Multiconsult ASA

OSE:MULTI

Earnings Call Transcript 2018-Q3

[Mirza Koristovic, Head of Investor Relations & Finance]

Ladies and gentlemen, welcome to the Third Quarter and Capital Markets Update 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 web page under the IR section. We will begin with the third quarter 2018 results before we continue with the capital market update, where we will present an updated strategy. We will open up for questions after the presentation. So with that, I leave the word to Mr. Madsen.

[Christian Nørgaard Madsen, Chief Executive Officer]

Thank you, Mirza. I will start by expression -- by my expression of -- that we are not satisfied with the third quarter, as you know from our message of 22nd of October. We are not satisfied on behalf of the owners, on behalf of the company, and I'm not satisfied on behalf of myself as a shareowner as well.We have been on a track of improvements, especially in the Norwegian part of the business, which is, among others, a result from the profit improvement program that we launched after fourth quarter 2017. But we have a bump in the road in the third quarter, where the weaker earnings especially are a result of weaker results in LINK arkitektur and in our international segments. To be more specific, it is an earnings problem until now this year in the Danish part of LINK and also in the third quarter in Multiconsult UK. Our Polish operations, international, is very sound and well and have good earnings.So over to the highlights on the numbers side. The net operating revenue had a growth of 10.9% in the quarter. And year-to-date, we have an increase near by 13%, more explicitly 12.8%. We have somewhat higher net write-downs than previous year, but they are still in an industry-normalized level. The billing ratio in the Norwegian operations have improved still, and the order backlog has also increased to close to NOK 2.4 billion. I would also say that the increased part of the order backlog is even more sound than earlier on a better pricing level. We still have a high and now intensified level of measures being implemented to strengthen the profitability of the entire group.For the third quarter, as I mentioned, the revenue growth was at 10.9% year-on-year, that is to NOK 675.5 million. That's the net revenues. The EBIT was at NOK 4.5 million in the quarter. Year-to-date, we had a growth in net operating revenues of 12.8% year-on-year to NOK 2,422.1 million, on which the organic growth was 3.2% adjusted for the calendar effect of one missing working day compared to last year. The EBIT year-to-date is at NOK 89.5 million, giving a year-to-date margin of 3.7%.The order intake is good. If you see the zebra striped part of it on buildings and properties, transportation, and water and environment, this is the acquired backlog of the Hjellnes Consult acquisition. In the third quarter last year, more explicitly on the 30th of September, the last stable quarter, we took all of the backlog and the balance sheet into our books. We did not take any revenues into our books before the fourth quarter. So this is the entire backlog, put in last year as sales on that day. So that's giving you a better way of understanding the sales. So if we rule that out, we see that we have good sales in all the 7 business areas, and we also see that the main acquired backlog was in the 3 business areas that you see here. All of the other ones are then larger than the Multiconsult stand-alone figures from September last year. The sales in buildings and properties did not quite match the combined level of existing sales in Multiconsult plus all the book from Hjellnes, but still 10.6% up in the order intake year-on-year to sales in the quarter of NOK 879.6 million. In the third quarter, the majority of the order intake was extensions of existing contracts. That's not surprising perhaps, because the third quarter consists of more or less an entire month with the summer vacation. We still see a strong tender pipeline in the market, which gives us the possibility to prioritize the tendering, where the probability of winning is higher and also the possible earnings are higher. In the key order intake you see down on the right-hand side, 5 of the major ones, out of which you might have seen the Highway E6 Ranheim-Værnes together with a Spanish contractor, Acciona, and the Norwegian contractor, Leonhard Nilsen & Sonner. It's a really large IPD contract together with the Norwegian entity, Nye Veier. Others are Hammerfest Hospital, wind park extension to Devoll Hydropower in Albania and also Jurong Rock Caverns in Singapore.The development in the order backlog is good, as you see, also going back to third quarter 2016. We have a continuous improvement, and it's up 12.12% year-on-year to NOK 2,364.5 million. We use every possible opportunity to remind you that in addition to this, we have a lot of softer backlog in the last amount of frame agreements, which is not here. We only put the solid call-offs in the order backlog when they arrive. So in many of those large projects, there are small amounts of order backlog in here.Our organization is growing to a small extent for the first time in a year. We are now up to 2,875 employees at 30th of September 2018. The group turnover is somewhat higher than a regular quarter for us. It's still within our KPIs. This is a combined result of our improvement program, and also that we see the market is improving, especially in the Southwestern part of Norway, where the oil and gas industry seems to pick up and are eager to employ people again. Last week, we were the best and most wanted place to work for seasoned professionals measured in the Universum ranking, where they have been interviewing 10,000 people. We are now #2 in Norway in total, just behind Equinor and best in the industry. So now we are best in industry both in the seasoned and the other ranking that is related to university students, graduates.There are a lot of prizes being awarded. And in the picture, you will see our Ph.D., Stanislas Merlet, who was awarded the title European Young Professional of the Year by European Federation of Consulting Engineers Associations for the first time for a Norwegian. It has never happened. We have had the best position #2, and that was also a Multiconsult employee some years ago. Our digital role model, Cathrine Mørch, has been nominated Professional Expert and was on the podium in the national competition. And our IPD project together with the owner [ Scan Cass ] contractor, some other partners, including the group with LINK as architects, was awarded the golden hammer, Gullhammeren, for best practice within digitalization some weeks ago. And our Senior HSE adviser, Knut Aaneland, was awarded Enthusiast of the year by the National Association of Consulting Engineers. Smisto powerplant in Nordland, which is a 100% digitalized project, was awarded to contractor Betonmast Hæhre and Multiconsult, and it was a best practice award for full digitalization from [ feeds phase ] through detail engineering and construction phase and into the operations phase. And with this, we switch over to the more detailed part of the financial review given by our CFO, Anne Harris. Anne, please?

