NRC Group ASA

Welcome to the third quarter presentation for NRC Group. After this presentation, we will host a question and answer session. If you are online, please send your questions in the chat. With more than 30 years of experience, I'm honored and excited to address you today as the new CEO of NRC Group. I came from Sweden from the position as president and CEO Svevia is a Swedish company specialized in infrastructure with a revenue around 12 billion and 2,200 employees. As we now plan to track for the new strategy period from 2024 to 2028, I'm confident that the future for NRC Group looks promising. I'm also confident that we have great opportunities ahead of us. With a solid foundation built after four years of transformation, we are now well positioned to capitalize on the strong market we operate within. NRC Group is a robust company. The governments in Norway, Sweden and Finland develop long-term national transport plans. There is a broad consensus to build and upgrade critical infrastructure going forward. NRC Group has per day a record high tender pipeline. There is an increase in this quarter for around 40 billion compared to the last quarter. The demand for build and upgrade critical infrastructure will remain high, not only to safeguard and maintain what is already built, but also new construction to meet the future demands for harbors, water reservoir and sustainable energy supply and so on. Our markets are driven by population growth, urbanization and high demand for build and upgrade critical infrastructure. And not at least increase requirement for efficient low carbon transport systems Access to these systems will become increasingly important. And that is perfect for us. This is what we do. We have a strong sustainable profile. As you already knew, we recently received dark green shading in our green finance framework. Norway has delivered impressive profitability in eight consecutive quarters and has been on a positive margin trajectory the last two years. A margin above 5% in this quarter is strong. The focus now is to grow our order books and win more major contracts going forward. In Finland, we have achieved strong profitability levels in Finland over the years. The expectation now is that profitability will reduce to lower yet sustainable level in the medium term. We now dedicate efforts to analyze the Finnish operations in order to streamline and make the operations more cost effective. We have a unique position in Finland, so I'm confident that profitability in Finland will be market leading again in long term. In Sweden, the turnaround in Sweden is well on track. Now slightly above 1% in the quarter. Our measures to improve profitability clearly yielding results. So Sweden are navigating in the right direction now and forwards. Here you can see a record high tender pipeline for the next nine months. There is an increase in this quarter for around 14 billion and 16 billion compared to the same period last year. There is an increase in all three countries going forward, And again, high demand for build and upgrade critical infrastructure in Nordic. In Finland, the tenant pipeline in Finland doubled compared to the last period. The last quarter, sorry. Supported by new light rail contracts. We have won six of six contracts that we have participated. and three new light rail contracts coming up for tender. Revenue impact will be from 2025 and on watch. On health and safety side, we are not satisfied with the results. We have none serious injuries in the quarter, but two money accident in total. The positive trend with sicknesses absence continue in this quarter. We have a rate of 3.7%. This is on a good level compared to the industry peers. Now with this, I hand it over to our CFO Ole.

