Good morning, ladies and gentlemen, shareholders, and analysts, and others. My name's Egil Hogna. I'm the CEO of Norconsult, and today we will, for the first time as a listed company, present our third quarter results, 2023. Before we start the presentation, I'd like to remind you about the opportunity to ask questions. You can ask questions in the auditorium, live. You can ask questions on the web, in the chat. Please state your name and company, if you represent a company, and you can also send an email to ir@norconsult.com. Questions will be answered after the presentation, which will be by myself and our CFO, Dag Fladby. I will pre-present the highlights of the quarter, some project updates and market update, and then our CFO will talk more about finances.
On the 10th of November, we were listed on the Oslo Stock Exchange, and I don't think any of you have seen the Oslo Stock Exchange as beautiful as it was that day with the Norconsult banners and lighting designed by our lighting designers. We were listed at NOK 19 per share at a market cap of NOK 5.7 billion. We sold 34% of the company to new shareholders, and we had strong interest from both Norwegian top-tier institutions, as well as a number of international investors. As importantly was that we also generated strong interest from our own employees. The sell-down of shares was by our own employees, but we also had a number of employees who did not have shares from before.
And more than 600 of the new shareholders in the company were employees who did not own shares previously. As of today, we have approximately 4,100 employee shareholders in the company, and they have an ownership of a little bit less than NOK 1 million on average, or roughly one annual salary, which means that we have a uniquely strong ownership amongst our employees. And I think that has been and will remain a very strong feature of the Norconsult culture. For those of you who don't know Norconsult very well, I will just quickly repeat what we are all about. Our purpose is: every day, we improve everyday life. We are the largest design and engineering company in Norway and the leading player in the Nordic region.
We have six reporting segments: the Norwegian head office, Regions, Sweden, Denmark, Renewable Energy, and Technogarden and Digital. More than half of our customers are public, and we work in three main markets: buildings and architecture, infrastructure, energy and industry. However, important to note, our employees work across these segments, so they are not dedicated to any of these segments, but they work based on their technical discipline. And we've had a strong growth over the last five years, and also longer than that, with a steady profitability. At the end of the third quarter, we were 6,200 employees, and we have more than 130 offices, making us a very local player, in addition to having strong network expertise. And then on to the third quarter.
I'm happy to report that, in the third quarter, we saw continued solid performance by the company. Despite uncertainties in the environment, despite an increasing interest rate, we saw a steady performance based on the flexibility of our operations. We had a growth of approximately 12%, in the third quarter, reaching and approximately NOK 1.7 billion of revenues. That was the result of approximately 10% organic growth when you adjust for the calendar effect. For Norconsult, it is important to remember that we do have seasonality. Our costs per month are identical throughout the year, but the revenues depend on the number of working days because we sell by the hour.
Due to that, there will be a seasonality based on the calendar, based on vacation, and so on. For the third quarter, the calendar effect was NOK -27 million , which means that when you look at the EBITDA, which ended at NOK 108 million, you need to add the calendar effect in order to be able to compare with the same quarter last year. When you do that, you will see that our adjusted EBITDA margin ended higher than the same quarter last year with an increase of 0.6%. From 7.2% to 7.8%. In our business, the most important thing is the people. We are a knowledge-based company, and being the industry's most attractive employer is extremely important to us.
At the end of the third quarter, we had 6,200 employees, which is an increase from 5,600 the year before. I talked previously about the importance of ownership among our people, that the most important to attract people to our company and for them to remain, is the quality of our assignments, of our projects for our customers. And the fact that we have extremely interesting projects is perhaps our most important attraction. We also have a culture with a strong degree of autonomy. Compared to our competitors, we are or we have a reputation for being a bit more decentralized, making sure that people are in control of their own work and tasks.
We also have the lowest employee turnover in the industry, which testifies to our strong culture. When it comes to our employee ownership, we have also decided in connection with the IPO, that every employee who was employed in the company on the July 1st this year, and who remains employed one year after the turnover, will receive 2,575 gift shares. We do that in order to make sure that everyone in the company is an owner, because that is a very important part of our culture. During the third quarter, we also received yet another time a number one ranking in the Universum Professional Survey amongst experienced engineers.