[Anne Harris, Former Executive VP & CFO]

Thank you, Christian. I will then comment the financial highlights of the third quarter in the standard format, as we used to show you. Starting off by the net operating revenues that we can see in the quarter. It's on a seasonal low level, as we can see for all the years we are showing here. This is the third quarter where it's impacted by the summer holiday period. The growth, compared to the same period last year, is explained by the increased capacity caused by the acquisition of the Hjellnes group. When it comes to the EBIT that we can barely see at the bottom of this page here, it's a low EBIT for the quarter. And the main explanation for that is related to weak results in LINK and especially the Danish operation that is lagging on the results. In addition to that, we have also had a negative result on the international segment, and that is explained by a specific project cost in the U.K. operations.Looking at our billing ratio, we see that we are continuing at a good level for the group. We are showing here a third quarter billing ratio of 67.3%, and that is year-to-date still below the target of 70% as the target. The quarter itself is impacted by competition time by the architect activities in Norway.Looking at the number of employees. We are showing a very stable situation compared to last year from the third quarter of last year, and we have a small increase in the last quarter here. Now it's -- and that is related to the international activities in Poland.The next page I show you the bridge from the EBIT last year to the EBIT this year. And of course, we have a positive impact of the increased capacity coming from Hjellnes Group. And then we are showing the lift in the billing ratio and a minor positive impact from billing rate, and then we are increasing our write-downs. They are still at a normal level, but they are higher than last year because last year, we had a net write-up. And then we have the increased salary cost corresponding to the increase in capacity. And then also, there is a similar effect on the other operating cost. That really explains the level of the EBIT this year. Then we are looking at our segments, where we're starting off by the Greater Oslo Area. We are showing a decrease compared to last year. And the main explanation for that is the increased write-downs. Last year, this segment has a positive write-up, and now it's a write-down. So we have a change that impacts the result negatively. On the positive side, we can see that the billing ratio is increasing by 2.6 percentage point for this period, and that is on a good level, just commenting that the number of employees contains then the headcount from the acquired business of Hjellnes last year although there were no effects in the results corresponding to the same workforce.Then we are showing Regions Norway, where it's really a good picture. We see an increase in EBIT of NOK 20 million and also a good increase in the margin. The billing ratio is very impressive as this has been lifted to -- with 3.3 percentage points. So that is a very good story, and we can also see that from the result here, it's also including the effect of an increased billing rate in Norway. This part of our organization have a bigger portion of smaller projects. So we can see that the lift of the prices are quicker to be recognized in the accounts for Regions Norway compared to the Greater Oslo area. And then a few comments on the international. This is then the year-to-date figures. And the main reason for the decrease in the result internationally is our operations in Asia that had a very good result last year. And this year, there are very small projects income. And there, we are reducing the workforce down, but still, we have a few people staying there. Poland, as I said, is increasing the capacity when it comes to number of employees and are performing at a very good and stable level. The last comment is related to LINK, where we see that the year-to-date figures are a bit lower than last year, and the main reason for that again is the negative development in Denmark. In Denmark, we have had less new projects coming in than was anticipated and then we have reduced the workforce with quite a good portion. But the cost side of that reduction is not yet reflected in the numbers. That will be seen in the coming fourth quarter. The operations in Norway is going good in LINK, as it has been for the last 2 quarters, and Sweden is on the same level as last year. Then a few comments on our operating revenues. We can see that it's very stable when it -- compared to the relative share of the revenues for each business area, and almost everyone has a good increase compared to last year. The only exception is the oil and gas business. Especially pointing at the water and environment, that has a huge increase from last year of 42%; and also the small Cities & Society, that has a good development although it's a small number.Then a few comments on the cash flow. The only specific thing to say about the cash flow for this quarter is the increase in working capital. And on the next page, we give some more details on that. And we can see that this increase is explained by the change in what we call work in progress, that has been produced hours, not yet billed to our customers. And the reason for that was a sort of a lack of control during the summer period in the Norwegian activity that caused this effect. And today, all these hours have been billed to the customers, and this is not a part of our normal routine. So it's a sort of a one-off effect that we saw. So that was the comment on the cash flow and the quarter, okay. And then we can go into the update of our strategy. Given the current profitability situation and also the fact that we are halfway in the strategic period towards 2020, it was a natural and a right time to revise our strategy. And to do that, we have then set up a small -- and again for that part of the presentation, starting off with a flashback to the Capital Markets Day of 2016 with a few comments on recent developments, and then Christian will comment on what we have done on improvement efforts so far and also giving comments on our context as of today and then explaining