Thank you Anders. Looking at the P&L for the third quarter. Financially, we had a good quarter. However, it is below the same quarter last year. Our revenue is down 7% and came in at 1.8 billion. On the like-for-like currency, the negative revenue is 13% due to lower volumes in Finland and Sweden. Our operational result, or EBIT, is down 11 million and came in at 80 million in the quarter, which gave an EBIT margin of 4.3%. Net financial items increased from minus 14 million to minus 18 million. And the reason for this is that the increased NIBOR also increases our costs on our lease portfolio, as well as our term loan. And after the end of the quarter, we completed the refinancing of both our bank and our bond loan. And we'll come back to more details on this later in the presentation. As a sum, our net profit improved from 46 million to 49 million, and this gave an earning per share in the quarter of 67 euro. Moving to the different countries, starting with Norway. The positive profitability trend in Norway continued in Q3, and the Norwegian organization has succeeded very well in the operational restructuring over the last few years, which is very impressive. The EV margin came in at 5.5%, which is an improvement from 4.9% in the same quarter last year. And this is driven by strong results in both our civil business and our rail business. Our demolition and recycling business kept delivered weaker results due to very challenging markets, while our transportation company, Gunnar Knudsen, continued to deliver very solid results in the Q3. Order intake in the quarter was 273 million, and the backlog in Norway is below where we want it to be. After the end of the quarter, we announced a new significant civil contract in Norway worth more than 300 million, which supports backlog from early 2024 and onwards. However, winning new big project in Norway remains a high priority. Moving to Sweden. In Sweden, we are gaining momentum from the changes we initiated in the first half of 2023. The most important action here included a significant reduction of overhead, increasing the tender prices, as well as improving the project controlling. In addition to this, we also decided to discontinue the civil business in the Karlstad region. In August, we also signed a final agreement with the management in Karlstad, where they acquire this business unit. And the benefits for NRC Group are several. Most importantly, we secure a new home for our employees in that region. And secondly, is that we have significantly reduced our operational risk connected with discontinuing this business unit. And the accounting effects of this sale is included in the third quarter numbers. As you can see, the operational result or EBIT is positive, 5 million from breakeven last year. And this is because we have somewhat better result in our maintenance division. Order intake in the quarter was only 170 million, but we have a good backlog for fourth quarter in Sweden. And after the quarter end, we also announced a significant contract in our rail division in PTO in Sweden worth more than 400 million. And with that, we also have a good backlog for 2024 in Sweden. Moving to Finland. In Finland, on the like-for-like currency basis, the activity is down 12% compared to the same quarter last year. In addition, our operational result is also down 26 million and came in at 49 million in the quarter. As previously announced, we had to do a significant write-down in one rail project in Q1 this year, and this has continued to impact the result in that division and for Finland for the remainder of 2023. And this project is coming to completion in the first half of 2024. We have not been good enough to secure new high margin business in Finland in 2023, nor adapting our cost base to the current project portfolio. In addition, we have noted the negative trend in profitability, and we have therefore started to analyze the operation in order to streamline and make the operation more cost efficient. Having said that, and to put it in perspective, the margins in Finland is still in line with peers, and we are not worried about the outlook in the Finnish operation. Order intake in the quarter is in par with what we had in the same quarter last year, but as in Norway, winning new large projects remains a high priority also in Finland. As Anders mentioned earlier, the good thing is that the tender pipeline in Finland is very strong, particularly in the light rail area. And in September, we announced the win of a new Lightrade project in Tampere with Alliance partners, and this project has a value of more than 3 billion Norwegian kroners. The project is now in a design phase, and if it's decided to go into a production phase or construction phase in 2024, NIC Group will get a significant proportion of the total value of this project with delivery from 2025 to 2028. And since this project is not decided to go into construction yet, it's not part of the backlog. Moving to the backlog. The order intake in the quarter was 773 million, which is below what we expected. And this gave a book-to-bill ratio of 0.7, measured over the last 12 months, as you can see in the graph to the left. With lower order intake, we also have a lower backlog at 6.6 billion, which is down 23% compared to the same quarter last year. The good news here is that we have a very strong tender pipeline in both Norway and Finland, and we have plenty of tender activity ongoing to fill up the backlog from 2024 and 2025. In addition, the two mentioned projects I talked about in Norway and Sweden and the Lightray project is obviously not in the backlog for Q3. The graph to the right, you can see the backlog for delivery in Q4 this year, and compared to last year, it is down 7%. And with the reported year-to-day sales we have and this backlog, we continue to believe that we will have a slight decrease in revenue in 2023 compared to 2022. A few comments on the balance sheet. Total balance came in at 5.6 billion, which is down from 5.8 billion at the same quarter last year. And our net interest-bearing debt is, as you can see to the right, relatively flat compared to where we were last year at 992 million. And the net interest-bearing debt excluding leases is 504 million, as is mentioned under the graph. Our equity ratio stands firm at 44%. Moving to the cash flow. Cash flow from operation in the quarter was 12 million, which is below 96 million, which we had one year ago. And even though our operational cash flow is below last year, due to a very strong operational cash flow in the first half of the year, the year to date cash flow in 2023 is in par with what we had in 2022. Networking capital increased to a higher level in Q3, and we do have a lot of focus to reduce the working capital in the company. However, we were not able to keep it at the low level, which we saw in 2022 and the beginning of 2023 when we entered Q3 this year. Moving to the right, you can see that the cash flow from investment activities of CapEx was only 7 million, and the cash flow from financing activities was minus 80 million, which is as the normal level. And this gave us total cash at the end of the year at 300, sorry, end of the quarter of 346 million. After the end of the quarter, we completed our refinancing of both our bank and our bond loan. We refinanced our 600 million bond loan with a 400 million green bond at NIBOR plus 440 basis points. In addition, we increased our overdraft facility from 200 million to 400 million. And lastly, we extended the maturity of the term loan from 2024 to 2027. In the graph to the left, you can see that we have continuously reduced our gross interest-bearing debt over the last few years. And based on the refinancing, we will reduce it furthermore from 1.3 to 1.1 billion. On the liquidity side, we will have approximately 150 million in cash and an undrawn credit facility of 400 million, which means that we will have available liquidity of 550 million by the end of Q3. NRC Group have significant volatility in our liquidity, both intramonth and over the year. And this is because we build up quite a lot of working capital during summer, which we build down during the winter period. And this new refinancing and new capital structure is much better fit with our business model. Now we can draw on our overdraft facility when we require the liquidity instead of sitting with excess cash on the balance sheet all year round. And the benefit with this is that we will have a lower interest cost in the group, all else equal.

