comes the X factor.

Since we are only getting paid when the weather station detects that there is a for instance, the surface is slippery on the road, but the weather station is over there, it doesn't function all the time, meaning that we need predictable weather to get the weather station to detect that we should get paid. Whenever there are uncertainties, we have the right money with us, but we don't get the weather station to detect it.

That's our loss, and it happens. This is not 100% bulletproof, the system.

To our largest client, we are in really good discussions with them because this the entire system of how this is compensated for the contractors puts a lot of risk on the contractor. Risk meaning that sometimes we would be hesitant to do actions on the road because we don't know if we are getting paid.

All of that discussion, we are trying new models, for instance, Sundsvall, which is a collaboration model. We will try new models there, I foresee at least.

Ultimately, everybody wants safe roads, everybody wants the people in Sweden to travel on safe roads, and we need to be able to predict whether we are getting paid or not. There are different alternative models for this.

Coming back to your question, and I understand I didn't give a clear, decisive answer, but we're trying to have as much money as we can. We like predictable weather.

We like predictable weather that gives the weather station detections so we are getting paid. There are different ways of tendering these kind of contracts.

Coming back to the 100 line items, you could, of course, take a bet that it will not snow, or no one of the safety barriers will have to be replaced. That is not the Terranor way of tendering.

Whatever happens, whatever the client comes to us with, we will say, "Yes, we will fix that." When you see the new tenders that has come out for this year, I think the biggest change from before is the amount of volumes.

The anticipated volumes that our clients put into the tender material, and that goes basically to all of the 100 line items, they now anticipate more action, more volume, more activities on the roads, which is good because it goes, for instance, with the safety barriers: replacing more safety barriers gives safer roads; dewatering, another big topic: replacing drainage, drums, everything that has been put in for 30, 40 years that today are insufficient because of the heavy rainfalls. It's very good, but we also need to have sufficient money with us so we can tend to all of those needs.

When you see big jumps in prices from prior tender season to this tender season, I would say that is a driver. Another driver can be, and it is, that some of the contracts 4 years ago perhaps were tendered in a, how should I put it, unsound manner.

It needed to be price-adjusted. Just comparing price level then to price level now, it is a blunt instrument.

I think the best proof is that whoever wins the contract, look at how they have performed after full 12-month circle. There is your proof if the tender was correct or not.

That is what we have talked about, how our tender process works to secure that we actually can do the work and do it for the first full quarters, for full four quarters, and then continue doing it for the full period.

Then maybe finally, our time is running out, but maybe a couple of words on the tendering season in Sweden, which is ongoing. The outcomes so far, is it in line with your expectations?

Maybe a couple of words on how it's going.

It's a tough question if you are a competitive person because then you want to win everything. Winning everything is not feasible for Terranor.

It would be too much to absorb. It's about winning the right contracts to the right circumstances or to the right terms, if you would.

Far, I am confident we are ahead. Looking at the contract volume that we went in with and where we are right now, we are ahead because the contracts in Skellefteå and Sundsvall that has been announced are the volume of those two are more than the three that we currently have unfortunately lost.

When you ask me, "Do I want to win everything?" To some extent.

I feel for the colleagues in the contracts that we haven't been able to protect. Of course, we will try and mitigate this.

We have perhaps municipalities, we have other markets, we have adjacent contracts. That is where my first thoughts go, and that we have built up strong organizations and now to some extent we need to reorganize or dismantle them.

We are 9 out of 23 contracts in when it comes to Sweden. I am saying I am confident that we are in a good position.

I will get back to you when we are at the end of 23. Far, good.

Okay. Mikael and Inka, thank you very much for coming here to talk to us, and thank you for watching.

Thank you.

Thank you.