Ncc AB

STO:NCC B

Earnings Call Transcript 2018-Q1

[Johan Bergman, Investor Relations Manager]

Good morning, everyone, and welcome to this presentation of NCC's interim report for the first quarter 2018. With me here today, I have Acting CEO Hakan Broman and CFO Mattias Lundgren. After the presentation, we will open up for questions. Since this also is broadcasted on the Internet, I would like to urge everyone to use the microphone and state your name before you ask your questions. With that, I would like to leave the floor to Acting CEO Hakan Broman. Welcome, Hakan.

[Håkan Broman, Acting President & CEO]

Thank you, Johan. Good morning. The first slide has a nice picture, as you can see. This is actually Oestra Laenken in Lulea. It's an Infrastructure project. You can't see much of it. This is the landscaping part of it, but it's a part of a big project that we've been doing for the last four years that enables Lulea stad to grow with 10,000 inhabitants over time, the utilities. And this project actually won the Construction Project of the Year this year, which is very unusual that an Infrastructure project actually does. But so we're extra proud of this.If you heard me before, already what I've said, you may have noticed that I have focused on a couple of things during the tenure of my time here, six months. My priorities have been and still are focused on profitability and worksite safety and to control parts not performing. Those mainly have been Building and Infrastructure, those two business areas. We wanted also to reverse the cost trend. That is what I set out when I started this job in late October. And I will end it in a couple of weeks, but nevertheless, this is what we have focused on.So how are we then doing? Well, the cost reduction program that we have introduced and promised is an annual overhead saving of SEK200 million. This is support functions mainly. We have reduced the number activities that we've had within the support functions. We have reduced the number of consultants and also have had a redundancy, which means that a fairly [ large ] number of employees has left NCC and continue to leave. And this is not because they haven't performed. This is simply because we want to have a more slim organization closer to the operations, closer to the business. And we have moved support functions out to the business areas as much as possible, so to ensure that the business operations demand their services more. It's ongoing and will have a full effect during the course of the year.The second priority, safety, worksite safety, you may know this definition, lost time injury frequency per 1 million worked hours with absence from ordinary duties. I was hoping to stand here before you today and say that what I promised actually will show on the chart. It doesn't this quarter. I'm convinced it will over time, but what then happened in the first quarter? Well, we've had the toughest winter for some say 50 years. So there's been a lot of slippery -- people have been sliding and sloping on the worksites to a large extent, no dramatic accidents, but nevertheless, the number of accidents has been higher than it should be.Let's look at the financials, the key financial data. It's been a very strong quarter in terms of orders received, SEK17.5 billion. A huge amount of that is civil engineering projects. We have taken orders for SEK7 billion on the West Link in Gothenburg. I'll get back to that later on. We have a net sales slightly lower than last year. It's mainly due to the fact that Property Development only had one project coming out in the first quarter. Last year, they had four projects. So but net sales goes up in Building. It goes up in Infrastructure, also in Industry.Order backlog obviously strong. You have a lot to work with and from. This is good for the coming years, also this year's. Profit after financial items is negative. It's lower than we expected and obviously wanted, but nevertheless, it can be explained with the fact that we had a huge project last year in Property Development that stood for major part of the profit last year. That we did not have this year. Welcome.Group financial objectives. I was too fast here I think. Okay. Operating margin 2% according to the new accounting standard that we apply, IFRS15. Mattias will explain later on what that means, but if we apply that also for 2017, the margin we had at the end of last year was 2%, way below where we want to be obviously. You can see where the target is. It's double that. With the loss in the first quarter, obviously, we will have had a low margin in the first quarter.Revenue development. Annual growth, we have downplayed growth and focused on profitability. There is still growth obviously, but this is not the first and foremost strategic objective that we have for the time being.Other key financial data, equity asset ratio and return on shareholders' equity. Well, in the first quarter, obviously, it was lower due to the fact that it's negative result. The equity asset ratio is almost as per end of last year, slightly lower than the target of 20%.Net indebtedness. Well, we have a net cash position when we exclude pension liability.And what about market? Well, the Nordic construction market outlook for this year and this year only is as following: 3% overall. New build growth rate including residentials still a growth rate, 1.8% this year. Civil engineering, very strong growth rate, especially in Norway and Sweden. It's actually double digits in Norway for this year. Refurbishment growth rate 2%. Strong growth rate also in stone and asphalt since it's closely linked to civil engineering, ending at 8% according to the forecast for this year. And the market is still favorable for commercial property, mainly in the capital areas. So this is what we have to work with and from.I'm going to show you a couple of project examples of new orders that we have received that we are particularly proud of. We're obviously proud of all orders that we get, but I can only mention a few. The first one is Angstroem Laboratory in Uppsala, this an extension of the existing one that we will do for Akademiska Hus, a value of SEK915 million. It's 30,000 square meters. It's the cube in glass that you can see there. That's the new build. It will host about 1,200 students and 400 employees.The next one is one of the largest orders that I think NCC has ever received. It amounts to SEK4.7 billion. It's part of Vaestlaenken, the West Link project in Gothenburg, which is a railway, commuter train station and 2 kilometers of tunneling obviously for Trafikverket, Swedish Transport Administration, but SEK4.7 billion. This will obviously be worked up volume over time. So it's many years of construction. We're not going to do it this year or next year. It will be -- I think it's 6 or 7 years' production time.And we have used digitalization in order to obtain these orders to a large amount. I'll show you a short video.[Presentation]