And that made us not only the most attractive employer in our industry, but also the number two overall among engineers. During the year, we've also had a number of acquisitions. We have made four acquisitions so far. The two at the bottom, Frank Miljø & Geoteknik in Denmark, and Planråd in Norway, they were executed on the October 1st , so the impact of those two acquisitions, we will see in the fourth quarter. The two at the top, LB Consult and Ingeniørverket, they were executed, LB Consult in January and Ingeniørverket in June. However, even if these acquisitions are important, most of our growth has been and will continue to be organic. And then I'd like to say a few words about our markets and our projects.
All in all, we have experienced a stable market demand throughout the third quarter. That might come as a surprise to some of you, because there has been a lot of talk about the uncertainty in the private part of buildings and architecture. It is correct that the private part of that segment is affected by higher interest rates and higher inflation, and in particular, the uncertainty relating to that. However, for Norconsult, we have a business where we have a large flexibility among the different market segments. We are organized, not based on markets. We are organized based on technical disciplines, which means that it is easy for our people to shift across the market segments when demand is variable.
When it comes to buildings and architecture, we saw a very normal and solid demand from the public part of that market segment, which is the most important to us, and that compensated for the weaker demand from the private part of that segment. When it comes to infrastructure, which is water, transport, and environment, we saw a very much normal demand, and for energy, we saw a higher demand than normal, and industry is also somewhat higher than normal. On average, that means that the total demand we experienced is very normal, and as our CFO will soon talk about, we saw an increase in our order book during the third quarter. I'd like to give you some examples of new projects which we won during the third quarter.
The following projects are different, but they are representative of the new projects which were won during the last three months. One example from renewable energy is Cruachan. Cruachan is a power plant in Scotland with pump turbines. So this is one of the power plants which is also capable of functioning as a battery. So when there is a lot of wind power available or solar energy, they are able to pump water up in the dam to be able to later compensate when the wind is not blowing, for example, to generate more power.
This is the type of power plant, which is now upgraded in order to have a higher power, so that they are able to compensate more than what they have done in the past, when renewable and when other renewable energy sources are not able to deliver power. This is an important project because we expect to see more of these kind of projects also in Norway and Sweden, because these, let's say, physical batteries are very important in the new power system. Another example is Vilundabadet, which is a public bath in Sweden. This is a complete renovation and extension of this public bath. And again, it's typical of the type of projects we are winning from public customers all across the Nordic region.
Another example is Veumbekken, the Veum Stream, close to Fredrikstad in Norway. This is both a climate change measure in order to better handle storm water, in addition to being an urban development project, making the urban area more attractive for the people living there, and also more in tune with nature. Finally, we have an industrial project for Jotun, the paint company in Sandefjord. They are upgrading their binder plant. This is a fairly large project. We have all of the essential technical disciplines, and one example of a Norwegian industry doing very well, also in an environment with a fairly weak currency, which has put the foundation for strong growth for a number of the industrial companies.
With that, I'd like to give the word to our CFO, Dag Fladby, who will tell you more about the finances.
Thank you, Egil. Net results for our net revenue for the third quarter ended at NOK 1.7 billion, which is a 12% increase from last year. And as Egil mentioned, this quarter has one less working day compared with the same quarter last year, meaning that we have a negative calendar effect of NOK -27 million , which affects both the revenue and EBITDA. The organic growth was 10%, driven by increase in FTEs, but also higher average interest billing rates. When it comes to EBITDA, that ended at NOK 108 million, compared with NOK 109 million the year before. And adjusted for calendar effects, our EBITDA margin was 7.8%, compared with 7.2%, an increase in profitability.
The increase is driven by higher average billing rates, but also the growth we have had. Both net revenue and the EBITDA is exactly the same as we reported in our trading update, 24th of October. When it comes to billing ratio, that is always lower in quarter three, and that ended at 71.4%, down from 72.3%, mainly due to substantial senior recruitment in Sweden, but also partly due to weaker market in private building and architecture. Profit after tax ended at NOK 80 million, more or less the same level as last year. Into year-to-date figures, end of quarter three, net revenue is NOK 6.1 billion, up from NOK 5.4 billion, which is an increase of 14%.
And adjusted for negative calendar effects of NOK 34 million, we have an organic growth of 11%, which is consistent with the previous quarters. The drivers behind the growth is basically increased FTEs, but it's also increased average billing rates and also stable billing ratio at 74%. EBITDA year-to-date end of quarter three, NOK 601 million, up from NOK 534 million, an adjusted EBITDA margin taking into account the calendar effect is 10.3%, which is an improvement from 9.9%, the same period last year. Improvements mainly due to increased billing rates, but also due to partly due to increased revenue and stable billing ratios.
