Multiconsult ASA

OSE:MULTI

Earnings Call Transcript 2022-Q4

[Grethe Bergly, executive]

Good morning, and welcome to this presentation of the Results for the Fourth Quarter and the Year 2022 for Multiconsult. My name is Grethe Bergly, I'm the CEO and with me today is also our CFO, Ove Haupberg who will give you some more detailed insight into the figures.

Multiconsult's vision is bridging the past and the future. And in a lot of ways 2022 is a proof of how we are part of transforming the society to a more green and sustainable society, and we are experiencing how our expertise of the things we learned in the past is also useful for the project and the challenges facing us going forward.

The KPIs for 2022, you can see here is both for the fourth quarter and the full year. And as you can see, there is progress in all the figures with an exception of the billing ratio who is at roughly the same level as 2021. It's a good year. It's a solid result and it has also then resulted in an earnings per share of NOK 11.06.

We leave the quarter with a good overall performance and improved earnings. We have a sustainable profitability level over time now. We have an all-time high order intake and we have also a record high order backlog.

The results are somewhat affected by LINK arkitektur. And Ove will give you more insight into the details on what has been going on in LINK in the last year. We have a strong cash flow and we have refinanced, so we also go into 2023 with a robust financial position.

We have strengthened our market position through acquisitions and the sales that we have done in 2022 and the proposal for dividend is NOK 9 per share.

Looking in more detail at the sales, you can see there's been a significant increase in the sales compared to the fourth quarter in 2021. Just a reminder, that there are some fluctuations between the quarters, but anyhow this is a very strong sales in this quarter.

We have seen some very good projects coming in with regards to both hydropower and electrification in Zambia and Tanzania. We are also assigned a new industrial project for Wacker Chemicals and we have been awarded a frame agreement for Nye Veier, a Norwegian road public company.

We have a record high sales, strong order backlog, a good diversification when it comes to the 4 business areas that we operate in, and we also see that there's a growing market for -- with respect to projects on sustainability and sustainable transformation.

We are well positioned for the projects that have been awarded finance for -- through the Norwegian National Budget for 2023 and the only weakness that we see is that there is some more uncertainty with respect to housing and real estate, and this affects our architectural business mainly.

On ESG topics, we have developed a digital tool for tenants wanting to look at the most efficient use of their facilities. It's an area that we believe will be growing. Things are changing in the way we use our offices and we see that this is an important tool going forward.

We are also a partner in an innovation project with respect to Green HVAC, again to make sure that energy-efficient buildings can be developed. In Multiconsult we have a tradition of always giving a gift to a voluntary organization, and this year that gift was given to Matsentralen in Norway.

We also see that we have a high level of employee satisfaction in the surveys that we do on a regular basis. We are 3,353 employees at the end of the year. And we do see that we continue to have a high sick leave in the fourth quarter, in line with the level that we saw in 2021, but it is also in line with what we see in society in general in Norway.

We have acquired one company, Roar Jorgensen who is now 100% owned by Multiconsult. And we also see that we continue to have a strong position as a preferred employer, both among students and professionals. And we've made one adjustment to our organization where the segment Energy is now included in the segments Oslo and the segments Norway.

Excellence is a part of our strategy and comparing ourselves with others is always a measure of how we're doing. So we are also, of course, very pleased that one of our projects has been nominated as for the Klimapris in 2022. And also one project in Denmark has been given the Municipality Architecture Award for the transformation of one of the areas in Aalborg.

And with this I hand you over to Ove.

[Ove Haupberg, executive]

Thank you, Grethe, and Good morning. My name is Ove Haupberg. I'm the CFO. And I joined Multiconsult 1st September last year.

We start with the fourth quarter and we saw net operating revenue at NOK 1.127 billion. That is an increase of 5.5% from the same quarter last year. And this quarter all the growth is organic. The purchase of Roar Jorgensen will be consolidated from first quarter 2023.

The drivers behind this growth is illustrated in the graphics underneath and that is the higher number of employees, a growth by 153 people, and we also have higher billing rates. There is no calendar effect in this quarter.

We have commented on the billing ratio, that is somewhat weakened by 0.2 percentage points, but we are happy with this level since we also have been faced with a higher sick -- short-term sick leave this quarter. The main driver for the change is higher bid activity in LINK arkitektur in Norway and also in Multiconsult Polska.

EBITDA is solid, NOK 96.8 million. That is an increase of 6.3% from last year or NOK 5.8 million. And also we have strengthened this in percentage, so it increased from 8.5% to 8.6%.

The order intake, a record high, NOK 1.559 billion for the fourth quarter, an increase of 36.5% since 2021.

On the other OpEx, a small change from 2021, 0.1%, and that is the business back to more normal activity after COVID-19 with more trading activity, somewhat more travels and we also have some other effects that I'll comment for the year.

