Norva24 Group AB (Publ)

Good morning and welcome to the presentation of the Q3 report of Norva24. My name is Henrik Norbom and I'm the CEO. With me on stage I have our CFO Stein Ynderstad. Before we start jumping into the Q3 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 robust growth for many years to come. The underlying trends show strong growth due to some key drivers. The infrastructure where we are present in is critical, is old and has a huge investment depth. 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 flooded streets when extreme rainfall hits. Recently, we have seen the extreme weather hit Spain but also we have seen examples from the Nordic countries. The consequences for society is problematic and related to the huge investment depth in the infrastructure. Going forward, our market is huge and far from consolidated. The market we are currently serving is estimated to be close to 50 billion NOC. 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 downtown. Last team to the right, we have shown that we have a proven model for growth and value creation. So far this year, we have signed a handful of acquisitions adding close to 400 million NOC of annual revenues and we still have a solid pipeline. The latest acquisition was Rör en ledningsinspektion which is a good supplement to the existing operations in Stockholm. Before going into the Q3 numbers, I want to present the slide with our key priorities. The same priorities we had in our last earnings quotes. We continue to work with the price component in combination with proactive cost handling. High focus on improved utilization, maximize utilization on vehicles and personnel. Improve underperforming units, work in a structured way to lift them up to the right profitability levels and make sure we have the right people in the right place. To support operations in this, we have developed a playbook in close cooperation with operations. Here we facilitate the analysis and benchmarking to understand where the largest improvement areas are in relation to efforts and probability of delivering on the margin improvements. This is done through an action-based improvement loop with frequent follow-up. And, at least, we focus on growth both organic and through M&A. These are four important areas going forward. In addition, also high in our agenda is our capital allocation and working capital. Okay, now on to the group numbers and the highlights. We continue the growth and we are proud to be able to present six acquisitions from the turn of the year, which lift our turnover by 400 million NOC. Included in the 400 million NOC, we have the VTEC deal signed in April, which has not been closed as the Norwegian Competition Authority has prohibited the acquisition. This has been appealed and a decision is expected late January 2025. I want to underline that we do not see that this will impact Norway 24's ability to do more acquisitions in Norway. We are satisfied with the quarter with a growth of .7% in revenues from customer contracts. Total reported revenue grew by 18% in the quarter. Currency adjusted 5.4%. Looking at the operational highlights, the margin for the three Nordic countries in the quarter is down 50 basis points compared with Q3 2023. Norway is down from a record level of .6% last year to .1% this year, with a solid organic growth of 7.3%. Sweden maintained a margin of 16% with strong organic growth of 10%. Denmark continued the positive development we have seen lately. Total growth of 85% and a margin improvement of 540 basis points due to the acquisition of the Nordic power group. Germany, despite the challenging market conditions, the Germany operations had an adjusted, currency adjusted organic growth of .9% in the quarter, but with a margin reduction of 380 basis points. The margin development is affected by low activity