Norva24 Group AB (Publ)

Good morning and welcome to the presentation of the Q1 report of Norva24. My name is Henrik Norbom and I am the Group CEO. With me on stage I have our Group CFO, Stein Ynderstad. Okay, before we start jumping into our Q1 report, I would once again like to take the opportunity to share my reflections on the Norva24 case. We start from the left. This is a market that has experienced and will experience strong growth for many, many years to come. The underlying trends show strong growth due to some key drivers. The infrastructure where we are present in is critical, it's old and has a huge investment debt. Climate changes are putting the system under severe pressure, which will require more preventive maintenance going forward. For example, the cleanup after heavy rainfalls. We have all seen the flooded streets when extreme rainfall hits. Going forward, the market is huge and far from consolidated. The market we are currently serving is estimated to be close to 40 billion NOK. That means that we have a market share of less than 10 percent, but are still the clear market leader in Northern Europe. We are operating in a large and acyclic growth market with proven resilience throughout the downturns. Lastly, into the right, we have shown that we have a proven model for growth and value creation. After 2023, with four deals, we have stepped up and done a handful of acquisitions so far this year. And we still have a solid pipeline. Before going into the Q1 numbers, I want to present the slide with our key priorities going forward. The same priorities as we had in our last earnings call. We continue to work with our price component in combination with proactive cost handling. High focus on improved utilization, maximized utilization of vehicles and personnel. Improve underperforming units, work in a structured way to lift them up to the right profitability levels. And make sure that we have the right people in the right place. And focus on growth, both organic and through M&A. These are four important areas going forward. In addition, we also pay attention to our capital allocation and working capital. Okay, now on to the group numbers and the highlights. Operations in the quarter are affected by fewer working days, which are down by almost 5% in the quarter. Still, our revenues were up by 9% and organic growth was up 2%. But adjusted for the number of working days by using the first four months of the year, the organic growth was 7%. The number of working days has a strong impact on the adjusted beta, which is down by 12% in the quarter. But the effect of fewer working days in Q1 is eliminated after April. We see an improved margin during the first four months versus same period last year. Our cash flow is usually soft in the first two quarters and strong in the last two. This is also the pattern this year, but also enlarged by the end of the quarter being a number of non-working days. Hence, payments of our receivables are pushed into April. Looking at the operational highlights. Over the last month, we have made important acquisitions in all markets, adding over 430 million NOC of revenues and strengthening our market position. Highlights on the segments. Norway, winter effects with a tough start in January and 5% reduction in number of working days lowering profits. Sweden, showing strong growth at .5% and stronger margins. Help by acquisitions and more efficient operations. Denmark, keep delivering on the improvement and delivering both growth and strengthened margins of 1.3%. Overall, operations are affected by seasonal effects that are neutralized by looking at the four-month period. This is a new slide, where the calendar impact is neutralized and we look at the first four months. And this gives a more fair view. Looking at Norway, Q1 currency adjusted growth was only 1.3%, but first four months it was 9.3%. And another example is Denmark, where growth went from .4% to very strong .8% growth, looking at the first four months. So this changes the pictures for the group significantly. Currency adjusted organic growth was .6% in Q1 and increased to .1% in the first four months of the year. We do not give profitability numbers for the first four months, but as stated, we see an improved EBITDA margin. Now let's go through the segments. Starting with Norway. Repeating myself, Q1 was affected by the reduced number of working days, which were down by 5% versus Q1 2023. Norway achieved a total growth of .4% and an adjusted EBITDA margin of 9.1%. But as we know, showing a stronger result looking at the four-month picture. We have done two transactions in Norway the last month, where Vitek is the most significant, adding more than 120 million of revenues. We expect closing of the deal in the coming weeks. Germany. .4% total growth and an adjusted EBITDA margin of 7.5%, of course also affected by the seasonality and the number of working days. Germany had 62 working days in Q1 this year versus 65 last year, a 5% reduction. In Germany, one of our larger operations have a timing issue in some large assignment that unfortunately weakened the result. These larger assignments are expected to pick up in the next month. Bayer, the deal we announced in Q4 last year, enclosed on the 3rd of January, is performing according to plan and works well with Kanaltyrpe building density in the region. Okay, next slide. Sweden. I'm very pleased to see the development in Sweden in Q1. Despite two fewer working days, revenues are up by .5% and an organic growth of 11.8%. Sweden is the market that is the least impacted by working days in Q1. The underlying margin improvement is strong and the overall margin is also supported by Kontratek, which joined Norway 24 in November last year. The margin improvement is driven by higher activity and utilization, leading to a 380 basis points improvement of the beta margin of 12.6%. The Swedish operation have a good speed and operational improvement. Last week we announced the acquisition of Högtryktjänst Syd, an operator in the Malmö region, strengthening our already strong position in Skåne. Okay, to the Danish operation. It is good to see the positive development in Denmark. Despite seasonal effects, Denmark continues to deliver improvements. Profitability is up by 140 basis points in the quarter and we see the strong development of recent quarters continues. We are excited to have signed the Nordic Power Group and the deal is closed as we speak. Nordic Power Group lifts the revenues in Norway 24 Denmark by close to 50% and contributes nicely to the Danish margin. Okay, we continue to grow and as normal Q1 is the low quarter, this year is even more so due to the fewer working days, which is impacting profitability of the quarter. I want to underline that we are still on track to reach our 4.5 billion NOK of revenues in 2025. Okay, I hand over to Stein to go through the financials.

