Multiconsult ASA

OSE:MULTI

Earnings Call Transcript 2021-Q2

[Grethe Bergly, Chief Executive Officer]

Good morning, and welcome to this quarterly and half year presentation of the results for Multiconsult. My name is Grethe Bergly, I'm the CEO. And I also have with me today our CFO, Hans-Jørgen Wibstad, who will take you through more detail with the figures. Looking at this, we, here, show the most important KPIs for the development of the company. And as you can see, there is a positive development for the half year on all the important KPIs. We leave a 6-month period now with a strong and good EBIT. We have, in the period, had a good sale and a solid order backlog. We continue to reduce our other OpEx. And last, but not least, we have also made a very important strategic M&A with the company Erichsen & Horgen in the period. So it's another period where we continue our good sales and deliver good results. Erichsen & Horgen is a company who's a leading engineering consultant in Norway. It will strengthen our base in Norway substantially. We continue also to be the most prepared employee (sic) [ employer ] in Norway, a position we are extremely proud of that we have held now for a number of years. There's been a modest impact from the COVID-19 situation in the last 6 months. But we do see some areas that is very challenging. And it's mainly regarding our International Renewable Energy projects but also in our architecture business. In Denmark, there has been a slower return than we had expected. We continue our strong position and presence within the work on sustainability. And in a very important arena that takes place in Norway this week, where politicians and business meet, we have a strong presence within a specter of subject areas, just showing the wide variety that we have with respect to sustainability. We also report a good outlook for all the business areas that we operate in, and we'll go out of this half year with a good order backlog. Looking in more detail at sales, more strategic importance projects that we would like to highlight for this period. We have previously told you that we see the use of frame agreement is becoming more and more usual. And we have 3 frame agreements for this period that we would like to inform you all about. One is to do with the organization in Norway that is involved with all projects for hospitals. And this is a frame agreement that covers engineering and architecture for all phases of the project for the whole country. We also have 2 important frame agreements with the road authorities, one that covers bridge inspections, all the way along the coast in -- for all the municipalities along the coast in Norway, and also one that's more just normal engineering project for the whole country. The order intake increase is 4.2%, and it's -- we have made the sales in the period of just above NOK 1 billion. Looking at the major sales that we would like to highlight, it's one regarding 2 railway stations, continuing our journey to have a strong position within the railways. There's one on a Museum of the Viking Age. It's a project that was awarded a few years back, but has not been given the financing for, but it's now been reopened. We also have a very good project on electrification of 2 platforms for Aker BP. And we have had call-offs on a frame agreement that we have had with the road authorities on fjord crossings. These are very large bridges, extremely high technology, and an important solution to make all the fjords in Norway not very -- sorry, it is a solution where you will not need to use ferries across the fjords on the West Coast in Norway. Also one project we have, mapping the nature diversity in all of Norway, where we have been awarded 3 projects on this. And I'm sure most of you are aware that nature diversity is beginning to have a much higher focus on the sustainability umbrella. Looking at our order backlog, we come out of this quarter with a high order backlog of NOK 3.5 billion. It's an increase of 16.9% from the quarter 2 in 2020. And just to remind you all that we do not increase frame agreement volumes until we've had the call-offs. On the other side, we had a stop in one project for our -- for Nye Veier, and there's a backlog there of NOK 135 million that will need to go out in the next period. We have said that this have -- in the short term, it will affect us. But in the longer term, we are confident that we will fill up this -- the order book to the same level. As you can see, it's buildings and infrastructure are the 2 largest business areas, and we consider that the balance here is a good one for our portfolio. Looking at organization and people, we are almost the same number of people. We've been stable on this. This has been a part of our plan on the turnaround that we have had. And we have now, with the purchase of Erichsen & Horgen, we've started the integration of the company. We became the official owners of this on Monday. We've also had a successful summer program with 70 students working in our offices all over the country. And we have also been awarded as the most attractive employer amongst technology students. It's a position we've had for a number of years. It gives us the opportunity to attract some of the best students and it's a great position to hold. And I would also like to take this opportunity to thank all our employees for the way that they are showing the commitment to working under what has been, in some periods, quite demanding conditions. And with this, I give you over to Hans-Jørgen, who will take you through the figures.

