NRC Group ASA

Welcome to the quarterly presentation for NRC Group. After the presentation, Lene, our communication director, will facilitate a Q&A session. And for those of you who participate on the stream, you can write questions in the chat. 2021 has been a good year for NRC Group, and quarter four confirms the positive financial and operational trend. Revenue for the quarter was 1.6 billion, an organic growth of 7%. The profit for the quarter was up by 60 million, and the systematic work we have put down for the last two years are clearly yielding results. The order intake for the quarter was 500 million above last year and ended up at 1.9 billion. So the third consecutive quarter with a book to bill significantly above one. We also saw a strong operating cash flow of 149 million and improvement from 110 million last year. So quarter four showed an improvement on all key financial metrics. Looking at full year figures, we can also see the positive trend. We started out the year with a low order book and that has led to a moderate decline in revenues. However, we have used this opportunity to improve our core processes and built a strong foundation for profitable growth. We have seen a strong increase in EBITDA margins from 0.9 and 0.8 for the past two years. to 2.3% this year in the higher end of our guided range. With a strong operating cash flow, our net interest bearing debt is down to 891 million. And combined with improved profitability, the ratio between net interest bearing debt versus adjusted EBITDA is down from 4.2 starting the year to 2.7 end of year. So we are getting closer to our long term target of staying below 2.5 on this ratio. With a continued good order intake throughout the year, we end the year with a 20% higher order book than last year. We expect the improvement in operational and financial development to continue into 2022. We expect a moderate to strong growth in revenue, and we expect a moderate increase in EBITDA margins versus 2021. We have mixed results within HSE. We have had too many lost time accidents throughout 2021. However, the trend has improved for the second half of the year. But most importantly, we have zero serious accidents. Our sickness absence rate is down from 4.8% to 3.9% this year, and that in a year heavily impacted by COVID. So this represents a healthy organization, a productive and motivated organization. As you all know, infection rates are still high when it comes to COVID. NRC Group is in low season and operational impact has been limited. However, we move closer to spring and closer to high season, so our exposure will increase. We believe NRC Group is in a unique position within our industry, building sustainable infrastructure. But it's not only about the product, it's also about the process and how we contribute as a company. These are the six most important topics for NRC Group in order to build a sustainable company. And of course, health and safety is a very important topic being a construction company, but it's also about building a diverse and including workforce. It's about training and developing our employees, making sure they have an interesting career path in NRC Group. And it's also about our greenhouse gas emissions, where we have made concrete targets to reduce our greenhouse gas emissions by 30% within 2024 and to become carbon neutral within 2050. We will continue the systematic work with these six topics in order to build a sustainable company, but this is also important enablers for us to reach our commercial goals. The EU taxonomy will be important for how attractive it is to invest in NRC Group and other companies going forward. We believe that the EU taxonomy will highlight NRC Group's uniqueness in the construction industry as we build sustainable infrastructure. Preliminary results for 2021 shows that 87% of our activities are eligible within the taxonomy. In 2021, 62% of the activities were aligned And by continuing implementing measures, we believe that we can raise that number to above 70% going forward. NRC Group started out the year with a low order book and that has of course impacted the revenues for the year. However, the trend has turned and we realized a 7% organic growth for the quarter. The results are improving the EBITDA is up 60 million versus 2020 in fourth quarter, and that is mainly due to improvements in the Norwegian business. We had M&A expenses of 22 million in the quarter. It's mainly related to legal expenses in a legal case against the sellers of Signal and Banbygarne back in 2017, where we lost a court case in the district court this quarter. However, this judgment has been appealed. But it's also related to an insurance claim from back in 2016 in the Finnish operations. We have seen high M&A costs in 2021, but we believe it will be significantly lower in 2022 and hopefully close to zero unless we start new M&A transactions. Amortization for the quarter was 19 million, 8 million above the normalized level, and this is due to write-down of software in Finland. For 2022, we expect the level to be on a normalized level of 40 million. Our balance sheet has been improving throughout the year, and we have a very strong cash position of 626 million. And with a strong operating cash flow in fourth quarter, we have been able to reduce our net interest bearing debt by 93 million in the quarter. We will continue to work with our balance sheet in order to be as capital efficient as possible. The strong cash flow generation we saw in Q3 has continued into Q4, and for the year we have realized a net operating cash flow of 358 million versus 312 million last year. And for the quarter, we had a positive operating cash flow of 149 million. Net financial items ended up at minus 91, and that covers leasing, interest, and also installment on our loans. The cash flow from operating activities has been strong both in 2020 and 2021 and above our EBITDA. And for 2021, we also see a positive cash flow in total for the company. With a strong operating cash flow throughout the year, we have been able to reduce our net interest bearing debt from 1.2 billion starting the year to 891 million end of year. And combined with increased profitability, we see that the ratio between net interest bearing debt and adjusted EBITDA is down from 4.2 to 2.7 ending the year. So, getting closer to our long-term target of staying below 2.5 on this ratio. So, we have a solid financial position entering 2022. We have also seen a solid order intake in quarter four, with significant wins. Some examples being the track renewal project in Sweden of 195 million, We also won the extension of the Tampere Tramway in Finland of 250 million, and we also won the raw wood terminal project in Finland in Happajärvi-Ovlainen of 200 million. So with a continued strong order intake, we end the year with an order book of 7.8 billion, an increase of 20% versus last year. And with a strong order book, we have a good starting point for 2022. We have already secured contracts for 4.1 billion for this year, and compared to same period last year, that was 3.4. So 2022 should be the year when we get back to a growth level we want to see in NRC Group. And to continue that growth beyond 2022, we need to make sure that we are even better at utilizing our Nordic capabilities and Nordic capacity to succeed in the market. We need to keep our market share within small and medium sized projects, but to get the growth rate we want, we also need to win more big projects. 