Thank you, Olle. So to summarize the third quarter, with the solid foundation built after four years of transformation, we are now well positioned to capitalize on the strong market we operate within. NRC Group is a robust company. In the quarter, we had an EBIT of 80 million with a slight decrease in revenue. The demand for built And upgrade critical infrastructure will remain high. Our markets are driven by population growth, urbanization, and again, high demand for build and upgrade critical infrastructure. And increased requirements for efficient low carbon transport systems. And this is good. This is what we do. NRC Group has per day a record high tender pipeline It's an increase in this quarter for around 40 billion. Our order backlog is solid, but of course, we need to win more major contracts going forward. Norway has delivered impressive profitability in eight consecutive quarters. The margin above 5% in this quarter is strong. Focus now is to grow our order book and win more major contracts going forward. Finland, we have achieved strong profitability levels in Finland over the years. Expectation now is that the profitability will reduce to lower yet sustainable level in medium term. We now dedicate efforts to analyze the Finnish operation in order to streamline and make the operations more cost effective. We have a unique position in Finland. I'm confident that profitability will be market leading again in the long term. The turnaround in Sweden is well on track. Our measures to improve profitability clearly yielding results. now slight about 1% in the quarter. Sweden are navigating right direction now. For 2023, we expect a slight decrease in revenue and the EBIT margin in line with 2022. Next year, During the second quarter, we will host the capital markets update to share our new strategy period from 2024 to 2028, how we create the leading company in Nordics for specialized infrastructure. I'm excited to take on this journey with NRC Group, combining our business model with a unique position and deliver specialized sustainable infrastructure. And I'm confident that we will succeed with our ambitions. Thank you. Now we will open up for questions.

Let's start with one online question before.

Yeah, sure. Let's go.

Anders, your early take on the situation in Finland.

dimension and not worry about finland we have achieved strong profitability levels over the years but we now dedicate our efforts to analyze and streamline the operations but in long term we will be market leading again

Anders, you haven't been with a new company, this company, that long, but can you just give us a general interpretation of what you see as the strengths and the weaknesses and the room for improvements based on your historical performance and get your early impression of the company a bit more in-depth?

I don't come at the past, but I think the future for this company looks promising. We have great opportunities ahead of us. Norway. Margin about 5% in this quarter, strong. The markets, the demand for building critical infrastructure will remain high. Used to Sweden, markets in Sweden, so the turnaround plan in Sweden, I think, is well on track. Slightly above 1% in the quarter indicate that. And of course, we are a great team.

oh yeah also on the guidance with a slight decrease uh in revenues for next year uh how much is that is that including fx or excluding fx is it a knock guidance or is it uh it's a knock guidance yes

Going back to Finland, the result has declined for, I think, eight or nine consecutive quarters. For 2024, do you foresee a profitability level in absolute terms on the same level as today? Or do you foresee that it is going to increase again?

