NRC Group ASA

Welcome to the capital market updates and quarter two presentation for NRC Group. Welcome to all of you live here in House of Oslo and also a warm welcome to those of you participating on the stream. Let's take a short look at the agenda. We will start out by a short summary of second quarter results, and Ole will join me for that session. Before, I will summarize our strategy to succeed as a leader in sustainable infrastructure. After that, we will go more into the details on what kind of measures we have done to improve our core processes and what kind of results it has given, and then focus more forward on our strategy or how we are to succeed as a leader in sustainability. At around 11, our country managing directors will join us and do a regional review of their countries, focusing on the status and market opportunities. And in the end, Ole will come in and present our capital allocation priorities and how they will impact short- and long-term value creation in NRC Group. At the end, Lene, our EVP of communication, will host a Q&A session. And for those of you participating on stream, please write questions in the chat. Second quarter has been another strong quarter for NRC Group, and the fifth consecutive quarter with improved results. We were able to grow our revenues with 25% compared to second quarter last year, and our EBITDA with 34% compared to last year. We had a strong order intake of 2.7 billion, being a book-to-bill ratio for the quarter of 1.48. Our operating cash flow is somewhat weaker than last year due to the steep ramp up of activity. We have gone from 1.2 billion in revenues from quarter one to 1.9 billion in revenues in quarter two. And this ramp up is much steeper than last year. So it's natural that we are tying up more working capital. With a strong order intake throughout last year, we end the quarter with a record high order backlog of 8.3 billion. NRC Group expect our positive operational and financial trend to continue. Our guiding for 2022 is unchanged. We expect that our revenue growth will be moderate to strong, and we expect the margin improvement to be moderate compared to 2021. Looking at our countries, it's clear that it's Norway and Sweden contributing to both growth and profitability improvement in quarter two. We see a strong growth in Norway and we see that improved operations in our environmental division is the main improvement in results versus last year. We also see good growth in Sweden, and it is the rail construction activities being the main driver for increased profitability. In Finland, we have a more stable activity level, somewhat lower results, but still strong results from our Finnish operations. We have somewhat lower activity and somewhat lower profitability as a consequence of that due to lower activity in our light rail business. And as you remember, we closed a big light rail project in Tampere last year. Our biggest light rail construction project, Jokri, reached peak production in 2021, so this is an expected development while we're waiting for the new wave of light rail projects to come. We have been able to replace much of the lower activity with growth within rail construction, and we also see good profitability in this segment. Looking at our safety statistics, we see improved results. We have fewer accidents, and we have fewer accidents leading to lost time incidents. So our lost time incident frequency is down to 4.3, a good improvement from last year. And we also have somewhat lower total recordable injury frequency. We did have one serious accident in quarter one, Luckily, we were able to go through quarter two without any new ones, and our target here is, of course, always to avoid serious injuries. Our sickness absence rate is increasing somewhat compared to last year, but this is mainly due to COVID-related effects in quarter one. As we spoke a lot about in quarter one, we see limited impact of the global economy, the rising inflation and raw material prices due to the war in Ukraine. We have a business model with mostly public clients where revenue side of the projects are indexed towards different construction cost indexes. We also have a procurement strategy of closing as much risk as possible early in the projects. And although we see effects of increased material prices in some projects, our total exposure and total impact is limited. Raw material prices are on the way down again, but they are still at record high levels. Ole, will you go through some more details?

