Multiconsult ASA
OSE:MULTI
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Multiconsult ASA
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Welcome to this presentation of the third quarter 2021 for Multiconsult. My name is Grethe Bergly, I'm the CEO. And with me for this presentation is also our CFO, Hans-Jørgen Wibstad. And we are actually now present in the Munch Museum, who just opened a few weeks back. And it's, of course, with pride that we are able to invite somebody here also present into this building that has been a part of our company since 2010.I'll give you an introduction and some of the highlights for the quarter, and then Hans-Jørgen will go on and give some of the details of the figures.Looking at the figures, you can see that we come in at NOK 760 million, revenue, which is a reasonably level with the third quarter in 2020. Although I would like to remind everybody that 2020 was a very different year from a normal year, and therefore, to some respect, comparison is difficult. For the year, we come in at NOK 2.7 billion. We have for the quarter an EBIT of NOK 46 million, representing a 6% margin. This is not a margin that we are satisfied with. And the quarter in installation is slightly weaker than we would like. But if you see for the year-to-date, the margin represented by 9.5%. It's in level with where we expect to be.The billing ratio, quite significantly lower for the quarter. And we will give you some insight into the -- what has affected the billing ratio, but year-on-year, it's on par with 2020. Also, operating costs for the quarter is higher than we saw in 2020. And Hans-Jørgen will give you the details of what this represents. It's something to do also with seasonal changes. But if you look at the year-on-year of NOK 310 million, we are on level with the cost as we see and expect. And it's important for us to express that the effects of nextLEVEL is still with us also in -- and through 2021.Solid operating performance for the 9 months of the 2020. We have had a slow start after the summer, and some of it is assumed to be a post-COVID effect. We have good sales year-to-date, and we go out of the quarter also with a high order backlog. So all in all, we are on a steady course for the results that we have achieved over the last year.The low activity resulting in a billing ratio of 67% is partly affected by much lower activity in August, but we're also seeing that the speed is picking up towards the end of the quarter. We have also had a significantly lower activity level within Transportation. As you may remember, we got a cancellation of a big road contract, and Hans-Jørgen will also give you some more details on that later. In addition, we are seeing some effects of restructuring in LINK Sweden.The order intake of NOK 740 million, it's in line with what we saw last quarter because in this figure is a deduction of NOK 135 million from the road contract.Steady course, we will continue to have a focus on our core business, sales and project execution. And we also see that there is a good and stable market outlook in all five business areas. However, we are also experiencing some post-pandemic situations, which is causing some uncertainty in the short term.We are also making a change in how we report our business areas. We're going to -- from the third quarter, we will report sales and order backlog in five business areas: Buildings & Properties, Mobilization & Transportation, Renewable Energy, Water & Environment and Industry. So in the figures that you are seeing in this report, oil and gas is included in Industry and city and society is included in Buildings & Properties. We're seeing that the way the market is moving, the way the clients are moving, this is a much more rational way of reporting for the future.Looking at the order intake, as you can see, the figure for the order intake is significantly lower than the third quarter in 2020. But because we have deducted NOK 135 million as for the cancellation of the road project, we're really saying the sales for the quarter has been in line with the previous quarter. And some of the significant sales that we've made in the period is a three-frame agreements that we would like to mention. One is for the Oslo principality, supporting them on the majority of engineering services. It's a frame agreement that runs for 4 years and an option to extend for another 3. So it means that we will be very much present in engineering also in the Oslo city in the future.We've had one with the Norwegian Defense Authorities. This is on an area that we're seeing, it's a growth area on environmental services to do both with rehabilitation, demolition and soil contamination. And this is one of the largest frame agreements of its kind in Norway.We also have a similar frame agreement with the roads authorities. And to a large extent, this is about helping the road authorities complying to all the expectations and the demands that they now get as an effect of the changes in sustainability.We have also won -- sorry, we also remind you all that we don't take -- sorry, we have not included the sales and the -- from -- and the backlog from Erichsen & Horgen in the figures that we are showing you now.Our major sales projects, it's another call off on the water supply for Oslo. It's another call off on a major project on electrification for Aker BP, NOK Krafla, Fornebubanen, big intercity railway and two other road projects.Looking at the order backlog. We've had a good increase here, 10% year-on-year. Just normal fluctuations with seasons. And we are seeing this is a stable and good backlog, and we're also seeing stable and good markets in all our business areas. As you can see, it continued to be Buildings & Properties and Transportation. That's our largest business areas.Taking you through organization and people. We are now 3,183 employees, an increase of 8.3% compared to the quarter in 2020. Majority of this is to do with the inclusion of Erichsen & Horgen who came in with 245 employees.We are also, of course, very proud to have the winner of the Young Adviser of the Year, Richard Opsahl Resvoll. It's, of course, the confirmation of the very, very high skilled people that we have and an important area to attract also the best people. We have also won two awards. Deichman Bjørvika was winner of Building of the Year. And the road project was the winner of the Project of the Year 2021.And with this, I give you the word to Hans-Jørgen, who will talk you through the figures.