Thank you, Henrik. Let me run through the financials. As you already heard, Q1 was impacted by the reduced number of working days. Hence, it is a challenging quarter to form an opinion on based on the performance. For that reason, we've also given you the organic growth numbers for the four first months, but back to the first quarter. To start from the top, total operating revenues are up by 9% for the quarter from 705 to 770. On the cost side, we see operational service expenses only increased by 1% and personnel cost increased by 16%. This is driven by the reduction in number of working days as salaries of non-operational staff is fixed monthly pay. We usually see these two cost elements together because sometimes we use more subcontractors, sometimes less, but the joint number is quite relevant for our performance. This year, the total cost of those elements were .7% versus 58% last year, but this is very much due to the fact that we had fewer working days in the quarter. Vehicle operating expenses were reduced marginally in the quarter due to the reduction of fuel prices in Sweden. Fuel prices were down by 17% in the Swedish market, whereas in Norway, Denmark and Germany, they were quite stable compared to last year. This leads to an increase in operational expenses of 61% on the back of revenues, which increased by 65 million. EBITDA for the quarter is up by 4 million and the margin is down by 0.5%. Depreciation makes up a larger share of the cost base this quarter due to new vehicle purchases and leases and the modest growth that we saw in revenue for the quarter. We have significant capacity and we are able to increase our production with the current equipment that we have in place. We can continue growing without having to increase our investment further than we have seen lately. Net financial items are only 1 million this year and last year. The items this year are very much impacted by a currency gain of 19 million, so it's hard to actually understand the 1 million compared to last year. Interest costs from loans and leases were 21.7 million this year, up from 15.1 million last year, and this is mainly due to higher interest rates on our loans. This gives central earnings before taxes of 37 million, down 17% from the 45 million last year. After adjusting for non-recurring items, the adjusted EBITDA for the quarter came in at 52 million compared to 59 million last year. So on to the balance sheet. We can show a very strong balance sheet. Our net debt is 1.4 billion at the end of the quarter, representing a net interest bearing debt over adjusted EBITDA of 2.2 times. And this ratio gives us significant room for up to our covenants of four times, and this will enable continued growth. Goodwill at 1.787 million at the end of Q1 shows an increase due to the latest acquisitions, with impairment tests showing ample growth. The non-current loan of 670 million is primarily the bank loan. Over to our net debt structure. We stress this in all our presentations. Most of our debt is related to IFRS leases that need to be capitalized. These lease liabilities amounted to 906 million at the end of the quarter. Total interest bearing net debt was 1.4 billion at the end of Q1, of which approximately 65% are capitalized IFRS leases. Depreciation of the leased assets is included in the total depreciation in the P&L. Net debt excluding lease liabilities amounted to 498 million at the end of the quarter. Out of the 1.1 billion credit facility, close to 500 million was unutilized and available at the end of the quarter. This combined with the cash flow from operations gives us financial capacity for M&As. Last fall we exercised a one-year extension of the credit facility of 1.1 billion, and this facility now expires in December 2026. A part of the facility will be drawn upon over the coming months related to the transactions or M&A deals we've done in Denmark and primarily Norway then. We are discussing additional funding facilities with several sources, and we're very confident that this will be in place shortly. We can show you a solid cash flow from the operating activities over the last 12 