[Hans-Jørgen Wibstad]

Thank you, Grethe, and good morning, everyone. I will, as usual, take you through the second quarter figures as well as the first half figures for 2021 in some more detail. Second quarter turned out to be a very good quarter for Multiconsult. I would say the sixth consecutive quarter with solid results. Net operating revenues came in at NOK 986.8 million, which is an increase by -- of 3.7% year-on-year. The EBIT came out at a robust NOK 114.6 million, giving a margin of 11.6%. It's worth noting that there is a calendar effect comparing the 2 quarters of about 3 days, which has an impact both on revenues and on margin, comparing apples with apples directly. We're also seeing the very good impact of our cost reduction program through the next level, where we're seeing that our operating expenses are continuing to reduce year-on-year by 1.1%, other operating expenses. And this important ratio, which -- that we call the operating -- OpEx ratio, which is other operating expenses as a percentage of net operating revenues, has reduced to 15.2% from 15.8%. It's important to note that before we started the turnaround, we were at the 18% to 20% range and this is having a quite a significant impact on our financial performance. The billing ratio is at 72%, which is at a quite good level. We are lower than third quarter -- sorry, second quarter 2020, which was exceptional in many ways due to the start of the COVID and other impacts. And as Grethe mentioned, the order intake is at a good level, NOK 1.080 billion, which gives us the full picture of the quarter. We also provided you with a bridge showing some key effects. I have one comment in particular related to that. We're seeing that the employee benefit expenses are higher than last year. We're seeing the other OpEx is better, whereas the employee benefit is lower. That has 2 reasons for that. One is the general wage increase in Norway and in our business internationally, but we also had lower social security costs in the second quarter last year due to the COVID new support from the government. So that has an impact of about NOK 13 million comparing the 2 quarters. So for the second -- for the first half, revenues came in at NOK 1,965.9 million, which is an increase of 1.1%, quite a moderate increase, which we are -- which is controlled and sort of reflecting the market. What I would like to mention is that the acquisition of Erichsen & Horgen, in itself, will add nearly 10% to our growth. So looking at the group as pro forma going forward, we're looking at a growth figure, including nonorganic growth, which is way exceeding the organic growth level. The EBIT came in at a very healthy NOK 213.1 million, which is 10.8% margin, well above our corporate objective of about 10% long term. So quite happy with that. The calendar fact, looking at the full first half, is 1 day in the other direction, because there is 1 less working day this year than it was last year. So it's just worth mentioning that figure. And we're seeing also for the first half that the operating expenses are at a lower level, and we're happy to see that actually coming through with a reduction of 5.2%. Other OpEx ratio at 14.9%, down from 15.6% last year. Billing ratio at a good level, pretty much on par with the same period last year. Order intake for the full half year is at a good level, NOK 2.46 billion, which is up from last year, which is very important for us. What's driving us is sales naturally. With no sales, no revenues. So we're happy with that. And we're coming out of the quarter and the half year with a good order backlog of NOK 3.5 billion. So we also created a bridge for you to look at. We're putting forward some key reasons for the variation in results, where we're seeing that the -- there is an impact of the calendar. We're seeing also this impact of the salary increases as well as the reduced social security costs in the second quarter. But overall, a very good first half for the group, and we're happy with the developments. Putting this into more perspective, seeing that -- we're seeing a gradual organic growth in our revenues, 3.7%, up comparing with the same quarter last year. And adding to that, of course, going into the second half will be, as I mentioned, the addition of Erichsen & Horgen that had a net revenue of near of -- in the area of NOK 350 million. We're also very clearly seeing how the financial performance has improved following our nextLEVEL improvement program. In the bottom there, you see that we have had 6 good quarters with solid and pretty stable EBIT levels. Whereas before that, we had large variations between quarters and also generally at a significantly lower level. So this is a good showing how things, we believe and hope, have stabilized at a sustainable level. Billing ratio is ticking up in the right direction. And also, we're seeing -- on the number of employees, we're seeing that still at a flat rate. That is something we have wanted to happen. The market is good, but it's not a strong growth. And as a part of our efforts to turn around the business and improve profitability to a sustainable level, it has been important for us to not to add people until we have basically projects for them to work. Now going forward, with the addition of Erichsen & Horgen, as well as what we hope and believe will be organic growth in the market, underlying growth, we