[Håkan Broman, Acting President & CEO]

Another project that we are proud of is this. It's the Ministry of Foreign Affairs buildings in Helsinki. We've been able to attract orders to renovate the Parliament, Supreme Court, museums in Helsinki, and this is an additional order that we received, SEK470 million. The oldest building that we will actually renovate is about 200 years old. So it's prestigious buildings in the center of Helsinki. I think this one you actually see is very centrally located. I think it's very familiar.We also build residential. We build rental units in Denmark. This is a project for 100 rental units approximately in Tuborg Havn to Danica, SEK620 million.We have something, a venture, you may have heard of it, Loop Industries. We have incorporated this now. And it's out for grabs. This is a tech company with building materials and transportation to make it more simpler to actually sell and buy these kind of materials in a digital environment. It's actually an app. And I'm going to show you shortly what this is all about. The portfolio comprise of Loop Rocks, Loop Rocks Express and Hauly. Hauly is like -- it's a facility that enables truck drivers and the ones that want actually something moved to connect in a very, very diligent manner. This is what Loop Rocks --[Presentation]

[Håkan Broman, Acting President & CEO]

Loop Rocks had 10,500 users by the end of April I believe -- sorry, May -- sorry, March, by the end of March, 10,500 users.This one is something that has gained quite a lot of recognition in media, the eRoad. Electrified road between Arlanda and Rosersbergs is the first stretch. An inauguration was held 11th of April. It has been developed under the umbrella of Swedish Transport Authority. Some 20 stakeholders have been involved, NCC being one of them. The eRoad Arlanda project is working to make electrified roads of the future actually reality, and we are proud to be one of the stakeholders in this. Hopefully, there will be new stretches coming along that we can participate in.Okay. I now hand over to Mattias to dig into the numbers.

[Mattias Lars Lundgren, Chief Financial Officer]