2021 has been a very strong year in our Finnish operation, and we delivered strong profitability. In Norwegian currency, the revenues are somewhat down in quarter four. However, in local currency, we saw an organic growth of 3%. We delivered a strong EBITDA of 59 million, representing an EBITDA margin of 8.3% in the quarter, and we delivered 8% for the full year. And this is due to strong performance in our light rail business and our rail construction business, and also some contribution from sales of machinery. We have seen a strong order intake in Finland in quarter four, winning important projects for all business lines, and I mentioned a few of them earlier. We also received an extension of two years for maintenance area 4 in Finland, and this is important for us to continue to build a solid maintenance business in Finland. When we look into 2022, the revenue mix will change somewhat in Finland. We have finished the first step of the Tampere Tramway project. In the Jokeri light rail project, the activity level will also be somewhat lower in 2022 versus 2021. So even though we ramp up activities in the Crown Bridge project, the revenues from this segment will be somewhat lower in 2022. And as you know, we like to be a bit more conservative booking profit early in the project cycle. So this might also impact the results for 2022 somewhat. As you know, we have had a low hit rate in new maintenance tenders throughout 2021 in Finland. So this will also impact the revenue on the negative side for next year. So all in all, even though we start the year with a very strong order book in Finland, we expect a slight decrease in revenues for 2022 for the country as such. Tender pipeline in Finland is down in rail construction, both if we compare to last quarter and comparing one year ago. However, we start the year with a very strong order book in this business, so we will realize growth in 2022. And comparing the tender pipeline and the expected investments level ahead, rail construction will provide us with good growth opportunities in Finland going forward. 2021 has also been a good year in NRC Group, where we finally see the positive development that we have worked hard to achieve. The strong order intake throughout the year is starting to show in revenues, and we see a 15% organic growth in the quarter. We deliver a good result with an EBITDA of 21 million, representing a margin of 4.2%. And this is good, especially when we compare to the situation one year ago. In our demolition and recycling business, we are delivering margins on the level we want to see again in quarter four. And the improvement program we started one year ago has been successful. And the environment business, the rest of it, is also delivering a strong fourth quarter. In rail construction and civil construction, the low activity level still impacts result, but project execution is still strong. And with improved activity level in 2022, margins and results should also improve from this part of the business. We have a very strong order book entering 2022, so we expect a strong increase in revenues in Norway, and we also expect improved margins for 2022. We still see a solid tender pipeline in the Norwegian market. We can be selective in which tenders we want to participate in. As we move and focus more on bigger projects, the order intake might be a bit more volatile going forward. In Sweden, we have not yet been able to convert all the good work done into better results. We deliver a weak quarter with minus 21 in EBITDA, and we deliver a weak result for the year. And the weak results for the year are mainly driven by a low activity level and further provisions on old projects. But we see also in Sweden that the good order intake throughout the year is starting to show in revenues with an organic growth of 7% in the quarter. And we have a much better outlook for 2022 than what we have seen for the past couple of years. The order book for 2022 is up by 25% comparing to one year ago. And more important, we have a healthy order book consistent of projects won in 2020 and 2021. We still see fierce competition in the market, and our focus is to build a solid order book beyond 2022. We still see high tender activity within rail construction in Sweden. As you know, in our maintenance business, we have not won new contracts in 2021, and this is what impacts the order book beyond 2022. This year, three of our own contracts were expected to be tendered, and we submitted a bid on two of those in quarter four. We recently received news from our client that the tenders was canceled, and the likely outcome of that is that we will keep those projects for one more year, securing the revenues at least in 2023. But nothing is final here. We still await response from our client on how they will go forward with these two projects. The third contracts expected to be tendered in 2021 will be tendered this quarter, quarter one 2021. If we look at the maintenance tenders in Sweden in 2021, the situation has been very unpredictable. We have tendered in total 10 contracts and five of those tenders has been canceled after we submitted the bid. So these will of course come back and be tendered later when the client is ready, but the situation has been unpredictable this year. So to sum up fourth quarter, the continued good order intake throughout the year is starting to show in our revenues and we saw a 7% organic growth in the quarter. We delivered improved profitability mainly due to the improvements shown in Norway. We delivered a strong order intake and we delivered a strong cash flow from operation. If we look at the full year, we deliver a very strong result from our Finnish operation. We see a good improvement in the Norwegian business, but we still have some work left in Sweden. But we start the year with a much better starting point than what we have seen for the past couple of years. We will, of course, continue the good work we are doing in order to improve our core processes in tendering and project execution. And our focus is on generating profitable growth. The tender pipeline is still strong, but we need to better utilize our Nordic competence and capacity to succeed in the market. And the good operational and financial trend we have seen in 2021 is expected to continue for 2022. We expect moderate to strong growth in revenues and a moderate increase in EBITDA margins compared to 2021. thank you now we will open up for questions yes in english yeah yeah