in one underperforming unit in combination with low activity levels at a couple of other entities due to the tough market conditions in Germany. I'll address this further under the slide on Germany. In Q3, our operating activities generated a strong cash flow of 243 up from 132 million NOC. Overall, we are okay with the Q3 performance. Now let's go through the requirements. Okay, we start with Norway. Most Norwegian entities experienced revenue growth on the back of an excellent quarter last year, resulting in a solid organic growth of 7.3%. Year to date, organic growth was 8.2%. The previous year was impacted by larger assignment and work related to the extreme weather. The beta margin decreased by 340 basis points this quarter from last year's excellent levels, but a margin above 20% is good. Next slide. Germany, achieving .9% total growth and an adjusted beta margin of 11% and a margin reduction of 380 basis points over the quarter. The margin development is affected by low activity in one underperforming unit in combination with low activity levels at a couple of other entities due to the tough market conditions in Germany with negative GDP growth expected also for 2024. As communicated in August, the large projects that were postponed in Q1 and Q2 have so far not materialized and we are questioning if these projects will materialize. We are of course adjusting our workforce accordingly. In general, NOVA24 has very limited exposure to project business, but in this underperforming unit, project business accounts for a fair part and this is more cyclical and tied to a weak construction industry in Germany. We dismissed the manager of this company early Q3. A new experienced manager has been signed and will shortly be in place. This company will be under transformation in the coming quarters. Our performance in Germany is disappointing. Something positive in Germany is the well-needed business platform. We are in the phase of going live with our new business platform in the first entity in Germany. The first part of the business platform is a field service management system being launched these days and the final part, which is the ERP, will be live as soon as the December reporting and annual accounts have been finalized. Then a broader launch to the rest of the German entity will start. This should, over the coming years, support operations in a good way, enabling better utilization of equipment and personnel. It will also help us scale the business in a better way. Okay, next slide Sweden. Sweden continues to perform well with strong currency adjusted organic growth of 10.1 percent, the impact of acquisitions leading to a strong growth in total operating revenue at 29.3 percent. The organic margin for the quarter has broadly in line with last year. -to-date the margin has improved by 385 basis points, so a strong development in Sweden. Denmark. The Danish operations continue to improve. Denmark had a revenue growth of 85 percent in the quarter and 51.6 percent -to-date. Nordic power group contributes a lot to this growth despite only being consolidated from the 21st of May. The organic growth in the Danish operation was just above zero for the quarter and 5.9 percent -to-date. Profitability is up by 540 basis points for the quarter and the majority of this increase coming from Nordic power group. -to-date the margin improvement is 520 basis points and there is also a good organic margin improvement of 70 basis points in the underlying Danish operation. We continue to grow and we have added close to 500 million NOC of revenues from Q3 2023 and more than 1.1 billion NOC from Q3 2022. Also regarding profitability we see growth. Our EBITDA is up to 385 million NOC on a 12-month rolling basis up from 292 years ago. Okay, final slide for me now. I will hand over to Stein to go through the financials.

