Multiconsult ASA

OSE:MULTI

Earnings Call Transcript 2024-Q3

[Grethe Bergly, executive]

Good morning, and welcome to this presentation of the figures for the third quarter of 2024 for Multiconsult. My name is Grethe Bergly. I'm the CEO. And with me during this presentation today, we will also have Ove Haupberg, our CFO.

I would just like to remind you that almost immediately following this presentation we will have a short break, and then we'll go straight on to the Capital Market Day presentation.

To start with, just to remind you who is Multiconsult. Multiconsult is a Norwegian based company with operations in Scandinavia and Poland. We operate in 4 segments: Regions Oslo where the headquarter is and a few offices outside Oslo; Regions Norway, which is then all the other offices not included in the Oslo segment. We have an [ Architecture] segment that comprises 3 LINK Arkitektur companies in Norway, Sweden and Denmark, and the [ architecture ] company, A-lab.

International comprises our engineering company, Iterio in Sweden, and Multiconsult Polska in Poland. We operate in 4 business areas: building and properties; mobility and transportation; energy and industry; and water and environment. And our project portfolio has an even distribution of public and private clients. We have more than 15,000 projects that we execute every year. We have 5,500 clients, and we have a footprint of our project in more than 45 countries. And during the last 4 years, we have delivered a steady, profitable result, benefiting both, our employees, society and our investors.

Going to the summary of this quarter. As the key figure shows, we continue the strong momentum from the last quarter, and we deliver a robust operational performance and a great improvement from the third quarter last year. The robust operational performance is largely a result of stronger billing ratio of 71.2%, supported by high organic growth.

The results are positively affected by settlement with a client, but also looking away -- taking this away, we still deliver a very strong result for the third quarter. There is a strong improvement in Regions Norway, and there's also improvements in our [ Architecture ] business, and Ove will give you some more details of this. An adjustment of the put option with A-lab affects our financial results positively.

Going on to sales and market. Sales in the quarter was almost NOK 1.3 billion, and the company exits the quarter with an order backlog of NOK 4.8 billion. The reduction in sales is within the normal [ fluctuations ] that we expect between quarters. And the slight reduction in order backlog was also expected as we enter peak production in some of the largest projects that we have in our portfolio.

The sales in this period, again, good distribution. We had sales with the Norwegian Defense Estate [ Agencies ]. We had a property development in Denmark, and it's a proof of the transformation the Danish architects are now doing away from fully dependency on the health sector. We had a project related to -- a road project in Poland, and we also had a large bridge in Norway.

Following the closing of the books, we have also announced 2 other large sales, one for the Norwegian Defense Agency of NOK 450 million, and a water treatment plant just outside Oslo. So we are standing here with a strong portfolio of projects. We see continuous strong pipeline, and we see also, again, the increased demands, that we have talked about previously, related to defense facilities.

Looking at people and organizations. We are now 3,893 employees and a total of 3,560 MULTI shares were transferred to new employees.

We announced the appointment of Agathe Schjetlein as our EVP Sustainability, and we maintain this strong position among the top 5 ranked as a preferred employer among students. When it comes to excellence, this project, The Godsbanen project in Aarhus, has been awarded a Diamond distinction and honored with certificates for exceptional architecture. It's one of the first buildings in Denmark to actually receive this award.

We have also one of the 3 who were nominated among the Young Engineer of the Year in Norway, Inger Lise Gjerdebakken, a GIS specialist, was awarded the Lighthouse Award by Geodata, showing that we have people at the forefront, promises good also for the future.

And with that, I hand you over to Ove.

[Ove Haupberg, executive]

Thank you, Grethe, and good morning. We have a closer look at the third quarter numbers and year-to-date. And as normal, starting with the quarter.

The net operating revenue in the quarter ends at NOK 1.148 billion, that is an increase of 17.5% from last year. In this, the organic growth was 15.9%. And on top of that, we have the M&A activity giving an extra sales increase by 2.3%. And to sum up for you, that is Helm at the end of Q4 last year, VA-Resurs in Q1 this year, and then from the third quarter, Sitepartner and Petter J. Rasmussen.

And the calendar effect is negative in this quarter by [ 0.6% ] or NOK 6.1 million. And you might wonder why. There is one more working day compared to last year, but we had 2 more working days in July and one less in August, and this is causing this negative effect due to the different values between the months.

The main drivers behind the growth are higher number of employees, 176, or 72 full-time equivalents. This is seen in the graph underneath as increased capacity. We have also have increased billing rates that is part of all the revenue effect and the improved billing ratio. The billing ratio for the quarter, 71.2%, an improvement of 3.4 percentage points from last year.

