NRC Group ASA

This fourth quarter presentation for NRC Group. After this presentation, we will host a Q&A session. If you are online, please send your questions in the chat. For 2023, we delivered improved operational performance in many areas. The results for 2023 are overall in line with 2021. We ended the year with record high cash flow from operations at 376 million. The order intake started well this year and is setting a positive tone for the coming years. In January and February, we have announced several large contracts valued at 1.9 billion. Here you can see some of this large contract won this year. In Norway, we are going to upgrade a catenary infrastructure on the railway between Hønefors and Näsby, together with NetPartner in a joint venture. Our share is 436 million. In Sweden, we secured a contract for catenary work on the railway between Allingsås and Ordskroken. This contract is valued at 456 million SEK. In Finland, we closed the deal on a contract for railway construction, groundworks and bridges at Espoo City Rail. This contract is valued at 18 million Euro. While the quarter for Norway reflects a decrease compared to the same quarter last year, the improvement over the years remains robust. The order intake during the quarter increased to over 700 million. And after quarter end, we secured two major contracts valued at over 1 billion. So overall, I think it's a strong start for Norway this year. In Sweden, we reached an important milestone for 2023, a breakeven result. During the fourth quarter, we secured several large contracts valued around 750 million, which is an increase compared to 2022. After quarter end, we secured a major large contract for catenary work. We are still analyzing Finland to identify actions to improve. We are committed to build profitable growth there with a solid platform already in place. Here you can see our continued high tender pipeline for the next nine months. If we compare it to the same quarter last year, we can see a strong increase, especially from Sweden and Finland. The demand to build and upgrade sustainable infrastructure in Nordics continue to be high. We expect national transportations plan to be updated this year. The government in Norway will share a new NTP during the first half of this year for the next 10 year period. The taxonomy figures highlight our unique position in industry as we built and maintain sustainable infrastructure. Our analysis for the full year shows that 98% of our activities are defined as qualified and 72% are aligned. Our results are solid and improved from the first half of 2023. Sustainability has always been and continue to be an integrated part of our strategy. On health and safety side, we reduced both injury rate and sickness and absence for the full year. We had no serious injuries for 2023. Going forward, We still focus on safety in our workplaces in order to further reduce accidents. Now with this, I will hand over to our CFO, Ole, who will give you all our financial details from the fourth quarter.