Thank you, Henrik. Before we go to the financial section I would like to touch on the Q1 and Q2 figures. We were happy with the deals signed and the pipeline. We have now signed six deals with an aggravated revenue of 400 million this year all in Scandinavian markets including VTEC. As Henrik mentioned the VTEC deal was signed in April and has not been closed as the Norwegian competition authority has prohibited the acquisition. The decision has been appealed to the competition appeals tribunal where a decision is expected late January 2025. Last quarter we mentioned we were in advanced discussion with several German targets and that they may materialize during the second half of the year. We've now placed one of the larger targets in that advanced phase on hold due to performance issues for that target. This is something we've done from time to time on previous cases as we need to be comfortable that the financial performance of the target match the valuation that we have agreed on. When or if this target will resurface is not clear and we are pursuing other targets continuously. The current pipeline is sufficient to bring us to the revenue target of 4.5 billion in 2025 but as we've said before we are in no hurry. It is very important for us to maintain prudence in these acquisitions and to secure the right capital allocation. Okay let's go to the financials. We're satisfied with the quarter and revenue growth of 22.7 percent in revenues from customer contracts. During the quarter we have a revenue adjustment related to a potential reversal of recognised revenues of 3 million euros. The reported total revenue growth was 18 percent for the quarter and 15 percent so far in 2024. The cost development is quite aligned with our growth in revenues from customer contracts. Two items have increased more than revenues and this is personnel cost due to the fact that we had a very high utilization last year and the other one is operating cost. Here we see a significant part of the increase is coming from M&A activity. Vehicle operating expenses is up by 17 percent which is less than the revenue growth so this contributes positively to the EBITDA margin. We have also benefited from the reduced fuel prices and especially from the reduced taxes on fuel in Sweden. Depreciation for the quarter is up to 9.5 percent of revenues which is 40 basis points higher than the quarter compared to last year and it's 30 basis points year to date. At the bottom we see the adjusted EBITDA is 14.2 percent for the quarter. This is a margin is 11.5 percent down 10 basis points compared to last year and we also mentioned this large entity in Germany which is underperforming. If we were to take out the impact of that the margin would have been 14.8 percent in the quarter and 12.3 percent year to date which is a 80 percent hike of our margin. The net financial costs were 5.1 million in Q3 and 22.2 million last year. The reduction here is coming from a recognized earn out gains of 17.7 million which is due to the reversal of the earn out accrual for the underlying for the underperforming German branch. We also have a currency loss of 10.6 million due to the weakening of the Norwegian crown. Interest cost is up by 3.9 million in the quarter from 22.2 million last year to 26.1 million this quarter. This gives us an earnings before taxes for the quarter of 72.9 million which is down from last year and the tax rate is 33 percent. Going forward we should expect the tax rate to be close to 25 percent for the group. Next slide. We can show a strong balance sheet. Our net debt is 1.6 billion at the end of the quarter representing a net interest bearing debt over adjusted EBITDA of 2.2 times based on the statutory numbers and 2.1 times based on pro forma. Our goodwill is 2 billion 79 million at the end of Q3 and that has an increase due to the acquisitions we've done. In terms of the goodwill we've done impairment testing and there is no imminent danger of any write downs here. There is ample headroom here. Our lease liability is 1 billion and 16 million and that is related to right of use which refer to financial leasing of vehicles and the property rentals. The non-current loan of 894 million is primarily the bank loan. Right of use and property plant and equipment increased by 17.6 percent year on year while our revenues from customer contracts increased by 22.7 percent. Our investment in the quarter ended up at 91 million NOC and that is from the level we saw in Q2 and this investment represents 9.4 percent of our revenues. Our investment in machinery and equipment and the rental contract should be around 8 to 9 percent of revenues but we're currently seeing a higher level driven by two factors. We're winning new contracts which needs increased capacity and we also see a stricter requirement for carbon neutral vehicles meaning electric for the smaller ones or gas powered vehicles for the larger ones and this is requiring some new investment on our side. But what we're doing here is when we replace a car with a gas truck we're able to relocate that vehicle to an area outside of these no carbon zones but for the time being we're seeing a slightly higher investment level due to this. Although the gas cars are more expensive we should also see this reflected in the pricing and revenues going forward. Over to our debt structure. Most of our debt is related to IFRS leases that needs to be capitalized. These lease liabilities amounted to 1 billion and 16 million at the end of the quarter. Our total net debt interest our total net interest bearing debt was 1 billion 597 million at the end of Q3 of which approximately 60 percent are capitalized IFRS leases leasing payments for the next 12 years. The total net debt for the next 12 months is 267 million compared to 266 million last quarter and depreciation of the leased assets are included in the total depreciation in the P&L. Net debt excluding lease liabilities amounted to 580 million at the end of the quarter. Looking at the multi-currency facility we have 1.1 billion credit facility of that 855 was utilized at the end of September. The loan facility has since then been increased from 1.1 billion to 1.85 billion and we have also have prolonged it for two years compared to the current facility and this has been signed now in Q4. Over to the next slide. In Q3 our operating activities generated 243 million in cash flow up from 132 million last year. Year to date this has been 396 million up from 309 million last year and we have started initiatives to reduce our working capital in Germany and Denmark. Although we see some encouraging signs on the networking capital this quarter compared to last quarter we have not reached the the targets that we've set for those two markets. Our operating cash flow of 640 million last 12 months is up 42% on the previous 12 month period and with a good cash conversion of 90% and at the end just to recap the financial result we have good growth in revenues from customer contracts up 22.7%. Our adjusted EBITDA is up by .1% year on year. Very strong cash flow and very strong cash conversion the last 12 months and we have a strong balance sheet to enable the M&A journey we are on. So there is still ample room to continue the growth. Very good. Handing over to Henrik.