Thank you, Hakan. And I'm happy you didn't give a forecast regarding users in Loop Industries in May because we don't give forecasts, and I will try to avoid doing the same.Anyway, before I go into the numbers, I would like to remind everyone that we're currently using a new accounting standard called IFRS15. That has an impact on NCC Building and NCC Infrastructure. If I boil it down to the central issue, it's that we now income recognize claims and additional work when we have documented our right to this income and when we have a higher probability than we used to have. In the old accounting standard, it should be more likely than not, so 51%. Now it should be highly probable. And if you ask me, I would like to see a 70% to 80% probability that we get the payment before we income recognize it. But that's my personal opinion, and these are always subjective judgments. This has led to a restatement of 2017 for these two business areas and also for the group.We are currently investigating whether or not IFRS15 will have an impact on Property Development. We have been recognizing profit and income when projects have been handed over to the customer. We would like to continue to do that because we think that is the right way to show the risk profile in these projects. However, IFRS15 may force us to start using percentage of completion in PD. We don't want this, and we are currently discussing with our auditors whether or not we would be forced to change. Currently, we have not changed.So with that, I go into the numbers, and I'm starting with the income statement, and as usual, I will start from the bottom. Profit for the period is minus SEK296 million. It's on a significantly lower level than last year. The reason is what Hakan already stated, a lower level of recognized projects in Property Development. Last year, it was four projects, including Torsplan 4, a large project in central Stockholm. This year, we have had one smaller project in Finland, which has been handed over and recognized. This has an impact on net sales in the group. We have increased net sales in all other business areas, but not in Property Development. And of course, a lower transaction level in Property Development has an impact on the gross profit.Selling and admin expenses is on a slightly lower level than last year, but of course, if you multiply the difference with four, you don't find all the SEK200 million in savings. So we have negotiated the reductions we are currently conducting with the unions. We are implementing a change in organization, moving resources out into the business areas, and that is being done from 1st of April. So you will see a larger impact going forward when it comes to overhead savings. We have not changed our view that we will achieve these SEK200 million during this year.Financial items finally. It is a lower negative impact from financial items in the first quarter this year. We have a slightly higher financial income, slightly lower financial cost. It is directly related to interest rates in the market and the low net debt level.So with that, I move to cash flow. If I start from the top, you see the impact of a lower profit level in a lower cash flow from activities in the first quarter. We have a negative cash flow when it comes to the property projects. As we have stated before, 2018 will be a year when we invest in the property portfolio. So we are creating value, and value delivery will mainly take place in 2019 and 2020. So investment in Property Development portfolio, that leads to a negative cash flow in the quarter. Other working capital slightly positive. We get paid for invoices sent late in the fourth quarter during this quarter.Finally, investing activities. This is mainly in Industry. We are continually investing and expanding the capacity in this business area, and of course, we would like to get a lot of that in place before the season starts. So we invest during the winter, but we also invest in heavy machinery and equipment in relation to the large civil engineering projects that we have received. We need quite a lot of equipment there as well.All in all, negative cash flow minus SEK815 million in the quarter, but as Hakan said, we are still net cash -- we have a net cash position if you look at the net debt and exclude our pension liability, so a strong balance sheet despite the negative cash flow in the quarter.Profit levels. I will go into the business areas later and focus on other and eliminations. Here, we usually look at three items. So I'll do the same. Headquarter costs, central costs minus SEK60 million in the quarter. I have before said, when we set up our new organization in 2016, that the normal level on an annual basis is somewhere between SEK150 million and SEK200 million. It's currently closer to SEK200 million than SEK150 million.But on top of that in the quarter, we have two items. One is the setup of Loop Industries. It's not unfortunately a free lunch to incorporate this and prove our capacity to monetize on the value created by this technical solution. So that drives a bit more cost than usual. And we have also had one insurance damage where our own insurance company takes damages up to SEK15 million. And we have had one large insurance damage in this quarter, which hits centrally with SEK15 million on top of the normal overheads.Internal gains minus SEK2 million in the quarter, the reason of course being that we are investing in the Property portfolio. Then we are eliminating internal profits