You say moderate growth in EBIT margins. What is moderate and what kind of ranges you think when you talk about moderate it could be anything? Because if you look to the history, the company had very high margins. Now we have a few years with low. So what are the relevant reference in terms of moderate EBIT recovery?

Yeah, I think what we commented on 2021 was that when comparing to 2020 and 2019 with EBITDA margins of 0.8 and 0.9, we have seen a strong increase in EBITDA margins to this year of 2.3. So that's an improvement of 1.5 percentage points. So a moderate increase that should be somewhere below that level.

In Sweden, your profitability in line with your competitors has been weak for a considerable time. And you said that you expect the competition to remain fierce. You don't see any consolidation or any other competitors going out of business that could give some higher margins to those remaining?

Well, we have seen a tough market in Sweden for the past couple of years. Some competitors have been struggling, although we haven't seen a sort of a washout in the market. What tends to happen is that the players that are struggling are getting financed by new equity from private equity companies and other new owners putting capital into the operations. So we haven't seen any improvement material improvement in the competitive situation but we see that the projects we have won in 2020 and 2021 in the same fierce competition is profitable for us and if we are able to continue that trend going forward we will be able to deliver better results in sweden even with this fierce competition

And further on Sweden, the five contracts you said was canceled. Are you sure they are coming back?

They need to come back. Our client is a public client and they need to tender all their activities. Thank you. Simon.

Thank you, Simon from DNVG. The book to build is very good year on year, and if you look at the orders which are maturing 2020, they were up quite significantly when you see the maturity profile of the orders. How much, when you say strong growth, is the relevance? Can we look at the deviation of the order backlog and assume that is going to be the growth of this year? compared to last year's revenue in terms of the ordering, baking bread and butter experience and the volatility you spoke about. Because there's a 2 billion potential increase here in revenues 2020.