our new, revised strategy, and ending off with a good insight into the nice parts of our operation, the people and our projects.So starting out with the flashback to the Capital Markets Day 2016. This slide here show you the steady long-term financial performance of this company. We had a very stable and good growth line on net operating revenues from 2007 until 2016. And also, on the EBIT and the margin level, we had a very positive development, especially from the years 2010 and then 2014 and '15. And then there was a minor reduction again in 2016 down to 7% -- 7.3%, I think the number was. And you can also see that we have had a good development on return on equity and also being able to serve our owners with ordinary dividends for the entire period. In addition to the ordinary, we had an extraordinary in 2015.So then going back to what the world looked like when we were having the Capital Markets Day in October 2016. The share price development was a very nice picture at that date. This is the share price from the beginning and then to that day. And we can also see that our EBIT margin compared to our peers was also on a good level. The line at the top there is the Multiconsult company, and then we have a peer group that is the Nordic-listed companies with a turnover more than NOK 1 billion. And then the gray line is the Norwegian industry, compiling all the companies in Norway within our business. And we can see that we had a good performance compared to our peers at that time and reaching also the average of the industry standard in Norway in 2016.So then with this picture, we launched the 3-2-1 GO strategy with the quite ambitious goals when it comes to 10% profitability and also in international growth, taking the total turnover up to NOK 6 billion at 2020. And also, when it comes to the cash and debt, we had a good cash at the moment -- at that time, and we also introduced the finance policy, giving the debt level at maximum 1.5x EBITDA compared to net interest-bearing debt. And then a few comments on what happened since that day. The next page here shows the picture of the industry challenge in Norway, where you can see that there is an increased gap between the billing rate in the market and the annual adjusted salaries. And the salaries is the industry average, and the billing rates are our own billing rates during these years, and it's indexed back to 2013. And as we can see that, the billing rates turned upwards in 2016, as we expected, but the pace has been slower than what we expected and a lot of other people in the industry expected. And of course, the increase is towards the end here, it's also a big increase of 9%. And of course, that creates challenges to the profitability. On the next page, we are then comparing this industry picture with the Multiconsult-specific effects. We have also included 2017 because you can see that for -- on that year, our number were below the peer group. In 2016, we were exactly at the same level as the Norwegian companies; and then 2017, a bit lower. And also, the blue dot there indicate the 5 largest companies included in the statistics in the industry in Norway because that consists of a lot of smaller companies. To make it more relevant for a comparison, we have picked the largest 5.So on the right-hand side of this page, we are illustrating the specific effect that impacted Multiconsult on top of the more general challenges that the industry were facing. And we -- as we have discussed with you on several occasions, we have implemented a new ERP system in 2017 that impacted the results negatively. And our estimate of the cost and the indirect effect on the billing ratio is estimated at 1.1 EBIT effect percentage. And then on top of that, we also had the reorganization of the acquired business of Hjellnes Group, also estimated with the effect of the billing ratio. So with this kind of estimates to illustrate the effect, we would have been at the same level as the rest of the industry in Norway if we have not had these specific effects. Then a few comments on the strategic objectives that we launched on the Capital Market Day in 2016. And we'll be rather brief just to comment what we have achieved on these various objectives during those 2 years. The first one was to develop multidisciplinary business in Sweden. We started off that by acquiring a small company, Iterio, in the beginning of 2017. But then when we saw the development of our profitability coming through 2017, further activities were stopped due to our reduced profitability. On the ambitions to increase our international buildup on renewable energy, we have established international sales offices as one of the first step stones in that strategy. And we also have identified and have some dialogue with potential strategic partners. When it comes to the health building and our position in Scandinavia, we are quite satisfied with the position we have reached today. We have had successful wins on several big and important hospitals in Norway and also in Helsingborg. So we are very satisfied with this. And also, that was the reason why we acquired the important expertise through our -- the architects in Denmark, the aarhus arkitekterne. When it comes to the urbanism, we see that we have been able to log a few very good wins on prestigious projects, but we realize that the market seems to be less mature than what we expected 2 years back, but we are very satisfied that we have been able to establish a strong and center of expertise for the urbanism. When it comes to the digitalization, we have defined a road map and also the platform that we need for future development here. We have also won several prizes and awards in relation to the work that we have done on digitalization.And then the last comment is on the one group, stronger organization built by a shared culture. And on this item, we are quite satisfied with the implementation of the corporate values that we have been working with for the last 2 years. Today, the values move, they are recognized by all our employees, and we feel that they have been well taken into the organization. So that was the comment on the background for the strategy, and then Christian will comment more on the improvement efforts that we have done.