made by other business areas when they build for Property Development. And with only one small profit recognized project in Finland, the net is negative in the quarter. Last year, it was positive due to -- mainly Torsplan 4 in Stockholm, where we could release previously eliminated profits.Other group adjustment minus SEK17 million, mainly related to pension accounting. We have local GAAP accounting in the business areas. We adjust that centrally to IAS accounting. And that has a negative impact, and it's roughly on the same level as last year. All in all, minus SEK79 million in this quarter.So business areas, starting with Building, if we look at net sales, we have a growth in the business areas in the first quarter compared to last year. It is a growth in Sweden and Denmark, while Finland and Norway is on a lower level. The growth has been achieved despite a very cold and long winter. It's harder to build when it's cold and a lot of snow, but still growth. Operating profit on a significantly higher level. So we have not been hit in the same way this quarter as we was last year with write-downs. Operating margin still on a too-low level, so 2.1% in the quarter, 2% in the 12-month period April to March. So it is under our target level of 3.1%. We are closing the gap slowly, and it will take some time because, in the order backlog, we have a lot of large projects. It will take a bit of time before we close the gap, but progress in this quarter at least.Looking at market footprint, here, you can see that we have had an increased proportion of orders received in Finland. We had a quite low level in the first quarter last year, and we have been focusing on stabilizing the operations in Finland and increasing the margins, but a good quarter for orders received in Finland. Norway still on a low level. We are conducting the turnaround according to plan. We are focusing on margins and risk levels in all tenders we give in Norway, so on a low level still.If you look at the net sales there, it's not as big changes, but Finland is of course on a lower level compared to last year due to low orders received historically. Sweden still the largest market and has actually increased a bit in importance compared to last year.Product mix. Refurbishment and conversions is the largest segment in orders received in the quarter. Hakan mentioned one project in Finland that we are very proud of, and we think from a strategic perspective that this is a very interesting segment. It's stable. It's growing. And it requires a specific skillset. So if you are good at this, you will have a very stable and profitable platform in the Nordic countries.Public buildings is the second largest. And the Angstroem Laboratory in Uppsala is classified as a public building. It's partly educational, of course, but it is a research facility and in part a library as well. So we have classified it as a public building.Residential is still a segment that is alive and kicking, despite what you might read in the Swedish newspapers. Of course, we work in all four Nordic countries when it comes to residential construction, and we mainly work with rental apartments today, but it's very much alive and kicking as a market.If you look at the net sales, the impact there is more gradual when it comes to changes in the market. Residential is still our largest segment, but on a bit lower level compared to last year. Refurbishment is the second largest segment for us.Looking then at the quarter and 12-month development in orders received, order backlog and net sales, you can see that we had roughly the same level of orders received as the first quarter last year. And then on top of that, we received the Angstroem Laboratory in Uppsala, so a very good quarter for orders received. We have continuously built the order backlog. So we have a significantly higher order backlog than the first quarter last year. And if we look at the 12-month figures, you can see that the rolling 12 months, again, orders received is on a higher level than 2017, while net sales is growing, but it's growing at a slower pace. And that is due to a lot of large projects in orders received and order backlog. So net sales will grow, but it will grow slower than what you've seen orders received and order backlog grow.Moving into Infrastructure, again, here, we have a positive development when it comes to net sales. A harsh winter with a lot of snow is actually good for part of this business area. If you work with road service and snow moving of roads or on the roads, a lot of snow is a good thing. So that has a positive impact, but we have also started to reach the tipping point of the S curve where production pace goes up in some of our larger civil engineering projects. So we have an increased production pace in civil engineering as well. So generally, a good trend when it comes to net sales in this business area.However, operating profits still negative in the quarter and also for the 12-month period April to March. We have too many projects with low margins in the order backlog to cover overhead costs currently. So the gap, we are currently at minus 0.7% in operating margin. So the gap to 3.5%, which is our target, is larger than in Building. And due to the fact that the order backlog has longer duration, more big projects, the closing of the gap will take longer time in this business area than in Building. So I wouldn't have my hopes up that we will move too far towards target this year. It will take a few years to reach