Thank you, Grethe, and good morning, everyone. Nice to see you here at Munch Museum.So the third quarter ended up not exactly where we had planned. It is -- it has been impacted, as Grethe said, by a slow start of the quarter, a slow start in July as well as into August where we saw that in September, the activity level picked up. So overall, the revenues ended up at NOK 769.9 million (sic) [ NOK 769.6 million ], which is an increase of 2.8%. Most of that increase is attributable to the inclusion of Erichsen & Horgen for 1 month. So a very, very moderate organic growth.The EBIT was at NOK 46 million, which is a 6% margin, as Grethe mentioned. It is impacted by a few factors. Of course, the billing ratio, which is significantly lower than we have seen recently, which is triggered overall by this kind of slow transition from after the summer, which is partially driven by internal factors, people coming back kind of to work and also some kind of, let's say, catch-up effects from that. But also, we saw a market, which is a little bit slower on the customer side. It was as if there was some kind of maybe a post-COVID situation in the customers -- among the customers to get the project started. So this is kind of driving this situation. But the good news is that it's kicked -- or things improved through the quarter, and September turned out to be a good month for our company.We also had a particular effect relating to the Transportation segment in the Region Oslo, which, as Grethe mentioned, with the cancellation of the big road contract at [ Mjøsa Bridge ] by Nye Veier. We had expected -- we were maybe a little bit optimistic on our ability to replace that work with new work. But because of the summer situation, and this happened just before the summer, the results in the Transportation part of Region Oslo was low, actually NOK 15 million lower than it was in the same period last year. And overall, for the Transportation, the result is NOK 25 million lower than last year. So overall, our results for the -- so far in 2021 has a significant impact from what has been a lower activity level in Transportation Oslo.We also have a moderate impact from, as Grethe mentioned, from LINK -- restructuring of LINK Sweden, which after the cancellation of two large hospital contracts in the first half is going through a quite significant restructuring situation. So then we also have higher operating expenses compared with last year. That is a particular kind of a periodic effect, which is mostly to do -- which is the main driver for that. It's not a symptomatic change. And as mentioned by Grethe, the effects of the nextLEVEL is still with us. It's not that we're seeing that operating expenses are taking off. There is, however, one element, which I would like to mention which is our IT costs, particularly related to the cost of licenses, which has increased much more than we had expected when we kicked off nextLEVEL in 2019. This was expected when we did the budget. So it was not a big surprise for us, but it has impacted our operating expenses quite significantly in both the third quarter, but also the year-to-date. But overall, in terms of our operating expenses, they are in control and we're seeing more like periodic fluctuations in that.When it comes to the year-to-date figure, the revenues came in at NOK 2,735.4 million, which is an increase of 1.5%. Part of that is, of course, to do with Erichsen & Horgen, but also a very moderate organic increase. The EBIT is at -- still at a good level, NOK 259.1 million, which is equal to 9.5% margin. And even though we were not happy with the third quarter, looking at this in perspective, 9% margin is a solid level. And as Grethe mentioned, we believe we are on a steady course. So we're not panicking because of the third quarter, which came out a little bit lower than we had expected. But we still believe, as I said, that we are in a steady course.As I mentioned, operating expenses are -- came in at 300 -- other operating expenses came in at NOK 310 million, a moderate increase of 4.2%. Also part of that is Erichsen & Horgen. I'd also like to mention that, as you can see from this graph, the NOK 94 million increase in employee expenses, NOK 25 million of that is 1 month of Erichsen & Horgen employee expenses. So that is, of course, it's not exactly comparing apples and apples, but that has an impact, of course, on the -- on our employee benefits expenses.The operating expense ratio, which was very high in the third quarter, partially because of our low revenue level, has increased from 16 -- from 15.8% to 16.1%, still at a much better level than we were before the nextLEVEL, before what we saw in 2017 and '18 and into '19. So we're also there on a steady course. And of course, our target there is to keep that as low as possible, and we kind of have an internal target of around 15%. And we will try to achieve that over the next few years.Order intake, as Grethe mentioned, is still at a good level. And the order backlog gives us good visibility for the next years.This is another way of looking at the figures. I would like to particularly highlight the billing ratio at the upper right-hand side. Clearly, going down in the third quarter to a level which is much, much lower than we -- not much, much lower, but significantly lower than we had expected. But as I said and as we have mentioned