Profit after tax ended at NOK 444.2 million, that is up from NOK 394.4 million. We have had stable and healthy margins over many, many years. However, as Egil mentioned in the beginning, it's important to understand the seasonality in our business, because the seasonality or the seasonal variation is significant. So I will walk you through a couple of elements, which is important as an investor to understand. First of all, workdays, it's important to understand the difference between each quarter when you compare. And as we have told you, quarter three this year had one less working day compared with the same quarter last year.
For example, in quarter one, if the Easter vacation is then in quarter two, is always a lot of working days. And that's also why our profitability in first quarter normally is the highest within the year. It's also, when you look at the calendar, is also quite many workdays in quarter three. However, in the Nordics, we take three to four weeks vacation, meaning that our available hours for billing is less in quarter three.
If you go to the billing ratio, upper right, as I mentioned, quarter three is always lower, compared with the other quarters in the year, and that is mainly due to that we usually have a lot of new recruitments in quarter three from university, and this year is also affected by significant recruitment of senior people in Sweden. Another element, which is specific for Norconsult, that is not industry as such, that is something called summertime. In Norconsult, we work one hour less each day from middle May until approximately middle August, meaning that our profitability is lower compared with the industry in both quarter two and also quarter three.
And finally, another important element is, of course, the salary adjustments, salary settlements, since our resources is the people. In Norway, which is the largest market, we do salary settlements with effect from July 1st . In Sweden, it's April 1st , and in Denmark, May 1st . For most of our contracts, we are able to index regulate this, and that is the contracts which last more than 12 months. We are able to index regulate this as from January 1st , meaning six months later. In Sweden and Denmark, it is more common to regulate during the year based on when the contract is signed.
So to sum it up, that means, as you can see from the adjusted EBITDA chart, that our first half has better profitability compared with second half. Then a few words about our reporting segments, and I will start with the two largest one. First, to the left, Norway head office, where we continue with the solid organic growth, over 11%, adjusted for the calendar effects. The drivers behind the growth is increased FTEs, approximately 6%, and also increased average billing rates. When you look at the EBITDA, NOK 35 million, compared with NOK 47 million last year, that is affected by two major items. First of all, it's the calendar effect of NOK -8 million , and secondly, we have also provided, made accruals for adjustments of demanning in the architecture business.
As some of you may remember, we also had that in our outlook, as part of our guiding for quarter three and four. So if you adjust these two, our underlying profitability will be 10.4%, improving them from 10.2% the same quarter last year. Moving to Norway region, still very solid organic growth and also improved profitability when you adjust for the calendar effect. Our net revenue was NOK 509 million, up from NOK 456 million, so 13% organic growth. EBITDA, NOK 43 million, NOK 1 million up. But if you adjust for compared with the quarter three last year, if you adjust for the calendar effect, which is NOK -10 million for this segment, our profitability is 10.2%, up from 9.1%.
Moving to Sweden, significantly solid organic growth as previous quarters. Our organic growth in the quarter is 16%, driven by increased FTEs and also by higher billing rates and slightly higher billing ratios. We have recruited significantly or a substantial amount of senior people in the quarter, and we will also have also done that in quarter four. That is affecting the EBITDA negatively with NOK 10 million, and the calendar effect is also NOK -6 million . So if you adjust this, the EBITDA would be positive instead of comparing with the last year, which was actually negative with NOK 11 million. So we will continue to improve the profitability as we have done the last quarters in Sweden. Denmark, solid growth driven by M&A.
It's no organic growth in Denmark, and that is mainly due to weak market in architecture. Our EBITDA at NOK 15 million, up from NOK 7 million, affected by earn-out settlements. This quarter, we have a net or a repayment of NOK 5 million, while last year, in the same quarter, we had to pay out NOK 8 million. So the difference is NOK 13 million in one-off effects related to that, M&A to earn-outs. When it comes to renewable energy, on the left side of this page, significantly organic growth with 22%, and also solid improvement in margins. The main contributor to the improvement is hydropower and transmission, but we also see improvements in profitability in wind and solar.
Adjusted for calendar effect, our margin in this quarter for renewable energy was 11.8%. Finally, on segment reporting, Technogarden and Digital, net revenue NOK 168 million, more or less flat with the same quarter compared with the same quarter last year. And that is also the same for the EBITDA, which ended at NOK 20 million, NOK 1 million lower than last year, but still quite solid EBITDA margin. And that is mainly driven by Technogarden, which continues to deliver solid margins. While in Digital, as in quarter two, where we have weaker results compared with last year, mainly due to lower utilization of our IT consultants and also more cost used for software upgrade. Then a few words about cash flow. Cash flow is following the seasonality, more or less.