target.Having said that, moving over to market footprint, you can see in orders received that we have been very successful in Sweden, just as last year. And of course, the central station in Gothenburg is a large part of this. Net sales, a more gradual development again, but the previous successes we've had when it comes to orders received, not least in large civil engineering projects in Sweden, has an impact where Sweden is growing in the proportion of net sales.Product mix, again, the central station in Gothenburg, that is a railway project. So railways is the largest segment in the quarter when it comes to orders received. Groundworks, usually the largest and most important segment, is number two. And roads, usually a big segment, is actually at the bottom. But orders received when it comes to large projects, it can vary quite a bit if you look at an individual quarter.Net sales has a more stable trend. Groundworks is the largest segment, but somewhat smaller than the first quarter last year, roads number two, so very important segments and very much driven by the large civil engineering investments in the Nordic countries.Looking at order intake, order backlog and net sales, gain, orders received, it was on a good level, basically the same level as the first quarter last year. And then on top of that, we got the big project, the central station in Gothenburg. We have continuously built the order backlog in the business area, so on a significantly higher level in the end of Q1 this year compared to the first quarter last year. And if we then look at the 12-month figures, you can see the same profile. Orders received has increased quite drastically if you compare to 2017, while net sales, they are growing, but they are growing at a significantly lower pace. And that is the profile to expect when you have long projects.Moving to Industry, where of course snow on the roads is not a good thing. So looking at the figures, we have an increase in net sales. It's a slight increase, and it is due to the simple fact that we acquired operations in Norway last year in our foundation business in Hercules. So we have larger operations in Norway and in the Hercules brand in Norway.At the same time, we have been expanding both stone material and asphalt building -- asphalt capacity to keep growing. So we have more capacity, higher fixed costs and of course higher sales activities and sales cost to fill this production capacity. The combination, a tough winter, a delayed start I would say of the season, especially in the southern parts of our markets, in combination to higher fixed costs lead to a negative result and a more negative result than the first quarter last year. We don't see a change in the market. We don't see that this will have an impact on the full year result, but it has been a tough start of the year. And of course, we will be more sensitive for a short season if winter hits early in December.Operating margin 3.8% for the 12-month period, very close to our target of 4%, despite this tough start of the year. Return on capital still on top of the target of 10%, so good performance, despite a tough winter.Looking at volumes, these are the actual figures. Stone material, there are activities going on in the first quarter, but as you can see, compared to 2017, it is a lower level of volumes delivered and sold.When it comes to asphalt, Q1 is always a small quarter when it comes to delivered tons, but percentage wise, it's actually quite a large decrease in volumes compared to the first quarter last year. So it has a large impact on the first quarter, but a very small impact for the full year.Looking at the product mix and market footprint, here, you can see the effect of acquisitions in Norway. So the foundation business is larger when it comes to the relative part of net sales, and Norway is larger when it comes to the relative part of net sales in the quarter. Of course, asphalt and stone material, the big impact is in Q3 to Q4 when you look at the net sales profile here. So this will even out over the year.Finally, Property Development. As we have stated, a low level of profit recognition, and you can see that in the quite drastic drop in return on capital if you look at the growth. So net sales significantly lower, of course, than the first quarter last year, four projects, including Torsplan 1 -- Torsplan 2, sorry, in the first quarter last year, one project in Finland this year.Operating profit is correspondently low in the quarter. And if you look at the 12-month period, we have now a margin of 3.5% and a return on capital roughly 1%. And as we have stated, this will be a year where we are reinvesting in the portfolio. So it is focus on value creation, and then value delivery will mainly take place in 2019 and 2020.So looking at that portfolio that we are currently building, we have 21 ongoing projects, so one recognized, and we haven't started any in this quarter. The letting in the portfolio, we have let 10% of the available area in the beginning of the quarter. If you don't add new projects with new square meters or square feet to let, the level will be a bit lower than it is when you add a lot of projects. Still, 10% not bad.The effect is that we have a positive risk profile in the portfolio. So the letting ratio is higher than the completion ratio. Of course, this is something we keep track of as we invest in the portfolio for future deliveries.And with that positive risk profile, Hakan, I hand over to you to summarize.