several times, it is partially an effect of a slow start after the summer, a little bit internally but also in the marketplace.And you can also see clearly that our -- the number of employees has increased with the inclusion of Erichsen & Horgen for 1 month, which is September. We took them over. Actually, the acquisition took place around the 15th of August, the closing. But we -- they have been included for practical purposes from the end of August.Then a few words on segments. I already mentioned Region Oslo in terms of the main challenge there, which has been the Transportation segment. They're coming in at a -- with a good year-to-date figure. Revenues, pretty flat with 2020, NOK 865 million. EBIT, NOK 100 million compared with NOK 135 million last year. And as I said, a significant portion of that is attributable to the Transportation segment.The other segments within Region Oslo is generally doing pretty much on par with last year, which is very good news despite also there a somewhat slower third quarter. And the billing ratio keeps up at a reasonable level, but it's, of course, also impacted -- the total is down because of the third quarter, which is done. And clearly, you can see the number of employees is up, and that is because of the inclusion of Erichsen & Horgen's business in that region.Region Oslo has had a good performance also in this year coming in with revenues of NOK 1.1 billion and EBIT of NOK 132.3 million, equal to a margin of 12%, which is only a little bit lower than last year despite also there a somewhat slower third quarter. But a good performance overall by region in Norway. There are some differences between -- within Region Norway. Some of them are doing on par, some of them are a little bit below our expectation. But as in total, the picture there is solid. They had good order intake compared with last year. Order backlog is stable. Billing ratio is a little bit below what we would like to see, impacted by the third quarter. And we also see a somewhat increase in the number of employees, and that is also part of the Erichsen & Horgen acquisition. Their business in Trondheim, et cetera, and is included in the Region Norway figure.Energy, another quarter with somewhat low financial performance. We're still in the kind of restructuring phase. We're building it up. We still believe it has good potential for the future. We'll talk more about that during the Capital Markets Day. The result is impacted by still restructuring ongoing in Multiconsult U.K., which is contributing with some -- with loss continuously. But that is now -- we found a solution with a Multiconsult U.K. where we're taking down the -- all the main staff functions, and the number of people that remain in the U.K. is now limited to quite a few. So it has been an important restructuring that has taken place there over the last year, which will hopefully improve the results in Energy over the next 12 months.But overall, we also see that. Because of the restructuring, the number of employees has come down by 13.2%, and that's part of how they are restructuring their business. But again, it's an investment for the future. Their positions, their technology and also their knowledge base is something which will be very important as we move into the future and where we see the potential in the green shift, et cetera, et cetera.LINK arkitektur, another quarter. The quarter in itself was quite low. There is an improvement in the EBIT compared with last year. However, it's a very mixed picture. LINK arkitektur in Norway is doing also well. A little bit lower than last year, but still doing a good performance. But the situation in Denmark is that they have moved from a loss situation to a breakeven situation, whereas LINK Sweden, because of this restructuring, has done quite a bad year with losses in itself of about NOK 8 million. So far this year, the total loss for Denmark and Sweden is -- for the year is NOK 12.3 million. So that is kind of a very mixed picture in LINK. But we are very, very focused on the improvement process, which is now resulting in LINK Denmark having a moderate profit for the third quarter. We're doing actions in Sweden to improve things, including taking down the number of employees. And Norway is still on a steady course. So a mixed picture, but overall, we are quite happy with the situation. And hopefully, as we move into 2022, things will stabilize also in Denmark and in Sweden. But it will take a little bit of time for Sweden to come back at least into the back figures. We will do that as -- hopefully, that will happen as quickly as possible, but it will take a little bit of time after the cancellations of two major hospital contracts in the first half. The International business, a good quarter, good first year, delivering EBIT margin of 9.7% with a pretty stable revenue. A little bit impacted. There is actually underlying growth, but because of the strengthening of the Norwegian kroner, it looks like it's a flat revenue base. We also see that the order intake is on its way up. Strong order intake up 22.6%, largely driven by our business in Poland, which has been very successful in the market. And the order backlog, as a consequence of that, also going up quite a bit. Number of employees is up 12.5%, and the increase is mostly also in Poland. I would also like to mention that our business