hope to see this figure turning around in the right direction over the next quarters. Looking a little bit more at the segments. Region Oslo had a good quarter and a good first half with revenues of NOK 610.8 million. EBIT, NOK 79.9 million, which gives a margin of 13.1%. A very good result. Very happy with that. It is, however, slightly lower than last year, which was maybe exceptionally good at 15.7% margin. Overall, the segments or the components, or the parts of Region Oslo is doing well. There is, however, one exception, the Transportation segment within Region Oslo has had some challenges and it's delivering a result in the first half which is about NOK 9-ish million lower. NOK 9-ish million lower than the same period last year. So that, of course, makes an impact on the results for the region. Now we believe this is a short- to medium-term impact, but it is somewhat lower activity level in that -- for the Transportation segment. But otherwise, a strong quarter, a strong and solid first half for Region Oslo. Region Norway is exceptionally good, I would say. They had a strong first half with very, very solid increases in the net operating revenues, a strong increase in EBIT from NOK 81.2 million to NOK 106.6 million, equal to an EBIT margin of 13.5%, a significant increase. And we're seeing that the different segments and elements of the region or making up Region Norway are all doing have good improvements and delivering very, very good results. So an amazingly good performance by Region Norway in this first half. Also on sales, doing well, and things are looking good also in terms of that. Energy, which is our very exciting division with having a reduction in revenues, however, an improvement in the margin. So that is part of the turnaround at the same time as we're positioning ourselves for future market in terms of renewables and other significant developments in the market. So we're seeing within -- for them, it's an improvement. They had a better result in the second quarter than in the first quarter. And we're happy with that. We're also seeing that the challenges in the U.K. is being dealt with in a good way. So some of the losses we saw for our U.K. operations now has been significantly reduced, and we have reorganized that part of the business into a more sustainable way, and hopefully, it will not impact the Energy division's results so much going forward. LINK arkitektur has also had a quarter and a half year which is quite reasonably good. It's a mixed picture coming in with an EBIT of NOK 16.4 million compared with NOK 17.6 million last year. The Norwegian business is doing very well and actually improving from last year, amazing results from Norway. However, our LINK business in Sweden and Denmark are still struggling and have accumulated losses in the first half of about NOK 8 million. So that is impacting our bottom line. We are doing -- taking actions there. As Grethe mentioned, Denmark is somewhat impacted more by the COVID. In Sweden, there were 2 large projects that stopped at the same time, which is also impacting them, but there is a good plan for the turnaround to happen. And we're hopeful that over the next quarters, we will see a gradual improvement of the performance of these 2 units. But overall, for LINK, a good -- and the driving -- the driver for the results in LINK is Norway, which is doing very, very well in this first half. International also doing -- having a good quarter and first half. Components of this is Iterio in Sweden and Multiconsult Polska in Poland. Both businesses doing well, particularly Iterio has had a good first half. Poland is growing strongly, but have had somewhat lower results in the first half than we saw last year. But still, outlook is good. They have had a significant increase in order backlog but also had maybe a somewhat more impact of the COVID than the businesses in Nordics. But overall, a good result, 10.1% combined margin, somewhat lower, driven by Poland, but otherwise, a good first half for that business.In terms of our operating revenues in the different business areas, we're seeing that our portfolio is doing quite well. We're seeing a stable outlook. We're seeing Transportation, as I mentioned, we think a short- to medium-term temporary reduced activity level. The outlook for the Transportation segment is still and maintains still good, but we're seeing a somewhat drop there, 10% comparing with the first half 2020. But overall, a good portfolio and a balanced portfolio that we're quite happy with. In terms of our financial position, finishing off of that, we have a strong financial position in Multiconsult. We're coming out of the quarter with a net cash position, i.e., we have no -- net debt of minus NOK 82 million. It's somewhat lower than it was last quarter, and that has to do with our record high dividend payment that was made during the quarter, but still a very, very solid net cash position for the business. Subsequent to the end of the quarter, we acquired Erichsen & Horgen, which was financed by a combination of increased loan facilities and cash, as well as 20% equity. So that has changed into a net debt position pro forma compared with this figure. But still, we have a very, very robust balance sheet and financial situation, which gives us flexibility and room for maneuver as we move forward to build the business further. With that, thank you.