On the profit for this period that is NOK 75.6 million, an increase of 21% since 2021 and the main driver for this change is the impact -- the results from the partly owned company Norplan Tanzania that gives a solid effect for this quarter.

And then looking at the full year 2022, a record high number here. We see we have a growth in net revenue of 10.1% to a level that is close to NOK 4.2 billion. The drivers behind this is organic at 4.4% and then we have the effect of 1 more day -- calendar day, 0.4%, and this insurance settlement of the Board cut 0.4%.

The rest is performed M&A activity in 2021 and 2022. That is the companies: Erichsen & Horgen, Malnes & Endresen, Nordland Teknikk and Smidt & Ingebrigtsen.

We also have illustrated here in the graphics these drivers, and you can see again the high number of employees. We have a higher billing ratio that is increased by 0.2 percentage points and we have solid and good billing rates. So we deliver, we have to say, a record strong EBITDA for 2022, NOK 408.5 million, an increase of 16.5 percentage since 2021 and a margin of 9.8%.

On the order intake close to NOK 5.2 billion for the year and that gives us this very strong and solid and record high order backlog at the end of the year on NOK 3.6 billion.

Other OpEx, an increase from last year, 0.6 percentage point up. We have commented some on this on training and travel, but also the merging activity with more offices and also increasing in the office rates, besides then increased insurance and electricity costs in the general market has affected us.

The profit for the period, NOK 303 million and that is an increase from last year on close to NOK 70 million. And earnings per share, NOK 11.06. That is an increase from last year on NOK 2.39. So a very good result there.

Then highlights that shows the development over time. So we see these results per quarter and the fourth quarter is highlighted in orange. We start top left with net revenue. You can see an increase from last year on 5.5 percentage points.

The difference between the quarter is, of course, affected by the available number of working days. The drivers now has been a somewhat weakened billing ratio, but higher number of employees and a higher billing rate has affected this increase that we see down left with 0.1% from 8.5% to 8.6% in EBITA percentage year-over-year.

And also I think worth commenting is that this is now the 12th quarter in a row that Multiconsult delivered solid results after turnaround next level in 2019.

So the different segments. Grethe has commented that we have included the former segment Energy in Region Oslo and Region Norway. And also we have changed historical numbers. They are restated. And all these numbers are for the full year 2022.

Starting to the left, Oslo. Very strong increase in net revenue, 15.1% or NOK 216 million. Also a strength in the EBITA margin to 13.6%. That is an increase of 3.3% and we also delivered NOK 224 million in this segment or NOK 76 million more than last year. And this is, of course, then driven by the billing ratio and a higher billing rate. And also small reminding you that we also have our larger projects part of the results here in this district.

Also for the rest of Norway, we see in this Region Norway that we have increased net revenue close to NOK 180 million or a growth of 11.5% and also strong margins on 11.1%. And that is then, of course, due to the higher billing ratio and also somewhat more employees compared to 2021.

We commented on Q3 on the insurance settlement on Board cut, but year-to-date effect on that is close to 0 due to the loss of revenue from the Board. And also this region is affected by the higher OpEx and we already have commented on the drivers underneath.

Then Grethe said I should give some comments on LINK. We have a weak result on LINK and we are not satisfied with this. As a difference between the markets, in Sweden there has been a significant improvement that has helped our winning of these 2 larger hospital contracts that is Vasteras and Vaxjo where we have reported to the stock exchange. And we have then a large change in the organization structure and improved operation that has made this possible.

In LINK Denmark the results are in line with last year, but the order backlog that is good, is a bit more uncertain going into this new-year. Norway has been faced with a weaker performance in 2022, especially at the end of the year. And due to this we have put in place a performance improvement program in line with this next level that has performed in Multiconsult from 2019, its focused both on cost and to increase the income. And a challenging market in part of the country has made us to have some few temporary layoffs now in Q1 2023.

Then the last segment, International, solid revenue and a good margin, somewhat stronger from Polska, a bit weaker from Iterio, but not very significant effects. The margin is influenced by somewhat higher office costs in Iterio, and we have commented on the billing ratio driven by bid activity in Polska.

Then the financial position, starting to the left with the cash flow. So from a starting point, at the beginning of the year we had a cash situation, a cash pool on NOK 156 million. We have created from the business, NOK 533 million in cash during the year and also freed up on the focus on working capital, another NOK 28 million.

Then we have done some investments in ordinary business and the purchase of Roar Jorgensen in particular, that is NOK 94 million and we have paid out the dividend and we have settled short-term interest-bearing liabilities, that is short-term debt on total NOK 512 million. But this makes us to be still cash positive at the end of the year, ending at, as you can see, NOK 115 million.

Also illustrated to the right that we have reduced the net debt situation by NOK 114 million during the year. So we are basically then also cash positive. We have a positive cash pool and no debt at the end of the year.