Thank you Henning. Financially, we had a solid Q2 and we have improvements in most of our finance KPIs. The revenue came in at 1.9 billion, which is up 25% compared to the same quarter last year. And this was driven by a very, very strong growth in Norway of 58% and in Sweden with 34% on a like for like currency. Finland was more or less flat compared to the same quarter last year. In the first half of the year, we had a growth of 16% compared to the first half of 2021. Our profitability, which we measure as EBITDA before M&A expenses, improved with 16 million and came in at 63 million in the quarter. And this gave an EBITDA margin of 3.3% compared to 3.0% in the first quarter, sorry, in the second quarter last year. Let me give you some more flavor to some of the P&L lines. As you can see, the main M&A expenses in the second quarter was zero. And as we see it now, we do not expect further M&A costs related to all projects in our books. The depreciation is coming down to 45 million. This is in line with a strategy to have a lean asset base. And I will come back to this later on in the CMU. Amortization is at 9 million. This is down from last year, but flat compared to the first quarter. And out of this 9 million, 6 million is related to amortization of PPE from the VR track acquisition in 2019. And this amortization will be completed around year end 2022. And the last 3 million is normal amortization related to software investments. And also you can see our net financial item is coming down to 14 million and this was related to having less debt. And we will also discuss our debt structure strategy as well as our financial cost later on in the presentation. If you look at our order intake, it is very strong at 2.7 billion. Isolated in the quarter is like Henning saying, it's 1.4 book to bill. But over the last 12 months, it comes in at 1.3, which has been steady over the last period. The order backlog is record high at 8.4 billion, and this is up 25% compared to the same quarter last year. However, if we break down the 8.3 billion, you can see that 2.7 billion of this is for delivery in the second half of 2022. And this is up 6% compared to where we were at the same time last year. So we had 60% growth in sales in the first half of the year, and we have an order book which is 6% higher than we were at the same time last year. So we feel quite comfortable with our current guidance for 2022. The sustainability is very important to us, and among others, we measure our taxonomy twice a year. The taxonomy ratio also highlights the uniqueness in NRC business model compared to other construction companies because we deliver sustainable infrastructure. And the analysis for the first half of 2022 showed that 88% of our turnover is eligible and 69% of our turnover is aligned according to the EU taxonomy. And both of these ratios are up compared to the same period last year. And I will come back with much more financial data later on in the presentation. But for now, I leave it back to you, Henning.

Thank you, Ole. With five quarters of consecutive improvement in NRC Group's profitability, it's clear that our improvement work are yielding results. And we are now ready to go from a three year transformation phase to focus more on profitable growth, harvesting the benefit of our unique Nordic position and make sure we succeed as a leader in sustainable infrastructure. NRC Group is a young company, and especially in the period between 2015 and 2019, we had a growth at a rapid pace, doing 14 acquisitions, expanding in three countries. And as many other companies experiencing fast growth, we did meet some challenges. We had to take big losses in Q4 2018 and Q4 2019. And it's clear that we were not able to integrate and develop our acquired companies in a fast enough pace. When I joined NRC Group in May 2019, my task was to restore profitability and it was to improve our core commercial processes to make NRC Group ready to succeed as a Nordic leader within sustainable infrastructure. We will go through more details on what we have done for the past three years and the corresponding results later in the presentation. It's time to shift focus for NRC Group, harvesting the benefit from our unique Nordic position and capitalize on the Nordic footprint we have. We will continue to improve core processes to improve profitability, but we will use more efforts generating profitable growth using the total competence and capacity in NRC Group to increase competitiveness and win more bigger projects. With improved results, we also have improved financial flexibility, and we are ready to explore some bolt-on acquisitions to strengthen our value chain. So in short, NRC Group is ready to capitalize on our leading Nordic position. I believe NRC Group has never been better positioned to succeed. The demand for our services rooted in rail infrastructure and our strategy of executing projects in a sustainable way are driven by two strong megatrends. We have gone through two crisis for the past two years, the COVID pandemic and the increased raw material prices. And we are coming out of these two crises with stronger profitability More financial flexibility, a record high order backlog, and the market at record high levels. So with improved core commercial processes in tendering and in project execution, we are ready to add on more profitable growth. NRC Group has a unique position in a big market. Looking at our national transportation plans in our three countries, the total market for maintenance and construction of railways are 65 billion. And as market leader, we only have approximately 10% market share. We believe this market will continue to grow. There's a broad political agreement towards investing in sustainable infrastructure and to continue prioritizing sustainable infrastructure. And in a market with strict regulations and high barriers of entries, our opportunities are huge. NRC's business is rooted in rail infrastructure, and the many acquisitions you saw in the early phase of the company was executed to build a full in-house value chain to be able to construct and maintain railways from A to Z. We have a strong position within all rail technical disciplines in all three countries, But what separates us from our competitors and what we believe is our strongest competitive edge is the fact that we also have the related CivilWorks value chain in-house. Because demolition, doing concrete works, mass transportation, is always a significant part of construction of railways. And it's a significant part of the complexity, and it's a significant part of the risks associated to it. So by having this value chain in-house, we are better positioned to calculate our cost correctly. We are better positioned to understand the risk and mitigate the risks connected to these processes. And we have a much bigger flexibility coming to the execution phase to adapt to the changes you will always see in these projects. We will show a video from our Nittedal station project, which should illustrate this in a good way. In a five-day period, we are dismantling all rail technical equipment and the tracks. We are demolishing and recycling an old railway bridge. We are installing a new bridge that has been pre-constructed at site with our own people, while we are finishing to install rail technical works and the tracks afterwards with our own value chain.