[Grethe Bergly, Chief Executive Officer]

Thank you, Hans-Jørgen. I will now give you some more insight into Erichsen & Horgen, the company that we became the official owner of on Monday. It's a very well-reputationed (sic) [ well-reputed ] company, engineering company within the areas of HVAC, energy, and environment. It's a company, like us, with a long history back to 1925. It has 235 employees. And on revenue, over -- above -- a bit above NOK 300 million, they have an EBIT of NOK 30 million. And it has a very diverse portfolio when it comes to clients, both private and public. It has a unique position within -- in health, hospitals and laboratories. And it will fit very well within the competence base that we have in Multiconsult. It has had a good growth rate over the last 5, 6 years and an average EBIT of 10%. Highly skilled, experienced, diverse and committed workforce. And if you look at where they are located, they have offices in the same places in Norway as we have. But in addition, there's also a Lillehammer office, which means that Multiconsult will now have a presence [ in land ] and a great opportunity to build on this office. It's HVAC and wastewater, that's the core of the business. But they have also a substantial number of employees who work in all the specialized areas that is often connected to the products that Erichsen & Horgen deliver to their clients. You can see they have a 14-year average employment experience amongst its workforce. They have a slightly lower rates of women than we have in Multiconsult, and roughly 50% who holds a master degree. Here, you can see where they are positioned. Strong base -- strongest base is in Oslo with both HVAC and wastewater treatment, but -- and also a substantial presence in Oslo with all the diversified areas of expertise. 7 in Drammen, 15 in Skien, 12 in Lillehammer, and 20 in Trondheim. Under the portfolio of Erichsen & Horgen is also the company called Malnes og Endresen. This is a company with electrical engineers. And again, very skilled people, will fit very well with the skills that we have in Multiconsult. We have worked together for a number of years. And on all the major projects, the larger ones that we've been involved with over the last 10 years, we've had Erichsen & Horgen as our partner, both with the new hospital that we just won in Oslo on the Campus Ås, which is the veterinary school in Norway, all complex, large buildings, complex technology. And this also means that we know each other and we see and know that we have a cultural fit that will be an important base for succeeding in the integration. We see that, together, we will now create new opportunities. We will be a leading Norwegian constellation. We will have strengthened our attractiveness and competitiveness in the market. And we will, no doubt, be and hold a #1 position within the expertise areas that Erichsen & Horgen provide for us. So this will provide us with a really good base for continuing our growth and our synergies in several areas. So summing it all up, we will, with Erichsen & Horgen, continue to leverage on a strong market position, and the flexible business model that we have gives us the robustness to stand out in the market. We have an increased focus on sustainability and also circular economy projects. We see that the subject is, of course, on everybody's agenda these days, and we are part of the solution to provide solutions to our clients in this area. The pandemic will continue to create some uncertainty. But as we see that the population is being vaccinated, we expect that this will not have a huge impact on the business in the period forward. We go out of this quarter, this half year, with a high order backlog and a stable market outlook in all our business areas. And with that, we have completed the presentation. We look forward to seeing you all for our Capital Markets Day in November. We will then also give you more insight into our strategy for the next period. And you can also, here, see the dates for the presentations for 2022. Thank you. And then we open up for questions.

[Mirza Koristovic, Head of Investor Relations & Finance]

Yes, questions from the webcast. We have Jorgen Opheim, who asked you to comment on the working capital build in the quarter. Previous second quarters have seen a release and is a quarter movement, if you understand the question then, something that you expect.

[Hans-Jørgen Wibstad]

We -- I did not comment specifically here on this working capital development, but we are -- the fluctuation we have seen in this quarter is within normal area. We have a somewhat higher tax bill this quarter than we had last year. That, of course, impacts our working capital -- changes in working capital. We're seeing we're having a little bit higher accounts receivable, but not at a significant level. So overall, we're -- this is within normal fluctuations and we don't see any particular symptomatic worry or, let's say, red light as a consequence of this working capital development. It's will fluctuate within this range.

[Mirza Koristovic, Head of Investor Relations & Finance]

Yes. I think that covers that question. And that's actually the only question. So if you can sum it up then. Thank you.

[Grethe Bergly, Chief Executive Officer]

Okay. Then we'll just wrap it up from here. Thank you all. Have a very nice day, and we will see you all in November. Thank you.