Okay thank you. Next slide. Okay thank you Stein. Before I summarize and give some key takeaways I want to underline that we are on track to deliver on our financial targets. 4.5 billion NOK in 2025 through organic growth and acquisitions. 14 to 15% EBITDA margin midterm and we have a good capital structure to support the journey. Next slide. Key takeaways from this presentation. Financial wise we come from a quarter with strong total growth of .7% organic growth of .4% adjusted EBITDA up .1% on the back of a strong operational cash flow up 84% in Q3 and up 28% year to date. Other takeaways we are uniquely positioned in an attractive growth market and show resilience in a tough economical climate and we are on track and ready to continue the journey. Next one. Before we open up the Q&A I want to advertise that we will have a capital market day on the 19th of March next year in Stockholm to present the updated strategy and evolution of Norva24. Our strategy for 2025 to 2030. Save the date. Warm welcome. Now we open up for Q&As.

You are now in the main conference. Line unmuted. The next question comes from Dan Johansen from SEB. Please go ahead.

Good morning Henrik Hesheim and thanks for taking my questions. I think I have two questions to start with. I'll take them one by one. Maybe starting a bit on Germany and you have an ambition there to reduce your exposure to these construction related projects going forward. Is that going to impact your growth rates in the short term you believe or can you sort of replace that business with other types of business and sort of maintain the growth you intend to have there?

Thank you for the question Dan. Of course this is isolated to this company as you say and as I also stated in the Q2 report that we want to transformate ourselves out from this kind of more risky business. This is not the core UIM that we're working with. This company is an odd bird. Of course we will need a couple of quarters to transformate that. I foresee that we will have a little bit of organic decrease from this company, yes, but not in Germany as such. But when we now restart that company, transform it, we have a new manager in place, of course it will take a couple of quarters before we are up and running. We are in full phase of making sure that we have new volumes that can take over from that old volume but volumes that are core UIM. But it will take a couple of quarters.

Yeah, I totally understand. Maybe on the group margin here it's about flat now year to date but you had a little bit of a weak EQ for last year so you still think you're able to expand the margin now for full year 2024 or what's your view on that?

I think as of today I would say yes but I do remember we were here a year ago and on the back of a week 2022 and winter had not set in so we expected 2023 Q4 to be a strong quarter. October, November were strong, December was really really poor. But to answer your question, yes, we do believe we would be able to overperform compared to last Q4.

Yeah, sounds good. I think that was my questions for now so I'll jump back into the line for now. Thank you Dan.

The next question comes from Robert Redding from Carnegie. Please go ahead.

Yeah, morning. I just wanted to ask on these German products again. I mean they've been a sort of problem area for a while now. I mean, I think the German products are really good. I call it for you all year right? But you booked this 36 million sort of reversal of previously booked revenue in Q3. Are there any other such large projects in that German subsidiary or others in Germany or elsewhere? Are there any risks that we could see more of this or was this it?

This is isolated to this company and of course when we took over and we have had our country management on place since early Q3 to investigate the situation. It is linked to this project business isolated in this company and the reversal that you mentioned is related to this project business that we have here. Once again, I repeat myself, this is an odd bird. We have not this exposure in other entities in Germany.

All right and in this individual subsidiary this was also in terms of large sort of projects that could be delayed or questioned.

This is the largest project that has had and we've been through the portfolio and we feel comfortable that this is it.

All right perfect thanks.

As a reminder if you wish to ask a question please dial pound key five on your telephone keypad.

Okay I have a German... okay.

The next question comes from Avinash from Mandra. Please go ahead.

Hi, a couple of questions please. The first one is on VITEC. So does if the public court decides not if in case they decide not to vote in favor of Norwalk will it derail your open 5 million target of next year that the revenue target does that somewhat take you back by 120 million? Open revenue? Yes

it was a little bit hard to hear you there Avinash but what I heard was if we are not successful in the appeal will that mean we will not have the 120 million of revenues or if that was your question yes if we are if we lose in this appeal tribunal we will have to make up mind if we take it to the next level or if we accept it. Right now I think we feel that we have a good case we haven't been able to communicate that well enough to the competition authorities or they haven't been listening but we do believe we have a good case for the tribunal and if we do not succeed there we'll have to evaluate what to do but of course if we are successful in the tribunal we believe the case would be or the transaction would be closed during February next year.

Okay yeah sorry for the line being a line not being very clear I just wanted to know how hard it will be for the 4.5 billion target that you have for next year if it is turned down?

Well then it makes it more complicated given the fact that we would be well short this 120 but I wouldn't say you know it makes it out of reach as I said in the presentation as well we have a good pipeline but it's more about the discipline and the patience that we're willing to demonstrate here because it is important for us that we do the right acquisitions so it's 4.5 is an important target for us but it's not something we would do everything to achieve if it's not the right transaction so we need to make the good deals and not just look at the volumes.

