Multiconsult ASA

OSE:MULTI

Earnings Call Transcript 2020-Q3

[Grethe Bergly, Chief Executive Officer]

Good morning, everybody, and welcome to this presentation of the third quarter 2020 for Multiconsult. My name is Grethe Bergly. I'm the CEO of Multiconsult. And with me today to present some of the figures, I have our CFO, Hans-Jørgen Wibstad. Starting with an introductory -- highlights. We are, as I'm sure a lot of you have seen, delivering yet another strong quarter. And it is proving that the turnaround that we started a while back is now also presenting itself in the figures that we can see for the company, and of course, we are very pleased to see this positive development. We delivered a solid revenue year-to-date. We have a year-to-date EBIT of NOK 318 million, representing a margin of 11.8%. This is not including a figure of NOK 30 million that we have taken in this quarter with regard to restructuring, and this is also in line with the figures that we have also informed you about in the nextLEVEL program. We have a significant reduction in cost, and we are ahead of the plan for the NOK 150 million that we announced in our nextLEVEL program. We have also an improvement in our billing ratio, and we are now moving above 70%. And we still think there is some more to come, but it is a process that will take some time. We have an order intake of NOK 919 million in the quarter, and that gives us a very stable backlog going into the last quarter of 2020 and the start of 2021. So far, we've had a modest impact of the COVID-19 situation, but it is right to say that we are still uncertain about the effect that this will have at least in the short run. And like a lot of other companies, we did not pay dividend. We canceled our dividend last year. Seeing the figures, seeing the strong balance sheet, we are now doubling the proposed NOK 1, and we are proposing 1 -- NOK 2 dividend. Looking at the order intake. Here, you can see there is a slight reduction from the third quarter 2019. This is within the normal fluctuations that we will see in order intake. And significant sales in this quarter has been the Gaustad Hospital in Oslo, one of the -- a new hospital for the population of Oslo and one of the largest hospital in Norway. We have also been awarded another contract on the water supply for the city of Oslo. And we are also very pleased to see that we won 2 large international hydro-power and transmission projects in Tanzania and that -- for a client that we have worked with over a long period of time. For the long term, we still see a positive pipeline across most of the business areas, but we are maybe also seeing a slight slowdown of small and medium-sized project due to the COVID-19 situation. And we also have a situation in Norway with an ongoing public reform that are causing some delays with respect to getting the project out in the market. Key order intake in the period comprised the water supply for Oslo; an LNG terminal in Poland, that's an oil and gas project; the hydropower plants in Tanzania; a new high school in Askøy; and a railway station. As you can see, it's a good distribution amongst the business areas that we operate in. Looking at the order backlog. We have an 11% increase from Q3 2019, and our backlog now stands at NOK 3 billion. It's not quite record high, but it's close. And we'd just like to remind you that there is a variation with respect to the backlog when it comes to the various timing, the spread in time and across the various business areas and business units. And also remember that we do not include expected volume on frame agreements until we have actually had a call-off. And here, we just mention some of the largest frame agreements where we expect to see call-offs in the next few quarters. It's for the Oslo kommune. And here, it's the new tram line that's going to go from Oslo to Fornebu. We have a big frame agreement with Bane NOR on safety and ramps. We have one with our Defense Department. We have a procurement frame agreement for all hospital -- procurement for all hospitals in Norway. We have one in Kystverket. And we also have just been awarded a new frame agreement for Statnett that will probably run over a period of 6 years, giving us a revenue around NOK 50 million a year. So it's a solid, good position to be in going into the next quarter. Looking at people and organization. We are 2,938 employees at the 30th of September. The Deichman Project, which is the main library in Oslo, has just been awarded the very prestigious concrete award, Betongtavlen. We have, for the hospital that we are involved with in Vestfold, we just won a buildingSMART Award with regard to digitalization. And one of our employees is now in the final 4 for the RIF Award Young Professional of the Year, giving us hope that we will also, in the future, have strong, competent employees. Given the extraordinary times and given the extraordinary results that we're seeing, we are also wanting to give something back to all the people who have created this value, and we are proposing a bonus for all our employees. And we are then -- and this will have effect on -- of around NOK 25 million. As you can see, we're almost the same number of people now as we were a year ago. This is totally in line with the nextLEVEL ambitions, and it shows that we have increased our efficiency significantly. The COVID-19 situation have, of course, also been putting an effect on how we have run our operations. And for us, it's always the safety of our people who are at the forefront. And what we see is that we've had a continuous, strong commitment from our employees. We have managed to maintain a close dialogue with our employees and also our clients and it does mean that our production has remained virtually unchanged because we have a high level of digitalization. And as of August 2020, we no longer have anybody on temporary leave. We are still mobilized to follow closely what is happening around us with respect to COVID-19. And we are seeing some more uncertainty related to small and medium-sized project, particularly in the private sector. And with this, I give the floor to our CFO, Hans-Jørgen, who will take us through the details of the figures.