in Ontario in Stockholm and in Sweden has had a good quarter, but a more stable situation in terms of number of employees and also order backlog.So this is after the business areas have been reduced from 5 -- from 7 to 5. This is the split of revenues: 43% of our business is Building & Properties, Mobility & Transportation is 26%, Industry is 12%, Water & Environment is 12% and Renewable Energy is 7%. So this is done to focus our business to deliver even better solutions to our customers as we see that these business areas are really very much interlinked, and it's sometimes difficult to distinguish what's industry, what is Renewable Energy and including also what's Water & Environment. So this has been an important thing for us.We see that there are some fluctuations also in terms of the changes in revenues comparing the last year with this year. And you can also see here that the Mobility & Transportation, to which the transportation in the Region Oslo is included, has had a reduction of 9%. Overall, in the long term, we're not worried about that. I will talk a little bit more about that during Capital Markets Day. But the outlook overall for the Mobility & Transportation is still good and stable. But we've had this kind of dump in terms of activity level, but we're expecting that to pick up as we move into 2022.The financial position. A lot of things has happened during this year in terms of our financial position. We've had -- we made a major acquisition of Erichsen & Horgen, which has -- as well as a couple of other acquisitions, smaller acquisitions. And the net effect of that is that we've had a cash outflow of NOK 308.2 million. Year-to-date, we paid what we think is a healthy dividend in May of NOK 215 million as well as an extraordinary dividend last year.We're coming out of the quarter and the year with a solid balance sheet situation. We have total undrawn loan facilities of NOK 400 million. And we're within the gearing ratio, 0.89. And we've said that our target, which we will reconfirm at the Capital Markets Day, to be between 1 and 2. So we're very close to our target, which means that we have a solid balance sheet situation coming out of the quarter.I would particularly like to mention -- talk about the working capital. When I saw, as a CFO, that our working capital had weakened NOK 234.2 million in the first 9 months, I got really worried. So we had to make a really deep dive into that to see if there is any particular worry, some part of that or whether it's normal fluctuations that we've seen previously between quarters.Unfortunately, the good news is that it's no symptomatic or weakening of our working capital in terms of things that should have been done -- made really differently. We see that the level of trade receivables is stable. Trade payables is stable. What we have seen is that we have paid off significant amounts of public duties, like VAT and tax during the first 9 months. That's one factor contributing to NOK 108 million in terms of weakening.The other main factor is that the work in progress is seasonally high, which is weakening our working capital in the quarter when we measure it 30th of September by NOK 82 million. So it's a major -- it's a big number. But in terms of whether it's something to really worry about from a management point of view or from a shareholder point of view, our conclusion is that this is -- these are normal fluctuations. But it's a major number, but these are, as I said, these are normal fluctuations within a quarter.The position was exceptionally low, by the way, last year. It had to do with COVID. It had to do with also changes in payment terms of public duties, for instance. And also our work in progress at the end of last year was very, very low. And of course, we will continue to make sure that we invoice our customers, but this follows a normal pattern. So again, nothing to worry about. These are normal fluctuations.And in total, as I said, and to repeat that within -- coming out of the quarter with a gearing of 0.9, which is what we had expected when we acquired Erichsen & Horgen, and it's a very, very comfortable level and we have a strong and solid financial position out of the quarter. Then I will finalize before we take a break before our Capital Markets Day, and just to summarize a little bit on the outlook. We still have a good order backlog and good visibility on that order backlog. The overall market, which we mentioned a few times, is good in all our business areas, stable and good. We're expecting significant investments. And we'll talk a little bit more about that during our Capital Markets Day. So that is good. We are -- as Grethe said, we are, as we did a little bit in the third quarter, experiencing some uncertainty on, let's say, the post-pandemic situation. That is both internally in terms of some catch-up things that we need to do internally that we haven't done over the last 18 to 24 months during the pandemic. But also, we're seeing that maybe on the customer -- on the market side, there is some delays in projects starting up with project execution, which is -- which may cause, and this is why we're putting this, it may cause short-term fluctuations in our -- also in our results for the fourth quarter. But we are on a steady course. The outlook is generally good, and we are quite optimistic about the future. Thank you.
