Multiconsult ASA
OSE:MULTI

Watchlist Manager
Multiconsult ASA Logo
Multiconsult ASA
OSE:MULTI
Watchlist
Price: 190 NOK -1.55% Market Closed
Market Cap: 5.2B NOK
Have any thoughts about
Multiconsult ASA?
Write Note

Earnings Call Transcript

Earnings Call Transcript
2018-Q2

from 0
M
Mirza Koristovic
Head of Investor Relations & Finance

Good morning, and welcome to the Second Quarter and First Half 2018 Earnings Presentation Conference Call for Multiconsult. My name is Mirza Koristovic and I'm Head of Investor Relations. Today's conference call will be held by the CEO, Christian Nørgaard Madsen; and the CFO, Anne Harris. Today's session can be accessed on our webpage under the IR section. The call will last for about 25 minutes, and we will open up for questions after the presentation.So with that, I leave the word to Mr. Madsen.

C
Christian Nørgaard Madsen
Chief Executive Officer

Thank you, Mirza, and good morning to all of you listening in. I will take you through some of the highlights for the quarter and the first half of 2018, and then our CFO, Anne Harris, will take you through some of the details.The quarter was a, revenue-wise, good quarter with a growth of 20.1%. Year-to-date, we had an increase in the operating revenues of 13.5%. The quarter had a positive calendar effect compared to Q2 last year. But if we look at the first half of 2018 we had a negative calendar effect constituted by 1 less day this year compared to last year.We see in the Norwegian operations, especially in the Greater Oslo area that we had some reductions in the earnings caused by unusual vacation pattern as we have decided to call it. That is, some public holidays in Norway on Tuesdays and Thursdays, giving openings for time off on Monday and Friday, and combined with an exceptional summer here in Norway with plus/minus 30 degrees Celsius. We had more holiday and other kinds of time off than last year.We see a very positive development that is an improvement in the billing ratio across all of the group. We have discussed the profitability improvement program with you in a series of quarters now and the aspects related to that program are proceeding according to plan.At the start of the year, vacational period we gave you the information of a significant contract award with the public entity, Nye Veier for the highway 6 Ranheim to Værnes in middle part of Norway. This is a breakthrough for us towards this client and also related to the procurement method, which is sort of a best value procurement method. In the quarter, we saw an increase in the order backlog to NOK 2.3 billion.So into some more specifics, the second quarter, we saw, as mentioned, revenues -- net revenues increased by 20.1% to a specific number of NOK 887.6 million. Out of the 20.1% growth, we had an organic growth of 2.1%, so most of it is related to acquisitions last year, especially the Hjellnes group which was part of Multiconsult late in Q3. The EBIT was at NOK 48.9 million, giving a margin in the quarter of 5.5%.Year-to-date we had an increase of 13.5% year-on-year out of which the organic growth was 4.1%. Year-to-date, we have had net project write-downs of a little above NOK 25 million, which is around 1.4% of net turnover, which is reflecting a normal level as we have discussed with you earlier. We still see that this is to our understanding higher than we like to see it, so we are working on that. The EBIT in the first half of 2018 was NOK 85 million, giving a 4.9% margin with that 1 mentioned less working day compared to last year.I will give you a brief update on our profitability improvement program. On the left-hand side, you see areas of improvement and ambitions, which is unchanged compared to last quarter. So I'll just go into the right-hand side and this -- and explain why we have a status like the colors shown.When it comes to sales, we have had an increase and a very strong sale in, especially the Greater Oslo area, in the second quarter. That's very positive. We see an increased group order backlog and also intake. We have had large and smaller significant frame agreement awards from very, very good customers. But we have a modest increase in billing rates and there is still severe price pressure, especially on the public procurement projects.So the reason for the yellow light here on the sales are -- I would say, it's the last one, the modest increase in billing rates. The 3 first mentioned would give a green light, but we still like to keep it on yellow because of the billing rates to have a continued focus on increasing that which is not only a Multiconsult challenge but is a consulting, engineering and architect business challenge seen on the latest statistics from the Association of Consulting Engineers in Norway.When it comes to the billing ratio, it's green and I would go very quickly through that, because we now see the highest recorded billing ratio since our IPO in May 2015. We have done what we have said and it works.Project execution. We have implemented and we are working on improved risk-based portfolio follow up. It gives us -- has access to real-time happenings in the projects and we can act on that in relations to the clients and also in relation to the -- to internal actions.We have, as mentioned, the -- approximately 35% net write-down -- sorry, NOK 25 million net write-downs in the first half, which reflects a normal level of 1% to 2%, it's 1.44%. But it's still too high, and that's the main reason for project