months, although Q1 was on the softer side. We had 553 million NOC of cash operational cash flow over the last 12 months, and this is up 56% on the previous 12 month period and gives a cash conversion of 85%. We have been tying up too much capital in networking capital, and this was still the case at the end of Q1. March was a poor month in terms of cash collection due to the fact that we had a number of non-working days leading up to the end of the quarter. We have seen these outstanding receivables being paid to a large extent in April. And just to recap the financial results, we have good growth in revenues, 9%, but it's very much impacted by the number of working days. Margin for the quarter is down due to the number of working days. We have a strong cash flow and focus on improving the cash flow further through better working capital management. We have a strong balance sheet that has enabled larger M&A deals over the last months, and there is still room to continue the growth. Acquisitions are a key component in our buy and build strategy. Almost all of the transactions are done in bilateral deals, where we seek out the targets and we introduce ourselves and we engage in a dialogue. For such dialogues, we involve both Henrik and myself, but also country management, and we give support from the M&A side. And we benefit from the companies that are already part of Nerva24, where founders have a good understanding of where to find companies within their market. 2023 was a year with limited conversion on the M&A transactions. And we managed to stick to our strategy and not get too eager to do transactions if the deal and the valuation was not right. Over the last months, we have done six transactions with more than 430 million of revenues. And I'll get back to that in more detail on the following slide. Here we have listed the 2024 deals, but we have also included Bayer, given that it was never part of the 2023 numbers, as it was closed on January 3rd. Bayer supports our business in the south of Germany, and it works well with the Kanal-Türk operation we have there. It gives us about 50 million of revenues. It is margin-equitive for the German operation. It is within the enterprise value range of six to nine times that we have stated that is where we do transactions. And we will have current management stay on going forward. The next transaction is Küsting, which gives us some special competence amongst pressure testing in the Danish market. Same with this. It's a more modest transaction, adding 15 million knock-off revenues, but it does have some special features in terms of the competence that they are contributing to the group. It's also margin-equitive. It is within the range in terms of valuation, and management will stay on going forward. And then we have Svein Klunkveit, also a more modest transaction. It's where we buy the UIM division of Svein Klunkveit, adding 15 million of revenues, valuation within the range. Management will not stay on, and management will be done by our existing operations in the west of Norway. And then we have Vitek Milieu, which is an acquisition in the Bergen area. And it's a large acquisition with 120 million of revenues, strong profitability, strong operations. It fits both the margin targets that we have, and it also fits our valuation targets. Here, management will stay on until 2025, where we have a proper organization in the west of Norway to take it over. We are expecting this to close during Q2, and we are awaiting approval from the Norwegian competition authorities. And then we have Nordic Power Group, which is a very large operation, adding 50% to our Danish revenues, with their 210 million knock-off revenues. Valuation range is correct, margin is creative for the Danish operation, and management will stay on. And finally, last week, we did the transaction in Malmö. We acquired a Høytrykstjenstsyd, which will be part of our Malmö operation. 20 million of revenues, but it ticks all the boxes when it comes to valuation and margins. And also here, margin, also here, the management will stay on going forward. Okay, Henrik, I'll hand it over to you.