[Christian Nørgaard Madsen, Chief Executive Officer]

Thank you, Anne. I will do that by going through the context that we are in, as we speak. How is the market? And how is the Multiconsult group fit for the moment to go further? And then I will go into the changes to the strategy or the update going forward.This reduction in the earnings that Anne just has mentioned came especially through the second half of 2017. We saw it going into '17, but the first half was not too bad related to the peer group at least, but in the second half, it was going really downwards. Already, a year ago, at the third quarter presentation for 2017, we had the closing remarks with a bullet point saying intensified focus on improving profitability, and we've been working hard to improve since. We were then in the situation, as mentioned, where we had launched the -- a new ERP system in September, giving relatively large complications at the start, taking a longer time to overcome than anticipated. We also had the acquisition of the relatively large Hjellnes Group, which was a very, very good strategic move. But of course, when you fully integrate a lot more than 200 employees into an organization and also alter that existing organization at the same time, it takes some internal time. We launched a profitability improvement program, which was communicated to the market in -- after the fourth quarter in 2017. And that profitability program was targeted towards the Norwegian consulting engineering operations because that was where we had the main challenges. This PIP, or profitability improvement program, consisted of 4 key elements, which is built up by improvements, as you can see on the presentation, related to sales. It's related to improving the billing ratio. It's related to project execution and also the more ordinary efficiency gains which you have in all kinds of improvement programs. We have been working on all of these bullets, and we have been giving you the status after every quarter until now.We have now done some more analysis of these 4. When it comes to sales, we see, for the Norwegian part of the operation -- the Norwegian engineering part of the operations, to pinpoint that. We have an improved backlog per employee of 20%. It's the -- to the left. It's the change between the lighter gray towards the darker gray, which is 2018. We have an improvement in order intake per employee of 34%. We see improvements, as I mentioned, in the billing rates. We still have to improve the amount of increase in the total packages that we are working on. But the new elements in are at a better level. The billing ratio, which has been stated to have a target of more than 70% on an annual basis, has also improved from 67% plus in 2017 year-to-date to now a little more than 70%.The project execution is also a vital part of the profitability program, net write-downs shown here on the negative side for the first 2 quarters last year, implying a write-up. Then we had the -- more or less, as it looks, outer range, yellow here in the fourth quarter, which was a little higher than normal. But that was related to, among others, the lower visibility in the ERP system, which was mentioned in the fourth quarter presentation last year. We still keep it at a reasonable level compared to industry normal levels, but Multiconsult group is even, though, not satisfied with the level. So we're working to improve it going forward. We have also, on the efficiency gains side, seen effects. We have a reduction of approximately 2% of the operating costs per employee; that is, costs outside of the costs related to direct salary from year-to-date '17 to year-to-date '18. The context in the market today is the next part, and it's good. That's the short description. The Norwegian market, which is the main market, is good. And also, the Scandinavian and international energy market is also okay. The Norwegian economics are very, very -- the macro situation is very, very closely linked to the development in the oil price, as you see on the left-hand side here. The GDP growth is more or less the same as the oil price historically and also the prognostics going forwards. So that's good for the economy. And we also see a huge increase in the planned spendings on infrastructure. This is the national transportation plan on the right-hand side. The left one, which has a total of a little more than NOK 50 billion per year, was the planned investments in the period 2014 to 2017. It has now been raised to an intermediate level of NOK 77 billion a year in the national transportation plans from 2018 to 2029. And you see the subdivision between road, rail and other, other being, among others, airline -- air traffic control centers, new or existing airports and so forth. So it's a good market to be in, but the competition has been hard. But if you try to optimize your portfolio, it's possible to improve. We have had a relatively large and good strategic look into the business area strategies. We built 7 business areas, as you might remember. Here, we show the 3 largest plus a bundling of the 4 others. You see buildings and property on top, which is the largest area, transportation and renewable, and you see the gross revenue per year in fiscal year 2017. And you see the total gross revenue from Multiconsult group last year, which was a figure of NOK 3,375,000,000. We expect that