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.