And to strengthen this financial position we also have renegotiated our loan agreement with Nordea. We have no 3 lines until March 2026 and it's composed in 3 parts. We have this multicurrency cash pool overdraft facility that is with all companies in the group with exception of Poland and on top of that we have this revolver of NOK 300 million and non-committed accordion with fixed terms of NOK 500 million. So a total that is about NOK 1.1 billion.

And then to sum up, the dividend. Due to very solid financial results, strong balance sheet and then a solid loan agreement with this bank, we are able to pay out NOK 9 million. So the Board will propose to general assembly to pay out NOK 9 per share. That is an increase from NOK 6 last year and a payout ratio of 82%.

So by that Grethe, I hand it back to you.

[Grethe Bergly, executive]

Thank you. Looking at the overall operating revenues within the 4 business areas. You can see there's been a good increase in 3 of them and the same level on the smallest one with Water & Environment. So it just confirms our statement on a diversified and solid order backlog and sales.

Taking a more deep dive into the business area, Water & Environment. This is our smallest business area, but it's also an area that we expect that will grow with the challenges that we see with climate changes and the following climate risks that comes as a consequence of this.

Typical projects and objects that we work on in this area is water treatment. It is wastewater treatment plants, it's a natural hazards and climate adaption, environmental and nature and landscape and urban planning.

Looking at some of the projects that we're involved with this. It's the water treatment and distribution for the capital of Norway, Oslo. It's a huge project. When it's finished, you'll see some rather small buildings at the top, but underneath, that's where it's all happening. And here you can see the scale of it. And this is where the whole process plant for the water treatment will be positioned.

We have been involved in this project for a number of years and the last contract on this is an alliance contract. And again, a business model that we believe in and we are pleased that the client has given us the trust in entering into this one.

Here's another example of a wastewater treatment plant. Here they are decommissioning the existing plant. We have designed a new one and also looking at the wastewater, how it's going to be transported in pipeline. So a very multidisciplinary competence that we have in the company.

This is a natural hazard and climate adaption. Again, flooding, climate changes means that we need new measures of preventing damage in the areas where these big rivers are flowing. Again, an important area, a growth area and an area where Multiconsult has a lot of experience.

And this one, again same theme, quick clay. Norway has a very special -- it's a very special challenge in Norway with quick clay, and we had a huge disaster a few years back. It has meant that this has been lifted much higher on the agenda to map out the areas where there is this risk and also looking at preventive measures on infrastructure. We are involved in a number of projects of this kind in Norway.

And landscape and urban planning, one contract we're on is a new road that's being constructed and the client here has an ambition that when they take land for new roads they are going to restore other areas to make sure that there's no loss of biodiversity.

And I'm sure a lot of you have heard the news also from the United Nations where there is a goal globally to restore 30% of the nature that has been built on. So again, we are well positioned with lots of skills in this kind of transformations.

Looking forward, our view is that the overall market outlook is generally strong in all the business areas that we are operating in. The only exception from this is housing and retail. And again, it's mainly our architectural business that will be affected by this.

We see that we have a lot of opportunities in the pipeline. We leave this year with a very solid backlog, which gives us a very strong foundation going forward. We've had good sales also so far at the beginning of the 2023 and we are well positioned for the larger project that has been allocated finances in the Norwegian National Budget.

And last, I would like to mention how we are very well positioned with experience in the growing market for long-term and sustainable solutions.

Just a glimpse at the calendar looking forward, the Annual Report will be out in the middle of March. There is an Annual General Meeting in April and we will come with our first quarter of 2023 in May. So we look forward to seeing you then.

And then we open up for questions.

[Unknown Executive]

Thank you, Grethe. And we have 2 questions translated from the Norwegian webcast earlier.

And one question was about the cash flow. Can you outline a bit on the strong cash flow for the quarter? And is there a onetime effect or similar that we need to account for?

[Ove Haupberg, executive]

Yes. And the answer that we gave in Norwegian is that, yes, we have a good underlying operation. But on top of that we have been focused on improving the working capital. So that gives close to NOK 200 million for the quarter in free cash.

[Unknown Executive]

Thank you. And then there was a question regarding the other OpEx development per employee, and the fact that it's a bit higher than the increased inflation. Can you outline? And moreover, second question regarding this is at what level can we expect the OpEx ratio to be going forward?

[Grethe Bergly, executive]

We have previously said that we are still trying to sort of sort out the level of this as COVID gave us unnaturally low levels. We are aiming at keeping it somewhere between 17% and 18% and there will be fluctuations. And again, we are hit by the same inflation and the uncertainty related to that.

But we are on a very tight cost control regime. And we are also, of course now adjusting our office facilities and we're looking at other ways of trying to compensate for the general inflation.

[Unknown Executive]

Thank you. And then that's -- I have no further questions from the webcast. So I think you can sum it up.

[Grethe Bergly, executive]

Okay. Then we say thank you and have a nice day.

[Ove Haupberg, executive]

Thank you.