the volume in these markets in the years to come would be in the range, as you see here, from lower level 6 to a higher level 11 with the spread between the business areas and the years, of course. But this is a possible organic growth opportunity for these business areas. And we see the circles on the right-hand side. You see that our revised business area strategies tend to point at a more or less similar distribution between the business areas in 2020. So it's a sound and more or less parallel development within these areas. Then to the revised strategy going from -- in 2013, the 3-2-1 strategy, which we updated in the Capital Markets Day 2016. We called it then the 3-2-1 GO. It's a combination of the all one going forward with growth and opportunities, and now we take it one step further. And it is the need for profitability improvement that is the main driver for the revised strategy. In short sentences, it can be said that the long-term strategic direction remains. We still think that the analysis and in-depth analysis, I would say, back in 2015, '16 was -- they were good, and we do not regret having those long-term strategies. But in the period until 2020, we will not able to do everything because of the altered market situation. So the 2 globes on the right-hand side show that we are carving out, so to say, the establishment strategy for a multidisciplinary consulting business in Sweden and also the local, larger presence in Southeast Africa and Southeast Asia. So the execution horizon is adjusted for this expansion plan to Sweden and also for the local part of the renewable energy until a normal profitability level is regained. And what we mean by a normal profitability level will be detailed.So the name the strategy is now GO, meaning gain and operations. And with gain, we have a sentence saying, it is profitability above peer group average. And with operations, we mean strengthened operations and value creation for owners, customers and employees. A little more details on the left-hand side, the gain part. We will work hard to increase the share of new projects where the profitability potential is higher. That means prioritizing and being better at pricing our competence into the projects. We will work further on training and survey the projects, so we have a well-managed project execution, and we will also work on optimizing the project staff mix. That is, the years of experience, the graduation that you have to work on the different topics that you do in the projects, and also the mix between employees from different parts of the group and also cooperation schemes that are set up. We will realize benefits of our size, which is now significant in the Scandinavian market. We will, of course, still keep the strong cost control so we keep costs down. We will not grow to a smaller amount than our competitors, but we will keep it to an organic growth, which is in line with the market development. So we will keep our market share and work harder on the earnings in that market share. And we will -- after we have done all this and regained the earnings, we will resume selective expansion to Sweden and also international energy markets.We will compare to peer group average and we will have a profitability above peer group average, peer group being the listed Nordic players in the architects and engineering business with more than NOK 1 billion in revenues. For the time being, these are Sweco listed in Sweden, Pöyry listed in Finland, ÅF listed in Sweden, Rejlers and Projektengagement listed in Sweden. If we are lucky to get more players in the Scandinavian or Nordic markets listed in the time period, along with more than NOK 1 billion in revenue, we will put them into the peer group as they join the family.When it comes to operations, we will work on strengthening these and building more value, and that is closely related to further developing a culture with a commercial mindset among all employees, managers and every employee. We will drive value creation for the benefit of the owners, the society and also the employees to be able to train, learn more and be even better. We will strengthen especially the project management expertise and also the capacity because we have more large projects which demand better skills at project management, and we will also continue to professionalize our sales activities. The fact that the demanding, prestigious, exciting projects and objects are the driving forces of our staff makes it very, very important to also have the bullet saying that we will develop employees and expertise through prestigious and exciting projects. All development in our group happens in the projects. We will also utilize the leading position as an employer being the most wanted place to work, both for graduates from universities, also for seasoned employees. We will utilize that position to also become the most attractive adviser to the customers in the industry. We think it's the same drivers giving customer satisfaction as giving employee satisfaction.The revised strategic objectives are 7. And first, not by coincidence, is regaining a normalized profitability level as a basis for further development. It comes first. And we will do that before we take any further large steps. We will take a position as the #1 in large profitable EPC and also IPD projects in Norway, both in road, rail transportation, so