Yeah, and that is too optimistic. Taking the comparable figures and just adding that as the growth rate in 2022 so that's why we say we expect a moderate to strong growth we are still early in the year so we are contracted 4.1 billion so where we end up if it's seven percent growth ten percent growth or thirteen percent growth That is a bit early to say, but with the order book we have, we should see a moderate to strong growth and how we succeed with tenders for the next six months will of course provide the final answer to that.

two questions if I can um start with the long-term picture you have removed the slide with your long-term ambition is that deliberately or uh um yeah any color on that yeah and the second question would be if you look at orders for execution in Finland. It's up compared to one year ago, but you are signaling that revenue will be lower. You have a good explanation, but could you talk a little bit about the drivers behind that?

Yeah, let's start with the last one first. The reason for why we say we expect a decrease in revenues is due to the falling revenues in the light rail business and in the maintenance business. You're not able to move those resources to rail construction and get the same or get fully compensated the revenues we lose. And when we enter the year with a high order book in rail construction, our capacity to win new orders for this year is also a bit lower than what we saw one year ago. So we could have grown more in the rail construction business, but we have tied up quite a bit of our capacity already. So that's why we expect lower revenues. And the first question as well. It's correct that we have removed the picture. We have not changed our ambition level, but as we have been saying throughout 2021, we are obviously delayed of reaching those targets. So we will come back later this year, updating our financial ambitions going forward. There's no reason to decrease the ambition level, but obviously we are delayed on getting there.

I have a question regarding the unannounced order intake in the quarter, which was strong once again. Could you give us some color on how your clients are behaving these days? Is it sort of a very active dialogue?

the census seems like you are landing a lot of business on on the short notice here these days yeah and the unannounced order intake that's of course win of smaller orders beyond the 30 millions that we normally publish on the stock exchange it's day-to-day business in in some of our smaller uh contract smaller companies like the mass transportation company the demolition and recycling business those are normally orders that are not big enough to be published on the stock exchange but also a significant part of that is growth in existing projects so when receiving change orders that will grow the order book and we have had some projects where we have seen a significant increase in scope impacting the order book in a positive way.

Are there any particular segments you would highlight or is it more broad-based?

I think we can say it's more a broad-based increase.

And then another question I had was on the capital structure. Are there sort of any specific things you need to resolve in order to resume dividend payments? Because, I mean, the dividend policy has remained unchanged over the past couple of years. You have a bond which will mature at some point. Are there any sort of details which have to be resolved there besides the net?

uh debt to ibiza ratio within the target range yeah the main the main topic is of course to get a positive net income after tax that will that is a prerequisite to pay the dividends when you look at our bond agreement we cannot pay more than 100 of our result as dividend so that is the first hurdle to deliver a positive net income and that of course is our clear target in 2022 if we continue the development we see now we will do that and then there's also some other hurdles when it comes to leverage etc in both the bond and and the bank agreement it's described in in the prospects when the bond was issued and in our annual reports but there are some limitations on on the debt side that we need to reach to pay dividends as well. But dividend policy is unchanged and we will follow that as far as we reach those hurdles in those agreements.

A final question from me on increased interest rates and potentially also inflation. Could you just give us a brief comment on how that will impact your top line in terms of KPI adjustments on existing work, your cost base and also potentially your net interest expense.

Yeah, to take the last one, at least our bond agreement is a fixed rate, so that should not be impacted as such. When it comes to our revenues, as you say, some of our contracts are indexed with relevant sort of construction KPI indexes. So we get some increase by those indexes. of course when we calculate contracts when we don't have full index compensation we will also take into consideration a normal increase in wages etc when we calculate so of course you will see some effects if wages suddenly get the double of what what is normal but it will be a limited impact in the big picture in nrc groups

And I guess you have received the question on commodity prices earlier as well. You don't expect to see any material impact?

No material impact. Of course, we have projects being impacted, but in total for NRC Group, this impact is also low as we also get a lot of our materials supplied by the client where the client has the risk of increased or decreased raw material prices. So a limited effect when you compare to other construction companies and also the segment we are in with rail construction and civil construction, the use of material is much more less than if you compare to typical building companies that are much more exposed. So these play a bit in our advantage.

How much is left of the Goodwill amortization and what's the total of that?

Yeah, we don't know.

We have, I would say, about 80 million or 40 million next year and about 40 million left.

Yeah, so 80 million in total, 40 next year, and then 40 over the next years. lena do you have any questions from the i think it's crystal clear no further questions that's good thank you for your participation and for good questions and have a nice day