EBITA amounted to a NOK 102.9 million. That is increase of 252.3% or NOK 73.7 million from last year. The margin is 9%, also increased by 6 percentage points. And then you have some adjustments. EBITA adjusted for the one-time settlement of NOK 31.2 million is NOK 71.7 million, and also then with the margin on 6.4%, and underlying EBITA, also shown in the quarterly report in the alternative performance measure, is NOK 77.8 million with a margin of 6.9%.

As Grethe mentioned, the order intake, NOK 1.277 billion, and the order backlog, solid, NOK 4.838 billion. And then, the reported profit, it's NOK 80.2 million. That is an increase of NOK 70.6 million from last year, and in this as a subsequent measurement, or the A-lab put option obligation [ had us ] improved over net financials by NOK 10.6 million.

Then we move on to year-to-date figures. And net operating revenue year-to-date is NOK 3.940 billion, increase of 14.5% from last year. Organic growth, 12.2%, and the M&A activity, 3.1% with acquisition presented on the previous page. The calendar effect, again, negative by 0.8% or NOK 27.2 million. You have the same number of working days, but there are difference in the values between the months.

Main drivers behind the growth also year-to-date, the same as we have on the quarter. Higher number of employees. We have increased billing rates, and we also have the increased billing ratio, 72.9% year-to-date. EBITA, NOK 425.4 million. That is an increase of 41% and the margin of 10.8%, also an increase by 2 percentage points.

And also year-to-date, these adjustments giving the EBITA adjusted on NOK 394 million and the underlying EBITA is NOK 421.3 million or 10.7%, as you will find in the alternative performance measure.

Order intake year-to-date, NOK 4.655 billion, and the reported profit year-to-date, NOK 327 million -- sorry, NOK 323.7 million, increase of NOK 120 million from last year, and the subsequent measurement of A-lab put option is in the net financial with NOK 36 million year-to-date.

[indiscernible] Had to push it hard. Okay. Sometimes it's not wise to be gentle. Okay.

Then the financial highlights quarter-by-quarter. Top left you will see net operating revenues and the third quarter numbers is in orange. And net operating revenue increased by 17.5% and also with the trend on the rolling 12 months still have an upward trend. So this, in combination with the billing ratio that you find on top right, increased by 3.5 percentage points, and also the increase in number of employees by 4.7%, in combination with the other revenue effect give us then the margin you see down left with 9%.

Then we look closer on the different segments. And in these numbers it's the quarter compared to the same quarter last year. And we start to the left with Regions Oslo. And in this segment you will find consistently good underlying performance. The net operating revenue in the quarter was NOK 448 million. That is an increase of 20.6% from last year.

The one-time settlement with the client is reported in this segment, and that is affecting the net operating revenue by NOK 31.2 million, but the increase was also driven by increased number of employees, that is 34 full-time equivalents. The increase in billing ratio with 2.9 percentage points and as well as higher billing rates. You will find a negative calendar effect of NOK 2.9 million in this segment.

Operating expenses, NOK 375.1 million, increase of 9.9% and the increase is mainly driven by employee benefit expenses and due to net recruitment, ordinary salary adjustment and the acquisition of Sitepartner that is part of this segment. And then leaves the EBITA on NOK 66.4 million and the corresponding margin of 14.8%.

Then we move one step to the right to Regions Norway. And as we had the last quarter, it's still a significant improvement in the results. The net operating revenue increased to NOK 64.3 million, and that is increase of 16.5%. And EBITA was NOK 37.4 million, increase of NOK 25.5 million from last year. And this improvement are driven by a solid growth in the capacity, 63 full-time equivalents, improved billing ratio by 4 percentage points and also improved billing rates. The calendar effect negative in this segment by NOK 2.5 million.

Okay. Then we are ready for Architecture. Net operating revenue at the same level as last year, NOK 149.7 million. Calendar effect negative in the segment by NOK 1 million, but the currency effect is positive by NOK 2.6 million on net operating revenue and NOK 0.3 million on EBITA.

And then the 3 LINK companies, starting with LINK Norway. We see a weaker result compared to the same quarter last year. The market conditions differ based on the geography, but remains challenging in part of the country, especially in the Oslo market. The Oslo market is characterized by delayed project start-ups. Due to the market inflation, the total capacity is reduced and there will be some temporary layoffs during Q4.