to speak, and also in buildings and properties. We will especially focus on taking a leading position, also improving our profitability within the transportation segment. And we will realize profitability and selective growth when it comes to energy in Norway and also on the export activities that we do internationally. We are the leader, we would say, on the, with all due, within health care buildings in Scandinavia when we combine our architects and engineering skills, and we will further develop on that, size-wise, object-wise and possibly also market-wise in geographies. We will enable digital innovation and also develop new business models together with looking at more flexible manning solutions that ensure profitability, being more flexible so that we -- when we have postponements of larger projects, we don't have to sit still with own employees to a large extent. We can have good cooperating companies or individuals to take top amount of the volume.Going a little more into detail on profitability. I've said most of that. So I would only pinpoint what's new related to the last page. The improvement program will now be applied across the entire group instead of only on the Norwegian engineering part. And of course, we will be agile, as we also intend to be now, shifting focus if necessary. If the economy is improving faster, we will be faster to turn around. If it's even slower than we thought, we will look at that and, if necessary, change again.We will -- when it comes to the large amount of larger projects in Norway, we will increase our exposure to these types of contracts where there are higher profitability potential. But of course, that's coupled to risk-taking. So we will also improve our risk management system related to these larger projects. We will not collaborate with all possible contractors on earth. We will go into more detailed cooperation with a more exclusive group of very skilled contractors to develop together with them. And we will also further develop the management skills that are needed and within project management for these EPC contracts.And within transportation, we will be more -- even more selective, prioritize winning potentials and also the profitability potentials in the projects. The national entity, Nye Veier, is a very interesting customer and we want to become the preferred partner for contractors that want to win and execute projects together or for Nye Veier. When it comes to rail and construction, we will also be a leader in the market. Energy, we see that in some of the international projects, we and also our competitors are small. So we have to be more professional to enter into strategic partnerships in some of these international projects. We will take an even more professional attitude towards that. And we'll also use, exploit our possibilities, utilizing our already established international sales offices to get deeper into the markets and look at the sales opportunities in the vicinity of these sales offices. We will also utilize our decade-long capability that's built up within the oil and gas sector to grasp international opportunities among energy projects. Health buildings further develop our market position. Architecture is more often a spearhead into these projects. We will utilize our very unique position for LINK to also have a group activity increase within health buildings in Scandinavian or Nordic part of the world. We will continue with the integrated projects. Digitalization, digital innovation. Of course, it's the customer that drives the needs. We have a lot of knowledge. We also have acquired company knowledge through more than 100 years, which we will be more professional at utilizing in a digital context. We will also look further into developing new business models and products where we couple our skills with digital innovation. This -- #7, manning solutions. I mentioned we have a very well-functioning and skilled design center in Poland. We have not been able to utilize it to its full extent up until date. We will work further on that and also look at other additional possibilities of developing flexible manning solutions for peak production.This mentioned intensified profitability program will, as I said, be expanded from the Norwegian engineering part to the entire group. It will also go from 4 to 5 main topics, some of them being the same as we have had for Multiconsult in Norway. It's within sales. It's within the improving billing ratio for some of our parts of the group. It's about increasing project profitability, working on efficiency gains, and also review our portfolio of entities, for instance. So I think it speaks for itself. We will continue the tight manning control and cost control. Some of it has been written on the former pages. But I would say that the group synergies from new systems, when we now see the ERP system functioning a lot better and taking that to the next level, we will have the possibility of intensifying project follow-up and monitoring to increase profitability in each individual project, driving the entire group profitability.We have a very sound and good platform for the operations. We've done it before, and we'll do it again. We have a pretty long, strong historical financial performance. We are a long-term player. We've been here for more than 100 years, and we'll be for even more 100 years. We