Okay. Hans-Jørgen, but we'll -- we have one question from Bengt Jonassen in ABG Sundal Collier. You are back on the level -- related to billing ratio. You are back on the level before nextLEVEL. Should we assume that you are back at that level for the future?
Maybe Grethe should answer that.
The answer to that is no. I think we had a particularly challenging third quarter. But our ambition is that our billing ratio should be higher than 70%.
Okay. Moving on. Before -- or during COVID, you said that the COVID effect on margin was approximately 1% to 2%. Should we assume that, that effect was higher?
I think that's too early to say with -- but if you -- if we adjust the figures for the COVID effect, we are 1% to 2% behind where we were last year. There is some pluses and minus in that calculation. One thing is the Transportation segment that I mentioned a few times, which has performed significantly lower than last year, which a little bit has really not much to do with the COVID. We also have the IT cost, which has come up due to -- mostly to do with the license cost, which has -- from our major suppliers of licenses. And also something to do on the equipment side, IT equipment side, which is impacting us.But I think, overall, our -- what we said last year and what I think we consistently said last year, we had a performance -- we had a COVID effect of 1% to 2%, and we still believe that is the case.
Okay. Thank you. Bengt has two more questions. Accruals seems to have an effect on the earnings more than what we should -- what should be natural when you compare the figures. Is there any -- what is the structural reason behind this?
Yes. If you look at the full year, you don't see this periodic effect, but the operating expenses in the third quarter of 2020 was very low and that had to do with periodic effect. I think that was mentioned during the presentation that we had an add back of some accruals from the second quarter 2020, which impacted results in that quarter in isolation. It does not impact the year-to-date figure, however. So this is one of the reasons why it looks like the operating expenses are increasing significantly between third quarter this year and last year. But if you look at the year-to-date figure, it's only a moderate increase. So a particular effect relating to what happened in 2020.
Okay. Thank you. Finally, where are you now on the underlying cost in relation to the nextLEVEL ambition?
I think maybe also Grethe should say a few words on that. I think we are on track in terms of our nextLEVEL ambitions, in terms of our costs. We are doing everything we had planned to do with one exception, which we did not expect, was the significant increase in the IT cost. I mentioned that a few times. The IT cost has increased more than NOK 30 million compared with last year. And that is something we partially had budgeted for, but it's also an effect of our suppliers' cost or pricing when it comes to licenses to which we're a big buyer of computer software.
Thank you. Would you like to add something to that?
Yes. I think chasing cost improvement never ends. So I think that -- but what we've said, we were not going to run another nextLEVEL program, but we have to include it in our operations, and we follow the same KPIs as we've had in the nextLEVEL closely. And we also give the insight to the organization, and we are chasing improvements all the time.
Okay. Yes. Thank you, Grethe and Hans-Jørgen.
Thank you.
Okay. That completes the quarterly report from Oslo, and we will be back for our Capital Markets Day in about 10, 15 minutes. Thank you.