We will come back with more details of the capital markets update in the first half. So we need to wait a little bit. Directionally. So we have commented on this some earlier. So some of the Some of the go back in 2021, we had quite a lot of sale of machinery, which we always have, but we don't have any meaningful at the moment, the last 10 months. So that's a little bit taking off some of the peak on this graph. In addition, we have, we have two projects in Finland in rail, which we are struggling with one, which is we've done the right down. The other one is not really yielding that much margin. this also impacts result for 2023 and starting of 2024 and lastly we have had a couple of very good light rail projects which still are good but there's not so much in volume when we enter 2024 so uh it's and the new contract comes into effect in 2025 the new contracts we are bidding on i will be involved So I think we don't guide per country, but we also have to be realistic in the medium term. But we are very comfortable about our pipeline and what we're doing there. So we don't see this as a huge problem. We will not comment on 2024.

If I should try to interpret what you're saying is that it will continue to fall a little bit.

That's not what you're saying, but you can interpret it.

That's my interpretation of it. But moving to Sweden, it's obviously a turn in the performance, but really it's no turnaround. You still have negative results. It's like about 1% in the quarter.

Yeah, that's, that's, that's correct. But I just want to comment on this because we have last quarter, we showed a performer graph, but because we have always discontinued the civil business and without the civil business, we are running at around break even now over the last 12 months. So it's a turnaround when you break even, that's what we're claiming. And we think we have a lot of momentum going into 2024 also.

I have another definition. If you have a turnaround, you are actually earning a reasonable profit so uh to uh achieve that uh what what are you doing to or what are the changes you have implemented or planning to implement to achieve a reasonable profitability. Obviously, you are on the right track, but there's still room to improve, I would assume and I would hope.

I have commented on it earlier. The first we did was to cut the overhead quite dramatically in 2023 in Sweden. We'll have full year effect. We'll have gradually full of the effects. And then the second is that we increase the tender prices and that takes time to get full effect. And the last thing we did was to implement better project control. And that we did in second quarter, beginning of third quarter this year. and on the project controlling side obviously what it gives you is a better maneuvering and tool when you start reporting on the project to a better project controlling not only basically understanding the result but also be able to adjust early in the project you can get more profitability out of this so this is a gradual process i would like to just address the the lowered guidance on the margin a little bit further um

Could you break down your kind of done a little bit already, but which segments are performing better than what you expected that year and 2022 and also in during the first half of the year and what segments are below. And for the segments that are below, could you give an operational answer where you say is there is there. one or two projects are there a weaker underlying margin in the whole backlog could you just address a little bit are you talking about the group or yes first segments and i think it goes a little bit about saying that we we with the in finland obviously we expected more in finland and that's what we're saying

And we have had, going back to especially two projects in rail, one particular project, which is reducing our profitability level in Finland compared to what we expected one year ago, you can say. Sweden is moving on track, I would say. This is basically what we targeted when we started the restructuring in Q1 and Q2. And Finland also, I mean, sorry, Norway is delivering a good result.

More than about 5% is from it.

norway and sweden approximately yeah what you expected one year ago yeah i would say so and also if i could uh could you address the working capital situation a little bit as well

We have quite significant volatility and sometimes we get these situations where payment doesn't come in the last day and we have 70 million invoices, one invoice of 70 million. This just happened on a weekend this time and we didn't really manage it very well. And it was kind of a one-time, we think it's a one-time situation and we just have to see during the winter if we can do better.

But does that mean that we should expect a similar positive working capital?

No, we believe not this, but it's a little bit hard to track from quarter to quarter. There is quite high volatility on this.

That's a question from the midsets.

Looking ahead in terms of contracts in Finland, you're focusing on the light rail and in Norway, it's significant contracts. What type of contracts are you targeting in Sweden?

I can just start. So in Sweden, we have pretty good backlog. And in 2022, the volume was just too big. The organization couldn't really handle it. In 2023, it's been more better. We are a little bit more capable to handle the volumes at the moment. I think it's generally a good market in rail in Sweden, but not the huge uptick, which we have seen in Norway and Finland. So I think it's more like a normal market and we expect to continue to grow and take market share there, but at a more steady pace, you can say.