will fight the challenges that we are in with continuous improvements. The challenges are the same for the competitors. So we are well fit to address the challenges. We are in a market which looks very positive, and our backlog is increasing also with a better quality in the backlog, I will say. We are now the most attractive employer in the industry in Norway, both at seasoned and also -- seasoned engineers and also students. And we have proved that we have been growing and developing and keeping the earnings over the time.So a condensed, 4-bullet way of presenting the strategy is on this page. We will improve profitability to regain the normal levels in order to further develop the group profitability, and consolidation will be the prioritized aspects. We can also say that the course -- the strategic course is unchanged, but the speed is reduced. The growth will be there, but it will be mostly organic with the aim of keeping up with the market development, not exceeding the volume and the market growth. We have a long-term goal still of selective expansion to Sweden and also internationally within energy, but the execution horizon is postponed until we have regained the profitability. The Capital Markets Day in 27 (sic) [ 2017 ] stated some new figures, when it's related to the debt, at least. The dividend policy was kept, but then we will still keep the dividend policy. This strategic update does not alter the dividend policy. We still have a policy of paying out at least 50% of net profit. We also keep the debt policy, where the net interest-bearing debt over EBITDA, less than 1.5 was the same as we said in 2016, where we increased it from 1 from [ EPO ] times to Capital Markets Day time, but it's the same now at 1.5. We will still keep the equity ratio KPI being more than 25%. That is excluding effects of IFRS 16 implementation. So it's related to the way our IFRS balance sheet and all finances are put up as we speak.What is revised, then? That's on the left-hand side. We say that instead of 10% EBIT over the cycle, which was in the 3-2-1 GO, we now have a target of having an EBIT margin above peer group average. That means if the market situation is poorer, it could be lower than 10% but do not -- it does not exclude us from delivering more than 10% if the market is regaining to a higher level for the peer group. But it's a more dynamic and market peer group related target than having more a fixed -- a long-standing target. When it comes to growth, it's not a fixed number in a fixed year. It's about being able to realize an organic growth which is in line with market. We estimated -- estimate that to be between 6% to 8% linear in CAGR from 2017 going forward.We're proud of what we're doing. We're proud of the projects. We are proud of our people. We are proud of being part of developing society. So we -- as an end of the presentation, want to show you a very, very, very brief pick from what we've been awarded and what we're doing for the last weeks or months. So when it comes to employees, some of it has been mentioned, the best young professional in Europe, Stanislas Merlet, solar -- for the solar, in particular, expert. We have the Enthusiast of the year, in commitment to safety and health aspects. We are the most attractive employer in the industry for all possible employees, both university and skilled personnel which have been working for some years. We have been now awarded a lot of project awards, best practice for a digital energy project [ smeas to ] in the Northern part of Norway, together with a contracted Betonmast Haehre. The Tonsberg Hospital project has been awarded the world championship in OpenBIM, building information model. That is a prize going to the owner of the project and also the architects, which is LINK, and the consultants, which among others are the Multiconsult Group. The same project was awarded the Gullhammeren, as in Golden Hammer, which is a best practice by a national entity [ bigcheum ]. It's a Buildings '21 target set for the year '21, aiming to optimize construction business in Norway. A highway project in Norway, E6 Gudbrandsdalen, north of Lillehammer between the smaller places of Frya and Sjoa, was awarded the construction of the year prize, last year 2017, Årets anlegg. This year, it's got a new prize, which is Vakre vegers pris, which I can translate more to beautiful roads prize 2018, where you put the road line in a beautiful way in a beautiful landscape, also the line of the road, the trajectory and also the surroundings of the road.We were awarded the Nye Hammerfest Hospital in the Northern part of Norway together with the contractor, Consto. We've had the largest single contract for LINK arkitektur when we won the architect part of the new Drammen Hospital. In addition to that, Multiconsult won 3 out of the 6 contracts for other parts of planning of this hospital. LINK arkitektur has had a prize, a very prestigious international prize, which comes to the Particle Therapy, the proton center in Aarhus. We've had other prizes as well and awards. This is being -- we went public with that water supply project for Oslo. It's a huge project of strategic importance both to the city and for us, large projects for the General Directorate of National Roads and Motorways in Poland, and the highway, E6 for Nye Veier in Trøndelag, west of Trondheim. Thanks for listening.