Thank you, Stein. Okay, before I summarize and give some key takeaways, I always want to underline that we are on track to deliver on our financial targets. 4.5 billion knock in 2025 through organic growth and acquisition. 14 to 15% of beta margin midterm, and we still have a good capital structure to support the journey. Next slide. Okay, final slide before Q&A. Key takeaways from this presentation. Strong conversion in M&A. Six companies bought during the year, adding over 430 million knock-off revenue. Good organic growth in the first four months, 7.1%. We are uniquely positioned in an attractive growth market and show resilience in a tough economic climate. Over time, NOVA24 lifts margins of acquired companies, and we are on track to deliver on our growth and profitability targets. Thank you. Now we open up for Q&A.

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The next question

comes from Carl Johan Bonnevier from DNB Markets. Please go ahead.

Yes, good morning, Henrik and Stein. Thank you very much for the presentation and the show of what happened in the first four months rather than just giving us the Q1 numbers, which I think will take away a lot of the questions, no doubt. But if you look at it, last year in Q2, you had the utilization challenge that you detailed and unevenness, as you talked about in utilization. Given the numbers in our show for the first four months, how do you see Q2 this year in comparison to last year?

Good morning, Carl Johan. Nice of you to call in. Yes, last year we had some utilization issues, especially in Sweden, which we sort of did not see into Q3 and the rest of the year. So far, we're not seeing that in this Q2. I mean, as you said, it started well and that we see in the numbers that we published this morning. So we're optimistic about the quarter. It looks as if it will be continuing the trend that we've seen lately.

Excellent. Thank you. You also mentioned saying that we should expect CAPEX maybe to be on the slightly higher note driven by the high growth rates. Are you willing to give us some sort of indication what kind of CAPEX level you see for this year? No,

that was a bit of a clumsy expression there. But I think the CAPEX that we've seen in Q22 at a lower level, then we saw a higher level in Q23 and then also Q1 is slightly higher. I think that's something we'll see normalized a bit. So I don't think we'll see a pick up in CAPEX. My point was really that with the capacity we have these days, we should be able to increase or there is capacity to increase our production.

Excellent. So no major change to the historical patterns basically? No, no. Good. Maybe if you could elude a little how you have seen tender win rates going at that of late. Is it still a positive momentum underlying in the business?

If I heard it right, the tender. Yeah, we continue to be successful in the tenders and winning more than we lose. So in actually in all countries. So we have a good commercial drive out there that we're proud of. And also not only we're not only celebrating winning, we're celebrating winning with good prices.

Sounds promising. And one final for me. Nordic Power Group in Denmark looks to be an excellent addition to your business and obviously looks to be an operation with a higher margin profile than your legacy business in Denmark. How do you see that playing out? How do you see your units being combined to say maybe get closer to what the Nordic Power Group is achieving rather than your old legacy level?

I think what we're seeing is that the Danish operation and we see that in the numbers here as well. You know, they're ticking up and we've seen a great improvement in the margins in the Danish operation over the last couple of years. And we expect that to continue. I mean, we're all aiming for the double digit margin in Denmark. We're not promising anything this year, but we do expect, you know, that will continue that improvement. Nordic Power Group has a margin which is more in line with the rest of the group or maybe we should even a little bit stronger. So that will of course also play in very nicely with the overall margin in Denmark, which will be then not the kind of

more of a flashing operator that is giving them that kind of margin profile compared to you or?

They have some expertise in some areas in the flashing business and they have a lot of customers and they're able to do this in a very efficient way. So it's not that they have a technology that is unique, but I mean, they're very good at doing these large assignments and they get good profitability out of this. And I mean, they've proven this over some years and you know, the three top guys there are staying on and we expect, you know, that they will be fully motivated and continuing to develop and grow that business. Very nice guys that are joining the group.

Excellent, sounds promising and thank you for all the answers and all the best out there.

Thank you. Thank you.

As a reminder, if you wish to ask a question, please dial pound key five on your telephone keypad. There are no more phone questions at this time, so I hand the conference back to the speakers for any written questions and closing comments.

I think we've already spoken to some of the analysts earlier today, so I think, you know, they've all been answered so far.