[Håkan Broman, Acting President & CEO]

Thank you. Summary for first quarter. High orders received, very high. We have seen improved performance in Building and Infrastructure, which is very important for us. These are the two business areas that has to work long term. Winter affected Industry's result, as I mentioned earlier. We have a lower result and very much lower result in Property Development. High order backlog and a favorable market. So it's up to us to make sure that we deliver on the promise that we've set out. Thank you.

[Johan Bergman, Investor Relations Manager]

And we will now take questions.

[Albin Sandberg, Equity Research Analyst]

Yes, hi there. Albin Sandberg, Kepler Cheuvreux. I have three questions. The first one, obviously, order intake very strong relative expectations and so forth. At the same time, you've had some profitability issues in the past. What makes you more convinced now that you can actually deliver on these orders versus a few years ago?

[Håkan Broman, Acting President & CEO]

Well, if you had a bad -- sort of bad term in terms of profit recognition in these kind of projects, you tend to get more cautious on what you actually bid for, not the other way around. So we've been extremely cautious on making sure that we have addressed all risk to have the right organization and have the right methods, and digitalization being one if we talk about the West Link with this -- the biggest one, station. So we've been very, very cautious about the tender procedure.

[Albin Sandberg, Equity Research Analyst]

And would you say the market is strong enough for you to be able to also turn down orders in order to --

[Håkan Broman, Acting President & CEO]

We do that. We do that. We do that. We have turned down orders, or we have decided not to tender for some of the projects, especially in Norway.

[Albin Sandberg, Equity Research Analyst]

And you touched upon it about the fear of the residential investments maybe in this year and going forward, whether it's co-op or rentals and so forth. But just wonder if you see an impact to your operations or your competition, if you see other players turning down, for example, co-op buildings, and they start competing with you on other terms, or how insulated are you from what's going on in the co-op market?

[Mattias Lars Lundgren, Chief Financial Officer]

Very good question. We are -- I would say that we are pretty well isolated or insulated from the drama going on when it comes to Swedish residential developers. We are building to a few of them, but we are building to the big players with solid balance sheets. So I don't see a dramatic risk there. Of course, they will not start that many new projects unless they start to sell more in the current portfolio. But since we are not a supplier to those who take the high risks, the more opportunistic players, it will have a limited direct impact. It will, however, I think have an indirect impact going forward. One is positive. Subcontractors will be easier to find for us. So that's a good thing. On the other hand, I think we will see smaller or midsized construction companies starting to compete for other kinds of projects. And we have not seen that impact yet, but I think it will come.

[Albin Sandberg, Equity Research Analyst]

Okay. Thank you. And my final question was on the central costs. You talked about SEK150 million to SEK200 million range. But does that include those kind of digitization investments as well, or will they come on top of that, so to speak?

[Mattias Lars Lundgren, Chief Financial Officer]

That will come on top of that. So our normal overhead for running the group has historically been somewhere between SEK150 million and SEK200 million, depends a bit on what the initiatives will take, but currently closer SEK200 million than to SEK150 million.

[Albin Sandberg, Equity Research Analyst]

And after these Rock Loops, do you see any other of these investments coming, or was that like the one this year?

[Mattias Lars Lundgren, Chief Financial Officer]

I don't think it would be a wise career move to answer that before Tomas Carlsson is onboard actually.

[Håkan Broman, Acting President & CEO]

I will not answer that anyway.

[Albin Sandberg, Equity Research Analyst]

Thank you.

[Johan Bergman, Investor Relations Manager]

Stefan, please.

[Stefan E. Andersson, Analyst]

Stefan Andersson, SEB. First, on the Infrastructure, you talked about snow helping out on the volumes there. I guess you might not say -- you might not help us with the size of that, but if you would like to indicate that, I would be happy. But the other question is, what kind of margin would you have on that? Is that something you just do, and that's a zero margin, or do you have a margin, or is it actually even loss-making?

[Håkan Broman, Acting President & CEO]

You mean the road service part?

[Stefan E. Andersson, Analyst]

The actual -- no, the actual snow activities that you talk about.

[Håkan Broman, Acting President & CEO]

Usually -- they're usually low margin projects.

[Stefan E. Andersson, Analyst]

But still a positive, yeah.

[Håkan Broman, Acting President & CEO]

Positive, most, but not all, not all of them.

[Stefan E. Andersson, Analyst]

Has it had a -- and the jump on Infra sales is rather dramatic. So is a big portion of that jump related to snow really, or would you say that the majority of that --

[Håkan Broman, Acting President & CEO]

It's Industry mainly, since it's stone material and asphalt. So those -- the whole season has been delayed due to the fact that we have had a winter.

[Stefan E. Andersson, Analyst]

Sorry, I'm still at the Infra.