execution shown as a yellow traffic light.We still continue to focus on optimizing the project execution and we have had success with developing our approach to the client's best value procurement processes and also the increase in the large EPC contract where we are tendering together with the EPC contractors.When it comes to efficiency gains, reduction in costs and taking out synergies from last year's acquisitions, it's more or less according to plan. We have implemented some nonrecurring measures, that's one of the main reasons for traffic light being yellow, because we have implemented it, but we haven't yet seen the results in the bottom line EBIT.The ERP system, which we have discussed with you since third quarter last year, it's gradually improved and it's causing less and less difficulties and it's starting to give some improvements which are improvements that were laid as a basis for investing in this new ERP system.We have reorganized the Greater Oslo area after acquiring the Hjellnes group. We did that on the 1st of March and it's according to plan. We see improvements in this area. And we have a strict manning control in the Norwegian engineering operations, which has caused a stable headcount, both in the Greater Oslo area and Regions Norway, affecting the entire group, as you will see later. We have a stable headcount going from Q1 to Q2 this year.These are the 5 largest key ongoing projects in the second quarter. Two of them being in the buildings part of our business and 3 of them being in the transportation part of our business.Some extra related to this new major contract award with Nye Veier. It's a consortium consisting of the key contact to the client, which is the EPC contractor Acciona Construccion, which is a Spanish, Norwegian also located contractor, having the Norwegian contractor Leonard Nilsen & Sønner (LNS) as a subcontractor. They have their own maintenance department also brought in and Multiconsult is the preferred engineer to do all the planning for Acciona Construccion and the others.The EPC contract has a volume of approximately NOK 4 billion and it's in the middle part of Norway between Ranheim and Værnes, that's very close to Trondheim. It's a procurement method that this new state-controlled entity Nye Veier has taken in and made their own, which is called Best Value methodology. It's a team-oriented and competence-oriented way of procurement. And we see this as a breakthrough because we need to adopt this and also adopted into our procedures and be good and train our personnel and work together with the contractor personnel in order to be #1 in these contracts. It's a significant contract for us, but it's still under negotiation. So the amount is not open for disclosure and there is no science yet in the backlog or other parts of our figures shown today.The order intake in the second quarter was good. It was at NOK 1,130.9 million. That is 32.1% up year-on-year. As you see from the yellow here on the Buildings & Properties, it was a large increase in Buildings & Properties as the main driver. There is also a continued strong tender pipeline, which is a good statement going forward. We see many small and also mid-sized contracts that has been awarded and we see a lot of large, small and mid-sized contracts in our tender pipeline.Some of the major new key order intakes in the second quarter was the GET FiT, KfW in Zambia. It's a renewable project, which we have publicly announced. And then there are some add-ons and also a new timber terminal for the Norwegian state-controlled, Bane Nor, the railway in Norway.Some trends and historical data on the order backlog development. You see they added some on the left-hand side here as yellow for the fourth quarter in 2015 up until date. And then you see the stack with the business area as in the blue to gray on the right-hand side. It's an increase in the order backlog of little above 15% year-on-year to very close to NOK 2.3 billion.We mentioned every time, I think, that call-offs on frame agreements are not in here before they're called off. That's when we sign them. So some of the large contracts that are in the book can be in here with a smaller amount because there are call offs on a regular basis.Some organizational figures. We have approximately the same number of employees at the 30th of June this year as we had as through the first quarter, 2,855. The group employee turnover is at 6.4%, so that means that we are employing more or less the same amount of people that are leaving.We have had a very successful summer internship program which has become sort of an apprentice way of attracting the most talented persons in the business. In total, we have had 69 positions and they have been doing very fruitful work for our clients, for us, and they have learned a lot. Not to forget that we in Multiconsult group also learned a lot from the students, new and very, very good technology and skills that have come out of universities with a fresh knowledge.The students report a very high satisfaction both when it comes to work experience and also relevance for their studies and their future careers. We see in our talent attraction programs that a lot of these best students are later hired by companies in the Multiconsult group. And then there is a long-term relationship, which constitutes to good working relations and good culture and high level of skills.Then I pass the speech and the PC over to Anne Harris, our CFO. Anne?