Always in quarter three, it's negative, actually. It's more or less flat. And that is also so with, well, with the third quarter now, our reporting third quarter now. We ended at NOK -21 million in cash flow from operation, compared with NOK -5 million last year. And the main difference or main explanation for that is increased working capital, but in line with our organic order growth we have had. So no changes if you compare net sales versus working capital. In terms of seasonality, fourth quarter is always the highest in terms of cash flow from operation. So, and first quarter is more a normal quarter, but third quarter is the weakest.
Investment activities, cash flow from that, more or less same as last year, slightly lower CapEx, but this varies from quarter to quarter, and also cash flow from finance activities is more or less at the same level. Then to our balance sheet, we have a strong financial position. Our cash and market securities is NOK 1.1 billion at the end of September. And if you look, a few words on our balance sheet, non-current assets consists of goodwill and intangible assets, so approximately NOK 1.1 billion. Then we have right of use assets, which is our lease agreements of NOK 1.6 billion, and then machinery and equipment of NOK 150 million.
Our lease liabilities, that is IFRS 16, our lease contracts, rent contracts for housing and also partly cars and IT. And also, when we look at our leverage without IFRS 16, that is -1.31 at the end of the quarter. We have also, in the appendix, in the presentation, showed this historical figures. These are historical figures without IFRS 16. And why is it so that it's minus? We don't have any interest-bearing debt in our balance sheet, so we are cash positive. In October, we paid out NOK 600 million in extraordinary dividend, so that also needs to be taken into account looking forward. And finally, from my side, a few words about our order book. Our order book is NOK 6.1 billion, end of quarter three.
That is up from NOK 5.8 million in second quarter. It's quite normal. It's around 75% of our LTM net revenue. These two are examples of a typical project, which is one in quarter three. This is an infrastructure project, and this is a public building contract. So with that, I leave the work to Egil to talk about our outlook.
So thank you, Dag. As you just pointed out, we have a strong order book, an order book which increased throughout the quarter, and we have a good order intake. However, one of our colleagues in the corporate management team, he said, "You know, I feel a little bit like having one leg in a bucket of hot water and the other leg in a bucket of cold water." And when he said that, he meant that there are some segments which are weaker than normal, and that is specifically, again, the residential buildings, the private segment, and the private segment for non-residential buildings. That is the cold leg, and it requires flexibility to be able to handle such a situation. But the other leg is hot.
The other leg is hot with energy, with the industry, including a green industry, with the public projects relating to infrastructure. We've seen some examples of that, and on this page we see another example. This is the Lindern school in Oslo. An old building, which is going to be completely rehabilitated to a modern standard. And it is an example of a project which runs across quite some time. We have many of those projects, and it's another example of a typical way of combining sustainability by taking good care of buildings and assets which are existing, at the same time, rehabilitating and putting them in place with a modern standard.
For our fourth quarter, we have informed you about some one-off items in the past. They will be a little bit less than what we previously had expected. The IPO costs, which will be charged to the bottom line, but not to the adjusted EBITDA, are expected to be approximately NOK 60 million in the fourth quarter. We also have the gift shares to the employees, which will be charged to the bottom line, even though it's not a cash cost. Then finally, we have a somewhat higher recruitment of senior people in Sweden, which will affect the Swedish results, but it's a fairly low impact.
So all in all, there is a balancing challenge when it comes to balancing the order book and the staffing on assignments, but the overall demand remains good. So, with that, I think it's time for questions. And, yeah, Stig?
Yeah.
You will handle the difficult ones, and then I'll do the simple ones.
Okay.
Mm-hmm. So I think we'll start with questions from the audience here in the auditorium, and then we will progress with the questions we have received online. Yes, Johan.
Thank you. Johan Ström from Carnegie. Two questions from my side. If we start with the billing ratio, how much of the year-over-year decline was due to the growth initiatives with the recruitments? That's my first question. And then secondly, Sweden, you're growing fast. So is it possible to quantify the split between organic and inorganic growth in Sweden?
I can start with the first one. The organic growth in the quarter was 16%. I will say it's organic. See, even though we recruit senior, senior people, that is organic because it's not an M&A. It's actually less risky to, to actually employ them. So that is pure organic growth, 16%. When it comes to the effect on billing ratio, it's approximately, approximately 0.3.