Thank you, Anders. Looking at the P&L for the full year 2023. As you can see from the graph to the left, both our revenue and our profitability is in a long-term positive trend. And we're taking several steps in the right direction over the last few years. However, we did not manage to improve further in 2023 compared to 2022. Our revenues for the fourth quarter came in at 1.8 billion, and this gave an operational result on EBIT adjusted of 24 million. The margin for the quarter was 1.4%, which is in line with what we also had in the fourth quarter of 2022. The revenues for the full year 2023 came in at 6.7 billion, and this is down 4% compared to 2022. On a like-for-like currency, the reduction is 7% due to lower volumes in all geographical areas. The operational results or EBIT adjusted for the full year came in at 121 million, which gave an EBIT margin of 1.8%. And we have had solid improvements in Sweden. Norway continue to deliver good results while we have lower yet acceptable profitability in Finland. I will come back with more details on each country later in the presentation. Net financial items for the full year came in at minus 59 million. This is in line with what we also had in the full year 2022. And during the fourth quarter, we completed our refinancing of our debt structure. And with the new debt structure, we expect that the net financial items in 2024, all else equal, will be around minus 70 million due to higher NIBOR. And as a sum, a net profit for the year came in at 37 million, which is an earnings per share of 0.52 euro. Moving to the different countries, starting with Norway. In Norway for the full year 2023, we had a solid result. And the Norwegian organization has succeeded very well with the turnaround over the last few years, which is highly impressive. The operational result came in at 81 million, which gave an EBIT margin of 3.8%, which is up from 3.4% in 2022. The strong result is supported by very good performance in both our rail and our civil business, and particularly our civil business had a good 2023 due to several projects coming to an end. Our demolition and recycling business delivered weak results due to very challenging markets, while our transportation company, Gunnar Knudsen, continued to deliver impressive results during the year. Order intake for the fourth quarter came in at 714 million, which is a book to bill of 1.4. And this strong order intake continued into January and February, as Anders mentioned earlier in the presentation. In the graph to the right, you can see that the backlog for delivery in 2024, shown in dark green, is somewhat below where we were one year ago. However, with the wins we had now in January and February, this gap is more or less closed. The tender pipeline in Norway remains very interesting, and winning new large contracts remains a priority, together with turning kept around to profits. Moving to Sweden. In Sweden, the ongoing transformation has been highly successful, and we managed to break even in 2023 after a good ending to the year. Besides the decision to discontinue the civil business in Karlstad, the main action has been a significant reduction of overhead, as well as improved tender processes and a much more thorough project follow-up. And this will continue to yield improved results in 2024. And besides this, I also want to honor the organization in Sweden, which has adapted very well to this difficult situation. And the spirit in that organization is now very high after years of struggles. As you can see in the graph to the right, the backlog for delivery in 2024 is higher than where we were one year ago. And we continued to win new orders in January and February. And as such, the total backlog for 2024 is very good. We are now building a backlog for 2025 and we are aiming for profitable growth, both in our rail division and our maintenance longer term. Moving to Finland. For the full year 2023, even though our sales in Norwegian kronors is up 7% compared to 2022, we have had a lot of benefit from currency. So on the like for like currency, the volumes in Finland is actually down 6% year over year. In addition, the profitability is down to 2.8% as shown in the graph in the middle for the full year 2023. The reduction in profitability is due to a very challenging year in our rail business in Finland. As highlighted in Q1 and Q3, we had to do significant write downs in one particular rail project in the Finnish operation. And this continued into the fourth quarter. And this mentioned project will be completed in the second quarter of 2024. All the other business divisions in Finland, material, maintenance and light rail delivered better results in 2023 compared to 2022. We are not satisfied with the performance in our rail division in Finland. And we have therefore, among others, implemented new improved tendering and project follow-up processes, in addition that we have assured that we have sufficient capacity in the large rail projects going forward. The tender pipeline in Finland is very interesting. And even though our backlog for delivery in 2024 is acceptable, winning new large contract in Finland remains a high priority going forward. In particular, the light-ray pipeline for 2024 is very interesting for us to build a solid fundament the next two to five years. Moving to our order intake and backlog. Order intake in the fourth quarter came in at 2.0 billion, and this gave a book-to-bill ratio for the full year 2023 of 0.8, as you can see in the graph to the left. The backlog at the end of 2023 came in at 6.9 billion, which is down 11% compared to the fourth quarter last year. However, we have won a lot of orders in January and February. And just based on what we have won there, we believe that the Q1 backlog will be in Q1 2024 backlog will be in line with the Q1 2023. And if we continue to win orders in March, we will be close to all time high backlog at the end of Q1. If you look at that backlog, which is for delivery in 2024, you have to look in the graph to the right. As you can see, at the end of the year, our backlog for delivery in 2024 is 1% higher than where we were one year ago. And with the current pipeline and the wins we had in January and February, we will believe that we will deliver profitable growth in 2024 and build a solid momentum for 2025 going forward. Moving to the depth and the leverage ratio. As mentioned earlier, we completed the refinancing of our debt structure in the fourth quarter with a new green bond and extended bank loans. And we have gradually built down our net interest-bearing debt over the last few years, and we ended our net interest-bearing debt at 761 million, a reduction of nearly 200 million compared to where we were one year ago. We have a target to have a leverage ratio below 2.5 times EBITDA, as shown as a dotted line in the graph to the right. And as you can see, we have come down to this threshold over the last few years, and we ended with a leverage ratio of 2.3 as such within the target area. Lastly, some comment on the cash flow. Cash flow from operation in 2023 was record high with 376 million. And this is supported by good performance in net working capital, which ended up minus 62 million, which you can see in the graph in the middle. We are continuously trying to improve our net working capital and we are aiming for further improvements. However, this has proven to be highly volatile, so do not expect this to continue down in a straight line. Lastly, some comments on the cash flow from the other cash flow items as seen in the graph to the right. As you can see, the cash flow from investment activities is actually positive 89 million in 2023. And the reason for this is that we sold our Gravco business in January 2023. And the cash flow from finance activity is minus 553. This includes the standard lease payments, interest payments and debt installments. But in addition to this, we decided to have a different capital structure during our refinancing. We used to have a 600 million bond loan, but we decided to have a larger overdraft in the bank and rather a new 400 million bond loan. And that gap of 200 million comes in in the 553. And the reason we decided for this is to utilize the volatility we have in the working capital and rather have a large overdraft facility instead of a lot of cash on our bank account, which means that their available liquidity is unchanged. We just have less cash in the bank. And with that, I... move it over to you. Thank you.