[Hans-Jørgen Wibstad]

Thank you, Grethe, and good morning, everyone. I will review, as normal, the figures for the third quarter, for the quarter and the full year year-to-date results. Net operating revenues increased by 3.9% to NOK 748.5 million, comparing this quarter with the same quarter in 2019, which is a healthy increase. And the EBIT came in at NOK 68.1 million, which is equivalent to a 9.1% margin. However, we think the interesting number to look at is the EBIT, excluding the restructuring costs that we have previously announced that Grethe mentioned, and we're taking a one-off charge this quarter of NOK 30 million. So you can say, if we add the NOK 30 million to the NOK 68.1 million, we reach NOK 98.1 million, which is equivalent to a margin of 13.1%, which is quite a healthy, healthy number. The other OpEx ratio, which is one of our key KPIs going into the nextLEVEL program, which is really measuring our OpEx burn rate in some ways, has increased from 20.2% last year in the quarter to 16.3%. So we're very pleased with that number as well, and that is one of the key driver for the improvement in the numbers. The billing ratio is seasonally lower than it has been for the -- in the second quarter, but we see a very, very strong improvement from -- of 2% up to a level of 69.2%. We also see that the number of employees is down 2.2% from 3,005 at the end of 12 months ago to 2,938. And as Grethe mentioned, that's part of our strategy to improve the efficiency of the company, growing revenues without growing number of employees. Looking at the full year figures. We see again a healthy growth of 6.4% to NOK 2.6938 billion. The EBIT -- the clean EBIT is 10.7% or NOK 288 million. And excluding this NOK 30 million one-off restructuring cost, the number is NOK 318.1 million, equal to a margin of 11.8%. Now what is this NOK 30 million? It's relating to our portfolio of offices. And as I will go through during our Capital Markets Day, we have done certain changes to that. We're also moving out of certain premises, and we're taking now a one-off charge to reflect the situation where we're actually getting more efficient on the office expense and office utilization side. So it comes in quite nicely. I'd also like to mention that in this quarter, we're also signaling that our expected total restructuring cost for the nextLEVEL has been reduced from -- we expected it -- we have previously said NOK 60 million to NOK 70 million. Now we see NOK 45 million to NOK 50 million as total restructuring charge. And so far, we have accumulated NOK 34 million. Therefore, we expect some more, but not to the extent we expected a quarter back. So that's good, and we get more wise as we move through the nextLEVEL project. On a full year basis -- sorry, on the first 9 months, the OpEx ratio is down to 15.8% from 18.3% -- 18.8%, again, a very important KPI for us. And the billing ratio, as mentioned by Grethe, is 70.8%, up a little bit more than 1%. On a group level, it's lower than we wanted to be. And we still, as Grethe said, we still believe we have something to go, but there are very significant variations between the units. Some have very, very strong and very, very high billing ratio. Others are sub 70%. So it's a good mix. So we have to look at the average, but there are -- there is potential there, still, we believe. And we're coming out of the first 9 months with a very strong balance sheet, and we're net debt free, also partially reflecting our decision to propose a dividend of NOK 2 to the Extraordinary General Meeting that will take place in a few weeks. Now looking at the operating revenue on top there. We see that the increase was 3.9% with the -- comparing with the same quarter last year. Seasonal reduction between quarter 1 and 2 and quarter 3, caused mainly by the fact that quarter 3 is the summer holiday and also a certain slow start in August. So it's July and partially August, but we're quite happy with that number. And very clearly, we see on the bottom line there -- bottom section there, we see the EBIT, where we have taken in from third quarter 2018. Going through 2019 and into 2020, we see a very, very significant lift in the EBIT in quarter 1, quarter 2 and quarter 3. And we also highlighted that the difference between the reported number, for instance, in third quarter, NOK 68 million. Adding NOK 30 million gives us NOK 98 million. So we're, kind of, making that distinction. So the improvement is quite visible in that particular chart. We talked about the billing ratio a little bit, 69.2%, much better than last quarter -- same quarter last year. But on average, slightly below our ambition, and we will continue to work to improve that, especially in certain sections of the business. And as mentioned earlier, number of employees is down 2.2% on a 12 months basis, which is following our strategy in terms of the nextLEVEL and is contributing to the improved results. Taking us through the segments. I will quickly go through this. Region Oslo has a strong first 9 months of the year. Revenue increased 7.7% to NOK 863.2 million, EBIT increasing from NOK 45 million to NOK 135.5 million. That's a huge increase. Now the year-to-date figure in Region Oslo is also impacted by one-offs from last year. So it's not comparing exactly apples-to-apples, but it's a strong performance and giving an EBIT margin of 15.7% for the first 9 months, a very, very solid result. Order backlog -- sorry, order intake is at a good level, slightly down. However, comparing the order intake with the net operating revenues, we're pretty similar. So it's a good order intake, but it's slightly lower than we saw last year. And the billing ratio -- here is a good example of that it fluctuates between the areas. The billing ratio is at a very healthy 73.4%, which is up from 70.2% in the same 9 months period 2019. And also here, the number of employees significantly down 5.3% to 780, and yet the revenue is growing. So that's, kind of, a good, positive relationship and explaining some of the improved financial