Thank you.
Yes, Simen?
You have two M&As in the quarter, it seems. Can you say something about the valuation and size of these?
Yeah. So, we have two M&As, which were implemented on the October 1st . So it means that they have not affected the third quarter results, but they will have a small impact on the fourth quarter result. And...
Yeah, the one, Ingeniørverket, which we acquired July 1st , it's minor effect, yeah, for this quarter. It's a small acquisition, and maybe it's NOK 2 million in EBITDA for the quarter.
Mm-hmm. And the remaining two are also small. They are single-digit NOK million acquisitions. So our most important growth remains organic, also for what will have an impact on the fourth quarter. Yes.
Martine Kanne from Nordea. Just wondering about the development for the recruitment in Sweden. You said this will going to normalize in terms of the billing ratio around the beginning of 2024. Do you still see this as going as normal? And also, how much costs do you expect it to be less than guided or more or less similar level?
Yeah, maybe, you can do the cost, and then I can have a general comment first. In Sweden, we have had a, or we have a remarkably strong position amongst engineers in our industry. So that has been very important for us in terms of our growth up until now. We have had such a big interest that we have decided that, you know, we will continue to hire in Sweden. We expect to continue to grow, but at a somewhat lower pace than what we have done during the second half of this year. Yes, there has been some one-time costs so far, and Dag, for the next year?
We guided in total for second half of 2023 of NOK 25 million. What we see is that that will be less because they are more up to speed in terms of billing. So, guidance for quarter four will be less than NOK 10 million.
Thank you.
Yes.
It's Petter Billing, SEB. Given the developments in private residential real estate markets, are you seeing any effects on billing rates, prices in other segments from that?
The private residential market is always the market where there has been, I would argue, the strongest price competition, because in general, the engineering in that segment is a bit simpler than what it is in many other projects. So we also see competition from a number of smaller companies, for example. There isn't really that much, let's say, translation from that segment into the other segments, because it is a different type of competition, different competitors, even if some are in both segments, like we are. So, yeah, there continues to be a difference there.
Then we also have some questions from the web, from Johan Ström in Carnegie. And the first one is: Given the earn-out revaluation in Denmark, is this an indicator that that business is not delivering as expected?
I would say it's both, because last year we had to pay out more, so that, acquisition went, even better than we anticipated. And this year it's a reverse of NOK 5 million, and that is, the architectural business, which we acquired in 2021. That has performed slightly lower than anticipated due to weak market.
And, this-
Just before you continue, one additional comment relating to that question. I think many of the people listening to the presentation know that the architecture segment has been more challenged this year, in particular in Norway and Denmark. But I would also like to highlight that we have sent out two press releases during the last two months. One about a large project in Denmark, and one about a, let's say, preliminary win of Geneva Airport, which are large and fairly important projects affecting our architects. So, the architectural segment has also an you know, several positive developments.
Thank you, Egil. The second question from Johan is: How has pricing environment developed during Q3, and are you happy with the pricing level in your order book?
Well, I can say that we are happy with the pricing level in our order book. I would like to remind everyone that, when it comes to pricing, there is an annual adjustment for multi-year contracts, which is typically based on the average salary increase of our industry. That's the most common index regulating mechanism. There is competition for new projects, yes, and the competition, as was previously asked, is higher in the buildings and property segment. There is always competition in all segments, but there is a tough competition in these segments every year.
Thank you. And the third question from Johan is: Are you planning to continue to grow the number of FTEs at a similar pace in 2024, as has been this far in 2023?
We are planning to continue to grow in 2024. However, that does not mean that all of the growth decisions for next year have been made yet. Clearly, we have the opportunity to adjust that during the year. So whether the growth will be as high next year as it has been this year, remains to be seen.
Thank you. I think that concluded all of the questions that we have on the webcast.
Any more questions from the forum? Yes, Leon.
Squeeze. It's a follow-up on the Simen's question. On the acquisitions that you've done, I think you showed four on the slide. What's the number of FTEs in total for those four transactions?
So let me go back and, just-
Approximately
... show you.
Fifty.
Yeah, so it's LB Consult in January was 50. Ingeniørverket in June was 26. Frank Miljø & Geoteknik was 17, and Planråd was four.
Great.
So close, close to 100.
Thank you.
Okay. No further questions? Then, we can finish here with simply our purpose. Every day, we improve everyday life. Thank you, and I look forward to seeing you next time for the fourth quarter presentation.
Thank you.