So to summarize the fourth quarter and 2023. With this stable foundation, we are well positioned for the future. For 2023, we deliver improved operational performance in many areas, and the results 2023 are overall in line with 2022. We ended the year with record high cash flow from operations and our financial position is solid. The order intake started well this year, 2024, and is setting a positive tone for the coming years. We have announced several new contracts valued at 1.9 billion. The tender pipeline continued to be high, a strong increase compared to the same quarter last year. The improvement over the years remains robust in Norway. The order intake during the fourth quarter increased. And after quarter end, we secured two major contracts valued at over one billion. So I repeat, I think it's a strong start for Norway this year. As I mentioned earlier, The Swedish organization broke even in 2023 and we have secured several large contracts. So I'm confident that Sweden is heading in the right direction. As communicated in November, we are still analyzing Finland to identify actions to improve. We are committed to build profitable growth there with a stable foundation already in place. We will host the capital markets update to share our new strategy for the period 2024-2028. Still focused to build profitable growth and reach more than 5% margin. This year, we expect a slight increase in revenue and EBIT adjusted margin. Thank you. We will now open up for questions.

It's quiet here on the chat today, but we have a few questions. We can start with one and then we can open up from here. So, Anna, a question for you. With your experience from Sweden, what's your take on the potential there?

In Sweden? I have a third year of experience from Swedish business. Of course, I add something in our business area, Sweden. But overall, I think it's a high demand to build and upgrade sustainable infrastructure in Sweden. We have a break-even result. So I repeat, I'm overall confident that we are heading in the right direction in Sweden.

Any questions from here? Yeah.

On your guidance with slight increase in revenue and margins, if we try to dig it down to the different business units, will all three business units, is that your business case that all three business units will improve margins year over year in 2024?

We don't guide per country, we guide the whole group. So overall, we expect slight increase in revenue and adjusted margin. But of course, we are committed to create just profitable growth. in each business area.

We don't guide per market. I think we highlighted quite that we believe Sweden will continue up and forward from the breakeven level, but except from that, we don't want to guide per market.

In the Finnish business, can you elaborate a little bit about how large the total project breakdowns were for 2023, not per quarter, but for the full year? uh we cannot do that but you can say from what we expected in the beginning of the year compared to where we ended it's more or less the full gap from where we were last year to where we are ended this year nearly nearly in the program my question would be on the capital structure you know in the last three years has around neutral to negative working capital earlier i think you have stated that you need to have a positive working capital in your business But in the last three years, it has been slightly negative. Has that view changed or what do you think about that in the next couple of years?

I think I haven't said that, but what I said at the capital markets update was that we don't believe we can be as negative as some of the typical construction companies because of our contracts. So if you go at a typical construction company, they can have like 10% of sales in the negative or networking capital. That's not possible for us, but now we are at 1% or something like that. There are still improvements from this. I think we should be in a negative territory, but not like these others. This is not possible with our contract structure.

How much of the working capital release was due to seasonal effects and how much was due to better cash collection?

That's a difficult question. What we see is that it's extremely volatile from quarter to quarter. Also, if the quarter ends on a Sunday compared to weekdays, these are very small deviation when you have a business of six or seven billion a year. So I don't have a detail on that, but we did do a very good job during the fourth quarter to collect. In Q3, we were higher than expected. So obviously, you have a little bit like balancing that out.

Okay, I can take the next here. Do you expect any challenges in the demolition and recycling business going forward to put pressure on the margins in Norway?

First, we are not satisfied with our results from our demolition and recycle business area. We need to analyze this one and integrate it in a new strategy for the next period. It is a challenging market out there, so we need to understand the situation, but we come back in May with this one.

I just also want to add that Norway had actually a quite strong result this year if you take into account the struggles we had in in kept in 2023 and that we sold our grow business the underlying performance here in norway is actually really good yeah the technical question on the tender pipeline drops quarter over quarter is that related to you winning a lot of contracts in q4 and q1 I mean, if you win a lot, it will drop unless it comes in new contracts, of course. But right now, it's pretty flat, right, in the beginning of the year. It was flat. And then we'll see how many new contracts that comes in during the year. But we have to see.

No further questions from here?