Okay and thank you my last one is on Denmark so I just wanted to understand a bit more as to why the Denmark organic growth has been so weak in the last quarter please?

I think it is quite a bit about the performance they had last year they had a good Q3 last year and that's not been that's something they've been able to meet this year and yeah so I think it's we're not really seeing a weakening of the Danish operation in total and you also see that although margin is fairly flat in Q3 on the back of a fairly good Q3 last year even for Denmark we see that there is a solid margin improvement year to date.

Yeah and I mean in underlying Danish market we are close to double digit there of course it seems that it's softened out a little bit but there's a lot of actions on the table to improve the Danish market operations and I know that the Danish management are really on top of that question so we we've foreseen that it will start increasing again.

Okay yeah okay thank you.

The next question comes from Jenna Shu from Burenberg please go ahead.

Hi good morning thank you for the presentation and thank you for taking my questions just kind of circling back to the 4.5 billion revenue target so I see that consensus currently has around I would say four billion for 2025 that would mean like just going through some of the mathematics that would mean probably around 500 million knock of acquisition and to if I'm not wrong most of the acquisitions that have been done this year I would say are in the 20 million knock range except with the exception of Nordic Power Group and DTEK of course which is still pending so just kind of like doing the mathematics of it we need to make up 500 million of revenues to get to that 4.5 billion target does that mean that the the potential pipeline is full of acquisitions that are on kind of the higher end of the revenues or how should we think about this?

It's the same answer we've given before I mean it's a wide variety and you're absolutely right the transactions we've done this year are mainly smaller transactions but if you look at the average including VTEC though you're at 60 to 70 million for those six transactions so and that's also sort of the composition in the pipeline there are some larger assets in there and even in the due to the performance I mean we did agree on the price evaluation and then we see performance is not quite where it should be and then we haven't been able to bridge that that gap and so we've said let's put that on hold and see what what we see in the next coming quarters and this this is something we've done on previous transactions as well and that's been a good approach but but you're right also the the organic growth would bring us to something fairly close to four billion I understand that Matt and we do agree with that so it would require sort of very close to 500 million next year and that is of course a challenge.

Okay thank you for the clarification and if I'm not wrong you mentioned it was the German possible jump in acquisitions that were in the pipeline before for H2 that have been postponed is that right?

Correct.

Great perfect thank you very much.

Thank you. There

are no more questions at this time so I hand the conference back to the speakers for any written questions and closing comments.

Yeah I have a question on the on the web here uh corporate cost was a bit lower this quarter than normal is this mainly related to holiday or something else should we expect the same kind of burden in the German in germany on margins from this underperforming unit seasonality in Q4 would you say october and november to date has seen similar weather conditions year on year okay let's start from the top I think the corporate cost is a bit lower this quarter partly because we were using a bit of subs and external consultants last year and that was pulling it up I think the level we're seeing today is at the fairly right level and then we'll maybe need to do some more investment into some corporate corporate capacity given that we're a fairly slim organization today but it's something we'll get back to later the same kind of burden on german margins from this underperforming unit I think it's there is a new manager coming in shortly and we expect that it will take some time before he really is able to grasp it fully and there might be a burden on margins but it should not be the same by any means same same level as we've seen in q4 and q3

yeah I mean of course and due to we are are not starting this I also mentioned it in in in q2 report that we we have one company contracts but we don't know when they will materialize and if they will materialize we have adjusted our workforce accordingly to that to to of course not to to have lower cost in that company regarding the the weather question here I would say october november everybody's that's living in the northern countries has seen quite favorable weathers so so I mean no snow and no yet we are sensitive for that so let's see what december have to bring but favorable weather so far yeah october and november so far

yes the final question on the list here is how much project business do you have in germany

yeah we have we have all quite already but it it's not once again it's not a german problem we have this odd bird this company that we're talking about unfortunately underperforming that have a chunk of of project business but it's very isolated of that hundred million euros of revenues in in germany total it's a couple of percent less

than five

percent less than five percent is related to pro project business related to the construction industry that is very weak in in germany right now