In LINK Sweden, the results improvement continues. The results are considerably better than in the same quarter last year, and this is caused both by higher activity and higher billing rates. And there is still a challenging market, but a slight improvement from Q2.

And then LINK Denmark, we experienced an improved performance compared to last year, and there is continued high activity and savings and other costs. Also in Denmark, still a challenging market, but a [ slow ] improvement from last quarter.

Then the last architect company, A-lab, mainly exposed towards the private market in Oslo area, seeing more demanding market condition causing reduced net operating revenues. And to compensate for the sales loss, there is unfortunately a number of temporary and permanent layoffs in the quarter. A-lab is delivering a negative result for the quarter, but there is improvements month by month, including from the same quarter last year. As reported last quarter, we see some positive signs of improvement in the market conditions.

In total, in this segment, we see a reduction in the number of full-time equivalents by 52 compared to the same quarter last year, and there was 5.5 temporary layoffs at the end of Q3. And of course, that's full-time equivalents.

International, that's the last one to the right. Net operating revenues increased by 34.6% and the currency effect is estimated positive by NOK 6.5 million, giving 9.4% of this growth, and also a positive calendar effect by NOK 0.7 million. And there is higher activity in both company, Multiconsult Polska and Iterio. And in Iterio, you will also have the effect of the integration of Helm and VA-Resurs.

EBITA for the quarter, NOK 4.8 million compared to NOK 5 million in the same quarter last year, a slight decrease of 4.1%. And there is an increase in Iterio, a small decrease in Multiconsult Polska. Currency effect positive by NOK 0.4 million on EBITA in this segment and also positive signals on a gradual improvement in the market conditions for both companies in this segment.

Then our financial position. Starting the year to the left with a positive cash on NOK 278 million. We have created a positive cash from the operation, including IFRS 16 of NOK 522 million. We have a change in working capital negative on NOK 260 million. This is seasonal fluctuations. And we have used then NOK 143 million for investments. Of this, NOK 62 million on M&A activity and NOK 84 million in increased fixed asset. And in this now the new vessel, Multicat, that is a substantial part of this number.

Cash from financing, minus NOK 279 million, and that is a dividend paid in April, NOK 221 million, and also the purchase of owned shares by NOK 34 million and is used for the employee share ownership program later this year. So a negative cash at the end of the quarter. But going to the right, you will see that the financial position is still strong. We have a long-term debt of NOK 457 million, and the gearing ratio is well below our financial targets of 0.84.

Then the last page from me, the free cash flow. And in this number, the free cash flow is calculated positive from operating activities minus cash flow from investment activities, and we leave out acquisitions in this.

So you see that we have a positive cash flow from operation, NOK 29 million in this quarter. We have used NOK 24.5 million on investment activities, giving then a positive cash of NOK 4.8 million, but the rolling 12 positive on NOK 575 million, and you will see that in the top of the graph.

By that, Grethe, I will hand it back to you.

[Grethe Bergly, executive]

Thank you. This is an overview of the revenue in the -- distributed amongst the 4 business areas. We've had a growth of 17% year-over-year in total, not very big fluctuations here, with the exception of Water and Environment. Water and Environment is our smallest business area. So once you get a [ call-off ] for a large project, it gives a big effect. So basically, this big effect is related to the water supply project that we're doing in Oslo and also some projects on climate adaptation that we are currently doing.

So, to sum it up, our outlook. Overall market outlook remains good and stable. We see that there is a continuous good level of opportunities in the pipeline. Defence, infrastructure and sustainability projects continue to drive demand, but there is a continued uncertainty and increased competition in parts of the market. High volumes of ongoing projects, a diverse portfolio and a high order backlog gives us a solid foundation also going into the fourth quarter. And we have so far in the fourth quarter experienced good sales.

So with that, we complete this session. We open up now for questions. And just a reminder that the next time we see you is in February next year.

[Unknown Executive]

Okay. Please state your name and company.

[Martine Emelie Kverne, analyst]

Martine Kverne from Nordea Markets. I was just wondering if you could give some more color on your expectation for the billing ratio going forward, considering that you also said that you're entering peak production in some projects now and how that will affect the billing ratio like for the next quarters, but also maybe looking a little bit further into the horizon, if possible?

[Grethe Bergly, executive]

I think we have managed over a period now to lift the billing ratio to a higher level. But I think we will find fluctuation between the quarters. So we will -- I think we will continue to fluctuate between 70% and 73% maybe, that's where [ you ] find us.

[Unknown Executive]

Okay. A follow-up from Simen Mortensen is also related to that question. How long are the order backlog supporting these billing ratios?