And also just you mentioned some challenges in demolition and recycling in Norway. Can you say something about what those challenges are?

Well, the market, first and foremost, in demolition is not great. If you're an entrepreneur, you know that. And this is the only segment we are a little bit exposed to this market, the weak market. It's a small business for us. And we haven't been good in operations to adapt to the current situation. So we are working to improve it.

The question is from me. The large contract in Norway now was a hospital and not anything with rail. Is this any new direction for the company? What's the groundwork? What's the basics for this? Because it's a completely different segment than when you have seen you operate in before.

No, I think it's a new strategy. Yes. But let me do my homework. I come back to you in the next year second quarter with the captain marcus update but the project it's right so yeah our civil business in general in norway supports rail

They're not only a rail company. We are very good at harbors, among others, and we do most of the big harbors in Norway. They are specialized in this, and they're good at supporting the rail infrastructure. But it's not enough. When you have a big civil company or a construction company, it's not enough market to only do rail. You need to adapt to other markets. And this was a good fit for us. We already do the demolition in this hospital with KEPT. So it was a very good...

uh very good synergies with the business we already have there that's the reason my second question is you're comfortable you're comfortable with this finnish market but seeing into the finished budgets there's a lot of positive delays both in road and rail and the competitive landscape is definitely one of the most challenging one in perhaps in all of europe in finland in terms of the delays they put into civil how comfortable are you Is it expectations that the Alliance projects will come in 2025, because they're not included in the 2024 budget? Or what is your view and comfort level? What is it based on? Is it just that, because they don't have any... They have delayed everything, as it seems, out of the budget.

I've only heard it will be a short time, so this time I'll hand over the questions to Olle.

it's a good question so we don't see that kind of delay in the rail infrastructure which you are talking about the second is that this light rail comes on top and it has not really been any new light rail concept for some time but now we had one in 2023 which we won and there will come three more in 2024 which we are bidding for most likely.

Are they municipality based or government based?

They are mostly municipalities. It's a split. But in the decision makers, it's usually municipalities in the end if they decide to go into construction phase. They are also supported by government.

But yeah, because the government is bringing so much down. And your views because of the government bringing things down as a party for doing stuff.

We haven't seen anything of this impacting rail. Actually, we have seen it not in Finland, but in Sweden on the road side, but nothing on the rail side earlier. In Norway... Earlier, Banu Noor went out and said, the time for these double tracks, new double tracks, are maybe over. Maybe we'll use more money to upgrade the lines we already have. And for us, that's perfect. Because if you build a new line, 20% of that is rail infrastructure, and 80% is civil. But if you upgrade the line, 100% is in sweet spot for us. So Bano Nord is worried that there's not enough specialized payers within rail in Norway going forward.

Thank you. Question from the web here. What's the plan for making Finland look great again?

now dedicate our efforts to analyze the finished operation of course to do the operations more cost-effective

No, I think Anders has been there for one month. Let him do his homework and we will come back later on. This business has done really good for decades. And this is not something with the organization itself. This is just related to a couple of contracts and a little bit less light rail business at the moment, since we are in between the old contracts and the new contracts. the finished contracts you said you had one was running towards the end of towards the first half of next year yeah the other one which you're struggling a bit like also again we're not struggling but it doesn't have that kind of high margins i would rather say how long duration is it it's in somewhere in 2024 i need to come back to you on that but probably a little bit later in 2024 i don't have the details now

uh one more question here related to finland i think that's the last one here uh what do you mean about lower yet sustainable level in finland again i've only been here for a very short time so this time i handle over the details for the third quarter yeah and now yeah we're going with the circle on the same question i think like you know what we're saying if you look at the margin in finland

delivering over six percent margin this is not a bad quarter you know historically we have exceptional margin in this in this business unit and now we're saying it's going to be more on a normalized level and in line with peers in the medium term longer term we are not really worried but that's just what we see now any questions here

There are no questions from here either. We can finish up.

Thank you. Thank you all. See you again.