performance. I would like to mention at this stage that the quarterly results for the regions, the third quarter result is impacted by a certain adjustment to the overhead. We've had significant lower overhead expenses, which is allocated to the units. This becomes a little bit technical. So the quarterly results in the third quarter, we're kind of crediting that to the region. So the quarterly result is slightly higher than the -- let's say, the underlying results. The year-to-date figure, however, is correct. And the total amount, which has been credited back to the regions from previous quarters is about NOK 24 million. It's mentioned in the notes to the accounts as well as in the text. So I just want to mention that. But the year-to-date figure is fully representative of the underlying performance. Region Norway has a very, very strong 9 months period and has maybe the best improvement in the overall -- between last year and this year comparing the regions. Revenue growth, 5.1%; EBIT, up 206% from NOK 44 million to NOK 137 million, very, very impressive; and EBIT margin up from 4.4% to 12.8%. And in the 2019 figure, there is no one-offs in that, so that's kind of more comparing apples and apples. Order intake at a very good level, up 14% to NOK 1.2 billion; order backlog, up 11.5% to NOK 650 million; billing ratio below the 70 but still a very, very good increase by 1.4% to 60 percentage points to 69.7%. And the number of employees is slightly down, which is, in our special case, the situation we're now, a good -- a positive KPI. Energy. As we discussed earlier, it's an area where we invest in. It's an area for the future. We have very interesting positions within energy. Right now, a little bit of a struggle. They're in kind of a turnaround situation within -- also within energy but have overall performed strongly. Particularly the Norwegian business is doing very well, but there is a business in the U.K., which is still loss making. So we're looking at that now and considering the options for that. But it's the overall performance of the unit, given the circumstances, is good, have a flattish net operating development between this year and last year. EBIT, slightly up but at a, kind of, marginal 1.9%; order intake, still at quite a good level compared with net operating revenues. So it's down, but it's still at a good level. And the order backlog also up because of the good sales. Billing ratio, as you can see, 61.4%, much below our target, but explained by the low activity in the U.K. as well as the fact that they're investing for the future -- for future opportunities and also the number of people coming down. LINK, also a mixed picture with the Norwegian operations doing very well during this year, whereas the operations in Sweden is improving, while the operations in Denmark is still struggling. That explains some of the reason for the reduction in the EBIT. Revenue is slightly up. The EBIT is significantly down to NOK 11.8 million with an EBIT margin of 2.9%. And a lot of that is, as mentioned, driven by the challenging situation in Sweden and, in particular in Denmark, whereas the Norwegian operations has had a strong performance during this year and also taking into the situation with the COVID. Order backlog. Order intake has been good. It's up, which is very, very positive. Order backlog is naturally then also up. Billing ratio is pretty stable, and the number of employees is also -- it's slightly down, but it's pretty flat. So a mixed picture, I would think, but it's an important part of the business, and we're working very hard on the synergies and the benefits of Multiconsult and LINK working together. International, doing -- has another strong quarter and also a strong year-to-date number, very, very, very healthy revenue growth of 18.3% between this year and last year. EBIT is up to NOK 19.1 million, and the EBIT margin is a healthy 10.8%. Order intake, very strong, reflecting also the strong revenue growth. Order backlog is also up, naturally. Billing ratio is flat, and the number of employees is slightly up but significantly less than the increase in the revenues. This is Iterio in Sweden and Multiconsult Poland. Both businesses doing very well and has a solid and strong performance during the first 9 months. So this is, kind of, the mix of -- within our -- I previously presented the business units. This is the business areas where we can see in which area of the business we're growing. And you can see clearly that the Building & Properties is the largest proportion, 40% of revenues; Transportation, 29%; Water & Environment is 10%, et cetera. So this is the mix. And we're seeing, at the bottom line there, that all of the business areas, except Renewable Energy, has an increase comparing 2019 to 2020. We're trying to suggest that we have a good portfolio, that we are in areas which has strong positions as we -- and interesting positions as we move forward. Then finally, on the financial position. Obviously, I'd like to mention one particular number. Not only have we done a good financial performance in terms of EBIT but over the last 12 months, our net interest-bearing debt has improved by NOK 419.7 million. That's cash generation. So what we're doing is also flowing to our balance sheet, which has improved significantly from a rather challenging situation when we were here a year ago, now to a more comfortable situation. Now that explains one of the key reasons why we now feel that it's appropriate to propose the dividend that Grethe mentioned, which is that we're repeating the NOK 1 that we initially proposed for 2019, but we're doubling that to NOK 2, reflecting good performance in 2020 as well as a very healthy balance sheet. We repaid some debt, so we're basically debt-free. We have an RCF, so we can repay our debt, which is very good. And also, we have total undrawn loan facilities that were refinanced in February of this year of NOK 520 million on top of the cash balance of NOK 118 million going out of the quarter. So I think that was my part. Thank you.