[Håkan Broman, Acting President & CEO]

Okay. Sorry, sorry. No, but --

[Stefan E. Andersson, Analyst]

You mentioned that snow had a positive impact for sales, so just trying to understand if it's the projects --

[Mattias Lars Lundgren, Chief Financial Officer]

I think, if you look at the product mix, you can find the answer there.

[Stefan E. Andersson, Analyst]

And then going to Industry, how has Q1 started? Because in some part of Sweden, it's still been a difficult winter. So will also Q -- sorry, Q2. Will also Q2 be impacted negatively from this, or is there a catchup opportunity there?

[Håkan Broman, Acting President & CEO]

It's -- we have higher margins, if I answer the question that way. We have higher margins usually in asphalt and stone materials. And that season is still ahead. We do not foresee that the season as such will be lower volumes, the whole season.

[Mattias Lars Lundgren, Chief Financial Officer]

But we have to get back on that.

[Håkan Broman, Acting President & CEO]

As I said, I said in terms of the market outlook, it's an 8% growth.

[Mattias Lars Lundgren, Chief Financial Officer]

So and we will have to get back on the more precise answer in Q2, of course. The first two weeks of April were still two weeks when I had to clear by windscreen on the car from frost in Stockholm. So of course, the first two weeks in April was quite harsh when it came to temperature and weather. If you look at Denmark and southern parts of Sweden, it was better. If you look at the northern parts, the snow is still melting. So it's gradually starting. We don't see -- we don't foresee an impact as it is now. But we have to come back to that in Q2.

[Stefan E. Andersson, Analyst]

And then finally, on the other slide there where you showed your sales on residential, which 39 to 30 I think, and then you have the order intake 9 and can't remember -- 15, significantly lower levels for two years. Is that like a lag from the Bonava effect that they've left and that they are not placing as much orders there now? Because there's a big difference between the sales revenues and actual order intake, and it's been looking at that for a long time, or is it just a Q1 effect?

[Mattias Lars Lundgren, Chief Financial Officer]

I would say it's an impact of two things. One is, of course, that Bonava, ever since we spun that out and paid it out as a dividend, they are free to choose suppliers. So we are one of their suppliers now. So it has a gradual impact because, of course, in the beginning, NCC had been involved in the projects. We have designed the projects together with Bonava. So it was more natural for them to work with us. That's one part. The other part is that we have focused more and more on residential projects which are rental projects. And of course, with that conscious decision and with a very full order backlog, we don't feel the need to take on that much. And how that market will develop, well, let's see. There's still a huge need for rental apartments in all of Sweden and all of the Nordic countries. So that segment is still there, very much alive and kicking.

[Johan Bergman, Investor Relations Manager]

Thank you. Is there any question from the telephone conference?

[Operator]

So we have no questions for the moment over the phone. [Operator Instructions] So we have no questions over the phone.

[Johan Bergman, Investor Relations Manager]

Okay. Thank you very much. Is there any last question? Okay.

[Stefan E. Andersson, Analyst]

A small one since there's some time available. I could be wrong as well, but I remember reading somewhere about a road service contract which you have been in -- you've been losing, or you've been in discussions because I think that the buyer felt -- I can't remember which municipality, but the buyer felt that the quality of the asphalt was not --

[Håkan Broman, Acting President & CEO]

[indiscernible].

[Stefan E. Andersson, Analyst]

[indiscernible]. Thank you. Could you maybe elaborate on that? Could -- I guess the quality on your asphalt should be similar all over Sweden. So is there -- yes, if you could elaborate on that.

[Håkan Broman, Acting President & CEO]

I can elaborate on the fact that we have not been able to agree on a lot of things with that client. So in a sense, it's better that we part than continue. But it will probably end up in court, that particular contract. We obviously do not agree with the municipality on their statement that we do not deliver appropriate asphalt quality. But then again, sometimes, we do not agree with all clients. Hopefully, we can manage to settle that outside of court. That we always try.

[Johan Bergman, Investor Relations Manager]

Thank you, Hakan. Thank you, Mattias. And thank you for coming and listen to NCC. Thank you.