A
Anne Harris
Executive VP & CFO

Thank you, Christian, and good morning to everyone. I will give you the highlights on the finances as usual. Looking here at the net operating revenues per quarter. We see that this quarter is the highest on the time frame here when we start going 2 years back. And we, of course, are pleased to see that and it includes a positive calendar effect of the NOK 67 million.On the negative side, we have this unusual vacation pattern that reduced the revenues in the quarter, and also the net project write-downs that Christian has been mentioning is also taking the revenues down a bit. That gives us then an EBIT of NOK 49 million and the margin at 5.5%.On the cost side, the cost of the quarter is approximately in line with the increased headcount compared to last year, and is -- could be as expected. On the right-hand side of this page, you can see the billing ratio at 71.8% in the quarter and that is an all-time high since the IPO listing. And we are, of course, very pleased to see this kind of levels and also seen the increase that we have been able to achieve for the -- over the last period here.And that is, of course, the result of a lot of hard work. We have been implementing new procedures. We are following each employee very closely and of course, we have had an increase in the -- in the sales and order backlog so that there is a lot of work to reckon.When it comes to the number of employees. We see a very stable development since the big acquisition of the Hjellnes group in third quarter 2017. Since then, we have been at a very stable level, and that is due to their very firm manning control that we have introduced, especially for the Norwegian units.Then we are showing the EBIT bridge year-to-date, giving the main changes from last year compared to this year at the end of June. As expected, you see a quite a lot of increase when it comes to the income from increased capacity due to the acquisition of the Hjellnes group. And then we have the lift that is coming from the increased billing ratio and also a modest increase in the billing rates. We would like to see the billing rate box being bigger. But this is what it looks like when we compare it to last year. And then the new staff that is with us, of course -- they have their salary expenses so that reduces the EBIT again and we also have an increase in other operating expenses that is in line with the headcount increase.Then we are showing the change of write-downs, and we had NOK 25 million of write-downs in this second half year in 2018 compared to a net write up in 2017. So that means that the box you're seeing here is slightly bigger than the NOK 25 million. And then we also, towards the end here, mentioning the calendar effect of approximately NOK 13 million.Then a few comments on our segments year-to-date, starting with Regions Norway where we had the most positive development. We have quite a good improvement when it comes to the EBIT in MNOK and a lift in the margin. And a very good improvement in the billing ratio, 3.5 percentage point. That is quite a lift upwards. And we are very pleased to see that the improvement program is really working as it should for the Regions Norway.We see that the Greater Oslo area is also having improvements in the billing ratio, and we are very satisfied to see this lift of the billing ratio. When it comes to the EBIT, it is not as a good a development as we see for Regions Norway. We have a positive development compared to first quarter this year, but the integration cost of Hjellnes group is still affecting the results negatively and also the -- we have a bigger change in the net operating -- no, net write-downs, because Greater Oslo area had a net positive one in last year.When it comes to the international part, we are year-to-date not showing an increase, because we did have a very good first quarter 2017 with exceptional good projects result from our small operation in Asia, and that was a one-off happening and it's not recurring, unfortunately. The biggest units, when it comes to international activities that is Poland and the U.K. office, they are having a good performance for the first half year.When it comes to LINK, we are showing a good increase when it comes to the EBIT and also the margin and billing ratio is also lifted here so that we see a positive development for the architectural business. Just mentioning that, for the ones that are trying to sum up the EBITs in MNOK from the segments, you have to include the not allocated part. That is a change in the way we allocate corporate cost. Just mentioning that so that you can see the EBIT adding up.Then we are showing the operating revenues by business area year-to-date as we used to show. We see the normal pattern that Buildings & Properties is the far biggest business area then transportation second and renewable energy on the third place. We see a positive increase compared to last year on all business areas, except oil and gas, when we compared to first half last year. And then having in line that we did not have the Hjellnes group in our staff at that time. That explains a lot of the increases here. And especially, in the Buildings & Properties where most of the employees from Hjellnes is working. Another nice development is the Water & Environment. Now -- we're now showing an increase for 43 percentage and that we are very pleased to see.Towards the end here just a few comments on the cash flows year-to-date 2018. We see here the net cash flow from operating activities. Although, we have a lower net profit, the change compared to last year is almost -- it's on the same level because we also had reduced payable taxes in the first half compared to last year.We do see a change in working capital and that is basically due to the seasonal fluctuation because we have higher production at -- in June and that gives the higher working capital effect compared to the December effect where we had done only 3 weeks of production each December. When it comes to investments, it's just ordinary assets replacements and financing. It's also including the dividend payment of NOK 40 million this year.So then it is back to Mr. Madsen.