[Grethe Bergly, Chief Executive Officer]

Thank you, Hans-Jørgen. I only have one slide for nextLEVEL as the Capital Market Day, we will go into much more detail on the figures that's behind the reported committed NOK 138 million. But as of today, we have committed NOK 138 million of the NOK 150 million that we had as part of our nextLEVEL program. And as you can see from the graph on the right-hand side, we are still ahead of schedule. And during the presentation later on, Hans-Jørgen will also show you how much of this NOK 138 million you actually see in our figures as of the third quarter. Committed means that they will have an effect, but not all of it has an immediate effect. So going to the outlook. We come out of this quarter with a strong position and creating -- continuing to create good solution for our clients. We have had a positive development on the ongoing turnaround process, and we are ahead of schedule. We have a solid backlog. The overall market is good, and we have a strong tender pipeline. But there are some uncertainties with respect to the short-term effects of the COVID-19 situation. Here, you see our financial calendar. We will come back, present the fourth quarter and the results for the year in February. And with that, I complete this session here with the presentation of the third quarter, and we open up for questions.

[Unknown Attendee]

We have a question from the webcast from Bengt Jonassen. "The accrual for bonus of NOK 25 million in quarter 4, will this be a recurring event? And is there a hurdle rate for EBIT margin that would trigger such bonuses in the future?"

[Hans-Jørgen Wibstad]

I can take the first part, which is it will be recorded in the fourth quarter numbers, and it will not be a recurring event. Grethe, maybe you can also address that.

[Grethe Bergly, Chief Executive Officer]

That's right. This is an extraordinary gift back to our people who have been standing in an exceptional situation. We do not have a bonus arrangement in our company. We don't have a way of sharing profit. So we found that it would be correct, given what we are delivering at the moment, to give something back to the people who actually come in and do the work.

[Unknown Attendee]

Okay. There's no further questions on the web. Is there anyone in here at Felix? No.

[Grethe Bergly, Chief Executive Officer]

Okay. Thank you.

[Hans-Jørgen Wibstad]

Thank you.