[Grethe Bergly, executive]

I think this, we have -- we see that we have -- on some of our projects, we have peak performance during the next year. But we always have a long tail on these big projects. And we are also very aware that we are now filling up, like we now just got a NOK 450 million contract coming within -- in defence. So we're going to fill it up. But we have been operating on an order backlog that has been almost too high for us to actually cover. So we are not very concerned.

[Unknown Executive]

And Simen Mortensen, also wondering how has that carried out into Q4? High billing ratio we are talking about.

[Grethe Bergly, executive]

It will continue. That's my answer.

[Martine Emelie Kverne, analyst]

I saw that you had some comments about Sweden and the infrastructure market there. Could you say something more about that and your expectation going forward?

[Ove Haupberg, executive]

Yes. I think we mentioned that we see a slight improvement in that. So we see some signs of improvement, but it will take some time before that will come into our sales. But yes, we see some traction now in the market.

[Unknown Executive]

Okay. Simen Mortensen, [ DNB ]. FTEs are only up 10% [ Q-o-Q ] since Q2. How come the low [ Q-o-Q ] growth from Q2? And how will the low FTE growth impact organic growth going forward?

[Ove Haupberg, executive]

Yes. We see some changes in the different segments in that. It's been a good recruitment into the engineer business, but the architecture business has some -- both temporary and permanent layoffs affecting this number. And yes, and going forward, I think it will be a combination of the number of employees and as Grethe mentioned, the billing ratios. So basically, we have a full capacity on that at the moment. So we are compensating also by that. I think there's a question in the [indiscernible].

[Grethe Bergly, executive]

There's a question...

[Unknown Executive]

Yes. Well, Simen has a question related to this. And may I just take that because you were mentioning the LINK layoffs is mentioned -- the layoffs in LINK. What is the scale and effect of this?

[Ove Haupberg, executive]

Yes. This is to adapt to the market conditions and also to maintain the profit in the company. So basically, this is going by the market conditions, and we need to adapt the business all the time to that.

[Bengt Jonassen, analyst]

Bengt Jonassen from ABG. I just wanted you to talk a little bit about your growth within building and properties given the circumstances for those who's actually building these buildings, which has experienced significant drop in their production levels?

[Grethe Bergly, executive]

And I think it's very important to be aware of the difference between the contractors and the consultants. And we are, and the architects, are the first ones to notice if there's going to be more activity. And we do see now that there are some developers who are starting very slowly to look at projects, and that becomes projects in our books. But the decision from starting the planning work to actually starting the building, that's one of the big milestones, and that's where we're seeing.

At the moment, it still takes longer for a decision to go forward. But sometimes it also creates more work for us because we redo and we try and get within the frames of the investments that the client has.

[Bengt Jonassen, analyst]

Also a final question for me, please. There's been some questions about your comment regarding peak production in some of your projects. Could you maybe give a share of your order backlog that you think is in peak production?

[Grethe Bergly, executive]

Well, we said previously, the larger projects vary between 25% and 30% of the revenue in Norway. And we see that we have -- this tail is going to continue into '25. So we are not at a point where we're seeing that the peak production stops, and that's very important to clarify that. But that's why we're also concerned that we need to fill our books in the next year to take over for the high production that we have during next year.

[Bengt Jonassen, analyst]

You basically have 1 year to fill up for 2026 to compensate for that?

[Grethe Bergly, executive]

For that part, that -- the large projects are in our books. That's right.

[Ove Haupberg, executive]

Yes, you have to mention that it's a long tail on this on to 2030 on many of these projects.

[Unknown Executive]

I don't think there's any more questions then. I'm sorry.

[Magnus Rasmussen, analyst]

Magnus Rasmussen, SEB. There is a put option related to A-lab affecting financial income. Can you explain what that is?

[Ove Haupberg, executive]

Yes. We bought 70% of A-lab in June 2023. And there was an obligation on that to purchase rest of the company in 2026. So it's both a put and a sale option on that. And basically, that was set with a value. And now calculating the value on that obligation, that is now reevaluated and that is a positive effect in our books. So we basically have reduced the value we think we had to pay for rest of the company by NOK 36 million year-to-date.

[Unknown Executive]

Okay. I think you can sum it up.

[Grethe Bergly, executive]

Okay. Then we say thank you from Oslo. Thank you to all of you who are listening in. And we will be back here. I think it's [ 9:15 a.m. ]. Thank you.

[Ove Haupberg, executive]

Thank you.