C
Christian Nørgaard Madsen
Chief Executive Officer

Thank you. I will conclude the presentation with some statements related to the outlook. As we see it, the overall market continues to show positive development. The bias in the segments are good. There are increases in the pipelines and that's a statement related to all our 7 business areas. And also our professional capabilities are increased and they’re good to deliver to the market.But now if there is one thing that I would emphasize is that this is a year -- and especially strong pipeline within transportation now, we've waited for that. But due to reorganizations and a lot of other aspects, as we have discussed and mentioned earlier, we now really see the pipeline improving. So we could be able to choose more and be more selective as to which of the projects in the pipeline that we want to prioritize when bidding.The new contract mentioned several times already, is a breakthrough for us, I would say, towards this very important client, Nye Veier, and also when it comes to the model for procurement, the Best Value procurement model and also the way of cooperating with the EPC contractor.On the other side of the line, we have a still a continuous strong competition. There is a significant price pressure, that's especially on the large public projects. If that continues, there will be still pressure on parts of the business. We see an increase in the market rates in Norway, but there is a regional variation. The increase is still not compensating totally for our increase in labor costs.Although the profitability going forward is still to some extent challenging, especially related to the competition and the market rates, as mentioned, we have in the first half of this year done important changes. It will provide results going forward, and that is especially on the cost side, it comes to activities that we have ended with a onetime cost effect in the first half, which is not a reoccurring going forward. We also worked with the synergies from our latest larger acquisitions, which we will see more effects from going forward.We conclude the presentation by showing you the financial calendar for the rest of 2018 and up until the third quarter 2019. You will also find this on the IR page on our webpage. Next time we meet in the third quarter, we will also host a smaller Capital Markets Update on the 8th of November this year.Thank you.

M
Mirza Koristovic
Head of Investor Relations & Finance

We will now open up for questions from the audience directly on the call before we take on the ones that are sent in. Please state your name and the company you are representing.Operator, please take us through the Q&A session.

Operator

Thank you. [Operator Instructions] There are no questions in the queue at this time.

M
Mirza Koristovic
Head of Investor Relations & Finance

All right. There are no questions sent in either. So that will conclude our session for today. Thank you very much for your attention and have a nice day.