[Mirza Koristovic, Head of Investor Relations & Finance]

All right. So we will now go into the Q&A session, and I will first take on the questions that were sent to us through the web before we go on to the ones that are on the call. So first, I will read a question from the web. It is [ Vicente Bamonde ] who sent in a question. Could you please explain more in detail reasons behind the big change in profitability in LINK arkitektur in the third quarter versus previous quarters, and your actions to put in place to restore sales and profitability levels expected for this business unit?

[Christian Nørgaard Madsen, Chief Executive Officer]

Yes. I can start saying that LINK, in third quarter, has a main challenge related to the Danish part. As I think Anne went a little into, there were some large projects in Denmark earlier this year, 2, out of which both were won by international contractors with international architects. That gave a lower activity level for LINK and we had to lay off some workforce. But when you have employees on fixed contracts, it takes some time to lay off this workforce. And we are not through with that process until the fourth quarter this year. So we have, so to say, a turnaround going on in Denmark, which is working. And then Norway normally being at a very good production level, having high activity, which continues now, had a not normal level of competitions, architectural competitions in the third quarter, especially in July and August, really large amount, which is, so to say, investment in the future. But the level of competitions are much, much higher than we are used to. And one of the improvement measures that I didn't mention but that was on one of the PowerPoints, is to have a better process for assuring which competitions we will go into and how much effort we will put into them. You will see it in the capital market update presentation. We have already put that into place. It is working. And we have taken stronger actions even to follow up on the operations in especially the Danish part of LINK.

[Mirza Koristovic, Head of Investor Relations & Finance]

All right. And there was one more question from the same person. Could you please detail the reason behind the increase on expense for sub-consultants and disbursements during the year? He would like to know what this is related to.

[Anne Harris, Former Executive VP & CFO]

I can try to give some comments to the last question here. As you can see from the detailed profit and loss statement, there is an increase in the sub-consultants and project cost. And one of the reasons for that is that we, today, have a higher degree of sub-consultants compared to the previous years, and we also are facing an increased tendency to see that project costs are not -- will be covered by the billing rate and not be just directly invoiced to the customer. And that is the main explanation by this effect. One example can be the operations that we have in the U.K. Now that is quite a good level of project, and we have an exceptionally high portion of sub-consultants in that project.

[Christian Nørgaard Madsen, Chief Executive Officer]

I can go a little further and use one of the projects I spoke about late in the presentation, the newly won water supply for Oslo municipality. In fact, this is a 4-contract project. We won all 4 of the tenders. One of them, it's a purely Multiconsult group contract where we will have very low level of expenses for sub-consultants. But the 3 others, we have other consulting engineers subcontracted to Multiconsult. So you will -- these are revenues that you will see in that line going forward, and we have a lot of those, for instance, in hospital projects, that is in the Q3 numbers.

[Mirza Koristovic, Head of Investor Relations & Finance]

There were no more questions on the web. So we will now open up for questions from the audience on the call. [Operator Instructions] Please operator, can you take us through the procedures?Since there are no more questions, this concludes our session for today. Thank you very much for your attention, and have a nice day.